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 June 2, 2007
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 1-7832
PIER 1 IMPORTS, INC.
(Exact name of registrant as specified in its charter)
| |
|
|
| Delaware
|
|
75-1729843 |
|
|
|
|
| (State or other jurisdiction of
|
|
(I.R.S. Employer |
| incorporation or organization)
|
|
Identification Number) |
100 Pier 1 Place, Fort Worth, Texas 76102
(Address
of principal executive offices, including zip code)
(817) 252-8000
(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,
or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
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 3, 2007 |
| Common Stock, $1.00 par value
|
|
88,389,215 |
PIER 1 IMPORTS, INC.
INDEX TO QUARTERLY FORM 10-Q
2
PART 1
Item 1. Financial Statements
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
June 2, |
|
|
May 27, |
|
| |
|
2007 |
|
|
2006 |
|
Net sales |
|
$ |
356,375 |
|
|
$ |
376,092 |
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
Cost of sales (including buying and store occupancy costs) |
|
|
269,197 |
|
|
|
248,840 |
|
Selling, general and administrative expenses |
|
|
132,124 |
|
|
|
147,583 |
|
Depreciation and amortization |
|
|
10,558 |
|
|
|
13,624 |
|
|
|
|
|
|
|
|
|
|
|
411,879 |
|
|
|
410,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(55,504 |
) |
|
|
(33,955 |
) |
|
|
|
|
|
|
|
|
|
Nonoperating (income) and expenses: |
|
|
|
|
|
|
|
|
Interest and investment income |
|
|
(2,932 |
) |
|
|
(2,913 |
) |
Interest expense |
|
|
3,957 |
|
|
|
3,451 |
|
Other income |
|
|
(248 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
777 |
|
|
|
538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes |
|
|
(56,281 |
) |
|
|
(34,493 |
) |
Income tax provision (benefit) |
|
|
97 |
|
|
|
(11,728 |
) |
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
(56,378 |
) |
|
|
(22,765 |
) |
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
Loss from discontinued operations before income taxes |
|
|
— |
|
|
|
(638 |
) |
Income tax benefit |
|
|
— |
|
|
|
(231 |
) |
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
— |
|
|
|
(407 |
) |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(56,378 |
) |
|
$ |
(23,172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.64 |
) |
|
$ |
(0.26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share from discontinued operations: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
— |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.64 |
) |
|
$ |
(0.27 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share: |
|
$ |
— |
|
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding during period: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
87,797 |
|
|
|
87,095 |
|
|
|
|
|
|
|
|
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)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
June 2, |
|
|
March 3, |
|
|
May 27, |
|
| |
|
2007 |
|
|
2007 |
|
|
2006 |
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, including temporary investments
of $145,547, $160,721 and $224,326, respectively |
|
$ |
152,026 |
|
|
$ |
167,178 |
|
|
$ |
235,187 |
|
Beneficial interest in securitized receivables |
|
|
— |
|
|
|
— |
|
|
|
46,695 |
|
Other accounts receivable, net |
|
|
20,709 |
|
|
|
21,437 |
|
|
|
17,718 |
|
Inventories |
|
|
334,114 |
|
|
|
360,063 |
|
|
|
357,260 |
|
Income tax receivable |
|
|
32,843 |
|
|
|
34,966 |
|
|
|
30,593 |
|
Prepaid expenses and other current assets |
|
|
50,829 |
|
|
|
50,324 |
|
|
|
42,353 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
590,521 |
|
|
|
633,968 |
|
|
|
729,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties, net |
|
|
227,104 |
|
|
|
239,548 |
|
|
|
294,290 |
|
Other noncurrent assets |
|
|
43,513 |
|
|
|
42,954 |
|
|
|
95,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
861,138 |
|
|
$ |
916,470 |
|
|
$ |
1,119,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
96,714 |
|
|
$ |
95,609 |
|
|
$ |
97,978 |
|
Gift cards and other deferred revenue |
|
|
67,448 |
|
|
|
66,130 |
|
|
|
62,639 |
|
Accrued income taxes payable |
|
|
4,977 |
|
|
|
3,305 |
|
|
|
4,141 |
|
Other accrued liabilities |
|
|
120,985 |
|
|
|
119,541 |
|
|
|
102,911 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
290,124 |
|
|
|
284,585 |
|
|
|
267,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
184,000 |
|
|
|
184,000 |
|
|
|
184,000 |
|
Other noncurrent liabilities |
|
|
83,618 |
|
|
|
86,768 |
|
|
|
109,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
125,586 |
|
|
|
130,416 |
|
|
|
129,357 |
|
Retained earnings |
|
|
275,727 |
|
|
|
337,178 |
|
|
|
550,329 |
|
Cumulative other comprehensive income (loss) |
|
|
2,987 |
|
|
|
2,408 |
|
|
|
(2,432 |
) |
Less — 12,487,000, 12,981,000 and 13,577,000 common
shares in treasury, at cost, respectively |
|
|
(201,683 |
) |
|
|
(209,664 |
) |
|
|
(219,286 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
303,396 |
|
|
|
361,117 |
|
|
|
558,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
861,138 |
|
|
$ |
916,470 |
|
|
$ |
1,119,454 |
|
|
|
|
|
|
|
|
|
|
|
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 |
|
| |
|
June 2, |
|
|
May 27, |
|
| |
|
2007 |
|
|
2006 |
|
Cash flow from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(56,378 |
) |
|
$ |
(23,172 |
) |
Adjustments to reconcile to net cash used
in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
13,577 |
|
|
|
16,133 |
|
(Gain) loss on disposal of fixed assets |
|
|
(1,060 |
) |
|
|
72 |
|
Loss on impairment of fixed and long-lived assets |
|
|
2,181 |
|
|
|
1,965 |
|
Stock-based compensation expense |
|
|
2,155 |
|
|
|
610 |
|
Deferred compensation |
|
|
412 |
|
|
|
2,700 |
|
Lease termination expense |
|
|
1,262 |
|
|
|
485 |
|
Other |
|
|
138 |
|
|
|
(2,244 |
) |
Changes in cash from: |
|
|
|
|
|
|
|
|
Sale of receivables in exchange for beneficial
