Payless Shoesource Inc/MO – ‘10-K’ for 1/31/98

As of:  Tuesday, 4/21/98   ·   For:  1/31/98   ·   Accession #:  950124-98-2250   ·   File #:  1-11633

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

Annual Report   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                         25     99K 
 2: EX-3.2      Articles of Incorporation/Organization or By-Laws     11     42K 
 5: EX-10.12    Material Contract                                      8     37K 
 3: EX-10.3     Material Contract                                    136    506K 
 4: EX-10.5     Material Contract                                     15     74K 
 6: EX-11.1     Statement re: Computation of Earnings Per Share        1      8K 
 7: EX-12.1     Statement re: Computation of Ratios                    1      7K 
 8: EX-13.1     Annual or Quarterly Report to Security Holders        23    120K 
 9: EX-21.1     Subsidiaries of the Registrant                         1      6K 
10: EX-23.1     Consent of Experts or Counsel                          1      7K 
11: EX-24.1     Power of Attorney                                      9     23K 
12: EX-27.1     Financial Data Schedule (Pre-XBRL)                     2±    11K 

10-K   —   Annual Report
Document Table of Contents

10-K
1st Page of 25
TOC
↑Top
Previous
Next
↓Bottom
Just 1st
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-K
 FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF
 THE SECURITIES EXCHANGE ACT OF 1934
(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 31, 1998                                      
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 1-11633

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

MISSOURI                                          48-0674097
(State or other jurisdiction of                          (I.R.S. Employer       
incorporation or organization)                        Identification Number)    

3231 SOUTHEAST 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                
                                            -----      -----

10-K
2nd Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 2nd

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. [ ]                                                                  

The aggregate market value of Registrant's common stock held by non-affiliates  
based on the closing price of $75.50 on April 3, 1998 was $2,817,101,829.       

The number of the Registrant's $.01 par value common stock as of April 3, 1998  
was 37,312,607.                                                                 

 DOCUMENTS INCORPORATED BY REFERENCE

1.   Portions of Registrant's Annual Report to Shareowners for the fiscal       
 year ended January 31, 1998 (the "1997 Annual Report") are incorporated
into Part II, as described herein.                                    

2.   Portions of Registrant's 1998 Proxy Statement for the Annual  Meeting      
  to be held on May 22, 1998, 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 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. 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; 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.

2 

10-K
3rd Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 3rd

Payless ShoeSource, Inc.
 Form 10-K Annual Report
For the fiscal year ended January 31, 1998

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 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                                                    

3 

10-K
4th Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 4th

PART I

ITEM 1.  BUSINESS                                                               

GENERAL                                                                         

Payless ShoeSource, Inc. ("Payless" or the "Company" or the "Registrant") is the
largest family footwear retailer in the United States with more than $2.5       
billion in sales in 1997. The Company sold approximately 210 million pairs of   
shoes in 1997, and served more than 150 million customers.                      

As of January 31, 1998, the Company operated 4,256 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 175 Parade  
of Shoes stores in 14 states. Parade of Shoes offers fashionable women's        
footwear and accessories at moderate prices.                                    

DEVELOPMENTS                                                                    

In March 1997, the Company purchased inventory, property, and trademarks, and   
assumed leases on 186 stores from J. Baker, Inc. which it holds as the Parade of
Shoes division ("Parade"). The purchase price was equal to approximately $28    
million in cash, which it funded from operating cash flows. The acquisition has 
been accounted for as a purchase, and accordingly, the operating results of the 
acquired stores have been included in the Company's consolidated results of     
operations for the period following the purchase.                               

During 1997, the Company opened 158 new Payless ShoeSource stores, including    
stores in Canada, Guam and Saipan, and closed 138 underperforming stores. During
1997, Parade of Shoes opened eight stores, in addition to the 186 stores        
acquired, and closed 19 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 purchased approximately 2.8 million shares).                 

