e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
March 3, 2007
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File
No. 1-7832
PIER 1 IMPORTS, INC.
(Exact name of registrant as
specified in its charter)
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DELAWARE
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75-1729843
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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100 Pier 1 Place
Fort Worth, Texas
(Address of principal
executive offices)
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76102
(Zip Code)
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Companys telephone number, including area code:
(817) 252-8000
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $1.00 par value
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated
filer o Accelerated
filer þ Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
As of August 26, 2006, the approximate aggregate market
value of voting stock held by non-affiliates of the registrant
was $433,510,000 using the closing sales price on that day of
$5.69.
As of May 9, 2007, 88,301,082 shares of the
registrants common stock, $1.00 par value, were
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the following documents have been incorporated
herein by reference:
1) Registrants Proxy Statement for the 2007 Annual
Meeting in Part III hereof.
PIER 1
IMPORTS, INC.
FORM 10-K
ANNUAL REPORT
Fiscal
Year Ended March 3, 2007
TABLE OF
CONTENTS
PART I
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(a)
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General
Development of
Business.
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Throughout this report, references to the Company
include Pier 1 Imports, Inc. and its consolidated subsidiaries.
References to Pier 1 relate to the Companys
retail locations operating under the name Pier 1
Imports®.
References to Pier 1 Kids relate to the
Companys retail locations operating under the name Pier 1
Kids®.
On March 20, 2006, the Company announced the sale of its
subsidiary based in the United Kingdom, The Pier Retail Group
Limited (The Pier). At fiscal 2006 year end,
The Pier was classified as held for sale and included in
discontinued operations for all years presented in the
Companys financial statements; therefore, all discussions
in this report relate to continuing operations, unless stated
otherwise.
In fiscal 2007, the Company opened 34 new Pier 1 stores, closed
57 Pier 1 stores and closed seven Pier 1 Kids stores. Subject to
changes in the retail environment, availability of suitable
store sites, lease renewal negotiations and availability of
adequate financing, the Company plans to open approximately five
new Pier 1 stores and close approximately 60 stores, including
10 Pier 1 Kids stores, during fiscal 2008.
Set forth below is a list by city of Pier 1 stores opened in the
United States and Canada in fiscal 2007:
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Brossard, QC
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Lake Forest, CA
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Riverdale, NJ
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Carlisle, PA
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Lewiston, ID
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Sacramento, CA
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City of Industry, CA
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Lodi, CA
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Somers Point, NJ
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Clifton, NJ
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Lompoc, CA
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Southlake, TX
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Concord, CA
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Medina, OH
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Stillwater, OK
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Downey, CA
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Mill Creek, WA
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Taunton, MA
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Estero, FL
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Mission Viejo, CA
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Vancouver, WA
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Eureka, CA
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Oklahoma City, OK
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Victoria, BC
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Evanston, IL
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Palm Beach Gardens, FL
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Woodbridge, NJ
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Fort Myers, FL
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Phillipsburg, NJ
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Yuba City, CA
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Fort Worth, TX
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Portland, OR
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Kailua, HI
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Pottstown, PA
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Presently, the Company maintains regional distribution center
facilities in or near Baltimore, Maryland; Chicago, Illinois;
Columbus, Ohio; Fort Worth, Texas; Ontario, California;
Savannah, Georgia; and Tacoma, Washington. Upon the expiration
of its lease during fiscal 2007, the Pier 1 Kids distribution
facility in Fort Worth, Texas was closed, and the
merchandise was moved into the Companys existing
distribution center in Savannah, Georgia.
During fiscal 2007, the Company had an arrangement to supply
Sears Roebuck de Mexico, S.A. de C.V. (Sears Mexico)
with merchandise to be sold primarily in a store within a
store format in certain Sears Mexico stores. The agreement
with Sears Mexico expired December 31, 2006, and was
renewed under similar terms with Sears Mexicos parent
company, Grupo Sanborns, S.A. de C.V., and will expire
January 1, 2012. The agreement is structured in a manner,
which substantially insulates the Company from currency
fluctuations in the value of the Mexican peso. In fiscal 2007,
Sears Mexico opened three new store within a store
locations offering Pier 1 merchandise. As of March 3, 2007,
Pier 1 merchandise was offered in 29 Sears Mexico stores. Sears
Mexicos expansion plans for fiscal 2008 include opening
five new store within a store locations in Mexico to
sell Pier 1 merchandise. Since Sears Mexico operates these
locations, the Company has no employees or real estate
obligations in Mexico.
The Company has a product distribution agreement with Sears
Roebuck de Puerto Rico, Inc. (Sears Puerto Rico),
which allows Sears Puerto Rico to market and sell Pier 1
merchandise in a store within a store format in
certain Sears Puerto Rico stores. The Company has no employee or
real estate obligations in
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Puerto Rico because Sears Puerto Rico operates these locations.
As of March 3, 2007, Pier 1 merchandise was offered in
seven Sears Puerto Rico stores. Sears Puerto Rico has no plans
for new store within a store locations in Puerto
Rico during fiscal 2008.
During fiscal 2007, the Company sold its credit card operations,
which included its credit card bank located in Omaha, Nebraska,
that operated under the name Pier 1 National Bank, N.A. (the
Bank) to Chase Bank USA, N.A. (Chase).
The sale was comprised of the Companys proprietary credit
card receivables, certain charged-off accounts and the common
stock of the Bank. The Company and Chase have entered into a
long-term program agreement. Under this agreement, the Company
will continue to support the card through marketing programs and
will receive payments over the life of the agreement for
transaction level incentives, marketing support and other
program terms.
Since June 2000, the Company has operated an
e-commerce
web site, which received an average of 5.7 million visits
per month in fiscal 2007, and can be accessed at www.pier1.com.
This site is a useful marketing vehicle for the Company while
providing customers with access to the Companys products
and services at their convenience. Customers can shop
substantially all of the Companys merchandise assortment,
as well as purchase gift cards, create and manage bridal and
gift registries, view interactive catalogs, watch the most
recent TV commercials and sign up for marketing email and direct
mail. In March 2007, the Company implemented new features on its
e-commerce
web site to allow customers to utilize discount and coupon codes
at checkout and redeem the Companys gift cards.
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(b)
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Financial
Information about Industry
Segments.
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In fiscal 2007, the Company conducted business as one operating
segment consisting of the retail sale of decorative home
furnishings, gifts and related items.
Financial information with respect to the Companys
business is found in the Companys Consolidated Financial
Statements, which are set forth in Item 8 herein.
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(c)
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Narrative
Description of
Business.
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The specialty retail operations of the Company consist of retail
stores operating under the names Pier 1 Imports and
Pier 1 Kids, selling a wide variety of furniture,
decorative home furnishings, dining and kitchen goods, bath and
bedding accessories and other specialty items for the home.
On March 3, 2007, the Company operated 1,076 Pier 1 and 36
Pier 1 Kids stores in the United States, 84 Pier 1 stores in
Canada, and supported three franchised stores in the United
States. All three franchise agreements expire in June 2007.
During fiscal 2007, the Company supplied merchandise and
licensed the Pier 1 Imports name to Sears Mexico and Sears
Puerto Rico, which sold Pier 1 merchandise primarily in a
store within a store format in 29 Sears Mexico
stores and in seven Sears Puerto Rico stores. Company-operated
Pier 1 stores in the United States and Canada average
approximately 9,800 gross square feet, which includes an
average of approximately 7,900 square feet of retail
selling space. The stores consist of freestanding units located
near shopping centers or malls and in-line positions in major
shopping centers. Pier 1 operates in all major
U.S. metropolitan areas and many of the primary smaller
markets. Pier 1 stores generally have their highest sales
volumes during November and December as a result of the holiday
selling season. In fiscal 2007, net sales of the Company totaled
$1,623.2 million.
Pier 1 offers a diverse selection of current products consisting
of approximately 3,000 items imported from over 40 countries
around the world. While the broad categories of Pier 1s
merchandise remain constant, individual items within these
product groupings change frequently in order to meet the demands
of customers. The principal categories of merchandise include
the following:
FURNITURE This product group consists of
furniture and furniture cushions to be used on patios and in
living, dining, kitchen and bedroom areas, and in sunrooms. This
product group constituted approximately 38% of Pier 1s
total U.S. and Canadian retail sales in fiscal year 2007, 40% in
fiscal year 2006 and 39% in fiscal year 2005. These goods are
imported from a variety of countries such as Italy, Malaysia,
Brazil, Mexico, China, the Philippines and Indonesia, and are
also obtained from domestic
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sources. The furniture is made of metal or handcrafted natural
materials, including rattan, pine, beech, rubberwood and
selected hardwoods with either natural, stained or painted
finishes. Pier 1 also sells upholstered furniture.
DECORATIVE ACCESSORIES This product group
constitutes the broadest category of merchandise in Pier
1s sales mix and contributed approximately 27% to Pier
1s total U.S. and Canadian retail sales in fiscal year
2007, 26% in fiscal year 2006 and 25% in fiscal year 2005. These
items are imported from approximately 35 countries and include
wood items, lamps, vases, dried and artificial flowers, baskets,
wall decorations and numerous other decorative items. A majority
of these products are handcrafted from natural materials.
HOUSEWARES This product group is imported
mainly from the Far East and Europe and includes ceramics,
dinnerware and other functional and decorative items. These
goods accounted for approximately 12% of Pier 1s total
U.S. and Canadian retail sales in fiscal year 2007, 13% in
fiscal years 2006 and 2005.
BED, BATH & CANDLES This product
group is imported mainly from India, Germany, Thailand and
China, and is also obtained from domestic sources. This group
includes bath and fragrance products, candles and bedding. These
goods accounted for approximately 17% of Pier 1s total
U.S. and Canadian retail sales in fiscal year 2007, 15% in
fiscal year 2006 and 16% in fiscal year 2005.
SEASONAL This product group consists of
merchandise for celebrating holidays and spring/summer
entertaining, imported mainly from Europe, Indonesia, China, the
Philippines and India, and also obtained from domestic sources.
These items accounted for approximately 6% of Pier 1s
total U.S. and Canadian retail sales in fiscal year 2007, 6% in
fiscal year 2006 and 7% in fiscal year 2005.
Pier 1 merchandise largely consists of items that require a
significant degree of handcraftsmanship and are mostly imported
directly from foreign suppliers. For the most part, the imported
merchandise is handcrafted in cottage industries and small
factories. Pier 1 is not dependent on any particular supplier
and has enjoyed long-standing relationships with many vendors
and agents. The Company believes alternative sources of products
could be procured over a relatively short period of time, if
necessary. In selecting the source of a product, Pier 1
considers quality, dependability of delivery and cost. During
fiscal 2007, Pier 1 sold merchandise imported from over
40 different countries with 35% of its sales derived from
merchandise produced in China, 14% derived from merchandise
produced in Indonesia, 13% derived from merchandise produced in
India, 13% derived from merchandise produced in the United
States and 21% derived from merchandise produced in Brazil,
Thailand, Italy, the Philippines, Vietnam and Mexico. The
remaining 4% of sales was from merchandise produced in various
Asian, European, Central American, South American and African
countries, and Canada.
Imported merchandise and a portion of domestic purchases are
delivered to the Companys distribution centers, unpacked
and made available for shipment to the various stores in each
distribution centers region. Because of the time delays
involved in procuring merchandise from foreign suppliers, the
Company maintains a substantial inventory in its distribution
center facilities to assure a sufficient supply of products to
its stores.
The Company, through certain of its wholly owned subsidiaries,
owns a number of federally registered service marks under which
Pier 1 and Pier 1 Kids stores do business. Additionally, certain
subsidiaries of the Company have registered and have
applications pending for the registration of certain other Pier
1 and Pier 1 Kids trademarks and service marks in the United
States and in numerous foreign countries. The Company believes
that its marks have significant value and are important in its
marketing efforts. The Company maintains a policy of pursuing
registration of its marks and opposing any infringement of its
marks.
The Company is in the highly competitive specialty retail
business and competes primarily with specialty sections of large
department stores, furniture and decorative home furnishings
retailers, small specialty stores, mass merchandising
discounters, and catalog and Internet retailers.
The Company allows customers to return merchandise within a
reasonable time after the date of purchase without limitation as
to reason. Most returns occur within 30 days of the date of
purchase. The Company
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monitors the level of and stated reasons for returns and
maintains a reserve for future returns based on historical
experience and other known factors.
On March 3, 2007, the Company employed approximately 15,400
associates in the United States and Canada, of which
approximately 7,100 were full-time employees and 8,300 were
part-time employees.
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(d)
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Financial
Information about Geographic
Areas.
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Information required by this Item is found in Note 1 of
the Notes to the Consolidated Financial Statements.
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(e)
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Available
Information.
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The Company makes available free of charge through its Internet
web site address (www.pier1.com) its annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports filed with the Securities and
Exchange Commission pursuant to Section 13(a) of the
Securities Exchange Act of 1934 as soon as reasonably
practicable after it electronically files such material with, or
furnishes such material to, the Securities and Exchange
Commission.
Certain statements contained in Item 1, Item 7 and
elsewhere in this report may constitute forward-looking
statements within the meaning of Section 21E of the
Securities Exchange Act of 1934. The Company may also make
forward-looking statements in other reports filed with the
Securities and Exchange Commission and in material delivered to
the Companys shareholders. 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, success of its 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 centers,
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 from foreign countries
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 discussed elsewhere in
this 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.
The following information describes certain significant risks
and uncertainties inherent in the Companys business that
should be carefully considered, along with other information
contained elsewhere in this report and in other filings, when
making an investment decision with respect to the Company. If
one or more of these risks actually occurs, the impact on the
Companys operations, financial position, or liquidity
could be material and the business could be harmed
substantially. Additional risks and uncertainties not presently
known to the Company or that it currently believes are
immaterial may also adversely affect the Companys
business, financial condition, future results of operations and
cash flow.
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Strategic
Risks and Strategy Execution Risks
The
Companys turnaround strategy may cause a disruption in
operations and may not be successful.
The Company announced a strategy in April 2007, described in
Item 7, for returning the Company to profitability. The
turnaround strategy may negatively impact the Companys
operations, which could include disruptions from the realignment
of operational functions within the home office, changes in the
store administration reporting structure, and changes in the
Companys product assortments or marketing strategies.
These changes could adversely affect the Companys business
operations and financial results. While the Company believes any
disruptions would be short-term, it is unknown whether the
impact would be material. In addition, if the Companys
turnaround strategy is not successful, or if it is not executed
effectively, the Companys business operations and
financial results could be adversely affected.
The
Company must be able to anticipate, identify and respond to
changing trends and customer preferences for home
furnishings.
The success of the Companys specialty retail business
depends upon its ability to predict trends in home furnishings
consistently and to provide merchandise that satisfies consumer
demand in a timely manner. Consumer preferences often change and
may not be reasonably predicted. A majority of the
Companys merchandise is manufactured, purchased and
imported from countries around the world and is typically
ordered well in advance of the applicable selling season.
Extended lead times may make it difficult to respond rapidly to
changes in consumer demand and as a result, the Company may be
unable to react quickly and source needed merchandise. In
addition, the Companys vendors may not have the ability to
handle its increased demand for product. The seasonal nature of
the business leads the Company to purchase and requires it to
carry a significant amount of inventory prior to its peak
selling season. As a result, the Company may be vulnerable to
changes in evolving home furnishing trends, customer
preferences, and pricing shifts, and may misjudge the timing and
selection of merchandise purchases. The Companys failure
to anticipate, predict and respond in a timely manner to
changing home furnishing trends could lead to lower sales and
additional discounts and markdowns in an effort to clear
merchandise, which could have a negative impact on merchandise
margins and in turn the results of operations.
Failure
to control merchandise returns could negatively impact the
business.
The Company has established a provision for estimated
merchandise returns based upon historical experience and other
known factors. If actual returns are greater than those
projected by management, additional reductions of revenue could
be recorded in the future. Also, to the extent that returned
merchandise is damaged, the Company may not receive full retail
value from the resale of the returned merchandise. Introductions
of new merchandise, changes in merchandise mix, merchandise
quality issues, changes in consumer confidence, or other
competitive and general economic conditions may cause actual
returns to exceed the provision for estimated merchandise
returns. An increase in merchandise returns that exceeds the
Companys current provisions could negatively impact the
business and operating results.
A
disruption in the operation of the domestic portion of the
Companys supply chain could impact its ability to deliver
merchandise to its stores and customers, which could impact its
sales and results of operations.
The Company maintains regional distribution centers in Maryland,
Illinois, Ohio, Texas, California, Georgia and Washington. At
these distribution centers, merchandise is received, allocated,
and shipped to the Companys stores. Additionally, the
Company has outsourced the distribution of merchandise ordered
through its
e-commerce
website to a third party who maintains its own distribution
center in Tennessee. Major catastrophic events such as fire or
flooding, malfunction or disruption of the information systems,
or shipping problems could result in distribution delays of
merchandise to the Companys stores and customers. Such
disruptions could have a negative impact on the Companys
sales and results of operations.
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The
success of the business is dependent on factors affecting
consumer spending that are not controllable by the
Company.
Consumer spending, including spending for the home and
home-related furnishings, are dependent upon factors that
include but are not limited to general economic conditions,
levels of employment, disposable consumer income, prevailing
interest rates, consumer debt, costs of fuel, recession and
fears of recession, war and fears of war, inclement weather, tax
rates and rate increases, consumer confidence in future economic
conditions and political conditions, and consumer perceptions of
personal well-being and security. Unfavorable changes in factors
affecting discretionary spending could reduce demand for the
Companys products and therefore lower sales and negatively
impact the business and its operating results.
Factors
that may or may not be controllable by the Company may adversely
affect the Companys financial performance.
Increases in the Companys expenses that are beyond the
Companys control including items such as higher interest
rates, increases in fuel and transportation costs, increases in
losses from damaged merchandise, inflation, higher costs of
labor, insurance and healthcare, increases in postage and media
costs, higher tax rates and changes in laws and regulations,
including accounting standards, may increase the Companys
cost of sales and selling, general and administrative expenses,
negatively impacting the Companys operating results.
Failure
to successfully manage and execute the Companys marketing
initiatives could have a negative impact on the
business.
The success and growth of the Company is partially dependent on
generating customer traffic in order to gain sales momentum in
its stores and on its
e-commerce
web site. Successful marketing efforts require the ability to
reach customers through their desired mode of communication
utilizing various media outlets. Media placement decisions are
generally made months in advance of the scheduled release date.
The Companys inability to accurately predict its
consumers preferences may negatively impact the business
and operating results.
Changes
to estimates related to the Companys property and
equipment, or operating results that are lower than its current
estimates at certain store locations, may cause the Company to
incur impairment charges on certain long-lived
assets.
The Company makes certain estimates and projections with regards
to individual store operations in connection with its impairment
analyses for long-lived assets in accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. An impairment charge is
required when the carrying value of the asset exceeds the
estimated fair value or undiscounted future cash flows of the
asset. The projection of future cash flows used in this analysis
requires the use of judgment and a number of estimates and
projections of future operating results. If actual results
differ from the Companys estimates, additional charges for
asset impairments may be required in the future. If impairment
charges are significant, the Companys results of
operations could be adversely affected.
Risks
Related to Store Profitability
The
Companys success depends, in part, on its ability to
operate in desirable locations at reasonable rental rates and to
close underperforming stores at or before the conclusion of
their lease terms.
The profitability of the business is dependent on opening and
operating new stores at a reasonable profit, maintaining and
growing the current store base at a reasonable profit, and
identifying and closing underperforming stores. For a majority
of the Companys current store base, a large portion of a
stores operating expense is the cost associated with
leasing the location. Management actively monitors individual
store performance to ensure stores can remain profitable or have
the ability to rebound to a profitable state. Current locations
may not continue to be desirable as demographics change, and the
Company may choose to close an underperforming store before its
lease expires. If management chooses to close an existing store
before its lease expiration, the Company could suffer operating
losses until the lease term expires or until the lease
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arrangement has been restructured or the lease obligation has
been settled. The Company cannot give assurance that a reduction
in openings or increase in closings will result in greater
profits.
Failure
to attract and retain an effective management team or changes in
the costs or availability of a suitable workforce to manage and
support the Companys stores and distribution facilities
could adversely affect the business.
The Companys success is dependent, in a large part, on
being able to successfully attract, motivate and retain a
qualified management team and employees. Sourcing qualified
candidates to fill important positions within the Company,
especially management, in the highly competitive retail
environment may prove to be a challenge. The inability to
recruit and retain such individuals could result in turnover in
the stores and the distribution facilities, which could have an
adverse effect on the business. Management will continue to
assess the Companys compensation structure in an effort to
attract future qualified candidates or retain current
experienced management team members.
Occasionally the Company experiences union organizing activities
in its non-unionized distribution facilities. These types of
activities may result in work slowdowns or stoppages and higher
labor costs. Any increase in costs associated with labor
organization at the distribution facilities could result in
higher costs to distribute inventory and could negatively impact
merchandise margins.
Factors
affecting the general strength of the economy, should they
decline, could result in reduced consumer demand for the
Companys products.
The Companys successful execution relies on customer
demand for its merchandise, which is affected by factors that
are impacted by prevailing economic conditions. A general
slowdown in the United States economy and an uncertain economic
outlook may adversely affect consumer spending which in turn
could result in lower sales and unfavorable operating results. A
prolonged economic downturn could have a material adverse effect
on the business, and its financial condition and results of
operations.
The
Company operates in a highly competitive retail environment with
companies offering similar merchandise, and if customers are
lost to the Companys competitors, sales could
decline.
The Companys retail locations,
e-commerce
web site and direct mail catalog business operate in the highly
competitive specialty retail business competing with specialty
sections of large department stores, home furnishing stores,
small specialty stores, mass merchandising discounters and
catalog and Internet retailers. Management believes that in
addition to competing for sales, it competes on the basis of
pricing and quality of products, constantly changing merchandise
assortment, visual presentation of its merchandise and customer
service. The level of competition is not anticipated to decrease
and if the Company is unable to maintain a competitive position,
it could experience negative pressure on retail prices, which in
turn could result in reduced merchandise margins and operating
results.
The
Companys business is subject to seasonal variations, with
a significant portion of its sales and earnings occurring during
two months of the year.
Approximately 25% of the Companys sales generally occur
during the November-December holiday selling season. Failure to
predict consumer demand correctly during these months could
result in lost sales or gross margin erosion if merchandise must
be marked down to clear inventory.
The
Companys business may be harmed by adverse weather
conditions and natural disasters.
Extreme or undesirable weather can affect customer traffic in
retail stores as well as customer shopping behavior. Natural
disasters such as earthquakes, weather phenomena, and events
causing infrastructure failures could adversely affect any of
the Companys retail locations, distribution centers,
administrative facilities, ports, or locations of its suppliers
domestically and in foreign countries.
9
Risks
Associated with Dependence on Technology
The
Company is heavily dependent on various kinds of technology in
the operation of its business.
Failure of any critical software applications, technology
infrastructure, telecommunications, data communications, or
networks could have a material adverse effect on the
Companys ability to manage the merchandise supply chain,
sell products, accomplish payment functions or report financial
data. The Company maintains backup processing capabilities;
however, not all processes and applications are duplicated, and
a concentration of technology related risk does exist at the
Companys headquarters.
The
Company outsources certain business processes to third party
vendors that subject the Company to risks, including disruptions
in business and increased costs.
Some business processes that are dependent on technology are
outsourced to third parties. Such processes include gift card
tracking and authorization, credit card authorization and
processing, catalog and
e-commerce
fulfillment, insurance claims processing, U.S. customs
filings and reporting, payroll payments and tax filings, and
record keeping for retirement plans. The Company makes a
diligent effort to insure that all providers of outsourced
services observe proper internal control practices, such as
redundant processing facilities; however, there are no
guarantees that failures will not occur. Failure of third
parties to provide adequate services could have an adverse
effect on the Companys results of operations, liquidity,
or ability to accomplish its financial and management reporting.
Failure
to protect the integrity and security of individually
identifiable data of the Companys customers and employees
could expose the Company to litigation and damage the
Companys reputation.
The Company receives and maintains certain personal information
about its customers and employees. If the Companys
security systems are compromised and this information is
obtained by unauthorized persons, it could adversely affect the
Companys reputation, as well as operations, results of
operations, financial condition and liquidity, and could result
in litigation against the Company or the imposition of
penalties. In addition, the use of this information by the
Company is regulated at the federal and state levels. As privacy
and information security laws and regulations change, the
Company may incur additional costs to insure it remains in
compliance.
Regulatory
Risks
The
Company is subject to laws and regulatory requirements in many
jurisdictions. Changes in these laws and requirements may result
in additional costs to the Company, including the costs of
compliance as well as potential penalties for
non-compliance.
The Company operates in many local, state, and federal taxing
jurisdictions, including foreign countries. In most of these
jurisdictions, the Company is required to collect state and
local sales taxes at the point of sale and remit them to the
appropriate taxing authority. The Company is also subject to
income taxes, excise taxes, franchise taxes, payroll taxes and
other special taxes. The Company is also required to maintain
various kinds of business and commercial licenses to operate its
stores and other facilities. Rates of taxation are beyond the
Companys control, and increases in such rates or taxation
methods and rules could have a material impact on the
Companys profitability. Failure to comply with laws
concerning the collection and remittance of taxes and with
licensing requirements could also subject the Company to
financial penalties or business interruptions.
Local, state, and federal legislation also has a potential
material effect on the Companys profitability or ability
to operate its business. Compliance with certain legislation
carries with it significant costs. The Company is subject to
oversight by many governmental agencies in the course of
operating its business because of its numerous locations, large
number of employees, contact with consumers, granting of credit,
and importation and exportation of product. Insuring compliance
with regulations may cause the Company to incur significant
expenses, including the costs associated with periodic audits.
Failure to comply may also cause additional costs in the form of
penalties.
10
Risks
Associated with International Trade
As a
retailer of imported merchandise, the Company is subject to
certain risks that typically do not affect retailers of
domestically produced merchandise.
The Company usually orders merchandise well in advance of
delivery and generally takes title to the merchandise at the
time it is loaded for transport to designated
U.S. destinations. Global political unrest, war, threats of
war, terrorist acts or threats, especially threats to foreign
and U.S. ports, could affect the Companys ability to
import merchandise from certain countries. Fluctuations in
foreign currency exchange rates, restrictions on the
convertibility of the dollar and other currencies, duties, taxes
and other charges on imports, dock strikes, import quota systems
and other restrictions sometimes placed on foreign trade can
affect the price, delivery and availability of imported
merchandise as well as exports to the Companys stores in
other countries. The inability to import products from certain
countries, unavailability of adequate shipping capacity at
reasonable rates, or the imposition of significant tariffs could
have a material adverse effect on the results of operations of
the Company. Freight costs contribute a substantial amount to
the cost of imported merchandise. Monitoring of foreign
vendors compliance with U.S. laws and Company
standards, including quality standards, is more difficult than
monitoring of domestic vendors.
The United States government has the authority to enforce trade
agreements, resolve trade disputes, and open foreign markets to
U.S. goods and services. The United States government may
also impose trade sanctions on foreign countries that are deemed
to violate trade agreements or maintain laws or practices that
are unjustifiable and restrict U.S. commerce. In these
situations, the United States government may increase duties on
imports into the United States from one or more foreign
countries. In this event, the Company could be adversely
affected by the imposition of trade sanctions.
In addition, the United States maintains in effect a variety of
additional international trade laws under which the
Companys ability to import may be affected from time to
time, including, but not limited to, the antidumping law, the
countervailing duty law, the safeguards law, and laws designed
to protect intellectual property rights. Although the Company
may not be directly involved in a particular trade dispute under
any of these laws, its ability to import, or the terms and
conditions under which it can continue to import, may be
affected by the outcome of such disputes.
In particular, because the Company imports merchandise from
countries around the world, the Company may be affected from
time to time by antidumping petitions filed with the United
States Commerce Department and International Trade Commission by
U.S. producers of competing products alleging that foreign
manufacturers are selling their own products at prices in the
United States that are less than the prices that they charge in
their home country market or in third country markets or at less
than their cost of production. Such petitions, if successful,
could significantly increase the United States import duties on
those products. In that event, the Company might possibly decide
to pay the increased duties, thereby possibly increasing the
Companys price to consumers. Alternatively, the Company
might decide to source the product or a similar product from a
different country not subject to increased duties or else
discontinue the importation and sale of the product.
In recent years, dispute resolution processes have been utilized
to resolve disputes regarding market access between the European
Union, China, the United States and other countries. In some
instances, these trade disputes can lead to the threats by
countries of sanctions against each other, which can include
import prohibitions and increased duty rates on imported items.
The Company considers any agreement that reduces tariff and
non-tariff barriers in international trade beneficial to its
business. Any type of sanction on imports is likely to increase
the Companys import costs or limit the availability of
products purchased from sanctioned countries. In that case, the
Company may be required to seek similar products from other
countries.
11
Risks
Relating to Liquidity
Insufficient
cash flows from operations could result in the substantial
utilization of the Companys secured credit facility, which
may impose certain financial covenants.
The Company maintains a secured credit facility to enable it to
issue merchandise and special purpose standby letters of credit
as well as occasionally to fund working capital requirements.
Borrowings under the credit facility are subject to a borrowing
base calculation consisting of a percentage of certain eligible
assets of the Company. Substantial utilization of the
availability under the borrowing base will result in various
restrictions on the Company including: restricting the ability
of the Company to repurchase its common stock or pay dividends,
dominion over the Companys cash accounts, and requiring
compliance with a minimum fixed charge coverage ratio.
Significant decreases in cash flow from operations and investing
could result in the Companys borrowing increased amounts
under the credit facility to fund operational needs. Increases
in utilization of letters of credit
and/or
increased cash borrowings could result in the Companys
being subject to these limitations.
|
|
Item 1B.
|
Unresolved
Staff
Comments.
|
None.
The Company is headquartered in Fort Worth, Texas. In
August 2004, the Company completed construction of its corporate
facilities, which contain approximately 460,000 square feet
of office space. The Company transitioned Pier 1 Kids
administrative offices from their 21,000 square-foot
offices, also located in Fort Worth, Texas, to its
corporate headquarters during the second quarter of fiscal 2007
prior to the expiration of that lease in September 2006.
The Company leases the majority of its retail stores, its
warehouses and regional space. At March 3, 2007, the
present value of the Companys minimum future operating
lease commitments discounted at 10% totaled approximately
$902.5 million. The Company currently owns and leases
distribution center space of approximately five million square
feet. The Company also acquires temporary distribution center
space from time to time through short-term leases.
