e10vk
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
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(Mark One)
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[ x ] Annual Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended: January 29,
2011
or
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[ ] Transition Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from
to
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Commission file number 0-21296
PACIFIC SUNWEAR OF CALIFORNIA,
INC.
(Exact name of registrant as specified in its charter)
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California
(State of incorporation)
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95-3759463
(I.R.S. Employer Identification No.)
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3450 E. Miraloma Ave., Anaheim, CA
(Principal executive offices)
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92806
(Zip Code)
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Registrants telephone number, including area code:
(714) 414-4000
Securities Registered Pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Exchange on Which Registered
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Common Stock, par value $0.01 per share
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The NASDAQ Stock Market LLC (Nasdaq Global Select Market)
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Securities
Registered Pursuant to Section 12(g) of the Act:
None.
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Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
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Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Act.
Yes [ ] No [X]
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
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Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes [ ] No [ ]
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of the
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. [X]
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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 [ ]
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Accelerated
filer [X]
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Non-accelerated
filer [ ]
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Smaller reporting
company [ ]
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act). Yes [ ] No [X]
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The aggregate market value of Common Stock held by
non-affiliates of the registrant as of July 31, 2010, the
last business day of the most recently completed second quarter,
was approximately $265 million. All outstanding shares of
voting stock, except for shares held by executive officers and
members of the Board of Directors and their affiliates, are
deemed to be held by non-affiliates.
On March 30, 2011, the registrant had
66,223,380 shares of Common Stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Part III incorporates information by reference from the
definitive Proxy Statement for the 2011 Annual Meeting of
Shareholders, to be filed with the Commission not later than
120 days after the end of the registrants fiscal year
covered by this
Form 10-K.
PACIFIC SUNWEAR
OF CALIFORNIA, INC.
FORM 10-K
For the Fiscal Year Ended January 29, 2011
Index
PART I
ITEM 1. BUSINESS
Pacific Sunwear of California, Inc. (together with its wholly
owned subsidiaries, the Company,
Registrant, PacSun, we,
us, or our) is a leading specialty
retailer rooted in the action sports, fashion and music
influences of the California lifestyle. We sell a combination of
branded and proprietary casual apparel, accessories and footwear
designed to appeal to teens and young adults. We operate a
nationwide, primarily mall-based chain of retail stores under
the names Pacific Sunwear and PacSun.
The Company, a California corporation, was incorporated in
August 1982. As of January 29, 2011, we leased and operated
852 stores in each of the 50 states and Puerto Rico,
comprised of 3.3 million total square feet.
Our executive offices are located at 3450 East Miraloma Avenue,
Anaheim, California, 92806; our telephone number is
(714) 414-4000;
and our Internet address is www.pacsun.com.
Through our website, we make available free of charge, as soon
as reasonably practicable after such information has been filed
or furnished to the Securities and Exchange Commission (the
Commission), our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended (the Exchange Act).
The Companys fiscal year is the 52- or 53-week period
ending on the Saturday closest to January 31. Fiscal
year-end dates for all periods presented or discussed herein are
as follows:
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Fiscal Year
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Year-End Date
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# of Weeks
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2011
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January 28, 2012
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52
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2010
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January 29, 2011
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52
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2009
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January 30, 2010
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52
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2008
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January 31, 2009
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52
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2007
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February 2, 2008
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52
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2006
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February 3, 2007
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53
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Our Mission and
Strategies
Our mission is to be the favorite place for teens and young
adults to shop in the mall. Our objective is to provide our
customers with a compelling merchandise assortment and great
shopping experience that together highlight a great mix of
heritage brands, proprietary brands and emerging brands that
speak to the action sports, fashion and music influences of the
California lifestyle. We offer an assortment of apparel,
accessories and footwear for young men and women designed to
meet the fashion needs of our customers. We believe the
following items are the key strategic elements in executing our
stated mission:
Strong Emphasis on Brands. PacSuns foundation has
traditionally been built upon a great collection of powerful
brands. Today, that mix of brands includes heritage brands, our
own proprietary brands and a mix of
up-and-coming,
emerging brands. Our heritage brands have been partnered with us
for many years and include some of the most well-known names in
the action sports industry, including Fox Racing, DC Shoes,
Roxy, Quiksilver, Hurley, Billabong, Element, ONeill, Vans
and Volcom, among others. In recent years, we have also built
our own proprietary brands, including
Bullhead®,
Kirra®,
On the
Byas®,
Black
Poppy®
and
Nollie®,
to complement our heritage brands and give us added flexibility
within certain categories. In fiscal 2010, we also licensed the
Modern
Amusement®
brand from Dirty Bird Productions, Inc., a company owned by
Mossimo Giannulli, the founder of the
Mossimo®
brand. Additionally, we continually seek to introduce emerging
brands that bring newness to our stores and speak to the
ever-changing tastes of our customers. Taken together, we
believe that this mix of brands gives us the capability to offer
our customers an unmatched selection of fashionable and
authentic products.
Our in-store merchandise presentations feature heritage brands
throughout our store via fixtures dedicated to particular brands
along with their own brand signage. Within approximately 200
stores, we have also partnered with
2 Pacific
Sunwear of California, Inc.
Form 10-K
2010
key brands to allow them to create brand shops that
offer them the opportunity to create their own selling space
within our stores and display their product in a unique manner.
New Strategic Marketing Initiatives. In the recent past,
our marketing efforts have been generally limited to in-store
creative content and relatively few in-store promotional events.
In fiscal 2011, we plan to launch a new marketing strategy that
will encompass a variety of media, including television, print
advertising, mobile marketing and in-store visual elements,
designed to showcase the full capabilities of the brands we
carry and what we believe to be the improved styling and
aesthetic of the merchandise assortments we will deliver. We
believe the combination of improved product supported by a
compelling marketing campaign is necessary to connect consumers
with what PacSun has to offer. We are working cooperatively with
key heritage brands to create new programs and approaches to
generate excitement around PacSun and the California lifestyle
we embody without meaningfully increasing our total marketing
expenses.
Localized Assortment Planning. We believe that there
continues to be a significant opportunity to improve both our
sales and merchandise margin performance through more refined
merchandise assortment planning strategies. We historically took
a one size fits all approach to merchandise
assortments in our stores in terms of the timing of product
flows and brand or category presentation. This approach
generally resulted in all stores receiving seasonal categories
(i.e., swim in spring or fleece in autumn) at the same time and
in the same magnitude. During fiscal 2010, we began grouping our
stores into a number of store clusters based on customer
segmentations, brand performance, differences in weather and
demographics, among other characteristics. In conjunction with
this clustering, we began changing our allocation strategies to
distribute what we believe to be the right products to the right
stores for the right customers. The majority of our assortments
are consistent across all stores but our clustering results in
subtle penetration changes by brand and category for the last
20% to 40% of a given stores assortment. We intend to
continue refining these new clustering and allocation strategies
during fiscal 2011.
Merchandising
Merchandise. Our stores offer an assortment of casual
apparel, related accessories and footwear for young men and
women, with the goal of being viewed by our customers as the
most desired retailer for their lifestyle. The following tables
set forth our merchandise assortment as a percentage of net
sales for the most recent three fiscal years:
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Fiscal Year
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2010
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2009
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2008
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Mens Apparel
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49%
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45%
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41%
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Womens Apparel
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38%
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43%
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42%
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Accessories and Footwear
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13%
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12%
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17%
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Total
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100%
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100%
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100%
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Our sales per square foot has fallen from $350 in fiscal 2007 to
$258 in fiscal 2010, an aggregate decline of 26%. A significant
factor in the decline in our sales productivity, particularly in
fiscal 2010, was the performance of denim. Denim represented 12%
of net sales in fiscal 2007 and then grew significantly over the
next two years to peak at 22% of net sales in fiscal 2009,
driven by our proprietary
Bullhead®
denim and our foundational skinny fit. During fiscal
2010, denim became a very price-competitive business with very
little newness or uniqueness in the marketplace in terms of fit
or trend. As a result, same-store sales of denim, which
represented 18% of net sales for fiscal 2010, fell by over 20%.
Until a new significant denim trend or other meaningful
alternative to denim is developed, sales of denim are likely to
continue to be challenging in the near future. Another
significant factor in our declining sales productivity over the
past three years was attributable to the combination of
accessories and footwear (non-apparel). Prior to
fiscal 2007, non-apparel accounted for more than 30% of net
sales versus only 12% in fiscal 2009 resulting from a
de-emphasis on non-apparel categories. In retrospect, we believe
we lost significant sales opportunities as a result of our
previous decisions to de-emphasize non-apparel categories during
fiscal 2008 and 2009. We began working toward reclaiming non-
Pacific
Sunwear of California, Inc.
Form 10-K
2010 3
apparel sales during fiscal 2010, ending the year with footwear
reintroduced to approximately 450 stores;
however, non-apparel still only represented 13% of net
sales for the year.
Heritage Brands. We offer a wide selection of well-known
action-sports inspired heritage brands, such as Fox Racing,
Billabong, Element, DC Shoes, Roxy, Quiksilver, Hurley,
ONeill, Vans and Volcom, among others. In addition, we
continually cultivate relationships to add and support
up-and-coming
brands, even if they are not of sufficient size to deliver to
our stores on a nationwide basis. During fiscal 2010, Fox Racing
accounted for 10% of our net sales. No other branded vendor
accounted for more than 7% of net sales in fiscal 2010. During
fiscal 2009 no vendor accounted for more than 10% of net sales.
In fiscal 2008, Billabong (which then incorporated both the
Billabong and Element brands) accounted for 11% of net sales and
Quiksilver (which incorporates the DC Shoes, Roxy and Quiksilver
brands) accounted for 10% of net sales. Branded merchandise
accounted for approximately 54%, 52% and 62% of net sales in
fiscal 2010, 2009 and 2008, respectively.
Proprietary Brands. We supplement our name-brand
offerings with our proprietary brands, including
Bullhead®,
Kirra®,
On the
Byas®,
Black
Poppy®
and
Nollie®.
Proprietary brands provide us with an opportunity to broaden our
customer base by offering merchandise of comparable quality to
brand name merchandise, capitalize on emerging fashion trends
when branded merchandise is not available in sufficient
quantities, and exercise a greater degree of control over the
flow of our merchandise. Our own product design group, in
collaboration with our buying staff, designs our proprietary
brand merchandise. Our sourcing organization oversees the
manufacture and delivery of our proprietary brand merchandise,
with manufacturing sourced both domestically and
internationally. Our proprietary brand merchandise accounted for
approximately 46%, 48%, and 38% of net sales in fiscal 2010,
2009, and 2008, respectively.
Vendor and Contract Manufacturer Relationships. We
generally purchase merchandise from vendors that target
distribution through specialty retailers, small boutiques and,
in some cases, particular department stores, rather than
distribution through mass-market channels. To encourage the
design and development of new merchandise, we frequently share
ideas regarding fashion trends and merchandise sell-through
information with our vendors. We also suggest merchandise design
and fabrication to certain vendors.
We have cultivated our proprietary brand sources with a view
toward high-quality merchandise, production reliability and
consistency of fit. We source our proprietary brand merchandise
both domestically and internationally in order to benefit from
the shorter lead times associated with domestic manufacturing
and the lower costs associated with international manufacturing.
Merchandising, Planning, Allocation and Distribution. Our
merchants are responsible for reviewing branded merchandise
lines from new and existing vendors, identifying emerging
fashion trends, and selecting branded and proprietary brand
merchandise styles in quantities, colors and sizes to meet
inventory levels established by Company management. Our planning
and allocation team is responsible for management of inventory
levels by store and by class, allocation of merchandise to
stores and inventory replenishment based upon information
generated by our merchandise management information systems.
These systems provide the planning department with current
inventory levels at each store and for the Company as a whole,
as well as current selling history within each store by
merchandise classification and by style. See Information
Technology.
All merchandise is delivered to our distribution facility in
Olathe, Kansas where it is inspected, received, allocated to
stores, ticketed when necessary and boxed for distribution to
our stores or packaged for delivery to our Internet customers.
Each store is typically shipped merchandise three to five times
a week, providing it with a steady flow of new merchandise. We
use both national and regional carriers to ship merchandise to
our stores and Internet customers. We may occasionally use air
freight to ship merchandise to stores when necessary.
4 Pacific
Sunwear of California, Inc.
Form 10-K
2010
E-commerce.
Our Internet sales represented approximately 5% of our sales for
each of fiscal 2010 and fiscal 2009. We sell a combination of
the same selection of merchandise carried in our stores along
with online exclusives at www.pacsun.com. We also
advertise our website as a shopping destination on certain
Internet portals and search engines and market our website in
our stores. Our Internet strategy benefits from the nationwide
retail presence of our stores, brand recognition of PacSun, an
Internet-savvy customer base, and the availability of our key
brands.
Stores
Locations. We operate stores in each of the
50 states and Puerto Rico. For a geographical breakdown of
stores by state, see Item 2, Properties.
Real Estate Strategy. Prior to fiscal 2007, the Company
grew rapidly, with more than 50 new store openings per year.
Given the economic environment and our sales performance over
the past three years, our focus has shifted from continuing to
open new stores to optimizing our existing fleet of stores. In
order to improve the overall productivity of our store fleet, we
intend to close under-performing stores
and/or
renegotiate existing lease terms to achieve more appropriate
occupancy structures within our leases. We closed 44, 40 and 38
stores in fiscal 2010, 2009 and 2008, respectively. We currently
expect to close an additional 30 to 50 stores in fiscal 2011
depending on our ability to negotiate acceptable lease terms as
leases come up for renegotiation at lease expiration or at any
earlier lease kick-out opportunity. A kick-out clause relieves
us of any future obligation under a lease if specified sales
levels for our stores or mall occupancy targets are not achieved
by a specified date. We have an aggregate of nearly
400 lease expirations for reconsideration through 2013.
While there is a mixture of productive and non-productive stores
to address each year, we will continue closing more stores than
we open in each of the next three years. Specifically for fiscal
2011, we currently do not plan to open any new stores and will
expand/relocate approximately five stores.
Store Operations. Our stores are open for business during
mall shopping hours. Each store has a manager, one or more
assistant managers and approximately six to twelve part-time
sales associates. District managers supervise approximately a
dozen stores and approximately a dozen district managers report
to a regional director. District and store managers participate
in a bonus program based on achieving predetermined metrics. We
have store operating policies and procedures and in-store
training for new managers. We place an emphasis on loss
prevention programs in order to control inventory shrinkage.
These programs include the installation of electronic article
surveillance systems in all stores, education of store personnel
on loss prevention and monitoring of returns, voids and employee
sales. As a result of these programs, our historical inventory
shrinkage rates have been below 2% of net sales at retail (1% at
cost).
Competition
The retail apparel, accessory and footwear business is highly
competitive. Our stores compete on a national level with certain
leading specialty retail chains as well as certain department
stores that offer the same or similar brands and styles of
merchandise including: Abercrombie & Fitch,
Aéropostale, American Eagle Outfitters, The Buckle, Forever
21, H&M, Hollister, J.C. Penney, Kohls, Macys,
Nordstrom, Old Navy, Target, Tillys, Urban Outfitters and
Zumiez, as well as a wide variety of regional and local
specialty stores. Many of our competitors are larger than we are
and have significantly greater resources available to them than
we do. We believe the principal competitive factors in our
industry are fashion, merchandise assortment, quality, price,
store location, environment and customer service.
Trademarks and
Service Marks
We are the owner in the United States of the marks Pacific
Sunwear of
California®,
PacSun®,
and Pacific
Sunwear®.
We also use and have registered, or have a pending registration
on, a number of other marks, including those attributable to our
proprietary brands such as
Bullhead®,
Kirra®,
Nollie®,
Black
Poppy®
and On the
Byas®.
We have also registered many of our marks outside of the United
States. We believe our rights in our marks are important to our
business and intend to maintain our marks and the related
registrations.
Pacific
Sunwear of California, Inc.
Form 10-K
2010 5
Information
Technology
Our information systems provide our management, our
merchandising group and our planners with data that helps us
identify emerging trends and manage inventories. These systems
include purchase order management, open order reporting,
open-to-buy,
receiving, distribution, merchandise allocation, basic stock
replenishment, inter-store transfers and inventory and price
management. We use daily and weekly item sales reports to make
purchasing and markdown decisions. Merchandise purchases are
generally based on planned sales and inventory levels. All of
our stores have a
point-of-sale
system featuring bar-coded ticket scanning, price
look-up
capability, electronic check and credit/debit authorization and
automated nightly transmittal of data between each store and our
corporate office.
Seasonality
For details concerning the seasonality of our business, see
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations, Seasonality
and Quarterly Results.
Working Capital
Concentration
A significant portion of our working capital is related to
merchandise inventories available for sale to customers as well
as in our distribution center. For details concerning working
capital and the merchandising risk associated with our
inventories, see Risk Factors in Item 1A and
Working Capital within Item 7,
Managements Discussion and Analysis of Financial Condition
and Results of Operations.
Employees
At the end of fiscal 2010, we had approximately
11,500 employees, of whom approximately 8,750 were
part-time. Of the total employees, approximately 550 were
employed at our corporate headquarters and distribution center.
A significant number of seasonal employees are hired during peak
selling periods. None of our employees are represented by a
labor union, and we believe that our relationships with our
employees are good.
Executive Officers. Set forth below are the names, ages,
titles, and certain background information of persons serving as
executive officers of the Company as of March 31, 2011:
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Executive Officer
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Age
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Title
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Gary H. Schoenfeld
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48
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President, Chief Executive Officer and Director
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Charles Mescher
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Sr. Vice President, Mens Merchandising
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Christine Lee
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40
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Sr. Vice President, Womens Merchandising
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Paula M. Lentini
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47
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Sr. Vice President, Retail
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Michael L. Henry
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40
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Sr. Vice President, Chief Financial Officer
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Jonathan Brewer
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56
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Sr. Vice President, Product Development and Supply Chain
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Craig E. Gosselin
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Sr. Vice President, General Counsel, Human Resources and
Secretary
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Gary H. Schoenfeld was appointed President and Chief
Executive Officer in June 2009. Prior to joining us, he was
President of Aritzia Inc., a Canadian fashion retailer, and
Chief Executive Officer of Aritzia USA from August 2008 to
February 2009, and was a director of Aritzia Inc. from May 2006
to June 2009. From 2006 until 2008 he was Vice Chairman and
President and then Co-CEO of Global Brands Group, a brand
management and licensing company based in London and Singapore
which is the world-wide master licensee for The FIFA World
Cuptm.
From September 1995 to July 2004, Mr. Schoenfeld was an
executive officer of Vans, Inc., a publicly traded designer,
distributor and retailer of footwear. He joined Vans as Chief
Operating Officer, then became President and a member of the
Board of Directors in 1996 and Chief Executive Officer in 1997.
He currently serves as a director of CamelBak Products, LLC, and
is a former director of 24 Hour Fitness, Inc. and Global Brands
Group.
Charles Mescher was appointed Senior Vice President,
Mens Merchandising in January 2008. He is responsible for
all merchandising, buying and design related to Mens
merchandise, including all apparel, accessories and footwear.
Prior to that, he served the Company as Vice President/General
Merchandise Manager of Young Mens merchandise
6 Pacific
Sunwear of California, Inc.
Form 10-K
2010
and accessories from March 2006 to January 2008.
Mr. Mescher joined the Company in January 2005 as
Division Merchandise Manager of Young Mens. Prior to
joining the Company, he served in various merchandising
positions for Nike, The Gap and Abercrombie & Fitch.
Christine Lee was appointed Senior Vice President,
Womens Merchandising in February 2010. She leads all
aspects of merchandising, buying and design for our Womens
apparel, accessories and footwear business. Prior to joining us,
Ms. Lee spent 18 years with specialty retailer Urban
Outfitters working her way from Sales Associate to General
Merchandise Manager of Womens Apparel and Accessories, as
well as Urban Renewal and Design. In this role she drove
merchandise trends, new concepts and key item decisions for a
$300 million business.
Paula M. Lentini was appointed Senior Vice President,
Retail in April 2010. Ms. Lentini is responsible for
managing all aspects of our retail stores, store operations,
loss prevention, visual merchandising, construction and real
estate. Prior to joining us, she was Vice President of Retail
Sales and Operations at
T-Mobile
USA, a wireless provider, from September 2007 to March 2010.
From 2005 until 2007 she was a Zone Vice President at The Gap,
Inc., leading stores in Canada and the Central United States.
From 2004 to 2005 Ms. Lentini was the Senior Vice President
of Retail Sales and Operations for Giorgio Armani and Emporio
Armani, USA. From 2000 to 2004 she was a Regional Director/Zone
Vice President for Victorias Secret Stores in the Central
United States. Prior to Joining Victorias Secret Stores,
Ms. Lentini was employed in a variety of positions at The
Gap, Inc., domestically and internationally, from 1990 to 2000.
Michael L. Henry was appointed Senior Vice President,
Chief Financial Officer in January 2008. In this position, he
has responsibility for all aspects of the Companys
financial planning and reporting, treasury, tax, insurance,
investor relations, real estate, and facilities. Prior to that,
he served as Interim Chief Financial Officer from November 2007
to January 2008, and Vice President, Controller from February
2006 to November 2007. Mr. Henry joined the Company in
September 2000 as Controller. Prior to joining the Company, he
worked in the audit practice of Deloitte & Touche LLP.
Mr. Henry is a certified public accountant (inactive). He
served as the Companys Secretary from January 2008 to June
2010.
Jonathan Brewer was appointed Senior Vice President,
Product Development and Supply Chain in June of 2010.
Mr. Brewer is responsible for managing all aspects of
Product Development, Sourcing, Quality Assurance, Product
Integrity, and Supply Chain Operations including inbound and
outbound logistics and the Olathe Distribution Center. Prior to
this, Mr. Brewer was Vice President of Product Development
and Sourcing for the Company. Before joining PacSun,
Mr. Brewer held various executive positions between 1996
and 2006 at Warner Bros. Inc., including Vice President
International Sourcing for Warner Bros. Consumer Products and
Vice President of Sourcing and Quality Assurance for Warner
Bros. Studio Stores. From 1994 until 1996 he was Director of
Sourcing at a division of Kellwood Inc. Between 1983 to 1994
Mr. Brewer was the Vice President of Production at Segue
Ltd., a private label import company. Mr. Brewer began his
career at May Department Stores in its executive training
program and held various merchandising positions.
