UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
January 30, 2010
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file
number: 1-14770
COLLECTIVE BRANDS,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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43-1813160
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State or other jurisdiction
of
incorporation or organization
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(I.R.S. Employer
Identification No.)
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3231 Southeast Sixth Avenue, Topeka, Kansas
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66607-2207
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(Address of principal executive
offices)
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(Zip Code)
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Registrants telephone number, including area code
(785) 233-5171
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $.01 par value per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. þ Yes o No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. o Yes þ No
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. þ Yes o No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). o Yes o 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 registrants 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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). o Yes þ No
The aggregate market value of the registrants common stock
held by non-affiliates of the registrant was
$1,018.9 million based on the closing price of $15.92 as
reported on the New York Stock Exchange on July 31, 2009,
the last trading day of the registrants second fiscal
quarter.
Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest
practicable date.
Common Stock, $.01 par value
64,363,780 shares at
March 19, 2010
DOCUMENTS
INCORPORATED BY REFERENCE
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Document
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Parts Into Which Incorporated
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Proxy Statement for the Annual Meeting of
Stockholders to be held on May 27, 2010
(Proxy Statement)
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Part III
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Forward
Looking Statements
This report contains forward-looking statements relating to such
matters as anticipated financial performance, business
prospects, technological developments, products, future store
openings and closings, international expansion opportunities,
possible strategic initiatives, new business concepts, capital
expenditure plans, fashion trends, consumer spending patterns
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. We note that a
variety of factors could cause actual results and experience to
differ materially from the anticipated results or expectations
expressed in our forward-looking statements. The risks and
uncertainties that may affect the operations, performance,
development and results of our business include, but are not
limited to, the following: litigation including intellectual
property and employment matters; the inability to renew material
leases, licenses or contracts upon their expiration on
acceptable terms; 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;
changes in existing or potential duties, tariffs or quotas and
the application thereof; 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 we source are located or in which we
operate stores or otherwise do business; changes in trade,
intellectual property, customs
and/or tax
laws; fluctuations in currency exchange rates; availability of
suitable store locations on acceptable terms; the ability to
terminate leases on acceptable terms; the risk that we will not
be able to integrate recently acquired businesses successfully,
or that such integration will take longer than anticipated;
expected cost savings or synergies from acquisitions will not be
achieved or unexpected costs will be incurred; customers will
not be retained or that disruptions from acquisitions will harm
relationships with customers, employees and suppliers; costs and
other expenditures in excess of those projected for
environmental investigation and remediation or other legal
proceedings; the ability to hire and retain associates;
performance of other parties in strategic alliances; general
economic, business and social conditions in the countries from
which we source products, supplies or have or intend to open
stores; performance of partners in joint ventures or franchised
operations; the ability to comply with local laws in foreign
countries; threats or acts of terrorism or war; strikes, work
stoppages
and/or
slowdowns by unions that play a significant role in the
manufacture, distribution or sale of product; congestion at
major ocean ports; changes in commodity prices such as oil; and
changes in the value of the dollar relative to the Chinese Yuan
and other currencies. See also Risk Factors. All
subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly
qualified in their entirety by these cautionary statements. We
do not undertake any obligation to release publicly any
revisions to such forward-looking statements to reflect events
or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
COLLECTIVE
BRANDS, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 30, 2010
INDEX
PART I
General
Collective Brands, Inc. (Collective Brands or the
Company) is a leader in bringing compelling
lifestyle, fashion and performance brands for footwear and
related accessories to consumers worldwide. We operate a hybrid
business model with a portfolio of powerful brands and private
brand labels sold at multiple price points and through multiple
selling channels including retail, wholesale,
e-commerce,
licensing and franchising. Collective Brands, Inc. consists of
three lines of business: Payless ShoeSource
(Payless), Collective Brands Performance + Lifestyle
Group (PLG), and Collective Licensing
(CLI). Payless is one of the largest footwear
specialty retailers in the Western Hemisphere. It is dedicated
to democratizing fashion and design in footwear and accessories
and inspiring fun, fashion possibilities for the family at a
great value. PLG is a leading provider of iconic performance and
lifestyle brands, each with strong marketplace positions focused
on distinct and targeted consumer segments. PLG markets products
for adults and children under well-known brand names, including
Saucony®,
Sperry
Top-Sider®,
Keds®
and Stride
Rite®.
PLG also aims to be the leading global company for performance
and lifestyle footwear and related accessories. CLI is a brand
development and licensing company that specializes in building,
launching, licensing and growing brands focused on the youth
lifestyle market, including
Airwalk®,
Above the
Rim®,
Vision Street
Wear®,
Sims®
and
Lamar®.
CLIs vision is to create the leading youth lifestyle and
athletic fashion branded licensing company in the world.
All references to years are to our fiscal year unless otherwise
stated. Fiscal year 2009 ended on January 30, 2010.
Payless is one of the largest footwear retailers in the Western
Hemisphere, with 4,470 retail stores in 19 countries and
territories at the end of 2009. Our Payless ShoeSource retail
stores in the United States, Canada, the Caribbean, Central
America, and South America sold nearly 140 million pairs of
footwear and over 40 million units of accessories through
nearly 500 million customer visits during 2009. Payless
ShoeSource stores sell a broad assortment of quality footwear,
including athletic, casual and dress shoes, sandals, work and
fashion boots, slippers, and accessories such as handbags,
jewelry, and hosiery. Payless ShoeSource stores offer
fashionable, quality, branded and private label footwear and
accessories for women, children, and men at affordable prices in
a self-selection shopping format. Our stores feature several
mainstream and designer footwear brands including
Airwalk®,
American
Eagletm,
Champion®,
Christian Siriano for
Paylesstm,
Dexter®,
and Lela Rose for
Paylesstm.
We seek to compete effectively by getting to market with
differentiated, trend-right merchandise before mass-market
discounters and at the same time as department and specialty
retailers but at a more compelling value. North American stores
are company-owned, stores in the Central and South American
regions are operated as joint-ventures, and Middle East stores
are franchised. Stores operate in a variety of real estate
formats. Approximately a quarter of the
company-owned
stores are mall-based while the rest are located in strip
centers, central business districts, and other real estate
formats. We also operate
payless.com®
where customers buy our products on-line and store associates
order products for customers that are not sold in all of our
stores. At year-end, each Payless ShoeSource store stocked on
average approximately 6,700 pairs of footwear. We focus our
marketing efforts primarily on expressive moms and expressive
self-purchasing women ages 16-49. These consumers use
fashion as a means of expressing their personalities, but also
place importance on low prices. They tend to have household
incomes of less than $75,000 and make a disproportionately large
share of household footwear purchasing decisions. We believe
that over one-third of these target consumers purchased at least
one pair of footwear from our stores last year.
PLG is a leading provider of iconic performance and lifestyle
brands, each with unique personalities and strong marketplace
positions focused on distinct and targeted consumer segments.
PLG is predominantly a wholesaler of footwear, selling its
products mostly in North America in a wide variety of retail
formats including premier department stores, specialty stores,
and independent shoe stores. PLG markets products in countries
outside North America largely through owned operations,
independent distributors and licensees. PLG also markets its
products directly to consumers by selling childrens
footwear through its Stride Rite Childrens stores and a
broader selection of its footwear and apparel through its Stride
Rite Outlet stores and
e-commerce
sites. In total, PLG operated 363 retail locations as of
the end of fiscal year 2009. PLG designs and markets
childrens footwear for consumers
0-10 years
old through its Stride Rite Childrens Group, including
dress and casual footwear, boots,
1
sandals and athletic shoes. These products are also marketed at
wholesale under the Stride
Rite®,
Robeez®,
and other brand names at moderate to premium price points. In
addition, PLG designs and markets nautical performance, outdoor
recreational, dress-casual, and casual footwear for men and
women under our Sperry
Top-Sider®
and
Sperry®
trademarks. PLG also designs and markets technical running,
athletic lifestyle, outdoor trail shoes and fashion athletic
shoes as well as athletic apparel under the
Saucony®
and Saucony
Originals®
brand names. Lastly, PLG markets fashion/athletic and casual
footwear for adults and children under the
Keds®,
Pro-Keds®,
and
Grasshoppers®
labels.
History
Payless 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, Payless became a public company. In 1979, it was
acquired by The May Department Stores Company (May
Company). On May 4, 1996, Payless became an
independent public company again as a result of a spin-off from
May Company. In 1998, we reorganized forming a new Delaware
corporation, Payless ShoeSource Inc., which today is known as
Collective Brands, Inc. On March 30, 2007, we acquired
Collective Licensing, a Denver-based brand development,
management and licensing company. On August 16, 2007, our
Delaware holding company changed its name from Payless
ShoeSource, Inc. to Collective Brands, Inc., and the next day we
completed our acquisition of The Stride Rite Corporation.
The Stride Rite Corporation was founded in Boston, Massachusetts
in 1919, as the Green Shoe Manufacturing Company (Green
Shoe). Green Shoe became a public company in 1960 and was
listed on the New York Stock Exchange. It adopted The Stride
Rite Corporation name in 1966 in recognition of its
well-respected brand name. The first Stride Rite Childrens
Store was opened in 1972. The Sperry Top-Sider and Keds brand
names were acquired from Uniroyal in 1979. During 2005, The
Stride Rite Corporation completed its acquisition of Saucony and
in 2006 it purchased Robeez. In the third quarter of 2009,
Collective Brands, Inc. announced that The Stride Rite
Corporation will do business as Collective Brands Performance +
Lifestyle Group.
Our principal executive offices are located at 3231 Southeast
Sixth Avenue, Topeka, Kansas
66607-2207,
and our telephone number is
(785) 233-5171.
Our common stock is listed for trading on the New York Stock
Exchange under the symbol PSS.
Segments
and Geographic Areas
We operate our business in four reporting segments: Payless
Domestic, Payless International, PLG Wholesale and PLG Retail.
See Note 19 in the Notes to the Consolidated Financial
Statements for a discussion on financial results by segment.
1. The Payless Domestic reporting segment is comprised
primarily of domestic retail stores under the Payless ShoeSource
name, as well as the Companys sourcing unit, and
Collective Licensing.
2. The Payless International reporting segment is comprised
of international retail stores under the Payless ShoeSource name
in Canada, the South American Region, the Central American
Region, Puerto Rico, and the U.S. Virgin Islands as well as
the franchising arrangements under the Payless ShoeSource name.
3. The PLG Wholesale reporting segment consists of
PLGs global wholesale operations as well as dealer
operations.
4. The PLG Retail reporting segment consists of results
from PLGs owned Stride Rite Childrens stores and
Stride Rite Outlet stores.
Stores
At the end of 2009, we operated a total of 4,833 retail stores.
This was comprised of 3,827 in the Payless Domestic segment, 643
stores in the Payless International segment, and 363 stores in
the PLG Retail segment.
2
Payless
Domestic
The average size of a store in the Payless Domestic segment is
approximately 3,200 square feet. Depending upon the season
and the sales volume of the store, stores employ a varying
number of associates including a store manager or shared store
manager. Stores use a combination of full-time and part-time
associates. By including materially remodeled stores in our
calculation as new stores, Payless ShoeSource domestic stores
were 10 years old on average at the end of 2009. At
year-end, 531 stores in the Payless Domestic segment had been
updated to one of Payless new store formats (typically
known as Hot Zones). Payless ShoeSource stores
operate in a variety of real estate formats such as shopping
malls, central business districts, free-standing buildings,
strip centers, and leased departments in
ShopKo®
stores. ShopKo is a discount retailer with stores primarily in
the Midwest, Western Mountain, and Pacific Northwest regions.
This alliance, extended to July 22, 2012, provides us with
a capital efficient, additional distribution channel for our
products. As of year-end, there were 136 of these locations, and
they are included in the table below.
The number of retail stores by geographic region for the Payless
Domestic segment is represented in the following table:
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Payless Domestic
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Alabama
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36
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Louisiana
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57
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Oklahoma
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44
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Alaska
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8
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Maine
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13
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Oregon
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48
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Arizona
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88
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Maryland
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72
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Pennsylvania
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149
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Arkansas
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39
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Massachusetts
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87
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Rhode Island
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14
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California
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522
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Michigan
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127
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South Carolina
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31
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Colorado
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51
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Minnesota
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47
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South Dakota
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15
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Connecticut
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43
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Mississippi
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46
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Tennessee
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45
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Delaware
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9
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Missouri
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73
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Texas
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388
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District of Columbia
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8
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Montana
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14
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Utah
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50
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Florida
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286
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Nebraska
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35
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Vermont
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7
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Georgia
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91
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Nevada
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34
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Virginia
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77
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Hawaii
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15
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New Hampshire
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18
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Washington
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85
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Idaho
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30
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New Jersey
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129
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West Virginia
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10
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Illinois
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174
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New Mexico
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28
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Wisconsin
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78
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Indiana
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56
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New York
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251
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Wyoming
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5
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Iowa
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32
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North Carolina
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59
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Kansas
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35
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North Dakota
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6
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Guam
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2
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Kentucky
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31
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Ohio
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128
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Saipan
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1
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Total Payless Domestic
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3,827
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Payless
International
Since opening our first store in Canada in 1997, our
international presence has grown substantially. We entered Latin
America in September 2000, and operate stores there in joint
ventures with different partners. In 2009, we franchised our
first stores in the Middle East. As of year-end, we had 643
owned or joint ventured stores in 13 foreign countries or
territories. In addition, our franchisees operated nine stores
in Kuwait, Saudi Arabia, and the United Arab Emirates at
year-end.
The average size of our stores in the Payless International
segment is approximately 2,800 square feet. By including
materially remodeled stores in our calculation as new stores,
our international stores were on average seven years old at the
end of 2009. At year-end, 143 stores had been updated to one of
our new store formats. Our international stores operate in a
variety of real estate formats, including shopping malls,
central business districts, free-standing buildings, and strip
centers.
3
The number of retail stores by Province, Country and Territory
for the Payless International segment is represented in the
table below. Franchised stores are not included in the table.
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Payless International
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Canada
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Central America
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South America
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Alberta
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41
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Costa Rica
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25
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Ecuador
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37
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British Columbia
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42
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Dominican Republic
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16
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Colombia
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40
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Manitoba
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10
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El Salvador
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22
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New Brunswick
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7
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Guatemala
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43
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Total South America
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77
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Nova Scotia
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11
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Honduras
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20
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Ontario
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135
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Nicaragua
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13
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Other Territories
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Prince Edward Island
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2
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Panama
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20
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Puerto Rico
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82
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Quebec
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46
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Trinidad/Tobago
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15
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U.S. Virgin Islands
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5
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Saskatchewan
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11
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Total Other Territories
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87
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Total Canada
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305
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Total Central America
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174
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Total Payless International
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643
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PLG
Retail
PLGs Stride Rite Childrens stores are located
primarily in larger regional shopping centers, clustered
generally in the major marketing areas of the U.S. The
average size of a Stride Rite Childrens Store is
approximately 1,300 square feet. Stride Rite Outlet stores
average approximately 2,800 square feet because outlet
stores carry a broad range of footwear for adults in addition to
childrens footwear. Most of our outlet stores are located
in shopping centers consisting only of outlet stores. At the end
of 2009, each PLG retail store carried on average nearly 7,000
pairs of shoes. By including materially remodeled stores in our
calculation as new stores, PLG Retail segment stores were on
average approximately nine years old at the end of 2009. We also
operate Stride Rite shoe departments within select Macys
stores. This alliance provides us with a capital efficient,
additional distribution channel for our products. As of
year-end, there were nine of these locations, and they are
included in the table below.
The number of retail stores by type for the Stride Rite Retail
segment is represented in the table below.
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|
|
|
|
PLG Retail
|
|
|
Stride Rite Childrens stores
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|
|
261
|
|
Stride Rite Outlet stores
|
|
|
102
|
|
|
|
|
|
|
Total Stride Rite stores
|
|
|
363
|
|
|
|
|
|
|
PLG
Wholesale
In addition to the owned PLG retail stores, we had 128 PLG
stores managed by licensed dealers (not included in the store
count above) at the end of 2009. A licensed dealer is an
independent shoe retailer that sells a high percentage of PLG
product. We generate sales from dealers by selling them our
product. Dealers do not currently pay franchise or on-going
fees. Of the total, 117 stores were located in the United States
and 11 were located internationally. PLG sales representatives
monitor the dealers assortments and appearance. We give
guidance to the dealers on store remodeling. Dealers are not
currently obliged to participate in PLG retail store promotions.
4
International
Business
During 2009, Collective Brands had $526.1 million, or
15.9%, of its sales from outside the U.S. In 2009, we
derived sales from 92 countries or territories through
retailing, wholesaling,
e-commerce,
licensing, and franchising.
Payless
International
Payless International sales were $422.4 million, or 12.8%
of total Company sales. Of the stores we directly own or operate
through a joint venture, 47% of Payless International stores are
located in Canada; 40% in Latin America and the Caribbean; and
13% in Puerto Rico. In 2010, over 25% of our new store capital
budget dollars will be allocated for international stores driven
primarily by store growth in Latin America. In 2009, the first
Payless ShoeSource franchised stores opened in the Middle East
through a multi-year partnership with M.H. Alshaya Company.
Payless plans to expand its franchised stores into Russia and
the Philippines next year having signed new franchising
agreements in 2009.
PLG
Wholesale
We sell footwear in 83 countries and territories. We use our
owned operations, independent distributors and licensees to
market our various product lines outside of the U.S. We
record revenue from foreign sources through the sale of branded
footwear products by our owned operations in Canada, the
Netherlands, the United Kingdom and Germany, from sales in
certain countries to independent distributors of our products,
and from royalties to authorized licensees of our products.
License and distribution arrangements enable us to develop sales
in certain international markets without incurring development
costs and the capital commitment required to maintain related
foreign operations, employees, inventories or localized
marketing programs. We assist in designing products that are
appropriate to each foreign market, but are consistent with the
global brand position. Independent licensees and distributors
purchase goods from either us or authorized third-party
manufacturers pursuant to distribution agreements or manufacture
branded products consistent with our standards pursuant to
license agreements. Distributors and licensees are responsible
for independently marketing and distributing our branded
products in their respective territories with product and
marketing support provided by us. We are also a party to foreign
license agreements in which licensed dealers operate retail
stores outside the United States. Dealers operate eight Stride
Rite Childrens stores in five different
countries El Salvador, Guatemala, Honduras, Turkey
and Venezuela. Dealers also operate two Saucony retail stores in
Dubai and one Sperry Top-Sider retail store in Colombia.
Store and
Wholesale Operations Management
Collective Brands manages certain support functions such as
marketing, information technology and finance in a mostly
centralized fashion from its Topeka, Kansas and Lexington,
Massachusetts corporate offices. The Company also manages other
support functions, such as loss prevention and store-level human
resources, in a more decentralized fashion.
Payless
Domestic and Payless International
In general, each retail location is managed by a Store Manager.
Store Managers report to District Managers who, in turn, report
to Directors of Retail Operations. District Managers typically
oversee 25 stores on average, and Directors of Retail Operations
typically oversee, on average, 12 District Managers or 300
stores. The span of control is wider domestically, where we have
greater critical mass, compared to internationally. Each
position is responsible for managing the operations of our
stores including functions such as opening and closing, store
displays, inventory management, staffing, and managing the
customer experience.
Payless associates are trained and measured on customer
conversion and compliance with a multi-step selling process
frequently referred to as the customer journey or
SMILES. Execution of the customer journey is
typically measured by customer satisfaction (CSAT)
scores. In 2009, CSAT scores improved by eight percentage points
to record levels.
5
In 2009, the Retail Operations team made several restructuring
moves including the expansion of its group leader and
multi-store manager programs to service customers more
efficiently and effectively. Internationally, Retail Operations
successfully launched a store within a store operating model in
five locations of Colombia-based hypermarket retailer Exito.
Payless has a small number of associates on business development
teams to supplement sales of slip resistant footwear in its
retail stores and for limited wholesale distribution. We sell
footwear with slip resistant technology branded Safe T
Step®
to end-users through several commercial accounts in channels
such as restaurants, auto service locations, and grocery stores.
Our accounts need their employees to wear slip resistant
footwear to contain insurance costs and increase productivity.
We believe slip resistant footwear is an underserved market with
good opportunities. Our Payless wholesale distribution team
primarily sells footwear in rural locations.
PLG
Wholesale
The PLG Wholesale business is divided by major brands, each with
its own dedicated sales forces. Generally each sales executive
is assigned a specific geographic region.
PLG
Retail
Retail locations are managed by a Store Manager who reports to a
District Manager. District Managers typically oversee
approximately 25 stores. These positions are responsible for
managing the operations of our stores including functions such
as opening and closing, store displays, inventory management,
and staffing. Stride Rite Childrens stores offer customers
a more full-service experience such as retrieving shoes and
personalized sizing and fitting of each child by trained
specialists.
Employees
At the end of 2009, Collective Brands employed approximately
30,000 associates worldwide. Over 27,000 associates worked in
stores, while the remaining associates worked in other
capacities such as corporate support, Asia-based procurement,
licensing, and distribution centers. Our associate base was
approximately 45% full-time and 55% part-time and we had 165
associates under collective bargaining agreements at year end.
Payless
Domestic
At year-end, approximately 22,800 associates worked in the
Payless Domestic segment. The mix of full-time to part-time
associates was 42% and 58%, respectively.
Payless
International
The Payless International segment employed over 4,000 associates
at year-end. The mix of full-time to part-time associates was
64% and 36%, respectively.
PLG
Wholesale
Nearly 800 associates at year-end were employed in various sales
and support capacities in the PLG Wholesale segment. Almost 100%
were full-time associates.
PLG
Retail
The PLG Retail segment employed almost approximately 2,400
associates at year-end. The mix of full-time to part-time
associates was 30% and 70%, respectively.
Competition
As a multi-channel provider of footwear and accessories, we face
several different forms of competition.
The retail footwear and accessories market is highly
competitive. It is comprised of department stores, footwear
specialty stores, discount mass-merchandisers, sporting goods
stores, and on-line competitors. In addition,
6
many retailers who have not traditionally carried footwear have
added various footwear and accessories including seasonal,
specialty and general footwear in their merchandise assortment.
The primary competitive levers to establish points of
differentiation in our industry are merchandise selection, flow
and timing, pricing, attractive styles, product quality and
aesthetics, durability, comfort, convenience, and in-store
experience.
Payless
Domestic
We seek to compete effectively by getting to market with
differentiated, trend-right merchandise before mass-market
discounters. Payless strives to get trend-right merchandise to
market at the same time but at more compelling values than
department stores and specialty retailers. Main competitors
include DSW, Famous Footwear, J.C. Penney, Kohls,
Macys, Marshalls, Ross Stores, Target, TJ Maxx, and
Wal-Mart.
Payless
International
Internationally, we also seek to compete effectively by getting
to market with differentiated, trend-right merchandise before
mass-market discounters, but at more compelling values than
department stores and specialty retailers. Because the largest
percentage of our international business is done in Canada, our
main competitors are Sears Canada, SportChek, Walmart Canada,
and Zellers. The competitive environment in Canada is becoming
more fragmented due to on-line and other competitors. In
addition, the U.S. exchange rate impacts competition.
During times of relative strength in the Canadian dollar,
U.S. retailers become stronger competitors and price
competition in Canada becomes sharper.
In Latin America, our competition varies by country. Mostly, we
compete there against small independent operators. In Central
America (except for Panama), we have two larger corporate
competitors: Adoc and MD. In Colombia, our main competitors are
Bata, Bosi, and Spring Step.
PLG
Wholesale
On a wholesale level, we also compete with many suppliers of
footwear. PLG Wholesales most significant competitors by
brand include:
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PLG Wholesale Brand
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Sperry
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Stride Rite
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Saucony
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Top-Sider
|
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Keds
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Childrens Group
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Asics
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Cole Haan
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Converse
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Geox
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Brooks
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Ecco
|
|
Vans
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Lelli Kelly
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Mizuno
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Geox
|
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Merrell
|
New Balance
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Rockport
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Morgan and Milo
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Nike
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Sebago
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Naturino
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Timberland
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New Balance
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Nike
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|
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Pedipeds
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Primigi
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Reebok
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Skechers
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PLG
Retail
We compete in the childrens retail shoe industry with
numerous businesses, ranging from large retail chains to single
store operators. The chains include Childrens Place,
Dillards, Gap, Gymboree, Nordstrom, and Target.
Seasonality
As an international multi-channel provider of footwear and
accessories, we have operations that are impacted by certain
seasonal factors some of which are common across
segments and channels while others are not. For
7
the most part, our business is characterized by four high-volume
seasons: Easter, the arrival of warm weather,
back-to-school,
and the arrival of cool weather. In preparation for each of
these periods, we increase our inventory levels in our retail
stores to support the increased demand for our products. For our
wholesale business, we increase our inventory levels
approximately three months in advance of these periods to
support the increased demands from our wholesale customers for
these products. We offer styles particularly suited for the
relevant season such as sandals in the spring and boots during
the fall. Our cash position tends to be higher in June as well
as September to October, due primarily to the arrival of warm
weather and
back-to-school,
respectively. Our cash position tends to be lowest around
February to March when Easter inventories are
built-up but
not yet sold-through.
Payless
Domestic
Payless Domestic retail stores tend to have their highest
inventory levels in preparation for the Easter selling season
because customers tend to shop our stores for holiday-specific
footwear and accessories. This is typically about 1-3 weeks
in advance of the holiday. Seasonal sales volumes are typically
highest for Payless Domestic in the first quarter, followed
closely by the second and third quarters. The arrival of warm
weather in most major markets and
back-to-school
are meaningful sales catalysts, but typically not quite as
strong as Easter. Usually, the Payless Domestic segment has
lower sales in the fourth quarter compared to the other three
quarters. Footwear customer traffic during the fourth quarter
tends to be lower because there are no significant catalysts and
footwear tends to be less giftable than other retail
alternatives.
Payless
International
The Payless International seasonality tends to largely resemble
Payless Domestic with a few important differences. First, a
greater share of sales tends to come in December compared to
Payless Domestic. In Puerto Rico and Latin America many workers
get an incremental paycheck in preparation for the Christmas
season. Secondly, compared to Payless Domestic,
back-to-school
is even more important for Payless International. Many Latin
Americans come together and shop as family units.
Back-to-school
is culturally and economically a time to spend together.
Finally, paydays are times when proportionally more is spent on
footwear than on other days of a month.
PLG
Wholesale
The PLG Wholesale business is customarily driven by demand for
spring (i.e. first half) and fall (i.e. second half) seasonal
product lines. PLG Wholesale sales tend to be more first
half-weighted compared to second half due to the nature of our
brands as well as meeting the wholesale customers seasonal
needs of their end-consumers. The wholesale segments
business is usually about three months earlier than Collective
Brands other three segments. The wholesale segment tends
to have its highest inventory position around January to
February and its lowest inventory position around the November
to December time frame.
PLG
Retail
Retail seasonal sales volume for our Stride Rite Childrens
stores and Stride Rite Outlet stores tends to be approximately
equivalent for the first half of the year versus the second half
of the year. The arrival of warm weather in the first half of
the year is the biggest annual sales catalyst. Easter tends not
to be as big compared to Payless. In the second half of the
year,
back-to-school
and the merchandise mix shift to boots are significant sales
drivers. PLG Retail tries to balance promotions evenly between
the periods.
Supply
Chain
We run an integrated supply chain that supports the product
life-cycle from concept to liquidation across all reporting
segments. In 2009, we sold nearly 170 million pairs of
footwear through retail and wholesale combined.
Merchandise
Planning & Allocation
We work to get product to the right store at the right time in
order to drive sales and margin growth. We do this through the
use of a variety of systems and models related to planning,
forecasting, pricing, and allocations. This helps us align our
promotions, product flow, and pricing with customer shopping
patterns.
8
We build and manage total inventory plans globally across
multiple selling channels. Assortments are targeted based on
customer demand and planned with specific product lifecycles. We
base our decisions on how to stock stores using several criteria:
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For the Payless Domestic & Payless International segments,
we employ the use of clusters. Clusters are
customer profiles of our stores based on lifestyle,
demographics, shopping behavior, and appetite for fashion.
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We also consider seasonality and climate by geography which
impacts the timing of our inventory distribution. We have sandal
and boot zones to help guide our product flow and pricing.
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In addition, we use historical precedent of stores sales
volumes and the categories of products they tend to sell.
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We also account for size in how to stock stores. In retail, we
use a size assortment matrix tool when allocating inventory to
reduce aged product and markdowns in end-sizes. We also extended
our size assortment in childrens shoes, at Payless, up to
size six during 2009.
|
All this is done to deliver proportionately correct assortments.
Our goal is to optimize product flow and freshness as we
transition between selling periods. This is intended to drive
sales and improve the profitability of those sales by reducing
markdowns.
We also optimize price throughout a products life-cycle,
as we price products down to the store level. This helps us
manage aged inventory and minimize it as a percentage of the
total offering. Our use of optimization tools enables
store-level price and size variations which drives gross margin
dollars and reduces markdowns.
Sourcing
Our design, product development, and sourcing functions are
integrated within our global supply chain organization. We
utilize internal product design and development capabilities to
drive trend-right proprietary designs and improve speed to
market of new products. Our Asia-based teams, responsible for
product development and sourcing, perform several functions
including raw materials procurement, sample creation, and
quality control. The integration of Payless and PLG is aiding
quality, factory loading, cost containment, and manufacturing
efficiency. We are negotiating directly with suppliers of raw
materials and requiring our factories to use our preferred
suppliers. We are also leveraging the consolidation of the
industrys factory base to increase efficiencies and
control costs.
We procure products two different ways through our
direct sourcing organization or by engaging third party agents
as vendors to procure products which we cannot or do not want to
procure ourselves. About 85% of our footwear in 2009 was
procured by our direct sourcing organization 72% for
Payless and 95% for PLG. Our sourcing team is closely aligned
with large factories which serve as our manufacturers. We
typically give these factories specifications and performance
standards and bid jobs out to multiple factories. Twenty-six
core factories accounted for 75% of Collective Brands
footwear purchases. We have about 100 other factories with which
we do overrun and special approval business.
We believe our relationships with our factory base are good.
Factories in China are a direct source of approximately 85% of
our footwear at cost compared to 94% in 2008. We are
diversifying our manufacturing base between countries and within
China. We source 10% of our footwear from Vietnam and the
remaining 5% from a variety of countries including Brazil,
India, Indonesia and Thailand. Products are manufactured to meet
our specifications and standards. We do not purchase
seconds or overruns.
Logistics
We maintain a flexible and efficient global logistics network
that enables speed to market while mitigating transportation
costs. We are capitalizing on many areas of opportunity through
consolidation of our networks. These areas include:
consolidation of ocean containers, sharing overseas
consolidation services, leveraging container cube optimization,
reducing transload operating costs, and leveraging inbound
carrier rates. Increasing network efficiency improves working
capital management, in-stock positions, and gross margin.
9
Our retail systems provide perpetual planning and forecasting
solutions, support multiple distribution centers, and provide
information to allow us to optimize initial distribution
planning and case pack configuration. During 2009, we reduced
our days from order
commitment-to-store
(supply chain days) by four supply chain days versus
the prior year. Through cross functional execution, process
enhancements, and optimizing our physical distribution we intend
to continue to decrease our supply chain days.
We target high-demand, in-season product for accelerated
delivery (rapid re-order) at both retail and
wholesale. Through rapid re-order we attempt to maximize sales
and margin on high-demand, proven items. We executed rapid
re-order on approximately 2.6 million pairs in 2009 (about
1.7 million of the pairs for retail) and intend to expand
this initiative in 2010.
Stores generally receive new merchandise on average twice a week
in an effort to maintain a constant flow of fresh and
replenished merchandise. We have increased flexibility, reduced
risk, and improved efficiency with our multiple DC network. The
replenishment lead time in 2009 was reduced by four days versus
the prior year for Payless stores. We currently use six
distribution facilities worldwide:
1. We lease an 802,000 square foot distribution center
(DC) in Brookville, Ohio which currently serves
approximately 2,200 Payless stores in North America and the
Stride Rite Childrens Group.
2. We own a 520,000 square foot DC in Louisville,
Kentucky which serves wholesale operations in the United States
for Keds, Sperry Top-Sider, and Saucony.
3. We lease a 414,000 square foot DC in Redlands,
California which serves approximately 1,800 Payless stores in
North America.
4. We lease 46,000 square feet of office and
distribution space in Cambridge, Ontario to support PLG Canadian
wholesale operations.
5. We lease 39,000 square feet of distribution space
in Heerhugowaard, The Netherlands to support our European
operations.
6. We contract with a third-party in Colon, Panama to
operate a distribution facility for our Latin America operations.
We also own a 409,000 square foot DC in Huntington, Ind.
which was closed in 2009. In addition, we will begin leasing
another facility in Heerhugowaard in May 2010. It will have
80,000 square feet of warehouse space and
13,600 square feet of office and showroom space. The
facility is expected to be fully operational by mid-2010 and
replace the smaller Heerhugowaard facility we currently lease.
Intellectual
Property
Through our wholly-owned subsidiaries, we own certain
copyrights, trademarks, patents and domain names which we use in
our business and regard as valuable assets.
Payless
Domestic and Payless International
The trademarks and service marks used in our Payless business
include
Payless®,
Payless
ShoeSource®,
Payless
Kids®,
and various logos used on our Payless ShoeSource store signs and
in advertising, including our traditional yellow and orange
signage and our new orange and blue circle P logos.
The domain names include
Payless.com®,
as well as derivatives of Payless ShoeSource. On May 18,
2006, we acquired from Jimlar Corporation the rights to the
trademarks American
Eagletm
and
AEtm
for use on footwear and certain accessories and related domain
names and, in the fourth quarter of 2009, we acquired from
Reebok Above the
Rim®
and related trademarks and copyrights.
10
Currently, we have agreements in place regarding the following
brands:
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Trademark
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Licensor
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Expires
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Various Disney characters and properties
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Disney Enterprises, Inc.
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December 31, 2010
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Blues Clues, SpongeBob SquarePants, and Pro-Slime
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MTV Networks, a division of Viacom International, Inc.
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December 31, 2012
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The Last
Airbender®
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|
MTV Networks, a division of Viacom International, Inc.
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December 31, 2012
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Star Wars and Star Wars: The Clone Wars properties
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Lucasfilm Ltd.
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|
December 31, 2012
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American
Ballet
Theatretm
|
|
Ballet Theatre Foundation, Inc.
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January 31, 2013
|
Dexter®
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HH Brown Shoe Company, Inc.
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December 31, 2014
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Champion®
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HBI Branded Apparel Enterprises, LLC
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June 30, 2015
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We have agreements for development, licensing, marketing and
distribution regarding the following designer brands:
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Trademark
|
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Designer
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Expires
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Abaeté
for
Paylesstm
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Laura Poretzky
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August 31, 2010
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Alice +
Olivia for
Paylesstm
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Stacey Bendet
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|
December 31, 2010
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Lela Rose for
Paylesstm
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Lela Rose
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May 31, 2011
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Teeny Toes
Lela Rose
Collectiontm
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Lela Rose
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May 31, 2011
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Unforgettable
Moments by Lela
Rosetm
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Lela Rose
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May 31, 2011
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Jeff Staple
for
Airwalktm
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Jeff Staple
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October 31, 2011
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Christian
Siriano for
Paylesstm
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Christian Siriano
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November 5, 2011
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We also currently have the exclusive right to use the
Dunkman®
brand. Through agents, we also utilize various character marks
from
time-to-time.
Collective Licensing markets brand marks including
Airwalk®,
Above the
Rim®,
Vision Street
Wear®,
Lamar®,
Hind®,
LTD®,
genetic®,
Dukestm,
Rage®,
Ultra-Wheels®,
and Skate
Attack®.
We are also the exclusive agent for the
Sims®
brand mark. Collective Licensings focus is on the growing
active sport lifestyle market driven predominantly by the skate-
and snowboard-inspired trends. It is positioned with its
authentic brand portfolio to reach both the younger consumer
with strong ties to board sports, as well as appeal to the broad
range of consumers drawn to this established lifestyle and
fashion. Payless has been a licensee of the Airwalk brand since
2003 and features the brand on a wide range of footwear and
accessories. Payless has helped drive Airwalk to be one of the
largest skate footwear brands in America.
PLG
Retail and Wholesale
We have license agreements with a number of third parties both
domestically and internationally pursuant to which apparel and
accessories are designed, manufactured and sold under the
Keds®,
PRO-Keds®,
and Stride Rite
®
trademarks. We also have domestic and international license
agreements for footwear through the
Champion®,
Keds®,
PRO-Keds®,
Saucony®
and Sperry
Top-Sider®
trademarks. We continue to pursue new license opportunities.
We have an existing trademark license agreement with Tommy
Hilfiger Licensing, Inc., pursuant to which we design, market
and sell footwear to children. The license agreement for
childrens footwear expires on October 31, 2010.
11
In addition, we have entered into license agreements with
various licensors, which are summarized in the following table:
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Trademark
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Licensor
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Expires
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iCARLY®
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Viacom International, Inc.
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December 31, 2010
|
Disney®
tradenames & logos
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Disney Consumer Products, Inc.
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|
December 31, 2010
|
Superball®
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Wham-o, Inc.
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|
December 31, 2010
|
Boogie
Board®
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Wham-o, Inc.
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|
December 31, 2010
|
Classic
Peanuts®
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United Feature Syndicate, Inc.
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|
May 31, 2011
|
The World of Eric
Carle®
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Chorion, Ltd
|
|
June 30, 2011
|
Jessica
Simpsontm
|
|
Jessica Simpson
|
|
December 31, 2011
|
Nick
Slimers!®
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|
MTV Networks, a division of Viacom International, Inc.
|
|
December 31, 2011
|
The Last
Airbender®
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|
MTV Networks, a division of Viacom International, Inc.
|
|
December 31, 2011
|
Star Wars and Star Wars: The Clone Wars properties
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Lucasfilm Ltd.
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|
December 31, 2012
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Backlog
PLG
Wholesale
As of January 30, 2010 and as of January 31, 2009 we
had a backlog of orders amounting to approximately
$222 million and approximately $163 million,
respectively. To a significant extent, the backlog at the end of
each fiscal year represents orders for our spring footwear
styles. The majority of these orders are delivered or canceled
during the first quarter of the next fiscal year.
In all of our wholesale businesses, reorders from retail
customers are an important source of revenue to supplement the
orders taken in advance of the season. Over the years, the
importance of reorder activity to a seasons success has
grown as customers, especially larger retailers, have placed
increased reliance on orders during the season. Due to the
variability of the timing between future orders and reorders,
backlog does not necessarily translate directly into sales
results.
Environmental
Liability
In connection with the acquisition of PLG, we acquired a
property with a related environmental liability. The liability
as of January 30, 2010 was $4.8 million,
$3.1 million of which was included as an accrued expense
and $1.7 million of which was included in other long-term
liabilities in the accompanying Consolidated Balance Sheet. The
assessment of the liability and the associated costs were based
upon available information after consultation with environmental
engineers, consultants and attorneys assisting the Company in
addressing these environmental issues. As of January 30,
2010, the estimated cost to address these environmental
conditions were $7.4 million, including $2.6 million
of costs that have already been paid. Actual costs to address
the environmental conditions may change based upon further
investigations, the conclusions of regulatory authorities about
information gathered in those investigations, the inherent
uncertainties involved in estimating conditions in the
environment, and the costs of addressing such conditions.
Available
Information
We file or furnish our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K,
and amendments to those reports pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 with the SEC
electronically. Copies of any of these documents will be
provided in print to any shareholder who submits a request in
writing to Collective Brands, Inc., Attn: Investor Relations,
3231 Southeast Sixth Avenue, Topeka KS 66607 or calls our
Investor Relations Department at
(785) 559-5321.
The public may read or copy any materials we file with the SEC
at the Public Reference Room at 100 F Street N.E.,
Washington, D.C. 20549, on official business days during
the hours of 10:00 a.m. and 3:00 p.m. The public may
obtain information on the
12
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC maintains a website that contains reports, proxy and
information statements, and other information regarding issuers
that file electronically with the SEC. The address of that site
is
http://www.sec.gov.
We maintain an investor relations website at
www.collectivebrands.com. On our investor relations
website, one can access free of charge our reports that are
filed with the SEC, the Guidelines for our Board of Directors,
and the charters for the Board of Directors, the Audit and
Finance Committee and the Compensation, Nominating and
Governance Committee. No portion of our website or the
information contained in or connected to the website is a part
of, or incorporated into, this Annual Report on
Form 10-K.
Directors
of the Company
Listed below are the names and present principal occupations or,
if retired, most recent occupations of the Companys
Directors:
|
|
|
Name
|
|
Principal Occupation
|
|
Management Director
|
|
|
Matthew E.
Rubel(1)
|
|
Chief Executive Officer, President and Chairman of the Board
|
Independent Directors
|
|
|
Daniel Boggan
Jr.(2)
|
|
Retired Senior Vice President of the National Collegiate
Athletic Association
|
Mylle H.
Mangum(1)(3*)
|
|
Chief Executive Officer of IBT Enterprises, LLC
|
John F.
McGovern(1)(2*)
|
|
Former Executive Vice President/Chief Financial Officer of
Georgia-Pacific Corporation
|
Robert F.
Moran(1*)(2)(4)
|
|
President and Chief Executive Officer of PetSmart, Inc.
|
David Scott
Olivet(2)
|
|
Executive Chairman, RED Digital Cinema; Chairman, Oakley; CEO,
Renegade Brands
|
Matthew A.
Ouimet(2)
|
|
President and Chief Operating Officer of Corinthian Colleges,
Inc.
|
Michael A.
Weiss(3)
|
|
President and Chief Executive Officer of Express LLC
|
Robert C.
Wheeler(3)
|
|
Retired Chairman and Chief Executive Officer of Hills Pet
Nutrition, Inc.
|
|
|
|
(1) |
|
Executive Committee Member |
|
(2) |
|
Audit and Finance Committee Member |
|
(3) |
|
Compensation, Nominating and Governance Committee Member |
|
(4) |
|
Non-Management Lead Director |
|
* |
|
Chairman |
13
Executive
Officers of the Company
Listed below are the names and ages of the executive officers of
the Company as of March 26, 2010 and offices held by them
with the Company.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position and title
|
|
Matthew E. Rubel
|
|
|
52
|
|
|
Chief Executive Officer, President and Chairman of the Board
|
LuAnn Via
|
|
|
56
|
|
|
President and Chief Executive Officer Payless
ShoeSource, Inc.
|
Darrel J. Pavelka
|
|
|
54
|
|
|
Executive Vice President Global Supply Chain
|
Douglas J. Treff
|
|
|
52
|
|
|
Executive Vice President Chief Administrative Officer
|
Betty J. Click
|
|
|
47
|
|
|
Senior Vice President Human Resources
|
Michael J. Massey
|
|
|
45
|
|
|
Senior Vice President General Counsel and Secretary
|
Douglas G. Boessen
|
|
|
47
|
|
|
Division Senior Vice President, Chief Financial Officer and
Treasurer
|
Matthew E. Rubel is 52 years old and has served as a
Director since July 2005 and as Chairman of the Board since May
2008. He has served as Chief Executive Officer and President of
Collective Brands, Inc. since July 18, 2005. Prior to
joining Collective Brands, Mr. Rubel was Chairman and Chief
Executive Officer for Cole Haan from 1999 to July 2005. He
served as Executive Vice President, J. Crew Group and Chief
Executive Officer of Popular Club Plan from 1994 to 1999, and in
November 1998, led the sale of Popular from J. Crew to
Fingerhut. While at J. Crew Group, Mr. Rubel was
responsible for all licensing and international activities, as
well as brand marketing and served on its Group Executive
Committee. Mr. Rubel has also served as President and Chief
Executive Officer of Pepe Jeans USA, and President of the
Specialty Division of Revlon. Mr. Rubel served as a
Director of Furniture Brands, Inc. from 2006 to 2008.
LuAnn Via is 56 years old and has served as
President and Chief Executive Officer of Payless since
July 22, 2008. Prior to joining the Company, she served as
Group Divisional President of Charming Shoppes Lane Bryant
and Cacique chains. From January 2006 to June 2007, she served
as President of Charming Shoppes Catherine Stores. She
worked at Sears, Roebuck and Company from 2003 to 2006, serving
as Vice President and General Merchandising Manager for the
retailers footwear, accessories, fine jewelry and intimate
apparel business. She served as Senior Vice President, General
Merchandising Product Development from 1998 to 2003 at Saks,
Inc. And from 1992 to 1998, she served as Executive Vice
President at Trade Am International.
