Attached files
file | filename |
---|---|
EX-32.1 - EX-32.1 - COLLECTIVE BRANDS, INC. | c60797exv32w1.htm |
EX-31.2 - EX-31.2 - COLLECTIVE BRANDS, INC. | c60797exv31w2.htm |
EXCEL - IDEA: XBRL DOCUMENT - COLLECTIVE BRANDS, INC. | Financial_Report.xls |
EX-32.2 - EX-32.2 - COLLECTIVE BRANDS, INC. | c60797exv32w2.htm |
EX-31.1 - EX-31.1 - COLLECTIVE BRANDS, INC. | c60797exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 30, 2010
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-14770
COLLECTIVE BRANDS, INC.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation of organization) |
43-1813160 (I.R.S. Employer Identification No.) |
|
3231 Southeast Sixth Avenue, Topeka, Kansas (Address of principal executive offices) |
66607-2207 (Zip Code) |
(785) 233-5171
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). YES
þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer
o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the
Exchange Act). YES o NO þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
Common Stock, $.01 par value
62,378,805 shares as of November 23, 2010
62,378,805 shares as of November 23, 2010
COLLECTIVE BRANDS, INC.
FORM 10-Q
FOR THE FISCAL QUARTER ENDED OCTOBER 30, 2010
INDEX
FORM 10-Q
FOR THE FISCAL QUARTER ENDED OCTOBER 30, 2010
INDEX
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Certification pursuant to Section 302 of the CEO, President and Chairman of the Board |
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Certification pursuant to Section 302 of the Division SVP, CFO and Treasurer |
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Certification pursuant to Section 906 of the CEO, President and Chairman of the Board |
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Certification pursuant to Section 906 of the Division SVP, CFO and Treasurer |
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EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
2
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COLLECTIVE BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(dollars and shares in millions, except per share)
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(dollars and shares in millions, except per share)
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
October 30, | October 31, | October 30, | October 31, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net sales |
$ | 881.8 | $ | 867.0 | $ | 2,601.9 | $ | 2,566.2 | ||||||||
Cost of sales |
552.6 | 555.2 | 1,646.9 | 1,668.9 | ||||||||||||
Gross margin |
329.2 | 311.8 | 955.0 | 897.3 | ||||||||||||
Selling, general and administrative expenses |
260.4 | 250.8 | 767.9 | 743.5 | ||||||||||||
Operating profit from continuing operations |
68.8 | 61.0 | 187.1 | 153.8 | ||||||||||||
Interest expense |
12.0 | 14.8 | 37.6 | 46.4 | ||||||||||||
Interest income |
(0.3 | ) | (0.2 | ) | (0.6 | ) | (1.0 | ) | ||||||||
Loss on early extinguishment of debt |
0.5 | | 1.3 | | ||||||||||||
Net earnings from continuing operations before income taxes |
56.6 | 46.4 | 148.8 | 108.4 | ||||||||||||
Provision for income taxes |
6.4 | 8.2 | 20.6 | 13.1 | ||||||||||||
Net earnings from continuing operations |
50.2 | 38.2 | 128.2 | 95.3 | ||||||||||||
Loss from discontinued operations, net of income taxes |
| (0.1 | ) | | (0.2 | ) | ||||||||||
Net earnings |
50.2 | 38.1 | 128.2 | 95.1 | ||||||||||||
Net earnings attributable to noncontrolling interests |
(2.6 | ) | (1.2 | ) | (5.3 | ) | (1.5 | ) | ||||||||
Net earnings attributable to Collective Brands, Inc. |
$ | 47.6 | $ | 36.9 | $ | 122.9 | $ | 93.6 | ||||||||
Basic earnings per share attributable to Collective
Brands, Inc.
common shareholders: |
||||||||||||||||
Earnings per share from continuing operations |
$ | 0.75 | $ | 0.58 | $ | 1.92 | $ | 1.47 | ||||||||
Earnings per share from discontinued operations |
| | | | ||||||||||||
Basic earnings per share attributable to Collective
Brands, Inc.
common shareholders |
$ | 0.75 | $ | 0.58 | $ | 1.92 | $ | 1.47 | ||||||||
Diluted earnings per share attributable to Collective
Brands, Inc.
common shareholders: |
||||||||||||||||
Earnings per share from continuing operations |
$ | 0.75 | $ | 0.57 | $ | 1.90 | $ | 1.46 | ||||||||
Earnings per share from discontinued operations |
| | | | ||||||||||||
Diluted earnings per share attributable to Collective
Brands, Inc.
common shareholders |
$ | 0.75 | $ | 0.57 | $ | 1.90 | $ | 1.46 | ||||||||
Basic weighted average shares outstanding |
62.2 | 63.2 | 63.0 | 63.1 | ||||||||||||
Diluted weighted average shares outstanding |
62.6 | 63.7 | 63.8 | 63.3 |
See Notes to Condensed Consolidated Financial Statements.
3
Table of Contents
COLLECTIVE BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollars in millions)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollars in millions)
October 30, | October 31, | January 30, | ||||||||||
2010 | 2009 | 2010 | ||||||||||
ASSETS |
||||||||||||
Current Assets: |
||||||||||||
Cash and cash equivalents |
$ | 358.3 | $ | 470.7 | $ | 393.5 | ||||||
Accounts receivable, net of allowance for doubtful accounts
and returns reserve as of October 30, 2010, October 31, 2009
and January 30, 2010 of $5.5, $5.0 and $5.5, respectively |
111.4 | 82.9 | 95.5 | |||||||||
Inventories |
492.5 | 403.2 | 442.9 | |||||||||
Current deferred income taxes |
36.0 | 32.2 | 42.1 | |||||||||
Prepaid expenses |
55.3 | 49.8 | 48.9 | |||||||||
Other current assets |
20.7 | 26.3 | 21.7 | |||||||||
Current assets of discontinued operations |
| 0.7 | 0.5 | |||||||||
Total current assets |
1,074.2 | 1,065.8 | 1,045.1 | |||||||||
Property and Equipment: |
||||||||||||
Land |
6.7 | 7.0 | 7.0 | |||||||||
Property, buildings and equipment |
1,432.0 | 1,415.7 | 1,403.1 | |||||||||
Accumulated depreciation and amortization |
(999.8 | ) | (949.0 | ) | (945.9 | ) | ||||||
Property and equipment, net |
438.9 | 473.7 | 464.2 | |||||||||
Intangible assets, net |
432.8 | 431.3 | 445.5 | |||||||||
Goodwill |
279.8 | 280.1 | 279.8 | |||||||||
Deferred income taxes |
8.4 | 5.8 | 6.5 | |||||||||
Other assets |
40.1 | 42.4 | 43.2 | |||||||||
Total Assets |
$ | 2,274.2 | $ | 2,299.1 | $ | 2,284.3 | ||||||
LIABILITIES AND EQUITY |
||||||||||||
Current Liabilities: |
||||||||||||
Current maturities of long-term debt |
$ | 5.5 | $ | 7.1 | $ | 6.9 | ||||||
Notes payable |
| 0.9 | | |||||||||
Accounts payable |
216.1 | 140.2 | 195.9 | |||||||||
Accrued expenses |
187.8 | 194.5 | 181.8 | |||||||||
Current liabilities of discontinued operations |
| 1.7 | 1.3 | |||||||||
Total current liabilities |
409.4 | 344.4 | 385.9 | |||||||||
Long-term debt |
700.2 | 882.5 | 842.4 | |||||||||
Deferred income taxes |
70.8 | 55.2 | 65.5 | |||||||||
Other liabilities |
217.7 | 248.0 | 226.3 | |||||||||
Noncurrent liabilities of discontinued operations |
| 0.3 | 0.3 | |||||||||
Commitments and contingencies (Note 11) |
||||||||||||
Equity: |
||||||||||||
Collective Brands, Inc. shareowners equity |
846.9 | 741.7 | 735.2 | |||||||||
Noncontrolling interests |
29.2 | 27.0 | 28.7 | |||||||||
Total equity |
876.1 | 768.7 | 763.9 | |||||||||
Total Liabilities and Equity |
$ | 2,274.2 | $ | 2,299.1 | $ | 2,284.3 | ||||||
See Notes to Condensed Consolidated Financial Statements.
4
Table of Contents
COLLECTIVE BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
AND COMPREHENSIVE INCOME
(UNAUDITED)
(dollars in millions)
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
AND COMPREHENSIVE INCOME
(UNAUDITED)
(dollars in millions)
Collective Brands, Inc. Shareowners | ||||||||||||||||||||||||||||
Outstanding | Additional | Accumulated Other | Non- | |||||||||||||||||||||||||
Common | Paid-in | Retained | Comprehensive | controlling | Comprehensive | |||||||||||||||||||||||
Stock | Capital | Earnings | Loss | Interests | Total | Income | ||||||||||||||||||||||
Balance at January 31, 2009 |
$ | 0.7 | $ | 17.8 | $ | 639.4 | $ | (35.6 | ) | $ | 23.7 | $ | 646.0 | |||||||||||||||
Net earnings |
| | 93.6 | | 1.5 | 95.1 | $ | 95.1 | ||||||||||||||||||||
Translation adjustments |
| | | 9.0 | 0.5 | 9.5 | 9.5 | |||||||||||||||||||||
Net change in fair value of derivatives,
net of taxes of $1.6 |
| | | 2.6 | | 2.6 | 2.6 | |||||||||||||||||||||
Changes in unrecognized amounts of
pension benefits, net of taxes of $1.2 |
| | | 1.8 | | 1.8 | 1.8 | |||||||||||||||||||||
Issuances of common stock under stock plans |
| 2.9 | | | | 2.9 | ||||||||||||||||||||||
Purchases of common stock |
| (2.3 | ) | | | | (2.3 | ) | ||||||||||||||||||||
Amortization of unearned nonvested shares |
| 3.6 | | | | 3.6 | ||||||||||||||||||||||
Stock option expense |
| 8.2 | | | | 8.2 | ||||||||||||||||||||||
Contributions from noncontrolling interests |
| | | | 5.5 | 5.5 | ||||||||||||||||||||||
Distributions to noncontrolling interests |
| | | | (4.2 | ) | (4.2 | ) | ||||||||||||||||||||
Comprehensive income |
109.0 | |||||||||||||||||||||||||||
Comprehensive income attributable to
noncontrolling interests |
(2.0 | ) | ||||||||||||||||||||||||||
Comprehensive income attributable to
Collective Brands, Inc. |
$ | 107.0 | ||||||||||||||||||||||||||
Balance at October 31, 2009 |
$ | 0.7 | $ | 30.2 | $ | 733.0 | $ | (22.2 | ) | $ | 27.0 | $ | 768.7 | |||||||||||||||
Balance at January 30, 2010 |
$ | 0.7 | $ | 34.7 | $ | 722.1 | $ | (22.3 | ) | $ | 28.7 | $ | 763.9 | |||||||||||||||
Net earnings |
| | 122.9 | | 5.3 | 128.2 | $ | 128.2 | ||||||||||||||||||||
Translation adjustments |
| | | 6.0 | 1.1 | 7.1 | 7.1 | |||||||||||||||||||||
Net change in fair value of derivatives,
net of taxes of $2.7 |
| | | 3.4 | | 3.4 | 3.4 | |||||||||||||||||||||
Changes in unrecognized amounts of
pension benefits, net of taxes of $0.9 |
| | | 1.4 | | 1.4 | 1.4 | |||||||||||||||||||||
Issuances of common stock under stock plans |
| 8.5 | | | | 8.5 | ||||||||||||||||||||||
Purchases of common stock |
| (42.9 | ) | | | | (42.9 | ) | ||||||||||||||||||||
Amortization of unearned nonvested shares |
| 6.1 | | | | 6.1 | ||||||||||||||||||||||
Stock option expense |
| 6.3 | | | | 6.3 | ||||||||||||||||||||||
Contributions from noncontrolling interests |
| | | | 2.5 | 2.5 | ||||||||||||||||||||||
Distributions to noncontrolling interests |
| | | | (8.4 | ) | (8.4 | ) | ||||||||||||||||||||
Comprehensive income |
140.1 | |||||||||||||||||||||||||||
Comprehensive income attributable to
noncontrolling interests |
(6.4 | ) | ||||||||||||||||||||||||||
Comprehensive income attributable to
Collective Brands, Inc. |
$ | 133.7 | ||||||||||||||||||||||||||
Balance at October 30, 2010 |
$ | 0.7 | $ | 12.7 | $ | 845.0 | $ | (11.5 | ) | $ | 29.2 | $ | 876.1 | |||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
5
Table of Contents
COLLECTIVE BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in millions)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in millions)
39 Weeks Ended | ||||||||
October 30, | October 31, | |||||||
2010 | 2009 | |||||||
Operating Activities: |
||||||||
Net earnings |
$ | 128.2 | $ | 95.1 | ||||
Loss from discontinued operations, net of income taxes |
| 0.2 | ||||||
Adjustments for non-cash items included in net earnings: |
||||||||
Loss on impairment and disposal of assets |
9.4 | 8.3 | ||||||
Depreciation and amortization |
103.9 | 107.5 | ||||||
Provision for losses on accounts receivable |
1.2 | 2.1 | ||||||
Share-based compensation expense |
12.7 | 12.5 | ||||||
Deferred income taxes |
6.8 | 2.4 | ||||||
Loss on early extinguishment of debt |
1.3 | | ||||||
Other, net |
| (0.1 | ) | |||||
Changes in working capital: |
||||||||
Accounts receivable |
(16.9 | ) | 14.4 | |||||
Inventories |
(47.2 | ) | 92.9 | |||||
Prepaid expenses and other current assets |
(2.9 | ) | 17.2 | |||||
Accounts payable |
19.2 | (32.3 | ) | |||||
Accrued expenses |
1.6 | (3.9 | ) | |||||
Changes in other assets and liabilities, net |
(3.9 | ) | (11.2 | ) | ||||
Contributions to pension plans |
| (2.5 | ) | |||||
Net cash provided by discontinued operations |
| 0.2 | ||||||
Cash flow provided by operating activities |
213.4 | 302.8 | ||||||
Investing Activities: |
||||||||
Capital expenditures |
(67.3 | ) | (61.2 | ) | ||||
Cash flow used in investing activities |
(67.3 | ) | (61.2 | ) | ||||
Financing Activities: |
||||||||
Proceeds from notes payable |
| 0.9 | ||||||
Repayment of debt |
(143.9 | ) | (23.9 | ) | ||||
Issuances of common stock |
8.5 | 2.9 | ||||||
Purchases of common stock |
(42.9 | ) | (2.3 | ) | ||||
Contributions by noncontrolling interests |
2.5 | 5.5 | ||||||
Distribution to noncontrolling interests |
(8.4 | ) | (4.2 | ) | ||||
Cash flow used in financing activities |
(184.2 | ) | (21.1 | ) | ||||
Effect of exchange rate changes on cash |
2.9 | 0.9 | ||||||
(Decrease) increase in cash and cash equivalents |
(35.2 | ) | 221.4 | |||||
Cash and cash equivalents, beginning of year |
393.5 | 249.3 | ||||||
Cash and cash equivalents, end of quarter |
$ | 358.3 | $ | 470.7 | ||||
Supplemental cash flow information: |
||||||||
Interest paid |
$ | 40.2 | $ | 49.5 | ||||
Income taxes paid |
$ | 10.4 | $ | 11.7 | ||||
Non-cash investing and financing activities: |
||||||||
Accrued capital additions |
$ | 16.3 | $ | 11.0 |
See Notes to Condensed Consolidated Financial Statements.
