UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 2
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended February 26, 1994.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File No. 1-7832
PIER 1 IMPORTS, INC.
(Exact name of the Company as specified in its charter)
DELAWARE 75-1729843
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 Commerce Street, Suite 600
Fort Worth, Texas 76102
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (817) 878-8000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- -------------------------------------- ---------------------------
Common Stock, $1 par value New York Stock Exchange
11 1/2% Sub. Debentures Due 2003 New York Stock Exchange
6 7/8% Convertible Sub. Notes Due 2002 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Company (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
Company was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the Company's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
As of May 4, 1994, there were 37,547,477 shares of Common Stock, $1.00
par value, outstanding, and the aggregate market value of the Common Stock of
the Company held by non-affiliates was approximately $311 million.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K Incorporated Document
Part III Proxy Statement for 1994 Annual Meeting
<PAGE>
Items 6, 7, 8 and 14 of the Company's Annual Report on Form 10-K for the year
ended February 26, 1994, are amended and restated as set forth below.
Item 6. Selected Financial Data.
Pier 1 Imports, Inc.
FINANCIAL SUMMARY (Unaudited)
($ in millions except per share amounts)
4-Year
Compound
Annual Year Ended
Growth -------------------------------------
Rate 1994 1993 1992 1991 1990
------- ------ ------ ------ ------ ------
Summary of operations:
Net sales 7.3% $685.4 629.2 586.7 562.7 516.9
Gross profit 5.4% $259.6 246.2 228.4 210.5 210.1
Selling, general and
administrative
expenses 7.0% $195.4 180.2 172.4 169.9 148.8
Depreciation and
amortization 4.8% $15.8 15.1 15.0 14.3 13.1
Store-closing pro-
vision $21.3 - - - -
Nonoperating
expense, net
of income(1) 18.0% $18.8 15..0 16.3 12.3 9.7
Income before income
taxes and equity in
net income (loss)
of subsidiary(2) $8.4 35.9 30.5 14.0 38.5
Equity in net income
(loss) of subsidiary $- (3.6) 4.5 (2.4) -
Net income for common
stockholders $5.9 23.0 26.3 6.3 25.3
Per common share data
(adjusted for stock
splits and dividends):(3)
Net income for common
stockholders $0.15 0.59 0.68 0.16 0.64
Cash dividends declared $0.09 0.06 - 0.15 0.12
Stockholders' equity 2.6% $5.09 5.11 4.56 4.07 4.60
Other financial data:
Working capital 12.2% $229.0 225.2 160.0 126.7 144.3
Current ratio 3.5 3.4 3.0 2.1 3.2
Total assets 7.2% $463.3 460.5 386.4 428.9 350.5
Long-term debt 11.9% $145.2 147.2 106.8 140.6 92.6
Stockholders's equity 2.6% $201.1 200.5 177.1 156.3 181.4
Weighted average shares
outstanding and
common stock equivalents
(millions)(3) 39.5 39.2 38.9 38.4 39.5
Effective tax rate 29.0% 25.9 28.3 35.8 33.7
Return on common
stockholders'
average equity 3.0% 12.2 15.8 3.7 17.0
Return on average
total assets 1.3% 5.4 6.5 1.6 7.8
Pre-tax return on sales 1.2% 5.7 5.2 2.5 7.4
- --------------------
Note (1)--Nonoperating expense, net of income is comprised of interest
expense and interest income in each fiscal year presented, and in addition,
includes net trading losses or gains in fiscal years 1994 and 1993 and the
write-down of General Host Securities in fiscal year 1994.
Note (2)--Fiscal 1992 includes a gain on the sale of subsidiary stock of
approximately $5.9 million.
Note (3)--Reflects the effect of the 5% stock dividend distributed May 8,
1995. See Note 15 of the Notes to Consolidated Financial Statements.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Pier 1 Imports, Inc. ("the Company") is North America's largest
specialty retailer of decorative home furnishings, gifts and related items,
with stores in 47 states, Puerto Rico and Canada, and additional
international operations in the United Kingdom and Mexico. The Company
reported record sales of $685,393,000 for fiscal 1994 and net income of
$5,933,000, or $.15 per share, after providing an after-tax special charge of
$16,507,000 in the fourth quarter for the store-closing provision and
adjusting the carrying value of General Host Corporation ("General Host")
common stock. If the special charge had not been provided, net income for
the year would have totalled $22,440,000, or $.57 per share, compared to
$23,017,000, or $.59 per share, last year. Stores in operation worldwide at
fiscal year-end aggregated 588 after removing North American stores to be
closed through the store-closing program. In early fiscal 1994, the Company
sold its interest in Sunbelt Nursery Group, Inc. ("Sunbelt") to General Host.
Fiscal Years Ended February 26, 1994 and February 27, 1993
Net sales in fiscal 1994 grew $56.2 million or 8.9% over the prior year
with same-store sales growth of 4.8%. Last year net total sales grew 7.3%
and same-store sales grew 3.7%. Forty-eight (48) new North American stores
opened during the year and 17 stores closed, before giving effect to the
provision for the closing of 49 stores.
Sales on the Company's proprietary credit card were $98.6 million
(14.4% of total sales) during the 1994 fiscal year, an increase of $38
million or 62.6% over the prior year. Credit card receivables were $48.2
million at fiscal 1994 year-end, an increase of 45.0% over the previous year-
end. The Company actively pursues increasing the cardholder base in order to
use the cardholder list as a basis for direct mail advertising and because it
believes that such a base increases customer loyalty and repeat business.
Sales on the Company's credit card are encouraged through specific
promotions.
Gross profit, after related buying and store occupancy costs, expressed
as a percentage of net sales, declined 1.2% from 39.1% in fiscal 1993 to
37.9% in fiscal 1994. Store occupancy costs, expressed as a percentage of
net sales, improved slightly due to higher sales volumes. The sales mix of
furniture and decorative goods remained unchanged as a percentage of sales;
however, promotional markdowns and other discounts caused reduced margins on
these goods. Sales from clothing, jewelry and accessories compared to total
sales declined, as did the gross profit rate due to additional promotional
markdowns taken in fiscal 1994 compared with fiscal 1993.
