UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark
One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended May 3, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
  
 COLLECTIVE BRANDS, INC.
  Delaware
    
    43-1813160State or other jurisdiction of 
incorporation or organization
    
    (I.R.S. Employer
Identification No.)3231 Southeast Sixth Avenue, Topeka, Kansas
(Address of principal executive offices)
    
    66607-2207
(Zip Code)
 (785) 233-5171
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ




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##### 



COLLECTIVE BRANDS, INC.
FORM 10-Q
FOR THE FISCAL QUARTER ENDED MAY 3, 2008
INDEX
  
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements. (unaudited)Condensed Consolidated Statements of Earnings for the 13 Weeks Ended May 3, 2008 and May 5, 2007
    
    
    3Condensed Consolidated Balance Sheets as of May 3, 2008, May 5, 2007 and February 2, 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the 13 Weeks Ended May 3, 2008 and May 5, 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    35PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    36Item 1A. Risk Factors
    
    
    37Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 4. Submission of Matters to a Vote of Security Holders
    
    
    39Item 6. Exhibits
    
    
    39SignaturesCertification pursuant to Section 302 of the CEO, President and Chairman of the BoardCertification pursuant to Section 302 of the SVP, CFO and TreasurerCertification pursuant to Section 906 of the CEO, President and Chairman of the BoardCertification pursuant to Section 906 of the SVP, CFO and Treasurer
  2




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##### 



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 COLLECTIVE BRANDS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
 (UNAUDITED)
  13 Weeks EndedMay 3,
    
    
    May 5,2008
    
    
    2007Net sales
    
    $
    932.4
    
    
    $
    728.6Cost of sales
    
    
    627.3
    
    
    
    459.7Gross margin
    
    
    305.1
    
    
    
    268.9Selling, general and administrative expenses
    
    
    263.8
    
    
    
    209.9Restructuring charges
    
    
    0.1
    
    
    
    0.2Operating profit from continuing operations
    
    
    41.2
    
    
    
    58.8Interest expense
    
    
    18.5
    
    
    
    4.8Interest income
    
    
    (1.3
    )
    
    
    (4.7
    )Earnings from continuing operations before income taxes
and minority interest
    
    
    24.0
    
    
    
    58.7Provision for income taxes
    
    
    2.3
    
    
    
    18.8Earnings from continuing operations before minority interest
    
    
    21.7
    
    
    
    39.9Minority interest, net of income taxes
    
    
    (1.6
    )
    
    
    (0.9
    )Net earnings from continuing operations
    
    
    20.1
    
    
    
    39.0Loss from discontinued operations, net of income
taxes and minority interest
    
    
    (0.4
    )
    
    
    (0.1
    )Net earnings
    
    $
    19.7
    
    
    $
    38.9Basic earnings per share:Earnings from continuing operations
    
    $
    0.32
    
    
    $
    0.60Loss from discontinued operations
    
    
    (0.01
    )
    
    
    Basic earnings per share
    
    $
    0.31
    
    
    $
    0.60Diluted earnings per share:Earnings from continuing operations
    
    $
    0.32
    
    
    $
    0.59Loss from discontinued operations
    
    
    (0.01
    )
    
    
    Diluted earnings per share
    
    $
    0.31
    
    
    $
    0.59Basic Weighted Average Shares Outstanding
    
    
    62.9
    
    
    
    64.7Diluted Weighted Average Shares Outstanding
    
    
    63.3
    
    
    
    66.0
  3




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##### 



COLLECTIVE BRANDS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)
  May 3,
    
    
    May 5,
    
    
    February 2,2008
    
    
    2007
    
    
    2008ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    231.4
    
    
    $
    321.4
    
    
    $
    232.5Short-term investments
    
    
    
    
    
    
    6.1
    
    
    
    Restricted cash
    
    
    
    
    
    
    2.0
    
    
    
    Accounts receivable, net of allowance for doubtful accounts
and returns reserve as of May 3, 2008 and February 2, 2008
of $5.3 and $3.4, respectively
    
    
    111.7
    
    
    
    6.6
    
    
    
    86.1Inventories
    
    
    481.5
    
    
    
    381.7
    
    
    
    470.1Current deferred income taxes
    
    
    36.5
    
    
    
    16.2
    
    
    
    23.8Prepaid expenses
    
    
    63.1
    
    
    
    44.2
    
    
    
    93.4Other current assets
    
    
    40.5
    
    
    
    12.6
    
    
    
    31.5Current assets of discontinued operations
    
    
    1.0
    
    
    
    1.1
    
    
    
    0.8Total current assets
    
    
    965.7
    
    
    
    791.9
    
    
    
    938.2Property and Equipment:Land
    
    
    9.3
    
    
    
    6.5
    
    
    
    9.3Property, buildings and equipment
    
    
    1,467.5
    
    
    
    1,284.8
    
    
    
    1,440.1Accumulated depreciation and amortization
    
    
    (920.8
    )
    
    
    (848.6
    )
    
    
    (898.4
    )Property and equipment, net
    
    
    556.0
    
    
    
    442.7
    
    
    
    551.0Intangible assets, net
    
    
    553.3
    
    
    
    95.9
    
    
    
    559.5Goodwill
    
    
    321.7
    
    
    
    40.1
    
    
    
    321.0Deferred income taxes
    
    
    1.1
    
    
    
    43.9
    
    
    
    1.5Other assets
    
    
    44.2
    
    
    
    18.2
    
    
    
    44.0Total Assets
    
    $
    2,442.0
    
    
    $
    1,432.7
    
    
    $
    2,415.2LIABILITIES AND SHAREOWNERS EQUITYCurrent Liabilities:Current maturities of long-term debt
    
    $
    7.4
    
    
    $
    0.3
    
    
    $
    7.4Notes payable
    
    
    
    
    
    
    2.0
    
    
    
    Accounts payable
    
    
    196.2
    
    
    
    157.5
    
    
    
    200.9Accrued expenses
    
    
    210.4
    
    
    
    156.0
    
    
    
    203.5Current liabilities of discontinued operations
    
    
    1.9
    
    
    
    2.1
    
    
    
    1.3Total current liabilities
    
    
    415.9
    
    
    
    317.9
    
    
    
    413.1Long-term debt
    
    
    913.1
    
    
    
    201.7
    
    
    
    914.9Deferred income taxes
    
    
    115.2
    
    
    
    0.2
    
    
    
    112.9Other liabilities
    
    
    249.4
    
    
    
    175.1
    
    
    
    254.2Minority interest
    
    
    18.2
    
    
    
    12.6
    
    
    
    17.2Commitments and contingencies (Note 18)Shareowners equity
    
    
    730.2
    
    
    
    725.2
    
    
    
    702.9Total Liabilities and Shareowners Equity
    
    $
    2,442.0
    
    
    $
    1,432.7
    
    
    $
    2,415.2
  4




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##### 



COLLECTIVE BRANDS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
  13 Weeks EndedMay 3,
    
    
    May 5,2008
    
    
    2007Operating Activities:Net earnings
    
    $
    19.7
    
    
    $
    38.9Loss from discontinued operations, net of income taxes and minority interest
    
    
    0.4
    
    
    
    0.1Adjustments for non-cash items included in net earnings:Loss on impairment of and disposal of assets
    
    
    1.7
    
    
    
    2.6Depreciation and amortization
    
    
    35.1
    
    
    
    24.5Provision for losses on accounts receivable
    
    
    0.5
    
    
    
    Share-based compensation expense
    
    
    4.1
    
    
    
    3.1Deferred income taxes
    
    
    (13.9
    )
    
    
    (1.3
    )Minority interest, net of income taxes
    
    
    1.6
    
    
    
    0.9Income tax benefit from share-based compensation
    
    
    
    
    
    
    1.2Excess tax benefit from share-based compensation
    
    
    
    
    
