##### 



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q/A1
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For The Quarterly Period Ended April 30, 2005
 Commission File Number 1-14770
 PAYLESS SHOESOURCE, INC.
  DELAWARE
(State or other jurisdiction of
incorporation or organization)
    
    43-1813160
(I.R.S. Employer
Identification Number)
 3231 SOUTHEAST SIXTH AVENUE, TOPEKA, KANSAS
(Address of principal executive offices)
    
    66607-2207
(Zip Code)
 
  YES þ NO o
  þ o o
  YES o NO þ




---



##### 



EXPLANATORY NOTE
    2




---



##### 



(as restated, See Note 2)April 30,
    
    
    May 1,
    
    
    January 29,2005
    
    
    2004
    
    
    2005ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    245.8
    
    
    $
    114.8
    
    
    $
    273.3Short-term investments
    
    
    57.5
    
    
    
    10.5
    
    
    
    21.3Restricted cash
    
    
    2.0
    
    
    
    33.5
    
    
    
    3.0Inventories
    
    
    383.9
    
    
    
    422.2
    
    
    
    345.3Current deferred income taxes
    
    
    20.9
    
    
    
    16.7
    
    
    
    21.9Other current assets
    
    
    56.9
    
    
    
    64.9
    
    
    
    56.6Current assets of discontinued operations
    
    
    4.8
    
    
    
    27.4
    
    
    
    8.5Total current assets
    
    
    771.8
    
    
    
    690.0
    
    
    
    729.9Property and Equipment:Land
    
    
    8.3
    
    
    
    8.0
    
    
    
    8.0Property, buildings and equipment
    
    
    1,189.4
    
    
    
    1,191.3
    
    
    
    1,186.9Accumulated depreciation and amortization
    
    
    (785.8
    )
    
    
    (777.4
    )
    
    
    (772.6
    )Property and equipment, net
    
    
    411.9
    
    
    
    421.9
    
    
    
    422.3Favorable leases, net
    
    
    20.8
    
    
    
    26.9
    
    
    
    21.7Deferred income taxes
    
    
    35.6
    
    
    
    33.7
    
    
    
    36.4Goodwill
    
    
    5.9
    
    
    
    5.9
    
    
    
    5.9Other assets
    
    
    23.1
    
    
    
    21.7
    
    
    
    23.5Noncurrent assets of discontinued operations
    
    
    
    
    
    
    28.2
    
    
    
    0.1Total Assets
    
    $
    1,269.1
    
    
    $
    1,228.3
    
    
    $
    1,239.8LIABILITIES AND SHAREOWNERS EQUITYCurrent Liabilities:Current maturities of debt
    
    $
    1.5
    
    
    $
    0.9
    
    
    $
    0.3Notes payable
    
    
    2.0
    
    
    
    33.5
    
    
    
    3.0Accounts payable
    
    
    169.8
    
    
    
    126.5
    
    
    
    160.3Accrued expenses
    
    
    158.2
    
    
    
    140.1
    
    
    
    159.7Current liabilities of discontinued operations
    
    
    5.0
    
    
    
    6.0
    
    
    
    15.0Total current liabilities
    
    
    336.5
    
    
    
    307.0
    
    
    
    338.3Long-term debt
    
    
    204.3
    
    
    
    202.6
    
    
    
    204.3Other liabilities
    
    
    95.8
    
    
    
    85.8
    
    
    
    93.6Noncurrent liabilities of discontinued operations
    
    
    
    
    
    
    4.7
    
    
    
    Minority interest
    
    
    8.6
    
    
    
    13.1
    
    
    
    8.6Commitments and contingenciesTotal shareowners equity
    
    
    623.9
    
    
    
    615.1
    
    
    
    595.0Total Liabilities and Shareowners Equity
    
    $
    1,269.1
    
    
    $
    1,228.3
    
    
    $
    1,239.8
  3




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##### 



13 Weeks EndedApril 30, 2005
    
    
    May 1, 2004Net sales
    
    $
    695.2
    
    
    $
    692.3Cost of sales
    
    
    450.8
    
    
    
    475.5Gross margin
    
    
    244.4
    
    
    
    216.8Selling, general and administrative expenses
    
    
    196.7
    
    
    
    188.4Restructuring charges
    
    
    0.7
    
    
    
    Operating profit from continuing operations
    
    
    47.0
    
    
    
    28.4Interest expense
    
    
    4.9
    
    
    
    5.4Interest income
    
    
    (1.7
    )
    
    
    (1.0
    )Earnings from continuing operations before
income taxes and minority interest
    
    
    43.8
    
    
    
    24.0Provision for income taxes
    
    
    12.5
    
    
    
    8.0Earnings from continuing operations before
minority interest
    
    
    31.3
    
    
    
    16.0Minority interest, net of income taxes
    
    
    0.4
    
    
    
    1.9Net earnings from continuing operations
    
    
    31.7
    
    
    
    17.9Loss from discontinued operations, net of
income taxes and minority interest
    
    
    (1.5
    )
    
    
    (3.8
    )Net earnings
    
    $
    30.2
    
    
    $
    14.1Diluted earnings per shareEarnings from continuing operations
    
    $
    0.47
    
    
    $
    0.26Loss from discontinued operations
    
    
    (0.02
    )
    
    
    (0.05
    )Diluted earnings per share
    
    $
    0.45
    
    
    $
    0.21Basic earnings per shareEarnings from continuing operations
    
    $
    0.47
    
    
    $
    0.26Loss from discontinued operations
    
    
    (0.02
    )
    
    
    (0.05
    )Basic earnings per share
    
    $
    0.45
    
    
    $
    0.21Diluted Weighted Average Shares Outstanding
    
    
    67.2
    
    
    
    68.0Basic Weighted Average Shares Outstanding
    
    
    67.1
    
    
    
