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EX-23.1 - EX-23.1 - PACIFIC SUNWEAR OF CALIFORNIA INC | a55664exv23w1.htm |
EX-32.1 - EX-32.1 - PACIFIC SUNWEAR OF CALIFORNIA INC | a55664exv32w1.htm |
EX-21.1 - EX-21.1 - PACIFIC SUNWEAR OF CALIFORNIA INC | a55664exv21w1.htm |
EX-31.1 - EX-31.1 - PACIFIC SUNWEAR OF CALIFORNIA INC | a55664exv31w1.htm |
EX-10.23 - EX-10.23 - PACIFIC SUNWEAR OF CALIFORNIA INC | a55664exv10w23.htm |
EX-10.24 - EX-10.24 - PACIFIC SUNWEAR OF CALIFORNIA INC | a55664exv10w24.htm |
Table of Contents
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
(Mark One) | ||
[ x ] Annual Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended: January 30, 2010 or |
||
[ ] 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 0-21296
PACIFIC SUNWEAR OF CALIFORNIA,
INC.
(Exact name of registrant as specified in its charter)
California
(State of incorporation) |
95-3759463 (I.R.S. Employer Identification No.) |
|
3450 E. Miraloma Ave., Anaheim, CA
(Address of principal executive offices) |
92806 (Zip Code) |
Registrants telephone number, including area code:
(714) 414-4000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
|
Name of Exchange on Which Registered
|
|
Common Stock, par value $0.01 per share | The NASDAQ Stock Market LLC (Nasdaq Global Select Market) |
Securities
Registered Pursuant to Section 12(g) of the Act:
None.
None.
| Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X] |
| Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [X] |
| 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 [X] No [ ] |
| 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 [ ] No [ ] |
| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] |
| 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 the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one): |
Large accelerated filer [ ] | Accelerated filer [X] | Non-accelerated filer [ ] | Smaller reporting company [ ] |
(Do not check if a smaller reporting company)
| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] |
The aggregate market value of Common Stock held by
non-affiliates of the registrant as of July 31, 2009, the
last business day of the most recently completed second quarter,
was approximately $215 million. All outstanding shares of
voting stock, except for shares held by executive officers and
members of the Board of Directors and their affiliates, are
deemed to be held by non-affiliates.
On March 26, 2010, the registrant had
66,243,526 shares of Common Stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Part III incorporates information by reference from the
definitive Proxy Statement for the 2010 Annual Meeting of
Shareholders, to be filed with the Commission not later than
120 days after the end of the registrants fiscal year
covered by this
Form 10-K.
PACIFIC SUNWEAR
OF CALIFORNIA, INC.
FORM 10-K
For the Fiscal Year Ended January 30, 2010
Index
FORM 10-K
For the Fiscal Year Ended January 30, 2010
Index
PART I
Pacific Sunwear of California, Inc. (together with its wholly
owned subsidiaries, the Company,
Registrant, PacSun, we,
us, or our) is a leading specialty
retailer rooted in the action sports, fashion and music
influences of the California lifestyle. We sell casual apparel
with a limited selection of accessories and footwear designed to
meet the needs of teens and young adults. We operate a
nationwide, primarily mall-based chain of retail stores under
the names Pacific Sunwear and PacSun.
The Company, a California corporation, was incorporated in
August 1982. As of January 30, 2010, we leased and operated
894 stores among all 50 states and Puerto Rico, comprised
of 3,457,171 square feet.
Our executive offices are located at 3450 East Miraloma Avenue,
Anaheim, California, 92806; our telephone number is
(714) 414-4000;
and our Internet address is www.pacsun.com.
Through our website, we make available free of charge, as soon
as reasonably practicable after such information has been filed
or furnished to the Securities and Exchange Commission (the
Commission), our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended (the Exchange Act).
The Companys fiscal year is the 52- or 53-week period
ending on the Saturday closest to January 31. Fiscal
year-end dates for all periods presented or discussed herein are
as follows:
Fiscal Year | Year-End Date | # of Weeks | ||
2010
|
January 29, 2011 | 52 | ||
2009
|
January 30, 2010 | 52 | ||
2008
|
January 31, 2009 | 52 | ||
2007
|
February 2, 2008 | 52 | ||
2006
|
February 3, 2007 | 53 | ||
2005
|
January 28, 2006 | 52 |
Our Mission and
Strategies
Our mission is to be the favorite place for teens to shop in the
mall. Our objective is to provide our customers with a
compelling merchandise assortment and great shopping experience
that together highlight a great mix of heritage brands,
proprietary product and emerging brands that speak to the action
sports, fashion and music influences of the California
lifestyle. We offer a targeted assortment of apparel,
accessories and footwear for Young Men and Juniors (Girls)
designed to meet the fashion needs of our customers. We believe
the following items are the key strategic elements in executing
our stated mission:
Strong Emphasis on Brands. PacSuns foundation has
traditionally been built upon a great collection of powerful
brands. Today, that mix of brands includes heritage brands, our
own proprietary brands and a mix of
up-and-coming,
emerging brands. Our heritage brands have been partnered with us
for many years and include some of the most well known names in
the action sports industry, including Fox Racing, DC Shoes,
Roxy, Quiksilver, Hurley, Billabong, Element and Volcom, among
others. In recent years, we have also built our own proprietary
labels, including
Bullhead®,
Kirra®,
Kirra Girl, On The Byas, and
Nollie®,
to complement our heritage brands and give us added flexibility
within certain categories. Additionally, we continually seek
emerging brands to bring newness to our stores that speak to the
ever-changing tastes of our customers. Taken together, we
believe that this mix of brands gives us the capability to offer
our customers an unmatched selection of fashionable and
authentic products.
We are working with our heritage brands to reinvigorate the
PacSun shopping experience. We have changed our in-store
merchandise presentations to feature heritage brands exclusively
on particular fixtures throughout our store with their own brand
signage. Within certain stores, we have also begun allowing
particular brands to create brand shops
2 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
that offer them the opportunity to create their own selling
space within our stores and display their product in a unique
manner.
Localized Assortment Planning. We believe there is a
significant opportunity to improve both our sales and
merchandise margin performance by redefining our merchandise
assortment planning strategies. We have traditionally taken a
one size fits all approach to merchandise
assortments in our stores in terms of the timing of product
flows and brand or category presentation. This approach
generally resulted in all stores receiving seasonal categories
(i.e., swim in spring or fleece in autumn) at the same time and
in the same magnitude. In recent months, we have commenced
implementation of an initiative we call
localization. Under this initiative, we have grouped
our stores into a number of store clusters based on customer
segmentations, brand performance, differences in weather, and
demographics, among other characteristics. In conjunction with
this clustering, we are beginning to implement certain changes
in our allocation strategies designed to distribute what we
believe to be the right product to the right stores for the
right customers. We expect the full impact of these new
strategies to begin to take effect in the second half of fiscal
2010 when seasonal differences in weather are more pronounced
than in spring and summer.
New Strategic Marketing Initiatives. In the past, our
marketing efforts have been fairly limited to in-store creative
content, relatively few in-store promotional events, and some
national print advertising in major magazines that target teens
and young adults. In fiscal 2010, we plan to launch a marketing
strategy that we believe embraces the full capabilities of the
brands we carry and will communicate to consumers that PacSun is
the authentic retailer for action sports and California
lifestyle brands. We are working cooperatively with key heritage
brands to create new programs and approaches to generate
excitement around PacSun and the California lifestyle we embody.
We have continued our sponsorship of the U.S. Amateur Surf
and Snowboarding Teams that reflect our commitment to the
action-sports industry.
Elimination of Value Store Designation.
During the latter half of fiscal 2008 and through fiscal 2009,
we attempted to improve the operating performance of
approximately 300 of our poorest performing stores by converting
at least a portion of their merchandise assortments to a more
value-oriented focus. This decision did not result in improved
performance for such stores. As a result, we plan to return
these stores to carrying the core PacSun assortment by June
2010. We believe this decision should help recover lost average
unit retails in these stores, leading to improved sales and
merchandise margin performance versus fiscal 2009. This decision
has already enabled us to streamline our merchandising, buying
and allocation decisions and processes and we believe that it
can improve overall business performance.
Merchandising
Merchandise. Our stores offer a broad selection of casual
apparel, related accessories and footwear for Young Men and
Juniors, with the goal of being viewed by our customers as the
dominant retailer for their lifestyle. The following tables set
forth our merchandise assortment as a percentage of net sales
for the most recent three fiscal years for our business:
Fiscal Year | ||||||
2009 | 2008 | 2007 | ||||
Young Mens Apparel
|
45% | 41% | 38% | |||
Juniors Apparel
|
43% | 42% | 33% | |||
Accessories and Footwear
|
12% | 17% | 29% | |||
Total
|
100% | 100% | 100% | |||
Between fiscal 2007 and fiscal 2009, our sales productivity per
square foot fell from $350 to $275. Prior to fiscal 2007, the
combination of accessories and footwear accounted for more than
30% of total net sales versus only 12% in fiscal 2009. In
retrospect, we believe we may have lost sales opportunities as a
result of our previous decisions to de-
Table of Contents
emphasize accessories and footwear during fiscal 2008 and 2009.
We believe there is a significant opportunity to begin improving
sales as we re-introduce certain categories of accessories and
footwear. During the fourth quarter of fiscal 2009, we began
re-introducing footwear into a limited number of stores and we
currently plan to expand the number of stores in which we carry
footwear during fiscal 2010. We plan to analyze the sales
performance of these categories during fiscal 2010 in order to
determine the appropriate mix of accessories and footwear as a
percentage of our total net sales.
Brands. We offer a wide selection of well-known
action-sport inspired heritage brands, such as Fox Racing,
Billabong, Element, DC Shoes, Roxy, Quiksilver, Hurley and
Volcom, among others. In addition, we continually cultivate
relationships to add and support
up-and-coming
brands, even if they are not of sufficient size to deliver to
our stores on a nationwide basis. During fiscal 2009, no vendor
accounted for more than 10% of total sales.
We supplement our name brand offerings with our proprietary
brands, including
Bullhead®,
Kirra®,
Kirra Girl, On The Byas, and
Nollie®.
Proprietary brands provide us with an opportunity to broaden our
customer base by offering merchandise of comparable quality to
brand name merchandise, capitalize on emerging fashion trends
when branded merchandise is not available in sufficient
quantities, and exercise a greater degree of control over the
flow of our merchandise. Our own product design group, in
collaboration with our buying staff, designs our proprietary
brand merchandise. Our sourcing organization oversees the
manufacture and delivery of our proprietary brand merchandise,
with manufacturing sourced both domestically and
internationally. Our proprietary brand merchandise accounted for
approximately 48%, 38%, and 30% of total net sales in fiscal
2009, 2008, and 2007, respectively. Branded merchandise
accounted for approximately 52%, 62%, and 70% of total net sales
in fiscal 2009, 2008, and 2007, respectively.
Vendor and Contract Manufacturer Relationships. In fiscal
2009, we believe we strengthened our relationships with our
branded vendors. We generally purchase merchandise from vendors
that target distribution through specialty retailers, small
boutiques and, in some cases, particular department stores,
rather than distribution through mass-market channels. To
encourage the design and development of new merchandise, we
frequently share ideas regarding fashion trends and merchandise
sell-through information with our vendors. We also suggest
merchandise design and fabrication to certain vendors.
We have cultivated our proprietary brand sources with a view
toward high-quality merchandise, production reliability and
consistency of fit. We source our proprietary brand merchandise
both domestically and internationally in order to benefit from
the shorter lead times associated with domestic manufacturing
and the lower costs associated with off-shore manufacturing.
Merchandising, Planning, Allocation and Distribution. Our
merchants are responsible for reviewing branded merchandise
lines from new and existing vendors, identifying emerging
fashion trends, and selecting branded and proprietary brand
merchandise styles in quantities, colors and sizes to meet
inventory levels established by Company management. Our planning
and allocation team is responsible for management of inventory
levels by store and by class, allocation of merchandise to
stores and inventory replenishment based upon information
generated by our merchandise management information systems.
These systems provide the planning department with current
inventory levels at each store and for the Company as a whole,
as well as current selling history within each store by
merchandise classification and by style. See Information
Technology.
All merchandise is delivered to our distribution facility in
Olathe, Kansas where it is inspected, received, allocated to
stores, ticketed when necessary, and boxed for distribution to
our stores or packaged for delivery to our Internet customers.
Each store is typically shipped merchandise three to five times
a week, providing it with a steady flow of new merchandise. We
use both national and regional carriers to ship merchandise to
our stores and Internet customers. We may occasionally use air
freight to ship merchandise to stores when necessary.
4 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
E-commerce.
Our Internet sales continued to grow in fiscal 2009 and
represented approximately 5% of our total sales for the year. We
sell a combination of the same selection of merchandise carried
in our stores along with online exclusives at
www.pacsun.com. We maintain a database of
e-mail
addresses that we use for marketing and product promotion
purposes. We also advertise our website as a shopping
destination on certain Internet portals and search engines and
market our website in our stores. Our Internet strategy benefits
from the nationwide retail presence of our stores, brand
recognition of PacSun, an Internet-savvy customer base, and the
participation of our key brands.
Stores
Locations. We operate stores in each of the
50 states and Puerto Rico. For a geographical breakdown of
stores by state, see Item 2, Properties.
Real Estate Strategy. Prior to fiscal 2007, the Company
grew rapidly, with more than 50 new store openings per year
since fiscal 1997. Given the economic environment and our sales
performance over the past two years, our focus has shifted from
continuing to open new stores to optimizing our existing fleet
of stores. In order to improve our overall profitability, we
intend to close under-performing stores
and/or
renegotiate existing lease terms to achieve more appropriate
occupancy structures within our store operating leases. We
closed 40 stores in fiscal 2009 and 38 stores in fiscal 2008. We
currently expect to close approximately 25 to 50 stores in
fiscal 2010 depending on our ability to negotiate acceptable
lease terms as leases come up for renegotiation at lease
expiration or at any earlier lease kick-out opportunity. A
kick-out clause relieves us of any future obligation under a
lease if specified sales levels for our stores or mall occupancy
targets are not achieved by a specified date. We have in excess
of 100 lease expirations currently scheduled for each of fiscal
2010, 2011 and 2012. While there is a mixture of productive and
non-productive stores to address each year, we are likely to
continue closing more stores than we open in each of the next
three years. Specifically for fiscal 2010, we currently plan to
open less than five new stores and expand/relocate less than ten
stores.
Our store site selection strategy is to locate our stores
primarily in high-traffic, regional malls serving markets that
meet our demographic criteria, including average household
income and population density. We also consider mall sales per
square foot, the performance of other retail tenants serving
teens and young adult customers, anchor tenants and occupancy
costs. We currently seek store locations of approximately 3,500
to 4,500 square feet.
Store Operations. Our stores are open for business during
mall shopping hours. Each store has a manager, one or more
assistant managers, and approximately six to twelve part-time
sales associates. District managers supervise approximately 11
stores and approximately 10 district managers report to a
regional director. District and store managers participate in a
bonus program based on achieving predetermined metrics,
including sales and inventory shrinkage targets. We have store
operating policies and procedures and in-store training for new
managers. We place an emphasis on loss prevention programs in
order to control inventory shrinkage. These programs include the
installation of electronic article surveillance systems in all
stores, education of store personnel on loss prevention, and
monitoring of returns, voids and employee sales. As a result of
these programs, our historical inventory shrinkage rates have
been below 2% of net sales at retail (1% at cost).
Competition
The retail apparel, accessory and footwear business is highly
competitive. Our stores compete on a national level with certain
leading specialty retail chains as well as certain department
stores that offer the same or similar brands and styles of
merchandise including: Abercrombie and Fitch, Aéropostale,
American Eagle Outfitters, Buckle, Forever 21, Hollister, J.C.
Penney, Kohls, Macys, Old Navy, Target, Urban
Outfitters, and Zumiez as well as a wide variety of regional and
local specialty stores. Many of our competitors are larger than
we are and have significantly greater resources available to
them than we do. We believe the principal competitive factors in
our industry are fashion, merchandise assortment, quality,
price, store location, environment and customer service.
Table of Contents
Trademarks and
Service Marks
We are the owner in the United States of the marks Pacific
Sunwear of
California®,
PacSun®,
and Pacific
Sunwear®.
We also use and have registered, or have a pending registration
on, a number of other marks, including those attributable to our
proprietary brands such as
Bullhead®,
Kirra®,
Kirra Girl,
Nollie®
and On The Byas. We have also registered many of our marks
outside of the United States. We believe our rights in our marks
are important to our business and intend to maintain our marks
and the related registrations.
Information
Technology
Our merchandise, financial and store computer systems operate
using primarily IBM equipment. Our information systems provide
Company management, merchants and planners with data that helps
them identify emerging trends and manage inventories. These
systems include purchase order management, open order reporting,
open-to-buy,
receiving, distribution, merchandise allocation, basic stock
replenishment, inter-store transfers, and inventory and price
management. Company management uses daily and weekly item sales
reports to make purchasing and markdown decisions. Merchandise
purchases are generally based on planned sales and inventory
levels.
All of our stores have a
point-of-sale
system operating on IBM in-store computer hardware. The system
features bar-coded ticket scanning, automatic price
look-up,
electronic check and credit/debit authorization, and automatic
nightly transmittal of data between the store and our corporate
office. Each of the regional directors and district managers
uses a laptop computer and can access appropriate or relevant
Company-wide information, including actual and budgeted sales by
store, district and region, transaction information and payroll
data.
Seasonality
For details concerning the seasonality of our business, see
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations, Seasonality
and Quarterly Results.
Working Capital
Concentration
A significant portion of our working capital is related to
merchandise inventories available for sale to customers as well
as in our distribution center. For details concerning working
capital and the merchandising risk associated with our
inventories, see Risk Factors in Item 1A and
Working Capital within Item 7,
Managements Discussion and Analysis of Financial Condition
and Results of Operations.
Employees
At the end of fiscal 2009, we had approximately
11,300 employees, of whom approximately 8,400 were
part-time. Of the total employees, approximately 500 were
employed at our corporate headquarters and distribution center.
A significant number of seasonal employees are hired during peak
selling periods. None of our employees are represented by a
labor union, and we believe that our relationships with our
employees are good.
Executive Officers. Set forth below are the names, ages,
titles, and certain background information of persons serving as
executive officers of the Company as of March 31, 2010:
Executive Officer | Age | Title | ||||
Gary H. Schoenfeld
|
47 | President, Chief Executive Officer and Director | ||||
Charles Mescher
|
36 | Sr. Vice President, General Merchandise Manager, Young Mens | ||||
Christine Lee
|
39 | Sr. Vice President, General Merchandise Manager, Juniors | ||||
Robert Cameron
|
50 | Sr. Vice President, Marketing | ||||
Michael L. Henry
|
39 | Sr. Vice President, Chief Financial Officer and Secretary | ||||
Craig E. Gosselin
|
50 | Sr. Vice President, General Counsel and Human Resources |
Gary H. Schoenfeld was appointed President and Chief
Executive Officer of the Company in June 2009. Prior to joining
us, he was President of Aritzia Inc., a Canadian fashion
retailer, and Chief Executive Officer of Aritzia USA from August
6 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
2008 to February 2009, and was a director of Aritzia Inc. from
May 2006 to June 2009. From 2006 until 2008 he was Vice Chairman
and President and then Co-CEO of Global Brands Group, a brand
management and licensing company based in London and Singapore
which is the world-wide master licensee for The FIFA World
Cuptm.
From September 1995 to July 2004, Mr. Schoenfeld was an
executive officer of Vans, Inc., a publicly traded designer,
distributor and retailer of footwear. He joined Vans as Chief
Operating Officer, then became President and a member of the
Board of Directors in 1996 and Chief Executive Officer in 1997.
While CEO of Vans, he led the turnaround and more than four-fold
sales growth of Vans into a leading youth lifestyle brand until
its acquisition by VF Corporation in June 2004. Prior to joining
Vans, Mr. Schoenfeld was a partner in the private equity
firm of McCown De Leeuw & Co. He currently serves as a
director of CamelBak Products, LLC, and is a former director of
24 Hour Fitness, Inc. and Global Brands Group. Additionally, he
has served on non-profit boards including Stanford University
Graduate School of Business Management Board (Chairman), Chapman
University Board of Governors and University Synagogue Board of
Trustees.
Charles Mescher was appointed Senior Vice President and
General Merchandise Manager of Young Mens in January 2008. In
this position, he is responsible for all merchandising, buying
and design decisions related to Young Mens merchandise,
including all apparel, accessories and footwear. Prior to that,
he served the Company as Vice President/GMM of Young Mens
merchandise and accessories from March 2006 to January 2008.
