Pier 1 2008 Annual Report Download - page 65

In addition, the Company and Chase entered into a long-term program agreement. Under this agreement,
the Company continues to support the card through marketing programs and receive additional payments over
the life of the agreement for transaction level incentives, marketing support and other program terms. The
Company received total payments of $8,742,000 and $2,346,000 related to this agreement during fiscal 2008
and 2007, respectively.
Prior to the sale of its proprietary credit card operations in November 2006, the Company’s proprietary
credit card receivables were generated under open-ended revolving credit accounts issued by its subsidiary,
Pier 1 National Bank, to finance purchases of merchandise and services offered by the Company. These
accounts had various billing and payment structures, including varying minimum payment levels. The
Company had an agreement with a third party to provide certain credit card processing and related credit
services, while the Company maintained control over credit policy decisions and customer service standards.
Net proprietary credit card income was included in selling, general and administrative expenses on the
Company’s statements of operations. The following information presents a summary of the Company’s
proprietary credit card results, prior to the sale of Pier 1 National Bank, for fiscal 2007 and 2006 on a
managed basis (in thousands):
2007
(1)
2006
Income:
Finance charge income, net of debt service costs ..................... $20,127 $27,351
Other income ............................................... 118 189
20,245 27,540
Costs:
Processing fees .............................................. 11,565 13,907
Bad debts .................................................. 3,449 6,457
15,014 20,364
Net proprietary credit card income ................................ $ 5,231 $ 7,176
(1) Fiscal 2007 income and costs include activity through November 21, 2006, when the Company completed the sale of its proprietary
credit card operations.
The Company began securitizing its entire portfolio of proprietary credit card receivables (the “Receiv-
ables”) in fiscal 1997. On a daily basis during all periods presented above, except the period from September 6,
2006 through March 3, 2007, the Company sold all of its proprietary credit card receivables, except an
immaterial amount of those that failed certain eligibility criteria, to a special-purpose wholly owned subsidiary,
Funding. The Receivables were then transferred from Funding to the Master Trust. In exchange for the
Receivables, the Company received cash and retained a residual interest in the Master Trust. These cash
payments were funded from undistributed principal collections on the Receivables that were previously sold to
the Master Trust.
Funding was capitalized by the Company as a special-purpose wholly owned subsidiary and was subject
to certain covenants and restrictions, including a restriction from engaging in any business or activity unrelated
to acquiring and selling interests in receivables. The Master Trust issued beneficial interests that represented
undivided interests in the assets of the Master Trust. Neither Funding nor the Master Trust was consolidated in
the Company’s financial statements. Under U.S. generally accepted accounting principles, if the structure of a
securitization meets certain requirements, such transactions are accounted for as sales of receivables. As the
Company’s securitizations met such requirements, they were accounted for as sales. Gains or losses resulting
from the daily sales of Receivables to Funding were not material during fiscal 2007 or 2006. The Company’s
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Pier 1 Imports, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)