Selling, general and administrative expenses, including advertising,
decreased 0.1% to 28.5% as a percentage of sales in fiscal 1994 compared to
28.6% in fiscal 1993. In total dollars, expenses for fiscal 1994 increased
$15.2 million over the prior year primarily due to 31 net new North American
stores opened during the year (before giving effect to the provision for the
closing of 49 North American stores), new point-of-sale register equipment
installed in all stores, new selling programs introduced in stores, losses
related to the earthquake in California and severe weather during fiscal
1994.
The store-closing provision was a special charge to fiscal 1994
earnings of $21.3 million before taxes that was established to reflect the
anticipated costs to close 49 identified stores with histories of
underperformance and high occupancy costs and to close the Canadian
distribution center and administrative offices. Merchandise distribution to
Canadian stores will be performed from U. S. distribution centers. Of the 49
stores, 15 had been planned for closing at an estimated cost of $0.2 million
prior to adoption of the store-closing program. The store closings are
expected to be substantially completed during fiscal 1995, with $19.3 million
of payments and write-downs expected in fiscal 1995 and $2.0 million expected
in fiscal 1996. After-tax cash payments to complete the program are
anticipated to total approximately $10.4 million in fiscal 1995 and $1.4
million in fiscal 1996, the funds for which will be provided from working
capital and operations. Revenues in fiscal 1994 for the closed stores
aggregated $38.1 million, and the Company anticipates that the reduction in
revenues for these stores coupled with the corresponding elimination of store
occupancy costs aggregating 35% of store revenues and other operating costs
will improve 1995 fiscal year pre-tax earnings by approximately $1.7 million.
The components of the store-closing provision consists of lease termination
costs of $15.9 million (net of $3.9 million of estimated sublease revenue),
fixed asset write-downs of $2.1 million, expected interim operating losses of
$1.7 million, inventory liquidation costs of $1.2 million, and severance and
relocation costs of $0.4 million. Lease termination costs reflect the
estimated settlements the Company will pay landlords to terminate lease
arrangements and the shortfall of sublease revenues over lease payments for
stores that the Company determined were economical to sublease. Fixed
assets, consisting primarily of leasehold improvements, were written down to
their estimated net realizable value. Inventory liquidation cost was
determined by estimating additional markdowns to be taken to dispose of each
store's inventory. Operating losses were computed on the basis of past
performance of the respective stores and anticipated results for the 1995
fiscal year. Severance and relocation costs consisted almost entirely of
benefits to be paid to Canadian employees as prescribed by Canadian law.
Operating income declined $23.8 million to $27.1 million in fiscal 1994
from $50.9 million in the prior year, due to the special charges in fiscal
1994 and the gross profit rate decline from fiscal 1993.
During fiscal 1994, cash was utilized to reduce short-term debt, fund
inventory and fixtures for new store development, expand the Pier 1 credit
card program, and pay dividends to shareholders. Due to lower interest
income on declining cash balances, net interest expense increased $0.8
million in fiscal 1994 over the prior year.
In late December 1995, the Company was made aware of trading losses of
$19.3 million resulting from trading activities in a discretionary account.
The Company has regularly designated a portion of its excess cash and short-
term investments for management by a financial consultant in the
discretionary account. The amount of funds deposited by the Company has
varied during each year, and the funds were generally withdrawn near the end
of each fiscal year. According to statements of the account provided by
brokerage firms that executed trading activity at the financial consultant's
instructions, the funds were invested in treasury bonds, treasury bond
futures contracts and options on treasury bond futures contracts. The
futures and options contracts were often used in a manner that provided a
high degree of speculation and leverage to the invested funds. As a result
of the investigations of the net trading losses, the Company has recorded
$16.5 million of the net trading losses in fiscal 1996 and has restated its
fiscal 1995 financial statements to record $2.8 million of the net trading
losses during that year. Fiscal 1996, 1995, 1994 and 1993 quarterly
financial statements have been restated to reflect the net trading losses and
gains during those periods based on the information available to the Company.
The restatements of various quarters have no effect on net income for the
full 1994 and 1993 fiscal years. The Company deposited a total of $22.1
million in the discretionary account in fiscal 1994, and during the first,
second and third quarters incurred net trading losses in the account of $4.0
million, $6.2 million and $4.6 million, respectively, and during the fourth
quarter attained a net trading gain of $14.8 million. The financial
statements for the first and second quarters of fiscal 1993 do not require
restatement. During the third quarter of fiscal 1993, the Company incurred
net trading losses in the account of $2.4 million and during the fourth
quarter attained a net trading gain of $3.4 million. To the extent trading
losses are not offset by trading gains, the Company has not recorded any tax
benefit on these losses since the realization of such benefits 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. See: Note 2 of the Notes to Consolidated Financial
Statements.
During fiscal 1994, the Company recorded a provision for the write-down
of the carrying value of the Company's holdings of General Host common stock.
Based upon prices at year-end, the market value of General Host common stock
was $5,565,000 less than the Company's original carrying amount. After an
assessment of factors which may have contributed to this decline, the Company
estimated $2,000,000 of this decline to be other than temporary and recorded
a corresponding adjustment in the book value of General Host common stock.
The remaining decline of $3,565,000 is considered to be temporary. On April
8, 1994, General Host announced that it had written down to zero its entire
investment in Sunbelt.
The Company's effective income tax rate for fiscal 1994 increased to
29% compared to 25.9% in fiscal 1993, primarily due to an increase in the
state tax effective rate.
The Company's equity in losses from Sunbelt was $3.6 million in fiscal
1993. In April 1993, the Company completed the sale of its 49.5% interest in
Sunbelt. Sunbelt's results were not included in the Company's earnings
during fiscal 1994.
