e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| |
|
|
| þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. |
For the quarterly period ended May 31, 2008
OR
| |
|
|
| o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For the transition period from to
Commission file number 001-07832
(Exact name of registrant as specified in its charter)
| |
|
|
| Delaware
|
|
75-1729843 |
|
|
|
|
| (State or other jurisdiction of
|
|
(I.R.S. Employer |
| incorporation or organization)
|
|
Identification Number) |
100 Pier 1 Place, Fort Worth, Texas 76102
(Address of principal executive offices, including zip code)
(817) 252-8000
(Registrant’s 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, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer o |
Accelerated filer þ |
Non-accelerated filer o
(Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of
the latest practicable date.
| |
|
|
| Class
|
|
Shares outstanding as of July 2, 2008 |
|
|
|
|
| Common Stock, $1.00 par value
|
|
89,012,566 |
PIER 1 IMPORTS, INC.
INDEX TO QUARTERLY FORM 10-Q
2
PART I
Item 1. Financial Statements.
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
May 31, |
|
|
June 2, |
|
| |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
310,020 |
|
|
$ |
356,375 |
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
Cost of sales (including buying and store occupancy costs) |
|
|
222,414 |
|
|
|
269,197 |
|
Selling, general and administrative expenses |
|
|
109,368 |
|
|
|
132,124 |
|
Depreciation and amortization |
|
|
8,673 |
|
|
|
10,558 |
|
|
|
|
|
|
|
|
|
|
|
340,455 |
|
|
|
411,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(30,435 |
) |
|
|
(55,504 |
) |
|
|
|
|
|
|
|
|
|
Nonoperating (income) and expenses: |
|
|
|
|
|
|
|
|
Interest and investment income |
|
|
(871 |
) |
|
|
(2,932 |
) |
Interest expense |
|
|
3,605 |
|
|
|
3,957 |
|
Other income |
|
|
(632 |
) |
|
|
(248 |
) |
|
|
|
|
|
|
|
|
|
|
2,102 |
|
|
|
777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(32,537 |
) |
|
|
(56,281 |
) |
Income tax provision |
|
|
287 |
|
|
|
97 |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(32,824 |
) |
|
$ |
(56,378 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.37 |
) |
|
$ |
(0.64 |
) |
|
|
|
|
|
|
|
Average shares outstanding during period: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
88,620 |
|
|
|
87,797 |
|
|
|
|
|
|
|
|
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)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
May 31, |
|
|
March 1, |
|
|
June 2, |
|
| |
|
2008 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, including temporary investments
of $63,767, $87,837 and $145,547, respectively |
|
$ |
80,823 |
|
|
$ |
93,433 |
|
|
$ |
152,026 |
|
Accounts receivable, net |
|
|
19,341 |
|
|
|
23,121 |
|
|
|
20,709 |
|
Inventories |
|
|
384,838 |
|
|
|
411,709 |
|
|
|
334,114 |
|
Income tax receivable |
|
|
3,734 |
|
|
|
13,632 |
|
|
|
32,843 |
|
Prepaid expenses and other current assets |
|
|
42,508 |
|
|
|
41,445 |
|
|
|
50,829 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
531,244 |
|
|
|
583,340 |
|
|
|
590,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office building and related assets |
|
|
79,380 |
|
|
|
80,539 |
|
|
|
84,028 |
|
Other properties, net of accumulated depreciation
of $417,180, $408,609 and $402,140, respectively |
|
|
108,253 |
|
|
|
114,952 |
|
|
|
143,076 |
|
Other noncurrent assets |
|
|
42,045 |
|
|
|
43,073 |
|
|
|
43,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
760,922 |
|
|
$ |
821,904 |
|
|
$ |
861,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
80,161 |
|
|
$ |
106,084 |
|
|
$ |
96,714 |
|
Gift cards and other deferred revenue |
|
|
58,845 |
|
|
|
63,101 |
|
|
|
67,448 |
|
Accrued income taxes payable |
|
|
4,878 |
|
|
|
5,000 |
|
|
|
4,977 |
|
Other accrued liabilities |
|
|
103,712 |
|
|
|
101,817 |
|
|
|
120,985 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
247,596 |
|
|
|
276,002 |
|
|
|
290,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
184,000 |
|
|
|
184,000 |
|
|
|
184,000 |
|
Other noncurrent liabilities |
|
|
90,739 |
|
|
|
94,158 |
|
|
|
83,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $1.00 par, 500,000,000 shares authorized,
100,779,000 issued |
|
|
100,779 |
|
|
|
100,779 |
|
|
|
100,779 |
|
Paid-in capital |
|
|
123,268 |
|
|
|
126,795 |
|
|
|
125,586 |
|
Retained earnings |
|
|
203,270 |
|
|
|
236,094 |
|
|
|
275,727 |
|
Cumulative other comprehensive income |
|
|
517 |
|
|
|
373 |
|
|
|
2,987 |
|
Less — 11,755,000, 12,172,000 and 12,487,000 common
shares in treasury, at cost, respectively |
|
|
(189,247 |
) |
|
|
(196,297 |
) |
|
|
(201,683 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
238,587 |
|
|
|
267,744 |
|
|
|
303,396 |
|
Commitments and contingencies |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
760,922 |
|
|
$ |
821,904 |
|
|
$ |
861,138 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
4
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
May 31, |
|
|
June 2, |
|
| |
|
2008 |
|
|
2007 |
|
Cash flow from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(32,824 |
) |
|
$ |
(56,378 |
) |
Adjustments to reconcile to net cash used in
operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
11,388 |
|
|
|
13,577 |
|
(Gain) loss on disposal of fixed assets |
|
|
39 |
|
|
|
(1,060 |
) |
Loss on impairment of fixed and long-lived assets |
|
|
— |
|
|
|
2,181 |
|
Stock-based compensation expense |
|
|
2,352 |
|
|
|
2,155 |
|
Deferred compensation |
|
|
958 |
|
|
|
412 |
|
Lease termination expense |
|
|
587 |
|
|
|
1,262 |
|
Other |
|
|
164 |
|
|
|
138 |
|
Changes in cash from: |
|
|
|
|
|
|
|
|
Inventories |
|
|
26,871 |
|
|
|
25,949 |
|
Accounts receivable, prepaid expenses
and other current assets |
|
|
(556 |
) |
|
|
(1,639 |
) |
Income tax receivable |
|
|
12,897 |
|
|
|
— |
|
Accounts payable and accrued expenses |
|
|
(34,203 |
) |
|
|
(2,548 |
) |
Accrued income taxes payable |
|
|
(345 |
) |
|
|
415 |
|
Other noncurrent assets |
|
|
316 |
|
|
|
163 |
|
Other noncurrent liabilities |
|
|
(32 |
) |
|
|
(314 |
) |
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(12,388 |
) |
|
|
(15,687 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(1,894 |
) |
|
|
(769 |
) |
Proceeds from disposition of properties |
|
|
4 |
|
|
|
1,587 |
|
Proceeds from sale of restricted assets |
|
|
497 |
|
|
|
— |
|
Purchase of restricted investments |
|
|
— |
|
|
|
(300 |
) |
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(1,393 |
) |
|
|
518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from stock options exercised,
stock purchase plan and other, net |
|
|
1,171 |
|
|
|
996 |
|
Debt issuance costs |
|
|
— |
|
|
|
(979 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
1,171 |
|
|
|
17 |
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
(12,610 |
) |
|
|
(15,152 |
) |
Cash and cash equivalents at the beginning of the period |
|
|
93,433 |
|
|
|
167,178 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period |
|
$ |
80,823 |
|
|
$ |
152,026 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
5
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MAY 31, 2008
(in thousands except per share amounts)
(unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
|
|
|
|
| |
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Total |
|
| |
|
Outstanding |
|
|
|
|
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury |
|
|
Shareholders’ |
|
| |
|
Stock |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Stock |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 1, 2008 |
|
|
88,607 |
|
|
$ |
100,779 |
|
|
$ |
126,795 |
|
|
$ |
236,094 |
|
|
$ |
373 |
|
|
|
($196,297 |
) |
|
$ |
267,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(32,824 |
) |
|
|
— |
|
|
|
— |
|
|
|
(32,824 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
200 |
|
|
|
— |
|
|
|
200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(56 |
) |
|
|
— |
|
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,680 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock compensation |
|
|
374 |
|
|
|
— |
|
|
|
(5,575 |
) |
|
|
— |
|
|
|
— |
|
|
|
6,032 |
|
|
|
457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option compensation expense |
|
|
— |
|
|
|
— |
|
|
|
1,895 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options, stock
purchase plan and other |
|
|
43 |
|
|
|
— |
|
|
|
153 |
|
|
|
— |
|
|
|
— |
|
|
|
1,018 |
|
|
|
1,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance May 31, 2008 |
|
|
89,024 |
|
|
$ |
100,779 |
|
|
$ |
123,268 |
|
|
$ |
203,270 |
|
|
$ |
517 |
|
|
$ |
(189,247 |
) |
|
$ |
238,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
6
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MAY 31, 2008 AND JUNE 2, 2007
(unaudited)
Throughout this report, references to the “Company” include Pier 1 Imports, Inc. and its
consolidated subsidiaries. The accompanying unaudited financial statements should be read in
conjunction with the Company’s Form 10-K for the year ended March 1, 2008. All adjustments that
are, in the opinion of management, necessary for a fair presentation of the financial position as
of May 31, 2008, and the results of operations and cash flows for the three months ended May 31,
2008 and June 2, 2007 have been made and consist only of normal recurring adjustments, except as
otherwise described herein. The results of operations for the three months ended May 31, 2008 and
June 2, 2007 are not indicative of results to be expected for the fiscal year because of, among
other things, seasonality factors in the retail business. Historically, the strongest sales of the
Company’s products have occurred during the holiday season beginning in November and continuing
through December. The Company conducts business as one operating segment.
