Pier 1 2007 Annual Report Download - page 25

$6.8 million because of two officers retiring in fiscal 2007, $4.5 million expense for the relocation of Pier 1
Kids’ distribution facilities and integration of its headquarters, and compensation expense recognized on stock
options of $4.5 million.
2007 2006 Increase
Store-level asset impairments .............................. $32,300 $5,840 $26,460
Settlement and curtailment charges, retirement plan ............. 6,769 1,008 5,761
Litigation settlement and related legal fees .................... 4,942 — 4,942
Stock option compensation expense ......................... 4,494 — 4,494
Pier 1 Kids relocation and integration ....................... 4,533 — 4,533
Goodwill impairment for Pier 1 Kids ........................ 4,070 — 4,070
$57,108 $6,848 $50,260
Depreciation and amortization for fiscal 2007 was $51.2 million, representing a decrease of approximately
$5.0 million from last year’s depreciation and amortization expense of $56.2 million. This decrease was
primarily the result of the impairment of certain store-level assets, a decrease in depreciation expense related
to the 64 stores closed in the United States and Canada since the end of fiscal 2006 and an overall reduction
in capital expenditures. These decreases were partially offset by increases in depreciation expense related to
new store openings in the United States and Canada, and software applications launched subsequent to the end
of fiscal 2006.
In fiscal 2007, the Company had an operating loss of $226.2 million, $183.4 million worse than the prior
years’ operating loss of $42.8 million.
During the year, the Company recorded a charge of $24.7 million to establish a valuation allowance
related to deferred tax assets from prior years. In evaluating the likelihood that sufficient earnings would be
available in the near future to realize the deferred tax assets, the Company considered cumulative losses over
three years including the current year. The Company concluded that a valuation allowance was necessary
based upon this evaluation and the guidance provided in SFAS No. 109 “Accounting for Income Taxes”.
In addition, net deferred tax assets arising from current year losses in excess of the amount expected to
be carried back to offset taxable income in a prior year were fully reserved through a valuation allowance
recorded during the year. As these deferred tax assets were established and fully reserved during fiscal 2007,
there was no net impact to the provision of income taxes. There was no tax benefit recorded on approximately
$150.0 million of the current year’s losses. At the end of fiscal 2007, the net deferred tax assets and the
offsetting valuation allowance totaled $86.3 million.
Net Loss
Net loss from continuing operations in fiscal 2007 was $227.2 million or $2.59 per share, a decrease of
$199.8 million as compared to fiscal 2006’s net loss from continuing operations of $27.5 million, or $0.32 per
share.
Net loss from discontinued operations was $0.4 million or $0.01 per share in fiscal 2007 and $12.3 million
or $0.14 per share in fiscal 2006. See Note 2 of the Notes to Consolidated Financial Statements for additional
information regarding discontinued operations.
Total net loss in fiscal 2007 was $227.6 million, or $2.60 per share, a decrease in earnings of
$187.8 million as compared to fiscal 2006’s net loss of $39.8 million, or $0.46 per share.
FISCAL YEARS ENDED FEBRUARY 25, 2006 AND FEBRUARY 26, 2005
Net Sales
Net sales consisted almost entirely of sales to retail customers, net of discounts and returns, but also
included delivery revenues and wholesale sales and royalties received from franchise stores and Sears Roebuck
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