Attached files
file | filename |
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EX-31.1 - EX-31.1 - COLLECTIVE BRANDS, INC. | c54931exv31w1.htm |
EX-32.2 - EX-32.2 - COLLECTIVE BRANDS, INC. | c54931exv32w2.htm |
EX-31.2 - EX-31.2 - COLLECTIVE BRANDS, INC. | c54931exv31w2.htm |
EX-32.1 - EX-32.1 - COLLECTIVE BRANDS, INC. | c54931exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 31, 2009
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-14770
COLLECTIVE BRANDS, INC.
(Exact name of registrant as specified in its charter)
Delaware State or other jurisdiction of incorporation of organization |
43-1813160 (I.R.S. Employer Identification No.) |
|
3231 Southeast Sixth Avenue, Topeka, Kansas (Address of principal executive offices) |
66607-2207 (Zip Code) |
Registrants telephone number, including area code (785) 233-5171
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 (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). YES
o NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
Common Stock, $.01 par value
64,113,567 shares as of November 30, 2009
64,113,567 shares as of November 30, 2009
COLLECTIVE BRANDS, INC.
FORM 10-Q
FOR THE FISCAL QUARTER ENDED OCTOBER 31, 2009
INDEX
FORM 10-Q
FOR THE FISCAL QUARTER ENDED OCTOBER 31, 2009
INDEX
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35 | ||||||||
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36 | ||||||||
37 | ||||||||
38 | ||||||||
38 | ||||||||
39 | ||||||||
Certification pursuant to Section 302 of the CEO, President and Chairman of the Board |
||||||||
Certification pursuant to Section 302 of the Division SVP, CFO and Treasurer |
||||||||
Certification pursuant to Section 906 of the CEO, President and Chairman of the Board |
||||||||
Certification pursuant to Section 906 of the Division SVP, CFO and Treasurer |
||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 |
2
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COLLECTIVE BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(dollars and shares in millions, except per share)
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
October 31, | November 1, | October 31, | November 1, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net sales |
$ | 867.0 | $ | 862.7 | $ | 2,566.2 | $ | 2,706.8 | ||||||||
Cost of sales |
555.2 | 564.0 | 1,668.9 | 1,820.2 | ||||||||||||
Gross margin |
311.8 | 298.7 | 897.3 | 886.6 | ||||||||||||
Selling, general and administrative expenses |
250.8 | 245.1 | 743.5 | 768.1 | ||||||||||||
Restructuring charges |
| 0.1 | | 0.2 | ||||||||||||
Operating profit from continuing operations |
61.0 | 53.5 | 153.8 | 118.3 | ||||||||||||
Interest expense |
14.8 | 19.9 | 46.4 | 57.7 | ||||||||||||
Interest income |
(0.2 | ) | (2.7 | ) | (1.0 | ) | (6.5 | ) | ||||||||
Net earnings from continuing operations before income taxes |
46.4 | 36.3 | 108.4 | 67.1 | ||||||||||||
Provision (benefit) for income taxes |
8.2 | (12.9 | ) | 13.1 | (13.4 | ) | ||||||||||
Net earnings from continuing operations |
38.2 | 49.2 | 95.3 | 80.5 | ||||||||||||
(Loss) earnings from discontinued operations, net of income taxes |
(0.1 | ) | 0.1 | (0.2 | ) | (0.4 | ) | |||||||||
Net earnings |
38.1 | 49.3 | 95.1 | 80.1 | ||||||||||||
Net earnings attributable to noncontrolling interests |
(1.2 | ) | (1.8 | ) | (1.5 | ) | (4.8 | ) | ||||||||
Net earnings attributable to Collective Brands, Inc. |
$ | 36.9 | $ | 47.5 | $ | 93.6 | $ | 75.3 | ||||||||
Basic earnings per share attributable to Collective Brands, Inc.
common shareholders: |
||||||||||||||||
Earnings from continuing operations |
$ | 0.58 | $ | 0.74 | $ | 1.47 | $ | 1.19 | ||||||||
Loss from discontinued operations |
| | | | ||||||||||||
Basic earnings per share attributable to Collective Brands, Inc.
common shareholders: |
$ | 0.58 | $ | 0.74 | $ | 1.47 | $ | 1.19 | ||||||||
Diluted earnings per share attributable to Collective Brands, Inc.
common shareholders: |
||||||||||||||||
Earnings from continuing operations |
$ | 0.57 | $ | 0.74 | $ | 1.46 | $ | 1.19 | ||||||||
Loss from discontinued operations |
| | | | ||||||||||||
Diluted earnings per share attributable to Collective Brands, Inc.
common shareholders: |
$ | 0.57 | $ | 0.74 | $ | 1.46 | $ | 1.19 | ||||||||
Basic weighted average shares outstanding |
63.2 | 63.0 | 63.1 | 62.9 | ||||||||||||
Diluted weighted average shares outstanding |
63.7 | 63.0 | 63.3 | 62.9 |
See Notes to Condensed Consolidated Financial Statements.
3
Table of Contents
COLLECTIVE BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollars in millions)
October 31, | November 1, | January 31, | ||||||||||
2009 | 2008 | 2009 | ||||||||||
ASSETS |
||||||||||||
Current Assets: |
||||||||||||
Cash and cash equivalents |
$ | 470.7 | $ | 523.6 | $ | 249.3 | ||||||
Accounts receivable, net of allowance for doubtful accounts
and returns reserve as of October 31, 2009, November 1, 2008 and
January 31, 2009 of $5.0, $5.3 and $4.2, respectively |
82.9 | 89.1 | 97.5 | |||||||||
Inventories |
403.2 | 467.6 | 492.0 | |||||||||
Current deferred income taxes |
32.2 | 45.6 | 35.6 | |||||||||
Prepaid expenses |
49.8 | 74.8 | 58.7 | |||||||||
Other current assets |
26.3 | 37.1 | 25.3 | |||||||||
Current assets of discontinued operations |
0.7 | 0.9 | 1.3 | |||||||||
Total current assets |
1,065.8 | 1,238.7 | 959.7 | |||||||||
Property and Equipment: |
||||||||||||
Land |
7.0 | 8.6 | 8.6 | |||||||||
Property, buildings and equipment |
1,415.7 | 1,486.8 | 1,458.6 | |||||||||
Accumulated depreciation and amortization |
(949.0 | ) | (952.1 | ) | (945.8 | ) | ||||||
Property and equipment, net |
473.7 | 543.3 | 521.4 | |||||||||
Intangible assets, net |
431.3 | 539.4 | 446.0 | |||||||||
Goodwill |
280.1 | 324.0 | 281.6 | |||||||||
Deferred income taxes |
5.8 | 0.2 | 1.7 | |||||||||
Other assets |
42.4 | 40.1 | 40.9 | |||||||||
Total Assets |
$ | 2,299.1 | $ | 2,685.7 | $ | 2,251.3 | ||||||
LIABILITIES AND EQUITY |
||||||||||||
Current Liabilities: |
||||||||||||
Current maturities of long-term debt |
$ | 7.1 | $ | 222.3 | $ | 24.8 | ||||||
Notes payable |
0.9 | | | |||||||||
Accounts payable |
140.2 | 186.5 | 173.8 | |||||||||
Accrued expenses |
194.5 | 208.2 | 202.7 | |||||||||
Current liabilities of discontinued operations |
1.7 | 1.8 | 1.9 | |||||||||
Total current liabilities |
344.4 | 618.8 | 403.2 | |||||||||
Long-term debt |
882.5 | 909.7 | 888.4 | |||||||||
Deferred income taxes |
55.2 | 116.0 | 49.2 | |||||||||
Other liabilities |
248.0 | 243.8 | 264.2 | |||||||||
Noncurrent liabilities of discontinued operations |
0.3 | | 0.3 | |||||||||
Commitments and contingencies (Note 14)
|
||||||||||||
Equity: |
||||||||||||
Collective Brands, Inc. shareowners equity |
741.7 | 776.1 | 622.3 | |||||||||
Noncontrolling interests |
27.0 | 21.3 | 23.7 | |||||||||
Total equity |
768.7 | 797.4 | 646.0 | |||||||||
Total Liabilities and Equity |
$ | 2,299.1 | $ | 2,685.7 | $ | 2,251.3 | ||||||
See Notes to Condensed Consolidated Financial Statements.
4
Table of Contents
COLLECTIVE BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
AND COMPREHENSIVE INCOME
(UNAUDITED)
(dollars in millions)
AND COMPREHENSIVE INCOME
(UNAUDITED)
(dollars in millions)
Collective Brands, Inc. Shareowners | ||||||||||||||||||||||||||||
Outstanding | Additional | Accumulated Other | Non- | |||||||||||||||||||||||||
Common | Paid-in | Retained | Comprehensive | controlling | Comprehensive | |||||||||||||||||||||||
Stock | Capital | Earnings | Income (Loss) | Interests | Total | Income | ||||||||||||||||||||||
Balance at February 2, 2008 |
$ | 0.7 | $ | | $ | 708.1 | $ | (5.9 | ) | $ | 17.2 | $ | 720.1 | |||||||||||||||
Net earnings |
| | 75.3 | | 4.8 | 80.1 | $ | 80.1 | ||||||||||||||||||||
Translation adjustments |
| | | (18.8 | ) | (0.5 | ) | (19.3 | ) | (19.3 | ) | |||||||||||||||||
Net change in fair value of derivative,
net of taxes of $2.1 |
| | | 3.4 | | 3.4 | 3.4 | |||||||||||||||||||||
Changes in unrecognized amounts of
pension benefits, net of taxes of $0.6 |
| | | 1.3 | | 1.3 | 1.3 | |||||||||||||||||||||
Issuances of common stock under stock plans |
| 0.8 | | | | 0.8 | ||||||||||||||||||||||
Purchases of common stock |
| (1.7 | ) | | | | (1.7 | ) | ||||||||||||||||||||
Amortization of unearned nonvested shares |
| 5.2 | | | | 5.2 | ||||||||||||||||||||||
Stock option expense |
| 7.7 | | | | 7.7 | ||||||||||||||||||||||
Contributions from noncontrolling interests |
| | | | 3.4 | 3.4 | ||||||||||||||||||||||
Distributions to noncontrolling interests |
| | | | (3.6 | ) | (3.6 | ) | ||||||||||||||||||||
Comprehensive income |
65.5 | |||||||||||||||||||||||||||
Comprehensive income attributable to
noncontrolling interests |
(4.3 | ) | ||||||||||||||||||||||||||
Comprehensive income attributable to
Collective Brands, Inc. |
$ | 61.2 | ||||||||||||||||||||||||||
Balance at November 1, 2008 |
$ | 0.7 | $ | 12.0 | $ | 783.4 | $ | (20.0 | ) | $ | 21.3 | $ | 797.4 | |||||||||||||||
Balance at January 31, 2009 |
$ | 0.7 | $ | 17.8 | $ | 639.4 | $ | (35.6 | ) | $ | 23.7 | $ | 646.0 | |||||||||||||||
Net earnings |
| | 93.6 | | 1.5 | 95.1 | $ | 95.1 | ||||||||||||||||||||
Translation adjustments |
| | | 9.0 | 0.5 | 9.5 | 9.5 | |||||||||||||||||||||
Net change in fair value of derivatives,
net of taxes of $1.6 |
| | | 2.6 | | 2.6 | 2.6 | |||||||||||||||||||||
Changes in unrecognized amounts of
pension benefits, net of taxes of $1.2 |
| | | 1.8 | | 1.8 | 1.8 | |||||||||||||||||||||
Issuances of common stock under
stock plans |
| 2.9 | | | | 2.9 | ||||||||||||||||||||||
Purchases of common stock |
| (2.3 | ) | | | | (2.3 | ) | ||||||||||||||||||||
Amortization of unearned nonvested
shares |
| 3.6 | | | | 3.6 | ||||||||||||||||||||||
Stock option expense |
| 8.2 | | | | 8.2 | ||||||||||||||||||||||
Contributions from noncontrolling interests |
| | | | 5.5 | 5.5 | ||||||||||||||||||||||
Distributions to noncontrolling interests |
| | | | (4.2 | ) | (4.2 | ) | ||||||||||||||||||||
Comprehensive income |
109.0 | |||||||||||||||||||||||||||
Comprehensive income attributable to
noncontrolling interests |
(2.0 | ) | ||||||||||||||||||||||||||
Comprehensive income attributable to
Collective Brands, Inc. |
$ | 107.0 | ||||||||||||||||||||||||||
Balance at October 31, 2009 |
$ | 0.7 | $ | 30.2 | $ | 733.0 | $ | (22.2 | ) | $ | 27.0 | $ | 768.7 | |||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
5
Table of Contents
COLLECTIVE BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in millions)
(UNAUDITED)
(dollars in millions)
39 Weeks Ended | ||||||||
October 31, | November 1, | |||||||
2009 | 2008 | |||||||
Operating Activities: |
||||||||
Net earnings |
$ | 95.1 | $ | 80.1 | ||||
Loss from discontinued operations, net of income taxes |
0.2 | 0.4 | ||||||
Adjustments for non-cash items included in net earnings: |
||||||||
Loss on disposal of assets |
8.3 | 5.6 | ||||||
Depreciation and amortization |
107.5 | 105.9 | ||||||
Provision for losses on accounts receivable |
2.1 | 2.2 | ||||||
Share-based compensation expense |
12.5 | 12.4 | ||||||
Deferred income taxes |
2.4 | (21.3 | ) | |||||
Other, net |
(0.1 | ) | | |||||
Changes in working capital: |
||||||||
Accounts receivable |
14.4 | (4.8 | ) | |||||
Inventories |
92.9 | (2.6 | ) | |||||
Prepaid expenses and other current assets |
17.2 | 9.0 | ||||||
Accounts payable |
(32.3 | ) | (8.6 | ) | ||||
Accrued expenses |
(3.9 | ) | 17.5 | |||||
Changes in other assets and liabilities, net |
(11.2 | ) | 6.7 | |||||
Contributions to pension plans |
(2.5 | ) | (4.7 | ) | ||||
Net cash provided by discontinued operations |
0.2 | | ||||||
Cash flow provided by operating activities |
302.8 | 197.8 | ||||||
Investing Activities: |
||||||||
Capital expenditures |
(61.2 | ) | (107.5 | ) | ||||
Proceeds from sale of property and equipment |
| 2.1 | ||||||
Cash flow used in investing activities |
(61.2 | ) | (105.4 | ) | ||||
Financing Activities: |
||||||||
Proceeds from notes payable |
0.9 | | ||||||
Proceeds from revolving loan facility |
| 215.0 | ||||||
Repayment of debt |
(23.9 | ) | (5.5 | ) | ||||
Payment of deferred financing costs |
| (0.1 | ) | |||||
Issuances of common stock |
2.9 | 0.8 | ||||||
Purchases of common stock |
(2.3 | ) | (1.7 | ) | ||||
Contributions by noncontrolling interests |
5.5 | 3.4 | ||||||
Distribution to noncontrolling interests |
(4.2 | ) | (3.6 | ) | ||||
Cash flow (used in) provided by financing activities |
(21.1 | ) | 208.3 | |||||
Effect of exchange rate changes on cash |
0.9 | (9.6 | ) | |||||
Increase in cash and cash equivalents |
221.4 | 291.1 | ||||||
Cash and cash equivalents, beginning of year |
249.3 | 232.5 | ||||||
Cash and cash equivalents, end of quarter |
$ | 470.7 | $ | 523.6 | ||||
Supplemental cash flow information: |
||||||||
Interest paid |
$ | 49.5 | $ | 54.0 | ||||
Income taxes paid |
$ | 11.7 | $ | 13.1 | ||||
Non-cash investing and financing activities: |
||||||||
Accrued capital additions |
$ | 11.0 | $ | 12.7 |
See Notes to Condensed Consolidated Financial Statements.
6
Table of Contents
COLLECTIVE BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 Interim Results
These unaudited Condensed Consolidated Financial Statements of Collective Brands, Inc., a Delaware
corporation, and subsidiaries (the Company) for the 13 and 39 weeks ended October 31, 2009 and
November 1, 2008 have been prepared in accordance with the instructions to Form 10-Q of the United
States Securities and Exchange Commission (SEC) and should be read in conjunction with the Notes
to the Consolidated Financial Statements (pages 56-100) in the Companys 2008 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, these 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 Condensed Consolidated Balance Sheet as of January 31, 2009 has been
derived from the audited financial statements at that date, but has been revised to reflect changes
in the presentation of noncontrolling interests.
The Companys operations in the Central and South American Regions are operated as consolidated
joint ventures in which the Company maintains a 60% ownership interest. The reporting period for
operations in the Central and South American Regions is a December 31 year-end. The Central
American Region is comprised of operations in Costa Rica, the Dominican Republic, El Salvador,
Guatemala, Honduras, Nicaragua, Panama and Trinidad & Tobago. The South American Region is
comprised of operations in Colombia and Ecuador. The effects of the one-month lag for the
operations in the Central and South American Regions are not significant to the Companys financial
position and results of operations. All intercompany amounts have been eliminated. In the third
quarter of 2009, the Company announced that The Stride Rite Corporation will do business as
Collective Brands Performance + Lifestyle Group (PLG). The results for the thirty-nine week
period ended October 31, 2009 are not necessarily indicative of the results that may be expected
for the entire fifty-two week fiscal year ending January 30, 2010.
