e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. |
For the quarterly period ended August 26, 2006
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For the transition period from to
Commission file number 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 Number) |
100 Pier 1 Place, Fort Worth, Texas 76102
(Address of principal executive offices, including zip code)
(817) 252-8000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ. No o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest
practicable date.
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Class |
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Shares outstanding as of September 27, 2006 |
Common Stock, $1.00 par value
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87,608,305 |
PIER 1 IMPORTS, INC.
INDEX TO QUARTERLY FORM 10-Q
2
PART I
Item 1. Financial Statements.
PIER I IMPORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per
share amounts)
(unaudited)
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Three Months Ended |
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Six Months Ended |
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August 26, |
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August 27, |
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August 26, |
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August 27, |
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2006 |
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2005 |
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2006 |
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2005 |
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Net sales |
|
$ |
370,698 |
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$ |
423,675 |
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$ |
746,790 |
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$ |
813,989 |
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Operating costs and expenses: |
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Cost of sales (including buying and store
occupancy costs) |
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265,201 |
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288,573 |
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514,041 |
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|
541,402 |
|
Selling, general and administrative expenses |
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153,145 |
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134,964 |
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300,728 |
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275,153 |
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Depreciation and amortization |
|
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13,604 |
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14,140 |
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27,228 |
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28,094 |
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431,950 |
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437,677 |
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841,997 |
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844,649 |
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Operating loss |
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(61,252 |
) |
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(14,002 |
) |
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(95,207 |
) |
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(30,660 |
) |
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Nonoperating (income) and expenses: |
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Interest and investment income |
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(2,795 |
) |
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(640 |
) |
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(5,708 |
) |
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(1,762 |
) |
Interest expense |
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3,444 |
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|
414 |
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6,895 |
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|
779 |
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649 |
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(226 |
) |
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1,187 |
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(983 |
) |
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Loss from continuing operations before income taxes |
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(61,901 |
) |
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(13,776 |
) |
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(96,394 |
) |
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(29,677 |
) |
Income tax expense (benefit) |
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|
11,158 |
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(7,403 |
) |
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(570 |
) |
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(14,848 |
) |
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Loss from continuing operations |
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(73,059 |
) |
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(6,373 |
) |
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(95,824 |
) |
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(14,829 |
) |
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Discontinued operations: |
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Loss from discontinued operations |
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(3,812 |
) |
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(638 |
) |
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(7,818 |
) |
Income tax benefit |
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(231 |
) |
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Loss from discontinued operations |
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(3,812 |
) |
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(407 |
) |
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(7,818 |
) |
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Net loss |
|
($ |
73,059 |
) |
|
($ |
10,185 |
) |
|
($ |
96,231 |
) |
|
($ |
22,647 |
) |
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Loss per share from continuing operations: |
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Basic |
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($ |
0.84 |
) |
|
($ |
0.07 |
) |
|
($ |
1.09 |
) |
|
($ |
0.17 |
) |
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Diluted |
|
($ |
0.84 |
) |
|
($ |
0.07 |
) |
|
($ |
1.09 |
) |
|
($ |
0.17 |
) |
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Loss per share from discontinued operations: |
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Basic |
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($ |
0.05 |
) |
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($ |
0.01 |
) |
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($ |
0.09 |
) |
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Diluted |
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($ |
0.05 |
) |
|
($ |
0.01 |
) |
|
($ |
0.09 |
) |
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Loss per share: |
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Basic |
|
($ |
0.84 |
) |
|
($ |
0.12 |
) |
|
($ |
1.10 |
) |
|
($ |
0.26 |
) |
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Diluted |
|
($ |
0.84 |
) |
|
($ |
0.12 |
) |
|
($ |
1.10 |
) |
|
($ |
0.26 |
) |
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Dividends declared per share: |
|
$ |
0.10 |
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$ |
0.10 |
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$ |
0.20 |
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$ |
0.20 |
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Average shares outstanding during period: |
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Basic |
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|
87,307 |
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|
|
86,495 |
|
|
|
87,201 |
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|
86,443 |
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Diluted |
|
|
87,307 |
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|
|
86,495 |
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|
|
87,201 |
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|
|
86,443 |
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The accompanying notes are an integral part of these financial statements.
3
PIER 1 IMPORTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except
share amounts)
(unaudited)
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August 26, |
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February 25, |
|
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August 27, |
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|
2006 |
|
|
2006 |
|
|
2005 |
|
ASSETS |
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Current assets: |
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Cash and cash equivalents, including temporary investments
of $140,708, $238,463 and $31,346, respectively |
|
$ |
150,253 |
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|
$ |
246,115 |
|
|
$ |
38,764 |
|
Beneficial interest in securitized receivables |
|
|
44,928 |
|
|
|
50,000 |
|
|
|
41,966 |
|
Other accounts receivable, net |
|
|
16,246 |
|
|
|
13,916 |
|
|
|
14,650 |
|
Inventories |
|
|
404,117 |
|
|
|
368,978 |
|
|
|
474,915 |
|
Income tax receivable |
|
|
43,344 |
|
|
|
18,011 |
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|
|
24,292 |
|
Assets of discontinued operations |
|
|
|
|
|
|
32,359 |
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|
41,405 |
|
Prepaid expenses and other current assets |
|
|
78,115 |
|
|
|
45,544 |
|
|
|
42,934 |
|
|
|
|
|
|
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|
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|
Total current assets |
|
|
737,003 |
|
|
|
774,923 |
|
|
|
678,926 |
|
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|
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Properties, net |
|
|
282,938 |
|
|
|
298,922 |
|
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|
314,428 |
|
Other noncurrent assets |
|
|
41,165 |
|
|
|
96,016 |
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|
|
76,513 |
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$ |
1,061,106 |
|
|
$ |
1,169,861 |
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|
$ |
1,069,867 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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Notes payable |
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$ |
|
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|
$ |
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$ |
20,000 |
|
Accounts payable |
|
|
125,404 |
|
|
|
105,916 |
|
|
|
114,719 |
|
Gift cards and other deferred revenue |
|
|
63,482 |
|
|
|
63,835 |
|
|
|
56,521 |
|
Accrued income taxes payable |
|
|
2,106 |
|
|
|
4,763 |
|
|
|
3,126 |
|
Liabilities related to discontinued operations |
|
|
|
|
|
|
16,841 |
|
|
|
18,365 |
|
Other accrued liabilities |
|
|
129,631 |
|
|
|
97,493 |
|
|
|
105,729 |
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|
|
|
|
|
|
|
|
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|
Total current liabilities |
|
|
320,623 |
|
|
|
288,848 |
|
|
|
318,460 |
|
|
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|
|
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Long-term debt |
|
|
184,000 |
|
|
|
184,000 |
|
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|
19,000 |
|
Other noncurrent liabilities |
|
|
75,950 |
|
|
|
107,031 |
|
|
|
106,910 |
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|
|
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Shareholders equity: |
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|
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|
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Common stock, $1.00 par, 500,000,000 shares authorized,
100,779,000 issued |
|
|
100,779 |
|
|
|
100,779 |
|
|
|
100,779 |
|
Paid-in capital |
|
|
127,276 |
|
|
|
132,075 |
|
|
|
139,552 |
|
Retained earnings |
|
|
468,515 |
|
|
|
582,221 |
|
|
|
616,758 |
|
Cumulative other comprehensive loss |
|
|
(2,473 |
) |
|
|
(583 |
) |
|
|
(1,940 |
) |
Less 13,223,000, 13,761,000 and 14,041,000 common
shares in treasury, at cost, respectively |
|
|
(213,564 |
) |
|
|
(222,254 |
) |
|
|
(226,784 |
) |
Less unearned compensation |
|
|
|
|
|
|
(2,256 |
) |
|
|
(2,868 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
480,533 |
|
|
|
589,982 |
|
|
|
625,497 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,061,106 |
|
|
$ |
1,169,861 |
|
|
$ |
1,069,867 |
|
|
|
|
|
|
|
|
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|
The accompanying notes are an integral part of these financial statements.
