<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 October 30, 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
30,296,374 shares as of November 26, 1999
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(Dollars in millions) (Unaudited) (Unaudited)
Oct. 30, Oct. 31, Jan. 30,
ASSETS 1999 1998 1999
- ------ --------------- --------------- ---------------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 210.7 $ 102.4 $ 123.5
Merchandise inventories 359.4 353.3 342.1
Current deferred income taxes 14.7 7.7 14.2
Other current assets 21.2 17.5 16.0
--------------- --------------- ---------------
Total current assets 606.0 480.9 495.8
Property and Equipment:
Land 7.4 6.0 6.3
Buildings and leasehold
improvements 647.8 603.9 594.8
Furniture, fixtures and
equipment 294.4 306.5 284.2
Property under capital leases 7.3 7.5 7.6
--------------- --------------- ---------------
Total property and equipment 956.9 923.9 892.9
Accumulated depreciation
and amortization (469.2) (429.0) (400.1)
--------------- --------------- ---------------
Property and equipment 487.7 494.9 492.8
Deferred income taxes 20.5 24.2 25.8
Other assets 4.5 3.5 3.5
--------------- --------------- ---------------
Total Assets $ 1,118.7 $ 1,003.5 $ 1,017.9
=============== =============== ===============
LIABILITIES AND SHAREOWNERS' EQUITY
- -----------------------------------
Current Liabilities:
Current maturities of
long-term debt $ 0.7 $ 1.5 $ 1.5
Accounts payable 78.9 84.1 75.5
Accrued expenses 138.5 125.7 117.9
--------------- --------------- ---------------
Total current liabilities 218.1 211.3 194.9
Long-term debt 126.3 5.2 72.0
Other liabilities 49.0 48.8 48.2
Shareowners' Equity 725.3 738.2 702.8
Total Liabilities and
Shareowners' Equity $ 1,118.7 $ 1,003.5 $ 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)
<TABLE>
<CAPTION>
(Millions, except per share)
13 Weeks Ended 39 Weeks Ended
----------------------------------- -----------------------------------
Oct. 30, Oct. 31, Oct. 30, Oct. 31,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Retail Sales $ 669.4 $ 643.1 $ 2,126.2 $ 2,047.1
Cost of sales 455.4 441.0 1,438.3 1,394.6
Selling, general and
administrative
expenses 156.8 147.4 486.5 457.7
Interest (income)
expense, net (0.4) (1.3) (0.2) (6.0)
--------------- --------------- --------------- ---------------
Earnings before income
taxes 57.6 56.0 201.6 200.8
Provision for income
taxes 23.0 22.3 80.4 80.1
--------------- --------------- --------------- ---------------
Net Earnings $ 34.6 $ 33.7 $ 121.2 $ 120.7
=============== =============== =============== ===============
Diluted Earnings
per Share $ 1.11 $ 0.98 $ 3.82 $ 3.31
=============== =============== =============== ===============
Basic Earnings
per Share $ 1.12 $ 0.98 $ 3.84 $ 3.35
=============== =============== =============== ===============
Diluted Weighted Average
Shares Outstanding 31.1 34.5 31.8 36.4
=============== =============== =============== ===============
Basic Weighted Average
Shares Outstanding 30.9 34.4 31.6 36.1
=============== =============== =============== ===============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in millions) 39 Weeks Ended
----------------------------------
Oct. 30, Oct. 31,
1999 1998
--------------- -------------
<S> <C> <C>
Operating Activities:
Net earnings $ 121.2 $ 120.7
Adjustments for noncash items
included in net earnings:
Depreciation and amortization 72.8 69.9
Amortization of unearned
restricted stock 1.4 2.1
Deferred income taxes 4.8 4.9
Merchandise inventories (17.3) (28.7)
Other current assets (5.2) (6.1)
Accounts payable 3.4 20.3
Accrued expenses 20.6 12.8
Other assets and liabilities, net 1.9 (3.4)
--------------- ----------------
Total Operating Activities 203.6 192.5
--------------- ----------------
Investing Activities:
Capital expenditures (71.7) (84.9)
Disposition of property and equipment 4.0 6.7
--------------- ----------------
Total Investing Activities (67.7) (78.2)
--------------- ----------------
Financing Activities:
Issuance of long-term debt 55.0 0.0
Repayment of long-term debt (1.5) (1.2)
Net purchases of common stock (102.2) (220.7)
--------------- ----------------
Total Financing Activities (48.7) (221.9)
--------------- ----------------
Increase (Decrease) in Cash
and Cash Equivalents 87.2 (107.6)
Cash and Cash Equivalents,
Beginning of Year 123.5 210.0
--------------- ----------------
Cash and Cash Equivalents,
End of Period $ 210.7 $ 102.4
=============== ================
Cash paid during the period:
Interest $ 3.1 $ 0.8
Income Taxes 60.9 62.3
</TABLE>
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 ("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 ("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 an indirect 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 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. The unaudited Condensed 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 the 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 quarter and nine month period ended October
30, 1999, are not necessarily indicative of the results that may be expected for
the year ending January 29, 2000.