Note 2 Exit Costs
During the first quarter of 2007, the Companys Board of Directors approved a plan to shift to a
new distribution model. As part of the plan, the Company opened a new distribution center in
Brookville, Ohio, which began operation in the fourth quarter of 2008. This distribution center is
in addition to the Companys Redlands, California distribution center that commenced operations in
the second quarter of 2007. The Company closed its distribution center in Topeka, KS in the
second quarter of 2009. The Company has incurred and paid substantially all of the exit costs
related to closing its distribution center in Topeka, KS. The costs, which have been incurred
since the first quarter of 2007, total approximately $12 million, consisting of approximately $3
million of non-cash accelerated depreciation expenses, approximately $6 million for employee
severance expenses, and approximately $3 million related to contract termination and other exit
costs. The exit costs are recorded as cost of sales in the Condensed Consolidated Statements of
Earnings and are included in the Payless Domestic segment.
As part of the purchase price allocation of the Companys acquisition of PLG, the Company incurred
certain exit costs (PLG Exit Costs). These costs include employee severance for certain PLG
corporate employees as well as employee severance, contract termination and other costs related to
the Companys closure of PLGs Burnaby, British Columbia administrative offices, manufacturing
facility and distribution center and Huntington, Indiana distribution center. The Company closed
the Huntington, Indiana distribution center during the third quarter of 2009.
The significant components of the PLG Exit Costs incurred as of October 31, 2009, are summarized as
follows:
Total Costs Incurred as of | Accrual Balance as of | 39 Weeks Ended October 31, 2009 | Accrual Balance as of | |||||||||||||||||
(dollars in millions) | October 31, 2009 | January 31, 2009 | Costs Incurred | Cash Payments | October 31, 2009 | |||||||||||||||
Employee severance costs |
$ | 16.4 | $ | 5.7 | $ | | $ | (4.3 | ) | $ | 1.4 | |||||||||
Contract termination and other costs |
2.5 | 1.0 | | (0.5 | ) | 0.5 | ||||||||||||||
Total |
$ | 18.9 | $ | 6.7 | $ | | $ | (4.8 | ) | $ | 1.9 | |||||||||
7
Table of Contents
Note 3 Discontinued Operations
The results of operations for Parade and the 26 Payless stores closed in connection with the 2004
restructuring plan for the 13 and 39 weeks ended October 31, 2009 and November 1, 2008,
respectively, are classified as discontinued operations within the Payless Domestic segment.
Note 4 Inventories
Merchandise inventories in the Companys 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. Wholesale
inventories are valued at the lower of cost, using the FIFO method, or market. Substantially all
of the Companys inventories as of October 31, 2009, November 1, 2008 and January 31, 2009 were
finished goods.
Note 5 Intangible Assets and Goodwill
The following is a summary of the Companys intangible assets:
October 31, | November 1, | January 31, | ||||||||||
(dollars in millions) | 2009 | 2008 | 2009 | |||||||||
Intangible assets subject to amortization: |
||||||||||||
Favorable lease rights: |
||||||||||||
Gross carrying amount |
$ | 32.5 | $ | 64.5 | $ | 33.2 | ||||||
Less: accumulated amortization |
(23.6 | ) | (52.7 | ) | (22.3 | ) | ||||||
Carrying amount, end of period |
8.9 | 11.8 | 10.9 | |||||||||
Customer relationships: |
||||||||||||
Gross carrying amount |
76.3 | 76.3 | 76.3 | |||||||||
Less: accumulated amortization |
(32.9 | ) | (18.1 | ) | (22.0 | ) | ||||||
Carrying amount, end of period |
43.4 | 58.2 | 54.3 | |||||||||
Trademarks and other intangible assets: |
||||||||||||
Gross carrying amount |
19.4 | 21.4 | 21.5 | |||||||||
Less: accumulated amortization |
(5.9 | ) | (5.7 | ) | (6.2 | ) | ||||||
Carrying amount, end of period |
13.5 | 15.7 | 15.3 | |||||||||
Total carrying amount of intangible assets subject to amortization |
65.8 | 85.7 | 80.5 | |||||||||
Indefinite-lived trademarks |
365.5 | 453.7 | 365.5 | |||||||||
Total intangible assets |
$ | 431.3 | $ | 539.4 | $ | 446.0 | ||||||
Amortization expense on intangible assets is as follows:
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
October 31, | November 1, | October 31, | November 1, | |||||||||||||
(dollars in millions) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Amortization expense on intangible assets |
$ | 4.6 | $ | 4.8 | $ | 13.9 | $ | 16.2 |
The Company expects amortization expense on intangible assets for the next five years to be as
follows (in millions):
Year | Amount | ||||
Remainder of 2009 |
$ | 4.9 | |||
2010 |
15.6 | ||||
2011 |
12.6 | ||||
2012 |
10.2 | ||||
2013 |
8.6 |
8
Table of Contents
The following is a summary of the carrying amount of goodwill, by reporting segment:
October 31, | November 1, | January 31, | ||||||||||
(dollars in millions) | 2009 | 2008 | 2009 | |||||||||
PLG Wholesale |
$ | 239.9 | $ | 241.8 | $ | 241.4 | ||||||
Payless Domestic |
40.2 | 40.2 | 40.2 | |||||||||
PLG Retail |
| 42.0 | | |||||||||
Total |
$ | 280.1 | $ | 324.0 | $ | 281.6 | ||||||
During the 39 weeks ended October 31, 2009, the Company made adjustments to the PLG purchase
price allocation totaling $1.5 million, which resulted in a decrease in goodwill for the PLG
Wholesale segment. During the 13 weeks ended October 31, 2009, the Company performed its required
annual goodwill impairment test and concluded there was no impairment of goodwill.
Note 6 Long-Term Debt
The following is a summary of the Companys long-term debt and capital lease obligations
outstanding:
October 31, | November 1, | January 31, | ||||||||||
(dollars in millions) | 2009 | 2008 | 2009 | |||||||||
Term Loan Facility (1) |
$ | 693.1 | $ | 717.8 | $ | 715.9 | ||||||
Senior Subordinated Notes (2) |
195.5 | 198.1 | 196.2 | |||||||||
Revolving Loan Facility (3) |
| 215.0 | | |||||||||
Capital-lease obligations |
1.0 | 1.1 | 1.1 | |||||||||
Total debt |
889.6 | 1,132.0 | 913.2 | |||||||||
Less: current maturities of long-term debt |
7.1 | 222.3 | 24.8 | |||||||||
Long-term debt |
$ | 882.5 | $ | 909.7 | $ | 888.4 | ||||||
(1) | As of October 31, 2009, the fair value of the Companys Term Loan Facility was $661.9 million based on current market conditions and perceived risks. | |
(2) | As of October 31, 2009, the fair value of the Companys Senior Subordinated Notes was $199.0 million based on recent trading activity. | |
(3) | As of October 31, 2009, the Companys borrowing base on its Revolving Loan Facility was $322.0 million less $84.6 million in outstanding letters of credit, or $237.4 million. The variable interest rate including the applicable variable margin at October 31, 2009, was 1.28%. |
As of October 31, 2009, the Company was in compliance with all of its debt covenants related to the
above outstanding debt.
Note 7 Derivatives
The Company has entered into an interest rate contract for an initial amount of $540 million to
hedge a portion of its variable rate $725 million term loan facility (interest rate contract).
The interest rate contract provides for a fixed interest rate of approximately 7.75%, portions of
which mature on a series of dates through 2012. As of October 31, 2009, the Company has hedged
$365 million of its Term Loan Facility.
The Company has also entered into a series of forward contracts to hedge a portion of certain
foreign currency purchases (foreign currency contracts). The foreign currency contracts provide
for a fixed exchange rate and mature over a series of dates through January 2010. As of October
31, 2009, the Company has hedged $6.0 million of its forecasted foreign currency purchases.
The interest rate and foreign currency contracts are designated as cash flow hedging instruments.
The change in the fair value of the interest rate and foreign currency contracts are recorded as a
component of accumulated other comprehensive income (AOCI) and reclassified into earnings in the
periods in which earnings are impacted by the hedged item. As of October 31, 2009, November 1,
2008, and January 31, 2009 the Company had no hedging assets. The following table presents the
fair value of the Companys hedging portfolio related to its interest rate contract and foreign
currency contracts:
Fair Value | ||||||||||||||||
Location on Condensed | October 31, | November 1, | January 31, | |||||||||||||
(dollars in millions) | Consolidated Balance Sheet | 2009 | 2008 | 2009 | ||||||||||||
Interest rate contract |
Other liabilities | $ | 17.1 | $ | 18.1 | $ | 21.5 | |||||||||
Foreign currency contracts |
Accrued expenses | $ | 0.2 | $ | | $ | |
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For the interest rate contract, the Company uses a mark-to-market valuation technique based on
an observable interest rate yield curve and adjusts for credit risk. For the foreign currency
contracts, the Company uses a mark-to-market technique based on observable foreign currency
exchange rates and adjusts for credit risk. It is the Companys policy to enter into derivative
instruments with terms that match the underlying exposure being hedged. As such, the Companys
derivative instruments are considered highly effective, and the net gain or loss from hedge
ineffectiveness is not material. Realized gains or losses on the hedging instruments
occur when a portion of the hedge settles or if it is probable that the forecasted transaction will
not occur. The impact of the derivative instruments on the Condensed Consolidated Financial
Statements is as follows:
Loss Recognized in AOCI on | Loss Reclassified from AOCI into | |||||||||||||||||||
Derivative | Earnings | |||||||||||||||||||
13 Weeks Ended | Location on Condensed | 13 Weeks Ended | ||||||||||||||||||
October 31, | November 1, | Consolidated Statement of | October 31, | November 1, | ||||||||||||||||
(dollars in millions) | 2009 | 2008 | Earnings | 2009 | 2008 | |||||||||||||||
Interest rate contract |
$ | (1.9 | ) | $ | (4.0 | ) | Interest expense | $ | (2.5 | ) | $ | (1.5 | ) | |||||||
Foreign currency contracts |
$ | | $ | | Cost of sales | $ | (0.3 | ) | $ | |
Loss Recognized in AOCI on | Loss Reclassified from AOCI into | |||||||||||||||||||
Derivative | Earnings | |||||||||||||||||||
39 Weeks Ended | Location on Condensed | 39 Weeks Ended | ||||||||||||||||||
October 31, | November 1, | Consolidated Statement of | October 31, | November 1, | ||||||||||||||||
(dollars in millions) | 2009 | 2008 | Earnings | 2009 | 2008 | |||||||||||||||
Interest rate contract |
$ | (4.4 | ) | $ | (1.0 | ) | Interest expense | $ | (7.1 | ) | $ | (4.4 | ) | |||||||
Foreign currency contracts |
$ | (0.5 | ) | $ | | Cost of sales | $ | (0.4 | ) | $ | |
The Company expects $8.7 million of the fair value of the interest rate contract and $0.2
million of the fair value of the foreign currency contracts recorded in AOCI to be recognized in
earnings during the next 12 months. These amounts may vary based on actual changes to LIBOR and
foreign currency exchange rates.
Note 8 Fair Value Measurements
The Companys estimates of fair value for financial assets and financial liabilities are based on
the framework established in the fair value accounting guidance. The framework is based on the
inputs used in valuation, gives the highest priority to quoted prices in active markets, and
requires that observable inputs be used in the valuations when available. The three levels of the
hierarchy are as follows:
Level 1: observable inputs such as quoted prices in active markets |
Level 2: inputs other than the quoted prices in active markets that are observable either directly or indirectly |
Level 3: unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions |
The following table presents financial assets and financial liabilities that the Company measures
at fair value on a recurring basis. The Company has classified these financial assets and
liabilities in accordance with the fair value hierarchy as of October 31, 2009:
Estimated Fair Value Measurements | ||||||||||||||||
Significant | ||||||||||||||||
Quoted Prices in | Significant | Unobservable | ||||||||||||||
Active Markets | Observable Other | Inputs | ||||||||||||||
(dollars in millions) | (Level 1) | Inputs (Level 2) | (Level 3) | Total Fair Value | ||||||||||||
Financial assets: |
||||||||||||||||
Money market funds |
$ | 365.9 | $ | | $ | | $ | 365.9 | ||||||||
Financial liabilities: |
||||||||||||||||
Interest rate contract |
$ | | $ | 17.1 | $ | | $ | 17.1 | ||||||||
Foreign currency contracts |
$ | | $ | 0.2 | $ | | $ | 0.2 |
Note 9 Pension Plans
The Company has a pension plan that covers a select group of Payless management employees (Payless
Plan) and a pension plan that covers certain PLG employees (PLG Plan).
10
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Payless Plan
The Payless Plan is a nonqualified, supplementary defined benefit plan for a select group of
management employees. The plan is an unfunded, noncontributory plan. Management calculates
components of pension expense using assumptions to estimate the total benefits ultimately payable
to each management employee and allocates this cost to service periods. The components of pension
expense for the plan were:
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
October 31, | November 1, | October 31, | November 1, | |||||||||||||
(dollars in millions) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Components of pension expense: |
||||||||||||||||
Service cost |
$ | 0.2 | $ | 0.1 | $ | 0.5 | $ | 0.3 | ||||||||
Interest cost |
0.6 | 0.6 | 1.8 | 1.8 | ||||||||||||
Amortization of prior service cost |
0.4 | 0.4 | 1.2 | 1.2 | ||||||||||||
Amortization of actuarial loss |
0.1 | 0.2 | 0.4 | 0.6 | ||||||||||||
Total |
$ | 1.3 | $ | 1.3 | $ | 3.9 | $ | 3.9 | ||||||||
PLG Plan
The PLG Plan is a noncontributory defined benefit pension plan covering certain eligible PLG
associates. Management calculates pension expense using assumptions to estimate the total benefits
ultimately payable to each management employee and allocates this cost to service periods. The
Company paid $2.5 million in contributions to the PLG Plan for the thirty-nine weeks ended October
31, 2009. The components of pension expense (benefit) for the plan were:
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
October 31, | November 1, | October 31, | November 1, | |||||||||||||
(dollars in millions) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Components of pension expense: |
||||||||||||||||
Interest cost |
$ | 1.1 | $ | 1.1 | $ | 3.3 | $ | 3.3 | ||||||||
Expected return on net assets |
(0.9 | ) | (1.3 | ) | (2.7 | ) | (3.7 | ) | ||||||||
Amortization of actuarial loss |
0.5 | | 1.4 | | ||||||||||||
Total |
$ | 0.7 | $ | (0.2 | ) | $ | 2.0 | $ | (0.4 | ) | ||||||
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Note 10 Share-Based Compensation
Under its equity incentive plans, the Company currently grants share appreciation vehicles
consisting of stock options, stock-settled stock appreciation rights (stock-settled SARs), full
value vehicles consisting of nonvested shares and phantom stock units (nonvested shares and share
units), as well as cash-settled stock appreciation rights (cash-settled SARs).
The number of shares for grants made in the thirteen and thirty-nine weeks ended October 31, 2009
and November 1, 2008, respectively, are as follows:
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
October 31, | November 1, | October 31, | November 1, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Stock-settled SARs (in number of SARs)(1): |
||||||||||||||||
Vest in installments over 3 years |
2,834 | 104,139 | 1,477,387 | 652,194 | ||||||||||||
Cliff vest after 3 years |
53,891 | 144,048 | 516,591 | 463,728 | ||||||||||||
Nonvested shares and share units: |
||||||||||||||||
Performance grant vests in installments over 3 years(2) |
| 13,849 | | 24,477 | ||||||||||||
Vest in installments over 3 years |
1,000 | 8,974 | 338,303 | 276,923 | ||||||||||||
Cliff vest after 3 years |
2,015 | 8,300 | 2,015 | 12,225 | ||||||||||||
Phantom nonvested shares vests in installments over 3 years |
| | 15,074 | | ||||||||||||
Cash-settled SARs: |
||||||||||||||||
Vest in installments over 3 years |
| | 50,150 | 5,250 | ||||||||||||
Cliff vest after 3 years |
| 4,000 | 3,500 | 12,500 |
(1) | All of the stock-settled SARs issued by the Company to-date contain an appreciation cap, which limits the appreciation for which shares of common stock will be granted to 200% of the fair market value of the underlying common stock on the grant date of the SAR, meaning that the maximum shares issuable under a SAR is 0.67 shares per SAR. | |
(2) | Certain nonvested shares were subject to a performance condition for vesting. These nonvested shares were cancelled, by mutual agreement and without monetary consideration, in the fourth quarter of 2008. As such, the Company did not recognize expense associated with these awards for the 13 weeks or 39 weeks ended October 31, 2009. |
Total share-based compensation expense of $3.7 million and $12.5 million before income taxes
has been included in the Companys Condensed Consolidated Statement of Earnings for the thirteen
and thirty-nine weeks ended October 31, 2009, respectively. Included in this amount is $2.5 million
of expense that was recognized as a result of the grants made in 2009. No amount of share-based
compensation was capitalized. Total share-based compensation expense is summarized as follows:
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
October 31, | November 1, | October 31, | November 1, | |||||||||||||
(dollars in millions) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Cost of sales |
$ | 0.9 | $ | 1.0 | $ | 3.1 | $ | 3.1 | ||||||||
Selling, general and administrative expenses |
2.8 | 2.9 | 9.4 | 9.3 | ||||||||||||
Share-based compensation expense before income taxes |
3.7 | 3.9 | 12.5 | 12.4 | ||||||||||||
Tax benefit |
(1.4 | ) | (1.4 | ) | (4.8 | ) | (4.7 | ) | ||||||||
Share-based compensation expense after income taxes |
$ | 2.3 | $ | 2.5 | $ | 7.7 | $ | 7.7 | ||||||||
As of October 31, 2009, the Company had unrecognized compensation expense related to nonvested
awards of $21.9 million, which is expected to be recognized over a weighted average period of 0.9
years.
