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 September 30, 1997 Commission file number:
0-3777
Petrie Stores Liquidating Trust
(Exact Name of Registrant as Specified in Its Charter)
New York 22-6679945
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
150 Meadowlands Parkway
Secaucus, New Jersey 07094
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (201) 422-0496
Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report:
70 Enterprise Avenue
Secaucus, New Jersey 07094
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: As of November
13, 1997, there were 52,350,238 Units of Beneficial Interest outstanding.
PETRIE STORES LIQUIDATING TRUST
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Statements of Net Assets in Liquidation -
September 30, 1997 (Unaudited) and
December 31, 1996......................................... 2
Statements of Changes in Net Assets in
Liquidation (Unaudited) - For the Three
Months ended September 30, 1997 and
1996, the Nine Months ended September 30,
1997 and the Period from January 23, 1996 to
September 30, 1996........................................ 3
Notes to Financial Statements............................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................14
Item 6. Exhibits and Reports on Form 8-K..............................14
PETRIE STORES LIQUIDATING TRUST
STATEMENTS OF NET ASSETS IN LIQUIDATION
(Unaudited)
(In thousands)
September 30, December 31,
1997 1996
---------------- ------------
Assets
Cash and cash equivalents $ 819 $ 229
U.S. Treasury Obligations 99,012 56,943
U.S. Treasury Obligations held in escrow 37,500 67,500
Investments in common stock (including
3,493,450 shares of Toys "R" Us common
stock held in escrow) 143,719 151,035
------- -------
Total assets 281,050 275,707
Liabilities
Accrued expenses and other liabilities 46,851 52,378
------- -------
Total liabilities 46,851 52,378
Commitments and contingencies
Net assets in liquidation $234,199 $223,329
======== ========
See accompanying notes.
PETRIE STORES LIQUIDATING TRUST
STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
(Unaudited)
(In thousands, except per unit amounts)
<TABLE>
<CAPTION>
Period from
Three Months Three Months Nine Months January 23,
Ended Ended Ended 1996 to
September 30, September 30, September 30, September 30,
------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Net assets in liquidation
at beginning of period $238,932 $225,070 $223,329 $202,594
-------- -------- -------- --------
Investment income 1,910 1,760 6,143 4,742
Corporate overhead (8,518) (854) (17,204) (18,645)
Income tax refund 101 - 4,066 -
Net realized and
unrealized gain on
investments 1,774 3,160 17,865 40,445
-------- -------- -------- --------
Net income (loss) for the
period (4,733) 4,066 10,870 26,542
---------- -------- --------- ---------
Net assets in liquidation
at end of period $234,199 $229,136 $234,199 $229,136
======== ======== ======== ========
Net income (loss) per
unit $ (.09) $ .08 $ .21 $ .51
========== ========== ========== ==========
Weighted average num
ber of units 52,350 52,350 52,350 52,350
========= ========= ========= ========
See accompanying notes.
</TABLE>
PETRIE STORES LIQUIDATING TRUST
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997
1. Interim Reporting
The accompanying unaudited financial statements of Petrie Stores
Liquidating Trust (the "Liquidating Trust") 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 the Liquidating Trust, all
adjust ments (consisting of only normal recurring accruals) considered
necessary for a fair presentation have been included. Results for the nine
months ended September 30, 1997 are not necessarily indicative of the
results that may be expected for the current fiscal year. For further
information, reference is made to the financial statements and footnotes
thereto included in the Liquidating Trust's Annual Report on Form 10-K for
the period ended December 31, 1996.
2. Basis of Presentation
The Liquidating Trust is the successor to Petrie Stores
Corporation ("Petrie"). Prior to December 9, 1994, Petrie operated a chain
of retail stores that specialized in women's apparel and were located
throughout the United States (including Puerto Rico and the U.S. Virgin
Islands). At Petrie's Annual Meeting of Shareholders, held on December 6,
1994, Petrie's shareholders approved the sale of Petrie's retail operations
(the "Sale"). At Petrie's Reconvened Annual Meeting of Shareholders, held
on January 24, 1995, Petrie's shareholders approved (i) an exchange of
shares of Toys "R" Us, Inc. ("Toys 'R' Us") common stock ("Toys Common
Stock") with Toys "R" Us (Note 3) and (ii) the liquidation and dissolution
of Petrie pursuant to a plan of liquidation and dissolution (the "Plan of
Liquidation").
