-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PBg8ShNZQJK6m1NQXWaM0xNxqOvs8HJIpv4y0F72d+uUyP1ExMPNFy9y5wMUSgUQ nD2di0R/9DnykbBeEgVEaA== 0000950123-04-003986.txt : 20040330 0000950123-04-003986.hdr.sgml : 20040330 20040330133145 ACCESSION NUMBER: 0000950123-04-003986 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PETRIE STORES LIQUIDATING TRUST CENTRAL INDEX KEY: 0000077808 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-WOMEN'S CLOTHING STORES [5621] IRS NUMBER: 226679945 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06166 FILM NUMBER: 04699527 BUSINESS ADDRESS: STREET 1: 201 RT 17 STREET 2: SUITE 300 CITY: RUTHERFORD STATE: NJ ZIP: 07070 BUSINESS PHONE: 2125569600 FORMER COMPANY: FORMER CONFORMED NAME: PETRIE STORES CORP DATE OF NAME CHANGE: 19920703 10-K 1 y95651e10vk.txt PETRIE STORES LIQUIDATING TRUST 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, 2003 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 07070 RUTHERFORD, NEW JERSEY (Zip Code) (Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 635-9637 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 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 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. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [ ] No [X] As of March 25, 2004, 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. On June 30, 2003, the last business day of the Liquidating Trust's most recently completed second quarter, the aggregate market value of the units of beneficial interest held by non-affiliates was approximately $15.3 million, based upon the closing price of $0.63 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. INDEX PART I Item 1. Business.................................................... 2 Item 2. Properties.................................................. 3 Item 3. Legal Proceedings........................................... 3 Item 4. Submission of Matters to a Vote of Security Holders......... 3 PART II Item 5. Market for the Registrant's Common Equity and Related Security Holder Matters..................................... 4 Item 6. Selected Financial Data..................................... 5 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 5 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................................ 11 Item 8. Financial Statements and Supplementary Data................. 11 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 11 Item 9A. Controls and Procedures..................................... 11 PART III Item 10. Directors and Executive Officers of the Registrant.......... 12 Item 11. Executive Compensation...................................... 14 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Security Holder Matters.............. 15 Item 13. Certain Relationships and Related Transactions.............. 16 Item 14. Principal Accountant Fees and Services...................... 16 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................................... 17
1 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, have (i) made six liquidating distributions to shareholders (or, in the case of the Liquidating Trust, to unit holders) of an aggregate of 33,098,720 shares of Toys Common Stock and approximately $125.6 million in cash (including, most recently, the distribution of approximately $21 million on January 30, 2004); (ii) sold an aggregate of 6,977,700 shares of Toys Common Stock; and (iii) delivered 2,000,000 shares of Toys Common Stock to Canadian Imperial Bank of Commerce ("CIBC") in exchange for a cash payment of approximately $61.4 million. As a result of the foregoing transactions, the Liquidating Trust no longer holds any shares of Toys Common Stock. 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 ("Unit of Beneficial Interest") 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. On November 19, 2002, the expiration date of the Liquidating Trust was extended from December 6, 2002 to December 6, 2006 (subject to further extension by the Liquidating Trustees). 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 2 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. 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. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not Applicable. 3 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 Liquidating Trust's 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:
HIGH LOW ----- ----- Year Ending December 31, 2002: First quarter (ended March 31, 2002)...................... $0.89 $0.85 Second quarter (ended June 30, 2002)...................... $0.90 $0.87 Third quarter (ended September 30, 2002).................. $0.94 $0.87 Fourth quarter (ended December 31, 2002).................. $1.03 $0.92 Year Ending December 31, 2003: First quarter (ended March 31, 2003)...................... $1.14 $0.60 Second quarter (ended June 30, 2003)...................... $0.65 $0.61 Third quarter (ended September 30, 2003).................. $0.65 $0.62 Fourth quarter (ended December 31, 2003).................. $0.66 $0.64 Year Ending December 31, 2004: First quarter (through March 25, 2004).................... $0.86 $0.42
As of March 25, 2004, the most recent practicable date prior to the printing of this report, there were approximately 2,300 holders of record of units of beneficial interest of the Liquidating Trust. On January 30, 2004, the Liquidating Trust distributed to its unit holders a total of $20,940,095 in cash, or $0.40 for each unit of beneficial interest held of record at the close of business on January 20, 2004. On January 31, 2003, the Liquidating Trust distributed to its unit holders a total of $26,175,119 in cash, or $0.50 for each unit of beneficial interest held of record at the close of business on January 21, 2003. 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. EQUITY COMPENSATION PLAN INFORMATION The Liquidating Trust does not have any compensation plans under which equity securities are authorized for issuance. 4 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, 2003, 2002, 2001, 2000 and 1999. A liquidation basis of accounting was implemented for all years presented.
