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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 DECEMBER 31, 1999 COMMISSION FILE NUMBER: 0-3777
------------------------
PETRIE STORES LIQUIDATING TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
NEW YORK 22-6679945
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
201 ROUTE 17, SUITE 300
RUTHERFORD, NEW JERSEY 07070
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
Registrant's telephone number, including area code: (201) 635-9637
Former name, former address and former fiscal year, if changed since last
report: N/A
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Beneficial Interest
(Title of Class)
------------------------
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 the 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. /x/
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 March 27, 2000, the most recent practicable date prior to the
printing of this report, there were 52,350,238 units of beneficial interest of
the Petrie Stores Liquidating Trust (the "Liquidating Trust") outstanding; and
the aggregate market value of the units of beneficial interest held by
non-affiliates was $31,767,047, based upon the average of the bid and asked
prices on March 27, 2000 of $1.3125 per unit of beneficial interest (as quoted
on the OTC Bulletin Board). For purposes of this calculation, the Liquidating
Trust has assumed that HBK Investments L.P., HBK Finance L.P. and T. Rowe Price
Associates, Inc. are not affiliates of the Liquidating Trust.
Documents Incorporated by Reference:
None.
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<PAGE>
INDEX
<TABLE>
<S> <C> <C>
PART I
Item 1. Business.................................................................................... 2
Item 2. Properties.................................................................................. 4
Item 3. Legal Proceedings........................................................................... 4
Item 4. Submission of Matters to a Vote of Security Holders......................................... 4
PART II
Item 5. Market for the Registrant's Common Equity and Related Security Holder Matters............... 5
Item 6. Selected Financial Data..................................................................... 6
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 7
Item 7A. Quantitative and Qualitative Disclosures of Market Risk..................................... 13
Item 8. Financial Statements and Supplementary Data................................................. 13
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........ 13
PART III
Item 10. Directors and Executive Officers of the Registrant.......................................... 14
Item 11. Executive Compensation...................................................................... 15
Item 12. Security Ownership of Certain Beneficial Owners and Management.............................. 16
Item 13. Certain Relationships and Related Transactions.............................................. 17
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................. 18
</TABLE>
1
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
The Petrie Stores Liquidating Trust (the "Liquidating Trust") is the
successor to Petrie Stores Corporation, a New York corporation that was
dissolved effective February 5, 1997 ("Petrie"). Since January 24, 1995, Petrie
(and from January 22, 1996, the Liquidating Trust) has been in liquidation
pursuant to Petrie's shareholder-approved Plan of Liquidation and Dissolution
(the "Plan of Liquidation"). Prior to December 9, 1994, the date on which Petrie
sold its retail operations (as more fully described below), Petrie and its
subsidiaries operated a chain of retail stores that specialized in the sale of
women's apparel.
During its fiscal year ended January 28, 1995, Petrie undertook a
reorganization of its operations in order to separate its investment in Toys "R"
Us, Inc. ("Toys 'R' Us") from its retail operations and distribute its shares of
Toys "R" Us common stock, par value $.01 per share ("Toys Common Stock"), to
Petrie's shareholders without the incurrence of any significant federal income
tax by Petrie or its shareholders. In connection with such reorganization, on
December 9, 1994, Petrie completed the sale (the "Sale") to PS Stores
Acquisition Corp. ("PS Stores") of all of the stock of Petrie's former
subsidiary, Petrie Retail, Inc. ("Petrie Retail"), which then owned all of
Petrie's retail operations, for $190 million in cash plus the assumption of
certain of Petrie's liabilities. The Sale was consummated pursuant to a Stock
Purchase Agreement, dated as of August 23, 1994 and amended as of November 3,
1994, between Petrie and WP Investors, Inc., an affiliate of E.M. Warburg,
Pincus & Co., Inc. (the "Retail Operations Stock Purchase Agreement").
On January 24, 1995, Petrie exchanged (the "Exchange") with Toys "R" Us
39,853,403 shares of Toys Common Stock held by Petrie, plus $165 million in cash
derived from the Sale, for 42,076,420 shares of Toys Common Stock, pursuant to
an Acquisition Agreement, dated as of April 20, 1994 and amended as of May 10,
1994, between Petrie and Toys "R" Us (the "Toys Acquisition Agreement"). The
Toys Acquisition Agreement had required, among other things, that Petrie sell
its retail operations prior to the consummation of the Exchange and that,
following the Exchange, Petrie liquidate and dissolve and distribute to its
shareholders all of its remaining assets, less an adequate provision for
Petrie's actual and contingent liabilities.
Since January 24, 1995, the date on which Petrie's shareholders approved
the Plan of Liquidation, Petrie (and its successor, the Liquidating Trust)
(i) placed 3,493,450 shares of Toys Common Stock into an escrow account to
provide for the payment of Petrie's 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 (which escrow
account terminated in accordance with its terms on January 24, 2000); (ii) made
two liquidating distributions to Petrie shareholders of an aggregate of
31,410,144 shares of Toys Common Stock; (iii) made one liquidating distribution
to unit holders of the Liquidating Trust of approximately $78.5 million in cash
and 1,688,576 shares of Toys Common Stock; (iv) sold an aggregate of 6,977,700
shares of Toys Common Stock; and (v) delivered 2,000,000 shares of Toys Common
Stock to Canadian Imperial Bank of Commerce in exchange for a cash payment of
approximately $61.4 million in connection with the settlement of the
transactions contemplated by the Master Agreement (as defined below). As a
result of the foregoing transactions, the Liquidating Trust no longer holds any
shares of Toys Common Stock.
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 in the Collateral Account. In
connection with the settlement of a dispute with the Internal Revenue Service
(the "IRS"), approximately $32 million in U.S. Treasury obligations held in the
Collateral Account were transferred to the Liquidating Trust on May 20, 1997.
Pursuant to a stipulation and release approved by the bankruptcy court in Petrie
Retail's bankruptcy case (discussed below), an additional $32 million in U.S.
Treasury obligations held
2
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in the Collateral Account were transferred to the Liquidating Trust on
November 10, 1999. The Liquidating Trust is currently required to maintain
approximately $5.5 million in the Collateral Account. The U.S. Treasury
obligations held in the Collateral Account pursuant to the Amended and Restated
Cash Collateral Agreement secure the obligation of the Liquidating Trust, as
successor to Petrie, to indemnify PS Stores for certain liabilities relating to
Petrie Retail's withdrawal from a multiemployer pension plan. See Item 7 and
Notes to Financial Statements.
The Liquidating Trust had entered into a Master Agreement (based on the
International Swaps and Derivatives Association Form), dated as of November 19,
1997 (the "Master Agreement"), with Canadian Imperial Bank of Commerce ("CIBC"),
to protect the Liquidating Trust against certain investment risks associated
with 2,000,000 shares of the Toys Common Stock held by the Liquidating Trust.
Pursuant to the Master Agreement, if on December 3, 1999, the price of Toys
Common Stock were below $30.7264 (the "Put Price"), CIBC would have been
obligated to pay the Liquidating Trust the difference between the Put Price and
the then prevailing price of Toys Common Stock, multiplied by 2,000,000. The
Master Agreement provided that the Liquidating Trust had the right to elect to
receive the entire Put Price (in lieu of receiving the difference between the
Put Price and the prevailing price of Toys Common Stock) by delivering to CIBC
the 2,000,000 shares of Toys Common Stock subject to the Master Agreement. On
November 29, 1999, the Liquidating Trust and CIBC agreed to terminate the Master
Agreement prior to the Master Agreement's scheduled termination date of December
3, 1999. In connection with such termination, the Liquidating Trust delivered to
CIBC the 2,000,000 shares of Toys "R" Us, Inc. common stock which were subject
to the Master Agreement in exchange for a cash payment of approximately
$61.4 million.
The Liquidating Trust was established pursuant to an Agreement and
Declaration of Trust, dated as of December 6, 1995, between Petrie and the
trustees named therein (the "Liquidating Trust Agreement"). Pursuant to the
Liquidating Trust Agreement, on January 22, 1996 (the "Succession Date"), Petrie
transferred its 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. Each holder of Petrie common stock, par value $1.00 per
share ("Petrie Common Stock"), as of the close of business on the Succession
Date, became the holder of one unit of beneficial interest in the Liquidating
Trust for each share of Petrie Common Stock owned by such shareholder.
Certificates representing shares of Petrie Common Stock were automatically
deemed to represent a corresponding number of units of beneficial interest.
The Liquidating Trust's activities are limited to winding up Petrie's
affairs in furtherance of the Plan of Liquidation. The Liquidating Trust was
established to enable Petrie to liquidate prior to fully winding up its affairs,
in accordance with the terms of a private letter ruling received by Petrie from
the IRS on November 15, 1994. The Liquidating Trust Agreement prohibits the
Liquidating Trustees from entering into or engaging in any trade or business on
behalf of the Liquidating Trust or its unit holders and from receiving any
property, making any distribution, satisfying or discharging any claims,
expenses, charges, liabilities or obligations or otherwise taking any action
which, in any case, is inconsistent with Petrie's complete liquidation (as such
term is used in and interpreted under Sections 368(a)(1)(C) and (a)(2)(G) of the
Internal Revenue Code of 1986, as amended, and the Treasury Regulations
promulgated thereunder).
The Liquidating Trust is a complete pass-through entity for federal income
tax purposes and, accordingly, is not subject to federal 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.
The principal executive offices of the Liquidating Trust are located at 201
Route 17, Suite 300, Rutherford, New Jersey 07070 (telephone (201) 635-9637).
EMPLOYEES
The Liquidating Trust has two part-time employees, Stephanie R. Joseph and
H. Bartlett Brown. Ms. Joseph serves as Manager and Chief Executive Officer of
the Liquidating Trust. Mr. Brown serves as Assistant Manager and Chief Financial
Officer of the Liquidating Trust.
3
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ITEM 2. PROPERTIES.
Other than the Liquidating Trust's principal executive offices, the
Liquidating Trust neither owns nor leases any real property.
As successor to Petrie, the Liquidating Trust is a guarantor of certain
leases for which Petrie Retail or an affiliate thereof has assumed liability.
See Item 7 and Notes to Financial Statements.
ITEM 3. LEGAL PROCEEDINGS.
