Pier 1 2008 Annual Report Download - page 27

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In fiscal 2007, the Company had an operating loss of $226.2 million, $183.4 million more than the
operating loss of $42.8 million for fiscal 2006.
During fiscal 2007, 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 for
fiscal years 2007, 2006 and 2005. The Company concluded that a valuation allowance was necessary based
upon this evaluation and the guidance provided in Statement of Financial Accounting Standards (“SFAS”)
No. 109 “Accounting for Income Taxes”.
In addition, net deferred tax assets arising from fiscal 2007 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 for income taxes. There was no tax benefit recorded on approximately
$150.0 million of fiscal 2007’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, an increase 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 14 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s cash and cash equivalents totaled $93.4 million at the end of fiscal 2008, a decrease of
$73.7 million from the fiscal 2007 year end balance of $167.2 million. Operating activities used $83.1 million
primarily as a result of the Company’s net loss and increases in merchandise inventories. Store-level
inventories were intentionally increased through additional purchases. At the end of fiscal 2008, inventory per
retail square foot was $46.71 compared to $38.84 in the prior year. Management believes that store-level
inventories are currently near optimum levels but plans to reduce distribution center inventories during fiscal
2009 by revising its ordering process and reducing future order quantities. Total inventories are currently
expected to be approximately $380.0 million at fiscal 2009 year end. Additionally, net accounts payable and
accrued expenses decreased due to payments of $7.2 million in lease termination obligations and payments of
$13.5 million related to payments of deferred compensation and payments from the non-qualified retirement
savings plan. These outflows were partially offset by the receipt of approximately $26.0 million of federal and
state income tax refunds.
During fiscal 2008, the Company’s investing activities provided $6.4 million. Proceeds from the sale of
restricted investments used primarily for the payment of defined benefit obligations provided $7.0 million.
Proceeds from the disposition of properties provided $5.7 million primarily related to the sale of four
Company-owned stores. The Company collected $1.5 million of a note receivable related to the fiscal 2007
sale of Pier 1 National Bank. Capital expenditures were $7.2 million and consisted primarily of $5.1 million
for fixtures and leasehold improvements in existing stores and distribution centers, $1.0 million for new stores
and $1.1 million primarily related to information systems enhancements.
Financing activities for fiscal 2008 provided a net $2.9 million. Other financing activities, primarily
related to the Company’s stock purchase plan, provided a net $3.9 million, which was partially offset by debt
issuance costs of $1.0 million related to an amendment to the Company’s secured credit agreement in the first
quarter of fiscal 2008.
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