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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 000-23463
Philips International Realty Corp.
(Exact name of registrant as specified in its charter)
Maryland 13-3963667
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No)
417 Fifth Avenue, New York, NY 10016
(Address of principal executive offices - Zip Code)
(212) 545-1100
(Registrant's telephone number, including area code)
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 / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
7,340,474 shares outstanding as of October 31, 2002.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2002 and
December 31, 2001
Condensed Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 2002 and 2001
Condensed Consolidated Statements of Shareholders' Equity for the Nine
Months Ended September 30, 2002 and 2001
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2002 and 2001
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosure of Market Risk
Item 4. Controls and Procedures
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Certifications
PHILIPS INTERNATIONAL REALTY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2002 2001
(Unaudited) (Note 1)
----------- --------
ASSETS
Rental properties, net - held for sale $ 15,460,660 $ 18,973,660
Cash and cash equivalents 4,065,649 863,005
Accounts receivable, net 156,560 303,543
Deferred charges and prepaid expenses 525,359 86,269
Other assets 2,206,365 2,158,089
------------ ------------
Total Assets $ 22,414,593 $ 22,384,566
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 1,007,094 $ 1,071,891
Other liabilities 76,891 70,671
------------ ------------
Total Liabilities 1,083,985 1,142,562
------------ ------------
Minority interests 72,179 71,878
------------ ------------
Shareholders' Equity:
Preferred Stock, $.01 par value; 30,000,000 shares authorized:
no shares issued and outstanding -- --
Common Stock, $.01 par value; 150,000,000 shares authorized;
7,340,474 shares issued and outstanding 73,405 73,405
Additional paid in capital 92,668,007 92,668,007
Cumulative distributions in excess of net income (71,482,983) (71,571,286)
------------ ------------
Total Shareholders' Equity 21,258,429 21,170,126
------------ ------------
Total Liabilities and Shareholders' Equity $ 22,414,593 $ 22,384,566
============ ============
See accompanying notes.
PHILIPS INTERNATIONAL REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Discontinued Operations:
Revenues from rental property $ 674,155 $ 1,371,781 $ 2,297,147 $ 4,020,859
----------- ----------- ----------- -----------
Expenses:
Operating expenses 107,680 123,712 344,459 511,674
Real estate taxes 60,319 129,574 207,769 468,045
Management fees to affiliates 20,390 33,744 69,251 116,186
General and administrative expenses 285,664 212,623 801,196 754,288
----------- ----------- ----------- -----------
474,053 499,653 1,422,675 1,850,193
----------- ----------- ----------- -----------
Operating income from discontinued operations 200,102 872,128 874,472 2,170,666
Minority interests in income before gain (loss)
on sale of shopping center properties (722) (3,054) (2,162) (7,409)
Other income (expense), net 12,177 26,061 (238,651) 8,587
----------- ----------- ----------- -----------
Income from discontinued operations before gain
(loss) on sale of shopping center properties 211,557 895,135 633,659 2,171,844
Gain (loss) on sale of shopping center properties, net
of minority interests of $0, $13, ($1,861)
and $1,178 -- 3,770 (545,356) 345,307
----------- ----------- ----------- -----------
Net income from discontinued operations $ 211,557 $ 898,905 88,303 $ 2,517,151
=========== =========== =========== ===========
Basic and diluted net income per common share 0.03 $ 0.12 0.01 $ 0.34
=========== =========== =========== ===========
See accompanying notes.
PHILIPS INTERNATIONAL REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Nine Months Ended September 30, 2002 and 2001
(Unaudited)
Cumulative
Common Stock Distributions in Total
--------------------------- Additional Excess of Net Shareholders'
Shares Amount Paid-in Capital Income Equity
--------- ------- ----------- ------------- -----------
Balance, December 31, 2001 7,340,474 $73,405 $92,668,007 $ (71,571,286) $21,170,126
Net income from discontinued
operations
88,303 88,303
--------- ------- ----------- ------------- -----------
Balance, September 30, 2002 7,340,474 $73,405 $92,668,007 $ (71,482,983) $21,258,429
========= ======= =========== ============= ===========
Cumulative
Common Stock Distributions in Total
--------------------------- Additional Excess of Net Shareholders'
Shares Amount Paid-in Capital Income Equity
--------- ------- ----------- ------------- -----------
Balance, December 31, 2000 7,340,474 $73,405 $92,668,007 $(57,797,724) $ 34,943,688
Net income from discontinued
operations 2,517,151 2,517,151
Dividends declared on common
stock ($1.75 per share.) (12,845,830) (12,845,830)
--------- ------- ----------- ------------- -----------
Balance, September 30, 2001 7,340,474 $73,405 $92,668,007 $ (68,126,403) $ 24,615,009
========= ======= =========== ============= ============
See accompanying notes.
