FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 1, 1996
OR
[ ] 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)
301 Commerce Street, Suite 600, Fort Worth, Texas 76102
(Address of principal executive offices, including zip code)
(817) 878-8000
(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 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 [ X ]. No [ ].
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 12, 1996
Common Stock, $1.00 par value 45,212,786
<PAGE>
PART I
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Item 1. Financial Statements.
--------------------
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
Three Months Ended
June 1, May 27,
1996 1995
-------- --------
Net sales $205,292 $176,815
Operating costs and expenses:
Cost of sales (including buying and store
occupancy) 123,595 107,677
Selling, general and administrative expenses 60,546 52,058
Depreciation and amortization 4,775 4,123
-------- --------
188,916 163,858
-------- --------
Operating income 16,376 12,957
Nonoperating (income) and expense:
Interest and investment income (1,661) (345)
Interest expense 4,253 3,272
Trading losses -- 15,956
Provision for Sunbelt Nursery Group, Inc. defaults -- 14,000
-------- --------
2,592 32,883
-------- --------
Income (loss) before income taxes 13,784 (19,926)
Provision (benefit) for income taxes 5,511 (1,591)
-------- --------
Net income (loss) $ 8,273 ($ 18,335)
======== ========
Net income (loss) per share:
Primary $.21 ($.46)
==== ====
Fully diluted $.20 ($.46)
==== ====
Average shares outstanding during period, including
common stock equivalents:
Primary 40,153 39,827
====== ======
Fully diluted 45,679 45,429
====== ======
The accompanying notes are an integral part of these financial statements.
<PAGE>
PIER 1 IMPORTS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
(Unaudited)
June 1, March 2,
1996 1996
-------- ---------
ASSETS
Current assets:
Cash, including temporary investments of $6,533
and $1,588, respectively $ 17,521 $ 13,534
Accounts receivable, net 86,425 77,735
Inventories 222,460 223,166
Other current assets 33,753 33,078
-------- --------
Total current assets 360,159 347,513
Properties, net 152,666 144,627
Other assets 32,891 38,956
-------- --------
$545,716 $531,096
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 7,523 $ 4,454
Accounts payable and accrued liabilities 97,723 96,246
-------- --------
Total current liabilities 105,246 100,700
Long-term debt 180,226 180,100
Deferred income taxes -- --
Other non-current liabilities 24,092 22,373
Stockholders' equity:
Common stock, $1.00 par, 200,000,000 shares
authorized, 39,877,000 issued 39,877 39,877
Paid-in capital 111,238 110,899
Retained earnings 88,319 81,633
Cumulative currency translation adjustments (1,015) (1,072)
Less - 173,000 and 303,000 common shares in
treasury at cost, respectively (1,474) (2,545)
Less - subscriptions receivable and unearned
compensation (793) (869)
-------- --------
236,152 227,923
-------- --------
$545,716 $531,096
======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
June 1, May 27,
1996 1995
------- --------
Cash flow from operating activities:
Net income (loss) $ 8,273 ($18,335)
Adjustments to reconcile to net cash provided by
(used in) operating activities:
Depreciation and amortization 4,775 4,123
Deferred taxes and other 757 1,046
Provision for Sunbelt Nursery Group, Inc.
defaults -- 14,000
Investment gain (1,607) --
Change in cash from:
Inventories 5,328 (3,295)
Accounts receivable and other current assets (8,499) (6,407)
Accounts payable and accrued expenses 387 (2,991)
Store-closing reserves (4) (4,043)
Other assets, liabilities, and other, net 2,270 (193)
Net cash provided by (used in) operating ------- -------
activities 11,680 (16,095)
------- -------
Cash flow from investing activities:
Capital expenditures (9,147) (3,969)
Proceeds from disposition of properties 106 213
Reserve for Sunbelt Nursery Group, Inc. defaults (1,010) --
Proceeds (payments) from investments 4,665 (5,000)
------- -------
Net cash used in investing activities (5,386) (8,756)
------- -------
Cash flow from financing activities:
Cash dividends (1,587) (1,208)
Repayments of long-term debt -- (11,500)
Net (payments) borrowings under line of credit
agreements (1,802) 1,600
Proceeds from sales of capital stock, treasury
stock, and other, net 1,082 874
------- -------
Net cash used in financing activities (2,307) (10,234)
------- -------
Change in cash and cash equivalents 3,987 (35,085)
Cash and cash equivalents at beginning of period 13,534 50,566
------- -------
Cash and cash equivalents at end of period $17,521 $15,481
======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE><TABLE>
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 1, 1996
(In thousands)
(Unaudited)
<CAPTION>
Cumulative Subscriptions
Currency Receivable Total
Common Paid-in Retained Translation Treasury and Unearned Stockholders'
Stock Capital Earnings Adjustments Stock Compensation Equity
------- -------- -------- ----------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 2, 1996 $39,877 $110,899 $81,633 ($1,072) ($2,545) ($869) $227,923
Purchase of treasury stock (78) (78)
Restricted stock grant and amortization 76 76
Stock purchase plan, exercise of stock
options and other 339 1,149 1,488
Currency translation adjustments 57 57
Cash dividends ($.04 per share) (1,587) (1,587)
Net income 8,273 8,273
------- -------- ------- ------- ------- ----- --------
Balance, June 1, 1996 $39,877 $111,238 $88,319 ($1,015) ($1,474) ($793) $236,152
======= ======== ======= ======= ======= ===== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 1, 1996 AND MAY 27, 1995
(Unaudited)
The accompanying unaudited financial statements should be read in
conjunction with the Form 10-K for the year ended March 2, 1996. All
adjustments that are, in the opinion of management, necessary for a fair
statement of the financial position as of June 1, 1996, and the results of
operations and cash flows for the three months ended June 1, 1996 and May 27,
1995 have been made and consist only of normal recurring adjustments, except for
the trading losses and the provision for Sunbelt Nursery Group, Inc. defaults
recorded for the three months ended May 27, 1995. The results of operations for
the three months ended June 1, 1996 and May 27, 1995 are not indicative of
results to be expected for the fiscal year because of, among other things,
seasonality factors in the retail business.
