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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 February 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
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Commission File Number 1-14770
PAYLESS SHOESOURCE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 43-1813160
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
3231 SOUTH EAST SIXTH AVENUE, TOPEKA, KANSAS 66607-2207
(Address of principal executive offices) (Zip Code)
(785) 233-5171
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, par value $.01 per share New York Stock Exchange
Preferred stock purchase rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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.[ ]
The aggregate market value of Registrant's Common Stock held by non-affiliates
based on the closing price of $58.90 on April 9, 2001, was $1,278,088,711. For
purposes of this disclosure, the Registrant has assumed that its Directors and
Executive Officers are affiliates of the Registrant.
The Registrant had 22,174,647 shares of $.01 par value Common Stock issued and
outstanding as of April 9, 2001.
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DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Registrant's Annual Report to Shareowners for the fiscal year
ended February 3, 2001, (the "2000 Annual Report") are incorporated into Part
II, as described herein.
2. Portions of the Registrant's 2001 Proxy Statement for the Annual Meeting to
be held on May 25, 2001, are incorporated into Part III, as described herein.
Such proxy statement will be filed within 120 days after the end of the fiscal
year covered by this annual report on Form 10-K.
This report contains, and from time to time, the Company may publish,
forward-looking statements relating to such matters as anticipated financial
performance, business prospects, technological developments, new products,
future store openings and international expansion, possible strategic
alternatives and new business concepts and similar matters. Statements including
the words "expects," "anticipates," "intends," "plans," "believes," "seeks," or
variations of such words and similar expressions are forward-looking statements.
The Company notes that a variety of factors could cause its actual results and
experience to differ materially from the anticipated results or other
expectations expressed in its forward-looking statements. The risks and
uncertainties that may affect the operations, performance, development and
results of the Company's business include, but are not limited to, the
following: changes in consumer spending patterns; changes in consumer
preferences and overall economic conditions; the impact of competition and
pricing; changes in weather patterns; the financial condition of the suppliers
and manufacturers from whom the Company sources its merchandise; changes in
existing or potential duties, tariffs or quotas; changes in relationships
between the United States and foreign countries, changes in relationships
between Canada and foreign countries, economic and political instability in
foreign countries or restrictive actions by the governments of foreign countries
in which suppliers and manufacturers from whom the Company sources are located
or in which the Company operates stores; changes in trade and/or tax laws;
fluctuations in currency exchange rates; availability of suitable store
locations on appropriate terms; the ability to hire, train and retain
associates; and general economic, business and social conditions in the
countries from which the Company sources products, supplies or has or intends to
open stores. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by these cautionary statements. The Company does not
undertake any obligation to release publicly any revisions to such
forward-looking statements to reflect events or circumstances after the date
hereof or thereof or to reflect the occurrence of unanticipated events.
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Payless ShoeSource, Inc.
Form 10-K Annual Report
For the fiscal year ended February 3, 2001
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting
And Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Company
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
Signatures
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PART I
ITEM 1. BUSINESS
GENERAL
Payless ShoeSource, Inc., a Delaware corporation, together with its
subsidiaries, ("Payless," the "Company" or the "Registrant") is the largest
family footwear retailer in the United States with approximately $2.95 billion
in revenue in the fiscal year ended February 3, 2001 ("2000"). The Company sold
approximately 225 million pairs of shoes in 2000.
As of February 3, 2001, the Company operated 4,633 Payless ShoeSource(R) stores
in 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands,
Guam, Saipan, Canada and Costa Rica. Payless ShoeSource(R) stores feature
fashionable, quality footwear for men, women and children, including athletic,
casual, dress, sandals, work boots and slippers. In addition, the Company
operated 269 Parade stores in 23 states, the District of Columbia and Puerto
Rico, and a 10 store chain of value-priced specialty stores selling socks,
hosiery and undergarments located in the New York city area. Parade offers
fashionable women's leather and fine fabric footwear and accessories at moderate
prices.
EXPANSION
In September 2000, the Company announced a joint venture agreement with PLP,
S.A., a holding company formed by Central American and Caribbean local partners,
to open and operate Payless ShoeSource family footwear stores in Central America
and the Caribbean. These stores offer a selection of the same footwear and
accessories available at other Payless ShoeSource locations. The Company opened
four stores in Costa Rica in the fourth quarter of 2000. In April of 2001, the
Company opened its first stores in Guatemala. The Company currently intends to
open stores in El Salvador, the Dominican Republic and Trinidad in the first
three quarters of fiscal 2001.
In November 2000, the Company acquired a 10-store chain of value-priced
specialty stores in the New York area. These stores operate primarily in mall
locations and sell socks, hosiery and undergarments.
STORES
During 2000, the Company had a net increase of 141 Payless ShoeSource stores
(419 openings and 278 closings), 49 Parade stores (73 openings and 24 closings)
and 10 value-priced specialty stores. Year-end 2000 store count was 4,633
Payless ShoeSource stores, 269 Parade stores, and 10 value-priced specialty
stores.