Net income for fiscal 1994 aggregated $5.9 million, or $.15 per share,
compared to income of $23.0 million, or $.59 per share last year.
Fiscal Years Ended February 27, 1993 and February 29, 1992
During fiscal 1993, net sales grew $42.6 million or 7.3% with same-
store sales contributing 3.7% over fiscal 1992. Sales from stores opened in
fiscal years 1993 and 1992 increased fiscal 1993 sales levels by 3.6% when
compared to fiscal 1992. Twenty-six new North American stores (net 20) were
opened during fiscal 1993.
Gross profit, after related buying and store occupancy costs, expressed
as a percentage of net sales, increased to 39.1% during fiscal 1993 from
38.9% in fiscal 1992. The improvement was the result of store occupancy
costs which, as a percentage of sales, improved due to higher sales volumes.
Merchandise gross margin in fiscal 1993 remained unchanged as a percentage of
sales from fiscal 1992 due to a similar merchandise mix in both years, and,
although promotional sales discounts increased in fiscal 1993 from a year
ago, there was a reduction in the amount of clearance markdowns and shrinkage
in fiscal 1993 versus fiscal 1992.
Selling, general and administrative expenses, including advertising,
improved 0.8% to 28.6% as a percentage of sales in fiscal 1993 compared to
29.4% in fiscal 1992. In total dollars, expenses for fiscal 1993 increased
$7.7 million over the prior year, principally due to 20 net new stores in
operation by the end of fiscal 1993. This increase resulted in higher
payroll and store-related costs as well as increased catalog and other
promotional advertising. These increased costs from fiscal 1992 were
partially offset by expense control, favorable medical insurance claim
experience, lower Pier 1 credit card expenses, the reduction in scope of the
mid-year physical inventory counts, and decreased litigation costs.
Operating income increased $9.9 million to $50.9 million in fiscal 1993
from $41 million a year earlier, mainly due to revenue growth from both new
store openings and existing store sales and the reductions in controllable
expenses.
Net interest expense decreased $0.3 million during fiscal 1993 from
fiscal 1992 due to a decline in the Company's debt (net of cash) position and
a slight decrease in the Company's effective interest rate.
In late December 1995, the Company was made aware of trading losses of
$19.3 million resulting from trading activities in a discretionary account.
The Company has regularly designated a portion of its excess cash and short-
term investments for management by a financial consultant in the
discretionary account. The amount of funds has varied during each year, and
the funds were generally withdrawn near the end of each fiscal year. The
Company did not invest funds with the financial consultant during fiscal year
1992. According to statements of the account provided by brokerage firms
that executed trading activity at the financial consultant's instructions,
the funds were invested in treasury bonds, treasury bond futures contracts
and options on treasury bond futures contracts. The futures and options
contracts were often used in a manner that provided a high degree of
speculation and leverage to the invested funds. As a result of the
investigations of the net trading losses, the Company recorded $16.5 million
of the net trading losses in fiscal 1996 and restated its fiscal 1995
financial statements to record $2.8 million of the net trading losses during
that year. Fiscal 1996, 1995, 1994 and 1993 quarterly financial statements
have been restated to reflect the net trading losses and gains during those
periods based on information available to the Company. The restatements of
the third and fourth quarters of fiscal 1993 have no effect on net income for
the full 1993 fiscal year. The Company deposited a total of $10.0 million in
the discretionary account in fiscal 1993, and during the third quarter
incurred a net trading loss in the account of $2.4 million and during the
fourth quarter attained a net trading gain of $3.4 million. The financial
statements for the first and second quarters of fiscal 1993 do not require
restatement. To the extent trading losses are not offset by trading gains,
the Company has not recorded any tax benefit on these losses since the
realization of such benefits 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. See: Note
2 of the Notes to Consolidated Financial Statements.
During fiscal 1992, the Company recorded a one-time gain of $5.9
million related to the sale of 50.5% of Sunbelt's common stock.
The Company's effective income tax rate for fiscal 1993 decreased to
25.9% from 28.3% due to the benefit of lower tax rates on income from foreign
subsidiaries and tax-favored investment income.
The Company recorded equity in losses of Sunbelt during fiscal 1993 of
$3.6 million compared to income of $4.5 million in fiscal 1992. During
fiscal 1993, the Company included only 49.5% of Sunbelt's earnings during an
unprofitable year, compared to 100% in fiscal 1992 when Sunbelt experienced
greater profits.
Net income for fiscal 1993 of $23.0 million, or $.59 per share, was
below last year's $26.3 million, or $.68 per share, as a result of Sunbelt's
losses in fiscal 1993 and the gain on sale of Sunbelt stock in fiscal 1992.
LIQUIDITY AND CAPITAL RESOURCES
The sources of liquidity during the past three years have been earnings
from operations, working capital changes, long-term borrowings, and the sale
of 50.5% of Sunbelt stock in fiscal 1992. Primarily, these funds were
utilized to reduce short-term debt, acquire property and equipment, finance
the expansion of inventories and the Pier 1 credit card program, and pay
dividends.
During fiscal 1994, increases in inventory and capital expenditures
were required to support the opening of 48 new North American stores.
Financing for new store land and building costs is provided by operating
leases. The Company's new store development plan for fiscal 1995 is
approximately 50 North American stores. Inventory and fixtures for the
development plan are estimated to cost approximately $15 million, which will
be funded by operations, working capital and bank lines of credit. Cash
requirements to fund the store-closing program in fiscal 1995 are estimated
to aggregate $16 million and will be funded through working capital and
operations.
New store construction financing is expected to be provided by
operating leases. The Company is expanding existing lease facilities and
exploring additional financing opportunities currently available in the
capital markets. In connection with leases for 38 stores executed in prior
years, the Company has guaranteed the residual building values at
approximately $25 million. Minimum future operating lease commitments
expected for fiscal 1995 aggregate to $86 million, and the present value of
total existing operating lease commitments is $372 million. These
commitments will be funded from operating cash flow.
