Pier 1 2008 Annual Report Download - page 47

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NOTE 6 — COSTS ASSOCIATED WITH EXIT ACTIVITIES
As part of the ordinary course of business, the Company terminates leases prior to their expiration when
certain stores or storage facilities are closed or relocated as deemed necessary by the evaluation of its real
estate portfolio. These decisions are based on lease renewal obligations, relocation space availability, local
market conditions and prospects for future profitability. In connection with these lease terminations, the
Company has recorded estimated liabilities in accordance with SFAS No. 146, “Accounting for Costs
Associated with Exit or Disposal Activities.” At the time of closure, neither the write-off of fixed assets nor
the write-down of inventory related to such stores was material. Additionally, employee severance costs
associated with these closures were not significant. The estimated liabilities were recorded based upon the
Company’s remaining lease obligations less estimated subtenant rental income. Revisions during the periods
presented relate to changes in estimated buyout terms or subtenant receipts expected on closed facilities.
Expenses related to lease termination obligations are included in selling, general and administrative expenses
in the Company’s consolidated statements of operations. The write-off of fixed assets and associated intangible
assets related to Pier 1 Imports store closures, excluding clearance and Pier 1 Kids stores, was approximately
$751,000, $370,000 and $1,500,000 in fiscal 2008, 2007 and 2006, respectively. The following table represents
a rollforward of the liability balances for the three fiscal years ended March 1, 2008 (in thousands):
Lease
Termination
Obligations
Balance at February 26, 2005 ............................................ $ 1,475
Original charges .................................................... 3,689
Revisions ......................................................... 487
Cash payments ..................................................... (2,792)
Balance at February 25, 2006 ............................................ 2,859
Original charges .................................................... 4,245
Revisions ......................................................... (242)
Cash payments ..................................................... (4,426)
Balance at March 3, 2007 ............................................... 2,436
Original charges .................................................... 11,573
Revisions ......................................................... (1,133)
Cash payments ..................................................... (7,248)
Balance at March 1, 2008 ............................................... $ 5,628
Included in the table above are lease termination costs related to the closure of all of the Company’s
clearance and Pier 1 Kids stores and the direct to consumer channel. These concepts were closed during fiscal
2008 since their aggregate performance was not in line with the Company’s profitability targets. Lease
termination costs associated with these closures were $7,973,000, or $0.09 per share, during the fiscal year.
Cash outflows related to these lease terminations were $5,138,000 during fiscal 2008. The net write-off of
fixed assets, write-down of inventory and employee severance costs associated with these closures was not
material.
45
Pier 1 Imports, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)