12
The following table sets forth the distribution of Pier 1s
U.S. and Canadian stores by state and province as of
March 3, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
(company-operated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama
|
|
|
15
|
|
|
Louisiana
|
|
|
15
|
|
|
Ohio
|
|
|
36
|
|
Alaska
|
|
|
1
|
|
|
Maine
|
|
|
1
|
|
|
Oklahoma
|
|
|
9
|
|
Arizona
|
|
|
24
|
|
|
Maryland
|
|
|
25
|
|
|
Oregon
|
|
|
14
|
|
Arkansas
|
|
|
8
|
|
|
Massachusetts
|
|
|
27
|
|
|
Pennsylvania
|
|
|
41
|
|
California
|
|
|
121
|
|
|
Michigan
|
|
|
39
|
|
|
Rhode Island
|
|
|
3
|
|
Colorado
|
|
|
27
|
|
|
Minnesota
|
|
|
20
|
|
|
South Carolina
|
|
|
17
|
|
Connecticut
|
|
|
21
|
|
|
Mississippi
|
|
|
7
|
|
|
South Dakota
|
|
|
2
|
|
Delaware
|
|
|
4
|
|
|
Missouri
|
|
|
21
|
|
|
Tennessee
|
|
|
19
|
|
Florida
|
|
|
79
|
|
|
Montana
|
|
|
6
|
|
|
Texas
|
|
|
87
|
|
Georgia
|
|
|
35
|
|
|
Nebraska
|
|
|
5
|
|
|
Utah
|
|
|
12
|
|
Hawaii
|
|
|
4
|
|
|
Nevada
|
|
|
9
|
|
|
Virginia
|
|
|
36
|
|
Idaho
|
|
|
7
|
|
|
New Hampshire
|
|
|
6
|
|
|
Washington
|
|
|
28
|
|
Illinois
|
|
|
45
|
|
|
New Jersey
|
|
|
37
|
|
|
West Virginia
|
|
|
5
|
|
Indiana
|
|
|
19
|
|
|
New Mexico
|
|
|
5
|
|
|
Wisconsin
|
|
|
19
|
|
Iowa
|
|
|
9
|
|
|
New York
|
|
|
46
|
|
|
Wyoming
|
|
|
1
|
|
Kansas
|
|
|
9
|
|
|
North Carolina
|
|
|
35
|
|
|
|
|
|
|
|
Kentucky
|
|
|
11
|
|
|
North Dakota
|
|
|
4
|
|
|
|
|
|
|
|
|
United States
(franchised)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arizona
|
|
|
1
|
|
|
Kentucky
|
|
|
1
|
|
|
Nevada
|
|
|
1
|
|
|
Canada
(company-operated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alberta
|
|
|
11
|
|
|
New Brunswick
|
|
|
2
|
|
|
Ontario
|
|
|
36
|
|
British Columbia
|
|
|
14
|
|
|
Newfoundland
|
|
|
1
|
|
|
Quebec
|
|
|
15
|
|
Manitoba
|
|
|
2
|
|
|
Nova Scotia
|
|
|
1
|
|
|
Saskatchewan
|
|
|
2
|
|
At the end of fiscal 2007, the Company had 11 Pier 1 Kids stores
in Florida, eight stores in Texas, seven stores in North
Carolina, three stores in Virginia, two stores in Georgia, two
stores in Maryland, one store in Alabama, one store in Delaware
and one store in New Jersey.
As of March 3, 2007, the Company owned or leased the
following warehouse properties in or near the following cities:
|
|
|
|
|
|
|
|
|
Owned/Leased
|
Location
|
|
Approx. Sq. Ft.
|
|
Facility
|
|
Baltimore, Maryland
|
|
981,000 sq. ft.
|
|
Leased
|
Chicago, Illinois
|
|
514,000 sq. ft
|
|
Owned
|
Columbus, Ohio
|
|
527,000 sq. ft.
|
|
Leased
|
Fort Worth, Texas
|
|
460,000 sq. ft.
|
|
Owned
|
Fort Worth, Texas
|
|
263,000 sq. ft.
|
|
Leased
|
Ontario, California
|
|
747,000 sq. ft.
|
|
Leased
|
Savannah, Georgia
|
|
784,000 sq. ft.
|
|
Leased
|
Tacoma, Washington
|
|
451,000 sq. ft.
|
|
Leased
|
The Company constructed a new distribution facility under a
build-to-suit
arrangement, with a resulting lease that qualified for operating
lease treatment, near Tacoma, Washington and began operating
this facility in March 2006. Upon the expiration of its lease
during fiscal 2007, the Company transitioned Pier 1 Kids
distribution facilities from a separate facility in
Fort Worth, Texas into its existing distribution center in
13
Savannah, Georgia. The Savannah facility is closer to the Pier 1
Kids stores and will now service both Pier 1 and Pier 1
Kids stores.
|
|
Item 3.
|
Legal
Proceedings.
|
During fiscal 2007, the Company recorded a pre-tax charge of
$4.9 million for settlement of and legal fees related to
class action lawsuits in California primarily regarding
compensation matters. Cash outlays related to the settlement are
expected to be completed in fiscal 2008.
There are various claims, lawsuits, investigations and pending
actions against the Company and its subsidiaries incident to the
operations of its business. The Company considers them to be
ordinary and routine in nature. The Company maintains liability
insurance against most of these claims. Excluding the class
action lawsuits discussed above, it is the opinion of
management, after consultation with counsel, that the ultimate
resolution of such litigation will not have a material adverse
effect, either individually or in aggregate, on the
Companys financial position, results of operations or
liquidity.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security
Holders.
|
There were no matters submitted to a vote of the Companys
security holders during the fourth quarter of the Companys
2007 fiscal year.
PART II
|
|
Item 5.
|
Market
for the Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity
Securities.
|
Market
Prices of Common Stock
The following table shows the high and low closing sale prices
of the Companys common stock on the New York Stock
Exchange (the NYSE), as reported in the consolidated
transaction reporting system for each quarter of fiscal 2007 and
2006.
|
|
|
|
|
|
|
|
|
|
|
Market Price
|
|
Fiscal 2007
|
|
High
|
|
|
Low
|
|
|
First quarter
|
|
$
|
12.65
|
|
|
$
|
8.07
|
|
Second quarter
|
|
|
9.12
|
|
|
|
5.68
|
|
Third quarter
|
|
|
7.81
|
|
|
|
5.84
|
|
Fourth quarter
|
|
|
6.86
|
|
|
|
5.95
|
|
Fiscal 2006
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
19.42
|
|
|
$
|
14.35
|
|
Second quarter
|
|
|
16.79
|
|
|
|
12.90
|
|
Third quarter
|
|
|
13.37
|
|
|
|
9.96
|
|
Fourth quarter
|
|
|
13.36
|
|
|
|
8.56
|
|
Number
of Holders of Record
The Companys common stock is traded on the NYSE. As of
April 30, 2007, there were approximately
9,900 shareholders of record of the Companys common
stock.
Dividends
During fiscal 2007, the Company paid cash dividends totaling
approximately $17.4 million, or $0.20 per share. In
October 2006, the Company announced that its Board of Directors
discontinued the Companys $0.10 per share quarterly
dividend. The Company believes that discontinuing the cash
dividend will provide financial flexibility as it executes the
Companys turnaround strategy. The Company does not
currently
14
anticipate paying cash dividends in fiscal 2008 and its dividend
policy in the near term will depend upon the earnings, financial
condition and capital needs of the Company and other factors
deemed relevant by the Companys Board of Directors.
The following table shows the dividends paid per share for each
quarter of fiscal 2007 and 2006:
|
|
|
|
|
|
|
Cash Dividends
|
|
Fiscal 2007
|
|
per Share
|
|
|
First quarter
|
|
$
|
.10
|
|
Second quarter
|
|
|
.10
|
|
Third quarter
|
|
|
|
|
Fourth quarter
|
|
|
|
|
Fiscal 2006
|
|
|
|
|
First quarter
|
|
$
|
.10
|
|
Second quarter
|
|
|
.10
|
|
Third quarter
|
|
|
.10
|
|
Fourth quarter
|
|
|
.10
|
|
Cash dividend payments are not restricted by the Companys
secured credit facility unless the availability under the
Companys credit facility is less than 30% of the
Companys borrowing base calculation. Such borrowing base
calculation consists of a percentage of eligible inventory and
third-party credit card receivables and varies according to the
levels of the underlying collateral. As of March 3, 2007,
the Company had no outstanding cash borrowings, approximately
$124.0 million in letters of credit utilized against its
secured credit facility, and the borrowing base was
$239.7 million. 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. After excluding the $32.5 million, the
Company had $83.2 million available for cash borrowings as
of year end, therefore, was in compliance with required debt
covenants at fiscal 2007 year end.
Securities
Authorized for Issuance under Equity Compensation
Plans
The following table summarizes the Companys equity
compensation plans as of March 3, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
(a)
|
|
|
|
|
|
Future Issuance Under
|
|
|
|
Number of Securities
|
|
|
(b)
|
|
|
Equity Compensation
|
|
|
|
to be Issued Upon
|
|
|
Weighted Average
|
|
|
Plans (Excluding
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
Securities Reflected
|
|
Plan Category
|
|
Outstanding Options
|
|
|
Outstanding Options
|
|
|
in Column
(a))(1)
|
|
|
Equity compensation plans approved
by security holders
|
|
|
12,668,125
|
|
|
$
|
14.52
|
|
|
|
1,326,153
|
|
Equity compensation plans not
approved by security
holders(2)
|
|
|
3,000,000
|
|
|
$
|
6.69
|
|
|
|
|
|
|
|
|
(1)
|
|
The number of shares remaining
available for future issuance represents shares available for
grant under the Pier 1 Imports, Inc. 2006 Stock Incentive Plan.
|
|
(2)
|
|
Equity compensation plans not
approved by security holders represent the employment inducement
stock options granted under the President and Chief Executive
Officers employment agreement. See Note 11 of the
Notes to Consolidated Financial Statements for additional
information regarding the material features of this stock option
grant.
|
15
Performance
Graph
The following graph compares the five-year cumulative total
shareholder return for the Companys common stock against
the Standard & Poors 500 Stock Index and the
Standard & Poors Retail Stores Composite Index.
The annual changes for the five-year period shown on the graph
are based on the assumption, as required by the Securities and
Exchange Commissions rules, that $100 had been invested in
the Companys stock and in each index on March 2,
2002, and that all quarterly dividends were reinvested at the
average of the closing stock prices at the beginning and end of
the quarter. The total cumulative dollar returns shown on the
graph represent the value that such investments would have had
on March 3, 2007.
PIER 1
IMPORTS, INC. STOCK PERFORMANCE GRAPH
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
There were no purchases of common stock of the Company made
during the three months ended March 3, 2007, by Pier 1
Imports, Inc. or any affiliated purchaser of Pier 1
Imports, Inc. as defined in
Rule 10b-18(a)(3)
under the Securities Exchange Act of 1934.
16
|
|
Item 6.
|
Selected
Financial
Data.
|
FINANCIAL
SUMMARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
2007(1)
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
($ In millions except per share amounts)
|
|
|
SUMMARY OF
OPERATIONS(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,623.2
|
|
|
|
1,776.7
|
|
|
|
1,825.3
|
|
|
|
1,806.1
|
|
|
|
1,703.4
|
|
Gross
profit(3)
|
|
$
|
474.0
|
|
|
|
601.7
|
|
|
|
703.6
|
|
|
|
760.9
|
|
|
|
736.4
|
|
Selling, general and
administrative
expenses(4)
|
|
$
|
649.0
|
|
|
|
588.3
|
|
|
|
549.6
|
|
|
|
526.1
|
|
|
|
487.0
|
|
Depreciation and amortization
|
|
$
|
51.2
|
|
|
|
56.2
|
|
|
|
55.8
|
|
|
|
48.9
|
|
|
|
44.7
|
|
Operating income (loss)
|
|
$
|
(226.2
|
)
|
|
|
(42.8
|
)
|
|
|
98.2
|
|
|
|
186.0
|
|
|
|
204.8
|
|
Nonoperating (income) and
expenses, net
|
|
$
|
1.9
|
|
|
|
(0.9
|
)
|
|
|
(0.9
|
)
|
|
|
(1.0
|
)
|
|
|
(0.6
|
)
|
Income (loss) from continuing
operations before income taxes
|
|
$
|
(228.1
|
)
|
|
|
(41.9
|
)
|
|
|
99.1
|
|
|
|
187.0
|
|
|
|
205.6
|
|
Income (loss) from continuing
operations, net of tax
|
|
$
|
(227.2
|
)
|
|
|
(27.5
|
)
|
|
|
62.8
|
|
|
|
117.7
|
|
|
|
129.6
|
|
Income (loss) from discontinued
operations, net of tax
|
|
$
|
(0.4
|
)
|
|
|
(12.3
|
)
|
|
|
(2.3
|
)
|
|
|
0.3
|
|
|
|
(0.3
|
)
|
Net income (loss)
|
|
$
|
(227.6
|
)
|
|
|
(39.8
|
)
|
|
|
60.5
|
|
|
|
118.0
|
|
|
|
129.4
|
|
PER SHARE AMOUNTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) from
continuing operations
|
|
$
|
(2.59
|
)
|
|
|
(.32
|
)
|
|
|
.72
|
|
|
|
1.32
|
|
|
|
1.40
|
|
Diluted earnings (loss) from
continuing operations
|
|
$
|
(2.59
|
)
|
|
|
(.32
|
)
|
|
|
.71
|
|
|
|
1.29
|
|
|
|
1.36
|
|
Basic earnings (loss) from
discontinued operations
|
|
$
|
(.01
|
)
|
|
|
(.14
|
)
|
|
|
(.03
|
)
|
|
|
.00
|
|
|
|
.00
|
|
Diluted earnings (loss) from
discontinued operations
|
|
$
|
(.01
|
)
|
|
|
(.14
|
)
|
|
|
(.03
|
)
|
|
|
.00
|
|
|
|
.00
|
|
Basic earnings (loss) consolidated
|
|
$
|
(2.60
|
)
|
|
|
(.46
|
)
|
|
|
.69
|
|
|
|
1.32
|
|
|
|
1.39
|
|
Diluted earnings (loss)
consolidated
|
|
$
|
(2.60
|
)
|
|
|
(.46
|
)
|
|
|
.68
|
|
|
|
1.29
|
|
|
|
1.36
|
|
Cash dividends declared
|
|
$
|
.20
|
|
|
|
.40
|
|
|
|
.40
|
|
|
|
.30
|
|
|
|
.21
|
|
Shareholders equity
|
|
$
|
4.13
|
|
|
|
6.81
|
|
|
|
7.63
|
|
|
|
7.66
|
|
|
|
6.93
|
|
OTHER FINANCIAL DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
349.4
|
|
|
|
486.1
|
|
|
|
387.4
|
|
|
|
433.0
|
|
|
|
432.3
|
|
Current ratio
|
|
|
2.2
|
|
|
|
2.7
|
|
|
|
2.3
|
|
|
|
2.5
|
|
|
|
2.8
|
|
Total assets
|
|
$
|
916.5
|
|
|
|
1,169.9
|
|
|
|
1,075.7
|
|
|
|
1,052.2
|
|
|
|
972.7
|
|
Long-term debt
|
|
$
|
184.0
|
|
|
|
184.0
|
|
|
|
19.0
|
|
|
|
19.0
|
|
|
|
25.0
|
|
Shareholders equity
|
|
$
|
361.1
|
|
|
|
590.0
|
|
|
|
664.4
|
|
|
|
683.6
|
|
|
|
643.9
|
|
Weighted average diluted shares
outstanding (millions)
|
|
|
87.4
|
|
|
|
86.6
|
|
|
|
88.8
|
|
|
|
91.6
|
|
|
|
95.3
|
|
Effective tax
rate(5)
|
|
|
0.4
|
%
|
|
|
34.5
|
|
|
|
36.7
|
|
|
|
37.1
|
|
|
|
37.0
|
|
Return on average
shareholders equity
|
|
|
(47.8
|
)%
|
|
|
(4.4
|
)
|
|
|
9.3
|
|
|
|
17.7
|
|
|
|
21.1
|
|
Return on average total assets
|
|
|
(21.8
|
)%
|
|
|
(2.4
|
)
|
|
|
5.9
|
|
|
|
11.6
|
|
|
|
14.1
|
|
Pre-tax return on sales
|
|
|
(14.1
|
)%
|
|
|
(2.4
|
)
|
|
|
5.4
|
|
|
|
10.4
|
|
|
|
12.1
|
|
|
|
|
(1)
|
|
Fiscal 2007 consisted of a
53-week
year. All other fiscal years presented reflect
52-week
years.
|
|
(2)
|
|
Amounts are from continuing
operations unless otherwise specified.
|
|
(3)
|
|
Gross profit for fiscal 2007,
included a pre-tax charge of $32.5 million for inventory
write-down related to a strategic decision made in the fourth
quarter to sell off excess inventory by the end of the first
quarter of fiscal 2008.
|
|
(4)
|
|
Selling, general and administrative
expense in fiscal 2007 included a pretax charge of
$32.3 million related to impairment charges on long-lived
store level assets.
|
|
(5)
|
|
The decrease in the Companys
effective tax rate for fiscal 2007 was the result of recording a
valuation allowance on its deferred tax assets during the second
quarter and only recording a tax benefit on the losses for the
year that could be carried back.
|
17
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
MANAGEMENT
OVERVIEW
Introduction
Pier 1 Imports, Inc. (together with its consolidated
subsidiaries, the Company) is one of North
Americas largest specialty retailers of unique decorative
home furnishings, gifts and related items. The Company imports
merchandise directly from over 40 countries, and sells a wide
variety of furniture collections, decorative accessories, bed
and bath products, housewares and other seasonal assortments in
its stores. During fiscal year 2007, the Company opened 34 new
stores and closed 64 stores. The Company operates stores in the
United States and Canada under the names Pier 1
Imports (Pier 1), and Pier 1 Kids.
Pier 1 Kids stores sell childrens home furnishings and
decorative accessories. As of March 3, 2007, the Company
operated 1,196 stores in the United States and Canada, including
36 Pier 1 Kids stores and 26 clearance stores. The Company
conducts business as one operating segment.
During the fourth quarter of fiscal 2006, the Companys
Board of Directors authorized management to sell its operations
of The Pier Retail Group Limited (The Pier), the
Companys subsidiary based in United Kingdom. The Company
met the criteria of Statement of Financial Accounting Standards,
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets that allowed it to classify The Pier as
held for sale and present its results of operations as
discontinued as of February 25, 2006, with prior periods
reclassified accordingly. On March 20, 2006, the Company
sold The Pier to Palli Limited for approximately
$15.0 million. Palli Limited is a wholly owned subsidiary
of Lagerinn ehf, an Iceland corporation owned by Jakup a Dul
Jacobsen. According to a Schedule 13D filing, collectively
Lagerinn and Mr. Jacobsen beneficially owned approximately
9.9% of the Companys common stock on March 20, 2006.
Expenses incurred in March 2006 by the Company related to The
Pier were $0.4 million, net of taxes.
The following discussion and analysis of financial condition,
results of operations, liquidity and capital resources relates
to continuing operations, unless otherwise stated, and should be
read in conjunction with the accompanying audited Consolidated
Financial Statements and notes thereto which can be found in
Item 8 of this report. Fiscal 2007 consisted of a
53-week year
while fiscal 2006 and fiscal 2005 were
52-week
years.
18
Overview
of Business
Net sales from continuing operations decreased 8.6% to
$1,623.2 million in fiscal 2007 compared to
$1,776.7 million in fiscal 2006, and comparable store sales
declined 11.3%. The Companys net loss from continuing
operations was $227.2 million during fiscal 2007, or
$2.59 per share, compared with a loss per share of $0.32
for the prior fiscal year. The Company ended the year with
$167.2 million in cash and cash equivalents.
The Companys key financial and operational indicators used
by management to evaluate the performance of the business
include the following (trends for these indicators are explained
in the comparative discussions of this section):
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Performance Indicators
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales growth (decline)
|
|
|
(8.6)%
|
|
|
|
(2.7)%
|
|
|
|
1.1%
|
|
Comparable stores sales decline
|
|
|
(11.3)%
|
|
|
|
(7.1)%
|
|
|
|
(6.1)%
|
|
Sales per average retail square
foot
|
|
$
|
168
|
|
|
$
|
187
|
|
|
$
|
205
|
|
Merchandise margins as a % of sales
|
|
|
47.9%
|
|
|
|
50.2%
|
|
|
|
53.1%
|
|
Gross profit as a % of sales
|
|
|
29.2%
|
|
|
|
33.9%
|
|
|
|
38.5%
|
|
Selling, general and
administrative expenses as a % of sales
|
|
|
40.0%
|
|
|
|
33.1%
|
|
|
|
30.1%
|
|
Operating income (loss) from
continuing operations as a % of sales
|
|
|
(13.9)%
|
|
|
|
(2.4)%
|
|
|
|
5.4%
|
|
Income (loss) from continuing
operations as a % of sales
|
|
|
(14.0)%
|
|
|
|
(1.5)%
|
|
|
|
3.4%
|
|
Inventory per retail square foot
|
|
$
|
38.84
|
|
|
$
|
39.07
|
|
|
$
|
41.63
|
|
Total retail square footage (in
thousands)
|
|
|
9,230
|
|
|
|
9,407
|
|
|
|
9,116
|
|
Total retail square footage growth
(decline)
|
|
|
(1.9)%
|
|
|
|
3.2%
|
|
|
|
7.5%
|
|
Stores included in the comparable store sales calculation are
those stores that were opened prior to the beginning of the
preceding fiscal year and are still open. Also included are
stores that were relocated during the year within a specified
distance serving the same market, where there is not a
significant change in store size and where there is not a
significant overlap or gap in timing between the opening of the
new store and the closing of the existing store. Stores that are
expanded or renovated are excluded from the comparable store
sales calculation during the period they are closed for such
remodeling. When these stores re-open for business, they are
included in the comparable store sales calculation in the first
full month after the re-opening if there is no significant
change in store size. If there is a significant change in store
size, the store continues to be excluded from the calculation
until it meets the Companys established definition of a
comparable store. Direct sales to customers (which include
direct catalog sales and sales through the Companys
e-commerce
website) are also included.
During fiscal 2007, the Company continued to experience
declining sales and margins despite efforts to find the right
product mix and merchandising and marketing programs to drive
traffic into the stores and onto its web site to improve
comparable store sales. In an attempt to reverse the negative
trends, the Company introduced dramatic shifts in the look of
its merchandising design, which failed to meet the expectations
of the Companys customer base and resulted in continued
sales declines. In addition to the merchandise changes, the
Company experimented with new marketing strategies, primarily
increased television and direct mail advertising, which failed
to generate the desired increase in traffic. Despite the
operational struggles of the past several years and fierce
competition in the home furnishings sector, management still
believes that the Pier 1 brand is as relevant as ever.
In February 2007, the Company hired a new President and Chief
Executive Officer as a result of the retirement of its former
Chief Executive Officer. In April 2007, the Companys
management announced a plan to return the Company to
profitability that is built on the following six business
priorities:
1) Improve operational efficiency. Over
the course of the coming fiscal year, the Company will undertake
a detailed review of all of its costs and seek out ways to
streamline and simplify the organization at all levels. In March
2007, the Company announced a reduction of its workforce, which
19
included 100 home office and 75 field administration positions.
Changes in the field organization included the elimination of
the visual merchandising functions and a reduction of divisional
director positions. The Company expects these changes to result
in approximately $17 million in annualized savings. In
addition, the Company anticipates related one-time charges of
less than $5 million to be recorded in the first quarter of
fiscal 2008. The Company has identified other cost savings
opportunities throughout the organization and will implement
changes during the next 12 months in an effort to
capitalize on these opportunities.
2) Develop real estate strategies that protect the
short-term and long-term future of the
Company. The Company will continue to review the
individual contributions of its existing store portfolio, and
will make decisions about the future of individual store
locations in accordance with the Companys overall
turnaround strategy. The Company may decide to exit certain
locations through natural expirations, economic terminations,
lease buyouts, sublease opportunities or sale of the properties.
At the same time, the Company will strategically seek out new
and growing markets in which new store locations or the
relocation of an existing store will fit within the long-term
growth plans of the Company. During fiscal 2008, the Company
plans to open five new store locations and close approximately
60 stores.
3) Provide a compelling merchandise
selection. To regain its competitive edge, the
Company must provide a merchandise assortment that evolves and
adapts to the changing needs and preferences of its customer
base. The Companys buying department is responsible for
purchasing, developing, testing and creating the merchandise
assortments offered. Historically, this department has been
responsible for processes that are not part of product
development and procurement and has been greatly
under-resourced. Reassigning administrative tasks to other areas
of the Company and increasing the number of buyers will provide
the buying team more time to spend visiting new and existing
vendors, and more time to identify and correct gaps and
omissions in the Companys product mix.
4) Create an effective planning and allocations
team. Historically, the Companys
merchandise planning group was part of the buying department,
and the allocations team was part of the logistics department.
In the reorganization of the home office, the Company combined
these two groups into one unit. This newly combined team will
oversee, among other things, inventory levels, markdowns, and
purchase order management, and will absorb the administrative
tasks that historically burdened the buying team. This change
will ensure everything from assortment planning to store
allocation is carefully and thoughtfully planned.
5) Improve supply chain efficiency. The
Company will review every operational practice including, but
not limited to, freight costs, vendor payment terms, the use of
outside storage facilities, and transportation and delivery
contracts in an effort to find ways to simplify the process,
improve supply chain visibility, reduce costs and increase
inventory turns.
6) Create a cost-effective marketing
plan. In fiscal 2007, the Company experimented
with changes in its marketing strategy and spent significant
dollars on television and direct mail advertising efforts. The
changes did not provide the desired increase in traffic or
comparable store sales. Recognizing that a change is needed, the
Company plans to make adjustments to its strategy for the second
half of fiscal 2008, and will decrease its marketing
expenditures this coming fiscal year. As its customer base is
very diverse demographically, the Company will continue to
research the ideal marketing mix to effectively communicate with
its entire customer base while reaching groups of new customers
as well. The Companys goal is to strike a healthy balance
between driving traffic, increasing comparable store sales and
revitalizing the Pier 1 brand.
The Companys management presently believes that if it
effectively and efficiently executes these business priorities
as part of its turnaround strategy, the Company should, over
time, return to profitability.
20
FISCAL
YEARS ENDED MARCH 3, 2007 AND FEBRUARY 25,
2006
Net
Sales
Net sales consisted almost entirely of sales to retail
customers, net of discounts and returns, but also included
delivery revenues and wholesale sales and royalties received
from franchise stores and Sears Roebuck de Mexico, S.A. de C.V.
Sales by retail concept during fiscal years 2007, 2006 and 2005
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Stores
|
|
$
|
1,590,854
|
|
|
$
|
1,753,927
|
|
|
$
|
1,807,441
|
|
Direct to consumer
|
|
|
18,943
|
|
|
|
15,345
|
|
|
|
10,408
|
|
Other(1)
|
|
|
13,419
|
|
|
|
7,429
|
|
|
|
7,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,623,216
|
|
|
$
|
1,776,701
|
|
|
$
|
1,825,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Other sales consisted primarily of
wholesale sales and royalties received from franchise stores and
from Sears Roebuck de Mexico, S.A. de C.V.
|
Net sales during fiscal 2007 were $1,623.2 million, a
decrease of $153.5 million or 8.6%, from
$1,776.7 million for the prior fiscal year. The decrease in
sales for the fiscal year was comprised of the following
components (in thousands):
|
|
|
|
|
|
|
2007
|
|
|
New stores opened during fiscal
2007
|
|
$
|
27,889
|
|
Stores opened during fiscal 2006
|
|
|
24,472
|
|
Comparable stores
|
|
|
(184,797
|
)
|
Closed stores and other
|
|
|
(21,049
|
)
|
|
|
|
|
|
Net decrease in sales
|
|
$
|
(153,485
|
)
|
|
|
|
|
|
Comparable store sales for fiscal 2007 declined 11.3%. The
Companys net sales from Canadian stores were subject to
fluctuation in currency conversion rates. These fluctuations had
an immaterial impact on both net sales and comparable store
calculations in fiscal 2007 compared to fiscal 2006.
During fiscal 2007, the Company opened 34 and closed 64 stores
in the United States and Canada, bringing its Pier 1 and Pier 1
Kids store count to 1,196 at year-end, compared to 1,226 last
year. The Company continues to evaluate its real estate
portfolio on a
store-by-store
and
market-by-market
basis and will open or close stores as deemed appropriate.
During fiscal 2008, the Company expects to open five new Pier 1
stores and close approximately 60 stores, including 10 Pier 1
Kids stores. A summary reconciliation of the Companys
stores open at the beginning of fiscal 2007, 2006 and 2005 to
the number open at the end of each period follows (openings and
closings include relocated stores):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
Canada
|
|
|
Total(2)
|
|
|
Open at February 28, 2004
|
|
|
1,055
|
|
|
|
68
|
|
|
|
1,123
|
|
Openings
|
|
|
101
|
|
|
|
13
|
|
|
|
114
|
|
Closings
|
|
|
(41
|
)
|
|
|
(1
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open at February 26, 2005
|
|
|
1,115
|
|
|
|
80
|
|
|
|
1,195
|
|
Openings
|
|
|
65
|
|
|
|
4
|
|
|
|
69
|
|
Closings
|
|
|
(37
|
)
|
|
|
(1
|
)
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open at February 25, 2006
|
|
|
1,143
|
|
|
|
83
|
|
|
|
1,226
|
|
Openings
|
|
|
32
|
|
|
|
2
|
|
|
|
34
|
|
Closings
|
|
|
(63
|
)
|
|
|
(1
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open at March 3,
2007(1)
|
|
|
1,112
|
|
|
|
84
|
|
|
|
1,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
(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 merchandise
in a store within a store format. At the end of
fiscal 2007, there were 29 and seven locations in Mexico and
Puerto Rico, respectively.
|
|
(2)
|
|
Total store count included 36 Pier
1 Kids stores and 26 clearance stores at March 3, 2007.
|
The Companys proprietary credit card generated net sales
of $355.4 million, a decrease of $67.1 million or
15.9% from last years proprietary credit card sales of
$422.5 million. Sales on the proprietary credit card
totaled 23.9% of U.S. store sales compared to 25.7% last
year. Average ticket on the Companys proprietary credit
card declined to $160 in fiscal 2007 compared to $163 in fiscal
2006. In November 2006, the Company sold its proprietary credit
card business to Chase Bank USA, N.A. (Chase). At
that time, the Company also entered into a long-term program
agreement with Chase. Under this agreement, the Company will
continue to use the card as a marketing and communication tool
to its most loyal customers.
Gross
Profit
Gross profit after related buying and store occupancy costs,
expressed as a percentage of sales, was 29.2% in fiscal 2007
compared to 33.9% a year ago. Merchandise margins, as a
percentage of sales, declined from 50.2% in fiscal 2006 to 47.9%
in fiscal 2007, a decrease of 230 basis points. The decline
in merchandise margin rates resulted primarily from increased
discounting and markdown activity throughout the year and an
inventory write- down of $32.5 million incurred during the
fourth quarter. The inventory write-down was the result of a
strategic decision to sell off excess inventory by the end of
the first quarter of fiscal 2008. Store occupancy costs during
fiscal 2007 were $303.4 million or 18.7% of sales, an
increase of $12.9 million and 230 basis points over
store occupancy costs of $290.4 million or 16.3% of sales
during fiscal 2006. This increase was primarily due to the
deleveraging of relatively fixed rental costs over a lower sales
base and an increase in rental expense, property taxes and
utility costs.
