UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
|
|
|
For the quarterly period ended August 30, 2008 |
|
|
OR |
|
|
|
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
|
For the transition period from to |
|
|
Commission file number 001-07832 |
|
PIER 1 IMPORTS, INC. |
|
|
(Exact name of registrant as specified in its charter) |
|
Delaware |
|
75-1729843 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
incorporation or organization) |
|
Identification Number) |
|
100 Pier 1 Place, Fort Worth, Texas 76102 |
|
|
(Address of principal executive offices, including zip code) |
|
|
|
|
|
(817) 252-8000 |
|
|
(Registrants telephone number, including area code) |
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x. No o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company.
Large accelerated filer |
o |
|
|
Accelerated filer |
x |
Non-accelerated filer |
o |
(Do not check if a smaller reporting company) |
|
Smaller reporting company |
o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Class |
|
Shares outstanding as of October 3, 2008 |
Common Stock, $1.00 par value |
|
89,016,161 |
PIER 1 IMPORTS, INC.
2
PIER I IMPORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||||||
|
|
August 30, |
|
September 1, |
|
August 30, |
|
September 1, |
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Net sales |
|
$ |
320,494 |
|
$ |
344,566 |
|
$ |
630,514 |
|
$ |
700,941 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||||||
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
||||||||
Cost of sales (including buying and store occupancy costs) |
|
234,359 |
|
257,042 |
|
456,773 |
|
526,239 |
|
||||||||
Selling, general and administrative expenses |
|
107,043 |
|
117,457 |
|
216,411 |
|
249,581 |
|
||||||||
Depreciation and amortization |
|
7,517 |
|
10,444 |
|
16,190 |
|
21,002 |
|
||||||||
|
|
348,919 |
|
384,943 |
|
689,374 |
|
796,822 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Operating loss |
|
(28,425 |
) |
(40,377 |
) |
(58,860 |
) |
(95,881 |
) |
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Nonoperating (income) and expenses: |
|
|
|
|
|
|
|
|
|
||||||||
Interest and investment income |
|
(1,471 |
) |
(2,438 |
) |
(2,342 |
) |
(5,370 |
) |
||||||||
Interest expense |
|
3,696 |
|
4,000 |
|
7,301 |
|
7,957 |
|
||||||||
Other income |
|
(656 |
) |
(405 |
) |
(1,288 |
) |
(653 |
) |
||||||||
|
|
1,569 |
|
1,157 |
|
3,671 |
|
1,934 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Loss before income taxes |
|
(29,994 |
) |
(41,534 |
) |
(62,531 |
) |
(97,815 |
) |
||||||||
Income tax provision |
|
162 |
|
1,875 |
|
449 |
|
1,972 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Net loss |
|
$ |
(30,156 |
) |
$ |
(43,409 |
) |
$ |
(62,980 |
) |
$ |
(99,787 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||||||
Loss per share: |
|
|
|
|
|
|
|
|
|
||||||||
Basic and diluted |
|
$ |
(0.34 |
) |
$ |
(0.49 |
) |
$ |
(0.71 |
) |
$ |
(1.14 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||||||
Average shares outstanding during period: |
|
|
|
|
|
|
|
|
|
||||||||
Basic and diluted |
|
88,778 |
|
88,000 |
|
88,699 |
|
87,898 |
|
||||||||
The accompanying notes are an integral part of these financial statements.
3
PIER 1 IMPORTS, INC.
(in thousands except share amounts)
(unaudited)
|
|
August 30, |
|
March 1, |
|
September 1, |
|
|||
|
|
|
|
|
|
|
|
|||
ASSETS |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
Current assets: |
|
|
|
|
|
|
|
|||
Cash and cash equivalents, including temporary investments of $178,936, $87,837 and $112,468, respectively |
|
$ |
191,114 |
|
$ |
93,433 |
|
$ |
121,872 |
|
Accounts receivable, net |
|
18,389 |
|
23,121 |
|
20,533 |
|
|||
Inventories |
|
379,050 |
|
411,709 |
|
374,468 |
|
|||
Income tax receivable |
|
3,345 |
|
13,632 |
|
15,143 |
|
|||
Prepaid expenses and other current assets |
|
45,732 |
|
41,445 |
|
47,318 |
|
|||
Total current assets |
|
637,630 |
|
583,340 |
|
579,334 |
|
|||
|
|
|
|
|
|
|
|
|||
Office building and related assets |
|
|
|
80,539 |
|
82,855 |
|
|||
Other properties, net of accumulated depreciation of $422,377, $408,609 and $400,801, respectively |
|
105,052 |
|
114,952 |
|
129,768 |
|
|||
Other noncurrent assets |
|
42,021 |
|
43,073 |
|
46,524 |
|
|||
|
|
|
|
|
|
|
|
|||
|
|
$ |
784,703 |
|
$ |
821,904 |
|
$ |
838,481 |
|
|
|
|
|
|
|
|
|
|||
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
Current liabilities: |
|
|
|
|
|
|
|
|||
Accounts payable |
|
$ |
118,955 |
|
$ |
106,084 |
|
$ |
125,253 |
|
Gift cards and other deferred revenue |
|
53,936 |
|
63,101 |
|
64,318 |
|
|||
Accrued income taxes payable |
|
4,500 |
|
5,000 |
|
3,120 |
|
|||
Other accrued liabilities |
|
109,043 |
|
101,817 |
|
102,321 |
|
|||
Total current liabilities |
|
286,434 |
|
276,002 |
|
295,012 |
|
|||
|
|
|
|
|
|
|
|
|||
Long-term debt |
|
184,000 |
|
184,000 |
|
184,000 |
|
|||
Other noncurrent liabilities |
|
104,112 |
|
94,158 |
|
97,321 |
|
|||
|
|
|
|
|
|
|
|
|||
Shareholders equity: |
|
|
|
|
|
|
|
|||
Common stock, $1.00 par, 500,000,000 shares authorized, 100,779,000 issued |
|
100,779 |
|
100,779 |
|
100,779 |
|
|||
Paid-in capital |
|
126,177 |
|
126,795 |
|
125,663 |
|
|||
Retained earnings |
|
173,114 |
|
236,094 |
|
232,318 |
|
|||
Cumulative other comprehensive income |
|
8 |
|
373 |
|
3,012 |
|
|||
Less 11,802,000, 12,172,000 and 12,359,000 common shares in treasury, at cost, respectively |
|
|
|
|
|
|
|
|||
|
|
(189,921 |
) |
(196,297 |
) |
(199,624 |
) |
|||
|
|
210,157 |
|
267,744 |
|
262,148 |
|
|||
Commitments and contingencies |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
|
|
$ |
784,703 |
|
$ |
821,904 |
|
$ |
838,481 |
|
The accompanying notes are an integral part of these financial statements.
4
PIER 1 IMPORTS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
Six Months Ended |
|
||||
|
|
August 30, |
|
September 1, |
|
||
|
|
|
|
|
|
||
Cash flow from operating activities: |
|
|
|
|
|
||
Net loss |
|
$ |
(62,980 |
) |
$ |
(99,787 |
) |
Adjustments to reconcile to net cash provided by (used in) operating activities: |
|
|
|
|
|
||
Depreciation and amortization |
|
22,408 |
|
27,172 |
|
||
(Gain) loss on disposal of fixed assets |
|
68 |
|
(1,404 |
) |
||
Loss on impairment of fixed assets and long-lived assets |
|
|
|
4,164 |
|
||
Stock-based compensation expense |
|
4,502 |
|
3,182 |
|
||
Deferred compensation |
|
2,185 |
|
1,891 |
|
||
Lease termination expense |
|
2,978 |
|
4,820 |
|
||
Other |
|
(1,555 |
) |
281 |
|
||
Changes in cash from: |
|
|
|
|
|
||
Inventories |
|
32,659 |
|
(14,405 |
) |
||
Accounts receivable, prepaid expenses and other current assets |
|
(4,985 |
) |
(6,066 |
) |
||
Income tax receivable |
|
13,290 |
|
24,474 |
|
||
Accounts payable and accrued expenses |
|
(7,022 |
) |
8,770 |
|
||
Accrued income taxes payable |
|
(723 |
) |
434 |
|
||
Defined benefit plan liabilities |
|
(59 |
) |
(6,282 |
) |
||
Other noncurrent assets |
|
641 |
|
305 |
|
||
Other noncurrent liabilities |
|
(195 |
) |
(586 |
) |
||
Net cash provided by (used in) operating activities |
|
1,212 |
|
(53,037 |
) |
||
|
|
|
|
|
|
||
Cash flow from investing activities: |
|
|
|
|
|
||
Capital expenditures |
|
(7,203 |
) |
(2,665 |
) |
||
Proceeds from disposition of properties |
|
102,452 |
|
3,505 |
|
||
Proceeds from sale of restricted assets |
|
908 |
|
6,373 |
|
||
Purchase of restricted investments |
|
(944 |
) |
(589 |
) |
||
Net cash provided by investing activities |
|
95,213 |
|
6,624 |
|
||
|
|
|
|
|
|
||
Cash flow from financing activities: |
|
|
|
|
|
||
Proceeds from stock options exercised, stock purchase plan and other, net |
|
1,256 |
|
2,105 |
|
||
Debt issuance costs |
|
|
|
(998 |
) |
||
Net cash provided by financing activities |
|
1,256 |
|
1,107 |
|
||
|
|
|
|
|
|
||
Change in cash and cash equivalents |
|
97,681 |
|
(45,306 |
) |
||
Cash and cash equivalents at beginning of period |
|
93,433 |
|
167,178 |
|
||
Cash and cash equivalents at end of period |
|
$ |
191,114 |
|
$ |
121,872 |
|
The accompanying notes are an integral part of these financial statements.
