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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 May 2, 1998
Commission File Number 333-50577
PAYLESS SHOESOURCE, INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1813160
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3231 Southeast Sixth Street, Topeka, Kansas 66607-2207
(Address of principal executive offices) (Zip Code)
(785) 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
37,064,779 shares as of May 30, 1998
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Dollars in millions)
May 2, May 3, Jan. 31,
ASSETS 1998 1997 1998
- - - ------ -------- -------- --------
Current Assets:
Cash and cash equivalents $ 236.9 $ 201.4 $ 210.0
Merchandise inventories 377.2 387.1 324.6
Current deferred income taxes 15.6 13.8 16.9
Other current assets 12.7 10.5 11.4
-------- -------- --------
Total current assets 642.4 612.8 562.9
Property and Equipment:
Land 6.0 5.3 4.3
Buildings and leasehold
improvements 572.5 550.0 559.3
Furniture, fixtures and
equipment 284.1 287.7 279.7
Property under capital leases 7.5 8.0 7.5
-------- -------- --------
Total property and equipment 864.1 845.7 850.8
Accumulated depreciation
and amortization (386.2) (353.1) (364.1)
-------- -------- --------
Property and equipment 483.9 497.9 486.7
Deferred income taxes 20.3 11.1 19.9
Other assets 3.5 3.1 3.5
-------- -------- --------
Total Assets $1,150.1 $1,124.9 $1,073.0
======== ======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
- - - -----------------------------------
Current Liabilities:
Current maturities of
capital lease obligations $ 1.5 $ 1.4 $ 1.4
Accounts payable 95.1 83.8 63.8
Accrued expenses 137.5 109.3 112.9
-------- -------- --------
Total current liabilities 234.1 194.5 178.1
Capital lease obligations 5.5 7.2 6.5
Other liabilities 53.1 49.5 52.0
Shareowners' Equity:
Common stock 0.4 0.4 0.4
Additional paid-in capital 21.6 12.1 21.0
Unearned restricted stock (6.9) (2.1) (7.6)
Retained earnings 842.3 863.3 822.6
-------- -------- --------
Total shareowners' equity 857.4 873.7 836.4
Total Liabilities and
Shareowners' Equity $1,150.1 $1,124.9 $1,073.0
======== ======== ========
See notes to condensed consolidated financial statements.
2
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PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
(Dollars in millions, except per share)
13 Weeks Ended
--------------------
May 2, May 3,
1998 1997
-------- --------
Net retail sales $ 681.0 $ 645.1
Cost of sales 464.8 447.9
Selling, general and
administrative expenses 155.5 145.1
Interest (income)
expense, net (2.1) (1.8)
-------- --------
Earnings before
income taxes 62.8 53.9
Provision for income taxes 25.0 21.5
-------- --------
Net earnings $ 37.8 $ 32.4
======== ========
Basic earnings per share $ 1.01 $ 0.81
======== ========
Diluted earnings per share $ 1.00 $ 0.81
======== ========
Basic average shares outstanding 37.3 39.9
======== ========
Diluted average shares outstanding 37.8 40.1
======== ========
See notes to condensed consolidated financial statements.
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PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in millions) 13 Weeks Ended
--------------------
May 2, May 3,
1998 1997
Operating Activities: -------- --------
Net earnings $ 37.8 $ 32.4
Adjustments for noncash items
included in net earnings:
Depreciation and amortization 23.1 22.6
Amortization of unearned
restricted stock 0.7 1.2
Deferred income taxes 0.9 3.0
Merchandise inventories (52.6) (32.2)
Other current assets (1.3) (0.8)
Accounts payable 31.3 0.9
Accrued expenses 24.6 10.8
Other assets and liabilities, net 1.3 1.6
-------- --------
Total Operating Activities 65.8 39.5
-------- --------
Investing Activities:
Capital expenditures (22.2) (26.7)
Disposition of property and equipment 1.9 8.7
-------- --------
Total Investing Activities (20.3) (18.0)
-------- --------
Financing Activities:
Repayment of capital lease
obligations (0.9) (0.9)
Purchases of common stock (18.1) (12.8)
Issuance of common stock 0.8 0.0
-------- --------
Total Financing Activities (18.6) (13.7)
-------- --------
Increase in Cash
and Cash Equivalents $ 26.9 $ 7.8
Cash and Cash Equivalents,
Beginning of Year 210.0 193.6
Cash and Cash Equivalents, -------- --------
End of Period 236.9 201.4
======== ========
Cash paid during the period:
Interest $ 0.3 $ 0.9
Income Taxes 0.0 2.3
See notes to condensed consolidated financial statements.