Note 11 Income Taxes
The Companys effective income tax rate on continuing operations was 12.1% during the thirty-nine
weeks ended October 31, 2009, compared to a negative 20.0% during the thirty-nine weeks ended
November 1, 2008. The Company recorded $4.3 million of favorable discrete events in the
thirty-nine weeks ended October 31, 2009. The Company expects its effective tax rate to differ
from the U.S. statutory rate principally due to the impact of its operations conducted in
jurisdictions with rates lower than the U.S. statutory rate and the on-going implementation of tax
efficient business initiatives. The unfavorable difference in the overall effective tax rate for
2009 compared to 2008 is due to an increase in pre-tax income in relatively high tax rate
jurisdictions, partially caused by litigation expenses in high tax jurisdictions in the prior year,
as well as decreased income in relatively lower tax rate jurisdictions.
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The Company has unrecognized tax benefits, inclusive of related interest and penalties, of $66.7
million and $64.4 million as of thirty-nine weeks ended October 31, 2009 and November 1, 2008,
respectively. The portion of the unrecognized tax benefits that would impact the effective income
tax rate if recognized are $40.6 million and $50.9 million, respectively.
The Company anticipates that it is reasonably possible that the total amount of unrecognized tax
benefits at October 31, 2009 will decrease by up to $41.3 million within the next twelve months.
To the extent these tax benefits are recognized, the effective rate would be favorably impacted in
the period of recognition by up to $18.6 million. The potential reduction primarily relates to
potential settlements of on-going examinations with tax authorities and the potential lapse of the
statutes of limitations in relevant tax jurisdictions.
The Companys U.S. federal income tax returns of Payless have been examined by the Internal Revenue
Service through 2004. The Companys U.S. federal income tax returns for the years 2005 through
2007 are currently under examination by the Internal Revenue Service. The U.S. federal income tax
returns of The Stride Rite Corporation, with the exclusion of the tax year ended November 2006,
have been examined by the Internal Revenue Service. The Company also has various state and foreign
income tax returns in the process of examination or administrative appeal.
The Companys condensed consolidated balance sheet as of October 31, 2009 includes deferred tax
assets, net of related valuation allowances, of approximately $152 million. In assessing the
future realization of these assets, the Company concluded it is more
likely than not the assets will be realized. This conclusion was based in large part upon the
Companys belief that it will generate sufficient quantities of taxable income from operations in
future years in the appropriate tax jurisdictions. If the Companys near-term forecasts are not
achieved, it may be required to record additional valuation allowances against its deferred tax
assets. This could have a material impact on the Companys financial position and results of
operations in a particular period.
Note 12 Earnings per Share
Effective
February 1, 2009, the Company adopted new earnings per share
accounting guidance which states that
unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are considered participating securities and shall be included
in the computation of earnings per share pursuant to the two-class method. The two-class method is
an earnings allocation formula that treats a participating security as having rights to earnings
that would otherwise have been available to common shareholders. The provisions of the new earnings
per share guidance are retrospective; therefore, prior periods have been retrospectively presented.
Basic earnings per share are computed by dividing net earnings available to common shareholders by
the weighted average number of shares of common stock outstanding during the period. Diluted
earnings per share reflects the more dilutive earnings per share amount calculated using the
treasury method or the two-class method. For the thirteen and thirty-nine weeks ended October 31,
2009 and November 1, 2008, the Company used the two-class method calculation for earnings per
share. Diluted earnings per share include the effect of conversions of stock options and
stock-settled stock appreciation rights. Earnings per share has been computed as follows:
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
October 31, | November 1, | October 31, | November 1, | |||||||||||||
(dollars in millions, except per share amounts; shares in thousands) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Net earnings attributable to Collective Brands, Inc. from continuing operations |
$ | 37.0 | $ | 47.4 | $ | 93.8 | $ | 75.7 | ||||||||
Less: net earnings allocated to participating securities(1) |
0.5 | 0.5 | 1.2 | 1.1 | ||||||||||||
Net earnings available to common shareholders from continuing operations |
$ | 36.5 | $ | 46.9 | $ | 92.6 | $ | 74.6 | ||||||||
Weighted average shares outstanding basic |
63,188 | 63,017 | 63,120 | 62,896 | ||||||||||||
Net effect of dilutive stock options |
183 | 3 | 61 | 1 | ||||||||||||
Net effect of dilutive SARs |
286 | | 98 | | ||||||||||||
Weighted average shares outstanding diluted |
63,657 | 63,020 | 63,279 | 62,897 | ||||||||||||
Basic earnings per share attributable to Collective Brands, Inc.
common shareholders from continuing operations |
$ | 0.58 | $ | 0.74 | $ | 1.47 | $ | 1.19 | ||||||||
Diluted earnings per share attributable to Collective Brands, Inc.
common shareholders from continuing operations |
$ | 0.57 | $ | 0.74 | $ | 1.46 | $ | 1.19 |
(1) | Net earnings allocated to participating securities is calculated based upon a weighted average percentage of participating securities in relation to total shares outstanding. |
The Company excluded approximately 3.7 million and 5.5 million stock options and stock-settled
SARs from the calculation of diluted earnings per share for the thirteen and thirty-nine weeks
ended October 31, 2009 and approximately 5.1 million and 5.6 million stock options and
stock-settled SARs from the calculation of diluted earnings per share for the thirteen and
thirty-nine weeks ended November 1, 2008 because to include them would have been antidilutive.
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Note 13 Segment Reporting
The Company has four reporting segments: (i) Payless Domestic, (ii) Payless International, (iii)
PLG Wholesale and (iv) PLG Retail. The Company has defined its reporting segments as follows:
(i) | The Payless Domestic reporting segment is comprised primarily of domestic retail stores under the Payless ShoeSource name, the Companys sourcing unit and Collective International, LP (Collective Licensing). | ||
(ii) | The Payless International reporting segment is comprised of international retail stores under the Payless ShoeSource name in Canada, the South American Region, the Central American Region, Puerto Rico, and the U.S. Virgin Islands as well as franchising arrangements under the Payless ShoeSource name. | ||
(iii) | The PLG Wholesale reporting segment is comprised of PLGs global wholesale operations. | ||
(iv) | The PLG Retail reporting segment is comprised of PLGs specialty stores and outlet stores. |
Payless Internationals operations in the Central American and South American Regions are operated
as joint ventures in which the Company maintains a 60% ownership interest. Noncontrolling interest
represents the Companys 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 $9.2 million and $10.0 million for the thirteen weeks ended October 31,
2009 and November 1, 2008, respectively, and $26.3 million and $27.4 million for the thirty-nine
weeks ended October 31, 2009 and November 1, 2008, respectively. The reporting period for
operations in the Central and South American Regions use a December 31 year-end. The effect of this
one-month lag on the Companys financial position and results of operations is not significant.
All intercompany amounts have been eliminated. Information on the reporting segments is as
follows:
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
October 31, | November 1, | October 31, | November 1, | |||||||||||||
(dollars in millions) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Revenues from external customers: |
||||||||||||||||
Payless Domestic |
$ | 578.1 | $ | 553.7 | $ | 1,695.7 | $ | 1,729.6 | ||||||||
Payless International |
110.0 | 111.4 | 298.5 | 332.7 | ||||||||||||
PLG Wholesale |
111.6 | 132.1 | 398.1 | 473.2 | ||||||||||||
PLG Retail |
67.3 | 65.5 | 173.9 | 171.3 | ||||||||||||
Revenues from external customers |
$ | 867.0 | $ | 862.7 | $ | 2,566.2 | $ | 2,706.8 | ||||||||
Operating profit from continuing operations: |
||||||||||||||||
Payless Domestic |
$ | 44.5 | $ | 29.2 | $ | 110.8 | $ | 30.4 | ||||||||
Payless International |
11.2 | 12.3 | 17.4 | 41.0 | ||||||||||||
PLG Wholesale |
0.1 | 4.4 | 21.7 | 40.9 | ||||||||||||
PLG Retail |
5.2 | 7.6 | 3.9 | 6.0 | ||||||||||||
Operating profit from continuing operations |
$ | 61.0 | $ | 53.5 | $ | 153.8 | $ | 118.3 | ||||||||
October 31, | November 1, | January 31, | ||||||||||
(dollars in millions) | 2009 | 2008 | 2009 | |||||||||
Operating segment total assets: |
||||||||||||
Payless Domestic |
$ | 1,216.4 | $ | 1,396.3 | $ | 1,109.1 | ||||||
Payless International |
193.4 | 199.5 | 173.6 | |||||||||
PLG Wholesale |
821.3 | 975.2 | 894.7 | |||||||||
PLG Retail |
68.0 | 114.7 | 73.9 | |||||||||
Operating segment total assets |
$ | 2,299.1 | $ | 2,685.7 | $ | 2,251.3 | ||||||
Note 14 Commitments and Contingencies
adidas America, Inc. and adidas-Salomon AG v. Payless ShoeSource, Inc.
On or about December 20, 2001, a First Amended Complaint was filed against Payless ShoeSource, Inc.
(Payless) in the U.S. District Court for the District of Oregon, captioned adidas America, Inc.
and adidas-Salomon AG (adidas) v. Payless ShoeSource, Inc. The First Amended Complaint sought
injunctive relief and unspecified monetary damages for trademark and trade dress infringement,
unfair competition, deceptive trade practices and breach of contract. Payless filed an answer and a
motion for summary judgment which the court granted in part. On June 18, 2004, plaintiffs appealed
the District Courts ruling on the motion for summary judgment. On January 5, 2006, the
9th Circuit Court of Appeals entered an order reversing the District Courts partial
summary
14
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judgment order. Payless requested a rehearing en banc, which was denied by the 9th
Circuit Court of Appeals. On June 29, 2006, Payless filed a petition for writ of certiorari to the
United States Supreme Court, which was denied on October 2, 2006.
On May 5, 2008, following a four week trial, a jury rendered a verdict against Payless in the
aggregate amount of $304.6 million, consisting of royalty damages in the amount of $30.6 million;
disgorgement profits in the amount of $137.0 million; and punitive damages in the amount of $137.0
million. On November 13, 2008, after granting in part motions filed by Payless for a new trial,
judgment notwithstanding the verdict, and remittitur, the District Court entered judgment against
Payless in the reduced amount of $65.3 million, consisting of $30.6 million in royalty damages,
$19.7 million in disgorgement of profits, and $15.0 million in punitive damages (of which $9.0
million is payable to the State of Oregon and not adidas pursuant to Oregon law), such amounts to
accrue interest at the annual rate of 1.24%. On that same date, the District Court entered a
permanent injunction enjoining Payless, but not its affiliates, from selling the footwear lots the
jury found infringed adidas rights along with certain other footwear styles bearing two, three, or
four stripes as specified by the terms of the injunction. On December 29, 2008 the District Court
issued a Revised Order of Permanent Injunction which made certain technical changes to the
injunction but rejected substantive changes requested by adidas. This injunction, as corrected,
was entered by the District Court on January 7, 2009.
On December 5, 2008, adidas moved for $17.2 million in prejudgment interest, $6.6 million in
attorneys fees and nontaxable expenses, and filed a bill of costs totaling $0.4 million. On
February 9, 2009, the District Court denied adidas motions for attorneys fees and expenses and
prejudgment interest, and awarded adidas costs in the amount of $0.4 million. On March 18, 2009,
the Court entered a supplemental judgment awarding adidas an additional $1.0 million based upon
Payless sales of allegedly infringing footwear after February 2, 2008, bringing the total judgment
amount to approximately $66.3 million.
Payless has appealed the District Courts judgment and injunction to the United States Court of
Appeals for the 9th Circuit and filed its Opening Brief on May 18, 2009. Adidas has
also purported to appeal from the District Courts reduction of the jury verdict, from the District
Courts denial of an injunction of the broader scope it requested, and from the denial of its
requests for attorneys fees and prejudgment interest. On May 18, 2009, Payless filed its Opening
Brief on appeal. On July 1, 2009, adidas filed its Combined Appellees Response Brief and Opening
Brief of Cross-Appellants. On August 17, 2009, Payless filed its Response and Reply Brief. Adidas
filed its Reply Brief on September 14, 2009.
On April 2, 2009, adidas Canadian subsidiary filed a statement of claim alleging that Payless and
its Canadian operating companies infringed on adidas three stripe trademark by offering for sale
the same footwear at issue in the United States action. The Company believes it has meritorious
defenses to the claims asserted by adidas and filed an answer, defenses, and counterclaims on May
18, 2009.
As of October 31, 2009, the Company had recorded a $30.0 million pre-tax liability related to loss
contingencies associated with these matters, all of which were recorded during the first quarter of
2008. This liability, which was recorded within accrued expenses on the Companys Condensed
Consolidated Balance Sheet, resulted in an equal amount being charged to cost of sales.
The Company previously reached agreements with substantially all of its various relevant insurers
with respect to their coverage obligations for the claims by adidas. Pursuant to those agreements,
the Company has released these insurers from any further obligations with respect to adidas claims
in the action under applicable policies.
In the Matter of Certain Foam Footwear
On or about April 3, 2006, Crocs Inc. filed two companion actions against several manufacturers of
foam clog footwear asserting claims for patent infringement, trade dress infringement, and unfair
competition. One complaint was filed before the United States International Trade Commission
(ITC) in Washington D.C. The other complaint was filed in federal district court in Colorado.
The Companys wholly-owned subsidiary, Collective Licensing International, LLC (Collective
Licensing), was named as a Respondent in the ITC Investigation, and as a Defendant in the Colorado
federal court action. The Company settled all claims associated with these complaints in the third
quarter of 2009, the results of which did not have a material effect on the Companys financial
position, results of operations or cash flows.
American Eagle Outfitters and Retail Royalty Co. v. Payless ShoeSource, Inc.
On or about April 20, 2007, a Complaint was filed against the Company in the U.S. District Court
for the Eastern District of New York, captioned American Eagle Outfitters and Retail Royalty Co.
(AEO) v. Payless ShoeSource, Inc. (Payless). The Complaint seeks injunctive relief and
unspecified monetary damages for false advertising, trademark infringement, unfair competition,
false description, false designation of origin, breach of contract, injury to business reputation,
deceptive trade practices, and to void or nullify an agreement between the Company and third party
Jimlar Corporation. Plaintiffs filed a motion for preliminary injunction on or about May 7, 2007.
On December 20, 2007, the Magistrate Judge who heard oral arguments on the pending motions issued a
Report and Recommendation (R&R) recommending that a preliminary injunction issue requiring the
Company, in marketing its American Eagle products, to prominently display a disclaimer stating
that: AMERICAN EAGLE by Payless is not affiliated with AMERICAN EAGLE OUTFITTERS. The Magistrate
Judge also recommended that Payless stop using Exclusively at Payless in
15
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association with its American Eagle products. The parties then filed objections to this R&R and,
on January 23, 2008, the District Court Judge issued an order remanding the matter back to the
Magistrate Judge and instructing him to consider certain arguments raised by the Company in its
objections. On June 6, 2008, the Magistrate Judge issued a Supplemental Report and Recommendation
(Supp. R&R), modifying his earlier finding, stating that AEO had not established a likelihood of
success on the merits of its breach of contract claim, and recommending denial of the Companys
request for an evidentiary hearing. The parties again filed objections and, on July 7, 2008, the
District Court Judge entered an order adopting the Magistrates December 20, 2007 R&R, as modified
by the June 6, 2008 Supp. R&R. The Company believes it has meritorious defenses to the claims
asserted in the lawsuit and filed its answer and counterclaim on July 21, 2008. On August 27,
2008, the Magistrate Judge issued an R & R that includes a proposed preliminary injunction
providing additional detail for, among other things, the manner of complying with the previously
recommended disclaimer. On September 15, 2008, the Company filed objections to the proposed
preliminary injunction. On October 20, 2008, the District Court Judge issued an order deeming the
objections to be a motion for reconsideration and referring them back to the Magistrate Judge.
Later that same day, the Magistrate Judge issued a revised proposed preliminary injunction
incorporating most of the modifications proposed in the Companys objections. On November 6, 2008,
the parties filed objections to the revised proposed preliminary injunction. On November 10, 2008,
the Court entered a preliminary injunction. An estimate of the possible loss, if any, or the range
of loss cannot be made and therefore the Company has not accrued a loss contingency related to this
matter. However, the ultimate resolution of this matter could have a material adverse effect on
the Companys financial position, results of operations and cash flows.
Note 15 Impact of Recently Issued Accounting Standards
In December 2007, the Financial Accounting Standards Board (FASB) issued revised guidance for the
accounting for business combinations. The revised guidance, which is now part of Accounting
Standards Codification (ASC) 805, Business Combinations, requires the acquiring entity in a
business combination to record all assets acquired and liabilities assumed at their respective
acquisition-date fair values, changes the recognition of assets acquired and liabilities assumed
arising from contingencies, changes the recognition and measurement of contingent consideration,
and requires the expensing of acquisition-related costs as incurred. The revised guidance also
requires additional disclosure of information surrounding a business combination, such that users
of the entitys financial statements can fully understand the nature and financial impact of the
business combination. The revised guidance primarily applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008, however, adjustments made to valuation
allowances on deferred taxes and acquired tax contingencies associated with acquisitions that
closed prior to the effective date would also apply to the provisions of the revised guidance.