interest in securitized receivables |
|
|
— |
|
|
|
(7,658 |
) |
Inventories |
|
|
25,949 |
|
|
|
12,560 |
|
Other accounts receivable, prepaid expenses
and other current assets |
|
|
(1,639 |
) |
|
|
(5,309 |
) |
Income tax receivable |
|
|
— |
|
|
|
(12,486 |
) |
Accounts payable and accrued expenses |
|
|
(2,548 |
) |
|
|
(5,319 |
) |
Accrued income taxes payable |
|
|
415 |
|
|
|
(759 |
) |
Other noncurrent assets |
|
|
163 |
|
|
|
300 |
|
Other noncurrent liabilities |
|
|
(314 |
) |
|
|
(41 |
) |
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(15,687 |
) |
|
|
(22,163 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(769 |
) |
|
|
(11,611 |
) |
Proceeds from disposition of properties |
|
|
1,587 |
|
|
|
45 |
|
Proceeds from sale of discontinued operations |
|
|
— |
|
|
|
11,601 |
|
Purchase of restricted investments |
|
|
(300 |
) |
|
|
— |
|
Collections of principal on beneficial interest
in securitized receivables |
|
|
— |
|
|
|
10,963 |
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
518 |
|
|
|
10,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
Cash dividends |
|
|
— |
|
|
|
(8,720 |
) |
Proceeds from stock options exercised,
stock purchase plan and other, net |
|
|
996 |
|
|
|
1,896 |
|
Debt issuance costs |
|
|
(979 |
) |
|
|
(39 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
17 |
|
|
|
(6,863 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
(15,152 |
) |
|
|
(18,028 |
) |
Cash and cash equivalents at beginning of period (including
cash at discontinued operation of $0 and $7,100, respectively) |
|
|
167,178 |
|
|
|
253,215 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
152,026 |
|
|
$ |
235,187 |
|
|
|
|
|
|
|
|
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 JUNE 2, 2007
(in thousands except per share amounts)
(unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
|
|
|
|
| |
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Total |
|
| |
|
Outstanding |
|
|
|
|
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury |
|
|
Shareholders’ |
|
| |
|
Stock |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Loss |
|
|
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 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(56,378 |
) |
|
|
— |
|
|
|
— |
|
|
|
(56,378 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
579 |
|
|
|
— |
|
|
|
579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,799 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock compensation |
|
|
387 |
|
|
|
— |
|
|
|
(5,945 |
) |
|
|
— |
|
|
|
— |
|
|
|
6,245 |
|
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option compensation expense |
|
|
|
|
|
|
— |
|
|
|
1,855 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options, stock
purchase plan and other |
|
|
107 |
|
|
|
— |
|
|
|
(740 |
) |
|
|
— |
|
|
|
— |
|
|
|
1,736 |
|
|
|
996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 2, 2007 |
|
|
88,292 |
|
|
$ |
100,779 |
|
|
$ |
125,586 |
|
|
$ |
275,727 |
|
|
$ |
2,987 |
|
|
$ |
(201,683 |
) |
|
$ |
303,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Relates to Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes — 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 MONTHS ENDED JUNE 2, 2007 AND MAY 27, 2006
(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 3, 2007. All adjustments that
are, in the opinion of management, necessary for a fair presentation of the financial position as
of June 2, 2007, and the results of operations and cash flows for the three months ended June 2,
2007 and May 27, 2006 have been made and consist only of normal recurring adjustments, except as
otherwise described herein. The results of operations for the three months ended June 2, 2007 and
May 27, 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
Company’s products have occurred during the holiday season beginning in November and continuing
through December. The Company conducts business as one operating segment. The classification of
certain amounts, previously reported in the consolidated statement of cash flows for the three
months ended May 27, 2006, has been modified to conform to the June 2, 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 Company’s weighted average number of stock
options outstanding and shares of unvested restricted stock. As the effect would have been
antidilutive, all 14,771,615 and 12,516,450 stock options outstanding and shares of unvested
restricted stock were excluded from the computation of the first quarter loss per share for fiscal
2008 and fiscal 2007, respectively. Loss per share for the three months ended June 2, 2007 and May
27, 2006 was calculated as follows (in thousands except per share amounts):
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
June 2, |
|
|
May 27, |
|
| |
|
2007 |
|
|
2006 |
|
Loss from continuing operations, basic and diluted |
|
$ |
(56,378 |
) |
|
$ |
(22,765 |
) |
Loss from discontinued operations, basic and diluted |
|
|
— |
|
|
|
(407 |
) |
|
|
|
|
|
|
|
Net loss, basic and diluted |
|
$ |
(56,378 |
) |
|
$ |
(23,172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
87,797 |
|
|
|
87,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.64 |
) |
|
$ |
(0.26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share from discontinued operations: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
— |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.64 |
) |
|
$ |
(0.27 |
) |
|
|
|
|
|
|
|
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 2 – Discontinued operations
On March 20, 2006, the Company sold its operations of The Pier Retail Group Limited (“The Pier”),
with stores located in the United Kingdom and Ireland. The Pier’s prior period operations are
considered discontinued and are presented as such in the Company’s financial statements. Net sales
of The Pier were $3,323,000 for the period ended March 20, 2006.