4
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PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
Payless ShoeSource, Inc., a Missouri corporation ("Payless") and
its subsidiaries were reorganized into a holding company structure
effective June 1, 1998 through a merger (the "Merger") with Payless
Merger Corp., a Missouri corporation, which was an indirect wholly-
owned subsidiary of Payless and a wholly-owned subsidiary of the
Registrant. The Registrant formerly was a wholly-owned subsidiary
of Payless. Each of the Registrant and Payless Merger Corp. were
organized in connection with the Merger. Pursuant to the Merger,
Payless became a wholly-owned subsidiary of the Registrant and is
the principal operating subsidiary of the Registrant. The
Registrant is the issuer of all shares of common stock outstanding.
The transaction was accounted for as a reorganization of entities
under common control. As a result, the Registrant and its
subsidiaries had the same consolidated net worth as Payless and its
subsidiaries prior to the Merger.
For purposes of the Notes to Condensed Consolidated Financial
Statements, "Registrant", "New Payless" or "the Company" refers to
Payless ShoeSource, Inc., a Delaware corporation, and its
subsidiaries, unless the context otherwise requires.
Note 2. Interim Results. These unaudited consolidated financial
statements of the Company have been prepared in accordance with the
instructions to Form 10-Q of The Securities and Exchange Commission
and should be read in conjunction with the Notes to Consolidated
Financial Statements (pages 19-24) in the 1997 Annual Report. In
the opinion of management, this information is fairly presented and
all adjustments (consisting only of normal recurring adjustments)
necessary for a fair statement of the results for the interim
periods have been included; however, certain items are included in
these statements based upon estimates for the entire year.
Note 3. Inventories. Merchandise inventories 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.
Note 4. Spin-Off. In January 1996, The May Department Stores
Company announced its intention to spin-off Payless. 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 1997 Annual Report, the Company incurred
special retention costs associated with the spin-off which
established Payless as an independent company. These costs were
$0.8 million pre-tax for the first quarter 1998. No additional
costs will be incurred during the remainder of fiscal year 1998.
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Note 5. Parade of Shoes. In March 1997, the Company acquired
inventory and trademarks, and assumed leases on 186 stores of the
Parade of Shoes division ("Parade") from J. Baker, Inc. The
purchase price was approximately $28 million in cash. Parade sells
women's footwear and accessories in 14 states and Puerto Rico. The
Company is operating Parade as a separate division supported by
existing Payless sourcing, distribution, information systems, real
estate and financial organizations.
The Parade acquisition has been accounted for as a purchase, and
accordingly, the operating results of the acquired stores have been
included in the Company's consolidated results since the date of
acquisition.
Note 6. Earnings Per Share. Basic earnings per share is computed
by dividing net earnings by the weighted average number of shares
of common stock outstanding during the period. Diluted earnings
per share include the effect of conversions of stock options.
Note 7. Reclassifications. Certain reclassifications have been
made to prior year balances to conform with the current year
presentation.
Note 8. Foreign Currency Translation. Local currencies are the
functional currencies for all subsidiaries. Accordingly, assets
and liabilities of foreign subsidiaries are translated at the rate
of exchange at the balance sheet date. Income and expense items of
these subsidiaries are translated at average rates of exchange.
The foreign currency translation was immaterial for the first
quarter of 1998 and 1997.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion summarizes the significant factors
affecting operating results for the quarters ended May 2, 1998
(1998) and May 3, 1997 (1997). This discussion and analysis should
be read in conjunction with the condensed consolidated financial
statements and notes to the condensed consolidated financial
statements included in this Form 10-Q.
Review of Operations
Net Earnings
Net earnings totaled $37.8 million in the first quarter of 1998
compared with $32.4 million in the first quarter of 1997.