In September 1997, the Board of Directors of the Company authorized the         
repurchase of up to an additional $150 million of outstanding common stock in   
open-market transactions, subject to market                                     

4 

10-K
5th Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 5th

conditions and receipt of a favorable ruling from the Internal Revenue Service  
(IRS). The Company received the favorable IRS ruling in March 1998. The Company 
expects that any purchased 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. 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 The May Department Stores Company. 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 approximately 9,000 pairs of shoes in more
than 600 styles. 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 4,256 Payless locations open at the end of  
1997, 740 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. The stores that include a Payless Kids area are located    
throughout the country and also have wider aisles, children-friendly seating and
an entertainment center for children.                                           

The Company's Payless ShoeSource stores operate in rural, suburban and urban    
environments. The 10 states with the largest concentration of the Company's     
Payless ShoeSource stores are identified below (along with the total number of  
Payless ShoeSource stores):                                                     

5   

10-K
6th Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 6th

                                                                [Download Table]


                                 NO. OF    
                                 PAYLESS   
                                 SHOESOURCE
STATE                            STORES    
-----                            ------    
                                           
California                           647   
Texas                                372   
Florida                              272   
New York                             271   
Pennsylvania                         199   
Illinois                             196   
Ohio                                 183   
Michigan                             154   
New Jersey                           121   
Washington                           106   
Other (including 8                         
   non-U.S. stores)                1,735   
                                   -----   
Total                              4,256   


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. The retail operations organization is        
subdivided into seven divisions headquartered in the cities of Atlanta,         
Baltimore, Chicago, Dallas, Denver, Los Angeles and Toronto. Divisions are      
directed by a vice president, two to four operations directors and a small      
support staff.                                                                  

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.                                                                   

6 

10-K
7th Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 7th

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. The Company operates the 175 Parade  
stores as a separate division supported by Payless sourcing, distribution,      
information systems, real estate, human resource and financial operations.      

EMPLOYEES                                                                       

During 1997, the Company's average number of employees was approximately 25,000,
including approximately 14,000 full-time associates and 11,000 part-time        
associates. Approximately 550 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 16 years of retail industry experience, including an average of eight years  
with the Company.                                                               

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 1997, shoes sold at the Company's Payless    
ShoeSource stores sold at an average retail price of $11.35/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. 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.                                                    

The Company's merchandising effort is led by the President and three general    
merchandise managers with an average of 26 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                                                                    

7 

10-K
8th Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 8th

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 48% of its   
target customers, regardless of household income, purchased at least one pair of
shoes from the Company last year. In 1997, the Company sold more pairs of       
children's shoes than any other U.S. footwear retailer.                         

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 has generally operated 
profitably for many years and believes that it has market share.                

SEASONALITY                                                                     

The retail footwear market is characterized by four high volume seasons: Easter,
early Summer, back-to-school and Christmas. 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 utilizes a network of agents and factories in the United States and 
14 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 80% of the Company's merchandise and 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                                              

8 

10-K
9th Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 9th

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 Topeka, 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.            

On a worldwide basis, approximately two-thirds of the Company's merchandise is  
acquired through a network of third-party agents. Payless ShoeSource            
International, the Company's Taipei, Taiwan office, 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 "most favored nation" ("MFN") status under United States 
tariff laws, which provides the most favorable category of United States import 
duties. China's MFN status is annually reviewed by the United States Congress.  
The Company believes that extension of this status is subject to uncertainty    
every year. The loss of MFN 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.                                           

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            

9 

10-K
10th Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 10th

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.                                         

10

10-K
11th Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 11th

The Company operates a single 765,000 square foot distribution center in Topeka,
Kansas, capable of replenishing in-store product levels by style, color and     
size. This facility, which currently handles 65 percent of the Company's        
distribution center 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 center 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.                                                

INDUSTRY SEGMENTS                                                               

The retail footwear industry can be divided into high, moderate and value-priced
segment. 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
billion/year comprising 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 which appears to be the primary cause of   
the near doubling of this segment's share of the market.                        

The Company considers itself part of the value-priced segment of the footwear   
industry. In 1996, the Company's sales accounted for approximately 7 percent of 
the total sales of the estimated $34 billion United States footwear market; this
percentage has grown consistently over the past four decades.                   

TRADEMARKS                                                                      

The Company owns certain trademarks which it uses in its business and which it  
regards as valuable assets. These 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 100 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     

11

10-K
12th Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 12th

over 30 registered and common law marks under which it markets private label    
merchandise in its Parade stores. 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, local market radio and newspaper 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.          