PHILIPS INTERNATIONAL REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30,
(Unaudited)
2002 2001
---- ----
Cash flow provided by (used in) operating activities ($ 454,379) $ 14,517
------------ ------------
Cash flow provided by investing activities
Proceeds from sale of shopping center properties 3,657,023 11,811,175
------------ ------------
Cash flow used in financing activities
Dividend paid on common stock -- (12,845,830)
Distributions to minority interests -- (44,093)
------------ ------------
-- (12,889,923)
------------ ------------
Net increase (decrease) in cash and cash equivalents 3,202,644 (1,064,231)
Cash and cash equivalents, beginning of period 863,005 1,704,425
------------ ------------
Cash and cash equivalents, end of period $ 4,065,649 $ 640,194
============ ============
See accompanying notes.
PHILIPS INTERNATIONAL REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Financial Statements
The accompanying Condensed Consolidated Financial Statements include
the accounts of the Company and its subsidiaries, all of which are wholly-owned.
All significant intercompany accounts and balances have been eliminated in
consolidation. The information furnished is unaudited and reflects all
adjustments which are, in the opinion of management, necessary to reflect a fair
presentation of the results for the interim periods presented, and all such
adjustments are of a normal recurring nature. These Condensed Consolidated
Financial Statements should be read in conjunction with the financial statements
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2001.
The Condensed Consolidated Balance Sheet at December 31, 2001, has been
derived from the audited financial statements at that date but does not include
all of the information and footnote disclosure required by generally accepted
accounting principles for complete financial statements.
2. Income (loss) per Common Share
Basic and diluted net income per common share in the accompanying
Condensed Consolidated Statements of Income are based upon weighted average
numbers of 7,340,474 shares of common stock outstanding for the three and nine
months ended September 30, 2002 and 2001.
3. Segment Information
Management considers the Company's various operating, investing and
financing activities to comprise a single business segment and evaluates real
estate performance and allocates resources based on net income.
As the result of the plan of liquidation, the Company's operations are
presented as discontinued operations pursuant to Accounting Principles Board
Opinion No. 30 ("APB No.30") for 2001. On January 1, 2002, the Company adopted
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which supersedes APB No. 30 and
which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. The adoption did not have a material impact on
the Company's results of operations or financial position.
4. Plan of Liquidation
On October 13, 1999, the Board of Directors of the Company announced
that it had retained a financial advisor to assist the Company in examining
strategic alternatives to maximize shareholder value. The Board believed that
the Company's then current stock price did not reflect the underlying value of
its assets. Given the changing dynamics of the REIT market place and consistent
with its commitment to realize shareholder value for all investors, the Board
believed that it was prudent to explore the strategic alternatives for the
Company.
At a Special Meeting of Stockholders held on October 10, 2000,
approximately 80% of the Company's 7,340,474 common shares outstanding were
voted with 99.7% of these votes cast in favor of the plan of liquidation.
On October 11, 2000, the Company announced that its stockholders had
approved a plan of liquidation for the Company, pursuant to which the Company
planned to (a) transfer its interests in affiliated entities that owned eight
shopping centers to Kimco Income Operating Partnership, L.P. for cash and the
assumption of indebtedness, (b) transfer its interests in entities that owned
four shopping centers and two redevelopment properties, subject to certain
indebtedness, to Philip Pilevsky, the chief executive officer, and certain of
his affiliates and family members (the "Related Limited Partners") in exchange
for cash and the redemption of units in the Company's operating partnership, (c)
sell its remaining assets for cash, (d) pay or provide for its liabilities and
expenses, (e) distribute the net cash proceeds of the liquidation, then
estimated at $18.25 per share of common stock, to the stockholders in two or
more liquidating distributions, and (f) wind up operations and dissolve. On
December 22, 2000, the Company paid the initial liquidating distribution of $13
per share of common stock upon substantial completion of the transactions
referenced in (a) and (b) above. Subsequent liquidating distributions of $1.00,
$.75, $.50 and $.50 per share (bringing the total paid to date to $15.75 per
share) were paid on July 9, 2001, September 24, 2001, November 19, 2001 and
October 22, 2002, respectively, following sales of the Company's shopping center
properties located in Lake Worth, Florida, Alexandria, Minnesota, Port Angeles,
Washington and Sacramento, California. See Notes 5 and 6.
On January 29, 2002, the Company announced that Kmart Corporation's
("Kmart") Chapter 11 bankruptcy filing is likely to delay the sales of the
Company's then five remaining properties pursuant to the Company's plan of
liquidation, and may result in a reduction of the remaining projected
liquidating distributions of $3.00 per common share. Further, the Company
reported that Kmart leases a significant portion of the space in each of the
Company's then five remaining shopping center properties, of which four stores
are currently operating and one Kmart store in Reedley, California is closed.