Mr. Mescher joined the Company in January 2005 as
Division Merchandise Manager of Young Mens. Prior to
joining the Company, he served in various merchandising
positions for Nike, The Gap, and Abercrombie and Fitch.
Christine Lee was named Senior Vice President and General
Merchandise Manager of Juniors in February 2010. In her role,
Ms. Lee leads all aspects of merchandising, buying and
design decisions for our Juniors apparel, accessories and
footwear business. Prior to joining us, Ms. Lee spent
18 years with specialty retailer Urban Outfitters working
her way from Sales Associate to General Merchandise Manager of
Womens Apparel and Accessories, as well as Urban Renewal
and Design. In this role she drove merchandise trends, new
concepts and key item decisions for a $300 million business.
Robert Cameron joined us in January 2010, as Senior Vice
President of Marketing. He is responsible for creating a
differentiated customer experience and for developing strategies
that will bring the Companys stores and PacSun.com to
consumers across all touch points. Mr. Cameron joined the
Company from Levis, where he most recently served as Vice
President, Levis Brand Marketing from 2006 to 2009. Prior
to Levis, he was a founding partner and Chief Creative
Officer of Fantascope, Inc., a strategic branding agency that
worked on many high-profile projects, including New Line
Cinemas Lord of the Rings, M&Ms retail
stores and several MTV online initiatives from 1995 to 2005.
Michael L. Henry was appointed Senior Vice President,
Chief Financial Officer and Secretary of the Company in January
2008. In this position, he has responsibility for all aspects of
the Companys financial planning and reporting, treasury,
tax, insurance, investor relations, real estate, loss prevention
and facilities. Prior to that, he served as Interim Chief
Financial Officer from November 2007 to January 2008, and Vice
President, Controller from February 2006 to November 2007.
Mr. Henry joined the Company in September 2000 as
Controller. Prior to joining the Company, he worked in the audit
practice of Deloitte & Touche LLP. Mr. Henry is a
certified public accountant (inactive).
Craig E. Gosselin joined us as Senior Vice President,
General Counsel and Human Resources in December 2009.
Mr. Gosselin oversees our Legal and Human Resources
functions. Mr. Gosselin joined Pacific Sunwear from
Connolly, Finkel and Gosselin LLP (CF&G) and
was a partner of that firm, and its predecessor Zimmermann,
Koomer, Connolly and Finkel LLP, since 2005. While with the
firm, Mr. Gosselin represented leading brands, including
Vans, CamelBak, Ariat, Von Dutch, The North Face, JanSport, Reef
and 7 For All Mankind. Prior to joining CF&G,
Mr. Gosselin spent nearly 13 years with Vans, Inc.,
serving as Senior Vice President and General Counsel. Prior to
Vans, Mr. Gosselin practiced corporate mergers and
acquisitions, and securities law at several large law firms,
including Shea & Gould and Pacht, Ross, Warne,
Bernhard & Sears.
Table of Contents
ITEM 1A. | RISK FACTORS |
Cautionary Note
Regarding Forward-Looking Statements
This report on
Form 10-K
contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Exchange Act, and we intend
that such forward-looking statements be subject to the safe
harbors created thereby. We are providing cautionary statements
identifying important factors that could cause our actual
results to differ materially from those projected in the
forward-looking statements contained herein. Any statements that
express, or involve discussions as to, expectations, beliefs,
plans, objectives, assumptions, future events or performance
(often, but not always identifiable by the use of words or
phrases such as will result, expects to,
will continue, anticipates,
plans, intends, estimated,
projects and outlook) are not historical
facts and may be forward-looking and, accordingly, such
statements involve estimates, assumptions and uncertainties
which could cause actual results to differ materially from those
expressed in the forward-looking statements. Examples of
forward-looking statements in this report include, but are not
limited to, the following categories of expectations about:
| our branding and merchandising strategies, including our plans to work with our heritage brands to reinvigorate the PacSun shopping experience and our plans to expand the number of stores in which we carry footwear during fiscal 2010, |
| our localization strategies, including our belief that redefining our merchandise assortment planning strategies could improve both our sales and merchandise margin performance and our expectations that the full impact of our localization strategies will begin to take effect in the second half of fiscal 2010, |
| our plans to eliminate our value store designations and our belief that such plans will lead to improved sales and merchandise margin performance versus fiscal 2009, |
| forecasts of future sales activity, inventory levels and selling, general and administrative expenses, |
| the sufficiency of working capital, operating cash flows and available credit to meet our operating and capital expenditure requirements, |
| our capital expenditure plans for fiscal 2010, |
| forecasts of future store closures, expansions, relocations and store refreshes, including planned fiscal 2010 activities, |
| future borrowings and repayments under our credit facility, and |
| future increases in occupancy expenses |
All forward-looking statements included in this report are
based on information available to us as of the date hereof, and
are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed in the
forward-looking statements. We assume no obligation to update or
revise any such forward-looking statements to reflect events or
circumstances that occur after such statements are made.
Our failure to identify and respond appropriately to changing
consumer preferences and fashion trends in a timely manner could
have a material adverse impact on our business and
profitability. Our success is largely dependent upon our
ability to gauge the fashion tastes of our customers and to
provide merchandise at competitive prices and in adequate
quantities that satisfies customer demand in a timely manner.
Our failure to anticipate, identify or react appropriately in a
timely manner to changes in fashion trends could have a material
adverse effect on our same store sales results, gross margins,
operating margins, financial condition and results of
operations. Misjudgments or unanticipated fashion changes could
also have a material adverse effect on our image with our
customers. Some of our vendors have limited resources,
production capacities and operating histories and some have
intentionally limited the distribution of their merchandise. The
inability or unwillingness on the part of key vendors to expand
their
8 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
operations to accommodate our merchandising requirements, or the
loss of one or more key vendors or proprietary brand sources for
any reason, could have a material adverse effect on our business.
We face significant competition from both
vertically-integrated and brand-based competitors which could
have a material adverse effect on our business. The retail
apparel business is highly competitive. All of our stores
compete on a national level with a diverse group of retailers,
including vertically-integrated and brand-based national,
regional and local specialty retail stores, and certain leading
department stores and off-price retailers that offer the same or
similar brands and styles of merchandise as we do. Many of our
competitors are larger and have significantly greater resources
than we do. We believe the principal competitive factors in our
industry are fashion, merchandise assortment, quality, price,
store location, environment and customer service.
Our failure to reverse declining sales in our Juniors
business would have a material adverse impact on our business
and profitability. In fiscal 2009, our Juniors business
accounted for approximately 49% of total net sales.
Juniors sales experienced a same store decline of 19% in
fiscal 2009. The failure to reverse this negative trend would
have a material adverse impact on our business, financial
condition, results of operations and stock price.
We have previously changed certain of our merchandising and
real estate strategies with the goal of improving our operating
results. We may continue to modify our strategies going forward
and we cannot be certain that our existing or modified
strategies will be successful in improving our store
productivity or profitability. We recently eliminated the
distinction between our Core PacSun stores and our
Value PacSun stores as this distinction has not
resulted in improved operating results. We have also
reintroduced selected footwear and accessory merchandise in an
effort to recapture sales within these product categories. We
are also restructuring existing occupancy terms for
underperforming stores and closing a number of stores that are
unprofitable. All of these strategy decisions are aimed at
improving our operating results. However, there can be no
assurance that these new strategies, or any future modification
of our strategies, will be successful or result in improved
operating results. The failure of these strategies to improve
our operating results could have a material adverse impact on
our business, financial condition, results of operations and
stock price.
Our comparable store net sales results fluctuate
significantly, which can cause volatility in our operating
performance and stock price. Our comparable store net sales
results have fluctuated significantly over time, and are
expected to continue to fluctuate in the future. For example,
over the past five years, quarterly comparable store net sales
results for our stores have varied from a low of minus 24% to a
high of plus 8%. A variety of factors affect our comparable
store net sales results, including unfavorable economic
conditions and decreases in consumer spending, changes in
fashion trends and customer preferences, changes in our
merchandise mix, calendar shifts of holiday periods, actions by
competitors, and weather conditions. Our comparable store net
sales results for any fiscal period may decrease. As a result of
these or other factors, our comparable store net sales results,
both past and future, are likely to have a significant effect on
the market price of our common stock and our operating
performance, including our use of markdowns and our ability to
leverage operating and other expenses that are somewhat fixed.
Our net sales, operating income and inventory levels
fluctuate on a seasonal basis. We experience major seasonal
fluctuations in our net sales and operating income, with a
significant portion of our operating income typically realized
during the third quarter
back-to-school
and fourth quarter holiday season. Any decrease in sales or
margins during these periods could have a disproportionately
adverse effect on our financial condition and results of
operations. Seasonal fluctuations also affect our inventory
levels, since we usually order merchandise in advance of peak
selling periods and sometimes before new fashion trends are
confirmed by customer purchases. We generally carry a
significant amount of inventory, especially before the
back-to-school
and holiday season selling periods. If we are not successful in
selling inventory during these periods, we may have to sell the
inventory at significantly reduced prices, which would adversely
affect our profitability.
Our customers may not prefer our proprietary brand
merchandise, which may negatively impact our profitability.
Sales from proprietary brand merchandise accounted for
approximately 48%, 38%, and 30% of net
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sales in fiscal 2009, 2008 and 2007, respectively. There can be
no assurance that any change in the sales penetration of
proprietary brand merchandise will improve our operating
results. Because our proprietary brand merchandise generally
carries higher merchandise margins than our other merchandise,
our failure to anticipate, identify and react in a timely manner
to fashion trends with our proprietary brand merchandise,
particularly if the percentage of net sales derived from
proprietary brand merchandise changes significantly (up or
down), may have a material adverse effect on our same store
sales results, operating margins, financial condition and
results of operations.
Our foreign sources of production may not always be reliable,
which may result in a disruption in the flow of new merchandise
to our stores. We do not own or operate any manufacturing
facilities and therefore depend upon independent third-party
vendors for the manufacture of our merchandise. We purchase
merchandise directly in foreign markets for our proprietary
brands. In addition, we purchase merchandise from domestic
vendors, some of which is manufactured overseas. We do not have
any long-term merchandise supply contracts and our imports are
subject to existing or potential duties, tariffs and quotas. We
face competition from other companies for production facilities
and import quota capacity. We also face a variety of other risks
generally associated with doing business in foreign markets and
importing merchandise from abroad, such as: (i) political
instability; (ii) enhanced security measures at United
States ports, which could delay delivery of imports;
(iii) imposition of new legislation relating to import
quotas that may limit the quantity of goods which may be
imported into the United States from countries in a region
within which we do business , and competition with other
companies for import quota capacities; (iv) imposition of
duties, taxes, and other charges on imports; (v) delayed
receipt or non-delivery of goods due to the failure of
foreign-source suppliers to comply with applicable import
regulations; (vi) delayed receipt or non-delivery of goods
due to organized labor strikes or unexpected or significant port
congestion at United States ports; (vii) local business
practice and political issues, including issues relating to
compliance with domestic or international labor standards which
may result in adverse publicity; and (viii) acts of
terrorism. New initiatives may be proposed that may have an
impact on the trading status of certain countries and may
include retaliatory duties or other trade sanctions that, if
enacted, would increase the cost of products purchased from
suppliers in countries that we do business with. Any inability
on our part to rely on our foreign sources of production due to
any of the factors listed above could have a material adverse
effect on our business, financial condition and results of
operations.
The loss of key personnel could have a material adverse
effect on our business at any time. Our continued success is
dependent to a significant degree upon the services of our key
personnel, particularly our executive officers. The loss of the
services of any member of our senior management team could have
a material adverse effect on our business, financial condition
and results of operations. Our success in the future will also
be dependent upon our ability to attract and retain qualified
personnel. In this regard, we have historically used stock
awards as a component of our total employee compensation program
in order to align employees interests with the interests
of our shareholders, encourage employee retention and provide
competitive compensation and benefit packages. As a result of
the decline in our stock price in recent periods, the ability to
retain present, or attract prospective employees has been
adversely affected. Our inability to attract and retain
qualified personnel in the future could have a material adverse
effect on our business, financial condition and results of
operations.
We operate our business from one corporate headquarters
facility and one distribution facility which exposes us to
significant operational risks. All of our corporate
headquarters functions reside within a single facility in
Anaheim, California. Our distribution function resides within a
single facility in Olathe, Kansas. Any significant interruption
in the availability or operation of our corporate headquarters
or distribution facility due to natural disasters, accidents,
system failures or other unforeseen causes would have a material
adverse effect on our business, financial condition and results
of operations.
Our business depends on our ability to operate existing
stores that achieve acceptable levels of profitability. Any
failure to do so may negatively impact our stock price and
operational performance. Our stores are located principally
in enclosed regional shopping malls. PacSun is a relatively
mature concept with limited domestic
10 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
opportunities to open new stores in such malls. The rate of our
new store openings has declined significantly over recent years,
and we expect to open no more than five stores per year going
forward. There can be no assurance, however, that we will be
able to successfully operate existing stores in a manner that
will enable us to achieve acceptable levels of profitability.
Any inability to profitably operate our existing stores will
have a material adverse impact on our business, stock price,
financial condition and results of operations.
We have stated our intention to pursue a merchandise
assortment planning strategy based on localization, which may
not be successful in improving our store productivity or
profitability. We have implemented a strategic initiative to
improve the productivity of our stores in terms of sales per
square foot and the profitability of our business as a whole by
placing a greater emphasis on grouping our stores into a number
of store clusters based on customer segmentations, brand
performance, differences in weather and demographics, among
other characteristics. See Part I, Item I,
Business for further discussion of this initiative.
In conjunction with this initiative, we are beginning to
implement certain changes in our allocation strategies designed
to achieve better delivery of product to our customers. It is
uncertain whether this shift in merchandising strategy will
result in higher sales per square foot in our stores or improved
operating margins for our business as a whole. Moreover,
implementation of this strategy could increase costs and place a
strain on our management, operational and financial resources,
as well as our information systems. The failure of this strategy
to improve sales per square foot and profitability could have a
material adverse impact on our business, financial condition,
results of operations and stock price.
The continued volatility in the U.S. economy has
adversely affected consumer spending, which could negatively
impact our business, operating results and stock price. Our
business operations and financial performance depend
significantly on general economic conditions and their impact on
levels of consumer spending. Consumer spending is impacted by a
number of factors, including consumer confidence in the strength
of the general economy, fears of economic recession or
depression, the availability and cost of consumer credit, the
cost of basic necessities such as food, fuel and housing,
inflation, salary and wage levels, levels of taxation and
unemployment levels. Recent unfavorable economic conditions in
the U.S. have resulted in an overall slowing in the retail
sector because of decreased consumer spending, which may
continue to decline for the foreseeable future. The cost of
purchased merchandise may increase as economies of scale are
eroded by decreased global demand, and as other costs increase.
These and other economic factors could continue to have a
material adverse effect on demand for our merchandise and on our
financial condition and results of operations.
We are also dependent upon the continued popularity of malls as
a shopping destination and the ability of shopping mall anchor
tenants and other attractions within the vicinity of our stores
to generate customer traffic. Unfavorable economic conditions,
particularly in certain regions, have adversely affected mall
traffic and resulted in the closing of certain anchor tenants. A
continued slowdown in the U.S. economy or an uncertain
economic outlook could continue to lower consumer spending
levels and cause a decrease in shopping mall traffic, each of
which would adversely affect our sales results and financial
performance.
Our current or prospective vendors may be unable or unwilling
to supply us with adequate quantities of their merchandise in a
timely manner or at acceptable prices, which could have a
material adverse impact on our business. The success of our
business is dependent upon developing and maintaining good
relationships with our vendors. We work very closely with our
vendors to develop and acquire appropriate merchandise at
acceptable prices for our stores. In addition, some of our
vendors are relatively unsophisticated or underdeveloped and may
have difficulty in providing adequate quantities or quality of
merchandise to us in a timely manner. Also, certain of our
vendors sell their merchandise directly to retail customers in
direct competition with us. Our vendors could discontinue their
relationship with us or raise prices on their merchandise at any
time. In addition, the raw materials used by our vendors to
manufacture our products may become subject to availability
constraints and price volatility caused by high demand for
fabrics, weather, economic conditions, government regulations or
other factors affecting supply conditions. There can be no
assurance that we will be able to acquire sufficient quantities
of quality merchandise at
Table of Contents
acceptable prices in a timely manner in the future. Any
inability to do so, or the loss of one or more of our key
vendors, could have a material adverse impact on our business,
results of operations and financial condition.
Consolidation in the commercial retail industry may affect
our ability to successfully negotiate favorable rent terms for
our stores in the future. As a mall-based retailer, the
success of our business is dependent upon developing and
maintaining good relationships with our landlords. Potential
consolidation in the commercial retail industry could limit our
ability in the future to negotiate favorable rent terms or
potentially close unprofitable stores. Should significant
consolidation occur, a large proportion of our store base could
be concentrated with one or a few entities that control premium
mall space. These entities could then be in a position to
dictate unfavorable terms to us due to the significant leverage
they would possess. If we are unsuccessful in negotiating
favorable rent terms with these entities and are therefore
unable to profitably operate our existing stores, there would be
a material adverse impact on our business, financial condition,
results of operations and stock price.
Any reinvestment in our existing store base may not result in
improved operating performance. Conversely, the lack of any
reinvestment may cause many of our stores to appear less
attractive to customers. We believe that store design is an
important element in the customer shopping experience. Many of
our stores have been in operation for many years and have not
been updated or renovated since opening. Some of our competitors
are in the process of updating, or have updated, their store
designs, which may make our stores appear less attractive in
comparison. Due to the current economic environment and store
performance, we have significantly scaled back our store refresh
program. Any inability on our part to successfully implement new
store designs in a timely manner could have a material adverse
effect on our business, financial condition and results of
operations.
Any material failure, interruption or security breach of our
computer systems or information technology may adversely affect
the operation of our business and our financial results. We
are dependent on our computer systems and information technology
to properly conduct business. A failure or interruption of our
computer systems or information technology could result in the
loss of data, business interruptions or delays in our
operations. Also, despite our considerable efforts and
technological resources to secure our computer systems and
information technology, security breaches, such as unauthorized
access and computer viruses, may occur resulting in system
disruptions, shutdowns or unauthorized disclosure of
confidential information. Any security breach of our computer
systems or information technology may result in adverse
publicity, loss of sales and profits, damages, fines or other
loss resulting from misappropriation of information.
In addition, while we regularly evaluate our information systems
capabilities and requirements, there can be no assurance that
our existing information systems will be adequate to support the
existing or future needs of our business. We may have to
undertake significant information system implementations,
modifications
and/or
upgrades in the future at significant cost to us. Such projects
involve inherent risks associated with replacing
and/or
changing existing systems, such as system disruptions and the
failure to accurately capture data, among others. Information
system disruptions, if not anticipated and appropriately
mitigated, could have a material adverse effect on our business,
results of operations and financial condition.
The effects of terrorism or war could significantly impact
consumer spending and our operational performance. The
majority of our stores are located in regional shopping malls.
Any threat or actual act of terrorism, particularly in public
areas, could lead to lower customer traffic in regional shopping
malls. In addition, local authorities or mall management could
close regional shopping malls in response to any immediate
security concern. Mall closures, as well as lower customer
traffic due to security concerns, could result in decreased
sales. Additionally, war or the threat of war could
significantly diminish consumer spending, resulting in decreased
sales. Decreased sales would have a material adverse effect on
our business, financial condition and results of operations. As
we source our product globally, any threat or actual act of
terrorism or war could cause a disruption to our inventory
supply which could have a material adverse effect on our
business, results of operations and financial condition.
12 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
Adverse outcomes of litigation matters or failure to comply
with federal or state regulations could significantly affect our
operating results. We are involved from time to time in
litigation incidental to our business. We believe that the
outcome of current litigation will not have a material adverse
effect upon our results of operations or financial condition.
However, our assessment of current litigation could change in
light of the discovery of facts with respect to legal actions
pending against us not presently known to us or determinations
by judges, juries or other finders of fact which do not accord
with our evaluation of the possible liability or outcome of such
litigation. In addition to SEC rules and regulations,
Sarbanes-Oxley requirements and other U.S. public company
regulations, there are various other requirements mandated for
the textiles and apparel industries such as the Consumer Product
Safety Improvement Act of 2008, Californias Proposition 65
and similar state laws. Failure to comply with these laws could
have a material adverse impact on our business, financial
condition, results of operations and stock price.