HISTORY
The Company was founded in Topeka, Kansas in 1956 with a strategy of selling low
cost, high quality family footwear on a self-service basis. In 1962, Volume
Distributors, as the Company was known at the time, became a public company. In
1979, the Company (then called Volume Shoe Corporation) was acquired by The May
Department Stores Company of St. Louis, Missouri ("May"). The Company changed
its name to Payless ShoeSource, Inc. in 1991. On May 4, 1996, Payless became an
independent public company incorporated in Missouri as a result of its spin-off
from May. In June 1998, Payless was reorganized into a holding company structure
with the retail operations centralized in Payless ShoeSource, Inc., a Missouri
corporation, the indirect, wholly-owned subsidiary of Payless ShoeSource, Inc.,
a Delaware corporation. The Company is listed for trading on the New York Stock
Exchange under the symbol "PSS."
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The average size of the Company's Payless ShoeSource(R) stores in the United
States and Canada is approximately 3,300 square feet. Each store carries on
average 8,200 pairs of shoes selected from approximately 500 styles offered.
Payless ShoeSource(R) stores operate in a variety of real estate formats,
including shopping malls, central business districts, free-standing buildings,
strip centers and the new "store-within-a-store." Of the 4,633 Payless
ShoeSource(R) locations open at the end of 2000 (including ShopKo locations),
695 stores incorporated a "Payless Kids(R)" area which consists of approximately
1,000 additional square feet of selling space devoted to an expanded assortment
of children's shoes and seven stores were exclusively "Payless Kids(R)" stores.
The stores that include a "Payless Kids(R)" area and those that are dedicated
"Payless Kids(R)" stores are located throughout the country, have wider aisles,
children-friendly seating and an entertainment center for children. Payless(R)
intends to phase out the remaining exclusively "Payless Kids(R)" stores.
The Company's Payless ShoeSource(R) stores operate in rural, suburban and urban
environments. The 10 states with the largest concentration of the Company's
Payless ShoeSource(R) stores are identified below (along with the total number
of Payless ShoeSource(R) stores including ShopKo locations):
STATE NO. OF PAYLESS SHOESOURCE(R) STORES
----- -----------------------------------
CALIFORNIA 611
TEXAS 380
FLORIDA 271
NEW YORK 267
ILLINOIS 212
PENNSYLVANIA 187
OHIO 174
MICHIGAN 151
NEW JERSEY 131
WASHINGTON 103
OTHER (INCLUDING 2,146
NON-U.S. STORES) -----
TOTAL 4,633
The Company's Payless ShoeSource(R) stores are highly automated, each with an
electronic point of sale register (excluding the ShopKo locations) and a back
office computer which not only records transactions from the register (not in
ShopKo or Central American stores), but also serves many other store supporting
functions including price look-up, accumulation of associate hours worked and
communications with the Company's headquarters in Topeka, Kansas. Store
associates receive regular weekly communications from the Company's headquarters
describing promotional and display requirements.
The Company's Payless ShoeSource(R) operations are directed centrally by a
senior officer and a small support staff.
The average Payless ShoeSource(R) store in the United States and Canada has a
manager and approximately five associates. The stores are organized into
districts. District managers, to whom the store managers report, themselves
report to the division offices and have full responsibility for the stores in
their district. Division offices also have loss prevention and inventory control
functions. Human resources, merchandising support and other more general support
services, are provided from the Company's headquarters.
PARADE STORES
The Company's Parade division, which was acquired in March 1997, from J. Baker,
Inc., of Canton, Massachusetts, emphasizes the retail sale of fashionable,
quality, primarily leather, women's shoes. As of February 3, 2001, the Company
operated 269 Parade stores as a separate division supported by Payless sourcing,
distribution, information systems, real estate, human resources and financial
operations.
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Major markets include New York City, Chicago, Boston, Philadelphia, Washington,
D.C., Miami and Puerto Rico. The average size of a Parade store is approximately
2,300 square feet. These stores operate in a variety of real estate formats
including shopping malls, central business districts and strip centers.
EMPLOYEES
During 2000, the Company's average number of employees was approximately 27,700
including approximately 13,700 U.S. and 900 Canadian full-time associates and
12,500 U.S. and 600 Canadian part-time associates. Approximately 650 of the
Company's distribution center general warehouse associates are covered by
collective bargaining agreements. Approximately 120 of the Company's other
associates are covered by collective bargaining agreements. Management believes
it has a good relationship with its employees.
The Company is led by a team of 20 senior management executives who have an
average of 18.7 years of retail industry experience, including an average of 14
years with the Company and May.
PRODUCTS
The Company's Payless ShoeSource(R) stores offer a broad assortment of
fashionable, quality footwear sold at affordable prices for men, women and
children, including athletic, casual, dress, sandals, work boots and slippers.
Shoes are constructed with leather, canvas and man-made materials. Styling is
updated regularly in an effort to remain current with proven fashion trends.
During 2000, shoes at Payless ShoeSource(R) stores sold at an average retail
price of $11.82/pair. In addition to shoes, Payless ShoeSource(R) stores offer
accessories, including handbags, shoe polish and hosiery. Parade stores feature
fashionable women's dress, casual and athletic footwear priced in the $20 to
$40/pair range.
The Company's merchandising effort is led by the President and two general
merchandise managers with an average of 20 years of retail experience. They
direct teams of buyers, planners and distributors that interact with agents and
factory representatives to design, select, produce, inspect and distribute
footwear and accessories to Payless ShoeSource(R) and Parade stores.
CUSTOMERS
The Company sells footwear to women, men and children of all age groups. The
Company has significant market penetration with its target customers: women
between the ages of 18 and 44. The Company believes that more than 51% of its
target customers purchased at least one pair of shoes from the Company last
year. In 2000, the Company sold more pairs of shoes than any other U.S. footwear
retailer.