Craig E. Gosselin was appointed Senior Vice President,
General Counsel and Human Resources in December 2009. He was
appointed Secretary of the Company in June 2010.
Mr. Gosselin oversees our Legal and Human Resources
functions. Mr. Gosselin joined the Company from Connolly,
Finkel and Gosselin LLP (CF&G) and was a
partner of that firm, and its predecessor Zimmermann, Koomer,
Connolly and Finkel LLP, since 2005. While with the firm,
Mr. Gosselin represented leading brands, including Vans,
CamelBak, Ariat, Von Dutch, The North Face, JanSport, Reef and 7
For All Mankind. Prior to joining CF&G, Mr. Gosselin
spent nearly 13 years with Vans, Inc., serving as Senior
Vice President and General Counsel. Prior to Vans,
Mr. Gosselin practiced corporate mergers and acquisitions
and securities law at several large law firms, including
Shea & Gould and Pacht, Ross, Warne,
Bernhard & Sears.
Pacific
Sunwear of California, Inc.
Form 10-K
2010 7
Cautionary Note
Regarding Forward-Looking Statements
This report on
Form 10-K
contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Exchange Act, and we intend
that such forward-looking statements be subject to the safe
harbors created thereby. We are providing cautionary statements
identifying important factors that could cause our actual
results to differ materially from those projected in the
forward-looking statements contained herein. Any statements that
express, or involve discussions as to, expectations, beliefs,
plans, objectives, assumptions, future events or performance
(often, but not always identifiable by the use of words or
phrases such as will result, expects to,
will continue, anticipates,
plans, intends, estimated,
projects and outlook) are not historical
facts and may be forward-looking and, accordingly, such
statements involve estimates, assumptions and uncertainties
which could cause actual results to differ materially from those
expressed in the forward-looking statements. Examples of
forward-looking statements in this report include, but are not
limited to, the following categories of expectations about:
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our branding and merchandising strategies,
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our localization strategies, including our belief
that redefining our merchandise assortment planning strategies
could improve both our sales and merchandise margin performance
for fiscal 2011,
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the sufficiency of working capital, operating cash flows and
available credit to meet our operating and capital expenditure
requirements,
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our capital expenditure plans for fiscal 2011,
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forecasts of future store closures, expansions, relocations
and store refreshes, during fiscal 2011,
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future borrowings and repayments under our credit facility,
and
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future increases in occupancy expenses.
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All forward-looking statements included in this report are
based on information available to us as of the date hereof, and
are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed in the
forward-looking statements. We assume no obligation to update or
revise any such forward-looking statements to reflect events or
circumstances that occur after such statements are made.
We face significant competition from both
vertically-integrated and brand-based competitors which could
have a material adverse effect on our business. The retail
apparel business is highly competitive. We compete on a national
level with a diverse group of retailers, including
vertically-integrated and brand-based national, regional and
local specialty retail stores, and certain leading department
stores and off-price retailers that offer the same or similar
brands and styles of merchandise as we do. Many of our
competitors are larger and have significantly greater resources
than we do. We believe the principal competitive factors in our
industry are fashion, merchandise assortment, quality, price,
store location, environment and customer service. Current and
increased competition could have a material adverse effect on
our business.
Our failure to identify and respond appropriately to changing
consumer preferences and fashion trends in a timely manner could
have a material adverse impact on our business and
profitability. Our success is largely dependent upon our
ability to gauge the fashion tastes of our customers and to
provide merchandise at competitive prices and in adequate
quantities that satisfies customer demand in a timely manner.
Our failure to anticipate, identify or react appropriately in a
timely manner to changes in fashion trends could have a material
adverse effect on our same store sales results, gross margins,
operating margins, results of operations and financial
condition. In addition, misjudgments or unanticipated fashion
changes may result in excess or slow-moving inventory, which may
need to be heavily discounted to be disposed of. Such discounts
and increased inventory costs could have a material adverse
effect on our business. Misjudgments or unanticipated fashion
changes could also have a material adverse effect on
8 Pacific
Sunwear of California, Inc.
Form 10-K
2010
our image with our customers. Some of our vendors have limited
resources, production capacities and operating histories and
some have intentionally limited the distribution of their
merchandise. The inability or unwillingness on the part of key
vendors to expand their operations to accommodate our
merchandising requirements, or the loss of one or more key
vendors or proprietary brand sources for any reason, could have
a material adverse effect on our business.
We face increasing product costs from our manufacturing
partners in fiscal 2011, which could result in significant
margin erosion. Worldwide prices for cotton have increased
significantly
year-over-year,
affecting the costs of many of our vendors. We currently
estimate that these increasing product costs could result in
significant margin erosion for us in fiscal 2011. Additionally,
a significant percentage of our private label apparel products,
and the products sold to us by our branded partners, are
manufactured in China. Manufacturers in that country are
currently experiencing increased costs due to shortages of labor
and the fluctuation of the Chinese Yuan in relation to the
U.S. dollar. If we are unable to successfully mitigate a
significant portion of such product costs, our results of
operations may be materially adversely effected.
Our failure to reverse declining sales
and/or
further gross margin declines would have a material adverse
impact on our business, profitability and liquidity. In
fiscal 2010 and fiscal 2009, we experienced declines of 8% and
20%, respectively, in comparable store net sales. The failure to
reverse this negative trend in fiscal 2011 would have a material
adverse impact on our business, results of operations, financial
condition, liquidity and stock price. For example, if the
Company were to experience a same-store sales decline in fiscal
2011 similar to fiscal 2010, coupled with further gross margin
erosion, we believe that our working capital and cash flows from
operating activities might not be sufficient to meet our
operating requirements. We might be required to access most, if
not all, of our credit facility and potentially require other
sources of financing to fund our operations, which might not be
available.
Our net sales, operating income and inventory levels
fluctuate on a seasonal basis. We experience major seasonal
fluctuations in our net sales and operating income, with a
significant portion of our operating income typically realized
during the six to seven week selling periods for each of the
back-to-school
and holiday seasons. Any decrease in sales or margins during
these periods could have a material adverse effect on our
results of operations and financial condition. Additionally,
extended periods of unseasonably warm temperatures during the
fall/winter season or cold weather during the spring/summer
season could render a portion of our inventory incompatible with
those unseasonable conditions. Seasonal fluctuations also affect
our inventory levels, since we usually order merchandise in
advance of peak selling periods and sometimes before new fashion
trends are confirmed by customer purchases. We generally carry a
significant amount of inventory, especially before the six to
seven week
back-to-school
and holiday season selling periods. If we are not successful in
selling inventory during these periods, we may have to sell the
inventory at significantly reduced prices, which would adversely
affect our profitability.
Our comparable store net sales results fluctuate
significantly, which can cause volatility in our operating
performance and stock price. Our comparable store net sales
results have fluctuated significantly over time, and are
expected to continue to fluctuate in the future. For example,
over the past five years, quarterly comparable store net sales
results for our stores have varied from a low of minus 24% to a
high of plus 8%. A variety of factors affect our comparable
store net sales results, including unfavorable economic
conditions and decreases in consumer spending, changes in
fashion trends and customer preferences, changes in our
merchandise mix, calendar shifts of holiday periods, actions by
competitors, and weather conditions. Our comparable store net
sales results for any fiscal period may decrease. As a result of
these or other factors, our comparable store net sales results,
both past and future, are likely to have a significant effect on
the market price of our common stock and our operating
performance, including our use of markdowns and our ability to
leverage operating and other expenses that are somewhat fixed.
Our inability to reduce occupancy costs or close
underperforming stores in the future may have a material adverse
effect on our business and financial results. Occupancy
costs represent a significant percentage of the total cost of
operating our stores. Occupancy costs as a percentage of net
sales have increased from 15.5% in fiscal 2008 to 20.4% in
fiscal 2010. If we are unsuccessful in lowering our occupancy
costs as a percent of sales in the future
Pacific
Sunwear of California, Inc.
Form 10-K
2010 9
it would be difficult to operate our stores profitably which in
turn would have a material adverse effect on our business,
results of operations and financial condition.
Additionally, our opportunity for new store openings has
declined significantly over recent years, and we do not expect
to open any new stores in fiscal 2011. Further, we anticipate
closing an additional 30 to 50 underperforming stores in fiscal
2011, as leases come up for renegotiation, expire or we have an
earlier lease kick-out opportunity. Based on our review of
certain underperforming stores, we recorded $16 million,
$27 million and $35 million in impairment charges
during fiscal 2010, 2009 and 2008, respectively. If we are
unable to achieve acceptable levels of store profitability or
successfully negotiate the closing of underperforming stores, we
may be required to record additional impairment charges in the
future which could have a material adverse effect on our results
of operations and financial condition.
Our customers may not prefer our proprietary brand
merchandise, which may negatively impact our profitability.
Sales from proprietary brand merchandise accounted for
approximately 46%, 48%, and 38% of net sales in fiscal 2010,
2009 and 2008, respectively. There can be no assurance that any
change in the sales penetration of proprietary brand merchandise
will improve our operating results. Additionally, there can be
no assurance that attempts to balance between our proprietary
brand merchandise and other merchandise will improve our
operating results. Because our proprietary brand merchandise
generally carries higher merchandise margins than our other
merchandise, our failure to anticipate, identify and react in a
timely manner to fashion trends with our proprietary brand
merchandise, particularly if the percentage of net sales derived
from proprietary brand merchandise changes significantly (up or
down), may have a material adverse effect on our same store
sales results, operating margins, results of operations and
financial condition.
We have previously changed certain of our merchandising
strategies with the goal of improving our operating results. We
may continue to modify our strategies going forward and we
cannot be certain that our existing or modified strategies will
be successful in improving our store productivity or
profitability. In fiscal 2010, we reintroduced selected
footwear and accessory merchandise in an effort to recapture
sales within these product categories. We have also implemented
a strategic initiative to improve the productivity of our stores
in terms of sales per square foot and the profitability of our
business as a whole by placing a greater emphasis on grouping
our stores into a number of store clusters. These groupings are
based on customer segmentations, brand performance, and
differences in weather and demographics, among other
characteristics. See Part I, Item I,
Business for a further discussion of this
initiative. In conjunction with this initiative, we have
implemented certain changes in our allocation strategies
designed to achieve better delivery of product to our customers.
However, there can be no assurance that these new strategies, or
any future modification of our strategies, will be successful or
result in improved operating results.
Our foreign sources of production may not always be reliable,
which may result in a disruption in the flow of new merchandise
to our stores. We do not own or operate any manufacturing
facilities and therefore depend upon independent third-party
vendors for the manufacture of our merchandise. We purchase
merchandise directly in foreign markets for our proprietary
brands. In addition, we purchase merchandise from domestic
vendors, some of which is manufactured overseas. We do not have
any long-term merchandise supply contracts and our imports are
subject to existing or potential duties, tariffs and quotas.
Additionally, some of our vendors are relatively unsophisticated
or underdeveloped and may have difficulty providing adequate
quantities of quality merchandise to us in a timely manner. We
face competition from other companies for production facilities
and capacity. We also face a variety of other risks generally
associated with doing business in foreign markets and importing
merchandise from abroad, such as: (i) political
instability; (ii) enhanced security measures at United
States ports, which could delay delivery of imports;
(iii) imposition of new legislation relating to import
quotas that may limit the quantity of goods which may be
imported into the United States from countries in a region
within which our vendors do business, and competition with other
companies for import quota capacities; (iv) imposition of
duties, taxes, and other charges on imports; (v) delayed
receipt or non-delivery of goods due to the failure of
foreign-source suppliers to comply with applicable import
regulations; (vi) delayed receipt or non-delivery of goods
due to organized labor strikes or unexpected or significant port
congestion at United States ports; (vii) local business
10 Pacific
Sunwear of California, Inc.
Form 10-K
2010
practice and political issues; and (viii) acts of
terrorism. New initiatives may be proposed that may have an
impact on the trading status of certain countries and may
include retaliatory duties or other trade sanctions that, if
enacted, would increase the cost of products purchased from
suppliers in countries that we do business with. Any inability
on our part to rely on our foreign sources of production due to
any of the factors listed above could have a material adverse
effect on our business, results of operations and financial
condition.
Our business could suffer if a manufacturer fails to conform
to applicable domestic or international labor standards. We
do not control our vendors or their labor practices. The
violation of labor or other laws by any of our vendors, or the
divergence of the labor practices followed by any of our vendors
from those generally accepted as ethical in the
United States, could interrupt, or otherwise disrupt, the
shipment of finished products to us or damage our reputation.
Any of these, in turn, could have a material adverse effect on
our results of operations and financial condition.
The loss of key personnel could have a material adverse
effect on our business at any time. Our future success is
dependent to a significant degree upon the services of our key
personnel, particularly our executive officers. The loss of the
services of any member of our senior management team could have
a material adverse effect on our business, results of operations
and financial condition. In this regard, we have historically
used equity awards as a component of our executive compensation
program in order to align managements interests with the
interests of our shareholders, encourage retention and provide
competitive compensation and benefit packages. As a result of
the decline in our stock price in recent years, the ability to
retain present, or attract prospective executives through equity
awards has been adversely affected.
Our success also depends in part upon our ability to attract,
motivate and retain a sufficient number of qualified employees,
including, merchants, designers, buyers, regional directors,
district managers, store managers and store associates, who
understand and appreciate our corporate culture and product and
are able to adequately represent the California lifestyle to our
customers. Qualified individuals of the requisite caliber and
skills needed to fill these positions may be in short supply in
some areas, and the employee turnover rate in the retail
industry is high. Competition for qualified employees could
require us to pay higher wages to attract a sufficient number of
suitable employees. Our inability to attract and retain
qualified personnel in the future could have a material adverse
effect on our business, results of operations and financial
condition.
We operate our business from one corporate headquarters
facility and one distribution facility which exposes us to
significant operational risks. All of our corporate
headquarters functions reside within a single facility in
Anaheim, California. Our distribution function resides within a
single facility in Olathe, Kansas. Any significant interruption
in the availability or operation of our corporate headquarters
or distribution facility due to natural disasters, accidents,
system failures or other unforeseen causes would have a material
adverse effect on our business, results of operations and
financial condition.
Any material failure, interruption or security breach of our
computer systems or information technology may adversely affect
the operation of our business and our financial results. We
are dependent on our computer systems and information technology
to properly conduct business. A failure or interruption of our
computer systems or information technology could result in the
loss of data, business interruptions or delays in our
operations. Also, despite our considerable efforts and
technological resources to secure our computer systems and
information technology, security breaches, such as unauthorized
access and computer viruses, may occur resulting in system
disruptions, shutdowns, lost data or unauthorized disclosure of
confidential information. Any security breach of our computer
systems or information technology may result in adverse
publicity, litigation, loss of sales and profits, damages, fines
or other loss resulting from misappropriation of information.
In addition, while we regularly evaluate our information systems
capabilities and requirements, there can be no assurance that
our existing information systems will be adequate to support the
existing or future needs of our business. We may have to
undertake significant information system implementations,
modifications
and/or
upgrades
Pacific
Sunwear of California, Inc.
Form 10-K
2010 11
in the future at significant cost to us. Such projects involve
inherent risks associated with replacing
and/or
changing existing systems, such as system disruptions and the
failure to accurately capture data, among others. Information
system disruptions, if not anticipated and appropriately
mitigated, could have a material adverse effect on our business,
results of operations and financial condition.
The continued volatility in the U.S. economy and
potential inflationary economic conditions may adversely affect
consumer spending in the future, which could negatively impact
our business, operating results and stock price. Our
business operations and financial performance depend
significantly on general economic conditions and their impact on
levels of consumer spending. Consumer spending is impacted by a
number of factors, including consumer confidence in the strength
of the general economy, fears of economic recession or
depression, the availability and cost of consumer credit, the
cost of basic necessities such as food, fuel and housing,
inflation, salary and wage levels, levels of taxation and
unemployment levels. Additionally, inflationary economic
conditions would likely increase the costs of manufacturing the
goods we sell in our stores which could increase the prices
charged by us for our products or reduce gross margins.
Inflationary pressure could also have a negative impact on the
ability of our customer to buy our products in previous volumes.
Any increase in product cost or decrease in customer purchasing
power due to inflationary economic conditions could have a
material adverse effect on our results of operations.
A significant decrease in mall traffic would negatively
impact our business and operating results. We are primarily
a mall-based retailer and are dependent upon the continued
popularity of malls as a shopping destination and the ability of
shopping mall anchor tenants and other attractions within the
vicinity of our stores to generate customer traffic. Unfavorable
economic conditions, particularly in certain regions, have
adversely affected mall traffic and resulted in the closing of
certain anchor tenants. Volatility in the U.S. economy or
an uncertain economic outlook could continue to lower consumer
spending levels and cause a decrease in shopping mall traffic,
each of which would adversely affect our sales and financial
performance.
Any reinvestment in our existing store base may not result in
improved operating performance. Conversely, the lack of any
reinvestment may cause many of our stores to appear less
attractive to customers. We believe that store design is an
important element in the customer shopping experience. Many of
our stores have been in operation for many years and have not
been updated or renovated since opening. Some of our competitors
are in the process of updating, or have updated, their store
designs, which may make our stores appear less attractive in
comparison. Due to the current economic environment and store
performance, we have significantly scaled back our store refresh
program. Any inability on our part to successfully implement new
store designs in a timely manner could have a material adverse
effect on our business, results of operations and financial
condition.
The effects of terrorism or war could significantly impact
consumer spending and our operational performance. The
majority of our stores are located in regional shopping malls.
Any threat or actual act of terrorism, particularly in public
areas, could lead to lower customer traffic in regional shopping
malls. In addition, local authorities or mall management could
close regional shopping malls in response to any immediate
security concern. Mall closures, as well as lower customer
traffic due to security concerns, could result in decreased
sales. Additionally, war or the threat of war could
significantly diminish consumer spending, resulting in decreased
sales. Decreased sales would have a material adverse effect on
our business, financial condition and results of operations. As
we source our product globally, any threat or actual act of
terrorism or war could cause a disruption to our inventory
supply which could have a material adverse effect on our
business, results of operations and financial condition.
Adverse outcomes of litigation matters or failure to comply
with federal or state regulations could adversely affect us.
We are involved from time to time in litigation incidental to
our business, including several cases involving allegations that
we have violated provisions of California wage and hour laws.
See Item 3. Legal Proceedings. We believe that
the outcome of current litigation will not have a material
adverse effect upon our results of operations or financial
condition. However, our assessment of current litigation could
change in light of the discovery of facts with respect to legal
actions pending against us not presently known to us or
determinations by judges, juries or other
12 Pacific
Sunwear of California, Inc.
Form 10-K
2010
finders of fact which do not accord with our evaluation of the
possible liability or outcome of such litigation. In addition to
SEC rules and regulations, state laws, Sarbanes-Oxley
requirements, new rules and regulations issued pursuant to the
Dodd-Frank Wall Street Reform and Consumer Protection Act, and
other U.S. public company regulations, there are various
other requirements mandated for the textiles and apparel
industries such as the Consumer Product Safety Improvement Act
of 2008, Californias Proposition 65 and similar state
laws. Failure to comply with these laws could have a material
adverse effect on our business, results of operations, financial
condition and stock price.
Our inability or failure to protect our intellectual property
or our infringement of others intellectual property could
adversely affect us. We believe that our trademarks and
domain names are valuable assets that are critical to our
success. The unauthorized use or other misappropriation of our
trademarks or domain names could diminish the value of our
brands and cause a decline in our net sales. Although we have
secured or are in the process of securing protection for our
trademarks and domain names in the United States and a number of
other countries, there are certain countries where we do not
currently have or where we do not currently intend to apply for
protection for certain trademarks or at all. Also, the efforts
we have taken to protect our trademarks may not be sufficient or
effective. Therefore, we may not be able to prevent other
persons from using our trademarks or domain names, which also
could adversely affect our business. We are also subject to the
risk that we or the third-party brands we carry may infringe on
the intellectual property rights of other parties. Any
infringement or other intellectual property claim made against
us or the third-party brands we carry, whether or not it has
merit, could be time-consuming, result in costly litigation,
cause product delays or require us to pay additional royalties
or license fees. As a result, any such claim could have a
material adverse effect on our business, results of operations,
financial condition and stock price.
Selling merchandise over the Internet carries particular
risks that can have a negative impact on our business. Our
Internet operations are subject to numerous risks that could
have a material adverse effect on our operational results,
including unanticipated operating problems, reliance on third
party computer hardware and software providers, system failures
and the need to invest in additional computer systems. Specific
risks include but are not limited to: (i) diversion of
traffic and sales from our stores; (ii) liability for
online content; and (iii) risks related to the failure of
the computer systems that operate our website and its related
support systems, including computer viruses, credit card fraud,
telecommunication failures and electronic break-ins and similar
disruptions. While we have installed privacy protection systems,
devices and activity monitoring on our network, if unauthorized
parties gain access to our networks or databases, they may be
able to steal, publish, delete or modify our private and
sensitive third-party information. In such circumstances, we
could be held liable to our customers or other parties or be
subject to regulatory or other actions for breaching privacy
rules. This could result in costly investigations and
litigation, civil or criminal penalties and adverse publicity
that could adversely affect our financial condition, results of
operations and reputation. Further, if we are unable to comply
with security standards established by banks and the credit card
industry, we may be subject to fines, restrictions and expulsion
from card acceptance programs, which could adversely affect us.
Our stock price can fluctuate significantly due to a variety
of factors, which can negatively impact our total market
value. The market price of our common stock has fluctuated
substantially and there can be no assurance that the market
price of the common stock will not continue to fluctuate
significantly. Future announcements or management discussions
concerning us or our competitors, net sales and profitability
results, quarterly variations in operating results or comparable
store net sales, changes in earnings estimates made by
management or analysts, our failure to meet analysts
estimates, changes in accounting policies, or unfavorable
economic conditions, among other factors, could cause the market
price of our common stock to fluctuate substantially.
