##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For The Quarterly Period Ended April 29, 2006
 Commission File Number 1-14770
 PAYLESS SHOESOURCE, INC.
  DELAWARE
    
    43-1813160(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)3231 SOUTHEAST SIXTH AVENUE, TOPEKA, KANSAS
    
    66607-2207(Address of principal executive offices)
    
    (Zip Code)
 
  þ o
  þ o o
  o þ




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONITEM 1  FINANCIAL STATEMENTSITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4  CONTROLS AND PROCEDURESPART II  OTHER INFORMATIONITEM 1  LEGAL PROCEEDINGSITEM 1A  RISK FACTORSITEM 2  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSITEM 6  EXHIBITSSIGNATURES2006 Stock Incentive PlanStock Plan for Non-Management Directors302 Certification302 Certification906 Certification906 Certification    Table of Contents  
  
  
 April 29,
    
    
    April 30,
    
    
    January 28,(dollars in millions)
    
    2006
    
    
    2005
    
    
    2006ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    335.9
    
    
    $
    245.8
    
    
    $
    378.9Short-term investments
    
    
    75.1
    
    
    
    57.5
    
    
    
    59.0Restricted cash
    
    
    2.0
    
    
    
    2.0
    
    
    
    2.0Inventories
    
    
    378.0
    
    
    
    383.9
    
    
    
    333.0Current deferred income taxes
    
    
    19.3
    
    
    
    20.9
    
    
    
    20.2Other current assets
    
    
    59.6
    
    
    
    56.9
    
    
    
    59.8Current assets of discontinued operations
    
    
    1.3
    
    
    
    4.8
    
    
    
    1.6Total current assets
    
    
    871.2
    
    
    
    771.8
    
    
    
    854.5Property and Equipment:Land
    
    
    7.7
    
    
    
    8.3
    
    
    
    7.7Property, buildings and equipment
    
    
    1,202.9
    
    
    
    1,189.4
    
    
    
    1,186.3Accumulated depreciation and amortization
    
    
    (822.1
    )
    
    
    (785.8
    )
    
    
    (807.9
    )Property and equipment, net
    
    
    388.5
    
    
    
    411.9
    
    
    
    386.1Favorable leases, net
    
    
    17.0
    
    
    
    20.8
    
    
    
    18.2Deferred income taxes
    
    
    28.9
    
    
    
    35.6
    
    
    
    27.5Goodwill
    
    
    5.9
    
    
    
    5.9
    
    
    
    5.9Other assets
    
    
    22.9
    
    
    
    23.1
    
    
    
    22.3Total Assets
    
    $
    1,334.4
    
    
    $
    1,269.1
    
    
    $
    1,314.5LIABILITIES AND SHAREOWNERS EQUITYCurrent Liabilities:Current maturities of long-term debt
    
    $
    0.4
    
    
    $
    1.5
    
    
    $
    0.4Notes payable
    
    
    2.0
    
    
    
    2.0
    
    
    
    2.0Accounts payable
    
    
    175.4
    
    
    
    169.8
    
    
    
    168.9Accrued expenses
    
    
    160.8
    
    
    
    158.2
    
    
    
    163.8Current liabilities of discontinued operations
    
    
    2.8
    
    
    
    5.0
    
    
    
    3.4Total current liabilities
    
    
    341.4
    
    
    
    336.5
    
    
    
    338.5Long-term debt
    
    
    202.9
    
    
    
    204.3
    
    
    
    204.2Other liabilities
    
    
    111.0
    
    
    
    95.8
    
    
    
    109.3Minority interest
    
    
    11.0
    
    
    
    8.6
    
    
    
    10.5Commitments and contingenciesTotal shareowners equity
    
    
    668.1
    
    
    
    623.9
    
    
    
    652.0Total Liabilities and Shareowners Equity
    
    $
    1,334.4
    
    
    $
    1,269.1
    
    
    $
    1,314.5
  2




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13 Weeks Ended(dollars and shares in millions, except per share)
    
    April 29, 2006
    
    
    April 30, 2005Net sales
    
    $
    694.8
    
    
    $
    695.2Cost of sales
    
    
    439.1
    
    
    
    450.8Gross margin
    
    
    255.7
    
    
    
    244.4Selling, general and administrative expenses
    
    
    199.7
    
    
    
    196.7Restructuring charges
    
    
    
    
    
    
    0.7Operating profit from continuing operations
    
    
    56.0
    
    
    
    47.0Interest expense
    
    
    4.9
    
    
    
    4.9Interest income
    
    
    (4.8
    )
    
    
    (1.7
    )Earnings from continuing operations before
income taxes and minority interest
    
    
    55.9
    
    
    
    43.8Provision for income taxes
    
    
    19.5
    
    
    
    12.5Earnings from continuing operations before
minority interest
    
    
    36.4
    
    
    
    31.3Minority interest, net of income taxes
    
    
    
    
    
    
    0.4Net earnings from continuing operations
    
    
    36.4
    
    
    
    31.7Loss from discontinued operations, net of
income taxes and minority interest
    
    
    (0.4
    )
    
    
    (1.5
    )Net earnings
    
    $
    36.0
    
    
    $
    30.2Basic earnings per share:Earnings from continuing operations
    
    $
    0.55
    
    
    $
    0.47Loss from discontinued operations
    
    
    (0.01
    )
    
    
    (0.02
    )Basic earnings per share
    
    $
    0.54
    
    
    $
    0.45Diluted earnings per share:Earnings from continuing operations
    
    $
    0.54
    
    
    $
    0.47Loss from discontinued operations
    
    
    (0.01
    )
    
    
    (0.02
    )Diluted earnings per share
    
    $
    0.53
    
    
    $
    0.45Basic Weighted Average Shares Outstanding
    
    
    66.6
    
    
    
    67.1Diluted Weighted Average Shares Outstanding
    
    
    67.6
    
    
    
    67.2
  3




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13 Weeks Ended(dollars in millions)
    
    April 29, 2006
    
    
    April 30, 2005Operating Activities:Net earnings
    
    $
    36.0
    
    
    $
    30.2Loss from discontinued operations, net of
income taxes and minority interest
    
    
    (0.4
    )
    
    
    (1.5
    )Net earnings from continuing operations
    
    
    36.4
    
    
    
    31.7Adjustments for non-cash items included
in net earnings:Loss on impairment of and disposal of assets
    
    
    1.7
    
    
    
    2.4Depreciation and amortization
    
    
    22.6
    
    
    
    23.0Amortization of deferred financing costs
    
    
    0.3
    
    
    
    0.3Share-based compensation expense
    
    
    2.8
    
    
    
    0.2Deferred income taxes
    
    
    0.4
    
    
    
    1.7Minority interest, net of income taxes
    
    
    
    
    
    
    (0.4
    )Income tax benefit of stock option exercises
    
    
    0.4
    
    
    
    Accretion of investments
    
    
    (0.7
    )
    