The following table presents the components of costs and expenses,
as a percent of revenues, for the first quarter of 1998 and 1997.
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First Quarter
--------------
1998 1997
------ ------
Net retail sales 100.0% 100.0%
Cost of sales 68.3% 69.4%
Selling, general and
administrative expenses 22.8 22.5
Interest income/(expense), net (0.3) (0.3)
------ ------
Earnings before income taxes 9.2% 8.4%
====== ======
Effective income tax rate 39.9% 39.8%
------ ------
Net Earnings 5.5% 5.0%
====== ======
Net Retail Sales
Net retail sales represent the sales of stores operating during the
period. Same-store sales represent sales of stores open during
comparable periods. Sales percent increases are as follows:
First Quarter
--------------
1998 1997
------ ------
Total 5.6% 7.3%
Same-Store Sales 3.3% 6.4%
Cost of Sales
Cost of sales includes cost of merchandise sold, buying and
occupancy costs. Cost of sales was $464.8 million in the 1998 first
quarter, up 3.8% from $447.9 million in the 1997 first quarter.
As a percent of net retail sales, cost of sales declined 1.1% to
68.3 percent in the first quarter of 1998 from 69.4 percent in the
first quarter of 1997. Gross margin improvement in the first
quarter was primarily due to the leverage of occupancy costs gained
through positive same-store sales and improved merchandise margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $155.5 million in
the 1998 first quarter, up 7.2% from $145.1 million in the 1997
first quarter. As a percent of net retail sales, selling, general
and administrative expenses were 22.8 percent during the first
quarter of 1998 compared with 22.5 percent in the first quarter of
1997.
The increase during the first quarter 1998 was attributed to
investments in infrastructure and systems and in growth initiatives
such as Canada and Parade of Shoes. General corporate costs were
consistent with 1997 and advertising as a percentage of sales
decreased.
7
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Stock Compensation Plans
As discussed in the Company's Annual Report, the Company has
established various stock compensation plans. These stock
compensation plans are accounted for by applying Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. Accordingly, no compensation expense has been
recognized for stock-based compensation plans other than for
restricted stock and performance-based awards. Had compensation
cost for the Payless stock options been determined under Statement
of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation, net earnings and earnings per share for the
first quarter of 1998 and 1997 would have been reduced by
approximately $1.3 million, or $0.03 per share and $0.8 million, or
$0.02 per share, respectively.
Cash Flow
At $65.8 million, cash flow from operations showed continuing
strength during the first quarter of 1998. This figure represented
9.7 percent of net sales in the first quarter of 1998 compared with
6.1 percent in first quarter of 1997. Internally generated funds
will continue to be the most important component of the Company's
capital resources and are expected to fund capital expansion.
Sources and (uses) of cash flows are summarized below:
13 Weeks Ended
-------------------
May 2, May 3,
(Dollars in millions) 1998 1997
-------- --------
Net earnings
and noncash items $ 62.5 $ 59.2
Working capital
increase (decrease) 3.3 (19.7)
Investing activities (20.3) (18.0)
Purchase (issuance)
of common stock, net (17.5) (12.8)
Other financing activity (1.1) (0.9)
-------- --------
Increase (decrease) in cash
and cash equivalents $ 26.9 $ 7.8
======== ========
Capital Expenditures
Capital expenditures during the first quarter of 1998 totaled $22.2
million with an additional $120.8 million estimated to be incurred
in the remainder of fiscal year 1998. The Company anticipates that
cash flow from operations and the credit facility will be
sufficient to finance projected capital expenditures (See
cautionary statement on page ten as to this and other forward-
looking statements).
Financing Activities
In September 1997, the Board of Directors authorized the repurchase
of up to $150 million of outstanding common stock in open market
transactions, subject to market conditions and receipt of a
favorable tax ruling from the Internal Revenue Service, which was
received in March 1998.
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During the first quarter of 1998, 250,200 shares of common stock
were acquired in open market transactions pursuant to Rule 10b-18
for an aggregate price of $18.1 million.
Available Credit
The Company has in place a $200 million unsecured revolving credit
facility with a bank syndication group on which no amounts were
drawn down as of May 2, 1998.