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.      

DIRECTORS OF THE COMPANY                                                        

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

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

Steven J. Douglass         Chairman of the Board and Chief Executive Officer of 
the Company               
Richard A. Jolosky         President of the Company                             
Daniel Boggan Jr.          Chief Operating Officer of the National              
      Collegiate Athletic Association,
Howard R. Fricke           Chairman of the Board and Chief Executive Officer of 
             The Security Benefit Group of Companies
(life and other insurance)
Thomas A. Hays             Retired, formerly Deputy Chairman of The May         
Department Stores Company 
Mylle B. Mangum            Senior Vice President - Carlson Wagonlit             
Travel                    

12

10-K
13th Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 13th

Michael E. Murphy          Retired, Formerly Vice Chairman and Chief            
                          Administrative Officer of Sara Lee Corporation (food
and consumer products)    
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 and
offices held by them with the Company.                                          

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

Steven J. Douglass         48               Chairman of the Board and Chief     
                         Executive Officer
Richard A. Jolosky         63               President and Director of the       
               Company
Duane L. Cantrell          42               Executive Vice President-Retail     
                  Operations

Bryan P. Collins           44               Senior Vice President and Division  
                                    Director for Parade of Shoes
Stephen Farley             43               Senior Vice President-Marketing     
Gerald F. Kelly, Jr.       50               Senior Vice President-Logistics/    
                            Information Services
Harris Mustafa             44               Senior Vice President-Merchandise   
                    Distribution
Jed L. Norden              47               Senior Vice President-Human         
                 Resources
JoAnn Ogee                 43               Senior Vice President, General      
                                   Merchandise Manager-Women's
Ullrich E. Porzig          52               Senior Vice President and Chief     
                         Financial Officer
William J. Rainey          51               Senior Vice President, General      
                             Counsel and Secretary
Thomas L. Rinehart         43               Senior Vice President and General   
                                 Merchandise Manager-Men's
Gary M. Stone              49               Senior Vice President-Store         
                   Development
Larry M. Strecker          39               Senior Vice President of the        
                                        Company and Managing Director of
                                        Payless ShoeSource International

13

10-K
14th Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 14th

Michael S. Wilkes          44               Senior Vice President and General   
                                      Merchandise Manager-Children's

STEVEN J. DOUGLASS has served as Chairman of the Board, Chief Executive Officer 
and Director of the Company since May, 1996, the date on which the Company's    
shares were distributed in a spin-off by The May Department Stores Company to   
its shareowners. Mr. Douglass has been Chairman and Chief Executive Officer of  
the Company since April, 1995. He joined the Company 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 the Company, Mr. Douglass held    
several positions at divisions of The May Department Stores Company since 1976, 
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 also 
a director of Security Benefit Group of Companies. Mr. Douglass has served as a 
Director of the Company since April 30, 1996.                                   

RICHARD A. JOLOSKY has served as President of the Company since January, 1996.  
He initially joined the Company in September, 1982, serving as Executive Vice   
President-Merchandising (1982-1984) and then as President (1985-1988). Prior to 
rejoining the Company in 1996, Mr. Jolosky was 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. Mr. Jolosky has served as a Director of the Company since April 30,
1996.                                                                           

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

14

10-K
15th Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 15th

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 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.                                                                           

JOANN OGEE has served as Senior Vice President and General Merchandise          
Manager-Women's since May, 1997. Ms. Ogee served as 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 and Chief Financial       
Officer since February, 1996. 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 The May Department Stores Company in       
various capacities including Senior Vice President-Chief Financial Officer of   
Payless ShoeSource from 1986 to 1988 and 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                                       

15

10-K
16th Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 16th

Chief Operating Officer (1992) and by Club International, Inc. as President and 
Chief Executive Officer (1991-1992).                                            

GARY M. STONE has served as Senior Vice President-Store Development since       
February, 1997. Prior to joining the Company, Mr. Stone was employed by Pepsi   
Co., 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 of the Company and        
Managing Director of Payless ShoeSource International since April, 1996. Prior  
to that, he was Vice President of Worldwide Sourcing (1993-1996). Before joining
the 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 was 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
1998, approximately 654 of the Company's leases, including 176 leases which are 
currently 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. Its Payless      
ShoeSource stores average approximately 3,400 square feet; its Parade stores    
average approximately 2,300 square feet. The Company owns and operates a 305,000
square foot central office building and a 765,000 square foot distribution      
facility 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 31, 1998.                                                   