YEAR ENDED DECEMBER 31, ------------------------------------------------ 2003(2) 2002 2001(3) 2000(4) 1999(5) ------- ------- ------- ------- -------- (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) Corporate overhead benefit (expense)(1)...................... $ 2,002 $(1,270) $ 94 $ 6,262 $ (2,259) Investment income................... 736 1,720 4,171 7,033 6,703 Net realized and unrealized (loss) on investments.................... -- -- -- (4,327) (2,215) ------- ------- ------- ------- -------- Net income.......................... $ 2,738 $ 450 $ 4,265 $ 8,968 $ 2,229 ======= ======= ======= ======= ======== Income per unit:.................... $ 0.05 $ 0.01 $ 0.08 $ 0.17 $ 0.04 ======= ======= ======= ======= ======== Weighted average number of units.... 52,350 52,350 52,350 52,350 52,350 ======= ======= ======= ======= ======== Total assets........................ $65,154 $88,916 $88,996 $86,344 $223,966 ======= ======= ======= ======= ========
- --------------- (1) Corporate overhead generally consists of 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. (2) The benefit in corporate overhead for the year ended December 31, 2003, reflects the receipt of approximately $1.8 million on or about July 1, 2003, as partial payment of the Liquidating Trust's claim against the Petrie Retail bankruptcy estate, and the receipt of approximately $949,000 on or about December 30, 2003, of a refund in respect of previous tax years to which the Liquidating Trust is entitled pursuant to a settlement agreement between the Liquidating Trust and the Petrie Retail bankruptcy estate. (3) The benefit in corporate overhead for the year ended December 31, 2001 reflects the receipt by the Liquidating Trust of approximately $1.5 million as partial payment of the Liquidating Trust's claim against the Petrie Retail bankruptcy estate. (4) The benefit in corporate overhead for the year ended December 31, 2000 reflects a reduction of $3.8 million in the Liquidating Trust's total accrual for lease liabilities following the settlement and release of claims asserted by certain landlords. By order of the Bankruptcy Court in Petrie Retail's bankruptcy dated April 12, 2000, the Liquidating Trust was released from its contractual liability with respect to the United Auto Workers District 65 Security Plan Pension Fund. Accordingly, the Liquidating Trust reversed a $3 million accrual related to this contingent liability. Additionally, during the year ended December 31, 2000, the Liquidating Trust received $765,000 as partial payment of the Liquidating Trust's claim against the Petrie Retail bankruptcy estate. (5) During the year ended December 31, 1999, corporate overhead included $2.0 million relating to an accrual in respect of the settlement of the Aventura Malls Venture action against the Liquidating Trust, which amount was reduced by 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. 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 appearing elsewhere in this report. 5 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. CRITICAL ACCOUNTING POLICIES The Liquidating Trust's financial statements are prepared in accordance with accounting practices generally accepted in the United States, and require management to make estimates and assumptions. The Liquidating Trust believes that, of its significant accounting policies, the policies described below under "Liquidity and Capital Resources -- Contingent Liabilities" may involve a higher degree of judgment and complexity. RESULTS OF OPERATIONS Year Ended December 31, 2003 Compared to the Year Ended December 31, 2002 The Liquidating Trust's net income for the year ended December 31, 2003 was $2,738,000, as compared to net income of $450,000 for the year ended December 31, 2002. For the year ended December 31, 2003, the Liquidating Trust realized a benefit in corporate overhead of $2,002,000, as compared to an expense of $1,270,000 for the year ended December 31, 2002. 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. The amount of expenses that constituted corporate overhead was lower during the year ended December 31, 2003 than during the year ended December 31, 2002 due to lower ongoing expenses and fewer payments made in settlements of claims made against the Liquidating Trust. The benefit in corporate overhead for the year ended December 31, 2003 reflects the receipt of $1,836,000, on or about July 1, 2003, as partial payment of the Liquidating Trust's claim against the Petrie Retail bankruptcy estate, and the receipt of approximately $949,000 on or about December 30, 2003, of a refund in respect of previous tax years to which the Liquidating Trust is entitled pursuant to a settlement agreement between the Liquidating Trust and the Petrie Retail bankruptcy estate. During the year ended December 31, 2003, the Liquidating Trust earned $736,000 in investment income, as compared to $1,720,000 earned during the year ended December 31, 2002. The decrease in investment income earned during the year ended December 31, 2003 is due to lower prevailing interest rates and fewer assets available for investment. Year Ended December 31, 2002 Compared to the Year Ended December 31, 2001 The Liquidating Trust's net income for the year ended December 31, 2002 was $450,000, as compared to net income of $4,265,000 for the year ended December 31, 2001. For the year ended December 31, 2002, the Liquidating Trust incurred corporate overhead expense of $1,270,000, as compared to a benefit in corporate overhead of $94,000 for the year ended December 31, 2001. The benefit in corporate overhead for the year ended December 31, 2001 reflects the receipt of approximately $1.5 million in December 2001 as partial payment of the Liquidating Trust's claim against the Petrie Retail bankruptcy estate. The amount of expenses that constituted corporate overhead was marginally lower during the year ended December 31, 2002 than during the year ended December 31, 2001. During the year ended December 31, 2002, the Liquidating Trust earned $1,720,000 in investment income, as compared to $4,171,000 earned during the year ended December 31, 2001. The decrease in investment income earned during the year ended December 31, 2002 is primarily due to lower prevailing interest rates. 