Darrel J. Pavelka is 54 years old and has served as
Executive Vice President Global Supply Chain since
September 2007. Prior to that he served as Senior Vice
President Merchandise Distribution, Planning and
Supply Chain from September 2004 to September 2007. He also
served as Senior Vice President International
Operations and Supply Chain from March 2003 to September 2004,
Senior Vice President Merchandise Distribution from
1999 to 2003, Vice President of Retail Operations for
Division R from 1997 to 1999, Vice President of Stores
Merchandising from 1995 to 1997, Director of Stores
Merchandising from 1990 to 1995, Director of Distribution for
Womens from 1987 to 1990, Manager of Stores Merchandising
for Division R from 1983 to 1987, and Manager of the
Northeast store expansion from 1980 to 1983.
Douglas J. Treff is 52 years old and has served as
the Companys Executive Vice President Chief
Administrative Officer since September 2007. Prior to joining
the Company, he served as Executive Vice President
Chief Administrative Officer for Sears Canada, Inc. from 2006 to
2007. From 2000 to 2006 he served as Senior Vice President and
Chief Financial Officer for Deluxe Corporation and from 1990 to
2000, as Chief Financial Officer and other leadership roles in
finance at Wilsons, The Leather Experts, Inc.
Betty J. Click is 47 years old and has served as
Senior Vice President Human Resources since July
2008. Prior to that, she served as Vice President, HR Operations
and Learning and Development from 2005 to 2008. From 2002 to
2005 she served as Vice President, HR solutions. Prior to
joining Payless, since 1987, she served a range of Human
Resources roles at Verizon Communications and the former GTE.
14
Michael J. Massey is 45 years old and has served as
Senior Vice President General Counsel and Secretary
since March 2003. Prior to that, he served as Vice President of
International Development during 2001, Vice President of
Contract Manufacturing during 2000, Vice President, Group
Counsel Intellectual Property from 1998 to 2000, and Senior
Counsel from 1996 to 1998. Prior to joining Payless,
Mr. Massey was an attorney for The May Department Stores
Company from 1990 to 1996.
Douglas G. Boessen is 47 years old and has served as
Division Senior Vice President, Chief Financial Officer and
Treasurer since December 2008. He previously served as Vice
President, Corporate Controller, since January 2004. From 2000
to 2004, he was Vice President, Financial Planning and Analysis,
from 1999 to 2000 he was Director Strategic Planning
and from 1997 to 1999 he served as Associate Controller for the
Company. Prior to joining Payless, he served as Senior Manager
at Arthur Andersen LLP.
We May be
Unable to Compete Effectively in the Competitive Worldwide
Footwear Industry
We face a variety of competitive challenges from other domestic
and international footwear retailers and wholesalers, including
a number of competitors that have substantially greater
financial and marketing resources than we do. These competitors
include mass-market discount retailers including (but not
limited to) Wal-Mart Stores, Inc., and Target Corporation;
department stores including (but not limited to) Kohls
Corporation, J.C. Penney Company, Inc., Macys, Inc.,
Dillards, Inc. and Nordstrom, Inc.; other retailers
including (but not limited to) DSW, Famous Footwear, The
Childrens Place Retail Stores, Inc., and The Gymboree
Corporation; and wholesalers including (but not limited to)
Asics Corporation, Brooks Sports, Inc., Nike, Inc., The
Timberland Company and Sketchers USA, Inc. We compete with these
footwear retailers on the basis of:
|
|
|
|
|
developing fashionable, high-quality merchandise in an
assortment of sizes, colors and styles that appeals to our
target consumers;
|
|
|
|
anticipating and responding to changing consumer demands in a
timely manner;
|
|
|
|
ensuring product availability and optimizing supply chain
effectiveness;
|
|
|
|
the pricing of merchandise;
|
|
|
|
creating an acceptable value proposition for consumers;
|
|
|
|
providing an inviting, customer friendly shopping environment;
|
|
|
|
using a customer focused sales staff to provide attentive,
product knowledgeable customer service; and
|
|
|
|
providing strong and effective marketing support.
|
Competition in the retail footwear industry has increased.
Mass-market discount retailers aggressively compete with us on
the basis of price and have added significant numbers of
locations. Accordingly, there is substantial pressure on us to
maintain the value proposition of our footwear and the
convenience of our store locations. In addition, it is possible
that mass-market discount retailers will increase their
investment in their retail footwear operations, thereby
achieving greater market penetration and placing additional
competitive pressures on our business. If we are unable to
respond effectively to these competitive pressures, our
business, results of operations and financial condition could be
adversely affected.
The
Worldwide Footwear Industry is Heavily Influenced by General
Economic Cycles
Footwear is a cyclical industry that is heavily dependent upon
the overall level of consumer spending. Purchases of footwear
and related goods tend to be highly correlated with the cycles
of the levels of disposable income of our consumers. As a
result, any substantial deterioration in general economic
conditions could adversely affect our net sales and results of
operations.
The significant challenges faced by the global economy in 2009
and the highly uncertain global economic outlook have materially
adversely affected consumer confidence and spending levels.
These conditions, among other factors, have also materially
adversely affected the global footwear industry. We have taken
steps to mitigate
15
the current environment including managing our operating
structure and focusing our capital on high return investments.
If we are unable to mitigate the impact of the challenging
global economy, our results of operations and financial
condition could be materially adversely affected.
A
Majority of our Operating Expenses are Fixed Costs that are not
Directly Dependent Upon our Sales Performance. As a Result,
Declines in our Operating Performance may be Magnified if We are
Unable to Reduce Expenses in Response to a Sales
Shortfall
A majority of our operating expenses are fixed costs that are
not directly dependent on our sales performance, as opposed to
variable costs, which increase as sales volume increases. These
fixed costs include the leasing costs of our stores, our debt
service expenses and, because stores require minimum staffing
levels, the majority of our labor expenses. If our sales were to
decline, we may be unable to reduce or offset these fixed
operating expenses in the short term. Accordingly, the effect of
any sales decline is magnified because a larger percentage of
our earnings are committed to paying these fixed costs. As a
result, our net earnings and cash flow could be
disproportionately negatively affected as a result of a decline
in sales.
We May be
Unable to Maintain or Increase our Sales Volume and
Margins
Our Payless stores have a substantial market presence in all
50 states and the District of Columbia and we currently
derive a significant majority of our revenue from our
U.S. stores. Our PLG retail stores and our PLG wholesale
businesses derive a significant majority of their revenue from
U.S. sources. Because of our substantial market presence,
and because the U.S. footwear retailing industry is mature,
for us to increase our sales volume on a unit basis and margins
in the United States, we must capture market share from our
competitors. We have attempted to capture additional market
share through a variety of strategies; however, if we are not
successful we may be unable to increase or maintain our sales
volumes and margins in the United States, adversely affecting
our business, results of operations and financial condition.
We May
Have Unseasonable Weather Where our Stores are
Concentrated
We increase our inventory levels to support the increased demand
for our products, as well as to offer styles particularly suited
for the relevant season, such as sandals in the early summer
season and boots during the winter season. If the weather
conditions for a particular season vary significantly from those
typical for such season, such as an unusually cold early summer
or an unusually warm winter, consumer demand for the seasonally
appropriate merchandise that we have available in our stores
could be adversely affected and negatively impact net sales and
margins. Lower demand for seasonally appropriate merchandise may
leave us with an excess inventory of our seasonally appropriate
products
and/or basic
products, forcing us to sell both types of products at
significantly discounted prices and adversely affecting our net
sales margins and operating cash flow. Conversely, if weather
conditions permit us to sell our seasonal product early in the
season, this may reduce inventory levels needed to meet our
customers needs later in that same season. Consequently,
our results of operations are highly dependent on somewhat
predictable weather conditions.
We May be
Unable to Adjust to Constantly Changing Fashion Trends
Our success depends, in large part, upon our ability to gauge
the evolving fashion tastes of our consumers and to provide
merchandise that satisfies such fashion tastes in a timely
manner. The worldwide footwear retailing industry fluctuates
according to changing fashion tastes and seasons, and
merchandise usually must be ordered well in advance of the
season, frequently before consumer fashion tastes are evidenced
by consumer purchases. In addition, the cyclical nature of the
worldwide footwear retailing industry also requires us to
maintain substantial levels of inventory, especially prior to
peak selling seasons when we build up our inventory levels. As a
result, if we fail to properly gauge the fashion tastes of
consumers, or to respond in a timely manner, this failure could
adversely affect consumer acceptance of our merchandise and
leave us with substantial unsold inventory. If that occurs, we
may be forced to rely on markdowns or promotional sales to
dispose of excess, slow-moving inventory, which would negatively
impact financial results.
16
The results of our wholesale businesses are affected by the
buying plans of our customers, which include large department
stores, as well as smaller retailers. No customer accounts for
10% or more of our wholesale business. Our wholesale customers
may not inform us of changes in their buying plans until it is
too late for us to make the necessary adjustments to our product
lines and marketing strategies. While we believe that purchasing
decisions in many cases are made independently by individual
stores or store chains, we are exposed to decisions by the
controlling owner of a store chain that could decrease the
amount of footwear products purchased from us. In addition, the
retail industry periodically experiences consolidation. We face
a risk that our wholesale customers may consolidate,
restructure, reorganize, file for bankruptcy or otherwise
realign in ways that could decrease the number of stores or the
amount of shelf space that carry our products. We also face a
risk that our wholesale customers could develop in-house brands
or utilize the private labeling of footwear products, which
would negatively impact financial results.
We May be
Unsuccessful in Opening New Stores or Relocating Existing Stores
to New Locations, Adversely Affecting our Ability to
Grow
Our growth, in part, is dependent upon our ability to expand our
retail operations by opening and operating new stores, as well
as relocating existing stores to new locations, on a profitable
basis.
Our ability to open new stores and relocate existing stores to
new locations on a timely and profitable basis is subject to
various contingencies, some of which are beyond our control.
These contingencies include our ability to:
|
|
|
|
|
locate suitable store sites;
|
|
|
|
negotiate acceptable lease terms;
|
|
|
|
build-out or refurbish sites on a timely and cost effective
basis;
|
|
|
|
hire, train and retain qualified managers and personnel;
|
|
|
|
identify long-term shopping patterns;
|
|
|
|
obtain adequate capital resources; and
|
|
|
|
successfully integrate new stores into our existing operations.
|
In addition, the opening of stores outside of the United States
is subject to a number of additional contingencies, including
compliance with local laws and regulations and cultural issues.
Also, because we operate a number of our international stores
under joint ventures, issues may arise in our dealings with our
joint venture partners or their compliance with the joint
venture agreements.
We may be unsuccessful in opening new stores or relocating
existing stores for any of these reasons. In addition, we cannot
assure you that, even if we are successful in opening new stores
or relocating existing stores, those stores will achieve levels
of sales and profitability comparable to our existing stores.
We Rely
on Third Parties to Manufacture and Distribute Our
Products
We depend on contract manufacturers to manufacture the
merchandise that we sell. If these contract manufacturers are
unable to secure sufficient supplies of raw materials, or
maintain adequate manufacturing and shipping capacity, they may
be unable to provide us with timely delivery of products of
acceptable quality. In addition, if the prices charged by these
contractors increase for reasons such as increases in the price
of raw materials, increases in labor costs or currency
fluctuations, our cost of manufacturing would increase,
adversely affecting our results of operations. We also depend on
third parties to transport and deliver our products. Due to the
fact that we do not have any independent transportation or
delivery capabilities of our own, if these third parties are
unable to transport or deliver our products for any reason, or
if they increase the price of their services, including as a
result of increases in the cost of fuel, our operations and
financial performance may be adversely affected.
We require our contract manufacturers to meet our standards in
terms of working conditions and other matters before we are
willing to contract with them to manufacture our merchandise. As
a result, we may not be able to obtain the lowest possible
manufacturing costs. In addition, any failure by our contract
manufacturers to meet these
17
standards, to adhere to labor or other laws or to diverge from
our mandated labor practices, and the potential negative
publicity relating to any of these events, could harm our
business and reputation.
We do not have long-term agreements with any of our contract
manufacturers, and any of these manufacturers may unilaterally
terminate their relationship with us at any time. There is also
substantial competition among footwear retailers for quality
manufacturers. To the extent we are unable to secure or maintain
relationships with quality manufacturers, our business could be
harmed.
There are
Risks Associated with Our Importation of Products
We import finished merchandise into the United States and other
countries in which we operate from the Peoples Republic of
China and other countries. Substantially all of this imported
merchandise is subject to:
|
|
|
|
|
customs, duties and tariffs imposed by the governments of
countries into which this merchandise is imported; and
|
|
|
|
penalties imposed for, or adverse publicity relating to,
violations of labor and wage standards by foreign contractors.
|
The United States and countries in which our merchandise is
manufactured or imported may from time to time impose additional
new quotas, tariffs, duties or other restrictions on our
merchandise or adversely change existing restrictions or
interpretation regarding the application timing. We have, for
example, experienced additional taxes and regulation in Ecuador
that has significantly impacted our business in that country.
These additional taxes and regulations could adversely affect
our ability to import,
and/or the
cost of our products which could have a material adverse impact
on the results of operations of our business.
Manufacturers in China are our major suppliers. During 2009,
China was a direct source of approximately 85% of our
merchandise based on cost. In addition to the products we import
directly, a significant amount of the products we purchase from
other suppliers has been imported from China. Any deterioration
in the trade relationship between the United States and China or
any other disruption in our ability to import footwear,
accessories, or other products from China or any other country
where we have stores could have a material adverse effect on our
business, financial condition or results of operations.
In addition to the risks of foreign sourcing stemming from
international trade laws, there are also operational risks of
relying on such imported merchandise. Our ability to
successfully import merchandise derived from foreign sources
into the United States is dependent on stable labor conditions
in the major ports of the United States. Any instability or
deterioration of the domestic labor environment in these ports,
such as the work stoppage at West Coast ports in 2002, could
result in increased costs, delays or disruption in product
deliveries that could cause loss of revenue, damage to customer
relationships or materially affect our business.
If we are unable to maintain our current Customs-Trade
Partnership Against Terrorism (C-TPAT) status, it
would increase the time it takes to get products into our
stores. Such delays could materially impact our ability to move
the current product in our stores to meet customer demand.
Our
International Operations are Subject to Political and Economic
Risks
In 2009, approximately 16% of our sales were generated outside
the United States and almost all of our merchandise was
manufactured outside the United States. We are accordingly
subject to a number of risks relating to doing business
internationally, any of which could significantly harm our
business, including:
|
|
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|
|
political and economic instability;
|
|
|
|
inflation;
|
|
|
|
exchange controls and currency exchange rates;
|
|
|
|
foreign tax treaties and policies;
|
|
|
|
restrictions on the transfer of funds to and from foreign
countries;
|
18
|
|
|
|
|
ability to import product; and
|
|
|
|
increase in duty rates
|
Certain countries have increased or are considering increases to
duty rates. If the Company is unable to mitigate the impact of
these increased duty rates or any other costs, it would
adversely impact the profitability of our foreign operations
which would adversely impact our financial position and results
of operations.
Our financial performance on a U.S. dollar denominated
basis is also subject to fluctuations in currency exchange
rates. These fluctuations could cause our results of operations
to vary materially.
From time to time, we may enter into agreements seeking to
reduce the effects of our exposure to currency fluctuations, but
these agreements may not be effective in reducing our exposure
to currency fluctuations or may not be available at a cost
effective price.
We May be
Unable to Effectively Protect Our Trademarks and Other
Intellectual Property Rights
We believe that our trademarks and other intellectual property
are important to our business and are generally sufficient to
permit us to carry on our business as presently conducted. We
cannot, however, know whether we will be able to secure patents
or trademark protection for our intellectual property in the
future or whether that protection will be adequate for future
products. Further, we face the risk of ineffective protection of
intellectual property rights in the countries where we source
and distribute our products. If we are compelled to prosecute
infringing parties or defend our intellectual property, we will
incur additional costs. Costs associated with the defense of our
intellectual property could be substantial and occupy a
significant amount of management time and resources.
Adverse
Changes in Our Results of Operations and Financial Position
Could Impact Our Ability to Meet Our Debt Covenants
We are subject to financial covenants under our Term Loan
Facility, Revolving Credit Facility and our Senior Subordinated
Notes (collectively, the Credit Facilities). These
financial covenants are based largely on our results of
operations and financial position. In the event of adverse
changes in our results of operations or financial position,
including those resulting from changes in generally accepted
accounting principles, we may be unable to comply with the
financial covenants contained in our Credit Facilities in which
case we would be in default. To avoid a default, we may seek an
amendment that would likely involve significant up front costs,
increased interest rate margins and additional covenants. If we
were unable to negotiate an amendment of our Credit Facilities
and defaulted on them we could be required to make immediate
repayment. A default could also trigger increases in interest
rates and difficulty obtaining other sources of financing. Such
an event would adversely impact our financial position and
results of operations.
We May be
Subject to Liability if We Infringe the Trademarks or Other
Intellectual Property Rights of Third Parties
We may be subject to liability if we infringe the trademarks or
other intellectual property rights of third parties. If we were
to be found liable for any such infringement, we could be
required to pay substantial damages and could be subject to
injunctions preventing further infringement. Litigation could
occupy a significant amount of management time and resources.
Further, large verdicts and judgments against us may increase
our exposure to legal claims in the future. Such payments and
injunctions could adversely affect our financial results. See
also Legal Proceedings, included in this
Form 10-K.
We Rely
on Brands We Do Not Own
We are increasing our reliance on brands, some of which we do
not own. As discussed in Item 1 of this
Form 10-K
under the caption Intellectual Property, we license
trademarks and brands through various agreements which expire on
dates through 2015. We, through our agents, also utilize various
character marks from
time-to-time.
If we are unable to renew or replace any trademark, brand or
character mark that accounts for a significant portion of our
revenue, our results could be adversely affected.
19
Adverse
Occurrences at Our Distribution Centers Could Negatively Impact
Our Business
We currently use six distribution centers, which serve as the
source of replenishment of inventory for our stores and serve
our wholesale operations. If complications arise with any of our
operating distribution centers or our distribution centers are
severely damaged or destroyed, our other distribution centers
may not be able to support the resulting additional distribution
demands and we may be unable to locate alternative persons or
entities capable of doing so. This may adversely affect our
ability to deliver inventory on a timely basis, which could
adversely affect our results of operations.
Unstable
Credit Markets Could Affect Our Ability to Obtain
Financing
In the event we need additional financing, there can be no
assurances that these funds will be available on a timely basis
or on reasonable terms. Failure to obtain such financing could
constrain our ability to operate or grow the business. In
addition, any ratings downgrade of our securities, or any
negative impacts on the credit market, generally, could
negatively impact the cost or availability of capital.
There are
Risks Associated with Our Acquisitions
Any acquisitions or mergers by us will be accompanied by the
risks commonly encountered in acquisitions of companies. These
risks include, among other things, higher than anticipated
acquisition costs and expenses, the difficulty and expense of
integrating the operations and personnel of the companies and
the loss of key employees and customers as a result of changes
in management.
In addition, geographic distances may make integration of
acquired businesses more difficult. We may not be successful in
overcoming these risks or any other problems encountered in
connection with any acquisitions.
Our acquisitions may cause large one-time expenses or create
goodwill or other intangible assets that could result in
significant asset impairment charges in the future. We also make
certain estimates and assumptions in order to determine purchase
price allocation and estimate the fair value of acquired assets
and liabilities. If our estimates or assumptions used to value
acquired assets and liabilities are not accurate, we may be
exposed to gains or losses that may be material.
Adverse
Changes in our Market Capitalization or Anticipated Future
Operating Performance May be an Indication of Goodwill or Other
Intangible Asset Impairment, Which Could Have a Material Impact
on our Financial Position and Results of Operations
We assess goodwill, which is not subject to amortization, for
impairment on an annual basis or at any other interim reporting
date when events or changes in circumstances indicate that the
book value of these assets may exceed their fair value. We
develop an estimate of the fair value of each reporting unit
using both a market approach and an income approach. A
significant adverse change in our market capitalization or
anticipated future operating performance could result in the
book value of a reporting unit exceeding its fair value,
resulting in a goodwill impairment charge. We recorded
$42.0 million of goodwill impairment charges in 2008. If
the Companys market value were to significantly decline we
may have a resulting impairment charge which, if significant,
would adversely impact our financial position and results of
operations.
We also assess certain finite and indefinite lived intangible
assets for impairment on an annual basis or at any other interim
reporting date when events or changes in circumstances indicate
that the book value of these assets may exceed their fair value.
Any significant changes in our anticipated future operating
performance may be an indication of impairment to our tradenames
or any other intangible asset. We recorded $88.2 million of
impairment charges related to our indefinite-lived tradenames in
2008. Any additional impairment charges, if significant, would
adversely impact our financial position and results of
operations.
The
Operation of our Business is Dependent on our Information
Systems
We depend on a variety of information technology systems for the
efficient functioning of our business and security of
information. Our inability to continue to maintain and upgrade
these information systems or to meet third party data security
standards could disrupt or reduce the efficiency of our
operations or result in fines. In
20
addition, potential problems with the implementation of new or
upgraded systems as our business grows or with maintenance of
existing systems could also disrupt or reduce the efficiency of
our operations.
An
Outbreak of Infectious Diseases May Have a Material Adverse
Effect on Our Ability to Purchase Merchandise from Manufacturers
and Our Operations Generally
An outbreak and spread of infectious diseases in countries in
which our manufacturers are located could impact the
availability or timely delivery of merchandise. Although our
ability to purchase and import our merchandise has not been
negatively impacted to date, an outbreak of infectious diseases
could prevent the manufacturers we use from manufacturing our
merchandise or hinder our ability to import those goods to the
countries in which our stores are located, either of which could
have an adverse effect on our results of operations.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
Collective Brands uses six distribution facilities worldwide:
1. We lease an 802,000 square foot distribution center
(DC) in Brookville, Ohio which currently serves
approximately 2,200 Payless stores in North America and the
Stride Rite Childrens Group.
2. We own a 520,000 square foot DC in Louisville,
Kentucky which serves wholesale operations in the United States
for Keds, Sperry Top-Sider, and Saucony.
3. We lease a 414,000 square foot DC in Redlands,
California which serves approximately 1,800 Payless stores in
North America.
4. We lease 46,000 square feet of office and
distribution space in Cambridge, Ontario to support Stride Rite
Canadian wholesale operations.
5. We lease 39,000 square feet of distribution space
in Heerhugowaard, The Netherlands to support our European
operations.
6. We contract with a third-party in Colon, Panama to
operate a distribution facility for our Latin America operations.
We also own a 409,000 square foot DC in Huntington, Ind.
which was closed in 2009. We will begin leasing another facility
in Heerhugowaard as of May 1, 2010. It will have
80,000 square feet of warehouse space and
13,600 square feet of office and showroom space. The
facility is expected to be fully operational by mid-2010 and
replace the smaller Heerhugowaard facility we currently lease.
Payless
Domestic and Payless International
We lease substantially all of our Payless stores. Our leases
typically have an initial term of five or ten years, and either
one or two renewal options. During 2010, approximately 1,200 of
our leases are due to expire. This includes approximately 300
leases that, as of January 30, 2010, were
month-to-month
tenancies. Of the expiring leases, approximately 200 have
modifications that are pending execution. Leases usually require
payment of base rent, applicable real estate taxes, common area
expenses and, in some cases, percentage rent based on the
stores sales volume.
In addition to our stores, we own a 290,000 square foot
headquarters building in Topeka, Kansas. We lease approximately
10,000 square feet of office space in New York, N.Y. for
our design center. We also lease 6,300 square feet of
office space for our Collective Licensing headquarters in
Englewood, Colorado. We lease office space totaling nearly
19,000 square feet in Latin America and another
3,800 square feet in Canada.
21
PLG
Retail and PLG Wholesale
We lease all of our PLG stores. Our leases typically have an
initial term of 10 years with no renewal options. Leases
usually require payment of base rent, applicable real estate
taxes, common area expenses and, in some cases, percentage rent
based on the stores sales volume and merchants association
fees.
We lease approximately 148,000 square feet of office space
at our PLG headquarters building in Lexington, Mass. We also
lease approximately 24,000 square feet of call center space
in Richmond, Ind. and 10,000 square feet in New York, N.Y.,
as showroom.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
Settled
During the year, the Company settled the following legal
proceedings:
adidas
America, Inc. and adidas-Salomon AG v. Payless ShoeSource,
Inc.
On or about December 20, 2001, a First Amended Complaint
was filed against Payless ShoeSource, Inc. (Payless)
in the U.S. District Court for the District of Oregon,
captioned adidas America, Inc. and adidas-Salomon AG
(adidas) v. Payless ShoeSource, Inc. seeking
injunctive relief and unspecified monetary damages for trademark
and trade dress infringement, unfair competition, deceptive
trade practices and breach of contract.
During the first quarter of 2008, the Company recorded a
$30.0 million pre-tax liability related to loss
contingencies associated with this matter. This liability, which
was recorded within accrued expenses on the Companys
Consolidated Balance Sheet, resulted in an equal amount being
charged to cost of sales.
In the fourth quarter of 2009, the Company and adidas entered
into a confidential settlement agreement to settle all pending
litigation and administrative claims among the parties,
including those among the parties Canadian subsidiaries.
The payment of the confidential settlement amount, including a
payment to the State of Oregon pursuant to a separate agreement
related to its claim for a portion of the punitive damages
awarded, did not have a material affect on the Companys
results of operations in 2009. In addition to the cash
settlement, the Company and adidas agreed that the terms of the
permanent injunction issued by the Court would remain in place.
The Company has also reached agreements with all of its various
relevant insurers with respect to their coverage obligations for
the claims by adidas. Pursuant to those agreements, the Company
has released these insurers from any further obligations with
respect to adidas claims in the action under applicable
policies.
In the
Matter of Certain Foam Footwear
On or about April 3, 2006, Crocs Inc. filed two companion
actions against several manufacturers of foam clog footwear
asserting claims for patent infringement, trade dress
infringement, and unfair competition. One complaint was filed
before the United States International Trade Commission
(ITC) in Washington D.C. The other complaint was
filed in federal district court in Colorado. The Companys
wholly-owned subsidiary, Collective Licensing International, LLC
(Collective Licensing), was named as a Respondent in
the ITC Investigation, and as a Defendant in the Colorado
federal court action. The Company settled all claims associated
with these complaints in the third quarter of 2009, the results
of which did not have a material effect on the Companys
financial position, results of operations or cash flows.
Pending
Other than as described below, there are no pending legal
proceedings other than ordinary, routine litigation incidental
to the business to which the Company is a party or of which its
property is subject, none of which the Company expects to have a
material impact on its financial position, results of operations
and cash flows.
American
Eagle Outfitters and Retail Royalty Co. v. Payless
ShoeSource, Inc.
On or about April 20, 2007, a Complaint was filed against
the Company in the U.S. District Court for the Eastern
District of New York, captioned American Eagle Outfitters and
Retail Royalty Co. (AEO) v. Payless ShoeSource,
Inc. (Payless). The Complaint seeks injunctive
relief and unspecified monetary damages for false
22
advertising, trademark infringement, unfair competition, false
description, false designation of origin, breach of contract,
injury to business reputation, deceptive trade practices, and to
void or nullify an agreement between the Company and third party
Jimlar Corporation. Plaintiffs filed a motion for preliminary
injunction on or about May 7, 2007. On December 20,
2007, the Magistrate Judge who heard oral arguments on the
pending motions issued a Report and Recommendation
(R&R) recommending that a preliminary
injunction issue requiring the Company, in marketing its
American Eagle products, to prominently display a
disclaimer stating that: AMERICAN EAGLE by Payless is not
affiliated with AMERICAN EAGLE OUTFITTERS. The Magistrate
Judge also recommended that Payless stop using Exclusively
at Payless in association with its American Eagle
products. The parties then filed objections to this R&R
and, on January 23, 2008, the District Court Judge issued
an order remanding the matter back to the Magistrate Judge and
instructing him to consider certain arguments raised by the
Company in its objections. On June 6, 2008, the Magistrate
Judge issued a Supplemental Report and Recommendation
(Supp. R&R), modifying his earlier finding,
stating that AEO had not established a likelihood of success on
the merits of its breach of contract claim, and recommending
denial of the Companys request for an evidentiary hearing.
The parties again filed objections and, on July 7, 2008,
the District Court Judge entered an order adopting the
Magistrates December 20, 2007 R&R, as modified
by the June 6, 2008 Supp. R&R. The Company believes it
has meritorious defenses to the claims asserted in the lawsuit
and filed its answer and counterclaim on July 21, 2008. On
August 27, 2008, the Magistrate Judge issued an R&R
that includes a proposed preliminary injunction providing
additional detail for, among other things, the manner of
complying with the previously recommended disclaimer. On
September 15, 2008, the Company filed objections to the
proposed preliminary injunction. On October 20, 2008, the
District Court Judge issued an order deeming the objections to
be a motion for reconsideration and referring them back to the
Magistrate Judge. Later that same day, the Magistrate Judge
issued a revised proposed preliminary injunction incorporating
most of the modifications proposed in the Companys
objections. On November 6, 2008, the parties filed
objections to the revised proposed preliminary injunction. On
November 10, 2008, the Court entered a preliminary
injunction. An estimate of the possible loss, if any, or the
range of loss cannot be made and therefore the Company has not
accrued a loss contingency related to this matter. However, the
ultimate resolution of this matter could have a material adverse
effect on the Companys financial position, results of
operations and cash flows.
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
There were approximately 9,400 registered holders of the
Companys Common Stock as of January 30, 2010,
compared to approximately 9,600 registered holders as of
January 31, 2009.
Common
Stock and Market Prices
The Companys common stock is listed on the New York Stock
Exchange under the trading symbol PSS. The quarterly intraday
price ranges of the common stock in 2009 and 2008 were:
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2009
|
|
2008
|
Fiscal Quarter
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
First
|
|
$
|
15.30
|
|
|
$
|
7.11
|
|
|
$
|
17.94
|
|
|
$
|
10.86
|
|
Second
|
|
|
16.74
|
|
|
|
12.53
|
|
|
|
13.48
|
|
|
|
8.86
|
|
Third
|
|
|
21.85
|
|
|
|
13.62
|
|
|
|
21.00
|
|
|
|
9.10
|
|
Fourth
|
|
|
23.82
|
|
|
|
18.02
|
|
|
|
13.18
|
|
|
|
3.85
|
|
Year
|
|
$
|
23.82
|
|
|
$
|
7.11
|
|
|
$
|
21.00
|
|
|
$
|
3.85
|
|
Since becoming a public company in 1996, we have not paid a cash
dividend on outstanding shares of common stock. We are subject
to certain restrictions contained in our senior secured
revolving loan facility, the indenture governing our
8.25% senior subordinated notes and our term loan which
restrict our ability to pay dividends. We do not currently plan
to pay any dividends.
23
Recent
Sales of Unregistered Securities
On May 21, 2009, May 22, 2008, and May 21, 2007,
37,937 shares, 14,136 shares and 5,888 shares,
respectively, were credited to an account under the
Companys Restricted Stock Plan for Non-Management
Directors as the annual restricted stock grant portion of their
directors fees. In addition, the following directors
received a prorated directors fee based on their date of
election as a director during the year: Mr. Ouimet received
3,940 shares on June 30, 2008 and Mr. Moran
received 412 shares on March 1, 2007. Each director is
permitted to defer receipt of a portion of their compensation
including their annual restricted stock grant pursuant to the
Companys Deferred Compensation Plan for Non-Management
Directors. In the past three years, non-management directors
have deferred an aggregate of 61,263 shares under the
Deferred Compensation Plan for Non-Management Directors. These
grants were made as partial compensation for the
recipients services as directors. The offer and issuance
of these securities are exempt from registration under
Section 4(2) of the Securities Act of 1933 and the rules
and regulations promulgated thereunder, as transactions by an
issuer not involving any public offering or alternatively,
registration of such shares was not required because their
issuance did not involve a sale under
Section 2(3) of the Securities Act of 1933.
Issuer
Purchases of Equity Securities
The following table provides information about purchases by the
Company (and its affiliated purchasers) during the quarter ended
January 30, 2010, of equity securities that are registered
by the Company pursuant to Section 12 of the Exchange Act:
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|
|
|
|
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|
|
|
|
|
|
|
|
Total Number of
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
Average
|
|
|
Shares Purchased
|
|
|
Value of Shares
|
|
|
|
Total Number
|
|
|
Price
|
|
|
as Part of Publicly
|
|
|
That May Yet Be
|
|
|
|
of Shares
|
|
|
Paid per
|
|
|
Announced Plans
|
|
|
Purchased Under the
|
|
Period
|
|
Purchased(1)
|
|
|
Share
|
|
|
or Programs
|
|
|
Plans or Programs
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
(In millions)
|
|
|
11/01/09 11/28/09
|
|
|
3
|
|
|
$
|
20.47
|
|
|
|
|
|
|
$
|
241.30
|
|
11/29/09 01/02/10
|
|
|
180
|
|
|
|
22.91
|
|
|
|
176
|
|
|
|
237.30
|
|
01/03/10 01/30/10
|
|
|
47
|
|
|
|
22.66
|
|
|
|
43
|
|
|
|
236.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
230
|
|
|
$
|
22.82
|
|
|
|
219
|
|
|
$
|
236.30
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes an aggregate of approximately eleven thousand shares of
our common stock that was repurchased in connection with our
employee stock purchase and stock incentive plans. |
|
(2) |
|
On March 2, 2007, our Board of Directors authorized an
aggregate of $250 million of share repurchases. The timing
and amount of share repurchases, if any, are limited by the
terms of our agreements governing the Credit Facilities. |
24
New York
Stock Exchange Corporate Governance Matters
The graph below compares the cumulative total stockholder return
on Collective Brands, Inc. Common Stock against the cumulative
returns of the Standard and Poors Corporation Composite
Index (the S&P 500 Index), and the Peer Group.
Most of the companies included in this Peer Group are
competitors and many of them were used in determining bonuses
under the Companys performance-based incentive plans.
Comparison
of Five Fiscal Year Cumulative Returns of the Company,
the S&P 500 Index and Peer Group
Investment Value at End of Fiscal Year:
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|
|
|
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|
|
|
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|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
Collective Brands, Inc.
|
|
|
|
100.00
|
|
|
|
|
206.61
|
|
|
|
|
304.00
|
|
|
|
|
153.04
|
|
|
|
|
92.78
|
|
|
|
|
171.13
|
|
S&P 500 Index
|
|
|
|
100.00
|
|
|
|
|
111.62
|
|
|
|
|
128.40
|
|
|
|
|
126.05
|
|
|
|
|
76.42
|
|
|
|
|
101.75
|
|
Peer Group
|
|
|
|
100.00
|
|
|
|
|
96.07
|
|
|
|
|
114.30
|
|
|
|
|
104.16
|
|
|
|
|
65.56
|
|
|
|
|
116.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
The graph assumes $100 was invested on January 29, 2005,
(the end of fiscal 2004) in Collective Brands, Inc. Common
Stock, in the S&P 500 Index, and the Peer Group and assumes
the reinvestment of dividends.
Companies comprising the Peer Group are: The Gap, Inc., Limited
Brands, Inc., V. F. Corporation, Skechers USA, Inc., The
Timberland Company, Ross Stores, Inc., The TJX Companies, Inc.,
Brown Shoe Company, Inc., Genesco Inc., Shoe Carnival, Inc., The
Finish Line, Inc., and Foot Locker, Inc.
25
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
Our summary consolidated financial information set forth below
should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our Notes to Consolidated Financial
Statements, included elsewhere in this
Form 10-K.
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|
|
|
|
|
|
|
|
|
|
Fiscal
Year(1)
|
|
|
|
2009
|
|
|
2008
|
|
|
2007(2)(3)(4)
|
|
|
2006(5)
|
|
|
2005
|
|
|
|
(Dollars in millions, except per share)
|
|
|
Selected Statements of Earnings (Loss) Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
3,307.9
|
|
|
$
|
3,442.0
|
|
|
$
|
3,035.4
|
|
|
$
|
2,796.7
|
|
|
$
|
2,665.7
|
|
Total cost of
sales(6)
|
|
|
2,166.9
|
|
|
|
2,432.8
|
|
|
|
2,044.5
|
|
|
|
1,821.0
|
|
|
|
1,777.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
1,141.0
|
|
|
|
1,009.2
|
|
|
|
990.9
|
|
|
|
975.7
|
|
|
|
888.6
|
|
Selling, general and administrative expenses
|
|
|
982.4
|
|
|
|
1,007.2
|
|
|
|
899.4
|
|
|
|
808.5
|
|
|
|
767.1
|
|
Impairment of
goodwill(6)
|
|
|
|
|
|
|
42.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
charges(7)
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.8
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) from continuing operations
|
|
|
158.5
|
|
|
|
(40.2
|
)
|
|
|
91.3
|
|
|
|
166.4
|
|
|
|
117.7
|
|
Interest expense (income), net
|
|
|
59.7
|
|
|
|
67.1
|
|
|
|
32.3
|
|
|
|
(3.5
|
)
|
|
|
7.4
|
|
Loss on extinguishment of debt
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before income taxes
|
|
|
97.6
|
|
|
|
(107.3
|
)
|
|
|
59.0
|
|
|
|
169.9
|
|
|
|
110.3
|
|
Provision (benefit) for income taxes
|
|
|
9.4
|
|
|
|
(48.0
|
)
|
|
|
8.6
|
|
|
|
39.9
|
|
|
|
30.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
88.2
|
|
|
|
(59.3
|
)
|
|
|
50.4
|
|
|
|
130.0
|
|
|
|
79.5
|
|
Loss from discontinued operations, net of income
taxes(8)
|
|
|
0.1
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
(3.4
|
)
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) before cumulative effect of change in
accounting principle
|
|
|
88.3
|
|
|
|
(60.0
|
)
|
|
|
50.4
|
|
|
|
126.6
|
|
|
|
73.5
|
|
Cumulative effect of change in accounting principle, net of
income taxes and noncontrolling
interest(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
88.3
|
|
|
|
(60.0
|
)
|
|
|
50.4
|
|
|
|
126.6
|
|
|
|
69.4
|
|
Net earnings attributable to noncontrolling
interests(10)
|
|
|
(5.6
|
)
|
|
|
(8.7
|
)
|
|
|
(7.7
|
)
|
|
|
(4.6
|
)
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Collective Brands,
Inc.(10)
|
|
$
|
82.7
|
|
|
$
|
(68.7
|
)
|
|
$
|
42.7
|
|
|
$
|
122.0
|
|
|
$
|
66.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share from continuing operations
attributable to Collective Brands, Inc. common shareholders
|
|
$
|
1.29
|
|
|
$
|
(1.08
|
)
|
|
$
|
0.66
|
|
|
$
|
1.89
|
|
|
$
|
1.13
|
|
Diluted earnings (loss) per share from continuing operations
attributable to Collective Brands, Inc. common shareholders
|
|
$
|
1.28
|
|
|
$
|
(1.08
|
)
|
|
$
|
0.65
|
|
|
$
|
1.87
|
|
|
$
|
1.12
|
|
Selected Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
659.2
|
|
|
$
|
556.5
|
|
|
$
|
525.1
|
|
|
$
|
526.3
|
|
|
$
|
516.0
|
|
Property and equipment, net
|
|
|
464.2
|
|
|
|
521.4
|
|
|
|
551.0
|
|
|
|
421.2
|
|
|
|
385.1
|
|
Total assets
|
|
|
2,284.3
|
|
|
|
2,251.3
|
|
|
|
2,415.2
|
|
|
|
1,427.4
|
|
|
|
1,314.5
|
|
Total long-term
debt(11)
|
|
|
849.3
|
|
|
|
913.2
|
|
|
|
922.3
|
|
|
|
202.1
|
|
|
|
204.6
|
|
Collective Brands, Inc. shareowners
equity(12)
|
|
|
735.2
|
|
|
|
622.3
|
|
|
|
702.9
|
|
|
|
700.1
|
|
|
|
652.0
|
|
Selected Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
84.0
|
|
|
$
|
129.2
|
|
|
$
|
167.4
|
|
|
$
|
118.6
|
|
|
$
|
64.3
|
|
Present value of operating leases
|
|
|
1,072.3
|
|
|
|
1,123.5
|
|
|
|
1,203.5
|
|
|
|
1,011.9
|
|
|
|
945.7
|
|
Net sales growth, continuing operations
|
|
|
(3.9
|
)%
|
|
|
13.4
|
%
|
|
|
8.5
|
%
|
|
|
4.9
|
%
|
|
|
0.4
|
%
|
Same-store sales growth, continuing
operations(13)
|
|
|
(2.3
|
)%
|
|
|
(3.6
|
)%
|
|
|
(0.9
|
)%
|
|
|
4.0
|
%
|
|
|
2.6
|
%
|
Return on equity, including discontinued operations
|
|
|
13.3
|
%
|
|
|
(9.8
|
)%
|
|
|
6.1
|
%
|
|
|
18.7
|
%
|
|
|
11.2
|
%
|
Return on net assets, including discontinued operations
|
|
|
8.5
|
%
|
|
|
1.8
|
%
|
|
|
8.0
|
%
|
|
|
12.3
|
%
|
|
|
9.9
|
%
|
Return on invested capital, continuing operations
|
|
|
9.3
|
%
|
|
|
(1.4
|
)%
|
|
|
6.2
|
%
|
|
|
14.5
|
%
|
|
|
10.3
|
%
|
Stores open (at year-end)
|
|
|
4,833
|
|
|
|
4,877
|
|
|
|
4,892
|
|
|
|
4,572
|
|
|
|
4,605
|
|
|
|
|
(1) |
|
All years include 52 weeks, except 2006, which includes
53 weeks. The reporting for our operations in the Central
and South American Regions uses a December 31 year-end. |
26
|
|
|
(2) |
|
During 2007, we adopted new accounting guidance related to
accounting for uncertainty in income taxes. See Note 13
Income Taxes under the Notes to Consolidated
Financial Statements included in Item 8, Financial
Statements and Supplementary Data of this
Form 10-K. |
|
(3) |
|
During 2007, we adopted new defined benefit pension and other
postretirement plans accounting guidance. This guidance required
us to recognize a net liability or asset and an offsetting
adjustment to accumulated other comprehensive income (loss)
(AOCI) to report the funded status of defined
benefit pension and other postretirement benefit plans. |
|
(4) |
|
Beginning in 2007, results include the effects of the
acquisitions of PLG (acquired August 17, 2007) and
Collective Licensing, Inc. (acquired March 30,
2007) as of the date of those acquisitions. |
|
(5) |
|
During 2006, we adopted the fair value recognition provisions of
the stock compensation guidance accounting framework and, as
such, subsequent to the date of adoption, compensation cost for
share-based awards is based on the grant-date fair value
estimate. |
|
(6) |
|
In the fourth quarter of 2008, we recorded charges of
$42.0 million related to the impairment of goodwill and, as
a component of total cost of sales, $88.2 million related
to the impairment of our Keds tradename and Stride Rite
tradename. |
|
(7) |
|
In all years presented, the restructuring charges relate to our
2004 decision to exit all Parade, Peru and Chile stores, as well
as the closure of approximately 26 Payless ShoeSource stores and
the elimination of approximately 200 management and
administrative positions. |
|
(8) |
|
During 2006, we exited retail operations in Japan and closed its
one store location. The financial results for retail operations
in Japan have been reflected as discontinued operations for all
periods presented. In addition, as a result of the 2004
restructuring, the results of operations for Parade, Peru, Chile
and 26 Payless closed stores are classified as discontinued
operations for all periods presented. |
|
(9) |
|
We adopted asset retirement obligation accounting guidance in
the fourth quarter of 2005, which constituted a change in
accounting principle as of that date. |
|
(10) |
|
Beginning in 2009, we adopted new noncontrolling interest
guidance, which requires us to report net earnings at amounts
for both the Collective Brands, Inc. and our noncontrolling
interests. The impact of this adoption has been retrospectively
applied to all years presented. |
|
(11) |
|
Excluded from total long-term debt for 2005 and 2006 are demand
notes payable entered into to finance our subsidiaries in the
Central American Region. During 2005 and 2006, we maintained
certificates of deposit, in amounts equal to those demand notes,
as compensating balances to collateralize those notes payable.