SEASONALITY
The retail footwear market is characterized by four high volume seasons: Easter,
early Summer, back-to-school and Winter holiday. The Company must increase
inventory levels during these periods to support the increased demand for
seasonal styles. Unseasonable weather patterns may affect planned sales of
seasonal products such as sandals and boots.
PURCHASING
The Company, both on its own account and through its indirect, wholly-owned
subsidiary, Payless ShoeSource Merchandising, Inc., utilizes a network of agents
and factories in the United States and 12 foreign countries to obtain its
products. These products are manufactured to meet the Company's specifications
and standards. The strength of the Company's relationships with agents and
factories, some dating back over 40 years, has allowed the Company to revise its
sourcing strategies to reflect changing political and economic environments. In
the past, many of the Company's agents and factory owners have played
significant roles in developing production in new factories and in new countries
without compromising production capacity or product quality.
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PAYLESS SHOESOURCE(R) STORES
Factories in the People's Republic of China are a source of approximately 74% of
the Company's merchandise and two additional foreign countries and domestic
sources account for approximately 25% of the Company's products based on units
sold. There can be no assurance that a change in political climate with or in
China would not have a material adverse effect on the Company. The Company does
not purchase "seconds" or "overruns" and does not own any manufacturing
facilities. The Company closely integrates its merchandise purchasing
requirements with various manufacturers through its sourcing organization which
has offices in Kansas, Taiwan, China, Brazil and Vietnam. Management believes it
has good relationships with the entities from which it sources, although there
can be no assurance that such relationships will remain good or that such
entities believe that such relationships are good.
Worldwide, approximately 57 percent of the Company's merchandise calculated on
an at cost basis is acquired through a network of third-party agents. Payless
ShoeSource International, Inc., the Company's indirect subsidiary in Taipei,
Taiwan, arranges directly with factories for the design, selection, production
management, inspection and distribution of approximately 43 percent of the shoes
acquired for the Company.
Risks inherent in foreign manufacturing (i.e., manufacturing outside the United
States) include economic and political instability, transportation delays and
interruptions, restrictive actions by foreign governments, the laws and policies
of the United States affecting importation of goods, including duties, quotas
and taxes, trade and foreign tax laws and fluctuations in currency exchange
rates. As the Company expands internationally, the Company faces similar risks
in each country in which it has operations. While the Company has not
historically experienced material adverse effects resulting from the occurrence
of these types of risks, there is no assurance that in the future the occurrence
of these risks will not result in increased costs and delays or disruption in
product deliveries that could cause loss of revenue and damage to customer
relationships and have a material adverse effect on the Company.
Currently, imports from China enjoy "permanent normal trade relations" ("PNTR")
treatment under United States tariff laws. PNTR treatment provides the most
favorable level of United States import duty rates.
QUALITY ASSURANCE
The Company's quality assurance organization sets standards and specifications
for product manufacture, performance and appearance. It communicates those
standards and specifications through its copyrighted quality assurance manual.
The Company stands behind the quality of the shoes it sells to its customers by
permitting return of purchased merchandise with proper documentation evidencing
purchase.
The quality assurance organization also provides technical design support for
the Company's direct purchasing function. It is responsible for review and
approval of agent and factory technical design, for worldwide laboratory testing
of materials and components, and for performing in-factory product inspections
to ensure that materials and factory production techniques are consistent with
Company specifications. The Company locates its field inspection personnel close
to the factories and freight consolidation facilities it uses throughout the
world.
PRODUCTION MANAGEMENT
The production management organization manages an ongoing process to qualify and
approve new factories, while continually assessing existing factory service and
quality of performance. New factories must meet specified quality standards for
shoe production and minimum capacity requirements. They must also agree to the
Company's production control processes and certify that neither they nor their
suppliers use forced or child labor. Factory performance must continually
improve or the factory runs the risk of being removed from the list of approved
factories. The production management organization utilizes a unique, internally
developed production control process by which the Company is electronically
linked to the factories and
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agents. This process is designed to ensure on-time deliveries of merchandise
with minimum lead time and without unnecessary costs.
The Company believes that maintaining strong factory relationships, improving
key factory performance factors and improving factory profitability is critical
to long-term sourcing stability. The Company's manufacturing services group,
based in Asia, provides direction and leadership to key factories in the areas
of overall productivity improvement and lead time reduction.
MERCHANDISE DISTRIBUTION
The Company believes that its distribution system provides it with a competitive
advantage. The Company's merchandise distribution teams are able to track shoes
by the pair from order placement through sale to the customer by the use of
perpetual inventory, product planning and retail price management systems. These
systems are maintained by experienced information systems personnel and are
enhanced regularly to improve the product distribution process. Distribution
analysts review sales and inventory by size and style to maintain availability
of product within the Company's stores.
The Company, through its indirect, wholly-owned subsidiary, Payless ShoeSource
Distribution, Inc., operates a single 807,000 square foot distribution center,
including office space and a 12,000 square foot manufacturing facility, in
Topeka, Kansas (the "DC"). The DC is capable of replenishing in-store product
levels by style, color and size. The DC currently handles approximately 70
percent of the Company's distribution needs and operates seven days-a-week, 20
to 24 hours per day. Management believes this facility is one of the most
highly-automated and cost-efficient distribution facilities in the retail
footwear industry. The remaining 30 percent of the Company's distribution needs
are handled by a fully automated third party facility in Los Angeles,
California.
