<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended August 3, 1996
Commission File Number 1-11633
PAYLESS SHOESOURCE, INC.
(Exact name of registrant as specified in its charter)
Missouri 48-0674097
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3231 Southeast Sixth Street, Topeka, Kansas 66607-2207
(Address of principal executive offices) (Zip Code)
(913) 233-5171
(Registrant's telephone number,
including area code)
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
and (2) has been subject to such filing requirements for the past 90
days. YES X NO
------- -------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value
40,373,000 shares as of August 30, 1996
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Millions)
August 3, July 29, Feb. 3,
ASSETS 1996 1995 1996
- ------ --------- --------- ---------
Current Assets:
Cash and marketable securities $ 205.5 $ 6.7 $ 4.6
Accounts receivable, net 4.5 4.5 4.4
Merchandise inventories 322.2 416.9 398.0
Other current assets 34.8 19.4 43.9
--------- --------- ---------
Total Current Assets 567.0 447.5 450.9
Property and Equipment, at cost 855.2 888.7 868.5
Accumulated Depreciation (333.1) (303.2) (308.5)
--------- --------- ---------
Net Property and Equipment 522.1 585.5 560.0
Other Assets 3.3 3.4 3.4
--------- --------- ---------
Total Assets $ 1,092.4 $ 1,036.4 $ 1,014.3
========= ========= =========
LIABILITIES AND SHAREOWNERS' EQUITY
- -----------------------------------
Current Liabilities:
Current maturities of
capital lease obligations $ 1.3 $ 1.5 $ 1.2
Accounts payable 70.1 88.0 65.0
Accrued expenses 158.8 76.0 152.7
--------- --------- ---------
Total Current Liabilities 230.2 165.5 218.9
Capital Lease Obligations 9.3 10.7 10.3
Deferred Income Taxes 9.4 9.1 8.9
Other Liabilities 23.3 22.4 23.3
Shareowners' Equity 820.2 828.7 752.9
--------- --------- ---------
Total Liabilities and
Shareowners' Equity $ 1,092.4 $ 1,036.4 $ 1,014.3
========= ========= =========
The accompanying notes to condensed consolidated financial
statements are an integral part of this balance sheet.
2
<PAGE>
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
(Millions, except per share)
13 Weeks Ended 26 Weeks Ended
------------------- -------------------
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
--------- --------- --------- ---------
Net Retail Sales: $ 632.5 $ 622.7 $1,234.0 $1,192.2
Cost of sales $ 442.1 $ 445.7 $ 868.9 $ 849.3
Selling, general and
administrative expenses 127.4 120.2 261.4 241.9
Interest (income)/
expense, net (1.8) 0.2 (1.4) 0.5
--------- --------- --------- ---------
Earnings before income
taxes 64.8 56.6 105.1 100.5
Provision for income
taxes 25.9 22.4 41.9 39.8
--------- --------- --------- ---------
Net Earnings $ 38.9 $ 34.2 $ 63.2 $ 60.7
========= ========= ========= =========
Earnings per Share $ .96 $ .84 $ 1.56 $ 1.50
========= ========= ========= =========
Shares Outstanding 40.4 40.4 40.4 40.4
========= ========= ========= =========
The accompanying notes to condensed consolidated financial
statements are an integral part of this statement.
3
<PAGE>
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Millions) 26 Weeks Ended
---------------------
August 3, July 29,
1996 1995
--------- ---------
Operating Activities:
Net earnings $ 63.2 $ 60.7
Depreciation/amortization 45.8 47.0
Change in working capital (excluding
cash, marketable securities and
short-term debt) 96.6 (38.8)
--------- ---------
Total Operating Activities 205.6 68.9
--------- ---------
Investing Activities:
Net additions to property and equipment (7.9) (41.9)
--------- ---------
Total Investing Activities (7.9) (41.9)
--------- ---------
Financing Activities:
Net repayments of long-term debt (1.0) (1.0)
Net transactions with May 0 (25.9)
Issuances of common stock 4.2 0
--------- ---------
Total Financing Activities 3.2 (26.9)
--------- ---------
Increase in Cash
and Marketable Securities $ 200.9 $ 0.1
Cash and Marketable Securities,
Beginning of Year 4.6 6.6
--------- ---------
Cash and Marketable Securities,
End of Period 205.5 6.7
========= =========
The accompanying notes to condensed consolidated financial
statements are an integral part of this statement.