Aventura Malls Venture et al. v. Petrie Stores Corporation et al. As
previously disclosed, on February 7, 1996, a complaint was filed in New York
State Supreme Court against Petrie, the Liquidating Trust and the Liquidating
Trustees by five landlords and certain of their affiliates seeking declaratory
relief and unspecified damages for breach of contract and fraud with respect to
146 store leases. The complaint alleged that the Liquidating Trust, as successor
to Petrie, had liability as a guarantor of certain of these leases,
notwithstanding Petrie's receipt from these landlords of releases with respect
to substantially all of the purported lease guarantees. On December 2, 1996, the
plaintiffs served an amended complaint, which sought damages only against Petrie
and the Liquidating Trust, added a claim for negligent misrepresentation and
reduced to 135 the number of store leases subject to the action. On April 7,
1997, the trial court dismissed the plaintiffs' claims for fraud and negligent
misrepresentation with respect to the releases of the guarantees. On
November 10, 1997, the plaintiffs appealed the decision of the trial court. On
April 21, 1998, the trial court's decision was upheld on appeal. On
December 28, 1999, the Liquidating Trust paid the plaintiffs $2.4 million in
settlement of their remaining claims against the Liquidating Trust and received
a full release from all claims, without any recognition of wrongdoing or
liability with respect to the claims asserted.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
4
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS.
UNITS OF BENEFICIAL INTEREST
Since January 23, 1996, the units of beneficial interest have been quoted
on the OTC Bulletin Board under the symbol "PSTLS." The high and low closing
prices per unit of beneficial interest are shown below:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Year Ended December 31, 1998:
First quarter (ended March 31, 1998)......................................... $3 3/16 $ 2 31/32
Second quarter (ended June 30, 1998)......................................... $3 1/4 $ 2 49/64
Third quarter (ended September 30, 1998)..................................... $2 55/64 $ 2 7/32
Fourth quarter (ended December 31, 1998)..................................... $2 25/64 $ 1 3/4
Year Ended December 31, 1999:
First quarter (ended March 31, 1999)......................................... $2 1/4 $ 2 1/16
Second quarter (ended June 30, 1999)......................................... $2 7/8 $ 2 5/32
Third quarter (ended September 30, 1999)..................................... $2 7/16 $ 2 1/4
Fourth quarter (ended December 31, 1999)..................................... $2 7/16 $ 2 5/16
Year Ending December 31, 2000:
First quarter (through March 27, 2000)....................................... $2 31/32 $ 1 1/8
</TABLE>
As of March 27, 2000, the most recent practicable date prior to the
printing of this report, there were approximately 2,829 holders of record of
units of beneficial interest of the Liquidating Trust. On February 11, 2000, the
Liquidating Trust distributed to its unit holders a total of $78,525,357 in cash
and its remaining 1,688,576 shares of Toys Common Stock, or $1.50 in cash and
approximately 0.03225536 of a share of Toys Common Stock for each unit held of
record at the close of business on January 31, 2000. Prior thereto, the
Liquidating Trust had not made a liquidating distribution since its
establishment on January 22, 1996. The Liquidating Trustees will consider
additional distributions of cash to unit holders when the status of the
Liquidating Trust's remaining contingent liabilities is further clarified.
5
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ITEM 6. SELECTED FINANCIAL DATA.
Set forth below are selected consolidated financial data of the Liquidating
Trust as of and for the years ended December 31, 1999, 1998 and 1997 and the
periods ended December 31, 1996 and January 22, 1996. A liquidation basis of
accounting was implemented for all periods presented.
<TABLE>
<CAPTION>
PERIOD ENDED
YEAR ENDED YEAR ENDED YEAR ENDED ---------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, JANUARY 22,
1999(2) 1998(2) 1997(2) 1996(2) 1996(1)(2)
------------ ------------ ------------ ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE OR PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C>
Corporate overhead....................... $ (2,259) $ (3,710) $(24,717) $ (30,304) $ (25,321)
Income tax refund........................ -- -- 4,066 -- --
Interest expense......................... -- -- -- -- --
Investment income........................ 6,703 7,165 8,164 6,467 1,793
Net realized and unrealized gain (loss)
on investments......................... (2,215) (31,367) 1,783 44,572 (244,583)
-------- -------- -------- ---------- -----------
Income (loss) before income tax
benefit................................ 2,229 (27,912) (10,704) 20,735 (268,111)
-------- -------- -------- ---------- -----------
Net income (loss)........................ 2,229 (27,912) (10,704) 20,735 (154,277)
-------- -------- -------- ---------- -----------
-------- -------- -------- ---------- -----------
Income (loss) per unit:
Net income (loss)...................... $ 0.04 $ (0.53) $ (0.20) $ 0.40 $ (2.95)
-------- -------- -------- ---------- -----------
-------- -------- -------- ---------- -----------
Dividends per share or unit.............. -- -- -- -- --
-------- -------- -------- ---------- -----------
-------- -------- -------- ---------- -----------
Weighted average number of units......... 52,350 52,350 52,350 52,350 52,350
-------- -------- -------- ---------- -----------
-------- -------- -------- ---------- -----------
Total assets............................. $223,966 $225,524 $263,585 $ 275,707 $ 237,916
-------- -------- -------- ---------- -----------
-------- -------- -------- ---------- -----------
</TABLE>
- ------------------
(1) Total assets at January 22, 1996 reflect Petrie's first and second
liquidating distributions of 26,175,109 shares (including 1,391 shares of
Toys Common Stock distributed to certain former shareholders of Winkelman
Stores Incorporated (a former subsidiary of Petrie) in respect of their
interests in the first distribution) on March 24, 1995 and 5,235,035 shares
of Toys Common Stock on August 15, 1995, and the sales of (a) 610,700 shares
of Toys Common Stock on May 26, 1995, (b) an aggregate of 3,000,000 shares
of Toys Common Stock on October 25 and 26, 1995 and (c) an aggregate of
2,000,000 shares of Toys Common Stock from December 28, 1995 through
January 4, 1996.
(2) Corporate overhead charges during the years ended December 31, 1999,
December 31, 1998 and December 31, 1997 and the periods ended December 31,
1996 and January 22, 1996 relate primarily to accruals for costs and
expenses related to Petrie Retail's bankruptcy. During the year ended
December 31, 1999, corporate overhead includes $2.0 million relating to an
accrual in respect of the settlement of the Aventura Malls Venture action
described above, which amount was partially offset by a reduction in the
accrual for lease liabilities of approximately $800,000 following the
settlement and release of claims asserted by certain other landlords. During
the year ended December 31, 1999, corporate overhead also included
professional fees and approximately $898,000 in income related to refunds
received for retrospective insurance premiums, taxes paid on behalf of
Petrie Retail and bankruptcy settlement payments. During the year ended
December 31, 1998, the Liquidating Trust's total accrual for lease
liabilities was reduced by approximately $2.0 million following the
settlement and release of claims asserted by landlords, which reduction was
offset by $2.3 million in accruals relating to other liabilities relating to
Petrie Retail's bankruptcy. For the year ended December 31, 1997 and the
periods ended December 31, 1996 and January 22, 1996, such overhead includes
$18 million, $22 million and $15 million, respectively, relating to the
liability of the Liquidating Trust, as successor to Petrie, as a guarantor
of certain leases for which Petrie Retail or one of its affiliates has
assumed liability and $3 million, $4 million and $5 million, respectively,
relating to certain other liabilities related to Petrie Retail's bankruptcy.
Corporate overhead also consists of other costs and expenses related to the
liquidation and dissolution of Petrie, including, but not limited to, legal
fees, real estate advisory fees, insurance, salaries for the Liquidating
Trust's two part-time employees, trustee fees, accounting fees, transfer
agent fees and printing and related expenses.
6
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ITEM 7. 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 of the Liquidating Trust, as successor to
Petrie.
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 all
periods since such date, the Liquidating Trust's activities have been limited to
continuing Petrie's liquidation in furtherance of the Plan of Liquidation. For
financial statement purposes, the Liquidating Trust is deemed to be the
successor to Petrie, and the results of operations of Petrie are presented in
the financial statements of the Liquidating Trust. Beginning with the period
ended December 31, 1996, the Liquidating Trust adopted the calendar year as its
fiscal year.
RESULTS OF OPERATIONS
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
The Liquidating Trust's net income for the year ended December 31, 1999 was
$2,229,000, as compared to a net loss of $27,912,000 for the year ended
December 31, 1998.
In applying a liquidation basis of accounting, the Liquidating Trust, as
successor to Petrie, has given effect in its results of operations to
fluctuations in the market price of the Toys Common Stock held by it during the
years ended December 31, 1999 and December 31, 1998. The market price per share
of Toys Common Stock fluctuated during the year ended December 31, 1999 as
follows:
<TABLE>
<CAPTION>
CLOSING
DATE PRICE
- ----------------------------------------------------------------- -------
<S> <C>
December 31, 1998................................................ $16 15/16
March 31, 1999................................................... 18 13/16
June 30, 1999.................................................... 20 11/16
September 30, 1999............................................... 15
December 31, 1999................................................ 14 5/16
</TABLE>
The Liquidating Trust has recorded a net realized gain of $1,530,000 and an
unrealized loss of $3,745,000 on the Toys Common Stock for the year ended
December 31, 1999 as compared to an unrealized loss of $31,228,000 for the year
ended December 31, 1998. At various times between April 28, 1999 and May 7,
1999, the Liquidating Trust sold an aggregate of 367,000 shares of Toys Common
Stock for approximately $8.5 million and on November 29, 1999 delivered
2,000,000 shares of Toys Common Stock in exchange for a cash payment of
approximately $61.4 million, resulting in the net realized gain of $1,530,000
described above.
For the year ended December 31, 1999, the Liquidating Trust, as successor
to Petrie, incurred corporate overhead of $2,259,000 as compared to $3,710,000
for the year ended December 31, 1998. The Liquidating Trust's 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 incurred as a result of Petrie Retail's failure to perform
its obligations in connection with its bankruptcy filing, legal fees, real
estate advisory fees, salaries for the Liquidating Trust's two part-time
employees, trustee fees, accounting fees, transfer agent fees and printing and
related expenses. During the year ended December 31, 1999, corporate overhead
included lower professional fees and approximately $898,000 in income related to
refunds received for retrospective insurance premiums, taxes paid on behalf of
Petrie Retail and bankruptcy settlement payments. During the year ended
December 31, 1999, corporate overhead includes $2.0 million relating to an
accrual in respect of the settlement of the Aventura Malls Venture action
described above, which amount was partially offset by a reduction in the accrual
for lease liabilities of approximately $800,000 following the settlement and
release of claims asserted by certain other landlords.