Note 1 — Loss per share
Basic loss per share amounts were determined by dividing net loss by the weighted average number of
common shares outstanding for the period. Diluted loss per share amounts were similarly computed,
but would have included the effect, if dilutive, of the Company’s weighted average number of stock
options outstanding and shares of unvested restricted stock. As the effect would have been
antidilutive, all 13,693,027 and 14,771,615 stock options outstanding and shares of unvested
restricted stock were excluded from the computation of the first quarter loss per share for fiscal
2009 and fiscal 2008, respectively. Loss per share for the three months ended May 31, 2008 and
June 2, 2007 was calculated as follows (in thousands except per share amounts):
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
May 31, |
|
|
June 2, |
|
| |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Net loss, basic and diluted |
|
$ |
(32,824 |
) |
|
$ |
(56,378 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
88,620 |
|
|
|
87,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.37 |
) |
|
$ |
(0.64 |
) |
|
|
|
|
|
|
|
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 2 — Comprehensive loss
The components of comprehensive loss for the three months ended May 31, 2008 and June 2, 2007 were
as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
May 31, |
|
|
June 2, |
|
| |
|
2008 |
|
|
2007 |
|
| |
Net loss |
|
$ |
(32,824 |
) |
|
$ |
(56,378 |
) |
Currency translation adjustments |
|
|
(56 |
) |
|
|
579 |
|
Pension adjustments |
|
|
200 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(32,680 |
) |
|
$ |
(55,799 |
) |
|
|
|
|
|
|
|
Note 3 — Stock-based compensation
The Company accounts for share-based compensation 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 months ended May 31,
2008 and June 2, 2007, the Company recorded stock-based compensation expense related to stock
options and restricted stock of $2,352,000, or $0.03 per share, and $2,155,000, or $0.02 per share,
respectively. The Company recognized no net tax benefit related to stock-based compensation during
the first quarter of either fiscal 2009 or fiscal 2008 as a result of the Company’s valuation
allowance on all deferred tax assets.
During the first quarter of fiscal 2009, the Company granted 587,300 stock options with an exercise
price of $7.45 and a grant date fair value of $3.48 per share. The stock options will be expensed
over a four-year vesting period. The Company also granted 399,400 shares of restricted stock with a
grant date fair value of $7.45 per share that will be expensed over a three-year service period.
During the first quarter of fiscal 2009, the Company began expensing a performance-based grant of
1,000,000 stock options to the chief executive officer when the performance targets for fiscal 2009
were set in accordance with his employment agreement. The options have an exercise price of $6.69,
a grant date fair value of $2.84 and are expected to be expensed over a one-year vesting period in
accordance with SFAS 123R. As of May 31, 2008 there was approximately $7,086,000 of total
unrecognized compensation expense related to unvested stock option awards that is expected to be
recognized over a weighted average period of 1.94 years and $5,294,000 of total unrecognized
compensation expense related to restricted stock that may be recognized over a weighted average
period of 2.12 years.
Note 4 — Costs associated with exit activities
As part of the ordinary course of business, the Company terminates leases prior to their expiration
when certain stores or facilities are closed or relocated as deemed necessary by the evaluation of
its real estate portfolio. These decisions are based on lease renewal obligations, relocation
space availability, local market conditions and prospects for future profitability. In connection
with these lease terminations, the Company has recorded estimated liabilities in accordance with
SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” At the time of closure, neither the write-off of
fixed assets nor the write-down of inventory related to such stores was material. Additionally,
employee severance costs associated with these closures were not significant. The estimated
liabilities were recorded based upon the Company’s remaining
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
lease obligations less estimated subtenant rental income. Revisions during the periods presented
related to changes in estimated buyout terms or subtenant receipts expected on closed facilities.
Expenses related to lease termination obligations are included in selling, general and
administrative expenses in the Company’s consolidated statements of operations.
The following table represents a rollforward of the liability balances for the three months ended
May 31, 2008 and June 2, 2007 related to these closures (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
May 31, |
|
|
June 2, |
|
| |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
$ |
5,628 |
|
|
$ |
2,436 |
|
|
|
|
|
|
|
|
|
|
Original charges |
|
|
200 |
|
|
|
1,542 |
|
Revisions |
|
|
387 |
|
|
|
(280 |
) |
Cash payments |
|
|
(1,280 |
) |
|
|
(932 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
4,935 |
|
|
$ |
2,766 |
|
|
|
|
|
|
|
|
Included in the table above are lease termination costs related to the closure of all of the
Company’s clearance and Pier 1 Kids stores and the direct to consumer channel. These concepts were
closed during fiscal 2008. Revisions of the lease termination costs associated with these closures
were $397,000, or less than $0.01 per share, during the first quarter of fiscal 2009. Cash
outflows related to these lease terminations were $794,000.