    
    (1.2
    )Interest income on held-to-maturity investments
    
    
    
    
    
    
    (0.5
    )Changes in working capital, exclusive of the effects of acquisitions:Accounts receivable
    
    
    (26.2
    )
    
    
    (2.8
    )Inventories
    
    
    (11.8
    )
    
    
    (18.6
    )Prepaid expenses and other current assets
    
    
    21.2
    
    
    
    10.2Accounts payable
    
    
    (0.2
    )
    
    
    (27.4
    )Accrued expenses
    
    
    10.3
    
    
    
    (14.2
    )Changes in other assets and liabilities, net
    
    
    4.0
    
    
    
    5.9Contributions to pension plans
    
    
    (1.6
    )
    
    
    Net cash used in discontinued operations
    
    
    
    
    
    
    (0.1
    )Cash flow provided by operating activities
    
    
    44.9
    
    
    
    21.3Investing Activities:Capital expenditures
    
    
    (42.7
    )
    
    
    (55.7
    )Proceeds from sale of property and equipment
    
    
    0.2
    
    
    
    0.1Purchases of investments
    
    
    
    
    
    
    (6.1
    )Sales and maturities of investments
    
    
    
    
    
    
    90.5Acquisition of business, net of cash acquired
    
    
    
    
    
    
    (91.5
    )Cash flow used in investing activities
    
    
    (42.5
    )
    
    
    (62.7
    )Financing Activities:Repayment of debt
    
    
    (1.8
    )
    
    
    (0.1
    )Payment of deferred financing costs
    
    
    (0.1
    )
    
    
    Issuances of common stock
    
    
    0.3
    
    
    
    3.2Purchases of common stock
    
    
    (0.3
    )
    
    
    (15.3
    )Excess tax benefit from share-based compensation
    
    
    
    
    
    
    1.2Contributions by minority owners
    
    
    0.5
    
    
    
    Distribution to minority owners
    
    
    (1.2
    )
    
    
    Cash flow used in financing activities
    
    
    (2.6
    )
    
    
    (11.0
    )Effect of exchange rate changes on cash
    
    
    (0.9
    )
    
    
    2.4Decrease in cash and cash equivalents
    
    
    (1.1
    )
    
    
    (50.0
    )Cash and cash equivalents, beginning of year
    
    
    232.5
    
    
    
    371.4Cash and cash equivalents, end of quarter
    
    $
    231.4
    
    
    $
    321.4Supplemental cash flow information:Interest paid
    
    $
    14.9
    
    
    $
    0.8Income taxes paid
    
    $
    16.5
    
    
    $
    1.7Non-cash investing and financing activities:Accrued capital additions
    
    $
    20.1
    
    
    $
    13.1
  5




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##### 



COLLECTIVE BRANDS, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 Note 1  Interim Results
  Note 2  Acquisitions
 Stride Rite
  6




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##### 



(In millions)Receivables
    
    $
    91.1Inventories
    
    
    184.6Other current assets
    
    
    35.2Total current assets
    
    
    310.9Property and equipment
    
    
    68.0Goodwill
    
    
    281.5Indefinite lived trademarks
    
    
    391.1Finite lived intangible assets
    
    
    83.7Other assets
    
    
    10.6Total assets acquired
    
    
    1,145.8Accounts payable
    
    
    (53.4
    )Accrued expenses and other current liabilities
    
    
    (60.2
    )Total current liabilities
    
    
    (113.6
    )Long-term debt
    
    
    (46.0
    )Long-term deferred tax liabilities
    
    
    (179.2
    )Other long-term liabilities
    
    
    (20.4
    )Total liabilities
    
    
    (359.2
    )Net assets acquired
    
    $
    786.6
    Costs Incurred
    
    
    Cash PaymentsTotal Costs Incurred as
    
    
    Accrual Balance as of
    
    
    13 Weeks Ended
    
    
    13 Weeks Ended
    
    
    Accrual Balance as of(dollars in millions)
    
    of May 3, 2008
    
    
    February 2, 2008
    
    
    May 3, 2008
    
    
    May 3, 2008
    
    
    May 3, 2008Employee severance costs
    
    $
    14.6
    
    
    $
    12.8
    
    
    $
    0.1
    
    
    $
    (3.4
    )
    
    $
    9.5Contract termination and other
costs
    
    
    2.2
    
    
    
    1.2
    
    
    
    1.0
    
    
    
    
    
    
    
    2.2Total
    
    $
    16.8
    
    
    $
    14.0
    
    
    $
    1.1
    
    
    $
    (3.4
    )
    
    $
    11.7
 Collective Licensing
   7




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##### 



(In millions)Current assets
    
    $
    4.6Goodwill
    
    
    34.3Indefinite lived trademarks
    
    
    40.6Finite lived intangible assets
    
    
    16.5Total assets acquired
    
    
    96.0Current liabilities
    
    
    (4.9
    )Total liabilities acquired
    
    
    (4.9
    )Net assets acquired
    
    $
    91.1
 Pro forma Financial Information
  13 Weeks Ended(dollars in millions, except per share)
    
    May 5, 2007Net sales
    
    $
    925.9Net earnings
    
    
    22.5Basic earnings per share
    
    $
    0.35Diluted earnings per share
    
    $
    0.34
 Note 3  Exit Costs
   Costs Incurred
    
    
    Cash PaymentsTotal Costs Incurred as
    
    
    Accrual Balance as of
    
    
    13 Weeks Ended
    
    
    13 Weeks Ended
    
    
    Accrual Balance as of(dollars in millions)
    
    of May 3, 2008
    
    
    February 2, 2008
    
    
    May 3, 2008
    
    
    May 3, 2008
    
    
    May 3, 2008Employee severance costs
    
    $
    6.4
    
    
    $
    5.2
    
    
    $
    0.5
    
    
    $
    
    
    
    $
    5.7Contract termination
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accelerated depreciation
    
    
    2.4
    
    
    
    
    
    
    
    Total
    
    $
    9.6
    
    
    $
    5.2
    
    
    $
    0.5
    
    
    $
    
    
    
    $
    5.7
  Note 4  Short-Term Investments
  8




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##### 



Note 5  Discontinued Operations
 Payless Domestic Segment
   Payless International Segment
  Note 6  Inventories
  Note 7  Intangible Assets
  May 3,
    
    
    May 5,
    
    
    February 2,(dollars in millions)
    
    2008
    
    
    2007
    
    
    2008Intangible assets subject to amortization:Favorable lease rights:Gross carrying amount
    
    $
    69.6
    
    
    $
    66.1
    
    
    $
    69.9Less: accumulated amortization
    
    
    (55.3
    )
    
    
    (54.1
    )
    
    
    (54.7
    )Carrying amount, end of period
    
    
    14.3
    
    
    
    12.0
    
    
    
    15.2Customer relationships:Gross carrying amount
    
    
    75.8
    
    
    
    9.5
    
    
    
    73.7Less: accumulated amortization
    
    
    (10.5
    )
    
    
    (0.1
    )
    
    
    (5.9
    )Carrying amount, end of period
    
    
    65.3
    
    
    
    9.4
    
    
    
    67.8Trademarks and other intangible assets:Gross carrying amount
    
    
    21.4
    
    
    
    7.1
    
    
    
    20.7Less: accumulated amortization
    
    
    (4.4
    )
    
    
    (0.1
    )
    
    
    (3.5
    )Carrying amount, end of period
    
    
    17.0
    
    
    
    7.0
    
    
    
    17.2Total carrying amount of intangible assets
subject to amortization
    
    
    96.6
    
    
    
    28.4
    
    
    
    100.2Indefinite-lived trademarks
    
    
    456.7
    
    
    
    67.5
    
    
    
    459.3Total intangible assets
    
    $
    553.3
    
    
    $
    95.9
    
    
    $
    559.5
 9




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##### 



13 Weeks EndedMay 3,
    
    
    May 5,(dollars in millions)
    
