FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended January 29, 2000
-------------------------
OR
[.] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
- --------------------------------------------------------------------------------
For Quarter ended January 29, 2000 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 2573, Seattle, WA 98111-2573
- --------------------------------------- ----------------
(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.
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____
The number of shares of common stock outstanding as of
March 1, 2000: 19,473,728.
Page 1 of 12
<PAGE>
INDEX
Page
----
PART I. FINANCIAL INFORMATION
1. Financial Statements 3
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
1. Legal Proceedings (a)
2. Changes in Securities (a)
3. Defaults Upon Senior Securities 11
4. Submission of Matters to a Vote of Security Holders (a)
5. Other Information (a)
6. Exhibits and Reports on Form 8-K (a)
- -----------------------------------------------------------------
(a) These items are inapplicable or have a negative response and have therefore
been omitted.
2
<PAGE>
<TABLE>
<CAPTION>
PSS, INC.
CONSOLIDATED BALANCE SHEETS
Liquidation Basis
(unaudited)
(thousands of dollars)
Assets: 29-Jan-00 30-Oct-99
--------- ---------
<S> <C> <C>
Cash and short-term investments $145 $172
Investment in mortgage certificates 3,027 3,061
Interest receivable 34 35
------ ------
Total Assets 3,206 3,268
------ ------
Liabilities:
Borrowings under mortgage certificate financing agreement 2,569 2,641
Accounts payable and accrued liabilities 151 156
Reserve for estimated liquidation costs 78 62
PNS 12-1/8% senior notes 5,258 5,258
Interest payable on PNS 12-1/8%notes 3,219 3,060
Reserve for interest on PNS 12-1/8% notes 477 636
PSS 7-1/8% notes 22,920 22,920
Interest payable on 7-18% notes 9,058 8,652
Reserve for interest on PSS 7-1/8% notes 1,222 1,629
------- -------
Total liabilities 44,952 45,014
------- -------
Net liabilities ($41,746) ($41,746)
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
PSS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN NET LIABILITIES
LIQUIDATION BASIS
(unaudited)
(thousands of dollars)
Three months ended
------------------
29-Jan-00 30-Jan-99
------------- -------------
<S> <C> <C>
Investment income $ 80 $ 53
Interest expense (607) (613)
General and Administrative Expense (24) (16)
Decrease in reserve for estimated liquidation costs 551 576
------------- -------------
Increase in net liabilities $ - $ -
============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
PSS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(thousands of dollars)
Three months ended
------------------
29-Jan-00 30-Jan-99
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Change in net liabilities $0 $0
Decrease(increase)in unrealized appreciation (27) 13
Adjustments to reconcile to net cash
flows from operating activities:
Increase in estimated costs and interest during
liquidation period (551) (576)
Increase in accrued interest payable 565 566
Other (3) (12)
---------- ----------
Net cash used by operating activities (16) (9)
---------- ----------
Cash flows from investing activities:
Principal repayments on mortgage certificates 61 161
Net cash provided by investing activities 61 161
---------- ----------
Cash flows from financing activities:
Repayment of borrowings under mortgage
certificate financing agreement (72) (181)
Net cash used by financing activities (72) (181)
---------- ----------
Net decrease in cash and short-term investments (27) (29)
Cash and short-term investments-
beginning of period 172 239
---------- ----------
end of period $145 $210
============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
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, 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 interest due January 15 and July 15, 1995, 1996, 1997,
1998, 1999 and January 15, 2000 on its Debentures and such default continues.
The trustee for the Debentures has indicated to 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 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 January 29, 2000, the Company had assets of approximately $3.21 million and
liabilities, other than the Senior Notes and Debentures including accrued
interest and liquidation costs, of approximately $2.72 million, thus having a
net difference of approximately $490,000 available for holders of Senior Notes
and Debentures. At January 29, 2000, approximately $5.26 million of Senior Notes
and $22.92 million of Debentures remain outstanding. 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.
6
<PAGE>
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 its 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.
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, October 29, 2000, has been
utilized as the liquidation date for the January 29, 2000
financial statements and the October 30, 1999 fiscal year end
was utilized as the liquidation date for the January 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 reserve for
estimated costs during the period of liquidation.
7
<PAGE>
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.
Presentation of per common share information on a liquidation basis is not
considered meaningful and has been omitted.
NOTE 3 - Income Taxes
- ---------------------
As a result of losses for each of the interim periods, there was no provision
for income taxes recorded.
8
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
At January 29, 2000, the Company's principal assets consisted of approximately
$3.03 million of Mortgage Certificates from which interest income is earned and
its principal obligations consisted of Mortgage Financing borrowings, Debentures
and Senior Notes 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 January 29, 2000, the Company had assets of approximately $3.21 million and
liabilities, other than Senior Notes and Debentures including accrued interest
and liquidation costs, of approximately $2.72 million, thus having a net
difference of approximately $490,000 available for holders of Senior Notes and
Debentures. At January 30, 1999, approximately $5.26 million of Senior Notes and
$22.92 million of Debentures remain outstanding.
The Company failed to pay interest due January 15 and July 15, 1995, 1996, 1997,
1998, 1999 and January 15, 2000 on its Convertible Debentures and such default
continues. The trustee for the Convertible Debentures has indicated to 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 ita Senior Notes 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.
9
<PAGE>
Results of Operations
- ---------------------
Investment income
-----------------
Investment income increased during the three months ended January 29, 2000 as
compared to the prior year as a result of an increase in market value of
Mortgage Certificates and related increase in unrealized appreciation of such
investments, offset by a decrease in interest income due to lower balances of
investments in Mortgage Certificates. During the three months ended January 29,
2000, the increase in market value exceeded decreases which result from
principal repayments for a net increase, whereas during the comparative prior
year period there was a net decrease in unrealized appreciation, primarily due
to principal repayments.
Interest expense
----------------
Interest expense decreased during the three months ended January 29, 2000 as
compared to the prior year period primarily due to lower average balances of
Mortgage Financing borrowings outstanding during the current year period.
Year 2000
---------
The Company has not yet experienced any Year 2000 difficulties nor incurred
significant costs related thereto.
10
<PAGE>
ITEM 3 - Defaults Upon Senior Securities
-------------------------------
PNS failed to pay interest due on 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.
ITEM 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits - none filed with this report.
(b) None
11
<PAGE>
SIGNATURE
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.
PSS, INC.
(Registrant)
Date: March 14, 2000 By: /s/ MARK TODES
-------------------
Mark Todes, President
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-28-2000
<PERIOD-START> OCT-30-1999
<PERIOD-END> JAN-29-2000
<CASH> 145
<SECURITIES> 3,027
<RECEIVABLES> 34
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,206
<CURRENT-LIABILITIES> 2,798
<BONDS> 42,154
0
0
<COMMON> 0
<OTHER-SE> (41,746)
<TOTAL-LIABILITY-AND-EQUITY> 3,206
<SALES> 0
<TOTAL-REVENUES> 80
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (24)
<LOSS-PROVISION> 551
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