Working capital requirements are currently provided by cash, short-term
revolving lines of credit, including bankers' acceptances and working capital
loans, in an aggregate amount of approximately $165 million. The Company's
current ratio was 3.5 to 1 at the end of fiscal 1994 compared to 3.4 to 1 a
year earlier.
In connection with the sale of 43.3% of Sunbelt common stock in a
public offering in the 1992 fiscal year, the Company agreed to guarantee
Sunbelt's two bank lines of credit aggregating $10 million in order to assure
that Sunbelt would have access to funds in order to implement its aggressive
store expansion and renovation plans and to continue to be a major competitor
in its markets. The Company subsequently provided Sunbelt with an additional
$2 million line of credit. With the April 1993 sale of the Company's 49.5%
interest in Sunbelt to General Host, the Company agreed to keep the $12
million credit facility in place until April 1994. All of the $12 million is
currently outstanding. In order for Sunbelt to meet repayment obligations
under this line, Sunbelt must obtain replacement financing. To enable
Sunbelt to raise these funds, the Company has granted Sunbelt a temporary
extension of the credit facility until June 30, 1994. Also, the Company is
committed to provide Sunbelt $25 million of non-revolving store development
financing through April 1996. The Company has arranged for a bank group to
provide financing by which the Company leases from an unaffiliated third
party and subleases store sites to Sunbelt. Under this leasing facility, the
leases are required to be refinanced by Sunbelt from September 1994 to
October 1995. If Sunbelt defaults on refinancing these store leases as the
terms expire, the Company will be required to obtain other financing. The
Company expects financing of Sunbelt's store sites to remain at the same or
similar terms and conditions as are currently in place. In addition to the
above, the Company also guarantees approximately $4.5 million of Sunbelt
store lease commitments. The Company's line of credit and leasing
commitments are collateralized by 4.2 million shares of Sunbelt's common
stock.
The Board of Directors anticipates a continuation of its current cash
dividends to shareholders.
In fiscal 1993, the Company invested in preference stock of The Pier
Retail Group Limited ("The Pier") located in the United Kingdom. Currently,
investment in and loans to The Pier aggregate $3.4 million, with additional
debt guarantees of approximately $4 million. The Pier is a ten-store retail
operation that offers decorative home furnishings and related items in a
store setting similar to that operated by the Company.
The Company's inventory purchases are made almost entirely in U.S.
dollars. To the extent purchases are made in foreign currencies, the Company
usually enters into forward exchange contracts when they are available in
order to manage its exposure to foreign currency exchange fluctuations.
The Company believes the funds provided from operations, coupled with
the Company's cash position and available lines of credit, are more than
sufficient to meet its foreseeable cash requirements.
Impact of Inflation and Changing Prices
Inflation has not had a significant impact on the operations of the
Company.
Impact of New Accounting Standards
The adoption of Financial Accounting Standards Board's Statements No.
114 and 115 is expected to have no material impact on the Company's results
of operations.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Pier 1 Imports, Inc.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Pier 1 Imports, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Pier 1 Imports, Inc. and its subsidiaries at February 26, 1994
and February 27, 1993, and the results of their operations and their cash
flows for each of the three years in the period ended February 26, 1994, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Fort Worth, Texas
April 14, 1994, except for
Note 15, as to which the date
is April 7, 1995 and Note 2,
as to which the date is
February 29, 1996
<PAGE>
Pier 1 Imports, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
Year Ended
------------------------------
1994 1993 1992
-------- -------- --------
Net sales $685,393 $629,235 $586,659
Operating costs and expenses
Cost of sales (including buying and
store occupancy) 425,801 383,053 358,216
Selling, general and administrative
expenses 195,444 180,218 172,478
Depreciation and amortization 15,771 15,097 15,006
Store-closing provision 21,250 -- --
-------- -------- --------
658,266 578,368 545,700
-------- -------- --------
Operating income 27,127 50,867 40,959
Nonoperating (income) and expense:
Interest income (4,334) (3,406) (594)
Interest expense 21,177 19,401 16,906
Net trading gains (Note 2) (72) (1,039) --
Write-down of General Host securities 2,000 -- --
Gain on sale of subsidiary stock -- -- (5,886)
-------- -------- --------
18,771 14,956 10,426
-------- -------- --------
Income before income taxes and equity
in net income (loss) of subsidiary 8,356 35,911 30,533
Provision for income taxes 2,423 9,309 8,656
-------- -------- --------
Income before equity in net income
(loss) of subsidiary 5,933 26,602 21,877
Equity in net income (loss) of
subsidiary -- (3,585) 4,456
-------- -------- --------
Net income 5,933 23,017 26,333
Cumulative dividends on preferred
stock -- -- 11
-------- -------- --------
Net income $ 5,933 $ 23,017 $ 26,322
======== ======== ========
Net income per share $.15 $.59 $.68
==== ==== ====
The accompanying notes are an integral part of these financial statements.