    2008
    
    
    2007Amortization expense on intangible assets
    
    $
    5.9
    
    
    $
    0.9
  Year
    
    AmountRemainder of 2008
    
    $
    15.92009
    
    
    19.52010
    
    
    15.52011
    
    
    12.62012
    
    
    10.2
 Note 8  Goodwill
   Payless
    
    
    Stride Rite
    
    
    Stride Rite(dollars in millions)
    
    Domestic
    
    
    Retail
    
    
    Wholesale
    
    
    ConsolidatedBalance as of February 2, 2008
    
    $
    40.2
    
    
    $
    42.0
    
    
    $
    238.8
    
    
    $
    321.0Adjustments to Stride Rite purchase price allocation
    
    
    
    
    
    
    
    
    
    
    0.7
    
    
    
    0.7Balance as of May 3, 2008
    
    $
    40.2
    
    
    $
    42.0
    
    
    $
    239.5
    
    
    $
    321.7
  Note 9  Long-Term Debt
  May 3,
    
    
    May 5,
    
    
    February 2,(dollars in millions)
    
    2008
    
    
    2007
    
    
    2008Term loan facility
    
    $
    721.4
    
    
    $
    
    
    
    $
    723.2Senior subordinated notes (1)
    
    
    197.9
    
    
    
    197.6
    
    
    
    197.8Revolving loan facility (2)
    
    
    
    
    
    
    
    
    
    
    Capital-lease obligations
    
    
    1.2
    
    
    
    0.4
    
    
    
    1.3Other
    
    
    
    
    
    
    4.0
    
    
    
    Total debt
    
    
    920.5
    
    
    
    202.0
    
    
    
    922.3Less: current maturities of long-term debt
    
    
    7.4
    
    
    
    0.3
    
    
    
    7.4Long-term debt
    
    $
    913.1
    
    
    $
    201.7
    
    
    $
    914.9
 
 (1)
    
    As of May 3, 2008, the fair value of the Companys senior subordinated notes was $178.5 million based on recent trading activity.(2)
    
    As of May 3, 2008, the Companys borrowing base on its revolving loan facility was $304.1 million less $25.8 million in outstanding letters of credit. The variable interest rate including the applicable variable margin at May 3, 2008, was 3.65%.  10




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##### 



Note 10  Derivatives
   Note 11  Fair Value Measurement
       Note 12  Pension Plans
  Payless Plan
  13 Weeks EndedMay 3,
    
    
    May 5,(dollars in millions)
    
    2008
    
    
    2007Components of pension expense:Service cost
    
    $
    0.1
    
    
    $
    0.2Interest cost
    
    
    0.6
    
    
    
    0.5Amortization of prior service cost
    
    
    0.4
    
    
    
    0.1Amortization of actuarial loss
    
    
    0.2
    
    
    
    0.1Total
    
    $
    1.3
    
    
    $
    0.9
 11




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##### 



Stride Rite Plan
  13 Weeks EndedMay 3,(dollars in millions)
    
    2008Components of pension expense:Interest cost
    
    $
    1.1Expected return on net assets
    
    
    (1.2
    )Total
    
    $
    (0.1
    )
 Note 13  Share-Based Compensation
   13 Weeks EndedMay 3,
    
    May 5,2008
    
    2007Stock-settled SARs(1):Vest in installments over 3 years
    
    
    508,170
    
    
    
    458,069Cliff vest after 3 years
    
    
    309,600
    
    
    
    219,725Nonvested Shares:Performance grant  vests in installments over 3 years(2)
    
    
    4,755
    
    
    
    120,730Vest in installments over 3 years
    
    
    265,949
    
    
    
    Cliff vest after 3 years
    
    
    1,425
    
    
    
    Cash-settled SARs:Vest in installments over 3 years
    
    
    2,800
    
    
    
    22,525Cliff vest after 3 years
    
    
    8,000
    
    
    
    14,000
 
 (1)
    
    All of the stock-settled SARs issued by the Company to-date
contain an appreciation cap, which limits the appreciation for which
shares of common stock will be granted to 200% of the fair market value of
the underlying common stock on the grant date of the SAR.(2)
    
    Certain nonvested shares are subject to a performance condition for
vesting. The performance grant vests only if the performance condition is
met. As of May 3, 2008, the Company has assessed the likelihood that the
performance conditions will be met and has recorded the related expense
based on the estimated outcome. In the first quarter of 2008,
approximately 131,000 previously issued shares that were subject to a
performance condition did not vest because they failed to meet that
condition. 12




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##### 



13 Weeks EndedMay 3,
    
    
    May 5,(dollars in millions, except per share amounts)
    
    2008
    
    
    2007Cost of sales
    
    $
    3.1
    
    
    $
    0.9Selling, general and administrative expenses
    
    
    1.0
    
    
    
    2.2Share-based compensation expense before income taxes
    
    
    4.1
    
    
    
    3.1Tax benefit
    
    
    (1.5
    )
    
    
    (1.2
    )Share-based compensation expense after income taxes
    
    $
    2.6
    
    
    $
    1.9Effect on:Basic earnings per share
    
    $
    0.04
    
    
    $
    0.03Diluted earnings per share
    
    $
    0.04
    
    
    $
    0.03
  Note 14  Income Taxes
   Note 15  Comprehensive Income
  13 Weeks Ended(dollars in millions)
    
    May 3, 2008
    
    
    May 5, 200713 weeks ended May 3, 2008Net earnings
    
    $
    19.7
    
    
    $
    38.9Foreign currency translation adjustments
    
    
    (0.9
    )
    
    
    5.2Net derivative instrument fair value change, net of taxes of $2.4
    
    
    3.7
    
    
    
    Amortization of prior service cost and actuarial loss, net of taxes of $0.2
    
    
    0.4
    
    
    
    Total comprehensive income
    
    $
    22.9
    
    
    $
    44.1
  13




---



##### 



Note 16  Earnings Per Share
  13 Weeks EndedMay 3,
    
    
    May 5,(dollars in millions, except per share amounts; shares in thousands)
    
    2008
    
    
    2007Net earnings from continuing operations
    
    $
    20.1
    
    
    $
    39.0Weighted average shares outstanding  basic
    
    
    62,932
    
    
    
    64,724Net effect of dilutive stock options
    
    
    
    
    
    
    999Net effect of dilutive SARs
    
    
    
    
    
    
    110Dilutive shares due to nonvested shares
    
    
    340
    
    
    
    168Weighted average shares outstanding  diluted
    
    
    63,272
    
    
    
    66,001Basic earnings per share from continuing operations
    
    $
    0.32
    
    
    $
    0.60Diluted earnings per share from continuing operations
    
    $
    0.32
    
    
    $
    0.59
  Note 17  Segment Reporting
  
    
    The Payless Domestic reporting segment is comprised primarily of domestic retail stores
under the Payless ShoeSource name, the Companys sourcing unit and Collective Licensing.
    
    The Payless International reporting segment is comprised of international retail stores
under the Payless ShoeSource name in Canada, the South American Region, the Central
American Region, Puerto Rico, and the U.S. Virgin Islands.
    
    The Stride Rite Retail reporting segment consists of Stride Rites specialty stores and
outlet stores.
    