These demand notes payable were paid in 2007. |
|
(12) |
|
During 2005, 2006, 2007, 2008 and 2009 we repurchased
$71.2 million (3.3 million shares),
$129.3 million (5.0 million shares),
$48.4 million (2.4 million shares), $1.9 million
(153 thousand shares), and $7.6 million (389 thousand
shares) respectively, of common stock under our stock repurchase
programs and in connection with our employee stock purchase,
deferred compensation and stock incentive plans. |
|
(13) |
|
Same-store sales are presented on a 52 week fiscal basis
for all years. Same-store sales are calculated on a weekly basis
and exclude liquidation sales. If a store is open the entire
week in each of the last two years being compared, its sales are
included in the same-store sales calculation for the week. PLG
stores began to be included in this calculation in fiscal year
2009. |
27
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Overview
The following Managements Discussion and Analysis of
Financial Condition and Results of Operations
(MD&A) is intended to help the reader
understand Collective Brands, Inc., our operations and our
present business environment. MD&A is provided as a
supplement to and should be read in connection
with our Consolidated Financial Statements and the
accompanying notes thereto contained in Item 8 of this
report. MD&A includes the following sections:
|
|
|
|
|
Our Business a general description of our
business and its history, our strategy and key 2009 events.
|
|
|
|
Consolidated Review of Operations an analysis
of our consolidated results of operations for the three years
presented in our Consolidated Financial Statements.
|
|
|
|
Reporting Segment Review of Operations an
analysis of our results of operations for the three years
presented in our Consolidated Financial Statements for our four
reporting segments: Payless Domestic, Payless International, PLG
Retail and PLG Wholesale.
|
|
|
|
Liquidity and Capital Resources an analysis
of cash flows, aggregate financial commitments and certain
financial condition ratios.
|
|
|
|
Critical Accounting Policies a discussion of
our critical accounting policies that involve a higher degree of
judgment or complexity. This section also includes the impact of
new accounting standards.
|
Our
Business
Collective Brands, Inc. consists of three lines of business:
Payless ShoeSource (Payless), Collective Brands
Performance + Lifestyle Group (PLG), and Collective
Licensing. We operate a hybrid business model that includes
retail, wholesale, licensing, digital commerce, and franchising
businesses. Payless is one of the largest footwear retailers in
the Western Hemisphere. It is dedicated to democratizing fashion
and design in footwear and accessories and inspiring fun,
fashion possibilities for the family at a great value. PLG
markets products for children and adults under well-known brand
names, including Stride
Rite®,
Keds®,
Sperry
Top-Sider®,
and
Saucony®.
Collective Licensing is a youth lifestyle marketing and global
licensing business within the Payless Domestic segment.
Our mission is to become the leader in bringing compelling
lifestyle, performance and fashion brands for footwear and
accessories to consumers worldwide. Our strategy has four
strategic themes: consumer connections; powerful brands;
operational excellence; and dynamic growth.
We strive to create meaningful connections with consumers and
meet their varied desires for style, performance, quality and
value. We do so by building and leveraging deep consumer
insights that are intended to allow us to continually anticipate
trends and increase our relevance to our consumers
lifestyles. In addition, we strive to create outstanding
experiences at each touch point with consumers
online, in our stores and with business partners.
We are building a diverse portfolio of brands that forge
emotional connections with target consumers. Each of our brands
is infused with unique qualities to meet the lifestyle and
aspirational needs of our consumers. Our messaging communicates
each brands essence and helps create the connection
between our brands and their target consumers.
We are committed to executing core processes at a
best-in-class
level. These core processes include: consumer insight, product
creation, branding, supply chain and logistics, and talent
development. We also leverage new technologies to streamline and
enable new business processes. We strive to consistently deliver
effective and efficient solutions to serve our customers and
consumers.
We are extending our brand platforms across global markets and
into other relevant categories from a traditional base in
footwear. We are also building out all relevant delivery
channels for all of our brands in wholesale, retail, licensing
and digital commerce/direct-to-consumer. In addition, we plan to
continue to grow our portfolio of brands through internal
development, licensing and acquisition.
28
We acquired Collective Licensing on March 30, 2007 and PLG
on August 17, 2007. The results of these acquisitions are
included in our Consolidated Financial Statements as of those
dates. The Company used cash on hand to fund the acquisition of
Collective Licensing and the proceeds from a $725 million
term loan as well as cash on hand to fund the acquisition of PLG.
Payless
Over 4,400 retail stores in 19 countries and territories in
North America, the Caribbean, Central America, South America and
the Middle East operate under the Payless name. Our mission is
to democratize fashion and design in footwear and accessories.
Payless seeks to compete effectively by bringing to market
differentiated, trend-right merchandise before mass-market
discounters and at the same time as department and specialty
retailers but at a more compelling value. Payless sells a broad
assortment of quality footwear, including athletic, casual and
dress shoes, sandals, work and fashion boots, slippers, and
accessories such as handbags and hosiery. Payless stores offer
fashionable, quality, branded and private label footwear and
accessories for women, men and children at affordable prices in
a self-selection shopping format. Stores sell footwear under
brand names including
Airwalk®,
American
Eagletm,
Champion®,
Dexter®
and
Zoe&Zactm.
Select stores also sell exclusive designer lines of footwear and
accessories under names including Abaeté for Payless, alice
+ olivia for Payless, Lela Rose for Payless, Teeny Toes Lela
Rose Collection, Unforgettable Moments by Lela
Rosetm,
and Christian Siriano for Payless. In addition, in the fourth
quarter of 2009, we acquired from Reebok the Above the
Rim®
brand and related trademarks and copyrights.
In 2009, the first Payless ShoeSource franchised stores opened
in the Middle East through a multi-year partnership with M.H.
Alshaya Company. In addition, Payless has signed new agreements
to expand its franchised stores into Russia and the Philippines
in 2010.
Payless is comprised of two reporting segments, Payless Domestic
and Payless International. The Payless strategy focuses on four
key elements: on-trend, targeted product; effective brand
marketing; a great shopping experience; and efficient operations.
By offering on-trend targeted product, we successfully build a
connection with our customers. We interpret fashion trends
timely and translate this into on-trend product in our stores
through an extensive due diligence process. Beginning about a
year in advance, we review key fashion markets worldwide. We
employ trend services and examine the industrys
ready-to-wear
forecasts; then, we test product. By doing so, we gain valuable
intelligence well in advance of the seasons arrival. We
refine our ideas, commit to a product assortment, and display
that assortment in our stores at about the same time as other
fashion-oriented higher-priced competitors. Customers demand
on-trend products, but have different definitions of what that
means. Importantly, we believe merchandise can be on-trend at a
great value. Customers will always find tiered pricing at
Payless with good-better-best price points. Through elements of
promotion and pricing tiers, we strive to maintain market share
with budget-oriented shoppers while driving the opportunity to
increase market share with expressive customers.
The next component of the Payless strategy is brand marketing
effectiveness, and the development of a House of
Brands architecture. We are building, licensing and buying
appropriate authentic and aspirational brands to appeal to our
major customer segments. Brands help us validate our on-trend
positioning, add an element of exclusivity, and build an
emotional connection with customers.
We are also creating a great shopping experience through
improved store operations execution. Our passionate and skilled
store teams offer friendly helpful service. We have refined our
existing service model to ensure associate behaviors optimize
customer conversion as well as customer satisfaction scores. In
addition, we believe our Hot Zone store design improves our
ability to showcase our merchandise, improves the in-store
experience for our customers, and further supports the Payless
brand identity. Our Hot Zone design features attractive gondolas
and tables with product featured by style in the front of the
store, while maintaining the traditional shopping experience by
size in the back of the store. Hot Zone will continue to be the
design for our remodels, new stores, and relocations as we move
forward.
The last major component of our Payless strategy is improving
the efficiency of our operations. Our new distribution centers
allow us to better service our customer base in North America
with improved
speed-to-market
and replenishment of product for our stores. The distribution
centers, located in California and Ohio, have also
29
reduced our disaster recovery and business interruption risk. We
have also incorporated some of PLGs operations into this
distribution network by shifting distribution from PLGs
Indiana distribution center to the Ohio distribution center. As
a result of these initiatives, we closed our distribution
centers in Kansas and Indiana in 2009.
PLG
PLG is one of the leading marketers of high quality mens,
womens and childrens footwear. PLG was founded on
the strength of the Stride
Rite®
childrens brand, but today includes a portfolio of brands
addressing different markets within the footwear industry. PLG
is predominantly a wholesaler of footwear, selling its products
mostly in North America in a wide variety of retail formats
including premier department stores, independent shoe stores,
value retailers and specialty stores. PLG markets products in
countries outside North America through owned operations,
independent distributors and licensees. PLG also markets its
products directly to consumers by selling footwear through its
retail stores and by selling its brands through outlet stores
and through
e-commerce.
At year-end 2009, PLG operated 363 Stride Rite Childrens
stores and Stride Rite Outlet stores. PLG is comprised of two
operating segments, PLG Wholesale and PLG Retail.
The Stride Rite Childrens stores are one of the largest
premium retailers of childrens non-athletic shoes. Stride
Rite has over 80 years of expertise in the development of
childrens shoes. Most of the Stride Rite brands
sales come from its retail stores, which account for
approximately 600,000 square feet of retail space. The rest
of the brands sales come from a variety of channels,
primarily wholesale and licensed dealers. The Stride Rite brand
is currently merchandised and marketed at premium price points
primarily for consumers up to ten years of age.
Sperry
Top-Sider®
(Sperry) is a brand with a powerful heritage in the
boat shoe category. Our vision is to build the authentic
nautical lifestyle brand for men, women and children across the
globe by sharing our passion for the good life in, on, and
around the sea. Our strategy for the Sperry brand is centered
primarily on expanding beyond boat shoes, driving its
womens business and expanding internationally. We have
created new footwear products in the dress casual, casual and
performance markets. We are also building upon our early success
in womens a larger footwear market than our
core mens target market. New womens products are
multi-generational, year-round, and distributed at a broad array
of retail channels. International growth trends are to be
strengthened by focusing on specific markets with the best
opportunities, adding resources to our international
infrastructure, and leveraging U.S. marketing and imagery.
In early 2010, we opened our first Sperry retail stores that
featured all the newly expanded Sperry Top-Sider seasonal
products for men, women and children in an authentic nautical
shopping environment designed to fully bring the brand to life
for consumers.
The
Saucony®
brand strategy is focused on creating and delivering authentic
technical running products; growing share in new and existing
wholesale channels; and growing a product line known as Saucony
Originals. We are driving business through products with
outstanding styling and technical design specifically segmented
and priced for each selling channel. We offer an array of award
winning products engineered with emphasis on different levels of
performance including stability, cushioning, and motion control.
In addition, we have launched an apparel line focused on the run
specialty customer.
Keds®
is an iconic American brand. Our vision is to be the first
choice in canvas for the millennial consumer. In 2009, we
strategically and successfully contracted the Keds distribution
and product line to elevate the brand positioning and improve
financial results. We grew our premium distribution and focused
on the Champion silhouette. We launched our new, redesigned Keds
website which allows users to design sneakers and purchase
products. The brand is gaining traction with premium and
trend-leading accounts through designer collaborations.
Key
2009 Events
The significant challenges that have faced the global economy in
2009 and the highly uncertain global economic outlook have
adversely affected consumer confidence and spending levels.
These conditions, along with severe credit market disruptions,
among other factors, have adversely affected the global footwear
retailing industry. To mitigate this impact, we have managed
inventory very closely; flowing seasonal product closer to the
time it is worn; and executed a number of gross margin
improvement initiatives. We have also reduced our operating cost
structure through a series of continuous improvement initiatives
that focus on reducing costs and increasing cash flow. These
initiatives include: occupancy cost rationalization,
renegotiating procurement contracts and re-
30
examining existing contracts for cost reduction opportunities,
and establishing new processes in merchandise sourcing that more
effectively utilize factory capacity and ensure the best pricing.
We experienced inflationary pressures in China, where the
majority of our products are made, throughout 2008. As a result,
many of our increased product costs, which are included in
inventory until sold, negatively impacted our results of
operations in the first half of 2009. We experienced
deflationary pressures on product costs in the second half of
2009. We expect to continue to experience deflationary pressures
in the first half of 2010, but not to the degree they were
experienced in the second half of 2009.
Consolidated
Review of Operations
The following discussion summarizes the significant factors
affecting consolidated operating results for the fiscal years
ended January 30, 2010 (2009), January 31, 2010
(2008), and February 2, 2008 (2007). Each year contains
52 weeks of operating results. References to years relate
to fiscal years rather than calendar years unless otherwise
designated. Results for the past three years were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
2009
|
|
|
Sales
|
|
|
2008
|
|
|
Sales
|
|
|
2007
|
|
|
Sales
|
|
|
|
(Dollars in millions, except per share)
|
|
|
|
|
|
Net sales
|
|
$
|
3,307.9
|
|
|
|
100.0
|
%
|
|
$
|
3,442.0
|
|
|
|
100.0
|
%
|
|
$
|
3,035.4
|
|
|
|
100.0
|
%
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
2,166.9
|
|
|
|
65.5
|
|
|
|
2,344.6
|
|
|
|
68.1
|
|
|
|
2,044.5
|
|
|
|
67.4
|
|
Impairment of tradenames
|
|
|
|
|
|
|
|
|
|
|
88.2
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
2,166.9
|
|
|
|
65.5
|
|
|
|
2,432.8
|
|
|
|
70.7
|
|
|
|
2,044.5
|
|
|
|
67.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
1,141.0
|
|
|
|
34.5
|
|
|
|
1,009.2
|
|
|
|
29.3
|
|
|
|
990.9
|
|
|
|
32.6
|
|
Selling, general and administrative expenses
|
|
|
982.4
|
|
|
|
29.7
|
|
|
|
1,007.2
|
|
|
|
29.3
|
|
|
|
899.4
|
|
|
|
29.6
|
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
42.0
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
|
0.1
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) from continuing operations
|
|
|
158.5
|
|
|
|
4.8
|
|
|
|
(40.2
|
)
|
|
|
(1.2
|
)
|
|
|
91.3
|
|
|
|
3.0
|
|
Interest expense
|
|
|
60.8
|
|
|
|
1.8
|
|
|
|
75.2
|
|
|
|
2.2
|
|
|
|
46.7
|
|
|
|
1.5
|
|
Interest income
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
(8.1
|
)
|
|
|
(0.2
|
)
|
|
|
(14.4
|
)
|
|
|
(0.5
|
)
|
Loss on early extinguishment of debt
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations before income
taxes
|
|
|
97.6
|
|
|
|
3.0
|
|
|
|
(107.3
|
)
|
|
|
(3.2
|
)
|
|
|
59.0
|
|
|
|
2.0
|
|
Provision (benefit) for income
taxes(1)
|
|
|
9.4
|
|
|
|
9.6
|
|
|
|
(48.0
|
)
|
|
|
44.7
|
|
|
|
8.6
|
|
|
|
14.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations
|
|
|
88.2
|
|
|
|
2.7
|
|
|
|
(59.3
|
)
|
|
|
(1.7
|
)
|
|
|
50.4
|
|
|
|
1.7
|
|
Income (loss) from discontinued operations, net of income taxes
|
|
|
0.1
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
88.3
|
|
|
|
2.7
|
|
|
|
(60.0
|
)
|
|
|
(1.7
|
)
|
|
|
50.4
|
|
|
|
1.7
|
|
Net earnings attributable to noncontrolling interests
|
|
|
(5.6
|
)
|
|
|
(0.2
|
)
|
|
|
(8.7
|
)
|
|
|
(0.3
|
)
|
|
|
(7.7
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Collective Brands, Inc.
|
|
$
|
82.7
|
|
|
|
2.5
|
%
|
|
$
|
(68.7
|
)
|
|
|
(2.0
|
)%
|
|
$
|
42.7
|
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to Collective
Brands, Inc. common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
$
|
1.29
|
|
|
|
|
|
|
$
|
(1.08
|
)
|
|
|
|
|
|
$
|
0.66
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to Collective
Brands, Inc. common shareholders
|
|
$
|
1.29
|
|
|
|
|
|
|
$
|
(1.09
|
)
|
|
|
|
|
|
$
|
0.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to Collective
Brands, Inc. common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
$
|
1.28
|
|
|
|
|
|
|
$
|
(1.08
|
)
|
|
|
|
|
|
$
|
0.65
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to Collective
Brands, Inc. common shareholders
|
|
$
|
1.28
|
|
|
|
|
|
|
$
|
(1.09
|
)
|
|
|
|
|
|
$
|
0.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on sales from continuing operations
|
|
|
2.5
|
%
|
|
|
|
|
|
|
(2.0
|
)%
|
|
|
|
|
|
|
1.4
|
%
|
|
|
|
|
Return on equity, including discontinued
operations(2)
|
|
|
13.3
|
%
|
|
|
|
|
|
|
(9.8
|
)%
|
|
|
|
|
|
|
6.1
|
%
|
|
|
|
|
Return on net assets, including discontinued
operations(3)
|
|
|
8.5
|
%
|
|
|
|
|
|
|
1.8
|
%
|
|
|
|
|
|
|
8.0
|
%
|
|
|
|
|
Return on invested capital, continuing
operations(4)
|
|
|
9.3
|
%
|
|
|
|
|
|
|
(1.4
|
)%
|
|
|
|
|
|
|
6.2
|
%
|
|
|
|
|
|
|
|
(1) |
|
Percent of sales columns for the provision for income taxes
represents effective income tax rates. |
31
|
|
|
(2) |
|
Return on equity is computed as net earnings (loss), including
discontinued operations, divided by beginning shareowners
equity attributable to Collective Brands, Inc. and measures our
ability to invest shareowners funds profitably. The
increase in return on equity from 2008 to 2009 is primarily due
to an increase in net earnings and a decrease in beginning
shareowners equity attributable to Collective Brands, Inc.
The decrease in return on equity from 2007 to 2008 is primarily
due to a decrease in pre-tax net earnings. |
|
(3) |
|
Return on net assets is computed as net earnings (loss) from
continuing operations before income taxes plus discontinued
operations, plus the loss on early extinguishment of debt, plus
net interest expense and the interest component of operating
leases, divided by beginning of year net assets, including
present value of operating leases (PVOL), and
represents performance independent of capital structure. The
increase in return on net assets from 2008 to 2009 is primarily
due to an increase in net earnings. The decrease in return on
net assets from 2007 to 2008 is primarily due to a decrease in
net earnings. |
|
(4) |
|
Return on invested capital is computed as operating profit
(loss) from continuing operations, adjusted for income taxes at
the applicable effective rate, divided by the average amount of
long-term debt and shareowners equity. The increase in
return on invested capital from 2008 to 2009 is primarily due to
an increase in operating profit from continuing operations and
the decrease from 2007 to 2008 is primarily due to a decrease in
operating profit from continuing operations. |
Net
Earnings (Loss) Attributable to Collective Brands,
Inc.
Our 2009 net earnings attributable to Collective Brands,
Inc. was $82.7 million, or $1.28 per diluted share compared
to 2008 net loss attributable to Collective Brands, Inc. of
$68.7 million, or $1.09 per diluted share. Results for 2008
include $198.9 million of pre-tax charges, which are
summarized by reporting segment in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stride
|
|
|
|
|
|
|
|
|
|
Payless
|
|
|
Rite
|
|
|
Stride Rite
|
|
|
|
|
|
|
Domestic
|
|
|
Retail
|
|
|
Wholesale
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Impairment of tradenames
|
|
$
|
|
|
|
$
|
|
|
|
$
|
88.2
|
|
|
$
|
88.2
|
|
Net litigation expenses
|
|
|
45.1
|
|
|
|
|
|
|
|
|
|
|
|
45.1
|
|
Impairment of goodwill
|
|
|
|
|
|
|
42.0
|
|
|
|
|
|
|
|
42.0
|
|
Tangible asset impairment and other charges
|
|
|
16.8
|
|
|
|
0.6
|
|
|
|
2.7
|
|
|
|
20.1
|
|
Costs resulting from the flow through of acquired inventory
recorded at fair value
|
|
|
|
|
|
|
3.5
|
|
|
|
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
61.9
|
|
|
$
|
46.1
|
|
|
$
|
90.9
|
|
|
$
|
198.9
|
|
Our 2008 net loss attributable to Collective Brands, Inc.
was $68.7 million, or $1.09 per diluted share, compared to
2007 net earnings attributable to Collective Brands, Inc.
of $42.7 million, or $0.65 per diluted share. Results for
2008 include $198.9 million of pre-tax charges described
above. Impairment of goodwill was recorded as a separate line
item on the Consolidated Statement of Earnings (Loss).
Impairment of tradenames, net litigation expenses and costs
resulting from the flow through of acquired inventory recorded
at fair value were recorded within total cost of sales on the
Consolidated Statement of Earnings (Loss). Of the
$20.1 million of tangible asset impairment and other
charges, $13.2 million was recorded within cost of sales
and $6.9 million was recorded within selling, general and
administrative expenses on the Consolidated Statement of
Earnings (Loss). Results for 2007 were negatively impacted due
to the inclusion of incremental costs resulting from the flow
through of acquired inventory recorded at fair value purchased
in the PLG acquisition totaling $48.7 million pre-tax.
Net
Sales
Net sales at our retail stores are recognized at the time the
sale is made to the customer. Net sales for wholesale and
e-commerce
transactions are recognized when title passes and the risks or
rewards of ownership have transferred to the customer, based on
the shipping terms. All sales are net of estimated returns and
current promotional discounts and exclude sales tax.
On December 31, 2008, our licensing agreement with Tommy
Hilfiger for adult footwear expired and was not renewed. The
aggregate revenue from external customers for Tommy Hilfiger
adult footwear was $77.0 million and
32
$27.6 million for 2008 and 2007, respectively, which was
included in the PLG Wholesale reporting segment. We had no such
revenues in 2009.
The table below summarizes net sales information for our retail
stores for each of the last three fiscal years. Same-store sales
are calculated on a weekly basis and exclude liquidation sales.
If a store is open the entire week in each of the last two years
being compared, its sales are included in the same-store sales
calculation for the week. The percent change for 2008 and 2007
excludes information from our PLG Retail segment as that segment
was not present until August 2007.
Sales percent increases (decreases) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Same-store sales
|
|
|
(2.3
|
)%
|
|
|
(3.6
|
)%
|
|
|
(0.9
|
)%
|
Average selling price per unit
|
|
|
4.1
|
|
|
|
4.2
|
|
|
|
4.8
|
|
Unit volume
|
|
|
(6.2
|
)
|
|
|
(7.3
|
)
|
|
|
(8.2
|
)
|
Footwear average selling price per unit
|
|
|
6.1
|
|
|
|
5.7
|
|
|
|
4.6
|
|
Footwear unit volume
|
|
|
(8.8
|
)
|
|
|
(9.2
|
)
|
|
|
(7.6
|
)
|
Non-footwear average selling price per unit
|
|
|
5.3
|
|
|
|
3.0
|
|
|
|
3.1
|
|
Non-footwear unit volume
|
|
|
3.8
|
|
|
|
0.2
|
|
|
|
(11.1
|
)
|
For the fiscal year 2009, net sales decreased 3.9% or
$134.1 million from fiscal year 2008, to
$3,307.9 million. During 2009, net sales included in the
Payless Domestic segment decreased 1.7% or $37.5 million
from 2008, to $2,153.2 million and net sales in the Payless
International segment decreased 5.0% or $22.3 million from
2008, to $422.4 million. Net sales also decreased in our
PLG Wholesale segment by 13.1% or $77.7 million from 2008
to $513.9 million and net sales in our PLG Retail segment
increased by 1.6% or $3.4 million over 2008 to
$218.4 million. Please refer to Reporting Segment
Review of Operations below for the further details on the
changes in net sales for each of our reporting units.
For the fiscal year 2008, net sales increased 13.4% or
$406.6 million over fiscal year 2007, to
$3,442.0 million. During 2008, the Payless Domestic segment
decreased 4.7% or $107.7 million from 2007, to
$2,190.7 million and net sales in the Payless International
segment increased 4.1% or $17.7 million. Net sales
increased in our PLG Wholesale segment by 175.0% or
$376.5 million and net sales increased in our PLG Retail
segment by 126.6% or $120.1 million. The increase in net
sales in the PLG Retail and PLG Wholesale segments are primarily
due to incremental sales related to the inclusion of
52 weeks of PLG sales in 2008 versus approximately
24 weeks in 2007 as a result of the August 2007 acquisition
date of PLG. Please refer to Reporting Segment Review of
Operations below for the further details on the changes in
net sales for each of our reporting units.
Total
Cost of Sales
Total cost of sales includes cost of merchandise sold and our
buying, occupancy, warehousing and product movement costs, as
well as depreciation of stores and distribution centers, net
intellectual property litigation costs, tangible asset
impairment charges and impairment of tradenames.
Total cost of sales was $2,166.9 million in 2009, down
10.9% from $2,432.8 million in 2008. The decrease in total
cost of sales from 2008 to 2009 is primarily due to the impact
of 2008 pre-tax charges of $88.2 million related to
impairment of tradenames, $45.1 million related to pre-tax
net litigation expenses, $13.2 million of pre-tax charges
related to tangible asset impairment and other charges and
$3.5 million pre-tax costs resulting from the flow through
of acquired inventory recorded at fair value purchased in the
PLG acquisition. Total cost of sales also decreased due to the
impact of lower sales, primarily as a result of the expiration
of the Tommy Hilfiger adult footwear license, and lower product
costs in 2009.
Total cost of sales was $2,432.8 million in 2008, up 19.0%
from $2,044.5 million in 2007. The increase in total cost
of sales from 2007 to 2008 is primarily due to incremental sales
related to the inclusion of 52 weeks of PLG Wholesale and
PLG Retail segment sales in 2008 versus approximately
24 weeks in 2007 as a result of the August 2007 acquisition
of PLG. Total cost of sales also increased due to pre-tax
charges of $88.2 million related to impairment of
tradenames, $45.1 million related to pre-tax net litigation
expenses, $13.2 million of pre-tax charges
33
related to tangible asset impairment and other charges and
$3.5 million pre-tax costs resulting from the flow through
of acquired inventory recorded at fair value purchased in the
PLG acquisition. Results for 2007 included $48.7 million
costs resulting from the flow through of acquired inventory
recorded at fair value purchased in the PLG acquisition. The
increases in total cost of sales for 2008 were offset by
decreases in cost of sales in the Payless Domestic segment as a
result of a decrease in Payless Domestic segment sales.
Gross
Margin
Gross margin rate for 2009 was 34.5%, compared to a gross margin
rate of 29.3% for 2008. The increase in gross margin rate in
2009 is primarily due to 2008 pre-tax charges of
$88.2 million related to impairment of tradenames (which
impacted gross margin rate by 2.6%), $45.1 million related
to pre-tax net litigation expenses (which impacted gross margin
rate by 1.3%), $13.2 million of pre-tax charges related to
tangible asset impairment and other charges (which impacted
gross margin rate by 0.4%) and $3.5 million pre-tax costs
resulting from the flow through of acquired inventory recorded
at fair value purchased in the PLG acquisition (which impacted
gross margin rate by 0.1%). The higher gross margin rate in 2009
is also due lower product costs and higher initial mark-on in
2009 compared to 2008.
Gross margin rate for 2008 was 29.3%, compared to a gross margin
rate of 32.6% for 2007. The decrease in gross margin rate is
primarily due to pre-tax charges of $88.2 million related
to impairment of tradenames (which impacted gross margin rate by
2.6%), $45.1 million related to pre-tax net litigation
expenses (which impacted gross margin rate by 1.3%),
$13.2 million of pre-tax charges related to tangible asset
impairment and other charges (which impacted gross margin rate
by 0.4%) and $3.5 million pre-tax costs resulting from the
flow through of acquired inventory recorded at fair value
purchased in the PLG acquisition (which impacted gross margin
rate by 0.1%). The decrease also relates to the de-leveraging of
fixed costs such as rent and other occupancy costs for our
Payless Domestic segment as a result of lower sales. Results for
2007 included $48.7 million costs resulting from the flow
through of acquired inventory recorded at fair value purchased
in the PLG acquisition (which impacted 2007 gross margin
rate by 1.6%).
Selling,
General and Administrative Expenses
In 2009, selling, general and administrative expenses were
$982.4 million, a decrease of 2.5% from
$1,007.2 million in the 2008 period. Selling, general and
administrative expenses as a percentage of net sales were 29.7%
in 2009 compared with 29.3% in 2008. The increase of 0.4% as a
percentage of net sales is primarily due to higher incentive
compensation related to Company performance, offset by lower
payroll related costs and advertising costs.
In 2008, selling, general and administrative expenses were
$1,007.2 million, an increase of 12.0% from
$899.4 million in the 2007 period. Selling, general and
administrative expenses as a percentage of net sales were 29.3%
in 2008 compared with 29.6% in 2007. The decrease of 0.3% as a
percentage of net sales is primarily due the incremental impact
of PLGs lower selling, general and administrative expense
rate and lower advertising and payroll expenses for Payless,
partially offset by the impact of lower Payless sales.
Impairment
of Goodwill
We assess goodwill, which is not subject to amortization, for
impairment on an annual basis and also at any other date when
events or changes in circumstances indicate that the book value
of these assets may exceed their fair value. This assessment is
performed at a reporting unit level. A reporting unit is a
component of a segment that constitutes a business, for which
discrete financial information is available, and for which the
operating results are regularly reviewed by management. We
develop an estimate of the fair value of each reporting unit
using both a market approach and an income approach. If
potential for impairment exists, the fair value of the reporting
unit is subsequently measured against the fair value of its
underlying assets and liabilities, excluding goodwill, to
estimate an implied fair value of the reporting units
goodwill.
A change in events or circumstances, including a decision to
hold an asset or group of assets for sale, a change in strategic
direction, or a change in the competitive environment could
adversely affect the fair value of one or more reporting units.
In the fourth quarter of 2008, due to weakening economic
conditions combined with weaker
34
than expected holiday sales, we revised our financial
projections. These circumstances indicated a potential
impairment of our goodwill and, as such, we assessed the fair
value of our goodwill to determine if its book value exceeded
its fair value. As a result of this update we determined that
the book value of our goodwill did exceed its fair value and we
recorded an impairment charge of $42.0 million within the
PLG Retail reporting segment in 2008. We recorded no such
goodwill impairment charge in 2009.
Interest
Expense, net
Interest income and expense components were:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Interest expense
|
|
$
|
60.8
|
|
|
$
|
75.2
|
|
|
$
|
46.7
|
|
Interest income
|
|
|
(1.1
|
)
|
|
|
(8.1
|
)
|
|
|
(14.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
59.7
|
|
|
$
|
67.1
|
|
|
$
|
32.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decline in interest expense in 2009 compared to 2008 is
primarily a result of a lower interest rate on the unhedged
portion of our Term Loan Facility as well as a decreased
borrowings on our Revolving Loan Facility, Term Loan Facility
and Senior Subordinated Notes. The decline in interest income in
2009 compared to 2008 is primarily a result of lower interest
rates on our invested cash balance.
The increase in interest expense for 2008 compared to 2007 is
primarily due to borrowings on our Term Loan Facility used to
fund the PLG acquisition as well as borrowings on the Revolving
Loan Facility, offset by lower rates on the unhedged portion of
the Term Loan Facility. The decline in interest income for 2008
is primarily a result of lower interest rates on our invested
cash balance.
Loss
on Early Extinguishment of Debt
The loss on early extinguishment of debt relates to the premium,
in excess of par, paid to redeem a portion of our Senior
Subordinated Notes, the acceleration of the discount on the
Senior Subordinated Notes and the acceleration of deferred debt
costs on both our Senior Subordinated Notes and our Term Loan
Facility in proportion to the amounts extinguished in the fourth
quarter of 2009.
Income
Taxes
The effective tax rate from continuing operations was 9.6% in
2009 versus 44.7% in 2008. Our effective tax rates have differed
from the U.S. statutory rate principally due to the impact
of our operations conducted in jurisdictions with rates lower
than the U.S. statutory rate, the benefit of jurisdictional
and employment tax credits, favorable adjustments to our income
tax reserves due primarily to favorable settlements of
examinations by taxing authorities and the on-going
implementation of tax efficient business initiatives. Our
effective tax rate was also unfavorably impacted in 2008 due to
the impairment of goodwill which is not deductible for tax
purposes. See Note 13 of our Consolidated Financial
Statements for more information detailing the relative impact of
these items on our tax rate on a comparative basis. During
fiscal year 2009, we recorded net favorable discrete events of
$7.9 million relating primarily to the resolution of
outstanding tax audits.
Our estimate of uncertainty in income taxes is based on the
framework established in income taxes accounting guidance. This
guidance prescribes a recognition threshold and a measurement
standard for the financial statement recognition and measurement
of tax positions taken or expected to be taken in a tax return.
The recognition and measurement of tax benefits is often highly
judgmental. Determinations regarding the recognition and
measurement of a tax benefit can change as additional
developments occur relative to the issue. Accordingly, our
future results may include favorable or unfavorable adjustments
to our unrecognized tax benefits.
We anticipate that it is reasonably possible that the total
amount of unrecognized tax benefits at January 30, 2010
will decrease by up to $44.2 million within the next
12 months due to potential settlements of on-going
examinations with tax authorities and the potential lapse of the
statutes of limitations in various taxing jurisdictions. To the
extent that these tax benefits are recognized, the effective tax
rate will be favorably impacted by up to $20.9 million.
35
At January 30, 2010, deferred tax assets for federal, state
and foreign net operating loss carryforwards are
$20.3 million, less a valuation allowance of
$5.1 million. These net operating loss carryforwards will
expire as follows (expiration dates are denoted in parentheses):
|
|
|
|
|
(Dollars in millions)
|
|
Amount
|
|
|
Federal net operating losses (in 2029)
|
|
$
|
4.9
|
|
State operating losses expiring (by 2015)
|
|
|
0.4
|
|
State operating losses (between 2016 and 2020)
|
|
|
0.6
|
|
State operating losses (between 2021 and 2025)
|
|
|
1.9
|
|
State operating losses (between 2026 and 2029)
|
|
|
1.1
|
|
State operating losses (by 2029)
|
|
|
2.6
|
|
Foreign net operating losses related to recorded assets (between
2011 and 2015)
|
|
|
0.9
|
|
Foreign net operating losses related to recorded assets (between
2027 and 2029)
|
|
|
2.8
|
|
|
|
|
|
|
Total
|
|
$
|
15.2
|
|
|
|
|
|
|
Federal foreign tax credit carryforwards are $32.1 million;
$21.6 million of this credit will expire if not utilized by
2018, and the remaining $10.5 million of this credit will
expire if not utilized by 2019. Federal general business credit
carryforwards are $5.5 million of which $2.9 million
will expire if not utilized by 2028 and the remaining
$2.6 million will expire if not utilized by 2029. State
income tax credit carryforwards are $12.6 million, less a
valuation allowance of $6.1 million. The tax credit
carryforwards related to the recorded assets expire as follows:
$0.4 million by 2015, $0.9 million by 2017,
$1.0 million by 2029 and $4.2 million may be carried
forward indefinitely. See Note 13 of our Consolidated
Financial Statements for more information detailing the major
components of our net deferred tax liability.
We recorded a valuation allowance against $3.3 million of
deferred tax assets arising in 2009. The majority of this
valuation allowance relates to net operating losses generated by
our Colombian joint venture, which commenced operations in 2008,
and has not yet established a pattern of profitability.
Our Consolidated Balance Sheet as of January 30, 2010
includes deferred tax assets, net of related valuation
allowances, of $162.8 million. In assessing the future
realization of these assets, we concluded it is more likely than
not the assets will be realized. This conclusion was based in
large part upon managements belief that we will generate
sufficient quantities of taxable income from operations in
future years in the appropriate tax jurisdictions. If our
near-term forecasts are not achieved, we may be required to
record additional valuation allowances against our deferred tax
assets. This could have a material impact on our financial
position and results of operations in a particular period.
As of January 30, 2010, we have not provided tax on our
cumulative undistributed earnings of foreign subsidiaries of
approximately $185 million, because it is our intention to
reinvest these earnings indefinitely. The calculation of the
unrecognized deferred tax liability related to these earnings is
complex and is not practicable. If earnings were distributed, we
would be subject to U.S. taxes and withholding taxes
payable to various foreign governments. Based on the facts and
circumstances at that time, we would determine whether a credit
for foreign taxes already paid would be available to reduce or
offset the U.S. tax liability. We currently anticipate that
earnings would not be repatriated unless it was tax efficient to
do so.
Net
Earnings Attributable to Noncontrolling Interests
Net earnings attributable to noncontrolling interests represent
our joint venture partners share of net earnings or losses
on applicable international operations. The decrease in net
earnings attributable to noncontrolling interests from 2008 to
2009 is due to decreased earnings from our joint ventures and
the increase in net earnings attributable to noncontrolling
interests from 2007 to 2008 is due to increased earnings from
our joint ventures.
36
Reporting
Segment Review of Operations
We operate our business using four reporting segments: Payless
Domestic, Payless International, PLG Retail and PLG Wholesale.
We evaluate the performance of our reporting segments based on
segment revenues from external customers and segment operating
profit (loss) from continuing operations as a measure of overall
performance of the Company. The following table reconciles
reporting segment revenues from external customers to net sales
and operating profit (loss) from continuing operations to our
consolidated operating profit (loss) from continuing operations
for the three years presented in our Consolidated Financial
Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues from external customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payless Domestic
|
|
$
|
2,153.2
|
|
|
$
|
2,190.7
|
|
|
$
|
2,298.4
|
|
Payless International
|
|
|
422.4
|
|
|
|
444.7
|
|
|
|
427.0
|
|
PLG Wholesale
|
|
|
513.9
|
|
|
|
591.6
|
|
|
|
215.1
|
|
PLG Retail
|
|
|
218.4
|
|
|
|
215.0
|
|
|
|
94.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
3,307.9
|
|
|
$
|
3,442.0
|
|
|
$
|
3,035.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payless Domestic
|
|
$
|
98.1
|
|
|
$
|
0.9
|
|
|
$
|
82.2
|
|
Payless International
|
|
|
34.1
|
|
|
|
51.3
|
|
|
|
52.0
|
|
PLG Wholesale
|
|
|
30.0
|
|
|
|
(48.8
|
)
|
|
|
(27.5
|
)
|
PLG Retail
|
|
|
(3.7
|
)
|
|
|
(43.6
|
)
|
|
|
(15.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) from continuing operations
|
|
$
|
158.5
|
|
|
$
|
(40.2
|
)
|
|
$
|
91.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the change in store count during
2009 and 2008 by reporting segment. We consider a store
relocation to be both a store opening and a store closing. The
stores acquired as a result of the PLG acquisition are denoted
in the stores acquired line.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payless
|
|
|
Payless
|
|
|
PLG
|
|
|
|
|
|
|
Domestic
|
|
|
International
|
|
|
Retail
|
|
|
Total
|
|
|
Fiscal Year Ended January 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning store count
|
|
|
3,900
|
|
|
|
622
|
|
|
|
355
|
|
|
|
4,877
|
|
Stores opened
|
|
|
29
|
|
|
|
44
|
|
|
|
11
|
|
|
|
84
|
|
Stores closed
|
|
|
(102
|
)
|
|
|
(23
|
)
|
|
|
(3
|
)
|
|
|
(128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending store count
|
|
|
3,827
|
|
|
|
643
|
|
|
|
363
|
|
|
|
4,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended January 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning store count
|
|
|
3,954
|
|
|
|
598
|
|
|
|
340
|
|
|
|
4,892
|
|
Stores opened
|
|
|
88
|
|
|
|
34
|
|
|
|
26
|
|
|
|
148
|
|
Stores closed
|
|
|
(142
|
)
|
|
|
(10
|
)
|
|
|
(11
|
)
|
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending store count
|
|
|
3,900
|
|
|
|
622
|
|
|
|
355
|
|
|
|
4,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended February 2, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning store count
|
|
|
3,986
|
|
|
|
586
|
|
|
|
|
|
|
|
4,572
|
|
Stores acquired
|
|
|
|
|
|
|
|
|
|
|
330
|
|
|
|
330
|
|
Stores opened
|
|
|
113
|
|
|
|
23
|
|
|
|
15
|
|
|
|
151
|
|
Stores closed
|
|
|
(145
|
)
|
|
|
(11
|
)
|
|
|
(5
|
)
|
|
|
(161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending store count
|
|
|
3,954
|
|
|
|
598
|
|
|
|
340
|
|
|
|
4,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Payless Domestic segment, our store activity plan for
fiscal year 2010 includes a net decrease of approximately 60
stores. This includes approximately 50 new stores and 110 store
closings. For the Payless International segment, our store
activity plan for fiscal year 2010 includes a net increase of
approximately 25 stores.
37
This includes approximately 35 new stores and 10 store closings.
For the PLG Retail segment, our store activity plan for fiscal
year 2010 includes a net increase of approximately 20 stores. We
review our store activity plan at least on an annual basis.
Payless
Domestic Segment Operating Results
The Payless Domestic segment is comprised primarily of
operations from retail stores under the Payless ShoeSource name,
the Companys sourcing operations and Collective Licensing.
The following table presents selected financial data for our
Payless segment for each of the past three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
2009
|
|
2008
|
|
2007
|
|
2008 to 2009
|
|
2007 to 2008
|
|
|
(Dollars in millions)
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
2,153.2
|
|
|
$
|
2,190.7
|
|
|
$
|
2,298.4
|
|
|
|
(1.7
|
)%
|
|
|
(4.7
|
)%
|
Operating profit from continuing operations
|
|
$
|
98.1
|
|
|
$
|
0.9
|
|
|
$
|
82.2
|
|
|
|
NM
|
*%
|
|
|
NM
|
*%
|
Operating profit from continuing operations as% of revenues from
external customers
|
|
|
4.6
|
%
|
|
|
0.1
|
%
|
|
|
3.6
|
%
|
|
|
|
|
|
|
|
|
For the fiscal year 2009, revenues from external customers for
the Payless Domestic reporting segment decreased 1.7% or
$37.5 million, to $2,153.2 million from 2008. The
decrease in revenues from external customers from 2008 to 2009
is primarily due to lower unit sales primarily driven by lower
traffic, fewer Payless Domestic stores and weaker economic
conditions in the United States, partially offset by increases
in average selling prices per unit.
For the fiscal year 2008, revenues from external customers for
the Payless Domestic reporting segment decreased 4.7% or
$107.7 million, to $2,190.7 million, from 2007. The
decrease in revenues from external customers from 2007 to 2008
is due to lower traffic and lower unit sales across all product
categories, partially offset by increases in average selling
prices per unit across all product categories.
As a percentage of revenues from external customers, operating
profit from continuing operations increased to 4.6% for 2009
compared to 0.1% in 2008. The increase is primarily due to prior
year net litigation expenses of $45.1 million, or 2.1% of
revenues from external customers, and tangible asset impairment
and other charges of $16.8 million, or 0.8% of revenues
from external customers for 2008. The remainder of the increase
is due to the impact of lower product costs and higher initial
mark-on in 2009 compared to 2008.
As a percentage of revenues from external customers, operating
profit from continuing operations decreased to 0.1% for 2008
compared to 3.6% in 2007. The decrease is primarily net
litigation expenses of $45.1 million or 2.1% of revenues
from external customers for 2008 and tangible asset impairment
and other charges of $16.8 million or 0.8% of revenues from
external customers for 2008. The remainder of the decrease is
primarily due to negative leverage on selling, general and
administrative expenses due to lower net sales.
Payless
International Segment Operating Results
Our Payless International segment includes retail operations
under the Payless ShoeSource name in Canada, the Central and
South American Regions, Puerto Rico and the U.S. Virgin
Islands as well as franchising arrangements under the Payless
ShoeSource name. As a percent of net sales, operating profit
from continuing
38
operations in the Payless International segment is higher than
in the Payless Domestic segment primarily due to lower
payroll-related expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
2009
|
|
2008
|
|
2007
|
|
2008 to 2009
|
|
2007 to 2008
|
|
|
(Dollars in millions)
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
422.4
|
|
|
$
|
444.7
|
|
|
$
|
427.0
|
|
|
|
(5.0
|
)%
|
|
|
4.1
|
%
|
Operating profit from continuing operations
|
|
$
|
34.1
|
|
|
$
|
51.3
|
|
|
$
|
52.0
|
|
|
|
(33.5
|
)%
|
|
|
(1.3
|
)%
|
Operating profit from continuing operations as % of revenues
from external customers
|
|
|
8.1
|
%
|
|
|
11.5
|
%
|
|
|
12.2
|
%
|
|
|
|
|
|
|
|
|
For the fiscal year 2009, revenues from external customers for
the Payless International reporting segment decreased 5.0% or
$22.3 million, to $422.4 million, over 2008. The
decrease was due to weakening economic conditions and
unfavorable foreign exchange rates in Canada compared to last
year and the impact of new taxes and regulation in Ecuador,
offset by increased revenues from external customers in Colombia
due to increased stores.
For the fiscal year 2008, revenues from external customers for
the Payless International reporting segment increased 4.1% or
$17.7 million, to $444.7 million, over 2007. The
increase in sales was driven by increased sales in Central and
South America, offset by decreases in sales in Canada and Puerto
Rico.