Our inability or failure to protect our intellectual property
or our infringement of others intellectual property could
have a negative impact on our operating results. We believe
that our trademarks and domain names are valuable assets that
are critical to our success. The unauthorized use or other
misappropriation of our trademarks or domain names could
diminish the value of our brands and cause a decline in our net
sales. Although we have secured or are in the process of
securing protection for our trademarks and domain names in the
United States and a number of other countries, there are certain
countries where we do not currently have or where we do not
currently intend to apply for protection for certain trademarks
or at all. Also, the efforts we have taken to protect our
trademarks may not be sufficient or effective. Therefore, we may
not be able to prevent other persons from using our trademarks
or domain names, which also could adversely affect our business.
We are also subject to the risk that we or the third-party
brands we carry may infringe on the intellectual property rights
of other parties. Any infringement or other intellectual
property claim made against us or the third-party brands we
carry, whether or not it has merit, could be time-consuming,
result in costly litigation, cause product delays or require us
to pay additional royalties or license fees. As a result, any
such claim could have a material adverse effect on our business,
financial condition, results of operations and stock price.
Selling merchandise over the Internet carries particular
risks that can have a negative impact on our business. Our
Internet operations are subject to numerous risks that could
have a material adverse effect on our operational results,
including unanticipated operating problems, reliance on third
party computer hardware and software providers, system failures
and the need to invest in additional computer systems. Specific
risks include: (i) diversion of traffic and sales from our
stores; (ii) rapid technological change;
(iii) liability for online content; and (iv) risks
related to the failure of the computer systems that operate the
website and its related support systems, including computer
viruses, telecommunication failures and electronic break-ins and
similar disruptions. In addition, Internet operations involve
risks which are beyond our control that could have a material
adverse effect on our operational results, including:
(i) price competition involving the items we intend to
sell; (ii) the entry of our vendors into the Internet
business, in direct competition with us; (iii) the level of
merchandise returns experienced by us; (iv) governmental
regulation; (v) online security breaches involving
unauthorized access to Company
and/or
customer information; (vi) credit card fraud; and
(vii) competition and general economic conditions specific
to the Internet, online commerce and the apparel industry.
While we have installed privacy protection systems, devices and
activity monitoring on our network, if unauthorized parties gain
access to our networks or databases, they may be able to steal,
publish, delete or modify our private and sensitive third-party
information. In such circumstances, we could be held liable to
our customers or other parties or be subject to regulatory or
other actions for breaching privacy rules. This could result in
costly investigations and litigation, civil or criminal
penalties and adverse publicity that could adversely affect our
financial condition, results of operations and reputation.
Further, if we are unable to comply with security standards
established by banks and the credit card industry, we may be
subject to fines, restrictions and expulsion from card
acceptance programs, which could adversely affect our retail
operations.
Table of Contents
Our stock price can fluctuate significantly due to a variety
of factors, which can negatively impact our total market
value. The market price of our common stock has fluctuated
substantially and there can be no assurance that the market
price of the common stock will not continue to fluctuate
significantly. Future announcements or management discussions
concerning us or our competitors, net sales and profitability
results, quarterly variations in operating results or comparable
store net sales, changes in earnings estimates made by
management or analysts, our failure to meet analysts
estimates, changes in accounting policies, or unfavorable
economic conditions, among other factors, could cause the market
price of our common stock to fluctuate substantially. In
addition, the recent distress in the financial markets has
resulted in extreme price and volume volatility. This volatility
has had, and similar events in the future could have, a
substantial effect on the market prices of securities of many
public companies for reasons frequently unrelated to the
operating performance of the specific companies.
*************
We caution that the risk factors described above could cause
actual results or outcomes to differ materially from those
expressed in any forward-looking statements made by us or on
behalf of the Company. Further, we cannot assess the impact of
each such factor on our business or the extent to which any
factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking
statements.
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
ITEM 2. | PROPERTIES |
We operate retail apparel stores in all 50 states and
Puerto Rico. We lease our retail stores under operating lease
agreements with initial terms of approximately ten years that
expire at various dates through February 2021. For more
information concerning our store operating lease commitments,
see Note 12 to the consolidated financial statements
included in this Annual Report on
Form 10-K.
We own our corporate office which is located in Anaheim,
California and encompasses a total of approximately
150,000 square feet. We operate a distribution center in
Olathe, Kansas, which comprises approximately
400,000 square feet. For more information concerning our
distribution center, see Note 7 to the consolidated
financial statements included in this Annual Report on
Form 10-K.
We believe these facilities are capable of servicing our
operational needs through fiscal 2010.
14 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
At the end of fiscal 2009, the geographic distribution of our
894 stores was as follows:
Alabama
|
8 | |||
Alaska
|
3 | |||
Arizona
|
20 | |||
Arkansas
|
4 | |||
California
|
116 | |||
Colorado
|
21 | |||
Connecticut
|
9 | |||
Delaware
|
4 | |||
Florida
|
68 | |||
Georgia
|
16 | |||
Hawaii
|
9 | |||
Idaho
|
5 | |||
Illinois
|
26 | |||
Indiana
|
18 | |||
Iowa
|
9 | |||
Kansas
|
7 | |||
Kentucky
|
7 | |||
Louisiana
|
11 | |||
Maine
|
5 | |||
Maryland
|
19 | |||
Massachusetts
|
22 | |||
Michigan
|
26 | |||
Minnesota
|
16 | |||
Mississippi
|
5 | |||
Missouri
|
15 | |||
Montana
|
4 | |||
Nebraska
|
4 | |||
Nevada
|
10 | |||
New Hampshire
|
7 | |||
New Jersey
|
24 | |||
New Mexico
|
7 | |||
New York
|
36 | |||
North Carolina
|
21 | |||
North Dakota
|
4 | |||
Ohio
|
33 | |||
Oklahoma
|
8 | |||
Oregon
|
12 | |||
Pennsylvania
|
49 | |||
Rhode Island
|
2 | |||
South Carolina
|
11 | |||
South Dakota
|
2 | |||
Tennessee
|
15 | |||
Texas
|
69 | |||
Utah
|
11 | |||
Vermont
|
4 | |||
Virginia
|
26 | |||
Washington
|
25 | |||
West Virginia
|
7 | |||
Wisconsin
|
18 | |||
Wyoming
|
2 | |||
Puerto Rico
|
14 | |||
ITEM 3. | LEGAL PROCEEDINGS |
We are involved from time to time in litigation incidental to
our business. We believe that the outcome of current litigation
will not likely have a material adverse effect on our results of
operations or financial condition and, from time to time, we may
make provisions for probable litigation losses. Depending on the
actual outcome of pending litigation, charges in excess of any
provisions could be recorded in the future, which may have an
adverse effect on our operating results.
ITEM 4. | RESERVED |
Table of Contents
PART II
ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our common stock trades on the NASDAQ Global Select Market under
the symbol PSUN. The following table sets forth for
the quarterly periods indicated the high and low sale prices per
share of the common stock as reported by NASDAQ:
Fiscal 2009 | Fiscal 2008 | |||||||||||||||
High | Low | High | Low | |||||||||||||
1st Quarter
|
$ | 4.63 | $ | 1.08 | $ | 14.04 | $ | 10.62 | ||||||||
2nd Quarter
|
$ | 4.88 | $ | 2.85 | $ | 13.23 | $ | 7.00 | ||||||||
3rd Quarter
|
$ | 7.25 | $ | 3.26 | $ | 8.76 | $ | 2.54 | ||||||||
4th Quarter
|
$ | 6.19 | $ | 3.15 | $ | 3.53 | $ | 0.72 |
As of March 26, 2010, the number of holders of record of
common stock of the Company was 442. We have never declared or
paid any dividends on our common stock as our credit facility
prohibits the payment of dividends.
16 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
THE FOLLOWING PERFORMANCE GRAPH SHALL NOT BE DEEMED TO BE
SOLICITING MATERIAL OR TO BE FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT
OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934 OR INCORPORATED
BY REFERENCE IN ANY DOCUMENT SO FILED.
PERFORMANCE
GRAPH
Set forth below is a line graph comparing the percentage change
in the cumulative total return on the Companys common
stock with the cumulative total return of the NASDAQ Stock
Market (NASDAQ Composite Index) and the CRSP Total
Return Industry Index for the NASDAQ Retail Trade Stocks
(NASDAQ Retail Trade Index) for the period
commencing on January 29, 2005 and ending on
January 30, 2010.
COMPARISION OF
5 YEAR CUMULATIVE TOTAL
RETURN(1)
Among Pacific Sunwear of California, Inc., the NASDAQ Composite
Index
and the NASDAQ Retail Trade Index
Calculated Returns(1) | 01/29/05 | 01/28/06 | 02/03/07 | 02/02/08 | 01/31/09 | 1/30/10 | ||||||
Pacific Sunwear
|
100 | 100 | 83 | 49 | 5 | 15 | ||||||
NASDAQ Composite Index
|
100 | 112 | 123 | 118 | 73 | 106 | ||||||
NASDAQ Retail Trade Index
|
100 | 107 | 103 | 99 | 61 | 107 |
(1) Returns are calculated based on the premise that $100
is invested in each of PacSun stock, the NASDAQ Composite Index
and the NASDAQ Retail Index on January 29, 2005, and that
all dividends (if any) were reinvested. Over a five year period,
and based on the actual price movement of these investments, the
original $100 would have turned into the amounts shown as of the
end of each PacSun fiscal year. Shareholder returns over the
indicated period should not be considered indicative of future
shareholder returns.
Common Stock Repurchase and Retirement The
Company did not repurchase shares of common stock in fiscal
2009. Our Board of Directors authorized a stock repurchase plan
in July 2008 as a means to reduce our overall number of shares
outstanding, thereby providing greater value to our shareholders
through increased earnings per share. The Company ended fiscal
2009 with approximately $48 million available under the
stock repurchase plan. The repurchase authorization does not
expire until all authorized funds have been expended. The
Company does not currently plan to repurchase any shares during
fiscal 2010.
Table of Contents
The selected consolidated income statement data for each of
fiscal 2009, 2008 and 2007, and consolidated balance sheet data
as of the end of fiscal 2009 and 2008, are derived from audited
consolidated financial statements of the Company included herein
and should be read in conjunction with such financial
statements. Such data and the selected consolidated operating
data below should also be read in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations included in this
report. The consolidated income statement data for all years
presented excludes the financial impact of the Companys
former demo and One Thousand Steps concepts due to the
designation of these operations as discontinued operations
during the first quarter of fiscal 2008 and the fourth quarter
of fiscal 2007, respectively. The consolidated income statement
data for fiscal 2006 and 2005, as well as the consolidated
balance sheet data as of the end of fiscal 2007, 2006 and 2005,
are derived from audited consolidated financial statements of
the Company, which are not included herein. All amounts
presented below are in millions, except per share and selected
consolidated operating data.
Fiscal Year | ||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
Consolidated Statement of Operations Data:
|
||||||||||||||||||||
Net sales
|
$ | 1,027 | $ | 1,255 | $ | 1,306 | $ | 1,241 | $ | 1,206 | ||||||||||
Gross margin (after buying, distribution and occupancy costs)
|
259 | 320 | 414 | 407 | 453 | |||||||||||||||
Operating (loss)/income from continuing operations
|
(81 | ) | (61 | ) | 70 | 101 | 188 | |||||||||||||
(Loss)/income from continuing operations
|
(70 | ) | (39 | ) | 46 | 65 | 120 | |||||||||||||
(Loss)/income from continuing operations per share, diluted
|
$ | (1.07 | ) | $ | (0.59 | ) | $ | 0.65 | $ | 0.91 | $ | 1.59 | ||||||||
Consolidated Operating Data:
|
||||||||||||||||||||
Comparable store net sales
+/(-)(1)
|
(20.0 | )% | (5.2 | )% | 3.4 | % | (4.2 | )% | 3.5 | % | ||||||||||
Average net sales($)/square
foot(2)
|
$ | 275 | $ | 339 | $ | 350 | $ | 347 | $ | 370 | ||||||||||
Average net sales($)/store
(000s)(2)
|
$ | 1,062 | $ | 1,298 | $ | 1,334 | $ | 1,263 | $ | 1,369 | ||||||||||
Stores open at end of period
|
894 | 932 | 954 | 965 | 907 | |||||||||||||||
Capital expenditures ($ million)
|
$ | 23 | $ | 81 | $ | 106 | $ | 158 | $ | 109 | ||||||||||
Consolidated Balance Sheet Data:
|
||||||||||||||||||||
Working capital
|
$ | 117 | $ | 98 | $ | 187 | $ | 195 | $ | 304 | ||||||||||
Total assets
|
$ | 477 | $ | 570 | $ | 752 | $ | 773 | $ | 808 | ||||||||||
Long-term debt
|
$ | | $ | | $ | | $ | | $ | | ||||||||||
Shareholders
equity(3)
|
$ | 307 | $ | 372 | $ | 483 | $ | 503 | $ | 547 |
(1) Stores are deemed comparable stores on the first day of the
first month following the one-year anniversary of their opening,
relocation, expansion or conversion.
(2) For purposes of calculating these amounts, the number of
stores and the amount of square footage reflect the number of
months during the period that new stores and closed stores were
open.
(3) The Company repurchased and retired common stock of
$53 million, $99 million, and $66 million million
during fiscal 2008, 2006, and 2005, respectively. The Company
did not repurchase any common stock during fiscal 2009 or 2007.
18 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following Managements Discussion and Analysis of
Financial Condition and Results of Operations
(MD&A) should be read in conjunction with the
Consolidated Financial Statements and Notes thereto of the
Company included elsewhere in this Annual Report on
Form 10-K.
This MD&A excludes the financial statement impact of the
discontinued demo and One Thousand Steps concepts (see
Note 15 to the consolidated financial statements included
in this Annual Report on
Form 10-K).
The MD&A contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set
forth under Risk Factors within Item 1A.
Executive
Overview
We consider the following items to be key performance indicators
in evaluating Company performance:
Comparable (or same store) sales
Stores are deemed comparable stores on the first day of the
fiscal month following the one-year anniversary of their opening
or expansion/relocation. We consider same store sales to be an
important indicator of current Company performance. Same store
sales results are important in achieving operating leverage of
certain expenses such as store payroll, store occupancy,
depreciation, general and administrative expenses and other
costs that are somewhat fixed. Positive same store sales results
usually generate greater operating leverage of expenses while
negative same store sales results generally have a negative
impact on operating leverage. Same store sales results also have
a direct impact on our total net sales, cash and working capital.
Net merchandise margins We analyze the
components of net merchandise margins, specifically initial
markups, discounts and markdowns as a percentage of net sales.
Any inability to obtain acceptable levels of initial markups or
any significant increase in our use of discounts or markdowns
could have an adverse impact on our gross margin results and
results of operations.
Operating margin We view operating margin as
a key indicator of our success. The key drivers of operating
margins are comparable store net sales, net merchandise margins,
and our ability to control operating expenses. For a discussion
of the changes in the components comprising operating margins,
see Results of Operations in this section.
Store sales trends We evaluate store sales
trends in assessing the operational performance of our stores.
Important store sales trends include average net sales per store
and average net sales per square foot. Average net sales per
store were $1.1 million for fiscal 2009 and
$1.3 million for each of fiscal 2008 and 2007. Average net
sales per square foot were $275, $339 and $350 in fiscal 2009,
2008 and 2007, respectively.
Cash flow and liquidity (working capital) We
evaluate cash flow from operations, liquidity and working
capital to determine our short-term operational financing needs.
We currently believe that our working capital, cash flows from
operating activities and credit facility availability will be
sufficient to meet our operating and capital expenditure
requirements for at least the next twelve months. For a
discussion of the changes in operating cash flows and working
capital, see Liquidity and Capital Resources in this
section.
Critical
Accounting Policies
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America necessarily requires us to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements as well
as the reported revenues and expenses during the reported
period. Actual results could differ from these estimates. The
accounting policies that we believe are the most critical to aid
in fully understanding and evaluating
Table of Contents
reported financial results, and the most significant estimates
and assumptions used by us in applying such accounting policies,
are described below:
Recognition of Revenue Sales are recognized
upon purchase by customers at our retail store locations or upon
delivery to and acceptance by the customer for orders placed
through our website. We accrue for estimated sales returns by
customers based on historical sales return results. Actual
return rates have historically been within our expectations and
the reserves established. However, in the event that the actual
rate of sales returns by customers increased significantly, our
operational results could be adversely affected. We record the
sale of gift cards as a current liability and recognize a sale
when a customer redeems a gift card. The amount of the gift card
liability is determined taking into account our estimate of the
portion of gift cards that will not be redeemed or recovered
(gift card breakage). Gift card breakage is
recognized as revenue after 24 months, at which time the
likelihood of redemption is considered remote based on our
historical redemption data.
Valuation of Inventories Merchandise
inventories are stated at the lower of average cost or market
utilizing the retail method. At any given time, inventories
include items that have been marked down to managements
best estimate of their fair market value. These estimates are
based on a combination of factors, including current selling
prices, current and projected inventory levels, current and
projected rates of sell-through, known markdown
and/or
promotional events expected to create a permanent decrease in
inventory value, estimated inventory shrink and aging of
specific items. Reserves established for such items have
historically been adequate. While we do not expect actual
results to differ materially from our estimates, to the extent
they do differ for any of these factors, we may have to record
additional reserves in subsequent periods, which could reduce
our gross margins and operating results.
Store Operating Lease Accounting Rent expense
from store operating leases represents one of the largest
expenses incurred in operating our stores. Rent expense under
our store operating leases is recognized on a straight-line
basis over the original term of each stores lease,
inclusive of rent holiday periods during store construction and
exclusive of any lease renewal options. Accordingly, we expense
all pre-opening rent. All amounts received from landlords to
fund tenant improvements are recorded as a deferred lease
incentive liability, which is then amortized as a credit to rent
expense over the related stores lease term.
Evaluation of Long-Lived Assets In the normal
course of business, we acquire tangible and intangible assets.
We periodically evaluate the recoverability of the carrying
amount of our long-lived assets (including property, plant and
equipment, and other intangible assets) whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be fully recoverable. Impairment is assessed when
the undiscounted expected future cash flows derived from an
asset or asset group are less than its carrying amount. The
amount of impairment loss recognized is equal to the difference
between the carrying value and the estimated fair value of the
asset, with such estimated fair values determined using the best
information available, generally the discounted future cash
flows of the assets using a rate that approximates our weighted
average cost of capital. Impairments are recognized in operating
earnings. We use our best judgment based on the most current
facts and circumstances surrounding our business when applying
these impairment rules to determine the timing of the impairment
test, the undiscounted cash flows used to assess impairments,
and the fair value of a potentially impaired asset. Changes in
assumptions used could have a significant impact on our
assessment of recoverability. Numerous factors, including
changes in our business, industry segment, and the global
economy, could significantly impact our decision to retain,
dispose of, or idle certain of our long-lived assets.
The estimation of future cash flows from operating activities
requires significant estimates of factors that include future
sales and gross margin performance. If our sales or gross margin
performance or other estimated operating results are not
achieved at or above our forecasted level, the carrying value of
certain of our retail stores may prove unrecoverable and we may
incur additional impairment charges in the future.
Stock-Based Compensation Expense We recognize
stock-based compensation expense based on the fair value on the
grant date. Under fair value method, we recognize stock-based
compensation net of an estimated forfeiture rate
20 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
and only recognize compensation cost for those shares expected
to vest using the graded vesting method over the requisite
service period of the award. Determining the appropriate fair
value model and calculating the fair value of stock-based
compensation awards require the input of highly subjective
assumptions, including the expected life of the stock-based
compensation awards and stock price volatility. We use the
Black-Scholes option-pricing model to determine compensation
expense. The assumptions used in calculating the fair value of
stock-based compensation awards represent managements best
estimates, but the estimates involve inherent uncertainties and
the application of management judgment. As a result, if factors
change and we use different assumptions, our stock-based
compensation expense could be materially different in the
future. See Stock-Based Compensation within
Notes 1 and 11 to the consolidated financial statements
included in this Annual Report on
Form 10-K
for a further discussion on stock-based compensation.
Evaluation of Income Taxes We account for
income taxes under the asset and liability method, which
requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have
been included in the financial statements. Under this method,
deferred tax assets and liabilities are determined based on the
temporary differences between the financial statements and tax
basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
reverse. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period
that includes the enactment date.