Note 1 - Net income (loss) per share
Primary net income (loss) per share was determined by dividing net income
(loss) by applicable average shares outstanding. Fully diluted net income
(loss) per share amounts are similarly computed, but include the effect, when
dilutive, of the Company's potentially dilutive securities. To determine fully
dilutive net income (loss), interest and debt issue costs, net of any applicable
taxes, have been added back to net income (loss) to reflect assumed conversions.
The computation of fully diluted net income (loss) per share for the three
months ended May 27, 1995 was antidilutive; therefore, the amounts reported for
primary and fully diluted net income (loss) per share are the same.
Primary average shares include common shares outstanding and common stock
equivalents attributable to outstanding stock options. In addition to common
and common equivalent shares, fully diluted average shares include common shares
that would be issuable upon conversion of the Company's convertible securities,
as summarized below:
Three Months Ended
June 1, May 27,
1996 1995
------- -------
(in thousands except per share amounts)
Net income (loss) $ 8,273 ($18,335)
Assumed conversion of 6 7/8%
subordinated notes as of end of
period:
Plus interest and debt issue
costs, net of tax 681 691
------- --------
Fully diluted net income (loss) $ 8,954 ($17,644)
======= ========
Average shares outstanding during
period, including common stock
equivalents: 40,153 39,827
Primary
Plus assumed exercise of stock
options 35 46
Plus assumed conversion of
6 7/8% subordinated notes
to common stock as of end
of period 5,491 5,556
------ ------
Fully diluted 45,679 45,429
====== ======
Net income (loss) per share:
Primary $.21 ($.46)
==== ====
Fully diluted $.20 ($.46)
==== ====
Note 2 - Subsequent event - Conversion of 6 7/8% convertible subordinated notes
In June 1996, the Company announced the redemption on July 12, 1996 of its
$62.8 million outstanding principal amount of 6 7/8% convertible subordinated
notes due April 1, 2002 at a redemption price of $1,034.375 plus $19.288 of
accrued interest for each note of $1,000 principal amount. The notes were
convertible, without interest, into common stock of the Company at any time
prior to the close of business on July 10, 1996, at a conversion price of $11.43
per share or an aggregate of 87.49 shares per $1,000 principal amount. Prior
to redemption, $62,681,000 of the notes were converted into 5,483,823 shares of
the Company's common stock. The conversion and redemption of the notes reduces
the Company's long-term debt by $62.8 million and increases its equity
capitalization by approximately $62.6 million.
<PAGE>
PART I
------
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Pier 1 Imports, Inc. ("the Company") recorded net sales of $205.3 million
for the first quarter of fiscal 1997, a 16.1% increase over the $176.8 million
recorded for the same period of fiscal 1996. Same-store sales for the first
quarter of fiscal 1997 grew 10.8% compared to the first quarter of fiscal 1996.
The improvement in same-store sales resulted from an 11% increase in store
traffic due to the national television advertising campaign implemented during
the second quarter of last year, the continued focus on customer service
programs and the Company's store remodel and remerchandising programs which have
improved the layout and design of approximately 40 stores since the first
quarter of last year. Hard goods sales, such as furniture and decorative
accessories, during the first quarter of fiscal 1997 increased 16.5%, while soft
goods sales of apparel, jewelry and accessories decreased 21.7% during the first
quarter of fiscal 1997 compared to the first quarter of fiscal 1996,
respectively. Hard goods and soft goods sales contributed 93.3% and 6.7%,
respectively, of merchandise sales for the first quarter of fiscal 1997. The
Company plans to de-emphasize apparel in stores as a part of the remodel program
during fiscal 1997, and management expects to completely discontinue soft goods
in all Pier 1 stores by the end of the first quarter of fiscal 1998. Sales on
the Company's proprietary credit card were $55.6 million, or 27.1% of total
sales, for the first quarter of fiscal 1997, an increase of $12.1 million, or
27.9% over the same period last year. The Company opened 12 new North American
stores and closed six stores during the first quarter of fiscal 1997, bringing
the North American store count to 668 at the end of the fiscal 1997 first
quarter compared to 643 stores a year ago. Stores worldwide, including North
America, Puerto Rico and international operations in the United Kingdom, Mexico
and Japan, aggregated 697 at the fiscal 1997 quarter-end.
Gross profit, after related buying and store occupancy costs, expressed
as a percentage of sales, increased 0.7% to 39.8% for the first quarter of
fiscal 1997 compared to 39.1% for the first quarter of fiscal 1996. Merchandise
margins decreased to 53.9% for the first three months of fiscal 1997 from 54.6%
for the same period a year ago primarily due to soft goods promotions. In
addition, the Company's expanding international operations produce lower margin
rates compared to its North American operations. Hard goods merchandise
margins improved for the first quarter of fiscal 1997. Store occupancy costs,
as a percentage of sales, improved 1.3% to 14.2% during the first three months
of fiscal 1997 over the comparable period of fiscal 1996 primarily due to higher
sales leveraging relatively fixed rates on store leases coupled with the
Company's purchase (in the fourth quarter of fiscal 1996) of the remaining 90%
interest in a limited partnership which owns 33 Pier 1 stores previously leased
to the Company, thus eliminating base rent expenses for those stores.