As a percentage of revenues from external customers, operating
profit from continuing operations decreased to 8.1% for 2009
compared to 11.5% in the 2008. The decrease is primarily due to
decreased gross margin rates in Canada and Puerto Rico primarily
due to negative leverage of our fixed costs due to lower net
sales, and decreased gross margin rates in South America
primarily due to new taxes and regulation in Ecuador.
As a percentage of revenues from external customers, operating
profit from continuing operations decreased to 11.5% for 2008
compared to 12.2% in the 2007. The decrease is primarily due to
higher expenses in Canada partially offset by lower expenses,
relative to net sales, for Central and South America.
PLG
Wholesale Segment Operating Results
The PLG Wholesale segment is comprised of PLGs wholesale
operations, which primarily includes sales from the Stride Rite,
Sperry, Saucony and Keds brands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
2009
|
|
2008
|
|
2007
|
|
2008 to 2009
|
|
2007 to 2008
|
|
|
(Dollars in millions)
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
513.9
|
|
|
$
|
591.6
|
|
|
$
|
215.1
|
|
|
|
(13.1
|
)%
|
|
|
NM*
|
%
|
Operating profit (loss) from continuing operations
|
|
$
|
30.0
|
|
|
$
|
(48.8
|
)
|
|
$
|
(27.5
|
)
|
|
|
NM
|
*%
|
|
|
NM*
|
%
|
Operating profit (loss) from continuing operations as % of
revenues from external customers
|
|
|
5.8
|
%
|
|
|
(8.2
|
)%
|
|
|
(12.8
|
)%
|
|
|
|
|
|
|
|
|
On December 31, 2008, our licensing agreement with Tommy
Hilfiger for adult footwear expired and was not renewed. The
aggregate revenue from external customers and operating profit
from continuing operations for Tommy Hilfiger adult footwear was
$77.0 million and $13.8 million, respectively, for
2008.
Revenues from external customers for the PLG Wholesale reporting
segment were $513.9 million for 2009 compared to
$591.6 million for 2008. The decrease in revenues from
external customers is primarily due to the expiration of our
Tommy Hilfiger adult footwear license and lower Keds revenues
due to its strategic repositioning. These were offset by
increases in revenues from external customers for our Saucony
brand.
39
Revenues from external customers for the PLG Wholesale reporting
segment were $591.6 million for 2008 compared to
$215.1 million for 2007. Sales for this segment during 2008
included 52 weeks versus approximately 24 weeks during
2007 as PLG was acquired on August 17, 2007. For 2008,
sales in this segment were driven primarily by strong
performance of the Saucony, Sperry Top-Sider and Tommy Hilfiger
product, offset by weak sales of Keds product.
As a percentage of revenues from external customers, operating
profit (loss) from continuing operations increased to 5.8% for
2009 compared to a negative 8.2% in the 2008. The increase is
primarily due to the impact of the 2008 impairment of tradenames
totaling $88.2 million, or 14.9% of revenues from external
customers, the impact of the expiration of the Tommy Hilfiger
adult footwear license totaling $13.8 million, or 2.3% of
revenues from external customers, and other charges (primarily
relating to severance costs) of $2.7 million, or 0.5% of
revenues from external customers. These were offset by more
promotional selling compared to last year.
As a percentage of revenues from external customers, operating
profit (loss) from continuing operations improved to negative
8.2% for 2008 compared to a negative 12.8% in the 2008. The
increase is primarily due to the impact of the 2007 incremental
costs related to the flow through of the acquired inventory
write-up to
fair value totaling $31.0 million, or 14.4% of revenues
from external customers and strong performance in Saucony and
Sperry Top-Sider product, offset by the 2008 impairment of
tradenames totaling $88.2 million, or 14.9% of revenues
from external customers, the impact of the expiration of the
Tommy Hilfiger adult footwear license totaling
$13.8 million, or 2.3% of revenues from external customers,
and other charges (primarily relating to severance costs) of
$2.7 million, or 0.5% of revenues from external customers.
PLG
Retail Segment Operating Results
The PLG Retail segment is comprised of operations from
PLGs owned Stride Rite Childrens stores and Stride
Rite Outlet stores.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
2009
|
|
2008
|
|
2007
|
|
2008 to 2009
|
|
2007 to 2008
|
|
|
(Dollars in millions)
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
218.4
|
|
|
$
|
215.0
|
|
|
$
|
94.9
|
|
|
|
1.6
|
%
|
|
|
NM
|
*%
|
Operating loss from continuing operations
|
|
$
|
(3.7
|
)
|
|
$
|
(43.6
|
)
|
|
$
|
(15.4
|
)
|
|
|
NM
|
*%
|
|
|
NM
|
*%
|
Operating loss from continuing operations as% of revenues from
external customers
|
|
|
(1.7
|
)%
|
|
|
(20.3
|
)%
|
|
|
(16.2
|
)%
|
|
|
|
|
|
|
|
|
Revenues from external customers for the PLG Retail reporting
segment were $218.4 million for 2009 compared to
$215.0 million for 2008. The increase is primarily due to
increased number of stores, partially offset by lower same-store
sales at Stride Rite Childrens stores.
Revenues from external customers for the PLG Retail reporting
segment were $215.0 million for 2008 compared to
$94.9 million for 2007. Sales for this segment during 2008
included 52 weeks as compared to 2007 which included
approximately 24 weeks because PLG was acquired on
August 17, 2007. Sales in this segment were affected by
2008s difficult economic and retail environment.
As a percentage of revenues from external customers, operating
loss from continuing operations improved to a negative 1.7% for
2009 compared to a negative 20.3% in the 2008. The decrease is
primarily due to the impact of the 2008 impairment of goodwill
totaling $42.0 million, or 19.5% of revenues from external
customers and the 2008 flow through of the acquired inventory
write-up to
fair value totaling $3.5 million, or 1.6% of revenues from
external customers. These were offset by greater promotional
activity this year compared to last year.
As a percentage of revenues from external customers, operating
profit (loss) from continuing operations decreased to a negative
20.3% for 2008 compared to a negative 16.2% in the 2007. The
decrease is primarily due to the impact of the 2008 impairment
of goodwill totaling $42.0 million, or 19.5% of revenues
from external
40
customers, the flow through of the acquired inventory
write-up to
fair value totaling $3.5 million, or 1.6% of revenues from
external customers and a weakening economy in the United States
in 2008 compared to 2007. These were offset by the 2007 flow
through of the acquired inventory
write-up to
fair value totaling $17.7 million, or 18.7% of revenues
from external customers.
Liquidity
and Capital Resources
Our cash position tends to be higher in June as well as
September to October, due primarily to the arrival of warm
weather and
back-to-school,
respectively. Our cash position tends to be lowest around
February to March when Easter inventories are
built-up but
not yet sold. Any materially adverse change in customer demand,
fashion trends, competitive market forces or customer acceptance
of our merchandise mix and retail locations, uncertainties
related to the effect of competitive products and pricing, risks
associated with foreign global sourcing or economic conditions
worldwide could affect our ability to continue to fund our needs
from business operations. Internally generated cash flow from
operations has been our primary source of cash and we believe
projected operating cash flows and current credit facilities
will be adequate to fund our working capital requirements,
scheduled debt repayments, and to support the development of our
short-term and long-term operating strategies. We usually
finance our real estate through operating leases.
We ended 2009 with a cash and cash equivalents balance of
$393.5 million, an increase of $144.2 million from
2008. Our increase in cash and cash equivalents from 2008 is
primarily driven by cash flow provided by operating activities,
offset by cash flow used in investing activities and cash flow
used in financing activities. Significant sources and (uses) of
cash are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net earnings (loss)
|
|
$
|
88.3
|
|
|
$
|
(60.0
|
)
|
|
$
|
50.4
|
|
Working capital decreases (increases)
|
|
|
64.6
|
|
|
|
(19.3
|
)
|
|
|
(2.9
|
)
|
Other operating activities
|
|
|
11.5
|
|
|
|
99.5
|
|
|
|
28.0
|
|
Depreciation and amortization
|
|
|
143.2
|
|
|
|
140.9
|
|
|
|
117.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by operating activities
|
|
|
307.6
|
|
|
|
161.1
|
|
|
|
192.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for capital expenditures
|
|
|
(84.0
|
)
|
|
|
(129.2
|
)
|
|
|
(167.4
|
)
|
Net sales of investments
|
|
|
|
|
|
|
|
|
|
|
90.6
|
|
Acquisition of businesses, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(877.7
|
)
|
Other investing activities
|
|
|
(16.2
|
)
|
|
|
1.1
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in investing activities
|
|
|
(100.2
|
)
|
|
|
(128.1
|
)
|
|
|
(950.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net issuance (purchases) of common stock
|
|
|
0.6
|
|
|
|
(0.7
|
)
|
|
|
(39.7
|
)
|
Payments of debt and deferred financing costs
|
|
|
(67.0
|
)
|
|
|
(9.0
|
)
|
|
|
(70.0
|
)
|
Net distributions to minority owners
|
|
|
(0.7
|
)
|
|
|
(1.5
|
)
|
|
|
(2.4
|
)
|
Issuance of debt
|
|
|
2.1
|
|
|
|
|
|
|
|
725.0
|
|
Other financing activities
|
|
|
|
|
|
|
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow (used in) provided by financing activities
|
|
|
(65.0
|
)
|
|
|
(11.2
|
)
|
|
|
615.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
1.8
|
|
|
|
(5.0
|
)
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
144.2
|
|
|
$
|
16.8
|
|
|
$
|
(138.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 30, 2010, our foreign subsidiaries and joint
ventures had $120.5 million in cash located in financial
institutions outside of the United States. A portion of this
cash represents undistributed earnings of our foreign
subsidiaries, which are indefinitely reinvested. In the event of
a distribution to the United States, those earnings could be
subject to United States federal and state income taxes, net of
foreign tax credits.
41
Cash
Flow Provided by Operating Activities
Cash flow from operating activities was $307.6 million in
2009 compared to $161.1 million in 2008 and
$192.8 million in 2007. The change in cash flow from
operations from 2009 compared with 2008 is due to increases in
net earnings and a decrease in working capital driven by 2009
reductions in inventory and increases in accounts payable,
offset by a net reduction of accrued expenses as a result of the
settlement of the adidas litigation. The reduction in inventory
was due primarily to our 2009 initiatives to reduce inventory
levels, which was assisted by increased promotional activities,
and the increase in accounts payable was due to the extension of
payment terms with our vendors. These initiatives caused timing
differences which favorably impacted our cash flow from
operations in 2009. We do not expect to see such timing
differences in 2010. The change in cash flow from operations
from 2008 compared with 2007 are due to decreases in net
earnings and increases in our inventory balances due to
increased first costs offset by increases in depreciation and
amortization.
We contributed $9.5 million to the PLG pension plan in
2009. We do not plan to contribute to the PLG pension plan
during the 2010 fiscal year. Our contributions beyond 2010 will
depend upon market conditions, interest rates and other factors
and may vary significantly in future years based upon the
plans funded status as of the 2010 measurement date. We
believe our internal cash flow will finance all of these future
contributions.
Cash
Flow Used in Investing Activities
In 2009, our capital expenditures totaled $84.0 million.
Capital expenditures for new and relocated stores were
$23.7 million, capital expenditures to remodel existing
stores were $20.4 million, capital expenditures for
information technology hardware and systems development were
$27.2 million, capital expenditures for supply chain were
$5.0 million and capital expenditures for other necessary
improvements including corporate expenditures were
$7.7 million. We also acquired certain trademarks,
including Above the Rim, during 2009. We expect that cash paid
for capital expenditures during 2010 will be approximately
$100 million. We intend to use internal cash flow from
operations and available financing from the Revolving Loan
Facility, if necessary, to finance all of these capital
expenditures.
Cash
Flow (Used in) Provided By Financing Activities
The Company has made the following common stock repurchases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Dollars in millions, shares in thousands)
|
|
Dollars
|
|
|
Shares
|
|
|
Dollars
|
|
|
Shares
|
|
|
Dollars
|
|
|
Shares
|
|
|
|
|
|
Stock repurchase program
|
|
$
|
6.0
|
|
|
|
274
|
|
|
$
|
|
|
|
|
|
|
|
$
|
47.1
|
|
|
|
2,387
|
|
|
|
|
|
Employee stock purchase, deferred compensation and stock
incentive plans
|
|
|
1.6
|
|
|
|
115
|
|
|
|
1.9
|
|
|
|
153
|
|
|
|
1.3
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7.6
|
|
|
|
389
|
|
|
$
|
1.9
|
|
|
|
153
|
|
|
$
|
48.4
|
|
|
|
2,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On August 17, 2007, we entered into a $725 million
term loan (the Term Loan Facility) and a
$350 million Amended and Restated Loan and Guaranty
Agreement (the Revolving Loan Facility and
collectively with the Term Loan Facility, the Loan
Facilities). The Loan Facilities rank pari passu in
right of payment and have the lien priorities specified in an
intercreditor agreement executed by the administrative agent to
the Term Loan Facility and the administrative agent to the
Revolving Loan Facility. The Loan Facilities are senior secured
loans guaranteed by substantially all of the assets of the
borrower and the guarantors, with the Revolving Loan Facility
having first priority in accounts receivable, inventory and
certain related assets and the Term Loan Facility having first
priority in substantially all of the borrowers and the
guarantors remaining assets, including intellectual
property, the capital stock of each domestic subsidiary, any
intercompany notes owned by the borrower and the guarantors, and
66% of the stock of
non-U.S. subsidiaries
directly owned by borrower or a guarantor.
The Term Loan Facility will mature on August 17, 2014. The
Term Loan Facility will amortize quarterly in annual amounts of
1.0% of the original amount, with the final installment payable
on the maturity date. The Term Loan Agreement provides for
customary mandatory prepayments, subject to certain exceptions
and limitations and in certain instances, reinvestment rights,
from (a) the net cash proceeds of certain asset sales,
insurance recovery
42
events and debt issuances, each as defined in the Term Loan
Agreement, and (b) 25% of excess cash flow, as defined in
the Term Loan Agreement, subject to reduction. The mandatory
prepayment is not required if the total leverage ratio, as
defined in the Term Loan Agreement, is less than 2.0 to 1.0 at
fiscal year end. Based on our leverage ratio as of
January 30, 2010, we are not required to make such a
mandatory prepayment in 2010. Loans under the Term Loan Facility
will bear interest at the Borrowers option, at either
(a) the Base Rate as defined in the Term Loan Facility
agreement plus 1.75% per annum or (b) the Eurodollar
(LIBOR-indexed) Rate plus 2.75% per annum, with such margin to
be agreed for any incremental term loans.
In the fourth quarter of 2009, not including our required
quarterly payment, we repaid $18.0 million of our
outstanding Term Loan Facility balance. The balance remaining on
our Term Loan Facility as of January 30, 2010 was
$673.4 million.
On August 24, 2007, we entered into an interest rate swap
arrangement for $540 million to hedge a portion of our
variable rate Term Loan Facility. The interest rate swap
provides for a fixed interest rate of approximately 7.75%,
portions of which mature on a series of dates through 2012. The
balance of the Term Loan Facility that is hedged under the
interest rate swap is $310 million as of the end of 2009,
$220 million as of the end of 2010, and $90 million as
of the end of 2011. This derivative instrument is designated as
a cash flow hedge for accounting purposes.
On August 17, 2007, as part of the PLG acquisition, we
acquired and immediately repaid $46.0 million of PLG debt.
The Revolving Loan Facility will mature on August 17, 2012.
The Revolving Loan Facility bears interest at LIBOR, plus a
variable margin of 0.875% to 1.5%, or the base rate as defined
in the agreement governing the Revolving Loan Facility, based
upon certain borrowing levels and commitment fees payable on the
unborrowed balance of 0.25%. The Revolving Loan Facility will be
available as needed for general corporate purposes. The variable
interest rate including the applicable variable margin at
January 30, 2010, was 1.25%. As of January 30, 2010
the Companys borrowing base on its Revolving Loan Facility
was $256.8 million less $33.8 million in outstanding
letters of credit or $223.0 million.
In July 2003, we sold $200.0 million of 8.25% Senior
Subordinated Notes (the Senior Subordinated Notes)
for $196.7 million, due 2013. The discount of
$3.3 million is being amortized to interest expense over
the life of the Notes. The Notes are guaranteed by all of our
domestic subsidiaries. Interest on the Notes is payable
semi-annually. We may, on any one or more occasions, redeem all
or a part of the Senior Subordinated Notes at the redemption
prices set forth below, plus accrued and unpaid interest, if
any, on the Senior Subordinated Notes redeemed, to the
applicable redemption date:
|
|
|
|
|
Redemption Period
|
|
Percentage
|
|
Through July 31, 2010
|
|
|
102.750
|
%
|
August 1, 2010 through July 31, 2011
|
|
|
101.375
|
%
|
August 1, 2011 and thereafter
|
|
|
100.000
|
%
|
In the fourth quarter of 2009, we redeemed $22.0 million of
our outstanding Senior Subordinated Notes. The balance remaining
on our Senior Subordinated Notes as of January 30, 2010 was
$175.0 million, which was recorded net of a
$1.3 million discount.
We are subject to financial covenants under our Loan Facilities.
We have a financial covenant under our Term Loan Facility
agreement that requires us to maintain, on the last day of each
fiscal quarter, a total leverage ratio of not more than the
maximum ratio set forth below:
|
|
|
|
|
|
|
Maximum
|
Fiscal Year
|
|
Leverage Ratio
|
|
2009
|
|
|
4.2 to 1
|
|
2010 and thereafter
|
|
|
4.0 to 1
|
|
As of January 30, 2010 our leverage ratio, as defined in
our Term Loan Facility agreement, was 1.8 to 1 and we were in
compliance with all of our covenants. We expect, based on our
current financial projections, to be in compliance with our
covenants for the next twelve months.
43
The Loan Facilities and the Senior Subordinated Notes contain
other various covenants including those that may limit our
ability to pay dividends, repurchase stock, accelerate the
retirement of debt or make certain investments.
Financial
Commitments
As of January 30, 2010, the borrowing base available under
the $350.0 million Revolving Loan Facility was
$256.8 million. To determine the amount that we may borrow,
the $256.8 million borrowing base available under the
Revolving Loan Facility is reduced by $33.8 million in
outstanding letters of credit.
Our financial commitments as of January 30, 2010, are
described below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Payments Due by Fiscal Year
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Total
|
|
|
One Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
Five Years
|
|
|
|
(Dollars in millions)
|
|
|
Senior Subordinated Notes (including unamortized discount)
|
|
$
|
175.0
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
175.0
|
|
|
$
|
|
|
Term Loan Facility
|
|
|
673.4
|
|
|
|
6.9
|
|
|
|
13.8
|
|
|
|
652.7
|
|
|
|
|
|
Capital lease obligations (including interest)
|
|
|
1.0
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.5
|
|
Other long-term debt
|
|
|
1.2
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
Operating lease
obligations(1)
|
|
|
1,242.0
|
|
|
|
286.1
|
|
|
|
440.1
|
|
|
|
273.2
|
|
|
|
242.6
|
|
Interest on long-term
debt(2)
|
|
|
250.3
|
|
|
|
48.3
|
|
|
|
110.5
|
|
|
|
91.5
|
|
|
|
|
|
Royalty
obligations(3)
|
|
|
89.3
|
|
|
|
8.5
|
|
|
|
14.2
|
|
|
|
14.9
|
|
|
|
51.7
|
|
Pension
obligations(4)
|
|
|
89.5
|
|
|
|
12.8
|
|
|
|
14.1
|
|
|
|
15.6
|
|
|
|
47.0
|
|
Service agreement
obligations(5)
|
|
|
6.6
|
|
|
|
2.7
|
|
|
|
3.3
|
|
|
|
0.6
|
|
|
|
|
|
Employment agreement
obligations(6)
|
|
|
25.9
|
|
|
|
15.2
|
|
|
|
10.7
|
|
|
|
|
|
|
|
|
|
Employee
severance(7)
|
|
|
1.2
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,555.4
|
|
|
$
|
381.8
|
|
|
$
|
608.1
|
|
|
$
|
1,223.7
|
|
|
$
|
341.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We lease substantially all of our stores and are committed to
making lease payments over varying lease terms. The operating
lease obligations presented represent the total lease
obligations due to landlords, including obligations related to
closed stores as well as our obligations related to leases that
we have sublet. In instances where failure to exercise renewal
options would result in an economic penalty, the calculation of
lease obligations includes renewal option periods. |
|
(2) |
|
Interest on long-term debt includes the expected interest
payments on our 8.25% Senior Subordinated Notes, the
portion of our Term Loan Facility that is fixed at approximately
7.75% under our interest rate swap and the unhedged portion of
our Term Loan Facility that varies based on LIBOR rates. The
interest rates used for the unhedged portion of our Term Loan
Facility were based on our estimate of the forward LIBOR rate
curve as of January 30, 2010. |
|
(3) |
|
Our royalty obligations consist of minimum royalty payments for
the purchase of branded merchandise. |
|
(4) |
|
Our pension obligations consist of projected pension payments
related to our pension plans. |
|
(5) |
|
Our service agreement obligations consist of minimum payments
for services that we cannot avoid without penalty. |
|
(6) |
|
Our employment agreement obligations consist of minimum payments
to certain of our executives and assume bonus target payouts are
met. |
|
(7) |
|
Employee severance obligations consist of
contractually-specified payments associated with our
right-sizing initiatives. |
44
Amounts not reflected in the table above:
We issue cancelable purchase orders to various vendors for the
purchase of our merchandise. As of January 30, 2010, we had
merchandise purchase obligations in the amount of approximately
$270.9 million for which we will likely take delivery.
Our liability for unrecognized tax benefits, excluding interest
and penalties, is $58.3 million as of January 30,
2010. We are unable to make a reasonably reliable estimate of
the amount and period of related future payments on this balance.
Financial
Condition Ratios
A summary of key financial information for the periods indicated
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Debt-capitalization Ratio*
|
|
|
53.6
|
%
|
|
|
59.5
|
%
|
|
|
56.7
|
%
|
|
|
|
* |
|
Debt-to-capitalization
has been computed by dividing total debt by capitalization.
Total debt is defined as long-term debt including current
maturities, notes payable and borrowings under the revolving
line of credit, if applicable. Capitalization is defined as
total debt and shareowners equity. The
debt-to-capitalization
ratio, including the present value of future minimum rental
payments under operating leases as debt and as capitalization,
was 72.3%, 76.6%, and 73.5%, respectively, for the periods
referred to above. |
The decrease in the debt-capitalization ratio from 2008 to 2009
is primarily due to a lower debt balance in 2009 as a result of
the early extinguishment of debt. The increase of the
debt-capitalization ratio from 2007 to 2008 is primarily due to
lower capitalization due to lower shareowners equity as a
result of net losses in 2008.
Critical
Accounting Policies
Managements Discussion and Analysis of Financial Condition
and Results of Operations are based upon our Consolidated
Financial Statements, which were prepared in accordance with
accounting principles generally accepted in the United States of
America. These principles require us to make estimates and
assumptions that affect the reported amounts in the Consolidated
Financial Statements and notes thereto. Actual results may
differ from these estimates, and such differences may be
material to the Consolidated Financial Statements. We believe
that the following critical accounting policies involve a higher
degree of judgment or complexity. See the Notes to our
Consolidated Financial Statements for a complete discussion of
our significant accounting policies.
Inventories
Merchandise inventories in our stores are valued by the retail
method and are stated at the lower of cost, determined using the
first-in,
first-out (FIFO) basis, or market. Prior to shipment
to a specific store, inventories are valued at the lower of cost
using the FIFO basis, or market. The retail method is widely
used in the retail industry due to its practicality. Under the
retail method, cost is determined by applying a calculated
cost-to-retail
ratio across groupings of similar items, known as departments.
As a result, the retail method results in an averaging of
inventory costs across similar items within a department. The
cost-to-retail
ratio is applied to ending inventory at its current owned retail
valuation to determine the cost of ending inventory on a
department basis. Current owned retail represents the retail
price for which merchandise is offered for sale on a regular
basis reduced for any permanent or clearance markdowns. As a
result, the retail method normally results in an inventory
valuation that is lower than a traditional FIFO cost basis.
Inherent in the retail method calculation are certain
significant management judgments and estimates including
markdowns and shrinkage, which can significantly impact the
owned retail and, therefore, the ending inventory valuation at
cost. Specifically, the failure to take permanent or clearance
markdowns on a timely basis can result in an overstatement of
cost under the retail method. We believe that our application of
the retail method reasonably states inventory at the lower of
cost or market.
Wholesale inventories are valued at the lower of cost or market
using the FIFO method.
45
We make ongoing estimates relating to the net realizable value
of inventories, based upon our assumptions about future demand
and market conditions. If we estimate that the net realizable
value of our inventory is less than the cost of the inventory
recorded on our books, we record a reserve equal to the
difference between the cost of the inventory and the estimated
net realizable value. If changes in market conditions result in
reductions in the estimated net realizable value of our
inventory below our previous estimate, we would increase our
reserve in the period in which we made such a determination. If
changes in market conditions result in an increase in the
estimated net realizable value of our inventory above our
previous estimate, such recoveries would be recognized as the
related goods are sold. We have continually managed these risks
in the past and believe we can successfully manage them in the
future. However, our revenues and operating margins may suffer
if we are unable to effectively manage these risks.
Allowance
for Uncollectible Accounts Receivable
We make ongoing estimates relating to the ability to collect our
accounts receivable, which primarily relate to receivables from
our wholesale customers, and maintain an allowance for estimated
losses resulting from the inability of our customers to make
required payments. In determining the amount of the allowance,
we consider our historical level of credit losses and make
judgments about the creditworthiness of significant customers
based on ongoing credit evaluations. We also consider a review
of accounts receivable aging, industry trends, customer
financial strength, credit standing, and payment history to
assess the probability of collection. Since we cannot predict
future changes in the financial stability of our customers,
actual future losses from uncollectible accounts may differ from
our estimates. If the financial condition of our customers were
to deteriorate, resulting in their inability to make payments, a
larger allowance might be required which could have a material
impact on our results of operations and financial position.
Property
and Equipment
Property and equipment are recorded at cost and depreciated on a
straight-line basis over their estimated useful lives. The costs
of repairs and maintenance are expensed when incurred, while
expenditures for store remodels, refurbishments and improvements
that significantly add to the product capacity or extend the
useful life of an asset are capitalized. Projects in progress
are stated at cost, which includes the cost of construction and
other direct costs attributable to the project. No provision for
depreciation is made on projects in progress until such time as
the relevant assets are completed and put into service.
Property and equipment are reviewed on a
store-by-store
basis if an indicator of impairment exists to determine whether
the carrying amount of the asset is recoverable. Estimated
future cash flows on a
store-by-store
basis are used to determine if impairment exists. The underlying
estimates of cash flows include estimates of future revenues,
gross margin rates and store expenses and are based upon the
stores past and expected future performance. To the extent
our estimates for revenue growth and gross margin rates are not
realized, we could record an impairment charge.
Defined
Benefit Plans
The Company has defined benefit pension plans. One of the plans
is frozen and no longer accrues future retirement benefits.
Major assumptions used in the accounting for this employee
benefit plan include the discount rate, expected return on plan
assets and rate of increase in employee compensation levels.
Assumptions are determined based on our data and appropriate
market indicators, and are evaluated each year as of the
plans measurement date. A change in any of these
assumptions would have an effect on net periodic pension and
post-retirement benefit costs reported in the Consolidated
Financial Statements. We use a cash flow matching approach for
determining the appropriate discount rate for the defined
benefit pension plan. The approach is derived from
U.S. Treasury rates, plus an option-adjusted spread varying
by maturity, to derive hypothetical Aa corporate
bond rates. The calculation of pension expense is dependent on
the determination of the assumptions used. A 25 basis point
change in the discount rate will change annual expense by
approximately $0.2 million. A 25 basis point change in
the expected long-term return on assets will result in an
approximate change of $0.1 million in the annual expense.
46
Insurance
Programs
We retain our normal expected losses related primarily to
workers compensation, physical loss to property and
business interruption resulting from such loss and comprehensive
general, product, and vehicle liability. We purchase third party
coverage for losses in excess of significant levels. Provisions
for losses expected under these programs are recorded based upon
estimates of aggregate liability for claims incurred utilizing
independent actuarial calculations. These actuarial calculations
utilize assumptions including historical claims experience,
demographic factors and severity factors to estimate the
frequency and severity of losses as well as the patterns
surrounding the emergence, development and settlement of claims.
Accounting
for Taxes
Our estimate of uncertainty in income taxes is based on the
framework established in income taxes accounting guidance. This
guidance, which was adopted on February 4, 2007, prescribes
a recognition threshold and a measurement standard for the
financial statement recognition and measurement of tax positions
taken or expected to be taken in a tax return. The recognition
and measurement of tax benefits is often highly judgmental.
Determinations regarding the recognition and measurement of a
tax benefit can change as additional developments occur relative
to the issue. Accordingly, our future results may include
favorable or unfavorable adjustments to our unrecognized tax
benefits.
We record valuation allowances against our deferred tax assets,
when necessary, in accordance with the framework established in
income taxes accounting guidance. Realization of deferred tax
assets (such as net operating loss carryforwards) is dependent
on future taxable earnings and is therefore uncertain. We assess
the likelihood that our deferred tax assets in each of the
jurisdictions in which we operate will be recovered from future
taxable income. Deferred tax assets are reduced by a valuation
allowance to recognize the extent to which, more likely than
not, the future tax benefits will not be realized. If our
near-term forecasts are not achieved, we may be required to
record additional valuation allowances against our deferred tax
assets. This could have a material impact on our financial
position and results of operations in a particular period.
Share-based
Compensation
We account for share-based awards in accordance with the
framework established in the share-based compensation guidance.
Share-based compensation is estimated for equity awards at fair
value at the grant date. We determine the fair value of equity
awards using a binomial model. The binomial model requires
various highly judgmental assumptions including the expected
life, stock price volatility and the forfeiture rate. If any of
the assumptions used in the model change significantly,
share-based compensation expense may differ materially in the
future from that recorded in the current period.
Accounting
for Goodwill
We assess goodwill, which is not subject to amortization, for
impairment on an annual basis and also at any other date when
events or changes in circumstances indicate that the book value
of these assets may exceed their fair value. This assessment is
performed at a reporting unit level. A reporting unit is a
component of a segment that constitutes a business, for which
discrete financial information is available, and for which the
operating results are regularly reviewed by management. We have
five reporting units for the purposes of assessing goodwill:
Payless Domestic, Payless International, PLG Wholesale, PLG
Retail, and Collective Licensing.
The goodwill impairment test involves a two-step process. The
first step is a comparison of each reporting units fair
value to its book value. If the book value of a reporting unit
exceeds its fair value, goodwill is considered potentially
impaired and the Company must complete the second step of the
goodwill impairment test. The amount of impairment is determined
by comparing the implied fair value of reporting unit goodwill
to the book value of the goodwill in the same manner as if the
reporting unit was being acquired in a business combination.
Specifically, we would allocate the fair value to all of the
assets and liabilities of the reporting unit in a hypothetical
analysis that would calculate the implied fair value of
goodwill. If the implied fair value of goodwill is less than the
recorded goodwill, we would recognize an impairment charge for
the difference.
47
Fair value of the reporting units is determined using a combined
income and market approach. The income approach uses a reporting
units projection of estimated cash flows that is
discounted using a weighted-average cost of capital that
reflects current market conditions. The market approach may
involve use of the guideline transaction method, the guideline
company method, or both. The guideline transaction method makes
use of available transaction price data of companies engaged in
the same or a similar line of business as the respective
reporting unit. The guideline company method uses market
multiples of publicly traded companies with operating
characteristics similar to the respective reporting unit. We
consider value indications from both the income approach and
market approach in estimating the fair value of each reporting
unit in our analysis. We also compare the aggregate fair value
of our reporting units to our market capitalization plus a
control premium at each reporting period.
Management judgment is a significant factor in determining
whether an indicator of impairment has occurred. Management
relies on estimates in determining the fair value of each
reporting unit, which include the following critical
quantitative factors:
|
|
|
|
|
Anticipated future cash flows and long-term growth rates for
each reporting unit. The income approach to
determining fair value relies on the timing and estimates of
future cash flows, including an estimate of long-term growth
rates. The projections use managements estimates of
economic and market conditions over the projected period
including growth rates in sales and estimates of expected
changes in operating margins. Our projections of future cash
flows are subject to change as actual results are achieved that
differ from those anticipated. Actual results could vary
significantly from estimates.
|
|
|
|
Selection of an appropriate discount rate. The
income approach requires the selection of an appropriate
discount rate, which is based on a weighted average cost of
capital analysis. The discount rate is subject to changes in
short-term interest rates and long-term yield as well as
variances in the typical capital structure of marketplace
participants in our industry. The discount rate is determined
based on assumptions that would be used by marketplace
participants, and for that reason, the capital structure of
selected marketplace participants was used in the weighted
average cost of capital analysis. Given the current volatile
economic conditions, it is possible that the discount rate could
change.
|
Our goodwill balance was $279.8 million as of
January 30, 2010. Goodwill is evaluated at the reporting
unit level, which may be the same as a reporting segment or a
level below a reporting segment. The goodwill balance by
reporting segment and reporting unit as of January 30, 2010
is as follows:
|
|
|
|
|
|
|
Reporting Segment
|
|
Reporting Unit
|
|
Goodwill Balance
|
|
|
|
|
|
(In millions)
|
|
|
PLG Wholesale
|
|
PLG Wholesale
|
|
$
|
239.6
|
|
Payless Domestic
|
|
Collective Licensing
|
|
|
34.3
|
|
Payless Domestic
|
|
Payless Domestic
|
|
|
5.9
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
279.8
|
|
|
|
|
|
|
We performed our annual goodwill impairment test in the third
quarter of 2009 and concluded that there was no impairment of
goodwill. A change in circumstances, a change in strategic
direction or a change in the competitive or economic environment
could adversely affect the fair value of one or more reporting
units in the future.
The fair value of the Collective Licensing and Payless Domestic
reporting units substantially exceeds their carrying value. For
the PLG Wholesale reporting unit, a 100 basis point
decrease in the long-term growth rate, holding all other
variables constant, would result in a deficit between the fair
value and the carrying value of approximately $18 million.
A 100 basis point increase in the discount rate used in
determining the fair value of our reporting unit, holding all
other variables constant, would result in a deficit between the
fair value and the carrying value of approximately
$37 million.
Accounting
for Intangible Assets
Indefinite-lived intangible assets are not amortized, but are
tested for impairment annually, or more frequently if
circumstances indicate potential impairment, through a
comparison of fair value to its carrying amount. Favorable
leases, certain tradenames and other intangible assets with
finite lives are amortized over their useful lives using the
48
straight-line method. Customer relationships are amortized based
on the time period over which the benefits of the asset are
expected to occur.
Each period we evaluate whether events and circumstances warrant
a revision to the remaining estimated useful life of each
intangible asset. If we were to determine that events and
circumstances warrant a change to the estimate of an intangible
assets remaining useful life, then the remaining carrying
amount of the intangible asset would be amortized prospectively
over that revised remaining useful life. As of January 30,
2010, we had $365.5 million of indefinite-lived tradenames
that are not amortized but are assessed for impairment on an
annual basis and also at any other date when events or changes
in circumstances indicate that the book value of these assets
may exceed their fair value.
The impairment test for indefinite-lived tradenames compares
each tradenames fair value to its book value. If the book
value of a tradename exceeds its fair value, the tradename is
considered impaired and the Company recognizes an impairment
charge for the difference. The fair values of our tradenames are
determined using the relief from royalty method, which is a form
of the income approach. This method is based on the theory that
the owner of the tradename is relieved of paying a royalty or
license fee for the use of the tradename.
Management judgment is a significant factor in determining
whether an indicator of impairment for tradenames has occurred.
Management relies on estimates in determining the fair value of
each tradename, which include the following critical
quantitative factors:
|
|
|
|
|
Anticipated future revenues and long-term growth rates for
each tradename. The relief from royalty approach
to determining fair value relies on the timing and estimates of
future revenues, including an estimate of long-term growth
rates. The Companys projections of future revenues are
subject to change as actual results are achieved that differ
from those anticipated. Actual results could vary significantly
from estimates.
|
|
|
|
Reasonable market royalty rate for each
tradename. The relief from royalty approach to
determining fair value requires selection of appropriate royalty
rates for each tradename. The rates selected depend upon, among
other things, licensing agreements involving similar tradenames,
historical and forecasted operating profit for each tradename
and qualitative factors such as market awareness, history,
longevity, and market size. Given the current volatile economic
conditions, it is possible that these royalty rates could change.
|
|
|
|
Selection of an appropriate discount rate. The
relief from royalty approach requires the selection of an
appropriate discount rate, which is based on a weighted average
cost of capital analysis. The discount rate is subject to
changes in short-term interest rates and long-term yield as well
as variances in the typical capital structure of marketplace
participants in the Companys industry. The discount rate
is determined based on assumptions that would be used by
marketplace participants, and for that reason, the capital
structure of selected marketplace participants was used in the
weighted average cost of capital analysis. Given the current
volatile economic conditions, it is possible that the discount
rate could change.
|
We performed our annual intangible asset impairment test in the
third quarter of 2009 and concluded that there was no impairment
of our intangible assets. The following table highlights the
potential impairment charge related to changes in certain key
assumptions used in determining the fair value of these
tradenames, assuming all other assumptions remain constant. The
potential impairment charge represents the amount by which the
carrying value exceeds the estimated fair value.
|
|
|
|
|
|
|
Potential Impairment
|
|
|
Charge
|
|
|
(Dollars in millions)
|
|
Decrease of 100 basis points in royalty rate
|
|
$
|
25
|
|
Decrease of 100 basis points in average growth rate
|
|
|
8
|
|
Increase of 100 basis points in the discount rate
|
|
|
8
|
|
In future periods, if our goodwill or our indefinite-lived
tradenames were to become impaired, the resulting impairment
charge could have a material impact on our financial position
and results of operations.
49
Accounting
for Derivatives
We participate in interest rate related derivative instruments
to manage our exposure on our debt instruments and forward
contracts to hedge a portion of certain foreign currency
purchases. We record all derivative instruments on the
Consolidated Balance Sheet as either assets or liabilities
measured at fair value in accordance with the framework
established for derivatives and hedging and the framework
established for fair value measurements and disclosures. For
interest rate contracts, we use a
mark-to-market
valuation technique based on an observable interest rate yield
curve and adjust for credit risk. For foreign currency
contracts, we use a
mark-to-market
valuation technique based on observable foreign currency
exchange rates and adjust for credit risk. Changes in the fair
value of these derivative instruments are recorded either
through net earnings (loss) or as other comprehensive income,
depending on the type of hedge designation. Gains and losses on
derivative instruments designated as cash flow hedges are
reported in other comprehensive income and reclassified into
earnings in the periods in which earnings are impacted by the
hedged item. As of January 30, 2010, a 100 basis point
increase in LIBOR on the unhedged portion of the Companys
debt would impact pretax interest expense by approximately
$3.6 million annually or approximately $0.9 million
per quarter.
Accounting
for Contingencies
We are involved in various legal proceedings that arise from
time to time in the ordinary course of our business. Except for
income tax contingencies, we record accruals for contingencies
to the extent that we conclude that their occurrence is probable
and that the related liabilities are estimable and we record
anticipated recoveries under existing insurance contracts when
assured of recovery. We consider many factors in making these
assessments including the progress of the case, opinions or
views of legal counsel, prior case law, the experience of the
Company or other companies in similar cases, and our intent on
how to respond. Because litigation and other contingencies are
inherently unpredictable and excessive verdicts do occur, these
assessments can involve a series of complex judgments about
future events and can rely heavily on estimates and assumptions.
New
Accounting Standards
See Note 21 of the Consolidated Financial Statements for
new accounting standards, including the expected dates of
adoption and estimated effects on our Consolidated Financial
Statements.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Interest
Rate Risk
Interest on our Revolving Loan Facility, which is entirely
comprised of a revolving line of credit, is based on the London
Inter-Bank Offered Rate (LIBOR) plus a variable
margin of 0.875% to 1.5%, or the base rate, as defined in the
credit agreement. There are no outstanding borrowings on the
Revolving Loan Facility at January 30, 2010; however, if we
were to borrow against our Revolving Loan Facility, borrowing
costs may fluctuate depending upon the volatility of LIBOR. On
August 24, 2007, we entered into an interest rate swap
arrangement for $540 million to hedge a portion of our
variable rate Term Loan Facility. As of January 30, 2010,
we have hedged $310 million of our Term Loan Facility. The
interest rate swap provides for a fixed interest rate of
approximately 7.75%, portions of which mature on a series of
dates through May of 2012. The unhedged portion of the Term Loan
Facility is subject to interest rate risk depending on the
volatility of LIBOR. As of January 30, 2010, a
100 basis point increase in LIBOR on the unhedged portion
of the Companys debt, which totals $363.4 million,
would impact pretax interest expense by approximately
$3.6 million annually or approximately $0.9 million
per quarter.
Foreign
Currency Risk
We have operations in foreign countries; therefore, our cash
flows in U.S. dollars are impacted by fluctuations in
foreign currency exchange rates. We adjust our retail prices,
when possible, to reflect changes in exchange rates to mitigate
this risk. To further mitigate this risk, we may, from time to
time, enter into forward contracts to purchase or sell foreign
currencies. For the 52 weeks ended January 30, 2010,
fluctuations in foreign currency exchange rates did not have a
material impact on our operations or cash flows.
50
A significant percentage of our footwear is sourced from the
Peoples Republic of China (the PRC). The
national currency of the PRC, the Yuan, is currently not a
freely convertible currency. The value of the Yuan depends to a
large extent on the PRC governments policies and upon the
PRCs domestic and international economic and political
developments. Since 1994, the official exchange rate for the
conversion of the PRCs currency was pegged to the
U.S. dollar at a virtually fixed rate of approximately 8.28
Yuan per U.S. dollar. However, during 2005, the PRCs
government revalued the Yuan and adopted a more flexible system
based on a trade-weighted basket of foreign currencies of the
PRCs main trading partners. Under the new managed
float policy, the exchange rate of the Yuan may shift each
day up to 0.5% in either direction from the previous days
close, and as a result, the valuation of the Yuan may increase
incrementally over time should the PRC central bank allow it to
do so, which could significantly increase the cost of the
products we source from the PRC. As of January 29, 2010,
the last day of trading in our fiscal year, the exchange rate
was 6.82 Yuan per U.S. dollar compared to 6.85 Yuan per
U.S. dollar at the end of our 2008 fiscal year and 7.19
Yuan per U.S. dollar at the end of our 2007 fiscal year.
51
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
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|
Page
|
|
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53
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54
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55
|
|
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|
|
57
|
|
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58
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59
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|
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61
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62
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52
Report of
Management
Management is responsible for the preparation, integrity and
objectivity of the financial information included in this annual
report. The financial statements have been prepared in
conformity with accounting principles generally accepted in the
United States applied on a consistent basis.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts. Although the financial statements
reflect all available information and managements judgment
and estimates of current conditions and circumstances, and are
prepared with the assistance of specialists within and outside
the Company, actual results could differ from those estimates.
Management has established and maintains an internal control
structure to provide reasonable assurance that assets are
safeguarded against loss from unauthorized use or disposition,
that the accounting records provide a reliable basis for the
preparation of financial statements, and that such financial
statements are not misstated due to material fraud or error.
Internal controls include the careful selection of associates,
the proper segregation of duties and the communication and
application of formal policies and procedures that are
consistent with high standards of accounting and administrative
practices. An important element of this system is a
comprehensive internal audit and loss prevention program.
Management continually reviews, modifies and improves its
systems of accounting and controls in response to changes in
business conditions and operations and in response to
recommendations by the independent registered public accounting
firm and reports prepared by the internal auditors.
Management believes that it is essential for the Company to
conduct its business affairs in accordance with the highest
ethical standards and in conformity with the law. This standard
is described in the Companys policies on business conduct,
which are publicized throughout the Company.
Audit and
Finance Committee of the Board of Directors
The Board of Directors, through the activities of its Audit and
Finance Committee (the Committee), participates in
the reporting of financial information by the Company. The
Committee meets regularly with management, the internal auditors
and the independent registered public accounting firm. The
Committee reviewed the scope, timing and fees for the annual
audit and the results of the audit examinations completed by the
internal auditors and independent registered public accounting
firm, including the recommendations to improve certain internal
controls and the
follow-up
reports prepared by management. The independent registered
public accounting firm and internal auditors have free access to
the Committee and the Board of Directors and attend each
regularly scheduled Committee meeting.
The Committee consists of five outside directors all of whom
have accounting or financial management expertise. The members
of the Committee are Daniel Boggan Jr., Robert F. Moran, John F.
McGovern, David Scott Olivet, and Matthew A. Ouimet. The Audit
and Finance Committee regularly reports the results of its
activities to the full Board of Directors.