Deferred income tax assets are reduced by a valuation allowance
if, in the judgment of our management, it is more likely than
not that all or a portion of a deferred tax asset will not be
realized. In making such determination, we consider all
available positive and negative evidence, including recent
financial operations, projected future taxable income, scheduled
reversals of deferred tax liabilities, tax planning strategies,
and the length of tax asset carryforward periods. The
realization of deferred tax assets is primarily dependent upon
our ability to generate sufficient future taxable earnings in
certain jurisdictions. If we subsequently determine that the
carrying value of these assets, which had been written down,
would be realized in the future, the value of the deferred tax
assets would be increased, thereby increasing net income in the
period when that determination was made. See Income
Taxes in Notes 1 and 10 to the consolidated financial
statements for further discussion regarding the realizability of
our deferred tax assets and our assessment of a need for a
valuation allowance.
Results of
Operations
The following table sets forth selected income statement data
from our continuing operations expressed as a percentage of net
sales for the fiscal years indicated. The table and discussion
that follows excludes the operations of the discontinued demo
and One Thousand Steps concepts (see Note 15 to the
consolidated financial statements). The discussion that follows
should be read in conjunction with the following table:
Fiscal Year | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Net sales
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of goods sold (including buying, distribution and occupancy
costs)
|
74.8 | 74.5 | 68.3 | |||||||||
Gross margin
|
25.2 | 25.5 | 31.7 | |||||||||
Selling, general and administrative expenses
|
33.1 | 30.4 | 26.4 | |||||||||
Operating (loss)/income from continuing operations
|
(7.9 | ) | (4.9 | ) | 5.3 | |||||||
Other income, net
|
| 0.2 | 0.2 | |||||||||
(Loss)/Income from continuing operations before income tax
expense
|
(7.9 | ) | (4.7 | ) | 5.5 | |||||||
Income tax (benefit)/expense
|
(1.1 | ) | (1.5 | ) | 2.1 | |||||||
(Loss)/Income from continuing operations
|
(6.8 | )% | (3.2 | )% | 3.4 | % | ||||||
Number of stores open at end of period
|
894 | 932 | 954 | |||||||||
Total square footage (in 000s)
|
3,457 | 3,588 | 3,658 |
Table of Contents
Fiscal 2009
Compared to Fiscal 2008
Net
Sales
Net sales decreased to $1.03 billion in fiscal 2009 from
$1.25 billion in fiscal 2008, a decrease of
$228 million, or 18.2%. The components of this
$228 million decrease in net sales were as follows:
$millions | Attributable to | |||
$ | (230 | ) | 20% decline in comparable store net sales in fiscal 2009 compared to fiscal 2008. Total transactions declined 13% and the average sale declined 8%. Average unit retail declined 9%. | |
(13 | ) | Store closures. | ||
8 | Increase due to non-comparable sales from new, expanded or relocated stores not yet included in the comparable store base. | |||
7 | Increase in net sales attributable to e-commerce. | |||
$ | (228 | ) | Total | |
For fiscal 2009, comparable store net sales of Juniors apparel
decreased 19% and Young Mens apparel decreased 11%. For the
fourth quarter of 2009, the Young Mens apparel sales trend
improved to minus (9)% while the Juniors apparel sales trend
decreased to minus (26)%. For fiscal 2009, comparable store net
sales of accessories and footwear decreased 43%. The decline in
sales of accessories and footwear was primarily due to our
decisions in fiscal 2008 to exit or significantly reduce our
emphasis on these categories. Apparel represented 88% of total
sales for fiscal 2009 versus 83% in fiscal 2008. Accessories and
footwear represented a combined 12% of total sales for fiscal
2009 versus 17% in fiscal 2008. As we reintroduce certain
categories of footwear and accessories during fiscal 2010, the
combined sales penetration of these categories may begin to
increase.
Gross
Margin
Gross margin, after buying, distribution and occupancy costs,
decreased to $259 million in fiscal 2009 from
$320 million in fiscal 2008, a decrease of
$61 million, or 19.2%. As a percentage of net sales, gross
margin was 25.2% in fiscal 2009, a 0.3% decrease from 25.5% in
fiscal 2008. The primary components of this 0.3% net decrease in
gross margin as a percentage of net sales were as follows:
% | Attributable to | |||
(3.3 | ) | Deleverage of occupancy costs as a result of the 20% same-store sales decline for fiscal 2009. Occupancy charges as a percentage of net sales were 18.8% ($193 million) in fiscal 2009 compared to 15.5% ($194 million) in fiscal 2008. | ||
2.7 | Increase in merchandise margin to 48.1% ($494 million) in fiscal 2009 from 45.4% ($570 million) in fiscal 2008, primarily due to a decrease in markdown and promotional activity in 2009 compared to 2008. | |||
0.3 | Decrease in buying and distribution costs. | |||
(0.3 | ) | Total | ||
We ended fiscal 2009 with total inventories 16% below the ending
level of fiscal 2008 in anticipation of continued negative same
store sales results in the first quarter of 2010.
Selling, General
and Administrative Expenses
Selling, general and administrative (SG&A)
expenses decreased to $340 million in fiscal 2009 from
$381 million in fiscal 2008, a decrease of
$41 million, or 10.8%. As a percentage of net sales, these
expenses increased to 33.1% in
22 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
fiscal 2009 from 30.4% in fiscal 2008. The components of this
2.7% net increase in SG&A expenses as a percentage of net
sales were as follows:
% | Attributable to | |||
1.6 | Increase in store payroll and payroll-related expenses as a percentage of net sales, due to the deleveraging of these expenses against the 20% same store sales decline in fiscal 2009. In dollars, payroll expense decreased $21 million. | |||
0.9 | Increase in depreciation expense as a percentage of sales, primarily due to the deleveraging of these expenses against the 20% same store sales decline in fiscal 2009. Total SG&A depreciation was $68 million in fiscal 2009 compared to $72 million in fiscal 2008. | |||
(0.1 | ) | Decrease in asset impairment charges in the current year to $27 million compared to $35 million in fiscal 2008. | ||
0.3 | Increase in all other SG&A expenses as a percentage of sales. | |||
2.7 | Total | |||
We evaluate the recoverability of the carrying amount of
long-lived assets for all stores (primarily property, plant and
equipment) whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be fully
recoverable. Should comparable store net sales and gross margin
continue to decline, we may record additional non-cash
impairment charges for underperforming stores in fiscal 2010.
Other
(Expense)/Income, net
Other expense was $0.3 million for fiscal 2009 compared to
other income of $2 million in fiscal 2008. In fiscal 2009,
we recorded a $0.3 million cash surrender charge upon
liquidation of deferred compensation assets partially offset by
interest income. For fiscal 2008, we recorded a gain on the sale
of our former Anaheim distribution center of approximately
$9 million, offset by a non-cash impairment charge of
$5 million associated with a reduction in the fair value of
land available for sale less estimated selling costs and a
charge of $2 million to reflect the decline in fair value
associated with deferred compensation assets.
Income
Taxes
We recognized an income tax benefit of $11 million for
fiscal 2009 compared to $19 million for fiscal 2008. Our
effective income tax rate was 13.6% for fiscal 2009 and 33.0%
for fiscal 2008. The difference in the effective income tax rate
is primarily attributable to the valuation allowance charges
recorded in fiscal 2009. For fiscal 2010, we expect to continue
to maintain a valuation allowance against deferred tax assets
resulting in minimal income tax expense for the year.
Information regarding the realizability of our deferred tax
assets and our assessment of a need for a valuation allowance is
contained in Note 10 to the consolidated financial
statements included in this Annual Report on
Form 10-K,
which note is incorporated herein by this reference.
Net Loss and Net
Loss per Share
Our net loss for fiscal 2009 was $70 million, or $(1.07)
per share, versus a net loss from continuing operations of
$39 million, or $(0.59) per share, for fiscal 2008. Amounts
for fiscal 2009 include the impact of a $19 million tax
valuation allowance as discussed above. On a non-GAAP basis,
excluding the impact of this valuation allowance, our net loss
for fiscal 2009 was $51 million, or $(0.78) per share.
About
Non-GAAP Financial Measures
The preceding paragraph contains non-GAAP financial measures,
including non-GAAP net loss and non-GAAP net loss per share for
fiscal 2009. Non-GAAP financial measures should not be
considered as a substitute for, or superior to, measures of
financial performance prepared in accordance with GAAP. These
non-GAAP financial measures do
Table of Contents
not reflect a comprehensive system of accounting, differ from
GAAP measures with the same names, and may differ from non-GAAP
financial measures with the same or similar names that are used
by other companies. The Company computes non-GAAP financial
measures using a consistent methodology from quarter to quarter
and year to year. The Company may consider whether other
significant items that arise in the future should be excluded
from the non-GAAP financial measures.
The Company excluded a deferred tax asset valuation allowance
charge in presenting a non-GAAP net loss amount and per share
amount above under the caption Net Loss and Net Loss per
Share. The Company believes that these non-GAAP financial
measures provide meaningful supplemental information regarding
the Companys operating results primarily because they
exclude amounts that are not considered part of ongoing
operating results when planning and forecasting and when
assessing the performance of the organization, individual
operating segments or its senior management. In addition, the
Company believes that non-GAAP financial information is used by
analysts and others in the investment community to analyze the
Companys historical results and to provide estimates of
future performance versus the results and estimates of others.
The Company believes that failure to report these non-GAAP
measures excluding the impact of the valuation allowance could
result in confusion among investors and analysts by creating a
misplaced perception that the Companys results have
underperformed or exceeded expectations.
Fiscal 2008
Compared to Fiscal 2007
Net
Sales
Net sales decreased to $1.25 billion in fiscal 2008 from
$1.31 billion in fiscal 2007, a decrease of
$51 million, or 3.9%. The components of this
$51 million decrease in net sales were as follows:
$millions | Attributable to | |||
$ | (63 | ) | 5% decline in comparable store net sales in fiscal 2008 compared to fiscal 2007. The average sale transaction declined 9%, partially offset by a 4% increase in total transactions. For fiscal 2008, comparable store net sales declined 1% in the first half and 9% in the second half. The larger decline in the second half of the year was consistent with the overall economic downturn. | |
(28 | ) | Store closures. | ||
26 | Increase due to non-comparable sales from new, expanded or relocated stores not yet included in the comparable store base. | |||
14 | Increase in net sales attributable to e-commerce. | |||
$ | (51 | ) | Total | |
Comparable store net sales of Juniors apparel increased 21% and
Young Mens apparel was flat as we shifted the merchandise mix
away from accessories and footwear and expanded Juniors apparel.
Comparable store net sales of accessories decreased 27% and
footwear decreased 76%. The decline in accessory comparable
store net sales was primarily due to our decision to exit
certain accessory categories during both fiscal 2008 and 2007
such as wallets, watches, belt buckles and home goods. The
decline in the footwear business was primarily due to a
significant decrease in comparable net store sales of sneakers
as we largely exited the sneaker business in fiscal 2008. For
fiscal 2008, footwear represented approximately 5% of total
sales, a 59% decrease in sales penetration versus the prior year.
Gross
Margin
Gross margin, after buying, distribution and occupancy costs,
decreased to $320 million in fiscal 2008 from
$414 million in fiscal 2007, a decrease of
$94 million, or 22.7%. As a percentage of net sales, gross
margin was
24 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
25.5% in fiscal 2008, a 6.2% decrease from 31.7% in fiscal 2007.
The primary components of this 6.2% net decrease in gross margin
as a percentage of net sales were as follows:
% | Attributable to | |||
(4.7 | ) | Decline in merchandise margin to 45.4% in fiscal 2008 from 50.1% in fiscal 2007, or $85 million, due to increased markdowns and promotional activity associated with the precipitous decline in consumer spending and the overall economic environment, particularly in the latter half of fiscal 2008. | ||
(1.4 | ) | Increase in occupancy charges as a percentage of net sales to 15.5% ($194 million) in fiscal 2008 from 14.1% ($184 million) in fiscal 2007. Deleverage of occupancy costs as a result of the 5% same-store sales decline in fiscal 2008. | ||
(0.1 | ) | Increase in other costs. | ||
(6.2 | ) | Total | ||
At the end of fiscal 2008, inventories per square foot were down
30% in dollars and 19% in total units versus the end of fiscal
2007. We ended fiscal 2008 with average weeks of supply in
stores of approximately 17 weeks versus having ended fiscal
2007 with average weeks of supply in stores of approximately
22 weeks, a decline of just over 20%.
Selling, General
and Administrative Expenses
Selling, general and administrative (SG&A) expenses
increased to $381 million in fiscal 2008 from
$344 million in fiscal 2007, an increase of
$37 million, or 10.8%. As a percentage of net sales, these
expenses increased to 30.4% from 26.4%. The components of this
4.0% net increase in SG&A expenses as a percentage of net
sales were as follows:
% | Attributable to | |||
2.3 | Increase in asset impairment charges, including a $15 million increase in store impairments, $8 million related to the materials handling equipment in the Companys former Anaheim distribution center, and $6 million related to the impairment of goodwill. | |||
0.7 | Increase in payroll and payroll-related expenses ($2 million) due to deleveraging these expenses against the (5%) decline in same-store sales results. In dollars, store payroll expenses were down approximately $1 million. | |||
0.5 | Increase in depreciation expense ($4 million), primarily due to the impact of accelerated depreciation associated with store closures and relocations, and new depreciation on existing stores from our refresh program. | |||
0.5 | Increase in other SG&A expenses. | |||
4.0 | Total | |||
Goodwill
Impairment
During fiscal 2008, we determined that the goodwill created in
connection with our 1986 four-store acquisition in California
and our 1997 fifteen-store acquisition in Florida was fully
impaired and we recorded a pre-tax, non-cash goodwill impairment
charge of approximately $6 million during fiscal 2008.
Other
(Expense)/Income, net
For fiscal 2008, we recorded a gain on the sale of our former
Anaheim distribution center of approximately $9 million.
The sale of the distribution center closed in November 2008. In
the fourth quarter of fiscal 2008, we committed to a plan to
sell a parcel of land that had been held for future development.
In connection with the planned sale, we recorded a non-cash
impairment charge of $5 million associated with a reduction
in the fair value of this land less estimated selling costs. The
sale of the land closed in February 2009 and we received
approximately $4 million in net cash proceeds.
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At January 31, 2009, we held deferred compensation assets
associated with our executive deferred compensation plan that
were required to be measured at fair value on a recurring basis.
Fair value is determined by the most recent publicly quoted
market price of the securities at the balance sheet date. For
fiscal 2008, we recorded a charge of $2 million to reflect
the decline in fair value associated with these assets.
Net interest income was $0.1 million for fiscal 2008
compared to approximately $3 million for fiscal 2007.
Interest income was lower in fiscal 2008 due to the Company
having increased direct borrowings under our credit facility and
lower average cash balances compared to the prior year due to
share repurchases, the payment of demo lease terminations and
losses from continuing operations.
Income
Taxes
Income tax benefit was $19 million in fiscal 2008 compared
to income tax expense of $27 million in fiscal 2007. The
effective income tax rate was 33.0% in fiscal 2008 and 36.9% in
fiscal 2007, a decrease of 3.9%. The decrease in the effective
income tax rate is primarily attributable to operating losses
incurred in fiscal 2008 and to the establishment of a valuation
allowance of $2.7 million against our state deferred tax
assets related to Kansas state investment tax credits that may
not be utilized before expiration. Our determination that we
would not fully realize this deferred tax asset was based on the
significant deterioration in the retail business climate
resulting in revisions to our projected future taxable earnings
in this jurisdiction. Our weighted average effective income tax
rate will vary over time depending on a number of factors, such
as differing average state income tax rates and changes in
forecasted annual earnings.
Liquidity and
Capital Resources
We have typically financed our operations primarily from
internally generated cash flow, with occasional short-term and
long-term borrowings. Our primary resource requirements have
been for the financing of inventories and construction of newly
opened, remodeled, expanded or relocated stores. We believe that
our working capital, cash flows from operating activities, and
credit facility availability will be sufficient to meet our
operating and capital expenditure requirements for at least the
next twelve months.
Fiscal Year Ended |
January 30, |
January 31, |
February 2, |
|||
(In thousands) | 2010 | 2009 | 2008 | |||
Net cash provided by operating activities
|
$87,451 | $33,915 | $115,641 | |||
Net cash used in investing activities
|
(19,759) | (55,659) | (98,163) | |||
Net cash provided by/(used in) financing activities
|
623 | (51,067) | 27,842 | |||
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
|
$68,315 | $(72,811) | $45,320 | |||
Operating Cash
Flows
Net cash provided by operating activities for fiscal 2009 was
$87 million. We generated $32 million of cash from
operations (net of non-cash charges). In addition, we generated
$49 million from changes in working capital items and
$6 million due to changes in other assets and liabilities.
These changes were primarily driven by collection of
approximately $54 million of income tax receivables.
Net cash provided by operating activities for fiscal 2008 was
$34 million. We generated $45 million of cash from
operations (net of non-cash charges). In addition, we generated
$22 million from changes in working capital items and used
$33 million due to changes in other assets and liabilities.
The change in working capital in fiscal 2008 was primarily
driven by decreases in merchandise inventories and accounts
receivable offset by decreases in accounts payable and accrued
liabilities. The change in other assets and liabilities was
primarily driven by a reduction in deferred lease incentives.
26 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
Net cash provided by operating activities for fiscal 2007 was
$116 million. We generated $121 million of cash from
operations (net of non-cash charges). In addition, we generated
$28 million from changes in working capital items and used
$33 million due to changes in other assets and liabilities.
The change in working capital in fiscal 2007 was primarily
driven by decreases in merchandise inventories. The change in
other assets and liabilities was primarily driven by generation
of deferred tax assets and a reduction in deferred lease
incentives.
Working
Capital
Working capital at the end of fiscal 2009 and 2008 was
$117 million and $98 million, respectively. The
$19 million increase in working capital was attributable to
the following:
$millions | Description | |
$98
|
Working capital at January 31, 2009 | |
68
|
Increase in cash and cash equivalents, primarily due to the collection of income taxes receivable of approximately $54 million, and a reduction in inventory purchases among other items (see cash flows statement). | |
(43)
|
Net decrease in other current assets primarily related to decreases in income taxes receivable of $29 million and prepaids of $15 million. | |
(11)
|
Decrease in inventories, net of accounts payable, primarily as a result of our efforts during fiscal 2009 to reduce overall inventory levels in response to the current economic environment and sales performance. | |
5
|
Net decrease in other current liabilities. | |
$117
|
Working capital at January 30, 2010 | |
Investing Cash
Flows
Net cash used in investing activities in each of fiscal 2009,
2008 and 2007 was $20 million, $56 million and
$98 million, respectively. Investing cash flows for fiscal
2009 were comprised of capital expenditures of approximately
$23 million offset by proceeds from the sale of land of
approximately $4 million. Investing cash flows for fiscal
2008 were comprised of capital expenditures of $81 million
offset by proceeds from the sale of the Anaheim distribution
center of approximately $25 million. Investing cash flows
for fiscal 2007 were comprised of capital expenditures of
$106 million and purchase of a $23 million long-term
investment associated with the Companys Olathe, Kansas
distribution center, partially offset by $31 million in net
maturities of short-term marketable securities. Capital
expenditures were predominantly for refreshing existing stores
and the opening of new, relocated and expanded stores during
fiscal 2009, 2008 and 2007. In fiscal 2010, we expect total
capital expenditures to be approximately $20 million to
$30 million.
Financing Cash
Flows
Net cash provided by financing activities in fiscal 2009 was
$1 million compared to cash used of $51 million in
fiscal 2008 and cash provided of $28 million in fiscal
2007. The primary source of financing inflows in fiscal 2009 was
proceeds from employee exercises of stock options. The primary
source of financing outflows in fiscal 2008 was the repurchase
and retirement of $53 million in common stock. The primary
source of financing inflows in fiscal 2007 was a
$23 million long-term lease obligation related to the
Companys Olathe, Kansas distribution facility. Proceeds
from employee exercises of stock options accounted for the
remaining source of financing cash inflows for both fiscal 2008
and 2007.
Credit
Facility
Information regarding our credit facility is contained in
Note 8 to the consolidated financial statements included in
this Annual Report on
Form 10-K,
which note is incorporated herein by this reference.