Pursuant to the Plan of Liquidation and the Agreement and
Declaration of Trust, dated as of December 6, 1995 (the "Liquidating Trust
Agreement"), between Petrie and the trustees named therein (the
"Liquidating Trustees"), effective as of the close of business on January
22, 1996 (the "Succession Date"), Petrie transferred its remaining assets
(then consisting of approximately $131 million in cash and cash equivalents
and 5,055,576 shares of Toys Common Stock) to, and its remaining fixed and
contingent liabilities were assumed by (the "Succession"), the Liquidating
Trust. The assets of the Liquidating Trust are subject to various
contingent liabilities, the status of which is presently unclear (Note 4),
as well as the terms of a letter agreement with Toys "R" Us (Note 3)
pursuant to which the Liquidating Trust is required to retain a substantial
portion of its assets to provide for its liabilities. Accordingly, the
Liquidating Trustees have determined not to approve any distributions of
Toys Common Stock or other assets of the Liquidating Trust to beneficiaries
of the Liquidating Trust until the status of such contingent liabilities is
clarified.
Beginning with the period ended December 31, 1996, the Liquidating
Trust adopted the calendar year as its fiscal year. A liquidation basis of
accounting was implemented as of January 28, 1995. The statements of net
assets in liquidation at September 30, 1997 and December 31, 1996 do not
distinguish between current and long-term balances as would be reflected if
such statements had been prepared on a going-concern basis.
At the Succession Date, and as a result of the Succession, Petrie
ceased to be a taxable entity. The Liquidating Trust is a complete
pass-through entity for federal income taxes and, accordingly, is not
itself subject to income tax. Instead, each holder of units of beneficial
interest in the Liquidating Trust is required to take into account, in
accordance with such holder's method of accounting, his pro rata share of
the Liquidating Trust's items of income, gain, loss, deduction or credit,
regardless of the amount or timing of distributions to such holder.
3. Investments in Common Stock
At September 30, 1997, the Liquidating Trust's investments in
common stock consist of 4,055,576 shares, which are carried at market
value, of Toys "R" Us, which operates a chain of specialty retail stores
principally engaged in the sale of toys and children's clothing in the
United States and abroad.
On January 24, 1995, pursuant to the terms of an Acquisition
Agreement dated as of April 20, 1994, and amended as of May 10, 1994 (the
"Toys Acquisition Agreement"), between Petrie and Toys "R" Us, Petrie
exchanged (the "Exchange") with Toys "R" Us all of its shares of Toys
Common Stock (39,853,403 shares), plus $165 million in cash, for 42,076,420
shares of Toys Common Stock (approxi mately 15.0% of the outstanding Toys
Common Stock at January 28, 1995).
Simultaneously with the closing of the Exchange, Petrie placed
3,493,450 shares of its Toys Common Stock into 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 obligations of the Liquidating Trust, as successor to Petrie, to
Toys "R" Us arising (i) under (x) the Toys Acquisition Agreement, (y) the
Seller Indemnification Agreement, dated as of December 9, 1994, among
Petrie, Toys "R" Us, Petrie Retail, Inc. ("Petrie Retail"), PS Stores
Acquisition Corp. ("PS Stores"), and certain subsidiaries of PS Stores and
(z) the Retail Operations Stock Purchase Agreement, dated as of August 23,
1994 and amended on November 3, 1994 (the "Retail Operations Stock Purchase
Agreement"), between Petrie and PS Stores, and (ii) otherwise.
The assets of the Liquidating Trust are subject to the terms of a
letter agreement, dated as of January 24, 1995, pursuant to which Petrie
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 (using the per share price on January 20, 1995) of at least twice the
Reserved Amount, to secure the payment of Petrie's contingent liabilities
(Note 4). Pursuant to the terms of the letter agreement, the Liquidating
Trust, as successor to Petrie, is presently required to retain
substantially all of its assets.