Financial Condition Ratios
A summary of key financial information for the periods indicated is
as follows:
May 2, May 3, Jan. 31,
1998 1997 1998
-------- -------- --------
Current Ratio 2.7 2.9 3.2
Debt-Capitalization Ratio* 0.8% 1.0% 1.0%
Fixed Charge Coverage** 3.7x 3.3x 3.5x
* Debt-to-capitalization has been computed by dividing total
debt, which includes current and long-term capital lease
obligations, by capitalization, which includes current and
long-term capital lease obligations, non-current deferred
income 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
49.5%, 49.6% and 50.1% respectively, 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 3.8x, 3.5x
and 3.6x respectively, for the periods referred to above.
The Company's fixed charge coverage ratio for the 52 weeks ended
May 2, 1998 increased as compared with the 52 week period ended May
3, 1997, due primarily to increased net earnings.
Store Activity
At the end of the first quarter of 1998, the Company operated 4,269
Payless ShoeSource stores in 50 states, Canada, Guam, Saipan,
Puerto Rico and the U.S. Virgin Islands and 191 Parade of Shoes
stores. The following table presents the change in store count for
the first quarter of 1998 and 1997.
9
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Payless ShoeSource
First Quarter
-------------
1998 1997
----- -----
Beginning of quarter 4,256 4,236
Stores opened 47 27
Stores closed (34) (27)
----- -----
Ending store count 4,269 4,236
===== =====
Parade of Shoes
First Quarter
-------------
1998 1997
===== =====
Beginning of quarter 175 0
Stores acquired 0 186
Stores opened 19 0
Stores closed (3) (1)
----- -----
Ending store count 191 185
===== =====
Year 2000
Many existing computer programs were designed and developed without
regard for the year 2000 and beyond. If not corrected, many
computer applications could fail or create erroneous results by or
at the year 2000. For Payless, this could disrupt product
purchasing and distribution, store operations, finance and other
support areas and affect the Company's ability to timely deliver
product to stores, thereby causing potential lost sales
opportunities.
The Company has evaluated and continues to evaluate the extent to
which it believes modifications to its internally developed
computer systems will be necessary to accommodate the year 2000 and
is modifying its internally developed computer systems to enable
continued processing of data into and beyond the year 2000. The
Company is testing all new purchases of critical computer hardware
and software and is obtaining, where feasible, contractual
warranties from system vendors that their products are or will be
year 2000 compliant. The Company is initiating formal
communications with significant suppliers, banks and other business
partners to either seek assurances that they will be year 2000
compliant or to formulate contingency plans to protect the Company
against their failure to be year 2000 compliant. The Company is
taking inventory of and will test critical non-computer equipment
to determine whether it is date sensitive and, where appropriate,
will seek contractual protections or make contingency plans in an
effort to minimize any adverse effect on any such equipment due to
the year 2000. The Company expects that all aspects of its year
2000 remedial strategy will be complete before the year 2000,
although there can be no assurance that such strategy will be
complete or that it will be effective.
10
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Spending for modifications is being expensed as incurred and is not
expected to have a material impact on the Company's results of
operations or cash flows.
Forward-Looking Statement
This report contains, and from time to time, the Company may
publish, forward-looking statements relating to such matters as
anticipated financial performance, business prospects,
technological developments, new products, future store openings,
possible strategic alternatives and similar matters. Also,
statements including the words "expects," "anticipates," "intends,"
"plans," "believes," "seeks," or variations of such words and
similar expressions are forwarding-looking statements. Registrant
notes that a variety of factors could cause its actual results and
experience to differ materially from the anticipated results or
other expectations expressed in its forward-looking statements. The
risks and uncertainties that may affect the operations,
performance, development and results of the Registrant's business
include, but are not limited to, the following: changes in consumer
spending patterns; changes in consumer preferences and overall
economic conditions; the impact of competition and pricing; changes
in weather patterns; the financial condition of the suppliers and
manufacturers from whom the Registrant sources its merchandise;
changes in existing or potential duties, tariffs or quotas;
availability of suitable store locations and appropriate terms; the
ability to hire and train associates; and general economic,
business and social conditions.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
There are no material pending legal proceedings, to which the
Company or any of its subsidiaries is a party or of which any of
their property is the subject. The Company and its subsidiaries
are parties to ordinary private litigation incidental to their
business.