    
    Changes in working capital:Inventories
    
    
    (44.5
    )
    
    
    (38.7
    )Other current assets
    
    
    (0.8
    )
    
    
    (1.2
    )Accounts payable
    
    
    6.6
    
    
    
    10.7Accrued expenses
    
    
    (5.5
    )
    
    
    4.1Other assets and liabilities, net
    
    
    (0.1
    )
    
    
    2.4Net cash used in discontinued operations
    
    
    (0.7
    )
    
    
    (7.7
    )Cash flow provided by operating activities
    
    
    18.9
    
    
    
    28.5Investing Activities:Capital expenditures
    
    
    (23.0
    )
    
    
    (21.8
    )Proceeds from sale of property and equipment
    
    
    1.0
    
    
    
    Restricted cash
    
    
    
    
    
    
    1.0Purchases of investments
    
    
    (74.8
    )
    
    
    (47.7
    )Sales and maturities of investments
    
    
    59.4
    
    
    
    11.5Cash flow used in investing activities
    
    
    (37.4
    )
    
    
    (57.0
    )Financing Activities:Repayment of notes payable
    
    
    
    
    
    
    (1.0
    )Issuance of debt
    
    
    
    
    
    
    1.2Payment of deferred financing costs
    
    
    0.2
    
    
    
    Repayment of debt
    
    
    (1.4
    )
    
    
    Issuances of common stock
    
    
    2.4
    
    
    
    0.7Purchases of common stock
    
    
    (26.6
    )
    
    
    (2.1
    )Distributions to minority owners
    
    
    (0.6
    )
    
    
    Contributions by minority owners
    
    
    1.0
    
    
    
    0.2Cash flow used in financing activities
    
    
    (25.0
    )
    
    
    (1.0
    )Effect of exchange rate changes on cash
    
    
    0.5
    
    
    
    2.0Decrease in cash and cash equivalents
    
    
    (43.0
    )
    
    
    (27.5
    )Cash and cash equivalents, beginning of year
    
    
    378.9
    
    
    
    273.3Cash and cash equivalents, end of period
    
    $
    335.9
    
    
    $
    245.8Supplemental cash flow information:Interest paid
    
    $
    9.3
    
    
    $
    9.3Income taxes paid
    
    $
    6.3
    
    
    $
    5.3Non-cash investing and operating activities:Accrued capital additions
    
    $
    11.3
    
    
    $
    8.4
  4




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5




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13 Weeks Ended(dollars in millions, except per share amounts)
    
    April 30, 2005Net earnings:As reported
    
    $
    30.2Add: Total stock-based employee compensation expense included in net
earnings as reported, net of related income taxes
    
    
    0.8Less: Total stock-based employee compensation expense determined under
fair value based method for all awards, net of related income taxes
    
    
    1.1Pro forma
    
    $
    29.9Basic earnings per share:As reported
    
    $
    0.45Pro forma
    
    $
    0.45Diluted earnings per share:As reported
    
    $
    0.45Pro forma
    
    $
    0.45
 Equity Incentive Plans
      6




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7




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Stock
Options and Stock-Settled SARs
    
    13 Weeks Ended April 29, 2006Stock-Settled
    WeightedWeighted
    
    Stock
    AverageAverage
    
    Appreciation
    Exercise(units in thousands)
    
    Options
    
    Exercise Price
    
    Rights
    PriceOutstanding at beginning of quarter
    
    
    5,738
    
    
    $
    18
    
    
    
    
    
    
    $
    Granted
    
    
    470
    
    
    
    22
    
    
    
    803
    
    
    
    22Exercised
    
    
    (149
    )
    
    
    15
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (50
    )
    
    
    17
    
    
    
    
    
    
    
    Outstanding at end of quarter
    
    
    6,009
    
    
    $
    18
    
    
    
    803
    
    
    $
    22Exercisable or convertible at end of quarter
    
    
    3,315
    
    
    $
    18
    
    
    
    
    
    
    $
    Weighted average fair value of units granted (per unit)
    
    $
    10
    
    
    
    
    
    
    $
    9
 Stock Options
    
    13 Weeks Ended April 30, 2005WeightedAverage Exercise(shares in thousands)
    
    Options
    
    PriceOutstanding at beginning of quarter
    
    
    7,383
    
    
    $
    17Granted
    
    
    
    
    
    
    Exercised
    
    
    (55
    )
    
    
    9Forfeited or expired
    
    
    (222
    )
    
    
    16Outstanding at end of quarter
    
    
    7,106
    
    
    $
    17Exercisable or convertible at end of quarter
    
    
    6,147
    
    
    $
    17
 13 Weeks EndedNonvested Shares
    
    April 29, 2006
    
    April 30, 2005WeightedWeighted
    
    
    
    
    
    AverageAverage Grant
    
    
    
    
    
    Grant Dat(shares in thousands)
    
    Nonvested Shares
    
    Date Fair Value
    
    Nonvested Shares
    
    Fair ValueNonvested at beginning of quarter
    
    
    297
    
    
    $
    19
    
    
    
    97
    
    
    $
    15Granted
    
    
    61
    
    
    
    22
    
    
    
    
    
    
    
    Vested
    
    
    (1
    )
    
    
    22
    
    
    
    
    
    
    
    Forfeited
    
    
    (1
    )
    
    
    16
    
    
    
    (2
    )
    
    
    15Nonvested at end of quarter
    
    
    356
    
    
    $
    20
    
    
    
    95
    
    
    $
    15
 13 Weeks EndedCash-Settled Stock Appreciation Rights
    
    April 29, 2006
    
    April 30, 2005Cash-Settled
    
    WeightedCash-Settled Stock
    
    Weighted
    
    Stock
    
    AverageAppreciation
    
    Average
    
    Appreciation
    
    Exercise(shares in thousands)
    
    Rights
    
    Exercise Price
    
    Rights
    
    PriceOutstanding at beginning of quarter
    
    
    108
    
    
    $
    17
    
    
    
    158
    
    
    $
    17Granted
    
    
    98
    
    
    
    22
    
    
    
    
    
    
    
    Exercised
    
    
    (2
    )
    
    
    15
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at end of quarter
    
    
    204
    
    
    $
    20
    
    
    
    158
    
    
    $
    17Exercisable or convertible at end of quarter
    
    
    105
    
    
    $
    17
    
    
    
    153
    
    
    $
    17Weighted average fair value of units granted (per unit)
    
    $
    10
    
    
    
    
    
    
    $
    
 8




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(units in thousands)Options Outstanding
    

Options ExercisableWeighted AverageRemaining
    
    Aggregate
    
    
    
    
    
    
    
    
    
    
    
    
    
    AggregateRange of
    
    Number of
    
    Contractual Life
    
    Intrinsic Value
    
    Weighted Average
    
    Average Exercise
    
    Number
    
    Intrinsic ValueExercise Prices
    
    Outstanding
    
    (in years)
    
    (in thousands)
    