    67.9
  4




---



##### 



(as restated, see Note 2)13 Weeks Ended
    
    
    13 Weeks EndedApril 30, 2005
    
    
    May 1, 2004Operating Activities:Net earnings
    
    $
    30.2
    
    
    $
    14.1Loss from discontinued operation, net of
income taxes and minority interest
    
    
    (1.5
    )
    
    
    (3.8
    )Net earnings from continuing operations
    
    
    31.7
    
    
    
    17.9Adjustments for non-cash items included
in net earnings:Loss on impairment of and disposal of assets
    
    
    2.4
    
    
    
    2.8Depreciation and amortization
    
    
    23.0
    
    
    
    24.6Amortization of deferred financing costs
    
    
    0.3
    
    
    
    0.2Amortization of unearned restricted stock
    
    
    0.2
    
    
    
    0.2Deferred income taxes
    
    
    1.7
    
    
    
    (0.8
    )Minority interest, net of income taxes
    
    
    (0.4
    )
    
    
    (1.9
    )Changes in working capital:Inventories
    
    
    (38.7
    )
    
    
    (48.0
    )Other current assets
    
    
    (1.2
    )
    
    
    (4.1
    )Accounts payable
    
    
    10.7
    
    
    
    (3.2
    )Accrued expenses
    
    
    4.1
    
    
    
    17.6Other assets and liabilities, net
    
    
    2.4
    
    
    
    6.9Net cash used in discontinued operations
    
    
    (7.7
    )
    
    
    (4.1
    )Cash flow provided by operating activities
    
    
    28.5
    
    
    
    8.1Investing Activities:Capital expenditures
    
    
    (21.8
    )
    
    
    (27.3
    )Restricted cash
    
    
    1.0
    
    
    
    Purchases of investments
    
    
    (47.7
    )
    
    
    (10.5
    )Sales and maturities of investments
    
    
    11.5
    
    
    
    10.0Cash used in discontinued operations
    
    
    
    
    
    
    (1.4
    )Cash flow used in investing activities
    
    
    (57.0
    )
    
    
    (29.2
    )Financing Activities:Repayment of notes payable
    
    
    (1.0
    )
    
    
    Issuance of debt
    
    
    1.2
    
    
    
    Payment of deferred financing costs
    
    
    
    
    
    
    (0.1
    )Repayment of debt
    
    
    
    
    
    
    (0.3
    )Issuances of common stock
    
    
    0.7
    
    
    
    0.3Purchases of common stock
    
    
    (2.1
    )
    
    
    (0.7
    )Contributions by minority owners
    
    
    0.2
    
    
    
    Cash flow used in financing activities
    
    
    (1.0
    )
    
    
    (0.8
    )Effect of exchange rate changes on cash
    
    
    2.0
    
    
    
    Increase (decrease) in cash and cash equivalents
    
    
    (27.5
    )
    
    
    (21.9
    )Cash and cash equivalents, beginning of year
    
    
    273.3
    
    
    
    136.7Cash and cash equivalents, end of period
    
    $
    245.8
    
    
    $
    114.8Supplemental cash flow information:Interest paid
    
    $
    9.3
    
    
    $
    9.8Income taxes paid (received)
    
    $
    5.3
    
    
    $
    (0.3
    )Non-cash investing and operating activities:Accrued capital additions
    
    $
    8.4
    
    
    $
    13.4
  5




---



##### 




    
    Payments for capital expenditures have been corrected to exclude non-cash accrued
capital additions.
    
    Prior period discontinued operations cash flow activity has been reclassified to
identify cash flows from discontinued operations within each category.
    
    Changes in restricted cash were reclassified from financing activities to investing
activities.
   Condensed Consolidated Balance SheetsAs previously(dollars in millions)
    
    reported
    
    Adjustment
    
    As restatedApril 30, 2005:Cash and cash equivalents
    
    $
    303.3
    
    
    $
    (57.5
    )
    
    $
    245.8Short-term investments
    
    $
    
    
    
    $
    57.5
    
    
    $
    57.5May 1, 2004:Cash and cash equivalents
    
    $
    121.3
    
    
    $
    (6.5
    )
    
    $
    114.8Short-term investments
    
    $
    4.0
    
    
    $
    6.5
    
    
    $
    10.5January 29, 2005:Cash and cash equivalents
    
    $
    289.6
    
    
    $
    (16.3
    )
    
    $
    273.3Short-term investments
    
    $
    5.0
    
    
    $
    16.3
    
    
    $
    21.3
 6




---



##### 



Condensed Consolidated Statements of Cash FlowsAs previously(dollars in millions)
    
    reported
    
    Adjustment
    
    As restatedThirteen weeks ended April 30, 2005:Changes in working capital  accounts payable
    
    $
    8.3
    
    
    $
    2.4
    
    
    $
    10.7Changes in working capital  accrued expenses
    
    
    (1.5
    )
    
    
    5.6
    
    
    
    4.1Cash flow provided by operating activities
    
    
    20.5
    
    
    
    8.0
    
    
    
    28.5Capital expenditures
    
    
    (13.8
    )
    
    
    (8.0
    )
    
    
    (21.8
    )Restricted cash
    
    
    
    
    
    
    1.0
    
    
    
    1.0Purchases of investments
    
    
    
    
    
    
    (47.7
    )
    
    
    (47.7
    )Sales and maturities of investments
    
    
    5.0
    
    
    
    6.5
    
    
    
    11.5Cash flow used in investing activities
    
    
    (8.8
    )
    
    
    (48.2
    )
    
    
    (57.0
    )Restricted cash
    
    
    1.0
    
    
    
    (1.0
    )
    
    
    Cash flow used in financing activities
    
    
    
    
    
    
    (1.0
    )
    
