(a) | On March 8, 2005, after a review of the Company's lease accounting practices, management and the Company's Audit Committee of the Board of Directors, in consultation with the Company's independent registered public accounting firm, Deloitte & Touche LLP, decided to restate the Company's historical financial statements to correct the Company's accounting for lease commencement date. Based on views expressed by the Securities and Exchange Commission ("SEC") of existing generally accepted accounting principles ("GAAP") regarding lease transactions, the Company along with numerous other retailers reviewed its lease accounting practices. The Company, in consultation with its independent registered public accounting firm, Deloitte & Touche LLP, determined that the Company's accounting for the lease commencement date was not consistent with GAAP and decided to change its accounting practices in this area, and to restate its historical financial statements. Based on the Company's preliminary review, the correction of the lease accounting is expected to decrease net earnings by approximately $150,000, or approximately $0.01 per share, in fiscal 2004 and $300,000, or approximately $0.02 per share, in fiscal 2003. The change in accounting for leases does not affect historical or future cash flows or the timing or amounts of payments under related leases. These estimates are still preliminary, and may change pending a final review by management and our independent auditors. The Company anticipates completing this review in conjunction with the filing of its Form 10-K for the year ended January 29, 2005. Historically, and consistent with practice prevalent throughout the retailing industry, the Company recognized straight line rent expense for leases beginning on the earlier of rent commencement date or the store opening date. This had the effect of excluding the build-out period of its stores from the calculation of the period over which it expenses rent. The Company is now changing this practice to include the build-out period in its calculations of rent expense. While this change will result in an acceleration of the commencement of rent expense for each lease, monthly rent expense will decrease as the total rent due under the lease is amortized over a greater number of months. As a result of the restatement, the Company's previously issued annual and quarterly financial statements should no longer be relied upon. The Company will file the corrections to its annual and interim financial statements in its 2004 Annual Report on Form 10-K no later than April 14, 2005. The Company's management and Audit Committee of the Board of Directors have discussed the matters disclosed in this current Report on Form 8-K with Deloitte & Touche LLP, the Company's independent registered public accounting firm. |