While operating in bankruptcy, Kmart has announced that it will seek immediate
cancellation of leases at closed locations. As a result of the uncertainty
pertaining to the ultimate status the Kmart leases, the Company expects a delay
in the completion of its plan of liquidation. Also, the potential impact on the
proceeds from sales of the then remaining five properties cannot currently be
evaluated.
On February 19, 2002, the Company announced that the New York Stock
Exchange (NYSE) has advised the Company that it may be subject to NYSE trading
suspension and delisting if the Company's average market capitalization falls
below $15 million ($2.05 per common share) over a 30day trading period. See Note
6.
On March 13, 2002, the Company announced that its then four properties
with operating Kmart stores (Sacramento, CA, Atwater, CA, McHenry, IL, and
Hopkinsville, KY) are not affected by Kmart's recent announcement of store
closings. Kmart is operating under the protection of Chapter 11 of the
Bankruptcy Code, and the Court approved the cancellation of the Kmart lease at
the Company's fifth remaining property, located in Reedley, California, in
January. Although none of the Company's remaining stores were targeted for
closure, there can be no assurance that K mart will not seek to cancel
additional leases while it is in bankruptcy. Recently the Company objected to
Kmart's request for an extension of the 60 day period in which the debtor must
assume or reject the Company's leases under the Bankruptcy Code. Kmart was
seeking an extension on all remaining leases through July 2003, and the Courts
generally grant such significant extensions. As to the Company's Kmart leases,
the Court approved an agreement with Kmart that all leases which have not been
assumed or rejected on or before September 30, 2002 will be subject to certain
protections from October 1, 2002 through January 15, 2003 which, among other
things, precludes store closings during this period. In addition, the Court set
March 31, 2003 as the deadline for Kmart to assume or reject the Company's
leases without prejudice to Kmart's right to seek further extension.
As a result of the uncertainty pertaining to the ultimate status of the
Kmart leases, the Company expects a continued delay in the completion of its
plan of liquidation. Also, the potential impact on the proceeds from the sales
of the Company's now remaining three properties (see Notes 5, 6 and 7) and the
Company's target of approximately $18.25 of aggregate liquidating distributions
to shareholders cannot currently be evaluated. The uncertainty that continues to
surround Kmart could impede the Company's ability to achieve prompt sales of its
remaining assets at acceptable prices.
5. Property Dispositions
Pursuant to its plan of liquidation, on June 14, 2001, the Company
completed the sale of its redevelopment site located in Lake Worth, Florida (the
"Lake Worth Property") to the Related Limited Partners, for approximately $7.6
million in cash, pursuant to the Amended and Restated Purchase and Sale
Agreement dated as of June 20, 2000 (the "Lake Worth Agreement"). The sale of
this property resulted in a gain of approximately $.3 million.
The purchase price paid by the Related Limited Partners under the Lake
Worth Agreement will be adjusted so that the aggregate value per Unit received
by them in connection with the November 2000 distribution to the Related Limited
Partners of the Company's four (4) shopping center properties located in
Hialeah, Florida and the sale to the Related Limited Partners in December 2000
of the Company's redevelopment property located on Third Avenue in New York, New
York ($18.25 per Unit), and the estimated per share value to be received by our
stockholders in the liquidation ($18.25 per share), will be the same.
On August 31, 2001, the Company completed the sale of its North Star
Shopping Center in Alexandria, Minnesota for approximately $4.5 million in cash,
pursuant to the Sale and Purchase Agreement dated July 16, 2001 by Philips
Shopping Center Fund L.P., a Delaware limited partnership, and Repco LLP, as
successor to Kordel, Inc., a Minnesota corporation. The sale resulted in a gain
of approximately $4 thousand.
On October 31, 2001, the Company completed the sale of its Highway 101
Shopping Center in Port Angeles, Washington for approximately $4.5 million in
cash, pursuant to the Sale and Purchase Agreement dated June 14, 2001 by Philips
Shopping Center Fund L.P, a Delaware limited partnership, and BDG LLC, as
successor to 3 Puyallup Associates, LLC., a Washington limited liability
company. This transaction resulted in a gain of $39 thousand.
On April 16, 2002, the Company completed the sale of its McHenry
Commons shopping center property in McHenry, Illinois for approximately $3.9
million in cash, pursuant to a Sale and Purchase Agreement dated November 29,
2001 by and between Philips Shopping Center Fund L.P., a Delaware limited
partnership, as Seller, and GK Development, Inc., an Illinois corporation, and
Star Realty Investors, LLC, an Illinois limited liability company, jointly and
severally as Purchaser. This transaction resulted in a gain of $102 thousand.
