SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 COMMISSION FILE NUMBER: 0-3777
PETRIE STORES LIQUIDATING TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 22-6679945
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
201 ROUTE 17, SUITE 300
RUTHERFORD, NEW JERSEY 07070
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (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:
Not Applicable.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to
such filing requirements for the past 90 days.
Yes: X No:
----- -----
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date: As of August 11,
2000, there were 52,350,238 Units of Beneficial Interest outstanding.
PETRIE STORES LIQUIDATING TRUST
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Statements of Net Assets in Liquidation -
June 30, 2000 (Unaudited) and December 31, 1999..................... 2
Statements of Changes in Net Assets in Liquidation (Unaudited) -
For the Three and Six Months Ended June 30, 2000 and 1999........... 3
Notes to Financial Statements....................................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................13
Item 6. Exhibits and Reports on Form 8-K....................................13
PETRIE STORES LIQUIDATING TRUST
STATEMENTS OF NET ASSETS IN LIQUIDATION
(IN THOUSANDS)
JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999
---------------- ---------------
ASSETS
Cash and cash equivalents...................$ 880 $ 280
U.S. Treasury obligations.................... 122,426 194,048
U.S. Treasury obligations
held in escrow.............................. - 5,470
Investments in common stock................. - 24,168
---------------- ---------------
Total assets................................ 123,306 223,966
LIABILITIES
Accrued expenses
and other liabilities...................... 36,282 37,024
Commitments and contingencies
---------------- ---------------
Net assets in liquidation...................$ 87,024 $ 186,942
================ ===============
See accompanying notes.
<TABLE>
<CAPTION>
PETRIE STORES LIQUIDATING TRUST
STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
-------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Net assets in liquidation
at beginning of period................. $ 85,571 $189,676 $186,942 $184,713
-------------- ------------ ---------- ----------
Investment income...................... 1,628 1,539 3,554 3,061
Corporate overhead
(expense) benefit...................... (175) 491 (779) 78
Net realized and
unrealized gain
(loss) on investments.................. - 4,738 (4,327) 8,592
-------------- ------------ ---------- ----------
Net income (loss)
for the period......................... 1,453 6,768 (1,552) 11,731
-------------- ------------ ---------- ----------
Liquidating distributions
(including cash and
1,688,576 shares
of Toys "R" Us
common stock valued
at $11.75 per share).................. - - (98,366) -
-------------- ------------ ---------- ----------
Net assets in liquidation
at end of period...................... $ 87,024 $196,444 $ 87,024 $196,444
============== ============ ========== ==========
Net income (loss) per unit............. $0.03 $0.13 ($0.03) $0.22
============== ============ ========== ==========
Weighted average
number of units....................... 52,350 52,350 52,350 52,350
============== ============ ========== ==========
See accompanying notes.
</TABLE>
PETRIE STORES LIQUIDATING TRUST
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2000
1. INTERIM REPORTING
The accompanying unaudited financial statements of Petrie Stores
Liquidating Trust (the "Liquidating Trust") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of the Liquidating Trust, all
adjustments (consisting of only normal recurring accruals) considered
necessary for a fair presentation have been included. Results for the three
and six months ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the current fiscal year. For further
information, reference is made to the financial statements and footnotes
thereto included in the Liquidating Trust's Annual Report on Form 10-K for
the year ended December 31, 1999.
2. BASIS OF PRESENTATION
The Liquidating Trust is the successor to Petrie Stores
Corporation, a New York corporation that was dissolved effective February
5, 1997 ("Petrie"). Prior to December 9, 1994, Petrie operated a chain of
retail stores that specialized in women's apparel and were located
throughout the United States (including Puerto Rico and the U.S. Virgin
Islands). At Petrie's Annual Meeting of Shareholders, held on December 6,
1994, Petrie's shareholders approved the sale of Petrie's retail operations
(the "Sale"). At Petrie's Reconvened Annual Meeting of Shareholders, held
on January 24, 1995, Petrie's shareholders approved (i) an exchange of
shares of Toys "R" Us, Inc. ("Toys 'R' Us") common stock ("Toys Common
Stock") with Toys "R" Us (Note 3) and (ii) the liquidation and dissolution
of Petrie pursuant to a plan of liquidation and dissolution (the "Plan of
Liquidation").
Pursuant to the Plan of Liquidation and the Agreement and
Declaration of Trust, dated as of December 6, 1995 (the "Liquidating Trust
Agreement"), between Petrie and the trustees named therein (the
"Liquidating Trustees"), effective as of the close of business on January
22, 1996 (the "Succession Date"), Petrie transferred its remaining assets
(then consisting of approximately $131 million in cash and cash equivalents
and 5,055,576 shares of Toys Common Stock) to, and its remaining fixed and
contingent liabilities were assumed by (the "Succession"), the Liquidating
Trust. The assets of the Liquidating Trust are subject to various
contingent liabilities, the status of which is presently unclear (Note 4),
as well as the terms of a letter agreement with Toys "R" Us (Note 3)
pursuant to which the Liquidating Trust is required to provide notice to
Toys "R" Us (and an opportunity for Toys "R" Us to object) prior to making
any future liquidating distributions.