Operating
Expenses, Depreciation and Income Taxes
Selling, general and administrative expenses, including
marketing, comprised 40.0% of sales in fiscal 2007, an increase
of 690 basis points over last years 33.1% of sales.
In total dollars, selling, general and administrative expenses
increased $60.7 million in fiscal 2007 over fiscal 2006;
$50.3 million of this increase is summarized in the table
below. Expenses that normally vary with sales and number of new
stores, such as store payroll, marketing, store supplies, and
equipment rental, increased $8.5 million. These variable
expenses increased 280 basis points as a percentage of
sales for fiscal 2007 compared to fiscal 2006. Marketing expense
increased $13.9 million or 140 basis points as a
percentage of sales. During the year, the Company increased both
the number of different catalogs published and the circulation
while maintaining its other marketing initiatives focused on
driving sales and reinforcing its brand position. Store
salaries, including bonus, decreased $3.5 million from the
prior year, yet increased 120 basis points as a percentage of
sales, as sales were insufficient to leverage certain fixed
portions of store payroll costs incurred to maintain minimum
staffing levels to provide quality customer service. Other
variable expenses such as equipment rental and store supplies
decreased $1.9 million, yet increased 20 basis points as a
percentage of sales.
Relatively fixed selling, general and administrative expenses
increased $52.2 million in fiscal 2007, or 410 basis
points as a percentage of sales over last year. This amount
included the following items, which are summarized in the table
below. The Company recognized impairment charges of
$36.4 million on long-lived assets (including a goodwill
impairment charge of $4.1 million related to Pier 1 Kids)
versus $5.8 million in fiscal 2006. The impairment on fixed
assets of $32.3 million resulted from lower than expected
sales trends, which caused asset carrying values to exceed
estimated future cash flows. The goodwill impairment charge was
the result of the Companys decision to start integrating
Pier 1 Kids merchandise into its existing Pier 1 store
base by including this merchandise as an additional product
assortment line and to no longer expand Pier 1 Kids locations as
a stand-alone store concept. The Company recorded a
$4.9 million charge for the settlement of and legal fees
related to class action lawsuits primarily regarding
compensation matters in California. Other selling, general and
administrative expenses that do not typically vary with sales
increased $16.7 million, primarily as a result of
settlement and curtailment charges related to retirement plans
of
22
$6.8 million because of two officers retiring in fiscal
2007, $4.5 million expense for the relocation of Pier 1
Kids distribution facilities and integration of its
headquarters, and compensation expense recognized on stock
options of $4.5 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Increase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store-level asset impairments
|
|
$
|
32,300
|
|
|
$
|
5,840
|
|
|
$
|
26,460
|
|
Settlement and curtailment
charges, retirement plan
|
|
|
6,769
|
|
|
|
1,008
|
|
|
|
5,761
|
|
Litigation settlement and related
legal fees
|
|
|
4,942
|
|
|
|
|
|
|
|
4,942
|
|
Stock option compensation expense
|
|
|
4,494
|
|
|
|
|
|
|
|
4,494
|
|
Pier 1 Kids relocation and
integration
|
|
|
4,533
|
|
|
|
|
|
|
|
4,533
|
|
Goodwill impairment for Pier 1 Kids
|
|
|
4,070
|
|
|
|
|
|
|
|
4,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
57,108
|
|
|
$
|
6,848
|
|
|
$
|
50,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization for fiscal 2007 was
$51.2 million, representing a decrease of approximately
$5.0 million from last years depreciation and
amortization expense of $56.2 million. This decrease was
primarily the result of the impairment of certain store-level
assets, a decrease in depreciation expense related to the 64
stores closed in the United States and Canada since the end of
fiscal 2006 and an overall reduction in capital expenditures.
These decreases were partially offset by increases in
depreciation expense related to new store openings in the United
States and Canada, and software applications launched subsequent
to the end of fiscal 2006.
In fiscal 2007, the Company had an operating loss of
$226.2 million, $183.4 million worse than the prior
years operating loss of $42.8 million.
During the year, the Company recorded a charge of
$24.7 million to establish a valuation allowance related to
deferred tax assets from prior years. In evaluating the
likelihood that sufficient earnings would be available in the
near future to realize the deferred tax assets, the Company
considered cumulative losses over three years including the
current year. The Company concluded that a valuation allowance
was necessary based upon this evaluation and the guidance
provided in SFAS No. 109 Accounting for Income
Taxes.
In addition, net deferred tax assets arising from current year
losses in excess of the amount expected to be carried back to
offset taxable income in a prior year were fully reserved
through a valuation allowance recorded during the year. As these
deferred tax assets were established and fully reserved during
fiscal 2007, there was no net impact to the provision of income
taxes. There was no tax benefit recorded on approximately
$150.0 million of the current years losses. At the
end of fiscal 2007, the net deferred tax assets and the
offsetting valuation allowance totaled $86.3 million.
Net
Loss
Net loss from continuing operations in fiscal 2007 was
$227.2 million or $2.59 per share, a decrease of
$199.8 million as compared to fiscal 2006s net loss
from continuing operations of $27.5 million, or
$0.32 per share.
Net loss from discontinued operations was $0.4 million or
$0.01 per share in fiscal 2007 and $12.3 million or
$0.14 per share in fiscal 2006. See Note 2 of the
Notes to Consolidated Financial Statements for additional
information regarding discontinued operations.
Total net loss in fiscal 2007 was $227.6 million, or
$2.60 per share, a decrease in earnings of
$187.8 million as compared to fiscal 2006s net loss
of $39.8 million, or $0.46 per share.
FISCAL
YEARS ENDED FEBRUARY 25, 2006 AND FEBRUARY 26,
2005
Net
Sales
Net sales consisted almost entirely of sales to retail
customers, net of discounts and returns, but also included
delivery revenues and wholesale sales and royalties received
from franchise stores and Sears Roebuck
23
de Mexico, S.A. de C.V. Sales by retail concept during fiscal
years 2006, 2005 and 2004 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Stores
|
|
$
|
1,753,927
|
|
|
$
|
1,807,441
|
|
|
$
|
1,790,483
|
|
Direct to consumer
|
|
|
15,345
|
|
|
|
10,408
|
|
|
|
9,117
|
|
Other(1)
|
|
|
7,429
|
|
|
|
7,494
|
|
|
|
6,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,776,701
|
|
|
$
|
1,825,343
|
|
|
$
|
1,806,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Other sales consisted of wholesale
sales and royalties received from franchise stores and from
Sears Roebuck de Mexico, S.A. de C.V. and Pier 1 Kids
contract sales. As of August 2003, Pier 1 Kids discontinued
sales of merchandise under wholesale contracts.
|
During fiscal 2006, the Company recorded net sales of
$1,776.7 million, a decrease of $48.6 million, or
2.7%, from $1,825.3 million for fiscal year 2005. The
decrease in sales for fiscal 2006 was comprised of the following
components (in thousands):
|
|
|
|
|
|
|
2006
|
|
|
New stores opened during fiscal
2006
|
|
$
|
45,734
|
|
Stores opened during fiscal 2005
|
|
|
58,975
|
|
Comparable stores
|
|
|
(114,771
|
)
|
Closed stores and other
|
|
|
(38,580
|
)
|
|
|
|
|
|
Net decrease in sales
|
|
$
|
(48,642
|
)
|
|
|
|
|
|
Comparable store sales for fiscal 2006 decreased 7.1% primarily
as a result of decreased store traffic and increased competition
from other retailers. Throughout fiscal 2006, the Company
struggled to maintain and increase customer traffic, which the
Company believed was the result of its inability to
differentiate its merchandise from competitors through its
marketing campaign. In an effort to encourage customers to
return to the stores, the Company distributed its first two
nation-wide catalogs. The first catalog was mailed in the fall
of 2005 and the second during the 2005 holiday season. The
Companys net sales from Canada were subject to
fluctuations in currency conversion rates. These fluctuations
had an immaterial favorable impact on both total net sales and
comparable store sales calculations in fiscal 2006 compared to
fiscal 2005.
The Company opened 69 and closed 38 stores in the United States
and Canada during fiscal 2006, bringing the store count to 1,226
compared to 1,195 at the end of fiscal 2005. A summary
reconciliation of the Companys stores open at the
beginning of fiscal 2006, 2005 and 2004 to the number open at
the end of each period follows (openings and closings include
relocated stores):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
|
|
|
|
United States
|
|
|
Canada
|
|
|
Operations(1)
|
|
|
Operations(2)
|
|
|
Total
|
|
|
Open at March 1, 2003
|
|
|
965
|
|
|
|
60
|
|
|
|
1,025
|
|
|
|
25
|
|
|
|
1,050
|
|
Openings
|
|
|
133
|
|
|
|
9
|
|
|
|
142
|
|
|
|
4
|
|
|
|
146
|
|
Closings
|
|
|
(43
|
)
|
|
|
(1
|
)
|
|
|
(44
|
)
|
|
|
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open at February 28, 2004
|
|
|
1,055
|
|
|
|
68
|
|
|
|
1,123
|
|
|
|
29
|
|
|
|
1,152
|
|
Openings
|
|
|
101
|
|
|
|
13
|
|
|
|
114
|
|
|
|
3
|
|
|
|
117
|
|
Closings
|
|
|
(41
|
)
|
|
|
(1
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open at February 26, 2005
|
|
|
1,115
|
|
|
|
80
|
|
|
|
1,195
|
|
|
|
32
|
|
|
|
1,227
|
|
Openings
|
|
|
65
|
|
|
|
4
|
|
|
|
69
|
|
|
|
15
|
|
|
|
84
|
|
Closings
|
|
|
(37
|
)
|
|
|
(1
|
)
|
|
|
(38
|
)
|
|
|
(2
|
)
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open at February 25,
2006(3)
|
|
|
1,143
|
|
|
|
83
|
|
|
|
1,226
|
|
|
|
45
|
|
|
|
1,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
(1)
|
|
Total store count included 43 Pier
1 Kids stores and 34 clearance stores at February 25, 2006.
|
|
(2)
|
|
Discontinued operations relate to
The Pier.
|
|
(3)
|
|
The Company supplied merchandise
and licensed the Pier 1 name to Sears Roebuck de Mexico, S.A. de
C.V. and Sears Roebuck de Puerto Rico, Inc., which sell Pier 1
merchandise in a store within a store format. At the
end of fiscal 2006, there were 26 and seven locations in Mexico
and Puerto Rico, respectively.
|
The Companys proprietary credit card generated net sales
of $422.5 million for fiscal 2006, a decrease of
$38.7 million or 8.4% over fiscal 2005 proprietary credit
card sales of $461.2 million. Sales on the proprietary
credit card were 25.7% for fiscal 2006 of U.S. store sales
compared to 27.1% in fiscal 2005. Average ticket on the
Companys proprietary credit card increased to $163 during
fiscal 2006 from $159 during fiscal 2005. At the end of the
second quarter of fiscal 2006, in an effort to stimulate sales,
the Company began to offer a
12-month, no
interest promotion on larger purchases as well as supporting
special incentives for store associates to encourage customers
to open new proprietary credit card accounts. While the
proprietary credit card generated modest income, it primarily
served as a tool for marketing and communication to the
Companys most loyal customers.
Gross
Profit
Gross profit after related buying and store occupancy costs,
expressed as a percentage of sales, was 33.9% in fiscal 2006
compared to 38.5% in fiscal 2005. Merchandise margins, as a
percentage of sales, declined from 53.1% in fiscal 2005 to 50.2%
in fiscal 2006, a decrease of 290 basis points. The decline
in merchandise margin rates resulted primarily from the
Companys continued use of discounts and markdowns to
stimulate sales as well as make way for new and unique
merchandise lines. Store occupancy costs during fiscal 2006 were
$290.4 million or 16.3% of sales, an increase of
$24.1 million and 170 basis points over store occupancy
costs of $266.3 million or 14.6% of sales during fiscal
2005. The increase was primarily due to an inability to leverage
relatively fixed rental costs over a lower sales base.
Operating
Expenses, Depreciation and Income Taxes
Selling, general and administrative expenses, including
marketing, comprised 33.1% of sales in fiscal 2006, an increase
of 300 basis points over fiscal 2005s 30.1% of sales.
In total dollars, selling, general and administrative expenses
increased $38.6 million in fiscal 2006 over fiscal 2005,
with $34.1 million of the increase attributable to expenses
that normally vary with sales and number of new stores, such as
marketing, store payroll, supplies, and equipment rental. These
variable expenses increased 250 basis points as a percentage of
sales for fiscal 2006 compared to fiscal 2005. Despite the
negative comparable store sales in fiscal 2006, the Company
intentionally did not decrease store payroll hours in an effort
to maintain minimum staffing levels and continue to provide good
customer service. In addition, the Company was unable to
leverage certain fixed portions of store payroll costs over the
lower sales base. In an effort to increase customer traffic to
its stores, marketing expenditures during fiscal 2006 were
planned to increase over fiscal 2005 and were up
$16.0 million to 5.8% of sales, an increase of
105 basis points expressed as a percentage of sales. From
October 2004 through February 2005, the Company discontinued its
television advertising campaign because management viewed it as
ineffective at increasing customer traffic and driving sales.
During fiscal 2006, the Company re-launched a national
television advertising campaign and distributed two nation-wide
catalogs while discontinuing its newspaper insert programs.
Store supplies and equipment rental increased $2.6 million
and 20 basis points as a percentage of sales.
Relatively fixed selling, general and administrative expenses
increased $4.6 million in fiscal 2006, or 50 basis
points as a percentage of sales, over fiscal 2005. Other
occupancy expenses (excluding store and distribution center
occupancy expenses) increased $4.9 million or 30 basis
points, primarily as a result of impairment charges of
$5.8 million recognized on long-lived store-level assets
compared to impairment charges in fiscal 2005 of
$0.4 million. In addition, the Company had a
$1.0 million write-off of the remaining book value of fixed
assets and intangibles associated with early store closures in
fiscal 2006. These non-cash charges were partially offset by a
$2.3 million savings in home office rental expense as the
corporate headquarters were rented for a portion of fiscal 2005
but were owned for all of fiscal 2006. Lease accounting
25
adjustments decreased $6.6 million or 40 basis points as a
percentage of sales from fiscal 2005, primarily as a result of a
cumulative correction of $6.3 million recognized in fiscal
2005 related to pre-opening store rental expense for leases
entered into in years prior to fiscal 2005. The Companys
lease termination expense increased $1.8 million or
10 basis points as a percentage of sales, primarily as a
result of closing stores in fiscal 2006 with longer remaining
lease terms than those of the stores closed in fiscal 2005. Due
to the Companys thorough re-evaluation of individual store
performance in fiscal 2006, more stores were closed prior to the
lease expiration in an effort to improve the Companys
overall real estate portfolio. Net proprietary credit card
income increased $4.0 million to $7.2 million,
representing a 20 basis point decrease in relatively fixed
selling, general and administrative expenses as a percentage of
sales. This increase in income was primarily the result of
increased finance charge income, a decrease in processing
charges and a decrease in bad debt expense. The increase in
finance charge income was primarily a result of a modest
increase in late payment fees and a reduction of the number of
days in the grace period before interest charges are imposed.
Non-store payroll increased $8.9 million or 60 basis points
as a percentage of sales for the year primarily as a result of a
$4.6 million increase in officers retirement expense
as well as planned payroll increases related to annual merit
increases and long-term incentives. An additional
$0.7 million of severance costs related to field and
home-office restructurings also contributed to the increase in
non-store payroll costs. All other relatively fixed selling,
general and administrative expenses decreased $0.4 million
and increased 10 basis points as a percentage of sales.
Depreciation and amortization for fiscal 2006 was
$56.2 million, representing an increase of approximately
$0.5 million over fiscal 2005s depreciation and
amortization expense of $55.8 million. This increase was
primarily the result of an increase in net new store openings,
depreciation on software applications that were launched
subsequent to the end of fiscal 2005 and a full year of
depreciation on the Companys corporate headquarters in
fiscal 2006 versus a partial year in fiscal 2005. These
increases were partially offset by a slight reduction in
depreciation expense for certain assets that were fully
depreciated during fiscal 2006.
In fiscal 2006, the Company had an operating loss of
$42.8 million, a decline of $141.1 million from the
operating income of $98.2 million for fiscal 2005.
The Companys effective tax rate was 34.5% of pretax income
(loss) from continuing operations, compared to 36.7% in fiscal
2005 and 29.9% of pretax loss from discontinued operations. The
decrease in the Companys effective tax rate from
continuing operations was primarily the result of state tax
liabilities.
Net
Loss
Net loss from continuing operations in fiscal 2006 was
$27.5 million or $0.32 per share, a decrease of
$90.2 million as compared to fiscal 2005s net income
from continuing operations of $62.8 million, or
$0.71 per share on a diluted basis.
Net loss from discontinued operations was $12.3 million or
$0.14 per share in fiscal 2006 and $2.3 million or
$0.03 per share in fiscal 2005. The pre-tax loss of
$17.6 million was the result of The Piers loss from
operations of $10.1 million and a $7.4 million
impairment charge to write the assets down to fair value less
reasonable costs to sell. See Note 2 of the Notes to
Consolidated Financial Statements for additional information
regarding discontinued operations.
Total net loss in fiscal 2006 was $39.8 million, or
$0.46 per share, a decrease in earnings of
$100.3 million as compared to fiscal 2005s net income
of $60.5 million, or $0.68 per share on a diluted
basis.
LIQUIDITY
AND CAPITAL RESOURCES
For the purposes of liquidity and capital resource discussions,
the Companys discontinued operations will be included in
financial results. The Companys cash and cash equivalents
including those from discontinued operations totaled
$167.2 million at the end of fiscal 2007, a decrease of
$86.0 million from the fiscal 2006 year end balance of
$253.2 million. Operating activities used
$104.9 million of cash primarily due to the Companys
net loss, the purchase of $100.0 million of proprietary
credit card receivables from the Pier 1 Imports Credit Card
Master Trust (the Master Trust) by sending cash to
the Master Trust to redeem its
26
outstanding Class A Certificates, and the payment of
$28.1 million in retirement benefits primarily by redeeming
investments from a consolidated trust. These cash outflows were
partially offset by $144.6 million ($157.6 million
less $13.0 million received in connection with the sale of
Pier 1 National Bank as described below) in cash proceeds
received from Chase on the sale of the Companys
proprietary credit card receivables and the add back of certain
non-cash charges. These non-cash charges included a
$36.4 million impairment of fixed assets and goodwill and a
$24.6 million valuation allowance on deferred tax assets.
During fiscal 2007, investing activities by the Company provided
$31.8 million. Collections of principal on beneficial
interest in securitized receivables provided $21.9 million.
Proceeds from the sale of The Pier provided $15.0 million,
partially offset by $3.4 million in cash held by The Pier
on the date of the sale. Proceeds from the sale of Pier 1
National Bank provided $13.0 million, partially offset by
$2.2 million in cash held by Pier 1 National Bank on the
date of the sale. Capital expenditures were $28.6 million
and consisted primarily of $12.2 million for fixtures and
leasehold improvements related to new and existing stores,
$11.4 million for information systems enhancements and home
office capital additions, and $5.0 million in expenditures
for the Companys distribution centers. Fiscal 2008 capital
expenditures are projected to be approximately
$13.0 million.
Contributions of $9.7 million were made during fiscal 2007
to the consolidated trusts that have been established for the
purpose of setting aside funds for various retirement
obligations. The assets held by the trusts are classified as
restricted investments. The Company sold $25.7 million of
these restricted investments to settle the defined benefit plan
obligations of certain retired executive officers of the Company
during fiscal 2007. At year end, the trusts had assets of
$14.5 million. Of this amount, $6.1 million is
invested in money market funds and is designated for the
settlement of lump-sum defined benefit plan obligations,
$6.3 million of which are expected to be settled in the
second quarter of fiscal 2008. Life insurance policies with cash
surrender values totaling $6.9 million and money market
funds valued at $1.5 million are held in trusts designated
for the satisfaction of obligations related to non-qualified
retirement savings plans. Future contributions to the trusts may
be made in the form of cash or other assets such as
Company-owned life insurance policies. See Note 10 of
the Notes to Consolidated Financial Statements for additional
information regarding the restricted assets and defined benefit
plan obligations.
Fiscal 2007 financing activities used $13.0 million of the
Companys cash. The Company paid dividends totaling
$17.4 million through the second quarter of fiscal 2007. No
dividends have been declared since that time. The Company does
not currently anticipate paying cash dividends in fiscal 2008
and its dividend policy in the near term will depend upon the
earnings, financial condition and capital needs of the Company
and other factors deemed relevant by the Companys Board of
Directors. Under the Companys secured credit facility, the
Company will not be restricted from paying cash dividends unless
the availability under the credit facility is less than 30% of
the Companys calculated borrowing base. All other
financing activities provided net cash of $4.4 million. The
Company borrowed and repaid $69.0 million during the fiscal
year; $22.0 million was the greatest amount of cash
borrowings outstanding at any one time under the credit
facility. As of March 3, 2007, the Company had no
outstanding cash borrowings and approximately
$124.0 million in letters of credit utilized against its
secured credit facility. The borrowing base was
$239.7 million, of which $83.2 was available for cash
borrowings. This facility expires in November 2010.
In June 2004, the Companys Board of Directors authorized
up to $150 million for purchases of its common stock,
replacing the previous authorization. As of April 30, 2007,
approximately $107.4 million of the authorization remains
available. During fiscal 2007, the Company did not make any
repurchases under this board-approved program and has no
immediate plans to repurchase shares of its outstanding common
stock.
The Companys sources of working capital for fiscal 2007
were cash flows from internally generated funds, the sale of the
Companys proprietary credit card receivables and credit
card operations to Chase, the sale of the Companys United
Kingdom operations, and bank lines of credit. The Companys
secured credit facility may limit certain investments, and in
some instances, limit the payment of cash dividends and
repurchases of the Companys common stock. The Company was
in compliance with all required debt covenants at fiscal 2007
year end.
27
A summary of the Companys contractual obligations and
other commercial commitments as of March 3, 2007 is listed
below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Amount of Commitment per Period
|
|
|
|
|
|
|
Less Than
|
|
|
1 to 3
|
|
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3 to 5
|
|
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More Than
|
|
|
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Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Operating leases
|
|
$
|
1,223,983
|
|
|
$
|
230,075
|
|
|
$
|
403,489
|
|
|
$
|
311,537
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|
|
$
|
278,882
|
|
Purchase
obligations(1)
|
|
|
261,597
|
|
|
|
261,597
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|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
debt(2)
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|
|
165,000
|
|
|
|
|
|
|
|
|
|
|
|
165,000
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|
|
|
|
|
Standby letters of
credit(3)
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52,229
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|
|
|
52,229
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|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial revenue bonds
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19,000
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,000
|
|
Interest on convertible
debt(2)
|
|
|
42,075
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|
|
|
10,519
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|
|
|
21,037
|
|
|
|
10,519
|
|
|
|
|
|
Interest on industrial revenue
bonds(4)
|
|
|
13,434
|
|
|
|
680
|
|
|
|
1,361
|
|
|
|
1,360
|
|
|
|
10,033
|
|
Interest and related fees on
secured credit
facility(5)
|
|
|
6,224
|
|
|
|
1,660
|
|
|
|
3,319
|
|
|
|
1,245
|
|
|
|
|
|
Other long-term
obligations(6)
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|
|
30,908
|
|
|
|
16,746
|
|
|
|
1,202
|
|
|
|
1,553
|
|
|
|
11,407
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(7)
|
|
$
|
1,814,450
|
|
|
$
|
573,506
|
|
|
$
|
430,408
|
|
|
$
|
491,214
|
|
|
$
|
319,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities recorded on the
balance sheet
|
|
|
|
|
|
|
|
|
|
$
|
274,408
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|
|
|
|
|
|
|
|
|
Commitments not recorded on the
balance sheet
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|
|
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|
1,540,042
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
1,814,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
As of March 3, 2007, the
Company had approximately $261.6 million of outstanding
purchase orders, which were primarily related to merchandise
inventory. Such orders are generally cancelable at the
discretion of the Company until the order has been shipped. The
table above excludes certain executory contracts for goods and
services that tend to be recurring in nature and similar in
amount year over year and includes $52.4 million in
merchandise letters of credit.
|
|
(2)
|
|
The Companys convertible debt
is subject to redemption in part or full on February 15,
2011, and the above amounts assume the Notes will be repaid or
refinanced at that time. If all Notes remain outstanding until
maturity, the total interest paid would be $284.6 million.
See Note 8 of the Notes to Consolidated Financial
Statements for further discussion of the Companys
convertible senior notes.
|
|
(3)
|
|
The Company also has outstanding
standby letters of credit totaling $19.4 million related to
the Companys industrial revenue bonds. This amount is
excluded from the table above as it is not incremental to the
Companys total outstanding commitments.
|
|
(4)
|
|
The interest rates on the
Companys industrial revenue bonds are variable and reset
weekly. The estimated interest payments included in the table
were calculated based upon the rate in effect at fiscal
2007 year end.
|
|
(5)
|
|
Represents estimated commitment
fees for trade and standby letters of credit, and unused fees on
the Companys $325 million secured credit facility,
which expires in November 2010, calculated based upon balances
and rates in effect at fiscal 2007 year end.
|
|
(6)
|
|
Other long-term obligations
represent the Companys liability under various unfunded
retirement plans and certain deferred compensation agreements.
See Note 10 of the Notes to Consolidated Financial
Statements for further discussion of the Companys employee
benefit plans.
|
|
(7)
|
|
The above amounts do not include
payments that may be due under employment agreements and
post-employment consulting agreements with certain employees.
The terms and amounts under such agreements are disclosed in the
Proxy Statement for the Companys 2007 Annual Meeting of
Shareholders.
|
The present value of total existing minimum operating lease
commitments discounted at 10% was $902.5 million at fiscal
2007 year end. The Company plans to fund these commitments
from cash generated from the operations of the Company and from
borrowings against lines of credit.
During fiscal 2008, the Company plans to open five new stores
and close approximately 60 stores as leases expire or are
otherwise ended. New store locations will be financed primarily
through operating leases. Total capital expenditures for fiscal
2008 are expected to be approximately $13.0 million. Of
this amount, the Company expects to spend approximately
$6.5 million on store development, $4.5 million on
information systems enhancements and approximately
$2.0 million primarily related to the Companys
distribution centers.
28
In summary, the Companys primary uses of cash in fiscal
2007 were to fund operating expenses; redeem outstanding
Class A Certificates at the Master Trust; provide for new
and existing store development; fund capital additions related
to distribution centers and information systems development; and
pay dividends. The Company has a variety of sources for
liquidity, which include available cash balances, available
lines of credit, cash surrender value of life insurance policies
not restricted as to use, receipt of federal and state tax
refunds, and real estate financing options. Among the financing
options being considered for Company-owned real estate are sale
or sale-leaseback transactions, traditional mortgages, and
amending the secured credit facility to include Company-owned
real estate in the borrowing base. Adding real estate to the
secured credit facility would provide flexibility through
additional availability under the Companys line of credit
and would reduce the Companys dependence on inventory
levels as the determinant of the size of its borrowing base.
Given the various liquidity options available, the Company
believes it has sufficient liquidity to fund operational
obligations and capital expenditure requirements throughout
fiscal 2008. In addition, the Company is currently projecting
its cash and cash equivalents balance at fiscal 2008 year
end to approximate its fiscal 2007 year end balance.
OFF-BALANCE
SHEET ARRANGEMENTS
Other than the operating leases and letters of credit discussed
above, the Companys only other off-balance sheet
arrangement related to the securitization of the Companys
proprietary credit card receivables. During fiscal 2007, the
Company allowed its securitization agreement to expire and
subsequently sold its proprietary credit card operations to
Chase. At the time of the expiration of the securitization
agreement, the Company purchased $144.0 million of proprietary
credit card receivables, previously held by the Master Trust for
$100.0 million in cash and in exchange for
$44.0 million of beneficial interest. The Master Trust,
upon approval from debt security (Class A
Certificates) holders, paid $100.0 million to redeem
the Class A Certificates that were outstanding.
Prior to the expiration of the securitization agreement, the
Company sold, on a daily basis, its proprietary credit card
receivables that met certain eligibility criteria to Pier 1
Funding, LLC (Funding), which transferred the
receivables to the Master Trust. The Master Trust had issued
$100 million face amount of Class A Certificates to a
third party. This securitization of receivables provided the
Company with a portion of its funding. However, neither Funding
nor the Master Trust was consolidated in the Companys
financial statements, and the Company had no obligation to
reimburse Funding, the Master Trust or purchasers of
Class A Certificates for credit losses from the
receivables. During fiscal 2006, the Companys
securitization agreements were amended to, among other things,
extend the expiration date until September 2006 and to increase
the amount of Class B Certificates required to be held by
Funding. At the end of fiscal 2006, there were
$13.6 million of Class B Certificates outstanding. All
Class B Certificates were settled concurrent with the
expiration of the securitization agreement. See Note 3
of the Notes to Consolidated Financial Statements for additional
information regarding the securitization of the Companys
proprietary credit card receivables.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The preparation of the Companys consolidated financial
statements in accordance with accounting principles generally
accepted in the United States requires the use of estimates that
affect the reported value of assets, liabilities, revenues and
expenses. These estimates are based on historical experience and
various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for the
Companys conclusions. The Company continually evaluates
the information used to make these estimates as the business and
the economic environment changes. Historically, actual results
have not varied materially from the Companys estimates,
with the exception of the impairment of long-lived assets, the
early retirement of participants in its defined benefit plans
and income taxes as discussed below, and the Company does not
currently anticipate a significant change in its assumptions
related to these estimates. Actual results may differ from these
estimates under different assumptions or conditions. The
Companys significant accounting policies can be found in
Note 1 of the Notes to Consolidated Financial
Statements. The policies and estimates discussed below
include the financial statement elements that are either
judgmental or involve the selection or application of
alternative accounting policies and are material to the
Companys financial statements. Unless
29
specifically addressed below, the Company does not believe that
its critical accounting policies are subject to market risk
exposure that would be considered material and as a result, has
not provided a sensitivity analysis. The use of estimates is
pervasive throughout the consolidated financial statements, but
the accounting policies and estimates considered most critical
are as follows:
Revenue recognition The Company recognizes
revenue from retail sales, net of sales tax and third party
credit card processing fees, upon customer receipt or delivery
of merchandise, including sales under deferred payment
promotions on its proprietary credit card. Typically, credit
card receivable deferral programs offer deferred payments for up
to 90 days or monthly installment payments over
12 months. Historically these payment deferral programs
have not resulted in significant increases in bad debt losses
arising from such receivables. As a result of the sale of the
Companys credit card business in fiscal 2007, these
deferred programs will result in an upfront reduction of sales
based on the fees charged by Chase for such programs going
forward. The Company records an allowance for estimated
merchandise returns based on historical experience and other
known factors. Should actual returns differ from the
Companys estimates and current provision for merchandise
returns, revisions to the estimated merchandise returns may be
required.