Item 2 - Changes in Securities
On June 1, 1998 Payless reorganized into a holding company
structure through a merger (the "Merger") with Payless Merger
Corp., a Missouri corporation, which was an indirect wholly-owned
subsidiary of Payless and a wholly owned subsidiary of the
Company. The Company formerly was a wholly-owned subsidiary of
Payless. Each of the Company and Payless Merger Corp. were
organized in connection with the Merger. Payless was the
surviving corporation in the Merger and became a wholly owned
subsidiary of the Company as a result of the Merger. The Merger
was effected pursuant to the Agreement and Plan of Merger among
Payless, the Company and Payless Merger Corp. (the "Merger
Agreement") that was duly approved by shareowners of Payless
on May 22, 1998. Registrant intends to cause Payless to become
a second tier indirect wholly owned subsidiary of Registrant.
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Pursuant to the Merger Agreement, all of Payless' outstanding
shares of common stock were converted, on a share for share
basis, into shares of common stock of the Company. As a result,
Payless shareowners now hold stock in the Company (instead of
Payless) which is deemed to have been registered under Section
12(b) of the Securities Exchange Act of 1934.
The conversion of shares of Payless common stock in the Merger
occurred without requiring the physical exchange of
certificates. Accordingly, certificates formerly representing
shares of common stock of Payless are deemed to represent shares
of common stock of the Company until any such certificates are
submitted to the Company's transfer agent for transfer.
Payless is a Missouri corporation and the Company is a Delaware
corporation. Material differences between the former rights of
holders of Payless common stock and the rights of holders of the
Company's common stock have been previously reported, as defined
in Rule 12b-2 under the Securities Exchange Act of 1934, as
amended ("Rule 12b-2"), in the Company's Registration Statement
on Form S-4 (File No. 333-50577) at pages 17 to 23, under the
caption "Comparison of Certain Rights of the Holders of New
Payless Common Stock and Payless Common Stock". Accordingly, the
Company is not making an additional report of that information
in this Form 10-Q.
Holders of the Company's common stock have one Right for each
share of common stock held, pursuant to a Stockholder Protection
Rights Agreement dated as of April 20, 1998 between the Company
and UMB Bank, n.a., as Rights Agent. The rights formerly issued
under the Rights Agreement, dated as of April 2, 1996, between
Payless and The Bank of New York, were terminated immediately
prior to the effective time of the Merger. A description of the
Rights issued under the Company's Stockholder Protection Rights
Agreement has been previously reported, as defined in Rule 12b-2,
in the Company's Registration Statement on Form S-4 (File No.
333-50577) at pages 13 to 15 under the caption "New Payless
Capital Stock - New Payless Rights Agreement". Accordingly, the
Company is not making an additional report of that information
in this Form 10-Q.
Item 3 - Defaults Upon Senior Securities None.
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareowners of Registrant was held
on May 22, 1998.
(b) At the annual meeting of shareowners of Registrant held on
May 22, 1998, action was taken with respect to the election
of four directors of Registrant: 34,184,872 shares were
voted for Daniel Boggan Jr. while authority was withheld
with respect to 257,016 shares; 34,178,023 shares were voted
for Thomas A. Hays while authority was withheld with respect
to 263,865 shares; 34,200,213 shares were voted for Mylle B.
Mangum while authority was withheld with respect to 241,675
shares; 34,194,261 shares were voted for Michael E. Murphy
while authority was withheld with respect to 247,627 shares;
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Other directors whose term of office continued after the
meeting include: Steven J. Douglass, Howard R. Fricke,
Richard A. Jolosky, Robert L. Stark.
