Pier 1 2007 Annual Report Download - page 28

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adjustments decreased $6.6 million or 40 basis points as a percentage of sales from fiscal 2005, primarily as a
result of a cumulative correction of $6.3 million recognized in fiscal 2005 related to pre-opening store rental
expense for leases entered into in years prior to fiscal 2005. The Company’s lease termination expense
increased $1.8 million or 10 basis points as a percentage of sales, primarily as a result of closing stores in
fiscal 2006 with longer remaining lease terms than those of the stores closed in fiscal 2005. Due to the
Company’s thorough re-evaluation of individual store performance in fiscal 2006, more stores were closed
prior to the lease expiration in an effort to improve the Company’s overall real estate portfolio. Net proprietary
credit card income increased $4.0 million to $7.2 million, representing a 20 basis point decrease in relatively
fixed selling, general and administrative expenses as a percentage of sales. This increase in income was
primarily the result of increased finance charge income, a decrease in processing charges and a decrease in
bad debt expense. The increase in finance charge income was primarily a result of a modest increase in late
payment fees and a reduction of the number of days in the grace period before interest charges are imposed.
Non-store payroll increased $8.9 million or 60 basis points as a percentage of sales for the year primarily as a
result of a $4.6 million increase in officers’ retirement expense as well as planned payroll increases related to
annual merit increases and long-term incentives. An additional $0.7 million of severance costs related to field
and home-office restructurings also contributed to the increase in non-store payroll costs. All other relatively
fixed selling, general and administrative expenses decreased $0.4 million and increased 10 basis points as a
percentage of sales.
Depreciation and amortization for fiscal 2006 was $56.2 million, representing an increase of approxi-
mately $0.5 million over fiscal 2005’s depreciation and amortization expense of $55.8 million. This increase
was primarily the result of an increase in net new store openings, depreciation on software applications that
were launched subsequent to the end of fiscal 2005 and a full year of depreciation on the Company’s corporate
headquarters in fiscal 2006 versus a partial year in fiscal 2005. These increases were partially offset by a slight
reduction in depreciation expense for certain assets that were fully depreciated during fiscal 2006.
In fiscal 2006, the Company had an operating loss of $42.8 million, a decline of $141.1 million from the
operating income of $98.2 million for fiscal 2005.
The Company’s effective tax rate was 34.5% of pretax income (loss) from continuing operations,
compared to 36.7% in fiscal 2005 and 29.9% of pretax loss from discontinued operations. The decrease in the
Company’s effective tax rate from continuing operations was primarily the result of state tax liabilities.
Net Loss
Net loss from continuing operations in fiscal 2006 was $27.5 million or $0.32 per share, a decrease of
$90.2 million as compared to fiscal 2005’s net income from continuing operations of $62.8 million, or
$0.71 per share on a diluted basis.
Net loss from discontinued operations was $12.3 million or $0.14 per share in fiscal 2006 and $2.3 million
or $0.03 per share in fiscal 2005. The pre-tax loss of $17.6 million was the result of The Pier’s loss from
operations of $10.1 million and a $7.4 million impairment charge to write the assets down to fair value less
reasonable costs to sell. See Note 2 of the Notes to Consolidated Financial Statements for additional
information regarding discontinued operations.
Total net loss in fiscal 2006 was $39.8 million, or $0.46 per share, a decrease in earnings of
$100.3 million as compared to fiscal 2005’s net income of $60.5 million, or $0.68 per share on a diluted basis.
LIQUIDITY AND CAPITAL RESOURCES
For the purposes of liquidity and capital resource discussions, the Company’s discontinued operations will
be included in financial results. The Company’s cash and cash equivalents including those from discontinued
operations totaled $167.2 million at the end of fiscal 2007, a decrease of $86.0 million from the fiscal
2006 year end balance of $253.2 million. Operating activities used $104.9 million of cash primarily due to the
Company’s net loss, the purchase of $100.0 million of proprietary credit card receivables from the Pier 1
Imports Credit Card Master Trust (the “Master Trust”) by sending cash to the Master Trust to redeem its
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