NOTE 3. INVENTORIES. Merchandise inventories are valued at the retail
method and are stated at the lower of cost, determined using the first-
in, first-out (FIFO) basis, or market.
NOTE 4. LONG-TERM DEBT. In June 1999, 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. The financing consists of an
aggregate of $20 million of senior notes maturing in June 2004 at 7.34%, $15
million of senior notes maturing in June 2009 at 7.67%, with payments of
principal beginning in June 2003, and $20 million of senior notes maturing in
June 2009 at 7.78%.
5
<PAGE> 6
NOTE 5. EARNINGS PER SHARE. Basic earnings per share are 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 6. RECLASSIFICATIONS. Certain reclassifications have been made to
prior year balances to conform with the current year presentation.
NOTE 7. 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 third 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 October 30, 1999 (1999) and October 31, 1998
(1998). This discussion and analysis should be read in conjunction with the
unaudited 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 $34.6 million in the third quarter of 1999, up 2.7% from
$33.7 million in the third quarter of 1998. For the first nine months of 1999,
net earnings were $121.2 million compared with $120.7 million in the 1998
period, a 0.4% increase.
The following table presents the components of costs and expenses, as a percent
of net retail sales, for the third quarter and first nine months of 1999 and
1998.
<TABLE>
<CAPTION>
First
Third Quarter Nine Months
------------- -------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Cost of sales 68.0% 68.6% 67.6% 68.1%
Selling, general and
administrative expenses 23.4 22.9 22.9 22.4
Interest (income)/expense, net (.0) (.2) (.0) (.3)
---- ---- ---- ----
Earnings before income taxes 8.6% 8.7% 9.5% 9.8%
==== ==== ==== ====
Effective income tax rate 39.9% 39.9% 39.9% 39.9%
==== ==== ==== ====
Net Earnings 5.2% 5.2% 5.7% 5.9%
==== ==== ==== ====
</TABLE>
6
<PAGE> 7
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 third quarter of 1999 net retail sales increased 4.1 percent from the
third quarter of 1998, consisting of a 7.5 percent increase in unit volume and a
3.1 percent decrease in average selling prices. For the first nine months of
1999 net retail sales increased 3.9 percent from the same period of 1998,
consisting of a 5.7 percent increase in unit volume and a 1.7 percent decrease
in average selling prices. Sales percent increases (decreases) are as follows:
<TABLE>
<CAPTION>
Third Quarter First Nine Months
----------------- -------------------
1999 1998 1999 1998
-------- ------- --------- --------
<S> <C> <C> <C> <C>
Net Retail Sales 4.1% 1.2% 3.9% 2.5%
Same-Store Sales 0.8% (1.9%) 0.4% (0.1%)
</TABLE>
COST OF SALES
Cost of sales includes cost of merchandise sold, buying and occupancy costs.
Cost of sales was $455.4 million in the 1999 third quarter, up 3.3% from $441.0
million in the 1998 third quarter. For the first nine months of 1999, cost of
sales was $1.438 billion, a 3.1% increase from $1.395 billion in the 1998
period.
For the third quarter and first nine months, cost of sales, as a percent of net
retail sales, declined 0.6 percent to 68.0 percent and 0.5 percent to 67.6
percent, respectively. Gross margin improvement in the third quarter and the
first nine months of the year was primarily due to lower sourcing costs, control
of freight costs, a lower markdown rate, and reduced damages and shrink.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $156.8 million in the 1999
third quarter, up 6.4 percent from $147.4 million in the 1998 third quarter. For
the first nine months of 1999, selling, general and administrative expenses were
$486.5 million compared with $457.7 million in the 1998 period, a 6.3 percent
increase.
As a percent of net retail sales, selling, general and administrative expenses
were 23.4 percent during the third quarter of 1999 compared with 22.9 percent in
the third quarter of 1998. For the first nine months of 1999, selling, general
and administrative expenses as a percent of net retail sales were 22.9 percent
in 1999 compared with 22.4 percent in 1998.
The increase during the third quarter and the first nine months of 1999 was due
primarily to an increase in stores payroll due to higher hourly wage rates, and
higher advertising expenditures.
CASH FLOW
Cash flow from operations during the nine months ended October 30, 1999, was
$203.6 million. This figure represented 9.6 percent of net retail sales during
the first nine months of 1999 compared with 9.4 percent during the first nine
months 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.