    
    (1.0
    )Increase (decrease) in cash and cash equivalents
    
    
    13.7
    
    
    
    (41.2
    )
    
    
    (27.5
    )Cash and cash equivalents, beginning of year
    
    
    289.6
    
    
    
    (16.3
    )
    
    
    273.3Cash and cash equivalents, end of period
    
    
    303.3
    
    
    
    (57.5
    )
    
    
    245.8Non-cash investing and operating activities:Accrued capital additions
    
    
    
    
    
    
    8.4
    
    
    
    8.4
 Condensed Consolidated Statements of Cash FlowsAs previously(dollars in millions)
    
    reported
    
    Adjustment
    
    As restatedThirteen weeks ended May 1, 2004:Changes in working capital  accounts payable
    
    $
    (3.0
    )
    
    $
    (0.2
    )
    
    $
    (3.2
    )Changes in working capital  accrued expenses
    
    
    16.3
    
    
    
    1.3
    
    
    
    17.6Net cash used in discontinued operations
    
    
    (5.5
    )
    
    
    1.4
    
    
    
    (4.1
    )Cash flow provided by operating activities
    
    
    5.6
    
    
    
    2.5
    
    
    
    8.1Capital expenditures
    
    
    (26.2
    )
    
    
    (1.1
    )
    
    
    (27.3
    )Purchases of investments
    
    
    (4.0
    )
    
    
    (6.5
    )
    
    
    (10.5
    )Cash used in discontinued operations
    
    
    
    
    
    
    (1.4
    )
    
    
    (1.4
    )Cash flow used in investing activities
    
    
    (20.2
    )
    
    
    (9.0
    )
    
    
    (29.2
    )Decrease in cash and cash equivalents
    
    
    (15.4
    )
    
    
    (6.5
    )
    
    
    (21.9
    )Cash and cash equivalents, end of period
    
    
    121.3
    
    
    
    (6.5
    )
    
    
    114.8Non-cash investing and operating activities:Accrued capital additions
    
    
    
    
    
    
    13.4
    
    
    
    13.4
   April 30,
    
    
    May 1,
    
    
    January 29,(dollars in millions)
    
    2005
    
    
    2004
    
    
    2005Held-to-maturity securities:Commercial paper
    
    $
    30.4
    
    
    $
    
    
    
    $
    6.5Agency securities
    
    
    16.0
    
    
    
    
    
    
    
    3.3Certificates of deposit
    
    
    8.0
    
    
    
    
    
    
    
    Corporate debt securities
    
    
    1.8
    
    
    
    6.5
    
    
    
    6.5Municipal obligations
    
    
    1.3
    
    
    
    
    
    
    
    Total held-to-maturity securities
    
    
    57.5
    
    
    
    6.5
    
    
    
    16.3Available-for-sale securities:Auction rate securities
    
    
    
    
    
    
    4.0
    
    
    
    5.0Total short-term investments
    
    $
    57.5
    
    
    $
    10.5
    
    
    $
    21.3
 7




---



##### 



AccrualBalance as of
    
    2005 Charges
    
    
    
    
    
    Accrual Balance asTotal Charges
    
    January 29,
    
    Costs
    
    Accrual
    
    
    
    
    
    of(dollars in millions)
    
    to Date
    
    2005
    
    Incurred
    
    Adjustments
    
    Cash Payments
    
    April 30, 2005Asset impairments and net
disposal losses
    
    $
    34.7
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Employee severance costs
    
    
    9.4
    
    
    
    4.2
    
    
    
    
    
    
    
    0.1
    
    
    
    (1.8
    )
    
    
    2.5Contract termination costs
    
    
    23.5
    
    
    
    17.6
    
    
    
    
    
    
    
    2.2
    
    
    
    (12.7
    )
    
    
    7.1Other exit costs
    
    
    3.5
    
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    (0.9
    )
    
    
    Total
    
    $
    71.1
    
    
    $
    21.8
    
    
    $
    0.9
    
    
    $
    2.3
    
    
    $
    (15.4
    )
    
    $
    9.6
   8




---



##### 



Thirteen Weeks Ended April 30, 2005
 Payless
    
    Payless
    
    Payless(dollars in millions)
    
    Domestic
    
    International
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    
    
    
    $
    Loss from discontinued operations before income taxes
    
    
    (2.5
    )
    
    
    
    
    
    
    (2.5
    )Benefit for income taxes
    
    
    (1.0
    )
    
    
    
    
    
    
    (1.0
    )Loss from discontinued operations, net of income taxes
    
    $
    (1.5
    )
    
    $
    
    
    
    $
    (1.5
    )
 Thirteen Weeks Ended May 1, 2004
 Payless
    
    Payless
    
    Payless(dollars in millions)
    
    Domestic
    
    International
    
    ConsolidatedNet sales
    
    $
    27.1
    
    
    $
    2.5
    
    
    $
    29.6Loss from discontinued operations before income taxes and minority interest
    
    
    (4.4
    )
    
    
    (1.7
    )
    
    
    (6.1
    )(Benefit) provision for income taxes
    
    
    (1.8
    )
    
    
    0.2
    
    
    
    (1.6
    )Loss from discontinued operations before minority interest
    
    
    (2.6
    )
    
    
    (1.9
    )
    
    
    (4.5
    )Minority interest, net of income taxes
    
    
    
    
    
    
    0.7
    
    
    
    0.7Loss from discontinued operations, net of income taxes and minority interest
    
    $
    (2.6
    )
    
    $
    (1.2
    )
    
    $
    (3.8
    )
  April 30, 2005
 Payless
    
    Payless
    
    Payless(dollars in millions)
    
    Domestic
    
    International
    
    ConsolidatedAssetsCurrent assets:Current deferred income taxes
    
    $
    4.2
    
    
    
