The Bombay Company, Inc. announced that earnings for the fourth quarter ended January 29, 2005 were $7.2 million or $0.20 per diluted share compared to earnings of $12.1 million or $0.33 per diluted share for the corresponding period of the prior fiscal year. For the fiscal year ended January 29, 2005, the Company reported a loss of $12.2 million or $0.34 per share compared to earnings of $9.9 million or $0.28 per share for the fiscal year ended January 31, 2004. These and all other amounts in the press release have been presented on a basis consistent with the restatement described below.
Earnings for the quarter are $66,000 higher than announced on March 22, 2005 and the loss for the year is $621,000 lower than previously announced as a result of recording the adjustment relating to pre-opening lease cost described below. Net revenue, selling, general and administrative expenses and interest were not affected by the change. The Company also revisited the treatment of landlord construction allowances. The effect is an increase to cash flow from operations and a corresponding decrease in cash flows from investing activities for the same period. Commentary on the quarter included in the prior release continues to be applicable.
LEASE ACCOUNTING CHANGE AND CASH FLOW RESTATEMENT
The Company previously announced in its press release dated March 22, 2005, that like many other companies in the retail industry, it had reviewed its lease accounting practices and indicated that it planned to restate its previously filed financial statements when it files its Annual Report on Form 10-K for the fiscal year ended January 29, 2005. Subsequently, additional clarification was provided by the staff of the Securities and Exchange Commission (the "SEC") relative to the acceptability of capitalizing construction period rent, and in a March 29, 2005 press release, the Company announced that it was withdrawing its restated financial results while it reassessed the manner in which it planned to revise its lease accounting practices.
Historically, the Company has recognized store lease expense on a straight-line basis beginning on the date the store opened. This generally had the effect of excluding the pre-opening store build out, fixturing and merchandise stocking periods during which the Company typically had no rent payments. The previously announced results indicated that the Company planned to include the rent-free, build out, fixturing and merchandise stocking period in the period over which straight-line rent should be expensed. After further evaluation, the Company has adopted an accounting policy to capitalize rent during the construction period and recognize straight line rent expense upon the store becoming substantially complete and ready for its intended use, which results in our recording rent expense during the merchandise stocking period. The impact of the adoption of the new accounting policy was not material to the operating results for any previously reported fiscal year or interim period; however, the Company has elected to restate prior year financial statements in order to provide transparency as to the effect of the change on the prior period results and to enhance the comparability of the prior financial information.
As a result of this change, the Company is decreasing its previously reported Fiscal 2003 net income by $85,000 and increasing its Fiscal 2002 net income by $11,000, neither of which change diluted earnings per share for those periods. The impact on the Company's January 31, 2004 consolidated balance sheet is an increase in net property and equipment of approximately $4.6 million, an increase in total assets of approximately $4.8 million, an increase in total liabilities of approximately $5.2 million, and a decrease in stockholders' equity of approximately $0.4 million.
The change has no effect on historical or future cash flows or the timing of payments under the Company's leases.
Additionally, in prior periods, the Company reflected proceeds from landlord construction allowances as a separate component of cash flows from investing activities in the consolidated statements of cash flows. The Company reviewed its accounting and reporting with respect to landlord allowances and has restated its historical Fiscal 2003 and Fiscal 2002 consolidated statement of cash flows to record such proceeds as a component of cash flows from operating activities. The impact of the restatement is as follows (in thousands):
The adjustment has no impact on total cash flows for each period, liquidity of the Company or its outlook for Fiscal 2005.
The Bombay Company, Inc. designs, sources and markets a unique line of home accessories, wall decor and furniture through retail outlets, specialty catalogs and the internet in the U.S. and internationally.
Furniture World Magazine-Business solutions for furniture retailers