##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended August 1, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 1-14770
 
 COLLECTIVE BRANDS, INC.
  Delaware
State or other jurisdiction of 
incorporation of organization
    
    43-1813160
(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
 o 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 AUGUST 1, 2009
INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements. (unaudited)Condensed Consolidated Statements of Earnings for the 13 Weeks and 26 Weeks Ended August 1, 2009 and August 2, 2008
    
    
    3Condensed Consolidated Balance Sheets as of August 1, 2009, August 2, 2008 and January 31, 2009
    
    
    4Condensed Consolidated Statements of Equity and Comprehensive Income for the 26 Weeks Ended August 1, 2009 and
August 2, 2008
    
    
    5Condensed Consolidated Statements of Cash Flows for the 26 Weeks Ended August 1, 2009 and August 2, 2008
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 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
    
    
    36PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    36Item 1A. Risk Factors
    
    
    38Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 4. Submission of Matters to a Vote of Security Holders
    
    
    39Item 6. Exhibits
    
    
    39Signatures
    
    
    40Certification pursuant to Section 302 of the CEO, President and Chairman of the BoardCertification pursuant to Section 302 of the Division SVP, CFO and TreasurerCertification pursuant to Section 906 of the CEO, President and Chairman of the BoardCertification pursuant to Section 906 of the Division SVP, CFO and TreasurerEX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 COLLECTIVE BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
 13 Weeks Ended
    
    
    26 Weeks EndedAugust 1,
    
    
    August 2,
    
    
    August 1,
    
    
    August 2,2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    836.3
    
    
    $
    911.7
    
    
    $
    1,699.2
    
    
    $
    1,844.1Cost of sales
    
    
    560.6
    
    
    
    628.9
    
    
    
    1,113.7
    
    
    
    1,256.2Gross margin
    
    
    275.7
    
    
    
    282.8
    
    
    
    585.5
    
    
    
    587.9Selling, general and administrative expenses
    
    
    243.4
    
    
    
    259.2
    
    
    
    492.7
    
    
    
    523.0Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Operating profit from continuing operations
    
    
    32.3
    
    
    
    23.6
    
    
    
    92.8
    
    
    
    64.8Interest expense
    
    
    15.2
    
    
    
    20.7
    
    
    
    31.6
    
    
    
    39.2Interest income
    
    
    (0.2
    )
    
    
    (3.9
    )
    
    
    (0.8
    )
    
    
    (5.2
    )Net earnings from continuing operations before income taxes
    
    
    17.3
    
    
    
    6.8
    
    
    
    62.0
    
    
    
    30.8(Benefit) provision for income taxes
    
    
    (1.5
    )
    
    
    (2.8
    )
    
    
    4.9
    
    
    
    (0.5
    )Net earnings from continuing operations
    
    
    18.8
    
    
    
    9.6
    
    
    
    57.1
    
    
    
    31.3Loss from discontinued operations, net of income taxes
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.5
    )Net earnings
    
    
    18.8
    
    
    
    9.5
    
    
    
    57.0
    
    
    
    30.8Net earnings attributable to noncontrolling interests
    
    
    (0.1
    )
    
    
    (1.4
    )
    
    
    (0.3
    )
    
    
    (3.0
    )Net earnings attributable to Collective Brands, Inc.
    
    $
    18.7
    
    
    $
    8.1
    
    
    $
    56.7
    
    
    $
    27.8Basic and diluted earnings per share attributable to Collective Brands, Inc.
common shareholders:Earnings from continuing operations
    
    $
    0.29
    
    
    $
    0.13
    
    
    $
    0.89
    
    
    $
    0.44Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )Basic and diluted earnings per share attributable to Collective Brands, Inc.
common shareholders:
    
    $
    0.29
    
    
    $
    0.13
    
    
    $
    0.89
    
    
    $
    0.43Basic and diluted weighted average shares outstanding
    
    
    63.1
    
    
    
    62.9
    
    
    
    63.1
    
    
    
    62.8
  3




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##### Table of Contents



COLLECTIVE BRANDS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 August 1,
    
    
    August 2,
    
    
    January 31,2009
    
    
    2008
    
    
    2009ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    295.2
    
    
    $
    451.4
    
    
    $
    249.3Accounts receivable, net of allowance for doubtful accounts
and returns reserve as of August 1, 2009, August 2, 2008 and
January 31, 2009 of $5.0, $5.2 and $4.2, respectively
    
    
    109.8
    
    
    
    119.7
    
    
    
    97.5Inventories
    
    
    462.0
    
    
    
    483.3
    
    
    
    492.0Current deferred income taxes
    
    
    33.3
    
    
    
    40.9
    
    
    
    35.6Prepaid expenses
    
    
    57.3
    
    
    
    63.5
    
    
    
    58.7Other current assets
    
    
    23.4
    
    
    
    21.6
    
    
    
    25.3Current assets of discontinued operations
    
    
    0.7
    
    
    
    0.9
    
    
    
    1.3Total current assets
    
    
    981.7
    
    
    
    1,181.3
    
    
    
    959.7Property and Equipment:Land
    
    
    7.9
    
    
    
    8.6
    
    
    
    8.6Property, buildings and equipment
    
    
    1,416.9
    
    
    
    1,486.2
    
    
    
    1,458.6Accumulated depreciation and amortization
    
    
    (927.6
    )
    
    
    (938.9
    )
    
    
    (945.8
    )Property and equipment, net
    
    
    497.2
    
    
    
    555.9
    
    
    
    521.4Intangible assets, net
    
    
    436.1
    
    
    
    545.4
    
    
    
    446.0Goodwill
    
    
    281.3
    
    
    
    324.1
    
    
    
    281.6Deferred income taxes
    
    
    5.6
    
    
    
    0.7
    
    
    
    1.7Other assets
    
    
    42.1
    
    
    
    43.5
    
    
    
    40.9Total Assets
    
    $
    2,244.0
    
    
    $
    2,650.9
    
    
    $
    2,251.3LIABILITIES AND EQUITYCurrent Liabilities:Current maturities of long-term debt
    
    $
    7.1
    
    
    $
    7.4
    
    
    $
    24.8Accounts payable
    
    
    143.3
    
    
    
    198.3
    
    
    
    173.8Accrued expenses
    
    
    176.4
    
    
    
    206.2
    
    
    
    202.7Current liabilities of discontinued operations
    
    
    1.8
    
    
    
    1.9
    
    
    
    1.9Total current liabilities
    
    
    328.6
    
    
    
    413.8
    
    
    
    403.2Long-term debt
    
    
    884.1
    
    
    
    1,126.3
    
    
    
    888.4Deferred income taxes
    
    
    48.5
    
    
    
    108.2
    
    
    
    49.2Other liabilities
    
    
    259.8
    
    
    
    240.5
    
    
    
    264.2Noncurrent liabilities of discontinued operations
    
    
    0.3
    
    
    
    
    
    
    
    0.3Commitments and contingencies (Note 15)Equity:Collective Brands, Inc. shareowners equity
    
    
    697.1
    
    
    
    742.9
    
    
    
    622.3Noncontrolling interests
    
    
    25.6
    
    
    
    19.2
    
    
    
    23.7Total equity
    
    
    722.7
    
    
    
    762.1
    
    
    
    646.0Total Liabilities and Equity
    
    $
    2,244.0
    
    
    $
    2,650.9
    
    
    $
    2,251.3
  4




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##### Table of Contents



COLLECTIVE BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
AND COMPREHENSIVE INCOME
(UNAUDITED)
 Collective Brands, Inc. ShareownersOutstanding
    
    
    Additional
    
    
    
    
    
    
    Accumulated Other
    
    
    Non-Common
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    controlling
    
    
    
    
    
    
    ComprehensiveStock
    
    
    Capital
    
    
    Earnings
    
    
    Loss
    
    
    Interests
    
    
    Total
    
    
    IncomeBalance at February 2, 2008
    
    $
    0.7
    
    
    $
    
    
    
    $
    708.1
    
    
    $
    (5.9
    )
    
    $
    17.2
    
    
    $
    720.1Net earnings
    
    
    
    
    
    
    
    
    
    
    27.8
    
    
    
    
    
    
    
    3.0
    
    
    
    30.8
    
    
    $
    30.8Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.6
    )
    
    
    
    
    
    
    (2.6
    )
    
    
    (2.6
    )Net change in fair value of derivative,
net of taxes of $3.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.9
    
    
    
    
    
    
    
    5.9
    
    
    
    5.9Changes in unrecognized amounts of
pension benefits, net of taxes of $0.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    0.9
    
    
    
    0.9Issuances of common stock under stock plans
    
    
    
    
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.6Purchases of common stock
    
    
    
    
    
    
    (1.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.3
    )Amortization of unearned nonvested shares
    
    
    
    
    
    
    3.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.6Stock option expense
    
    
    
    
    
    
    5.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.1Contributions from noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.6
    
    
    
    2.6Distributions to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.6
    )
    
    
    (3.6
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35.0Comprehensive income attributable to
noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.0
    )Comprehensive income attributable to
Collective Brands, Inc.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    32.0Balance at August 2, 2008
    