Note 5 — Condensed financial statements
The Company’s $165,000,000 of 6.375% convertible senior notes (the “Notes”) are fully and
unconditionally guaranteed, on a joint and several basis, by all of the Company’s material domestic
consolidated subsidiaries (the “Guarantor Subsidiaries”). The subsidiaries that do not guarantee
such Notes are comprised of the Company’s foreign subsidiaries and certain other insignificant
domestic consolidated subsidiaries (the “Non-Guarantor Subsidiaries”). Each of the Guarantor
Subsidiaries is wholly owned. In lieu of providing separate financial statements for the Guarantor
Subsidiaries, condensed consolidating financial information is presented below.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Three Months Ended May 31, 2008
(in thousands)
(unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pier 1 |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
| |
|
Imports, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Net sales |
|
$ |
— |
|
|
$ |
308,019 |
|
|
$ |
4,219 |
|
|
$ |
(2,218 |
) |
|
$ |
310,020 |
|
Cost of sales (including buying
and store occupancy costs) |
|
|
— |
|
|
|
221,034 |
|
|
|
3,862 |
|
|
|
(2,482 |
) |
|
|
222,414 |
|
Selling, general and administrative
(including depreciation and
amortization) |
|
|
519 |
|
|
|
117,477 |
|
|
|
45 |
|
|
|
— |
|
|
|
118,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(519 |
) |
|
|
(30,492 |
) |
|
|
312 |
|
|
|
264 |
|
|
|
(30,435 |
) |
Nonoperating (income) expenses |
|
|
(906 |
) |
|
|
3,103 |
|
|
|
(95 |
) |
|
|
— |
|
|
|
2,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
387 |
|
|
|
(33,595 |
) |
|
|
407 |
|
|
|
264 |
|
|
|
(32,537 |
) |
Provision for income taxes |
|
|
— |
|
|
|
287 |
|
|
|
— |
|
|
|
— |
|
|
|
287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) after income
taxes |
|
|
387 |
|
|
|
(33,882 |
) |
|
|
407 |
|
|
|
264 |
|
|
|
(32,824 |
) |
Net income (loss) from subsidiaries |
|
|
(33,475 |
) |
|
|
407 |
|
|
|
— |
|
|
|
33,068 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(33,088 |
) |
|
$ |
(33,475 |
) |
|
$ |
407 |
|
|
$ |
33,332 |
|
|
$ |
(32,824 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Three Months Ended June 2, 2007
(in thousands)
(unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pier 1 |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
| |
|
Imports, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Net sales |
|
$ |
— |
|
|
$ |
355,114 |
|
|
$ |
7,547 |
|
|
$ |
(6,286 |
) |
|
$ |
356,375 |
|
Cost of sales (including buying
and store occupancy costs) |
|
|
— |
|
|
|
268,704 |
|
|
|
6,969 |
|
|
|
(6,476 |
) |
|
|
269,197 |
|
Selling, general and administrative
(including depreciation and
amortization) |
|
|
453 |
|
|
|
142,164 |
|
|
|
65 |
|
|
|
— |
|
|
|
142,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(453 |
) |
|
|
(55,754 |
) |
|
|
513 |
|
|
|
190 |
|
|
|
(55,504 |
) |
Nonoperating (income) expenses |
|
|
(786 |
) |
|
|
1,724 |
|
|
|
(161 |
) |
|
|
— |
|
|
|
777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
333 |
|
|
|
(57,478 |
) |
|
|
674 |
|
|
|
190 |
|
|
|
(56,281 |
) |
Provision for income taxes |
|
|
— |
|
|
|
45 |
|
|
|
52 |
|
|
|
— |
|
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) after income
taxes |
|
|
333 |
|
|
|
(57,523 |
) |
|
|
622 |
|
|
|
190 |
|
|
|
(56,378 |
) |
Net income (loss) from subsidiaries |
|
|
(56,901 |
) |
|
|
622 |
|
|
|
— |
|
|
|
56,279 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(56,568 |
) |
|
$ |
(56,901 |
) |
|
$ |
622 |
|
|
$ |
56,469 |
|
|
$ |
(56,378 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED BALANCE SHEET
May 31, 2008
(in thousands)
(unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pier 1 |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
| |
|
Imports, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
23,868 |
|
|
$ |
44,642 |
|
|
$ |
12,313 |
|
|
$ |
— |
|
|
$ |
80,823 |
|
Accounts receivable, net |
|
|
1 |
|
|
|
17,570 |
|
|
|
1,770 |
|
|
|
— |
|
|
|
19,341 |
|
Inventories |
|
|
— |
|
|
|
384,838 |
|
|
|
— |
|
|
|
— |
|
|
|
384,838 |
|
Income tax receivable |
|
|
— |
|
|
|
3,330 |
|
|
|
404 |
|
|
|
— |
|
|
|
3,734 |
|
Prepaid expenses and other
current assets |
|
|
872 |
|
|
|
41,636 |
|
|
|
— |
|
|
|
— |
|
|
|
42,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
24,741 |
|
|
|
492,016 |
|
|
|
14,487 |
|
|
|
— |
|
|
|
531,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office building and related
assets |
|
|
— |
|
|
|
79,380 |
|
|
|
— |
|
|
|
— |
|
|
|
79,380 |
|
Other properties, net |
|
|
— |
|
|
|
104,439 |
|
|
|
3,814 |
|
|
|
— |
|
|
|
108,253 |
|
Investment in subsidiaries |
|
|
112,488 |
|
|
|
44,025 |
|
|
|
— |
|
|
|
(156,513 |
) |
|
|
— |
|
Other noncurrent assets |
|
|
6,322 |
|
|
|
35,723 |
|
|
|
— |
|
|
|
— |
|
|
|
42,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
143,551 |
|
|
$ |
755,583 |
|
|
$ |
18,301 |
|
|
$ |
(156,513 |
) |
|
$ |
760,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
39 |
|
|
$ |
79,834 |
|
|
$ |
288 |
|
|
$ |
— |
|
|
$ |
80,161 |
|
Intercompany payable
(receivable) |
|
|
(263,162 |
) |
|
|
289,065 |
|
|
|
(25,903 |
) |
|
|
— |
|
|
|
— |
|
Gift cards and other deferred
revenue |
|
|
— |
|
|
|
58,845 |
|
|
|
— |
|
|
|
— |
|
|
|
58,845 |
|
Accrued income taxes
payable (receivable) |
|
|
48 |
|
|
|
4,983 |
|
|
|
(153 |
) |
|
|
— |
|
|
|
4,878 |
|
Other accrued liabilities |
|
|
3,039 |
|
|
|
100,629 |
|
|
|
44 |
|
|
|
— |
|
|
|
103,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
(260,036 |
) |
|
|
533,356 |
|
|
|
(25,724 |
) |
|
|
— |
|
|
|
247,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
165,000 |
|
|
|
19,000 |
|
|
|
— |
|
|
|
— |
|
|
|
184,000 |
|
Other noncurrent liabilities |
|
|
— |
|
|
|
90,739 |
|
|
|
— |
|
|
|
— |
|
|
|
90,739 |
|
Shareholders’ equity |
|
|
238,587 |
|
|
|
112,488 |
|
|
|
44,025 |
|
|
|
(156,513 |
) |
|
|
238,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
143,551 |
|
|
$ |
755,583 |
|
|
$ |
18,301 |
|
|
$ |
(156,513 |
) |
|
$ |
760,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED BALANCE SHEET
March 1, 2008
(in thousands)
(unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pier 1 |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
| |
|
Imports, |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
| |
|
Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
53,030 |
|
|
$ |
26,824 |
|
|
$ |
13,579 |
|
|
$ |
— |
|
|
$ |
93,433 |
|
Accounts receivable, net |
|
|
5 |
|
|
|
21,607 |
|
|
|
1,509 |
|
|
|
— |
|
|
|
23,121 |
|
Inventories |
|
|
— |
|
|
|
411,709 |
|
|
|
— |
|
|
|
— |
|
|
|
411,709 |
|
Income tax receivable |
|
|
— |
|
|
|
13,251 |
|
|
|
381 |
|
|
|
— |
|
|
|
13,632 |
|
Prepaid expenses and other
current assets |
|
|
78 |
|
|
|
41,367 |
|
|
|
— |
|
|
|
— |
|
|
|
41,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
53,113 |
|
|
|
514,758 |
|
|
|
15,469 |
|
|
|
— |
|
|
|
583,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office building and related assets |
|
|
— |
|
|
|
80,539 |
|
|
|
— |
|
|
|
— |
|
|
|
80,539 |
|
Other properties, net |
|
|
— |
|
|
|
111,112 |
|
|
|
3,840 |
|
|
|
— |
|
|
|
114,952 |
|
Investment in subsidiaries |
|
|
145,555 |
|
|
|
43,354 |
|
|
|
— |
|
|
|
(188,909 |
) |
|
|
— |
|
Other noncurrent assets |
|
|
6,588 |
|
|
|
36,485 |
|
|
|
— |
|
|
|
— |
|
|
|
43,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