5
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE SIX MONTHS ENDED AUGUST 30, 2008
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
|
||||||
|
|
Common Stock |
|
|
|
|
|
Other |
|
|
|
Total |
|
||||||||
|
|
Outstanding |
|
|
|
Paid-in |
|
Retained |
|
Comprehensive |
|
Treasury |
|
Shareholders |
|
||||||
|
|
Stock |
|
Amount |
|
Capital |
|
Earnings |
|
Income (Loss) |
|
Stock |
|
Equity |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance March 1, 2008 |
|
88,607 |
|
$ |
100,779 |
|
$ |
126,795 |
|
$ |
236,094 |
|
$ |
373 |
|
$ |
(196,297 |
) |
$ |
267,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net loss |
|
|
|
|
|
|
|
(62,980 |
) |
|
|
|
|
(62,980 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Pension adjustments |
|
|
|
|
|
|
|
|
|
766 |
|
|
|
766 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Currency translation adjustments |
|
|
|
|
|
|
|
|
|
(1,131 |
) |
|
|
(1,131 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
(63,345 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Restricted stock compensation |
|
303 |
|
|
|
(3,891 |
) |
|
|
|
|
4,893 |
|
1,002 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Stock option compensation expense |
|
|
|
|
|
3,500 |
|
|
|
|
|
|
|
3,500 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Exercise of stock options, stock purchase plan and other |
|
67 |
|
|
|
(227 |
) |
|
|
|
|
1,483 |
|
1,256 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance August 30, 2008 |
|
88,977 |
|
$ |
100,779 |
|
$ |
126,177 |
|
$ |
173,114 |
|
$ |
8 |
|
$ |
(189,921 |
) |
$ |
210,157 |
|
The accompanying notes are an integral part of these financial statements.
6
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED AUGUST 30, 2008
AND SEPTEMBER 1, 2007
(unaudited)
Throughout this report, references to the Company include Pier 1 Imports, Inc. and all its consolidated subsidiaries. The accompanying unaudited financial statements should be read in conjunction with the Form 10-K for the year ended March 1, 2008. All adjustments that are, in the opinion of management, necessary for a fair presentation of the financial position as of August 30, 2008, and the results of operations and cash flows for the three and six months ended August 30, 2008 and September 1, 2007 have been made and consist only of normal recurring adjustments, except as otherwise described herein. The results of operations for the three and six months ended August 30, 2008 and September 1, 2007, respectively, are not indicative of results to be expected for the fiscal year because of, among other things, seasonality factors in the retail business. Historically, the strongest sales of the Companys products have occurred during the holiday season beginning in November and continuing through December. The Company conducts business as one operating segment.
Note 1 Loss per share
Basic loss per share amounts were determined by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted loss per share amounts were similarly computed, but would have included the effect, if dilutive, of the Companys weighted average number of stock options outstanding and shares of unvested restricted stock. As the effect would have been antidilutive, all 13,284,048 and 14,153,480 stock options outstanding and shares of unvested restricted stock were excluded from the computation of the second quarter and year-to-date loss per share for fiscal 2009 and fiscal 2008, respectively. Loss per share for the three and six months ended August 30, 2008 and September 1, 2007 was calculated as follows (in thousands except per share amounts):
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
August 30, |
|
September 1, |
|
August 30, |
|
September 1, |
|
||||
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
||||
Net loss, basic and diluted |
|
$ |
(30,156 |
) |
$ |
(43,409 |
) |
$ |
(62,980 |
) |
$ |
(99,787 |
) |
|
|
|
|
|
|
|
|
|
|
||||
Average shares outstanding: |
|
|
|
|
|
|
|
|
|
||||
Basic and diluted |
|
88,778 |
|
88,000 |
|
88,699 |
|
87,898 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share: |
|
|
|
|
|
|
|
|
|
||||
Basic and diluted |
|
$ |
(0.34 |
) |
$ |
(0.49 |
) |
$ |
(0.71 |
) |
$ |
(1.14 |
) |
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 2 Comprehensive loss
The components of comprehensive loss for the three and six months ended August 30, 2008 and September 1, 2007 were as follows (in thousands):
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
August 30, |
|
September 1, |
|
August 30, |
|
September 1, |
|
||||
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
$ |
(30,156 |
) |
$ |
(43,409 |
) |
$ |
(62,980 |
) |
$ |
(99,787 |
) |
Currency translation adjustments |
|
(1,075 |
) |
25 |
|
(1,131 |
) |
604 |
|
||||
Pension adjustments |
|
566 |
|
|
|
766 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Comprehensive loss |
|
$ |
(30,665 |
) |
$ |
(43,384 |
) |
$ |
(63,345 |
) |
$ |
(99,183 |
) |
Note 3 Stock-based compensation
The Company accounts for share-based compensation transactions in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 123 (Revised 2004), Share-Based Payment (SFAS 123R). SFAS 123R requires all companies to measure and recognize compensation expense at an amount equal to the fair value of share-based payments granted under compensation arrangements. The fair values for options granted during the respective periods were estimated as of the date of grant using the Black-Scholes option-pricing model and are amortized on a straight-line basis as compensation expense over the vesting periods of the options. For the three and six months ended August 30, 2008, the Company recorded stock-based compensation expense related to stock options and restricted stock of $2,150,000, or $0.02 per share, and $4,502,000, or $0.05 per share, respectively. For the three and six months ended September 1, 2007, the Company recorded stock-based compensation expense related to stock options and restricted stock of $1,027,000, or $0.01 per share, and $3,182,000, or $0.04 per share, respectively. The Company recognized no net tax benefit related to stock-based compensation during the first half of fiscal 2009 or fiscal 2008 as a result of the Companys valuation allowance on all deferred tax assets in both years.
As of August 30, 2008, there was approximately $6,095,000 of total unrecognized compensation expense related to unvested stock option awards that is expected to be recognized over a weighted average period of 1.99 years and $4,214,000 of total unrecognized compensation expense related to restricted stock that may be recognized over a weighted average period of 2.05 years.
Note 4 Costs associated with exit activities
As part of the ordinary course of business, the Company terminates leases prior to their expiration when certain stores or distribution center facilities are closed or relocated as deemed necessary by the evaluation of its real estate portfolio. These decisions are based on lease renewal obligations, relocation space availability, local market conditions and prospects for future profitability. In connection with these lease terminations, the Company has recorded estimated liabilities in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. At the time of closure, neither the write-off of fixed assets nor the write-down of inventory related to such stores was material. Additionally, employee severance costs associated with these closures were not significant. The estimated liabilities were recorded based upon the Companys remaining lease obligations less estimated subtenant rental income. Revisions during the periods presented related to changes in estimated buyout terms or subtenant receipts expected on closed facilities. Expenses related to lease termination obligations are included in selling, general and administrative expenses in the Companys consolidated statements of operations.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table represents a rollforward of the liability balances for the six months ended August 30, 2008 and September 1, 2007 related to these closures (in thousands):
|
|
Six Months Ended |
|
||||
|
|
August 30, |
|
September 1, |
|
||
|
|
2008 |
|
2007 |
|
||
|
|
|
|
|
|
||
Beginning of period |
|
$ |
5,628 |
|
$ |
2,436 |
|
|
|
|
|
|
|
||
Original charges |
|
2,782 |
|
5,221 |
|
||
Revisions |
|
196 |
|
(401 |
) |
||
Cash payments |
|
(2,455 |
) |
(2,748 |
) |
||
|
|
|
|
|
|
||
End of period |
|
$ |
6,151 |
|
$ |
4,508 |
|
Included in the table above are lease termination costs related to the closure of all of the Companys clearance and Pier 1 Kids stores and the direct to consumer channel during fiscal 2008. Revisions of the lease termination costs associated with these closures were $(145,000) and $252,000, or less than $(0.01) and less than $0.01 per share, during the three and six months ended August 30, 2008, respectively. Cash outflows related to these lease terminations were $1,507,000 for fiscal 2009 year-to-date.