    The Stride Rite Wholesale reporting segment consists of Stride Rites wholesale
operations.
  14




---



##### 



Payless
    
    Payless
    
    Stride Rite
    
    Stride Rite(dollars in millions)
    
    Domestic
    
    International
    
    Retail
    
    Wholesale
    
    Consolidated13 weeks ended May 3, 2008Revenues from external customers
    
    $
    588.5
    
    
    $
    104.3
    
    
    $
    57.1
    
    
    $
    182.5
    
    
    $
    932.4Operating profit from continuing operations
    
    
    5.1
    
    
    
    11.4
    
    
    
    1.6
    
    
    
    23.1
    
    
    
    41.2Operating Segment Total Assets
    
    $
    1,124.7
    
    
    $
    209.1
    
    
    $
    95.9
    
    
    $
    1,012.3
    
    
    $
    2,442.0
 Payless
    
    Payless
    
    Stride Rite
    
    Stride Rite(dollars in millions)
    
    Domestic
    
    International
    
    Retail
    
    Wholesale
    
    Consolidated13 weeks ended May 5, 2007Revenues from external customers
    
    $
    637.3
    
    
    $
    91.3
    
    
    $
    
    
    
    $
    
    
    
    $
    728.6Operating profit from continuing operations
    
    
    53.1
    
    
    
    5.7
    
    
    
    
    
    
    
    
    
    
    
    58.8Operating Segment Total Assets
    
    $
    1,219.5
    
    
    $
    213.2
    
    
    $
    
    
    
    $
    
    
    
    $
    1,432.7
  Note 18  Commitments and Contingencies
 th th
  15




---



##### 



Note 19  Impact of Recently Issued Accounting Standards
  16




---



##### 



Note 20  Related Party Transactions
  Note 21  Subsidiary Guarantors of Senior Notes  Condensed Consolidating Financial Information
  17




---



##### 



18




---



##### 



13 Weeks Ended May 3, 2008Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    834.4
    
    
    $
    281.3
    
    
    $
    (183.3
    )
    
    $
    932.4Cost of sales
    
    
    
    
    
    
    594.2
    
    
    
    198.1
    
    
    
    (165.0
    )
    
    
    627.3Gross margin
    
    
    
    
    
    
    240.2
    
    
    
    83.2
    
    
    
    (18.3
    )
    
    
    305.1Selling, general and administrative expenses
    
    
    0.3
    
    
    
    222.9
    
    
    
    58.9
    
    
    
    (18.3
    )
    
    
    263.8Restructuring charges
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Operating (loss) profit from continuing operations
    
    
    (0.3
    )
    
    
    17.2
    
    
    
    24.3
    
    
    
    
    
    
    
    41.2Interest expense
    
    
    4.4
    
    
    
    14.2
    
    
    
    
    
    
    
    (0.1
    )
    
    
    18.5Interest income
    
    
    
    
    
    
    (0.4
    )
    
    
    (1.0
    )
    
    
    0.1
    
    
    
    (1.3
    )Equity in earnings of subsidiaries
    
    
    (21.5
    )
    
    
    (20.5
    )
    
    
    
    
    
    
    42.0
    
    
    
    Earnings from continuing operations before income taxes
and minority interest
    
    
    16.8
    
    
    
    23.9
    
    
    
    25.3
    
    
    
    (42.0
    )
    
    
    24.0(Benefit) / provision for income taxes
    
    
    (2.9
    )
    
    
    2.0
    
    
    
    3.2
    
    
    
    
    
    
    
    2.3Earnings from continuing operations before minority interest
    
    
    19.7
    
    
    
    21.9
    
    
    
    22.1
    
    
    
    (42.0
    )
    
    
    21.7Minority interest, net of income taxes
    
    
    
    
    
    
    
    
    
    
    (1.6
    )
    
    
    
    
    
    
    (1.6
    )Net earnings from continuing operations
    
    
    19.7
    
    
    
    21.9
    
    
    
    20.5
    
    
    
    (42.0
    )
    
    
    20.1Loss from discontinued operations, net of income
taxes and minority interest
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    (0.4
    )Net earnings
    
    $
    19.7
    
    
    $
    21.5
    
    
    $
    20.5
    
    
    $
    (42.0
    )
    
    $
    19.7
 19




---



##### 



13 Weeks Ended May 5, 2007Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    667.2
    
    
    $
    233.6
    
    
    $
    (172.2
    )
    
    $
    728.6Cost of sales
    
    
    
    
    
    
    438.9
    
    
    
    190.2
    
    
    
    (169.4
    )
    
    
    459.7Gross margin
    
    
    
    
    
    
    228.3
    
    
    
    43.4
    
    
    
    (2.8
    )
    
    
    268.9Selling, general and administrative expenses
    
    
    1.1
    
    
    
    182.1
    
    
    
    29.5
    
    
    
    (2.8
    )
    
    
    209.9Restructuring charges
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.2Operating (loss) profit from continuing operations
    
    
    (1.1
    )
    
    
    46.0
    
    
    
    13.9
    
    
    
    
    
    
    
    58.8Interest expense
    
    
    9.5
    
    
    
    0.2
    
    
    
    0.3
    
    
    
    (5.2
    )
    
    
    4.8Interest income
    
    
    
    
    
    
    (8.8
    )
    
    
    (1.1
    )
    
    
    5.2
    
    
    
    (4.7
    )Equity in earnings of subsidiaries
    
    
    (45.7
    )
    
    
    (11.8
    )
    
    
    
    
    
    
    57.5
    
    
    
    Earnings from continuing operations before income taxes
and minority interest
    
    
    35.1
    
    
    
    66.4
    
    
    
    14.7
    
    
    
    (57.5
    )
    
    
    58.7(Benefit) / provision for income taxes
    
    
    (3.8
    )
    
    
    20.6
    
    
    
    2.0
    
    
    
    
    
    
    
    18.8Earnings from continuing operations before minority interest
    
    
    38.9
    
    
    
    45.8
    
    
    
    12.7
    
    
    
    (57.5
    )
    
    
    39.9Minority interest, net of income taxes
    
    
    
    
    
    
    
    
    
    
    (0.9
    )
    
    
    
    
    
    
    (0.9
    )Net earnings from continuing operations
    
    
    38.9
    
    
    
    45.8
    
    
    
    11.8
    
    
    
    (57.5
    )
    
    
    39.0Loss from discontinued operations, net of income
taxes and minority interest
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Net earnings
    
    $
    38.9
    
    
    $
    45.7
    
    
    $
    11.8
    
    
    $
    (57.5
    )
    
    $
    38.9
 20




---



##### 



As of May 3, 2008Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    129.8
    
    
    $
    101.6
    
    
    $
    
    
    
    $
    231.4Accounts receivable, net
    
    
    
    
    
    
    97.1
    
    
    
    18.6
    
    
    
    (4.0
    )
    
    
    111.7Inventories
    
    
    
    
    
    
    407.3
    
    
    
    81.0
    
    
    
    (6.8
    )
    
    
    481.5Current deferred income taxes
    
    
    
    
    
    
    33.6
    
    
    
    2.9
    
    
    
    
    
    
    
    36.5Prepaid expenses
    
    
    
    
    
    
    54.8
    
    
    
    8.3
    
    
    
    
    
    
    
    63.1Other current assets
    
    
    54.5
    
    
    
    299.4
    
    
    
    82.0
    
    
    
    (395.4
    )
    
    
    40.5Current assets of discontinued operations
    
    
    
    
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    1.0Total current assets
    
    
    54.5
    
    
    
    1,023.0
    
    
    
    294.4
    
    
    
    (406.2
    )
    
    
    965.7Property and Equipment:Land
    
    
    
    
    
    
    9.3
    
    
    
    
    
    
    
    
    
    
    
    9.3Property, buildings and equipment
    
    
    
    
    
    
    1,290.2
    
    
    
    177.3
    
    
    
    
    
    
    
    1,467.5Accumulated depreciation and amortization
    
    
    
    
    
    
    (808.5
    )
    
    
    (112.3
    )
    
    
    
    
    
    
    (920.8
    )Property and equipment, net
    
    
    
    
    
    
    491.0
    
    
    
    65.0
    
    
    
    
    
    
    
    556.0Intangible assets, net
    
    
    
    
    
    
    526.6
    
    
    
    26.7
    
    
    
    
    
    
    
    553.3Goodwill
    
    
    
    
    