    Exercise Price
    
    Price
    
    Exercisable
    
    (in thousands)$9-11
    
    
    2
    
    
    
    <1
    
    
    $
    28
    
    
    $
    10
    
    
    $
    10
    
    
    
    2
    
    
    $
    2812-15
    
    
    592
    
    
    
    3
    
    
    
    4,778
    
    
    
    15
    
    
    
    15
    
    
    
    514
    
    
    
    4,10716-18
    
    
    3,187
    
    
    
    5
    
    
    
    20,138
    
    
    
    17
    
    
    
    17
    
    
    
    1,845
    
    
    
    11,83119-25
    
    
    2,228
    
    
    
    6
    
    
    
    2,823
    
    
    
    22
    
    
    
    22
    
    
    
    954
    
    
    
    786Stock-settled SARs Outstanding
    

Stock-settled SARs ExercisableWeighted AverageRemaining
    
    Aggregate
    
    
    
    
    
    
    
    
    
    
    
    
    
    AggregateRange of
    
    Number of
    
    Contractual Life
    
    Intrinsic Value
    
    Weighted Average
    
    Average Exercise
    
    Number
    
    Intrinsic ValueExercise Prices
    
    Outstanding
    
    (in years)
    
    (in thousands)
    
    Exercise Price
    
    Price
    
    Exercisable
    
    (in thousands)$21-23
    
    
    803
    
    
    
    7
    
    
    $
    400
    
    
    $
    22
    
    
    $
    
    
    
    
    
    
    
    $
    
    Grant Date Fair Value
   9




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13 Weeks EndedApril 29, 2006Risk-free interest rate
    
    
    4.9
    %Expected dividend yield
    
    
    0
    %Expected appreciation vehicle life (in years)
    
    
    6Weighted-average expected volatility
    
    
    35
    %
     Compensation Expense
     10




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13 Weeks Ended
    
    13 Weeks Ended(dollars in millions, except per share amounts)
    
    April 29, 2006
    
    April 30, 2005Cost of Sales
    
    $
    0.7
    
    
    $
    0.1Selling, general and administrative expenses
    
    
    2.1
    
    
    
    1.1Share-based compensation expense before income taxes
    
    
    2.8
    
    
    
    1.2Tax benefit
    
    
    1.0
    
    
    
    0.4Share-based compensation expense after income taxes
    
    $
    1.8
    
    
    $
    0.8Effect on:Earnings per share  Basic
    
    $
    0.03
    
    
    $
    0.00Earnings per share  Diluted
    
    $
    0.03
    
    
    $
    0.00
   April 29,
    
    
    April 30,
    
    
    January 28,(dollars in millions)
    
    2006
    
    
    2005
    
    
    2006Held-to-maturity securities:Commercial paper
    
    $
    74.4
    
    
    $
    30.4
    
    
    $
    58.5Agency securities
    
    
    
    
    
    
    16.0
    
    
    
    Certificates of deposit
    
    
    0.7
    
    
    
    8.0
    
    
    
    0.5Corporate debt securities
    
    
    
    
    
    
    1.8
    
    
    
    Municipal obligations
    
    
    
    
    
    
    1.3
    
    
    
    Total short-term investments
    
    $
    75.1
    
    
    $
    57.5
    
    
    $
    59.0
      2006 ChargesAccrual Balance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accrual BalanceTotal Charges
    
    
    as of January 28,
    
    
    Costs
    
    
    Accrual
    
    
    Cash
    
    
    as of April 29,(dollars in millions)
    
    to Date
    
    
    2006
    
    
    Incurred
    
    
    Adjustments
    
    
    Payments
    
    
    2006Employee severance costs
    
    $
    9.0
    
    
    $
    1.0
    
    
    $
    
    
    
    $
    
    
    
    $
    (0.3
    )
    
    $
    0.7Contract termination costs
    
    
    29.1
    
    
    
    5.5
    
    
    
    
    
    
    
    0.6
    
    
    
    (2.0
    )
    
    
    4.1Other exit costs
    
    
    5.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43.2
    
    
    $
    6.5
    
    
    
    
    
    
    $
    0.6
    
    
    $
    (2.3
    )
    
    $
    4.8Asset impairments and net disposal losses
    
    
    35.0Total Charges
    
    $
    78.2
 11




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13 Weeks Ended
    
    13 Weeks Ended(dollars in millions)
    
    April 29, 2006
    
    April 30, 2005Net sales
    
    $
    
    
    
    $
    Loss from discontinued operations before income taxes
    
    
    (0.6
    )
    
    
    (2.5
    )Benefit for income taxes
    
    
    (0.2
    )
    
    
    (1.0
    )Loss from discontinued operations, net of income taxes
    
    $
    (0.4
    )
    
    $
    (1.5
    )
  (dollars in millions)
    
    April 29, 2006
    
    April 30, 2005
    
    January 28, 2006AssetsCurrent assets:Current deferred income taxes
    
    $
    1.1
    
    
    $
    4.2
    
    
    $
    1.3Other current assets
    
    
    0.2
    
    
    
    0.6
    
    
    
    0.3Total current assets of discontinued operations
    
    $
    1.3
    
    
    $
    4.8
    
    
    $
    1.6LiabilitiesCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    0.3
    
    
    $
    Accrued expenses
    
    
    2.8
    
    
    
    4.7
    
    
    
    3.4Total current liabilities of discontinued operations
    
    $
    2.8
    
    
    $
    5.0
    
    
    $
    3.4
    (dollars in millions)
    
    April 29, 2006
    
    April 30, 2005
    
    January 28, 2006Gross carrying amount
    
    $
    74.5
    
    
    $
    77.4
    
    
    $
    75.6Less: accumulated amortization
    
    
    (57.5
    )
    
    
    (56.6
    )
    
    
    (57.4
    )Carrying amount, end of period
    
    $
    17.0
    
    
    $
    20.8
    
    
    $
    18.2
 12




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13 Weeks Ended(dollars in millions)
    
    April 29, 2006
    
    April 30, 2005Amortization expense on favorable leases
    
    $
    0.8
    
    
    $
    0.9
  Year
    
    AmountRemainder of 2006
    
    $
    2.42007
    
    
    2.72008
    
    
    2.42009
    
    
    2.02010
    
    
    1.8
   Year
    
    Percentage2008
    
    
    104.125
    %2009
    
    
    102.750
    %2010
    
    
    101.375
    %2011 and thereafter
    
    
    100.000
    %
   13




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##### Table of Contents



13 Weeks Ended(dollars in millions)
    
    April 29, 2006
    
    
    April 30, 2005Components of pension expense:Service cost
    
    $
    0.2
    
    
    $
    0.2Interest cost
    
    
    0.4
    
    
    
    0.3Amortization of prior service cost
    
    
    0.1
    
    
    
    Amortization of actuarial loss
    
    
    
    
    
