Payless Shoesource Inc/MO – ‘10-K405’ for 1/30/99

As of:  Monday, 4/12/99   ·   For:  1/30/99   ·   Accession #:  950124-99-2509   ·   File #:  1-11633   ·   Correction:  This Filing was Deleted by the SEC on 4/21/99. ®

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Annual Report — [x] Reg. S-K Item 405   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405     Form 10-K                                             20    111K 
 2: EX-3.2      Amended and Restated Bylaws of the Registrant         19     51K 
 3: EX-10.22    Employment Agreement                                   9     43K 
 4: EX-11.1     Computation of Net Earnings Per Share                  1      6K 
 5: EX-12.1     Computation of Ratio of Earnings to Fixed Charges      1      6K 
 6: EX-13.1     1998 Annual Report to Shareowners                     29±   132K 
 7: EX-21.1     Subsidiaries of Registrant                             1      6K 
 8: EX-23.1     Consent of Arthur Andersen LLP                         1      7K 
 9: EX-27.1     Financial Data Schedule                                2±    11K 

10-K405   —   Form 10-K
Document Table of Contents

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-K
(Mark one)                                                                      
[X]               ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)                 
            OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 30, 1999                                      
          OR
[  ]              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

PAYLESS SHOESOURCE, INC.
(Exact name of registrant as specified in its charter)

     DELAWARE                                           43-1813160
(State or other jurisdiction of                        (I.R.S. Employer   
   incorporation or organization)                         Identification Number)

3231 SOUTH EAST SIXTH STREET, TOPEKA, KANSAS                  66607-2207        
(Address of principal executive offices)                     (Zip Code)         

(785) 233-5171
 (Registrant's telephone number,
including area code)

Securities registered pursuant to Section 12(b) of the Act:                     
                                                 Name of each exchange
Title of each class                                   on which registered       

Common Stock, par value $.01 per share                New York Stock Exchange   
Preferred stock purchase rights                       New York Stock Exchange   
Securities registered pursuant to Section 12(g) of the Act:  None               

Indicate by check mark whether the Registrant: (1) has filed all reports        
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of   
1934 during the preceding 12 months (or for such shorter period that the        
Registrant was required to file such reports), and (2) has been subject to such 
filing requirements for the past 90 days.        Yes  X    No                   
                                      ---      ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405  
of Regulation S-K is not contained herein, and will not be contained, to the    
best of Registrant's knowledge, in definitive proxy or information statements   
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]                                                                  

The aggregate market value of Registrant's Common Stock held by non-affiliates  
based on the closing price of $46.625 on April 1, 1999 was $ 1,466,086,385 (The 
New York Stock Exchange was closed on April 2, 1999).                           

The Registrant had 32,065,259 shares of $.01 par value Common Stock issued and  
outstanding as of April 2, 1999.                                                

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 DOCUMENTS INCORPORATED BY REFERENCE

1.       Portions of Registrant's Annual Report to Shareowners for the fiscal   
         year ended January 30, 1999 (the "1998 Annual Report") are incorporated
into Part II, as described herein.                            

2.       Portions of Registrant's 1999 Proxy Statement for the Annual Meeting to
       be held on May 28, 1999, are incorporated into Part III, as described
      herein. Such proxy statement will be filed within 120 days after the
    end of the fiscal year covered by this annual report on Form 10-K.

         This report contains, and from time to time the Registrant may publish,
forward-looking statements relating to such matters as anticipated financial    
performance, business prospects, technological developments, new products,      
future store openings, possible strategic alternatives and similar matters.     
Also, statements including the words "expects," "anticipates," "intends,"       
"plans," "believes," "seeks," or variations of such words and similar           
expressions are forwarding-looking statements. The Registrant notes that a      
variety of factors could cause its actual results and experience to differ      
materially from the anticipated results or other expectations expressed in its  
forward-looking statements. The risks and uncertainties that may affect the     
operations, performance, development and results of the Registrant's business   
include, but are not limited to, the following: changes in consumer spending    
patterns; changes in consumer preferences and overall economic conditions; the  
impact of competition and pricing; changes in weather patterns; successful      
implementation of new technologies; Year 2000 matters, the financial condition  
of the suppliers and manufacturers from whom the Registrant sources its         
merchandise; changes in existing or potential duties, tariffs or quotas;        
availability of suitable store locations and appropriate terms; the ability to  
hire and train associates; and general economic, business and social conditions.

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Payless ShoeSource, Inc.
 Form 10-K Annual Report
For the fiscal year ended January 30, 1999

PART I

Item 1.  Business                                                               
Item 2.  Properties                                                             
Item 3.  Legal Proceedings                                                      
Item 4.  Submission of Matters to a Vote of Security Holders                    

 PART II

Item 5.  Market for Registrant's Common Equity and Related Shareholder Matters  
Item 6.  Selected Financial Data                                                
Item 7.  Management's Discussion and Analysis of Financial Condition and Results
of Operations                                                 
Item 7A. Quantitative and Qualitative Disclosures about Market Risk             
Item 8.  Financial Statements and Supplementary Data                            
Item 9.  Changes in and Disagreements With Accountants on Accounting and        
Financial Disclosure                                          

PART III

Item 10. Directors and Executive Officers of the Company                        
Item 11. Executive Compensation                                                 
Item 12. Security Ownership of Certain Beneficial Owners and Management         
Item 13. Certain Relationships and Related Transactions                         

 PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K       

Signatures                                                    

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PART I

ITEM 1.     BUSINESS                                                            

GENERAL                                                                         

Payless ShoeSource, Inc., a Delaware corporation, together with its             
subsidiaries, ("Payless," the "Company" or the "Registrant") is the largest     
family footwear retailer in the United States with more than $2.62 billion in   
sales in the fiscal year ended January 30, 1999 ("1998"). The Company sold      
approximately 204 million pairs of shoes in 1998, and served more than 147      
million customers.                                                              

As of January 30, 1999, the Company operated 4,357 Payless ShoeSource stores in 
50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam,
Saipan, and Canada. Payless ShoeSource stores feature fashionable, quality      
footwear for men, women and children, including athletic, casual, dress,        
sandals, work boots and slippers. In addition, the Company operated 213 Parade  
of Shoes stores in 16 states. Parade of Shoes offers fashionable women's        
footwear and accessories at moderate prices.                                    

DEVELOPMENTS                                                                    

During 1998, the Company opened 228 new Payless ShoeSource stores, including    
stores in Canada, Guam and Saipan, and closed 127 underperforming stores. During
1998, Parade of Shoes opened 55 stores and closed 17 underperforming stores.    