*************
We caution that the risk factors described above could cause
actual results or outcomes to differ materially from those
expressed in any forward-looking statements made by us or on
behalf of the Company. Further, we cannot assess the impact of
each such factor on our business or the extent to which any
factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking
statements.
Pacific
Sunwear of California, Inc.
Form 10-K
2010 13
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
We operate stores in each of the 50 states and Puerto Rico.
We lease our stores under operating lease agreements with
initial terms of approximately ten years that expire at various
dates through November 2021. For more information concerning our
store operating lease commitments, see Note 10 to the
Consolidated Financial Statements.
We own our corporate office which is located in Anaheim,
California and encompasses a total of approximately
150,000 square feet. We operate a distribution center in
Olathe, Kansas, which comprises approximately
400,000 square feet. We believe these facilities are
capable of servicing our operational needs through fiscal 2011.
At the end of fiscal 2010, the geographic distribution of our
852 stores was as follows:
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Alabama
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4
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Alaska
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3
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Arizona
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17
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Arkansas
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4
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California
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110
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Colorado
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20
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Connecticut
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9
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Delaware
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4
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Florida
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66
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Georgia
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15
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Hawaii
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8
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Idaho
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4
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Illinois
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26
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Indiana
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17
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Iowa
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8
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Kansas
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7
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Kentucky
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7
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Louisiana
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9
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Maine
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6
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Maryland
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19
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Massachusetts
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21
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Michigan
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26
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Minnesota
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15
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Mississippi
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5
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Missouri
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14
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Montana
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4
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Nebraska
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4
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Nevada
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10
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New Hampshire
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7
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New Jersey
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24
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New Mexico
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6
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New York
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35
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North Carolina
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20
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North Dakota
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4
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Ohio
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32
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Oklahoma
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8
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Oregon
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13
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Pennsylvania
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44
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Rhode Island
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2
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South Carolina
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11
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South Dakota
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2
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Tennessee
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14
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Texas
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66
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Utah
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10
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Vermont
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4
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Virginia
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23
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Washington
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25
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West Virginia
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6
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Wisconsin
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18
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Wyoming
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2
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|
Puerto Rico
|
|
|
14
|
|
|
|
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
Ned Nelson, as an individual and on behalf of others
similarly situated, vs. Pacific Sunwear of California, Inc., Los
Angeles Superior Court, Case No. BC 436947. On
April 30, 2010, the plaintiff in this matter filed a
putative class action lawsuit against us alleging various
violations of Californias wage and hour, overtime, meal
break and rest break rules and regulations. The complaint sought
class certification, the appointment of the plaintiff as class
representative and an unspecified amount of damages and
penalties. In March 2011, we settled this case for a nominal
amount.
Charles Pfeiffer, individually and on behalf of other
aggrieved employees vs. Pacific Sunwear of California, Inc. and
Pacific Sunwear Stores Corp., Superior Court of California,
County of Riverside, Case No. 1100527. On
January 13, 2011, the plaintiff in this matter filed a
lawsuit against us alleging violations of Californias wage
and hour, overtime, meal break and rest break rules and
regulations, among other things. The complaint seeks an
unspecified amount of damages and penalties. We will file an
answer denying all allegations regarding the plaintiffs
claims and asserting various defenses. As the ultimate outcome
of this matter is uncertain, no amounts have been accrued by us
as of the date of this report. Depending on the actual outcome
of this case, provisions could be recorded in the future which
may have an adverse effect on our operating results.
14 Pacific
Sunwear of California, Inc.
Form 10-K
2010
Phillip Gleason, on behalf of himself and others similarly
situated vs. Pacific Sunwear of California, Inc., Superior Court
of California, County of Los Angeles, Case No. 457654.
On March 21, 2011, the plaintiff in this matter filed a
putative class action lawsuit against us alleging violations of
Californias wage and hour, overtime, meal break and rest
break rules and regulations, among other things. The complaint
seeks class certification, the appointment of the plaintiff as
class representative, and an unspecified amount of damages and
penalties. We have not yet been served in this case, but when we
are we will file an answer denying all allegations regarding the
plaintiffs claims and asserting various defenses. As the
ultimate outcome of this matter is uncertain, no amounts have
been accrued by us as of the date of this report. Depending on
the actual outcome of this case, provisions could be recorded in
the future which may have an adverse effect on our operating
results.
Tamara Beeney, individually and on behalf of other members of
the general public similarly situated vs. Pacific Sunwear of
California, Inc. and Pacific Sunwear Stores Corporation,
Superior Court of California, County of Orange, Case
No. 30-2011-00459346-CU-OE-CXC.
On March 18, 2011, the plaintiff in this matter filed a
putative class action lawsuit against us alleging violations of
Californias wage and hour, overtime, meal break and rest
break rules and regulations, among other things. The complaint
seeks class certification, the appointment of the plaintiff as
class representative, and an unspecified amount of damages and
penalties. We have not yet been served in this case, but when we
are we will file an answer denying all allegations regarding the
plaintiffs claims and asserting various defenses. As the
ultimate outcome of this matter is uncertain, no amounts have
been accrued by us as of the date of this report. Depending on
the actual outcome of this case, provisions could be recorded in
the future which may have an adverse effect on our operating
results.
We are also involved from time to time in other litigation
incidental to our business. We believe that the outcome of
current litigation will not likely have a material adverse
effect on our results of operations or financial condition and,
from time to time, we may make provisions for probable
litigation losses. Depending on the actual outcome of pending
litigation, charges in excess of any provisions could be
recorded in the future, which may have an adverse effect on our
operating results.
|
|
ITEM 4.
|
REMOVED
AND RESERVED
|
Pacific
Sunwear of California, Inc.
Form 10-K
2010 15
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our common stock trades on the NASDAQ Global Select Market under
the symbol PSUN. The following table sets forth, for
the quarterly periods indicated, the high and low sale prices
per share of the common stock as reported by NASDAQ:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010
|
|
|
Fiscal 2009
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
1st Quarter
|
|
$
|
6.12
|
|
|
$
|
3.51
|
|
|
$
|
4.63
|
|
|
$
|
1.08
|
|
2nd Quarter
|
|
|
5.45
|
|
|
|
2.98
|
|
|
|
4.88
|
|
|
|
2.85
|
|
3rd Quarter
|
|
|
6.18
|
|
|
|
3.76
|
|
|
|
7.25
|
|
|
|
3.26
|
|
4th Quarter
|
|
$
|
6.80
|
|
|
$
|
4.27
|
|
|
$
|
6.19
|
|
|
$
|
3.15
|
|
As of March 30, 2011, the number of holders of record of
common stock of the Company was 343. We have never declared or
paid any dividends on our common stock as our credit facility
prohibits the payment of dividends.
Common Stock Repurchase and Retirement The
Company did not repurchase shares of common stock in fiscal 2010
or 2009. Our Board of Directors authorized a stock repurchase
plan in July 2008 as a means to reduce our overall number of
shares outstanding, thereby providing greater value to our
shareholders through increased earnings per share. The Company
ended fiscal 2010 with approximately $48 million available
under the stock repurchase plan. The repurchase authorization
does not expire until all authorized funds have been expended.
The Company does not currently plan to repurchase any shares
during fiscal 2011.
16 Pacific
Sunwear of California, Inc.
Form 10-K
2010
THE FOLLOWING PERFORMANCE GRAPH SHALL NOT BE DEEMED TO BE
SOLICITING MATERIAL OR TO BE FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT
OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934 OR INCORPORATED
BY REFERENCE IN ANY DOCUMENT SO FILED.
PERFORMANCE
GRAPH
Set forth below is a line graph comparing the percentage change
in the cumulative total return on the Companys common
stock with the cumulative total return of the NASDAQ Stock
Market (NASDAQ Composite Index) and the CRSP Total
Return Industry Index for the NASDAQ Retail Trade Stocks
(NASDAQ Retail Trade Index) for the period
commencing on January 28, 2006 and ending on
January 29, 2011.
COMPARISON OF
5 YEAR CUMULATIVE TOTAL
RETURN(1)
Among Pacific Sunwear of California, Inc., the NASDAQ Composite
Index
and the NASDAQ Retail Trade Index
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculated
Returns(1)
|
|
01/28/06
|
|
02/03/07
|
|
02/02/08
|
|
01/31/09
|
|
01/30/10
|
|
01/29/11
|
|
Pacific Sunwear
|
|
100
|
|
83
|
|
49
|
|
5
|
|
15
|
|
18
|
NASDAQ Composite Index
|
|
100
|
|
109
|
|
107
|
|
66
|
|
97
|
|
123
|
NASDAQ Retail Trade Index
|
|
100
|
|
103
|
|
111
|
|
75
|
|
127
|
|
168
|
(1) Returns are calculated based on the premise that $100
is invested in each of PacSun stock, the NASDAQ Composite Index
and the NASDAQ Retail Index on January 28, 2006, and that
all dividends (if any) were reinvested. Over a five year period,
and based on the actual price movement of these investments, the
original $100 would have turned into the amounts shown as of the
end of each PacSun fiscal year. Shareholder returns over the
indicated period should not be considered indicative of future
shareholder returns.
Pacific
Sunwear of California, Inc.
Form 10-K
2010 17
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The selected consolidated income statement data for each of
fiscal 2010, 2009 and 2008, and consolidated balance sheet data
as of the end of fiscal 2010 and 2009, are derived from the
audited Consolidated Financial Statements of the Company
included herein and should be read in conjunction with such
financial statements. Such data and the selected consolidated
operating data below should also be read in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations included in this
report. The consolidated income statement data for all years
presented excludes the financial impact of the Companys
former demo and One Thousand Steps
concepts due to the designation of these operations as
discontinued operations during the first quarter of fiscal 2008
and the fourth quarter of fiscal 2007, respectively. The
consolidated income statement data for fiscal 2006, as well as
the consolidated balance sheet data as of the end of fiscal 2007
and 2006, are derived from audited Consolidated Financial
Statements of the Company, which are not included herein. All
amounts presented below are in millions, except per share and
selected consolidated operating data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
930
|
|
|
$
|
1,027
|
|
|
$
|
1,255
|
|
|
$
|
1,306
|
|
|
$
|
1,241
|
|
Gross margin (after buying, distribution and occupancy costs)
|
|
|
205
|
|
|
|
259
|
|
|
|
320
|
|
|
|
414
|
|
|
|
407
|
|
Operating (loss)/income from continuing operations
|
|
|
(95
|
)
|
|
|
(81
|
)
|
|
|
(61
|
)
|
|
|
70
|
|
|
|
101
|
|
(Loss)/income from continuing operations
|
|
|
(97
|
)
|
|
|
(70
|
)
|
|
|
(39
|
)
|
|
|
46
|
|
|
|
65
|
|
(Loss)/income from continuing operations per common share,
diluted
|
|
$
|
(1.46
|
)
|
|
$
|
(1.07
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
0.65
|
|
|
$
|
0.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable store net sales
+/(-)(1)
|
|
|
(8.0
|
)%
|
|
|
(20.0
|
)%
|
|
|
(5.2
|
)%
|
|
|
3.4
|
%
|
|
|
(4.2
|
)%
|
Average net sales($)/square
foot(2)
|
|
$
|
258
|
|
|
$
|
275
|
|
|
$
|
339
|
|
|
$
|
350
|
|
|
$
|
347
|
|
Average net sales($)/store
(000s)(2)
|
|
$
|
1,001
|
|
|
$
|
1,062
|
|
|
$
|
1,298
|
|
|
$
|
1,334
|
|
|
$
|
1,263
|
|
Stores open at end of period
|
|
|
852
|
|
|
|
894
|
|
|
|
932
|
|
|
|
954
|
|
|
|
965
|
|
Capital expenditures
|
|
$
|
17
|
|
|
$
|
23
|
|
|
$
|
81
|
|
|
$
|
106
|
|
|
$
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise inventories
|
|
$
|
96
|
|
|
$
|
90
|
|
|
$
|
107
|
|
|
$
|
170
|
|
|
$
|
205
|
|
Working capital
|
|
$
|
93
|
|
|
$
|
117
|
|
|
$
|
98
|
|
|
$
|
187
|
|
|
$
|
195
|
|
Total assets
|
|
$
|
401
|
|
|
$
|
477
|
|
|
$
|
570
|
|
|
$
|
752
|
|
|
$
|
773
|
|
Long-term debt
|
|
$
|
29
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Shareholders
equity(3)
|
|
$
|
214
|
|
|
$
|
307
|
|
|
$
|
372
|
|
|
$
|
483
|
|
|
$
|
503
|
|
(1) Stores are deemed comparable stores on the first day of the
first month following the one-year anniversary of their opening,
relocation, expansion or conversion.
(2) For purposes of calculating these amounts, the number of
stores and the amount of square footage reflect the number of
months during the period that new stores and closed stores were
open.
(3) The Company repurchased and retired common stock of
$53 million and $99 million, during fiscal 2008 and
2006, respectively. The Company did not repurchase any common
stock during fiscal 2010, 2009 or 2007.
18 Pacific
Sunwear of California, Inc.
Form 10-K
2010
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The following Managements Discussion and Analysis of
Financial Condition and Results of Operations
(MD&A) should be read in conjunction with the
Consolidated Financial Statements and Notes thereto of the
Company included elsewhere in this Annual Report on
Form 10-K.
This MD&A excludes the financial statement impact of the
discontinued demo and One Thousand Steps
store concepts (see Note 13 to the Consolidated Financial
Statements included in this Annual Report on
Form 10-K).
The MD&A contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set
forth under Risk Factors within Item 1A.
Executive
Overview
We consider the following items to be key performance indicators
in evaluating Company performance:
Comparable (or same store) sales
Stores are deemed comparable stores on the first day of the
fiscal month following the one-year anniversary of their opening
or expansion/relocation. We consider same store sales to be an
important indicator of current Company performance. Same store
sales results are important in achieving operating leverage of
certain expenses such as store payroll, store occupancy,
depreciation, general and administrative expenses and other
costs that are somewhat fixed. Positive same store sales results
usually generate greater operating leverage of expenses while
negative same store sales results generally have a negative
impact on operating leverage. Same store sales results also have
a direct impact on our net sales, cash and working capital.
Net merchandise margins We analyze the
components of net merchandise margins, specifically initial
markups, discounts and markdowns as a percentage of net sales.
Any inability to obtain acceptable levels of initial markups or
any significant increase in our use of discounts or markdowns
could have an adverse impact on our gross margin results and
results of operations.
Operating margin We view operating margin as
a key indicator of our success. The key drivers of operating
margins are comparable store net sales, net merchandise margins,
and our ability to control operating expenses. For a discussion
of the changes in the components comprising operating margins,
see Results of Operations in this section.
Store sales trends We evaluate store sales
trends in assessing the operational performance of our stores.
Important store sales trends include average net sales per store
and average net sales per square foot. Average net sales per
store were $1.0 million, $1.1 million and
$1.3 million for fiscal 2010, 2009 and 2008, respectively.
Average net sales per square foot were $258, $275 and $339 in
fiscal 2010, 2009 and 2008, respectively.
Cash flow and liquidity (working capital) We
evaluate cash flow from operations, liquidity and working
capital to determine our short-term operational financing needs.
Based on current forecasts and plans for the year, we believe
that cash flows from operating activities, working capital,
borrowing availability under our credit facility, borrowings
resulting from two mortgage transactions we completed in fiscal
2010 and other available sources of financing will be sufficient
to meet our operating and capital expenditure needs for the next
twelve months. If we were to experience a same-store sales
decline similar to what occurred in fiscal 2010, combined with
further gross margin erosion, we may have to access most, if not
all, of our credit facility and potentially require other
sources of financing to fund our operations, which might not be
available. For a discussion of the changes in our operating cash
flows and working capital, see Liquidity and Capital
Resources in this section.
Critical
Accounting Policies
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America necessarily requires us to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements as well
as the reported revenues and expenses during the reported
period. Actual results could differ from these
Pacific
Sunwear of California, Inc.
Form 10-K
2010 19
estimates. Our significant accounting policies can be found in
Note 1 to the Consolidated Financial Statements included in
this Annual Report on
Form 10-K.
The accounting policies that we believe are the most critical to
aid in fully understanding and evaluating reported financial
results, and the most significant estimates and assumptions used
by us in applying such accounting policies, are described below:
Recognition of Revenue Sales are recognized
upon purchase by customers at our retail store locations or upon
delivery to and acceptance by the customer for orders placed
through our website. We accrue for estimated sales returns by
customers based on historical sales return results. Actual
return rates have historically been within our expectations and
the reserves established. However, in the event that the actual
rate of sales returns by customers increased significantly, our
operational results could be adversely affected. We record the
sale of gift cards as a current liability and recognize a sale
when a customer redeems a gift card. The amount of the gift card
liability is determined taking into account our estimate of the
portion of gift cards that will not be redeemed or recovered
(gift card breakage). Gift card breakage is
recognized as revenue after 24 months, at which time the
likelihood of redemption is considered remote based on our
historical redemption data.
Valuation of Inventories Merchandise
inventories are stated at the lower of average cost or market
utilizing the retail method. At any given time, inventories
include items that have been marked down to managements
best estimate of their fair market value. These estimates are
based on a combination of factors, including current selling
prices, current and projected inventory levels, current and
projected rates of sell-through, known markdown
and/or
promotional events expected to create a permanent decrease in
inventory value, estimated inventory shrink and aging of
specific items. Reserves established for such items have
historically been adequate. While we do not expect actual
results to differ materially from our estimates, to the extent
they do differ for any of these factors, we may have to record
additional reserves in subsequent periods, which could reduce
our gross margins and operating results.
Store Operating Lease Accounting Rent expense
from store operating leases represents one of the largest
expenses incurred in operating our stores. Rent expense under
our store operating leases is recognized on a straight-line
basis over the original term of each stores lease,
inclusive of rent holiday periods during store construction and
exclusive of any lease renewal options. Accordingly, we expense
all pre-opening rent. All amounts received from landlords to
fund tenant improvements are recorded as a deferred lease
incentive liability, which is then amortized as a credit to rent
expense over the related stores lease term.
Evaluation of Long-Lived Assets In the normal
course of business, we acquire tangible and intangible assets.
We periodically evaluate the recoverability of the carrying
amount of our long-lived assets (including property, plant and
equipment, and other intangible assets) whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be fully recoverable. Impairment is assessed when
the undiscounted expected future cash flows derived from an
asset or asset group are less than its carrying amount. The
amount of impairment loss recognized is equal to the difference
between the carrying value and the estimated fair value of the
asset, with such estimated fair values determined using the best
information available, generally the discounted future cash
flows of the assets using a rate that approximates our weighted
average cost of capital. Impairments are recognized in operating
earnings. We use our best judgment based on the most current
facts and circumstances surrounding our business when applying
these impairment rules to determine the timing of the impairment
test, the undiscounted cash flows used to assess impairments,
and the fair value of a potentially impaired asset. Changes in
assumptions used could have a significant impact on our
assessment of recoverability. Numerous factors, including
changes in our business, industry segment and the global
economy, could significantly impact our decision to retain,
dispose of or idle certain of our long-lived assets.
The estimation of future cash flows from operating activities
requires significant estimates of factors that include future
sales and gross margin performance. If our sales or gross margin
performance or other estimated operating results are not
achieved at or above our forecasted level, the carrying value of
certain of our retail stores may prove unrecoverable and we may
incur additional impairment charges in the future.
20 Pacific
Sunwear of California, Inc.
Form 10-K
2010
Stock-Based Compensation Expense We recognize
stock-based compensation expense based on the fair value on the
grant date. Under the fair value method, we recognize
stock-based compensation net of an estimated forfeiture rate and
only recognize compensation cost for those shares expected to
vest using the graded vesting method over the requisite service
period of the award. Determining the appropriate fair value
model and calculating the fair value of stock-based compensation
awards require the input of highly subjective assumptions,
including the expected life of the stock-based compensation
awards and stock price volatility. We use the Black-Scholes
option-pricing model to determine compensation expense. The
assumptions used in calculating the fair value of stock-based
compensation awards represent managements best estimates,
but the estimates involve inherent uncertainties and the
application of management judgment. As a result, if factors
change and we use different assumptions, our stock-based
compensation expense could be materially different in the
future. See Stock-Based Compensation within
Notes 1 and 9 to the Consolidated Financial Statements
included in this Annual Report on
Form 10-K
for a further discussion on stock-based compensation.
Evaluation of Income Taxes We account for
income taxes under the asset and liability method, which
requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have
been included in the financial statements. Under this method,
deferred tax assets and liabilities are determined based on the
temporary differences between the financial statements and tax
basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
reverse. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period
that includes the enactment date.
Deferred income tax assets are reduced by a valuation allowance
if, in the judgment of our management, it is more likely than
not that all or a portion of a deferred tax asset will not be
realized. In making such determination, we consider all
available positive and negative evidence, including recent
financial operations, projected future taxable income, scheduled
reversals of deferred tax liabilities, tax planning strategies
and the length of tax asset carryforward periods. The
realization of deferred tax assets is primarily dependent upon
our ability to generate sufficient future taxable earnings in
certain jurisdictions. If we subsequently determine that the
carrying value of these assets, which had been written down,
would be realized in the future, the value of the deferred tax
assets would be increased, thereby increasing net income in the
period when that determination was made. See Income
Taxes in Notes 1 and 8 to the Consolidated Financial
Statements for further discussion regarding the realizability of
our deferred tax assets and our assessment of a need for a
valuation allowance.