Note 5 Condensed financial statements
The Companys 6.375% convertible senior notes (the Notes) are fully and unconditionally guaranteed, on a joint and several basis, by all of the Companys material domestic consolidated subsidiaries (the Guarantor Subsidiaries). The subsidiaries that do not guarantee such Notes are comprised of the Companys foreign subsidiaries and certain other insignificant domestic consolidated subsidiaries (the Non-Guarantor Subsidiaries). Each of the Guarantor Subsidiaries is wholly owned. In lieu of providing separate audited financial statements for the Guarantor Subsidiaries, condensed consolidating financial information is presented below.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Three Months Ended August 30, 2008
(in thousands)
(unaudited)
|
|
Pier 1 |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net sales |
|
$ |
|
|
$ |
318,249 |
|
$ |
3,632 |
|
$ |
(1,387 |
) |
$ |
320,494 |
|
Cost of sales (including buying and store occupancy costs) |
|
|
|
232,511 |
|
3,338 |
|
(1,490 |
) |
234,359 |
|
|||||
Selling, general and administrative (including depreciation and amortization) |
|
2,190 |
|
112,320 |
|
50 |
|
|
|
114,560 |
|
|||||
Operating income (loss) |
|
(2,190 |
) |
(26,582 |
) |
244 |
|
103 |
|
(28,425 |
) |
|||||
Nonoperating (income) expenses |
|
(283 |
) |
1,942 |
|
(90 |
) |
|
|
1,569 |
|
|||||
Income (loss) before income taxes |
|
(1,907 |
) |
(28,524 |
) |
334 |
|
103 |
|
(29,994 |
) |
|||||
Provision for income taxes |
|
|
|
152 |
|
10 |
|
|
|
162 |
|
|||||
Net income (loss) after income taxes |
|
(1,907 |
) |
(28,676 |
) |
324 |
|
103 |
|
(30,156 |
) |
|||||
Net income (loss) from subsidiaries |
|
(28,352 |
) |
324 |
|
|
|
28,028 |
|
|
|
|||||
Net income (loss) |
|
$ |
(30,259 |
) |
$ |
(28,352 |
) |
$ |
324 |
|
$ |
28,131 |
|
$ |
(30,156 |
) |
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Three Months Ended September 1, 2007
(in thousands)
(unaudited)
|
|
Pier 1 |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net sales |
|
$ |
|
|
$ |
342,877 |
|
$ |
10,522 |
|
$ |
(8,833 |
) |
$ |
344,566 |
|
Cost of sales (including buying and store occupancy costs) |
|
|
|
256,066 |
|
9,799 |
|
(8,823 |
) |
257,042 |
|
|||||
Selling, general and administrative (including depreciation and amortization) |
|
490 |
|
127,356 |
|
55 |
|
|
|
127,901 |
|
|||||
Operating income (loss) |
|
(490 |
) |
(40,545 |
) |
668 |
|
(10 |
) |
(40,377 |
) |
|||||
Nonoperating (income) expenses |
|
(868 |
) |
2,185 |
|
(160 |
) |
|
|
1,157 |
|
|||||
Income (loss) before income taxes |
|
378 |
|
(42,730 |
) |
828 |
|
(10 |
) |
(41,534 |
) |
|||||
Provision for income taxes |
|
|
|
1,722 |
|
153 |
|
|
|
1,875 |
|
|||||
Net income (loss) after income taxes |
|
378 |
|
(44,452 |
) |
675 |
|
(10 |
) |
(43,409 |
) |
|||||
Net income (loss) from subsidiaries |
|
(43,777 |
) |
675 |
|
|
|
43,102 |
|
|
|
|||||
Net income (loss) |
|
$ |
(43,399 |
) |
$ |
(43,777 |
) |
$ |
675 |
|
$ |
43,092 |
|
$ |
(43,409 |
) |
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Six Months Ended August 30, 2008
(in thousands)
(unaudited)
|
|
Pier 1 |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net sales |
|
$ |
|
|
$ |
626,269 |
|
$ |
7,850 |
|
$ |
(3,605 |
) |
$ |
630,514 |
|
Cost of sales (including buying and store occupancy costs) |
|
|
|
453,545 |
|
7,200 |
|
(3,972 |
) |
456,773 |
|
|||||
Selling, general and administrative (including depreciation and amortization) |
|
2,709 |
|
229,797 |
|
95 |
|
|
|
232,601 |
|
|||||
Operating income (loss) |
|
(2,709 |
) |
(57,073 |
) |
555 |
|
367 |
|
(58,860 |
) |
|||||
Nonoperating (income) expenses |
|
(1,189 |
) |
5,045 |
|
(185 |
) |
|
|
3,671 |
|
|||||
Income (loss) before income taxes |
|
(1,520 |
) |
(62,118 |
) |
740 |
|
367 |
|
(62,531 |
) |
|||||
Provision for income taxes |
|
|
|
439 |
|
10 |
|
|
|
449 |
|
|||||
Net income (loss) after income taxes |
|
(1,520 |
) |
(62,557 |
) |
730 |
|
367 |
|
(62,980 |
) |
|||||
Net income (loss) from subsidiaries |
|
(61,827 |
) |
730 |
|
|
|
61,097 |
|
|
|
|||||
Net income (loss) |
|
$ |
(63,347 |
) |
$ |
(61,827 |
) |
$ |
730 |
|
$ |
61,464 |
|
$ |
(62,980 |
) |
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Six Months Ended September 1, 2007
(in thousands)
(unaudited)
|
|
Pier 1 |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net sales |
|
$ |
|
|
$ |
697,990 |
|
$ |
18,069 |
|
$ |
(15,118 |
) |
$ |
700,941 |
|
Cost of sales (including buying and store occupancy costs) |
|
|
|
524,771 |
|
16,767 |
|
(15,299 |
) |
526,239 |
|
|||||
Selling, general and administrative (including depreciation and amortization) |
|
942 |
|
269,521 |
|
120 |
|
|
|
270,583 |
|
|||||
Operating income (loss) |
|
(942 |
) |
(96,302 |
) |
1,182 |
|
181 |
|
(95,881 |
) |
|||||
Nonoperating (income) expenses |
|
(1,653 |
) |
3,908 |
|
(321 |
) |
|
|
1,934 |
|
|||||
Income (loss) before income taxes |
|
711 |
|
(100,210 |
) |
1,503 |
|
181 |
|
(97,815 |
) |
|||||
Provision for income taxes |
|
|
|
1,767 |
|
205 |
|
|
|
1,972 |
|
|||||
Net income (loss) after income taxes |
|
711 |
|
(101,977 |
) |
1,298 |
|
181 |
|
(99,787 |
) |
|||||
Net income (loss) from subsidiaries |
|
(100,679 |
) |
1,298 |
|
|
|
99,381 |
|
|
|
|||||
Net income (loss) |
|
$ |
(99,968 |
) |
$ |
(100,679 |
) |
$ |
1,298 |
|
$ |
99,562 |
|
$ |
(99,787 |
) |
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED BALANCE SHEET
August 30, 2008
(in thousands)
(unaudited)
|
|
Pier 1 |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Total |
|
|||||
|
|
|||||||||||||||
ASSETS |
|
|||||||||||||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
116,432 |
|
$ |
52,500 |
|
$ |
22,182 |
|
$ |
|
|
$ |
191,114 |
|
Accounts receivable, net |
|
24 |
|
16,350 |
|
2,015 |
|
|
|
18,389 |
|
|||||
Inventories |
|
|
|
379,050 |
|
|
|
|
|
379,050 |
|
|||||
Income tax receivable |
|
|
|
2,914 |
|
431 |
|
|
|
3,345 |
|
|||||
Prepaid expenses and other current assets |
|
498 |
|
45,234 |
|
|
|
|
|
45,732 |
|
|||||
Total current assets |
|
116,954 |
|
496,048 |
|
24,628 |
|
|
|
637,630 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Office building and related assets |
|
|
|
|
|
|
|
|
|
|
|
|||||
Other properties, net |
|
|
|
101,264 |
|
3,788 |
|
|
|
105,052 |
|
|||||
Investment in subsidiaries |
|
83,732 |
|
44,452 |
|
|
|
(128,184 |
) |
|
|
|||||
Other noncurrent assets |
|
6,056 |
|
35,965 |
|
|
|
|
|
42,021 |
|
|||||
|
|
$ |
206,742 |
|
$ |
677,729 |
|
$ |
28,416 |
|
$ |
(128,184 |
) |
$ |
784,703 |
|
|
|
|||||||||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|||||||||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Accounts payable |
|
$ |
82 |
|
$ |
118,673 |
|
$ |
200 |
|
$ |
|
|
$ |
118,955 |
|
Intercompany payable (receivable) |
|
(169,138 |
) |
185,294 |
|
(16,156 |
) |
|
|
|
|
|||||
Gift cards and other deferred revenue |
|
|
|
53,936 |
|
|
|
|
|
53,936 |
|
|||||
Accrued income taxes payable (receivable) |
|
48 |
|
4,595 |
|
(143 |
) |
|
|
4,500 |
|
|||||
Other accrued liabilities |
|
593 |
|
108,387 |