4
PIER 1 IMPORTS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
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|
|
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|
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|
Six Months Ended |
|
|
|
August 26, |
|
|
August 27, |
|
|
|
2006 |
|
|
2005 |
|
Cash flow from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(96,231 |
) |
|
$ |
(22,647 |
) |
Adjustments to reconcile to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
32,519 |
|
|
|
37,882 |
|
Loss on disposal of fixed assets |
|
|
200 |
|
|
|
1,091 |
|
Loss on impairment of fixed assets |
|
|
5,063 |
|
|
|
287 |
|
Stock-based compensation expense |
|
|
3,270 |
|
|
|
167 |
|
Deferred compensation |
|
|
3,423 |
|
|
|
4,525 |
|
Lease termination expense |
|
|
2,005 |
|
|
|
1,522 |
|
Deferred income taxes |
|
|
24,613 |
|
|
|
|
|
Other |
|
|
(2,154 |
) |
|
|
1,001 |
|
Changes in cash from: |
|
|
|
|
|
|
|
|
Sale of receivables in exchange for beneficial
interest in securitized receivables |
|
|
(14,900 |
) |
|
|
(40,370 |
) |
Inventories |
|
|
(34,297 |
) |
|
|
(108,642 |
) |
Other accounts receivable, prepaid expenses and other current assets |
|
|
(15,701 |
) |
|
|
(14,863 |
) |
Income tax receivable |
|
|
(25,237 |
) |
|
|
(24,292 |
) |
Accounts payable and accrued expenses |
|
|
20,751 |
|
|
|
15,144 |
|
Accrued income taxes payable |
|
|
(2,794 |
) |
|
|
(8,599 |
) |
Other noncurrent assets |
|
|
469 |
|
|
|
(144 |
) |
Other noncurrent liabilities |
|
|
(217 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(99,218 |
) |
|
|
(157,938 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(18,711 |
) |
|
|
(28,048 |
) |
Proceeds from disposition of properties |
|
|
58 |
|
|
|
179 |
|
Proceeds from sale of discontinued operations (net of $3,397
cash included in sale of discontinued operations) |
|
|
11,601 |
|
|
|
|
|
Proceeds from sale of restricted investments |
|
|
217 |
|
|
|
|
|
Purchase of restricted investments |
|
|
(2,000 |
) |
|
|
|
|
Collections of principal on beneficial interest in securitized receivables |
|
|
19,972 |
|
|
|
34,094 |
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
11,137 |
|
|
|
6,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
Cash dividends |
|
|
(17,475 |
) |
|
|
(17,287 |
) |
Purchases of treasury stock |
|
|
|
|
|
|
(4,047 |
) |
Proceeds from stock options exercised, stock purchase plan and other, net |
|
|
2,877 |
|
|
|
4,672 |
|
Notes payable borrowings |
|
|
|
|
|
|
23,000 |
|
Repayments of notes payable |
|
|
|
|
|
|
(3,000 |
) |
Debt issuance costs |
|
|
(283 |
) |
|
|
(121 |
) |
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(14,881 |
) |
|
|
3,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
(102,962 |
) |
|
|
(148,496 |
) |
Cash and cash equivalents at beginning of period (including
cash held for sale of $7,100 and $3,358, respectively) |
|
|
253,215 |
|
|
|
189,081 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period (including
cash held for sale of $0 and $1,821, respectively) |
|
$ |
150,253 |
|
|
$ |
40,585 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
5
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE SIX MONTHS ENDED AUGUST 26, 2006
(in thousands except per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Outstanding |
|
|
|
|
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury |
|
|
Unearned |
|
|
Shareholders |
|
|
|
Stock |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Loss |
|
|
Stock |
|
|
Compensation |
|
|
Equity |
|
Balance February 25, 2006 |
|
|
86,939 |
|
|
$ |
100,779 |
|
|
$ |
132,075 |
|
|
$ |
582,221 |
|
|
$ |
(583 |
) |
|
$ |
(222,254 |
) |
|
$ |
(2,256 |
) |
|
$ |
589,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(96,231 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(96,231 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation
adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,890 |
) |
|
|
|
|
|
|
|
|
|
|
(1,890 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(98,121 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock compensation |
|
|
226 |
|
|
|
|
|
|
|
(5,417 |
) |
|
|
|
|
|
|
|
|
|
|
3,644 |
|
|
|
2,256 |
|
|
|
483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option compensation |
|
|
|
|
|
|
|
|
|
|
2,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options, stock
purchase plan and other |
|
|
392 |
|
|
|
|
|
|
|
(2,169 |
) |
|
|
|
|
|
|
|
|
|
|
5,046 |
|
|
|
|
|
|
|
2,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends ($ .20 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,475 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,475 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance August 26, 2006 |
|
|
87,557 |
|
|
$ |
100,779 |
|
|
$ |
127,276 |
|
|
$ |
468,515 |
|
|
$ |
(2,473 |
) |
|
$ |
(213,564 |
) |
|
$ |
|
|
|
$ |
480,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
6
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED AUGUST 26, 2006
AND AUGUST 27, 2005
(unaudited)
Throughout this report, references to the Company include Pier 1 Imports, Inc. and all its
consolidated subsidiaries. The accompanying unaudited financial statements should be read in
conjunction with the Form 10-K for the year ended February 25, 2006. All adjustments that are, in
the opinion of management, necessary for a fair presentation of the financial position as of August
26, 2006, and the results of operations and cash flows for the three and six months ended August
26, 2006 and August 27, 2005 have been made and consist only of normal recurring adjustments,
except as otherwise described herein. The results of operations for the three and six months ended
August 26, 2006 and August 27, 2005 are not indicative of results to be expected for the fiscal
year because of, among other things, seasonality factors in the retail business. Historically, the
strongest sales of the Companys products have occurred during the holiday season beginning in
November and continuing through December. The Company conducts business as one operating segment.
On March 20, 2006, the Company sold its subsidiary based in the United Kingdom, The Pier Retail
Group Limited (The Pier). For all periods presented, The Pier has been classified as
discontinued operations. The classification of certain amounts previously reported in the
consolidated statement of cash flows for the six months ended August 27, 2005, has been modified to
conform to the August 26, 2006 method of presentation.
Note 1
Loss per share
Basic loss per share amounts were determined by dividing net loss by the weighted average number of
common shares outstanding for the period. Diluted loss per share amounts were similarly computed,
but included the effect, when dilutive, of the Companys weighted average number of stock options
and unvested restricted stock outstanding. As the effect would have been antidilutive, all
14,236,780 and 13,275,075 stock options and shares of unvested restricted stock were excluded from
the computation of the fiscal 2007 and fiscal 2006, respectively, second quarter and year-to-date
loss per share. Loss per share for the three and six months ended August 26, 2006 and August 27,
2005 was calculated as follows (in thousands except per share amounts):
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
August 26, |
|
|
August 27, |
|
|
August 26, |
|
|
August 27, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Loss from continuing operations, basic and diluted |
|
($ |
73,059 |
) |
|
($ |
6,373 |
) |
|
($ |
95,824 |
) |
|
($ |
14,829 |
) |
Loss from discontinued operations, basic and diluted |
|
|
|
|
|
|
(3,812 |
) |
|
|
(407 |
) |
|
|
(7,818 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, basic and diluted |
|
($ |
73,059 |
) |
|
($ |
10,185 |
) |
|
($ |
96,231 |
) |
|
($ |
22,647 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
87,307 |
|
|
|
86,495 |
|
|
|
87,201 |
|
|
|
86,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
($ |
0.84 |
) |
|
($ |
0.07 |
) |
|
($ |
1.09 |
) |
|
($ |
0.17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share from discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
0.00 |
|
|
($ |
0.05 |
) |
|
($ |
0.01 |
) |
|
($ |
0.09 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
($ |
0.84 |
) |
|
($ |
0.12 |
) |
|
($ |
1.10 |
) |
|
($ |
0.26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 with stores located in the United Kingdom and Ireland. The Company
met the criteria of Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets that required it to classify The Pier as held for
sale and present its results of operations as discontinued for all periods presented. During the
first quarter of 2007, the Company sold The Pier to Palli Limited for approximately $15,000,000.
Palli Limited is a wholly owned subsidiary of Lagerinn ehf, 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. Net sales for The Pier were $3,323,000 for the
period ended March 20, 2006, compared to $15,395,000 for the three months ended May 28, 2005.
Expenses incurred by the Company in March related to The Pier were $407,000, net of taxes, which
includes an insignificant gain on the sale.
Note 3
Comprehensive loss
The components of comprehensive loss for the three and six months ended August 26, 2006 and August
27, 2005 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
August 26, |
|
|
August 27, |
|
|
August 26, |
|
|
August 27, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net loss |
|
($ |
73,059 |
) |
|
($ |
10,185 |
) |
|
($ |
96,231 |
) |
|
($ |
22,647 |
) |
Currency translation adjustments |
|
|
(41 |
) |
|
|
343 |
|
|
|
(1,890 |
) |
|
|
(514 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
($ |
73,100 |
) |
|
($ |
9,842 |
) |
|
($ |
98,121 |
) |
|
($ |
23,161 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 4
Stock-based compensation
On February 26, 2006, the Company adopted the provisions of SFAS No. 123 (Revised 2004),
Share-Based Payments (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 and restricted stock awards.
Compensation 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.
On March 23, 2006, the board of directors approved the adoption of the Pier 1 Imports, Inc. 2006
Stock Incentive Plan (the 2006 Plan), which replaced the 1999 Stock Plan and the 1993 Restricted
Stock Plan. The 2006 Plan was approved by the shareholders on June 22, 2006. The aggregate number
of shares available at the inception of the 2006 Plan included the new authorization of 1,500,000
shares, plus 560,794 shares that remained available for grant under the 1999 Stock Plan and the
1993 Restricted Stock Plan on March 23, 2006. Any shares forfeited under these plans are returned
to the 2006 Plan and become eligible for grant. A total of 2,000,600 shares were granted under the
new plan as of June 23, 2006. At August 26, 2006, there were a total of 500,827 shares available
for grant under the 2006 Plan.
Stock Options
For the three and six months ended August 26, 2006, the Companys compensation expense related to
stock option grants was approximately $2,415,000, or $0.03 per share, and $2,787,000, or $0.03 per
share, respectively. At August 26, 2006, there was approximately $8,573,000 of total unrecognized
compensation expense related to unvested stock option awards. This expense is expected to be
recognized over a weighted average period of 2.1 years.
SFAS 123R requires that forfeitures are estimated at the time of grant. The Company estimates
forfeitures based on its historical forfeiture experience. For periods prior to fiscal 2006, the
Company recognized forfeitures as they occurred. In accordance with SFAS 123R, the Company adjusts
forfeiture estimates based on actual forfeiture experience for all awards with service conditions.