6 LIQUIDITY AND CAPITAL RESOURCES GENERAL Pursuant to an agreement dated as of December 24, 2003, the Liquidating Trust and Toys "R" Us agreed to terminate the Liquidating Trust's obligations under a letter agreement dated as of January 24, 1995 to provide notice to Toys "R" Us (and an opportunity for Toys "R" Us to object) prior to making any liquidating distributions. Accordingly, the Liquidating Trust is no longer obligated to provide notice to Toys "R" Us prior to making distributions. As of December 31, 2003, the Liquidating Trust had approximately $65 million in cash, cash equivalents and investments in U.S. Treasury obligations. On January 30, 2004, the Liquidating Trust distributed to its unit holders a total of $20,940,095 in cash. As of March 25, 2004, the Liquidating Trust had approximately $44 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 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 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. The Liquidating Trust accrues such 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 both December 31, 2003 and December 31, 2002, the Liquidating Trust had accrued approximately $25 million for the aforementioned contingent liabilities. As the scope of these liabilities becomes further refined, 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 plan of reorganization for Petrie Retail (the "Petrie Retail Plan"), which modified the plan of reorganization filed by Petrie Retail and Warburg Pincus 7 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 the Distribution Company settled their disputes regarding the claims that the Liquidating Trust filed against Petrie Retail. Pursuant to the stipulation of settlement, (i) the Liquidating Trust was allowed a single unsecured claim against Petrie Retail in the amount of approximately $14.4 million, subject to increase upon 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 approximately $5.5 million held in a 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 Distribution Company and the Liquidating Trust 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. On December 15, 2000, the Bankruptcy Court entered an order allowing the Liquidating Trust an unsecured claim against the Distribution Company in the amount of $15.3 million. On December 21, 2000, the Liquidating Trust received $765,000 as partial payment of its claim against the Distribution Company. On December 18, 2001, the Liquidating Trust received $1,530,000 as partial payment of the Liquidating Trust's claim against the Distribution Company. On or about July 1, 2003, the Liquidating Trust received an additional $1,836,000 as partial payment of the Liquidating Trust's claim against the Distribution Company. As of March 25, 2004, the Liquidating Trust's remaining claim against the Distribution Company was $11,169,000. There can be no assurance as to the timing of the payment, if any, of the remainder of the Liquidating Trust's claim against the Distribution Company or the amount of any further 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 or about December 30, 2003, the Liquidating Trust received a refund in respect of previous tax years of approximately $949,000 to which the Liquidating Trust is entitled pursuant to a settlement agreement between the Liquidating Trust and the Petrie Retail bankruptcy estate. 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. After such filing, 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, and in August 1999, pursuant to a settlement approved by the Bankruptcy Court, the Liquidating Trust received a payment in the amount of approximately $200,000 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. 8 After taking into account settlements and releases obtained from landlords, the Liquidating Trust, as successor to Petrie, remains the guarantor of 140 of the retail leases. 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 $27 million (including potential exposure related to the exercise of lease renewal options described below). Such exposure includes (i) approximately $24 million in potential liability related to 61 of the rejected store leases described above, which amount is included in the Liquidating Trust's accrued expenses and other liabilities at December 31, 2003, and (ii) approximately $3 million in potential liability related to 26 of the store leases which were either assigned to third party retailers or are still held by the successor of Petrie Retail and 53 of the leases which have expired or were terminated by mutual landlord and tenant consent described above. The exposure related to assigned leases or leases still held by the successor to Petrie Retail includes potential liability related to lease extension options that may be exercised following the assignment of leases to third party retailers. 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 two former executives have since died and, as a result, the Liquidating Trust's obligations under the settlement agreements with such executives have been terminated. The total cost of these settlements to the Liquidating Trust was approximately $3.2 million. Insurance Premium Adjustment. In April 2002, the Liquidating Trust received a bill from Zurich N.A. ("Zurich"), an insurer of Petrie, for $551,338 in respect of retrospective premium adjustments purportedly owed by Petrie pursuant to general liability, automobile and workers' compensation insurance agreements between Zurich and Petrie. The amount claimed by Zurich relates to policy terms 1988/1989 through and including 1994/1995, and was based on the value of claims made as of December 31, 2001. Such amount was paid by the Liquidating Trust on September 26, 2002. The Liquidating Trust has received a bill dated February 10, 2004 from Zurich for $84,343 in respect of retrospective premium adjustments purportedly owed by Petrie pursuant to general liability, automobile and workers' compensation insurance agreements between Zurich and Petrie. The amount claimed by Zurich relates to policy terms 1988/1989 through and including 1994/1995, and was based on the value of claims made as of December 31, 2003. This amount is included in accrued expenses and other liabilities at December 31, 2003. 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. 9 OFF-BALANCE SHEET ARRANGEMENTS The Liquidating Trust did not have any off-balance sheet arrangements during the year ended December 31, 2003. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS Information relating to the Liquidating Trust's significant contractual obligations is summarized below.
PAYMENT DUE BY PERIOD ------------------------------------------------------- LESS THAN 1 MORE THAN CONTRACTUAL OBLIGATIONS TOTAL YEAR 1-3 YEARS 3-5 YEARS 5 YEARS - ----------------------- ----- ----------- --------- --------- --------- Long-Term Debt Obligations.......... -- -- -- -- -- Capital Lease Obligations........... -- -- -- -- -- Operating Lease Obligations(1)...... -- -- -- -- -- Purchase Obligations................ -- -- -- -- -- Other Long-Term Liabilities Reflected on the Registrant's Balance Sheet under GAAP(2)....... -- -- -- -- -- Total............................... -- -- -- -- --
