e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
January 29, 2011
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file
number: 1-14770
COLLECTIVE BRANDS,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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43-1813160
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State or other jurisdiction
of
incorporation or organization
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(I.R.S. Employer
Identification No.)
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3231 Southeast Sixth Avenue, Topeka, Kansas
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66607-2207
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(Address of principal executive
offices)
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(Zip Code)
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Registrants telephone number, including area code
(785) 233-5171
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $.01 par value per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. þ Yes o No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. o Yes þ No
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. þ
Yes o
No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). þ Yes o No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). o Yes þ No
The aggregate market value of the registrants common stock
held by non-affiliates of the registrant was
$1,031.4 million based on the closing price of $16.02 as
reported on the New York Stock Exchange on July 30, 2010,
the last trading day of the registrants second fiscal
quarter.
Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest
practicable date.
Common Stock, $.01 par
value
61,524,334 shares at March 18, 2011
DOCUMENTS
INCORPORATED BY REFERENCE
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Document
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Parts Into Which Incorporated
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Proxy Statement for the Annual Meeting of
Stockholders to be held on May 26, 2011
(Proxy Statement)
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Part III
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Forward
Looking Statements
This report contains forward-looking statements relating to such
matters as anticipated financial performance, business
prospects, technological developments, products, future store
openings and closings, international expansion opportunities,
possible strategic initiatives, new business concepts, capital
expenditure plans, fashion trends, consumer spending patterns
and similar matters. Statements including the words
expects, anticipates,
intends, plans, believes,
seeks, or variations of such words and similar
expressions are forward-looking statements. We note that a
variety of factors could cause actual results and experience to
differ materially from the anticipated results or expectations
expressed in our forward-looking statements. The risks and
uncertainties that may affect the operations, performance,
development and results of our business include, but are not
limited to, the following: litigation including intellectual
property and employment matters; the inability to renew material
leases, licenses or contracts upon their expiration on
acceptable terms; 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. See also Risk Factors. All
subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly
qualified in their entirety by these cautionary statements. 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.
COLLECTIVE
BRANDS, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 29, 2011
INDEX
[Page Intentionally
Left Blank]
PART I
General
Collective Brands, Inc. (Collective Brands or the
Company) is a leader in bringing compelling
lifestyle, fashion and performance brands for footwear and
related accessories to consumers worldwide. We operate a hybrid
business model with a portfolio of powerful brands and private
brand labels sold at multiple price points and through multiple
selling channels including retail, wholesale,
e-commerce,
licensing and franchising. Collective Brands consists of three
lines of business: Payless ShoeSource (Payless),
Collective Brands Performance + Lifestyle Group
(PLG), and Collective Licensing (CLI).
Payless is one of the largest footwear specialty retailers in
the World. It is dedicated to democratizing fashion and design
in footwear and accessories and inspiring fun, fashion
possibilities for the family at a great value. PLG is a leading
provider of iconic performance and lifestyle brands, each with
strong marketplace positions focused on distinct and targeted
consumer segments. PLG markets performance and lifestyle
footwear and related accessories for adults and children under
well-known brand names including Stride
Rite®,
Saucony®,
Sperry
Top-Sider®,
and
Keds®.
CLI is a brand development and licensing company that
specializes in building, launching, licensing and growing brands
focused on the youth lifestyle market, including Above the
Rim®,
Airwalk®,
Above the
Rim®,
Spot-Bilt®,
Clinch
Gear®,
Lamar®,
Sims®,
Strikeforce®,
and Vision Street
Wear®.
CLIs vision is to create the leading youth lifestyle and
athletic fashion branded licensing company in the world.
All references to years are to our fiscal year unless otherwise
stated. Fiscal year 2010 ended on January 29, 2011.
Payless is one of the largest footwear retailers in the World,
with 4,523 retail stores, owned or franchised, in
24 countries and territories at the end of 2010. Our owned
Payless ShoeSource retail stores in the United States, Canada,
the Caribbean, Central America, and South America sold nearly
132 million pairs of footwear and over 44 million
units of accessories through nearly 480 million customer
visits during 2010. Payless ShoeSource stores sell a broad
assortment of footwear including athletic, casual and dress
shoes, sandals, work and fashion boots, and slippers. Payless
also sells a broad array of accessories such as handbags,
jewelry,
bath-and-beauty
products, and hosiery. Payless ShoeSource stores offer
fashionable, quality, branded and private label footwear and
accessories for women, children, and men at affordable prices in
a self-selection shopping format. Our stores feature several
mainstream and designer footwear brands including
Airwalk®,
American
Eagletm,
Champion®,
Christian Siriano for
Paylesstm,
Isabel Toledo for
PaylessTM,
Dexter®,
and Lela Rose for
Paylesstm.
We seek to compete effectively by getting to market with
differentiated, trend-right merchandise before mass-market
discounters and at the same time as department and specialty
retailers but at a more compelling value. North American stores
are company-owned, stores in the Central and South American
regions (as defined in the Stores section below) are
operated as joint-ventures, and stores in Europe, Asia and the
Middle East are franchised. Stores operate in a variety of real
estate formats. Approximately a quarter of the company-owned
stores are mall-based while the rest are located in strip
centers, central business districts, and other real estate
formats. We also operate
payless.com®
where customers buy our products online and store associates
order products for customers that are not sold in all of our
stores or are out of stock. At year-end, each Payless ShoeSource
store stocked on average approximately 7,000 pairs of footwear.
We focus our marketing efforts primarily on expressive
self-purchasing women ages 16 49 and expressive
moms. These consumers use fashion as a means of expressing their
personalities and place importance on getting a good value. They
tend to have household incomes of less than $75,000 and make a
disproportionately large share of household footwear purchasing
decisions. Over one-third of these target consumers purchased
footwear from our stores last year.
PLG is a leading provider of iconic performance and lifestyle
brands, each with unique personalities and strong marketplace
positions focused on distinct and targeted consumer segments.
PLG is predominantly a wholesaler of footwear, selling its
products mostly in North America in a wide variety of retail
formats including premier department stores, specialty stores,
and athletic and sporting good stores. PLG markets products in
countries outside
1
North America largely through owned operations, independent
distributors and licensees. PLG designs and markets categories
of footwear and related accessories under various brands and
trademarks:
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Brand and/or trademark
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Product categories
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Sperry
Top-Sider®
and
Sperry®
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Nautical performance, outdoor recreational, dress-casual, and
casual footwear for adults and children; and, apparel and
accessories
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Saucony®
and Saucony
Originals®
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Technical running, minimalist, athletic lifestyle, outdoor
trail, and fashion athletic shoes for adults and children; and,
athletic apparel and accessories
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Keds®,
Pro-Keds®,
and
Grasshoppers®
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Fashion-athletic and casual footwear and accessories for adults
and children
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Stride
Rite®,
Robeez®,
and other brand names
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Childrens dress, athletic, and casual footwear, boots and
sandals
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PLG markets products in countries outside North America through
owned operations, independent distributors, and licensees. PLG
also markets its products directly to consumers by selling
footwear and apparel at retail through a variety of formats:
Stride Rite childrens stores, outlet stores, Stride Rite
store-in-stores,
Sperry Top-Sider stores, and
e-commerce
sites. In total, PLG operated 383 retail locations as of the end
of fiscal year 2010.
History
Payless was founded in Topeka, Kansas in 1956 with a strategy of
selling low-cost, high-quality family footwear on a self-service
basis. In 1962, Payless became a public company. In 1979, it was
acquired by The May Department Stores Company (May
Company). On May 4, 1996, Payless became an
independent public company again as a result of a spin-off from
May Company. In 1998, we reorganized forming a new Delaware
corporation, Payless ShoeSource Inc., which today is known as
Collective Brands, Inc. In March 2007, we acquired Collective
Licensing, a Denver-based brand development, management and
licensing company. In August 2007, our Delaware holding company
changed its name from Payless ShoeSource, Inc. to Collective
Brands, Inc., and we completed our acquisition of The Stride
Rite Corporation.
The Stride Rite Corporation was founded in Boston, Massachusetts
in 1919, as the Green Shoe Manufacturing Company (Green
Shoe). Green Shoe became a public company in 1960 and was
listed on the New York Stock Exchange. It adopted The Stride
Rite Corporation name in 1966 in recognition of its
well-respected brand name. The first Stride Rite childrens
store was opened in 1972. The Sperry Top-Sider and Keds brand
names were acquired from Uniroyal in 1979. During 2005, The
Stride Rite Corporation completed its acquisition of Saucony and
in 2006 it purchased Robeez. In the third quarter of 2009,
Collective Brands, Inc. announced that The Stride Rite
Corporation will do business as Collective Brands Performance +
Lifestyle Group.
Our principal executive offices are located at 3231 Southeast
Sixth Avenue, Topeka, Kansas
66607-2207,
and our telephone number is
(785) 233-5171.
Our common stock is listed for trading on the New York Stock
Exchange under the symbol PSS.
Segments
and Geographic Areas
We operate our business in four reporting segments: Payless
Domestic, Payless International, PLG Wholesale and PLG Retail.
See Note 15 in the Notes to the Consolidated Financial
Statements for a discussion on financial results by segment.
1. The Payless Domestic reporting segment is comprised
primarily of domestic retail stores under the Payless ShoeSource
name, our Payless
e-commerce
business as well as the Companys sourcing unit, and
Collective Licensing.
2. 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 the franchising arrangements under the Payless ShoeSource
name.
3. The PLG Wholesale reporting segment consists of
PLGs global wholesale operations.
2
4. The PLG Retail reporting segment consists of PLGs
owned Stride Rite childrens stores, outlet stores, Sperry
stores, and
store-in-stores
in select Macys locations.
Stores
At the end of 2010, we operated a total of 4,844 retail stores.
This was comprised of 3,794 in the Payless Domestic segment, 667
stores in the Payless International segment, and 383 stores in
the PLG Retail segment.
Payless
Domestic
The average size of a store in the Payless Domestic segment is
approximately 3,200 square feet. Depending upon the season
and the sales volume of the store, stores employ a varying
number of associates, including a store manager or shared store
manager. Stores use a combination of full-time and part-time
associates. By including materially remodeled stores in our
calculation as new stores, Payless ShoeSource domestic stores
were 11 years old on average at the end of 2010. Payless
ShoeSource stores operate in a variety of real estate formats
such as shopping malls, central business districts,
free-standing buildings, strip centers, and leased departments
in
ShopKo®
stores. ShopKo is a discount retailer with stores primarily in
the Midwest, Western Mountain, and Pacific Northwest regions.
This alliance provides us with a capital efficient, additional
distribution channel for our products. As of year-end, there
were 138 of these locations, and they are included in the table
below.
The number of retail stores by geographic region for the Payless
Domestic segment is represented in the following table:
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Payless Domestic
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Alabama
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36
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Louisiana
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59
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Oklahoma
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44
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Alaska
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8
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Maine
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13
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Oregon
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48
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Arizona
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88
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Maryland
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72
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Pennsylvania
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147
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Arkansas
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39
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Massachusetts
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86
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Rhode Island
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14
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California
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518
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Michigan
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126
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South Carolina
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30
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Colorado
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51
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Minnesota
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47
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South Dakota
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14
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Connecticut
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43
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Mississippi
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43
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Tennessee
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44
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Delaware
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8
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Missouri
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71
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Texas
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389
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District of Columbia
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8
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Montana
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14
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Utah
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50
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Florida
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283
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Nebraska
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35
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Vermont
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7
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Georgia
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90
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Nevada
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34
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Virginia
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77
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Hawaii
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15
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New Hampshire
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18
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Washington
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85
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Idaho
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30
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New Jersey
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129
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West Virginia
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10
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Illinois
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172
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New Mexico
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28
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Wisconsin
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79
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Indiana
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56
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New York
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245
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Wyoming
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4
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Iowa
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31
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North Carolina
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57
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Kansas
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33
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North Dakota
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6
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Guam
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2
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Kentucky
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31
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Ohio
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126
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Saipan
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1
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Total Payless Domestic
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3,794
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Payless
International
Since opening our first wholly-owned stores in Canada in 1997,
our international presence has grown substantially. We entered
Latin America in September 2000, and operate stores there
through joint ventures. In 2009, we franchised our first stores
in the Middle East.
The average size of our owned stores in the Payless
International segment is approximately 2,800 square feet.
By including materially remodeled stores in our calculation as
new stores, our owned international stores were on
3
average seven years old at the end of 2010. Our international
stores operate in a variety of real estate formats, including
shopping malls, central business districts, free-standing
buildings, and strip centers.
As of year-end 2010, we had 667 stores in 14 foreign countries
or territories that were either wholly-owned or operated as
joint ventures. This includes 17
store-in-store
locations within two retailers in Colombia.
Store-in-store
is likely to be an important long-term growth channel there.
In addition, our franchisees operated 62 stores in Bahrain,
Kuwait, Peru, the Philippines, Russia, Saudi Arabia, and the
United Arab Emirates. Our franchisees intend to add
approximately 70 more stores in 2011 within countries where our
franchises already operate as well as in Indonesia, Israel,
Malaysia, Mexico, Singapore, and Turkey.
The number of retail stores by Province, Country and Territory
for the Payless International segment is represented in the
table below. Franchised stores are not included in the table.
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Payless International
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Canada
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Central America
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South America
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Alberta
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41
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Costa Rica
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25
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Ecuador
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38
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British Columbia
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39
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Dominican Republic
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16
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Colombia
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63
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Manitoba
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10
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El Salvador
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22
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New Brunswick
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7
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Guatemala
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47
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Total South America
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101
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Newfoundland and Labrador
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2
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Honduras
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21
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Other Countries and Territories
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Nova Scotia
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11
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Jamaica
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1
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Puerto Rico
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79
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Ontario
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135
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Nicaragua
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13
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U.S. Virgin Islands
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5
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Prince Edward Island
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2
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Panama
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20
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Quebec
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43
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Trinidad/Tobago
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16
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Total Other Territories
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84
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Saskatchewan
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11
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Total Canada
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301
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Total Central America
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181
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Total Payless International
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667
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PLG
Retail
Stride Rite childrens stores are located primarily in
larger regional shopping centers, clustered generally in the
major marketing areas of the U.S. The average size of a
Stride Rite childrens store is approximately
1,300 square feet. Outlet stores average approximately
2,800 square feet because outlet stores carry a broad range
of footwear for adults in addition to childrens footwear.
Most of our outlet stores are located in shopping centers
consisting only of outlet stores. Sperry Top-Sider stores
average approximately 1,500 square feet and tend to be
located in affluent areas that embrace the nautical lifestyle
that the brand projects. At the end of 2010, each PLG retail
store carried an average of approximately 5,000 pairs of shoes.
Outlets carried more pairs than average due to greater square
footage and a large amount of childrens footwear. By
including materially remodeled stores in our calculation as new
stores, PLG Retail segment stores were on average approximately
nine years old at the end of 2010. We also operate Stride Rite
shoe departments within select Macys stores. This alliance
provides us with a capital efficient, additional distribution
channel for our products.
4
The number of retail stores by type for the Stride Rite Retail
segment is represented in the table below.
|
|
|
|
|
|
|
PLG Retail
|
|
|
Stride Rite childrens stores
|
|
|
251
|
|
Outlet stores
|
|
|
106
|
|
Sperry Top-Sider stores
|
|
|
8
|
|
Macys
store-in-stores
|
|
|
18
|
|
|
|
|
|
|
Total PLG Retail stores
|
|
|
383
|
|
|
|
|
|
|
PLG
Wholesale
In addition to the owned PLG retail stores, we had 119 PLG
stores managed by licensed dealers (not included in the store
count above) at the end of 2010. A licensed dealer is an
independent shoe retailer that sells a high percentage of PLG
product. We generate sales from dealers by selling them our
product. Dealers do not currently pay franchise or on-going
fees. Of the total, 100 stores were located in the United States
and 19 were located internationally, predominantly in Latin
America. PLG sales representatives monitor the dealers
assortments and appearance. We give guidance to the dealers on
store remodeling. Dealers are not currently obliged to
participate in PLG retail store promotions.
International
Business
During 2010, Collective Brands had $589.8 million, or
17.5%, of its sales from outside the U.S. In 2010, we
derived sales from 95 countries or territories through
retailing, wholesaling,
e-commerce,
licensing, and franchising.
Payless
International
Payless International sales were $460.3 million, or 13.6%
of total Company sales. Of the Payless International stores we
directly own or operate through joint ventures, 45% are located
in Canada; 43% are located in Latin America and the Caribbean;
and 12% are located in Puerto Rico.
PLG
Wholesale
PLG Wholesale sells footwear in 83 countries and territories.
International wholesale sales totaled $127.3 million in
2010. We use our owned operations, independent distributors and
licensees to market our various product lines outside of the
U.S. A majority of our international PLG Wholesale sales
came from Europe, followed by Canada. We record revenue from
foreign sources through the sale of products by our owned
operations in Canada, Germany, the Netherlands, and the United
Kingdom, as well as through sales to independent distributors in
other countries.
In 2010, we entered into licensing and development arrangements
with Li & Fung Retailing and Stores Specialists, Inc.
(SSI) aimed at introducing the Stride Rite brand to
Greater China and several Southeast Asian countries. At
year-end, our partners operated a total of eight Stride Rite
stores in Hong Kong, Malaysia, the Philippines and Singapore.
Distribution and licensing arrangements enable us to develop
sales in certain international markets without incurring
development costs and the capital commitment required to
maintain related foreign operations, employees, inventories, or
localized marketing programs. We assist in designing products
that are appropriate to each foreign market, but are consistent
with our global brand positioning. Independent licensees and
distributors purchase goods from either us or authorized
third-party manufacturers pursuant to distribution agreements,
or manufacture branded products consistent with our standards
pursuant to license agreements. Distributors and licensees are
responsible for independently marketing and distributing our
branded products in their respective territories with product
and marketing support provided by us.
5
Store and
Wholesale Operations Management
Collective Brands manages certain support functions such as
marketing, information technology and finance in a mostly
centralized fashion from its Topeka, Kansas and Lexington,
Massachusetts offices. The Company also manages other support
functions, such as loss prevention and store-level human
resources, in a more decentralized fashion.
Payless
Domestic
Our Retail Operations team is responsible for managing the
operations of our stores, including functions such as opening
and closing, store displays, inventory management, staffing, and
managing the customer experience. Positions and scope are as
follows:
|
|
|
Title (or position)
|
|
Span of Control (or scope)
|
|
|
Store Manager
|
|
Manage one store
|
Multiple Store Manager
|
|
Manage two stores
|
Group Leader
|
|
Manage one store; oversee four others
|
District Leader
|
|
Oversee approximately 25 stores
|
Director of Retail Operations
|
|
Oversee approximately 300 stores
|
Payless associates are trained and measured on, among other
things, customer conversion and compliance with a multi-step
selling process frequently referred to as the customer
journey or SMILES. In 2010, the Retail
Operations team launched an update to SMILES to better service
customers more efficiently and effectively. Execution of the
customer journey is typically measured by customer satisfaction
(CSAT) scores. In 2010, our CSAT scores improved by
four percentage points to record levels.
Payless has a small number of associates focused on the direct
sales of slip resistant footwear in its retail stores and for
limited wholesale distribution. We sell footwear with slip
resistant technology branded Safe T
Step®
to end-users through several commercial accounts in channels
such as restaurants, auto service locations, and grocery stores.
We believe we are establishing a competitive edge in this
business by offering Safe T Step customers payroll deduction and
the convenience of purchasing online (SafeTStep.com) or at one
of our ubiquitous Payless store locations. We believe slip
resistant footwear is an underserved market.
Payless
International
The international reporting structure is very similar to Payless
Domestic. However, the international span of control is more
narrow than domestic as we have fewer international stores.
PLG
Wholesale
The PLG Wholesale business is divided by major brands, each with
its own dedicated sales forces. Generally each sales executive
is assigned a specific geographic region.
PLG
Retail
Retail locations are managed by a Store Manager who reports to a
District Manager. District Managers typically oversee
approximately 25 stores. These positions are responsible for
managing the operations of our stores, including functions such
as opening and closing, store displays, inventory management,
and staffing.
Stride Rite childrens stores offer customers a
full-service experience that includes personalized sizing and
fitting of each child by trained specialists. Outlet stores
offer limited service in conjunction with a self-selection
environment. Sperry stores and
store-in-store
locations offer full-service and self-selection shopping
together.
Employees
At the end of 2010, Collective Brands employed approximately
29,000 associates worldwide. Over 27,000 associates worked in
stores, while the remaining associates worked in other
capacities such as corporate support,
6
Asia-based procurement/sourcing, licensing, and distribution
centers. Our associate base was approximately 45% full-time and
55% part-time and we had 141 associates under collective
bargaining agreements at year end.
Payless
Domestic
At year-end, nearly 22,000 associates worked in the Payless
Domestic segment. The mix of full-time to part-time associates
was 37% and 63%, respectively.
Payless
International
The Payless International segment employed over 3,500 associates
at year-end. The mix of full-time to part-time associates was
70% and 30%, respectively.
PLG
Wholesale
Approximately 850 associates at year-end were employed in
various sales and support capacities in the PLG Wholesale
segment. Almost 100% were full-time associates.
PLG
Retail
The PLG Retail segment employed approximately 2,600 associates
at year-end. The mix of full-time to part-time associates was
28% and 72%, respectively.
Competition
As a multi-channel provider of footwear and accessories, we face
several different forms of competition.
The retail footwear and accessories market is highly
competitive. It is comprised of department stores, footwear
specialty stores, discount mass-merchandisers, sporting goods
stores, and online competitors. The primary competitive levers
to establish points of differentiation in our industry are
merchandise selection, flow and timing, pricing, attractive
styles, product quality and aesthetics, durability, comfort,
convenience, and in-store experience.
Payless
Domestic
We seek to compete effectively by getting to market with
differentiated, trend-right merchandise before mass-market
discounters. Payless strives to get trend-right merchandise to
market at the same time but at more compelling values than
department stores and specialty retailers. Main competitors
include DSW, Famous Footwear, J.C. Penney, Kmart,
Kohls, Macys, Marshalls, Ross Stores, Sears,
Target, TJ Maxx, and Wal-Mart.
Payless
International
Internationally, we also seek to compete effectively by getting
to market with differentiated, trend-right merchandise before
mass-market discounters, but at more compelling values than
department stores and specialty retailers. Our main competitors
in Canada are Sears Canada, SportChek, Walmart Canada, and
Zellers. The competitive environment in Canada is becoming more
fragmented due to online and other competitors. In addition, the
U.S. exchange rate impacts competition. During times of
relative strength in the Canadian dollar, U.S. retailers
become stronger competitors and price competition in Canada
becomes sharper.
In Latin America, our competition varies by country. In Central
America (except for Panama), we have two larger corporate
competitors: Adoc and MD. In Colombia, our main competitors are
Bata, Calzatodo, and Spring Step. We also compete in Latin
America against small independent operators that vary by country.
7
PLG
Wholesale
On a wholesale level, we also compete with many suppliers of
footwear. PLG Wholesales most significant competitors
include:
|
|
|
|
|
|
|
PLG Wholesale Brand
|
|
|
Sperry
|
|
|
|
Stride Rite
|
Saucony
|
|
Top-Sider
|
|
Keds
|
|
Childrens Group
|
|
adidas
|
|
Cole Haan
|
|
Converse
|
|
adidas / Reebok
|
Asics
|
|
Ecco
|
|
Lacoste
|
|
Geox
|
Brooks
|
|
Geox
|
|
Toms
|
|
Lelli Kelly
|
Mizuno
|
|
Rockport
|
|
Vans
|
|
New Balance
|
New Balance
|
|
Sebago
|
|
|
|
Nike / Converse
|
Nike
|
|
Timberland
|
|
|
|
Pedipeds
|
|
|
|
|
|
|
Primigi
|
|
|
|
|
|
|
Puma
|
|
|
|
|
|
|
Skechers
|
|
|
|
|
|
|
Teva
|
|
|
|
|
|
|
Ugg
|
PLG
Retail
We compete in the childrens retail shoe industry with
numerous businesses, ranging from large retail chains to single
store operators. The chains include Childrens Place,
Dillards, Gap, Gymboree, Nordstrom, and Target.
Seasonality
As an international multi-channel provider of footwear and
accessories, we have operations that are impacted by certain
seasonal factors some of which are common across
segments and channels while others are not. For the most part,
our business is characterized by four high-volume seasons:
Easter, the arrival of warm weather,
back-to-school,
and the arrival of cool weather. In preparation for each of
these periods, we increase our inventory levels in our retail
stores to support the increased demand for our products. For our
wholesale business, we increase our inventory levels
approximately three months in advance of these periods to
support the increased demands from our wholesale customers for
these products. We offer styles particularly suited for the
relevant season such as sandals in the spring and boots during
the fall. Our cash position tends to be higher in June as well
as September to October, due primarily to cash received from
sales during the Easter season and the cash received from sales
during
back-to-school,
respectively. Our cash position tends to be lowest around
February to March when Easter inventories are
built-up but
not yet sold.
Payless
Domestic
Payless Domestic retail stores tend to have their highest
inventory levels in preparation for the Easter selling season
because customers tend to shop our stores for holiday-specific
footwear and accessories. This is typically about 1-3 weeks
in advance of the holiday. Seasonal sales volumes are typically
highest for Payless Domestic in the first quarter, followed
closely by the second and third quarters. The arrival of warm
weather in most major markets and
back-to-school
are meaningful sales catalysts, but typically not quite as
strong as Easter. Usually, the Payless Domestic segment has
lower sales in the fourth quarter compared to the other three
quarters. Footwear customer traffic during the fourth quarter
tends to be lower because there are no significant sales
catalysts and footwear tends to be less giftable than other
retail alternatives.
Payless
International
Payless International seasonality tends to largely resemble
Payless Domestic with a few important differences. First, a
greater share of sales tends to come in December compared to
Payless Domestic. In Puerto Rico and Latin America many workers
get an incremental paycheck for the Christmas season. Secondly,
compared to Payless
8
Domestic,
back-to-school
is even more important for Payless International. Many Latin
Americans come together and shop as family units.
Back-to-school
is culturally and economically a time to spend together.
Finally, paydays are times when proportionally more is spent on
footwear than on other days of a month.
PLG
Wholesale
The PLG Wholesale business is customarily driven by demand for
spring (i.e. first half) and fall (i.e. second half) seasonal
product lines. PLG Wholesale sales tend to be more first
half-weighted compared to second half due to the nature of our
brands, as well as meeting the wholesale customers
seasonal needs of their end-consumers. The wholesale
segments business is usually about three months earlier
than Collective Brands other three segments. The wholesale
segment tends to have its highest inventory position around
January to February and its lowest inventory position around the
November to December time frame.
PLG
Retail
Retail seasonal sales volume for our Stride Rite childrens
stores and outlet stores tends to be approximately equivalent
for the first half of the year versus the second half of the
year. The arrival of warm weather in the first half of the year
is the biggest annual sales catalyst. Easter tends not to be as
big compared to Payless. In the second half of the year,
back-to-school
and the merchandise mix shift to boots are significant sales
drivers. PLG Retail tries to balance promotions evenly between
the periods.
In their short history, Sperry Top-Sider stores have seen
reasonably consistent seasonal sales patterns with notable
spikes around Christmas and Fathers Day.
Supply
Chain
We run an integrated supply chain that supports the product
life-cycle from concept to liquidation across all reporting
segments. In 2010, we sold nearly 170 million pairs of
footwear through retail and wholesale combined.
Merchandise
Planning & Allocation
We strive to get product to the right store at the right time
and have product available for our wholesale customers at the
right time in order to drive sales and margin growth. We do this
through the use of a variety of systems and models related to
planning, forecasting, pricing, and allocations. This helps us
align our promotions, product flow, and pricing with customer
shopping patterns.
We build and manage total inventory plans globally across
multiple selling channels. Assortments are targeted based on
customer demand and planned with specific product lifecycles. We
base our decisions on how to stock stores using several criteria:
|
|
|
|
|
For the Payless Domestic and Payless International segments, we
employ the use of assortment clusters.
Assortment clusters are customer profiles of our stores based on
lifestyle, demographics, shopping behavior, and appetite for
fashion.
|
|
|
|
We also consider seasonality and climate by geography which
impacts the timing of our inventory distribution. We have sandal
and boot zones to help guide our product flow and pricing.
|
|
|
|
In addition, we use historical precedent of stores sales
volumes and the categories of products they tend to sell.
|
|
|
|
We also account for footwear sizes in how to stock stores. In
retail, we use a size assortment matrix tool when allocating
inventory to reduce aged product and markdowns in the least
productive sizes.
|
All this is done to deliver proportionately correct assortments.
Our goal is to optimize product flow and freshness as we
transition between selling periods. This is intended to drive
sales and improve the profitability of those sales by reducing
markdowns and aged inventory.
9
For Payless stores in North America, we also optimize price
throughout products lifecycles by using tools which enable
us to change pricing for every product at a store price
cluster level. A store price cluster is a group of
stores (usually about 125) with similar levels of price
elasticity for a particular product.
Sourcing
Our design, product development, and sourcing functions come
together in our global supply chain organization. We utilize
agents, as well as internal product design and development
capabilities, to drive trend-right designs and improve speed to
market of new products. Our Asia-based teams, responsible for
product development and sourcing, perform several functions
including sample creation and quality control. For strategic
commodities and inputs (e.g. outsoles, components), we negotiate
directly with suppliers of raw materials and require our
factories to use our preferred suppliers.
We procure products two different ways through our
direct sourcing organization or by engaging third party agents
to assist in the procurement of products which we cannot or do
not want to procure ourselves. About 73% of our footwear in 2010
was procured by our direct sourcing organization 67%
for Payless and 97% for PLG. In 2010, we procured a higher
percentage of our Payless products from third party agents
versus the prior year in an effort to utilize the agents more
for additional product trend insights.
Our sourcing team is closely aligned with our core factory base
which serves the bulk of our manufacturing needs. We balance
several considerations in allocating our workflow to factories
such as: present and future capacity needs, costs, compliance
with regulatory issues, and product complexity. Twenty-six core
factories accounted for 75% of Collective Brands footwear
purchases. We have about 75 other footwear factories with which
we do a smaller amount of business.
We believe our relationships with our factories are good.
Factories in China were a direct source of approximately 84% of
our footwear at cost in 2010 compared to approximately 85% in
2009. We are diversifying our manufacturing base not only
between countries but also within China in order to reduce
costs. In 2010, we sourced 13% of our footwear from Vietnam and
the remaining 3% from a variety of countries including Brazil,
India, Indonesia and Thailand. Products are manufactured to meet
our specifications and standards. We do not purchase
seconds or overruns.
Logistics
We maintain a flexible and efficient global logistics network
that enables speed to market while mitigating transportation
costs. Our systems provide perpetual planning and forecasting
solutions, support multiple distribution centers, and provide
information to allow us to optimize initial distribution
planning and case pack configuration. During 2010, our days from
order
commitment-to-store
(supply chain days) increased slightly versus the
prior year due to implementing a sourcing diversification
strategy which requires sourcing footwear from more remote
locations. Cross functional execution, process enhancements, and
optimizing our physical distribution helped decrease supply
chain days. But sourcing more from outside China to reduce costs
increased logistics complexity and offset the supply chain day
reductions. To ensure product arrives at locations when our
customers need it, we commit earlier to assortments given the
slight increase in supply chain days.
We target high-demand, in-season product for accelerated
delivery (rapid re-order) at both retail and
wholesale. Through rapid re-order we attempt to maximize sales
and margin on high-demand, proven items. Through rapid re-order,
we reduce approximately one month worth of supply chain days
from certain product runs.
Stores generally receive new merchandise on average twice a week
from one of our pool points (which are used to manage the
flow-through of inventory from our distribution centers
(DC) to our stores) in an effort to maintain a
constant flow of fresh and replenished merchandise. We currently
use six distribution facilities worldwide:
1. We lease an 802,000 square foot DC in Brookville,
Ohio which currently serves approximately 2,200 Payless stores
in North America and the Stride Rite Childrens Group.
2. We own a 520,000 square foot DC in Louisville,
Kentucky which serves wholesale operations in the United States
for Keds, Saucony, and Sperry Top-Sider. It also serves Sperry
retail stores.
10
3. We lease a 414,000 square foot DC in Redlands,
California which serves approximately 1,800 Payless stores in
North America.
4. We lease 46,000 square feet of office, showroom,
and distribution space in Cambridge, Ontario to support PLG
Canadian wholesale operations.
5. We lease 94,000 square feet of distribution and
showroom space in Heerhugowaard, The Netherlands to support our
European operations.
6. We contract with a third-party in Colon, Panama to
operate a distribution facility for our Latin America operations.
We will begin occupying a 60,000 square foot facility in
Mississauga, Ontario as of May 1, 2011, which will
substantially replace the smaller Cambridge facility we
currently lease. We possess rights to expand the Mississauga
facility to meet our long-term wholesale growth needs in Canada.
We lease 87,000 square feet of office space in multiple
locations in China, Taiwan, and Vietnam. The functions of our
associates in these Asia locations are primarily related to
sourcing, inspection, costing, and logistics.
Intellectual
Property
Through our wholly-owned subsidiaries, we own certain
copyrights, trademarks, patents and domain names which we use in
our business and regard as valuable assets.
Payless
Domestic and Payless International
The trademarks and service marks used in our Payless business
include
Payless®,
Payless
ShoeSource®,
Payless
Kids®,
and various logos used on our Payless ShoeSource store signs and
in advertising, including our traditional yellow and orange
signage and our orange and blue circle P logos. The
domain names include
Payless.com®,
as well as derivatives of Payless ShoeSource. We also own and
use the following trademarks and brands in Payless stores:
Airwalk®,
Above the
Rim®,
and
Spot-Bilt®.
Currently, we have agreements in place regarding the following
brands:
|
|
|
|
|
Trademark
|
|
Licensor
|
|
Expires
|
|
Various Disney characters and properties
|
|
Disney Enterprises, Inc.
|
|
December 31, 2013
|
Blues Clues, SpongeBob SquarePants, and Pro-Slime
|
|
MTV Networks, a division of Viacom International, Inc.
|
|
December 31, 2012
|
The Last
Airbender®
|
|
MTV Networks, a division of Viacom International, Inc.
|
|
December 31, 2012
|
Star Wars and Star Wars: The Clone Wars properties
|
|
Lucasfilm Ltd.
|
|
December 31, 2012
|
American
Ballet
Theatretm
|
|
Ballet Theatre Foundation, Inc.
|
|
January 31, 2013
|
Superball®
|
|
Wham-o, Inc.
|
|
December 31, 2013
|
Dexter®
|
|
HH Brown Shoe Company, Inc.
|
|
December 31, 2014
|
Champion®
|
|
HBI Branded Apparel Enterprises, LLC
|
|
June 30, 2015
|
American
Eagletm
|
|
American Eagle Outfitters
|
|
None
|
11
We have agreements for development, licensing, marketing and
distribution regarding the following designer brands:
|
|
|
|
|
Trademark
|
|
Designer
|
|
Expires
|
|
Silvia
Tcherassi for
Paylesstm
|
|
Silvia Tcherassi
|
|
September 1, 2011
|
Jeff Staple
for
Airwalktm
|
|
Jeff Staple
|
|
October 31, 2011
|
Isabel Toledo
for
Paylesstm
|
|
Isabel Toledo
|
|
February 29, 2012
|
Lela Rose for
Paylesstm
|
|
Lela Rose
|
|
May 31, 2012
|
Teeny Toes
Lela Rose
Collectiontm
|
|
Lela Rose
|
|
May 31, 2012
|
Unforgettable
Moments by Lela
Rosetm
|
|
Lela Rose
|
|
May 31, 2012
|
Christian
Siriano for
Paylesstm
|
|
Christian Siriano
|
|
December 31, 2013
|
The Silvia Tcherassi for Payless mark is used primarily
in Latin America. Payless also has the exclusive right to use
the
Dunkman®
brand. Through agents, Payless also utilizes various character
marks from
time-to-time.
Collective Licensing markets brand marks outside of Payless
stores including Above the
Rim®,
Airwalk®,
Clinch
Gear®,
Dukestm,
genetic®,
Hind®,
Lamar®,
LTD®,
Rage®,
Skate
Attack®,
Strikeforce®,
Ultra-Wheels®,
and Vision Street
Wear®.
We are also the exclusive agent for the
Sims®
brand mark. Collective Licensings focus is on the growing
active sport lifestyle market driven predominantly by the skate-
and snowboard-inspired trends. It is positioned with its
authentic brand portfolio to reach both the younger consumer
with strong ties to board sports, as well as appeal to the broad
range of consumers drawn to this established lifestyle and
fashion.
PLG
Retail and Wholesale
The trademarks and service marks used by our Performance +
Lifestyle Group include
Grasshoppers®,
Keds®,
Robeez®,
Saucony®,
Sperry
Top-Sider®,
and Stride
Rite®.
These marks extend to the various logos, packaging, store signs,
point-of-purchase
displays, and other marketing contexts in which we use them. The
domain names include grasshoppers.com, keds.com, robeez.com,
saucony.com, sperrytopsider.com, and striderite.com.
Through our Keds group, we license the
Champion®
name to Hanesbrands, Inc. for footwear. We also have other
licensees of our Keds and Stride Rite marks.
We have entered into license agreements with various licensors,
which are summarized in the following table:
|
|
|
|
|
Trademark
|
|
Licensor
|
|
Expires
|
|
Disney®
tradenames & logos
|
|
Disney Consumer Products, Inc.
|
|
December 31, 2013
|
Superball®
|
|
Wham-o, Inc.
|
|
December 31, 2013
|
The World of Eric
Carle®
|
|
Chorion, Ltd
|
|
June 30, 2011
|
Jessica
Simpsontm
|
|
Jessica Simpson
|
|
December 31, 2011
|
Nick
Slimers!®
|
|
MTV Networks, a division of Viacom International, Inc.
|
|
December 31, 2011
|
The Last
Airbender®
|
|
MTV Networks, a division of Viacom International, Inc.
|
|
December 31, 2011
|
Star Wars and Star Wars: The Clone Wars properties
|
|
Lucasfilm Ltd.
|
|
December 31, 2012
|
Various Marvel characters and properties
|
|
Marvel Entertainment, LLC
|
|
December 31, 2013
|
Backlog
PLG
Wholesale
Our backlog of orders as of January 29, 2011 was
approximately $343 million compared to approximately
$222 million as of January 30, 2010. Of the
$343 million of backlog as of January 29, 2011,
$191.1 million relates to orders for the first quarter of
2011. Of the $222 million of backlog as of January 30,
2010, $143.4 million related to
12
orders for the first quarter of 2010. 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.
