<PAGE> 1
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 1, 1999
Commission File Number 1-14770
PAYLESS SHOESOURCE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 43-1813160
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3231 SOUTHEAST SIXTH AVENUE, 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
31,635,614 shares as of May 28, 1999
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(Dollars in millions)
<TABLE>
<CAPTION>
May 1, May 2, Jan. 30,
ASSETS 1999 1998 1999
- ------ --------------- --------------- ---------------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 112.6 $ 236.9 $ 123.5
Merchandise inventories 403.9 377.2 342.1
Current deferred income taxes 13.5 15.6 14.2
Other current assets 19.1 12.7 16.0
--------------- --------------- ---------------
Total current assets 549.1 642.4 495.8
Property and Equipment:
Land 7.0 6.0 6.3
Buildings and leasehold
improvements 607.9 572.5 594.8
Furniture, fixtures and
equipment 291.8 284.1 284.2
Property under capital leases 7.6 7.5 7.6
--------------- --------------- ---------------
Total property and equipment 914.3 870.1 892.9
Accumulated depreciation
and amortization (424.7) (386.2) (400.1)
--------------- ---------------- ---------------
Property and equipment 489.6 483.9 492.8
Deferred income taxes 29.3 20.3 25.8
Other assets 4.2 3.5 3.5
--------------- --------------- ---------------
Total Assets $ 1,072.2 $ 1,150.1 $ 1,017.9
=============== =============== ===============
LIABILITIES AND SHAREOWNERS' EQUITY
- -----------------------------------
Current Liabilities:
Current maturities of
capital lease obligations $ 0.7 $ 1.5 $ 1.5
Accounts payable 107.1 95.1 75.5
Accrued expenses 136.1 137.5 117.9
--------------- --------------- ---------------
Total current liabilities 243.9 234.1 194.9
Long-term Debt 71.9 5.5 72.0
Other liabilities 49.8 53.1 48.2
Shareowners' Equity:
Common stock 0.3 0.4 0.3
Additional paid-in capital 36.1 21.6 35.0
Unearned restricted stock (2.8) (6.9) (3.3)
Retained earnings 673.0 842.3 670.8
--------------- --------------- ---------------
Total shareowners' equity 706.6 857.4 702.8
Total Liabilities and
Shareowners' Equity $ 1,072.2 $ 1,150.1 $ 1,017.9
=============== =============== ===============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE> 3
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Dollars in millions, except per share)
13 Weeks Ended
--------------------------------------
May 1, May 2,
1999 1998
---------------- ----------------
Net retail sales $ 689.2 $ 681.0
Cost of sales 468.6 465.4
Selling, general and
administrative expenses 161.5 154.9
Interest (income)
expense, net 0.4 (2.1)
---------------- ----------------
Earnings before
income taxes 58.7 62.8
Provision for income taxes 23.4 25.0
---------------- ----------------
Net Earnings $ 35.3 $ 37.8
================ ================
Diluted Earnings per Share $ 1.09 $ 1.00
================ ================
Basic Earnings per Share $ 1.09 $ 1.01
================ ================
Diluted Weighted Average
Shares Outstanding 32.4 37.8
================ ================
Basic Weighted Average
Shares Outstanding 32.3 37.3
================ ================
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars in millions) 13 Weeks Ended
------------------------------------
May 1, May 2,
1999 1998
--------------- ----------------
Operating Activities:
Net earnings $ 35.3 $ 37.8
Adjustments for noncash items
included in net earnings:
Depreciation and amortization 24.0 23.1
Amortization of unearned
restricted stock 0.5 0.7
Deferred income taxes (2.8) 0.9
Changes in working capital:
Merchandise inventories (61.8) (52.6)
Other current assets (3.1) (1.3)
Accounts payable 31.6 31.3
Accrued expenses 18.2 24.6
Other assets and liabilities, net 1.6 1.3
--------------- ----------------
Total Operating Activities 43.5 65.8
--------------- ----------------
Investing Activities:
Capital expenditures (21.0) (22.2)
Disposition of property and equipment 0.1 1.9
--------------- ----------------
Total Investing Activities (20.9) (20.3)
--------------- ----------------
Financing Activities:
Repayment of long-term debt (0.9) (0.9)
Purchases of common stock (33.7) (18.1)
Issuances of common stock 1.1 0.4
--------------- ----------------
Total Financing Activities (33.5) (18.6)
--------------- ----------------
Increase (Decrease) in Cash
and Cash Equivalents (10.9) 26.9
Cash and Cash Equivalents,
Beginning of Year 123.5 210.0
