Pacific Sunwear Announces Lease Accounting Corrections.
ANAHEIM, Calif. -- Pacific Sunwear Pacific Sunwear (also known as PacSun) is a shopping mall retail store that sells surfing and skateboarding clothing and accessories for teenagers and young adults. It was originally based in Newport Beach, California, United States. of California Inc. (NASDAQ NASDAQ
in full National Association of Securities Dealers Automated Quotations
U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :PSUN) (the "Company") today announced that it will correct its accounting for leases after the Company's review of the matter and after discussion by management and the Audit Committee of the Board of Directors of the Company with Deloitte & Touche, LLP LLP - Lower Layer Protocol , its independent registered public accounting firm.
After review of the Feb. 7, 2005, letter from the Office of the Chief Accountant of Securities and Exchange Commission ("SEC") to the Center for Public Company Audit Firms of the American Institute of Certified Public Accountants With over 330,525 CPA members (in August 2006), the American Institute of Certified Public Accountants (AICPA) is the largest professional organization of Certified Public Accountants (CPAs) in the United States of America. , which clarified existing generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records.
Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ("GAAP GAAP
See: Generally Accepted Accounting Principles
See generally accepted accounting principles (GAAP). ") applicable to leases and leasehold improvements, management and the Audit Committee of the Board of Directors of the Company determined on Feb. 21, 2005, that the Company's accounting for leases was not consistent with the accounting principles described in the SEC's letter. The Company's previously issued consolidated financial statements Consolidated Financial Statements
The combined financial statements of a parent company and its subsidiaries.
Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge should no longer be relied upon.
In prior periods, the Company's consolidated balance sheets consolidated balance sheet
A balance sheet in which assets and liabilities of a parent company and its controlled subsidiaries are combined, thereby presenting balance sheet items for the parent and its subsidiaries as if they were a single firm. have reflected the unamortized portion of construction allowances from landlords as a reduction of property and equipment instead of as a deferred rent credit. In addition, the Company's statements of cash flows have reflected construction allowances as a reduction of capital expenditures within cash flows from investing activities, rather than cash flows from operating activities.
Further, in prior periods, the Company had previously recognized the straight line rent expense for leases beginning on the commencement date of store operations, which had the effect of excluding the build-out period of its stores (during which the Company typically made no rent payments) from the calculation of the period over which it expenses rent.
The impact of the corrections on the Company's consolidated statements of income is expected to be a reduction of net income of approximately $1.0 million, $0.3 million and $0.6 million for the fiscal years ended Jan. 29, 2005, Jan. 31, 2004, and Feb. 1, 2003, respectively. The impact of the corrections on the Company's consolidated statements of income for the fourth quarters ended Jan. 29, 2005, and Jan. 31, 2004, are expected to be an increase in net income of $0.2 million and $0.1 million, respectively.
The impact on the Company's Jan. 29, 2005, consolidated balance sheet is expected to be an increase in deferred rent of approximately $14.4 million, a decrease in deferred tax liability of approximately $4.8 million, and a decrease in retained earnings Retained Earnings
The percentage of net earnings not paid out in dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders equity on the balance sheet. of approximately $7.9 million, net of taxes, as well as an increase in property and equipment and a corresponding deferred rent credit of approximately $67.7 million. The impact on the Company's Jan. 31, 2004, consolidated balance sheet is expected to be an increase in deferred rent of approximately $12.7 million, a decrease in deferred tax liability of approximately $4.6 million, and a decrease in retained earnings of approximately $7.6 million, net of taxes, as well as an increase in property and equipment and a corresponding deferred lease credit of approximately $56.8 million.
The impact on the Company's consolidated statements of cash flows will be to increase both "net cash provided by operating activities" and "net cash used in investing activities" by equal amounts. These adjustments are expected to be approximately $18.8 million, $10.9 million and $11.3 million for the fiscal years Jan. 29, 2005, Jan. 31, 2004, and Feb. 1, 2003, respectively.
The Company will file the corrections to its annual and interim financial statements in its annual report on Form 10-K Form 10-K
A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information.
See 10-K. for the fiscal year ended Jan. 29, 2005. The Company's Forms 10-Q for fiscal 2005 will reflect the restated information for the corresponding quarters in fiscal 2004.
Pacific Sunwear is a leading specialty retailer of everyday casual apparel, accessories and footwear designed to meet the needs of active teens and young adults. As of Jan. 29, 2005, the Company operated 744 PacSun stores, 84 PacSun outlet stores and 162 d.e.m.o. stores for a total of 990 stores in 50 states and Puerto Rico Puerto Rico (pwār`tō rē`kō), island (2005 est. pop. 3,917,000), 3,508 sq mi (9,086 sq km), West Indies, c.1,000 mi (1,610 km) SE of Miami, Fla. . PacSun's Web site address is www.pacsun.com.