Environmental
Liability
In connection with the acquisition of PLG, we acquired a
property with a related environmental liability. The liability
as of January 29, 2011 was $2.4 million,
$1.6 million of which was included as an accrued expense
and $0.8 million of which was included in other long-term
liabilities in the accompanying Consolidated Balance Sheet. The
assessment of the liability and the associated costs were based
upon available information after consultation with environmental
engineers, consultants and attorneys assisting the Company in
addressing these environmental issues. As of January 29,
2011, the Company estimated the range of total costs related to
this environmental liability to be between $6.9 million and
$7.4 million, including $5.0 million of costs that
have already been paid. Actual costs to address the
environmental conditions may change based upon further
investigations, the conclusions of regulatory authorities about
information gathered in those investigations, the inherent
uncertainties involved in estimating conditions in the
environment, and the costs of addressing such conditions.
Available
Information
We file or furnish our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K,
and amendments to those reports pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 with the SEC
electronically. Copies of any of these documents will be
provided in print to any shareholder who submits a request in
writing to Collective Brands, Inc., Attn: Investor Relations,
3231 Southeast Sixth Avenue, Topeka KS 66607 or calls our
Investor Relations Department at
(785) 559-5321.
The public may read or request a copy of any materials we file
with the SEC at the Public Reference Room at
100 F Street N.E., Washington, D.C. 20549, on
official business days during the hours of 10:00 a.m. and
3:00 p.m. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC maintains a website that contains reports, proxy and
information statements, and other information regarding issuers
that file electronically with the SEC. The address of that site
is
http://www.sec.gov.
We maintain an investor relations website at
www.collectivebrands.com. On our investor relations
website, one can access free of charge our reports that are
filed with the SEC, the Guidelines for our Board of Directors,
and the charters for the Board of Directors, the Audit and
Finance Committee and the Compensation, Nominating and
Governance Committee. No portion of our website or the
information contained in or connected to the website is a part
of, or incorporated into, this Annual Report on
Form 10-K.
13
Directors
of the Company
Listed below are the names and present principal occupations or,
if retired, most recent occupations of the Companys
Directors:
|
|
|
Name
|
|
Principal Occupation
|
|
Management Director
|
|
|
Matthew E.
Rubel(1)
|
|
Chief Executive Officer, President and Chairman of the Board
|
Independent Directors
|
|
|
Daniel Boggan
Jr.(2)
|
|
Retired Senior Vice President of the National Collegiate
Athletic Association
|
Mylle H.
Mangum(1)(3*)
|
|
Chief Executive Officer of IBT Enterprises, LLC
|
John F.
McGovern(1)(2*)
|
|
Former Executive Vice President/Chief Financial Officer of
Georgia-Pacific Corporation
|
Robert F.
Moran(2)
|
|
President and Chief Executive Officer of PetSmart, Inc.
|
David Scott
Olivet(2)
|
|
Executive Chairman, RED Digital Cinema and Chairman, Oakley Inc.
|
Matthew A.
Ouimet(2)
|
|
Former President and Chief Operating Officer, Operations of
Corinthian Colleges, Inc.
|
Michael A.
Weiss(3)
|
|
President and Chief Executive Officer of Express, Inc.
|
Robert C.
Wheeler(1*)(3)(4)
|
|
Retired Chairman and Chief Executive Officer of Hills Pet
Nutrition, Inc.
|
|
|
|
(1) |
|
Executive Committee Member |
|
(2) |
|
Audit and Finance Committee Member |
|
(3) |
|
Compensation, Nominating and Governance Committee Member |
|
(4) |
|
Non-Management Lead Director |
|
* |
|
Chairman |
Executive
Officers of the Company
Listed below are the names and ages of the executive officers of
the Company as of March 25, 2011 and offices held by them
with the Company.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position and title
|
|
Matthew E. Rubel
|
|
|
53
|
|
|
Chief Executive Officer, President and Chairman of the Board
|
LuAnn Via
|
|
|
57
|
|
|
President and Chief Executive Officer Payless
ShoeSource, Inc.
|
Darrel J. Pavelka
|
|
|
55
|
|
|
Executive Vice President Global Supply Chain
|
Douglas J. Treff
|
|
|
53
|
|
|
Executive Vice President Chief Administrative Officer
|
Betty J. Click
|
|
|
48
|
|
|
Senior Vice President Human Resources
|
Michael J. Massey
|
|
|
46
|
|
|
Senior Vice President General Counsel and Secretary
|
Douglas G. Boessen
|
|
|
48
|
|
|
Division Senior Vice President, Chief Financial Officer and
Treasurer
|
Matthew E. Rubel is 53 years old and has served as a
Director since July 2005 and as Chairman of the Board since May
2008. He has served as Chief Executive Officer and President of
Collective Brands, Inc. since July 2005. Prior to joining
Collective Brands, Mr. Rubel was Chairman and Chief
Executive Officer for Cole Haan from 1999
14
to July 2005. He served as Executive Vice President, J. Crew
Group and Chief Executive Officer of Popular Club Plan from 1994
to 1999, and in November 1998, led the sale of Popular from J.
Crew to Fingerhut. While at J. Crew Group, Mr. Rubel was
responsible for all licensing and international activities, as
well as brand marketing and served on its Group Executive
Committee. Mr. Rubel has also served as President and Chief
Executive Officer of Pepe Jeans USA, and President of the
Specialty Division of Revlon. Mr. Rubel served as a
Director of Furniture Brands, Inc. from 2006 to 2008 and has
served as a Director of SUPERVALU, INC. since June, 2010.
LuAnn Via is 57 years old and has served as
President and Chief Executive Officer of Payless since July
2008. Prior to joining the Company, she served as Group
Divisional President of Charming Shoppes Lane Bryant and
Cacique chains from June 2007 to July 2008 and served on the
Charming Shoppes Group Executive Committee from January
2006 to July 2008. From January 2006 to June 2007, she served as
President of Charming Shoppes Catherine Stores. She worked
at Sears, Roebuck and Company from 2003 to 2006, serving as Vice
President and General Merchandising Manager for the
retailers footwear, accessories, fine jewelry and intimate
apparel business. She served as Senior Vice President, General
Merchandising Product Development from 1998 to 2003 at Saks,
Inc. And from 1992 to 1998, she served as Executive Vice
President at Trade Am International. From 1990 to 1992,
Ms. Via was Senior Vice President and General Merchandising
Manager at The Shoe Box/The Shoe Gallery; and from 1985 to 1990
she served as Divisional Vice President and Merchandise Manager
for Accessories, as well as various other buying positions at
the Richs Division of Federated Department Stores.
Darrel J. Pavelka is 55 years old and has served as
Executive Vice President Global Supply Chain since
September 2007. Prior to that he served as Senior Vice
President Merchandise Distribution, Planning and
Supply Chain from September 2004 to September 2007. He also
served as Senior Vice President International
Operations and Supply Chain from March 2003 to September 2004,
Senior Vice President Merchandise Distribution from
1999 to 2003, Vice President of Retail Operations for
Division R from 1997 to 1999, Vice President of Stores
Merchandising from 1995 to 1997, Director of Stores
Merchandising from 1990 to 1995, Director of Distribution for
Womens from 1987 to 1990, Manager of Stores Merchandising
for Division R from 1983 to 1987, and Manager of the
Northeast store expansion from 1980 to 1983.
Douglas J. Treff is 53 years old and has served as
the Companys Executive Vice President and Chief
Administrative Officer since September 2007. Prior to joining
the Company, he served as Executive Vice President and Chief
Administrative Officer for Sears Canada, Inc. from 2006 to 2007.
From 2000 to 2006 he served as Senior Vice President and Chief
Financial Officer for Deluxe Corporation and from 1990 to 2000,
as Chief Financial Officer and other leadership roles in finance
at Wilsons, The Leather Experts, Inc.
Betty J. Click is 48 years old and has served as
Senior Vice President Human Resources for Collective
Brands, Inc. since July 2008. Prior to that, she served as Vice
President, HR Operations and Learning and Development from
December 2005 to August 2008 and as Vice President, HR Solutions
from June 2002 to December 2005. Prior to joining Collective
Brands, Inc., she spent 21 years with Verizon
Communications, Inc. (formerly GTE) and served in various
positions of increasing responsibility from August 1987 to June
2002, including Vice President Human Resources
Corporate Staff from April 2002 to June 2002 and Executive
Director of Compensation Strategy from July 2000 to April 2002.
Michael J. Massey is 46 years old and has served as
Senior Vice President General Counsel and Secretary
since March 2003. Prior to that, he served as Vice President of
International Development during 2001, Vice President of
Contract Manufacturing during 2000, Vice President, Group
Counsel Intellectual Property from 1998 to 2000, and Senior
Counsel from 1996 to 1998. Prior to joining Collective Brands,
Inc., Mr. Massey was an attorney for The May Department
Stores Company from 1990 to 1996.
Douglas G. Boessen is 48 years old and has served as
Division Senior Vice President, Chief Financial Officer and
Treasurer since December 2008. He previously served as Vice
President, Corporate Controller from 2004 to 2008. From 2000 to
2004, he was Vice President, Financial Planning and Analysis,
from 1999 to 2000 he was Director Strategic Planning
and from 1997 to 1999 he served as Associate Controller for the
Company. Prior to joining Payless, he served as Senior Manager
at Arthur Andersen LLP.
15
We May be
Unable to Compete Effectively in the Competitive Worldwide
Footwear Industry
We face a variety of competitive challenges from other domestic
and international footwear retailers and wholesalers, including
a number of competitors that have substantially greater
financial and marketing resources than we do. These competitors
include mass-market discount retailers, department stores
including, other footwear retailers and wholesalers. We compete
with these competitors on the basis of:
|
|
|
|
|
developing fashionable, high-quality merchandise in an
assortment of sizes, colors and styles that appeals to our
target consumers;
|
|
|
|
anticipating and responding to changing consumer demands in a
timely manner;
|
|
|
|
ensuring product availability and optimizing supply chain
effectiveness;
|
|
|
|
the pricing of merchandise;
|
|
|
|
creating an acceptable value proposition for consumers;
|
|
|
|
providing an inviting, customer friendly shopping environment;
|
|
|
|
using a customer focused sales staff to provide attentive,
product knowledgeable customer service; and
|
|
|
|
providing strong and effective marketing support.
|
Mass-market discount retailers aggressively compete with us on
the basis of price and have added significant numbers of
locations. Accordingly, there is substantial pressure on us to
maintain the value proposition of our footwear and the
convenience of our store locations. In addition, it is possible
that mass-market discount retailers will increase their
investment in their retail footwear operations, thereby
achieving greater market penetration and placing additional
competitive pressures on our business. If we are unable to
respond effectively to these competitive pressures, our
business, results of operations and financial condition could be
adversely affected.
The
Worldwide Footwear Industry is Heavily Influenced by General
Economic Cycles Including Commodity and Labor Prices
Footwear is a cyclical industry that is heavily dependent upon
the overall level of consumer spending. Purchases of footwear
and related goods tend to be highly correlated with the cycles
of the levels of disposable income of our consumers. As a
result, any substantial deterioration in general economic
conditions could adversely affect our business. Further, the
profitability of our industry is dependent on the prices of
commodities used to make and transport our products (including
cotton, rubber, petroleum, etc.) as well as labor prices. If we
are unable to mitigate the impact of the deterioration of
general economic conditions and the impact of higher commodity
and labor prices, our results of operations and financial
condition could be materially adversely affected.
A
Majority of our Operating Expenses are Fixed Costs that are not
Directly Dependent Upon our Sales Performance.
A majority of our operating expenses are fixed costs that are
not directly dependent on our sales performance. These fixed
costs include the leasing costs of our stores, our debt service
expenses and, because stores require minimum staffing levels,
the majority of our labor expenses. If our sales decline, we may
be unable to reduce or offset these fixed operating expenses in
the short term. Accordingly, the effect of any sales decline is
magnified because a larger percentage of our earnings are
committed to paying these fixed costs. As a result, our net
earnings and cash flow could be disproportionately affected
negatively as a result of a decline in sales.
We May be
Unable to Maintain or Increase our Sales Volume and
Margins
Our Payless stores have a substantial market presence in the
United States and we currently derive a significant majority of
our revenue from our U.S. stores. Our PLG retail stores and
our PLG wholesale businesses also derive a significant majority
of their revenue from U.S. sources. Because of our
substantial market presence, because the U.S. footwear
retailing industry is mature and because our domestic store
count is decreasing, for us to increase our
16
domestic sales volume on a unit basis, we must capture market
share from our competitors. We have attempted to capture
additional market share through a variety of strategies;
however, if we are not successful we may be unable to increase
or maintain our sales volumes and margins in the United States,
adversely affecting our business, results of operations and
financial condition.
We May
Have Unseasonable Weather Where our Stores are
Concentrated
We increase our inventory levels to support the increased demand
for our products, as well as to offer styles particularly suited
for the relevant season, such as sandals in the early summer
season and boots during the winter season. If the weather
conditions for a particular season vary significantly from those
typical for such season, such as an unusually cold early summer
or an unusually warm winter, consumer demand for the seasonally
appropriate merchandise that we have available in our stores
could be adversely affected and negatively impact net sales and
margins. Lower demand for seasonally appropriate merchandise may
leave us with an excess inventory of our seasonally appropriate
products
and/or basic
products, forcing us to sell both types of products at
significantly discounted prices and adversely affecting our net
sales margins and operating cash flow. Conversely, if weather
conditions permit us to sell our seasonal product early in the
season, this may reduce inventory levels needed to meet our
customers needs later in that same season. Consequently,
our results of operations are highly dependent on somewhat
predictable weather conditions.
We May be
Unable to Adjust to Constantly Changing Fashion Trends
Our success depends, in large part, upon our ability to gauge
the evolving fashion tastes of our consumers and to provide
merchandise that satisfies such fashion tastes in a timely
manner. The worldwide footwear industry fluctuates according to
changing fashion tastes and seasons, and merchandise usually
must be ordered well in advance of the season, frequently before
consumer fashion tastes are evidenced by consumer purchases. In
addition, the cyclical nature of the worldwide footwear industry
also requires us to maintain substantial levels of inventory,
especially prior to peak selling seasons when we build up our
inventory levels. As a result, if we fail to properly gauge the
fashion tastes of consumers, or to respond in a timely manner,
this failure could adversely affect consumer acceptance of our
merchandise and leave us with substantial unsold inventory. If
that occurs, we may be forced to rely on markdowns or
promotional sales to dispose of excess, slow-moving inventory,
which would negatively impact financial results.
The results of our wholesale businesses are affected by the
buying plans of our customers, which include large department
stores and smaller retailers. No customer accounts for 10% or
more of our wholesale business. Our wholesale customers may not
inform us of changes in their buying plans until it is too late
for us to make the necessary adjustments to our product lines
and marketing strategies. While we believe that purchasing
decisions in many cases are made independently by individual
stores or store chains, we are exposed to decisions by the
controlling owner of a store chain that could decrease the
amount of footwear products purchased from us. In addition, the
retail industry periodically experiences consolidation. We face
a risk that our wholesale customers may consolidate,
restructure, reorganize, file for bankruptcy or otherwise
realign in ways that could decrease the number of stores or the
amount of shelf space that carry our products. We also face a
risk that our wholesale customers could develop in-house brands
or utilize the private labeling of footwear products, which
would negatively impact financial results.
We May be
Unsuccessful in Opening New Stores or Relocating Existing Stores
to New Locations, Adversely Affecting our Ability to
Grow
Our growth, in part, is dependent upon our ability to expand our
retail operations by opening and operating new stores, as well
as relocating existing stores to new locations and extending our
expiring leases, on a profitable basis.
Our ability to open new stores and relocate existing stores to
new locations on a timely and profitable basis is subject to
various contingencies, some of which are beyond our control.
These contingencies include our ability to:
|
|
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|
|
locate suitable store sites;
|
|
|
|
negotiate acceptable lease terms;
|
17
|
|
|
|
|
build-out or refurbish sites on a timely and cost effective
basis;
|
|
|
|
hire, train and retain qualified managers and personnel;
|
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|
|
identify long-term shopping patterns;
|
|
|
|
obtain adequate capital resources; and
|
|
|
|
successfully integrate new stores into our existing operations.
|
In addition, the opening of stores outside of the United States
is subject to a number of additional contingencies, including
compliance with local laws and regulations and cultural issues.
Also, because we operate a number of our international stores
under joint ventures, issues may arise in our dealings with our
joint venture partners or their compliance with the joint
venture agreements.
We may be unsuccessful in opening new stores or relocating
existing stores for any of these reasons. In addition, we cannot
be assured that, even if we are successful in opening new stores
or relocating existing stores, those stores will achieve levels
of sales and profitability comparable to our existing stores.
We Rely
on Third Parties to Manufacture and Distribute Our
Products
We depend on third party manufacturers to manufacture the
merchandise that we sell. If these manufacturers are unable to
secure sufficient supplies of raw materials, or maintain
adequate manufacturing and shipping capacity, they may be unable
to provide us with timely delivery of products of acceptable
quality. In addition, if the prices charged by these third
parties increase for reasons such as increases in the price of
raw materials, increases in labor costs or currency
fluctuations, our cost of manufacturing would increase,
adversely affecting our results of operations. We also depend on
third parties to transport and deliver our products. Due to the
fact that we do not have any independent transportation or
delivery capabilities of our own, if these third parties are
unable to transport or deliver our products for any reason, or
if they increase the price of their services, our operations and
financial performance may be adversely affected.
We require our third party manufacturers to meet our standards
in terms of working conditions and other matters before we are
willing to contract with them to manufacture our merchandise. As
a result, we may not be able to obtain the lowest possible
manufacturing costs. In addition, any failure by our
manufacturers to meet these standards, to adhere to labor or
other laws or to diverge from our mandated labor practices, and
the potential negative publicity relating to any of these
events, could harm our business and reputation.
We do not have long-term agreements with any of our third party
manufacturers, and any of these manufacturers may unilaterally
terminate their relationship with us at any time. There is also
substantial competition among footwear retailers for quality
manufacturers. To the extent we are unable to secure or maintain
relationships with quality manufacturers, our business could be
harmed.
There are
Risks Associated with Our Importation of Products
We import finished merchandise into the United States and other
countries in which we operate from the Peoples Republic of
China and other countries. Substantially all of this imported
merchandise is subject to:
|
|
|
|
|
customs, duties and tariffs imposed by the governments of
countries into which this merchandise is imported; and
|
|
|
|
penalties imposed for, or adverse publicity relating to,
violations of labor and wage standards by foreign contractors.
|
The United States and countries in which our merchandise is
manufactured or imported may from time to time impose additional
new quotas, tariffs, duties or other restrictions on our
merchandise or adversely change existing restrictions or
interpretations. These additional taxes and regulations could
adversely affect our ability to import,
and/or the
cost of our products which could have a material adverse impact
on the results of operations of our business.
18
Manufacturers in China are our major suppliers. During 2010,
China was a direct source of approximately 84% of our
merchandise based on cost. In addition to the products we import
directly, a significant amount of the products we purchase from
other suppliers has been imported from China. Any deterioration
in the trade relationship between the United States and China or
any other disruption in our ability to import footwear,
accessories, or other products from China or any other country
where we have stores could have a material adverse effect on our
business, financial condition or results of operations.
In addition to the risks of foreign sourcing stemming from
international trade laws, there are also operational risks of
relying on such imported merchandise. Our ability to
successfully import merchandise derived from foreign sources
into the United States is dependent on stable labor conditions
in the major ports we utilize to import or export product. Any
instability or deterioration of the labor environment in these
ports, such as the work stoppage at West Coast ports in 2002,
could result in increased costs, delays or disruption in product
deliveries that could cause loss of revenue, damage to customer
relationships or materially affect our business.
If we are unable to maintain our current Customs-Trade
Partnership Against Terrorism (C-TPAT) status, it
would increase the time it takes to get products into our
stores. Such delays could materially impact our ability to move
the current product in our stores to meet customer demand.
Our
International Operations are Subject to Political and Economic
Risks
In 2010, 17.5% of our sales were generated outside the United
States and almost all of our merchandise was manufactured
outside the United States. We are accordingly subject to a
number of risks relating to doing business internationally, any
of which could significantly harm our business, including:
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political and economic instability;
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|
inflation;
|
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|
quotas;
|
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|
regulation of importation of goods from certain countries;
|
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|
exchange controls and currency exchange rates;
|
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|
foreign tax treaties and policies;
|
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|
|
restrictions on the transfer of funds to and from foreign
countries;
|
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|
ability to import product; and
|
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|
increase in duty rates
|
Certain countries have increased or are considering increases to
duty rates. If the Company is unable to mitigate the impact of
these increased duty rates or any other costs, it would
adversely impact the profitability of our foreign operations
which would adversely impact our financial position and results
of operations.
Our financial performance on a U.S. dollar denominated
basis is also subject to fluctuations in currency exchange
rates. These fluctuations could cause our results of operations
to vary materially.
From time to time, we may enter into agreements seeking to
reduce the effects of our exposure to currency fluctuations, but
these agreements may not be effective in reducing our exposure
to currency fluctuations or may not be available at a cost
effective price.
We May be
Unable to Effectively Protect Our Trademarks and Other
Intellectual Property Rights
We believe that our trademarks and other intellectual property
are important to our business and are generally sufficient to
permit us to carry on our business as presently conducted. We
cannot, however, know whether we will be able to secure patents
or trademark protection for our intellectual property in the
future or whether that protection will be adequate for future
products. Further, we face the risk of ineffective protection of
intellectual property rights in the countries where we source
and distribute our products. If we are compelled to prosecute
infringing parties or
19
defend our intellectual property, we will incur additional
costs. Costs associated with the defense of our intellectual
property could be substantial and occupy a significant amount of
management time and resources.
Adverse
Changes in Our Results of Operations and Financial Position
Could Impact Our Ability to Meet Our Debt Covenants
We are subject to financial covenants under our Term Loan
Facility, Revolving Credit Facility and our Senior Subordinated
Notes (collectively, the Credit Facilities). These
financial covenants are based largely on our results of
operations and financial position. In the event of adverse
changes in our results of operations or financial position,
including those resulting from changes in generally accepted
accounting principles, we may be unable to comply with the
financial covenants contained in our Credit Facilities in which
case we would be in default. To avoid a default, we may seek an
amendment that would likely involve significant up front costs,
increased interest rate margins and additional covenants. If we
were unable to negotiate an amendment of our Credit Facilities
and defaulted on them we could be required to make immediate
repayment. A default could also trigger increases in interest
rates and difficulty obtaining other sources of financing. Such
an event would adversely impact our financial position and
results of operations.
We May be
Subject to Liability if We Infringe the Trademarks or Other
Intellectual Property Rights of Third Parties
We may be subject to liability if we infringe the trademarks or
other intellectual property rights of third parties. If we were
to be found liable for any such infringement, we could be
required to pay substantial damages and could be subject to
injunctions preventing further infringement. Litigation could
occupy a significant amount of management time and resources.
Further, large verdicts and judgments against us may increase
our exposure to legal claims in the future. Such payments and
injunctions could materially adversely affect our financial
results.
We Rely
on Brands We Do Not Own
As discussed in Item 1 of this
Form 10-K
under the caption Intellectual Property, we license
trademarks and brands through various agreements with third
parties. We, through our agents, also utilize various character
marks from
time-to-time.
If we are unable to renew or replace any trademark, brand or
character mark that accounts for a significant portion of our
revenue, our results could be adversely affected.
Adverse
Occurrences at Our Distribution Centers or the Ports We Use
Could Negatively Impact Our Business
We currently use six distribution centers, which serve as the
source of replenishment of inventory for our stores and serve
our wholesale operations. If complications arise with any of our
operating distribution centers or our distribution centers are
severely damaged or destroyed, our other distribution centers
may not be able to support the resulting additional distribution
demands and we may be unable to locate alternative persons or
entities capable of doing so. This may adversely affect our
ability to deliver inventory on a timely basis, which could
adversely affect our results of operations.
Unstable
Credit Markets Could Affect Our Ability to Obtain
Financing
Our Revolving Loan Facility matures on August 17, 2012, our
Senior Subordinated Notes are due on August 1, 2013, and
our Term Loan Facility matures on August 17, 2014. In the
event we need additional financing, or we need to refinance our
current debt, there can be no assurances that these funds will
be available on a timely basis or on reasonable terms. Failure
to obtain such financing could constrain our ability to operate
or grow the business. In addition, any ratings downgrade of our
securities, or any negative impacts on the credit market,
generally, could negatively impact the cost or availability of
capital.
There are
Risks Associated with Our Acquisitions
Any acquisitions or mergers by us will be accompanied by the
risks commonly encountered in acquisitions of companies. These
risks include, among other things, higher than anticipated
acquisition costs and expenses, the
20
difficulty and expense of integrating the operations and
personnel of the companies and the loss of key employees and
customers as a result of changes in management.
In addition, geographic distances may make integration of
acquired businesses more difficult. We may not be successful in
overcoming these risks or any other problems encountered in
connection with any acquisitions.
Our acquisitions may cause large one-time expenses or create
goodwill or other intangible assets that could result in
significant impairment charges in the future. We also make
certain estimates and assumptions in order to determine purchase
price allocation and estimate the fair value of acquired assets
and liabilities. If our estimates or assumptions used to value
acquired assets and liabilities are not accurate, we may be
exposed to losses that may be material.
Adverse
Changes in our Market Capitalization or Anticipated Future
Operating Performance May be an Indication of Goodwill or Other
Intangible Asset Impairment, Which Could Have a Material Impact
on our Financial Position and Results of Operations
We assess goodwill, which is not subject to amortization, for
impairment on an annual basis or at any other interim reporting
date when events or changes in circumstances indicate that the
book value of these assets may exceed their fair value. We
develop an estimate of the fair value of each reporting unit
using both a market approach and an income approach. A
significant adverse change in our market capitalization or
anticipated future operating performance could result in the
book value of a reporting unit exceeding its fair value,
resulting in a goodwill impairment charge, which could adversely
impact our financial position and results of operations.
We also assess certain finite and indefinite lived intangible
assets for impairment on an annual basis or at any other interim
reporting date when events or changes in circumstances indicate
that the book value of these assets may exceed their fair value.
Any significant changes in our anticipated future operating
performance may be an indication of impairment to our tradenames
or any other intangible asset. Any such impairment charges, if
significant, would adversely impact our financial position and
results of operations.
The
Operation of our Business is Dependent on our Information
Systems
We depend on a variety of information technology systems for the
efficient functioning of our business and security of our
information and certain information of our customers. Our
inability to continue to maintain and upgrade these information
systems or to meet changing data security and privacy standards
could disrupt or reduce the efficiency of our operations or
result in fines or litigation. In addition, potential problems
with the implementation of new or upgraded systems as our
business grows or with maintenance of existing systems could
also disrupt or reduce the efficiency of our operations.
An
Outbreak of Infectious Diseases May Have a Material Adverse
Effect on Our Ability to Purchase Merchandise from Manufacturers
and Our Operations Generally
An outbreak and spread of infectious diseases in countries in
which our manufacturers are located could impact the
availability or timely delivery of merchandise. Although our
ability to purchase and import our merchandise has not been
negatively impacted to date, an outbreak of infectious diseases
could prevent the manufacturers we use from manufacturing our
merchandise or hinder our ability to import those goods to the
countries in which our stores are located, either of which could
have an adverse effect on our results of operations.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
Collective Brands uses six distribution facilities worldwide:
1. We lease an 802,000 square foot distribution center
(DC) in Brookville, Ohio which currently serves
approximately 2,200 Payless stores in North America and the
Stride Rite Childrens Group.
21
2. We own a 520,000 square foot DC in Louisville,
Kentucky which serves wholesale operations in the United States
for Keds, Saucony, and Sperry Top-Sider. It also serves Sperry
retail stores.
3. We lease a 414,000 square foot DC in Redlands,
California which serves approximately 1,800 Payless stores in
North America.
4. We lease 46,000 square feet of office, showroom,
and distribution space in Cambridge, Ontario to support Stride
Rite Canadian wholesale operations.
5. We lease 94,000 square feet of distribution and
showroom space in Heerhugowaard, The Netherlands to support our
European operations.
6. We contract with a third-party in Colon, Panama to
operate a distribution facility for our Latin America operations.
We will begin occupying a 60,000 square foot facility in
Mississauga, Ontario as of May 1, 2011 which will
substantially replace the smaller Cambridge facility we
currently lease. We possess rights to expand the Mississauga
facility to meet our long-term wholesale growth needs in Canada.
We lease 87,000 square feet of office space in multiple
locations in China, Taiwan, and Vietnam. The functions of our
associates in these Asia locations are primarily related to
sourcing, inspection, costing, and logistics.
Retail
Properties
The total square footage for our retail stores as of
January 29, 2011, January 30, 2010 and
January 31, 2009 was approximately 14.6 million,
14.6 million and 14.8 million, respectively. These
square footage numbers do not include our franchised stores.
Payless
Domestic and Payless International
We lease substantially all of our Payless stores. Leases on new
or relocated stores typically have initial terms of five or ten
years and either one or two renewal options. Renewals on
existing stores are, on average, approximately three years. This
is because we have negotiated significant occupancy cost
reductions with shorter terms on many stores due to the recent
economic slowdown.
During 2011, approximately 1,000 of our leases are due to
expire. This is an increase compared to historical precedent
because we negotiated reduced rents with shorter terms during
the last two years. In addition to this base of about 1,000
stores, approximately 300 leases as of January 29, 2011
were
month-to-month
tenancies. Of all the roughly 1,300 expiring or
month-to-month
leases, approximately 300 have modifications that are pending
execution. Leases usually require payment of base rent,
applicable real estate taxes, common area expenses and, in some
cases, percentage rent based on the stores sales volume.
In addition to our stores, we own a 290,000 square foot
headquarters building in Topeka, Kansas. We lease approximately
10,000 square feet of office space in New York, N.Y. for
our design center. We also lease 6,300 square feet of
office space for our Collective Licensing headquarters in
Englewood, Colorado. We lease office space totaling nearly
19,000 square feet in Latin America and another
3,800 square feet in Canada.
PLG
Retail and PLG Wholesale
We lease all of our PLG stores. Our leases typically have an
initial term of up to ten years and may include a renewal
option. Leases usually require payment of base rent, applicable
real estate taxes, common area expenses and, in some cases,
percentage rent based on the stores sales volume and
merchants association fees.
We lease approximately 148,000 square feet of office space
at our PLG headquarters building in Lexington, Massachusetts. We
also lease approximately 24,000 square feet of call center
space in Richmond, Indiana. We lease showroom space to conduct
business with wholesale customers, the trade, and media in New
York and London totaling 10,000 and 2,600 square feet,
respectively.
22
|
|
ITEM 3.
|
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 and cash flows.
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
There were approximately 9,300 registered holders of the
Companys Common Stock as of January 29, 2011,
compared to approximately 9,400 registered holders as of
January 30, 2010.
Common
Stock and Market Prices
The Companys common stock is listed on the New York Stock
Exchange under the trading symbol PSS. The quarterly intraday
price ranges of the common stock in 2010 and 2009 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
Fiscal Quarter
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
First
|
|
$
|
26.65
|
|
|
$
|
18.54
|
|
|
$
|
15.30
|
|
|
$
|
7.11
|
|
Second
|
|
|
24.37
|
|
|
|
14.99
|
|
|
|
16.74
|
|
|
|
12.53
|
|
Third
|
|
|
17.69
|
|
|
|
12.41
|
|
|
|
21.85
|
|
|
|
13.62
|
|
Fourth
|
|
|
21.90
|
|
|
|
15.07
|
|
|
|
23.82
|
|
|
|
18.02
|
|
Year
|
|
$
|
26.65
|
|
|
$
|
12.41
|
|
|
$
|
23.82
|
|
|
$
|
7.11
|
|
Since becoming a public company in 1996, we have not paid a cash
dividend on outstanding shares of common stock. We are subject
to certain restrictions contained in our senior secured
revolving loan facility, the indenture governing our
8.25% senior subordinated notes and our term loan which
restrict our ability to pay dividends. We do not currently plan
to pay any dividends.
Recent
Sales of Unregistered Securities
On May 27, 2010, May 21, 2009, and May 22, 2008,
22,300 shares, 37,937 shares, and 14,136 shares,
respectively, were credited to an account under the
Companys Restricted Stock Plan for Non-Management
Directors as the annual restricted stock grant portion of their
directors fees. In addition, Mr. Ouimet received
3,940 shares on June 30, 2008 as a prorated
directors fee based on his date of election as a director
during the year. Each director is permitted to defer receipt of
a portion of their compensation including their annual
restricted stock grant pursuant to the Companys Deferred
Compensation Plan for Non-Management Directors. In the past
three years, non-management directors have deferred an aggregate
of 67,756 shares under the Deferred Compensation Plan for
Non-Management Directors. These grants were made as partial
compensation for the recipients services as directors. The
offer and issuance of these securities are exempt from
registration under Section 4(2) of the Securities Act of
1933 and the rules and regulations promulgated thereunder, as
transactions by an issuer not involving any public offering or
alternatively, registration of such shares was not required
because their issuance did not involve a sale under
Section 2(3) of the Securities Act of 1933.
23
Issuer
Purchases of Equity Securities
The following table provides information about purchases by the
Company (and its affiliated purchasers) of equity securities
that are registered by the Company pursuant to Section 12
of the Exchange Act, during the quarter ended January 29,
2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
Average
|
|
|
Shares Purchased
|
|
|
Value of Shares
|
|
|
|
Total Number
|
|
|
Price
|
|
|
as Part of Publicly
|
|
|
that May Yet Be
|
|
|
|
of Shares
|
|
|
Paid per
|
|
|
Announced Plans
|
|
|
Purchased Under the
|
|
Period
|
|
Purchased(1)
|
|
|
Share
|
|
|
or
Programs(3)
|
|
|
Plans or Programs
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
(In millions)
|
|
|
10/31/10 11/27/10
|
|
|
4
|
|
|
$
|
16.92
|
|
|
|
|
|
|
$
|
159.0
|
|
11/28/10 01/01/11
|
|
|
167
|
|
|
|
20.61
|
|
|
|
160
|
|
|
$
|
155.7
|
|
01/02/11 01/29/11
|
|
|
864
|
|
|
|
20.40
|
|
|
|
821
|
|
|
$
|
139.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,035
|
|
|
$
|
20.42
|
|
|
|
981
|
|
|
$
|
139.0
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes an aggregate of approximately 54 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. |
24
New York
Stock Exchange Corporate Governance Matters
The graph below compares the cumulative total stockholder return
on Collective Brands, Inc. Common Stock against the cumulative
returns of the Standard and Poors Corporation Composite
Index (the S&P 500 Index), and the Peer Group.
Most of the companies included in this Peer Group are
competitors and many of them were used in determining bonuses
under the Companys performance-based incentive plans.
Comparison
of Five Year Cumulative Returns of the Company,
the S&P 500 Index and Peer Group
Investment Value at End of Fiscal Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
2006
|
|
|
|
2007
|
|
|
|
2008
|
|
|
|
2009
|
|
|
|
2010
|
|
Collective Brands, Inc.
|
|
|
$
|
100.00
|
|
|
|
$
|
147.14
|
|
|
|
$
|
74.07
|
|
|
|
$
|
44.91
|
|
|
|
$
|
82.83
|
|
|
|
$
|
85.19
|
|
S&P 500 Index
|
|
|
$
|
100.00
|
|
|
|
$
|
115.03
|
|
|
|
$
|
112.92
|
|
|
|
$
|
68.46
|
|
|
|
$
|
91.15
|
|
|
|
$
|
110.53
|
|
Peer Group
|
|
|
$
|
100.00
|
|
|
|
$
|
118.98
|
|
|
|
$
|
108.42
|
|
|
|
$
|
68.24
|
|
|
|
$
|
121.15
|
|
|
|
$
|
154.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The graph assumes $100 was invested on January 28, 2006,
(the end of fiscal 2005) in Collective Brands, Inc. Common
Stock, in the S&P 500 Index, and the Peer Group and assumes
the reinvestment of dividends.
Companies comprising the Peer Group are: Gap, Inc., Limited
Brands, Inc., V. F. Corporation, Skechers USA, Inc., Timberland
Company, Ross Stores, Inc., TJX Companies, Inc., Brown Shoe
Company, Inc., Genesco Inc., Shoe Carnival, Inc., Finish Line,
Inc., and Foot Locker, Inc.