205,256 |
|
|
$ |
786,248 |
|
|
$ |
19,309 |
|
|
$ |
(188,909 |
) |
|
$ |
821,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
126 |
|
|
$ |
104,900 |
|
|
$ |
1,058 |
|
|
$ |
— |
|
|
$ |
106,084 |
|
Intercompany payable
(receivable) |
|
|
(228,310 |
) |
|
|
253,339 |
|
|
|
(25,029 |
) |
|
|
— |
|
|
|
— |
|
Gift cards and other deferred
revenue |
|
|
— |
|
|
|
63,101 |
|
|
|
— |
|
|
|
— |
|
|
|
63,101 |
|
Accrued income taxes
payable (receivable) |
|
|
48 |
|
|
|
5,065 |
|
|
|
(113 |
) |
|
|
— |
|
|
|
5,000 |
|
Other accrued liabilities |
|
|
648 |
|
|
|
101,130 |
|
|
|
39 |
|
|
|
— |
|
|
|
101,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
(227,488 |
) |
|
|
527,535 |
|
|
|
(24,045 |
) |
|
|
— |
|
|
|
276,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
165,000 |
|
|
|
19,000 |
|
|
|
— |
|
|
|
— |
|
|
|
184,000 |
|
Other noncurrent liabilities |
|
|
— |
|
|
|
94,158 |
|
|
|
— |
|
|
|
— |
|
|
|
94,158 |
|
Shareholders’ equity |
|
|
267,744 |
|
|
|
145,555 |
|
|
|
43,354 |
|
|
|
(188,909 |
) |
|
|
267,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
205,256 |
|
|
$ |
786,248 |
|
|
$ |
19,309 |
|
|
$ |
(188,909 |
) |
|
$ |
821,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED BALANCE SHEET
June 2, 2007
(in thousands)
(unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pier 1 |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
| |
|
Imports, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
109,032 |
|
|
$ |
30,453 |
|
|
$ |
12,541 |
|
|
$ |
— |
|
|
$ |
152,026 |
|
Accounts receivable, net |
|
|
31 |
|
|
|
19,668 |
|
|
|
1,010 |
|
|
|
— |
|
|
|
20,709 |
|
Inventories |
|
|
— |
|
|
|
334,114 |
|
|
|
— |
|
|
|
— |
|
|
|
334,114 |
|
Income tax receivable |
|
|
— |
|
|
|
32,563 |
|
|
|
280 |
|
|
|
— |
|
|
|
32,843 |
|
Prepaid expenses and other
current assets |
|
|
— |
|
|
|
50,829 |
|
|
|
— |
|
|
|
— |
|
|
|
50,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
109,063 |
|
|
|
467,627 |
|
|
|
13,831 |
|
|
|
— |
|
|
|
590,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office building and related
assets |
|
|
— |
|
|
|
84,028 |
|
|
|
— |
|
|
|
— |
|
|
|
84,028 |
|
Other properties, net |
|
|
— |
|
|
|
137,085 |
|
|
|
5,991 |
|
|
|
— |
|
|
|
143,076 |
|
Investment in subsidiaries |
|
|
187,749 |
|
|
|
41,439 |
|
|
|
— |
|
|
|
(229,188 |
) |
|
|
— |
|
Other noncurrent assets |
|
|
7,384 |
|
|
|
36,129 |
|
|
|
— |
|
|
|
— |
|
|
|
43,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
304,196 |
|
|
$ |
766,308 |
|
|
$ |
19,822 |
|
|
$ |
(229,188 |
) |
|
$ |
861,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
94 |
|
|
$ |
93,861 |
|
|
$ |
2,759 |
|
|
$ |
— |
|
|
$ |
96,714 |
|
Intercompany payable
(receivable) |
|
|
(167,580 |
) |
|
|
191,689 |
|
|
|
(24,109 |
) |
|
|
— |
|
|
|
— |
|
Gift cards and other deferred
revenue |
|
|
— |
|
|
|
67,448 |
|
|
|
— |
|
|
|
— |
|
|
|
67,448 |
|
Accrued income taxes
payable (receivable) |
|
|
48 |
|
|
|
5,230 |
|
|
|
(301 |
) |
|
|
— |
|
|
|
4,977 |
|
Other accrued liabilities |
|
|
3,238 |
|
|
|
117,713 |
|
|
|
34 |
|
|
|
— |
|
|
|
120,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
(164,200 |
) |
|
|
475,941 |
|
|
|
(21,617 |
) |
|
|
— |
|
|
|
290,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
165,000 |
|
|
|
19,000 |
|
|
|
— |
|
|
|
— |
|
|
|
184,000 |
|
Other noncurrent liabilities |
|
|
— |
|
|
|
83,618 |
|
|
|
— |
|
|
|
— |
|
|
|
83,618 |
|
Shareholders’ equity |
|
|
303,396 |
|
|
|
187,749 |
|
|
|
41,439 |
|
|
|
(229,188 |
) |
|
|
303,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
304,196 |
|
|
$ |
766,308 |
|
|
$ |
19,822 |
|
|
$ |
(229,188 |
) |
|
$ |
861,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Three Months Ended May 31, 2008
(in thousands)
(unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pier 1 |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
| |
|
Imports, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities |
|
$ |
4,519 |
|
|
$ |
(16,515 |
) |
|
$ |
(392 |
) |
|
$ |
— |
|
|
$ |
(12,388 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
— |
|
|
|
(1,894 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,894 |
) |
Proceeds from disposition of
properties |
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
Proceeds from sale of restricted
investments |
|
|
— |
|
|
|
497 |
|
|
|
— |
|
|
|
— |
|
|
|
497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in
investing activities |
|
|
— |
|
|
|
(1,393 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,393 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock options
exercised, stock purchase
plan and other, net |
|
|
1,171 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,171 |
|
Advances (to) from subsidiaries |
|
|
(34,852 |
) |
|
|
35,726 |
|
|
|
(874 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities |
|
|
(33,681 |
) |
|
|
35,726 |
|
|
|
(874 |
) |
|
|
— |
|
|
|
1,171 |
|
Change in cash and cash equivalents |
|
|
(29,162 |
) |
|
|
17,818 |
|
|
|
(1,266 |
) |
|
|
— |
|
|
|
(12,610 |
) |
Cash and cash equivalents at
beginning of period |
|
|
53,030 |
|
|
|
26,824 |
|
|
|
13,579 |
|
|
|
— |
|
|
|
93,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
end of period |
|
$ |
23,868 |
|
|
$ |
44,642 |
|
|
$ |
12,313 |
|
|
$ |
— |
|
|
$ |
80,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Three Months Ended June 2, 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 |
|
$ |
5,415 |
|
|
$ |
(23,781 |
) |
|
$ |
2,679 |
|
|
$ |
— |
|
|
$ |
(15,687 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
— |
|
|
|
(769 |
) |
|
|
— |
|
|
|
— |
|
|
|
(769 |
) |
Proceeds from disposition of
properties |
|
|
— |
|
|
|
1,587 |
|
|
|
— |
|
|
|
— |
|
|
|
1,587 |
|
Purchase of restricted
investments |
|
|
— |
|
|
|
(300 |
) |
|
|
— |
|
|
|
— |
|
|
|
(300 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing
activities |
|
|
— |
|
|
|
518 |
|
|
|
— |
|
|
|
— |
|
|
|
518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock options
exercised, stock purchase
plan and other, net |
|
|
996 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
996 |
|
Debt issuance costs |
|
|
— |
|
|
|
(979 |
) |
|
|
— |
|
|
|
— |
|
|
|
(979 |
) |
Advances (to) from
subsidiaries |
|
|
(8,542 |
) |
|
|
10,996 |
|
|
|
(2,454 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities |
|
|
(7,546 |
) |
|
|
10,017 |
|
|
|
(2,454 |
) |
|
|
— |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
(2,131 |
) |
|
|
(13,246 |
) |
|
|
225 |
|
|
|
— |
|
|
|
(15,152 |
) |
Cash and cash equivalents at
beginning of period |
|
|
111,163 |
|
|
|
43,699 |
|
|
|
12,316 |
|
|
|
— |
|
|
|
167,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
end of period |
|
$ |
109,032 |
|
|
$ |
30,453 |
|
|
$ |
12,541 |
|
|
$ |
— |
|
|
$ |
152,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6 — Defined benefit plans
The Company maintains supplemental retirement plans (the “Plans”) for certain of its executive
officers. The Plans provide that upon death, disability, reaching retirement age, and certain
termination events, a participant will receive benefits based on highest compensation, years of
service and years of plan participation. Benefit costs are determined using actuarial cost methods
to estimate the total benefits ultimately payable to executive officers and this cost is allocated
to the respective service periods.
