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 September 1, 2007
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
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(I.R.S. Employer |
incorporation or organization)
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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 o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
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 October 3, 2007 |
Common Stock, $1.00 par value
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88,430,798 |
PIER 1 IMPORTS, INC.
INDEX TO QUARTERLY FORM 10-Q
2
PART I
Item 1. Financial Statements.
PIER I IMPORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
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Three Months Ended |
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Six Months Ended |
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September 1, |
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August 26, |
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September 1, |
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August 26, |
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2007 |
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2006 |
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2007 |
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2006 |
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Net sales |
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$ |
344,566 |
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$ |
370,698 |
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$ |
700,941 |
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$ |
746,790 |
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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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257,042 |
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265,201 |
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526,239 |
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514,041 |
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Selling, general and administrative expenses |
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117,457 |
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153,145 |
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249,581 |
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300,728 |
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Depreciation and amortization |
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10,444 |
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13,604 |
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21,002 |
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27,228 |
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384,943 |
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431,950 |
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796,822 |
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841,997 |
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Operating loss |
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(40,377 |
) |
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(61,252 |
) |
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(95,881 |
) |
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(95,207 |
) |
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Nonoperating (income) and expenses: |
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Interest and investment income |
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(2,438 |
) |
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(2,795 |
) |
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(5,370 |
) |
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(5,708 |
) |
Interest expense |
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4,000 |
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3,444 |
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7,957 |
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6,895 |
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Other income |
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(405 |
) |
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(653 |
) |
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1,157 |
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649 |
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1,934 |
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1,187 |
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Loss from continuing operations before income
taxes |
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(41,534 |
) |
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(61,901 |
) |
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(97,815 |
) |
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(96,394 |
) |
Income tax expense (benefit) |
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|
1,875 |
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|
|
11,158 |
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1,972 |
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(570 |
) |
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Loss from continuing operations |
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|
(43,409 |
) |
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(73,059 |
) |
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(99,787 |
) |
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(95,824 |
) |
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Discontinued operations: |
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Loss from discontinued operations |
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(638 |
) |
Income tax benefit |
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(231 |
) |
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Loss from discontinued operations |
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(407 |
) |
Net loss |
|
($ |
43,409 |
) |
|
($ |
73,059 |
) |
|
($ |
99,787 |
) |
|
($ |
96,231 |
) |
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Loss per share from continuing operations: |
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Basic and diluted |
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($ |
0.49 |
) |
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($ |
0.84 |
) |
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($ |
1.14 |
) |
|
($ |
1.09 |
) |
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Loss per share from discontinued operations: |
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Basic and diluted |
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($ |
0.01 |
) |
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Loss per share: |
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Basic and diluted |
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($ |
0.49 |
) |
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($ |
0.84 |
) |
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($ |
1.14 |
) |
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($ |
1.10 |
) |
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Dividends declared per share: |
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$ |
0.10 |
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$ |
0.20 |
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Average shares outstanding during period: |
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Basic and diluted |
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|
88,000 |
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87,307 |
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87,898 |
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87,201 |
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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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September 1, |
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March 3, |
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August 26, |
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2007 |
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|
2007 |
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|
2006 |
|
ASSETS
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Current assets: |
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Cash and cash equivalents, including temporary investments
of $112,468, $160,721 and $140,708, respectively |
|
$ |
121,872 |
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|
$ |
167,178 |
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|
$ |
150,253 |
|
Beneficial interest in securitized receivables |
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44,928 |
|
Other accounts receivable, net |
|
|
20,533 |
|
|
|
21,437 |
|
|
|
16,246 |
|
Inventories |
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|
374,468 |
|
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|
360,063 |
|
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404,117 |
|
Income tax receivable |
|
|
15,143 |
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|
34,966 |
|
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|
43,344 |
|
Prepaid expenses and other current assets |
|
|
47,318 |
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|
50,324 |
|
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|
78,115 |
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Total current assets |
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|
579,334 |
|
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|
633,968 |
|
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|
737,003 |
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Properties, net |
|
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212,623 |
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|
239,548 |
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282,938 |
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Other noncurrent assets |
|
|
46,524 |
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|
42,954 |
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41,165 |
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$ |
838,481 |
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$ |
916,470 |
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$ |
1,061,106 |
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LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities: |
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Accounts payable |
|
$ |
125,253 |
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$ |
95,609 |
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$ |
125,404 |
|
Gift cards and other deferred revenue |
|
|
64,318 |
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|
66,130 |
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|
63,482 |
|
Accrued income taxes payable |
|
|
3,120 |
|
|
|
3,305 |
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|
|
2,106 |
|
Other accrued liabilities |
|
|
102,321 |
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|
119,541 |
|
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|
129,631 |
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|
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|
Total current liabilities |
|
|
295,012 |
|
|
|
284,585 |
|
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|
320,623 |
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Long-term debt |
|
|
184,000 |
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|
184,000 |
|
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|
184,000 |
|
Other noncurrent liabilities |
|
|
97,321 |
|
|
|
86,768 |
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|
75,950 |
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Shareholders equity: |
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Common stock, $1.00 par, 500,000,000 shares authorized,
100,779,000 issued |
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|
100,779 |
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|
100,779 |
|
|
|
100,779 |
|
Paid-in capital |
|
|
125,663 |
|
|
|
130,416 |
|
|
|
127,276 |
|
Retained earnings |
|
|
232,318 |
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|
|
337,178 |
|
|
|
468,515 |
|
Cumulative other comprehensive income (loss) |
|
|
3,012 |
|
|
|
2,408 |
|
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|
(2,473 |
) |
Less 12,359,000, 12,981,000 and 13,223,000 common
shares in treasury, at cost, respectively |
|
|
(199,624 |
) |
|
|
(209,664 |
) |
|
|
(213,564 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
262,148 |
|
|
|
361,117 |
|
|
|
480,533 |
|
Commitments and contingencies |