Table of Contents
Contractual
Obligations
We have minimum annual rental commitments under existing store
leases as well as a minor amount of capital leases for computer
equipment. We lease all of our retail store locations under
operating leases. We lease equipment, from time to time, under
both capital and operating leases. In addition, at any time, we
are contingently liable for commercial letters of credit with
foreign suppliers of merchandise. At January 30, 2010, our
future financial commitments under all existing contractual
obligations were as follows:
Payments Due by Period | ||||||||||
Contractual Obligations |
Less than |
1-3 |
3-5 |
More than |
||||||
(In $millions) | Total | 1 year | years | years | 5 years | |||||
Operating lease obligations
|
$484 | $93 | $155 | $115 | $121 | |||||
Capital lease obligations
|
<1 | <1 | <1 | | | |||||
ASC 740 (FIN 48) obligations including interest and
penalties
|
1 | | 1 | | | |||||
Letters of credit
|
9 | 9 | | | | |||||
Total
|
$495 | $102 | $157 | $115 | $121 | |||||
Over the next three fiscal years through 2012, we will have
approximately 45% of our store leases reach the end of their
original lease term. These leases will either be renewed or
extended, potentially at different rates, or allowed to expire.
As a result, depending on market conditions, actual future
rental commitments and the time frame of such commitments may
differ significantly from those shown in the table above.
The contractual obligations table above does not include common
area maintenance (CAM) charges, which are also a required
contractual obligation under our store operating leases. In many
of our leases, CAM charges are not fixed and can fluctuate
significantly from year to year for any particular store. Total
store rental expenses, including CAM, for fiscal 2009, 2008 and
2007 were $164 million, $165 million and
$158 million, respectively. Total CAM expenses may continue
to fluctuate significantly from year to year as long-term leases
come up for renewal at current market rates in excess of
original lease terms and as we continue to close stores.
Operating Leases We lease our retail stores
and certain equipment under operating lease agreements expiring
at various dates through February 2021. Substantially all of our
retail store leases require us to pay CAM charges, insurance,
property taxes and percentage rent ranging from 2% to 20% when
sales volumes exceed certain minimum sales levels. The initial
terms of such leases are typically 8 to 10 years, many of
which contain renewal options exercisable at our discretion.
Most leases also contain rent escalation clauses that come into
effect at various times throughout the lease term. Rent expense
is recorded under the straight-line method over the life of the
lease (see Straight-Line Rent in Note 1 to the
consolidated financial statements included in this Annual Report
on
Form 10-K).
Other rent escalation clauses can take effect based on changes
in primary mall tenants throughout the term of a given lease.
Most leases also contain cancellation or kick-out clauses in our
favor that relieve us of any future obligation under a lease if
specified sales levels or mall occupancy targets are not
achieved by a specified date. None of our retail store leases
contain purchase options.
We review the operating performance of our stores on an ongoing
basis to determine which stores, if any, to expand, relocate or
close. We closed 40 PacSun stores in fiscal 2009. We currently
anticipate closing approximately 25 to 50 stores in fiscal 2010.
See Real Estate Strategy within the
Stores discussion in Part I, Item 1
captioned, Business, of this report.
The ASC 740 (FIN 48) obligations shown in the table
above represent uncertain tax positions related to temporary
differences. The years for which the temporary differences
related to the uncertain tax positions will reverse have been
estimated in scheduling the obligations within the table.
28 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
Indemnifications
In the ordinary course of business, we may provide
indemnifications of varying scope and terms to customers,
vendors, lessors, business partners and other parties with
respect to certain matters, including, but not limited to,
losses arising out of our breach of such agreements, services to
be provided by us, or intellectual property infringement claims
made by third parties. In addition, we have entered into
indemnification agreements with our directors and certain of our
officers that will require us, among other things, to indemnify
them against certain liabilities that may arise by reason of
their status or service as directors or officers. We maintain
director and officer insurance, which may cover certain
liabilities arising from our obligation to indemnify our
directors and officers in certain circumstances.
It is not possible to determine our maximum potential liability
under these indemnification agreements due to the limited
history of prior indemnification claims and the unique facts and
circumstances involved in each particular agreement. Such
indemnification agreements may not be subject to maximum loss
clauses. Historically, we have not incurred material costs as a
result of obligations under these agreements.
Off-Balance Sheet
Arrangements
The Company has not entered into any transactions with
unconsolidated entities whereby the Company has financial
guarantees, subordinated retained interests, derivative
instruments, or other contingent arrangements that expose the
Company to material continuing risks, contingent liabilities, or
any other obligation under a variable interest in an
unconsolidated entity that provides financing, liquidity, market
risk, or credit risk support to the Company.
Recent Accounting
Pronouncements
Information regarding new accounting pronouncements is contained
in Note 1 to the consolidated financial statements included
in this Annual Report on
Form 10-K,
which note is incorporated herein by reference.
Inflation
We do not believe that inflation or changing prices has had a
material effect on the results of operations in the recent past.
There can be no assurance that our business will not be affected
by inflation or changing prices in the future.
Seasonality and
Quarterly Results
Our business is seasonal by nature. Our first quarter
historically accounts for the smallest percentage of annual net
sales with each successive quarter contributing a greater
percentage than the last. In recent years, approximately 45% of
our net sales have occurred in the first half of the fiscal year
and 55% have occurred in the second half, with the
back-to-school
and holiday selling periods accounting for approximately 30 to
35% of our annual net sales and a higher percentage of our
operating results on a combined basis. Our quarterly results of
operations may also fluctuate significantly as a result of a
variety of factors, including changes in consumer buying
patterns; the timing of store openings; the amount of revenue
contributed by new stores; fashion trends; the timing and level
of markdowns; the timing of store closings, expansions and
relocations; competitive factors; and general economic
conditions.
The Company is exposed to interest rate risk from its Credit
Facility (see Note 8 to the Companys Consolidated
Financial Statements included in this Annual Report on
Form 10-K).
Direct borrowings under the Credit Facility bear interest at the
Administrative Agents alternate base rate (as defined,
1.5% at January 30, 2010) or at optional interest
rates that are primarily dependent upon LIBOR or the Federal
Funds Effective Rate for the time period chosen. At
January 30, 2010, the Company had no direct borrowings
outstanding under the Credit Facility.
A sensitivity analysis was performed to determine the impact of
unfavorable changes in interest rates on the Companys cash
flows. The sensitivity analysis quantified that the estimated
potential cash flow impact would be less than $10,000 in
additional interest expense (for each $1 million borrowed)
if interest rates were to increase by 10% over a year period.
Actual interest charges incurred may differ from those estimated
because of changes or differences
Table of Contents
in market rates, differences in amounts borrowed, timing and
other factors. The Company is not a party with respect to
derivative financial instruments.
ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item is set forth in
Index to Consolidated Financial Statements, which
appears immediately following the Signatures section
of this report and which section is incorporated herein by
reference.
ITEM 9. | CHANGES IN, AND DISAGREEMENTS WITH, ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
ITEM 9A. CONTROLS
AND PROCEDURES
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an evaluation of our
disclosure controls and procedures, as such term is defined
under
Rule 13a-15(e)
and
15d-15(e)
promulgated under the Exchange Act. These disclosure controls
and procedures are designed to provide reasonable assurance that
the information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified by the Commissions rules and forms. Our
disclosure controls and procedures are also designed to provide
reasonable assurance that information required to be disclosed
in the reports that we file or submit under the Exchange Act is
accumulated and communicated to our management, including our
principal executive officer and principal financial officer, in
order to allow timely decisions regarding required disclosures.
Based on this evaluation, our principal executive officer and
our principal financial officer concluded that our disclosure
controls and procedures were effective at a reasonable assurance
level as of January 30, 2010.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f).
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
based on the framework in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our
evaluation under the framework in Internal
Control Integrated Framework, our management
concluded that our internal control over financial reporting was
effective as of January 30, 2010.
Deloitte & Touche LLP, our independent registered
public accounting firm that audited the financial statements
included in this Annual Report on
Form 10-K,
has issued an attestation report on our internal control over
financial reporting, which is included herein.
Our management, including our principal executive officer and
principal financial officer, does not expect that our disclosure
controls and procedures or our internal control over financial
reporting will prevent all error and all fraud. A control
system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of
the control system are met. Further, the design of a control
system must reflect that there are resource constraints, and the
benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the
Company have been detected.
Changes in
Internal Control Over Financial Reporting
No change in our internal control over financial reporting
occurred during the last fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
30 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Pacific Sunwear of California, Inc.
Anaheim, California
We have audited the internal control over financial reporting of
Pacific Sunwear of California, Inc. and subsidiaries (the
Company) as of January 30, 2010, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Managements Report on
Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Companys
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of January 30, 2010, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended
January 30, 2010, of the Company, and our report dated
March 31, 2010, expressed an unqualified opinion on those
consolidated financial statements.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
March 31, 2010
Table of Contents
ITEM 9B. OTHER
INFORMATION
None.
PART III
ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Information with respect to this item is incorporated by
reference from the sections captioned Proposal 1
Election of Directors Nominees and Continuing
Directors, Executive Officers,
Section 16(a) Beneficial Ownership Reporting
Compliance, Corporate Governance, and
Board of Directors and Committees of the Board
Committees of the Board of Directors in our definitive
Proxy Statement to be filed with the Commission not later than
120 days after the end of our fiscal year covered by this
Annual Report on
Form 10-K.
ITEM 11. EXECUTIVE
COMPENSATION
Information with respect to this item is incorporated by
reference from the sections captioned Board of Directors
and Committees of the Board Director
Compensation and Executive Compensation and Related
Matters in our definitive Proxy Statement to be filed with
the Commission not later than 120 days after the end of our
fiscal year covered by this Annual Report on
Form 10-K.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Information with respect to this item is incorporated by
reference from the sections captioned Equity Compensation
Plan Information and Security Ownership of Principal
Shareholders and Management in our definitive Proxy
Statement to be filed with the Commission not later than
120 days after the end of our fiscal year covered by this
Annual Report on
Form 10-K.
ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information with respect to this item is incorporated by
reference from the sections captioned Related Party
Transactions Policy and Board of Directors and
Committees of the Board Committees of the Board of
Directors in our definitive Proxy Statement to be filed
with the Commission not later than 120 days after the end
of our fiscal year covered by this Annual Report on
Form 10-K.
ITEM 14. PRINCIPAL
ACCOUNTING FEES AND SERVICES
Information with respect to this item is incorporated by
reference from the section captioned Fees Paid to
Independent Registered Public Accounting Firm in our
definitive Proxy Statement to be filed with the Commission not
later than 120 days after the end of our fiscal year
covered by this Annual Report on
Form 10-K.
PART IV
ITEM 15. EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
(a) 1. | The financial statements listed in the Index to Consolidated Financial Statements at page F-1 are filed as a part of this report. |
2. | Financial statement schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. |
3. Exhibits included or incorporated herein: See
Index to Exhibits at end of consolidated financial
statements.
32 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed, on its behalf by the undersigned,
thereunto duly authorized.
PACIFIC SUNWEAR OF CALIFORNIA, INC.
By: |
/s/ Gary
H. Schoenfeld
|
Gary H. Schoenfeld
President, Chief Executive Officer and Director
Date: March 31, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature
|
Title
|
Date
|
||||
/s/ Gary
H. Schoenfeld Gary H. Schoenfeld |
President, Chief Executive Officer and Director (Principal Executive Officer) |
March 31, 2010 | ||||
/s/ Michael
L. Henry Michael L. Henry |
Senior Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) |
March 31, 2010 | ||||
/s/ Peter
Starrett Peter Starrett |
Non-Employee Chairman of the Board | March 31, 2010 | ||||
/s/ Brett
Brewer Brett Brewer |
Non-Employee Director | March 31, 2010 | ||||
/s/ William
C. Cobb William C. Cobb |
Non-Employee Director | March 31, 2010 | ||||
/s/ Pearson
C. Cummin III Pearson C. Cummin III |
Non-Employee Director | March 31, 2010 | ||||
/s/ Michael
Goldstein Michael Goldstein |
Non-Employee Director | March 31, 2010 | ||||
/s/ George
R. Mrkonic George R. Mrkonic |
Non-Employee Director | March 31, 2010 | ||||
/s/ Thomas
M. Murnane Thomas M. Murnane |
Non-Employee Director | March 31, 2010 | ||||
/s/ Grace
Nichols Grace Nichols |
Non-Employee Director | March 31, 2010 |
Table of Contents
PACIFIC SUNWEAR
OF CALIFORNIA, INC.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED
FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED:
JANUARY 30, 2010 (Fiscal
2009)
JANUARY 31, 2009 (Fiscal
2008)
FEBRUARY 2, 2008 (Fiscal
2007)
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 |
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Pacific Sunwear of California, Inc.
Anaheim, California
We have audited the accompanying consolidated balance sheets of
Pacific Sunwear of California, Inc. and subsidiaries (the
Company) as of January 30, 2010 and
January 31, 2009, and the related consolidated statements
of operations and comprehensive operations, shareholders
equity, and cash flows for each of the three years in the period
ended January 30, 2010. These consolidated financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as of January 30, 2010 and January 31, 2009,
and the results of its operations and its cash flows for each of
the three years in the period ended January 30, 2010, in
conformity with accounting principles generally accepted in the
United States of America.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
January 30, 2010, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 31, 2010, expressed
an unqualified opinion on the Companys internal control
over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
March 31, 2010
F-2 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
PACIFIC SUNWEAR
OF CALIFORNIA, INC.
CONSOLIDATED
BALANCE SHEETS
January 30, |
January 31, |
|||||||
(In thousands, except share and per share amounts) | 2010 | 2009 | ||||||
ASSETS
|
||||||||
CURRENT ASSETS:
|
||||||||
Cash and cash equivalents
|
$ | 93,091 | $ | 24,776 | ||||
Merchandise inventories
|
89,665 | 107,205 | ||||||
Other current assets
|
16,166 | 58,943 | ||||||
Total current assets
|
198,922 | 190,924 | ||||||
PROPERTY AND EQUIPMENT, NET:
|
||||||||
Gross property and equipment
|
641,127 | 665,236 | ||||||
Less: Accumulated depreciation and amortization
|
(392,127 | ) | (341,892 | ) | ||||
Total property and equipment, net
|
249,000 | 323,344 | ||||||
Assets held for sale
|
| 3,682 | ||||||
Deferred income taxes
|
4,024 | 21,984 | ||||||
Other assets
|
25,272 | 29,575 | ||||||
TOTAL ASSETS
|
$ | 477,218 | $ | 569,509 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||
CURRENT LIABILITIES:
|
||||||||
Accounts payable
|
$ | 38,481 | $ | 45,263 | ||||
Other current liabilities
|
43,742 | 47,564 | ||||||
Total current liabilities
|
82,223 | 92,827 | ||||||
LONG-TERM LIABILITIES:
|
||||||||
Deferred lease incentives
|
39,207 | 52,313 | ||||||
Deferred rent
|
21,396 | 23,008 | ||||||
Other long-term liabilities
|
27,714 | 29,374 | ||||||
Total long-term liabilities
|
88,317 | 104,695 | ||||||
Commitments and contingencies (Note 12)
|
||||||||
SHAREHOLDERS EQUITY:
|
||||||||
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none issued
|
| | ||||||
Common stock, $.01 par value; 170,859,375 shares
authorized; 65,748,069 and 65,174,144 shares issued and
outstanding, respectively
|
657 | 652 | ||||||
Additional paid-in capital
|
7,294 | 2,306 | ||||||
Retained earnings
|
298,727 | 369,029 | ||||||
Total shareholders equity
|
306,678 | 371,987 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
$ | 477,218 | $ | 569,509 | ||||
See notes to consolidated
financial statements.
Table of Contents
PACIFIC SUNWEAR
OF CALIFORNIA, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS
(In thousands, except share and per share amounts) |
January 30, |
January 31, |
February 2, |
|||||||||
FISCAL YEAR ENDED | 2010 | 2009 | 2008 | |||||||||
Net sales
|
$ | 1,027,101 | $ | 1,254,886 | $ | 1,306,028 | ||||||
Cost of goods sold, including buying, distribution and occupancy
costs
|
768,498 | 934,779 | 892,102 | |||||||||
Gross margin
|
258,603 | 320,107 | 413,926 | |||||||||
Selling, general and administrative expenses
|
339,728 | 381,008 | 344,295 | |||||||||
Operating (loss)/income from continuing operations
|
(81,125 | ) | (60,901 | ) | 69,631 | |||||||
Other (expense)/income, net
|
(276 | ) | 2,369 | 3,012 | ||||||||
(Loss)/income from continuing operations before income tax
(benefit)/expense
|
(81,401 | ) | (58,532 | ) | 72,643 | |||||||
Income tax (benefit)/expense
|
(11,099 | ) | (19,287 | ) | 26,836 | |||||||
(Loss)/income from continuing operations
|
(70,302 | ) | (39,245 | ) | 45,807 | |||||||
Loss from discontinued operations, net of tax effects
|
| (24,577 | ) | (76,174 | ) | |||||||
Net loss
|
$ | (70,302 | ) | $ | (63,822 | ) | $ | (30,367 | ) | |||
Comprehensive loss
|
$ | (70,302 | ) | $ | (63,822 | ) | $ | (30,367 | ) | |||
(Loss)/income from continuing operations per share:
|
||||||||||||
Basic
|
$ | (1.07 | ) | $ | (0.59 | ) | $ | 0.66 | ||||
Diluted
|
$ | (1.07 | ) | $ | (0.59 | ) | $ | 0.65 | ||||
Net loss per share:
|
||||||||||||
Basic
|
$ | (1.07 | ) | $ | (0.96 | ) | $ | (0.44 | ) | |||
Diluted
|
$ | (1.07 | ) | $ | (0.96 | ) | $ | (0.44 | ) | |||
Weighted average shares outstanding:
|
||||||||||||
Basic
|
65,442,887 | 66,652,088 | 69,749,536 | |||||||||
Diluted
|
65,442,887 | 66,652,088 | 70,020,500 | |||||||||
See notes to consolidated
financial statements.
F-4 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
PACIFIC SUNWEAR
OF CALIFORNIA, INC.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
Common |
Additional |
|||||||||||||||||||
Stock |
Common |
Paid-in |
Retained |
|||||||||||||||||
(In thousands, except share amounts) | Shares | Stock | Capital | Earnings | Total | |||||||||||||||
BALANCE, February 3, 2007
|
69,560,077 | $ | 696 | $ | 5,783 | $ | 496,874 | $ | 503,353 | |||||||||||
Employee stock plans
|
466,433 | 4 | 4,291 | | 4,295 | |||||||||||||||
Stock-based compensation
|
| | 6,398 | | 6,398 | |||||||||||||||
Tax benefits related to exercise of stock options
|
| | 289 | | 289 | |||||||||||||||
FIN 48 adoption adjustment (see Note 10)
|
| | | (623 | ) | (623 | ) | |||||||||||||
Net loss
|
| | | (30,367 | ) | (30,367 | ) | |||||||||||||
BALANCE, February 2, 2008
|
70,026,510 | $ | 700 | $ | 16,761 | $ | 465,884 | $ | 483,345 | |||||||||||
Repurchase and retirement of common stock
|
(5,347,544 | ) | (53 | ) | (52,858 | ) | | (52,911 | ) | |||||||||||
Employee stock plans
|
495,178 | 5 | 1,799 | | 1,804 | |||||||||||||||
Stock-based compensation
|
| | 5,167 | | 5,167 | |||||||||||||||
Tax benefit deficiencies related to exercise of stock options
|
| | (1,596 | ) | | (1,596 | ) | |||||||||||||
Reclassify negative additional paid-in capital to retained
earnings(1)
|
| | 33,033 | (33,033 | ) | | ||||||||||||||
Net loss
|
| | | (63,822 | ) | (63,822 | ) | |||||||||||||
BALANCE, January 31, 2009
|
65,174,144 | $ | 652 | $ | 2,306 | $ | 369,029 | $ | 371,987 | |||||||||||
Employee stock plans
|
573,925 | 5 | 662 | | 667 | |||||||||||||||
Stock-based compensation
|
| | 6,370 | | 6,370 | |||||||||||||||
Tax benefit deficiencies related to exercise of stock options
|
| | (2,044 | ) | | (2,044 | ) | |||||||||||||
Net loss
|
| | | (70,302 | ) | (70,302 | ) | |||||||||||||
BALANCE, January 30, 2010
|
65,748,069 | $ | 657 | $ | 7,294 | $ | 298,727 | $ | 306,678 | |||||||||||
(1) Share repurchases in fiscal 2008 exceeded the value of
additional paid-in capital. Accordingly, at the end of the
fiscal year, negative additional paid-in capital was
reclassified against retained earnings.
See notes to consolidated
financial statements.
