Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended November 3, 2001
--------------------------
OR
[ ] 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 0-14900
---------------------------
PSS, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 91-1335798
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 21093, Seattle, WA 98111-3093
- ---------------------------------------- -------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (206) 901-3790
--------------
Former name, former address and former fiscal year, if changed since last
report.
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common stock - $1.00 par value
7-1/8% Convertible Debentures due July 15, 2006
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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the registrant's voting stock held by nonaffiliates of
the registrant as of December 1, 2001: $90,000.
The number of shares of common stock outstanding as of December 1, 2001:
19,473,728.
Documents incorporated by reference: None.
- -----------------------------------
Page 1 of 23
PART I
ITEM 1 - BUSINESS
PSS, Inc. ("PSS"), through its wholly owned subsidiary, PNS Inc. ("PNS"), owns
PSSC Inc. ("PSSC"); together, PSS, PNS and PSSC are referred to collectively as
the "Company". The Company, through PSSC, owns a pass-through and participation
certificate issued by the Federal Home Loan Mortgage Corporation backed by whole
pool real estate mortgages ("Mortgage Certificates"), and as a result, is
primarily engaged in the business of owning mortgages and other liens on and
interests in real estate. At November 3, 2001, the Company's principal assets
consisted of approximately $2.2 million of Mortgage Certificates from which
interest income is earned. The Mortgage Certificates are financed with
borrowings, payable on demand, secured by the Mortgage Certificates (the
"Mortgage Financing"). The principal obligations of the Company are the Mortgage
Financing borrowings, the PNS 12-1/8% Senior Subordinated Notes due July 15,
1996 (the "Senior Notes") and the PSS 7-1/8% Convertible Debentures due July 15,
2006 (the "Debentures"), upon which interest expense is incurred.
See the Liquidity and Capital Resources section of Management's Discussion and
Analysis of Financial Condition and Results of Operations regarding the status
of the Company's defaults on the Senior Notes and Debentures and factors upon
which the Company's future operating results, liquidity and capital resources
are primarily dependent.
ITEM 2 - PROPERTIES
- -------------------
None
ITEM 3 - LEGAL PROCEEDINGS
- --------------------------
None.
2
ITEM 4 - SUBMISSON OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
Not applicable.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
- -------------------------------------------------------------------------
MATTERS
- -------
Market Information
The Company's common stock is traded over-the-counter. High and low prices are
the high and low bids as reported by National Quotation Bureau, Inc., which are
those quoted by dealers to each other, exclusive of markups, markdowns or
commissions, and do not represent actual transactions. The high and low prices
for the stock during the two years ended November 3, 2001 were reported as being
less than $0.01 per share.
Holders
As of December 1, 2001, there were 969 holders of record of the Company's common
stock.
Dividends on Common Stock
The Company has never paid a dividend and does not anticipate paying dividends
for the foreseeable future. The indentures governing the Company's Senior Notes
and Debentures contain covenants which restrict the ability of the Company to
pay dividends (see Note 5 to the financial statements).
3
ITEM 6 - SELECTED FINANCIAL DATA
- --------------------------------
The following selected financial data should be read in conjunction with the
financial statements and related notes and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere herein. As
explained in Note 2 to the financial statements, information is presented on a
liquidation basis. Presentation of per share information on a liquidation basis
is not considered meaningful and has been omitted.
Year Ended
November 3, October 28, October 30, October 31, November 1,
2001 2000 1999 1998 1997
-----------------------------------------------------------------------
(thousands of dollars)
Statement of Changes in Net Liabilities Data:
Increase in Net Liabilities $ (2,290) $ (2,290) $ (2,290) $ (2,265) $ (2,265)
November 3, October 28, October 30, October 31, November 1,
2001 2000 1999 1998 1997
-----------------------------------------------------------------------
Statements of Net Liabilities Data:
Total Assets $ 2,236 $ 2,863 $ 3,268 $ 3,984 $ 4,829
Short-term borrowings 1,615 2,255 2,641 3,270 4,073
Long-term debt 28,178 28,178 28,178 28,178 28,178
Total Liabilities 48,562 46,899 45,014 43,440 42,020
Net Liabilities $ (46,326) $(44,036) $(41,746) $ (39,456) $(37,191)
4
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
Liquidity and Capital Resources
- -------------------------------
At November 3, 2001, the Company's principal assets consisted of approximately
$2.2 million of Mortgage Certificates from which interest income is earned and
its principal obligations consisted of Mortgage Financing borrowings, Senior
Notes and Debentures upon which interest expense is incurred.