Selling, general and administrative expenses, including marketing, as a
percentage of sales, increased 0.1% to 29.5% in the first quarter of fiscal 1997
compared to the same period last year. In total dollars, expenses for the first
quarter of fiscal 1997 increased $8.5 million versus the first quarter of fiscal
1996 primarily due to a $4.6 million increase in payroll expenses, which
decreased 0.4% as a percentage of sales, a $2.5 million increase in marketing
expenditures due to the national television advertising campaign that started
in July 1995 and a $1.1 million increase in store operating expenses, which
increased 0.2% as a percentage of sales, due to increased costs associated with
selling supplies. Other selling, general and administrative expenses increased
$0.3 million.
Operating income increased $3.4 million, or 26.4%, to $16.4 million
during the first quarter of fiscal 1997 compared to $13.0 million in the first
quarter of fiscal 1996.
Net interest expense decreased $0.3 million during the first quarter of
fiscal 1997 compared to the same period of fiscal 1996 primarily due to higher
investment income earned on the investment in Whiffletree Partners, L.P.
("Whiffletree") in the first quarter of fiscal 1997, offset partially by an
increase in interest expense resulting from higher floating rate debt coupled
with interest expense on the $40 million debt used to acquire the remaining 90%
interest in a limited partnership which owns 33 Pier 1 stores.
In late December 1995, the Company was made aware of losses of $19.3
million resulting from trading activities in a discretionary account. As a
result of the investigations of the trading losses, the Company recorded $16.5
million and $2.8 million of the net trading losses in fiscal 1996 and fiscal
1995, respectively, with $16.0 million of the net trading losses recorded in the
first quarter of fiscal 1996. The Company has not recorded any tax benefit on
these losses since the realization of such benefit is not considered likely
based on the information available at this time. The Company and a Special
Committee of the Board of Directors investigated the matter and found no
evidence to suggest that the Company's net losses from these trading activities
will exceed the $19.3 million recorded in fiscal years 1996 and 1995.
In April 1995, Sunbelt Nursery Group, Inc. ("Sunbelt") defaulted on 13
nursery store sublease agreements with the Company comprising $22.8 million of
non-revolving store development financing, and the Company terminated the
subleases. At the same time, Sunbelt defaulted on three nursery store lease
agreements guaranteed by the Company; however such defaults were subsequently
cured. During the first quarter of fiscal 1996, the Company recorded a pre-tax
charge of $14 million which represented the estimated cost to disengage from its
financial support of Sunbelt. The charge reflects the Company's estimated
losses resulting from the lease termination costs associated with the 13 nursery
store subleases and other related costs. The Company currently has outstanding
guarantees on other Sunbelt store lease commitments which aggregated $4.1
million with a present value of approximately $3.4 million at the end of the
first quarter of fiscal 1997. The Company is not aware of any defaults on these
leases. As of June 1996, two nursery store properties had been sold at costs
consistent with the Company's estimates to record the charge. The Company
believes that it is reasonably possible that a change in this estimate could
occur in the near term; however, no further charge is warranted at this time.
The Company's effective income tax rate for fiscal 1997 is estimated at
40% compared to 40% recorded in the first quarter of fiscal 1996, exclusive of
the aforementioned trading losses.
Net income for the first quarter of fiscal 1997 aggregated $8.3 million
or $.20 per share on a fully diluted basis compared to net income before special
charges of $6.2 million or $.15 per share on a fully diluted basis for the first
quarter of fiscal 1996. Special charges in the first quarter of fiscal 1996
included the $16.0 million in trading losses and the $14.0 million provision for
Sunbelt defaults.
Liquidity and Capital Resources
Cash, including temporary investments, increased $4.0 million to $17.5
million at the end of the first quarter of fiscal 1997 from $13.5 million at
fiscal 1996 year-end. The increase is primarily due to cash flow from
operations of $11.7 million and the net proceeds from the liquidation of the
Whiffletree investment of $4.7 million, offset partially by capital expenditures
of $9.1 million, net payments under line of credit agreements of $1.8 million,
cash dividend payments of $1.6 million and payments on the reserve for Sunbelt
defaults of $1.0 million. Other investing and financing activities provided
cash flow of $1.1 million. The improvement in cash provided by operating
activities during the first quarter of fiscal 1997 compared to the same period
of fiscal 1996 was largely due to higher net income and other non-cash related
items of $15.1 million compared to the first quarter of fiscal 1996, which
included $16.0 million of trading losses.
Working capital requirements will continue to be provided by cash from
operations and a three-year, $65 million competitive advance and revolving
credit facility, of which $25 million was available at fiscal 1997 quarter-end,
and other short-term (12 month) bank facilities aggregating $141.2 million,
$46.1 million of which was available at the fiscal 1997 quarter-end. The short-
term bank facilities consist of $15 million of committed lines of credit and
$126.2 million of uncommitted lines. One short-term bank facility providing a
$15 million committed line and a $15 million uncommitted line of credit was
renewed in May 1996 with substantially the same terms and conditions. The
Company is in compliance with the provisions of all loan agreements and lease
guarantees at the end of the first quarter of fiscal 1997. The Company's
current ratio was 3.4 to 1 at the end of the first quarter of fiscal 1997
compared to 3.5 to 1 at fiscal 1996 year-end and the end of the first quarter
of fiscal 1996. The Company's minimum operating lease commitments remaining for
fiscal 1997 are $72 million, and the present value of total existing minimum
operating lease commitments is $366 million.
In June 1996, the Company announced the redemption on July 12, 1996 of
its $62.8 million outstanding principal amount of 6 7/8% convertible
subordinated notes due April 1, 2002 at a redemption price of $1,034.375 plus
$19.288 of accrued interest for each note of $1,000 principal amount. The notes
were converted, without interest, into common stock of the Company at any time
prior to the close of business on July 10, 1996, at a conversion price of $11.43
per share or an aggregate of 87.49 shares per $1,000 principal amount. Prior
to redemption, $62,681,000 of the notes were converted into 5,483,823 shares of
the Company's common stock.
