SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended April 30, 2005
Commission File Number 1-14770
PAYLESS SHOESOURCE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE (State or other jurisdiction of incorporation or organization) | 43-1813160 (I.R.S. Employer Identification Number) |
3231 SOUTHEAST SIXTH AVENUE, TOPEKA, KANSAS (Address of principal executive offices) | 66607-2207 (Zip Code) |
(785) 233-5171
(Registrant’s telephone number,
including area code)
(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.
YESþ NOo |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Securities Exchange Act of 1934.
Large Accelerated Filerþ Accelerated Filero Non-Accelerated Filero
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
YESo NOþ |
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
67,387,723 shares as of June 3, 2005
67,387,723 shares as of June 3, 2005
EXPLANATORY NOTE
This Form 10-Q/A amends the Company’s quarterly report on Form 10-Q for the fiscal quarter ended April 30, 2005 (“Original Filing”), initially filed with the Securities and Exchange Commission (“SEC”) on June 8, 2005, to reflect the effects of the restatements described in Notes 2, 14 and 19 to the condensed consolidated financial statements.
This Form 10-Q/A amends and restates Items 1, 2 and 4 of Part I of the Original Filing. Except for the effects of the restatement, the foregoing items have not been updated to reflect other events that occurred after the Original Filing or to modify or update those disclosures affected by subsequent events. In addition, pursuant to the rules of the SEC, Item 6 of Part II of the Original Filing has been amended to contain currently-dated certifications from our Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications of our Chief Executive Officer and Chief Financial Officer are attached to this Form 10-Q/A as Exhibits 31.1, 31.2, 32.1 and 32.2, respectively.
Except for the foregoing amended information, this Form 10-Q/A continues to describe conditions as of the date of the Original Filing, and does not update disclosures contained herein to reflect events that occurred at a later date.
2
PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollars in millions)
(as restated, See Note 2) | ||||||||||||
April 30, | May 1, | January 29, | ||||||||||
2005 | 2004 | 2005 | ||||||||||
ASSETS | ||||||||||||
Current Assets: | ||||||||||||
Cash and cash equivalents | $ | 245.8 | $ | 114.8 | $ | 273.3 | ||||||
Short-term investments | 57.5 | 10.5 | 21.3 | |||||||||
Restricted cash | 2.0 | 33.5 | 3.0 | |||||||||
Inventories | 383.9 | 422.2 | 345.3 | |||||||||
Current deferred income taxes | 20.9 | 16.7 | 21.9 | |||||||||
Other current assets | 56.9 | 64.9 | 56.6 | |||||||||
Current assets of discontinued operations | 4.8 | 27.4 | 8.5 | |||||||||
Total current assets | 771.8 | 690.0 | 729.9 | |||||||||
Property and Equipment: | ||||||||||||
Land | 8.3 | 8.0 | 8.0 | |||||||||
Property, buildings and equipment | 1,189.4 | 1,191.3 | 1,186.9 | |||||||||
Accumulated depreciation and amortization | (785.8 | ) | (777.4 | ) | (772.6 | ) | ||||||
Property and equipment, net | 411.9 | 421.9 | 422.3 | |||||||||
Favorable leases, net | 20.8 | 26.9 | 21.7 | |||||||||
Deferred income taxes | 35.6 | 33.7 | 36.4 | |||||||||
Goodwill | 5.9 | 5.9 | 5.9 | |||||||||
Other assets | 23.1 | 21.7 | 23.5 | |||||||||
Noncurrent assets of discontinued operations | — | 28.2 | 0.1 | |||||||||
Total Assets | $ | 1,269.1 | $ | 1,228.3 | $ | 1,239.8 | ||||||
LIABILITIES AND SHAREOWNERS’ EQUITY | ||||||||||||
Current Liabilities: | ||||||||||||
Current maturities of debt | $ | 1.5 | $ | 0.9 | $ | 0.3 | ||||||
Notes payable | 2.0 | 33.5 | 3.0 | |||||||||
Accounts payable | 169.8 | 126.5 | 160.3 | |||||||||
Accrued expenses | 158.2 | 140.1 | 159.7 | |||||||||
Current liabilities of discontinued operations | 5.0 | 6.0 | 15.0 | |||||||||
Total current liabilities | 336.5 | 307.0 | 338.3 | |||||||||
Long-term debt | 204.3 | 202.6 | 204.3 | |||||||||
Other liabilities | 95.8 | 85.8 | 93.6 | |||||||||
Noncurrent liabilities of discontinued operations | — | 4.7 | — | |||||||||
Minority interest | 8.6 | 13.1 | 8.6 | |||||||||
Commitments and contingencies | ||||||||||||
Total shareowners’ equity | 623.9 | 615.1 | 595.0 | |||||||||
Total Liabilities and Shareowners’ Equity | $ | 1,269.1 | $ | 1,228.3 | $ | 1,239.8 | ||||||
See Notes to Condensed Consolidated Financial Statements.
3
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(dollars and shares in millions, except per share)
13 Weeks Ended | ||||||||
April 30, 2005 | May 1, 2004 | |||||||
Net sales | $ | 695.2 | $ | 692.3 | ||||
Cost of sales | 450.8 | 475.5 | ||||||
Gross margin | 244.4 | 216.8 | ||||||
Selling, general and administrative expenses | 196.7 | 188.4 | ||||||
Restructuring charges | 0.7 | — | ||||||
Operating profit from continuing operations | 47.0 | 28.4 | ||||||
Interest expense | 4.9 | 5.4 | ||||||
Interest income | (1.7 | ) | (1.0 | ) | ||||
Earnings from continuing operations before income taxes and minority interest | 43.8 | 24.0 | ||||||
Provision for income taxes | 12.5 | 8.0 | ||||||
Earnings from continuing operations before minority interest | 31.3 | 16.0 | ||||||
Minority interest, net of income taxes | 0.4 | 1.9 | ||||||
Net earnings from continuing operations | 31.7 | 17.9 | ||||||
Loss from discontinued operations, net of income taxes and minority interest | (1.5 | ) | (3.8 | ) | ||||
Net earnings | $ | 30.2 | $ | 14.1 | ||||
Diluted earnings per share | ||||||||
Earnings from continuing operations | $ | 0.47 | $ | 0.26 | ||||
Loss from discontinued operations | (0.02 | ) | (0.05 | ) | ||||
Diluted earnings per share | $ | 0.45 | $ | 0.21 | ||||
Basic earnings per share | ||||||||
Earnings from continuing operations | $ | 0.47 | $ | 0.26 | ||||
Loss from discontinued operations | (0.02 | ) | (0.05 | ) | ||||
Basic earnings per share | $ | 0.45 | $ | 0.21 | ||||
Diluted Weighted Average Shares Outstanding | 67.2 | 68.0 | ||||||
Basic Weighted Average Shares Outstanding | 67.1 | 67.9 | ||||||
See Notes to Condensed Consolidated Financial Statements.
4
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in millions)
(as restated, see Note 2) | ||||||||
13 Weeks Ended | 13 Weeks Ended | |||||||
April 30, 2005 | May 1, 2004 | |||||||
Operating Activities: | ||||||||
Net earnings | $ | 30.2 | $ | 14.1 | ||||
Loss from discontinued operation, net of income taxes and minority interest | (1.5 | ) | (3.8 | ) | ||||
Net earnings from continuing operations | 31.7 | 17.9 | ||||||
Adjustments for non-cash items included in net earnings: | ||||||||
Loss on impairment of and disposal of assets | 2.4 | 2.8 | ||||||
Depreciation and amortization | 23.0 | 24.6 | ||||||
Amortization of deferred financing costs | 0.3 | 0.2 | ||||||
Amortization of unearned restricted stock | 0.2 | 0.2 | ||||||
Deferred income taxes | 1.7 | (0.8 | ) | |||||
Minority interest, net of income taxes | (0.4 | ) | (1.9 | ) | ||||
Changes in working capital: | ||||||||
Inventories | (38.7 | ) | (48.0 | ) | ||||
Other current assets | (1.2 | ) | (4.1 | ) | ||||
Accounts payable | 10.7 | (3.2 | ) | |||||
Accrued expenses | 4.1 | 17.6 | ||||||
Other assets and liabilities, net | 2.4 | 6.9 | ||||||
Net cash used in discontinued operations | (7.7 | ) | (4.1 | ) | ||||
Cash flow provided by operating activities | 28.5 | 8.1 | ||||||
Investing Activities: | ||||||||
Capital expenditures | (21.8 | ) | (27.3 | ) | ||||
Restricted cash | 1.0 | — | ||||||
Purchases of investments | (47.7 | ) | (10.5 | ) | ||||
Sales and maturities of investments | 11.5 | 10.0 | ||||||
Cash used in discontinued operations | — | (1.4 | ) | |||||
Cash flow used in investing activities | (57.0 | ) | (29.2 | ) | ||||
Financing Activities: | ||||||||
Repayment of notes payable | (1.0 | ) | — | |||||
Issuance of debt | 1.2 | — | ||||||
Payment of deferred financing costs | — | (0.1 | ) | |||||
Repayment of debt | — | (0.3 | ) | |||||
Issuances of common stock | 0.7 | 0.3 | ||||||
Purchases of common stock | (2.1 | ) | (0.7 | ) | ||||
Contributions by minority owners | 0.2 | — | ||||||
Cash flow used in financing activities | (1.0 | ) | (0.8 | ) | ||||
Effect of exchange rate changes on cash | 2.0 | — | ||||||
Increase (decrease) in cash and cash equivalents | (27.5 | ) | (21.9 | ) | ||||
Cash and cash equivalents, beginning of year | 273.3 | 136.7 | ||||||
Cash and cash equivalents, end of period | $ | 245.8 | $ | 114.8 | ||||
Supplemental cash flow information: | ||||||||
Interest paid | $ | 9.3 | $ | 9.8 | ||||
Income taxes paid (received) | $ | 5.3 | $ | (0.3 | ) | |||
Non-cash investing and operating activities: | ||||||||
Accrued capital additions | $ | 8.4 | $ | 13.4 |
See Notes to Condensed Consolidated Financial Statements.
5
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. INTERIM RESULTS. These unaudited Condensed Consolidated Financial Statements of Payless ShoeSource, Inc., a Delaware corporation, and subsidiaries (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 the Consolidated Financial Statements (pages 36-66) in the Company’s 2004 Annual Report on Form 10-K. 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 reporting period for operations in the Central American and South American Regions is a December 31 year-end. The Central American Region is composed of operations in Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Panama and Trinidad & Tobago. The South American Region is composed of operations in Ecuador. The Company also has a 60-percent ownership interest in a Japanese joint venture. Japanese operations are reported on a December 31 year-end. The effects of the one-month lag for the operations in the Central and South American Regions and Japan are not significant to the Company’s financial position and results of operations. The results for the thirteen week period ended April 30, 2005, are not necessarily indicative of the results that may be expected for the entire fiscal year ending January 28, 2006.
NOTE 2. RESTATEMENT. Subsequent to the issuance of the Company’s interim condensed consolidated financial statements for the quarterly period ended April 30, 2005, the Company determined that certain investments with original maturities more than three months were misclassified as cash and cash equivalents on the condensed consolidated balance sheets. The investments should have been classified as short-term investments (see Note 3).
In addition to the above, the Company has made the following corrections to its condensed consolidated statements of cash flows:
• | Payments for capital expenditures have been corrected to exclude non-cash accrued capital additions. | ||
• | Prior period discontinued operations cash flow activity has been reclassified to identify cash flows from discontinued operations within each category. | ||
• | Changes in restricted cash were reclassified from financing activities to investing activities. |
The errors did not affect our consolidated statements of earnings or statements of shareowners’ equity for any period previously reported and did not affect compliance with debt covenants.