    
    
    
    $
    4.2Other current assets
    
    
    0.6
    
    
    
    
    
    
    
    0.6Total current assets of discontinued operations
    
    $
    4.8
    
    
    $
    
    
    
    $
    4.8LiabilitiesCurrent liabilities:Accounts payable
    
    $
    0.3
    
    
    $
    
    
    
    $
    0.3Accrued expenses
    
    
    4.7
    
    
    
    
    
    
    
    4.7Total current liabilities of discontinued operations
    
    $
    5.0
    
    
    $
    
    
    
    $
    5.0
 9




---



##### 



May 1, 2004
 Payless
    
    Payless
    
    Payless(dollars in millions)
    
    Domestic
    
    International
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    0.2
    
    
    $
    1.0
    
    
    $
    1.2Inventories
    
    
    19.3
    
    
    
    2.9
    
    
    
    22.2Current deferred income taxes
    
    
    0.2
    
    
    
    
    
    
    
    0.2Other current assets
    
    
    2.5
    
    
    
    1.3
    
    
    
    3.8Total current assets of discontinued operations
    
    $
    22.2
    
    
    $
    5.2
    
    
    $
    27.4Property and equipment, net
    
    $
    15.7
    
    
    $
    6.7
    
    
    $
    22.4Favorable leases, net
    
    
    0.4
    
    
    
    
    
    
    
    0.4Deferred income taxes
    
    
    2.4
    
    
    
    
    
    
    
    2.4Other assets
    
    
    0.1
    
    
    
    2.9
    
    
    
    3.0Total non-current assets of discontinued operations
    
    $
    18.6
    
    
    $
    9.6
    
    
    $
    28.2LiabilitiesCurrent liabilities:Accounts payable
    
    $
    2.6
    
    
    $
    1.2
    
    
    $
    3.8Accrued expenses
    
    
    1.9
    
    
    
    0.3
    
    
    
    2.2Total current liabilities of discontinued operations
    
    $
    4.5
    
    
    $
    1.5
    
    
    $
    6.0Other liabilities
    
    $
    4.7
    
    
    $
    
    
    
    $
    4.7Total non-current liabilities of discontinued operations
    
    $
    4.7
    
    
    $
    
    
    
    $
    4.7
 January 29, 2005
 Payless
    
    Payless
    
    Payless(dollars in millions)
    
    Domestic
    
    International
    
    ConsolidatedAssetsCurrent assets:Current deferred income taxes
    
    $
    5.6
    
    
    $
    
    
    
    $
    5.6Other current assets
    
    
    2.9
    
    
    
    
    
    
    
    2.9Total current assets of discontinued operations
    
    $
    8.5
    
    
    $
    
    
    
    $
    8.5Other assets
    
    
    0.1
    
    
    
    
    
    
    
    0.1Total non-current assets of discontinued operations
    
    $
    0.1
    
    
    $
    
    
    
    $
    0.1LiabilitiesCurrent liabilities:Accounts payable
    
    $
    0.2
    
    
    $
    
    
    
    $
    0.2Accrued expenses
    
    
    14.8
    
    
    
    
    
    
    
    14.8Total current liabilities of discontinued operations
    
    $
    15.0
    
    
    $
    
    
    
    $
    15.0
  10




---



##### 



13 Weeks EndedApril 30, 2005
    
    
    May 1, 2004Net earnings:As reported
    
    $
    30.2
    
    
    $
    14.1Add: Total stock-based employee compensation expense included in
net earnings as reported, net of related income taxes
    
    
    0.8
    
    
    
    0.5Less: Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related
income taxes
    
    
    1.1
    
    
    
    1.2Pro forma
    
    $
    29.9
    
    
    $
    13.4Diluted earnings per share:As reported
    
    $
    0.45
    
    
    $
    0.21Pro forma
    
    $
    0.45
    
    
    $
    0.20Basic earnings per share:As reported
    
    $
    0.45
    
    
    $
    0.21Pro forma
    
    $
    0.45
    
    
    $
    0.20
    (dollars in millions)
    
    April 30, 2005
    
    
    May 1, 2004
    
    
    January 29, 2005Gross carrying amount
    
    $
    77.4
    
    
    $
    84.8
    
    
    $
    78.2Less: accumulated amortization
    
    
    (56.6
    )
    
    
    (57.9
    )
    
    
    (56.5
    )Carrying amount, end of period
    
    $
    20.8
    
    
    $
    26.9
    
    
    $
    21.7
   13 Weeks EndedApril 30, 2005
    
    May 1, 2004Amortization expense on favorable leases
    
    $
    0.9
    
    
    $
    1.1
 11




---



##### 



Year
    
    AmountRemainder of 2005
    
    $
    2.62006
    
    
    3.22007
    
    
    2.72008
    
    
    2.42009
    
    
    2.1
   Year
    
    Percentage2008
    
    
    104.125
    %2009
    
    
    102.750
    %2010
    
    
    101.375
    %2011 and thereafter
    
    
    100.000
    %
   12




---



##### 



13 Weeks EndedApril 30, 2005
    
    
    May 1, 2004Components of pension expense:Service cost
    
    $
    0.2
    
    
    $
    0.2Interest cost
    
    
    0.3
    
    
    
    0.3Amortization of prior service cost
    
    
    
    
    
    
    0.1Amortization of actuarial loss
    
    
    0.1
    
    
    
    0.1Total
    
    $
    0.6
    
    
    $
    0.7
    13 Weeks EndedApril 30, 2005
    
    
    May 1, 2004Net earnings
    
    $
    30.2
    
    
    $
    14.1Foreign currency translation adjustments
    
    
    (0.1
    )
    