    
    0.1Total
    
    $
    0.7
    
    
    $
    0.6
   13 Weeks Ended(dollars in millions)
    
    April 29, 2006
    
    
    April 30, 2005Net earnings
    
    $
    36.0
    
    
    $
    30.2Foreign currency translation adjustments
    
    
    1.5
    
    
    
    (0.1
    )Total comprehensive income
    
    $
    37.5
    
    
    $
    30.1
   13 Weeks Ended(dollars in millions, except per share; shares in thousands)
    
    April 29, 2006
    
    
    April 30, 2005Net earnings from continuing operations
    
    $
    36.4
    
    
    $
    31.7Weighted average common shares outstanding  basic
    
    
    66,594
    
    
    
    67,107Net effect of dilutive stock options and unearned
nonvested shared based on the treasury stock method
    
    
    987
    
    
    
    84Outstanding shares for diluted earnings per share
    
    
    67,581
    
    
    
    67,191Diluted earnings per share from continuing operations
    
    $
    0.54
    
    
    $
    0.47
 14




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##### Table of Contents



(dollars in millions)
    
    Payless Domestic
    
    Payless International
    
    Payless ConsolidatedThirteen weeks ended April 29, 2006Revenues from external customers
    
    $
    613.1
    
    
    $
    81.7
    
    
    $
    694.8Operating profit from continuing operations
    
    
    52.1
    
    
    
    3.9
    
    
    
    56.0Total assets
    
    
    1,169.9
    
    
    
    164.5
    
    
    
    1,334.4Thirteen weeks ended April 30, 2005Revenues from external customers
    
    $
    615.0
    
    
    $
    80.2
    
    
    $
    695.2Operating profit from continuing operations
    
    
    43.6
    
    
    
    3.4
    
    
    
    47.0Total assets
    
    
    1,111.3
    
    
    
    157.8
    
    
    
    1,269.1
      th
 15




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##### Table of Contents



th
  ®
     16




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##### Table of Contents



17




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##### Table of Contents



Parent
    
    
    Guarantor
    
    
    Non-guarantor(dollars in millions)
    
    Company
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    264.2
    
    
    $
    71.7
    
    
    $
    
    
    
    $
    335.9Short-term investments
    
    
    
    
    
    
    74.4
    
    
    
    0.7
    
    
    
    
    
    
    
    75.1Restricted cash
    
    
    
    
    
    
    
    
    
    
    2.0
    
    
    
    
    
    
    
    2.0Inventories
    
    
    
    
    
    
    314.4
    
    
    
    71.2
    
    
    
    (7.6
    )
    
    
    378.0Current deferred income taxes
    
    
    
    
    
    
    19.1
    
    
    
    0.2
    
    
    
    
    
    
    
    19.3Other current assets
    
    
    32.3
    
    
    
    82.5
    
    
    
    46.9
    
    
    
    (102.1
    )
    
    
    59.6Current assets of discontinued operations
    
    
    
    
    
    
    1.3
    
    
    
    
    
    
    
    
    
    
    
    1.3Total current assets
    
    
    32.3
    
    
    
    755.9
    
    
    
    192.7
    
    
    
    (109.7
    )
    
    
    871.2Property and Equipment:Land
    
    
    
    
    
    
    7.7
    
    
    
    
    
    
    
    
    
    
    
    7.7Property, buildings and equipment
    
    
    
    
    
    
    1,057.1
    
    
    
    145.8
    
    
    
    
    
    
    
    1,202.9Accumulated depreciation and amortization
    
    
    
    
    
    
    (738.7
    )
    
    
    (83.4
    )
    
    
    
    
    
    
    (822.1
    )Property and equipment, net
    
    
    
    
    
    
    326.1
    
    
    
    62.4
    
    
    
    
    
    
    
    388.5Favorable leases, net
    
    
    
    
    
    
    17.0
    
    
    
    
    
    
    
    
    
    
    
    17.0Deferred income taxes
    
    
    
    
    
    
    19.8
    
    
    
    9.1
    
    
    
    
    
    
    
    28.9Goodwill
    
    
    
    
    
    
    5.9
    
    
    
    
    
    
    
    
    
    
    
    5.9Other assets
    
    
    1,202.4
    
    
    
    412.0
    
    
    
    1.7
    
    
    
    (1,593.2
    )
    
    
    22.9Total assets
    
    $
    1,234.7
    
    
    $
    1,536.7
    
    
    $
    265.9
    
    
    $
    (1,702.9
    )
    
    $
    1,334.4LIABILITIES AND SHAREOWNERS EQUITYCurrent Liabilities:Current maturities of long-term debt
    
    $
    
    
    
    $
    0.4
    
    
    $
    
    
    
    $
    
    
    
    $
    0.4Notes payable
    
    
    
    
    
    
    
    
    
    
    2.0
    
    
    
    
    
    
    
    2.0Accounts payable
    
    
    
    
    
    
    161.1
    
    
    
    78.8
    
    
    
    (64.5
    )
    
    
    175.4Accrued expenses
    
    
    84.2
    
    
    
    106.0
    
    
    
    15.8
    
    
    
    (45.2
    )
    
    
    160.8Current liabilities of discontinued operations
    
    
    
    
    
    
    2.8
    
    
    
    
    
    
    
    
    
    
    
    2.8Total current liabilities
    
    
    84.2
    
    
    
    270.3
    
    
    
    96.6
    
    
    
    (109.7
    )
    
    
    341.4Long-term debt
    
    
    480.5
    
    
    
    0.5
    
    
    
    5.1
    
    
    
    (283.2
    )
    
    
    202.9Other liabilities
    
    
    1.9
    
    
    
    95.7
    
    
    
    13.4
    
    
    
    
    
    
    
    111.0Minority interest
    
    
    
    
    
    
    
    
    
    
    11.0
    
    
    
    
    
    
    
    11.0Commitments and contingenciesTotal shareowners equity
    
    
    668.1
    
    
    
    1,170.2
    
    
    
    139.8
    
    
    
    (1,310.0
    )
    
    
    668.1Total liabilities and shareowners equity
    
    $
    1,234.7
    
    
    $
    1,536.7
    
    
    $
    265.9
    
    
    $
    (1,702.9
    )
    
    $
    1,334.4
 18




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##### Table of Contents



Parent
    
    
    Guarantor
    
    
    Non-guarantor(dollars in millions)
    
    Company
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    172.4
    
    
    $
    73.4
    
    
    $
    
    
    
    $
    245.8Short-term investments
    
    
    
    
    
    
    57.5
    
    
    
    
    
    
    
    
    
    
    
    57.5Restricted cash
    
    
    
    
    
    
    
    
    
    
    2.0
    
    
    
    
    
    
    
    2.0Inventories
    
    
    
    
    
    
    304.8
    
    
    
    84.1
    
    
    
    (5.0
    )
    
    
    383.9Current deferred income taxes
    
    
    
    
    
    
    20.9
    
    
    
    
    
    
    
    
    
    
    