Results of
Operations
The following table sets forth selected income statement data
from our continuing operations expressed as a percentage of net
sales for the fiscal years indicated. The table and discussion
that follows excludes the operations of the discontinued
demo store concept (see Note 1 and Note 13
to the Consolidated Financial Statements). The discussion that
follows should be read in conjunction with the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of goods sold (including buying, distribution and occupancy
costs)
|
|
|
77.9
|
|
|
|
74.8
|
|
|
|
74.5
|
|
|
|
|
|
|
|
Gross margin
|
|
|
22.1
|
|
|
|
25.2
|
|
|
|
25.5
|
|
Selling, general and administrative expenses
|
|
|
32.3
|
|
|
|
33.1
|
|
|
|
30.4
|
|
|
|
|
|
|
|
Operating loss from continuing operations
|
|
|
(10.2
|
)
|
|
|
(7.9
|
)
|
|
|
(4.9
|
)
|
Other expense/(income), net
|
|
|
0.1
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
Loss from continuing operations before income tax expense
|
|
|
(10.3
|
)
|
|
|
(7.9
|
)
|
|
|
(4.7
|
)
|
Income tax expense/(benefit)
|
|
|
0.1
|
|
|
|
(1.1
|
)
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(10.4
|
)%
|
|
|
(6.8
|
)%
|
|
|
(3.2
|
)%
|
|
|
|
|
|
|
Number of stores open at end of period
|
|
|
852
|
|
|
|
894
|
|
|
|
932
|
|
Total square footage (in 000s)
|
|
|
3,312
|
|
|
|
3,457
|
|
|
|
3,588
|
|
Pacific
Sunwear of California, Inc.
Form 10-K
2010 21
Fiscal 2010 Compared to Fiscal 2009
Net
Sales
Net sales decreased to $930 million in fiscal 2010 from
$1.03 billion in fiscal 2009, a decrease of
$97 million, or 9.5%. The components of this
$97 million decrease in net sales were as follows:
|
|
|
|
|
|
$millions
|
|
Attributable to
|
|
|
$
|
(72
|
)
|
|
8% decline in comparable store net sales in fiscal 2010 compared
to fiscal 2009. The decline was due to a decrease in total
transactions of 12%, partially offset by an increase in the
average sale transaction of 4%.
|
|
|
(27
|
)
|
|
Store closures.
|
|
|
(3
|
)
|
|
Decrease in net sales attributable to e-commerce.
|
|
|
5
|
|
|
Increase due to non-comparable sales from new, expanded or
relocated stores not yet included in the comparable store base.
|
|
$
|
(97
|
)
|
|
Total
|
|
For fiscal 2010, comparable store net sales of Womens
decreased 19% and Mens increased 2%. Apparel represented
87% of total sales for fiscal 2010 versus 88% in fiscal 2009.
Accessories and footwear represented a combined 13% of total
sales for fiscal 2010 versus 12% in fiscal 2009.
Gross
Margin
Gross margin, after buying, distribution and occupancy costs,
decreased to $205 million in fiscal 2010 from
$259 million in fiscal 2009, a decline of $54 million,
or 20.6%. As a percentage of net sales, gross margin decreased
to 22.1% in fiscal 2010 from 25.2% in fiscal 2009. The primary
components of this 3.1% decrease were as follows:
|
|
|
|
|
|
%
|
|
|
Attributable to
|
|
|
|
(1.6
|
)
|
|
Deleverage of occupancy costs as a result of the 8% same-store
sales decline for fiscal 2010. Occupancy costs as a percentage
of net sales were 20.4% ($189 million) in fiscal 2010 compared
to 18.8% ($193 million) in fiscal 2009.
|
|
|
(1.4
|
)
|
|
Decrease in merchandise margin to 46.7% ($434 million) in fiscal
2010 from 48.1% ($494 million) in fiscal 2009, primarily due to
a decrease in initial markups and an increase in markdowns in
fiscal 2010 compared to fiscal 2009.
|
|
|
(0.1
|
)
|
|
Increase in buying and distribution costs as a percentage of
sales to 4.2% in fiscal 2010 compared to 4.1% in fiscal 2009.
Buying and distribution costs decreased $4 million to $39
million in fiscal 2010 from $43 million in fiscal 2009.
|
|
|
(3.1
|
)
|
|
Total
|
|
Selling, General
and Administrative Expenses
Selling, general and administrative (SG&A)
expenses decreased to $301 million in fiscal 2010 from
$340 million in fiscal 2009, a decrease of
$39 million, or 11.5%. As a percentage of net sales, these
expenses decreased to 32.3% in
22 Pacific
Sunwear of California, Inc.
Form 10-K
2010
fiscal 2010 from 33.1% in fiscal 2009. The components of this
0.8% decrease in SG&A expenses as a percentage of net sales
were as follows:
|
|
|
|
|
|
%
|
|
|
Attributable to
|
|
|
|
(0.9
|
)
|
|
Decrease in depreciation expense as a percentage of sales. Total
depreciation was $54 million in fiscal 2010 compared to $68
million in fiscal 2009.
|
|
|
(0.9
|
)
|
|
Decrease in asset impairment charges in the current year to $16
million compared to $27 million in fiscal 2009.
|
|
|
0.2
|
|
|
Increase in store payroll and payroll-related expenses as a
percentage of net sales due to the deleveraging of these
expenses against the 8% same store sales decline in fiscal 2010.
Payroll expense decreased $15 million to $166 million in fiscal
2010 from $181 million in fiscal 2009.
|
|
|
0.8
|
|
|
Increase in all other SG&A expenses as a percentage of
sales. Other SG&A increased $2 million to $65 million in
fiscal 2010 from $63 million in fiscal 2009, primarily due to
advertising expenses.
|
|
|
(0.8
|
)
|
|
Total
|
|
We evaluate the recoverability of the carrying amount of
long-lived assets for all stores (primarily property, plant and
equipment) whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be fully
recoverable. Should comparable store net sales and gross margin
continue to decline, we may record additional non-cash
impairment charges for underperforming stores in fiscal 2011.
Other
Expense/(Income), net
Other expense was $0.9 million for fiscal 2010 compared to
$0.3 million in fiscal 2009. In fiscal 2010, we recorded
interest expense related to the promissory notes from the
mortgage transactions described in Note 4 to the
Consolidated Financial Statements (Mortgage Debt).
In fiscal 2009, we recorded a $0.3 million cash surrender
charge upon liquidation of deferred compensation assets
partially offset by interest income.
Income
Taxes
We recognized income tax expense of $0.6 million for fiscal
2010, compared to income tax benefit of $11 million for
fiscal 2009. Our effective income tax rate was (0.6)% for fiscal
2010 and 13.6% for fiscal 2009. The difference in the effective
income tax rate was primarily attributable to the valuation
allowance charges recorded in fiscal 2010 of $36 million
compared to $20 million in fiscal 2009. For fiscal 2011, we
expect to continue to maintain a valuation allowance against
deferred tax assets resulting in minimal income tax expense for
the year. Information regarding the realizability of our
deferred tax assets and our assessment of a need for a valuation
allowance is contained in Note 8 to the Consolidated
Financial Statements, which note is incorporated herein by this
reference.
Net Loss and Net
Loss per Share
Our net loss for fiscal 2010 was $97 million, or $(1.46)
per share, versus a net loss of $70 million, or $(1.07) per
share, for fiscal 2009. The fiscal 2010 loss includes the impact
of a $36 million charge to increase the deferred tax asset
valuation allowance as discussed above. On a non-GAAP basis,
excluding the impact of this valuation allowance, our net loss
for fiscal 2010 was $60 million, or $(0.91) per share
compared to a non-GAAP net loss of $51 million, or $(0.78)
per share in fiscal 2009.
About
Non-GAAP Financial Measures
The preceding paragraph contains non-GAAP financial measures,
including non-GAAP net loss and non-GAAP net loss per share for
fiscal 2010. Non-GAAP financial measures should not be
considered as a substitute for, or superior to, measures of
financial performance prepared in accordance with GAAP. These
non-GAAP financial measures do not reflect a comprehensive
system of accounting, differ from GAAP measures with the same
names, and may differ from non-GAAP financial measures with the
same or similar names that are used by other companies. We
compute
Pacific
Sunwear of California, Inc.
Form 10-K
2010 23
non-GAAP financial measures using a consistent methodology from
quarter to quarter and year to year. We may consider whether
other significant items that arise in the future should be
excluded from the non-GAAP financial measures.
We excluded a deferred tax asset valuation allowance charge in
presenting a non-GAAP net loss amount and per share amount above
under the caption Net Loss and Net Loss per Share.
We believe that these non-GAAP financial measures provide
meaningful supplemental information regarding our operating
results primarily because they exclude amounts that are not
considered part of ongoing operating results when planning and
forecasting and when assessing the performance of the
organization, individual operating segments or its senior
management. In addition, we believe that non-GAAP financial
information is used by analysts and others in the investment
community to analyze our historical results and to provide
estimates of future performance versus the results and estimates
of others. We believe that failure to report these non-GAAP
measures excluding the impact of the valuation allowance could
result in confusion among investors and analysts by creating a
misplaced perception that our results have underperformed or
exceeded expectations.
Fiscal 2009
Compared to Fiscal 2008
Net
Sales
Net sales decreased to $1.03 billion in fiscal 2009 from
$1.25 billion in fiscal 2008, a decrease of
$228 million, or 18.2%. The components of this
$228 million decrease in net sales were as follows:
|
|
|
|
|
|
$millions
|
|
|
Attributable to
|
|
|
$
|
(230
|
)
|
|
20% decline in comparable store net sales in fiscal 2009
compared to fiscal 2008. Total transactions declined 13% and
the average sale declined 8%. Average unit retail declined 9%.
|
|
|
(13
|
)
|
|
Store closures.
|
|
|
8
|
|
|
Increase due to non-comparable sales from new, expanded or
relocated stores not yet included in the comparable store base.
|
|
|
7
|
|
|
Increase in net sales attributable to e-commerce.
|
|
$
|
(228
|
)
|
|
Total
|
|
For fiscal 2009, comparable store net sales of Womens
apparel decreased 19% and Mens apparel decreased 11%. For
the fourth quarter of 2009, the Mens apparel sales trend
improved to minus (9)% while the Womens apparel sales
trend decreased to minus (26)%. For fiscal 2009, comparable
store net sales of accessories and footwear decreased 43%. The
decline in sales of accessories and footwear was primarily due
to our decisions in fiscal 2008 to exit or significantly reduce
our emphasis on these categories. Apparel represented 88% of
total sales for fiscal 2009 versus 83% in fiscal 2008.
Accessories and footwear represented a combined 12% of total
sales for fiscal 2009 versus 17% in fiscal 2008.
Gross
Margin
Gross margin, after buying, distribution and occupancy costs,
decreased to $259 million in fiscal 2009 from
$320 million in fiscal 2008, a decrease of
$61 million, or 19.2%. As a percentage of net sales, gross
margin was
24 Pacific
Sunwear of California, Inc.
Form 10-K
2010
25.2% in fiscal 2009, a 0.3% decrease from 25.5% in fiscal 2008.
The primary components of this 0.3% net decrease in gross margin
as a percentage of net sales were as follows:
|
|
|
|
|
|
%
|
|
|
Attributable to
|
|
|
|
(3.3
|
)
|
|
Deleverage of occupancy costs as a result of the 20% same-store
sales decline for fiscal 2009. Occupancy charges as a percentage
of net sales were 18.8% ($193 million) in fiscal 2009 compared
to 15.5% ($194 million) in fiscal 2008.
|
|
|
2.7
|
|
|
Increase in merchandise margin to 48.1% ($494 million) in fiscal
2009 from 45.4% ($570 million) in fiscal 2008, primarily due to
a decrease in markdown and promotional activity in 2009 compared
to 2008.
|
|
|
0.3
|
|
|
Decrease in buying and distribution costs.
|
|
|
(0.3
|
)
|
|
Total
|
|
We ended fiscal 2009 with total inventories 16% below the ending
level of fiscal 2008 in anticipation of continued negative same
store sales results in the first quarter of 2010.
Selling, General
and Administrative Expenses
Selling, general and administrative (SG&A)
expenses decreased to $340 million in fiscal 2009 from
$381 million in fiscal 2008, a decrease of
$41 million, or 10.8%. As a percentage of net sales, these
expenses increased to 33.1% in fiscal 2009 from 30.4% in fiscal
2008. The components of this 2.7% net increase in SG&A
expenses as a percentage of net sales were as follows:
|
|
|
|
|
|
%
|
|
|
Attributable to
|
|
|
|
1.6
|
|
|
Increase in store payroll and payroll-related expenses as a
percentage of net sales, due to the deleveraging of these
expenses against the 20% same store sales decline in fiscal
2009. In dollars, payroll expense decreased $21 million.
|
|
|
0.9
|
|
|
Increase in depreciation expense as a percentage of sales,
primarily due to the deleveraging of these expenses against the
20% same store sales decline in fiscal 2009. Total depreciation
was $68 million, or 6.6% of net sales, in fiscal 2009 compared
to $72 million, or 5.7% of net sales, in fiscal 2008.
|
|
|
(0.1
|
)
|
|
Decrease in asset impairment charges in the current year to $27
million compared to $35 million in fiscal 2008.
|
|
|
0.3
|
|
|
Increase in all other SG&A expenses as a percentage of
sales.
|
|
|
2.7
|
|
|
Total
|
|
We evaluate the recoverability of the carrying amount of
long-lived assets for all stores (primarily property, plant and
equipment) whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be fully
recoverable. Should comparable store net sales and gross margin
continue to decline, we may record additional non-cash
impairment charges for underperforming stores in fiscal 2010.
Other
Expense/(Income), net
Other expense was $0.3 million for fiscal 2009 compared to
other income of $(2) million in fiscal 2008. In fiscal
2009, we recorded a $0.3 million cash surrender charge upon
liquidation of deferred compensation assets partially offset by
interest income. For fiscal 2008, we recorded a gain on the sale
of our former Anaheim distribution center of approximately
$9 million, offset by a non-cash impairment charge of
$5 million associated with a reduction in the fair value of
land available for sale less estimated selling costs and a
charge of $2 million to reflect the decline in fair value
associated with deferred compensation assets.
Pacific
Sunwear of California, Inc.
Form 10-K
2010 25
Income
Taxes
We recognized an income tax benefit of $11 million for
fiscal 2009 compared to $19 million for fiscal 2008. Our
effective income tax rate was 13.6% for fiscal 2009 and 33.0%
for fiscal 2008. The difference in the effective income tax rate
is primarily attributable to the valuation allowance charges
recorded in fiscal 2009. For fiscal 2010, we expect to continue
to maintain a valuation allowance against deferred tax assets
resulting in minimal income tax expense for the year.
Information regarding the realizability of our deferred tax
assets and our assessment of a need for a valuation allowance is
contained in Note 8 to the Consolidated Financial
Statements included in this Annual Report on
Form 10-K,
which Note is incorporated herein by this reference.
Net Loss and Net
Loss per Share
Our net loss for fiscal 2009 was $70 million, or $(1.07)
per share, versus a net loss from continuing operations of
$39 million, or $(0.59) per share, for fiscal 2008. Amounts
for fiscal 2009 include the impact of a $19 million tax
valuation allowance as discussed above. On a non-GAAP basis,
excluding the impact of this valuation allowance, our net loss
for fiscal 2009 was $51 million, or $(0.78) per share.
About
Non-GAAP Financial Measures
The preceding paragraph contains non-GAAP financial measures,
including non-GAAP net loss and non-GAAP net loss per share for
fiscal 2009. Non-GAAP financial measures should not be
considered as a substitute for, or superior to, measures of
financial performance prepared in accordance with GAAP. These
non-GAAP financial measures do not reflect a comprehensive
system of accounting, differ from GAAP measures with the same
names, and may differ from non-GAAP financial measures with the
same or similar names that are used by other companies. We
compute non-GAAP financial measures using a consistent
methodology from quarter to quarter and year to year. We may
consider whether other significant items that arise in the
future should be excluded from the non-GAAP financial measures.
We excluded a deferred tax asset valuation allowance charge in
presenting a non-GAAP net loss amount and per share amount above
under the caption Net Loss and Net Loss per Share.
We believe that these non-GAAP financial measures provide
meaningful supplemental information regarding our operating
results primarily because they exclude amounts that are not
considered part of ongoing operating results when planning and
forecasting and when assessing the performance of the
organization, individual operating segments or its senior
management. In addition, we believe that non-GAAP financial
information is used by analysts and others in the investment
community to analyze our historical results and to provide
estimates of future performance versus the results and estimates
of others. We believe that failure to report these non-GAAP
measures excluding the impact of the valuation allowance could
result in confusion among investors and analysts by creating a
misplaced perception that our results have underperformed or
exceeded expectations.
Liquidity and
Capital Resources
We have typically financed our operations primarily from
internally generated cash flow, with occasional short-term and
long-term borrowings. Our primary cash requirements have been
for the financing of inventories and construction of newly
opened, remodeled, expanded or relocated stores. Based on
current forecasts and plans for the year, we believe that cash
flows from operating activities, working capital, borrowing
availability under our credit facility, borrowings resulting
from two mortgage transactions we completed in fiscal 2010 and
other available sources of financing will be sufficient to meet
our operating and capital expenditure needs for the next twelve
months. If we were to experience a same-store sales decline
similar to what occurred in fiscal 2010, combined with further
gross margin erosion, we may be required to access most, if not
all, of our credit facility and potentially require other
sources of financing to fund our operations, which might not be
available.
26 Pacific
Sunwear of California, Inc.
Form 10-K
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Net cash (used in)/provided by operating activities
|
|
|
$(40,885
|
)
|
|
|
$87,451
|
|
|
|
$33,915
|
|
Net cash used in investing activities
|
|
|
(17,159
|
)
|
|
|
(19,759
|
)
|
|
|
(55,659
|
)
|
Net cash provided by/(used in) financing activities
|
|
|
28,663
|
|
|
|
623
|
|
|
|
(51,067
|
)
|
|
|
|
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
$(29,381
|
)
|
|
|
$68,315
|
|
|
|
$(72,811
|
)
|
|
|
|
|
|
|
Operating Cash
Flows
Net cash used in operating activities for fiscal 2010 was
$41 million. We used $21 million of cash in operations
(net of non-cash charges), before changes in operating assets
and liabilities. In addition, operating cash flows decreased
$20 million from changes in operating assets and
liabilities primarily due to amortization of deferred lease
incentives of $11 million and increases in merchandise
inventories of $4 million (net of accounts payable).
Additionally, operating cash flows decreased $5 million
primarily due to a decrease in other liabilities.
Net cash provided by operating activities for fiscal 2009 was
$87 million. We generated $32 million of cash from
operations (net of non-cash charges), before changes in
operating assets and liabilities. In addition, operating cash
flows increased $55 million from changes in operating
assets and liabilities primarily due to a decrease in other
current assets of $43 million related to the collection of
$54 million of income tax receivable and a decrease in
other assets of $23 million primarily due to a decrease in
deferred tax assets. Additionally, increases in operating cash
flows can be attributed to a decrease in merchandise inventory
(net of accounts payable) of $11 million offset by a
decrease in other liabilities of $22 million primarily
related to a decrease in deferred lease incentives.
Net cash provided by operating activities for fiscal 2008 was
$34 million. We generated $45 million of cash from
operations (net of non-cash charges), before changes in
operating assets and liabilities. In addition, operating cash
flows decreased by $11 million due primarily to decreases
in deferred lease incentives of $22 million and changes in
other assets and liabilities of $35 million offset by a
$46 million decrease in merchandise inventories (net of
accounts payable).
Working
Capital
Working capital at the end of fiscal 2010 and 2009 was
$93 million and $117 million, respectively. The
$24 million decrease in working capital was attributable to
the following:
|
|
|
|
$millions
|
|
Description
|
|
|
$117
|
|
Working capital at January 30, 2010
|
|
(29)
|
|
Decrease in cash and cash equivalents primarily due to our
operating losses.
|
|
4
|
|
Increase in inventories, net of accounts payable.
|
|
1
|
|
Other.
|
|
$93
|
|
Working capital at January 29, 2011
|
|
Investing Cash
Flows
Net cash used in investing activities in each of fiscal 2010,
2009 and 2008 was $17 million, $20 million and
$56 million, respectively. Investing cash flows for fiscal
2010 were comprised entirely of capital expenditures. Investing
cash flows for fiscal 2009 comprised capital expenditures of
approximately $23 million offset by proceeds from the sale
of land of approximately $4 million. Investing cash flows
for fiscal 2008 comprised capital expenditures of
$81 million offset by proceeds from the sale of our Anaheim
distribution center of approximately $25 million. Capital
expenditures were
Pacific
Sunwear of California, Inc.
Form 10-K
2010 27
predominantly for refreshing existing stores and the opening of
new, relocated and expanded stores during fiscal 2010, 2009 and
2008. In fiscal 2011, we expect total capital expenditures to be
approximately $15 million to $20 million.
Financing Cash
Flows
Net cash provided by financing activities in fiscal 2010 was
$29 million compared to cash provided of $1 million in
fiscal 2009 and cash used of $51 million in fiscal 2008.
The primary source of financing inflows in fiscal 2010 was
proceeds from two mortgage transactions we completed (see
Mortgage Transactions below). The primary source of
financing inflows in fiscal 2009 was proceeds from employee
exercises of stock options. The primary source of financing
outflows in fiscal 2008 was the repurchase and retirement of
$53 million in common stock. Proceeds from employee
exercises of stock options accounted for the remaining source of
financing cash inflows for fiscal 2008.
Credit
Facility
Information regarding our credit facility is contained in
Note 6 to the Consolidated Financial Statements, which Note
is incorporated herein by this reference.
Mortgage
Transactions
On August 20, 2010, through our wholly-owned subsidiaries,
Miraloma Borrower Corporation, a Delaware corporation, and
Pacific Sunwear Stores Corp., a California corporation, we
completed certain mortgage transactions and executed two
promissory notes pursuant to which borrowings in an aggregate
amount of $29.8 million from American National Insurance
Company were incurred. Additional information regarding these
transactions is contained in Note 4 to the Consolidated
Financial Statements and is incorporated herein by this
reference.