    
    183.6
    
    
    
    138.1
    
    
    
    
    
    
    
    321.7Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    1.1
    
    
    
    
    
    
    
    1.1Other assets
    
    
    1,400.2
    
    
    
    661.2
    
    
    
    2.1
    
    
    
    (2,019.3
    )
    
    
    44.2Total Assets
    
    $
    1,454.7
    
    
    $
    2,885.4
    
    
    $
    527.4
    
    
    $
    (2,425.5
    )
    
    $
    2,442.0LIABILITIES AND SHAREOWNERS EQUITYCurrent Liabilities:Current maturities of long-term debt
    
    $
    
    
    
    $
    7.4
    
    
    $
    
    
    
    $
    
    
    
    $
    7.4Accounts payable
    
    
    
    
    
    
    127.7
    
    
    
    103.3
    
    
    
    (34.8
    )
    
    
    196.2Accrued expenses
    
    
    240.9
    
    
    
    305.1
    
    
    
    35.8
    
    
    
    (371.4
    )
    
    
    210.4Current liabilities of discontinued operations
    
    
    
    
    
    
    1.9
    
    
    
    
    
    
    
    
    
    
    
    1.9Total current liabilities
    
    
    240.9
    
    
    
    442.1
    
    
    
    139.1
    
    
    
    (406.2
    )
    
    
    415.9Long-term debt
    
    
    481.1
    
    
    
    714.1
    
    
    
    11.0
    
    
    
    (293.1
    )
    
    
    913.1Deferred income taxes
    
    
    
    
    
    
    114.0
    
    
    
    1.2
    
    
    
    
    
    
    
    115.2Other liabilities
    
    
    2.5
    
    
    
    228.5
    
    
    
    18.4
    
    
    
    
    
    
    
    249.4Minority interest
    
    
    
    
    
    
    
    
    
    
    18.2
    
    
    
    
    
    
    
    18.2Commitments and contingenciesTotal shareowners equity
    
    
    730.2
    
    
    
    1,386.7
    
    
    
    339.5
    
    
    
    (1,726.2
    )
    
    
    730.2Total Liabilities and Shareowners Equity
    
    $
    1,454.7
    
    
    $
    2,885.4
    
    
    $
    527.4
    
    
    $
    (2,425.5
    )
    
    $
    2,442.0
 21




---



##### 



As of May 5, 2007Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    180.6
    
    
    $
    140.8
    
    
    $
    
    
    
    $
    321.4Short-term investments
    
    
    
    
    
    
    6.1
    
    
    
    
    
    
    
    
    
    
    
    6.1Restricted cash
    
    
    
    
    
    
    
    
    
    
    2.0
    
    
    
    
    
    
    
    2.0Accounts receivable, net
    
    
    
    
    
    
    6.2
    
    
    
    0.4
    
    
    
    
    
    
    
    6.6Inventories
    
    
    
    
    
    
    311.0
    
    
    
    77.9
    
    
    
    (7.2
    )
    
    
    381.7Current deferred income taxes
    
    
    
    
    
    
    13.8
    
    
    
    2.4
    
    
    
    
    
    
    
    16.2Prepaid expenses
    
    
    0.6
    
    
    
    37.1
    
    
    
    6.5
    
    
    
    
    
    
    
    44.2Other current assets
    
    
    46.1
    
    
    
    243.9
    
    
    
    66.5
    
    
    
    (343.9
    )
    
    
    12.6Current assets of discontinued operations
    
    
    
    
    
    
    1.0
    
    
    
    0.1
    
    
    
    
    
    
    
    1.1Total current assets
    
    
    46.7
    
    
    
    799.7
    
    
    
    296.6
    
    
    
    (351.1
    )
    
    
    791.9Property and Equipment:Land
    
    
    
    
    
    
    6.5
    
    
    
    
    
    
    
    
    
    
    
    6.5Property, buildings and equipment
    
    
    
    
    
    
    1,129.5
    
    
    
    155.3
    
    
    
    
    
    
    
    1,284.8Accumulated depreciation and amortization
    
    
    
    
    
    
    (753.2
    )
    
    
    (95.4
    )
    
    
    
    
    
    
    (848.6
    )Property and equipment, net
    
    
    
    
    
    
    382.8
    
    
    
    59.9
    
    
    
    
    
    
    
    442.7Intangible assets, net
    
    
    
    
    
    
    86.9
    
    
    
    9.0
    
    
    
    
    
    
    
    95.9Goodwill
    
    
    
    
    
    
    34.7
    
    
    
    5.4
    
    
    
    
    
    
    
    40.1Deferred income taxes
    
    
    
    
    
    
    37.6
    
    
    
    6.3
    
    
    
    
    
    
    
    43.9Other assets
    
    
    1,355.3
    
    
    
    500.1
    
    
    
    1.4
    
    
    
    (1,838.6
    )
    
    
    18.2Total Assets
    
    $
    1,402.0
    
    
    $
    1,841.8
    
    
    $
    378.6
    
    
    $
    (2,189.7
    )
    
    $
    1,432.7LIABILITIES AND SHAREOWNERS EQUITYCurrent Liabilities:Current maturities of long-term debt
    
    $
    
    
    
    $
    0.3
    
    
    $
    
    
    
    $
    
    
    
    $
    0.3Notes payable
    
    
    
    
    
    
    
    
    
    
    2.0
    
    
    
    
    
    
    
    2.0Accounts payable
    
    
    
    
    
    
    116.3
    
    
    
    66.7
    
    
    
    (25.5
    )
    
    
    157.5Accrued expenses
    
    
    193.8
    
    
    
    224.1
    
    
    
    63.7
    
    
    
    (325.6
    )
    
    
    156.0Current liabilities of discontinued operations
    
    
    
    
    
    
    2.1
    
    
    
    
    
    
    
    
    
    
    
    2.1Total current liabilities
    
    
    193.8
    
    
    
    342.8
    
    
    
    132.4
    
    
    
    (351.1
    )
    
    
    317.9Long-term debt
    
    
    480.7
    
    
    
    
    
    
    
    14.1
    
    
    
    (293.1
    )
    
    
    201.7Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    0.2Other liabilities
    
    
    2.3
    
    
    
    153.4
    
    
    
    19.4
    
    
    
    
    
    
    
    175.1Minority interest
    
    
    
    
    
    
    
    
    
    
    12.6
    
    
    
    
    
    
    
    12.6Commitments and contingenciesTotal Shareowners equity
    
    
    725.2
    
    
    
    1,345.6
    
    
    
    199.9
    
    
    
    (1,545.5
    )
    
    
    725.2Total Liabilities and Shareowners Equity
    
    $
    1,402.0
    
    
    $
    1,841.8
    
    
    $
    378.6
    
    
    $
    (2,189.7
    )
    
    $
    1,432.7
 22




---



##### 



As of February 2, 2008Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    69.5
    
    
    $
    163.0
    
    
    $
    
    
    
    $
    232.5Accounts receivable, net
    
    
    
    
    
    
    81.5
    
    
    
    7.9
    
    
    
    (3.3
    )
    
    
    86.1Inventories
    
    
    
    
    
    
    397.5
    
    
    
    76.1
    
    
    
    (3.5
    )
    
    
    470.1Current deferred income taxes
    
    
    
    
    
    
    21.0
    
    
    
    2.8
    
    
    
    
    
    
    
    23.8Prepaid expenses
    
    
    
    
    
    
    85.7
    
    
    
    7.7
    
    
    
    
    
    
    
    93.4Other current assets
    
    
    55.8
    
    
    
    290.5
    
    
    
    151.9
    
    
    
    (466.7
    )
    
    
    31.5Current assets of discontinued operations
    
    
    
    
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    0.8Total current assets
    
    
    55.8
    
    
    
    946.5
    
    
    
    409.4
    
    
    
    (473.5
    )
    