--------------- ----------------
Cash and Cash Equivalents,
End of Period $ 112.6 $ 236.9
=============== ================
Cash paid during the period:
Interest $ 0.3 $ 0.3
Income Taxes 0.6 0.0
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 5
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 Delaware 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 Payless ShoeSource, Inc., a Delaware
corporation (the "Company"). The Company formerly was a wholly-owned subsidiary
of Payless immediately prior to the merger. Each of the Company and Payless
Merger Corp. were organized in connection with the Merger. Pursuant to the
Merger, Payless became a wholly-owned subsidiary of the Company and is the
principal operating subsidiary of the Company. The transaction was accounted for
as a reorganization of entities under common control (similar to a pooling of
interest). As a result, immediately following the effective time of the Merger
the Company and its subsidiaries had the same consolidated net worth as Payless
and its subsidiaries had immediately prior to the Merger.
For purposes of these Notes to Condensed Consolidated Financial Statements, the
"Registrant", 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 Condensed Consolidated Financial
Statements of the Company have been prepared in accordance with the instructions
to Form 10-Q of the United States Securities and Exchange Commission and should
be read in conjunction with the Notes to Consolidated Financial Statements
(pages 22-26) in the Company's 1998 Annual Report. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. In the opinion of management,
the unaudited Condensed Consolidated Financial Statements are 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. The results for the three month period ended May 1, 1999, are
not necessarily indicative of the results that may be expected for the fiscal
year ending January 29, 2000.
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. 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.
5
<PAGE> 6
NOTE 5. RECLASSIFICATIONS. Certain reclassifications have been made to prior
year balances to conform with the current year presentation.
NOTE 6. 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 1999 and 1998.
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 1, 1999 (1999) and May 2, 1998 (1998). 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 $35.3 million in the first quarter of 1999 compared with
$37.8 million in the first quarter of 1998.
The following table presents the components of costs and expenses, as a percent
of revenues, for the first quarter of 1999 and 1998.
First Quarter
--------------
1999 1998
------ ------
Cost of sales 68.0% 68.3%
Selling, general and
administrative expenses 23.4 22.8
Interest (income)/expense, net 0.1 (0.3)
----- -----
Earnings before income taxes 8.5% 9.2%
===== =====
Effective income tax rate 39.9% 39.9%
----- -----
Net Earnings 5.1% 5.5%
===== =====
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.
During the first quarter of 1999 total sales increased 1.2% over the first
quarter of 1998, consisting of a 2.7% increase in unit volume and a 1.5%
decrease in average selling prices. Sales percent increases (decreases) are as
follows:
First Quarter
----------------
1999 1998
------ ------
Net Retail Sales 1.2% 5.6%
Same-Store Sales (2.2%) 3.3%
6
<PAGE> 7
COST OF SALES
Cost of sales includes cost of merchandise sold, buying and occupancy costs.
Cost of sales was $468.6 million in the 1999 first quarter, up 0.7% from $465.4
million in the 1998 first quarter. As a percent of net retail sales, cost of
sales declined 0.3% to 68.0 percent in the first quarter of 1999 from 68.3
percent in the first quarter of 1998. Gross margin improvement in the first
quarter was primarily due to continued improvements in our merchandising margins
driven by better product costs and adjustments in our merchandise mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $161.5 million in the 1999
first quarter, up 4.3% from $154.9 million in the 1998 first quarter. As a
percent of net retail sales, selling, general and administrative expenses were
23.4 percent during the first quarter of 1999 compared with 22.8 percent in the
first quarter of 1998. The increase during the first quarter 1999 was attributed
to increases in stores payroll required to support our higher store count,
combined with the negative leverage we experienced due to a decline in our
same-store sales.
