Mail Stop 3561
September 9,
2005
Mr. Kenneth E. Wolf
Chief Financial Officer
Phoenix Footwear Group, Inc.
5759 Fleet Street, Suite 220
Carlsbad, California 92008
RE: Phoenix Footwear Group, Inc.
Form 10-K for Fiscal Year Ended January 1, 2005
Filed April 1, 2005
Forms 10-Q for Fiscal Quarters Ended April 2 and July 2, 2005
File No. 1-31309
Dear Mr. Wolf:
We have reviewed your filings and have the following
comments.
We have limited our review to only your financial statements and
related disclosures and do not intend to expand our review to
other
portions of your documents. Where indicated, we think you should
revise your disclosures 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 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
filings.
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 numbers
listed
at the end of this letter.
Form 10-K for Fiscal Year Ended January 1, 2005
Item 7. Management`s Discussion and Analysis of Financial
Condition..., page 25
Contractual Obligations, page 35
1. Please revise your tabular disclosure of contractual
obligations
to include estimated interest payments on your debt. A footnote
to
the table should provide appropriate disclosure regarding how you
estimated the interest payments. Since the table is aimed at
increasing transparency of cash flow, we believe these payments
should be included in the table. If you choose not to include
these
payments, a footnote to the table should clearly identify the
excluded item and provide any additional information that is
material
to an understanding of your cash requirements. See Section IV.A
and
footnote 46 to the Commission`s MD&A Guidance issued December 19,
2003 available at www.sec.gov.
Schedule II Consolidated Valuation and Qualifying Accounts, page
44
2. Please revise to include your allowance for sales returns, if
material. Refer to Rules 5-04 and 12-09 of Regulation S-X.
Notes to Consolidated Financial Statements
Note 1. Description of Business and Summary of Significant
Accounting Policies, page 53
General
3. Please revise to disclose the types of expenses that you
include
in the cost of goods sold line item and the types of expenses that
you include in the selling, general and administrative expenses
line
item. In doing so, please disclose specifically whether you
include
inbound freight charges, purchasing and receiving costs,
inspection
costs, internal transfer costs, and the other costs of your
distribution network in cost of goods sold. If you currently
exclude
a significant portion of these costs from cost of goods sold,
please
provide cautionary disclosure in MD&A that your gross margins may
not
be comparable to others, since some entities include the costs
related to their distribution network in cost of goods sold and
others like you exclude all or a portion of them from gross
margin,
including them instead in a line item such as selling, general and
administrative expenses. To the extent it would be material to an
investor`s ability to compare your operating results to others in
your industry, you should quantify in MD&A the amount of these
costs
excluded from cost of goods sold.
4. We understand, based on your disclosure on page 9 that you
participate in cooperative advertising programs with your retail
customers. Please revise to disclose the nature and extent of
each
arrangement under which you make payments to resellers. Please
disclose your accounting policy for each type of arrangement,
including the statement of operations line item in which each type
of
arrangement is included. For each expense line item that includes
these types of arrangements, please disclose the related amounts
included in that line item. For each type of arrangement treated
as
an expense rather than as a reduction of revenues, please tell us
how
this type of arrangement meets the requirements in EITF 01-9.
Please
also discuss in MD&A any significant estimates resulting from
these
arrangements.
Revenue Recognition, page 55
5. Please revise your disclosure to clarify the timing of revenue
recognition for bill and hold arrangements. To the extent that
revenues for bill and hold arrangements are recognized prior to
delivery to the customer, please tell us in detail how these
arrangements meet the criteria set forth in paragraph 3.a. of SAB
Topic 13:A for recording revenue when delivery has not yet
occurred.
We may have further comment.
Note 7. Acquisitions, page 60
6. Please tell us in detail how you determined that your acquired
customer relationship with the US Department of Defense (the DoD)
represents an indefinite-lived intangible asset. Ensure your
response addresses all of the factors outlined in paragraph 11 of
SFAS 142 which might limit the useful life of such a relationship.
We are particularly interested to understand why you believe that
neither competitive factors nor the fact that the DoD may decide
to
change suppliers limits the useful life of this relationship. In
connection with responding to this comment, also tell us in detail
how you determine the fair value of this indefinite lived
intangible
for purposes of your annual impairment test.