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
838,481 |
|
|
$ |
916,470 |
|
|
$ |
1,061,106 |
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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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Six Months Ended |
|
|
|
September 1, |
|
|
August 26, |
|
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|
2007 |
|
|
2006 |
|
Cash flow from operating activities: |
|
|
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|
Net loss |
|
$ |
(99,787 |
) |
|
$ |
(96,231 |
) |
Adjustments to reconcile to net cash used in operating activities: |
|
|
|
|
|
|
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|
Depreciation and amortization |
|
|
27,172 |
|
|
|
32,519 |
|
(Gain) loss on disposal of fixed assets |
|
|
(1,404 |
) |
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|
200 |
|
Loss on impairment of fixed assets and long-lived assets |
|
|
4,164 |
|
|
|
5,063 |
|
Stock-based compensation expense |
|
|
3,182 |
|
|
|
3,270 |
|
Deferred compensation |
|
|
1,891 |
|
|
|
4,727 |
|
Lease termination expense |
|
|
4,820 |
|
|
|
2,005 |
|
Deferred income taxes |
|
|
|
|
|
|
24,613 |
|
Other |
|
|
281 |
|
|
|
(2,154 |
) |
Changes in cash from: |
|
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|
|
|
|
|
|
Sale of receivables in exchange for beneficial interest in securitized
receivables |
|
|
|
|
|
|
(14,900 |
) |
Inventories |
|
|
(14,405 |
) |
|
|
(34,297 |
) |
Other accounts receivable, prepaid expenses and other current assets |
|
|
(6,066 |
) |
|
|
(15,701 |
) |
Income tax receivable |
|
|
24,474 |
|
|
|
(25,237 |
) |
Accounts payable and accrued expenses |
|
|
8,770 |
|
|
|
20,168 |
|
Accrued income taxes payable |
|
|
434 |
|
|
|
(2,794 |
) |
Defined benefit plan payments |
|
|
(6,282 |
) |
|
|
(217 |
) |
Other noncurrent assets |
|
|
305 |
|
|
|
469 |
|
Other noncurrent liabilities |
|
|
(586 |
) |
|
|
(721 |
) |
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(53,037 |
) |
|
|
(99,218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(2,665 |
) |
|
|
(18,711 |
) |
Proceeds from disposition of properties |
|
|
3,505 |
|
|
|
58 |
|
Proceeds from sale of discontinued operations |
|
|
|
|
|
|
11,601 |
|
Proceeds from sale of restricted investments |
|
|
6,373 |
|
|
|
217 |
|
Purchase of restricted investments |
|
|
(589 |
) |
|
|
(2,000 |
) |
Collections of principal on beneficial interest in securitized receivables |
|
|
|
|
|
|
19,972 |
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
6,624 |
|
|
|
11,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
Cash dividends |
|
|
|
|
|
|
(17,475 |
) |
Proceeds from stock options exercised, stock purchase plan and other, net |
|
|
2,105 |
|
|
|
2,877 |
|
Debt issuance costs |
|
|
(998 |
) |
|
|
(283 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
1,107 |
|
|
|
(14,881 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
(45,306 |
) |
|
|
(102,962 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period (including cash held for sale
of $0 and $7,100, respectively) |
|
|
167,178 |
|
|
|
253,215 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
121,872 |
|
|
$ |
150,253 |
|
|
|
|
|
|
|
|
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 SEPTEMBER 1, 2007
(in thousands except per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Cumulative |
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Total |
|
|
|
Outstanding |
|
|
|
|
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury |
|
|
Shareholders |
|
|
|
Stock |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Income |
|
|
Stock |
|
|
Equity |
|
Balance March 3, 2007 |
|
|
87,798 |
|
|
$ |
100,779 |
|
|
$ |
130,416 |
|
|
$ |
337,178 |
|
|
$ |
2,408 |
|
|
$ |
(209,664 |
) |
|
$ |
361,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implementation of new
accounting pronouncement(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,073 |
) |
|
|
|
|
|
|
|
|
|
|
(5,073 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99,787 |
) |
|
|
|
|
|
|
|
|
|
|
(99,787 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation
adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
604 |
|
|
|
|
|
|
|
604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99,183 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock compensation |
|
|
331 |
|
|
|
|
|
|
|
(4,600 |
) |
|
|
|
|
|
|
|
|
|
|
5,348 |
|
|
|
748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option compensation expense |
|
|
|
|
|
|
|
|
|
|
2,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options, stock
purchase plan and other |
|
|
291 |
|
|
|
|
|
|
|
(2,587 |
) |
|
|
|
|
|
|
|
|
|
|
4,692 |
|
|
|
2,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 1, 2007 |
|
|
88,420 |
|
|
$ |
100,779 |
|
|
$ |
125,663 |
|
|
$ |
232,318 |
|
|
$ |
3,012 |
|
|
$ |
(199,624 |
) |
|
$ |
262,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Relates to Financial Accounting Standards Board Interpretation No. 48, Accounting
for Uncertainty in Income Taxas an Interpretation of FASB Statement No. 109. See Note 10 of the
Notes to Consolidated Financial Statements for further discussion. |
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 SEPTEMBER 1, 2007
AND AUGUST 26, 2006
(unaudited)
Throughout this report, references to the Company include Pier 1 Imports, Inc. and all its
consolidated subsidiaries. The accompanying unaudited financial statements should be read in
conjunction with the Form 10-K for the year ended March 3, 2007. All adjustments that are, in the
opinion of management, necessary for a fair presentation of the financial position as of September
1, 2007, and the results of operations and cash flows for the three and six months ended September
1, 2007 and August 26, 2006 have been made and consist only of normal recurring adjustments, except
as otherwise described herein. The results of operations for the periods presented 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 26, 2006, has been modified to conform to the September 1, 2007 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 would have included the effect, if dilutive, of the Companys weighted average number of stock
options and shares of unvested restricted stock. As the effect would have been antidilutive, all
14,153,480 and 14,236,780 stock options and shares of unvested restricted stock were excluded from
the computation of the second quarter and year-to-date loss per share for fiscal 2008 and fiscal
2007, respectively. Loss per share for the three and six months ended September 1, 2007 and August
26, 2006 was calculated as follows (in thousands except per share amounts):
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
September 1, |
|
|
August 26, |
|
|
September 1, |
|
|
August 26, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Loss from continuing operations, basic and diluted |
|
($ |
43,409 |
) |
|
($ |
73,059 |
) |
|
($ |
99,787 |
) |
|
($ |
95,824 |
) |
Loss from discontinued operations, basic and
diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(407 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, basic and diluted |
|
($ |
43,409 |
) |
|
($ |
73,059 |
) |
|
($ |
99,787 |
) |
|
($ |
96,231 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
88,000 |
|
|
|
87,307 |
|
|
|
87,898 |
|
|
|
87,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
($ |
0.49 |
) |
|
($ |
0.84 |
) |
|
($ |
1.14 |
) |
|
($ |
1.09 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share from discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
($ |
0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
($ |
0.49 |
) |
|
($ |
0.84 |
) |
|
($ |
1.14 |
) |
|
($ |
1.10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 2 Discontinued operations
On March 20, 2006, the Company sold its operations of The Pier, with stores located in the United
Kingdom and Ireland. The Piers prior period operations are considered discontinued and are
presented as such in the Companys financial statements. Net sales of The Pier were $3,323,000 for
the period ended March 20, 2006.
Note 3 Comprehensive loss
The components of comprehensive loss for the three and six months ended September 1, 2007 and
August 26, 2006 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
September 1, |
|
|
August 26, |
|
|
September 1, |
|
|
August 26, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net loss |
|
($ |
43,409 |
) |
|
($ |
73,059 |
) |
|
($ |
99,787 |
) |
|
($ |
96,231 |
) |
Currency translation adjustments |
|
|
25 |
|
|
|
(41 |
) |
|
|
604 |
|
|
|
(1,890 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
($ |
43,384 |
) |
|
($ |
73,100 |
) |
|
($ |
99,183 |
) |
|
($ |
98,121 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 4 Stock-based compensation
The Company accounts for share-based compensation transactions in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 123 (Revised 2004), Share-Based Payment
(SFAS 123R). SFAS 123R requires all companies to measure and recognize compensation expense at
an amount equal to the fair value of share-based payments granted under compensation arrangements.
The fair values for options granted during the respective periods were estimated as of the date of
grant using the Black-Scholes option-pricing model and are amortized on a straight-line basis as
compensation expense over the vesting periods of the options. For the three and six months ended
September 1, 2007, the Company recorded stock-based compensation expense related to stock options
and restricted stock of approximately $1,027,000, or $0.01 per share and approximately $3,182,000,
or $0.04 per share, respectively. For the three and six months ending August 26, 2006, the Company
recorded stock-based compensation expense related to stock options and restricted stock of
approximately $2,660,000, or $0.03 per share and approximately $3,270,000, or $0.04 per share,
respectively. The Company recognized no net tax benefit related to stock-based compensation during
the first half of fiscal 2008 as a result of the Companys valuation allowance on all deferred tax
assets.
As of September 1, 2007, there was approximately $5,859,000 of total unrecognized compensation
expense related to unvested stock option awards that is expected to be recognized over a weighted
average period of 2.26 years and $4,207,000 of total unrecognized compensation expense related to
restricted stock that may be recognized over a weighted average period of 2.23 years.
Note 5 Costs associated with exit activities
As part of the ordinary course of business, the Company terminates leases prior to their expiration
when certain stores or storage facilities are closed or relocated as deemed necessary by the
evaluation of its real estate portfolio. These decisions are based on lease renewal obligations,
relocation space availability, local market conditions and prospects for future profitability. In
connection with these lease terminations, the Company has recorded estimated liabilities in
accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities.
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. At the time of closure, neither the write-off of fixed
assets nor the write-down of inventory related to such stores was material. Additionally, employee
severance costs associated with these closures were not significant. The following table
represents a rollforward of the liability balances for the six months ended September 1, 2007 and
August 26, 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
September 1, |
|
|
August 26, |
|
|
|
2007 |
|
|
2006 |
|
Beginning of period |
|
$ |
2,436 |
|
|
$ |
2,859 |
|
Original charges |
|
|
5,221 |
|
|
|
1,794 |
|
Revisions |
|
|
(401 |
) |
|
|
211 |
|
Cash payments |
|
|
(2,748 |
) |
|
|
(2,010 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
4,508 |
|
|
$ |
2,854 |
|
|
|
|
|
|
|
|
During the second quarter of fiscal 2008, the Company announced plans to close all of its remaining
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
clearance and Pier 1 Kids stores and the direct to consumer channel since the aggregate performance
of these concepts was not in line with the Companys profitability targets. Lease termination
costs associated with these closures are being recorded to selling, general and administrative
expenses as the stores are closed. Costs associated with these closures have been included in the
table above and represent approximately $3,600,000 of the original charges. Total costs are
currently anticipated to be approximately $10,000,000. The write-off of fixed assets, write-down
of inventory, employee severance costs and contract termination costs associated with these
closures has not been and is not expected to be material.