On June 28, 2002, the Company entered into a settlement agreement with
the New York City Department of Finance (the "DOF") pursuant to which the
Company paid $903,943, including principal of $650,000 and interest of $253,943,
in full satisfaction of all real property transfer taxes, interest and penalties
assessed by the DOF in May 2002 in connection with the Company's 1997 Formation
Transactions and 1998 initial public stock offering. The shopping center
properties relating to the subject tax assessments have been previously disposed
in connection with the plan of liquidation. Accordingly, the principal and
interest components of the settlement payment have been charged to Gain (loss)
on sale of shopping center properties and Other income (expense), respectively,
in the accompanying Condensed Consolidated Statement of Income for the nine
months ended September 30, 2002.
6. Subsequent Events
On October 3, 2002, the Company completed the sale, in an amount in
excess of its carrying amount, of its Kmart Shopping Center in Sacramento,
California for approximately $5.9 million in cash, pursuant to a Purchase and
Sale Agreement dated September 24, 2002 by and between Philips Shopping Center
Fund, L.P., a Delaware limited partnership, as Seller, and M & A Gabaee L.P., a
California limited partnership, Mirasa L.L.C., a California limited liability
company, and Corsair, L.L.C., a Nevada limited liability company, jointly and
severally, as Buyer.
On October 18, 2002, the NYSE delivered notice to the Company and
issued a press release to advise that it had determined the common stock of the
Company, trading symbol PHR, should be removed from the list of companies traded
on the NYSE. This decision was reached in view of the fact that the Company has
fallen below the NYSE's continued listing standards as its average global market
capitalization over a consecutive 30 trading day period is less than
$15,000,000. Furthermore, the NYSE noted that the Company has been operating
pursuant to a plan of liquidation approved by its shareholders on October 10,
2000 and has made four liquidating distributions totaling $15.25 to date, with a
fifth liquidating distribution of $0.50 to be payable on October 22, 2002. The
NYSE indicated it intended to suspend trading in the Company's common stock
prior to the opening on October 23, 2002 in connection with this distribution.
Application by the NYSE to the Securities and Exchange Commission to delist the
Company is pending the completion of applicable procedures. The Company does not
intend to request a review of this NYSE determination.
The Company also has no current intention to seek listing of its common
shares on any other securities exchange or on NASDAQ. However, the Company
believes that alternative trading venues, such as the "Pink Sheets" and the "OTC
Bulletin Board," will become available to its shareholders. While the Company
may seek sponsorship by market makers with such quotation services, there can be
no assurance that any such alternative markets will develop.
Upon the completion of all prescribed delisting procedures, the Company
will automatically become a Section 12(g) reporting company pursuant to the
Securities and Exchange Act, and will no longer be a Section 12(b) reporting
company.
7. Shopping Center Portfolio
As a consequence of the transactions completed to date pursuant to the
plan of liquidation, the Company's remaining shopping center portfolio comprises
three properties located in California (2) and Kentucky (1). These shopping
centers, two of which have anchor store premises under lease to Kmart, represent
an aggregate 272,000 square feet of gross leasable area. The Company is actively
marketing these properties for sale. Although management will endeavor to
consummate a sale transaction(s), there can be no assurance that a sale(s) will
be completed on satisfactory terms, if at all.
8. Legal Proceedings
On October 2, 2000, a class action was filed in the United States
District Court for the Southern District of New York against the Company and its
directors. The complaint alleged a number of improprieties concerning the
pending plan of liquidation of the Company. The Company believes that the
asserted claims are without merit, and will defend such action vigorously. On
November 9, 2000, the Court, ruling from the bench, denied the plaintiff's
motion for a preliminary injunction. This bench ruling was followed by a written
order dated November 30, 2000 wherein the Court concluded that the plaintiff had
failed to demonstrate either that it was likely to succeed on the merits of its
case or that there were sufficiently serious questions going to the merits of
its case to make it fair ground for litigation.
On February 19, 2002, the Company announced that on February 5, 2002,
the Court denied the plaintiff's motion for class action certification. The
plaintiff may elect to proceed with that claim on its own now that class
certification has been denied. The plaintiff also has asserted derivative claims
for alleged breaches of fiduciary duty by the directors of the Company. The
Company believes that such derivative claims are deficient for, among other
reasons, the grounds upon which class certification was denied. The Company
believes that all of the asserted claims are without merit, and will defend such
action vigorously.