The effect of forfeiture adjustments for the second quarter ended August 26, 2006 was
insignificant.
SFAS 123R requires disclosure of pro forma information for periods prior to adoption. The following
table details the effect on net loss and loss per share from continuing operations for the three
and six months ended August 27, 2005, illustrating the effect of applying the fair value
recognition provisions of SFAS 123R (in thousands except per share amounts):
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
August 27, |
|
|
August 27, |
|
|
|
2005 |
|
|
2005 |
|
Net loss from continuing operations, as reported |
|
($ |
6,373 |
) |
|
($ |
14,829 |
) |
|
|
|
|
|
|
|
|
|
Stock-based employee compensation
expense included in reported net loss,
net of related tax effects |
|
|
84 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
Less total stock-based employee compensation
expense determined under fair value-based
method, net of related tax effects |
|
|
(2,247 |
) |
|
|
(4,539 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss |
|
($ |
8,536 |
) |
|
($ |
19,284 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations: |
|
|
|
|
|
|
|
|
Basic and diluted as reported |
|
($ |
0.07 |
) |
|
($ |
0.17 |
) |
|
|
|
|
|
|
|
Basic and diluted pro forma |
|
($ |
0.10 |
) |
|
($ |
0.22 |
) |
|
|
|
|
|
|
|
The Companys stock incentive plans provide for the granting of stock options to certain employees
of the Company to purchase shares of common stock. Options are granted at exercise prices equal to
the market value of the Companys common stock at the date of grant. Options issued under employee
plans vest over a period of four years and have a contractual life of ten years. A summary of stock
option transactions related to the stock option plans for the six months ended August 26, 2006 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Value |
|
|
|
Stock Options |
|
|
Price |
|
|
Life |
|
|
(in thousands) |
|
Outstanding at beginning of period |
|
|
12,738,025 |
|
|
$ |
15.41 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
1,740,500 |
|
|
|
7.55 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(90,450 |
) |
|
|
7.96 |
|
|
|
|
|
|
|
|
|
Cancelled |
|
|
(514,625 |
) |
|
|
16.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period |
|
|
13,873,450 |
|
|
$ |
14.42 |
|
|
|
6.6 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
|
|
11,306,700 |
|
|
$ |
15.44 |
|
|
|
5.9 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised for the six months ended August 26, 2006 and August
27, 2005 was approximately $357,000 and $1,809,000, 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. The fair value of the options granted during the respective quarter were estimated
on the date of grant using the Black-Scholes pricing model based on the following weighted average
assumptions:
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
August 26, |
|
August 27, |
|
|
2006 |
|
2005 |
Weighted average fair value of options
granted |
|
$ |
3.58 |
|
|
$ |
4.75 |
|
Risk-free interest rate |
|
|
5.21 |
% |
|
|
3.84 |
% |
Expected stock price volatility |
|
|
49.50 |
% |
|
|
40.00 |
% |
Expected dividend yields |
|
|
0.5 |
% |
|
|
2.2 |
% |
Weighted average expected lives |
|
5 years |
|
|
5 years |
|
A summary of the Companys nonvested options as of and for the six months ended August 26, 2006
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant-Date |
|
|
|
Options |
|
|
Fair Value |
|
Nonvested at beginning of period |
|
|
1,300,000 |
|
|
$ |
4.75 |
|
Granted |
|
|
1,740,500 |
|
|
|
3.58 |
|
Vested |
|
|
(349,000 |
) |
|
|
4.75 |
|
Cancelled |
|
|
(124,750 |
) |
|
|
4.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at end of period |
|
|
2,566,750 |
|
|
$ |
3.98 |
|
|
|
|
|
|
|
|
Restricted Stock Awards
At August 26, 2006, the Company had 363,330 unvested shares of restricted stock awards outstanding
to executive officers. During the six months ended August 26, 2006, 65,340 restricted stock awards
vested, 34,430 restricted stock awards were cancelled and 260,100 restricted stock awards were
granted. A portion of the stock grant vests ratably over a three year period of continued
employment and the remainder of the grant vests if certain defined earnings targets are met at the
end of three years. The fair 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. The fair 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.
Compensation expense for restricted stock was approximately $483,000, or $0.01 per share, and
$167,000, or less than $0.01 per share, for the six months ended August 26, 2006 and August 27,
2005, respectively. As of August 26, 2006, there was approximately $3,358,000 of total
unrecognized compensation expense related to restricted stock.
Note 5 Impairment of long-lived assets
Impairment charges were $3,100,000 and $5,065,000 for the three and six months ended August 26,
2006, respectively, and included in selling, general and administrative expenses. These impairment
charges related to long-lived assets at underperforming stores based on cash flow projections for
those stores. These cash flows were estimated based on managements estimate of changes in sales,
merchandise margins, and expenses over the remaining expected terms of the leases. In the event
that actual future results are less than managements estimates, an additional charge for asset
impairments may be recorded in the future and such charges could have an impact on the Companys
balance sheet and statement of operations.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 6
Lease termination obligation
Although the Company typically does not terminate a significant number of leases prior to their
expiration, periodically certain stores or storage facilities are closed or relocated to more
favorable locations within the same market. These decisions are based on lease renewal
obligations, relocation space availability, general economic conditions and prospects for future
profitability. In connection with these lease terminations, the Company has recorded estimated
liabilities in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. The estimated liabilities were recorded based upon the Companys remaining lease
obligations less estimated subtenant rental income. Revisions during the period related 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 has not been
material and the write-down of inventory and employee severance cost associated with these closures
was not significant. The following table represents a rollforward of the liability balances for
the six months ended August 26, 2006 and August 27, 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
August 26, |
|
|
August 27, |
|
|
|
2006 |
|
|
2005 |
|
Beginning of period |
|
$ |
2,859 |
|
|
$ |
1,475 |
|
|
|
|
|
|
|
|
|
|
Original charges |
|
|
1,794 |
|
|
|
1,384 |
|
Revisions |
|
|
211 |
|
|
|
138 |
|
Cash payments |
|
|
(2,010 |
) |
|
|
(1,315 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
2,854 |
|
|
$ |
1,682 |
|
|
|
|
|
|
|
|
Note 7
Condensed financial statements
The Companys 6.375% convertible senior notes (the Notes) are fully and unconditionally
guaranteed, on a joint and several basis, by all of the Companys material domestic consolidated
subsidiaries (the Guarantor Subsidiaries). The subsidiaries that do not guarantee such Notes are
comprised of the Companys foreign subsidiaries and certain other insignificant domestic
consolidated subsidiaries (the Non-Guarantor Subsidiaries). Each of the Guarantor Subsidiaries
is wholly owned. On June 13, 2006, the Company registered these Notes with the Securities and
Exchange Commission. In lieu of providing separate audited financial statements for the Guarantor
Subsidiaries, condensed consolidating financial information is presented below.