<PAGE>
Pier 1 Imports, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands)
1994 1993
-------- --------
ASSETS
Current assets:
Cash, including temporary investments of $7,466
and $66,823, respectively $ 17,123 $ 73,585
Accounts receivable, net of allowance for doubtful
accounts of $2,072 and $2,404, respectively 51,722 34,920
Inventories 219,646 189,593
Other current assets 32,901 20,038
-------- --------
Total current assets 321,392 318,136
Properties, net 111,510 108,011
Other assets 30,400 34,350
-------- --------
$463,302 $460,497
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 2,639 $ 33,139
Accounts payable and accrued liabilities 89,772 59,791
-------- --------
Total current liabilities 92,411 92,930
Long-term debt 145,231 147,246
Deferred income taxes 3,407 514
Other non-current liabilities 21,160 19,313
Stockholders' equity:
Common stock, $1.00 par, 100,000,000 shares
authorized, 37,617,000 and 37,607,000
issued, respectively 37,617 37,607
Paid-in capital 92,670 93,184
Retained earnings 76,597 74,413
Cumulative translation adjustments (964) (433)
Less--98,000 and 263,000 common shares in
treasury, at cost, respectively (884) (2,599)
Less--subscriptions receivable and unearned
compensation (1,369) (1,678)
Less--unrealized loss on marketable equity securities (2,574) --
-------- --------
201,093 200,494
Commitments and contingencies
-------- --------
$463,302 $460,497
======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
Pier 1 Imports, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended
---------------------------
1994 1993 1992
Cash flow from operating activities: ------- ------- -------
Net income $ 5,933 $23,017 $26,333
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 15,771 15,097 15,006
Deferred taxes and other (3,006) (764) 4,475
Store-closing provision 21,250 -- --
Write-down of General Host securities 2,000 -- --
Equity in undistributed losses
(earnings) of subsidiary -- 3,585 (4,456)
Gain on sale of subsidiary stock -- -- (5,886)
Change in cash from:
Inventories (30,053) (8,201) 761
Accounts receivable and other
current assets (17,550) (3,670) 1,054
Accounts payable and accrued expenses 10,103 446 7,557
Other assets, liabilities, and
other, net (28) 1,011 (13)
Net cash provided by operating ------- ------- -------
activities 4,420 30,521 44,831
Cash flow from investing activities: ------- ------- -------
Capital expenditures (24,617) (12,619) (6,169)
Proceeds from disposition of properties 791 159 14,076
Loans to Sunbelt Nursery Group, Inc. (1,000) -- --
Proceeds from Sunbelt Nursery Group, Inc. 2,105 -- --
Other investments (2,353) -- --
Net cash (used in)/provided by ------- ------- -------
investing activities (25,074) (12,460) 7,907
Cash flow from financing activities: ------- ------- -------
Cash dividends (3,560) (2,409) (11)
Proceeds from issuance of long-term debt -- 72,353 24,344
Repayments of long-term debt -- (35,362) (59,738)
Net (payments)/borrowings under line of
credit agreements (33,000) 9,983 (46,000)
Proceeds from subsidiary stock sale -- -- 18,072
Proceeds from sales of capital stock,
treasury stock, and other 752 1,958 3,144
Net cash (used in)/provided by ------- ------- -------
financing activities (35,808) 46,523 (60,189)
------- ------- -------
Change in cash and cash equivalents (56,462) 64,584 (7,451)
Cash and cash equivalents at beginning of year 73,585 9,001 16,452
------- ------- -------
Cash and cash equivalents at end of year $17,123 $73,585 $ 9,001
======= ======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE> Pier 1 Imports, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED FEBRUARY 26, 1994 (in thousands)
<CAPTION>
Subscriptions Unrealized Loss
Cumulative Receivable and on Marketable Total
Preferred Common Paid-in Retained Translation Treasury Unearned Equity Stockholders'
Stock Stock Capital Earnings Adjustments Stock Compensation Securities Equity
--------- ------- ------- -------- ----------- -------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance March 2, 1991 $1,500 $36,156 $86,916 $41,133 $1,064 ($6,831) ($3,688) $ -- $156,250
Purchase of treasury
stock -- -- -- -- -- (2,187) 893 -- (1,294)
Restricted stock grant
and amortization -- -- (37) -- -- (255) 535 -- 243
Adjust to Sunbelt
fiscal year-end date -- -- -- (1,177) -- -- -- -- (1,177)
Exercise of stock
options and other -- (2) (1,363) (160) -- 4,722 -- -- 3,197
Currency translation
adjustments -- -- -- -- (494) -- -- -- (494)
Cash dividends on
preferred stock -- -- -- (11) -- -- -- -- (11)
Stock dividend (3%) -- 1,071 9,098 (10,169) -- -- -- -- --
Retirement of
preferred stock (1,500) -- (2,311) (2,105) -- -- -- -- (5,916)
Net income -- -- -- 26,333 -- -- -- -- 26,333
------ ------- ------- ------- ------ ------- ------ ------- --------
Balance February 29, 1992 -- 37,225 92,303 53,844 570 (4,551) (2,260) -- 177,131
Purchase of treasury
stock -- -- -- -- -- (1,226) -- -- (1,226)
Restricted stock grant
and amortization -- -- (18) -- -- (511) 582 -- 53
Exercise of stock
options and other -- 382 899 (39) -- 3,689 -- -- 4,931
Currency translation
adjustments -- -- -- -- (1,003) -- -- -- (1,003)
Cash dividends ($.06
per share) -- -- -- (2,409) -- -- -- -- (2,409)
Net income -- -- -- 23,017 -- -- -- -- 23,017
------ ------- ------- ------- ----- ------- ------ ------- --------
Balance February 27, 1993 -- 37,607 93,184 74,413 (433) (2,599) (1,678) -- 200,494
Purchase of treasury
stock -- -- -- -- -- (1,545) -- -- (1,545)
Restricted stock grant
and amortization -- -- (62) -- -- 9 309 -- 256
Exercise of stock
options and other -- 10 (452) (189) -- 3,251 -- -- 2,620
Currency translation
adjustments -- -- -- -- (531) -- -- -- (531)
Unrealized loss on
marketable equity
securities -- -- -- -- -- -- -- (2,574) (2,574)
Cash dividends ($.09
per share) -- -- -- (3,560) -- -- -- -- (3,560)
Net income -- -- -- 5,933 -- -- -- -- 5,933
------ ------- ------- ------- ------- ------- ------- ------- --------
Balance February 26, 1994$ -- $37,617 $92,670 $76,597 ($ 964) ($ 884) ($1,369) ($2,574) $201,093
====== ======= ======= ======= ======= ======= ======= ======= ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Statement of significant accounting policies
Basis of consolidation - The consolidated financial statements of Pier
1 Imports, Inc. and its consolidated subsidiaries include the accounts of all
subsidiary companies. Material intercompany transactions and balances have
been eliminated.