    20.9Other current assets
    
    
    26.3
    
    
    
    51.8
    
    
    
    50.7
    
    
    
    (71.9
    )
    
    
    56.9Current assets of discontinued operations
    
    
    
    
    
    
    4.8
    
    
    
    
    
    
    
    
    
    
    
    4.8Total current assets
    
    
    26.3
    
    
    
    612.2
    
    
    
    210.2
    
    
    
    (76.9
    )
    
    
    771.8Property and Equipment:Land
    
    
    
    
    
    
    8.3
    
    
    
    
    
    
    
    
    
    
    
    8.3Property, buildings and equipment
    
    
    
    
    
    
    1,051.8
    
    
    
    137.6
    
    
    
    
    
    
    
    1,189.4Accumulated depreciation and amortization
    
    
    
    
    
    
    (715.8
    )
    
    
    (70.0
    )
    
    
    
    
    
    
    (785.8
    )Property and equipment, net
    
    
    
    
    
    
    344.3
    
    
    
    67.6
    
    
    
    
    
    
    
    411.9Favorable leases, net
    
    
    
    
    
    
    20.8
    
    
    
    
    
    
    
    
    
    
    
    20.8Deferred income taxes
    
    
    
    
    
    
    24.4
    
    
    
    11.2
    
    
    
    
    
    
    
    35.6Goodwill
    
    
    
    
    
    
    5.9
    
    
    
    
    
    
    
    
    
    
    
    5.9Other assets
    
    
    1,090.1
    
    
    
    459.6
    
    
    
    1.8
    
    
    
    (1,528.4
    )
    
    
    23.1Total assets
    
    $
    1,116.4
    
    
    $
    1,467.2
    
    
    $
    290.8
    
    
    $
    (1,605.3
    )
    
    $
    1,269.1LIABILITIES AND SHAREOWNERS EQUITYCurrent Liabilities:Current maturities of long-term debt
    
    $
    
    
    
    $
    0.3
    
    
    $
    1.2
    
    
    $
    
    
    
    $
    1.5Notes payable
    
    
    
    
    
    
    
    
    
    
    2.0
    
    
    
    
    
    
    
    2.0Accounts payable
    
    
    
    
    
    
    143.0
    
    
    
    70.4
    
    
    
    (43.6
    )
    
    
    169.8Accrued expenses
    
    
    10.8
    
    
    
    159.9
    
    
    
    20.8
    
    
    
    (33.3
    )
    
    
    158.2Current liabilities of discontinued operations
    
    
    
    
    
    
    5.0
    
    
    
    
    
    
    
    
    
    
    
    5.0Total current liabilities
    
    
    10.8
    
    
    
    308.2
    
    
    
    94.4
    
    
    
    (76.9
    )
    
    
    336.5Long-term debt
    
    
    480.2
    
    
    
    0.8
    
    
    
    6.4
    
    
    
    (283.1
    )
    
    
    204.3Other liabilities
    
    
    1.5
    
    
    
    82.2
    
    
    
    19.9
    
    
    
    (7.8
    )
    
    
    95.8Minority interest
    
    
    
    
    
    
    
    
    
    
    8.6
    
    
    
    
    
    
    
    8.6Commitments and contingenciesTotal shareowners equity
    
    
    623.9
    
    
    
    1,076.0
    
    
    
    161.5
    
    
    
    (1,237.5
    )
    
    
    623.9Total liabilities and shareowners equity
    
    $
    1,116.4
    
    
    $
    1,467.2
    
    
    $
    290.8
    
    
    $
    (1,605.3
    )
    
    $
    1,269.1
 19




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##### Table of Contents



Parent
    
    
    Guarantor
    
    
    Non-guarantor(dollars in millions)
    
    Company
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    310.5
    
    
    $
    68.4
    
    
    $
    
    
    
    $
    378.9Short-term investments
    
    
    
    
    
    
    58.5
    
    
    
    0.5
    
    
    
    
    
    
    
    59.0Restricted cash
    
    
    
    
    
    
    
    
    
    
    2.0
    
    
    
    
    
    
    
    2.0Inventories
    
    
    
    
    
    
    271.3
    
    
    
    64.3
    
    
    
    (2.6
    )
    
    
    333.0Current deferred income taxes
    
    
    
    
    
    
    19.3
    
    
    
    0.9
    
    
    
    
    
    
    
    20.2Other current assets
    
    
    28.7
    
    
    
    82.7
    
    
    
    31.7
    
    
    
    (83.3
    )
    
    
    59.8Current assets of discontinued operations
    
    
    
    
    
    
    1.6
    
    
    
    
    
    
    
    
    
    
    
    1.6Total current assets
    
    
    28.7
    
    
    
    743.9
    
    
    
    167.8
    
    
    
    (85.9
    )
    
    
    854.5Property and Equipment:Land
    
    
    
    
    
    
    7.7
    
    
    
    
    
    
    
    
    
    
    
    7.7Property, buildings and equipment
    
    
    
    
    
    
    1,044.3
    
    
    
    142.0
    
    
    
    
    
    
    
    1,186.3Accumulated depreciation and amortization
    
    
    
    
    
    
    (728.8
    )
    
    
    (79.1
    )
    
    
    
    
    
    
    (807.9
    )Property and equipment, net
    
    
    
    
    
    
    323.2
    
    
    
    62.9
    
    
    
    
    
    
    
    386.1Favorable leases, net
    
    
    
    
    
    
    18.2
    
    
    
    
    
    
    
    
    
    
    
    18.2Deferred income taxes
    
    
    
    
    
    
    18.5
    
    
    
    9.0
    
    
    
    
    
    
    
    27.5Goodwill
    
    
    
    
    
    
    5.9
    
    
    
    
    
    
    
    
    
    
    
    5.9Other assets
    
    
    1,157.1
    
    
    
    405.5
    
    
    
    1.7
    
    
    
    (1,542.0
    )
    
    
    22.3Total assets
    
    $
    1,185.8
    
    
    $
    1,515.2
    
    
    $
    241.4
    
    
    $
    (1,627.9
    )
    
    $
    1,314.5LIABILITIES AND SHAREOWNERS EQUITYCurrent Liabilities:Current maturities of long-term debt
    
    $
    
    
    
    $
    0.4
    
    
    $
    
    
    
    $
    
    
    
    $
    0.4Notes payable
    
    
    
    
    
    
    
    
    
    
    2.0
    
    
    
    
    
    
    
    2.0Accounts payable
    
    
    
    
    
    
    159.4
    
    
    
    66.3
    
    
    
    (56.8
    )
    
    
    168.9Accrued expenses
    
    
    51.5
    
    
    
    127.4
    
    
    
    14.0
    
    
    
    (29.1
    )
    
    
    163.8Current liabilities of discontinued operations
    
    
    
    
    
    
    3.4
    
    
    
    
    
    
    
    
    
    
    
    3.4Total current liabilities
    
    
    51.5
    
    
    