Note 6 Asset impairment
Impairment charges were $1,983,000, or $0.02 per share, and $4,164,000, or $0.05 per share, for the
three and six months ended September 1, 2007, respectively, and were included in selling, general
and administrative expenses. These impairment charges related to long-lived assets and intangible
assets at underperforming stores and were based on cash flow projections for those stores. These
cash flows were estimated based on managements estimate of future sales, merchandise margins, and
expenses over the remaining expected terms of the leases. Estimates used in the second quarter
were updated from those used in prior periods to incorporate actual results experienced during the
quarter. In the event that actual future results are worse than managements current estimates,
additional charges for asset impairments may be recorded and such charges could have an impact on
the Companys balance sheet and statement of operations.
Note 7 Secured credit facility
Effective as of May 31, 2007, the Company amended its $325,000,000 secured credit facility to
expand the definition of its borrowing base to include certain Company-owned real estate and to
revise certain advance rates. Additionally, the maturity date of the facility was extended to May
2012 from the original maturity date of November 2010. The amendment also revised certain other
definitions and terms of the facility, including the allowable use of proceeds and permitted
dispositions. The Companys calculated borrowing base was $314,572,000 at September 1, 2007. The
Company utilized $166,216,000 for letters of credit and had no outstanding cash borrowings, leaving
$148,356,000 available at the end of the second quarter. The Company is not required to comply
with financial covenants under the facility unless the availability under such agreement is less
than $32,500,000. At quarter end, $115,856,000 remained available before reaching the $32,500,000
threshold. The Company does not anticipate falling below this minimum availability in the
foreseeable future. The Company was in compliance with required debt covenants at the end of the
second quarter of fiscal 2008.
Note 8 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.
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Three Months Ended September 1, 2007
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Pier 1 Imports, |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Net sales |
|
$ |
|
|
|
$ |
342,877 |
|
|
$ |
10,522 |
|
|
$ |
(8,833 |
) |
|
$ |
344,566 |
|
Cost of sales (including buying
and store occupancy costs) |
|
|
|
|
|
|
256,066 |
|
|
|
9,799 |
|
|
|
(8,823 |
) |
|
|
257,042 |
|
Selling, general and administrative
(including depreciation and
amortization) |
|
|
490 |
|
|
|
127,356 |
|
|
|
55 |
|
|
|
|
|
|
|
127,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(490 |
) |
|
|
(40,545 |
) |
|
|
668 |
|
|
|
(10 |
) |
|
|
(40,377 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating (income) expenses |
|
|
(868 |
) |
|
|
2,185 |
|
|
|
(160 |
) |
|
|
|
|
|
|
1,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
378 |
|
|
|
(42,730 |
) |
|
|
828 |
|
|
|
(10 |
) |
|
|
(41,534 |
) |
Provision for income taxes |
|
|
|
|
|
|
1,722 |
|
|
|
153 |
|
|
|
|
|
|
|
1,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) after income taxes |
|
|
378 |
|
|
|
(44,452 |
) |
|
|
675 |
|
|
|
(10 |
) |
|
|
(43,409 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from subsidiaries |
|
|
(43,777 |
) |
|
|
675 |
|
|
|
|
|
|
|
43,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(43,399 |
) |
|
$ |
(43,777 |
) |
|
$ |
675 |
|
|
$ |
43,092 |
|
|
$ |
(43,409 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Three Months Ended August 26, 2006
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Pier 1 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) before income taxes |
|
|
259 |
|
|
|
(63,017 |
) |
|
|
879 |
|
|
|
(22 |
) |
|
|
(61,901 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
|
|
|
|
11,015 |
|
|
|
143 |
|
|
|
|
|
|
|
11,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) after income taxes |
|
|
259 |
|
|
|
(74,032 |
) |
|
|
736 |
|
|
|
(22 |
) |
|
|
(73,059 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from subsidiaries |
|
|
(73,296 |
) |
|
|
736 |
|
|
|
|
|
|
|
72,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(73,037 |
) |
|
$ |
(73,296 |
) |
|
$ |
736 |
|
|
$ |
72,538 |
|
|
$ |
(73,059 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Six Months Ended September 1, 2007
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Pier 1 Imports, |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Net sales |
|
$ |
|
|
|
$ |
697,990 |
|
|
$ |
18,069 |
|
|
$ |
(15,118 |
) |
|
$ |
700,941 |
|
Cost of sales (including buying
and store occupancy costs) |
|
|
|
|
|
|
524,771 |
|
|
|
16,767 |
|
|
|
(15,299 |
) |
|
|
526,239 |
|
Selling, general and administrative
(including depreciation and
amortization) |
|
|
942 |
|
|
|
269,521 |
|
|
|
120 |
|
|
|
|
|
|
|
270,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(942 |
) |
|
|
(96,302 |
) |
|
|
1,182 |
|
|
|
181 |
|
|
|
(95,881 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating (income) expenses |
|
|
(1,653 |
) |
|
|
3,908 |
|
|
|
(321 |
) |
|
|
|
|
|
|
1,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
711 |
|
|
|
(100,210 |
) |
|
|
1,503 |
|
|
|
181 |
|
|
|
(97,815 |
) |
Provision for income taxes |
|
|
|
|
|
|
1,767 |
|
|
|
205 |
|
|
|
|
|
|
|
1,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) after income taxes |
|
|
711 |
|
|
|
(101,977 |
) |
|
|
1,298 |
|
|
|
181 |
|
|
|
(99,787 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from subsidiaries |
|
|
(100,679 |
) |
|
|
1,298 |
|
|
|
|
|
|
|
99,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(99,968 |
) |
|
$ |
(100,679 |
) |
|
$ |
1,298 |
|
|
$ |
99,562 |
|
|
$ |
(99,787 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Six Months Ended August 26, 2006
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Pier 1 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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED BALANCE SHEET
September 1, 2007
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Pier 1 |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Imports, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
76,384 |
|
|
$ |
33,364 |
|
|
$ |
12,124 |
|
|
$ |
|
|
|
$ |
121,872 |
|
Other accounts receivable, net |
|
|
11 |
|
|
|
18,884 |
|
|
|
1,638 |
|
|
|
|
|
|
|
20,533 |
|
Inventories |
|
|
|
|
|
|
374,468 |
|
|
|
|
|
|
|
|
|
|
|
374,468 |
|
Income tax receivable |
|
|
|
|
|
|
14,841 |
|
|
|
302 |
|
|
|
|
|
|
|
15,143 |
|
Prepaid expenses and other
current assets |
|
|
|
|
|
|
47,318 |
|
|
|
|
|
|
|
|
|
|
|
47,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
76,395 |
|
|
|
488,875 |
|
|
|
14,064 |
|
|
|
|
|
|
|
579,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties, net |
|
|
|
|
|
|
208,731 |
|
|
|
3,892 |
|
|
|
|
|
|
|
212,623 |
|
Investment in subsidiaries |
|
|
143,987 |
|
|
|
42,102 |
|
|
|
|
|
|
|
(186,089 |
) |
|
|
|
|
Other noncurrent assets |
|
|
7,119 |
|
|
|
39,405 |
|
|
|
|
|
|
|
|
|
|
|
46,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
227,501 |
|
|
$ |
779,113 |
|
|
$ |
17,956 |
|
|
$ |
(186,089 |
) |
|
$ |
838,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
38 |
|
|
$ |
120,267 |
|
|
$ |
4,948 |
|
|
$ |
|
|
|
$ |
125,253 |
|
Intercompany payable
(receivable) |
|
|
(200,391 |
) |
|
|
229,387 |
|
|
|
(28,996 |
) |
|
|
|
|
|
|
|
|
Gift cards and other deferred
revenue |
|
|
|
|
|
|
64,318 |
|
|
|
|
|
|
|
|
|
|
|
64,318 |
|
Accrued income taxes
payable (receivable) |
|
|
48 |
|
|
|
3,220 |
|
|
|
(148 |
) |
|
|
|
|
|
|
3,120 |
|
Other accrued liabilities |
|
|
658 |
|
|
|
101,613 |
|
|
|
50 |
|
|
|
|
|
|