Fiscal periods - The Company utilizes 5-4-4 (week) quarterly accounting
periods with the fiscal year of 52 weeks ending on the Saturday nearest the
last day of February. Fiscal 1994 ended February 26, 1994, fiscal 1993 ended
February 27, 1993, and fiscal 1992 ended February 29, 1992.
Cash and cash equivalents - The Company considers all highly liquid
investments with an original maturity date of three months or less to be cash
equivalents. The effect of foreign currency exchange rate changes on cash is
not material.
Marketable equity securities - The Company records marketable equity
securities at the lower of cost or market. Unrealized gains and losses on
non-current marketable equity securities and related income tax effects are
accumulated and included as a separate component of stockholders' equity.
Adjustments for any impairments in the value (based on market conditions)
that are deemed to be 'other than temporary' are included as a loss in the
current year's operations. In fiscal 1994, General Host Corporation
("General Host") common stock was the Company's only non-current marketable
equity security. The General Host investment was originally recorded at
$17,945,000; this amount was determined as the average quoted market price of
General Host common stock during the 30-day period immediately preceding the
sale to General Host of the Company's ownership interest in 4.2 million
shares of the common stock of Sunbelt Nursery Group, Inc. ("Sunbelt"). In
1994, this carrying amount was reduced by $2,000,000 by a provision for an
'other than temporary' decline in the market value of this common stock. As
of February 26, 1994, the quoted market price of the General Host common
stock aggregated $12,380,000, which resulted in an unrealized loss of
$3,565,000 that is recorded, net of tax, as a component of the Company's
stockholders' equity.
Translation of foreign currencies - Assets and liabilities are
translated to U.S. dollars at fiscal year-end exchange rates. Income and
expense items are translated at average rates of exchange prevailing during
the year. Translation adjustments are accumulated in a separate component of
stockholders' equity.
The Company hedges certain commitments denominated in foreign currency
through the purchase of forward contracts. The forward contracts are
purchased only to cover specific commitments to buy merchandise for resale;
any gains or losses on such contracts are included in the cost of the
merchandise purchased. At February 26, 1994, the Company had approximately
$5.7 million of forward exchange contracts outstanding with an immaterial
fair value and with maturities ranging from one to nine months.
The Company enters into foreign exchange forward contracts only with
major financial institutions and continually monitors its positions with, and
the credit quality of, these counterparties to its off-balance sheet
financial instruments. The Company does not expect non-performance by any of
the counterparties, and any losses incurred in the event of non-performance
would not be material.
Inventories - Inventories are comprised primarily of finished
merchandise and are stated at the lower of average cost or market; cost is
determined principally on the first-in, first-out method.
Properties, maintenance and repairs - Buildings, equipment, furniture
and fixtures, and leasehold interests and improvements are carried at cost
less accumulated depreciation. Depreciation is based on the straight-line
method over estimated useful lives or lease terms, if shorter.
Expenditures for maintenance, repairs and renewals which do not
materially prolong the useful lives of the assets are charged to expense as
incurred. In the case of disposals, assets and the related depreciation are
removed from the accounts and the net amount, less proceeds from disposal, is
credited or charged to income.
Deferred costs - Certain costs associated with the acquisition of new
proprietary credit card accounts are capitalized and amortized over the
average life of an account. Preopening costs associated with new stores are
capitalized and expensed over one year.
Advertising costs - All advertising costs are expensed the first time
the advertising takes place.
Income taxes - Income tax expense for fiscal 1994 and 1993 is based on
the liability method under Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (SFAS 109). See Note 10 for further
description. SFAS 109 was issued in February 1992 and was adopted by the
Company in the fourth quarter retroactively to the beginning of the 1993
fiscal year. The adoption had no effect on the Company's financial position
or results of operations. Deferred federal income taxes, net of applicable
foreign tax credits, are not provided on the undistributed earnings of
foreign subsidiaries to the extent the Company intends to permanently
reinvest such earnings abroad. At February 26, 1994, such undistributed
earnings aggregated $9.9 million.
Net income per share - Net income per share during a period are
computed on the weighted average number of common shares plus common stock
equivalents outstanding and were 39,530,000, 39,227,000 and 38,874,000 for
fiscal 1994, 1993 and 1992, respectively. Computation of weighted average
shares outstanding for fiscal 1994, 1993 and 1992 includes common stock
equivalents of 465,000, 625,000 and 620,000, respectively. The computation
of weighted average number of shares for each year gives retroactive effect
to the 2% stock dividend distributed May 15, 1991 and the 3% stock dividend
distributed November 19, 1991. Fully diluted net income per share is based
on the assumed conversion of all of the 6-7/8% Convertible Subordinated Notes
into common stock, whereby interest expense and debt issue costs, net of tax,
on the 6-7/8% Convertible Subordinated Notes is added back to net earnings.
Fully diluted net income per share resulted in less than 3% dilution of
primary net income per share for each of the three fiscal years ended
February 26, 1994 and all periods presented with the exception of the first,
second and fourth quarters of fiscal year 1993.
Note 2 - Subsequent event - net trading losses
In late December 1995, the Company was made aware of losses of $19.3
million resulting from trading activities in a discretionary account by a
financial consultant retained to manage the Company's excess cash and
short-term investments. The Company maintained a relationship with the
consultant since 1986 and provided funds under his management which at one
time reached $22 million. In executing these trading transactions, the
consultant may have acted outside the scope of instructions from the Company
and improperly attributed transactions to the Company. These transactions
are recorded on statements the Company received from brokerage firms that
executed the transactions purportedly in accordance with the consultant's
instructions. Management believes that these statements represent the best
evidence of the transactions that is available to the Company. As a result,
the Company has restated its financial statements for affected periods to
reflect the related financial instruments at fair value, with realized and
unrealized gains and losses recorded as trading gains and losses in the
periods indicated by brokerage firm statements. The Company and a Special
Committee of the Board of Directors that was established to investigate this
matter investigated the transactions and surrounding circumstances and found
no evidence to suggest that the Company's net losses from those trading
activities will exceed the $19.3 million recorded in fiscal years 1996 and
1995.