In January 1997, the Board of Directors of the Company authorized the repurchase
of up to $150 million of outstanding Common Stock of Payless in open-market     
transactions. In September 1997, the Company completed this $150 million        
repurchase (having repurchased approximately 2.8 million shares). In September  
1997, the Board of Directors of the Company authorized a second repurchase of up
to $150 million of outstanding Common Stock in open-market transactions, subject
to market conditions and receipt of a favorable ruling from the Internal Revenue
Service (IRS). The Company received the favorable IRS ruling in March 1998. In  
July 1998, the Company completed this $150 million repurchase (having purchased 
approximately 2.2 million shares). In August 1998, the Board of Directors of the
Company authorized a third repurchase of up to $150 million of outstanding      
Common Stock of Payless in open-market transactions. In October 1998, the third 
$150 million repurchase was increased by the Board of Directors, on the same    
terms, to $500 million. Between August 1, 1998 and October 31, 1998 the Company 
repurchased 1.5 million shares. Between November 1, 1998 and January 30, 1999,  
the Company repurchased 1.2 million shares. The aggregate cost of the 2.7       
million repurchased shares was $122.9 million. The Company expects that any     
repurchased shares will be held in treasury for general corporate purposes.     

HISTORY                                                                         

The Company was founded in Topeka, Kansas in 1956 with a strategy of selling low
cost, high quality family footwear on a self-service basis. In 1962, Volume     
Distributors, as the Company was known at the time, became a public company. In 
1979, the Company (then called Volume Shoe Corporation) was acquired by The May 
Department Stores Company of St. Louis, Missouri ("May"). The Company changed   
its name to Payless ShoeSource, Inc. in 1991. On May 4, 1996, Payless became an 
independent public company incorporated in Missouri as a result of its spin-off 
from May. In June 1998, Payless was reorganized into a holding company structure
with the retail operations centralized in Payless ShoeSource, Inc., a Missouri  
corporation, the indirect, wholly-owned subsidiary of Payless                   

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ShoeSource, Inc., a Delaware corporation. The Company is listed for trading on  
the New York Stock Exchange under the symbol "PSS."                             

PAYLESS SHOESOURCE STORES                                                       

The average size of the Company's Payless ShoeSource stores is approximately    
3,400 square feet. Each store carries an average of 8,143 pairs of shoes        
selected from approximately 600 styles offered throughout the Payless ShoeSource
chain. Payless ShoeSource stores operate in a variety of real estate formats,   
including shopping malls, central business districts, free-standing buildings   
and strip centers. Of the 4,357 Payless locations open at the end of 1998, 730  
incorporated a "Payless Kids" area which consists of approximately an additional
1,000 square feet of selling space devoted to an expanded assortment of         
children's shoes and seven were exclusively "Payless Kids" stores. The stores   
that include a "Payless Kids" area and those that are dedicated "Payless Kids"  
stores are located throughout the country, have wider aisles, children-friendly 
seating and an entertainment center for children. Payless intends to phase out  
the seven exclusively "Payless Kids" stores.                                    

The Company's Payless ShoeSource stores operate in rural, suburban and urban    
environments. The 11 states with the largest concentration of the Company's     
Payless ShoeSource stores are identified below (along with the total number of  
Payless ShoeSource stores):                                                     

                              NO. OF PAYLESS
  STATE                        SHOESOURCE STORES
  -----                        -----------------

California                         652      
Texas                              376      
Florida                            276      
New York                           270      
Pennsylvania                       196      
Illinois                           195      
Ohio                               179      
Michigan                           153      
New Jersey                         122      
Washington                         102      
Massachusetts                      102      
Other (including                            
non-U.S. stores)                 1,734      
                           -----

Total                            4,357      

The Company's Payless ShoeSource stores are highly automated, each with an      
electronic point of sale register and a back office computer which not only     
records transactions from the register, but also serves many other store        
supporting functions including price look-up, accumulation of associate hours   
worked and communications with the Company's headquarters in Topeka, Kansas.    
Store associates receive regular weekly communications from the Company's       
headquarters describing promotional and display requirements.                   

The Company's Payless ShoeSource operations are directed centrally by a senior  
officer and a small support staff. In January 1999, the domestic Payless retail 
operation was reorganized and consolidated from six divisions to four divisions.
The division headquarters are located in Atlanta, Baltimore, Chicago and Dallas.
Divisions are directed by a Division Senior Vice President, five operations     
directors and a small support staff.                                            

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Each Payless ShoeSource store has a manager and approximately five associates.  
The stores are organized into districts. District managers, to whom the store   
managers report, themselves report to the division offices and have full        
responsibility for the stores in their district. Division offices also have loss
prevention and inventory control functions. Human resources, merchandising      
support and other more general support services, are provided from the Company's
headquarters.                                                                   

PARADE OF SHOES STORES                                                          

The Company's Parade division, which was acquired in March 1997, from J. Baker, 
Inc., of Canton, Massachusetts, emphasizes the retail sale of fashionable,      
quality, primarily leather, women's shoes. As of January 30, 1999, the Company  
operated 213 Parade stores as a separate division supported by Payless sourcing,
distribution, information systems, real estate, human resources and financial   
operations.                                                                     

Major markets include Boston, New York City, Chicago, Philadelphia and          
Washington, D.C. The average size of a Parade store is approximately 2,300      
square feet. These stores operate in a variety of real estate formats including 
shopping malls, central business districts and strip centers.                   

EMPLOYEES                                                                       

During 1998, the Company's average number of employees was approximately 26,000,
including approximately 15,000 full-time associates and 11,000 part-time        
associates. Approximately 540 of the Company's distribution center general      
warehouse associates are covered by collective bargaining agreements. Management
believes it has a good relationship with all employees.                         

The Company is led by a team of senior management executives who have an average
of 17 years of retail industry experience, including an average of 12 years with
the Company and May.                                                            

PRODUCTS                                                                        

The Company's Payless ShoeSource stores offer a broad assortment of fashionable,
quality footwear for men, women and children, including athletic, casual, dress,
sandals, work boots and slippers. Shoes are constructed with leather, canvas and
man-made materials. Styling is updated regularly in an effort to remain current 
with proven fashion trends. During 1998, shoes sold at the Company's Payless    
ShoeSource stores sold at an average retail price of $11.88/pair. In addition to
shoes, Payless ShoeSource stores offer accessories, including handbags, shoe    
polish and hosiery. Parade stores are self-service and feature fashionable      
women's dress, casual and athletic footwear priced in the $20 to $40/pair range.