During the year ended December 31, 1999, the Liquidating Trust, as
successor to Petrie, earned $6,703,000 in investment income, as compared to
$7,165,000 earned during the year ended December 31, 1998. The
7
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decrease in investment income earned during the year ended December 31, 1999 is
due to lower prevailing interest rates.
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
The Liquidating Trust's net loss for the year ended December 31, 1998 was
$27,912,000, as compared to a net loss of $10,704,000 for the year ended
December 31, 1997.
In applying a liquidation basis of accounting, the Liquidating Trust, as
successor to Petrie, has given effect in its results of operations to
fluctuations in the market price of the Toys Common Stock held by it during the
years ended December 31, 1998 and December 31, 1997. The market price per share
of Toys Common Stock fluctuated during the year ended December 31, 1998 as
follows:
<TABLE>
<CAPTION>
CLOSING
DATE PRICE
- ----------------------------------------------------------------- -------
<S> <C>
December 31, 1997................................................ $31 7/16
March 31, 1998................................................... 30 1/8
June 30, 1998.................................................... 23 7/16
September 30, 1998............................................... 16 3/16
December 31, 1998................................................ 16 15/16
</TABLE>
The Liquidating Trust recorded an unrealized loss on the Toys Common Stock
for the year ended December 31, 1998 of $31,228,000, as compared to an
unrealized gain of $6,336,000 for the year ended December 31, 1997. 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. The Liquidating Trust realized a loss with respect
to such sale of approximately $4,375,000 for the year ended December 31, 1997.
For the year ended December 31, 1998, the Liquidating Trust, as successor
to Petrie, incurred corporate overhead of $3,710,000 as compared to $24,717,000
for the year ended December 31, 1997. The Liquidating Trust's 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 incurred as a result of Petrie Retail's failure to perform
its obligations in connection with its bankruptcy filing, legal fees, real
estate advisory fees, salaries for the Liquidating Trust's two part-time
employees, trustee fees, accounting fees, transfer agent fees and printing and
related expenses. During the year ended December 31, 1998, the Liquidating
Trust's total accrual for lease liabilities was reduced by approximately
$2.0 million following the settlement and release of claims asserted by
landlords, which reduction was offset by the Liquidating Trust's accrual of
$2.3 million for other liabilities relating to Petrie Retail's bankruptcy.
Included in corporate overhead for the year ended December 31, 1997 are accruals
of approximately $18 million relating to the liability of the Liquidating Trust,
as successor to Petrie, as a guarantor of certain leases under which Petrie
Retail or one of its affiliates has failed to perform and an amount in respect
of retrospective insurance premium adjustments of which approximately
$1.5 million was paid in 1997. See Notes to Financial Statements.
During the year ended December 31, 1998, the Liquidating Trust, as
successor to Petrie, earned $7,165,000 in investment income, as compared to
$8,164,000 earned during the year ended December 31, 1997. The decrease in
investment income earned during the year ended December 31, 1998 is due to a
reduced amount of funds available for investment and lower prevailing interest
rates.
LIQUIDITY AND CAPITAL RESOURCES
General
As previously disclosed, approximately $5.5 million in U.S. Treasury
obligations is required to be held by the Liquidating Trust in the Collateral
Account to secure the Liquidating Trust's obligation to indemnify PS Stores for
certain liabilities relating to Petrie Retail's withdrawal from a multiemployer
pension plan.
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 Petrie would
8
<PAGE>
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. In connection with the distribution of $78,525,357 in cash and
1,688,576 shares of Toys Common Stock by the Liquidating Trust on February 11,
2000, the Liquidating Trust provided Toys "R" Us with prior notice of the
proposed distribution and Toys "R" Us agreed that it did not object to such
distribution. Pursuant to the terms of the Side Letter Agreement, the
Liquidating Trust is required to provide similar notice to Toys "R" Us prior to
making any additional distributions.
The Liquidating Trust had entered into the Master Agreement with CIBC to
protect the Liquidating Trust against certain investment risks associated with
2,000,000 shares of Toys Common Stock held by the Liquidating Trust. Pursuant to
the Master Agreement, if on December 3, 1999, the price of Toys Common Stock
were below $30.7264 (the "Put Price"), CIBC would have been obligated to pay the
Liquidating Trust the difference between the Put Price and the then prevailing
price of Toys Common Stock, multiplied by 2,000,000. The Master Agreement
provided that the Liquidating Trust had the right to elect to receive the entire
Put Price (in lieu of receiving the difference between the Put Price and the
prevailing price of Toys Common Stock) by delivering to CIBC the 2,000,000
shares of Toys Common Stock subject to the Master Agreement. On November 29,
1999, the Liquidating Trust and CIBC agreed to terminate the Master Agreement
prior to the Master Agreement's scheduled termination date of December 3, 1999.
In connection with such termination, the Liquidating Trust delivered to CIBC the
2,000,000 shares of Toys "R" Us, Inc. common stock which were subject to the
Master Agreement in exchange for a cash payment of approximately $61.4 million.
As of March 27, 2000, the Liquidating Trust had approximately $121 million
in cash, cash equivalents and investments in U.S. Treasury obligations
(including those held in the Collateral Account). The Liquidating Trust believes
that it has sufficient liquid funds available to satisfy the foreseeable
liabilities of the Liquidating Trust (including, without limitation, costs and
expenses related to the administration of the Liquidating Trust such as legal
fees, real estate advisory fees, insurance, salaries for the Liquidating Trust's
two part-time employees, trustee fees, accounting fees, transfer agent fees and
printing and related expenses).
Contingent Liabilities
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 for which Petrie Retail or an
affiliate thereof assumed liability, 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 or its successor fails to perform; and (ii)
Petrie's agreement with Petrie Retail to indemnify it for certain liabilities
relating to the funding of, and 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 December 31, 1999 and
December 31, 1998, the Liquidating Trust, as successor to Petrie, had accrued
approximately $36 million and $39 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.
Petrie Retail's Bankruptcy. 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"). In connection with its filing for
bankruptcy protection, Petrie Retail failed to perform or make payments with
respect to certain of the Assumed Obligations, including, but not limited to,
Assumed Obligations relating to store leases for which Petrie Retail or an
affiliate thereof had assumed liability, 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.
9
<PAGE>
On December 23, 1997, the Liquidating Trust filed over 110 claims in the
Bankruptcy Court against Petrie Retail and certain of its affiliates with
respect to an aggregate of approximately $14 million in payments which had then
been made by the Liquidating Trust as a result of the failure by Petrie Retail
or an affiliate thereof to perform or pay certain of the Assumed Obligations.
The Liquidating Trust subsequently amended these claims such that it asserted
fixed claims representing a total of approximately $16.9 million against Petrie
Retail's estate. The Liquidating Trust also filed approximately 600 additional
claims in the Bankruptcy Court against Petrie Retail and certain of its
affiliates with respect to payments which the Liquidating Trust may in the
future be required to make as a result of the failure by Petrie Retail or its
affiliates to perform or pay Assumed Obligations. On March 9, 2000, the
distribution company (the "Distribution Company") designated by the Petrie
Retail Plan (as defined below) moved for Bankruptcy Court approval of a
stipulation of settlement with the Liquidating Trust. Pursuant to the proposed
settlement, the Liquidating Trust and the Distribution Company would settle
their disputes regarding the claims that the Liquidating Trust filed against
Petrie Retail by (i) allowing the Liquidating Trust a single unsecured claim
against Petrie Retail in the amount of $15.3 million, subject to certain
adjustments, (ii) releasing to the Liquidating Trust the $5.5 million held in
the Collateral Account by June 30, 2000, unless the Distribution Company pays
$10 million or more to the Multiemployer Plan prior to that date, and (iii)
exchanging mutual releases. A hearing on the motion to approve the settlement is
scheduled for April 12, 2000. There can be no assurance that the Bankruptcy
Court will approve the settlement. Moreover, even if the settlement is approved,
there can be no assurance as to the timing of the payment of claims against the
reorganized Petrie Retail entity or the amount of the payments, if any, that the
reorganized Petrie Retail entity will make to creditors asserting unsecured
claims. Accordingly, no amounts have been accrued as receivables for potential
reimbursement or recoveries from the reorganized Petrie Retail entity.
On April 10, 1998, PS Stores, the parent of Petrie Retail, filed a
voluntary petition for reorganization relief under Chapter 11 of the United
States Bankruptcy Code with the Bankruptcy Court. On August 7, 1998, the
Liquidating Trust filed claims in the Bankruptcy Court against PS Stores
substantially similar to those filed against Petrie Retail.
On December 8, 1998, the Bankruptcy Court confirmed the proposed plan of
reorganization for Petrie Retail (the "Petrie Retail Plan"), which modified the
plan of reorganization filed by Petrie Retail and Warburg Pincus Ventures, L.P.
("Warburg") with the Bankruptcy Court on August 6, 1998, as amended. Under the
confirmed Petrie Retail Plan, Petrie Retail sold substantially all of its
remaining operating assets to Urban Acquisition Corp., an affiliate of Urban
Brands, Inc., a retailer that operates under the Ashley Stewart trade name, for
$52.25 million, and retained 13 of its store leases, for which Warburg was
required to contribute $12 million to the bankruptcy estate, assume
$3.1 million of Petrie Retail's executive severance obligations and waive
approximately $3.8 million in fees and expenses allegedly owed to it under
Petrie Retail's debtor-in-possession financing arrangement.
On December 8, 1998, the Bankruptcy Court confirmed PS Stores' proposed
plan of reorganization. In August 1999, pursuant to a settlement approved by the
Bankruptcy Court, the Liquidating Trust received a payment in the amount of
$0.2 million from PS Stores' bankruptcy estate.