4
<PAGE>
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Interim Results. These unaudited condensed consolidated
financial statements of Payless ShoeSource, Inc. (the "Company")
have been prepared in the ordinary course of business for the
purpose of presenting information with respect to the Company's
quarter ending August 3, 1996. The Company believes that all
adjustments (none of which were other than normal recurring
accruals) necessary for a fair presentation of the financial
position and operating results for the interim period have been
made. However, certain items are included in these statements
based on estimates for the entire year. The condensed
consolidated financial statements should be read in conjunction
with the financial statements of the Company included in its Form
10 Registration Statement that became effective on April 15, 1996
(the "Form 10"), and the MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES (pages
21-25) in the Form 10. The results of operations for the 13
weeks and 26 weeks ended August 3, 1996, are not necessarily
indicative of results for the entire fiscal year ended February
1, 1997.
Note 2. Inventories. Merchandise inventories are stated on the
FIFO (First-In-First-Out) cost basis.
Note 3. Spin-Off. In January 1996, The May Department Stores
Company announced its intention to spin-off the Company. The
spin-off was completed effective May 4, 1996, as a tax-free
distribution to The May Department Stores Company shareowners.
The Company's financial statements presented herein reflect
operations on a stand-alone basis independent of The May
Department Stores Company.
As discussed in the Company's Form 10, the Company is incurring
special retention costs associated with the spin-off establishing
Payless as an independent company. Those costs totaled $8.3
million pre-tax in the 26 weeks ended August 3, 1996, with an
additional $4.4 million pre-tax estimated to be incurred in the
remainder of the current fiscal year.
Note 4. Store Closings. During the first quarter, the Company
closed 115 stores. During the second quarter, the Company closed
an additional 247 stores as part of its previously announced plan
to close underperforming stores. The projected cost of the
store-closing program was recorded as a charge to earnings in the
fourth quarter of 1995 and is included in accrued expense.
Note 5. Earnings Per Share. The Company's 1995 outstanding
shares were calculated based on the number of Company shares
issued and outstanding as of May 4, 1996, the date of the
spin-off from The May Department Stores Company.
5
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
A summary of key financial information for the periods indicated
is as follows:
August 3, July 29, Feb. 3,
1996 1995 1996
--------- --------- ---------
Current Ratio 2.5 2.7 2.1
Debt-Capitalization Ratio* 1.3% 1.4% 1.5%
Fixed Charge Coverage** 2.1x 3.3x 2.0x
* Debt-to-capitalization has been computed by dividing total
debt, which includes current maturities and long-term capital
lease obligations, by capitalization, which includes current
maturities and long-term capital lease obligations, non-current
deferred taxes and equity. The debt-to-capitalization ratio,
including the present value of future minimum rental payments
under operating leases as debt and capitalization would be 50.0%,
52.0% and 54.1% for the periods referred to above.
** Fixed charge coverage, which is presented for the trailing 52
weeks in each period ended above, is defined as earnings before
income taxes, gross interest expense, and the interest component
of rent expense, divided by gross interest expense and the
interest component of rent expense. All costs and expenses of
the Company relating to special retention costs and the special
non-recurring charge associated with the spin-off are included in
the above calculation. Excluding these costs, the fixed charge
coverage would be 3.0x, 3.3x and 2.8x for the periods referred to
above.
Company's fixed charge coverage ratio for the 52 weeks ended
August3, 1996 decreased as compared with the 52 week period ended
July 29, 1995, due primarily to the loss before taxes experienced
in the fourth quarter fiscal 1995 for the one-time special and
non-recurring charges.
The Company has in place a $200 million revolving credit facility
with a bank syndication group on which no borrowings were
outstanding at the end of the quarter.
Capital expenditures during the first six months in 1996 totaled
$31.5 million with an additional $80 million estimated to be
expended in fiscal year 1996. The Company anticipates that cash
flow from operations and the credit facility will be sufficient
to finance projected capital expenditures.