The Plans are not funded and thus have no plan assets. The actuarial assumptions used to calculate
benefit costs are reviewed annually, or in the event of a material change in the Plans or
participation in the Plans. The components of net periodic benefit costs for the three months
ended May 31, 2008 and June 2, 2007 were as follows (in thousands):
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
May 31, |
|
|
June 2, |
|
| |
|
2008 |
|
|
2007 |
|
Components of net periodic benefits cost: |
|
|
|
|
|
|
|
|
Service cost |
|
$ |
144 |
|
|
$ |
40 |
|
Interest cost |
|
|
224 |
|
|
|
183 |
|
Amortization of unrecognized prior service costs |
|
|
138 |
|
|
|
39 |
|
Amortization of net actuarial loss |
|
|
52 |
|
|
|
36 |
|
|
|
|
|
|
|
|
| |
Net periodic benefit cost |
|
$ |
558 |
|
|
$ |
298 |
|
|
|
|
|
|
|
|
Note 7 — Income taxes
The Company continues to provide a valuation allowance against all deferred tax assets. As a
result, the Company did not record a federal or state tax benefit on its operating loss for the
first quarter of fiscal 2009. Minimal provisions for state and foreign income tax were made for
the period.
Note 8 — Subsequent events
Subsequent to the first quarter of fiscal 2009, the Company sold its corporate headquarters
building and accompanying land to Chesapeake Plaza, L.L.C., an affiliate of Chesapeake Energy
Corporation, for net proceeds of approximately $102,000,000. The gain on the sale of the property
will be recognized over the expected lease term. In connection with this transaction, the
corporate headquarters building was removed from the assets securing borrowings under the Company’s
secured credit facility.
The Company also entered into a lease agreement to rent office space in the building. The lease
has a primary term of seven years beginning on June 9, 2008, with one three-year renewal option and
provisions for terminating the lease at the end of the fifth lease year.
Note 9 — Reclassification
The Company’s home office building and related assets were reclassified during the first quarter of
fiscal 2009 to noncurrent assets from assets held for sale which were included in current assets at
March 1, 2008. This reclassification on the balance sheet was made in all periods presented to
reflect the fact that the Company entered into a lease for a portion of the building when the sale
transaction was completed, and therefore the building did not meet the definition of assets held
for sale at the balance sheet dates. Depreciation was recorded on the assets through the date of
sale and the reclassification had no impact on the results of operations or statement of cash flows
in any period presented. As stated in Note 8 of the Notes to Consolidated Financial Statements
above, the office building and related assets were sold on June 9, 2008, subsequent to quarter end.
Note 10 — New accounting pronouncements
In May 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”)
APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)”, which clarifies that convertible debt instruments that may be
settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph
12 of APB Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase
Warrants.” Additionally, this FSP specifies that issuers of such instruments should separately
account for the liability and equity components in a manner that will reflect the entity’s
nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods.
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
This FSP is effective for the Company at the beginning of fiscal year 2010 and will be applied
retrospectively to all periods presented. The Company is currently evaluating the impact of the
adoption on its financial statements.
18
PART I
|
|
|
| Item 2. |
|
Management’s 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 Company’s consolidated financial
statements as of March 1, 2008, and for the year then ended, and related Notes and Management’s
Discussion and Analysis of Financial Condition and Results of Operations, all contained in the
Company’s Annual Report on Form 10-K for the year ended March 1, 2008.
Management Overview
Pier 1 Imports, Inc. (together with its consolidated subsidiaries, the “Company”) is a global
importer and is one of North America’s largest specialty retailers of imported decorative home
furnishings and gifts. The Company imports merchandise directly from over 50 countries and sells a
wide variety of furniture collections, wicker, decorative accessories, bed and bath products,
candles, housewares and other seasonal assortments in its stores. The results of operations for
the three months ended May 31, 2008 and June 2, 2007 are not indicative of results to be expected
for the fiscal year because of, among other things, seasonality factors in the retail business.
Historically, the strongest sales of the Company’s products have occurred during the holiday season
beginning in November and continuing through December. The Company conducts business as one
operating segment and operates stores in the United States and Canada under the name Pier 1
Imports. As of May 31, 2008, the Company operated 1,116 stores in the United States and Canada.
In fiscal 2008, the Company outlined a plan to return to profitability that was built on its main
business priorities. During the first quarter of fiscal 2009, the Company continued to execute its
plan with the financial and operational discipline that it demonstrated over the past year, and
continues to make progress despite facing a difficult macro-economic environment with rising fuel
prices, lower consumer confidence and a declining housing market. The Company’s management
continues to believe that even during difficult economic times, it has made and will continue to
make progress on returning the Company to profitability and beyond.
A primary focus of the Company, especially during this difficult economy, is to improve merchandise
margins through disciplined control over promotional activity while providing improved merchandise
assortments and utilizing clearance markdowns to manage inventory. As a result, the Company was
able to generate more gross profit dollars during the quarter with significantly lower sales than
in the prior year. The decline in comparable store sales was in part a result of a reduction in
marketing expenditures of approximately 40% compared to the prior year. The Company made the
decision to move marketing expenditures to the second half of fiscal 2009 where the Company’s
management believes that marketing dollars will have the most impact during the holiday selling
season. The Company’s management believes that this shift in marketing expenditures will increase
traffic and sales volumes during the most crucial selling season while continuing to maintain
improved merchandise margins.
In addition to these initiatives, the Company was able to continue general cost savings throughout
the organization, resulting in savings of $22.8 million in selling, general and administrative
costs for the quarter.
Net loss for the first quarter of fiscal 2009 was $32.8 million, which represented an improvement
of 42% over the same period last year.