Early adoption was not permitted. The revised guidance was effective for the Company beginning
February 1, 2009 and will primarily apply prospectively to business combinations completed on or
after that date.
In December 2007, the FASB issued new guidance for the accounting for noncontrolling interests.
The new guidance, which is now a part of ASC 810, Consolidation, establishes accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of
a subsidiary. The new guidance requires consolidated net earnings to be reported at amounts that
include the amounts attributable to both the parent and the noncontrolling interest. It also
requires disclosure, on the face of the Condensed Consolidated Statement of Earnings, of the
amounts of consolidated net earnings attributable to the parent and to the noncontrolling interest.
In addition, this new guidance establishes a single method of accounting for changes in a parents
ownership interest in a subsidiary that do not result in deconsolidation and requires that a parent
recognize a gain or loss in net income when a subsidiary is deconsolidated. The Company adopted
this new guidance on February 1, 2009, the impact of which was retrospectively applied and resulted
in the noncontrolling interest being separately presented as a component of equity on the Condensed
Consolidated Balance Sheets and Condensed Consolidated Statements of Equity and Comprehensive
Income.
In February 2008, the FASB issued new guidance for the accounting for non-financial assets and
non-financial liabilities. The new guidance, which is now a part of ASC 820, Fair Value
Measurements and Disclosures, permitted a one-year deferral of the application of fair value
accounting for all non-financial assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring basis (at least
annually). The Company adopted this new guidance in the first quarter of 2009, the impact of which
did not have a material impact on its Condensed Consolidated Financial Statements.
In March 2008, the FASB issued new guidance on the disclosure of derivative instruments and hedging
activities. The new guidance, which is now a part of ASC 815, Derivatives and Hedging
Activities, requires qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative
instruments and disclosures about credit-risk-related contingent features in derivative agreements.
This new guidance is effective for financial statements issued for fiscal years beginning after
November 15, 2008. The Company adopted this new guidance in the first quarter of 2009. Please
refer to Note 7 Derivatives, for the adopted disclosures.
In April 2008, the FASB issued new guidance on determining the useful life of a recognized
intangible asset. The new guidance is now a part of ASC 350, Intangibles Goodwill and Other
and ASC 275, Risks and Uncertainties. The Company adopted this new guidance in the first quarter
of 2009, the impact of which did not have a material impact on its Condensed Consolidated Financial
Statements.
16
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In June 2008, the FASB issued new guidance for the accounting by lessees for maintenance deposits.
The new guidance, which is now a part of ASC 840, Leases, concluded that all maintenance deposits
within its scope should be accounted for as a deposit, and expensed or capitalized in accordance
with the lessees maintenance accounting policy. The new guidance is effective for financial
statements issued for fiscal years beginning after December 15, 2008 and interim periods within
those fiscal years. The Company adopted the provisions of this new guidance in the first quarter
of 2009, the impact of which did not have a material effect on the Companys Condensed Consolidated
Financial Statements.
In June 2008, the FASB issued new guidance on determining whether instruments granted in
share-based payment transactions are participating securities. The new guidance, which is now part
of ASC 260, Earnings per Share, clarifies that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and are to be included in the computation of earnings per share under the
two-class method. The new guidance is effective for fiscal years beginning after December 15, 2008.
The Company adopted the provisions of the new guidance in the first quarter of 2009, which are
retrospective; and therefore, prior periods have been retrospectively presented. Please refer to
Note 12 Earnings per Share, for a discussion of the impact of the new guidance on the Companys
Condensed Consolidated Financial Statements.
In December 2008, the FASB issued new guidance on the disclosure of postretirement benefit plan
assets. The new guidance, which is now part of ASC 715, Compensation Retirement Benefits,
requires certain disclosures about plan assets of a defined benefit pension or other postretirement
plan. This statement is effective for financial statements issued for fiscal years beginning after
December 15, 2009. As this new guidance relates only to disclosure, the Company does not
anticipate that its adoption will have a material effect on the Companys Condensed Consolidated
Financial Statements.
In April 2009, the FASB issued new guidance related to the disclosure of the fair value of
financial instruments. The new guidance, which is now part of ASC 825, Financial Instruments,
requires disclosure of the fair value of financial instruments whenever a publicly traded company
issues financial information in interim reporting periods in addition to the annual disclosure
required at year-end. The provisions of the new guidance were effective for interim periods ending
after June 15, 2009. The Company early adopted this new guidance in the first quarter of 2009, the
impact of which related only to disclosures and did not have a material effect on the Companys
Condensed Consolidated Financial Statements.
In April 2009, the FASB issued revised guidance for recognizing and measuring pre-acquisition
contingencies in a business combination. Under the revised guidance, which is now part of ASC 805,
Business Combinations, pre-acquisition contingencies are recognized at their acquisition-date
fair value if a fair value can be determined during the measurement period. If the
acquisition-date fair value cannot be determined during the measurement period, a contingency (best
estimate) is to be recognized if it is probable that an asset existed or liability had been
incurred at the acquisition date and the amount can be reasonably estimated. The revised guidance
does not prescribe specific accounting for subsequent measurement and accounting for contingencies.
The Company does not expect the adoption of this revised guidance will have a material effect on
the Companys Condensed Consolidated Financial Statements.
In May 2009, the FASB issued new guidance for accounting for subsequent events. The new guidance,
which is now part of ASC 855, Subsequent Events, establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before financial statements
are issued. This new guidance is effective for interim or annual periods ending after June 15,
2009. The adoption of this new guidance did not have a material effect on the Companys Condensed
Consolidated Financial Statements.
In June 2009, the FASB issued new guidance to establish the source of authoritative accounting
principles. The new guidance, which is now a part of ASC 105 Generally Accepted Accounting
Principles, establishes the FASB Accounting Standards Codification (the Codification) as the
single source of authoritative GAAP to be applied by nongovernmental entities, except for the rules
and interpretive releases of the SEC under authority of federal securities laws, which are sources
of authoritative GAAP for SEC registrants. All guidance contained in the Codification carries an
equal level of authority. This new guidance is effective for financial statements issued for
interim and annual periods ending after September 15, 2009. The adoption of this new guidance
did not have a material effect on the Companys Condensed Consolidated Financial Statements.
Note 16 Related Party Transactions
The Company maintains banking relationships with certain financial institutions that are affiliated
with some of the Companys Latin America joint venture partners. Total deposits in these financial
institutions as of October 31, 2009, November 1, 2008 and January 31, 2009 were $5.6 million, $3.4
million and $9.8 million, respectively. Total borrowings with these financial institutions as of
October 31, 2009 was $0.9 million. There were no borrowings with these financial institutions as
of November 1, 2008 and January 31, 2009.
Note 17 Subsequent Events
17
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The Company has evaluated subsequent events for potential disclosure or recognition through
December 3, 2009, the issuance date of the financial statements.
Note 18 Subsidiary Guarantors of Senior Notes Condensed Consolidating Financial
Information
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.
The following supplemental financial information sets forth, on a consolidating basis, the
Condensed Consolidating Statements of Earnings for the Company (the Parent Company), for the
Guarantor Subsidiaries and for the Companys Non-Guarantor Subsidiaries (the Non-guarantor
Subsidiaries) and Total Consolidated Collective Brands, Inc. and Subsidiaries for the thirteen
week and thirty-nine week periods ended October 31, 2009, and November 1, 2008, Condensed
Consolidating Balance Sheets as of October 31, 2009, November 1, 2008, and January 31, 2009, and
the Condensed Consolidating Statements of Cash Flows for the thirty-nine week periods ended October
31, 2009, and November 1, 2008. With the exception of operations in the Central and South American
Regions 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 equity investment
for each subsidiary is recorded by its parent within other assets.
The Non-guarantor Subsidiaries are made up of the Companys operations in the Central and South
American Regions, Canada, Mexico, Germany, the Netherlands, the United Kingdom, Ireland, Australia,
Bermuda, Saipan and Puerto Rico and the Companys sourcing organization in Hong Kong, Taiwan,
China, Indonesia and Brazil as well as the Companys franchised operations. The operations in the
Central and South American Regions use a December 31 year-end. Operations in the Central and South
American Regions are included in the Companys results on a one-month lag relative to results from
other regions. The effect of this one-month lag on the Companys financial position and results of
operations is not significant.
Under the indenture governing the Notes, the Companys subsidiaries in Singapore are designated as
unrestricted subsidiaries. The effect of these subsidiaries on the Companys financial position
and results of operations and cash flows is not significant. The Companys subsidiaries in
Singapore are included in the Non-guarantor Subsidiaries.
18
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CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
(UNAUDITED)
(dollars in millions)
(UNAUDITED)
(dollars in millions)
13 Weeks Ended October 31, 2009 | ||||||||||||||||||||
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | | $ | 766.0 | $ | 297.7 | $ | (196.7 | ) | $ | 867.0 | |||||||||
Cost of sales |
| 519.1 | 205.2 | (169.1 | ) | 555.2 | ||||||||||||||
Gross margin |
| 246.9 | 92.5 | (27.6 | ) | 311.8 | ||||||||||||||
Selling, general and administrative expenses |
0.5 | 212.0 | 65.9 | (27.6 | ) | 250.8 | ||||||||||||||
Operating (loss) profit from continuing operations |
(0.5 | ) | 34.9 | 26.6 | | 61.0 | ||||||||||||||
Interest expense |
5.9 | 10.5 | | (1.6 | ) | 14.8 | ||||||||||||||
Interest income |
| (1.8 | ) | | 1.6 | (0.2 | ) | |||||||||||||
Equity in earnings of subsidiaries |
(41.0 | ) | (22.3 | ) | | 63.3 | | |||||||||||||
Earnings from continuing operations before income taxes |
34.6 | 48.5 | 26.6 | (63.3 | ) | 46.4 | ||||||||||||||
(Benefit) provision for income taxes |
(2.3 | ) | 7.4 | 3.1 | | 8.2 | ||||||||||||||
Net earnings from continuing operations |
36.9 | 41.1 | 23.5 | (63.3 | ) | 38.2 | ||||||||||||||
Loss from discontinued operations, net of income taxes |
| (0.1 | ) | | | (0.1 | ) | |||||||||||||
Net earnings |
36.9 | 41.0 | 23.5 | (63.3 | ) | 38.1 | ||||||||||||||
Net earnings attributable to noncontrolling interests |
| | (1.2 | ) | | (1.2 | ) | |||||||||||||
Net earnings attributable to Collective Brands, Inc. |
$ | 36.9 | $ | 41.0 | $ | 22.3 | $ | (63.3 | ) | $ | 36.9 | |||||||||
39 Weeks Ended October 31, 2009 | ||||||||||||||||||||
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | | $ | 2,298.9 | $ | 858.1 | $ | (590.8 | ) | $ | 2,566.2 | |||||||||
Cost of sales |
| 1,579.1 | 609.6 | (519.8 | ) | 1,668.9 | ||||||||||||||
Gross margin |
| 719.8 | 248.5 | (71.0 | ) | 897.3 | ||||||||||||||
Selling, general and administrative expenses |
1.6 | 633.1 | 179.8 | (71.0 | ) | 743.5 | ||||||||||||||
Operating (loss) profit from continuing operations |
(1.6 | ) | 86.7 | 68.7 | | 153.8 | ||||||||||||||
Interest expense |
18.6 | 33.3 | 0.1 | (5.6 | ) | 46.4 | ||||||||||||||
Interest income |
| (6.6 | ) | | 5.6 | (1.0 | ) | |||||||||||||
Equity in earnings of subsidiaries |
(106.6 | ) | (62.4 | ) | | 169.0 | | |||||||||||||
Earnings from continuing operations before income taxes |
86.4 | 122.4 | 68.6 | (169.0 | ) | 108.4 | ||||||||||||||
(Benefit) provision for income taxes |
(7.2 | ) | 15.6 | 4.7 | | 13.1 | ||||||||||||||
Net earnings from continuing operations |
93.6 | 106.8 | 63.9 | (169.0 | ) | 95.3 | ||||||||||||||
Loss from discontinued operations, net of income taxes |
| (0.2 | ) | | | (0.2 | ) | |||||||||||||
Net earnings |
93.6 | 106.6 | 63.9 | (169.0 | ) | 95.1 | ||||||||||||||
Net earnings attributable to noncontrolling interests |
| | (1.5 | ) | | (1.5 | ) | |||||||||||||
Net earnings attributable to Collective Brands, Inc. |
$ | 93.6 | $ | 106.6 | $ | 62.4 | $ | (169.0 | ) | $ | 93.6 | |||||||||
19
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CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
(UNAUDITED)
(dollars in millions)
(UNAUDITED)
(dollars in millions)
13 Weeks Ended November 1, 2008 | ||||||||||||||||||||
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | | $ | 762.2 | $ | 295.3 | $ | (194.8 | ) | $ | 862.7 | |||||||||
Cost of sales |
| 533.7 | 203.2 | (172.9 | ) | 564.0 | ||||||||||||||
Gross margin |
| 228.5 | 92.1 | (21.9 | ) | 298.7 | ||||||||||||||
Selling, general and administrative
expenses |
(0.1 | ) | 204.5 | 62.6 | (21.9 | ) | 245.1 | |||||||||||||
Restructuring charges |
| 0.1 | | | 0.1 | |||||||||||||||
Operating profit from continuing
operations |
0.1 | 23.9 | 29.5 | | 53.5 | |||||||||||||||
Interest expense |
4.4 | 15.5 | | | 19.9 | |||||||||||||||
Interest income |
| (2.4 | ) | (0.3 | ) | | (2.7 | ) | ||||||||||||
Equity in earnings of subsidiaries |
(49.2 | ) | (26.5 | ) | | 75.7 | | |||||||||||||
Earnings from continuing operations
before income taxes |
44.9 | 37.3 | 29.8 | (75.7 | ) | 36.3 | ||||||||||||||
(Benefit) provision for income taxes |
(2.6 | ) | (11.8 | ) | 1.5 | | (12.9 | ) | ||||||||||||
Net earnings from continuing operations |
47.5 | 49.1 | 28.3 | (75.7 | ) | 49.2 | ||||||||||||||
Net earnings from discontinued
operations, net of income taxes |
| 0.1 | | | 0.1 | |||||||||||||||
Net earnings |
47.5 | 49.2 | 28.3 | (75.7 | ) | 49.3 | ||||||||||||||
Net earnings attributable to
noncontrolling interests |
| | (1.8 | ) | | (1.8 | ) | |||||||||||||
Net earnings attributable to
Collective Brands, Inc. |
$ | 47.5 | $ | 49.2 | $ | 26.5 | $ | (75.7 | ) | $ | 47.5 | |||||||||
39 Weeks Ended November 1, 2008 | ||||||||||||||||||||
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | | $ | 2,404.4 | $ | 897.0 | $ | (594.6 | ) | $ | 2,706.8 | |||||||||
Cost of sales |
| 1,730.9 | 623.1 | (533.8 | ) | 1,820.2 | ||||||||||||||
Gross margin |
| 673.5 | 273.9 | (60.8 | ) | 886.6 | ||||||||||||||
Selling, general and administrative
expenses |
0.5 | 644.7 | 183.7 | (60.8 | ) | 768.1 | ||||||||||||||
Restructuring charges |