CASH FLOW
Cash flow from operations during the three months ended May 1, 1999, was $43.5
million. This figure represented 6.3 percent of net retail sales in the first
quarter of 1999 compared with 9.7 percent in the first quarter of 1998.
Internally generated funds are expected to 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 1, May 2,
(Dollars in millions) 1999 1998
-------- --------
Net earnings
and noncash items $ 57.1 $ 62.5
Working capital
decrease (increase) (13.6) 3.3
Investing activities (20.9) (20.3)
Purchases of common stock (33.7) (18.1)
Issuances of common stock 1.1 0.4
Other financing activity (0.9) (0.9)
-------- --------
Increase (decrease) in cash
and cash equivalents $ (10.9) $ 26.9
======== ========
CAPITAL EXPENDITURES
Capital expenditures during the first quarter of 1999 totaled $21.0 million with
an additional $107.0 million estimated to be incurred in the remainder of fiscal
year 1999. The Company anticipates that cash flow from operations and the credit
facility will be sufficient to finance projected capital expenditures.
FINANCING ACTIVITIES
During the first quarter of 1999, the Company acquired 0.7 million shares of its
common stock for an aggregate price of $33.7 million.
7
<PAGE> 8
AVAILABLE CREDIT
The Company has in place a $200 million unsecured revolving credit facility with
a bank syndication group. While no amounts had been drawn against the agreement
at May 1, 1999, the balance available to the Company was reduced by $11.4
million outstanding under a letter of credit.
FINANCIAL CONDITION RATIOS
A summary of key financial information for the periods indicated is as follows:
May 1, May 2, Jan. 30,
1999 1998 1999
------ ------ --------
Current Ratio 2.3 2.7 2.5
Debt-Capitalization Ratio* 9.3% 0.8% 9.5%
Fixed Charge Coverage** 4.0x 3.7x 4.1x
* 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 56.5%, 49.5% and 56.8% 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 4.0x, 3.8x and 4.2x
respectively, for the periods referred to above.
STORE ACTIVITY
At the end of the first quarter of 1999, the Company operated 4,387 Payless
ShoeSource stores in 50 states, Canada, Guam, Saipan, Puerto Rico and the U.S.
Virgin Islands and 215 Parade of Shoes stores. The following table presents the
change in store count for the first quarter of 1999 and 1998.
PAYLESS SHOESOURCE First Quarter
-------------
1999 1998
----- -----
Beginning of quarter 4,357 4,256
Stores opened 64 47
Stores closed (34) (34)
----- -----
Ending store count 4,387 4,269
===== =====
PARADE OF SHOES First Quarter
-------------
1999 1998
----- -----
Beginning of quarter 213 175
Stores opened 3 19
Stores closed (1) (3)
----- -----
Ending store count 215 191
===== =====
8
<PAGE> 9
YEAR 2000 READINESS DISCLOSURE
Many existing computer programs were designed and developed without regard for
the implications of Year 2000 and beyond. If not corrected, these computer
applications could fail or create erroneous results before or at the Year 2000.
For the Company, 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 and additional expenses.
The Company's State of Readiness. The Company created a Year 2000 Steering
Committee comprised of various senior management members and a Year 2000 Project
Management Office. This group is responsible for planning and monitoring the
Company's overall Year 2000 program and for reporting on a regular basis to the
Company's Board of Directors.
The Company's Year 2000 program encompasses both information systems and
non-information technology within the Company as well as investigation of the
readiness of the Company's significant business partners. The Company engaged an
international consulting firm to evaluate and assist in the monitoring of its
Year 2000 program. The outside consulting firm provides periodic updates on the
Company's progress to the Company's Board of Directors.
Internally Engineered Systems. With assistance from another international
consulting firm, the Company has evaluated and continues to evaluate the extent
to which modifications to its internally engineered computer systems will be
necessary to accommodate the Year 2000 and is modifying its internally
engineered computer systems to enable continued processing of data into and
beyond the Year 2000. This phase of the Company's Year 2000 program is nearing
completion. The consulting firm has completed its work and the Company
anticipates completing remediation and testing of its internally engineered
computer systems using internal resources by the end of the second quarter of
fiscal 1999.