Table of Contents
PACIFIC SUNWEAR
OF CALIFORNIA, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands) |
January 30, |
January 31, |
February 2, |
|||||||||
FISCAL YEAR ENDED | 2010 | 2009 | 2008 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
Net loss
|
$ | (70,302 | ) | $ | (63,822 | ) | $ | (30,367 | ) | |||
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
||||||||||||
Depreciation and amortization
|
70,367 | 76,433 | 80,323 | |||||||||
Asset impairment (including goodwill)
|
27,012 | 35,348 | 59,829 | |||||||||
Stock compensation
|
6,370 | 5,167 | 6,398 | |||||||||
Loss on disposal of equipment
|
968 | 4,668 | 4,507 | |||||||||
Gain on sale of Anaheim distribution center
|
| (10,768 | ) | | ||||||||
(Tax benefit deficiencies)/tax benefits related to stock-based
compensation
|
(2,044 | ) | (1,596 | ) | 289 | |||||||
Excess tax benefits related to stock-based compensation
|
| (5 | ) | (292 | ) | |||||||
Change in operating assets and liabilities:
|
||||||||||||
Merchandise inventories
|
17,540 | 62,977 | 35,031 | |||||||||
Other current assets
|
43,043 | (6,125 | ) | (6,563 | ) | |||||||
Other assets
|
22,680 | (2,738 | ) | (14,891 | ) | |||||||
Accounts payable
|
(6,782 | ) | (17,086 | ) | (4,232 | ) | ||||||
Other current liabilities
|
(4,413 | ) | (17,887 | ) | 3,552 | |||||||
Deferred lease incentives
|
(13,106 | ) | (21,699 | ) | (15,359 | ) | ||||||
Deferred rent
|
(1,612 | ) | (4,661 | ) | (2,950 | ) | ||||||
Other long-term liabilities
|
(2,270 | ) | (4,291 | ) | 366 | |||||||
Net cash provided by operating activities
|
87,451 | 33,915 | 115,641 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
Purchases of property and equipment
|
(23,498 | ) | (80,934 | ) | (106,363 | ) | ||||||
Proceeds from sale of property and equipment
|
3,739 | 275 | | |||||||||
Proceeds from sale of Anaheim distribution center
|
| 25,000 | | |||||||||
Purchases of
available-for-sale
short-term investments
|
| | (171,400 | ) | ||||||||
Maturities of
available-for-sale
short-term investments
|
| | 202,900 | |||||||||
Purchases of
held-to-maturity
short-term investments (Note 7)
|
| | (23,300 | ) | ||||||||
Net cash used in investing activities
|
(19,759 | ) | (55,659 | ) | (98,163 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
Proceeds from employee stock purchase plan and exercise of stock
options
|
727 | 1,850 | 4,295 | |||||||||
Principal payments under capital lease and long-term debt
obligations
|
(104 | ) | (11 | ) | (45 | ) | ||||||
Borrowings under long-term debt obligations (Note 7)
|
| | 23,300 | |||||||||
Borrowings under credit facility
|
| 235,689 | | |||||||||
Principle payments under credit facility
|
| (235,689 | ) | | ||||||||
Repurchase and retirement of common stock
|
| (52,911 | ) | | ||||||||
Excess tax benefits related to stock-based compensation
|
| 5 | 292 | |||||||||
Net cash provided by/(used in) financing activities
|
623 | (51,067 | ) | 27,842 | ||||||||
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
|
68,315 | (72,811 | ) | 45,320 | ||||||||
CASH AND CASH EQUIVALENTS, beginning of fiscal year
|
24,776 | 97,587 | 52,267 | |||||||||
CASH AND CASH EQUIVALENTS, end of fiscal year
|
$ | 93,091 | $ | 24,776 | $ | 97,587 | ||||||
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
|
||||||||||||
Cash paid for interest
|
$ | 3 | $ | 601 | $ | 6 | ||||||
Cash (refunded)/paid for income taxes
|
$ | (54,072 | ) | $ | (14,937 | ) | $ | 10,668 | ||||
SUPPLEMENTAL DISCLOSURES OF
NON-CASH TRANSACTIONS:
|
||||||||||||
Increase/(decrease) in accrued property and equipment
|
$ | 65 | $ | (5,707 | ) | $ | (6,358 | ) | ||||
Purchases of property pursuant to capital lease obligations
|
$ | 730 | $ | 20 | 11 |
See notes to consolidated
financial statements.
F-6 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
PACIFIC SUNWEAR
OF CALIFORNIA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in thousands, except share and per share amounts, unless otherwise indicated)
(all amounts in thousands, except share and per share amounts, unless otherwise indicated)
1. | NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Nature of Business Pacific Sunwear of
California, Inc. and its subsidiaries (collectively, the
Company) is a leading specialty retailer rooted in
the action sports, fashion and music influences of the
California lifestyle. The Company sells casual apparel with a
targeted selection of accessories and footwear designed to meet
the needs of teens and young adults. The Company operates a
nationwide, primarily mall-based chain of retail stores, under
the names Pacific Sunwear and PacSun. In
addition, the Company operates an
e-commerce
website at www.pacsun.com which sells PacSun merchandise online,
provides content and community for its target customers, and
provides information about the Company. As of January 30,
2010, the Company leased and operated 894 stores among all
50 states and Puerto Rico, comprised of
3,457,171 square feet.
The results of operations for all periods presented in these
consolidated financial statements excludes the financial impact
of the Companys former demo and One Thousand Steps
concepts due to the designation of these operations as
discontinued operations during the first quarter of fiscal 2008
and the fourth quarter of fiscal 2007, respectively (see
Note 15). During fiscal 2007, the Company closed 74 demo
stores, which specialized in fashion-focused streetwear apparel,
as well as its nine-store One Thousand Steps footwear concept,
which was originally launched in April 2006 and discontinued in
January 2008. During fiscal 2008, the Company closed its
remaining 153 demo stores.
The Companys fiscal year is the 52- or 53-week period
ending on the Saturday closest to January 31st. Fiscal
year-end dates for all periods presented or discussed herein are
as follows:
Fiscal Year
|
Year-End Date | # of Weeks | ||||
2010
|
January 29, 2011 | 52 | ||||
2009
|
January 30, 2010 | 52 | ||||
2008
|
January 31, 2009 | 52 | ||||
2007
|
February 2, 2008 | 52 |
Principles of Consolidation The consolidated
financial statements include the accounts of Pacific Sunwear of
California, Inc. and its subsidiaries, Pacific Sunwear Stores
Corp. and Miraloma Corp. All intercompany transactions have been
eliminated in consolidation.
Basis of Presentation The consolidated
financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP).
Use of Estimates The preparation of
consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America
necessarily requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
as well as the reported revenues and expenses during the
reporting period. Actual results could differ from these
estimates.
Fair Value of Financial Instruments
Management is required to disclose the estimated fair value of
certain assets and liabilities as financial instruments.
Financial instruments are generally defined as cash, evidence of
ownership interest in an entity, or a contractual obligation
that both conveys to one entity a right to receive cash or other
financial instruments from another entity and imposes on the
other entity the obligation to deliver cash or other financial
instruments to the first entity. As of January 30, 2010,
management believes that the carrying amounts of cash,
receivables and payables approximate fair value because of the
short maturity of these financial instruments.
Table of Contents
Cash and Cash Equivalents The Company
considers all highly liquid financial instruments purchased with
an original maturity of three months or less to be cash
equivalents. Cash and cash equivalents consist primarily of
commercial paper and money market funds.
Merchandise Inventories Merchandise
inventories are stated at the lower of average cost or market
utilizing the retail method. At any given time, inventories
include items that have been marked down to managements
best estimate of their fair market value. These estimates are
based on a combination of factors, including current selling
prices, current and projected inventory levels, current and
projected rates of sell-through, known markdown
and/or
promotional events expected to create a permanent decrease in
inventory value, estimated inventory shrink and aging of
specific items. Reserves of approximately $2 million have
been accrued against existing inventory at January 30, 2010
in consideration of these factors. Actual results have
historically been within the Companys expectations and the
reserves established for such items.
Property and Equipment All property and
equipment are stated at cost. Depreciation is recognized on a
straight-line basis over the following estimated useful lives:
Property Category
|
Depreciation Term | |
Buildings
|
39 years | |
Building improvements
|
Lesser of remaining estimated useful life of the building or estimated useful life of the improvement | |
Leasehold improvements
|
Lesser of remaining lease term (at inception, generally 10 years) or estimated useful life of the improvement | |
Furniture, fixtures and equipment
|
Generally 5 years (ranging from 3 to 15 years), depending on the nature of the asset |
Other Long-Lived Assets The Company evaluates
the carrying value of long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
value of such assets may not be recoverable. Factors that are
considered important and that could trigger an impairment review
include a current-period operating or cash flow loss combined
with a history of operating or cash flow losses and a projection
or forecast that demonstrates continuing losses or insufficient
income associated with the use of a long-lived asset or asset
group. Other factors include a significant change in the manner
of the use of the asset or a significant negative industry or
economic trend. This evaluation is performed based on estimated
undiscounted future cash flows from operating activities
compared with the carrying value of the related assets. If the
undiscounted future cash flows are less than the carrying value,
an impairment loss is recognized, measured by the difference
between the carrying value and the estimated fair value of the
assets, with such estimated fair values determined using the
best information available, generally the discounted future cash
flows of the assets using a rate that approximates the
Companys weighted average cost of capital. See
Note 4, Impairment of Long-Lived Assets, for a
discussion of asset impairment charges recognized in fiscal
2009, 2008 and 2007.
Income Taxes The Company accounts for income
taxes under the asset and liability method, which requires the
recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been
included in the financial statements. Under this method,
deferred tax assets and liabilities are determined based on the
temporary differences between the financial statements and tax
basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
reverse. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period
that includes the enactment date.
Deferred income tax assets are reduced by a valuation allowance
if, in the judgment of the Companys management, it is more
likely than not that all or a portion of a deferred tax asset
will not be realized. In making such determination, the Company
considers all available positive and negative evidence,
including recent financial operations, projected future taxable
income, scheduled reversals of deferred tax liabilities, tax
planning strategies, and the length of tax asset carryforward
periods. The realization of deferred tax assets is primarily
dependent upon our ability to generate sufficient future taxable
earnings in certain jurisdictions. If the Company subsequently
determines that the carrying
F-8 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
value of these assets, which had been written down, would be
realized in the future, the value of the deferred tax assets
would be increased, thereby increasing net income in the period
when that determination was made. See Note 10, Income
Taxes, for further discussion regarding the realizability
of our deferred tax assets and our assessment of a need for a
valuation allowance.
The Company accounts for uncertain tax positions in accordance
with authoritative guidance for Income Taxes. This guidance
prescribes a recognition threshold and measurement process for
recording in the financial statements uncertain tax positions
taken or expected to be taken in the Companys tax return.
The literature also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods and disclosure requirements for uncertain tax positions.
Insurance Reserves The Company uses a
combination of third-party insurance and self-insurance for
workers compensation, employee medical and general
liability insurance. For each type of insurance, the Company has
defined stop-loss or deductible provisions that limit the
Companys maximum exposure to claims. The Company maintains
reserves for estimated claims associated with these programs,
both reported and incurred but not reported, based on historical
claims experience and other estimated assumptions.
Revenue Recognition Sales are recognized upon
purchase by customers at the Companys retail store
locations or upon delivery to and acceptance by the customer for
orders placed through the Companys website. The Company
records the sale of gift cards as a current liability and
recognizes a sale when a customer redeems a gift card. The
amount of the gift card liability is determined taking into
account our estimate of the portion of gift cards that will not
be redeemed or recovered (gift card breakage). Gift
card breakage is generally recognized as revenue after
24 months, at which time the likelihood of redemption is
considered remote based on our historical redemption data. Gift
card breakage has never been more than 1.0% of sales in any
fiscal year. The Company accrues for estimated sales returns by
customers based on historical sales return results. Sales return
accrual activity for each of the three fiscal years in the
period ended January 30, 2010 is as follows:
Fiscal Year | ||||||||||||
(in $000s) | 2009 | 2008 | 2007 | |||||||||
Beginning balance
|
$ | 436 | $ | 722 | $ | 794 | ||||||
Provisions
|
20,440 | 24,144 | 25,667 | |||||||||
Usage
|
(20,365 | ) | (24,430 | ) | (25,739 | ) | ||||||
Ending balance
|
$ | 511 | $ | 436 | $ | 722 | ||||||
E-commerce
Shipping and Handling Revenues and Expenses
Shipping and handling revenues and expenses relate to sales
activity generated from the Companys websites. Amounts
charged to the Companys Internet customers for shipping
and handling revenues are included in net sales. Amounts paid by
the Company for Internet shipping and handling expenses are
included in cost of goods sold and encompass payments to third
party shippers and costs to store, move and prepare merchandise
for shipment.
Customer Loyalty Programs These programs
offer customers
dollar-for-dollar
discounts on future merchandise purchases within stated
redemption periods if they purchase specified levels of
merchandise in a current transaction. The impact of these
programs is recognized ratably as a direct reduction in net
sales over the series of transactions required to both earn and
redeem the customer discounts. Redemptions generally occur
within 30 days of original issuance.
Cost of Goods Sold, including Buying, Distribution and
Occupancy Costs Cost of goods sold includes the
landed cost of merchandise and all expenses incurred by the
Companys buying and distribution functions. These costs
include inbound freight, purchasing and receiving costs,
inspection costs, warehousing costs, internal transfer costs,
and any other costs borne by the Companys buying
department and distribution center. Occupancy costs include
store rents, common area charges, as well as store expenses
related to telephone service, supplies, repairs and maintenance,
insurance, loss prevention, and taxes and licenses.
Table of Contents
Vendor Allowances Cash consideration received
from vendors primarily includes discounts, vendor allowances and
rebates. The Company recognizes cash received from vendors as a
reduction in the price of the vendors products and,
accordingly, as a reduction in cost of sales at the time the
related inventory is sold.
Straight-Line Rent Rent expense under the
Companys store operating leases is recognized on a
straight-line basis over the original term of each stores
lease, inclusive of rent holiday periods during store
construction and excluding any lease renewal options.
Accordingly, the Company expenses pre-opening rent.
Deferred Lease Incentives Amounts received
from landlords to fund tenant improvements are recorded as a
deferred lease incentive liability and then amortized as a
credit to rent expense over the related stores lease term.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include payroll,
depreciation and amortization, advertising, credit authorization
charges, expenses associated with the counting of physical
inventories, and all other general and administrative expenses
not directly related to merchandise or operating the
Companys stores.
Advertising Costs Costs associated with the
production or placement of advertising, such as photography,
design, creative talent, editing, magazine insertion fees and
other costs associated with such advertising, are expensed the
first time the advertising appears publicly. Advertising costs
were $14 million, $16 million, and $17 million in
fiscal 2009, 2008, and 2007, respectively.
Stock-Based Compensation The Company accounts
for stock-based compensation expense under the fair value
method. The Company recorded non-cash, stock-based compensation
in the consolidated statement of operations for each of fiscal
2009, 2008 and 2007 as follows (in thousands):
Fiscal Year | ||||||||||||
(in $000s) | 2009 | 2008 | 2007 | |||||||||
Stock-based compensation expense included in cost of goods sold
|
$ | 4,024 | $ | 1,972 | $ | 2,335 | ||||||
Stock-based compensation expense included in selling, general
and administrative expenses
|
2,346 | 3,351 | 3,416 | |||||||||
Total stock-based compensation expense
|
$ | 6,370 | $ | 5,323 | $ | 5,751 | ||||||
Earnings Per Share Basic earnings per common
share is computed using the weighted average number of shares
outstanding. Diluted earnings per common share is computed using
the weighted average number of shares outstanding adjusted for
the incremental shares attributed to outstanding options to
purchase common stock. For purposes of calculating diluted
earnings per share, incremental shares included in, and
anti-dilutive options excluded from, the calculations for each
of fiscal 2009, 2008 and 2007 were as follows:
Fiscal Year | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Incremental shares
|
| | 270,964 | |||||||||
Anti-dilutive options and non-vested shares
|
2,311,974 | 2,564,554 | 2,308,227 |
Anti-dilutive options and non-vested shares are excluded from
the computation of diluted earnings per share because either the
option exercise price or the grant date fair value of the
non-vested share is greater than the market price of the
Companys common stock.
Vendor and Merchandise Concentrations In
fiscal 2009, no vendor accounted for more than 10% of net sales.
During each of fiscal 2008 and 2007, Billabong (which
incorporates both Billabong and Element brands) accounted for
11% and 10% of total net sales, respectively, and Quiksilver
(which incorporates the DC Shoes, Roxy, and Quiksilver brands)
accounted for 10% and 12% of total net sales, respectively. No
other individual branded vendor accounted for more than 10% of
total net sales for any period presented.
F-10 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
The merchandise assortment for the Company as a percentage of
net sales for each of fiscal 2009, 2008 and 2007 was as follows:
Fiscal Year | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Young Mens Apparel
|
45% | 41% | 38% | |||||||||
Juniors Apparel
|
43% | 42% | 33% | |||||||||
Accessories and Footwear
|
12% | 17% | 29% | |||||||||
Total
|
100% | 100% | 100% | |||||||||
Recent Accounting Pronouncements The Company
adopted the Financial Accounting Standards Board
(FASB) Accounting Standards Codification
(ASC or Codification) Topic 105,
Generally Accepted Accounting Principles, formerly
FASB Statement 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles. ASC 105 establishes the FASB Codification as
the single source of authoritative GAAP recognized by the FASB
to be applied by nongovernmental entities. Rules and
interpretive releases of the SEC under authority of the federal
securities laws are also sources of authoritative GAAP for SEC
registrants. ASC 105 and the Codification are effective for
financial statements issued for interim and annual periods
ending after September 15, 2009. The Codification
supersedes all existing non-SEC accounting and reporting
standards. All other non-grandfathered, non-SEC accounting
literature not included in the Codification will become
non-authoritative. The FASB will not issue new standards in the
form of Statements, FASB Staff Positions, or Emerging Issues
Task Force Abstracts. Instead, the FASB will issue Accounting
Standards Updates (ASUs), which will serve only to:
(a) update the Codification; (b) provide background
information about the guidance; and (c) provide the basis
for conclusions on the change(s) in the Codification. As the
Codification does not change GAAP, it does not have a material
impact on the Companys consolidated financial statements.
Previous references made to GAAP literature in the notes to the
Companys consolidated financial statements have been
updated with references to the new Codification.
In January 2010, the FASB issued ASU
2010-06, new
guidance and clarifications for improving disclosures about fair
value measurements. This guidance requires enhanced disclosures
regarding transfers in and out of the levels within the fair
value hierarchy. Separate disclosures are required for transfers
in and out of Level 1 and 2 fair value measurements, and
the reasons for the transfers must be disclosed. In the
reconciliation for Level 3 fair value measurements,
separate disclosures are required for purchases, sales,
issuances, and settlements on a gross basis. The Company does
not anticipate the adoption of this guidance to materially
impact the Company. The new disclosures and clarifications of
existing disclosures are effective for interim and annual
reporting periods beginning after December 15, 2009, except
for the disclosures about purchases, sales, issuances, and
settlements in the roll forward of activity in Level 3 fair
value measurements, which are effective for interim and annual
reporting periods beginning after December 15, 2010.
In February 2010, the FASB issued ASU
2010-09,
which amends ASC 855 to address certain implementation issues
related to an entitys requirement to perform and disclose
subsequent-events procedures. In particular the amendment
(i) adds a definition of the term SEC filer to
the ASC Master Glossary, (ii) exempts SEC filers from
disclosing the date through which subsequent events have been
evaluated, (iii) removes the definition of a public
entity from the ASC Glossary and (iv) adds a
definition of the term revised financial statements
to the ASC Master Glossary. The amendment is effective
immediately for financial statements for all entities.
Table of Contents
2. | OTHER CURRENT ASSETS |
As of the dates presented, other current assets consisted of the
following:
January 30, |
January 31, |
|||||||
2010 | 2009 | |||||||
Prepaid expenses
|
$ | 10,801 | $ | 25,573 | ||||
Non-trade accounts receivable
|
3,749 | 3,119 | ||||||
Income taxes receivable
|
1,616 | 30,251 | ||||||
Total other current assets
|
$ | 16,166 | $ | 58,943 | ||||
3. | PROPERTY AND EQUIPMENT, NET |
As of the dates presented, property and equipment consisted of
the following categories:
January 30, |
January 31, |
|||||||
2010 | 2009 | |||||||
Leasehold improvements
|
$ | 302,339 | $ | 325,540 | ||||
Furniture, fixtures and equipment
|
287,223 | 288,634 | ||||||
Buildings and building improvements
|
40,338 | 39,835 | ||||||
Land
|
11,227 | 11,227 | ||||||
Total gross property and equipment
|
641,127 | 665,236 | ||||||
Less accumulated depreciation
|
(392,127 | ) | (341,892 | ) | ||||
Property and equipment, net
|
$ | 249,000 | $ | 323,344 | ||||
4. | IMPAIRMENT OF LONG-LIVED ASSETS |
Store Assets The Company assesses whether
events or changes in circumstances have occurred that
potentially indicate the carrying value of long-lived assets may
not be recoverable. As a result of these evaluations during
fiscal 2009, 2008 and 2007, the Company recorded non-cash
impairment charges of approximately $27 million,
$29 million and $1 million in each year, respectively,
within selling, general and administrative expenses in the
consolidated statements of operations to write-down the carrying
value of long-lived store assets to their estimated fair values.