Petrie had also placed 3,200,082 shares of 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"). On
December 19, 1995, the Amended and Restated Cash Collateral Agreement was
further amended and restated and, pursuant thereto, the 3,200,082 shares of
Toys Common Stock held in the Collateral Account were released to Petrie in
exchange for Petrie's deposit of $67.5 million in U.S. Treasury obligations
into the Collateral Account. In connection with the previously disclosed
settlement of a dispute with the Internal Revenue Service (the "IRS"), on
May 20, 1997, approximately $32 million in U.S. Treasury obligations held
in the Collateral Account were transferred to the Liquidating Trust, and
the Liquidating Trust is now required to maintain at least $37.5 million in
the Collateral Account. The U.S. Treasury obligations currently held in the
Collateral Account pursuant to the Amended and Restated Cash Collateral
Agreement secure the payment of certain obligations of the Liquidating
Trust, as successor to Petrie, to PS Stores arising under (i) the Retail
Operations Stock Purchase Agreement and (ii) the Cross-Indemnification and
Procedure Agreement, dated as of December 9, 1994, between Petrie and PS
Stores (Note 4).
As previously disclosed, at various times between January 23, 1997
and February 5, 1997, the Liquidating Trust sold an aggregate of 1,000,000
shares of Toys Common Stock for approximately $25.5 million in proceeds.
The price per share of Toys Common Stock, as reported on the New
York Stock Exchange Composite Tape, decreased from $29-7/8 per share at
December 31, 1996 to $28 per share at March 31, 1997 and then increased to
$35 per share at June 30, 1997 and to 35-7/16 at September 30, 1997. As of
November 13, 1997, the price per share of Toys Common Stock was $34-1/2.
4. Commitments and Contingencies
As successor to Petrie, the Liquidating Trust has certain
contingent liabilities with respect to existing or potential claims,
lawsuits and other proceedings, which primarily relate to (i) guarantees of
certain retail store leases, expiring at various times through 2011 to
which Petrie Retail or an affiliate thereof is a party, and certain other
liabilities that were assumed by Petrie Retail (but as to which Petrie's
liability has not been released) in connection with the Sale (collectively,
the "Assumed Obligations") to the extent that Petrie Retail fails to
perform; and (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"). The Liquidating Trust accrues liabilities when it is probable that
future costs will be incurred and when such costs can be reasonably
estimated. Such accruals are based on developments to date, the Liquidating
Trust's estimates of the outcome of these matters and its experience
(including that of its predecessor, Petrie) in contesting, litigating and
settling matters. At September 30, 1997 and December 31, 1996, the
Liquidating Trust, as successor to Petrie, had accrued approximately $45
million and $38 million, respectively, for contingent liabilities. As the
scope of these liabilities becomes better defined, there may be changes in
the estimates of future costs, which could have a material effect on the
Liquidating Trust's financial condition, liquidity and future ability to
make liquidating distributions.
On October 12, 1995, Petrie Retail filed a voluntary petition for
reorganization relief under Chapter 11 of the United States Bankruptcy Code
with the U.S. Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court"). As a result of its bankruptcy filing, Petrie Retail
has failed to perform or make payment with respect to certain of the
Assumed Obligations, including, but not limited to, Assumed Obligations
relating to store leases to which Petrie Retail or an affiliate thereof is
a party, state and federal taxes, employment agreements, insurance premiums
and certain other claims and contractual obligations. Accordingly, the
Liquidating Trust has been and may continue to be required to make payments
in respect of certain of the Assumed Obligations. The Liquidating Trust
intends to file claims in the Bankruptcy Court against Petrie Retail in
respect of any such payments. On September 24, 1997, the Bankruptcy Court
fixed December 29, 1997 as the last date by which claims may be filed
against Petrie Retail in the Bankruptcy Court. No assurance can be given,
however, as to the timing or probability of the collection of the
Liquidating Trust's claims against Petrie Retail or the amount of the
distribution that Petrie Retail will make to its creditors asserting
unsecured claims, if any. Accordingly, no amounts have been accrued as
receivables for potential reimbursement or recoveries from Petrie Retail.