Beginning with the period ended December 31, 1996, the Liquidating
Trust adopted the calendar year as its fiscal year. A liquidation basis of
accounting was implemented as of January 28, 1995. The statements of net
assets in liquidation at June 30, 2000 and December 31, 1999 do not
distinguish between current and long-term balances as would be reflected if
such statements had been prepared on a going-concern basis.
At the Succession Date, and as a result of the Succession, Petrie
ceased to be a taxable entity. The Liquidating Trust is a complete
pass-through entity for federal income taxes and, accordingly, is not
itself subject to 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.
3. INVESTMENTS IN COMMON STOCK
The Liquidating Trust's investments in common stock at December 31,
1999 consisted of 1,688,576 shares 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 were carried at market value. During the six-month
period ended June 30, 2000, the Liquidating Trust distributed its remaining
shares of Toys "R" Us common stock to its unit holders. At June 30, 2000,
the Liquidating Trust did not own any shares of Toys Common Stock.
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, Inc. ("Petrie Retail"), PS Stores
Acquisition Corp. ("PS Stores"), and certain subsidiaries of PS Stores, and
(z) the Retail Operations Stock Purchase Agreement, dated as of August 23,
1994 and amended on November 3, 1994 (the "Retail Operations Stock Purchase
Agreement"), between Petrie and PS Stores, and (ii) otherwise. The 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 the
Liquidating Trust is required, prior to making any future distribution, to
provide notice to Toys "R" Us and an opportunity for Toys "R" Us to object
to such distribution.
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 stipulations approved
by the bankruptcy court in Petrie Retail's bankruptcy case (discussed
below), the remaining amounts held in the Collateral Account have been
released and transferred to the Liquidating Trust.
On February 11, 2000, the Liquidating Trust distributed to its unit
holders a total of $78,525,357 in cash and 1,688,576 shares of Toys Common
Stock.
4. COMMITMENTS AND CONTINGENCIES
As successor to Petrie, the Liquidating Trust has accrued for
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 June 30, 2000 and December 31, 1999, the Liquidating
Trust, as successor to Petrie, had accrued approximately $35 million and
$36 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.
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 December 8, 1998, the Bankruptcy Court confirmed a 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 April 12, 2000, the Bankruptcy Court approved a stipulation of
settlement between the distribution company (the "Distribution Company")
designated by the Petrie Retail Plan and the Liquidating Trust), under
which the Liquidating Trust and Distribution Company settled their disputes
regarding the claims that the Liquidating Trust filed against Petrie
Retail. Pursuant to the stipulation, (i) the Liquidating Trust was allowed
a single unsecured claim against Petrie Retail in the amount of
approximately $14.4 million, subject to increase pending resolution of the
Distribution Company's objections to certain landlord claims against Petrie
Retail, (ii) the Distribution Company agreed to release to the Liquidating
Trust the approximately $5.5 million held in the Collateral Account by June
30, 2000 (provided that the Distribution Company did not pay $10 million or
more to the Multiemployer Plan prior to that date), and (iii) the parties
exchanged mutual releases. On June 28, 2000, the approximately $5.5 million
held in the Collateral Account was released and transferred to the
Liquidating Trust in accordance with the settlement. There can be no
assurance as to the timing of the payment of the Liquidating Trust's claim
against the Distribution Company or the amount of any payments that the
Distribution Company 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 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 approximately $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 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 166 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 $43 million. Such exposure includes (i) approximately $29
million in potential liability related to 71 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 June 30, 2000, (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 June 30,
2000, and (iii) approximately $12 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 $14 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 $2 million is due in 2000, approximately $4 million is due in
2001 and approximately $18 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 $390,000 (relating to certain unfunded pension
obligations) remained unpaid and was included in the Liquidating Trust's
accrued expenses and other liabilities at June 30, 2000.
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 were responsible for payment of the first $10 million in
withdrawal and related liabilities and were 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. Pursuant to the stipulation of settlement referred to under
"--Petrie Retail's Bankruptcy" above, the Liquidating Trust was released
from its contractual liability with respect to the Multiemployer Plan. See
"--Petrie Retail's Bankruptcy" above.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the
Financial Statements and the Notes thereto provided herein.
As previously disclosed, Petrie sold its retail operations to PS
Stores on December 9, 1994, and on January 24, 1995 (the date on which
Petrie's shareholders approved the Plan of Liquidation), Petrie commenced
its liquidation. As a result, effective January 28, 1995, Petrie changed
its basis of accounting from a going- concern basis to a liquidation basis.