19
|
|
|
| Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of
Operations. (continued) |
Results of Operations
Management reviews a number of key indicators to evaluate the Company’s financial performance. The
following table summarizes those key performance indicators for the three months ended May 31, 2008
and June 2, 2007:
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
| |
|
May 31, |
|
June 2, |
| |
|
2008 |
|
2007 |
Key Performance Indicators |
|
|
|
|
|
|
|
|
Total sales decline |
|
|
(13.0 |
%) |
|
|
(5.2 |
%) |
Comparable stores sales decline |
|
|
(5.4 |
%) |
|
|
(5.4 |
%) |
Sales per average retail square foot |
|
$ |
163 |
|
|
$ |
167 |
|
Merchandise margins as a % of sales |
|
|
51.3 |
% |
|
|
45.5 |
% |
Gross profit as a % of sales |
|
|
28.3 |
% |
|
|
24.5 |
% |
Selling, general and administrative expenses
as a % of sales |
|
|
35.3 |
% |
|
|
37.1 |
% |
Operating loss as a % of sales |
|
|
(9.8 |
%) |
|
|
(15.6 |
%) |
Net loss as a % of sales |
|
|
(10.6 |
%) |
|
|
(15.8 |
%) |
| |
|
|
|
|
|
|
|
|
| |
|
For the period ended |
| |
|
May 31, |
|
June 2, |
| |
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
Inventory per retail square foot |
|
$ |
43.70 |
|
|
$ |
36.29 |
|
Total retail square footage (in thousands) |
|
|
8,775 |
|
|
|
9,162 |
|
Total retail square footage decline from
the same period last year |
|
|
(4.2 |
%) |
|
|
(3.1 |
%) |
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 |
|
| |
|
May 31, |
|
|
June 2, |
|
| |
|
2008 |
|
|
2007 |
|
| |
Stores |
|
$ |
307,082 |
|
|
$ |
340,330 |
|
Direct to consumer |
|
|
— |
|
|
|
5,136 |
|
Other(1) |
|
|
2,938 |
|
|
|
10,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
310,020 |
|
|
$ |
356,375 |
|
|
|
|
|
|
|
|
|
|
|
| (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 first quarter of fiscal 2009 were $310.0 million, down 13.0% or $46.4 million
from last year’s first quarter net sales of $356.4 million. As a result of the aggressive
liquidation of discontinued and Modern Craftsman merchandise during the first quarter of
fiscal 2008, with no similar liquidation during the first
20
|
|
|
| Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued) |
quarter of fiscal 2009, comparable store sales for the first quarter of fiscal 2009 were 5.4% lower
than last year. In addition, the decision to move marketing expenditures to the latter half of
fiscal 2009 resulted in lower traffic during the quarter. The decrease in sales for the
three-month period was comprised of the following components (in thousands):
| |
|
|
|
|
| |
|
Net Sales |
|
|
|
|
|
|
Net sales for the three months ended June 2, 2007 |
|
$ |
356,375 |
|
|
|
|
|
|
Incremental sales growth (decline) from: |
|
|
|
|
Stores opened during fiscal 2008 |
|
|
891 |
|
Comparable stores |
|
|
(17,448 |
) |
Closed stores and other |
|
|
(29,798 |
) |
|
|
|
|
|
|
|
|
|
Net sales for the three months ended May 31, 2008 |
|
$ |
310,020 |
|
|
|
|
|
Total sales during the first quarter of fiscal 2009 decreased primarily as a result of a reduction
in the store count. During fiscal 2008, the Company closed 83 store locations, including all Pier
1 Kids and clearance stores. In addition, the Company closed its direct to consumer business
during the second quarter of fiscal 2008, which included e-commerce and catalog sales. Total store
count as of May 31, 2008 was 1,116, compared to 1,184 stores a year ago.
A summary reconciliation of the Company’s stores open at the beginning of fiscal 2009 to the number
open at the end of the first quarter follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
United States |
|
Canada |
|
Total |
Open at March 1, 2008 |
|
|
1,034 |
|
|
|
83 |
|
|
|
1,117 |
|
Openings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Closings |
|
|
(1 |
) |
|
|
— |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Open at May 31, 2008(1) |
|
|
1,033 |
|
|
|
83 |
|
|
|
1,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
The Company supplies merchandise and licenses the Pier 1 Imports name to Grupo
Sanborns, S.A. de C.V. and Sears Roebuck de Puerto Rico, Inc. which sell Pier 1
Imports merchandise primarily in a “store within a store” format. At May 31, 2008,
there were 32 and seven locations in Mexico and Puerto Rico, respectively. |
Gross Profit — Gross profit after related buying and store occupancy costs, expressed as a
percentage of sales, increased 380 basis points to 28.3% for the first quarter of fiscal 2009 from
24.5% last year. Merchandise margins for the first quarter increased 580 basis points to 51.3% of
sales over last year’s 45.5% of sales. This increase was primarily the result of the Company’s
disciplined focus during the first quarter of fiscal 2009 to preserve gross margin dollars.
Although the prior year’s margins were significantly impacted by the Company’s liquidation efforts
to clear excess inventory, the Company’s merchandising efforts and decreased use of promotional
events during the first quarter of fiscal 2009 also had a positive impact. On a comparable store
basis, merchandise margin dollars increased approximately 3% over last year. Comparable store
merchandise margins are determined on a basis similar to comparable store sales. Store occupancy
costs for the quarter decreased $3.6 million from the first quarter of fiscal 2008.
Operating Expenses, Depreciation and Income Taxes — Selling, general and administrative expenses
for the first quarter of fiscal 2009 were $109.4 million or 35.3% of sales, a decrease from the
same quarter last year of $22.8 million or 180 basis points as a percentage of sales. This
decrease primarily related to
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations. (continued)
management’s intentional reduction of expenses as well as store closures. Selling, general and
administrative expenses for the quarter included the charges summarized in the table below (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
May 31, 2008 |
|
|
June 2, 2007 |
|
|
Increase / |
|
| Quarter |
|
Expense |
|
|
% of Sales |
|
|
Expense |
|
|
% of Sales |
|
|
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store payroll |
|
$ |
52,636 |
|
|
|
17.0 |
% |
|
$ |
57,283 |
|
|
|
16.1 |
% |
|
$ |
(4,647 |
) |
Marketing |
|
|
12,673 |
|
|
|
4.1 |
% |
|
|
20,833 |
|
|
|
5.8 |
% |
|
|
(8,160 |
) |
Store supplies and
equipment rental |
|
|
7,883 |
|
|
|
2.5 |
% |
|
|
10,099 |
|
|
|
2.8 |
% |
|
|
(2,216 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,192 |
|
|
|
23.6 |
% |
|
|
88,215 |
|
|
|
24.8 |
% |
|
|
(15,023 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative payroll |
|
|
28,456 |
|
|
|
9.2 |
% |
|
|
30,592 |
|
|
|
8.6 |
% |
|
|
(2,136 |
) |
Lease termination costs and
impairments |
|
|
587 |
|
|
|
0.2 |
% |
|
|
3,443 |
|
|
|
1.0 |
% |
|
|
(2,856 |
) |
Severance and outplacement |
|
|
1,938 |
|
|
|
0.6 |
% |
|
|
3,517 |
|
|
|
1.0 |
% |
|
|
(1,579 |
) |
(Gain) loss on sale of fixed assets |
|
|
39 |
|
|
|
0.0 |
% |
|
|
(1,060 |
) |
|
|
(0.3 |
%) |
|
|
1,099 |
|
Other relatively fixed expenses |
|
|
5,156 |
|
|
|
1.7 |
% |
|
|
7,417 |
|
|
|
2.1 |
% |
|
|
(2,261 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,176 |
|
|
|
11.7 |
% |
|
|
43,909 |
|
|
|
12.3 |
% |
|
|
(7,733 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
109,368 |
|
|
|
35.3 |
% |
|
$ |
132,124 |
|
|
|
37.1 |
% |
|
$ |
(22,756 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses that fluctuate proportionately to some degree with sales and number of stores, such as
store payroll, marketing, store supplies and equipment rental decreased $15.0 million. Store
payroll decreased $4.6 million primarily as a result of a decrease in the total number of stores
and a planned reduction in staff hours compared to the prior year. Marketing expenditures were
$12.7 million or 4.1% of sales for the quarter, a decrease of $8.2 million or 170 basis points as a
percentage of sales compared to the same quarter last year. This decrease was primarily due to a
complete phase out of television advertising after the second quarter of fiscal 2008. Current
marketing initiatives for the fiscal year continue to include internet marketing, retail event
mailers and newspaper inserts with expenditures weighted more heavily to the third and fourth
quarters of fiscal 2009. The Company anticipates total marketing expenditures for fiscal 2009 to
be approximately 4% of sales. Other variable expenses, primarily supplies and equipment rental,
decreased $2.2 million or 30 basis points as a percentage of sales.
Relatively fixed selling, general and administrative expenses during the first quarter of fiscal
2009 decreased $7.7 million or 60 basis points as a percentage of sales from the same period last
year. The decrease was primarily the result of a companywide effort to reduce costs which included
a decrease in non-store payroll of $2.1 million and a reduction in severance outplacement services
of $1.6. Additionally, there were no impairment charges in the first quarter of fiscal 2009,
compared to $2.2 million in the same quarter last year.