Since filing its petition for bankruptcy protection, Petrie Retail
has, according to its filings with the Bankruptcy Court, closed more than
840 of the roughly 1600 stores it operated prior to filing the petition,
including approximately 230 stores closed since January 1, 1997. According
to such filings, of the more than 840 closed stores, approximately 530
relate to rejected leases, approximately 50 relate to leases that were
assigned to third party retailers and the remainder of the leases generally
have expired or were terminated by mutual landlord and tenant consent.
After taking into account settlements and releases obtained from landlords,
the Liquidating Trust, as successor to Petrie, remains a guarantor of 58 of
the re jected leases and its aggregate guarantee liability with respect to
these leases, without giving effect to any present value discount and
assuming the landlord in each case is unable to mitigate its damages, is
approxi mately $27 million, which amount is included in the Liquidating
Trust's accrued expenses and other liabili ties at September 30, 1997.
On November 10, 1997, Petrie Retail filed a motion with the
Bankruptcy Court to conduct going- out-of-business sales at 96 stores and,
prior to such date, informed the Liquidating Trust that it has vacated and
intends to close one of its headquarters buildings. Of the 96 stores
included in the motion, the Liquidating Trust, as successor to Petrie, is a
guarantor of 19 of the leases and is also a guarantor of the headquarters
building lease. If Petrie Retail were to close all of the stores subject to
such leases and the headquarters building, the Liquidating Trust's
aggregate guarantee liability on these leases would be approximately $17
million, which amount has been included in the Liquidating Trust's accrued
expenses and other liabilities at September 30, 1997.
According to Petrie Retail's filings with the Bankruptcy Court,
Petrie Retail is now operating approximately 760 stores (including the 96
stores described above). No assurance can be given that Petrie Retail will
not close additional stores or as to the number of additional stores to be
closed by Petrie Retail with respect to which the Liquidating Trust has
guarantee liability. If Petrie Retail were to close every store for which
the Liquidating Trust believes it has liability as a lease guarantor
(giving effect to all the lease guarantee releases executed by landlords)
and every store for which the Liquidating Trust disputes its guarantor
liability (as more fully discussed in the following paragraph), assuming
that no mitigation or defense were successful, the Liquidating Trust's
theoretical exposure relating to such leases, without giving effect to any
present value discount, would be approximately $78 million. Such exposure
includes the approximately $27 million in aggregate liability relating to
the rejected leases described above and the $17 million in aggregate
liability relating to the going-out-of-business sales and headquarters
building lease described above. With respect to the approximately $34
million of liability relating to leases that have not yet expired or been
assigned, rejected or terminated (and excluding the leases which are the
subject of the November 10, 1997 Bankruptcy Court motion and the
headquarters lease), approximately $1 million is due in the remainder of
the year ending December 31, 1997, approximately $7 million is due in 1998,
approximately $7 million is due in 1999, approximately $6 million is due in
2000 and approximately $13 million is due thereafter.
The Liquidating Trust, on the one hand, and Petrie Retail and its
affiliates, on the other, are in dispute as to whether the Liquidating
Trust, as successor to Petrie, or Petrie Retail and its affiliates are
responsible as guarantor of 43 leases. The Liquidating Trust has settled
its liability with the landlords (but not Petrie Retail and its affiliates)
with respect to 21 of these leases. The following amounts, which have been
calculated using the same assumptions set forth above and without giving
effect to any present value discount, have been included in the Liquidating
Trust's lease liability calculations in the preceding paragraphs with
respect to the disputed leases: (i) the $27 million in liability with
respect to rejected leases includes $8 million in guarantee liability with
respect to the disputed leases; (ii) the $17 million in liability with
respect to the stores where Petrie Retail is conducting
going-out-of-business sales and the headquarters building lease includes $2
million in guarantee liability with respect to the disputed leases; and
(iii) the $78 million in maximum theoretical exposure includes $16 million
with respect to 22 disputed leases where the Liquidating Trust has not
settled its liability with the landlord.