25
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
Our summary consolidated financial information set forth below
should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our Notes to Consolidated Financial
Statements, included elsewhere in this
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year(1)
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007(2)(3)(4)
|
|
|
2006
|
|
|
|
(Dollars in millions, except per share)
|
|
|
Selected Statements of Earnings (Loss) Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
3,375.7
|
|
|
$
|
3,307.9
|
|
|
$
|
3,442.0
|
|
|
$
|
3,035.4
|
|
|
$
|
2,796.7
|
|
Total cost of
sales(5)
|
|
|
2,174.5
|
|
|
|
2,166.9
|
|
|
|
2,432.8
|
|
|
|
2,044.5
|
|
|
|
1,821.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
1,201.2
|
|
|
|
1,141.0
|
|
|
|
1,009.2
|
|
|
|
990.9
|
|
|
|
975.7
|
|
Selling, general and administrative expenses
|
|
|
1,011.5
|
|
|
|
982.4
|
|
|
|
1,007.2
|
|
|
|
899.4
|
|
|
|
808.5
|
|
Impairment of
goodwill(5)
|
|
|
|
|
|
|
|
|
|
|
42.0
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
|
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) from continuing operations
|
|
|
189.7
|
|
|
|
158.5
|
|
|
|
(40.2
|
)
|
|
|
91.3
|
|
|
|
166.4
|
|
Interest expense (income), net
|
|
|
48.0
|
|
|
|
59.7
|
|
|
|
67.1
|
|
|
|
32.3
|
|
|
|
(3.5
|
)
|
Loss on extinguishment of debt
|
|
|
1.7
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before income taxes
|
|
|
140.0
|
|
|
|
97.6
|
|
|
|
(107.3
|
)
|
|
|
59.0
|
|
|
|
169.9
|
|
Provision (benefit) for income taxes
|
|
|
17.4
|
|
|
|
9.4
|
|
|
|
(48.0
|
)
|
|
|
8.6
|
|
|
|
39.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
122.6
|
|
|
|
88.2
|
|
|
|
(59.3
|
)
|
|
|
50.4
|
|
|
|
130.0
|
|
Earnings (loss) from discontinued operations, net of income
taxes(6)
|
|
|
|
|
|
|
0.1
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
(3.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
122.6
|
|
|
|
88.3
|
|
|
|
(60.0
|
)
|
|
|
50.4
|
|
|
|
126.6
|
|
Net earnings attributable to noncontrolling
interests(7)
|
|
|
(9.8
|
)
|
|
|
(5.6
|
)
|
|
|
(8.7
|
)
|
|
|
(7.7
|
)
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Collective Brands,
Inc.(7)
|
|
$
|
112.8
|
|
|
$
|
82.7
|
|
|
$
|
(68.7
|
)
|
|
$
|
42.7
|
|
|
$
|
122.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
attributable to Collective Brands, Inc. common shareholders
|
|
$
|
1.77
|
|
|
$
|
1.29
|
|
|
$
|
(1.08
|
)
|
|
$
|
0.66
|
|
|
$
|
1.89
|
|
Diluted earnings (loss) per share from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
attributable to Collective Brands, Inc. common shareholders
|
|
$
|
1.75
|
|
|
$
|
1.28
|
|
|
$
|
(1.08
|
)
|
|
$
|
0.65
|
|
|
$
|
1.87
|
|
Selected Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
601.3
|
|
|
$
|
659.2
|
|
|
$
|
556.5
|
|
|
$
|
525.1
|
|
|
$
|
526.3
|
|
Property and equipment, net
|
|
|
432.3
|
|
|
|
464.2
|
|
|
|
521.4
|
|
|
|
551.0
|
|
|
|
421.2
|
|
Total assets
|
|
|
2,268.5
|
|
|
|
2,284.3
|
|
|
|
2,251.3
|
|
|
|
2,415.2
|
|
|
|
1,427.4
|
|
Total long-term debt
|
|
|
664.5
|
|
|
|
849.3
|
|
|
|
913.2
|
|
|
|
922.3
|
|
|
|
202.1
|
|
Collective Brands, Inc. shareowners
equity(8)
|
|
|
822.9
|
|
|
|
735.2
|
|
|
|
622.3
|
|
|
|
702.9
|
|
|
|
700.1
|
|
Selected Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
97.6
|
|
|
$
|
84.0
|
|
|
$
|
129.2
|
|
|
$
|
167.4
|
|
|
$
|
118.6
|
|
Present value of operating leases
|
|
|
981.1
|
|
|
|
1,072.3
|
|
|
|
1,123.5
|
|
|
|
1,203.5
|
|
|
|
1,011.9
|
|
Net sales growth, continuing operations
|
|
|
2.0
|
%
|
|
|
(3.9
|
)%
|
|
|
13.4
|
%
|
|
|
8.5
|
%
|
|
|
4.9
|
%
|
Same-store sales growth, continuing
operations(9)
|
|
|
(2.2
|
)%
|
|
|
(2.3
|
)%
|
|
|
(3.6
|
)%
|
|
|
(0.9
|
)%
|
|
|
4.0
|
%
|
Return on equity, including discontinued
operations(10)
|
|
|
15.3
|
%
|
|
|
13.3
|
%
|
|
|
(9.8
|
)%
|
|
|
6.1
|
%
|
|
|
18.7
|
%
|
Return on net assets, including discontinued
operations(10)
|
|
|
9.5
|
%
|
|
|
8.5
|
%
|
|
|
1.8
|
%
|
|
|
8.0
|
%
|
|
|
12.3
|
%
|
Return on invested capital, continuing
operations(11)
|
|
|
10.8
|
%
|
|
|
9.3
|
%
|
|
|
(1.4
|
)%
|
|
|
6.2
|
%
|
|
|
14.5
|
%
|
Stores open (at year-end)
|
|
|
4,844
|
|
|
|
4,833
|
|
|
|
4,877
|
|
|
|
4,892
|
|
|
|
4,572
|
|
|
|
|
(1) |
|
All years include 52 weeks, except 2006, which includes
53 weeks. The reporting for our operations in the Central
and South American Regions uses a December 31 year-end. |
|
(2) |
|
During 2007, we adopted new accounting guidance related to
accounting for uncertainty in income taxes. In accordance with
the accounting for uncertainty in income taxes recognition
standards, we performed a comprehensive review of potential
uncertain tax positions and adjusted the carrying amount of the
liability for unrecognized tax benefits resulting in a reduction
to retained earnings of $11.2 million. |
26
|
|
|
(3) |
|
During 2007, we adopted new defined benefit pension and other
postretirement plans accounting guidance. This guidance required
us to recognize a net liability or asset and an offsetting
adjustment to accumulated other comprehensive income (loss)
(AOCI) to report the funded status of defined
benefit pension and other postretirement benefit plans. |
|
(4) |
|
Beginning in 2007, results include the effects of the
acquisitions of PLG (acquired August 17, 2007) and
Collective Licensing, Inc. (acquired March 30,
2007) as of the date of those acquisitions. |
|
(5) |
|
In the fourth quarter of 2008, we recorded charges of
$42.0 million related to the impairment of goodwill and, as
a component of total cost of sales, $88.2 million related
to the impairment of our Keds tradename and Stride Rite
tradename. |
|
(6) |
|
We exited all Parade, Peru and Chile stores, closed 26 Payless
ShoeSource stores and the eliminated approximately 200
management and administrative positions in 2004. During 2006, we
exited retail operations in Japan and closed its one store
location. The financial results for retail operations in Japan,
Parade, Peru, Chile and 26 Payless stores closed in 2004 are
classified as discontinued operations for all periods presented. |
|
(7) |
|
Beginning in 2009, we adopted new noncontrolling interest
guidance, which requires us to report net earnings at amounts
for both the Collective Brands, Inc. and our noncontrolling
interests. The impact of this adoption has been retrospectively
applied to all years presented. |
|
(8) |
|
During 2006, 2007, 2008, 2009 and 2010 we repurchased
$129.3 million (5.0 million shares),
$48.4 million (2.4 million shares), $1.9 million
(153 thousand shares), $7.6 million (389 thousand shares),
and $63.9 million (3.8 million shares) respectively,
of common stock under our stock repurchase programs and in
connection with our employee stock purchase, deferred
compensation and stock incentive plans. |
|
(9) |
|
Same-store sales are presented on a 52 week fiscal basis
for all years. Same-store sales are calculated on a weekly basis
and exclude liquidation sales. If a store is open the entire
week in each of the last two years being compared, its sales are
included in the same-store sales calculation for the week. Our
Payless and Stride Rite childrens
e-commerce
businesses are considered stores in this calculation. PLG stores
began to be included in this calculation in fiscal year 2009. |
|
(10) |
|
The Company believes return on equity and return on net assets
provide useful information regarding its profitability,
financial condition and results of operations. |
|
(11) |
|
The Company uses return on invested capital as a means to
measure its efficiency at allocating capital under its control
toward profitable investments and the metric is a component of
the long-term cash incentive award calculation for certain
senior executives. |
27
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
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 Consolidated Financial Statements and the
accompanying notes thereto contained in Item 8 of this
report. 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 three years
presented in our Consolidated Financial Statements.
|
|
|
|
Reporting Segment Review of Operations an
analysis of our results of operations for the three years
presented in our Consolidated Financial Statements for our four
reporting segments: Payless ShoeSource (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 a 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.
|
Our
Business
Collective Brands, Inc. consists of three lines of business:
Payless, PLG and Collective Licensing. We operate a hybrid
business model that includes retail, wholesale, licensing,
digital commerce, and franchising businesses. Payless is one of
the largest footwear retailers in the World. It is dedicated to
democratizing fashion and design in footwear and accessories and
inspiring fun, fashion possibilities for the family at a great
value. PLG markets products for children and adults under
well-known brand names, including Stride
Rite®,
Saucony®,
Sperry
Top-Sider®,
and
Keds®.
Collective Licensing is a youth lifestyle marketing and global
licensing business within the Payless Domestic segment.
Our mission is to become the leader in bringing compelling
lifestyle, performance and fashion brands for footwear and
accessories to consumers worldwide. Our strategy has four
strategic themes: consumer connections; powerful brands;
operational excellence; and dynamic growth.
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 in the
Consolidated Review of Operations section for more
details). We also measure the performance of our business using
our reporting segments net sales and operating profit from
continuing operations (see Reporting Segment Review of
Operations section for more details).
Payless
Over 4,500 retail stores in 24 countries and territories in
North America, Central America, South America, Europe, the
Middle East and Asia operate under the Payless name. Our North
American stores are company-owned, stores in Central and South
America are operated as joint ventures and our stores in Europe,
the Middle East and Asia are franchised. Our mission is to
democratize fashion and design in footwear and accessories.
Payless seeks to compete effectively by bringing to market
differentiated, trend-right merchandise before mass-market
discounters and at the same time as department and specialty
retailers but at a more compelling value. Payless sells a broad
assortment of quality footwear, including athletic, casual and
dress shoes, sandals, work and fashion boots, slippers,
28
and accessories such as handbags and hosiery. Payless stores
offer fashionable, quality, branded and private label footwear
and accessories for women, men and children at affordable prices
in a self-selection shopping format. Stores sell footwear under
brand names including Above the
Rim®,
Airwalk®,
American
Eagletm,
Champion®,
Dexter®
and
Spot-bilt®.
Select stores also sell exclusive designer lines of footwear and
accessories under names including Christian Siriano for
Paylesstm,
Lela Rose for
Paylesstm,
Teeny Toes Lela Rose
Collectiontm,
Unforgettable Moments by Lela
Rosetm,
Isabel Toledo for
Paylesstm
and Silvia Tcherassi for
Paylesstm.
Payless is comprised of two reporting segments: Payless Domestic
and Payless International.
PLG
PLG is one of the leading marketers of high quality mens,
womens and childrens footwear. PLG has a portfolio
of brands that includes
Saucony®,
Sperry
Top-Sider®,
and
Keds®,
addressing different markets within the footwear industry. PLG
is predominantly a wholesaler of footwear, selling its products
in North America in a wide variety of retail formats including
premier department stores, independent shoe stores, value
retailers and specialty stores. PLG markets products in
countries outside North America through owned operations,
independent distributors and licensees. PLG also markets its
products directly to consumers by selling footwear through its
Stride Rite childrens retail stores, Sperry stores and by
selling its brands through outlet stores and through
e-commerce.
PLG is comprised of two reporting segments: PLG Wholesale and
PLG Retail.
Key
2010 Events
In 2010, our business delivered strong earnings growth on a
modest sales gain. This was 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 came primarily from strengthening sales in Latin America
and leveraging costs.
Our domestic retail businesses had performance declines in 2010
compared to 2009. Most notably, our Payless Domestic reporting
segment sales and operating profit have declined due to external
factors as well as company-specific factors. The primary
external factor was Payless Domestics core urban and
ethnic mass-customer base continuing to experience high
unemployment. The primary company-specific factor was not
maximizing certain footwear trends in the first half of 2010,
although we made important progress in the second half of 2010.
Similarly, our PLG Retail segment delivered lower financial
results through the first half of 2010, but improved sales and
operating profit
year-over-year
in the second half 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. Product costs for like product increased in
the fourth quarter of 2010. In the first quarter of 2011, we
expect like-product costs to increase in the mid to high
single-digit percentage range. By the second quarter 2011, this
rate could increase to a high single digit percentage rate
versus the prior year period. 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. In the event that we cannot mitigate these costs
using these measures or by increasing the selling price of our
shoes, our gross margins could be negatively affected.
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.
29
Consolidated
Review of Operations
The following discussion summarizes the significant factors
affecting consolidated operating results for the fiscal years
ended January 29, 2011 (2010), January 30, 2010
(2009), and January 31, 2009 (2008). Each year contains
52 weeks of operating results. References to years relate
to fiscal years rather than calendar years unless otherwise
designated. Results for the past three years were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
2010
|
|
|
Sales
|
|
|
2009
|
|
|
Sales
|
|
|
2008
|
|
|
Sales
|
|
|
|
(Dollars in millions, except per share)
|
|
|
|
|
|
Net sales
|
|
$
|
3,375.7
|
|
|
|
100.0
|
%
|
|
$
|
3,307.9
|
|
|
|
100.0
|
%
|
|
$
|
3,442.0
|
|
|
|
100.0
|
%
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
2,174.5
|
|
|
|
64.4
|
|
|
|
2,166.9
|
|
|
|
65.5
|
|
|
|
2,344.6
|
|
|
|
68.1
|
|
Impairment of tradenames
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88.2
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
2,174.5
|
|
|
|
64.4
|
|
|
|
2,166.9
|
|
|
|
65.5
|
|
|
|
2,432.8
|
|
|
|
70.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
1,201.2
|
|
|
|
35.6
|
|
|
|
1,141.0
|
|
|
|
34.5
|
|
|
|
1,009.2
|
|
|
|
29.3
|
|
Selling, general and administrative expenses
|
|
|
1,011.5
|
|
|
|
30.0
|
|
|
|
982.4
|
|
|
|
29.7
|
|
|
|
1,007.2
|
|
|
|
29.3
|
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42.0
|
|
|
|
1.2
|
|
Restructuring charges
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) from continuing operations
|
|
|
189.7
|
|
|
|
5.6
|
|
|
|
158.5
|
|
|
|
4.8
|
|
|
|
(40.2
|
)
|
|
|
(1.2
|
)
|
Interest expense
|
|
|
48.7
|
|
|
|
1.4
|
|
|
|
60.8
|
|
|
|
1.8
|
|
|
|
75.2
|
|
|
|
2.2
|
|
Interest income
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
(8.1
|
)
|
|
|
(0.2
|
)
|
Loss on early extinguishment of debt
|
|
|
1.7
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations before income
taxes
|
|
|
140.0
|
|
|
|
4.2
|
|
|
|
97.6
|
|
|
|
3.0
|
|
|
|
(107.3
|
)
|
|
|
(3.2
|
)
|
Provision (benefit) for income
taxes(1)
|
|
|
17.4
|
|
|
|
12.4
|
|
|
|
9.4
|
|
|
|
9.6
|
|
|
|
(48.0
|
)
|
|
|
44.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations
|
|
|
122.6
|
|
|
|
3.6
|
|
|
|
88.2
|
|
|
|
2.7
|
|
|
|
(59.3
|
)
|
|
|
(1.7
|
)
|
Income (loss) from discontinued operations, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
122.6
|
|
|
|
3.6
|
|
|
|
88.3
|
|
|
|
2.7
|
|
|
|
(60.0
|
)
|
|
|
(1.7
|
)
|
Net earnings attributable to noncontrolling interests
|
|
|
(9.8
|
)
|
|
|
(0.3
|
)
|
|
|
(5.6
|
)
|
|
|
(0.2
|
)
|
|
|
(8.7
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Collective Brands, Inc.
|
|
$
|
112.8
|
|
|
|
3.3
|
%
|
|
$
|
82.7
|
|
|
|
2.5
|
%
|
|
$
|
(68.7
|
)
|
|
|
(2.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to Collective
Brands, Inc. common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
$
|
1.77
|
|
|
|
|
|
|
$
|
1.29
|
|
|
|
|
|
|
$
|
(1.08
|
)
|
|
|
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to Collective
Brands, Inc. common shareholders
|
|
$
|
1.77
|
|
|
|
|
|
|
$
|
1.29
|
|
|
|
|
|
|
$
|
(1.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to Collective
Brands, Inc. common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
$
|
1.75
|
|
|
|
|
|
|
$
|
1.28
|
|
|
|
|
|
|
$
|
(1.08
|
)
|
|
|
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to Collective
Brands, Inc. common shareholders
|
|
$
|
1.75
|
|
|
|
|
|
|
$
|
1.28
|
|
|
|
|
|
|
$
|
(1.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on sales from continuing operations
|
|
|
3.3
|
%
|
|
|
|
|
|
|
2.5
|
%
|
|
|
|
|
|
|
(2.0
|
)%
|
|
|
|
|
Return on equity, including discontinued
operations(2)
|
|
|
15.3
|
%
|
|
|
|
|
|
|
13.3
|
%
|
|
|
|
|
|
|
(9.8
|
)%
|
|
|
|
|
Return on net assets, including discontinued
operations(3)
|
|
|
9.5
|
%
|
|
|
|
|
|
|
8.5
|
%
|
|
|
|
|
|
|
1.8
|
%
|
|
|
|
|
Return on invested capital, continuing
operations(4)
|
|
|
10.8
|
%
|
|
|
|
|
|
|
9.3
|
%
|
|
|
|
|
|
|
(1.4
|
)%
|
|
|
|
|
|
|
|
(1) |
|
Percent of sales columns for the provision for income taxes
represents effective income tax rates. |
|
(2) |
|
Return on equity is computed as net earnings (loss), including
discontinued operations, divided by beginning shareowners
equity attributable to Collective Brands, Inc. We believe that
return on equity provides useful information regarding our
profitability, financial condition and results of operations.
The increase in return on equity from 2009 to 2010 is primarily
due to an increase in net earnings. The increase in return on
equity from 2008 to 2009 is primarily due to an increase in net
earnings and a decrease in beginning shareowners equity
attributable to Collective Brands, Inc. |
|
(3) |
|
Return on net assets is computed as net earnings (loss) from
continuing operations before income taxes plus discontinued
operations, plus the loss on early extinguishment of debt, plus
net interest expense and the interest |
30
|
|
|
|
|
component of operating leases, divided by beginning of year net
assets, including present value of operating leases. We believe
that return on net assets provides useful information regarding
our profitability, financial condition and results of
operations. The increase in return on net assets from 2009 to
2010 is primarily due to an increase in net earnings. The
increase in return on net assets from 2008 to 2009 is primarily
due to an increase in net earnings. |
|
(4) |
|
Return on invested capital is computed as operating profit
(loss) from continuing operations, adjusted for income taxes at
the applicable effective rate, divided by the average amount of
long-term debt and shareowners equity. We use return on
invested capital as a means to measure our efficiency at
allocating capital under our control toward profitable
investments. The metric is also a component of the long-term
cash incentive award calculation for certain senior executives.
The increase in return on invested capital from 2009 to 2010 is
primarily due to an increase in operating profit from continuing
operations and the impact of the early payoff of debt. The
increase in return on invested capital from 2008 to 2009 is
primarily due to an increase in operating profit from continuing
operations. |
Net
Earnings (Loss) Attributable to Collective Brands,
Inc.
Our 2010 net earnings attributable to Collective Brands,
Inc. was $112.8 million, or $1.75 per diluted share
compared to 2009 net earnings attributable to Collective
Brands, Inc. of $82.7 million, or $1.28 per diluted share.
The increase in net earnings attributable to Collective Brands,
Inc. was primarily driven by improved gross margins, higher net
sales and lower interest expense, partially offset by increased
selling, general and administrative expenses.
Our 2009 net earnings attributable to Collective Brands,
Inc. was $82.7 million, or $1.28 per diluted share compared
to 2008 net loss attributable to Collective Brands, Inc. of
$68.7 million, or $1.09 per diluted share. Results for 2008
include $198.9 million of pre-tax charges, which are
summarized by reporting segment in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payless
|
|
|
PLG
|
|
|
PLG
|
|
|
|
|
|
|
Domestic
|
|
|
Retail
|
|
|
Wholesale
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Impairment of tradenames
|
|
$
|
|
|
|
$
|
|
|
|
$
|
88.2
|
|
|
$
|
88.2
|
|
Net litigation expenses
|
|
|
45.1
|
|
|
|
|
|
|
|
|
|
|
|
45.1
|
|
Impairment of goodwill
|
|
|
|
|
|
|
42.0
|
|
|
|
|
|
|
|
42.0
|
|
Tangible asset impairment and other charges
|
|
|
16.8
|
|
|
|
0.6
|
|
|
|
2.7
|
|
|
|
20.1
|
|
Costs resulting from the flow through of acquired inventory
recorded at fair value
|
|
|
|
|
|
|
3.5
|
|
|
|
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
61.9
|
|
|
$
|
46.1
|
|
|
$
|
90.9
|
|
|
$
|
198.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill was recorded as a separate line item on
the Consolidated Statement of Earnings (Loss). Impairment of
tradenames, net litigation expenses and costs resulting from the
flow through of acquired inventory recorded at fair value were
recorded within total cost of sales on the Consolidated
Statement of Earnings (Loss). Of the $20.1 million of
tangible asset impairment and other charges, $13.2 million
was recorded within cost of sales and $6.9 million was
recorded within selling, general and administrative expenses on
the Consolidated Statement of Earnings (Loss).
Net
Sales
Net sales at our retail stores are recognized at the time the
sale is made to the customer. Net sales for wholesale and
e-commerce
transactions are recognized when title passes and the risks or
rewards of ownership have transferred to the customer, based on
the shipping terms. All sales are net of estimated returns and
promotional discounts and exclude sales tax.
On December 31, 2008, our licensing agreement with Tommy
Hilfiger for adult footwear expired and was not renewed. The
aggregate net sales for Tommy Hilfiger adult footwear was
$77.0 million in 2008, which was included in the PLG
Wholesale reporting segment. We had no such revenues in 2009 or
2010.
31
With the exception of total net sales, the table below
summarizes net sales information for our retail stores for each
of the last three fiscal years. 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 last
two years being compared, its sales are included in the
same-store sales calculation for the week. Our Payless and
Stride Rite childrens
e-commerce
businesses are considered stores in this calculation. With the
exception of total net sales, the percent change for 2008
excludes information from our PLG Retail segment as we owned PLG
for only a portion of 2007.
Percent increases (decreases) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Total net sales
|
|
|
2.0
|
%
|
|
|
(3.9
|
)%
|
|
|
13.4
|
%
|
Same-store sales
|
|
|
(2.2
|
)
|
|
|
(2.3
|
)
|
|
|
(3.6
|
)
|
Average selling price per unit
|
|
|
0.1
|
|
|
|
4.1
|
|
|
|
4.2
|
|
Unit volume
|
|
|
(2.4
|
)
|
|
|
(6.2
|
)
|
|
|
(7.3
|
)
|
Footwear average selling price per unit
|
|
|
1.4
|
|
|
|
6.1
|
|
|
|
5.7
|
|
Footwear unit volume
|
|
|
(4.8
|
)
|
|
|
(8.8
|
)
|
|
|
(9.2
|
)
|
Non-footwear average selling price per unit
|
|
|
3.4
|
|
|
|
5.3
|
|
|
|
3.0
|
|
Non-footwear unit volume
|
|
|
5.6
|
|
|
|
3.8
|
|
|
|
0.2
|
|
Please refer to the Reporting Segment Review of
Operations section for the details of the changes in net
sales for each of our reporting units.
Total
Cost of Sales
Total cost of sales includes cost of merchandise sold and our
buying, occupancy, warehousing and product movement costs, as
well as depreciation of stores and distribution centers, net
intellectual property litigation costs, tangible asset
impairment charges and impairment of tradenames.
Total cost of sales was $2,174.5 million for 2010, up 0.4%
from $2,166.9 million in 2009. The increase in total cost
of sales from 2009 to 2010 is primarily due to the impact of
higher sales, offset by lower product costs in China in the
first half of the year and lower occupancy costs in 2010
compared to 2009. Product costs were flat in the third quarter
of 2010 compared to the third quarter 2009 and were higher in
the fourth quarter of 2010 compared to the fourth quarter of
2009.
Total cost of sales was $2,166.9 million in 2009, down
10.9% from $2,432.8 million in 2008. The decrease in total
cost of sales from 2008 to 2009 is primarily due to the impact
of 2008 pre-tax charges of $88.2 million related to
impairment of tradenames, $45.1 million related to pre-tax
net litigation expenses, $13.2 million of pre-tax charges
related to tangible asset impairment and other charges and
$3.5 million pre-tax costs resulting from the flow through
of acquired inventory recorded at fair value purchased in the
PLG acquisition. Total cost of sales also decreased due to the
impact of lower sales, primarily as a result of the expiration
of the Tommy Hilfiger adult footwear license, and lower product
costs in 2009.
Gross
Margin
Gross margin rate for 2010 was 35.6% compared to a gross margin
rate of 34.5% for 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. Product costs were flat in the
third quarter of 2010 compared to the third quarter 2009 and
were higher in the fourth quarter of 2010 compared to the fourth
quarter of 2009.
Gross margin rate for 2009 was 34.5%, compared to a gross margin
rate of 29.3% for 2008. The increase in gross margin rate in
2009 is primarily due to 2008 pre-tax charges of
$88.2 million related to impairment of tradenames (which
impacted gross margin rate by 2.6%), $45.1 million related
to pre-tax net litigation expenses (which impacted gross margin
rate by 1.3%), $13.2 million of pre-tax charges related to
tangible asset impairment and other charges (which impacted
gross margin rate by 0.4%) and $3.5 million pre-tax costs
resulting from the flow through of acquired inventory recorded
at fair value purchased in the PLG acquisition (which impacted
gross
32
margin rate by 0.1%). The higher gross margin rate in 2009 is
also due to lower product costs and higher initial mark-on in
2009 compared to 2008.
Selling,
General and Administrative Expenses
In 2010, selling, general and administrative expenses were
$1,011.5 million, an increase of 3.0% from
$982.4 million in the 2009 period. Selling, general and
administrative expenses as a percentage of net sales were 30.0%
in 2010 compared with 29.7% in 2009. The increase of 0.3% as a
percentage of net sales is primarily due to greater
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
business.
In 2009, selling, general and administrative expenses were
$982.4 million, a decrease of 2.5% from
$1,007.2 million in the 2008 period. Selling, general and
administrative expenses as a percentage of net sales were 29.7%
in 2009 compared with 29.3% in 2008. The increase of 0.4% as a
percentage of net sales is primarily due to higher incentive
compensation related to Company performance, offset by lower
payroll related costs and advertising costs.
Impairment
of Goodwill
We assess goodwill, which is not subject to amortization, for
impairment on an annual basis and also at any other date when
events or changes in circumstances indicate that the book value
of these assets may exceed their fair value. This assessment is
performed at a reporting unit level. A reporting unit is a
component of a segment that constitutes a business, for which
discrete financial information is available, and for which the
operating results are regularly reviewed by management. We
develop an estimate of the fair value of each reporting unit
using both a market approach and an income approach. If
potential for impairment exists, the fair value of the reporting
unit is subsequently measured against the fair value of its
underlying assets and liabilities, excluding goodwill, to
estimate an implied fair value of the reporting units
goodwill.
A change in events or circumstances, including a decision to
hold an asset or group of assets for sale, a change in strategic
direction, or a change in the competitive environment could
adversely affect the fair value of one or more reporting units.
In the fourth quarter of 2008, due to weakening economic
conditions combined with weaker than expected holiday sales, we
revised our financial projections. These circumstances indicated
a potential impairment of our goodwill and, as such, we assessed
the fair value of our goodwill to determine if its book value
exceeded its fair value. As a result of this update we
determined that the book value of our goodwill exceeded its fair
value and we recorded an impairment charge of $42.0 million
within the PLG Retail reporting segment in 2008. We recorded no
such goodwill impairment charges in 2009 or 2010.
Interest
Expense, net
Interest income and expense components were:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Interest expense
|
|
$
|
48.7
|
|
|
$
|
60.8
|
|
|
$
|
75.2
|
|
Interest income
|
|
|
(0.7
|
)
|
|
|
(1.1
|
)
|
|
|
(8.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
48.0
|
|
|
$
|
59.7
|
|
|
$
|
67.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decline in interest expense in 2010 compared to 2009 is
primarily a result of decreased borrowings of
$184.0 million on our Term Loan Facility and Senior
Subordinated Notes and an average lower rate on our Term Loan
Facility. The decline in interest income in 2010 compared to
2009 is primarily a result of lower interest rates on our
invested cash balance.
The decline in interest expense in 2009 compared to 2008 is
primarily a result of a lower interest rate on the unhedged
portion of our Term Loan Facility as well as decreased
borrowings on our Revolving Loan Facility, Term Loan Facility
and Senior Subordinated Notes. The decline in interest income in
2009 compared to 2008 is primarily a result of lower interest
rates on our invested cash balance.
33
Loss
on Early Extinguishment of Debt
In 2010, the loss on early extinguishment of debt relates to the
acceleration of deferred debt costs on our Term Loan Facility in
proportion to the amounts extinguished. In 2009, the loss on
early extinguishment of debt relates to the premium, in excess
of par, paid to redeem a portion of our Senior Subordinated
Notes, the acceleration of the discount on the Senior
Subordinated Notes and the acceleration of deferred debt costs
on both our Senior Subordinated Notes and our Term Loan Facility
in proportion to the amounts extinguished.
Income
Taxes
The effective tax rate from continuing operations was 12.4% in
2010 versus 9.6% in 2009. Our effective tax rates have differed
from the U.S. statutory rate principally due to the impact
of our operations conducted in jurisdictions with rates lower
than the U.S. statutory rate, the benefit of jurisdictional
and employment tax credits, favorable adjustments to our income
tax reserves due primarily to favorable settlements of
examinations by taxing authorities and the on-going
implementation of tax efficient business initiatives. See
Note 10 of our Consolidated Financial Statements for more
information detailing the relative impact of these items on our
tax rate on a comparative basis. During fiscal year 2010, we
recorded net favorable discrete events of $7.8 million
relating primarily to the resolution of outstanding tax audits.
Our estimate of uncertainty in income taxes is based on the
framework established in income taxes accounting guidance. This
guidance prescribes a recognition threshold and a measurement
standard for the financial statement recognition and measurement
of tax positions taken or expected to be taken in a tax return.
The recognition and measurement of tax benefits is often highly
judgmental. Determinations regarding the recognition and
measurement of a tax benefit can change as additional
developments occur relative to the issue. Accordingly, our
future results may include favorable or unfavorable adjustments
to our unrecognized tax benefits.
We anticipate that it is reasonably possible that the total
amount of unrecognized tax benefits at January 29, 2011
will decrease by up to $36.1 million within the next
12 months due to potential settlements of on-going
examinations with tax authorities and the potential lapse of the
statutes of limitations in various taxing jurisdictions. To the
extent that these tax benefits are recognized, the effective tax
rate will be favorably impacted by up to $6.8 million.
At January 29, 2011, deferred tax assets for state and
foreign net operating loss carryforwards are $16.5 million,
less a valuation allowance of $5.8 million. These net
operating loss carryforwards will expire as follows (expiration
dates are denoted in parentheses):
|
|
|
|
|
(Dollars in millions)
|
|
Amount
|
|
|
State operating losses (expiring by 2015)
|
|
$
|
0.5
|
|
State operating losses (between 2016 and 2020)
|
|
|
0.6
|
|
State operating losses (between 2021 and 2025)
|
|
|
2.4
|
|
State operating losses (between 2026 and 2030)
|
|
|
2.0
|
|
Foreign net operating losses related to recorded assets (carried
forward indefinitely)
|
|
|
0.2
|
|
Foreign net operating losses related to recorded assets (in 2011)
|
|
|
0.4
|
|
Foreign net operating losses related to recorded assets (between
2027 and 2030)
|
|
|
4.6
|
|
|
|
|
|
|
Total
|
|
$
|
10.7
|
|
|
|
|
|
|
Federal foreign tax credit carryforwards are $26.5 million;
$15.6 million of this credit will expire if not utilized by
2018, and the remaining $10.9 million of this credit will
expire if not utilized by 2019. Federal general business credit
carryforwards are $8.1 million and expire between 2028 and
2030 if not utilized. State income tax credit carryforwards are
$14.6 million, less a valuation allowance of
$7.3 million. The state tax credit carryforwards related to
the recorded assets expire as follows: $2.0 million expires
between 2016 and 2020, $0.5 million expires between 2020
and 2030 and $4.8 million may be carried forward
indefinitely. The Company has Puerto Rico alternative minimum
tax credits of $1.3 million which may be carried forward
indefinitely. The Company also has a federal capital loss
carryforward of $2.0 million, expiring in 2012, that has
been fully reserved with a valuation
34
allowance. See Note 10 of our Consolidated Financial
Statements for more information detailing the major components
of our net deferred tax liability.
We recorded a valuation allowance against $2.0 million of
deferred tax assets arising in 2010. The majority of this
valuation allowance relates to net operating losses generated by
our Colombian joint venture which commenced operations in 2008
and has not yet established a pattern of profitability.
Our Consolidated Balance Sheet as of January 29, 2011
includes deferred tax assets, net of related valuation
allowances, of $158.6 million. In assessing the future
realization of these assets, we concluded it is more likely than
not the assets will be realized. This conclusion was based in
large part upon managements belief that we will generate
sufficient quantities of taxable income from operations in
future years in the appropriate tax jurisdictions. If our
near-term forecasts are not achieved, we may be required to
record additional valuation allowances against our deferred tax
assets. This could have a material impact on our financial
position and results of operations in a particular period.
As of January 29, 2011, we have not provided tax on our
cumulative undistributed earnings of foreign subsidiaries of
approximately $205 million, because it is our intention to
reinvest these earnings indefinitely. The calculation of the
unrecognized deferred tax liability related to these earnings is
complex and is not practicable. If earnings were distributed, we
would be subject to U.S. taxes and withholding taxes
payable to various foreign governments. Based on the facts and
circumstances at that time, we would determine whether a credit
for foreign taxes already paid would be available to reduce or
offset the U.S. tax liability. We currently anticipate that
earnings would not be repatriated unless it was tax efficient to
do so.
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 from 2009 to
2010 is due to increased earnings from our joint ventures. The
decrease in net earnings attributable to noncontrolling
interests from 2008 to 2009 is due to decreased earnings from
our 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net earnings (loss)
|
|
$
|
122.6
|
|
|
$
|
88.3
|
|
|
$
|
(60.0
|
)
|
(Earnings) loss from discontinued operations, net of tax
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
0.7
|
|
Provision (benefit) for income taxes
|
|
|
17.4
|
|
|
|
9.4
|
|
|
|
(48.0
|
)
|
Net interest expense (including loss on early extinguishment of
debt)
|
|
|
49.7
|
|
|
|
60.9
|
|
|
|
67.1
|
|
Depreciation and amortization
|
|
|
135.4
|
|
|
|
139.9
|
|
|
|
137.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
325.1
|
|
|
$
|
298.4
|
|
|
$
|
97.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in Adjusted EBITDA in 2010 compared to 2009 is
primarily driven by improvement in gross margin and higher
sales, partially offset by an increase in selling, general and
administrative expenses.
35
The increase in Adjusted EBITDA in 2009 compared to 2008 is
primarily driven by increases in net earnings as a result of
2008 pre-tax charges totaling $198.9 million related to
impairment of tradenames, net litigation expenses, impairment of
goodwill, tangible asset impairment and other charges.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash flow provided by operating activities
|
|
$
|
271.5
|
|
|
$
|
307.6
|
|
|
$
|
161.1
|
|
Less: Capital expenditures
|
|
|
97.6
|
|
|
|
84.0
|
|
|
|
129.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
173.9
|
|
|
$
|
223.6
|
|
|
$
|
31.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in free cash flow in 2010 compared to 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 the components of working
capital due to increases in inventories (primarily due to more
units at year-end 2010 versus
lower-than-normal
units at year-end 2009, a greater mix of higher-cost products at
Payless and PLG, and higher costs per unit) and accounts
receivable, partially offset by the impact of increases in
accounts payable due to the extension of payment terms to our
vendors and increases in net earnings.
The increase in free cash flow in 2009 compared to 2008 is
primarily driven by higher cash flow provided by operating
activities. The increase in cash provided by operating
activities was driven by changes in working capital due to
reduction in inventories (driven by 2009 promotional activity
and inventory reduction initiatives) and increases in accounts
payable due to the extension of payment terms to our vendors.
These increases were partially offset by decreases in accrued
expenses.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Total debt
|
|
$
|
664.5
|
|
|
$
|
849.3
|
|
|
$
|
913.2
|
|
Less: cash and cash equivalents
|
|
|
324.1
|
|
|
|
393.5
|
|
|
|
249.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt
|
|
$
|
340.4
|
|
|
$
|
455.8
|
|
|
$
|
663.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in net debt as of 2010 compared to 2009 was
primarily due to our use of operating cash flow to pay down debt
in 2010.
The decrease in net debt as of 2009 compared to 2008 was
primarily due to an increase in cash and cash equivalents
primarily due to an increase in cash from operating activities.
Reporting
Segment Review of Operations
We operate our business using four reporting segments: Payless
Domestic, Payless International, PLG Retail and PLG Wholesale.
We evaluate the performance of our reporting segments based on
segment net sales and segment operating profit (loss) from
continuing operations as a measure of overall performance of the
Company. The following table reconciles reporting segment net
sales to consolidated net sales and operating profit (loss) from
36
continuing operations to our consolidated operating profit
(loss) from continuing operations for the three years presented
in our Consolidated Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payless Domestic
|
|
$
|
2,059.3
|
|
|
$
|
2,153.2
|
|
|
$
|
2,190.7
|
|
Payless International
|
|
|
460.3
|
|
|
|
422.4
|
|
|
|
444.7
|
|
PLG Wholesale
|
|
|
628.4
|
|
|
|
513.9
|
|
|
|
591.6
|
|
PLG Retail
|
|
|
227.7
|
|
|
|
218.4
|
|
|
|
215.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
3,375.7
|
|
|
$
|
3,307.9
|
|
|
$
|
3,442.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payless Domestic
|
|
$
|
75.2
|
|
|
$
|
98.1
|
|
|
$
|
0.9
|
|
Payless International
|
|
|
55.6
|
|
|
|
34.1
|
|
|
|
51.3
|
|
PLG Wholesale
|
|
|
61.7
|
|
|
|
30.0
|
|
|
|
(48.8
|
)
|
PLG Retail
|
|
|
(2.8
|
)
|
|
|
(3.7
|
)
|
|
|
(43.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) from continuing operations
|
|
$
|
189.7
|
|
|
$
|
158.5
|
|
|
$
|
(40.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the change in store count during
2010 and 2009 by reporting segment. We consider a store
relocation to be both a store opening and a store closing.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payless
|
|
|
Payless
|
|
|
PLG
|
|
|
|
|
|
|
Domestic
|
|
|
International
|
|
|
Retail
|
|
|
Total
|
|
|
Fiscal year ended January 29, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning store count
|
|
|
3,827
|
|
|
|
643
|
|
|
|
363
|
|
|
|
4,833
|
|
Stores opened
|
|
|
43
|
|
|
|
42
|
|
|
|
27
|
|
|
|
112
|
|
Stores closed
|
|
|
(76
|
)
|
|
|
(18
|
)
|
|
|
(7
|
)
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending store count
|
|
|
3,794
|
|
|
|
667
|
|
|
|
383
|
|
|
|
4,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended January 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning store count
|
|
|
3,900
|
|
|
|
622
|
|
|
|
355
|
|
|
|
4,877
|
|
Stores opened
|
|
|
29
|
|
|
|
44
|
|
|
|
11
|
|
|
|
84
|
|
Stores closed
|
|
|
(102
|
)
|
|
|
(23
|
)
|
|
|
(3
|
)
|
|
|
(128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending store count
|
|
|
3,827
|
|
|
|
643
|
|
|
|
363
|
|
|
|
4,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended January 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning store count
|
|
|
3,954
|
|
|
|
598
|
|
|
|
340
|
|
|
|
4,892
|
|
Stores opened
|
|
|
88
|
|
|
|
34
|
|
|
|
26
|
|
|
|
148
|
|
Stores closed
|
|
|
(142
|
)
|
|
|
(10
|
)
|
|
|
(11
|
)
|
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending store count
|
|
|
3,900
|
|
|
|
622
|
|
|
|
355
|
|
|
|
4,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 29, 2011, we also franchised 62 Payless and
eight PLG stores, which are not reflected in the table above.