During the three and six months ended June 30, 2000, the Liquidating
Trust's activities were limited to continuing Petrie's liquidation in
furtherance of the Plan of Liquidation. Beginning with the period ended
December 31, 1996, the Liquidating Trust adopted the calendar year as its
fiscal year.
RESULTS OF OPERATIONS
The Liquidating Trust's net income (loss) for the three and six
months ended June 30, 2000 was $1,453,000 and ($1,552,000), respectively,
as compared to net income of $6,768,000 and $11,731,000, respectively, for
the three and six months ended June 30, 1999.
In applying a liquidation basis of accounting, the Liquidating
Trust has given effect in its results of operations to fluctuations in the
market price of its Toys Common Stock, and has recorded a realized loss on
the Toys Common Stock for the six months ended June 30, 2000 of $4,327,000,
as compared to realized and unrealized gains for the three and six months
ended June 30, 1999 of $4,738,000 and $8,592,000, respectively. The
realized loss for the six months ended June 30, 2000 resulted from the
distribution of 1,688,576 shares of Toys Common Stock on February 11, 2000.
For the three and six months ended June 30, 2000, the Liquidating
Trust incurred corporate overhead of $175,000 and $779,000, respectively,
as compared to a benefit in corporate overhead for the three and six months
ended June 30, 1999 of $491,000 and $78,000, respectively. Corporate
overhead generally consists of costs and expenses related to the
liquidation and dissolution of Petrie including, but not limited to, costs
and expenses that the Liquidating Trust has incurred as a result of Petrie
Retail's failure to perform its obligations in connection with its
bankruptcy filing, 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.
There were no additional accruals for lease liabilities or reductions in
lease liabilities recorded during the three and six months ended June 30,
2000. During the three and six months ended June 30, 1999, the Liquidating
Trust's total accrual for lease liabilities was reduced by approximately
$200,000 and $600,000, respectively, following the settlement and release
of claims asserted by landlords. Additionally, during the three and six
months ended June 30, 1999, the Liquidating Trust received (i)
approximately $312,000 from Petrie Retail pursuant to a stipulation
approved by the Bankruptcy Court in respect of certain income taxes
previously paid by the Liquidating Trust, as successor to Petrie and (ii)
approximately $408,000 from Zurich-American Insurance Group in respect of
certain retrospective insurance premium adjustments based on claims made by
the Liquidating Trust.
During the three and six months ended June 30, 2000, the
Liquidating Trust earned investment income of $1,628,000 and $3,554,000,
respectively, as compared to $1,539,000 and $3,061,000, respectively,
earned during the three and six months ended June 30, 1999. The increase in
investment income for the three and six months ended June 30, 2000 was due
to an increase in higher effective interest rates.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
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 the Liquidating Trust is required, prior to
making any future distribution, to provide notice to Toys "R" Us and an
opportunity for Toys "R" Us to object to such distribution.
As of August 11, 2000, the Liquidating Trust had approximately $123
million in cash, cash equivalents and investments in U.S. Treasury
obligations. 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 more fully described in Item 1 of Part I, the Liquidating Trust,
as successor to Petrie, has accrued for 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 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 Petrie Retail's
withdrawal from the United Auto Workers District 65 Security Plan Pension
Fund. At June 30, 2000, the Liquidating Trust, as successor to Petrie, had
accrued approximately $35 million for contingent liabilities. As the scope
of these liabilities becomes better defined, there may be changes in the
estimates of future costs, which could have a material effect on the
Liquidating Trust's financial condition, liquidity and future ability to
make liquidating distributions. See Notes to Financial Statements.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical matters, the matters discussed in this Form
10-Q are forward-looking 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-Q, the following
important factors, among others, could cause the Liquidating Trust's assets
and liabilities to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Liquidating Trust,
and could materially affect the Liquidating Trust's 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;
(3) An adverse material change in general economic conditions
and the interest rate environment;
(4) The effects of, and changes in, laws and regulations and
other activities of federal and local governments, agencies
and similar organizations; and
(5) The costs and other effects of other legal and
administrative cases and proceedings, settlements and claims
relating to the Liquidating Trust's contingent liabilities.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See the discussion contained in the Notes to Financial Statements
in Part I, Item 1 of this Quarterly Report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) LIST OF EXHIBITS
Exhibit 27 -- Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
PETRIE STORES LIQUIDATING TRUST
Dated: August 14, 2000 By /s/Stephanie R. Joseph
--------------------------------------
Stephanie R. Joseph
Manager and Chief Executive Officer
Dated: August 14, 2000 By /s/H. Bartlett Brown
--------------------------------------
H. Bartlett Brown
Assistant Manager and
Chief Financial Officer