Contractual
Obligations
We have minimum annual rental commitments under existing store
leases as well as a minor amount of capital leases for computer
equipment. We lease all of our retail store locations under
operating leases. We lease equipment, from time to time, under
both capital and operating leases. In addition, at any time, we
are contingently liable for commercial letters of credit with
foreign suppliers of merchandise. At January 29, 2011, our
future financial commitments under all existing contractual
obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
Contractual Obligations
|
|
|
|
Less than
|
|
1-3
|
|
3-5
|
|
More than
|
(In $millions)
|
|
Total
|
|
1 year
|
|
years
|
|
years
|
|
5 years
|
|
Operating lease obligations
|
|
$504
|
|
$94
|
|
$160
|
|
$121
|
|
$129
|
Mortgage debt
|
|
30
|
|
1
|
|
1
|
|
1
|
|
27
|
Letters of credit
|
|
15
|
|
15
|
|
|
|
|
|
|
Guaranteed minimum royalties
|
|
5
|
|
1
|
|
3
|
|
1
|
|
|
ASC 740 (FIN 48) obligations including interest and
penalties
|
|
<1
|
|
<1
|
|
|
|
|
|
|
Capital lease obligations
|
|
<1
|
|
<1
|
|
<1
|
|
|
|
|
|
|
|
Total
|
|
$555
|
|
$112
|
|
$164
|
|
$123
|
|
$156
|
|
|
|
|
|
|
We have an aggregate of nearly 400 lease expirations for
reconsideration through 2013. These leases will either be
renewed or extended, potentially at different rates, or allowed
to expire. As a result, depending on market conditions, actual
future rental commitments and the time frame of such commitments
may differ significantly from those shown in the table above.
The contractual obligations table above does not include common
area maintenance (CAM) charges, which are also a
required contractual obligation under our store operating
leases. In many of our leases, CAM charges are not fixed and can
fluctuate significantly from year to year for any particular
store. Total store rental expenses, including CAM, for fiscal
2010, 2009 and 2008 were $161 million, $164 million
and $165 million, respectively. Total CAM expenses may
28 Pacific
Sunwear of California, Inc.
Form 10-K
2010
continue to fluctuate significantly from year to year as
long-term leases come up for renewal at current market rates in
excess of original lease terms and as we continue to close
stores.
Operating Leases We lease our retail stores
and certain equipment under operating lease agreements expiring
at various dates through November 2021. Substantially all of our
retail store leases require us to pay CAM charges, insurance,
property taxes and percentage rent ranging from 2% to 20% when
sales volumes exceed certain minimum sales levels. The initial
terms of such leases are typically 8 to 10 years, many of
which contain renewal options exercisable at our discretion.
Most leases also contain rent escalation clauses that come into
effect at various times throughout the lease term. Rent expense
is recorded under the straight-line method over the life of the
lease (see Straight-Line Rent in Note 1 to the
Consolidated Financial Statements). Other rent escalation
clauses can take effect based on changes in primary mall tenants
throughout the term of a given lease. Most leases also contain
cancellation or kick-out clauses in our favor that relieve us of
any future obligation under a lease if specified sales levels or
mall occupancy targets are not achieved by a specified date.
None of our retail store leases contain purchase options.
We review the operating performance of our stores on an ongoing
basis to determine which stores, if any, to expand, relocate or
close. We closed 44, 40 and 38 stores in each of fiscal 2010,
2009 and 2008, respectively. We currently anticipate closing
approximately 30 to 50 stores in fiscal 2011. See Real
Estate Strategy within the Stores discussion
in Part I, Item 1 captioned, Business.
The ASC 740 (FIN 48) obligations shown in the
table above represent uncertain tax positions related to
temporary differences. The years for which the temporary
differences related to the uncertain tax positions will reverse
have been estimated in scheduling the obligations within the
table.
Indemnifications
In the ordinary course of business, we may provide
indemnifications of varying scope and terms to customers,
vendors, lessors, business partners and other parties with
respect to certain matters, including, but not limited to,
losses arising out of our breach of such agreements, services to
be provided by us, or intellectual property infringement claims
made by third parties. In addition, we have entered into
indemnification agreements with our directors and certain of our
officers that will require us, among other things, to indemnify
them against certain liabilities that may arise by reason of
their status or service as directors or officers. We maintain
director and officer insurance, which may cover certain
liabilities arising from our obligation to indemnify our
directors and officers in certain circumstances.
It is not possible to determine our maximum potential liability
under these indemnification agreements due to the limited
history of prior indemnification claims and the unique facts and
circumstances involved in each particular agreement. Such
indemnification agreements may not be subject to maximum loss
clauses. Historically, we have not incurred material costs as a
result of obligations under these agreements.
Off-Balance Sheet
Arrangements
We have not entered into any transactions with unconsolidated
entities whereby we have financial guarantees, subordinated
retained interests, derivative instruments, or other contingent
arrangements that expose us to material continuing risks,
contingent liabilities, or any other obligation under a variable
interest in an unconsolidated entity that provides financing,
liquidity, market risk, or credit risk support to us.
Recent Accounting
Pronouncements
Information regarding new accounting pronouncements is contained
in Note 1 to the Consolidated Financial Statements, which
note is incorporated herein by this reference.
Pacific
Sunwear of California, Inc.
Form 10-K
2010 29
Inflation
We do not believe that inflation has had a material effect on
our results of operations in the recent past. However, we are
currently anticipating that product sourcing costs will increase
during 2011 due to a combination of increases in cotton, labor
and currency costs. We currently estimate that these cost
increases will adversely affect our net merchandise margins in
fiscal 2011. We intend to partially mitigate these increases
through a combination of initiatives such as better product
assortments, refined pricing strategies, localization
initiatives, and detailed reviews of product specifications.
Seasonality and
Quarterly Results
Our business is seasonal by nature. Our first quarter
historically accounts for the smallest percentage of annual net
sales with each successive quarter contributing a greater
percentage than the last. In recent years, approximately 45% of
our net sales have occurred in the first half of the fiscal year
and 55% have occurred in the second half. The six to seven week
selling periods for each of the
back-to-school
and holiday seasons together account for approximately 35% to
40% of our annual net sales and a higher percentage of our
operating results on a combined basis. Our quarterly results of
operations may also fluctuate significantly as a result of a
variety of factors, including changes in consumer buying
patterns; fashion trends; the timing and level of markdowns; the
timing of store closings, expansions and relocations;
competitive factors; and general economic conditions.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We are exposed to interest rate risk from our credit facility
(see Note 6 to the Consolidated Financial Statements).
Direct borrowings under our credit facility bear interest at the
Administrative Agents alternate base rate (as defined,
3.5% at January 29, 2011) or at optional interest
rates that are primarily dependent upon LIBOR or the Federal
Funds Effective Rate for the time period chosen. At
January 29, 2011, we had no direct borrowings outstanding
under the credit facility.
A sensitivity analysis was performed to determine the impact of
unfavorable changes in interest rates on our cash flows. The
sensitivity analysis quantified that the estimated potential
cash flow impact would be less than $10,000 in additional
interest expense (for each $1 million borrowed) if either
or both of LIBOR or the Federal Funds Effective Rate were to
increase by 10% over a one-year period. Actual interest charges
incurred may differ from those estimated as a result of changes
or differences in market rates, differences in amounts borrowed,
timing and other factors. We are not a party to any derivative
financial instruments.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Information with respect to this item is set forth in
Index to Consolidated Financial Statements, which
appears immediately following the Signatures section
of this report and which section is incorporated herein by this
reference.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an evaluation of our
disclosure controls and procedures, as such term is defined
under
Rule 13a-15(e)
and
15d-15(e)
promulgated under the Exchange Act. These disclosure controls
and procedures are designed to provide reasonable assurance that
the information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act is
recorded, processed, summarized and
30 Pacific
Sunwear of California, Inc.
Form 10-K
2010
reported within the time periods specified by the
Commissions rules and forms. Our disclosure controls and
procedures are also designed to provide reasonable assurance
that information required to be disclosed in the reports that we
file or submit under the Exchange Act is accumulated and
communicated to our management, including our principal
executive officer and principal financial officer, in order to
allow timely decisions regarding required disclosures. Based on
this evaluation, our principal executive officer and our
principal financial officer concluded that our disclosure
controls and procedures were effective at a reasonable assurance
level as of January 29, 2011.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f).
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
based on the framework in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our
evaluation under the framework in Internal
Control Integrated Framework, our management
concluded that our internal control over financial reporting was
effective as of January 29, 2011.
Deloitte & Touche LLP, our independent registered
public accounting firm that audited the financial statements
included in this Annual Report on
Form 10-K,
has issued an attestation report on our internal control over
financial reporting, which is included herein.
Our management, including our principal executive officer and
principal financial officer, does not expect that our disclosure
controls and procedures or our internal control over financial
reporting will prevent all error and all fraud. A control
system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of
the control system are met. Further, the design of a control
system must reflect that there are resource constraints, and the
benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the
Company have been detected.
Changes in
Internal Control Over Financial Reporting
No change in our internal control over financial reporting
occurred during the last fiscal quarter ended January 29,
2011 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Pacific
Sunwear of California, Inc.
Form 10-K
2010 31
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Pacific Sunwear of California, Inc.
Anaheim, California
We have audited the internal control over financial reporting of
Pacific Sunwear of California, Inc. and subsidiaries (the
Company) as of January 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 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 as of and for the year
ended January 29, 2011, of the Company, and our report
dated March 31, 2011, expressed an unqualified opinion on
those consolidated financial statements.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
March 31, 2011
32 Pacific
Sunwear of California, Inc.
Form 10-K
2010
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Information with respect to this item is incorporated by
reference from the sections captioned Proposal 1
Election of Directors Nominees and Continuing
Directors, Executive Officers,
Section 16(a) Beneficial Ownership Reporting
Compliance, Corporate Governance, and
Board of Directors and Committees of the Board
Committees of the Board of Directors in our definitive
Proxy Statement to be filed with the Commission not later than
120 days after the end of our fiscal year covered by this
Annual Report on
Form 10-K.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
Information with respect to this item is incorporated by
reference from the sections captioned Board of Directors
and Committees of the Board Director
Compensation and Executive Compensation and Related
Matters in our definitive Proxy Statement to be filed with
the Commission not later than 120 days after the end of our
fiscal year covered by this Annual Report on
Form 10-K.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Information with respect to this item is incorporated by
reference from the sections captioned Equity Compensation
Plan Information and Security Ownership of Principal
Shareholders and Management in our definitive Proxy
Statement to be filed with the Commission not later than
120 days after the end of our fiscal year covered by this
Annual Report on
Form 10-K.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Information with respect to this item is incorporated by
reference from the sections captioned Related Party
Transactions Policy and Board of Directors and
Committees of the Board Committees of the Board of
Directors in our definitive Proxy Statement to be filed
with the Commission not later than 120 days after the end
of our fiscal year covered by this Annual Report on
Form 10-K.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
Information with respect to this item is incorporated by
reference from the section captioned Fees Paid to
Independent Registered Public Accounting Firm in our
definitive Proxy Statement to be filed with the Commission not
later than 120 days after the end of our fiscal year
covered by this Annual Report on
Form 10-K.
PART IV
|
|
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
|
|
(a) 1. |
The Financial Statements listed in the Index to
Consolidated Financial Statements at
page F-1
are filed as a part of this Annual Report on Form 10-K.
|
|
|
|
|
2.
|
Financial statement schedules are omitted because they are not
applicable or the required information is shown in the
Consolidated Financial Statements or notes thereto.
|
|
|
3.
|
Exhibits included or incorporated herein: See Index to
Exhibits at the end of the Consolidated Financial
Statements.
|
Pacific
Sunwear of California, Inc.
Form 10-K
2010 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed, on its behalf by the undersigned,
thereunto duly authorized.
PACIFIC SUNWEAR OF CALIFORNIA, INC.
|
|
|
|
By:
|
/s/ Gary
H. Schoenfeld
|
Gary H. Schoenfeld
President, Chief Executive Officer and Director
Date: March 31, 2011
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Gary
H. Schoenfeld
Gary
H. Schoenfeld
|
|
President, Chief Executive Officer and Director
(Principal Executive Officer)
|
|
March 31, 2011
|
|
|
|
|
|
/s/ Michael
L. Henry
Michael
L. Henry
|
|
Senior Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
March 31, 2011
|
|
|
|
|
|
/s/ Peter
Starrett
Peter
Starrett
|
|
Non-Employee Chairman of the Board
|
|
March 31, 2011
|
|
|
|
|
|
/s/ Brett
Brewer
Brett
Brewer
|
|
Non-Employee Director
|
|
March 31, 2011
|
|
|
|
|
|
/s/ William
C. Cobb
William
C. Cobb
|
|
Non-Employee Director
|
|
March 31, 2011
|
|
|
|
|
|
/s/ Michael
Goldstein
Michael
Goldstein
|
|
Non-Employee Director
|
|
March 31, 2011
|
|
|
|
|
|
/s/ George
R. Mrkonic
George
R. Mrkonic
|
|
Non-Employee Director
|
|
March 31, 2011
|
|
|
|
|
|
/s/ Thomas
M. Murnane
Thomas
M. Murnane
|
|
Non-Employee Director
|
|
March 31, 2011
|
|
|
|
|
|
/s/ Grace
Nichols
Grace
Nichols
|
|
Non-Employee Director
|
|
March 31, 2011
|
34 Pacific
Sunwear of California, Inc.
Form 10-K
2010
PACIFIC SUNWEAR
OF CALIFORNIA, INC.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED
FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED:
JANUARY 29, 2011 (Fiscal
2010)
JANUARY 30, 2010 (Fiscal
2009)
JANUARY 31, 2009 (Fiscal
2008)
Pacific
Sunwear of California, Inc.
Form 10-K
2010 F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Pacific Sunwear of California, Inc.
Anaheim, California
We have audited the accompanying consolidated balance sheets of
Pacific Sunwear of California, Inc. and subsidiaries (the
Company) as of January 29, 2011 and
January 30, 2010, and the related consolidated statements
of operations and comprehensive operations, shareholders
equity, and cash flows for each of the three years in the period
ended January 29, 2011. These consolidated financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as of January 29, 2011 and January 30, 2010,
and the results of its operations and its cash flows for each of
the three years in the period ended January 29, 2011, in
conformity with accounting principles generally accepted in the
United States of America.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
the Companys internal control over financial reporting as
of January 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 31, 2011, expressed
an unqualified opinion on the Companys internal control
over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
March 31, 2011
F-2 Pacific
Sunwear of California, Inc.
Form 10-K
2010
PACIFIC SUNWEAR
OF CALIFORNIA, INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
(In thousands, except share and per share amounts)
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
63,710
|
|
|
$
|
93,091
|
|
Merchandise inventories
|
|
|
95,701
|
|
|
|
89,665
|
|
Prepaid expenses
|
|
|
11,669
|
|
|
|
10,801
|
|
Other current assets
|
|
|
4,773
|
|
|
|
5,365
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
175,853
|
|
|
|
198,922
|
|
PROPERTY AND EQUIPMENT, NET:
|
|
|
|
|
|
|
|
|
Gross property and equipment
|
|
|
619,478
|
|
|
|
641,127
|
|
Less: Accumulated depreciation and amortization
|
|
|
(426,298
|
)
|
|
|
(392,127
|
)
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
|
193,180
|
|
|
|
249,000
|
|
Deferred income taxes
|
|
|
6,243
|
|
|
|
4,024
|
|
Other assets
|
|
|
26,000
|
|
|
|
25,272
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
401,276
|
|
|
$
|
477,218
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
41,028
|
|
|
$
|
38,481
|
|
Other current liabilities
|
|
|
42,186
|
|
|
|
43,742
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
83,214
|
|
|
|
82,223
|
|
LONG-TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
Deferred lease incentives
|
|
|
28,553
|
|
|
|
39,207
|
|
Deferred rent
|
|
|
19,786
|
|
|
|
21,396
|
|
Mortgage debt, long-term portion
|
|
|
29,093
|
|
|
|
|
|
Other long-term liabilities
|
|
|
26,296
|
|
|
|
27,714
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
103,728
|
|
|
|
88,317
|
|
Commitments and contingencies (Note 10)
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none issued
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 170,859,375 shares
authorized; 66,173,397 and 65,748,069 shares issued and
outstanding, respectively
|
|
|
662
|
|
|
|
657
|
|
Additional paid-in capital
|
|
|
11,593
|
|
|
|
7,294
|
|
Retained earnings
|
|
|
202,079
|
|
|
|
298,727
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
214,334
|
|
|
|
306,678
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$
|
401,276
|
|
|
$
|
477,218
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated
financial statements.
Pacific
Sunwear of California, Inc.
Form 10-K
2010 F-3
PACIFIC SUNWEAR
OF CALIFORNIA, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except share and per share amounts)
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
FISCAL YEAR ENDED
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Net sales
|
|
$
|
929,506
|
|
|
$
|
1,027,101
|
|
|
$
|
1,254,886
|
|
Cost of goods sold, including buying, distribution and occupancy
costs
|
|
|
724,120
|
|
|
|
768,498
|
|
|
|
934,779
|
|
|
|
|
Gross margin
|
|
|
205,386
|
|
|
|
258,603
|
|
|
|
320,107
|
|
Selling, general and administrative expenses
|
|
|
300,530
|
|
|
|
339,728
|
|
|
|
381,008
|
|
|
|
|
|
|
|
Operating loss from continuing operations
|
|
|
(95,144
|
)
|
|
|
(81,125
|
)
|
|
|
(60,901
|
)
|
Other expense/(income), net
|
|
|
930
|
|
|
|
276
|
|
|
|
(2,369
|
)
|
|
|
|
|
|
|
Loss from continuing operations before income tax
(benefit)/expense
|
|
|
(96,074
|
)
|
|
|
(81,401
|
)
|
|
|
(58,532
|
)
|
Income tax expense/(benefit)
|
|
|
574
|
|
|
|
(11,099
|
)
|
|
|
(19,287
|
)
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(96,648
|
)
|
|
|
(70,302
|
)
|
|
|
(39,245
|
)
|
Loss from discontinued operations, net of tax effects
|
|
|
|
|
|
|
|
|
|
|
(24,577
|
)
|
|
|
|
|
|
|
Net loss
|
|
$
|
(96,648
|
)
|
|
$
|
(70,302
|
)
|
|
$
|
(63,822
|
)
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(96,648
|
)
|
|
$
|
(70,302
|
)
|
|
$
|
(63,822
|
)
|
|
|
|
|
|
|
Loss from continuing operations per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(1.46
|
)
|
|
$
|
(1.07
|
)
|
|
$
|
(0.59
|
)
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(1.46
|
)
|
|
$
|
(1.07
|
)
|
|
$
|
(0.96
|
)
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
65,988,550
|
|
|
|
65,442,887
|
|
|
|
66,652,088
|
|
See notes to consolidated
financial statements.
F-4 Pacific
Sunwear of California, Inc.
Form 10-K
2010
PACIFIC SUNWEAR
OF CALIFORNIA, INC.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
|
|
(In thousands, except share amounts)
|
|
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Total
|
|
|
|
|
BALANCE, February 2, 2008
|
|
|
70,026,510
|
|
|
$
|
700
|
|
|
$
|
16,761
|
|
|
$
|
465,884
|
|
|
$
|
483,345
|
|
Repurchase and retirement of common stock
|
|
|
(5,347,544
|
)
|
|
|
(53
|
)
|
|
|
(52,858
|
)
|
|
|
|
|
|
|
(52,911
|
)
|
Employee stock plans
|
|
|
495,178
|
|
|
|
5
|
|
|
|
1,799
|
|
|
|
|
|
|
|
1,804
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
5,167
|
|
|
|
|
|
|
|
5,167
|
|
Tax benefit deficiencies related to exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
(1,596
|
)
|
|
|
|
|
|
|
(1,596
|
)
|
Reclassify negative additional paid-in capital to retained
earnings(1)
|
|
|
|
|
|
|
|
|
|
|
33,033
|
|
|
|
(33,033
|
)
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63,822
|
)
|
|
|
(63,822
|
)
|
|
|
|
|
|
|
BALANCE, January 31, 2009
|
|
|
65,174,144
|
|
|
$
|
652
|
|
|
$
|
2,306
|
|
|
$
|
369,029
|
|
|
$
|
371,987
|
|
Employee stock plans
|
|
|
573,925
|
|
|
|
5
|
|
|
|
662
|
|
|
|
|
|
|
|
667
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
6,370
|
|
|
|
|
|
|
|
6,370
|
|
Tax benefit deficiencies related to exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
(2,044
|
)
|
|
|
|
|
|
|
(2,044
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70,302
|
)
|
|
|
(70,302
|
)
|
|
|
|
|
|
|
BALANCE, January 30, 2010
|
|
|
65,748,069
|
|
|
$
|
657
|
|
|
$
|
7,294
|
|
|
$
|
298,727
|
|
|
$
|
306,678
|
|
Employee stock plans
|
|
|
425,328
|
|
|
|
5
|
|
|
|
331
|
|
|
|
|
|
|
|
336
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
3,968
|
|
|
|
|
|
|
|
3,968
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(96,648
|
)
|
|
|
(96,648
|
)
|
|
|
|
|
|
|
BALANCE, January 29, 2011
|
|
|
66,173,397
|
|
|
$
|
662
|
|
|
$
|
11,593
|
|
|
$
|
202,079
|
|
|
$
|
214,334
|
|
|
|
|
|
|
|
(1) Share repurchases in fiscal 2008 exceeded the value of
additional paid-in capital. Accordingly, at the end of the
fiscal year, negative additional paid-in capital was
reclassified against retained earnings.
See notes to consolidated
financial statements.
Pacific
Sunwear of California, Inc.