- --------------- (1) The Liquidating Trust leases its principal executive office on a month-to-month basis. Payments are equal to approximately $1,100 per month. (2) As discussed under "Contingent Liabilities -- Store Leases," the Liquidating Trust has a theoretical exposure relating to retail leases for which Petrie Retail or an affiliate thereof assumed liability, to the extent that Petrie Retail or its successor fails to perform. Without giving effect to any present value discount and assuming the landlord in each case is unable to mitigate its damages, such exposure amounts to approximately $27 million (including potential exposure related to the exercise of lease renewal options). The Liquidating Trust has accrued for $24 million of this liability. Because of the uncertainty of when the Liquidating Trust may be called upon to satisfy these obligations, it is not presently determinable when payments in respect of these obligations would be made. 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; (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; 10 (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; and (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. 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, 2003. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See pages F-1 through F-10 annexed hereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 9A. CONTROLS AND PROCEDURES. (a) Evaluation of Disclosure Controls and Procedures. The Liquidating Trust's Manager and Chief Executive Officer and Assistant Manager and Chief Financial Officer have evaluated the effectiveness of the Liquidating Trust's disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Liquidating Trust's disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Liquidating Trust required to be included in the Liquidating Trust's periodic filings under the Exchange Act. (b) Changes in Internal Controls. Since the Evaluation Date, there have not been any significant changes in the Liquidating Trust's internal controls or in other factors that could significantly affect such controls. 11 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. LIQUIDATING TRUSTEES AND EXECUTIVE OFFICERS The following table shows, as of March 25, 2004, 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:
TRUSTEE OR NAME AGE OFFICER SINCE POSITION WITH THE LIQUIDATING TRUST - ---- --- ------------- ----------------------------------- Stephanie R. Joseph....................... 57 1995 Manager and Chief Executive Officer; Liquidating Trustee H. Bartlett Brown......................... 68 1995 Assistant Manager and Chief Financial Officer Joseph H. Flom............................ 80 1995 Liquidating Trustee Bernard Petrie............................ 78 1995 Liquidating Trustee Raymond S. Troubh......................... 77 1995 Chairman of the Board of the Liquidating Trustees
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 , the Estate of Milton Petrie, and The Carroll and Milton Petrie Foundation for more than the past five years. Mr. Flom is 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. 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 Diamond Offshore Drilling, Inc., an offshore drilling company; Enron Corp., an energy trading company (of which he serves as non-executive Chairman of the Board); General American Investors Company, an investment and advisory company; Gentiva Health Services, Inc., a healthcare company; Triarc Companies, Inc., a diversified holding company; and WHX Corporation, a holding company. 12 FINANCIAL EXPERT The Liquidating Trustees have determined that Mr. Raymond S. Troubh is a "financial expert," as such term is defined in Item 401 of Securities and Exchange Commission Regulation S-K. Mr. Troubh is independent, as that term is defined in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934. MEETINGS AND STANDING COMMITTEES The Liquidating Trustees met twice during the year ended December 31, 2003. During such period, the Liquidating Trustees had no standing committees. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires the Liquidating Trust's trustees and executive officers, and persons who own more than ten percent of the Liquidating Trust's units of beneficial interest, to file with the Securities and Exchange Commission certain reports of ownership and changes in ownership of the units of beneficial interest, and to furnish the Liquidating Trust with copies of all Section 16(a) forms they file. To the Liquidating Trust's knowledge, based solely on a review of the copies of such reports furnished to the Liquidating Trust, for the year ended December 31, 2003, all Section 16(a) filing requirements applicable to its executive officers, trustees and holders of more than ten percent of the Liquidating Trust's units of beneficial interest were complied with, except that (i) The Carroll and Milton Petrie Foundation's Initial Statement of Beneficial Ownership of Securities on Form 3, reporting the acquisition of 53.7% of the Liquidating Trust's outstanding units of beneficial interest on November 12, 2003, was inadvertently filed late, on November 24, 2003, and (ii) The Estate of Milton Petrie's Statement of Changes in Beneficial Ownership on Form 4, reporting the disposition of 53.7% of the Liquidating Trust's outstanding units of beneficial interest on November 12, 2003, was inadvertently filed late, on November 24, 2003. CODE OF ETHICS The Liquidating Trust has adopted a code of ethics that applies to its Manager and Chief Executive Officer and its Assistant Manager and Chief Financial Officer. A copy of such code of ethics, which has been filed with the Securities and Exchange Commission as Exhibit 14.1 to this Annual Report on Form 10-K, may be obtained by any person without charge, upon written request to the Liquidating Trust at its principal executive office. REDUCTION IN NUMBER OF LIQUIDATING TRUSTEES In accordance with the terms of the Liquidating Trust Agreement, following the death of Lawrence A. Tisch, who served as a Liquidating Trustee from 1995 until 2003, the Liquidating Trustees determined to reduce the number of Liquidating Trustees from five to four. 13 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
ANNUAL COMPENSATION --------------------------- YEAR ALL OTHER NAME AND PRINCIPAL POSITION ENDED SALARY BONUS COMPENSATION(1) - --------------------------- -------- -------- ----- ---------------- Stephanie R. Joseph..................... 12/31/03 $130,000 -- $45,000 Manager, Chief Executive Officer 12/31/02 130,000 -- 45,000 and Liquidating Trustee 12/31/01 130,000 -- 45,000
- --------------- (1) Ms. Joseph receives $45,000 per 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, 2003, 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, 2003, no executive officer of the Liquidating Trust served as a director of or 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. 14 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SECURITY HOLDER MATTERS. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 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.