6
Table of Contents
COLLECTIVE BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 Interim Results
These unaudited Condensed Consolidated Financial Statements of Collective Brands, Inc., a Delaware
corporation, and subsidiaries (the Company) have been prepared in accordance with the
instructions to Form 10-Q of the United States Securities and Exchange Commission (SEC) and
should be read in conjunction with the Notes to the Consolidated Financial Statements (pages
62-108) in the Companys 2009 Annual Report on Form 10-K. Certain information and footnote
disclosures normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, these unaudited Condensed Consolidated Financial
Statements are fairly presented and all adjustments (consisting only of normal recurring
adjustments) necessary for a fair statement of the results for the interim periods have been
included; however, certain items included in these statements are based upon estimates for the
entire year. The Condensed Consolidated Balance Sheet as of January 30, 2010 has been derived from
the audited financial statements at that date.
Payless ShoeSource, Inc.s operations in the Central and South American Regions are operated as
consolidated joint ventures in which the Company maintains a 60% ownership interest. The reporting
period for operations in the Central and South American Regions is a December 31 year-end. The
Central American Region is comprised of operations in Costa Rica, the Dominican Republic, El
Salvador, Guatemala, Honduras, Nicaragua, Panama and Trinidad & Tobago. The South American Region
is comprised of operations in Colombia and Ecuador. The effects of the one-month lag for the
operations in the Central and South American Regions are not significant to the Companys financial
position and results of operations. All intercompany amounts have been eliminated. The results
for the thirty-nine week period ended October 30, 2010 are not necessarily indicative of the
results that may be expected for the entire fifty-two week fiscal year ending January 29, 2011.
Note 2 Intangible Assets and Goodwill
The following is a summary of the Companys intangible assets:
October 30, | October 31, | January 30, | ||||||||||
(dollars in millions) | 2010 | 2009 | 2010 | |||||||||
Intangible assets subject to amortization: |
||||||||||||
Favorable lease rights: |
||||||||||||
Gross carrying amount |
$ | 27.3 | $ | 32.5 | $ | 30.4 | ||||||
Less: accumulated amortization |
(21.3 | ) | (23.6 | ) | (22.2 | ) | ||||||
Carrying amount, end of period |
6.0 | 8.9 | 8.2 | |||||||||
Customer relationships: |
||||||||||||
Gross carrying amount |
74.4 | 76.3 | 76.3 | |||||||||
Less: accumulated amortization |
(42.7 | ) | (32.9 | ) | (36.5 | ) | ||||||
Carrying amount, end of period |
31.7 | 43.4 | 39.8 | |||||||||
Trademarks and other intangible assets: |
||||||||||||
Gross carrying amount |
38.5 | 19.4 | 38.5 | |||||||||
Less: accumulated amortization |
(8.9 | ) | (5.9 | ) | (6.5 | ) | ||||||
Carrying amount, end of period |
29.6 | 13.5 | 32.0 | |||||||||
Total carrying amount of intangible
assets subject to amortization |
67.3 | 65.8 | 80.0 | |||||||||
Indefinite-lived trademarks |
365.5 | 365.5 | 365.5 | |||||||||
Total intangible assets |
$ | 432.8 | $ | 431.3 | $ | 445.5 | ||||||
Amortization expense on intangible assets is as follows:
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
October 30, | October 31, | October 30, | October 31, | |||||||||||||
(dollars in millions) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Amortization expense on intangible assets |
$ | 3.9 | $ | 4.6 | $ | 12.3 | $ | 13.9 |
7
Table of Contents
The Company expects amortization expense for the next five years to be as follows (dollars in
millions):
Year | Amount | |||
Remainder of 2010 |
$ | 4.0 | ||
2011 |
13.6 | |||
2012 |
11.1 | |||
2013 |
9.6 | |||
2014 |
8.2 |
The following is a summary of the carrying amount of goodwill, by reporting segment:
October 30, | October 31, | January 30, | ||||||||||
(dollars in millions) | 2010 | 2009 | 2010 | |||||||||
PLG Wholesale |
$ | 239.6 | $ | 239.9 | $ | 239.6 | ||||||
Payless Domestic |
40.2 | 40.2 | 40.2 | |||||||||
Total |
$ | 279.8 | $ | 280.1 | $ | 279.8 | ||||||
During the 13 weeks ended October 30, 2010, the Company performed its required annual goodwill
and indefinite-lived intangible asset impairment tests and concluded there was no impairment of
goodwill or indefinite-lived intangible assets.
Note 3 Long-Term Debt
The following is a summary of the Companys long-term debt and capital lease obligations
outstanding:
October 30, | October 31, | January 30, | ||||||||||
(dollars in millions) | 2010 | 2009 | 2010 | |||||||||
Term Loan Facility (1) |
$ | 530.8 | $ | 693.1 | $ | 673.4 | ||||||
Senior Subordinated Notes (2) |
174.0 | 195.5 | 173.7 | |||||||||
Revolving Loan Facility (3) |
| | | |||||||||
Capital-lease obligations |
0.9 | 1.0 | 1.0 | |||||||||
Other |
| | 1.2 | |||||||||
Total debt |
705.7 | 889.6 | 849.3 | |||||||||
Less: current maturities of long-term debt |
5.5 | 7.1 | 6.9 | |||||||||
Long-term debt |
$ | 700.2 | $ | 882.5 | $ | 842.4 | ||||||
(1) | As of October 30, 2010, October 31, 2009 and January 30, 2010, the fair value of the Companys Term Loan was $517.5 million, $661.9 million and $653.2 million, respectively, based on market conditions and perceived risks as of those dates. | |
(2) | As of October 30, 2010, October 31, 2009 and January 30, 2010, the fair value of the Companys senior subordinated notes was $178.3 million, $199.0 million and $178.5 million, respectively, based on trading activity as of those dates. | |
(3) | As of October 30, 2010, the Companys borrowing base on its revolving loan facility was $323.1 million less $29.2 million in outstanding letters of credit, or $293.9 million. The variable interest rate, including the applicable variable margin at October 30, 2010, was 1.16%. |
As of October 30, 2010, the Company was in compliance with all of its debt covenants related
to its outstanding debt.
Note 4 Derivatives
In 2007, the Company entered into an interest rate contract for an initial amount of $540 million
to hedge a portion of its variable rate $725 million term loan facility (interest rate contract).
The interest rate contract provides for a fixed interest rate of approximately 7.75%, portions of
which mature on a series of dates through 2012. As of October 30, 2010, the Company has hedges
remaining on $245 million of its $530.8 million outstanding Term Loan Facility balance.
The Company has also entered into a series of forward contracts to hedge a portion of certain
foreign currency purchases (foreign currency contracts). The foreign currency contracts provide
for a fixed exchange rate and mature over a series of dates through January 2011. As of October
30, 2010, the Company has hedged $9.0 million of its forecasted foreign currency purchases.
The interest rate and foreign currency contracts are designated as cash flow hedging instruments.
The change in the fair value of the interest rate and foreign currency contracts are recorded as a
component of accumulated other comprehensive income (AOCI) and reclassified into earnings in the
periods in which earnings are impacted by the hedged item. The following table presents the fair
value of the Companys hedging portfolio related to its interest rate contract and foreign currency
contracts:
8
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Fair Value | ||||||||||||||
Location on Condensed | October 30, | October 31, | January 30, | |||||||||||
(dollars in millions) | Consolidated Balance Sheet | 2010 | 2009 | 2010 | ||||||||||
Interest rate contract
|
Other liabilities | $ | 2.6 | $ | 17.1 | $ | 5.4 | |||||||
Interest rate contract
|
Accrued expenses | $ | 6.6 | $ | | $ | 10.0 | |||||||
Foreign currency contracts
|
Accrued expenses | $ | 0.2 | $ | 0.2 | $ | 0.1 | |||||||
Foreign currency contracts
|
Other current assets | $ | 0.1 | $ | | $ | 0.1 |
It is the Companys policy to enter into derivative instruments with terms that match the
underlying exposure being hedged. As such, the Companys derivative instruments are considered
highly effective, and the net gain or loss from hedge ineffectiveness is not significant.
Realized gains or losses on the hedging instruments occur when a portion of the hedge settles
or if it is probable that the forecasted transaction will not occur. The impact of the derivative
instruments on the Condensed Consolidated Financial Statements is as follows:
Loss Recognized in AOCI on | Loss Reclassified from AOCI into | |||||||||||||||||
Derivative | Earnings | |||||||||||||||||
13 Weeks Ended | Location on Condensed | 13 Weeks Ended | ||||||||||||||||
October 30, | October 31, | Consolidated Statement of | October 30, | October 31, | ||||||||||||||
(dollars in millions) | 2010 | 2009 | Earnings | 2010 | 2009 | |||||||||||||
Interest rate contract
|
$ | (0.9 | ) | $ | (1.9 | ) | Interest expense | $ | (1.8 | ) | $ | (2.5 | ) | |||||
Foreign currency contracts
|
$ | | $ | | Cost of sales | $ | (0.1 | ) | $ | (0.3 | ) |
Loss Recognized in AOCI on | Loss Reclassified from AOCI into | |||||||||||||||||
Derivative | Earnings | |||||||||||||||||
39 Weeks Ended | Location on Condensed | 39 Weeks Ended | ||||||||||||||||
October 30, | October 31, | Consolidated Statement of | October 30, | October 31, | ||||||||||||||
(dollars in millions) | 2010 | 2009 | Earnings | 2010 | 2009 | |||||||||||||
Interest rate contract
|
$ | (2.1 | ) | $ | (4.4 | ) | Interest expense | $ | (5.8 | ) | $ | (7.1 | ) | |||||
Foreign currency contracts
|
$ | (0.5 | ) | $ | (0.5 | ) | Cost of sales | $ | (0.2 | ) | $ | (0.4 | ) |
The Company expects $6.6 million of the fair value of the interest rate contract and $0.1
million of the fair value of the foreign currency contracts recorded in AOCI to be recognized in
earnings during the next 12 months. These amounts may vary based on changes to LIBOR and foreign
currency exchange rates.
Note 5 Fair Value Measurements
The Companys estimates of fair value for financial assets and financial liabilities are based on
the framework established in the fair value accounting guidance. The framework is based on the
inputs used in the valuation, gives the highest priority to quoted prices in active markets, and
requires that observable inputs be used in the valuations when available. The three levels of the
hierarchy are as follows:
Level 1: observable inputs such as quoted prices in active markets
Level 2: inputs other than the quoted prices in active markets that are observable either
directly or indirectly
Level 3: unobservable inputs in which there is little or no market data, which requires the
Company to develop its own assumptions
9
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The following table presents financial assets and financial liabilities that the Company measures
at fair value on a recurring basis. The Company has classified these financial assets and
liabilities in accordance with the fair value hierarchy:
Estimated Fair Value Measurements | ||||||||||||||||
Significant | ||||||||||||||||
Quoted Prices in | Significant | Unobservable | ||||||||||||||
Active Markets | Observable Other | Inputs | ||||||||||||||
(dollars in millions) | (Level 1) | Inputs (Level 2) | (Level 3) | Total Fair Value | ||||||||||||
As of October 30, 2010: |
||||||||||||||||
Financial assets: |
||||||||||||||||
Money market funds |
$ | 239.3 | $ | | $ | | $ | 239.3 | ||||||||
Foreign currency contracts(2) |
$ | | $ | 0.1 | $ | | $ | 0.1 | ||||||||
Financial liabilities: |
||||||||||||||||
Interest rate contract(1) |
$ | | $ | 9.2 | $ | | $ | 9.2 | ||||||||
Foreign currency contracts(2) |
$ | | $ | 0.2 | $ | | $ | 0.2 | ||||||||
As of October 31, 2009: |
||||||||||||||||
Financial Assets: |
||||||||||||||||
Money market funds |
$ | 365.9 | $ | | $ | | $ | 365.9 | ||||||||
Financial Liabilities: |
||||||||||||||||
Interest rate contract(1) |
$ | | $ | 17.1 | $ | | $ | 17.1 | ||||||||
Foreign currency contracts(2) |
$ | | $ | 0.2 | $ | | $ | 0.2 | ||||||||
As of January 30, 2010: |
||||||||||||||||
Financial Assets: |
||||||||||||||||
Money market funds |
$ | 301.3 | $ | | $ | | $ | 301.3 | ||||||||
Foreign currency contracts(2) |
$ | | $ | 0.1 | $ | | $ | 0.1 | ||||||||
Financial Liabilities: |
||||||||||||||||
Interest rate contract(1) |
$ | | $ | 15.4 | $ | | $ | 15.4 | ||||||||
Foreign currency contracts(2) |
$ | | $ | 0.1 | $ | | $ | 0.1 |
(1) | The fair value of the interest rate contract is determined using a mark-to-market valuation technique based on an observable interest rate yield curve and adjusting for credit risk. | |
(2) | The fair value of the foreign currency contracts are determined using a mark-to-market technique based on observable foreign currency exchange rates and adjusting for credit risk. |
Note 6 Pension Plans
The Company has a pension plan that covers a select group of management employees (Payless Plan)
and a pension plan that covers certain PLG employees (PLG Plan). To calculate pension expense,
the Company uses assumptions to estimate the total benefits ultimately payable to each management
employee and allocates this cost to service periods.