The Company believes its distribution center system has sufficient capacity to
support more than 5,000 stores. The Company regularly monitors the capacity of
the DC. Stores generally receive new merchandise at least twice a week, in an
effort to maintain a constant flow of new and replenished merchandise.
INDUSTRY SEGMENTS
The retail footwear industry can be divided into high, moderate and value-priced
segments. The high priced segment is comprised principally of department stores.
The moderate priced segment, which includes specialty shoe chains, mass
merchandisers, and junior department stores, has no single dominant competitor.
The Company and national discount mass-merchandisers are predominant in the
value-priced segment.
Payless ShoeSource considers itself part of the value-priced segment of the
footwear industry. Parade operates in the moderate priced segment. Based on
industry data, the United States footwear market is estimated to be
approximately $39 billion/year, and has remained relatively constant over the
past several years. Industry data suggests that the quality offered in the
value-priced segment has improved significantly in recent years.
COMPETITION
The Company operates in a highly competitive retail market competing primarily
with national and regional discount mass-merchandisers, as well as with other
discount shoe stores and off-price outlet stores. Competition is based on
product selection, quality and availability, price, store location, customer
service and promotional activities. The Company believes that it has a
leadership position in the footwear market.
INTELLECTUAL PROPERTY
The Company, through its wholly-owned subsidiaries, owns certain copyrights,
trademarks, patents and domain names which it uses in its business and which it
regards as valuable assets. The trademarks include Payless(R), Payless
ShoeSource(R), Payless Kids(R), Parade(sm), and Parade of Shoes(R) and domain
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names including: Payless.com(sm). The Company owns all rights to the yellow and
orange logo used in its Payless ShoeSource(R) signs and advertising. In the
United States, the Company has registered over 180 key marks and owns over 20
common law marks under which it markets private label merchandise in its Payless
ShoeSource(R) stores. In addition, the Company owns over 37 registered and
common law marks under which it markets private label merchandise in its Parade
stores. The Company also owns registrations for Payless ShoeSource(R) in over 55
foreign countries. All of the Company's registered trademarks may be renewed
indefinitely.
MARKETING
The Company's marketing efforts are multi-dimensional, including nationally
broadcast television advertising, newspaper and mail inserts in support of major
promotional periods. In addition to media support, the Company utilizes in-store
promotional materials, including posters, signs and point of sale items. Also,
the Company communicates through the promotional funds, media funds, merchants'
associations and similar efforts that are part of the leasing agreements from
its various landlords. Finally, the Company uses publicity efforts to gain low
cost awareness of Payless and its core business.
In addition to its marketing staff, the Company uses professional firms to
assist in advertising, creative services, media purchase, publicity, business
and market planning and consumer research.
ENVIRONMENT
Compliance with federal, state and local statutes, rules, ordinance, laws and
other provisions which have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, has not had, and is not expected to have, a material effect on
capital expenditures, earnings or the competitive position of the Company.
FOREIGN OPERATIONS
In late 1997, the Company, through its indirect wholly-owned Canadian
subsidiary, Payless ShoeSource Canada Inc., opened its first store in Canada. By
the end of fiscal year 1999, the Company had opened 180 Canadian stores. In
February of 1999, the Company opened its first store in French-speaking Quebec
Province. In 2000, the Company opened its first stores in Costa Rica and in the
first quarter of 2001, the Company opened its first stores in Guatemala.
DIRECTORS OF THE COMPANY
Listed below are the names and present principal occupations or, if retired,
most recent occupations of the Company's Directors:
NAME PRINCIPAL OCCUPATION
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STEVEN J. DOUGLASS CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
OF THE COMPANY
DANIEL BOGGAN JR. SENIOR VICE PRESIDENT OF THE NATIONAL COLLEGIATE
ATHLETIC ASSOCIATION
HOWARD R. FRICKE CHAIRMAN OF THE BOARD OF THE SECURITY BENEFIT
GROUP OF COMPANIES
THOMAS A. HAYS RETIRED, FORMERLY DEPUTY CHAIRMAN OF THE MAY
DEPARTMENT STORES COMPANY
KEN C. HICKS PRESIDENT OF THE COMPANY
MYLLE B. MANGUM CHIEF EXECUTIVE OFFICER OF MMS INCENTIVES, LLC
MICHAEL E. MURPHY RETIRED, FORMERLY VICE CHAIRMAN AND CHIEF
ADMINISTRATIVE OFFICER OF SARA LEE CORPORATION
ROBERT L. STARK RETIRED, FORMERLY EXECUTIVE VICE PRESIDENT
HALLMARK CARDS, INC.
IRWIN ZAZULIA RETIRED, FORMERLY PRESIDENT AND CHIEF EXECUTIVE
OFFICER OF HECHT'S
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EXECUTIVE OFFICERS OF THE COMPANY
Listed below are the names and ages of the executive officers of the Company as
of April 19, 2000 and offices held by them with the Company.