    $
    0.7
    
    
    $
    8.0
    
    
    $
    735.9
    
    
    $
    (1.7
    )
    
    $
    19.2
    
    
    $
    762.1Balance at January 31, 2009
    
    $
    0.7
    
    
    $
    17.8
    
    
    $
    639.4
    
    
    $
    (35.6
    )
    
    $
    23.7
    
    
    $
    646.0Net earnings
    
    
    
    
    
    
    
    
    
    
    56.7
    
    
    
    
    
    
    
    0.3
    
    
    
    57.0
    
    
    $
    57.0Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.4
    
    
    
    
    
    
    
    7.4
    
    
    
    7.4Net change in fair value of derivatives,
net of taxes of $1.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.7
    
    
    
    
    
    
    
    1.7
    
    
    
    1.7Changes in unrecognized amounts of
pension benefits, net of taxes of $0.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.2
    
    
    
    
    
    
    
    1.2
    
    
    
    1.2Issuances of common stock under
stock plans
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.5Purchases of common stock
    
    
    
    
    
    
    (0.8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.8
    )Amortization of unearned nonvested
shares
    
    
    
    
    
    
    2.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.4Stock option expense
    
    
    
    
    
    
    5.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.7Contributions from noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.8
    
    
    
    3.8Distributions to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.2
    )
    
    
    (2.2
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67.3Comprehensive income attributable to
noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Comprehensive income attributable to
Collective Brands, Inc.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    67.0Balance at August 1, 2009
    
    $
    0.7
    
    
    $
    25.6
    
    
    $
    696.1
    
    
    $
    (25.3
    )
    
    $
    25.6
    
    
    $
    722.7
  5




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##### Table of Contents



COLLECTIVE BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)
 26 Weeks EndedAugust 1,
    
    
    August 2,2009
    
    
    2008Operating Activities:Net earnings
    
    $
    57.0
    
    
    $
    30.8Loss from discontinued operations, net of income taxes
    
    
    0.1
    
    
    
    0.5Adjustments for non-cash items included in net earnings:Loss on disposal of assets
    
    
    4.9
    
    
    
    4.6Depreciation and amortization
    
    
    70.7
    
    
    
    70.0Provision for losses on accounts receivable
    
    
    1.0
    
    
    
    1.5Share-based compensation expense
    
    
    8.8
    
    
    
    8.5Deferred income taxes
    
    
    (4.4
    )
    
    
    (26.2
    )Other, net
    
    
    (0.1
    )
    
    
    Changes in working capital:Accounts receivable
    
    
    (11.4
    )
    
    
    (34.7
    )Inventories
    
    
    33.9
    
    
    
    (13.9
    )Prepaid expenses and other current assets
    
    
    9.6
    
    
    
    39.4Accounts payable
    
    
    (29.9
    )
    
    
    0.7Accrued expenses
    
    
    (23.2
    )
    
    
    7.4Changes in other assets and liabilities, net
    
    
    (1.9
    )
    
    
    Contributions to pension plans
    
    
    (1.4
    )
    
    
    (1.6
    )Net cash provided by discontinued operations
    
    
    0.4
    
    
    
    Cash flow provided by operating activities
    
    
    114.1
    
    
    
    87.0Investing Activities:Capital expenditures
    
    
    (46.9
    )
    
    
    (78.2
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    1.1Cash flow used in investing activities
    
    
    (46.9
    )
    
    
    (77.1
    )Financing Activities:Proceeds from revolving loan facility
    
    
    
    
    
    
    215.0Repayment of debt
    
    
    (22.1
    )
    
    
    (3.6
    )Payment of deferred financing costs
    
    
    
    
    
    
    (0.1
    )Issuances of common stock
    
    
    0.5
    
    
    
    0.6Purchases of common stock
    
    
    (0.8
    )
    
    
    (1.3
    )Contributions by noncontrolling interests
    
    
    3.8
    
    
    
    2.6Distribution to noncontrolling interests
    
    
    (2.2
    )
    
    
    (3.6
    )Cash flow (used in) provided by financing activities
    
    
    (20.8
    )
    
    
    209.6Effect of exchange rate changes on cash
    
    
    (0.5
    )
    
    
    (0.6
    )Increase in cash and cash equivalents
    
    
    45.9
    
    
    
    218.9Cash and cash equivalents, beginning of year
    
    
    249.3
    
    
    
    232.5Cash and cash equivalents, end of quarter
    
    $
    295.2
    
    
    $
    451.4Supplemental cash flow information:Interest paid
    
    $
    31.1
    
    
    $
    38.7Income taxes paid
    
    $
    9.0
    
    
    $
    8.4Non-cash investing and financing activities:Accrued capital additions
    
    $
    11.6
    
    
    $
    17.9
  6




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##### Table of Contents



COLLECTIVE BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Note 1  Interim Results
  Note 2  Exit Costs
    Total Costs Incurred as
    
    
    Accrual Balance as of
    
    
    26 Weeks Ended August 1, 2009
    
    
    Accrual Balance as of(dollars in millions)
    
    of August 1, 2009
    
    
    January 31, 2009
    
    
    Costs Incurred
    
    
    Cash Payments
    
    
    August 1, 2009Employee severance costs
    
    $
    16.4
    
    
    $
    5.7
    
    
    $
    
    
    
    $
    (0.9
    )
    
    $
    4.8Contract termination and other costs
    
    
    2.5
    
    
    
    1.0
    
    
    
    
    
    
    
    (0.3
    )
    
    
    0.7Total
    
    $
    18.9
    
    
    $
    6.7
    
    
    $
    
    
    
    $
    (1.2
    )
    
    $
    5.5
 Note 3  Discontinued Operations
  Note 4  Inventories
  7




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##### Table of Contents



Note 5  Intangible Assets
  August 1,
    
    
    August 2,
    
    
    January 31,(dollars in millions)
    
    2009
    
    
    2008
    
    
    2009Intangible assets subject to amortization:Favorable lease rights:Gross carrying amount
    
    $
    32.5
    
    
    $
    67.4
    
    
    $
    33.2Less: accumulated amortization
    
    
    (23.0
    )
    
    
    (54.1
    )
    
    
    (22.3
    )Carrying amount, end of period
    
    
    9.5
    
    
    
    13.3
    
    
    
    10.9Customer relationships:Gross carrying amount
    
    
    76.3
    
    
    
    76.3
    
    
    
    76.3Less: accumulated amortization
    
    
    (28.9
    )
    
    
    (14.3
    )
    
    
    (22.0
    )Carrying amount, end of period
    
    
    47.4
    
    
    
    62.0
    
    
    
    54.3Trademarks and other intangible assets:Gross carrying amount
    
    
    19.3
    
    
    
    21.4
    
    
    
    21.5Less: accumulated amortization
    
    
    (5.6
    )
    
    
    (5.0
    )
    
    
    (6.2
    )Carrying amount, end of period
    
    
    13.7
    
    
    
    16.4
    
    
    
    15.3Total carrying amount of intangible assets subject to amortization
    
    
    70.6
    
    
    
    91.7
    
    
    
    80.5Indefinite-lived trademarks
    
    
    365.5
    
    
    
    453.7
    
    
    
    365.5Total intangible assets
    
    $
    436.1
    
    
    $
    545.4
    
    
    $
    446.0
  13 Weeks Ended
    
    26 Weeks EndedAugust 1,
    
    August 2,
    
    August 1,
    
    August 2,(dollars in millions)
    
    2009
    
    2008
    
    2009
    
    2008Amortization expense on intangible assets
    
    $
    4.6
    
    
    $
    5.5
    
    
    $
    9.3
    
    
    $
    11.4
  Year
    
    AmountRemainder of 2009
    
    $
    9.82010
    
    
    15.62011
    
    
    12.62012
    
    
    10.22013
    
    
    8.6
 8




---



##### Table of Contents



Note 6  Goodwill
   August 1,
    
    
    August 2,
    
    
    January 31,(dollars in millions)
    
    2009
    
    
    2008
    
    
    2009Stride Rite Wholesale
    
    $
    241.1
    
    
    $
    241.9
    
    
    $
    241.4Payless Domestic
    
    
    40.2
    
    
    
    40.2
    
    
    
    40.2Stride Rite Retail
    
    
    
    
    
    
    42.0
    
    
    
    Total
    
    $
    281.3
    
    
    $
    324.1
    
    
    $
    281.6
 Note 7  Long-Term Debt
  August 1,
    
    
    August 2,
    
    
    January 31,(dollars in millions)
    
    2009
    
    
    2008
    
    
    2009Term Loan Facility (1)
    
    $
    694.8
    
    
    $
    719.6
    
    
    $
    715.9Senior Subordinated Notes (2)
    
    
    195.3
    
    
    
    198.0
    
    
    
    196.2Revolving Loan Facility (3)
    
    
    
    
    
    
    215.0
    
    
    
    Capital-lease obligations
    
    
    1.1
    
    
    
    1.1
    
    
    
    1.1Total debt
    
    
    891.2
    
    
    
    1,133.7
    
    
    