|
102,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
(199,647 |
) |
|
|
518,805 |
|
|
|
(24,146 |
) |
|
|
|
|
|
|
295,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
165,000 |
|
|
|
19,000 |
|
|
|
|
|
|
|
|
|
|
|
184,000 |
|
Other noncurrent liabilities |
|
|
|
|
|
|
97,321 |
|
|
|
|
|
|
|
|
|
|
|
97,321 |
|
Shareholders equity |
|
|
262,148 |
|
|
|
143,987 |
|
|
|
42,102 |
|
|
|
(186,089 |
) |
|
|
262,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
227,501 |
|
|
$ |
779,113 |
|
|
$ |
17,956 |
|
|
$ |
(186,089 |
) |
|
$ |
838,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED BALANCE SHEET
March 3, 2007
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Pier 1 |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Imports, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
111,163 |
|
|
$ |
43,699 |
|
|
$ |
12,316 |
|
|
$ |
|
|
|
$ |
167,178 |
|
Other accounts receivable, net |
|
|
47 |
|
|
|
20,311 |
|
|
|
1,079 |
|
|
|
|
|
|
|
21,437 |
|
Inventories |
|
|
|
|
|
|
360,063 |
|
|
|
|
|
|
|
|
|
|
|
360,063 |
|
Income tax receivable |
|
|
|
|
|
|
34,708 |
|
|
|
258 |
|
|
|
|
|
|
|
34,966 |
|
Prepaid expenses and other
current assets |
|
|
|
|
|
|
50,324 |
|
|
|
|
|
|
|
|
|
|
|
50,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
111,210 |
|
|
|
509,105 |
|
|
|
13,653 |
|
|
|
|
|
|
|
633,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties, net |
|
|
|
|
|
|
233,514 |
|
|
|
6,034 |
|
|
|
|
|
|
|
239,548 |
|
Investment in subsidiaries |
|
|
248,953 |
|
|
|
40,629 |
|
|
|
|
|
|
|
(289,582 |
) |
|
|
|
|
Other noncurrent assets |
|
|
7,650 |
|
|
|
35,304 |
|
|
|
|
|
|
|
|
|
|
|
42,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
367,813 |
|
|
$ |
818,552 |
|
|
$ |
19,687 |
|
|
$ |
(289,582 |
) |
|
$ |
916,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
45 |
|
|
$ |
93,889 |
|
|
$ |
1,675 |
|
|
$ |
|
|
|
$ |
95,609 |
|
Intercompany payable
(receivable) |
|
|
(159,038 |
) |
|
|
181,316 |
|
|
|
(22,278 |
) |
|
|
|
|
|
|
|
|
Gift cards and other deferred
revenue |
|
|
|
|
|
|
66,130 |
|
|
|
|
|
|
|
|
|
|
|
66,130 |
|
Accrued income taxes
payable (receivable) |
|
|
48 |
|
|
|
3,610 |
|
|
|
(353 |
) |
|
|
|
|
|
|
3,305 |
|
Other accrued liabilities |
|
|
641 |
|
|
|
118,886 |
|
|
|
14 |
|
|
|
|
|
|
|
119,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
(158,304 |
) |
|
|
463,831 |
|
|
|
(20,942 |
) |
|
|
|
|
|
|
284,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
165,000 |
|
|
|
19,000 |
|
|
|
|
|
|
|
|
|
|
|
184,000 |
|
Other noncurrent liabilities |
|
|
|
|
|
|
86,768 |
|
|
|
|
|
|
|
|
|
|
|
86,768 |
|
Shareholders equity |
|
|
361,117 |
|
|
|
248,953 |
|
|
|
40,629 |
|
|
|
(289,582 |
) |
|
|
361,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
367,813 |
|
|
$ |
818,552 |
|
|
$ |
19,687 |
|
|
$ |
(289,582 |
) |
|
$ |
916,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Six Months Ended September 1, 2007
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pier 1 |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Imports, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Cash flow from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities |
|
$ |
4,469 |
|
|
$ |
(64,032 |
) |
|
$ |
6,526 |
|
|
$ |
|
|
|
$ |
(53,037 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
(2,665 |
) |
|
|
|
|
|
|
|
|
|
|
(2,665 |
) |
Proceeds from disposition of
properties |
|
|
|
|
|
|
3,505 |
|
|
|
|
|
|
|
|
|
|
|
3,505 |
|
Proceeds from sale of
restricted investments |
|
|
|
|
|
|
6,373 |
|
|
|
|
|
|
|
|
|
|
|
6,373 |
|
Purchase of restricted
investments |
|
|
|
|
|
|
(589 |
) |
|
|
|
|
|
|
|
|
|
|
(589 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by
investing activities |
|
|
|
|
|
|
6,624 |
|
|
|
|
|
|
|
|
|
|
|
6,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock options
exercised, stock purchase
plan and other, net |
|
|
2,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,105 |
|
Debt issuance costs |
|
|
|
|
|
|
(998 |
) |
|
|
|
|
|
|
|
|
|
|
(998 |
) |
Advances (to) from subsidiaries |
|
|
(41,353 |
) |
|
|
48,071 |
|
|
|
(6,718 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities |
|
|
(39,248 |
) |
|
|
47,073 |
|
|
|
(6,718 |
) |
|
|
|
|
|
|
1,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
(34,779 |
) |
|
|
(10,335 |
) |
|
|
(192 |
) |
|
|
|
|
|
|
(45,306 |
) |
Cash and cash equivalents at
beginning of period |
|
|
111,163 |
|
|
|
43,699 |
|
|
|
12,316 |
|
|
|
|
|
|
|
167,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
end of period |
|
$ |
76,384 |
|
|
$ |
33,364 |
|
|
$ |
12,124 |
|
|
$ |
|
|
|
$ |
121,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
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 |
|
|
$ |
(101,992 |
) |
|
$ |
(2,395 |
) |
|
$ |
(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 |
|
|
|
|
|
|
14,998 |
|
|
|
(3,397 |
) |
|
|
|
|
|
|
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 |
|
|
|
|
|
|
14,534 |
|
|
|
(3,397 |
) |
|
|
|
|
|
|
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. |
Note 9 Defined benefit plans
The Company maintains supplemental retirement plans (the Plans) for certain of its executive
officers.
The Plans provide that upon death, disability, reaching retirement age, or certain termination
events, a
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
participant will receive benefits based on highest compensation, years of service and years of plan
participation. Benefit costs are determined using various actuarial cost methods to estimate the
total benefits ultimately payable to executive officers and this cost is allocated to the
respective service periods.
The Plans are not funded and thus have no plan assets. Retirement benefit payments made during the
second quarter of fiscal 2008 and 2007 were funded by the sale of restricted investments in the
amounts of $6,373,000 and $217,000, respectively, which were held by a trust for this purpose. The
actuarial assumptions used to calculate benefit costs are reviewed annually. The components of net
periodic benefit costs for the three and six months ended September 1, 2007 and August 26, 2006
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
September 1, |
|
|
August 26, |
|
|
September 1, |
|
|
August 26, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
40 |
|
|
$ |
601 |
|
|
$ |
80 |
|
|
$ |
1,202 |
|
Interest cost |
|
|
183 |
|
|
|
483 |
|
|
|
366 |
|
|
|
966 |
|
Amortization of unrecognized prior
service costs |
|
|
39 |
|
|
|
201 |
|
|
|
78 |
|
|
|
402 |
|
Amortization of net actuarial loss |
|
|
36 |
|
|
|
810 |
|
|
|
73 |
|
|
|
1,619 |
|
Settlement charge |
|
|
1,065 |
|
|
|
|
|
|
|
1,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
1,363 |
|
|
$ |
2,095 |
|
|
$ |
1,662 |
|
|
$ |
4,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net periodic benefit cost in fiscal 2008 is less than fiscal 2007 as the result of the
retirement in fiscal 2007 of two executives covered by the Plans. The settlement charge of
$1,065,000 in the second quarter of fiscal 2008 related to the final payout to these retirees.
Note 10 Income taxes
In July 2006, the Financial Accounting Standards Board (the FASB) issued FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes An Interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting for uncertainty in tax positions. FIN 48 prescribes the
minimum recognition threshold a tax position is required to meet before being recognized in the
financial statements. It also provides guidance on derecognition, measurement, classification,
interest and penalties, accounting in interim periods, disclosure and transition. The Company
adopted the provisions of FIN 48 effective as of the beginning of fiscal 2008. As a result of the
cumulative effect of the adoption, the Company recorded a $5,073,000 decrease in retained earnings.