|
63 |
|
|
|
109,043 |
|
|||||
Total current liabilities |
|
(168,415 |
) |
470,885 |
|
(16,036 |
) |
|
|
286,434 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Long-term debt |
|
165,000 |
|
19,000 |
|
|
|
|
|
184,000 |
|
|||||
Other noncurrent liabilities |
|
|
|
104,112 |
|
|
|
|
|
104,112 |
|
|||||
Shareholders equity |
|
210,157 |
|
83,732 |
|
44,452 |
|
(128,184 |
) |
210,157 |
|
|||||
|
|
$ |
206,742 |
|
$ |
677,729 |
|
$ |
28,416 |
|
$ |
(128,184 |
) |
$ |
784,703 |
|
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED BALANCE SHEET
March 1, 2008
(in thousands)
(unaudited)
|
|
Pier 1 |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Total |
|
|||||
|
|
|||||||||||||||
ASSETS |
|
|||||||||||||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
53,030 |
|
$ |
26,824 |
|
$ |
13,579 |
|
$ |
|
|
$ |
93,433 |
|
Accounts receivable, net |
|
5 |
|
21,607 |
|
1,509 |
|
|
|
23,121 |
|
|||||
Inventories |
|
|
|
411,709 |
|
|
|
|
|
411,709 |
|
|||||
Income tax receivable |
|
|
|
13,251 |
|
381 |
|
|
|
13,632 |
|
|||||
Prepaid expenses and other current assets |
|
78 |
|
41,367 |
|
|
|
|
|
41,445 |
|
|||||
Total current assets |
|
53,113 |
|
514,758 |
|
15,469 |
|
|
|
583,340 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Office building and related assets |
|
|
|
80,539 |
|
|
|
|
|
80,539 |
|
|||||
Other properties, net |
|
|
|
111,112 |
|
3,840 |
|
|
|
114,952 |
|
|||||
Investment in subsidiaries |
|
145,555 |
|
43,354 |
|
|
|
(188,909 |
) |
|
|
|||||
Other noncurrent assets |
|
6,588 |
|
36,485 |
|
|
|
|
|
43,073 |
|
|||||
|
|
$ |
205,256 |
|
$ |
786,248 |
|
$ |
19,309 |
|
$ |
(188,909 |
) |
$ |
821,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|||||||||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Accounts payable |
|
$ |
126 |
|
$ |
104,900 |
|
$ |
1,058 |
|
$ |
|
|
$ |
106,084 |
|
Intercompany payable (receivable) |
|
(228,310 |
) |
253,339 |
|
(25,029 |
) |
|
|
|
|
|||||
Gift cards and other deferred revenue |
|
|
|
63,101 |
|
|
|
|
|
63,101 |
|
|||||
Accrued income taxes payable (receivable) |
|
48 |
|
5,065 |
|
(113 |
) |
|
|
5,000 |
|
|||||
Other accrued liabilities |
|
648 |
|
101,130 |
|
39 |
|
|
|
101,817 |
|
|||||
Total current liabilities |
|
(227,488 |
) |
527,535 |
|
(24,045 |
) |
|
|
276,002 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Long-term debt |
|
165,000 |
|
19,000 |
|
|
|
|
|
184,000 |
|
|||||
Other noncurrent liabilities |
|
|
|
94,158 |
|
|
|
|
|
94,158 |
|
|||||
Shareholders equity |
|
267,744 |
|
145,555 |
|
43,354 |
|
(188,909 |
) |
267,744 |
|
|||||
|
|
$ |
205,256 |
|
$ |
786,248 |
|
$ |
19,309 |
|
$ |
(188,909 |
) |
$ |
821,904 |
|
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED BALANCE SHEET
September 1, 2007
(in thousands)
(unaudited)
|
|
Pier 1 |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
ASSETS |
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
76,384 |
|
$ |
33,364 |
|
$ |
12,124 |
|
$ |
|
|
$ |
121,872 |
|
Accounts receivable, net |
|
11 |
|
18,884 |
|
1,638 |
|
|
|
20,533 |
|
|||||
Inventories |
|
|
|
374,468 |
|
|
|
|
|
374,468 |
|
|||||
Income tax receivable |
|
|
|
14,841 |
|
302 |
|
|
|
15,143 |
|
|||||
Prepaid expenses and other current assets |
|
|
|
47,318 |
|
|
|
|
|
47,318 |
|
|||||
Total current assets |
|
76,395 |
|
488,875 |
|
14,064 |
|
|
|
579,334 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Office building and related assets |
|
|
|
82,855 |
|
|
|
|
|
82,855 |
|
|||||
Other properties, net |
|
|
|
125,876 |
|
3,892 |
|
|
|
129,768 |
|
|||||
Investment in subsidiaries |
|
143,987 |
|
42,102 |
|
|
|
(186,089 |
) |
|
|
|||||
Other noncurrent assets |
|
7,119 |
|
39,405 |
|
|
|
|
|
46,524 |
|
|||||
|
|
$ |
227,501 |
|
$ |
779,113 |
|
$ |
17,956 |
|
$ |
(186,089 |
) |
$ |
838,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Accounts payable |
|
$ |
38 |
|
$ |
120,267 |
|
$ |
4,948 |
|
$ |
|
|
$ |
125,253 |
|
Intercompany payable (receivable) |
|
(200,391 |
) |
229,387 |
|
(28,996 |
) |
|
|
|
|
|||||
Gift cards and other deferred revenue |
|
|
|
64,318 |
|
|
|
|
|
64,318 |
|
|||||
Accrued income taxes payable (receivable) |
|
48 |
|
3,220 |
|
(148 |
) |
|
|
3,120 |
|
|||||
Other accrued liabilities |
|
658 |
|
101,613 |
|
50 |
|
|
|
102,321 |
|
|||||
Total current liabilities |
|
(199,647 |
) |
518,805 |
|
(24,146 |
) |
|
|
295,012 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Long-term debt |
|
165,000 |
|
19,000 |
|
|
|
|
|
184,000 |
|
|||||
Other noncurrent liabilities |
|
|
|
97,321 |
|
|
|
|
|
97,321 |
|
|||||
Shareholders equity |
|
262,148 |
|
143,987 |
|
42,102 |
|
(186,089 |
) |
262,148 |
|
|||||
|
|
$ |
227,501 |
|
$ |
779,113 |
|
$ |
17,956 |
|
$ |
(186,089 |
) |
$ |
838,481 |
|
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Six Months Ended August 30, 2008
(in thousands)
(unaudited)
|
|
Pier 1 |
|
Guarantor |
|
Non-Guarantor |
|
|
|
|
|
|||||
|
|
Imports, Inc. |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Total |
|
|||||
Cash flow from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Net cash provided by (used in) operating activities |
|
$ |
2,974 |
|
$ |
(1,492 |
) |
$ |
(270 |
) |
$ |
|
|
$ |
1,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Capital expenditures |
|
|
|
(7,203 |
) |
|
|
|
|
(7,203 |
) |
|||||
Proceeds from disposition of properties |
|
|
|
102,452 |
|
|
|
|
|
102,452 |
|
|||||
Proceeds from sale of restricted investments |
|
|
|
908 |
|
|
|
|
|
908 |
|
|||||
Purchase of restricted investments |
|
|
|
(944 |
) |
|
|
|
|
(944 |
) |
|||||
Net cash provided by investing activities |
|
|
|
95,213 |
|
|
|
|
|
95,213 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Proceeds from stock options exercised, stock purchase plan and other, net |
|
1,256 |
|
|
|
|
|
|
|
1,256 |
|
|||||
Debt issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|||||
Advances (to) from subsidiaries |
|
59,172 |
|
(68,045 |
) |
8,873 |
|
|
|
|
|
|||||
Net cash (used in) provided by financing activities |
|
60,428 |
|
(68,045 |
) |
8,873 |
|
|
|
1,256 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Change in cash and cash equivalents |
|
63,402 |
|
25,676 |
|
8,603 |
|
|
|
97,681 |
|
|||||
Cash and cash equivalents at beginning of period |
|
53,030 |
|
26,824 |
|
13,579 |
|
|
|
93,433 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents at end of period |
|
$ |
116,432 |
|
$ |
52,500 |
|
$ |
22,182 |
|
$ |
|
|
$ |
191,114 |
|
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Six Months Ended September 1, 2007
(in thousands)
(unaudited)
|
|
Pier 1 |
|
Guarantor |
|
Non-Guarantor |
|
|
|
|
|
|||||
|
|
Imports, Inc. |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Total |
|
|||||
Cash flow from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Net cash provided by (used in) operating activities |
|
$ |
4,469 |
|
$ |
(64,032 |
) |
$ |
6,526 |
|
$ |
|
|
$ |
(53,037 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Capital expenditures |
|
|
|
(2,665 |
) |
|
|
|
|
(2,665 |
) |
|||||
Proceeds from disposition of properties |