NAME AGE POSITION AND TITLE
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STEVEN J. DOUGLASS 51 CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
KEN C. HICKS 48 PRESIDENT
DUANE L. CANTRELL 45 EXECUTIVE VICE PRESIDENT
JOHN N. HAUGH 38 SENIOR VICE PRESIDENT
ULLRICH E. PORZIG 55 SENIOR VICE PRESIDENT -- CHIEF FINANCIAL
OFFICER AND TREASURER
WILLIAM J. RAINEY 54 SENIOR VICE PRESIDENT -- GENERAL COUNSEL AND SECRETARY
GARY M. STONE 52 SENIOR VICE PRESIDENT
STEVEN J. DOUGLASS is 51 years old and has served as Chairman of the Board and
Chief Executive Officer of Payless since May 4, 1996, the date on which the
Payless Common Stock was distributed in a spin-off by The May Department Stores
Company ("May") to its Shareowners (the "Spin-off"). Mr. Douglass served as
Chairman and Chief Executive Officer of Payless from April 1995 to the Spin-off.
He joined Payless in 1993 and served as Senior Vice President/Director of Retail
Operations from 1993 to January 1995 and as Executive Vice President/Director of
Retail Operations from January 1995 to April 1995. Prior to his association with
Payless, Mr. Douglass held several positions at divisions of May, serving as
Chairman of May Company, Ohio (1990- 1993) and Senior Vice President and Chief
Financial Officer of J.W. Robinsons (1986-1990). Mr. Douglass is a director of
The Security Benefit Group of Companies. Mr. Douglass has served as a Director
of Payless since April 30, 1996.
KEN C. HICKS is 48 years old and has served as President of Payless since
January 28, 1999. Before joining Payless, he was Executive Vice President and
General Merchandise Manager for Home Shopping Network, Inc. Prior to his
association with Home Shopping Network, Inc., Mr. Hicks held several positions
with May serving as Senior Vice President and General Merchandise Manager of
Foley's Department Stores (1995-1998), Senior Vice President and General
Merchandise Manager for May Merchandising Company (1990-1995) and as Senior
Vice President of Strategic Planning for May (1987-1990). Mr. Hicks has served
as a Director of Payless since January 28, 1999.
DUANE L. CANTRELL is 45 years old and has served as Executive Vice President -
Operations since April 1999. Prior to that, he served as Executive Vice
President - Retail Operations from May 1997 to April 1999 and as Senior Vice
President - Retail Operations from May 1995 to May 1997. He also served as
Senior Vice President - Merchandise Distribution and Planning (1992- 1995) and
Senior Vice President - Merchandise Distribution (1990-1992). Mr. Cantrell has
been employed by the Company since 1978.
JOHN N. HAUGH is 38 years old and has served as Senior Vice President -
Marketing since January 2000. He served as Executive Vice President Marketing
and Sales for Universal Studios (1998-1999) and prior to that he worked for
Carlson Companies, Inc. (1993-1998) where he held positions of increasing
responsibility including, Vice President of Marketing and Retail Operations
(1997-1998) and General Manager/Vice President Awards Division (1995-1997).
ULLRICH E. PORZIG is 55 years old and has served as Senior Vice President -
Chief Financial Officer and Treasurer since February, 1996 and from 1986 to
1988. Between 1993 and 1996, Mr. Porzig was Senior Vice President-Chief
Financial Officer and Treasurer of Petro Stopping Centers L.P. From 1982 to
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1993 he was employed by May in various capacities including Senior Vice
President-Finance and Chief Financial Officer of Foley's (1988-1993).
WILLIAM J. RAINEY is 54 years old and has served as Senior Vice President
General Counsel and Secretary since April, 1996. Prior to joining the Company,
Mr. Rainey served as Executive Vice president, General Counsel and Secretary of
Fourth Financial Corporation (1994-1996) and Vice President and General Counsel
of Cabot Corporation (1991-1993).
GARY M. STONE is 52 years old and has served as Senior Vice President -
Corporate Development since November 1999. Prior to that he was Senior Vice
President - Store Development (1997-1999). Prior to joining the Company, Mr.
Stone was employed by PepsiCo, Inc. as Senior Vice President and General
Manager-Restaurant Services (1995-1997) and Vice President, Asset Development -
Pizza Hut (1990-1995).
ITEM 2. PROPERTIES
The Company leases substantially all of its stores. The leases typically have a
primary term of 5 or 10 years, with none to two five-year renewal options.
During 2001, approximately 615 of the Company's leases, including 83 leases
which, as of February 3, 2001, were month-to-month tenancies or were lease
modifications out for signature, are due to expire. Leases usually require
payment of base rent, applicable real estate taxes, common area expenses and, in
some cases, percentage rent based on the store's sales volume. Payless
ShoeSource stores in the United States and Canada average approximately 3,300
square feet and Parade stores average approximately 2,300 square feet. The
Company owns and operates, directly or through its wholly-owned subsidiaries, a
305,000 square foot central office building, a 795,000 square foot distribution
facility including a 12,000 square foot manufacturing facility, including office
space, all of which are located in Topeka, Kansas.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to ordinary private litigation
incidental to their business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the 13
weeks ended February 3, 2001.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED SHAREOWNER MATTERS
There were approximately 16,698 registered holders of the Company's Common Stock
as of February 3, 2001 compared to approximately 18,514 registered holders as of
January 29, 2000. The information set forth under the headings "Management's
Discussion and Analysis -- Review of Financial Condition - Common Stock and
Market Prices" in the Company's 2000 Annual Report is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the heading "Summary of Selected Historical
Financial Information" of the Company's 2000 Annual Report is incorporated
herein by reference.