The Company's restatements had no effect on net income for the full
fiscal years ended February 26, 1994 and February 27, 1993. Restatements of
the financial statements indicate trading losses during the first three
quarters of fiscal year 1994 and then a recovery of such losses in the fourth
quarter of fiscal year 1994. In fiscal year 1993, the restatements reflect
trading losses in the third quarter and a recovery of such losses in the
fourth quarter. These amounts do not include any conflicting claims
involving the financial consultant or other parties, which are expected to be
the subject of protracted legal proceedings. The Company has been authorized
by the Board of Directors to pursue all legal remedies to recoup the lost
funds against any and all parties responsible for the net trading losses.
The recorded net losses have not been reduced by any possible recoveries from
such sources. The Company has not recorded any tax benefit on these net
losses since the realization of such benefit is not considered likely based
on the information available at this time. The amounts of the net trading
losses and gains and the effect on net income and net income per share for
the quarterly periods in fiscal 1994 and 1993 are included in Note 16.
The Company has attempted to obtain additional information from the
financial consultant with respect to its purported trading transactions, but
the consultant has not cooperated with these efforts. The ability of the
Company to obtain such information, particularly at dates which are relevant
to the Company's financial reporting requirements, is not ascertainable.
While it is possible that further findings may cause the Company to make
adjustments in the future as additional uncertainties are resolved, any such
adjustment which might result in restatement of financial statements is not
expected to result in any additional losses but, rather, would reflect
offsetting adjustments among periods.
On December 27, 1995, a derivative suit, entitled Harry Lewis v. Clark
A. Johnson et al., was filed by a stockholder on behalf of the Company in the
Delaware Chancery Court against each member of the Company's Board of
Directors. The complaint alleges that the Directors violated their fiduciary
duties to the Company and its stockholders by not adequately supervising the
officers, employees and agents of the Company who were responsible for the
trading activities that resulted in the $19.3 million in losses. The suit
seeks an accounting to the Company for the damages it sustained.
On January 3, 1996, another derivative suit, entitled John P. McCarthy
Profit Sharing Plan, et al. v. Clark A. Johnson et al., was filed by a
stockholder on behalf of the Company in the District Court of Tarrant County,
Texas against each member of the Board of Directors, two executive officers
of the Company and the outside financial consultant of the Company. The
complaint alleges that the Directors and executives of the Company violated
their duties to the Company and its stockholders by gross mismanagement and
waste of the Company's assets exceeding $34 million and that the defendants
engaged in conspiracy and fraud by concealing and misrepresenting facts to
the Company and its stockholders. The suit seeks an award in the amount of
all damages sustained by the Company. On February 12, 1996, the Company
filed a related cross-claim suit against S. Jay Goldinger, the financial
consultant, and his firm, Capital Insight, and a third-party claim against a
brokerage firm, Refco, Inc., asserting conspiracy and fraud and seeking
damages sustained by the Company from the trading activities managed by
Goldinger.
On January 24, 1996, a suit, entitled Hernan Velasquez v. Clark A.
Johnson et al., was filed in the District Court of Tarrant County, Texas
against the Company and each member of the Company's Board of Directors. The
complaint asserts a class action by Company stockholders purchasing and/or
holding Company common stock between July 8, 1994, and December 22, 1995, and
alleges fraud and violations of the Texas Securities Act in the dissemination
of materially false and misleading information concerning the Company's
financial condition. The suit seeks compensatory and exemplary damages in
excess of $50 million in connection with purchases by the stockholder class
of Company common stock during the class period.
The Company maintains Directors and Officers liability insurance and,
as such, the Company's directors and officers will seek indemnification
against all of these matters. The ultimate outcome of these complaints
cannot presently be determined.
Note 3 - Proprietary credit card information
The Company's Preferred Customer Card is managed and administered by an
unrelated third party. Credit card account origination costs of $976,000,
$480,000 and $528,000 were deferred during fiscal years 1994, 1993 and 1992,
respectively. The Company is amortizing these costs over 36 months, which
the Company believes is the approximate average active life of an account.
The credit cards have no expiration date and no annual fee for the use of the
card. At February 26, 1994 and February 27, 1993, deferred costs, net of
amortization, totalled $1,135,000 and $759,000, respectively.
Concentrations of credit risk with respect to customer receivables are
limited due to the large number of customers comprising the Company's base
and their dispersion across many different geographic areas of the country.