7
<PAGE> 8
CAPITAL EXPENDITURES
Capital expenditures during the first nine months of 1999 totaled $71.7 million
with an additional $34.3 million estimated to be incurred during the remainder
of fiscal year 1999. The Company anticipates that cash flow from operations and
the Company's existing credit facility should be sufficient to finance projected
capital expenditures.
FINANCING ACTIVITIES
During the third quarter of 1999, the Company acquired 0.8 million shares of its
common stock for an aggregate price of approximately $40 million. For the first
nine months of the year, the Company has acquired 2.1 million shares for an
aggregate price of approximately $105 million.
In June 1999, the Company completed a $55.0 million dollar financing through a
private placement of unsecured notes issued by a wholly-owned subsidiary in
five and ten year maturities. Principal payments on $15.0 million of the ten
year notes begin in June 2003. Proceeds from the financing are intended to
be used for general corporate purposes including the funding of a portion of
the company's stock repurchase program.
AVAILABLE CREDIT
The Company has in place a $200.0 million unsecured revolving credit facility
with a bank syndication group. While no amounts had been drawn against the
agreement at October 30, 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:
<TABLE>
<CAPTION>
Oct. 30, Oct. 31, Jan. 30,
1999 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Current Ratio 2.8 2.3 2.5
Debt-to-Capitalization Ratio* 14.9% 0.9% 9.5%
Fixed Charge Coverage** 3.8x 4.1x 4.1x
</TABLE>
* 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, long-term debt, 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 57.3%, 53.7% 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.
8
<PAGE> 9
STORE ACTIVITY
At the end of the third quarter of 1999, the Company operated 4,449 Payless
ShoeSource stores in 50 states, Canada, the District of Columbia, Guam, Saipan,
Puerto Rico and the U.S. Virgin Islands and 220 Parade of Shoes stores. The
following table presents the change in store count for the third quarter and
first nine months of 1999 and 1998.
<TABLE>
<CAPTION>
PAYLESS SHOESOURCE First
Third Quarter Nine Months
--------------- -------------
1999 1998 1999 1998
-------- ------ ------ ------
<S> <C> <C> <C> <C>
Beginning of quarter/year 4,413 4,293 4,357 4,256
Stores opened 69 71 196 178
Stores closed (33) (37) (104) (107)
----- ----- ----- -----
Ending store count 4,449 4,327 4,449 4,327
===== ===== ===== =====
<CAPTION>
PARADE OF SHOES First
Third Quarter Nine Months
------------- -------------
1999 1998 1999 1998
------ ------ ----- -------
<S> <C> <C> <C> <C>
Beginning of quarter/year 215 211 213 175
Stores opened 7 10 11 51
Stores closed (2) (9) (4) (14)
----- ----- ----- -----
Ending store count 220 212 220 212
===== ===== ===== =====
</TABLE>
E-COMMERCE
On May 27, 1999 the Company launched its online store, Payless.com (sm). 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. In late September, Payless announced an
E-Commerce agreement with America Online, Inc. to sell footwear through AOL's
new Shop@AOL marketplace, making Payless.com (sm) an anchor tenant for this
online shopping destination.
SHOPKO
Effective July 23, 1999, the Company entered into an agreement with ShopKo
Stores, Inc. ("ShopKo") under which Payless will operate the shoe departments in
the ShopKo stores. In early October the Company opened its first Payless
ShoeSource shoe departments in ShopKo stores. The Company is now operating in 9
ShopKo stores and intends to be open in 13 ShopKo stores by the end of the year.
Payless expects to be operating in all ShopKo stores by the fall of 2000. There
are currently 160 ShopKo locations. These shoe departments will offer the same
footwear and accessories available in Payless ShoeSource stores. The Company
estimates that these Payless ShoeSource shoe departments will produce
approximately 50% of the revenue of a typical Payless ShoeSource store.
PARADE OF SHOES UPDATE
In light of the performance of Parade of Shoes during the first nine months of
1999, the Company now plans to add approximately ten new Parade of Shoes stores
by the end of the fiscal year and anticipates adding another 50 stores in fiscal
year 2000.
9
<PAGE> 10
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 provided 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 modified 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 has been completed. The consulting
firm has completed its work and the Company completed its remediation and
testing of its internally engineered computer systems using internal resources.
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 has tested all significant newly
purchased computer hardware and software systems in an effort to ensure their
Year 2000 compliance.
BUSINESS PARTNERS. The Company has communicated with most of its suppliers,
banks and other business partners or vendors seeking assurances that 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.
10
<PAGE> 11
The Company has compiled detailed information regarding all of its significant
business partners. The Company has, where appropriate, reviewed such significant
partners throughout 1999 to confirm their level of preparedness for the Year
2000 and has made 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-computing electronic equipment
(non-information technology) throughout the enterprise to determine whether it
is date sensitive. Where appropriate, the Company has sought and received
contractual protections or made contingency plans in an effort to minimize any
adverse effect on any such equipment due to the Year 2000. The Company has fully
tested critical non-computer equipment.