Gift cards Revenue associated with gift cards
is deferred until redemption of the gift card. Gift card
breakage is estimated and recorded as income based upon an
analysis of the Companys historical redemption patterns
and represents the remaining unused portion of the gift card
liability for which the likelihood of redemption is remote. If
actual redemption patterns vary from the Companys
estimates, actual gift card breakage may differ from the amounts
recorded. For all periods presented, gift card breakage was
recognized after a period of 30 months from the original
issuance and was $6.2 million, $5.1 million and
$4.5 million in fiscal 2007, 2006 and 2005, respectively.
Beneficial interest in securitized
receivables In September 2006, the Company
allowed its securitization agreement to expire. At that time,
the Company purchased $144.0 million of proprietary credit
card receivables in exchange for $44.0 million of
beneficial interest and $100.0 million of cash. Therefore,
at fiscal 2007 year end, the Company had no beneficial
interest. Additionally, all Class B Certificates, which are
discussed below, were settled at the time the securitization
agreement expired. Prior to the expiration of this agreement,
the Company securitized its entire portfolio of proprietary
credit card receivables. During most of fiscal 2007, and all of
fiscal 2006 and 2005, the Company sold all of its proprietary
credit card receivables, except an immaterial amount of those
that failed certain eligibility requirements, to a
special-purpose wholly owned subsidiary, Pier 1 Funding, LLC
(Funding), which transferred the receivables to the
Pier 1 Imports Credit Card Master Trust (Master
Trust). Neither Funding nor the Master Trust was
consolidated by the Company, and the Master Trust met the
requirements of a qualifying special-purpose entity under
SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities. The Master Trust issued beneficial interests
that represented undivided interests in the assets of the Master
Trust consisting of the transferred receivables and all cash
flows from collections of such receivables. The beneficial
interests included certain interests retained by Funding, which
were represented by Class B Certificates, and the residual
interest in the Master Trust (the excess of the principal amount
of receivables held in the Master Trust over the portion
represented by the certificates sold to third-party investors
and the Class B Certificates). Gain or loss on the sale of
receivables depended in part on the previous carrying amount of
the financial assets involved in the transfer, allocated between
the assets sold and the retained interests based on their
relative fair value at the date of transfer.
The beneficial interest in the Master Trust was accounted for as
an
available-for-sale
security and was recorded at fair value. The Company estimated
fair value of its beneficial interest in the Master Trust, both
upon initial securitization and thereafter, based on the present
value of future expected cash flows using managements best
estimates of key assumptions including credit losses and payment
rates. As of February 25, 2006, the Companys
assumptions used to calculate the present value of the future
cash flows included estimated credit losses of 4.75% of the
outstanding balance, expected payment within a six-month period
and a discount rate representing the average market rate the
Company would expect to pay if it sold securities representing
ownership in the excess receivables not required to
collateralize the Class A Certificates. A sensitivity
analysis performed assuming a hypothetical 20% adverse change in
both interest rates and credit losses resulted in an immaterial
impact on the fair value of the Companys beneficial
interest. See Note 3 of
30
the Notes to Consolidated Financial Statements for additional
information regarding the beneficial interest in securitized
receivables.
Inventories The Companys inventory is
comprised of finished merchandise and is stated at the lower of
average cost or market, cost being determined on a weighted
average inventory method. Cost is calculated based upon the
actual landed cost of an item at the time it is received in the
Companys warehouse using actual vendor invoices, the cost
of warehousing and transporting product to the stores and other
direct costs associated with purchasing products. Carrying
values of inventory are analyzed and to the extent that the cost
of inventory exceeds the expected selling prices less reasonable
costs to sell, provisions are made to reduce the carrying amount
of the inventory. The Company reviews its inventory levels in
order to identify slow-moving merchandise and uses merchandise
markdowns to sell such merchandise. Markdowns are recorded to
reduce the retail price of such slow-moving merchandise as
needed. Since the determination of carrying values of inventory
involves both estimation and judgment with regard to market
values and reasonable costs to sell, differences in these
estimates could result in ultimate valuations that differ from
the recorded asset.
The Company recognizes known inventory losses, shortages and
damages when incurred and makes a provision for estimated
shrinkage. The amount of the provision is estimated based on
historical experience from the results of its physical
inventories. Inventory is physically counted at substantially
all locations at least once in each
12-month
period, at which time actual results are reflected in the
financial statements. Physical counts were taken at
substantially all stores and distribution centers during each
period presented in the financial statements. Although inventory
shrinkage rates have not fluctuated significantly in recent
years, should actual rates differ from the Companys
estimates, revisions to the inventory shrinkage expense may be
required. Most inventory purchases and commitments are made in
U.S. dollars.
Impairment of long-lived assets Long-lived
assets such as buildings, equipment, furniture and fixtures, and
leasehold improvements are reviewed for impairment at least
annually and whenever an event or change in circumstances
indicates that their carrying values may not be recoverable. If
the carrying values exceed the sum of the expected undiscounted
cash flows, the assets are considered impaired. For store level
long-lived assets, expected cash flows are estimated based on
managements estimate of changes in sales, merchandise
margins, and expenses over the remaining expected terms of the
leases. Impairment is measured as the amount by which the
carrying value of the asset exceeds the fair value of the asset.
Fair value is determined by discounting expected cash flows.
Impairment, if any, is recorded in the period in which the
impairment occurred. The Company recorded $31.9 million and
$5.6 million in impairment charges in fiscal 2007 and
fiscal 2006, respectively. As the projection of future cash
flows requires the use of judgment and estimates, if actual
results differ from the Companys estimates, additional
charges for asset impairments may be recorded in the future. For
store level assets, if management had increased its assumptions
of comparable store sales declines by an additional 3% over the
next four years, additional impairment charges of approximately
$5.0 million would have been recorded in fiscal 2007.
Insurance provision The Company is
self-insured with respect to medical coverage offered to
eligible employees except that claims in excess of $200,000 per
occurrence per year are covered by a purchased insurance policy.
The Company records a provision for estimated claims that have
been incurred but not reported. Such claim amounts are estimated
based on historical average claims per covered individual per
month and on the average historical lag time between the covered
event and the time it is paid by the Company. The liability for
estimated medical claims incurred but not reported at
March 3, 2007 was $2.9 million.
During fiscal 2007, the Company maintained insurance for
workers compensation and general liability claims with a
deductible of $1,000,000 and $750,000, respectively, per claim.
The liability recorded for such claims is determined by
estimating the total future claims cost for events that occurred
prior to the balance sheet date. The estimates consider
historical claims development factors as well as information
obtained from and projections made by the Companys
insurance carrier and underwriters. The recorded liabilities for
workers compensation and general liability claims at
March 3, 2007 were $17.3 million and
$6.3 million, respectively.
31
The assumptions made in determining the above estimates are
reviewed continually and the liability adjusted accordingly as
new facts are revealed. Changes in circumstances and conditions
affecting the assumptions used in determining the liabilities
could cause actual results to differ from the Companys
recorded amounts.
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 or certain
termination events, a participant will receive benefits based on
highest compensation and years of service. These benefit costs
are dependent upon numerous factors, assumptions and estimates.
Benefit costs may be significantly affected by changes in key
actuarial assumptions such as the discount rate, compensation
rates, or retirement dates used to determine the projected
benefit obligation. Additionally, changes made to the provisions
of the Plans may impact current and future benefit costs.
Income taxes The Company records income tax
expense using the liability method for taxes. The Company is
subject to income tax in many jurisdictions, including the
United States, various states and localities, and foreign
countries. At any point in time, multiple tax years are subject
to audit by various jurisdictions and the Company records
reserves for estimates of probable tax exposures for foreign and
domestic tax audits. The timing of these audits and negotiations
with taxing authorities may affect the ultimate settlement of
these issues. The process of determining tax expense by
jurisdiction involves the calculation of actual current tax
expense or benefit, together with the assessment of deferred tax
expense resulting from differing treatment of items for tax and
financial accounting purposes. Deferred tax assets and
liabilities are recorded in the Companys consolidated
balance sheets and are classified as current or noncurrent based
on the classification of the related assets or liabilities for
financial reporting purposes. A valuation allowance is recorded
to reduce the carrying amounts of deferred tax assets unless it
is more likely than not those assets will be realized. If
different assumptions had been used, the Companys tax
expense or benefit, assets and liabilities could have varied
from recorded amounts. If actual results differ from estimated
results or if the Company adjusts these assumptions in the
future, the Company may need to adjust its deferred tax assets
or liabilities, which could impact its effective tax rate. In
evaluating the likelihood that sufficient earnings would be
available in the near future to realize the deferred tax assets,
the Company considered cumulative losses over three years
including the current year.
During fiscal 2007, the Company concluded that a valuation
allowance was necessary based upon this evaluation. In addition,
net deferred tax assets arising from current year losses in
excess of the amount expected to be carried back to offset
taxable income in a prior year were fully reserved through a
valuation allowance. As these deferred tax assets were
established and fully reserved during fiscal 2007, there was no
net impact to the provision of income taxes. At the end of
fiscal 2007, the net deferred tax assets and the offsetting
valuation allowance totaled $86.3 million.
IMPACT OF
INFLATION AND CHANGING PRICES
Inflation has not had a significant impact on the operations of
the Company during the preceding three years.
IMPACT OF
NEW ACCOUNTING STANDARDS
In July 2006, the Financial Accounting Standards Board (the
FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes An
Interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting for
uncertainty in tax positions. FIN 48 prescribes the minimum
recognition threshold a tax position is required to meet before
being recognized in the financial statements. It also provides
guidance on derecognition, measurement, classification, interest
and penalties, accounting in interim periods, disclosure and
transition. The provisions of FIN 48 are effective for the
Company as of the beginning of fiscal 2008, with the cumulative
effect of the change in accounting principle recorded as an
adjustment to opening retained earnings. The Company is
currently analyzing the cumulative effect adjustment to retained
earnings that will be recorded upon adoption.
32
In September 2006, the Securities and Exchange Commission staff
published Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial
Statements (SAB 108). SAB 108
explains how the effects of prior year uncorrected errors must
be considered in quantifying misstatements in the current year
financial statements. SAB 108 offers a special
one-time transition provision for correcting certain
prior year misstatements that were uncorrected as of the
beginning of the fiscal year of adoption. SAB 108 is
effective for the Company as of the end of fiscal year 2007. The
adoption of this statement as of March 3, 2007, did not
have an impact on the Companys consolidated balance sheet
and statements of operations, shareholders equity and cash
flows.
In September 2006, the FASB issued SFAS No. 157
Fair Value Measurement (SFAS 157).
SFAS 157 provides a definition of fair value, establishes a
framework for measuring fair value and expands disclosures about
fair value measurements. SFAS 157 is effective for the
Company as of the beginning of fiscal year 2009. The Company
does not expect the adoption of this statement to have a
material impact on its consolidated balance sheet and statements
of operations, shareholders equity and cash flows.
In September 2006, the FASB issued SFAS No. 158
Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements
No. 87, 88, 106, and 132(R)
(SFAS 158). SFAS 158 requires companies to
recognize the funded status of postretirement benefit plans as
an asset or liability in the financial statements. The
transition date for recognition of an asset or liability related
to the funded status of an entitys plan is effective for
the Company as of the end of fiscal year 2007. The Company
adopted the funded status recognition portion of SFAS 158
as of March 3, 2007, and recorded an additional liability
with an offset to other comprehensive income of $1,631,000. In
addition, SFAS 158 requires an employer to measure its
postretirement benefit plan assets and benefit obligations as of
the date of the employers fiscal year end. This portion of
the statement is effective for the Company for fiscal 2009 and
is not expected to have a material impact on the Companys
consolidated financial statements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market
Risk.
|
Market risks relating to the Companys operations result
primarily from changes in foreign exchange rates and interest
rates. The Company has only limited involvement with derivative
financial instruments, does not use them for trading purposes
and is not a party to any leveraged derivatives. Collectively,
the Companys exposure to market risk factors is not
significant and has not materially changed from
February 25, 2006.
Foreign
Currency Risk
Though the majority of the Companys inventory purchases
are made in U.S. dollars in order to limit its exposure to
foreign currency fluctuations, the Company periodically enters
into forward foreign currency exchange contracts. The Company
uses such contracts to hedge exposures to changes in foreign
currency exchange rates associated with purchases denominated in
foreign currencies, primarily euros. The Company also uses
contracts to hedge its exposure associated with repatriation of
funds from its Canadian operations. Changes in the fair value of
the derivatives are included in the Companys consolidated
statements of operations as such contracts are not designated as
hedges under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. Forward
contracts that hedge merchandise purchases generally have
maturities not exceeding six months. Changes in the fair value
and settlement of these forwards are included in cost of sales.
Contracts that hedge the repatriation of Canadian funds have
maturities not exceeding 18 months and changes in the fair
value and settlement of these contracts are included in selling,
general and administrative expenses. At March 3, 2007,
there were no outstanding contracts to hedge exposure associated
with the Companys merchandise purchases denominated in
foreign currencies or the repatriation of Canadian funds.
33
Interest
Rate Risk
The Company manages its exposure to changes in interest rates by
optimizing the use of variable and fixed rate debt. The interest
rate exposure on the Companys secured credit facility and
industrial revenue bonds is based upon variable interest rates
and therefore is affected by changes in market interest rates.
As of March 3, 2007, the Company had $19.0 million in
borrowings outstanding on its industrial revenue bonds and no
cash borrowings outstanding on its secured credit facility. A
hypothetical 10% adverse change in the interest rates applicable
to either or both of these variable rate instruments would have
a negligible impact on the Companys earnings and cash
flows.
Additionally, the Company has $165.0 million in convertible
senior notes outstanding, which mature in February 2036. The
notes pay a fixed annual rate of 6.375% for the first five years
and a fixed rate of 6.125% thereafter. Changes in market
interest rates generally affect the fair value of fixed rate
debt instruments, but would not affect the Companys
financial position, results of operations or cash flows related
to these notes. As of March 3, 2007, the fair value of
these notes was $156.7 million based on quoted market
values.
34
|
|
Item 8.
|
Financial
Statements and Supplementary
Data.
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of Pier 1 Imports, Inc.
We have audited the accompanying consolidated balance sheets of
Pier 1 Imports, Inc. as of March 3, 2007 and
February 25, 2006, and the related consolidated statements
of operations, shareholders equity, and cash flows for
each of the three years in the period ended March 3, 2007.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Pier 1 Imports, Inc. at March 3, 2007
and February 25, 2006, and the consolidated results of its
operations and its cash flows for each of the three years in the
period ended March 3, 2007, in conformity with
U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial
statements, effective February 26, 2006, Pier 1 Imports,
Inc. adopted Statement of Financial Accounting Standards
No. 123 (Revised 2004), Share-Based
Payment. In addition, as discussed in Note 1
to the consolidated financial statements, effective
March 3, 2007, Pier 1 Imports, Inc. adopted Statement of
Financial Accounting Standards No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans, an Amendment of FASB Statements No. 87, 88, 106 and
132(R).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Pier 1 Imports, Inc.s internal control
over financial reporting as of March 3, 2007, based on
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated May 8, 2007
expressed an unqualified opinion thereon.
Fort Worth, Texas
May 8, 2007
35
Pier 1
Imports, Inc.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net sales
|
|
$
|
1,623,216
|
|
|
$
|
1,776,701
|
|
|
$
|
1,825,343
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (including buying
and store occupancy costs)
|
|
|
1,149,257
|
|
|
|
1,175,011
|
|
|
|
1,121,697
|
|
Selling, general and
administrative expenses
|
|
|
649,005
|
|
|
|
588,273
|
|
|
|
549,635
|
|
Depreciation and amortization
|
|
|
51,184
|
|
|
|
56,229
|
|
|
|
55,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,849,446
|
|
|
|
1,819,513
|
|
|
|
1,727,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(226,230
|
)
|
|
|
(42,812
|
)
|
|
|
98,249
|
|
Nonoperating (income) and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and investment income
|
|
|
(12,456
|
)
|
|
|
(3,510
|
)
|
|
|
(2,635
|
)
|
Interest expense
|
|
|
16,116
|
|
|
|
2,610
|
|
|
|
1,735
|
|
Other income
|
|
|
(1,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,893
|
|
|
|
(900
|
)
|
|
|
(900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes
|
|
|
(228,123
|
)
|
|
|
(41,912
|
)
|
|
|
99,149
|
|
Provision (benefit) for income
taxes
|
|
|
(885
|
)
|
|
|
(14,441
|
)
|
|
|
36,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
|
(227,238
|
)
|
|
|
(27,471
|
)
|
|
|
62,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
(including write down of assets held for sale of $7,441 in 2006)
|
|
|
(638
|
)
|
|
|
(17,583
|
)
|
|
|
(2,308
|
)
|
Income tax benefit
|
|
|
(231
|
)
|
|
|
(5,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(407
|
)
|
|
|
(12,333
|
)
|
|
|
(2,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(227,645
|
)
|
|
$
|
(39,804
|
)
|
|
$
|
60,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share from
continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(2.59
|
)
|
|
$
|
(.32
|
)
|
|
$
|
.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(2.59
|
)
|
|
$
|
(.32
|
)
|
|
$
|
.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share from discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(.01
|
)
|
|
$
|
(.14
|
)
|
|
$
|
(.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(.01
|
)
|
|
$
|
(.14
|
)
|
|
$
|
(.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(2.60
|
)
|
|
$
|
(.46
|
)
|
|
$
|
.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(2.60
|
)
|
|
$
|
(.46
|
)
|
|
$
|
.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share:
|
|
$
|
.20
|
|
|
$
|
.40
|
|
|
$
|
.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding during
period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
87,395
|
|
|
|
86,629
|
|
|
|
87,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
87,395
|
|
|
|
86,629
|
|
|
|
88,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
36
Pier 1
Imports, Inc.
CONSOLIDATED
BALANCE SHEETS
(In
thousands except share amounts)
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents,
including temporary investments of $160,721 and $238,463,
respectively
|
|
$
|
167,178
|
|
|
$
|
246,115
|
|
Beneficial interest in securitized
receivables
|
|
|
|
|
|
|
50,000
|
|
Other accounts receivable, net of
allowance for doubtful accounts of $566 and $1,119, respectively
|
|
|
21,437
|
|
|
|
13,916
|
|
Inventories
|
|
|
360,063
|
|
|
|
368,978
|
|
Income tax receivable
|
|
|
34,966
|
|
|
|
18,011
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
32,359
|
|
Prepaid expenses and other current
assets
|
|
|
50,324
|
|
|
|
45,544
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
633,968
|
|
|
|
774,923
|
|
Properties, net
|
|
|
239,548
|
|
|
|
298,922
|
|
Other noncurrent assets
|
|
|
42,954
|
|
|
|
96,016
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
916,470
|
|
|
$
|
1,169,861
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
95,609
|
|
|
$
|
105,916
|
|
Gift cards and other deferred
revenue
|
|
|
66,130
|
|
|
|
63,835
|
|
Accrued income taxes payable
|
|
|
3,305
|
|
|
|
4,763
|
|
Liabilities related to
discontinued operations
|
|
|
|
|
|
|
16,841
|
|
Other accrued liabilities
|
|
|
119,541
|
|
|
|
97,493
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
284,585
|
|
|
|
288,848
|
|
Long-term debt
|
|
|
184,000
|
|
|
|
184,000
|
|
Other noncurrent liabilities
|
|
|
86,768
|
|
|
|
107,031
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $1.00 par,
500,000,000 shares authorized, 100,779,000 issued
|
|
|
100,779
|
|
|
|
100,779
|
|
Paid-in capital
|
|
|
130,416
|
|
|
|
132,075
|
|
Retained earnings
|
|
|
337,178
|
|
|
|
582,221
|
|
Cumulative other comprehensive
income (loss)
|
|
|
2,408
|
|
|
|
(583
|
)
|
Less 12,981,000 and
13,761,000 common shares in treasury, at cost, respectively
|
|
|
(209,664
|
)
|
|
|
(222,254
|
)
|
Less unearned
compensation
|
|
|
|
|
|
|
(2,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
361,117
|
|
|
|
589,982
|
|
Commitments and contingencies
(See Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
916,470
|
|
|
$
|
1,169,861
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
37
Pier 1
Imports, Inc.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(227,645
|
)
|
|
$
|
(39,804
|
)
|
|
$
|
60,457
|
|
Adjustments to reconcile to net
cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
63,496
|
|
|
|
78,781
|
|
|
|
75,624
|
|
Loss on disposal of fixed assets
|
|
|
187
|
|
|
|
1,781
|
|
|
|
315
|
|
Loss on impairment of fixed assets
and long-lived assets
|
|
|
36,369
|
|
|
|
6,024
|
|
|
|
741
|
|
Write-down of assets held for sale
|
|
|
|
|
|
|
7,441
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
5,464
|
|
|
|
636
|
|
|
|
|
|
Deferred compensation
|
|
|
16,915
|
|
|
|
10,766
|
|
|
|
7,710
|
|
Lease termination expense
|
|
|
4,003
|
|
|
|
4,176
|
|
|
|
2,243
|
|
Deferred income taxes
|
|
|
24,576
|
|
|
|
(14,496
|
)
|
|
|
2,035
|
|
Other
|
|
|
(3,121
|
)
|
|
|
236
|
|
|
|
3,446
|
|
Change in cash from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of receivables in exchange for
beneficial interest in securitized receivable
|
|
|
(15,914
|
)
|
|
|
(74,550
|
)
|
|
|
(91,071
|
)
|
Purchase of proprietary credit card
receivables and other
|
|
|
(97,740
|
)
|
|
|
|
|
|
|
|
|
Proceeds from the sale of
proprietary credit card operations
|
|
|
144,622
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
9,757
|
|
|
|
882
|
|
|
|
(6,860
|
)
|
Other accounts receivable, prepaid
expenses and other current assets
|
|
|
(14,428
|
)
|
|
|
(22,778
|
)
|
|
|
(11,302
|
)
|
Income tax receivable
|
|
|
(16,955
|
)
|
|
|
(18,011
|
)
|
|
|
|
|
Accounts payable and accrued
expenses
|
|
|
(5,388
|
)
|
|
|
7,369
|
|
|
|
21,572
|
|
Income taxes payable
|
|
|
(1,595
|
)
|
|
|
(6,966
|
)
|
|
|
(14,116
|
)
|
Other noncurrent assets
|
|
|
566
|
|
|
|
(2,558
|
)
|
|
|
336
|
|
Other noncurrent liabilities
|
|
|
(28,074
|
)
|
|
|
(3,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
|
(104,905
|
)
|
|
|
(64,297
|
)
|
|
|
51,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(28,600
|
)
|
|
|
(50,979
|
)
|
|
|
(99,239
|
)
|
Proceeds from disposition of
properties
|
|
|
173
|
|
|
|
1,401
|
|
|
|
3,852
|
|
Proceeds from sale of discontinued
operation (net of $3,397 cash included in sale of discontinued
operations)
|
|
|
11,601
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of Pier 1
National Bank (net of $2,208 cash included in sale of Pier 1
National Bank)
|
|
|
10,754
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of restricted
investments
|
|
|
25,707
|
|
|
|
3,226
|
|
|
|
|
|
Purchase of restricted investments
|
|
|
(9,712
|
)
|
|
|
(3,500
|
)
|
|
|
(10,807
|
)
|
Collections of principal on
beneficial interest in securitized receivables
|
|
|
21,907
|
|
|
|
60,240
|
|
|
|
99,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
31,830
|
|
|
|
10,388
|
|
|
|
(6,482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends
|
|
|
(17,398
|
)
|
|
|
(34,667
|
)
|
|
|
(34,762
|
)
|
Purchases of treasury stock
|
|
|
|
|
|
|
(4,047
|
)
|
|
|
(58,210
|
)
|
Proceeds from stock options
exercised, stock purchase plan and other, net
|
|
|
4,719
|
|
|
|
7,641
|
|
|
|
12,473
|
|
Issuance of long-term debt
|
|
|
|
|
|
|
165,000
|
|
|
|
|
|
Notes payable borrowings
|
|
|
69,000
|
|
|
|
86,500
|
|
|
|
|
|
Repayment of notes payable
|
|
|
(69,000
|
)
|
|
|
(86,500
|
)
|
|
|
|
|
Debt issuance costs
|
|
|
(283
|
)
|
|
|
(6,739
|
)
|
|
|
(169
|
)
|
Purchase of call option
|
|
|
|
|
|
|
(9,145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
(12,962
|
)
|
|
|
118,043
|
|
|
|
(80,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
(86,037
|
)
|
|
|
64,134
|
|
|
|
(36,020
|
)
|
Cash and cash equivalents at
beginning of period (including cash at discontinued operation of
$7,100, $3,359 and $6,148, respectively)
|
|
|
253,215
|
|
|
|
189,081
|
|
|
|
225,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
period (including cash at discontinued operation of $0, $7,100
and $3,359, respectively)
|
|
$
|
167,178
|
|
|
$
|
253,215
|
|
|
$
|
189,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
12,821
|
|
|
$
|
8,136
|
|
|
$
|
868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
2,021
|
|
|
$
|
21,342
|
|
|
$
|
45,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
38
Pier 1
Imports, Inc.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
(In
thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Outstanding
|
|
|
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
Unearned
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Stock
|
|
|
Compensation
|
|
|
Equity
|
|
|
Balance February 28, 2004
|
|
|
88,227
|
|
|
$
|
100,779
|
|
|
$
|
145,384
|
|
|
$
|
630,997
|
|
|
$
|
1,667
|
|
|
$
|
(195,196
|
)
|
|
$
|
|
|
|
$
|
683,631
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,457
|
|
Other comprehensive income (loss),
net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,780
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,780
|
)
|
Currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,687
|
|
|
|
|
|
|
|
|
|
|
|
1,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock
|
|
|
(3,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,210
|
)
|
|
|
|
|
|
|
(58,210
|
)
|
Exercise of stock options, stock
purchase plan and other
|
|
|
1,238
|
|
|
|
|
|
|
|
(3,534
|
)
|
|
|
|
|
|
|
|
|
|
|
19,880
|
|
|
|
|
|
|
|
16,346
|
|
Cash dividends ($.40 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,762
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,762
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance February 26, 2005
|
|
|
86,240
|
|
|
|
100,779
|
|
|
|
141,850
|
|
|
|
656,692
|
|
|
|
(1,426
|
)
|
|
|
(233,526
|
)
|
|
|
|
|
|
|
664,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,804
|
)
|
Other comprehensive income (loss),
net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,149
|
|
|
|
|
|
|
|
|
|
|
|
1,149
|
|
Currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(306
|
)
|
|
|
|
|
|
|
|
|
|
|
(306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,961
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock
|
|
|
(250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,047
|
)
|
|
|
|
|
|
|
(4,047
|
)
|
Restricted stock grant and
amortization
|
|
|
203
|
|
|
|
|
|
|
|
(386
|
)
|
|
|
|
|
|
|
|
|
|
|
3,278
|
|
|
|
(2,256
|
)
|
|
|
636
|
|
Exercise of stock options, stock
purchase plan and other
|
|
|
746
|
|
|
|
|
|
|
|
(3,640
|
)
|
|
|
|
|
|
|
|
|
|
|
12,041
|
|
|
|
|
|
|
|
8,401
|
|
Cash dividends ($.40 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,667
|
)
|
Purchase of call option, net of tax
|
|
|
|
|
|
|
|
|
|
|
(5,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance February 25, 2006
|
|
|
86,939
|
|
|
|
100,779
|
|
|
|
132,075
|
|
|
|
582,221
|
|
|
|
(583
|
)
|
|
|
(222,254
|
)
|
|
|
(2,256
|
)
|
|
|
589,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(227,645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(227,645
|
)
|
Other comprehensive income (loss),
net of tax as applicable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,172
|
|
|
|
|
|
|
|
|
|
|
|
7,172
|
|
Currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,550
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(223,023
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to initially apply
SFAS No. 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,631
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,631
|
)
|
Restricted stock compensation
|
|
|
185
|
|
|
|
|
|
|
|
(4,280
|
)
|
|
|
|
|
|
|
|
|
|
|
2,994
|
|
|
|
2,256
|
|
|
|
970
|
|
Stock option compensation expense
|
|
|
|
|
|
|
|
|
|
|
4,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,494
|
|
Exercise of stock options, stock
purchase plan and other
|
|
|
674
|
|
|
|
|
|
|
|
(1,873
|
)
|
|
|
|
|
|
|
|
|
|
|
9,596
|
|
|
|
|
|
|
|
7,723
|
|
Cash dividends ($.20 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,398
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,398
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 3, 2007
|
|
|
87,798
|
|
|
$
|
100,779
|
|
|
$
|
130,416
|
|
|
$
|
337,178
|
|
|
$
|
2,408
|
|
|
$
|
(209,664
|
)
|
|
$
|
|
|
|
$
|
361,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
39
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization Pier 1 Imports, Inc. and its
consolidated subsidiaries (the Company) is one of
North Americas largest specialty retailers of imported
decorative home furnishings, gifts and related items, with
retail stores located in the United States and Canada.
Additionally, the Company has merchandise in store within
a store locations in Mexico and Puerto Rico that are
operated by Sears Roebuck de Mexico, S.A. de C.V. and Sears
Roebuck de Puerto Rico, Inc., respectively. On March 20,
2006, the Company sold its subsidiary based in the United
Kingdom, The Pier Retail Group Limited (The Pier).
At fiscal 2006 year end, The Pier was classified as held
for sale and is included in discontinued operations for all
years presented. In the fourth quarter of fiscal 2006, the
Company recorded an impairment charge of $7,441,000 to write
goodwill and long-lived assets related to The Pier down by
$918,000 and $6,523,000, respectively, to fair value less
selling costs. See Note 2 of the Notes to Consolidated
Financial Statements for further discussion.
Basis of consolidation The consolidated
financial statements of the Company include the accounts of all
subsidiary companies except, in fiscal 2006, Pier 1 Funding, LLC
(Funding), which was a non-consolidated, bankruptcy
remote, securitization subsidiary. See Note 3 of the
Notes to Consolidated Financial Statements. All intercompany
transactions and balances have been eliminated.
Segment information The Company is a
specialty retailer that offers a broad range of products in its
stores and conducts business as one operating segment. The
Companys domestic operations provided 92.3%, 93.0% and
93.7% of its net sales, with 7.3%, 6.7% and 6.0% provided by
stores in Canada, and the remainder from royalties received from
Sears Roebuck de Mexico S.A. de C.V. during fiscal 2007, 2006
and 2005, respectively. As of March 3, 2007,
February 25, 2006 and February 26, 2005, $5,510,000,
$8,765,000 and $8,888,000, respectively, of the Companys
long-lived assets were located in Canada. There were no
long-lived assets in Mexico during any period.
Use of estimates Preparation of the financial
statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.
Fiscal periods The Company utilizes 5-4-4
(week) quarterly accounting periods with the fiscal year ending
on the Saturday nearest the last day of February. Fiscal 2007
consisted of a
53-week year
and fiscal 2006 and 2005 were
52-week
years. Fiscal 2007 ended March 3, 2007, fiscal 2006 ended
February 25, 2006 and fiscal 2005 ended February 26,
2005.