Purchased Systems. The Company inventoried the types of purchased hardware and
software systems used within the enterprise and has obtained, where feasible,
contractual warranties from system vendors that their products are or will be
Year 2000 compliant. This phase of the Company's Year 2000 program is complete.
The Company requires Year 2000 contractual warranties from all vendors of new
software and hardware. In addition, the Company is testing all significant newly
purchased computer hardware and software systems in an effort to ensure their
Year 2000 compliance.
9
<PAGE> 10
Business Partners. The Company has communicated with most of its suppliers,
banks and other business partners or vendors seeking assurances they will be
Year 2000 compliant. Although no method exists for achieving certainty that any
business' significant partners will function without disruption in the Year
2000, the Company's goal is to obtain as much detailed information as possible
about its significant partners' Year 2000 plans and to identify those companies
which appear to pose a significant risk of failure to perform their obligations
to the Company as a result of the Year 2000.
The Company has compiled detailed information regarding all of its significant
business partners. The Company is planning, where appropriate, to review such
significant partners throughout 1999 to confirm their level of preparedness for
the Year 2000 and to make adjustments where necessary to avoid utilization of
those partners who present an unacceptable level of risk.
The Company currently is not dependent on any single source for any products or
services. In the event a significant supplier, bank or other business partner or
vendor is unable to provide products or services to the Company due to a Year
2000 failure, the Company believes it has adequate alternate sources for such
products or services. There can be no guarantee, however, that similar or
identical products or services would be available on the same terms and
conditions or that the Company would not experience some adverse effects as a
result of switching to such alternate sources.
Embedded Systems. The Company has inventoried non-computer equipment
(non-information technology) throughout the enterprise to determine whether it
is date sensitive. Where appropriate, the Company 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 plans to have
fully tested such non-computer equipment by the end of the second quarter of
1999.
Costs to Address the Year 2000. 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.
The cost of the Company's Year 2000 program is being funded with cash flows from
operations. The Company's total Year 2000 expenditures (including external and
internal expenditures) are estimated to be in the range of $8-10 million. While
the foregoing estimate does include internal costs, the Company does not
separately track all of the internal costs incurred by it for the Year 2000
program. Such costs are principally the related payroll costs for the Company's
Year 2000 Program Management Office and other internal resources who are also
contributing their efforts to the Year 2000 program. The largest single Year
2000 expenditure to date has been consulting fees incurred in the context of the
remediation of the Company's internally engineered computer systems as discussed
above.
10
<PAGE> 11
To date, the Company has expended approximately 95 percent of its estimated
total Year 2000 expenditures, although the percentage expended cannot
necessarily be taken as an indication of the Company`s degree of completion of
its Year 2000 program.
Risk Analysis. Like most large business enterprises, the Company is dependent
upon its own internal computer technology and relies upon timely performance by
its business partners. As noted above, a large-scale Year 2000 failure could
impair the Company's ability to timely deliver product to stores, resulting in
potential lost sales opportunities and additional expenses. Neither the precise
magnitude of such lost sales opportunities and additional expenses nor the exact
costs of carrying out contingency plans has yet been ascertained by the Company.
The Company's Year 2000 program seeks to identify and minimize this risk and
includes testing of its internally engineered systems and purchased hardware and
software, to ensure, to the extent feasible, all such systems will function
before and after the Year 2000. The Company is continually refining its
understanding of the risk the Year 2000 poses to its significant business
partners based upon information obtained through its surveys and interviews.
That refinement will continue throughout 1999.
Contingency Plans. Following its risk analysis as described above, the
Company's Year 2000 program includes a contingency planning phase in which
appropriate plans will be made to attempt to minimize disruption to the
Company's operations in the event of a Year 2000 failure.
The Company is formulating plans to handle a variety of failure scenarios,
including failures of its internal systems, as well as failures of significant
business partners. The level of planning required is a function of the risks
ascertained through the Company's investigative efforts. The Company anticipates
contingency planning across the enterprise will be completed by the end of the
third quarter of 1999.