The Company's merchandising effort is led by the President and three general    
merchandise managers with an average of 19 years of retail experience. They     
direct teams of buyers, planners and distributors that interact with agents and 
factory representatives to design, select, produce, inspect and distribute      
footwear and accessories to Payless ShoeSource and Parade stores.               

CUSTOMERS                                                                       

The Company sells footwear to women, men and children of all age groups. The    
Company has significant market penetration with its target customers: women     
between the ages of 18 and 64. The Company believes that more than 45% of its   
target customers, regardless of household income, purchased at least one pair of
shoes from the Company last year. In 1998, the Company sold more pairs of       
children's shoes than any other U.S. footwear retailer.                         

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SEASONALITY                                                                     

The retail footwear market is characterized by four high volume seasons: Easter,
early Summer, back-to-school and Winter holiday. The Company must increase      
inventory levels during these periods to support the increased demand for       
seasonal styles. Unseasonable weather patterns may affect planned sales of      
seasonal products such as sandals and boots.                                    

PURCHASING                                                                      

The Company, both on its own account and through its indirect, wholly-owned     
subsidiary, Payless ShoeSource Merchandising, Inc., utilizes a network of agents
and factories in the United States and 10 foreign countries to obtain its       
products. These products are manufactured to meet the Company's specifications  
and standards. The strength of the Company's relationships with agents and      
factories, some dating back over 40 years, has allowed the Company to revise its
sourcing strategies to reflect changing political and economic environments. In 
the past, many of the Company's agents and factory owners have played           
significant roles in developing production in new factories and in new countries
without compromising production capacity or product quality. Factories in the   
People's Republic of China are a source of approximately 84% of the Company's   
merchandise. There can be no assurance that a change in political climate with  
or in China would not have a material adverse effect on the Company. The Company
does not purchase "seconds" or "overruns" and does not own any manufacturing    
facilities. The Company closely integrates its merchandise purchasing           
requirements with various manufacturers through its sourcing organization which 
has offices in Kansas, Taiwan, China and Brazil. Management believes it has good
relationships with the entities from which it sources, although there can be no 
assurance that such relationships will remain good or that such entities believe
that such relationships are good.                                               

Worldwide, approximately sixty percent of the Company's merchandise on an at    
cost basis is acquired through a network of third-party agents. Payless         
ShoeSource International, Inc., the Company's indirect subsidiary in Taipei,    
Taiwan, arranges directly with factories for the design, selection, production  
management, inspection and distribution of approximately one-third of the shoes 
acquired for the Company.                                                       

Risks inherent in foreign manufacturing (i.e., manufacturing outside the United 
States) include economic and political instability, transportation delays and   
interruptions, restrictive actions by foreign governments, the laws and policies
of the United States affecting importation of goods, including duties, quotas   
and taxes, trade and foreign tax laws and fluctuations in currency exchange     
rates. While the Company has not historically experienced material adverse      
effects resulting from the occurrence of these types of risks, there is no      
assurance that in the future the occurrence of these risks will not result in   
increased costs and delays or disruption in product deliveries that could cause 
loss of revenue and damage to customer relationships and have a material adverse
effect on the Company.                                                          

China currently enjoys "normal trade relations" ("NTR") status under United     
States tariff laws. NTR status provides the most favorable level of United      
States import duty rates. China's NTR status is annually reviewed by the United 
States Congress. Extension of this status is subject to uncertainty every year. 
The loss of NTR status for China would likely result in substantially increased 
costs to the Company in the purchase of merchandise from China. The Company     
believes, however, that its competitors in the footwear industry would be       
similarly affected.                                                             

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QUALITY ASSURANCE                                                               

The Company's quality assurance organization sets standards and specifications  
for product manufacture, performance and appearance. It communicates those      
standards and specifications through its copyrighted quality assurance manual.  
The Company stands behind the quality of the shoes it sells to its customers by 
permitting return of purchased merchandise with proper documentation evidencing 
purchase.                                                                       

The quality assurance organization also provides technical design support for   
the Company's direct purchasing function. It is responsible for review and      
approval of agent and factory technical design, for worldwide laboratory testing
of materials and components, and for performing in-factory product inspections  
to ensure that materials and factory production techniques are consistent with  
Company specifications. The Company locates its field inspection personnel close
to the factories and freight consolidation facilities it uses throughout the    
world.                                                                          

PRODUCTION MANAGEMENT                                                           

The production management organization manages an ongoing process to qualify and
approve new factories, while continually assessing existing factory service and 
quality of performance. New factories must meet specified quality standards for 
shoe production and minimum capacity requirements. They must also agree to the  
Company's production control processes and certify that neither they nor their  
suppliers use forced or child labor. Factory performance must continually       
improve or the factory runs the risk of being removed from the list of approved 
factories. The production management organization utilizes a unique, internally 
developed production control process by which the Company is electronically     
linked to the factories and agents. This process is designed to ensure on-time  
deliveries of merchandise with minimum lead time and without unnecessary costs. 

The Company believes that maintaining strong factory relationships, improving   
key factory performance factors and improving factory profitability is critical 
to long-term sourcing stability. Its manufacturing services group, based in     
Asia, provides direction and leadership to key factories in the areas of overall
productivity improvement and lead time reduction.                               

MERCHANDISE DISTRIBUTION                                                        

The Company believes that its distribution system provides it with a competitive
advantage. The Company's merchandise distribution teams are able to track shoes 
by the pair from order placement through sale to the customer by the use of     
perpetual inventory, product planning and retail price management systems. These
systems are maintained by experienced information systems personnel and are     
enhanced regularly to improve the product distribution process. Distribution    
analysts review sales and inventory by size and style to maintain availability  
of product within the Company's stores.                                         

The Company, through its indirect, wholly-owned subsidiary, Payless ShoeSource  
Distribution, Inc., operates a single 795,000 square foot distribution center,  
including office space, in Topeka, Kansas, capable of replenishing in-store     
product levels by style, color and size. This facility, which currently handles 
approximately 65 percent of the Company's distribution needs, operates seven    
days-a-week. Management believes this facility is one of the most               
highly-automated and cost-efficient distribution facilities in the footwear     
industry. The remaining 35 percent of the Company's distribution needs are      
handled by a third party facility in Los Angeles, California. The Company       
believes its distribution center system has sufficient capacity to support more 
than 5,000 stores. Stores generally receive new merchandise at least once a     
week, in an effort to maintain a constant flow of new and replenished           
merchandise.                                                                    

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INDUSTRY SEGMENTS                                                               

The retail footwear industry can be divided into high, moderate and value-priced
segments. The high priced segment is controlled by department stores. The       
moderate priced segment, which includes specialty shoe chains, mass             
merchandisers, and junior department stores, has no single dominant competitor. 
The value-priced segment is dominated by the Company and national discount      
mass-merchandisers.                                                             

Based on industry data, the United States footwear market is estimated to be    
$34.7 billion/year comprising over one billion pairs of footwear, and has       
remained relatively constant in each respect over the past several years.       
Industry data suggests that the quality offered in the value-priced segment has 
improved significantly over the last 15 years. This improvement appears to be   
the primary cause of the near doubling of this segment's share of the market    
over the past 12 years based on dollar volume.                                  