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Three Months Ended August 26, 2006
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pier 1 |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Imports, |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Net sales |
|
$ |
|
|
|
$ |
368,837 |
|
|
$ |
11,475 |
|
|
$ |
(9,614 |
) |
|
$ |
370,698 |
|
Cost of sales (including buying
and store occupancy costs) |
|
|
|
|
|
|
264,237 |
|
|
|
10,556 |
|
|
|
(9,592 |
) |
|
|
265,201 |
|
Selling, general and administrative
(including depreciation and
amortization) |
|
|
483 |
|
|
|
166,043 |
|
|
|
223 |
|
|
|
|
|
|
|
166,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(483 |
) |
|
|
(61,443 |
) |
|
|
696 |
|
|
|
(22 |
) |
|
|
(61,252 |
) |
Nonoperating (income) expenses |
|
|
(742 |
) |
|
|
1,574 |
|
|
|
(183 |
) |
|
|
|
|
|
|
649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income
taxes |
|
|
259 |
|
|
|
(63,017 |
) |
|
|
879 |
|
|
|
(22 |
) |
|
|
(61,901 |
) |
Income tax provision |
|
|
|
|
|
|
11,015 |
|
|
|
143 |
|
|
|
|
|
|
|
11,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing
operations |
|
|
259 |
|
|
|
(74,032 |
) |
|
|
736 |
|
|
|
(22 |
) |
|
|
(73,059 |
) |
Net income (loss) from subsidiaries |
|
|
(73,296 |
) |
|
|
736 |
|
|
|
|
|
|
|
72,560 |
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(73,037 |
) |
|
$ |
(73,296 |
) |
|
$ |
736 |
|
|
$ |
72,538 |
|
|
$ |
(73,059 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Three Months Ended August 27, 2005
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pier 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imports, |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Net sales |
|
$ |
|
|
|
$ |
421,805 |
|
|
$ |
19,103 |
|
|
$ |
(17,233 |
) |
|
$ |
423,675 |
|
Cost of sales (including buying
and store occupancy costs) |
|
|
|
|
|
|
288,941 |
|
|
|
16,677 |
|
|
|
(17,045 |
) |
|
|
288,573 |
|
Selling, general and administrative
(including depreciation and
amortization) |
|
|
286 |
|
|
|
148,515 |
|
|
|
303 |
|
|
|
|
|
|
|
149,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(286 |
) |
|
|
(15,651 |
) |
|
|
2,123 |
|
|
|
(188 |
) |
|
|
(14,002 |
) |
Nonoperating (income) expenses |
|
|
139 |
|
|
|
(518 |
) |
|
|
153 |
|
|
|
|
|
|
|
(226 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income
taxes |
|
|
(425 |
) |
|
|
(15,133 |
) |
|
|
1,970 |
|
|
|
(188 |
) |
|
|
(13,776 |
) |
Income tax (benefit) provision |
|
|
|
|
|
|
(7,525 |
) |
|
|
122 |
|
|
|
|
|
|
|
(7,403 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing
operations |
|
|
(425 |
) |
|
|
(7,608 |
) |
|
|
1,848 |
|
|
|
(188 |
) |
|
|
(6,373 |
) |
Net income (loss) from subsidiaries |
|
|
(9,572 |
) |
|
|
(1,964 |
) |
|
|
|
|
|
|
11,536 |
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
(3,812 |
) |
|
|
|
|
|
|
(3,812 |
) |
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued
operations |
|
|
|
|
|
|
|
|
|
|
(3,812 |
) |
|
|
|
|
|
|
(3,812 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(9,997 |
) |
|
$ |
(9,572 |
) |
|
$ |
(1,964 |
) |
|
$ |
11,348 |
|
|
$ |
(10,185 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Six Months Ended August 26, 2006
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pier 1 |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Imports, |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Net sales |
|
$ |
|
|
|
$ |
742,543 |
|
|
$ |
20,566 |
|
|
$ |
(16,319 |
) |
|
$ |
746,790 |
|
Cost of sales (including buying
and store occupancy costs) |
|
|
|
|
|
|
511,810 |
|
|
|
18,796 |
|
|
|
(16,565 |
) |
|
|
514,041 |
|
Selling, general and administrative
(including depreciation and
amortization) |
|
|
1,033 |
|
|
|
326,401 |
|
|
|
522 |
|
|
|
|
|
|
|
327,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(1,033 |
) |
|
|
(95,668 |
) |
|
|
1,248 |
|
|
|
246 |
|
|
|
(95,207 |
) |
Nonoperating (income) expenses |
|
|
(1,467 |
) |
|
|
2,996 |
|
|
|
(342 |
) |
|
|
|
|
|
|
1,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income
taxes |
|
|
434 |
|
|
|
(98,664 |
) |
|
|
1,590 |
|
|
|
246 |
|
|
|
(96,394 |
) |
Income tax (benefit) provision |
|
|
|
|
|
|
(801 |
) |
|
|
231 |
|
|
|
|
|
|
|
(570 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing
operations |
|
|
434 |
|
|
|
(97,863 |
) |
|
|
1,359 |
|
|
|
246 |
|
|
|
(95,824 |
) |
Net income (loss) from subsidiaries |
|
|
(96,911 |
) |
|
|
952 |
|
|
|
|
|
|
|
95,959 |
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
(638 |
) |
|
|
|
|
|
|
(638 |
) |
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
(231 |
) |
|
|
|
|
|
|
(231 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued
operations |
|
|
|
|
|
|
|
|
|
|
(407 |
) |
|
|
|
|
|
|
(407 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(96,477 |
) |
|
$ |
(96,911 |
) |
|
$ |
952 |
|
|
$ |
96,205 |
|
|
$ |
(96,231 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Six Months Ended August 27, 2005
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pier 1 |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Imports, |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Net sales |
|
$ |
|
|
|
$ |
810,785 |
|
|
$ |
33,972 |
|
|
$ |
(30,768 |
) |
|
$ |
813,989 |
|
Cost of sales (including buying
and store occupancy costs) |
|
|
|
|
|
|
542,453 |
|
|
|
29,640 |
|
|
|
(30,691 |
) |
|
|
541,402 |
|
Selling, general and administrative
(including depreciation and
amortization) |
|
|
700 |
|
|
|
302,009 |
|
|
|
538 |
|
|
|
|
|
|
|
303,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(700 |
) |
|
|
(33,677 |
) |
|
|
3,794 |
|
|
|
(77 |
) |
|
|
(30,660 |
) |
Nonoperating (income) expenses |
|
|
240 |
|
|
|
(1,507 |
) |
|
|
284 |
|
|
|
|
|
|
|
(983 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income
taxes |
|
|
(940 |
) |
|
|
(32,170 |
) |
|
|
3,510 |
|
|
|
(77 |
) |
|
|
(29,677 |
) |
Income tax (benefit) provision |
|
|
|
|
|
|
(15,070 |
) |
|
|
222 |
|
|
|
|
|
|
|
(14,848 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing
operations |
|
|
(940 |
) |
|
|
(17,100 |
) |
|
|
3,288 |
|
|
|
(77 |
) |
|
|
(14,829 |
) |
Net income (loss) from subsidiaries |
|
|
(21,630 |
) |
|
|
(4,530 |
) |
|
|
|
|
|
|
26,160 |
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
(7,818 |
) |
|
|
|
|
|
|
(7,818 |
) |
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued
operations |
|
|
|
|
|
|
|
|
|
|
(7,818 |
) |
|
|
|
|
|
|
(7,818 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(22,570 |
) |
|
$ |
(21,630 |
) |
|
$ |
(4,530 |
) |
|
$ |
26,083 |
|
|
$ |
(22,647 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONSOLIDATING CONDENSED BALANCE SHEET
August 26, 2006
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Pier 1 |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Imports, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
114,960 |
|
|
$ |
20,310 |
|
|
$ |
14,983 |
|
|
$ |
|
|
|
$ |
150,253 |
|
Beneficial interest in
securitized receivables |
|
|
|
|
|
|
44,928 |
|
|
|
|
|
|
|
|
|
|
|
44,928 |
|
Other accounts receivable, net |
|
|
518 |
|
|
|
14,115 |
|
|
|
1,613 |
|
|
|
|
|
|
|
16,246 |
|
Inventories |
|
|
|
|
|
|
404,117 |
|
|
|
|
|
|
|
|
|
|
|
404,117 |
|
Income tax receivable |
|
|
|
|
|
|
43,468 |
|
|
|
(124 |
) |
|
|
|
|
|
|
43,344 |
|
Prepaid expenses and other
current assets |
|
|
|
|
|
|
78,108 |
|
|
|
7 |
|
|
|
|
|
|
|
78,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
115,478 |
|
|
|
605,046 |
|
|
|
16,479 |
|
|
|
|
|
|
|
737,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties, net |
|
|
|
|
|
|
276,815 |
|
|
|
6,123 |
|
|
|
|
|
|
|
282,938 |
|
Investment in subsidiaries |
|
|
377,079 |
|
|
|
41,643 |
|
|
|
|
|
|
|
(418,722 |
) |
|
|
|
|
Other noncurrent assets |
|
|
8,181 |
|
|
|
32,905 |
|
|
|
79 |
|
|
|
|
|
|
|
41,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
500,738 |
|
|
$ |
956,409 |
|
|
$ |
22,681 |
|
|
$ |
(418,722 |
) |
|
$ |
1,061,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
28 |
|
|
$ |
123,868 |
|
|
$ |
1,508 |
|
|
$ |
|
|
|
$ |
125,404 |
|
Intercompany payable
(receivable) |
|
|
(148,288 |
) |
|
|
168,025 |
|
|
|
(19,737 |
) |
|
|
|
|
|
|
|
|
Gift cards and other deferred
revenue |
|
|
|
|
|
|
63,482 |
|
|
|
|
|
|
|
|
|
|
|
63,482 |
|
Accrued income taxes
payable (receivable) |
|
|
|
|
|
|
2,910 |
|
|
|
(804 |
) |
|
|
|
|
|
|
2,106 |
|
Other accrued liabilities |
|
|
672 |
|
|
|
128,888 |
|
|
|
71 |
|
|
|
|
|
|
|
129,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
(147,588 |
) |
|
|
487,173 |
|
|
|
(18,962 |
) |
|
|
|
|
|
|
320,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
165,000 |
|
|
|
19,000 |
|
|
|
|
|
|
|
|
|
|
|
184,000 |
|
Other noncurrent liabilities |
|
|
2,793 |
|
|
|
73,157 |
|
|
|
|
|
|
|
|
|
|
|
75,950 |
|
Shareholders equity |
|
|
480,533 |
|
|
|
377,079 |
|
|
|
41,643 |
|
|
|
(418,722 |
) |
|
|
480,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
500,738 |
|
|
$ |
956,409 |
|
|
$ |
22,681 |
|
|
$ |
(418,722 |
) |
|
$ |
1,061,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONSOLIDATING CONDENSED BALANCE SHEET
February 25, 2006
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Pier 1 |
|
|
Guarantor |
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONSOLIDATING CONDENSED BALANCE SHEET
August 27, 2005
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Pier 1 |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Imports, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