|
|
|
3,505 |
|
|
|
|
|
3,505 |
|
|||||
Proceeds from sale of restricted investments |
|
|
|
6,373 |
|
|
|
|
|
6,373 |
|
|||||
Purchase of restricted investments |
|
|
|
(589 |
) |
|
|
|
|
(589 |
) |
|||||
Net cash provided by investing activities |
|
|
|
6,624 |
|
|
|
|
|
6,624 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Proceeds from stock options exercised, stock purchase plan and other, net |
|
2,105 |
|
|
|
|
|
|
|
2,105 |
|
|||||
Debt issuance costs |
|
|
|
(998 |
) |
|
|
|
|
(998 |
) |
|||||
Advances (to) from subsidiaries |
|
(41,353 |
) |
48,071 |
|
(6,718 |
) |
|
|
|
|
|||||
Net cash (used in) provided by financing activities |
|
(39,248 |
) |
47,073 |
|
(6,718 |
) |
|
|
1,107 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Change in cash and cash equivalents |
|
(34,779 |
) |
(10,335 |
) |
(192 |
) |
|
|
(45,306 |
) |
|||||
Cash and cash equivalents at beginning of period |
|
111,163 |
|
43,699 |
|
12,316 |
|
|
|
167,178 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents at end of period |
|
$ |
76,384 |
|
$ |
33,364 |
|
$ |
12,124 |
|
$ |
|
|
$ |
121,872 |
|
Note 6 Defined benefit plans
The Company maintains supplemental retirement plans (the Plans) for certain of its executive officers. The Plans provide that upon death, disability, reaching retirement age, and certain termination events, a participant will receive benefits based on highest compensation, years of service and years of plan participation. Benefit costs are determined using actuarial cost methods to estimate the total benefits ultimately payable to executive officers and this cost is allocated to the respective service periods.
The Plans are not funded and thus have no plan assets. The actuarial assumptions used to calculate benefit costs are reviewed annually, or in the event of a material change in the Plans or participation in the Plans. The components of net periodic benefit costs for the three and six months ended August 30, 2008 and September 1, 2007 were as follows (in thousands):
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
August 30, |
|
September 1, |
|
August 30, |
|
September 1, |
|
||||
Components of net periodic benefits cost: |
|
|
|
|
|
|
|
|
|
||||
Service cost |
|
$ |
225 |
|
$ |
40 |
|
$ |
369 |
|
$ |
80 |
|
Interest cost |
|
230 |
|
183 |
|
454 |
|
366 |
|
||||
Amortization of unrecognized prior service costs |
|
137 |
|
39 |
|
275 |
|
78 |
|
||||
Amortization of net actuarial loss |
|
53 |
|
36 |
|
105 |
|
73 |
|
||||
Settlement charge |
|
|
|
1,065 |
|
|
|
1,065 |
|
||||
Curtailment charge |
|
368 |
|
|
|
368 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net periodic benefit cost |
|
$ |
1,013 |
|
$ |
1,363 |
|
$ |
1,571 |
|
$ |
1,662 |
|
Note 7 Income taxes
The Company continues to provide a valuation allowance against all deferred tax assets. As a result, the Company did not record a federal or state tax benefit on its operating loss for the three or six months ended August 30, 2008. Minimal provisions for state and foreign income tax were made for the period.
Note 8 Sale of office building and related assets
Note 9 Reclassification
The Companys home office building and related assets were reclassified during the first quarter of fiscal 2009 to noncurrent assets from assets held for sale which were included in current assets at March 1, 2008. This reclassification on the balance sheet was made in all prior periods presented to reflect the fact that the Company entered into a lease for a portion of the building when the sale transaction was completed, and therefore the building did not meet the definition of assets held for sale at the balance sheet dates. Depreciation was recorded on the assets through the date of sale and the reclassification had no impact on the results of operations or statement of cash flows in any period presented. As stated in Note 8 of the Notes to Consolidated Financial Statements above, the office building and related assets were sold on June 9, 2008.
Note 10 - New Accounting Pronouncements
In May 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), which clarifies that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants. Additionally, this FSP specifies that issuers of such instruments should separately account for the liability
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
and equity components in a manner that will reflect the entitys nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This FSP will be applied retrospectively to all periods presented. FSP APB 14-1 is effective for the Company at the beginning of fiscal year 2010. The Company is currently evaluating the impact of the adoption on its financial statements.
18
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of financial condition, results of operations, and liquidity and capital resources should be read in conjunction with the Companys consolidated financial statements as of March 1, 2008, and for the year then ended, and related Notes and Managements Discussion and Analysis of Financial Condition and Results of Operations, all contained in the Companys Annual Report on Form 10-K for the year ended March 1, 2008.
Management Overview
Pier 1 Imports, Inc. (together with its consolidated subsidiaries, the Company) is a global importer and is one of North Americas largest specialty retailers of imported decorative home furnishings and gifts. The Company directly imports merchandise from over 50 countries, and sells a wide variety of furniture collections, wicker, decorative accessories, bed and bath products, candles, housewares and other seasonal assortments in its stores. The results of operations for the three and six months ended August 30, 2008 and September 1, 2007 are not indicative of results to be expected for the fiscal year because of, among other things, seasonality factors in the retail business. Historically, the strongest sales of the Companys products have occurred during the holiday season beginning in November and continuing through December. The Company conducts business as one operating segment and operates stores in the United States and Canada under the name Pier 1 Imports. As of August 30, 2008, the Company operated 1,112 stores in the United States and Canada.
The Companys performance during the second quarter of fiscal 2009 was an improvement over the same period in the prior year, but it was not as strong as management had anticipated. The Company attributes the results to both the current challenging economic environment and internal execution. To clear out summer merchandise and prepare the stores for the arrival of fall and harvest assortments, the Company offered deeper discounts than originally planned, especially in markets that were experiencing greater economic difficulties such as Phoenix, Las Vegas, Florida and Atlanta. As a result, the Company did not achieve optimal merchandise margins during the quarter, but will enter the third quarter of fiscal 2009 with clean inventory.