Depreciation and amortization expense for the first quarter was $8.7 million compared to $10.6
million for the same period last year. This decrease was primarily a result of the impairment of
certain long-lived store fixed assets since the end of the first quarter of fiscal 2008, certain
assets’ becoming fully depreciated and store closures since the end of the first quarter of fiscal
2008.
The operating loss for the quarter was $30.4 million compared to $55.5 million for last year’s
first quarter.
The Company continues to provide a valuation allowance against all deferred tax assets. As a
result, the Company did not record a federal or state tax benefit on its operating loss for the
first quarter of fiscal
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations. (continued)
2009. Minimal provisions for state and foreign income tax were made for the period. As of May 31,
2008, the Company had tax loss carryforwards of over $200 million. These loss carryforwards, with
expirations beginning in fiscal year 2027, can be utilized to offset future income for U.S. federal
tax purposes.
Net Loss — Net loss for the first quarter of fiscal 2009 was $32.8 million, or $0.37 per share,
compared to $56.4 million, or $0.64 per share, for the first quarter of fiscal 2008.
Inventory — Inventory levels at the end of the first quarter of fiscal 2009 were $384.8 million,
down $26.9 million or 6.5%, from inventory levels at the end of fiscal 2008. This planned decrease
in inventory was part of the Company’s initiative to improve the overall efficiency of the supply
chain. One step taken was to reduce inventory levels maintained at the Company’s distribution
centers by ordering smaller quantities of merchandise more frequently to better match consumer
demand and manage on-hand quantities. This reduction will enable the Company to exit excess space
at the distribution centers during the second quarter of fiscal 2009. At the end of the first
quarter of fiscal 2009, inventory per retail square foot was $43.70 compared to $46.71 at fiscal
2008 year end. Current inventory levels are in line with the Company’s plan for the fiscal year.
Inventory levels at the end of the first quarter of fiscal 2008 were lower than normal because the
Company had substantially completed a significant liquidation of discontinued and Modern Craftsman
merchandise with a carrying value of approximately $60 million dollars. As expected, inventory
increased nearly $51 million at the end of the first quarter of fiscal 2009 when compared to the
same quarter in the prior year. Following the Company’s liquidation efforts, store level
inventories began to increase each month during the second and third quarters of fiscal 2008,
reaching desired levels around the October/November timeframe. Since that time, store level
inventories have remained relatively constant with fluctuations in the distribution centers. Last
year's monthly merchandise purchases peaked during September, but are expected to peak during August in the
current year. Therefore, inventory levels compared to the same periods last year are expected to
be $20 to $30 million higher at the end of the second quarter and $10 to $20 million lower at the end of the third
quarter when the Company is at peak inventory levels. The Company expects to end the fiscal year with inventory levels of $360 million, or a
reduction of approximately $50 million from fiscal 2008 year end.
Liquidity and Capital Resources
The Company ended the first quarter of fiscal 2009 with $80.8 million in cash and temporary
investments compared to $93.4 million at the end of fiscal 2008. Subsequent to the end of the
first quarter, the Company received net proceeds of approximately $102.0 million from the sale of
its corporate headquarters building and related assets on June 9, 2008, to begin the second fiscal
quarter with approximately $180.0 million in cash and temporary investments. Operating activities
in the first quarter of fiscal 2009 used $12.4 million of cash, primarily as a result of the
Company’s net loss and a decrease in accounts payable and accrued expenses, partially offset by a
reduction in inventory and the collection of a $12.4 million income tax refund, including related
interest.
During the first three months of fiscal 2009, investing activities used $1.4 million compared to
providing $0.5 million during the same period last year. Capital expenditures were $1.9 million in
fiscal 2009 compared to $0.8 million in fiscal 2008, consisting primarily of $1.1 million for
fixtures, equipment, and leasehold improvements for existing stores, $0.2 million for information
systems’ enhancements, $0.3 million related to the Company’s distribution centers and $0.2 million
related to home office leasehold improvements. Capital expenditures for fiscal 2009 are expected
to be approximately $15 million to $20 million.
At the end of the first quarter, the Company’s minimum operating lease commitments remaining for
fiscal 2009 were $171.8 million. The present value of total existing minimum operating lease
commitments discounted at 10% was $800.1 million at the fiscal 2009 first quarter-end.
23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations. (continued)
The Company currently plans to close 20 to 25 stores and eliminate excess distribution center space
during the remainder of fiscal 2009. Cash outflows for these closures are expected to be up to $3
million with lease termination charges of no more than $5 million.
Subsequent to the first quarter of fiscal 2009, the Company sold its corporate headquarters
building and accompanying land to Chesapeake Plaza, L.L.C., an affiliate of Chesapeake Energy
Corporation, for net proceeds of approximately $102.0 million. At that time, the building was
removed as collateral from the Company’s secured credit facility.
As part of the transaction, the Company entered into a lease agreement to rent office space in the
building. The lease has a primary term of seven years beginning on June 9, 2008, with one
three-year renewal option and provisions for terminating the lease at the end of the fifth lease
year. The estimated impact of this lease on the Company’s contractual obligations, as presented in
the Company’s Annual Report on Form 10-K for the year ended March 1, 2008, is an increase in
operating leases of approximately $5.2 million, $12.2 million, $13.1 million and $4.4 million for
the periods of less than one year, one to three years, three to five years and more than five
years, respectively.
On June 9, 2008, the Company announced its intention to purchase all outstanding common stock
shares of Cost Plus, Inc. in a stock-for-stock transaction. On June 24, 2008, the Company
announced that it had withdrawn its proposal to acquire those outstanding shares of Cost Plus, Inc.
because it did not believe it would be able to acquire a majority interest at a price that would
make sense for the Company’s shareholders.
Working capital requirements are expected to be funded from available cash balances, cash generated
from the operations of the Company, proceeds from the sale of the corporate headquarters building
and accompanying land, and if required, borrowings against lines of credit. The Company’s bank
facilities at the end of the first quarter of fiscal 2009 included a $325 million credit facility,
which was secured by the Company’s eligible merchandise inventory and third-party credit card
receivables; the Company owned real estate was removed from the borrowing base in June 2008. As of
May 31, 2008, the Company had no outstanding cash borrowings and had utilized $105.0 million in
letters of credit and bankers’ acceptances. At quarter end, the Company’s calculated borrowing
base (excluding Company owned real estate sold subsequent to quarter end) was $254.3 million, of
which $116.8 million remained available for cash borrowings. The Company will not be required to
comply with debt covenants under the facility unless the availability under such agreement is less
than $32.5 million. The Company does not anticipate falling below this minimum availability in the
foreseeable future. The Company was in compliance with required debt covenants at the end of the
first quarter of fiscal 2009. The Company also owns and is the beneficiary of a number of
insurance policies on the lives of current and former key executives that are unrestricted as to
use. Given the Company’s cash position and the various liquidity options available, the Company
believes it has sufficient liquidity to fund operational obligations and capital expenditure
requirements for the next twelve months.
New Accounting Pronouncements
In May 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”)
APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)”, which clarifies that convertible debt instruments that may be
settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph
12 of APB Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase
Warrants.” Additionally, this FSP specifies that issuers of such instruments should separately
account for the liability
24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations. (continued)
and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate
when interest cost is recognized in subsequent periods.
This FSP will be applied retrospectively to all periods presented. FSP APB 14-1 is effective for
the Company at the beginning of fiscal year 2010. The Company is currently evaluating the impact
of the adoption on its financial statements.
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations. (continued)
Forward-looking Statements
Certain matters discussed in this quarterly report, except for historical information contained
herein, may constitute “forward-looking statements” that are subject to certain risks and
uncertainties that could cause actual results to differ materially from those described in the
forward-looking statements. The Company may also make forward-looking statements in other reports
filed with the Securities and Exchange Commission and in material delivered to the Company’s
shareholders. Forward-looking statements provide current expectations of future events based on
certain assumptions. These statements encompass information that does not directly relate to any
historical or current fact and often may be identified with words such as “anticipates,”
“believes,” “expects,” “estimates,” “intends,” “plans,” “projects” and other similar expressions.