11
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information set forth under the heading "Management's Discussion and
Analysis" of the Company's 2000 Annual Report is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under the heading "Management's Discussion and
Analysis -- Review of Financial Condition - Interest Rate Risk" and "- Currency
Risk" of the Company's 2000 Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Statement of Earnings for the fiscal years 1998, 1999 and 2000,
the Consolidated Balance Sheet as of January 29, 2000 and February 3, 2001, the
Consolidated Statement of Shareowners' Equity, the Consolidated Statement of
Cash Flows for fiscal years 1998, 1999, 2000, the Notes to Consolidated
Financial Statements and the Report of Independent Public Accountants contained
in the Company's 2000 Annual Report to Shareowners are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
a) Directors -- The information set forth in the Company's definitive proxy
statement to be filed in connection with its Annual Meeting to be held on May
25, 2001, under the captions "Election of Directors -- Directors and Nominees
for Directors" and "Additional Information -- Section 16(a) Beneficial Ownership
Reporting Compliance" is incorporated herein by reference.
b) Executive Officers -- Information regarding the Executive Officers of the
Company is as set forth in Item 1 of this report under the caption "Executive
Officers of the Company." The information set forth in the Company's definitive
proxy statement to be filed in connection with its Annual Meeting to be held on
May 25, 2001, under the caption "Additional Information -- Section 16(a)
Beneficial Ownership Reporting Compliance" is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in the Company's definitive proxy statement to be
filed in connection with its Annual Meeting to be held on May 25, 2001, under
the captions "Election of Directors -- The Board and Committees of the
Board - Compensation of Directors," "Compensation and Nominating Committee
Report -- EICP" and "-- Retail EICP" and "Executive Compensation" is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth in the Company's definitive proxy statement to be
filed in connection with its Annual Meeting to be held on May 25, 2001, under
the caption "Beneficial Stock Ownership of Directors, Nominees, Executive
Officers and Persons Owning More Than Five Percent of Common Stock " is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
12
13
8-K
(a) Documents filed as part of this report:
(1) Financial Statements. The following financial statements are
incorporated herein by reference to the Company's 2000 Annual Report to
Shareowners:
PAGE IN
ANNUAL REPORT
Financial Statements:
Consolidated Statement of Earnings for
the three fiscal years ended
February 3, 2001 6
Consolidated Balance Sheet --
February 3, 2001 and January 29, 2000 7
Consolidated Statement of Shareowners'
Equity for the three fiscal years
ended February 3, 2001 8
Consolidated Statement of Cash Flows
for the three fiscal years ended
February 3, 2001 19
Notes to Consolidated Financial
Statements 20-25
Report of Independent Public
Accountants 27
(2) EXHIBITS.
NUMBER DESCRIPTION
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.(1)
3.2 Amended and Restated Bylaws of the Registrant.(2)
4 Stockholder Protection Rights Agreement, dated as of April 20,
1998, between the Registrant and UMB Bank, N.A.(1)
10.1 Tax Sharing Agreement, dated April 2, 1996, between The May
Department Stores Company and the Registrant.(3)
10.2 Sublease, dated as of April 2, 1996, between The May Department
Stores Company and the Registrant.(4)
10.3 Credit and Guaranty Agreement dated as of April 17, 2000 among
Payless ShoeSource Finance, Inc., as Borrower, Payless
ShoeSource, Inc. and Certain of its Subsidiaries, as
Guarantors, various Lenders, Goldman Sachs Credit Partners
L.P., as Sole Lead Arranger and Sole Syndication Agent, Bank
One, NA, as Administrative Agent, and First Union National
Bank, as Documentation Agent. (7)
10.4 Administrative Services Agreement, dated as of April 2, 1996,
between The May Department Stores Company and the
Registrant.(4)
10.5 Payless ShoeSource, Inc. 1996 Stock Incentive Plan, as amended
March 16, 2000. (7)
10.6 Spin-Off Stock Plan, Payless ShoeSource, Inc.(4)
10.7 Spin-Off Cash Plan, Payless ShoeSource, Inc.(4)
10.8 Restricted Stock Plan for Non-Management Directors, as amended
April 20, 1998, effective immediately prior to
13
14
the effective time of the Merger (as defined therein).(1)
10.9 Form of Employment Agreement between the Registrant and certain
executives of the Registrant. The Registrant has entered into
Employment Agreements in the form contained in this exhibit
with each of the named executive officers which expire at
various dates on or before May 31, 2003, which contain
agreements not to compete of 1-2 years beyond the expiration
date of the respective Employment Agreements, and provide for
annual base salaries at rates not less than the amounts
presently paid to them. (7)
10.10 Payless ShoeSource, Inc. Supplementary Retirement Plan, as
amended November 16, 2000.*
10.11 Payless ShoeSource, Inc, 401(k) Profit Sharing Plan, as amended
and restated effective March 20, 2000.*
10.12 Payless ShoeSource, Inc. Deferred Compensation Plan, as amended
July 20, 2000.*
10.13 Executive Incentive Compensation Plan of Registrant, as amended
November 16, 2000.*
10.14 Form of Control Agreement. The Registrant has entered into
Change of Control Agreements with the named executive officers
in the form contained in this exhibit (7)
10.15 Form of Directors' and Officers' Indemnity Agreement of
Registrant. (7)
10.16 Payless ShoeSource, Inc. Deferred Compensation Plan for
Non-Management Directors, as amended March 16, 2000. (7)
10.17 Executive Incentive Compensation Plan for Business Unit
Management of Registrant, as amended April 20, 1998, effective
immediately prior to the effective time of the Merger. (1)
10.18 The Stock Appreciation and Phantom Stock Unit Plan of Payless
ShoeSource, Inc. and its Subsidiaries for Payless ShoeSource
International Employees, as amended March 16, 2000. (7)
10.19 Payless ShoeSource, Inc. Profit Sharing Plan for Puerto Rico
Associates, as amended and restated effective March 20, 2000.*
10.20 Stock Ownership Plan of Registrant, as amended effective June
1, 1998.(1)
10.21 Assumption Agreement, dated as of May 22, 1998, between
Registrant and Payless.(1)