    
    (3.3
    )Total comprehensive income
    
    $
    30.1
    
    
    $
    10.8
   13




---



##### 



13 Weeks EndedApril 30, 2005
    
    
    May 1, 2004Diluted Computation:Net earnings from continuing operations
    
    $
    31.7
    
    
    $
    17.9Weighted average common shares outstanding
    
    
    67.1
    
    
    
    67.9Net effect of dilutive stock options and unearned
restricted stock based on the treasury stock method
    
    
    0.1
    
    
    
    0.1Outstanding shares for diluted earnings per share
    
    
    67.2
    
    
    
    68.0Diluted earnings per share from continuing operations
    
    $
    0.47
    
    
    $
    0.26Basic Computation:Net earnings from continuing operations
    
    $
    31.7
    
    
    $
    17.9Weighted average common shares outstanding
    
    
    67.1
    
    
    
    67.9Basic earnings per share from continuing operations
    
    $
    0.47
    
    
    $
    0.26
   Operating Profit (Loss) fromContinuing OperationsAs previously(dollars in millions)
    
    reported
    
    
    Adjustment
    
    
    As restatedThirteen weeks ended May 1, 2004:Payless Domestic
    
    $
    25.7
    
    
    $
    5.0
    
    
    $
    30.7Payless International
    
    
    2.7
    
    
    
    (5.0
    )
    
    
    (2.3
    )$
    28.4
    
    
    $
    
    
    
    $
    28.4
 14




---



##### 



Payless Domestic
    
    
    Payless International
    
    
    Payless ConsolidatedThirteen 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
    
    
    
    1,269.1Thirteen
weeks ended May 1, 2004 (as restated)Revenues from external customers
    
    $
    622.2
    
    
    $
    70.1
    
    
    $
    692.3Operating profit (loss) from continuing operations
    
    
    30.7
    
    
    
    (2.3
    )
    
    
    28.4Total assets
    
    
    1,004.3
    
    
    
    224.0
    
    
    
    1,228.3
       15




---



##### 



16




---



##### 



17




---



##### 



Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    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
 18




---



##### 



Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    81.7
    
    
    $
    33.1
    
    
    $
    
    
    
    $
    114.8Short-term investments
    
    
    
    
    
    
    10.5
    
    
    
    
    
    
    
    
    
    
    
    10.5Restricted cash
    
    
    
    
    
    
    
    
    
    
    33.5
    
    
    
    
    
    
    
    33.5Inventories
    
    
    
    
    
    
    347.9
    
    
    
    80.2
    
    
    
    (5.9
    )
    
    
    422.2Current deferred income taxes
    
    
    
    
    
    
    16.6
    
    
    
    0.1
    
    
    
    
    
    
    
    16.7Other current assets
    
    
    9.0
    
    
    
    55.1
    
    
    
    38.8
    
    
    
    (38.0
    )
    
    
    64.9Current assets of discontinued operations
    
    
    
    
    
    
    22.1
    
    
    
    5.3
    
    
    
    
    
    
    
    27.4Total current assets
    
    
    9.0
    
    
    
    533.9
    
    
    
    191.0
    
    
    
    (43.9
    )
    
    
    690.0Property and Equipment:Land
    
    
    
    
    
    
    8.0
    
    
    
    
    
    
    
    
    
    
    
    8.0Property, buildings and equipment
    
    
    
    
    
    
    1,064.0
    
    
    
    127.3
    
    
    
    
    
    
    
    1,191.3Accumulated depreciation and amortization
    
    
    
    
    
    
    (721.2
    )
    
    
    (56.2
    )
    
    
    
    
    
    
    (777.4
    )Property and equipment, net
    
    
    
    
    
    
    350.8
    
    
    
    71.1
    
    
    
    
    
    
    
    421.9Favorable leases, net
    
    
    
    
    
    
    26.9
    
    
    
    
    
    
    
    
    
    
    
    26.9Deferred income taxes
    
    
    
    
    
    
    26.7
    
    
    
    7.0
    
    
    
    
    
    
    
    33.7Goodwill
    
    
    
    
    
    
    5.9
    
    
    
    
    
    
    
    
    
    
    
    5.9Other assets
    
    
    1,091.5
    
    
    
    434.5
    
    
    
    0.7
    
    
    
    (1,505.0
    )
    
    
    21.7Non-current assets of discontinued operations
    
    
    
    
    
    
    18.6
    
    
    
    9.6
    
    
    
    
    
    
    
    28.2Total assets
    
    $
    1,100.5
    
    
    $
    1,397.3
    
    
    $
    279.4
    
    
    $
    (1,548.9
    )
    
    $
    1,228.3LIABILITIES AND SHAREOWNERS EQUITYCurrent Liabilities:Current maturities of long-term debt
    
    $
    
    
    
    $
    0.9
    
    
    $
    
    
    
    $
    
    
    
    $
    0.9Notes payable
    
    
    
    
    
    
    
    
    
    
    33.5
    
    
    
    
    
    
    
    33.5Accounts payable
    
    
    
    
    
    
    88.4
    
    
    
    66.2
    
    
    
    (28.1
    )
    
    
    126.5Accrued expenses
    
    
    2.9
    
    
    
    134.8
    
    
    
    18.2
    
    
    
    (15.8
    )
    
    
    140.1Current liabilities of discontinued operations
    
    
    
    
    
    
    4.4
    
    
    
    1.6
    
    
    
    
    
    
    
    6.0Total current liabilities
    
    
    2.9
    
    
    
    228.5
    
    
    
    119.5
    
    
    
    (43.9
    )
    
    
    307.0Long-term debt
    
    
    479.8
    
    
    
    1.8
    
    
    
    4.0
    
    
    
    (283.0
    )
    
    
    202.6Other liabilities
    
    
    
    
    
    
    128.7
    
    
    
    13.4
    
    
    
    (56.3
    )
    