PNS is restricted by terms of its Senior Notes Indenture from paying dividends
or making other payments to PSS, except that PNS may pay dividends to PSS in
amounts sufficient to enable PSS to meet its obligation on its Debentures when
due. PNS, like its parent company, has a stockholder's deficit.
At November 3, 2001, the Company had total assets of approximately $2.24 million
and liabilities, other than the Senior Notes and Debentures including accrued
interest and liquidation costs, of $1.78 million, thus having a net difference
of approximately $460,000 available for holders of Senior Notes and Debentures.
At November 3, 2001, approximately $5.26 million of Senior Notes and $22.92
million of Debentures remain outstanding, such outstanding amounts being
unchanged since 1995.
The Company failed to pay the interest due January 15 and July 15, 1995, 1996,
1997, 1998, 1999, 2000 and 2001 on its Debentures and such default continues.
The trustee for the Debentures has informed the holders of the Debentures that
it does not intend to accelerate payment of the Debentures "because it is
unlikely that the Debenture holders would receive any payment if the Debentures
were accelerated."
PNS failed to pay interest due July 15, 1995, January 15, 1996 and July 15, 1996
and failed to pay the outstanding principal which became due on July 15, 1996.
All such defaults continue. In 1997, the Company was advised by the trustee for
the Senior Notes that, after concluding that the Company lacks sufficient assets
to pay the Senior Notes, the trustee had petitioned a district court for the
State of Minnesota to authorize and instruct it to refrain from pursuing any
default remedy against the Company and to discharge it as trustee, and that the
Court had granted the trustee's requests.
The Company's future operating results, liquidity, capital resources and
requirements are primarily dependent upon actions which may be taken by the
trustee for the Debentures to collect amounts due thereunder, the payment of
amounts due on and purchases of Senior Notes and Debentures and, to a lesser
extent, interest rate fluctuations as they relate to the market value of
Mortgage Certificates and to the spread of interest income therefrom over
interest expense on related borrowings. The Company is exclusively invested in
Mortgage Certificates, and, accordingly, is presently relying solely on such as
its source of cash funds. It has not been determined what course of action the
Company may pursue with respect to debt service on the Senior Notes and
Debentures.
5
Results of Operations
- ---------------------
Investment income
-----------------
Investment income for the year ended November 3, 2001 decreased as compared to
the prior year primarily as a result of lower balances of investments in
Mortgage Certificates. Investment income for the year ended October 28, 2000
increased as compared to the prior year as a result of the change in Mortgage
Certificates unrealized appreciation offset by a decrease in interest income due
to lower balances of investments in Mortgage Certificates. Investment income
decreased during the year ended October 30, 1999, as compared to the immediate
preceding year primarily as a result of lower balances of investments in
Mortgage Certificates as well as decreases in unrealized appreciation. The
weighted average interest income rate earned on the Mortgage Certificates
approximated 7.5 %, 7.5% and 7.3% during the years ended November 3, 2001,
October 28, 2000 and October 30, 1999, respectively.
Included in investment income are unrealized gains (or losses) resulting from
increases (or decreases) in unrealized appreciation resulting from
mark-to-market adjustments on Mortgage Certificates. As a result of declines in
market values as well as principal repayments on Mortgage Certificates,
unrealized appreciation resulting from mark-to-market adjustments decreased
during the year ended October 30, 1999 by $83,000. Increases in market values
offset decreases in unrealized appreciation due to principal repayments,
resulting in a net decrease in unrealized appreciation during the year ended
October 28, 2000 of $1,000, and a net increase in unrealized appreciation during
the year ended November 3, 2001 of $3,000.
