Compute free cash flow. ( \(L O 7\) )

Use the Pier 1 Imports Inc. consolidated statement of cash flows to compute the company's free cash flow for the 3 years shown. What does the trend in free cash flow tell you about Pier 1 ?

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Pier 1 Imports, Inc. Consolidated Statements of Cash Flows in thousands! 2006 Year Ended 2003 (As related See Note 2) 2004 (As restated, See Note 2) Cash flow from operating activities: Net income (loss) $(39,804) 5 60,457 $ 118,001 Adjustments to reconcile to net cash (used in) provided by operating activities: Depreciation and amortization 78,781 75,624 64,606 Loss (gain) on disposal of fixed assets 1,781 315 (316) Loss on impairment. of fixed assets 6,024 741 459 Write-down of assets held for sale 7,441 Deferred compensation Lease termination expense Deferred income taxes 11,402 7,710 6,573 4,176 2,243 3,258 (14,496) 2,035 184 Sale of receivables in exchange for beneficial interest in securitized receivables (71,550) (91,071) (83,931) Tax benefits from options exercised by employees 760 3,668 4,897 Other (521) (222) 4,894 Change in cash from: Inventories 882 (6,860) (40,520) Other accounts receivable, prepaid expenses and other current assets (22,778) (11,302) (16,927) Income tax receivable (15,011) Accounts payable and accrued expenses 7,369 21,572 34,410 Income taxes payable (6,966) (14,116) 184