(c) In addition to the election of directors described in 4(b),
action was also taken at the annual meeting of shareowners
of Registrant with respect to:
(i) a ratification of the appointment of Arthur
Andersen LLP as independent auditors (34,342,795
votes in favor, 22,098 votes against and 76,995
votes abstained);
(ii) the adoption of an Agreement and Plan of Merger dated
as of April 20, 1998 among Payless, Registrant, and
Payless Merger Corp. (28,313,455 votes in favor, 91,995
votes against, 51,904 votes abstained and 5,984,534 not
voted);
Item 5 - Other Information None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
Number Description
------ -----------
2 Agreement and Plan of Merger dated as of April 20,
1998 by and among Payless, Registrant and Payless
Merger Corp., as amended (incorporated by reference
from exhibit 2 to Registrant's current Report on
Form 8-K (File No. 333-50577) filed June 3, 1998).
3.1 Restated Certificate of Incorporation of Registrant
(incorporated by reference from exhibit 3.1 to
Registrant's Current Report on Form 8-K (File No.
333-50577) filed June 3, 1998).
3.2 Amended and Restated Bylaws of Registrant
(incorporated by reference from exhibit 3.2 to
Registrant's Current Report on Form 8-K (File No.
333-50577) filed June 3, 1998).
4 Stockholder Protection Rights Agreement, dated as
of April 20,1998, as amended, between Registrant
and UMB Bank n.a. (incorporated by reference from
exhibit 4 to Registrant's Current Report on Form
8-K (File No. 333-50577) filed June 3, 1998).
10.1 Assumption Agreement, dated as of May 22, 1998,
between Registrant and Payless (incorporated by
reference from exhibit 99.1 to Registrant's Current
Report on Form 8-K (File No. 333-50577) filed June
3, 1998).
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10.2 1996 Stock Incentive Plan of Registrant, as amended
April 20, 1998, effective immediately prior to the
effective time of the Merger (incorporated by
reference from exhibit 99.2 to Registrant's Current
Report on Form 8-K (File No. 333-50577) filed June
3, 1998).
10.3 Restricted Stock Plan for Non-Management Directors
of Registrant, as amended April 20, 1998, effective
immediately prior to the effective time of the
Merger (incorporated by reference from exhibit 99.3
to Registrant's Current Report on Form 8-K (File
No. 333-50577) filed June 3, 1998).
10.4 Deferred Compensation Plan of Registrant, as
amended effective April 20, 1998, effective
immediately prior to the effective time of the
Merger (incorporated by reference from exhibit 99.4
to Registrant's Current Report on Form 8-K (File
No. 333-50577) filed June 3, 1998).
10.5 Executive Incentive Compensation Plan of
Registrant, as amended April 20, 1998, effective
immediately prior to the effective time of the
Merger (incorporated by reference from exhibit 99.5
to Registrant's Current Report on Form 8-K (File
No. 333-50577) filed June 3, 1998).
10.6 Executive Incentive Compensation Plan for Business
Unit Management of Registrant, as amended April
20, 1998, effective immediately prior to the
effective time of the Merger (incorporated by
reference from exhibit 99.6 to Registrant's Current
Report on Form 8-K (File No. 333-50577) filed June
3, 1998).
10.7 Deferred Compensation Plan for Non-Management
Directors of Registrant, as amended April 20, 1998,
effective immediately prior to the effective time
of the Merger (incorporated by reference from
exhibit 99.7 to Registrant's Current Report on Form
8-K (File No. 333-50577) filed June 3, 1998).
10.8 Stock Appreciation and Phantom Stock Unit Plan for
Payless ShoeSource International Employees of
Registrant, as amended April 20, 1998, effective
immediately prior to the effective time of the
Merger (incorporated by reference from exhibit 99.8
to Registrant's Current Report on Form 8-K (File
No. 333-50577) filed June 3, 1998).
10.9 Profit Sharing Plan of Registrant as amended and
restated generally effective June 1, 1998
(incorporated by reference from exhibit 99.9 to
Registrant's Current Report on Form 8-K (File No.
333-50577) filed June 3, 1998).
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10.10 Profit Sharing Plan for Puerto Rico Associates of
Registrant, as amended effective June 1, 1998
(incorporated by reference from exhibit 99.10 to
Registrant's Current Report on Form 8-K (File No.
333-50577) filed June 3, 1998).
10.11 Stock Ownership Plan of Registrant, as amended
effective June 1, 1998 (incorporated by reference
from exhibit 99.11 to Registrant's Current Report
on Form 8-K (File No. 333-50577) filed June 3,
1998).