531 |
|
|
$ |
10,528 |
|
|
$ |
27,705 |
|
|
$ |
|
|
|
$ |
38,764 |
|
Beneficial interest in
securitized receivables |
|
|
|
|
|
|
41,966 |
|
|
|
|
|
|
|
|
|
|
|
41,966 |
|
Other accounts receivable, net |
|
|
204 |
|
|
|
12,974 |
|
|
|
1,472 |
|
|
|
|
|
|
|
14,650 |
|
Inventories |
|
|
|
|
|
|
474,915 |
|
|
|
|
|
|
|
|
|
|
|
474,915 |
|
Income tax receivable |
|
|
|
|
|
|
24,386 |
|
|
|
(94 |
) |
|
|
|
|
|
|
24,292 |
|
Assets of discontinued
operations |
|
|
|
|
|
|
|
|
|
|
41,405 |
|
|
|
|
|
|
|
41,405 |
|
Prepaid expenses and other
current assets |
|
|
|
|
|
|
42,925 |
|
|
|
9 |
|
|
|
|
|
|
|
42,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
735 |
|
|
|
607,694 |
|
|
|
70,497 |
|
|
|
|
|
|
|
678,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties, net |
|
|
|
|
|
|
306,522 |
|
|
|
7,906 |
|
|
|
|
|
|
|
314,428 |
|
Investment in subsidiaries |
|
|
490,564 |
|
|
|
37,333 |
|
|
|
|
|
|
|
(527,897 |
) |
|
|
|
|
Other noncurrent assets |
|
|
889 |
|
|
|
75,545 |
|
|
|
79 |
|
|
|
|
|
|
|
76,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
492,188 |
|
|
$ |
1,027,094 |
|
|
$ |
78,482 |
|
|
$ |
(527,897 |
) |
|
$ |
1,069,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable |
|
$ |
|
|
|
$ |
20,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
20,000 |
|
Accounts payable |
|
|
9 |
|
|
|
111,336 |
|
|
|
3,374 |
|
|
|
|
|
|
|
114,719 |
|
Intercompany payable
(receivable) |
|
|
(135,856 |
) |
|
|
116,363 |
|
|
|
19,493 |
|
|
|
|
|
|
|
|
|
Gift cards and other deferred
revenue |
|
|
|
|
|
|
56,521 |
|
|
|
|
|
|
|
|
|
|
|
56,521 |
|
Accrued income taxes
payable (receivable) |
|
|
|
|
|
|
3,268 |
|
|
|
(142 |
) |
|
|
|
|
|
|
3,126 |
|
Liabilities related to
discontinued
operations |
|
|
|
|
|
|
|
|
|
|
18,365 |
|
|
|
|
|
|
|
18,365 |
|
Other accrued liabilities |
|
|
330 |
|
|
|
105,340 |
|
|
|
59 |
|
|
|
|
|
|
|
105,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
(135,517 |
) |
|
|
412,828 |
|
|
|
41,149 |
|
|
|
|
|
|
|
318,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
19,000 |
|
|
|
|
|
|
|
|
|
|
|
19,000 |
|
Other noncurrent liabilities |
|
|
2,208 |
|
|
|
104,702 |
|
|
|
|
|
|
|
|
|
|
|
106,910 |
|
Shareholders equity |
|
|
625,497 |
|
|
|
490,564 |
|
|
|
37,333 |
|
|
|
(527,897 |
) |
|
|
625,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
492,188 |
|
|
$ |
1,027,094 |
|
|
$ |
78,482 |
|
|
$ |
(527,897 |
) |
|
$ |
1,069,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Six Months Ended August 26, 2006
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
5,187 |
|
|
$ |
(98,595 |
) |
|
$ |
(5,792 |
) |
|
$ |
(18 |
) |
|
$ |
(99,218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
(18,711 |
) |
|
|
|
|
|
|
|
|
|
|
(18,711 |
) |
Proceeds from disposition of
properties |
|
|
|
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
58 |
|
Proceeds from sale of
discontinued operations |
|
|
|
|
|
|
11,601 |
|
|
|
|
|
|
|
|
|
|
|
11,601 |
|
Proceeds from sale of
restricted investments |
|
|
|
|
|
|
217 |
|
|
|
|
|
|
|
|
|
|
|
217 |
|
Purchase of restricted
investments |
|
|
|
|
|
|
(2,000 |
) |
|
|
|
|
|
|
|
|
|
|
(2,000 |
) |
Collections of principal on
beneficial interest in
securitized receivables |
|
|
|
|
|
|
19,972 |
|
|
|
|
|
|
|
|
|
|
|
19,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by
investing activities |
|
|
|
|
|
|
11,137 |
|
|
|
|
|
|
|
|
|
|
|
11,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends |
|
|
(17,475 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
18 |
|
|
|
(17,475 |
) |
Proceeds from stock options
exercised, stock purchase
plan and other, net |
|
|
2,781 |
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
2,877 |
|
Debt issuance costs |
|
|
|
|
|
|
(283 |
) |
|
|
|
|
|
|
|
|
|
|
(283 |
) |
Advances (to) from subsidiaries |
|
|
(6,312 |
) |
|
|
7,204 |
|
|
|
(892 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities |
|
|
(21,006 |
) |
|
|
6,999 |
|
|
|
(892 |
) |
|
|
18 |
|
|
|
(14,881 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
(15,819 |
) |
|
|
(80,459 |
) |
|
|
(6,684 |
) |
|
|
|
|
|
|
(102,962 |
) |
Cash and cash equivalents at
beginning of period |
|
|
130,779 |
|
|
|
100,769 |
|
|
|
21,667 |
|
|
|
|
|
|
|
253,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
end of period |
|
$ |
114,960 |
|
|
$ |
20,310 |
|
|
$ |
14,983 |
|
|
$ |
|
|
|
$ |
150,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes cash related to discontinued operations of $7,100 at beginning of period. |
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Six Months Ended August 27, 2005
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
3,021 |
|
|
$ |
(166,293 |
) |
|
$ |
5,452 |
|
|
$ |
(118 |
) |
|
$ |
(157,938 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
(24,968 |
) |
|
|
(3,080 |
) |
|
|
|
|
|
|
(28,048 |
) |
Proceeds from disposition of
properties |
|
|
|
|
|
|
179 |
|
|
|
|
|
|
|
|
|
|
|
179 |
|
Collections of principal on
beneficial interest in
securitized receivables |
|
|
|
|
|
|
34,094 |
|
|
|
|
|
|
|
|
|
|
|
34,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities |
|
|
|
|
|
|
9,305 |
|
|
|
(3,080 |
) |
|
|
|
|
|
|
6,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends |
|
|
(17,287 |
) |
|
|
(51 |
) |
|
|
(67 |
) |
|
|
118 |
|
|
|
(17,287 |
) |
Purchases of treasury stock |
|
|
(4,047 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,047 |
) |
Proceeds from stock options
exercised, stock purchase
plan and other, net |
|
|
4,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,672 |
|
Borrowings under short-term debt |
|
|
|
|
|
|
23,000 |
|
|
|
|
|
|
|
|
|
|
|
23,000 |
|
Repayments of notes payable |
|
|
|
|
|
|
(3,000 |
) |
|
|
|
|
|
|
|
|
|
|
(3,000 |
) |
Debt issuance costs |
|
|
(40 |
) |
|
|
(81 |
) |
|
|
|
|
|
|
|
|
|
|
(121 |
) |
Advances (to) from subsidiaries |
|
|
13,730 |
|
|
|
(9,894 |
) |
|
|
(3,836 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities |
|
|
(2,972 |
) |
|
|
9,974 |
|
|
|
(3,903 |
) |
|
|
118 |
|
|
|
3,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
49 |
|
|
|
(147,014 |
) |
|
|
(1,531 |
) |
|
|
|
|
|
|
(148,496 |
) |
Cash and cash equivalents at
beginning of period |
|
|
482 |
|
|
|
157,542 |
|
|
|
31,057 |
|
|
|
|
|
|
|
189,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
end of period |
|
$ |
531 |
|
|
$ |
10,528 |
|
|
$ |
29,526 |
|
|
$ |
|
|
|
$ |
40,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes cash related to discontinued operations of $3,358 at beginning of period and $1,821 at end of period. |
Note 8
Benefit plans
The Company maintains supplemental retirement plans (the Plans) for certain of its executive
officers. The Plans provide that upon death, disability or reaching retirement age, a participant
will receive benefits based on highest compensation and years of service. Pension expense is
determined using various actuarial cost methods to estimate the total benefits ultimately payable
to executive officers and this cost is allocated to respective service periods.
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 pension obligations upon retirement or
death of certain participants. The trust assets are consolidated in the Companys financial
statements and consist of interest yielding investments in the amounts of $24,728,000 included in
other current assets and $21,694,000 included in other noncurrent assets at August 26, 2006 and
August 27, 2005, respectively. These investments are restricted and may be used only to satisfy
retirement obligations to certain participants. The Company contributed $2,000,000 to the trust
during the second quarter of fiscal 2007. Additional contributions to the trust may be made during
the remainder of the fiscal year. The actuarial assumptions used to calculate pension costs are
reviewed annually. The components of net periodic benefit costs for the three and six months ended
August 26, 2006 and August 27, 2005 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
August 26, |
|
|
August 27, |
|
|
August 26, |
|
|
August 27, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
601 |
|
|
$ |
511 |
|
|
$ |
1,202 |
|
|
$ |
1,022 |
|
Interest cost |
|
|
483 |
|
|
|
397 |
|
|
|
966 |
|
|
|
795 |
|
Amortization of unrecognized prior service costs |
|
|
201 |
|
|
|
208 |
|
|
|
402 |
|
|
|
415 |
|
Amortization of net actuarial loss |
|
|
810 |
|
|
|
866 |
|
|
|
1,619 |
|
|
|
1,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
2,095 |
|
|
$ |
1,982 |
|
|
$ |
4,189 |
|
|
$ |
3,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9 Income taxes
For the second quarter, the Company recorded income tax expense of $11,158,000 which was primarily
the result of establishing a $24,613,000, or ($0.28) per share, valuation allowance against net
deferred tax assets that arose in prior years. Partially offsetting this valuation allowance was a
$13,455,000 income tax benefit provided on losses for the current year to the extent such losses
are expected to be carried back to offset taxable income in a previous year. 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 at the end of the second quarter. As these deferred tax assets were
established and fully reserved during the second quarter, there was no net impact on income tax
expense.