Cash and cash equivalents The Company
considers all highly liquid investments with an original
maturity date of three months or less to be cash equivalents,
except for those investments that are restricted and have been
set aside in a trust to satisfy retirement obligations. As of
March 3, 2007 and February 25, 2006, the
Companys short-term investments classified as cash
equivalents included investments in money market mutual funds
totaling $160,721,000 and $238,463,000, respectively. The effect
of foreign currency exchange rate fluctuations on cash is not
material.
Translation of foreign currencies Assets and
liabilities of foreign operations are translated into
U.S. dollars at fiscal year end exchange rates. Income and
expense items are translated at average exchange rates
prevailing during the year. Translation adjustments arising from
differences in exchange rates from period to period are included
as a separate component of shareholders equity and are
included in other comprehensive income (loss). As of
March 3, 2007, February 25, 2006 and February 26,
2005, the Company had cumulative other comprehensive income
balances of $2,440,000, $4,990,000 and $5,296,000, respectively,
related to cumulative translation adjustments. The adjustments
for currency translation during fiscal 2007, 2006 and 2005
resulted in other comprehensive income (loss), net of tax, as
applicable, of ($2,550,000), ($306,000) and $1,687,000,
respectively. During fiscal 2006 and 2005, the Company provided
deferred taxes of $531,000 and $703,000, respectively, on the
portion of its cumulative currency translation adjustment
40
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
considered not to be permanently reinvested abroad. Taxes on
this portion of cumulative currency translation adjustments were
insignificant in fiscal 2007.
Concentrations of risk The Company has some
degree of risk concentration with respect to sourcing the
Companys inventory purchases. However, the Company
believes alternative sources of products could be procured over
a relatively short period of time. Pier 1 sells merchandise
imported from over 40 different countries, with 35% of its sales
derived from merchandise produced in China, 14% derived from
merchandise produced in Indonesia, 13% derived from merchandise
produced in India, 13% derived from merchandise produced in the
United States and 21% derived from merchandise produced in
Brazil, Thailand, Italy, the Philippines, Vietnam and Mexico.
The remaining 4% of sales was from merchandise produced in
various Asian, European, Central American, South American and
African countries.
Financial instruments The fair value of
financial instruments is determined by reference to various
market data and other valuation techniques as appropriate. There
were no assets or liabilities other than the 6.375% convertible
senior notes with a fair value significantly different from the
recorded value as of March 3, 2007 and February 25,
2006. The fair value of these notes was $156,712,000 based on
quoted market values as of March 3, 2007, and approximated
the recorded value of $165,000,000 as of February 25, 2006.
Changes in the market interest rates affect the fair value of
the Companys fixed rate notes, but do not affect the
Companys financial position, results of operations or cash
flows related to these instruments.
Risk management instruments: The Company may
utilize various financial instruments to manage interest rate
and market risk associated with its on- and off-balance sheet
commitments.
The Company hedges certain commitments denominated in foreign
currencies through the purchase of forward contracts. The
forward contracts are purchased only to cover specific
commitments to buy merchandise for resale. The Company also uses
contracts to hedge its exposure associated with the repatriation
of funds from its Canadian operations. At March 3, 2007,
and February 25, 2006 there were no outstanding contracts
to hedge exposure associated with the Companys merchandise
purchases denominated in foreign currencies or the repatriation
of Canadian funds. For financial accounting purposes, the
Company does not designate such contracts as hedges. Thus,
changes in the fair value of both types of forward contracts
would be included in the Companys consolidated statements
of operations. Both the changes in fair value and settlement of
these contracts are included in cost of sales for forwards
related to merchandise purchases and in selling, general and
administrative expense for the contracts associated with the
repatriation of Canadian funds.
The Company enters into forward foreign currency exchange
contracts with major financial institutions and continually
monitors its positions with, and the credit quality of, these
counterparties to such financial instruments. The Company does
not expect non-performance by any of the counterparties, and any
losses incurred in the event of non-performance would not be
material.
Beneficial interest in securitized
receivables Prior to the expiration of its
agreement to securitize its proprietary credit card receivables
on September 6, 2006, the Company securitized its entire
portfolio of proprietary credit card receivables. During most of
fiscal 2007, and all of fiscal 2006 and 2005, the Company sold
all of its proprietary credit card receivables, except those
that failed certain eligibility requirements, to Funding, a
special-purpose wholly owned subsidiary, which transferred the
receivables to the Pier 1 Imports Credit Card Master Trust (the
Master Trust). Neither Funding nor the Master Trust
were consolidated by the Company as the Master Trust met the
requirements of a qualifying special-purpose entity under
Statement of Financial Accounting Standards (SFAS)
No. 140. The Master Trust issued beneficial interests that
represent undivided interests in the assets of the Master Trust
consisting of the transferred receivables and all cash flows
from collections of such receivables. The beneficial interests
included certain interests retained by Funding, which were
represented by Class B Certificates, and the residual
interest in the Master Trust (the excess of the principal amount
of receivables held in the Master Trust over the portion
represented by the certificates sold to
41
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
a third-party investor and the Class B Certificates). Gain
or loss on the sale of receivables depended in part on the
previous carrying amount of the financial assets involved in the
transfer, allocated between the assets sold and the retained
interests based on their relative fair value at the date of
transfer.
The beneficial interest in the Master Trust was accounted for as
an
available-for-sale
security and was recorded at fair value. The Company estimated
fair value of its beneficial interest in the Master Trust, both
upon initial securitization and thereafter, based on the present
value of future expected cash flows using managements best
estimates of key assumptions including credit losses and payment
rates. As of March 3, 2007, the Company had no beneficial
interest since it had allowed its agreement to securitize its
proprietary credit card receivables to expire. As of
February 25, 2006, the Companys assumptions used to
calculate the present value of the future cash flows included
estimated credit losses of 4.75% of the outstanding balance,
expected payment within a six-month period and a discount rate
representing the average market rate the Company would expect to
pay if it sold securities representing ownership in the excess
receivables not required to collateralize the Class A
Certificates. See Note 3 of the Notes to Consolidated
Financial Statements for further discussion.
Inventories Inventories are comprised of
finished merchandise and are stated at the lower of average cost
or market, cost being determined on a weighted average inventory
method. Cost is calculated based upon the actual landed cost of
an item at the time it is received in the Companys
warehouse using actual vendor invoices, the cost of warehousing
and transporting product to the stores and other direct costs
associated with purchasing products.
In the fourth quarter of fiscal 2007, the Company made a
strategic decision to sell off excess inventory with the
intention of completing its liquidation efforts by the end of
the first quarter of fiscal 2008. In connection with this
decision, a $32,500,000 inventory write-down was recorded to
state the excess inventory at the lower of average cost or
market. The write-down of inventory primarily consisted of
previous merchandise assortments the Company has discontinued
offering in its stores. This decision was made by the Company in
order to clear room in its stores to allow for new inventory to
be displayed as it arrives throughout fiscal 2008.
The Company recognizes known inventory losses, shortages and
damages when incurred and maintains a reserve for estimated
shrinkage since the last physical count, when actual shrinkage
was recorded. The reserves for estimated shrinkage at the end of
fiscal years 2007 and 2006 were $6,193,000 and $8,218,000,
respectively.
Properties, maintenance and repairs
Buildings, equipment, furniture and fixtures, and leasehold
improvements are carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over
estimated remaining useful lives of the assets, generally thirty
years for buildings and three to ten years for equipment,
furniture and fixtures. Depreciation of improvements to leased
properties is based upon the shorter of the remaining primary
lease term or the estimated useful lives of such assets.
Depreciation related to the Companys distribution centers
is included in cost of sales. All other depreciation costs are
included in depreciation and amortization. Depreciation costs
were $49,984,000, $54,870,000 and $54,404,000 in fiscal 2007,
2006 and 2005, respectively.
Expenditures for maintenance, repairs and renewals that do not
materially prolong the original useful lives of the assets are
charged to expense as incurred. In the case of disposals, assets
and the related depreciation are removed from the accounts and
the net amount, less proceeds from disposal, is credited or
charged to income.
Long-lived assets are reviewed for impairment at least annually
and whenever an event or change in circumstances indicates that
its carrying value may not be recoverable. If the carrying value
exceeds the sum of the expected undiscounted cash flows, the
assets are considered impaired. For store level long-lived
assets, expected cash flows are estimated based on
managements estimate of changes in sales, merchandise
margins,
42
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and expenses over the remaining expected terms of the leases.
Impairment is measured as the amount by which the carrying value
of the asset exceeds the fair value of the asset. Fair value is
determined by discounting expected cash flows. Impairment, if
any, is recorded in the period in which the impairment occurred.
Impairment charges were $31,947,000, $5,601,000 and $370,000 in
fiscal 2007, 2006 and 2005, respectively, and included in
selling, general and administrative expenses.
Goodwill and intangible assets The Company
applies the provisions of SFAS No. 142, Goodwill
and Intangible Assets. Under SFAS No. 142,
goodwill and intangible assets with indefinite useful lives are
not amortized, but instead are tested for impairment at least
annually. In accordance with SFAS No. 142, the
Companys reporting units were identified as components,
and the goodwill assigned to each represents the excess of the
original purchase price over the fair value of the net
identifiable assets acquired for that component. The Company
completed the annual impairment tests as of March 3, 2007
and February 25, 2006 for fiscal 2007 and 2006,
respectively. Fair value was determined through analyses of
discounted future cash flows for the applicable reporting units.
The analysis resulted in a write-down of goodwill and intangible
assets, included in selling, general and administrative
expenses, of approximately $4,422,000 in fiscal 2007, primarily
related to Pier 1 Kids, and $239,000 in fiscal 2006. No
impairment loss was recognized in fiscal 2005. See
Note 5 of the Notes to Consolidated Financial Statements
for additional discussion of goodwill and intangible assets.
Revenue recognition Revenue is recognized
upon customer receipt or delivery for retail sales, net of sales
tax and third party credit card processing fees, including sales
under deferred payment promotions on the Companys
proprietary credit card. As a result of the sale of the
Companys credit card business in fiscal 2007, these
deferred programs will result in an upfront reduction of sales
based on the fees charged by Chase Bank USA N.A.
(Chase) for such programs going forward. A reserve
has been established for estimated merchandise returns based
upon historical experience and other known factors. The reserves
for estimated merchandise returns at the end of fiscal years
2007 and 2006 were $3,215,000 and $3,060,000, respectively. The
Companys revenues are reported net of discounts and
returns, and include wholesale sales and royalties received from
franchise stores and Sears Roebuck de Mexico S.A. de C.V.
Amounts billed to customers for shipping and handling are
included in net sales and the costs incurred by the Company for
these items are recorded in cost of sales.
Gift cards Revenue associated with gift cards
is recognized upon redemption of the gift card. Gift card
breakage is estimated and recorded as income based upon an
analysis of the Companys historical redemption patterns
and represents the remaining unused portion of the gift card
liability for which the likelihood of redemption is remote. If
actual redemption patterns vary from the Companys
estimates, actual gift card breakage may differ from the amounts
recorded. For all periods presented, gift card breakage was
recognized after a period of 30 months from the original
issuance and was $6,222,000, $5,062,000 and $4,452,000 in fiscal
2007, 2006 and 2005, respectively.
Leases The Company leases certain property
consisting principally of retail stores, warehouses, and
material handling and office equipment under leases expiring
through fiscal 2022. Most retail store locations are leased for
primary terms of ten years with varying renewal options and rent
escalation clauses. Escalations occurring during the primary
terms of the leases are included in the calculation of the
minimum lease payments, and the rent expense related to these
leases is recognized on a straight-line basis over this lease
term. Prior to fiscal 2005, the Company recognized straight-line
rent expense for store leases beginning on the earlier of the
rent commencement date or the store opening date, which had the
effect of excluding the build-out period of its stores from the
calculation of the period over which it expenses rent. During
the fourth quarter of fiscal 2005, the Company revised its
accounting practices to extend the lease term to include this
free rent period prior to the opening of its stores. This
revision in practice resulted in a cumulative pre-tax charge of
$6,264,000 for leases entered into prior to fiscal 2005, which
was not material to any previously reported fiscal year. This
cumulative adjustment had no effect on historical or future cash
flows from
43
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
operations or the timing of payments under the related leases.
The portion of rent expense applicable to a store before opening
is included in selling, general and administrative expenses.
Once opened for business, rent expense is included in cost of
sales. Certain leases provide for additional rental payments
based on a percentage of sales in excess of a specified base.
This additional rent is accrued when it appears that the sales
will exceed the specified base. Construction allowances received
from landlords are initially recorded as lease liabilities and
amortized as a reduction of rental expense over the primary
lease term. The Companys lease obligations are operating
leases under SFAS No. 13.
Advertising costs Advertising production
costs are expensed the first time the advertising takes place.
Advertising costs were $109,540,000, $92,245,000 and $79,115,000
in fiscal 2007, 2006 and 2005, respectively. Prepaid advertising
at the end of fiscal years 2007 and 2006 was $1,556,000 and
$5,413,000, respectively.
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 or certain
termination events, a participant will receive benefits based on
highest compensation and years of service. These benefit costs
are dependent upon numerous factors, assumptions and estimates.
Benefit costs may be significantly affected by changes in key
actuarial assumptions such as the discount rate, compensation
rates, or retirement dates used to determine the projected
benefit obligation. Additionally, changes made to the provisions
of the Plans may impact current and future benefit costs. In
accordance with accounting rules, changes in benefit obligations
associated with these factors may not be immediately recognized
as costs on the income statement, but are recognized in future
years over the remaining average service period of plan
participants. See Note 10 of the Notes to Consolidated
Financial Statements for further discussion.
Income taxes The Company records income tax
expense using the liability method for taxes. Under this method,
deferred tax assets and liabilities are recognized based on
differences between financial statement and tax bases of assets
and liabilities using presently enacted tax rates. Deferred tax
assets and liabilities are classified as current or noncurrent
based on the classification of the related assets or liabilities
for financial reporting purposes. A valuation allowance is
recorded to reduce the carrying amounts of deferred tax assets
unless it is more likely than not those assets will be realized.
Deferred federal income taxes, net of applicable foreign tax
credits, are not provided on the undistributed earnings of
foreign subsidiaries to the extent the Company intends to
permanently reinvest such earnings abroad. At any point in time,
multiple tax years are subject to audit by various jurisdictions
and the Company records reserves for estimates of probable tax
exposures of foreign and domestic tax audits. However,
negotiations with taxing authorities may yield results different
than those currently estimated.
Earnings (loss) per share Basic earnings
(loss) per share amounts were determined by dividing income
(loss) from continuing operations, loss from discontinued
operations and net income (loss) by the weighted average number
of common shares outstanding for the period. Diluted earnings
per share amounts were similarly computed, but included the
effect, when dilutive, of the Companys weighted average
number of stock options outstanding and unvested restricted
stock.
44
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Earnings (loss) per share amounts were calculated as follows (in
thousands except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Income (loss) from continuing
operations, basic and diluted
|
|
$
|
(227,238
|
)
|
|
$
|
(27,471
|
)
|
|
$
|
62,765
|
|
Income (loss) from discontinued
operations, basic and diluted
|
|
|
(407
|
)
|
|
|
(12,333
|
)
|
|
|
(2,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss), basic and
diluted
|
|
$
|
(227,645
|
)
|
|
$
|
(39,804
|
)
|
|
$
|
60,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
87,395
|
|
|
|
86,629
|
|
|
|
87,037
|
|
Plus assumed exercise of stock
options
|
|
|
|
|
|
|
|
|
|
|
1,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
87,395
|
|
|
|
86,629
|
|
|
|
88,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share from
continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(2.59
|
)
|
|
$
|
(.32
|
)
|
|
$
|
.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(2.59
|
)
|
|
$
|
(.32
|
)
|
|
$
|
.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share from discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(.01
|
)
|
|
$
|
(.14
|
)
|
|
$
|
(.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(.01
|
)
|
|
$
|
(.14
|
)
|
|
$
|
(.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(2.60
|
)
|
|
$
|
(.46
|
)
|
|
$
|
.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(2.60
|
)
|
|
$
|
(.46
|
)
|
|
$
|
.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options for which the exercise price was greater than the
average market price of common shares were not included in the
computation of diluted earnings per share as the effect would be
antidilutive. All 13,991,195 and 12,941,025 outstanding stock
options and shares of unvested restricted stock were excluded
from the computation of the fiscal 2007 and 2006, respectively,
loss per share as the effect would be antidilutive. At the end
of fiscal year 2005, there were 5,210,600 stock options
outstanding with exercise prices greater than the average market
price of the Companys common shares. In addition,
incremental net shares for the conversion feature of the
Companys 6.375% senior convertible notes will be
included in the Companys future diluted earnings per share
calculations for those periods in which the average common stock
price exceeds the initial conversion price of $15.19 per
share.
Stock-based compensation The Company grants
stock options and restricted stock for a fixed number of shares
to employees with stock option exercise prices equal to the fair
market value of the shares on the date of the grant. On
February 26, 2006, the Company adopted the provisions of
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. Prior to
February 26, 2006, the Company accounted for stock option
grants using the intrinsic value method in accordance with
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and
recognized no compensation expense for stock option grants since
all options granted had an exercise price equal to the market
value of the underlying common stock on the date of grant.
The Company adopted SFAS 123R using the modified
prospective method. Under the modified prospective method, the
Company records stock-based compensation expense for all awards
granted on or after the date of adoption and for the portion of
previously granted awards that remained unvested at the date of
adoption. Accordingly, prior period amounts have not been
restated. Currently, the Companys stock-based compensation
relates to stock options, restricted stock awards and director
deferred stock units. Compensation
45
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
expense is recognized for any unvested stock option awards
outstanding as of the date of adoption on a straight-line basis
over the remaining vesting period. The fair values of the
options are calculated using a Black-Scholes option pricing
model. The Company records compensation expense for stock-based
awards with a performance condition when it is probable that the
condition will be achieved. The compensation expense ultimately
recognized, if any, related to these awards will equal the grant
date fair value for the number of shares for which the
performance condition has been satisfied.
SFAS 123R requires that forfeitures be estimated at the
time of grant. The Company estimates forfeitures based on its
historical forfeiture experience. For periods prior to fiscal
2007, the Company recognized forfeitures as they occurred in its
pro forma disclosures. In accordance with SFAS 123R, the
Company adjusts forfeiture estimates based on actual forfeiture
experience for all awards with service conditions. The effect of
forfeiture adjustments for the year was insignificant.
During fiscal 2006, the Companys Board of Directors
approved the accelerated vesting of approximately 3,800,000
stock options where the exercise price was in excess of the
market price. This acceleration resulted in pro forma expense of
approximately $16,300,000, net of tax, for options that would
have vested in future periods. See Note 11 of the Notes
to Consolidated Financial Statements for additional discussion
related to the accounting for stock-based employee
compensation.
SFAS 123R requires disclosure of pro forma information for
periods prior to adoption. The following table details the
effect on net income (loss) and earnings (loss) per share from
continuing operations, illustrating the effect of applying the
fair value recognition provisions of SFAS 123R for fiscal
2006 and 2005, respectively (in thousands except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
2006
|
|
|
2005
|
|
|
Income (loss) from continuing
operations, as reported
|
|
$
|
(27,471
|
)
|
|
$
|
62,765
|
|
Stock-based employee compensation
expense included in reported net income (loss), net of related
tax effects
|
|
|
417
|
|
|
|
|
|
Less total stock-based employee
compensation expense determined under fair value-based method,
net of related tax effects
|
|
|
(25,519
|
)
|
|
|
(11,645
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
$
|
(52,573
|
)
|
|
$
|
51,120
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share from
continuing operations:
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$
|
(.32
|
)
|
|
$
|
.72
|
|
|
|
|
|
|
|
|
|
|
Basic pro forma
|
|
$
|
(.61
|
)
|
|
$
|
.59
|
|
|
|
|
|
|
|
|
|
|
Diluted as reported
|
|
$
|
(.32
|
)
|
|
$
|
.71
|
|
|
|
|
|
|
|
|
|
|
Diluted pro forma
|
|
$
|
(.61
|
)
|
|
$
|
.57
|
|
|
|
|
|
|
|
|
|
|
Adoption of new accounting standards In July
2006, the Financial Accounting Standards Board (the
FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes An
Interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting for
uncertainty in tax positions. FIN 48 prescribes the minimum
recognition threshold a tax position is required to meet before
being recognized in the financial statements. It also provides
guidance on derecognition, measurement, classification, interest
and penalties, accounting in interim periods, disclosure and
transition. The provisions of FIN 48 are effective for the
Company as of the beginning of fiscal 2008, with the cumulative
effect of the change in accounting principle recorded as an
adjustment to opening retained earnings. The Company is
currently analyzing the cumulative effect adjustment to retained
earnings that will be recorded upon adoption.
46
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In September 2006, the Securities and Exchange Commission staff
published Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial
Statements (SAB 108). SAB 108
explains how the effects of prior year uncorrected errors must
be considered in quantifying misstatements in the current year
financial statements. SAB 108 offers a special
one-time transition provision for correcting certain
prior year misstatements that were uncorrected as of the
beginning of the fiscal year of adoption. SAB 108 is
effective for the Company as of the end of fiscal year 2007. The
adoption of this statement as of March 3, 2007, did not
have an impact on the Companys consolidated balance sheet
and statements of operations, shareholders equity and cash
flows.
In September 2006, the FASB issued SFAS No. 157
Fair Value Measurement (SFAS 157).
SFAS 157 provides a definition of fair value, establishes a
framework for measuring fair value and expands disclosures about
fair value measurements. SFAS 157 is effective for the
Company as of the beginning of fiscal year 2009. The Company
does not expect the adoption of this statement to have a
material impact on its consolidated balance sheet and statements
of operations, shareholders equity and cash flows.
In September 2006, the FASB issued SFAS No. 158
Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements
No. 87, 88, 106, and 132(R)
(SFAS 158). SFAS 158 requires companies to
recognize the funded status of postretirement benefit plans as
an asset or liability in the financial statements. The
transition date for recognition of an asset or liability related
to the funded status of an entitys plan is effective for
the Company as of the end of fiscal year 2007. The Company
adopted the funded status recognition portion of SFAS 158
as of March 3, 2007, and recorded an additional liability
with an offset to cumulative other comprehensive income of
$1,631,000. In addition, SFAS 158 requires an employer to
measure its postretirement benefit plan assets and benefit
obligations as of the date of the employers fiscal year
end. This portion of the statement is effective for the Company
for fiscal 2009 and is not expected to have a material impact on
the Companys consolidated financial statements.
NOTE 2
DISCONTINUED OPERATIONS
During the fourth quarter of fiscal 2006, the Companys
Board of Directors authorized management to sell its operations
of The Pier Retail Group Limited (The Pier) with
stores located in the United Kingdom and Ireland. The Company
met the criteria of SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets that
allowed it to classify The Pier as held for sale and present its
results of operations as discontinued for all years presented.
In the fourth quarter of fiscal 2006, the Company recorded an
impairment charge of $7,441,000 to write down $918,000 of
goodwill and $6,523,000 related to properties to the fair value
less costs to sell. On March 20, 2006, the Company sold The
Pier to Palli Limited for approximately $15,000,000. Palli
Limited is a wholly owned subsidiary of Lagerinn ehf
(Lagerinn), an Iceland corporation owned by Jakup a
Dul Jacobsen. Collectively Lagerinn and Mr. Jacobsen
beneficially owned approximately 9.9% of the Companys
common stock as of the date of the sale. Expenses incurred by
the Company in March 2006 related to The Pier were $407,000, net
of taxes, which included an insignificant gain on the sale.
Assets
47
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of discontinued operations and liabilities related to
discontinued operations were comprised of the following
components as of February 25, 2006 (in thousands):
|
|
|
|
|
|
|
2006
|
|
Cash and cash equivalents
|
|
$
|
7,100
|
|
Accounts receivable
|
|
|
1,441
|
|
Inventory
|
|
|
10,870
|
|
Prepaid expenses and other current
assets
|
|
|
2,270
|
|
Properties, net
|
|
|
10,678
|
|
|
|
|
|
|
Assets of discontinued operations
|
|
$
|
32,359
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,728
|
|
Deferred revenue
|
|
|
415
|
|
Accrued income taxes payable
|
|
|
137
|
|
Other accrued liabilities
|
|
|
7,210
|
|
Other noncurrent liabilities
|
|
|
3,351
|
|
|
|
|
|
|
Liabilities related to
discontinued operations
|
|
$
|
16,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net sales from discontinued
operations
|
|
$
|
3,323
|
|
|
$
|
74,196
|
|
|
$
|
72,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Also included in assets of discontinued operations were deferred
tax assets of $8,096,000 at February 25, 2006, which were
fully reserved through a valuation allowance.
NOTE 3
PROPRIETARY CREDIT CARD INFORMATION
On September 6, 2006, the Company allowed its agreement to
securitize its proprietary credit card receivables to expire. At
the time of expiration, the Company purchased $144,007,000 of
proprietary credit card receivables, previously held by the
Master Trust, an unconsolidated subsidiary, for $100,000,000 in
cash and in exchange for $44,007,000 of beneficial interest. The
Master Trust, upon approval from the Class A Certificate
holders, paid $100,000,000 to redeem the Class A
Certificates that were outstanding.
On November 21, 2006, the Company completed the sale of its
proprietary credit card operations to Chase. The sale was
comprised of the Companys proprietary credit card
receivables, certain charged-off accounts and the common stock
of Pier 1 National Bank. The Company received cash proceeds of
$157,583,000 and will receive additional proceeds of
$10,750,000, plus any accrued interest, over the life of the
agreement. The net deferred gain associated with this sale will
be recognized in nonoperating income over the ten-year life of
the agreement described below and is not expected to have a
material impact in any accounting period.
In addition, the Company and Chase have entered into a long-term
program agreement. Under this agreement, the Company will
continue to support the card through marketing programs and will
receive additional payments over the life of the agreement for
transaction level incentives, marketing support and other
program terms. These payments are not expected to have a
material impact in any accounting period.
Prior to the sale of its proprietary credit card operations in
November 2006, the Companys proprietary credit card
receivables were generated under open-ended revolving credit
accounts issued by its subsidiary, Pier 1 National Bank, to
finance purchases of merchandise and services offered by the
Company. These accounts had various billing and payment
structures, including varying minimum payment levels. The
48
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company had an agreement with a third party to provide certain
credit card processing and related credit services, while the
Company maintained control over credit policy decisions and
customer service standards.
Net proprietary credit card income was included in selling,
general and administrative expenses on the Companys
statements of operations. The following information presents a
summary of the Companys proprietary credit card results
for each of the last three fiscal years on a managed basis (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007(1)
|
|
|
2006
|
|
|
2005
|
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance charge income, net of debt
service costs
|
|
$
|
20,127
|
|
|
$
|
27,351
|
|
|
$
|
25,118
|
|
Other income
|
|
|
118
|
|
|
|
189
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,245
|
|
|
|
27,540
|
|
|
|
25,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Processing fees
|
|
|
11,565
|
|
|
|
13,907
|
|
|
|
14,982
|
|
Bad debts
|
|
|
3,449
|
|
|
|
6,457
|
|
|
|
7,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,014
|
|
|
|
20,364
|
|
|
|
22,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proprietary credit card income
|
|
$
|
5,231
|
|
|
$
|
7,176
|
|
|
$
|
3,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross proprietary credit card
receivables at year-end
|
|
$
|
|
|
|
$
|
147,271
|
|
|
$
|
134,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Fiscal 2007 income and costs
include activity through November 21, 2006, when the Company
completed the sale of its proprietary credit card operations.
|
The Company began securitizing its entire portfolio of
proprietary credit card receivables (the
Receivables) in fiscal 1997. On a daily basis during
all periods presented above, except the period from
September 6, 2006 through March 3, 2007, the Company
sold all of its proprietary credit card receivables, except an
immaterial amount of those that failed certain eligibility
criteria, to a special-purpose wholly owned subsidiary, Funding.
The Receivables were then transferred from Funding to the Master
Trust. In exchange for the Receivables, the Company received
cash and retained a residual interest in the Master Trust. These
cash payments were funded from undistributed principal
collections on the Receivables that were previously sold to the
Master Trust.
Funding was capitalized by the Company as a special-purpose
wholly owned subsidiary and was subject to certain covenants and
restrictions, including a restriction from engaging in any
business or activity unrelated to acquiring and selling
interests in receivables. The Master Trust issued beneficial
interests that represented undivided interests in the assets of
the Master Trust. Neither Funding nor the Master Trust was
consolidated in the Companys financial statements. Under
U.S. generally accepted accounting principles, if the
structure of a securitization meets certain requirements, such
transactions are accounted for as sales of receivables. As the
Companys securitizations met such requirements, they were
accounted for as sales. Gains or losses resulting from the daily
sales of Receivables to Funding were not material during fiscal
2007, 2006 or 2005. The Companys exposure to deterioration
in the performance of the Receivables was limited to its
retained beneficial interest in the Master Trust. As such, the
Company had no corporate obligation to reimburse Funding, the
Master Trust or purchasers of any certificates issued by the
Master Trust for credit losses from the Receivables.
As a result of the securitization, the Master Trust had
$100,000,000 of outstanding
2001-1
Class A Certificates issued to a third party through
September 6, 2006. The
2001-1
Class A Certificates bore interest at a floating rate equal
to the rate on commercial paper issued by the third party plus a
credit spread. As of February 25, 2006, this rate was 5.1%.
Funding continued to retain the residual interest in the Master
Trust and held $13,636,000 in
2001-1
Class B Certificates at February 25, 2006, which were
subordinated to the
49
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2001-1
Class A Certificates and did not bear interest. Since the
securitization agreement expired in September 2006, there were
no outstanding
2001-1
Class A Certificates or
2001-1
Class B Certificates at the end of fiscal 2007, as all
amounts were settled.
Cash flows received by the Company from the Master Trust for
each of the last three fiscal years are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Proceeds from collections
reinvested in revolving securitizations
|
|
$
|
212,653
|
|
|
$
|
436,034
|
|
|
$
|
494,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing fees received
|
|
$
|
1,190
|
|
|
$
|
2,189
|
|
|
$
|
2,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows received on retained
interests
|
|
$
|
32,592
|
|
|
$
|
95,444
|
|
|
$
|
109,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 25, 2006, the Company had $50,000,000, in
beneficial interests (comprised primarily of principal and
interest related to the underlying Receivables) in the Master
Trust.