The increase in cash of $200.9 million resulted from earnings
before depreciation/amortization of $109.0 and improved working
capital, primarily attributable to lower inventories. Lower
inventory levels were the result of the closing of unprofitable
stores and the associated reduction in inventory. The Company
also has taken action to increase inventory turnover as well as
reduce the amount of aged inventory in the stores.
6
<PAGE>
Results of Operations
Net retail sales represent the sales of stores operating during
the period. Sales percent increases are as follows:
Second Quarter First Six Months
------------------ ------------------
1996 1995 1996 1995
------- ------- ------- -------
Total 1.6% 14.3% 3.5% 12.3%
Store-for-Store 5.0% (1.4%) 5.1% (3.0%)
Store-for-store sales represent sales of those stores open during
comparable periods.
The Company believes that it continues to benefit from
consolidation in the footwear industry and the resulting closure
of competitors' stores.
The following table presents the components of costs and
expenses, as a percent of revenues, for the second quarter and
first six months of 1996 and 1995.
First
Second Quarter Six Months
-------------- ------------
1996 1995 1996 1995
----- ----- ----- -----
Cost of sales 69.9% 71.6% 70.4% 71.2%
Selling, general and
administrative expenses 20.2 19.2 21.2 20.3
Interest income/(expense), net .3 (.1) .1 (.1)
----- ----- ----- -----
Earnings before income taxes 10.2% 9.1% 8.5% 8.4%
===== ===== ===== =====
Effective income tax rate 39.9% 39.6% 39.9% 39.6%
===== ===== ===== =====
Net Earnings 6.2% 5.5% 5.1% 5.1%
===== ===== ===== =====
Cost of sales was $442.1 million in the 1996 second quarter, down
0.8% from $445.7 million in the 1995 second quarter. For the
first six months of 1996, cost of sales was $868.9 million, a
2.3% increase from $849.3 million in the 1995 period. Sales
increased 1.6% and 3.5% for the second quarter and first six
months of 1996, respectively. For the second quarter and first
six months, cost of sales, as a percent of revenues, decreased
7
<PAGE>
1.7% and 0.8%, respectively. The higher gross margins achieved
were driven by improved merchandise margins and a reduction in
occupancy expense rates due to the closure of underperforming
stores.
Selling, general and administrative expenses were $127.4 million
in the 1996 second quarter, up 6.0% from $120.2 million in the
1995 second quarter. For the first six months of 1996, selling,
general and administrative expenses were $261.4 million compared
with $241.9 million in the 1995 period, an 8.1% increase. The
increases are related to higher sales volume and a $8.3 million
retention charge associated with the spin-off. Selling, general
and administrative expenses, as a percent of revenues, increased
1.0% and 0.9% for the second quarter and first six months of
1996, respectively, as compared with 1995. The increase was
the result of three major circumstances. First, there were added
costs associated with being an independent company. Second,
costs related to the Company's performance-based compensation
program were higher as a result of the strong results in the
second quarter of 1996. Third, there were costs incurred in 1996
related to the Company's executive retention program. Excluding
the retention charge (as discussed in Note 3), selling, general
and administrative expenses, as a percent of revenues, increased
0.2% for the first six months of 1996.
At the end of the second quarter, the Company operated 4,280
stores in 49 states, Puerto Rico and the U.S. Virgin Islands.
The following table presents the change in store count for the
second quarter and first six months of 1996 and 1995.
First
Second Quarter Six Months
-------------- ------------
1996 1995 1996 1995
----- ----- ----- -----
Beginning of quarter/year 4,477 4,569 4,549 4,435
Stores opened 50 62 93 225
Stores closed (247) (45) (362) (74)
----- ----- ----- -----
Ending store count 4,280 4,586 4,280 4,586
===== ===== ===== =====
8
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which
registrant or any of its subsidiaries is a party or of which any
of their property is the subject.
Item 2 - Changes in Securities None.
Item 3 - Defaults Upon Senior Securities None.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
3.2 Copy of Amended and Restated Bylaws of the Company
11 Computation of Net Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports have been filed on Form 8-K during the quarter
ended August 3, 1996.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
PAYLESS SHOESOURCE, INC.