53
Managements
Annual Report on Internal Control Over Financial
Reporting
The management of Collective Brands, Inc. is responsible for
establishing and maintaining adequate internal control over
financial reporting for the Company. With the participation of
the Principal Executive Officer and the Principal Financial and
Accounting Officer, our management conducted an evaluation of
the effectiveness of our internal control over financial
reporting based on the framework and criteria established in
Internal Control Integrated Framework, issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, our management has
concluded that our internal control over financial reporting was
effective as of January 30, 2010.
Collective Brands, Inc.s independent registered public
accounting firm, Deloitte & Touche LLP, has issued an
attestation report dated March 26, 2010 on our internal
control over financial reporting which report is included on
page 55.
|
|
|
|
|
|
/s/ Matthew
E. Rubel
Chief
Executive Officer, President and
Chairman of the Board
(Principal Executive Officer)
|
|
/s/ Douglas
G. Boessen
Division
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
|
54
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareowners of
Collective Brands, Inc.
Topeka, Kansas
We have audited the internal control over financial reporting of
Collective Brands, Inc. and subsidiaries (the
Company) as of January 30, 2010, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Managements Annual Report on
Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles and that receipts and expenditures of the company are
being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of January 30, 2010, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended January 30, 2010, of
the Company and our report dated March 26, 2010, expressed
an unqualified opinion on those financial statements and
financial statement schedule and included an explanatory
paragraph regarding the Companys adoption of new
accounting guidance for noncontrolling interests in 2009.
/s/ DELOITTE &
TOUCHE LLP
Kansas City, Missouri
March 26, 2010
55
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareowners of
Collective Brands, Inc.
Topeka, Kansas
We have audited the accompanying consolidated balance sheets of
Collective Brands, Inc. and subsidiaries (the
Company) as of January 30, 2010 and
January 31, 2009, and the related consolidated statements
of earnings (loss), shareowners equity and comprehensive
income (loss), and cash flows for each of the three fiscal years
in the period ended January 30, 2010. Our audits also
included the financial statement schedule listed in the index at
Item 15 (a). These financial statements and financial
statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). 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.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Collective Brands, Inc. and subsidiaries as of January 30,
2010 and January 31, 2009, and the results of their
operations and their cash flows for each of the three fiscal
years in the period ended January 30, 2010, in conformity
with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth
therein.
As discussed in Note 21 to the consolidated financial
statements, the Company adopted new accounting guidance for
noncontrolling interests in 2009.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
January 30, 2010, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 26, 2010, expressed
an unqualified opinion on the Companys internal control
over financial reporting.
/s/ DELOITTE &
TOUCHE LLP
Kansas City, Missouri
March 26, 2010
56
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
(Dollars
in millions, except per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net sales
|
|
$
|
3,307.9
|
|
|
$
|
3,442.0
|
|
|
$
|
3,035.4
|
|
Cost of Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
2,166.9
|
|
|
|
2,344.6
|
|
|
|
2,044.5
|
|
Impairment of tradenames
|
|
|
|
|
|
|
88.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
2,166.9
|
|
|
|
2,432.8
|
|
|
|
2,044.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
1,141.0
|
|
|
|
1,009.2
|
|
|
|
990.9
|
|
Selling, general and administrative expenses
|
|
|
982.4
|
|
|
|
1,007.2
|
|
|
|
899.4
|
|
Impairment of goodwill
|
|
|
|
|
|
|
42.0
|
|
|
|
|
|
Restructuring charges
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) from continuing operations
|
|
|
158.5
|
|
|
|
(40.2
|
)
|
|
|
91.3
|
|
Interest expense
|
|
|
60.8
|
|
|
|
75.2
|
|
|
|
46.7
|
|
Interest income
|
|
|
(1.1
|
)
|
|
|
(8.1
|
)
|
|
|
(14.4
|
)
|
Loss on early extinguishment of debt
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations before income
taxes
|
|
|
97.6
|
|
|
|
(107.3
|
)
|
|
|
59.0
|
|
Provision (benefit) for income taxes
|
|
|
9.4
|
|
|
|
(48.0
|
)
|
|
|
8.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations
|
|
|
88.2
|
|
|
|
(59.3
|
)
|
|
|
50.4
|
|
Earnings (loss) from discontinued operations, net of income taxes
|
|
|
0.1
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
88.3
|
|
|
|
(60.0
|
)
|
|
|
50.4
|
|
Net earnings attributable to noncontrolling interests
|
|
|
(5.6
|
)
|
|
|
(8.7
|
)
|
|
|
(7.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Collective Brands, Inc.
|
|
$
|
82.7
|
|
|
$
|
(68.7
|
)
|
|
$
|
42.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to Collective
Brands, Inc. common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
$
|
1.29
|
|
|
$
|
(1.08
|
)
|
|
$
|
0.66
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to Collective
Brands, Inc. common shareholders
|
|
$
|
1.29
|
|
|
$
|
(1.09
|
)
|
|
$
|
0.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to Collective
Brands, Inc. common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
$
|
1.28
|
|
|
$
|
(1.08
|
)
|
|
$
|
0.65
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to Collective
Brands, Inc. common shareholders
|
|
$
|
1.28
|
|
|
$
|
(1.09
|
)
|
|
$
|
0.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
57
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
(Dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
393.5
|
|
|
$
|
249.3
|
|
Accounts receivable, net of allowance for doubtful accounts and
returns reserve as of January 30, 2010 and January 31,
2009 of $5.5 and $4.2, respectively
|
|
|
95.5
|
|
|
|
97.5
|
|
Inventories
|
|
|
442.9
|
|
|
|
492.0
|
|
Current deferred income taxes
|
|
|
42.1
|
|
|
|
35.6
|
|
Prepaid expenses
|
|
|
48.9
|
|
|
|
58.7
|
|
Other current assets
|
|
|
21.7
|
|
|
|
25.3
|
|
Current assets of discontinued operations
|
|
|
0.5
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,045.1
|
|
|
|
959.7
|
|
Property and Equipment:
|
|
|
|
|
|
|
|
|
Land
|
|
|
7.0
|
|
|
|
8.6
|
|
Property, buildings and equipment
|
|
|
1,403.1
|
|
|
|
1,458.6
|
|
Accumulated depreciation and amortization
|
|
|
(945.9
|
)
|
|
|
(945.8
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
464.2
|
|
|
|
521.4
|
|
Intangible assets, net
|
|
|
445.5
|
|
|
|
446.0
|
|
Goodwill
|
|
|
279.8
|
|
|
|
281.6
|
|
Deferred income taxes
|
|
|
6.5
|
|
|
|
1.7
|
|
Other assets
|
|
|
43.2
|
|
|
|
40.9
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
2,284.3
|
|
|
$
|
2,251.3
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EOUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
6.9
|
|
|
$
|
24.8
|
|
Accounts payable
|
|
|
195.9
|
|
|
|
173.8
|
|
Accrued expenses
|
|
|
181.8
|
|
|
|
202.7
|
|
Current liabilities of discontinued operations
|
|
|
1.3
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
385.9
|
|
|
|
403.2
|
|
Long-term debt
|
|
|
842.4
|
|
|
|
888.4
|
|
Deferred income taxes
|
|
|
65.5
|
|
|
|
49.2
|
|
Other liabilities
|
|
|
226.3
|
|
|
|
264.2
|
|
Noncurrent liabilities of discontinued operations
|
|
|
0.3
|
|
|
|
0.3
|
|
Commitments and contingencies (Note 18)
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Collective Brands, Inc. shareowners equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; 25,000,000 shares
authorized; none issued
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 240,000,000 shares
authorized; 88,130,874 issued;
64,155,911 and 63,724,513 shares outstanding in 2009 and
2008, respectively
|
|
|
0.9
|
|
|
|
0.9
|
|
Treasury stock, $.01 par value; 23,974,963 and
24,406,361 shares in 2009 and 2008, respectively
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
Additional
paid-in-capital
|
|
|
34.7
|
|
|
|
17.8
|
|
Retained earnings
|
|
|
722.1
|
|
|
|
639.4
|
|
Accumulated other comprehensive loss, net of income taxes
|
|
|
(22.3
|
)
|
|
|
(35.6
|
)
|
|
|
|
|
|
|
|
|
|
Collective Brands, Inc. shareowners equity
|
|
|
735.2
|
|
|
|
622.3
|
|
Noncontrolling interests
|
|
|
28.7
|
|
|
|
23.7
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
763.9
|
|
|
|
646.0
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
2,284.3
|
|
|
$
|
2,251.3
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
58
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
AND
COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collective Brands, Inc. Shareowners
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Additional
|
|
|
|
|
|
Accumulated Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Controlling
|
|
|
Total
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Dollars
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Interests
|
|
|
Equity
|
|
|
Income (Loss)
|
|
|
|
(Dollars in millions, shares in thousands)
|
|
|
Balance at February 3, 2007
|
|
|
64,996
|
|
|
$
|
0.7
|
|
|
$
|
0.7
|
|
|
$
|
698.1
|
|
|
$
|
0.6
|
|
|
$
|
12.7
|
|
|
$
|
712.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42.7
|
|
|
|
|
|
|
|
7.7
|
|
|
|
50.4
|
|
|
$
|
50.4
|
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.3
|
|
|
|
0.1
|
|
|
|
14.4
|
|
|
|
14.4
|
|
Net change in fair value of derivative, net of taxes of $9.2
(Note 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14.3
|
)
|
|
|
|
|
|
|
(14.3
|
)
|
|
|
(14.3
|
)
|
Changes in unrecognized amounts of pension benefits, net of
taxes of $4.5 (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.5
|
)
|
|
|
|
|
|
|
(6.5
|
)
|
|
|
(6.5
|
)
|
Issuances of common stock under stock plans
|
|
|
1,291
|
|
|
|
|
|
|
|
8.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.7
|
|
|
|
|
|
Purchases of common stock
|
|
|
(2,438
|
)
|
|
|
|
|
|
|
(26.9
|
)
|
|
|
(21.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(48.4
|
)
|
|
|
|
|
Amortization of unearned nonvested shares
|
|
|
|
|
|
|
|
|
|
|
4.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.9
|
|
|
|
|
|
Income tax benefit of stock option exercise
|
|
|
|
|
|
|
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.6
|
|
|
|
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.0
|
|
|
|
|
|
Restricted stock cancellation
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of uncertain tax positions accounting guidance
(Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11.2
|
)
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
(12.1
|
)
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.4
|
)
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44.0
|
|
Comprehensive income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Collective Brands,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 2, 2008
|
|
|
63,753
|
|
|
|
0.7
|
|
|
|
|
|
|
|
708.1
|
|
|
|
(5.9
|
)
|
|
|
17.2
|
|
|
|
720.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(68.7
|
)
|
|
|
|
|
|
|
8.7
|
|
|
|
(60.0
|
)
|
|
|
(60.0
|
)
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18.9
|
)
|
|
|
(0.7
|
)
|
|
|
(19.6
|
)
|
|
|
(19.6
|
)
|
Net change in fair value of derivative, net of taxes of $0.8
(Note 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
1.2
|
|
|
|
1.2
|
|
Changes in unrecognized amounts of pension benefits, net of
taxes of $7.1 (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12.0
|
)
|
|
|
|
|
|
|
(12.0
|
)
|
|
|
(12.0
|
)
|
Issuances of common stock under stock plans
|
|
|
433
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
Purchases of common stock
|
|
|
(153
|
)
|
|
|
|
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.9
|
)
|
|
|
|
|
Amortization of unearned nonvested shares
|
|
|
|
|
|
|
|
|
|
|
11.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.1
|
|
|
|
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.5
|
|
|
|
|
|
Restricted stock cancellation
|
|
|
(308
|
)
|
|
|
|
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.1
|
)
|
|
|
|
|
Contributions from noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.6
|
|
|
|
4.6
|
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.1
|
)
|
|
|
(6.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(90.4
|
)
|
Comprehensive income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to Collective Brands, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(98.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2009
|
|
|
63,725
|
|
|
|
0.7
|
|
|
|
17.8
|
|
|
|
639.4
|
|
|
|
(35.6
|
)
|
|
|
23.7
|
|
|
|
646.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREOWNERS EQUITY
AND
COMPREHENSIVE INCOME
(LOSS) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collective Brands, Inc. Shareowners
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Additional
|
|
|
|
|
|
Accumulated Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Controlling
|
|
|
Total
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Dollars
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Interests
|
|
|
Equity
|
|
|
Income (Loss)
|
|
|
|
(Dollars in millions, shares in thousands)
|
|
|
Balance at January 31, 2009
|
|
|
63,725
|
|
|
$
|
0.7
|
|
|
$
|
17.8
|
|
|
$
|
639.4
|
|
|
$
|
(35.6
|
)
|
|
$
|
23.7
|
|
|
$
|
646.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82.7
|
|
|
|
|
|
|
|
5.6
|
|
|
|
88.3
|
|
|
$
|
88.3
|
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.0
|
|
|
|
0.1
|
|
|
|
8.1
|
|
|
|
8.1
|
|
Net change in fair value of derivatives, net of taxes of $2.2
(Note 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
3.9
|
|
|
|
3.9
|
|
Changes in unrecognized amounts of pension benefits, net of
taxes of $0.3 (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.4
|
|
|
|
|
|
|
|
1.4
|
|
|
|
1.4
|
|
Issuances of common stock under stock plans
|
|
|
882
|
|
|
|
|
|
|
|
8.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.2
|
|
|
|
|
|
Purchases of common stock
|
|
|
(389
|
)
|
|
|
|
|
|
|
(7.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.6
|
)
|
|
|
|
|
Amortization of unearned nonvested shares
|
|
|
|
|
|
|
|
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.4
|
|
|
|
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
10.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.9
|
|
|
|
|
|
Restricted stock cancellation
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.5
|
|
|
|
5.5
|
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.2
|
)
|
|
|
(6.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.7
|
|
Comprehensive income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Collective Brands,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
96.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 30, 2010
|
|
|
64,156
|
|
|
$
|
0.7
|
|
|
$
|
34.7
|
|
|
$
|
722.1
|
|
|
$
|
(22.3
|
)
|
|
$
|
28.7
|
|
|
$
|
763.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding common stock is net of shares held in treasury and
is presented net of $0.2 million of treasury stock in 2009,
2008 and 2007, respectively. Treasury stock is accounted for
using the par value method. Treasury share activity for the last
three years is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Shares in thousands)
|
|
|
Balance, beginning of year
|
|
|
24,406
|
|
|
|
24,378
|
|
|
|
23,135
|
|
Issuances of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options, employee stock purchases and stock appreciation
rights
|
|
|
(507
|
)
|
|
|
(79
|
)
|
|
|
(504
|
)
|
Deferred compensation plan
|
|
|
(5
|
)
|
|
|
(12
|
)
|
|
|
(8
|
)
|
Net restricted stock grants
|
|
|
(308
|
)
|
|
|
(34
|
)
|
|
|
(683
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(820
|
)
|
|
|
(125
|
)
|
|
|
(1,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of common stock
|
|
|
389
|
|
|
|
153
|
|
|
|
2,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
23,975
|
|
|
|
24,406
|
|
|
|
24,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
60
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
88.3
|
|
|
$
|
(60.0
|
)
|
|
$
|
50.4
|
|
(Earnings) loss from discontinued operations, net of income taxes
|
|
|
(0.1
|
)
|
|
|
0.7
|
|
|
|
|
|
Adjustments for non-cash items included in net earnings (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal of assets
|
|
|
11.8
|
|
|
|
25.6
|
|
|
|
7.2
|
|
Impairment of goodwill and indefinite-lived tradenames
|
|
|
|
|
|
|
130.2
|
|
|
|
|
|
Depreciation and amortization
|
|
|
143.2
|
|
|
|
140.9
|
|
|
|
117.3
|
|
Provision for losses on accounts receivable
|
|
|
2.9
|
|
|
|
3.4
|
|
|
|
1.5
|
|
Share-based compensation expense
|
|
|
16.4
|
|
|
|
20.7
|
|
|
|
14.6
|
|
Deferred income taxes
|
|
|
3.8
|
|
|
|
(75.2
|
)
|
|
|
(25.1
|
)
|
Income tax benefit from share-based compensation
|
|
|
|
|
|
|
|
|
|
|
2.6
|
|
Excess tax benefit from share-based compensation
|
|
|
|
|
|
|
|
|
|
|
(2.4
|
)
|
Interest income on
held-to-maturity
investments
|
|
|
|
|
|
|
|
|
|
|
(0.6
|
)
|
Loss on extinguishment of debt
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
(0.1
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
Changes in working capital, exclusive of the effects of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
0.6
|
|
|
|
(15.3
|
)
|
|
|
12.7
|
|
Inventories
|
|
|
53.2
|
|
|
|
(29.4
|
)
|
|
|
80.6
|
|
Prepaid expenses and other current assets
|
|
|
15.2
|
|
|
|
35.8
|
|
|
|
(23.5
|
)
|
Accounts payable
|
|
|
20.2
|
|
|
|
(23.4
|
)
|
|
|
(42.0
|
)
|
Accrued expenses
|
|
|
(24.6
|
)
|
|
|
13.0
|
|
|
|
(30.7
|
)
|
Changes in other assets and liabilities, net
|
|
|
(15.2
|
)
|
|
|
0.2
|
|
|
|
31.5
|
|
Contributions to pension plans
|
|
|
(9.5
|
)
|
|
|
(5.3
|
)
|
|
|
(0.8
|
)
|
Net cash provided by (used in) discontinued operations
|
|
|
0.3
|
|
|
|
(0.3
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by operating activities
|
|
|
307.6
|
|
|
|
161.1
|
|
|
|
192.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(84.0
|
)
|
|
|
(129.2
|
)
|
|
|
(167.4
|
)
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
Proceeds from sale of property and equipment
|
|
|
2.8
|
|
|
|
1.1
|
|
|
|
2.9
|
|
Intangible asset additions
|
|
|
(19.0
|
)
|
|
|
|
|
|
|
(0.6
|
)
|
Purchases of investments
|
|
|
|
|
|
|
|
|
|
|
(6.1
|
)
|
Sales and maturities of investments
|
|
|
|
|
|
|
|
|
|
|
96.7
|
|
Acquisition of businesses, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(877.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in investing activities
|
|
|
(100.2
|
)
|
|
|
(128.1
|
)
|
|
|
(950.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
Repayment of notes payable
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
(2.0
|
)
|
Proceeds from issuance of debt
|
|
|
1.2
|
|
|
|
|
|
|
|
725.0
|
|
Repayment of debt
|
|
|
(66.1
|
)
|
|
|
(8.9
|
)
|
|
|
(55.3
|
)
|
Proceeds from revolving loan facility
|
|
|
|
|
|
|
215.0
|
|
|
|
|
|
Repayment of revolving loan facility
|
|
|
|
|
|
|
(215.0
|
)
|
|
|
|
|
Payment of deferred financing costs
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(12.7
|
)
|
Issuances of common stock
|
|
|
8.2
|
|
|
|
1.2
|
|
|
|
8.7
|
|
Purchases of common stock
|
|
|
(7.6
|
)
|
|
|
(1.9
|
)
|
|
|
(48.4
|
)
|
Excess tax benefit from share-based compensation
|
|
|
|
|
|
|
|
|
|
|
2.4
|
|
Contributions by noncontrolling interests
|
|
|
5.5
|
|
|
|
4.6
|
|
|
|
|
|
Distribution to noncontrolling interests
|
|
|
(6.2
|
)
|
|
|
(6.1
|
)
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow (used in) provided by financing activities
|
|
|
(65.0
|
)
|
|
|
(11.2
|
)
|
|
|
615.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
1.8
|
|
|
|
(5.0
|
)
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
144.2
|
|
|
|
16.8
|
|
|
|
(138.9
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
249.3
|
|
|
|
232.5
|
|
|
|
371.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
393.5
|
|
|
$
|
249.3
|
|
|
$
|
232.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
61
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
|
|
Note 1
|
Summary
of Significant Accounting Policies
|
Description
of Business and Basis of Presentation
Collective Brands, Inc. consists of three lines of business:
Payless ShoeSource (Payless), Collective Brands
Performance + Lifestyle Group (PLG), and Collective
Licensing. Payless is dedicated to democratizing fashion and
design in footwear and accessories and inspiring fun, fashion
possibilities for the family at a great value. PLG markets the
leading brand of high-quality childrens shoes in the
United States under the Stride Rite brand. PLG also markets
products for children and adults under well-known brand names,
including Sperry Top-Sider, Saucony, and Keds. Collective
Licensing is a youth lifestyle marketing and global licensing
business within the Payless segment.
The Consolidated Financial Statements include the accounts of
the Company, all wholly-owned subsidiaries and all subsidiaries
and joint ventures in which the Company owns a controlling
interest. The Companys Central American and South American
Regions use a December 31 year-end, primarily to match the
local countries statutory reporting requirements. The
effect of this one-month lag on the Companys financial
position and results of operations is not significant. All
intercompany amounts have been eliminated.
As a result of the 2004 restructuring, as discussed in
Note 4, the financial information of the Parade and 26 of
the Payless closed stores have been classified as discontinued
operations for all periods presented. These Notes to
Consolidated Financial Statements, except where otherwise
indicated, relate to continuing operations only.
Fiscal
Year
The Companys fiscal year ends on the Saturday closest to
January 31. Fiscal years 2009, 2008 and 2007 ended on
January 30, 2010, January 31, 2009, and
February 2, 2008, respectively. Fiscal years 2009, 2008,
and 2007 contain 52 weeks of results. References to years
in these financial statements and notes relate to fiscal years
rather than calendar years.
Use of
Estimates
Management makes estimates and assumptions that affect the
amounts reported within the Consolidated Financial Statements.
Actual results could differ from these estimates.
Net
Sales
Net sales (sales) for transactions at the
Companys retail stores are recognized at the time the sale
is made to the customer. Sales for wholesale and
e-commerce
transactions are recognized when title passes and the risks or
rewards of ownership have transferred to the customer based on
the shipping terms, the price is fixed and determinable, and
collectibility is reasonably assured. All sales are net of
estimated returns, current promotional discounts and exclude
sales tax.
The Company has established an allowance for merchandise returns
and markdowns based on historical experience, product
sell-through performance by product and customer, current and
historical trends in the footwear industry and changes in demand
for its products. The returns allowance is recorded as a
reduction to revenues for the estimated sales value of the
projected merchandise returns and as a reduction in cost of
sales for the corresponding cost amount. Allowances for
markdowns are recorded as a reduction of revenue based on
historical experience. From time to time actual results will
vary from the estimates that were previously established. Due to
the existence of monitoring systems, the Companys
visibility into its wholesale customers inventory levels
and ongoing communication with its wholesale customers, the
Company is able to identify and reflect in its financial
statements in a timely manner variances from estimates
previously established.
62
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Shipping
and Handling
Products are sold Free On Board (FOB) shipping point
for wholesale customers. Any shipping charges that the Company
pays are recorded as cost of sales and any reimbursement is
recorded as revenue.
Gift
Cards
The Company records a liability in the period in which a gift
card is issued and proceeds are received. As gift cards are
redeemed, this liability is reduced and revenue is recognized as
a sale. The estimated value of gift cards expected to go unused
is recognized ratably in proportion to actual redemptions as
gift cards are redeemed.
Total
Cost of Sales
Total cost of sales includes the cost of merchandise sold and
the Companys buying, occupancy, warehousing, product
development and product movement costs, as well as depreciation
of stores and the distribution centers, net litigation charges
related to intellectual property, store impairment charges and
tradename impairments.
Rent
Expense
Certain of the Companys lease agreements provide for
scheduled rent increases during the lease term, as well as
provisions for renewal options. Rent expense is recognized on a
straight-line basis over the term of the lease from the time at
which the Company takes possession of the property. In instances
where failure to exercise renewal options would result in an
economic penalty, the calculation of straight-line rent expense
includes renewal option periods. Also, landlord-provided tenant
improvement allowances are recorded in other liabilities and
amortized as a credit to rent expense over the term of the lease.
Pre-Opening
Expenses
Costs associated with the opening of new stores are expensed as
incurred.
Advertising
Costs
Advertising costs and sales promotion costs are expensed at the
time the advertising takes place. Selling, general and
administrative expenses include advertising and sales promotion
costs of $145.5 million, $160.9 million and
$131.8 million in 2009, 2008 and 2007, respectively.
Co-operative
Advertising
The Company engages in co-op advertising programs with some of
its wholesale customers. Co-op advertising funds are available
to all wholesale customers in good standing. Wholesale customers
receive reimbursement under this program if they meet
established advertising guidelines and trademark requirements.
Costs are accrued on the basis of sales to qualifying customers
and accounted for as an operating expense if the Company
receives, or will receive, an identifiable benefit in exchange
for the consideration and the Company can reasonably estimate
the fair value of the benefit identified.
Share-Based
Compensation Expense
Compensation expense associated with share-based awards is
recognized over the requisite service period, which for the
Company is the period between the grant date and the
awards stated vesting term.
Share-based awards are expensed under the straight-line
attribution method, with the exception of market or
performance-based nonvested shares that are expensed under the
tranche specific attribution method.
63
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The amount of share-based compensation recognized during a
period is based on the value of the portion of the awards that
are expected to vest. Forfeitures are estimated at the time of
grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. This analysis is
evaluated quarterly and the forfeiture rate is adjusted as
necessary. For performance-based stock-settled stock
appreciation rights (SARs), compensation expense is
recorded over the vesting period based on estimates of achieving
the performance goal. Ultimately, with the exception of
market-based awards, the actual expense recognized over the
vesting period will be based on only those shares that vest.
Income
Taxes
The Company accounts for income taxes under the asset and
liability method, which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences
of events that have been included in the financial statements.
Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial
statements and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are
expected to reverse. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in income in
the period that includes the enactment date.
The Companys estimate of uncertainty in income taxes is
based on the framework established in the income taxes
accounting guidance. This guidance addresses the determination
of how tax benefits claimed or expected to be claimed on a tax
return should be recorded in the financial statements. The
Company recognizes the tax benefit from an uncertain tax
position only if it is more likely than not that the tax
position will be sustained on examination by the taxing
authorities, based on the technical merits of the position. The
Company includes its reserve for unrecognized tax benefits, as
well as related accrued penalties and interest, in other long
term liabilities on its Consolidated Balance Sheets and in the
provision for income taxes in its Consolidated Statements of
Earnings (Loss).
The Company records valuation allowances against its deferred
tax assets, when necessary, in accordance with the framework
established in the income taxes accounting guidance. Realization
of deferred tax assets (such as net operating loss
carryforwards) is dependent on future taxable earnings and is
therefore uncertain. The Company assesses the likelihood that
its deferred tax assets in each of the jurisdictions in which it
operates will be recovered from future taxable income. Deferred
tax assets are reduced by a valuation allowance to recognize the
extent to which, more likely than not, the future tax benefits
will not be realized.
Cash
and Cash Equivalents
Cash equivalents consist of liquid investments with an original
maturity of three months or less. Amounts due from banks and
credit card companies of $12.3 million and
$14.2 million for the settlement of credit card
transactions are included in cash and cash equivalents as of
January 30, 2010, and January 31, 2009, respectively,
as they are generally collected within three business days. Cash
equivalents are stated at cost, which approximates fair value.
Reserve
for Uncollectible Accounts Receivable
The Company makes ongoing estimates relating to the
collectibility of its accounts receivable and maintains a
reserve for estimated losses resulting from the inability of its
customers to make required payments. In determining the amount
of the reserve, the Company considers its historical level of
credit losses and makes judgments about the creditworthiness of
significant customers based on ongoing credit evaluations. These
evaluations include, but are not limited to, analyzing its
customers financial statements, maintaining a credit watch
list to monitor accounts receivable exposure and reviewing the
customers prior payment history.
64
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories
Merchandise inventories in the Companys stores are valued
by the retail method and are stated at the lower of cost,
determined using the
first-in,
first-out (FIFO) basis, or market. The retail method
is widely used in the retail industry due to its practicality.
Under the retail method, cost is determined by applying a
calculated
cost-to-retail
ratio across groupings of similar items, known as departments.
As a result, the retail method results in an averaging of
inventory costs across similar items within a department. The
cost-to-retail
ratio is applied to ending inventory at its current owned retail
valuation to determine the cost of ending inventory on a
department basis. Current owned retail represents the retail
price for which merchandise is offered for sale on a regular
basis reduced for any permanent or clearance markdowns. As a
result, the retail method normally results in an inventory
valuation that approximates a traditional FIFO cost basis.
Wholesale inventories are valued at the lower of cost or market
using the FIFO method.
The Company makes ongoing estimates relating to the net
realizable value of inventories, based upon its assumptions
about future demand and market conditions. If the Companys
estimate of the net realizable value of its inventory is less
than the cost of the inventory recorded on its books, a reserve
is recorded equal to the difference between the cost of the
inventory and the estimated net realizable value. If changes in
market conditions result in reductions in the estimated net
realizable value of the Companys inventory below the
previous estimate, the Company increases its reserve in the
period in which it made such a determination. If changes in
market conditions result in an increase in the estimated net
realizable value of the Companys inventory above its
previous estimate, such recoveries would be recognized as the
related goods are sold.
Substantially all of the Companys inventories are finished
goods.
Property
and Equipment
Property and equipment are recorded at cost and are depreciated
on a straight-line basis over their estimated useful lives. The
costs of repairs and maintenance are expensed when incurred,
while expenditures for store remodels, refurbishments and
improvements that significantly add to the productive capacity
or extend the useful life of an asset are capitalized. Projects
in progress are stated at cost, which includes the cost of
construction and other direct costs attributable to the project.
No provision for depreciation is made on projects in progress
until such time as the relevant assets are completed and put to
use. The estimated useful life for each major class of property
and equipment is as follows:
|
|
|
Buildings
|
|
10 to 30 years
|
Leasehold improvements
|
|
the lesser of 10 years or the remaining expected lease term that
is reasonably assured (which may exceed the current
non-cancelable term)
|
Furniture, fixtures and equipment
|
|
2 to 10 years
|
Property under capital lease
|
|
10 to 30 years
|
The following is a summary of the components of property and
equipment:
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
Buildings and leasehold improvements
|
|
$
|
712.8
|
|
|
$
|
731.7
|
|
Furniture, fixtures and equipment
|
|
|
655.7
|
|
|
|
686.7
|
|
Property under capital leases
|
|
|
1.0
|
|
|
|
3.1
|
|
Projects in progress
|
|
|
33.6
|
|
|
|
37.1
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,403.1
|
|
|
$
|
1,458.6
|
|
|
|
|
|
|
|
|
|
|
65
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Depreciation expense for 2009, 2008 and 2007 was
$121.5 million, $116.9 million and
$102.5 million, respectively.
Property and equipment are reviewed for recoverability on a
store-by-store
basis if an indicator of impairment exists to determine whether
the carrying amount of the assets is recoverable. Undiscounted
estimated future cash flows are used to determine if impairment
exists. If impairment exists, the Company uses discounted cash
flows to calculate impairment. The Company uses current
operating results and historical performance to estimate future
cash flows on a
store-by-store
basis. Excluding exit costs as discussed in Note 3, total
impairment charges related to assets held and used were
$6.0 million, $18.1 million, and $1.9 million in
2009, 2008 and 2007, respectively. These charges are included in
cost of sales within the Consolidated Statement of Earnings
(Loss). Of the $6.0 million impairment charge in 2009,
$4.8 million is included in the Payless Domestic reporting
segment, $1.0 million is included in the PLG Retail
reporting segment and $0.2 million is included in the
Payless International reporting segment.
Insurance
Programs
The Company retains its normal expected losses related primarily
to workers compensation, physical loss to property and
business interruption resulting from such loss and comprehensive
general, product, and vehicle liability. The Company purchases
third-party coverage for losses in excess of the normal expected
levels. Provisions for losses expected under these programs are
recorded based upon estimates of the aggregate liability for
claims incurred utilizing actuarial calculations based on
historical results.
Foreign
Currency Translation
Local currencies are the functional currencies for most foreign
subsidiaries. Accordingly, assets and liabilities of these
subsidiaries are translated at the rate of exchange at the
balance sheet date. Adjustments from the translation process are
accumulated as part of other comprehensive income (loss) and are
included as a separate component of shareowners equity.
The changes in foreign currency translation adjustments were not
adjusted for income taxes since they relate to indefinite term
investments in
non-United
States subsidiaries. Income and expense items of these
subsidiaries are translated at average rates of exchange. As of
fiscal year-end 2009, 2008 and 2007, cumulative translation
adjustments included in accumulated other comprehensive income
(loss) were $12.8 million, $4.8 million and
$23.7 million, respectively.
For those foreign subsidiaries operating in a highly
inflationary economy or having the U.S. Dollar as their
functional currency, net non-monetary assets are translated at
historical rates and net monetary assets are translated at
current rates. Transaction adjustments are included in the
determination of net earnings (loss).
Asset
Retirement Obligations
The Company records a liability equal to the fair value of the
estimated future cost to retire an asset, if the
liabilitys fair value can be reasonably estimated. The
Companys asset retirement obligation (ARO)
liabilities are primarily associated with the disposal of
personal property and trade fixtures which, at the end of a
lease, the Company is contractually obligated to remove in order
to restore the facility back to a condition specified in the
lease agreement. The Company estimates the fair value of these
liabilities based on current store closing costs and discounts
the costs back as if they were to be performed at the inception
of the lease. At the inception of such a lease, the Company
records the ARO as a liability and also records a related asset
in an amount equal to the estimated fair value of the liability.
The capitalized asset is then depreciated on a straight-line
basis over the useful life of the asset. Upon retirement of the
asset, any difference between the actual retirement costs
incurred and the previously recorded estimated ARO liability is
recognized as a gain or loss in the Consolidated Statements of
Earnings (Loss).
66
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys ARO liability as of January 30, 2010 and
January 31, 2009 was $8.2 million and
$8.4 million, respectively. There were no significant
liabilities incurred, liabilities settled, nor accretion expense
as of January 30, 2010 and January 31, 2009.
Accounting
for Goodwill
The Company assesses goodwill, which is not subject to
amortization, for impairment on an annual basis and also at any
other date when events or changes in circumstances indicate that
the book value of these assets may exceed their fair value. This
assessment is performed at a reporting unit level. A reporting
unit is a component of a segment that constitutes a business,
for which discrete financial information is available, and for
which the operating results are regularly reviewed by
management. The Company develops an estimate of the fair value
of each reporting unit using both a market approach and an
income approach. If potential for impairment exists, the fair
value of the reporting unit is subsequently measured against the
fair value of its underlying assets and liabilities, excluding
goodwill, to estimate an implied fair value of the reporting
units goodwill.
The estimate of fair value is highly subjective and requires
significant judgment related to the estimate of the magnitude
and timing of future reporting unit cash flows. If the Company
determines that the estimated fair value of any reporting unit
is less than the reporting units carrying value, then it
will recognize an impairment charge. As of January 30,
2010, the Companys goodwill balance was
$279.8 million.
Accounting
for Intangible Assets
Indefinite-lived intangible assets are not amortized, but are
tested for impairment annually, or more frequently if
circumstances indicate potential impairment, through a
comparison of fair value to its carrying amount. Favorable
leases, certain trademarks and other intangible assets with
finite lives are amortized over their useful lives using the
straight-line method. Customer relationships are amortized using
an economic patterning technique based on when the benefits of
the asset are expected to be used.
The estimated useful life for each class of intangible assets is
as follows:
|
|
|
Favorable lease rights
|
|
A weighted-average period of 5 years. Favorable lease
rights are amortized over the term of the underlying lease,
including renewal options in instances where failure to exercise
renewals would result in an economic penalty.
|
Tradenames and other intangible assets
|
|
4 to 20 years
|
Customer relationships
|
|
2 to 8 years
|
Each period the Company evaluates whether events and
circumstances warrant a revision to the remaining estimated
useful life of each intangible asset. If the Company were to
determine that events and circumstances warrant a change to the
estimate of an intangible assets remaining useful life,
then the remaining carrying amount of the intangible asset would
be amortized prospectively over that revised remaining useful
life.
The estimate of fair value is highly subjective and requires
significant judgment. If the Company determines that the
estimated fair value of any intangible asset is less than the
reporting units carrying value, then it will recognize an
impairment charge. The Companys intangible assets
book value, net of amortization, was $445.5 million as of
January 30, 2010.
Derivatives
The Company participates in interest rate related derivative
instruments to manage its exposure on its debt instruments and
forward contracts to hedge a portion of certain foreign currency
purchases. The Company records all derivative instruments on the
Consolidated Balance Sheet as either assets or liabilities
measured at fair value in accordance with the framework
established for derivatives and hedging and the framework
established for fair value
67
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
measurements and disclosures. For interest rate contracts, the
Company uses a
mark-to-market
valuation technique based on an observable interest rate yield
curve and adjusts for credit risk. For foreign currency
contracts, the Company uses a
mark-to-market
technique based on observable foreign currency exchange rates
and adjusts for credit risk. Changes in the fair value of these
derivative instruments are recorded either through net earnings
(loss) or as other comprehensive income (loss), depending on the
type of hedge designation. Gains and losses on derivative
instruments designated as cash flow hedges are reported in other
comprehensive income (loss) and reclassified into earnings in
the periods in which earnings are impacted by the hedged item.
Accounting
for Contingencies
The Company is involved in various legal proceedings that arise
from time to time in the ordinary course of business. Except for
income tax contingencies, it records accruals for contingencies
to the extent that it concludes that their occurrence is
probable and that the related liabilities are estimable and it
records anticipated recoveries under existing insurance
contracts when assured of recovery. The Company considers many
factors in making these assessments including the progress of
the case, opinions or views of legal counsel, prior case law,
the experience of the Company or other companies in similar
cases, and its intent on how to respond. Because litigation and
other contingencies are inherently unpredictable and excessive
verdicts do occur, these assessments can involve a series of
complex judgments about future events and can rely heavily on
estimates and assumptions.
Supplemental
Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended
|
|
|
January 30,
|
|
January 31,
|
|
February 2,
|
(Dollars in millions)
|
|
2010
|
|
2009
|
|
2008
|
|
Interest paid
|
|
$
|
60.1
|
|
|
$
|
69.1
|
|
|
$
|
34.5
|
|
Income taxes paid
|
|
$
|
14.3
|
|
|
$
|
7. 4
|
|
|
$
|
13.1
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued capital additions
|
|
$
|
13.1
|
|
|
$
|
16.7
|
|
|
$
|
25.3
|
|
Capital lease additions
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1 .2
|
|
On August 17, 2007, the Company completed the acquisition
of 100% of the equity of PLG. The purchase price of PLG was
approximately $787 million, net of cash acquired, including
transaction costs. Effective March 30, 2007, the Company
acquired 100% of the partnership interest of Collective
Licensing, LP (Collective Licensing) for
approximately $91 million, net of cash acquired. Net assets
for both acquisitions were recorded at their estimated fair
values, and operating results were included in the
Companys Consolidated Financial Statements as of the dates
of acquisition.
Pro
forma Financial Information
The following pro forma combined results of operations for the
52 weeks ended February 2, 2008 for the acquisitions
of PLG and Collective Licensing have been provided for
illustrative purposes only and do not purport to be indicative
of the actual results that would have been achieved by the
combined company for the periods presented or that will be
achieved by the combined company in the future.
The pro forma combined results of operations assume that the
acquisitions of PLG and Collective Licensing occurred at the
beginning of the 2007 fiscal year. The results have been
prepared by adjusting the historical results of the Company to
include the historical results of PLG and Collective Licensing,
the incremental interest expense and the impact of the
preliminary purchase price allocations discussed above. The pro
forma combined results of operations do not include any cost
savings that may result from the combination of the Company and
PLG and Collective Licensing or any estimated costs that will be
incurred by the Company to integrate the businesses.
68
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
52 Weeks Ended
|
|
|
|
February 2, 2008
|
|
|
|
(Dollars
|
|
|
|
in millions, except per share)
|
|
|
Net sales
|
|
$
|
3,495.3
|
|
Net earnings attributable to Collective Brands, Inc.
|
|
|
37.6
|
|
|
|
|
|
|
Basic earnings per share attributable to Collective Brands,
Inc.
|
|
$
|
0.58
|
|
Diluted earnings per share attributable to Collective Brands,
Inc.
|
|
$
|
0.57
|
|
During 2007, the Companys Board of Directors approved a
plan to shift to a new distribution model. As part of the plan,
the Company opened a new distribution center in Brookville,
Ohio, which began operation in the fourth quarter of 2008. This
distribution center is in addition to the Companys
Redlands, California distribution center that commenced
operations in the second quarter of 2007. The Company closed its
distribution center in Topeka, KS in the second quarter of 2009.
The Company has incurred and paid all of the exit costs related
to closing its distribution center in Topeka, KS. The costs,
which have been incurred since the first quarter of 2007, total
approximately $12 million, consisting of approximately
$3 million of non-cash accelerated depreciation expenses,
approximately $6 million for employee severance expenses,
and approximately $3 million related to contract
termination and other exit costs. The exit costs are recorded as
cost of sales in the Consolidated Statements of Earnings and are
included in the Payless Domestic segment.
As part of the purchase price allocation of the Companys
acquisition of PLG, the Company incurred certain exit costs
(PLG Exit Costs). These costs include employee
severance for certain PLG corporate employees as well as
employee severance, contract termination and other costs related
to the Companys closure of PLGs Burnaby, British
Columbia administrative offices, manufacturing facility and
distribution center and Huntington, Indiana distribution center.
The Company closed the Huntington, Indiana distribution center
during the third quarter of 2009.
The significant components of the PLG Exit Costs incurred as of
January 30, 2010, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Costs
|
|
|
Accrual
|
|
|
|
|
|
|
|
|
Accrual
|
|
|
|
Incurred as of
|
|
|
Balance as of
|
|
|
52 Weeks Ended January 30,
|
|
|
Balance as of
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
2010
|
|
|
January 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Costs Incurred
|
|
|
Cash Payments
|
|
|
2010
|
|
|
|
(Dollars in millions)
|
|
|
Employee severance costs
|
|
$
|
16.4
|
|
|
$
|
5.7
|
|
|
$
|
|
|
|
$
|
(4.8
|
)
|
|
$
|
0.9
|
|
Contract termination and other costs
|
|
|
2.5
|
|
|
|
1.0
|
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18.9
|
|
|
$
|
6.7
|
|
|
$
|
|
|
|
$
|
(5.6
|
)
|
|
$
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4
|
Discontinued
Operations
|
The results of operations for the 52 weeks ended January 30,
2010, January 31, 2009, and February 2, 2008, for Parade and 26
Payless stores closed in connection with the 2004 restructuring
plan are classified as discontinued operations within the
Payless Domestic segment.