Cash requirements to fund the Company's previously established reserve
to disengage financial support of Sunbelt are expected to be approximately $12.7
million for the remainder of fiscal 1997 and will be funded through working
capital and operations. During the first quarter of fiscal 1997, approximately
$1.0 million was expended and charged against the reserve. As of June 1996, two
of the thirteen nursery store properties have been sold at costs consistent with
the Company's previously recorded reserve. The Company's guarantees of other
Sunbelt store lease commitments aggregates $4.1 million with a present value of
approximately $3.4 million at the fiscal 1997 first quarter-end. The Company
is not aware of any defaults on these leases. The Company believes that it is
reasonably possible that a change in this estimate could occur in the near term;
however, no further charge is warranted at this time.
During the first quarter of fiscal year 1997, the Company redeemed its
interest in Whiffletree for approximately $4.7 million, yielding a three-year
compounded annual return of approximately 14.7% after termination costs.
In the first quarter of fiscal 1997, the Company paid a $.04 per share
cash dividend and has subsequently declared a cash dividend of $.04 per share
payable on August 21, 1996 to shareholders of record on August 7, 1996. The
Company currently expects to continue to pay cash dividends in fiscal 1997, but
intends to retain most of its future earnings for expansion of the Company's
business.
<PAGE>
PART II
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Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits See Exhibit Index.
(b) Reports on Form 8-K On March 8, 1996, the Company filed a
Current Report on Form 8-K, reporting a
change in the Company's independent
auditors.
On March 21, 1996, the Company filed an
amendment to its Form 8-K, reporting a
change in the Company's independent
auditors.
<PAGE>
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 16, 1996 By: /s/ Clark A. Johnson
------------- -------------------------------------------
Clark A. Johnson, Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Date: July 16, 1996 By: /s/ Susan E. Barley
------------- -------------------------------------------
Susan E. Barley, Vice President and
Controller
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
10.1 Supplemental Retirement Plan
10.2 Amendment No. 1 to 1989 Employee Stock Option Plan
27 Financial Data Schedule for Three-Month Period ended June 1,
1996.
EXHIBIT 10.1
PIER 1 IMPORTS, INC.
SUPPLEMENTAL RETIREMENT PLAN
ARTICLE I--PURPOSE
The purpose of this Supplemental Retirement Plan (hereinafter referred to
as the "Plan") is to provide supplemental retirement benefits for a select group
of management or highly compensated employees of Pier 1 Imports, Inc. It is
intended that the Plan will aid in retaining and attracting employees of
exceptional ability by providing such individuals with these benefits. This Plan
shall be effective as of September 28, 1995.
ARTICLE II--DEFINITIONS
For the purposes of this Plan, the following terms shall have the meanings
indicated unless the context clearly indicates otherwise:
2.1 Actuarial Equivalent
"Actuarial Equivalent" means equivalence in value between two (2) or more
forms and/or times of payment based on the mortality table prescribed by the
Secretary of the Treasury or his delegate in accordance with Internal Revenue
Code Section 412(l)(7)(C)(ii), and an interest rate equal to the twenty-four
(24) month rolling average of the Pension Benefit Guaranty Corporation interest
rate for immediate annuities, as published in Appendix B to Part 2619 of Title
29 of the Code of Federal Regulations, or any successor or replacement rate (the
"PBGC rate"), using the current rate as of the beginning of the month in which
the calculation is made and the twenty-three (23) previous months.
2.2 Beneficiary
"Beneficiary" means the person, persons or entity entitled under Article
V to receive Plan benefits after a Participant's death.
2.3 Board
"Board" means the Board of Directors of Pier 1 Imports, Inc.
2.4 Cause
"Cause" means that the Participant:
(a) Misappropriated, stole or embezzled funds of the Employer; or
(b) Committed an act of deceit, fraud, or willful misconduct or
otherwise acted in bad faith, adverse to the best interests of the
Employer.
2.5 Change of Control of the Employer
"Change of Control of the Employer" shall be deemed to have occurred if:
(a) Any "person" [as defined in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934 (the "Act")] becomes the "beneficial
owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the Act) of
securities of the Pier 1, representing 35% or more of the voting power of
the outstanding securities of Pier 1 having the right under ordinary
circumstances to vote at an election of the Board of Directors of Pier 1;
or
(b) There shall occur a change in the composition of a majority of the
Board of Directors within a two (2) year period which change shall not
have been affirmatively approved by a majority of the Board of Directors
as constituted immediately prior to the commencement of such period; or
(c) At any meeting of the stockholders of Employer called for the
purpose of electing directors, a majority of persons nominated by the
Board of Directors for election as directors shall fail to be elected.
2.6 Committee
"Committee" means the Employees Retirement Plan Committee appointed to
administer the Employees Retirement Plan for the employees of Pier 1 Imports,
Inc. or any successor tax-qualified retirement plan, or any other Committee
chosen by the Board.
2.7 Compensation
"Compensation" means the rate at which salary is being paid to a
Participant as of the last day of a calendar year and any bonuses actually paid
to a Participant during that calendar year.
2.8 Early Retirement Date
"Early Retirement Date" means the first day of the month coincidental with
or next following the date on which a Participant terminates employment with
Employer, if such termination date occurs on or after such Participant's
attainment of age fifty-five (55) and completion of ten (10) Years of Plan
Participation.
2.9 Employer
"Employer" means any of Pier 1, its subsidiaries, and their respective
successors.