On February 28, 2002, the Company announced that the plaintiff had
sought permission from the Court of Appeals for the Second Circuit to appeal the
denial of class certification discussed above. In order for plaintiff to have
obtained permission to appeal, it had to demonstrate that the denial of class
certification effectively terminated the litigation and that the District
Court's decision was an abuse of its discretion. The Company opposed plaintiff's
application. If the Court of Appeals granted plaintiff's request, plaintiff
would then have been able to appeal the District Court's denial of class
certification.
On May 28, 2002, the United States Court of Appeals for the Second
Circuit ordered that the plaintiff's petition to appeal the District Court's
denial of class certification also be denied. The Company has incurred
significant costs in connection with defense of this litigation, which are
covered under the Company's directors and officer's insurance policy and
included in other assets in the accompanying Condensed Consolidated Balance
Sheet.
PART I
FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
accompanying Condensed Consolidated Financial Statements and Notes thereto, and
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2001. These unaudited financial statements include all adjustments which are, in
the opinion of management, necessary to reflect a fair presentation of the
results for the interim periods presented, and all such adjustments are of a
normal recurring nature.
When used in this Quarterly Report on Form 10-Q, the words "may",
"will", "expect", "anticipate", "continue", "estimate", "project", "intend" and
similar expressions are intended to identify forward-looking statements
regarding events, conditions and financial trends that may affect the Company's
future plans of operations, business strategy, results of operations and
financial position. Such forward-looking statements are not guarantees of future
performance and are subject to risks and uncertainties. Actual results may
differ materially from those included within the forward-looking statements as a
result of various factors.
Results of Operations
During the second, third and fourth quarters of 2001, and the second
quarter of 2002, the Company disposed of four shopping center properties
pursuant to its plan of liquidation. See Note 5 of the accompanying Notes to
Condensed Consolidated Financial Statements. The disposition of these properties
gives rise to significant changes when comparing the Company's results of
operations for the three and nine months ended September 30, 2002 and 2001.
Comparison of Three Months Ended September 30, 2002 and 2001
Revenues from rental property was $674,000 for the quarter ended
September 30, 2002 compared to $1,372,000 for the comparable period in 2001.
Expenses in the third quarter of 2002 totaled $474,000, compared to $500,000 in
2001. These changes result primarily from the disposition of four shopping
center properties pursuant to the plan of liquidation during the second, third
and fourth quarters of 2001, and the second quarter of 2002.
Reference should be made to Note 5 to the accompanying Notes to
Condensed Consolidated Financial Statements for information relating to the
sales of shopping center properties during these respective periods.
Comparison of Nine Months Ended September 30, 2002 and 2001
Revenues from rental property was $2,297,000 for the nine months ended
September 30, 2002, compared to $4,021,000 for the comparable period in 2001.
Expenses in the first nine months of 2002 totaled $1,423,000, compared to
$1,850,000 in 2001. These changes result primarily from the disposition of four
shopping center properties pursuant to the plan of liquidation during the
second, third and fourth quarters of 2001, and the second quarter of 2002.
Other income (expense), net and Gain (loss) on sale of shopping center
properties for the nine months ended September 30, 2002, include $253,943 and
$647,790 (net of minority share of $2,210), respectively, in charges relating to
the settlement of real property transfer tax obligations. See Note 5 of the
accompanying Notes to Condensed Consolidated Financial Statements.
Reference should be made to Note 5 to the accompanying Notes to
Condensed Consolidated Financial Statements for information relating to the
sales of shopping center properties during these respective periods.
Liquidity and Capital Resources
The Company expects to invest temporarily available cash in short-term,
investment-grade interest bearing securities, such as securities of the United
States government or its agencies, high-grade commercial paper and bank
deposits.
The Company expects to meet its short-term and long-term liquidity
requirements generally through net cash provided by operations. The Company
believes that its net cash provided by operations will be sufficient to allow
the Company to make distributions necessary to enable the Company to continue to
qualify as a REIT. The Company also believes that the foregoing sources of
liquidity will be sufficient to fund its short-term liquidity needs for the
foreseeable future. The net cash provided by operations from its three (3)
remaining properties are anticipated to be sufficient to fund the operation of
such properties and those of the Company. The Company is actively seeking to
dispose of all such properties and to complete its liquidation as soon as
practicable. There can be no assurance, however, that this will occur in the
near future or at prices sufficient to aggregate the currently estimated $18.25
in total per share liquidating distributions to the shareholders of the Company.
Pending the sale of its remaining shopping center properties, the
Company will continue to utilize its long-standing asset and property management
practices to maximize cash flow from these existing properties and endeavor to
enhance their value through its knowledge of the shopping center industry.
Cash Flows
Cash flow provided by (used in) operating activities was $(454,000) and
$15,000 for the nine months ended September 30, 2002 and 2001, respectively.