The Company considers itself part of the value-priced segment of the footwear   
industry. In 1998, the Company's sales accounted for approximately 6.8 percent  
of the total sales of the estimated $34.7 billion United States footwear market;
this percentage has grown over the past four decades.                           

COMPETITION                                                                     

The Company operates in a highly competitive retail market competing primarily  
with national and regional discount mass-merchandisers, as well as with other   
self-service discount shoe stores and off-price outlet stores. Competition is   
based on product selection, quality and availability, price, store location,    
customer service and promotional activities. The Company believes that it has a 
leadership position in the footwear market.                                     

INTELLECTUAL PROPERTY                                                           

The Company, through its wholly-owned subsidiaries, owns certain copyrights,    
trademarks and patents which it uses in its business and which it regards as    
valuable assets. The trademarks include Payless(R), Payless ShoeSource(R),      
Payless Kids(R), and Parade of Shoes(R). The Company owns all rights to the     
yellow and orange logo used in its Payless ShoeSource signs and advertising. In 
the United States, the Company has registered over 200 key marks and owns over  
50 common law marks under which it markets private label merchandise in its     
Payless ShoeSource stores. In addition, the Company owns over 50 registered and 
common law marks under which it markets private label merchandise in its Parade 
stores. The Company also owns registrations for Payless ShoeSource in over 50   
foreign countries. All of the Company's registered trademarks may be renewed    
indefinitely.                                                                   

MARKETING                                                                       

The Company's marketing efforts are multi-dimensional, including nationally     
broadcast television advertising, newspaper and mail inserts in support of major
promotional periods. In addition to media support, the Company utilizes in-store
promotional materials, including posters, signs and point of sale items. Also,  
the Company advertises its business through promotional funds, media funds,     
merchants' associations and similar efforts offered by various landlords from   
whom the Company leases its stores.                                             

The Company's marketing staff is augmented by a full-service advertising concern
that provides creative services, media purchase and consumer research.          

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ENVIRONMENT                                                                     

Compliance with federal, state and local statutes, rules, ordinance, laws and   
other provisions which have been enacted or adopted regulating the discharge of 
materials into the environment, or otherwise relating to the protection of the  
environment, has not had, and is not expected to have, a material effect on     
capital expenditures, earnings or the competitive position of the Company.      

FOREIGN OPERATIONS                                                              

In late 1997, the Company, through its indirect, wholly-owned subsidiary, PSS   
Canada, Inc., opened its first store in Canada. By the end of fiscal year 1998, 
the Company had opened 86 Canadian stores in major metropolitan areas.          

DIRECTORS OF THE COMPANY                                                        

Listed below are the names and present principal occupations or, if retired,    
most recent occupations of the Company's Directors:                             

                                                                [Download Table]


         NAME       PRINCIPAL OCCUPATION                                      
         ----       --------------------                                      

                                                                              
Steven J. Douglass  Chairman of the Board and Chief Executive Officer of the  
                    Company                                                   
Richard A. Jolosky  Vice Chairman of the Company                              
Daniel Boggan Jr.   Senior Vice President of the National Collegiate Athletic 
                    Association                                               
Howard R. Fricke    Chairman of the Board and Chief Executive Officer of The  
                    Security Benefit Group of Companies                       
Thomas A. Hays      Retired, formerly Deputy Chairman of The May Department   
                    Stores Company                                            
Ken C. Hicks        President of the Company                                  
Mylle B. Mangum     Senior Vice President of CWT Holdings, Inc. (f/k/a Carlson
                    Wagonlit Travel)                                          
Michael E. Murphy   Retired, Formerly Vice Chairman and Chief Administrative  
                    Officer of Sara Lee Corporation                           
Robert L. Stark     Retired, Formerly Executive Vice President Hallmark Cards,
                    Inc.                                                      

EXECUTIVE OFFICERS OF THE COMPANY                                               

Listed below are the names and ages of the executive officers of the Company as 
of May 28,1999 and offices held by them with the Company.                       

                                                                [Download Table]


         NAME       AGE  POSITION AND TITLE                          
         ----       ---  ------------------                          

                                                                     
Steven J. Douglass  49   Chairman of the Board and Chief Executive   
                         Officer                                     
Richard A. Jolosky  64   Vice Chairman                               
Ken C. Hicks        46   President                                   
Duane L. Cantrell   43   Executive Vice President - Retail Operations
Bryan P. Collins    45   Senior Vice President and Division Director 
                         for Parade of Shoes                         

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                                                                [Download Table]


                                                                       
Stephen Farley       44  Senior Vice President - Marketing             
Gerald F. Kelly, Jr. 51  Senior Vice President - Logistics/Information 
                         Services and Technology                       
Harris Mustafa       45  Senior Vice President - Merchandise           
                         Distribution                                  
Jed L. Norden        48  Senior Vice President - Human Resources       
JoAnn Ogee           44  Senior Vice President - General Merchandise   
                         Manager - Women's                             
Ullrich E. Porzig    53  Senior Vice President, Chief Financial Officer
                         and Treasurer                                 
William J. Rainey    52  Senior Vice President, General Counsel and    
                         Secretary                                     
Thomas L. Rinehart   44  Senior Vice President - General Merchandise   
                         Manager - Men's                               
Gary M. Stone        50  Senior Vice President - Store Development     
Larry M. Strecker    40  Senior Vice President - Worldwide Sourcing    
Michael S. Wilkes    45  Senior Vice President - General Merchandise   
                         Manager - Children's                          