Landlords under leases relating to 135 stores operated by Petrie
Retail or an affiliate thereof have alleged in a complaint that the
Liquidating Trust, as successor to Petrie, has liability as a guarantor of
certain leases notwithstanding Petrie's receipt from these landlords of
releases of guarantees with respect to substantially all of such leases.
Without giving effect to any present value discount, but giving effect to
rental payments made by Petrie Retail since the complaints were filed and
assuming that all of the 135 stores which are the subject of these
landlords' claims are closed and that the landlord in each case is unable
to mitigate its damages, the Liquidating Trust estimates that the alleged
guarantor liability currently represents approximately $62 million in lease
payments. As previously disclosed, on April 7, 1997, the trial court
dismissed the landlords' claims for fraud and negligent misrepresentation
with respect to the releases of the guarantees. On November 10, 1997,
the landlords appealed the decision of the trial court, and arguments
are currently scheduled for January 1998. The parties are currently
engaged in discovery with respect to the landlords' remaining claims for
breach of contract and declaratory judgment. The Liquidating Trust believes
it has substantial legal defenses to the landlords' claims and is
vigorously contesting such claims. While a decision by a court in favor of
such landlords could have a material adverse effect on the Liquidating
Trust's liquidity and financial condition, based on available information
and developments to date, the Liquidating Trust believes that such an
outcome is unlikely.
The Liquidating Trust's lease exposure calculations reflect the
estimated sum of all base rent and additional rent (such as taxes and
common area charges) due under a lease through the end of the current lease
term, but do not reflect potential penalties, interest and other charges to
which a landlord may be entitled. Such additional charges (which may in
part be unenforceable) are not expected to materially increase the
Liquidating Trust's lease guarantee liability.
A significant number of leases discussed above under which a
landlord might claim that the Liquidating Trust, as successor to 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.
As previously disclosed, on October 23, 1995, Petrie Retail
notified three former executives of Petrie that, as a result of Petrie
Retail's bankruptcy filing, Petrie Retail would no longer honor its
obligations under the employment agreements each executive had entered into
with Petrie which had been assumed by Petrie Retail in connection with the
sale of the retail operations. On April 25, 1996, the Liquidating Trust
entered into settlement agreements with two of the former executives and on
January 27, 1997 entered into a settlement agreement with the estate of the
third executive. Pursuant to such settlement agreements, the Liquidating
Trust agreed to pay each substantially all the amounts due under their
respective agreements with Petrie. The total cost of these settlements to
the Liquidating Trust was approximately $3.2 million, of which
approximately $700,000 (relating to certain unfunded pension obligations)
remained unpaid and was included in the Liquidating Trust's accrued
expenses and other liabilities at September 30, 1997.
As previously disclosed, effective January 31, 1995, Petrie Retail
withdrew from 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. By letter dated May 30, 1996 (the "Assessment Letter"),
the Multiemployer Plan assessed withdrawal liability against Petrie Retail
in the amount of approximately $9.4 million plus interest, to be paid in
quarterly installments of approximately $317,000 commencing August 1, 1996
through and including August 1, 2006, with a final payment of approximately
$18,000 due on November 1, 2006. In addition, the Multiemployer Plan
assessed liability against Petrie Retail of approximately $2 million
attributable to the Multiemployer Plan's failure to meet certain Internal
Revenue Code minimum funding standards, which amount was payable on August
1, 1996. To the knowledge of the Liquidating Trust, Petrie Retail has not
made any payments with respect to such liabilities. 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 Retail Operations 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 the Liquidating Trust, as successor 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 the Liquidating Trust may be required to
make under the agreement with respect to the Multiemployer Plan, but in no
event will the Liquidating Trust's maximum contractual liability be
increased as a result of Petrie Retail's bankruptcy filing.
The Liquidating Trust believes 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.