2.10 Good Reason
"Good Reason" means, without the written consent of the Participant:
(a) A reduction in the Participant's base salary or a reduction in the
Participant's benefits received from the Employer (other than in
connection with an across-the-board reduction in salaries and/or benefits
for similarly situated employees of the Employer or pursuant to the
Employer's standard retirement policy), in each case as in effect
immediately prior to a Change of Control; or
(b) The relocation of the Participant's full-time office to a location
greater than fifty (50) miles from the Employer's current corporate
office; or
(c) A reduction in the Participant's corporate title as in effect
immediately prior to a Change of Control; or
(d) The failure by the Employer to obtain the assumption of this
agreement by any successor as contemplated in this Plan.
2.11 Highest Average Compensation
"Highest Average Compensation" means the sum of the Participant's
Compensation paid during the highest paid three (3) full calendar years of
employment with Employer prior to termination of employment (whether or not such
years are consecutive) divided by three (3); provided, however, that if the
Participant has been employed for less than three (3) full calendar years, the
"Highest Average Compensation" shall be determined by using the sum of the
Participant's Compensation paid during the number of completed months of
employment divided by the number of actual completed months of employment
multiplied by twelve (12).
2.12 Normal Retirement Date
"Normal Retirement Date" means the first day of the month coincidental with
or next following the date on which a Participant terminates employment with
Employer, if such termination date occurs on or after such Participant's
attainment of age sixty-five (65).
2.13 Participant
"Participant" means any individual who is participating or has participated
in this Plan pursuant to Article III.
2.14 Pier 1
"Pier 1" means Pier 1 Imports, Inc., a Delaware corporation and its
successors.
2.15 Retirement
"Retirement" means separation from employment with the Employer at the
Participant's Normal Retirement Date or Early Retirement Date. Retirement shall
also mean the date as of which a Participant separates from employment within
twenty-four (24) months of a Change of Control of the Employer due to
termination of the employment of a Participant without regard to Years of
Credited Service unless such separation is:
(a) By the Employer for Cause or Total and Permanent Disability; or
(b) Because of the Participant's death; or
(c) By the Participant other than:
(i) For Good Reason; or
(ii) Upon the Participant's voluntary separation from employment
after his/her Normal Retirement Date.
2.16 Supplemental Retirement Benefit
"Supplemental Retirement Benefit" means the benefit determined under
Article IV of this Plan.
2.17 Target Amount
"Target Amount" means sixty percent (60%) of Highest Average Compensation
multiplied by a fraction, the numerator of which is the Participant's actual
Years of Credited Service, not to exceed twenty (20), and the denominator of
which is twenty (20).
2.18 Termination
"Termination" means separation from employment with the Employer for any
reason other than Retirement, death or Total and Permanent Disability.
2.19 Total and Permanent Disability
"Total and Permanent Disability" means a physical or mental condition
which, in the opinion of the Committee, prevents a Participant from
satisfactorily performing the Participant's usual duties for the Employer, or
any other employer, or such other duties as the Employer, or any other employer,
may make available to the Participant. For the purpose of this section, other
duties will give due regard to the Participant's position and earnings prior to
disability and will take into consideration the qualifications of such
Participant by reason of training, education and experience. The Committee's
decision as to total and permanent disability will be based upon medical reports
and/or other evidence satisfactory to the Committee.
2.20 Years of Credited Service
"Years of Credited Service" means the years of credited vesting service
with the Employer, determined in accordance with the provisions of The Employees
Retirement Plan of the Employer, or any successor tax-qualified retirement plan.
2.21 Years of Plan Participation
"Years of Plan Participation" means the total number of full years in which
a Participant has participated in the Plan.
ARTICLE III--PARTICIPATION AND VESTING
3.1 Participation
Participation in this Plan shall be limited to those employees of the
Employer nominated by the Chief Executive Officer of Pier 1 and approved by the
Committee and by the Board, and who elect to participate in this Plan by
executing a Participation Agreement in the form designated by the Committee. 3.2
Supplemental Retirement Benefit Vesting
(a) Vesting Percentage. Each Participant shall become vested in a
Supplemental Retirement Benefit based upon Years of Plan Participation
under the following schedule:
Years of Plan Vesting
Participation Percentage
------------- ----------
Less than 1 0%
1 but less than 2 10
2 but less than 3 20
3 but less than 4 30
4 but less than 5 40
5 but less than 6 50
6 but less than 7 60
7 but less than 8 70
8 but less than 9 80
9 but less than 10 90
10 or more 100
(b) Conditions for Immediate Vesting. Regardless of a Participant's
actual Years of Plan Participation, a Participant shall be one hundred
percent (100%) vested in a Supplemental Retirement Benefit upon Normal
Retirement, Retirement based on a Change of Control of the Employer,
termination of employment due to Total and Permanent Disability, or death.
ARTICLE IV--SUPPLEMENTAL RETIREMENT BENEFITS
4.1 Benefit
Upon separation from employment, a Participant shall receive a Supplemental
Retirement Benefit from this Plan which, along with the Participant's benefits
from primary Social Security, shall equal approximately sixty percent (60%) of
the Participant's Highest Average Compensation. The computation of said
Supplemental Retirement Benefit shall be made in accordance with the provisions
of Articles IV and V, as applicable, but in no event shall the amount of the
Supplemental Retirement Benefit paid annually to any Participant exceed three
hundred and fifty thousand dollars ($350,000). Notwithstanding the above, a
Participant who is terminated for Cause shall forfeit any right to receive
benefits under the Plan.