| 0.2 | | | 0.2 | |||||||||||||||
Operating (loss) profit from
continuing operations |
(0.5 | ) | 28.6 | 90.2 | | 118.3 | ||||||||||||||
Interest expense |
13.1 | 44.7 | | (0.1 | ) | 57.7 | ||||||||||||||
Interest income |
| (4.7 | ) | (1.9 | ) | 0.1 | (6.5 | ) | ||||||||||||
Equity in earnings of subsidiaries |
(80.5 | ) | (78.1 | ) | | 158.6 | | |||||||||||||
Earnings from continuing operations
before income taxes |
66.9 | 66.7 | 92.1 | (158.6 | ) | 67.1 | ||||||||||||||
(Benefit) provision for income taxes |
(8.4 | ) | (14.2 | ) | 9.2 | | (13.4 | ) | ||||||||||||
Net earnings from continuing operations |
75.3 | 80.9 | 82.9 | (158.6 | ) | 80.5 | ||||||||||||||
Loss from discontinued operations, net
of income taxes |
| (0.4 | ) | | | (0.4 | ) | |||||||||||||
Net earnings |
75.3 | 80.5 | 82.9 | (158.6 | ) | 80.1 | ||||||||||||||
Net earnings attributable to
noncontrolling interests |
| | (4.8 | ) | | (4.8 | ) | |||||||||||||
Net earnings attributable to
Collective Brands, Inc. |
$ | 75.3 | $ | 80.5 | $ | 78.1 | $ | (158.6 | ) | $ | 75.3 | |||||||||
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CONDENSED CONSOLIDATING BALANCE SHEET
(UNAUDITED)
(dollars in millions)
(UNAUDITED)
(dollars in millions)
As of October 31, 2009 | ||||||||||||||||||||
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current Assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 364.0 | $ | 106.7 | $ | | $ | 470.7 | ||||||||||
Accounts receivable, net |
| 71.0 | 15.2 | (3.3 | ) | 82.9 | ||||||||||||||
Inventories |
| 323.0 | 84.2 | (4.0 | ) | 403.2 | ||||||||||||||
Current deferred income taxes |
| 27.8 | 4.4 | | 32.2 | |||||||||||||||
Prepaid expenses |
7.9 | 33.0 | 8.9 | | 49.8 | |||||||||||||||
Other current assets |
| 256.9 | 105.1 | (335.7 | ) | 26.3 | ||||||||||||||
Current assets of discontinued operations |
| 0.7 | | | 0.7 | |||||||||||||||
Total current assets |
7.9 | 1,076.4 | 324.5 | (343.0 | ) | 1,065.8 | ||||||||||||||
Property and Equipment: |
||||||||||||||||||||
Land |
| 7.0 | | | 7.0 | |||||||||||||||
Property, buildings and equipment |
| 1,221.6 | 194.1 | | 1,415.7 | |||||||||||||||
Accumulated depreciation and amortization |
| (825.0 | ) | (124.0 | ) | | (949.0 | ) | ||||||||||||
Property and equipment, net |
| 403.6 | 70.1 | | 473.7 | |||||||||||||||
Intangible assets, net |
| 411.0 | 20.3 | | 431.3 | |||||||||||||||
Goodwill |
| 142.1 | 138.0 | | 280.1 | |||||||||||||||
Deferred income taxes |
| | 5.8 | | 5.8 | |||||||||||||||
Other assets |
1,380.1 | 695.8 | 3.0 | (2,036.5 | ) | 42.4 | ||||||||||||||
Total Assets |
$ | 1,388.0 | $ | 2,728.9 | $ | 561.7 | $ | (2,379.5 | ) | $ | 2,299.1 | |||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||
Current maturities of long-term debt |
$ | | $ | 7.1 | $ | 5.2 | $ | (5.2 | ) | $ | 7.1 | |||||||||
Notes payable |
| | 0.9 | | 0.9 | |||||||||||||||
Accounts payable |
| 87.7 | 98.1 | (45.6 | ) | 140.2 | ||||||||||||||
Accrued expenses |
164.7 | 287.8 | 34.2 | (292.2 | ) | 194.5 | ||||||||||||||
Current liabilities of discontinued operations |
| 1.7 | | | 1.7 | |||||||||||||||
Total current liabilities |
164.7 | 384.3 | 138.4 | (343.0 | ) | 344.4 | ||||||||||||||
Long-term debt |
478.6 | 686.0 | 9.5 | (291.6 | ) | 882.5 | ||||||||||||||
Deferred income taxes |
| 53.5 | 1.7 | | 55.2 | |||||||||||||||
Other liabilities |
3.0 | 227.1 | 17.9 | | 248.0 | |||||||||||||||
Noncurrent liabilities of discontinued operations |
| 0.3 | | | 0.3 | |||||||||||||||
Commitments and contingencies |
||||||||||||||||||||
Equity: |
||||||||||||||||||||
Collective Brands, Inc. shareowners equity |
741.7 | 1,377.7 | 367.2 | (1,744.9 | ) | 741.7 | ||||||||||||||
Noncontrolling interests |
| | 27.0 | | 27.0 | |||||||||||||||
Total equity |
741.7 | 1,377.7 | 394.2 | (1,744.9 | ) | 768.7 | ||||||||||||||
Total Liabilities and Equity |
$ | 1,388.0 | $ | 2,728.9 | $ | 561.7 | $ | (2,379.5 | ) | $ | 2,299.1 | |||||||||
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CONDENSED CONSOLIDATING BALANCE SHEET
(UNAUDITED)
(dollars in millions)
(UNAUDITED)
(dollars in millions)
As of November 1, 2008 | ||||||||||||||||||||
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current Assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 404.1 | $ | 119.5 | $ | | $ | 523.6 | ||||||||||
Accounts receivable, net |
| 87.4 | 10.8 | (9.1 | ) | 89.1 | ||||||||||||||
Inventories |
| 393.9 | 78.5 | (4.8 | ) | 467.6 | ||||||||||||||
Current deferred income taxes |
| 42.6 | 3.0 | | 45.6 | |||||||||||||||
Prepaid expenses |
| 67.1 | 7.7 | | 74.8 | |||||||||||||||
Other current assets |
64.5 | 269.1 | 92.0 | (388.5 | ) | 37.1 | ||||||||||||||
Current assets of discontinued operations |
| 0.9 | | | 0.9 | |||||||||||||||
Total current assets |
64.5 | 1,265.1 | 311.5 | (402.4 | ) | 1,238.7 | ||||||||||||||
Property and Equipment: |
||||||||||||||||||||
Land |
| 8.6 | | | 8.6 | |||||||||||||||
Property, buildings and equipment |
| 1,319.4 | 167.4 | | 1,486.8 | |||||||||||||||
Accumulated depreciation and amortization |
| (843.4 | ) | (108.7 | ) | | (952.1 | ) | ||||||||||||
Property and equipment, net |
| 484.6 | 58.7 | | 543.3 | |||||||||||||||
Intangible assets, net |
| 519.1 | 20.3 | | 539.4 | |||||||||||||||
Goodwill |
| 185.9 | 138.1 | | 324.0 | |||||||||||||||
Deferred income taxes |
| | 0.2 | | 0.2 | |||||||||||||||
Other assets |
1,458.7 | 635.3 | 1.9 | (2,055.8 | ) | 40.1 | ||||||||||||||
Total Assets |
$ | 1,523.2 | $ | 3,090.0 | $ | 530.7 | $ | (2,458.2 | ) | $ | 2,685.7 | |||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||
Current maturities of long-term debt |
$ | | $ | 222.3 | $ | | $ | | $ | 222.3 | ||||||||||
Accounts payable |
| 123.1 | 116.8 | (53.4 | ) | 186.5 | ||||||||||||||
Accrued expenses |
263.3 | 251.2 | 26.2 | (332.5 | ) | 208.2 | ||||||||||||||
Current liabilities of discontinued operations |
| 1.8 | | | 1.8 | |||||||||||||||
Total current liabilities |
263.3 | 598.4 | 143.0 | (385.9 | ) | 618.8 | ||||||||||||||
Long-term debt |
481.2 | 710.5 | 9.6 | (291.6 | ) | 909.7 | ||||||||||||||
Deferred income taxes |
| 115.8 | 0.2 | | 116.0 | |||||||||||||||
Other liabilities |
2.6 | 223.8 | 17.4 | | 243.8 | |||||||||||||||
Commitments and contingencies |
||||||||||||||||||||
Equity: |
||||||||||||||||||||
Collective Brands, Inc. shareowners equity |
776.1 | 1,441.5 | 339.2 | (1,780.7 | ) | 776.1 | ||||||||||||||
Noncontrolling interests |
| | 21.3 | | 21.3 | |||||||||||||||
Total equity |
776.1 | 1,441.5 | 360.5 | (1,780.7 | ) | 797.4 | ||||||||||||||
Total Liabilities and Equity |
$ | 1,523.2 | $ | 3,090.0 | $ | 530.7 | $ | (2,458.2 | ) | $ | 2,685.7 | |||||||||
22
Table of Contents
CONDENSED CONSOLIDATING BALANCE SHEET
(UNAUDITED)
(dollars in millions)
(UNAUDITED)
(dollars in millions)
As of January 31, 2009 | ||||||||||||||||||||
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current Assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 141.7 | $ | 107.6 | $ | | $ | 249.3 | ||||||||||
Accounts receivable, net |
| 87.6 | 14.7 | (4.8 | ) | 97.5 | ||||||||||||||
Inventories |
| 416.0 | 80.5 | (4.5 | ) | 492.0 | ||||||||||||||
Current deferred income taxes |
| 31.6 | 4.0 | | 35.6 | |||||||||||||||
Prepaid expenses |
0.7 | 51.3 | 6.7 | | 58.7 | |||||||||||||||
Other current assets |
| 273.2 | 81.3 | (329.2 | ) | 25.3 | ||||||||||||||
Current assets of discontinued operations |
| 1.3 | | | 1.3 | |||||||||||||||
Total current assets |
0.7 | 1,002.7 | 294.8 | (338.5 | ) | 959.7 | ||||||||||||||
Property and Equipment: |
||||||||||||||||||||
Land |
| 8.6 | | | 8.6 | |||||||||||||||
Property, buildings and equipment |
| 1,287.8 | 170.8 | | 1,458.6 | |||||||||||||||
Accumulated depreciation and amortization |
| (836.3 | ) | (109.5 | ) | | (945.8 | ) | ||||||||||||
Property and equipment, net |
| 460.1 | 61.3 | | 521.4 | |||||||||||||||
Intangible assets, net |
| 422.2 | 23.8 | | 446.0 | |||||||||||||||
Goodwill |
| 143.6 | 138.0 | | 281.6 | |||||||||||||||
Deferred income taxes |
| | 1.7 | | 1.7 | |||||||||||||||
Other assets |
1,251.9 | 636.2 | 3.5 | (1,850.7 | ) | 40.9 | ||||||||||||||
Total Assets |
$ | 1,252.6 | $ | 2,664.8 | $ | 523.1 | $ | (2,189.2 | ) | $ | 2,251.3 | |||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||
Current maturities of long-term debt |
$ | | $ | 24.8 | $ | 30.0 | $ | (30.0 | ) | $ | 24.8 | |||||||||
Accounts payable |
| 110.6 | 96.2 | (33.0 | ) | 173.8 | ||||||||||||||
Accrued expenses |
148.3 | 293.8 | 36.0 | (275.4 | ) | 202.7 | ||||||||||||||
Current liabilities of discontinued operations |
| 1.9 | | | 1.9 | |||||||||||||||
Total current liabilities |
148.3 | 431.1 | 162.2 | (338.4 | ) | 403.2 | ||||||||||||||
Long-term debt |
479.3 | 691.2 | 9.6 | (291.7 | ) | 888.4 | ||||||||||||||
Deferred income taxes |
| 49.2 | | | 49.2 | |||||||||||||||
Other liabilities |
2.7 | 244.4 | 17.1 | | 264.2 | |||||||||||||||
Noncurrent liabilities of discontinued operations |
| 0.3 | | | 0.3 | |||||||||||||||
Commitments and contingencies |
||||||||||||||||||||
Equity: |
||||||||||||||||||||
Collective Brands, Inc. shareowners equity |
622.3 | 1,248.6 | 310.5 | (1,559.1 | ) | 622.3 | ||||||||||||||
Noncontrolling interests |
| | 23.7 | | 23.7 | |||||||||||||||
Total equity |
622.3 | 1,248.6 | 334.2 | (1,559.1 | ) | 646.0 | ||||||||||||||
Total Liabilities and Equity |
$ | 1,252.6 | $ | 2,664.8 | $ | 523.1 | $ | (2,189.2 | ) | $ | 2,251.3 | |||||||||
23
Table of Contents
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(UNAUDITED)
(dollars in millions)
(UNAUDITED)
(dollars in millions)
39 Weeks Ended October 31, 2009 | ||||||||||||||||||||
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Operating Activities: |
||||||||||||||||||||
Net earnings |
$ | 93.6 | $ | 106.6 | $ | 63.9 | $ | (169.0 | ) | $ | 95.1 | |||||||||
Loss from discontinued operations, net of income taxes |
| 0.2 | | | 0.2 | |||||||||||||||
Adjustments for non-cash items included in net earnings |
2.3 | 116.2 | 14.2 | | 132.7 | |||||||||||||||
Changes in working capital |
9.2 | 131.3 | (27.3 | ) | (24.9 | ) | 88.3 | |||||||||||||
Other, net |
(104.7 | ) | (59.9 | ) | (7.3 | ) | 158.4 | (13.5 | ) | |||||||||||
Cash flow provided by operating activities |
0.4 | 294.4 | 43.5 | (35.5 | ) | 302.8 | ||||||||||||||
Investing Activities: |
||||||||||||||||||||
Capital expenditures |
| (48.6 | ) | (12.6 | ) | | (61.2 | ) | ||||||||||||
Dividends received from related parties |
| | 0.6 | (0.6 | ) | | ||||||||||||||
Cash flow used in investing activities |
| (48.6 | ) | (12.0 | ) | (0.6 | ) | (61.2 | ) | |||||||||||
Financing Activities: |
||||||||||||||||||||
Net repayment of debt or notes payable, including deferred financing costs |
(1.0 | ) | (22.9 | ) | (23.9 | ) | 24.8 | (23.0 | ) | |||||||||||
Net issuances of common stock |
0.6 | | | | 0.6 | |||||||||||||||
Net contribution from noncontrolling interests |
| | 1.3 | | 1.3 | |||||||||||||||
Net distributions to parent |
| (0.6 | ) | (10.7 | ) | 11.3 | | |||||||||||||
Cash flow used in financing activities |
(0.4 | ) | (23.5 | ) | (33.3 | ) | 36.1 | (21.1 | ) | |||||||||||
Effect of exchange rate changes on cash |
| | 0.9 | | 0.9 | |||||||||||||||
Increase (decrease) in cash and cash equivalents |
| 222.3 | (0.9 | ) | | 221.4 | ||||||||||||||
Cash and cash equivalents, beginning of year |
| 141.7 | 107.6 | | 249.3 | |||||||||||||||
Cash and cash equivalents, end of quarter |
$ | | $ | 364.0 | $ | 106.7 | $ | | $ | 470.7 | ||||||||||
39 Weeks Ended November 1, 2008 | ||||||||||||||||||||
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Operating Activities: |
||||||||||||||||||||
Net earnings |
$ | 75.3 | $ | 80.5 | $ | 82.9 | $ | (158.6 | ) | $ | 80.1 | |||||||||
Loss from discontinued operations, net of income taxes |
| 0.4 | | | 0.4 | |||||||||||||||
Adjustments for non-cash items included in net earnings |
2.2 | 88.7 | 13.9 | | 104.8 | |||||||||||||||
Changes in working capital |
18.8 | (7.6 | ) | (17.3 | ) | 16.6 | 10.5 | |||||||||||||
Other, net |
(95.4 | ) | (45.5 | ) | 0.9 | 142.0 | 2.0 | |||||||||||||
Cash flow provided by operating activities |
0.9 | 116.5 | 80.4 | | 197.8 | |||||||||||||||
Investing Activities: |
||||||||||||||||||||
Capital expenditures |
| (96.1 | ) | (11.4 | ) | | (107.5 | ) | ||||||||||||
Proceeds from sale of property and equipment |
| 2.1 | | | 2.1 | |||||||||||||||
Cash flow used in investing activities |
| (94.0 | ) | (11.4 | ) | | (105.4 | ) | ||||||||||||
Financing Activities: |
||||||||||||||||||||
Net proceeds from debt or notes payable, including deferred financing costs |
| 209.4 | | | 209.4 | |||||||||||||||
Net purchases of common stock |
(0.9 | ) | | | | (0.9 | ) | |||||||||||||
Net distributions to noncontrolling interests |
| | (0.2 | ) | | (0.2 | ) | |||||||||||||
Net contributions by (distributions to) parent |
| 102.7 | (102.7 | ) | | | ||||||||||||||
Cash flow (used in) provided by provided by financing activities |
(0.9 | ) | 312.1 | (102.9 | ) | | 208.3 | |||||||||||||
Effect of exchange rate changes on cash |
| | (9.6 | ) | | (9.6 | ) | |||||||||||||
Increase (decrease) in cash and cash equivalents |
| 334.6 | (43.5 | ) | | 291.1 | ||||||||||||||
Cash and cash equivalents, beginning of year |
| 69.5 | 163.0 | | 232.5 | |||||||||||||||
Cash and cash equivalents, end of quarter |
$ | | $ | 404.1 | $ | 119.5 | $ | | $ | 523.6 | ||||||||||
24
Table of Contents
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
This report contains forward-looking statements relating to such matters as anticipated financial
performance, business prospects, technological developments, products, future store openings and
closings, international expansion opportunities, possible strategic initiatives, new business
concepts, capital expenditure plans, fashion trends, consumer spending patterns and similar
matters. Statements including the words expects, anticipates, intends, plans, believes,
seeks, or variations of such words and similar expressions are forward-looking statements. We
note that a variety of factors could cause actual results and experience to differ materially from
the anticipated results or expectations expressed in our forward-looking statements. The risks and
uncertainties that may affect the operations, performance, development and results of our business
include, but are not limited to, the following: litigation including intellectual property and
employment matters; the inability to renew material leases, licenses or contracts upon their
expiration on acceptable terms; expected cost savings or synergies from acquisitions will not be
achieved or unexpected costs will be incurred; customers will not be retained or that disruptions
from acquisitions will harm relationships with customers, employees and suppliers; costs and other
expenditures in excess of those projected for environmental investigation and remediation or other
legal proceedings; changes in consumer spending patterns; changes in consumer preferences and
overall economic conditions; the impact of competition and pricing; changes in weather patterns;
the financial condition of the suppliers and manufacturers; changes in existing or potential
duties, tariffs or quotas and the application thereof; 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 we source are located or in
which we operate stores or otherwise do business; changes in trade, intellectual property, 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 or franchised operations; the ability to
comply with local laws in foreign countries; threats or acts of terrorism or war; 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 commodity prices such as oil; and
changes in the value of the dollar relative to the Chinese Yuan, Canadian Dollar and other
currencies. For more complete discussion of these and other risks that could impact our
forward-looking statements, please refer to our 2008 Annual Report on Form 10-K for the fiscal year
ended January 31, 2009, including the discussion contained under Risk Factors. We do 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. In the third quarter of 2009, we announced that The Stride Rite Corporation will do
business as Collective Brands Performance + Lifestyle Group (PLG).