    913.2Less: current maturities of long-term debt
    
    
    7.1
    
    
    
    7.4
    
    
    
    24.8Long-term debt
    
    $
    884.1
    
    
    $
    1,126.3
    
    
    $
    888.4
 
 (1)
    
    As of August 1, 2009, the fair value of the Companys Term Loan
Facility was $642.7 million based on current market conditions and perceived risks.(2)
    
    As of August 1, 2009, the fair value of the Companys Senior Subordinated
Notes was $191.6 million based on recent trading activity.(3)
    
    As of August 1, 2009, the Companys borrowing base on its Revolving Loan
Facility was $329.8 million less $85.1 million in outstanding letters of credit, or
$244.7 million. The variable interest rate including the applicable variable margin at
August 1, 2009, was 1.48%.  Note 8  Derivatives
    9




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##### Table of Contents



Fair ValueLocation on Condensed
    
    August 1,
    
    August 2,
    
    January 31,(dollars in millions)
    
    Consolidated Balance Sheet
    
    2009
    
    2008
    
    2009Interest rate contract
    
    Other liabilities
    
    $
    18.1
    
    
    $
    13.8
    
    
    $
    21.5Foreign currency contracts
    
    Accrued expenses
    
    $
    0.7
    
    
    $
    
    
    
    $
    
  Gain (Loss) Recognized in
    
    
    
    
    
    Loss Reclassified from AOCIAOCI on Derivative
    
    
    
    
    
    into Earnings13 Weeks Ended
    
    Location on Condensed
    
    13 Weeks EndedAugust 1,
    
    August 2,
    
    Consolidated Statement of
    
    August 1,
    
    August 2,(dollars in millions)
    
    2009
    
    2008
    
    Earnings
    
    2009
    
    2008Interest rate contract
    
    $
    (1.2
    )
    
    $
    0.6
    
    
    Interest expense
    
    $
    (2.4
    )
    
    $
    (1.6
    )Foreign currency contracts
    
    $
    (0.5
    )
    
    $
    
    
    
    Cost of sales
    
    $
    (0.1
    )
    
    $
    
 Gain (Loss) Recognized in
    
    
    
    
    
    Loss Reclassified from AOCIAOCI on Derivative
    
    
    
    
    
    into Earnings26 Weeks Ended
    
    Location on Condensed
    
    26 Weeks EndedAugust 1,
    
    August 2,
    
    Consolidated Statement of
    
    August 1,
    
    August 2,(dollars in millions)
    
    2009
    
    2008
    
    Earnings
    
    2009
    
    2008Interest rate contract
    
    $
    (2.5
    )
    
    $
    3.0
    
    
    Interest expense
    
    $
    (4.6
    )
    
    $
    (2.9
    )Foreign currency contracts
    
    $
    (0.5
    )
    
    $
    
    
    
    Cost of sales
    
    $
    (0.1
    )
    
    $
    
  Note 9  Fair Value Measurements
     
 10




---



##### Table of Contents



Estimated Fair Value MeasurementsSignificantQuoted Prices in
    
    Significant
    
    UnobservableActive Markets
    
    Observable Other
    
    Inputs(dollars in millions)
    
    (Level 1)
    
    Inputs (Level 2)
    
    (Level 3)
    
    Total Fair ValueFinancial assets:Money market funds
    
    $
    216.1
    
    
    $
    
    
    
    $
    
    
    
    $
    216.1Financial liabilities:Interest rate contract
    
    $
    
    
    
    $
    18.1
    
    
    $
    
    
    
    $
    18.1Foreign currency contracts
    
    $
    
    
    
    $
    0.7
    
    
    $
    
    
    
    $
    0.7
 Note 10  Pension Plans
  Payless Plan
  13 Weeks Ended
    
    
    26 Weeks EndedAugust 1,
    
    
    August 2,
    
    
    August 1,
    
    
    August 2,(dollars in millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Components of pension expense:Service cost
    
    $
    0.1
    
    
    $
    0.1
    
    
    $
    0.3
    
    
    $
    0.2Interest cost
    
    
    0.6
    
    
    
    0.6
    
    
    
    1.2
    
    
    
    1.2Amortization of prior service cost
    
    
    0.4
    
    
    
    0.4
    
    
    
    0.8
    
    
    
    0.8Amortization of actuarial loss
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.3
    
    
    
    0.4Total
    
    $
    1.3
    
    
    $
    1.3
    
    
    $
    2.6
    
    
    $
    2.6
 Stride Rite Plan
  13 Weeks Ended
    
    
    26 Weeks EndedAugust 1,
    
    
    August 2,
    
    
    August 1,
    
    
    August 2,(dollars in millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Components of pension expense:Interest cost
    
    $
    1.1
    
    
    $
    1.1
    
    
    $
    2.2
    
    
    $
    2.2Expected return on net assets
    
    
    (0.9
    )
    
    
    (1.2
    )
    
    
    (1.8
    )
    
    
    (2.4
    )Amortization of actuarial loss
    
    
    0.5
    
    
    
    
    
    
    
    0.9
    
    
    
    Total
    
    $
    0.7
    
    
    $
    (0.1
    )
    
    $
    1.3
    
    
    $
    (0.2
    )
 11




---



##### Table of Contents



Note 11  Share-Based Compensation
   13 Weeks Ended
    
    26 Weeks EndedAugust 1,
    
    August 2,
    
    August 1,
    
    August 2,2009
    
    2008
    
    2009
    
    2008Stock-settled SARs (in number of SARs)(1):Vest in installments over 3 years
    
    
    5,594
    
    
    
    39,885
    
    
    
    1,474,553
    
    
    
    548,055Cliff vest after 3 years
    
    
    500
    
    
    
    10,080
    
    
    
    462,700
    
    
    
    319,680Nonvested shares and share units:Performance grant  vests in installments over 3 years(2)
    
    
    
    
    
    
    5,873
    
    
    
    
    
    
    
    10,628Vest in installments over 3 years
    
    
    1,344
    
    
    
    2,000
    
    
    
    337,303
    
    
    
    267,949Cliff vest after 3 years
    
    
    
    
    
    
    2,500
    
    
    
    
    
    
    
    3,925Phantom nonvested shares  vests in installments over 3 years
    
    
    1,331
    
    
    
    
    
    
    
    15,074
    
    
    
    Cash-settled SARs:Vest in installments over 3 years
    
    
    6,350
    
    
    
    2,450
    
    
    
    50,150
    
    
    
    5,250Cliff vest after 3 years
    
    
    
    
    
    
    500
    
    
    
    3,500
    
    
    
    8,500
 
 (1)
    
    All of the stock-settled SARs 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, meaning that the
maximum shares issuable under a SAR is 0.67 shares per 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 August 1, 2009, the Company has assessed the likelihood that
the performance conditions will be met and has recorded the related
expense based on the estimated outcome.  13 Weeks Ended
    
    
    26 Weeks EndedAugust 1,
    
    
    August 2,
    
    
    August 1,
    
    
    August 2,(dollars in millions, except per share amounts)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Cost of sales
    
    $
    1.1
    
    
    $
    1.1
    
    
    $
    2.2
    
    
    $
    2.1Selling, general and administrative expenses
    
    
    3.3
    
    
    
    3.3
    
    
    
    6.6
    
    
    
    6.4Share-based compensation expense before income taxes
    
    
    4.4
    
    
    
    4.4
    
    
    
    8.8
    
    
    
    8.5Tax benefit
    
    
    (1.7
    )
    
    
    (1.7
    )
    
    
    (3.4
    )
    
    
    (3.3
    )Share-based compensation expense after income taxes
    
    $
    2.7
    
    
    $
    2.7
    
    
    $
    5.4
    
    
    $
    5.2Effect on basic and diluted earnings per share attributable to Collective
Brands, Inc. common shareholders
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.09
    
    
    $
    0.08
  Note 12  Income Taxes
  12




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##### Table of Contents



Note 13  Earnings Per Share
 ,
  13 Weeks Ended
    
    
    26 Weeks EndedAugust 1,
    
    
    August 2,
    
    
    August 1,
    
    
    August 2,(dollars in millions, except per share amounts; shares in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net earnings attributable to Collective Brands, Inc. from continuing operations
    
    $
    18.7
    
    
    $
    8.2
    
    
    $
    56.8
    
    
    $
    28.3Less: net earnings allocated to participating securities(1)
    
    
    0.3
    
    
    
    0.1
    
    
    
    0.8
    
    
    
    0.4Net earnings available to common shareholders from continuing operations
    
    $
    18.4
    
    
    $
    8.1
    
    
    $
    56.0
    
    
    $
    27.9Weighted average shares outstanding  basic
    
    
    63,118
    
    
    
    62,851
    
    
    
    63,086
    
    
    
    62,835Net effect of dilutive stock options
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Net effect of dilutive SARs
    
    
    9
    
    
    
    
    
    
    
    5
    
    
    
    Weighted average shares outstanding  diluted
    
    
    63,128
    
    
    
    62,851
    
    
    
    63,091
    
    
    
    62,835Basic and diluted earnings per share attributable to common shareholders from continuing
operations
    