STEVEN J. DOUGLASS has served as Chairman of the Board and Chief Executive      
Officer of Payless since May 4, 1996, the date on which Payless Common Stock was
distributed in a spin-off by The May Department Stores Company ("May") to its   
shareowners (the "Spin-off"). Mr. Douglass was also Chairman and Chief Executive
Officer of Payless from April, 1995 to the Spin-off. He joined Payless in 1993  
and served as Senior Vice President/Director of Retail Operations from 1993 to  
January, 1995 and as Executive Vice President/Director of Retail Operations from
January, 1995 to April, 1995. Prior to his association with Payless, Mr.        
Douglass held several positions at divisions of May, serving as Chairman of May 
Company, Ohio (1990-1993) and Senior Vice President and Chief Financial Officer 
of J.W. Robinsons (1986-1990). Mr. Douglass is a director of The Security       
Benefit Group of Companies. Mr. Douglass has served as a Director of Payless    
since April 30, 1996.                                                           

RICHARD A. JOLOSKY has served as Vice Chairman of Payless since January 28,     
1999. He served as President of Payless from 1996 through January, 1999. Mr.    
Jolosky initially joined Payless in September, 1982, serving as Executive Vice  
President-Merchandising (1982-1984) and then as President (1985-1988). Mr.      
Jolosky was previously President and Chief Executive Officer of Silverman       
Jewelry Company (1995-1996), and Chief Executive Officer of the Richard Allen   
Company (1992-1995). Mr. Jolosky is a director of Stage Stores, Inc. and has    
served as a Director of Payless since April 30, 1996.                           

KEN C. HICKS has served as President of the Company since January 28, 1999.     
Before joining Payless, he was Executive Vice President and General Merchandise 
Manager for Home Shopping Network, Inc. Prior to his association with Home      
Shopping Network, Inc., Mr. Hicks held several positions with May serving as:   
Senior Vice President and General Merchandise Manager of Foley's Department     
Stores (1995-1998), Senior Vice President and General Merchandise Manager for   
May Merchandising Company (1990-1995) and as Senior Vice President of Strategic 
Planning for May (1987-1990). Mr. Hicks has served as a Director of Payless     
since January 28, 1999.                                                         

DUANE L. CANTRELL has served as Executive Vice President-Retail Operations since
April, 1997 and as Senior Vice President-Retail Operations (1995-1997). He was  
the Company's Senior Vice President-Merchandise Distribution and Planning       
(1992-1995) and Senior Vice President-Merchandise Distribution (1990-1992). Mr. 
Cantrell has been employed by the Company since 1978.                           

BRYAN P. COLLINS has served as Senior Vice President and Division Director for  
Parade of Shoes since December, 1996. Prior to that he was Senior Vice President
and General Merchandise Manager-Women's since January, 1994. He also served the 
Company as Senior Vice President and                                            

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General Merchandise Manager-Women's Seasonal/Leisure (1991-1994). Mr. Collins   
has been employed by the Company since 1991 and was previously employed by the  
Company (1975-1985).                                                            

STEPHEN FARLEY has served as Senior Vice President-Marketing since July, 1994.  
Prior to that he was Vice President-Marketing (1993-1994) and Vice              
President-Advertising (1992-1993). Prior to joining the Company, Mr. Farley was 
employed by Earl Palmer Brown as Executive Vice President of Client Services    
(1989-1992).                                                                    

GERALD F. KELLY, JR. has served as Senior Vice President-Logistics/Information  
Services and Technology since February, 1996. Prior to that he was Senior Vice  
President-Information Services and Chief Financial Officer (1990-1996) and      
Senior Vice President-Information Services (1986-1990).                         

HARRIS MUSTAFA has served as Senior Vice President-Merchandise Distribution     
since May, 1995. Prior to that he was Vice President-Financial                  
Planning/Purchasing (1990-1995). Mr. Mustafa has been employed by the Company   
since 1987.                                                                     

JED L. NORDEN has served as Senior Vice President-Human Resources since July,   
1985. He served as Vice President-Executive Development of May (1984-1985).     
Prior to joining May, Mr. Norden held various management positions with         
Ingersoll-Rand, most recently serving as General Manager-Personnel and          
Facilities (1982-1984).                                                         

JOANN OGEE has served as Senior Vice President and General Merchandise          
Manager-Women's since May, 1997. Ms. Ogee served as Senior Vice President and   
General Merchandise Manager, Intimate Apparel, Accessories, Footwear, Menswear  
and Children's for Charming Shoppes, Inc. from October, 1993 to May, 1997. She  
also worked as Senior Merchandiser for Victoria's Secret from June, 1990 to     
October, 1993 and held several leadership positions during her fifteen years    
with Macy's.                                                                    

ULLRICH E. PORZIG has served as Senior Vice President, Chief Financial Officer  
and Treasurer since April, 1998. He served as Senior Vice President and Chief   
Financial Officer from February, 1996 to April, 1998 and from 1986 to 1988.     
Between 1993 and 1996, Mr. Porzig was Senior Vice President, Chief Financial    
Officer and Treasurer of Petro Stopping Centers L.P. From 1982 to 1993, he was  
employed by May in various capacities including Senior Vice President-Finance   
and Chief Financial Officer of Foley's (1988-1993).                             

WILLIAM J. RAINEY has served as Senior Vice President, General Counsel and      
Secretary since April, 1996. Prior to joining the Company, Mr. Rainey served as 
Executive Vice President, General Counsel and Secretary of Fourth Financial     
Corporation (1994-1996) and Vice President, General Counsel of Cabot Corporation
(1991-1993).                                                                    

THOMAS L. RINEHART has served as Senior Vice President and General Merchandise  
Manager-Men's since December, 1992. Before joining the Company, he was employed 
by the Custom Shop, Inc. as President and Chief Operating Officer (1992) and by 
Club International, Inc. as President and Chief Executive Officer (1990-1991).  
From 1976 to 1990, Mr. Rinehart was employed by Federated Department Stores in  
various capacities, most recently serving as Vice President General Merchandise 
Manager.                                                                        

GARY M. STONE has served as Senior Vice President-Store Development since       
February, 1997. Prior to joining the Company, Mr. Stone was employed by PepsiCo,
Inc. as Senior Vice President and General Manager-Restaurant Services           
(1995-1997) and Vice President, Asset Development-Pizza Hut (1990-1995).        