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.
To date, the Company has expended nearly all of its planned Year 2000
expenditures, although this 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 been ascertained by the Company.
11
<PAGE> 12
The Company's Year 2000 program has identified and seeks to minimize this risk
and included testing of 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. The Company's Year 2000 program also includes a contingency
plan which attempts to minimize any disruption to the Company's operations in
the event of a Year 2000 failure.
The Company's plans are designed 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 was a function of the risks
ascertained through the Company's investigative efforts. The Company's
contingency planning has been completed.
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 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.
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 on acceptable terms; the ability to achieve expected advantages of
operating shoe departments in specialty discount stores, the ability to hire,
train and retain associates; and general economic, business and social
conditions.
12
<PAGE> 13
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.
13
<PAGE> 14
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 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Number Description
------- ------------
10.1 Consulting Agreement between the Company and Richard A.
Jolosky*
11.1 Computation of Net Earnings Per Share*
27 Financial Data Schedule*
* Filed herewith
(b) Reports on Form 8-K
NONE
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: 12/8/99 /s/ Steven J. Douglass
------- ------------------------------
Steven J. Douglass
Chairman and
Chief Executive Officer
Date: 12/8/99 /s/ Ullrich E. Porzig
------- ------------------------------
Ullrich E. Porzig
Senior Vice President and
Chief Financial Officer
15
<PAGE> 16
Exhibit Index
Number Description
------ -----------
10.1 Consulting Agreement between the Company and Richard A.
Jolosky
11.1 Computation of Net Earnings Per Share
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
CONSULTING CONTRACT
This Consulting Contract made and entered into as of the 30th day of
September, 1999 by and between Payless ShoeSource, Inc., ("Payless") a Delaware
corporation and Richard A. Jolosky ("Consultant).
WHEREAS, Payless and Consultant desire that Consultant serve as a
consultant to Payless for the fees and upon and subject to the terms and
provisions hereinafter set forth;
In consideration of the mutual promises and agreements hereinafter set
forth, it is hereby agreed by and between Payless and Consultant as follows:
1.(a)The term of the Consulting Contract shall be from October 1, 1999
to September 30, 2002. Consultant covenants and agrees that he will, when and as
requested by Payless (subject to Section 1(c), below), from time to time during
the term of this Consulting Contract, and at such place or places as Payless may
reasonably request, render and furnish consulting services relating to the
conduct and operation of Payless' affairs as shall be requested by the proper
officers of Payless.
(b) In rendering the consulting services provided for herein,
Consultant shall make available to Payless such personal expertise, know-how and
assistance as Payless may reasonably request. The parties recognize and agree
that Consultant's services are of a special and unique character. Consultant's
obligations hereunder are obligations of the Consultant alone, and may not be
assigned to or performed by others.
(c) Consultant and Payless desire to permit Consultant maximum
flexibility in terms of the timing of his work, consistent with Payless' need
for his consulting services. In addition, however, Consultant and Payless
recognize that, in many instances, Payless must be able to count on receiving
such services in a timely fashion. Therefore, Consultant and Payless shall both
seek to be as reasonable as possible in exercising their respective rights in
carrying out their respective duties hereunder, and shall communicate with each
other as far in advance as reasonably practicable concerning the scheduling of
consulting services.
(d) Consultant shall render consulting services during the term of this
Consulting Contract as follows:
1) for up to 120 days during the period
commencing October 1, 1999, and ending
September 30, 2000; plus
2) for up to 80 days during the period
commencing October 1, 2000, and ending
September 30, 2001; plus
3) for up to 40 days during the period
commencing October 1, 2001, and ending
September 30, 2002
For purposes of this Consulting Contract, Consultant shall be deemed to
have furnished and rendered consulting services under this Consulting Contract
for a "day" for each calendar day or portion thereof on which Consultant
provides not less than three hours of consulting services under this Consulting
Contract; provided, however, that in no event shall any single calendar day be
counted as more than one "day" for purposes of calculating fees payable to
Consultant under this Consulting Contract. In the event that Consultant provides
less than three hours of services in any calendar day (a
<PAGE> 2
"short-hour day") under this Consulting Contract, then Consultant shall be
deemed to have furnished and rendered consulting services under this Consulting
Contract for a "day" for each group of short-hour days in which the aggregate
of hours or consulting services rendered is not less than seven hours; provided,
however, that in no event shall any one short-hour day be included in more than
one such group of short-hour days.