Payless Plan
The Payless Plan is a nonqualified, supplementary account balance defined benefit plan for a select
group of management employees. The plan is an unfunded, noncontributory plan. The components of
pension expense for the plan were:
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
October 30, | October 31, | October 30, | October 31, | |||||||||||||
(dollars in millions) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Components of pension expense: |
||||||||||||||||
Service cost |
$ | 0.2 | $ | 0.2 | $ | 0.5 | $ | 0.5 | ||||||||
Interest cost |
0.5 | 0.6 | 1.5 | 1.8 | ||||||||||||
Amortization of prior service cost |
0.4 | 0.4 | 1.2 | 1.2 | ||||||||||||
Amortization of actuarial loss |
0.3 | 0.1 | 1.0 | 0.4 | ||||||||||||
Amount recognized due to settlement |
2.2 | | 2.2 | | ||||||||||||
Total |
$ | 3.6 | $ | 1.3 | $ | 6.4 | $ | 3.9 | ||||||||
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PLG Plan
The PLG Plan is a noncontributory defined benefit pension plan, which no longer accrues future
benefits, that covers certain eligible PLG associates. The components of pension expense for the
plan were:
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
October 30, | October 31, | October 30, | October 31, | |||||||||||||
(dollars in millions) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Components of pension expense: |
||||||||||||||||
Interest cost |
$ | 1.1 | $ | 1.1 | $ | 3.4 | $ | 3.3 | ||||||||
Expected return on net assets |
(1.2 | ) | (0.9 | ) | (3.7 | ) | (2.7 | ) | ||||||||
Amortization of actuarial loss |
0.3 | 0.5 | 1.0 | 1.4 | ||||||||||||
Total |
$ | 0.2 | $ | 0.7 | $ | 0.7 | $ | 2.0 | ||||||||
11
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Note 7 Share-Based Compensation
Under its equity incentive plans, the Company may grant share appreciation vehicles consisting of
stock options, stock-settled stock appreciation rights (stock-settled SARs), full value vehicles
consisting of nonvested shares and phantom stock units (nonvested shares and share units), as
well as cash-settled stock appreciation rights (cash-settled SARs).
The number of shares for grants made in the thirteen and thirty-nine weeks ended October 30, 2010
and October 31, 2009 are as follows:
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||||||||||||||||||
October 30, | October 31, | October 30, | October 31, | |||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||||||
Maximum | Maximum | Maximum | Maximum | |||||||||||||||||||||||||||||
Share | share | Share | Share | Share | share | Share | Share | |||||||||||||||||||||||||
units | equivalents | units | equivalents | units | equivalents | units | equivalents | |||||||||||||||||||||||||
Stock-settled SARs(1): |
||||||||||||||||||||||||||||||||
Vest in installments over 3 years |
6,907 | 3,837 | 2,834 | 1,889 | 731,001 | 406,112 | 1,477,387 | 984,925 | ||||||||||||||||||||||||
Cliff vest after 3 years |
3,102 | 1,723 | 53,891 | 35,927 | 15,302 | 8,501 | 516,591 | 344,394 |
(1) | All of the stock-settled SARs issued by the Company in 2010 contain an appreciation cap, which limits the appreciation for which shares of common stock will be granted to 125% of the fair market value of the underlying common stock on the grant date of the SAR. For 2010, this means that the maximum shares issuable under a SAR is 0.56 shares per SAR. Prior to 2010, the appreciation cap was 200%, meaning that the maximum shares issuable under a SAR was 0.67 shares per SAR. |
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
October 30, | October 31, | October 30, | October 31, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Nonvested shares and share units: |
||||||||||||||||
Vest in installments over 3 years |
6,391 | 1,000 | 323,427 | 338,303 | ||||||||||||
Vest in installments over 2 years |
| | 77,231 | | ||||||||||||
Cliff vest after 3 years |
46,017 | 2,015 | 46,017 | 2,015 | ||||||||||||
Performance grant vest in installments over 3 years(2) |
| | 77,227 | | ||||||||||||
Phantom nonvested shares vest in installments over 3 years |
1,845 | | 19,878 | 15,074 | ||||||||||||
Cash-settled SARs: |
||||||||||||||||
Vest in installments over 3 years |
1,995 | | 21,492 | 50,150 | ||||||||||||
Cliff vest after 3 years |
| | | 3,500 |
(2) | Certain nonvested shares are subject to a performance condition for vesting. The performance grant vests only if the performance condition is met. As of October 30, 2010, the Company has assessed the likelihood that the performance condition will be met and has recorded the related expense based on the estimated outcome. |
The total fair value of share grants for the thirteen and thirty-nine weeks ended October 30,
2010 is $0.8 million and $17.9 million, respectively. The total fair value of share grants for the
thirteen and thirty-nine weeks ended October 31, 2009 is $0.4 million and $11.0 million,
respectively.
Total share-based compensation expense is summarized as follows:
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
October 30, | October 31, | October 30, | October 31, | |||||||||||||
(dollars in millions, except per share amounts) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Cost of sales |
$ | 1.0 | $ | 0.9 | $ | 3.2 | $ | 3.1 | ||||||||
Selling, general and administrative expenses |
2.8 | 2.8 | 9.5 | 9.4 | ||||||||||||
Share-based compensation expense before income taxes |
3.8 | 3.7 | 12.7 | 12.5 | ||||||||||||
Tax benefit |
(1.4 | ) | (1.4 | ) | (4.8 | ) | (4.8 | ) | ||||||||
Share-based compensation expense after income taxes |
$ | 2.4 | $ | 2.3 | $ | 7.9 | $ | 7.7 | ||||||||
Included in total share based compensation expense for the thirty-nine weeks ended October 30,
2010 is $3.4 million of expense that was recognized as a result of the grants made in 2010. No
amount of share-based compensation was capitalized. As of October 30, 2010, the Company had
unrecognized compensation expense related to nonvested awards of $22.1 million, which is expected
to be recognized over a weighted average period of 1.0 years.
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Note 8 Income Taxes
The Companys effective income tax rate on continuing operations was 13.8% during the thirty-nine
weeks ended October 30, 2010, compared to 12.1% during the thirty-nine weeks ended October 31,
2009. The Companys effective income tax rate on continuing operations was 11.3% during the
thirteen weeks ended October 30, 2010, compared to 17.7% during the thirteen weeks ended October
31, 2009. The Company recorded $6.2 million of favorable discrete events in the thirty-nine weeks
ended October 30, 2010 and $4.3 million of favorable discrete events in the thirty-nine weeks ended
October 31, 2009. The Company expects its effective tax rate to differ from the U.S. statutory
rate principally due to the impact of its operations conducted in jurisdictions with rates lower
than the U.S. statutory rate and the on-going implementation of tax efficient business initiatives.
The unfavorable difference in the overall effective tax rate for 2010 compared to 2009 is due to
an increase in the proportion of pre-tax income generated in relatively high tax rate
jurisdictions, partially offset by a net increase in favorable discrete events.
The Company has unrecognized tax benefits, inclusive of related interest and penalties, of $59.7
million and $66.7 million as of October 30, 2010 and October 31, 2009, respectively. The portion
of the unrecognized tax benefits that would impact the effective income tax rate if recognized is
$24.3 million and $40.6 million, respectively.
The Company anticipates that it is reasonably possible that the total amount of unrecognized tax
benefits at October 30, 2010 will decrease by up to $36.8 million within the next twelve months.
To the extent these tax benefits are recognized, the effective rate would be favorably impacted in
the period of recognition by up to $4.1 million. The potential reduction primarily relates to
potential settlements of on-going examinations with tax authorities and the potential lapse of the
statutes of limitations in relevant tax jurisdictions.
The Companys U.S. federal income tax returns have been examined by the Internal Revenue Service
through 2007. The Company also has various state and foreign income tax returns in the process of
examination or administrative appeal.
Note 9 Earnings Per Share
Basic earnings per share are computed by dividing net earnings available to common shareholders by
the weighted average number of shares of common stock outstanding during the period. Diluted
earnings per share includes the effect of conversions of stock options and stock-settled stock
appreciation rights. Earnings per share has been computed as follows:
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
October 30, | October 31, | October 30, | October 31, | |||||||||||||
(dollars in millions, except per share amounts; shares in thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Net earnings attributable to Collective Brands, Inc. from continuing
operations |
$ | 47.6 | $ | 37.0 | $ | 122.9 | $ | 93.8 | ||||||||
Less: net earnings allocated to participating securities(1) |
0.8 | 0.5 | 2.0 | 1.2 | ||||||||||||
Net earnings available to common shareholders from continuing
operations |
$ | 46.8 | $ | 36.5 | $ | 120.9 | $ | 92.6 | ||||||||
Weighted average shares outstanding basic |
62,188 | 63,188 | 63,036 | 63,120 | ||||||||||||
Net effect of dilutive stock options |
3 | 183 | 172 | 61 | ||||||||||||
Net effect of dilutive stock-settled SARs |
375 | 286 | 583 | 98 | ||||||||||||
Weighted average shares outstanding diluted |
62,566 | 63,657 | 63,791 | 63,279 | ||||||||||||
Basic
earnings per share attributable to common shareholders from continuing operations |
$ | 0.75 | $ | 0.58 | $ | 1.92 | $ | 1.47 | ||||||||
Diluted
earnings per share attributable to common shareholders from continuing operations |
$ | 0.75 | $ | 0.57 | $ | 1.90 | $ | 1.46 |
(1) | Net earnings allocated to participating securities is calculated based upon a weighted average percentage of participating securities in relation to total shares outstanding. |
The Company excluded approximately 5.1 million and 3.8 million stock options and stock-settled
SARs from the calculation of diluted earnings per share for the thirteen and thirty-nine weeks
ended October 30, 2010 and approximately 3.7 million and 5.5 million stock options and
stock-settled SARs from the calculation of diluted earnings per share for the thirteen and
thirty-nine weeks ended October 31, 2009 because to include them would have been antidilutive.
Note 10 Segment Reporting
The Company has four reporting segments: (i) Payless Domestic, (ii) Payless International, (iii)
PLG Wholesale and (iv) PLG Retail. The Company has defined its reporting segments as follows:
(i) | The Payless Domestic reporting segment is comprised primarily of domestic retail stores under the Payless ShoeSource name, the Companys sourcing unit and Collective Licensing. |
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(ii) | The Payless International reporting segment is comprised of international retail stores under the Payless ShoeSource name in Canada, the South American Region, the Central American Region, Puerto Rico, and the U.S. Virgin Islands, as well as franchising arrangements under the Payless ShoeSource name. |
(iii) | The PLG Wholesale reporting segment consists of PLGs global wholesale operations. |
(iv) | The PLG Retail reporting segment consists of PLGs owned Stride Rite Childrens stores, PLGs outlet stores, store-in-stores at Macys Department Stores and Sperry Top-Sider retail stores. |
Payless Internationals operations in the Central American and South American Regions are operated
as joint ventures in which the Company maintains a 60% ownership interest. Noncontrolling interest
represents the Companys joint venture partners share of net earnings or losses on applicable
international operations. Certain management costs for services performed by Payless Domestic and
certain royalty fees and sourcing fees charged by Payless Domestic are allocated to the Payless
International segment. These total costs and fees amounted to $9.4 million and $9.2 million for
the thirteen weeks ended October 30, 2010 and October 31, 2009, respectively, and $27.3 million and
$26.3 million for the thirty-nine weeks ended October 30, 2010 and October 31, 2009, respectively.
The reporting period for operations in the Central and South American Regions use a December 31
year-end. The effect of this one-month lag on the Companys financial position and results of
operations is not significant. All intercompany amounts have been eliminated. Information on the
reporting segments is as follows:
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
October 30, | October 31, | October 30, | October 31, | |||||||||||||
(dollars in millions) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Reporting segment revenues from external
customers: |
||||||||||||||||
Payless Domestic |
$ | 548.9 | $ | 578.1 | $ | 1,603.5 | $ | 1,695.7 | ||||||||
Payless International |
118.5 | 110.0 | 328.3 | 298.5 | ||||||||||||
PLG Wholesale |
141.6 | 111.6 | 489.7 | 398.1 | ||||||||||||
PLG Retail |
72.8 | 67.3 | 180.4 | 173.9 | ||||||||||||
Total revenues from external customers |
$ | 881.8 | $ | 867.0 | $ | 2,601.9 | $ | 2,566.2 | ||||||||
Reporting segment operating profit from
continuing operations: |
||||||||||||||||
Payless Domestic |
$ | 35.3 | $ | 44.5 | $ | 91.4 | $ | 110.8 | ||||||||
Payless International |
19.1 | 11.2 | 37.8 | 17.4 | ||||||||||||
PLG Wholesale |
7.3 | 0.1 | 53.5 | 21.7 | ||||||||||||
PLG Retail |
7.1 | 5.2 | 4.4 | 3.9 | ||||||||||||
Total operating profit from continuing operations |
$ | 68.8 | $ | 61.0 | $ | 187.1 | $ | 153.8 | ||||||||
October 30, | October 31, | January 30, | ||||||||||
(dollars in millions) | 2010 | 2009 | 2010 | |||||||||
Reporting segment total assets: |
||||||||||||
Payless Domestic |
$ | 1,113.3 | $ | 1,216.4 | $ | 1,151.1 | ||||||
Payless International |
238.2 | 193.4 | 201.5 | |||||||||
PLG Wholesale |
854.4 | 821.3 | 866.3 | |||||||||
PLG Retail |
68.3 | 68.0 | 65.4 | |||||||||
Reporting segment total assets |
$ | 2,274.2 | $ | 2,299.1 | $ | 2,284.3 | ||||||
Note 11 Commitments and Contingencies
There are no pending legal proceedings other than ordinary, routine litigation incidental to the
business to which the Company is a party or of which its property is subject, none of which the
Company expects to have a material impact on its financial position, results of operations or cash
flows.
American Eagle Outfitters and Retail Royalty Co. v. Payless ShoeSource, Inc.
On or about April 20, 2007, a Complaint was filed against the Company in the U.S. District Court
for the Eastern District of New York, captioned American Eagle Outfitters and Retail Royalty Co.
(AEO) v. Payless ShoeSource, Inc. (Payless ShoeSource). The Complaint sought injunctive relief
and unspecified monetary damages for false advertising, trademark infringement, unfair competition,
false description, false designation of origin, breach of contract, injury to business reputation,
deceptive trade practices, and to void or nullify an agreement between the Company and third party
Jimlar Corporation. On November 1, 2010, the Company and its subsidiary, Payless ShoeSource,
announced that AEO and Payless ShoeSource entered into a settlement agreement that resolves their
dispute regarding ownership and use of the AMERICAN EAGLE and related trademarks. Under the terms
of the settlement, AEO will own the trademarks at issue. Payless ShoeSource and the Company will
have the paid-up right to continue to sell their AMERICAN EAGLE line of shoes and bags of their
design and manufacture at Payless stores and on the website Payless.com. AMERICAN EAGLE OUTFITTERS
shoes and bags will continue to be sold at American Eagle Outfitters stores and on its website
AE.com.
14
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Note 12 Impact of Recently Issued Accounting Standards
In June 2009, the FASB issued revised guidance for consolidation of the variable interest entity
(VIE). The revised guidance, which is now part of ASC 810, Consolidation, changed the
accounting rules to improve financial reporting by enterprises involved with a VIE. Primarily, the
revision eliminates an existing provision that excludes certain special-purpose entities from
consolidation requirements and establishes principles-based criteria for determining whether a VIE
should be consolidated. The revised guidance was effective for fiscal years beginning after
November 15, 2009. The adoption of this revised guidance did not have a material effect on the
Companys Condensed Consolidated Financial Statements.