Interest expense
----------------
Interest expense for each of the years ended November 3, 2001 and October 30,
1999 decreased as compared to the immediate preceding year primarily due to
lower average balances of Mortgage Financing borrowings outstanding during the
periods, as well as lower interest rates in 2001. Interest expense increased
during the year ended October 28, 2000 as compared to the prior year due to
higher interest rates offset by lower average balances of Mortgage Certificate
borrowings. The weighted average interest expense rate on Mortgage Certificate
related borrowings approximated 5.8%, 6.9%, and 5.8% during the years ended
November 3, 2001, October 28, 2000 and October 30, 1999, respectively.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
The Company's investment in mortgage certificates is a market risk sensitive
instrument relative primarily to interest rate risk. The investment represents a
pass-through and participation certificate issued by the Federal Home Loan
Mortgage Corporation in 1990 with an original principal of approximately $11
million and a 2020 maturity date. The Company's average investment approximated
$2.5 million, $3.0 million, and $3.3 million during the fiscal years ended
November 3, 2001, October 28, 2000, and October 30, 1999, respectively. The
investment in
6
mortgage certificates has declined over the past three years due primarily to
principal repayments from the underlying mortgages within the mortgage
certificate pool. Principal repayments have approximated 12% to 21% of the
mortgage investment during each of the past three fiscal years. The rate of
interest to be earned on the mortgage certificates is adjustable based on
general interest rate trends, with certain maximums, including limits of 2% for
annual rate changes and interest rate maximums of approximately 13%. Interest
rates on the underlying mortgages are adjusted, as applicable, throughout the
year. The weighted average interest income rates earned on the mortgage
certificates approximated 7.5% and 7.5% during fiscal 2001 and 2000,
respectively, and the interest rate at November 3, 2001 approximated 7.0%.
Mortgage certificates are financed with borrowings from an investment bank, such
borrowings being secured by the mortgage certificates and payable on demand.
Borrowings bear interest at rates generally approximating the three month
Federal Funds rate plus 25 to 75 basis points. The Company's average borrowings
approximated $2.0 million, $2.5 million, and $2.9 million during the fiscal
years ended November 3, 2001, October 28, 2000, and October 30, 1999,
respectively. The borrowings have declined over the past three years due
primarily to applying principal repayments from the mortgage certificates to
repay borrowings. The weighted average interest expense rates incurred on the
borrowings approximated 5.8% and 6.9% during the years ended November 3, 2001,
and October 28, 2000, respectively, and the interest rate at November 3, 2001
approximated 3.8%. Borrowings at November 3, 2001 approximated $1.6 million.
Generally, a decline in interest rates would result in a decrease in interest
rates earned on mortgage certificates as underlying mortgages would likely
adjust interest rates down, however such adjustment would occur throughout the
year. Interest rates paid on borrowings would likely decline on a more immediate
basis. The timing of when interest income and expense rates are effected
historically has resulted in a short-term margin improvement during periods of
interest rate declines. The market price of mortgage certificates has
historically increased as interest rates decline. During periods of interest
rate increases, the opposite is the case.
In the Company's circumstances, whereby its future operating results and
financial condition are primarily dependent upon actions to be taken with
respect to the $5.26 million of 12 1/8% Senior Notes and $22.92 million of 7
1/8% Debentures, both of which are in default, and its financial statements are
presented on a liquidation basis utilizing a liquidation date in November 2002,
additional quantitative and qualitative disclosures about market risk, including
projections of future cash flows, are not considered meaningful and have not
been presented.
7
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
INDEX TO FINANCIAL STATEMENTS
- -----------------------------
Financial statements Page
-------------------- ----
Report of Independent Accountants 9
Consolidated Statements of Net Liabilities 10
Consolidated Statements in Changes in Net Liabilities 11
Notes to Financial Statements 12
SUPPLEMENTARY FINANCIAL INFORMATION
- -----------------------------------
Selected quarterly financial data (unaudited) 17
---------------------------------------------
8
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of PSS, Inc.
We have audited the accompanying consolidated statements of net liabilities of
PSS, Inc. and its subsidiaries in liquidation as of November 3, 2001 and October
28, 2000 and the related consolidated statements of changes in net liabilities
in liquidation for the years ended November 3, 2001, October 28, 2000, and
October 30, 1999. These financial statements are the responsibility of the
Company's management. 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 of America. 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.
As described in Note 2 of the consolidated financial statements, as of October
28, 1995, the Company adopted the liquidation basis of accounting.
In our opinion, the consolidated financial statements referred to in the first
paragraph present fairly, in all material respects, the net liabilities in
liquidation of PSS, Inc. and its subsidiaries at November 3, 2001 and October
28, 2000 and the changes in their net liabilities in liquidation for the years
ended November 3, 2001, October 28, 2000, and October 30, 1999, in conformity
with accounting principles generally accepted in the United States of America
applied on the basis described in the preceding paragraph.
PricewaterhouseCoopers LLP
Seattle, Washington
January 22, 2002
9
PSS, INC.