    $
    0.29
    
    
    $
    0.13
    
    
    $
    0.89
    
    
    $
    0.44
 
 (1)
    
    Net earnings allocated to participating securities is calculated based upon a
weighted average percentage of participating securities in relation to total shares outstanding.  13




---



##### Table of Contents



Note 14  Segment Reporting
  (i)
    
    The Payless Domestic reporting segment is comprised primarily of domestic retail stores
under the Payless ShoeSource name, the Companys sourcing unit and Collective
International, LP (Collective Licensing).
 (ii)
    
    The Payless International reporting segment is comprised of international retail stores
under the Payless ShoeSource name in Canada, the South American Region, the Central
American Region, Puerto Rico, and the U.S. Virgin Islands as well as franchising
arrangements under the Payless ShoeSource name.
 (iii)
    
    The Stride Rite Wholesale reporting segment is comprised of Stride Rites global
wholesale operations.
 (iv)
    
    The Stride Rite Retail reporting segment is comprised of Stride Rites retail stores
and outlet stores.
  Payless
    
    Stride Rite(dollars in millions)
    
    Payless Domestic
    
    International
    
    Wholesale
    
    Stride Rite Retail
    
    Consolidated13 weeks ended August 1, 2009Revenues from external customers
    
    $
    546.8
    
    
    $
    103.7
    
    
    $
    137.7
    
    
    $
    48.1
    
    
    $
    836.3Operating profit (loss) from continuing operations
    
    
    24.1
    
    
    
    4.4
    
    
    
    7.3
    
    
    
    (3.5
    )
    
    
    32.326 weeks ended August 1, 2009Revenues from external customers
    
    $
    1,117.6
    
    
    $
    188.5
    
    
    $
    286.5
    
    
    $
    106.6
    
    
    $
    1,699.2Operating profit (loss) from continuing operations
    
    
    66.3
    
    
    
    6.2
    
    
    
    21.6
    
    
    
    (1.3
    )
    
    
    92.8Operating segment total assets
    
    $
    1,097.0
    
    
    $
    192.1
    
    
    $
    876.5
    
    
    $
    78.4
    
    
    $
    2,244.013 weeks ended August 2, 2008Revenues from external customers
    
    $
    587.4
    
    
    $
    117.0
    
    
    $
    158.6
    
    
    $
    48.7
    
    
    $
    911.7Operating (loss) profit from continuing operations
    
    
    (3.9
    )
    
    
    17.3
    
    
    
    13.4
    
    
    
    (3.2
    )
    
    
    23.626 weeks ended August 2, 2008Revenues from external customers
    
    $
    1,175.9
    
    
    $
    221.3
    
    
    $
    341.1
    
    
    $
    105.8
    
    
    $
    1,844.1Operating profit (loss) from continuing operations
    
    
    1.2
    
    
    
    28.7
    
    
    
    36.5
    
    
    
    (1.6
    )
    
    
    64.8Operating segment total assets
    
    $
    1,306.9
    
    
    $
    215.0
    
    
    $
    1,034.0
    
    
    $
    95.0
    
    
    $
    2,650.9As of January 31, 2009Operating segment total assets
    
    $
    1,109.1
    
    
    $
    173.6
    
    
    $
    894.7
    
    
    $
    73.9
    
    
    $
    2,251.3
 Note 15  Commitments and Contingencies
 adidas America, Inc. and adidas-Salomon AG v. Payless ShoeSource, Inc.
 th th
 14




---



##### Table of Contents



th
    In the Matter of Certain Foam Footwear
   15




---



##### Table of Contents



Crocs, Inc. v. Acme Ex-Im, Inc., et al.
   Discovery Property & Casualty Insurance Co. v. Collective Brands, Inc., (f/k/a Payless ShoeSource,
Inc.) Payless ShoeSource Worldwide, Inc. and Collective Licensing International, LLC
  American Eagle Outfitters and Retail Royalty Co. v. Payless ShoeSource, Inc.
  16




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##### Table of Contents



Note 16  Impact of Recently Issued Accounting Standards
       17




---



##### Table of Contents



Note 17  Related Party Transactions
  Note 18  Subsequent Events
  Note 19  Subsidiary Guarantors of Senior Notes  Condensed Consolidating Financial
Information
   18




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19




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##### Table of Contents



13 Weeks Ended August 1, 2009Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    744.3
    
    
    $
    282.2
    
    
    $
    (190.2
    )
    
    $
    836.3Cost of sales
    
    
    
    
    
    
    530.5
    
    
    
    198.3
    
    
    
    (168.2
    )
    
    
    560.6Gross margin
    
    
    
    
    
    
    213.8
    
    
    
    83.9
    
    
    
    (22.0
    )
    
    
    275.7Selling, general and administrative expenses
    
    
    0.6
    
    
    
    206.4
    
    
    
    58.4
    
    
    
    (22.0
    )
    
    
    243.4Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating (loss) profit from continuing operations
    
    
    (0.6
    )
    
    
    7.4
    
    
    
    25.5
    
    
    
    
    
    
    
    32.3Interest expense
    
    
    6.3
    
    
    
    10.9
    
    
    
    
    
    
    
    (2.0
    )
    
    
    15.2Interest income
    
    
    
    
    
    
    (2.2
    )
    
    
    
    
    
    
    2.0
    
    
    
    (0.2
    )Equity in earnings of subsidiaries
    
    
    (23.2
    )
    
    
    (24.3
    )
    
    
    
    
    
    
    47.5
    
    
    
    Earnings from continuing operations before income taxes
    
    
    16.3
    
    
    
    23.0
    
    
    
    25.5
    
    
    
    (47.5
    )
    
    
    17.3(Benefit) provision for income taxes
    
    
    (2.4
    )
    
    
    (0.2
    )
    
    
    1.1
    
    
    
    
    
    
    
    (1.5
    )Net earnings from continuing operations
    
    
    18.7
    
    
    
    23.2
    
    
    
    24.4
    
    
    
    (47.5
    )
    
    
    18.8Loss from discontinued operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings
    
    
    18.7
    
    
    
    23.2
    
    
    
    24.4
    
    
    
    (47.5
    )
    
    
    18.8Net earnings attributable to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Net earnings attributable to Collective Brands, Inc.
    
    $
    18.7
    
    
    $
    23.2
    
    
    $
    24.3
    
    
    $
    (47.5
    )
    
    $
    18.7
 26 Weeks Ended August 1, 2009Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    1,532.9
    
    
    $
    560.4
    
    
    $
    (394.1
    )
    
    $
    1,699.2Cost of sales
    
    
    
    
    
    
    1,060.0
    
    
    
    404.4
    
    
    
    (350.7
    )
    
    
    1,113.7Gross margin
    
    
    
    
    
    
    472.9
    
    
    
    156.0
    
    
    
    (43.4
    )
    
    
    585.5Selling, general and administrative expenses
    
    
    1.1
    
    
    
    421.1
    
    
    
    113.9
    
    
    
    (43.4
    )
    
    
    492.7Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating (loss) profit from continuing operations
    
    
    (1.1
    )
    
    
    51.8
    
    
    
    42.1
    
    
    
    
    
    
    
    92.8Interest expense
    
    
    12.7
    
    
    
    22.8
    
    
    
    0.1
    
    
    
    (4.0
    )
    
    
    31.6Interest income
    
    
    
    
    
    
    (4.8
    )
    
    
    
    
    
    
    4.0
    
    
    
    (0.8
    )Equity in earnings of subsidiaries
    
    
    (65.6
    )
    
    
    (40.1
    )
    
    
    
    
    
    
    105.7
    
    
    
    Earnings from continuing operations before income taxes
    
    
    51.8
    
    
    
    73.9
    
    
    
    42.0
    
    
    
    (105.7
    )
    
    
    62.0(Benefit) provision for income taxes
    
    
    (4.9
    )
    
    
    8.2
    
    
    
    1.6
    
    
    
    
    
    
    
    4.9Net earnings from continuing operations
    
    
    56.7
    
    
    
    65.7
    
    
    
    40.4
    
    
    
    (105.7
    )
    
    
    57.1Loss from discontinued operations, net of income taxes
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Net earnings
    
    
    56.7
    
    
    
    65.6
    
    
    
    40.4
    
    
    
    (105.7
    )
    
    
    57.0Net earnings attributable to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    (0.3
    )Net earnings attributable to Collective Brands, Inc.
    