Date: 9/9/96 /s/ Steven J. Douglass
------------------ ----------------------------------
Steven J. Douglass
Chairman and
Chief Executive Officer
Date: 9/9/96 /s/ Ullrich E. Porzig
------------------ ----------------------------------
Ullrich E. Porzig
Senior Vice President and
Chief Financial Officer
10
<PAGE>
<PAGE>
Exhibit 11
PAYLESS SHOESOURCE, INC.
COMPUTATION OF NET EARNINGS PER SHARE
13 Weeks Ended 26 Weeks Ended
------------------ ------------------
(Thousands, except per share) August 3 July 29 August 3 July 29
1996 1995 1996 1995
-------- -------- -------- --------
Net earnings $ 38,942 $ 34,164 $ 63,168 $ 60,694
Common shares outstanding 40,369 40,365 40,369 40,365
-------- -------- -------- --------
Net earnings per share $ .96 $ .84 $ 1.56 $ 1.50
======== ======== ======== ========
Primary Computation:
- -------------------
Net earnings $ 38,942 $ 34,164 $ 63,168 $ 60,694
Common shares outstanding 40,369 40,365 40,369 40,365
Net effect of dilutive stock
options based on the treasury
stock method 31 0 25 0
-------- -------- -------- --------
Outstanding shares for primary
earnings per share 40,404 40,365 40,398 40,365
======== ======== ======== ========
Primary earnings per share $ .96 $ .84 $ 1.56 $ 1.50
======== ======== ======== ========
Fully Diluted Computation:
- -------------------------
Net earnings $ 38,942 $ 34,164 $ 63,168 $ 60,694
Common shares outstanding 40,369 40,365 40,369 40,365
Net effect of dilutive stock
options based on the treasury
stock method 70 0 70 0
-------- -------- -------- --------
Outstanding shares for fully
diluted earnings per share 40,439 40,365 40,439 40,365
======== ======== ======== ========
Fully Diluted earnings per share $ .96 $ .84 $ 1.56 $ 1.50
======== ======== ======== ========
Note: The Company's 1995 outstanding shares was calculated on the number
of Company shares issued and outstanding as of May 4, 1996, the date of the
spin-off from The May Department Stores Company.
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27 -- THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM PAYLESS SHOESOURCE, INC. CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE 26 WEEKS ENDED AUG 3, 1996, AND CONDENSED CONSOLIDATED BALANCE SHEET
AS OF AUG 3, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001008802
<NAME> PAYLESS SHOESOURCE,INC.
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> AUG-03-1996
<CASH> 205,500<F1>
<SECURITIES> 0<F2>
<RECEIVABLES> 4,500<F3>
<ALLOWANCES> 0<F3>
<INVENTORY> 322,200
<CURRENT-ASSETS> 567,000
<PP&E> 855,200
<DEPRECIATION> 333,100
<TOTAL-ASSETS> 1,092,400
<CURRENT-LIABILITIES> 230,200
<BONDS> 9,300<F4>
<COMMON> 400
0
0
<OTHER-SE> 819,800<F5>
<TOTAL-LIABILITY-AND-EQUITY> 1,092,400
<SALES> 1,234,000<F6>
<TOTAL-REVENUES> 1,234,000
<CGS> 868,900
<TOTAL-COSTS> 868,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,400)
<INCOME-PRETAX> 105,100
<INCOME-TAX> 41,900
<INCOME-CONTINUING> 63,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,200
<EPS-PRIMARY> 1.56<F7>
<EPS-DILUTED> 1.56<F7>
<FN>
<F1>Includes any marketable securities.
<F2>Any "securities" are shown under "Cash".
<F3>Receivables are net after deduction of allowances.
<F4>Consists of Capital Lease Obligations.
<F5>Reflects Retained Earnings and Additional Paid In Capital.
<F6>Reflects net sales.
<F7>Expressed in dollars.
</FN>
<PAGE>
</TABLE>
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
PAYLESS SHOESOURCE, INC.
(Amended and Restated as of July 26, 1996)
ARTICLE I
OFFICES
Section 1. The registered office of the Corporation shall be in the City
of St. Louis, State of Missouri, or at such other place within the State of
Missouri as the Board of Directors may at any time and from time to time
designate.