Conversion during the quarter increased over the prior year and there was a slight increase in traffic. However, the Company saw a decrease in average ticket because its back-to-school strategy emphasized lower ticket items to the detriment of its furniture business. In addition, sales were negatively impacted during the first half of the year by a reduction in marketing expenditures as the Company shifted the use of approximately $8 million to $12 million marketing dollars to coincide with the critical holiday selling season. In order to continue to increase conversion rates and drive incremental traffic, the Companys marketing plan for the remainder of the year includes retail mailers with larger circulations than last year, robust email and web advertising, various credit card promotions as well as the reintroduction of television advertising during the months of November and December.
The Company ended the second quarter of fiscal 2009 with a strong balance sheet that included $191.1 million in cash. This cash position was the result of operating cash inflows of $1.2 million as well as proceeds of $102.4 million from the sale of the Companys corporate headquarters building and accompanying land. The Company continues to focus on balancing inventory levels with the flow of new products and adjusting the timing of purchases to receive inventory closer to when it is actually needed and maintaining optimal store levels. The Company is constantly re-evaluating and readjusting its inventory strategy to achieve and maintain this balance. In addition, the Company will continue to focus on maximizing merchandise margin dollars, improving conversion rates and increasing average ticket. The current macro-economic environment will continue to impact the Companys turnaround strategy, but the Company will continue to focus on what it
19
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. (continued)
can control, continuing to make the Company more efficient and cost effective in every way. Cost savings, particularly in the supply chain, will continue to offset any increases in merchandise costs resulting from increased fuel costs and general inflationary pressures.
The Companys management believes that the success of the Companys turnaround will best be measured by two key metrics: merchandise margin and operating profit. Year-over-year comparisons of these metrics will provide better insight into the Companys progress in a challenging retail environment. The Companys ability to improve profitability will depend on maintaining traffic levels that are at least neutral compared to the prior year. During the month of September, traffic was down 8% and comparable store sales declined 11.7% compared to the same month in the prior year. Assuming these trends continue, the Company will not meet current analysts consensus on earnings estimates for the second half of fiscal 2009.
Results of Operations
Management reviews a number of key performance indicators to evaluate the Companys financial performance. The following table summarizes those key performance indicators for the three and six months ended August 30, 2008 and September 1, 2007:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||
|
|
August 30, |
|
September 1, |
|
August 30, |
|
September 1, |
|
||
Key Performance Indicators |
|
|
|
|
|
|
|
|
|
||
Total sales decline |
|
(7.0 |
)% |
(7.0 |
)% |
(10.0 |
)% |
(6.1 |
)% |
||
Comparable stores sales decline |
|
(1.7 |
)% |
(3.6 |
)% |
(3.9 |
)% |
(4.5 |
)% |
||
Merchandise margins as a % of sales |
|
49.3 |
% |
47.0 |
% |
50.3 |
% |
46.3 |
% |
||
Gross profit as a % of sales |
|
26.9 |
% |
25.4 |
% |
27.6 |
% |
24.9 |
% |
||
Selling, general and administrative expenses as a % of sales |
|
33.4 |
% |
34.1 |
% |
34.3 |
% |
35.6 |
% |
||
Operating loss as a % of sales |
|
(8.9 |
)% |
(11.7 |
)% |
(9.3 |
)% |
(13.7 |
)% |
||
Net loss as a % of sales |
|
(9.4 |
)% |
(12.6 |
)% |
(10.0 |
)% |
(14.2 |
)% |
||
|
|
|
|
|
|
|
|
||||
|
|
For the period ended |
|
|
|
|
|
||||
|
|
August 30, |
|
September 1, |
|
|
|
|
|
||
Sales per average retail square foot (1) |
|
$ |
161 |
|
$ |
166 |
|
|
|
|
|
Inventory per retail square foot |
|
$ |
43 |
|
$ |
42 |
|
|
|
|
|
Total retail square footage (in thousands) |
|
8,737 |
|
8,975 |
|
|
|
|
|
||
Total retail square footage decline |
|
|
|
|
|
|
|
|
|
||
from the same period last year |
|
(2.7 |
)% |
(4.9 |
)% |
|
|
|
|
(1) Calculated using a rolling 12-month total of store sales over a 13-month retail square footage weighted average.
Net Sales Net sales consisted almost entirely of sales to retail customers, net of discounts and returns, but also included delivery service revenues and wholesale sales and royalties. Sales by retail concept during the period were as follows (in thousands):
20
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. (continued)
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
August 30, |
|
September 1, |
|
August 30, |
|
September 1, |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Stores |
|
$ |
316,554 |
|
$ |
340,452 |
|
$ |
623,636 |
|
$ |
680,782 |
|
Direct to consumer |
|
|
|
3,241 |
|
|
|
8,377 |
|
||||
Other (1) |
|
3,940 |
|
873 |
|
6,878 |
|
11,782 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
320,494 |
|
$ |
344,566 |
|
$ |
630,514 |
|
$ |
700,941 |
|
(1) Other sales consisted primarily of wholesale sales and royalties received from franchise stores, Grupo Sanborns, S.A. de C.V., and other third parties.
Net sales for the second quarter of fiscal 2009 were $320.5 million, down 7.0% or $24.1 million from last years second quarter net sales of $344.6 million. Net sales declined $70.4 million or 10.0% from $700.9 million to $630.5 million during the six-month period ended August 30, 2008 when compared to the same period last year. Comparable store sales for the quarter and year-to-date periods declined 1.7% and 3.9%, respectively. Sales for the six-month period were comprised of the following incremental components (in thousands):
|
|
|
|
|
Net Sales |
|
|
|
|
|
|
|
Net sales for the six months ended September 1, 2007 |
|
|
|
|
$ |
700,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental sales growth (decline) from: |
|
|
|
|
|
|
|
|
|
|
|
|
New stores opened during fiscal 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Stores opened during fiscal 2008 |
|
|
|
|
1,550 |
|
|
|
|
|
|
|
Comparable stores |
|
|
|
|
(25,477 |
) |
|
|
|
|
|
|
Closed stores and other |
|
|
|
|
(46,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales for the six months ended August 30, 2008 |
|
|
|
|
$ |
630,514 |
|
|
|
|
|
|
As shown in the table, the decline in total sales was primarily due to store closures, including all the remaining Pier 1 Kids locations and the closure of the Companys e-commerce and catalog sales in the prior year, and comparable store sales declines during the first half of the year. During fiscal 2008, the Company closed 83 store locations, including all Pier 1 Kids and clearance stores. In addition, the Company closed its direct to consumer business which included e-commerce and catalog sales. Total store count as of August 30, 2008 was 1,112, compared to 1,157 stores a year ago.
A summary reconciliation of the Companys stores open at the beginning of fiscal 2009 to the number open at the end of the second quarter follows:
21
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. (continued)
|
|
United States |
|
Canada |
|
Total |
|
Open at March 1, 2008 |
|
1,034 |
|
83 |
|
1,117 |
|
Openings |
|
|
|
|
|
|
|
Closings |
|
(4 |
) |
(1 |
) |
(5 |
) |
Open at August 30, 2008 (1) |
|
1,030 |
|
82 |
|
1,112 |
|
(1) The Company supplies merchandise and licenses the Pier 1 name to Grupo Sanborns, S.A. de C.V. and Sears Roebuck de Puerto Rico, Inc. which sell Pier 1 Imports merchandise primarily in a store within a store format. At August 30, 2008, there were 33 and seven locations in Mexico and Puerto Rico, respectively.
Gross Profit Gross profit after related buying and store occupancy costs, expressed as a percentage of sales, increased 150 basis points to 26.9% for the second quarter of fiscal 2009, and increased 270 basis points to 27.6% for the first six months of fiscal 2009. As a percentage of sales, merchandise margins increased 230 basis points for the second quarter and 400 basis points for the six-month period ended August 30, 2008, from the comparable periods a year ago. This increase was primarily the result of the Companys disciplined focus to generate gross margin dollars during the current year. Margins were impacted by the semi-annual clearance in July 2008 followed by deeper than anticipated markdowns on outdoor furniture and garden accessories in August 2008, especially in markets experiencing greater economic difficulties such as Phoenix, Las Vegas, Florida and Atlanta. The Companys merchandising efforts and decreased use of promotional events during the first half of fiscal 2009 compared to the prior year had a positive impact. On a comparable store basis, merchandise margin dollars increased approximately 1% for the quarter and 1.6% year-to-date over the same periods last year. Comparable store merchandise margins are determined on a basis similar to comparable store sales.