    $
    56.7
    
    
    $
    65.6
    
    
    $
    40.1
    
    
    $
    (105.7
    )
    
    $
    56.7
 20




---



##### Table of Contents



13 Weeks Ended August 2, 2008Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    807.8
    
    
    $
    320.4
    
    
    $
    (216.5
    )
    
    $
    911.7Cost of sales
    
    
    
    
    
    
    603.0
    
    
    
    221.8
    
    
    
    (195.9
    )
    
    
    628.9Gross margin
    
    
    
    
    
    
    204.8
    
    
    
    98.6
    
    
    
    (20.6
    )
    
    
    282.8Selling, general and administrative expenses
    
    
    0.3
    
    
    
    217.3
    
    
    
    62.2
    
    
    
    (20.6
    )
    
    
    259.2Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating (loss) profit from continuing operations
    
    
    (0.3
    )
    
    
    (12.5
    )
    
    
    36.4
    
    
    
    
    
    
    
    23.6Interest expense
    
    
    4.3
    
    
    
    15.1
    
    
    
    1.3
    
    
    
    
    
    
    
    20.7Interest income
    
    
    
    
    
    
    (2.0
    )
    
    
    (1.9
    )
    
    
    
    
    
    
    (3.9
    )Equity in earnings of subsidiaries
    
    
    (9.8
    )
    
    
    (31.1
    )
    
    
    
    
    
    
    40.9
    
    
    
    Earnings from continuing operations before income taxes
    
    
    5.2
    
    
    
    5.5
    
    
    
    37.0
    
    
    
    (40.9
    )
    
    
    6.8(Benefit) provision for income taxes
    
    
    (2.9
    )
    
    
    (4.4
    )
    
    
    4.5
    
    
    
    
    
    
    
    (2.8
    )Net earnings from continuing operations
    
    
    8.1
    
    
    
    9.9
    
    
    
    32.5
    
    
    
    (40.9
    )
    
    
    9.6Loss from discontinued operations, net of income taxes
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Net earnings
    
    
    8.1
    
    
    
    9.8
    
    
    
    32.5
    
    
    
    (40.9
    )
    
    
    9.5Net earnings attributable to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    (1.4
    )
    
    
    
    
    
    
    (1.4
    )Net earnings attributable to Collective Brands, Inc.
    
    $
    8.1
    
    
    $
    9.8
    
    
    $
    31.1
    
    
    $
    (40.9
    )
    
    $
    8.1
 26 Weeks Ended August 2, 2008Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    1,642.2
    
    
    $
    601.7
    
    
    $
    (399.8
    )
    
    $
    1,844.1Cost of sales
    
    
    
    
    
    
    1,197.2
    
    
    
    419.9
    
    
    
    (360.9
    )
    
    
    1,256.2Gross margin
    
    
    
    
    
    
    445.0
    
    
    
    181.8
    
    
    
    (38.9
    )
    
    
    587.9Selling, general and administrative expenses
    
    
    0.6
    
    
    
    440.2
    
    
    
    121.1
    
    
    
    (38.9
    )
    
    
    523.0Restructuring charges
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Operating (loss) profit from continuing operations
    
    
    (0.6
    )
    
    
    4.7
    
    
    
    60.7
    
    
    
    
    
    
    
    64.8Interest expense
    
    
    8.7
    
    
    
    29.3
    
    
    
    1.3
    
    
    
    (0.1
    )
    
    
    39.2Interest income
    
    
    
    
    
    
    (2.4
    )
    
    
    (2.9
    )
    
    
    0.1
    
    
    
    (5.2
    )Equity in earnings of subsidiaries
    
    
    (31.3
    )
    
    
    (51.6
    )
    
    
    
    
    
    
    82.9
    
    
    
    Earnings from continuing operations before income taxes
    
    
    22.0
    
    
    
    29.4
    
    
    
    62.3
    
    
    
    (82.9
    )
    
    
    30.8(Benefit) provision for income taxes
    
    
    (5.8
    )
    
    
    (2.4
    )
    
    
    7.7
    
    
    
    
    
    
    
    (0.5
    )Net earnings from continuing operations
    
    
    27.8
    
    
    
    31.8
    
    
    
    54.6
    
    
    
    (82.9
    )
    
    
    31.3Loss from discontinued operations, net of income taxes
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    
    
    
    
    (0.5
    )Net earnings
    
    
    27.8
    
    
    
    31.3
    
    
    
    54.6
    
    
    
    (82.9
    )
    
    
    30.8Net earnings attributable to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    (3.0
    )
    
    
    
    
    
    
    (3.0
    )Net earnings attributable to Collective Brands, Inc.
    
    $
    27.8
    
    
    $
    31.3
    
    
    $
    51.6
    
    
    $
    (82.9
    )
    
    $
    27.8
 21




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##### Table of Contents



As of August 1, 2009Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    203.8
    
    
    $
    91.4
    
    
    $
    
    
    
    $
    295.2Accounts receivable, net
    
    
    
    
    
    
    97.5
    
    
    
    18.1
    
    
    
    (5.8
    )
    
    
    109.8Inventories
    
    
    
    
    
    
    387.6
    
    
    
    80.5
    
    
    
    (6.1
    )
    
    
    462.0Current deferred income taxes
    
    
    
    
    
    
    28.4
    
    
    
    4.9
    
    
    
    
    
    
    
    33.3Prepaid expenses
    
    
    5.6
    
    
    
    42.2
    
    
    
    9.5
    
    
    
    
    
    
    
    57.3Other current assets
    
    
    
    
    
    
    274.4
    
    
    
    77.0
    
    
    
    (328.0
    )
    
    
    23.4Current assets of discontinued operations
    
    
    
    
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    0.7Total current assets
    
    
    5.6
    
    
    
    1,034.6
    
    
    
    281.4
    
    
    
    (339.9
    )
    
    
    981.7Property and Equipment:Land
    
    
    
    
    
    
    7.9
    
    
    
    
    
    
    
    
    
    
    
    7.9Property, buildings and equipment
    
    
    
    
    
    
    1,224.5
    
    
    
    192.4
    
    
    
    
    
    
    
    1,416.9Accumulated depreciation and amortization
    
    
    
    
    
    
    (805.7
    )
    
    
    (121.9
    )
    
    
    
    
    
    
    (927.6
    )Property and equipment, net
    
    
    
    
    
    
    426.7
    
    
    
    70.5
    
    
    
    
    
    
    
    497.2Intangible assets, net
    
    
    
    
    
    
    414.6
    
    
    
    21.5
    
    
    
    
    
    
    
    436.1Goodwill
    
    
    
    
    
    
    143.3
    
    
    
    138.0
    
    
    
    
    
    
    
    281.3Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    5.6
    
    
    
    
    
    
    
    5.6Other assets
    
    
    1,331.9
    
    
    
    678.3
    
    
    
    2.8
    
    
    
    (1,970.9
    )
    
    
    42.1Total Assets
    
    $
    1,337.5
    
    
    $
    2,697.5
    
    
    $
    519.8
    
    
    $
    (2,310.8
    )
    
    $
    2,244.0LIABILITIES AND EQUITYCurrent Liabilities:Current maturities of long-term debt
    
    $
    
    
    
    $
    7.1
    
    
    $
    5.2
    
    
    $
    (5.2
    )
    
    $
    7.1Accounts payable
    
    
    
    
    
    
    104.6
    
    
    
    75.4
    
    
    
    (36.7
    )
    
    
    143.3Accrued expenses
    
    
    159.0
    
    
    
    280.6
    
    
    
    34.8
    
    
    
    (298.0
    )
    
    
    176.4Current liabilities of discontinued operations
    
    
    
    
    
    
    1.8
    
    
    
    
    
    
    
    
    
    
    
    1.8Total current liabilities
    
    
    159.0
    
    
    
    394.1
    
    
    
    115.4
    
    
    
    (339.9
    )
    
    
    328.6Long-term debt
    
    
    478.5
    
    
    
    687.8
    
    
    
    9.5
    
    
    
    (291.7
    )
    
    
    884.1Deferred income taxes
    
    
    
    
    
    
    46.3
    
    
    
    2.2
    
    
    
    
    
    
    
    48.5Other liabilities
    
    
    2.9
    
    
    
    239.1
    
    
    
    17.8
    
    
    
    
    
    
    
    259.8Noncurrent liabilities of discontinued operations
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Commitments and contingenciesEquity:Collective Brands, Inc. shareowners equity
    
    
    697.1
    
    
    
    1,329.9
    
    
    
    349.3
    
    
    
    (1,679.2
    )
    
    
    697.1Noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    25.6
    
    
    
    
    
    
    
    25.6Total equity
    
    
    697.1
    
    
    
    1,329.9
    
    
    
    374.9
    
    
    
    (1,679.2
    )
    
    
    722.7Total Liabilities and Equity
    
    $
    1,337.5
    
    
    $
    2,697.5
    
    
    $
    519.8
    
    
    $
    (2,310.8
    )
    
    $
    2,244.0
 22




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##### Table of Contents



As of August 2, 2008Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    350.1
    
    
    $
    101.3
    
    
    $
    
    
    
    $
    451.4Accounts receivable, net
    
    
    
    
    
    
    108.1
    
    
    
    20.1
    
    
    
    (8.5
    )
    
    
    119.7Inventories
    
    
    
    
    
    
    407.3
    
    
    
    82.1
    
    
    
    (6.1
    )
    
    
    483.3Current deferred income taxes
    
    
    
    
    
    
    37.5
    
    
    
    3.4
    
    
    
    
    
    
    
    40.9Prepaid expenses
    
    
    
    
    
    
    55.6
    
    
    
    7.9
    
    
    
    
    
    
    
    63.5Other current assets
    
    
    61.8
    
    
    
