Pier 1 2016 Annual Report Download - page 32

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Nonoperating Income and Expense
Nonoperating expense for fiscal 2015 was $6.9 million, compared to $0.9 million in fiscal 2014. This increase was primarily the
result of interest on borrowings under the Term Loan Facility and related expenses of approximately $8.4 million, partially offset by
gains on the settlement of life insurance policies.
Income Taxes
The Company had an effective tax rate of 37.6% and recorded income tax expense of $45.2 million in fiscal 2015 compared to
an effective tax rate of 38.4% and income tax expense of $67.1 million in fiscal 2014. The decrease in the effective tax rate was
primarily due to certain non-recurring favorable permanent differences and other discrete items occurring during fiscal 2015. The
decrease in income tax expense compared to fiscal 2014 was primarily due to the Company’s lower income before income
taxes in fiscal 2015.
Net Income and EBITDA
Net income in fiscal 2015 was $75.2 million, or $0.82 per diluted share, compared to $107.5 million, or $1.01 per diluted share,
for fiscal 2014. In fiscal 2015, non-GAAP adjusted net income excluding the after-tax effect of retirement related expenses for the
Company’s former chief financial officer was $77.2 million, or $0.84 per diluted share. EBITDA for fiscal 2015 was $176.3 million
compared to $215.4 million in fiscal 2014. See “Reconciliation of Non-GAAP Financial Measures” below.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). This Annual
Report on Form 10-K references non-GAAP financial measures including merchandise margin, EBITDA, adjusted net income,
adjusted diluted earnings per share and contribution from operations.
The Company believes the non-GAAP financial measures referenced in this Annual Report on Form 10-K allow management and
investors to understand and compare results in a more consistent manner for the fiscal years ended February 27,
2016, February 28, 2015 and March 1, 2014. Non-GAAP financial measures should be considered supplemental and not a
substitute for the Company’s results reported in accordance with GAAP for the periods presented.
In fiscal 2015, net income included retirement related expenses for the Company’s former chief financial officer. A reconciliation
of GAAP net income and diluted earnings per share to non-GAAP adjusted net income and adjusted diluted earnings per share is
shown below for the fiscal year ended February 28, 2015 (in millions except per share amounts).
February 28, 2015
Net income (GAAP) $75.2
Add back: Retirement related expenses, net of tax (non-GAAP) 2.0
Adjusted net income (non-GAAP) $77.2
Diluted earnings per share (GAAP) $0.82
Add back: Retirement related expenses, net of tax (non-GAAP) 0.02
Adjusted diluted earnings per share (non-GAAP) $0.84
26 PIER 1 IMPORTS, INC. 2016 Form 10-K