10.22 Consulting Agreement between the Registrant and Richard A.
Jolosky.(5)
10.23 Executive Incentive Compensation Plan for Annual Awards for
Merchandising and Retail Operators Functions, effective May 28,
1999.(6)
10.24 Consulting Contract between the Registrant and Jed L. Norden
entered into as of December 22, 2000.*
10.25 Employment Agreement between the Registrant and Steven J.
14
15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
Douglass entered into as of November 16, 2000.*
10.26 Payless ShoeSource, Inc. Deferred Compensation 401(k) Mirror
Plan effective October 1, 2000.*
11.1 Computation of Net Earnings Per Share.*
12.1 Computation of Ratio of Earnings to Fixed Charges.*
13. 2000 Annual Report to Shareowners of Payless ShoeSource, Inc.
(only those portions specifically incorporated by reference
shall be deemed filed with the Commission).*
21.1 Subsidiaries of Registrant*
23.1 Consent of Arthur Andersen, LLP.*
* Filed herewith
(1) Incorporated by reference from the Registrant's Form 8-K (File
Number 1-14770) dated June 1, 1998.
(2) Incorporated by reference from the Registrant's Form 10-K (File
Number 1-14770) for the fiscal year ended January 30, 1999.
(3) Incorporated by reference from Exhibit 10.1 of the Registrant's
Form 10-Q (File Number 1-11633) for the quarter ended May 4,
1996.
(4) Incorporated by reference from the correspondingly numbered
Exhibit to Registrant's Registration Statement on Form 10 (File
Number 1-11633) dated February 23, 1996 as amended through
April 15, 1996.
(5) Incorporated by reference from the Registrant's Form 10-Q (File
Number 1-14770) for the quarter ended October 30, 1999.
(6) Incorporated by reference from the Registrant's Form 10-Q (File
Number 1-14770) for the quarter ended July 31, 1999.
(7) Incorporated by reference from the Registrant's Form 10-K (File
Number 1-14770 for the year ended January 29, 2000
THE COMPANY WILL FURNISH TO SHAREOWNERS UPON REQUEST, AND WITHOUT CHARGE, A COPY
OF THE 2000 ANNUAL REPORT AND THE PROXY STATEMENT, PORTIONS OF WHICH ARE
INCORPORATED BY REFERENCE IN THE FORM 10-K. THE COMPANY WILL FURNISH ANY OTHER
EXHIBIT AT COST.
(b) Reports on Form 8-K:
None.
All other schedules and exhibits of the Company for which provision is made in
the applicable regulations of the Securities and Exchange Commission have been
omitted, as they are not required or are inapplicable or the information
required thereby has been given otherwise.
15
16
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.
PAYLESS SHOESOURCE, INC.
Date: April 19, 2001 By: /s/ Ullrich E. Porzig
---------------------------
Ullrich E. Porzig
Senior Vice President, Chief
Financial Officer and Treasurer
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.
By: /s/ Steven J. Douglass Date: April 19, 2001
- ---------------------------
Steven J. Douglass
Chairman, Chief Executive Officer and Director
(Principal Executive Officer)
By: /s/ Ullrich E. Porzig Date: April 19, 2001
- --------------------------
Ullrich E. Porzig
Senior Vice President, Chief Financial
Officer and Treasurer
(Principal Financial and Accounting
Officer)
By: /s/ Ken C. Hicks Date: April 19, 2001
- --------------------------
Ken C. Hicks
President and Director
By: /s/ Daniel Boggan Jr. Date: April 19, 2001
- --------------------------
Daniel Boggan Jr.