The effect of the above corrections on the condensed consolidated balance sheets as of April 30, 2005, May 1, 2004, and January 29, 2005, and the condensed consolidated statements of cash flows for the 13 weeks ended April 30, 2005 and May 1, 2004, are indicated below.
Condensed Consolidated Balance Sheets | ||||||||||||
As previously | ||||||||||||
(dollars in millions) | reported | Adjustment | As restated | |||||||||
April 30, 2005: | ||||||||||||
Cash and cash equivalents | $ | 303.3 | $ | (57.5 | ) | $ | 245.8 | |||||
Short-term investments | $ | — | $ | 57.5 | $ | 57.5 | ||||||
May 1, 2004: | ||||||||||||
Cash and cash equivalents | $ | 121.3 | $ | (6.5 | ) | $ | 114.8 | |||||
Short-term investments | $ | 4.0 | $ | 6.5 | $ | 10.5 | ||||||
January 29, 2005: | ||||||||||||
Cash and cash equivalents | $ | 289.6 | $ | (16.3 | ) | $ | 273.3 | |||||
Short-term investments | $ | 5.0 | $ | 16.3 | $ | 21.3 |
6
Condensed Consolidated Statements of Cash Flows | ||||||||||||
As previously | ||||||||||||
(dollars in millions) | reported | Adjustment | As restated | |||||||||
Thirteen weeks ended April 30, 2005: | ||||||||||||
Changes in working capital — accounts payable | $ | 8.3 | $ | 2.4 | $ | 10.7 | ||||||
Changes in working capital — accrued expenses | (1.5 | ) | 5.6 | 4.1 | ||||||||
Cash flow provided by operating activities | 20.5 | 8.0 | 28.5 | |||||||||
Capital expenditures | (13.8 | ) | (8.0 | ) | (21.8 | ) | ||||||
Restricted cash | — | 1.0 | 1.0 | |||||||||
Purchases of investments | — | (47.7 | ) | (47.7 | ) | |||||||
Sales and maturities of investments | 5.0 | 6.5 | 11.5 | |||||||||
Cash flow used in investing activities | (8.8 | ) | (48.2 | ) | (57.0 | ) | ||||||
Restricted cash | 1.0 | (1.0 | ) | — | ||||||||
Cash flow used in financing activities | — | (1.0 | ) | (1.0 | ) | |||||||
Increase (decrease) in cash and cash equivalents | 13.7 | (41.2 | ) | (27.5 | ) | |||||||
Cash and cash equivalents, beginning of year | 289.6 | (16.3 | ) | 273.3 | ||||||||
Cash and cash equivalents, end of period | 303.3 | (57.5 | ) | 245.8 | ||||||||
Non-cash investing and operating activities: | ||||||||||||
Accrued capital additions | — | 8.4 | 8.4 |
Condensed Consolidated Statements of Cash Flows | ||||||||||||
As previously | ||||||||||||
(dollars in millions) | reported | Adjustment | As restated | |||||||||
Thirteen weeks ended May 1, 2004: | ||||||||||||
Changes in working capital — accounts payable | $ | (3.0 | ) | $ | (0.2 | ) | $ | (3.2 | ) | |||
Changes in working capital — accrued expenses | 16.3 | 1.3 | 17.6 | |||||||||
Net cash used in discontinued operations | (5.5 | ) | 1.4 | (4.1 | ) | |||||||
Cash flow provided by operating activities | 5.6 | 2.5 | 8.1 | |||||||||
Capital expenditures | (26.2 | ) | (1.1 | ) | (27.3 | ) | ||||||
Purchases of investments | (4.0 | ) | (6.5 | ) | (10.5 | ) | ||||||
Cash used in discontinued operations | — | (1.4 | ) | (1.4 | ) | |||||||
Cash flow used in investing activities | (20.2 | ) | (9.0 | ) | (29.2 | ) | ||||||
Decrease in cash and cash equivalents | (15.4 | ) | (6.5 | ) | (21.9 | ) | ||||||
Cash and cash equivalents, end of period | 121.3 | (6.5 | ) | 114.8 | ||||||||
Non-cash investing and operating activities: | ||||||||||||
Accrued capital additions | — | 13.4 | 13.4 |
NOTE 3. SHORT-TERM INVESTMENTS.
The Company had short-term investments that consisted of the following:
April 30, | May 1, | January 29, | ||||||||||
(dollars in millions) | 2005 | 2004 | 2005 | |||||||||
Held-to-maturity securities: | ||||||||||||
Commercial paper | $ | 30.4 | $ | — | $ | 6.5 | ||||||
Agency securities | 16.0 | — | 3.3 | |||||||||
Certificates of deposit | 8.0 | — | — | |||||||||
Corporate debt securities | 1.8 | 6.5 | 6.5 | |||||||||
Municipal obligations | 1.3 | — | — | |||||||||
Total held-to-maturity securities | 57.5 | 6.5 | 16.3 | |||||||||
Available-for-sale securities: | ||||||||||||
Auction rate securities | — | 4.0 | 5.0 | |||||||||
Total short-term investments | $ | 57.5 | $ | 10.5 | $ | 21.3 | ||||||
7
Held-to-maturity securities are carried at amortized cost. As of April 30, 2005, the maturities for held-to-maturity securities were less than one year. As of April 30, 2005, May 1, 2004, and January 29, 2005, the estimated fair value of each investment approximated its amortized cost and, therefore, there were no significant unrecognized holding gains or losses.
As of May 1, 2004 and January 29, 2005, short-term investments included $4.0 million and $5.0 million, respectively, of auction rate securities. These investments were classified as available-for-sale securities and were recorded at fair value with unrealized gains or losses reported in other comprehensive income (loss). Due to the short term period between the reset dates of interest rates, there were no unrealized or realized gains or losses associated with these securities.
NOTE 4. RESTRUCTURING CHARGES. During the second quarter of 2004, the Company initiated a restructuring plan to build long-term shareowner value. The Company has substantially completed the restructuring, which included: 1) closing all Parade stores, 2) sale of Chile and Peru entities, 3) closing of 264 Payless ShoeSource stores, 4) ceasing all wholesale businesses with no significant growth opportunity and 5) eliminating approximately 200 management and administrative positions.
As part of the restructuring, during the first quarter of 2005 the Company recorded a charge of $3.2 million ($0.7 million relating to continuing operations and $2.5 million relating to discontinued operations) primarily related to contract termination costs in excess of original estimates.
In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the results of operations of Parade, Peru, Chile and 26 Payless ShoeSource stores have been classified as discontinued operations in the Company’s condensed consolidated statements of earnings.
In accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” employee severance, contract termination and other exit costs are recorded at their estimated fair value when they are incurred. Employee severance costs include estimates regarding the amount of severance payments made to certain terminated associates, and contract termination costs include estimates regarding the length of time required to sublease vacant space and expected recovery rates. Actual results could vary from these estimates.
The significant components of the restructuring charge incurred during the first quarter of 2005, and the status of the restructuring-related liabilities, which are included in accrued expenses ($4.9 million) and current liabilities of discontinued operations ($4.7 million) in the condensed consolidated balance sheets, are summarized below:
Accrual | ||||||||||||||||||||||||
Balance as of | 2005 Charges | Accrual Balance as | ||||||||||||||||||||||
Total Charges | January 29, | Costs | Accrual | of | ||||||||||||||||||||
(dollars in millions) | to Date | 2005 | Incurred | Adjustments | Cash Payments | April 30, 2005 | ||||||||||||||||||
Asset impairments and net disposal losses | $ | 34.7 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Employee severance costs | 9.4 | 4.2 | — | 0.1 | (1.8 | ) | 2.5 | |||||||||||||||||
Contract termination costs | 23.5 | 17.6 | — | 2.2 | (12.7 | ) | 7.1 | |||||||||||||||||
Other exit costs | 3.5 | — | 0.9 | — | (0.9 | ) | — | |||||||||||||||||
Total | $ | 71.1 | $ | 21.8 | $ | 0.9 | $ | 2.3 | $ | (15.4 | ) | $ | 9.6 |
The Company expects that the payments of employee severance costs will be substantially completed by June 2007. The remaining contract termination obligations primarily relate to lease obligations for vacant space (certain lease terms extending through November 2013) resulting from the store closings.
The Payless and Parade stores located in Chile, Peru, Puerto Rico and Canada are components of the Payless International Segment. The Parade and Payless stores located in the United States are components of the Payless Domestic segment. The entire 2005 first quarter charge related to the Payless Domestic segment.
8
NOTE 5. DISCONTINUED OPERATIONS. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the results for the thirteen weeks ended April 30, 2005 and May 1, 2004 of operations for Parade, Peru, Chile and 26 Payless closed stores are presented as discontinued operations. The following is a summary of these results by segment:
Thirteen Weeks Ended April 30, 2005
Payless | Payless | Payless | ||||||||||
(dollars in millions) | Domestic | International | Consolidated | |||||||||
Net sales | $ | — | $ | — | $ | — | ||||||
Loss from discontinued operations before income taxes | (2.5 | ) | — | (2.5 | ) | |||||||
Benefit for income taxes | (1.0 | ) | — | (1.0 | ) | |||||||
Loss from discontinued operations, net of income taxes | $ | (1.5 | ) | $ | — | $ | (1.5 | ) | ||||
Thirteen Weeks Ended May 1, 2004
Payless | Payless | Payless | ||||||||||
(dollars in millions) | Domestic | International | Consolidated | |||||||||
Net sales | $ | 27.1 | $ | 2.5 | $ | 29.6 | ||||||
Loss from discontinued operations before income taxes and minority interest | (4.4 | ) | (1.7 | ) | (6.1 | ) | ||||||
(Benefit) provision for income taxes | (1.8 | ) | 0.2 | (1.6 | ) | |||||||
Loss from discontinued operations before minority interest | (2.6 | ) | (1.9 | ) | (4.5 | ) | ||||||
Minority interest, net of income taxes | — | 0.7 | 0.7 | |||||||||
Loss from discontinued operations, net of income taxes and minority interest | $ | (2.6 | ) | $ | (1.2 | ) | $ | (3.8 | ) | |||
Additionally, the condensed consolidated balance sheets include the assets of Parade, Peru, Chile and the 26 Payless closed stores presented as discontinued operations. As of April 30, 2005, May 1, 2004 and January 29, 2005, the current and non-current assets and liabilities of discontinued operations by financial reporting segment were as follows:
April 30, 2005
Payless | Payless | Payless | ||||||||||
(dollars in millions) | Domestic | International | Consolidated | |||||||||
Assets | ||||||||||||
Current assets: | ||||||||||||
Current deferred income taxes | $ | 4.2 | — | $ | 4.2 | |||||||
Other current assets | 0.6 | — | 0.6 | |||||||||
Total current assets of discontinued operations | $ | 4.8 | $ | — | $ | 4.8 | ||||||
Liabilities | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | $ | 0.3 | $ | — | $ | 0.3 | ||||||
Accrued expenses | 4.7 | — | 4.7 | |||||||||
Total current liabilities of discontinued operations | $ | 5.0 | $ | — | $ | 5.0 | ||||||
9
May 1, 2004
Payless | Payless | Payless | ||||||||||
(dollars in millions) | Domestic | International | Consolidated | |||||||||
Assets | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 0.2 | $ | 1.0 | $ | 1.2 | ||||||
Inventories | 19.3 | 2.9 | 22.2 | |||||||||
Current deferred income taxes | 0.2 | — | 0.2 | |||||||||
Other current assets | 2.5 | 1.3 | 3.8 | |||||||||
Total current assets of discontinued operations | $ | 22.2 | $ | 5.2 | $ | 27.4 | ||||||
Property and equipment, net | $ | 15.7 | $ | 6.7 | $ | 22.4 | ||||||
Favorable leases, net | 0.4 | — | 0.4 | |||||||||
Deferred income taxes | 2.4 | — | 2.4 | |||||||||
Other assets | 0.1 | 2.9 | 3.0 | |||||||||
Total non-current assets of discontinued operations | $ | 18.6 | $ | 9.6 | $ | 28.2 | ||||||
Liabilities | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | $ | 2.6 | $ | 1.2 | $ | 3.8 | ||||||
Accrued expenses | 1.9 | 0.3 | 2.2 | |||||||||
Total current liabilities of discontinued operations | $ | 4.5 | $ | 1.5 | $ | 6.0 | ||||||
Other liabilities | $ | 4.7 | $ | — | $ | 4.7 | ||||||
Total non-current liabilities of discontinued operations | $ | 4.7 | $ | — | $ | 4.7 | ||||||
January 29, 2005
Payless | Payless | Payless | ||||||||||
(dollars in millions) | Domestic | International | Consolidated | |||||||||
Assets | ||||||||||||
Current assets: | ||||||||||||
Current deferred income taxes | $ | 5.6 | $ | — | $ | 5.6 | ||||||
Other current assets | 2.9 | — | 2.9 | |||||||||
Total current assets of discontinued operations | $ | 8.5 | $ | — | $ | 8.5 | ||||||
Other assets | 0.1 | — | 0.1 | |||||||||
Total non-current assets of discontinued operations | $ | 0.1 | $ | — | $ | 0.1 | ||||||
Liabilities | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | $ | 0.2 | $ | — | $ | 0.2 | ||||||
Accrued expenses | 14.8 | — | 14.8 | |||||||||
Total current liabilities of discontinued operations | $ | 15.0 | $ | — | $ | 15.0 | ||||||
NOTE 6. STOCK-BASED COMPENSATION. The Company follows the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123.” The Statement requires prominent disclosures in both annual and interim financial statements regarding the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company accounts for stock compensation awards under the intrinsic value method of Accounting Principles Board (“APB”) Opinion No. 25. APB Opinion No. 25 requires compensation cost to be recognized based on the excess, if any, between the quoted market price of the stock at the date of grant and the amount an employee must pay to acquire the stock. All options awarded under all of the Company’s plans are granted with an exercise price equal to the fair market value on the date of the grant.