Overview
The following Managements Discussion and Analysis of Financial Condition and Results of Operations
(MD&A) is intended to help the reader understand Collective Brands, Inc., our operations and our
present business environment. MD&A is provided as a supplement to, and should be read in
connection with, our Condensed Consolidated Financial Statements and the accompanying notes thereto
contained included under Part I Item 1 of this report. MD&A should also be read in conjunction
with our Consolidated Financial Statements as of January 31, 2009, and for the year then ended, and
the related MD&A, both of which are contained on our Form 10-K for the year ended January 31, 2009.
MD&A includes the following sections:
| Our Business a general description of our business, our strategy and key 2009 events. | ||
| Consolidated Review of Operations an analysis of our consolidated results of operations for the third quarter and first nine months ended October 31, 2009 and November 1, 2008 as presented in our Condensed Consolidated Financial Statements. | ||
| Reporting Segment Review of Operations an analysis of our results of operations for the third quarter and nine months ended October 31, 2009 and November 1, 2008 as presented in our Condensed Consolidated Financial Statements for our four reporting segments: Payless Domestic, Payless International, PLG Wholesale and PLG Retail. | ||
| Liquidity and Capital Resources an analysis of cash flows, aggregate financial commitments and certain financial condition ratios. | ||
| Critical Accounting Policies an update since January 31, 2009 of the discussion of our critical accounting policies that involve a higher degree of judgment or complexity. This section also includes the impact of new accounting standards. |
25
Table of Contents
Our Business
Collective Brands, Inc. consists of three lines of business: Payless ShoeSource (Payless),
Collective Brands Performance + Lifestyle Group (PLG), and Collective Licensing. We operate a
hybrid business model that includes retail, wholesale, licensing and franchising businesses.
Payless is one of the largest footwear retailers in the Western Hemisphere. It is dedicated to
democratizing fashion and design in footwear and accessories and inspiring fun, fashion
possibilities for the family at a great value. PLG markets products for children and adults under
well-known brand names, including Stride Rite®, Keds®, Sperry Top-Sider®, and Saucony®. Collective
Licensing is a youth lifestyle marketing and global licensing business within the Payless Domestic
segment.
Payless
Payless ShoeSource operates over 4,400 retail stores in 16 countries and territories in North
America, the Caribbean, Central America, and South America. In addition, in 2009, the first
Payless ShoeSource franchised stores opened in the Middle East through a multi-year partnership
with M.H. Alshaya Company. Payless plans to expand its franchised
stores to Russia and the
Philippines having signed new franchising agreements in 2009. Our mission is to democratize fashion
and design in footwear and accessories. Payless sells a broad assortment of quality footwear,
including athletic, casual and dress shoes, sandals, work and fashion boots, slippers, and
accessories such as handbags and hosiery. Payless stores offer fashionable, quality, branded and
private label footwear and accessories for women, men and children at affordable prices in a
self-selection shopping format. Stores sell footwear under brand names including Airwalk®,
American Eagle, Champion® and Dexter®. Select stores also sell exclusive designer lines of
footwear and accessories under the names Lela Rose for Payless, Zoe&Zac, Christian Siriano for
Payless and alice + olivia for Payless. Payless seeks to compete effectively by bringing to market
differentiated, trend-right merchandise before mass-market discounters and at the same time as
department and specialty retailers but at a more compelling value.
Payless is comprised of two reporting segments, Payless Domestic and Payless International. The
Payless strategy focuses on four key elements: on-trend, targeted product; effective brand
marketing; a great shopping experience; and efficient operations.
PLG
PLG is one of the leading marketers of high quality mens, womens and childrens footwear. PLG
was founded on the strength of the Stride Rite® childrens brand, but today includes a portfolio of
brands addressing different markets within the footwear industry. PLG is predominantly a
wholesaler of footwear, selling its products mostly in North America in a wide variety of retail
formats including premier department stores, independent shoe stores, value retailers and specialty
stores. PLG markets products in countries outside North America through owned operations,
independent distributors and licensees. PLG also markets its products directly to consumers by
selling childrens footwear through its Stride Rite retail stores and by selling all of its brands
through Stride Rite outlet stores and through e-commerce. In total, PLG operates over 350 retail
locations.
PLG is comprised of two reporting segments, PLG Retail and PLG Wholesale. We intend to build upon
Stride Rites position as a premier brand in childrens footwear. We also continue to build Sperry
Top-Sider® and Keds® into lifestyle brands and to leverage Sauconys authentic running heritage to
build a greater global performance and lifestyle footwear and apparel business.
Key 2009 Events
The significant challenges facing the global economy in 2009 and the highly uncertain global
economic outlook have adversely affected consumer confidence and spending levels. We believe that
these conditions are likely to persist for the remainder of 2009. These conditions, along with
severe credit market disruptions, among other factors, have adversely affected the global footwear
retailing industry. To mitigate this impact, we are managing inventory very closely; flowing
seasonal product closer to the time it is worn; and executing a number of gross margin improvement
initiatives. Finally, we are reducing our operating cost structure through a series of continuous
improvement initiatives that focus on reducing costs and increasing cash flow. These initiatives
include: occupancy cost rationalization, renegotiating procurement contracts and re-examining
existing contracts for cost reduction opportunities, and establishing new processes in merchandise
sourcing that more effectively utilize factory capacity and ensure the best pricing.
We experienced inflationary pressures in China, where the majority of our products are made,
throughout 2008. As a result, many of our inflated product costs, which are included in inventory
until sold, negatively impacted our results of operations in the first half of 2009. We
experienced deflationary pressures on product costs in the third quarter of 2009 and we
expect to see continued deflationary pressure on product costs in the fourth quarter of 2009.
26
Table of Contents
Consolidated Review of Operations
The following table presents the components of costs and expenses, as a percent of net sales, for
the third quarter and first nine months ended October 31, 2009 (2009) and November 1, 2008
(2008).
Third Quarter | First Nine Months | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net sales |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of sales |
64.0 | 65.4 | 65.0 | 67.2 | ||||||||||||
Gross margin |
36.0 | 34.6 | 35.0 | 32.8 | ||||||||||||
Selling, general and administrative expense |
28.9 | 28.4 | 29.0 | 28.4 | ||||||||||||
Operating profit from continuing operations |
7.1 | 6.2 | 6.0 | 4.4 | ||||||||||||
Interest expense, net |
1.7 | 2.0 | 1.8 | 1.9 | ||||||||||||
Net earnings from continuing operations before income taxes |
5.4 | 4.2 | 4.2 | 2.5 | ||||||||||||
Effective income tax rate* |
17.7 | (35.5 | ) | 12.1 | (20.0 | ) | ||||||||||
Net earnings from continuing operations |
4.4 | 5.7 | 3.7 | 3.0 | ||||||||||||
Loss from discontinued operations, net of income taxes |
| | | | ||||||||||||
Net earnings |
4.4 | 5.7 | 3.7 | 3.0 | ||||||||||||
Net earnings attributable to noncontrolling interests |
(0.1 | ) | (0.2 | ) | (0.1 | ) | (0.2 | ) | ||||||||
Net earnings attributable to Collective Brands, Inc. |
4.3 | % | 5.5 | % | 3.6 | % | 2.8 | % | ||||||||
* | Percent of pre-tax earnings |
Net Earnings Attributable to Collective Brands, Inc.
Third quarter 2009 net earnings attributable to Collective Brands, Inc. was $36.9 million, or $0.57
per diluted share versus third quarter 2008 results of $47.5 million, or $0.74 per diluted share.
Results for the third quarter 2009 include a pre-tax litigation charges of $2.5 million and pre-tax
severance charges of $1.6 million. Results for the third quarter 2008 include a net pre-tax
benefit related to litigation of $4.3 million due to net insurance recoveries and pre-tax operating
profit from the Tommy Hilfiger adult footwear license of $2.9 million. Our licensing agreement
with Tommy Hilfiger for adult footwear expired in December 2008. Therefore, there are no revenues
or earnings from the Tommy Hilfiger adult footwear license since January 1, 2009. Results for the
third quarter of 2008 reflect an effective income tax rate benefit resulting from adjusting our
year-to-date tax provision to reflect the reduced effective tax rate for the year.
Net earnings attributable to Collective Brands, Inc. for the first nine months of 2009 was $93.6
million, or $1.46 per diluted share versus the first nine months of 2008 results of $75.3 million,
or $1.19 per diluted share. Results for the first nine months of 2008 include charges related to
litigation totaling $61.9 million pre-tax and incremental costs resulting from the flow through of
acquired inventory recorded at fair value in the Stride Rite acquisition totaling $3.5 million
pre-tax. For the first nine months of 2008, pre-tax operating profit from the Tommy Hilfiger adult
footwear license totaled $10.6 million. Results for the first nine months of 2008 reflect an
effective income tax rate benefit resulting from adjusting our year-to-date tax provision to
reflect the reduced effective tax rate for the year.
Net Sales
The table below summarizes net sales information for our retail stores. Same-store sales are
calculated on a weekly basis and exclude liquidation sales. If a store is open the entire week in
each of the last two years being compared, its sales are included in the same-store sales
calculation for the week. The percent change for the third quarter and first nine months of 2008
excludes information from our PLG Retail segment as that segment was not present throughout 2007.
Sales percent increases (decreases) are as follows:
Third Quarter | First Nine Months | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Same-store sales |
3.1 | % | (3.2 | )% | (3.1 | )% | (2.8 | )% | ||||||||
Average selling price per unit |
1.6 | 4.7 | 1.8 | 4.0 | ||||||||||||
Unit volume |
1.4 | (7.4 | ) | (8.0 | ) | (6.3 | ) | |||||||||
Footwear average selling price per unit |
3.0 | 6.3 | 7.1 | 5.2 | ||||||||||||
Footwear unit volume |
(0.7 | ) | (9.4 | ) | (10.4 | ) | (7.8 | ) | ||||||||
Non-footwear average selling price per unit |
3.1 | 4.8 | 4.7 | 2.7 | ||||||||||||
Non-footwear unit volume |
8.1 | (0.3 | ) | 1.4 | 0.2 |
27
Table of Contents
On October 29, 2009, the Payless guest designer Christian Siriano appeared on The Oprah
Winfrey Show. In conjunction with his appearance on the show, Christian Siriano presented several
of his shoes sold in certain Payless stores and announced a coupon allowing customers to obtain 50%
off of everything in the store for the remainder of that day and all day on Friday, October 30,
2009 (referred to as the Oprah Promotion). We estimate that the Oprah Promotion positively
impacted our same store sales calculation for the third quarter 2009 by nearly 3%. In the Payless
locations that participated in the Oprah Promotion, we had $19.9 million of incremental sales for
the two days of the promotion compared to those days last year. The Oprah Promotion did not have a
significant impact on our results of operations for the third quarter of 2009.
For the third quarter of 2009, net sales increased 0.5% or $4.3 million, to $867.0 million, from
the third quarter of 2008. Net sales increased from the third quarter last year due primarily to
an increase in comparable store sales due to the Oprah Promotion, higher unit sales in childrens
footwear, boots and womens accessories at Payless stores, offset by the impact of the expiration
of the Tommy Hilfiger adult footwear license. Net sales increased in our Payless Domestic
reporting segment by 4.4%, or $24.4 million, to $578.1 million from the third quarter of 2008. Net
sales decreased in our Payless International reporting segment by 1.3%, or $1.4 million, to $110.0
million from the third quarter of 2008. Net sales from our PLG Wholesale reporting segment
decreased 15.5%, or $20.5 million, to $111.6 million in the third quarter of 2009. Net sales
increased in our PLG Retail reporting segment by 2.7%, or $1.8 million, to $67.3 million from the
third quarter of 2008. Please refer to Reporting Segment Review of Operations below for the
further details on the changes in net sales for each of our reporting units.
For the first nine months of 2009, net sales decreased 5.2% or $140.6 million, to $2,556.2 million,
from the first nine months of 2008. Net sales decreased from the first nine months of last year
due primarily to a decline in comparable store sales, the impact of the expiration of the Tommy
Hilfiger adult footwear license, and foreign currency exchange rates. Net sales decreased in our
Payless Domestic reporting segment by 2.0% or $33.9 million to $1,695.7 million from the first nine
months of 2008. Net sales decreased in our Payless International reporting segment by 10.3% or
$34.2 million to $298.5 million from the first nine months of 2008. Net sales from our PLG
Wholesale reporting segment decreased 15.9% or $75.1 million, to $398.1 million in the first nine
months of 2009. Net sales increased in our PLG Retail reporting segment by 1.5% or $2.6 million to
$173.9 million from the first nine months of 2008. Please refer to Reporting Segment Review of
Operations below for the further details on the changes in net sales for each of our reporting
units.
Cost of Sales
Cost of sales was $555.2 million in the third quarter of 2009, down 1.6% from $564.0 million in the
2008 third quarter. The decrease in cost of sales from 2008 to 2009 is primarily due to the impact
of lower product costs, the expiration of the Tommy Hilfiger adult footwear license and lower
occupancy costs.
Cost of sales was $1,668.9 million in the first nine months of 2009, down 8.3% from $1,820.2
million in the first nine months of 2008. The decrease in cost of sales from 2008 to 2009 is
primarily due to the impact of the $61.9 million charge we recorded in connection with litigation
during the first nine months of 2008, the expiration of the Tommy Hilfiger adult footwear license
and lower net sales in 2009.
Gross Margin
Gross margin rate for the third quarter of 2009 was 36.0%, compared to a gross margin rate of 34.6%
in the third quarter of 2008. The increase in gross margin rate is primarily due lower product and
occupancy costs, as well as positive leverage on fixed costs, partially offset by the favorable
impact last year of litigation-related insurance recoveries.
Gross margin rate for the first nine months of 2009 was 35.0%, compared to a gross margin rate of
32.8% in the first nine months of 2008. The increase in gross margin rate is primarily due to the
impact of the litigation charge of $61.9 million in the first nine months of 2008 and higher
initial mark-on due to increased direct sourcing in the first nine months of 2009. These were
partially offset by negative sales leverage on fixed costs, additional promotional activity, and
merchandise cost increases.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses were $250.8 million in the third quarter of
2009, an increase of 2.3% from $245.1 million in the third quarter of 2008. The increase in SG&A
expenses for the third quarter of 2009 compared to 2008 is primarily due to higher incentive
compensation and severance costs offset by lower payroll and related costs.
SG&A expenses were $743.5 million in the first nine months of 2009, a decrease of 3.2% from $768.1
million in the first nine months of 2008. The decrease in SG&A expenses for the first nine months
of 2009 compared to 2008 is primarily due to cost reduction actions that decreased payroll and
other expenses, offset by higher incentive compensation.
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As a percentage of net sales, SG&A expenses were 28.9% of net sales in the third quarter of 2009
versus 28.4% in the third quarter of 2008. The increase, as a percentage of net sales, in the
third quarter of 2009 was primarily due to higher incentive compensation related to Company
performance, offset by lower payroll and related costs.
As a percentage of net sales, SG&A expenses were 29.0% of net sales in the first nine months of
2009 versus 28.4% in the first nine months of 2008. The increase, as a percentage of net sales, in
the first nine months of 2009 was primarily due to the impact of lower comparable net sales,
partially offset by cost reductions primarily related to payroll and related expenses.
Interest Expense (Income)
Interest income and expense components were:
Third Quarter | First Nine Months | |||||||||||||||
(dollars in millions) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Interest expense |
$ | 14.8 | $ | 19.9 | $ | 46.4 | $ | 57.7 | ||||||||
Interest income |
(0.2 | ) | (2.7 | ) | (1.0 | ) | (6.5 | ) | ||||||||
Interest expense, net |
$ | 14.6 | $ | 17.2 | $ | 45.4 | $ | 51.2 | ||||||||
The decline in interest expense in the third quarter and first nine months of 2009 from the
third quarter and first nine months of 2008 is primarily a result of a lower interest rate on the
unhedged portion of our Term Loan Facility as well as a decrease in the outstanding balance of our
revolving loan facility. The decline in interest income in the third quarter and first nine months
of 2009 from the third quarter and first nine months of 2008 is primarily a result of lower
interest rates on our invested cash balance as well as a lower average cash balance year over year.
Income Taxes
Our effective income tax rate on continuing operations was 17.7% during the third quarter of 2009
as compared to a negative 35.5% during the third quarter of 2008. We recorded $4.3 million of
favorable discrete events in the first nine months of 2009. The unfavorable difference in the
overall effective tax rate for 2009 compared to 2008 is due to comparatively higher income in
relatively high tax rate jurisdictions, partially caused by a pre-tax loss as a result of
litigation expenses high tax rate jurisdictions in the prior year, as well as decreased income in
relatively lower tax rate jurisdictions.
We have unrecognized tax benefits, inclusive of related interest and penalties, of $66.7 million
and $64.4 million during the periods ended October 31, 2009 and November 1, 2008, respectively.
The portion of the unrecognized tax benefits that would impact the effective income tax rate if
recognized are $40.6 million and $50.9 million, respectively.
We anticipate that it is reasonably possible that the total amount of unrecognized tax benefits at
October 31, 2009 will decrease by up to $41.3 million within the next twelve months. To the extent
these tax benefits are recognized, the effective rate would be favorably impacted in the period of
recognition by up to $18.6 million. The potential reduction primarily relates to potential
settlements of on-going examinations with tax authorities and the potential lapse of the statutes
of limitations in relevant tax jurisdictions.
Our consolidated balance sheet as of October 31, 2009 includes deferred tax assets, net of related
valuation allowances, of approximately $152 million. In assessing the future realization of these
assets, we concluded it is more likely than not the assets will be realized. This conclusion was
based in large part upon managements belief that we will generate sufficient quantities of taxable
income from operations in future years in the appropriate tax jurisdictions. If our near-term
forecasts are not achieved, we may be required to record additional valuation allowances against
our deferred tax assets. This could have a material impact on our financial position and results of
operations in a particular period.