    
    938.2Property and Equipment:Land
    
    
    
    
    
    
    9.3
    
    
    
    
    
    
    
    
    
    
    
    9.3Property, buildings and equipment
    
    
    
    
    
    
    1,263.4
    
    
    
    176.7
    
    
    
    
    
    
    
    1,440.1Accumulated depreciation and amortization
    
    
    
    
    
    
    (788.3
    )
    
    
    (110.1
    )
    
    
    
    
    
    
    (898.4
    )Property and equipment, net
    
    
    
    
    
    
    484.4
    
    
    
    66.6
    
    
    
    
    
    
    
    551.0Intangible assets, net
    
    
    
    
    
    
    532.4
    
    
    
    27.1
    
    
    
    
    
    
    
    559.5Goodwill
    
    
    
    
    
    
    182.9
    
    
    
    138.1
    
    
    
    
    
    
    
    321.0Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    1.5
    
    
    
    
    
    
    
    1.5Other assets
    
    
    1,366.3
    
    
    
    698.7
    
    
    
    1.6
    
    
    
    (2,022.6
    )
    
    
    44.0Total Assets
    
    $
    1,422.1
    
    
    $
    2,844.9
    
    
    $
    644.3
    
    
    $
    (2,496.1
    )
    
    $
    2,415.2LIABILITIES AND SHAREOWNERS EQUITYCurrent Liabilities:Current maturities of long-term debt
    
    $
    
    
    
    $
    7.4
    
    
    $
    
    
    
    $
    
    
    
    $
    7.4Accounts payable
    
    
    
    
    
    
    132.5
    
    
    
    183.2
    
    
    
    (114.8
    )
    
    
    200.9Accrued expenses
    
    
    235.8
    
    
    
    290.1
    
    
    
    36.3
    
    
    
    (358.7
    )
    
    
    203.5Current liabilities of discontinued operations
    
    
    
    
    
    
    1.3
    
    
    
    
    
    
    
    
    
    
    
    1.3Total current liabilities
    
    
    235.8
    
    
    
    431.3
    
    
    
    219.5
    
    
    
    (473.5
    )
    
    
    413.1Long-term debt
    
    
    481.0
    
    
    
    715.9
    
    
    
    11.1
    
    
    
    (293.1
    )
    
    
    914.9Deferred income taxes
    
    
    
    
    
    
    111.4
    
    
    
    1.5
    
    
    
    
    
    
    
    112.9Other liabilities
    
    
    2.4
    
    
    
    233.5
    
    
    
    18.8
    
    
    
    (0.5
    )
    
    
    254.2Minority interest
    
    
    
    
    
    
    
    
    
    
    17.2
    
    
    
    
    
    
    
    17.2Commitments and contingenciesTotal shareowners equity
    
    
    702.9
    
    
    
    1,352.8
    
    
    
    376.2
    
    
    
    (1,729.0
    )
    
    
    702.9Total Liabilities and Shareowners Equity
    
    $
    1,422.1
    
    
    $
    2,844.9
    
    
    $
    644.3
    
    
    $
    (2,496.1
    )
    
    $
    2,415.2
 23




---



##### 



13 Weeks Ended May 3, 2008Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating Activities:Net earnings
    
    $
    19.7
    
    
    $
    21.5
    
    
    $
    20.5
    
    
    $
    (42.0
    )
    
    $
    19.7Loss from discontinued operations, net of income taxes
and minority interest
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    0.4Adjustments for non-cash items included in net earnings:Loss on impairment of and disposal of assets
    
    
    
    
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    1.7Depreciation and amortization
    
    
    0.8
    
    
    
    27.7
    
    
    
    6.6
    
    
    
    
    
    
    
    35.1Provision for losses on accounts receivable
    
    
    
    
    
    
    0.4
    
    
    
    0.1
    
    
    
    
    
    
    
    0.5Share-based compensation expense
    
    
    
    
    
    
    4.4
    
    
    
    (0.3
    )
    
    
    
    
    
    
    4.1Deferred income taxes
    
    
    
    
    
    
    (12.0
    )
    
    
    (1.9
    )
    
    
    
    
    
    
    (13.9
    )Minority interest, net of income taxes
    
    
    
    
    
    
    
    
    
    
    1.6
    
    
    
    
    
    
    
    1.6Changes in working capital:Accounts receivable
    
    
    
    
    
    
    (15.4
    )
    
    
    (11.5
    )
    
    
    0.7
    
    
    
    (26.2
    )Inventories
    
    
    
    
    
    
    (10.8
    )
    
    
    (4.3
    )
    
    
    3.3
    
    
    
    (11.8
    )Prepaid expenses and other current assets
    
    
    1.3
    
    
    
    19.9
    
    
    
    (17.7
    )
    
    
    17.7
    
    
    
    21.2Accounts payable
    
    
    
    
    
    
    1.1
    
    
    
    7.7
    
    
    
    (9.0
    )
    
    
    (0.2
    )Accrued expenses
    
    
    5.1
    
    
    
    15.7
    
    
    
    2.2
    
    
    
    (12.7
    )
    
    
    10.3Changes in other assets and liabilities, net
    
    
    (26.9
    )
    
    
    45.5
    
    
    
    (59.1
    )
    
    
    44.5
    
    
    
    4.0Contributions to pension plans
    
    
    
    
    
    
    (1.6
    )
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Cash flow provided by (used in) operating activities
    
    
    
    
    
    
    98.5
    
    
    
    (56.1
    )
    
    
    2.5
    
    
    
    44.9Investing Activities:Capital expenditures
    
    
    
    
    
    
    (39.4
    )
    
    
    (3.3
    )
    
    
    
    
    
    
    (42.7
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.2Cash flow used in investing activities
    
    
    
    
    
    
    (39.2
    )
    
    
    (3.3
    )
    
    
    
    
    
    
    (42.5
    )Financing Activities:Repayment of notes payable
    
    
    
    
    
    
    (57.1
    )
    
    
    (58.7
    )
    
    
    115.8
    
    
    
    Issuance of debt
    
    
    
    
    
    
    
    
    
    
    116.6
    
    
    
    (116.6
    )
    
    
    Repayment of debt
    
    
    
    
    
    
    (1.8
    )
    
    
    
    
    
    
    
    
    
    
    (1.8
    )Payment of deferred financing costs
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Issuances of common stock
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3Purchases of common stock
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Contributions by/distributions to parent
    
    
    
    
    
    
    
    
    
    
    1.7
    
    
    
    (1.7
    )
    
    
    Contributions from minority owners
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    0.5Distributions to minority owners
    
    
    
    
    
    
    
    
    
    
    (1.2
    )
    
    
    
    
    
    
    (1.2
    )Dividends to parent
    
    
    
    
    
    
    62.3
    
    
    
    (62.3
    )
    
    
    
    
    
    
    Cash flow provided by (used in) provided by financing activities
    
    
    
    
    
    
    3.3
    
    
    
    (3.4
    )
    
    
    (2.5
    )
    
    
    (2.6
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    (2.3
    )
    
    
    1.4
    
    
    
    
    
    
    
    (0.9
    )Increase/(decrease) in cash and cash equivalents
    
    
    
    
    
    
    60.3
    
    
    
    (61.4
    )
    
    
    
    
    
    
    (1.1
    )Cash and cash equivalents, beginning of year
    
    
    
    
    
    
    69.5
    
    
    
    163.0
    
    
    
    
    
    
    
    232.5Cash and cash equivalents, end of quarter
    
    $
    
    
    
    $
    129.8
    
    
    $
    101.6
    
    
    $
    
    
    
    $
    231.4
 24




---



##### 



13 Weeks Ended May 5, 2007Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating Activities:Net earnings
    
    $
    38.9
    
    
    $
    45.7
    
    
    $
    11.8
    
    
    $
    (57.5
    )
    