    
    85.8Non-current liabilities of discontinued operations
    
    
    
    
    
    
    4.6
    
    
    
    0.1
    
    
    
    
    
    
    
    4.7Minority interest
    
    
    
    
    
    
    
    
    
    
    13.1
    
    
    
    
    
    
    
    13.1Commitments and contingenciesTotal shareowners equity
    
    
    617.8
    
    
    
    1,033.7
    
    
    
    129.3
    
    
    
    (1,165.7
    )
    
    
    615.1Total liabilities and shareowners equity
    
    $
    1,100.5
    
    
    $
    1,397.3
    
    
    $
    279.4
    
    
    $
    (1,548.9
    )
    
    $
    1,228.3
 19




---



##### 



Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    194.5
    
    
    $
    78.8
    
    
    $
    
    
    
    $
    273.3Short-term investments
    
    
    
    
    
    
    21.3
    
    
    
    
    
    
    
    
    
    
    
    21.3Restricted cash
    
    
    
    
    
    
    
    
    
    
    3.0
    
    
    
    
    
    
    
    3.0Inventories
    
    
    
    
    
    
    277.1
    
    
    
    71.0
    
    
    
    (2.8
    )
    
    
    345.3Current deferred income taxes
    
    
    
    
    
    
    21.9
    
    
    
    
    
    
    
    
    
    
    
    21.9Other current assets
    
    
    16.8
    
    
    
    50.6
    
    
    
    50.1
    
    
    
    (60.9
    )
    
    
    56.6Current assets of discontinued operations
    
    
    
    
    
    
    8.5
    
    
    
    
    
    
    
    
    
    
    
    8.5Total current assets
    
    
    16.8
    
    
    
    573.9
    
    
    
    202.9
    
    
    
    (63.7
    )
    
    
    729.9Property and Equipment:Land
    
    
    
    
    
    
    8.0
    
    
    
    
    
    
    
    
    
    
    
    8.0Property, buildings and equipment
    
    
    
    
    
    
    1,051.3
    
    
    
    135.6
    
    
    
    
    
    
    
    1,186.9Accumulated depreciation and amortization
    
    
    
    
    
    
    (705.7
    )
    
    
    (66.9
    )
    
    
    
    
    
    
    (772.6
    )Property and equipment, net
    
    
    
    
    
    
    353.6
    
    
    
    68.7
    
    
    
    
    
    
    
    422.3Favorable leases, net
    
    
    
    
    
    
    21.7
    
    
    
    
    
    
    
    
    
    
    
    21.7Deferred income taxes
    
    
    
    
    
    
    25.1
    
    
    
    11.3
    
    
    
    
    
    
    
    36.4Goodwill
    
    
    
    
    
    
    5.9
    
    
    
    
    
    
    
    
    
    
    
    5.9Other assets
    
    
    1,067.1
    
    
    
    439.9
    
    
    
    1.9
    
    
    
    (1,485.4
    )
    
    
    23.5Non-current assets of discontinued operations
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Total assets
    
    $
    1,083.9
    
    
    $
    1,420.2
    
    
    $
    284.8
    
    
    $
    (1,549.1
    )
    
    $
    1,239.8LIABILITIES AND SHAREOWNERS EQUITYCurrent Liabilities:Current maturities of long-term debt
    
    $
    
    
    
    $
    0.3
    
    
    $
    
    
    
    $
    
    
    
    $
    0.3Notes payable
    
    
    
    
    
    
    
    
    
    
    3.0
    
    
    
    
    
    
    
    3.0Accounts payable
    
    
    
    
    
    
    122.0
    
    
    
    77.4
    
    
    
    (39.1
    )
    
    
    160.3Accrued expenses
    
    
    7.2
    
    
    
    156.9
    
    
    
    20.2
    
    
    
    (24.6
    )
    
    
    159.7Current liabilities of discontinued operations
    
    
    
    
    
    
    15.0
    
    
    
    
    
    
    
    
    
    
    
    15.0Total current liabilities
    
    
    7.2
    
    
    
    294.2
    
    
    
    100.6
    
    
    
    (63.7
    )
    
    
    338.3Long-term debt
    
    
    480.2
    
    
    
    0.9
    
    
    
    6.4
    
    
    
    (283.2
    )
    
    
    204.3Other liabilities
    
    
    1.5
    
    
    
    82.8
    
    
    
    13.7
    
    
    
    (4.4
    )
    
    
    93.6Minority interest
    
    
    
    
    
    
    
    
    
    
    8.6
    
    
    
    
    
    
    
    8.6Commitments and contingenciesTotal shareowners equity
    
    
    595.0
    
    
    
    1,042.3
    
    
    
    155.5
    
    
    
    (1,197.8
    )
    
    
    595.0Total liabilities and shareowners equity
    
    $
    1,083.9
    
    
    $
    1,420.2
    
    
    $
    284.8
    
    
    $
    (1,549.1
    )
    
    $
    1,239.8
 20




---



##### 



Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    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 income
taxes 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 before
minority 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 income
taxes and minority interest
    
    
    
    
    
    
    (1.5
    )
    
    
    
    
    
    
    
    
    
    
    (1.5
    )Net earnings
    
    $
    30.2
    
    
    $
    35.3
    
    
    $
    6.1
    
    
    $
    (41.4
    )
    
    $
    30.2
 21




---



##### 



Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    651.4
    
    
    $
    161.5
    
    
    $
    (120.6
    )
    
    $
    692.3Cost of sales
    
    
    
    
    
    
    457.1
    
    
    
    136.8
    
    
    
    (118.4
    )
    
    
    475.5Gross margin
    
    
    
    
    
    
    194.3
    
    
    
    24.7
    
    
    
    (2.2
    )
    
    
    216.8Selling, general and administrative expense
    
    
    0.5
    
    
    