Note 10 Legal matters
During the second quarter of fiscal 2007, the Company recorded a charge of $4,567,000, or ($0.05)
per share, for the settlement of and legal fees related to a class action lawsuit regarding
compensation matters.
Note 11 Notes payable
In anticipation of the expiration of the Companys securitization agreement, the Company
amended its secured credit facility agreement to add eligible accounts receivable from the
Companys proprietary credit card to the credit facilitys borrowing base. This allows the Company
to borrow against the related receivables balances subsequent to the expiration of the
securitization agreement and prior to the sale of
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the credit card business. See Note 12 of the Notes to Consolidated Financial Statements for
further discussion of the expiration of the securitization agreement and sale of the credit card
business.
Note 12 Subsequent events
Subsequent to the quarter-end, the Company entered into an agreement to sell its proprietary credit
card operations to Chase Bank USA, N.A. (Chase). In addition, the Company and Chase have entered
into a long-term marketing and servicing agreement, which will become effective upon closing of the
agreement discussed in the preceding sentence. The transaction has been approved by both companies
and is expected to close in the fiscal third quarter, subject to regulatory approvals and other
customary closing conditions. The Company estimates net cash proceeds at closing will be
approximately $155,000,000 and the majority of the gain associated with this sale will be deferred
over the ten-year life of the marketing and servicing agreement.
Also subsequent to quarter-end, the Company allowed the agreement to securitize its proprietary
credit card receivables to expire. At the time of expiration and upon approval from Class A
Certificate holders, the Company also funded the Master Trust $100,000,000 to redeem the
Class A Certificates that were outstanding. In connection with this transaction, the Company
became the owner of the proprietary credit card receivables previously held by the Master Trust
which were $140,850,000 as of August 26, 2006.
Note 13 New accounting pronouncements
In July 2006, the Financial Accounting Standards Board (the FASB) issued FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxesan 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 in the process of determining the effect, if any, the adoption of FIN 48
will have on its consolidated balance sheet and statements of operations, shareholders equity and
cash flows.
23
PART I
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Management Overview
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 directly imports merchandise 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. 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 August 26, 2006, the Company operated 1,261
stores in the United States, Canada, Puerto Rico and Mexico. The Company conducts business as one
operating segment.
The following discussion and analysis of financial condition, results of operations, and liquidity
and capital resources should be read in conjunction with the Companys consolidated financial
statements as of February 25, 2006, and for the year then ended, and related Notes and Managements
Discussion and Analysis of Financial Condition and Results of Operations, all contained in the
Companys Annual Report on Form 10-K for the year ended February 25, 2006.
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), the Companys subsidiary based in the United Kingdom. The sale of The Pier was completed
in March 2006. As a result, The Piers prior period operations are considered discontinued and have
been reclassified accordingly. Expenses incurred during March by the Company related to The Pier
were $0.4 million, net of taxes. Discussions below relate to continuing operations, unless stated
otherwise.
Management reviews a number of key indicators to evaluate the Companys financial performance. The
following table summarizes those key performance indicators for the three and six months ended
August 26, 2006 and August 27, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
Aug. 26, |
|
Aug. 27, |
|
Aug. 26, |
|
Aug. 27, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
Key Performance Metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales growth |
|
|
(12.5 |
%) |
|
|
(3.3 |
%) |
|
|
(8.3 |
%) |
|
|
(4.9 |
%) |
Comparable stores sales growth |
|
|
(14.8 |
%) |
|
|
(7.6 |
%) |
|
|
(10.9 |
%) |
|
|
(9.9 |
%) |
Merchandise margins as a % of sales |
|
|
49.2 |
% |
|
|
49.1 |
% |
|
|
51.5 |
% |
|
|
51.1 |
% |
Store occupancy as a % of sales |
|
|
20.8 |
% |
|
|
17.2 |
% |
|
|
20.4 |
% |
|
|
17.6 |
% |
Selling, general and administrative expenses
as a % of sales |
|
|
41.3 |
% |
|
|
31.9 |
% |
|
|
40.3 |
% |
|
|
33.8 |
% |
Operating loss as a % of sales |
|
|
(16.5 |
%) |
|
|
(3.3 |
%) |
|
|
(12.7 |
%) |
|
|
(3.8 |
%) |
Loss from continuing operations as a % of sales |
|
|
(19.7 |
%) |
|
|
(1.5 |
%) |
|
|
(12.8 |
%) |
|
|
(1.8 |
%) |
Loss from continuing operations per share |
|
($ |
.84 |
) |
|
($ |
.07 |
) |
|
($ |
1.09 |
) |
|
($ |
.17 |
) |
Inventory per retail square foot |
|
$ |
42.44 |
|
|
$ |
50.59 |
|
|
$ |
42.44 |
|
|
$ |
50.59 |
|
Total retail square footage (in thousands) |
|
|
9,522 |
|
|
|
9,388 |
|
|
|
9,522 |
|
|
|
9,388 |
|
Total retail square footage growth from the
same period last year |
|
|
1.4 |
% |
|
|
5.8 |
% |
|
|
1.4 |
% |
|
|
5.8 |
% |
24
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. (continued)
Net sales during the second quarter and first six months of fiscal 2007 declined 12.5% and
8.3% respectively, and comparable store sales declined 14.8% and 10.9% during the respective
periods. The Company recorded a loss from continuing operations during the second quarter and
year-to-date periods of $73.1 million and $95.8 million, respectively. Loss per share from
continuing operations was $0.84 and $1.09 for the respective periods.
Sales have not shown the improvement expected during the first six months of the fiscal year. Like
other retailers in its sector, the Company has continued to experience softening consumer demand.
Many consumers remain concerned with the macro-economic outlook and have shifted discretionary
spending to essential items. Customer research and surveys taken during store exit interviews have
provided the Company with valuable information regarding the stores, the merchandise and the
customers shopping experiences. Management found that it could drive customer traffic and sales
through a combination of strong advertising and new merchandise assortments for a short time, but
found it difficult to sustain the increased sales and customer traffic for any extended period of
time. Survey feedback showed that customers believed merchandise quality had improved and that
Pier 1 remained at the top of customers minds when looking for unique decorative accessories, home
accent pieces and dinnerware. The Company will refocus advertising and marketing on this part of
the business, reminding customers of what sets Pier 1 apart from its competitors.
The Companys new merchandise collections this summer included a limited collection called Loft 21
targeted at younger customers and college students. The new merchandise represented a change in
the Companys traditional merchandise mix and has thus far not demonstrated the broad appeal that
Pier 1 has been known for historically. Management believes that during the first half of fiscal
2007, the Company may have over emphasized the new furniture lines and not placed enough focus on
the Companys unique accessories, gifts and home accent pieces, and plans to have non-furniture
items represent approximately 60% of the product mix by offering eclectic, fresh merchandise that
is continually updated to provide the customers a new shopping experience each time they return to
the stores.
Additionally, the Company plans to shift the focus to gifts and decorative items during the
upcoming holiday period, adding more lower-priced merchandise and reducing the prominence of
furniture in stores. The Company expects to increase store-level inventories with stronger visual
prominence of decorative pieces and value-priced items. The visual presentations and signage in
stores should have broader appeal to shoppers, with merchandise displayed for customers to
immediately see and shop as they enter and walk through the stores.
In addition to the increased focus on gifts and home accent pieces, the Company plans to market
more aggressively to customers using the most successful marketing initiatives tested during the
summer. The Company will use a stronger promotional message to support the fall and holiday
merchandising efforts. During the third quarter, one fall catalog and three holiday catalogs will
be distributed, resulting in more catalogs being mailed than during the first half of fiscal 2007.
In addition, the Company will continue to roll out new television advertising as well as continue
the national magazine campaign. A number of multi-page mailers will be circulated in support of
promotional events for the remainder of the year. The Company is also expanding its marketing to
include a more proactive internet advertising campaign this fall and is currently sending 13
million emails per month to notify shoppers of Pier 1 promotional events.
The Company is still learning difficult but important lessons during fiscal 2007 and will use this
experience to
help focus on increasing sales during the critical fall and holiday season. During this time, Pier
1 becomes much more of a holiday store than a furniture store and management believes that
customers, when prompted with effective advertising, will shop Pier 1 often when looking for
special gifts, home décor, accent pieces and holiday-themed dinnerware during the shopping season.
25
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. (continued)
Results of Operations
Net
Sales Net sales consisted almost entirely of sales to retail customers, net of discounts and
returns, but also included delivery service revenues and wholesale sales and royalties received
from franchise stores and Sears Roebuck de Mexico, S.A. de C.V. Sales by retail concept during the
period were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
August 26, |
|
|
August 27, |
|
|
August 26, |
|
|
August 27, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Pier 1 Imports stores |
|
$ |
353,379 |
|
|
$ |
409,964 |
|
|
$ |
712,885 |
|
|
$ |
787,835 |
|
Pier 1 Kids stores |
|
|
8,583 |
|
|
|
8,705 |
|
|
|
16,929 |
|
|
|
16,595 |
|
Direct to consumer |
|
|
4,402 |
|
|
|
2,920 |
|
|
|
8,989 |
|
|
|
5,803 |
|
Other (1) |
|
|
4,334 |
|
|
|
2,086 |
|
|
|
7,987 |
|
|
|
3,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
370,698 |
|
|
$ |
423,675 |
|
|
$ |
746,790 |
|
|
$ |
813,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 for the second quarter of fiscal 2007 were $370.7 million, down 12.5% or $53.0
million from last years second quarter net sales of $423.7 million. Although average ticket
improved during the quarter, average traffic counts and conversion rates remained below last year.