10
SFAS 123, “Accounting for Stock-Based Compensation,” provides an alternative method of accounting for stock-based compensation, which establishes a fair value based method of accounting for employee stock options or similar equity instruments. The Company uses the Black-Scholes option pricing model to estimate the grant date fair value of its 1996 and later option grants. The fair value is recognized over the option vesting period. The assumptions used in estimating the pro forma fair value of stock options granted during the thirteen weeks ended April 30, 2005 did not change significantly from those used for fiscal year ended January 29, 2005, with the exception of the option life. The expected option life for grants made during the thirteen weeks ended April 30, 2005 is approximately five years. The following table presents the effect on net earnings and earnings per share had the Company adopted the fair value based method of accounting for stock-based compensation under SFAS No. 123, “Accounting for Stock-Based Compensation.”
(dollars in millions, except per share amounts)
13 Weeks Ended | ||||||||
April 30, 2005 | May 1, 2004 | |||||||
Net earnings: | ||||||||
As reported | $ | 30.2 | $ | 14.1 | ||||
Add: Total stock-based employee compensation expense included in net earnings as reported, net of related income taxes | 0.8 | 0.5 | ||||||
Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related income taxes | 1.1 | 1.2 | ||||||
Pro forma | $ | 29.9 | $ | 13.4 | ||||
Diluted earnings per share: | ||||||||
As reported | $ | 0.45 | $ | 0.21 | ||||
Pro forma | $ | 0.45 | $ | 0.20 | ||||
Basic earnings per share: | ||||||||
As reported | $ | 0.45 | $ | 0.21 | ||||
Pro forma | $ | 0.45 | $ | 0.20 |
NOTE 7. INVENTORIES. Merchandise inventories in our stores are valued by the retail method and are stated at the lower of cost, determined using the first-in, first-out (FIFO) basis, or market. Prior to shipment to a specific store, inventories are valued at the lower of cost using the FIFO basis, or market. Raw materials of $17.1 million, $13.5 million and $18.8 million are included in inventories in the condensed consolidated balance sheets at April 30, 2005, May 1, 2004, and January 29, 2005, respectively.
NOTE 8. INTANGIBLES. SFAS No. 142, “Goodwill and Other Intangible Assets” requires that an intangible asset that is acquired other than by business combination shall be initially recognized and measured based on its fair value. This Statement also provides that goodwill and indefinitely-lived intangible assets should not be amortized, but shall be tested for impairment annually, or more frequently if circumstances indicate potential impairment, through a comparison of fair value to its carrying amount. Intangible assets with finite lives will continue to be amortized over their useful lives. No impairment loss was recorded during the first quarter of 2005 or 2004 related to goodwill.
Favorable leases subject to amortization pursuant to SFAS 142 are as follows:
(dollars in millions) | April 30, 2005 | May 1, 2004 | January 29, 2005 | |||||||||
Gross carrying amount | $ | 77.4 | $ | 84.8 | $ | 78.2 | ||||||
Less: accumulated amortization | (56.6 | ) | (57.9 | ) | (56.5 | ) | ||||||
Carrying amount, end of period | $ | 20.8 | $ | 26.9 | $ | 21.7 | ||||||
Amortization expense on favorable leases was as follows:
(dollars in millions)
13 Weeks Ended | ||||||||
April 30, 2005 | May 1, 2004 | |||||||
Amortization expense on favorable leases | $ | 0.9 | $ | 1.1 |
11
The Company expects annual amortization expense for favorable leases for the next five years to be as follows (dollars in millions):
Year | Amount | |||
Remainder of 2005 | $ | 2.6 | ||
2006 | 3.2 | |||
2007 | 2.7 | |||
2008 | 2.4 | |||
2009 | 2.1 |
NOTE 9. LONG-TERM DEBT AND LINE OF CREDIT. In January 2004, the Company replaced its $150 million senior secured revolving credit facility (the “Old Facility”) with a new $200 million senior secured revolving credit facility (the “New Facility”). Funds borrowed under the New Facility are secured by domestic merchandise inventory and receivables. The Company may borrow up to $200 million through the New Facility, subject to a sufficient borrowing base. The New Facility bears interest at the London Inter-bank Offered Rate (“LIBOR”), plus a variable margin of 1.25 percent to 2.0 percent, or the base rate as defined in the agreement governing the New Facility. The margin on the New Facility varies based upon certain borrowing levels specified in the agreement governing the New Facility. The variable interest rate including the applicable variable margin at April 30, 2005, was 4.5 percent. A monthly commitment fee of 0.30 percent per annum is payable on the unborrowed balance. The New Facility is scheduled to expire in January 2008, with a one-year extension to January 2009 at the Company’s option. No amounts were drawn on the New Facility as of April 30, 2005. Based on its borrowing base, the Company may borrow up to $200.0 million under its New Facility, less $19.7 million in outstanding letters of credit as of April 30, 2005.
In July 2003, the Company sold $200.0 million of 8.25% Senior Subordinated Notes (the “Notes”) for $196.7 million, due 2013. The discount of $3.3 million is being amortized to interest expense over the life of the Notes. The Notes are guaranteed by all of the Company’s domestic subsidiaries. Interest on the Notes is payable semi-annually, beginning February 1, 2004. The Notes contain various covenants including those that may limit the Company’s ability to pay dividends, repurchase stock, accelerate the retirement of other subordinated debt or make certain investments. As of April 30, 2005, the Company was in compliance with all covenants. The proceeds of the Notes and additional general funds were used to repay the entire $200.0 million term loan portion of the Company’s Old Facility. As of April 30, 2005, the fair value of the Notes was $206.0 million based on recent trading activity of the Notes. On or after August 1, 2008, the Company may, on any one or more occasions, redeem all or a part of the Notes at the redemption prices set forth below, plus accrued and unpaid interest, if any, on the Notes redeemed, to the applicable redemption date:
Year | Percentage | |||
2008 | 104.125 | % | ||
2009 | 102.750 | % | ||
2010 | 101.375 | % | ||
2011 and thereafter | 100.000 | % |
NOTE 10. PENSION PLAN. The Company has a nonqualified, supplementary defined benefit plan for certain management employees. The plan is an unfunded, noncontributory plan and provides for benefits based upon years of service and cash compensation during employment.
Pension expense is based on information provided to an outside actuarial firm that uses assumptions to estimate the total benefits ultimately payable to management employees and allocates this cost to service periods. The actuarial assumptions used to calculate pension expense are reviewed annually for reasonableness.
12
The components of net periodic benefit costs for the plan were:
(dollars in millions)
13 Weeks Ended | ||||||||
April 30, 2005 | May 1, 2004 | |||||||
Components of pension expense: | ||||||||
Service cost | $ | 0.2 | $ | 0.2 | ||||
Interest cost | 0.3 | 0.3 | ||||||
Amortization of prior service cost | — | 0.1 | ||||||
Amortization of actuarial loss | 0.1 | 0.1 | ||||||
Total | $ | 0.6 | $ | 0.7 | ||||
NOTE 11. INCOME TAXES. The Company’s effective income tax rate on continuing operations was 28.6 percent during the first quarter of 2005, including the benefit of released tax reserves relating to favorable income tax audit settlements of $2.7 million. In total for fiscal 2005, the effective income tax rate is expected to be approximately 35 percent, exclusive of the reserve release which was discreet to the first quarter. The Company’s effective income tax rate on continuing operations was 33.3 percent in the first quarter of 2004.
NOTE 12. COMPREHENSIVE INCOME. The following table shows the computation of comprehensive income:
(dollars in millions)
13 Weeks Ended | ||||||||
April 30, 2005 | May 1, 2004 | |||||||
Net earnings | $ | 30.2 | $ | 14.1 | ||||
Foreign currency translation adjustments | (0.1 | ) | (3.3 | ) | ||||
Total comprehensive income | $ | 30.1 | $ | 10.8 | ||||
The changes in the Company’s cumulative foreign currency translation adjustment were not adjusted for income taxes, as they relate to specific indefinite investments in foreign subsidiaries.
NOTE 13. 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 and unearned restricted stock. The calculation of diluted earnings per share for the thirteen-weeks ended April 30, 2005, and May 1, 2004, excludes the impact of 7,078,924 and 7,777,763 stock options, respectively, because to include them would be anti-dilutive.
13
The following table presents a reconciliation of the numerators and denominators of basic and diluted earnings per share from continuing operations:
(dollars and shares in millions, except per share)
13 Weeks Ended | ||||||||
April 30, 2005 | May 1, 2004 | |||||||
Diluted Computation: | ||||||||
Net earnings from continuing operations | $ | 31.7 | $ | 17.9 | ||||
Weighted average common shares outstanding | 67.1 | 67.9 | ||||||
Net effect of dilutive stock options and unearned restricted stock based on the treasury stock method | 0.1 | 0.1 | ||||||
Outstanding shares for diluted earnings per share | 67.2 | 68.0 | ||||||
Diluted earnings per share from continuing operations | $ | 0.47 | $ | 0.26 | ||||
Basic Computation: | ||||||||
Net earnings from continuing operations | $ | 31.7 | $ | 17.9 | ||||
Weighted average common shares outstanding | 67.1 | 67.9 | ||||||
Basic earnings per share from continuing operations | $ | 0.47 | $ | 0.26 | ||||
NOTE 14. SEGMENT REPORTING (Restated). The Company and its subsidiaries are principally engaged in the operation of retail locations offering family footwear and accessories. The Company operates its business in two reportable business segments: Payless Domestic and Payless International. These segments have been determined based on internal management reporting and management responsibilities. The Payless Domestic segment includes retail operations in the United States, Guam and Saipan and sourcing operations. The Payless International segment includes retail operations in Canada, the South American Region, the Central American Region, Puerto Rico, the U.S. Virgin Islands and operations in Japan. The Company’s operations in its Central American Region, its South American Region and Japan are operated as joint ventures in which the Company maintains a 60-percent ownership interest. Minority interest represents the Company’s joint venture partners’ share of net earnings or losses on applicable international operations. Certain management costs for services performed by Payless Domestic and certain royalty fees and sourcing fees charged by Payless Domestic are allocated to the Payless International segment. These total costs and fees amounted to $4.4 million during the first quarter of 2005 and $3.6 million during the same period in 2004. The Company’s reporting period for its operations in the South American Region, the Central American Region and Japan is a December 31 year-end. The effect of this one-month lag on the Company’s financial position and results of operations is not significant.