TOTAL NUMBER OF UNITS OF BENEFICIAL INTEREST PERCENT OF BENEFICIALLY OUTSTANDING NAME AND ADDRESS OF BENEFICIAL OWNER OWNED BENEFICIAL INTERESTS - ------------------------------------ ------------------- -------------------- The Carroll and Milton Petrie Foundation(1) Four Times Square New York, New York 10036-6522...................... 28,111,274 53.7% HBK Investments L.P. and HBK Finance L.P.(2) 777 Main Street, Suite 2750 Fort Worth, Texas 76102............................ 9,518,600 18.2% T. Rowe Price Associates, Inc.(3) 100 E. Pratt Street Baltimore, Maryland 21202.......................... 4,715,200 9.0% H. Bartlett Brown.................................... -- -- Joseph H. Flom(4).................................... -- -- Stephanie R. Joseph.................................. -- -- Bernard Petrie(4).................................... 34,800 * Raymond S. Troubh.................................... -- -- All managers and Liquidating Trustees as a group (5 individuals, including those named above).......... 34,800 *
- --------------- * 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 Carroll and Milton Petrie Foundation with the Securities and Exchange Commission on November 24, 2003. (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 7, 2003. (3) Based on information contained in Amendment No. 8 to the Statement on Schedule 13G filed by T. Rowe Price Associates, Inc. ("Price Associates") with the Securities and Exchange Commission on February 13, 2004. 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 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. (4) Based on information contained in the Statement on Schedule 13D filed by The Carroll and Milton Petrie Foundation (the "Foundation") with the Securities and Exchange Commission on November 24, 2003, the Foundation is the beneficial owner of 28,111,274 units of beneficial interest. Mr. Joseph Flom, Mr. Jerome A. Manning, Mr. Bernard Petrie and Mrs. Carroll Petrie serve as the Trustees of the Foundation. The Trustees of the Foundation share equally the power to dispose of, and to vote, the units of beneficial interest held by the Foundation. Messrs. Flom and Petrie disclaim beneficial ownership of the units of beneficial interest held by the Foundation. 15 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Skadden, Arps, Slate, Meagher & Flom LLP serves as legal counsel to the Liquidating Trust and to both the Estate of Milton Petrie and The Carroll and Milton Petrie Foundation. Until November 12, 2003, the Estate of Milton Petrie owned approximately 53.7% of the Liquidating Trust's outstanding units of beneficial interest. On November 12, 2003, these units of beneficial interest were transferred to The Carroll and Milton Petrie Foundation. Skadden, Arps, Slate, Meagher & Flom LLP has provided services to each of the Liquidating Trust, the Estate of Milton Petrie and The Carroll and Milton Petrie Foundation during the year ended December 31, 2003. Joseph H. Flom, a Liquidating Trustee, an executor of the Estate of Milton Petrie and a Trustee of The Carroll and Milton Petrie Foundation, is a partner in Skadden, Arps, Slate, Meagher & Flom LLP. During 2003, The Liquidating Trust maintained directors' and officers' liability insurance provided by Continental Casualty Company, an affiliate of CNA Financial Corp. Laurence A. Tisch, a former Liquidating Trustee and a former executor of the Estate of Milton Petrie, was Chairman of the Board of CNA Financial Corp until the time of his death in 2003. Messrs. Flom and Petrie are Trustees of The Carroll and Milton Petrie Foundation and are entitled to compensation, but they have elected not to receive such compensation. Messrs. Flom and Petrie are executors, and Mr. Tisch was until the time of his death an executor, of the Estate of Milton Petrie and are entitled to executor's commissions. Mr. Petrie is also a beneficiary of the Estate of Milton Petrie. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Ernst & Young LLP ("E&Y") has served as the Liquidating Trust's independent auditors since 1995. Fees for services provided by E&Y for the past two completed fiscal years ended December 31 were as follows:
2003 2002 -------- -------- Audit Fees.................................................. $ 50,100 $ 43,325 Audit-Related Fees.......................................... -- -- Tax Fees.................................................... $ 72,200 $ 67,120 All Other Fees.............................................. -- -- Total....................................................... $122,300 $110,445
Audit fees include fees for the audit of the Liquidating Trust's annual financial statements and the reviews of the financial statements included in the Liquidating Trust's quarterly reports on Form 10-Q. Tax fees include fees incurred to compile and distribute tax reporting information to holders of the Liquidating Trust's units of beneficial interest. PRE-APPROVAL POLICIES AND PROCEDURES On an annual basis the Liquidating Trustees review and approve all services expected to be performed by E&Y in the ensuing one-year period. 16 PART IV ITEM 15. 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. 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). 10.10 Agreement, dated as of December 24, 2003, between the Liquidating Trust and Toys "R" Us. 14.1 Code of Ethics of Petrie Stores Liquidating Trust. 31.1 Certification of Chief Executive Officer pursuant to Rule 13A-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
17 31.2 Certification of Chief Financial Officer pursuant to Rule 13A-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) REPORTS ON FORM 8-K. Current Report on Form 8-K dated January 9, 2004 (reporting liquidating distribution of $20,940,095 in cash to unit holders of the Liquidating Trust). (c) See Item 15(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 15(a)(3) upon payment by such holder of the Liquidating Trust's reasonable expenses in furnishing any such exhibit. (d) See Item 15(a)(2) above.
18 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, 2004 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. By: /s/ H. BARTLETT BROWN ------------------------------------ H. Bartlett Brown Assistant Manager, Chief Financial Officer and Principal Accounting Officer By: /s/ STEPHANIE R. JOSEPH ------------------------------------ Stephanie R. Joseph Manager, Chief Executive Officer and Trustee By: /s/ JOSEPH H. FLOM ------------------------------------ Joseph H. Flom Trustee By: /s/ BERNARD PETRIE ------------------------------------ Bernard Petrie Trustee By: /s/ RAYMOND S. TROUBH ------------------------------------ Raymond S. Troubh Trustee Dated: March 30, 2004 19 PETRIE STORES LIQUIDATING TRUST INDEX TO FINANCIAL STATEMENTS FINANCIAL STATEMENTS Report of Independent Auditors............................ F-2 Statements of Net Assets in Liquidation -- December 31, 2003 and December 31, 2002...................................... F-3 Statements of Changes in Net Assets in Liquidation -- For the years ended December 31, 2003, 2002 and 2001....................... F-4 Notes to Financial Statements............................. F-5