    162.9
    
    
    
    27.2
    
    
    
    (2.2
    )
    
    
    188.4Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating (loss) profit from continuing operations
    
    
    (0.5
    )
    
    
    31.4
    
    
    
    (2.5
    )
    
    
    
    
    
    
    28.4Interest expense
    
    
    6.2
    
    
    
    0.3
    
    
    
    1.1
    
    
    
    (2.2
    )
    
    
    5.4Interest income
    
    
    
    
    
    
    (2.3
    )
    
    
    (0.9
    )
    
    
    2.2
    
    
    
    (1.0
    )Equity in (earnings) loss of subsidiaries
    
    
    (18.4
    )
    
    
    1.8
    
    
    
    
    
    
    
    16.6
    
    
    
    Earnings (loss) from continuing operations before
income taxes and minority interest
    
    
    11.7
    
    
    
    31.6
    
    
    
    (2.7
    )
    
    
    (16.6
    )
    
    
    24.0(Benefit) provision for income taxes
    
    
    (2.4
    )
    
    
    10.6
    
    
    
    (0.2
    )
    
    
    
    
    
    
    8.0Earnings (loss) from continuing operations before
minority interest
    
    
    14.1
    
    
    
    21.0
    
    
    
    (2.5
    )
    
    
    (16.6
    )
    
    
    16.0Minority interest, net of income tax
    
    
    
    
    
    
    
    
    
    
    1.9
    
    
    
    
    
    
    
    1.9Net earnings (loss) from continuing operations
    
    
    14.1
    
    
    
    21.0
    
    
    
    (0.6
    )
    
    
    (16.6
    )
    
    
    17.9Loss from discontinued operations, net of income
taxes and minority interest
    
    
    
    
    
    
    (2.6
    )
    
    
    (1.2
    )
    
    
    
    
    
    
    (3.8
    )Net earnings (loss)
    
    $
    14.1
    
    
    $
    18.4
    
    
    $
    (1.8
    )
    
    $
    (16.6
    )
    
    $
    14.1
 22




---



##### 



Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    0.3Amortization of unearned restricted stock
    
    
    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 provided by (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
    
    
    
    
    
    
    
    1.0Purchases of investments
    
    
    
    
    
    
    (47.7
    )
    
    
    
    
    
    
    
    
    
    
    (47.7
    )Sales and maturities of investments
    
    
    
    
    
    
    11.5
    
    
    
    
    
    
    
    
    
    
    
    11.5Investment in subsidiaries
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    0.3
    
    
    
    Cash flow used in investing activities from
continuing operations
    
    
    
    
    
    
    (58.2
    )
    
    
    0.9
    
    
    
    0.3
    
    
    
    (57.0
    )Financing Activities:Repayment on 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 (used in) provided by financing
activities from continuing operations
    
    
    (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
 23




---



##### 



Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating Activities:Net earnings (loss)
    
    $
    14.1
    
    
    $
    18.4
    
    
    $
    (1.8
    )
    
    $
    (16.6
    )
    
    $
    14.1Loss from discontinued operations, net of
income taxes and minority interest
    
    
    
    
    
    
    (2.6
    )
    
    
    (1.2
    )
    
    
    
    
    
    
    (3.8
    )Net earnings from continuing operations
    
    
    14.1
    
    
    
    21.0
    
    
    
    (0.6
    )
    
    
    (16.6
    )
    
    
    17.9Adjustments for non-cash items included in
earnings from continuing operations:Loss on impairment of and disposal of assets
    
    
    
    
    
    
    2.6
    
    
    
    0.2
    
    
    
    
    
    
    
    2.8Depreciation and amortization
    
    
    
    
    
    
    21.8
    
    
    
    2.8
    
    
    
    
    
    
    
    24.6Amortization of deferred financing costs
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.2Amortization of unearned restricted stock
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2Deferred income taxes
    
    
    
    
    
    
    1.4
    
    
    
    (2.2
    )
    
    
    
    
    
    
    (0.8
    )Minority interest, net of tax
    
    
    
    
    
    
    
    
    
    
    (1.9
    )
    
    
    
    
    
    
    (1.9
    )Changes in working capital:Inventories
    
    
    
    
    
    
    (39.4
    )
    
    
    (10.3
    )
    
    
    1.7
    
    
    
    (48.0
    )Other current assets
    
    
    (2.4
    )
    
    
    16.8
    
    
    
    (1.2
    )
    
    
    (17.3
    )
    
    
    (4.1
    )Accounts payable
    
    
    
    
    
    
    3.9
    
    
    
    (31.0
    )
    
    
    23.9
    
    
    
    (3.2
    )Accrued expenses
    
    
    (4.6
    )
    
    
    27.8
    
    
    
    2.7
    
    
    
    (8.3
    )
    
    
    17.6Other assets and liabilities, net
    
    
    (6.8
    )
    
    
    (10.6
    )
    
    
    7.7
    
    
    
    16.6
    
    
    
    6.9Net cash provided by (used in) discontinued
operations
    
    
    
    
    
    
    (4.3
    )
    
    
    0.2
    
    
    
    
    
    
    
    (4.1
    )Cash flow provided by (used in) operating
activities
    
    
    0.5
    
    
    
    41.2
    
    
    
    (33.6
    )
    
    
    
    
    
    
    8.1Investing Activities:Capital expenditures
    
    
    
    
    
    
    (24.7
    )
    
    
    (2.6
    )
    
    
    
    
    
    
    (27.3
    )Purchase of investments
    
    
    
    
    
    
    (10.5
    )
    
    
    
    
    
    
    
    
    
    
    (10.5
    )Sales and maturities of investments
    
    
    
    
    
    
    10.0
    
    
    
    
    
    
    
    
    
    
    
    10.0Cash used in discontinued operations
    
    
    