Management’s expectations and assumptions regarding planned store openings and closings, financing
of Company obligations from operations, success of its marketing, merchandising and store
operations strategies, and other future results are subject to risks, uncertainties and other
factors that could cause actual results to differ materially from the anticipated results or other
expectations expressed in the forward-looking statements. Risks and uncertainties that may affect
Company operations and performance include, among others, the effects of terrorist attacks or other
acts of war, conflicts or war involving the United States or its allies or trading partners, labor
strikes, weather conditions or natural disasters, volatility of fuel and utility costs, the general
strength of the economy and levels of consumer spending, consumer confidence, the availability of
suitable sites for locating stores and distribution facilities, availability of a qualified labor
force and management, the availability and proper functioning of technology and communications
systems supporting the Company’s key business processes, the ability of the Company to import
merchandise from foreign countries without significantly restrictive tariffs, duties or quotas, and
the ability of the Company to source, ship and deliver items from foreign countries to its U.S.
distribution centers at reasonable prices and rates and in a timely fashion. The foregoing risks
and uncertainties are in addition to others discussed elsewhere in this quarterly report. The
Company assumes no obligation to update or otherwise revise its forward-looking statements even if
experience or future changes make it clear that any projected results expressed or implied will not
be realized. Additional information concerning these risks and uncertainties is contained in the
Company’s Annual Report on Form 10-K for the year ended March 1, 2008, as filed with the Securities
and Exchange Commission.
Impact of Inflation
Inflation has not had a significant impact on the operations of the Company.
26
PART I
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
There are no material changes to the Company’s market risk as disclosed in its Form 10-K filed for
the fiscal year ended March 1, 2008.
Item 4. Controls and Procedures.
As required by Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the
“Exchange Act), an evaluation was conducted under the supervision and with the participation of the
Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company’s disclosure controls and procedures as of
May 31, 2008, and based on this evaluation the Chief Executive Officer and Chief Financial Officer
have concluded, with reasonable assurance, that the Company’s 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 Commission’s rules
and forms.
There has not been any change in the Company’s internal control over financial reporting during the
period covered by this report that has materially affected, or is reasonably likely to materially
affect, the Company’s internal control over financial reporting.
PART II
Item 1. Legal Proceedings.
The Company is a party to various legal proceedings and claims in the ordinary course of its
business. 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 Company’s Annual Report
on Form 10-K for the fiscal year ended March 1, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table provides information with respect to purchases of common stock of the Company
made during the three months ended May 31, 2008, 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.
27
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Approximate Dollar |
|
| |
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
|
Value of Shares |
|
| |
|
|
|
|
|
Average Price Paid |
|
|
Part of Publicly |
|
|
that May Yet Be |
|
| |
|
Total Number of |
|
|
per Share |
|
|
Announced Plans or |
|
|
Purchased Under the |
|
| Period |
|
Shares Purchased |
|
|
(including fees) |
|
|
Programs |
|
|
Plans or Programs |
|
| |
March 2, 2008 through April 5, 2008 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
April 6, 2008 through May 3, 2008 (1) |
|
|
36,320 |
|
|
|
7.45 |
|
|
|
— |
|
|
|
— |
|
May 4, 2008 through May 31, 2008 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,320 |
|
|
$ |
7.45 |
|
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
All of these shares of common stock were withheld by the Company to pay employees’ withholding taxes in connection with the vesting of
restricted stock. |
Under the Company’s 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 Company’s
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.
The Annual Meeting of Shareholders of the Company was held June 20, 2008, for the purpose of
electing as Directors the eight nominees named in the Proxy Statement to hold office until the next
Annual Meeting of Shareholders and until their successors are elected and qualified; to approve the
restatement and amendment of the Pier 1 Imports, Inc. Stock Purchase Plan; to ratify the Audit
Committee’s approval to engage Ernst & Young LLP for fiscal 2009; and to vote on a shareholder
proposal, if properly submitted at the meeting. The results of the election and the votes follow:
28
Director Election:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Director |
|
For |
|
Against |
|
Abstain |
|
|
|
|
|
|
|
|
|
|
|
|
|
John H. Burgoyne |
|
|
64,360,446 |
|
|
|
15,112,978 |
|
|
|
150,885 |
|
Michael R. Ferrari |
|
|
69,390,777 |
|
|
|
10,083,544 |
|
|
|
149,988 |
|
Robert B. Holland, III |
|
|
63,319,190 |
|
|
|
16,152,007 |
|
|
|
153,112 |
|
Karen W. Katz |
|
|
64,544,020 |
|
|
|
14,931,375 |
|
|
|
148,913 |
|
Terry E. London |
|
|
78,242,943 |
|
|
|
1,229,130 |
|
|
|
152,236 |
|
Alexander W. Smith |
|
|
77,112,856 |
|
|
|
2,357,474 |
|
|
|
153,979 |
|
Cece Smith |
|
|
77,033,027 |
|
|
|
2,438,187 |
|
|
|
153,095 |
|
Tom M. Thomas |
|
|
61,619,424 |
|
|
|
17,858,750 |
|
|
|
146,135 |
|
Pier 1 Imports, Inc. Stock Purchase Plan — restatement and amendment:
| |
|
|
|
|
|
|
|
|
| For |
|
Against |
|
Abstain |
|
|
|
|
|
|
|
|
|
66,065,424 |
|
|
1,308,991 |
|
|
|
84,440 |
|
Ratify the engagement of Ernst & Young LLP:
| |
|
|
|
|
|
|
|
|
| For |
|
Against |
|
Abstain |
|
|
|
|
|
|
|
|
|
78,682,887 |
|
|
540,739 |
|
|
|
400,683 |
|
Shareholder proposal — Pay-for-superior-performance:
| |
|
|
|
|
|
|
|
|
| For |
|
Against |
|
Abstain |
|
|
|
|
|
|
|
|
|
31,500,082 |
|
|
35,843,690 |
|
|
|
115,083 |
|
Item 6. Exhibits.
The Exhibit Index following the signature page to this Quarterly Report on Form 10-Q lists the
exhibits furnished as required by Item 601 of Regulation S-K and is incorporated herein by
reference.
29
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)
|
|
| Date: July 8, 2008 |
By: |
/s/ Alexander W. Smith
|
|
| |
|
Alexander W. Smith, Director, President and |
|
| |
|
Chief Executive Officer |
|
| |
|
|
| Date: July 8, 2008 |
By: |
/s/ Charles H. Turner
|
|
| |
|
Charles H. Turner, Executive Vice President and |
|
| |
|
Chief Financial Officer |
|
| |
|
|
| Date: July 8, 2008 |
By: |
/s/ Laura A. Schack
|
|
| |
|
Laura A. Schack, Principal Accounting Officer |
|
30
EXHIBIT INDEX
| |
|
|
| Exhibit No. |
|
Description |
|
|
|
3(i)
|
|
Certificate of Incorporation and Amendments thereto, incorporated herein by reference to
Exhibit 3(i) to Registrant’s Form 10-Q for the quarter ended May 30, 1998. |
|
|
|
3(ii)
|
|
Bylaws of the Company as amended to date, incorporated herein by reference to Exhibit 3(ii)
to Registrant’s Form 10-K for the year ended February 26, 2005. |
|
|
|
10.1*
|
|
Office Lease between Chesapeake Plaza, L.L.C. and Pier 1 Services Company. |
|
|
|
10.1.1*
|
|
First Amendment to Office Lease. |
|
|
|
10.2*
|
|
Pier 1 Imports, Inc. Stock Purchase Plan, restated as amended June 20, 2008. |
|
|
|
31.1*
|
|
Certification of the Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a). |
|
|
|
31.2*
|
|
Certification of the Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a). |
|
|
|
32.1*
|
|
Section 1350 Certifications. |