Section 2. The Corporation may also have offices at such other places both
within and without the State of Missouri as the Board of Directors may from time
to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. All meetings of the shareholders shall be held either within or
without the State of Missouri as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. The annual meeting of shareholders shall be held at such place
within or without the State of Missouri, at such hour and on such date, not
earlier than May 1 and not later than July 10 in each year as the Board of
Directors may specify in the call of such meeting, at which meeting the
shareholders shall elect by a plurality vote directors as described in Article
III below, and transact such other business as may properly be brought before
the meeting.
Section 3. Except as otherwise required by law, written notice of the
annual meeting stating the place, date and hour of the meeting shall be given by
mail, postage prepaid, not less than ten or more than seventy days before the
date of the meeting, to each shareholder entitled to vote at such meeting at
such address as shall appear on the books of the Corporation.
Section 4. The Secretary of the Corporation shall prepare and make, at
least ten days before every meeting of shareholders, a complete list of the
shareholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each shareholder and the number of shares registered
in the name of each shareholder. Such list shall be open to the examination of
any shareholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, at the
registered office of the Corporation. The list shall also be produced and kept
open at the time and place of the meeting during the whole time thereof, and may
be inspected by any shareholder who is present.
<PAGE>
Section 5. Special meetings of the shareholders, for any purpose or
purposes, may be called by the Board of Directors, the Chairman of the Board of
Directors, or the President. Special meetings of shareholders may not be called
by any other person or persons. The business transacted at a special meeting of
shareholders shall be confined to the purpose or purposes specified in the
notice therefor.
Section 6. Except as otherwise required by law, written notice of a
special meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called, shall be given by mail, postage
prepaid, not less than ten nor more than seventy days before the date of the
meeting, to each shareholder entitled to vote at such meeting at such address as
shall appear on the books of the Corporation.
Section 7. The holders of a majority of the stock issued and outstanding
and entitled to vote at any meeting, present in person or represented by proxy,
shall constitute a quorum at all meetings of the shareholders for the
transaction of business except as otherwise provided by law or by the Articles
of Incorporation. If, however, such quorum shall not be present or represented
at any meeting of the shareholders, the shareholders entitled to vote thereat,
present in person or represented by proxy even though less than a quorum, shall
have the power successively to adjourn the meeting to a specified date not
longer than ninety days after such adjournment, without notice other than
announcement at the meeting. At such adjourned meeting at which a quorum shall
be present or represented, any business may be transacted which might have been
transacted at the meeting as originally called. If the adjournment is for more
than thirty days, a notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the meeting.
Section 8. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of law or the
Articles of Incorporation, a different vote is required, in which case such
express provision shall govern and control the decision of such question.
Section 9. Except as otherwise provided by the Articles of Incorporation,
each shareholder of record shall at every meeting of the shareholders be
entitled to one vote for each share of capital stock of the Corporation entitled
to vote thereat held by such shareholder. Such votes may be cast in person or by
proxy, but no proxy shall be valid after eleven months from the date of its
execution unless otherwise provided in the proxy. Subject to applicable law,
the Board of Directors shall prescribe the rules and regulations for voting at
all meetings of the shareholders; provided, however, the vote for the election
of directors, and upon the direction of the presiding officer of the meeting,
the vote on any other question before the meeting, shall be by written ballot.
Section 10. Except as otherwise provided by the Articles of Incorporation,
any action required or permitted to be taken at any annual or special meeting of
shareholders may be taken without a meeting of the shareholders only if consents
in writing, setting forth the action so taken, are signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
2
<PAGE>
Section 11. To be properly brought before the annual or any special
shareholders' meeting, business must be either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting by a shareholder. In addition to any other applicable requirements,
for business to be properly brought before the annual or any special
shareholders' meeting by a shareholder, the shareholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 75 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 90 days' notice or prior public disclosure of the date of the meeting
is given or made to shareholders, notice by the shareholder to be timely must be
so received not later than the close of business on the 15th day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made, whichever first occurs. Such shareholder's notice to the
Secretary shall set forth as to each matter the shareholder proposes to bring
before the meeting (i) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting,
(ii) the name and record address of the shareholder proposing such business,
(iii) the class and number of shares of common stock of the Corporation which
are beneficially owned by the shareholder and (iv) any material interest of the
shareholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business shall
be conducted at the annual or any special meeting except in accordance with the
procedures set forth in this Section 11, provided, however, that nothing in this
Section 11 shall be deemed to preclude discussion by any shareholder of any
business properly brought before the meeting.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 11, and if he should so
determine and declare, any such business not properly brought before the meeting
shall not be transacted.