For additional information regarding our income taxes, please see Note 11 Income Taxes of the
Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
Net Earnings Attributable to Noncontrolling Interests
Net earnings attributable to noncontrolling interests represent our joint venture partners share
of net earnings or losses on applicable international operations. The decrease in net earnings
attributable to noncontrolling interests is due to lower net earnings in our Latin America joint
ventures.
Reporting Segment Review of Operations
We operate our business using four reporting segments: Payless Domestic, Payless International,
PLG Retail, and PLG Wholesale. We evaluate the performance of our reporting segments based on
segment revenues from external customers and segment operating
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profit from continuing operations as a measure of overall performance of the Company. The
following table reconciles reporting segment revenues from external customers to consolidated net
sales and reporting segment operating profit from continuing operations to our consolidated
operating profit from continuing operations for the third quarter and first nine months ended
October 31, 2009 and November 1, 2008:
Third Quarter | First Nine Months | |||||||||||||||
(in millions) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Revenues from external customers: |
||||||||||||||||
Payless Domestic |
$ | 578.1 | $ | 553.7 | $ | 1,695.7 | $ | 1,729.6 | ||||||||
Payless International |
110.0 | 111.4 | 298.5 | 332.7 | ||||||||||||
PLG Wholesale |
111.6 | 132.1 | 398.1 | 473.2 | ||||||||||||
PLG Retail |
67.3 | 65.5 | 173.9 | 171.3 | ||||||||||||
Revenues from external customers |
$ | 867.0 | $ | 862.7 | $ | 2,566.2 | $ | 2,706.8 | ||||||||
Operating profit from continuing operations: |
||||||||||||||||
Payless Domestic |
$ | 44.5 | $ | 29.2 | $ | 110.8 | $ | 30.4 | ||||||||
Payless International |
11.2 | 12.3 | 17.4 | 41.0 | ||||||||||||
PLG Wholesale |
0.1 | 4.4 | 21.7 | 40.9 | ||||||||||||
PLG Retail |
5.2 | 7.6 | 3.9 | 6.0 | ||||||||||||
Operating profit from continuing operations |
$ | 61.0 | $ | 53.5 | $ | 153.8 | $ | 118.3 | ||||||||
The following table presents the change in store count during the third quarter and first nine
months of 2009 and 2008 by reporting segment. We consider a store relocation to be both a store
opening and a store closing.
Payless | Payless | PLG | ||||||||||||||
Domestic | International | Retail | Total | |||||||||||||
Third Quarter 2009 |
||||||||||||||||
Beginning store count |
3,864 | 639 | 360 | 4,863 | ||||||||||||
Stores opened |
4 | 6 | 4 | 14 | ||||||||||||
Stores closed |
(22 | ) | (8 | ) | (1 | ) | (31 | ) | ||||||||
Ending store count |
3,846 | 637 | 363 | 4,846 | ||||||||||||
First Nine Months 2009 |
||||||||||||||||
Beginning store count |
3,900 | 622 | 355 | 4,877 | ||||||||||||
Stores opened |
26 | 34 | 11 | 71 | ||||||||||||
Stores closed |
(80 | ) | (19 | ) | (3 | ) | (102 | ) | ||||||||
Ending store count |
3,846 | 637 | 363 | 4,846 | ||||||||||||
Third Quarter 2008 |
||||||||||||||||
Beginning store count |
3,941 | 606 | 351 | 4,898 | ||||||||||||
Stores opened |
13 | 9 | 3 | 25 | ||||||||||||
Stores closed |
(29 | ) | (3 | ) | (1 | ) | (33 | ) | ||||||||
Ending store count |
3,925 | 612 | 353 | 4,890 | ||||||||||||
First Nine Months 2008 |
||||||||||||||||
Beginning store count |
3,954 | 598 | 340 | 4,892 | ||||||||||||
Stores opened |
84 | 22 | 21 | 127 | ||||||||||||
Stores closed |
(113 | ) | (8 | ) | (8 | ) | (129 | ) | ||||||||
Ending store count |
3,925 | 612 | 353 | 4,890 | ||||||||||||
Payless Domestic Segment Operating Results
The Payless Domestic reporting segment is comprised primarily of operations from the domestic
retail stores under the Payless ShoeSource name, the Companys sourcing operations and Collective
Licensing. The following table presents selected financial data for our Payless Domestic segment
for the third quarter and first nine months ended October 31, 2009 and November 1, 2008:
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Third Quarter | First Nine Months | |||||||||||||||||||||||
Percent change | Percent change | |||||||||||||||||||||||
(dollars in millions) | 2009 | 2008 | 2008 to 2009 | 2009 | 2008 | 2008 to 2009 | ||||||||||||||||||
Revenues from external customers |
$ | 578.1 | $ | 553.7 | 4.4 | % | $ | 1,695.7 | $ | 1,729.6 | (2.0) | % | ||||||||||||
Operating profit from continuing operations |
$ | 44.5 | $ | 29.2 | 52.4 | % | $ | 110.8 | $ | 30.4 | 264.5 | % | ||||||||||||
Operating profit from continuing operations
as % of revenues from external customers |
7.7 | % | 5.3 | % | 6.5 | % | 1.8 | % |
For the third quarter of 2009, revenues from external customers for the Payless Domestic reporting
segment increased 4.4% or $24.4 million, to $578.1 million, from the third quarter of 2008. The
increase in net sales for the third quarter was due to a comparable store sales increase primarily
due to the Oprah Promotion, higher unit sales in childrens footwear, boots and womens accessories
and higher average selling prices per unit.
For the first nine months of 2009, revenues from external customers for the Payless Domestic
reporting segment decreased 2.0% or $33.9 million, to $1,695.7 million, from the first nine months
of 2008. The decrease in revenues from external customers from first nine months of 2008 to 2009
is due to lower traffic and lower unit sales primarily due to weaker economic conditions in the
United States, partially offset by increases in average selling prices per unit.
As a percentage of revenues from external customers, operating profit from continuing operations
increased to 7.7% for the third quarter of 2009 compared to 5.3% in the third quarter of 2008. The
percentage increase in the third quarter is primarily due to the impact of lower product and
occupancy costs, as well as positive leverage on higher net sales.
As a percentage of revenues from external customers, operating profit from continuing operations
increased to 6.5% for the first nine months of 2009 compared to 1.8% in the first nine months of
2008. The increase in the first nine months of 2009 is primarily due to the impact of litigation
charges recorded in the first nine months of 2008 totaling $61.9 million.
Payless International Segment Operating Results
Our Payless International reporting segment includes retail operations under the Payless ShoeSource
name in Canada, the Central and South American Regions, Puerto Rico and the U.S. Virgin Islands as
well as franchising arrangements under the Payless ShoeSource name.
Third Quarter | First Nine Months | |||||||||||||||||||||||
Percent change | Percent change | |||||||||||||||||||||||
(dollars in millions) | 2009 | 2008 | 2008 to 2009 | 2009 | 2008 | 2008 to 2009 | ||||||||||||||||||
Revenues from external customers |
$ | 110.0 | $ | 111.4 | (1.3) | % | $ | 298.5 | $ | 332.7 | (10.3) | % | ||||||||||||
Operating profit from continuing operations |
$ | 11.2 | $ | 12.3 | (8.9) | % | $ | 17.4 | $ | 41.0 | (57.6) | % | ||||||||||||
Operating profit from continuing operations
as % of revenues from external customers |
10.2 | % | 11.0 | % | 5.8 | % | 12.3 | % |
For the third quarter of 2009, revenues from external customers for the Payless International
reporting segment decreased 1.3% or $1.4 million, to $110.0 million, from the third quarter of
2008. Revenues from external customers were negatively impacted by lower consumer traffic due to
weakening economic conditions compared to last year, unfavorable foreign exchange rates totaling
$2.7 million and the impact of new taxes and regulation in Ecuador, offset by increased revenues
from external customers in Colombia.
For the first nine months of 2009, revenues from external customers for the Payless International
reporting segment decreased 10.3% or $34.2 million, to $298.5 million, from the first nine months
of 2008. Revenues from external customers for the Payless International reporting segment were
negatively impacted by lower consumer traffic due to weakening economic conditions compared to last
year, unfavorable foreign exchange rates compared to last year totaling $20.9 million, and the
impact of new taxes and regulation in Ecuador, offset by increased revenues from external customers
in Colombia.
As a percentage of revenues from external customers, operating profit from continuing operations
decreased to 10.2% for the third quarter of 2009 compared to 11.0% in the third quarter of 2008.
The percentage decrease is primarily due decreased gross margin rates in South America primarily
due to new taxes and regulation in Ecuador, offset by increased gross
margin in Colombia.
As a percentage of revenues from external customers, operating profit from continuing operations
decreased to 5.8% for the first nine months of 2009 compared to 12.3% in the first nine months of
2008. The percentage decrease is primarily due to decreased gross margin rates in Canada and
Central America primarily due to negative leverage of our fixed costs due to lower net sales, and
decreased gross margin rates in South America primarily due to new taxes and regulation in Ecuador.
These decreases were offset by increased gross margin in Colombia.
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PLG Wholesale Segment Operating Results
The PLG Wholesale reporting segment is comprised of PLGs wholesale operations, which includes
sales from Stride Rite, Sperry Top-Sider, Saucony, Keds and Tommy Hilfiger Childrens brands.
Third Quarter | First Nine Months | |||||||||||||||||||||||
Percent change | Percent change | |||||||||||||||||||||||
(dollars in millions) | 2009 | 2008 | 2008 to 2009 | 2009 | 2008 | 2008 to 2009 | ||||||||||||||||||
Revenues from external customers |
$ | 111.6 | $ | 132.1 | (15.5) | % | $ | 398.1 | $ | 473.2 | (15.9) | % | ||||||||||||
Operating profit from continuing operations |
$ | 0.1 | $ | 4.4 | (97.7) | % | $ | 21.7 | $ | 40.9 | (46.9) | % | ||||||||||||
Operating profit from continuing operations
as % of revenues from external customers |
0.1 | % | 3.3 | % | 5.5 | % | 8.6 | % |
On December 31, 2008, our licensing agreement with Tommy Hilfiger for adult footwear expired and
was not renewed. The aggregate revenue from external customers and operating profit from
continuing operations for Tommy Hilfiger adult footwear was $20.2 million and $2.9 million,
respectively, for the quarter ended November 1, 2008 and $59.7 million and $10.6 million,
respectively, for the nine months ended November 1, 2008.
For the third quarter of 2009, revenues from external customers for the PLG Wholesale reporting
segment decreased 15.5% or $20.5 million, to $111.6 million, from the third quarter of 2008. The
decrease in revenues from external customers are primarily due to the expiration of our Tommy
Hilfiger adult footwear license and lower Keds revenues due to its strategic repositioning. These
were offset by increases in revenues from external customers for our Saucony and Sperry Top-Sider
brands.
For the first nine months of 2009, revenues from external customers for the PLG Wholesale reporting
segment decreased 15.9% or $75.1 million, to $398.1 million, from the first nine months of 2008.
The decrease in revenues from external customers are primarily due to the expiration of our Tommy
Hilfiger adult footwear license and lower Keds revenues due to its strategic repositioning. These
were offset by increases in revenues from external customers for our Saucony brand.
As a percentage of revenues from external customers, operating profit from continuing operations
decreased to 0.1% for the third quarter of 2009 compared to 3.3% in the third quarter of 2008. The
percentage decrease was primarily due to the expiration of the Tommy Hilfiger adult footwear
license agreement and unfavorable merchandise mix shift.
As a percentage of revenues from external customers, operating profit from continuing operations
decreased to 5.5% for the first nine months of 2009 compared to 8.6% in the first nine months of
2008. The percentage decrease was primarily due to the expiration of the Tommy Hilfiger adult
footwear license agreement and more promotional selling compared to last year.
PLG Retail Segment Operating Results
The PLG Retail reporting segment is comprised of operations from PLGs specialty stores and outlet
stores.
Third Quarter | First Nine Months | |||||||||||||||||||||||
Percent change | Percent change | |||||||||||||||||||||||
(dollars in millions) | 2009 | 2008 | 2008 to 2009 | 2009 | 2008 | 2008 to 2009 | ||||||||||||||||||
Revenues from external customers |
$ | 67.3 | $ | 65.5 | 2.7 | % | $ | 173.9 | $ | 171.3 | 1.5 | % | ||||||||||||
Operating profit from continuing operations |
$ | 5.2 | $ | 7.6 | (31.6 | )% | $ | 3.9 | $ | 6.0 | (35.0 | )% | ||||||||||||
Operating profit from continuing operations
as % of revenues from external customers |
7.7 | % | 11.6 | % | 2.2 | % | 3.5 | % |
For the third quarter of 2009, revenues from external customers for the PLG Retail reporting
segment increased 2.7% or $1.8 million, to $67.3 million, from the third quarter of 2008. For the
first nine months of 2009, revenues from external customers for the PLG Retail reporting segment
increased 1.5% or $2.6 million, to $173.9 million, from the first nine months of 2008. The
increase is primarily due to increased number of stores and higher sales at outlet stores,
partially offset by lower same-store sales at specialty stores.
As a percentage of revenues from external customers, operating profit from continuing operations
decreased to 7.7% for the third quarter of 2009 compared to 11.6% in the third quarter of 2008. As
a percentage of revenues from external customers, operating profit from continuing operations
decreased to 2.2% for the first nine months of 2009 compared to 3.5% in the first nine months of
2008. Operating profit from continuing operations in the first nine months of 2008 was negatively
impacted by $3.5 million of pre-tax incremental costs resulting from the flow through of acquired
inventory recorded at fair value. In the third quarter and first nine months of 2009, operating
profit as a percentage of revenues from external customers was negatively impacted by greater
promotional activity and severance costs.
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Liquidity and Capital Resources
We ended the third quarter of 2009 with a cash and cash equivalents balance of $470.7 million, a
decrease of $52.9 million from the third quarter of 2008. The year over year decrease was due
primarily to the repayment of the prior year draw on our Revolving Loan Facility of $215.0 million,
offset by increased cash from operating activities and reduced capital expenditures.
As of October 31, 2009, our foreign subsidiaries and joint ventures had $102.9 million in cash
located in financial institutions outside of the United States. A portion of this cash represents
undistributed earnings of our foreign subsidiaries, which are indefinitely reinvested. In the
event of a distribution to the U.S., those earnings could be subject to U.S. federal and state
income taxes, net of foreign tax credits.
As of October 31, 2009, the borrowing base on our Revolving Loan Facility was $322.0 million less
$84.6 million in outstanding letters of credit, or $237.4 million. The variable interest rate
including the applicable variable margin at October 31, 2009, was 1.28%. We had no borrowings on
our revolving loan facility as of October 31, 2009.
We are subject to financial covenants under our Loan Facilities. We have a financial covenant
under our Term Loan Facility agreement that requires us to maintain, on the last day of each
fiscal quarter in 2009, a total leverage ratio of not more than 4.2 to 1. As of October 31, 2009
our leverage ratio, as defined in our Term Loan Facility agreement, was 1.8 to 1 and we were in
compliance with all of our covenants. We expect, based on our current financial projections, to be
in compliance with our covenants on our Loan Facilities for the next twelve months.
We continue to have full access to our Revolving Loan Facility and to generate operating cash flow
sufficient to meet our financing needs. We believe that our liquid assets, cash generated from
operations and amounts available under our Revolving Loan Facility will provide us with sufficient
funds for capital expenditures and other operating activities for at least the next twelve months.
Cash Flow Provided by Operating Activities
Cash flow provided by operations was $302.8 million in the first nine months of 2009, compared with
$197.8 million for the same period in 2008. As a percentage of net sales, cash flow from operations
was 11.8% in the first nine months of 2009, compared with 7.3% in the same period in 2008. The
changes in cash flow from operations in the first nine months of 2009 as compared to the first nine
months of 2008 are primarily due to increases in net earnings, prior year litigation payments and a
net cash inflow related to inventories as a result of inventory management initiatives and the
impact of the Oprah Promotion. These favorable changes were offset by net cash outflows in
accounts payable in the first nine months of 2009 compared to the first nine months of 2008.
Cash Flow Used in Investing Activities
Our capital expenditures totaled $61.2 million during the first nine months of 2009, compared with
$107.5 million for the same period in 2008. The decrease in capital expenditures was primarily due
to lower spending on distribution centers and stores. Total capital expenditures in 2009 are
expected to be approximately $85 million compared to $129 million in 2008. The decrease in total
anticipated capital expenditures in 2009 compared to actual capital expenditures in 2008 is due to
capital expenditure management initiatives in 2009 as a result of the weakening economy as well as
the completion of our multi-year distribution center investment. We intend to use internal cash
flow from operations and available financing from the Revolving Loan Facility, if necessary, to
finance all of these capital expenditures.
Cash Flow Used in Financing Activities
We have made the following common stock repurchases:
First Nine Months | ||||||||||||||||
2009 | 2008 | |||||||||||||||
(dollars in millions, shares in thousands) | Dollars | Shares | Dollars | Shares | ||||||||||||
Employee stock purchase, deferred compensation
and stock incentive plans |
$ | 2.3 | 159 | $ | 1.7 | 135 |
Under the terms of our credit facilities governing our Loan Facilities, we are restricted on the
amount of common stock we may repurchase. This limit may increase or decrease on a quarterly basis
based upon our net earnings.