While no assurances can be given, because of the Company's extensive efforts to
formulate and carry-out an effective Year 2000 program, the Company believes its
program will be completed on a timely basis and should effectively minimize
disruption to the Company's operations due to the Year 2000.
FORWARD-LOOKING STATEMENTS
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, e-commerce initiatives, 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.
11
<PAGE> 12
The Company notes that a variety of factors could cause its actual results and
experience to differ materially from the anticipated results or other
expectations expressed in its forward-looking statements. The risks and
uncertainties that may affect the operations, performance, development and
results of the Company's business include, but are not limited to, the
following: changes in consumer spending patterns; changes in consumer
preferences and overall economic conditions; the impact of competition and
pricing; changes in weather patterns; successful implementations of new
technologies; Year 2000 matters as discussed herein; the financial condition of
the suppliers and manufacturers from whom the Company sources its merchandise;
changes in existing or potential duties, tariffs or quotas; changes in
relationships between the United States and foreign countries, economic and
political instability in foreign countries or restrictive actions by the
governments of foreign countries in which suppliers and manufacturers from whom
the Company sources are located; changes in trade and foreign tax laws;
fluctuations in currency exchange rates; availability of suitable store
locations and appropriate terms; the ability to hire and train associates; and
general economic, business and social conditions.
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by these cautionary statements. The Company does not undertake any
obligation to release publicly any revisions to such forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
12
<PAGE> 13
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 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of shareowners of the Registrant was held on May 28,
1999.
(b) At the annual meeting of shareowners of the Registrant held on May 28, 1999,
action was taken with respect to the election of three directors of the
Registrant: 26,154,625 shares were voted for Steven J. Douglass while authority
was withheld with respect to 46,249 shares; 26,156,657 shares were voted for
Howard R. Fricke while authority was withheld with respect to 44,217 shares;
26,155,513 shares were voted for Ken C. Hicks while authority was withheld with
respect to 45,361 shares. Other directors whose term of office continued after
the meeting include: Daniel Boggan Jr., Thomas A. Hays, Richard A. Jolosky,
Mylle B. Mangum, Michael E. Murphy and Robert L. Stark.
(c) In addition, shareowners ratified the appointment of Arthur Andersen LLP as
independent auditors (26,082,145 votes in favor, 30,370 votes against and 88,359
votes abstained).
ITEM 5 - OTHER INFORMATION
On May 27, 1999, the Company launched its online store, Payless.com. The store's
Internet address is http://www.payless.com. The online store offers customers
another way to take advantage of the value, quality, and selection offered
through the Company's Payless ShoeSource stores, with the added convenience of
online shopping.
On June 4, 1999, Payless ShoeSource, Inc., a Delaware corporation (the
"Company"), announced that the Company completed a $55 million financing through
a private placement of unsecured notes issued by a wholly-owned subsidiary with
five and ten year maturities. The financing consists of $20 million of senior
notes maturing in June 2004 and $35 million of senior notes maturing in June
2009, with payments of principal on $15 million of the June 2009 notes beginning
in June 2003. A copy of the Company's press release, dated June 4, 1999 is
attached hereto as Exhibit 99.1 and is incorporated herein by reference.
13
<PAGE> 14
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Number Description
------ -----------
11.1 Computation of Net
Earnings Per Share*
27 Financial Data
Schedule*
99.1 Press Release*
* Filed herewith
(b) Reports on Form 8-K
On January 29, 1999, 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 dated January 29, 1999, which announced that the Company had named Ken
C. Hicks President and elected him to the Company's Board of Directors.
14
<PAGE> 15
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: 6/7/99 By: /s/ Steven J. Douglass
----------------------
Steven J. Douglass
Chairman and
Chief Executive Officer
Date: 6/7/99 By: /s/ Ullrich E. Porzig
---------------------
Ullrich E. Porzig
Senior Vice President and
Chief Financial Officer
15
<PAGE> 16
Exhibit Index
Number Description
------ -----------
11.1 Computation of Net Earnings Per Share
27 Financial Data Schedule
99.1 Press Release
<PAGE> 1
EXHIBIT 11.1
PAYLESS SHOESOURCE, INC.