LARRY M. STRECKER has served as Senior Vice President-Worldwide Sourcing since  
January, 1999. He formerly served as Senior Vice President and Managing Director
of Payless ShoeSource International (1996-1999), and Vice President of Worldwide
Sourcing (1993-1996). Before joining the                                        

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Company, Mr. Strecker was employed by Frito-Lay, Inc. as Director of Service and
Distribution (1991-1993).                                                       

MICHAEL S. WILKES has served as Senior Vice President and General Merchandise   
Manager-Children's since January, 1994. Prior to that he served as Senior Vice  
President-General Merchandise Manager-Women's Dress/Casual (1990-1994). Mr.     
Wilkes has been employed by the Company since 1986.                             

ITEM 2.           PROPERTIES                                                    

The Company leases substantially all of its stores. The leases typically have a 
primary term of 5 or 10 years, with one or two five-year renewal options. During
1999, approximately 693 of the Company's leases, including 170 leases which, as 
of January 30, 1999, were month-to-month tenancies, are due to expire. Leases   
usually require payment of base rent, applicable real estate taxes, common area 
expenses and, in some cases, percentage rent based on the stores' sales volume. 
Payless ShoeSource stores average approximately 3,400 square feet and Parade of 
Shoes stores average approximately 2,300 square feet. The Company owns and      
operates, directly or through its wholly-owned subsidiaries, a 305,000 square   
foot central office building and a 795,000 square foot distribution facility,   
including office space, both of which are located in Topeka, Kansas.            

ITEM 3.           LEGAL PROCEEDINGS                                             

There are no material pending legal proceedings, to which the company or any of 
its subsidiaries is a party or of which any of their property is the subject.   
The Company and its subsidiaries are parties to ordinary private litigation     
incidental to their business.                                                   

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS           

There were no matters submitted to a vote of security holders during the 13     
weeks ended January 30, 1999.                                                   

 PART II

ITEM 5.           MARKET FOR COMPANY'S COMMON EQUITY AND RELATED                
SHAREOWNER MATTERS                          

There were approximately 45,000 owners of the Company's Common Stock as of April
2, 1999. The information set forth under the headings "Management's Discussion  
and Analysis - Common Stock and Market Prices" and "Shareowner Information -    
Common Stock" in the Company's 1998 Annual Report is incorporated herein by     
reference.                                                                      

ITEM 6.           SELECTED FINANCIAL DATA                                       

The information set forth under the heading "Summary of Selected Historical     
Financial Information" of the Company's 1998 Annual Report is incorporated      
herein by reference.                                                            

ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION   
AND RESULTS OF OPERATIONS                   

The information set forth under the heading "Management's Discussion and        
Analysis" of the Company's 1998 Annual Report is incorporated herein by         
reference.                                                                      

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ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    

None.                                                                           

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                   

The Consolidated Statement of Earnings for the fiscal years 1996, 1997 and 1998,
the Consolidated Balance Sheet as of January 30, 1999 and January 31, 1998, the 
Consolidated Statement of Shareowners' Equity, the Consolidated Statement of    
Cash Flows for fiscal years 1996, 1997, 1998, the Notes to Consolidated         
Financial Statements and the Report of Independent Public Accountants of the    
Company's 1998 Annual Report to Shareowners are incorporated herein by          
reference.                                                                      

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON              
ACCOUNTING AND FINANCIAL DISCLOSURE         

None.                                                                           

PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY               

a) Directors - The information set forth in the Company's definitive proxy      
statement to be filed in connection with its Annual Meeting to be held on May   
28, 1999 under the captions "Election of Directors - Directors and Nominees for 
Directors" and "Additional Information - Section 16(a) Beneficial Ownership     
Reporting Compliance" is incorporated herein by reference.                      

b) Executive Officers - Information regarding the Executive Officers of the     
Company is as set forth in Item 1 of this report under the caption "Executive   
Officers of the Company."                                                       

ITEM 11.          EXECUTIVE COMPENSATION                                        

The information set forth in the Company's definitive proxy statement to be     
filed in connection with its Annual Meeting to be held on May 28, 1999 under the
captions "Election of Directors - The Board and Committees of the Board --      
Compensation of Directors," "Compensation and Nominating Committee Report -     
EICP" and "Executive Compensation" is incorporated herein by reference.         

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND           
MANAGEMENT                                  

The information set forth in the Company's definitive proxy statement to be     
filed in connection with its Annual Meeting to be held on May 28, 1999 under the
caption "Election of Directors" is incorporated herein by reference.            

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                

None.                                                                           

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 PART IV

ITEM 14.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM   
8-K                                         

(a)      Documents filed as part of this report:                                

        (1)      Financial Statements.  The following financial statements are
     incorporated herein by reference to the Company's
1998 Annual Report to Shareowners:          
                                                         PAGE IN
                                                           ANNUAL REPORT
                                                           -------------
Financial Statements-                                         
Consolidated Statement of Earnings for                      
the three fiscal years ended                            
 January 30, 1999                                       18
Consolidated Balance Sheet -                                
 January 30, 1999 and January 31, 1998                  19
Consolidated Statement of Shareowners'                      
Equity for the three fiscal years                       
 ended January 30, 1999                                 20
Consolidated Statement of Cash Flows                        
for the three fiscal years ended                        
 January 30, 1999                                       21
 Notes to Consolidated Financial Statements                22-26
Report of Independent Public Accountants                  27  

(2) Exhibits.                                                         

                                                        [Enlarge/Download Table]


Number                            Description                                           
------                            -----------                                           

                                                                                        
3.1     Amended and Restated Certificate of Incorporation of the Registrant.(1)         

3.2     Amended and Restated Bylaws of the Registrant.*                                 

4       Stockholder Protection Rights Agreement, dated as of April 20, 1998, between the
        Registrant and UMB Bank, n.a.(1)                                                

10.1    Tax Sharing Agreement, dated April 2, 1996, between The May Department Stores   
        Company and the Registrant.(2)                                                  

10.2    Sublease, dated as of April 2, 1996, between The May Department Stores Company  
        and the Registrant.(3)                                                          

10.3    Amended and Restated Multicurrency Credit Agreement dated as                    
        of May 22, 1998 (but effective as of the date of the                            
        Reorganization, as defined therein), among Payless ShoeSource,                  
        Inc., a Missouri corporation, Payless ShoeSource Holdings,                      
        Inc., a Delaware corporation (now known as Payless ShoeSource,                  
        Inc.), PSS Investment II, Inc. (now known as Payless                            
        ShoeSource Finance, Inc.), several financial institutions and                   
        Bank of America National Trust and Savings Association, as                      
        Agent.(1)                                                                       

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                                                        [Enlarge/Download Table]

                                                                                                
10.4   Administrative Services Agreement, dated as of April 2, 1996, between The May            
       Department Stores Company and the Registrant.(3)                                         