Consolidated Statements of Net Liabilities
(Liquidation Basis)
(thousands of dollars)
November 3, October 28,
2001 2000
---------------------------------
Cash and short-term investments $ -- $ 115
Related party receivable (Note 3) 56 --
Investment in mortage certificates 2,155 2,712
Accrued interest receivable 25 36
---------------------------------
Total Assets 2,236 2,863
---------------------------------
Borrowings under mortgage certificate financing agreement 1,615 2,255
Accounts payable and accrued liabilities 160 161
Reserve for estimated costs during period of liquidation 59 64
PNS 12 1/8% senior notes 5,258 5,258
Accrued interest payable on PNS notes 4,344 3,696
Reserve for interest on PNS notes during period of liquidation 636 636
PSS 7 1/8% debentures 22,920 22,920
Accrued interest payable on PSS debentures 11,941 10,280
Reserve for interest on PSS debentures during period of liquidation 1,629 1,629
---------------------------------
Total Liabilities 48,562 46,899
---------------------------------
Net Liabilities ($46,326) ($44,036)
========= =========
The accompanying notes are an integral part of these financial statements.
10
PSS, INC.
Consolidated Statements of Changes in Net Liabilities
(Liquidation Basis)
(thousands of dollars)
Year Ended
----------
November October 28, October 30,
3, 2001 2000 1999
----------------------------------------
Investment income $ 194 $217 $ 156
Interest expense (2,429) (2,436) (2,432)
General and administrative expense (60) (70) (54)
Decrease in reserve for estimated costs
and interest during period of liquidation 2,295 2,289 2,330
Provision for estimated costs and interest
during period of liquidation (2,290) (2,290) (2,290)
--------- --------- ----------
Increase in Net Liabilities $ (2,290) $ (2,290) $ (2,290)
========= ========= ===========
The accompanying notes are an integral part of these financial statements.
11
PSS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - The Company
- --------------------
The consolidated financial statements of PSS, Inc. ("PSS"), include its direct
subsidiary PNS Inc. ("PNS") and its subsidiary PSSC, Inc. ("PSSC"),
collectively, the "Company". The Company is principally owned by Seacorp, Inc.
("Seacorp") and Zimmerman Retailing Group Limited ("Zimco"). Seacorp and Zimco
own approximately 41% and 12%, respectively, of the Company's outstanding common
stock, with the remainder publicly owned.
The Company, through PSSC, owns a pass-through and participation certificate
issued by the Federal Home Loan Mortgage Corporation backed by whole pool real
estate mortgages ("Mortgage Certificates"), and as a result, is primarily
engaged in the business of owning mortgages and other liens on and interests in
real estate. The principal obligations of the Company are PSSC borrowings
secured by Mortgage Certificates, PNS 12-1/8% Senior Subordinated Notes due July
15, 1996 (the "Senior Notes") and PSS 7-1/8% Convertible Debentures due July 15,
2006 (the "Debentures").
The Company failed to pay the interest due January 15 and July 15, 1995, 1996,
1997, 1998, 1999, 2000 and 2001on its Debentures and such default continues. The
trustee for the Debentures has informed the holders of the Debentures that it
does not intend to accelerate payment of the Debentures "because it is unlikely
that the Debenture holders would receive any payment if the Debentures were
accelerated."
PNS failed to pay interest due on July 15, 1995, January 15, 1996 and July 15,
1996 and failed to pay the outstanding principal on its Senior Notes which
became due on July 15, 1996. All such defaults continue. In June 1997 the
Company was advised by the trustee for the Senior Notes that, after concluding
that the Company lacks sufficient assets to pay the Senior Notes, the trustee
had petitioned a district court for the State of Minnesota to authorize and
instruct it to refrain from pursuing any default remedy against the Company and
to discharge it as trustee, and that the Court had granted the trustee's
requests.
At November 3, 2001, the Company had total assets of approximately $2.24 million
and liabilities, other than the Senior Notes and Debentures including accrued
interest and liquidation costs, of approximately $1.78 million, thus having a
net difference of approximately $460,000 available for holders of Senior Notes
and Debentures. At November 3, 2001, approximately $5.26 million of Senior Notes
and $22.92 million of Debentures remain outstanding and, annual interest
thereon, approximates $636,000 and $1.63 million, respectively. The Company's
future operating results, liquidity, capital resources and requirements are
primarily dependent upon actions which may be taken by the trustee for the
Debentures to collect amounts due thereunder, the payment of amounts due on and
purchases of Senior Notes and Debentures and, to a lesser extent, interest rate
fluctuations as they relate to the market value of Mortgage Certificates and to
the spread of interest income therefrom over interest expense on related
borrowings. The Company is exclusively invested in Mortgage Certificates, and,
accordingly, is presently relying solely on such
12
as its source of cash funds. It has not been determined what course of action
the Company may pursue with respect to debt service on the Senior Notes and
Debentures.