Upon adoption on March 4, 2007, total reserves for uncertain tax positions were $13,908,000, and
accrued penalties and interest totaled $4,730,000. If the Company were to prevail on all
unrecognized tax benefits recorded, this entire reserve for uncertain tax positions would have a
favorable impact on the effective tax rate. Interest and penalties associated with unrecognized
tax benefits are recorded in nonoperating (income) and expenses and selling, general and
administrative expenses, respectively.
On a quarterly and annual basis, the Company accrues for the effects of open uncertain tax
positions and the related potential penalties and interest. There were no material adjustments to
the Companys recorded reserves for uncertain tax positions during the first six months of fiscal
2008, other than those made in connection with the adoption of FIN 48 that are described above.
It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain
of the
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Companys unrecognized tax positions will increase or decrease during the next 12 months as a
result of audit settlements. Accordingly, the Company has classified $5,006,000 of the reserve for
uncertain tax positions and the related accrued interest as a current liability in the accompanying
consolidated balance sheet. The Company does not expect the resolution of these issues to have a
significant effect on the Companys results of operations or financial position.
The Company files a federal income tax return and income tax returns in various states and foreign
jurisdictions. The Internal Revenue Service (the IRS) is near completion of its examination of
the Companys fiscal 2000 through 2002 years. The IRS has begun an examination of fiscal years
2003 through 2006. With only a few exceptions, and other than changes to state taxable income
required by the IRS adjustments from the fiscal years 2000 through 2002 audit, the Company is no
longer subject to state, local and non-U.S. income tax examinations by tax authorities for years
before fiscal 2003.
During the second quarter of fiscal 2008, the Company filed its fiscal 2007 tax return and recorded
a $1,500,000 charge to tax expense to adjust its estimated tax refund at fiscal 2007 year-end to
the actual tax refund received. During fiscal 2007, the Company recorded a valuation allowance
against all deferred tax assets. No federal tax benefit was provided and only minimal state and
foreign tax provisions were recorded on losses in the first six months of fiscal 2008.
Note 11 Legal matters
During the second quarter of fiscal 2008, the Company paid $4,376,000 for the settlement of a class
action lawsuit regarding compensation matters, which had been accrued during the second quarter of
fiscal 2007.
20
PART I
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
The following discussion and analysis of financial condition, results of operations, and liquidity
and capital resources should be read in conjunction with the Companys consolidated financial
statements as of March 3, 2007, and for the year then ended, and related Notes and Managements
Discussion and Analysis of Financial Condition and Results of Operations, all contained in the
Companys Annual Report on Form 10-K for the year ended March 3, 2007.
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 results of operations for the three and six months ended
September 1, 2007 and August 26, 2006 are not indicative of results to be expected for the fiscal
year because of, among other things, seasonality factors in the retail business. Historically, the
strongest sales of the Companys products have occurred during the holiday season beginning in
November and continuing through December. The Company conducts business as one operating segment
and operates stores in the United States and Canada primarily under the name Pier 1 Imports. As of
September 1, 2007, the Company operated 1,157 stores in the United States and Canada, including 27
Pier 1 Kids stores and one clearance store. During the second quarter of fiscal 2008, the Company
announced plans to close all of the remaining Pier 1 Kids and clearance stores. By fiscal
year-end, the Company expects to have approximately 1,100 stores in the United States and Canada.
During the second quarter of fiscal 2008, the Company closed its direct to consumer business. The
Companys management believes that the termination of these non-core business activities will not
only allow for complete focus on the core business, but will also result in substantial cost
savings.
The Company does not believe that the current macro-economic environment will significantly impact
its turnaround plan. The Company is focusing on repositioning its merchandise mix, moving away
from high-ticket furniture and developing stronger assortments of more affordable impulse purchase
items and smaller decorative furniture items. The Companys management expects this shift in
merchandise to help reduce the impact of a market-wide decrease in spending on high-ticket home
products.
Additionally, by strengthening the Companys competitive position relative to other retailers and
remaining focused on outstanding execution in all areas, management believes that it can achieve
increases in market share which should equate to sales improvements. The Company is focused on
executing its merchandising and marketing strategies to increase overall conversion rates which
will translate into improved comparable store sales.
The Company outlined its plan to return the Company to profitability in April of 2007. The plan is
built on six business priorities and the Companys progress on these goals during the first half of
fiscal 2008 is discussed below:
1) Improve operational efficiency. During the first half of the year, the
Company continued to review all costs and to seek ways to streamline and simplify the
organization. Management believes that on-going cost savings from the first half of the
year were approximately $53 million and consisted primarily of savings of $23 million in
marketing and $21 million in store and administrative payroll with the remainder of the
savings from general cost-cutting measures. As the Company continues to improve efficiency
and simplify all aspects of its organization structure, management expects to realize
21
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations. (continued)
additional savings through the remainder of the fiscal year, and estimates savings will
be at least $100 million for fiscal 2008. On an annualized basis, the on-going savings are
estimated to be $150 million.
2) Develop real estate strategies that protect the short-term and long-term future
of the Company. The Company continues to carefully review the individual contributions
of its existing store portfolio, including all real estate costs in relation to sales by
store. As a result of these reviews, the Company has decided to close a total of 90 to 100
stores during fiscal 2008. New store openings will be minimal during fiscal 2008.
3) Provide a compelling merchandise selection. The Company has strengthened
its buying department by reassigning administrative tasks, promoting internal talent and
hiring new buyers. Changes are being made to allow buyers to focus on merchandise strategy
and on working with vendors to develop new products. During the first six months, the
Company liquidated merchandise that was not popular with its customers to make space for new
merchandise that reflects the Companys unique place in the market. As discussed above, the
Company is shifting its merchandise mix away from high-ticket furniture to more affordable
impulse items and smaller decorative furniture.
4) Create an effective planning and allocations team. The merchandise planning
and allocations teams have been combined under single executive management to facilitate
better planning and decision making around the quantitative side of the buying process and
to ensure the product is in the appropriate store at the optimal time.
5) Improve supply chain efficiency. The Company has been seeking out ways to
simplify and to improve the flow of merchandise throughout the supply chain. During the
first six months of this fiscal year, the Company introduced technological advances in the
distribution centers and changes to the delivery schedules which improved the store
replenishment process and reduced costs. The Company will further its efforts to reduce
damage to inventory at every stage of the supply chain and to reduce overseas consolidation
and freight costs. In addition, the Company will continue working with its vendors to
increase efficiency and ensure the timely shipment of merchandise.
6) Create a cost-effective marketing plan. During the final two quarters of
this fiscal year, the Companys marketing efforts will be focused on reinforcing the
Companys brand positioning and continuing to drive traffic using more cost effective
methods. External marketing efforts will be structured to reach new and existing customers
primarily through the use of periodic in-home mailers, newspaper inserts, email
notifications and web site advertisements. In addition to these efforts, the Company will
continue to operate its web site as a marketing tool with copies of the in-home mailers and
product information available to site visitors. The Company will also continue to use its
partnership with Chase and the Pier 1 Imports preferred credit card to reach existing and
potential new customers. The Company anticipates that marketing expenditures will be
approximately 4% to 5% of sales which historically has been an appropriate amount.