Subsequent to the issuance of the 2005 first quarter Form 10-Q, the Company determined that certain 2004 eliminating journal entries were not recorded in the correct segment. The effect of these errors on previously reported segment information is as follows:
Operating Profit (Loss) from | ||||||||||||
Continuing Operations | ||||||||||||
As previously | ||||||||||||
(dollars in millions) | reported | Adjustment | As restated | |||||||||
Thirteen weeks ended May 1, 2004: | ||||||||||||
Payless Domestic | $ | 25.7 | $ | 5.0 | $ | 30.7 | ||||||
Payless International | 2.7 | (5.0 | ) | (2.3 | ) | |||||||
$ | 28.4 | $ | — | $ | 28.4 | |||||||
14
Information on the segments is as follows:
(dollars in millions)
Payless Domestic | Payless International | Payless Consolidated | ||||||||||
Thirteen weeks ended April 30, 2005 | ||||||||||||
Revenues from external customers | $ | 615.0 | $ | 80.2 | $ | 695.2 | ||||||
Operating profit from continuing operations | 43.6 | 3.4 | 47.0 | |||||||||
Total assets | 1,111.3 | 157.8 | 1,269.1 | |||||||||
Thirteen weeks ended May 1, 2004 (as restated) | ||||||||||||
Revenues from external customers | $ | 622.2 | $ | 70.1 | $ | 692.3 | ||||||
Operating profit (loss) from continuing operations | 30.7 | (2.3 | ) | 28.4 | ||||||||
Total assets | 1,004.3 | 224.0 | 1,228.3 |
As of January 29, 2005, total assets in the Payless Domestic and Payless International segments were $1,076.2 million and $163.6 million, respectively. Total assets for the Payless Domestic segment include $5.9 million in goodwill as of April 30, 2005, May 1, 2004, and January 29, 2005.
NOTE 15. 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. Adjustments from the translation process are accumulated as part of other comprehensive income (loss) and are included as a separate component of shareowners’ equity. The changes in foreign currency translation adjustments were not adjusted for income taxes since they relate to indefinite term investments in non-United States subsidiaries. Income and expense items of these subsidiaries are translated at average rates of exchange.
NOTE 16. COMMITMENTS AND CONTINGENCIES. On or about December 20, 2001, a First Amended Complaint was filed against the Company in the U.S. District Court for the District of Oregon, captioned Adidas America, Inc. and Adidas-Salomon AG v. Payless ShoeSource, Inc. The First Amended Complaint seeks injunctive relief and unspecified monetary damages for trademark and trade dress infringement, unfair competition, deceptive trade practices and breach of contract. The Company believes it has meritorious defenses to claims asserted in the lawsuit and has filed an answer and a motion for summary judgment which the court granted in part. An estimate of the possible loss, if any, or the range of loss cannot be made. However, the ultimate resolution of this matter could have a material adverse effect on the Company’s financial position and results of operations.
On or about January 20, 2000, a complaint was filed against the Company in the U.S. District Court for the District of New Hampshire, captioned Howard J. Dananberg, D.P.M. v. Payless ShoeSource, Inc. The Complaint seeks injunctive relief, unspecified treble monetary damages, attorneys’ fees, interest and costs for patent infringement. The Company believes it has meritorious defenses to claims asserted in the lawsuit. An estimate of the possible loss, if any, or the range of loss cannot be made. However, the ultimate resolution of this matter could have a material adverse effect on the Company’s financial position and results of operations.
NOTE 17. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS. In March 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations — An Interpretation of FASB Statement No. 143” (“FIN47”). FIN47 clarifies the term conditional asset retirement obligation as used in SFAS No. 143 and addresses the diverse accounting practices that have developed with respect to the timing of liability recognition for legal obligations associated with the retirement of a tangible long-lived asset when the timing and (or) method of settlement of the obligation are conditional on a future event. In addition, FIN47 clarifies that an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. FIN47 is effective no later than the end of fiscal year ending January 28, 2006. The Company is currently evaluating the impact of FIN47 on its financial statements.
In December 2004, the FASB issued SFAS 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29” (“SFAS 153”). SFAS 153 was issued primarily to improve the comparability of accounting for exchanges of nonmonetary assets with the International Accounting Standards Board. SFAS 153 requires that exchanges of nonmonetary assets be measured based on the fair value of the assets exchanged. APB Opinion No. 29 included some exceptions to measuring exchanges at fair value. SFAS 153 is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005, though early adoption is encouraged. The application of SFAS 153 is not expected to have a material impact on the Company’s consolidated financial statements.
15
In December 2004, the FASB issued SFAS 123(R), “Share-Based Payment” (“SFAS 123(R)”). SFAS 123(R) provides accounting guidance for stock-based payments to employees. SFAS 123(R) revises SFAS 123 by eliminating the choice of using the recognition and measurement provisions of APB No. 25 and requiring all companies to use the fair value method of measuring stock compensation expense. SFAS 123(R) clarifies and expands SFAS 123’s guidance in several areas, including measuring fair value, classifying an award as equity or liability, attributing compensation cost to reporting periods as well as adding several new disclosure requirements. SFAS 123(R) also changes the accounting for the tax effects of options, including the presentation of the tax effects on the consolidated statements of cash flows. SFAS 123(R) is effective for the first interim reporting period of the Company’s 2006 fiscal year. The Company is in the process of evaluating the statement’s impact on its consolidated financial statements.
In November 2004, the FASB issued SFAS 151, “Inventory Costs.” SFAS 151 requires that fixed production costs be allocated to inventory based on the normal capacity of production facilities and that unallocated overheads be recognized as an expense in the periods in which they are incurred. In addition, other items such as abnormal freight, handling costs and amounts of wasted materials require treatment as current-period charges rather than a portion of the inventory cost. SFAS 151 is effective for inventory costs incurred during periods beginning after June 15, 2005. The application of SFAS 151 is not expected to have a material impact on the Company’s consolidated financial statements.
The American Jobs Creation Act of 2004 (the “Act”) was signed into law on October 22, 2004. The FASB issued FASB Staff Position 109-2 in December 2004, which requires the recording of tax expense if and when an entity decides to repatriate foreign earnings subject to the Act. On May 25, 2005, the Company repatriated $25 million pursuant to the act. As of April 30, 2005, the Company anticipates that it will repatriate between $45 million and $65 million pursuant to the Act.
NOTE 18. SUBSEQUENT EVENT. On May 26, 2005, the Company announced a CEO succession plan and entered into a letter agreement with its Chief Executive Officer, Steven J. Douglass, confirming certain matters with respect to Mr. Douglass’ separation from the Company when his successor commences employment. The letter agreement serves as Mr. Douglass’ notice of resignation upon his separation from all director, officer and employee positions that he holds with the Company, its subsidiaries and its affiliates. The Company expects to record a second quarter pre-tax charge that is currently estimated to be approximately $7 million in connection with its obligations under a previous employment agreement with the Company.
NOTE 19. SUBSIDIARY GUARANTORS OF SENIOR NOTES – CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Restated). The Company has issued Notes guaranteed by all of its domestic subsidiaries (the “Guarantor Subsidiaries”). The Guarantor Subsidiaries are direct or indirect wholly owned domestic subsidiaries of the Company. The guarantees are full and unconditional, to the extent allowed by law, and joint and several.
Subsequent to the issuance of the 2005 first quarter Form 10-Q, the Company determined that certain 2004 eliminating journal entries were not recorded in the correct subsidiary. The errors overstated net earnings of the Non-guarantor Subsidiaries by $5.0 million for the thirteen weeks ended May 1, 2004. The errors did not impact the net earnings of the Guarantor Subsidiaries for any period. The errors also overstated total shareowners’ equity and understated total current liabilities of the Non-guarantor Subsidiaries, and overstated total assets and total current liabilities of the Guarantor Subsidiaries by $5.0 million as of May 1, 2004 and January 29, 2005. The errors did not impact the total shareowners’ equity of the Guarantor Subsidiaries for any period. The Company made additional corrections that impacted this footnote. Please refer to Notes 2 and 14 for further discussion of these restatements.
16
The following supplemental financial information sets forth, on a consolidating basis, the condensed statements of earnings (loss) and cash flows for Payless ShoeSource, Inc., a Delaware corporation (the “Parent Company”), for the Guarantor Subsidiaries and for the Company’s non-guarantor subsidiaries (the “Non-guarantor Subsidiaries”) and the Company for the thirteen-week periods ended April 30, 2005, and May 1, 2004, and the related condensed consolidating balanced sheets as of April 30, 2005, May 1, 2004, and January 29, 2005. With the exception of operations in the Central American and South American Regions and Japan in which the Company has a 60% ownership interest, the Non-guarantor Subsidiaries are direct or indirect wholly-owned subsidiaries of the Guarantor Subsidiaries. The intercompany investment for each subsidiary is recorded by its parent in Other Assets.
The Non-guarantor Subsidiaries are made up of the Company’s retail operations in the Central American Region, the South American Region, Canada, Saipan, Puerto Rico and Japan and the Company’s sourcing organization in Hong Kong, Taiwan, China, Indonesia and Brazil. The operations in the Central American and South American Regions use a December 31 year-end. Operations in the Central American Region, the South American Region and Japan are included in our results on a one-month lag relative to results from other regions. The effect of this one-month lag on our financial position and results of operations is not significant.
Under the indenture governing the Notes, the Company’s subsidiaries in Singapore and Japan are designated as unrestricted. The effect of these subsidiaries on the Company’s financial position and results of operations and cash flows is not significant.