In addition to the contingent liabilities discussed above, the
Liquidating Trust or Petrie is a defendant in various other legal
proceedings relating to Petrie Retail's failure to perform certain retail
store leases and other liabilities assumed by Petrie Retail (but as to
which Petrie's liability has not been released) in connection with Petrie's
sale of the retail operations. While the Liquidating Trust cannot predict
with any certainty what its liability will be from the disposition of these
legal proceedings, based on developments to date, the Liquidating Trust's
estimate of the likely outcome of these matters and its experience
(including that of its predecessor, Petrie) in contesting, litigating and
settling matters, the Liquidating Trust believes that it has made adequate
accruals for the likely outcome of such proceedings.
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 and the Notes thereto provided herein.
As previously disclosed, Petrie sold its retail operations to PS
Stores on December 9, 1994, and on January 24, 1995 (the date on which
Petrie's shareholders approved the Plan of Liquidation), Petrie commenced
its liquidation. As a result, effective January 28, 1995, Petrie changed
its basis of accounting from a going-concern basis to a liquidation basis.
During the nine months ended September 30, 1997 and the period from January
23, 1996 to September 30, 1996, the Liquidating Trust's activities have
been limited to continuing Petrie's liquidation in furtherance of the Plan
of Liquidation. Beginning with the period ended December 31, 1996, the
Liquidating Trust adopted the calendar year as its fiscal year.
Results of Operations
The Liquidating Trust's net loss for the three months ended
September 30, 1997 was $4,733,000 and the net income for the nine months
ended September 30, 1997 was $10,870,000, as compared to net income of
$4,066,000 and $26,548,000 for the three months ended September 30, 1996
and the period from January 23, 1996 to September 30, 1996, respectively.
As of November 13, 1997, the most recent practicable date prior to
the filing of this Form 10-Q, the closing price per share of Toys Common
Stock as reported on the New York Stock Exchange Composite Tape was $34-1/2
per share. In applying a liquidation basis of accounting, the Liquidating
Trust has given effect in its results of operations to fluctuations in the
market price of its Toys Common Stock, and has recorded a net unrealized
gain on the Toys Common Stock for the three and nine months ended September
30, 1997 of $1,774,000 and $22,240,000, respectively, as compared to an
unrealized gain of $3,160,000 and $40,445,000 for the three months ended
September 30, 1996 and the period from January 23, 1996 to September 30,
1996, respectively. In addition, at various times between January 23, 1997
and February 5, 1997, the Liquidating Trust sold an aggregate of 1,000,000
shares of Toys Common Stock for approximately $25.5 million. As a result of
the sale, the Liquidating Trust realized a loss with respect to such sale
of approximately $4,375,000 for the nine months ended September 30, 1997.
For the three and nine months ended September 30, 1997, the
Liquidating Trust incurred corporate overhead of $8,518,000 and
$17,204,000, respectively, as compared to $854,000 and $18,645,000 for the
three months ended September 30, 1996 and the period from January 23, 1996
to September 30, 1996, respectively. Corporate overhead generally consists
of costs and expenses related to the liquidation and dissolution of Petrie
including, but not limited to, costs and expenses that the Liquidating
Trust has incurred due to Petrie Retail's failure to perform its
obligations as a result of its bankruptcy filing, legal fees, insurance,
accounting fees, salaries for the Liquidating Trust's two part-time
employees, trustee fees, real estate advisory fees, transfer agent fees and
printing and shareholder communications expenses. The increase in corporate
overhead charges during the three months ended September 30, 1997 as
compared to the same period in 1996 is primarily due to accruals of $8
million made during the three months ended September 30, 1997 for
contingent guarantee liabilities relating to store leases with respect to
which Petrie Retail announced going-out-of-business sales. Included in
corporate overhead charges for the nine months ended September 30, 1997 are
accruals made for additional costs and expenses that the Liquidating Trust
incurred in connection with Petrie Retail's failure to perform its
obligations as a result of its bankruptcy filing, including approximately
$12 million relating to the liability of the Liquidating Trust, as
successor to Petrie, as a guarantor of certain leases which Petrie Retail
or one of its affiliates has failed to perform and approximately $1.5
million in respect of retrospective insurance premium adjustments. Included
in corporate overhead for the period from January 22, 1996 to September 30,
1996 are accruals of $15 million for contingent guarantee liabilities
relating to store leases with respect to which Petrie Retail announced
going-out-of-business sales. See "Notes to Financial Statements."