In January 2010, the FASB issued Accounting Standards Update No. 2010-06 Fair Value Measurements
and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (ASU No.
2010-06). This guidance requires additional disclosures for transfers in and out of Level 1 and
Level 2 fair value measurements, as well as fair value measurement disclosures for each class of
assets and liabilities in our Condensed Consolidated Balance Sheets. The Company adopted certain
provisions of this new guidance in the first quarter of 2010. Please refer to Note 5, Fair Value
Measurements for adopted disclosures. Certain provisions of ASU No. 2010-06 are effective for
fiscal years beginning after December 15, 2010. These provisions, which amended Subtopic 820-10,
will require the Company to present as separate line items all purchases, sales, issuances, and
settlements of financial instruments valued using significant unobservable inputs (Level 3) in the
reconciliation for fair value measurements, whereas currently these are presented in aggregate as
one line item. The Company does not believe the adoption of these provisions will have a material
impact on its Condensed Consolidated Financial Statements.
Note 13 Related Party Transactions
The Company maintains banking relationships with certain financial institutions that are affiliated
with some of the Companys Latin America joint venture partners. Total deposits in these financial
institutions as of October 30, 2010, October 31, 2009 and January 30, 2010 were $6.0 million, $5.6
million and $11.8 million, respectively. Total borrowings with these financial institutions as of
October 31, 2009 and January 30, 2010 were $0.9 million and $1.2 million, respectively. There were
no borrowings with these financial institutions as of October 30, 2010.
Note 14 Subsidiary Guarantors of Senior Notes Condensed Consolidating Financial
Information
The Company has issued Senior Subordinated Notes guaranteed by all of its domestic subsidiaries
(the Guarantor Subsidiaries). The Guarantor Subsidiaries are direct or indirect wholly owned
domestic subsidiaries of the Company. The guarantees are full and unconditional and joint and
several.
The following supplemental financial information sets forth, on a consolidating basis, the
Condensed Consolidating Statements of Earnings for the Company (the Parent Company), for the
Guarantor Subsidiaries and for the Companys Non-Guarantor Subsidiaries (the Non-guarantor
Subsidiaries) and Total Consolidated Collective Brands, Inc. and Subsidiaries for the thirteen
week and thirty-nine week periods ended October 30, 2010, and October 31, 2009, Condensed
Consolidating Balance Sheets as of October 30, 2010, October 31, 2009, and January 30, 2010, and
the Condensed Consolidating Statements of Cash Flows for the thirty-nine week periods ended October
30, 2010, and October 31, 2009. With the exception of operations in the Central and South American
Regions in which the Company has a 60% ownership interest, the Non-guarantor Subsidiaries are
direct or indirect wholly-owned subsidiaries of the Guarantor Subsidiaries. The equity investment
for each subsidiary is recorded by its parent within other assets.
The Non-guarantor Subsidiaries are made up of the Companys operations in the Central and South
American Regions, Canada, Mexico, Germany, the Netherlands, the United Kingdom, Ireland, Australia,
Bermuda, Saipan and Puerto Rico and the Companys sourcing organization in Hong Kong, Taiwan,
China, Vietnam, Indonesia and Brazil. The operations in the Central and South American Regions use
a December 31 year-end. Operations in the Central and South American Regions are included in the
Companys results on a one-month lag relative to results from other regions. The effect of this
one-month lag on the Companys financial position and results of operations is not significant.
Under the indenture governing the Notes, the Companys subsidiaries in Singapore are designated as
unrestricted subsidiaries. The effect of these subsidiaries on the Companys financial position
and results of operations and cash flows is not significant. The Companys subsidiaries in
Singapore are included in the Non-guarantor Subsidiaries.
15
Table of Contents
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
(UNAUDITED)
(dollars in millions)
(UNAUDITED)
(dollars in millions)
13 Weeks Ended October 30, 2010 | ||||||||||||||||||||
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | | $ | 787.0 | $ | 341.9 | $ | (247.1 | ) | $ | 881.8 | |||||||||
Cost of sales |
| 525.1 | 249.3 | (221.8 | ) | 552.6 | ||||||||||||||
Gross margin |
| 261.9 | 92.6 | (25.3 | ) | 329.2 | ||||||||||||||
Selling, general and administrative expenses |
0.9 | 223.8 | 61.0 | (25.3 | ) | 260.4 | ||||||||||||||
Operating (loss) profit from continuing operations |
(0.9 | ) | 38.1 | 31.6 | | 68.8 | ||||||||||||||
Interest expense |
12.8 | 8.1 | | (8.9 | ) | 12.0 | ||||||||||||||
Interest income |
| (9.2 | ) | | 8.9 | (0.3 | ) | |||||||||||||
Loss on early extinguishment of debt |
| 0.5 | | | 0.5 | |||||||||||||||
Equity in earnings of subsidiaries |
(56.4 | ) | (26.1 | ) | | 82.5 | | |||||||||||||
Earnings from continuing operations before income
taxes |
42.7 | 64.8 | 31.6 | (82.5 | ) | 56.6 | ||||||||||||||
(Benefit) provision for income taxes |
(4.9 | ) | 8.4 | 2.9 | | 6.4 | ||||||||||||||
Net earnings |
47.6 | 56.4 | 28.7 | (82.5 | ) | 50.2 | ||||||||||||||
Net earnings attributable to noncontrolling interests |
| | (2.6 | ) | | (2.6 | ) | |||||||||||||
Net earnings attributable to Collective Brands, Inc. |
$ | 47.6 | $ | 56.4 | $ | 26.1 | $ | (82.5 | ) | $ | 47.6 | |||||||||
39 Weeks Ended October 30, 2010 | ||||||||||||||||||||
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | | $ | 2,295.0 | $ | 1,072.2 | $ | (765.3 | ) | $ | 2,601.9 | |||||||||
Cost of sales |
| 1,535.8 | 806.9 | (695.8 | ) | 1,646.9 | ||||||||||||||
Gross margin |
| 759.2 | 265.3 | (69.5 | ) | 955.0 | ||||||||||||||
Selling, general and administrative expenses |
2.7 | 655.7 | 179.0 | (69.5 | ) | 767.9 | ||||||||||||||
Operating (loss) profit from continuing operations |
(2.7 | ) | 103.5 | 86.3 | | 187.1 | ||||||||||||||
Interest expense |
32.6 | 26.0 | 0.1 | (21.1 | ) | 37.6 | ||||||||||||||
Interest income |
| (21.6 | ) | (0.1 | ) | 21.1 | (0.6 | ) | ||||||||||||
Loss on early extinguishment of debt |
| 1.3 | | | 1.3 | |||||||||||||||
Equity in earnings of subsidiaries |
(145.7 | ) | (73.8 | ) | | 219.5 | | |||||||||||||
Earnings from continuing operations before income
taxes |
110.4 | 171.6 | 86.3 | (219.5 | ) | 148.8 | ||||||||||||||
(Benefit) provision for income taxes |
(12.5 | ) | 25.9 | 7.2 | | 20.6 | ||||||||||||||
Net earnings |
122.9 | 145.7 | 79.1 | (219.5 | ) | 128.2 | ||||||||||||||
Net earnings attributable to noncontrolling interests |
| | (5.3 | ) | | (5.3 | ) | |||||||||||||
Net earnings attributable to Collective Brands, Inc. |
$ | 122.9 | $ | 145.7 | $ | 73.8 | $ | (219.5 | ) | $ | 122.9 | |||||||||
16
Table of Contents
CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
(UNAUDITED)
(dollars in millions)
(UNAUDITED)
(dollars in millions)
13 Weeks Ended October 31, 2009 | ||||||||||||||||||||
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | | $ | 766.0 | $ | 297.7 | $ | (196.7 | ) | $ | 867.0 | |||||||||
Cost of sales |
| 519.1 | 205.2 | (169.1 | ) | 555.2 | ||||||||||||||
Gross margin |
| 246.9 | 92.5 | (27.6 | ) | 311.8 | ||||||||||||||
Selling, general and administrative expenses |
0.5 | 212.0 | 65.9 | (27.6 | ) | 250.8 | ||||||||||||||
Operating (loss) profit from continuing operations |
(0.5 | ) | 34.9 | 26.6 | | 61.0 | ||||||||||||||
Interest expense |
5.9 | 10.5 | | (1.6 | ) | 14.8 | ||||||||||||||
Interest income |
| (1.8 | ) | | 1.6 | (0.2 | ) | |||||||||||||
Equity in earnings of subsidiaries |
(41.0 | ) | (22.3 | ) | | 63.3 | | |||||||||||||
Earnings from continuing operations before income
taxes |
34.6 | 48.5 | 26.6 | (63.3 | ) | 46.4 | ||||||||||||||
(Benefit) provision for income taxes |
(2.3 | ) | 7.4 | 3.1 | | 8.2 | ||||||||||||||
Net earnings from continuing operations |
36.9 | 41.1 | 23.5 | (63.3 | ) | 38.2 | ||||||||||||||
Loss from discontinued operations, net of income
taxes |
| (0.1 | ) | | | (0.1 | ) | |||||||||||||
Net earnings |
36.9 | 41.0 | 23.5 | (63.3 | ) | 38.1 | ||||||||||||||
Net earnings attributable to noncontrolling interests |
| | (1.2 | ) | | (1.2 | ) | |||||||||||||
Net earnings attributable to Collective Brands, Inc. |
$ | 36.9 | $ | 41.0 | $ | 22.3 | $ | (63.3 | ) | $ | 36.9 | |||||||||
39 Weeks Ended October 31, 2009 | ||||||||||||||||||||
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | | $ | 2,298.9 | $ | 858.1 | $ | (590.8 | ) | $ | 2,566.2 | |||||||||
Cost of sales |
| 1,579.1 | 609.6 | (519.8 | ) | 1,668.9 | ||||||||||||||
Gross margin |
| 719.8 | 248.5 | (71.0 | ) | 897.3 | ||||||||||||||
Selling, general and administrative expenses |
1.6 | 633.1 | 179.8 | (71.0 | ) | 743.5 | ||||||||||||||
Operating (loss) profit from continuing operations |
(1.6 | ) | 86.7 | 68.7 | | 153.8 | ||||||||||||||
Interest expense |
18.6 | 33.3 | 0.1 | (5.6 | ) | 46.4 | ||||||||||||||
Interest income |
| (6.6 | ) | | 5.6 | (1.0 | ) | |||||||||||||
Equity in earnings of subsidiaries |
(106.6 | ) | (62.4 | ) | | 169.0 | | |||||||||||||
Earnings from continuing operations before income
taxes |
86.4 | 122.4 | 68.6 | (169.0 | ) | 108.4 | ||||||||||||||
(Benefit) provision for income taxes |
(7.2 | ) | 15.6 | 4.7 | | 13.1 | ||||||||||||||
Net earnings from continuing operations |
93.6 | 106.8 | 63.9 | (169.0 | ) | 95.3 | ||||||||||||||
Loss from discontinued operations, net of income
taxes |
| (0.2 | ) | | | (0.2 | ) | |||||||||||||
Net earnings |
93.6 | 106.6 | 63.9 | (169.0 | ) | 95.1 | ||||||||||||||
Net earnings attributable to noncontrolling interests |
| | (1.5 | ) | | (1.5 | ) | |||||||||||||
Net earnings attributable to Collective Brands, Inc. |
$ | 93.6 | $ | 106.6 | $ | 62.4 | $ | (169.0 | ) | $ | 93.6 | |||||||||
17
Table of Contents
CONDENSED CONSOLIDATING BALANCE SHEET
(UNAUDITED)
(dollars in millions)
(UNAUDITED)
(dollars in millions)
As of October 30, 2010 | |||||||||||||||||||||
Parent | Guarantor | Non-guarantor | |||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||
ASSETS |
|||||||||||||||||||||
Current Assets: |
|||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 195.9 | $ | 162.4 | $ | | $ | 358.3 | |||||||||||
Accounts receivable, net |
| 68.2 | 20.3 | 22.9 | 111.4 | ||||||||||||||||
Inventories |
| 394.7 | 105.8 | (8.0 | ) | 492.5 | |||||||||||||||
Current deferred income taxes |
| 30.6 | 5.4 | | 36.0 | ||||||||||||||||
Prepaid expenses |
23.3 | 19.3 | 12.7 | | 55.3 | ||||||||||||||||
Other current assets |
| 299.8 | 189.0 | (468.1 | ) | 20.7 | |||||||||||||||
Total current assets |
23.3 | 1,008.5 | 495.6 | (453.2 | ) | 1,074.2 | |||||||||||||||
Property and Equipment: |
|||||||||||||||||||||
Land |
| 6.7 | | | 6.7 | ||||||||||||||||
Property, buildings and equipment |
| 1,223.1 | 208.9 | | 1,432.0 | ||||||||||||||||
Accumulated depreciation and amortization |
| (861.9 | ) | (137.9 | ) | | (999.8 | ) | |||||||||||||
Property and equipment, net |
| 367.9 | 71.0 | | 438.9 | ||||||||||||||||
Intangible assets, net |
| 402.7 | 30.1 | | 432.8 | ||||||||||||||||
Goodwill |
| 142.9 | 136.9 | | 279.8 | ||||||||||||||||
Deferred income taxes |
| | 8.4 | | 8.4 | ||||||||||||||||
Other assets |
1,534.9 | 949.2 | 3.4 | (2,447.4 | ) | 40.1 | |||||||||||||||
Total Assets |
$ | 1,558.2 | $ | 2,871.2 | $ | 745.4 | $ | (2,900.6 | ) | $ | 2,274.2 | ||||||||||
LIABILITIES AND EQUITY |
|||||||||||||||||||||
Current Liabilities: |
|||||||||||||||||||||
Current maturities of long-term debt |
$ | | $ | 5.5 | $ | | $ | | $ | 5.5 | |||||||||||
Accounts payable |
| 131.0 | 209.7 | (124.6 | ) | 216.1 | |||||||||||||||
Accrued expenses |
71.2 | 411.8 | 28.6 | (323.8 | ) | 187.8 | |||||||||||||||
Total current liabilities |
71.2 | 548.3 | 238.3 | (448.4 | ) | 409.4 | |||||||||||||||
Long-term debt |
636.9 | 525.3 | 86.0 | (548.0 | ) | 700.2 | |||||||||||||||
Deferred income taxes |
| 69.2 | 1.6 | | 70.8 | ||||||||||||||||
Other liabilities |
3.2 | 198.6 | 16.4 | (0.5 | ) | 217.7 | |||||||||||||||
Commitments and contingencies |
|||||||||||||||||||||
Equity: |
|||||||||||||||||||||
Collective Brands, Inc. shareowners equity |
846.9 | 1,529.8 | 373.9 | (1,903.7 | ) | 846.9 | |||||||||||||||
Noncontrolling interests |
| | 29.2 | | 29.2 | ||||||||||||||||
Total equity |
846.9 | 1,529.8 | 403.1 | (1,903.7 | ) | 876.1 | |||||||||||||||
Total Liabilities and Equity |
$ | 1,558.2 | $ | 2,871.2 | $ | 745.4 | $ | (2,900.6 | ) | $ | 2,274.2 | ||||||||||
18
Table of Contents
CONDENSED CONSOLIDATING BALANCE SHEET
(UNAUDITED)
(dollars in millions)
(UNAUDITED)
(dollars in millions)
As of October 31, 2009 | ||||||||||||||||||||
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current Assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 364.0 | $ | 106.7 | $ | | $ | 470.7 | ||||||||||
Accounts receivable, net |
| 71.0 | 15.2 | (3.3 | ) | 82.9 | ||||||||||||||