2.(a) Payless agrees to pay Consultant consulting fees (before taxes)
for the performance of its obligations under this Consulting Contract, to be
paid on or about the first week after the close of the fiscal quarter as
follows:
1) for the period commencing October 1, 1999,
and ending September 30, 2000, the amount
of $250,000 (before taxes), payable in
equal quarterly installments;
2) for the period commencing October 1, 2000,
and ending September 30, 2001, the amount
of $166,700 (before taxes), payable in
equal quarterly installments;
3) for the period commencing October 1, 2001,
and ending September 30, 2002, the amount
of $83,300 (before taxes), payable in equal
quarterly installments.
(b) In the event that, during the term of this Consulting Contract,
Consultant renders and furnishes consulting services in excess of the number of
days described in Section 1(d) of this Consulting Contract, then Payless agrees
to pay Consultant supplementary consulting fees, in addition to the consulting
fees described in Section 2 (a) of this Consulting Contract, at a rate of $2,100
per day for each day that Consultant so renders and furnishes such excess
consulting services. In the event that Payless becomes obligated to pay
supplementary consulting fees under this Section 2(b) Payless agrees to pay such
supplementary consulting fees accrued on or about the first week after the close
of the fiscal quarter.
(c) Payless shall reimburse Consultant for all reasonable ordinary and
necessary business expenses incurred directly in the rendering of consulting
services hereunder, including, but not by way of limitation, expenses for such
matters as transportation, travel, entertainment, long distance telephone calls
and other necessary and customary expenses on the same terms as were offered
while Consultant was employed as Vice Chairman by Payless. Payment of such
expenses during the term of this Consulting Contract shall be made promptly upon
presentation of supporting documents comparable to those required to be
submitted by employees of Payless. If business is conducted by Consultant on any
trip for Payless and for a non-Payless client of consultant, then such trip
costs will be allocated equally among all of the clients so served.
(d) It is agreed and understood that nothing in this Section 2 or
elsewhere in this Consulting Contract shall be deemed or construed to create or
continue an employer-employee relationship between Consultant and Payless, it
being agreed that such employer-employee relationship between Consultant Richard
A. Jolosky terminated on or about September 30, 1999.
3.(a) Consultant covenants and agrees that during the term of this
Consulting Contract, and for a period of two years from the earlier of September
30, 2002 or the actual termination of this Consulting Contract, he shall not:
<PAGE> 3
(i) either alone or in concert with others, directly or
indirectly, own, be a partner in, be a member of,
operate, be employed by, or act as an advisor,
consultant, agent, officer, director, or independent
contractor for, or otherwise have an interest in, a
Competing Business;
(ii) solicit for employment, hire or offer employment to,
or disclose information to or otherwise aid or assist
any other person or entity other than Payless in
soliciting for employment, hiring or offering
employment to, any employee of Payless, or
(iii) take any action which is intended to harm Payless or
its reputation, which Payless reasonably concludes
could lead to unwanted or unfavorable publicity to
Payless;
unless Consultant (i) shall first have written to the Chairman of Payless and
shall have fully disclosed in advance of such activity both (1) the identity of
such competing business and (2) the nature of the consulting or similar services
to be rendered and (ii) shall first have secured the prior written approval of
the Chairman to Consultant's rendering such consulting or other similar
services, which prior written approval shall not be unreasonably withheld; but
except to the extent limited as aforesaid, and as hereinafter provided,
Consultant's activities shall not be otherwise restricted by its Consulting
Contract.
(b) The term "Competing Business" shall include, but not be limited to:
(i)any retail business with gross sales or revenue in the prior fiscal year
of more than $25 million (or which is a subsidiary, affiliate or joint venture
partner of a business with gross sales or revenue in the prior fiscal year of
more than $25 million) which sells footwear at retail to consumers at price
points competitive, or likely to be competitive with Payless (e.g. including,
without limitation, Wal-Mart, K-Mart, Target, Bradlee's, Ames, Mervyn's,
Pic-N-Pay, Foot Star, Inc., Edison, Aldo, Genesco, Venator, Famous Footwear,
Shoe Carnival, Nine West, Kohl's, Liz Claiborne, Big Five, J.C. Penney, and
Sears)within 20 miles of any Payless store or the store of any wholesale
customer of Payless in the United States, or anywhere in any foreign country in
which Payless has retail stores, franchisees or wholesale customers;
(ii)any franchising or wholesaling business with gross sales or revenue in
the prior fiscal year of more than $25 million (or which is a subsidiary,
affiliate or joint venture partner of a business with gross sales or revenue in
the prior fiscal year of more than $25 million) which sells footwear at
wholesale to franchisees, retailers or other footwear distributors located
within 20 miles of any Payless store or the store of any wholesale customer of
Payless in the United States, or anywhere in any foreign country in which
Payless has retail stores, franchisees or wholesale customers;
(iii)any footwear manufacturing business with gross sales or revenue in the
prior fiscal year of more than $25 million (or which is a subsidiary, affiliate
or joint venture partner of a business with gross sales or revenue in the prior
fiscal year of more than $25 million) which sells footwear to retailers or other
footwear distributors located within 20 miles of any Payless store or the store
of any wholesale customer of Payless in the United States, or anywhere in any
foreign country in which Payless has retail stores, franchisees or wholesale
customers; (e.g. including, without limitation, Nine
<PAGE> 4
West. Dexter, Stride Rite, Liz Claiborne, Wolverine Worldwide, Timberland, Nike,
Reebok, K-Swiss, Keds and Adidas): or
(iv)any business which provides buying office services to any store or
group of stores or businesses referred to in Paragraph 3.(b) (i), 3.(b) (ii) and
3.(b) (iii).