NOTE 4
PROPERTIES
Properties are summarized as follows at March 3, 2007 and
February 25, 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Land
|
|
$
|
18,315
|
|
|
$
|
18,778
|
|
Buildings
|
|
|
94,444
|
|
|
|
95,056
|
|
Equipment, furniture and fixtures
|
|
|
259,458
|
|
|
|
271,702
|
|
Leasehold improvements
|
|
|
199,879
|
|
|
|
217,795
|
|
Computer software
|
|
|
72,027
|
|
|
|
60,208
|
|
Projects in progress
|
|
|
1,557
|
|
|
|
5,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
645,680
|
|
|
|
669,212
|
|
Less accumulated depreciation and
amortization
|
|
|
406,132
|
|
|
|
370,290
|
|
|
|
|
|
|
|
|
|
|
Properties, net
|
|
$
|
239,548
|
|
|
$
|
298,922
|
|
|
|
|
|
|
|
|
|
|
NOTE 5
GOODWILL AND OTHER INTANGIBLE ASSETS
The Companys intangible assets at March 3, 2007 and
February 25, 2006 included the right to do business within
certain geographical markets where franchise stores were
previously granted exclusive rights to operate and favorable
operating leases acquired from a third party. These intangible
assets were included in other non-current assets in the
Companys consolidated balance sheets. Amortization expense
for fiscal 2007, 2006 and 2005 was $1,431,000, $1,654,000 and
$1,656,000, respectively. During fiscal 2007, the Company wrote
off $4,422,000 of goodwill and other intangibles of which
$4,070,000 related to goodwill for Pier 1
50
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Kids. The following is a summary of the Companys
intangible assets at March 3, 2007 and February 25,
2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Geographic market rights, gross
|
|
$
|
14,722
|
|
|
$
|
14,926
|
|
Accumulated amortization
|
|
|
(14,378
|
)
|
|
|
(13,088
|
)
|
|
|
|
|
|
|
|
|
|
Geographic market rights, net
|
|
$
|
344
|
|
|
$
|
1,838
|
|
|
|
|
|
|
|
|
|
|
Acquired operating leases, gross
|
|
$
|
1,466
|
|
|
$
|
1,615
|
|
Accumulated amortization
|
|
|
(604
|
)
|
|
|
(463
|
)
|
|
|
|
|
|
|
|
|
|
Acquired operating leases, net
|
|
$
|
862
|
|
|
$
|
1,152
|
|
|
|
|
|
|
|
|
|
|
Goodwill, not amortized
|
|
$
|
|
|
|
$
|
4,088
|
|
|
|
|
|
|
|
|
|
|
Estimated future amortization expense related to intangible
assets at March 3, 2007 is as follows (in thousands):
|
|
|
|
|
|
|
Amortization
|
|
Fiscal Year
|
|
Expense
|
|
|
2008
|
|
$
|
461
|
|
2009
|
|
|
117
|
|
2010
|
|
|
117
|
|
2011
|
|
|
116
|
|
2012
|
|
|
108
|
|
Thereafter
|
|
|
287
|
|
|
|
|
|
|
Total future amortization expense
|
|
$
|
1,206
|
|
|
|
|
|
|
NOTE 6
OTHER ACCRUED LIABILITIES AND NONCURRENT LIABILITIES
The following is a summary of other accrued liabilities and
noncurrent liabilities at March 3, 2007 and
February 25, 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Accrued payroll and other
employee-related liabilities
|
|
$
|
40,610
|
|
|
$
|
39,448
|
|
Accrued taxes, other than income
|
|
|
26,035
|
|
|
|
24,652
|
|
Retirement benefits
|
|
|
16,358
|
|
|
|
|
|
Other
|
|
|
36,538
|
|
|
|
33,393
|
|
|
|
|
|
|
|
|
|
|
Other accrued liabilities
|
|
$
|
119,541
|
|
|
$
|
97,493
|
|
|
|
|
|
|
|
|
|
|
Rent-related liabilities
|
|
$
|
41,488
|
|
|
$
|
41,865
|
|
Deferred gains
|
|
|
23,053
|
|
|
|
4,101
|
|
Retirement benefits
|
|
|
21,857
|
|
|
|
56,404
|
|
Other
|
|
|
370
|
|
|
|
4,661
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent liabilities
|
|
$
|
86,768
|
|
|
$
|
107,031
|
|
|
|
|
|
|
|
|
|
|
51
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 7
LEASE TERMINATION OBLIGATIONS
At times, the Company may terminate leases prior to their
expiration when certain stores or storage facilities are closed
or relocated to more favorable locations as deemed necessary by
the evaluation of the 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 recorded estimated liabilities in accordance with
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. The estimated
liabilities were recorded based upon the Companys
remaining lease obligations less estimated subtenant rental
income. Revisions relate to changes in estimated 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. The write-off of fixed assets and
associated intangible assets related to store closures was
approximately $370,000 and $1,500,000 in fiscal 2007 and 2006,
respectively, and was not material in fiscal 2005. The
write-down of inventory or employee severance costs associated
with these closures was not significant in fiscal 2007, or 2006;
and, there were no write-downs for inventory or employee
severance costs in fiscal 2005. The following table represents a
rollforward of the liability balances for the three fiscal years
ended March 3, 2007 (in thousands):
|
|
|
|
|
|
|
Lease
|
|
|
|
Termination
|
|
|
|
Obligations
|
|
|
Balance at February 28, 2004
|
|
$
|
1,748
|
|
Original charges
|
|
|
1,480
|
|
Revisions
|
|
|
763
|
|
Cash payments
|
|
|
(2,516
|
)
|
|
|
|
|
|
Balance at February 26, 2005
|
|
|
1,475
|
|
Original charges
|
|
|
3,689
|
|
Revisions
|
|
|
487
|
|
Cash payments
|
|
|
(2,792
|
)
|
|
|
|
|
|
Balance at February 25, 2006
|
|
|
2,859
|
|
Original charges
|
|
|
4,245
|
|
Revisions
|
|
|
(242
|
)
|
Cash payments
|
|
|
(4,426
|
)
|
|
|
|
|
|
Balance at March 3, 2007
|
|
$
|
2,436
|
|
|
|
|
|
|
NOTE 8
LONG-TERM DEBT AND AVAILABLE CREDIT
Long-term debt is summarized as follows at March 3, 2007
and February 25, 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Industrial revenue bonds
|
|
$
|
19,000
|
|
|
$
|
19,000
|
|
6.375% convertible senior
notes
|
|
|
165,000
|
|
|
|
165,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184,000
|
|
|
|
184,000
|
|
Less portion due
within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
184,000
|
|
|
$
|
184,000
|
|
|
|
|
|
|
|
|
|
|
The Company has $19,000,000 in industrial revenue bond loan
agreements, which have been outstanding since 1987. Proceeds
were used to construct warehouse/distribution facilities. The
loan agreements and related
52
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
tax-exempt bonds mature in the year 2026. The Companys
interest rates on the loans are based on the bond interest
rates, which are market driven, reset weekly and are similar to
other tax-exempt municipal debt issues. The Companys
weighted average effective interest rates, including commitment
fees of 1.0%, were 5.2% and 4.1% for fiscal 2007 and 2006,
respectively.
In February 2006, the Company issued $165,000,000 of
6.375% convertible senior notes due 2036 (the
Notes) in a private placement, and subsequently
registered the Notes with the Securities and Exchange Commission
in June 2006. The Notes bear interest at a rate of
6.375% per year until February 15, 2011 and at a rate
of 6.125% per year thereafter. Interest is payable
semiannually in arrears on February 15 and August 15 of each
year, and commenced August 15, 2006. The Notes are
convertible into cash and, if applicable, shares of the
Companys common stock based on an initial conversion rate,
subject to adjustments, of 65.8328 shares per $1,000
principal amount of Notes (which represents an initial
conversion price of approximately $15.19 per share
representing a 40% conversion premium at issuance). Holders of
the Notes may convert their Notes only under the following
circumstances: (1) during any fiscal quarter (and only
during such fiscal quarter) commencing after May 27, 2006,
if the last reported sale price of the Companys common
stock is greater than or equal to 130% of the conversion price
per share of common stock for at least 20 trading days in the
period of 30 consecutive trading days ending on the last trading
day of the preceding fiscal quarter; (2) if the Company has
called the Notes for redemption; or (3) upon the occurrence
of specified corporate transactions. In general, upon conversion
of a Note, a holder will receive cash equal to the lesser of the
principal amount of the Note or the conversion value of the Note
plus common stock of the Company for any conversion value in
excess of the principal amount. As of March 3, 2007, the
maximum number of shares that could be required to be issued to
net share settle the conversion of the Notes was
10,862,412 shares. The Company may redeem the Notes at its
option on or after February 15, 2011 for cash at 100% of
the principal amount. Additionally, the holders of the Notes may
require the Company to purchase all or a portion of their Notes
under certain circumstances as defined by the agreement, in each
case at a repurchase price in cash equal to 100% of the
principal amount of the repurchased Notes at February 15,
2011, February 15, 2016, February 15, 2021,
February 15, 2026 and February 15, 2031, or if certain
fundamental changes occur. The Notes are fully and
unconditionally guaranteed, on a joint and several basis, by all
of the Companys material domestic consolidated
subsidiaries.
In connection with the issuance of the Notes, the Company
purchased a call option with respect to its common stock. If the
call option, which expires February 15, 2011, is exercised
by the Company, it must be net share settled and in all cases,
the Company would receive shares. This transaction has no effect
on the terms of the Notes, but is intended to reduce the
potential dilution upon future conversion of the Notes by
effectively increasing the initial conversion price to
$17.09 per share, representing a 57.5% conversion premium
at issuance. The call option is exercisable under the same
circumstances, which can trigger conversion under the Notes. In
fiscal 2006, the cost of $9,145,000 of the purchased call option
was included in shareholders equity, along with the
partially offsetting tax benefit of the call option of
$3,396,000.
EITF Issue
No. 00-19,
Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Companys Own Stock
(EITF
00-19),
provides guidance for distinguishing between when a financial
instrument should be accounted for permanently in equity,
temporarily in equity or as an asset or liability. The
conversion feature of the Notes and the call option each meet
the requirements of EITF
00-19 to be
accounted for as equity instruments. Therefore, the conversion
feature has not been accounted for as a derivative, which would
require a
mark-to-market
adjustment each period. In the event the debt is exchanged, the
transaction will be accounted for with the cash payment of
principal reducing the recorded liability and the issuance of
common shares recorded in shareholders equity. In
addition, the premium paid for the call option has been recorded
as additional paid-in capital in the accompanying consolidated
balance sheet and is not accounted for as a derivative.
Incremental net shares for the Note conversion feature will be
included in the Companys future diluted earnings per share
calculations for those periods in which the Companys
average common stock price exceeds $15.19 per share.
53
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As a result of the offsetting call and put features of the Notes
in five years, the Company anticipates the entire $165,000,000
in Notes will be repaid or refinanced on February 15, 2011.
Therefore, the Notes are included in fiscal 2011 long-term debt
maturities in the table below. Long-term debt matures as follows
(in thousands):
|
|
|
|
|
|
|
Long-Term
|
|
Fiscal Year
|
|
Debt
|
|
|
2008
|
|
$
|
|
|
2009
|
|
|
|
|
2010
|
|
|
|
|
2011
|
|
|
165,000
|
|
2012
|
|
|
|
|
Thereafter
|
|
|
19,000
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
184,000
|
|
|
|
|
|
|
At the beginning of fiscal 2006, the Company had a three-year
$125,000,000 revolving credit facility with a maturity date of
August 2006. Proceeds of borrowings under the credit facility
were available for working capital of the Company and for
general corporate purposes. The agreement had certain
restrictive covenants that required, among other things, the
maintenance of certain financial ratios including debt to net
cash flow, fixed charge coverage and minimum tangible net worth.
At the time this credit facility was repaid in November 2005, it
bore a floating interest rate (LIBOR plus 1.25%) based on the
Companys corporate debt rating and required a commitment
fee of 0.25% on unused amounts.
During fiscal 2006, the Company entered into a new $325,000,000
secured credit facility, which matures in November 2010. This
facility is secured by the Companys eligible merchandise
inventory and third party credit card receivables. It replaced
the Companys previous unsecured bank facilities, including
the three-year $125,000,000 revolving credit facility discussed
above, the $120,000,000 uncommitted letter of credit facility,
and other credit lines used for special-purpose letters of
credit. The new facility bears interest at LIBOR plus 1.0% for
cash borrowings. The Company will not be required to comply with
restrictive covenants under the new facility unless the facility
has less than $32,500,000 available under the borrowing base as
defined in the agreement. As of March 3, 2007, the
Companys borrowing base was $239,696,000, of which
$83,167,000 was available for cash borrowings excluding the
$32,500,000 discussed above. The Company pays a fee of 1.25% for
standby letters of credit, 0.5% for trade letters of credit and
a commitment fee of 0.25% for any unused amounts. As of
March 3, 2007, the Company had no outstanding cash
borrowings and approximately $124,029,000 in letters of credit
utilized against the new secured credit facility. Of the
outstanding balance, approximately $52,400,000 related to trade
letters of credit for merchandise purchases, $48,800,000 related
to standby letters of credit for the Companys
workers compensation and general liability insurance
policies, $19,429,000 related to standby letters of credit on
the Companys industrial revenue bonds, and $3,400,000
related to other miscellaneous standby letters of credit. This
facility may limit certain investments and, in some instances,
limit payment of cash dividends and repurchases of the
Companys common stock. Under this new credit facility, the
Company will not be restricted from paying cash dividends unless
the availability under the facility is less than 30% of the
Companys borrowing base calculation. The Company was in
compliance with all required debt covenants at fiscal
2007 year end.
54
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 9
CONDENSED FINANCIAL STATEMENTS
The Companys 6.375% convertible senior 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. The Company
registered these Notes with the Securities and Exchange
Commission in June 2006; therefore, in lieu of providing
separate audited financial statements for the Guarantor
Subsidiaries, condensed consolidating financial information is
presented below.
CONSOLIDATING
CONDENSED STATEMENT OF OPERATIONS
Year Ended March 3, 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pier 1
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Imports, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
1,615,951
|
|
|
$
|
42,780
|
|
|
$
|
(35,515
|
)
|
|
$
|
1,623,216
|
|
Cost of sales (including buying
and store occupancy costs)
|
|
|
|
|
|
|
1,145,765
|
|
|
|
39,114
|
|
|
|
(35,622
|
)
|
|
|
1,149,257
|
|
Selling, general and
administrative (including depreciation and amortization)
|
|
|
1,585
|
|
|
|
697,075
|
|
|
|
1,529
|
|
|
|
|
|
|
|
700,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(1,585
|
)
|
|
|
(226,889
|
)
|
|
|
2,137
|
|
|
|
107
|
|
|
|
(226,230
|
)
|
Nonoperating (income) expenses
|
|
|
(3,660
|
)
|
|
|
6,251
|
|
|
|
(698
|
)
|
|
|
|
|
|
|
1,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes
|
|
|
2,075
|
|
|
|
(233,140
|
)
|
|
|
2,835
|
|
|
|
107
|
|
|
|
(228,123
|
)
|
Provision (benefit) for income
taxes
|
|
|
|
|
|
|
(1,101
|
)
|
|
|
216
|
|
|
|
|
|
|
|
(885
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing
operations
|
|
|
2,075
|
|
|
|
(232,039
|
)
|
|
|
2,619
|
|
|
|
107
|
|
|
|
(227,238
|
)
|
Net income (loss) from subsidiaries
|
|
|
(229,827
|
)
|
|
|
2,212
|
|
|
|
|
|
|
|
227,615
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(638
|
)
|
|
|
|
|
|
|
(638
|
)
|
Benefit for income taxes
|
|
|
|
|
|
|
|
|
|
|
(231
|
)
|
|
|
|
|
|
|
(231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
(407
|
)
|
|
|
|
|
|
|
(407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(227,752
|
)
|
|
$
|
(229,827
|
)
|
|
$
|
2,212
|
|
|
$
|
227,722
|
|
|
$
|
(227,645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONSOLIDATING
CONDENSED STATEMENT OF OPERATIONS
Year Ended February 25, 2006
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pier 1
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Imports, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
1,770,323
|
|
|
$
|
59,734
|
|
|
$
|
(53,356
|
)
|
|
$
|
1,776,701
|
|
Cost of sales (including buying
and store occupancy costs)
|
|
|
|
|
|
|
1,174,228
|
|
|
|
55,161
|
|
|
|
(54,378
|
)
|
|
|
1,175,011
|
|
Selling, general and
administrative (including depreciation and amortization)
|
|
|
1,163
|
|
|
|
641,833
|
|
|
|
1,506
|
|
|
|
|
|
|
|
644,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(1,163
|
)
|
|
|
(45,738
|
)
|
|
|
3,067
|
|
|
|
1,022
|
|
|
|
(42,812
|
)
|
Nonoperating (income) expenses
|
|
|
711
|
|
|
|
(2,288
|
)
|
|
|
677
|
|
|
|
|
|
|
|
(900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes
|
|
|
(1,874
|
)
|
|
|
(43,450
|
)
|
|
|
2,390
|
|
|
|
1,022
|
|
|
|
(41,912
|
)
|
Provision (benefit) for income
taxes
|
|
|
|
|
|
|
(14,842
|
)
|
|
|
401
|
|
|
|
|
|
|
|
(14,441
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing
operations
|
|
|
(1,874
|
)
|
|
|
(28,608
|
)
|
|
|
1,989
|
|
|
|
1,022
|
|
|
|
(27,471
|
)
|
Net income (loss) from subsidiaries
|
|
|
(38,952
|
)
|
|
|
(10,344
|
)
|
|
|
|
|
|
|
49,296
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(17,583
|
)
|
|
|
|
|
|
|
(17,583
|
)
|
Benefit for income taxes
|
|
|
|
|
|
|
|
|
|
|
(5,250
|
)
|
|
|
|
|
|
|
(5,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
(12,333
|
)
|
|
|
|
|
|
|
(12,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(40,826
|
)
|
|
$
|
(38,952
|
)
|
|
$
|
(10,344
|
)
|
|
$
|
50,318
|
|
|
$
|
(39,804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONSOLIDATING
CONDENSED STATEMENT OF OPERATIONS
Year Ended February 26, 2005
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pier 1
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Imports, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
1,820,003
|
|
|
$
|
61,934
|
|
|
$
|
(56,594
|
)
|
|
$
|
1,825,343
|
|
Cost of sales (including buying
and store occupancy costs)
|
|
|
|
|
|
|
1,124,380
|
|
|
|
53,808
|
|
|
|
(56,491
|
)
|
|
|
1,121,697
|
|
Selling, general and
administrative (including depreciation and amortization)
|
|
|
1,332
|
|
|
|
602,667
|
|
|
|
1,398
|
|
|
|
|
|
|
|
605,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(1,332
|
)
|
|
|
92,956
|
|
|
|
6,728
|
|
|
|
(103
|
)
|
|
|
98,249
|
|
Nonoperating (income) expenses
|
|
|
446
|
|
|
|
(1,828
|
)
|
|
|
482
|
|
|
|
|
|
|
|
(900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes
|
|
|
(1,778
|
)
|
|
|
94,784
|
|
|
|
6,246
|
|
|
|
(103
|
)
|
|
|
99,149
|
|
Provision for income taxes
|
|
|
|
|
|
|
35,313
|
|
|
|
1,071
|
|
|
|
|
|
|
|
36,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing
operations
|
|
|
(1,778
|
)
|
|
|
59,471
|
|
|
|
5,175
|
|
|
|
(103
|
)
|
|
|
62,765
|
|
Net income (loss) from subsidiaries
|
|
|
62,338
|
|
|
|
2,867
|
|
|
|
|
|
|
|
(65,205
|
)
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(2,308
|
)
|
|
|
|
|
|
|
(2,308
|
)
|
Benefit for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
(2,308
|
)
|
|
|
|
|
|
|
(2,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
60,560
|
|
|
$
|
62,338
|
|
|
$
|
2,867
|
|
|
$
|
(65,308
|
)
|
|
$
|
60,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONSOLIDATING
CONDENSED BALANCE SHEET
March 3, 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pier 1
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Imports, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
111,163
|
|
|
$
|
43,699
|
|
|
$
|
12,316
|
|
|
$
|
|
|
|
$
|
167,178
|
|
Other accounts receivable, net
|
|
|
47
|
|
|
|
20,311
|
|
|
|
1,079
|
|
|
|
|
|
|
|
21,437
|
|
Inventories
|
|
|
|
|
|
|
360,063
|
|
|
|
|
|
|
|
|
|
|
|
360,063
|
|
Income tax receivable
|
|
|
|
|
|
|
34,708
|
|
|
|
258
|
|
|
|
|
|
|
|
34,966
|
|
Prepaid expenses and other current
assets
|
|
|
|
|
|
|
50,324
|
|
|
|
|
|
|
|
|
|
|
|
50,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
111,210
|
|
|
|
509,105
|
|
|
|
13,653
|
|
|
|
|
|
|
|
633,968
|
|
Properties, net
|
|
|
|
|
|
|
233,514
|
|
|
|
6,034
|
|
|
|
|
|
|
|
239,548
|
|
Investment in subsidiaries
|
|
|
248,953
|
|
|
|
40,629
|
|
|
|
|
|
|
|
(289,582
|
)
|
|
|
|
|
Other noncurrent assets
|
|
|
7,650
|
|
|
|
35,304
|
|
|
|
|
|
|
|
|
|
|
|
42,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
367,813
|
|
|
$
|
818,552
|
|
|
$
|
19,687
|
|
|
$
|
(289,582
|
)
|
|
$
|
916,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
45
|
|
|
$
|
93,889
|
|
|
$
|
1,675
|
|
|
$
|
|
|
|
$
|
95,609
|
|
Intercompany payable (receivable)
|
|
|
(159,038
|
)
|
|
|
181,316
|
|
|
|
(22,278
|
)
|
|
|
|
|
|
|
|
|
Gift cards and other deferred
revenue
|
|
|
|
|
|
|
66,130
|
|
|
|
|
|
|
|
|
|
|
|
66,130
|
|
Accrued income taxes payable
(receivable)
|
|
|
48
|
|
|
|
3,610
|
|
|
|
(353
|
)
|
|
|
|
|
|
|
3,305
|
|
Other accrued liabilities
|
|
|
641
|
|
|
|
118,886
|
|
|
|
14
|
|
|
|
|
|
|
|
119,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
(158,304
|
)
|
|
|
463,831
|
|
|
|
(20,942
|
)
|
|
|
|
|
|
|
284,585
|
|
Long-term debt
|
|
|
165,000
|
|
|
|
19,000
|
|
|
|
|
|
|
|
|
|
|
|
184,000
|
|
Other noncurrent liabilities
|
|
|
|
|
|
|
86,768
|
|
|
|
|
|
|
|
|
|
|
|
86,768
|
|
Shareholders equity
|
|
|
361,117
|
|
|
|
248,953
|
|
|
|
40,629
|
|
|
|
(289,582
|
)
|
|
|
361,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
367,813
|
|
|
$
|
818,552
|
|
|
$
|
19,687
|
|
|
$
|
(289,582
|
)
|
|
$
|
916,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONSOLIDATING
CONDENSED BALANCE SHEET
February 25, 2006
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pier 1
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Imports, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
130,779
|
|
|
$
|
100,769
|
|
|
$
|
14,567
|
|
|
$
|
|
|
|
$
|
246,115
|
|
Beneficial interest in securitized
receivables
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
Other accounts receivable, net
|
|
|
279
|
|
|
|
12,444
|
|
|
|
1,193
|
|
|
|
|
|
|
|
13,916
|
|
Inventories
|
|
|
|
|
|
|
368,978
|
|
|
|
|
|
|
|
|
|
|
|
368,978
|
|
Income tax receivable
|
|
|
|
|
|
|
17,927
|
|
|
|
84
|
|
|
|
|
|
|
|
18,011
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
32,359
|
|
|
|
|
|
|
|
32,359
|
|
Prepaid expenses and other current
assets
|
|
|
|
|
|
|
45,547
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
45,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
131,058
|
|
|
|
595,665
|
|
|
|
48,200
|
|
|
|
|
|
|
|
774,923
|
|
Properties, net
|
|
|
|
|
|
|
292,027
|
|
|
|
6,895
|
|
|
|
|
|
|
|
298,922
|
|
Investment in subsidiaries
|
|
|
475,698
|
|
|
|
25,074
|
|
|
|
|
|
|
|
(500,772
|
)
|
|
|
|
|
Other noncurrent assets
|
|
|
9,588
|
|
|
|
86,349
|
|
|
|
79
|
|
|
|
|
|
|
|
96,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
616,344
|
|
|
$
|
999,115
|
|
|
$
|
55,174
|
|
|
$
|
(500,772
|
)
|
|
$
|
1,169,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
201
|
|
|
$
|
103,700
|
|
|
$
|
2,015
|
|
|
$
|
|
|
|
$
|
105,916
|
|
Intercompany payable (receivable)
|
|
|
(142,171
|
)
|
|
|
125,165
|
|
|
|
17,006
|
|
|
|
|
|
|
|
|
|
Gift cards and other deferred
revenue
|
|
|
|
|
|
|
63,835
|
|
|
|
|
|
|
|
|
|
|
|
63,835
|
|
Accrued income taxes payable
(receivable)
|
|
|
|
|
|
|
10,563
|
|
|
|
(5,800
|
)
|
|
|
|
|
|
|
4,763
|
|
Liabilities related to
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
16,841
|
|
|
|
|
|
|
|
16,841
|
|
Other accrued liabilities
|
|
|
885
|
|
|
|
96,570
|
|
|
|
38
|
|
|
|
|
|
|
|
97,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
(141,085
|
)
|
|
|
399,833
|
|
|
|
30,100
|
|
|
|
|
|
|
|
288,848
|
|
Long-term debt
|
|
|
165,000
|
|
|
|
19,000
|
|
|
|
|
|
|
|
|
|
|
|
184,000
|
|
Other noncurrent liabilities
|
|
|
2,447
|
|
|
|
104,584
|
|
|
|
|
|
|
|
|
|
|
|
107,031
|
|
Shareholders equity
|
|
|
589,982
|
|
|
|
475,698
|
|
|
|
25,074
|
|
|
|
(500,772
|
)
|
|
|
589,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
616,344
|
|
|
$
|
999,115
|
|
|
$
|
55,174
|
|
|
$
|
(500,772
|
)
|
|
$
|
1,169,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONSOLIDATING
CONDENSED STATEMENT OF CASH FLOW
Year Ended March 3, 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pier 1
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Imports, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries(1)
|
|
|
Eliminations
|
|
|
Total(1)
|
|
|
Cash flow from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
$
|
9,354
|
|
|
$
|
(117,163
|
)
|
|
$
|
2,922
|
|
|
$
|
(18
|
)
|
|
$
|
(104,905
|
)
|
Cash flow from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(28,600
|
)
|
|
|
|
|
|
|
|
|
|
|
(28,600
|
)
|
Proceeds from disposition of
properties
|
|
|
|
|
|
|
173
|
|
|
|
|
|
|
|
|
|
|
|
173
|
|
Net proceeds from sale of
discontinued operations
|
|
|
|
|
|
|
14,998
|
|
|
|
(3,397
|
)
|
|
|
|
|
|
|
11,601
|
|
Net proceeds from sale of Pier 1
National Bank
|
|
|
|
|
|
|
12,962
|
|
|
|
(2,208
|
)
|
|
|
|
|
|
|
10,754
|
|
Proceeds from the sale of
restricted investments
|
|
|
|
|
|
|
25,707
|
|
|
|
|
|
|
|
|
|
|
|
25,707
|
|
Purchase of restricted investments
|
|
|
|
|
|
|
(9,712
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,712
|
)
|
Collections of principal on
beneficial interest in securitized receivables
|
|
|
|
|
|
|
21,907
|
|
|
|
|
|
|
|
|
|
|
|
21,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing
activities
|
|
|
|
|
|
|
37,435
|
|
|
|
(5,605
|
)
|
|
|
|
|
|
|
31,830
|
|
Cash flow from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends
|
|
|
(17,398
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
18
|
|
|
|
(17,398
|
)
|
Proceeds from stock options
exercised, stock purchase plan and other, net
|
|
|
4,618
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
4,719
|
|
Notes payable borrowings
|
|
|
|
|
|
|
69,000
|
|
|
|
|
|
|
|
|
|
|
|
69,000
|
|
Repayments of notes payable
|
|
|
|
|
|
|
(69,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(69,000
|
)
|
Debt issuance costs
|
|
|
|
|
|
|
(283
|
)
|
|
|
|
|
|
|
|
|
|
|
(283
|
)
|
Advances (to) from subsidiaries
|
|
|
(16,190
|
)
|
|
|
22,858
|
|
|
|
(6,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
(28,970
|
)
|
|
|
22,658
|
|
|
|
(6,668
|
)
|
|
|
18
|
|
|
|
(12,962
|
)
|
Change in cash and cash equivalents
|
|
|
(19,616
|
)
|
|
|
(57,070
|
)
|
|
|
(9,351
|
)
|
|
|
|
|
|
|
(86,037
|
)
|
Cash and cash equivalents at
beginning of period
|
|
|
130,779
|
|
|
|
100,769
|
|
|
|
21,667
|
|
|
|
|
|
|
|
253,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end
of period
|
|
$
|
111,163
|
|
|
$
|
43,699
|
|
|
$
|
12,316
|
|
|
$
|
|
|
|
$
|
167,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes cash at discontinued operation at the beginning of
period of $7,100 and $0 at end of period. |
60
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONSOLIDATING
CONDENSED STATEMENT OF CASH FLOW
Year Ended February 25, 2006
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pier 1
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Imports, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries(1)
|
|
|
Eliminations
|
|
|
Total(1)
|
|
|
Cash flow from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
$
|
3,029
|
|
|
$
|
(60,152
|
)
|
|
$
|
16,443
|
|
|
$
|
(23,617
|
)
|
|
$
|
(64,297
|
)
|
Cash flow from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(46,229
|
)
|
|
|
(4,750
|
)
|
|
|
|
|
|
|
(50,979
|
)
|
Proceeds from disposition of
properties
|
|
|
|
|
|
|
1,401
|
|
|
|
|
|
|
|
|
|
|
|
1,401
|
|
Proceeds from the sale of
restricted investments
|
|
|
|
|
|
|
3,226
|
|
|
|
|
|
|
|
|
|
|
|
3,226
|
|
Purchase of restricted investments
|
|
|
|
|
|
|
(3,500
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,500
|
)
|
Collections of principal on
beneficial interest in securitized receivables
|
|
|
|
|
|
|
60,240
|
|
|
|
|
|
|
|
|
|
|
|
60,240
|
|
Investment in subsidiaries
|
|
|
|
|
|
|
(9,889
|
)
|
|
|
|
|
|
|
9,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
|
|
|
|
5,249
|
|
|
|
(4,750
|
)
|
|
|
9,889
|
|
|
|
10,388
|
|
Cash flow from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends
|
|
|
(34,667
|
)
|
|
|
(50
|
)
|
|
|
(23,567
|
)
|
|
|
23,617
|
|
|
|
(34,667
|
)
|
Purchases of treasury stock
|
|
|
(4,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,047
|
)
|
Proceeds from stock options
exercised, stock purchase plan and other, net
|
|
|
7,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,641
|
|
Issuance of long-term debt
|
|
|
165,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165,000
|
|
Notes payable borrowings
|
|
|
|
|
|
|
86,500
|
|
|
|
|
|
|
|
|
|
|
|
86,500
|
|
Repayments of notes payable
|
|
|
|
|
|
|
(86,500
|
)
|
|
|
|
|
|
|
|
|
|
|
(86,500
|
)
|
Debt issuance costs
|
|
|
(5,369
|
)
|
|
|
(1,370
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,739
|
)
|
Purchase of call option
|
|
|
(9,145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,145
|
)
|
Contributions from parent
|
|
|
|
|
|
|
|
|
|
|
9,889
|
|
|
|
(9,889
|
)
|
|
|
|
|
Advances from (to) subsidiaries
|
|
|
7,855
|
|
|
|
(450
|
)
|
|
|
(7,405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
127,268
|
|
|
|
(1,870
|
)
|
|
|
(21,083
|
)
|
|
|
13,728
|
|
|
|
118,043
|
|
Change in cash and cash equivalents
|
|
|
130,297
|
|
|
|
(56,773
|
)
|
|
|
(9,390
|
)
|
|
|
|
|
|
|
64,134
|
|
Cash and cash equivalents at
beginning of period
|
|
|
482
|
|
|
|
157,542
|
|
|
|
31,057
|
|
|
|
|
|
|
|
189,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end
of period
|
|
$
|
130,779
|
|
|
$
|
100,769
|
|
|
$
|
21,667
|
|
|
$
|
|
|
|
$
|
253,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes cash at discontinued operation of $3,359 at beginning
of period and $7,100 at end of period. |
61
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONSOLIDATING
CONDENSED STATEMENT OF CASH FLOW
Year Ended February 26, 2005
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pier 1
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Imports, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries(1)
|
|
|
Eliminations
|
|
|
Total(1)
|
|
|
Cash flow from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
$
|
2,660
|
|
|
$
|
43,761
|
|
|
$
|
4,709
|
|
|
$
|
|
|
|
$
|
51,130
|
|
Cash flow from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(95,491
|
)
|
|
|
(3,748
|
)
|
|
|
|
|
|
|
(99,239
|
)
|
Proceeds from disposition of
properties
|
|
|
|
|
|
|
3,852
|
|
|
|
|
|
|
|
|
|
|
|
3,852
|
|
Purchase of restricted investments
|
|
|
|
|
|
|
(10,807
|
)
|
|
|
|
|
|
|
|
|
|
|
(10,807
|
)
|
Collections of principal on
beneficial interest in securitized receivables
|
|
|
|
|
|
|
99,712
|
|
|
|
|
|
|
|
|
|
|
|
99,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
|
|
|
|
(2,734
|
)
|
|
|
(3,748
|
)
|
|
|
|
|
|
|
(6,482
|
)
|
Cash flow from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends
|
|
|
(34,762
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,762
|
)
|
Purchases of treasury stock
|
|
|
(58,210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,210
|
)
|
Proceeds from stock options
exercised, stock purchase plan and other, net
|
|
|
12,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,473
|
|
Debt issuance costs
|
|
|
(40
|
)
|
|
|
(129
|
)
|
|
|
|
|
|
|
|
|
|
|
(169
|
)
|
Advances from (to) subsidiaries
|
|
|
74,116
|
|
|
|
(70,589
|
)
|
|
|
(3,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities
|
|
|
(6,423
|
)
|
|
|
(70,718
|
)
|
|
|
(3,527
|
)
|
|
|
|
|
|
|
(80,668
|
)
|
Change in cash and cash equivalents
|
|
|
(3,763
|
)
|
|
|
(29,691
|
)
|
|
|
(2,566
|
)
|
|
|
|
|
|
|
(36,020
|
)
|
Cash and cash equivalents at
beginning of period
|
|
|
4,245
|
|
|
|
187,233
|
|
|
|
33,623
|
|
|
|
|
|
|
|
225,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end
of period
|
|
$
|
482
|
|
|
$
|
157,542
|
|
|
$
|
31,057
|
|
|
$
|
|
|
|
$
|
189,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes cash at discontinued operation of $6,148 at beginning
of period and $3,359 at end of period. |
NOTE 10
EMPLOYEE BENEFIT PLANS
The Company offers a qualified, defined contribution employee
retirement plan to all its full- and part-time personnel who are
at least 18 years old and have been employed for a minimum
of six months. Employees contributing 1% to 5% of their
compensation receive a matching Company contribution of up to
3%. Company contributions to the plan were $2,645,000,
$2,815,000 and $2,729,000 in fiscal 2007, 2006, and 2005,
respectively.