4.2 Normal Retirement Benefit
If a Participant retires at a Normal Retirement Date, Employer shall pay
to the Participant a monthly Supplemental Retirement Benefit from this Plan
equal to one-twelfth (1/12th) of the following annual amounts:
(a) The Target Amount; less
(b) The Participant's primary Social Security benefit payable at
Retirement; and
(c) The sum of the annual premium charged by the Employer to active
employees for the Employer-provided major medical and hospitalization
insurance coverage for Participants and their dependents at Retirement.
4.3 Early Retirement Benefit
If a Participant retires at an Early Retirement Date, Employer shall pay
to the Participant the monthly Supplemental Retirement Benefit calculated under
Section 4.2 above except:
(a) The Target Amount shall be reduced by five-twelfths percent (5/12%)
for each month by which the Participant's Early Retirement Date precedes
the Participant's attainment of age sixty-five (65); and
(b) The offset required by Subsection 4.2(b) shall be determined using
the Social Security Act in effect at Retirement and assuming zero (0)
future earnings from the Participant's Early Retirement Date to the
Participant's attainment of age sixty-five (65).
4.4 Change of Control Benefit
If a Participant retires as a result of a Change of Control of the
Employer, Employer shall pay to the Participant the monthly Supplemental
Retirement Benefit calculated under Section 4.2 above except the offset required
by Subsection 4.2(b) shall be determined using the Social Security Act in effect
at Retirement and assuming zero (0) future earnings from the Participant's
Retirement date to the Participant's attainment of age sixty-five (65).
4.5 Disability Retirement Benefit
If a Participant separates from employment with Employer due to Total and
Permanent Disability, Employer shall pay to the Participant the monthly
Supplemental Retirement Benefit calculated under Section 4.2 or 4.3, as
applicable, except that Years of Credited Service shall continue to accrue from
the separation date to Retirement.
4.6 Termination Benefit
If a Participant terminates employment with Employer prior to Retirement,
death or Total and Permanent Disability, Employer shall pay to the Participant
the monthly Supplemental Retirement Benefit calculated under Section 4.2 above
except:
(a) The offset required by Subsection 4.2(b) shall be determined using
the Social Security Act in effect at Termination and assuming level
earnings to the Participant's attainment of age sixty-five (65); and
(b) The benefit shall be multiplied by the vesting percentage provided
in Section 3.2 above.
4.7 Form of Benefit Payment
The Supplemental Retirement Benefit determined under Article IV shall be
paid in the basic form provided below unless the Participant elects an
alternative form in the form of payment designation. Any alternative form shall
be the Actuarial Equivalent of the basic form of benefit payment. The basic and
alternative forms of payment are as follows:
(a) Basic Form of Benefit Payment. A monthly single life annuity for
the Participant's life.
(b) Alternative Forms of Benefit Payment.
(i) A monthly joint and survivor annuity with payment continued to
the survivor at one hundred percent (100%); or
(ii) A monthly joint and survivor annuity with payment continued to
the survivor at fifty percent (50%) of the amount paid to the
Participant.
Notwithstanding the above, whenever the lump sum equivalent of the benefit
is $25,000 or less, the benefit shall be paid in a lump sum.
4.8 Commencement of Payments
Benefits payable to a Participant under Sections 4.2, 4.3, 4.4 and 4.5 as
a result of Normal or Early Retirement shall commence as soon as practicable
after the appropriate application for benefits has been made but not later than
sixty (60) days after all information necessary to calculate the benefit amount
has been received by Employer. Benefits payable to a Participant under Section
4.6 as a result of Termination shall commence on the first day of the month
coincidental with or next following the date on which the Participant attains
age sixty-five (65). All payments shall be made as of the first day of the
month.
4.9 Withholding; Payroll Taxes
To the extent required by the law in effect at the time payments are made,
the Employer shall withhold from payments made hereunder any taxes required to
be withheld from a Participant's wages by the federal, state or local
government.
4.10 Payment to Guardian
If a Plan benefit is payable to a minor or a person declared incompetent
or to a person incapable of handling the disposition of property, the Committee
may direct payment of such Plan benefit to the guardian, legal representative
or person having the care and custody of such minor, incompetent or person. The
Committee may require proof of incompetency, minority, incapacity or
guardianship as it may deem appropriate prior to distribution of the Plan
benefit. Such distribution shall completely discharge the Committee and Employer
from all liability with respect to such benefit.
4.11 Major Medical and Hospitalization Insurance Coverage
If a Participant separates from employment for any reason whatsoever, such
Participant (for the Participant and the Participant's dependents) shall have
the right to participate, during the fifteen (15) years immediately after the
date such Participant attains age sixty-five (65), in the Employer-provided
major medical and hospitalization insurance coverage, if any, made available
generally to the Employer's active employees and their dependents; provided,
however, that such Participant shall pay, or reimburse the Employer for, the
total premium (i.e., Employer and employee portions) for such insurance coverage
at such times as the Employer and such active employees pay their respective
premiums for such insurance coverage.
ARTICLE V--SURVIVOR BENEFITS
5.1 Death Prior to Commencement of Benefits
(a) Death at or After Age 55. If a Participant dies after becoming
eligible for Retirement at an Early Retirement Date but prior to
Retirement, Employer shall pay a survivor benefit to the Participant's
Beneficiary equal to the Retirement benefit that would have been provided
had the Participant retired on the day before the Participant's death with
a fifty percent (50%) joint and survivor annuity form.
(b) Death Prior to Age 55. If a Participant dies prior to the Early
Retirement Date, Employer shall pay a survivor benefit to the
Participant's Beneficiary equal to the Termination benefit that would have
been provided had the Participant elected a fifty percent (50%) joint and
survivor annuity form.
(c) Time of Payment. Any benefits payable to a Beneficiary under this
section shall commence as soon as practicable after the appropriate
application for benefits has been made but not later than sixty (60) days
after all information necessary to calculate the benefit amount has been
received by Employer. All payments shall be made as of the first day of
the month.