NOTE 2 - Liquidation Basis of Accounting
- ----------------------------------------
Effective October 28, 1995, the Company adopted the liquidation basis of
accounting for presenting its consolidated financial statements. This basis of
accounting is considered appropriate when, among other things, liquidation of a
company appears imminent and the net realizable value of it's assets are
reasonably determinable. Under this basis of accounting, cash and short term
investments, investments in mortgage certificates and accrued interest
receivable are stated at their net realizable value, net deferred tax assets are
stated at zero, liabilities are stated at contractual face value with accrued
interest through the liquidation date, and estimated costs through the
liquidation date are provided to the extent reasonably determinable.
The net effect of converting from the going concern basis to the liquidation
basis of accounting as of October 28, 1995 was an increase in net liabilities of
approximately $1.7 million, as a result of recording estimated costs and
interest expense to the liquidation date. No adjustment to the reported value of
assets was required. Under the liquidation basis, the Company accrued future
liabilities and estimated future net revenues from interest and other income
associated with mortgage certificates to the liquidation date.
A summary of significant estimates and judgments utilized in preparation of the
consolidated financial statements on a liquidation basis follows:
o The Company's next fiscal year end, the Saturday closest to the end of
October, November 2, 2002, has been utilized as the liquidation date
for the November 3, 2001 financial statements, November 3, 2001 was
utilized on the liquidation date for the October 28, 2001 financial
statements and the October 28, 2000 fiscal year end was utilized as
the liquidation date for the October 30, 1999 financial statements.
o Mortgage Certificates are stated at estimated market value and related
interest receivable at face value.
o Deferred tax assets relating to net operating loss carry forwards, net
of valuation allowance, are stated at zero.
o Borrowings secured by Mortgage Certificates are stated at face value,
which approximates market value.
o The reserve for estimated costs during the period of liquidation
represents estimates of future costs to be incurred through the
liquidation date.
o Net estimated interest income to be earned on Mortgage Certificates in
excess of interest expense on related borrowings has been considered
in determining the
13
reserve for estimated costs during the period of liquidation.
NOTE 2 - Liquidation Basis of Accounting (continued)
- ----------------------------------------------------
o Senior Notes and Debentures and related interest accrued are stated at
contractual face value.
o The reserve for interest during the period of liquidation represents
interest on Senior Notes and Debentures for the period from the date
of the Consolidated Statements of Net Liabilities to the estimated
liquidation date, as applicable.
All of the above estimates and judgments may be subject to change as facts and
circumstances change. Similarly, actual costs and expenses may differ
significantly depending on a number of factors, particularly the length of the
liquidation period.
During the fiscal years ended November 3, 2001, October 28, 2000, and October
30, 1999, the Company's actual net excess of costs incurred over net investment
income reasonably approximated the recorded reserve for such years.
Presentation of per common share information on a liquidation basis is not
considered meaningful and has been omitted.
NOTE 3 - Summary of Accounting Principles
- -----------------------------------------
Cash and Short-Term Investments and Related Party Receivables
- -------------------------------------------------------------
Cash and short-term investments, having maturities of three months or less when
purchased, are primarily comprised of interest-bearing short-term bank deposits.
During the year ended November 3, 2001, the Company, along with other companies
affiliated with Seacorp, invested cash with an affiliate of Seacorp, a related
party, in 7 day certificates of deposit and has received, together with the
other parties whose funds have been invested, its pro rata portion of the
interest earned and has reported this amount as a related party receivable in
the Statement of Net Liabilities.
Investment in Mortgage Certificates
- -----------------------------------
The investment in Mortgage Certificates is recorded at estimated fair value,
based upon market prices obtained from an investment bank. Gains and losses
realized upon sale of Mortgage Certificates and unrealized gains and losses
resulting from mark-to-market adjustments are included in investment income.
Accounting Estimates
- --------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported
14
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those amounts.