Note 3 – Comprehensive income (loss)
The components of comprehensive loss for the three months ended June 2, 2007 and May 27, 2006 were
as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
June 2, |
|
|
May 27, |
|
| |
|
2007 |
|
|
2006 |
|
Net loss |
|
$ |
(56,378 |
) |
|
$ |
(23,172 |
) |
Currency translation adjustments |
|
|
579 |
|
|
|
(1,849 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(55,799 |
) |
|
$ |
(25,021 |
) |
|
|
|
|
|
|
|
Note 4 – 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 June 2,
2007 and May 27, 2006, the Company recorded stock-based compensation expense related to stock
options and restricted stock of $2,155,000, or $0.02 per share, and $610,000, or $0.01 per share,
respectively. The Company recognized no net tax benefit related to stock-based compensation during
the first quarter of fiscal 2008 as a result of the Company’s valuation allowance on all deferred
tax assets.
During the first quarter of fiscal 2008, the Company granted 694,000 stock options with an exercise
price of $7.77 and a grant date fair value of $3.33 per share. The stock options will be expensed
over a four year vesting period. The Company also granted 429,700 shares of restricted stock with a
grant date fair value of $7.77 per share that will be expensed over a three year service period.
As of June 2, 2007, there was approximately $7,031,000 of total unrecognized compensation expense
related to unvested stock option awards that is expected to be recognized over a weighted average
period of 2.51 years and $5,133,000 of total unrecognized compensation expense related to
restricted stock that may be recognized over a weighted average period of 2.35 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
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
based upon the Company’s 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 Company’s
consolidated statements of operations. The write-off of fixed assets related to such stores has
not been material and the write-down of inventory and employee severance costs associated with
these closures were not significant. The following table represents a rollforward of the liability
balances for the three months ended June 2, 2007 and May 27, 2006 (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
June 2, |
|
|
May 27, |
|
| |
|
2007 |
|
|
2006 |
|
Beginning of period |
|
$ |
2,436 |
|
|
$ |
2,859 |
|
|
|
|
|
|
|
|
|
|
Original charges |
|
|
1,542 |
|
|
|
397 |
|
Revisions |
|
|
(280 |
) |
|
|
88 |
|
Cash payments |
|
|
(932 |
) |
|
|
(1,294 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
2,766 |
|
|
$ |
2,050 |
|
|
|
|
|
|
|
|
Additionally, subsequent to the end of the first quarter of fiscal 2008, the Company announced
plans to close all of its remaining 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 Company’s
profitability targets. Lease termination costs associated with these closures will be recorded to
selling, general and administrative expenses as the stores are closed during the remainder of
fiscal 2008 and are currently anticipated to be no more than $11,000,000, of which approximately
$3,000,000 was in the Company’s plan for store closings at the beginning of fiscal 2008. The
write-off of fixed assets, write-down of inventory, employee severance costs and contract
termination costs associated with these closures are not expected to be material.
Note 6 – Asset impairment
Impairment charges were $2,181,000, or $0.02 per share, for the three months ended June 2, 2007 and
were included in selling, general and administrative expenses. These impairment charges related to
long-lived assets at underperforming stores and were based on cash flow projections for those
stores. These cash flow projections were based on management’s estimate of future sales,
merchandise margins, and expenses over the remaining expected terms of the leases. Estimates used
in the first quarter were updated from those used in prior periods to reflect changes in sales and
gross margin trends experienced during the quarter. In the event that actual future results are
worse than management’s current estimates, an additional charge for asset impairments may be
recorded in a future period and such charges could have an impact on the Company’s balance sheet
and statement of operations.
Note 7 – Amendment to secured credit facility
Effective as of May 31, 2007, the Company amended its 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
Company’s calculated borrowing base was $271,119,000 at June 2, 2007. The Company utilized
$158,726,000 for letters of credit and had no
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
outstanding cash borrowings, leaving $112,393,000
available at the end of the first 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,
and does not anticipate falling below this minimum availability. The Company was in compliance with
required debt covenants at the end of the first quarter of fiscal 2008.
Note 8 – 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.