5.2 Death After Commencement of Benefits
If a Participant dies after benefit payments have commenced under Article
IV, a survivor benefit shall be paid to the Participant's Beneficiary only if,
and to the extent, provided for by the form of payment under which the
Participant was receiving a Supplemental Retirement Benefit, pursuant to Section
4.7.
5.3 Suicide; Misrepresentation
No benefit shall be paid to a surviving spouse if the Participant's death
occurs as a result of suicide during the twelve (12) calendar months beginning
with the calendar month following commencement of participation in this Plan.
The Committee may deny payment if death occurs within twelve (12) months
beginning with the calendar month following commencement of participation in
this Plan if the Participant has made a material misrepresentation in any form
or document provided by the Participant to or for the benefit of Employer.
5.4 Effect of Payment
Payment to the surviving spouse shall completely discharge Employer's
obligations under this Plan.
ARTICLE VI--BENEFICIARY DESIGNATION
6.1 Beneficiary Designation
Each Participant shall have the right, at any time, to designate any person
or persons as his Beneficiary or Beneficiaries (both primary and contingent) to
whom payment under this Plan shall be paid in the event of death prior to
complete distribution to the Participant of the benefits due under the Plan.
Each Beneficiary designation shall be in a written form prescribed by the
Committee and will be effective only when filed with the Committee during the
Participant's lifetime. If a Participant's Compensation is community property,
any Beneficiary designation shall be valid or effective only as permitted under
applicable law.
6.2 Amendments
Any Beneficiary designation may be changed by a Participant without the
consent of any designated Beneficiary by the filing of a new Beneficiary
designation with the Committee. The filing of a new Beneficiary designation form
will cancel all Beneficiary designations previously filed.
6.3 No Beneficiary Designation
If any Participant fails to designate a Beneficiary in the manner provided
above, or if the Beneficiary designated by a deceased Participant predeceases
the Participant, the Committee, in its discretion, shall direct the Employer to
distribute such Participant's benefits (or the balance thereof) as follows:
(a) To the Participant's surviving spouse, if any; or
(b) If the Participant shall have no surviving spouse, then to the
Participant's children in equal shares, by right of representation; or
(c) If the Participant shall have no surviving spouse or children, then
to the Participant's estate.
6.4 Effect of Payment
Payment to the Beneficiary shall completely discharge Employer's
obligations under this Plan.
6.5 Death of Beneficiary
Following commencement of payment of Plan benefits, if the Beneficiary
designated by a deceased Participant dies before receiving complete distribution
of the benefits, the Committee shall direct the Employer to distribute the
balance of such benefits:
(a) As designated by the Beneficiary in accordance with the provisions
in Section 6.1 above; or
(b) If the Beneficiary shall not have made such designation, then to
the Beneficiary's estate.
ARTICLE VII--ADMINISTRATION
7.1 Committee; Duties
This Plan shall be administered by the Committee. Members of the Committee
may be Participants under this Plan.
7.2 Agents
The Committee may appoint an individual to be the Committee's agent with
respect to the day-to-day administration of the Plan. In addition, the Committee
may, from time to time, employ other agents and delegate to them such
administrative duties as it sees fit, and may from time to time consult with
counsel who may be counsel to the Employer.
7.3 Binding Effect of Decisions
The decision or action of the Committee with respect to any question
arising out of or in connection with the administration, interpretation and
application of the Plan and the rules and regulations promulgated hereunder
shall be final and binding upon all persons having any interest in the Plan.
7.4 Indemnity of Committee
The Company shall indemnify and hold harmless the members of the Committee
against any and all claims, loss, damage, expense or liability arising from any
action or failure to act with respect to this Plan, except in the case of gross
negligence or willful misconduct by the Committee.
ARTICLE VIII--CLAIMS PROCEDURE
8.1 Claim
Any person claiming a benefit, requesting an interpretation or ruling under
the Plan, or requesting information under the Plan shall present the request in
writing to the Committee which shall respond in writing as soon as practicable.
8.2 Denial of Claim
If the claim or request is denied, the written notice of denial shall be
made within ninety (90) days of the date of receipt of such claim or request by
the Committee and shall state:
(a) The reason for denial, with specific reference to the Plan
provisions on which the denial is based.
(b) A description of any additional material or information required
and an explanation of why it is necessary.
(c) An explanation of the Plan's claims review procedure.
8.3 Review of Claim
Any person whose claim or request is denied or who has not received a
response within ninety (90) days may request review by notice given in writing
to the Committee within sixty (60) days of receiving a response or one hundred
fifty (150) days from the date the claim was received by the Committee. The
claim or request shall be reviewed by the Committee who may, but shall not be
required to, grant the claimant a hearing. On review, the claimant may have
representation, examine pertinent documents, and submit issues and comments in
writing.
8.4 Final Decision
The decision on review shall normally be made within sixty (60) days after
the Committee's receipt of a request for review. If an extension of time is
required for a hearing or other special circumstances, the claimant shall be
notified and the time shall be one hundred twenty (120) days after the
Committee's receipt of a request for review. The decision shall be in writing
and shall state the reason and the relevant Plan provisions. All decisions on
review shall be final and bind all parties concerned.
ARTICLE IX--TERMINATION, SUSPENSION OR AMENDMENT
9.1 Amendment or Termination
The Board may, in its sole discretion, amend or terminate this Plan at any
time, in whole or in part; provided, however, that no such amendment or
termination shall adversely affect the benefits of Participants which have
vested in accordance with Section 3.2 above prior to such action, the benefits
of any Participant who has previously retired, or the benefits of any
Beneficiary of a Participant who has died; provided further, however, that the
amendment or termination of this Plan shall not alter in any manner the timing
or form of benefit payments under this Plan.
