Pier 1 2011 Annual Report Download - page 33

Depreciation and amortization for fiscal 2010 was $22.5 million, a decrease of approximately
$8.1 million when compared to $30.6 million in fiscal 2009. This decrease was primarily the result of the
impairment of store-level long-lived assets during the second half of fiscal 2009, certain assets becoming fully
depreciated, reduced capital spending and store closures.
In fiscal 2010, the Company recorded an operating loss of $3.3 million compared to an operating loss of
$120.6 million for fiscal 2009.
Nonoperating Income and Expense
Nonoperating income for fiscal 2010 was $35.3 million compared to expense of $8.1 million in fiscal
2009. During the first quarter of fiscal 2010, a foreign subsidiary of the Company purchased $78.9 million of the
Company’s outstanding 6.375% convertible senior notes due 2036 (the “6.375% Notes”) in privately negotiated
transactions at a purchase price of $27.4 million, including accrued interest. The Company recognized a gain of
$47.8 million in connection with this transaction. In August 2009, the Company retired $64.5 million of the
remaining 6.375% Notes through separate privately negotiated exchange agreements. Under these agreements,
holders received $61.3 million in aggregate principal of the Company’s new 9% convertible senior notes due
2036 (the “9% Notes”). In addition to this exchange, the Company also purchased $5.0 million of the outstanding
6.375% Notes for $4.8 million in cash. The Company recognized a net gain of $1.8 million related to these
transactions in the second quarter of fiscal 2010. During the third quarter of fiscal 2010, all $61.3 million of the
Company’s 9% Notes voluntarily converted into shares of the Company’s common stock. In connection with this
exchange in the third quarter, the Company incurred additional interest expense to record the remaining
amortization of debt issuance costs and debt discounts of $13.6 million.
The Company settled a lawsuit and received $10.0 million during the first quarter of fiscal 2010, and
recorded a gain in other nonoperating income as a result of the settlement. This income was partially offset by a
$4.7 million charge during the third quarter to adjust the fair value of the derivative liability for the make-whole
interest provision related to the Company’s 9% Notes. See Note 5 of the Notes to Consolidated Financial
Statements for further discussion regarding the fair value of the derivative liability.
Income Taxes
The Company recorded and received an income tax benefit of $55.9 million during fiscal 2010 primarily
as a result of the Worker, Homeownership and Business Assistance Act of 2009. This law allows businesses with
net operating losses incurred in either 2008 or 2009 to elect to carry back such losses up to five years. This
benefit resulted from the reversal of $55.9 million of the Company’s valuation allowance on its deferred tax asset
for its net operating loss carryforwards that were carried back under this law. As a result of the Company’s
valuation allowance against all deferred tax assets, the Company did not record federal tax benefit or expense and
only minimal state and foreign tax provisions were recorded on the results for fiscal 2010. The Company had
federal net operating loss carryforwards of approximately $92.0 million as of February 27, 2010. These loss
carryforwards had expirations beginning in fiscal 2027.
Net Income and Loss
Net income in fiscal 2010 was $86.8 million, or $0.86 per share, compared to a net loss of $129.3 million,
or $1.45 per share for fiscal 2009.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s cash and cash equivalents totaled $301.5 million at the end of fiscal 2011, an increase of
$113.6 million from the fiscal 2010 year-end balance of $187.9 million. The increase is a result of cash provided
27