Goodwill During fiscal 2008, the Company
determined that the goodwill created in connection with its 1986
four-store acquisition in California and its 1997 fifteen-store
acquisition in Florida was fully impaired and recorded a
pre-tax, non-cash goodwill impairment charge of approximately
$6 million during the third quarter of fiscal 2008.
5. | ASSETS HELD FOR SALE |
During fiscal 2008, the Companys management committed to a
plan to sell a parcel of land that had been held for future
development. In connection with the planned sale, the Company
recorded a pre-tax, non-cash impairment charge of approximately
$5 million associated with a reduction in the fair value of
this land less estimated selling costs. The impairment charge is
included in other income and expenses in the consolidated
statement of operations. The Company had classified the
remaining carrying value of this land of approximately
$4 million as held for sale on the consolidated balance
sheet as of January 31, 2009. The sale of the land closed
in February 2009 and the Company received approximately
$4 million in net cash proceeds.
6. | FAIR VALUE MEASUREMENTS |
The Companys assets and liabilities are measured and
reported on a fair value basis in accordance with ASC 820,
Fair Value Measurements and Disclosures. ASC 820
defines fair value, establishes a framework for measuring fair
value in accordance with generally accepted accounting
principles, and expands disclosure about fair value
measurements. ASC 820 enables the reader of the financial
statements to assess the inputs used to develop those
F-12 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
measurements by establishing a hierarchy for ranking the quality
and reliability of the information used to determine fair
values. ASC 820 requires that assets and liabilities carried at
fair value be classified and disclosed in one of the following
three categories:
| Level 1: Quoted market prices in active markets for identical assets or liabilities | |
| Level 2: Observable market based inputs that are corroborated by market data | |
| Level 3: Unobservable inputs that are not corroborated by market data |
The following table represents our fair value hierarchy for
financial assets measured at fair value on a recurring basis as
of January 30, 2010 (amounts in millions):
Fair Value Measurements at January 30, 2010 | ||||||||||||||||
Quoted Prices |
Significant |
|||||||||||||||
in Active |
Other |
Significant |
||||||||||||||
Markets for |
Observable |
Unobservable |
||||||||||||||
Identical Assets |
Inputs |
Inputs |
||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Long-lived assets held and used
|
$ | 249 | $ | | $ | | $ | 249 |
Long-lived store assets (primarily property and equipment) with
a carrying amount of $276 million were written down to
their fair value of $249 million, resulting in a non-cash
impairment charge of $27 million, which was included in the
operating results for fiscal 2009. In fiscal 2008, the Company
recorded a non-cash impairment charge of $29 million to
write down the carrying value of long-lived store assets. Fair
value is determined using a discounted cash flow model. The
estimation of future cash flows from operating activities
requires significant estimates of factors that include future
sales and gross margin performance. If the Companys sales
or gross margin performance or other estimated operating results
are not achieved at or above the forecasted level, the carrying
value of certain store assets may prove unrecoverable and the
Company may incur additional impairment charges in the future.
7. | INDUSTRIAL REVENUE BOND TRANSACTION OLATHE, KANSAS |
On July 17, 2007, Pacific Sunwear Stores Corp., a
wholly-owned subsidiary of the Company, completed an industrial
revenue bond financing transaction with the city of Olathe,
Kansas (the City) that will provide property tax
savings for 10 years on the Companys new distribution
center located in the City. In the transaction, the City
purchased the land and building from the Company through the
issuance to the Company of approximately $23 million in
industrial revenue bonds due January 1, 2018
(Bonds) and contemporaneously leased the land and
building to the Company for an identical term. The Company can
call the Bonds at any time it chooses, but would lose its
property tax benefit in the event this transaction was to be
cancelled. In the Companys consolidated balance sheet, the
land and building remain a component of property and equipment,
the investment in the Bonds is included in other assets, and the
related long-term lease is included in other long-term
liabilities.
The Company, as holder of the Bonds, is due interest at 7% per
annum with interest payable semi-annually in arrears on January
1 and July 1. This interest income is directly offset by
the interest-only lease payments on the distribution center,
which are due at the same time and in the same amount as the
interest income. Both the Bonds and the corresponding lease have
10-year
terms. If, at any time, the Company chooses to call the Bonds,
the proceeds from the Bonds would be required to immediately
terminate the lease. The Companys intention is to maintain
the property tax benefit related to the Olathe facility.
Accordingly, both the Bonds and the lease are classified as
long-term due to the Companys intent to hold the Bonds
until maturity and the structure of the lease, which includes a
balloon principal payment and bargain purchase requirement at
the end of the lease term.
8. | CREDIT FACILITY |
The Company has an asset-backed credit agreement with a
syndicate of lenders (the Credit Facility) which
expires April 29, 2013 and provides for a secured revolving
line of credit of up to $150 million, which can be
increased to up to $225 million subject to lender approval.
Extensions of credit under the Credit Facility are limited to a
borrowing base
Table of Contents
consisting of specified percentages of eligible categories of
assets, primarily cash and inventory (generally, 75% of
inventories). The Credit Facility is available for direct
borrowing and, subject to borrowing base availability
($103 million at January 30, 2010), up to
$75 million is available for the issuance of letters of
credit and up to $15 million is available for swing-line
loans. The Credit Facility is secured by cash, cash equivalents,
deposit accounts, securities accounts, credit card receivables
and inventory. Direct borrowings under the Credit Facility bear
interest at the Administrative Agents alternate base rate
(as defined, 1.5% at January 30, 2010) or at optional
interest rates that are primarily dependent upon LIBOR or the
Federal Funds Effective Rate for the time period chosen. The
Company currently believes that the availability under the
Credit Facility, working capital and cash flows from operating
activities will be sufficient to meet its operating and capital
expenditure needs for at least the next twelve months. At
January 30, 2010, the Company had no direct borrowings and
$9 million in letters of credit outstanding under the
Credit Facility. The remaining availability at January 30,
2010 was $94 million.
The Company is not subject to any financial covenant
restrictions under the Credit Facility unless, at any point in
time, total remaining borrowing availability under the facility
falls below $15 million or 10% of the aggregate lender
commitments in the event the facility is increased beyond
$150 million. The Company is permitted to incur additional
indebtedness outside the Credit Facility up to a maximum
principal amount at any time outstanding of $150 million.
Any such indebtedness may not be secured by any of the
collateral designated under the Credit Facility or any other
assets of the Company, except that up to $40 million of
such indebtedness may be secured by liens on real property and
related fixtures. Additionally, the Credit Facility prohibits
the payment of dividends and contains specific limits on certain
kinds of indebtedness, as defined in the facility agreement.
9. | OTHER CURRENT LIABILITIES |
As of the dates presented, other current liabilities consisted
of the following:
January 30, |
January 31, |
|||||||
2010 | 2009 | |||||||
Accrued gift cards
|
$ | 12,617 | $ | 12,134 | ||||
Accrued compensation and benefits
|
12,362 | 13,584 | ||||||
Sales taxes payable
|
4,444 | 5,177 | ||||||
Accrued capital expenditures
|
1,802 | 1,737 | ||||||
Deferred taxes
|
| 1,218 | ||||||
Other current liabilities
|
12,517 | 13,714 | ||||||
Total other current liabilities
|
$ | 43,742 | $ | 47,564 | ||||
10. | INCOME TAXES |
The components of income tax (benefit)/expense from continuing
operations for the fiscal periods presented were as follows:
2009 | 2008 | 2007 | ||||||||||
Current income taxes:
|
||||||||||||
Federal
|
$ | (28,665 | ) | $ | (34,309 | ) | $ | 24,035 | ||||
State
|
824 | (254 | ) | 5,663 | ||||||||
Total current
|
(27,841 | ) | (34,563 | ) | 29,698 | |||||||
Deferred income taxes:
|
||||||||||||
Federal
|
10,566 | 13,554 | 170 | |||||||||
State
|
6,176 | 1,722 | (3,032 | ) | ||||||||
Total deferred
|
16,742 | 15,276 | (2,862 | ) | ||||||||
Total income tax (benefit)/expense
|
$ | (11,099 | ) | $ | (19,287 | ) | $ | 26,836 | ||||
F-14 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
Included in fiscal 2009, 2008 and 2007 current income taxes were
tax benefits of approximately $0.4 million,
$0.5 million and $0.8 million, respectively, relating
to uncertain tax positions.
A reconciliation of income tax (benefit)/expense from continuing
operations to the amount of income tax (benefit)/expense that
would result from applying the federal statutory rate to income
from continuing operations before income taxes for the fiscal
periods presented was as follows:
2009 | 2008 | 2007 | ||||||||||
(Benefit)/provision for income taxes at statutory rate
|
$ | (28,490 | ) | $ | (20,486 | ) | $ | 25,425 | ||||
State income taxes, net of federal income tax benefit
|
(2,238 | ) | (775 | ) | 1,240 | |||||||
Valuation allowance
|
20,129 | 1,727 | | |||||||||
Life insurance proceeds
|
| | (1,215 | ) | ||||||||
Other
|
(500 | ) | 247 | 1,386 | ||||||||
Total income tax (benefit)/expense
|
$ | (11,099 | ) | $ | (19,287 | ) | $ | 26,836 | ||||
The major components of the Companys overall net deferred
tax asset of approximately $4 million and $21 million
at January 30, 2010 and January 31, 2009,
respectively, were as follows:
January 30, |
January 31, |
|||||||
2010 | 2009 | |||||||
Current net deferred tax asset/(liability)
|
$ | 2,348 | $ | (1,218 | ) | |||
Long-term net deferred tax asset
|
28,289 | 24,641 | ||||||
30,637 | 23,423 | |||||||
Valuation allowance
|
(26,613 | ) | (2,657 | ) | ||||
Overall net deferred tax asset
|
$ | 4,024 | $ | 20,766 | ||||
Deferred tax assets:
|
||||||||
Net operating loss and tax credit carryforwards
|
$ | 31,207 | $ | 40,770 | ||||
Deferred lease incentives
|
16,445 | 21,937 | ||||||
Deferred rent
|
7,413 | 7,318 | ||||||
Deferred and stock-based compensation
|
2,425 | 3,562 | ||||||
Inventory cost capitalization
|
2,582 | 2,450 | ||||||
Sublease loss reserves
|
195 | 268 | ||||||
Other
|
2,362 | 1,932 | ||||||
62,629 | 78,237 | |||||||
Deferred tax liabilities:
|
||||||||
Depreciation and amortization
|
$ | (28,085 | ) | $ | (45,726 | ) | ||
Prepaid expenses
|
(2,500 | ) | (5,519 | ) | ||||
State income taxes
|
(1,407 | ) | (3,569 | ) | ||||
(31,992 | ) | (54,814 | ) | |||||
Net deferred taxes before valuation allowance
|
30,637 | 23,423 | ||||||
Less valuation allowance
|
(26,613 | ) | (2,657 | ) | ||||
$ | 4,024 | $ | 20,766 | |||||
As previously disclosed in the Companys Annual Report on
Form 10-K
for fiscal 2008, the Company established a $3 million
valuation allowance against deferred tax assets related to
Kansas state investment tax credits that more likely than not
would not be utilized before expiration. As outlined in the
Companys two most recent
Form 10-Q
filings with the Securities and Exchange Commission (SEC), dated
December 7, 2009 and September 2, 2009, the Company
indicated that it might be required to take a charge to record
additional valuation allowance related to its deferred tax
assets given recent fluctuations in business trends. For the
year ended January 30, 2010, in accordance with ASC 740,
Income Taxes, and as a result of continued pre-tax
operating losses, the Company re-evaluated the realizability of
all its gross federal and state deferred tax assets. ASC 740
requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some or all of the
deferred tax assets will not be realized. In
Table of Contents
assessing the potential need for a valuation allowance, ASC 740
requires an evaluation of both positive and negative evidence.
An enterprise must use judgment in considering the relative
impact of available evidence. In making such judgment, the
weight given to the potential effect of positive and negative
evidence should be commensurate with the extent to which it can
be objectively verified. The Companys assessment
considered all available positive and negative evidence.
Negative evidence included the fact that the Company was in a
cumulative three-year pre-tax loss position as of the end of
fiscal 2009 and will likely have near term operating losses.
Positive evidence included the Companys strong earnings
history prior to fiscal 2008 and various cost cutting efforts
that have been implemented to improve future profitability. The
Company concluded that based on a weighting of objectively
verifiable positive and negative evidence available as of
January 30, 2010, a full valuation allowance of
$13 million against the Companys federal deferred tax
assets and an $11 million valuation allowance against
certain state deferred tax assets was required. Remaining state
deferred tax assets of $4 million were not reserved as the
Company concluded it is more likely than not these deferred tax
assets will be utilized before expiration. In addition, the
Company has discontinued recognizing federal and certain state
income tax benefits until it is determined that it is more
likely than not that the Company will generate sufficient
taxable income to realize the deferred income tax assets. As of
the year ended January 30, 2010, federal and state
valuation allowances against deferred tax assets were
$13 million and $14 million, respectively.
As of January 30, 2010, the Company had tax effected
federal net operating losses (NOLs) of approximately
$15 million available to offset future federal taxable
income. In addition, as of January 30, 2010 the Company had
tax effected state NOLs of approximately $12 million
available to offset future state income taxable income. Federal
and state NOLs will expire at various times and in varying
amounts in our fiscal tax years 2012 through 2029. The Company
also had federal and Kansas credit carryforwards of
approximately $0.2 million and $4 million,
respectively. The Companys federal and Kansas
carryforwards will begin to expire in 2028 and 2017,
respectively.
As of both January 30, 2010 and January 31, 2009,
unrecognized income tax benefits accounted for under ASC 740
(FIN 48) totaled approximately $1 million. Of
those amounts, approximately $0.5 million and
$0.8 million, respectively, represent unrecognized tax
benefits that would, if recognized, favorably affect the
Companys effective income tax rate in any future periods.
The Company does not anticipate that total unrecognized tax
benefits will change significantly in the next twelve months.
The following is a tabular reconciliation of the total amounts
of unrecognized tax benefits (including interest) at
January 30, 2010, January 31, 2009 and
February 2, 2008:
January 30, |
January 31, |
February 2, |
||||||||||
2010 | 2009 | 2008 | ||||||||||
Unrecognized tax benefits, opening balance
|
$ | 1,199 | $ | 1,652 | $ | 2,444 | ||||||
Gross increases tax positions in prior period
|
44 | 78 | 295 | |||||||||
Gross decreases tax positions in prior period
|
(270 | ) | (432 | ) | (542 | ) | ||||||
Gross increases tax positions in current period
|
| 1 | 1 | |||||||||
Lapse of statute of limitations
|
(134 | ) | (100 | ) | (546 | ) | ||||||
Unrecognized tax benefits, ending balance
|
$ | 839 | $ | 1,199 | $ | 1,652 | ||||||
Estimated interest and penalties related to the underpayment of
income taxes are included in income tax expense and totaled less
than $0.1 million for fiscal 2009. Accrued interest and
penalties were approximately $0.2 million at each of
January 30, 2010 and January 31, 2009.
The Company files income tax returns in the U.S. federal
jurisdiction and multiple other state and local jurisdictions.
The Company is no longer subject to U.S. federal
examinations for years prior to 2006 and, with few exceptions,
is no longer subject to state and local examinations for years
before 2005. Our income tax returns for the 2007 and 2008 tax
F-16 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
years are currently under examination by the Internal Revenue
Service. We do not expect that the results of the examination
will have a material effect on our financial condition or
results of operations.
11. | STOCK COMPENSATION |
The Company accounts for stock-based compensation expense
according to the fair value method. The Company uses the
Black-Scholes option-pricing model to estimate the grant date
fair value of its recognized stock-based compensation expense.
Forfeitures are estimated at the date of grant based on
historical rates and reduce the compensation expense to be
recognized. The expected term of options granted is derived
primarily from historical data on employee exercises adjusted
for expected changes to option terms, if any. The risk-free
interest rate is based on the U.S. Treasury yield curve in
effect at the date of grant. Expected volatility is based
primarily on the historical volatility of the Companys
stock. The Company records stock-based compensation expense
using the graded vesting method over the vesting period, which
is generally three to four years. The Companys stock-based
awards generally begin vesting one year after the grant date
and, for stock options, expire in seven to ten years or three
months after termination of employment with the Company. The
Companys stock-based compensation expense resulted from
awards of stock options, non-vested shares, and stock
appreciation rights, as well as from shares purchased under the
Companys employee share purchase plan.
For each of fiscal 2009, 2008 and 2007, the fair value of the
Companys stock-based compensation activity was determined
using the following weighted-average assumptions:
Fiscal Year | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Stock Options | ESPP | Stock Options | ESPP | Stock Options | ESPP | |||||||
Expected Option Life
|
4 years | 0.5 years | 4 years | 0.5 years | 4 years | 0.5 years | ||||||
Expected Stock Volatility
|
69.4% - 78.3% | 97.2% -130.0% | 40.3% - 63.5% | 45.4% - 57.0% | 34.7% - 37.9% | 31.9% - 45.4% | ||||||
Risk-free Interest Rates
|
1.5% - 2.0% | .33% - .48% | 1.2% - 3.0% | 2.1% - 3.2% | 3.1% - 4.9% | 3.2% - 5.0% | ||||||
Expected Dividends
|
None | None | None | None | None | None |
Stock Options There were no options exercised
in fiscal 2009. The total intrinsic value of options exercised
during fiscal 2008 and 2007 were $0.4 million and
$2 million, respectively.
At January 30, 2010, outstanding incentive and nonqualified
options had exercise prices ranging from $1.20 to $28.90 per
share, with an average exercise price of $9.54 per share, and
generally begin vesting one year after the grant date. Options
generally vest over three or four years. The options generally
expire seven or ten years from the date of grant or three months
after employment or services are terminated.
At January 30, 2010, incentive and nonqualified options to
purchase 3,783,728 shares were outstanding and
4,192,469 shares were available for future grant under the
Companys stock compensation plans. During fiscal 2009,
2008 and 2007, the Company recognized tax benefits of
$2 million, $2 million and $0.3 million,
respectively, resulting from the exercise of certain
nonqualified stock options.
Under the Companys stock option plans, incentive and
nonqualified options have been granted to employees and
directors to purchase common stock at prices equal to the fair
value of the Companys shares at the respective grant
Table of Contents
dates. A summary of stock option (incentive and nonqualified)
activity under the Companys 2005 Performance Incentive
Plan for fiscal 2009 is presented below:
Weighted- |
|||||||||||
Weighted- |
Average |
Aggregate |
|||||||||
Average |
Remaining |
Intrinsic |
|||||||||
Exercise |
Contractual |
Value |
|||||||||
Stock Options | Shares | Price | Term (Yrs.) | ($000s) | |||||||
Outstanding at January 31, 2009
|
2,219,248 | $ | 18.57 | ||||||||
Granted
|
2,716,150 | 3.05 | |||||||||
Exercised
|
| 0.00 | |||||||||
Forfeited or expired
|
(1,151,670 | ) | 11.65 | ||||||||
Outstanding at January 30, 2010
|
3,783,728 | $ | 9.54 | 4.78 | $1,143 | ||||||
Vested and expected to vest at January 30, 2010
|
2,801,002 | $ | 11.52 | 4.21 | $750 | ||||||
Exercisable at January 30, 2010
|
1,181,556 | $ | 19.32 | 2.30 | $7 |
The weighted-average grant-date fair value per share of options
granted during each of fiscal 2009, 2008 and 2007 was $1.70,
$4.28 and $6.68, respectively. Additional information regarding
options outstanding as of January 30, 2010 is as follows:
Options Outstanding | Options Exercisable | |||||||||||
Weighted |
Weighted |
Weighted |
||||||||||
Average |
Average |
Average |
||||||||||
Number |
Remaining |
Exercise |
Number |
Exercise |
||||||||
Range of Exercise Prices | Outstanding | Contractual Life | Price | Exercisable | Price | |||||||
$ 1.20 $ 3.98
|
2,205,800 | 6.51 | $ | 3.27 | 3,000 | $ | 1.20 | |||||
3.98 7.26
|
11,953 | 1.27 | 7.26 | 11,953 | 7.26 | |||||||
7.26 9.49
|
121,965 | 3.49 | 8.99 | 76,590 | 8.88 | |||||||
9.49 12.69
|
66,790 | 2.19 | 12.09 | 66,790 | 12.09 | |||||||
12.69 18.67
|
425,332 | 2.29 | 13.66 | 212,274 | 13.97 | |||||||
18.67 23.98
|
686,892 | 2.21 | 20.65 | 546,087 | 20.89 | |||||||
23.98 28.90
|
264,996 | 2.36 | 25.96 | 264,862 | 25.96 | |||||||
$ 1.20 $28.90
|
3,783,728 | 4.78 | $ | 9.54 | 1,181,556 | $ | 19.32 | |||||
Non-vested Shares A summary of the status of
the Companys non-vested shares as of January 30,
2010, and changes during the year then ended, is presented
below. Non-vested shares contain a time-based restriction as to
vesting. These awards generally vest over four years with 25% of
the grant vesting each year on the anniversary of the grant date.