10.12 Supplementary Retirement Plan of Registrant, as
amended effective June 1, 1998 (incorporated by
reference from exhibit 99.12 to Registrant's
Current Report on Form 8-K (File No. 333-50577)
filed June 3, 1998).
10.13 Form of Directors' and Officers' Indemnity
Agreement of Registrant (incorporated by reference
from exhibit 99.13 to Registrant's Current Report
on Form 8-K (File No. 333-50577) filed June 3,
1998).
10.14 Amended and Restated Multicurrency Credit Agreement
dated as of May 22, 1998, (but effective as of the
date of the Reorganization, as defined therein)
among Payless ShoeSource, Inc., a Missouri
Corporation, Payless ShoeSource Holdings, Inc., a
Delaware Corporation (now known as Payless
ShoeSource, Inc.), PSS Investment II, Inc., several
financial institutions and Bank of America National
Trust and Savings Association, as Agent
(incorporated by reference from exhibit 99.14 to
Registrant's Current Report on Form 8-K (File No.
333-50577) filed June 3, 1998).
11.1 Computation of Net Earnings Per Share.*
27.1 Financial Data Schedule*
* Filed herewith
(b) Reports on Form 8-K
On March 9, 1998, the Company filed a Current Report on Form
8-K, reporting on Item 5, Other Information. In the Report,
the Company provided its press release on March 2, 1998,
which announced that the Company had received a tax ruling
from the Internal Revenue Service enabling it to proceed
with its planned repurchase of $150 million worth of the
common stock of the Company.
15
<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: 6/8/98 /s/ Steven J. Douglass
- - - ------------------ ---------------------------------
Steven J. Douglass
Chairman and
Chief Executive Officer
Date: 6/8/98 /s/ Ullrich E. Porzig
- - - ------------------ ---------------------------------
Ullrich E. Porzig
Senior Vice President and
Chief Financial Officer
16
<PAGE>
<PAGE>
Exhibit 11.1
PAYLESS SHOESOURCE, INC.
------------------------
COMPUTATION OF NET EARNINGS PER SHARE
-------------------------------------
13 Weeks Ended
------------------
May 2, May 3,
(Thousands, except per share) 1998 1997
-------- --------
Basic Computation:
- - - ------------------
Net earnings $ 37,758 $ 32,427
Common shares outstanding 37,308 39,897
-------- --------
Net earnings per share $ 1.01 $ 0.81
======== ========
Diluted Computation:
- - - --------------------
Net earnings $ 37,758 $ 32,427
Common shares outstanding 37,308 39,897
Net effect of dilutive stock
options based on the treasury
stock method 493 161
-------- --------
Outstanding shares for diluted
earnings per share 37,801 40,058
======== ========
Diluted earnings per share $ 1.00 $ 0.81
======== ========
Note: Basic earnings per share is computed by dividing net earnings by
the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share includes the effect of
conversions of options.
<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 13 WEEKS ENDED MAY 2,
1998, AND CONDENSED CONSOLIDATED BALANCE SHEET AS OF MAY 2, 1998,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001060232
<NAME> PAYLESS SHOESOURCE,INC.
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<CASH> 236,900<F1>
<SECURITIES> 0<F2>
<RECEIVABLES> 5,200<F3>
<ALLOWANCES> 0<F3>
<INVENTORY> 377,200
<CURRENT-ASSETS> 642,400
<PP&E> 870,100
<DEPRECIATION> 386,200
<TOTAL-ASSETS> 1,150,100
<CURRENT-LIABILITIES> 234,100
<BONDS> 5,500<F4>
<COMMON> 400
0
0
<OTHER-SE> 857,000<F5>
<TOTAL-LIABILITY-AND-EQUITY> 1,150,100
<SALES> 681,100<F6>
<TOTAL-REVENUES> 681,100
<CGS> 464,800
<TOTAL-COSTS> 464,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,100)
<INCOME-PRETAX> 62,800
<INCOME-TAX> 25,000
<INCOME-CONTINUING> 37,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,800
<EPS-PRIMARY> 1.01<F7>
<EPS-DILUTED> 1.00<F7>
<FN>
<F1>Includes cash equivalent 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>