Section 12. Except as provided in Section 3 of Article III, only persons
who are nominated in accordance with the following procedures shall be eligible
for election as directors. Nominations of persons for election to the Board of
Directors of the Corporation at the annual meeting may be made at the meeting by
or at the direction of the Board of Directors, by any nominating committee or
person appointed by the Board of Directors or by any shareholder of the
Corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 12. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a shareholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 75 days nor more than 90 days prior to the meeting; provided, however,
that in the event that less than 90 days' notice or prior public disclosure of
the date of the meeting is given or made to shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the 15th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made, whichever first
occurs. Such shareholder's notice to the Secretary shall set forth (a) as to
3
<PAGE>
each person whom the shareholder proposes to nominate for election or
re-election as a director, (i) the name, age, business address and residence of
the person, (ii) the principal occupation or employment of the person, (iii) the
class and number of shares of common stock of the Corporation which are
beneficially owned by the person, and (iv) any other information relating to the
person that is required to be disclosed in solicitations for proxies for
election of directors pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended; and (b) as to the shareholder giving the notice (i) the
name and record address of the shareholder and (ii) the class and number of
shares of common stock of the Corporation which are beneficially owned by the
shareholder. Such notice shall be accompanied by the executed consent of each
nominee to serve as a director if so elected. The Corporation may require any
proposed nominee to furnish such other information as may reasonably be required
by the Corporation to determine the eligibility of such proposed nominee to
serve as a director of the Corporation.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine and declare, the defective
nomination shall be disregarded.
ARTICLE III
DIRECTORS
Section 1. Except as otherwise required by law or the Articles of
Incorporation, the business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors.
Section 2. The number of directors of the Corporation shall be fixed in
the manner provided in the Articles of Incorporation. Except as otherwise
provided in Section 3 of this Article III, the directors of the Corporation
shall be elected by the shareholders of the Corporation, and at each such
election the nominees receiving the greatest number of votes, up to the number
of directors then to be elected, shall be the persons then elected.
Section 3. Except as otherwise required by the Articles of Incorporation,
any vacancy in the Board of Directors resulting from any increase in the number
of directors and any other vacancy occurring in the Board of Directors may be
filled by the Board of Directors acting by a majority of the directors then in
office, although less than a quorum, or by the sole remaining director, and any
director so elected to fill a vacancy shall hold office until the next election
of directors by the shareholders of the Corporation (subject, however, to such
director's earlier death, resignation, disqualification or removal from
office). In no event shall a decrease in the number of directors shorten the
term of any incumbent director.
Section 4. The Board of Directors may hold its meetings, both regular and
special, and cause the books of the Corporation to be kept, either within or
without the State of Missouri at such place or places as they may from time to
time determine or as otherwise may be provided in these Bylaws.
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Section 5. Subject to Section 8 of this Article III there shall be an
annual meeting of the Board of Directors on the day of the annual meeting of
shareholders in each year or as soon thereafter as convenient, such annual
meeting to be at such place and time (and, if applicable, on such date) as the
Chairman of the Board or the Chief Executive Officer shall designate by written
notice to the directors, and regular meetings shall be held on such dates and at
such times and places either as the directors shall by resolution provide or as
the Chairman of the Board or the Chief Executive Officer shall designate by
written notice to the directors. Except as above provided, no notice of said
annual meeting or such regular meetings of the Board of Directors need be given.