Results of Operations
On March 20, 2006, the Company sold its operations of The Pier Retail Group Limited (The Pier),
the Companys subsidiary based in the United Kingdom. As a result, The Piers prior period
operations are considered discontinued and have been reclassified accordingly. 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
September 1, 2007 and August 26, 2006:
22
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations. (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
September 1, |
|
August 26, |
|
September 1, |
|
August 26, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Performance Indicators |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales decline |
|
|
(7.0 |
%) |
|
|
(12.5 |
%) |
|
|
(6.1 |
%) |
|
|
(8.3 |
%) |
Comparable stores sales decline (1) |
|
|
(3.6 |
%) |
|
|
(14.8 |
%) |
|
|
(4.5 |
%) |
|
|
(10.9 |
%) |
Merchandise margins as a % of sales |
|
|
47.0 |
% |
|
|
49.2 |
% |
|
|
46.3 |
% |
|
|
51.5 |
% |
Store occupancy as a % of sales |
|
|
21.6 |
% |
|
|
20.8 |
% |
|
|
21.3 |
% |
|
|
20.4 |
% |
Selling, general and administrative expenses
as a % of sales |
|
|
34.1 |
% |
|
|
41.3 |
% |
|
|
35.6 |
% |
|
|
40.3 |
% |
Operating loss as a % of sales |
|
|
(11.7 |
%) |
|
|
(16.5 |
%) |
|
|
(13.7 |
%) |
|
|
(12.7 |
%) |
Loss from continuing operations as a % of sales |
|
|
(12.6 |
%) |
|
|
(19.7 |
%) |
|
|
(14.2 |
%) |
|
|
(12.8 |
%) |
Loss per share from continuing operations |
|
|
($0.49 |
) |
|
|
($0.84 |
) |
|
|
($1.14 |
) |
|
|
($1.09 |
) |
|
|
|
|
|
|
|
|
|
|
|
For the period ended |
|
|
September 1, |
|
August 26, |
|
|
2007 |
|
2006 |
|
|
|
|
|
|
|
|
|
Inventory per retail square foot |
|
$ |
41.56 |
|
|
$ |
42.69 |
|
Total retail square footage (in thousands) |
|
|
8,975 |
|
|
|
9,434 |
|
Total retail square footage growth (decline)
from the same period last year |
|
|
(4.9 |
%) |
|
|
1.3 |
% |
|
|
|
(1) |
|
Comparable stores sales declines during fiscal 2008 exclude clearance, Pier 1 Kids and direct to consumer. |
Net Sales Net sales consisted almost entirely of sales to retail customers, net of discounts and
returns, but also included delivery service revenues and wholesale sales and royalties. Sales by
retail concept during the period were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
September 1, |
|
|
August 26, |
|
|
September 1, |
|
|
August 26, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores |
|
$ |
340,452 |
|
|
$ |
361,962 |
|
|
$ |
680,782 |
|
|
$ |
729,814 |
|
Direct to consumer |
|
|
3,241 |
|
|
|
4,402 |
|
|
|
8,377 |
|
|
|
8,989 |
|
Other (1) |
|
|
873 |
|
|
|
4,334 |
|
|
|
11,782 |
|
|
|
7,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
344,566 |
|
|
$ |
370,698 |
|
|
$ |
700,941 |
|
|
$ |
746,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other sales consisted primarily of wholesale sales and royalties received from franchise stores,
Grupo Sanborns, S.A. de C.V., and other third parties. |
Net sales for the second quarter of fiscal 2008 were $344.6 million, down 7.0% or $26.1 million
from last years second quarter net sales of $370.7 million. As shown in the table below, the
decline in sales was primarily due to the increase in store closures and comparable store sales
declines during the first half of the year. Net sales declined $45.8 million or 6.1% from $746.8
million to $700.9 million during the six-month period ended September 1, 2007 when compared to the
same period last year. Comparable store sales for the quarter and year-to-date periods declined
3.6% and 4.5%, respectively. Sales for the six-month period were comprised of the following
incremental components (in thousands):
23
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations. (continued)
|
|
|
|
|
|
|
Net Sales |
|
Net sales for the six months ended August 26, 2006 |
|
$ |
746,790 |
|
|
|
|
|
|
Incremental sales growth (decline) from: |
|
|
|
|
New stores opened during fiscal 2008 |
|
|
218 |
|
Stores opened during fiscal 2007 |
|
|
8,034 |
|
Comparable stores |
|
|
(30,173 |
) |
Closed stores and other |
|
|
(23,928 |
) |
|
|
|
|
|
|
|
|
|
Net sales for the six months ended September 1, 2007 |
|
$ |
700,941 |
|
|
|
|
|
During the second quarter, the Company opened three and closed 30 Pier 1 Imports stores in the
United States and Canada. During the first half of fiscal 2008, the Company opened three and
closed 42 Pier 1 Imports stores in the United States and Canada. Total retail square footage
decreased 2.8% from the beginning of fiscal 2008 and 4.9% from the second quarter of fiscal 2007.
The Pier 1 Imports store count totaled 1,157 in the United States and Canada at the end of the
second quarter compared to 1,226 stores a year ago.
A summary reconciliation of the Companys stores open at the beginning of fiscal 2008 to the number
open at the end of the second quarter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
Canada |
|
Total (2) |
Open at March 3, 2007 |
|
|
1,112 |
|
|
|
84 |
|
|
|
1,196 |
|
Openings |
|
|
3 |
|
|
|
|
|
|
|
3 |
|
Closings |
|
|
(41 |
) |
|
|
(1 |
) |
|
|
(42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Open at September 1, 2007 (1) |
|
|
1,074 |
|
|
|
83 |
|
|
|
1,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company supplies merchandise and licenses the Pier 1 name to Grupo Sanborns, S.A. de C.V. and Sears Roebuck de Puerto
Rico, Inc. which sell Pier 1 merchandise in a store within a store format. At September 1, 2007, there were 29 and seven locations
in Mexico and Puerto Rico, respectively. |
|
(2) |
|
Total store count included 27 Pier 1 Kids stores and one clearance store at September 1, 2007. |
Gross Profit Gross profit after related buying and store occupancy costs, expressed as a
percentage of sales, decreased 310 basis points to 25.4% for the second quarter of fiscal 2008, and
decreased 630 basis points to 24.9% for the first six months of fiscal 2008. As a percentage of
sales, merchandise margins decreased 220 basis points for the second quarter and 530 basis points
for the six-month period ended September 1, 2007, from the comparable periods a year ago, primarily
as a result of the Companys liquidation efforts to clear excess inventory. The Companys margins
were negatively impacted by activities related to the clearance of the modern craftsman merchandise
and the closure of the Companys clearance stores, its direct to consumer channel and many of its
Pier 1 Kids stores. The Company believes the aggressive liquidation of merchandise during fiscal
2008 negatively impacted its merchandise margins by approximately 200 basis points in the second
quarter and 450 basis points in the first six months, assuming that merchandise margins on the sale
of these products would otherwise have been comparable to the prior year.
Store occupancy costs for the quarter were $74.6 million, or 21.6% of sales, a $2.5 million
decrease and an increase of 90 basis points as a percentage of sales, compared to last years
second quarter store occupancy expense of $77.0 million. Year-to-date, store occupancy costs
decreased $2.6 million and increased 100 basis points to 21.3% of sales compared to the same period
last year. Store occupancy costs decreased as a result of store closures and increased as a
percentage of sales as a result of relatively fixed rental costs over a lower sales base in the
remaining open stores.