Inventories |
| 323.0 | 84.2 | (4.0 | ) | 403.2 | ||||||||||||||
Current deferred income taxes |
| 27.8 | 4.4 | | 32.2 | |||||||||||||||
Prepaid expenses |
7.9 | 33.0 | 8.9 | | 49.8 | |||||||||||||||
Other current assets |
| 256.9 | 105.1 | (335.7 | ) | 26.3 | ||||||||||||||
Current assets of discontinued operations |
| 0.7 | | | 0.7 | |||||||||||||||
Total current assets |
7.9 | 1,076.4 | 324.5 | (343.0 | ) | 1,065.8 | ||||||||||||||
Property and Equipment: |
||||||||||||||||||||
Land |
| 7.0 | | | 7.0 | |||||||||||||||
Property, buildings and equipment |
| 1,221.6 | 194.1 | | 1,415.7 | |||||||||||||||
Accumulated depreciation and amortization |
| (825.0 | ) | (124.0 | ) | | (949.0 | ) | ||||||||||||
Property and equipment, net |
| 403.6 | 70.1 | | 473.7 | |||||||||||||||
Intangible assets, net |
| 411.0 | 20.3 | | 431.3 | |||||||||||||||
Goodwill |
| 142.1 | 138.0 | | 280.1 | |||||||||||||||
Deferred income taxes |
| | 5.8 | | 5.8 | |||||||||||||||
Other assets |
1,380.1 | 695.8 | 3.0 | (2,036.5 | ) | 42.4 | ||||||||||||||
Total Assets |
$ | 1,388.0 | $ | 2,728.9 | $ | 561.7 | $ | (2,379.5 | ) | $ | 2,299.1 | |||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||
Current maturities of long-term debt |
$ | | $ | 7.1 | $ | 5.2 | $ | (5.2 | ) | $ | 7.1 | |||||||||
Notes payable |
| | 0.9 | | 0.9 | |||||||||||||||
Accounts payable |
| 87.7 | 98.1 | (45.6 | ) | 140.2 | ||||||||||||||
Accrued expenses |
164.7 | 287.8 | 34.2 | (292.2 | ) | 194.5 | ||||||||||||||
Current liabilities of discontinued operations |
| 1.7 | | | 1.7 | |||||||||||||||
Total current liabilities |
164.7 | 384.3 | 138.4 | (343.0 | ) | 344.4 | ||||||||||||||
Long-term debt |
478.6 | 686.0 | 9.5 | (291.6 | ) | 882.5 | ||||||||||||||
Deferred income taxes |
| 53.5 | 1.7 | | 55.2 | |||||||||||||||
Other liabilities |
3.0 | 227.1 | 17.9 | | 248.0 | |||||||||||||||
Noncurrent liabilities of discontinued
operations |
| 0.3 | | | 0.3 | |||||||||||||||
Commitments and contingencies
Equity: |
||||||||||||||||||||
Collective Brands, Inc. shareowners equity |
741.7 | 1,377.7 | 367.2 | (1,744.9 | ) | 741.7 | ||||||||||||||
Noncontrolling interests |
| | 27.0 | | 27.0 | |||||||||||||||
Total equity |
741.7 | 1,377.7 | 394.2 | (1,744.9 | ) | 768.7 | ||||||||||||||
Total Liabilities and Equity |
$ | 1,388.0 | $ | 2,728.9 | $ | 561.7 | $ | (2,379.5 | ) | $ | 2,299.1 | |||||||||
19
Table of Contents
CONDENSED CONSOLIDATING BALANCE SHEET
(UNAUDITED)
(dollars in millions)
(UNAUDITED)
(dollars in millions)
As of January 30, 2010 | ||||||||||||||||||||
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 279.8 | $ | 113.7 | $ | | $ | 393.5 | ||||||||||
Accounts receivable, net |
| 85.7 | 17.5 | (7.7 | ) | 95.5 | ||||||||||||||
Inventories |
| 350.9 | 99.9 | (7.9 | ) | 442.9 | ||||||||||||||
Current deferred income taxes |
| 34.6 | 7.5 | | 42.1 | |||||||||||||||
Prepaid expenses |
10.8 | 28.5 | 9.6 | | 48.9 | |||||||||||||||
Other current assets |
| 263.4 | 120.6 | (362.3 | ) | 21.7 | ||||||||||||||
Current assets of discontinued operations |
| 0.5 | | | 0.5 | |||||||||||||||
Total current assets |
10.8 | 1,043.4 | 368.8 | (377.9 | ) | 1,045.1 | ||||||||||||||
Property and Equipment: |
||||||||||||||||||||
Land |
| 7.0 | | | 7.0 | |||||||||||||||
Property, buildings and equipment |
| 1,207.8 | 195.3 | | 1,403.1 | |||||||||||||||
Accumulated depreciation and amortization |
| (820.3 | ) | (125.6 | ) | | (945.9 | ) | ||||||||||||
Property and equipment, net |
| 394.5 | 69.7 | | 464.2 | |||||||||||||||
Intangible assets, net |
| 409.2 | 36.3 | | 445.5 | |||||||||||||||
Goodwill |
| 141.8 | 138.0 | | 279.8 | |||||||||||||||
Deferred income taxes |
| | 6.5 | | 6.5 | |||||||||||||||
Other assets |
1,377.7 | 733.5 | 2.7 | (2,070.7 | ) | 43.2 | ||||||||||||||
Total Assets |
$ | 1,388.5 | $ | 2,722.4 | $ | 622.0 | $ | (2,448.6 | ) | $ | 2,284.3 | |||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||
Current maturities of long-term debt |
$ | | $ | 6.9 | $ | | $ | | $ | 6.9 | ||||||||||
Accounts payable |
| 159.2 | 117.9 | (81.2 | ) | 195.9 | ||||||||||||||
Accrued expenses |
193.3 | 248.2 | 32.2 | (291.9 | ) | 181.8 | ||||||||||||||
Current liabilities of discontinued operations |
| 1.3 | | | 1.3 | |||||||||||||||
Total current liabilities |
193.3 | 415.6 | 150.1 | (373.1 | ) | 385.9 | ||||||||||||||
Long-term debt |
457.0 | 666.5 | 29.7 | (310.8 | ) | 842.4 | ||||||||||||||
Deferred income taxes |
| 63.6 | 1.9 | | 65.5 | |||||||||||||||
Other liabilities |
3.0 | 205.8 | 18.0 | (0.5 | ) | 226.3 | ||||||||||||||
Noncurrent liabilities of discontinued
operations |
| 0.3 | | | 0.3 | |||||||||||||||
Commitments and contingencies
Equity: |
||||||||||||||||||||
Collective Brands, Inc. shareowners equity |
735.2 | 1,370.6 | 393.6 | (1,764.2 | ) | 735.2 | ||||||||||||||
Noncontrolling interests |
| | 28.7 | | 28.7 | |||||||||||||||
Total equity |
735.2 | 1,370.6 | 422.3 | (1,764.2 | ) | 763.9 | ||||||||||||||
Total Liabilities and Equity |
$ | 1,388.5 | $ | 2,722.4 | $ | 622.0 | $ | (2,448.6 | ) | $ | 2,284.3 | |||||||||
20
Table of Contents
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(UNAUDITED)
(dollars in millions)
(UNAUDITED)
(dollars in millions)
39 Weeks Ended October 30, 2010 | ||||||||||||||||||||
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Operating Activities: |
||||||||||||||||||||
Net earnings |
$ | 122.9 | $ | 145.7 | $ | 79.1 | $ | (219.5 | ) | $ | 128.2 | |||||||||
Adjustments for non-cash items included in net earnings |
0.3 | 119.0 | 16.0 | | 135.3 | |||||||||||||||
Changes in working capital |
45.0 | (105.2 | ) | 14.0 | | (46.2 | ) | |||||||||||||
Other, net |
(133.8 | ) | (44.3 | ) | (45.3 | ) | 219.5 | (3.9 | ) | |||||||||||
Cash flow provided by operating activities |
34.4 | 115.2 | 63.8 | | 213.4 | |||||||||||||||
Investing Activities: |
||||||||||||||||||||
Capital expenditures |
| (56.4 | ) | (10.9 | ) | | (67.3 | ) | ||||||||||||
Cash flow used in investing activities |
| (56.4 | ) | (10.9 | ) | | (67.3 | ) | ||||||||||||
Financing Activities: |
||||||||||||||||||||
Net repayment of debt or notes payable |
| (142.7 | ) | (1.2 | ) | | (143.9 | ) | ||||||||||||
Net purchases of common stock |
(34.4 | ) | | | | (34.4 | ) | |||||||||||||
Net distributions to noncontrolling interests |
| | (5.9 | ) | | (5.9 | ) | |||||||||||||
Cash flow used in financing activities |
(34.4 | ) | (142.7 | ) | (7.1 | ) | | (184.2 | ) | |||||||||||
Effect of exchange rate changes on cash |
| | 2.9 | | 2.9 | |||||||||||||||
Increase (decrease) in cash and cash equivalents |
| (83.9 | ) | 48.7 | | (35.2 | ) | |||||||||||||
Cash and cash equivalents, beginning of year |
| 279.8 | 113.7 | | 393.5 | |||||||||||||||
Cash and cash equivalents, end of quarter |
$ | | $ | 195.9 | $ | 162.4 | $ | | $ | 358.3 | ||||||||||
39 Weeks Ended October 31, 2009 | ||||||||||||||||||||
Parent | Guarantor | Non-guarantor | ||||||||||||||||||
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Operating Activities: |
||||||||||||||||||||
Net earnings |
$ | 93.6 | $ | 106.6 | $ | 63.9 | $ | (169.0 | ) | $ | 95.1 | |||||||||
Loss from discontinued operations, net of income taxes |
| 0.2 | | | 0.2 | |||||||||||||||
Adjustments for non-cash items included in net earnings |
2.3 | 116.2 | 14.2 | | 132.7 | |||||||||||||||
Changes in working capital |
9.2 | 131.3 | (27.3 | ) | (24.9 | ) | 88.3 | |||||||||||||
Other, net |
(104.7 | ) | (59.9 | ) | (7.3 | ) | 158.4 | (13.5 | ) | |||||||||||
Cash flow provided by operating activities |
0.4 | 294.4 | 43.5 | (35.5 | ) | 302.8 | ||||||||||||||
Investing Activities: |
||||||||||||||||||||
Capital expenditures |
| (48.6 | ) | (12.6 | ) | | (61.2 | ) | ||||||||||||
Dividends received from related parties |
| | 0.6 | (0.6 | ) | | ||||||||||||||
Cash flow used in investing activities |
| (48.6 | ) | (12.0 | ) | (0.6 | ) | (61.2 | ) | |||||||||||
Financing Activities: |
||||||||||||||||||||
Net repayment of debt or notes payable |
(1.0 | ) | (22.9 | ) | (23.9 | ) | 24.8 | (23.0 | ) | |||||||||||
Net purchases of common stock |
0.6 | | | | 0.6 | |||||||||||||||
Net contribution from noncontrolling interests |
| | 1.3 | | 1.3 | |||||||||||||||
Net distributions to parent |
| (0.6 | ) | (10.7 | ) | 11.3 | | |||||||||||||
Cash flow used in financing activities |
(0.4 | ) | (23.5 | ) | (33.3 | ) | 36.1 | (21.1 | ) | |||||||||||
Effect of exchange rate changes on cash |
| | 0.9 | | 0.9 | |||||||||||||||
Increase (decrease) in cash and cash equivalents |
| 222.3 | (0.9 | ) | | 221.4 | ||||||||||||||
Cash and cash equivalents, beginning of year |
| 141.7 | 107.6 | | 249.3 | |||||||||||||||
Cash and cash equivalents, end of quarter |
$ | | $ | 364.0 | $ | 106.7 | $ | | $ | 470.7 | ||||||||||
21
Table of Contents
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
This report contains forward-looking statements relating to such matters as anticipated financial
performance, business prospects, technological developments, products, future store openings and
closings, international expansion opportunities, possible strategic initiatives, new business
concepts, capital expenditure plans, fashion trends, consumer spending patterns and similar
matters. Statements including the words expects, anticipates, intends, plans, believes,
seeks, or variations of such words and similar expressions are forward-looking statements. We
note that a variety of factors could cause actual results and experience to differ materially from
the anticipated results or expectations expressed in our forward-looking statements. The risks and
uncertainties that may affect the operations, performance, development and results of our business
include, but are not limited to, the following: litigation including intellectual property,
employment matters and class actions; the inability to renew material leases, licenses or contracts
upon their expiration on acceptable terms; changes in consumer spending patterns; changes in
consumer preferences and overall economic conditions; the impact of competition and pricing;
changes in weather patterns; the financial condition of the suppliers and manufacturers; changes in
existing or potential duties, tariffs or quotas and the application thereof; changes in
relationships between the United States and foreign countries, changes in relationships between
Canada and foreign countries; economic and political instability in foreign countries, or
restrictive actions by the governments of foreign countries in which suppliers and manufacturers
from whom we source are located or in which we operate stores or otherwise do business; changes in
trade, intellectual property, customs and/or tax laws; fluctuations in currency exchange rates;
availability of suitable store locations on acceptable terms; the ability to terminate leases on
acceptable terms; the risk that we will not be able to integrate recently acquired businesses
successfully, or that such integration will take longer than anticipated; expected cost savings or
synergies from acquisitions will not be achieved or unexpected costs will be incurred; customers
will not be retained or that disruptions from acquisitions will harm relationships with customers,
employees and suppliers; costs and other expenditures in excess of those projected for
environmental investigation and remediation or other legal proceedings; the ability to hire and
retain associates; performance of other parties in strategic alliances; general economic, business
and social conditions in the countries from which we source products, supplies or have or intend to
open stores; performance of partners in joint ventures or franchised operations; the ability to
comply with local laws in foreign countries; threats or acts of terrorism or war; strikes, work
stoppages and/or slowdowns by unions that play a significant role in the manufacture, distribution
or sale of product; congestion at major ocean ports; changes in commodity prices such as oil; and
changes in the value of the dollar relative to the Chinese Yuan and other currencies. For more
complete discussion of these and other risks that could impact our forward-looking statements,
please refer to our 2009 Annual Report on Form 10-K for the fiscal year ended January 30, 2010,
including the discussion contained under Risk Factors. We do not undertake any obligation to
release publicly any revisions to such forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Overview
The following Managements Discussion and Analysis of Financial Condition and Results of Operations
(MD&A) is intended to help the reader understand Collective Brands, Inc., our operations and our
present business environment. MD&A is provided as a supplement to, and should be read in
connection with, our Condensed Consolidated Financial Statements and the accompanying notes thereto
included under Part I Item 1 of this report. MD&A should also be read in conjunction with our
Consolidated Financial Statements as of January 30, 2010, and for the year then ended, and the
related MD&A, both of which are contained on our Form 10-K for the year ended January 30, 2010.