9.2 Successor Employer
The provisions of this Plan shall be binding upon and inure to the benefit
of any successor or assign of the Employer. If a successor Employer amends or
terminates this Plan, no such amendment or termination shall adversely affect
the benefits of Participants which have vested in accordance with Section 3.2
above prior to such action, the benefits of any Participant who has previously
retired, or the benefits of any Beneficiary of a Participant who has previously
died.
ARTICLE X--MISCELLANEOUS
10.1 Unsecured General Creditor
Benefits to be provided under this Plan are unfunded obligations of the
Employer. Participants and their Beneficiaries, heirs, successors, and assigns
shall have no secured interest or claim in any property or assets of Employer,
nor shall they be Beneficiaries of, or have any rights, claims or interests in
any life insurance policies, annuity contracts or the proceeds therefrom owned
or which may be acquired by Employer ("Policies"). Except as provided in Section
10.2, such Policies or other assets of Employer shall not be held under any
trust for the benefit of Participants, their Beneficiaries, heirs, successors
or assigns, or be considered in any way as collateral security for the
fulfilling of the obligations of Employer under this Plan.
10.2 Trust Fund
Employer shall be responsible for the payment of all benefits provided
under the Plan. At its discretion, Employer may establish one (1) or more
trusts, with such trustees as the Board may approve, for the purpose of
providing for the payment of such benefits. Although such a trust shall be
irrevocable, its assets shall be held for payment of all Employer's general
creditors in the event of insolvency. To the extent any benefits provided under
the Plan are paid from any such trust, Employer shall have no further obligation
to pay them. If not paid from the trust, such benefits shall remain the
obligation of Employer.
10.3 Nonassignability
Neither a Participant nor any other person shall have any right to commute,
sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber,
hypothecate or convey in advance of actual receipt the amounts, if any, payable
hereunder, or any part thereof. No part of the amounts payable shall, prior to
actual payment, be subject to seizure or sequestration for the payment of any
debts, judgments, alimony or separate maintenance owed by a Participant or any
other person, nor be transferable by operation of law in the event of a
Participant's or any other person's bankruptcy or insolvency.
10.4 Not a Contract of Employment
The terms and conditions of this Plan shall not be deemed to constitute a
contract of employment between Employer and the Participant, and the Participant
(or his Beneficiary) shall have no rights against the Employer except as may
otherwise be specifically provided herein. Moreover, nothing in this Plan shall
be deemed to give a Participant the right to be retained in the service of
Employer or to interfere with the right of Employer to discipline or discharge
him at any time.
10.5 Participant's Cooperation
A Participant will cooperate with Employer by furnishing any and all
information requested by Employer in order to facilitate the payment of benefits
hereunder, and by taking such physical examinations and such other action as may
be requested by Employer.
10.6 Captions
The captions of the articles, sections and paragraphs of this Plan are for
convenience only and shall not control or affect the meaning or construction of
any of its provisions.
10.7 Governing Law
The provisions of this Plan shall be construed and interpreted according
to the laws of the State of Delaware.
10.8 Validity
In case any provision of this Plan shall be illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining parts
hereof, but this Plan shall be construed and enforced as if such illegal and
invalid provision had never been inserted herein.
10.9 Successors
The provisions of this Plan shall bind and inure to the benefit of Employer
and its successors and assigns. The term successors as used herein shall include
any corporate or other business entity which shall, whether by merger,
consolidation, purchase or otherwise acquire all or substantially all of the
business and assets of Employer, and successors of any such corporation or other
business entity.
10.10 Notice
Any notice or filing required or permitted to be given to the Committee
under the Plan shall be sufficient if in writing and hand delivered, or sent by
registered or certified mail, to any member of the Committee, the President of
the Employer, or the Employer's Statutory Agent. Such notice shall be deemed
given as of the date of delivery or, if delivery is made by mail, as of three
(3) days following the date shown on the postmark or on the receipt for
registration or certification.
EXHIBIT 10.2
AMENDMENT NO. 1 TO
PIER 1 IMPORTS, INC.
1989 EMPLOYEE STOCK OPTION PLAN
This Amendment No. 1 to the Pier 1 Imports, Inc. 1989 Employee Stock Option
Plan (the "Plan"), effective June 27, 1996, amends the Plan as set forth below:
1. Section 2(f) of the Plan is amended to read as follows:
"Disinterested Person" means a person who qualifies as (i) a
"disinterested person" under Rule 16b-3 promulgated under the Exchange
Act or any successor provision and (ii) an "outside director" under
Treasury Regulations Section 1.162-27 promulgated under Section 162(m)
of the Internal Revenue Code of 1986, as amended, or any successor
provision.
2. The first clause of the fourth sentence of Section 3 is amended to read
as follows:
The Committee shall have full and final authority in its discretion,
subject to the provisions of the Plan, to determine the Participants to
whom, and the time or times at which, options shall be granted and the
number of shares and purchase price of Common Stock covered by each
option, provided that no person shall be granted options which in the
aggregate exceed fifteen percent (15%) of the shares of Common Stock
authorized for issuance from time to time under the Plan;
3. The first sentence of Section 5 of the Plan is amended to read as
follows:
The aggregate number of shares of the Company's Common Stock which may
be issued upon the exercise of options shall not exceed three million
(3,000,000), subject to adjustment under the provisions of Paragraph 8.
4. The second sentence of Section 12 of the Plan is amended to read as
follows:
Unless sooner terminated hereunder, the Plan shall terminate on June
30, 2004.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENT OF OPERATIONS AND BALANCE SHEET AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
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<PERIOD-END> JUN-01-1996
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