17
CONDENSED CONSOLIDATING BALANCE SHEET
(UNAUDITED)
As of April 30, 2005 (Restated)
(UNAUDITED)
As of April 30, 2005 (Restated)
(dollars in millions)
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 172.4 | $ | 73.4 | $ | — | $ | 245.8 | ||||||||||
Short-term investments | — | 57.5 | — | — | 57.5 | |||||||||||||||
Restricted cash | — | — | 2.0 | — | 2.0 | |||||||||||||||
Inventories | — | 304.8 | 84.1 | (5.0 | ) | 383.9 | ||||||||||||||
Current deferred income taxes | — | 20.9 | — | — | 20.9 | |||||||||||||||
Other current assets | 26.3 | 51.8 | 50.7 | (71.9 | ) | 56.9 | ||||||||||||||
Current assets of discontinued operations | — | 4.8 | — | — | 4.8 | |||||||||||||||
Total current assets | 26.3 | 612.2 | 210.2 | (76.9 | ) | 771.8 | ||||||||||||||
Property and Equipment: | ||||||||||||||||||||
Land | — | 8.3 | — | — | 8.3 | |||||||||||||||
Property, buildings and equipment | — | 1,051.8 | 137.6 | — | 1,189.4 | |||||||||||||||
Accumulated depreciation and amortization | — | (715.8 | ) | (70.0 | ) | — | (785.8 | ) | ||||||||||||
Property and equipment, net | — | 344.3 | 67.6 | — | 411.9 | |||||||||||||||
Favorable leases, net | — | 20.8 | — | — | 20.8 | |||||||||||||||
Deferred income taxes | — | 24.4 | 11.2 | — | 35.6 | |||||||||||||||
Goodwill | — | 5.9 | — | — | 5.9 | |||||||||||||||
Other assets | 1,090.1 | 459.6 | 1.8 | (1,528.4 | ) | 23.1 | ||||||||||||||
Total assets | $ | 1,116.4 | $ | 1,467.2 | $ | 290.8 | $ | (1,605.3 | ) | $ | 1,269.1 | |||||||||
LIABILITIES AND SHAREOWNERS’ EQUITY | ||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||
Current maturities of long-term debt | $ | — | $ | 0.3 | $ | 1.2 | $ | — | $ | 1.5 | ||||||||||
Notes payable | — | — | 2.0 | — | 2.0 | |||||||||||||||
Accounts payable | — | 143.0 | 70.4 | (43.6 | ) | 169.8 | ||||||||||||||
Accrued expenses | 10.8 | 159.9 | 20.8 | (33.3 | ) | 158.2 | ||||||||||||||
Current liabilities of discontinued operations | — | 5.0 | — | — | 5.0 | |||||||||||||||
Total current liabilities | 10.8 | 308.2 | 94.4 | (76.9 | ) | 336.5 | ||||||||||||||
Long-term debt | 480.2 | 0.8 | 6.4 | (283.1 | ) | 204.3 | ||||||||||||||
Other liabilities | 1.5 | 82.2 | 19.9 | (7.8 | ) | 95.8 | ||||||||||||||
Minority interest | — | — | 8.6 | — | 8.6 | |||||||||||||||
Commitments and contingencies | ||||||||||||||||||||
Total shareowners’ equity | 623.9 | 1,076.0 | 161.5 | (1,237.5 | ) | 623.9 | ||||||||||||||
Total liabilities and shareowners’ equity | $ | 1,116.4 | $ | 1,467.2 | $ | 290.8 | $ | (1,605.3 | ) | $ | 1,269.1 | |||||||||
18
CONDENSED CONSOLIDATING BALANCE SHEET
(UNAUDITED)
As of May 1, 2004 (Restated)
(UNAUDITED)
As of May 1, 2004 (Restated)
(dollars in millions)
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 81.7 | $ | 33.1 | $ | — | $ | 114.8 | ||||||||||
Short-term investments | — | 10.5 | — | — | 10.5 | |||||||||||||||
Restricted cash | — | — | 33.5 | — | 33.5 | |||||||||||||||
Inventories | — | 347.9 | 80.2 | (5.9 | ) | 422.2 | ||||||||||||||
Current deferred income taxes | — | 16.6 | 0.1 | — | 16.7 | |||||||||||||||
Other current assets | 9.0 | 55.1 | 38.8 | (38.0 | ) | 64.9 | ||||||||||||||
Current assets of discontinued operations | — | 22.1 | 5.3 | — | 27.4 | |||||||||||||||
Total current assets | 9.0 | 533.9 | 191.0 | (43.9 | ) | 690.0 | ||||||||||||||
Property and Equipment: | ||||||||||||||||||||
Land | — | 8.0 | — | — | 8.0 | |||||||||||||||
Property, buildings and equipment | — | 1,064.0 | 127.3 | — | 1,191.3 | |||||||||||||||
Accumulated depreciation and amortization | — | (721.2 | ) | (56.2 | ) | — | (777.4 | ) | ||||||||||||
Property and equipment, net | — | 350.8 | 71.1 | — | 421.9 | |||||||||||||||
Favorable leases, net | — | 26.9 | — | — | 26.9 | |||||||||||||||
Deferred income taxes | — | 26.7 | 7.0 | — | 33.7 | |||||||||||||||
Goodwill | — | 5.9 | — | — | 5.9 | |||||||||||||||
Other assets | 1,091.5 | 434.5 | 0.7 | (1,505.0 | ) | 21.7 | ||||||||||||||
Non-current assets of discontinued operations | — | 18.6 | 9.6 | — | 28.2 | |||||||||||||||
Total assets | $ | 1,100.5 | $ | 1,397.3 | $ | 279.4 | $ | (1,548.9 | ) | $ | 1,228.3 | |||||||||
LIABILITIES AND SHAREOWNERS’ EQUITY | ||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||
Current maturities of long-term debt | $ | — | $ | 0.9 | $ | — | $ | — | $ | 0.9 | ||||||||||
Notes payable | — | — | 33.5 | — | 33.5 | |||||||||||||||
Accounts payable | — | 88.4 | 66.2 | (28.1 | ) | 126.5 | ||||||||||||||
Accrued expenses | 2.9 | 134.8 | 18.2 | (15.8 | ) | 140.1 | ||||||||||||||
Current liabilities of discontinued operations | — | 4.4 | 1.6 | — | 6.0 | |||||||||||||||
Total current liabilities | 2.9 | 228.5 | 119.5 | (43.9 | ) | 307.0 | ||||||||||||||
Long-term debt | 479.8 | 1.8 | 4.0 | (283.0 | ) | 202.6 | ||||||||||||||
Other liabilities | — | 128.7 | 13.4 | (56.3 | ) | 85.8 | ||||||||||||||
Non-current liabilities of discontinued operations | — | 4.6 | 0.1 | — | 4.7 | |||||||||||||||
Minority interest | — | — | 13.1 | — | 13.1 | |||||||||||||||
Commitments and contingencies | ||||||||||||||||||||
Total shareowners’ equity | 617.8 | 1,033.7 | 129.3 | (1,165.7 | ) | 615.1 | ||||||||||||||
Total liabilities and shareowners’ equity | $ | 1,100.5 | $ | 1,397.3 | $ | 279.4 | $ | (1,548.9 | ) | $ | 1,228.3 | |||||||||
19
CONDENSED CONSOLIDATING BALANCE SHEET
(UNAUDITED)
As of January 29, 2005(Restated)
(UNAUDITED)
As of January 29, 2005(Restated)
(dollars in millions)
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 194.5 | $ | 78.8 | $ | — | $ | 273.3 | ||||||||||
Short-term investments | — | 21.3 | — | — | 21.3 | |||||||||||||||
Restricted cash | — | — | 3.0 | — | 3.0 | |||||||||||||||
Inventories | — | 277.1 | 71.0 | (2.8 | ) | 345.3 | ||||||||||||||
Current deferred income taxes | — | 21.9 | — | — | 21.9 | |||||||||||||||
Other current assets | 16.8 | 50.6 | 50.1 | (60.9 | ) | 56.6 | ||||||||||||||
Current assets of discontinued operations | — | 8.5 | — | — | 8.5 | |||||||||||||||
Total current assets | 16.8 | 573.9 | 202.9 | (63.7 | ) | 729.9 | ||||||||||||||
Property and Equipment: | ||||||||||||||||||||
Land | — | 8.0 | — | — | 8.0 | |||||||||||||||
Property, buildings and equipment | — | 1,051.3 | 135.6 | — | 1,186.9 | |||||||||||||||
Accumulated depreciation and amortization | — | (705.7 | ) | (66.9 | ) | — | (772.6 | ) | ||||||||||||
Property and equipment, net | — | 353.6 | 68.7 | — | 422.3 | |||||||||||||||
Favorable leases, net | — | 21.7 | — | — | 21.7 | |||||||||||||||
Deferred income taxes | — | 25.1 | 11.3 | — | 36.4 | |||||||||||||||
Goodwill | — | 5.9 | — | — | 5.9 | |||||||||||||||
Other assets | 1,067.1 | 439.9 | 1.9 | (1,485.4 | ) | 23.5 | ||||||||||||||
Non-current assets of discontinued operations | — | 0.1 | — | — | 0.1 | |||||||||||||||
Total assets | $ | 1,083.9 | $ | 1,420.2 | $ | 284.8 | $ | (1,549.1 | ) | $ | 1,239.8 | |||||||||
LIABILITIES AND SHAREOWNERS’ EQUITY | ||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||
Current maturities of long-term debt | $ | — | $ | 0.3 | $ | — | $ | — | $ | 0.3 | ||||||||||
Notes payable | — | — | 3.0 | — | 3.0 | |||||||||||||||
Accounts payable | — | 122.0 | 77.4 | (39.1 | ) | 160.3 | ||||||||||||||
Accrued expenses | 7.2 | 156.9 | 20.2 | (24.6 | ) | 159.7 | ||||||||||||||
Current liabilities of discontinued operations | — | 15.0 | — | — | 15.0 | |||||||||||||||
Total current liabilities | 7.2 | 294.2 | 100.6 | (63.7 | ) | 338.3 | ||||||||||||||
Long-term debt | 480.2 | 0.9 | 6.4 | (283.2 | ) | 204.3 | ||||||||||||||
Other liabilities | 1.5 | 82.8 | 13.7 | (4.4 | ) | 93.6 | ||||||||||||||
Minority interest | — | — | 8.6 | — | 8.6 | |||||||||||||||
Commitments and contingencies | ||||||||||||||||||||
Total shareowners’ equity | 595.0 | 1,042.3 | 155.5 | (1,197.8 | ) | 595.0 | ||||||||||||||
Total liabilities and shareowners’ equity | $ | 1,083.9 | $ | 1,420.2 | $ | 284.8 | $ | (1,549.1 | ) | $ | 1,239.8 | |||||||||
20
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS)
(UNAUDITED)
For the Thirteen Weeks Ended April 30, 2005
(UNAUDITED)
For the Thirteen Weeks Ended April 30, 2005
(dollars in millions)
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales | $ | — | $ | 643.0 | $ | 164.6 | $ | (112.4 | ) | $ | 695.2 | |||||||||
Cost of sales | — | 427.3 | 133.4 | (109.9 | ) | 450.8 | ||||||||||||||
Gross Margin | — | 215.7 | 31.2 | (2.5 | ) | 244.4 | ||||||||||||||
Selling, general and administrative expense | 0.6 | 173.4 | 25.2 | (2.5 | ) | 196.7 | ||||||||||||||
Restructuring charges | — | 0.7 | — | — | 0.7 | |||||||||||||||
Operating (loss) profit from continuing operations | (0.6 | ) | 41.6 | 6.0 | — | 47.0 | ||||||||||||||
Interest expense | 7.3 | 0.3 | 0.5 | (3.2 | ) | 4.9 | ||||||||||||||
Interest income | — | (4.4 | ) | (0.5 | ) | 3.2 | (1.7 | ) | ||||||||||||
Equity in earnings of subsidiaries | (35.3 | ) | (6.1 | ) | — | 41.4 | — | |||||||||||||
Earnings from continuing operations before income taxes and minority interest | 27.4 | 51.8 | 6.0 | (41.4 | ) | 43.8 | ||||||||||||||
(Benefit) provision for income taxes | (2.8 | ) | 15.0 | 0.3 | — | 12.5 | ||||||||||||||
Earnings from continuing operations before minority interest | 30.2 | 36.8 | 5.7 | (41.4 | ) | 31.3 | ||||||||||||||
Minority interest, net of income tax | — | — | 0.4 | — | 0.4 | |||||||||||||||
Net earnings from continuing operations | 30.2 | 36.8 | 6.1 | (41.4 | ) | 31.7 | ||||||||||||||
Loss from discontinued operations, net of income taxes and minority interest | — | (1.5 | ) | — | — | (1.5 | ) | |||||||||||||
Net earnings | $ | 30.2 | $ | 35.3 | $ | 6.1 | $ | (41.4 | ) | $ | 30.2 | |||||||||
21
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS)
(UNAUDITED)
For the Thirteen Weeks Ended May 1, 2004 (Restated)
(UNAUDITED)
For the Thirteen Weeks Ended May 1, 2004 (Restated)
(dollars in millions)
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales | $ | — | $ | 651.4 | $ | 161.5 | $ | (120.6 | ) | $ | 692.3 | |||||||||
Cost of sales | — | 457.1 | 136.8 | (118.4 | ) | 475.5 | ||||||||||||||
Gross margin | — | 194.3 | 24.7 | (2.2 | ) | 216.8 | ||||||||||||||
Selling, general and administrative expense | 0.5 | 162.9 | 27.2 | (2.2 | ) | 188.4 | ||||||||||||||
Restructuring charges | — | — | — | — | — | |||||||||||||||