10.5   1996 Stock Incentive Plan of Registrant, as amended April 20,                            
       1998, effective immediately prior to the effective time of the                           
       Merger.(1)                                                                               

10.6   Spin-Off Stock Plan, Payless ShoeSource, Inc.(3)                                         

10.7   Spin-Off Cash Plan, Payless ShoeSource, Inc.(3)                                          

10.8   Restricted Stock Plan for Non - Management Directors of Registrant, as  amended          
       April 20, 1998, effective immediately prior to the effective time of the Merger (as      
       defined therein).(1)                                                                     

10.9   Form of Employment Agreement between the Registrant and certain executives of the        
       Registrant. The Registrant has entered into Employment Agreements in the form            
       contained in this exhibit with each of the named executive officers which expire at      
       various dates on or before May 31, 2001, and which provide for annual base salaries at   
       rates not less than the amounts presently paid to them.(3)                               

10.10  Supplementary Retirement Plan of Registrant, as amended effective June 1, 1998 (1)       

10.11  Profit Sharing Plan of Registrant, as amended  and restated generally effective June 1,  
       1998. (1)                                                                                

10.12  Deferred Compensation Plan of Registrant, as amended effective April 20, 1998,           
       effective immediately prior to the effective time of the Merger (as defined therein). (1)

10.13  Executive Incentive Compensation Plan of Registrant, as amended  April 20, 1998,         
       effective immediately prior to the effective time of the Merger. (1)                     

10.14  Form of Management Severance Agreement. The                                              
       Registrant has entered into Severance Agreements with                                    
       the named executive officers in the form contained in                                    
       this exhibit. The agreement with Mr. Douglass also                                       
       provides for a "tax gross-up" payment to ensure that                                     
       the above-mentioned payments are not subject to net                                      
       reduction due to imposition of excise taxes which are                                    
       payable under Section 4999 of the Internal Revenue                                       
       Code. The agreements with Messrs. Jolosky and Hicks                                      
       provide for 50% of such payment. (4)                                                     

10.15  Form of Directors' and Officers' Indemnity Agreement of Registrant. (1)                  

10.16  Deferred Compensation Plan for Non - Management Directors of Registrant, as              
       amended  April 20, 1998, effective immediately prior to the effective time of the        
       Merger. (1)                                                                              

10.17  Executive Incentive Compensation Plan for Business Unit Management of Registrant,        
       as amended  April 20, 1998, effective immediately prior to the effective time of the     
       Merger. (1)                                                                              

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                                                        [Enlarge/Download Table]

                                                                                              
10.18  Stock Appreciation and Phantom Stock Unit Plan for Payless ShoeSource International    
       Employees of Registrant, as amended April 20, 1998, effective immediately prior to     
       the effective time of the Merger. (1)                                                  

10.19  Profit Sharing Plan for Puerto Rico Associates of Registrant, as amended effective June
       1, 1998. (1)                                                                           

10.20  Stock Ownership Plan of Registrant, as amended effective June 1, 1998. (1)             

10.21  Assumption Agreement, dated as of May 22, 1998, between Registrant and Payless.        
       (1)                                                                                    

10.22  Employment Agreement with Ken C. Hicks.*                                               

11.1   Computation of Net Earnings Per Share.*                                                

12.1   Computation of Ratio of Earnings to Fixed Charges.*                                    

13.1   1998 Annual Report to Shareowners of Payless ShoeSource, Inc.                          
       (only those portions specifically incorporated by reference                            
       shall be deemed filed with the Commission).*                                           

21.1   Subsidiaries of Registrant*                                                            

23.1   Consent of Arthur Andersen, LLP.*                                                      

27.1   Financial Data Schedule*                                                               

* Filed herewith                                                                

1)       Incorporated by reference from the Registrant's Form 8-K (File Number  
1-11633) dated June 1, 1998.                                  
2)       Incorporated by reference from Exhibit 10.1 of the Registrant's Form   
10-Q (File Number 1-11633) for the quarter ended May 4, 1996. 
3)       Incorporated by reference from the correspondingly numbered Exhibit to 
      Registrant's Registration Statement on Form 10 (File Number 1-11633)
dated February 23, 1996 as amended through April 15, 1996.    
4)       Incorporated by reference from the Registrants Form 10-K for fiscal    
year 1997 (File Number 1-11633).                              

THE COMPANY WILL FURNISH TO SHAREOWNERS UPON REQUEST, AND WITHOUT CHARGE, A COPY
OF THE 1998 ANNUAL REPORT AND THE PROXY STATEMENT, PORTIONS OF WHICH ARE        
INCORPORATED BY REFERENCE IN THE FORM 10-K. THE COMPANY WILL FURNISH ANY OTHER  
EXHIBIT AT COST.                                                                

(b) Reports on Form 8-K:                                                        

On June 3, 1998, November 25, 1998 and January 29, 1999, the Company filed a    
Current Report on Form 8-K, reporting on Item 5.                                

All other schedules and exhibits of the Company for which provision is made in  
the applicable regulations of the Securities and Exchange Commission have been  
omitted, as they are not required or are inapplicable or the information        
required thereby has been given otherwise.                                      

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SIGNATURES  

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange  
Act of 1934, the registrant has duly caused this report to be signed on its     
behalf by the undersigned, thereunto duly authorized.                           

                    PAYLESS SHOESOURCE, INC.

Date:  April 9, 1999                  By: /s/ Ullrich E. Porzig                 
                          ----------------------
                             Ullrich E. Porzig
                                  Senior Vice President,
                                       Chief Financial Officer and
                     Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and  
in the capacities and on the dates indicated.                                   