24
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations. (continued)
Operating Expenses, Depreciation and Income Taxes Selling, general and administrative expenses
for the second quarter of fiscal 2008 were $117.5 million, or 34.1% of sales, a decrease from the
same quarter last year of $35.7 million. Year-to-date selling, general and administrative expenses
were $249.6 million, or 35.6% of sales, a decrease of $51.1 million. Selling, general and
administrative expenses for the quarter and year-to-date periods included the following charges
summarized in the tables below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 1, 2007 |
|
|
August 26, 2006 |
|
|
Increase / |
|
Quarter |
|
Expense |
|
|
% of Sales |
|
|
Expense |
|
|
% of Sales |
|
|
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store payroll |
|
$ |
54,538 |
|
|
|
15.8 |
% |
|
$ |
62,537 |
|
|
|
16.9 |
% |
|
$ |
(7,999 |
) |
Marketing |
|
|
13,754 |
|
|
|
4.0 |
% |
|
|
27,803 |
|
|
|
7.5 |
% |
|
|
(14,049 |
) |
Store supplies and services |
|
|
9,067 |
|
|
|
2.6 |
% |
|
|
10,509 |
|
|
|
2.8 |
% |
|
|
(1,442 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable costs |
|
|
77,359 |
|
|
|
22.5 |
% |
|
|
100,849 |
|
|
|
27.2 |
% |
|
|
(23,490 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative payroll (excluding severance) |
|
|
20,012 |
|
|
|
5.8 |
% |
|
|
25,880 |
|
|
|
7.0 |
% |
|
|
(5,868 |
) |
Lease termination costs and impairments |
|
|
5,541 |
|
|
|
1.6 |
% |
|
|
5,268 |
|
|
|
1.4 |
% |
|
|
273 |
|
Litigation settlements and related costs |
|
|
|
|
|
|
|
|
|
|
4,572 |
|
|
|
1.2 |
% |
|
|
(4,572 |
) |
Severance and outplacement |
|
|
1,818 |
|
|
|
0.5 |
% |
|
|
363 |
|
|
|
0.1 |
% |
|
|
1,455 |
|
Other relatively fixed expenses |
|
|
12,727 |
|
|
|
3.7 |
% |
|
|
16,213 |
|
|
|
4.4 |
% |
|
|
(3,486 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
117,457 |
|
|
|
34.1 |
% |
|
$ |
153,145 |
|
|
|
41.3 |
% |
|
$ |
(35,688 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 1, 2007 |
|
|
August 26, 2006 |
|
|
Increase / |
|
Year-to-Date |
|
Expense |
|
|
% of Sales |
|
|
Expense |
|
|
% of Sales |
|
|
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store payroll |
|
$ |
111,822 |
|
|
|
16.0 |
% |
|
$ |
125,526 |
|
|
|
16.8 |
% |
|
$ |
(13,704 |
) |
Marketing |
|
|
34,587 |
|
|
|
4.9 |
% |
|
|
57,722 |
|
|
|
7.7 |
% |
|
|
(23,135 |
) |
Store supplies and services |
|
|
19,166 |
|
|
|
2.7 |
% |
|
|
21,303 |
|
|
|
2.9 |
% |
|
|
(2,137 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable costs |
|
|
165,575 |
|
|
|
23.6 |
% |
|
|
204,551 |
|
|
|
27.4 |
% |
|
|
(38,976 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative payroll (excluding severance) |
|
|
41,940 |
|
|
|
6.0 |
% |
|
|
49,190 |
|
|
|
6.6 |
% |
|
|
(7,250 |
) |
Lease termination costs and impairments |
|
|
8,984 |
|
|
|
1.3 |
% |
|
|
7,718 |
|
|
|
1.0 |
% |
|
|
1,266 |
|
Litigation settlements and related costs |
|
|
49 |
|
|
|
0.0 |
% |
|
|
4,579 |
|
|
|
0.6 |
% |
|
|
(4,530 |
) |
Severance and outplacement |
|
|
5,335 |
|
|
|
0.8 |
% |
|
|
477 |
|
|
|
0.1 |
% |
|
|
4,858 |
|
Other relatively fixed expenses |
|
|
27,698 |
|
|
|
4.0 |
% |
|
|
34,213 |
|
|
|
4.6 |
% |
|
|
(6,515 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
249,581 |
|
|
|
35.6 |
% |
|
$ |
300,728 |
|
|
|
40.3 |
% |
|
$ |
(51,147 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses that fluctuate proportionately with sales and number of stores decreased $23.5 million
from the same quarter last year and $39.0 million year-to-date due in part to store closures. The
decline was also the result of a conscious effort by management to reduce costs at all levels of
the organization. Store payroll as a percentage of sales decreased 110 basis points for the
quarter and 80 basis points year-to-date as the direct result of a planned reduction in store
staffing levels. Marketing as a percentage of sales decreased 350 basis points for the quarter and
280 basis points year-to-date as a result of the Company tightly controlling marketing expenditures
to ensure the optimal return on dollars spent. The Company anticipates total marketing
expenditures for fiscal 2008 to approximate 4% to 5% of sales. Store supplies and services as a
percentage of sales declined 20 basis points for the quarter and year-to-date periods.
Relatively fixed selling, general and administrative expenses during the second quarter of fiscal
2008 decreased $12.2 million and 250 basis points as a percentage of sales. This decrease was due
to a decrease in non-store payroll of $5.9 million or 120 basis points as a percentage of sales,
primarily as a result of a reduction in home
25
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations. (continued)
office and field employees. The decrease in litigation settlements was the result of a $4.6
million charge in the prior year related to the settlement of a class action lawsuit with no
corresponding accrual in the current year. The remaining decrease during the second quarter of
fiscal 2008 compared to the same period last year was primarily the result of decreased impairment
charges and other general cost savings partially offset by severance costs and an increase in lease
termination expense. Year-to-date relatively fixed selling, general administrative expenses
decreased $12.2 million or 90 basis points as a percentage of sales, primarily for the same general
reasons as the net quarterly decrease discussed above.
Depreciation and amortization expense for the second quarter and year-to-date periods was $10.4
million and $21.0 million, respectively, compared to $13.6 million and $27.2 million for the same
periods last year. The decreases
were primarily the result of lower net book values on certain store-level assets because of
impairment charges taken since the end of the second quarter of fiscal 2007, certain assets
becoming fully depreciated, and store closures.
The operating loss for the quarter was $40.4 million compared to $61.3 million for last years
second quarter. For the first half of fiscal 2008, operating losses totaled $95.9 million compared
to $95.2 million for the same period last year.
During the second quarter of fiscal 2008, the Company filed its fiscal 2007 tax return and recorded
a $1.5 million charge to tax expense to adjust its estimated tax refund at fiscal 2007 year-end to
the actual tax refund received. During fiscal 2007, the Company recorded a valuation allowance
against all deferred tax assets. No federal tax benefit was provided and minimal state and foreign
tax provisions were recorded during the first six months of fiscal 2008. The Company has tax loss
carryforwards of approximately $186.0 million. These loss carryforwards can be utilized to offset
future income but will expire in fiscal year 2027 if not utilized before then.
Net Loss During the second quarter of fiscal 2008, the Company recorded a net loss of $43.4
million, or $0.49 per share, compared to $73.1 million, or $0.84 per share, for the same period
last year. Net loss for the first six months of fiscal 2008 was $99.8 million, or $1.14 per share,
compared to $96.2 million, or $1.10 per share, for the first half of fiscal 2007, including
discontinued operations.
Liquidity and Capital Resources
For the purposes of liquidity and capital resource discussions, the Companys discontinued
operations will be included in the financial results of the prior year. The Company ended the
second quarter of fiscal 2008 with $121.9 million in cash and temporary investments compared to
$150.3 million a year ago. Operating activities in the first six months of fiscal 2008 used $53.0
million of cash, primarily as a result of the Companys net loss, an increase in inventory and
payment of retirement benefits. These changes were partially offset by the collection of a $24.5
million income tax receivable and an increase in accounts payable and accrued expenses. Inventory
levels at the end of the second quarter of fiscal 2007 were $374.5 million, down $29.6 million or
7.3% from inventory levels at the end of last years second quarter. At the end of the second
quarter of fiscal 2008, retail square footage was 4.9% lower compared to the same period last year,
and inventory per retail square foot was $41.56, a decrease from $42.69 per retail square foot in
the prior year. The decrease in inventory was the result of the Companys accelerated liquidation
of certain merchandise in an effort to eliminate slow-moving inventory and make room for inventory
that supports the Companys new merchandise strategy and in anticipation of an overall reduction in
number of stores for fiscal 2008.
During the first half of fiscal 2008, investing activities provided $6.6 million compared to $11.1
million during the same period last year. Proceeds from the sale of investments restricted for
payment of retirement obligations provided $6.4 million. Proceeds from the disposition of
properties provided $3.5 million. Capital expenditures were $2.7 million in fiscal 2008 compared
to $18.7 million in fiscal 2007, consisting primarily of $1.7 million for fixtures, equipment, and
leasehold improvements for new and existing stores, $0.7 million for information
26
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations. (continued)
systems enhancements and $0.3 million related to the Companys distribution centers. Capital
expenditures for fiscal 2008 are expected to be $10.0 million to $12.0 million, to be spent
primarily on existing stores. The Company anticipates closing 90 to 100 stores during fiscal 2008,
including all Pier 1 Kids stores and clearance stores. In addition, the Company closed its direct
to consumer business in the second quarter. The Company anticipates net cash outflows related to
exit activities of up to $6.0 million, of which approximately $2.5 million
occurred in the first half of fiscal 2008. The remainder is expected to be settled during the last
six months of fiscal 2008.
Financing activities for the first six months of fiscal 2008 provided a net $1.1 million of the
Companys cash. Other financing activities, primarily the exercise of stock options, provided net
cash of $2.1 million, which was partially offset by debt issuance costs of $1.0 million, primarily
related to an amendment to the Companys secured credit agreement.
At the end of the second quarter, the Companys minimum operating lease commitments remaining for
fiscal 2008 were $116.1 million. The present value of total existing minimum operating lease
commitments discounted at 10% was $856.1 million at the fiscal 2008 second quarter-end.