69
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 5
|
Quarterly
Results (Unaudited)
|
The tables below summarize quarterly results for the last two
years. Quarterly results are determined in accordance with
annual accounting policies and all adjustments (consisting only
of normal recurring adjustments, except as noted below)
necessary for a fair statement of the results for the interim
periods have been included; however, certain items are based
upon estimates for the entire year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
Quarter
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Year
|
|
|
|
(Dollars in millions, except per share)
|
|
|
Net sales
|
|
$
|
862.9
|
|
|
$
|
836.3
|
|
|
$
|
867.0
|
|
|
$
|
741.7
|
|
|
$
|
3,307.9
|
|
Gross margin
|
|
|
309.8
|
|
|
|
275.7
|
|
|
|
311.8
|
|
|
|
243.7
|
|
|
|
1,141.0
|
|
Net earnings (loss) from continuing operations
|
|
|
38.3
|
|
|
|
18.8
|
|
|
|
38.2
|
|
|
|
(7.1
|
)
|
|
|
88.2
|
|
(Loss) earnings from discontinued operations, net of income
taxes
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
0.3
|
|
|
|
0.1
|
|
Net earnings attributable to noncontrolling interests
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
(1.2
|
)
|
|
|
(4.1
|
)
|
|
|
(5.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Collective Brands,
Inc.
|
|
$
|
38.0
|
|
|
$
|
18.7
|
|
|
$
|
36.9
|
|
|
$
|
(10.9
|
)
|
|
$
|
82.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to Collective
Brands, Inc. common
shareholders:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) from continuing operations
|
|
$
|
0.59
|
|
|
$
|
0.29
|
|
|
$
|
0.58
|
|
|
$
|
(0.18
|
)
|
|
$
|
1.29
|
|
Earnings from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to Collective
Brands, Inc. common shareholders
|
|
$
|
0.59
|
|
|
$
|
0.29
|
|
|
$
|
0.58
|
|
|
$
|
(0.17
|
)
|
|
$
|
1.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to Collective
Brands, Inc. common
shareholders:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
$
|
0.59
|
|
|
$
|
0.29
|
|
|
$
|
0.57
|
|
|
$
|
(0.18
|
)
|
|
$
|
1.28
|
|
Earnings from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to Collective
Brands, Inc. common shareholders
|
|
$
|
0.59
|
|
|
$
|
0.29
|
|
|
$
|
0.57
|
|
|
$
|
(0.17
|
)
|
|
$
|
1.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
Quarter
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth(2)
|
|
|
Year
|
|
|
|
(Dollars in millions, except per share)
|
|
|
Net sales
|
|
$
|
932.4
|
|
|
$
|
911.7
|
|
|
$
|
862.7
|
|
|
$
|
735.2
|
|
|
$
|
3,442.0
|
|
Gross margin
|
|
|
305.1
|
|
|
|
282.8
|
|
|
|
298.7
|
|
|
|
122.6
|
|
|
|
1,009.2
|
|
Net earnings (loss) from continuing operations
|
|
|
21.7
|
|
|
|
9.6
|
|
|
|
49.2
|
|
|
|
(139.8
|
)
|
|
|
(59.3
|
)
|
(Loss) earnings from discontinued operations, net of income taxes
|
|
|
(0.4
|
)
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
(0.3
|
)
|
|
|
(0.7
|
)
|
Net earnings attributable to noncontrolling interests
|
|
|
(1.6
|
)
|
|
|
(1.4
|
)
|
|
|
(1.8
|
)
|
|
|
(3.9
|
)
|
|
|
(8.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Collective Brands, Inc.
|
|
$
|
19.7
|
|
|
$
|
8.1
|
|
|
$
|
47.5
|
|
|
$
|
(144.0
|
)
|
|
$
|
(68.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to Collective
Brands, Inc. common
shareholders:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
$
|
0.31
|
|
|
$
|
0.13
|
|
|
$
|
0.74
|
|
|
$
|
(2.28
|
)
|
|
$
|
(1.08
|
)
|
Loss from discontinued operations
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to Collective
Brands, Inc. common shareholders
|
|
$
|
0.30
|
|
|
$
|
0.13
|
|
|
$
|
0.74
|
|
|
$
|
(2.28
|
)
|
|
$
|
(1.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to Collective
Brands, Inc. common
shareholders:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
$
|
0.31
|
|
|
$
|
0.13
|
|
|
$
|
0.74
|
|
|
$
|
(2.28
|
)
|
|
$
|
(1.08
|
)
|
Loss from discontinued operations
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to Collective
Brands, Inc. common shareholders
|
|
$
|
0.30
|
|
|
$
|
0.13
|
|
|
$
|
0.74
|
|
|
$
|
(2.28
|
)
|
|
$
|
(1.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Earnings (loss) per share were computed independently for each
of the quarters presented. The sum of the quarters may not equal
the total year amount due to the impact of changes in average
quarterly shares outstanding. |
|
(2) |
|
Fourth quarter 2008 financial information includes the impact of
the impairment of goodwill ($42.0 million), the impairment
of tradenames ($88.2 million) and tangible asset impairment
and other charges ($19.3 million), partially offset by net
litigation insurance recoveries ($16.8 million). |
71
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 6
|
Intangible
Assets and Goodwill
|
The following is a summary of the Companys intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
Favorable lease rights:
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
30.4
|
|
|
$
|
33.2
|
|
Less: accumulated amortization
|
|
|
(22.2
|
)
|
|
|
(22.3
|
)
|
|
|
|
|
|
|
|
|
|
Carrying amount, end of period
|
|
|
8.2
|
|
|
|
10.9
|
|
|
|
|
|
|
|
|
|
|
Customer relationships:
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
|
76.3
|
|
|
|
76.3
|
|
Less: accumulated amortization
|
|
|
(36.5
|
)
|
|
|
(22.0
|
)
|
|
|
|
|
|
|
|
|
|
Carrying amount, end of period
|
|
|
39.8
|
|
|
|
54.3
|
|
|
|
|
|
|
|
|
|
|
Trademarks and other intangible assets:
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
|
38.5
|
|
|
|
21.5
|
|
Less: accumulated amortization
|
|
|
(6.5
|
)
|
|
|
(6.2
|
)
|
|
|
|
|
|
|
|
|
|
Carrying amount, end of period
|
|
|
32.0
|
|
|
|
15.3
|
|
|
|
|
|
|
|
|
|
|
Total carrying amount of intangible assets subject to
amortization
|
|
|
80.0
|
|
|
|
80.5
|
|
Indefinite-lived trademarks
|
|
|
365.5
|
|
|
|
365.5
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
445.5
|
|
|
$
|
446.0
|
|
|
|
|
|
|
|
|
|
|
Amortization expense on intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended
|
|
|
January 30,
|
|
January 31,
|
|
February 2,
|
|
|
2010
|
|
2009
|
|
2007
|
|
|
(Dollars in millions)
|
|
Amortization expense on intangible assets
|
|
$
|
19.5
|
|
|
$
|
21.8
|
|
|
$
|
12.6
|
|
The Company expects amortization expense for the next five years
to be as follows (In millions):
|
|
|
|
|
Year
|
|
Amount
|
|
2010
|
|
$
|
16.6
|
|
2011
|
|
|
13.6
|
|
2012
|
|
|
11.1
|
|
2013
|
|
|
9.6
|
|
2014
|
|
|
8.2
|
|
72
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a summary of the carrying amount of goodwill,
by reporting segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payless
|
|
|
PLG
|
|
|
PLG
|
|
|
|
|
|
|
Domestic
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
Balance as of February 2, 2008
|
|
$
|
40.2
|
|
|
$
|
238.8
|
|
|
$
|
42.0
|
|
|
$
|
321.0
|
|
Adjustment to PLG purchase price allocation
|
|
|
|
|
|
|
2.6
|
|
|
|
|
|
|
|
2.6
|
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
(42.0
|
)
|
|
|
(42.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 31, 2009
|
|
$
|
40.2
|
|
|
$
|
241.4
|
|
|
$
|
|
|
|
$
|
281.6
|
|
Adjustment to PLG purchase price allocation
|
|
|
|
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 30, 2010
|
|
$
|
40.2
|
|
|
$
|
239.6
|
|
|
$
|
|
|
|
$
|
279.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated goodwill impairment losses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(42.0
|
)
|
|
$
|
(42.0
|
)
|
During the 52 weeks ended January 30, 2010, the
Company made adjustments, primarily based on changes to exit
liabilities, to the PLG purchase price allocation totaling
$1.8 million which resulted in a decrease in goodwill for
the PLG Wholesale segment.
On August 17, 2007, the Company entered into a
$725 million term loan (the Term Loan Facility)
and a $350 million Amended and Restated Loan and Guaranty
Agreement (the Revolving Loan Facility and
collectively with the Term Loan Facility, the Loan
Facilities). The Loan Facilities rank pari passu in
right of payment and have the lien priorities specified in an
intercreditor agreement executed by the administrative agent to
the Term Loan Facility and the administrative agent to the
Revolving Loan Facility. The Loan Facilities are senior secured
loans guaranteed by substantially all of the assets of the
borrower and the guarantors, with the Revolving Facility having
first priority in accounts receivable, inventory and certain
related assets and the Term Loan Facility having first priority
in substantially all of the borrowers and the
guarantors remaining assets, including intellectual
property, the capital stock of each domestic subsidiary, any
intercompany notes owned by the borrower and the guarantors, and
66% of the stock of
non-U.S. subsidiaries
directly owned by borrower or a guarantor.
The Term Loan Facility matures on August 17, 2014. The Term
Loan Facility amortizes quarterly in annual amounts of 1.0% of
the original amount, with the final installment payable on the
maturity date. The Term Loan Agreement provides for mandatory
prepayments, subject to certain exceptions and limitations and
in certain instances, reinvestment rights, from (a) the net
cash proceeds of certain asset sales, insurance recovery events
and debt issuances, each as defined in the Term Loan Agreement,
and (b) 25% of excess cash flow, as defined in the Term
Loan Agreement, subject to reduction. The mandatory prepayment
is not required if the total leverage ratio, as defined in the
Term Loan Agreement, is less than 2.0 to 1.0 at fiscal year end.
Based on the Companys leverage ratio as of
January 30, 2010, it is not required to make such a
mandatory prepayment in 2010. Loans under the Term Loan Facility
will bear interest at the Borrowers option, at either
(a) the Base Rate as defined in the Term Loan Facility
agreement plus 1.75% per annum or (b) the Eurodollar
(LIBOR-indexed) Rate plus 2.75% per annum, with such margin to
be agreed for any incremental term loans.
The Revolving Loan Facility matures on August 17, 2012. The
Revolving Loan Facility bears interest at the London Inter-Bank
Offer Rate (LIBOR), plus a variable margin of 0.875%
to 1.5%, or the base rate as defined in the agreement governing
the Revolving Loan Facility, based upon certain borrowing levels
and commitment fees payable on the unborrowed balance of 0.25%.
The facility will be available as needed for general corporate
purposes. The variable interest rate including the applicable
variable margin at January 30, 2010, was 1.25%. As of
January 30, 2010, the Companys borrowing base on its
Revolving Loan Facility was $256.8 million less
$33.8 million in outstanding letters of credit, or
$223.0 million.
73
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In July 2003, the Company sold $200.0 million of
8.25% Senior Subordinated Notes (the Notes) for
$196.7 million, due 2013. The discount of $3.3 million
is being amortized to interest expense over the life of the
Notes. The Notes are guaranteed by all of the Companys
domestic subsidiaries. Interest on the Notes is payable
semi-annually. Under the terms of the note covenants the Company
may, on any one or more occasions, redeem all or a part of the
Notes at the redemption prices set forth below, plus accrued and
unpaid interest, if any, on the Notes redeemed, to the
applicable redemption date:
|
|
|
|
|
Redemption Period
|
|
Percentage
|
|
|
Through July 31, 2010
|
|
|
102.750
|
%
|
August 1, 2010 through July 31, 2011
|
|
|
101.375
|
%
|
August 1, 2011 and thereafter
|
|
|
100.000
|
%
|
The Loan Facilities and the Senior Subordinated Notes contain
various covenants including those that may limit the
Companys ability to pay dividends, repurchase stock,
accelerate the retirement of debt or make certain investments.
As of January 30, 2010, the Company was in compliance with
all of its covenants.
In the fourth quarter of 2009, not including the required
quarterly payment, the Company repaid $18.0 million of its
outstanding Term Loan Facility balance and redeemed
$22.0 million of its outstanding Senior Subordinated Notes.
As a result of these payments, the Company recorded a loss on
extinguishment of debt of $1.2 million.
Long-term debt and capital-lease obligations were:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Term Loan
Facility(1)
|
|
$
|
673.4
|
|
|
$
|
715.9
|
|
Senior Subordinated
Notes(2)
|
|
|
173.7
|
|
|
|
196.2
|
|
Revolving Loan Facility
|
|
|
|
|
|
|
|
|
Capital-lease obligations
|
|
|
1.0
|
|
|
|
1.1
|
|
Other long-term debt
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
849.3
|
|
|
|
913.2
|
|
Less: current maturities of long-term debt
|
|
|
6.9
|
|
|
|
24.8
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
842.4
|
|
|
$
|
888.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of January 30, 2010 and January 31, 2009, the fair
value of the Term Loan was $653.2 million and
$486.8 million, respectively, based on market conditions as
of those dates and perceived risks. |
|
(2) |
|
At January 30, 2010, the $175.0 million of
8.25% Senior Subordinated Notes are recorded at
$173.7 million (net of $1.3 million discount) and the
fair value of the Senior Subordinated Notes was
$178.5 million based on recent trading activity. At
January 31, 2009, the $198 million of Senior
Subordinated Notes were recorded at $196.2 million (net of
$1.8 million discount) and the fair value of the Senior
Subordinated Notes was $158.4 million based on trading
activity as of that date. |
74
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Future debt maturities as of January 30, 2010 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Subordinated
|
|
|
Term Loan
|
|
|
Capital-Lease
|
|
|
Long-Term
|
|
|
|
|
|
|
Notes
|
|
|
Facility
|
|
|
Obligations
|
|
|
Debt
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
2010
|
|
$
|
|
|
|
$
|
6.9
|
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
7.0
|
|
2011
|
|
|
|
|
|
|
6.9
|
|
|
|
0.1
|
|
|
|
1.2
|
|
|
|
8.2
|
|
2012
|
|
|
|
|
|
|
6.9
|
|
|
|
0.1
|
|
|
|
|
|
|
|
7.0
|
|
2013
|
|
|
175.0
|
|
|
|
6.9
|
|
|
|
0.1
|
|
|
|
|
|
|
|
182.0
|
|
2014
|
|
|
|
|
|
|
645.8
|
|
|
|
0.1
|
|
|
|
|
|
|
|
645.9
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
175.0
|
|
|
$
|
673.4
|
|
|
$
|
1.0
|
|
|
$
|
1.2
|
|
|
$
|
850.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has entered into an interest rate contract for an
initial amount of $540 million to hedge a portion of its
variable rate $725 million Term Loan Facility
(interest rate contract). The interest rate contract
provides for a fixed interest rate of approximately 7.75%,
portions of which mature on a series of dates through 2012. As
of January 30, 2010, the Company has hedged
$310 million of its Term Loan Facility.
The Company has also entered into a series of forward contracts
to hedge a portion of certain foreign currency purchases
(foreign currency contracts). The foreign currency
contracts provide for a fixed exchange rate and mature over a
series of dates through August 2010. As of January 30,
2010, the Company has hedged $13.1 million of its
forecasted foreign currency purchases.
The interest rate and foreign currency contracts are designated
as cash flow hedging instruments. The change in the fair value
of the interest rate and foreign currency contracts are recorded
as a component of accumulated other comprehensive income (loss)
(AOCI) and reclassified into earnings in the periods
in which earnings are impacted by the hedged item. The following
table presents the fair value of the Companys hedging
portfolio related to its interest rate contract and foreign
currency contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Location on
|
|
Fair Value
|
|
|
Consolidated
|
|
January 30,
|
|
January 31,
|
|
|
Balance Sheet
|
|
2010
|
|
2009
|
|
|
|
|
(Dollars in millions)
|
|
Interest rate contract
|
|
Other liabilities
|
|
$
|
5.4
|
|
|
$
|
21.5
|
|
Interest rate contract
|
|
Accrued expenses
|
|
$
|
10.0
|
|
|
$
|
|
|
Foreign currency contracts
|
|
Accrued expenses
|
|
$
|
0.1
|
|
|
$
|
|
|
Foreign currency contracts
|
|
Other current assets
|
|
$
|
0.1
|
|
|
$
|
|
|
For the interest rate contract, the Company uses a
mark-to-market
valuation technique based on an observable interest rate yield
curve and adjusts for credit risk. For the foreign currency
contracts, the Company uses a
mark-to-market
valuation technique based on observable foreign currency
exchange rates and adjusts for credit risk. It is the
Companys policy to enter into derivative instruments with
terms that match the underlying exposure being hedged. As such,
the Companys derivative instruments are considered highly
effective, and the net gain or loss from hedge ineffectiveness
is not material. Realized gains or losses on the hedging
instruments occur when a
75
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
portion of the hedge settles or if it is probable that the
forecasted transaction will not occur. The impact of the
derivative instruments on the Consolidated Financial Statements
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Recognized in
|
|
|
|
|
|
|
|
|
AOCI on Derivative
|
|
|
|
Loss Reclassified from AOCI into Earnings
|
|
|
52 Weeks Ended
|
|
Location on Consolidated
|
|
52 Weeks Ended
|
|
|
January 30,
|
|
January 31,
|
|
Statement of Earnings
|
|
January 30,
|
|
January 31,
|
|
|
2010
|
|
2009
|
|
(Loss)
|
|
2010
|
|
2009
|
|
|
(Dollars in millions)
|
|
Interest rate contract
|
|
$
|
(5.6
|
)
|
|
$
|
(4.9
|
)
|
|
Interest expense
|
|
$
|
(9.5
|
)
|
|
$
|
(6.1
|
)
|
Foreign currency contracts
|
|
$
|
(0.6
|
)
|
|
$
|
|
|
|
Cost of sales
|
|
$
|
(0.6
|
)
|
|
$
|
|
|
The Company expects approximately $10 million of the fair
value of the interest rate contract recorded in AOCI to be
recognized in earnings during the next 12 months. This
amount may vary based on changes to LIBOR.
|
|
Note 9
|
Fair
Value Measurements
|
The Companys estimates of fair value for financial assets
and financial liabilities are based on the framework established
in the fair value accounting guidance. The framework is based on
the inputs used in valuation, gives the highest priority to
quoted prices in active markets, and requires that observable
inputs be used in the valuations when available. The three
levels of the hierarchy are as follows:
Level 1: observable inputs such as quoted
prices in active markets
|
|
|
|
Level 2:
|
inputs other than the quoted prices in active markets that are
observable either directly or indirectly
|
|
|
Level 3:
|
unobservable inputs in which there is little or no market data,
which requires the Company to develop its own assumptions
|
The following table presents financial assets and financial
liabilities that the Company measures at fair value on a
recurring basis (not including the Companys pension plan
assets). The Company has classified these financial assets and
liabilities in accordance with the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value Measurements
|
|
|
|
|
Quoted Prices in
|
|
Significant
|
|
Significant
|
|
|
|
|
Active Markets
|
|
Observable Other
|
|
Unobservable Inputs
|
|
|
|
|
(Level 1)
|
|
Inputs (Level 2)
|
|
(Level 3)
|
|
Total Fair Value
|
|
|
(Dollars in millions)
|
|
As of January 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
301.3
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
301.3
|
|
Foreign currency contracts
|
|
$
|
|
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
0.1
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contract
|
|
$
|
|
|
|
$
|
15.4
|
|
|
$
|
|
|
|
$
|
15.4
|
|
Foreign currency contracts
|
|
$
|
|
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
0.1
|
|
As of January 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
173.7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
173.7
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contract
|
|
$
|
|
|
|
$
|
21.5
|
|
|
$
|
|
|
|
$
|
21.5
|
|
76
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has a pension plan that covers a select group of
Payless management employees (Payless Plan) and a
pension plan that covers certain PLG employees (PLG
Plan). To calculate pension expense, the Company uses
assumptions to estimate the total benefits ultimately payable to
each management employee and allocates this cost to service
periods. The actuarial assumptions used to calculate pension
expense are reviewed annually by management for reasonableness.
The measurement date used for these plans for the 2009 actuarial
valuation was January 30, 2010.
Payless
Plan
The Payless Plan is a nonqualified, supplementary account
balance defined benefit plan for a select group of management
employees. The plan is an unfunded, noncontributory plan.
Effective January 1, 2008, the Company amended the Payless
Plan. The amendment provided the select group of management
employees a transition benefit and changed the plans
benefit formula. The change in the benefit plan did not trigger
the recognition of the plans unrecognized expense.
Included in AOCI are the following amounts that have not yet
been recognized in net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized
|
|
|
|
|
|
|
|
|
|
Prior Service
|
|
|
Unrecognized
|
|
|
|
|
|
|
Cost
|
|
|
Losses/(Gains)
|
|
|
Total AOCI
|
|
|
|
(Dollars in millions)
|
|
|
Reconciliation of accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at January 31, 2009
|
|
$
|
10.2
|
|
|
$
|
7.2
|
|
|
$
|
17.4
|
|
Amortization recognized
|
|
|
(1.6
|
)
|
|
|
(0.5
|
)
|
|
|
(2.1
|
)
|
New amounts recognized
|
|
|
|
|
|
|
6.6
|
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at January 30, 2010
|
|
$
|
8.6
|
|
|
$
|
13.3
|
|
|
$
|
21.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of unrecognized loss and prior service cost included
in AOCI and expected to be recognized in net periodic benefit
cost during fiscal year 2010 is $1.3 million and
$1.6 million, respectively.
The following information provides a summary of the funded
status of the plan, amounts recognized in the Consolidated
Balance Sheets, and major assumptions used to determine these
amounts:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
Obligation at beginning of year
|
|
$
|
40.1
|
|
|
$
|
41.0
|
|
Service cost
|
|
|
0.6
|
|
|
|
0.4
|
|
Interest cost
|
|
|
2.5
|
|
|
|
2.4
|
|
Actuarial loss (gain)
|
|
|
6.6
|
|
|
|
(1.3
|
)
|
Benefits paid
|
|
|
(3.2
|
)
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
Obligation at end of year
|
|
$
|
46.6
|
|
|
$
|
40.1
|
|
|
|
|
|
|
|
|
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.00
|
%
|
|
|
6.50
|
%
|
Salary increases
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
As the plan is unfunded, the total benefit obligation at the end
of each fiscal year is recognized as a liability on the
Consolidated Balance Sheet. Of the $46.6 million liability
recognized as of January 30, 2010, $9.6 million is
77
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recorded in accrued expenses and $37.0 million is recorded
in other liabilities. The accumulated benefit obligation as of
January 30, 2010 and January 31, 2009 was
$42.5 million and $36.8 million, respectively.
Employer benefits paid were $3.2 million in the current
year.
The components of net periodic benefit costs for the plan were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Components of pension expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
0.6
|
|
|
$
|
0.4
|
|
|
$
|
1.0
|
|
Interest cost
|
|
|
2.5
|
|
|
|
2.4
|
|
|
|
1.8
|
|
Amortization of prior service cost
|
|
|
1.6
|
|
|
|
1.6
|
|
|
|
0.5
|
|
Amortization of actuarial loss
|
|
|
0.5
|
|
|
|
0.7
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5.2
|
|
|
$
|
5.1
|
|
|
$
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.50
|
%
|
|
|
6.50
|
%
|
|
|
6.00
|
%
|
Salary increases
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
Estimated future benefit payments for the next five years and
the aggregate amount for the following five years for this plan
are:
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2010
|
|
$
|
9.6
|
|
2011
|
|
|
3.6
|
|
2012
|
|
|
3.7
|
|
2013
|
|
|
3.9
|
|
2014
|
|
|
4.1
|
|
2015-2019
|
|
|
24.1
|
|
PLG
Plan
In connection with the PLG acquisition, the Company acquired a
non-contributory defined benefit pension plan covering certain
eligible PLG associates. Effective December 31, 2006, PLG
stopped the accrual of future benefits for this plan. All
retirement benefits that employees earned as of
December 31, 2006 were preserved. Certain salaried,
management, sales and non-production hourly associates accrued
pension benefits based on the associates service and
compensation. Prior to the freezing of the plan, production
associates accrued pension benefits at a fixed unit rate based
on service.
Included in AOCI are the following amounts that have not yet
been recognized in net periodic pension cost:
|
|
|
|
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Amount at February 1, 2009
|
|
$
|
26.2
|
|
Amortization recognized
|
|
|
(1.8
|
)
|
New amounts recognized
|
|
|
(4.0
|
)
|
|
|
|
|
|
Amount at January 30, 2010
|
|
$
|
20.4
|
|
|
|
|
|
|
78
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables present information about benefit
obligations, plan assets, annual expense, assumptions and other
information about PLGs defined benefit pension plan:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
Obligation at prior measurement date
|
|
$
|
73.5
|
|
|
$
|
69.1
|
|
Service cost
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
4.5
|
|
|
|
4.4
|
|
Plan amendments
|
|
|
|
|
|
|
|
|
Actuarial loss
|
|
|
3.4
|
|
|
|
2.7
|
|
Benefits paid
|
|
|
(3.0
|
)
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
Obligation at end of year
|
|
$
|
78.4
|
|
|
$
|
73.5
|
|
|
|
|
|
|
|
|
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.90
|
%
|
|
|
6.25
|
%
|
Salary increases
|
|
|
n/a
|
|
|
|
n/a
|
|
The following table summarizes the change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Fair value of plan assets at prior measurement date
|
|
$
|
44.3
|
|
|
$
|
57.0
|
|
Actual return on plan assets
|
|
|
11.1
|
|
|
|
(15.3
|
)
|
Employer contributions
|
|
|
9.5
|
|
|
|
5.3
|
|
Benefits paid
|
|
|
(3.0
|
)
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
61.9
|
|
|
$
|
44.3
|
|
|
|
|
|
|
|
|
|
|
Underfunded status at end of year
|
|
$
|
(16.5
|
)
|
|
$
|
(29.2
|
)
|
|
|
|
|
|
|
|
|
|
The $16.5 million and $29.2 million liabilities
recognized as of January 30, 2010 and January 31,
2009, respectively, are included in other long-term liabilities
on the Consolidated Balance Sheet.
The components of net periodic benefit costs for the plan were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Interest cost
|
|
|
4.5
|
|
|
|
4.4
|
|
|
|
2.0
|
|
Expected return on assets
|
|
|
(3.6
|
)
|
|
|
(4.8
|
)
|
|
|
(2.2
|
)
|
Amortization of actuarial loss
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (income)
|
|
$
|
2.7
|
|
|
$
|
(0.4
|
)
|
|
$
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.25
|
%
|
|
|
6.50
|
%
|
|
|
6.50
|
%
|
Expected long-term return on plan assets
|
|
|
8.25
|
%
|
|
|
8.25
|
%
|
|
|
8.25
|
%
|
Salary increases
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
The accumulated benefit obligation as of January 30, 2010
and January 31, 2009 was $78.4 million and
$73.5 million, respectively.
79
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company expects $1.2 million of net loss included in
AOCI to be recognized in net periodic benefit cost during fiscal
year 2010.
In selecting the expected long-term rate of return on assets,
the Company considers the average rate of earnings expected on
the funds invested or to be invested to provide for the benefits
of this plan. This includes considering the plans asset
allocation and the expected returns likely to be earned over the
life of the plan. This basis is consistent with the prior year.
The calculation of pension expense is dependent on the
determination of the assumptions used. A 25 basis point
change in the discount rate will change annual expense by
approximately $0.2 million. A 25 basis point change in
the expected long-term return on assets will result in an
approximate change of $0.1 million in the annual expense.
As the result of stopping the accrual of future benefits, a
salary growth assumption is no longer applicable.
The long term annualized time-weighted rate of return calculated
on the basis of a three year rolling average using market values
is expected to be at least 1% higher than the composite
benchmark for the plan. Investment managers are evaluated
semi-annually against commonly accepted benchmarks to ensure
adherence to the stated strategy and that the risk posture
assumed is commensurate with the given investment style and
objectives.
The Companys written investment policy for the PLG Plan
establishes investment principles and guidelines and defines the
procedures that will be used to control, evaluate and monitor
the investment practices for the plan. An administrative
committee designated by the Board of Directors provides
investment oversight for the plan. Stated investment objectives
are:
|
|
|
|
|
Maintain a portfolio of secure assets of appropriate liquidity
and diversification that will generate investment returns,
combined with expected future contributions, that should be
sufficient to maintain the plans funded state or improve
the funding level of the plan if it is in deficit.
|
|
|
|
To control the long-term costs of the plan by maximizing return
on the assets subject to meeting the objectives above.
|
The plans target allocation per the investment policy and
weighted average asset allocations by asset category are:
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
|
|
|
|
|
|
|
|
|
Allocation
|
|
2009
|
|
|
2008
|
|
|
Domestic equity securities
|
|
48% - 58%
|
|
|
47
|
%
|
|
|
44
|
%
|
International equity securities
|
|
10% - 14%
|
|
|
10
|
%
|
|
|
10
|
%
|
Domestic fixed income securities
|
|
32% - 38%
|
|
|
41
|
%
|
|
|
39
|
%
|
Cash
|
|
0% - 5%
|
|
|
2
|
%
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
The portfolio is designed to achieve a balanced return of
current income and modest growth of capital, while achieving
returns in excess of the rate of inflation over the investment
horizon in order to preserve purchasing power of plan assets.
All plan assets are required to be invested in liquid
securities. While the Company is outside of its target range for
certain asset categories as of January 30, 2010, it is
still within the guidelines set forth by the investment policy.
The PLG pension plan assets are valued at fair value. The
Companys estimates of fair value for these pension plan
assets are based on the framework established in the fair value
accounting guidance. The three levels of the hierarchy are as
follows:
Level 1: observable inputs such as quoted
prices in active markets
|
|
|
|
Level 2:
|
inputs other than the quoted prices in active markets that are
observable either directly or indirectly
|
80
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
Level 3:
|
unobservable inputs in which there is little or no market data,
which requires the Company to develop its own assumptions
|
The following table presents the PLG pension plan assets that
the Company measures at fair value on a recurring basis. The
Company has classified these financial assets in accordance with
the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value Measurements
|
|
|
|
Quoted
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
Observable
|
|
|
Significant
|
|
|
|
|
|
|
Active
|
|
|
Other
|
|
|
Unobservable
|
|
|
Total
|
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Fair
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
|
|
(Dollars in millions)
|
|
|
As of January 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic equity securities
|
|
$
|
2.4
|
|
|
$
|
26.3
|
|
|
$
|
|
|
|
$
|
28.7
|
|
International equity securities
|
|
|
|
|
|
|
6.5
|
|
|
|
|
|
|
|
6.5
|
|
Domestic fixed income securities
|
|
|
25.2
|
|
|
|
|
|
|
|
|
|
|
|
25.2
|
|
Cash
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29.1
|
|
|
$
|
32.8
|
|
|
$
|
|
|
|
$
|
61.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic equity securities
|
|
$
|
1.7
|
|
|
$
|
17.9
|
|
|
$
|
|
|
|
$
|
19.6
|
|
International equity securities
|
|
|
|
|
|
|
4.6
|
|
|
|
|
|
|
|
4.6
|
|
Domestic fixed income securities
|
|
|
17.1
|
|
|
|
|
|
|
|
|
|
|
|
17.1
|
|
Cash
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21.8
|
|
|
$
|
22.5
|
|
|
$
|
|
|
|
$
|
44.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company does not plan to contribute to this pension plan
during the 2010 fiscal year. The Companys future
contributions will depend upon market conditions, interest rates
and other factors and may vary significantly in future years
based upon the plans funded status as of the 2010
measurement date.
Estimated future benefit payments for the next five years and
the aggregate amount for the following five years for this plan
are:
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
2010
|
|
$
|
3.2
|
|
2011
|
|
|
3.3
|
|
2012
|
|
|
3.5
|
|
2013
|
|
|
3.7
|
|
2014
|
|
|
3.9
|
|
2015-2019
|
|
|
22.9
|
|
|
|
Note 11
|
Defined
Contribution Plans
|
The Company has two qualified profit sharing plans offered by
Payless ShoeSource (Payless Profit Sharing Plans)
that cover full-time associates who have worked for the Company
for 60 days and have attained age 21 or part-time
associates who have completed one full year of employment and
have attained age 21. The Payless Profit Sharing Plans are
defined contribution plans that provide for Company
contributions at the discretion of the Board of Directors.
Full-time associates are eligible for a Company matching
contribution upon completion of 180 days of employment.
Part-time associates must complete one full year of employment
to be eligible for the Company match. Effective
February 26, 2009, beginning with the 2009 plan year, the
Payless Profit Sharing Plans were
81
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
amended to provide that the Company has discretion to contribute
up to 2.5% of its pre-tax earnings from continuing operations as
defined by the Payless Profit Sharing Plans. Associate
contributions up to 5% of their pay are eligible for the match.
Prior to the February 26, 2009 amendment, the Payless
Profit Sharing Plans provided for a minimum guaranteed Company
matching contribution of $0.25 per $1.00 contributed by
Associates up to 5% of their pay. The maximum Company matching
contribution to be made by the Company was 2.5% of the
Companys pre-tax earnings from continuing operations.
Associates may voluntarily contribute to the Payless Profit
Sharing Plans on both a pre-tax and after-tax basis. Total
profit sharing contributions made for the Plans for the 2009,
2008 and 2007 plan years were $2.6 million,
$2.4 million and $3.0 million, respectively.
PLG also provides a qualified defined contribution plan for its
associates. This qualified defined contribution plan enables
eligible associates to defer a portion of their salary to be
held by the trustees of the plan. Total profit sharing
contributions for this plan for 2009, 2008 and 2007 plan years
were $2.6 million, $3.0 million and $1.1 million
respectively. Effective April 1, 2009, the matching
contribution is 100% on the first 3% of salary deferred and 50%
on the next 3% of salary deferred. Matching contributions are
made on a regular basis as salary is deferred and are not
subject to a
true-up at
the end of the year.
|
|
Note 12
|
Share-Based
Compensation
|
Under its equity incentive plans, the Company currently grants
share appreciation vehicles consisting of stock options,
stock-settled stock appreciation rights (stock-settled
SARs) and cash-settled stock appreciation rights
(cash-settled SARs), as well as full value vehicles
consisting of nonvested shares and phantom stock units.
Appreciation vehicles granted under the 1996 and 2006 Stock
Incentive Plans are granted at the fair market value on the date
of grant and may be exercised only after stated vesting dates or
other vesting criteria, as applicable, have been achieved.
Generally, vesting of appreciation vehicles is conditioned upon
continued employment with the Company, although appreciation
vehicles may be exercised during certain periods following
retirement, termination, disability or death. Historically, the
Company has used treasury shares for settlement of share-based
compensation.
Under the 1996 Stock Incentive Plan, which expired in April
2006, the Company was authorized to grant a maximum of
15,600,000 shares, of which no more than 1,200,000 could be
issued pursuant to non-vested share grants. Appreciation
vehicles granted under the plan had a maximum term of
10 years and could vest on a graded schedule or a cliff
basis. The exercise prices of appreciation vehicles equaled the
average of the high and low trading prices of the Companys
stock on the grant date. Non-vested shares granted under the
plan could be granted with or without performance restrictions.
Restrictions, including performance restrictions, lapse over
periods of up to ten years, as determined at the date of grant.
Associates who received non-vested shares paid no monetary
consideration.
On May 25, 2006, the Companys shareowners approved
the 2006 Stock Incentive Plan. On May 21, 2009, the 2006
Stock Incentive Plan was amended to allow the Company to grant a
maximum of 4,987,000 shares. Appreciation vehicles to be
granted under the plan have a maximum term of seven years and
can vest on a graded schedule, a cliff basis or based on
performance. The exercise price of an appreciation vehicle may
not be less than the fair market value of the Companys
stock on the grant date. Associates who receive full value
vehicles pay no monetary consideration. Awards under the 2006
Stock Incentive Plan can be granted with or without performance
restrictions. Restrictions, including performance restrictions,
lapse over periods of up to seven years, as determined at the
date of grant.
On May 25, 2006, the Companys shareowners approved
amendments to and restatement of the Stock Plan for
Non-Management Directors (the Director Plan). Under
the Companys amended and restated Director Plan, each
Director who is not an officer of the Company is eligible to
receive share-based compensation in the form of non-qualified
stock options
and/or stock
awards, including, but not limited to, restricted and
unrestricted stock awards. All shares of common stock issued
under the Director Plan are subject to restrictions on
transferability and to forfeiture during a specified restricted
period. The Director Plan provides for the issuance of not more
than
82
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
350,000 shares of common stock, subject to adjustment for
changes in the Companys capital structure. The Company may
not, without stockholder approval, amend the Director Plan in a
manner that would increase the number of shares of common stock
available for awards, decrease the exercise price of any award,
or otherwise materially increase benefits or modify eligibility
requirements.
Under the Companys Amended Stock Purchase Plan, a maximum
of 6,000,000 shares of the Companys common stock may
be purchased by employees at a 5% discount. The current terms of
the Stock Purchase Plan are such that the plan is
non-compensatory. As a result, the purchase of shares by
employees does not give rise to compensation cost.
Stock
Options
Transactions for stock options for fiscal year 2009 as well as
information about stock options outstanding, vested or expected
to vest, and exercisable at January 30, 2010 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended January 30, 2010
|
|
|
As of January 30, 2010
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Contractual Life
|
|
|
Value
|
|
|
|
(Units in thousands)
|
|
|
|
|
|
(In years)
|
|
|
(In millions)
|
|
|
Outstanding at beginning of period
|
|
|
2,657
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(442
|
)
|
|
|
16
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(45
|
)
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
2,170
|
|
|
|
19
|
|
|
|
2
|
|
|
$
|
2.9
|
|
Vested and expected to vest at end of period
|
|
|
2,170
|
|
|
|
19
|
|
|
|
2
|
|
|
|
2.9
|
|
Exercisable at end of period
|
|
|
2,170
|
|
|
|
19
|
|
|
|
2
|
|
|
|
2.9
|
|
The aggregate intrinsic value was calculated using the
difference between the current market price and the grant price
for only those awards that have a grant price that is less than
the current market price.
The total intrinsic value of options exercised during 2009 was
$2.3 million. Cash received from option exercises for 2009
was $7.2 million excluding cash received from the
Companys employee stock purchase and deferred compensation
plans. There was not a significant tax benefit realized for the
deductions from options exercised during 2009. There were no
stock options exercised during 2008 and therefore no cash
received from options exercised nor any tax benefit realized on
exercises in 2008. The total intrinsic value of options
exercised during 2007 was $6.5 million. Cash received from
option exercises for 2007 was $8.2 million excluding cash
received from the Companys employee stock purchase and
deferred compensation plans. The tax benefit realized for the
deductions from options exercised during 2007 was
$2.6 million. The Company did not grant any stock options
in 2009, 2008 or 2007.
Stock-settled
SARs
During 2009, the Company granted 1,347,443 maximum share
equivalents in the form of 2,021,164 stock-settled SARs under
the 2006 Stock Incentive Plan. Of this amount, 1,493,823
stock-settled SARs are subject to a three-year graded vesting
schedule and 527,341 stock-settled SARs are subject to a
three-year cliff vesting schedule. None of the vesting
requirements are based on any performance conditions.
Upon exercise of a stock-settled SAR, employees will receive a
number of shares of common stock equal in value to the
appreciation in the fair market value of the underlying common
stock from the grant date to the exercise date of the
stock-settled SAR. All of the stock-settled SARs issued by the
Company to-date contain an appreciation
83
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
cap, which limits the appreciation for which shares of common
stock will be granted to 200% of the fair market value of the
underlying common stock on the grant date of the stock-settled
SAR. As a result of the appreciation cap, a maximum of
2/3
of a share of common stock may be issued for each stock-settled
SAR granted.
Transactions for stock settled SARs for fiscal year
2009 and information about stock-settled SARs outstanding,
stock-settled SARs vested or expected to vest and stock-settled
SARs exercisable at January 30, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended January 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
As of January 30, 2010
|
|
|
|
Maximum
|
|
|
|
|
|
Average
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
Share
|
|
|
Stock-Settled
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Equivalents
|
|
|
SARs
|
|
|
Price
|
|
|
Contractual Life
|
|
|
Value
|
|
|
|
(Units in thousands)
|
|
|
|
|
|
(In years)
|
|
|
(In millions)
|
|
|
Outstanding at beginning of period
|
|
|
2,199
|
|
|
|
3,298
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,347
|
|
|
|
2,021
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(18
|
)
|
|
|
(27
|
)
|
|
|
17
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(119
|
)
|
|
|
(178
|
)
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
3,409
|
|
|
|
5,114
|
|
|
|
18
|
|
|
|
5
|
|
|
$
|
21.9
|
|
Vested and expected to vest at end of period
|
|
|
3,296
|
|
|
|
4,944
|
|
|
|
18
|
|
|
|
5
|
|
|
|
20. 8
|
|
Exercisable at end of period
|
|
|
1,097
|
|
|
|
1,645
|
|
|
|
24
|
|
|
|
4
|
|
|
|
1.3
|
|
The aggregate intrinsic value was calculated using the
difference between the current market price and the grant price
for only those awards that have a grant price that is less than
the current market price.
The total intrinsic value of stock-settled SARs exercised during
2009 was $0.1 million. There was no significant tax benefit
realized for the deductions from stock-settled SARs exercised
during 2009. There were no stock-settled SARs exercised or
related tax benefits realized during 2008. The total intrinsic
value of stock-settled SARs exercised during 2007 was
$0.6 million. The tax benefit realized for the deductions
from stock-settled SARs exercised during 2007 was
$0.2 million. The weighted average fair value of units
granted per unit for 2009, 2008 and 2007 were $11, $6 and $12,
respectively.
Nonvested
Shares and Share Units
During 2009, the Company granted 344,661 nonvested shares under
the 2006 Stock Incentive Plan. The Company granted 342,646
nonvested shares that are subject to a three-year graded vesting
schedule and the remaining 2,015 nonvested shares are subject to
a three-year cliff vesting schedule. These awards are not based
on any performance vesting conditions.
During 2009, the Company granted 15,074 phantom nonvested shares
subject to a three-year graded vesting schedule which is not
based on any performance vesting conditions. Each phantom
nonvested share is worth the cash value of one share of common
stock.
During 2009, the Company granted 37,937 nonvested shares under
the Director Plan. These shares will vest on May 20, 2010.
Pursuant to the provisions of the Director Plan, certain
Directors elected to defer this compensation into
16,463 share units that will be issued as common stock
subsequent to the Directors resignation from the Board.
These share units will vest on May 20, 2010. Deferral does
not affect vesting. Deferred share units are excluded from the
summary table of nonvested shares.
During 2008, the Company cancelled, by mutual agreement and
without monetary consideration, 271,113 nonvested share units
with market based performance conditions under the 2006 Stock
Incentive Plan. These shares, which were awarded in 2007, were
subject to a market appreciation condition and a three-year
cliff vesting
84
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
schedule. As a result of cancelling these awards the Company
accelerated the recognition of $3.5 million of expense in
the fourth quarter of 2008.
Excluding deferred shares under the Director Plan, transactions
for nonvested shares and share units for the fiscal year 2009
were as follows:
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended January 30, 2010
|
|
|
|
Nonvested Shares
|
|
|
Weighted Average
|
|
|
|
and Share Units
|
|
|
Grant Date Fair Value
|
|
|
|
(Shares in thousands)
|
|
|
|
|
|
Nonvested at beginning of period
|
|
|
729
|
|
|
$
|
18
|
|
Granted
|
|
|
382
|
|
|
|
11
|
|
Vested
|
|
|
(192
|
)
|
|
|
17
|
|
Forfeited or expired
|
|
|
(73
|
)
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
Nonvested at end of period
|
|
|
846
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant date fair value of nonvested shares
granted in 2009, 2008 and 2007 was $11, $13 and $26,
respectively. Included in the 846 thousand shares and share
units are the 21,474 nonvested, non-deferred shares under the
Director Plan and the 15,074 phantom nonvested shares that will
be settled in cash.
Cash-settled
SARs
During 2009, the Company issued 53,650 cash-settled SARs on
53,650 shares. Of this amount, 50,150 are subject to a
three-year graded vesting schedule and 3,500 are subject to a
three-year cliff vesting schedule. None of the vesting
requirements are based on any performance conditions.
Transactions for cash-settled SARs for the fiscal year 2009 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended January 30, 2010
|
|
|
|
Cash-Settled
|
|
|
Weighted Average
|
|
|
|
SARs
|
|
|
Grant Price
|
|
|
|
(Shares in thousands)
|
|
|
|
|
|
Outstanding at beginning of period
|
|
|
157
|
|
|
$
|
23
|
|
Granted
|
|
|
54
|
|
|
|
11
|
|
Vested
|
|
|
(4
|
)
|
|
|
22
|
|
Forfeited or expired
|
|
|
(51
|
)
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
156
|
|
|
|
20
|
|
Exercisable or convertible at end of period
|
|
|
82
|
|
|
|
24
|
|
The weighted average fair value per unit granted for 2009, 2008
and 2007 was $11, $6 and $12, respectively. Cash-settled SARs
are liability awards and the fair value and expense recognized
for all awards is updated each reporting period.
Fair
Value
The Company uses a binomial model to determine the fair value of
its share-based awards. The binomial model considers a range of
assumptions relative to volatility, risk-free interest rates and
employee exercise behavior. The Company believes the binomial
model provides a fair value that is representative of actual and
future experience.
85
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of options and stock-settled SARs granted was
calculated using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Risk-free interest rate
|
|
|
1.7
|
%
|
|
|
2.4
|
%
|
|
|
4.6
|
%
|
Expected dividend yield
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
Expected appreciation vehicle life (in years)
|
|
|
4
|
|
|
|
6
|
|
|
|
5
|
|
Weighted-average expected volatility
|
|
|
58
|
%
|
|
|
38
|
%
|
|
|
38
|
%
|
Risk-free interest rate The rate is based on
zero-coupon U.S. Treasury yields in effect at the date of
grant, utilizing separate rates for each whole year up to the
contractual term of the appreciation vehicle and interpolating
for time periods between those not listed.
Expected dividend yield the Company has not
historically paid dividends and has no immediate plans to do so;
as a result, the dividend yield is assumed to be zero.
Expected appreciation vehicle life The
expected life is derived from the output of the binomial lattice
model and represents the period of time that the appreciation
vehicles are expected to be outstanding. This model incorporates
time-based early exercise assumptions based on an analysis of
historical exercise patterns.