NOTE 4 - Investment in Mortgage Certificates
Mortgage Certificates are financed with borrowings provided by an investment
bank pursuant to a letter agreement (the "Financing Agreement"). Borrowings
pursuant to the Financing Agreement (the "Mortgage Financing") are secured by
the Mortgage Certificates. In the event of a decrease in the aggregate market
value of the Mortgage Certificates below the requirements of the Financing
Agreement, additional collateral is required. Principal and interest payments
received on Mortgage Certificates are maintained in an interest earning account
and amounts in excess of required collateral are released to the Company at its
request. The Mortgage Financing is payable on demand and generally bears
interest at rates approximating the three month Federal Funds Rate plus 25 to 75
basis points. Mortgage Financing borrowings and related interest rates
approximated $1.6 million and 3.8% at November 3, 2001 and $2.3 million and 7.5%
at October 28, 2000, respectively. During the years ended November 3, 2001,
October 28, 2000, and October 30, 1999, the average balance of mortgage related
borrowings outstanding approximated $2.0 million, $2.5 million, and $2.9
million, and the weighted annual average interest expense rates approximated
5.8%, 6.9% and 5.8%, respectively.
At November 3, 2001, the interest rate to be earned on the Mortgage Certificates
approximated 7.0%. The rate of interest on the Mortgage Certificates is
adjustable based on general interest rate trends with certain maximums,
including limits of 2% for annual interest rate changes and interest rate
maximums of approximately 13%. The weighted average interest income rates earned
on the Mortgage Certificates approximated 7.5%, 7.5% and 7.3%, during the years
ended November 3, 2001, October 28, 2000 and October 30, 1999, respectively.
NOTE 5 - Subordinated Debt
- --------------------------
Subordinated debt and related interest payable through the balance sheet dates
are summarized as follows (thousands of dollars):
November 3, October 28,
2001 2000
---- ----
PNS 12-1/8% Senior Notes $ 5,258 $ 5,258
Interest payable on Senior Notes 4,344 3,696
------- -------
$ 9,602 $ 8,954
======= =======
PSS 7-1/8% Debentures $22,920 $22,920
Interest payable on Debentures 11,941 10,280
------- -------
$34,861 $33,200
======= =======
15
NOTE 5 - Subordinated Debt (continued)
- --------------------------------------
In July 1986, the Company completed three public securities offerings (the
"Public Offerings"). PNS issued $150 million of Senior Notes and PSS sold 3.25
million shares of its common stock and issued $150 million of Debentures
convertible to PSS common stock at $19.68 per share (the conversion price is
subject to adjustment in the case of dilution). PSS invested the net proceeds
from its two offerings in PNS, in the form of a contribution to capital and an
intercompany debenture between PNS and PSS in the amount of $150 million with
substantially the same interest rate and redemption provisions as the
Debentures. The indenture governing the Senior Notes restricts the ability of
PNS and its subsidiaries to pay dividends or make other payments to PSS. The
Senior Notes indenture permits PNS to pay dividends to PSS in amounts sufficient
to enable PSS to meet its obligations on the Debentures when due, provided that
no event of default (as defined in the Senior Notes indenture) has occurred and
is continuing. PNS, like its parent company, has a stockholder's deficit. The
Senior Notes and Debentures provide for semiannual interest payments and are
unsecured.
The indentures for the Senior Notes and Debentures contain certain restrictive
covenants which, among other things, limit dividends and similar distributions
to stockholders, essentially prohibit redemptions and retirements of the
Company's equity, limit the Company's ability to incur debt, and restrict action
and agreements by the Company that would prohibit dividends and similar
distributions to the Company from its subsidiaries.
NOTE 6 - Income Taxes
- ---------------------
Due to losses for each of the years ended November 3, 2001, October 28, 2000 and
October 30, 1999, there was no provision for income taxes recorded.
As of November 3, 2001, for income tax purposes, the Company has approximately
$83 million of net operating loss carry-forwards available to offset future
taxable income and a portion of such carry-forwards expires at the end of fiscal
2002. As Company management cannot determine that it is more likely than not
that the Company will receive the benefit of deferred tax assets relating to
these loss carry-forwards, a valuation allowance equal to the deferred tax asset
has been established. If certain substantial changes in the Company's ownership
should occur, there would be an annual limitation on the amount of the
carry-forwards which could be utilized.
NOTE 7 - Stockholders' Deficit
- ------------------------------
The Company's common stock consists of 60 million authorized shares, $1 par
value, 19,473,728 shares of which are issued and outstanding. The Company also
has 10 million authorized shares of preferred stock, $1 par value, none of which
have been issued. There have been no changes in common stock or additional paid
in capital since October 29, 1994. Effective October 28, 1995 as a result of
presenting financial statements on the liquidation basis, changes in components
of stockholders' deficit are not presented.