    290.6
    
    
    
    82.3
    
    
    
    (85.9
    )
    
    
    338.5Long-term debt
    
    
    480.4
    
    
    
    0.6
    
    
    
    6.4
    
    
    
    (283.2
    )
    
    
    204.2Other liabilities
    
    
    1.9
    
    
    
    94.9
    
    
    
    12.5
    
    
    
    
    
    
    
    109.3Minority interest
    
    
    
    
    
    
    
    
    
    
    10.5
    
    
    
    
    
    
    
    10.5Commitments and contingenciesTotal shareowners equity
    
    
    652.0
    
    
    
    1,129.1
    
    
    
    129.7
    
    
    
    (1,258.8
    )
    
    
    652.0Total liabilities and shareowners equity
    
    $
    1,185.8
    
    
    $
    1,515.2
    
    
    $
    241.4
    
    
    $
    (1,627.9
    )
    
    $
    1,314.5
 20




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##### Table of Contents



Parent
    
    
    Guarantor
    
    
    Non-guarantor(dollars in millions)
    
    Company
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    642.3
    
    
    $
    203.5
    
    
    $
    (151.0
    )
    
    $
    694.8Cost of sales
    
    
    
    
    
    
    418.0
    
    
    
    168.6
    
    
    
    (147.5
    )
    
    
    439.1Gross Margin
    
    
    
    
    
    
    224.3
    
    
    
    34.9
    
    
    
    (3.5
    )
    
    
    255.7Selling, general and administrative expense
    
    
    1.1
    
    
    
    176.8
    
    
    
    25.3
    
    
    
    (3.5
    )
    
    
    199.7Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating (loss) profit from continuing operations
    
    
    (1.1
    )
    
    
    47.5
    
    
    
    9.6
    
    
    
    
    
    
    
    56.0Interest expense
    
    
    8.9
    
    
    
    0.6
    
    
    
    
    
    
    
    (4.6
    )
    
    
    4.9Interest income
    
    
    
    
    
    
    (8.9
    )
    
    
    (0.5
    )
    
    
    4.6
    
    
    
    (4.8
    )Equity in earnings of subsidiaries
    
    
    (42.4
    )
    
    
    (7.1
    )
    
    
    
    
    
    
    49.5
    
    
    
    Earnings from continuing operations before incometaxes and minority interest
    
    
    32.4
    
    
    
    62.9
    
    
    
    10.1
    
    
    
    (49.5
    )
    
    
    55.9(Benefit) provision for income taxes
    
    
    (3.6
    )
    
    
    20.1
    
    
    
    3.0
    
    
    
    
    
    
    
    19.5Earnings from continuing operations before
minority interest
    
    
    36.0
    
    
    
    42.8
    
    
    
    7.1
    
    
    
    (49.5
    )
    
    
    36.4Minority interest, net of income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings from continuing operations
    
    
    36.0
    
    
    
    42.8
    
    
    
    7.1
    
    
    
    (49.5
    )
    
    
    36.4Loss from discontinued operations, net of income
taxes and minority interest
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    (0.4
    )Net earnings
    
    $
    36.0
    
    
    $
    42.4
    
    
    $
    7.1
    
    
    $
    (49.5
    )
    
    $
    36.0
 21




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##### Table of Contents



Parent
    
    
    Guarantor
    
    
    Non-guarantor(dollars in millions)
    
    Company
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    643.0
    
    
    $
    164.6
    
    
    $
    (112.4
    )
    
    $
    695.2Cost of sales
    
    
    
    
    
    
    427.3
    
    
    
    133.4
    
    
    
    (109.9
    )
    
    
    450.8Gross margin
    
    
    
    
    
    
    215.7
    
    
    
    31.2
    
    
    
    (2.5
    )
    
    
    244.4Selling, general and administrative expense
    
    
    0.6
    
    
    
    173.4
    
    
    
    25.2
    
    
    
    (2.5
    )
    
    
    196.7Restructuring charges
    
    
    
    
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    0.7Operating (loss) profit from continuing operations
    
    
    (0.6
    )
    
    
    41.6
    
    
    
    6.0
    
    
    
    
    
    
    
    47.0Interest expense
    
    
    7.3
    
    
    
    0.3
    
    
    
    0.5
    
    
    
    (3.2
    )
    
    
    4.9Interest income
    
    
    
    
    
    
    (4.4
    )
    
    
    (0.5
    )
    
    
    3.2
    
    
    
    (1.7
    )Equity in earnings of subsidiaries
    
    
    (35.3
    )
    
    
    (6.1
    )
    
    
    
    
    
    
    41.4
    
    
    
    Earnings from continuing operations before incometaxes and minority interest
    
    
    27.4
    
    
    
    51.8
    
    
    
    6.0
    
    
    
    (41.4
    )
    
    
    43.8(Benefit) provision for income taxes
    
    
    (2.8
    )
    
    
    15.0
    
    
    
    0.3
    
    
    
    
    
    
    
    12.5Earnings from continuing operations beforeminority interest
    
    
    30.2
    
    
    
    36.8
    
    
    
    5.7
    
    
    
    (41.4
    )
    
    
    31.3Minority interest, net of income tax
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    0.4Net earnings from continuing operations
    
    
    30.2
    
    
    
    36.8
    
    
    
    6.1
    
    
    
    (41.4
    )
    
    
    31.7Loss from discontinued operations, net of incometaxes and minority interest
    
    
    
    
    
    
    (1.5
    )
    
    
    
    
    
    
    
    
    
    
    (1.5
    )Net earnings
    
    $
    30.2
    
    
    $
    35.3
    
    
    $
    6.1
    
    
    $
    (41.4
    )
    
    $
    30.2
 22




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##### Table of Contents



Parent
    
    
    Guarantor
    
    
    Non-guarantor(dollars in millions)
    
    Company
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating Activities:Net earnings
    
    $
    36.0
    
    
    $
    42.4
    
    
    $
    7.1
    
    
    $
    (49.5
    )
    
    $
    36.0Loss from discontinued operations, net ofincome taxes and minority interest
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    (0.4
    )Net earnings from continuing operations
    
    
    36.0
    
    
    
    42.8
    
    
    
    7.1
    
    
    
    (49.5
    )
    
    
    36.4Adjustments for non-cash items included in
earnings from continuing operations:Loss on impairment of and disposal of assets
    
    
    
    
    
    
    1.6
    
    
    
    0.1
    
    
    
    
    
    
    
    1.7Depreciation and amortization
    
    
    
    
    
    
    19.6
    
    
    
    3.0
    
    
    
    
    
    
    
    22.6Amortization of deferred financing costs
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3Share-based compensation expense
    
    
    0.5
    
    
    
    2.0
    
    
    
    0.3
    
    
    
    
    
    
    
    2.8Deferred income taxes
    
    
    
    
    
    
    (1.1
    )
    
    
    1.5
    
    
    
    
    