Store Leases. As described above, in December 1998, Petrie Retail disposed
of substantially all its remaining operations and store leases as part of the
Petrie Retail Plan. Of the roughly 1600 stores that Petrie Retail operated prior
to filing its bankruptcy petition in October 1995, (i) 722 leases were rejected,
(ii) 615 leases were assigned to third party retailers, including (A) 410 leases
which were part of Petrie Retail's former G&G Shops Inc. division and were
included in the sale of such division to an investor group led by Pegasus
Partners, L.P. and certain executives of such division, (B) 85 leases which were
sold to Urban Acquisition Corp. as part of the Petrie Retail Plan and (C) 120
leases which were not part of Petrie Retail's former G&G Shops Inc. division and
which were sold to third party retailers other than Urban Acquisition Corp.,
(iii) 13 leases were retained by the reorganized Petrie Retail entity for stores
which are currently managed by Urban Acquisition Corp. and which Urban
Acquisition Corp. has the right to purchase at a later date and
(iv) approximately 250 leases expired or were terminated by mutual landlord and
tenant consent. In addition, an affiliate of the Liquidating Trust's real estate
advisor has assumed Petrie Retail's former headquarters lease at 150 Meadowlands
Parkway in Secaucus, New Jersey, which lease is guaranteed by the Liquidating
Trust. The Liquidating Trust's real estate advisor has sublet a portion of the
former headquarters space and is seeking to sublet the remainder of the space in
an effort
10
<PAGE>
to mitigate the Liquidating Trust's liability under this lease, although no
assurance can be given that such efforts will be successful.
After taking into account settlements and releases obtained from landlords,
the Liquidating Trust, as successor to Petrie, remains the guarantor of 168 of
the retail leases and the headquarters lease described above. The Liquidating
Trust's theoretical exposure relating to these leases, without giving effect to
any present value discount and assuming the landlord in each case is unable to
mitigate its damages, would be approximately $46 million. Such exposure includes
(i) approximately $30 million in potential liability related to 73 of the
rejected store leases described above and 43 of the leases which have expired or
were terminated by mutual landlord and tenant consent described above, which
amount is included in the Liquidating Trust's accrued expenses and other
liabilities at December 31, 1999, (ii) approximately $2 million in potential
liability relating to the headquarters lease, which amount is included in the
Liquidating Trust's accrued expenses and other liabilities at December 31, 1999,
and (iii) approximately $14 million in potential liability related to 51 of the
store leases which were either assigned to third party retailers or are still
held by the successor of Petrie Retail. Of the $16 million in potential
liability related to the assigned leases, the leases that are still held by the
successor of Petrie Retail and the headquarters lease, approximately $4 million
is due in 2000 and approximately $12 million is due thereafter.
As previously disclosed, landlords under leases relating to 135 stores
operated by Petrie Retail or an affiliate thereof alleged in a complaint that
the Liquidating Trust, as successor to Petrie, had 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. On December 28,
1999, the Liquidating Trust paid the plaintiffs $2.4 million in settlement of
their remaining claims against the Liquidating Trust and received a full release
from all claims, without any recognition of wrongdoing or liability with respect
to the claims asserted.
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.
Employment Agreements. 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 respective agreements with Petrie. The
total cost of these settlements to the Liquidating Trust was approximately $3.2
million, of which approximately $440,000 (relating to certain unfunded pension
obligations) remained unpaid and was included in the Liquidating Trust's accrued
expenses and other liabilities at December 31, 1999.
Multiemployer Plan. As previously disclosed, effective January 31, 1995,
Petrie Retail withdrew from the Multiemployer Plan. Due to the Multiemployer
Plan's underfunded status, Petrie Retail and its affiliates incurred withdrawal
liability under the Employee Retirement Income Security Act of 1974, as amended.
By letter dated May 30, 1996, the Multiemployer Plan initially 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 November 1, 2006. In
addition, the Multiemployer Plan initially 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. In December 1998,
11
<PAGE>
the Multiemployer Plan also submitted amended proofs of claim indicating that,
among other entities, PS Stores and Petrie Retail were indebted to the
Multiemployer Plan in the aggregate amount of approximately $17.3 million,
consisting of withdrawal liability of $4.7 million, funding deficiencies of
$1.4 million and an additional $11.2 million as a result of a mass withdrawal by
contributing employers from the Multiemployer Plan. To the knowledge of the
Liquidating Trust, Petrie Retail never made any payments with respect to such
liabilities. Pursuant to the Retail Operations Stock Purchase Agreement, Petrie
Retail and its affiliates are responsible for payment of the first $10 million
in withdrawal and related liabilities and are entitled to be reimbursed by the
Liquidating Trust, as successor to Petrie, for 75% of the next $50 million paid
by Petrie Retail and its affiliates in respect of such liabilities. It is
unclear what effect, if any, Petrie Retail's or PS Stores' bankruptcy filings
may have upon the timing and amount of any payments the Liquidating Trust may be
required to make under the Retail Operations Stock Purchase 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 or
PS Stores' bankruptcy filings.
On or about September 25, 1998, the Internal Revenue Service issued an
examination report asserting that "Petrie Stores, Inc." is liable for excise
taxes and penalties of approximately $192,000 relating to the Multiemployer
Plan's funding deficiencies for the three plan years ended January 31, 1993,
1994 and 1995. On January 24, 2000, the Liquidating Trust paid the Internal
Revenue Service approximately $59,000 in full settlement of the alleged
liability.
The Liquidating Trust believes, based on the most recently available
information, that appropriate accruals have been established in the accompanying
financial statements to provide for any losses that may be incurred with respect
to the aforementioned contingencies.
Year 2000
The Liquidating Trust's principal information technology software package
is compliant with respect to year 2000 issues. In addition, according to
information provided to the Liquidating Trust by Petrie Retail and its
successor, the computer systems of Petrie Retail's successor are year 2000
compliant. Based on the foregoing, the Liquidating Trust believes that year 2000
issues have not resulted, and are not expected to result, in the imposition of
material costs on the Liquidating Trust. If, however, all year 2000 issues have
not been properly identified or effectively remedied, there can be no assurance
that year 2000 issues will not have a material adverse effect on the Liquidating
Trust. Additionally, there can be no assurance that the impact of year 2000
issues on other entities will not have a material adverse effect on the
Liquidating Trust.
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-K are
forward-looking statements 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
Discussion 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-K, 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 financial condition, liquidity and future ability
to make liquidating distributions:
(1) A decision by Petrie Retail's successor to close additional stores
for which the Liquidating Trust, as successor to Petrie, has liability as a
guarantor;
(2) Other actions by Petrie Retail's successor 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;
12
<PAGE>
(3) 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;
(4) An adverse material change in general economic conditions and the
interest rate environment;
(5) The effects of, and changes in, laws and regulations and other
activities of federal and local governments, agencies and similar
organizations;
(6) The costs and other effects of other legal and administrative
cases and proceedings, settlements and claims relating to the Liquidating
Trust's contingent liabilities; and
(7) The failure of the Liquidating Trust, Petrie Retail's successor or
other third parties on whom the Liquidating Trust's financial condition and
results of operations are dependent to properly identify and effectively
remedy on a timely basis all year 2000 issues affecting their operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Liquidating Trust invests its available cash in short-term United
States Treasury Obligations. Although the rate of interest paid on short-term
United States Treasury Obligations may fluctuate over time based on changes in
the general level of U.S. interest rates, each of such investments is made at a
fixed interest rate over the duration of the investment and each has a maturity
of less than 365 days. In addition, the Liquidating Trust Agreement prohibits
the Liquidating Trust from making certain investments with a maturity of greater
than one year and certain other investments that could expose the Liquidating
Trust to market risk. The Liquidating Trust believes that its exposure to market
risk fluctuations for its investments is not material as of December 31, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See pages F-1 through F-12 annexed hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
13
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
LIQUIDATING TRUSTEES AND EXECUTIVE OFFICERS
The following table shows, as of March 27, 2000, the Liquidating Trustees
and the Liquidating Trust's executive officers, their respective ages, the year
each person became a Liquidating Trustee or officer of the Liquidating Trust and
all positions currently held with the Liquidating Trust by each such person:
<TABLE>
<CAPTION>
TRUSTEE OR
NAME AGE OFFICER SINCE POSITION WITH THE LIQUIDATING TRUST
- ----------------------------------------- --- ------------- -----------------------------------------
<S> <C> <C> <C>
Stephanie R. Joseph...................... 53 1995 Manager and Chief Executive Officer;
Liquidating Trustee
H. Bartlett Brown........................ 64 1995 Assistant Manager and Chief Financial
Officer
Joseph H. Flom........................... 76 1995 Liquidating Trustee
Bernard Petrie........................... 74 1995 Liquidating Trustee
Laurence A. Tisch........................ 77 1995 Liquidating Trustee
Raymond S. Troubh........................ 73 1995 Chairman of the Board of the Liquidating
Trustees
</TABLE>
Biographical information concerning the Liquidating Trustees and the
Liquidating Trust's executive officers is provided below.
Stephanie R. Joseph became Secretary and Principal Legal Officer of Petrie
in February 1995 and Manager, Chief Executive Officer and Liquidating Trustee of
the Liquidating Trust in December 1995. She is the founder and President of The
Directors' Network Inc., a corporate consulting firm that prepares directors for
their boardroom responsibilities, since March 1994. From May 1984 until June
1992, she was employed as the Associate General Counsel of American Express
Company.
H. Bartlett Brown became Treasurer, Chief Financial Officer and Principal
Accounting Officer of Petrie in February 1995 and Assistant Manager and Chief
Financial Officer of the Liquidating Trust in December 1995. Mr. Brown is a tax
consultant. He was a partner in Ernst & Young LLP, an accounting firm, from
October 1970 until September 1994.
Joseph H. Flom became a Liquidating Trustee in December 1995. He has been a
partner in Skadden, Arps, Slate, Meagher & Flom LLP, a law firm and counsel to
Petrie, the Liquidating Trust and the Estate of Milton Petrie, for more than the
past five years. Mr. Flom is a director of The Warnaco Group, Inc.; Chairman of
the Board of Trustees of the Woodrow Wilson International Center for Scholars; a
director of United Way of New York City; a director of the American-Israel
Friendship League; and a trustee of the New York University Medical Center.
Bernard Petrie became both a director of Petrie and a Liquidating Trustee
in December 1995. He is an attorney and has been self-employed for more than the
past five years.