Net sales declined from $814.0 million to $746.8 million, down $67.2 million or 8.3%, during the
six-month period ended August 26, 2006 when compared to the same period last year. Comparable
store sales for the quarter and year-to-date periods declined 14.8% and 10.9%, respectively. Sales
for the six-month period were comprised of the following incremental components (in thousands):
|
|
|
|
|
|
|
Net Sales |
|
Net sales for the six months ended August 27, 2005 |
|
$ |
813,989 |
|
|
|
|
|
|
Incremental sales growth (decline) from: |
|
|
|
|
New stores opened during fiscal 2007 |
|
|
8,721 |
|
Stores opened during fiscal 2006 |
|
|
22,127 |
|
Comparable stores |
|
|
(84,094 |
) |
Closed stores and other |
|
|
(13,953 |
) |
|
|
|
|
|
|
|
|
|
Net sales for the six months ended August 26, 2006 |
|
$ |
746,790 |
|
|
|
|
|
During the second quarter, the Company opened nine and closed or relocated 11 Pier 1 stores in the
United States and Canada and closed three Pier 1 Kids stores. During the first half of fiscal
2007, the Company opened 23 and closed or relocated 20 Pier 1 stores in the United States and
Canada, closed three Pier 1 Kids stores and opened two store within a store locations in Mexico.
Total retail square footage increased 0.3% from the beginning of fiscal 2007 and increased 1.4%
over the second quarter of fiscal 2006. The Pier 1 store count totaled 1,186 in the United States
and Canada at the end of the second quarter compared to 1,172 stores a year ago. Including Pier 1
Kids, Mexico and Puerto Rico, the Companys store count totaled 1,261 at the end of the second
quarter of fiscal 2007.
A summary reconciliation of the Companys stores open at the beginning of fiscal 2007 to the number
open at
26
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. (continued)
the end of the second quarter follows (openings and closings include relocated stores):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
Mexico and |
|
|
|
|
|
Continuing |
|
Discontinued |
|
|
|
|
and Canada |
|
Puerto Rico |
|
Pier 1 Kids |
|
Operations |
|
Operations(1) |
|
Total |
Open at February 25, 2006 |
|
|
1,183 |
|
|
|
33 |
|
|
|
43 |
|
|
|
1,259 |
|
|
|
45 |
|
|
|
1,304 |
|
Openings |
|
|
23 |
|
|
|
2 |
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
25 |
|
Closings |
|
|
(20 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
(23 |
) |
|
|
|
|
|
|
(23 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45 |
) |
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open at August 26, 2006 |
|
|
1,186 |
|
|
|
35 |
|
|
|
40 |
|
|
|
1,261 |
|
|
|
|
|
|
|
1,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Discontinued operations relate to The Piers operations located in the United
Kingdom and Ireland which were sold in March 2006. |
Sales on the Companys proprietary credit card declined during the second quarter with net
sales down $16.2 million, or 15.3%, to $89.8 million from last years second quarter proprietary
credit card sales of $106.0 million. Year-to-date proprietary credit card sales of $182.7 million
reflected a similar trend, with a decline of $22.8 million, or 11.1%, compared to sales of $205.5
million during the same period last year. Second quarter proprietary credit card sales comprised
26.6% of U.S. store sales compared to 27.1% last year, while year-to date proprietary credit card
sales were 26.7% of U.S. store sales versus 27.2% last year. Average ticket on the Companys
proprietary credit card during the second quarter increased to $185 from $174 during the same
period last year. Year-to-date average ticket was $188, an increase over $173 during the same
period last year.
Gross
Profit Gross profit after related buying and store occupancy costs, expressed as a
percentage of sales, decreased 340 basis points to 28.5% for the second quarter of fiscal 2007, and
decreased 230 basis points to 31.2% for the first six months of fiscal 2007. As a percentage of
sales, merchandise margins
increased 10 basis points for the second quarter and 40 basis points for the six-month period ended
August 26, 2006, over the comparable periods a year ago. During both periods, the Companys
pre-discount margins increased, but were almost entirely offset by additional promotional activity
and clearance markdowns. Store occupancy costs for the quarter were $77.0 million, or 20.8% of
sales, an increase of $4.0 million, or 360 basis points as a percentage of sales, compared to last
years second quarter store occupancy expense of $73.1 million. Year-to-date, store occupancy
costs increased 280 basis points to 20.4% of sales compared to the same period last year. Store
occupancy cost increases as a percentage of sales resulted from relatively fixed rental costs
spread over a lower sales base, as well as an increase in utility costs.
Operating
Expenses, Depreciation and Income Taxes Selling, general and administrative expenses
for the second quarter of fiscal 2007 were $153.1 million, or 41.3% of sales, an increase over the
same quarter last year of $18.2 million. Year-to-date selling, general and administrative expenses
were $300.7 million, an increase of $25.6 million.
Expenses that normally grow proportionately with sales and number of stores, such as store payroll,
marketing, store supplies, and equipment rental, increased $4.8 million and $7.0 million for the
quarter and year-to-date periods, respectively. As a percentage of sales, these variable expenses
increased 450 basis points for the second quarter and 310 basis points year-to-date. Store
salaries, including bonus, during the second quarter decreased $0.9 million, yet increased 190
basis points as sales were insufficient to leverage certain fixed portions of store payroll costs
incurred to maintain minimum staffing levels to provide quality customer service. Store salaries,
including bonus, for the first six months of fiscal 2007 increased $1.7 million and 160 basis
points as a percentage of sales. Marketing expenditures during the second quarter were $27.8
million or 7.5% of sales for the quarter, an increase of $6.4 million from the same quarter last
year and 240 basis points as a percentage of sales. Year-to-date marketing expenses totaled $57.7
million, or 7.7% of sales, an increase of $5.3 million and 130 basis points as a percentage of
sales over last year. This increase in marketing was the result of the Companys marketing
initiatives which included continued television advertising, catalogs and a national magazine
campaign. Although the timing of the Companys marketing expenditures fluctuates between fiscal
quarters, the Company
27
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. (continued)
anticipates total marketing expenditures for fiscal 2007 to be comparable to the prior year.
Relatively fixed selling, general and administrative expenses during the second quarter of fiscal
2007 increased $13.4 million and 490 basis points as a percentage of sales. The Company recognized
impairment charges of $3.1 million on long-lived store-level assets versus approximately $0.3
million in the year ago period. In addition to the impairment charges, the Company recorded a $4.6
million charge related to the settlement of and legal fees related to a class action lawsuit
regarding compensation matters. Non-store payroll increased $3.7 million, primarily related to
stock-based compensation expense, which represented $2.7 million of the increase. The remaining
increase in non-store payroll was the result of a decrease in internal labor costs capitalized
versus the prior year and costs associated with the integration and consolidation of Pier 1 Kids
systems, personnel, and facilities with those of Pier 1. Year-to-date relatively fixed selling,
general administrative expenses increased $18.6 million, primarily for the same general reasons as
the net quarterly increase above and additional impairment charges of $2.0 million taken in the
first quarter of fiscal 2007.
Depreciation and amortization expense for the second quarter and year-to date periods was $13.6
million and $27.2 million, respectively, compared to $14.1 million and $28.1 million for the same
periods last year. The decreases were primarily the result of previous impairment charges of
certain store-level assets and a slight reduction in depreciation expense for certain assets
becoming fully depreciated.
The operating loss for the quarter was $61.3 million compared to $14.0 million for last years
second quarter. For the first half of fiscal 2007, operating loss totaled $95.2 million compared to
$30.7 million for the same period last year.
For the second quarter, the Company recorded income tax expense of $11.2 million which was
primarily the result of establishing a $24.6 million valuation allowance against net deferred tax
assets that arose in prior years. Partially offsetting this valuation allowance was a $13.5
million income tax benefit provided on losses for the current year to the extent such losses are
expected to be carried back to offset taxable income in a previous year. 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 Statement of Financial Accounting Standards 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 at the end of the second quarter. As these deferred tax assets were
established and fully reserved during the second quarter, there was no net impact to the provision
for income taxes.
Net Loss During the second quarter of fiscal 2007, the Company recorded a net loss, including
discontinued operations, of $73.1 million, or $0.84 per share, compared to $10.2 million, or $0.12
per share, for the same period last year. Net loss, including discontinued operations, for the
first six months of fiscal 2007 was $96.2 million, or $1.10 per share, compared to $22.6 million,
or $0.26 per share, for the first half of fiscal 2006.
Liquidity and Capital Resources
For the purposes of liquidity and capital resource discussions, the Companys discontinued
operations will be included in financial results. The Company ended the second quarter of fiscal
2007 with $150.3 million in cash and temporary investments compared to $40.6 million a year ago.