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Three Months Ended June 2, 2007
(in thousands)
(unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pier 1 |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
| |
|
Imports, |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
| |
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Three Months Ended May 27, 2006
(in thousands)
(unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pier 1 |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
| |
|
Imports, |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
| |
|
Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Net sales |
|
$ |
— |
|
|
$ |
373,706 |
|
|
$ |
9,091 |
|
|
$ |
(6,705 |
) |
|
$ |
376,092 |
|
Cost of sales (including buying
and store occupancy costs) |
|
|
— |
|
|
|
247,573 |
|
|
|
8,240 |
|
|
|
(6,973 |
) |
|
|
248,840 |
|
Selling, general and administrative
(including depreciation and
amortization) |
|
|
550 |
|
|
|
160,358 |
|
|
|
299 |
|
|
|
— |
|
|
|
161,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(550 |
) |
|
|
(34,225 |
) |
|
|
552 |
|
|
|
268 |
|
|
|
(33,955 |
) |
| |
Nonoperating (income) expenses |
|
|
(725 |
) |
|
|
1,422 |
|
|
|
(159 |
) |
|
|
— |
|
|
|
538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes |
|
|
175 |
|
|
|
(35,647 |
) |
|
|
711 |
|
|
|
268 |
|
|
|
(34,493 |
) |
Provision (benefit) for income taxes |
|
|
— |
|
|
|
(11,816 |
) |
|
|
88 |
|
|
|
— |
|
|
|
(11,728 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing
operations |
|
|
175 |
|
|
|
(23,831 |
) |
|
|
623 |
|
|
|
268 |
|
|
|
(22,765 |
) |
| |
Net income (loss) from subsidiaries |
|
|
(23,615 |
) |
|
|
216 |
|
|
|
— |
|
|
|
23,399 |
|
|
|
— |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
— |
|
|
|
— |
|
|
|
(638 |
) |
|
|
— |
|
|
|
(638 |
) |
Income tax benefit |
|
|
— |
|
|
|
— |
|
|
|
(231 |
) |
|
|
— |
|
|
|
(231 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued
operations |
|
|
— |
|
|
|
— |
|
|
|
(407 |
) |
|
|
— |
|
|
|
(407 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(23,440 |
) |
|
$ |
(23,615 |
) |
|
$ |
216 |
|
|
$ |
23,667 |
|
|
$ |
(23,172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED BALANCE SHEET
June 2, 2007
(in thousands)
(unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pier 1 |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
| |
|
Imports, |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
| |
|
Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
| |
ASSETS
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
109,032 |
|
|
$ |
30,453 |
|
|
$ |
12,541 |
|
|
$ |
— |
|
|
$ |
152,026 |
|
Other 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties, net |
|
|
— |
|
|
|
221,113 |
|
|
|
5,991 |
|
|
|
— |
|
|
|
227,104 |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED BALANCE SHEET
March 3, 2007
(in thousands)
(unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pier 1 |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
| |
|
Imports, |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
| |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED BALANCE SHEET
May 27, 2006
(in thousands)
(unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pier 1 |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
| |
|
Imports, |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
| |
|
Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
122,361 |
|
|
$ |
98,078 |
|
|
$ |
14,748 |
|
|
$ |
— |
|
|
$ |
235,187 |
|
Beneficial interest in
securitized receivables |
|
|
— |
|
|
|
46,695 |
|
|
|
— |
|
|
|
— |
|
|
|
46,695 |
|
Other accounts receivable, net |
|
|
499 |
|
|
|
15,181 |
|
|
|
2,038 |
|
|
|
— |
|
|
|
17,718 |
|
Inventories |
|
|
— |
|
|
|
357,260 |
|
|
|
— |
|
|
|
— |
|
|
|
357,260 |
|
Income tax receivable |
|
|
— |
|
|
|
30,608 |
|
|
|
(15 |
) |
|
|
— |
|
|
|
30,593 |
|
Prepaid expenses and other
current assets |
|
|
— |
|
|
|
42,344 |
|
|
|
9 |
|
|
|
— |
|
|
|
42,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
122,860 |
|
|
|
590,166 |
|
|
|
16,780 |
|
|
|
— |
|
|
|
729,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties, net |
|
|
— |
|
|
|
287,440 |
|
|
|
6,850 |
|
|
|
— |
|
|
|
294,290 |
|
Investment in subsidiaries |
|
|
450,485 |
|
|
|
40,930 |
|
|
|
— |
|
|
|
(491,415 |
) |
|
|
— |
|
Other noncurrent assets |
|
|
9,308 |
|
|
|
85,971 |
|
|
|
79 |
|
|
|
— |
|
|
|
95,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
582,653 |
|
|
$ |
1,004,507 |
|
|
$ |
23,709 |
|
|
$ |
(491,415 |
) |
|
$ |
1,119,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
72 |
|
|
$ |
96,535 |
|
|
$ |
1,371 |
|
|
$ |
— |
|
|
$ |
97,978 |
|
Intercompany payable
(receivable) |
|
|
(147,214 |
) |
|
|
165,044 |
|
|
|
(17,830 |
) |
|
|
— |
|
|
|
— |
|
Gift cards and other deferred
revenue |
|
|
— |
|
|
|
62,639 |
|
|
|
— |
|
|
|
— |
|
|
|
62,639 |
|
Accrued income taxes
payable (receivable) |
|
|
— |
|
|
|
4,955 |
|
|
|
(814 |
) |
|
|
— |
|
|
|
4,141 |
|
Other accrued liabilities |
|
|
3,373 |
|
|
|
99,486 |
|
|
|
52 |
|
|
|
— |
|
|
|
102,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
(143,769 |
) |
|
|
428,659 |
|
|
|
(17,221 |
) |
|
|
— |
|
|
|
267,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
165,000 |
|
|
|
19,000 |
|
|
|
— |
|
|
|
— |
|
|
|
184,000 |
|
Other noncurrent liabilities |
|
|
2,675 |
|
|
|
106,363 |
|
|
|
— |
|
|
|
— |
|
|
|
109,038 |
|
Shareholders’ equity |
|
|
558,747 |
|
|
|
450,485 |
|
|
|
40,930 |
|
|
|
(491,415 |
) |
|
|
558,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
582,653 |
|
|
$ |
1,004,507 |
|
|
$ |
23,709 |
|
|
$ |
(491,415 |
) |
|
$ |
1,119,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Three Months Ended May 27, 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 |
|
$ |
3,308 |
|
|
$ |
(21,621 |
) |
|
$ |
(3,832 |
) |
|
$ |
(18 |
) |
|
$ |
(22,163 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
— |
|
|
|
(11,611 |
) |
|
|
— |
|
|
|
— |
|
|
|
(11,611 |
) |
Proceeds from disposition of
properties |
|
|
— |
|
|
|
45 |
|
|
|
— |
|
|
|
— |
|
|
|
45 |
|
Proceeds from sale of
discontinued operations |
|
|
— |
|
|
|
14,998 |
|
|
|
(3,397 |
) |
|
|
— |
|
|
|
11,601 |
|
Collections of principal on
beneficial interest in
securitized receivables |
|
|
— |
|
|
|
10,963 |
|
|
|
— |
|
|
|
— |
|
|
|
10,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities |
|
|
— |
|
|
|
14,395 |
|
|
|
(3,397 |
) |
|
|
— |
|
|
|
10,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends |
|
|
(8,720 |
) |
|
|
(18 |
) |
|
|
— |
|
|
|
18 |
|
|
|
(8,720 |
) |
Proceeds from stock options
exercised, stock purchase
plan and other, net |
|
|
1,800 |
|
|
|
96 |
|
|
|
— |
|
|
|
— |
|
|
|
1,896 |
|
Debt issuance costs |
|
|
— |
|
|
|
(39 |
) |
|
|
— |
|
|
|
— |
|
|
|
(39 |
) |
Advances (to) from subsidiaries |
|
|
(4,806 |
) |
|
|
4,496 |
|
|
|
310 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities |
|
|
(11,726 |
) |
|
|
4,535 |
|
|
|
310 |
|
|
|
18 |
|
|
|
(6,863 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
(8,418 |
) |
|
|
(2,691 |
) |
|
|
(6,919 |
) |
|
|
— |
|
|
|
(18,028 |
) |
Cash and cash equivalents at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
beginning of period |
|
|
130,779 |
|
|
|
100,769 |
|
|
|
21,667 |
|
|
|
— |
|
|
|
253,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
end of period |
|
$ |
122,361 |
|
|
$ |
98,078 |
|
|
$ |
14,748 |
|
|
$ |
— |
|
|
$ |
235,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Includes cash related to discontinued operations of $7,100 at beginning of period. |
Note 9 – Benefit plans
The Company maintains supplemental retirement plans (the “Plans”) for certain of its executive
officers. The Plans provide that upon death, disability, reaching retirement age, or certain
termination events, a participant will receive benefits based on highest compensation, 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.
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Plans are not funded and thus have no plan assets. However, a trust has been established for
the purpose of setting aside funds to be used to settle the defined benefit plan obligations to
certain participants in the Plans. The trust assets are consolidated in the Company’s financial
statements and consist of interest bearing investments in the amounts of $6,206,000 included in
other current assets at
June 2, 2007 and $22,629,000 included in other noncurrent assets at May 27, 2006. These
investments are restricted and may be used only to satisfy retirement obligations to certain
participants. The Company made no contributions to this trust during the first quarter of fiscal
2008. Additional cash contributions to the trust during the remainder of the fiscal year are not
currently anticipated. The Company owns and is the beneficiary of a number of insurance policies
on the lives of current and past key executives. At the discretion of the Board of Directors such
policies could be contributed to this trust. The cash surrender value of these unrestricted
policies was approximately $13,500,000 at June 2, 2007, and the death benefit was approximately
$21,000,000. The actuarial assumptions used to calculate benefit costs are reviewed annually. The
components of net periodic benefit costs for the three months ended June 2, 2007 and May 27, 2006
were as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
June 2, |
|
|
May 27, |
|
| |
|
2007 |
|
|
2006 |
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
Service cost |
|
$ |
40 |
|
|
$ |
601 |
|
Interest cost |
|
|
183 |
|
|
|
483 |
|
Amortization of unrecognized prior service costs |
|
|
39 |
|
|
|
201 |
|
Amortization of net actuarial loss |
|
|
36 |
|
|
|
809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
298 |
|
|
$ |
2,094 |
|
|
|
|
|
|
|
|
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. A settlement charge of
approximately $1,100,000 related to these retirements will be recognized in the second quarter of
fiscal 2008.
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.
As of 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 Company’s recorded reserves for uncertain tax positions during the first quarter of fiscal
2008, other than those made in connection with the adoption of FIN 48 that are described above.
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain
of the Company’s unrecognized tax positions will increase or decrease during the next 12 months as
a result of audit settlements; however, the Company does not expect the change to have a
significant effect on the Company’s 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 Company’s 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.
The Company has tax loss carryforwards of approximately $144,000,000. These loss carryforwards can
be utilized to offset future income but will expire in fiscal year 2027 if not utilized before
then.
As a result of pre-tax losses over the past two fiscal years the Company recorded a valuation
allowance against all deferred tax assets during fiscal 2007. No federal tax benefit was provided
and only minimal state and foreign tax provisions were recorded on losses in the first quarter of
fiscal 2008.
Note 11 – Legal matters
During the second quarter of fiscal 2007, the Company recorded a pre-tax charge of $4,942,000 for
the settlement of and legal fees related to class action lawsuits in California primarily regarding
compensation matters. Cash outlays related to these settlements are expected to be completed
during the second or third quarter of fiscal 2008.
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 3, 2007, 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 3, 2007.
Management Overview
Pier 1 Imports, Inc. (together with its consolidated subsidiaries, the “Company”) is one of North
America’s largest specialty retailers of imported decorative home furnishings, gifts and related
items. The Company 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 months ended June 2, 2007 and
May 27, 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
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 names Pier 1 Imports (“Pier 1”) and “Pier 1 Kids”. Pier 1
Kids stores sell children’s home furnishings and decorative accessories. As of June 2, 2007, the
Company operated 1,184 stores in the United States and Canada, including 33 Pier 1 Kids stores and
24 clearance stores. Subsequent to the end of the first quarter, the Company announced plans to
close all of the remaining Pier 1 Kids and clearance stores, bringing the total estimated store
closures to 100 during fiscal 2008. By fiscal year-end, the Company expects to have 1,020 stores in
the United States and 81 stores in Canada.