16
NOTE 8 - Selected Quarterly Financial Data (Unaudited)
- ------------------------------------------------------
Selected quarterly financial data are as follows (thousands of dollars):
Fiscal Quarters Ended
---------------------
November July 28, April 28, January 27,
3, 2001 2001 2001 2001
------------------------------------------------
Decrease in reserve for estimated costs and
interest during period of liquidation $ 618 $ 556 $ 556 $ 565
Provision for estimated costs and interest
during period of liquidation (2,290) -- -- --
Increase in Net Liabilities (2,290) -- -- --
Fiscal Quarters Ended
---------------------
October 28, July 29, April 29, January 29,
2000 2000 2000 2000
------------------------------------------------
Decrease in reserve for estimated costs and
interest during period of liquidation $ 599 $ 552 $ 587 $ 551
Provision for estimated costs and interest
during period of liquidation (2,290) -- -- --
Increase in Net Liabilities (2,290) -- -- --
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
None.
17
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The following table sets forth certain information concerning each of the
directors and executive officers of the Company. All directors will serve until
the next Annual Meeting of Shareholders and until his respective successor is
elected or appointed. Each director of the Company is also a director of PNS.
Present Principal
Name and Position Occupation or Employment
With the Company Age and Five Year Employment History
- ---------------- --- --------------------------------
Mark Todes
President and Director 46 President and Director of the
Company for more than 5 years.
President of City Realty, Inc. (a
real estate holding company) and
Vice President of 200 West
Holdings, Ltd. (a subsidiary of
City Realty) for more than 5 years
prior thereto. Vice President of
Seacorp for more than 5 years.
Gerald P. Nathanson 66 Director of the Company since
Director October 1986 and a private investor
for more than 5 years.
Carite L. Torpey 53 Vice President, Secretary and
Vice President, Secretary Treasurer of the Company since July
and Treasurer 1997 and Assistant Secretary for
more than 5 years prior thereto.
Vice President or Assistant vice
President of TG Services, Inc.(a
private investment company) for
more than 5 years.
ITEM 11 - EXECUTIVE COMPENSATION
- --------------------------------
Compensation of Directors and Executive Officers
The Company has no employees. There are currently no arrangements under which
any officer or director of the Company will receive compensation for serving as
such; however, other arrangements may be made in the future.
18
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The following table sets forth, as of December 1, 2001, information concerning
the beneficial ownership of the common stock of the Company by (i) persons known
by the Company to own beneficially more than 5% of its outstanding common stock,
(ii) each of the directors of the Company and (iii) all directors and executive
officers of the Company as a group. Except as set forth in the footnotes to the
table, the stockholders have sole voting and investment power over such shares.
Unless otherwise specified, the address for all directors is the address of the
Company's executive offices. The address for Messrs. Julius and Eddie Trump is
the address set forth below for Seacorp. The address for Mr. Christopher Podoll
is the address set forth below for Zimmerman Retailing Group Limited.
Amount and Nature
of Beneficial Percent
Name Ownership of Class
- ---- --------- --------
Christopher Podoll (a) 2,391,079 12.3%
Zimmerman Retailing Group Limited (a) 2,391,079 12.3%
P.O. Box 948
Route 2, Pleasant Plain Road
Fairfield, IA 52556
Seacorp, Inc. (b) 8,014,705 41.1%
P.O. Box 2573
Seattle, WA 98111
Eddie Trump (b) 8,014,705 41.1%
Julius Trump (b) 8,014,705 41.1%
All Directors and Executive Officers as
a Group (3 persons) 0 0%
(a) According to the Schedule 13D, as amended (the "Zimco Amended 13D"), filed
with the Securities and Exchange Commission (the "Commission"), Zimco is an
Iowa limited partnership, the sole general partner of which is Soma 2 L.P.,
a Delaware limited partnership ("Soma 2"). Soma 2 has as its general
partner ZRG Co., Inc., a Delaware corporation ("ZRG"), for which Mr. Podoll
serves as the sole executive officer and director. Mr. Podoll is a manager
of investments of the William Zimmerman family. Amounts include 8,079
shares issuable upon conversion of Debentures beneficially owned by Zimco.
Amounts do not include the ownership of 6,000 shares and 3,810 shares
issuable upon conversion of Debentures owned by the Surya Financial Inc.
