Pier 1 2009 Annual Report Download - page 78

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9—PROPRIETARY CREDIT CARD INFORMATION (Continued)
On November 21, 2006, the Company completed the sale of its proprietary credit card operations
to Chase. The sale was comprised of the Company’s proprietary credit card receivables, certain
charged-off accounts, and the common stock of Pier 1 National Bank. The Company received cash
proceeds of $157,583,000 and was entitled to receive additional proceeds of $10,750,000, plus any
accrued interest, over the life of the long-term program agreement. In both fiscal 2009 and fiscal 2008,
the Company received payments of $1,500,000. The net deferred gain associated with this sale will be
recognized in nonoperating income over the ten-year life of the agreement described below. The
Company recognized $2,164,000 and $1,551,000 deferred gain related to this agreement in fiscal 2009
and 2008, respectively.
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 $7,500,000 and $8,742,000 related
to this agreement during fiscal 2009 and 2008, 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 table presents a summary of the Company’s
proprietary credit card results, prior to the sale of Pier 1 National Bank, for fiscal 2007 on a managed
basis. Fiscal 2007 income and costs include activity through November 21, 2006, when the Company
completed the sale of its proprietary credit card operations.
2007
(in thousands)
Income:
Finance charge income, net of debt service costs ............... $20,127
Other income ........................................ 118
20,245
Costs:
Processing fees ....................................... 11,565
Bad debts ........................................... 3,449
15,014
Net proprietary credit card income ......................... $ 5,231
The Company began securitizing its entire portfolio of proprietary credit card receivables (the
‘‘Receivables’’) in fiscal 1997. On a daily basis from February 26, to September 6, 2006, 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
71