(c) The background of the non-compete restriction is as follows:
(i) Payless is one of the leading retail companies in the United States,
with self-service shoe stores throughout the United States, Puerto
Rico, U.S.Virgin Islands, Guam, Saipan and Canada; and
(ii) In connection with its business, Payless has expended a great deal of
time, money and effort to develop and maintain its confidential,
proprietary and trade secret information; this information, if
misused or disclosed, could be very harmful to Payless' business and
its competitive position in the marketplace; and
(iii) Consultant desires to contract with Payless, to be given access to
confidential and proprietary information of Payless necessary for
Consultant to perform the Consulting Contract, but which Payless
would not make available to Consultant but for Consultant's signing
and agreeing to abide by the terms of this Consulting Contract with
Payless; and
(iv) Consultant recognizes and acknowledges that the Consulting Contract
with Payless provides Consultant with access to Payless' confidential
and proprietary trade secret information and other confidential
business information; and
(v) long-term customer and supplier relationships often can be difficult
to develop and require a significant investment of time, effort and
expense; and
(vi) Consultant recognizes and acknowledges that if Consultant's contract
with Payless were to cease, Payless needs certain protections in
order to ensure that Consultant does not appropriate and use any
confidential information entrusted to Consultant during the course of
this Consulting Contract by Payless or take any other action which
could result in a loss of Payless' goodwill that was generated on
Payless' behalf and at its expense, and, more generally, to prevent
Consultant from having an unfair competitive advantage over Payless.
4. Payless and Consultant shall each be entitled to pursue all legal and
equitable rights and remedies to secure performance of the obligations and
duties of the other under this Consulting Contract, and enforcement of one or
more of such rights and remedies shall in no way preclude Payless or Consultant
from pursuing, at the same time or subsequently, any and all other rights and
remedies available to each of them. In no event may either party (the
"terminating party") terminate this Consulting Contract or Consultant's
engagement hereunder on account of the breach of this Consulting Contract by the
other party unless the terminating party gives notice to the other party of the
grounds for claiming such breach and such grounds continue for ten days after
the other party receives such notice. The giving of one such notice on one or
more grounds shall not preclude the giving of a subsequent notice or notices. In
any legal or other proceeding with respect to any such breach of this Consulting
Contract, the only basis on which the terminating party may establish such
stated breach
<PAGE> 5
will be the grounds stated in any such notice or subsequent notice or notices.
5. Whenever it is provided herein that notice, demand, request or other
communication shall or may be given to or served upon either of the parties by
the other, and whenever either of the parties shall desire to give or serve upon
the other any notice, demand, request or other communication, each such notice,
demand, request or other communication shall be in writing and shall not be
effective for any purposes unless the same shall be given or served by mailing
the same or having the same delivered by an independent courier, addressed as
follows:
(a) If to Payless:
Payless ShoeSource, Inc.
3231 SE 6th Street
Topeka, Kansas 66607
Attention: Chairman
or at such other address or addresses as Payless may from time
to time designate by notice given to Consultant.
(b) If to Consultant: With a copy to:
Richard A. Jolosky Robert J. Rosepink
1921 Quail Run Rosepink & Estes
Lawrence, Kansas 66047 7373 North Scottsdale Road
Ste D102
Scottsdale, Arizona 85253
or at such other address or addresses as Payless Consultant
may from time to time designate by notice given to Payless
Consultant.
Every notice, demand, request or other communication under this Consulting
Contract shall be given or served by (i) depositing the same in the United
States mail, first-class, registered or certified, postage paid, return receipt
requested, or (ii) depositing the same with an independent courier, expenses
prepaid, return receipt requested, and the postal receipt or courier receipt
showing delivery to Payless or to Consultant, as the case may be, of any such
notice, demand, request or other communication addressed and delivered in
accordance with this Section 5 shall be deemed conclusive evidence that (i) such
notice, demand, request or other communication shall have been given or served
as of the date so deposited in the United States mail or with such independent
courier and (ii) such addressee shall have received the same; such notice,
demand, request or other communication shall be effective as of the time of
receipt by the addressee.