F-1 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, 2003 and December 31, 2002, and the related statements of changes in net assets in liquidation for each of the three years in the period ended December 31, 2003. 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, 2003 and December 31, 2002 and the changes in net assets in liquidation for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. ERNST & YOUNG LLP MetroPark, New Jersey March 16, 2004 F-2 PETRIE STORES LIQUIDATING TRUST (SUCCESSOR TO PETRIE STORES CORPORATION) STATEMENTS OF NET ASSETS IN LIQUIDATION
DECEMBER 31, DECEMBER 31, 2003 2002 ------------ ------------ (IN THOUSANDS) ASSETS Cash and cash equivalents................................... $ 1,168 $ 9 U.S. Treasury Obligations................................... 63,986 88,907 ------- ------- Total assets................................................ 65,154 88,916 LIABILITIES Accrued expenses and other liabilities...................... 25,595 25,920 Commitments and contingencies ------- ------- Net assets in liquidation................................... $39,559 $62,996 ======= =======
See accompanying notes. F-3 PETRIE STORES LIQUIDATING TRUST (SUCCESSOR TO PETRIE STORES CORPORATION) STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2003 2002 2001 ------------ ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) Net assets in liquidation at beginning of year.......... $ 62,996 $62,547 $58,281 -------- ------- ------- Investment income....................................... 736 1,720 4,171 Corporate overhead benefit (expense).................... 2,002 (1,270) 94 -------- ------- ------- Net income for the year................................. 2,738 450 4,265 -------- ------- ------- Liquidating distributions............................... (26,175) -- -- -------- ------- ------- Net assets in liquidation at end of year................ $ 39,559 $62,996 $62,546 ======== ======= ======= Net income per unit..................................... $ 0.05 $ 0.01 $ 0.08 ======== ======= ======= Weighted average number of units........................ 52,350 52,350 52,350 ======== ======= =======
See accompanying notes. F-4 PETRIE STORES LIQUIDATING TRUST (SUCCESSOR TO PETRIE STORES CORPORATION) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 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). On November 19, 2002, the expiration date of the Liquidating Trust was extended from December 6, 2002 to December 6, 2006 (subject to further extension by the Liquidating Trustees). 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, 2003 and December 31, 2002 do not distinguish between current and long-term balances as would be reflected if such statements had been prepared on a going-concern basis. 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 (which approximates cost) 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 disposition of such assets as if such shareholder had directly received, owned or disposed of such assets, subject to such liabilities. F-5 PETRIE STORES LIQUIDATING TRUST (SUCCESSOR TO PETRIE STORES CORPORATION) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. Prior to February 12, 2000, the Liquidating Trust had investments in Toys Common Stock. At December 31, 2003 and 2002, the Liquidating Trust did not own any shares of Toys Common Stock. 3. LIQUIDATING DISTRIBUTIONS. Pursuant to an agreement dated as of December 24, 2003, the Liquidating Trust and Toys "R" Us agreed to terminate the Liquidating Trust's obligations under a letter agreement dated as of January 24, 1995 to provide notice to Toys "R" Us (and an opportunity for Toys "R" Us to object) prior to making any liquidating distributions. Accordingly, the Liquidating Trust is no longer obligated to provide notice to Toys "R" Us prior to making distributions. On January 30, 2004, the Liquidating Trust distributed to its unit holders a total of $20,940,095 in cash. In the distribution, unit holders received $0.40 in cash for each unit of beneficial interest held of record at the close of business on January 20, 2004. This distribution will be reflected in the statement of changes in net assets in liquidation for the quarter ended March 31, 2004. On January 31, 2003, the Liquidating Trust distributed to its unit holders a total of $26,175,119 in cash. In the distribution, unit holders received $0.50 in cash for each unit of beneficial interest held of record at the close of business on January 21, 2003. This distribution is reflected in the statement of changes in net assets in liquidation for the year ended December 31, 2003. 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 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. The Liquidating Trust accrues such 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 F-6 PETRIE STORES LIQUIDATING TRUST (SUCCESSOR TO PETRIE STORES CORPORATION) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) experience (including that of its predecessor, Petrie) in contesting, litigating and settling matters. At both December 31, 2003 and December 31, 2002, the Liquidating Trust had accrued approximately $25 million for the aforementioned contingent liabilities. As the scope of these liabilities becomes further refined, 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 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 the Distribution Company settled their disputes regarding the claims that the Liquidating Trust filed against Petrie Retail. Pursuant to the stipulation of settlement, (i) the Liquidating Trust was allowed a single unsecured claim against Petrie Retail in the amount of approximately $14.4 million, subject to increase upon 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 approximately $5.5 million held in a collateral account by June 30, 2000 (provided that the Distribution Company did not pay $10 million or more to the United Auto Workers District 65 Security Plan Pension Fund (the "Multiemployer Plan") prior to that date), and (iii) the Distribution Company and the Liquidating Trust 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. On December 15, 2000, the Bankruptcy Court entered an order allowing the Liquidating Trust an unsecured claim against the Distribution Company in the amount of $15.3 million. On December 21, 2000, the Liquidating Trust received $765,000 as partial payment of the Liquidating Trust's claim against the F-7 PETRIE STORES LIQUIDATING TRUST (SUCCESSOR TO PETRIE STORES CORPORATION) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Distribution Company. On December 18, 2001, the Liquidating Trust received $1,530,000 as partial payment of the Liquidating Trust's claim against the Distribution Company. On or about July 1, 2003, the Liquidating Trust received an additional $1,836,000 as partial payment of the Liquidating Trust's claim against the Distribution Company. As of March 25, 2004, the Liquidating Trust's remaining claim against the Distribution Company was $11,169,000. There can be no assurance as to the timing of the payment, if any, of the remainder of the Liquidating Trust's claim against the Distribution Company or the amount of any further 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 or about December 30, 2003, the Liquidating Trust received a refund in respect of previous tax years of approximately $949,000 to which the Liquidating Trust is entitled pursuant to a settlement agreement between the Liquidating Trust and the Petrie Retail bankruptcy estate. 