COMPUTATION OF NET EARNINGS PER SHARE
13 Weeks Ended
------------------
May 1, May 2,
(Thousands, except per share) 1999 1998
-------- --------
Basic Computation:
- -----------------
Net earnings $ 35,270 $ 37,758
Weighted average common
shares outstanding 32,255 37,308
-------- --------
Basic earnings per share $ 1.09 $ 1.01
======== ========
Diluted Computation:
- --------------------
Net earnings $ 35,270 $ 37,758
Weighted average common
shares outstanding 32,255 37,308
Net effect of dilutive stock
options based on the treasury
stock method 174 493
-------- --------
Outstanding shares for diluted
earnings per share 32,429 37,801
======== ========
Diluted earnings per share $ 1.09 $ 1.00
======== ========
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.
<TABLE> <S> <C>
<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 1, 1999, AND CONDENSED CONSOLIDATED BALANCE SHEET AS OF
MAY 1, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001060232
<NAME> PAYLESS SHOESOURCE, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> MAY-01-1999
<CASH> 112,600<F1>
<SECURITIES> 0<F2>
<RECEIVABLES> 7,800<F3>
<ALLOWANCES> 0<F3>
<INVENTORY> 403,900
<CURRENT-ASSETS> 549,100
<PP&E> 914,300
<DEPRECIATION> 424,700
<TOTAL-ASSETS> 1,072,200
<CURRENT-LIABILITIES> 243,900
<BONDS> 71,900<F4>
0
0
<COMMON> 300
<OTHER-SE> 706,300<F5>
<TOTAL-LIABILITY-AND-EQUITY> 1,072,200
<SALES> 689,200<F6>
<TOTAL-REVENUES> 689,200
<CGS> 468,600
<TOTAL-COSTS> 468,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 400
<INCOME-PRETAX> 58,700
<INCOME-TAX> 23,400
<INCOME-CONTINUING> 35,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,300
<EPS-BASIC> 1.09<F7>
<EPS-DILUTED> 1.09<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 plus Long-Term Debt.
<F5>Reflects Retained Earnings and Additional Paid In Capital.
<F6>Reflects net sales.
<F7>Expressed in dollars.
</FN>
</TABLE>
<PAGE> 1
Exhibit 99.1
For Immediate Release Contact: Timothy J. Reid (785) 295-6695
PAYLESS SHOESOURCE ANNOUNCES COMPLETION OF
$55 MILLION PRIVATE PLACEMENT
Topeka, Kan., June 4, 1999 - Payless ShoeSource, Inc. (NYSE:PSS) today
announced that the company completed a $55 million financing through a private
placement of unsecured notes issued by a wholly owned subsidiary in five and ten
year maturities.
Proceeds from the financing are intended to be used for general corporate
purposes including the funding of a portion of the company's previously
announced stock repurchase program.
The financing consists of an aggregate of $20 million of senior notes
maturing in June 2004 and $35 million of senior notes maturing in June 2009,
with payments of principal on $15 million of the June 2009 notes beginning in
June 2003.
The notes have not been and will not be registered under the Securities Act
of 1933 and may not be offered or sold in the United States without registration
or an applicable exemption from registration requirements. This announcement
does not constitute an offer to sell or a solicitation to buy the notes or any
other securities of the company.
Payless ShoeSource, Inc., is North America's largest family footwear
retailer. The company operates 4,388 Payless ShoeSource stores offering quality
family footwear at affordable prices. Payless also operates 215 Parade of Shoes
stores featuring fashionable women's footwear.
This press release contains forward-looking statements that are subject to risks
and uncertainties. Forward-looking statements include management's present
intentions and expectations of the use of the debt financing. A variety of known
and unknown risks, uncertainties and other factors could cause actual results
and expectations to differ materially from the anticipated results or
expectations. Additional information concerning a number of factors that could
cause actual results to differ materially from the information contained in this
release can be found in the 1998 Annual Report to Shareowners and the Company's
Form 10-K for fiscal 1998, as filed with the Securities and Exchange Commission.