In addition, the Company offers non-qualified retirement savings
plans for the purpose of providing deferred compensation for
certain employees whose benefits under the qualified plan may be
limited under Section 401(k) of the Internal Revenue Code.
The Companys expense for these non-qualified plans was
$1,628,000, $1,594,000 and $1,498,000 for fiscal 2007, 2006 and
2005, respectively. The Company established trusts for the
purpose of setting aside funds to be used to meet the funding
requirements of these non-qualified retirement savings plans and
contributed $1,500,000 and certain life insurance policies to
the trusts during
62
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
fiscal 2007. As of March 3, 2007, the trusts assets
consisted of interest bearing investments of $1,507,000 and life
insurance policies with cash surrender values of $6,906,000 and
death benefits of $17,093,000. The Company owns and is the
beneficiary of a number of insurance policies on the lives of
current and past key executives. At the discretion of the Board
of Directors such policies could be contributed to these trusts
or to the trusts established for purpose of setting aside funds
to be used to satisfy obligations arising from supplemental
retirement plans described below. The cash surrender value of
these unrestricted policies was $13,421,000 at March 3,
2007, and the death benefit was $20,851,000. These amounts are
consolidated in the Companys financial statements in other
noncurrent assets. The trust assets are restricted and may only
be used to satisfy requirement obligations to plan participants.
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 and years of service. The
Company recorded expenses related to the Plans of $15,112,000,
$8,934,000 and $4,378,000 in fiscal 2007, 2006 and 2005,
respectively.
The Plans are not funded and thus have no plan assets. However,
a trust has been established for the purpose of setting aside
funds to be used to settle the defined benefit plan obligations
upon retirement or death of certain participants. The trust
assets are consolidated in the Companys financial
statements and consist of interest bearing investments in the
amounts of $6,123,000 included in other current assets at
March 3, 2007, and $22,379,000 included in other noncurrent
assets at February 25, 2006, and earned average rates of
return of 5.0%, 3.4% and 1.4% in fiscal 2007, 2006 and 2005,
respectively. These investments are restricted and may only be
used to satisfy retirement obligations to certain participants.
The Company has accounted for these restricted investments as
available-for-sale
securities. Cash contributions of $8,212,000 were made to the
trust in fiscal 2007. Any future contributions will be made at
the discretion of the Board of Directors. Restricted investments
from the trust were sold to fund retirement benefits of
$25,707,000 and $3,226,000 in fiscal 2007 and 2006,
respectively. Funds from the trust will be used to fund or
partially fund benefit payments through fiscal year 2017 that
are expected to total approximately $9,286,000. Of this amount,
the Company expects to pay $6,285,000 during fiscal 2008,
$13,000 during fiscal 2009, $18,000 during fiscal 2010, $35,000
during fiscal 2011, $61,000 during fiscal 2012 and $2,874,000
during fiscal years 2013 through 2017.
63
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Measurement of obligations for the Plans is calculated as of
each fiscal year end. The following provides a reconciliation of
benefit obligations and funded status of the Plans as of
March 3, 2007 and February 25, 2006
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change in projected benefit
obligation:
|
|
|
|
|
|
|
|
|
Projected benefit obligation,
beginning of year
|
|
$
|
38,936
|
|
|
$
|
36,342
|
|
Service cost
|
|
|
2,405
|
|
|
|
2,043
|
|
Interest cost
|
|
|
1,931
|
|
|
|
1,590
|
|
Actuarial (gain) loss
|
|
|
(1,317
|
)
|
|
|
2,187
|
|
Benefits paid (including
settlements)
|
|
|
(25,495
|
)
|
|
|
(3,226
|
)
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation, end
of year
|
|
$
|
16,460
|
|
|
$
|
38,936
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of funded status:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
16,460
|
|
|
$
|
38,936
|
|
Plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(16,460
|
)
|
|
|
(38,936
|
)
|
|
|
|
|
|
|
|
|
|
Unrecognized net loss
|
|
|
|
|
|
|
11,806
|
|
Unrecognized prior service cost
|
|
|
|
|
|
|
3,609
|
|
|
|
|
|
|
|
|
|
|
Accrued pension cost
|
|
|
|
|
|
|
(23,521
|
)
|
Additional minimum liability
|
|
|
|
|
|
|
(12,473
|
)
|
|
|
|
|
|
|
|
|
|
Accrued benefit liability
|
|
|
|
|
|
$
|
(35,994
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
(16,122
|
)
|
|
$
|
(35,994
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the balance
sheets:
|
|
|
|
|
|
|
|
|
Current liability
|
|
$
|
(6,285
|
)
|
|
$
|
|
|
Noncurrent liability
|
|
|
(10,175
|
)
|
|
|
(35,994
|
)
|
Intangible asset
|
|
|
|
|
|
|
3,609
|
|
Accumulated other comprehensive
loss, pre-tax
|
|
|
3,323
|
|
|
|
8,864
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(13,137
|
)
|
|
$
|
(23,521
|
)
|
|
|
|
|
|
|
|
|
|
Cumulative other comprehensive
loss, net of taxes of $3,291
|
|
$
|
32
|
|
|
$
|
5,573
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used
to determine:
|
|
|
|
|
|
|
|
|
Benefit obligation, end of year:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.50
|
%
|
|
|
5.00
|
%
|
Lump-sum conversion discount rate
|
|
|
2.75
|
%
|
|
|
2.75
|
%
|
Rate of compensation increase
|
|
|
5.00
|
%
|
|
|
3.50
|
%
|
Net periodic benefit cost for
years ended:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.00
|
%
|
|
|
4.50
|
%
|
Lump-sum conversion discount rate
|
|
|
2.75
|
%
|
|
|
3.00
|
%
|
Rate of compensation increase
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
64
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net periodic benefit cost included the following actuarially
determined components during fiscal 2007, 2006 and 2005 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Service cost
|
|
$
|
2,405
|
|
|
$
|
2,043
|
|
|
$
|
1,932
|
|
Interest cost
|
|
|
1,931
|
|
|
|
1,590
|
|
|
|
1,442
|
|
Amortization of unrecognized prior
service cost
|
|
|
804
|
|
|
|
830
|
|
|
|
830
|
|
Amortization of net actuarial loss
|
|
|
3,203
|
|
|
|
3,463
|
|
|
|
174
|
|
Settlement charges
|
|
|
5,257
|
|
|
|
1,008
|
|
|
|
|
|
Curtailment charge
|
|
|
1,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
15,112
|
|
|
$
|
8,934
|
|
|
$
|
4,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 3, 2007, accumulated other comprehensive loss
included amounts that had not been recognized as components of
net periodic benefit cost related to prior service cost and net
actuarial loss of $2,030,000 and $1,293,000, respectively. The
estimated prior service cost and net actuarial loss that will be
amortized from accumulated other comprehensive loss into net
periodic cost in fiscal 2008 are $156,000 and $1,201,000,
respectively. Included in the net actuarial loss for fiscal 2008
is an anticipated settlement charge of $1,056,000.
In September 2006, the FASB issued SFAS 158. SFAS 158
requires companies to recognize the funded status of
postretirement benefit plans as an asset or liability in the
financial statements. The Company adopted the funded status
recognition portion of SFAS 158 as of March 3, 2007,
and recorded an additional liability with an offset to other
comprehensive income of $1,631,000. In addition, SFAS 158
requires an employer to measure its postretirement benefit plan
assets and benefit obligations as of the date of the
employers fiscal year end. This portion of the statement
is effective for the Company for fiscal 2009 and is not expected
to have a material impact on the Companys consolidated
financial statements.
NOTE 11
MATTERS CONCERNING SHAREHOLDERS EQUITY
On March 23, 2006, the Board of Directors approved the
adoption of the Pier 1 Imports, Inc. 2006 Stock Incentive Plan
(the 2006 Plan). The 2006 Plan was approved by the
shareholders on June 22, 2006. The aggregate number of
shares available for issuance under the 2006 Plan included a new
authorization of 1,500,000 shares, plus shares that
remained available for grant under the Pier 1 Imports, Inc. 1999
Stock Plan (the 1999 Stock Plan) and the Pier 1
Imports, Inc. Management Restricted Stock Plan (not to exceed
560,794 shares), increased by the number of shares (not to
exceed 11,186,150 shares) subject to outstanding awards on
March 23, 2006, under the prior plans that cease to be
subject to such awards. As of March 3, 2007, there was a
total of 1,326,153 shares available for grant under the
2006 Plan. Subsequent to year end, the Companys Board of
Directors approved a grant under the 2006 Plan, which resulted
in awards of stock options and restricted stock totaling
1,123,100 shares.
Stock option grants On January 27, 2007,
the Board of Directors approved an employment agreement for the
Companys new President and Chief Executive Officer (the
CEO). The employment agreement set forth that on
February 19, 2007, the CEO would be granted two options to
purchase an aggregate of 3,000,000 shares of the
Companys common stock. The exercise price per share would
be the fair market value of the Companys common stock on
the day following the grant date, or $6.69. The options were
granted as an employment inducement award, and not under any
stock option or other equity incentive plan adopted by the
Company. The first option for 1,000,000 shares will vest on
the first anniversary of the date of grant if, subject to
certain terms of the employment agreement, the CEO is employed
on that date. Additionally, if the CEO fails to be employed
between February 19, 2008 and February 28, 2009 due to
certain reasons, he forfeits 50% of the grant. The second option
for 2,000,000 shares will vest up to
65
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
1,000,000 shares based on the Companys performance as
measured by earnings before income taxes, depreciation and
amortization as defined in the agreement (EBITDA)
for the Companys 2009 fiscal year, and will vest up to an
additional 1,000,000 shares based on the Companys
performance as measured by EBITDA for the Companys 2010
fiscal year. Subject to the terms of the employment agreement,
the CEO must be employed at the end of each fiscal year for the
respective options to vest. All options have a term of ten years
from the date of grant. In accordance with SFAS 123R,
Share Based Payment, a grant date has not been
established for the CEOs second option because the EBITDA
targets have not yet been defined. The Company will begin
expensing the second option when the EBITDA targets are
established during fiscal 2008 and achievement of such targets
is considered probable.
The Board of Directors approved a grant effective June 23,
2006 under the 2006 Plan of 1,745,500 shares, including a
grant of 6,000 shares to each non-employee director. As of
March 3, 2007, outstanding options covering
390,000 shares were exercisable under the 2006 Plan.
Options were granted at exercise prices equal to the fair market
value of the Companys common stock at the date of grant.
Employee options issued under the 2006 Plan vest over a period
of four years and have a term of ten years from the grant date.
The employee options are fully vested upon death, disability or
retirement of the employee. The 2006 Plans administrative
committee also has the discretion to take certain actions with
respect to stock options, like accelerating the vesting, upon
certain corporate changes (as defined in the 2006 Plan). The
exercise price of the options is the fair market value of the
common stock on the date of grant. Non-employee director options
are fully vested on the date of grant, and are exercisable for a
period of ten years.
The 1999 Stock Plan provided for the granting of options to
directors and employees with an exercise price not less than the
fair market value of the common stock on the date of the grant.
The options may have been either Incentive Stock Options
authorized under Section 422 of the Internal Revenue Code
or nonqualified options, which do not qualify as Incentive Stock
Options. The 1999 Stock Plan provided that a maximum of
14,500,000 shares of common stock could be issued under the
1999 Stock Plan, of which not more than 250,000 shares
could be issued under the Director Deferred Stock Program. The
options issued to employees vest equally over a period of four
years while non-employee directors options were fully
vested at the date of issuance. Both options have a term of ten
years from the grant date. The employee options are fully vested
upon death, disability, or retirement of an employee, or under
certain conditions, such as a change in control of the Company,
unless the 2006 Plans administrative committee determines
otherwise prior to a change of control event. As of
March 3, 2007 and February 25, 2006, respectively,
there were no shares and 490,202 shares available for grant
under the 1999 Stock Plan. All future stock option grants will
be made from shares available under the 2006 Plan. Additionally,
outstanding options covering 9,147,650 and 9,689,650 shares
were exercisable under the 1999 Stock Plan at fiscal years
ending 2007 and 2006, respectively.
Under the 1989 Employee Stock Option Plan, options could be
granted to qualify as Incentive Stock Options under
Section 422 of the Internal Revenue Code or as nonqualified
options. Most options issued under the plan vest over a period
of four to five years and all have a term of ten years from the
grant date. As of March 3, 2007 and February 25, 2006,
outstanding options covering 1,246,475 and 1,728,125 shares
were exercisable, respectively. As a result of the expiration of
the plan during fiscal 2005, no shares are available for future
grant. The 1989 Non-Employee Director Stock Option Plan (the
Director Plan) expired in fiscal 2000. As of
March 3, 2007 and February 25, 2006, outstanding
options covering 13,500 and 20,250 shares, respectively,
were exercisable under the Director Plan. As a result of the
expiration of the Director Plan during fiscal 2000, no shares
are available for future grants. Both plans were subject to
adjustments for stock dividends and certain other changes to the
Companys capitalization.
During fiscal 2006, the Companys Board of Directors
approved the accelerated vesting of approximately 3,806,375
unvested stock options awarded to employees under the
Companys then existing stock option plans that had
exercise prices exceeding the closing market price of $11.20 at
September 27, 2005, by more than
66
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
50% and were granted more than one year earlier. These options
were granted between September 26, 2002, and June 28,
2004, and had exercise prices ranging from $17.25 to
$20.38 per share. Of the 3,806,375 options that became
exercisable immediately as a result of the vesting acceleration,
1,859,000 were scheduled to vest over the next 12 months.
Because these stock options had exercise prices significantly in
excess of the Companys current stock price, the Company
believed that the future charge to earnings that would be
required under SFAS 123R for the remaining original fair
value of the stock options was not an accurate reflection of the
economic value to the employees holding the options and that the
options were not fully achieving their original objectives of
employee retention and satisfaction. The Company also believed
that the reduction in the Companys stock option
compensation expense for fiscal years 2007 and 2008 would
enhance comparability of the Companys financial statements
with those of prior and subsequent years. SFAS 123R was
effective for the Company at the beginning of fiscal 2007.
A summary of stock option transactions related to the stock
option plans during the three fiscal years ended March 3,
2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Exercisable Shares
|
|
|
|
|
|
|
Average
|
|
|
Fair Value
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Exercise
|
|
|
at Date
|
|
|
Number of
|
|
|
Average
|
|
|
|
Shares
|
|
|
Price
|
|
|
of Grant
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Outstanding at February 28,
2004
|
|
|
10,961,117
|
|
|
$
|
14.37
|
|
|
|
|
|
|
|
4,568,117
|
|
|
$
|
10.46
|
|
Options granted
|
|
|
3,030,000
|
|
|
|
17.25
|
|
|
$
|
6.16
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(994,517
|
)
|
|
|
7.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options cancelled or expired
|
|
|
(723,275
|
)
|
|
|
17.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at February 26,
2005
|
|
|
12,273,325
|
|
|
|
15.40
|
|
|
|
|
|
|
|
5,746,450
|
|
|
|
12.76
|
|
Options granted
|
|
|
1,477,000
|
|
|
|
14.26
|
|
|
|
4.75
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(397,100
|
)
|
|
|
7.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options cancelled or expired
|
|
|
(615,200
|
)
|
|
|
17.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at February 25,
2006
|
|
|
12,738,025
|
|
|
|
15.41
|
|
|
|
|
|
|
|
11,438,025
|
|
|
|
15.54
|
|
Options granted
|
|
|
2,745,500
|
|
|
|
7.24
|
|
|
|
3.33
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(98,950
|
)
|
|
|
7.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options cancelled or expired
|
|
|
(1,716,450
|
)
|
|
|
14.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 3, 2007
|
|
|
13,668,125
|
|
|
|
13.95
|
|
|
|
|
|
|
|
10,797,625
|
|
|
|
15.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For shares outstanding at March 3, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Shares
|
|
|
Exercise Price-
|
|
|
|
Total
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Currently
|
|
|
Exercisable
|
|
Ranges of Exercise Prices
|
|
Shares
|
|
|
Price
|
|
|
Life
|
|
|
Exercisable
|
|
|
Shares
|
|
|
$ 5.81 - $ 8.50
|
|
|
4,643,225
|
|
|
$
|
7.42
|
|
|
|
6.98
|
|
|
|
2,440,725
|
|
|
$
|
7.66
|
|
$ 9.31 - $17.25
|
|
|
4,697,750
|
|
|
|
14.97
|
|
|
|
6.37
|
|
|
|
4,034,750
|
|
|
|
15.09
|
|
$18.49 - $21.00
|
|
|
4,327,150
|
|
|
|
19.84
|
|
|
|
5.97
|
|
|
|
4,322,150
|
|
|
|
19.84
|
|
As of March 3, 2007, the weighted average remaining
contractual term for outstanding and exercisable options was
6.45 years and 5.69 years, respectively. The aggregate
intrinsic value for outstanding and exercisable options was
$417,250 and $417,250, respectively, at fiscal 2007 year
end. The total intrinsic value of options exercised for the
fiscal years ended 2007, 2006 and 2005 was approximately
$372,000, $2,303,000 and $10,581,000, respectively. The
intrinsic value of a stock option is the amount by which the
market value of the underlying stock exceeds the exercise price
of the option.
67
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On February 26, 2006, the Company adopted the provisions of
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. Prior to February 26, 2006, the Company
accounted for stock option grants using the intrinsic value
method in accordance with Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to
Employees, and recognized no compensation expense for
stock option grants since all options granted had an exercise
price equal to the market value of the underlying common stock
on the date of grant. The fair value of the stock options is
amortized on a straight-line basis as compensation expense over
the vesting periods of the options. The fair values for options
granted during the respective period were estimated as of the
date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Weighted average fair value of
options granted
|
|
$
|
3.33
|
|
|
$
|
4.75
|
|
|
$
|
6.16
|
|
Risk-free interest rates
|
|
|
4.95
|
%
|
|
|
3.84
|
%
|
|
|
3.95
|
%
|
Expected stock price volatility
|
|
|
47.15
|
%
|
|
|
40.00
|
%
|
|
|
40.00
|
%
|
Expected dividend yields
|
|
|
0.4
|
%
|
|
|
2.2
|
%
|
|
|
1.5
|
%
|
Weighted average expected lives
|
|
|
5 years
|
|
|
|
5 years
|
|
|
|
5 years
|
|
Option valuation models are used in estimating the fair value of
traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected
stock price volatility and the average life of options. The
Company uses expected volatilities and risk-free interest rates
that correlate with the expected term of the option when
estimating an options fair value. To determine the
expected term of the option, the Company bases its estimates on
historical exercise activity of grants with similar vesting
periods. Expected volatility is based on the historical
volatility of the common stock of the Company for a period
approximating the expected life. The risk free interest rate
utilized is the United States Treasury rate that most closely
matches the weighted average expected life at the time of the
grant. The expected dividend yield is based on the annual
dividend rate at the time of grant.
At March 3, 2007, there was approximately $9,414,000 of
total unrecognized compensation expense related to unvested
stock option awards. This expense is expected to be recognized
over a weighted average period of 1.56 years. The Company
recorded stock-based compensation expense related to stock
options of approximately $4,494,000, or $0.05 per share in
fiscal 2007. The Company recognized no net tax benefit related
to stock-based compensation during fiscal 2007 as a result of
the Companys valuation allowance on all deferred tax
assets. See Note 12 of the Notes to Consolidated
Financial Statements for additional discussion of income
taxes.
A summary of the Companys nonvested options as of
March 3, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
Options
|
|
|
Value
|
|
|
Nonvested at beginning of period
|
|
|
1,300,000
|
|
|
$
|
4.75
|
|
Granted
|
|
|
2,745,500
|
|
|
|
3.33
|
|
Vested
|
|
|
(889,500
|
)
|
|
|
4.24
|
|
Cancelled
|
|
|
(285,500
|
)
|
|
|
4.12
|
|
|
|
|
|
|
|
|
|
|
Nonvested at end of period
|
|
|
2,870,500
|
|
|
$
|
3.61
|
|
|
|
|
|
|
|
|
|
|
Restricted stock grants As of March 3,
2007 and February 25, 2006, the Company had 323,070 and
203,000 unvested shares of restricted stock awards outstanding,
respectively. During fiscal 2007, 260,100 shares of
restricted stock were granted, 65,340 shares of restricted
stock vested, and 74,690 shares of restricted stock
68
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
were cancelled. During fiscal 2006, 218,000 shares of
restricted stock were granted and 15,000 shares were
cancelled. A portion of the restricted stock grant in fiscal
2007 vests over a three-year period of continued employment and
the remainder of the grant vests if certain cumulative defined
earnings targets are met at the end of three fiscal years. The
fair market value at the date of grant of the restricted stock
shares granted during fiscal 2007 pursuant to the 2006 Plan was
$7.55 and is being expensed over the requisite vesting period
for the time-based grant. No expense has been recognized for the
grant with a defined earnings target as the target was not
considered probable of being met during fiscal 2007. The fair
market value at the date of grant of the restricted stock shares
granted during fiscal 2006 pursuant to the Management Restricted
Stock Plan was $14.25 and is being expensed over the vesting
period. As of fiscal 2007 year end, no shares were
available for future grant under the Management Restricted Stock
Plan since all future grants, if any, will be made from shares
available under the 2006 Plan.
Compensation expense for the restricted stock grant was $970,000
or $0.01 per share and $636,000 or $0.01 per share, in
fiscal 2007 and 2006, respectively. There was no compensation
expense related to this plan for fiscal 2005. As of
March 3, 2007, there was $2,486,000 of total unrecognized
compensation expense related to restricted stock that may be
recognized over a weighted average period of 1.4 years if all
performance targets are met.
Director deferred stock units The 2006 Plan
and the 1999 Stock Plan also authorize director deferred stock
unit awards to be granted to non-employee directors. During
fiscal 2007, each director was required to defer a minimum of
50% and could elect to defer up to 100% of their directors
cash fees into a deferred stock unit account. The fees deferred
received a 50% matching contribution from the Company in the
form of director deferred stock units. As of March 3, 2007,
there were 246,208 shares deferred, but not delivered,
under the 2006 Plan and the 1999 Stock Plan. All future grants
will be awarded from shares available for grant under the 2006
Plan. As of February 25, 2006, there were
175,327 shares deferred, but not delivered under the 1999
Stock Plan and 68,497 shares available for grant, which
were subsequently included in the shares available for grant at
the inception of the 2006 Plan. During fiscal 2007,
approximately 70,881 director deferred stock units were
granted and no shares were cancelled. Compensation expense for
the director deferred stock awards was $557,000, $465,000 and
$429,000 in fiscal 2007, 2006 and 2005, respectively.
Stock purchase plan Substantially all Company
employees are eligible to participate in the Pier 1 Imports,
Inc. Stock Purchase Plan under which the Companys common
stock is purchased on behalf of employees at market prices
through regular payroll deductions. Each participant may
contribute up to 10% of the eligible portions of compensation.
The Company contributes from 10% to 100% of the
participants contributions, depending upon length of
participation and date of entry into the plan. Company
contributions to the plan were $1,143,000, $1,267,000 and
$1,266,000 in fiscal years 2007, 2006 and 2005, respectively.
Shares reserved for future issuances As of
March 3, 2007, the Company had approximately
17,240,000 shares reserved for future issuances under the
stock plans. This amount includes stock options outstanding,
director deferred units and shares available for future grant.
69
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 12
INCOME TAXES
The provision (benefit) for income taxes for each of the last
three fiscal years consists of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
(25,442
|
)
|
|
$
|
(2,402
|
)
|
|
$
|
24,615
|
|
Deferred
|
|
|
22,980
|
|
|
|
(13,972
|
)
|
|
|
2,414
|
|
State:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(365
|
)
|
|
|
1,880
|
|
|
|
3,958
|
|
Deferred
|
|
|
1,596
|
|
|
|
(510
|
)
|
|
|
(383
|
)
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
346
|
|
|
|
577
|
|
|
|
5,776
|
|
Deferred
|
|
|
|
|
|
|
(14
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income
taxes from continuing operations
|
|
|
(885
|
)
|
|
|
(14,441
|
)
|
|
|
36,384
|
|
Provision (benefit) for income
taxes from discontinued operations
|
|
|
(231
|
)
|
|
|
(5,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit) for
income taxes
|
|
$
|
(1,116
|
)
|
|
$
|
(19,691
|
)
|
|
$
|
36,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the second quarter of fiscal 2007, the Company
established a valuation allowance of $24,714,000, or
$0.28 per share, related to deferred tax assets. In
evaluating the likelihood that sufficient earnings would be
available in the near future to realize the deferred tax assets,
the Company considered cumulative losses over three years
including the current year. The Company concluded that a
valuation allowance was necessary based upon this evaluation and
the guidance provided in SFAS No. 109 Accounting
for Income Taxes.
In addition, net deferred tax assets arising from current year
losses in excess of the amount expected to be carried back to
offset taxable income in a prior year were fully reserved
through a valuation allowance recorded for the remainder of
fiscal 2007. As these deferred tax assets were established and
fully reserved during fiscal 2007, there was no net impact to
the provision of income taxes.
70
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At the end of fiscal 2007, the net deferred tax assets and
offsetting valuation allowance totaled $86,271,000. Deferred tax
assets and liabilities from continuing operations at
March 3, 2007 and February 25, 2006 were comprised of
the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
$
|
29,836
|
|
|
$
|
24,324
|
|
Net operating loss
|
|
|
13,835
|
|
|
|
|
|
Accrued average rent
|
|
|
15,280
|
|
|
|
14,785
|
|
Fixed assets, net
|
|
|
11,236
|
|
|
|
|
|
Self insurance reserves
|
|
|
8,665
|
|
|
|
7,177
|
|
Deferred gain on sale of credit
card operations
|
|
|
8,212
|
|
|
|
|
|
Cumulative foreign currency
translation
|
|
|
854
|
|
|
|
1,234
|
|
Deferred revenue and revenue
reserves
|
|
|
3,455
|
|
|
|
2,871
|
|
Purchased call option
|
|
|
2,785
|
|
|
|
3,377
|
|
Other
|
|
|
5,831
|
|
|
|
3,609
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
99,989
|
|
|
|
57,377
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
|
|
|
|
|
(7,693
|
)
|
Inventory
|
|
|
(12,165
|
)
|
|
|
(21,429
|
)
|
Other
|
|
|
(1,553
|
)
|
|
|
(3,541
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(13,718
|
)
|
|
|
(32,663
|
)
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(86,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
24,714
|
|
|
|
|
|
|
|
|
|
|
The Company has settled and closed all Internal Revenue Service
(IRS) examinations of the Companys tax returns
for all years through fiscal 1999. The IRS fieldwork for its
examination of fiscal 2000 through 2002 has been completed.
Certain refund claims are being appealed related to
approximately $11,000,000 of the total income tax receivable
recorded. The Company believes settlement of such issues will
not result in a tax refund that significantly differs from
amounts recorded.
The Company has net operating loss carryforwards of
approximately $35,000,000. These loss carryforwards can be
utilized to offset future income but will expire in fiscal year
2027 if not utilized before then.