This change reflects the combined effects of (i) a reduction in liquidation and
litigation related costs incurred during 2002 as compared to 2001, (ii) the
settlement of real property transfer tax obligations relating to the Company's
1997 Formation Transactions and 1998 initial public stock offering during 2002,
and (iii) the above mentioned disposition of four shopping center properties
pursuant to the plan of liquidation during the second, third and fourth quarters
of 2001, and the second quarter of 2002.
Cash flow provided by investing activities was $3,657,000 and
$11,811,000 for the nine months ended September 30, 2002 and 2001, respectively.
See Note 5 of the accompanying Notes to Condensed Consolidated Financial
Statements for information pertaining to the sales of shopping center properties
during these respective periods.
Cash flow used in financing activities was $12,890,000 during the nine
months ended September 30, 2001. See Note 4 of the accompanying Notes to
Condensed Consolidated Financial Statements for information relating to
dividends paid during this period.
Inflation
Substantially all of the Company's leases contain provisions designed
to mitigate the adverse impact of inflation. Such provisions include clauses
enabling the Company to receive percentage rentals based on tenants' gross
sales, which generally increase as prices rise, and/or escalation clauses, which
generally increase rental rates during the terms of the leases. Such escalation
clauses are often related to increases in the consumer price index or similar
inflation indices. In addition, many of the Company's leases are for terms of
less than 10 years, which permits the Company to seek to increase rents upon
re-rental at market rates. Most of the Company's leases require the tenant to
pay their share of operating expenses, including common area maintenance, real
estate taxes and insurance, thereby reducing the Company's exposure to increase
in costs and operating expenses resulting from inflation.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
None.
Item 4. Controls and Procedures
(a) Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
principal financial officer, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the Company's Chief Executive Officer and
principal financial officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting him to material information relating
to the Company (including its consolidated subsidiaries) required to be included
in the Company's periodic filings with the Securities and Exchange Commission.
(b) There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect the Company's
internal controls subsequent to the date the Company carried out this
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On October 2, 2000, a class action was filed in the United States
District Court for the Southern District of New York against the Company and its
directors. The complaint alleged a number of improprieties concerning the
pending plan of liquidation of the Company. The Company believes that the
asserted claims are without merit, and will defend such action vigorously. On
November 9, 2000, the Court, ruling from the bench, denied the plaintiff's
motion for a preliminary injunction. This bench ruling was followed by a written
order dated November 30, 2000 wherein the Court concluded that the plaintiff had
failed to demonstrate either that it was likely to succeed on the merits of its
case or that there were sufficiently serious questions going to the merits of
its case to make it fair ground for litigation.
On February 19, 2002, the Company announced that on February 5, 2002,
the Court denied the plaintiff's motion for class action certification. The
plaintiff may elect to proceed with that claim on its own now that class
certification has been denied. The plaintiff also has asserted derivative claims
for alleged breaches of fiduciary duty by the directors of the Company. The
Company believes that such derivative claims are deficient for, among other
reasons, the grounds upon which class certification was denied. The Company
believes that all of the asserted claims are without merit, and will defend such
action vigorously.
On February 28, 2002, the Company announced that the plaintiff had
sought permission from the Court of Appeals for the Second Circuit to appeal the
denial of class certification discussed above. In order for plaintiff to have
obtained permission to appeal, it had to demonstrate that the denial of class
certification effectively terminated the litigation and that the District
Court's decision was an abuse of its discretion. The Company opposed plaintiff's
application. If the Court of Appeals granted plaintiff's request, plaintiff
would then have been able to appeal the District Court's denial of class
certification.
On May 28, 2002, the United States Court of Appeals for the Second
Circuit ordered that the plaintiff's petition to appeal the District Court's
denial of class certification also be denied. The Company has incurred
significant costs in connection with defense of this litigation, which are
covered under the Company's directors and officer's insurance policy and
included in other assets in the accompanying Condensed Consolidated Balance
Sheet.
Except as noted above, the Company is not presently involved in any
litigation nor to its knowledge is any litigation threatened against the Company
or its subsidiaries that, in management's opinion, would result in any material
adverse effect on the Company's ownership, management or operation of its
properties, or which is not covered by the Company's liability insurance.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Effective as of November 12, 2002, Sheila Levine resigned as Chief
Operating Officer, Executive Vice President and Secretary of the
Company. Ms. Levine remains a member of the Board of Directors of the
Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
- -------------- -----------
2.1 Plan of Liquidation and Dissolution of the Company
(filed as exhibit 2.1 to the Company's Current Report
on Form 8-K dated April 28, 2000, and incorporated
herein by reference).