Based upon the provisions of the Term Loan Facility, we are required to make an excess cash flow
mandatory prepayment on the Term Loan Facility no later than 120 days after the Companys fiscal
year end. Based on 2008 results, we made a prepayment of $17.5 million in the first quarter of
2009. Based upon projected 2009 results, we anticipate that we could be required to make such a
mandatory prepayment of between $10.0 million and $30.0 million by May 30, 2010, depending upon the
amount of excess cash flow
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generated in 2009 and our consolidated leverage ratio as defined by the
Term Loan Facility agreement at fiscal year end. The excess cash flow mandatory prepayment is an
annual requirement under the Term Loan Facility and, as the estimated prepayment amount is
preliminary and subject to further refinement, the final excess cash flow mandatory prepayment
could ultimately differ materially from the amounts reflected above.
Contractual Obligations
For a discussion of our other contractual obligations, see a discussion of future commitments under
Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, in
our Form 10-K for the fiscal year ended January 31, 2009. There have been no significant
developments with respect to our contractual obligations since January 31, 2009.
Financial Condition Ratios
A summary of key financial information for the periods indicated is as follows:
October 31, | November 1, | January 31, | ||||||||||
2009 | 2008 | 2009 | ||||||||||
Debt-capitalization ratio* |
53.7 | % | 58.7 | % | 58.6 | % |
* | Debt-capitalization ratio 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 loan facility. Capitalization is defined as total debt and equity. The debt-capitalization ratio, including the present value of future minimum rental payments under operating leases as debt and as capitalization, was 71.9%, 73.8% and 75.7%, respectively, for the periods referred to above. |
Critical Accounting Policies
In the third quarter of 2009, we performed the required annual impairment assessment of our
goodwill and indefinite-lived tradenames. As a result of this assessment, we concluded that there
was no impairment of goodwill or indefinite-lived tradenames. Management relies on estimates in
determining the fair value of each tradename and in determining the fair value of goodwill at a
reporting unit level. The estimate of fair value is highly subjective and requires significant
judgment. For further explanation of the approach used to perform the impairment assessment of
goodwill and our indefinite-lived tradenames, as well as the significant estimates used, please
refer to our Critical Accounting Policies under Managements Discussion and Analysis of Financial
Condition and Results of Operations in our Form 10-K for the year ended January 31, 2009.
Our goodwill balance was $280.1 million as of October 31, 2009. Goodwill is evaluated at the
reporting unit level, which may be the same as a reporting segment or a level below a reporting
segment. The goodwill balance by reporting segment and reporting unit as of October 31, 2009 is as
follows:
Goodwill Balance | ||||||||
Reporting Segment | Reporting Unit | (in millions) | ||||||
PLG Wholesale |
PLG Wholesale | $ | 239.9 | |||||
Payless Domestic |
Collective Licensing | 34.3 | ||||||
Payless Domestic |
Payless Domestic | 5.9 | ||||||
Total |
$ | 280.1 | ||||||
A 100 basis point decrease in the long-term growth rate used in determining the fair value of our
reporting units, holding all other variables constant, could result in an impairment charge of
approximately $18 million. A 100 basis point increase in the discount rate used in determining the
fair value of our reporting units, holding all other variables constant, could result in an
impairment charge of approximately $37 million. The sensitivity of the long-term growth rate and
discount rate and resulting potential impairment charge represent the deficit of the fair value of
the reporting unit compared to the carrying value.
The book value of our indefinite-lived tradenames was $365.5 million as of October 31, 2009. The
following table highlights the potential impairment charge related to changes in certain key
assumptions used in determining the fair value of these tradenames, assuming all other assumptions
remain constant. The potential impairment charge represents the amount by which the carrying value
exceeds the estimated fair value.
(dollars in millions) | Potential Impairment Charge | |||
Decrease of 100 basis points in royalty rate |
$ | 25 | ||
Decrease of 100 basis points in average growth rate |
8 | |||
Increase of 100 basis points in the discount rate |
8 |
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In future periods, if our goodwill or our indefinite-lived tradenames were to become impaired,
the resulting impairment charge could have a material impact on our financial position and results
of operations.
For more information regarding our other critical accounting policies, estimates and judgments, see
the discussion under Managements Discussion and Analysis of Financial Condition and Results of
Operations in our Form 10-K for the year ended January 31, 2009.
New Accounting Standards
See Note 15 of the Condensed Consolidated Financial Statements for new accounting standards,
including the expected dates of adoption and estimated effects on our Condensed Consolidated
Financial Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Interest on our senior secured Revolving Loan 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
0.875% to 1.5%, or the base rate, as defined in the credit agreement. There are no outstanding
borrowings on the revolving line of credit at October 31, 2009; however, if we were to borrow
against our revolving line of credit, borrowing costs may fluctuate depending upon the volatility
of LIBOR. On August 24, 2007, we entered into an interest rate contract for $540 million to hedge
a portion of our variable rate Term Loan Facility. As of October 31, 2009, we have hedged $365
million of our Term Loan Facility. The interest rate contract provides for a fixed interest rate
of approximately 7.75%, portions of which mature on a series of dates through 2012. The unhedged
portion of the Term Loan Facility is subject to interest rate risk depending on the volatility of
LIBOR. As of October 31, 2009, a 100 basis point change in LIBOR on the unhedged portion of the
Companys debt would impact pretax interest expense by approximately $3.3 million annually or
approximately $0.8 million per quarter.
Foreign Currency Risk
We have 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 have
entered into forward contracts to purchase foreign currencies. Please refer to Note 7
Derivatives for further information on the derivatives used to mitigate foreign currency risk.
A significant percentage of our footwear is sourced from the Peoples Republic of China (the
PRC). The national currency of the PRC, the Yuan, is currently not a freely convertible
currency. The value of the Yuan depends to a large extent on the PRC governments policies and
upon the PRCs domestic and international economic and political developments. During 2005, the
PRC government adopted an exchange rate system based on a trade-weighted basket of foreign
currencies of the PRCs main trading partners. Under this managed float policy, the exchange
rate of the Yuan may shift each day up to 0.5% in either direction from the previous days close,
and as a result, the valuation of the Yuan may increase incrementally over time should the PRC
central bank allow it to do so, which could significantly increase the cost of the products we
source from the PRC. As of October 30, 2009, the last day of trading in our quarter, the exchange
rate was 6.83 Yuan per U.S. dollar compared to 6.85 Yuan per U.S. dollar at the end of our third
quarter 2008 and 6.85 Yuan per U.S. dollar at the end of our 2008 fiscal year.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management is responsible for establishing disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our periodic Securities Exchange Act of 1934
reports is recorded, processed, summarized and reported within the time periods specified in the
Securities Exchange Commissions (SEC) rules and forms and that such information is accumulated
and communicated to our management, including the Chief Executive Officer and the Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosures.
As of the end of the period covered by this Form 10-Q, we carried out an evaluation, under the
supervision and with the participation of our principal executive officer and principal financial
officer, of the effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, our principal executive officer and principal financial
officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) are effective and designed to ensure that
information required to be disclosed in periodic reports filed with the SEC is recorded, processed,
summarized and reported within the time period specified. Our principal executive officer and
principal financial officer also concluded that our controls and procedures were effective in
ensuring that information required to be disclosed by us in the reports
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that we file or submit under the Act is accumulated and communicated to management including our
principal executive officer and principal financial officer, or persons performing similar
functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the third quarter of
fiscal year 2009 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than as described below, there are no pending legal proceedings other than ordinary, routine
litigation incidental to the business to which the Company is a party or of which its property is
subject, none of which the Company expects to have a material impact on its financial position,
results of operations and cash flows.
adidas America, Inc. and adidas-Salomon AG v. Payless ShoeSource, Inc.
On or about December 20, 2001, a First Amended Complaint was filed against Payless ShoeSource, Inc.
(Payless) in the U.S. District Court for the District of Oregon, captioned adidas America, Inc.
and adidas-Salomon AG (adidas) v. Payless ShoeSource, Inc. The First Amended Complaint sought
injunctive relief and unspecified monetary damages for trademark and trade dress infringement,
unfair competition, deceptive trade practices and breach of contract. Payless filed an answer and a
motion for summary judgment which the court granted in part. On June 18, 2004, plaintiffs appealed
the District Courts ruling on the motion for summary judgment. On January 5, 2006, the
9th Circuit Court of Appeals entered an order reversing the District Courts partial
summary judgment order. Payless requested a rehearing en banc, which was denied by the
9th Circuit Court of Appeals. On June 29, 2006, Payless filed a petition for writ of
certiorari to the United States Supreme Court, which was denied on October 2, 2006.
On May 5, 2008, following a four week trial, a jury rendered a verdict against Payless in the
aggregate amount of $304.6 million, consisting of royalty damages in the amount of $30.6 million;
disgorgement profits in the amount of $137.0 million; and punitive damages in the amount of $137.0
million. On November 13, 2008, after granting in part motions filed by Payless for a new trial,
judgment notwithstanding the verdict, and remittitur, the District Court entered judgment against
Payless in the reduced amount of $65.3 million, consisting of $30.6 million in royalty damages,
$19.7 million in disgorgement of profits, and $15.0 million in punitive damages (of which $9.0
million is payable to the State of Oregon and not adidas pursuant to Oregon law), such amounts to
accrue interest at the annual rate of 1.24%. On that same date, the District Court entered a
permanent injunction enjoining Payless, but not its affiliates, from selling the footwear lots the
jury found infringed adidas rights along with certain other footwear styles bearing two, three, or
four stripes as specified by the terms of the injunction. On December 29, 2008 the District Court
issued a Revised Order of Permanent Injunction which made certain technical changes to the
injunction but rejected substantive changes requested by adidas. This injunction, as corrected,
was entered by the District Court on January 7, 2009.
On December 5, 2008, adidas moved for $17.2 million in prejudgment interest, $6.6 million in
attorneys fees and nontaxable expenses, and filed a bill of costs totaling $0.4 million. On
February 9, 2009, the District Court denied adidas motions for attorneys fees and expenses and
prejudgment interest, and awarded adidas costs in the amount of $0.4 million. On March 18, 2009,
the Court entered a supplemental judgment awarding adidas an additional $1.0 million based upon
Payless sales of allegedly infringing footwear after February 2, 2008, bringing the total judgment
amount to approximately $66.3 million.
Payless has appealed the District Courts judgment and injunction to the United States Court of
Appeals for the 9th Circuit and filed its Opening Brief on May 18, 2009. Adidas has
also purported to appeal from the District Courts reduction of the jury verdict, from the District
Courts denial of an injunction of the broader scope it requested, and from the denial of its
requests for attorneys fees and prejudgment interest. On May 18, 2009, Payless filed its Opening
Brief on appeal. On July 1, 2009, adidas filed its Combined Appellees Response Brief and Opening
Brief of Cross-Appellants. On August 17, 2009, Payless filed its Response and Reply Brief. Adidas
filed its Reply Brief on September 14, 2009.
On April 2, 2009, adidas Canadian subsidiary filed a statement of claim alleging that Payless and
its Canadian operating companies infringed on adidas three stripe trademark by offering for sale
the same footwear at issue in the United States action. The Company believes it has meritorious
defenses to the claims asserted by adidas and filed an answer, defenses, and counterclaims on May
18, 2009.
As of October 31, 2009, the Company had recorded a $30.0 million pre-tax liability related to loss
contingencies associated with these matters, all of which were recorded during the first quarter of
2008. This liability, which was recorded within accrued expenses on the Companys Condensed
Consolidated Balance Sheet, resulted in an equal amount being charged to cost of sales.
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The Company has reached agreements with substantially all of its various relevant insurers with
respect to their coverage obligations for the claims by adidas. Pursuant to those agreements, the
Company has released these insurers from any further obligations with respect to adidas claims in
the action under applicable policies.
In the Matter of Certain Foam Footwear
On or about April 3, 2006, Crocs Inc. filed two companion actions against several manufacturers of
foam clog footwear asserting claims for patent infringement, trade dress infringement, and unfair
competition. One complaint was filed before the United States International Trade Commission
(ITC) in Washington D.C. The other complaint was filed in federal district court in Colorado.
The Companys wholly-owned subsidiary, Collective Licensing International, LLC (Collective
Licensing), was named as a Respondent in the ITC Investigation, and as a Defendant in the Colorado
federal court action. The Company settled all claims associated with these complaints in the third
quarter of 2009, the results of which did not have a material effect on the Companys financial
position, results of operations or cash flows.
American Eagle Outfitters and Retail Royalty Co. v. Payless ShoeSource, Inc.
On or about April 20, 2007, a Complaint was filed against the Company in the U.S. District Court
for the Eastern District of New York, captioned American Eagle Outfitters and Retail Royalty Co.
(AEO) v. Payless ShoeSource, Inc. (Payless). The Complaint seeks injunctive relief and
unspecified monetary damages for false advertising, trademark infringement, unfair competition,
false description, false designation of origin, breach of contract, injury to business reputation,
deceptive trade practices, and to void or nullify an agreement between the Company and third party
Jimlar Corporation. Plaintiffs filed a motion for preliminary injunction on or about May 7, 2007.
On December 20, 2007, the Magistrate Judge who heard oral arguments on the pending motions issued a
Report and Recommendation (R&R) recommending that a preliminary injunction issue requiring the
Company, in marketing its American Eagle products, to prominently display a disclaimer stating
that: AMERICAN EAGLE by Payless is not affiliated with AMERICAN EAGLE OUTFITTERS. The Magistrate
Judge also recommended that Payless stop using Exclusively at Payless in association with its
American Eagle products. The parties then filed objections to this R&R and, on January 23, 2008,
the District Court Judge issued an order remanding the matter back to the Magistrate Judge and
instructing him to consider certain arguments raised by the Company in its objections. On June 6,
2008, the Magistrate Judge issued a Supplemental Report and Recommendation (Supp. R&R), modifying
his earlier finding, stating that AEO had not established a likelihood of success on the merits of
its breach of contract claim, and recommending denial of the Companys request for an evidentiary
hearing. The parties again filed objections and, on July 7, 2008, the District Court Judge entered
an order adopting the Magistrates December 20, 2007 R&R, as modified by the June 6, 2008 Supp.
R&R. The Company believes it has meritorious defenses to the claims asserted in the lawsuit and
filed its answer and counterclaim on July 21, 2008. On August 27, 2008, the Magistrate Judge
issued an R & R that includes a proposed preliminary injunction providing additional detail for,
among other things, the manner of complying with the previously recommended disclaimer. On
September 15, 2008, the Company filed objections to the proposed preliminary injunction. On
October 20, 2008, the District Court Judge issued an order deeming the objections to be a motion
for reconsideration and referring them back to the Magistrate Judge. Later that same day, the
Magistrate Judge issued a revised proposed preliminary injunction incorporating most of the
modifications proposed in the Companys objections. On November 6, 2008, the parties filed
objections to the revised proposed preliminary injunction. On November 10, 2008, the Court entered
a preliminary injunction. An estimate of the possible loss, if any, or the range of loss cannot be
made and therefore the Company has not accrued a loss contingency related to this matter. However,
the ultimate resolution of this matter could have a material adverse effect on the Companys
financial position, results of operations and cash flows.
ITEM 1A. RISK FACTORS
For more information regarding our risk factors, see Item 1A in our Form 10-K for the year ended
January 31, 2009. There have been no changes to our risk factors since January 31, 2009.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table provides information about purchases by us (and our affiliated purchasers)
during the quarter ended October 31, 2009, of equity securities that are registered by us pursuant
to Section 12 of the Exchange Act:
Approximate | ||||||||||||||||
Dollar Value | ||||||||||||||||
Total Number of | of Shares that | |||||||||||||||
Shares Purchased | May Yet Be | |||||||||||||||
Total Number | Average | as Part of Publicly | Purchased Under | |||||||||||||
of Shares | Price | Announced Plans | the Plans or | |||||||||||||
Purchased(1) | Paid per | or Programs | Programs | |||||||||||||
Period | (in thousands) | Share | (in thousands) | (in millions) | ||||||||||||
08/01/09 08/29/09 |
20 | $ | 14.48 | | $ | 204.8 | ||||||||||
08/30/09 10/03/09 |
65 | 17.38 | 54 | 203.8 | ||||||||||||
10/04/09 10/31/09 |
4 | 17.70 | | 203.8 | ||||||||||||
Total |
89 | $ | 16.74 | 54 | $ | 203.8 | (2) | |||||||||
(1) | Includes an aggregate of approximately eighty-nine thousand shares of our common stock that was repurchased in connection with our employee stock purchase and stock incentive plans. | |
(2) | On March 2, 2007 our Board of Directors authorized an aggregate of $250 million of share repurchases. The timing and amount of share repurchases, if any, are limited by the terms of our Credit Agreement and Senior Subordinated Notes. |
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, President and Chairman of the Board* | |
31.2
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Division 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, President and Chairman of the Board* | |
32.2
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Division Senior Vice President - Chief Financial Officer and Treasurer* |
* | Filed herewith |
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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.
COLLECTIVE BRANDS, INC. | ||||
Date: December 3, 2009 | By: | /s/ Matthew E. Rubel | ||
Matthew E. Rubel | ||||
Chief Executive Officer, President and Chairman of the Board (Principal Executive Officer) |
||||
Date: December 3, 2009 | By: | /s/ Douglas G. Boessen | ||
Douglas G. Boessen | ||||
Division Senior Vice President - Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
||||
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