Mail Stop 3561
January 23, 2006
Mr. Ullrich E. Porzig
Senior Vice President - Chief Financial Officer and Treasurer
Payless Shoesource, Inc.
3231 Southeast Sixth Avenue
Topeka, Kansas 66607-2207
Re: Payless Shoesource, Inc.
Form 10-K for Fiscal Year Ended January 29, 2005
Filed April 12, 2005
Forms 10-Q for Fiscal Quarters Ended
April 30, 2005, July 30, 2005, and October 29, 2005
File No. 1-14770
Dear Mr. Porzig:
We have reviewed your filings and have the following
comments.
Where indicated, we think you should revise your documents in
response to these comments. If you disagree, we will consider
your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may or may not raise additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone number
listed
at the end of this letter.
Form 10-K for Fiscal Year Ended January 29, 2005
Consolidated Statements of Cash Flows, page 35
1. We note that you disclose net cash flows used in discontinued
operations as a separate section between operating and investing
cash
flows. Under the provisions of SFAS 95, all cash flows must be
reported as an operating, investing or financing activity.
Accordingly, please revise to:
* Combine cash flows from discontinued operations with cash flows
from continuing operations within each category;
* Identify cash flows from discontinued operations within each
category; or
* Identify operating cash flows from discontinued operations
within
the operating category and combine investing and financing cash
flows
from discontinued operations with cash flows from continuing
operations within each of those categories.
Refer to paragraph 26 and footnote 10 of SFAS 95.
Note 4 - Discontinued Operations, page 44
2. With reference to the guidance provided in paragraph 42 of SFAS
144, please explain how you concluded the results of operations of
the 26 closed Payless stores as well as the operations of the 181
closed Parade stores should be reported in discontinued
operations.
We are particularly interested to understand your consideration of
whether significant cash flows related to the closed stores will
continue to be generated by your ongoing operations through a
migration of customers to your other stores. In this connection,
it
would be helpful if you could provide us with the specific
locations
of the closed stores along with the approximate distance to the
closest company owned store still operating. If you believe that
the
products and customers of your Parade stores are significantly
different such that a migration to your remaining Payless stores
is
not expected, please advise us in detail as to the basis for your
position. Please refer to Example 15 in Appendix A of SFAS 144
and
paragraphs 4 through 8 of EITF 03-13.
Note 8 - Income Taxes, page 49
3. We understand that, as a general rule, your effective tax rate
each year will be affected by the tax impact of foreign operations
conducted in jurisdictions with tax rates lower than the US
statutory
rate, but it is unclear why the impact on your effective rate
would
fluctuate so dramatically between periods. In this regard, we
note
that the impact in fiscal 2003 was particularly significant.
Please
explain to us what caused the fluctuations in this reconciling
item.
Further, please revise MD&A to explain in greater detail the
reason
for this and other significant changes in your effective rate each
year.
Item 9A - Controls and Procedures, page 67
4. We note your principal executive and financial officers
concluded
that your disclosure controls and procedures were effective, "in
alerting them in a timely manner to material information required
to
be disclosed in [your] periodic reports filed with the SEC."
Please
revise future filings to also state, if true, whether the same
officers concluded the controls and procedures were effective in
"ensur[ing] that information required to be disclosed by an issuer
in
the reports that it files or submits under the Act is accumulated
and
communicated to the issuer`s management, including its principal
executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions
regarding
required disclosure." See Exchange Act Rule 13a-15(e).
Additionally, please confirm to us that your conclusion regarding
effectiveness would not change had such statements been included
in
this filing.
5. In future filings, please revise your disclosure regarding
changes
in internal control over financial reporting to identify any
changes,
rather than only significant changes, in your internal control
over
financial reporting that have materially affected, or are
reasonably
likely to materially affect, your internal control over financial
reporting. See Item 308(c) of Regulation S-K. Additionally,
given
this change, please confirm to us that there were no changes in
internal control over financial reporting during the fourth fiscal
quarter that materially affected, or are reasonably likely to
materially affect, your internal control over financial reporting.
Item 15 - Exhibits and Financial Statement Schedules, page 69
Schedule II - Valuation and Qualifying Accounts, page 69
6. Please revise to include your allowance for sales returns in
your
table of valuation and qualifying accounts. Refer to Rules 5-
04(c)
and 12-09 of Regulation S-X.
Form 10-Q for Fiscal Quarter Ended October 29, 2005
Item 4 - Controls and Procedures, page 30
7. In light of the restatements disclosed on pages 11 and 32,
please
revise your disclosures in Item 4 to discuss why you did not
previously identify the errors and the steps you have since taken
to
remediate the problem with your controls and procedures that led
to
the misstatement. Additionally, please explain to us why the
discovery of these errors did not affect your conclusions
regarding
the effectiveness of internal control over financial reporting as
of
January 29, 2005 and the effectiveness of disclosure controls and
procedures for all affected periods. See SEC Release No. 33-8238,
Management`s Reports On Internal Control Over Financial Reporting
and
Certification of Disclosure in Exchange Act Periodic Reports.
Item 5 - Other Information, page 32
8. Please tell us in detail how you determined not to amend your
Form
10-K for the year ended January 29, 2005 or your subsequent Forms
10-
Q for the errors in your segment disclosures. As it appears that
the
errors had a quantitatively material impact on the reported
segment
profit measure, ensure you provide detailed support for your
apparent
belief that qualitative considerations, in this case, should
overcome
the quantitative materiality of the errors. In this regard, it
seems
to us that a reasonable person relying on your financial
statements
may have been influenced by the inclusion or correction of the
erroneous segment disclosures. In particular, we note that the
previously reported amounts indicated that your business was
growing
most rapidly in your International segment, and that you are
considerably more profitable in this segment than in your Domestic
segment. However, the revised/corrected disclosures would
indicate
that profitability in your International segment is not
significantly
different than in your Domestic segment. Please refer to SAB
Topic
1:M for guidance.
* * * *
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
the amendment to expedite our review. Please furnish a cover
letter
that keys your responses to our comments and provides any
requested
information. Detailed cover letters greatly facilitate our
review.
Please understand that we may have additional comments after
reviewing your amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Staff Accountant Sarah Goldberg at (202)
551-
3340, or in her absence, Robyn Manuel at (202) 551-3823 if you
have
questions regarding comments on the financial statements and
related
matters. Please contact me at (202) 551-3843 with any other
questions.
Sincerely,
George F. Ohsiek, Jr.
Branch Chief
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Mr. Porzig
Payless Shoesource, Inc.
January 23, 2006
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