MD&A includes the following sections:
| Our Business a brief description of our business, key 2010 events, and the impact of new federal legislation. | ||
| Consolidated Review of Operations an analysis of our consolidated results of operations for the third quarter and first nine months ended October 30, 2010 and October 31, 2009, respectively. | ||
| Reporting Segment Review of Operations an analysis of our results of operations for the third quarter and first nine months ended October 30, 2010 and October 31, 2009 as presented in our Condensed Consolidated Financial Statements for our four reporting segments: Payless Domestic, Payless International, Collective Brands Performance + Lifestyle Group (PLG) Wholesale and PLG Retail. | ||
| Liquidity and Capital Resources an analysis of cash flows, aggregate financial commitments and certain financial condition ratios. | ||
| Critical Accounting Policies an update since January 30, 2010 of our discussion of our critical accounting policies that involve a higher degree of judgment or complexity. This section also includes the impact of new accounting standards. |
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Our Business
Collective Brands, Inc. consists of three lines of business: Payless ShoeSource (Payless), PLG,
and Collective Licensing. We operate a hybrid business model that includes retail, wholesale,
licensing and franchising businesses. Payless is one of the largest footwear retailers in the
Western Hemisphere and is dedicated to democratizing fashion and design in footwear and accessories
and inspiring fun, fashion possibilities for the family at a great value. PLG markets products at
wholesale and retail for children and adults under brand names that include Stride Rite®, Keds®,
Sperry Top-Sider®, and Saucony®. Collective Licensing is a youth lifestyle marketing and global
licensing business within the Payless Domestic segment.
We measure the performance of our business using several metrics, but rely primarily on net sales,
same-stores sales, operating profit from continuing operations, adjusted earnings before interest,
income taxes, depreciation and amortization (Adjusted EBITDA), net debt and free cash flow (see Non-GAAP Financial Measures section). We
also measure the performance of our business using our reporting segments revenues from external
customers and operating profit from continuing operations (see Reporting Segment Review of Operations section).
Key 2010 Events
In 2010, our business has delivered earnings growth on a modest sales gain. This has been
primarily driven by increases in sales and earnings from our PLG Wholesale and Payless
International reporting segments. Our PLG Wholesale brands, particularly Sperry Top-Sider and
Saucony, have delivered strong growth through refined brand positioning, product innovation, and
distribution channel development. Our Payless International growth has come primarily from
strengthening sales in Latin America and leveraging costs.
Our domestic retail businesses have underperformed in 2010. Most notably, our Payless Domestic
reporting segment sales and operating profit have declined due to external factors as well as
company-specific factors. Payless Domestics core urban and ethnic mass-customer base continues to
struggle with high unemployment. While we did not maximize certain footwear trends in the first
half of 2010, we did make important progress in the third quarter and improved our financial
results sequentially. Similarly, our PLG Retail segment delivered lower financial results through
the first half of 2010, but improved sales and operating profit both year-over-year and
sequentially in the third quarter of 2010.
Through the first nine months of 2010, we experienced lower product costs on like-for-like products
we procured. As a result, these lower product costs positively impacted our results of operations
compared to the same period in 2009. We expect product costs to increase in the fourth quarter of
2010 and into 2011. We are working to mitigate the impact of these expected cost increases by
using our size and scale to drive lower costs. We will also rely more heavily on factories outside
of China and in more cost-effective locations within China.
Impact of New Federal Legislation
In the first quarter of 2010, the Patient Protection and Affordable Care Act and the Health Care
and Education Reconciliation Act were signed into law. Because we generally do not offer
post-employment healthcare benefits, we were not required to recognize a significant charge in 2010
associated with the change in tax treatment of Medicare Part D benefits. We continue to review the
impact this new legislation could have on us over a longer term.
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Consolidated Review of Operations
The following table presents the components of costs and expenses, as a percent of net sales, for
the third quarter and first nine months ended October 30, 2010 (2010) and October 31, 2009
(2009):
Third Quarter | First Nine Months | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net sales |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of sales |
62.7 | 64.0 | 63.3 | 65.0 | ||||||||||||
Gross margin |
37.3 | 36.0 | 36.7 | 35.0 | ||||||||||||
Selling, general and administrative expense |
29.5 | 28.9 | 29.5 | 29.0 | ||||||||||||
Operating profit from continuing operations |
7.8 | 7.1 | 7.2 | 6.0 | ||||||||||||
Interest expense, net |
1.4 | 1.7 | 1.4 | 1.8 | ||||||||||||
Loss on early extinguishment of debt |
0.1 | | | | ||||||||||||
Net earnings from continuing operations before income
taxes |
6.3 | 5.4 | 5.8 | 4.2 | ||||||||||||
Effective income tax rate* |
11.3 | 17.7 | 13.8 | 12.1 | ||||||||||||
Net earnings from continuing operations |
5.7 | 4.4 | 4.9 | 3.7 | ||||||||||||
Loss from discontinued operations, net of income taxes |
| | | | ||||||||||||
Net earnings |
5.7 | 4.4 | 4.9 | 3.7 | ||||||||||||
Net earnings attributable to noncontrolling interests |
(0.3 | ) | (0.1 | ) | (0.2 | ) | (0.1 | ) | ||||||||
Net earnings attributable to Collective Brands, Inc. |
5.4 | % | 4.3 | % | 4.7 | % | 3.6 | % | ||||||||
* | Percent of pre-tax earnings |
Net Earnings Attributable to Collective Brands, Inc.
Third quarter 2010 net earnings attributable to Collective Brands, Inc. was $47.6 million, or $0.75
per diluted share versus third quarter 2009 results of $36.9 million, or $0.57 per diluted share.
The increase in net earnings attributable to Collective Brands, Inc. was primarily driven by higher
net sales and improved gross margins, partially offset by increased selling, general and
administrative expenses.
Net earnings attributable to Collective Brands, Inc. for the first nine months of 2010 was $122.9
million, or $1.90 per diluted share versus the first nine months of 2009 results of $93.6 million,
or $1.46 per diluted share. The increase in net earnings attributable to Collective Brands, Inc.
was primarily driven by higher net sales and improved gross margins, partially offset by increased
selling, general and administrative expenses.
Net Sales
The table below summarizes net sales information for our retail stores. Stores operated under
franchise agreements are excluded from these calculations. Same-store sales are calculated on a
weekly basis and exclude liquidation sales. If a store is open the entire week in each of the two
years being compared, its sales are included in the same-store sales calculation for the week. Our
Payless and PLG Retail e-commerce businesses are considered stores in this calculation.
Sales percent increases (decreases) are as follows:
Third Quarter | First Nine Months | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Same-store sales |
(2.7 | )% | 3.1 | % | (2.9 | )% | (3.1 | )% | ||||||||
Average selling price per unit |
1.1 | 1.6 | (0.9 | ) | 1.8 | |||||||||||
Unit volume |
(4.0 | ) | 1.4 | (2.5 | ) | (8.0 | ) | |||||||||
Footwear average selling price per unit |
2.5 | 3.0 | 0.0 | 7.1 | ||||||||||||
Footwear unit volume |
(6.1 | ) | (0.7 | ) | (4.5 | ) | (10.4 | ) | ||||||||
Non-footwear average selling price per unit |
3.0 | 3.1 | 4.8 | 4.7 | ||||||||||||
Non-footwear unit volume |
2.5 | 8.1 | 5.0 | 1.4 |
On October 29, 2009, the Payless guest designer Christian Siriano appeared on The Oprah
Winfrey Show. In conjunction with his appearance on the show, he announced a coupon allowing
customers to obtain 50% off of everything in the store for the remainder of that day and all day on
Friday, October 30, 2009 (referred to as the Oprah Promotion). We estimate that the Oprah
Promotion negatively impacted our same store sales comparison for the third quarter 2010 by nearly
3% and positively impacted our same store sales comparison for the third quarter of 2009 by nearly
3%. In the Payless locations that participated in the Oprah Promotion, we estimate we had
approximately $20 million of incremental sales for the two days of the promotion compared to those
two days this year. The Oprah Promotion did not have a significant impact on our results of
operations for the third quarter of 2009.
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Please refer to Reporting Segment Review of Operations below for details on the changes in net
sales for each of our reporting units.
Cost of Sales
Cost of sales was $552.6 million in the third quarter of 2010, down 0.5% from $555.2 million in the
2009 third quarter. The decrease in cost of sales from 2009 to 2010 is primarily due to lower
occupancy costs in 2010 compared to 2009.
Cost of sales was $1,646.9 million in the first nine months of 2010, down 1.3% from $1,668.9
million in the first nine months of 2009. The decrease in cost of sales from 2009 to 2010 is
primarily due to the impact of lower product costs in China in the first half of the year and lower occupancy costs in 2010
compared to 2009.
Gross Margin
Gross margin rate for the third quarter of 2010 was 37.3%, compared to a gross margin rate of 36.0%
in the third quarter of 2009. The increase in gross margin rate is primarily due to less
promotional activity at retail and more first quality sales at wholesale as well as lower occupancy
costs. The gross margin rate was also favorably impacted by the Oprah Promotion and litigation
costs in the third quarter of 2009.
Gross margin rate for the first nine months of 2010 was 36.7%, compared to a gross margin rate of
35.0% in the first nine months of 2009. The increase in gross margin rate is primarily due to
lower product costs in the first half of the year and lower occupancy costs, coupled with higher net sales.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses were $260.4 million in the third quarter of
2010, an increase of 3.8% from $250.8 million in the third quarter of 2009. SG&A expenses were
$767.9 million in the first nine months of 2010, an increase of 3.3% from $743.5 million in the
first nine months of 2009. The increase in SG&A expenses for both the third quarter and first nine
months of 2010 compared to 2009 is primarily due to greater marketing and brand-building
investments across the business to support wholesale and international expansion.
As a percentage of net sales, SG&A expenses were 29.5% of net sales in the third quarter of 2010
versus 28.9% in the third quarter of 2009 and 29.5% of net sales in the first nine months of 2010
versus 29.0% in the first nine months of 2009. The increase, as a percentage of net sales, in the
third quarter and first nine months of 2010 was primarily due to greater marketing and
brand-building investments across the business to support wholesale and international expansion, as
well as increases in payroll and related costs to facilitate the growth of our PLG businesses.
Interest Expense (Income)
Interest income and expense components were:
Third Quarter | First Nine Months | |||||||||||||||
(dollars in millions) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Interest expense |
$ | 12.0 | $ | 14.8 | $ | 37.6 | $ | 46.4 | ||||||||
Interest income |
(0.3 | ) | (0.2 | ) | (0.6 | ) | (1.0 | ) | ||||||||
Interest expense, net |
$ | 11.7 | $ | 14.6 | $ | 37.0 | $ | 45.4 | ||||||||
The decline in interest expense in the third quarter and first nine months of 2010 from the
third quarter and first nine months of 2009 is primarily a result of less outstanding debt.
Loss on Early Extinguishment of Debt
The loss on early extinguishment of debt relates to the acceleration of amortization of deferred
debt costs on our Term Loan Facility in proportion to our early extinguishment, of $138.0 million
in 2010.
Income Taxes
Our effective income tax rate on continuing operations was 13.8% during the first nine months of
2010 compared to 12.1% during the first nine months of 2009. Our effective income tax rate on
continuing operations was 11.3% during the third quarter of 2010 compared to 17.7% during the third
quarter of 2009. We recorded $6.2 million of favorable discrete events in the first nine months of
2010. The unfavorable difference in the overall effective tax rate for the first nine months of
2010 compared to the first nine months
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of 2009 is due to a comparatively higher proportion of our
income arising in relatively high tax rate jurisdictions, partially offset by a net increase in
favorable discrete events.
We have unrecognized tax benefits, inclusive of related interest and penalties, of $59.7 million
and $66.7 million as of October 30, 2010 and October 31, 2009, respectively. The portion of the
unrecognized tax benefits that would impact the effective income tax rate if recognized are $24.3
million and $40.6 million, respectively.
We anticipate that it is reasonably possible that the total amount of unrecognized tax benefits at
October 30, 2010 will decrease by up to $36.8 million within the next twelve months. To the extent
these tax benefits are recognized, the effective rate would be favorably impacted in the period of
recognition by up to $4.1 million. The potential reduction primarily relates to potential
settlements of on-going examinations with tax authorities and the potential lapse of the statutes
of limitations in relevant tax jurisdictions.
Our Consolidated Balance Sheet as of October 30, 2010 includes deferred tax assets, net of related
valuation allowances, of approximately $156 million. In assessing the future realization of these
assets, we concluded it is more likely than not the assets will be realized. This conclusion was
based in large part upon our belief that we will generate sufficient quantities of taxable income
from operations in future years in the appropriate tax jurisdictions. If our near-term forecasts
are not achieved, we may be required to record additional valuation allowances against our deferred
tax assets. This could have a material impact on our financial position and results of operations
in a particular period.
Net Earnings Attributable to Noncontrolling Interests
Net earnings attributable to noncontrolling interests represent our joint venture partners share
of net earnings or losses on applicable international operations. The increase in net earnings
attributable to noncontrolling interests is due to higher net earnings in our Latin America joint
ventures.
Non-GAAP Financial Measures
We use certain non-GAAP financial measures to assess performance. These measures are included as a
complement to results provided in accordance with GAAP because we believe these non-GAAP financial
measures are helpful in explaining underlying performance trends in our business and provide useful
information to both management and investors. These measures should be considered in addition to
results prepared in accordance with GAAP, but should not be considered a substitute for, or
superior to, GAAP results.
We use Adjusted EBITDA, which is a non-GAAP performance measure, because we believe it reflects the
Companys core operating performance by excluding the impact of the effect of financing and
investing activities by eliminating the effects of interest, depreciation and amortization costs.