For the Payless Domestic segment, our store activity plan for
fiscal year 2011 includes a net decrease of approximately 40
stores. This includes approximately 25 new stores and 65 store
closings. For the Payless International segment, our store
activity plan for fiscal year 2011 includes a net increase of
approximately 15 stores. This includes approximately 25 new
stores and 10 store closings. For the PLG Retail segment, our
store activity plan for fiscal year 2011 includes a net increase
of approximately 10 stores. This includes approximately 20 new
stores and 10 store closings. We review our store activity plan
at least on an annual basis.
37
Payless
Domestic Segment Operating Results
The Payless Domestic reporting segment is comprised primarily of
operations from our domestic retail stores under the Payless
ShoeSource name, the Companys sourcing operations and
Collective Licensing. The following table presents selected
financial data for our Payless segment for each of the past
three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
2009 to 2010
|
|
2008 to 2009
|
|
|
(Dollars in millions)
|
|
|
|
|
|
Net sales
|
|
$
|
2,059.3
|
|
|
$
|
2,153.2
|
|
|
$
|
2,190.7
|
|
|
|
(4.4
|
)%
|
|
|
(1.7
|
)%
|
Operating profit from continuing operations
|
|
$
|
75.2
|
|
|
$
|
98.1
|
|
|
$
|
0.9
|
|
|
|
(23.3
|
)%
|
|
|
NM*
|
%
|
Operating profit from continuing operations as % of net sales
|
|
|
3.7
|
%
|
|
|
4.6
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
For the fiscal year 2010, net sales for the Payless Domestic
reporting segment decreased 4.4% or $93.9 million, to
$2,059.3 million, from 2009. The decrease in net sales from
2009 to 2010 is primarily due to comparable store sales declines
driven by weaker economic conditions, lower traffic and fewer
stores. These declines were partially offset by gains in fitness
footwear and accessories.
For the fiscal year 2009, net sales for the Payless Domestic
reporting segment decreased 1.7% or $37.5 million, to
$2,153.2 million, from 2008. The decrease in net sales from
2008 to 2009 is primarily due to lower unit sales primarily
driven by lower traffic, fewer Payless Domestic stores and
weaker economic conditions in the United States, partially
offset by increases in average selling prices per unit.
As a percentage of net sales, operating profit from continuing
operations decreased to 3.7% for 2010 compared to 4.6% for 2009.
The percentage decrease is primarily due to the deleveraging of
fixed costs due to lower net sales as well as increased
marketing investments.
As a percentage of net sales, operating profit from continuing
operations increased to 4.6% for 2009 compared to 0.1% in 2008.
The increase is primarily due to 2008 net litigation
expenses of $45.1 million, or 2.1% of net sales, and
tangible asset impairment and other charges of
$16.8 million, or 0.8% of net sales for 2008. The remainder
of the increase is due to the impact of lower product costs and
higher initial mark-on in 2009 compared to 2008.
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 all years presented, our
franchising operations were not significant. As a percent of net
sales, operating profit from continuing operations in the
Payless International segment is higher than in the Payless
Domestic segment primarily due to lower payroll-related expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
2009 to 2010
|
|
2008 to 2009
|
|
|
(Dollars in millions)
|
|
|
|
|
|
Net sales
|
|
$
|
460.3
|
|
|
$
|
422.4
|
|
|
$
|
444.7
|
|
|
|
9.0
|
%
|
|
|
(5.0
|
)%
|
Operating profit from continuing operations
|
|
$
|
55.6
|
|
|
$
|
34.1
|
|
|
$
|
51.3
|
|
|
|
63.0
|
%
|
|
|
(33.5
|
)%
|
Operating profit from continuing operations as % of net sales
|
|
|
12.1
|
%
|
|
|
8.1
|
%
|
|
|
11.5
|
%
|
|
|
|
|
|
|
|
|
For the fiscal year 2010, net sales for the Payless
International reporting segment increased 9.0% or
$37.9 million, to $460.3 million, from 2009. Net sales
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 of
$15.7 million.
38
For the fiscal year 2009, net sales for the Payless
International reporting segment decreased 5.0% or
$22.3 million, to $422.4 million, from 2008. The
decrease was due to weakening economic conditions and
unfavorable foreign exchange rates in Canada in 2009 compared to
2008 and the impact of new taxes and regulation in Ecuador,
offset by increased net sales in Colombia due to increased
stores.
As a percentage of net sales, operating profit from continuing
operations increased to 12.1% for 2010 compared to 8.1% in the
for 2009. The percentage increase is primarily due to increased
gross margin rates in all regions and the leveraging of fixed
costs due to higher net sales.
As a percentage of net sales, operating profit from continuing
operations decreased to 8.1% for 2009 compared to 11.5% in the
2008. The decrease was primarily due to decreased gross margin
rates in Canada and Puerto Rico primarily due to negative
leverage of our fixed costs due to lower net sales, and
decreased gross margin rates in South America primarily due to
new taxes and regulation in Ecuador.
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.
On December 31, 2008, our licensing agreement with Tommy
Hilfiger for adult footwear expired and was not renewed. The
aggregate net sales and operating profit from continuing
operations for Tommy Hilfiger adult footwear were
$77.0 million and $13.8 million, respectively, for
2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
2009 to 2010
|
|
2008 to 2009
|
|
|
(Dollars in millions)
|
|
|
|
|
|
Net sales
|
|
$
|
628.4
|
|
|
$
|
513.9
|
|
|
$
|
591.6
|
|
|
|
22.3
|
%
|
|
|
(13.1
|
)%
|
Operating profit (loss) from continuing operations
|
|
$
|
61.7
|
|
|
$
|
30.0
|
|
|
$
|
(48.8
|
)
|
|
|
105.7
|
%
|
|
|
NM*
|
%
|
Operating profit (loss) from continuing operations as % of net
sales
|
|
|
9.8
|
%
|
|
|
5.8
|
%
|
|
|
(8.2
|
)%
|
|
|
|
|
|
|
|
|
For the fiscal year 2010, net sales for the PLG Wholesale
reporting segment increased 22.3% or $114.5 million, to
$628.4 million, from 2009. The increase in net sales was
driven primarily by higher sales for Sperry Top-Sider and
Saucony due to increased demand for these brands.
Net sales for the PLG Wholesale reporting segment were
$513.9 million for 2009 compared to $591.6 million for
2008. The decrease in net sales is primarily due to the
expiration of our Tommy Hilfiger adult footwear license and
decreased Keds net sales due to its strategic repositioning.
These were offset by increases in net sales for our Saucony
brand.
As a percentage of net sales, operating profit from continuing
operations increased to 9.8% for 2010 compared to 5.8% in 2009.
The percentage increases were primarily due to the leveraging of
fixed costs due to higher net sales, offset by higher product,
freight and marketing costs.
As a percentage of net sales, operating profit (loss) from
continuing operations increased to 5.8% for 2009 compared to a
negative 8.2% in the 2008. The increase is primarily due to the
impact of the 2008 impairment of tradenames totaling
$88.2 million, or 14.9% of net sales, the impact of the
expiration of the Tommy Hilfiger adult footwear license totaling
$13.8 million, or 2.3% of net sales, and other charges
(primarily relating to severance costs) of $2.7 million, or
0.5% of net sales. These were offset by more promotional selling
compared to last year.
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 select Macys Department Stores and Sperry Top-Sider
stores.
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
2009 to 2010
|
|
2008 to 2009
|
|
|
(Dollars in millions)
|
|
|
|
|
|
Net sales
|
|
$
|
227.7
|
|
|
$
|
218.4
|
|
|
$
|
215.0
|
|
|
|
4.3
|
%
|
|
|
1.6
|
%
|
Operating loss from continuing operations
|
|
$
|
(2.8
|
)
|
|
$
|
(3.7
|
)
|
|
$
|
(43.6
|
)
|
|
|
(24.3
|
)%
|
|
|
NM*
|
%
|
Operating loss from continuing operations as % of net sales
|
|
|
(1.2
|
)%
|
|
|
(1.7
|
)%
|
|
|
(20.3
|
)%
|
|
|
|
|
|
|
|
|
For fiscal year 2010, net sales for the PLG Retail reporting
segment increased 4.3% or $9.3 million, to
$227.7 million, from 2009. The increase in net sales was
due to an increase in the number of stores, offset by lower
comparable store sales.
Net sales for the PLG Retail reporting segment were
$218.4 million for 2009 compared to $215.0 million for
2008. The increase is primarily due to increased number of
stores, partially offset by lower comparable store sales at
Stride Rite childrens stores.
As a percentage of net sales, operating loss from continuing
operations decreased to 1.2% for 2010 compared to 1.7% for 2009.
Operating loss as a percentage of net sales was positively
impacted by selling, general and administrative expense
improvement initiatives and fewer markdowns.
As a percentage of net sales, operating loss from continuing
operations improved to a negative 1.7% for 2009 compared to a
negative 20.3% in the 2008. The decrease is primarily due to the
impact of the 2008 impairment of goodwill totaling
$42.0 million, or 19.5% of net sales, and the 2008 flow
through of the acquired inventory
write-up to
fair value totaling $3.5 million, or 1.6% of net sales.
These were offset by greater promotional activity in 2009
compared to 2008.
Liquidity
and Capital Resources
Our cash position tends to be higher in June as well as
September to October, due primarily to the seasonality of our
business, which is impacted by the cash received for sales
during Easter and
back-to-school,
respectively. Our cash position tends to be lowest around
February to March when Easter inventories are
built-up but
not yet sold. Any materially adverse change in customer demand,
fashion trends, competitive market forces or customer acceptance
of our merchandise mix and retail locations, uncertainties
related to the effect of competitive products and pricing, risks
associated with foreign global sourcing or economic conditions
worldwide could affect our ability to continue to fund our needs
from business operations. Internally generated cash flow from
operations has been our primary source of cash and we believe
projected operating cash flows and current credit facilities
will be adequate to fund our working capital requirements,
scheduled debt repayments, and to support the development of our
short-term and long-term operating strategies. Substantially all
of our real estate is financed through operating leases.
We ended 2010 with a cash and cash equivalents balance of
$324.1 million, a decrease of $69.4 million from 2009.
Our decrease in cash and cash equivalents from 2009 is primarily
driven by voluntary early debt repayments,
40
capital expenditures, share repurchases and working capital
requirements, primarily inventory, partially offset by an
increase in net earnings. Significant sources and (uses) of cash
are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net earnings (loss)
|
|
$
|
122.6
|
|
|
$
|
88.3
|
|
|
$
|
(60.0
|
)
|
Working capital (increases) decreases
|
|
|
(16.8
|
)
|
|
|
64.6
|
|
|
|
(19.3
|
)
|
Other operating activities
|
|
|
27.5
|
|
|
|
11.5
|
|
|
|
99.5
|
|
Depreciation and amortization
|
|
|
138.2
|
|
|
|
143.2
|
|
|
|
140.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by operating activities
|
|
|
271.5
|
|
|
|
307.6
|
|
|
|
161.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for capital expenditures
|
|
|
(97.6
|
)
|
|
|
(84.0
|
)
|
|
|
(129.2
|
)
|
Other investing activities
|
|
|
|
|
|
|
(16.2
|
)
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in investing activities
|
|
|
(97.6
|
)
|
|
|
(100.2
|
)
|
|
|
(128.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (purchases) issuances of common stock
|
|
|
(53.2
|
)
|
|
|
0.6
|
|
|
|
(0.7
|
)
|
Payments of debt and deferred financing costs
|
|
|
(185.2
|
)
|
|
|
(67.0
|
)
|
|
|
(9.0
|
)
|
Net distributions to noncontrolling interests
|
|
|
(7.7
|
)
|
|
|
(0.7
|
)
|
|
|
(1.5
|
)
|
Issuance of debt
|
|
|
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in financing activities
|
|
|
(246.1
|
)
|
|
|
(65.0
|
)
|
|
|
(11.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
2.8
|
|
|
|
1.8
|
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
$
|
(69.4
|
)
|
|
$
|
144.2
|
|
|
$
|
16.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 29, 2011, our foreign subsidiaries and joint
ventures had $194.2 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 United States, those earnings could be
subject to United States federal and state income taxes, net of
foreign tax credits.
Cash
Flow Provided by Operating Activities
Cash flow from operating activities was $271.5 million in
2010 compared to $307.6 million in 2009 and
$161.1 million in 2008. The change in cash flow from
operations from 2010 compared with 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 more
units at year-end 2010, returning them to a more normal year-end
level, a greater mix of higher-cost products at Payless and PLG,
and higher costs per unit. 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.
We contributed $1.6 million, $9.5 million and
$5.3 million to the PLG pension plan in 2010, 2009, and
2008, respectively. Our contributions in 2011 and beyond will
depend upon market conditions, interest rates and other factors
and may vary significantly in future years based upon the
plans funded status. We believe our internal cash flow
will finance all of these future contributions.
Cash
Flow Used in Investing Activities
In 2010, our capital expenditures totaled $97.6 million.
Capital expenditures for new and relocated stores were
$24.5 million, capital expenditures to remodel existing
stores were $21.1 million, capital expenditures for
information technology hardware and systems development were
$33.3 million, capital expenditures for supply chain were
$4.7 million and capital expenditures for other necessary
improvements including corporate expenditures were
$14.0 million. We expect that cash paid for capital
expenditures during 2011 will be approximately
$110 million. We intend to use internal cash flow from
operations and available financing from the Revolving Loan
Facility, if necessary, to finance all of these capital
expenditures.
41
In 2009, our capital expenditures totaled $84.0 million.
Capital expenditures for new and relocated stores were
$23.7 million, capital expenditures to remodel existing
stores were $20.4 million, capital expenditures for
information technology hardware and systems development were
$27.2 million, capital expenditures for supply chain were
$5.0 million and capital expenditures for other necessary
improvements including corporate expenditures were
$7.7 million. We also acquired certain trademarks,
including Above the Rim, during 2009.
In 2008, our capital expenditures totaled $129.2 million.
Capital expenditures for new and relocated stores were
$41.4 million, capital expenditures to remodel existing
stores were $22.6 million, capital expenditures for
information technology hardware and systems development were
$27.8 million, capital expenditures for supply chain were
$25.0 million and capital expenditures for other necessary
improvements including corporate expenditures were
$12.4 million.
Cash
Flow Used in Financing Activities
The Company has made the following common stock repurchases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
(Dollars in millions, shares in thousands)
|
|
Dollars
|
|
|
Shares
|
|
|
Dollars
|
|
|
Shares
|
|
|
Dollars
|
|
|
Shares
|
|
|
Stock repurchase program
|
|
$
|
59.8
|
|
|
|
3,626
|
|
|
$
|
6.0
|
|
|
|
274
|
|
|
$
|
|
|
|
|
|
|
Employee stock purchase, deferred compensation and stock
incentive plans
|
|
|
4.1
|
|
|
|
208
|
|
|
|
1.6
|
|
|
|
115
|
|
|
|
1.9
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
63.9
|
|
|
|
3,834
|
|
|
$
|
7.6
|
|
|
|
389
|
|
|
$
|
1.9
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On August 17, 2007, we entered into a $725 million
term loan (the Term Loan Facility) and a
$350 million Amended and Restated Loan and Guaranty
Agreement (the Revolving Loan Facility and
collectively with the Term Loan Facility, the Loan
Facilities). The Loan Facilities rank pari passu in
right of payment and have the lien priorities specified in an
intercreditor agreement executed by the administrative agent to
the Term Loan Facility and the administrative agent to the
Revolving Loan Facility. The Loan Facilities are senior secured
loans guaranteed by substantially all of the assets of the
borrower and the guarantors, with the Revolving Loan Facility
having first priority in accounts receivable, inventory and
certain related assets and the Term Loan Facility having first
priority in substantially all of the borrowers and the
guarantors remaining assets, including intellectual
property, the capital stock of each domestic subsidiary, any
intercompany notes owned by the borrower and the guarantors, and
66% of the stock of
non-U.S. subsidiaries
directly owned by borrower or a guarantor.
The Term Loan Facility will mature on August 17, 2014. The
Term Loan Facility will amortize quarterly in annual amounts of
1.0% of the original amount, reduced ratably by any prepayments,
with the final installment payable on the maturity date. The
Term Loan Agreement provides for customary mandatory
prepayments, subject to certain exceptions and limitations and
in certain instances, reinvestment rights, from (a) the net
cash proceeds of certain asset sales, insurance recovery events
and debt issuances, each as defined in the Term Loan Agreement,
and (b) 25% of excess cash flow, as defined in the Term
Loan Agreement, subject to reduction. The mandatory prepayment
is not required if the total leverage ratio, as defined in the
Term Loan Agreement, is less than 2.0 to 1.0 at fiscal year end.
Based on our leverage ratio as of January 29, 2011, we are
not required to make such a mandatory prepayment in 2011. Loans
under the Term Loan Facility will bear interest at the
Borrowers option, at either (a) the Base Rate as
defined in the Term Loan Facility agreement plus 1.75% per annum
or (b) the Eurodollar (LIBOR-indexed) Rate plus 2.75% per
annum, with such margin to be agreed for any incremental term
loans.
In 2010, not including our required quarterly payments, we
repaid $178.0 million of our outstanding Term Loan Facility
balance. In 2009, not including our required quarterly payments,
we repaid $18.0 million of our outstanding Term Loan
Facility balance. The balance remaining on our Term Loan
Facility as of January 29, 2011 was $489.4 million.
On August 24, 2007, we entered into an interest rate swap
arrangement for $540 million to hedge a portion of our
variable rate Term Loan Facility. The interest rate swap
provides for a fixed interest rate of approximately 7.75%,
portions of which mature on a series of dates through 2012. The
balance of the Term Loan Facility that is hedged under the
interest rate swap is $220 million as of the end of 2010,
and will be $90 million as of the end of 2011. This
derivative instrument is designated as a cash flow hedge for
accounting purposes.
42
The Revolving Loan Facility will mature on August 17, 2012.
The Revolving Loan Facility bears interest at LIBOR, plus a
variable margin of 0.875% to 1.5%, or the base rate as defined
in the agreement governing the Revolving Loan Facility, based
upon certain borrowing levels and commitment fees payable on the
unborrowed balance of 0.25%. The Revolving Loan Facility will be
available as needed for general corporate purposes. The variable
interest rate including the applicable variable margin at
January 29, 2011, was 1.18%. As of January 29, 2011
the Companys borrowing base on its Revolving Loan Facility
was $288.3 million less $28.6 million in outstanding
letters of credit or $259.7 million. We did not have any
borrowings on our Revolving Loan Facility at any time during
2010.
In July 2003, we sold $200.0 million of 8.25% Senior
Subordinated Notes (the Senior Subordinated Notes)
for $196.7 million, due 2013. The discount of
$3.3 million is being amortized to interest expense over
the life of the Notes. The Notes are guaranteed by all of our
domestic subsidiaries. Interest on the Notes is payable
semi-annually. We may, on any one or more occasions, redeem all
or a part of the Notes at the redemption price of 101.375% of
their face value through July 31, 2011 and 100.000% of
their face value after August 1, 2011, plus accrued and
unpaid interest, if any, on the Senior Subordinated Notes
redeemed.
In 2009, we redeemed $23.0 million of our outstanding
Senior Subordinated Notes. We made no redemptions in 2010. The
balance remaining on our Senior Subordinated Notes as of
January 29, 2011 was $175.0 million, which is recorded
net of a $0.9 million discount.
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 January 29, 2011 our leverage ratio, as defined in
our Term Loan Facility agreement, was 1.6 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 for the next twelve months.
The Loan Facilities and the Senior Subordinated Notes contain
other various covenants, including those that may limit our
ability to pay dividends, repurchase stock, accelerate the
retirement of debt or make certain investments.
Financial
Commitments
As of January 29, 2011, the borrowing base available under
the $350.0 million Revolving Loan Facility was
$259.7 million. To determine the amount that we may borrow,
the $288.3 million borrowing base available under the
Revolving Loan Facility is reduced by $28.6 million in
outstanding letters of credit.
Our financial commitments as of January 29, 2011, are
described below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Payments Due by Fiscal Year
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Total
|
|
|
One Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
Five Years
|
|
|
|
(Dollars in millions)
|
|
|
Senior Subordinated Notes (including unamortized discount)
|
|
$
|
175.0
|
|
|
$
|
|
|
|
$
|
175.0
|
|
|
$
|
|
|
|
$
|
|
|
Term Loan Facility
|
|
|
489.4
|
|
|
|
5.0
|
|
|
|
10.0
|
|
|
|
474.4
|
|
|
|
|
|
Capital-lease obligations (including interest)
|
|
|
1.6
|
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
0.9
|
|
Operating lease
obligations(1)
|
|
|
1,111.6
|
|
|
|
281.5
|
|
|
|
413.5
|
|
|
|
234.0
|
|
|
|
182.6
|
|
Interest on long-term
debt(2)
|
|
|
123.9
|
|
|
|
36.8
|
|
|
|
69.3
|
|
|
|
17.8
|
|
|
|
|
|
Royalty
obligations(3)
|
|
|
83.5
|
|
|
|
8.6
|
|
|
|
15.6
|
|
|
|
13.5
|
|
|
|
45.8
|
|
Pension
obligations(4)
|
|
|
83.5
|
|
|
|
8.2
|
|
|
|
14.8
|
|
|
|
16.0
|
|
|
|
44.5
|
|
Service agreement
obligations(5)
|
|
|
5.6
|
|
|
|
1.1
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
Employment agreement
obligations(6)
|
|
|
26.8
|
|
|
|
14.8
|
|
|
|
12.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,100.9
|
|
|
$
|
356.1
|
|
|
$
|
715.0
|
|
|
$
|
756.0
|
|
|
$
|
273.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
(1) |
|
We lease substantially all of our stores and are committed to
making lease payments over varying lease terms. The operating
lease obligations presented represent the total lease
obligations due to landlords, including obligations related to
closed stores, as well as our obligations related to leases that
we have sublet. In instances where failure to exercise renewal
options would result in an economic penalty, the calculation of
lease obligations includes renewal option periods. |
|
(2) |
|
Interest on long-term debt includes the expected interest
payments on our 8.25% Senior Subordinated Notes, the
portion of our Term Loan Facility that is fixed at approximately
7.75% under our interest rate swap and the unhedged portion of
our Term Loan Facility that varies based on LIBOR rates. The
interest rates used for the unhedged portion of our Term Loan
Facility were based on our estimate of the forward LIBOR rate
curve as of January 29, 2011. |
|
(3) |
|
Our royalty obligations consist of minimum royalty payments for
the purchase of branded merchandise. |
|
(4) |
|
Our pension obligations consist of projected pension payments
related to our pension plans. |
|
(5) |
|
Our service agreement obligations consist of minimum payments
for services that we cannot avoid without penalty. |
|
(6) |
|
Our employment agreement obligations consist of minimum payments
to certain of our executives and assume bonus target payouts are
met. |
Amounts not reflected in the table above:
We issue cancelable purchase orders to various vendors for the
purchase of our merchandise. As of January 29, 2011, we had
merchandise purchase obligations in the amount of
$319.9 million for which we will likely take delivery.
Our liability for unrecognized tax benefits, excluding interest
and penalties, is $52.1 million as of January 29,
2011. We are unable to make a reasonably reliable estimate of
the amount and period of related future payments on this balance.
Financial
Condition Ratios
A summary of key financial information for the periods indicated
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Debt-capitalization Ratio*
|
|
|
44.7
|
%
|
|
|
53.6
|
%
|
|
|
59.5
|
%
|
|
|
|
* |
|
Debt-to-capitalization
has been computed by dividing total debt by capitalization.
Total debt is defined as long-term debt including current
maturities, notes payable and borrowings under the revolving
line of credit, if applicable. Capitalization is defined as
total debt and shareowners equity. The
debt-to-capitalization
ratio, including the present value of future minimum rental
payments under operating leases as debt and as capitalization,
was 66.7%, 72.3%, and 76.6%, respectively, for the periods
referred to above. |
The sequential decrease in the debt-capitalization ratio is
primarily due to a lower debt balance as a result of our early
extinguishment of debt and an increase in shareowners
equity due to increased earnings attributable to Collective
Brands, Inc.
Critical
Accounting Policies
MD&A is based upon our Consolidated Financial Statements,
which were prepared in accordance with accounting principles
generally accepted in the United States of America. These
principles require us to make estimates and assumptions that
affect the reported amounts in the Consolidated Financial
Statements and the notes thereto. Actual results may differ from
these estimates, and such differences may be material to the
Consolidated Financial Statements. We believe that the following
critical accounting policies involve a higher degree of judgment
or complexity. See the Notes to our Consolidated Financial
Statements for a complete discussion of our significant
accounting policies.
44
Inventories
Merchandise inventories in our stores are valued by the retail
method and are stated at the lower of cost, determined using the
first-in,
first-out (FIFO) basis, or market. Prior to shipment
to a specific store, inventories are valued at the lower of cost
using the FIFO basis, or market. The retail method is widely
used in the retail industry due to its practicality. Under the
retail method, cost is determined by applying a calculated
cost-to-retail
ratio across groupings of similar items, known as departments.
As a result, the retail method results in an averaging of
inventory costs across similar items within a department. The
cost-to-retail
ratio is applied to ending inventory at its current owned retail
valuation to determine the cost of ending inventory on a
department basis. Current owned retail represents the retail
price for which merchandise is offered for sale on a regular
basis, reduced for any permanent or clearance markdowns. As a
result, the retail method normally results in an inventory
valuation that is lower than a traditional FIFO cost basis.
Inherent in the retail method calculation are certain
significant management judgments and estimates including
markdowns and shrinkage, which can significantly impact the
owned retail and, therefore, the ending inventory valuation at
cost. Specifically, the failure to take permanent or clearance
markdowns on a timely basis can result in an overstatement of
cost under the retail method. We believe that our application of
the retail method reasonably states inventory at the lower of
cost or market.
Wholesale inventories are valued at the lower of cost or market
using the FIFO method.
We make ongoing estimates relating to the net realizable value
of inventories, based upon our assumptions about future demand
and market conditions. If we estimate that the net realizable
value of our inventory is less than the cost of the inventory
recorded on our books, we reduce inventory to the estimated net
realizable value. If changes in market conditions result in
reductions in the estimated net realizable value of our
inventory below our previous estimate, we would increase our
reserve in the period in which we made such a determination. We
have continually managed these risks in the past and believe we
can successfully manage them in the future. However, our
revenues and operating margins may suffer if we are unable to
effectively manage these risks.
Property
and Equipment
Property and equipment are recorded at cost and depreciated on a
straight-line basis over their estimated useful lives. The costs
of repairs and maintenance are expensed when incurred, while
expenditures for store remodels, refurbishments and improvements
that significantly add to the product capacity or extend the
useful life of an asset are capitalized. Projects in progress
are stated at cost, which includes the cost of construction and
other direct costs attributable to the project. No provision for
depreciation is made on projects in progress until such time as
the relevant assets are completed and put into service.
Property and equipment are reviewed on a
store-by-store
basis if an indicator of impairment exists to determine whether
the carrying amount of the asset is recoverable. Estimated
future cash flows on a
store-by-store
basis are used to determine if impairment exists. The underlying
estimates of cash flows include estimates of future revenues,
gross margin rates and store expenses and are based upon the
stores past and expected future performance. To the extent
our estimates for revenue growth, gross margin rates, and store
expense projections are not realized, we could record an
impairment charge.
Defined
Benefit Plans
The Company has defined benefit pension plans. One of the plans
is frozen and no longer accrues future retirement benefits.
Major assumptions used in the accounting for the other employee
benefit plan include the discount rate, expected return on plan
assets and rate of increase in employee compensation levels.
Assumptions are determined based on our data and appropriate
market indicators, and are evaluated each year as of the
plans measurement date. A change in any of these
assumptions would have an effect on net periodic pension and
post-retirement benefit costs reported in the Consolidated
Financial Statements.
We use a cash flow matching approach for determining the
appropriate discount rate for the defined benefit pension plan.
The approach is derived from U.S. Treasury rates, plus an
option-adjusted spread varying by maturity, to derive
hypothetical Aa corporate bond rates. The
calculation of pension expense is dependent on the
45
determination of the assumptions used. A 25 basis point
change in the discount rate will change annual expense by
approximately $0.2 million. A 25 basis point change in
the expected long-term return on assets will result in an
approximate change of $0.2 million in the annual expense.
Insurance
Programs
We retain our normal expected losses related primarily to
workers compensation, physical loss to property and
business interruption resulting from such loss and comprehensive
general, product, and vehicle liability. We purchase third party
coverage for losses in excess of significant levels. Provisions
for losses expected under these programs are recorded based upon
estimates of aggregate liability for claims incurred utilizing
independent actuarial calculations. These actuarial calculations
utilize assumptions including historical claims experience,
demographic factors and severity factors to estimate the
frequency and severity of losses as well as the patterns
surrounding the emergence, development and settlement of claims.
Accounting
for Taxes
Our estimate of uncertainty in income taxes is based on the
framework established in income taxes accounting guidance. This
guidance prescribes a recognition threshold and a measurement
standard for the financial statement recognition and measurement
of tax positions taken or expected to be taken in a tax return.
The recognition and measurement of tax benefits is often highly
judgmental. Determinations regarding the recognition and
measurement of a tax benefit can change as additional
developments occur relative to the issue. Accordingly, our
future results may include favorable or unfavorable adjustments
to our unrecognized tax benefits.
We record valuation allowances against our deferred tax assets,
when necessary, in accordance with the framework established in
income taxes accounting guidance. Realization of deferred tax
assets (such as net operating loss carryforwards) is dependent
on future taxable earnings and is therefore uncertain. We assess
the likelihood that our deferred tax assets in each of the
jurisdictions in which we operate will be recovered from future
taxable income. Deferred tax assets are reduced by a valuation
allowance to recognize the extent to which, more likely than
not, the future tax benefits will not be realized. 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.
Share-based
Compensation
We account for share-based awards in accordance with the
framework established in the share-based compensation guidance.
Share-based compensation is estimated for equity awards at fair
value on the grant date. We determine the fair value of equity
awards using a binomial model. The binomial model requires
various judgmental assumptions including the expected life,
stock price volatility and the forfeiture rate. If any of the
assumptions used in the model change significantly, share-based
compensation expense may differ materially in the future from
that recorded in the current period.
Accounting
for Goodwill
We assess goodwill, which is not subject to amortization, for
impairment on an annual basis and also at any other date when
events or changes in circumstances indicate that the book value
of our reporting units may exceed their fair value. A reporting
unit is a component of a segment that constitutes a business,
for which discrete financial information is available, and for
which the operating results are regularly reviewed by
management. We have five reporting units for the purposes of
assessing goodwill: Payless Domestic, Payless International, PLG
Wholesale, PLG Retail, and Collective Licensing.
The goodwill impairment test involves a two-step process. The
first step is a comparison of each reporting units fair
value to its book value. If the book value of a reporting unit
exceeds its fair value, goodwill is considered potentially
impaired and the Company must complete the second step of the
goodwill impairment test. The amount of impairment is determined
by comparing the implied fair value of reporting unit goodwill
to the book value of the goodwill in the same manner as if the
reporting unit was being acquired in a business combination.
Specifically, we would allocate the fair value to all of the
assets and liabilities of the reporting unit in a hypothetical
analysis that
46
would calculate the implied fair value of goodwill. If the
implied fair value of goodwill is less than the recorded
goodwill, we would recognize an impairment charge for the
difference.
The fair value of the reporting units is determined using a
combined income and market approach. The income approach uses a
reporting units projection of estimated cash flows that is
discounted using a weighted-average cost of capital that
reflects current market conditions. The market approach may
involve use of the guideline transaction method, the guideline
company method, or both. The guideline transaction method makes
use of available transaction price data of companies engaged in
the same or a similar line of business as the respective
reporting unit. The guideline company method uses market
multiples of publicly traded companies with operating
characteristics similar to the respective reporting unit. We
consider value indications from both the income approach and
market approach in estimating the fair value of each reporting
unit in our analysis. We also compare the aggregate fair value
of our reporting units to our market capitalization plus a
control premium at each reporting period.
Management judgment is a significant factor in determining
whether an indicator of impairment has occurred. We rely on
estimates in determining the fair value of each reporting unit,
which include the following critical quantitative factors:
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|
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|
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Anticipated future cash flows and long-term growth rates for
each reporting unit. The income approach to
determining fair value relies on the timing and estimates of
future cash flows, including an estimate of long-term growth
rates. The projections use our estimates of economic and market
conditions over the projected period including growth rates in
sales and estimates of expected changes in operating margins.
Our projections of future cash flows are subject to change as
actual results are achieved that differ from those anticipated.
Actual results could vary significantly from estimates.
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|
Selection of an appropriate discount rate. The
income approach requires the selection of an appropriate
discount rate, which is based on a weighted average cost of
capital analysis. The discount rate is subject to changes in
short-term interest rates and long-term yield, as well as
variances in the typical capital structure of marketplace
participants in our industry. The discount rate is determined
based on assumptions that would be used by marketplace
participants, and for that reason, the capital structure of
selected marketplace participants is used in the weighted
average cost of capital analysis. Because the selection of the
discount rate is dependent on several variables, it is possible
that the discount rate could change from year to year.
|
Our goodwill balance was $279.8 million as of
January 29, 2011. 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 January 29, 2011
is as follows:
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|
Reporting Segment
|
|
Reporting Unit
|
|
Goodwill Balance
|
|
|
|
|
|
(In millions)
|
|
|
PLG Wholesale
|
|
PLG Wholesale
|
|
$
|
239.6
|
|
Payless Domestic
|
|
Collective Licensing
|
|
|
34.3
|
|
Payless Domestic
|
|
Payless Domestic
|
|
|
5.9
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
279.8
|
|
|
|
|
|
|
We performed our annual goodwill impairment test in the third
quarter of 2010 and concluded that there was no impairment of
goodwill. A change in circumstances, a change in strategic
direction or a change in the competitive or economic environment
could adversely affect the fair value of one or more reporting
units in the future.
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.
47
Accounting
for Intangible Assets
Indefinite-lived intangible assets are not amortized, but are
tested for impairment annually or more frequently if
circumstances indicate potential impairment, through a
comparison of fair value to its carrying amount. Favorable
leases, certain tradenames and other intangible assets with
finite lives are amortized over their useful lives using the
straight-line method. Customer relationships are amortized based
on the time period over which the benefits of the asset are
expected to occur.
Each period we evaluate whether events and circumstances warrant
a revision to the remaining estimated useful life of each
intangible asset. If we were to determine that events and
circumstances warrant a change to the estimate of an intangible
assets remaining useful life, then the remaining carrying
amount of the intangible asset would be amortized prospectively
over that revised remaining useful life. As of January 29,
2011, we had $365.5 million of indefinite-lived tradenames
that are not amortized but are assessed for impairment on an
annual basis and also at any other date when events or changes
in circumstances indicate that the book value of these assets
may exceed their fair value.
The impairment test for indefinite-lived tradenames compares
each tradenames fair value to its book value. If the book
value of a tradename exceeds its fair value, the tradename is
considered impaired and the Company recognizes an impairment
charge for the difference. The fair values of our tradenames are
determined using either the relief from royalty method or the
excess earnings method, which are forms of the income approach.
The relief from royalty method is based on the theory that the
owner of the tradename is relieved of paying a royalty or
license fee for the use of the tradename. The excess earnings
method calculates the value of the tradename by discounting its
future cash flows.
Management judgment is a significant factor in determining
whether an indicator of impairment for tradenames has occurred.
We rely on estimates in determining the fair value of each
tradename, which include the following critical quantitative
factors:
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|
|
Anticipated future revenues and long-term growth rates for
each tradename. The relief from royalty approach
to determining fair value relies on the timing and estimates of
future revenues, including an estimate of long-term growth
rates. Our projections of future revenues are subject to change
as actual results are achieved that differ from those
anticipated. Actual results could vary significantly from
estimates.
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|
|
Reasonable market royalty rate for each
tradename. The relief from royalty approach to
determining fair value requires selection of appropriate royalty
rates for each tradename. The rates selected depend upon, among
other things, licensing agreements involving similar tradenames,
historical and forecasted operating profit for each tradename
and qualitative factors such as market awareness, history,
longevity, and market size.
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|
Selection of an appropriate discount rate. The
relief from royalty approach requires the selection of an
appropriate discount rate, which is based on a weighted average
cost of capital analysis. The discount rate is subject to
changes in short-term interest rates and long-term yield as well
as variances in the typical capital structure of marketplace
participants in the Companys industry. The discount rate
is determined based on assumptions that would be used by
marketplace participants, and for that reason, the capital
structure of selected marketplace participants is used in the
weighted average cost of capital analysis. Because the selection
of the discount rate is dependent on several variables, it is
possible that the discount rate could change from year to year.
|
We performed our annual indefinite-lived intangible asset
impairment test in the third quarter of 2010 and concluded that
there was no impairment of our intangible assets. 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.