Laurence A. Tisch became a Liquidating Trustee in December 1995. Since
January 1999, Mr. Tisch has been the Co-Chairman of the Board of Loews
Corporation, a diversified holding company. From October 1994 to January 1999,
Mr. Tisch was the Co-Chairman and Co-Chief Executive Officer of Loews
Corporation. From May 1960 to October 1994, Mr. Tisch was the Chairman of the
Board and Chief Executive Officer of Loews Corporation. Since March 1990, he has
also been the Chief Executive Officer and a director of CNA Financial Corp., an
insurance and financial services company and a publicly-held subsidiary of Loews
Corporation. From January 1987 to November 1995, Mr. Tisch was Chairman of the
Board, President and Chief Executive Officer of CBS Inc., a television and radio
network. Mr. Tisch is a director of Loews Corporation; a director of Automatic
Data Processing, Inc., a provider of payroll and other data processing services;
a director of Bulova Corporation, a watch manufacturer and a publicly-held
subsidiary of Loews Corporation; a director of Federated Department Stores,
Inc., an operator of department stores; a trustee of the New York Public
Library; a trustee of the Metropolitan Museum of Art; and a director of United
Jewish Appeal.
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<PAGE>
Raymond S. Troubh became a Liquidating Trustee and Chairman of the
Board of Liquidating Trustees in December 1995. Mr. Troubh served as Treasurer
of Petrie from December 9, 1994 to February 7, 1995. He is a financial
consultant, a former governor of the American Stock Exchange and a former
general partner of Lazard Freres & Co., an investment banking firm. Mr. Troubh
is a director of ARIAD Pharmaceuticals, Inc., a pharmaceutical company; Diamond
Offshore Drilling, Inc., an offshore drilling company; Foundation Health
Systems, Inc., a healthcare company; General American Investors Company, an
investment and advisory company; Gentiva Health Services, Inc. a healthcare
company; Olsten Corporation, a temporary personnel and healthcare services
company; Starwood Hotels & Resorts, a hotel and gaming company; WHX Corporation,
a holding company; and Triarc Companies, Inc., a diversified holding company.
Mr. Troubh also serves as trustee of the MicroCap Liquidating Trust, a
liquidating trust that holds the assets of The MicroCap Fund, Inc., an
investment company.
MEETINGS AND STANDING COMMITTEES
The Liquidating Trustees met five times during the year ended December 31,
1999. During such period, the Liquidating Trustees had no committees.
ITEM 11. EXECUTIVE COMPENSATION.
GENERAL
The following table sets forth the total annual compensation paid by the
Liquidating Trust to its Manager and Chief Executive Officer, who is the only
executive officer of the Liquidating Trust whose compensation exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------
PERIOD ALL OTHER
NAME AND PRINCIPAL POSITION ENDED SALARY BONUS COMPENSATION(1)
- ------------------------------------------------------------------- -------- -------- ------- ---------------
<S> <C> <C> <C> <C>
Stephanie R. Joseph,............................................... 12/31/99 $130,000 -- $45,000
Manager, Chief Executive Officer and Liquidating Trustee........... 12/31/98 $130,000 -- $45,000
12/31/97 $130,000 $25,000 $45,000
</TABLE>
- ------------------
(1) Ms. Joseph receives $45,000 per fiscal year for her service as a Liquidating
Trustee.
COMPENSATION OF LIQUIDATING TRUSTEES
Liquidating Trustees are compensated for their service as Liquidating
Trustees in the amount of $30,000 per fiscal year, with the exception of
Raymond S. Troubh and Stephanie R. Joseph, who are each compensated $45,000 per
fiscal year for their service as Liquidating Trustees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1999, the Liquidating Trustees did not
have a compensation committee, and each of the Liquidating Trustees other than
Stephanie R. Joseph participated in deliberations of the Liquidating Trustees
concerning executive officer compensation. During the year ended December 31,
1999, no executive officer of the Liquidating Trust served as a member of the
compensation committee (or other board committee performing equivalent
functions, or in the absence of any such committee, the entire board of
directors) of another entity, one of whose executive officers served as a
Liquidating Trustee.
15
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Units of Beneficial Interest
The following table sets forth certain information with respect to (i) the
only persons who, to the best knowledge of the Liquidating Trust, are the
beneficial owners of more than five percent of the outstanding units of
beneficial interest of the Liquidating Trust and (ii) the number of units of
beneficial interest of the Liquidating Trust owned by each of the Liquidating
Trustees, the officers of the Liquidating Trust and the Liquidating Trustees and
officers as a group.
<TABLE>
<CAPTION>
TOTAL NUMBER OF PERCENT OF
UNITS OUTSTANDING
OF BENEFICIAL INTEREST BENEFICIAL
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED INTERESTS
- -------------------------------------------------------------------------- ---------------------- -------------------
<S> <C> <C>
The Estate of Milton Petrie (1)
919 Third Avenue
New York, New York 10022-3897........................................... 28,111,274 53.7%
HBK Investments L.P.
HBK Finance L.P. (2)
777 Main Street, Suite 2750
Fort Worth, Texas 76102................................................. 9,484,800 18.1%
T. Rowe Price Associates, Inc. (3)
100 E. Pratt Street
Baltimore, Maryland 21202............................................... 4,878,100 9.3%
H. Bartlett Brown......................................................... -- --
Joseph H. Flom (1)........................................................ -- --
Stephanie R. Joseph....................................................... -- --
Bernard Petrie (1)........................................................ 34,500 *
Laurence A. Tisch (1)..................................................... 1,000 *
Raymond S. Troubh......................................................... -- --
All managers and Liquidating Trustees as a group (6 individuals,
including those named above)............................................ 35,500 *
</TABLE>
- ------------------
* Less than one percent of the outstanding units of beneficial interest.
(1) Based on information contained in the Statement on Schedule 13D filed by the
Estate of Milton Petrie (the "Estate") with the Securities and Exchange
Commission on January 31, 1996. Mr. Flom, Hilda K. Gerstein, Jerome A.
Manning, Bernard Petrie, Carroll Petrie, Dorothy Stern Ross, Mr. Tisch and
David Zack serve as the executors of the Estate. The executors of the Estate
share equally the power to dispose of, and to vote, the units of beneficial
interest held by the Estate. Messrs. Flom, Petrie and Tisch disclaim
beneficial ownership of the units of beneficial interest held by the Estate.
(2) Based on information contained in Amendment No. 4 to the Statement on
Schedule 13G filed by HBK Investments L.P. and HBK Finance L.P. with the
Securities and Exchange Commission on February 2, 2000.
(3) Based on information contained in Amendment No. 4 to the Statement on
Schedule 13G filed by T. Rowe Price Associates, Inc. ("Price Associates")
with the Securities and Exchange Commission on February 14, 2000. These
securities are owned by various individual and institutional investors which
Price Associates serves as investment adviser with power to direct
investments and sole power to vote the securities. For
(Footnotes continued on next page)
16
<PAGE>
(Footnotes continued from previous page)
purposes of the reporting requirements of the Securities Exchange Act of
1934, as amended, Price Associates is deemed to be a beneficial owner of
such securities. Price Associates has, however, expressly disclaimed that it
is, in fact, the beneficial owner of such securities.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Skadden, Arps, Slate, Meagher & Flom LLP serves as legal counsel to the
Liquidating Trust and the Estate of Milton Petrie, which owns approximately
53.7% of the Liquidating Trust's outstanding units of beneficial interest, and
has provided services to each during the year ended December 31, 1999.
Joseph H. Flom, a Liquidating Trustee and an executor of the Estate of Milton
Petrie, is a partner in Skadden, Arps, Slate, Meagher & Flom LLP.
The Liquidating Trust maintains directors' and officers' liability
insurance provided by Continental Casualty Company, an affiliate of
CNA Financial Corp. Laurence A. Tisch, a Liquidating Trustee and an executor of
the Estate of Milton Petrie, is Chairman of the Board of CNA Financial Corp.
Messrs. Flom, Petrie and Tisch are executors of the Estate of Milton Petrie
and are entitled to executors' commissions. Mr. Petrie is also a beneficiary of
the Estate of Milton Petrie.
17
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1), (2) List of Financial Statements.
See Index to Financial Statements at page F-1.
(a)(3) List of Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------------------------------
<C> <C> <S>
2.1 -- Plan of Liquidation and Dissolution of Petrie (incorporated herein by reference to Exhibit 2.2 to the
Liquidating Trust's Registration Statement on Form 8-B, filed with the Securities and Exchange
Commission on December 19, 1995).
3.1 -- Agreement and Declaration of Trust, dated as of December 6, 1995, by and between Petrie and Joseph H.
Flom, Stephanie R. Joseph, Bernard Petrie, Laurence A. Tisch and Raymond S. Troubh, as trustees
(incorporated herein by reference to Exhibit 3.1 to the Liquidating Trust's Registration Statement on
Form 8-B, filed with the Securities and Exchange Commission on December 19, 1995).
10.1 -- Acquisition Agreement, dated as of April 20, 1994, between Petrie and Toys "R" Us (incorporated
herein by reference to Annex B to Petrie's Proxy Statement, dated as of November 3, 1994).
10.2 -- Amendment No. 1 to the Acquisition Agreement, dated as of May 10, 1994, between Petrie and Toys "R"
Us (incorporated by reference to Annex B to Petrie's Proxy Statement, dated as of November 3, 1994).
10.3 -- Stock Purchase Agreement, dated as of August 23, 1994, between Petrie and WP Investors (incorporated
herein by reference to Annex A to Petrie's Proxy Statement, dated as of November 3, 1994).
10.4 -- Amendment No. 1 to the Stock Purchase Agreement, dated as of December 9, 1994, among WP Investors,
PS Stores and Petrie (incorporated herein by reference to Annex A to Petrie's Proxy Statement, dated
as of November 3, 1994).
10.5 -- Assignment and Assumption Agreement, dated as of December 9, 1994, between Petrie and Petrie Retail
(agreements of a substantially similar nature were entered into between Petrie and the following
affiliates of Petrie Retail on or about December 9, 1994: Franklin 203 Corporation, G&G Shops of
North Carolina, Inc., Hartfield Stores, Inc., Whitney Stores, Inc, Marianne Clearwater Corporation,
Davids Woodbridge, Inc. and Jean Nicole, Inc.) (incorporated herein by reference to Exhibit 10.5 to
the Liquidating Trust's Annual Report on Form 10-K for the period ended January 22, 1996).