Form 10-K
2010 F-5
PACIFIC SUNWEAR
OF CALIFORNIA, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
FISCAL YEAR ENDED
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(96,648
|
)
|
|
$
|
(70,302
|
)
|
|
$
|
(63,822
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
55,647
|
|
|
|
70,367
|
|
|
|
76,433
|
|
Asset impairment (including goodwill)
|
|
|
15,611
|
|
|
|
27,012
|
|
|
|
35,348
|
|
Stock-based compensation
|
|
|
3,968
|
|
|
|
6,370
|
|
|
|
5,167
|
|
Loss on disposal of equipment
|
|
|
862
|
|
|
|
968
|
|
|
|
4,668
|
|
Gain on sale of Anaheim distribution center
|
|
|
|
|
|
|
|
|
|
|
(10,768
|
)
|
Tax benefit deficiencies related to stock-based compensation
|
|
|
|
|
|
|
(2,044
|
)
|
|
|
(1,596
|
)
|
Excess tax benefits related to stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise inventories
|
|
|
(6,270
|
)
|
|
|
17,540
|
|
|
|
62,977
|
|
Other current assets
|
|
|
777
|
|
|
|
43,043
|
|
|
|
(6,125
|
)
|
Other assets
|
|
|
(1,958
|
)
|
|
|
22,680
|
|
|
|
(2,738
|
)
|
Accounts payable
|
|
|
2,547
|
|
|
|
(6,782
|
)
|
|
|
(17,086
|
)
|
Other current liabilities
|
|
|
(1,854
|
)
|
|
|
(4,413
|
)
|
|
|
(17,887
|
)
|
Deferred lease incentives
|
|
|
(10,654
|
)
|
|
|
(13,106
|
)
|
|
|
(21,699
|
)
|
Deferred rent
|
|
|
(1,610
|
)
|
|
|
(1,612
|
)
|
|
|
(4,661
|
)
|
Other long-term liabilities
|
|
|
(1,303
|
)
|
|
|
(2,270
|
)
|
|
|
(4,291
|
)
|
|
|
|
|
|
|
Net cash (used in)/provided by operating activities
|
|
|
(40,885
|
)
|
|
|
87,451
|
|
|
|
33,915
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(17,159
|
)
|
|
|
(23,498
|
)
|
|
|
(80,934
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
3,739
|
|
|
|
275
|
|
Proceeds from sale of Anaheim distribution center
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(17,159
|
)
|
|
|
(19,759
|
)
|
|
|
(55,659
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from mortgage borrowings
|
|
|
29,800
|
|
|
|
|
|
|
|
|
|
Proceeds from employee stock purchase plan and exercise of stock
options
|
|
|
542
|
|
|
|
727
|
|
|
|
1,850
|
|
Payments for mortgage borrowings costs
|
|
|
(1,154
|
)
|
|
|
|
|
|
|
|
|
Principal payments under capital lease
|
|
|
(323
|
)
|
|
|
(104
|
)
|
|
|
(11
|
)
|
Principal payments under mortgage borrowings
|
|
|
(202
|
)
|
|
|
|
|
|
|
|
|
Borrowings under credit facility
|
|
|
|
|
|
|
|
|
|
|
235,689
|
|
Principal payments under credit facility
|
|
|
|
|
|
|
|
|
|
|
(235,689
|
)
|
Repurchase and retirement of common stock
|
|
|
|
|
|
|
|
|
|
|
(52,911
|
)
|
Excess tax benefits related to stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
Net cash provided by/(used in) financing activities
|
|
|
28,663
|
|
|
|
623
|
|
|
|
(51,067
|
)
|
|
|
|
|
|
|
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(29,381
|
)
|
|
|
68,315
|
|
|
|
(72,811
|
)
|
CASH AND CASH EQUIVALENTS, beginning of fiscal year
|
|
|
93,091
|
|
|
|
24,776
|
|
|
|
97,587
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of fiscal year
|
|
$
|
63,710
|
|
|
$
|
93,091
|
|
|
$
|
24,776
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
963
|
|
|
$
|
3
|
|
|
$
|
601
|
|
Cash refunded for income taxes
|
|
$
|
(203
|
)
|
|
$
|
(54,072
|
)
|
|
$
|
(14,937
|
)
|
SUPPLEMENTAL DISCLOSURES OF
NON-CASH TRANSACTIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment purchases accrued at end of period
|
|
$
|
1,298
|
|
|
$
|
1,802
|
|
|
$
|
1,737
|
|
Capital lease transactions for property and equipment
|
|
$
|
299
|
|
|
$
|
730
|
|
|
|
20
|
|
See notes to consolidated
financial statements.
F-6 Pacific
Sunwear of California, Inc.
Form 10-K
2010
PACIFIC SUNWEAR
OF CALIFORNIA, INC.
(all amounts in thousands, except share and per share
amounts, unless otherwise indicated)
|
|
1.
|
NATURE OF
BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Nature of Business Pacific Sunwear of
California, Inc. (together with its wholly owned subsidiaries,
the Company) is a leading specialty retailer rooted
in the action sports, fashion and music influences of the
California lifestyle. The Company sells casual apparel with a
limited selection of accessories and footwear designed to meet
the needs of teens and young adults. It operates a nationwide,
primarily mall-based chain of retail stores under the names
Pacific Sunwear and PacSun. The Company,
a California corporation, was incorporated in August 1982. As of
January 29, 2011, the Company leased and operated 852
stores in each of the 50 states and Puerto Rico.
The results of continuing operations for all periods presented
in these consolidated financial statements excludes the
financial impact of the Companys former demo store concept
due to the designation of this operation as discontinued
operations during the first quarter of fiscal 2008 (see
Note 13). During fiscal 2007, the Company closed 74 demo
stores, which specialized in fashion-focused streetwear apparel.
During fiscal 2008, the Company closed its remaining 153 demo
stores.
The Companys fiscal year is the 52- or 53-week period
ending on the Saturday closest to January 31st. Fiscal
year-end dates for all periods presented or discussed herein are
as follows:
|
|
|
|
|
Fiscal Year
|
|
Year-End Date
|
|
# of Weeks
|
|
|
2011
|
|
January 28, 2012
|
|
52
|
2010
|
|
January 29, 2011
|
|
52
|
2009
|
|
January 30, 2010
|
|
52
|
2008
|
|
January 31, 2009
|
|
52
|
Principles of Consolidation The consolidated
financial statements include the accounts of Pacific Sunwear of
California, Inc. and its subsidiaries, Pacific Sunwear Stores
Corp. and Miraloma Borrower Corporation. All intercompany
transactions have been eliminated in consolidation.
Basis of Presentation The consolidated
financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP).
Use of Estimates The preparation of
consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America
necessarily requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
as well as the reported revenues and expenses during the
reporting period. Actual results could differ from these
estimates.
Fair Value of Financial Instruments
Management is required to disclose the estimated fair value of
certain assets and liabilities as financial instruments.
Financial instruments are generally defined as cash, evidence of
ownership interest in an entity, or a contractual obligation
that both conveys to one entity a right to receive cash or other
financial instruments from another entity and imposes on the
other entity the obligation to deliver cash or other financial
instruments to the first entity. As of January 29, 2011,
management believes that the carrying amounts of cash,
receivables and payables approximate fair value because of the
short maturity of these financial instruments.
Cash and Cash Equivalents The Company
considers all highly liquid financial instruments purchased with
an original maturity of three months or less to be cash
equivalents. Cash and cash equivalents consist primarily of
money market funds. The fair value of money market funds is
determined based on Level 1 inputs in
accordance with Accounting Standards Codification (ASC) Topic
820, Fair Value Measurements and Disclosures (ASC
820), which consist of
Pacific
Sunwear of California, Inc.
Form 10-K
2010 F-7
unadjusted quoted prices in active markets that are accessible
at the measurement date for identical, unrestricted assets. The
Company places its cash and short-term investments with high
credit quality financial institutions.
Merchandise Inventories Merchandise
inventories are stated at the lower of average cost or market
utilizing the retail method. At any given time, inventories
include items that have been marked down to managements
best estimate of their fair market value. These estimates are
based on a combination of factors, including current selling
prices, current and projected inventory levels, current and
projected rates of sell-through, known markdown
and/or
promotional events expected to create a permanent decrease in
inventory value, estimated inventory shrink and aging of
specific items. Reserves of approximately $6 million and
$2 million have been accrued against existing inventory at
January 29, 2011 and January 30, 2010, respectively,
in consideration of these factors. Actual results have
historically been within the Companys expectations and the
reserves established for such items.
Property and Equipment All property and
equipment are stated at cost. Depreciation is recognized on a
straight-line basis over the following estimated useful lives:
|
|
|
Property Category
|
|
Depreciation Term
|
|
Buildings
|
|
39 years
|
Building improvements
|
|
Lesser of remaining estimated useful life of the building or
estimated useful life of the improvement
|
Leasehold improvements
|
|
Lesser of remaining lease term (at inception, generally
10 years) or estimated useful life of the improvement
|
Furniture, fixtures and equipment
|
|
Generally 5 years (ranging from 3 to 15 years),
depending on the nature of the asset
|
Other Long-Lived Assets The Company evaluates
the carrying value of long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
value of such assets may not be recoverable. Factors that are
considered important and that could trigger an impairment review
include a current-period operating or cash flow loss combined
with a history of operating or cash flow losses and a projection
or forecast that demonstrates continuing losses or insufficient
income associated with the use of a long-lived asset or asset
group. Other factors include a significant change in the manner
of the use of the asset or a significant negative industry or
economic trend. This evaluation is performed based on estimated
undiscounted future cash flows from operating activities
compared with the carrying value of the related assets. If the
undiscounted future cash flows are less than the carrying value,
an impairment loss is recognized, measured by the difference
between the carrying value and the estimated fair value of the
assets, with such estimated fair values determined using the
best information available, generally the discounted future cash
flows of the assets using a discount rate that approximates the
Companys weighted average cost of capital. See
Note 3, Impairment of Long-Lived Assets, for a
discussion of asset impairment charges.
Goodwill During fiscal 2008, the Company
determined that the goodwill created in connection with its 1986
four-store acquisition in California and its 1997 fifteen-store
acquisition in Florida was fully impaired and recorded a
pre-tax, non-cash goodwill impairment charge of approximately
$6 million during the third quarter of fiscal 2008. After
recording this impairment the Company had no remaining goodwill.
Income Taxes The Company accounts for income
taxes under the asset and liability method, which requires the
recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been
included in the financial statements. Under this method,
deferred tax assets and liabilities are determined based on the
temporary differences between the financial statements and tax
basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
reverse. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period
that includes the enactment date.
Deferred income tax assets are reduced by a valuation allowance
if, in the judgment of the Companys management, it is more
likely than not that all or a portion of a deferred tax asset
will not be realized. In making such determination, the Company
considers all available positive and negative evidence,
including recent financial operations, projected future taxable
income, scheduled reversals of deferred tax liabilities, tax
planning strategies, and the length of tax asset
F-8 Pacific
Sunwear of California, Inc.
Form 10-K
2010
carryforward periods. The realization of deferred tax assets is
primarily dependent upon the Companys ability to generate
sufficient future taxable earnings in certain jurisdictions. If
the Company subsequently determines that the carrying value of
these assets, which had been written down, would be realized in
the future, the value of the deferred tax assets would be
increased, thereby increasing net income in the period when that
determination was made. See Note 8, Income
Taxes, for further discussion regarding the realizability
of the Companys deferred tax assets and assessment of a
need for a valuation allowance.
The Company accounts for uncertain tax positions in accordance
with authoritative guidance for income taxes. This guidance
prescribes a recognition threshold and measurement process for
recording in the financial statements uncertain tax positions
taken or expected to be taken in the Companys tax return.
The literature also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods and disclosure requirements for uncertain tax positions.
Insurance Reserves The Company uses a
combination of third-party insurance and self-insurance for
workers compensation, employee medical and general
liability insurance. For each type of insurance, the Company has
defined stop-loss or deductible provisions that limit the
Companys maximum exposure to claims. The Company maintains
reserves for estimated claims associated with these programs,
both reported and incurred but not reported, based on historical
claims experience and other estimated assumptions.
Revenue Recognition Sales are recognized upon
purchase by customers at the Companys retail store
locations or upon delivery to and acceptance by the customer for
orders placed through the Companys website. The Company
records the sale of gift cards as a current liability and
recognizes a sale when a customer redeems a gift card. The
amount of the gift card liability is determined taking into
account the Companys estimate of the portion of gift cards
that will not be redeemed or recovered (gift card
breakage). Gift card breakage is generally recognized as
revenue after 24 months, at which time the likelihood of
redemption is considered remote based on the Companys
historical redemption data. Gift card breakage has never been
more than 1.0% of sales in any fiscal year. The Company accrues
for estimated sales returns by customers based on historical
sales return results. Sales return accrual activity for each of
the three fiscal years in the period ended January 29, 2011
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
|
|
(in $000s)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Beginning balance
|
|
$
|
511
|
|
|
$
|
436
|
|
|
$
|
722
|
|
Provisions
|
|
|
18,908
|
|
|
|
20,440
|
|
|
|
24,144
|
|
Usage
|
|
|
(18,960
|
)
|
|
|
(20,365
|
)
|
|
|
(24,430
|
)
|
|
|
|
|
|
|
Ending balance
|
|
$
|
459
|
|
|
$
|
511
|
|
|
$
|
436
|
|
|
|
|
|
|
|
E-commerce
Shipping and Handling Revenues and Expenses
Shipping and handling revenues and expenses relate to sales
activity generated from the Companys website. Amounts
charged to the Companys Internet customers for shipping
and handling revenues are included in net sales. Amounts paid by
the Company for Internet shipping and handling expenses are
included in cost of goods sold and encompass payments to third
party shippers and costs to store, move and prepare merchandise
for shipment.
Customer Loyalty Programs These programs
offer customers discounts on future merchandise purchases within
stated redemption periods if they purchase specified levels of
merchandise in a current transaction. The impact of these
programs is recognized ratably as a direct reduction in net
sales over the series of transactions required to both earn and
redeem the customer discounts. Redemptions generally occur
within 30 days of original issuance.
Cost of Goods Sold, including Buying, Distribution and
Occupancy Costs Cost of goods sold includes the
landed cost of merchandise and all expenses incurred by the
Companys buying and distribution functions. These costs
include inbound freight, purchasing and receiving costs,
inspection costs, warehousing costs, depreciation, internal
transfer costs, and any other costs borne by the Companys
buying department and distribution center. Occupancy
Pacific
Sunwear of California, Inc.
Form 10-K
2010 F-9
costs include store rents, common area charges (CAM), as well as
store expenses related to telephone service, supplies, repairs
and maintenance, insurance, loss prevention, and taxes and
licenses. Store rents, including CAM, for fiscal 2010, 2009 and
2008 were $161 million, $164 million and
$165 million, respectively.
Vendor Allowances Cash consideration received
from vendors primarily includes discounts, vendor allowances and
rebates. The Company recognizes cash received from vendors as a
reduction in the price of the vendors products and,
accordingly, as a reduction in cost of sales at the time the
related inventory is sold.
Straight-Line Rent Rent expense under the
Companys store operating leases is recognized on a
straight-line basis over the original term of each stores
lease, inclusive of rent holiday periods during store
construction and excluding any lease renewal options.
Accordingly, the Company expenses pre-opening rent.
Deferred Lease Incentives Amounts received
from landlords to fund tenant improvements are recorded as a
deferred lease incentive liability and then amortized as a
credit to rent expense over the related stores lease term.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include payroll,
depreciation and amortization, advertising, credit authorization
charges, expenses associated with the counting of physical
inventories, and all other general and administrative expenses
not directly related to merchandise or operating the
Companys stores.
Advertising Costs Costs associated with the
production or placement of advertising and other in-store visual
and promotional materials, such as signage, banners,
photography, design, creative talent, editing, magazine
insertion fees and other costs associated with such advertising,
are expensed the first time the advertising appears publicly.
Advertising costs were $17 million, $14 million and
$16 million in fiscal 2010, 2009, and 2008, respectively.
Stock-Based Compensation The Company accounts
for stock-based compensation expense under the fair value
method. The Company recorded non-cash, stock-based compensation
in the consolidated statement of operations for each of fiscal
2010, 2009 and 2008 as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
|
|
(in $000s)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Stock-based compensation expense included in cost of goods sold
|
|
$
|
1,228
|
|
|
$
|
4,024
|
|
|
$
|
1,972
|
|
Stock-based compensation expense included in selling, general
and administrative expenses
|
|
|
2,740
|
|
|
|
2,346
|
|
|
|
3,195
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
3,968
|
|
|
$
|
6,370
|
|
|
$
|
5,167
|
|
|
|
|
|
|
|
Earnings Per Share Basic earnings per common
share is computed using the weighted average number of shares
outstanding. Diluted earnings per common share is computed using
the weighted average number of shares outstanding adjusted for
the incremental shares attributed to outstanding options to
purchase common stock using the treasury stock method, if
dilutive. In periods where a net loss is reported, incremental
shares are excluded as their effect would be anti-dilutive. In
such circumstances, the weighted-average number of shares
outstanding in the basic and diluted earnings per common share
calculations will be the same. Anti-dilutive options and
non-vested shares are excluded from the computation of diluted
earnings per share because either the option exercise price or
the grant date fair value of the non-vested share is greater
than the market price of the Companys common stock.
Anti-dilutive options and non-vested shares excluded from the
diluted earnings per share calculations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Anti-dilutive options and non-vested shares
|
|
|
2,928,067
|
|
|
|
2,311,974
|
|
|
|
2,564,554
|
|
Vendor and Merchandise Concentrations In
fiscal 2010, Fox Racing merchandise accounted for 10% of net
sales. During fiscal 2009 no vendor accounted for more than 10%
of net sales. In fiscal 2008, Billabong (which then incorporated
both the Billabong and Element brands) accounted for 11% of
total net sales and Quiksilver (which
F-10 Pacific
Sunwear of California, Inc.
Form 10-K
2010
incorporates the DC Shoes, Roxy, and Quiksilver brands)
accounted for 10% total net sales. No other individual branded
vendor accounted for more than 10% of total net sales for any
period presented.
The merchandise assortment for the Company as a percentage of
net sales for each of fiscal 2010, 2009 and 2008 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Mens Apparel
|
|
|
49
|
%
|
|
|
45
|
%
|
|
|
41
|
%
|
Womens Apparel
|
|
|
38
|
%
|
|
|
43
|
%
|
|
|
42
|
%
|
Accessories and Footwear
|
|
|
13
|
%
|
|
|
12
|
%
|
|
|
17
|
%
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
Recent Accounting Pronouncements In December
2010, the FASB issued Accounting Standard Update
2010-28,
Intangibles Goodwill and Other (Topic 350): When
to Perform Step 2 of the Goodwill Impairment Test for Reporting
Units with Zero or Negative Carrying Amounts. This ASU
modified Step 1 of the goodwill impairment test for reporting
units with zero or negative carrying amounts. For those
reporting units, an entity is required to perform Step 2 of the
goodwill impairment test if it is more likely than not that a
goodwill impairment exists. For public entities, the amendments
in the ASU are effective for fiscal years, and interim periods
within those years, beginning after December 15, 2010. As
the Company has no recorded goodwill, adoption of this ASU will
not have a material impact on the consolidated financial
statements.
In December 2010, the FASB issued Accounting Standard Update
2010-29,
Business Combinations (Topic 805): Disclosure of
Supplementary Pro Forma Information for Business Combinations.
This ASU specifies that, if a public entity presents comparative
financial statements, the entity should disclose revenue and
earnings of the combined entity as though the business
combination(s) that occurred during the current year had
occurred as of the beginning of the comparable prior annual
reporting period only. ASU
2010-29 is
effective prospectively for business combinations where the
acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15,
2010. Adoption of this ASU will not have a material impact on
the consolidated financial statements.
|
|
2.
|
PROPERTY AND
EQUIPMENT, NET
|
As of the dates presented, property and equipment consisted of
the following categories:
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
280,900
|
|
|
$
|
302,339
|
|
Furniture, fixtures and equipment
|
|
|
286,961
|
|
|
|
287,224
|
|
Buildings and building improvements
|
|
|
40,389
|
|
|
|
40,336
|
|
Land
|
|
|
11,228
|
|
|
|
11,228
|
|
|
|
|
|
|
|
Total gross property and equipment
|
|
|
619,478
|
|
|
|
641,127
|
|
Less accumulated depreciation
|
|
|
(426,298
|
)
|
|
|
(392,127
|
)
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
193,180
|
|
|
$
|
249,000
|
|
|
|
|
|
|
|
|
|
3.
|
IMPAIRMENT OF
LONG-LIVED ASSETS
|
The Company assesses long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
value of such assets may not be fully recoverable. Based on
reviews of the operating performance and projections of
underperforming stores, the Company determined that certain
underperforming stores would not be able to generate sufficient
cash flows over the remaining life of the related leases to
recover the Companys investment in the stores. As a
result, during fiscal 2010, 2009 and 2008, the Company recorded
non-cash impairment charges of approximately $16 million,
$27 million and $29 million, respectively, within
selling, general and administrative
Pacific
Sunwear of California, Inc.
Form 10-K
2010 F-11
expenses in the consolidated statements of operations to
write-down the carrying value of long-lived store assets to
their estimated fair values. Fair value is determined using a
discounted cash flow model which requires
Level 3 inputs (as defined in ASC 820).
The impairment charge reduced the carrying amount of the
applicable long-lived assets as follows for the fiscal years
ended (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Carrying value of assessed long-lived assets
|
|
$
|
23
|
|
|
$
|
38
|
|
|
$
|
37
|
|
Less: Impairment charge
|
|
|
(16
|
)
|
|
|
(27
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
Fair value of assessed long-lived assets
|
|
$
|
7
|
|
|
$
|
11
|
|
|
$
|
8
|
|
|
|
|
|
|
|
On August 20, 2010, the Company, through its wholly-owned
subsidiaries, Miraloma Borrower Corporation, a Delaware
corporation (Miraloma), and Pacific Sunwear Stores
Corp., a California corporation (PacSun Stores),
executed two promissory notes pursuant to which borrowings in an
aggregate amount of $29.8 million from American National
Insurance Company (Anico) were incurred. The note
executed by Miraloma (the Miraloma Note) is in the
amount of $16.8 million and bears interest at the rate of
6.50% per annum. Monthly principal and interest payments under
the Miraloma Note commenced on October 1, 2010, and are
$113,435. The principal and interest payments are based on a
25-year
amortization schedule. The remaining principal balance of the
Miraloma Note, and any accrued but unpaid interest thereon
(estimated to be $14.4 million), will be due in full on
September 1, 2017. The Miraloma Note is secured by a deed
of trust on the building and land comprising the Companys
principal executive offices in Anaheim, California and is
non-recourse to the Company. The Miraloma Note does not contain
any financial covenants. In connection with the Miraloma Note,
the Company transferred the building and related land securing
the note to Miraloma and entered into a lease for the building
and land with Miraloma. Miraloma paid a prepayment fee to Anico
equal to 1% of the principal amount of the note on the closing
date of the transaction. As a result, Miraloma may prepay the
note, in whole, but not in part, at any time without penalty
upon 30 days prior written notice to Anico.