    267.2
    
    
    
    94.1
    
    
    
    (401.5
    )
    
    
    21.6Current assets of discontinued operations
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.9Total current assets
    
    
    61.8
    
    
    
    1,226.7
    
    
    
    308.9
    
    
    
    (416.1
    )
    
    
    1,181.3Property and Equipment:Land
    
    
    
    
    
    
    8.6
    
    
    
    
    
    
    
    
    
    
    
    8.6Property, buildings and equipment
    
    
    
    
    
    
    1,308.1
    
    
    
    178.1
    
    
    
    
    
    
    
    1,486.2Accumulated depreciation and amortization
    
    
    
    
    
    
    (823.8
    )
    
    
    (115.1
    )
    
    
    
    
    
    
    (938.9
    )Property and equipment, net
    
    
    
    
    
    
    492.9
    
    
    
    63.0
    
    
    
    
    
    
    
    555.9Intangible assets, net
    
    
    
    
    
    
    523.8
    
    
    
    21.6
    
    
    
    
    
    
    
    545.4Goodwill
    
    
    
    
    
    
    185.7
    
    
    
    138.4
    
    
    
    
    
    
    
    324.1Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    0.7
    
    
    
    
    
    
    
    0.7Other assets
    
    
    1,419.5
    
    
    
    633.9
    
    
    
    2.2
    
    
    
    (2,012.1
    )
    
    
    43.5Total Assets
    
    $
    1,481.3
    
    
    $
    3,063.0
    
    
    $
    534.8
    
    
    $
    (2,428.2
    )
    
    $
    2,650.9LIABILITIES AND EQUITYCurrent Liabilities:Current maturities of long-term debt
    
    $
    
    
    
    $
    7.4
    
    
    $
    
    
    
    $
    
    
    
    $
    7.4Accounts payable
    
    
    
    
    
    
    137.3
    
    
    
    128.7
    
    
    
    (67.7
    )
    
    
    198.3Accrued expenses
    
    
    254.8
    
    
    
    268.8
    
    
    
    31.0
    
    
    
    (348.4
    )
    
    
    206.2Current liabilities of discontinued operations
    
    
    
    
    
    
    1.9
    
    
    
    
    
    
    
    
    
    
    
    1.9Total current liabilities
    
    
    254.8
    
    
    
    415.4
    
    
    
    159.7
    
    
    
    (416.1
    )
    
    
    413.8Long-term debt
    
    
    481.1
    
    
    
    928.4
    
    
    
    9.5
    
    
    
    (292.7
    )
    
    
    1,126.3Deferred income taxes
    
    
    
    
    
    
    107.5
    
    
    
    0.7
    
    
    
    
    
    
    
    108.2Other liabilities
    
    
    2.5
    
    
    
    219.7
    
    
    
    18.3
    
    
    
    
    
    
    
    240.5Commitments and contingenciesEquity:Collective Brands, Inc. shareowners equity
    
    
    742.9
    
    
    
    1,392.0
    
    
    
    327.4
    
    
    
    (1,719.4
    )
    
    
    742.9Noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    19.2
    
    
    
    
    
    
    
    19.2Total equity
    
    
    742.9
    
    
    
    1,392.0
    
    
    
    346.6
    
    
    
    (1,719.4
    )
    
    
    762.1Total Liabilities and Equity
    
    $
    1,481.3
    
    
    $
    3,063.0
    
    
    $
    534.8
    
    
    $
    (2,428.2
    )
    
    $
    2,650.9
 23




---



##### Table of Contents



As of January 31, 2009Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    141.7
    
    
    $
    107.6
    
    
    $
    
    
    
    $
    249.3Accounts receivable, net
    
    
    
    
    
    
    87.6
    
    
    
    14.7
    
    
    
    (4.8
    )
    
    
    97.5Inventories
    
    
    
    
    
    
    416.0
    
    
    
    80.5
    
    
    
    (4.5
    )
    
    
    492.0Current deferred income taxes
    
    
    
    
    
    
    31.6
    
    
    
    4.0
    
    
    
    
    
    
    
    35.6Prepaid expenses
    
    
    0.7
    
    
    
    51.3
    
    
    
    6.7
    
    
    
    
    
    
    
    58.7Other current assets
    
    
    
    
    
    
    273.2
    
    
    
    81.3
    
    
    
    (329.2
    )
    
    
    25.3Current assets of discontinued operations
    
    
    
    
    
    
    1.3
    
    
    
    
    
    
    
    
    
    
    
    1.3Total current assets
    
    
    0.7
    
    
    
    1,002.7
    
    
    
    294.8
    
    
    
    (338.5
    )
    
    
    959.7Property and Equipment:Land
    
    
    
    
    
    
    8.6
    
    
    
    
    
    
    
    
    
    
    
    8.6Property, buildings and equipment
    
    
    
    
    
    
    1,287.8
    
    
    
    170.8
    
    
    
    
    
    
    
    1,458.6Accumulated depreciation and amortization
    
    
    
    
    
    
    (836.3
    )
    
    
    (109.5
    )
    
    
    
    
    
    
    (945.8
    )Property and equipment, net
    
    
    
    
    
    
    460.1
    
    
    
    61.3
    
    
    
    
    
    
    
    521.4Intangible assets, net
    
    
    
    
    
    
    422.2
    
    
    
    23.8
    
    
    
    
    
    
    
    446.0Goodwill
    
    
    
    
    
    
    143.6
    
    
    
    138.0
    
    
    
    
    
    
    
    281.6Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    1.7
    
    
    
    
    
    
    
    1.7Other assets
    
    
    1,251.9
    
    
    
    636.2
    
    
    
    3.5
    
    
    
    (1,850.7
    )
    
    
    40.9Total Assets
    
    $
    1,252.6
    
    
    $
    2,664.8
    
    
    $
    523.1
    
    
    $
    (2,189.2
    )
    
    $
    2,251.3LIABILITIES AND EQUITYCurrent Liabilities:Current maturities of long-term debt
    
    $
    
    
    
    $
    24.8
    
    
    $
    30.0
    
    
    $
    (30.0
    )
    
    $
    24.8Accounts payable
    
    
    
    
    
    
    110.6
    
    
    
    96.2
    
    
    
    (33.0
    )
    
    
    173.8Accrued expenses
    
    
    148.3
    
    
    
    293.8
    
    
    
    36.0
    
    
    
    (275.4
    )
    
    
    202.7Current liabilities of discontinued operations
    
    
    
    
    
    
    1.9
    
    
    
    
    
    
    
    
    
    
    
    1.9Total current liabilities
    
    
    148.3
    
    
    
    431.1
    
    
    
    162.2
    
    
    
    (338.4
    )
    
    
    403.2Long-term debt
    
    
    479.3
    
    
    
    691.2
    
    
    
    9.6
    
    
    
    (291.7
    )
    
    
    888.4Deferred income taxes
    
    
    
    
    
    
    49.2
    
    
    
    
    
    
    
    
    
    
    
    49.2Other liabilities
    
    
    2.7
    
    
    
    244.4
    
    
    
    17.1
    
    
    
    
    
    
    
    264.2Noncurrent liabilities of discontinued operations
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Commitments and contingenciesEquity:Collective Brands, Inc. shareowners equity
    
    
    622.3
    
    
    
    1,248.6
    
    
    
    310.5
    
    
    
    (1,559.1
    )
    
    
    622.3Noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    23.7
    
    
    
    
    
    
    
    23.7Total equity
    
    
    622.3
    
    
    
    1,248.6
    
    
    
    334.2
    
    
    
    (1,559.1
    )
    
    
    646.0Total Liabilities and Equity
    
    $
    1,252.6
    
    
    $
    2,664.8
    
    
    $
    523.1
    
    
    $
    (2,189.2
    )
    
    $
    2,251.3
 24




---



##### Table of Contents



26 Weeks Ended August 1, 2009Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating Activities:Net earnings
    
    $
    56.7
    
    
    $
    65.6
    
    
    $
    40.4
    
    
    $
    (105.7
    )
    
    $
    57.0Loss from discontinued operations, net of income taxes
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Adjustments for non-cash items included in net earnings
    
    
    1.5
    
    
    
    70.5
    
    
    
    8.9
    
    
    
    
    
    
    
    80.9Changes in working capital
    
    
    5.8
    
    
    
    19.9
    
    
    
    (21.8
    )
    
    
    (24.9
    )
    
    
    (21.0
    )Other, net
    
    
    (62.7
    )
    
    
    (34.7
    )
    
    
    (5.7
    )
    
    
    100.2
    
    
    
    (2.9
    )Cash flow provided by operating activities
    
    
    1.3
    
    
    
    121.4
    
    
    
    21.8
    
    
    
    (30.4
    )
    
    
    114.1Investing Activities:Capital expenditures
    
    
    
    
    
    
    (37.6
    )
    
    
    (9.3
    )
    
    
    
    
    
    
    (46.9
    )Dividends received from related parties
    
    
    
    
    
    
    
    
    
    
    0.6
    
    
    
    (0.6
    )
    
    
    Cash flow used in investing activities
    
    
    
    
    