Operating activities in the first six months of fiscal 2007 used $99.2 million of cash, primarily
as a result of the Companys net loss, an increase in inventory and an increase in income tax
receivables. Inventory levels at the end of the second quarter of fiscal 2007 were $404.1 million,
down $70.8 million or 14.9%, from inventory levels at the end of last years second quarter. At
the end of the second quarter of fiscal 2007, retail square footage was 1.4% higher compared to the
same period last year, and inventory per retail square foot was $42, a decrease from $51 per retail
square foot in the
28
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. (continued)
prior year. Store-level inventories were intentionally lower as a result of the Companys
efforts to create a cleaner and less cluttered shopping environment in the stores.
During the first half of fiscal 2007, investing activities provided $11.1 million compared to $6.2
million during the same period last year. Collections of principal on beneficial interest in
securitized receivables provided $20.0 million compared to $34.1 million for the second quarter of
fiscal 2006. 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. Capital expenditures were $18.7
million in fiscal 2007 compared to $28.0 million in fiscal 2006, consisting primarily of $7.2
million for fixtures, equipment, and leasehold improvements for new and existing stores, $7.7
million for information systems enhancements, $2.7 million related to the Companys distribution
centers and $1.1 million related to Pier 1 Kids and home office capital additions. Capital
expenditures for fiscal 2007 are expected to be approximately $35 million. The Company plans to
open approximately 34 new Pier 1 stores in the United States and Canada during fiscal 2007 and has
increased plans to close or relocate 65 to 70 Pier 1 stores, which includes seven Pier 1 Kids
stores over the same period. In addition, the Company expects to open two or three new store
within a store Pier 1 Kids concepts in Pier 1 stores later this year. In March 2006, the Company
began operating its new distribution center in Tacoma, Washington, which is leased under an
operating lease.
Financing activities for the first six months of fiscal 2007 used a net $14.9 million of the
Companys cash. Dividend payments totaled $17.5 million for the first half of fiscal 2007, and
other financing activities, primarily the exercise of stock options, provided net cash of $2.6
million.
At the end of the second quarter, the Companys minimum operating lease commitments remaining for
fiscal 2007 were $118.8 million. The present value of total existing minimum operating lease
commitments discounted at 10% was $890.6 million at the fiscal 2007 second quarter-end.
Working capital requirements are expected to be funded from cash generated from the operations of
the Company, from funds received in the prior year related to the issuance of $165.0 million in
convertible debt, proceeds from the sale of the Companys proprietary credit card business (which
is expected to be approximately $155 million at closing) and from borrowings against lines of
credit. The Companys bank facilities include a $325 million credit facility, which is secured by
the Companys eligible merchandise inventory and credit card receivables. Subsequent to quarter
end, the Company allowed its securitization agreement to expire, and effective September 6, 2006,
unwound the agreement. This was facilitated by utilizing cash to redeem $100 million in Class A
Certificates held by the Master Trust. As of August 26, 2006, the Company had no outstanding cash
borrowings and approximately $97.5 million in letters of credit utilized against its secured credit
facility, and the borrowing base was $232.0 million, of which $134.5 million was available for cash
borrowings. Subsequent to the expiration of the securitization agreement in September 2006, the
proprietary credit card receivables are now eligible to be included in the borrowing base of the
Companys secured credit facility, which was amended during the second quarter of fiscal 2007 to
allow this addition. This facility expires in November 2010.
In October 2006, the Companys Board of Directors announced that it had decided to discontinue the
Companys $0.10 per share quarterly dividend. The Company believes that discontinuing the cash
dividend will improve the Companys near-term liquidity and is consistent with its efforts to
provide financial flexibility as it executes the Companys turnaround strategy. 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. The
Company was in compliance with all required debt covenants at the fiscal 2007 second quarter-end.
The Company believes the cash on hand, available lines of credit and proceeds from the sale of the
Companys credit card business will be sufficient to meet the Companys expected cash requirements
for the next fiscal year.
29
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. (continued)
Forward-looking Statements
Certain matters discussed in this quarterly report, except for historical information contained
herein, may constitute forward-looking statements that are subject to certain risks and
uncertainties that could cause actual results to differ materially from those described in the
forward-looking statements. 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, results from its new marketing, merchandising and store operations
strategies, and other future results are subject to risks, uncertainties and other factors that
could cause actual results to differ materially from the anticipated results or other expectations
expressed in the forward-looking statements. Risks and uncertainties that may affect Company
operations and performance include, among others, the effects of terrorist attacks or other acts of
war, conflicts or war involving the United States or its allies or trading partners, labor strikes,
weather conditions or natural disasters, volatility of fuel and utility costs, the general strength
of the economy and levels of consumer spending, consumer confidence, the availability of new sites
for expansion along with sufficient labor to facilitate growth, 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 quarterly report. The Company assumes no obligation to update or
otherwise revise its forward-looking statements even if experience or future changes make it clear
that any projected results expressed or implied will not be realized. Additional information
concerning these risks and uncertainties is contained in the Companys Annual Report on Form 10-K
for the fiscal year ended February 25, 2006, as filed with the Securities and Exchange Commission.
Impact of Inflation
Inflation has not had a significant impact on the operations of the Company.
30
PART I
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
There are no material changes to the Companys market risk as disclosed in its Form 10-K filed
for the fiscal year ended February 25, 2006.
Item 4. Controls and Procedures.
As required by Exchange Act Rules 13a-15 and 15d-15, an evaluation was conducted under the
supervision and with the participation of the Companys management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures as of August 26, 2006, and based on this evaluation
the Chief Executive Officer and Chief Financial Officer have concluded that the Companys
disclosure controls and procedures were effective as of such date to ensure that information
required to be disclosed by the Company in its reports filed or submitted under the Exchange Act is
(a) accumulated and communicated to management, including the Chief Executive Officer and the Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure, and (b)
recorded, processed, summarized and reported within the time periods specified in the SECs rules
and forms.
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.
PART II
Item 1. Legal Proceedings.
The Company is a party to various legal proceedings and claims in the ordinary course of its
business. During the second quarter of fiscal 2007, the Company recorded a charge of $4,567,000
related to the settlement of and legal fees related to a class action lawsuit regarding
compensation matters.
Item 1A. Risk Factors.
There are no material changes from risk factors previously disclosed in the Companys Annual
Report on Form 10-K for the fiscal year ended February 25, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table provides information with respect to purchases of common stock of the
Company made during the three months ended August 26, 2006, by Pier 1 Imports, Inc. or any
affiliated purchaser of Pier 1 Imports, Inc. as defined in Rule 10b-18(a)(3) under the Exchange
Act.
31
|
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|
|
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|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
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Purchased |
|
|
Approximate |
|
|
|
|
|
|
|
Average |
|
|
as Part of |
|
|
Dollar Value of |
|
|
|
Total |
|
|
Price Paid |
|
|
Publicly |
|
|
Shares that May |
|
|
|
Number of |
|
|
per Share |
|
|
Announced |
|
|
Yet Be Purchased |
|
|
|
Shares |
|
|
(including |
|
|
Plans or |
|
|
Under the Plans |
|
Period |
|
Purchased |
|
|
fees) |
|
|
Programs (1) |
|
|
or Programs (1) |
|
May 28, 2006 through July 1, 2006 (2) |
|
|
17,275 |
|
|
$ |
6.98 |
|
|
|
|
|
|
$ |
111,496,848 |
|
July 2, 2006 through July 29, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,496,848 |
|
July 30, 2006 through August 26, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,496,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,275 |
|
|
$ |
6.98 |
|
|
|
|
|
|
$ |
111,496,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On June 24, 2004, the Board of Directors authorized up to $150 million for
repurchases of the Companys common stock, replacing the previous authorization. There is no
expiration date on the current authorization and during the period covered by the table, no
determination was made by the Company to suspend or cancel purchases under the program. |
|
(2) |
|
Private purchases from the Companys employees who sold shares to pay
withholding taxes on vested shares of restricted stock. |
Under the Companys secured credit facility, the Company would not be restricted from paying
dividends unless the availability under the credit facility is less than 30% of the Companys
borrowing base calculation. The Company is not required to comply with financial covenants under
its secured credit facility unless the availability under such agreement is less than $32,500,000.
The availability was $134,536,000 as of August 26, 2006.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 6. Exhibits.
See Exhibit Index.
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
PIER 1 IMPORTS, INC. (Registrant)
|
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Date: October 4, 2006
|
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By:
|
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/s/ Marvin J. Girouard |
|
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Marvin J. Girouard, Chairman of the Board |
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and Chief Executive Officer |
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Date: October 4, 2006
|
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By:
|
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/s/ Charles H. Turner |
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Charles H. Turner, Executive Vice President, Finance, |
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Chief Financial Officer and Treasurer |
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Date: October 4, 2006
|
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By:
|
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/s/ Susan E. Barley |
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Susan E. Barley, Principal Accounting Officer |
|
33
EXHIBIT INDEX
|
|
|
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)
|
|
Bylaws of the Company as amended to date thereto, incorporated herein by reference to
Exhibit 3(ii) to Registrants Form 10-K for the year ended February 26, 2005. |
|
|
|
10.1*
|
|
Amendment No. 1 to the Pier 1 Imports, Inc. 2006 Stock Incentive Plan. |
|
|
|
10.2*
|
|
Non-Employee Director Compensation Plan |
|
|
|
31.1*
|
|
Certification of the Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a). |
|
|
|
31.2*
|
|
Certification of the Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a). |
|
|
|
32.1*
|
|
Section 1350 Certifications. |