10.6 -- Cross-Indemnification and Procedure Agreement, dated as of December 9, 1994, between PS Stores and
Petrie (incorporated herein by reference to Exhibit 10.5 to Petrie's Annual Report on Form 10-K for
the fiscal year ended January 28, 1995).
10.7 -- Buyer Indemnification Agreement, dated as of December 9, 1994, among Toys "R" Us, Petrie, PS Stores,
Petrie Retail and all subsidiaries of PS Stores (incorporated herein by reference to Exhibit 10.6 to
Petrie's Annual Report on Form 10-K for the fiscal year ended January 28, 1995).
10.8 -- Seller Indemnification Agreement, dated as of December 9, 1994, among Toys "R" Us, Petrie,
PS Stores, Petrie Retail and all subsidiaries of PS Stores (incorporated herein by reference to
Exhibit 10.7 to Petrie's Annual Report on Form 10-K for the fiscal year ended January 28, 1995).
10.9 -- Side Letter Agreement, dated as of January 24, 1995, between Petrie and Toys "R" Us (incorporated
herein by reference to Exhibit 10.3 to Petrie's Current Report on Form 8-K, dated as of January 24,
1995).
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------------------------------
10.10 -- Escrow Agreement, dated as of January 24, 1995, between Petrie and Custodial Trust Company
(incorporated herein by reference to Exhibit 10.1 to Petrie's Current Report on Form 8-K, dated as of
January 24, 1995).
<C> <C> <S>
10.11 -- Amended and Restated Cash Collateral Agreement, dated as of December 9, 1994 as amended as of
January 24, 1995 and as of December 19, 1995, among Petrie, Custodial Trust Company as Collateral
Agent, and PS Stores (incorporated herein by reference to Exhibit 10.1 to Petrie's Current Report on
Form 8-K, dated as of December 26, 1995).
10.12 -- Master Agreement, dated as of November 19, 1997, by and between Petrie Stores Liquidating Trust and
Canadian Imperial Bank of Commerce (incorporated herein by reference to Exhibit 99.1 to the
Liquidating Trust's Current Report on Form 8-K, dated as of January 22, 1998).
10.13 -- Confirmation, dated as of January 28, 1998, of the Master Agreement by and between Petrie Stores
Liquidating Trust and Canadian Imperial Bank of Commerce (incorporated herein by reference to
Exhibit 99.2 to the Liquidating Trust's Current Report on Form 8-K, dated as of January 22, 1998).
10.14 -- Secured Term Note, dated as of December 31, 1997, by and between Petrie Stores Liquidating Trust and
Canadian Imperial Bank of Commerce (incorporated herein by reference to Exhibit 99.3 to the
Liquidating Trust's Current Report on Form 8-K, dated as of January 22, 1998).
10.15 -- Stock Pledge Agreement, dated as of December 31, 1997, by and between Petrie Stores
Liquidating Trust and Canadian Imperial Bank of Commerce (incorporated herein by reference to
Exhibit 99.4 to the Liquidating Trust's Current Report on Form 8-K, dated as of January 22, 1998).
10.16 -- Tri-Party Custody Agreement, dated as of December 31, 1997, by and among the United States Trust
Company of New York, Petrie Stores Liquidating Trust and Canadian Imperial Bank of Commerce
(incorporated herein by reference to Exhibit 99.5 to the Liquidating Trust's Current Report on
form 8-K, dated as of January 22, 1998).
27 -- Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
Current Report on Form 8-K, filed on December 1, 1999, reporting the
termination of the Master Agreement.
Current Report on Form 8-K, filed on December 28, 1999, reporting the
settlement of the Aventura Malls Venture litigation.
Current Report on Form 8-K, filed on January 21, 2000, reporting the
distribution of $78,525,357 in cash and 1,688,576 shares of Toys Common Stock to
be made by the Liquidating Trust to unit holders on February 11, 2000.
(c) See Item 14(a)(3) above. The Liquidating Trust will furnish to any
holder of units of beneficial interest of the Liquidating Trust, upon written
request, any exhibit listed in response to Item 14(a)(3) upon payment by such
holder of the Liquidating Trust's reasonable expenses in furnishing any such
exhibit.
(d) See Item 14(a)(2) above.
19
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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
By: /s/ Stephanie R. Joseph
----------------------------------
Stephanie R. Joseph
Manager and Chief Executive Officer
Dated: March 30, 2000
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 DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------------------- ---------------
<S> <C> <C>
/s/ H. Bartlett Brown
- ------------------------------------------ Assistant Manager, Chief Financial Officer and March 30, 2000
H. Bartlett Brown Principal Accounting Officer
/s/ Stephanie R. Joseph
- ------------------------------------------ Manager, Chief Executive Officer and Trustee March 30, 2000
Stephanie R. Joseph
/s/ Joseph H. Flom
- ------------------------------------------ Trustee March 30, 2000
Joseph H. Flom
/s/ Bernard Petrie
- ------------------------------------------ Trustee March 30, 2000
Bernard Petrie
/s/ Laurence A. Tisch
- ------------------------------------------ Trustee March 30, 2000
Laurence A. Tisch
/s/ Raymond S. Troubh
- ------------------------------------------ Trustee March 30, 2000
Raymond S. Troubh
</TABLE>
20
<PAGE>
PETRIE STORES LIQUIDATING TRUST
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS PAGE
- ----------------------------------------------------------------------------------------------------------- ----
<S> <C>
Report of Independent Auditors............................................................................. F-2
Statements of Net Assets in Liquidation--December 31, 1999 and December 31, 1998........................... F-3
Statements of Changes in Net Assets in Liquidation--For the years ended December 31, 1999,
1998 and 1997............................................................................................ F-4
Notes to Financial Statements.............................................................................. F-5
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Trustees and Holders of Units of Beneficial Interest
Petrie Stores Liquidating Trust
We have audited the accompanying statements of net assets in liquidation of
the Petrie Stores Liquidating Trust (successor to Petrie Stores Corporation and
its former subsidiaries) as of December 31, 1999 and December 31, 1998, and the
related statements of changes in net assets in liquidation for each of three
years in the period ended December 31, 1999. These financial statements are the
responsibility of the management of the Petrie Stores Liquidating Trust. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the net assets in liquidation of the Petrie Stores
Liquidating Trust (successor to Petrie Stores Corporation and its former
subsidiaries) as of December 31, 1999 and December 31, 1998 and the changes in
net assets in liquidation for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
MetroPark, New Jersey
March 20, 2000
F-2
<PAGE>
PETRIE STORES LIQUIDATING TRUST
(SUCCESSOR TO PETRIE STORES CORPORATION)
STATEMENTS OF NET ASSETS IN LIQUIDATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents......................................................... $ 280 $ 138
U.S. Treasury Obligations......................................................... 194,048 91,617
U.S. Treasury Obligations held in escrow.......................................... 5,470 37,500
Investments in common stock (including 1,493,450 shares of Toys "R" Us common
stock at December 31, 1999 and 3,493,450 shares of Toys "R" Us common stock at
December 31, 1998 held in escrow)............................................... 24,168 96,269
-------- --------
Total assets............................................................... 223,966 225,524
LIABILITIES
Accrued expenses and other liabilities............................................ 37,024 40,811
Commitments and contingencies
-------- --------
Net assets in liquidation......................................................... $186,942 $184,713
-------- --------
-------- --------
</TABLE>
See accompanying notes.
F-3
<PAGE>
PETRIE STORES LIQUIDATING TRUST
(SUCCESSOR TO PETRIE STORES CORPORATION)
STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ----------------
<S> <C> <C> <C>
Net assets in liquidation at beginning of period................... $184,713 $212,625 $223,329
-------- -------- --------
Investment income.................................................. 6,703 7,165 8,164
Corporate overhead................................................. (2,259) (3,710) (24,717)
Income tax refund.................................................. -- -- 4,066
Net realized and unrealized gain (loss) on investments............. (2,215) (31,367) 1,783
-------- -------- --------
Net income (loss) for the period................................... 2,229 (27,912) (10,704)
-------- -------- --------
-------- -------- --------
Net assets in liquidation at end of period......................... $186,942 $184,713 $212,625
-------- -------- --------
-------- -------- --------
Net income (loss) per unit......................................... $ 0.04 $ (.53) $ (.20)
-------- -------- --------
-------- -------- --------
Weighted average number of units................................... 52,350 52,350 52,350
-------- -------- --------
-------- -------- --------
</TABLE>
F-4
<PAGE>
PETRIE STORES LIQUIDATING TRUST
(SUCCESSOR TO PETRIE STORES CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Petrie Stores Liquidating Trust (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, held on December 6, 1994, Petrie's
shareholders approved the sale of Petrie's retail operations (the "Sale"). At
Petrie's Reconvened Annual Meeting, 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 2) 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 2) pursuant to which the Liquidating Trust is required to provide notice
to Toys "R" Us prior to making any future liquidating distributions.
Since the Succession Date, Petrie has been preparing for its dissolution.
On November 6, 1996, Petrie filed Articles of Dissolution with the Secretary of
State of the State of New York. Effective February 5, 1997, Petrie was
dissolved.
Beginning with the period ended December 31, 1996, the Liquidating Trust
has 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 December 31, 1999 and December 31, 1998 do not distinguish
between current and long-term balances as would be reflected if such statements
had been prepared on a going-concern basis.
Principles of Consolidation
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., then a wholly
owned subsidiary of Petrie ("Petrie Retail"), and all of the shares of Toys
Common Stock held by Petrie's former subsidiaries were transferred to Petrie.
Thereafter, Petrie Retail was sold to PS Stores Acquisition Corp. (hereafter,
including its subsidiaries and affiliates unless the context requires otherwise,
"PS Stores").
Cash Equivalents
Cash equivalents consist of highly liquid investments of less than 90 days'
maturity from the date of purchase. These investments are carried at cost plus
accrued interest, which approximates fair market value.
Investments in U.S. Treasury Obligations
Investments in U.S. Treasury obligations are carried at fair market value
and unrealized gains or losses thereon are recognized in the statement of
changes in net assets in liquidation.
Income Taxes
The Liquidating Trust is a complete pass-through entity for federal income
tax purposes and, accordingly, is not itself subject to federal income tax.