The following table presents the reconciliation of net earnings to Adjusted EBITDA:
Third Quarter | First Nine Months | |||||||||||||||
(dollars in millions) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Net earnings |
$ | 50.2 | $ | 38.1 | $ | 128.2 | $ | 95.1 | ||||||||
Loss from discontinued operations, net of tax |
| 0.1 | | 0.2 | ||||||||||||
Provision for income taxes |
6.4 | 8.2 | 20.6 | 13.1 | ||||||||||||
Net interest expense (including loss on
early extinguishment of debt) |
12.2 | 14.6 | 38.3 | 45.4 | ||||||||||||
Depreciation and amortization |
34.0 | 36.0 | 101.8 | 105.2 | ||||||||||||
Adjusted EBITDA |
$ | 102.8 | $ | 97.0 | $ | 288.9 | $ | 259.0 | ||||||||
The increase in Adjusted EBITDA in the third quarter and first nine months of 2010 compared to
the third quarter and first nine months of 2009 is primarily driven by improvement in gross margin
and higher sales, partially offset by an increase in selling, general and administrative expenses.
We also use free cash flow, which is a non-GAAP performance measure, because we believe it provides
useful information about our liquidity, our ability to make investments and to service debt. Free
cash flow is defined as cash flow provided by operating activities less capital expenditures. The
following table presents our calculation of free cash flow:
Third Quarter | First Nine Months | |||||||||||||||
(dollars in millions) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Cash flow provided by operating activities |
$ | 135.9 | $ | 188.7 | $ | 213.4 | $ | 302.8 | ||||||||
Less: Capital expenditures |
20.5 | 14.3 | 67.3 | 61.2 | ||||||||||||
Free cash flow |
$ | 115.4 | $ | 174.4 | $ | 146.1 | $ | 241.6 | ||||||||
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The decrease in free cash flow in the third quarter and first nine months of 2010 compared to
the third quarter and first nine months of 2009 is primarily driven by lower cash flow provided by
operating activities. The decrease in cash provided by operating activities was driven by changes
in working capital due to increases in inventories (primarily due to replenishment from the Oprah
Promotion and a greater mix of higher cost product at Payless, growth of the PLG brands and higher
costs per unit) and accounts receivable, partially offset by the impact of increases in accounts
payable and net earnings.
Finally, we use net debt, which is a non-GAAP performance measure, because we believe it provides
useful information about the relationship between our long-term debt obligations and our cash and
cash equivalents balance at a point in time. Net debt is defined as total debt less cash and cash
equivalents. The following table presents our calculation of net debt:
Third Quarter | ||||||||
(dollars in millions) | 2010 | 2009 | ||||||
Total debt |
$ | 705.7 | $ | 890.5 | ||||
Less: cash and cash equivalents |
358.3 | 470.7 | ||||||
Net debt |
$ | 347.4 | $ | 419.8 | ||||
The decrease in net debt as of the third quarter of 2010 compared to the third quarter of 2009
was primarily due to an increase in cash from operating activities, which was used to repay debt.
Reporting Segment Review of Operations
We analyze our business using four reporting segments: Payless Domestic, Payless International, PLG
Wholesale and PLG Retail. We evaluate the performance of our reporting segments based on segment
revenues from external customers and segment operating profit from continuing operations. The
following table summarizes reporting segment revenues from external customers to consolidated net
sales and reporting segment operating profit from continuing operations to our consolidated
operating profit from continuing operations for the third quarter and first nine months ended
October 30, 2010 and October 31, 2009:
Third Quarter | First Nine Months | |||||||||||||||||||||||
(dollars in millions) | 2010 | 2009 | Change | 2010 | 2009 | Change | ||||||||||||||||||
Revenues from external customers: |
||||||||||||||||||||||||
Payless Domestic |
$ | 548.9 | $ | 578.1 | $ | (29.2 | ) | $ | 1,603.5 | $ | 1,695.7 | $ | (92.2 | ) | ||||||||||
Payless International |
118.5 | 110.0 | 8.5 | 328.3 | 298.5 | 29.8 | ||||||||||||||||||
PLG Wholesale |
141.6 | 111.6 | 30.0 | 489.7 | 398.1 | 91.6 | ||||||||||||||||||
PLG Retail |
72.8 | 67.3 | 5.5 | 180.4 | 173.9 | 6.5 | ||||||||||||||||||
Revenues from external customers |
$ | 881.8 | $ | 867.0 | $ | 14.8 | $ | 2,601.9 | $ | 2,566.2 | $ | 35.7 | ||||||||||||
Operating profit (loss) from continuing
operations: |
||||||||||||||||||||||||
Payless Domestic |
$ | 35.3 | $ | 44.5 | $ | (9.2 | ) | $ | 91.4 | $ | 110.8 | $ | (19.4 | ) | ||||||||||
Payless International |
19.1 | 11.2 | 7.9 | 37.8 | 17.4 | 20.4 | ||||||||||||||||||
PLG Wholesale |
7.3 | 0.1 | 7.2 | 53.5 | 21.7 | 31.8 | ||||||||||||||||||
PLG Retail |
7.1 | 5.2 | 1.9 | 4.4 | 3.9 | 0.5 | ||||||||||||||||||
Operating profit from continuing operations |
$ | 68.8 | $ | 61.0 | $ | 7.8 | $ | 187.1 | $ | 153.8 | $ | 33.3 | ||||||||||||
The following table presents the change in store count during the third quarter and first nine
months of 2010 and 2009 by reporting segment. We consider a store relocation to be both a store
opening and a store closing.
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Payless | ||||||||||||||||
Payless Domestic | International | PLG Retail | Total | |||||||||||||
Third Quarter 2010 |
||||||||||||||||
Beginning store count |
3,821 | 651 | 385 | 4,857 | ||||||||||||
Stores opened |
14 | 13 | | 27 | ||||||||||||
Stores closed |
(20 | ) | (2 | ) | (5 | ) | (27 | ) | ||||||||
Ending store count |
3,815 | 662 | 380 | 4,857 | ||||||||||||
First Nine Months 2010 |
||||||||||||||||
Beginning store count |
3,827 | 643 | 363 | 4,833 | ||||||||||||
Stores opened |
35 | 30 | 24 | 89 | ||||||||||||
Stores closed |
(47 | ) | (11 | ) | (7 | ) | (65 | ) | ||||||||
Ending store count |
3,815 | 662 | 380 | 4,857 | ||||||||||||
Third Quarter 2009 |
||||||||||||||||
Beginning store count |
3,864 | 639 | 360 | 4,863 | ||||||||||||
Stores opened |
4 | 6 | 4 | 14 | ||||||||||||
Stores closed |
(22 | ) | (8 | ) | (1 | ) | (31 | ) | ||||||||
Ending store count |
3,846 | 637 | 363 | 4,846 | ||||||||||||
First Nine Months 2009 |
||||||||||||||||
Beginning store count |
3,900 | 622 | 355 | 4,877 | ||||||||||||
Stores opened |
26 | 34 | 11 | 71 | ||||||||||||
Stores closed |
(80 | ) | (19 | ) | (3 | ) | (102 | ) | ||||||||
Ending store count |
3,846 | 637 | 363 | 4,846 | ||||||||||||
As of October 30, 2010, we also franchised 32 Payless stores, which are not reflected in the
table above.
The total square footage for our retail stores as of October 30, 2010, October 31, 2009 and January
30, 2010 was approximately 14.6 million, 14.7 million and 14.6 million, respectively. These square
footage numbers do not include our franchised stores.
Payless Domestic Segment Operating Results
The Payless Domestic reporting segment is comprised primarily of operations from the domestic
retail stores under the Payless ShoeSource name, the Companys sourcing operations and Collective
Licensing.
Third Quarter | First Nine Months | |||||||||||||||||||||||
Percent change | Percent change | |||||||||||||||||||||||
(dollars in millions) | 2010 | 2009 | 2010 vs. 2009 | 2010 | 2009 | 2010 vs. 2009 | ||||||||||||||||||
Revenues from external customers |
$ | 548.9 | $ | 578.1 | (5.1 | )% | $ | 1,603.5 | $ | 1,695.7 | (5.4 | )% | ||||||||||||
Operating profit from
continuing operations |
$ | 35.3 | $ | 44.5 | (20.7 | )% | $ | 91.4 | $ | 110.8 | (17.5 | )% | ||||||||||||
Operating profit from
continuing operations
as % of revenues from external
customers |
6.4 | % | 7.7 | % | 5.7 | % | 6.5 | % |
For the third quarter of 2010, revenues from external customers for the Payless Domestic
reporting segment decreased 5.1% or $29.2 million, to $548.9 million, from the third quarter of
2009. The decrease in revenues from external customers for the third quarter of 2010 is primarily
due to the Oprah Promotion and 31 fewer stores compared to last year. Payless Domestic increased
its average selling price, units per transaction and conversion rate, though traffic declined.
Gains in womens boots, accessories and fitness footwear were more than offset by declines in
select childrens and womens departments.
For the first nine months of 2010, revenues from external customers for the Payless Domestic
reporting segment decreased 5.4% or $92.2 million, to $1,603.5 million, from the first nine months
of 2009. The decrease in revenues from external customers from the first nine months of 2009 to
2010 is primarily due to declines in store traffic and lower unit sales. This decline was partially
offset by gains in fitness footwear and accessories.
As a percentage of revenues from external customers, operating profit from continuing operations
decreased to 6.4% for the third quarter of 2010 compared to 7.7% in the third quarter of 2009. As
a percentage of revenues from external customers, operating profit from continuing operations
decreased to 5.7% for the first nine months of 2010 compared to 6.5% in the first nine months of
2009. The percentage decrease is primarily due to the deleveraging of fixed costs due to lower net
sales.
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Payless International Segment Operating Results
Our Payless International reporting segment includes retail operations under the Payless ShoeSource
name in Canada, the Central and South American Regions, Puerto Rico and the U.S. Virgin Islands, as
well as franchising arrangements under the Payless ShoeSource name. For the third quarter and
first nine months of 2010, our franchising operations were not significant.
Third Quarter | First Nine Months | |||||||||||||||||||||||
Percent change | Percent change | |||||||||||||||||||||||
(dollars in millions) | 2010 | 2009 | 2010 vs. 2009 | 2010 | 2009 | 2010 vs. 2009 | ||||||||||||||||||
Revenues from external customers |
$ | 118.5 | $ | 110.0 | 7.7 | % | $ | 328.3 | $ | 298.5 | 10.0 | % | ||||||||||||
Operating profit from
continuing operations |
$ | 19.1 | $ | 11.2 | 70.5 | % | $ | 37.8 | $ | 17.4 | 117.2 | % | ||||||||||||
Operating profit from
continuing operations
as % of revenues from external
customers |
16.1 | % | 10.2 | % | 11.5 | % | 5.8 | % |
For the third quarter of 2010, revenues from external customers for the Payless International
reporting segment increased 7.7% or $8.5 million, to $118.5 million, from the third quarter of
2009. For the first nine months of 2010, revenues from external customers for the Payless
International reporting segment increased 10.0% or $29.8 million, to $328.3 million, from the first
nine months of 2009. Revenues from external customers for the Payless International reporting
segment increased due to higher sales in Central and South America, driven by positive comparable
store sales and higher store count. Our sales in Canada were impacted by favorable foreign
exchange rates.
As a percentage of revenues from external customers, operating profit from continuing operations
increased to 16.1% for the third quarter of 2010 compared to 10.2% in the third quarter of 2009.
As a percentage of revenues from external customers, operating profit from continuing operations
increased to 11.5% for the first nine months of 2010 compared to 5.8% in the first nine months of
2009. The percentage increases are primarily due to increased gross margin rates in all regions
and the leveraging of fixed costs due to higher net sales.
PLG Wholesale Segment Operating Results
The PLG Wholesale reporting segment is comprised of PLGs wholesale operations, which primarily
includes the Saucony, Sperry, Stride Rite and Keds brands.
Third Quarter | First Nine Months | |||||||||||||||||||||||
Percent change | Percent change | |||||||||||||||||||||||
(dollars in millions) | 2010 | 2009 | 2010 vs. 2009 | 2010 | 2009 | 2010 vs. 2009 | ||||||||||||||||||
Revenues from external customers |
$ | 141.6 | $ | 111.6 | 26.9 | % | $ | 489.7 | $ | 398.1 | 23.0 | % | ||||||||||||
Operating profit from
continuing operations |
$ | 7.3 | $ | 0.1 | 7,200.0 | % | $ | 53.5 | $ | 21.7 | 146.5 | % | ||||||||||||
Operating profit from
continuing operations
as % of revenues from external
customers |
5.2 | % | 0.1 | % | 10.9 | % | 5.5 | % |
For the third quarter of 2010, revenues from external customers for the PLG Wholesale
reporting segment increased 26.9% or $30.0 million, to $141.6 million, from the third quarter of
2009. For the first nine months of 2010, revenues from external customers for the PLG Wholesale
reporting segment increased 23.0% or $91.6 million, to $489.7 million, from the first nine months
of 2009. The increases in revenues from external customers for the third quarter of 2010 was due
to higher sales in all brands led by Sperry Top-Sider and Saucony. The increase in revenues from
external customers for the first nine months of 2010 was primarily due to strong performance by the
Sperry Top-Sider and Saucony brands.
As a percentage of revenues from external customers, operating profit from continuing operations
increased to 5.2% for the third quarter of 2010 compared to 0.1% in the third quarter of 2009. As
a percentage of revenues from external customers, operating profit from continuing operations
increased to 10.9% for the first nine months of 2010 compared to 5.5% in the first nine months of
2009. The percentage increases were primarily due to the leveraging of
fixed costs due to higher net sales.
Our backlog of orders as of October 30, 2010 was $114.8 million, an increase of $35.2 million from
$79.6 million as of October 31, 2009. Many of our customers have placed larger initial orders in
2010 compared to 2009 to ensure product flow and availability and in response to vendor initiatives
designed to increase the mix of future orders. Due to the variability of the timing between future
orders, reorders and cancellations, backlog does not necessarily translate directly into net sales.
PLG Retail Segment Operating Results
The PLG Retail reporting segment is comprised of operations from PLGs owned Stride Rite Childrens
stores, PLGs outlet stores, store-in-stores at Macys Department Stores and Sperry Top-Sider
retail stores.
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Third Quarter | First Nine Months | |||||||||||||||||||||||
Percent change | Percent change | |||||||||||||||||||||||
(dollars in millions) | 2010 | 2009 | 2010 vs. 2009 | 2010 | 2009 | 2010 vs. 2009 | ||||||||||||||||||
Revenues from external customers |
$ | 72.8 | $ | 67.3 | 8.2 | % | $ | 180.4 | $ | 173.9 | 3.7 | % | ||||||||||||
Operating profit from continuing
operations |
$ | 7.1 | $ | 5.2 | 36.5 | % | $ | 4.4 | $ | 3.9 | 12.8 | % | ||||||||||||
Operating profit from continuing
operations as % of revenues from external
customers |
9.8 | % | 7.7 | % | 2.4 | % | 2.2 | % |
For the third quarter of 2010, revenues from external customers for the PLG Retail reporting
segment increased 8.2% or $5.5 million, to $72.8 million, from the third quarter of 2009. The
increase in revenues from external customers was due to an increase in the number of stores and
higher comparable store sales. Higher comparable store sales were driven by higher unit sales,
higher customer traffic and higher customer conversion.
