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 July 29, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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For Quarter ended July 29, 2000 Commission file number 0-14900
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PSS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 91-1335798
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 2573, Seattle, WA 98111-2573
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (206) 901-3790
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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
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The number of shares of common stock outstanding as of September 1, 2000:
19,473,728.
Page 1 of 11
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INDEX
Page
PART I. FINANCIAL INFORMATION
1. Financial Statements 3
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
1. Legal Proceedings (a)
2. Changes in Securities (a)
3. Defaults Upon Senior Securities 10
4. Submission of Matters to a Vote of Security Holders (a)
5. Other Information (a)
6. Exhibits and Reports on Form 8-K (a)
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(a) These items are inapplicable or have a negative response and have therefore
been omitted.
2
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PSS, INC.
CONSOLIDATED STATEMENTS OF NET LIABILITIES
LIQUIDATION BASIS
(unaudited)
(thousands of dollars)
<TABLE>
<CAPTION>
Assets: 29-Jul-00 30-Oct-99
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<S> <C> <C>
Cash and short-term investments $122 $172
Investment in mortgage certificates 2,954 3,061
Interest receivable 35 35
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Total Assets 3,111 3,268
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Liabilities:
Borrowings under mortgage certificate financing agreement 2,477 2,641
Accounts payable and accrued liabilities 154 156
Reserve for estimated liquidation costs 72 62
PNS 12-1/8% senior notes 5,258 5,258
Interest payable on PNS notes 3,537 3,060
Reserve for interest on PNS notes 159 636
PSS 7-1/8% debentures 22,920 22,920
Interest payable on PSS debentures 9,873 8,652
Reserve for interest on PSS debentures 407 1,629
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Total liabilities 44,857 45,014
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Net liabilities ($41,746) ($41,746)
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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PSS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN NET LIABILITIES
LIQUIDATION BASIS
(unaudited)
(thousands of dollars)
<TABLE>
<CAPTION>
Three months ended
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29-Jul-00 31-Jul-99
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<S> <C> <C>
Investment income $ 74 $ 10
Interest expense (612) (605)
General and administrative expense (14) (9)
Decrease in reserve for estimated costs and interest during
period of liquidation 552 604
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Change in net liabilities $ - $ -
========= ==========
Nine months ended
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29-Jul-00 31-Jul-99
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Investment income $190 $108
Interest expense (1,826) (1,825)
General and administrative expense (54) (43)
Decrease in reserve for estimated costs and interest during
period of liquidation 1,690 1,760
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Change in net liabilities $ - $ -
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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PSS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
LIQUIDATION BASIS
(unaudited)
(thousands of dollars)
<TABLE>
<CAPTION>
Nine months ended
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29-Jul-00 31-Jul-99
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<S> <C> <C>
Cash flows from operating activities:
Change in net liabilities $ - $ -
Adjustments to reconcile to net cash
flows from operating activities:
Decrease (increase) in unrealized appreciation on MBSI (29) 79
Increase in estimated costs and interest during
liquidation period (1,698) (1,760)
Increase in accrued interest payable 1,698 1,698
Other (2) (19)
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Net cash used by operating activities (22) (2)
Cash flows from investing activities:
Principal repayments on Mortgage Certificates 136 536
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Net cash provided by investing activities 136 536
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Cash flows from financing activities:
Repayment of Mortgage Certificate borrowings (164) (597)
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Net cash used by financing activities (164) (597)
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Net decrease in cash and short-term investments (50) (63)
Cash and short-term investments-
beginning of period 172 239
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end of period $ 122 $ 176
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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PSS, INC.
Notes to Financial Statements
July 29, 2000
NOTE 1 - The Company
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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 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 July 29, 2000, the Company had assets of approximately $3.11 million and
liabilities, other than the Senior Notes and Debentures including accrued
interest and liquidation costs, of approximately $2.63 million, thus having a
net difference of approximately $480,000 available for holders of Senior Notes
and Debentures. At July 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.
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NOTE 2 - Liquidation Basis of Accounting
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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 28, 2000, has been
utilized as the liquidation date for the July 29, 2000
financial statements and the October 30, 1999 fiscal year end
was utilized as the liquidation date for the July 31, 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
carryforwards, 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.
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
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As a result of losses for each of the interim periods, there was no provision
for income taxes recorded.
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PSS, Inc.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources
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At July 29, 2000, the Company's principal assets consisted of approximately
$2.95 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 July 29, 2000, the Company had assets of approximately $3.11 million and
liabilities, other than Senior Notes and Debentures including accrued interest
and liquidation costs, of approximately $2.63 million, thus having a net
difference of approximately $480,000 available for holders of Senior Notes and
Debentures. At July 29, 2000, 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 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.
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.
Results of Operations
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Investment income
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Investment income increased during the three and nine months ended July 29, 2000
as compared to the prior year periods 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 and nine months ended
July 29, 2000, the increase in market value exceeded decreases which result from
principal repayments for a net
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increase, whereas during the comparative prior year period there was a net
decrease in unrealized appreciation, primarily due to principal repayments.
Interest expense
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Interest expense increased during the three and nine months ended July 29, 2000
as compared to prior year periods primarily due to higher interest rates offset
by lower average balances of Mortgage Financing borrowings outstanding during
the current year period.
9
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ITEM 3 - Defaults Upon Senior Securities
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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.
ITEM 6 - Exhibits and Reports on Form 8-K
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(a) Exhibits - none filed with this report.
(b) None
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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: September 12, 2000 By: /s/ MARK TODES
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Mark Todes, President
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