Weighted-Average |
||||||||
Grant-Date |
||||||||
Non-vested Shares | Shares | Fair Value | ||||||
Outstanding at January 31, 2009
|
577,971 | $ | 15.85 | |||||
Granted
|
304,506 | 2.48 | ||||||
Vested
|
(214,692 | ) | 13.02 | |||||
Forfeited or expired
|
(186,245 | ) | 11.79 | |||||
Outstanding at January 30, 2010
|
481,540 | $ | 10.23 | |||||
F-18 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
Non-vested Share Units A summary of
non-vested share units activity under the Companys 2005
Performance Incentive Plan for fiscal 2009 is presented below:
Weighted- |
||||||||||||
Average |
Aggregate |
|||||||||||
Remaining |
Intrinsic |
|||||||||||
Contractual |
Value |
|||||||||||
Non-vested Share Units | Shares | Term (Yrs.) | ($000s) | |||||||||
Outstanding at January 31, 2009
|
100,000 | |||||||||||
Granted
|
186,480 | |||||||||||
Released
|
| |||||||||||
Forfeited
|
| |||||||||||
Outstanding at January 30, 2010
|
286,480 | 0.33 | $ | 1,008 | ||||||||
Vested and expected to vest at January 30, 2010
|
271,226 | 0.21 | $ | 955 | ||||||||
Exercisable at January 30, 2010
|
| 0.00 | $ | |
At January 30, 2010, the Company had approximately
$6 million of compensation cost related to non-vested stock
option, non-vested share awards and non-vested share units not
yet recognized. This compensation expense is expected to be
recognized over a weighted-average period of approximately
3.0 years.
Employee Stock Purchase Plan
(ESPP) The Company maintains an
ESPP, which provides a method for Company employees to
voluntarily purchase Company common stock at a 10% discount from
fair market value as of the beginning or the end of each
six-month purchasing period, whichever is lower. The ESPP covers
substantially all employees, excluding executives, who have
three months of service with the Company. The ESPP is intended
to constitute an employee stock purchase plan within
the meaning of Section 423 of the Internal Revenue Code of
1986, as amended. The Company recognized $0.3 million,
$0.1 million and $0.2 million in compensation expense
related to the ESPP for each of fiscal 2009, 2008 and 2007,
respectively. In fiscal 2009, 2008 and 2007, 378,378, 218,851
and 65,825 shares were issued at an average price of $1.92,
$2.97 and $14.69, respectively, under the ESPP.
12. | COMMITMENTS AND CONTINGENCIES |
Operating Leases The Company leases its
retail stores and certain equipment under operating lease
agreements expiring at various dates through February 2021.
Substantially all of the Companys retail store leases
require the Company to pay common area maintenance charges,
insurance, property taxes and percentage rent ranging from 2% to
20% when sales volumes exceed certain minimum sales levels. The
initial terms of such leases are typically ten years, and many
of such leases contain renewal options exercisable at the
Companys discretion. Most leases also contain rent
escalation clauses that come into effect at various times
throughout the lease term. Rent expense is recorded under the
straight-line method over the life of the lease (see
Straight-Line Rent in Note 1). Other rent
escalation clauses can take effect based on changes in primary
mall tenants throughout the term of a given lease. Most leases
also contain cancellation or kick-out clauses in the
Companys favor that relieve the Company of any future
obligation under a lease if specified sales levels or mall
occupancy targets are not achieved by a specified date. None of
the Companys retail store leases contain purchase options.
Table of Contents
As of January 30, 2010, minimum future rental commitments
under non-cancelable operating leases were as follows (in
thousands):
Fiscal year ending:
|
||||
January 29, 2011
|
$ | 92,995 | ||
February 3, 2012
|
83,149 | |||
February 2, 2013
|
71,781 | |||
February 2, 2014
|
61,547 | |||
January 31, 2015
|
53,695 | |||
Thereafter
|
121,013 | |||
Total future operating lease commitments
|
$ | 484,180 | ||
The table above does not include common area maintenance (CAM)
charges, which are also a required contractual obligation under
the Companys store operating leases. In many of the
Companys leases, CAM charges are not fixed and can
fluctuate significantly from year to year for any particular
store. For fiscal 2009, 2008, and 2007, store rental expenses,
including CAM, for our stores were $164 million,
$165 million, and $158 million, respectively, of which
$4 million, $4 million and $5 million,
respectively, was paid as percentage rent based on sales volume.
The Company expects total CAM expenses to continue to increase
from year to year or as long-term leases come up for renewal at
current market rates in excess of original lease terms.
Litigation The Company is involved from time
to time in litigation incidental to its business. The Company
believes that the outcome of current litigation will not likely
have a material adverse effect on its results of operations or
financial condition and, from time to time, the Company may make
provisions for probable litigation losses. Depending on the
actual outcome of pending litigation, charges in excess of any
provisions could be recorded in the future, which may have an
adverse effect on its operating results.
Indemnities, Commitments, and Guarantees
During its normal course of business, the Company has made
certain indemnities, commitments and guarantees under which it
may be required to make payments in relation to certain
transactions. These indemnities include those given to various
lessors in connection with facility leases for certain claims
arising from such facility or lease and indemnities to directors
and officers of the Company to the maximum extent permitted
under the laws of the State of California. The duration of these
indemnities, commitments and guarantees varies, and in certain
cases, is indefinite. The majority of these indemnities,
commitments and guarantees do not provide for any limitation of
the maximum potential future payments the Company could be
obligated to make. The Company has not recorded any liability
for these indemnities, commitments and guarantees in the
accompanying consolidated balance sheets other than as disclosed
below.
Letters of Credit The Company has issued
guarantees in the form of commercial letters of credit, of which
there were approximately $9 million outstanding at
January 30, 2010, as security for merchandise shipments
from overseas. All in-transit merchandise covered by letters of
credit is accrued for in accounts payable.
13. | RETIREMENT PLANS |
The Company maintains an Executive Deferred Compensation Plan
(the Executive Plan) covering Company officers that
is funded by participant contributions and periodic Company
discretionary contributions. Vested participant balances are
included in other long-term liabilities and were approximately
$2 million and $4 million as of January 30, 2010
and January 31, 2009, respectively. The Company made no
contributions to the Executive Plan during fiscal 2009, and
$0.1 million in each of fiscal 2008 and 2007.
The Company also maintains an Employee Savings Plan (the
401(k) Plan). The 401(k) Plan is a defined
contribution plan covering substantially all employees who have
reached age 21. The 401(k) Plan is funded by participant
F-20 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
contributions and Company matching contributions. The Company
made contributions to the 401(k) Plan, net of forfeitures, of
approximately $1 million for fiscal 2009 and
$1.5 million for each of fiscal 2008 and 2007.
14. | SEGMENT REPORTING |
The Company operates exclusively in the retail apparel industry
in which the Company distributes, designs and produces clothing
and related products catering to teens and young adults through
its primarily mall-based PacSun retail stores. The Company has
identified three operating segments: PacSun stores, PacSun
Outlet stores and pacsun.com. The three operating segments have
been aggregated into one reportable segment based on the similar
nature of products sold, production, merchandising and
distribution processes involved, target customers, and economic
characteristics among the three operating segments.
15. | DISCONTINUED OPERATIONS |
Financial results of the Companys former demo and One
Thousand Steps concepts are reported as loss from
discontinued operations (net of tax effects) in the
consolidated statements of operations and comprehensive
operations due to the designation of these operations as
discontinued operations during the first quarter of fiscal 2008
and the fourth quarter of fiscal 2007, respectively. During
fiscal 2007, the Company closed 74 demo stores which specialized
in fashion-focused streetwear apparel as well as its nine-store
One Thousand Steps (OTS) footwear concept, which was
originally launched in April 2006 and discontinued in January
2008. Subsequently in the first quarter of fiscal 2008, the
Company closed its remaining 153 demo stores. The determination
to take this action resulted from a comprehensive review and
evaluation of the real estate portfolio and profit performance
of the Companys demo and OTS stores and after having
exhausted other strategic alternatives.
Total actual cash payments made during fiscal 2008 associated
with the discontinuation of demo were approximately
$58 million. A tabular reconciliation of the charges
incurred, payments made, and reconciling adjustments made during
fiscal 2008 to account for the discontinuation of demo is set
forth below in millions:
Lease |
Employee |
|||||||||||||||
Termination |
Retention and |
Agency |
||||||||||||||
Costs | Severance Costs | Fees | Total | |||||||||||||
Liability at February 2,
2008(1)
|
$ | 4.0 | $ | 3.4 | $ | | $ | 7.4 | ||||||||
Cash payments
|
(47.8 | ) | (6.0 | ) | (4.0 | ) | (57.8 | ) | ||||||||
Charges to expense
|
45.7 | 2.8 | 4.0 | 52.5 | ||||||||||||
Adjustments to
liability(2)
|
(1.9 | ) | (0.2 | ) | | (2.1 | ) | |||||||||
Liability at January 31, 2009
|
$ | | $ | | $ | | $ | | ||||||||
(1) In January 2008, the Company announced its intent to
discontinue the demo business. Amounts accrued at
February 2, 2008 represent charges incurred during the
fourth quarter of fiscal 2007 for stores already closed and
severance charges communicated to employees prior to the end of
fiscal 2007.
(2) Adjustments to the demo liquidation liabilities were based
on settlement amounts that differed from the original estimate
as a result of good faith negotiations with individual landlords
and actual performance of the liquidation process.
No further cash payments related to the discontinuation of demo
are expected. All charges incurred in the discontinuation of
demo are included in the financial results of the discontinued
operations disclosed above within this note.
The operating results of the discontinued operations are
summarized as follows:
(In thousands, except per share amounts) |
January 30, |
January 31, |
February 2, |
|||||||||
Fiscal Year Ended | 2010 | 2009 | 2008 | |||||||||
Net sales
|
$ | | $ | 27,051 | $ | 153,697 | ||||||
Loss before income tax benefit
|
$ | | $ | (40,683 | ) | $ | (125,512 | ) | ||||
Income tax benefit
|
$ | | $ | (16,106 | ) | $ | (49,338 | ) | ||||
Loss from discontinued operations
|
$ | | $ | (24,577 | ) | $ | (76,174 | ) | ||||
Loss from discontinued operations per diluted share
|
$ | | $ | (0.37 | ) | $ | (1.09 | ) |
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16. | QUARTERLY FINANCIAL DATA (UNAUDITED) |
The table below presents summarized quarterly financial results
on a continuing operations basis for each of fiscal 2009 and
2008. The Company designated its former demo store
concept as a discontinued operation during the first quarter of
fiscal 2008 ended May 3, 2008 (see Note 15).
Accordingly, the information presented below excludes the
operating impact of demo for all periods. All amounts in the
table below are expressed in thousands of dollars, except for
share and per share amounts:
First |
Second |
Third |
Fourth |
|||||||||||||
FISCAL YEAR ENDED JANUARY 30, 2010: | Quarter | Quarter | Quarter | Quarter | ||||||||||||
Net sales
|
$ | 223,465 | $ | 242,794 | $ | 268,280 | $ | 292,562 | ||||||||
Gross margin
|
61,274 | 57,708 | 73,441 | 66,180 | ||||||||||||
Operating loss
|
(8,743 | ) | (14,155 | ) | (10,905 | ) | (36,499 | ) | ||||||||
Net loss
|
(8,743 | ) | (14,155 | ) | (10,905 | ) | (36,499 | ) | ||||||||
Loss per share
|
(0.13 | ) | (0.22 | ) | (0.17 | ) | (0.56 | ) | ||||||||
Weighted average shares outstanding
|
65,207,991 | 65,370,465 | 65,563,721 | 65,629,371 | ||||||||||||
FISCAL YEAR ENDED JANUARY 31,
2009:
|
||||||||||||||||
Net sales
|
$ | 266,867 | $ | 312,726 | $ | 323,612 | $ | 351,681 | ||||||||
Gross margin
|
75,465 | 95,258 | 92,776 | 56,608 | ||||||||||||
(Loss)/income from continuing operations
|
(11,969 | ) | 3,708 | (3,520 | ) | (27,464 | ) | |||||||||
Net (loss)/income
|
(37,102 | ) | 2,796 | (2,474 | ) | (27,042 | ) | |||||||||
(Loss)/income from continuing operations per share, diluted
|
(0.17 | ) | 0.06 | (0.05 | ) | (0.42 | ) | |||||||||
Net (loss)/income per share, diluted
|
(0.53 | ) | 0.04 | (0.04 | ) | (0.42 | ) | |||||||||
Weighted average shares outstanding, diluted
|
69,915,802 | 66,704,159 | 64,968,707 | 65,059,597 |
Earnings per basic and diluted share are computed independently
for each of the quarters presented based on diluted shares
outstanding per quarter and, therefore, may not sum to the
totals for the year. Additionally, the sum of the four quarterly
amounts for any line item may not agree to the fiscal year total
in the consolidated financial statements due to rounding.
F-22 Pacific
Sunwear of California, Inc. Form 10-K 2009
Table of Contents
INDEX TO
EXHIBITS
Incorporated by Reference | ||||||||||||
Exhibit # | Exhibit Description | Form | Filing Date | |||||||||
3 | .1 | Third Amended and Restated Articles of Incorporation of the Company | 10-Q | 8/31/04 | ||||||||
3 | .2 | Certificate of Determination of Preferences of Series A Junior Participating Preferred Stock of the Company | 8-K | 12/24/98 | ||||||||
3 | .3 | Fifth Amended and Restated Bylaws of the Company | 8-K | 4/3/09 | ||||||||
4 | .1 | Specimen stock certificate | S-1 | 2/4/93 | ||||||||
10 | .1* | Form of Indemnity Agreement between the Company and each of its executive officers and directors | S-1 | 2/4/93 | ||||||||
10 | .2* | Pacific Sunwear of California, Inc. Executive Deferred Compensation Plan and Trust Agreement | 10-K | 3/17/95 | ||||||||
10 | .3* | Pacific Sunwear of California, Inc. Executive Deferred Compensation Plan, as amended and restated effective May 30, 2001 | 10-K | 4/1/09 | ||||||||
10 | .4* | Pacific Sunwear of California, Inc. Executive Deferred Compensation Plan, as amended and restated effective December 31, 2008 (subject to section 409A deferrals) | 10-K | 4/1/09 | ||||||||
10 | .5* | Amended and Restated Pacific Sunwear of California, Inc. 1999 Stock Award Plan dated March 24, 2004 | 10-Q | 5/21/04 | ||||||||
10 | .6* | Pacific Sunwear of California, Inc. 2005 Performance Incentive Plan | 8-K | 5/24/05 | ||||||||
10 | .7* | Amended and Restated Pacific Sunwear of California, Inc. Employee Stock Purchase Plan dated November 17, 2004 | 10-Q | 12/9/04 | ||||||||
10 | .8* | Form of Performance-Based Bonus Award Agreement | 10-Q | 12/9/04 | ||||||||
10 | .9* | Form of Notice of Director Stock Appreciation Right Award Agreement | 8-K | 5/23/06 | ||||||||
10 | .10* | Form of Notice of Employee Stock Appreciation Right Award Agreement | 8-K | 5/23/06 | ||||||||
10 | .11* | Form of Notice of Employee Restricted Stock Award Agreement | 8-K | 5/23/06 | ||||||||
10 | .12* | Pacific Sunwear of California, Inc. Executive Severance Plan, as amended and restated as of November 20, 2008 | 10-K | 4/1/09 | ||||||||
10 | .13* | Employment Agreement, dated April 1, 2005 between the Company and Thomas M. Kennedy | 10-K | 4/12/05 | ||||||||
10 | .14* | Amendment No. 1, dated December 14, 2006, to the Employment Agreement between the Company and Thomas M. Kennedy | 8-K | 12/18/06 | ||||||||
10 | .15* | Amendment No. 2, dated September 28, 2007, to the Employment Agreement between the Company and Thomas M. Kennedy | 10-Q | 12/3/07 | ||||||||
10 | .16* | Employment Separation and General Release Agreement between the Company and Thomas M. Kennedy, dated as of December 12, 2008 | 8-K | 12/15/08 | ||||||||
10 | .17* | Employment Agreement, dated as of May 22, 2007, between the Company and Sally Frame Kasaks | 8-K | 5/23/07 | ||||||||
10 | .18* | Amendment No. 1, effective December 31, 2008, to the Employment Agreement and Restricted Stock Unit Award Agreement between the Company and Sally Frame Kasaks | 10-K | 4/1/09 | ||||||||
10 | .19* | Form of Stock Appreciation Rights Agreement between the Company and Sally Frame Kasaks | 8-K | 5/23/07 | ||||||||
10 | .20* | Form of Restricted Stock Unit Award Agreement between the Company and Sally Frame Kasaks | 8-K | 5/23/07 | ||||||||
10 | .21* | Employment Agreement, dated as of June 16, 2009, between the Company and Gary H. Schoenfeld | 8-K | 6/17/09 | ||||||||
10 | .22* | Letter Agreement, dated as of June 16, 2009 between the Company and Sally Frame Kasaks | 8-K | 6/17/09 | ||||||||
10 | .23*+ | Summary of Board of Directors Compensation for fiscal 2010 | ||||||||||
10 | .24*+ | Summary of Named Executive Officers Annual Compensation for fiscal 2010 |
Table of Contents
Incorporated by Reference | ||||||||||||
Exhibit # | Exhibit Description | Form | Filing Date | |||||||||
10 | .25 | Credit Agreement, dated as of April 29, 2008, with JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, BB&T Company, U.S. Bank National Association and Wells Fargo Foothill, Inc., as Co-Documentation Agents, and J.P. Morgan Securities Inc. and Banc of America Securities LLC, as Joint Bookrunners and Joint Lead Arrangers, and a syndicate of other lenders | 8-K | 5/2/08 | ||||||||
10 | .26 | Security Agreement, dated as of April 29, 2008, by the Company, Pacific Sunwear Stores Corp., Miraloma Corp., and certain future subsidiaries of the Company, and JPMorgan Chase Bank, N.A., as Administrative Agent | 8-K | 5/2/08 | ||||||||
10 | .27 | First Amendment to Credit Agreement, dated as of August 1, 2008, with JPMorgan Chase Bank, N.A., as Administrative Agent, and a syndicate of other lenders | 10-Q | 8/29/08 | ||||||||
10 | .28 | Trust Indenture, dated as of July 17, 2007, between the City of Olathe, Kansas and U.S. Bank National Association, as Trustee | 8-K | 7/23/07 | ||||||||
10 | .29 | Lease Agreement, dated as of July 17, 2007, between the City of Olathe, Kansas and Pacific Sunwear Stores Corp. | 8-K | 7/23/07 | ||||||||
21 | .1+ | Subsidiaries of the Registrant | ||||||||||
23 | .1+ | Consent of Independent Registered Public Accounting Firm | ||||||||||
31 | .1+ | Written statements of Gary H. Schoenfeld and Michael L. Henry pursuant to section 302 of the Sarbanes-Oxley Act of 2002 | ||||||||||
32 | .1+ | Written statement of Gary H. Schoenfeld and Michael L. Henry pursuant to section 906 of the Sarbanes-Oxley Act of 2002 |
* Management contract or compensatory plan or arrangement
+ Filed herewith