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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
February 24, 2005
Date of Report (Date of earliest event reported)
PAYLESS SHOESOURCE, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation)
1-14770 43-1813160
(Commission File Number) (IRS Employer Identification No.)
3231 Southeast Sixth Avenue
Topeka, Kansas 66607-2207
(Address of Principal Executive Office) (Zip Code)
(785) 233-5171
(Registrant's Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a12 under the Exchange
Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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Item 2.02 Results of Operations and Financial Condition; and
Item 4.02 Non-Reliance on Previously Issued Financial Statements or a
Related Audit Report or Completed Interim Review; and
Item 7.01 Regulation FD Disclosure
Following a comprehensive review of its accounting treatment for leases and
lease-related items, the Company has decided to correct its accounting practices
in this area. In addition, an error was discovered relating to the Company's
accounting for deferred income taxes and the Company has also decided to correct
this error. As a result, on February 24, 2005, the Company's Audit and Finance
Committee, concluded to restate the Company's financial statements for the two
year period ended January 31, 2004, for the first three quarters of fiscal 2004
and for the four quarters of 2003.
Like numerous other retailers and many restaurant chains, the Company has
undertaken a comprehensive review of its accounting treatment for leases and
lease-related items. The Company, in consultation with its independent
registered public accounting firm, Deloitte & Touche LLP, decided to change its
accounting practices in this area, and to restate its historical financial
statements. The impact of the lease accounting corrections on net earnings does
not exceed $1 million in any of fiscal years 2004, 2003 or 2002.
Historically, when accounting for leases with renewal options, the Company had
recorded rent expense on a straight-line basis over the initial non-cancelable
lease term, with the term commencing when the store opened for business. The
Company depreciated leasehold improvements on those properties over a period of
typically 10 years that, in certain cases, would have included a portion of the
renewal option periods. The Company has corrected its accounting to accelerate
the recognition of rent expense on leases by recording lease expense from the
time at which the Company takes possession of the property, rather than at the
time the store opens for business. In addition, the Company will calculate rent
expense on a straight line basis to include certain option periods up to a
maximum of ten years, where failure to exercise such options would result in an
economic penalty. When an economic penalty does not exist, the leasehold
improvements will be depreciated over a period not to exceed the existing
non-cancelable lease term. The cumulative effect of the lease accounting
corrections through fiscal year 2004 would be an increase in expense of
approximately $12 million, pre-tax. The impact of the lease accounting
corrections on net earnings does not exceed $1 million in any of fiscal years
2004, 2003 or 2002.
Also, the Company had followed the practice of netting landlord-provided tenant
improvement allowances against property and equipment. The Company will correct
the manner in which it accounts for tenant improvement allowances to record the
allowances as a deferred credit. There was no impact to earnings for this
correction. Further, the annual amount of tenant improvement allowances received
each year will be shown within the operating activities on the Statement of Cash
Flows rather than a reduction of capital expenditures.
In addition, an error was discovered relating to the Company's accounting for
deferred income taxes. The Company estimates that, beginning in a period prior
to 1998, deferred tax assets had been understated by approximately $4.5 million.
In connection with the restatement, the Company will record a correction that
increases deferred tax assets by approximately $4.5 million, and will have no
impact on earnings (loss) in fiscal years 2004, 2003 or 2002.
Although the Company does not believe that these errors resulted in a material
misstatement of the Company's consolidated financial statements for any annual
or interim periods previously reported, the effects of correcting the error in
the fourth quarter 2004 would have had a material effect on the Company's
results for the quarter and for fiscal year 2004. The resulting adjustments will
not affect the Company's historical or future cash flows, the timing of payments
under the related leases, or compliance with any debt covenants. Also, the
corrections will not affect the company's financial strength or business
prospects for 2005 and beyond.
The Company will amend the appropriate filings with the Securities and Exchange
Commission to include the restated financial statements. As a result of the
restatement, the financial statements and independent registered public
accountant's report contained in the Company's prior filings with the SEC
referenced above should no longer be relied upon. The Company's Audit and
Finance Committee discussed the matters disclosed in this Current Report on Form
8-K pursuant to this Item 4.02 (a) with the Company's independent registered
public accounting firm.
Item 9.01 Financial Statements and Exhibits
(c) Exhibits
99.1 Press Release, dated March 1, 2005.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
PAYLESS SHOESOURCE, INC.
Date: March 1, 2005 By: /s/ Ullrich E. Porzig
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Ullrich E. Porzig
Senior Vice President,
Chief Financial Officer and Treasurer
EXHIBIT INDEX
Exhibit No. Exhibit
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99.1 Press Release, dated March 1, 2005.