Store occupancy costs for the quarter were $72.0 million, or 22.5% of sales, a $2.6 million decrease compared to last years second quarter store occupancy expense of $74.6 million. Year-to-date, store occupancy costs were $143.4 million, or 22.7% of sales, a decrease of $6.2 million compared to the same period last year.
Operating Expenses, Depreciation and Income Taxes Selling, general and administrative expenses for the second quarter of fiscal 2009 were $107.0 million, or 33.4% of sales, a decrease of $10.4 million, or 70 basis points as a percentage of sales, from the same quarter last year. Year-to-date selling, general and administrative expenses were $216.4 million, or 34.3% of sales, a decrease of $33.2 million or 130 basis points as a percentage of sales. Selling, general and administrative expenses for the quarter and year-to-date periods included the following charges summarized in the tables below (in thousands):
22
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. (continued)
|
|
August 30, 2008 |
|
September 1, 2007 |
|
Increase / |
|
|||||||
Quarter |
|
Expense |
|
% of Sales |
|
Expense |
|
% of Sales |
|
(Decrease) |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Store payroll |
|
$ |
53,530 |
|
16.7 |
% |
$ |
54,538 |
|
15.8 |
% |
$ |
(1,008 |
) |
Marketing |
|
9,768 |
|
3.0 |
% |
13,754 |
|
4.0 |
% |
(3,986 |
) |
|||
Store supplies, services and other |
|
7,592 |
|
2.4 |
% |
9,067 |
|
2.6 |
% |
(1,475 |
) |
|||
Variable costs |
|
70,890 |
|
22.1 |
% |
77,359 |
|
22.5 |
% |
(6,469 |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Administrative payroll (excluding severance) |
|
19,335 |
|
6.0 |
% |
20,012 |
|
5.8 |
% |
(677 |
) |
|||
Lease termination costs and impairments |
|
2,391 |
|
0.7 |
% |
5,541 |
|
1.6 |
% |
(3,150 |
) |
|||
Severance and other |
|
944 |
|
0.3 |
% |
1,818 |
|
0.5 |
% |
(874 |
) |
|||
Acquisition costs |
|
1,657 |
|
0.5 |
% |
|
|
|
|
1,657 |
|
|||
Other relatively fixed expenses |
|
11,826 |
|
3.7 |
% |
12,727 |
|
3.7 |
% |
(901 |
) |
|||
|
|
36,153 |
|
11.3 |
% |
40,098 |
|
11.6 |
% |
(3,945 |
) |
|||
|
|
$ |
107,043 |
|
33.4 |
% |
$ |
117,457 |
|
34.1 |
% |
$ |
(10,414 |
) |
|
|
August 30, 2008 |
|
September 1, 2007 |
|
Increase / |
|
|||||||
Year-to-Date |
|
Expense |
|
% of Sales |
|
Expense |
|
% of Sales |
|
(Decrease) |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Store payroll |
|
$ |
106,164 |
|
16.8 |
% |
$ |
111,822 |
|
16.0 |
% |
$ |
(5,658 |
) |
Marketing |
|
22,442 |
|
3.6 |
% |
34,587 |
|
4.9 |
% |
(12,145 |
) |
|||
Store supplies, services and other |
|
15,475 |
|
2.5 |
% |
19,166 |
|
2.7 |
% |
(3,691 |
) |
|||
Variable costs |
|
144,081 |
|
22.9 |
% |
165,575 |
|
23.6 |
% |
(21,494 |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Administrative payroll (excluding severance) |
|
40,058 |
|
6.4 |
% |
41,940 |
|
6.0 |
% |
(1,882 |
) |
|||
Lease termination costs and impairments |
|
2,978 |
|
0.5 |
% |
8,984 |
|
1.3 |
% |
(6,006 |
) |
|||
Severance and other |
|
3,168 |
|
0.5 |
% |
5,335 |
|
0.8 |
% |
(2,167 |
) |
|||
Acquisition costs |
|
1,657 |
|
0.3 |
% |
|
|
|
|
1,657 |
|
|||
Other relatively fixed expenses |
|
24,469 |
|
3.9 |
% |
27,747 |
|
4.0 |
% |
(3,278 |
) |
|||
|
|
72,330 |
|
11.5 |
% |
84,006 |
|
12.0 |
% |
(11,676 |
) |
|||
|
|
$ |
216,411 |
|
34.3 |
% |
$ |
249,581 |
|
35.6 |
% |
$ |
(33,170 |
) |
Expenses that fluctuate proportionately to some degree with sales and number of stores, such as store payroll, marketing, store supplies and other related expenses decreased $6.5 million from the same quarter last year and $21.5 million year-to-date. Store payroll decreased $1.0 million for the quarter and $5.7 million year-to-date primarily as a result of a decrease in total number of stores as well as a planned reduction in store staffing levels. Marketing expenditures decreased $4.0 million for the quarter and $12.1 million year-to-date as a result of an absence of television advertising after the second quarter of fiscal 2008, as well as a shift in marketing expenditures to the second half of fiscal 2009, when marketing dollars will have the most impact during the holiday selling season. The Company anticipates total marketing expenditures for fiscal 2009 to be approximately 4% of sales. Other variable expenses, primarily supplies and equipment rental, decreased $1.5 million for the quarter and $3.7 million for the year-to-date period.
Relatively fixed selling, general and administrative expenses decreased $3.9 million from the same quarter last year and $11.7 million year-to-date from the same period as last year, primarily as a result of less impairment charges and lease termination costs in the current year. In addition, severance and outplacement costs decreased $1.0 million for the quarter and $2.6 million for the year-to-date period,
23
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. (continued)
primarily as a result of expenses incurred in the prior year related to a reduction in work force at the Companys home office without a comparable reduction in the current year. These decreases were partially offset by $1.7 million in expenses related to the Companys withdrawn proposal to acquire all of the outstanding common stock shares of Cost Plus, Inc.
Depreciation and amortization expense for the second quarter and year-to-date periods was $7.5 million and $16.2 million, respectively, compared to $10.4 million and $21.0 million for the same periods last year. The decreases were primarily the result of store closures and the sale of the home office building and related assets during the second quarter of fiscal 2009.
The operating loss for the quarter was $28.4 million compared to $40.4 million for last years second quarter. For the first half of fiscal 2009, operating losses totaled $58.9 million compared to $95.9 million for the same period last year.
The Company continues to provide a valuation allowance against all deferred tax assets. As a result, the Company did not record a federal or state tax benefit on its operating loss for the first six months of fiscal 2009. Minimal provisions for state and foreign income tax were made for the period. As of August 30, 2008, the Company had tax loss carryforwards of greater than $200.0 million. These loss carryforwards, with expirations beginning in fiscal year 2027, can be utilized to offset future income for U.S. federal tax purposes.
Inventory Inventory levels at the end of the second quarter of fiscal 2009 were $379.1 million, down $32.7 million or 7.9%, from inventory levels at the end of fiscal 2008. This decrease was due in part to clearance activity during the second quarter of fiscal 2009 to ensure that inventory was clean and ready for the receipt of fall and holiday merchandise. At the end of the second quarter of fiscal 2009, inventory per retail square foot was $43 compared to $42 at the end of the second quarter of fiscal 2008 and $47 at fiscal 2008 year end. Inventory levels increased $4.6 million, or 1.2%, from the second quarter of fiscal 2008. The Company anticipates that inventory per store will begin to increase as the holiday selling season gets closer and will decline at year end. Inventory levels at the distribution centers have declined during the quarter as inventory continues to be shifted to the stores. This decrease at the distribution centers allowed the Company to exit approximately 350,000 square feet of outside distribution center space during the second quarter of fiscal 2009. Current inventory levels are in line with the Companys plan for the fiscal year. The Company expects inventory to be approximately $410 million at the end of the third quarter of fiscal 2009 and expects to end the fiscal year with inventory levels of approximately $350 million to $360 million compared to $412 million at fiscal 2008 year end.
The Company ended the second quarter of fiscal 2009 with $191.1 million in cash and temporary investments compared to $121.9 million a year ago. Operating activities in the first six months of fiscal 2009 provided $1.2 million of cash, primarily as a result of a reduction in inventory and the collection of a $12.4 million income tax refund, including related interest, partially offset by the Companys net loss.