The Liquidating Trust intends to file claims against Petrie Retail
in the Bankruptcy Court in respect of certain payments which are made by
the Liquidating Trust for obligations that Petrie Retail or an affiliate
thereof fails to perform. On September 24, 1997, the Bankruptcy Court fixed
December 29, 1997 as the last date by which claims may be filed against
Petrie Retail in the Bankruptcy Court. No assurance can be given, however,
as to the timing or probability of the collection of the Liquidating
Trust's claims against Petrie Retail or the amount of the distribution
Petrie Retail will make to its creditors asserting unsecured claims, if
any.
During the nine months ended September 30, 1997, $4,066,000 in
income tax refunds, plus interest thereon, was released to the Liquidating
Trust from escrow in connection with the previously disclosed settlement of
an action commenced by Petrie Retail in the Bankruptcy Court. Pursuant to
the settlement, Petrie Retail and the Liquidating Trust have agreed to
share equally in the proceeds of any similar tax refunds received by the
Liquidating Trust in the future. The Liquidating Trust has expressly
reserved the right to assert future claims against Petrie Retail to the
extent that such claims relate to amounts in excess of the amounts
permitted for offset in the settlement.
During the three and nine months ended September 30, 1997, the
Liquidating Trust earned $1,910,000 and $6,143,000, respectively, in
investment income, as compared to $1,760,000 and $4,742,000 earned during
the three months ended September 30, 1996 and the period from January 23,
1996 to September 30, 1996, respectively. The increase in investment income
during the three and nine months ended September 30, 1997 is principally
the result of the Liquidating Trust's sale of shares of Toys Common Stock
and the investment of the proceeds therefrom in U.S. Treasury obligations.
Liquidity and Capital Resources
General
As previously disclosed, 3,493,450 shares of Toys Common Stock are
held by the Liquidating Trust in an escrow account and approximately $37.5
million in U.S. Treasury obligations are held by the Liquidating Trust in a
collateral account. These assets secure Petrie's obligations relating to
certain contingent liabilities pursuant to the terms of the Toys
Acquisition Agreement, the Retail Operations Stock Purchase Agreement and
other agreements with Toys "R" Us and/or PS Stores. See "--Contingent
Liabili ties."
The assets of the Liquidating Trust are subject to the terms of a
letter agreement dated as of January 24, 1995 (the "Side Letter
Agreement"), pursuant to which Petrie agreed with Toys "R" Us that, until
such time as a hedge or similar arrangement is in place, Petrie would
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 (using the per share price on January 20, 1995)
of at least twice the Reserved Amount, to secure the payment of Petrie's
contingent liabilities. Pursuant to the terms of this letter agreement, the
Liquidating Trust, as successor to Petrie, is presently required to retain
substantially all of its assets.
As of November 13, 1997, the most recent practicable date prior to
the filing of this Form 10-Q, the Liquidating Trust's 4,055,576 shares of
Toys Common Stock had a market value of approximately $139.9 million, based
upon a closing price per share of $34-1/2, as reported on the New York
Stock Exchange Composite Tape on such date. During the fifty-two weeks
prior to November 13, 1997, the price per share of Toys Common Stock has
fluctuated from a low of $24-3/8 to a high of $37-5/8. No assurance can be
given as to the future market prices of Toys Common Stock.
As of November 13, 1997, the Liquidating Trust had approximately
$136 million in cash and cash equivalents and investments in U.S. Treasury
obligations (including those held in escrow). The Liquidating Trust
believes that it has sufficient liquid funds available to satisfy the
liabilities of the Liquidating Trust that are likely to occur in the near
future (including, without limitation, costs and expenses related to the
administration of the Liquidating Trust such as legal fees, insurance,
accounting fees, salaries, real estate advisory fees, transfer agent fees
and printing and shareholder communication expenses). To the extent that
the Liquidating Trust's liquid funds are insufficient to satisfy such
liabilities, however, the Liquidating Trust will sell some or all of the
remaining shares of Toys Common Stock that it holds. The Liquidating Trust
has not made any liquidating distributions since its establishment. The
Liquidating Trustees have determined not to approve any further
distributions of cash or shares of Toys Common Stock to holders of Units of
Beneficial Interest until the status of the Liquidating Trust's contingent
liabilities is clarified. See "--Contingent Liabilities."