Operating (loss) profit from continuing operations | (0.5 | ) | 31.4 | (2.5 | ) | — | 28.4 | |||||||||||||
Interest expense | 6.2 | 0.3 | 1.1 | (2.2 | ) | 5.4 | ||||||||||||||
Interest income | — | (2.3 | ) | (0.9 | ) | 2.2 | (1.0 | ) | ||||||||||||
Equity in (earnings) loss of subsidiaries | (18.4 | ) | 1.8 | — | 16.6 | — | ||||||||||||||
Earnings (loss) from continuing operations before income taxes and minority interest | 11.7 | 31.6 | (2.7 | ) | (16.6 | ) | 24.0 | |||||||||||||
(Benefit) provision for income taxes | (2.4 | ) | 10.6 | (0.2 | ) | — | 8.0 | |||||||||||||
Earnings (loss) from continuing operations before minority interest | 14.1 | 21.0 | (2.5 | ) | (16.6 | ) | 16.0 | |||||||||||||
Minority interest, net of income tax | — | — | 1.9 | — | 1.9 | |||||||||||||||
Net earnings (loss) from continuing operations | 14.1 | 21.0 | (0.6 | ) | (16.6 | ) | 17.9 | |||||||||||||
Loss from discontinued operations, net of income taxes and minority interest | — | (2.6 | ) | (1.2 | ) | — | (3.8 | ) | ||||||||||||
Net earnings (loss) | $ | 14.1 | $ | 18.4 | $ | (1.8 | ) | $ | (16.6 | ) | $ | 14.1 | ||||||||
22
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(UNAUDITED)
For the Thirteen Weeks Ended April 30, 2005 (Restated)
(UNAUDITED)
For the Thirteen Weeks Ended April 30, 2005 (Restated)
(dollars in millions)
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Operating Activities: | ||||||||||||||||||||
Net earnings | $ | 30.2 | $ | 35.3 | $ | 6.1 | $ | (41.4 | ) | $ | 30.2 | |||||||||
Loss from discontinued operations, net of income taxes and minority interest | — | (1.5 | ) | — | — | (1.5 | ) | |||||||||||||
Net earnings from continuing operations | 30.2 | 36.8 | 6.1 | (41.4 | ) | 31.7 | ||||||||||||||
Adjustments for non-cash items included in earnings from continuing operations: | ||||||||||||||||||||
Loss on impairment of and disposal of assets | — | 2.3 | 0.1 | — | 2.4 | |||||||||||||||
Depreciation and amortization | — | 21.7 | 1.3 | — | 23.0 | |||||||||||||||
Amortization of deferred financing costs | — | 0.3 | — | — | 0.3 | |||||||||||||||
Amortization of unearned restricted stock | 0.2 | — | — | — | 0.2 | |||||||||||||||
Deferred income taxes | — | 1.7 | — | — | 1.7 | |||||||||||||||
Minority interest, net of tax | — | — | (0.4 | ) | — | (0.4 | ) | |||||||||||||
Changes in working capital: | ||||||||||||||||||||
Inventories | — | (27.7 | ) | (13.2 | ) | 2.2 | (38.7 | ) | ||||||||||||
Other current assets | (9.5 | ) | (1.2 | ) | (1.5 | ) | 11.0 | (1.2 | ) | |||||||||||
Accounts payable | — | 23.4 | (8.2 | ) | (4.5 | ) | 10.7 | |||||||||||||
Accrued expenses | 3.6 | 8.8 | 0.4 | (8.7 | ) | 4.1 | ||||||||||||||
Other assets and liabilities, net | (23.1 | ) | (22.3 | ) | 6.4 | 41.4 | 2.4 | |||||||||||||
Net cash provided by (used in) discontinued operations | — | (7.7 | ) | — | — | (7.7 | ) | |||||||||||||
Cash flow provided by (used in) operating activities | 1.4 | 36.1 | (9.0 | ) | — | 28.5 | ||||||||||||||
Investing Activities: | ||||||||||||||||||||
Capital expenditures | — | (21.7 | ) | (0.1 | ) | — | (21.8 | ) | ||||||||||||
Restricted cash | — | — | 1.0 | — | 1.0 | |||||||||||||||
Purchases of investments | — | (47.7 | ) | — | — | (47.7 | ) | |||||||||||||
Sales and maturities of investments | — | 11.5 | — | — | 11.5 | |||||||||||||||
Investment in subsidiaries | — | (0.3 | ) | — | 0.3 | — | ||||||||||||||
Cash flow used in investing activities from continuing operations | — | (58.2 | ) | 0.9 | 0.3 | (57.0 | ) | |||||||||||||
Financing Activities: | ||||||||||||||||||||
Repayment on notes payable | — | — | (1.0 | ) | — | (1.0 | ) | |||||||||||||
Issuance of debt | — | — | 1.2 | — | 1.2 | |||||||||||||||
Issuances of common stock | 0.7 | — | — | — | 0.7 | |||||||||||||||
Purchases of common stock | (2.1 | ) | — | — | — | (2.1 | ) | |||||||||||||
Contributions by parents | — | — | 0.3 | (0.3 | ) | — | ||||||||||||||
Contributions by minority owners | — | — | 0.2 | — | 0.2 | |||||||||||||||
Cash flow (used in) provided by financing activities from continuing operations | (1.4 | ) | — | 0.7 | (0.3 | ) | (1.0 | ) | ||||||||||||
Effect of exchange rate changes on cash | — | — | 2.0 | — | 2.0 | |||||||||||||||
Decrease in cash and cash equivalents | — | (22.1 | ) | (5.4 | ) | — | (27.5 | ) | ||||||||||||
Cash and cash equivalents, beginning of period | — | 194.5 | 78.8 | — | 273.3 | |||||||||||||||
Cash and cash equivalents, end of period | $ | — | $ | 172.4 | $ | 73.4 | $ | — | $ | 245.8 | ||||||||||
23
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(UNAUDITED)
For the Thirteen Weeks Ended May 1, 2004 (Restated)
(UNAUDITED)
For the Thirteen Weeks Ended May 1, 2004 (Restated)
(dollars in millions)
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Operating Activities: | ||||||||||||||||||||
Net earnings (loss) | $ | 14.1 | $ | 18.4 | $ | (1.8 | ) | $ | (16.6 | ) | $ | 14.1 | ||||||||
Loss from discontinued operations, net of income taxes and minority interest | — | (2.6 | ) | (1.2 | ) | — | (3.8 | ) | ||||||||||||
Net earnings from continuing operations | 14.1 | 21.0 | (0.6 | ) | (16.6 | ) | 17.9 | |||||||||||||
Adjustments for non-cash items included in earnings from continuing operations: | ||||||||||||||||||||
Loss on impairment of and disposal of assets | — | 2.6 | 0.2 | — | 2.8 | |||||||||||||||
Depreciation and amortization | — | 21.8 | 2.8 | — | 24.6 | |||||||||||||||
Amortization of deferred financing costs | — | 0.2 | — | — | 0.2 | |||||||||||||||
Amortization of unearned restricted stock | 0.2 | — | — | — | 0.2 | |||||||||||||||
Deferred income taxes | — | 1.4 | (2.2 | ) | — | (0.8 | ) | |||||||||||||
Minority interest, net of tax | — | — | (1.9 | ) | — | (1.9 | ) | |||||||||||||
Changes in working capital: | ||||||||||||||||||||
Inventories | — | (39.4 | ) | (10.3 | ) | 1.7 | (48.0 | ) | ||||||||||||
Other current assets | (2.4 | ) | 16.8 | (1.2 | ) | (17.3 | ) | (4.1 | ) | |||||||||||
Accounts payable | — | 3.9 | (31.0 | ) | 23.9 | (3.2 | ) | |||||||||||||
Accrued expenses | (4.6 | ) | 27.8 | 2.7 | (8.3 | ) | 17.6 | |||||||||||||
Other assets and liabilities, net | (6.8 | ) | (10.6 | ) | 7.7 | 16.6 | 6.9 | |||||||||||||
Net cash provided by (used in) discontinued operations | — | (4.3 | ) | 0.2 | — | (4.1 | ) | |||||||||||||
Cash flow provided by (used in) operating activities | 0.5 | 41.2 | (33.6 | ) | — | 8.1 | ||||||||||||||
Investing Activities: | ||||||||||||||||||||
Capital expenditures | — | (24.7 | ) | (2.6 | ) | — | (27.3 | ) | ||||||||||||
Purchase of investments | — | (10.5 | ) | — | — | (10.5 | ) | |||||||||||||
Sales and maturities of investments | — | 10.0 | — | — | 10.0 | |||||||||||||||
Cash used in discontinued operations | — | (1.4 | ) | — | — | (1.4 | ) | |||||||||||||
Cash flow used in investing activities | — | (26.6 | ) | (2.6 | ) | — | (29.2 | ) | ||||||||||||
Financing Activities: | ||||||||||||||||||||
Payment of deferred financing costs | (0.1 | ) | — | — | — | (0.1 | ) | |||||||||||||
Repayment of debt | — | (0.3 | ) | — | — | (0.3 | ) | |||||||||||||
Issuances of common stock | 0.3 | — | 0.3 | |||||||||||||||||
Purchases of common stock | (0.7 | ) | — | — | — | (0.7 | ) | |||||||||||||
Cash flow used in financing activities | (0.5 | ) | (0.3 | ) | — | — | (0.8 | ) | ||||||||||||
Effect of exchange rate changes on cash | — | — | — | — | — | |||||||||||||||
Increase (decrease) in cash and cash equivalents | — | 14.3 | (36.2 | ) | — | (21.9 | ) | |||||||||||||
Cash and cash equivalents, beginning of period | — | 67.4 | 69.3 | — | 136.7 | |||||||||||||||
Cash and cash equivalents, end of period | $ | — | $ | 81.7 | $ | 33.1 | $ | — | $ | 114.8 | ||||||||||
24
ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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/A and gives effect to the restatement described in Notes 2 and 14 to the condensed consolidated financial statements.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements relating to such matters as anticipated financial performance, international expansion opportunities, consumer spending patterns, capital expenditure plans, business prospects, products, future store openings and closings, possible strategic initiatives and similar matters. Forward looking statements are identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” or variations of such words. A variety of known and unknown risks and uncertainties and other factors could cause actual results and expectations to differ materially from the anticipated results or expectations which include, but are not limited to: 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 Company’s suppliers and manufacturers; changes in existing or potential duties, tariffs or quotas; changes in relationships between the United States and foreign countries, changes in relationships between Canada and foreign countries; economic and political instability in foreign countries, or restrictive actions by the governments of foreign countries in which suppliers and manufacturers from whom the Company sources are located or in which the Company has retail locations or otherwise does business; changes in trade, customs and/or tax laws; fluctuations in currency exchange rates; availability of suitable store locations on acceptable terms; the ability to terminate leases on acceptable terms; the ability to hire and retain associates; performance of other parties in strategic alliances; general economic, business and social conditions in the countries from which we source products, supplies or have or intend to open stores; performance of partners in joint ventures; the ability to comply with local laws in foreign countries; threats or acts of terrorism; strikes, work stoppages and/or slowdowns by unions that play a significant role in the manufacture, distribution or sale of product; congestion at major ocean ports; changes in the value of the dollar relative to the Chinese yuan and other currencies. Please refer to the Company’s 2004 Annual Report on Form 10-K for the fiscal year ended January 29, 2005 for more information on these and other risk factors that could cause actual results to differ. 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.