48
Accounting
for Derivatives
We participate in interest rate related derivative instruments
to manage our exposure on our debt instruments and forward
contracts to hedge a portion of certain foreign currency
purchases. We record all derivative instruments on the
Consolidated Balance Sheet as either assets or liabilities
measured at fair value in accordance with the framework
established for derivatives and hedging and the framework
established for fair value measurements and disclosures. For
interest rate contracts, we use a
mark-to-market
valuation technique based on an observable interest rate yield
curve and adjust for credit risk. For foreign currency
contracts, we use a
mark-to-market
valuation technique based on observable foreign currency
exchange rates and adjust for credit risk. Changes in the fair
value of these derivative instruments are recorded either
through net earnings (loss) or as other comprehensive income,
depending on the type of hedge designation. Gains and losses on
derivative instruments designated as cash flow hedges are
reported in other comprehensive income and reclassified into
earnings in the periods in which earnings are impacted by the
hedged item. As of January 29, 2011, a 100 basis point
increase in LIBOR on the unhedged portion of the Companys
debt would impact pretax interest expense by approximately
$2.7 million annually or approximately $0.7 million
per quarter.
Accounting
for Contingencies
We are involved in various legal proceedings that arise from
time to time in the ordinary course of our business. Except for
income tax contingencies, we record accruals for contingencies
to the extent that we conclude that their occurrence is probable
and that the related liabilities are estimable and we record
anticipated recoveries under existing insurance contracts when
assured of recovery. We consider many factors in making these
assessments including the progress of the case, opinions or
views of legal counsel, prior case law, the experience of the
Company or other companies in similar cases, and our intent on
how to respond. Because litigation and other contingencies are
inherently unpredictable and excessive verdicts do occur, these
assessments can involve a series of complex judgments about
future events and can rely heavily on estimates and assumptions.
New
Accounting Standards
See Note 18 of the Consolidated Financial Statements for
new accounting standards, including the expected dates of
adoption and estimated effects on our Consolidated Financial
Statements.
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|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Interest
Rate Risk
Interest on our 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 Loan Facility at January 29, 2011; however, if we
were to borrow against our Revolving Loan Facility, borrowing
costs may fluctuate depending upon the volatility of LIBOR. On
August 24, 2007, we entered into an interest rate swap
arrangement for $540 million to hedge a portion of our
variable rate Term Loan Facility. As of January 29, 2011,
we have hedged $220 million of our Term Loan Facility. The
interest rate swap provides for a fixed interest rate of
approximately 7.75%, portions of which mature on a series of
dates through May of 2012. The unhedged portion of the Term Loan
Facility is subject to interest rate risk depending on the
volatility of LIBOR. As of January 29, 2011, a
100 basis point increase in LIBOR on the unhedged portion
of the Companys Term Loan Facility debt, which totals
$269.4 million, would impact pretax interest expense by
approximately $2.7 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, from time to
time, enter into forward contracts to purchase or sell foreign
currencies. For the 52 weeks ended January 29, 2011,
fluctuations in foreign currency exchange rates did not have a
material impact on our operations or cash flows.
49
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. Since 1994, the official exchange rate for the
conversion of the PRCs currency was pegged to the
U.S. dollar at a virtually fixed rate of approximately 8.28
Yuan per U.S. dollar. However, during 2005, the PRCs
government revalued the Yuan and adopted a more flexible system
based on a trade-weighted basket of foreign currencies of the
PRCs main trading partners. Under the new 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 January 28, 2011,
the last day of trading in our fiscal year, the exchange rate
was 6.57 Yuan per U.S. dollar compared to 6.82 Yuan per
U.S. dollar at the end of our 2009 fiscal year and 6.85
Yuan per U.S. dollar at the end of our 2008 fiscal year.
50
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
52
|
|
|
|
|
53
|
|
|
|
|
54
|
|
|
|
|
56
|
|
|
|
|
57
|
|
|
|
|
58
|
|
|
|
|
60
|
|
|
|
|
61
|
|
51
Report of
Management
Management is responsible for the preparation, integrity and
objectivity of the financial information included in this annual
report. The financial statements have been prepared in
conformity with accounting principles generally accepted in the
United States applied on a consistent basis.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts. Although the financial statements
reflect all available information and managements judgment
and estimates of current conditions and circumstances, and are
prepared with the assistance of specialists within and outside
the Company, actual results could differ from those estimates.
Management has established and maintains an internal control
structure to provide reasonable assurance that assets are
safeguarded against loss from unauthorized use or disposition,
that the accounting records provide a reliable basis for the
preparation of financial statements, and that such financial
statements are not misstated due to material fraud or error.
Internal controls include the careful selection of associates,
the proper segregation of duties and the communication and
application of formal policies and procedures that are
consistent with high standards of accounting and administrative
practices. An important element of this system is a
comprehensive internal audit and loss prevention program.
Management continually reviews, modifies and improves its
systems of accounting and controls in response to changes in
business conditions and operations and in response to
recommendations by the independent registered public accounting
firm and reports prepared by the internal auditors.
Management believes that it is essential for the Company to
conduct its business affairs in accordance with the highest
ethical standards and in conformity with the law. This standard
is described in the Companys code of ethics, which is
publicized throughout the Company.
Audit and
Finance Committee of the Board of Directors
The Board of Directors, through the activities of its Audit and
Finance Committee (the Committee), participates in
the reporting of financial information by the Company. The
Committee meets regularly with management, the internal auditors
and the independent registered public accounting firm. The
Committee reviewed the scope, timing and fees for the annual
audit and the results of the audits completed by the internal
auditors and independent registered public accounting firm,
including the recommendations to improve certain internal
controls and the
follow-up
reports prepared by management. The independent registered
public accounting firm and internal auditors have free access to
the Committee and the Board of Directors and attend each
regularly scheduled Committee meeting.
The Committee consists of five outside directors all of whom
have accounting or financial management expertise. The members
of the Committee are Daniel Boggan Jr., Robert F. Moran, John F.
McGovern, David Scott Olivet, and Matthew A. Ouimet. The Audit
and Finance Committee regularly reports the results of its
activities to the full Board of Directors.
52
Managements
Annual Report on Internal Control Over Financial
Reporting
The management of Collective Brands, Inc. is responsible for
establishing and maintaining adequate internal control over
financial reporting for the Company. With the participation of
the Principal Executive Officer and the Principal Financial and
Accounting Officer, our management conducted an evaluation of
the effectiveness of our internal control over financial
reporting based on the framework and criteria established in
Internal Control Integrated Framework, issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, our management has
concluded that our internal control over financial reporting was
effective as of January 29, 2011.
Collective Brands, Inc.s independent registered public
accounting firm, Deloitte & Touche LLP, has issued an
attestation report dated March 25, 2011 on our internal
control over financial reporting which is included on
page 54.
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/s/ Matthew
E. Rubel
Chief
Executive Officer, President
and Chairman of the Board
(Principal Executive Officer)
|
|
/s/ Douglas
G. Boessen
Division
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
|
53
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareowners of
Collective Brands, Inc.
Topeka, Kansas
We have audited the internal control over financial reporting of
Collective Brands, Inc. and subsidiaries (the
Company) as of January 29, 2011, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Managements Annual Report on
Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of January 29, 2011, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended January 29, 2011, of
the Company and our report dated March 25, 2011, expressed
an unqualified opinion on those financial statements and
financial statement schedule.
/s/ DELOITTE &
TOUCHE LLP
Kansas City, Missouri
March 25, 2011
54
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareowners of
Collective Brands, Inc.
Topeka, Kansas
We have audited the accompanying consolidated balance sheets of
Collective Brands, Inc. and subsidiaries (the
Company) as of January 29, 2011 and
January 30, 2010, and the related consolidated statements
of earnings (loss), shareowners equity and comprehensive
income (loss), and cash flows for each of the three fiscal years
in the period ended January 29, 2011. Our audits also
included the financial statement schedule listed in the Index at
Item 15 (a). These consolidated financial statements and
financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on the financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Collective Brands, Inc. and subsidiaries as of January 29,
2011 and January 30, 2010, and the results of their
operations and their cash flows for each of the three fiscal
years in the period ended January 29, 2011, in conformity
with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth
therein.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
January 29, 2011, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 25, 2011, expressed
an unqualified opinion on the Companys internal control
over financial reporting.
/s/ DELOITTE &
TOUCHE LLP
Kansas City, Missouri
March 25, 2011
55
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
(Dollars
in millions, except per share)
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|
|
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52 Weeks Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Net sales
|
|
$
|
3,375.7
|
|
|
$
|
3,307.9
|
|
|
$
|
3,442.0
|
|
Cost of Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
2,174.5
|
|
|
|
2,166.9
|
|
|
|
2,344.6
|
|
Impairment of tradenames
|
|
|
|
|
|
|
|
|
|
|
88.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
2,174.5
|
|
|
|
2,166.9
|
|
|
|
2,432.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
1,201.2
|
|
|
|
1,141.0
|
|
|
|
1,009.2
|
|
Selling, general and administrative expenses
|
|
|
1,011.5
|
|
|
|
982.4
|
|
|
|
1,007.2
|
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
42.0
|
|
Restructuring charges
|
|
|
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) from continuing operations
|
|
|
189.7
|
|
|
|
158.5
|
|
|
|
(40.2
|
)
|
Interest expense
|
|
|
48.7
|
|
|
|
60.8
|
|
|
|
75.2
|
|
Interest income
|
|
|
(0.7
|
)
|
|
|
(1.1
|
)
|
|
|
(8.1
|
)
|
Loss on early extinguishment of debt
|
|
|
1.7
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations before income
taxes
|
|
|
140.0
|
|
|
|
97.6
|
|
|
|
(107.3
|
)
|
Provision (benefit) for income taxes
|
|
|
17.4
|
|
|
|
9.4
|
|
|
|
(48.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations
|
|
|
122.6
|
|
|
|
88.2
|
|
|
|
(59.3
|
)
|
Earnings (loss) from discontinued operations, net of income taxes
|
|
|
|
|
|
|
0.1
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
122.6
|
|
|
|
88.3
|
|
|
|
(60.0
|
)
|
Net earnings attributable to noncontrolling interests
|
|
|
(9.8
|
)
|
|
|
(5.6
|
)
|
|
|
(8.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Collective Brands, Inc.
|
|
$
|
112.8
|
|
|
$
|
82.7
|
|
|
$
|
(68.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to Collective
Brands, Inc. common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
$
|
1.77
|
|
|
$
|
1.29
|
|
|
$
|
(1.08
|
)
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to Collective
Brands, Inc. common shareholders
|
|
$
|
1.77
|
|
|
$
|
1.29
|
|
|
$
|
(1.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to Collective
Brands, Inc. common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
$
|
1.75
|
|
|
$
|
1.28
|
|
|
$
|
(1.08
|
)
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to Collective
Brands, Inc. common shareholders
|
|
$
|
1.75
|
|
|
$
|
1.28
|
|
|
$
|
(1.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
56
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
(Dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
324.1
|
|
|
$
|
393.5
|
|
Accounts receivable, net of allowance for doubtful accounts and
returns reserve as of January 29, 2011 and January 30,
2010 of $6.0 and $5.5, respectively
|
|
|
114.4
|
|
|
|
95.5
|
|
Inventories
|
|
|
531.7
|
|
|
|
442.9
|
|
Current deferred income taxes
|
|
|
30.7
|
|
|
|
42.1
|
|
Prepaid expenses
|
|
|
55.1
|
|
|
|
48.9
|
|
Other current assets
|
|
|
22.2
|
|
|
|
21.7
|
|
Current assets of discontinued operations
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,078.2
|
|
|
|
1,045.1
|
|
Property and Equipment:
|
|
|
|
|
|
|
|
|
Land
|
|
|
6.7
|
|
|
|
7.0
|
|
Property, buildings and equipment
|
|
|
1,444.6
|
|
|
|
1,403.1
|
|
Accumulated depreciation and amortization
|
|
|
(1,019.0
|
)
|
|
|
(945.9
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
432.3
|
|
|
|
464.2
|
|
Intangible assets, net
|
|
|
428.4
|
|
|
|
445.5
|
|
Goodwill
|
|
|
279.8
|
|
|
|
279.8
|
|
Deferred income taxes
|
|
|
10.1
|
|
|
|
6.5
|
|
Other assets
|
|
|
39.7
|
|
|
|
43.2
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
2,268.5
|
|
|
$
|
2,284.3
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
5.1
|
|
|
$
|
6.9
|
|
Accounts payable
|
|
|
287.4
|
|
|
|
195.9
|
|
Accrued expenses
|
|
|
184.4
|
|
|
|
181.8
|
|
Current liabilities of discontinued operations
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
476.9
|
|
|
|
385.9
|
|
Long-term debt
|
|
|
659.4
|
|
|
|
842.4
|
|
Deferred income taxes
|
|
|
65.4
|
|
|
|
65.5
|
|
Other liabilities
|
|
|
212.4
|
|
|
|
226.3
|
|
Noncurrent liabilities of discontinued operations
|
|
|
|
|
|
|
0.3
|
|
Commitments and contingencies (Note 16)
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Collective Brands, Inc. shareowners equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; 25,000,000 shares
authorized; none issued
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 240,000,000 shares
authorized; 75,000,000 and 88,130,874 shares issued in 2010
and 2009, respectively; 61,466,038 and 64,155,911 shares
outstanding in 2010 and 2009, respectively
|
|
|
0.7
|
|
|
|
0.9
|
|
Treasury stock, $.01 par value; 13,533,962 and
23,974,963 shares in 2010 and 2009, respectively
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
Additional
paid-in-capital
|
|
|
(2.5
|
)
|
|
|
34.7
|
|
Retained earnings
|
|
|
834.9
|
|
|
|
722.1
|
|
Accumulated other comprehensive loss, net of income taxes
|
|
|
(10.1
|
)
|
|
|
(22.3
|
)
|
|
|
|
|
|
|
|
|
|
Collective Brands, Inc. shareowners equity
|
|
|
822.9
|
|
|
|
735.2
|
|
Noncontrolling interests
|
|
|
31.5
|
|
|
|
28.7
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
854.4
|
|
|
|
763.9
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
2,268.5
|
|
|
$
|
2,284.3
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
57
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
AND
COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collective Brands, Inc. Shareowners
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Additional
|
|
|
|
|
|
Accumulated Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Controlling
|
|
|
Total
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Dollars
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Interests
|
|
|
Equity
|
|
|
Income (Loss)
|
|
|
|
(Dollars in millions, shares in thousands)
|
|
|
Balance at February 2, 2008
|
|
|
63,753
|
|
|
$
|
0.7
|
|
|
$
|
|
|
|
$
|
708.1
|
|
|
$
|
(5.9
|
)
|
|
$
|
17.2
|
|
|
$
|
720.1
|
|
|
|
|
|
Net (loss) earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(68.7
|
)
|
|
|
|
|
|
|
8.7
|
|
|
|
(60.0
|
)
|
|
$
|
(60.0
|
)
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18.9
|
)
|
|
|
(0.7
|
)
|
|
|
(19.6
|
)
|
|
|
(19.6
|
)
|
Net change in fair value of derivative, net of taxes of $0.8
(Note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
1.2
|
|
|
|
1.2
|
|
Changes in unrecognized amounts of pension benefits, net of
taxes of $7.1 (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12.0
|
)
|
|
|
|
|
|
|
(12.0
|
)
|
|
|
(12.0
|
)
|
Issuances of common stock under stock plans
|
|
|
433
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
Purchases of common stock
|
|
|
(153
|
)
|
|
|
|
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.9
|
)
|
|
|
|
|
Amortization of unearned nonvested shares
|
|
|
|
|
|
|
|
|
|
|
11.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.1
|
|
|
|
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.5
|
|
|
|
|
|
Restricted stock cancellation
|
|
|
(308
|
)
|
|
|
|
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.1
|
)
|
|
|
|
|
Contributions from noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.6
|
|
|
|
4.6
|
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.1
|
)
|
|
|
(6.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(90.4
|
)
|
Comprehensive income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to Collective Brands, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(98.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2009
|
|
|
63,725
|
|
|
|
0.7
|
|
|
|
17.8
|
|
|
|
639.4
|
|
|
|
(35.6
|
)
|
|
|
23.7
|
|
|
|
646.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82.7
|
|
|
|
|
|
|
|
5.6
|
|
|
|
88.3
|
|
|
|
88.3
|
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.0
|
|
|
|
0.1
|
|
|
|
8.1
|
|
|
|
8.1
|
|
Net change in fair value of derivatives, net of taxes of $2.2
(Note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
3.9
|
|
|
|
3.9
|
|
Changes in unrecognized amounts of pension benefits, net of
taxes of $0.3 (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.4
|
|
|
|
|
|
|
|
1.4
|
|
|
|
1.4
|
|
Issuances of common stock under stock plans
|
|
|
882
|
|
|
|
|
|
|
|
8.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.2
|
|
|
|
|
|
Purchases of common stock
|
|
|
(389
|
)
|
|
|
|
|
|
|
(7.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.6
|
)
|
|
|
|
|
Amortization of unearned nonvested shares
|
|
|
|
|
|
|
|
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.4
|
|
|
|
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
10.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.9
|
|
|
|
|
|
Restricted stock cancellation
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.5
|
|
|
|
5.5
|
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.2
|
)
|
|
|
(6.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.7
|
|
Comprehensive income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Collective Brands,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
96.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 30, 2010
|
|
|
64,156
|
|
|
$
|
0.7
|
|
|
$
|
34.7
|
|
|
$
|
722.1
|
|
|
$
|
(22.3
|
)
|
|
$
|
28.7
|
|
|
$
|
763.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREOWNERS EQUITY
AND COMPREHENSIVE INCOME (LOSS)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collective Brands, Inc. Shareowners
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Additional
|
|
|
|
|
|
Accumulated Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Controlling
|
|
|
Total
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Dollars
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Interests
|
|
|
Equity
|
|
|
Income (Loss)
|
|
|
|
(Dollars in millions, shares in thousands)
|
|
|
Balance at January 30, 2010
|
|
|
64,156
|
|
|
$
|
0.7
|
|
|
$
|
34.7
|
|
|
$
|
722.1
|
|
|
$
|
(22.3
|
)
|
|
$
|
28.7
|
|
|
$
|
763.9
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112.8
|
|
|
|
|
|
|
|
9.8
|
|
|
|
122.6
|
|
|
$
|
122.6
|
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.2
|
|
|
|
0.7
|
|
|
|
6.9
|
|
|
|
6.9
|
|
Net change in fair value of derivatives, net of taxes of $2.7
(Note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.0
|
|
|
|
|
|
|
|
5.0
|
|
|
|
5.0
|
|
Changes in unrecognized amounts of pension benefits, net of
taxes of $0.7 (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
1.0
|
|
|
|
1.0
|
|
Issuances of common stock under stock plans
|
|
|
1,183
|
|
|
|
|
|
|
|
10.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.7
|
|
|
|
|
|
Purchases of common stock
|
|
|
(3,834
|
)
|
|
|
(0.1
|
)
|
|
|
(63.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63.9
|
)
|
|
|
|
|
Amortization of unearned nonvested shares
|
|
|
|
|
|
|
|
|
|
|
7.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.9
|
|
|
|
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.0
|
|
|
|
|
|
Restricted stock cancellation
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
|
|
3.1
|
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10.8
|
)
|
|
|
(10.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135.5
|
|
Comprehensive income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Collective Brands,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
125.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 29, 2011
|
|
|
61,466
|
|
|
$
|
0.6
|
|
|
$
|
(2.5
|
)
|
|
$
|
834.9
|
|
|
$
|
(10.1
|
)
|
|
$
|
31.5
|
|
|
$
|
854.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding common stock is net of shares held in treasury and
is presented net of treasury stock of $0.1 million in 2010
and $0.2 million in 2009 and 2008, respectively. Treasury
stock is accounted for using the par value method. Treasury
share activity for the last three years is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Shares in thousands)
|
|
|
Balance, beginning of year
|
|
|
23,975
|
|
|
|
24,406
|
|
|
|
24,378
|
|
Issuances of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options, employee stock purchases and stock appreciation
rights
|
|
|
(625
|
)
|
|
|
(507
|
)
|
|
|
(79
|
)
|
Deferred compensation plan
|
|
|
|
|
|
|
(5
|
)
|
|
|
(12
|
)
|
Net restricted stock grants
|
|
|
(519
|
)
|
|
|
(308
|
)
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,144
|
)
|
|
|
(820
|
)
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of common stock
|
|
|
3,834
|
|
|
|
389
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement of Treasury Stock
|
|
|
(13,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
13,534
|
|
|
|
23,975
|
|
|
|
24,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
59
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
122.6
|
|
|
$
|
88.3
|
|
|
$
|
(60.0
|
)
|
(Earnings) loss from discontinued operations, net of income taxes
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
0.7
|
|
Adjustments for non-cash items included in net earnings (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on impairment and disposal of assets
|
|
|
12.2
|
|
|
|
11.8
|
|
|
|
25.6
|
|
Impairment of goodwill and indefinite-lived tradenames
|
|
|
|
|
|
|
|
|
|
|
130.2
|
|
Depreciation and amortization
|
|
|
138.2
|
|
|
|
143.2
|
|
|
|
140.9
|
|
Provision for losses on accounts receivable
|
|
|
2.0
|
|
|
|
2.9
|
|
|
|
3.4
|
|
Share-based compensation expense
|
|
|
16.6
|
|
|
|
16.4
|
|
|
|
20.7
|
|
Deferred income taxes
|
|
|
4.2
|
|
|
|
3.8
|
|
|
|
(75.2
|
)
|
Loss on extinguishment of debt
|
|
|
1.7
|
|
|
|
1.2
|
|
|
|
|
|
Other, net
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(0.5
|
)
|
Changes in working capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(20.7
|
)
|
|
|
0.6
|
|
|
|
(15.3
|
)
|
Inventories
|
|
|
(86.7
|
)
|
|
|
53.2
|
|
|
|
(29.4
|
)
|
Prepaid expenses and other current assets
|
|
|
(7.5
|
)
|
|
|
15.2
|
|
|
|
35.8
|
|
Accounts payable
|
|
|
92.2
|
|
|
|
20.2
|
|
|
|
(23.4
|
)
|
Accrued expenses
|
|
|
5.9
|
|
|
|
(24.6
|
)
|
|
|
13.0
|
|
Changes in other assets and liabilities, net
|
|
|
(7.6
|
)
|
|
|
(15.2
|
)
|
|
|
0.2
|
|
Contributions to pension plans
|
|
|
(1.6
|
)
|
|
|
(9.5
|
)
|
|
|
(5.3
|
)
|
Net cash provided by (used in) discontinued operations
|
|
|
|
|
|
|
0.3
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by operating activities
|
|
|
271.5
|
|
|
|
307.6
|
|
|
|
161.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(97.6
|
)
|
|
|
(84.0
|
)
|
|
|
(129.2
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
2.8
|
|
|
|
1.1
|
|
Intangible asset additions
|
|
|
|
|
|
|
(19.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in investing activities
|
|
|
(97.6
|
)
|
|
|
(100.2
|
)
|
|
|
(128.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
Repayment of notes payable
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
|
|
Proceeds from issuance of debt
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
Repayment of debt
|
|
|
(185.2
|
)
|
|
|
(66.1
|
)
|
|
|
(8.9
|
)
|
Proceeds from revolving loan facility
|
|
|
|
|
|
|
|
|
|
|
215.0
|
|
Repayment of revolving loan facility
|
|
|
|
|
|
|
|
|
|
|
(215.0
|
)
|
Payment of deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
Issuances of common stock
|
|
|
10.7
|
|
|
|
8.2
|
|
|
|
1.2
|
|
Purchases of common stock
|
|
|
(63.9
|
)
|
|
|
(7.6
|
)
|
|
|
(1.9
|
)
|
Contributions by noncontrolling interests
|
|
|
3.1
|
|
|
|
5.5
|
|
|
|
4.6
|
|
Distribution to noncontrolling interests
|
|
|
(10.8
|
)
|
|
|
(6.2
|
)
|
|
|
(6.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in financing activities
|
|
|
(246.1
|
)
|
|
|
(65.0
|
)
|
|
|
(11.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
2.8
|
|
|
|
1.8
|
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(69.4
|
)
|
|
|
144.2
|
|
|
|
16.8
|
|
Cash and cash equivalents, beginning of year
|
|
|
393.5
|
|
|
|
249.3
|
|
|
|
232.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
324.1
|
|
|
$
|
393.5
|
|
|
$
|
249.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
47.6
|
|
|
$
|
60.1
|
|
|
$
|
69.1
|
|
Income taxes paid
|
|
$
|
15.7
|
|
|
$
|
14.3
|
|
|
$
|
7.4
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued capital additions
|
|
$
|
12.4
|
|
|
$
|
13.1
|
|
|
$
|
16.7
|
|
See Notes to Consolidated Financial Statements
60
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
Note 1
|
Summary
of Significant Accounting Policies
|
Description
of Business and Basis of Presentation
Collective Brands, Inc. consists of three lines of business:
Payless ShoeSource (Payless), Collective Brands
Performance + Lifestyle Group (PLG), and Collective
Licensing. Payless 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 the
leading brand of high-quality childrens shoes in the
United States under the Stride Rite brand. PLG also markets
products for children and adults under well-known brand names,
including Sperry Top-Sider, Saucony, and Keds. Collective
Licensing is a youth lifestyle marketing and global licensing
business within the Payless Domestic segment.
The Consolidated Financial Statements include the accounts of
the Company, all wholly-owned subsidiaries and all subsidiaries
and joint ventures in which the Company owns a controlling
interest. The Companys Central American and South American
Regions use a December 31 year-end, primarily to match the
local countries statutory reporting requirements. 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.
Fiscal
Year
The Companys fiscal year ends on the Saturday closest to
January 31. Fiscal years 2010, 2009 and 2008 ended on
January 29, 2011, January 30, 2010, and
January 31, 2009, respectively. Fiscal years 2010, 2009,
and 2008 contain 52 weeks of results. References to years
in these financial statements and notes relate to fiscal years
rather than calendar years.
Use of
Estimates
Management makes estimates and assumptions that affect the
amounts reported within the Consolidated Financial Statements.
Actual results could differ from these estimates.
Net
Sales
Net sales (sales) for transactions at the
Companys retail stores are recognized at the time the sale
is made to the customer. Sales for wholesale and
e-commerce
transactions are recognized when title passes and the risks or
rewards of ownership have transferred to the customer based on
the shipping terms, the price is fixed and determinable, and
collectibility is reasonably assured. All sales are net of
estimated returns, promotional discounts and exclude sales tax.
The Company has established an allowance for merchandise returns
and markdowns based on historical experience, product
sell-through performance by product and customer, current and
historical trends in the footwear industry and changes in demand
for its products. The returns allowance is recorded as a
reduction to revenues for the estimated sales value of the
projected merchandise returns and as a reduction in cost of
sales for the corresponding cost amount. Allowances for
markdowns are recorded as a reduction of revenue based on
historical experience. From time to time actual results will
vary from the estimates that were previously established.
Shipping
and Handling
Products are sold Free On Board (FOB) shipping point
for wholesale customers. Any shipping charges that the Company
pays are recorded as cost of sales and any reimbursement is
recorded as revenue.
61
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Gift
Cards
The Company records a liability in the period in which a gift
card is issued and proceeds are received. As gift cards are
redeemed, this liability is reduced and revenue is recognized as
a sale. The estimated value of gift cards expected to go unused
is recognized ratably in proportion to actual redemptions as
gift cards are redeemed.
Total
Cost of Sales
Total cost of sales includes the cost of merchandise sold and
the Companys buying, occupancy, warehousing, product
development and product movement costs, as well as depreciation
of stores and the distribution centers, net litigation charges
related to intellectual property, store impairment charges and
tradename impairments.
Rent
Expense
Certain of the Companys lease agreements provide for
scheduled rent increases during the lease term, as well as
provisions for renewal options. Rent expense is recognized on a
straight-line basis over the term of the lease from the time at
which the Company takes possession of the property. In instances
where failure to exercise renewal options would result in an
economic penalty, the calculation of straight-line rent expense
includes renewal option periods. Also, landlord-provided tenant
improvement allowances are recorded in other liabilities and
amortized as a credit to rent expense over the term of the
lease. Substantially all rental expense is recorded in cost of
sales on the Consolidated Statement of Earnings (Loss).
Pre-Opening
Expenses
Costs associated with the opening of new stores are expensed as
incurred and are recorded in cost of sales.
Advertising
Costs
Advertising costs and sales promotion costs are expensed at the
time the advertising takes place. Selling, general and
administrative expenses include advertising and sales promotion
costs of $159.2 million, $145.5 million and
$160.9 million in 2010, 2009 and 2008, respectively.
Co-operative
Advertising
The Company engages in co-op advertising programs with some of
its wholesale customers. Co-op advertising funds are available
to all wholesale customers in good standing. Wholesale customers
receive reimbursement under this program if they meet
established advertising guidelines and trademark requirements.
Costs are accrued on the basis of sales to qualifying customers
and accounted for as an operating expense if the Company
receives, or will receive, an identifiable benefit in exchange
for the consideration and the Company can reasonably estimate
the fair value of the benefit identified.
Share-Based
Compensation Expense
Compensation expense associated with share-based awards is
recognized over the requisite service period, which is the
period between the grant date and the awards stated
vesting date. Share-based awards are expensed under the
straight-line attribution method, with the exception of market
or performance-based awards that are expensed under the tranche
specific attribution method. With the exception of market-based
awards, the actual expense recognized over the vesting period
will be based on only those shares that vest. The amount of
share-based compensation recognized during a period is based on
the value of the portion of the awards that are expected to
vest. Forfeitures are estimated at the time of grant and
revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. This analysis is
evaluated quarterly and the forfeiture rate is adjusted as
necessary.
62
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income
Taxes
The Company accounts for income taxes under the asset and
liability method, which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences
of events that have been included in the financial statements.
Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial
statements and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are
expected to reverse. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in income in
the period that includes the enactment date.
The Companys estimate of uncertainty in income taxes is
based on the framework established in the accounting for income
taxes guidance. This guidance addresses the determination of how
tax benefits claimed or expected to be claimed on a tax return
should be recorded in the financial statements. The Company
recognizes the tax benefit from an uncertain tax position only
if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the
technical merits of the position. The Company includes its
reserve for unrecognized tax benefits, as well as related
accrued penalties and interest, in other long term liabilities
on its Consolidated Balance Sheets and in the provision for
income taxes in its Consolidated Statements of Earnings (Loss).
The Company records valuation allowances against its deferred
tax assets, when necessary, in accordance with the framework
established in the income taxes accounting guidance. Realization
of deferred tax assets (such as net operating loss
carryforwards) is dependent on future taxable earnings and is
therefore uncertain. The Company assesses the likelihood that
its deferred tax assets in each of the jurisdictions in which it
operates will be recovered from future taxable income. Deferred
tax assets are reduced by a valuation allowance to recognize the
extent to which, more likely than not, the future tax benefits
will not be realized.
Cash
and Cash Equivalents
Cash equivalents consist of liquid investments with an original
maturity of three months or less. Amounts due from banks and
credit card companies of $13.5 million and
$12.3 million for the settlement of credit card
transactions are included in cash and cash equivalents as of
January 29, 2011, and January 30, 2010, respectively,
as they are generally collected within three business days. Cash
equivalents are stated at cost, which approximates fair value.
Reserve
for Uncollectible Accounts Receivable
The Company makes ongoing estimates relating to the
collectibility of its accounts receivable and maintains a
reserve for estimated losses resulting from the inability of its
customers to make required payments. In determining the amount
of the reserve, the Company considers its historical level of
credit losses and makes judgments about the creditworthiness of
significant customers based on ongoing credit evaluations. These
evaluations include, but are not limited to, analyzing its
customers financial statements, maintaining a credit watch
list to monitor accounts receivable exposure and reviewing the
customers prior payment history.
Inventories
Merchandise inventories in the Companys stores are valued
by the retail method and are stated at the lower of cost,
determined using the
first-in,
first-out (FIFO) basis, or market. The retail method
is widely used in the retail industry due to its practicality.
Under the retail method, cost is determined by applying a
calculated
cost-to-retail
ratio across groupings of similar items, known as departments.
As a result, the retail method results in an averaging of
inventory costs across similar items within a department. The
cost-to-retail
ratio is applied to ending inventory at its current owned retail
valuation to determine the cost of ending inventory on a
department basis. Current owned retail represents the retail
price for which merchandise is offered for sale on a regular
basis, reduced for any
63
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
permanent or clearance markdowns. As a result, the retail method
normally results in an inventory valuation that approximates a
traditional FIFO cost basis.
Wholesale inventories are valued at the lower of cost or market
using the FIFO method.
The Company makes ongoing estimates relating to the net
realizable value of inventories, based upon its assumptions
about future demand and market conditions. If the Companys
estimate of the net realizable value of its inventory is less
than the cost of the inventory recorded on its books, a
reduction to the estimated net realizable value is recorded. If
changes in market conditions result in an increase in the
estimated net realizable value of the Companys inventory
above its previous estimate, such recoveries would be recognized
as the related goods are sold.
Substantially all of the Companys inventories are finished
goods.
Property
and Equipment
Property and equipment are recorded at cost and are depreciated
on a straight-line basis over their estimated useful lives. The
costs of repairs and maintenance are expensed when incurred,
while expenditures for store remodels, refurbishments and
improvements that significantly add to the productive capacity
or extend the useful life of an asset are capitalized. Projects
in progress are stated at cost, which includes the cost of
construction and other direct costs attributable to the project.
No provision for depreciation is made on projects in progress
until such time as the relevant assets are completed and put to
use. The estimated useful life for each major class of property
and equipment is as follows:
|
|
|
Buildings
|
|
10 to 30 years
|
Leasehold improvements
|
|
the lesser of 10 years or the remaining expected lease term
that is reasonably assured (which may exceed the current
non-cancelable term)
|
Furniture, fixtures and equipment
|
|
2 to 10 years
|
Property under capital lease
|
|
10 to 30 years
|
The following is a summary of the components of property and
equipment:
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
Buildings and leasehold improvements
|
|
$
|
711.6
|
|
|
$
|
712.8
|
|
Furniture, fixtures and equipment
|
|
|
677.6
|
|
|
|
656.7
|
|
Projects in progress
|
|
|
55.4
|
|
|
|
33.6
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,444.6
|
|
|
$
|
1,403.1
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for 2010, 2009 and 2008 was
$119.5 million, $121.5 million and
$116.9 million, respectively.
Property and equipment are reviewed for recoverability on a
store-by-store
basis if an indicator of impairment exists to determine whether
the carrying amount of the assets is recoverable. Undiscounted
estimated future cash flows are used to determine if impairment
exists. If impairment exists, the Company uses discounted cash
flows to calculate impairment. The Company uses current
operating results and historical performance to estimate future
cash flows on a
store-by-store
basis. Total impairment charges related to assets held and used
were $8.8 million, $6.0 million, and
$18.1 million in 2010, 2009 and 2008, respectively. These
charges are included in cost of sales within the Consolidated
Statement of Earnings (Loss). Of the $8.8 million
impairment charge in 2010, $6.3 million is included in the
Payless Domestic reporting segment, $1.4 million is
included in the PLG Retail reporting segment and
$1.1 million is included in the Payless International
reporting segment.
64
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Insurance
Programs
The Company retains its normal expected losses related primarily
to workers compensation, physical loss to property and
business interruption resulting from such loss and comprehensive
general, product, and vehicle liability. The Company purchases
third-party coverage for losses in excess of the normal expected
levels. Provisions for losses expected under these programs are
recorded based upon estimates of the aggregate liability for
claims incurred utilizing actuarial calculations based on
historical results.
Foreign
Currency Translation
Local currencies are the functional currencies for most foreign
subsidiaries. Accordingly, assets and liabilities of these
subsidiaries are translated at the rate of exchange at the
balance sheet date. Adjustments from the translation process are
accumulated as part of other comprehensive income (loss) and are
included as a separate component of shareowners equity.
The changes in foreign currency translation adjustments were not
adjusted for income taxes since they relate to indefinite term
investments in
non-United
States subsidiaries. Income and expense items of these
subsidiaries are translated at average rates of exchange. As of
fiscal year-end 2010, 2009 and 2008, cumulative translation
adjustments included in accumulated other comprehensive income
(loss) were $19.7 million, $12.8 million and
$4.8 million, respectively. The Company has recorded
foreign currency transaction gains (losses) of
($0.3) million, $0.5 million and ($3.4) million
in the Consolidated Statement of Earnings (Loss) in fiscal years
2010, 2009 and 2008, respectively.
For those foreign subsidiaries operating in a highly
inflationary economy or having the U.S. Dollar as their
functional currency, net non-monetary assets are translated at
historical rates and net monetary assets are translated at
current rates. Transaction adjustments are included in the
determination of net earnings (loss).
Asset
Retirement Obligations
The Company records a liability equal to the fair value of the
estimated future cost to retire an asset, if the
liabilitys fair value can be reasonably estimated. The
Companys asset retirement obligation (ARO)
liabilities are primarily associated with the disposal of
personal property and trade fixtures which, at the end of a
lease, the Company is contractually obligated to remove in order
to restore the facility back to a condition specified in the
lease agreement. The Company estimates the fair value of these
liabilities based on current store closing costs and discounts
the costs back as if they were to be performed at the inception
of the lease. At the inception of such a lease, the Company
records the ARO as a liability and also records a related asset
in an amount equal to the estimated fair value of the liability.
The capitalized asset is then depreciated on a straight-line
basis over the useful life of the asset. Upon retirement of the
asset, any difference between the actual retirement costs
incurred and the previously recorded estimated ARO liability is
recognized as a gain or loss in the Consolidated Statements of
Earnings (Loss).
The Companys ARO liability as of January 29, 2011 and
January 30, 2010 was $8.1 million and
$8.2 million, respectively, and was recorded in other
long-term liabilities on its Consolidated Balance Sheets. There
were no significant liabilities incurred, liabilities settled,
nor accretion expense as of January 29, 2011 and
January 30, 2010.
Accounting
for Franchise Arrangements
The Company grants franchisees the right to develop and operate
stores within a defined geographic area in exchange for royalty
payments. Royalties are recognized when they are earned and
become receivable from the franchisee. There were no significant
royalties received as of January 29, 2011 and
January 30, 2010.