6. (a) Consultant will not, at any time, directly or indirectly, use or
disclose any of Payless' Confidential Information except as authorized
and within the scope of the Consulting Contract with Payless.
(b) At Payless' request and/or termination of this Consulting Contract
with Payless, Consultant
<PAGE> 6
will return to Payless all documents, records, notebooks, computer
diskettes and tapes and anything else containing Payless' Confidential
Information, including all copies thereof, as well as any other Payless
property, in Consultant's possession, custody or control. Consultant
will also delete from Consultant's own computer or other electronic
storage medium, any of Payless' proprietary or Confidential
Information. Not later than 20 days after the Consulting Contract is
terminated, Consultant will certify in writing to Payless that
Consultant has complied with these obligations.
(c) During the terms of this Consulting Contract with Payless and
thereafter, Consultant will (i) notify and provide Payless immediately
with the details of any unauthorized possession, use or knowledge of
any of Payless' Confidential Information, (ii) assist in preventing any
reoccurrence of this possession, use or knowledge, and (iii) cooperate
with Payless in any litigation or other action to protect or retrieve
Payless' Confidential information.
(d) "Confidential Information" means any non-public information
pertaining to Payless' business. Confidential Information includes
information disclosed by Payless to Consultant, and information
developed or learned by Consultant during the course of or as a result
of the Consulting Contract with Payless, which Consultant also agrees
is Payless' property. Consultant further agrees that any item of
intellectual or artistic property generated or prepared by Consultant,
for Consultant or with others, in connection with this Consulting
Contract with Payless is Payless' sole property and shall remain so
unless Payless otherwise specifically agrees in writing. Confidential
Information includes, without limitation, information and documents
concerning Payless' processes; suppliers (including Payless' terms,
conditions and other business arrangements with suppliers); supplier
and customer lists; advertising, marketing plans and strategies; profit
margins; seasonal plans, goals, objectives and projections,
compilations, analysis and projections regarding Payless' divisions,
businesses, product segments, product lines, suppliers, sales and
expenses; files; trade secrets and patent applications (prior to their
being public); salary, staffing and employment information (including
information about performance of other executives); and "know-how,"
techniques or any technical information not of a published nature
relating, for example, to how Payless conducts it business.
(e) Consultant agrees that Consultant will not disclose to Payless or
use, or induce Payless to use, any proprietary information, trade
secret or confidential business information of any other person or
entity, including any previous employer of Consultant. Consultant also
represents that Consultant has returned all property, proprietary
information, trade secret and confidential business information
belonging to any prior employer.
7. Consultant acknowledges and agrees that Consultant understands the
restrictions in paragraph 3 above, that they are reasonable and that such
restrictions are enforceable in view of the background for the non-compete
restriction set forth in Section 3(c), and in view of, among other things,
(i) the market in which Payless operates it business;
(ii) the confidential information to which Consultant has access;
(iii) Consultant's training and background, which are such that
neither Payless nor Consultant believe that the restraint will pose
an undue hardship on the Consultant;
<PAGE> 7
(iv) the fact that a Competing Business could benefit greatly if it
were to obtain Payless' confidential information;
(v) the fact that Payless would not have adequate protection if
Consultant was permitted to work for any Competing Business
since Payless would be unable to verify whether its
confidential information was being disclosed or misused;
(vi) The limited duration of, the limited scope of, and the limited
activities prohibited by, the restrictions in paragraph 3
above; and
(vii) Payless' legitimate interests in protecting its confidential
information, goodwill and relationships
Furthermore, Payless and Consultant hereby expressly agree that should any
court of competent jurisdiction determine that any provision of this Consulting
Contract is, but for the provisions of this Section 7, illegal or void as
against public policy, for any reason, then such provision shall automatically
be amended to the extent (but only to the extent) necessary to make it
sufficiently narrow in scope, time and geographic area that such court shall
determine it not to be illegal or void as against public policy. If any such
provision cannot be amended to the extent provided in the preceding sentence,
then such provision shall be severed from this Consulting Contract. In either
event, all other remaining terms and provisions shall remain in full force and
effect.
8. Payless Work-Product. Consultant agrees to disclose fully to Payless,
and hereby assigns and transfers to Payless, and agrees to execute any
additional documentation Payless may reasonably request to evidence the
assignment and transfer, immediately upon the conception, development, making or
acquisition thereof, the right, title, and interest in and to any and all
inventions, discoveries, improvements, innovations, and/or designs (the "Work
Product") conceived, discovered, developed, acquired or secured by Consultant,
solely or jointly with others or otherwise, together with all associated U.S.
and foreign intellectual property rights (i.e. patents, copyrights, trademarks
or trade secrets) either:
(a) during the period of this Consulting Contract, if such Work
Product is related directly to or indirectly, to the business
of, or to the research or development work of Payless;
(b) with the use of the time, materials, or facilities of Payless;
or
(c) within six (6) months after termination of this Consulting
Contract if conceived as a result of and is attributable to
work done during such employment and relates to Work Product
within the scope of the business of Payless, together with
rights to all intellectual property rights which may be
granted thereon.
