SHOE » Topics » 1. Basis of Presentation

This excerpt taken from the SHOE 10-Q filed May 17, 2005.

1. Basis of Presentation

 

General - The accompanying unaudited condensed consolidated financial statements have been prepared from the records of Shoe Pavilion, Inc. (the “Company”) without audit, and in the opinion of management, include all adjustments necessary to present fairly the financial position of the Company and the results of its operations and its cash flows for the periods presented. The balance sheet as of January 1, 2005 presented herein has been derived from the audited financial statements of the Company included in the Annual Report on Form 10-K for the year ended January 1, 2005.

 

The significant accounting policies followed by the Company are described in Note 2 to the audited consolidated financial statements for the year ended January 1, 2005. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted for purposes of the condensed consolidated interim financial statements. The condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements, including the notes thereto, for the year ended January 1, 2005.

 

The results of operations for the thirteen weeks ended April 2, 2005 presented herein are not necessarily indicative of the results to be expected for the full fiscal year.

 

Comprehensive Income and net income are the same.

 

Impairment of Long-Lived Assets - The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Management evaluates the carrying value of assets associated with stores which have been open at least 14 consecutive months. The Company records an impairment charge to write down the assets to their estimated fair value if the carrying values of such assets exceed their related expected future cash flows. The impairment charge is recorded in selling, general and administrative expenses. Management’s estimates and assumptions used in the projections are subject to a high degree of judgment and if actual results differ, additional losses may be recorded. During the thirteen weeks ended April 3, 2004 the Company recorded an impairment charge of $57,000 to write down assets in one store to its estimated fair value. No impairment charges were recorded during the thirteen weeks ended April 2, 2005.

 

Net Income Per Share – Basic income per share is computed as net income divided by the weighted average number of common shares outstanding during the period. Diluted income per share reflects the potential dilution that could occur from the exercise of outstanding stock options and is computed by dividing the net income by the weighted average number of common shares outstanding for the period plus the dilutive effect of outstanding stock options. The following table summarizes the incremental shares from these potentially dilutive securities, calculated using the treasury stock method.

 

     Thirteen weeks ended

     April 2,
2005


   April 3,
2004


     ( in thousands)

Weighted average number of shares - basic

   6,801    6,800

Add: effect of dilutive securities

   253    16
    
  

Weighted average number of shares - diluted

   7,054    6,816
    
  

 

Excluded from the above computations of diluted net income per share are options to purchase 89,989 and 245,449 shares of common stock as of April 2, 2005 and April 3, 2004, respectively, as these shares were anti-dilutive.

 

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Table of Contents

Stock-Based Compensation - The Company accounts for its stock option plans in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and its related interpretations. As the Company issues its options at fair value, no compensation expense has been recognized in the financial statements for stock option arrangements.

 

The following table illustrates the effect on net income and net income per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, as amended by SFAS No. 148, “Accounting for Stock Based Compensation”.

 

     Quarter Ended

 
     April 2,
2005


    April 3,
2004


 

Net income, as reported

   $ 406,000     $ 352,000  

Deduct stock-based compensation determined under fair value method, net of related tax benefits

     (27,921 )     (13,034 )
    


 


Pro forma net income

   $ 378,079     $ 338,966  
    


 


Net income per share:

                

As reported:

                

Basic and diluted

   $ 0.06     $ 0.05  

Pro forma:

                

Basic

   $ 0.06     $ 0.05  

Diluted

   $ 0.05     $ 0.05  

 

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