16

10-K
17th Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 17th

 PART II

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

There were approximately 60,000 shareowners of the Company's common stock as of 
January 31, 1998. The information set forth under the headings "Common Stock and
Market Prices" and "Shareowner Information - Common Stock" in the Company's 1997
Annual Report is incorporated herein by reference pursuant to General           
Instruction G(2).                                                               

ITEM 6.  SELECTED FINANCIAL DATA                                                

The information set forth under the heading "Summary of Selected Historical     
Financial Information" of the Company's 1997 Annual Report is incorporated      
herein by reference pursuant to General Instruction G(2).                       

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 1997 Annual Report is incorporated herein by         
reference pursuant to General Instruction G(2).                                 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK             
None.                                                                           

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                            

Consolidated Statement of Earnings for the fiscal years 1995, 1996 and 1997, the
Consolidated Balance Sheet as of January 31, 1998 and February 1, 1997, the     
Consolidated Statement of Cash Flows for fiscal years 1995, 1996, 1997 and the  
Consolidated Statement of Shareowners' Equity, the Financial Statements, "Notes 
to Consolidated Financial Statements" and "Report of Independent Public         
Accountants" of the Company's 1997 Annual Report to Shareowners are incorporated
herein by reference pursuant to General Instruction G(2).                       

17

10-K
18th Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 18th

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   
22, 1998 under the captions "Election of Directors - Directors and Nominees for 
Directors" and "Other Matters - Section 16 Filing" is incorporated herein by    
reference pursuant to General Instruction G(3).                                 

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 22, 1998 under the
captions "Election of Directors - The Payless Board and Committees of the       
Payless Board -- Compensation of Directors," "Compensation Committee Interlocks 
and Insider Participation," "Compensation and Nominating Committee Report --    
Bonus Opportunities (discussion in third and fourth paragraphs relating to long 
term awards) 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 22, 1998 under the
caption "Election of Directors" is incorporated herein by reference pursuant to 
General Instruction G(3).                                                       

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                         

None.                                                                           

18

10-K
19th Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 19th

 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 1997 Annual Report to Shareowners:              

                                                                [Download Table]


                                                      Page in    
                                                    Annual Report
                                                    -------------
                                                                 
Financial Statements-                                            
 Consolidated Statement of Earnings for                          
    the three fiscal years ended                                 
    January 31, 1998                                    16       
 Consolidated Statement of Shareowners'                          
     Equity for the three fiscal years                           
     ended January 31, 1998                             16       
 Consolidated Balance Sheet -                                    
     January 31, 1998 and February 1, 1997              17       
 Consolidated Statement of Cash Flows                            
     for the three fiscal years ended                            
     January 31, 1998                                   18       

 Notes to Consolidated Financial Statements            19-24     
 Report of Independent Public Accountants               25       

(2)   Exhibits.                                                       

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

2.1            Distribution Agreement, dated as of April 2, 1996, between The   
  May Department Stores Company and the Registrant.(1)

3.1            Amended and Restated Articles of Incorporation of the            
Registrant.(2)                                    

3.2            Amended and Restated Bylaws of the Registrant.*                  

4.1            Rights Agreement, dated as of April 2, 1996, between the         
      Registrant and The Bank of New York, as Rights Agent.(1)

10.1           Tax Sharing Agreement, dated April 2, 1996, between The May      
Department Stores Company and the Registrant.(3)  

19

10-K
20th Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 20th

10.2           Sublease, dated as of April 2, 1996, between The May Department  
Stores Company and the Registrant.(1)             

10.3           Multi-Currency Credit Agreement, among the Registrant, several   
           financial institutions and Bank of America National Trust and
           Savings Association, and Amendment No. 1 of December 16, 1996
and Amendment No. 2 of November 10, 1997.*        

10.4           Administrative Services Agreement, dated as of April 2, 1996,    
              between The May Department Stores Company and the Registrant.(1)