In addition to these store closures, the Company is discontinuing its e-commerce and catalog
business by August 31, 2007. The Company’s web site, www.pier1.com, will continue to be used for
marketing and product information purposes. The Company’s management believes that the termination
of these non-core activities will not only allow for complete focus on the core business, but will
also result in substantial cost savings.
In April 2007, the Company’s management announced a plan to return to profitability that is built
on six business priorities. Progress toward these goals during the first quarter of fiscal 2008 is
discussed below:
1) Improve operational efficiency. During the first quarter, the Company
continued to review all costs and to seek ways to streamline and simplify the
organization. The Company was able to reduce selling, general and administrative expenses
by $15.5 million in the first quarter of fiscal 2008 compared to the prior year. Savings of
similar or greater magnitude are expected for the remaining three quarters of the fiscal
year.
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 discussed above, the Company has decided to close a total of 100 stores during
fiscal 2008 to reduce the portfolio to a core of stores with sustainable profitability. New
store openings will be minimal during fiscal 2008.
19
|
|
|
| Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of
Operations. (continued) |
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 strategy and on
working with vendors to develop merchandise that has the true brand essence of Pier 1.
During the first quarter, the Company liquidated merchandise that was not popular with its
customers to make space for new merchandise that reflects the Company’s unique place in the
market.
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.
5) Improve supply chain efficiency. The Company has made changes to simplify
and improve the flow of merchandise from the distribution centers to the stores.
Technological advances in the distribution centers and changes to the delivery schedule have
improved the replenishment process and reduced costs. In addition, the Company is working
to reduce damage to inventory at every stage of the supply chain and to reduce overseas
consolidation and freight costs.
6) Create a cost-effective marketing plan. As discussed above, the Company has
decided to discontinue its e-commerce and catalog business. In addition, it will
discontinue television advertising and focus external marketing on monthly mailers to its
extensive customer database and third party lists. This lower cost option will help to
generate savings in accordance with the Company’s overall strategy. Additionally, the
Company plans to reduce coupon and discounting activities to preserve margins and establish
steady pricing for its customers.
Management feels that the execution of the turnaround strategy is under way and proceeding as
planned.
Results of Operations
On March 20, 2006, the Company sold its operations of The Pier Retail Group Limited (“The Pier”),
the Company’s subsidiary based in the United Kingdom. As a result, The Pier’s 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 Company’s financial performance. The
following table summarizes those key performance indicators for the three months ended June 2, 2007
and May 27, 2006 which reflect the impact of the implementation of the Company’s six business
priorities outlined in Management Overview:
20
|
|
|
| Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of
Operations. (continued) |
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
| |
|
June 2, |
|
May 27, |
| |
|
2007 |
|
2006 |
Key Performance Indicators |
|
|
|
|
|
|
|
|
Total sales decline |
|
|
(5.2 |
%) |
|
|
(3.6 |
%) |
Comparable stores sales decline |
|
|
(5.4 |
%) |
|
|
(6.6 |
%) |
Merchandise margins as a % of sales |
|
|
45.5 |
% |
|
|
53.8 |
% |
Gross profit as a % of sales |
|
|
24.5 |
% |
|
|
33.8 |
% |
Selling, general and administrative expenses
as a % of sales |
|
|
37.1 |
% |
|
|
39.2 |
% |
Operating loss as a % of sales |
|
|
(15.6 |
%) |
|
|
(9.0 |
%) |
Loss from continuing operations as a % of sales |
|
|
(15.8 |
%) |
|
|
(6.1 |
%) |
Inventory per retail square foot |
|
$ |
36.29 |
|
|
$ |
37.65 |
|
Total retail square footage (in thousands) |
|
|
9,162 |
|
|
|
9,453 |
|
Total retail square footage growth (decline) from
the same period last year |
|
|
(3.1 |
%) |
|
|
2.5 |
% |
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 |
| |
|
June 2, |
|
|
May 27, |
|
| |
|
2007 |
|
|
2006 |
|
Stores |
|
$ |
340,330 |
|
|
$ |
367,853 |
|
Direct to consumer |
|
|
5,136 |
|
|
|
4,586 |
|
Other (1) |
|
|
10,909 |
|
|
|
3,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
356,375 |
|
|
$ |
376,092 |
|
|
|
|
|
|
|
|
|
|
|
| (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 2008 were $356.4 million, down 5.2% or $19.7 million
from last year’s first quarter net sales of $376.1 million. Comparable store sales for the quarter
declined 5.4%. Sales for the three-month period were comprised of the following incremental
components (in thousands):
| |
|
|
|
|
| |
|
Net Sales |
|
Net sales for the three months ended May 27, 2006 |
|
$ |
376,092 |
|
|
|
|
|
|
Incremental sales growth (decline) from: |
|
|
|
|
Stores opened during fiscal 2007 |
|
|
5,157 |
|
Comparable stores |
|
|
(19,257 |
) |
Closed stores and other |
|
|
(5,617 |
) |
|
|
|
|
|
|
|
|
|
Net sales for the three months ended June 2, 2007 |
|
$ |
356,375 |
|
|
|
|
|
Sales during the first quarter of fiscal 2008 were impacted by the Company’s aggressive liquidation
of its Modern Craftsman merchandise. Additionally, the Company closed 12 Pier 1 stores during the
first quarter
21
|
|
|
| Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of
Operations. (continued) |
of fiscal 2008, bringing its store count to 1,184 compared to 1,231 stores a year
ago.