Retirement Plan, a retirement plan for the benefit of various employees of
Surya Financial Inc., an affiliate of Zimco.
(b) According to the Schedule 13D, as amended, filed with the Commission by
Julius Trump, Eddie Trump and Seacorp, Seacorp is, and Messrs. Julius and
Eddie Trump may be
19
deemed to be, the beneficial owner(s) of 8,014,705 shares of common stock.
Such amount includes 8,079 shares issuable upon conversion of Debentures
beneficially owned by an affiliate of Seacorp. As set forth in the Schedule
13D, Seacorp is a Delaware corporation and does not presently have any
business other than the ownership of shares of common stock of the Company.
Seacorp is indirectly controlled by Messrs. Julius and Eddie Trump.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
During the year ended November 3, 2001, the Company, along with other companies
affiliated with Seacorp, invested cash with an affiliate of Seacorp, a related
party, in 7 day certificates of deposit and has received, together with the
other parties whose funds have been invested, its pro rata portion of the
interest earned and has reported this amount as a related party receivable in
the Statement of Net Liabilities.
20
PART IV. OTHER INFORMATION
--------------------------
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
- ----------------------------------------------------------------
FORM 8-K
- --------
(a) See the section entitled "Index to Financial Statements" appearing under
Item 8 of this Annual Report on Form 10-K.
(b) Not applicable
(c) Exhibits:
3.1 Restated Certificate of Incorporated by referenced from
Incorporation of the Registrant Exhibit 3.1 to the Registration
Statement on Form S-1 (File No.
33-5560) of the Company (the
"Registration Statement").
3.2 Certificate of Amendment of Incorporated by reference from
Certificate of Incorporation of Exhibit 3.2 to the Registration
the Registrant Statement.
3.3 Certificate of Amendment of Incorporated by reference from
Certificate of Incorporation Exhibit 3.1 to Quarterly Report on
of the Registrant Form 10-Q for the quarter ended
July 30, 1988.
3.4 Certificate of Amendment of Incorporated by reference from
Certificate of Incorporation Exhibit 3.4 to the Annual Report on
of the Registrant Form 10-K for the year ended
October 31, 1992.
3.5 By-Laws of the Registrant Incorporated by reference from
Exhibit 3.3 to the Registration
Statement.
4.1 Indenture between the Incorporated by reference from
Registrant Inc. and United Exhibit 4.1 to the Registration
States Trust Company of Statement.
New York, as Trustee,
relating to the 7-1/8% Con-
vertible Debentures due July
15, 2006 (including the form
of Convertible Debenture).
4.2 First Supplemental Indenture Incorporated by reference from
between the Registrant and Exhibit 4.1 to the Quarterly Report
United States Trust Company of on Form 10-Q for quarter ended
April 30, 1988.
21
New York as Trustee, relating
to the 7-1/8% Convertible De-
bentures due July 15, 2006.
4.3 Indenture between PNS Inc. and Incorporated by reference from
Norwest Bank Minneapolis, Nat- Exhibit 4.1 to the Registration
ional Association as Trustee, Statement on Form S-1 (File No.
relating to the 12-1/8% Senior 33-5591) of PNS Inc.
Subordinated Notes due July
15, 1996 (including the form
of Senior Subordinated Note.
4.4 First Supplemental Indenture Incorporated by reference from
between PNS Inc., and Norwest Exhibit 4.2 to the Quarterly Report
Bank Minnesota, National on Form 10-Q for the quarter ended
Association as Trustee, April 30, 1988.
relating to the 12-1/8%
Senior Subordinated Notes due
July 15, 1996.
10.5 Letter Agreement dated Incorporated by reference from
February 9, 1990 by and among Exhibit (i) to Quarterly Report on
PSSC Inc. and Bear Stearns & form 10-Q for the quarter ended
Co., Inc. for the purchase and February 3, 1990.
the financing of adjustable-
rate mortgages.
22.1 Subsidiaries of the Registrant. Incorporated by reference from
Exhibit 22.to the Annual Report on
Form 10-K for the year ended
October 31, 1992.
22
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.
PSS, INC.
(Registrant)
Date: January 23, 2002 By: /s/ MARK TODES
---------------
Mark Todes, President and Director
23
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 dates indicated.
Date Title Signature
---- ----- ---------
January 23, 2002 Director /s/ Gerald Nathanson
-------------------------------------
Gerald Nathanson
January 23, 2002 Director /s/ Mark Todes
-------------------------------------
Mark Todes
24