Company-Owned
Life Insurance
The Company owns various life insurance policies for certain
associates. These Company-Owned Life Insurance
(COLI) policies are recorded at their net cash
surrender values as of each balance sheet date. Changes in the
net cash surrender value during the period are recorded in
selling, general and administrative expenses. The
65
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company does not record deferred tax balances related to cash
surrender value gains or losses as it has the intent to hold
these policies until maturity. The total amounts related to the
Companys investments in COLI policies, included in other
assets in the Consolidated Balance Sheet as of January 29,
2011 and January 30, 2010, were $21.6 million and
$19.8 million, respectively.
Accounting
for Goodwill
The Company assesses goodwill, which is not subject to
amortization, for impairment on an annual basis and also at any
other date when events or changes in circumstances indicate that
the book value of these assets may exceed their fair value. This
assessment is performed at a reporting unit level. A reporting
unit is a component of a segment that constitutes a business,
for which discrete financial information is available, and for
which the operating results are regularly reviewed by
management. The Company develops an estimate of the fair value
of each reporting unit using both a market approach and an
income approach. If potential for impairment exists, the fair
value of the reporting unit is subsequently measured against the
fair value of its underlying assets and liabilities, excluding
goodwill, to estimate an implied fair value of the reporting
units goodwill.
The estimate of fair value is highly subjective and requires
significant judgment related to the estimate of the magnitude
and timing of future reporting unit cash flows. If the Company
determines that the estimated fair value of any reporting unit
is less than the reporting units carrying value, then it
will recognize an impairment charge. As of January 29,
2011, the Companys goodwill balance was
$279.8 million.
Accounting
for Intangible Assets
Indefinite-lived intangible assets are not amortized, but are
tested for impairment annually, or more frequently if
circumstances indicate potential impairment, through a
comparison of fair value to its carrying amount. Favorable
leases, certain trademarks and other intangible assets with
finite lives are amortized over their useful lives using the
straight-line method. Customer relationships are amortized using
an economic patterning technique based on when the benefits of
the asset are expected to be used.
The estimated useful life for each class of intangible assets is
as follows:
|
|
|
Favorable lease rights
|
|
A weighted-average period of 5 years. Favorable lease
rights are amortized over the term of the underlying lease,
including renewal options in instances where failure to exercise
renewals would result in an economic penalty.
|
Tradenames and other intangible assets
|
|
4 to 20 years
|
Customer relationships
|
|
2 to 8 years
|
Each period the Company evaluates whether events and
circumstances warrant a revision to the remaining estimated
useful life of each intangible asset. If the Company were to
determine that events and circumstances warrant a change to the
estimate of an intangible assets remaining useful life,
then the remaining carrying amount of the intangible asset would
be amortized prospectively over that revised remaining useful
life.
The estimate of fair value is highly subjective and requires
significant judgment. If the Company determines that the
estimated fair value of any intangible asset is less than the
reporting units carrying value, then it will recognize an
impairment charge. The Companys intangible assets
book value, net of amortization, was $428.4 million as of
January 29, 2011.
Derivatives
The Company participates in interest rate related derivative
instruments to manage its exposure on its debt instruments and
forward contracts to hedge a portion of certain foreign currency
purchases. The Company records all derivative instruments on the
Consolidated Balance Sheet as either assets or liabilities
measured at fair value in
66
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
accordance with the framework established for derivatives and
hedging and the framework established for fair value
measurements and disclosures. For interest rate contracts, the
Company uses a
mark-to-market
valuation technique based on an observable interest rate yield
curve and adjusts for credit risk. For foreign currency
contracts, the Company uses a
mark-to-market
technique based on observable foreign currency exchange rates
and adjusts for credit risk. Changes in the fair value of these
derivative instruments are recorded either through net earnings
(loss) or as other comprehensive income (loss), depending on the
type of hedge designation. Gains and losses on derivative
instruments designated as cash flow hedges are reported in other
comprehensive income (loss) and reclassified into earnings in
the periods in which earnings are impacted by the hedged item.
Accounting
for Contingencies
The Company is involved in various legal proceedings that arise
from time to time in the ordinary course of business. Except for
income tax contingencies, it records accruals for contingencies
to the extent that it concludes that their occurrence is
probable and that the related liabilities are estimable and it
records anticipated recoveries under existing insurance
contracts when assured of recovery. The Company considers many
factors in making these assessments, including the progress of
the case, opinions or views of legal counsel, prior case law,
the experience of the Company or other companies in similar
cases, and its intent on how to respond. Because litigation and
other contingencies are inherently unpredictable and excessive
verdicts do occur, these assessments can involve a series of
complex judgments about future events and can rely heavily on
estimates and assumptions.
|
|
Note 2
|
Quarterly
Results (Unaudited)
|
The tables below summarize quarterly results for the last two
years. Quarterly results are determined in accordance with
annual accounting policies and all adjustments (consisting only
of normal recurring adjustments, except as noted below)
necessary for a fair statement of the results for the interim
periods have been included; however, certain items are based
upon estimates for the entire year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
Quarter
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Year
|
|
|
|
(Dollars in millions, except per share)
|
|
|
Net sales
|
|
$
|
878.8
|
|
|
$
|
841.3
|
|
|
$
|
881.8
|
|
|
$
|
773.8
|
|
|
$
|
3,375.7
|
|
Gross margin
|
|
|
336.7
|
|
|
|
289.1
|
|
|
|
329.2
|
|
|
|
246.2
|
|
|
|
1,201.2
|
|
Net earnings (loss)
|
|
|
56.0
|
|
|
|
22.0
|
|
|
|
50.2
|
|
|
|
(5.6
|
)
|
|
|
122.6
|
|
Net earnings attributable to noncontrolling interests
|
|
|
(1.8
|
)
|
|
|
(0.9
|
)
|
|
|
(2.6
|
)
|
|
|
(4.5
|
)
|
|
|
(9.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Collective Brands,
Inc.
|
|
$
|
54.2
|
|
|
$
|
21.1
|
|
|
$
|
47.6
|
|
|
$
|
(10.1
|
)
|
|
$
|
112.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to Collective
Brands, Inc. common
shareholders:(1)
|
|
$
|
0.84
|
|
|
$
|
0.33
|
|
|
$
|
0.75
|
|
|
$
|
(0.16
|
)
|
|
$
|
1.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to Collective
Brands, Inc. common
shareholders:(1)
|
|
$
|
0.83
|
|
|
$
|
0.32
|
|
|
$
|
0.75
|
|
|
$
|
(0.16
|
)
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
Quarter
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Year
|
|
|
|
(Dollars in millions, except per share)
|
|
|
Net sales
|
|
$
|
862.9
|
|
|
$
|
836.3
|
|
|
$
|
867.0
|
|
|
$
|
741.7
|
|
|
$
|
3,307.9
|
|
Gross margin
|
|
|
309.8
|
|
|
|
275.7
|
|
|
|
311.8
|
|
|
|
243.7
|
|
|
|
1,141.0
|
|
Net earnings (loss) from continuing operations
|
|
|
38.3
|
|
|
|
18.8
|
|
|
|
38.2
|
|
|
|
(7.1
|
)
|
|
|
88.2
|
|
(Loss) earnings from discontinued operations, net of income taxes
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
0.3
|
|
|
|
0.1
|
|
Net earnings attributable to noncontrolling interests
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
(1.2
|
)
|
|
|
(4.1
|
)
|
|
|
(5.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Collective Brands, Inc.
|
|
$
|
38.0
|
|
|
$
|
18.7
|
|
|
$
|
36.9
|
|
|
$
|
(10.9
|
)
|
|
$
|
82.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to Collective
Brands, Inc. common
shareholders:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
$
|
0.59
|
|
|
$
|
0.29
|
|
|
$
|
0.58
|
|
|
$
|
(0.18
|
)
|
|
$
|
1.29
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to Collective
Brands, Inc. common shareholders
|
|
$
|
0.59
|
|
|
$
|
0.29
|
|
|
$
|
0.58
|
|
|
$
|
(0.17
|
)
|
|
$
|
1.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to Collective
Brands, Inc. common
shareholders:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
$
|
0.59
|
|
|
$
|
0.29
|
|
|
$
|
0.57
|
|
|
$
|
(0.18
|
)
|
|
$
|
1.28
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to Collective
Brands, Inc. common shareholders
|
|
$
|
0.59
|
|
|
$
|
0.29
|
|
|
$
|
0.57
|
|
|
$
|
(0.17
|
)
|
|
$
|
1.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Earnings (loss) per share were computed independently for each
of the quarters presented. The sum of the quarters may not equal
the total year amount due to the impact of changes in average
quarterly shares outstanding. |
68
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 3
|
Intangible
Assets and Goodwill
|
The following is a summary of the Companys intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in millions)
|
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
Favorable lease rights:
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
24.8
|
|
|
$
|
30.4
|
|
Less: accumulated amortization
|
|
|
(19.8
|
)
|
|
|
(22.2
|
)
|
|
|
|
|
|
|
|
|
|
Carrying amount, end of period
|
|
|
5.0
|
|
|
|
8.2
|
|
|
|
|
|
|
|
|
|
|
Customer relationships:
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
|
74.2
|
|
|
|
76.3
|
|
Less: accumulated amortization
|
|
|
(45.2
|
)
|
|
|
(36.5
|
)
|
|
|
|
|
|
|
|
|
|
Carrying amount, end of period
|
|
|
29.0
|
|
|
|
39.8
|
|
|
|
|
|
|
|
|
|
|
Trademarks and other intangible assets:
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
|
38.5
|
|
|
|
38.5
|
|
Less: accumulated amortization
|
|
|
(9.6
|
)
|
|
|
(6.5
|
)
|
|
|
|
|
|
|
|
|
|
Carrying amount, end of period
|
|
|
28.9
|
|
|
|
32.0
|
|
|
|
|
|
|
|
|
|
|
Total carrying amount of intangible assets subject to
amortization
|
|
|
62.9
|
|
|
|
80.0
|
|
Indefinite-lived trademarks
|
|
|
365.5
|
|
|
|
365.5
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
428.4
|
|
|
$
|
445.5
|
|
|
|
|
|
|
|
|
|
|
Amortization expense on intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended
|
|
|
January 29,
|
|
January 30,
|
|
January 31,
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
(Dollars in millions)
|
|
Amortization expense on intangible assets
|
|
$
|
16.2
|
|
|
$
|
19.5
|
|
|
$
|
21.8
|
|
The Company expects amortization expense for the next five years
to be as follows (in millions):
|
|
|
|
|
Year
|
|
Amount
|
|
|
2011
|
|
$
|
13.6
|
|
2012
|
|
|
11.2
|
|
2013
|
|
|
9.6
|
|
2014
|
|
|
8.2
|
|
2015
|
|
|
5.9
|
|
69
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a summary of the carrying amount of goodwill,
by reporting segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payless
|
|
|
PLG
|
|
|
|
|
|
|
Domestic
|
|
|
Wholesale
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
Balance as of January 31, 2009
|
|
$
|
40.2
|
|
|
$
|
241.4
|
|
|
$
|
281.6
|
|
Adjustment to PLG purchase price allocation
|
|
|
|
|
|
|
(1.8
|
)
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 30, 2010
|
|
$
|
40.2
|
|
|
$
|
239.6
|
|
|
$
|
279.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 29, 2011
|
|
$
|
40.2
|
|
|
$
|
239.6
|
|
|
$
|
279.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys accumulated goodwill impairment as of
January 29, 2011 was $42.0 million and related to the
goodwill that previously existed on the PLG Retail reporting
segment.
On August 17, 2007, the Company entered into a
$725 million term loan (the Term Loan Facility)
and a $350 million Amended and Restated Loan and Guaranty
Agreement (the Revolving Loan Facility and
collectively with the Term Loan Facility, the Loan
Facilities). The Loan Facilities rank pari passu in
right of payment and have the lien priorities specified in an
intercreditor agreement executed by the administrative agent to
the Term Loan Facility and the administrative agent to the
Revolving Loan Facility. The Loan Facilities are senior secured
loans guaranteed by substantially all of the assets of the
borrower and the guarantors, with the Revolving Facility having
first priority in accounts receivable, inventory and certain
related assets and the Term Loan Facility having first priority
in substantially all of the borrowers and the
guarantors remaining assets, including intellectual
property, the capital stock of each domestic subsidiary, any
intercompany notes owned by the borrower and the guarantors, and
66% of the stock of
non-U.S. subsidiaries
directly owned by borrower or a guarantor.
The Term Loan Facility matures on August 17, 2014. The Term
Loan Facility amortizes quarterly in annual amounts of 1.0% of
the original amount, reduced ratably by any prepayments, with
the final installment payable on the maturity date. The Term
Loan Agreement provides for mandatory prepayments, subject to
certain exceptions and limitations and in certain instances,
reinvestment rights, from (a) the net cash proceeds of
certain asset sales, insurance recovery events and debt
issuances, each as defined in the Term Loan Agreement, and
(b) 25% of excess cash flow, as defined in the Term Loan
Agreement, subject to reduction. The mandatory prepayment is not
required if the total leverage ratio, as defined in the Term
Loan Agreement, is less than 2.0 to 1.0 at fiscal year end.
Based on the Companys leverage ratio as of
January 29, 2011, it is not required to make such a
mandatory prepayment in 2011. Loans under the Term Loan Facility
will bear interest at the Borrowers option, at either
(a) the Base Rate as defined in the Term Loan Facility
agreement plus 1.75% per annum or (b) the Eurodollar
(LIBOR-indexed) Rate plus 2.75% per annum, with such margin to
be agreed for any incremental term loans.
The Revolving Loan Facility matures on August 17, 2012. The
Revolving Loan Facility bears interest at the London Inter-Bank
Offer Rate (LIBOR), plus a variable margin of 0.875%
to 1.5%, or the base rate as defined in the agreement governing
the Revolving Loan Facility, based upon certain borrowing levels
and commitment fees payable on the unborrowed balance of 0.25%.
The facility will be available as needed for general corporate
purposes.
In July 2003, the Company sold $200.0 million of
8.25% Senior Subordinated Notes (the Notes) for
$196.7 million, due 2013. The discount of $3.3 million
is being amortized to interest expense over the life of the
Notes. The Notes are guaranteed by all of the Companys
domestic subsidiaries. Interest on the Notes is payable
semi-annually. Under the terms of the note covenants the Company
may, on any one or more occasions, redeem all or a part of the
Notes at the redemption price of 101.375% of its face value
through July 31, 2011 and 100.000% of its face value after
August 1, 2011, plus accrued and unpaid interest, if any,
on the Notes redeemed.
70
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Loan Facilities and the Senior Subordinated Notes contain
various covenants including those that may limit the
Companys ability to pay dividends, repurchase stock,
accelerate the retirement of debt or make certain investments.
As of January 30, 2010, the Company was in compliance with
all of its covenants.
Long-term debt and capital-lease obligations were:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Term Loan
Facility(1)
|
|
$
|
489.4
|
|
|
$
|
673.4
|
|
Senior Subordinated
Notes(2)
|
|
|
174.1
|
|
|
|
173.7
|
|
Revolving Loan
Facility(3)
|
|
|
|
|
|
|
|
|
Capital-lease obligations
|
|
|
1.0
|
|
|
|
1.0
|
|
Other
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
664.5
|
|
|
|
849.3
|
|
Less: current maturities of long-term debt
|
|
|
5.1
|
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
659.4
|
|
|
$
|
842.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of January 29, 2011 and January 30, 2010, the fair
value of the Companys Term Loan was $489.4 million,
and $653.2 million, respectively, based on market
conditions and perceived risks as of those dates. |
|
(2) |
|
As of January 29, 2011 and January 30, 2010, the fair
value of the Companys senior subordinated notes was
$177.8 million and $178.5 million, respectively, based
on trading activity as of those dates. |
|
(3) |
|
As of January 29, 2011, the Companys borrowing base
on its revolving loan facility was $288.3 million less
$28.6 million in outstanding letters of credit, or
$259.7 million. The variable interest rate, including the
applicable variable margin at January 29, 2011, was 1.18%. |
Future debt maturities as of January 29, 2011 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated
|
|
|
Term Loan
|
|
|
Capital-Lease
|
|
|
|
|
|
|
Notes
|
|
|
Facility
|
|
|
Obligations
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
2011
|
|
$
|
|
|
|
$
|
5.0
|
|
|
$
|
0.1
|
|
|
$
|
5.1
|
|
2012
|
|
|
|
|
|
|
5.0
|
|
|
|
0.1
|
|
|
|
5.1
|
|
2013
|
|
|
175.0
|
|
|
|
5.0
|
|
|
|
0.1
|
|
|
|
180.1
|
|
2014
|
|
|
|
|
|
|
474.4
|
|
|
|
0.1
|
|
|
|
474.5
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
175.0
|
|
|
$
|
489.4
|
|
|
$
|
1.0
|
|
|
$
|
665.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has entered into an interest rate contract for an
initial amount of $540 million to hedge a portion of its
variable rate $725 million Term Loan Facility
(interest rate contract). The interest rate contract
provides for a fixed interest rate of approximately 7.75%,
portions of which mature on a series of dates through 2012. As
of January 29, 2011, the Company has hedged
$220 million of its Term Loan Facility.
The Company has also entered into a series of forward contracts
to hedge a portion of certain foreign currency purchases
(foreign currency contracts). The foreign currency
contracts provide for a fixed exchange rate and
71
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
mature over a series of dates through October 2011. As of
January 29, 2011, the Company has hedged $22.1 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 (loss)
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Location on
|
|
Fair Value
|
|
|
Consolidated
|
|
January 29,
|
|
January 30,
|
|
|
Balance Sheet
|
|
2011
|
|
2010
|
|
|
|
|
(Dollars in millions)
|
|
Interest rate contract
|
|
Other liabilities
|
|
$
|
1.3
|
|
|
$
|
5.4
|
|
Interest rate contract
|
|
Accrued expenses
|
|
$
|
6.1
|
|
|
$
|
10.0
|
|
Foreign currency contracts
|
|
Accrued expenses
|
|
$
|
0.4
|
|
|
$
|
0.1
|
|
Foreign currency contracts
|
|
Other current assets
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
For the interest rate contract, the Company uses a
mark-to-market
valuation technique based on an observable interest rate yield
curve and adjusts for credit risk. For the foreign currency
contracts, the Company uses a
mark-to-market
valuation technique based on observable foreign currency
exchange rates and adjusts for credit risk. It is the
Companys policy to enter into derivative instruments with
terms that match the underlying exposure being hedged. As such,
the Companys derivative instruments are considered highly
effective, and the net gain or loss from hedge ineffectiveness
is not 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 Consolidated
Financial Statements is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Recognized in
|
|
|
|
|
|
|
|
|
AOCI on Derivative
|
|
|
|
Loss Reclassified from AOCI into Earnings
|
|
|
52 Weeks Ended
|
|
Location on Consolidated
|
|
52 Weeks Ended
|
|
|
January 29,
|
|
January 30,
|
|
Statement of Earnings
|
|
January 29,
|
|
January 30,
|
|
|
2011
|
|
2010
|
|
(Loss)
|
|
2011
|
|
2010
|
|
|
(Dollars in millions)
|
|
Interest rate contract
|
|
$
|
(2.2
|
)
|
|
$
|
(5.6
|
)
|
|
Interest expense
|
|
$
|
(7.5
|
)
|
|
$
|
(9.5
|
)
|
Foreign currency contracts
|
|
$
|
(0.7
|
)
|
|
$
|
(0.6
|
)
|
|
Cost of sales
|
|
$
|
(0.4
|
)
|
|
$
|
(0.6
|
)
|
The Company expects approximately $6.1 million of the fair
value of the interest rate contract and $0.3 million of the
fair value of the foreign currency contracts recorded in AOCI to
be recognized in earnings during the next 12 months. This
amount may vary based on changes to LIBOR and foreign currency
exchange rates.
|
|
Note 6
|
Fair
Value Measurements
|
The Companys estimates of fair value for financial assets
and financial liabilities are based on the framework established
in the fair value accounting guidance. The framework is based on
the inputs used in valuation, gives the highest priority to
quoted prices in active markets, and requires that observable
inputs be used in the valuations when available. The three
levels of the hierarchy are as follows:
|
|
|
|
Level 1:
|
observable inputs such as quoted prices in active markets
|
|
|
Level 2:
|
inputs other than the quoted prices in active markets that are
observable either directly or indirectly
|
|
|
Level 3:
|
unobservable inputs in which there is little or no market data,
which requires the Company to develop its own assumptions
|
72
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents financial assets and financial
liabilities that the Company measures at fair value on a
recurring basis (not including the Companys pension plan
assets). The Company has classified these financial assets and
liabilities in accordance with the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value Measurements
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets
|
|
|
Observable Other
|
|
|
Unobservable Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
Inputs (Level 2)
|
|
|
(Level 3)
|
|
|
Total Fair Value
|
|
|
|
(Dollars in millions)
|
|
|
As of January 29, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
174.8
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
174.8
|
|
Foreign currency
contracts(2)
|
|
$
|
|
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
0.1
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate
contract(1)
|
|
$
|
|
|
|
$
|
7.4
|
|
|
$
|
|
|
|
$
|
7.4
|
|
Foreign currency
contracts(2)
|
|
$
|
|
|
|
$
|
0.4
|
|
|
$
|
|
|
|
$
|
0.4
|
|
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. |
The Company has a pension plan that covers a select group of
management employees (Payless Plan), a pension plan
that covers certain PLG employees (PLG Plan), and a
pension plan that covers certain employees in Asia (Asia
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. The actuarial assumptions used to calculate pension
expense are reviewed annually by management for reasonableness.
The measurement date used for these plans for the 2010 actuarial
valuation was January 29, 2011.
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.
73
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Included in AOCI are the following pre-tax amounts that have not
yet been recognized in net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized
|
|
|
|
|
|
|
|
|
|
Prior Service
|
|
|
Unrecognized
|
|
|
|
|
|
|
Cost
|
|
|
Losses/(Gains)
|
|
|
Total AOCI
|
|
|
|
(Dollars in millions)
|
|
|
Reconciliation of accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at January 30, 2010
|
|
$
|
8.6
|
|
|
$
|
13.3
|
|
|
$
|
21.9
|
|
Amortization recognized
|
|
|
1.6
|
|
|
|
3.5
|
|
|
|
5.1
|
|
New amounts recognized
|
|
|
|
|
|
|
2.9
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at January 29, 2011
|
|
$
|
7.0
|
|
|
$
|
12.7
|
|
|
$
|
19.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of unrecognized loss and prior service cost included
in AOCI and expected to be recognized in net periodic benefit
cost during fiscal year 2011 is $1.5 million and
$1.6 million, respectively.
The following information provides a summary of the funded
status of the plan, amounts recognized in the Consolidated
Balance Sheets, and major assumptions used to determine these
amounts:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
Obligation at beginning of year
|
|
$
|
46.6
|
|
|
$
|
40.1
|
|
Service cost
|
|
|
0.8
|
|
|
|
0.6
|
|
Interest cost
|
|
|
1.8
|
|
|
|
2.5
|
|
Actuarial loss
|
|
|
3.0
|
|
|
|
6.6
|
|
Settlement distribution
|
|
|
(7.2
|
)
|
|
|
|
|
Benefits paid
|
|
|
(2.5
|
)
|
|
|
(3.2
|
)
|
|
|
|
|
|
|
|
|
|
Obligation at end of year
|
|
$
|
42.5
|
|
|
$
|
46.6
|
|
|
|
|
|
|
|
|
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.50
|
%
|
|
|
5.00
|
%
|
Salary increases
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
As the plan is unfunded, the total benefit obligation at the end
of each fiscal year is recognized as a liability on the
Consolidated Balance Sheet. Of the $42.5 million liability
recognized as of January 29, 2011, $4.8 million is
recorded in accrued expenses and $37.7 million is recorded
in other liabilities. The accumulated benefit obligation as of
January 29, 2011 and January 30, 2010 was
$38.6 million and $42.5 million, respectively.
74
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of net periodic benefit costs for the plan were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Components of pension expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
0.8
|
|
|
$
|
0.6
|
|
|
$
|
0.4
|
|
Interest cost
|
|
|
1.8
|
|
|
|
2.5
|
|
|
|
2.4
|
|
Amortization of prior service cost
|
|
|
1.6
|
|
|
|
1.6
|
|
|
|
1.6
|
|
Amortization of actuarial loss
|
|
|
1.3
|
|
|
|
0.5
|
|
|
|
0.7
|
|
Amount recognized due to settlement
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7.7
|
|
|
$
|
5.2
|
|
|
$
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.00
|
%
|
|
|
6.50
|
%
|
|
|
6.50
|
%
|
Salary increases
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
Estimated future benefit payments for the next five years and
the aggregate amount for the following five years for this plan
are:
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2011
|
|
$
|
4.8
|
|
2012
|
|
|
3.6
|
|
2013
|
|
|
3.8
|
|
2014
|
|
|
3.9
|
|
2015
|
|
|
3.9
|
|
2016-2020
|
|
|
19.6
|
|
PLG
Plan
The PLG Plan is a noncontributory defined benefit pension plan,
which no longer accrues future benefits, that covers certain
eligible PLG associates. Prior to the freezing of the plan,
eligible PLG associates accrued pension benefits at a fixed unit
rate based on the associates service and compensation.
Included in AOCI are the following amounts that have not yet
been recognized in net periodic pension cost:
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Amount at January 31, 2010
|
|
$
|
20.4
|
|
Amortization recognized
|
|
|
(1.3
|
)
|
New amounts recognized
|
|
|
1.5
|
|
|
|
|
|
|
Amount at January 29, 2011
|
|
$
|
20.6
|
|
|
|
|
|
|
75
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables present information about benefit
obligations, plan assets, annual expense, assumptions and other
information about PLGs defined benefit pension plan:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
Obligation at prior measurement date
|
|
$
|
78.4
|
|
|
$
|
73.5
|
|
Interest cost
|
|
|
4.6
|
|
|
|
4.5
|
|
Actuarial loss
|
|
|
5.5
|
|
|
|
3.4
|
|
Benefits paid
|
|
|
(3.0
|
)
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
|
|
|
Obligation at end of year
|
|
$
|
85.5
|
|
|
$
|
78.4
|
|
|
|
|
|
|
|
|
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.75
|
%
|
|
|
5.90
|
%
|
Salary increases
|
|
|
n/a
|
|
|
|
n/a
|
|
The following table summarizes the change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Fair value of plan assets at prior measurement date
|
|
$
|
61.9
|
|
|
$
|
44.3
|
|
Actual return on plan assets
|
|
|
8.9
|
|
|
|
11.1
|
|
Employer contributions
|
|
|
1.6
|
|
|
|
9.5
|
|
Benefits paid
|
|
|
(3.0
|
)
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
69.4
|
|
|
$
|
61.9
|
|
|
|
|
|
|
|
|
|
|
Underfunded status at end of year
|
|
$
|
(16.1
|
)
|
|
$
|
(16.5
|
)
|
|
|
|
|
|
|
|
|
|
The $16.1 million and $16.5 million liabilities
recognized as of January 29, 2011 and January 30,
2010, respectively, are included in other long-term liabilities
on the Consolidated Balance Sheet.
The components of net periodic benefit costs for the plan were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Interest cost
|
|
$
|
4.6
|
|
|
$
|
4.5
|
|
|
$
|
4.4
|
|
Expected return on assets
|
|
|
(5.0
|
)
|
|
|
(3.6
|
)
|
|
|
(4.8
|
)
|
Amortization of actuarial loss
|
|
|
1.3
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (income)
|
|
$
|
0.9
|
|
|
$
|
2.7
|
|
|
$
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.90
|
%
|
|
|
6.25
|
%
|
|
|
6.50
|
%
|
Expected long-term return on plan assets
|
|
|
8.25
|
%
|
|
|
8.25
|
%
|
|
|
8.25
|
%
|
Salary increases
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
The accumulated benefit obligation as of January 29, 2011
and January 30, 2010 was $85.5 million and
$78.4 million, respectively.
The Company expects $1.2 million of net loss included in
AOCI to be recognized in net periodic benefit cost during fiscal
year 2011.
76
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In selecting the expected long-term rate of return on assets,
the Company considers the average rate of earnings expected on
the funds invested or to be invested to provide for the benefits
of this plan. This includes considering the plans asset
allocation and the expected returns likely to be earned over the
life of the plan. This basis is consistent with the prior year.
The calculation of pension expense is dependent on the
determination of the assumptions used. A 25 basis point
change in the discount rate will change annual expense by
approximately $0.2 million. A 25 basis point change in
the expected long-term return on assets will result in an
approximate change of $0.2 million in the annual expense.
As the result of stopping the accrual of future benefits, a
salary growth assumption is no longer applicable.
The long term annualized time-weighted rate of return calculated
on the basis of a three year rolling average using market values
is expected to be at least 1% higher than the composite
benchmark for the plan. Investment managers are evaluated
semi-annually against commonly accepted benchmarks to ensure
adherence to the stated strategy and that the risk posture
assumed is commensurate with the given investment style and
objectives.
The Companys written investment policy for the PLG Plan
establishes investment principles and guidelines and defines the
procedures that will be used to control, evaluate and monitor
the investment practices for the plan. An administrative
committee designated by the Board of Directors provides
investment oversight for the plan. Stated investment objectives
are:
|
|
|
|
|
Maintain a portfolio of secure assets of appropriate liquidity
and diversification that will generate investment returns,
combined with expected future contributions, that should be
sufficient to maintain the plans funded state or improve
the funding level of the plan if it is in deficit.
|
|
|
|
To control the long-term costs of the plan by maximizing return
on the assets subject to meeting the objectives above.
|
The plans target allocation per the investment policy and
weighted average asset allocations by asset category are:
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
|
|
|
|
|
|
|
|
|
Allocation
|
|
2010
|
|
|
2009
|
|
|
Domestic equity securities
|
|
48% - 58%
|
|
|
54
|
%
|
|
|
47
|
%
|
International equity securities
|
|
10% - 14%
|
|
|
12
|
%
|
|
|
10
|
%
|
Domestic fixed income securities
|
|
32% - 38%
|
|
|
32
|
%
|
|
|
41
|
%
|
Cash
|
|
0% - 5%
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
The portfolio is designed to achieve a balanced return of
current income and modest growth of capital, while achieving
returns in excess of the rate of inflation over the investment
horizon in order to preserve purchasing power of plan assets.
All plan assets are required to be invested in liquid securities.
The PLG pension plan assets are valued at fair value. The
Companys estimates of fair value for these pension plan
assets are based on the framework established in the fair value
accounting guidance. 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
|
77
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the PLG pension plan assets that
the Company measures at fair value on a recurring basis. The
Company has classified these financial assets in accordance with
the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value Measurements
|
|
|
|
Quoted
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
Observable
|
|
|
Significant
|
|
|
|
|
|
|
Active
|
|
|
Other
|
|
|
Unobservable
|
|
|
Total
|
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Fair
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
|
|
(Dollars in millions)
|
|
|
As of January 29, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic equity securities
|
|
$
|
3.5
|
|
|
$
|
34.2
|
|
|
$
|
|
|
|
$
|
37.7
|
|
International equity securities
|
|
|
|
|
|
|
8.0
|
|
|
|
|
|
|
|
8.0
|
|
Domestic fixed income securities
|
|
|
22.2
|
|
|
|
|
|
|
|
|
|
|
|
22.2
|
|
Cash
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
27.2
|
|
|
$
|
42.2
|
|
|
$
|
|
|
|
$
|
69.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic equity securities
|
|
$
|
2.4
|
|
|
$
|
26.3
|
|
|
$
|
|
|
|
$
|
28.7
|
|
International equity securities
|
|
|
|
|
|
|
6.5
|
|
|
|
|
|
|
|
6.5
|
|
Domestic fixed income securities
|
|
|
25.2
|
|
|
|
|
|
|
|
|
|
|
|
25.2
|
|
Cash
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29.1
|
|
|
$
|
32.8
|
|
|
$
|
|
|
|
$
|
61.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company contributed $1.6 million to this pension plan
during the 2010 fiscal year. The Companys future
contributions will depend upon market conditions, interest rates
and other factors and may vary significantly in future years
based upon the plans funded status as of the 2011
measurement date.
Estimated future benefit payments for the next five years and
the aggregate amount for the following five years for this plan
are:
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2011
|
|
$
|
3.4
|
|
2012
|
|
|
3.6
|
|
2013
|
|
|
3.8
|
|
2014
|
|
|
4.0
|
|
2015
|
|
|
4.2
|
|
2016-2020
|
|
|
24.9
|
|
Asia
Plan
The Asia Plan is a nonqualified, supplementary account balance
defined benefit plan for a select group of employees in Asia.
The plan is an unfunded, noncontributory plan. As the plan is
unfunded, the total benefit obligation at the end of each fiscal
year is recognized as a liability on the Consolidated Balance
Sheet. Of the $5.2 million liability recognized as of
January 29, 2011, $0.1 million is recorded in accrued
expenses and $5.1 million is recorded in other liabilities.
Of the $4.9 million liability recognized as of
January 30, 2010, $0.2 million is recorded in accrued
expenses and $4.7 million is recorded in other liabilities.
The components of the funded status, the components of net
periodic benefit costs and the estimated future benefit payments
for the next five years for the Asia Plan were not significant
for 2009 or 2010.
78
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 8
|
Defined
Contribution Plans
|
The Company has two qualified profit sharing plans offered by
Payless ShoeSource (Payless Profit Sharing Plans)
that cover full-time associates who have worked for the Company
for 60 days and have attained age 21 or part-time
associates who have completed one full year of employment and
have attained age 21. The Payless Profit Sharing Plans are
defined contribution plans that provide for Company
contributions at the discretion of the Board of Directors.
Full-time associates are eligible for a Company matching
contribution upon completion of 180 days of employment.
Part-time associates must complete one full year of employment
to be eligible for the Company match. Effective
February 26, 2009, beginning with the 2009 plan year, the
Payless Profit Sharing Plans were amended to provide that the
Company has discretion to contribute up to 2.5% of its pre-tax
earnings from continuing operations as defined by the Payless
Profit Sharing Plans. Associate contributions up to 5% of their
pay are eligible for the match. Prior to the February 26,
2009 amendment, the Payless Profit Sharing Plans provided for a
minimum guaranteed Company matching contribution of $0.25 per
$1.00 contributed by Associates up to 5% of their pay and the
maximum Company matching contribution to be made by the Company
was 2.5% of the Companys pre-tax earnings from continuing
operations. Associates may voluntarily contribute to the Payless
Profit Sharing Plans on both a pre-tax and after-tax basis.
Total profit sharing contributions made for the Plans for the
2010, 2009 and 2008 plan years were $3.6 million,
$2.6 million and $2.4 million, respectively.
PLG also provides a qualified safe harbor defined contribution
plan for its associates. This qualified defined contribution
plan enables eligible associates to defer a portion of their
salary to be held by the trustees of the plan and invested as
self-directed by associates. Associates are eligible to join the
401(k) Plan on the first of the month following the completion
of six months of employment and the attainment of age 21.
Effective April 1, 2009, the matching contribution is 100%
on the first 3% of salary deferred and 50% on the next 3% of
salary deferred. Matching contributions are made on a regular
basis as salary is deferred and are not subject to a
true-up at
the end of the year. Prior to April 1, 2009, the Company
made a matching contribution to the plan equal to a maximum of
100% of the first 6% of salary deferred by each participant. The
matching contribution prior to April 1, 2009 was subject to
a true-up at
the end of the year. Total profit sharing contributions for this
plan for 2010, 2009 and 2008 plan years were $1.9 million,
$2.6 million and $3.0 million, respectively.
|
|
Note 9
|
Share-Based
Compensation
|
Under its equity incentive plans, the Company currently grants
share appreciation vehicles consisting of stock options,
stock-settled stock appreciation rights (stock-settled
SARs) and cash-settled stock appreciation rights
(cash-settled SARs), as well as full value vehicles
consisting of nonvested shares and phantom stock units.
Appreciation vehicles granted under the 1996 and 2006 Stock
Incentive Plans are granted at the fair market value on the date
of grant and may be exercised only after stated vesting dates or
other vesting criteria, as applicable, have been achieved.
Generally, vesting of appreciation vehicles is conditioned upon
continued employment with the Company, although appreciation
vehicles may be exercised during certain periods following
retirement, termination, disability or death. Historically, the
Company has used treasury shares for settlement of share-based
compensation.
Under the 1996 Stock Incentive Plan, which expired in April
2006, the Company was authorized to grant a maximum of
15,600,000 shares, of which no more than 1,200,000 could be
issued pursuant to non-vested share grants. Appreciation
vehicles granted under the plan had a maximum term of
10 years and could vest on a graded schedule or a cliff
basis. The exercise prices of appreciation vehicles equaled the
average of the high and low trading prices of the Companys
stock on the grant date. Non-vested shares granted under the
plan could be granted with or without performance restrictions.
Restrictions, including performance restrictions, lapse over
periods of up to ten years, as determined at the date of grant.
Associates who received non-vested shares paid no monetary
consideration.
On May 25, 2006, the Companys shareowners approved
the 2006 Stock Incentive Plan. On May 21, 2009, the 2006
Stock Incentive Plan was amended to allow the Company to grant a
maximum of 4,987,000 shares.
79
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Appreciation vehicles to be granted under the plan have a
maximum term of seven years and can vest on a graded schedule, a
cliff basis or based on performance. The exercise price of an
appreciation vehicle may not be less than the fair market value
of the Companys stock on the grant date. Associates who
receive full value vehicles pay no monetary consideration.
Awards under the 2006 Stock Incentive Plan can be granted with
or without performance restrictions. Restrictions, including
performance restrictions, lapse over periods of up to seven
years, as determined at the date of grant.
On May 25, 2006, the Companys shareowners approved
amendments to and restatement of the Stock Plan for
Non-Management Directors (the Director Plan). Under
the Companys amended and restated Director Plan, each
Director who is not an officer of the Company is eligible to
receive share-based compensation in the form of non-qualified
stock options
and/or stock
awards, including, but not limited to, restricted and
unrestricted stock awards. All shares of common stock issued
under the Director Plan are subject to restrictions on
transferability and to forfeiture during a specified restricted
period. The Director Plan provides for the issuance of not more
than 350,000 shares of common stock, subject to adjustment
for changes in the Companys capital structure. The Company
may not, without stockholder approval, amend the Director Plan
in a manner that would increase the number of shares of common
stock available for awards, decrease the exercise price of any
award, or otherwise materially increase benefits or modify
eligibility requirements.