A summary reconciliation of the Company’s stores open at the beginning of fiscal 2008 to the number
open at the end of the first quarter follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
United States |
|
Canada |
|
Total (2) |
Open at March 3, 2007 |
|
|
1,112 |
|
|
|
84 |
|
|
|
1,196 |
|
Openings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Closings |
|
|
(12 |
) |
|
|
— |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Open at June 2, 2007 (1) |
|
|
1,100 |
|
|
|
84 |
|
|
|
1,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (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 June 2, 2007, there were 30 and seven locations
in Mexico and Puerto Rico, respectively. |
| |
| (2) |
|
Total store count included 33 Pier 1 Kids stores and 24 clearance stores at June 2, 2007. |
Gross Profit – Gross profit after related buying and store occupancy costs, expressed as a
percentage of sales, decreased 930 basis points to 24.5% for the first quarter of fiscal 2008 from
33.8% last year. Merchandise margins for the first quarter decreased 830 basis points to 45.5% of
sales from last year’s 53.8% of sales primarily as a result of the Company’s liquidation efforts to
clear excess inventory. The Company believes the aggressive liquidation of merchandise during the
first quarter negatively impacted its merchandise margins by approximately 670 basis points which
assumes that merchandise margins on the sale of these products would have been comparable to the
prior year. Store occupancy costs for the quarter remained relatively flat compared to the same
period last year.
Operating Expenses, Depreciation and Income Taxes – Selling, general and administrative expenses
for the first quarter of fiscal 2008 were $132.1 million or 37.1% of sales, a decrease from the
same quarter last year of $15.5 million or 215 basis points as a percentage of sales. This
decrease primarily related to management’s intentional reduction of expenses as well as store
closures. Store payroll decreased $6.3 million and approximately 85 basis points as a result of a
decrease in the total number of stores and reduced staff hours compared to the prior year.
Marketing expenditures were $20.8 million or 5.8% of sales for the quarter, a decrease of $9.1
million or 210 basis points as a percentage of sales compared to the
same quarter last year. The Company anticipates total marketing expenditures for fiscal 2008 to approximate $67.0 million,
a savings of approximately $50.0 million from the prior year as the Company shifts from television
and catalog advertising to monthly mailers. The Company continues to implement new cost saving
strategies to further reduce its selling, general and administrative expenses.
Depreciation and amortization expense for the first quarter was $10.6 million compared to $13.6
million for the same period last year. This decrease was primarily a result of the impairment of
certain long-lived store fixed assets, certain assets’ becoming fully depreciated and store
closures since the end of the first quarter of fiscal 2007.
The operating loss for the quarter was $55.5 million compared to $34.0 million for last year’s
first quarter.
As a result of pre-tax losses over the past two fiscal years the Company recorded a valuation
allowance against all deferred tax assets during fiscal 2007. No federal tax benefit was provided
and minimal state and foreign tax provisions were recorded in the first quarter of fiscal 2008.
Net Loss – Net loss for the first quarter of fiscal 2008 was $56.4 million, or $0.64 per share,
compared to $23.2 million, or $0.27 per share, for the first quarter of fiscal 2007.
22
|
|
|
| Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of
Operations. (continued) |
Liquidity and Capital Resources
For the purposes of liquidity and capital resource discussions, the Company’s discontinued
operations will be included in financial results for the prior year. The Company ended the first
quarter of fiscal 2008 with $152.0 million in cash and temporary investments compared to $235.2
million a year ago. Operating activities in the first quarter of fiscal 2008 used $15.7 million of
cash, primarily as a result of the Company’s net loss, partially offset by a reduction in
inventory. Inventory levels at the end of the first quarter of fiscal 2008 were $334.1 million,
down $25.9 million or 7.2%, from inventory levels at the end of fiscal 2007. The decrease in
inventory was the result of the Company’s liquidation of certain merchandise during the first
quarter in an effort to eliminate excess inventory, make room for new inventory and prepare for the
reduction in the number of stores anticipated in fiscal 2008. Inventories are expected to return
to more normal levels by the end of the second quarter. At the end of the first quarter of fiscal
2008, inventory per retail square foot was $36.29 compared to $37.65 a year ago.
During the first three months of fiscal 2008, investing activities provided $0.5 million compared
to $11.0 million during the same period last year. Proceeds from the disposition of properties
provided $1.6 million. Capital expenditures were $0.8 million in fiscal 2008 compared to $11.6
million in fiscal 2007, consisting primarily of $0.2 million for fixtures, equipment, and leasehold
improvements for the stores, $0.4 million for information systems’ enhancements and $0.2 million
related to the Company’s distribution centers. Capital expenditures for fiscal 2008 are expected
to be $10.0 million, down from the $13.0 million previously estimated. Subsequent to quarter end,
the Company announced that it had increased its store closing projections to 100 stores for fiscal
2008 to include the closure of all Pier 1 Kids and clearance stores and that it will discontinue
its e-commerce and catalog business. The Company anticipates incurring net cash outflows related
to all closings of store locations of up to $9.0 million , a significant portion of which may be
settled during the second and third quarters of fiscal 2008.
Financing activities for the first three months of fiscal 2008, primarily related to the exercise
of stock options, provided net cash of $1.0 million, offset by debt issuance costs incurred as a
result of the amendment to the Company’s secured credit facility.