OVERVIEW
We are the largest specialty family footwear retailer in the Western Hemisphere with retail stores in the United States, Canada, the Caribbean, and the Central American and South American Regions. The Central American Region is composed of operations in Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Panama and Trinidad & Tobago. The South American Region is composed of operations in Ecuador. Our stores offer fashionable, quality, private label and branded footwear and accessories for women, men and children at affordable prices in a self-selection shopping format.
During 2004, we substantially completed a series of strategic initiatives as part of a restructuring plan designed to sharpen our focus on our core business strategy, reduce expenses, accelerate decision-making, increase profitability, improve our operating margin and build value for shareowners over the long-term. The strategic initiatives included 1) closing all Parade stores and related operations, 2) the sale of Chile and Peru entities, 3) closing of approximately 260 Payless ShoeSource stores, 4) ceasing wholesale businesses with no significant growth opportunity and 5) eliminating approximately 200 management and administrative positions. As a result of the restructuring, we have reflected the financial information of the Parade, Peru and Chile stores and 26 of the Payless closed stores as discontinued operations in the Condensed Consolidated Financial Statements. Unless otherwise noted, the amounts and discussions included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations relate to continuing operations.
For the first quarter of 2005, total sales increased 0.4 percent, or $2.9 million, to $695.2 million as compared to the first quarter of the prior year. Same-store sales, one of the key indicators we consider as a measure of performance, increased 2.7 percent. Gross margin was 35.1 percent of sales in the current year’s first quarter, versus 31.3 percent in the prior year’s first quarter. The improvement in gross margin resulted primarily from more favorable initial mark-on relative to last year and the positive leverage on occupancy costs due to increased sales. Inventory condition also continued to improve in the first quarter. We believe that inventory is currently in excellent condition, with a low level of aged merchandise. In total, Cost of Sales decreased by $24.7 million in the first quarter of 2005. The improvements in inventory condition in addition to other items relating to the costing of inventory represented approximately $12 million of the reduction in Cost of Sales in the first quarter and are unlikely to occur in this magnitude during future quarters.
25
Our cash and cash equivalents balance at the end of the 2005 first quarter was $245.8 million, a decrease of $27.5 million from the end of 2004 and an increase of $131.0 million over the 2004 first quarter. Our short-term investments balance at the end of the 2005 first quarter was $57.5 million, an increase of $36.2 million from the end of 2004 and $47.0 million over the 2004 first quarter. Total inventories at the end of the 2005 first quarter were $383.9 million, a reduction of $38.3 million from the 2004 first quarter. Inventory per store declined by 5.6 percent on a cost basis and 6.3 percent on a footwear unit basis over the same period.
We are committed to serving the interest of our shareowners by building long-term value through consistent execution of our core business strategy: to be the Merchandise Authority in value-priced footwear and accessories. We will strive for continued improvements in operating results by:
• | Maintaining a singular focus on our core business, the Payless ShoeSource chain of family footwear stores; | ||
• | Accelerating customer acceptance of the Merchandise Authority positioning in value-priced footwear and accessories, differentiating our product offering from other retailers; | ||
• | Continuing our efforts to build select athletic and casual lifestyle brands that provide styling and quality to a broader audience of customers; | ||
• | Refocusing our marketing efforts to build more customer traffic in the Payless stores and communicate our Merchandise Authority position more clearly; | ||
• | Continuing to improve our information technology to manage inventory, pricing and store operations; | ||
Continuing to pursue gross margin improvement relative to 2004; | |||
• | Maintaining disciplined control of expenses; and, | ||
• | Improving the in-store shopping experience. |
REVIEW OF OPERATIONS
The following discussion summarizes the significant factors affecting operating results for the first quarter ended April 30, 2005 (2005) compared to May 1, 2004 (2004).
NET EARNINGS
We posted net earnings of $30.2 million in the first quarter of 2005 compared with net earnings of $14.1 million in the first quarter of 2004.
The following table presents the components of costs and expenses, as a percent of revenues, for the first quarter of 2005 and 2004.
26
First Quarter | ||||||||
2005 | 2004 | |||||||
Cost of sales | 64.9 | % | 68.7 | % | ||||
Selling, general and administrative expense | 28.3 | 27.2 | ||||||
Restructuring charges | 0.1 | — | ||||||
Operating profit from continuing operations | 6.7 | 4.1 | ||||||
Interest expense, net | 0.4 | 0.6 | ||||||
Earnings from continuing operations before income taxes and minority interest | 6.3 | 3.5 | ||||||
Effective income tax rate* | 28.6 | % | 33.3 | % | ||||
Earnings from continuing operations before minority interest | 4.5 | 2.3 | ||||||
Minority interest | 0.1 | 0.3 | ||||||
Earnings from continuing operations | 4.6 | 2.6 | ||||||
Loss from discontinued operations, net of income taxes and minority interest | (0.3 | ) | (0.6 | ) | ||||
Net Earnings | 4.3 | % | 2.0 | % | ||||
* | Percent of pre-tax earnings |
NET SALES
Net sales are recognized at the time the sale is made to the customer, are net of estimated returns and current promotional discounts and exclude sales tax. Same-store sales are calculated on a weekly basis. If a store is open the entire week in each of the two years being compared, its sales are included in the same-store sales calculation for that week. Relocated and remodeled stores are also included in the same-store sales calculation if they were open during the entire week in each of the two years being compared. Same-store sales for the first quarter of 2005 and 2004 exclude all stores in the South American and Central American Regions.
Sales percent increases (decreases) are as follows:
First Quarter | ||||||||
2005 | 2004 | |||||||
Net Sales | 0.4 | % | 3.7 | % | ||||
Same-store Sales | 2.7 | 2.9 | ||||||
Average selling price per unit | 5.4 | 7.5 | ||||||
Unit volume | (4.9 | ) | (3.7 | ) | ||||
Footwear average selling price per unit | 2.8 | 0.4 | ||||||
Footwear unit volume | (1.4 | )% | 2.5 | % |
Net sales for the 2005 first quarter totaled $695.2 million compared with $692.3 million in the 2004 first quarter. Net sales increased, despite a reduction in 178 stores classified as continuing operations, and same-store sales increased in the first quarter of 2005 from 2004 primarily due to positive performance in branded athletics, particularly women’s, and women’s casual footwear. Our men’s and accessories businesses performed below expectations.
COST OF SALES
Cost of sales includes cost of merchandise sold and our buying and occupancy costs. Cost of sales was $450.8 million in the 2005 first quarter, down 5.2 percent from $475.5 million in the 2004 first quarter.
27
As a percentage of net sales, cost of sales was 64.9 percent in the first quarter of 2005, compared with 68.7 percent in the first quarter of 2004. The decrease in cost of sales as a percentage of net sales was due primarily to more favorable initial mark-on relative to last year and the positive leverage on occupancy costs due to increased sales. Inventory condition also continued to improve in the first quarter. We believe that inventory is currently in excellent condition, with a low level of aged merchandise. In total, Cost of Sales decreased by $24.7 million in the first quarter of 2005. The improvements in inventory condition in addition to other items relating to the costing of inventory represented approximately $12 million of the reduction in Cost of Sales in the first quarter and are unlikely to occur in this magnitude during future quarters.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $196.7 million in the first quarter of 2005, an increase of 4.4 percent from $188.4 million in the first quarter of 2004.
As a percentage of net sales, selling, general and administrative expenses were 28.3 percent during the first quarter of 2005 compared with 27.2 percent in the first quarter of 2004. The 2005 increase is the result of an additional $6.1 million in costs for employee incentive programs and $2.7 million in advertising expenses. These increases were partially offset by payroll costs that were $2.7 million below last year, reflecting reduced headcount.
On May 26, 2005, we announced a CEO succession plan and entered into a letter agreement with our Chief Executive Officer, Steven J. Douglass, confirming certain matters with respect to Mr. Douglass’ separation from the Company when his successor commences employment. The letter agreement serves as Mr. Douglass’ notice of resignation upon his separation from all director, officer and employee positions that he holds with the Company, its subsidiaries and its affiliates. We expect to record a second quarter pre-tax charge that is currently estimated to be approximately $7 million in connection with our obligations under a previous employment agreement with the Company. This charge will be reflected in selling, general and administrative expenses in the second quarter of 2005.
RESTRUCTURING CHARGES
The Company recorded $2.9 million in restructuring charges during the quarter ($0.7 million related to continuing operations) primarily due to contract termination costs in excess of original estimates.
INTEREST EXPENSE, NET
Interest expense decreased from $5.4 million in the first quarter of 2004 to $4.9 million in the first quarter of 2005 due primarily to a reduction in demand notes payable. Interest income increased from $1.0 million in the first quarter of 2004 to $1.7 million in the first quarter of 2005 due primarily to an increase in cash and cash equivalents and short-term investments.
EFFECTIVE INCOME TAX RATE
The Company’s effective income tax rate on continuing operations was 28.6 percent during the first quarter of 2005, including the benefit of released tax reserves relating to favorable income tax audit settlements of $2.7 million. In total for fiscal 2005, the effective income tax rate is expected to be approximately 35 percent, exclusive of the reserve release which was discreet to the first quarter. The Company’s effective income tax rate on continuing operations was 33.3 percent in the first quarter of 2004.
MINORITY INTEREST, NET OF TAX
Minority interest represents our joint venture partners’ share of net earnings or losses on applicable international operations.
LIQUIDITY AND CAPITAL RESOURCES
We ended the first quarter of 2005 with a cash and cash equivalents balance of $245.8 million, an increase of $131.0 million over the 2004 first quarter, and short-term investments of $57.5 million, an increase of $47.0 million over the 2004 first quarter. Internally generated cash flow from operations is expected to continue to be the most important component of our capital resources.
28
Cash Flow Provided by Operating Activities
Cash flow provided by operations was $28.5 million in the 2005 first quarter, compared with $8.1 million in the 2004 first quarter. As a percentage of net sales, cash flow from operations was 4.1 percent in the 2005 first quarter, compared with 1.2 percent in the same period in 2004. The significant changes in cash flow during the 2005 first quarter as compared with the 2004 period are due to higher net earnings and changes in inventory and accrued expenses.
Cash Flow Used in Investing Activities
In the 2005 first quarter, our capital expenditures totaled $21.8 million, compared with $27.3 million for the same period in 2004. We estimate that capital expenditures for the remainder of the year will be approximately $56.2 million. Total capital expenditures for 2005 are expected to be approximately $70 million. This reduction in capital expenditures compared with recent years is consistent with our focus on execution of merchandise authority in our core business. We anticipate that internal cash flow and available financing from our $200 million revolving credit agreement will be sufficient to finance all of these expenditures.
Cash Flow Provided by Financing Activities
In January 2004, we replaced our $150 million senior secured revolving credit facility (the “Old Facility”) with a new $200 million senior secured revolving credit facility (the “New Facility”). Funds borrowed under the New Facility are secured by domestic merchandise inventory and receivables. We may borrow up to $200 million through the New Facility, subject to a sufficient borrowing base. The New Facility bears interest at the LIBOR rate, plus a variable margin of 1.25 percent to 2.0 percent, or the base rate defined in the agreement governing the New Facility. The margin on the New Facility varies based upon certain borrowing levels specified in the agreement governing the New Facility. The variable interest rate at April 30, 2005, was 4.5 percent. A monthly commitment fee of 0.30 percent per annum is payable on the unborrowed balance. The New Facility is scheduled to expire in January 2008, with a one-year extension to January 2009 at our option. No amounts were drawn on the New Facility as of April 30, 2005. Based on our borrowing base, we may borrow up to $200.0 million under the New Facility, less $19.7 million in outstanding letters of credit as of April 30, 2005.