The difference between income taxes at the statutory federal
income tax rate of 35% in fiscal 2007, 2006 and 2005, and income
tax reported in continuing operations in the consolidated
statements of operations is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Tax (benefit) expense at statutory
federal income tax rate
|
|
$
|
(79,843
|
)
|
|
$
|
(14,669
|
)
|
|
$
|
34,702
|
|
State income taxes, net of federal
benefit
|
|
|
(4,091
|
)
|
|
|
880
|
|
|
|
2,172
|
|
Increase in valuation allowance
|
|
|
83,047
|
|
|
|
|
|
|
|
|
|
Net foreign income taxed at lower
rates, net of foreign tax credits
|
|
|
718
|
|
|
|
(687
|
)
|
|
|
(1,206
|
)
|
Other, net
|
|
|
(716
|
)
|
|
|
35
|
|
|
|
716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income
taxes from continuing operations
|
|
$
|
(885
|
)
|
|
$
|
(14,441
|
)
|
|
$
|
36,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The American Jobs Creation Act of 2004 (the Jobs
Act), enacted on October 22, 2004, provided for a
temporary 85% dividends received deduction on certain foreign
subsidiary earnings repatriated during a one-year period. The
deduction resulted in an approximate 5.25% federal tax rate on
the repatriated earnings. There were numerous requirements that
had to be satisfied for the repatriated earnings to qualify for
the reduced rate of taxation. In September 2005, the Company
finalized its evaluation of and the Companys Board of
Directors approved the repatriation of $25,000,000 of foreign
earnings under the provisions of the Jobs Act. The Company
repatriated these earnings on September 30, 2005 and
believes it has satisfied the requirements to qualify for the
reduced rate of taxation. This repatriation of earnings had an
insignificant effect on the Companys effective tax rate
during the 12 months ended February 25, 2006.
NOTE 13
COMMITMENTS AND CONTINGENCIES
Leases At March 3, 2007, the Company had
the following minimum lease commitments and future subtenant
receipts from continuing operations in the years indicated (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Subtenant
|
|
Fiscal Year
|
|
Leases
|
|
|
Income
|
|
|
2008
|
|
$
|
230,075
|
|
|
$
|
257
|
|
2009
|
|
|
212,179
|
|
|
|
187
|
|
2010
|
|
|
191,310
|
|
|
|
51
|
|
2011
|
|
|
167,756
|
|
|
|
6
|
|
2012
|
|
|
143,781
|
|
|
|
6
|
|
Thereafter
|
|
|
278,882
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Total lease commitments
|
|
$
|
1,223,983
|
|
|
$
|
513
|
|
|
|
|
|
|
|
|
|
|
Rental expense incurred was $257,255,000, $249,294,000 and
$238,875,000, including contingent rentals of $93,000, $260,000
and $391,000, based upon a percentage of sales, and net of
sublease incomes totaling $304,000, $311,000 and $262,000 in
fiscal 2007, 2006 and 2005, respectively.
Legal matters During fiscal 2007, the Company
recorded a pre-tax charge of $4,942,000, or $0.06 per
share, for the settlement of and legal fees related to class
action lawsuits in California primarily regarding compensation
matters. Cash outlays related to the settlements are expected to
be completed in fiscal 2008.
There are various claims, lawsuits, investigations and pending
actions against the Company and its subsidiaries incident to the
operations of its business. The Company considers them to be
ordinary and routine in nature. The Company maintains liability
insurance against most of these claims. Excluding the class
action lawsuits discussed above, it is the opinion of
management, after consultation with counsel, that the ultimate
resolution of such litigation will not have a material adverse
effect, either individually or in aggregate, on the
Companys financial position, results of operations or
liquidity.
NOTE 14
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
In accordance with SFAS No. 144, the results of
operations related to the assets held for sale as of
February 25, 2006, were reclassified to discontinued
operations in all periods presented. Summarized quarterly
72
Pier 1
Imports, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
financial data for the years ended March 3, 2007 and
February 25, 2006 are set forth below (in thousands except
per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Fiscal
2007(1)
|
|
5/27/2006
|
|
|
8/26/2006
|
|
|
11/25/2006
|
|
|
3/3/2007
|
|
|
Net sales
|
|
$
|
376,092
|
|
|
$
|
370,698
|
|
|
$
|
402,714
|
|
|
$
|
473,712
|
|
Gross
profit(2)
|
|
|
127,252
|
|
|
|
105,497
|
|
|
|
124,583
|
|
|
|
116,627
|
|
Net loss from continuing
operations(3)
|
|
|
(22,765
|
)
|
|
|
(73,059
|
)
|
|
|
(72,718
|
)
|
|
|
(58,696
|
)
|
Net loss from discontinued
operations
|
|
|
(407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(23,172
|
)
|
|
|
(73,059
|
)
|
|
|
(72,718
|
)
|
|
|
(58,696
|
)
|
Basic and diluted loss per share
from continuing operations
|
|
|
(.26
|
)
|
|
|
(.84
|
)
|
|
|
(.83
|
)
|
|
|
(.67
|
)
|
Basic and diluted loss per share
from discontinued operations
|
|
|
(.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
|
(.27
|
)
|
|
|
(.84
|
)
|
|
|
(.83
|
)
|
|
|
(.67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Fiscal 2006
|
|
5/28/2005
|
|
|
8/27/2005
|
|
|
11/26/2005
|
|
|
2/25/2006
|
|
|
Net sales
|
|
$
|
390,314
|
|
|
$
|
423,675
|
|
|
$
|
456,690
|
|
|
$
|
506,022
|
|
Gross profit
|
|
|
137,485
|
|
|
|
135,102
|
|
|
|
167,316
|
|
|
|
161,787
|
|
Net loss from continuing
operations(4)
|
|
|
(8,456
|
)
|
|
|
(6,373
|
)
|
|
|
(5,657
|
)
|
|
|
(6,985
|
)
|
Net loss from discontinued
operations
|
|
|
(4,006
|
)
|
|
|
(3,812
|
)
|
|
|
(1,524
|
)
|
|
|
(2,991
|
)
|
Net loss
|
|
|
(12,462
|
)
|
|
|
(10,185
|
)
|
|
|
(7,181
|
)
|
|
|
(9,976
|
)
|
Basic and diluted loss per share
from continuing operations
|
|
|
(.10
|
)
|
|
|
(.07
|
)
|
|
|
(.06
|
)
|
|
|
(.08
|
)
|
Basic and diluted loss per share
from discontinued operations
|
|
|
(.04
|
)
|
|
|
(.05
|
)
|
|
|
(.02
|
)
|
|
|
(.03
|
)
|
Basic and diluted loss per share
|
|
|
(.14
|
)
|
|
|
(.12
|
)
|
|
|
(.08
|
)
|
|
|
(.11
|
)
|
|
|
|
(1)
|
|
Fiscal 2007 consisted of
53 weeks, while fiscal 2006 consisted of 52 weeks.
|
|
(2)
|
|
Gross profit for the fourth quarter
ended March 3, 2007, included the pre-tax effect of a
$32.5 million inventory write-down related to a strategic
decision made in the fourth quarter to sell off excess inventory
by the end of the first quarter of fiscal 2008. See
Note 1 of the Notes to Consolidated Financial Statements
for further discussion of this charge.
|
|
(3)
|
|
Net loss for the fourth quarter
ended March 3, 2007, included the pre-tax effects of a
$6.8 million settlement and curtailment charge related to
retirement plans and a $6.5 million impairment charge on
long-lived assets. See Note 1 and Note 10 of the
Notes to Consolidated Financial Statements for further
discussion of these charges.
|
|
(4)
|
|
Net loss for the fourth quarter
ended February 25, 2006, included the pre-tax effect of a
$4.8 million impairment charge on long-lived store-level
assets. Total impairment charges for fiscal year 2006 were
$5.8 million. See Note 1 of the Notes to
Consolidated Financial Statements for further discussion of this
charge.
|
73
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial
Disclosure.
|
None.
|
|
Item 9A.
|
Controls
and
Procedures.
|
REPORT OF
MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
Management is responsible for establishing and maintaining a
system of internal control over financial reporting designed to
provide reasonable assurance that transactions are executed in
accordance with management authorization and that such
transactions are properly recorded and reported in the financial
statements, and that records are maintained so as to permit
preparation of the financial statements in accordance with
U.S. generally accepted accounting principles. Because of
its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Management
has assessed the effectiveness of the Companys internal
control over financial reporting utilizing the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control
Integrated Framework. Management concluded that based on its
assessment, Pier 1 Imports, Inc.s internal control over
financial reporting was effective as of March 3, 2007.
Managements assessment of the effectiveness of the
Companys internal control over financial reporting as of
March 3, 2007 has been audited by Ernst & Young
LLP, an independent registered public accounting firm, as stated
in their report which is included in this Annual Report on
Form 10-K.
During the second quarter of fiscal 2007, the Company
implemented a new general ledger accounting system. The Company
followed an information systems implementation process that
required significant pre-implementation planning, design and
testing, and post-implementation monitoring. Based on this
process and the Companys observations, the Company does
not believe that the implementation of this system had a
material effect on the internal control over financial reporting
for the second quarter and that it is not likely to materially
affect the internal control over financial reporting for future
quarters. There has been no other 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.
Alexander W. Smith
President and
Chief Executive Officer
Charles H. Turner
Executive Vice President and
Chief Financial Officer
74
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of Pier 1 Imports, Inc.
We have audited managements assessment, included in the
accompanying Report of Management on Internal Control over
Financial Reporting, that Pier 1 Imports, Inc. maintained
effective internal control over financial reporting as of
March 3, 2007, based on criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Pier 1 Imports, Inc.s management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express an opinion on managements assessment and an
opinion on the effectiveness of the companys internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that Pier 1
Imports, Inc. maintained effective internal control over
financial reporting as of March 3, 2007, is fairly stated,
in all material respects, based on the COSO criteria. Also, in
our opinion, Pier 1 Imports, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of March 3, 2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Pier 1 Imports, Inc. as of
March 3, 2007 and February 25, 2006, and the related
consolidated statements of operations, shareholders
equity, and cash flows for each of the three years in the period
ended March 3, 2007 and our report dated May 8, 2007
expressed an unqualified opinion thereon.
Fort Worth, Texas
May 8, 2007
75
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Item 9B.
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Other
Information.
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None.
PART III
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Item 10.
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Directors,
Executive Officers and Corporate
Governance.
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Directors
of the Company
Information regarding directors of the Company required by this
Item is incorporated by reference to the section entitled
Election of Directors Nominees for
Directors set forth in the Companys Proxy Statement
for its 2007 Annual Meeting of Shareholders.
The information regarding compliance with Section 16(a) of
the Securities Exchange Act of 1934 required by this Item is
incorporated by reference to the section entitled
Section 16(a) Beneficial Ownership Reporting
Compliance set forth in the Companys Proxy Statement
for its 2007 Annual Meeting of Shareholders.
Information regarding the Companys audit committee
financial experts and code of ethics and business conduct
required by this item is incorporated by reference to the
section entitled Matters Relating to Corporate Governance,
Board Structure, Director Compensation and Stock Ownership
set forth in the Companys Proxy Statement for its 2007
Annual Meeting of Shareholders.
No director or nominee for director of the Company has any
family relationship with any other director or nominee or with
any executive officer of the Company.
Executive
Officers of the Company
ALEXANDER W. SMITH, age 54, has served as President
and Chief Executive Officer since February 19, 2007. From
March 2004 to February 18, 2007, Mr. Smith served as
the Senior Executive Vice President, Group President of The TJX
Companies, Inc. From 2001 to March 2004, Mr. Smith served
as Executive Vice President, Group Executive, International of
The TJX Companies, Inc.
CHARLES H. TURNER, age 50, has served as Executive
Vice President since April 2002 and has served as Chief
Financial Officer of the Company since August 1999. He served as
Senior Vice President of Finance of the Company from August 1999
to April 2002. He served as Senior Vice President of Stores of
the Company from August 1994 to August 1999, and served as
Controller and Principal Accounting Officer of the Company from
January 1992 to August 1994.
GREGORY S. HUMENESKY, age 55, has served as
Executive Vice President of Human Resources of the Company since
February 2005. Prior to joining the Company, he served as Senior
Vice President of Human Resources at Zale Corporation from April
1996 to February 2005.
JAY R. JACOBS, age 52, has served as Executive Vice
President of Merchandising of the Company since April 2002. He
served as Senior Vice President of Merchandising of the Company
from May 1995 to April 2002. He served as Vice President of
Divisional Merchandising of Pier 1 Imports (U.S.), Inc. from May
1993 to May 1995, and served as Director of Divisional
Merchandising of Pier 1 Imports (U.S.), Inc. from July 1991 to
May 1993.
PHIL E. SCHNEIDER, age 55, has served as Executive
Vice President of Marketing of the Company since April 2002. He
served as Senior Vice President of Marketing of the Company from
May 1993 to April 2002, and served as Vice President of
Advertising of Pier 1 Imports (U.S.), Inc. from January 1988 to
May 1993.
DAVID A. WALKER, age 56, has served as Executive
Vice President of Planning and Allocations of the Company since
March 2007. He served as Executive Vice President of Logistics
and Allocations/Stores of the Company from December 2006 to
March 2007. He served as Executive Vice President of Logistics
and
76
Allocations of the Company from April 2002 to December 2006. He
served as Senior Vice President of Logistics and Allocations of
the Company from September 1999 to April 2002. He served as Vice
President of Planning and Allocations of Pier 1 Imports (U.S.),
Inc. from January 1994 to September 1999, and served as Director
of Merchandise Services of Pier 1 Imports (U.S.), Inc. from
October 1989 to January 1994.
MICHAEL A. CARTER, age 48, has served as Senior Vice
President, General Counsel and Secretary of the Company since
December 2005. He served as Vice President Legal
Affairs of Pier 1 Imports, (U.S.), Inc. from April 1999 to
December 2005. He served as Corporate Counsel of Pier 1 Imports
(U.S.), Inc. from March 1990 until April 1999. He served as
Assistant Secretary of the Company from April 1991 until
December 2005.
The officers of the Company are appointed by the Board of
Directors, hold office until their successors are elected and
qualified
and/or until
their earlier death, resignation or removal.
None of the above executive officers has any family relationship
with any other of such officers or with any director of the
Company. None of such officers was selected pursuant to any
arrangement or understanding between him and any other person.
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Item 11.
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Executive
Compensation.
|
The information required by this Item is incorporated herein by
reference to the section entitled Executive
Compensation and the section entitled Matters
Relating to Corporate Governance, Board Structure, Director
Compensation and Stock Ownership Non-Employee
Director Compensation for the Fiscal Year Ended March 3,
2007 set forth in the Companys Proxy Statement for
its 2007 Annual Meeting of Shareholders.
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Item 12.
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Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder
Matters.
|
The information required by this Item is incorporated by
reference to the section entitled Matters Relating to
Corporate Governance, Board Structure, Director Compensation and
Stock Ownership Security Ownership of
Management, Matters Relating to Corporate
Governance, Board Structure, Director Compensation and Stock
Ownership Security Ownership of Certain Beneficial
Owners and the table entitled Executive
Compensation Outstanding Equity Awards Table for the
Fiscal Year Ended March 3, 2007 set forth in the
Companys Proxy Statement for its 2007 Annual Meeting of
Shareholders.
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Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
The information required by this Item is incorporated by
reference to the section entitled Compensation Committee
Interlocks and Insider Participation; Certain Related Party
Transactions and Matters Relating to Corporate
Governance, Board Structure, Director Compensation and Stock
Ownership Director Independence set forth in
the Companys Proxy Statement for its 2007 Annual Meeting
of Shareholders.
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Item 14.
|
Principal
Accounting Fees and
Services.
|
Information required by this Item is incorporated by reference
to the sections under Audit Committee Report
entitled Independent Auditor Fees and
Pre-approval of Nonaudit Fees set forth in the
Companys Proxy Statement for its 2007 Annual Meeting of
Shareholders.
77
PART IV
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Item 15.
|
Exhibits,
Financial Statement
Schedules.
|
(a) List of consolidated financial statements, schedules
and exhibits filed as part of this report.
1. Financial Statements
|
Report of Independent Registered
Public Accounting Firm
|
Consolidated Statements of
Operations for the Years Ended March 3, 2007,
February 25, 2006 and February 26, 2005
|
Consolidated Balance Sheets at
March 3, 2007 and February 25, 2006
|
Consolidated Statements of Cash
Flows for the Years Ended March 3, 2007, February 25,
2006 and February 26, 2005
|
Consolidated Statements of
Shareholders Equity for the Years Ended March 3,
2007, February 25, 2006 and February 26, 2005
|
Notes to Consolidated Financial
Statements
|
2. Financial Statement Schedules
Schedules have been omitted because they are not required or are
not applicable or because the information required to be set
forth therein either is not material or is included in the
financial statements or notes thereto.
3. Exhibits
See Exhibit Index.
78
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
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PIER 1 IMPORTS, INC.
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Date: May 15, 2007
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By:
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/s/ Alexander
W.
Smith Alexander
W. Smith, Presidentand Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Company and in the capacities and on the dates
indicated.
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Signature
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Title
|
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Date
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/s/ Tom
M. Thomas
Tom
M. Thomas
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Chairman of the Board
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May 15, 2007
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/s/ Alexander
W. Smith
Alexander
W. Smith
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Director, President and
Chief Executive Officer
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May 15, 2007
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/s/ Charles
H. Turner
Charles
H. Turner
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Executive Vice President and
Chief Financial Officer
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May 15, 2007
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/s/ Susan
E. Barley
Susan
E. Barley
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Principal Accounting Officer
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May 15, 2007
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/s/ John
H. Burgoyne
John
H. Burgoyne
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Director
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May 15, 2007
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/s/ Dr.
Michael R. Ferrari
Dr.
Michael R. Ferrari
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Director
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May 15, 2007
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/s/ James
M. Hoak, Jr.
James
M. Hoak, Jr.
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Director
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May 15, 2007
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/s/ Karen
W. Katz
Karen
W. Katz
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Director
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May 15, 2007
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/s/ Terry
E. London
Terry
E. London
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Director
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May 15, 2007
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79
EXHIBIT INDEX
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|
Exhibit No.
|
|
Description
|
|
3(i)
|
|
Certificate of Incorporation and
Amendments thereto, incorporated herein by reference to
Exhibit 3(i) to Registrants
Form 10-Q
for the quarter ended May 30, 1998.
|
3(ii)
|
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Bylaws of the Company as amended
to date, incorporated herein by reference to Exhibit 3(ii)
to Registrants
Form 10-K
for the year ended February 26, 2005.
|
4.1
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Indenture dated February 14,
2006 and Form of 6.375% Convertible Senior Notes due 2036,
among Pier 1 Imports, Inc., the Subsidiary Guarantors parties
thereto and JPMorgan Chase Bank, National Association,
incorporated herein by reference to Exhibit 4.1 to the
Companys
Form 8-K
filed February 16, 2006.
|
4.1.2
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Registration Rights Agreement
dated February 14, 2006, among Pier 1 Imports, Inc., the
Guarantors parties thereto and the Initial Purchaser named
therein, incorporated herein by reference to Exhibit 4.3 to
the Companys
Form 8-K
filed February 16, 2006.
|
10.1*
|
|
Form of Indemnity Agreement
between the Company and the directors and executive officers of
the Company dated December 4, 2003, incorporated herein by
reference to the Companys
Form 10-K
for the year ended February 28, 2004.
|
10.2*
|
|
The Companys Supplemental
Executive Retirement Plan, as restated January 1, 2005,
incorporated herein by reference to Exhibit 10.4 to the
Companys
Form 8-K
filed October 12, 2006.
|
10.3*
|
|
The Companys Supplemental
Retirement Plan, as restated January 1, 2005, incorporated
herein by reference to Exhibit 10.5 to the Companys
Form 8-K
filed October 12, 2006.
|
10.3.1*
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|
Amendment No. 1 to the
Companys Supplemental Retirement Plan, as restated
January 1, 2005, incorporated herein by reference to
Exhibit 10.6 to the Companys
Form 8-K
filed October 12, 2006.
|
10.4.1*
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|
The Companys Management
Restricted Stock Plan, as amended and restated effective
June 30, 2005, incorporated herein by reference to
Exhibit 10.5.1 to the Companys
Form 10-Q
for the quarter ended May 28, 2005.
|
10.4.2*
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|
Form of Restricted Stock
Agreement, incorporated herein by reference to the
Companys
Form 10-Q
for the quarter ended May 28, 2005.
|
10.5.1*
|
|
The Companys 1989 Employee
Stock Option Plan, amended and restated as of June 27,
1996, incorporated herein by reference to the Companys
Form 10-K
for the year ended February 26, 2005.
|
10.5.2*
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|
Amendment No. 1 to the
Companys 1989 Employee Stock Option Plan, incorporated
herein by reference to the Companys
Form 10-K
for the year ended February 26, 2005.
|
10.6*
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|
The Companys 1989
Non-Employee Director Stock Option Plan, as amended effective
June 28, 1989, incorporated herein by reference to
Exhibit 10(r) to the Companys
Form 10-K
for the fiscal year ended March 3, 1990.
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10.7*
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|
Form of Post-Employment Consulting
Agreement between the Company and its executive officers,
incorporated herein by reference to Exhibit 10(r) to the
Companys
Form 10-K
for the fiscal year ended February 29, 1992.
|
10.8*
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Pier 1 Executive Health Expense
Reimbursement Plan.
|
10.9.1
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Pooling and Servicing Agreement,
dated February 12, 1997, among Pier 1 Imports (U.S.), Inc.,
Pier 1 Funding, Inc. and Texas Commerce Bank National
Association, as Trustee, incorporated herein by reference to
Exhibit 10.13 to the Companys
Form 10-K
for the fiscal year ended March 1, 1997.
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10.9.2
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Amendments Nos. 1, 2 and 3 to
the Pooling and Servicing Agreement, incorporated herein by
reference to Exhibit 10.13.2 to the Companys
Form 10-K
for the fiscal year ended February 28, 1998.
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10.9.3
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Amendment No. 4 to the
Pooling and Servicing Agreement, incorporated herein by
reference to Exhibit 10.11.3 to the Companys
Form 10-K
for the fiscal year ended March 3, 2001.
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10.9.4
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Amendment No. 5 to the
Pooling and Servicing Agreement dated as of February 12,
1997 by and among Pier 1 Funding, L.L.C., Pier 1 Imports (U.S.),
Inc., as servicer, and Wells Fargo Bank Minnesota, National
Association as trustee, incorporated herein by reference to
Exhibit 10.11.4 to the Companys
Form 10-Q
for the quarter ended September 1, 2001.
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Exhibit No.
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|
Description
|
|
10.10*
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|
Senior Management Bonus Plan
restated as amended April 5, 2002, incorporated herein by
reference to Appendix B,
page B-1,
of the Companys Proxy Statement for the fiscal year ended
March 2, 2002.
|
10.11*
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The Companys 1999 Stock
Plan, as amended and restated December 31, 2004,
incorporated herein by reference to Exhibit 10.3 to the
Companys
8-K filed
October 12, 2006.
|
10.12*
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Forms of Director and Employee
Stock Option Agreements, incorporated herein by reference to
Exhibit 10.2 to the Companys
Form 10-Q
for the quarter ended August 28, 1999.
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10.13.1
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Certificate Purchase Agreement
among Pier 1 Funding, L.L.C., Pier 1 Imports (U.S.), Inc., the
purchasers named therein and Morgan Guaranty Trust Company of
New York, as administrative agent, incorporated herein by
reference to Exhibit 10.17 to the Companys
Form 10-Q
for the quarter ended September 1, 2001.
|
10.13.2
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Amendment Nos. 1, 2, 3 and 4
to the Certificate Purchase Agreement, incorporated herein by
reference to Exhibit 10.14.2 to the Companys
Form 10-K
for the fiscal year ended February 25, 2006.
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10.13.3
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Fifth Amendment Agreement
(Purchase Agreement) dated as of September 7, 2005 by and
among Pier 1 Funding, L.L.C., Pier 1 Imports (U.S.), Inc., the
Class A Purchasers and J.P. Morgan Chase Bank, N.A.,
as agent, incorporated herein by reference to Exhibit 10.1
to the Companys
Form 8-K
filed September 9, 2005.
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10.13.4
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Sixth Amendment Agreement
(Purchase Agreement) dated as of September 19, 2005, by and
among Pier 1 Funding, L.L.C., Pier 1 Imports (U.S.), Inc., the
Class A Purchasers and J.P. Morgan Chase Bank, N.A.,
as agent, incorporated herein by reference to Exhibit 10.3
to the Companys
Form 10-Q
for the quarter ended August 27, 2005.
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10.14
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Repurchase Agreements relating to
the cancellation of
Series 1997-1
Class A Certificates, incorporated herein by reference to
Exhibit 10.18 to the Companys
Form 10-Q
for the quarter ended September 1, 2001.
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10.15*
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The Companys Stock Purchase
Plan, as amended June 25, 2004, incorporated herein by
reference to Appendix C,
page C-1,
of the Companys Proxy Statement for the fiscal year ended
February 28, 2004.
|
10.16*
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Employment Agreement between Pier
1 Imports, Inc. and Gregory S. Humenesky, dated
February 28, 2005, incorporated herein by reference to
Exhibit 10.1 to the Companys
Form 8-K
filed March 3, 2005.
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10.17.1
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Series 2001-1
Supplement, dated as of September 4, 2001, as amended
September 3, 2002, June 17, 2003, August 31,
2004, and February 22, 2005, by and among Pier 1 Funding,
L.L.C., Pier 1 Imports (U.S.), Inc., and Wells Fargo Bank
Minnesota, National Association as trustee, incorporated herein
by reference to Exhibit 10.18.1 to the Companys
Form 10-K
for the fiscal year ended February 25, 2006.
|
10.17.2
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Fifth Amendment Agreement
(Supplement) dated as of September 7, 2005, by and among
Pier 1 Funding, L.L.C., Pier 1 Imports (U.S.), Inc., and Wells
Fargo Bank, Minnesota, National Association, as trustee,
incorporated herein by reference to Exhibit 10.2 to the
Companys
Form 8-K
filed September 9, 2005.
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10.17.3
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Sixth Amendment Agreement
(Supplement) dated as of September 19, 2005, by and among
Pier 1 Funding, L.L.C., Pier 1 Imports (U.S.), Inc., and Wells
Fargo Bank, Minnesota, National Association, as trustee,
incorporated herein by reference to Exhibit 10.4 to the
Companys
Form 10-Q
for the quarter ended August 27, 2005.
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10.17.4
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Seventh Amendment Agreement dated
as of February 6, 2006, by and among Pier 1 Funding,
L.L.C., Pier 1 Imports (U.S.), Inc. and Wells Fargo Bank,
National Association, as trustee, incorporated herein by
reference to Exhibit 10.1 to the Companys
Form 8-K
filed February 7, 2006.
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10.17.5
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Consent to Extension, effective as
of March 9, 2006, incorporated herein by reference to
Exhibit 10.1 to the Companys
Form 8-K
filed March 15, 2006.
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10.17.6
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Eighth Amendment Agreement dated
as of March 13, 2006, by and among Pier 1 Funding, L.L.C.,
Pier 1 Imports (U.S.), Inc. and Wells Fargo Bank, National
Association, as trustee, incorporated herein by reference to
Exhibit 10.2 to the Companys
Form 8-K
filed March 15, 2006.
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Exhibit No.
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Description
|
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10.18
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Secured Credit Agreement, dated
November 22, 2005, among the Company, certain of its
subsidiaries, Bank of America, N.A., Wells Fargo Retail Finance,
LLC, Wachovia Bank, National Association, HSBC Bank USA, N.A.,
JPMorgan Chase Bank, N.A., and others, incorporated herein by
reference to Exhibit 10.1 to the Companys
Form 8-K
filed November 23, 2005.
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10.19
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Pier 1 Umbrella Trust, dated
December 21, 2005, incorporated herein by reference to
Exhibit 10.1 to the Companys
Form 8-K
filed December 21, 2005.
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10.20
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Agreement for the Sale and
Purchase of the Entire Issued Share Capital of The Pier Retail
Group Limited dated March 20, 2006, by and among PIR
Trading, Inc., Pier 1 Imports (U.S.), Inc., Palli Limited and
Lagerinn ehf., incorporated herein by reference to
Exhibit 10.1 to the Companys
Form 8-K
filed March 24, 2006.
|
10.21.1*
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Pier 1 Imports, Inc. 2006 Stock
Incentive Plan, incorporated herein by reference to
Appendix A,
page A-1,
of the Companys Proxy Statement for the fiscal year ended
February 25, 2006, filed May 15, 2006.
|
10.21.2*
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Form of Non-Qualified Stock Option
Agreement Non-Employee Director, incorporated herein
by reference to Exhibit 10.2 to the Companys
Form 8-K
filed June 23, 2006.
|
10.21.3*
|
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Form of Non-Qualified Stock Option
Agreement Employee Participant, incorporated herein
by reference to Exhibit 10.3 to the Companys
Form 8-K
filed June 23, 2006.
|
10.21.4*
|
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Form of Restricted Stock Award
Agreement (Time Vesting), incorporated herein by reference to
Exhibit 10.4 to the Companys
Form 8-K
filed June 23, 2006.
|
10.21.5*
|
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Form of Restricted Stock Award
Agreement (Performance Vesting), incorporated herein by
reference to Exhibit 10.5 to the Companys
Form 8-K
filed June 23, 2006.
|
10.21.6*
|
|
First Amendment to the Pier 1
Imports, Inc. 2006 Stock Incentive Plan, incorporated herein by
reference to the Companys
Form 10-Q
for the quarter ended August 26, 2006.
|
10.21.7*
|
|
Second Amendment to the Pier 1
Imports, Inc. 2006 Stock Incentive Plan.
|
10.22.1*
|
|
Non-Employee Director Compensation
Plan, incorporated herein by reference to the Companys
Form 10-Q
for the quarter ended August 26, 2006.
|
10.22.2*
|
|
Non-Employee Director Compensation
Plan, as amended March 4, 2007.
|
10.23*
|
|
Benefit Restoration Plan I,
as amended and restated effective January 1, 2005,
incorporated herein by reference to Exhibit 10.1 to the
Companys
Form 8-K
filed October 12, 2006.
|
10.24*
|
|
Benefit Restoration Plan II,
as amended and restated effective January 1, 2005,
incorporated herein by reference to Exhibit 10.2 to the
Companys
Form 8-K
filed October 12, 2006.
|
10.25*
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Employment Agreement by and
between Alexander W. Smith and Pier 1 Imports, Inc. dated
February 19, 2007, incorporated herein by reference to
Exhibit 10.1 to the Companys
Form 8-K
filed January 30, 2007.
|
10.25.1*
|
|
Form of Non-Qualified Stock Option
Agreement between Alexander W. Smith and Pier 1 Imports, Inc.,
incorporated herein by reference to Exhibit 10.2 to the
Companys
Form 8-K
filed January 30, 2007.
|
10.25.2*
|
|
Form of Non-Qualified Stock Option
Agreement between Alexander W. Smith and Pier 1 Imports, Inc.,
incorporated herein by reference to Exhibit 10.3 to the
Companys
Form 8-K
filed January 30, 2007.
|
21
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Subsidiaries of the Company.
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23
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Consent of Independent Registered
Public Accounting Firm.
|
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
|
|
Certification of Chief Executive
Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
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* |
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Management Contracts and Compensatory Plans |