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. After such filing, 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, and in August 1999, pursuant to a settlement approved by the Bankruptcy Court, the Liquidating Trust received a payment in the amount of approximately $200,000 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. After taking into account settlements and releases obtained from landlords, the Liquidating Trust, as successor to Petrie, remains the guarantor of 140 of the retail leases. 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 $27 million (including potential exposure related to the exercise of lease renewal options described below). Such exposure includes (i) approximately $24 million in potential liability related to 61 of the rejected store leases described above, which amount is included in the Liquidating Trust's accrued expenses and other liabilities at December 31, 2003, and (ii) approximately $3 million in potential liability related to 26 of the store leases which were either assigned to third party retailers or are still held by the successor of Petrie Retail, and 53 of the leases which have expired or were terminated by mutual landlord and tenant consent described above. The exposure related to assigned leases or leases still held by the successor to Petrie Retail includes potential liability related to lease extension options that may be exercised following the assignment of leases to third party retailers. 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 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. F-8 PETRIE STORES LIQUIDATING TRUST (SUCCESSOR TO PETRIE STORES CORPORATION) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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 two former executives have since died and, as a result, the Liquidating Trust's obligations under the settlement agreements with such executives have been terminated. The total cost of these settlements to the Liquidating Trust was approximately $3.2 million. Insurance Premium Adjustment. In April 2002, the Liquidating Trust received a bill from Zurich N.A. ("Zurich"), an insurer of Petrie, for $551,338 in respect of retrospective premium adjustments purportedly owed by Petrie pursuant to general liability, automobile and workers' compensation insurance agreements between Zurich and Petrie. The amount claimed by Zurich relates to policy terms 1988/1989 through and including 1994/1995, and was based on the value of claims made as of December 31, 2001. Such amount was paid by the Liquidating Trust on September 26, 2002. The Liquidating Trust has received a bill dated February 10, 2004 from Zurich for $84,343 in respect of retrospective premium adjustments purportedly owed by Petrie pursuant to general liability, automobile and workers' compensation insurance agreements between Zurich and Petrie. The amount claimed by Zurich relates to policy terms 1988/1989 through and including 1994/1995, and was based on the value of claims made as of December 31, 2003. This amount is included in accrued expenses and other liabilities at December 31, 2003. 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. 5. QUARTERLY FINANCIAL DATA (UNAUDITED). Summarized quarterly financial data for the years ended December 31, 2003 and December 31, 2002 are as follows:
QUARTER ----------------------------------------- FIRST SECOND THIRD FOURTH ------- -------- ------- -------- (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) Year ended December 31, 2003 Net income.......................................... $ 1 $1,847(1) $ 16 $ 874(2) ===== ====== ===== ===== Net income per unit................................. $0.00 $ 0.04 $0.00 $0.01 ===== ====== ===== ===== Year ended December 31, 2002: Net income (loss)................................... $ 273 $ 157 $ 88 $ (68) ===== ====== ===== ===== Net income per unit................................. $0.01 $ 0.00 $0.00 $0.00 ===== ====== ===== =====
F-9 PETRIE STORES LIQUIDATING TRUST (SUCCESSOR TO PETRIE STORES CORPORATION) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) - --------------- (1) On or about July 1, 2003, the Liquidating Trust received $1,836,000 as partial settlement of the Liquidating Trust's claim against the Petrie Retail bankruptcy estate. This payment was accrued as of June 30, 2003. (2) On or about December 30, 2003, the Liquidating Trust received a refund in respect of previous tax years of approximately $949,000 to which the Liquidating Trust is entitled pursuant to a settlement agreement between the Liquidating Trust and the Petrie Retail bankruptcy estate. 6. SUBSEQUENT EVENTS. On January 30, 2004, the Liquidating Trust made a distribution to its unit holders in the amount of $0.40 in cash for each unit of beneficial interest held of record at the close of business on January 20, 2004. There were 52.35 million units outstanding on January 20, 2004 and the total distribution amounted to approximately $20.9 million. F-10 EX-10.10 3 y95651exv10w10.txt AGREEMENT, DATED 12/24/03 EXHIBIT 10.10 AGREEMENT This AGREEMENT, dated as of December 24, 2003 (this "Agreement"), is being entered into by and between Petrie Stores Liquidating Trust, a trust organized under the laws of the State of New York (the "Trust"), and Toys "R" Us, Inc., a Delaware corporation ("Toys"). WHEREAS, pursuant to (i) the Liquidating Trust Agreement, dated as of December 6, 1995 (the "Liquidating Trust Agreement"), between Petrie Stores Corporation ("Petrie") and the trustees of the Trust and (ii) the letter agreement, dated as of January 24, 1995 (the "Letter Agreement"), between Petrie and Toys, the Trust is required to provide notice to Toys of the Trust's intention to make any distribution to its unit holders (each such a distribution being referred to as a "Distribution"), and Toys has the right to object to any such Distribution if it reasonably believes that the contemplated Distribution could result in the remaining assets of the Trust being insufficient to pay for any of Petrie's obligations under the Seller Indemnification Agreement, dated December 9, 1994 (the "Seller Indemnification Agreement"), by and among Toys, Petrie, PS Stores Acquisition Corp. ("PS Stores") and subsidiaries of PS Stores, or otherwise; and WHEREAS, since the date of execution of the Letter Agreement, Petrie and its successor, the Trust, have distributed an aggregate of 33,098,720 shares of Toys common stock and $104.5 million in cash to the unit holders of the Trust (and the former shareholders of Petrie); and WHEREAS, since the date of execution of the Letter Agreement, there have been no (i) claims made against Toys in respect of which Toys would be entitled to indemnification under the Seller Indemnification Agreement or otherwise or (ii) claims made against the Trust for amounts which would be in excess of the Trust's remaining assets; and