In July 2003, we sold $200.0 million of 8.25% Senior Subordinated Notes (the “Notes”) for $196.7 million, due 2013. As of April 30, 2005, the fair value of the Notes was $206.0 million based on recent trading activity of the Notes. On or after August 1, 2008, we may, on any one or more occasions, redeem all or a part of the Notes at the redemption prices set forth below, plus accrued and unpaid interest, if any, on the Notes redeemed, to the applicable redemption date:
Year | Percentage | |||
2008 | 104.125 | % | ||
2009 | 102.750 | % | ||
2010 | 101.375 | % | ||
2011 and thereafter | 100.000 | % |
We have entered into $2.0 million of demand notes payable to efficiently finance our subsidiaries in the Central American Region. We maintain cash balances of $2.0 million in certificates of deposit as compensating balances to collateralize these notes payable. The notes payable accrue interest at a weighted average 6.75 percent. The certificates of deposit earn interest at a weighted average of 6.00 percent and are reflected as restricted cash in the accompanying condensed consolidated balance sheet.
Financial Commitments
For a discussion of our contractual obligations, see a discussion of future commitments under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Form 10-K for the fiscal year ended January 29, 2005. There have been no significant developments with respect to our contractual obligations since January 29, 2005.
29
FINANCIAL CONDITION RATIOS
A summary of key financial information for the periods indicated is as follows:
April 30, 2005 | May 1, 2004 | January 29, 2005 | ||||||||||
Current Ratio | 2.3 | 2.2 | 2.2 | |||||||||
Debt-Capitalization Ratio* | 25.0 | % | 27.8 | % | 25.9 | % |
* | Debt-to-capitalization has been computed by dividing total debt by capitalization. Total debt is defined as long-term debt including current maturities, notes payable and borrowings under the revolving line of credit. Capitalization is defined as total debt and shareowners’ equity. The debt-to-capitalization ratio, including the present value of future minimum rental payments under operating leases as debt and as capitalization, was 66.1%, 68.1% and 67.3% respectively, for the periods referred to above. |
STORE ACTIVITY
As of April 30, 2005, we operated 4,646 retail shoe stores offering quality footwear and accessories in all 50 of the United States, the District of Columbia, Puerto Rico, Guam, Saipan, the U.S. Virgin Islands, Canada, and the Central and South American Regions. The following table presents the change in store count for the entire company for the first quarter of 2005 and 2004. We consider a store relocation to be both a store opening and a store closing.
First Quarter | ||||||||
2005 | 2004 | |||||||
Beginning of period | 4,640 | 5,042 | ||||||
Stores opened | 39 | 80 | ||||||
Stores closed | (33 | ) | (56 | ) | ||||
Ending store count | 4,646 | 5,066 | ||||||
As of the end of the 2004 first quarter, we operated 4,824 stores classified as continuing operations.
As of April 30, 2005, we operated 147 stores in the Central America Region, 31 stores in the South America Region and 310 stores in Canada. We have entered into a joint venture agreement to operate Payless ShoeSource stores in Japan. We own 60 percent of the Japanese joint venture and, therefore, have consolidated the results of such operations in our financial statements. We opened the first test store in Japan during the fourth quarter of 2004. We will continue to evaluate the performance of this test store before considering any additional locations in Japan. We have curtailed any other expansion into new international markets to focus on our core business.
CRITICAL ACCOUNTING POLICIES
In preparing the condensed consolidated financial statements included in this Form 10-Q/A, management makes estimates and assumptions that affect the amounts reported within the financial statements. Actual results could differ from these estimates. For more information regarding our critical accounting policies, estimates and judgments, see the discussion under Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the year ended January 29, 2005.
ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
Interest on our senior secured revolving credit facility, which is entirely comprised of a revolving line of credit, is based on the London Inter-Bank Offered Rate (“LIBOR”) plus a variable margin of 1.25 percent to 2.0 percent, or the base rate, as defined in the credit agreement. There are no outstanding borrowings on the revolving line of credit; however, if we were to borrow against our revolving line of credit, borrowing costs may fluctuate depending upon the volatility of LIBOR and amounts borrowed.
30
FOREIGN CURRENCY RISK
We have retail operations in foreign countries; therefore, our cash flows in U.S. dollars are impacted by fluctuations in foreign currency exchange rates. We adjust our retail prices, when possible, to reflect changes in exchange rates to mitigate this risk. To further mitigate this risk, we may, from time to time, enter into forward contracts to purchase or sell foreign currencies. For the quarters ended April 30, 2005, and May 1, 2004, fluctuations in foreign currency exchange rates did not have a material impact on our operations or cash flows and we did not enter into any forward contracts to purchase or sell foreign currencies .
In the first quarter of 2005, approximately 92 percent of our footwear, based on cost, was sourced from the People’s Republic of China (the “PRC”). The national currency of the PRC, the yuan, is currently not a freely convertible currency. The yuan may be made freely convertible or be revalued by the PRC government. If this occurs, the products we source from the PRC could become more expensive in dollar terms.
ITEM 4 — CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s management is responsible for establishing disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s periodic Securities Exchange Act of 1934 reports is recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Commission’s (SEC) rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
As discussed in Note 2 to the condensed consolidated financial statements, included herein are amended condensed consolidated financial statements, which include the effects of the restatement for the three months ended April 30, 2005 and May 1, 2004. In addition, management of the Company has amended its Form 10-Q for the quarterly periods ended July 30, 2005 and October 29, 2005. The determination to restate these consolidated financial statements was made as a result of management’s identification of classification errors resulting in the overstatement of cash and cash equivalents and the understatement of short-term investments.
Management of the Company, under the direction of its Chief Executive Officer and its Chief Financial Officer, has reevaluated the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of April 30, 2005. Based upon this evaluation, effective controls over the classification of investments were not maintained which resulted in a material weakness in internal control over financial reporting. The Company’s management, including its Chief Executive Officer and Chief Financial Officer, concluded that its disclosure controls and procedures were not effective as of April 30, 2005. Specifically, effective controls were not designed and in place to ensure investments with original maturities greater than three months were classified as short-term investments. The Company identified this issue subsequent to the filing of its original Form 10-Q for the quarterly period ended April 30, 2005.
As a result of the material weakness, the Company performed additional technical review and analysis to ensure its consolidated financial statements are prepared in accordance with generally accepted accounting principles. Accordingly, notwithstanding the material weakness discussed above, the Company’s management has concluded that the financial statements included in this Form 10-Q/A fairly present in all material respects the Company’s financial position, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the first quarter of fiscal year 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
After identifying the material weakness subsequent to the filing of its Form 10-Q for the quarterly period ended April 30, 2005, management has made changes to remediate the material weakness described above. The remediation actions include:
• | Requiring the Accounting and Financial Reporting Department to review the investment portfolio on a quarterly basis for proper balance sheet classification. |
31
• | Improving the understanding of relevant personnel in the Treasury Department of the requirements of FASB Statements No. 95, “Statement of Cash Flows”and No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” | ||
• | Developing a comprehensive listing of accounting and disclosure considerations for all investment-related transactions that will be reviewed on a quarterly basis with relevant personnel in the Treasury department who regularly record general ledger transactions to ensure all transactions are properly accounted for and reported. |
PART II — OTHER INFORMATION
ITEM 1 — LEGAL PROCEEDINGS
Other than as described below, there are no material pending legal proceedings other than ordinary, routine litigation incidental to the business to which the Company is a party or of which any of its property is subject.
On or about December 20, 2001, a First Amended Complaint was filed against the Company in the U.S. District Court for the District of Oregon, captioned Adidas America, Inc. and Adidas-Salomon AG v. Payless ShoeSource, Inc. The First Amended Complaint seeks injunctive relief and unspecified monetary damages for trademark and trade dress infringement, unfair competition, deceptive trade practices and breach of contract. The Company believes it has meritorious defenses to claims asserted in the lawsuit and has filed an answer and a motion for summary judgment which the court granted in part. An estimate of the possible loss, if any, or the range of loss cannot be made.
On or about January 20, 2000, a complaint was filed against the Company in the U.S. District Court for the District of New Hampshire, captioned Howard J. Dananberg, D.P.M. v. Payless ShoeSource, Inc. The Complaint seeks injunctive relief, unspecified treble monetary damages, attorneys’ fees, interest and costs for patent infringement. The Company believes it has meritorious defenses to claims asserted in the lawsuit. An estimate of the possible loss, if any, or the range of loss cannot be made.
ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information about purchases by the Company (and its affiliated purchasers) during the quarter ended April 30, 2005, of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act:
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of Shares | Approximate Dollar Value of | |||||||||||||||
Purchased as Part of | Shares that May Yet Be | |||||||||||||||
Total Number of | Publicly Announced | Purchased Under the Plans or | ||||||||||||||
Shares Purchased(1) | Average Price Paid | Plans or Programs(2) | Programs(3) | |||||||||||||
Period | (in Thousands) | per Share | (in Thousands) | (in Millions) | ||||||||||||
01/30/05 – 02/26/05 | 4 | $ | 12.06 | 0 | $ | 238.1 | ||||||||||
02/27/05 – 04/02/05 | 128 | 15.38 | 125 | 236.2 | ||||||||||||
04/03/05 – 04/30/05 | 3 | 15.51 | 0 | 236.2 | ||||||||||||
Total | 135 | $ | 15.29 | 125 | $ | 236.2 | ||||||||||
(1) | We repurchased an aggregate of 9,909 shares of our common stock in connection with our employee stock purchase and stock incentive plans. | |
(2) | In 2001, our Board of Directors approved the repurchase of our common stock having a value of up to $250 million in the aggregate pursuant to the Program. | |
(3) | The timing and amount of share repurchases, if any, are limited by the terms of the Company’s Credit Agreement and Senior Subordinated Notes. |
32
ITEM 4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of shareowners of the Registrant was held on May 26, 2005.
(b) At the annual meeting of shareowners of the Registrant held on May 26, 2005, action was taken with respect to the election of three directors of the Registrant: 60,046,607 shares were voted for Steven J. Douglass while authority was withheld with respect to 1,127,437 shares, 60,465,876 shares were voted for Howard E. Fricke while authority was withheld with respect to 708,168 shares, and 60,653,277 shares were voted for Judith K. Hofer while authority was withheld with respect to 520,767 shares. Other directors whose term of office continued after the meeting include: Daniel Boggan Jr., Michael A. George, Mylle H. Mangum , John F. McGovern, Michael E. Murphy, Michael A. Weiss and Robert C. Wheeler.
(c) Shareowners ratified the appointment of Deloitte & Touche LLP as the Company’s independent public accountants: 60,983,770 votes in favor, 130,487 votes against and 59,787 votes abstained.
ITEM 6 — EXHIBITS
(a) Exhibits:
Number | Description | |
31.1 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer and President* | |
31.2 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Senior Vice President, Chief Financial Officer and Treasurer* | |
32.1 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer and President* | |
32.2 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Senior Vice President, Chief Financial Officer and Treasurer* |
* | Filed herewith |
33
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: February 21, 2006 | By: | /s/ Matthew E. Rubel | ||||||
Mathew E. Rubel | ||||||||
Chief Executive Officer | ||||||||
and President | ||||||||
(Principal Executive Officer) | ||||||||
Date: February 21, 2006 | By: | /s/ Ullrich E. Porzig | ||||||
Ullrich E. Porzig | ||||||||
Senior Vice President | ||||||||
Chief Financial Officer and Treasurer | ||||||||
(Principal Financial and Accounting Officer) |
34