    $
    38.9Loss from discontinued operations, net of income taxes
and minority interest
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Adjustments for non-cash items included in net earnings:Loss on impairment of and disposal of assets
    
    
    
    
    
    
    2.5
    
    
    
    0.1
    
    
    
    
    
    
    
    2.6Depreciation and amortization
    
    
    0.2
    
    
    
    20.7
    
    
    
    3.6
    
    
    
    
    
    
    
    24.5Share-based compensation expense
    
    
    
    
    
    
    3.0
    
    
    
    0.1
    
    
    
    
    
    
    
    3.1Deferred income taxes
    
    
    
    
    
    
    (2.7
    )
    
    
    1.4
    
    
    
    
    
    
    
    (1.3
    )Minority interest, net of income taxes
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    0.9Income tax benefit from share-based compensation
    
    
    
    
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    1.2Excess tax benefit from share-based compensation
    
    
    
    
    
    
    (1.2
    )
    
    
    
    
    
    
    
    
    
    
    (1.2
    )Interest income on held-to-maturity investments
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    
    
    
    
    (0.5
    )Changes in working capital:Accounts receivable, net
    
    
    
    
    
    
    (2.7
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (2.8
    )Inventories
    
    
    
    
    
    
    (28.2
    )
    
    
    6.8
    
    
    
    2.8
    
    
    
    (18.6
    )Prepaid expenses and other current assets
    
    
    (3.8
    )
    
    
    (15.1
    )
    
    
    (8.5
    )
    
    
    37.6
    
    
    
    10.2Accounts payable
    
    
    
    
    
    
    (29.4
    )
    
    
    7.0
    
    
    
    (5.0
    )
    
    
    (27.4
    )Accrued expenses
    
    
    18.4
    
    
    
    2.6
    
    
    
    0.2
    
    
    
    (35.4
    )
    
    
    (14.2
    )Changes in other assets and liabilities, net
    
    
    (41.6
    )
    
    
    4.0
    
    
    
    (14.0
    )
    
    
    57.5
    
    
    
    5.9Net cash used in discontinued operations
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Cash flow provided by (used in) operating activities
    
    
    12.1
    
    
    
    (0.1
    )
    
    
    9.3
    
    
    
    
    
    
    
    21.3Investing Activities:Capital expenditures
    
    
    
    
    
    
    (52.8
    )
    
    
    (2.9
    )
    
    
    
    
    
    
    (55.7
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Purchases of investments
    
    
    
    
    
    
    (6.1
    )
    
    
    
    
    
    
    
    
    
    
    (6.1
    )Sales and maturities of investments
    
    
    
    
    
    
    90.5
    
    
    
    
    
    
    
    
    
    
    
    90.5Acquisition of business, net of cash acquired
    
    
    
    
    
    
    (91.5
    )
    
    
    
    
    
    
    
    
    
    
    (91.5
    )Cash flow used in investing activities
    
    
    
    
    
    
    (59.8
    )
    
    
    (2.9
    )
    
    
    
    
    
    
    (62.7
    )Financing Activities:Repayment of debt
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Issuances of common stock
    
    
    3.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.2Purchases of common stock
    
    
    (15.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15.3
    )Excess tax benefits from share-based compensation
    
    
    
    
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    1.2Cash flow (used in) provided by financing activities
    
    
    (12.1
    )
    
    
    1.1
    
    
    
    
    
    
    
    
    
    
    
    (11.0
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    2.4
    
    
    
    
    
    
    
    2.4(Decrease)/increase in cash and cash equivalents
    
    
    
    
    
    
    (58.8
    )
    
    
    8.8
    
    
    
    
    
    
    
    (50.0
    )Cash and cash equivalents, beginning of year
    
    
    
    
    
    
    239.4
    
    
    
    132.0
    
    
    
    
    
    
    
    371.4Cash and cash equivalents, end of quarter
    
    $
    
    
    
    $
    180.6
    
    
    $
    140.8
    
    
    $
    
    
    
    $
    321.4
 25




---



##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward Looking Statements
  Overview
  
    
    Our Business  a general description of our business, our strategy and key 2008 events.
    
    Consolidated Review of Operations  an analysis of our consolidated results of
operations for the 13 weeks ended May 3, 2008 and May 5, 2007 as presented in our condensed
consolidated financial statements.
    
    Reporting Segment Review of Operations  an analysis of our results of operations for
the 13 weeks ended May 3, 2008 and May 5, 2007 as presented in our condensed consolidated
financial statements for our four reporting segments: Payless Domestic, Payless
International, Stride Rite Retail and Stride Rite Wholesale.
    
    Liquidity and Capital Resources  an analysis of cash flows, aggregate financial
commitments and certain financial condition ratios.
    
    Critical Accounting Policies  an update since February 2, 2008 of our discussion of
our critical accounting policies that involve a higher degree of judgment or complexity.
This section also includes the impact of new accounting standards.
 26




---



##### 



Our Business
 ® ® ®
  Payless
 ® ® ®
  Stride Rite
 ®
 ® ®
 Key 2008 Events
    27




---



##### 



Consolidated Review of Operations
  First Quarter2008
    
    2007Net sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    67.3
    
    
    
    63.1Gross margin
    
    
    32.7
    
    
    
    36.9Selling, general and administrative expense
    
    
    28.3
    
    
    
    28.8Operating profit from continuing operations
    
    
    4.4
    
    
    
    8.1Interest expense, net
    
    
    1.9
    
    
    
    0.1Earnings from continuing operations before
income taxes and minority interest
    
    
    2.5
    
    
    
    8.0Effective income tax rate*
    
    
    9.6
    
    
    
    32.0Earnings from continuing operations before
minority interest
    
    
    2.3
    
    
    
    5.5Minority interest, net of income taxes
    
    
    (0.1
    )
    
    
    (0.1
    )Net earnings from continuing operations
    
    
    2.2
    
    
    
    5.4Loss from discontinued operations,
net of income taxes and minority interest
    
    
    (0.1
    )
    
    
    (0.1
    )Net earnings
    
    
    2.1
    %
    
    
    5.3
    %
 
 *
    
    Percent of pre-tax earnings Net Earnings
  Net Sales
 28




---



##### 



First Quarter2008
    
    2007Net sales
    
    
    28.0
    %
    
    
    4.9
    %Same-store sales*
    
    
    (6.5
    )
    
    
    5.0Average selling price per unit
    
    
    2.6
    
    
    
    2.1Unit volume
    
    
    (7.5
    )
    
    
    3.0Footwear average selling price per unit
    
    
    3.8
    
    
    
    2.2Footwear unit volume
    
    
    (8.8
    )
    
    
    3.3Non-footwear average selling price per unit
    
    
    (0.5
    )
    
    
    (0.2
    )Non-footwear unit volume
    
    
    (1.9
    )
    
    
    2.2
 
 *
    
    The same-store sales calculation excludes Latin America.  Cost of Sales
  Gross Margin
  Selling, General and Administrative Expenses
   Interest Expense (Income)
  First Quarter(dollars in millions)
    
    2008
    
    
    2007Interest expense
    
    $
    18.5
    
    
    $
    4.8Interest income
    
    
    (1.3
    )
    
    
    (4.7
    )Interest expense, net
    
    $
    17.2
    
    
    $
    0.1
 29




---



##### 



Income Taxes
  Minority Interest, Net of Taxes
  Discontinued Operations
  Reporting Segment Review of Operations
  First Quarter(in millions)
    
    2008
    
    
    2007Revenues from external customers:Payless Domestic
    
    $
    588.5
    
    
    $
    637.3Payless International
    
    
    104.3
    
    
    
    91.3Stride Rite Wholesale
    
    
    182.5
    
    
    
    Stride Rite Retail
    
    
    57.1
    
    
    