Contingent Liabilities
As more fully described in Item 1 of Part I, the Liquidating
Trust, as successor to Petrie, has certain contingent liabilities with
respect to existing or potential claims, lawsuits and other proceedings,
which primarily relate to (i) guarantees of certain retail store leases,
expiring at various times through 2011 to which Petrie Retail or an
affiliate thereof is a party, and certain other liabilities that were
assumed by Petrie Retail (but as to which Petrie's liability has not been
released) in connection with the Sale to the extent that Petrie Retail
fails to perform; and (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. At
September 30, 1997, the Liquidating Trust, as successor to Petrie, had
accrued approximately $45 million for contingent liabilities. As the scope
of these liabilities becomes better defined, there may be changes in the
estimates of future costs, which could have a material effect on the
Liquidating Trust's financial condition, liquidity and future ability to
make liquidating distributions. See "Notes to Financial Statements."
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical matters, the matters discussed in this Form
10-Q are forward-looking state ments that involve risks and uncertainties.
Forward-looking statements include, but are not limited to, statements
relating to the Liquidating Trust's contingent liabilities contained above
in "Management's Dis cussion and Analysis of Financial Condition and
Results of Operations" and "Notes to Financial Statements."
The Liquidating Trust wishes to caution readers that in addition
to factors that may be described elsewhere in this Form 10-Q, the following
important factors, among others, could cause the Liquidating Trust's assets
and liabilities to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Liquidating Trust,
and could materially affect the Liquidating Trust's finan cial condition
and liquidity:
(1) A decision by Petrie Retail to close additional stores
for which the Liquidating Trust, as successor to Petrie,
has liability as a guarantor;
(2) A decision by Petrie Retail to liquidate while in Chapter
11 or the conversion of Petrie Retail's bankruptcy case
from Chapter 11 to a case under Chapter 7;
(3) Other actions by Petrie Retail which cause the default of
obligations assumed by Petrie Retail in connection with
the Sale for which the Liquidating Trust, as successor to
Petrie, may be deemed to have liability as the primary
obligor;
(4) A decision by a court that the Liquidating Trust, as
successor to Petrie, has liability as a guarantor of
certain leases notwithstanding Petrie's receipt from the
landlords thereof of releases of guarantees with respect
to such leases;
(5) A material decline in the price per share of Toys Common
Stock;
(6) An adverse material change in general economic conditions
and the interest rate environment;
(7) The effects of, and changes in, laws and regulations and
other activities of federal and local governments,
agencies and similar organizations; and
(8) The costs and other effects of other legal and
administrative cases and proceedings, settlements and
claims relating to the Liquidating Trust's contingent
liabilities.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The description of legal proceedings involving the Liquidating
Trust provided in Item 1 of Part I is herein incorporated by reference as
though fully set forth herein.
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits
Exhibit 27 -- Financial Data Schedule
(b) Reports on Form 8-K
None.
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 LIQUIDATING TRUST
Dated: November 14, 1997 By /s/ Stephanie R. Joseph
------------------------
Stephanie R. Joseph
Manager and Chief Executive Officer
Dated: November 14, 1997 By /s/ H. Bartlett Brown
----------------------
H. Bartlett Brown
Assistant Manager and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the Liquidating Trust's statement of net assets in liquidation
at September 30, 1997 and the Liquidating Trust's statement of
changes in net assets in liquidation for the three months ended
September 30, 1997, 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> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 819
<SECURITIES> 280,231
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 281,050
<CURRENT-LIABILITIES> 46,851
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 234,199
<TOTAL-LIABILITY-AND-EQUITY> 281,050
<SALES> 0
<TOTAL-REVENUES> 6,143
<CGS> 0
<TOTAL-COSTS> 17,204
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,870
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,870
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,870
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