Section 6. Special meetings of the Board of Directors may be called by the
Chairman of the Board, the Chief Executive Officer, the President, the Secretary
or the Treasurer and shall be called by one of the foregoing officers on the
written request of a majority of the entire Board of Directors specifying the
object or objects of such special meeting. In the event that one of the
foregoing officers shall fail to call a meeting within two days after receipt of
such request, such meeting may be called in like manner by the directors making
such request. The person or persons calling the special meeting may fix the
place, either within or without the State of Missouri, as a place for holding
the meeting. Notice of each special meeting, stating the date, place and time
of the meeting and the purpose or purposes for which it is called, shall be
deposited in the regular or overnight mail, sent by telecopy, telegram or
delivered by hand to each director not later than the day preceding the date of
such meeting, or on such shorter notice as the person or persons calling such
meeting may deem necessary or appropriate in the circumstances.
Section 7. At all meetings of the Board of Directors a majority of the
entire Board of Directors in office shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by law, the Articles
of Incorporation or by these Bylaws. If a quorum, shall not be present at any
meeting of the Board of Directors, the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 8. Except as otherwise required by the Articles of Incorporation
or these Bylaws, any action required or permitted to be taken by the Board of
Directors at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing. The Secretary shall file the consents
with the minutes of proceedings of the Board of Directors or the committee as
the case may be.
Section 9. Any one or more members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors or such committee by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other at the same time. Participation in a meeting
pursuant to this Section 9 shall constitute presence in person at such meeting.
Section 10. The Board of Directors may, by resolution passed by a majority
of the entire Board, designate one or more committees, each committee to consist
of two or more of the directors of the Corporation. The Board may designate one
or more directors as alternate members of any committee, who may replace any
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absent or disqualified member at any meeting of the committee. Any such
committee, to the extent allowed by law and as provided in the resolution, shall
have and may exercise all of the powers and authority of the Board of Directors
in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Section 11. Each committee of the Board shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
Section 12. Directors and members of committees may receive such
compensation for their services, and such reimbursement of expenses, as the
Board of Directors may from time to time determine. Nothing herein contained
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
Section 13. No contract or transaction between the Corporation and one or
more of its directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose
if (a) the material facts as to his or their relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of Directors
or the committee and the Board of Directors or the committee in good faith
authorizes the contract or transaction by the affirmative votes of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or (b) the material facts as to his or their relationship or
interest and as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the shareholders; or (c) the
contract or transaction is fair as to the Corporation as of the time it is
authorized or approved by the Board of Directors, a committee thereof or the
shareholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
Section 14. As used in these Bylaws generally, the term "entire Board of
Directors" means the total number of directors which the Corporation would have
if there were no vacancies.
ARTICLE IV
NOTICES
Section 1. Whenever written notice is required by law, the Articles of
Incorporation or these Bylaws, to be given to any director, committee member or
shareholder, such requirement shall not be construed to mean personal notice,
but such notice may be given in writing, by mail addressed to such director,
committee member or shareholder, at his address as it appears on the records of
the Corporation, with postage thereon prepaid and such notice shall be deemed to
be given at the time when the same shall be deposited in the United States mail.
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Written notice may also be given personally or by telecopy, telegram, telex or
cable or by overnight mail. An affidavit of the Secretary or an Assistant
Secretary or of the transfer agent of the Corporation that the notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
Section 2. Whenever any notice is required by law, the Articles of
Incorporation or these Bylaws, to be given to any director, committee member or
shareholder, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the Corporation elected by the Board of
Directors shall consist of the Chairman of the Board, a President and a
Secretary and such other officers as the Board of Directors may deem necessary
and proper, including, without limitation, one or more Executive Vice
Presidents, one or more Senior Vice Presidents, one or more Vice Presidents,
a Treasurer, and one or more Assistant Secretaries or Assistant Treasurers. The
Board of Directors shall elect the Chairman of the Board, the President and the
Secretary at its first meeting held after each annual meeting of shareholders
and may elect such other officers from time to time as it deems necessary or
advisable. Any two or more of such offices, excepting the offices of President
and Secretary, may be held by the same person, but no officer shall execute,
acknowledge, or verify any instrument on behalf of the Corporation in more than
one capacity.
Section 2. The Chairman of the Board, the President and such other officer
or officers as the Board may from time to time by resolution designate may
appoint one or more Vice Presidents, a Controller, and one or more Assistant
Controllers, Assistant Secretaries and Assistant Treasurers, who shall also be
officers of the Corporation.