Instead, for federal income tax purposes, each Petrie shareholder (i) is deemed
to have received on the Succession Date, and therefore own, a pro rata share of
the assets transferred by Petrie to the Liquidating Trust, subject to a pro rata
share of Petrie's liabilities assumed by the Liquidating Trust, and (ii) is
subject to the same federal income tax consequences with respect to the receipt,
ownership or
F-5
<PAGE>
PETRIE STORES LIQUIDATING TRUST
(SUCCESSOR TO PETRIE STORES CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1999
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--(CONTINUED)
disposition of such assets as if such shareholder had directly received, owned
or disposed of such assets, subject to such liabilities.
Earnings Per Unit
Earnings per unit have been computed based on the weighted average number
of units outstanding. Since there are no dilutive securities outstanding for any
of the periods presented, basic and diluted earnings per unit are the same.
Concentration of Credit Risk
Certain financial instruments potentially subject the Liquidating Trust to
concentrations of credit risk. These financial instruments consist primarily of
temporary cash investments and U.S. Treasury obligations. The Liquidating Trust
places its temporary cash investments with high credit quality financial
institutions to limit its credit exposure.
The Liquidating Trust also has an investment in Toys "R" Us Common Stock.
See Note 2 for a discussion of credit risk associated with the Liquidating
Trust's investment in Common Stock.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. INVESTMENTS IN COMMON STOCK
The Liquidating Trust's investments in common stock at December 31, 1999
and 1998 consist of 1,688,576 and 4,055,576 shares, respectively, 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. At
December 31, 1999, the 1,688,576 shares are carried at market value. At December
31, 1998, 2,055,576 shares are carried at market value and 2,000,000 shares are
carried at the Put Price (as defined below).
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
(approximately 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 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 were placed into the Escrow Account
pursuant to the Escrow Agreement to provide for 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, 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 Escrow
Account terminated in accordance with its terms on January 24, 2000.
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 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). In connection with the
F-6
<PAGE>
PETRIE STORES LIQUIDATING TRUST
(SUCCESSOR TO PETRIE STORES CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1999
2. INVESTMENTS IN COMMON STOCK--(CONTINUED)
distribution of $78,525,357 in cash and 1,688,576 shares of Toys Common Stock by
the Liquidating Trust on February 11, 2000, the Liquidating Trust provided Toys
"R" Us with prior notice of the proposed distribution and Toys "R" Us agreed
that it did not object to such distribution. Pursuant to the terms of the letter
agreement, the Liquidating Trust is required to provide similar notice to Toys
"R" Us prior to making any additional distributions.
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 in the Collateral Account. In
connection with the settlement of a dispute with the Internal Revenue Service
(the "IRS"), approximately $32 million in U.S. Treasury obligations held in the
Collateral Account were transferred to the Liquidating Trust on May 20, 1997.
Pursuant to a stipulation and release approved by the bankruptcy court in Petrie
Retail's bankruptcy case (discussed below), an additional $32 million in U.S.
Treasury obligations held in the Collateral Account were transferred to the
Liquidating Trust on November 10, 1999. The Liquidating Trust is currently
required to maintain approximately $5.5 million in the Collateral Account. The
U.S. Treasury obligations 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).
The Liquidating Trust had also entered into a Master Agreement (based on
the International Swaps and Derivatives Association Form), dated as of
November 19, 1997 (the "Master Agreement"), with CIBC, to protect the
Liquidating Trust against certain investment risks associated with 2,000,000 of
the shares of Toys Common Stock held by the Liquidating Trust. Pursuant to the
Master Agreement, if on December 3, 1999, the price of Toys Common Stock was
below $30.7264 (the "Put Price"), CIBC would have been obligated to pay the
Liquidating Trust the difference between the Put Price and the then prevailing
price of Toys Common Stock, multiplied by 2,000,000. In addition, under the
Master Agreement, the Liquidating Trust had the right to elect to receive the
entire Put Price (in lieu of receiving the difference between the Put Price and
the prevailing price of Toys Common Stock) by delivering to CIBC the 2,000,000
shares of Toys Common Stock subject to the Master Agreement. On November 29,
1999, the Liquidating Trust and CIBC agreed to terminate the Master Agreement
prior to the Master Agreement's scheduled termination date of December 3, 1999.
In connection with such termination, the Liquidating Trust delivered to CIBC the
2,000,000 shares of Toys Common Stock which were subject to the Master Agreement
in exchange for a cash payment of approximately $61.4 million.
In accordance 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 on March 24, 1995 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 on August 15, 1995 of approximately $139.4 million).
At various times during the period ended January 22, 1996, Petrie sold an
aggregate of 5,610,700 shares of Toys Common Stock for approximately $126.9
million in proceeds. 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. During 1999, in addition to the
2,000,000 shares of Toys Common Stock delivered to
F-7
<PAGE>
PETRIE STORES LIQUIDATING TRUST
(SUCCESSOR TO PETRIE STORES CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1999
2. INVESTMENTS IN COMMON STOCK--(CONTINUED)
CIBC in exchange for a cash payment of approximately $61.4 million as discussed
above, the Liquidating Trust sold an aggregate of 367,000 shares of Toys Common
Stock for approximately $8.5 million in proceeds.
In November 1994, Petrie received a favorable private letter ruling from
the IRS to the effect that the Exchange and the subsequent distribution of Toys
Common Stock to Petrie's shareholders would qualify as a tax-free reorganization
under the Internal Revenue Code of 1986, as amended. The ruling further provided
that Petrie would not recognize any gain on these transactions.
On February 11, 2000, the Liquidating Trust distributed a total of
$78,525,357 in cash and 1,688,576 shares of Toys "R" Us common stock.
3. INCOME TAXES
As a result of the Succession, Petrie ceased to be a taxable entity.
Subsequent to January 22, 1996, the Liquidating Trust, as successor to Petrie,
is a complete pass-through entity for federal income taxes and, accordingly, is
not itself subject to federal income tax.
During the year ended December 31, 1997, $4,066,000 in income tax refunds,
plus interest thereon, were released to the Liquidating Trust from escrow in
offset of certain claims that the Liquidating Trust had against Petrie Retail
relating to Petrie Retail's failure to perform certain of the obligations that
it assumed in connection with the Sale. The income tax refunds were released
from escrow following the previously disclosed settlement of an action commenced
by Petrie Retail in the Bankruptcy Court to recover income tax refunds received
by the Liquidating Trust in respect of taxes paid by Petrie prior to the Sale.
Pursuant to the settlement, approved by the Bankruptcy Court on June 25, 1997,
the Liquidating Trust reserved the right to assert future claims against Petrie
Retail to the extent that such claims relate to amounts in excess of the amounts
offset in the settlement. Additionally, Petrie Retail and the Liquidating Trust
agreed to share equally in the proceeds of any similar tax refunds received in
the future.
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 for which Petrie Retail or an
affiliate thereof assumed liability, 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 or its successor fails to perform; and (ii)
Petrie's agreement with Petrie Retail to indemnify it for certain liabilities
relating to the funding of, and 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 December 31, 1999 and
December 31, 1998, the Liquidating Trust, as successor to Petrie, had accrued
approximately $36 million and $39 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.
Petrie Retail's Bankruptcy. 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"). In connection with its filing for
bankruptcy protection, Petrie Retail failed to perform or make payments with
respect to certain of the Assumed Obligations, including, but not limited to,
Assumed Obligations relating to store leases for which Petrie Retail or an
affiliate thereof had assumed liability, state and federal taxes, employment
agreements, insurance premiums and certain other claims
F-8
<PAGE>
PETRIE STORES LIQUIDATING TRUST
(SUCCESSOR TO PETRIE STORES CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1999
4. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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.
On December 23, 1997, the Liquidating Trust filed over 110 claims in the
Bankruptcy Court against Petrie Retail and certain of its affiliates with
respect to an aggregate of approximately $14 million in payments which had then
been made by the Liquidating Trust as a result of the failure by Petrie Retail
or an affiliate thereof to perform or pay certain of the Assumed Obligations.
The Liquidating Trust subsequently amended these claims such that it asserted
fixed claims representing a total of approximately $16.9 million against Petrie
Retail's estate. The Liquidating Trust also filed approximately 600 additional
claims in the Bankruptcy Court against Petrie Retail and certain of its
affiliates with respect to payments which the Liquidating Trust may in the
future be required to make as a result of the failure by Petrie Retail or its
affiliates to perform or pay Assumed Obligations. On March 9, 2000, the
distribution company (the "Distribution Company") designated by the Petrie
Retail Plan (as defined below) moved for Bankruptcy Court approval of a
stipulation of settlement with the Liquidating Trust. Pursuant to the proposed
settlement, the Liquidating Trust and Distribution Company would settle their
disputes regarding the claims that the Liquidating Trust filed against Petrie
Retail by (i) allowing the Liquidating Trust a single unsecured claim against
Petrie Retail in the amount of $15.3 million, subject to certain adjustments,
(ii) releasing to the Liquidating Trust the $5.5 million held in the Collateral
Account by June 30, 2000, unless the Distribution Company pays $10 million or
more to the Multiemployer Plan prior to that date, and (iii) exchanging mutual
releases. A hearing on the motion to approve the settlement is scheduled for
April 12, 2000. There can be no assurance that the Bankruptcy Court will approve
the settlement. Moreover, even if the settlement is approved, there can be no
assurance as to the timing of the payment of claims against the reorganized
Petrie Retail entity or the amount of the payments, if any, that the reorganized
Petrie Retail entity will make to creditors asserting unsecured claims.
Accordingly, no amounts have been accrued as receivables for potential
reimbursement or recoveries from the reorganized Petrie Retail entity.
On April 10, 1998, PS Stores, the parent of Petrie Retail, filed a
voluntary petition for reorganization relief under Chapter 11 of the United
States Bankruptcy Code with the Bankruptcy Court. On August 7, 1998, the
Liquidating Trust filed claims in the Bankruptcy Court against PS Stores
substantially similar to those filed against Petrie Retail.
On December 8, 1998, the Bankruptcy Court confirmed the proposed plan of
reorganization for Petrie Retail (the "Petrie Retail Plan"), which modified the
plan of reorganization filed by Petrie Retail and Warburg Pincus Ventures, L.P.