3.1 Amended and Restated Articles of Incorporation of the
Company (filed as Exhibit 3.1 to the Company's
Current Report on Form 8-K dated December 31, 1997,
and incorporated herein by reference).
3.2 Articles Supplementary of Series A Preferred Stock
(filed as Exhibit 3.2 to the Company's Form 8-K dated
December 31, 1997 and incorporated herein by
reference).
3.3 Articles Supplementary dated July 27, 1999, (filed as
Exhibit 3.1 to the Company's Current Report on Form
8-K dated July 15, 1999, and incorporated herein by
reference).
3.4 Third Amended and Restated By-Laws of the Company
dated July 27, 1999, (filed as Exhibit 3.2 to the
Company's Current Report on Form 8-K dated July 15,
1999, and incorporated herein by reference).
3.5 Form of Certificate of Common Stock (filed as Exhibit
3.4 to the Company's Registration Statement on Form
S-11, Registration No. 333-47975, and incorporated
herein by reference).
4.1 Shareholder Rights Agreement, dated as of March 31,
1999, between the Company and BankBoston, N.A. (filed
as Exhibit 4.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1998, and
incorporated herein by reference).
4.2 Amendment No. 1, dated July 27, 1999, to Shareholder
Rights Agreement dated as of March 31, 1999, between
the Company and Bank Boston N.A., as Rights Agent
(filed as Exhibit 4.1 to the Company's Current Report
on Form 8-K dated July 15, 1999, and incorporated
herein by reference).
4.3 Articles Supplementary for Series A Junior
Participating Preferred Stock (filed as Exhibit 4.2
to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998, and incorporated herein
by reference).
10.1 Amended and Restated Agreement of Limited Partnership
of the Operating Partnership (filed as Exhibit 10.1
to the Company's Registration Statement on Form S-11,
Registration No. 333- 47975, and incorporated herein
by reference).
10.2 First Amendment to the Amended and Restated Agreement
of Limited Partnership of the Operating Partnership
(filed as Exhibit 10.2 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1998,
and incorporated herein by reference).
10.3 Contribution and Exchange Agreement, dated August 11,
1997, among National Properties Investment Trust, the
Board of Trustees, the Company, the Operating
Partnership and certain contributing partnerships or
limited liability companies associated with a private
real estate firm controlled by Philip Pilevsky and
certain partners and members thereof (filed as
Exhibit 10.6 to the Company's Registration Statement
on Form S-4, Registration No. 333-41431, and
incorporated herein by reference).
10.4 Amended and Restated Management Agreement, dated as
of March 30, 1998, among the Company, the Operating
Partnership and Philips International Management
Corp. (filed as Exhibit 10-8 to the Company's Form
10-K for the year ended December 31, 1997, and
incorporated herein by reference).
10.5 Amended and Restated Non-Competition Agreement, dated
as of March 30, 1998, among the Company, the
Operating Partnership, Philip Pilevsky and Sheila
Levine (filed as Exhibit 10.9 to the Company's Form
10-K for the year ended December 31, 1997, and
incorporated herein by reference).
10.6 Amendment No. 1 to Contribution and Exchange
Agreement, dated as of December 29, 1997 (filed as
Exhibit 10.13 to the Company's Form 8-K dated
December 31, 1997, and incorporated herein by
reference).
10.7 Credit Agreement among the Operating Partnership and
Prudential Securities Credit Corporation (filed as
Exhibit 10.18 to the Company's Report on Form 10-Q
for the period ended March 31, 1998 and incorporated
herein by reference).
10.8 Purchase and Sale Agreement dated as of April 28,
2000, by and among Munsey Park Associates, LLC, a New
York limited liability company, North Shore Triangle,
LLC, a New York limited liability company, Philips
Yonkers, LLC, a New York limited liability company,
Philips Henry, LLC, a New York limited liability
company, Philips Shopping Center Fund, L.P., a
Delaware limited partnership, and Philips Lake Mary
Associates, L.P., a Delaware limited partnership, and
Kimco Income Operating Partnership, L.P., a Delaware
limited partnership (filed as exhibit 10.1 to the
Company's Current Report on Form 8-K dated April 28,
2000, and incorporated herein by reference).
10.9 Redemption Agreement dated as of April 27, 2000, by
and among the Operating Partnership and Philip
Pilevsky (filed as exhibit 10.2 to the Company's
Current Report on Form 8-K dated April 28, 2000, and
incorporated herein by reference).
10.10 Asset Contribution, Purchase and Sale Agreement dated
as of April 28, 2000, by and among the Company, the
Operating Partnership, Certain Affiliated Parties
signatory thereto, KIR Acquisition, LLC, a Delaware
limited liability company and Kimco Income Operating
Partnership, L.P., a Delaware limited partnership
(filed as exhibit 10.3 to the Company's Current
Report on Form 8-K dated April 28, 2000, and
incorporated herein by reference).