Under the Companys Amended Stock Purchase Plan, a maximum
of 6,000,000 shares of the Companys common stock may
be purchased by employees at a 5% discount. The current terms of
the Stock Purchase Plan are such that the plan is
non-compensatory. As a result, the purchase of shares by
employees does not give rise to compensation cost.
Stock
Options
Transactions for stock options for fiscal year 2010 as well as
information about stock options outstanding, vested or expected
to vest, and exercisable at January 29, 2011 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended January 29, 2011
|
|
|
As of January 29, 2011
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Contractual Life
|
|
|
Value
|
|
|
|
(Units in thousands)
|
|
|
|
|
|
(In years)
|
|
|
(In millions)
|
|
|
Outstanding at beginning of period
|
|
|
2,170
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(561
|
)
|
|
|
18
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(148
|
)
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
1,461
|
|
|
|
19
|
|
|
|
2
|
|
|
$
|
2.3
|
|
Vested and expected to vest at end of period
|
|
|
1,461
|
|
|
|
19
|
|
|
|
2
|
|
|
|
2.3
|
|
Exercisable at end of period
|
|
|
1,461
|
|
|
|
19
|
|
|
|
2
|
|
|
|
2.3
|
|
The aggregate intrinsic value was calculated using the
difference between the current market price and the grant price
for only those awards that have a grant price that is less than
the current market price.
The total intrinsic value of options exercised during 2010 was
$3.0 million. Cash received from option exercises for 2010
was $10.1 million excluding cash received from the
Companys employee stock purchase and deferred compensation
plans. There was not a significant tax benefit realized for the
deductions from options exercised during 2010. The total
intrinsic value of options exercised during 2009 was
$2.3 million. Cash received from option exercises for 2009
was $7.2 million excluding cash received from the
Companys employee stock purchase and deferred compensation
plans. There was not a significant tax benefit realized for the
deductions from
80
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
options exercised during 2009. There were no stock options
exercised during 2008 and therefore no cash received from
options exercised nor any tax benefit realized on exercises in
2008. The Company did not grant any stock options in 2010, 2009
or 2008.
Stock-settled
SARs
During 2010, the Company granted 419 thousand maximum share
equivalents in the form of 754 thousand stock-settled SARs under
the 2006 Stock Incentive Plan. Of this amount, 739 thousand
stock-settled SARs are subject to a three-year graded vesting
schedule and 15 thousand stock-settled SARs are subject to a
three-year cliff vesting schedule. None of the vesting
requirements are based on any performance conditions.
Upon exercise of a stock-settled SAR, employees will receive a
number of shares of common stock equal in value to the
appreciation in the fair market value of the underlying common
stock from the grant date to the exercise date of the
stock-settled SAR. 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 stock-settled SAR. As a result of the
appreciation cap, a maximum of 5/9 of a share of common stock
may be issued for each stock-settled SAR granted. Prior to 2010,
the appreciation cap was 200%, meaning that the maximum shares
issuable under a SAR was 2/3 of a share of common stock for each
stock-settled SAR granted.
Transactions for stock settled SARs for fiscal year
2010 and information about stock-settled SARs outstanding,
stock-settled SARs vested or expected to vest and stock-settled
SARs exercisable at January 29, 2011 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended January 29, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
As of January 29, 2011
|
|
|
|
Maximum
|
|
|
|
|
|
Average
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
Share
|
|
|
Stock-Settled
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Equivalents
|
|
|
SARs
|
|
|
Price
|
|
|
Contractual Life
|
|
|
Value
|
|
|
|
(Units in thousands)
|
|
|
|
|
|
(In years)
|
|
|
(In millions)
|
|
|
Outstanding at beginning of period
|
|
|
3,409
|
|
|
|
5,114
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
419
|
|
|
|
754
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(40
|
)
|
|
|
(72
|
)
|
|
|
12
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(157
|
)
|
|
|
(283
|
)
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
3,631
|
|
|
|
5,513
|
|
|
|
18
|
|
|
|
4
|
|
|
$
|
23.0
|
|
Vested and expected to vest at end of period
|
|
|
|
|
|
|
5,412
|
|
|
|
19
|
|
|
|
4
|
|
|
|
22.6
|
|
Exercisable at end of period
|
|
|
|
|
|
|
2,784
|
|
|
|
22
|
|
|
|
3
|
|
|
|
6.8
|
|
The aggregate intrinsic value was calculated using the
difference between the current market price and the grant price
for only those awards that have a grant price that is less than
the current market price.
The total intrinsic value of stock-settled SARs exercised during
2010 was $0.6 million. There was no significant tax benefit
realized for the deductions from stock-settled SARs exercised
during 2010. The total intrinsic value of stock-settled SARs
exercised during 2009 was $0.1 million. There was no
significant tax benefit realized for the deductions from
stock-settled SARs exercised during 2009. There were no
stock-settled SARs exercised or related tax benefits realized
during 2008. The weighted average fair value of units granted
per unit for 2010, 2009 and 2008 were $8, $5 and $6,
respectively.
Nonvested
Shares and Share Units
During 2010, the Company granted 534 thousand nonvested shares
under the 2006 Stock Incentive Plan. The Company granted 331
thousand nonvested shares that are subject to a three-year
graded vesting schedule, 78
81
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
thousand nonvested shares that are subject to a two-year graded
vesting schedule, 47 thousand nonvested shares are subject to a
three-year cliff vesting schedule and 78 thousand nonvested
shares that are subject to a performance condition and a
three-year graded vesting schedule. For the 78 thousand
nonvested shares that are subject to performance condition and a
three-year graded vesting schedule, the performance grant vests
only if the performance condition is met. As of January 29,
2011, the Company has assessed the likelihood that the
performance condition will be met and has recorded the related
expense based on the estimated outcome.
During 2010, the Company granted 20 thousand phantom nonvested
shares subject to a three-year graded vesting schedule which is
not based on any performance vesting conditions. Each phantom
nonvested share is worth the cash value of one share of common
stock.
During 2010, the Company granted 40 thousand nonvested shares
under the Director Plan. Pursuant to the provisions of the
Director Plan, certain Directors elected to defer this
compensation into 17 thousand share units that will be issued as
common stock subsequent to the Directors resignation from
the Board. The nonvested shares and share units granted under
the Director Plan will vest on May 26, 2011. Deferral does
not affect vesting. Deferred share units are excluded from the
summary table of nonvested shares.
During 2008, the Company cancelled, by mutual agreement and
without monetary consideration, 271 thousand nonvested share
units with market-based performance conditions under the 2006
Stock Incentive Plan. These shares, which were awarded in 2007,
were subject to a market appreciation condition and a three-year
cliff vesting schedule. As a result of cancelling these awards
the Company accelerated the recognition of $3.5 million of
expense in the fourth quarter of 2008.
Excluding deferred shares under the Director Plan, transactions
for nonvested shares and share units for the fiscal year 2010
were as follows:
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended January 29, 2011
|
|
|
|
Nonvested Shares
|
|
|
Weighted Average
|
|
|
|
and Share Units
|
|
|
Grant Date Fair Value
|
|
|
|
(Shares in thousands)
|
|
|
|
|
|
Nonvested at beginning of period
|
|
|
846
|
|
|
$
|
15
|
|
Granted
|
|
|
577
|
|
|
|
20
|
|
Vested
|
|
|
(508
|
)
|
|
|
18
|
|
Forfeited or expired
|
|
|
(50
|
)
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
Nonvested at end of period
|
|
|
865
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant date fair value of nonvested shares
granted in 2010, 2009 and 2008 was $20, $11 and $13,
respectively. Included in the 865 thousand shares and share
units are the 22 thousand nonvested, non-deferred shares under
the Director Plan and the 20 thousand phantom nonvested shares
that will be settled in cash.
Cash-settled
SARs
During 2010, the Company issued 26 thousand cash-settled SARs on
26 thousand shares. All of these shares are subject to a
three-year graded vesting schedule. None of the vesting
requirements are based on any performance conditions.
82
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Transactions for cash-settled SARs for the fiscal year 2010 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended January 29, 2011
|
|
|
|
Cash-Settled
|
|
|
Weighted Average
|
|
|
|
SARs
|
|
|
Grant Price
|
|
|
|
(Shares in thousands)
|
|
|
|
|
|
Outstanding at beginning of period
|
|
|
156
|
|
|
$
|
20
|
|
Granted
|
|
|
26
|
|
|
|
21
|
|
Vested
|
|
|
(9
|
)
|
|
|
14
|
|
Forfeited or expired
|
|
|
(28
|
)
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
145
|
|
|
|
21
|
|
Exercisable or convertible at end of period
|
|
|
91
|
|
|
|
23
|
|
The weighted average fair value per unit granted for 2010, 2009
and 2008 was $8, $5 and $6, respectively. Cash-settled SARs are
liability awards and the fair value and expense recognized for
all awards is updated each reporting period.
Fair
Value
The Company uses a binomial model to determine the fair value of
its share-based awards. The binomial model considers a range of
assumptions relative to volatility, risk-free interest rates and
employee exercise behavior. The Company believes the binomial
model provides a fair value that is representative of actual and
future experience.
The fair value of stock-settled SARs granted was calculated
using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended
|
|
|
January 29,
|
|
January 30,
|
|
January 31,
|
|
|
2011
|
|
2010
|
|
2009
|
|
Risk-free interest rate
|
|
|
1.9
|
%
|
|
|
1.7
|
%
|
|
|
2.4
|
%
|
Expected dividend yield
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
Expected appreciation vehicle life (in years)
|
|
|
4
|
|
|
|
4
|
|
|
|
6
|
|
Weighted-average expected volatility
|
|
|
60
|
%
|
|
|
58
|
%
|
|
|
38
|
%
|
Risk-free interest rate The rate is based on
zero-coupon U.S. Treasury yields in effect at the date of
grant, utilizing separate rates for each whole year up to the
contractual term of the appreciation vehicle and interpolating
for time periods between those not listed.
Expected dividend yield the Company has not
historically paid dividends and has no immediate plans to do so;
as a result, the dividend yield is assumed to be zero.
Expected appreciation vehicle life The
expected life is derived from the output of the binomial lattice
model and represents the period of time that the appreciation
vehicles are expected to be outstanding. This model incorporates
time-based early exercise assumptions based on an analysis of
historical exercise patterns.
Expected Volatility The rate used in the
binomial model is based on an analysis of historical prices of
the Companys stock. The Company currently believes that
historical volatility is a good indicator of future volatility.
The total fair value of shares vested during 2010, 2009 and 2008
was $9.6 million, $2.3 million and $5.4 million,
respectively.
83
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Compensation
Expense
Total share-based compensation expense is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Cost of sales
|
|
$
|
4.1
|
|
|
$
|
4.1
|
|
|
$
|
5.2
|
|
Selling, general and administrative expenses
|
|
|
12.5
|
|
|
|
12.3
|
|
|
|
15.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense before income taxes
|
|
|
16.6
|
|
|
|
16.4
|
|
|
|
20.7
|
|
Tax benefit
|
|
|
(6.3
|
)
|
|
|
(6.2
|
)
|
|
|
(7.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense after income taxes
|
|
$
|
10.3
|
|
|
$
|
10.2
|
|
|
$
|
12.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No amount of share-based compensation has been capitalized. As
of January 29, 2011, the Company had unrecognized
compensation expense related to nonvested awards of
approximately $18.0 million, which is expected to be
recognized over a weighted average period of 0.9 years.
Earnings (loss) from continuing operations before income taxes
and noncontrolling interest include the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Domestic
|
|
$
|
26.2
|
|
|
$
|
2.1
|
|
|
$
|
(229.0
|
)
|
Foreign
|
|
|
113.8
|
|
|
|
95.5
|
|
|
|
121.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
140.0
|
|
|
$
|
97.6
|
|
|
$
|
(107.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision (benefit) for income taxes from continuing
operations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Federal
|
|
$
|
0.6
|
|
|
$
|
1.2
|
|
|
$
|
8.2
|
|
State and local
|
|
|
1.6
|
|
|
|
0.3
|
|
|
|
3.6
|
|
Foreign
|
|
|
11.0
|
|
|
|
4.1
|
|
|
|
15.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current tax provision
|
|
|
13.2
|
|
|
|
5.6
|
|
|
|
27.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
3.8
|
|
|
|
3.3
|
|
|
|
(63.1
|
)
|
State and local
|
|
|
(0.3
|
)
|
|
|
0.1
|
|
|
|
(5.4
|
)
|
Foreign
|
|
|
0.7
|
|
|
|
0.4
|
|
|
|
(6.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax provision (benefit)
|
|
|
4.2
|
|
|
|
3.8
|
|
|
|
(75.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit)
|
|
$
|
17.4
|
|
|
$
|
9.4
|
|
|
$
|
(48.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The reconciliation between the statutory federal income tax rate
and the effective income tax rate as applied to continuing
operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Statutory federal income tax rate
|
|
|
35.0
|
%
|
|
$
|
49.0
|
|
|
|
35.0
|
%
|
|
$
|
34.2
|
|
|
|
35.0
|
%
|
|
$
|
(37.6
|
)
|
State and local income taxes, net of federal tax benefit
|
|
|
0.9
|
|
|
|
1.3
|
|
|
|
0.5
|
|
|
|
0.4
|
|
|
|
1.1
|
|
|
|
(1.2
|
)
|
Rate differential on foreign earnings, net of valuation allowance
|
|
|
(17.8
|
)
|
|
|
(24.9
|
)
|
|
|
(20.2
|
)
|
|
|
(19.7
|
)
|
|
|
21.7
|
|
|
|
(23.3
|
)
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13.4
|
)
|
|
|
14.4
|
|
Decrease in tax reserves
|
|
|
(3.8
|
)
|
|
|
(5.3
|
)
|
|
|
(5.4
|
)
|
|
|
(5.3
|
)
|
|
|
0.6
|
|
|
|
(0.6
|
)
|
Federal employment tax credits
|
|
|
(1.1
|
)
|
|
|
(1.6
|
)
|
|
|
(1.6
|
)
|
|
|
(1.5
|
)
|
|
|
1.7
|
|
|
|
(1.8
|
)
|
Other, net
|
|
|
(0.8
|
)
|
|
|
(1.1
|
)
|
|
|
1.3
|
|
|
|
1.3
|
|
|
|
(2.0
|
)
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
12.4
|
%
|
|
$
|
17.4
|
|
|
|
9.6
|
%
|
|
$
|
9.4
|
|
|
|
44.7
|
%
|
|
$
|
(48.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys effective tax rates have differed 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, the benefit of jurisdictional and
employment tax credits, favorable adjustments to its income tax
reserves due primarily to favorable settlements of examinations
by taxing authorities, and the on-going implementation of tax
efficient business initiatives. In 2008, the Companys
effective tax rate was unfavorably impacted due to the goodwill
impairment charge which is not deductible for tax purposes.
During fiscal year 2010 and 2009, the Company recorded net
favorable discrete events of $7.8 million and
$7.9 million, respectively, relating primarily to the
resolution of outstanding tax audits.
A reconciliation of the beginning and ending balances of the
total amounts of gross unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Gross unrecognized tax benefits at beginning of year
|
|
$
|
58.3
|
|
|
$
|
55.0
|
|
|
$
|
49.8
|
|
Increases in tax positions for prior years
|
|
|
1.4
|
|
|
|
0.2
|
|
|
|
0.8
|
|
Decreases in tax positions for prior years
|
|
|
|
|
|
|
|
|
|
|
(0.8
|
)
|
Increases in tax positions for current year
|
|
|
0.6
|
|
|
|
7.9
|
|
|
|
8.2
|
|
Settlements
|
|
|
(6.5
|
)
|
|
|
(3.4
|
)
|
|
|
(1.0
|
)
|
Lapse in statute of limitations
|
|
|
(1.7
|
)
|
|
|
(1.4
|
)
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrecognized tax benefits at end of year
|
|
$
|
52.1
|
|
|
$
|
58.3
|
|
|
$
|
55.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The portions of the unrecognized tax benefits as of
January 29, 2011, January 30, 2010 and
January 31, 2009 which will favorably impact the effective
tax rate if recognized are $22.2 million,
$34.6 million and $29.9 million, respectively.
Interest and penalties related to unrecognized tax benefits are
included in the provision for income taxes in the Consolidated
Statements of Earnings (Loss) and were $1.8 million,
$1.1 million and $1.6 million in 2010, 2009 and 2008,
respectively. Accrued interest and penalties as of
January 29, 2011, January 30, 2010 and
January 31, 2009 were $7.3 million, $9.1 million,
and $8.0 million, respectively.
The Companys U.S. federal income tax returns have
been examined by the Internal Revenue Service through 2007. The
Company has certain state and foreign income tax returns in the
process of examination or administrative appeal.
85
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company anticipates that it is reasonably possible that the
total amount of unrecognized tax benefits at January 29,
2011 will decrease by up to $36.1 million within the next
12 months due to potential settlements of on-going
examinations with tax authorities and the potential lapse of the
statutes of limitations in various taxing jurisdictions. To the
extent that these tax benefits are recognized, the effective tax
rate will be favorably impacted by up to $6.8 million.
Major components of deferred tax assets (liabilities) were as
follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Accrued expenses and reserves
|
|
$
|
93.9
|
|
|
$
|
91.3
|
|
Tax net operating losses and tax credits
|
|
|
69.0
|
|
|
|
70.6
|
|
Other
|
|
|
11.1
|
|
|
|
12.3
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
174.0
|
|
|
|
174.2
|
|
Less: valuation allowance
|
|
|
(15.4
|
)
|
|
|
(11.4
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
$
|
158.6
|
|
|
$
|
162.8
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities:
|
|
|
|
|
|
|
|
|
Short term assets basis differences
|
|
$
|
(5.5
|
)
|
|
$
|
(4.0
|
)
|
Depreciation/amortization and basis differences
|
|
|
(164.5
|
)
|
|
|
(173.3
|
)
|
Other
|
|
|
(13.2
|
)
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities
|
|
|
(183.2
|
)
|
|
|
(179.7
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(24.6
|
)
|
|
$
|
(16.9
|
)
|
|
|
|
|
|
|
|
|
|
The deferred tax assets and (liabilities) are included on the
Consolidated Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Current deferred income taxes
|
|
$
|
30.7
|
|
|
$
|
42.1
|
|
Deferred income tax assets (noncurrent)
|
|
|
10.1
|
|
|
|
6.5
|
|
Deferred income tax liability (noncurrent)
|
|
|
(65.4
|
)
|
|
|
(65.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(24.6
|
)
|
|
$
|
(16.9
|
)
|
|
|
|
|
|
|
|
|
|
The Company provides a valuation allowance against net deferred
tax assets if, based on managements assessment of
historical and projected future operating results and other
available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized. The Company
carries valuation allowances related primarily to realization of
foreign net operating loss carryforwards, state income tax
credits, and state net operating loss carryforwards, as
described below. The remainder of the valuation allowance
relates to other deferred tax assets of the Companys
Columbian joint venture.
During 2010, the Company recorded a deferred income tax
provision of $4.2 million in continuing operations. The
Company recorded a decrease to deferred tax assets of
$3.4 million related to items within AOCI. The remaining
change in its net deferred tax liabilities relates to foreign
currency translation.
86
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At January 29, 2011, deferred tax assets for state and
foreign net operating loss carryforwards are $16.5 million,
less a valuation allowance of $5.8 million. These net
operating loss carryforwards will expire as follows (expiration
is denoted in parentheses):
|
|
|
|
|
|
|
Amount
|
|
|
|
(Dollars in millions)
|
|
|
State operating losses (expiring by 2015)
|
|
$
|
0.5
|
|
State operating losses (between 2016 and 2020)
|
|
|
0.6
|
|
State operating losses (between 2021 and 2025)
|
|
|
2.4
|
|
State operating losses (between 2026 and 2030)
|
|
|
2.0
|
|
Foreign net operating losses related to recorded assets (carried
forward indefinitely)
|
|
|
0.2
|
|
Foreign net operating losses related to recorded assets (in 2011)
|
|
|
0.4
|
|
Foreign net operating losses related to recorded assets (between
2027 and 2030)
|
|
|
4.6
|
|
|
|
|
|
|
Total
|
|
$
|
10.7
|
|
|
|
|
|
|
Federal foreign tax credit carryforwards are $26.5 million;
$15.6 million of this credit will expire if not utilized by
2018, and the remaining $10.9 million of this credit will
expire if not utilized by 2019. Federal general business credit
carryforwards are $8.1 million and will expire between 2028
and 2030 if not utilized. State income tax credit carryforwards
are $14.6 million, less a valuation allowance of
$7.3 million. The state tax credit carryforwards related to
the recorded assets expire as follows: $2.0 million expires
between 2016 and 2020, $0.5 million expires between 2020
and 2030 and $4.8 million may be carried forward
indefinitely. The Company has Puerto Rico alternative minimum
tax credits of $1.3 million which may be carried forward
indefinitely. The Company also has a federal capital loss
carryforward of $2.0 million, expiring in 2012, that has
been fully reserved with a valuation allowance.
The Company recorded a valuation allowance against
$2.0 million of deferred tax assets arising in 2010. The
majority of this valuation allowance relates to net operating
losses generated by its Colombian joint venture which commenced
operations in 2008 and has not yet established a pattern of
profitability.
As of January 29, 2011, the Company has not provided tax on
its cumulative undistributed earnings of foreign subsidiaries of
approximately $205 million, because it is the
Companys intention to reinvest these earnings
indefinitely. The calculation of the unrecognized deferred tax
liability related to these earnings is complex and the
calculation is not practicable. If earnings were distributed,
the Company would be subject to U.S. taxes and withholding
taxes payable to various foreign governments. Based on the facts
and circumstances at that time, the Company would determine
whether a credit for foreign taxes already paid would be
available to reduce or offset the U.S. tax liability. The
Company anticipates that earnings would not be repatriated
unless it was tax efficient to do so.
|
|
Note 11
|
Earnings
Per Share
|
The Company calculates earnings per share under earnings per
share accounting guidance which states that unvested share-based
payment awards that contain non-forfeitable rights to dividends
or dividend equivalents (whether paid or unpaid) are considered
participating securities and shall be included in the
computation of earnings per share pursuant to the two-class
method. The two-class method is an earnings allocation formula
that treats a participating security as having rights to
earnings that would otherwise have been available to common
shareholders.
Basic earnings per share is 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
87
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
includes the effect of conversions of stock options and
stock-settled stock appreciation rights. Earnings per share has
been computed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions, except per share amounts; shares in
thousands)
|
|
|
Net earnings (loss) attributable to Collective Brands, Inc. from
continuing operations
|
|
$
|
112.8
|
|
|
$
|
82.6
|
|
|
$
|
(68.0
|
)
|
Less: net earnings allocated to participating
securities(1)
|
|
|
1.8
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings available to common shareholders from continuing
operations
|
|
$
|
111.0
|
|
|
$
|
81.5
|
|
|
$
|
(68.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
62,579
|
|
|
|
63,127
|
|
|
|
62,927
|
|
Net effect of dilutive stock options
|
|
|
154
|
|
|
|
139
|
|
|
|
|
|
Net effect of dilutive SARs
|
|
|
606
|
|
|
|
227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
63,339
|
|
|
|
63,493
|
|
|
|
62,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to common
shareholders from continuing operations
|
|
$
|
1.77
|
|
|
$
|
1.29
|
|
|
$
|
(1.08
|
)
|
Diluted earnings (loss) per share attributable to common
shareholders from continuing operations
|
|
$
|
1.75
|
|
|
$
|
1.28
|
|
|
$
|
(1.08
|
)
|
|
|
|
(1) |
|
Net earnings allocated to participating securities is calculated
based upon a weighted average percentage of participating
securaities in relation to total shares outstanding. |
The Company excluded approximately 3.8 million and
4.8 million stock options and stock-settled SARs from the
calculation of diluted earnings per share for the fifty-two
weeks ended January 29, 2011 and January 30, 2010,
respectively, as their effects were antidilutive. All of the
Companys stock options and stock settled SARs outstanding
were excluded from the calculation of diluted earnings per share
for the 52 weeks ended January 31, 2009 as their
effects were antidilutive.
|
|
Note 12
|
Accrued
Expenses and Other Liabilities
|
Major components of accrued expenses included:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Profit sharing, bonus and salaries
|
|
$
|
76.0
|
|
|
$
|
70.7
|
|
Sales, use and other taxes
|
|
|
30.3
|
|
|
|
30.2
|
|
Accrued interest
|
|
|
10.8
|
|
|
|
12.6
|
|
Workers compensation and general liability insurance
reserves
|
|
|
9.8
|
|
|
|
8.8
|
|
Accrued construction in process
|
|
|
8.4
|
|
|
|
8.1
|
|
Accrued occupancy
|
|
|
6.9
|
|
|
|
6.7
|
|
Derivative liability
|
|
|
6.1
|
|
|
|
10.0
|
|
Straight-line rent
|
|
|
5.8
|
|
|
|
5.1
|
|
Accrued income taxes
|
|
|
5.1
|
|
|
|
1.8
|
|
Current portion of pension plan
|
|
|
4.9
|
|
|
|
9.6
|
|
Accrued advertising
|
|
|
4.4
|
|
|
|
3.2
|
|
Other accrued expenses
|
|
|
15.9
|
|
|
|
15.0
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
184.4
|
|
|
$
|
181.8
|
|
|
|
|
|
|
|
|
|
|
88
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Major components of other liabilities included:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Pension plans
|
|
$
|
58.9
|
|
|
$
|
58.6
|
|
Noncurrent income taxes
|
|
|
44.7
|
|
|
|
53.3
|
|
Straight-line rent
|
|
|
30.1
|
|
|
|
28.4
|
|
Deferred tenant improvement allowances, net
|
|
|
23.5
|
|
|
|
25.3
|
|
Workers compensation and general liability insurance
reserves
|
|
|
19.0
|
|
|
|
22.6
|
|
Deferred compensation
|
|
|
15.8
|
|
|
|
14.5
|
|
Asset retirement obligation
|
|
|
7.9
|
|
|
|
8.2
|
|
Derivative liability
|
|
|
1.3
|
|
|
|
5.4
|
|
Other liabilities
|
|
|
11.2
|
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
212.4
|
|
|
$
|
226.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 13
|
Lease
Obligations
|
Rental expense for the Companys operating leases consisted
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Minimum rentals
|
|
$
|
314.4
|
|
|
$
|
313.5
|
|
|
$
|
316.2
|
|
Contingent rentals based on sales
|
|
|
7.8
|
|
|
|
7.4
|
|
|
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real property rentals
|
|
|
322.2
|
|
|
|
320.9
|
|
|
|
322.9
|
|
Equipment rentals
|
|
|
4.4
|
|
|
|
4.7
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
326.6
|
|
|
$
|
325.6
|
|
|
$
|
328.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Most store lease agreements contain renewal options and include
escalating rents over the lease terms. Certain leases provide
for contingent rentals based upon gross sales. Cumulative
expense recognized on the straight-line basis in excess of
cumulative payments is included in accrued expenses and other
liabilities on the accompanying Consolidated Balance Sheets.
Certain lease agreements provide for scheduled rent increases
during the lease term, as well as provisions for renewal
options. Rent expense is recognized on a straight-line basis
over the term of the lease from the time at which the Company
takes possession of the property. In instances where failure to
exercise renewal options would result in an economic penalty,
the calculation of straight-line rent expense includes renewal
option periods. Also, landlord-provided tenant improvement
allowances are recorded as a liability and amortized as a credit
to rent expense.
89
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Future minimum lease payments under capital leases and
non-cancelable operating lease obligations as of
January 29, 2011, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
|
|
|
|
Leases
|
|
|
Leases
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
2011
|
|
$
|
0.1
|
|
|
$
|
281.5
|
|
|
$
|
281.6
|
|
2012
|
|
|
0.1
|
|
|
|
231.6
|
|
|
|
231.7
|
|
2013
|
|
|
0.1
|
|
|
|
181.9
|
|
|
|
182.0
|
|
2014
|
|
|
0.1
|
|
|
|
135.1
|
|
|
|
135.2
|
|
2015
|
|
|
0.1
|
|
|
|
98.9
|
|
|
|
99.0
|
|
2016 and thereafter
|
|
|
1.1
|
|
|
|
182.6
|
|
|
|
183.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum lease payments
|
|
$
|
1.6
|
|
|
$
|
1,111.6
|
|
|
$
|
1,113.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: imputed interest component
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments of which
$0.1 million is included in current liabilities
|
|
$
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 29, 2011, the total amount of minimum rentals to
be received in the future under non-cancelable subleases was
$2.0 million.
|
|
Note 14
|
Common
Stock Repurchases
|
The Company has repurchased the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Dollars
|
|
|
Shares
|
|
|
Dollars
|
|
|
Shares
|
|
|
Dollars
|
|
|
Shares
|
|
|
|
(Dollars in millions, shares in thousands)
|
|
|
Stock repurchase program
|
|
$
|
59.8
|
|
|
|
3,626
|
|
|
$
|
6.0
|
|
|
|
274
|
|
|
$
|
|
|
|
|
|
|
Employee stock purchase, deferred compensation and stock
incentive plans
|
|
|
4.1
|
|
|
|
208
|
|
|
|
1.6
|
|
|
|
115
|
|
|
|
1.9
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
63.9
|
|
|
|
3,834
|
|
|
$
|
7.6
|
|
|
|
389
|
|
|
$
|
1.9
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 29, 2011, the Company had approximately
$139.0 million of remaining common stock repurchase
authorization from its Board of Directors. Under the terms of
the Companys Senior Subordinated Notes, Term Loan Facility
and Revolving Loan Facility, the Company is restricted on the
amount of common stock it may repurchase. This limit may
increase or decrease on a quarterly basis based upon the
Companys net earnings.
|
|
Note 15
|
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.
(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.
90
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(iv) The PLG Retail reporting segment consists of
PLGs owned Stride Rite childrens stores, PLGs
Outlet stores,
store-in-stores
at select Macys Department Stores and Sperry Top-Sider
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. The total costs and fees
amounted to $39.3 million, $36.0 million and
$38.5 million during 2010, 2009 and 2008, respectively.
91
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. Information on the
segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payless
|
|
|
Payless
|
|
|
PLG
|
|
|
PLG
|
|
|
|
|
|
|
Domestic
|
|
|
International
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
Fiscal year ended January 29, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,059.3
|
|
|
$
|
460.3
|
|
|
$
|
628.4
|
|
|
$
|
227.7
|
|
|
$
|
3,375.7
|
|
Operating profit (loss)
|
|
|
75.2
|
|
|
|
55.6
|
|
|
|
61.7
|
|
|
|
(2.8
|
)
|
|
|
189.7
|
|
Interest expense
|
|
|
48.6
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
48.7
|
|
Interest income
|
|
|
(0.5
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
Loss on early extinguishment of debt
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) before taxes
|
|
$
|
25.4
|
|
|
$
|
55.7
|
|
|
$
|
61.7
|
|
|
$
|
(2.8
|
)
|
|
$
|
140.0
|
|
Depreciation and amortization
|
|
$
|
97.9
|
|
|
$
|
16.8
|
|
|
$
|
17.1
|
|
|
$
|
6.4
|
|
|
$
|
138.2
|
|
Total assets
|
|
$
|
1,039.3
|
|
|
$
|
258.4
|
|
|
$
|
905.3
|
|
|
$
|
65.5
|
|
|
$
|
2,268.5
|
|
Additions to long-lived assets
|
|
$
|
73.3
|
|
|
$
|
11.7
|
|
|
$
|
6.6
|
|
|
$
|
6.0
|
|
|
$
|
97.6
|
|
Fiscal year ended January 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,153.2
|
|
|
$
|
422.4
|
|
|
$
|
513.9
|
|
|
$
|
218.4
|
|
|
$
|
3,307.9
|
|
Operating profit (loss) from continuing operations
|
|
|
98.1
|
|
|
|
34.1
|
|
|
|
30.0
|
|
|
|
(3.7
|
)
|
|
|
158.5
|
|
Interest expense
|
|
|
60.7
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
60.8
|
|
Interest income
|
|
|
(1.0
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.1
|
)
|
Loss on early extinguishment of debt
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations before taxes
|
|
$
|
37.2
|
|
|
$
|
34.1
|
|
|
$
|
30.0
|
|
|
$
|
(3.7
|
)
|
|
$
|
97.6
|
|
Depreciation and amortization
|
|
$
|
98.4
|
|
|
$
|
17.4
|
|
|
$
|
21.7
|
|
|
$
|
5.7
|
|
|
$
|
143.2
|
|
Total assets
|
|
$
|
1,151.1
|
|
|
$
|
201.5
|
|
|
$
|
866.3
|
|
|
$
|
65.4
|
|
|
$
|
2,284.3
|
|
Additions to long-lived assets
|
|
$
|
66.6
|
|
|
$
|
17.5
|
|
|
$
|
4.1
|
|
|
$
|
3.6
|
|
|
$
|
91.8
|
|
Fiscal year ended January 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,190.7
|
|
|
$
|
444.7
|
|
|
$
|
591.6
|
|
|
$
|
215.0
|
|
|
$
|
3,442.0
|
|
Operating profit (loss) from continuing operations
|
|
|
0.9
|
|
|
|
51.3
|
|
|
|
(48.8
|
)
|
|
|
(43.6
|
)
|
|
|
(40.2
|
)
|
Interest expense
|
|
|
75.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75.2
|
|
Interest income
|
|
|
(6.8
|
)
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(8.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations before taxes
|
|
$
|
(67.5
|
)
|
|
$
|
52.6
|
|
|
$
|
(48.8
|
)
|
|
$
|
(43.6
|
)
|
|
$
|
(107.3
|
)
|
Depreciation and amortization
|
|
$
|
93.4
|
|
|
$
|
16.9
|
|
|
$
|
23.9
|
|
|
$
|
6.7
|
|
|
$
|
140.9
|
|
Total assets
|
|
$
|
1,109.1
|
|
|
$
|
173.6
|
|
|
$
|
894.7
|
|
|
$
|
73.9
|
|
|
$
|
2,251.3
|
|
Additions to long-lived assets
|
|
$
|
110.3
|
|
|
$
|
15.9
|
|
|
$
|
3.8
|
|
|
$
|
7.2
|
|
|
$
|
137.2
|
|
92
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a summary of net sales by geographical area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(Dollars in millions)
|
|
Domestic
|
|
$
|
2,785.9
|
|
|
$
|
2,781.8
|
|
|
$
|
2,861.7
|
|
International
|
|
|
589.8
|
|
|
|
526.1
|
|
|
|
580.3
|
|
The following is a summary of long-lived assets by geographical
area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(Dollars in millions)
|
|
Domestic
|
|
$
|
363.4
|
|
|
$
|
396.7
|
|
|
$
|
461.6
|
|
International
|
|
|
68.9
|
|
|
|
67.5
|
|
|
|
59.8
|
|
|
|
Note 16
|
Commitments
and Contingencies
|
As of January 29, 2011, the Company has $83.5 million
of royalty obligations consisting of minimum royalty payments
for the purchase of branded merchandise, $83.5 million of
future estimated pension obligations related to the
Companys pension plans, $5.6 million of service
agreement obligations relating to minimum payments for services
that the Company cannot avoid without penalty and
$26.8 million of employment agreement obligations related
to minimum payments to certain of the Companys executives.
Settled
During the year, the Company settled the following legal
proceedings:
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.
Pending
There are no pending legal proceedings other than ordinary,
routine litigation incidental to the business to which the
Company is a party or of which its property is subject, none of
which the Company expects to have a material impact on its
financial position, results of operations and cash flows.
|
|
Note 17
|
Environmental
Liability
|
The Company owns a property with a related environmental
liability. The liability as of January 29, 2011 was
$2.4 million, $1.6 million of which was included as an
accrued expense and $0.8 million of which was included in
other long-term liabilities in the accompanying Consolidated
Balance Sheet. The assessment of the liability and the
associated costs were based upon available information after
consultation with environmental engineers, consultants and
attorneys assisting the Company in addressing these
environmental issues. The Company estimates the
93
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
range of total costs related to this environmental liability to
be between $6.9 million and $7.4 million, including
$5.0 million of costs that have already been paid. Actual
costs to address the environmental conditions may change based
upon further investigations, the conclusions of regulatory
authorities about information gathered in those investigations
and due to the inherent uncertainties involved in estimating
conditions in the environment and the costs of addressing such
conditions.
|
|
Note 18
|
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
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
Consolidated Balance Sheets. The Company adopted certain
provisions of this new guidance in the first quarter of 2010.
Please refer to Note 6, 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,
requires 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 adoption of these provisions did not have
a material impact on its Consolidated Financial Statements.
|
|
Note 19
|
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 at the end of 2010 and
2009 were $12.7 million and $11.8 million,
respectively. Total borrowings from these financial institutions
at the end of 2009 were $1.2 million. There were no
borrowings from the Companys Latin American partners as of
the end of 2010.
Mr. Matthew E. Rubel is the Companys Chief Executive
Officer, President and Chairman of the Board. The Company began
a relationship with Celadon Group, Inc. (Celadon) in
2002. Mr. Rubels
father-in-law,
Stephen Russell, is Chairman of the Board and Chief Executive
Officer of Celadon. Pursuant to a competitive bid process,
during 2006 Celadon won the right to be the primary carrier on
two of the Companys transportation lanes. These lanes
account for less than three percent of the Companys line
haul budget. The Company regularly competitively bids its line
haul routes and as a result, Celadon could gain or lose routes
based upon its bids.
In June 2006, the Company entered into a Marketing and License
Agreement with Ballet Theatre Foundation Inc., a nonprofit
organization, to use the American Ballet Theatre and ABT marks
in connection with development, manufacture, marketing
promotion, distribution, and sale of certain dance footwear.
Mr. Rubel became a Trustee of Ballet Theatre Foundation,
Inc., in January 2007.
94
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 20
|
Subsidiary
Guarantors of Senior Notes Consolidating Financial
Information
|
The Company has issued Notes guaranteed by certain of its
subsidiaries (the Guarantor Subsidiaries). The
Guarantor Subsidiaries are direct or indirect 100% 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 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 52 week periods ended January 29, 2011,
January 30, 2010, and January 31, 2009, condensed
balanced sheets as of January 29, 2011, and
January 30, 2010 and the condensed statements of cash flows
for the 52 week periods ended January 29, 2011,
January 30, 2010, and January 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 in
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.