For the first nine months of 2010, revenues from external customers for the PLG Retail reporting
segment increased 3.7% or $6.5 million, to $180.4 million, from the first nine months of 2009.
The increase in revenues from external customers was due to an increase in the number of stores
offset by lower comparable store sales.
As a percentage of revenues from external customers, operating profit from continuing operations
increased to 9.8% for the third quarter of 2010 compared to 7.7% in the third quarter of 2009.
Operating profit as a percentage of revenues from external customers increased due to sales
increases, fewer markdowns and cost improvement initiatives.
As a percentage of revenues from external customers, operating profit from continuing operations
increased to 2.4% for the first nine months of 2010 compared to 2.2% in the first nine months of
2009. Operating profit as a percentage of revenues from external customers was positively impacted
by positive leverage on higher sales.
Liquidity and Capital Resources
We ended the third quarter of 2010 with a cash and cash equivalents balance of $358.3 million, a
decrease of $112.4 million from the third quarter of 2009. The year-over-year decrease is due
primarily to debt repayments, share repurchases and working capital requirements, primarily
inventory, partially offset by an increase in net earnings.
As of October 30, 2010, our foreign subsidiaries and joint ventures had $153.9 million in cash
located in financial institutions outside of the United States. A portion of this cash represents
undistributed earnings of our foreign subsidiaries, which are indefinitely
reinvested. In the event of a distribution to the U.S., those earnings could be subject to U.S.
federal and state income taxes, net of foreign tax credits.
As of October 30, 2010, the borrowing base on our Revolving Loan Facility was $323.1 million less
$29.2 million in outstanding letters of credit, or $293.9 million. The variable interest rate,
including the applicable variable margin at October 30, 2010, was 1.16%. We did not have any
borrowings on our Revolving Loan Facility at any time during the nine months ended October 30,
2010.
We are subject to financial covenants under our Loan Facilities. We have a financial covenant
under our Term Loan Facility agreement that requires us to maintain, on the last day of each fiscal
quarter, a total leverage ratio of not more than 4.0 to 1. As of October 30, 2010 our leverage
ratio, as defined in our Term Loan Facility agreement, was 1.5 to 1 and we were in compliance with
all of our covenants. We expect, based on our current financial projections, to be in compliance
with our covenants on our Loan Facilities for the next twelve months. Further, we believe that our
liquid assets, cash generated from operations and amounts available under our Revolving Loan
Facility will provide us with sufficient funds for capital expenditures and other operating
activities for at least the next twelve months.
Cash Flow Provided by Operating Activities
Cash flow provided by operations was $213.4 million in the first nine months of 2010, compared with
$302.8 million for the same period in 2009. As a percentage of net sales, cash flow from
operations was 8.2% in the first nine months of 2010, compared with 11.8% in the same period in
2009. The decrease in cash flow from operations in the first nine months of 2010 as compared to
the first nine months of 2009 is primarily due to changes in working capital due to increases in
inventories and accounts receivable, offset by increases in accounts payable and net earnings. The
increase in inventories was driven by growth in our PLG Wholesale reporting segment, higher units
to replenish inventory sold in the Oprah Promotion in 2009 and product mix driven by higher priced
fitness and boots. The increase in accounts receivable was due to revenue growth in our
PLG Wholesale reporting segment. The increase in accounts payable is primarily due to the
extension of payment terms with our merchandise vendors. All other things equal, any future
favorable changes to the accounts payable portion of working capital will only be possible if we
have an incremental extension of such terms.
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Cash Flow Used in Investing Activities
Our capital expenditures totaled $67.3 million during the first nine months of 2010, compared with
$61.2 million for the same period in 2009. Total capital expenditures in 2010 are expected to be
nearly $100 million compared to $84.0 million in 2009. We intend to use internal cash and cash
flow from operations to finance all of these expenditures.
Cash Flow Used in Financing Activities
We have made the following common stock repurchases:
First Nine Months | ||||||||||||||||
2010 | 2009 | |||||||||||||||
(dollars in millions, shares in thousands) | Dollars | Shares | Dollars | Shares | ||||||||||||
Stock repurchase program(1) |
$ | 39.8 | 2,644 | $ | | | ||||||||||
Employee stock purchase, deferred compensation
and stock incentive plans |
3.1 | 155 | 2.3 | 159 | ||||||||||||
$ | 42.9 | 2,799 | $ | 2.3 | 159 | |||||||||||
(1) | Represents share repurchases as a result of consideration from stock option exercises as well as those shares under our stock repurchase program. The Company repurchased 2,016,500 shares in open market purchases in the third quarter of 2010 for $28.0 million dollars. The Company may repurchase up to $159.0 million under the Board of Directors authorized share repurchases. |
Under the terms of the credit facilities governing our Loan Facilities, we are restricted on
the amount of common stock we may repurchase. This limit may increase or decrease on a quarterly
basis based upon our net earnings.
In the first nine months of 2010, we repaid $142.6 million of our outstanding Term Loan Facility
balance. The balance remaining on our Term Loan Facility as of October 30, 2010 was $530.8
million.
Contractual Obligations
For a discussion of our other contractual obligations, see a discussion of future commitments under
Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, in
our Form 10-K for the fiscal year ended January 30, 2010. There have been no significant
developments with respect to our contractual obligations since January 30, 2010.
Financial Condition Ratios
A summary of key financial information for the periods indicated is as follows:
October 30, | October 31, | January 30, | ||||||||||
2010 | 2009 | 2010 | ||||||||||
Debt-capitalization ratio* |
44.6 | % | 53.7 | % | 53.6 | % |
* | Debt-capitalization ratio has been computed by dividing total debt by capitalization. Total debt is defined as long-term debt including current maturities, notes payable and borrowings under the revolving loan facility. Capitalization is defined as total debt and equity. The debt-capitalization ratio, including the present value of future minimum rental payments under operating leases as debt and as capitalization, was 66.3%, 71.9% and 72.3%, respectively, for the periods referred to above. |
Critical Accounting Policies
In the third quarter of 2010, we performed the required annual impairment assessment of our
goodwill and indefinite-lived tradenames. As a result of this assessment, we concluded that there
was no impairment of goodwill or indefinite-lived tradenames. Management relies on estimates in
determining the fair value of each tradename and in determining the fair value of goodwill at a
reporting unit level. The estimate of fair value is highly subjective and requires significant
judgment. For further explanation of the approach used to perform the impairment assessment of
goodwill and our indefinite-lived tradenames, as well as the significant estimates used, please
refer to our Critical Accounting Policies under Managements Discussion and Analysis of Financial
Condition and Results of Operations in our Form 10-K for the year ended January 30, 2010.
Our goodwill balance was $279.8 million as of October 30, 2010. Goodwill is evaluated at the
reporting unit level, which may be the same as a reporting segment or a level below a reporting
segment. The goodwill balance by reporting segment and reporting unit as of October 31, 2010 is as
follows:
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Goodwill Balance | ||||||||
Reporting Segment | Reporting Unit | (in millions) | ||||||
PLG Wholesale |
PLG Wholesale | $ | 239.6 | |||||
Payless Domestic |
Collective Licensing | 34.3 | ||||||
Payless Domestic |
Payless Domestic | 5.9 | ||||||
Total |
$ | 279.8 | ||||||
The fair value of the Payless Domestic and the PLG Wholesale reporting units substantially
exceed their carrying value. For the Collective Licensing reporting unit, a 100 basis point
increase in the discount rate used in determining the fair value of the reporting unit, holding all
other variables constant, would result in a deficit between the fair value and the carrying value
of approximately $1 million. A 100 basis point decrease in the projected long-term growth rates of
Collective Licensing would not result in a deficit between the fair value and the carrying value of
the reporting unit.
The book value of our indefinite-lived tradenames was $365.5 million as of October 30, 2010. A 100
basis point decrease in the royalty rate used in determining the fair value of our indefinite-lived
tradenames, holding all other variables constant, could result in an impairment of approximately $5
million. Increasing the discount rate 100 basis points or decreasing the projected revenue growth
rates 100 basis points would not result in a significant impairment charge.
In future periods, if our goodwill or our indefinite-lived tradenames were to become impaired, the
resulting impairment charge could have a material impact on our financial position and results of
operations.
For more information regarding our critical accounting policies, estimates and judgments, see the
discussion under Managements Discussion and Analysis of Financial Condition and Results of
Operations in our Form 10-K for the year ended January 30, 2010.
New Accounting Standards
See Note 12 of the Condensed Consolidated Financial Statements for new accounting standards,
including the expected dates of adoption and estimated effects on our Condensed Consolidated
Financial Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Interest on our senior secured Revolving Loan Facility, which is entirely comprised of a revolving
line of credit, is based on the London Inter-Bank Offered Rate (LIBOR) plus a variable margin of
0.875% to 1.5%, or the base rate, as defined in the credit agreement. There are no outstanding
borrowings on the revolving line of credit at October 30, 2010; however, if we were to borrow
against our revolving line of credit, borrowing costs may fluctuate depending upon the volatility
of LIBOR. On August 24, 2007, we entered into an interest rate contract for $540 million to hedge
a portion of our variable rate Term Loan Facility. The interest rate contract provides for a fixed
interest rate of approximately 7.75%, portions of which mature on a series of dates over the next
five years. The unhedged portion of the Term Loan Facility is subject to interest rate risk
depending on the volatility of LIBOR. As of October 30, 2010, a 100 basis point increase in LIBOR
on the unhedged portion of the Companys debt, which totals $285.8 million, would impact pretax
interest expense by approximately $2.8 million annually or approximately $0.7 million per quarter.
Foreign Currency Risk
We have operations in foreign countries; therefore, our cash flows in U.S. dollars are impacted by
fluctuations in foreign currency exchange rates. We adjust our retail prices, when possible, to
reflect changes in exchange rates to mitigate this risk. To further mitigate this risk, we may
enter into forward contracts to purchase or sell foreign currencies.
A significant percentage of our footwear is sourced from the Peoples Republic of China (the
PRC). The national currency of the PRC, the Yuan, is currently not a freely convertible
currency. The value of the Yuan depends to a large extent on the PRC governments policies and
upon the PRCs domestic and international economic and political developments. During 2005, the
PRC government adopted an exchange rate system based on a trade-weighted basket of foreign
currencies of the PRCs main trading partners. Under this managed float policy, the exchange
rate of the Yuan may shift each day up to 0.5% in either direction from the previous days close,
and as a result, the valuation of the Yuan may increase incrementally over time should the PRC
central bank allow it to do so, which could significantly increase the cost of the products we
source from the PRC. As of October 29, 2010, the last day of trading in our quarter, the exchange
rate was 6.68 Yuan per U.S. dollar compared to 6.83 Yuan per U.S. dollar at the end of our third
quarter 2009 and 6.82 Yuan per U.S. dollar at the end of our 2009 fiscal year.
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ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management is responsible for establishing disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our periodic Securities Exchange Act of 1934
reports is recorded, processed, summarized and reported within the time periods specified in the
Securities Exchange Commissions (SEC) rules and forms and that such information is accumulated
and communicated to our management, including the Chief Executive Officer and the Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosures.
As of the end of the period covered by this Form 10-Q, we carried out an evaluation, under the
supervision and with the participation of our principal executive officer and principal financial
officer, of the effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, our principal executive officer and principal financial
officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) are effective and designed to ensure that
information required to be disclosed in periodic reports filed with the SEC is recorded, processed,
summarized and reported within the time period specified. Our principal executive officer and
principal financial officer also concluded that our controls and procedures were effective in
ensuring that information required to be disclosed by us in the reports that we file or submit
under the Act is accumulated and communicated to management including our principal executive
officer and principal financial officer, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the third quarter of
fiscal year 2010 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no pending legal proceedings other than ordinary, routine litigation incidental to the
business to which the Company is a party or of which its property is subject, none of which the
Company expects to have a material impact on its financial position, results of operations or cash
flows.
ITEM 1A. RISK FACTORS
For more information regarding our risk factors, see Item 1A in our Form 10-K for the year ended
January 30, 2010. There have been no changes to our risk factors since January 30, 2010.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table provides information about purchases by us (and our affiliated purchasers)
during the quarter ended October 30, 2010, of equity securities that are registered by us pursuant
to Section 12 of the Exchange Act:
Total Number of | ||||||||||||||||
Shares Purchased | Approximate Dollar Value of | |||||||||||||||
Total Number | Average | as Part of Publicly | Shares that May Yet Be | |||||||||||||
of Shares | Price | Announced Plans | Purchased Under the Plans or | |||||||||||||
Purchased(1) | Paid per | or Programs | Programs | |||||||||||||
Period | (in thousands) | Share | (in thousands) (3) | (in millions) | ||||||||||||
07/31/10 08/28/10 |
16 | $ | 15.15 | | $ | 187.0 | ||||||||||
08/29/10 10/3/10 |
2,046 | 13.86 | 2,017 | 159.0 | ||||||||||||
10/04/10 10/31/10 |
4 | 16.69 | | 159.0 | ||||||||||||
Total |
2,066 | $ | 13.88 | 2,017 | $ | 159.0 | (2) | |||||||||
(1) | Includes an aggregate of approximately 50 thousand shares of our common stock that was repurchased in connection with our employee stock purchase and stock incentive plans. | |
(2) | On March 2, 2007 our Board of Directors authorized an aggregate of $250 million of share repurchases. The timing and amount of share repurchases, if any, are limited by the terms of our Credit Agreement and Senior Subordinated Notes. | |
(3) | A portion of these purchases represent share repurchases as a result of consideration from stock option exercises. |
ITEM 4. RESERVED
ITEM 6. EXHIBITS
(a) Exhibits:
Number | Description | |
31.1
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer, President and Chairman of the Board* | |
31.2
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Division Senior Vice President Chief Financial Officer and Treasurer* | |
32.1
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer, President and Chairman of the Board* | |
32.2
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Division Senior Vice President Chief Financial Officer and Treasurer* |
* | Filed herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: December 2, 2010 | By: | /s/ Matthew E. Rubel | ||
Matthew E. Rubel | ||||
Chief Executive Officer, President and Chairman of the Board (Principal Executive Officer) |
||||
Date: December 2, 2010 | By: | /s/ Douglas G. Boessen | ||
Douglas G. Boessen | ||||
Division Senior Vice President
Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
||||
35