During the first half of fiscal 2009, investing activities provided $95.2 million compared to $6.6 million during the same period last year. During the second quarter of fiscal 2009, the Company sold its corporate headquarters building and accompanying land to Chesapeake Plaza, L.L.C., an affiliate of
24
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. (continued)
Chesapeake Energy Corporation, for net proceeds of $102.4 million. This cash inflow was partially offset by capital expenditures of $7.2 million in fiscal 2009 compared to $2.7 million in fiscal 2008, consisting primarily of $2.8 million for fixtures, equipment, and leasehold improvements for existing stores, $2.7 million related to home office leasehold improvements, $0.8 million related to the Companys distribution centers and $0.9 million for information systems enhancements. Capital expenditures for fiscal 2009 are expected to be approximately $15 million to $17 million.
Financing activities for the first six months of fiscal 2009 provided a net $1.3 million of the Companys cash, primarily related to the Companys stock purchase plan.
At the end of the second quarter, the Companys minimum operating lease commitments remaining for fiscal 2009 were $117.2 million. The present value of total existing minimum operating lease commitments discounted at 10% was $803.1 million at the fiscal 2009 second quarter-end.
As part of the sale of the Companys home office building and accompanying land, the Company entered into a lease agreement to rent office space in the building. The lease has a primary term of seven years beginning on June 9, 2008, with one three-year renewal option and provisions for terminating the lease at the end of the fifth lease year. The estimated impact of this lease on the Companys contractual obligations, as presented in the Companys Annual Report on Form 10-K for the year ended March 1, 2008, is an increase in operating leases of approximately $4.7 million, $12.2 million, $13.1 million and $4.4 million for the periods of less than one year, one to three years, three to five years and more than five years, respectively.
Working capital requirements are expected to be funded from available cash balances, cash generated from the operations of the Company, and if required, borrowings against lines of credit. The Companys bank facilities at the end of the second quarter of fiscal 2009 included a $325 million credit facility, which was secured by the Companys eligible merchandise inventory and third-party credit card receivables; the Company owned real estate was removed from the borrowing base in June 2008. As of August 30, 2008, the Company had no outstanding cash borrowings and had utilized $103.6 million in letters of credit and bankers acceptances. The Company will not be required to comply with debt covenants under the facility unless the availability under such agreement is less than $32.5 million. The Company does not anticipate falling below this minimum availability in the foreseeable future. As of August 30, 2008, the Companys calculated borrowing base was $252.7 million. After excluding the required minimum $32.5 million from the borrowing base, $116.6 million remained available for cash borrowings. The Company was in compliance with required debt covenants at the end of the second quarter of fiscal 2009. Given the Companys cash position and the various liquidity options available, the Company believes it has sufficient liquidity to fund ongoing operational obligations and capital expenditure requirements.
New Accounting Pronouncements
In May 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), which clarifies that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants. Additionally, this FSP specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entitys nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This FSP will be applied retrospectively to all periods presented. FSP APB 14-1 is effective for the Company at the beginning of fiscal year 2010. The Company is currently evaluating the impact of the adoption on its financial statements.
25
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. (continued)
Forward-looking Statements
Certain matters discussed in this quarterly report, except for historical information contained herein, may constitute forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Forward-looking statements provide current expectations of future events based on certain assumptions. These statements encompass information that does not directly relate to any historical or current fact and often may be identified with words such as anticipates, believes, expects, estimates, intends, plans, projects and other similar expressions. Managements expectations and assumptions regarding planned store openings, financing of Company obligations from operations, results from its new marketing, merchandising and store operations strategies, and other future results are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. Risks and uncertainties that may affect Company operations and performance include, among others, the effects of terrorist attacks or other acts of war, conflicts or war involving the United States or its allies or trading partners, labor strikes, weather conditions or natural disasters, volatility of fuel and utility costs, the general strength of the economy and levels of consumer spending, consumer confidence, the availability of suitable sites for locating stores and distribution facilities, availability of a qualified labor force and management, the availability and proper functioning of technology and communications systems supporting the Companys key business processes, the ability of the Company to import merchandise from foreign countries without significantly restrictive tariffs, duties or quotas, and the ability of the Company to source, ship and deliver items of acceptable quality to its U.S. distribution centers at reasonable prices and rates and in a timely fashion. The foregoing risks and uncertainties are in addition to others, if any, discussed elsewhere in this quarterly report. The Company assumes no obligation to update or otherwise revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied will not be realized. Additional information concerning these risks and uncertainties is contained in the Companys Annual Report on Form 10-K for the fiscal year ended March 1, 2008, as filed with the Securities and Exchange Commission.
Impact of Inflation
Inflation has not had a significant impact on the operations of the Company.
26
PART I
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
There are no material changes to the Companys market risk as disclosed in its Form 10-K filed for the fiscal year ended March 1, 2008.
Item 4. Controls and Procedures.
As required by Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the Exchange Act), an evaluation was conducted under the supervision and with the participation of the Companys management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures as of August 30, 2008, and based on this evaluation the Chief Executive Officer and Chief Financial Officer have concluded, with reasonable assurance, that the Companys disclosure controls and procedures were effective as of such date to ensure that information required to be disclosed by the Company in its reports filed or furnished under the Exchange Act is (a) accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure, and (b) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms.
There has not been any change in the Companys internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
The Company is a party to various legal proceedings and claims in the ordinary course of its business. The Company believes that the outcome of these matters will not have a material adverse effect on its consolidated financial position, results of operations or liquidity.
There are no material changes from risk factors previously disclosed in the Companys Annual Report on Form 10-K for the fiscal year ended March 1, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Under the Companys secured credit facility, the Company would not be restricted from paying dividends unless the availability under the credit facility is less than 30% of the Companys calculated borrowing base. The Company is not required to comply with financial covenants under its secured credit facility unless the availability under such agreement is less than $32.5 million.
27
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The information required by this Item was previously reported by the Company on its Quarterly Report on Form 10-Q for the quarterly period ended May 31, 2008.
As reported in the Companys Proxy Statement for Annual Meetings of Shareholders, the Companys Board of Directors authorized amendments to Mr. Smiths Employment Agreement and Option Agreement. Those amendments have been completed and are filed herewith as exhibits 10.19.3 and 10.19.4.
The Exhibit Index following the signature page to this Quarterly Report on Form 10-Q lists the exhibits furnished as required by Item 601 of Regulation S-K and is incorporated herein by reference.
28
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
PIER 1 IMPORTS, INC. (Registrant) |
||||
|
|
|
||||
|
|
|
|
|||
Date: |
October 7, 2008 |
|
|
By: |
/s/ Alexander W. Smith |
|
|
|
|
|
|
Alexander W. Smith, President and |
|
|
|
|
|
|
Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: |
October 7, 2008 |
|
|
By: |
/s/ Charles H. Turner |
|
|
|
|
|
|
Charles H. Turner, Executive Vice President and |
|
|
|
|
|
|
Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: |
October 7, 2008 |
|
|
By: |
/s/ Laura A. Schack |
|
|
|
|
Laura A. Schack, Principal Accounting Officer |
|||
29
EXHIBIT INDEX
Exhibit No. |
|
Description |
|
|
|
3(i) |
|
Certificate of Incorporation and Amendments thereto, incorporated herein by reference to Exhibit 3(i) to Registrants Quarterly Report on Form 10-Q for the quarter ended May 30, 1998. |
|
|
|
3(ii) |
|
Bylaws of the Company as amended to date, incorporated herein by reference to Exhibit 3(ii) to Registrants Annual Report on Form 10-K for the year ended February 26, 2005. |
|
|
|
10.1* |
|
Pier 1 Imports Limited Severance Plan. |
|
|
|
10.2 |
|
Agreement for Severance Benefits and for Release, Waiver and Nondisclosure, incorporated herein by reference to Exhibit 99.1 to the Companys Form 8-K filed October 1, 2008. |
|
|
|
10.19.3* |
|
First Amendment to Employment Agreement by and between Alexander W. Smith and Pier 1 Imports, Inc., dated October 6, 2008. |
|
|
|
10.19.4* |
|
First Amendment to Non-Qualified Stock Option Agreement between Alexander W. Smith and Pier 1 Imports, Inc., dated October 6, 2008. |
|
|
|
21* |
|
Subsidiaries of the Company. |
|
|
|
31.1* |
|
Certification of the Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a). |
|
|
|
31.2* |
|
Certification of the Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a). |
|
|
|
32.1* |
|
Section 1350 Certifications. |
*Filed herewith
30