    
    (37.6
    )
    
    
    (8.7
    )
    
    
    (0.6
    )
    
    
    (46.9
    )Financing Activities:Net repayment of debt or notes payable, including deferred financing costs
    
    
    (1.0
    )
    
    
    (21.1
    )
    
    
    (24.8
    )
    
    
    24.8
    
    
    
    (22.1
    )Net purchases of common stock
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Net contribution from noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    1.6
    
    
    
    
    
    
    
    1.6Net distributions to parent
    
    
    
    
    
    
    (0.6
    )
    
    
    (5.6
    )
    
    
    6.2
    
    
    
    Cash flow used in financing activities
    
    
    (1.3
    )
    
    
    (21.7
    )
    
    
    (28.8
    )
    
    
    31.0
    
    
    
    (20.8
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    (0.5
    )Increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    62.1
    
    
    
    (16.2
    )
    
    
    
    
    
    
    45.9Cash and cash equivalents, beginning of year
    
    
    
    
    
    
    141.7
    
    
    
    107.6
    
    
    
    
    
    
    
    249.3Cash and cash equivalents, end of quarter
    
    $
    
    
    
    $
    203.8
    
    
    $
    91.4
    
    
    $
    
    
    
    $
    295.2
 26 Weeks Ended August 2, 2008Parent
    
    
    Guarantor
    
    
    Non-guarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating Activities:Net earnings
    
    $
    27.8
    
    
    $
    31.3
    
    
    $
    54.6
    
    
    $
    (82.9
    )
    
    $
    30.8Loss from discontinued operations, net of income taxes
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    0.5Adjustments for non-cash items included in net earnings
    
    
    1.4
    
    
    
    49.1
    
    
    
    7.9
    
    
    
    
    
    
    
    58.4Changes in working capital
    
    
    13.0
    
    
    
    5.4
    
    
    
    (19.5
    )
    
    
    
    
    
    
    (1.1
    )Other, net
    
    
    (41.5
    )
    
    
    (60.2
    )
    
    
    17.2
    
    
    
    82.9
    
    
    
    (1.6
    )Cash flow provided by operating activities
    
    
    0.7
    
    
    
    26.1
    
    
    
    60.2
    
    
    
    
    
    
    
    87.0Investing Activities:Capital expenditures
    
    
    
    
    
    
    (72.0
    )
    
    
    (6.2
    )
    
    
    
    
    
    
    (78.2
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    1.1
    
    
    
    
    
    
    
    
    
    
    
    1.1Cash flow used in investing activities
    
    
    
    
    
    
    (70.9
    )
    
    
    (6.2
    )
    
    
    
    
    
    
    (77.1
    )Financing Activities:Net repayment of debt or notes payable, including deferred financing costs
    
    
    
    
    
    
    211.3
    
    
    
    
    
    
    
    
    
    
    
    211.3Net purchases of common stock
    
    
    (0.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.7
    )Net distributions to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    (1.0
    )
    
    
    
    
    
    
    (1.0
    )Net contributions by (distributions to) parent
    
    
    
    
    
    
    116.5
    
    
    
    (116.5
    )
    
    
    
    
    
    
    Cash flow (used in) provided by provided by financing activities
    
    
    (0.7
    )
    
    
    327.8
    
    
    
    (117.5
    )
    
    
    
    
    
    
    209.6Effect of exchange rate changes on cash
    
    
    
    
    
    
    (2.4
    )
    
    
    1.8
    
    
    
    
    
    
    
    (0.6
    )Increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    280.6
    
    
    
    (61.7
    )
    
    
    
    
    
    
    218.9Cash and cash equivalents, beginning of year
    
    
    
    
    
    
    69.5
    
    
    
    163.0
    
    
    
    
    
    
    
    232.5Cash and cash equivalents, end of quarter
    
    $
    
    
    
    $
    350.1
    
    
    $
    101.3
    
    
    $
    
    
    
    $
    451.4
 25




---



##### Table of Contents



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 2009 events.
    
    Consolidated Review of Operations  an analysis of our consolidated results of
operations for the second quarter and first six months ended August 1, 2009 and August 2,
2008 as presented in our Condensed Consolidated Financial Statements.
    
    Reporting Segment Review of Operations  an analysis of our results of operations for
the second quarter and six months ended August 1, 2009 and August 2, 2008 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 January 31, 2009 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




---



##### Table of Contents



Our Business
 ® ® ®
 Payless
 ® ® ®
  Stride Rite
 ®
 ® ®
 Key 2009 Events
   27




---



##### Table of Contents



Consolidated Review of Operations
  Second Quarter
    
    First Six Months2009
    
    2008
    
    2009
    
    2008Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    67.0
    
    
    
    69.0
    
    
    
    65.5
    
    
    
    68.1Gross margin
    
    
    33.0
    
    
    
    31.0
    
    
    
    34.5
    
    
    
    31.9Selling, general and administrative expense
    
    
    29.1
    
    
    
    28.4
    
    
    
    29.0
    
    
    
    28.4Operating profit from continuing operations
    
    
    3.9
    
    
    
    2.6
    
    
    
    5.5
    
    
    
    3.5Interest expense, net
    
    
    1.8
    
    
    
    1.9
    
    
    
    1.8
    
    
    
    1.8Net earnings from continuing operations before income taxes
    
    
    2.1
    
    
    
    0.7
    
    
    
    3.7
    
    
    
    1.7Effective income tax rate*
    
    
    (8.7
    )
    
    
    (41.2
    )
    
    
    7.9
    
    
    
    (1.6
    )Net earnings from continuing operations
    
    
    2.2
    
    
    
    0.9
    
    
    
    3.3
    
    
    
    1.6Loss from discontinued operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings
    
    
    2.2
    
    
    
    0.9
    
    
    
    3.3
    
    
    
    1.6Net earnings attributable to noncontrolling interests
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Net earnings attributable to Collective Brands, Inc.
    
    
    2.2
    %
    
    
    0.8
    %
    
    
    3.3
    %
    
    
    1.5
    %
 
 *
    
    Percent of pre-tax earnings Net Earnings Attributable to Collective Brands, Inc.
   Net Sales
   Second Quarter
    
    First Six Months2009
    
    2008
    
    2009
    
    2008Same-store sales
    
    
    (7.3
    )%
    
    
    0.2
    %
    
    
    (6.0
    )%
    
    
    (2.7
    )%Average selling price per unit
    
    
    5.3
    
    
    
    4.9
    
    
    
    6.8
    
    
    
    3.7Unit volume
    
    
    (12.1
    )
    
    
    (4.0
    )
    
    
    (12.2
    )
    
    
    (5.8
    )Footwear average selling price per unit
    
    
    6.9
    
    
    
    5.9
    
    
    
    8.7
    
    
    
    4.8Footwear unit volume
    
    
    (14.1
    )
    
    
    (5.4
    )
    
    
    (14.5
    )
    
    
    (7.1
    )Non-footwear average selling price per unit
    
    
    4.5
    
    
    
    3.9
    
    
    
    5.9
    
    
    
    1.6Non-footwear unit volume
    
    
    (2.4
    )
    
    
    3.3
    
    
    
    (2.4
    )
    
    
    0.4
  28




---



##### Table of Contents



Cost of Sales
   Gross Margin
   Selling, General and Administrative Expenses
     Interest Expense (Income)
  Second Quarter
    
    
    First Six Months(dollars in millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Interest expense
    
    $
    15.2
    
    
    $
    20.7
    
    
    $
    31.6
    
    
    $
    39.2Interest income
    
    
    (0.2
    )
    
    
    (3.9
    )
    
    
    (0.8
    )
    
    
    (5.2
    )Interest expense, net
    
    $
    15.0
    
    
    $
    16.8
    
    
    $
    30.8
    
    
    $
    34.0
 29




---



##### Table of Contents



Income Taxes
      Net Earnings Attributable to Noncontrolling Interests
  Discontinued Operations
  Reporting Segment Review of Operations
  30




---



##### Table of Contents



Second Quarter
    
    
    First Six Months(in millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues from external customers:Payless Domestic
    
    $
    546.8
    
    
    $
    587.4
    
    
    $
    1,117.6
    
    
    $
    1,175.9Payless International
    
    
    103.7
    
    
    
    117.0
    
    
    
    188.5
    
    
    
    221.3Stride Rite Wholesale
    
    
    137.7
    
    
    
    158.6
    
    
    
    286.5
    
    
    
    341.1Stride Rite Retail
    
    
    48.1
    
    
    
    48.7
    
    
    
    106.6
    
    
    
    105.8Revenues from external customers
    
    $
    836.3
    
    
    $
    911.7
    
    
    $
    1,699.2
    
    
    $
    1,844.1Operating profit (loss) from continuing operations:Payless Domestic
    
    $
    24.1
    
    
    $
    (3.9
    )
    
    $
    66.3
    
    
    $
    1.2Payless International
    
    
    4.4
    
    
    
    17.3
    
    
    
    6.2
    
    
    
    28.7Stride Rite Wholesale
    
    
    7.3
    
    
    
    13.4
    
    
    