7. Similar to the preceding comment, please tell us in detail how
you
determined each of the trademarks and tradenames acquired during
the
fiscal years presented have indefinite useful lives, including
your
consideration of each of the factors outlined in paragraph 11 of
SFAS
142. In this connection, it appears that associated with every
acquisition over the last several years, you are recording
significant amounts of indefinite-lived trademarks and tradenames.
Please assure us that acquired trademarks and tradenames are not
automatically classified as indefinite-lived, but rather, analyses
of
product life cycles, market, and competitive factors are evaluated
for each specific set of facts and circumstances.
8. Please tell us and disclose how you account for the contingent
consideration arrangements associated with your purchase business
combinations. Ensure the response and disclosure are clear in
terms
of why, in certain circumstances, you record a contingent
liability
in the original purchase price allocation which reflects the
potential payments the company may be required to make, whereas in
other circumstances, the contingent consideration is not recorded
until the contingency is resolved. Also ensure it is clear how
you
measure the associated contingent liability in the original
purchase
price allocation, if applicable, and whether the contingent
consideration issued or issuable is treated as an additional cost
of
the acquired entity. Refer for guidance to paragraphs 25 through
34
of SFAS 141.
Note 13. Segment Information, page 68
9. Please tell us in detail how you determined your reportable
segments under SFAS 131. In particular, tell us which components
of
your company represent operating segments pursuant to paragraphs
10-
15 of SFAS 131. Based on your disclosures under Item 1. Business,
the discussion of your results of operations by brand "unit" in
your
earnings releases on Form 8-K, and your disclosure on page 3 that
the
company is managed by brands, it appears to us that each of your
brand units represents a separate operating segment. If you
disagree, please ensure we understand how you determined
otherwise.
Also tell us your basis for aggregating any of the
identified
operating segments into reportable segments, if applicable.
Ensure
your response addresses each of the aggregation criteria in
paragraph
17 of SFAS 131, including the similarity of economic
characteristics.
With respect to economic similarity, please provide us the
revenues
and gross profits by operating segment for each of the last five
years. To the extent you only recently acquired certain of the
operating segments, explain how you are able to conclude that the
acquired operating segments will have similar long-term financial
performance as other existing operating segments.
Notwithstanding the preceding, please disclose the
information
required by paragraph 26 of SFAS 131. Also revise footnote (1) to
the table to separately identify and describe each significant
reconciling item between total operating income of the reportable
segments and consolidated operating income.
Note 15. Restatement, page 70
10. Please clarify for us whether the restatement relates
exclusively
to your accounting for intangibles purchased during fiscal 2004,
or
whether the restatement also relates to acquisitions prior to
2004.
To the extent the restatement relates to acquisitions prior to
fiscal
2004, please help us understand why the restatement has only a
balance sheet and no statements of operations impact. In
particular,
we are unclear as to why the amortization of the intangibles and
related deferred tax effects had no impact on your statements of
operations. Please advise and also clarify your disclosure
accordingly, as applicable.
Form 10-Q for Fiscal Quarter Ended July 2, 2005
Management`s Discussion and Analysis of Financial Condition...,
page
13
Results of Operations, page 15
Fiscal Six Month Period Ended July 2, 2005 Compared to Fiscal Six
Month Period Ended June 26, 2004, page 17
Footwear and Apparel Business, page 19
11. We note your disclosure that selling, general and
administrative
expenses for this segment increased in part due to operating costs
associated with the Altama brand acquired in fiscal 2004. Please
tell us and revise your disclosure to clarify why the costs
associated with the Altama acquisition affected the footwear and
apparel segment, given that this brand is part of the military
boot
segment.
As appropriate, please amend your filings and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. Please furnish a response letter with your
amendment that keys your responses to our comments and provides
any
requested information. Detailed cover letters greatly facilitate
our
review. Please file your response letter as a correspondence file
on
EDGAR. 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 filings to be certain that the
filings include 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 filings or
in
response to our comments on your filings.
You may contact Staff Accountant Ta Tanisha Henderson at
(202)
551-3322, 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. Kenneth E. Wolf
Phoenix Footwear Group, Inc.
September 9, 2005
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