10.5           1996 Stock Incentive Plan, Payless ShoeSource, Inc. as amended   
as of March 19, 1998.*                            

10.6           Spin-Off Stock Plan, Payless ShoeSource, Inc.(1)                 

10.7           Spin-Off Cash Plan, Payless ShoeSource, Inc.(1)                  

10.8           Restricted Stock Plan for Non-Management Directors, Payless      
 ShoeSource, Inc. as amended as of July 17, 1997.(4)

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.(1)                                       

10.10          Supplementary Retirement Plan of Payless ShoeSource, Inc.(1)     

10.11          Profit Sharing Plan of Payless ShoeSource, Inc.(5)               

10.12          Deferred Compensation Plan of Payless ShoeSource, Inc., as       
amended as of March 19, 1998.*                    

10.13          Executive Incentive Compensation Plan for Payless Executives of  
Payless ShoeSource, Inc.(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.1 The agreement
             with Mr. Douglass also provides for a "tax gross-up" payment to
ensure that the above-mentioned payments are not  

20

10-K
21st Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 21st

              subject to net reduction due to imposition of excise taxes which
              are payable under Section 4999 of the Internal Revenue Code. The
          agreement with Mr. Jolosky provides for 50% of such payment.

10.15          Form of Indemnification Agreement.(1)                            

10.16          Deferred Compensation Plan for  Non-Management Directors of      
Payless ShoeSource, Inc.(6)                       

10.17          Executive Incentive Compensation Plan for Business Unit          
Management of Payless ShoeSource, Inc.(7)         

10.18          The Stock Appreciation and Phantom Stock Unit Plan of Payless    
          ShoeSource, Inc. and its Subsidiaries for Payless ShoeSource
International Employees.(8)                       

11.1           Computation of Net Earnings Per Share.*                          

12.1           Computation of Ratio of Earnings to Fixed Charges.*              

13.1           1997 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.*                                

24.1           Power of Attorney*                                               

27.1           Financial Data Schedule*                                         

* Filed herewith                                                                
1)   Incorporated by reference from the correspondingly numbered Exhibit to 
    Registrant's Registration Statement on Form 10 Dated February 23, 1996
as amended through April 15, 1996.                                
2)   Incorporated by reference from Exhibit 3.1 of the Registrant's Form    
10-Q (file Number 1-11633) for the quarter ended May 4, 1996.     
3)   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.     
4)   Incorporated by reference from Exhibit 10.8 of the Registrant's Form   
10-Q (file Number 1-11633) for the quarter ended November 1, 1997.
5)   Incorporated by reference from Exhibit 10.11 of Registrant's Form      
10-Q (File Number 1-11633) for the quarter ended February 1, 1997.
6)   Incorporated by reference from Exhibit 10.16 of the Registrant's Form  
10-Q (file Number 1-11633) for the quarter ended November 1, 1997.
7)   Incorporated by reference from Exhibit 10.17 of Registrant's Form      
10-Q (File Number 1-11633) for the quarter ended November 1, 1997.
8)   Incorporated by reference from Exhibit 10.18 of the Registrant's Form  
10-Q (file Number 1-11633) for the quarter ended November 1, 1997.

(b)    Reports on Form 8-K:                                                     

21

10-K
22nd Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 22nd

The Company will furnish to shareowners upon request, and without charge, a copy
of the 1997 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.                                                                

On March 9, 1998, the Company filed a Current Report on Form 8-K, reporting on  
Item 5, Other Events and Item 7, Exhibits. In the Report, the Company provided  
its press release on March 2, 1998, which announced that the Company had        
received a tax ruling from the Internal Revenue Service enabling it to proceed  
with its planned repurchase of $150 million worth of the common stock of the    
Company.                                                                        

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.                                      

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:                          By: /s/ Ullrich E. Porzig                        
---------------              -------------------------------------  
                 Ullrich E. Porzig
                         Senior Vice President and
                       Chief Financial Officer

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

Principal Executive Officer:            

Date:                          By: /s/ Steven J. Douglass                       
---------------              -------------------------------------  
                  Steven J. Douglass
            Chairman and
                       Chief Executive Officer