By: /s/ Steven J. Douglass              Date: April 9, 1999                     
-----------------------                                                   
Steven J. Douglass                                            
Chairman, Chief Executive Officer                             
and Director                                                  
(Principal Executive Officer)                                 

By: /s/ Ullrich E. Porzig               Date: April 9, 1999                     
----------------------                                                    
Ullrich E. Porzig                                             
Senior Vice President, Chief Financial                        
Officer and Treasurer                                         
(Principal Financial and Accounting                           
Officer)                                                      

By: /s/ Richard A. Jolosky              Date: April 9, 1999                     
-----------------------                                                   
Richard A. Jolosky                                            
Vice Chairman and Director                                    

By: /s/ Ken C. Hicks                    Date: April 9, 1999                     
----------------                                                        
Ken C. Hicks                                                  
President and Director                                        

By: /s/ Daniel Boggan Jr.               Date: April 9, 1999                     
----------------------                                                    
Daniel Boggan Jr.                                             
Director                                                      

By: /s/ Howard R. Fricke                Date: April 9, 1999                     
---------------------                                                     
Howard R. Fricke                                              
Director                                                      

By: /s/ Thomas A. Hays                  Date: April 9, 1999                     
-------------------                                                       
Thomas A. Hays                                                
Director                                                      

By: /s/ Mylle B. Mangum                 Date: April 9, 1999                     
--------------------                                                      
Mylle B. Mangum                                               
Director                                                      

By: /s/ Michael E. Murphy               Date: April 9, 1999                     
----------------------                                                    
Michael E. Murphy                                             
Director                                                      

By: /s/ Robert L. Stark                 Date: April 9, 1999                     
-------------------                                                     
Robert L. Stark                                               
Director                                                      

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 EXHIBIT INDEX
Exhibit                                                                         
Number                                      Description                         

3.1               Amended and Restated Certificate of Incorporation of the      
Registrant.(1)                              

3.2               Amended and Restated Bylaws of the Registrant.*               

4                 Stockholder Protection Rights Agreement, dated as of          
                April 20, 1998, between the Registrant and UMB Bank, n.a.(1)

10.1              Tax Sharing Agreement, dated April 2, 1996, between The May   
    Department Stores Company and the Registrant.(2)

10.2              Sublease, dated as of April 2, 1996, between The May          
    Department Stores Company and the Registrant.(3)

10.3              Amended and Restated Multicurrency Credit Agreement dated as  
        of May 22, 1998 (but effective as of the date of the
                  Reorganization, as defined therein), among Payless ShoeSource,
              Inc., a Missouri corporation, Payless ShoeSource Holdings,
                  Inc., a Delaware corporation (now known as Payless ShoeSource,
        Inc.), PSS Investment II, Inc. (now known as Payless
                 ShoeSource Finance, Inc.), several financial institutions and
              Bank of America National Trust and Savings Association, as
Agent.(1)                                   

10.4              Administrative Services Agreement, dated as of April 2, 1996, 
                 between The May Department Stores Company and the Registrant.
(3)                                         

10.5              1996 Stock Incentive Plan of Registrant, as amended April 20, 
                  1998, effective immediately prior to the effective time of the
Merger.(1)                                  

10.6              Spin-Off Stock Plan, Payless ShoeSource, Inc.(3)              

10.7              Spin-Off Cash Plan, Payless ShoeSource, Inc.(3)               

10.8              Restricted Stock Plan for Non - Management Directors of       
                Registrant, as amended April 20, 1998, effective immediately
         prior to the effective time of the Merger (as defined
therein).(1)                                

10.9              Form of Employment Agreement between the Registrant and       
            certain executives of the Registrant. The Registrant has
               entered into Employment Agreements in the form contained in
                this exhibit with each of the named executive officers which
                expire at various dates on or before May 31, 2001, and which
               provide for annual base salaries at rates not less than the
amounts presently paid to them.(3)          

10.10             Supplementary Retirement Plan of Registrant, as amended       
effective June 1, 1998 (1)                  

10.11             Profit Sharing Plan of Registrant, as amended  and restated   
generally effective June 1, 1998. (1)       

10.12             Deferred Compensation Plan of Registrant, as amended effective
                April 20, 1998, effective immediately prior to the effective
time of the Merger (as defined therein). (1)

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10.13             Executive Incentive Compensation Plan of Registrant, as       
              amended April 20, 1998, effective immediately prior to the
effective time of the Merger. (1)           

10.14             Form of Management Severance Agreement. The Registrant has    
              entered into Severance Agreements with the named executive
                 officers in the form contained in this exhibit. The agreement
                with Mr. Douglass also provides for a "tax gross-up" payment
                  to ensure that the above-mentioned payments are not subject to
             net reduction due to imposition of excise taxes which are
                payable under Section 4999 of the Internal Revenue Code. The
                agreements with Messrs. Jolosky and Hicks provide for 50% of
such payment. (4)                           

10.15             Form of Directors' and Officers' Indemnity Agreement of       
Registrant. (1)                             

10.16             Deferred Compensation Plan for Non - Management Directors of  
                Registrant, as amended April 20, 1998, effective immediately
  prior to the effective time of the Merger. (1)

10.17             Executive Incentive Compensation Plan for Business Unit       
                  Management of Registrant, as amended April 20, 1998, effective
              immediately prior to the effective time of the Merger. (1)

10.18             Stock Appreciation and Phantom Stock Unit Plan for Payless    
                ShoeSource International Employees of Registrant, as amended
                April 20, 1998, effective immediately prior to the effective
time of the Merger. (1)                     

10.19             Profit Sharing Plan for Puerto Rico Associates of Registrant, 
as amended effective June 1, 1998. (1)      

10.20             Stock Ownership Plan of Registrant, as amended effective June 
1, 1998. (1)                                

10.21             Assumption Agreement, dated as of May 22, 1998, between       
Registrant and Payless. (1)                 

10.22             Employment Agreement with Ken C. Hicks.*                      

11.1              Computation of Net Earnings Per Share.*                       

12.1              Computation of Ratio of Earnings to Fixed Charges.*           

13.1              1998 Annual Report to Shareowners of Payless ShoeSource, Inc. 
               (only those portions specifically incorporated by reference
shall be deemed filed with the Commission).*

21.1              Subsidiaries of Registrant*                                   

23.1              Consent of Arthur Andersen, LLP.*                             

27.1              Financial Data Schedule*                                      
* Filed herewith                                                                
1)       Incorporated by reference from the Registrant's Form 8-K (File Number  
1-11633) dated June 1, 1998.                                  
2)       Incorporated by reference from Exhibit 10.1 of the Registrant's Form   
10-Q (File Number 1-11633) for the quarter ended May 4, 1996. 
3)       Incorporated by reference from the correspondingly numbered Exhibit to 
      Registrant's Registration Statement on Form 10 (File Number 1-11633)
dated February 23, 1996 as amended through April 15, 1996.    
4)       Incorporated by reference from the Registrants Form 10-K for fiscal    
year 1997 (File Number 1-11633).                              

20

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
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Deleted on:		4/21/99
Filed on:		4/12/99							DEF 14A
		4/9/99		18
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		4/1/99		1
For Period End:		1/30/99		1		15
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		11/25/98		17
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		5/22/98		15		20
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		1/31/98		14					10-K
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		4/30/96		11
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