Expected Volatility The rate used in the
binomial model is based on an analysis of historical prices of
the Companys stock. The Company currently believes that
historical volatility is a good indicator of future volatility.
The total fair value of shares vested during 2009, 2008 and 2007
was $2.3 million, $5.4 million and $8.8 million,
respectively.
Compensation
Expense
Total share-based compensation expense of $16.4 million
before tax has been included in the Companys Consolidated
Statements of Earnings (Loss) for the 52 weeks ended
January 30, 2010. No amount of share-based compensation has
been capitalized. Total share-based compensation expense is
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Cost of sales
|
|
$
|
4.1
|
|
|
$
|
5.2
|
|
|
$
|
3.8
|
|
Selling, general and administrative expenses
|
|
|
12.3
|
|
|
|
15.5
|
|
|
|
10.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense before income taxes
|
|
|
16.4
|
|
|
|
20.7
|
|
|
|
14.6
|
|
Tax benefit
|
|
|
(6.2
|
)
|
|
|
(7.9
|
)
|
|
|
(5.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense after income taxes
|
|
$
|
10.2
|
|
|
$
|
12.8
|
|
|
$
|
9.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 30, 2010, the Company had unrecognized
compensation expense related to nonvested awards of
approximately $18.1 million, which is expected to be
recognized over a weighted average period of 0.9 years.
86
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Earnings (loss) from continuing operations before income taxes
and noncontrolling interest include the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Domestic
|
|
$
|
2.1
|
|
|
$
|
(229.0
|
)
|
|
$
|
(39.8
|
)
|
Foreign
|
|
|
95.5
|
|
|
|
121.7
|
|
|
|
98.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
97.6
|
|
|
$
|
(107.3
|
)
|
|
$
|
59.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision (benefit) for income taxes from continuing
operations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Federal
|
|
$
|
1.2
|
|
|
$
|
8.2
|
|
|
$
|
11.0
|
|
State and local
|
|
|
0.3
|
|
|
|
3.6
|
|
|
|
4.3
|
|
Foreign
|
|
|
4.1
|
|
|
|
15.4
|
|
|
|
18.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current tax provision
|
|
|
5.6
|
|
|
|
27.2
|
|
|
|
33.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
3.3
|
|
|
|
(63.1
|
)
|
|
|
(14.7
|
)
|
State and local
|
|
|
0.1
|
|
|
|
(5.4
|
)
|
|
|
(6.1
|
)
|
Foreign
|
|
|
0.4
|
|
|
|
(6.7
|
)
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax provision (benefit)
|
|
|
3.8
|
|
|
|
(75.2
|
)
|
|
|
(25.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit)
|
|
$
|
9.4
|
|
|
$
|
(48.0
|
)
|
|
$
|
8.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation between the statutory federal income tax rate
and the effective income tax rate as applied to continuing
operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Statutory federal income tax rate
|
|
|
35.0
|
%
|
|
$
|
34.2
|
|
|
|
35.0
|
%
|
|
$
|
(37.6
|
)
|
|
|
35.0
|
%
|
|
$
|
20.6
|
|
State and local income taxes, net of federal tax benefit
|
|
|
0.5
|
|
|
|
0.4
|
|
|
|
1.1
|
|
|
|
(1.2
|
)
|
|
|
(1.9
|
)
|
|
|
(1.1
|
)
|
Rate differential on foreign earnings, net of valuation allowance
|
|
|
(20.2
|
)
|
|
|
(19.7
|
)
|
|
|
21.7
|
|
|
|
(23.3
|
)
|
|
|
(17.1
|
)
|
|
|
(10.1
|
)
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
(13.4
|
)
|
|
|
14.4
|
|
|
|
|
|
|
|
|
|
Decrease in tax reserves
|
|
|
(5.4
|
)
|
|
|
(5.3
|
)
|
|
|
0.6
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
Federal employment tax credits
|
|
|
(1.6
|
)
|
|
|
(1.5
|
)
|
|
|
1.7
|
|
|
|
(1.8
|
)
|
|
|
(3.1
|
)
|
|
|
(1.8
|
)
|
Nondeductible executive compensation
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
(1.0
|
)
|
|
|
1.1
|
|
|
|
2.9
|
|
|
|
1.7
|
|
Other, net
|
|
|
0.8
|
|
|
|
0.8
|
|
|
|
(1.0
|
)
|
|
|
1.0
|
|
|
|
(1.2
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
9.6
|
%
|
|
$
|
9.4
|
|
|
|
44.7
|
%
|
|
$
|
(48.0
|
)
|
|
|
14.6
|
%
|
|
$
|
8.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys effective tax rates have differed from the
U.S. statutory rate principally due to the impact of its
operations conducted in jurisdictions with rates lower than the
U.S. statutory rate, the benefit of jurisdictional and
employment tax credits, favorable adjustments to its income tax
reserves due primarily to favorable settlements of examinations
by taxing authorities, and the on-going implementation of tax
efficient business initiatives. In 2008, the Companys
effective tax rate was unfavorably impacted due to the goodwill
impairment charge which is not
87
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
deductible for tax purposes. During fiscal year 2009, the
Company recorded net favorable discrete events of
$7.9 million, relating primarily to the resolution of
outstanding tax audits.
The Company adopted new accounting guidance on potential
uncertain tax positions on February 4, 2007. In accordance
with the new recognition standards, the Company performed a
comprehensive review of potential uncertain tax positions in
each jurisdiction in which the Company operates. As a result of
the Companys review, the Company adjusted the carrying
amount of the liability for unrecognized tax benefits resulting
in a reduction to retained earnings of $11.2 million. Upon
adoption, the Company also recorded an increase to deferred tax
assets of $4.2 million, an increase to other liabilities of
$34.2 million, a reduction to accrued expenses of
$18.0 million, and a reduction to minority interest of
$0.9 million.
A reconciliation of the beginning and ending balances of the
total amounts of gross unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Gross unrecognized tax benefits at beginning of year
|
|
$
|
55.0
|
|
|
$
|
49.8
|
|
|
$
|
29.7
|
|
Increases in tax positions for prior years
|
|
|
0.2
|
|
|
|
0.8
|
|
|
|
4.2
|
|
Decreases in tax positions for prior years
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
|
|
Increases in tax positions for current year
|
|
|
7.9
|
|
|
|
8.2
|
|
|
|
17.0
|
|
Settlements
|
|
|
(3.4
|
)
|
|
|
(1.0
|
)
|
|
|
(0.6
|
)
|
Lapse in statute of limitations
|
|
|
(1.4
|
)
|
|
|
(2.0
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrecognized tax benefits at end of year
|
|
$
|
58.3
|
|
|
$
|
55.0
|
|
|
$
|
49.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The portions of the unrecognized tax benefits as of
January 30, 2010, January 31, 2009 and
February 2, 2008 which will favorably impact the effective
tax rate if recognized are $34.6 million,
$29.9 million and $37.8 million, respectively.
Interest and penalties related to unrecognized tax benefits are
included in the provision for income taxes in the Consolidated
Statements of Earnings (Loss) and were $1.1 million,
$1.6 million and $1.1 million in 2009, 2008 and 2007,
respectively. Accrued interest and penalties as of
January 30, 2010, January 31, 2009 and
February 2, 2008 were $9.1 million, $8.0 million,
and $6.4 million, respectively.
The U.S. federal income tax returns of Payless have been
examined by the Internal Revenue Service through 2004. The
Companys federal income tax returns for the tax years
2005 2007 are currently under examination by the
Internal Revenue Service. The Stride Rite Corporations
federal tax return for the year ended November 2006 is also open
to examination. With limited exception, the Company is no longer
subject to audits of its state and foreign income tax returns
for years prior to 2003. The Company has certain state and
foreign income tax returns in the process of examination or
administrative appeal.
The Company anticipates that it is reasonably possible that the
total amount of unrecognized tax benefits at January 30,
2010 will decrease by up to $44.2 million within the next
12 months due to potential settlements of on-going
examinations with tax authorities and the potential lapse of the
statutes of limitations in various taxing jurisdictions. To the
extent that these tax benefits are recognized, the effective tax
rate will be favorably impacted by up to $20.9 million.
88
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Major components of deferred tax assets (liabilities) were as
follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Accrued expenses and reserves
|
|
$
|
91.3
|
|
|
$
|
101.2
|
|
Tax net operating losses and tax credits
|
|
|
70.6
|
|
|
|
53.4
|
|
Other
|
|
|
12.3
|
|
|
|
8.4
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
174.2
|
|
|
|
163.0
|
|
Less: valuation allowance
|
|
|
(11.4
|
)
|
|
|
(8.1
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
$
|
162.8
|
|
|
$
|
154.9
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities:
|
|
|
|
|
|
|
|
|
Short term assets basis differences
|
|
$
|
(4.0
|
)
|
|
$
|
(4.4
|
)
|
Depreciation/amortization and basis differences
|
|
|
(173.3
|
)
|
|
|
(159.4
|
)
|
Other
|
|
|
(2.4
|
)
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities
|
|
|
(179.7
|
)
|
|
|
(166.8
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(16.9
|
)
|
|
$
|
(11.9
|
)
|
|
|
|
|
|
|
|
|
|
The deferred tax assets and (liabilities) are included on the
Consolidated Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Current deferred income taxes
|
|
$
|
42.1
|
|
|
$
|
35.6
|
|
Deferred income tax assets (noncurrent)
|
|
|
6.5
|
|
|
|
1.7
|
|
Deferred income tax liability (noncurrent)
|
|
|
(65.5
|
)
|
|
|
(49.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(16.9
|
)
|
|
$
|
(11.9
|
)
|
|
|
|
|
|
|
|
|
|
The Company provides a valuation allowance against net deferred
tax assets if, based on managements assessment of
historical and projected future operating results and other
available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized. The Company
carries valuation allowances related primarily to realization of
foreign net operating loss carryforwards, state income tax
credits, and state net operating loss carryforwards.
During 2009, the Company recorded a deferred income tax
provision of $3.8 million in continuing operations. Of this
amount, the Company recorded a decrease to deferred tax assets
of $2.5 million related to items within AOCI and increased
deferred tax assets $0.2 million related to PLG goodwill
adjustments. The remaining charge related to foreign currency
translation.
89
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At January 30, 2010, deferred tax assets for federal, state
and foreign net operating loss carryforwards are
$20.3 million, less a valuation allowance of
$5.1 million. These net operating loss carryforwards will
expire as follows (expiration dates are denoted in parentheses):
|
|
|
|
|
|
|
Amount
|
|
|
|
(Dollars in millions)
|
|
|
Federal net operating losses (in 2029)
|
|
$
|
4.9
|
|
State operating losses expiring (by 2015)
|
|
|
0.4
|
|
State operating losses (between 2016 and 2020)
|
|
|
0.6
|
|
State operating losses (between 2021 and 2025)
|
|
|
1.9
|
|
State operating losses (between 2026 and 2029)
|
|
|
1.1
|
|
State operating losses (by 2029)
|
|
|
2.6
|
|
Foreign net operating losses related to recorded assets (between
2011 and 2015)
|
|
|
0.9
|
|
Foreign net operating losses related to recorded assets (between
2027 and 2029)
|
|
|
2.8
|
|
|
|
|
|
|
Total
|
|
$
|
15.2
|
|
|
|
|
|
|
Federal foreign tax credit carryforwards are $32.1 million,
$21.6 million of this credit will expire if not utilized by
2018, and the remaining $10.5 million of this credit will
expire if not utilized by 2019. Federal general business credit
carryforwards are $5.5 million of which $2.9 million
will expire if not utilized by 2028 and the remaining
$2.6 million will expire if not utilized by 2029. State
income tax credit carryforwards are $12.6 million, less a
valuation allowance of $6.1 million. The tax credit
carryforwards related to the recorded assets expire as follows:
$0.4 million by 2015, $0.9 million by 2017,
$1.0 million by 2029 and $4.2 million may be carried
forward indefinitely.
The Company recorded a valuation allowance against
$3.3 million of deferred tax assets arising in 2009. The
majority of this valuation allowance relates to net operating
losses generated by its Colombian joint venture, which commenced
operations in 2008, and has not yet established a pattern of
profitability.
The Consolidated Balance Sheet as of January 30, 2010
includes deferred tax assets, net of related valuation
allowances, of $162.8 million. In assessing the future
realization of these assets, the Company concluded it is more
likely than not the assets will be realized. This conclusion was
based in large part upon managements belief that it will
generate sufficient quantities of taxable income from operations
in future years in the appropriate tax jurisdictions. If the
Companys near-term forecasts are not achieved, it may be
required to record additional valuation allowances against its
deferred tax assets. This could have a material impact on the
Companys financial position and results of operations in a
particular period.
As of January 30, 2010, the Company has not provided tax on
its cumulative undistributed earnings of foreign subsidiaries of
approximately $185 million, because it is the
Companys intention to reinvest these earnings
indefinitely. The calculation of the unrecognized deferred tax
liability related to these earnings is complex and the
calculation is not practicable. If earnings were distributed,
the Company would be subject to U.S. taxes and withholding
taxes payable to various foreign governments. Based on the facts
and circumstances at that time, the Company would determine
whether a credit for foreign taxes already paid would be
available to reduce or offset the U.S. tax liability. The
Company anticipates that earnings would not be repatriated
unless it was tax efficient to do so.
|
|
Note 14
|
Earnings
Per Share
|
Effective February 1, 2009, the Company adopted new
earnings per share accounting guidance which states that
unvested share-based payment awards that contain non-forfeitable
rights to dividends or dividend equivalents (whether paid or
unpaid) are considered participating securities and shall be
included in the computation of earnings per share pursuant to
the two-class method. The two-class method is an earnings
allocation formula that treats a participating security as
having rights to earnings that would otherwise have been
available to common
90
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
shareholders. The provisions of the new earnings per share
guidance are retrospective; therefore, prior periods have been
retrospectively presented.
Basic earnings per share is computed by dividing net earnings
available to common shareholders by the weighted average number
of shares of common stock outstanding during the period. Diluted
earnings per share reflects the more dilutive earnings per share
amount calculated using the treasury method or the two-class
method. Diluted earnings per share includes the effect of
conversions of stock options and stock-settled stock
appreciation rights. Earnings per share has been computed as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions, except per share amounts; shares in
thousands)
|
|
|
Net earnings (loss) attributable to Collective Brands, Inc. from
continuing operations
|
|
$
|
82.6
|
|
|
$
|
(68.0
|
)
|
|
$
|
42.7
|
|
Less: net earnings allocated to participating
securities(1)
|
|
|
1.1
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings available to common shareholders from continuing
operations
|
|
$
|
81.5
|
|
|
$
|
(68.0
|
)
|
|
$
|
42.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
63,127
|
|
|
|
62,927
|
|
|
|
64,504
|
|
Net effect of dilutive stock options
|
|
|
139
|
|
|
|
|
|
|
|
643
|
|
Net effect of dilutive SARs
|
|
|
227
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
63,493
|
|
|
|
62,927
|
|
|
|
65,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to common
shareholders from continuing operations
|
|
$
|
1.29
|
|
|
$
|
(1.08
|
)
|
|
$
|
0.66
|
|
Diluted earnings (loss) per share attributable to common
shareholders from continuing operations
|
|
$
|
1.28
|
|
|
$
|
(1.08
|
)
|
|
$
|
0.65
|
|
|
|
|
(1) |
|
Net earnings allocated to participating securities is calculated
based upon a weighted average percentage of participating
securities in relation to total shares outstanding. |
The Company excluded approximately 4.8 million and
2.3 million stock options and stock-settled SARs from the
calculation of diluted earnings per share for the fifty-two
weeks ended January 30, 2010 and February 2, 2008,
respectively, as their effects were antidilutive. All of the
Companys stock options and stock settled SARs outstanding
were excluded from the calculation of diluted earnings per share
for the 52 weeks ended January 31, 2009 as their
effects were antidilutive.
91
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 15
|
Accrued
Expenses and Other Liabilities
|
Major components of accrued expenses included:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Profit sharing, bonus and salaries
|
|
$
|
65.2
|
|
|
$
|
51.6
|
|
Sales, use and other taxes
|
|
|
30.2
|
|
|
|
30.5
|
|
Accrued interest
|
|
|
12.6
|
|
|
|
15.6
|
|
Derivative liability
|
|
|
10.0
|
|
|
|
|
|
Current portion of pension plan
|
|
|
9.6
|
|
|
|
3.6
|
|
Workers compensation and general liability insurance
reserves
|
|
|
8.8
|
|
|
|
10.8
|
|
Accrued construction in process
|
|
|
8.1
|
|
|
|
12.0
|
|
Straight-line rent
|
|
|
5.1
|
|
|
|
4.3
|
|
Accrued advertising
|
|
|
3.2
|
|
|
|
4.4
|
|
Litigation accrual
|
|
|
|
|
|
|
30.0
|
|
Other accrued expenses
|
|
|
29.0
|
|
|
|
39.9
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
181.8
|
|
|
$
|
202.7
|
|
|
|
|
|
|
|
|
|
|
Major components of other liabilities included:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Pension plans
|
|
$
|
53.5
|
|
|
$
|
65.6
|
|
Noncurrent income taxes
|
|
|
53.3
|
|
|
|
63.1
|
|
Straight-line rent
|
|
|
28.4
|
|
|
|
29.6
|
|
Deferred tenant improvement allowances, net
|
|
|
25.3
|
|
|
|
27.4
|
|
Workers compensation and general
|
|
|
|
|
|
|
|
|
liability insurance reserves
|
|
|
22.6
|
|
|
|
19.6
|
|
Derivative liability
|
|
|
5.4
|
|
|
|
21.5
|
|
Other liabilities
|
|
|
37.8
|
|
|
|
37.4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
226.3
|
|
|
$
|
264.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 16
|
Lease
Obligations
|
Rental expense for the Companys operating leases consisted
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Minimum rentals
|
|
$
|
313.5
|
|
|
$
|
316.2
|
|
|
$
|
290.6
|
|
Contingent rentals based on sales
|
|
|
7.4
|
|
|
|
6.7
|
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real property rentals
|
|
|
320.9
|
|
|
|
322.9
|
|
|
|
297.8
|
|
Equipment rentals
|
|
|
4.7
|
|
|
|
5.2
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
325.6
|
|
|
$
|
328.1
|
|
|
$
|
300.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Most store lease agreements contain renewal options and include
escalating rents over the lease terms. Certain leases provide
for contingent rentals based upon gross sales. Cumulative
expense recognized on the straight-line basis in excess of
cumulative payments is included in accrued expenses and other
liabilities on the accompanying
92
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidated Balance Sheets. Certain of the lease agreements
provide for scheduled rent increases during the lease term, as
well as provisions for renewal options. Rent expense is
recognized on a straight-line basis over the term of the lease
from the time at which the Company takes possession of the
property. In instances where failure to exercise renewal options
would result in an economic penalty, the calculation of
straight-line rent expense includes renewal option periods.
Also, landlord-provided tenant improvement allowances are
recorded as a liability and amortized as a credit to rent
expense.
Future minimum lease payments under capital leases and
non-cancelable operating lease obligations as of
January 30, 2010, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
|
|
|
|
Leases
|
|
|
Leases
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
2010
|
|
$
|
0.1
|
|
|
$
|
286.1
|
|
|
$
|
286.2
|
|
2011
|
|
|
0.1
|
|
|
|
243.4
|
|
|
|
243.5
|
|
2012
|
|
|
0.1
|
|
|
|
196.7
|
|
|
|
196.8
|
|
2013
|
|
|
0.1
|
|
|
|
156.2
|
|
|
|
156.3
|
|
2014
|
|
|
0.1
|
|
|
|
117.0
|
|
|
|
117.1
|
|
2015 and thereafter
|
|
|
1.2
|
|
|
|
242.6
|
|
|
|
243.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum lease payments
|
|
$
|
1.7
|
|
|
$
|
1,242.0
|
|
|
$
|
1,243.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: imputed interest component
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments of which
$0.1 million is included in current liabilities
|
|
$
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 30, 2010, the total amount of minimum rentals to
be received in the future under non-cancelable subleases was
$8.6 million.
|
|
Note 17
|
Common
Stock Repurchases
|
The Company has repurchased the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Dollars
|
|
|
Shares
|
|
|
Dollars
|
|
|
Shares
|
|
|
Dollars
|
|
|
Shares
|
|
|
|
(Dollars in millions, shares in thousands)
|
|
|
Stock repurchase program
|
|
$
|
6.0
|
|
|
|
274
|
|
|
$
|
|
|
|
|
|
|
|
$
|
47.1
|
|
|
|
2,387
|
|
Employee stock purchase, deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation and stock incentive plans
|
|
|
1.6
|
|
|
|
115
|
|
|
|
1.9
|
|
|
|
153
|
|
|
|
1.3
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7.6
|
|
|
|
389
|
|
|
$
|
1.9
|
|
|
|
153
|
|
|
$
|
48.4
|
|
|
|
2,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 30, 2010, the Company had approximately
$236.3 million of remaining common stock repurchase
authorization from its Board of Directors. Under the terms of
the Companys Senior Subordinated Notes, Term Loan Facility
and Revolving Loan Facility, the Company is restricted on the
amount of common stock it may repurchase. This limit may
increase or decrease on a quarterly basis based upon the
Companys net earnings.
|
|
Note 18
|
Commitments
and Contingencies
|
As of January 30, 2010, the Company has $89.3 million
of royalty obligations consisting of minimum royalty payments
for the purchase of branded merchandise, $89.5 million of
future estimated pension obligations related to the
Companys pension plans, $6.6 million of service
agreement obligations relating to minimum payments for services
that the Company cannot avoid without penalty,
$25.9 million of employment agreement obligations
93
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
related to minimum payments to certain of the Companys
executives and $1.2 million of employee severance
obligations related to payments to certain of the Companys
employees.
Settled
During the year, the Company settled the following legal
proceedings:
adidas
America, Inc. and adidas-Salomon AG v. Payless ShoeSource,
Inc.
On or about December 20, 2001, a First Amended Complaint
was filed against Payless ShoeSource, Inc. (Payless)
in the U.S. District Court for the District of Oregon,
captioned adidas America, Inc. and adidas-Salomon AG
(adidas) v. Payless ShoeSource, Inc. seeking
injunctive relief and unspecified monetary damages for trademark
and trade dress infringement, unfair competition, deceptive
trade practices and breach of contract.
In the first quarter of 2008, the Company recorded a
$30.0 million pre-tax liability related to loss
contingencies associated with this matter, all of which was
recorded during the first quarter of 2008. This liability, which
was recorded within accrued expenses on the Companys
Consolidated Balance Sheet, resulted in an equal amount being
charged to cost of sales.
In the fourth quarter of 2009, the Company and adidas entered
into a confidential settlement agreement to settle all pending
litigation and administrative claims among the parties,
including those among the parties Canadian subsidiaries.
The payment of the confidential settlement amount, including a
payment to the State of Oregon pursuant to a separate agreement
related to its claim for a portion of the punitive damages
awarded, did not have a material effect on the Companys
results of operations in 2009. In addition to the cash
settlement, the Company and adidas agreed that the terms of the
permanent injunction issued by the Court would remain in place.
The Company has also reached agreements with all of its various
relevant insurers with respect to their coverage obligations for
the claims by adidas. Pursuant to those agreements, the Company
has released these insurers from any further obligations with
respect to adidas claims in the action under applicable
policies.
In the
Matter of Certain Foam Footwear
On or about April 3, 2006, Crocs Inc. filed two companion
actions against several manufacturers of foam clog footwear
asserting claims for patent infringement, trade dress
infringement, and unfair competition. One complaint was filed
before the United States International Trade Commission
(ITC) in Washington D.C. The other complaint was
filed in federal district court in Colorado. The Companys
wholly-owned subsidiary, Collective Licensing International, LLC
(Collective Licensing), was named as a Respondent in
the ITC Investigation, and as a Defendant in the Colorado
federal court action. The Company settled all claims associated
with these complaints in the third quarter of 2009, the results
of which did not have a material effect on the Companys
financial position, results of operations or cash flows.
Pending
Other than as described below, there are no pending legal
proceedings other than ordinary, routine litigation incidental
to the business to which the Company is a party or of which its
property is subject, none of which the Company expects to have a
material impact on its financial position, results of operations
and cash flows.
American
Eagle Outfitters and Retail Royalty Co. v. Payless
ShoeSource, Inc.
On or about April 20, 2007, a Complaint was filed against
the Company in the U.S. District Court for the Eastern
District of New York, captioned American Eagle Outfitters and
Retail Royalty Co. (AEO) v. Payless ShoeSource,
Inc. (Payless). The Complaint seeks injunctive
relief and unspecified monetary damages for false advertising,
trademark infringement, unfair competition, false description,
false designation of origin, breach of
94
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
contract, injury to business reputation, deceptive trade
practices, and to void or nullify an agreement between the
Company and third party Jimlar Corporation. Plaintiffs filed a
motion for preliminary injunction on or about May 7, 2007.
On December 20, 2007, the Magistrate Judge who heard oral
arguments on the pending motions issued a Report and
Recommendation (R&R) recommending that a
preliminary injunction issue requiring the Company, in marketing
its American Eagle products, to prominently display
a disclaimer stating that: AMERICAN EAGLE by Payless is
not affiliated with AMERICAN EAGLE OUTFITTERS. The
Magistrate Judge also recommended that Payless stop using
Exclusively at Payless in association with its
American Eagle products. The parties then filed objections to
this R&R and, on January 23, 2008, the District Court
Judge issued an order remanding the matter back to the
Magistrate Judge and instructing him to consider certain
arguments raised by the Company in its objections. On
June 6, 2008, the Magistrate Judge issued a Supplemental
Report and Recommendation (Supp. R&R),
modifying his earlier finding, stating that AEO had not
established a likelihood of success on the merits of its breach
of contract claim, and recommending denial of the Companys
request for an evidentiary hearing. The parties again filed
objections and, on July 7, 2008, the District Court Judge
entered an order adopting the Magistrates
December 20, 2007 R&R, as modified by the June 6,
2008 Supp. R&R. The Company believes it has meritorious
defenses to the claims asserted in the lawsuit and filed its
answer and counterclaim on July 21, 2008. On
August 27, 2008, the Magistrate Judge issued an R&R
that includes a proposed preliminary injunction providing
additional detail for, among other things, the manner of
complying with the previously recommended disclaimer. On
September 15, 2008, the Company filed objections to the
proposed preliminary injunction. On October 20, 2008, the
District Court Judge issued an order deeming the objections to
be a motion for reconsideration and referring them back to the
Magistrate Judge. Later that same day, the Magistrate Judge
issued a revised proposed preliminary injunction incorporating
most of the modifications proposed in the Companys
objections. On November 6, 2008, the parties filed
objections to the revised proposed preliminary injunction. On
November 10, 2008, the Court entered a preliminary
injunction. An estimate of the possible loss, if any, or the
range of loss cannot be made and therefore the Company has not
accrued a loss contingency related to this matter. However, the
ultimate resolution of this matter could have a material adverse
effect on the Companys financial position, results of
operations and cash flows.
|
|
Note 19
|
Segment
Reporting
|
The Company has four reporting segments: (i) Payless
Domestic, (ii) Payless International, (iii) PLG
Wholesale and (iv) PLG Retail. The Company has defined its
reporting segments as follows:
(i) The Payless Domestic reporting segment is comprised
primarily of domestic retail stores under the Payless ShoeSource
name, the Companys sourcing unit and Collective Licensing.
(ii) The Payless International reporting segment is
comprised of international retail stores under the Payless
ShoeSource name in Canada, the South American Region, the
Central American Region, Puerto Rico, and the U.S. Virgin
Islands as well as franchising arrangements under the Payless
ShoeSource name.
(iii) The PLG Wholesale reporting segment consists of
PLGs global wholesale operations.
(iv) The PLG Retail reporting segment consists of
PLGs owned Stride Rite Childrens stores and Stride
Rite Outlet stores.
Payless Internationals operations in the Central American
and South American Regions are operated as joint ventures in
which the Company maintains a 60% ownership interest.
Noncontrolling interest represents the Companys joint
venture partners share of net earnings or losses on
applicable international operations. Certain management costs
for services performed by Payless Domestic and certain royalty
fees and sourcing fees charged by Payless Domestic are allocated
to the Payless International segment. The total costs and fees
amounted to $36.0 million, $38.5 million and
$31.1 million during 2009, 2008 and 2007, respectively.
95
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The reporting period for operations in the Central and South
American Regions use a December 31 year-end. The effect of
this one-month lag on the Companys financial position and
results of operations is not significant. Information on the
segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payless
|
|
|
Payless
|
|
|
PLG
|
|
|
PLG
|
|
|
|
|
|
|
Domestic
|
|
|
International
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
Fiscal year ended January 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
2,153.2
|
|
|
$
|
422.4
|
|
|
$
|
513.9
|
|
|
$
|
218.4
|
|
|
$
|
3,307.9
|
|
Operating profit (loss) from continuing operations
|
|
|
98.1
|
|
|
|
34.1
|
|
|
|
30.0
|
|
|
|
(3.7
|
)
|
|
|
158.5
|
|
Interest expense
|
|
|
60.7
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
60.8
|
|
Interest income
|
|
|
(1.0
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.1
|
)
|
Loss on early extinguishment of debt
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations before
taxes
|
|
$
|
37.2
|
|
|
$
|
34.1
|
|
|
$
|
30.0
|
|
|
$
|
(3.7
|
)
|
|
$
|
97.6
|
|
Depreciation and amortization
|
|
$
|
98.4
|
|
|
$
|
17.4
|
|
|
$
|
21.7
|
|
|
$
|
5.7
|
|
|
$
|
143.2
|
|
Total assets
|
|
$
|
1,151.1
|
|
|
$
|
201.5
|
|
|
$
|
866.3
|
|
|
$
|
65.4
|
|
|
$
|
2,284.3
|
|
Operating segment long-lived assets
|
|
$
|
379.5
|
|
|
$
|
64.9
|
|
|
$
|
40.9
|
|
|
$
|
22.1
|
|
|
$
|
507.4
|
|
Additions to long-lived assets
|
|
$
|
66.6
|
|
|
$
|
17.5
|
|
|
$
|
4.1
|
|
|
$
|
3.6
|
|
|
$
|
91.8
|
|
Fiscal year ended January 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
2,190.7
|
|
|
$
|
444.7
|
|
|
$
|
591.6
|
|
|
$
|
215.0
|
|
|
$
|
3,442.0
|
|
Operating profit (loss) from continuing operations
|
|
|
0.9
|
|
|
|
51.3
|
|
|
|
(48.8
|
)
|
|
|
(43.6
|
)
|
|
|
(40.2
|
)
|
Interest expense
|
|
|
75.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75.2
|
|
Interest income
|
|
|
(6.8
|
)
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(8.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings from continuing operations before taxes
|
|
$
|
(67.5
|
)
|
|
$
|
52.6
|
|
|
$
|
(48.8
|
)
|
|
$
|
(43.6
|
)
|
|
$
|
(107.3
|
)
|
Depreciation and amortization
|
|
$
|
93.4
|
|
|
$
|
16.9
|
|
|
$
|
23.9
|
|
|
$
|
6.7
|
|
|
$
|
140.9
|
|
Total assets
|
|
$
|
1,109.1
|
|
|
$
|
173.6
|
|
|
$
|
894.7
|
|
|
$
|
73.9
|
|
|
$
|
2,251.3
|
|
Operating segment long-lived assets
|
|
$
|
429.3
|
|
|
$
|
60.7
|
|
|
$
|
46.9
|
|
|
$
|
25.4
|
|
|
$
|
562.3
|
|
Additions to long-lived assets
|
|
$
|
110.3
|
|
|
$
|
15.9
|
|
|
$
|
3.8
|
|
|
$
|
7.2
|
|
|
$
|
137.2
|
|
Fiscal year ended February 2, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
2,298.4
|
|
|
$
|
427.0
|
|
|
$
|
215.1
|
|
|
$
|
94.9
|
|
|
$
|
3,035.4
|
|
Operating profit (loss) from continuing operations
|
|
|
82.2
|
|
|
|
52.0
|
|
|
|
(27.5
|
)
|
|
|
(15.4
|
)
|
|
|
91.3
|
|
Interest expense
|
|
|
45.9
|
|
|
|
0. 8
|
|
|
|
|
|
|
|
|
|
|
|
46.7
|
|
Interest income
|
|
|
(10.5
|
)
|
|
|
(3.6
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(14.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations before taxes
|
|
$
|
46.8
|
|
|
$
|
54.8
|
|
|
$
|
(27.2
|
)
|
|
$
|
(15.4
|
)
|
|
$
|
59.0
|
|
Depreciation and amortization
|
|
$
|
88.4
|
|
|
$
|
15.1
|
|
|
$
|
10.9
|
|
|
$
|
2.9
|
|
|
$
|
117.3
|
|
Total assets
|
|
$
|
1,118.9
|
|
|
$
|
173.8
|
|
|
$
|
1,024.5
|
|
|
$
|
98.0
|
|
|
$
|
2,415.2
|
|
Operating segment long-lived assets
|
|
$
|
450.8
|
|
|
$
|
64.0
|
|
|
$
|
52.6
|
|
|
$
|
27.6
|
|
|
$
|
595.0
|
|
Additions to long-lived assets
|
|
$
|
167.4
|
|
|
$
|
17.0
|
|
|
$
|
1.7
|
|
|
$
|
3.3
|
|
|
$
|
189.4
|
|
96
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a summary of revenue from external customers by
geographical area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(Dollars in millions)
|
|
Domestic
|
|
$
|
2,781.8
|
|
|
$
|
2,861.7
|
|
|
$
|
2,555.8
|
|
International
|
|
|
526.1
|
|
|
|
580.3
|
|
|
|
479.6
|
|
The following is a summary of long-lived assets by geographical
area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(Dollars in millions)
|
|
Domestic
|
|
$
|
413.6
|
|
|
$
|
472.8
|
|
|
$
|
528.3
|
|
International
|
|
|
93.8
|
|
|
|
89.5
|
|
|
|
66.7
|
|
|
|
Note 20
|
Environmental
Liability
|
In connection with the PLG acquisition, the Company acquired a
property with a related environmental liability. The liability
as of January 30, 2010 was $4.8 million,
$3.1 million of which was included as an accrued expense
and $1.7 million of which was included in other long-term
liabilities in the accompanying Consolidated Balance Sheet. The
assessment of the liability and the associated costs were based
upon available information after consultation with environmental
engineers, consultants and attorneys assisting the Company in
addressing these environmental issues. The Company estimates the
range of total costs related to this environmental liability to
be between $6.2 million and $7.4 million, including
$2.6 million of costs that have already been paid. Actual
costs to address the environmental conditions may change based
upon further investigations, the conclusions of regulatory
authorities about information gathered in those investigations
and due to the inherent uncertainties involved in estimating
conditions in the environment and the costs of addressing such
conditions.
|
|
Note 21
|
Impact of
Recently Issued Accounting Standards
|
In December 2007, the Financial Accounting Standards Board
(FASB) issued revised guidance for the accounting
for business combinations. The revised guidance, which is now
part of Accounting Standards Codification (ASC) 805,
Business Combinations, requires the acquiring entity
in a business combination to record all assets acquired and
liabilities assumed at their respective acquisition-date fair
values, changes the recognition of assets acquired and
liabilities assumed arising from contingencies, changes the
recognition and measurement of contingent consideration, and
requires the expensing of acquisition-related costs as incurred.
The revised guidance also requires additional disclosure of
information surrounding a business combination, such that users
of the entitys financial statements can fully understand
the nature and financial impact of the business combination. The
revised guidance primarily applies prospectively to business
combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or
after December 15, 2008, however, adjustments made to
valuation allowances on deferred taxes and acquired tax
contingencies associated with acquisitions that closed prior to
the effective date would also apply to the provisions of the
revised guidance. Early adoption was not permitted. The revised
guidance was effective for the Company beginning
February 1, 2009 and will primarily apply prospectively to
business combinations completed on or after that date.
In December 2007, the FASB issued new guidance for the
accounting for noncontrolling interests. The new guidance, which
is now a part of ASC 810, Consolidation, establishes
accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. The new guidance requires consolidated net earnings
to be reported at amounts that include the amounts attributable
to both the parent and the noncontrolling interest. It also
requires disclosure, on the face of the Condensed Consolidated
Statement of Earnings, of the amounts of consolidated net
earnings attributable to the parent and to the noncontrolling
interest. In addition, this new guidance establishes a single
method of accounting for changes in a parents ownership
interest in a subsidiary that do not result in deconsolidation
and requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated. The Company adopted
this new guidance on February 1, 2009, the impact of
97
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
which was retrospectively applied and resulted in the
noncontrolling interest being separately presented as a
component of equity on the Consolidated Balance Sheets and
Consolidated Statements of Equity and Comprehensive Income.
In February 2008, the FASB issued new guidance for the
accounting for non-financial assets and non-financial
liabilities. The new guidance, which is now a part of ASC 820,
Fair Value Measurements and Disclosures, permitted a
one-year deferral of the application of fair value accounting
for all non-financial assets and non-financial liabilities,
except those that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least
annually). The Company adopted this new guidance in the first
quarter of 2009, the impact of which did not have a material
impact on its Consolidated Financial Statements.
In March 2008, the FASB issued new guidance on the disclosure of
derivative instruments and hedging activities. The new guidance,
which is now a part of ASC 815, Derivatives and Hedging
Activities, requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of gains and losses on
derivative instruments and disclosures about credit-risk-related
contingent features in derivative agreements. This new guidance
is effective for financial statements issued for fiscal years
beginning after November 15, 2008. The Company adopted this
new guidance in the first quarter of 2009. Please refer to
Note 8 Derivatives, for the adopted disclosures.
In April 2008, the FASB issued new guidance on determining the
useful life of a recognized intangible asset. The new guidance
is now a part of ASC 350, Intangibles Goodwill
and Other and ASC 275, Risks and
Uncertainties. The Company adopted this new guidance in
the first quarter of 2009, the impact of which did not have a
material impact on its Consolidated Financial Statements.
In June 2008, the FASB issued new guidance for the accounting by
lessees for maintenance deposits. The new guidance, which is now
a part of ASC 840, Leases, concluded that all
maintenance deposits within its scope should be accounted for as
a deposit, and expensed or capitalized in accordance with the
lessees maintenance accounting policy. The new guidance is
effective for financial statements issued for fiscal years
beginning after December 15, 2008 and interim periods
within those fiscal years. The Company adopted the provisions of
this new guidance in the first quarter of 2009, the impact of
which did not have a material effect on the Companys
Consolidated Financial Statements.
In June 2008, the FASB issued new guidance on determining
whether instruments granted in share-based payment transactions
are participating securities. The new guidance, which is now
part of ASC 260, Earnings per Share, clarifies that
unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and are to be included in
the computation of earnings per share under the two-class
method. The new guidance is effective for fiscal years beginning
after December 15, 2008. The Company adopted the provisions
of the new guidance in the first quarter of 2009, which are
retrospective; and therefore, prior periods have been
retrospectively presented. Please refer to
Note 14 Earnings per Share, for a discussion of
the impact of the new guidance on the Companys
Consolidated Financial Statements.
In December 2008, the FASB issued new guidance on the disclosure
of postretirement benefit plan assets. The new guidance, which
is now part of ASC 715, Compensation
Retirement Benefits, requires certain disclosures about
plan assets of a defined benefit pension or other postretirement
plan. This statement is effective for financial statements
issued for fiscal years beginning after December 15, 2009.
The Company adopted this new guidance in the fourth quarter of
2009. Please refer to Note 10 Pension Plans,
for the adopted disclosures.
In April 2009, the FASB issued new guidance related to the
disclosure of the fair value of financial instruments. The new
guidance, which is now part of ASC 825, Financial
Instruments, requires disclosure of the fair value of
financial instruments whenever a publicly traded company issues
financial information in interim reporting periods in addition
to the annual disclosure required at year-end. The provisions of
the new guidance were effective for interim periods ending after
June 15, 2009. The Company early adopted this new guidance
in the first quarter of
98
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2009, the impact of which related only to disclosures and did
not have a material effect on the Companys Consolidated
Financial Statements.
In April 2009, the FASB issued revised guidance for recognizing
and measuring pre-acquisition contingencies in a business
combination. Under the revised guidance, which is now part of
ASC 805, Business Combinations, pre-acquisition
contingencies are recognized at their acquisition-date fair
value if a fair value can be determined during the measurement
period. If the acquisition-date fair value cannot be determined
during the measurement period, a contingency (best estimate) is
to be recognized if it is probable that an asset existed or
liability had been incurred at the acquisition date and the
amount can be reasonably estimated. The revised guidance does
not prescribe specific accounting for subsequent measurement and
accounting for contingencies. The Company does not expect the
adoption of this revised guidance will have a material effect on
the Companys Consolidated Financial Statements.
In May 2009, the FASB issued new guidance for accounting for
subsequent events. The new guidance, which is now part of ASC
855, Subsequent Events, establishes general
standards of accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are
issued. This new guidance is effective for interim or annual
periods ending after June 15, 2009. The adoption of this
new guidance did not have a material effect on the
Companys Consolidated Financial Statements.
In June 2009, the FASB issued new guidance to establish the
source of authoritative accounting principles. The new guidance,
which is now a part of ASC 105 Generally Accepted
Accounting Principles, establishes the FASB Accounting
Standards Codification (the Codification) as the
single source of authoritative GAAP to be applied by
nongovernmental entities, except for the rules and interpretive
releases of the SEC under authority of federal securities laws,
which are sources of authoritative GAAP for SEC registrants. All
guidance contained in the Codification carries an equal level of
authority. This new guidance is effective for financial
statements issued for interim and annual periods ending after
September 15, 2009. The adoption of this new guidance did
not have a material effect on the Companys Consolidated
Financial Statements.
|
|
Note 22
|
Related
Party Transactions
|
The Company maintains banking relationships with certain
financial institutions that are affiliated with some of the
Companys Latin America joint venture partners. Total
deposits in these financial institutions at the end of 2009 and
2008 were $11.8 million and $9.8 million,
respectively. Total borrowings from these financial institutions
at the end of 2009 were $1.2 million. There were no
borrowings from the Companys Latin American partners as of
the end of 2008.
Mr. Matthew E. Rubel is the Companys Chief Executive
Officer, President and Chairman of the Board. The Company began
a relationship with Celadon Group, Inc. (Celadon) in
2002. Mr. Rubels
father-in-law,
Stephen Russell, is Chairman of the Board and Chief Executive
Officer of Celadon. Pursuant to a competitive bid process,
during 2006 Celadon won the right to be the primary carrier on
two of the Companys transportation lanes. These lanes
account for less than three percent of the Companys line
haul budget. The Company regularly competitively bids its line
haul routes and as a result, Celadon could gain or lose routes
based upon its bids.
In June 2006, the Company entered into a Marketing and License
Agreement with Ballet Theatre Foundation Inc., a nonprofit
organization, to use the American Ballet Theatre and ABT marks
in connection with development, manufacture, marketing
promotion, distribution, and sale of certain dance footwear.
Mr. Rubel became a Trustee of Ballet Theatre Foundation,
Inc., in January 2007.
|
|
Note 23
|
Subsidiary
Guarantors of Senior Notes Consolidating Financial
Information
|
The Company has issued Notes guaranteed by certain of its
subsidiaries (the Guarantor Subsidiaries). The
Guarantor Subsidiaries are direct or indirect wholly owned
domestic subsidiaries of the Company. The guarantees are full
and unconditional and joint and several.
99
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following supplemental financial information sets forth, on
a consolidating basis, the condensed statements of earnings for
the Company (the Parent Company), for the Guarantor
Subsidiaries and for the Companys non-guarantor
subsidiaries (the Non-guarantor Subsidiaries) and
total consolidated Collective Brands, Inc. and subsidiaries for
the 52 week periods ended January 30, 2010,
January 31, 2009, and February 2, 2008, condensed
balanced sheets as of January 30, 2010, and
January 31, 2009 and the condensed statements of cash flows
for the 52 week periods ended January 30, 2010,
January 31, 2009, and February 2, 2008. With the
exception of operations in the Central and South American
Regions in which the Company has a 60% ownership interest, the
Non-guarantor Subsidiaries are direct or indirect wholly-owned
subsidiaries of the Guarantor Subsidiaries. The equity
investment for each subsidiary is recorded by its parent in
Other Assets.
The Non-guarantor Subsidiaries are made up of the Companys
operations in the Central and South American Regions, Canada,
Mexico, Germany, the Netherlands, the United Kingdom, Ireland,
Australia, Bermuda, Saipan and Puerto Rico and the
Companys sourcing organization in Hong Kong, Taiwan,
China, Indonesia and Brazil. The operations in the Central and
South American Regions use a December 31 year-end.