WHEREAS, the parties hereto wish to terminate the rights of Toys to receive notice of, and to object to, Distributions. NOW THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, and for other good and valuable consideration, the parties hereto agree as follows: SECTION 1. Consent to Current Distribution. Toys hereby consents, and agrees not to object, to the Distribution referenced in the letter from the Trust to Toys, dated December 12, 2003. SECTION 2. Waiver of Rights in Respect of Future Distributions. Toys hereby waives any rights that it may have under the Liquidating Trust Agreement, the Letter Agreement or otherwise, to receive notice of, and to object to, any Distribution, and hereby agrees that any such rights are hereby terminated. SECTION 3. Governing Law. This Agreement shall be construed according to the laws of the State of New York, without giving effect to conflicts of laws principles thereof. SECTION 4. Counterparts. This Agreement may be executed in counterparts, each of which shall collectively constitute one agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. PETRIE STORES LIQUIDATING TRUST By: /s/ STEPHANIE R. JOSEPH ------------------------------------ Name: Stephanie R. Joseph Title: Chief Executive Officer and Manager TOYS "R" US, INC. By: /s/ LOUIS LIPSCHITZ ------------------------------------ Name: Louis Lipschitz Title: Chief Financial Officer 2 EX-14.1 4 y95651exv14w1.txt CODE OF ETHICS EXHIBIT 14.1 CODE OF ETHICS FOR OFFICERS OF PETRIE STORES LIQUIDATING TRUST AS ADOPTED ON MARCH 29, 2004 Petrie Stores Liquidating Trust (the "Liquidating Trust") is committed to conducting its affairs in accordance with applicable laws, rules and regulations and the highest standards of business conduct, and to full and accurate financial disclosure in compliance with applicable law. This Code of Ethics, applicable to the Liquidating Trust's Manager and Chief Executive Officer and Assistant Manager and Chief Financial Officer (or persons performing similar functions) (together, "Senior Officers"), sets forth specific policies to guide such Senior Officers in the performance of their duties. Senior Officers must not only comply with applicable law, but also must engage in and promote honest and ethical conduct and abide by any other policies and procedures that may be adopted by the Liquidating Trust to govern the conduct of its affairs. COMPLIANCE WITH LAWS, RULES AND REGULATIONS Senior Officers are required to comply with the laws, rules and regulations that govern the conduct of the Liquidating Trust's affairs and to report any suspected violations in accordance with the section below entitled "Compliance with Code of Ethics." CONFLICTS OF INTEREST The obligation of Senior Officers to conduct the Liquidating Trust's affairs in an honest and ethical manner includes the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. No Senior Officer shall make any investment, accept any position or benefits, participate in any transaction or business arrangement or otherwise act in a manner that creates or appears to create a conflict of interest unless the Senior Officer makes full disclosure of all facts and circumstances to, and obtains the prior approval of, the Liquidating Trustees. DISCLOSURES It is the Liquidating Trust's policy to make full, fair, accurate, timely and understandable disclosure in compliance with all applicable laws and regulations in all reports and documents that the Liquidating Trust files with, or submits to, the Securities and Exchange Commission and in all other public communications made by the Liquidating Trust. Senior Officers are required to promote compliance with this policy and to abide by any policies and procedures that may be adopted by the Liquidating Trust to promote compliance with this policy. COMPLIANCE WITH CODE OF ETHICS If a Senior Officer knows of or suspects a violation of applicable laws, rules or regulations or this Code of Ethics, he or she must immediately report that information to the Liquidating Trustees. No person will be subject to retaliation because of a good faith report of a suspected violation. Violations of this Code of Ethics may result in disciplinary action, up to and including discharge. The Liquidating Trustees shall determine, or shall designate appropriate persons to determine, appropriate action in response to violations of this Code. WAIVERS OF CODE OF ETHICS If a Senior Officer would like to seek a waiver of the Code of Ethics, he or she must make full disclosure of his or her particular circumstances to the Liquidating Trustees. Amendments to, and waivers of, this Code of Ethics will be publicly disclosed as required by applicable law and regulations. NO RIGHTS CREATED This Code of Ethics is a statement of certain fundamental principles, policies and procedures that govern the Liquidating Trust's Senior Officers in the conduct of the Liquidating Trust's affairs. It is not intended to and does not create any rights in any employee, consultant, holder of units of beneficial interest or any other person or entity. 2 EX-31.1 5 y95651exv31w1.txt CERTIFICATION OF CEO EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Stephanie R. Joseph, Chief Executive Officer of Petrie Stores Liquidating Trust, certify that: 1. I have reviewed this annual report on Form 10-K of Petrie Stores Liquidating Trust; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control of financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ STEPHANIE R. JOSEPH -------------------------------------- Stephanie R. Joseph Chief Executive Officer Date: March 30, 2004 EX-31.2 6 y95651exv31w2.txt CERTIFICATION OF CFO EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, H. Bartlett Brown, Chief Financial Officer of Petrie Stores Liquidating Trust, certify that: 1. I have reviewed this annual report on Form 10-K of Petrie Stores Liquidating Trust; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control of financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ H. BARTLETT BROWN -------------------------------------- H. Bartlett Brown Chief Financial Officer Date: March 30, 2004 EX-32.1 7 y95651exv32w1.txt CERTIFICATION OF CEO AND CFO EXHIBIT 32.1 CERTIFICATION OF CEO AND CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Petrie Stores Liquidating Trust (the "Trust") for the period ending December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Stephanie R. Joseph, as Chief Executive Officer of the Trust, and H. Bartlett Brown, as Chief Financial Officer of the Trust, each hereby certifies, pursuant to 18 U.S.C. sec. 1350, as adopted pursuant to sec. 906 of the Sarbanes-Oxley Act of 2002, to the best of her or his knowledge, that: (1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Trust. /s/ STEPHANIE R. JOSEPH -------------------------------------- Stephanie R. Joseph Chief Executive Officer March 30, 2004 /s/ H. BARTLETT BROWN -------------------------------------- H. Bartlett Brown Chief Financial Officer March 30, 2004 This certification accompanies this Report pursuant to sec. 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Trust for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----