22

10-K
23rd Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 23rd

 Principal Financial and
 Accounting Officer:

Date:                          By: /s/ Ullrich E. Porzig                        
---------------              -------------------------------------  
                 Ullrich E. Porzig
                         Senior Vice President and
                       Chief Financial Officer

Directors:

Date:                          By: /s/ Steven J. Douglass*                      
---------------              -------------------------------------  
                  Steven J. Douglass
            Chairman and
                       Chief Executive Officer

Date:                          By: /s/ Richard A. Jolosky*                      
---------------              -------------------------------------  
                  Richard A. Jolosky
                      President and Director

Date:                          By: /s/ Daniel Boggan Jr.*                       
---------------              -------------------------------------  
                 Daniel Boggan Jr.
        Director

Date:                          By: /s/ Howard R. Fricke*                        
---------------              -------------------------------------  
                Howard R. Fricke
        Director

Date:                          By: /s/ Thomas A. Hays*                          
---------------              -------------------------------------  
              Thomas A. Hays
        Director

Date:                          By: /s/ Mylle B. Mangum*                         
---------------              -------------------------------------  
               Mylle B. Mangum
        Director

Date:                          By: /s/ Michael E. Murphy*                       
---------------              -------------------------------------  
                 Michael E. Murphy
        Director

Date:                          By: /s/ Robert L. Stark*                         
---------------              -------------------------------------  
               Robert L. Stark
        Director

*Executed by William J. Rainey, attorney-in-fact, on behalf of the indicated    
Director pursuant to Power of Attorney dated March 19, 1998, with Thomas A. Hays
granting Power of Attorney dated March 24, 1998.                                

23

10-K
24th Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 24th

 EXHIBIT INDEX

Exhibit                                                                       
Number                            Description                                 
------                            -----------                                 

2.1   Distribution Agreement                                              

3.1   Amended and Restated Articles of Incorporation of                   
the Company                                                   

3.2   Amended and Restated Bylaws of the Company                          

4.1   Rights Agreement                                                    

10.1   Tax Sharing Agreement                                                

10.2   Sublease                                                             

10.3   Multi-Currency Credit Agreement                                      

10.4   Administrative Services Agreement                                    

10.5   1996 Stock Incentive Plan                                            

10.6   Spin-Off Stock Plan                                                  

10.7   Spin-Off Cash Plan                                                   

10.8   Restricted Stock Plan for Non-Management Directors                   

10.9   Employment Agreement                                                 

10.10  Supplementary Retirement Plan                                        

10.11  Profit Sharing Plan                                                  

10.12  Deferred Compensation Plan of Payless ShoeSource, Inc.               

10.13  Executive Incentive Compensation Plan for                            
Payless Executives                                            

10.14  Management Severance Agreement                                       

10.15  Indemnification Agreement                                            

10.16  Deferred Compensation Plan for Non-Management                        

24

10-K
Last Page of 25
TOC
1st
Previous
Next
↓Bottom
Just 25th

Directors of Payless ShoeSource, Inc.                         

10.17  Executive Compensation Plan for Business Unit                        
Management                                                    

10.18  Stock Appreciation and Phantom Stock Unit Plan                       

11.1   Computation of Net Earnings Per Share                                

12.1   Computation of Ratio of Earning to Fixed Charges                     

13.1   1997 Annual Report to Shareowners                                    

21.1   Subsidiaries of Registrant                                           

23.1   Consents of Arthur Andersen, LLP                                     

24.1   Power of Attorney                                                    

27.1   Financial Data Schedule                                              

25

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K’ Filing		Date		First		Last			Other Filings
		5/31/01		20
		5/22/98		2		18
Filed on:		4/21/98
		4/3/98		2
		3/24/98		23
		3/19/98		20		23
		3/9/98		22					8-K
		3/2/98		22					8-K
For Period End:		1/31/98		1		19
		11/10/97		20
		11/1/97		21					10-Q
		7/17/97		20
		2/1/97		17		21			10-K
		12/16/96		20
		5/4/96		5		21			10-Q
		4/30/96		14
		4/15/96		21					10-12B/A
		4/2/96		19		20
		2/23/96		21					10-12B
									List all Filings