95
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENTS OF EARNINGS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended January 29, 2011
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
2,950.8
|
|
|
$
|
1,440.6
|
|
|
$
|
(1,015.7
|
)
|
|
$
|
3,375.7
|
|
Cost of sales
|
|
|
|
|
|
|
2,015.6
|
|
|
|
1,073.7
|
|
|
|
(914.8
|
)
|
|
|
2,174.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
935.2
|
|
|
|
366.9
|
|
|
|
(100.9
|
)
|
|
|
1,201.2
|
|
Selling, general and administrative expenses
|
|
|
4.1
|
|
|
|
855.8
|
|
|
|
252.5
|
|
|
|
(100.9
|
)
|
|
|
1,011.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) profit from continuing operations
|
|
|
(4.1
|
)
|
|
|
79.4
|
|
|
|
114.4
|
|
|
|
|
|
|
|
189.7
|
|
Interest expense
|
|
|
45.3
|
|
|
|
33.4
|
|
|
|
0.1
|
|
|
|
(30.1
|
)
|
|
|
48.7
|
|
Interest income
|
|
|
|
|
|
|
(30.7
|
)
|
|
|
(0.1
|
)
|
|
|
30.1
|
|
|
|
(0.7
|
)
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
Equity in earnings of subsidiaries
|
|
|
(144.7
|
)
|
|
|
(92.6
|
)
|
|
|
|
|
|
|
237.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before income taxes
|
|
|
95.3
|
|
|
|
167.6
|
|
|
|
114.4
|
|
|
|
(237.3
|
)
|
|
|
140.0
|
|
(Benefit) provision for income taxes
|
|
|
(17.5
|
)
|
|
|
22.9
|
|
|
|
12.0
|
|
|
|
|
|
|
|
17.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
112.8
|
|
|
|
144.7
|
|
|
|
102.4
|
|
|
|
(237.3
|
)
|
|
|
122.6
|
|
Net earnings attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
(9.8
|
)
|
|
|
|
|
|
|
(9.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Collective Brands, Inc.
|
|
$
|
112.8
|
|
|
$
|
144.7
|
|
|
$
|
92.6
|
|
|
$
|
(237.3
|
)
|
|
$
|
112.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENTS OF EARNINGS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended January 30, 2010
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
2,917.0
|
|
|
$
|
1,212.5
|
|
|
$
|
(821.6
|
)
|
|
$
|
3,307.9
|
|
Cost of sales
|
|
|
|
|
|
|
2,022.8
|
|
|
|
864.4
|
|
|
|
(720.3
|
)
|
|
|
2,166.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
894.2
|
|
|
|
348.1
|
|
|
|
(101.3
|
)
|
|
|
1,141.0
|
|
Selling, general and administrative expenses
|
|
|
2.1
|
|
|
|
832.0
|
|
|
|
249.6
|
|
|
|
(101.3
|
)
|
|
|
982.4
|
|
Restructuring charges
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) profit from continuing operations
|
|
|
(2.1
|
)
|
|
|
62.1
|
|
|
|
98.5
|
|
|
|
|
|
|
|
158.5
|
|
Interest expense
|
|
|
24.4
|
|
|
|
43.4
|
|
|
|
0.1
|
|
|
|
(7.1
|
)
|
|
|
60.8
|
|
Interest income
|
|
|
|
|
|
|
(8.1
|
)
|
|
|
(0.1
|
)
|
|
|
7.1
|
|
|
|
(1.1
|
)
|
Loss on early extinguishment of debt
|
|
|
1.0
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
Equity in earnings of subsidiaries
|
|
|
(100.1
|
)
|
|
|
(88.4
|
)
|
|
|
|
|
|
|
188.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before income taxes
|
|
|
72.6
|
|
|
|
115.0
|
|
|
|
98.5
|
|
|
|
(188.5
|
)
|
|
|
97.6
|
|
(Benefit) provision for income taxes
|
|
|
(10.1
|
)
|
|
|
15.0
|
|
|
|
4.5
|
|
|
|
|
|
|
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from continuing operations
|
|
|
82.7
|
|
|
|
100.0
|
|
|
|
94.0
|
|
|
|
(188.5
|
)
|
|
|
88.2
|
|
Loss from discontinued operations, net of income taxes
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
82.7
|
|
|
|
100.1
|
|
|
|
94.0
|
|
|
|
(188.5
|
)
|
|
|
88.3
|
|
Net earnings attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
(5.6
|
)
|
|
|
|
|
|
|
(5.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Collective Brands, Inc.
|
|
$
|
82.7
|
|
|
$
|
100.1
|
|
|
$
|
88.4
|
|
|
$
|
(188.5
|
)
|
|
$
|
82.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENTS OF (LOSS) EARNINGS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended January 31, 2009
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
3,046.0
|
|
|
$
|
1,187.2
|
|
|
$
|
(791.2
|
)
|
|
$
|
3,442.0
|
|
Cost of sales
|
|
|
|
|
|
|
2,309.8
|
|
|
|
831.8
|
|
|
|
(708.8
|
)
|
|
|
2,432.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
736.2
|
|
|
|
355.4
|
|
|
|
(82.4
|
)
|
|
|
1,009.2
|
|
Selling, general and administrative expenses
|
|
|
2.1
|
|
|
|
844.6
|
|
|
|
242.9
|
|
|
|
(82.4
|
)
|
|
|
1,007.2
|
|
Impairment of goodwill
|
|
|
|
|
|
|
42.0
|
|
|
|
|
|
|
|
|
|
|
|
42.0
|
|
Restructuring charges
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) profit from continuing operations
|
|
|
(2.1
|
)
|
|
|
(150.6
|
)
|
|
|
112.5
|
|
|
|
|
|
|
|
(40.2
|
)
|
Interest expense
|
|
|
30.6
|
|
|
|
57.4
|
|
|
|
0.4
|
|
|
|
(13.2
|
)
|
|
|
75.2
|
|
Interest income
|
|
|
|
|
|
|
(19.1
|
)
|
|
|
(2.2
|
)
|
|
|
13.2
|
|
|
|
(8.1
|
)
|
Equity in earnings of subsidiaries
|
|
|
47.1
|
|
|
|
(97.2
|
)
|
|
|
|
|
|
|
50.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations before income taxes
|
|
|
(79.8
|
)
|
|
|
(91.7
|
)
|
|
|
114.3
|
|
|
|
(50.1
|
)
|
|
|
(107.3
|
)
|
(Benefit) provision for income taxes
|
|
|
(11.1
|
)
|
|
|
(45.3
|
)
|
|
|
8.4
|
|
|
|
|
|
|
|
(48.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings from continuing operations
|
|
|
(68.7
|
)
|
|
|
(46.4
|
)
|
|
|
105.9
|
|
|
|
(50.1
|
)
|
|
|
(59.3
|
)
|
Loss from discontinued operations, net of income taxes
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
|
(68.7
|
)
|
|
|
(47.1
|
)
|
|
|
105.9
|
|
|
|
(50.1
|
)
|
|
|
(60.0
|
)
|
Net earnings attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
(8.7
|
)
|
|
|
|
|
|
|
(8.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings attributable to Collective Brands, Inc.
|
|
$
|
(68.7
|
)
|
|
$
|
(47.1
|
)
|
|
$
|
97.2
|
|
|
$
|
(50.1
|
)
|
|
$
|
(68.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 29, 2011
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
122.4
|
|
|
$
|
201.7
|
|
|
$
|
|
|
|
$
|
324.1
|
|
Accounts receivable, net
|
|
|
|
|
|
|
103.4
|
|
|
|
21.2
|
|
|
|
(10.2
|
)
|
|
|
114.4
|
|
Inventories
|
|
|
|
|
|
|
418.5
|
|
|
|
122.5
|
|
|
|
(9.3
|
)
|
|
|
531.7
|
|
Current deferred income taxes
|
|
|
|
|
|
|
23.1
|
|
|
|
7.6
|
|
|
|
|
|
|
|
30.7
|
|
Prepaid expenses
|
|
|
28.4
|
|
|
|
15.8
|
|
|
|
10.9
|
|
|
|
|
|
|
|
55.1
|
|
Other current assets
|
|
|
|
|
|
|
276.9
|
|
|
|
150.9
|
|
|
|
(405.6
|
)
|
|
|
22.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
28.4
|
|
|
|
960.1
|
|
|
|
514.8
|
|
|
|
(425.1
|
)
|
|
|
1,078.2
|
|
Property and Equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
|
|
|
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
6.7
|
|
Property, buildings and equipment
|
|
|
|
|
|
|
1,233.1
|
|
|
|
211.5
|
|
|
|
|
|
|
|
1,444.6
|
|
Accumulated depreciation and amortization
|
|
|
|
|
|
|
(878.5
|
)
|
|
|
(140.5
|
)
|
|
|
|
|
|
|
(1,019.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
361.3
|
|
|
|
71.0
|
|
|
|
|
|
|
|
432.3
|
|
Intangible assets, net
|
|
|
|
|
|
|
399.4
|
|
|
|
29.0
|
|
|
|
|
|
|
|
428.4
|
|
Goodwill
|
|
|
|
|
|
|
142.9
|
|
|
|
136.9
|
|
|
|
|
|
|
|
279.8
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
10.1
|
|
|
|
|
|
|
|
10.1
|
|
Other assets
|
|
|
1,538.6
|
|
|
|
916.4
|
|
|
|
22.1
|
|
|
|
(2,437.4
|
)
|
|
|
39.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,567.0
|
|
|
$
|
2,780.1
|
|
|
$
|
783.9
|
|
|
$
|
(2,862.5
|
)
|
|
$
|
2,268.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
|
|
|
$
|
5.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5.1
|
|
Accounts payable
|
|
|
|
|
|
|
140.0
|
|
|
|
237.1
|
|
|
|
(89.7
|
)
|
|
|
287.4
|
|
Accrued expenses
|
|
|
103.8
|
|
|
|
376.4
|
|
|
|
32.9
|
|
|
|
(328.7
|
)
|
|
|
184.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
103.8
|
|
|
|
521.5
|
|
|
|
270.0
|
|
|
|
(418.4
|
)
|
|
|
476.9
|
|
Long-term debt
|
|
|
637.0
|
|
|
|
484.3
|
|
|
|
67.1
|
|
|
|
(529.0
|
)
|
|
|
659.4
|
|
Deferred income taxes
|
|
|
|
|
|
|
64.0
|
|
|
|
1.4
|
|
|
|
|
|
|
|
65.4
|
|
Other liabilities
|
|
|
3.3
|
|
|
|
191.9
|
|
|
|
17.2
|
|
|
|
|
|
|
|
212.4
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collective Brands, Inc. shareowners equity
|
|
|
822.9
|
|
|
|
1,518.4
|
|
|
|
396.7
|
|
|
|
(1,915.1
|
)
|
|
|
822.9
|
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
31.5
|
|
|
|
|
|
|
|
31.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
822.9
|
|
|
|
1,518.4
|
|
|
|
428.2
|
|
|
|
(1,915.1
|
)
|
|
|
854.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
1,567.0
|
|
|
$
|
2,780.1
|
|
|
$
|
783.9
|
|
|
$
|
(2,862.5
|
)
|
|
$
|
2,268.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 30, 2010
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
ASSETS
|
Current 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended January 29, 2011
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
112.8
|
|
|
$
|
144.7
|
|
|
$
|
102.4
|
|
|
$
|
(237.3
|
)
|
|
$
|
122.6
|
|
Adjustments for non-cash items included in net earnings
|
|
|
0.3
|
|
|
|
156.5
|
|
|
|
18.1
|
|
|
|
|
|
|
|
174.9
|
|
Changes in working capital
|
|
|
72.6
|
|
|
|
(159.3
|
)
|
|
|
68.0
|
|
|
|
1.9
|
|
|
|
(16.8
|
)
|
Other, net
|
|
|
(132.5
|
)
|
|
|
(33.0
|
)
|
|
|
(79.1
|
)
|
|
|
235.4
|
|
|
|
(9.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by operating activities
|
|
|
53.2
|
|
|
|
108.9
|
|
|
|
109.4
|
|
|
|
|
|
|
|
271.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(82.2
|
)
|
|
|
(15.4
|
)
|
|
|
|
|
|
|
(97.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in investing activities
|
|
|
|
|
|
|
(82.2
|
)
|
|
|
(15.4
|
)
|
|
|
|
|
|
|
(97.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net repayment of debt or notes payable
|
|
|
|
|
|
|
(184.1
|
)
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
(185.2
|
)
|
Net purchases of common stock
|
|
|
(53.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53.2
|
)
|
Net distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
(7.7
|
)
|
|
|
|
|
|
|
(7.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in financing activities
|
|
|
(53.2
|
)
|
|
|
(184.1
|
)
|
|
|
(8.8
|
)
|
|
|
|
|
|
|
(246.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
|
|
|
|
2.8
|
|
|
|
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
|
|
|
|
(157.4
|
)
|
|
|
88.0
|
|
|
|
|
|
|
|
(69.4
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
|
|
|
|
279.8
|
|
|
|
113.7
|
|
|
|
|
|
|
|
393.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
|
|
|
$
|
122.4
|
|
|
$
|
201.7
|
|
|
$
|
|
|
|
$
|
324.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended January 30, 2010
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
82.7
|
|
|
$
|
100.1
|
|
|
$
|
94.0
|
|
|
$
|
(188.5
|
)
|
|
$
|
88.3
|
|
Earnings from discontinued operations, net of income taxes
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
Adjustments for non-cash items included in net earnings
|
|
|
1.1
|
|
|
|
159.3
|
|
|
|
18.8
|
|
|
|
|
|
|
|
179.2
|
|
Changes in working capital
|
|
|
34.9
|
|
|
|
102.8
|
|
|
|
(43.0
|
)
|
|
|
(30.1
|
)
|
|
|
64.6
|
|
Other, net
|
|
|
(95.8
|
)
|
|
|
(95.5
|
)
|
|
|
(11.0
|
)
|
|
|
177.9
|
|
|
|
(24.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by operating activities
|
|
|
22.9
|
|
|
|
266.6
|
|
|
|
58.8
|
|
|
|
(40.7
|
)
|
|
|
307.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(66.3
|
)
|
|
|
(17.7
|
)
|
|
|
|
|
|
|
(84.0
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
2.8
|
|
Dividends received related party
|
|
|
|
|
|
|
|
|
|
|
1.6
|
|
|
|
(1.6
|
)
|
|
|
|
|
Issuance of intercompany debt
|
|
|
|
|
|
|
(19.0
|
)
|
|
|
|
|
|
|
19.0
|
|
|
|
|
|
Other, net
|
|
|
|
|
|
|
(1.8
|
)
|
|
|
(17.2
|
)
|
|
|
|
|
|
|
(19.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in investing activities
|
|
|
|
|
|
|
(84.3
|
)
|
|
|
(33.3
|
)
|
|
|
17.4
|
|
|
|
(100.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net repayment of debt or notes payable
|
|
|
(23.5
|
)
|
|
|
(42.6
|
)
|
|
|
(9.8
|
)
|
|
|
11.0
|
|
|
|
(64.9
|
)
|
Net issuances of common stock
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
Net distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
(0.7
|
)
|
Net distributions to parent
|
|
|
|
|
|
|
(1.6
|
)
|
|
|
(10.7
|
)
|
|
|
12.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in financing activities
|
|
|
(22.9
|
)
|
|
|
(44.2
|
)
|
|
|
(21.2
|
)
|
|
|
23.3
|
|
|
|
(65.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
|
|
|
|
1.8
|
|
|
|
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
|
|
|
|
138.1
|
|
|
|
6.1
|
|
|
|
|
|
|
|
144.2
|
|
Cash and cash equivalents, beginning of year
|
|
|
|
|
|
|
141.7
|
|
|
|
107.6
|
|
|
|
|
|
|
|
249.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
|
|
|
$
|
279.8
|
|
|
$
|
113.7
|
|
|
$
|
|
|
|
$
|
393.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
COLLECTIVE
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended January 31, 2009
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
$
|
(68.7
|
)
|
|
$
|
(47.1
|
)
|
|
$
|
105.9
|
|
|
$
|
(50.1
|
)
|
|
$
|
(60.0
|
)
|
Loss from discontinued operations, net of income taxes
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
0.7
|
|
Adjustments for non-cash items included in net earnings
|
|
|
3.0
|
|
|
|
227.8
|
|
|
|
14.3
|
|
|
|
|
|
|
|
245.1
|
|
Changes in working capital
|
|
|
(32.4
|
)
|
|
|
7.3
|
|
|
|
(24.3
|
)
|
|
|
30.1
|
|
|
|
(19.3
|
)
|
Other, net
|
|
|
100.8
|
|
|
|
(11.8
|
)
|
|
|
(10.8
|
)
|
|
|
(83.6
|
)
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by operating activities
|
|
|
2.7
|
|
|
|
176.9
|
|
|
|
85.1
|
|
|
|
(103.6
|
)
|
|
|
161.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(113.0
|
)
|
|
|
(16.2
|
)
|
|
|
|
|
|
|
(129.2
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
Issuance of intercompany debt
|
|
|
|
|
|
|
(30.0
|
)
|
|
|
|
|
|
|
30.0
|
|
|
|
|
|
Dividends received from related party
|
|
|
|
|
|
|
44.2
|
|
|
|
|
|
|
|
(44.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in investing activities
|
|
|
|
|
|
|
(97.7
|
)
|
|
|
(16.2
|
)
|
|
|
(14.2
|
)
|
|
|
(128.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net repayment of debt or notes payable, including deferred
financing costs
|
|
|
(2.0
|
)
|
|
|
(7.0
|
)
|
|
|
30.0
|
|
|
|
(30.0
|
)
|
|
|
(9.0
|
)
|
Net purchases of common stock
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
Net distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
(1.5
|
)
|
Net distributions to parent
|
|
|
|
|
|
|
|
|
|
|
(147.8
|
)
|
|
|
147.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in financing activities
|
|
|
(2.7
|
)
|
|
|
(7.0
|
)
|
|
|
(119.3
|
)
|
|
|
117.8
|
|
|
|
(11.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
|
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
72.2
|
|
|
|
(55.4
|
)
|
|
|
|
|
|
|
16.8
|
|
Cash and cash equivalents, beginning of year
|
|
|
|
|
|
|
69.5
|
|
|
|
163.0
|
|
|
|
|
|
|
|
232.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
|
|
|
$
|
141.7
|
|
|
$
|
107.6
|
|
|
$
|
|
|
|
$
|
249.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Disclosure
Controls and Procedures
As of the end of the period covered by this
Form 10-K
for fiscal 2010, 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 and Accounting Officer
concluded that our disclosure controls and procedures (as
defined in
Rules 13a-14(c)
and
15d-14(c)
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.
Managements
Annual Report on Internal Control over Financial Reporting and
the Report of Independent Registered Public Accounting
Firm
Managements annual report on internal control over
financial reporting and the report of independent registered
public accounting firm are incorporated by reference to pages 53
and 54 of Item 8 of this
Form 10-K.
Changes
in Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting during the fourth quarter of 2010 that have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Information concerning our executive officers is set forth in
Item 1 of this
Form 10-K
under the caption Executive Officers of the Company.
The Board of Directors has established a standing Audit and
Finance Committee which currently consists of Mr. John F.
McGovern Chairman, Mr. Daniel Boggan Jr.,
Mr. Robert F. Moran, Mr. David Scott Olivet, and
Mr. Matthew A. Ouimet. The Board has determined that each
of the members of the Audit and Finance Committee are audit
committee financial experts (as that term is defined under
Item 407(d) of
Regulation S-K)
and are independent.
Our Code of Ethics is applicable to all associates including our
principal executive officer, principal financial officer,
principal accounting officer, and persons performing similar
functions and is available on our website at
www.collectivebrands.com. The charters for the Board of
Directors, the Audit and Finance Committee, and the Compensation
Nominating and Governance Committee are also available on our
investor relations website. The Company intends to satisfy its
disclosure requirements under Item 5.05(c) of
Form 8-K,
regarding an amendment to or waiver from a provision of its Code
of Ethics by posting such information on our website at
www.collectivebrands.com.
104
Information with respect to our directors and the nomination
process is incorporated herein by reference to information
included in the Companys definitive proxy statement to be
filed in connection with its Annual Meeting to be held on
May 26, 2011 under Charters and Corporate Governance
Principles Selection of Directors and
About Shareholder Proposals and Nominations for our 2012
Annual Meeting.
a) Directors The information set forth in the
Companys definitive proxy statement to be filed in
connection with its Annual Meeting to be held on May 26,
2011, under the captions Election of Directors Directors
and Nominees for Director and Additional
Information Section 16(a) Beneficial Ownership
Reporting Compliance is incorporated herein by reference.
b) Executive Officers Information regarding the
Executive Officers of the Company is as set forth in Item 1
of this report under the caption Executive Officers of the
Company. The information set forth in the Companys
definitive proxy statement to be filed in connection with its
Annual Meeting to be held on May 26, 2011, under the
caption Additional Information
Section 16(a) Beneficial Ownership Reporting
Compliance is incorporated herein by reference.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
No member of the Compensation, Nominating and Governance
Committee (Ms. Magnum, Messrs. Wheeler and Weiss) has
served as one of the Companys officers or employees or had
a relationship requiring disclosure under any paragraph of
Item 404 of
Regulation S-K.
None of the Companys executive officers named in the
Summary Compensation Table (included in the Companys proxy
statement) serve as a member of the board of directors or as a
member of a compensation committee of any other company that has
an executive officer serving as a member of the Companys
Board or the Compensation, Nominating and Governance Committee.
The information set forth in the Companys definitive proxy
statement to be filed in connection with its Annual Meeting to
be held on May 26, 2011, under the captions Board
Compensation, Compensation, Nominating and
Governance Committee, Compensation Committee
Interlocks and Insider Participation, Compensation,
Nominating and Governance Committee Report,
Compensation, Discussion and Analysis, Summary
Compensation Table, Fiscal 2010 Grants of Plan-Based
Awards, Outstanding Equity Awards at the end of
Fiscal 2010, Fiscal 2010 Options Exercises and Stock
Vested, Pension Benefits for Fiscal 2010,
Nonqualified Deferred Compensation for Fiscal 2010,
and Potential Payments upon Termination or Change in
Control is incorporated herein by reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information set forth in the Companys definitive proxy
statement to be filed in connection with its Annual Meeting to
be held on May 26, 2011, under the caption Beneficial
Stock Ownership of Directors, Nominees, Executive Officers and
More Than Five Percent Owners is incorporated herein by
reference.
The following table summarizes information with respect to the
Companys equity compensation plans at January 29,
2011 (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
Number of Securities
|
|
|
Weighted-Average
|
|
|
Future Issuance Under
|
|
|
|
to be Issued Upon
|
|
|
Exercise Price of
|
|
|
Equity Compensation Plans
|
|
|
|
Exercise of Outstanding
|
|
|
Outstanding Options,
|
|
|
(Excluding Securities
|
|
Plan category
|
|
Options, Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Issued Upon Exercise)
|
|
|
Equity compensation plans approved by security holders
|
|
|
7,636
|
|
|
$
|
18.41
|
|
|
|
1,077
|
(1)
|
Equity compensation plans not approved by security holders
|
|
|
418
|
|
|
|
20.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,054
|
|
|
|
18.53
|
|
|
|
1,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
|
|
|
(1) |
|
Includes up to 867 thousand shares that may be issued under the
Companys 2006 Stock Incentive Plan and up to 210 thousand
shares that can be issued under the Companys Restricted
Stock Plan for Non-Management Directors. The amount does not
include up to 5.3 million shares that may be purchased
under the Payless Stock Ownership Plan. |
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The Company began a relationship with Celadon Group, Inc.
(Celadon) in 2002. Mr. Rubels
father-in-law,
Stephen Russell, is Chairman of the Board and Chief Executive
Officer of Celadon. Pursuant to a competitive bid process,
Celadon won the right to be the primary carrier on certain of
the Companys transportation lanes. These lanes account for
less than three percent of the Companys line haul budget.
The Company periodically competitively bids its line haul routes
and as a result, Celadon could gain or lose routes based upon
its bids.
In June 2006, the Company entered into a Marketing and License
Agreement with Ballet Theatre Foundation Inc., a nonprofit
organization, to use the American Ballet Theatre and ABT marks
in connection with development, manufacture, marketing
promotion, distribution, and sale of certain dance footwear.
Mr. Rubel became a Trustee of Ballet Theatre Foundation,
Inc., in January 2007.
The information set forth in the Companys definitive proxy
statement to be filed in connection with its Annual Meeting to
be held on May 26, 2011 under the captions Election
of Directors Directors and Nominees for
Director, and Charters and Corporate Governance
Principles Independence of Directors and Nominees
for Director is incorporated herein by reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information regarding principal accounting fees and services
is incorporated herein by reference to the material under the
heading Principal Accounting Fees and Services of
the Companys definitive proxy statement to be filed in
connection with its Annual Meeting to be held on May 26,
2011.
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) Financial Statements:
The following financial statements are set forth under
Item 8 of this Annual Report on form
10-K:
106
(b) Financial Statements Schedules:
Schedule
SCHEDULE II-VALUATION
AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning of Period
|
|
|
Costs and Expenses
|
|
|
Deductions(1)
|
|
|
End of Period
|
|
|
|
(Dollars in millions)
|
|
|
Year ended January 29, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
4.2
|
|
|
$
|
2.0
|
|
|
$
|
(2.2
|
)
|
|
$
|
4.0
|
|
Deferred tax valuation allowance
|
|
|
11.4
|
|
|
|
4.0
|
|
|
|
|
|
|
|
15.4
|
|
Sales return reserve
|
|
|
3.3
|
|
|
|
49.2
|
|
|
|
(48.9
|
)
|
|
|
3.6
|
|
Year ended January 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
3.8
|
|
|
$
|
2.9
|
|
|
$
|
(2.5
|
)
|
|
$
|
4.2
|
|
Deferred tax valuation allowance
|
|
|
8.1
|
|
|
|
3.3
|
|
|
|
|
|
|
|
11.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales return reserve
|
|
|
3.0
|
|
|
|
45.1
|
|
|
|
(44.8
|
)
|
|
|
3.3
|
|
Year ended January 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
2.5
|
|
|
$
|
3.4
|
|
|
$
|
(2.1
|
)
|
|
$
|
3.8
|
|
Deferred tax valuation allowance
|
|
|
5.8
|
|
|
|
2.9
|
|
|
|
(0.6
|
)
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales return reserve
|
|
|
3.3
|
|
|
|
43.7
|
|
|
|
(44.0
|
)
|
|
|
3.0
|
|
|
|
|
(1) |
|
With regard to allowances for doubtful accounts, deductions
relate to uncollectible receivables (both accounts and other
receivables) that have been written off, net of recoveries. For
the deferred tax valuation allowance, deductions relate to
deferred tax assets that have been written off. For sales
returns, deductions related to actual returns. |
107
(c) Exhibits
|
|
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of Payless
ShoeSource, Inc., a Delaware corporation (the
Company).(1)
|
|
3
|
.2
|
|
Amended and Restated Bylaws of the Company.(2)
|
|
3
|
.3
|
|
Certificate of Amendment of the Companys Certificate of
Incorporation.(3)
|
|
4
|
.1
|
|
Indenture, dated as of July 28, 2003, among Payless ShoeSource,
Inc. and each of the Guarantors named therein and Wells-Fargo
Bank Minnesota, National Association as Trustee, related to the
8.25% Senior Subordinated Notes Due 2013.(4)
|
|
4
|
.2
|
|
Exchange and Registration Rights Agreement, Dated July 28, 2003,
among Payless ShoeSource, Inc. and each of Guarantors named
therein and Goldman Sachs & Co. as representative of the
Several Purchasers.(4)
|
|
10
|
.1
|
|
Sublease, dated as of April 2, 1996, by and between The May
Department Stores Company and Payless ShoeSource, Inc.(5)
|
|
10
|
.2
|
|
Payless ShoeSource, Inc. 1996 Stock Incentive Plan, as amended
September 18, 2003.(6) ±
|
|
10
|
.3
|
|
Stock Plan for Non-Management Directors of Collective Brands,
Inc., as amended August 17, 2007.(7) ±
|
|
10
|
.4
|
|
Form of Employment Agreement between Collective Brands, Inc.
(formerly Payless ShoeSource, Inc.), and certain of its
executives including Darrel Pavelka, Douglas Treff, Michael
Massey & Betty Click. (8) ±
|
|
10
|
.5
|
|
Form of Amendment to Employment Agreement between Collective
Brands, Inc. and certain of its executives including Darrel
Pavelka, Douglas Treff, Michael Massey, Douglas G. Boessen and
Betty Click.(13) ±
|
|
10
|
.6
|
|
Collective Brands, Inc. Supplementary Retirement Account Plan,
as amended and restated January 1, 2008. (7) ±
|
|
10
|
.7
|
|
Employment Agreement between Collective Brands, Inc. and Douglas
G. Boessen. (13) ±
|
|
10
|
.8
|
|
Employment Agreement between LuAnn Via and Payless ShoeSource,
Inc. (11) ±
|
|
10
|
.9
|
|
Amendment 1 to Employment Agreement between Payless ShoeSource,
Inc. and LuAnn Via dated December 19, 2008. (13) ±
|
|
10
|
.10
|
|
Form of Change of Control Agreement between Collective Brands,
Inc. (formerly Payless ShoeSource, Inc.) and certain of its
executives including Darrel Pavelka, Douglas Treff, Michael
Massey and Betty Click. (9) ±
|
|
10
|
.11
|
|
Form of Amendment to the Change of Control Agreement between
Collective Brands, Inc. and certain of its executives including
Darrel Pavelka, Douglas Treff, Michael Massey and Betty
Click.(13) ±
|
|
10
|
.12
|
|
Change of Control Agreement between Collective Brands, Inc. and
Douglas G. Boessen effective December 30, 2008.(13) ±
|
|
10
|
.13
|
|
Form of Directors Indemnification Agreement.(8)
|
|
10
|
.14
|
|
Form of Officers Indemnification Agreement.(9)
|
|
10
|
.15
|
|
Collective Brands, Inc. Deferred Compensation Plan for
Non-Management Directors, as amended January 1, 2008. (14) ±
|
|
10
|
.16
|
|
Collective Brands, Inc. Employee Stock Purchase Plan, as amended
August 17, 2007. (7) ±
|
|
10
|
.17
|
|
Collective Brands, Inc. Deferred Compensation Plan, as amended
and restated January 1, 2008. (7) ±
|
|
10
|
.18
|
|
Collective Brands, Inc. Incentive Compensation Plan as amended
August 17, 2007. (7) ±
|
|
10
|
.19
|
|
Amended and Restated Loan and Guaranty Agreement, dated August
17, 2007, by and among Collective Brands Finance, Inc. as
Borrower, the Guarantors thereto as Credit Parties, the Lenders
signatory thereto and Wells Fargo Retail Finance, LLC as the
Arranger and Administrative Agent.(12)
|
|
10
|
.20
|
|
Amended and Restated Employment Agreement between Collective
Brands, Inc. and Matthew E. Rubel accepted and agreed to
December 19, 2008. (13) ±
|
|
10
|
.21
|
|
Form of Restricted Stock Award Agreement. (14) ±
|
|
10
|
.22
|
|
Form of Stock Settled Stock Appreciation Rights Award Agreement.
(14) ±
|
|
10
|
.23
|
|
2006 Collective Brands, Inc. Stock Incentive Plan, amended
August 17, 2007. (7) ±
|
|
10
|
.24
|
|
Term Loan Agreement, dated as of August 17, 2007 (the Term
Loan), among Collective Brands Finance, Inc. as Borrower,
and the Lenders party thereto and CitiCorp North America, Inc.,
as Administrative Agent and Collateral Agent.(12)
|
|
10
|
.25
|
|
CEO Restricted Stock Award Agreement. (10) ±
|
|
10
|
.26
|
|
Amended and Restated Change of Control Agreement between
Collective Brands, Inc. and Matthew E. Rubel agreed and accepted
December 19, 2008. (13) ±
|
|
10
|
.27
|
|
Second Amendment to the Term Loan Agreement dated as of March
11, 2008.(7)
|
|
21
|
.1
|
|
Subsidiaries of the Company.*
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm.*
|
108
|
|
|
|
|
Number
|
|
Description
|
|
|
31
|
.1
|
|
Certification Pursuant to Rules 13(a)-14(a) and 15(d)-14(a)
under the Securities Exchange Act of 1934, as amended, of the
Chief Executive Officer, President and Chairman of the Board.*
|
|
31
|
.2
|
|
Certification Pursuant to Rules 13(a)-14(a) and 15(d)-14(a)
under the Securities Exchange Act of 1934, as amended, of the
Division Senior Vice President, Chief Financial Officer and
Treasurer.*
|
|
32
|
.1
|
|
Certification Pursuant to 18 U.S.C. 1350 of the Chief
Executive Officer and President.*
|
|
32
|
.2
|
|
Certification Pursuant to 18 U.S.C. 1350 of the Division
Senior Vice President, Chief Financial Officer and Treasurer.*
|
|
101
|
.INS
|
|
XBRL Instance Document.
¥
|
|
101
|
.SCH
|
|
XBRL Taxonomy Extension Schema Document.
¥
|
|
101
|
.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.
¥
|
|
101
|
.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document.
¥
|
|
101
|
.LAB
|
|
XBRL Taxonomy Extension Label Linkbse Document.
¥
|
|
101
|
.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.
¥
|
|
|
|
± |
|
Indicates management contract or compensatory plan, contract or
agreement. |
|
* |
|
Filed herewith. |
|
¥ |
|
Furnished herewith. In accordance with Rule 406T of
Regulation S-T,
the information in these exhibits shall not be deemed to be
filed for purposes of Section 18 of the
Exchange Act, or otherwise subject to liability under that
section, and shall not be incorporated by reference into any
registration statement or other document filed under the
Securities Act of 1933, as amended, except as expressly set
forth by specific reference in such filing. |
|
(1) |
|
Incorporated by reference from the Companys Current Report
on Form 8-K
(File Number 1-14770) filed with the SEC on June 3, 1998. |
|
(2) |
|
Incorporated by reference from the Companys Current Report
on Form 8-K
(File Number 1-14770) filed with the SEC on November 13,
2008. |
|
(3) |
|
Incorporated by reference from the Companys Current Report
on Form 8-K
(File Number 1-14770) filed with the SEC on August 17, 2007. |
|
(4) |
|
Incorporated by reference from the Companys Quarterly
Report on Form
10-Q (File
Number 1-14770) for the quarter ended August 2, 2003, filed
with the SEC on September 12, 2003. |
|
(5) |
|
Incorporated by reference from the Companys Registration
Statement on Form 10 (File Number 1-11633) dated
February 23, 1996, as amended through April 15, 1996. |
|
(6) |
|
Incorporated by reference from the Companys Registration
Statement on
Form S-4
(File Number
333-109388)
filed with the SEC on October 2, 2003, as amended. |
|
(7) |
|
Incorporated by reference from the Companys Annual Report
on Form 10-K
(File Number 1-14770) for the year ended February 2, 2008,
filed with the SEC on April 1, 2008. |
|
(8) |
|
Incorporated by reference from the Companys Annual Report
on Form 10-K
(File Number 1-14770) for the year ended February 1, 2003,
filed with the SEC on April 18, 2003. |
|
(9) |
|
Incorporated by reference from the Companys Annual Report
on Form 10-K
(File Number 1-14770) for the year ended January 31, 2004,
filed with the SEC on April 9, 2004. |
|
(10) |
|
Incorporated by reference from the Companys Current Report
on Form 8-K
(File Number 1-14770) filed with the SEC on June 3, 2007. |
|
(11) |
|
Incorporated by reference from the Companys Current Report
on Form 8-K
(File Number 1-14770) filed with the SEC on July 9, 2008. |
|
(12) |
|
Incorporated by reference from the Companys Quarterly
Report on Form
10-Q (File
Number 1-14770) filed with the SEC on September 2, 2010. |
|
(13) |
|
Incorporated by reference from the Companys Current Report
on Form 8-K
(File Number 1-14770) filed with the SEC on December 23,
2008. |
109
|
|
|
(14) |
|
Incorporated by reference from the Companys Annual Report
on Form 10-K
(File Number 1-14770) for the year ended January 31, 2009,
filed with the SEC on March 30, 2009. |
The Company will furnish to stockholders upon request, and
without charge, a copy of the 2010 Annual Report and the 2011
Proxy Statement, portions of which are incorporated by reference
in the
Form 10-K.
The Company will furnish any other Exhibit at cost.
(d) Financial Statement Schedules have been either omitted
due to inapplicability or because required information is shown
in the Consolidated Financial Statements, Notes thereto, or
Item 15(b).
110
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
|
|
COLLECTIVE BRANDS, INC.
|
|
|
|
Date: March 25, 2011
|
|
By: /s/ Douglas
G. Boessen
Douglas G. Boessen
Division Senior Vice President,
Chief Financial Officer and Treasurer
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
/s/ Matthew
E. Rubel
|
|
Date: March 25, 2011
|
Chief Executive Officer,
President and Chairman of the Board
(Principal Executive Officer)
|
|
|
|
/s/ Matthew
A. Ouimet
|
|
Date: March 25, 2011
|
Director
|
|
|
|
/s/ David
Scott Olivet
|
|
Date: March 25, 2011
|
Director
|
|
|
|
/s/ Robert
C. Wheeler
|
|
Date: March 25, 2011
|
Director
|
|
|
|
/s/ Michael
A. Weiss
|
|
Date: March 25, 2011
|
Director
|
|
|
|
/s/ Mylle
H. Mangum
|
|
Date: March 25, 2011
|
Director
|
|
|
|
/s/ Douglas
G. Boessen
|
|
Date: March 25, 2011
|
Division Senior Vice President - Chief
Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
|
|
|
|
/s/ Daniel
Boggan Jr.
|
|
Date: March 25, 2011
|
Director
|
|
|
|
/s/ Mylle
H. Mangum
|
|
Date: March 25, 2011
|
Director
|
|
|
|
/s/ John
F. McGovern
|
|
Date: March 25, 2011
|
Director
|
|
|
|
/s/ Robert
F. Moran
|
|
Date: March 25, 2011
|
Director
|
111