    Consolidated Net Sales
    
    $
    932.4
    
    
    $
    728.6Operating profit from continuing operations:Payless Domestic
    
    $
    5.1
    
    
    $
    53.1Payless International
    
    
    11.4
    
    
    
    5.7Stride Rite Wholesale
    
    
    23.1
    
    
    
    Stride Rite Retail
    
    
    1.6
    
    
    
    Operating profit from continuing operations
    
    $
    41.2
    
    
    $
    58.8
  30




---



##### 



Payless
    
    Payless
    
    Stride RiteDomestic
    
    International
    
    Retail
    
    TotalFirst Quarter 2008Beginning store count
    
    
    3,954
    
    
    
    598
    
    
    
    340
    
    
    
    4,892Stores opened
    
    
    51
    
    
    
    10
    
    
    
    12
    
    
    
    73Stores closed
    
    
    (49
    )
    
    
    (2
    )
    
    
    (4
    )
    
    
    (55
    )Ending store count
    
    
    3,956
    
    
    
    606
    
    
    
    348
    
    
    
    4,910First Quarter 2007Beginning store count
    
    
    3,986
    
    
    
    586
    
    
    
    
    
    
    
    4,572Stores opened
    
    
    33
    
    
    
    5
    
    
    
    
    
    
    
    38Stores closed
    
    
    (45
    )
    
    
    (1
    )
    
    
    
    
    
    
    (46
    )Ending store count
    
    
    3,974
    
    
    
    590
    
    
    
    
    
    
    
    4,564
 Payless Domestic Segment Operating Results
  First QuarterPercent decrease(dollars in millions)
    
    2008
    
    2007
    
    2007 to 2008Revenues from external customers
    
    $
    588.5
    
    
    $
    637.3
    
    
    
    (7.7)
    %Operating profit from continuing operations
    
    $
    5.1
    
    
    $
    53.1
    
    
    
    (90.4)
    %Operating profit from continuing operations as %
of revenues from external customers
    
    
    0.9
    %
    
    
    8.3
    %
   Payless International Segment Operating Results
  First QuarterPercent increase(dollars in millions)
    
    2008
    
    2007
    
    2007 to 2008Revenues from external customers
    
    $
    104.3
    
    
    $
    91.3
    
    
    
    14.2
    %Operating profit from continuing operations
    
    $
    11.4
    
    
    $
    5.7
    
    
    
    100.0
    %Operating profit from continuing operations as %
of revenues from external customers
    
    
    10.9
    %
    
    
    6.2
    %
    31




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Stride Rite Wholesale Segment Operating Results
    Stride Rite Retail Segment Operating Results
   Liquidity and Capital Resources
      Cash Flow Provided by Operating Activities
  32




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Cash Flow Used in Investing Activities
  Cash Flow Used in Financing Activities
  First Quarter2008


    
    
    2007(dollars in millions, shares in thousands)
    
    Dollars
    
    
    Shares
    
    
    Dollars
    
    
    SharesStock repurchase program
    
    $
    
    
    
    
    
    
    
    $
    15.2
    
    
    
    454Employee stock purchase, deferred compensation
and stock incentive plans
    
    
    0.3
    
    
    
    22
    
    
    
    0.1
    
    
    
    4$
    0.3
    
    
    
    22
    
    
    $
    15.3
    
    
    
    458
  Contractual Obligations
  Financial Condition Ratios
  May 3,
    
    May 5,
    
    February 2,2008
    
    2007
    
    2008Current Ratio
    
    
    2.3
    
    
    
    2.5
    
    
    
    2.3Debt-capitalization Ratio*
    
    
    55.8
    %
    
    
    22.0
    %
    
    
    56.7
    %
 
 *
    
    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 loan facility. 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 74.9%, 62.7% and 73.5%, respectively, for the periods
referred to above.  Critical Accounting Policies
 Accounting for Contingencies
   33




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##### 



New Accounting Standards
       34




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##### 



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
  Foreign Currency Risk
   
 ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
  35




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##### 



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  th th
  36




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##### 



ITEM 1A. RISK FACTORS
  Our exposure to legal claims has increased substantially as a result of the $304.6 million jury
verdict in our litigation with adidas. That jury verdict has negatively impacted our business and
we expect those negative impacts to continue. If that verdict is incorporated into a final judgment
without substantial reduction in the amount or if we are required to post a bond at or in excess of
the verdict amount in order to appeal, our financial position, results of operations, cash flows,
liquidity and access to capital would be negatively impacted.
   37




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##### 



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  38




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##### 



Issuer Purchases of Equity Securities
  ApproximateDollar ValueTotal Number of
    
    of Shares thatShares Purchased
    
    May Yet BeTotal Number
    
    Average
    
    as Part of Publicly
    
    Purchased Underof Shares
    
    Price
    
    Announced Plans
    
    the Plans orPurchased(1)
    
    Paid per
    
    or Programs
    
    ProgramsPeriod
    
    (in thousands)
    
    Share
    
    (in thousands)
    
    (in millions)02/03/08  03/01/08
    
    
    5
    
    
    $
    16.08
    
    
    
    
    
    
    $
    204.803/02/08  04/05/08
    
    
    10
    
    
    
    14.72
    
    
    
    
    
    
    
    204.804/06/08  05/03/08
    
    
    7
    
    
    
    12.74
    
    
    
    
    
    
    
    204.8Total
    
    
    22
    
    
    $
    14.41
    
    
    
    
    
    
    $
    204.8
    (2)
 
 (1)
    
    Includes an aggregate of approximately twenty-two thousand shares of our common stock that
was repurchased in connection with our employee stock purchase and stock incentive plans.(2)
    
    On March 2, 2007 our Board of Directors authorized an aggregate of $250 million of share
repurchases. The timing and amount of share repurchases, if any, are limited by the terms of
our Credit Agreement and Senior Subordinated Notes. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 (a)
    
    The Annual Meeting of Stockholders of the Registrant was held on May 22, 2008.(b)
    
    At the Annual Meeting of Stockholders of the Registrant held on May 22, 2008, action was
taken with respect to the election of three directors of the Registrant: 47,227,215 shares
were voted for Judith K. Hofer while authority was withheld with respect to 7,095,642 shares,
49,089,098 shares were voted for Robert F. Moran while authority was withheld with respect to
5,233,759 shares, and 49,039,449 shares were voted for Matthew E. Rubel while authority was
withheld with respect to 5,283,408 shares. Other directors whose term of office continued
after the meeting include, Daniel Boggan Jr., Mylle H. Mangum, John F. McGovern, D. Scott
Olivet, Michael A. Weiss and Robert C. Wheeler. Mr. Howard R. Fricke retired at the end of
his current term, which expired at the May 22, 2008 Annual Meeting of Stockholders.(c)
    
    Stockholders also ratified the appointment of Deloitte & Touche LLP as the Companys
independent registered public accounting firm: 51,154,501 votes in favor, 3,104,827 votes
against and 63,529 votes abstaining.
 
 ITEM 6. EXHIBITS
 (a) Exhibits:
 Number
    
    Description10.1
    
    Collective Brands, Inc. Deferred Compensation Plan for Non-Management Directors as amended and restated January 1, 2008.31.1
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer, President and
Chairman of the Board*31.2
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Senior Vice President,
Chief Financial Officer and Treasurer*32.1
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer, President and
Chairman of the Board*32.2
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Senior Vice President,
Chief Financial Officer and Treasurer*
 
 *
    
    Filed herewith 39




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##### 



SIGNATURES
  COLLECTIVE BRANDS, INC.Date: June 5, 2008
    By:
    /s/ Matthew E. RubelMatthew E. RubelChief Executive Officer, President
and Chairman of the Board
(Principal Executive Officer)Date: June 5, 2008
    By:
    /s/ Ullrich E. PorzigUllrich E. PorzigSenior Vice President - Chief
Financial Officer and Treasurer
(Principal Financial and Accounting Officer) 40