Operations in the Central and South American Regions are
included in the Companys results on a one-month lag
relative to results from other regions. The effect of this
one-month lag on the Companys financial position and
results of operations is not significant.
Under the indenture governing the Notes, the Companys
subsidiaries in Singapore are designated as unrestricted
subsidiaries. The effect of these subsidiaries on the
Companys financial position and results of operations and
cash flows is not significant. The Companys subsidiaries
in Singapore are included in the Non-guarantor Subsidiaries.
100
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENTS OF EARNINGS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended January 30, 2010
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
2,917.0
|
|
|
$
|
1,212.5
|
|
|
$
|
(821.6
|
)
|
|
$
|
3,307.9
|
|
Cost of sales
|
|
|
|
|
|
|
2,022.8
|
|
|
|
864.4
|
|
|
|
(720.3
|
)
|
|
|
2,166.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
894.2
|
|
|
|
348.1
|
|
|
|
(101.3
|
)
|
|
|
1,141.0
|
|
Selling, general and administrative expenses
|
|
|
2.1
|
|
|
|
832.0
|
|
|
|
249.6
|
|
|
|
(101.3
|
)
|
|
|
982.4
|
|
Restructuring charges
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) profit from continuing operations
|
|
|
(2.1
|
)
|
|
|
62.1
|
|
|
|
98.5
|
|
|
|
|
|
|
|
158.5
|
|
Interest expense
|
|
|
24.4
|
|
|
|
43.4
|
|
|
|
0.1
|
|
|
|
(7.1
|
)
|
|
|
60.8
|
|
Interest income
|
|
|
|
|
|
|
(8.1
|
)
|
|
|
(0.1
|
)
|
|
|
7.1
|
|
|
|
(1.1
|
)
|
Loss on early extinguishment of debt
|
|
|
1.0
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
Equity in earnings of subsidiaries
|
|
|
(100.1
|
)
|
|
|
(88.4
|
)
|
|
|
|
|
|
|
188.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before income taxes
|
|
|
72.6
|
|
|
|
115.0
|
|
|
|
98.5
|
|
|
|
(188.5
|
)
|
|
|
97.6
|
|
(Benefit) provision for income taxes
|
|
|
(10.1
|
)
|
|
|
15.0
|
|
|
|
4.5
|
|
|
|
|
|
|
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from continuing operations
|
|
|
82.7
|
|
|
|
100.0
|
|
|
|
94.0
|
|
|
|
(188.5
|
)
|
|
|
88.2
|
|
Loss from discontinued operations, net of income taxes
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
82.7
|
|
|
|
100.1
|
|
|
|
94.0
|
|
|
|
(188.5
|
)
|
|
|
88.3
|
|
Net earnings attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
(5.6
|
)
|
|
|
|
|
|
|
(5.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Collective Brands, Inc.
|
|
$
|
82.7
|
|
|
$
|
100.1
|
|
|
$
|
88.4
|
|
|
$
|
(188.5
|
)
|
|
$
|
82.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENTS OF (LOSS) EARNINGS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended January 31, 2009
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
3,046.0
|
|
|
$
|
1,187.2
|
|
|
$
|
(791.2
|
)
|
|
$
|
3,442.0
|
|
Cost of sales
|
|
|
|
|
|
|
2,309.8
|
|
|
|
831.8
|
|
|
|
(708.8
|
)
|
|
|
2,432.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
736.2
|
|
|
|
355.4
|
|
|
|
(82.4
|
)
|
|
|
1,009.2
|
|
Selling, general and administrative expenses
|
|
|
2.1
|
|
|
|
844.6
|
|
|
|
242.9
|
|
|
|
(82.4
|
)
|
|
|
1,007.2
|
|
Impairment of goodwill
|
|
|
|
|
|
|
42.0
|
|
|
|
|
|
|
|
|
|
|
|
42.0
|
|
Restructuring charges
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) profit from continuing operations
|
|
|
(2.1
|
)
|
|
|
(150.6
|
)
|
|
|
112.5
|
|
|
|
|
|
|
|
(40.2
|
)
|
Interest expense
|
|
|
30.6
|
|
|
|
57.4
|
|
|
|
0.4
|
|
|
|
(13.2
|
)
|
|
|
75.2
|
|
Interest income
|
|
|
|
|
|
|
(19.1
|
)
|
|
|
(2.2
|
)
|
|
|
13.2
|
|
|
|
(8.1
|
)
|
Equity in earnings of subsidiaries
|
|
|
47.1
|
|
|
|
(97.2
|
)
|
|
|
|
|
|
|
50.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations before income taxes
|
|
|
(79.8
|
)
|
|
|
(91.7
|
)
|
|
|
114.3
|
|
|
|
(50.1
|
)
|
|
|
(107.3
|
)
|
(Benefit) provision for income taxes
|
|
|
(11.1
|
)
|
|
|
(45.3
|
)
|
|
|
8.4
|
|
|
|
|
|
|
|
(48.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings from continuing operations
|
|
|
(68.7
|
)
|
|
|
(46.4
|
)
|
|
|
105.9
|
|
|
|
(50.1
|
)
|
|
|
(59.3
|
)
|
Loss from discontinued operations, net of income taxes
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
|
(68.7
|
)
|
|
|
(47.1
|
)
|
|
|
105.9
|
|
|
|
(50.1
|
)
|
|
|
(60.0
|
)
|
Net earnings attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
(8.7
|
)
|
|
|
|
|
|
|
(8.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings attributable to Collective Brands, Inc.
|
|
$
|
(68.7
|
)
|
|
$
|
(47.1
|
)
|
|
$
|
97.2
|
|
|
$
|
(50.1
|
)
|
|
$
|
(68.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENTS OF EARNINGS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended February 2, 2008
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
2,708.9
|
|
|
$
|
1,017.6
|
|
|
$
|
(691.1
|
)
|
|
$
|
3,035.4
|
|
Cost of sales
|
|
|
|
|
|
|
1,938.6
|
|
|
|
752.3
|
|
|
|
(646.4
|
)
|
|
|
2,044.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
770.3
|
|
|
|
265.3
|
|
|
|
(44.7
|
)
|
|
|
990.9
|
|
Selling, general and administrative expenses
|
|
|
1.4
|
|
|
|
767.0
|
|
|
|
175.7
|
|
|
|
(44.7
|
)
|
|
|
899.4
|
|
Restructuring charges
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) profit from continuing operations
|
|
|
(1.4
|
)
|
|
|
3.1
|
|
|
|
89.6
|
|
|
|
|
|
|
|
91.3
|
|
Interest expense
|
|
|
37.3
|
|
|
|
29.1
|
|
|
|
1.1
|
|
|
|
(20.8
|
)
|
|
|
46.7
|
|
Interest income
|
|
|
|
|
|
|
(29.2
|
)
|
|
|
(6.0
|
)
|
|
|
20.8
|
|
|
|
(14.4
|
)
|
Equity in earnings of subsidiaries
|
|
|
(67.7
|
)
|
|
|
(73.4
|
)
|
|
|
|
|
|
|
141.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before income taxes
|
|
|
29.0
|
|
|
|
76.6
|
|
|
|
94.5
|
|
|
|
(141.1
|
)
|
|
|
59.0
|
|
(Benefit) provision for income taxes
|
|
|
(13.7
|
)
|
|
|
8.9
|
|
|
|
13.4
|
|
|
|
|
|
|
|
8.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from continuing operations
|
|
|
42.7
|
|
|
|
67.7
|
|
|
|
81.1
|
|
|
|
(141.1
|
)
|
|
|
50.4
|
|
Loss from discontinued operations, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
42.7
|
|
|
|
67.7
|
|
|
|
81.1
|
|
|
|
(141.1
|
)
|
|
|
50.4
|
|
Net earnings attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
(7.7
|
)
|
|
|
|
|
|
|
(7.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Collective Brands, Inc.
|
|
$
|
42.7
|
|
|
$
|
67.7
|
|
|
$
|
73.4
|
|
|
$
|
(141.1
|
)
|
|
$
|
42.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 30, 2010
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
279.8
|
|
|
$
|
113.7
|
|
|
$
|
|
|
|
$
|
393.5
|
|
Accounts receivable, net
|
|
|
|
|
|
|
85.7
|
|
|
|
17.5
|
|
|
|
(7.7
|
)
|
|
|
95.5
|
|
Inventories
|
|
|
|
|
|
|
350.9
|
|
|
|
99.9
|
|
|
|
(7.9
|
)
|
|
|
442.9
|
|
Current deferred income taxes
|
|
|
|
|
|
|
34.6
|
|
|
|
7.5
|
|
|
|
|
|
|
|
42.1
|
|
Prepaid expenses
|
|
|
10.8
|
|
|
|
28.5
|
|
|
|
9.6
|
|
|
|
|
|
|
|
48.9
|
|
Other current assets
|
|
|
|
|
|
|
263.4
|
|
|
|
120.6
|
|
|
|
(362.3
|
)
|
|
|
21.7
|
|
Current assets of discontinued operations
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
10.8
|
|
|
|
1,043.4
|
|
|
|
368.8
|
|
|
|
(377.9
|
)
|
|
|
1,045.1
|
|
Property and Equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
|
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
7.0
|
|
Property, buildings and equipment
|
|
|
|
|
|
|
1,207.8
|
|
|
|
195.3
|
|
|
|
|
|
|
|
1,403.1
|
|
Accumulated depreciation and amortization
|
|
|
|
|
|
|
(820.3
|
)
|
|
|
(125.6
|
)
|
|
|
|
|
|
|
(945.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
394.5
|
|
|
|
69.7
|
|
|
|
|
|
|
|
464.2
|
|
Intangible assets, net
|
|
|
|
|
|
|
409.2
|
|
|
|
36.3
|
|
|
|
|
|
|
|
445.5
|
|
Goodwill
|
|
|
|
|
|
|
141.8
|
|
|
|
138.0
|
|
|
|
|
|
|
|
279.8
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
6.5
|
|
|
|
|
|
|
|
6.5
|
|
Other assets
|
|
|
1,377.7
|
|
|
|
733.5
|
|
|
|
2.7
|
|
|
|
(2,070.7
|
)
|
|
|
43.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,388.5
|
|
|
$
|
2,722.4
|
|
|
$
|
622.0
|
|
|
$
|
(2,448.6
|
)
|
|
$
|
2,284.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
|
|
|
$
|
6.9
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6.9
|
|
Accounts payable
|
|
|
|
|
|
|
159.2
|
|
|
|
117.9
|
|
|
|
(81.2
|
)
|
|
|
195.9
|
|
Accrued expenses
|
|
|
193.3
|
|
|
|
248.2
|
|
|
|
32.2
|
|
|
|
(291.9
|
)
|
|
|
181.8
|
|
Current liabilities of discontinued operations
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
193.3
|
|
|
|
415.6
|
|
|
|
150.1
|
|
|
|
(373.1
|
)
|
|
|
385.9
|
|
Long-term debt
|
|
|
457.0
|
|
|
|
666.5
|
|
|
|
29.7
|
|
|
|
(310.8
|
)
|
|
|
842.4
|
|
Deferred income taxes
|
|
|
|
|
|
|
63.6
|
|
|
|
1.9
|
|
|
|
|
|
|
|
65.5
|
|
Other liabilities
|
|
|
3.0
|
|
|
|
205.8
|
|
|
|
18.0
|
|
|
|
(0.5
|
)
|
|
|
226.3
|
|
Noncurrent liabilities of discontinued operations
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collective Brands, Inc. shareowners equity
|
|
|
735.2
|
|
|
|
1,370.6
|
|
|
|
393.6
|
|
|
|
(1,764.2
|
)
|
|
|
735.2
|
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
28.7
|
|
|
|
|
|
|
|
28.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
735.2
|
|
|
|
1,370.6
|
|
|
|
422.3
|
|
|
|
(1,764.2
|
)
|
|
|
763.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
1,388.5
|
|
|
$
|
2,722.4
|
|
|
$
|
622.0
|
|
|
$
|
(2,448.6
|
)
|
|
$
|
2,284.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 31, 2009
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
141.7
|
|
|
$
|
107.6
|
|
|
$
|
|
|
|
$
|
249.3
|
|
Accounts receivable, net
|
|
|
|
|
|
|
87.6
|
|
|
|
14.7
|
|
|
|
(4.8
|
)
|
|
|
97.5
|
|
Inventories
|
|
|
|
|
|
|
416.0
|
|
|
|
80.5
|
|
|
|
(4.5
|
)
|
|
|
492.0
|
|
Current deferred income taxes
|
|
|
|
|
|
|
31.6
|
|
|
|
4.0
|
|
|
|
|
|
|
|
35.6
|
|
Prepaid expenses
|
|
|
0.7
|
|
|
|
51.3
|
|
|
|
6.7
|
|
|
|
|
|
|
|
58.7
|
|
Other current assets
|
|
|
|
|
|
|
273.2
|
|
|
|
81.3
|
|
|
|
(329.2
|
)
|
|
|
25.3
|
|
Current assets of discontinued operations
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
0.7
|
|
|
|
1,002.7
|
|
|
|
294.8
|
|
|
|
(338.5
|
)
|
|
|
959.7
|
|
Property and Equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
|
|
|
|
8.6
|
|
|
|
|
|
|
|
|
|
|
|
8.6
|
|
Property, buildings and equipment
|
|
|
|
|
|
|
1,287.8
|
|
|
|
170.8
|
|
|
|
|
|
|
|
1,458.6
|
|
Accumulated depreciation and amortization
|
|
|
|
|
|
|
(836.3
|
)
|
|
|
(109.5
|
)
|
|
|
|
|
|
|
(945.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
460.1
|
|
|
|
61.3
|
|
|
|
|
|
|
|
521.4
|
|
Intangible assets, net
|
|
|
|
|
|
|
422.2
|
|
|
|
23.8
|
|
|
|
|
|
|
|
446.0
|
|
Goodwill
|
|
|
|
|
|
|
143.6
|
|
|
|
138.0
|
|
|
|
|
|
|
|
281.6
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
|
|
1.7
|
|
Other assets
|
|
|
1,251.9
|
|
|
|
636.2
|
|
|
|
3.5
|
|
|
|
(1,850.7
|
)
|
|
|
40.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,252.6
|
|
|
$
|
2,664.8
|
|
|
$
|
523.1
|
|
|
$
|
(2,189.2
|
)
|
|
$
|
2,251.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
|
|
|
$
|
24.8
|
|
|
$
|
30.0
|
|
|
$
|
(30.0
|
)
|
|
$
|
24.8
|
|
Accounts payable
|
|
|
|
|
|
|
110.6
|
|
|
|
96.2
|
|
|
|
(33.0
|
)
|
|
|
173.8
|
|
Accrued expenses
|
|
|
148.3
|
|
|
|
293.8
|
|
|
|
36.0
|
|
|
|
(275.4
|
)
|
|
|
202.7
|
|
Current liabilities of discontinued operations
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
148.3
|
|
|
|
431.1
|
|
|
|
162.2
|
|
|
|
(338.4
|
)
|
|
|
403.2
|
|
Long-term debt
|
|
|
479.3
|
|
|
|
691.2
|
|
|
|
9.6
|
|
|
|
(291.7
|
)
|
|
|
888.4
|
|
Deferred income taxes
|
|
|
|
|
|
|
49.2
|
|
|
|
|
|
|
|
|
|
|
|
49.2
|
|
Other liabilities
|
|
|
2.7
|
|
|
|
244.4
|
|
|
|
17.1
|
|
|
|
|
|
|
|
264.2
|
|
Noncurrent liabilities of discontinued operations
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collective Brands, Inc. shareowners equity
|
|
|
622.3
|
|
|
|
1,248.6
|
|
|
|
310.5
|
|
|
|
(1,559.1
|
)
|
|
|
622.3
|
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
23.7
|
|
|
|
|
|
|
|
23.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
622.3
|
|
|
|
1,248.6
|
|
|
|
334.2
|
|
|
|
(1,559.1
|
)
|
|
|
646.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
1,252.6
|
|
|
$
|
2,664.8
|
|
|
$
|
523.1
|
|
|
$
|
(2,189.2
|
)
|
|
$
|
2,251.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended January 30, 2010
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
82.7
|
|
|
$
|
100.1
|
|
|
$
|
94.0
|
|
|
$
|
(188.5
|
)
|
|
$
|
88.3
|
|
Earnings from discontinued operations, net of income taxes
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
Adjustments for non-cash items included in net earnings
|
|
|
1.1
|
|
|
|
159.3
|
|
|
|
18.8
|
|
|
|
|
|
|
|
179.2
|
|
Changes in working capital
|
|
|
34.9
|
|
|
|
102.8
|
|
|
|
(43.0
|
)
|
|
|
(30.1
|
)
|
|
|
64.6
|
|
Other, net
|
|
|
(95.8
|
)
|
|
|
(95.5
|
)
|
|
|
(11.0
|
)
|
|
|
177.9
|
|
|
|
(24.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by operating activities
|
|
|
22.9
|
|
|
|
266.6
|
|
|
|
58.8
|
|
|
|
(40.7
|
)
|
|
|
307.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(66.3
|
)
|
|
|
(17.7
|
)
|
|
|
|
|
|
|
(84.0
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
2.8
|
|
Dividends received related party
|
|
|
|
|
|
|
|
|
|
|
1.6
|
|
|
|
(1.6
|
)
|
|
|
|
|
Issuance of intercompany debt
|
|
|
|
|
|
|
(19.0
|
)
|
|
|
|
|
|
|
19.0
|
|
|
|
|
|
Other, net
|
|
|
|
|
|
|
(1.8
|
)
|
|
|
(17.2
|
)
|
|
|
|
|
|
|
(19.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in investing activities
|
|
|
|
|
|
|
(84.3
|
)
|
|
|
(33.3
|
)
|
|
|
17.4
|
|
|
|
(100.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net repayment of debt or notes payable
|
|
|
(23.5
|
)
|
|
|
(42.6
|
)
|
|
|
(9.8
|
)
|
|
|
11.0
|
|
|
|
(64.9
|
)
|
Net issuances of common stock
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
Net distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
(0.7
|
)
|
Net distributions to parent
|
|
|
|
|
|
|
(1.6
|
)
|
|
|
(10.7
|
)
|
|
|
12.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in financing activities
|
|
|
(22.9
|
)
|
|
|
(44.2
|
)
|
|
|
(21.2
|
)
|
|
|
23.3
|
|
|
|
(65.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
|
|
|
|
1.8
|
|
|
|
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
|
|
|
|
138.1
|
|
|
|
6.1
|
|
|
|
|
|
|
|
144.2
|
|
Cash and cash equivalents, beginning of year
|
|
|
|
|
|
|
141.7
|
|
|
|
107.6
|
|
|
|
|
|
|
|
249.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
|
|
|
$
|
279.8
|
|
|
$
|
113.7
|
|
|
$
|
|
|
|
$
|
393.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended January 31, 2009
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
$
|
(68.7
|
)
|
|
$
|
(47.1
|
)
|
|
$
|
105.9
|
|
|
$
|
(50.1
|
)
|
|
$
|
(60.0
|
)
|
Loss from discontinued operations, net of income taxes
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
0.7
|
|
Adjustments for non-cash items included in net earnings
|
|
|
3.0
|
|
|
|
227.8
|
|
|
|
14.3
|
|
|
|
|
|
|
|
245.1
|
|
Changes in working capital
|
|
|
(32.4
|
)
|
|
|
7.3
|
|
|
|
(24.3
|
)
|
|
|
30.1
|
|
|
|
(19.3
|
)
|
Other, net
|
|
|
100.8
|
|
|
|
(11.8
|
)
|
|
|
(10.8
|
)
|
|
|
(83.6
|
)
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by operating activities
|
|
|
2.7
|
|
|
|
176.9
|
|
|
|
85.1
|
|
|
|
(103.6
|
)
|
|
|
161.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(113.0
|
)
|
|
|
(16.2
|
)
|
|
|
|
|
|
|
(129.2
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
Issuance of intercompany debt
|
|
|
|
|
|
|
(30.0
|
)
|
|
|
|
|
|
|
30.0
|
|
|
|
|
|
Dividends received from related party
|
|
|
|
|
|
|
44.2
|
|
|
|
|
|
|
|
(44.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in investing activities
|
|
|
|
|
|
|
(97.7
|
)
|
|
|
(16.2
|
)
|
|
|
(14.2
|
)
|
|
|
(128.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net repayment of debt or notes payable, including deferred
financing costs
|
|
|
(2.0
|
)
|
|
|
(7.0
|
)
|
|
|
30.0
|
|
|
|
(30.0
|
)
|
|
|
(9.0
|
)
|
Net purchases of common stock
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
Net distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
(1.5
|
)
|
Net distributions to parent
|
|
|
|
|
|
|
|
|
|
|
(147.8
|
)
|
|
|
147.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in financing activities
|
|
|
(2.7
|
)
|
|
|
(7.0
|
)
|
|
|
(119.3
|
)
|
|
|
117.8
|
|
|
|
(11.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
|
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
72.2
|
|
|
|
(55.4
|
)
|
|
|
|
|
|
|
16.8
|
|
Cash and cash equivalents, beginning of year
|
|
|
|
|
|
|
69.5
|
|
|
|
163.0
|
|
|
|
|
|
|
|
232.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
|
|
|
$
|
141.7
|
|
|
$
|
107.6
|
|
|
$
|
|
|
|
$
|
249.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended February 2, 2008
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
42.7
|
|
|
$
|
67.7
|
|
|
$
|
81.1
|
|
|
$
|
(141.1
|
)
|
|
$
|
50.4
|
|
Loss from discontinued operations, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments for non-cash items included in net earnings
|
|
|
1.9
|
|
|
|
92.6
|
|
|
|
20.6
|
|
|
|
|
|
|
|
115.1
|
|
Changes in working capital
|
|
|
47.5
|
|
|
|
(86.2
|
)
|
|
|
35.8
|
|
|
|
|
|
|
|
(2.9
|
)
|
Other, net
|
|
|
(52.4
|
)
|
|
|
21.7
|
|
|
|
(83.6
|
)
|
|
|
144.5
|
|
|
|
30.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by operating activities
|
|
|
39.7
|
|
|
|
95.8
|
|
|
|
53.9
|
|
|
|
3.4
|
|
|
|
192.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(150.3
|
)
|
|
|
(17.1
|
)
|
|
|
|
|
|
|
(167.4
|
)
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
|
|
2.0
|
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
2.9
|
|
Intangible asset additions
|
|
|
|
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
(0.6
|
)
|
Purchases of investments
|
|
|
|
|
|
|
(6.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(6.1
|
)
|
Sales and maturities of investments
|
|
|
|
|
|
|
96.7
|
|
|
|
|
|
|
|
|
|
|
|
96.7
|
|
Acquisition of businesses, net of cash acquired
|
|
|
|
|
|
|
(888.7
|
)
|
|
|
11.0
|
|
|
|
|
|
|
|
(877.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in investing activities
|
|
|
|
|
|
|
(945.5
|
)
|
|
|
(4.7
|
)
|
|
|
|
|
|
|
(950.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net repayment of debt or notes payable, including deferred
financing costs
|
|
|
|
|
|
|
633.6
|
|
|
|
22.4
|
|
|
|
(1.0
|
)
|
|
|
655.0
|
|
Net purchases of common stock
|
|
|
(39.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39.7
|
)
|
Net distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.4
|
)
|
|
|
(2.4
|
)
|
Net contributions by (distributions to) parent
|
|
|
|
|
|
|
43.8
|
|
|
|
(43.8
|
)
|
|
|
|
|
|
|
|
|
Other financing activities
|
|
|
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow (used in) provided by financing activities
|
|
|
(39.7
|
)
|
|
|
679.8
|
|
|
|
(21.4
|
)
|
|
|
(3.4
|
)
|
|
|
615.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
|
|
|
|
3.2
|
|
|
|
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
|
|
|
|
(169.9
|
)
|
|
|
31.0
|
|
|
|
|
|
|
|
(138.9
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
|
|
|
|
239.4
|
|
|
|
132.0
|
|
|
|
|
|
|
|
371.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
|
|
|
$
|
69.5
|
|
|
$
|
163.0
|
|
|
$
|
|
|
|
$
|
232.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Disclosure
Controls and Procedures
As of the end of the period covered by this
Form 10-K
for fiscal 2009, we carried out an evaluation, under the
supervision and with the participation of our principal
executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures. Based on this evaluation, our Principal
Executive Officer and Principal Financial and Accounting Officer
concluded that our disclosure controls and procedures (as
defined in
Rules 13a-14(c)
and
15d-14(c)
under the Securities Exchange Act of 1934) are effective
and designed to ensure that information required to be disclosed
in periodic reports filed with the SEC is recorded, processed,
summarized and reported within the time period specified. Our
principal executive officer and principal financial officer also
concluded that our controls and procedures were effective in
ensuring that information required to be disclosed by us in the
reports that we file or submit under the Act is accumulated and
communicated to management including our principal executive
officer and principal financial officer, or persons performing
similar functions, as appropriate to allow timely decisions
regarding required disclosure.
Managements
Annual Report on Internal Control over Financial Reporting and
the Report of Independent Registered Public Accounting
Firm
Managements annual report on internal control over
financial reporting and the report of independent registered
public accounting firm are incorporated by reference to pages 53
through 55 of Item 8 of this
Form 10-K.
Changes
in Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting during the fourth quarter of 2009 that have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Information concerning our executive officers is set forth in
Item 1 of this
Form 10-K
under the caption Executive Officers of the Company.
The Board of Directors has established a standing Audit and
Finance Committee which currently consists of Mr. John F.
McGovern Chairman, Mr. Daniel Boggan Jr.,
Mr. Robert F. Moran, Mr. David Scott Olivet, and
Mr. Matthew A. Ouimet. The Board has determined that each
of the members of the Audit and Finance Committee are audit
committee financial experts (as that term is defined under
Item 401(h) of
Regulation S-K)
and are independent.
Our Code of Ethics is applicable to all associates including our
principal executive officer, principal financial officer,
principal accounting officer, and persons performing similar
functions and is available on our website at
www.collectivebrands.com. The charters for the Board of
Directors, the Audit and Finance Committee, and the Compensation
Nominating and Governance Committee are also available on our
investor relations website. The Company intends to satisfy its
disclosure requirements under Item 5.05(c) of
Form 8-K,
regarding an amendment to or waiver from a provision of its Code
of Ethics by posting such information on our website at
www.collectivebrands.com.
109
Information with respect to our directors and the nomination
process is incorporated herein by reference to information
included in the Companys definitive proxy statement to be
filed in connection with its Annual Meeting to be held on
May 27, 2010 under Charters and Corporate Governance
Principles Selection of Directors and
About Shareholder Proposals and Nominations for our 2010
Annual Meeting.
a) Directors The information set forth
in the Companys definitive proxy statement to be filed in
connection with its Annual Meeting to be held on May 27,
2010, under the captions Election of Directors
Directors and Nominees for Director Directors
Subject to Election Continuing 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
Companys definitive proxy statement to be filed in
connection with its Annual Meeting to be held on May 27,
2010, under the caption Additional Information
Section 16(a) Beneficial Ownership Reporting
Compliance is incorporated herein by reference.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
No member of the Compensation, Nominating and Governance
Committee (Ms. Magnum, Messrs. Wheeler and Weiss) has
served as one of the Companys officers or employees. None
of the Companys executive officers named in the Summary
Compensation Table (included in the Companys proxy
statement) serve as a member of the board of directors or as a
member of a compensation committee of any other company that has
an executive officer serving as a member of the Companys
Board or the Compensation, Nominating and Governance Committee.
The information set forth in the Companys definitive proxy
statement to be filed in connection with its Annual Meeting to
be held on May 27, 2010, under the captions Board
Compensation, Compensation Committee Interlocks and
Insider Participation, Compensation, Nominating and
Governance Committee Report, Compensation,
Discussion and Analysis, Summary Compensation
Table, Fiscal 2009 Grants of Plan-Based
Awards, Outstanding Equity Awards at the end of
Fiscal 2009, Fiscal 2009 Options Exercises and Stock
Vested, Pension Benefits for Fiscal 2009,
Nonqualified Deferred Compensation for Fiscal 2009,
Potential Payments upon Termination or Change in
Control, and Compensation, Nominating and Governance
Committee is incorporated herein by reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information set forth in the Companys definitive proxy
statement to be filed in connection with its Annual Meeting to
be held on May 27, 2010, under the caption Beneficial
Stock Ownership of Directors, Nominees, Executive Officers and
More Than Five Percent Owners is incorporated herein by
reference.
The following table summarizes information with respect to the
Companys equity compensation plans at January 30,
2010 (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
Number of Securities
|
|
|
Weighted-Average
|
|
|
Future Issuance Under
|
|
|
|
to be Issued Upon
|
|
|
Exercise Price of
|
|
|
Equity Compensation Plans
|
|
|
|
Exercise of Outstanding
|
|
|
Outstanding Options,
|
|
|
(Excluding Securities
|
|
Plan Category
|
|
Options, Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Issued Upon Exercise)
|
|
|
Equity compensation plans approved by security holders
|
|
|
5,965
|
|
|
$
|
17.74
|
|
|
|
1,713
|
(1)
|
Equity compensation plans not approved by security holders
|
|
|
648
|
|
|
$
|
20.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,613
|
|
|
$
|
18.03
|
|
|
|
1,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
|
(1) |
|
Includes up to 1,467 thousand shares that may be issued under
the Companys 2006 Stock Incentive Plan and up to 246
thousand shares that can be issued under the Companys
Restricted Stock Plan for Non-Management Directors. The amount
does not include up to 5,354 thousand shares that may be
purchased under the Payless Stock Ownership Plan. |
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The Company began a relationship with Celadon Group, Inc.
(Celadon) in 2002. Mr. Rubels
father-in-law,
Stephen Russell, is Chairman of the Board and Chief Executive
Officer of Celadon. Pursuant to a competitive bid process,
Celadon won the right to be the primary carrier on certain of
the Companys transportation lanes. Beginning in April
2010, Celadon will also begin service on one additional lane.
These lanes account for less than three percent of the
Companys line haul budget. The Company periodically
competitively bids its line haul routes and as a result, Celadon
could gain or lose routes based upon its bids.
In June 2006, the Company entered into a Marketing and License
Agreement with Ballet Theatre Foundation Inc., a nonprofit
organization, to use the American Ballet Theatre and ABT marks
in connection with development, manufacture, marketing
promotion, distribution, and sale of certain dance footwear.
Mr. Rubel became a Trustee of Ballet Theatre Foundation,
Inc., in January 2007.
The information set forth in the Companys definitive proxy
statement to be filed in connection with its Annual Meeting to
be held on May 27, 2010 under the captions Election
of Directors Directors and Nominees for
Director, and Charters and Corporate Governance
Principles Independence of Directors and Nominees
for Director is incorporated herein by reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information regarding principal accounting fees and services
is incorporated herein by reference to the material under the
heading Principal Accounting Fees and Services of
the Companys definitive proxy statement to be filed in
connection with its Annual Meeting to be held on May 27,
2010.
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) Financial Statements and Schedules:
The financial statements are set forth under Item 8 of this
Annual Report on
Form 10-K.
Other than as set forth below, financial statement schedules
have been omitted since they are either not required, not
applicable, or the information is otherwise included.
111
SCHEDULE II-VALUATION
AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Charged to
|
|
|
|
Balance at
|
|
|
Beginning of Period
|
|
Costs and Expenses
|
|
Deductions(1)
|
|
End of Period
|
|
|
(Dollars in millions)
|
|
Year ended January 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
3.8
|
|
|
$
|
2.9
|
|
|
$
|
(2.5
|
)
|
|
$
|
4.2
|
|
Deferred tax valuation allowance
|
|
|
8.1
|
|
|
|
3.3
|
|
|
|
|
|
|
|
11.4
|
|
Sales return reserve
|
|
|
3.0
|
|
|
|
45.1
|
|
|
|
(44.8
|
)
|
|
|
3.3
|
|
Year ended January 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
2.5
|
|
|
$
|
3.4
|
|
|
$
|
(2.1
|
)
|
|
$
|
3.8
|
|
Deferred tax valuation allowance
|
|
|
5.8
|
|
|
|
2.9
|
|
|
|
(0.6
|
)
|
|
|
8.1
|
|
Sales return reserve
|
|
|
3.3
|
|
|
|
43.7
|
|
|
|
(44.0
|
)
|
|
|
3.0
|
|
Year ended February 2, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
0.5
|
|
|
$
|
3.5
|
|
|
$
|
(1.5
|
)
|
|
$
|
2.5
|
|
Deferred tax valuation allowance
|
|
|
6.7
|
|
|
|
0.4
|
|
|
|
(1.3
|
)
|
|
|
5.8
|
|
Sales return reserve
|
|
|
1.4
|
|
|
|
23.9
|
|
|
|
(22.0
|
)
|
|
|
3.3
|
|
|
|
|
(1) |
|
With regard to allowances for doubtful accounts, deductions
relate to uncollectible receivables (both accounts and other
receivables) that have been written off, net of recoveries. For
the deferred tax valuation allowance, deductions relate to
deferred tax assets that have been written off. For sales
returns, deductions related to actual returns. |
112
(b) Exhibits
|
|
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of Payless
ShoeSource, Inc., a Delaware corporation (the
Company).(1)
|
|
3
|
.2
|
|
Amended and Restated Bylaws of the Company.(2)
|
|
3
|
.3
|
|
Certificate of Amendment of the Companys Certificate of
Incorporation.(3)
|
|
4
|
.1
|
|
Indenture, dated as of July 28, 2003, among Payless
ShoeSource, Inc. and each of the Guarantors named therein and
Wells-Fargo Bank Minnesota, National Association as Trustee,
related to the 8.25% Senior Subordinated Notes Due 2013.(4)
|
|
4
|
.2
|
|
Exchange and Registration Rights Agreement, Dated July 28,
2003, among Payless ShoeSource, Inc. and each of Guarantors
named therein and Goldman Sachs & Co. as
representative of the Several Purchasers.(4)
|
|
10
|
.1
|
|
Sublease, dated as of April 2, 1996, by and between The May
Department Stores Company and Payless ShoeSource, Inc.(5)
|
|
10
|
.2
|
|
Payless ShoeSource, Inc. 1996 Stock Incentive Plan, as amended
September 18, 2003.(6)
|
|
10
|
.3
|
|
Stock Plan for Non-Management Directors of Collective Brands,
Inc., as amended August 17, 2007.(7)
|
|
10
|
.4
|
|
Form of Employment Agreement between Collective Brands, Inc.
(formerly Payless ShoeSource, Inc.), and certain of its
executives including Darrel Pavelka, Douglas Treff, Michael
Massey & Betty Click.(8)
|
|
10
|
.5
|
|
Form of Amendment to Employment Agreement between Collective
Brands, Inc. and certain of its executives including Darrel
Pavelka, Douglas Treff, Michael Massey, Douglas G. Boessen and
Betty Click.(13)
|
|
10
|
.6
|
|
Collective Brands, Inc. Supplementary Retirement Account Plan,
as amended and restated January 1, 2008.(7)
|
|
10
|
.7
|
|
Employment Agreement between Collective Brands, Inc. and Douglas
G. Boessen.(13)
|
|
10
|
.8
|
|
Employment Agreement between LuAnn Via and Payless ShoeSource,
Inc.(11)
|
|
10
|
.9
|
|
Amendment 1 to Employment Agreement between Payless ShoeSource,
Inc. and LuAnn Via dated December 19, 2008.(13)
|
|
10
|
.10
|
|
Payless ShoeSource, Inc., 401(k) Profit Sharing Plan, as amended
effective August 1, 2007.(7)
|
|
10
|
.11
|
|
Second Amendment to the Payless ShoeSource, Inc. 401(k) Profit
Sharing Plan, effective January 1, 2008.(14)
|
|
10
|
.12
|
|
Third Amendment to the Payless ShoeSource, Inc. 401(k) Profit
Sharing Plan, effective January 1, 2009.(14)
|
|
10
|
.13
|
|
Fourth Amendment to the Payless ShoeSource, Inc. 401(k) Profit
Sharing Plan, effective February 26, 2009.(14)
|
|
10
|
.14
|
|
Form of Change of Control Agreement between Collective Brands,
Inc. (formerly Payless ShoeSource, Inc.) and certain of its
executives including Darrel Pavelka, Douglas Treff, Michael
Massey and Betty Click.(9)
|
|
10
|
.15
|
|
Form of Amendment to the Change of Control Agreement between
Collective Brands, Inc. and certain of its executives including
Darrel Pavelka, Douglas Treff, Michael Massey and Betty
Click.(13)
|
|
10
|
.16
|
|
Change of Control Agreement between Collective Brands, Inc. and
Douglas G. Boessen effective December 30, 2008.(13)
|
|
10
|
.17
|
|
Form of Directors Indemnification Agreement.(8)
|
|
10
|
.18
|
|
Form of Officers Indemnification Agreement.(9)
|
|
10
|
.19
|
|
Collective Brands, Inc. Deferred Compensation Plan for
Non-Management Directors, as amended
January 1, 2008.(14)
|
|
10
|
.20
|
|
The Stock Appreciation and Phantom Stock Unit Plan of Collective
Brands, Inc. and its Subsidiaries for Collective Brands
International Employees, as amended April 17, 2007.(7)
|
|
10
|
.21
|
|
Collective Brands, Inc. Employee Stock Purchase Plan, as amended
August 17, 2007.(7)
|
|
10
|
.22
|
|
Collective Brands, Inc. Deferred Compensation Plan, as amended
and restated January 1, 2008.(7)
|
|
10
|
.23
|
|
Collective Brands, Inc. Incentive Compensation Plan as amended
August 17, 2007.(7)
|
|
10
|
.24
|
|
Amended and Restated Loan and Guaranty Agreement, dated
August 17, 2007, by and among Collective Brands Finance,
Inc. as Borrower, the Guarantors thereto as Credit Parties, the
Lenders signatory thereto and Wells Fargo Retail Finance, LLC as
the Arranger and Administrative Agent.(3)
|
|
10
|
.25
|
|
Amended and Restated Employment Agreement between Collective
Brands, Inc. and Matthew E. Rubel accepted and agreed to
December 19, 2008.(13)
|
|
10
|
.26
|
|
Form of Restricted Stock Award Agreement.(14)
|
|
10
|
.27
|
|
Form of Stock Settled Stock Appreciation Rights Award
Agreement.(14)
|
|
10
|
.28
|
|
2006 Collective Brands, Inc. Stock Incentive Plan, amended
August 17, 2007.(7)
|
|
10
|
.29
|
|
Term Loan Agreement, dated as of August 17, 2007 (the
Term Loan), among Collective Brands Finance, Inc. as
Borrower, and the Lenders party thereto and CitiCorp North
America, Inc., as Administrative Agent and Collateral Agent.(3)
|
113
|
|
|
|
|
Number
|
|
Description
|
|
|
10
|
.30
|
|
Form of Performance Share Unit Agreement.(10)
|
|
10
|
.31
|
|
CEO Restricted Stock Award Agreement.(10)
|
|
10
|
.32
|
|
Amended and Restated Change of Control Agreement between
Collective Brands, Inc. and Matthew E. Rubel agreed and accepted
December 19, 2008.(13)
|
|
10
|
.33
|
|
Second Amendment to the Term Loan Agreement dated as of
March 11, 2008.(7)
|
|
21
|
.1
|
|
Subsidiaries of the Company.*
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm.*
|
|
31
|
.1
|
|
Certification Pursuant to
Rules 13(a)-14(a)
and 15(d)-14(a) under the Securities Exchange Act of 1934, as
amended, of the Chief Executive Officer, President and Chairman
of the Board.*
|
|
31
|
.2
|
|
Certification Pursuant to
Rules 13(a)-14(a)
and 15(d)-14(a) under the Securities Exchange Act of 1934, as
amended, of the Division Senior Vice President, Chief
Financial Officer and Treasurer.*
|
|
32
|
.1
|
|
Certification Pursuant to 18 U.S.C. 1350 of the Chief
Executive Officer and President.*
|
|
32
|
.2
|
|
Certification Pursuant to 18 U.S.C. 1350 of the
Division Senior Vice President, Chief Financial Officer and
Treasurer.*
|
|
|
|
* |
|
Filed herewith. |
|
(1) |
|
Incorporated by reference from the Companys Current Report
on Form 8-K
(File Number 1-14770) filed with the SEC on June 3, 1998. |
|
(2) |
|
Incorporated by reference from the Companys Current Report
on Form 8-K
(File Number 1-14770) filed with the SEC on November 13,
2008. |
|
(3) |
|
Incorporated by reference from the Companys Current Report
on Form 8-K
(File Number 1-14770) filed with the SEC on August 17, 2007. |
|
(4) |
|
Incorporated by reference from the Companys Quarterly
Report on Form
10-Q (File
Number 1-14770) for the quarter ended August 2, 2003, filed
with the SEC on September 12, 2003. |
|
(5) |
|
Incorporated by reference from the Companys Registration
Statement on Form 10 (File Number 1-11633) dated
February 23, 1996, as amended through April 15, 1996. |
|
(6) |
|
Incorporated by reference from the Companys Registration
Statement on
Form S-4
(File Number
333-109388)
filed with the SEC on October 2, 2003, as amended. |
|
(7) |
|
Incorporated by reference from the Companys Annual Report
on Form 10-K
(File Number 1-14770) for the year ended February 2, 2008,
filed with the SEC on April 1, 2008. |
|
(8) |
|
Incorporated by reference from the Companys Annual Report
on Form 10-K
(File Number 1-14770) for the year ended February 1, 2003,
filed with the SEC on April 18, 2003. |
|
(9) |
|
Incorporated by reference from the Companys Annual Report
on Form 10-K
(File Number 1-14770) for the year ended January 31, 2004,
filed with the SEC on April 9, 2004. |
|
(10) |
|
Incorporated by reference from the Companys Current Report
on Form 8-K
(File Number 1-14770) filed with the SEC on June 3, 2007. |
|
(11) |
|
Incorporated by reference from the Companys Current Report
on Form 8-K
(File Number 1-14770) filed with the SEC on July 9, 2008. |
|
(12) |
|
Incorporated by reference from the Companys Current Report
on Form 8-K
(File Number 1-14770) filed with the SEC on December 1,
2008. |
|
(13) |
|
Incorporated by reference from the Companys Current Report
on Form 8-K
(File Number 1-14770) filed with the SEC on December 23,
2008. |
|
(14) |
|
Incorporated by reference from the Companys Current Report
on Form 10-K
(File Number 1-14770) for the year ended January 31, 2009,
filed with the SEC on March 30, 2009. |
The Company will furnish to stockholders upon request, and
without charge, a copy of the 2009 Annual Report and the 2010
Proxy Statement, portions of which are incorporated by reference
in the
Form 10-K.
The Company will furnish any other Exhibit at cost.
(c) Financial Statement Schedules have been either omitted
due to inapplicability or because required information is shown
in the Consolidated Financial Statements, Notes thereto, or
Item 15(a).
114
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.
COLLECTIVE BRANDS, INC.
By: /s/ Douglas G. Boessen
Douglas G. Boessen
Division Senior Vice President,
Chief Financial Officer and Treasurer
Date: March 26, 2010
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.
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Matthew
E. Rubel
|
|
Chief Executive Officer, President and Chairman of the Board
(Principal Executive Officer)
|
|
Date: March 26, 2010
|
|
|
|
|
|
/s/ Matthew
A. Ouimet
|
|
Director
|
|
Date: March 26, 2010
|
|
|
|
|
|
/s/ David
Scott Olivet
|
|
Director
|
|
Date: March 26, 2010
|
|
|
|
|
|
/s/ Robert
C. Wheeler
|
|
Director
|
|
Date: March 26, 2010
|
|
|
|
|
|
/s/ Michael
A. Weiss
|
|
Director
|
|
Date: March 26, 2010
|
|
|
|
|
|
/s/ Mylle
H. Mangum
|
|
Director
|
|
Date: March 26, 2010
|
|
|
|
|
|
/s/ Douglas
G. Boessen
|
|
Division Senior Vice President Chief Financial
Officer and Treasurer
(Principal Financial and Accounting Officer)
|
|
Date: March 26, 2010
|
|
|
|
|
|
/s/ Daniel
Boggan Jr.
|
|
Director
|
|
Date: March 26, 2010
|
|
|
|
|
|
/s/ Mylle
H. Mangum
|
|
Director
|
|
Date: March 26, 2010
|
|
|
|
|
|
/s/ John
F. McGovern
|
|
Director
|
|
Date: March 26, 2010
|
|
|
|
|
|
/s/ Robert
F. Moran
|
|
Director
|
|
Date: March 26, 2010
|
115