At the end of the first quarter, the Company’s minimum operating lease commitments remaining for
fiscal 2008 were $174.1 million. The present value of total existing minimum operating lease
commitments discounted at 10% was $888.7 million at the fiscal 2008 first 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, which
clarifies the accounting for uncertainty in tax positions. The Company has recorded liabilities
associated with uncertain tax positions of $19.4 million, including interest and penalties, at June
2, 2007. This liability could result in cash payments to tax authorities; however, the Company is
unable to make reasonably reliable estimates of amounts of cash settlements to be made in any
period. For this reason, this liability has not been included in a table of contractual
obligations and the Company has not updated the table that was presented in its fiscal 2007 Annual
Report on Form 10-K. See Note 10 of the Notes to Consolidated Financial Statements for further
discussion.
The Company has accrued liabilities of approximately $4.9 million for the settlement of and legal
fees related to class action lawsuits in California primarily regarding compensation matters. Cash
outlays related to the settlements are expected to be completed in the second or third quarter of
fiscal 2008.
Working capital requirements are expected to be funded from cash generated from the operations of
the Company and from borrowings against lines of credit. Current projections indicate that the
Company’s cash position and borrowings will not be significantly different at the end of the year
from its position at
23
|
|
|
| Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of
Operations. (continued) |
the beginning of the year. The Company’s bank facilities include a $325
million credit facility, which is secured by the Company’s 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 Company’s calculated borrowing base was $271.1 million at June 2, 2007. The Company
utilized $158.7 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, $79.9 million remained available before
reaching the $32.5 million threshold. The Company was in compliance with required debt covenants
at the end of the first quarter of fiscal 2008.
The Company has a variety of sources for liquidity, which include available cash balances,
available lines of credit, cash surrender value of life insurance policies not restricted as to
use, receipt of federal and state tax refunds, and real estate financing options. 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
Company’s line of credit and reduces the Company’s 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 2008.
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, 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 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 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 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 3, 2007, as filed with the Securities
and Exchange Commission.
24
|
|
|
| Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of
Operations. (continued) |
Impact of Inflation
Inflation has not had a significant impact on the operations of the Company.
25
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 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 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 June 2, 2007, and based on this evaluation the Chief Executive Officer and Chief Financial
Officer have concluded 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.
During the second quarter of fiscal 2007, the Company accrued liabilities of approximately
$4.9 million for the settlement of and legal fees related to class action lawsuits in California
primarily regarding compensation matters. Cash outlays related to these settlements are expected
to be completed in the second or third quarter of fiscal 2008.
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 3, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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
26
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 28, 2007, for the purpose of
electing eight Directors to hold office until the next Annual Meeting of Shareholders, and to vote
on a shareholder proposal. The results of the election and the vote on the proposal follow:
Director Election:
| |
|
|
|
|
|
|
|
|
| Director |
|
For |
|
Withheld |
John H. Burgoyne |
|
|
67,166,069 |
|
|
|
12,273,358 |
|
Michael R. Ferrari |
|
|
69,465,201 |
|
|
|
9,974,226 |
|
Robert B. Holland, III |
|
|
77,774,639 |
|
|
|
1,664,788 |
|
Karen W. Katz |
|
|
66,575,944 |
|
|
|
12,863,483 |
|
Terry E. London |
|
|
68,233,362 |
|
|
|
11,206,065 |
|
Alexander W. Smith |
|
|
77,812,993 |
|
|
|
1,626,434 |
|
Cece Smith |
|
|
77,565,086 |
|
|
|
1,874,341 |
|
Tom M. Thomas |
|
|
66,669,510 |
|
|
|
12,769,917 |
|
Shareholder proposal – Pay-for-superior-performance:
| |
|
|
|
|
| For |
|
Against |
|
Abstain |
12,141,957
|
|
35,286,217
|
|
149,962 |
Item 6. Exhibits.
See Exhibit Index.
27
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 10, 2007 |
By: |
/s/ Alexander W. Smith
|
|
| |
|
Alexander W. Smith, Director, President and |
|
| |
|
Chief Executive Officer |
|
| |
| |
|
|
| Date: July 10, 2007 |
By: |
/s/ Charles H. Turner
|
|
| |
|
Charles H. Turner, Executive Vice President and |
|
| |
|
Chief Financial Officer |
|
| |
| |
|
|
| Date: July 10, 2007 |
By: |
/s/ Susan E. Barley
|
|
| |
|
Susan E. Barley, Principal Accounting Officer |
|
| |
|
|
|
28
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 thereto, incorporated herein by reference to
Exhibit 3(ii) to Registrant’s Form 10-K for the year ended February 26, 2005. |
|
|
|
10.1
|
|
First Amendment to Credit Agreement, dated as of July 28, 2006, by and among Pier 1 Imports
(U.S.), Inc., Pier 1 Kids, Inc., Bank of America, N.A., the facility guarantors party thereto
and the lenders party thereto, incorporated herein by reference to Exhibit 10.1 to the
Company’s Form 8-K filed July 28, 2006. |
|
|
|
10.2
|
|
Second Amendment to Credit Agreement dated as of May 31, 2007 by and among Pier 1 Imports
(U.S.), Inc., Bank of America, N.A., the facility guarantors party thereto and the lenders
party thereto, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K
filed June 5, 2007. |
|
|
|
10.3
|
|
Credit Card Program Agreement by and among Pier 1 Imports (U.S.), Inc. and Chase Bank USA,
N.A., incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K filed
September 6, 2006. |
|
|
|
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. |