Upon discovery, development or acquisition of any such Work Product, Consultant
shall notify Payless and shall execute and deliver to Payless, without further
compensation, such documents prepared by Payless as may be reasonable or
necessary to prepare or prosecute applications for rights in such Work Product
and to assign and transfer to Payless Consultant's right, title and interest in
and to such Work Product and intellectual property rights thereof. Consultant
acknowledges that Consultant has carefully read and considered the provisions of
this paragraph and, having done so, agrees that the
<PAGE> 8
restrictions set forth herein are fair and reasonable and are reasonably
required for the protection of the interests of Payless, its officers, directors
and other associates.
9. This Consulting Contract shall be governed by and construed in
accordance with the laws of the State of Kansas. The appropriate state or
federal courts of the State of Kansas shall have exclusive jurisdiction over the
parties hereto and each party hereby submits to the personal jurisdiction of
said courts of the State of Kansas otherwise having jurisdiction over the
subject matter.
10. The entire understanding and agreement between the parties with respect
to Consultant's consulting services hereunder has been incorporated into this
Consulting Contract. This Consulting Contract may not be amended, except in
writing, signed by both parties.
11. Consultant's obligations hereunder may not be assigned without the
express written consent of Payless. This Consulting Contract shall be binding
upon Consultant, its successors and assigns and upon Payless, its successors and
assigns.
IN WITNESS THEREOF, Payless and Consultant have executed this Consulting
Contract in two counterparts, each of which shall be deemed an original, on the
dates indicated below, but effective as of the day and year first above written.
Payless ShoeSource, Inc.
8/19/99
- ------------------
Date By /s/ Steven J. Douglass
-----------------------------
Title: Chairman
Richard A. Jolosky
9/16/99
- -------------------
Date By /s/ Richard A. Jolosky
-----------------------------
<PAGE> 1
EXHIBIT 11
PAYLESS SHOESOURCE, INC.
COMPUTATION OF NET EARNINGS PER SHARE
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
-------------------- -------------------
Oct. 30, Oct. 31, Oct. 30, Oct. 31,
(Thousands, except per share) 1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic Computation:
Net earnings $ 34,618 $ 33,688 $121,232 $120,747
Weighted average common
shares outstanding 30,926 34,377 31,591 36,060
-------- -------- -------- --------
Basic earnings per share $ 1.12 $ 0.98 $ 3.84 $ 3.35
======== ======== ======== ========
Diluted Computation:
Net earnings $ 34,618 $ 33,688 $121,232 $120,747
Weighted average common
shares outstanding 30,926 34,377 31,591 36,060
Net effect of dilutive stock
options based on the treasury
stock method 161 111 185 372
-------- -------- -------- --------
Outstanding shares for diluted
earnings per share 31,087 34,488 31,776 36,432
======== ======== ======== ========
Diluted earnings per share $ 1.11 $ 0.98 $ 3.82 $ 3.31
======== ======== ======== ========
</TABLE>
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>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PAYLESS
SHOESOURCE, INC. CONDENSED CONSOLIDATED STATEMENT OF EARNINGS FOR THE 39 WEEKS
ENDED OCTOBER 30, 1999, AND CONDENSED CONSOLIDATED BALANCE SHEET AS OF OCTOBER
30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> OCT-30-1999
<CASH> 210,700<F1>
<SECURITIES> 0<F2>
<RECEIVABLES> 8,700<F3>
<ALLOWANCES> 0<F3>
<INVENTORY> 359,400
<CURRENT-ASSETS> 606,000
<PP&E> 956,900
<DEPRECIATION> 469,200
<TOTAL-ASSETS> 1,118,700
<CURRENT-LIABILITIES> 218,100
<BONDS> 126,300<F4>
0
0
<COMMON> 300
<OTHER-SE> 725,000<F5>
<TOTAL-LIABILITY-AND-EQUITY> 1,118,700
<SALES> 2,126,200<F6>
<TOTAL-REVENUES> 2,126,200
<CGS> 1,438,300
<TOTAL-COSTS> 1,438,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (200)
<INCOME-PRETAX> 201,600
<INCOME-TAX> 80,400
<INCOME-CONTINUING> 121,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121,200
<EPS-BASIC> 3.84<F7>
<EPS-DILUTED> 3.82<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>