As of the beginning of fiscal 2008, the Company adopted the provisions of FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes An Interpretation of FASB Statement No. 109 (FIN
48), which clarifies the accounting for uncertainty in tax positions. Except for the adoption of
FIN 48, there have been no significant changes to the table of contractual obligations as disclosed
in the Companys fiscal 2007 Annual Report on Form 10-K. As of September 1, 2007, the current and
noncurrent liabilities for uncertain tax positions including the related accrued interest were $5.0
million and $14.5 million, respectively. The Company is not able to reasonably estimate when the
cash payments of the noncurrent portion of the liability will be made. See Note 10 of the Notes to
Consolidated Financial Statements for further discussion.
Working capital requirements are expected to be funded from cash generated from the operations of
the Company and borrowings against lines of credit. Current projections indicate that the
Companys cash position and borrowings will not be significantly different at the end of the year
from its position at the beginning of the year. The Companys bank facilities include a $325
million credit facility, which is secured by the Companys eligible merchandise inventory,
third-party credit card receivables, and, as of May 31, 2007, was amended to include certain
Company-owned real estate. The amendment also extended the maturity date of the facility to May
2012.
The Companys calculated borrowing base was $314.6 million at September 1, 2007. The Company
utilized $166.2 million for letters of credit and had no outstanding cash borrowings. The Company
is not required to comply with financial covenants under the facility unless the availability under
such agreement is less than $32.5 million. At quarter-end, $115.9 million remained available
before reaching the $32.5 million threshold. The Company does not anticipate falling below this
minimum availability. The Company was in compliance with required debt covenants at the end of the
second quarter of fiscal 2008.
The Company has an umbrella trust, currently consisting of four sub-trusts (the Trusts), which
was established for the purpose of setting aside funds to be used to settle benefit plan
obligations. Two of the sub-trusts are restricted to meet funding requirements of the Companys
supplemental retirement plans. These trusts consisted of interest bearing investments totaling
$16,000 and $24,728,000 at September 1, 2007 and August 26, 2006, respectively, and were included
in other current assets. The remaining two sub-trusts are restricted to meet the funding
requirements of the Companys non-qualified deferred compensation plans. These trusts assets
consisted of interest bearing investments totaling $2,026,000 at September 1, 2007 and none August
26, 2006, respectively, and were included in other noncurrent assets. These trusts also own and
are the beneficiary of life insurance policies with cash surrender values of approximately $7,047,000 at September 1, 2007, and death benefits of approximately $17,093,000. In addition, the Company owns and is the beneficiary of a number of
27
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations. (continued)
insurance policies on the lives of current and past key executives that are unrestricted
as to use. The cash surrender value of these unrestricted policies was approximately $13,620,000
at September 1, 2007, and the death benefit was approximately $20,851,000. At the discretion of
the Board of Directors contributions of cash or unrestricted life insurance policies could be
contributed to the Trusts.
The Company has a variety of sources for liquidity, which include available cash balances,
available lines of credit, cash surrender value of life insurance policies not restricted as to
use, and real estate financing options. As discussed above, the Company amended its secured credit
facility to include certain Company-owned real estate in the borrowing base which provides
flexibility through additional availability under the Companys line of credit and reduces the
Companys dependence on inventory levels as the determinant of the size of its borrowing base. The
amendment allows enough flexibility for this real estate to be removed from the collateral in the
future. The Company is evaluating its options with regard to the use and ownership of its owned
real estate. Given the various liquidity options available, the Company believes it has sufficient
liquidity to fund operational obligations and capital expenditure requirements throughout fiscal
years 2008 and 2009.
Forward-looking Statements
Certain matters discussed in this quarterly report, except for historical information contained
herein, may constitute forward-looking statements that are subject to certain risks and
uncertainties that could cause actual results to differ materially from those described in the
forward-looking statements. Forward-looking statements provide current expectations of future
events based on certain assumptions. These statements encompass information that does not directly
relate to any historical or current fact and often may be identified with words such as
anticipates, believes, expects, estimates, intends, plans, projects and other similar
expressions. Managements expectations and assumptions regarding planned store openings, financing
of Company obligations from operations, results from its new marketing, merchandising and store
operations strategies, and other future results are subject to risks, uncertainties and other
factors that could cause actual results to differ materially from the anticipated results or other
expectations expressed in the forward-looking statements. Risks and uncertainties that may affect
Company operations and performance include, among others, the effects of terrorist attacks or other
acts of war, conflicts or war involving the United States or its allies or trading partners, labor
strikes, weather conditions or natural disasters, volatility of fuel and utility costs, the general
strength of the economy and levels of consumer spending, consumer confidence, the availability of
suitable sites for locating stores and distribution facilities, availability of a qualified labor
force and management, the availability and proper functioning of technology and communications
systems supporting the Companys key business processes, the ability of the Company to import
merchandise from foreign countries without significantly restrictive tariffs, duties or quotas, and
the ability of the Company to source, ship and deliver items of acceptable quality to its U.S.
distribution centers at reasonable prices and rates and in a timely fashion. The foregoing risks
and uncertainties are in addition to others, if any, discussed elsewhere in this quarterly report.
The Company assumes no obligation to update or otherwise revise its forward-looking statements even
if experience or future changes make it clear that any projected results expressed or implied will
not be realized. Additional information concerning these risks and uncertainties is contained in
the Companys Annual Report on Form 10-K for the fiscal year ended March 3, 2007, as filed with the
Securities and Exchange Commission.
Impact of Inflation
Inflation has not had a significant impact on the operations of the Company.
28
PART I
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
There are no material changes to the Companys market risk as disclosed in its Form 10-K filed for
the fiscal year ended March 3, 2007.
Item 4. Controls and Procedures.
As required by Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the
Exchange Act), an evaluation was conducted under the supervision and with the participation of
the Companys management, including the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Companys disclosure controls and procedures as of
September 1, 2007, 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 furnished under the Exchange Act is (a) accumulated and communicated to management, including
the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure, and (b) recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commissions rules and forms.
There has not been any change in the Companys internal control over financial reporting during the
period covered by this report that has materially affected, or is reasonably likely to materially
affect, the Companys internal control over financial reporting.
PART II
Item 1. Legal Proceedings.
During the second quarter of fiscal 2008, the Company paid $4.4 million for the settlement of a
class action lawsuit in California regarding compensation matters, which had been accrued during
the second quarter of fiscal 2007.
The Company is a party to various legal proceedings and claims in the ordinary course of its
business. The Company believes that the outcome of these matters will not have a material adverse
effect on its consolidated financial position, results of operations or liquidity.
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 March 3, 2007.
29
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 September 1, 2007, by Pier 1 Imports, Inc. or any affiliated
purchaser of Pier 1 Imports, Inc., as defined in Rule 10b-18(a)(3) under the Exchange Act.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
or Programs |
|
June 3, 2007 through July 7, 2007 (1) |
|
|
21,086 |
|
|
$ |
8.42 |
|
|
|
|
|
|
$ |
107,449,628 |
|
July 8, 2007 through August 4, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,449,628 |
|
August 5, 2007 through September 1, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,449,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,086 |
|
|
$ |
8.42 |
|
|
|
|
|
|
$ |
107,449,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
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
calculated borrowing base. The Company is not required to comply with financial covenants under
its secured credit facility unless the availability under such agreement is less than $32.5
million.
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.
30
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 9, 2007 |
By: |
/s/ Alexander W. Smith
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Alexander W. Smith, President and |
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Chief Executive Officer |
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Date: October 9, 2007 |
By: |
/s/ Charles H. Turner
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Charles H. Turner, Executive Vice President and |
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Chief Financial Officer |
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Date: October 9, 2007 |
By: |
/s/ Susan E. Barley
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Susan E. Barley, Principal Accounting Officer |
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31
EXHIBIT INDEX
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Exhibit No. |
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Description |
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3(i)
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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. |
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3(ii)
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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. |
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10.1*
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Third Amendment to the Pier 1 Imports, Inc. 2006 Stock Incentive Plan. |
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10.2*
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First Amendment to the Pier 1 Imports, Inc. 1999 Stock Plan, as amended and restated
December 31, 2004. |
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10.3*
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Amendment No. 1 to Credit Card Program Agreement by and among Pier 1 Imports (U.S.), Inc.
and Chase Bank USA, N.A. |
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10.4*
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Amendment No. 2 to Credit Card Program Agreement by and among Pier 1 Imports (U.S.), Inc.
and Chase Bank USA, N.A. |
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31.1*
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Certification of the Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a). |
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31.2*
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Certification of the Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a). |
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32.1*
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Section 1350 Certifications. |