    
    
    0.4Income tax benefit of stock option exercises
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.4Accretion of investments
    
    
    
    
    
    
    (0.7
    )
    
    
    
    
    
    
    
    
    
    
    (0.7
    )Changes in working capital:Inventories
    
    
    
    
    
    
    (43.1
    )
    
    
    (6.4
    )
    
    
    5.0
    
    
    
    (44.5
    )Other current assets
    
    
    (3.6
    )
    
    
    (0.8
    )
    
    
    (15.2
    )
    
    
    18.8
    
    
    
    (0.8
    )Accounts payable
    
    
    
    
    
    
    1.9
    
    
    
    12.4
    
    
    
    (7.7
    )
    
    
    6.6Accrued expenses
    
    
    32.7
    
    
    
    (23.4
    )
    
    
    1.3
    
    
    
    (16.1
    )
    
    
    (5.5
    )Other assets and liabilities, net
    
    
    (42.1
    )
    
    
    (7.9
    )
    
    
    0.4
    
    
    
    49.5
    
    
    
    (0.1
    )Net cash used in discontinued operations
    
    
    
    
    
    
    (0.7
    )
    
    
    
    
    
    
    
    
    
    
    (0.7
    )Cash flow provided by (used in) operating
activities
    
    
    24.2
    
    
    
    (9.8
    )
    
    
    4.5
    
    
    
    
    
    
    
    18.9Investing Activities:Capital expenditures
    
    
    
    
    
    
    (20.9
    )
    
    
    (2.1
    )
    
    
    
    
    
    
    (23.0
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    1.0Purchases of investments
    
    
    
    
    
    
    (74.1
    )
    
    
    (0.7
    )
    
    
    
    
    
    
    (74.8
    )Sales and maturities of investments
    
    
    
    
    
    
    58.9
    
    
    
    0.5
    
    
    
    
    
    
    
    59.4Investment in subsidiaries
    
    
    
    
    
    
    (1.5
    )
    
    
    
    
    
    
    1.5
    
    
    
    Cash flow used in investing activities
    
    
    
    
    
    
    (36.6
    )
    
    
    (2.3
    )
    
    
    1.5
    
    
    
    (37.4
    )Financing Activities:Repayment of debt
    
    
    
    
    
    
    (0.1
    )
    
    
    (1.3
    )
    
    
    
    
    
    
    (1.4
    )Payment of deferred financing costs
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.2Issuances of common stock
    
    
    2.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.4Purchases of common stock
    
    
    (26.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26.6
    )Contribution by / distributions to parent
    
    
    
    
    
    
    
    
    
    
    1.5
    
    
    
    (1.5
    )
    
    
    Contributions by minority owners
    
    
    
    
    
    
    
    
    
    
    1.0
    
    
    
    
    
    
    
    1.0Distributions to minority owners
    
    
    
    
    
    
    
    
    
    
    (0.6
    )
    
    
    
    
    
    
    (0.6
    )Cash flow (used in) provided by financing
activities
    
    
    (24.2
    )
    
    
    0.1
    
    
    
    0.6
    
    
    
    (1.5
    )
    
    
    (25.0
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    0.5(Decrease) increase in cash and cash equivalents
    
    
    
    
    
    
    (46.3
    )
    
    
    3.3
    
    
    
    
    
    
    
    (43.0
    )Cash and cash equivalents, beginning of period
    
    
    
    
    
    
    310.5
    
    
    
    68.4
    
    
    
    
    
    
    
    378.9Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    264.2
    
    
    $
    71.7
    
    
    $
    
    
    
    $
    335.9
 23




---



##### Table of Contents



Parent
    
    
    Guarantor
    
    
    Non-guarantor(dollars in millions)
    
    Company
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating Activities:Net earnings
    
    $
    30.2
    
    
    $
    35.3
    
    
    $
    6.1
    
    
    $
    (41.4
    )
    
    $
    30.2Loss from discontinued operations, net of
income taxes and minority interest
    
    
    
    
    
    
    (1.5
    )
    
    
    
    
    
    
    
    
    
    
    (1.5
    )Net earnings from continuing operations
    
    
    30.2
    
    
    
    36.8
    
    
    
    6.1
    
    
    
    (41.4
    )
    
    
    31.7Adjustments for non-cash items included in
earnings from continuing operations:Loss on impairment of and disposal of assets
    
    
    
    
    
    
    2.3
    
    
    
    0.1
    
    
    
    
    
    
    
    2.4Depreciation and amortization
    
    
    
    
    
    
    21.7
    
    
    
    1.3
    
    
    
    
    
    
    
    23.0Amortization of deferred financing costs
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Share-based compensation expense
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2Deferred income taxes
    
    
    
    
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    1.7Minority interest, net of tax
    
    
    
    
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    (0.4
    )Changes in working capital:Inventories
    
    
    
    
    
    
    (27.7
    )
    
    
    (13.2
    )
    
    
    2.2
    
    
    
    (38.7
    )Other current assets
    
    
    (9.5
    )
    
    
    (1.2
    )
    
    
    (1.5
    )
    
    
    11.0
    
    
    
    (1.2
    )Accounts payable
    
    
    
    
    
    
    23.4
    
    
    
    (8.2
    )
    
    
    (4.5
    )
    
    
    10.7Accrued expenses
    
    
    3.6
    
    
    
    8.8
    
    
    
    0.4
    
    
    
    (8.7
    )
    
    
    4.1Other assets and liabilities, net
    
    
    (23.1
    )
    
    
    (22.3
    )
    
    
    6.4
    
    
    
    41.4
    
    
    
    2.4Net cash used in discontinued operations
    
    
    
    
    
    
    (7.7
    )
    
    
    
    
    
    
    
    
    
    
    (7.7
    )Cash flow provided by (used in) operating
activities
    
    
    1.4
    
    
    
    36.1
    
    
    
    (9.0
    )
    
    
    
    
    
    
    28.5Investing Activities:Capital expenditures
    
    
    
    
    
    
    (21.7
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (21.8
    )Restricted Cash
    
    
    
    
    
    
    
    
    
    
    1.0
    
    
    
    
    
    
    
    1.0Purchase of investments
    
    
    
    
    
    
    (47.7
    )
    
    
    
    
    
    
    
    
    
    
    (47.7
    )Sales and maturities of investments
    
    
    
    
    
    
    11.5
    
    
    
    
    
    
    
    
    
    
    
    11.5Investment in subsidiaries
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    0.3
    
    
    
    Cash flow provided by (used in) investing
activities
    
    
    
    
    
    
    (58.2
    )
    
    
    0.9
    
    
    
    0.3
    
    
    
    (57.0
    )Financing Activities:Repayment of notes payable
    
    
    
    
    
    
    
    
    
    
    (1.0
    )
    
    
    
    
    
    
    (1.0
    )Issuance of debt
    
    
    
    
    
    
    
    
    
    
    1.2
    
    
    
    
    