10.11 Amended and Restated Redemption Agreement dated as of
April 27, 2000, by and among Philips International
Realty, L.P., a Delaware limited partnership, and
Philip Pilevsky (filed as exhibit 10.1 to the
Company's Current Report on Form 8-K dated April 28,
2000, and incorporated herein by reference).
10.12 Redemption Agreement dated as of April 28, 2000, by
and among Philips International Realty, L.P., a
Delaware limited partnership, and Allen Pilevsky
(filed as exhibit 10.2 to the Company's Current
Report on Form 8-K dated April 28, 2000, and
incorporated herein by reference).
10.13 Redemption Agreement dated as of April 28, 2000, by
and among Philips International Realty, L.P., a
Delaware limited partnership, and Fred Pilevsky
(filed as exhibit 10.3 to the Company's Current
Report on Form 8-K dated April 28, 2000, and
incorporated herein by reference).
10.14 Redemption Agreement dated as of April 28, 2000, by
and among Philips International Realty, L.P., a
Delaware limited partnership, and SL Florida LLC, a
Delaware limited liability company (filed as exhibit
10.4 to the Company's Current Report on Form 8-K
dated April 28, 2000, and incorporated herein by
reference).
10.15 First Amendment to Asset Contribution, Purchase and
Sale Agreement dated as of May 31, 2000, by and among
Philips International Realty, L.P., a Delaware
limited partnership, the Company, certain Affiliated
Parties signatory thereto, KIR Acquisition, LLC, a
Delaware limited liability company, and Kimco Income
Operating Partnership, L.P., a Delaware limited
partnership (filed as exhibit 10.5 to the Company's
Current Report on Form 8-K dated April 28, 2000, and
incorporated herein by reference).
10.16 Second Amendment to Asset Contribution, Purchase and
Sale Agreement dated as of June 15, 2000, by and
among Philips International Realty, L.P., a Delaware
limited partnership, the Company, certain Affiliated
Parties signatory thereto, KIR Acquisition, LLC, a
Delaware limited liability company, and Kimco Income
Operating Partnership, L.P., a Delaware limited
partnership (filed as exhibit 10.6 to the Company's
Current Report on Form 8-K dated April 28, 2000, and
incorporated herein by reference).
10.17 Third Amendment to Asset Contribution, Purchase and
Sale Agreement dated as of June 20, 2000, by and
among Philips International Realty, L.P., a Delaware
limited partnership, the Company, certain Affiliated
Parties signatory thereto, KIR Acquisition, LLC, a
Delaware limited liability company, and Kimco Income
Operating Partnership, L.P., a Delaware limited
partnership (filed as exhibit 10.7 to the Company's
Current Report on Form 8-K dated April 28, 2000, and
incorporated herein by reference).
10.18 Amended and Restated Purchase and Sale Agreement
dated as of June 20, 2000, by 1517-25 Third, L.P., a
New York limited partnership, Philip Pilevsky, SL
Florida LLC, a Delaware limited liability company,
Allen Pilevsky and Fred Pilevsky (filed as exhibit
10.8 to the Company's Current Report on Form 8-K
dated April 28, 2000, and incorporated herein by
reference).
10.19 Amended and Restated Purchase and Sale Agreement
dated as of June 20, 2000, by Philips International
Realty, L.P., a Delaware limited partnership, Philips
Lake Worth Corp., a New York corporation, and Philip
Pilevsky (filed as exhibit 10.9 to the Company's
Current Report on Form 8-K dated April 28, 2000, and
incorporated herein by reference).
10.20 Amendment to Amended and Restated Purchase and Sale
Agreement dated as of April 4, 2001, by and between
the Company, Philips Lake Worth Corp., a New York
corporation, and Philip Pilevsky.
(b) Reports on Form 8-K
During the third quarter of 2002, the Company filed with the Securities
and Exchange Commission a Current Report on Form 8-K dated August 14, 2002
furnishing under Items 7 and 9 the transmittal letter and certification of the
Company's Chief Executive Officer and principal financial officer, Philip
Pilevsky, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that
accompanied the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHILIPS INTERNATIONAL REALTY CORP.
November 14, 2002 /s/ Philip Pilevsky
-------------------------------------------------
Philip Pilevsky
Chairman of the Board and Chief Executive Officer
CERTIFICATIONS
I, Philip Pilevsky, Chief Executive Officer and principal financial officer of
Philips International Realty Corp., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Philips
International Realty Corp.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Philip Pilevsky
----------------------------
Philip Pilevsky
Chief Executive Officer and
principal financial officer