    
    
    
    (1.4
    )
    
    
    
    
    
    
    
    
    
    
    (1.4
    )Cash flow used in investing activities
    
    
    
    
    
    
    (26.6
    )
    
    
    (2.6
    )
    
    
    
    
    
    
    (29.2
    )Financing Activities:Payment of deferred financing costs
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Repayment of debt
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Issuances of common stock
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3Purchases of common stock
    
    
    (0.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.7
    )Cash flow used in financing activities
    
    
    (0.5
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    (0.8
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    14.3
    
    
    
    (36.2
    )
    
    
    
    
    
    
    (21.9
    )Cash and cash equivalents, beginning of period
    
    
    
    
    
    
    67.4
    
    
    
    69.3
    
    
    
    
    
    
    
    136.7Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    81.7
    
    
    $
    33.1
    
    
    $
    
    
    
    $
    114.8
 24




---



##### 



25




---



##### 




    
    Maintaining a singular focus on our core business, the Payless ShoeSource chain of
family footwear stores;
    
    Accelerating customer acceptance of the Merchandise Authority positioning in
value-priced footwear and accessories, differentiating our product offering from other
retailers;
    
    Continuing our efforts to build select athletic and casual lifestyle brands that
provide styling and quality to a broader audience of customers;
    
    Refocusing our marketing efforts to build more customer traffic in the Payless stores
and communicate our Merchandise Authority position more clearly;
    
    Continuing to improve our information technology to manage inventory, pricing and store operations;Continuing to pursue gross margin improvement relative to 2004;
    
    Maintaining disciplined control of expenses; and,
    
    Improving the in-store shopping experience.
      26




---



##### 



First Quarter2005
    
    2004Cost of sales
    
    
    64.9
    %
    
    
    68.7
    %Selling, general and administrative expense
    
    
    28.3
    
    
    
    27.2Restructuring charges
    
    
    0.1
    
    
    
    Operating profit from continuing operations
    
    
    6.7
    
    
    
    4.1Interest expense, net
    
    
    0.4
    
    
    
    0.6Earnings from continuing operations before income
taxes and minority interest
    
    
    6.3
    
    
    
    3.5Effective income tax rate*
    
    
    28.6
    %
    
    
    33.3
    %Earnings from continuing operations before minority
interest
    
    
    4.5
    
    
    
    2.3Minority interest
    
    
    0.1
    
    
    
    0.3Earnings from continuing operations
    
    
    4.6
    
    
    
    2.6Loss from discontinued operations, net of income taxes
and minority interest
    
    
    (0.3
    )
    
    
    (0.6
    )Net Earnings
    
    
    4.3
    %
    
    
    2.0
    %
 
 *
    
    Percent of pre-tax earnings    First Quarter2005
    
    2004Net Sales
    
    
    0.4
    %
    
    
    3.7
    %Same-store Sales
    
    
    2.7
    
    
    
    2.9Average selling price per unit
    
    
    5.4
    
    
    
    7.5Unit volume
    
    
    (4.9
    )
    
    
    (3.7
    )Footwear average selling price per unit
    
    
    2.8
    
    
    
    0.4Footwear unit volume
    
    
    (1.4
    )%
    
    
    2.5
    %
    27




---



##### 



28




---



##### 



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
    %
  Financial Commitments
  29




---



##### 



April 30, 2005
    
    May 1, 2004
    
    January 29, 2005Current Ratio
    
    
    2.3
    
    
    
    2.2
    
    
    
    2.2Debt-Capitalization Ratio*
    
    
    25.0
    %
    
    
    27.8
    %
    
    
    25.9
    %
 
 *
    
    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 66.1%, 68.1% and 67.3%
respectively, for the periods referred to above.   First Quarter2005
    
    2004Beginning of period
    
    
    4,640
    
    
    
    5,042Stores opened
    
    
    39
    
    
    
    80Stores closed
    
    
    (33
    )
    
    
    (56
    )Ending store count
    
    
    4,646
    
    
    
    5,066
        30




---



##### 



Disclosure Controls and Procedures
     Changes in Internal Control over Financial Reporting
   
    
    Requiring the Accounting and Financial Reporting Department to review the investment
portfolio on a quarterly basis for proper balance sheet classification.
 31




---



##### 




    
    Improving the understanding of relevant personnel in the Treasury Department of the
requirements of FASB Statements No. 95, Statement of Cash Flowsand No. 115, Accounting
for Certain Investments in Debt and Equity Securities.
    
    Developing a comprehensive listing of accounting and disclosure considerations for all
investment-related transactions that will be reviewed on a quarterly basis with relevant
personnel in the Treasury department who regularly record general ledger transactions to
ensure all transactions are properly accounted for and reported.
         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)01/30/05  02/26/05
    
    
    4
    
    
    $
    12.06
    
    
    
    0
    
    
    $
    238.102/27/05  04/02/05
    
    
    128
    
    
    
    15.38
    
    
    
    125
    
    
    
    236.204/03/05  04/30/05
    
    
    3
    
    
    
    15.51
    
    
    
    0
    
    
    
    236.2Total
    
    
    135
    
    
    $
    15.29
    
    
    
    125
    
    
    $
    236.2
 
 (1)
    
    We repurchased an aggregate of 9,909 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. 32




---



##### 



Number
    
    Description31.1
    
    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 33




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##### 



PAYLESS SHOESOURCE, INC.Date: February 21, 2006
    
    By:
    
    /s/ Matthew E. RubelMathew E. RubelChief Executive Officerand President(Principal Executive Officer)Date: February 21, 2006
    
    By:
    
    /s/ Ullrich E. PorzigUllrich E. PorzigSenior Vice PresidentChief Financial Officer and Treasurer(Principal Financial and Accounting Officer)
 34