    
    
    1.2Issuances of common stock
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.7Purchases of common stock
    
    
    (2.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.1
    )Contributions by parents
    
    
    
    
    
    
    
    
    
    
    0.3
    
    
    
    (0.3
    )
    
    
    Contributions by minority owners
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    0.2Cash flow provided by (used in) financing
activities
    
    
    (1.4
    )
    
    
    
    
    
    
    0.7
    
    
    
    (0.3
    )
    
    
    (1.0
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    2.0
    
    
    
    
    
    
    
    2.0Decrease in cash and cash equivalents
    
    
    
    
    
    
    (22.1
    )
    
    
    (5.4
    )
    
    
    
    
    
    
    (27.5
    )Cash and cash equivalents, beginning of period
    
    
    
    
    
    
    194.5
    
    
    
    78.8
    
    
    
    
    
    
    
    273.3Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    172.4
    
    
    $
    73.4
    
    
    $
    
    
    
    $
    245.8
 24




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##### Table of Contents



25




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##### Table of Contents



26




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##### Table of Contents



27




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##### Table of Contents



First Quarter2006
    
    
    2005Cost of sales
    
    
    63.2
    %
    
    
    64.9
    %Selling, general and administrative expense
    
    
    28.7
    
    
    
    28.3Restructuring charges
    
    
    
    
    
    
    0.1Operating profit from continuing operations
    
    
    8.1
    
    
    
    6.7Interest expense, net
    
    
    0.0
    
    
    
    0.4Earnings from continuing operations before income
taxes and minority interest
    
    
    8.1
    
    
    
    6.3Effective income tax rate*
    
    
    34.9
    %
    
    
    28.6
    %Earnings from continuing operations before minority
interest
    
    
    5.2
    
    
    
    4.5Minority interest
    
    
    
    
    
    
    0.1Earnings from continuing operations
    
    
    5.2
    
    
    
    4.6Loss from discontinued operations, net of income taxes
and minority interest
    
    
    (0.0
    )
    
    
    (0.3
    )Net Earnings
    
    
    5.2
    %
    
    
    4.3
    %
 
 *
    
    Percent of pre-tax earnings    First Quarter2006
    
    
    2005Net Sales
    
    
    (0.1
    )%
    
    
    0.4
    %Same-store Sales
    
    
    0.4
    
    
    
    2.7Average selling price per unit
    
    
    13.2
    
    
    
    5.4Unit volume
    
    
    (11.8
    )
    
    
    (4.9
    )Footwear average selling price per unit
    
    
    11.2
    
    
    
    2.8Footwear unit volume
    
    
    (8.6
    )
    
    
    (1.4
    )Non-footwear average selling price per unit
    
    
    7.0
    
    
    
    8.1Non-footwear unit volume
    
    
    (23.0
    )%
    
    
    (15.3
    )%
  28




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##### Table of Contents



13 Weeks Ended(dollars in millions)
    
    April 29, 2006
    
    
    April 30, 2005Revenues from external customers
    

    $ 81.7
    
    

    $ 80.2Operating profit from continuing operations
    


3.9
    
    

    3.4
  29




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##### Table of Contents



Cash Flow Provided by Operating Activities
  Cash Flow Used in Investing Activities
  Cash Flow Provided by Financing Activities
    Year
    
    Percentage2008
    
    
    104.125
    %2009
    
    
    102.750
    %2010
    
    
    101.375
    %2011 and thereafter
    
    
    100.000
    %
 30




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##### Table of Contents



Financial Commitments
    April 29, 2006
    
    April 30, 2005


    January 28, 2006Current Ratio
    
    
    2.6
    
    
    
    
    
    2.3
    
    
    


2.5Debt-Capitalization Ratio*
    
    
    23.6
    %
    
    
    
    
    25.0
    %
    
    


24.0
%
 
 *
    
    Debt-to-capitalization has been computed by dividing total debt by capitalization. Total
debt is defined as long-term debt including current maturities, notes payable and borrowings
under the revolving line of credit. Capitalization is defined as total debt and shareowners
equity. The debt-to-capitalization ratio, including the present value of future minimum rental
payments under operating leases as debt and as capitalization, was 64.2%, 66.1% and 63.8%
respectively, for the periods referred to above.
   First Quarter2006
    
    
    2005Beginning of period
    
    
    4,605
    
    
    
    4,640Stores opened
    
    
    52
    
    
    
    39Stores closed
    
    
    (55
    )
    
    
    (33
    )Ending store count
    
    
    4,602
    
    
    
    4,646
     31




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##### Table of Contents



Disclosure Controls and Procedures
   32




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  
  
    th th
  ®
 33




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##### Table of Contents



Total Number of Shares
    
    Approximate Dollar Value ofPurchased as Part of
    
    Shares that May Yet BeTotal Number of
    
    
    
    
    
    Publicly Announced
    
    Purchased Under the Plans orShares Purchased(1)
    
    Average Price Paid
    
    Plans or Programs(2)
    
    Programs(3)Period
    
    (in Thousands)
    
    per Share
    
    (in Thousands)
    
    (in Millions)01/29/06  02/25/06
    
    
    2
    
    
    $
    24.06
    
    
    
    0
    
    
    $
    167.702/26/06  04/01/06
    
    
    811
    
    
    
    22.04
    
    
    
    809
    
    
    
    149.904/02/06  04/29/06
    
    
    387
    
    
    
    22.33
    
    
    
    384
    
    
    
    141.3Total
    
    
    1,200
    
    
    $
    22.13
    
    
    
    1,193
    
    
    $
    141.3(1) We repurchased an aggregate of 7 thousand shares of our common stock in connection with our
employee stock purchase and stock incentive plans.(2) In 2001, our Board of Directors approved the repurchase of our common stock having a value of
up to $250 million in the aggregate pursuant to the Program.(3) The timing and amount of share repurchases, if any, are limited by the terms of the Companys
Credit Agreement and Senior Subordinated Notes.
 34




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##### Table of Contents



Number
    
    Description10.1
    
    
    2006 Payless Shoesource, Inc. Stock Incentive Plan*10.2
    
    
    Stock Plan For Non-Management Directors of Payless Shoesource, Inc.*31.1
    
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 of the Chief Executive Officer and President*31.2
    
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 of the Senior Vice President, Chief Financial Officer and
Treasurer*32.1
    
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 of the Chief Executive Officer and President*32.2
    
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 of the Senior Vice President, Chief Financial Officer and
Treasurer*
 
 *
    
    Filed herewith 35




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##### Table of Contents



PAYLESS SHOESOURCE, INC.Date: June 6, 2006
    
    By: /s/ Matthew E. RubelMatthew E. RubelChief Executive Officer and President(Principal Executive Officer)Date: June 6, 2006
    
    By: /s/ Ullrich E. PorzigUllrich E. PorzigSenior Vice PresidentChief Financial Officer and Treasurer(Principal Financial and Accounting Officer)
 36