    21.6
    
    
    
    36.5Stride Rite Retail
    
    
    (3.5
    )
    
    
    (3.2
    )
    
    
    (1.3
    )
    
    
    (1.6
    )Operating profit from continuing operations
    
    $
    32.3
    
    
    $
    23.6
    
    
    $
    92.8
    
    
    $
    64.8
  PaylessPayless Domestic
    
    International
    
    Stride Rite Retail
    
    TotalSecond Quarter 2009Beginning store count
    
    
    3,890
    
    
    
    630
    
    
    
    356
    
    
    
    4,876Stores opened
    
    
    3
    
    
    
    17
    
    
    
    5
    
    
    
    25Stores closed
    
    
    (29
    )
    
    
    (8
    )
    
    
    (1
    )
    
    
    (38
    )Ending store count
    
    
    3,864
    
    
    
    639
    
    
    
    360
    
    
    
    4,863First Six Months 2009Beginning store count
    
    
    3,900
    
    
    
    622
    
    
    
    355
    
    
    
    4,877Stores opened
    
    
    22
    
    
    
    28
    
    
    
    7
    
    
    
    57Stores closed
    
    
    (58
    )
    
    
    (11
    )
    
    
    (2
    )
    
    
    (71
    )Ending store count
    
    
    3,864
    
    
    
    639
    
    
    
    360
    
    
    
    4,863Second Quarter 2008Beginning store count
    
    
    3,956
    
    
    
    606
    
    
    
    348
    
    
    
    4,910Stores opened
    
    
    20
    
    
    
    3
    
    
    
    6
    
    
    
    29Stores closed
    
    
    (35
    )
    
    
    (3
    )
    
    
    (3
    )
    
    
    (41
    )Ending store count
    
    
    3,941
    
    
    
    606
    
    
    
    351
    
    
    
    4,898First Six Months 2008Beginning store count
    
    
    3,954
    
    
    
    598
    
    
    
    340
    
    
    
    4,892Stores opened
    
    
    71
    
    
    
    13
    
    
    
    18
    
    
    
    102Stores closed
    
    
    (84
    )
    
    
    (5
    )
    
    
    (7
    )
    
    
    (96
    )Ending store count
    
    
    3,941
    
    
    
    606
    
    
    
    351
    
    
    
    4,898
 Payless Domestic Segment Operating Results
  31




---



##### Table of Contents



Second Quarter
    
    First Six MonthsPercent decrease
    
    
    
    
    
    
    
    
    
    Percent decrease(dollars in millions)
    
    2009
    
    2008
    
    2008 to 2009
    
    2009
    
    2008
    
    2008 to 2009Revenues from external customers
    
    $
    546.8
    
    
    $
    587.4
    
    
    
    (6.9
    )%
    
    $
    1,117.6
    
    
    $
    1,175.9
    
    
    
    (5.0
    )%Operating profit (loss) from continuing operations
    
    $
    24.1
    
    
    $
    (3.9
    )
    
    NM*%
    
    $
    66.3
    
    
    $
    1.2
    
    
    NM*%Operating profit (loss) from continuing operations
as % of revenues from external customers
    
    
    4.4
    %
    
    
    (0.7
    )%
    
    
    
    
    
    
    5.9
    %
    
    
    0.1
    %
 
 *
    
    Not Meaningful   Payless International Segment Operating Results
  Second Quarter
    
    First Six MonthsPercent decrease
    
    
    
    
    
    
    
    
    
    Percent decrease(dollars in millions)
    
    2009
    
    2008
    
    2008 to 2009
    
    2009
    
    2008
    
    2008 to 2009Revenues from external customers
    
    $
    103.7
    
    
    $
    117.0
    
    
    
    (11.4
    )%
    
    $
    188.5
    
    
    $
    221.3
    
    
    
    (14.8
    )%Operating profit from continuing operations
    
    $
    4.4
    
    
    $
    17.3
    
    
    
    (74.6
    )%
    
    $
    6.2
    
    
    $
    28.7
    
    
    
    (78.4
    )%Operating profit from continuing operations
as % of revenues from external customers
    
    
    4.2
    %
    
    
    14.8
    %
    
    
    
    
    
    
    3.3
    %
    
    
    13.0
    %
   Stride Rite Wholesale Segment Operating Results
   32




---



##### Table of Contents



Second Quarter
    
    
    First Six MonthsPercent decrease
    
    
    
    
    
    
    
    
    
    
    Percent decrease(dollars in millions)
    
    2009
    
    
    2008
    
    
    2008 to 2009
    
    
    2009
    
    
    2008
    
    
    2008 to 2009Revenues from external customers
    
    $
    137.7
    
    
    $
    158.6
    
    
    
    (13.2
    )%
    
    $
    286.5
    
    
    $
    341.1
    
    
    
    (16.0
    )%Operating profit from continuing operations
    
    $
    7.3
    
    
    $
    13.4
    
    
    
    (45.5
    )%
    
    $
    21.6
    
    
    $
    36.5
    
    
    
    (40.8
    )%Operating profit from continuing operations
as % of revenues from external customers
    
    
    5.3
    %
    
    
    8.4
    %
    
    
    
    
    
    
    7.5
    %
    
    
    10.7
    %
   Stride Rite Retail Segment Operating Results
  Second Quarter
    
    First Six MonthsPercent decrease
    
    
    
    
    
    
    
    
    
    Percent increase(dollars in millions)
    
    2009
    
    2008
    
    2008 to 2009
    
    2009
    
    2008
    
    2008 to 2009Revenues from external customers
    
    $
    48.1
    
    
    $
    48.7
    
    
    
    (1.2
    )%
    
    $
    106.6
    
    
    $
    105.8
    
    
    
    0.8
    %Operating loss from continuing operations
    
    $
    (3.5
    )
    
    $
    (3.2
    )
    
    
    (9.4
    )%
    
    $
    (1.3
    )
    
    $
    (1.6
    )
    
    
    18.8
    %Operating loss from continuing operations
as % of revenues from external customers
    
    
    (7.3
    )%
    
    
    (6.6
    )%
    
    
    
    
    
    
    (1.2
    )%
    
    
    (1.5
    )%
   Liquidity and Capital Resources
  
 33




---



##### Table of Contents



Cash Flow Provided by Operating Activities
  Cash Flow Used in Investing Activities
  Cash Flow Used in Financing Activities
  First Six Months2009
    
    2008(dollars in millions, shares in thousands)
    
    Dollars
    
    Shares
    
    Dollars
    
    SharesEmployee stock purchase, deferred compensation
and stock incentive plans
    
    $
    0.8
    
    
    
    69
    
    
    $
    1.3
    
    
    
    111
    Contractual Obligations
  34




---



##### Table of Contents



Financial Condition Ratios
  August 1,
    
    August 2,
    
    January 31,2009
    
    2008
    
    2009Debt-capitalization ratio*
    
    
    55.2
    %
    
    
    59.8
    %
    
    
    58.6
    %
 
 *
    
    Debt-capitalization ratio 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 equity. The
debt-capitalization ratio, including the present value of
future minimum rental payments under operating leases as
debt and as capitalization, was 73.2%, 74.8% and 75.7%,
respectively, for the periods referred to above. Critical Accounting Policies
  New Accounting Standards
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
  Foreign Currency Risk
   35




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  adidas America, Inc. and adidas-Salomon AG v. Payless ShoeSource, Inc.
 th th
   36




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##### Table of Contents



th
    In the Matter of Certain Foam Footwear
   Crocs, Inc. v. Acme Ex-Im, Inc., et al.
  37




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##### Table of Contents



Discovery Property & Casualty Insurance Co. v. Collective Brands, Inc., (f/k/a Payless ShoeSource,
Inc.) Payless ShoeSource Worldwide, Inc. and Collective Licensing International, LLC
  American Eagle Outfitters and Retail Royalty Co. v. Payless ShoeSource, Inc.
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  38




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##### Table of Contents



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)05/03/09  05/30/09
    
    
    5
    
    
    $
    15.39
    
    
    
    
    
    
    $
    204.805/31/09  07/04/09
    
    
    10
    
    
    
    14.35
    
    
    
    
    
    
    
    204.807/05/09  08/01/09
    
    
    5
    
    
    
    13.41
    
    
    
    
    
    
    
    204.8Total
    
    
    20
    
    
    $
    14.37
    
    
    
    
    
    
    $
    204.8

(2)
 
 (1)
    
    Includes an aggregate of approximately twenty 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
  
 ITEM 6. EXHIBITS
 (a) Exhibits:
 Number
    
    Description31.1
    
    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 Division 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 Division Senior
Vice President  Chief Financial Officer and Treasurer*
 
 *
    
    Filed herewith 39




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SIGNATURES
  COLLECTIVE BRANDS, INC.Date: September 3, 2009
    By:
    /s/ Matthew E. Rubel
    
Matthew E. RubelChief Executive Officer, President and Chairman of the Board
(Principal Executive Officer)Date: September 3, 2009
    By:
    /s/ Douglas G. BoessenDouglas G. BoessenDivision Senior Vice President 
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer) 40