Director
By: /s/ Howard R. Fricke Date: April 19, 2001
- --------------------------
Howard R. Fricke
Director
By: /s/ Thomas A. Hays Date: April 19, 2001
- --------------------------
Thomas A. Hays
Director
By: /s/ Mylle B. Mangum Date: April 19, 2001
- --------------------------
Mylle B. Mangum
Director
By: /s/ Michael E. Murphy Date: April 19, 2001
- --------------------------
Michael E. Murphy
Director
By: /s/ Robert L. Stark Date: April 19, 2001
- --------------------------
16
17
Robert L. Stark
Director
By: /s/ Irwin Zazulia Date: April 19, 2001
- --------------------------
Irwin Zazulia
Director
17
18
EXHIBIT INDEX
EXHIBIT DESCRIPTION
NUMBER
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.(1)
3.2 Amended and Restated Bylaws of the Registrant.(2)
4 Stockholder Protection Rights Agreement, dated as of April 20,
1998, between the Registrant and UMB Bank, N.A.(1)
10.1 Tax Sharing Agreement, dated April 2, 1996, between The May
Department Stores Company and the Registrant.(3)
10.2 Sublease, dated as of April 2, 1996, between The May Department
Stores Company and the Registrant.(4)
10.3 Credit and Guaranty Agreement dated as of April 17, 2000 among
Payless ShoeSource Finance, Inc., as Borrower, Payless
ShoeSource, Inc. and Certain of its Subsidiaries, as
Guarantors, various Lenders, Goldman Sachs Credit Partners
L.P., as Sole Lead Arranger and Sole Syndication Agent, Bank
One, NA, as Administrative Agent, and First Union National
Bank, as Documentation Agent. (7)
10.4 Administrative Services Agreement, dated as of April 2, 1996,
between The May Department Stores Company and the
Registrant.(4)
10.5 Payless ShoeSource, Inc. 1996 Stock Incentive Plan, as amended
March 16, 2000. (7)
10.6 Spin-Off Stock Plan, Payless ShoeSource, Inc.(4)
10.7 Spin-Off Cash Plan, Payless ShoeSource, Inc.(4)
10.8 Restricted Stock Plan for Non-Management Directors, as amended
April 20, 1998, effective immediately prior to the effective
time of the Merger (as defined therein).(1)
10.9 Form of Employment Agreement between the Registrant and certain
executives of the Registrant. The Registrant has entered into
Employment Agreements in the form contained in this exhibit
with each of the named executive officers which expire at
various dates on or before May 31, 2003, which contain
agreements not to compete of 1-2 years beyond the expiration
date of the respective Employment Agreements, and provide for
annual base salaries at rates not less than the amounts
presently paid to them. (7)
10.10 Payless ShoeSource, Inc. Supplementary Retirement Plan, as
amended November 16, 2000.*
10.11 Payless ShoeSource, Inc, 401(k) Profit Sharing Plan, as amended
and restated effective March 20, 2000.*
10.12 Payless ShoeSource, Inc. Deferred Compensation Plan, as amended
July 20, 2000.*
10.13 Executive Incentive Compensation Plan of Registrant, as amended
November 16, 2000.*
10.14 Form of Control Agreement. The Registrant has entered into
Change of Control Agreements with the named executive officers
in the form contained in this exhibit (7)
19
10.15 Form of Directors' and Officers' Indemnity Agreement of
Registrant. (7)
10.16 Payless ShoeSource, Inc. Deferred Compensation Plan for
Non-Management Directors, as amended March 16, 2000. (7)
10.17 Executive Incentive Compensation Plan for Business Unit
Management of Registrant, as amended April 20, 1998, effective
immediately prior to the effective time of the Merger. (1)
10.18 The Stock Appreciation and Phantom Stock Unit Plan of Payless
ShoeSource, Inc. and its Subsidiaries for Payless ShoeSource
International Employees, as amended March 16, 2000. (7)
10.19 Payless ShoeSource, Inc. Profit Sharing Plan for Puerto Rico
Associates, as amended and restated effective March 20, 2000.*
10.20 Stock Ownership Plan of Registrant, as amended effective June
1, 1998.(1)
10.21 Assumption Agreement, dated as of May 22, 1998, between
Registrant and Payless.(1)
10.22 Consulting Agreement between the Registrant and Richard A.
Jolosky.(5)
10.23 Executive Incentive Compensation Plan for Annual Awards for
Merchandising and Retail Operators Functions, effective May 28,
1999.(6)
10.24 Consulting Contract between the Registrant and Jed L. Norden
entered into as of December 22, 2000.*
10.25 Employment Agreement between the Registrant and Steven J.
Douglass entered into as of November 16, 2000.*
10.26 Payless ShoeSource, Inc. Deferred Compensation 401(k) Mirror
Plan effective October 1, 2000.*
11.1 Computation of Net Earnings Per Share.*
12.1 Computation of Ratio of Earnings to Fixed Charges.*
13. 2000 Annual Report to Shareowners of Payless ShoeSource, Inc.
(only those portions specifically incorporated by reference
shall be deemed filed with the Commission).*
21.1 Subsidiaries of Registrant*
23.1 Consent of Arthur Andersen, LLP.*
* Filed herewith
(1) Incorporated by reference from the Registrant's Form 8-K (File
Number 1-14770) dated June 1, 1998.
(2) Incorporated by reference from the Registrant's Form 10-K (File
Number 1-14770) for the fiscal year ended January 30, 1999.
(3) Incorporated by reference from Exhibit 10.1 of the Registrant's
Form 10-Q (File Number 1-11633) for the quarter ended May 4,
1996.
(4) Incorporated by reference from the correspondingly numbered
Exhibit to Registrant's Registration Statement on Form 10 (File
Number 1-11633) dated February 23, 1996 as amended through
April 15, 1996.
20
(5) Incorporated by reference from the Registrant's Form 10-Q (File
Number 1-14770) for the quarter ended October 30, 1999.
(6) Incorporated by reference from the Registrant's Form 10-Q (File
Number 1-14770) for the quarter ended July 31, 1999.
(7) Incorporated by reference from the Registrant's Form 10-K (File
Number 1-14770 for the year ended January 29, 2000