("Warburg") with the Bankruptcy Court on August 6, 1998, as amended. Under the
confirmed Petrie Retail Plan, Petrie Retail sold substantially all of its
remaining operating assets to Urban Acquisition Corp., an affiliate of Urban
Brands, Inc., a retailer that operates under the Ashley Stewart trade name, for
$52.25 million, and retained 13 of its store leases, for which Warburg was
required to contribute $12 million to the bankruptcy estate, assume
$3.1 million of Petrie Retail's executive severance obligations and waive
approximately $3.8 million in fees and expenses allegedly owed to it under
Petrie Retail's debtor-in-possession financing arrangement.
On December 8, 1998, the Bankruptcy Court confirmed PS Stores' proposed
plan of reorganization. In August 1999, pursuant to a settlement approved by the
Bankruptcy Court, the Liquidating Trust received a payment in the amount of
$0.2 million from PS Stores' bankruptcy estate.
Store Leases. As described above, in December 1998, Petrie Retail disposed
of substantially all its remaining operations and store leases as part of the
Petrie Retail Plan. Of the roughly 1600 stores that Petrie Retail operated prior
to filing its bankruptcy petition in October 1995, (i) 722 leases were rejected,
(ii) 615 leases were assigned to third party retailers, including (A) 410 leases
which were part of Petrie Retail's former G&G Shops Inc. division and were
included in the sale of such division to an investor group led by Pegasus
Partners, L.P. and certain executives of such division, (B) 85 leases which were
sold to Urban Acquisition Corp. as part of
F-9
<PAGE>
PETRIE STORES LIQUIDATING TRUST
(SUCCESSOR TO PETRIE STORES CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1999
4. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
the Petrie Retail Plan and (C) 120 leases which were not part of Petrie Retail's
former G&G Shops Inc. division and which were sold to third party retailers
other than Urban Acquisition Corp., (iii) 13 leases were retained by the
reorganized Petrie Retail entity for stores which are currently managed by Urban
Acquisition Corp. and which Urban Acquisition Corp. has the right to purchase at
a later date and (iv) approximately 250 leases expired or were terminated by
mutual landlord and tenant consent. In addition, an affiliate of the Liquidating
Trust's real estate advisor has assumed Petrie Retail's former headquarters
lease at 150 Meadowlands Parkway in Secaucus, New Jersey, which lease is
guaranteed by the Liquidating Trust. The Liquidating Trust's real estate advisor
has sublet a portion of the former headquarters space and is seeking to sublet
the remainder of the space in an effort to mitigate the Liquidating Trust's
liability under this lease, although no assurance can be given that such efforts
will be successful.
After taking into account settlements and releases obtained from landlords,
the Liquidating Trust, as successor to Petrie, remains the guarantor of 168 of
the retail leases and the headquarters lease described above. The Liquidating
Trust's theoretical exposure relating to these leases, without giving effect to
any present value discount and assuming the landlord in each case is unable to
mitigate its damages, would be approximately $46 million. Such exposure includes
(i) approximately $30 million in potential liability related to 73 of the
rejected store leases described above and 43 of the leases which have expired or
were terminated by mutual landlord and tenant consent described above, which
amount is included in the Liquidating Trust's accrued expenses and other
liabilities at December 31, 1999, (ii) approximately $2 million in potential
liability relating to the headquarters lease, which amount is included in the
Liquidating Trust's accrued expenses and other liabilities at December 31, 1999,
and (iii) approximately $14 million in potential liability related to 51 of the
store leases which were either assigned to third party retailers or are still
held by the successor of Petrie Retail. Of the $16 million in potential
liability related to the assigned leases, the leases that are still held by the
successor of Petrie Retail and the headquarters lease, approximately $4 million
is due in 2000 and approximately $12 million is due thereafter.
As previously disclosed, landlords under leases relating to 135 stores
operated by Petrie Retail or an affiliate thereof alleged in a complaint that
the Liquidating Trust, as successor to Petrie, had 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. On December 28,
1999, the Liquidating Trust paid the plaintiffs $2.4 million in settlement of
their remaining claims against the Liquidating Trust and received a full release
from all claims, without any recognition of wrongdoing or liability with respect
to the claims asserted.
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.
Employment Agreements. 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
F-10
<PAGE>
PETRIE STORES LIQUIDATING TRUST
(SUCCESSOR TO PETRIE STORES CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1999
4. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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 respective agreements with Petrie. The total cost of
these settlements to the Liquidating Trust was approximately $3.2 million, of
which approximately $440,000 (relating to certain unfunded pension obligations)
remained unpaid and was included in the Liquidating Trust's accrued expenses and
other liabilities at December 31, 1999.
Multiemployer Plan. As previously disclosed, effective January 31, 1995,
Petrie Retail withdrew from the Multiemployer Plan. Due to the Multiemployer
Plan's underfunded status, Petrie Retail and its affiliates incurred withdrawal
liability under the Employee Retirement Income Security Act of 1974, as amended.
By letter dated May 30, 1996, the Multiemployer Plan initially 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 November 1, 2006. In
addition, the Multiemployer Plan initially 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. In December 1998, the Multiemployer Plan
also submitted amended proofs of claim indicating that, among other entities, PS
Stores and Petrie Retail were indebted to the Multiemployer Plan in the
aggregate amount of approximately $17.3 million, consisting of withdrawal
liability of $4.7 million, funding deficiencies of $1.4 million and an
additional $11.2 million as a result of a mass withdrawal by contributing
employers from the Multiemployer Plan. To the knowledge of the Liquidating
Trust, Petrie Retail never made any payments with respect to such liabilities.
Pursuant to the Retail Operations Stock Purchase Agreement, Petrie Retail and
its affiliates are responsible for payment of the first $10 million in
withdrawal and related liabilities and are entitled to be reimbursed by the
Liquidating Trust, as successor to Petrie, for 75% of the next $50 million paid
by Petrie Retail and its affiliates in respect of such liabilities. It is
unclear what effect, if any, Petrie Retail's or PS Stores' bankruptcy filings
may have upon the timing and amount of any payments the Liquidating Trust may be
required to make under the Retail Operations Stock Purchase 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 or PS
Stores' bankruptcy filings.
On or about September 25, 1998, the Internal Revenue Service issued an
examination report asserting that "Petrie Stores, Inc." is liable for excise
taxes and penalties of approximately $192,000 relating to the Multiemployer
Plan's funding deficiencies for the three plan years ended January 31, 1993,
1994 and 1995. On January 24, 2000, the Liquidating Trust paid the Internal
Revenue Service approximately $59,000 in full settlement of the alleged
liability.
The Liquidating Trust believes, based on the most recently available
information, that appropriate accruals have been established in the accompanying
financial statements to provide for any losses that may be incurred with respect
to the aforementioned contingencies.
F-11
<PAGE>
PETRIE STORES LIQUIDATING TRUST
(SUCCESSOR TO PETRIE STORES CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1999
5. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the years ended December 31, 1999
and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
QUARTER
------------------------------------------------------------
FIRST SECOND THIRD FOURTH
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C>
Year ended December 31, 1999:
Net income (loss)................................. $ 4,963(1) $ 6,768(2) $ (7,913)(3) $ (1,589)(4)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income (loss) per unit........................ $ 0.09 $ 0.13 $ (0.15) $ (0.03)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Year ended December 31, 1998:
Net income (loss)................................. $ (5,291)(5) $(12,098)(6) $(13,505)(6) $ 2,982(7)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income (loss) per unit........................ $ (0.10) $ (0.23) $ (0.26) $ .06
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
- ------------------
(1) The first quarter of the year ended December 31, 1999 includes an unrealized
gain related to an increase in the market value of Toys Common Stock of
$3,854,000 and a reduction in the Liquidating Trust's accrual for lease
liabilities of $400,000, following the settlement and release of claims
asserted by certain landlords.
(2) The second quarter of the year ended December 31, 1999 includes an
unrealized gain related to an increase in the market value of Toys Common
Stock of $4,738,000, realized gains of $1,572,000 related to sales of Toys
Common Stock, a reduction in the Liquidating Trust's accrual for lease
liabilities of $200,000 following the settlement and release of claims
asserted by certain landlords and $720,000 in income related to refunds
received for retrospective insurance premiums and taxes paid on behalf of
Petrie Retail.
(3) The third quarter of the year ended December 31, 1999 includes an unrealized
loss related to a decrease in the market value of Toys Common Stock of
$9,604,000 partially offset by a reduction in the Liquidating Trust's
accrual for lease liabilities of $200,000 following the settlement and
release of claims asserted by certain landlords and the receipt of $178,000
of bankruptcy settlement payments.
(4) The fourth quarter of the year ended December 31, 1999 includes an
unrealized loss of $1,161,000 related to a decrease in the market value
of Toys Common Stock, a realized loss of $42,000 in connection with
delivering 2,000,000 shares of Toys Common Stock and the accrual of an
additional $2 million in respect of the settlement of the Aventura Malls
Venture litigation.
(5) The first quarter of the year ended December 31, 1998 includes an unrealized
loss related to a decrease in the market value of Toys Common Stock of
$4,120,000 and additional accruals of $2.0 million for contingent guarantee
liabilities related to store leases with respect to which Petrie Retail
failed to perform its obligations.
(6) The second and third quarters of the year ended December 31, 1998 include
unrealized losses related to decreases in the market value of Toys Common
Stock of $13,747,000 and $14,903,000, respectively, offset by reductions in
the Liquidating Trust's accrual for lease liabilities of $3.0 million and
$600,000, respectively, following the settlement and release of claims
asserted by certain landlords.
(7) The fourth quarter of the year ended December 31, 1998 includes an
unrealized gain related to an increase in the market value of Toys Common
Stock of $1,542,000 and a reduction in the Liquidating Trust's accrual for
lease liabilities of $400,000 following the settlement and release of claims
asserted by certain landlords.
F-12
<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 December 31, 1999
and the Liquidating Trust's statement of changes in net assets in liquidation
for the year ended December 31, 1999, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 199,798
<SECURITIES> 24,168
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 223,966
<CURRENT-LIABILITIES> 37,024
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 186,942
<TOTAL-LIABILITY-AND-EQUITY> 223,966
<SALES> 0
<TOTAL-REVENUES> 6,703
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,259
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,229
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
</TABLE>
