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No. of Recommendations: 1
No one has had anything to say about PSS for quite a while...

I have looked a little into this company and while a number of factors strike me positive - ie. dominant market position, shareholder oriented, consistent profits as a percentage of revenues, rising revenues (5%pa), - I have some serious concerns.
For instance, their cash flows appear anaemic. Their outflows for cap. ex. spending averaging around $100m for the last four years will by the company's own projections, average $145m for the next five years. Their outflows to service the $320m of LTD debt will average principal payments of $64m and interest payments of $4m for each of the next five years. Their outflows for income tax payments of the next five years will probably average $70-$80m. These outflows from cashflows then, will average $283-293m over the next five years.
At the same time I project that their cash inflows from operations will look something like this:
'01: $236m
'02: $248m
'03: $260m
'04: $273m
'05: $287m

This is not a sophisticated projection and if anyone has something better I very much want to see it. Nonetheless, if we take these figures as fact then PSS will be deficit spending for the next five years. I.e. the company will not make any money.
Management would probably say to me that they are entering an unusual period of cap.ex. spending and capital structure realignment. I am concerned, however, that $145m p.a. will become the norm, after all their cap.ex spending before the 'Major Cap.Ex' spending initiative was over $100m and growing at an annual rate of over 10% which by 2005 will be $160m.
Perhaps management would say that they have entered an unusual period of restructuring the capital structure of the company. This is the most persuasive way of viewing the company for me. Ie. That the next five year will solely be an effort to realign the company on a smaller equity base and eliminate the debt it has built up in repurchasing its shares.
My concern, however, is that this recession will make PSS's businesses generate significantly less cash and consequently the lengthy five year period where stockholder will be owning a company that makes no cash will continue for substantially longer.

I am very interested to hear others' thought on PSS.

Nikos 1234
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