The note executed by PacSun Stores (the PacSun Stores
Note) is in the amount of $13.0 million and bears
interest at the rate of 6.50% per annum. Monthly principal and
interest payments under the PacSun Stores Note commenced on
October 1, 2010, and are $87,777. The principal and
interest payments are based on a
25-year
amortization schedule. The remaining principal balance of the
PacSun Stores Note, and any accrued but unpaid interest thereon
(estimated to be $11.2 million), will be due in full on
September 1, 2017. The PacSun Stores Note is secured by a
mortgage on the Companys leasehold interest in the
building and land comprising the Companys distribution
center in Olathe, Kansas, and is unconditionally guaranteed by
the Company. The PacSun Stores Note does not contain any
financial covenants. PacSun Stores paid a prepayment fee to
Anico equal to 1% of the principal amount of the note on the
closing date of the transaction. As a result, PacSun Stores may
prepay the note, in whole, but not in part, at any time without
penalty upon 30 days prior written notice to Anico.
F-12 Pacific
Sunwear of California, Inc.
Form 10-K
2010
These transactions generated net proceeds to the Company of
approximately $28 million in additional cash. As of
January 29, 2011, remaining aggregate principal payments
required under these mortgage debt borrowings are as follows (in
thousands):
|
|
|
|
|
Fiscal year ending:
|
|
|
|
|
January 28, 2012
|
|
$
|
506
|
|
February 2, 2013
|
|
|
539
|
|
February 1, 2014
|
|
|
576
|
|
January 31, 2015
|
|
|
614
|
|
January 30, 2016
|
|
|
655
|
|
Thereafter
|
|
|
26,709
|
|
|
|
|
|
|
|
|
|
29,599
|
|
Less current portion
|
|
|
506
|
|
|
|
|
|
|
Mortgage debt, long-term portion
|
|
$
|
29,093
|
|
|
|
|
|
|
Interest expense recorded on the mortgage debt was
$0.9 million in fiscal 2010.
|
|
5.
|
INDUSTRIAL
REVENUE BOND TRANSACTION OLATHE, KANSAS
|
On July 17, 2007, Pacific Sunwear Stores Corp., a
wholly-owned subsidiary of the Company, completed an industrial
revenue bond financing transaction with the city of Olathe,
Kansas (the City) that will provide property tax
savings for 10 years on the Companys new distribution
center located in the City. In the transaction, the City
purchased the land and building from the Company through the
issuance to the Company of approximately $23 million in
industrial revenue bonds due January 1, 2018
(Bonds) and contemporaneously leased the land and
building to the Company for an identical term. The Company can
call the Bonds at any time it chooses, but would lose its
property tax benefit in the event this transaction was to be
cancelled. In the Companys consolidated balance sheet, the
land and building remain a component of property and equipment,
the investment in the Bonds is included in other assets, and the
related long-term lease obligation is included in other
long-term liabilities.
The Company, as holder of the Bonds, is due interest at 7% per
annum with interest payable semi-annually in arrears on January
1 and July 1. This interest income is directly offset by
the interest-only lease payments on the distribution center,
which are due at the same time and in the same amount as the
interest income. Both the Bonds and the corresponding lease have
10-year
terms. If, at any time, the Company chooses to call the Bonds,
the proceeds from the Bonds would be required to immediately
terminate the lease. The Companys intention is to maintain
the property tax benefit related to the Olathe facility.
Accordingly, both the Bonds and the lease are classified as
long-term due to the Companys intent to hold the Bonds
until maturity and the structure of the lease, which includes a
balloon principal payment and bargain purchase requirement at
the end of the lease term.
The Company has an asset-backed credit agreement with a
syndicate of lenders (the Credit Facility), which
expires on April 29, 2013, and provides for a secured
revolving line of credit of up to $150 million that can be
increased up to $225 million subject to lender approval.
Extensions of credit under the Credit Facility are limited to a
borrowing base consisting of specified percentages of eligible
categories of assets, primarily cash and inventory (generally,
75% of inventories). The Credit Facility is available for direct
borrowing and, subject to borrowing base availability
($99 million at January 29, 2011), up to
$75 million is available for the issuance of letters of
credit and up to $15 million is available for swing-line
loans. The Credit Facility is secured by cash, cash equivalents,
deposit accounts, securities accounts, credit card receivables
and inventory. Direct borrowings under the Credit Facility bear
interest at the administrative agents alternate base rate
(as defined, 3.5% at January 29, 2011) or at optional
interest rates that are primarily dependent upon LIBOR or the
federal funds effective rate for the time period chosen. Based
on current forecasts and plans for the year, the Company
believes that cash flows from operating activities, working
capital, borrowing
Pacific
Sunwear of California, Inc.
Form 10-K
2010 F-13
availability under the Credit Facility, borrowings resulting
from the two mortgage transactions discussed in Note 4 and
other available sources of financing will be sufficient to meet
its operating and capital expenditure needs for the next twelve
months. At January 29, 2011, the Company had no direct
borrowings and $15 million in letters of credit outstanding
under the Credit Facility. The remaining availability at
January 29, 2011 was $84 million.
The Company is not subject to any financial covenant
restrictions under the Credit Facility unless total remaining
borrowing availability under the facility falls below
$15 million at any point in time, or 10% of the aggregate
lender commitments in the event the facility is increased beyond
$150 million. The Company is restricted from incurring
additional indebtedness or liens in excess of certain levels
specified by the Credit Facility. With certain exceptions, the
Company is not allowed to incur additional secured indebtedness,
but can obtain unsecured indebtedness outside of the Credit
Facility up to $150 million. Additionally, the Credit
Facility contains specific limits on particular kinds of
indebtedness, as defined in the Credit Facility agreement, and
such agreement contains other typical affirmative and negative
covenants, such as obligations to deliver financial statements,
provide certain notices, comply with laws, and not enter into
certain transactions or make certain payments without the
consent of the lenders.
|
|
7.
|
OTHER CURRENT
LIABILITIES
|
As of the dates presented, other current liabilities consisted
of the following:
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
Accrued gift cards
|
|
$
|
12,046
|
|
|
$
|
12,617
|
|
Accrued compensation and benefits
|
|
|
10,036
|
|
|
|
12,362
|
|
Sales taxes payable
|
|
|
4,120
|
|
|
|
4,444
|
|
Deferred tax liability
|
|
|
2,147
|
|
|
|
|
|
Accrued capital expenditures
|
|
|
1,298
|
|
|
|
1,802
|
|
Other current liabilities
|
|
|
12,539
|
|
|
|
12,517
|
|
|
|
|
|
|
|
Total other current liabilities
|
|
$
|
42,186
|
|
|
$
|
43,742
|
|
|
|
|
|
|
|
The components of income tax expense/(benefit) from continuing
operations for the fiscal periods presented were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Current income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
452
|
|
|
$
|
(28,665
|
)
|
|
$
|
(34,309
|
)
|
State
|
|
|
409
|
|
|
|
824
|
|
|
|
(254
|
)
|
|
|
|
|
|
|
Total current
|
|
|
861
|
|
|
|
(27,841
|
)
|
|
|
(34,563
|
)
|
Deferred income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
10,566
|
|
|
|
13,554
|
|
State
|
|
|
(287
|
)
|
|
|
6,176
|
|
|
|
1,722
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(287
|
)
|
|
|
16,742
|
|
|
|
15,276
|
|
|
|
|
|
|
|
Total income tax expense/(benefit)
|
|
$
|
574
|
|
|
$
|
(11,099
|
)
|
|
$
|
(19,287
|
)
|
|
|
|
|
|
|
Included in fiscal 2010, 2009 and 2008 current income taxes were
tax benefits of approximately $0.3 million,
$0.4 million and $0.5 million, respectively, relating
to uncertain tax positions.
F-14 Pacific
Sunwear of California, Inc.
Form 10-K
2010
A reconciliation of income tax expense/(benefit) from continuing
operations to the amount of income tax expense/(benefit) that
would result from applying the federal statutory rate to income
from continuing operations before income taxes for the fiscal
periods presented was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Benefit for income taxes at statutory rate
|
|
$
|
(33,626
|
)
|
|
$
|
(28,490
|
)
|
|
$
|
(20,486
|
)
|
State income taxes, net of federal income tax benefit
|
|
|
(2,156
|
)
|
|
|
(2,238
|
)
|
|
|
(775
|
)
|
Valuation allowance
|
|
|
36,426
|
|
|
|
20,129
|
|
|
|
1,727
|
|
Other
|
|
|
(70
|
)
|
|
|
(500
|
)
|
|
|
247
|
|
|
|
|
|
|
|
Total income tax expense/(benefit)
|
|
$
|
574
|
|
|
$
|
(11,099
|
)
|
|
$
|
(19,287
|
)
|
|
|
|
|
|
|
The major components of the Companys overall net deferred
tax asset of approximately $4 million at each of
January 29, 2011 and January 30, 2010, were as follows:
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
Current net deferred tax asset
|
|
$
|
3,669
|
|
|
$
|
2,348
|
|
Long-term net deferred tax asset
|
|
|
65,077
|
|
|
|
28,289
|
|
|
|
|
|
|
|
|
|
|
68,746
|
|
|
|
30,637
|
|
Valuation allowance
|
|
|
(64,435
|
)
|
|
|
(26,613
|
)
|
|
|
|
|
|
|
Total net deferred tax asset
|
|
$
|
4,311
|
|
|
$
|
4,024
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss and tax credit carryforwards
|
|
$
|
59,574
|
|
|
$
|
31,207
|
|
Deferred lease incentives
|
|
|
11,950
|
|
|
|
16,445
|
|
Deferred rent
|
|
|
7,378
|
|
|
|
7,413
|
|
Deferred and stock-based compensation
|
|
|
3,006
|
|
|
|
2,425
|
|
Inventory cost capitalization
|
|
|
2,638
|
|
|
|
2,582
|
|
Sublease loss reserves
|
|
|
240
|
|
|
|
195
|
|
Other
|
|
|
3,724
|
|
|
|
2,362
|
|
|
|
|
|
|
|
|
|
|
88,510
|
|
|
|
62,629
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
(15,715
|
)
|
|
$
|
(28,085
|
)
|
Prepaid expenses
|
|
|
(2,541
|
)
|
|
|
(2,500
|
)
|
State income taxes
|
|
|
(1,508
|
)
|
|
|
(1,407
|
)
|
|
|
|
|
|
|
|
|
|
(19,764
|
)
|
|
|
(31,992
|
)
|
|
|
|
|
|
|
Net deferred taxes before valuation allowance
|
|
|
68,746
|
|
|
|
30,637
|
|
Less valuation allowance
|
|
|
(64,435
|
)
|
|
|
(26,613
|
)
|
|
|
|
|
|
|
Total net deferred tax asset
|
|
$
|
4,311
|
|
|
$
|
4,024
|
|
|
|
|
|
|
|
In accordance with ASC 740, and as a result of continued
pre-tax operating losses, a full valuation allowance was
established by the Company during the fourth quarter of 2009 and
continues to be maintained on all federal and the majority of
state and local jurisdiction net deferred tax assets. The
Company has discontinued recognizing income tax benefits until
it is determined that it is more likely than not that the
Company will generate sufficient taxable income to realize the
deferred income tax assets. As of the year ended
January 29, 2011, the Company did not record a valuation
allowance against various deferred tax assets related to
separate filing jurisdictions of $4.3 million as the
Company concluded it is more likely than not these deferred tax
assets will be utilized before expiration. As of the year ended
January 29, 2011, federal valuation allowances and state
valuation allowances against deferred tax assets were
$46.8 million and $17.6 million, respectively.
As of January 29, 2011, the Company had tax effected
federal net operating losses (NOLs) of approximately
$40.5 million available to offset future federal taxable
income. In addition, as of January 29, 2011 the Company had
tax effected state NOLs of approximately $14.6 million
available to offset future state taxable income. Federal and
state
Pacific
Sunwear of California, Inc.
Form 10-K
2010 F-15
NOLs will expire at various times and in varying amounts in
fiscal tax years 2012 through 2029. The Company also had federal
and Kansas credit carryforwards of approximately
$0.3 million and $4.2 million, respectively. The
Companys federal and Kansas carryforwards will begin to
expire in 2028 and 2017, respectively.
As of January 29, 2011 and January 30, 2010,
unrecognized income tax benefits accounted for under ASC 740
(FIN 48) totaled approximately $0.5 million and
$0.8 million, respectively. Of those amounts, approximately
$0.1 million and $0.5 million, respectively, represent
unrecognized tax benefits that would, if recognized, favorably
affect the Companys effective income tax rate in any
future periods. The Company does not anticipate that total
unrecognized tax benefits will change significantly in the next
twelve months.
The following is a tabular reconciliation of the total amounts
of unrecognized tax benefits (including interest and penalties)
at January 29, 2011, January 30, 2010 and
January 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Unrecognized tax benefits, opening balance
|
|
$
|
839
|
|
|
$
|
1,199
|
|
|
$
|
1,652
|
|
Gross increases tax positions in prior period
|
|
|
489
|
|
|
|
44
|
|
|
|
78
|
|
Gross decreases tax positions in prior period
|
|
|
(644
|
)
|
|
|
(270
|
)
|
|
|
(432
|
)
|
Gross increases tax positions in current period
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Settlements
|
|
|
(120
|
)
|
|
|
|
|
|
|
|
|
Lapse of statute of limitations
|
|
|
(71
|
)
|
|
|
(134
|
)
|
|
|
(100
|
)
|
|
|
|
|
|
|
Unrecognized tax benefits, ending balance
|
|
$
|
493
|
|
|
$
|
839
|
|
|
$
|
1,199
|
|
|
|
|
|
|
|
Estimated interest and penalties related to the underpayment of
income taxes are included in income tax expense and totaled less
than $0.1 million for fiscal 2010. Accrued interest and
penalties were approximately $0.1 million and
$0.2 million at January 29, 2011 and January 30,
2010, respectively.
The Company files income tax returns in the U.S. federal
jurisdiction and multiple other state and local jurisdictions.
The Company is no longer subject to U.S. federal
examinations for years prior to 2006 and, with few exceptions,
is no longer subject to state and local examinations for years
before 2006. Income tax returns for the 2007 and 2008 tax years
are currently under examination by the Internal Revenue Service.
The Company does not expect that the results of this examination
will have a material effect on its financial condition or
results of operations. Depending on the actual outcome of the
examination, charges in excess of any provisions could be
recorded in the future, which may have an adverse effect on the
Companys operating results.
The Company maintains two stock-based incentive plans:
(1) 2005 Performance Incentive Plan and (2) the
amended and restated Employee Stock Purchase Plan. The types of
awards that may be granted under the 2005 Performance Incentive
Plan include stock options, stock appreciation rights, and
restricted stock, or other forms of awards granted or
denominated in the Companys common stock or units of the
Companys common stock. Persons eligible to receive awards
under the 2005 Performance Incentive Plan include officers or
employees of the Company or any of its subsidiaries, directors
of the Company and certain consultants and advisors to the
Company or any of its subsidiaries. The vesting of awards under
the Performance Incentive Plan is determined at the date of
grant. Each award expires on a date determined at the date of
grant; however, the maximum term of options and stock
appreciation rights under the 2005 Performance Incentive Plan is
ten years after the grant date of the award. As of
January 29, 2011, the maximum number of shares of the
Companys common stock that was authorized for award grants
under the 2005 Performance Incentive Plan was 4.4 million
shares. Any shares subject to awards under prior stock plans
that are canceled, forfeited or otherwise terminate without
having vested or been exercised, as applicable, will become
available for other award grants under the 2005 Performance
Incentive Plan. The 2005 Performance Incentive Plan will
terminate on March 22, 2015 unless terminated earlier by
the Companys Board of Directors.
F-16 Pacific
Sunwear of California, Inc.
Form 10-K
2010
The Company accounts for stock-based compensation expense
according to the fair value method. The Company uses the
Black-Scholes option-pricing model to estimate the grant date
fair value of its recognized stock-based compensation expense.
Forfeitures are estimated at the date of grant based on
historical rates and reduce the compensation expense to be
recognized. The expected term of options granted is derived
primarily from historical data on employee exercises adjusted
for expected changes to option terms, if any. The risk-free
interest rate is based on the U.S. Treasury yield curve in
effect at the date of grant. Expected volatility is based
primarily on the historical volatility of the Companys
stock. The Company records stock-based compensation expense
using the graded vesting method over the vesting period, which
is generally three to four years. The Companys stock-based
awards generally begin vesting one year after the grant date
and, for stock options, expire in seven to ten years or three
months after termination of employment with the Company. The
Companys stock-based compensation expense resulted from
awards of stock options, non-vested shares, and stock
appreciation rights, as well as from shares purchased under the
Companys employee share purchase plan.
The fair value of the Companys stock-based compensation
activity was determined using the following weighted-average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
Stock Options
|
|
ESPP
|
|
Stock Options
|
|
ESPP
|
|
Stock Options
|
|
ESPP
|
|
|
|
|
Expected Option Life
|
|
4 years
|
|
0.5 years
|
|
4 years
|
|
0.5 years
|
|
4 years
|
|
0.5 years
|
Expected Stock Volatility
|
|
79.4% - 81.7%
|
|
59.5% - 97.2%
|
|
69.4% - 78.3%
|
|
97.2% - 130.0%
|
|
40.3% - 63.5%
|
|
45.4% - 57.0%
|
Risk-free Interest Rates
|
|
1.0% - 2.0%
|
|
.29% - .38%
|
|
1.5% - 2.0%
|
|
.33% - .48%
|
|
1.2% - 3.0%
|
|
2.1% - 3.2%
|
Expected Dividends
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
Stock Options There were 6,500 options
exercised in fiscal 2010. There were no options exercised in
fiscal 2009. The total intrinsic value of options exercised
during fiscal 2010 was $0.1 million.
At January 29, 2011, outstanding incentive and nonqualified
options had exercise prices ranging from $1.20 to $27.08 per
share, with an average exercise price of $7.12 per share, and
generally begin vesting one year after the grant date. Options
generally vest over three or four years. The options generally
expire seven or ten years from the date of grant or three months
after employment or services are terminated.
At January 29, 2011, incentive and nonqualified options to
purchase 3,253,554 shares were outstanding and
4,440,067 shares were available for future grant under the
Companys stock compensation plans. During fiscal 2010, the
Company did not recognize tax benefits from the exercise of
certain nonqualified stock options as there were no nonqualified
options exercise by employees in fiscal 2010. In each of fiscal
2009 and fiscal 2008, the Company recognized tax benefit
deficiencies of $2 million, resulting from the exercise of
certain nonqualified stock options.
Under the Companys stock option plans, incentive and
nonqualified options have been granted to employees and
directors to purchase common stock at prices equal to the fair
value of the Companys shares at the respective grant
dates. A summary of stock option (incentive and nonqualified)
activity for fiscal 2010 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Weighted-
|
|
Average
|
|
Aggregate
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Intrinsic
|
|
|
|
|
|
Exercise
|
|
Contractual
|
|
Value
|
Stock Options
|
|
Shares
|
|
|
Price
|
|
Term (Yrs.)
|
|
($000s)
|
|
|
Outstanding at January 30, 2010
|
|
|
3,783,728
|
|
|
$
|
9.54
|
|
|
|
|
Granted
|
|
|
536,500
|
|
|
|
4.91
|
|
|
|
|
Exercised
|
|
|
(6,500
|
)
|
|
|
1.64
|
|
|
|
|
Forfeited or expired
|
|
|
(1,060,174
|
)
|
|
|
14.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 29, 2011
|
|
|
3,253,554
|
|
|
$
|
7.12
|
|
5.10
|
|
$1,868
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at January 29, 2011
|
|
|
2,654,373
|
|
|
$
|
7.83
|
|
4.90
|
|
$1,553
|
Exercisable at January 29, 2011
|
|
|
938,804
|
|
|
$
|
14.71
|
|
3.47
|
|
$175
|
Pacific
Sunwear of California, Inc.
Form 10-K
2010 F-17
The weighted-average grant-date fair value per share of options
granted during each of fiscal 2010, 2009 and 2008 was $2.91,
$1.70 and $4.28, respectively. Additional information regarding
options outstanding as of January 29, 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
Average
|
|
|
|
Average
|
|
|
Number
|
|
Remaining
|
|
Exercise
|
|
Number
|
|
Exercise
|
Range of Exercise
Prices
|
|
Outstanding
|
|
Contractual Life
|
|
Price
|
|
Exercisable
|
|
Price
|
|
$1.20 $3.68
|
|
546,800
|
|
5.31
|
|
$
|
1.91
|
|
24,350
|
|
$
|
1.53
|
3.84 4.05
|
|
1,600,000
|
|
5.75
|
|
|
3.89
|
|
262,500
|
|
|
3.85
|
4.05 9.49
|
|
453,344
|
|
6.05
|
|
|
5.96
|
|
65,244
|
|
|
8.99
|
9.49 24.11
|
|
502,101
|
|
2.99
|
|
|
18.46
|
|
435,401
|
|
|
18.96
|
24.30 27.08
|
|
151,309
|
|
1.64
|
|
|
25.95
|
|
151,309
|
|
|
25.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.20 $27.08
|
|
3,253,554
|
|
5.10
|
|
$
|
7.12
|
|
938,804
|
|
$
|
14.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested Shares A summary of the status of
the Companys non-vested shares as of January 29,
2011, and changes during the year then ended, is presented
below. Non-vested shares contain a time-based restriction as to
vesting. These awards generally vest over four years with 25% of
the grant vesting each year on the anniversary of the grant date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant-Date
|
|
Non-vested Shares
|
|
Shares
|
|
|
Fair Value
|
|
|
|
|
Outstanding at January 30, 2010
|
|
|
481,540
|
|
|
$
|
10.23
|
|
Granted
|
|
|
297,250
|
|
|
|
4.90
|
|
Vested
|
|
|
(162,218
|
)
|
|
|
11.98
|
|
Forfeited or expired
|
|
|
(182,317
|
)
|
|
|
8.72
|
|
|
|
|
|
|
|
Outstanding at January 29, 2011
|
|
|
434,255
|
|
|
$
|
6.56
|
|
|
|
|
|
|
|
Non-vested Share Units A summary of
non-vested share units activity under the Companys 2005
Performance Incentive Plan for fiscal 2010 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
|
|
|
Contractual
|
|
|
Value
|
|
Non-vested Share Units
|
|
Shares
|
|
|
Term (Yrs.)
|
|
|
($000s)
|
|
|
|
|
Outstanding at January 30, 2010
|
|
|
286,480
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
Released
|
|
|
(286,480
|
)
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 29, 2011
|
|
|
175,000
|
|
|
|
0.34
|
|
|
$
|
746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at January 29, 2011
|
|
|
162,243
|
|
|
|
0.34
|
|
|
$
|
691
|
|
At January 29, 2011, the Company had approximately
$4 million of compensation cost related to non-vested stock
option, non-vested share awards and non-vested share units not
yet recognized. This compensation expense is expected to be
recognized over a weighted-average period of approximately
2.4 years.