Section 3. The Board of Directors may determine or provide the method of
determining the compensation of all officers.
Section 4. The officers of the Corporation shall hold office until their
successors are chosen and qualify, or until their earlier resignation or
removal. Any officer elected or appointed by the Board of Directors may be
removed at any time by the Board of Directors. Any vacancy occurring in any
office of the Corporation that was filled by the Board of Directors pursuant to
Article V, Section 1 also shall be filled by the Board of Directors.
Section 5. Each officer of the Corporation shall be subject to the control
of the Board of Directors and shall have such duties in the management of the
Corporation as may be provided by appropriate resolution of the Board of
Directors and/or provided in these Bylaws.
Section 6. Powers of attorney, proxies, waivers of notice of meeting,
consents and other instruments relating to securities owned by the corporation
may be executed in the name of and on behalf of the Corporation by the Chairman
of the Board, the President or any Vice President and any such officer may, in
the name of and on behalf of the Corporation, take all such action as any such
officer may deem advisable to vote in person or by proxy at any meeting of
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security holders of any corporation in which the Corporation may own securities
and at any such meeting shall possess and may exercise any and all rights and
power incident to the ownership of such securities and which, as the owner
thereof, the Corporation might have exercised and possessed if present. The
Board of Directors may, by resolution, from time to time confer like powers upon
any other person or persons.
Section 7. Any officer, if required by the Board of Directors, shall give
bond in such sum and with such security as the Board of Directors may require
for the faithful performance of duties.
Section 8. In the case of the absence of any officer of the Corporation,
or for any other reason that the Board may deem sufficient, the Board of
Directors may delegate the powers or duties of such officer to any other officer
or to any other director, or to any other person for the time being.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the Corporation shall be entitled to
have a certificate signed in the name of the Corporation by the Chairman of the
Board, the President or a Vice-President and the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary. Such certificate shall
certify the number of shares owned by such holder in the Corporation.
Section 2. Where a certificate is countersigned by (i) a transfer agent
other than the Corporation or its employee, or (ii) a registrar other than the
Corporation or its employee, any other signature on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issuance of a new certificate or certificates, the Board of Directors may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as the Board of
Directors shall require and/or to give the Corporation a bond in such sum as it
may direct and with such surety as it may approve, as indemnity against any
claim that may be made against the Corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
Section 4. Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
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Section 5. In order that the Corporation may determine the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than seventy days before the date of such meeting, nor
more than seventy days prior to any other action; provided, however that if the
Board of Directors does not set a record date for the determination of the
shareholders entitled to notice of, and to vote at, a meeting of shareholders,
only the shareholders of record at the close of business on the twentieth day
preceding the date of the meeting shall be entitled to notice of, and to vote
at, the meeting and any adjournment of the meeting. A determination of
shareholders of record entitled to notice of or to vote at a meeting of
shareholders shall apply to any adjournment of the meeting.
Section 6. The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by law.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends upon the capital stock of the Corporation, subject to
the provisions of the Articles of Incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting. Pursuant to law, dividends
may be paid in cash, in property, or in shares of the capital stock.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
directors may from time to time, in their absolute discretion, deem proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the directors may modify or abolish any such reserve in the manner
in which it was created.
Section 3. All checks or demands for money and all notes and other
obligations of the Corporation shall be signed by such officer or officers or
such other person or persons as the Board of Directors may at any time and from
time to time designate.
Section 4. The fiscal year of the Corporation shall end on the Saturday
closest to the 31st day of January in each year.
Section 5. The corporate seal shall consist of the words "PAYLESS
SHOESOURCE, INC. MISSOURI" arranged in a circular form around the words and
figures "Corporate Seal 1961" and shall be kept by the Secretary. The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
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ARTICLE VIII
AMENDMENTS
These Bylaws may be amended, altered, changed or rescinded, in whole or in
part, or new Bylaws may be adopted, in the manner provided in the Articles of
Incorporation.
The substance of such amendment, alteration, change, rescission or adoption
or the subject matter thereof shall be submitted in writing at a preceding
meeting of the Board of Directors or notice thereof shall be given to the
directors at least ten days before; waiver of notice by any director being
deemed equivalent to such notice to him.
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