Employee Stock Purchase Plan
(ESPP) The Company maintains an
ESPP, which provides a method for Company employees to
voluntarily purchase Company common stock at a 10% discount from
fair market value as of the beginning or the end of each
six-month purchasing period, whichever is lower. The ESPP covers
substantially all employees, excluding senior executives, who
have three months of service with the Company. The ESPP is
intended to constitute an employee stock purchase
plan within the meaning of Section 423 of the
Internal Revenue Code of 1986, as amended.
F-18 Pacific
Sunwear of California, Inc.
Form 10-K
2010
The Company recognized $0.2 million, $0.3 million and
$0.1 million in compensation expense related to the ESPP
for each of fiscal 2010, 2009 and 2008, respectively. In fiscal
2010, 2009 and 2008, 189,170, 378,378 and 218,851 shares
were issued at an average price of $2.90, $1.92 and $2.97,
respectively, under the ESPP.
|
|
10.
|
COMMITMENTS AND
CONTINGENCIES
|
Operating Leases The Company leases its
retail stores and certain equipment under operating lease
agreements expiring at various dates through November 2021.
Substantially all of the Companys retail store leases
require the Company to pay common area maintenance charges,
insurance, property taxes and percentage rent ranging from 2% to
20% when sales volumes exceed certain minimum sales levels. The
initial terms of such leases are typically seven to ten years,
and many of such leases contain renewal options exercisable at
the Companys discretion. Most leases also contain rent
escalation clauses that come into effect at various times
throughout the lease term. Rent expense is recorded under the
straight-line method over the life of the lease (see
Straight-Line Rent in Note 1). Other rent
escalation clauses can take effect based on changes in primary
mall tenants throughout the term of a given lease. Most leases
also contain cancellation or kick-out clauses in the
Companys favor that relieve the Company of any future
obligation under a lease if specified sales levels or mall
occupancy targets are not achieved by a specified date. None of
the Companys retail store leases contain purchase options.
As of January 29, 2011, minimum future rental commitments
under non-cancelable operating leases were as follows (in
thousands):
|
|
|
|
|
Fiscal year
ending:
|
|
|
|
|
January 28, 2012
|
|
$
|
94,455
|
|
February 2, 2013
|
|
|
85,833
|
|
February 1, 2014
|
|
|
74,546
|
|
January 31, 2015
|
|
|
65,482
|
|
January 30, 2016
|
|
|
55,306
|
|
Thereafter
|
|
|
129,097
|
|
|
|
|
|
|
Total future operating lease commitments
|
|
$
|
504,719
|
|
|
|
|
|
|
The table above does not include common area maintenance (CAM)
charges, which are also a required contractual obligation under
the Companys store operating leases. In many of the
Companys leases, CAM charges are not fixed and can
fluctuate significantly from year to year for any particular
store. For fiscal 2010, 2009, and 2008, store rental expenses,
including CAM, for the Companys stores were
$161 million, $164 million, and $165 million,
respectively, of which $3 million, $4 million and
$4 million, respectively, was paid as percentage rent based
on sales volume. The Company expects total CAM expenses to
continue to increase from year to year or as long-term leases
come up for renewal at current market rates in excess of
original lease terms.
Litigation Ned Nelson, as an individual
and on behalf of others similarly situated, vs. Pacific Sunwear
of California, Inc., Los Angeles Superior Court, Case
No. BC 436947. On April 30, 2010, the plaintiff
filed a putative class action lawsuit against the Company
alleging various violations of Californias wage and hour,
overtime, meal break and rest break rules and regulations. The
complaint sought class certification, the appointment of the
plaintiff as class representative and an unspecified amount of
damages and penalties. In March 2011, the Company settled this
case for a nominal amount.
Charles Pfeiffer, individually and on behalf of other
aggrieved employees vs. Pacific Sunwear of California, Inc. and
Pacific Sunwear Stores Corp., Superior Court of California,
County of Riverside, Case No. 1100527. On
January 13, 2011, the plaintiff in this matter filed a
lawsuit against the Company alleging violations of
Californias wage and hour, overtime, meal break and rest
break rules and regulations, among other things. The complaint
seeks an unspecified amount of damages and penalties. The
Company will file an answer denying all allegations regarding
the plaintiffs claims and asserting various defenses. As
the ultimate outcome of this matter is uncertain no amounts have
been
Pacific
Sunwear of California, Inc.
Form 10-K
2010 F-19
accrued by the Company as of the date of this report. Depending
on the actual outcome of this case, provisions could be recorded
in the future which may have an adverse effect on its operating
results.
Phillip Gleason, on behalf of himself and others similarly
situated vs. Pacific Sunwear of California, Inc., Superior Court
of California, County of Los Angeles, Case No. 457654.
On March 21, 2011, the plaintiff in this matter filed a
putative class action lawsuit against the Company alleging
violations of Californias wage and hour, overtime, meal
break and rest break rules and regulations, among other things.
The complaint seeks class certification, the appointment of the
plaintiff as class representative, and an unspecified amount of
damages and penalties. The Company has not been served in this
case, but when it is will file an answer denying all allegations
regarding the plaintiffs claims and asserting various
defenses. As the ultimate outcome of this matter is uncertain,
no amounts have been accrued by the Company as of the date of
this report. Depending on the actual outcome of this case,
provisions could be recorded in the future which may have an
adverse effect on the Companys operating results.
Tamara Beeney, individually and on behalf of other members of
the general public similarly situated vs. Pacific Sunwear of
California, Inc. and Pacific Sunwear Stores Corporation,
Superior Court of California, County of Orange, Case
No. 30-2011-00459346-CU-OE-CXC.
On March 18, 2011, the plaintiff in this matter filed a
putative class action lawsuit against the Company alleging
violations of Californias wage and hour, overtime, meal
break and rest break rules and regulations, among other things.
The complaint seeks class certification, the appointment of the
plaintiff as class representative, and an unspecified amount of
damages and penalties. The Company has not been served in this
case, but when it is will file an answer denying all allegations
regarding the plaintiffs claims and asserting various
defenses. As the ultimate outcome of this matter is uncertain,
no amounts have been accrued by the Company as of the date of
this report. Depending on the actual outcome of this case,
provisions could be recorded in the future which may have an
adverse effect on the Companys operating results.
The Company is also involved from time to time in other
litigation incidental to its business. The Company believes that
the outcome of current litigation will not likely have a
material adverse effect on its results of operations or
financial condition and, from time to time, the Company may make
provisions for probable litigation losses. Depending on the
actual outcome of pending litigation, charges in excess of any
provisions could be recorded in the future, which may have an
adverse effect on its operating results.
Indemnities, Commitments, and Guarantees
During its normal course of business, the Company has made
certain indemnities, commitments and guarantees under which it
may be required to make payments in relation to certain
transactions. These indemnities include those given to various
lessors in connection with facility leases for certain claims
arising from such facility or lease and indemnities to directors
and officers of the Company to the maximum extent permitted
under the laws of the State of California. The duration of these
indemnities, commitments and guarantees varies, and in certain
cases, is indefinite. The majority of these indemnities,
commitments and guarantees do not provide for any limitation of
the maximum potential future payments the Company could be
obligated to make. The Company has not recorded any liability
for these indemnities, commitments and guarantees in the
accompanying consolidated balance sheets other than as disclosed
below.
Letters of Credit The Company has issued
guarantees in the form of commercial letters of credit, of which
there were approximately $15 million outstanding at
January 29, 2011, as security for merchandise shipments
from overseas. All in-transit merchandise covered by letters of
credit is accrued for in accounts payable.
The Company maintains an Executive Deferred Compensation Plan
(the Executive Plan) covering Company officers that
is funded by participant contributions and periodic Company
discretionary contributions. Vested participant balances are
included in other long-term liabilities and were approximately
$2 million in each of fiscal 2010 and 2009. The Company
made no contributions to the Executive Plan during fiscal 2010
and 2009, and $0.1 million in fiscal 2008.
The Company also maintains an Employee Savings Plan (the
401(k) Plan). The 401(k) Plan is a defined
contribution plan covering substantially all employees who have
reached age 21. The 401(k) Plan is funded by participant
F-20 Pacific
Sunwear of California, Inc.
Form 10-K
2010
contributions and Company matching contributions. The Company
made contributions to the 401(k) Plan, net of forfeitures, of
approximately $1 million in each of fiscal 2010 and 2009,
and $1.5 million for fiscal 2008.
The Company operates exclusively in the retail apparel industry
in which the Company distributes, designs and produces clothing
and related products catering to teens and young adults through
its primarily mall-based PacSun retail stores. The Company has
identified three operating segments: PacSun stores, PacSun
Outlet stores and pacsun.com. The three operating segments have
been aggregated into one reportable segment based on the similar
nature of products sold, production, merchandising and
distribution processes involved, target customers, and economic
characteristics among the three operating segments.
|
|
13.
|
DISCONTINUED
OPERATIONS
|
Financial results of the Companys former demo
stores are reported as loss from discontinued operations
(net of tax effects) in the consolidated statement of
operations and comprehensive operations in fiscal 2008. During
fiscal 2007, the Company closed 74 demo stores which specialized
in fashion-focused streetwear apparel. Subsequently in the first
quarter of fiscal 2008, the Company closed its remaining 153
demo stores. The determination to take this action resulted from
a comprehensive review and evaluation of the real estate
portfolio and profit performance of the Companys demo
stores and after having exhausted other strategic alternatives.
Total actual cash payments made during fiscal 2008 for lease
termination costs, employee retention and severance costs, and
agency fees associated with the discontinuation of demo were
approximately $58 million. As of January 31, 2009,
there were no remaining amounts to be paid related to the
discontinuation of demo. All charges incurred in the
discontinuation of demo are included in the financial results of
the discontinued operations. The financial results of the
discontinued operations for fiscal 2008 are as follows (in
thousands, except per share amount): Net sales
$27,051; Loss before taxes - $(40,683); Income tax
benefit $16,106; Loss from discontinued operations,
net of tax - $(24,577); Loss from discontinued operations per
diluted share $(0.37).
|
|
14.
|
QUARTERLY
FINANCIAL DATA (UNAUDITED)
|
The table below presents summarized quarterly financial results
on a continuing operations basis for each of fiscal 2010 and
2009. All amounts in the table below are expressed in thousands
of dollars, except for share and per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
FISCAL YEAR ENDED JANUARY 29, 2011:
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
|
Net sales
|
|
$
|
190,308
|
|
|
$
|
218,336
|
|
|
$
|
257,904
|
|
|
$
|
262,958
|
|
Gross margin
|
|
|
42,466
|
|
|
|
50,758
|
|
|
|
64,377
|
|
|
|
47,786
|
|
Operating loss
|
|
|
(30,688
|
)
|
|
|
(23,187
|
)
|
|
|
(6,716
|
)
|
|
|
(34,553
|
)
|
Net loss
|
|
|
(31,028
|
)
|
|
|
(23,465
|
)
|
|
|
(6,963
|
)
|
|
|
(35,192
|
)
|
Loss per share
|
|
|
(0.47
|
)
|
|
|
(0.36
|
)
|
|
|
(0.11
|
)
|
|
|
(0.53
|
)
|
Weighted average shares outstanding
|
|
|
65,837,928
|
|
|
|
65,950,825
|
|
|
|
66,056,822
|
|
|
|
66,107,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR ENDED JANUARY 30,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
223,465
|
|
|
$
|
242,794
|
|
|
$
|
268,280
|
|
|
$
|
292,562
|
|
Gross margin
|
|
|
61,274
|
|
|
|
57,708
|
|
|
|
73,441
|
|
|
|
66,180
|
|
Operating loss
|
|
|
(15,495
|
)
|
|
|
(21,635
|
)
|
|
|
(15,924
|
)
|
|
|
(28,071
|
)
|
Net loss
|
|
|
(8,743
|
)
|
|
|
(14,155
|
)
|
|
|
(10,905
|
)
|
|
|
(36,499
|
)
|
Loss per share
|
|
|
(0.13
|
)
|
|
|
(0.22
|
)
|
|
|
(0.17
|
)
|
|
|
(0.56
|
)
|
Weighted average shares outstanding
|
|
|
65,207,991
|
|
|
|
65,370,465
|
|
|
|
65,563,721
|
|
|
|
65,629,371
|
|
Earnings per share is computed for each of the quarters
presented based on diluted shares outstanding and, therefore,
may not sum to the totals for the year. Additionally, the sum of
the four quarterly amounts for any line item may not agree to
the fiscal year total in the consolidated financial statements
due to rounding.
Pacific
Sunwear of California, Inc.
Form 10-K
2010 F-21
INDEX TO
EXHIBITS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by
|
|
|
|
|
Reference
|
Exhibit #
|
|
Exhibit Description
|
|
Form
|
|
Filing Date
|
|
|
|
3
|
.1
|
|
Third Amended and Restated Articles of Incorporation of the
Company
|
|
|
10-Q
|
|
|
|
8/31/04
|
|
|
3
|
.2
|
|
Certificate of Determination of Preferences of Series A
Junior Participating Preferred Stock of the Company
|
|
|
8-K
|
|
|
|
12/24/98
|
|
|
3
|
.3
|
|
Fifth Amended and Restated Bylaws of the Company
|
|
|
8-K
|
|
|
|
4/3/09
|
|
|
4
|
.1
|
|
Specimen stock certificate
|
|
|
S-1
|
|
|
|
2/4/93
|
|
|
10
|
.1*
|
|
Form of Indemnity Agreement between the Company and each of its
executive officers and directors
|
|
|
S-1
|
|
|
|
2/4/93
|
|
|
10
|
.2*
|
|
Pacific Sunwear of California, Inc. Executive Deferred
Compensation Plan and Trust Agreement
|
|
|
10-K
|
|
|
|
3/17/95
|
|
|
10
|
.3*
|
|
Pacific Sunwear of California, Inc. Executive Deferred
Compensation Plan, as amended and restated effective
May 30, 2001
|
|
|
10-K
|
|
|
|
4/1/09
|
|
|
10
|
.4*
|
|
Pacific Sunwear of California, Inc. Executive Deferred
Compensation Plan, as amended and restated effective
December 31, 2008 (subject to section 409A deferrals)
|
|
|
10-K
|
|
|
|
4/1/09
|
|
|
10
|
.5*
|
|
Amended and Restated Pacific Sunwear of California, Inc. 1999
Stock Award Plan dated March 24, 2004
|
|
|
10-Q
|
|
|
|
5/21/04
|
|
|
10
|
.6*
|
|
Pacific Sunwear of California, Inc. 2005 Performance Incentive
Plan
|
|
|
8-K
|
|
|
|
5/24/05
|
|
|
10
|
.7*
|
|
Amended and Restated Pacific Sunwear of California, Inc.
Employee Stock Purchase Plan dated November 17, 2004
|
|
|
10-Q
|
|
|
|
12/9/04
|
|
|
10
|
.8*
|
|
Form of Performance-Based Bonus Award Agreement
|
|
|
10-Q
|
|
|
|
12/9/04
|
|
|
10
|
.9*
|
|
Form of Notice of Director Stock Appreciation Right Award
Agreement
|
|
|
8-K
|
|
|
|
5/23/06
|
|
|
10
|
.10*
|
|
Form of Notice of Employee Stock Appreciation Right Award
Agreement
|
|
|
8-K
|
|
|
|
5/23/06
|
|
|
10
|
.11*
|
|
Form of Notice of Employee Restricted Stock Award Agreement
|
|
|
8-K
|
|
|
|
5/23/06
|
|
|
10
|
.12*
|
|
Pacific Sunwear of California, Inc. Executive Severance Plan, as
amended and restated as of November 20, 2008
|
|
|
10-K
|
|
|
|
4/1/09
|
|
|
10
|
.13*
|
|
Employment Agreement, dated as of May 22, 2007, between the
Company and Sally Frame Kasaks
|
|
|
8-K
|
|
|
|
5/23/07
|
|
|
10
|
.14*
|
|
Amendment No. 1, effective December 31, 2008, to the
Employment Agreement and Restricted Stock Unit Award Agreement
between the Company and Sally Frame Kasaks
|
|
|
10-K
|
|
|
|
4/1/09
|
|
|
10
|
.15*
|
|
Form of Stock Appreciation Rights Agreement between the Company
and Sally Frame Kasaks
|
|
|
8-K
|
|
|
|
5/23/07
|
|
|
10
|
.16*
|
|
Form of Restricted Stock Unit Award Agreement between the
Company and Sally Frame Kasaks
|
|
|
8-K
|
|
|
|
5/23/07
|
|
|
10
|
.17*
|
|
Employment Agreement, dated as of June 16, 2009, between
the Company and Gary H. Schoenfeld
|
|
|
8-K
|
|
|
|
6/17/09
|
|
|
10
|
.18*
|
|
Letter Agreement, dated as of June 16, 2009 between the
Company and Sally Frame Kasaks
|
|
|
8-K
|
|
|
|
6/17/09
|
|
|
10
|
.19*+
|
|
Summary of Board of Directors Compensation for fiscal 2011
|
|
|
|
|
|
|
|
|
|
10
|
.20*+
|
|
Summary of Named Executive Officers Annual Compensation for
fiscal 2011
|
|
|
|
|
|
|
|
|
|
10
|
.21
|
|
Credit Agreement, dated as of April 29, 2008, with JPMorgan
Chase Bank, N.A., as Administrative Agent, Bank of America,
N.A., as Syndication Agent, BB&T Company, U.S. Bank
National Association and Wells Fargo Foothill, Inc., as
Co-Documentation Agents, and J.P. Morgan Securities Inc.
and Banc of America Securities LLC, as Joint Book runners and
Joint Lead Arrangers, and a syndicate of other lenders
|
|
|
8-K
|
|
|
|
5/2/08
|
|
|
10
|
.22
|
|
Security Agreement, dated as of April 29, 2008, by the
Company, Pacific Sunwear Stores Corp., Miraloma Corp., and
certain future subsidiaries of the Company, and JPMorgan Chase
Bank, N.A., as Administrative Agent
|
|
|
8-K
|
|
|
|
5/2/08
|
|
|
10
|
.23
|
|
First Amendment to Credit Agreement, dated as of August 1,
2008, with JPMorgan Chase Bank, N.A., as Administrative Agent,
and a syndicate of other lenders
|
|
|
10-Q
|
|
|
|
8/29/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by
|
|
|
|
|
Reference
|
Exhibit #
|
|
Exhibit Description
|
|
Form
|
|
Filing Date
|
|
|
|
10
|
.24
|
|
Trust Indenture, dated as of July 17, 2007, between
the City of Olathe, Kansas and U.S. Bank National Association,
as Trustee
|
|
|
8-K
|
|
|
|
7/23/07
|
|
|
10
|
.25
|
|
Lease Agreement, dated as of July 17, 2007, between the
City of Olathe, Kansas and Pacific Sunwear Stores Corp.
|
|
|
8-K
|
|
|
|
7/23/07
|
|
|
10
|
.26
|
|
Promissory Note Secured by a Deed of Trust, dated
August 20, 2010, executed by Miraloma Borrower Corporation
in favor of American National Insurance Company
|
|
|
8-K
|
|
|
|
8/24/10
|
|
|
10
|
.27
|
|
Deed of Trust, Assignment of Rents and Security Agreement, dated
August 20, 2010, executed by Miraloma Borrower Corporation
in favor of American National Insurance Company
|
|
|
8-K
|
|
|
|
8/24/10
|
|
|
10
|
.28
|
|
Promissory Note, dated August 20, 2010, executed by Pacific
Sunwear Stores Corp. in favor of American National Insurance
Company
|
|
|
8-K
|
|
|
|
8/24/10
|
|
|
10
|
.29
|
|
Mortgage Security Agreement, Financing Statement and Fixture
Filing, dated August 20, 2010, executed by Pacific Sunwear
Stores Corp. in favor of American National Insurance Company
|
|
|
8-K
|
|
|
|
8/24/10
|
|
|
10
|
.30
|
|
Absolute, Unconditional Guaranty, dated August 20, 2010,
executed by Pacific Sunwear of California, Inc. in favor of
American National Insurance Company
|
|
|
8-K
|
|
|
|
8/24/10
|
|
|
21
|
.1+
|
|
Subsidiaries of the Registrant
|
|
|
|
|
|
|
|
|
|
23
|
.1+
|
|
Consent of Independent Registered Public Accounting Firm
|
|
|
|
|
|
|
|
|
|
31
|
.1+
|
|
Written statements of Gary H. Schoenfeld and Michael L. Henry
pursuant to section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
32
|
.1+
|
|
Written statement of Gary H. Schoenfeld and Michael L. Henry
pursuant to section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
* Management contract or compensatory plan or arrangement
+ Filed herewith