Net credit card charges on the Company's proprietary credit card
accounts are netted against selling, general and administrative expenses. A
summary of the Company's credit card results for each of the three fiscal
years ended February 26, 1994 follows (in thousands):
1994 1993 1992
------- ------- -------
Costs:
Processing fees $ 6,114 $ 5,049 $ 4,875
Bad debt expense 2,195 1,855 2,702
------- ------- -------
8,309 6,904 7,577
------- ------- -------
Income:
Finance charges 6,087 4,998 4,751
Insurance and other income 238 165 185
------- ------- -------
6,325 5,163 4,936
------- ------- -------
Net credit card costs $ 1,984 $ 1,741 $ 2,641
======= ======= =======
Pier 1 Preferred Card sales $98,625 $60,661 $48,998
======= ======= =======
Net cost as a percent of Pier 1
credit card sales 2.0% 2.9% 5.4%
==== ==== ====
Note 4 - Properties
Properties are summarized as follows at February 26, 1994 and February
27, 1993 (in thousands):
1994 1993
-------- --------
Land $ 7,205 $ 7,204
Buildings 33,063 32,688
Equipment, furniture and fixtures 90,505 85,413
Leasehold interests and improvements 79,022 71,545
Construction in progress 190 214
-------- --------
209,985 197,064
Less accumulated depreciation and
amortization 98,475 89,053
-------- --------
Properties, net $111,510 $108,011
======== ========
Note 5 - Accounts payable and accrued liabilities/Other non-current
liabilities
The following is a summary of accounts payable and accrued liabilities
and other non-current liabilities at February 26, 1994 and February 27, 1993
(in thousands):
1994 1993
------- -------
Trade accounts payable $27,937 $23,603
Accrued payroll and fringes 16,933 17,637
Accrued taxes, other than income 2,913 2,412
Accrued interest 3,397 3,560
Accrued real property tax 4,697 3,830
Store-closing provision 21,250 --
Other accrued liabilities and expenses 12,645 8,749
------- -------
Accounts payable & accrued liabilities $89,772 $59,791
======= =======
Accrued average rent $15,034 $13,531
Other non-current liabilities 6,126 5,782
------- -------
Other non-current liabilities $21,160 $19,313
======= =======
Note 6 - Store-closing provision
The store-closing provision of $21.3 million reflects the anticipated
costs associated with closing certain underperforming stores. This provision
includes estimated costs related to leases, fixed assets, relocation,
inventory liquidation and losses from operations during the interim period
before closings.
Note 7 - Current and long-term debt
The Company has various lines of credit available which aggregate
approximately $165 million. At year-end, approximately $41 million had been
committed under various outstanding letters of credit issued primarily in
conjunction with overseas merchandise procurements, leaving $124 million of
available lines of credit. The lines may be used for borrowings through
working capital loans, bankers' acceptances or letters of credit. The
weighted average interest rate on short-term borrowings outstanding during
the year was 4.0%.
Long-term debt is summarized as follows (in thousands):
1994 1993
-------- --------
11-1/2% subordinated debentures, net
of original issue discount of
$2,812 and $3,179, respectively $ 22,188 $ 21,821
Industrial revenue bonds 25,000 25,000
11% senior notes 25,000 25,000
6-7/8% convertible subordinated notes 75,000 75,000
Capital lease obligations 475 564
Other 207 --
-------- --------
147,870 147,385
Less - portion due within one year 2,639 139
-------- --------
$145,231 $147,246
======== ========
In July 1983, the Company issued $25 million of 11-1/2% subordinated
debentures. Interest is payable on January 15 and July 15. Mandatory annual
$2.5 million sinking fund payments will commence in July 1994 and will
continue until they mature in July 2003. The debentures are callable at any
time at par plus accrued interest.
In fiscal 1987, the Company entered into industrial revenue development
bond loan agreements aggregating $25 million which mature in the year 2026.
Proceeds were used to construct three warehouse distribution facilities.
These bonds are 7-day lower floater put bonds and interest rates float with
the market rate for tax-exempt paper. Interest is payable monthly.
In May 1991, the Company issued $25 million of 11% senior notes due
June 1, 2001. Annual principal reductions in the amount of $5 million are
due beginning June 1, 1997. Interest is payable each June 1 and December 1.
In April 1992, the Company issued $75 million of 6-7/8% Convertible
Subordinated Notes. These notes are convertible into shares of common stock
of the Company at $12.00 per share at any time at or prior to maturity which
is April 1, 2002. The notes may be redeemed by the Company at any time on or
after April 1, 1995 in whole or in part, but redemption prior to the year
2000 would be at a premium. Interest on the notes is payable each April 1
and October 1.
As of February 26, 1994, the fair value of long-term debt was $155.0
million compared to its recorded value of $147.9 million. The fair value of
long-term debt was estimated based on the quoted market values for the same
or similar debt issues, or rates currently available for debt with similar
terms. There are no other significant assets or liabilities with a fair
value different from the recorded value.
The Company has an interest rate hedging agreement on $100 million of
notional principal with a commercial bank, maturing August 5, 1995, for the
purpose of limiting the Company's exposure to interest rate fluctuations on
its $25 million of industrial revenue bonds as well as approximately $75
million of store operating lease agreements with rental payments linked to
LIBOR. This agreement was designated as a hedge contract and, therefore, the
differential to be paid or received is recognized over the life of the
agreement. The Company pays 6.25% under the agreement and, since inception,
has received an average of 4.01%. The Company's weighted average interest
rate, including the effect of hedging activities, was 10.0%, 9.4% and 9.1%
for the 1994, 1993 and 1992 fiscal years, respectively. The weighted average
interest rate, excluding the effects of hedging activities, would have been
8.3%, 7.7% and 7.9% for the 1994, 1993 and 1992 fiscal years, respectively.
The fair value of this hedging agreement is $2.2 million at February
26, 1994, and represents the estimated amount, which was obtained from
counterparties, that the Company would pay to terminate the agreement at
February 26, 1994. The Company regularly monitors its position with, and the
credit quality of, the financial institution that is counterpart to this
financial instrument, and it does not anticipate nonperformance by the
counterparty.
Long-term debt matures as follows (in thousands):
1995 $ 2,639
1996 2,940
1997 2,566
1998 7,537
1999 7,500
Thereafter 124,688
--------
$147,870
========
The Company's loan agreements require that the Company maintain certain
financial ratios and limit specific payments and equity distributions
including cash dividends, loans to shareholders and purchases of treasury
stock. At year-end, the most restrictive of the agreements limits the
aggregate of such payments to $10 million.
Note 8 - Employee benefit plans
In 1986, the Company adopted a qualified, defined contribution employee
retirement plan. Except for the initial enrollment period, all full- and
part-time personnel who are at least 21 years old and who have been employed
for six months are eligible to participate in the plan. Employees
contributing from 1% to 5% of their compensation receive Company
contributions of up to 3%. Company contributions to the plan were
$1,114,000, $915,000 and $714,000 in fiscal 1994, 1993 and 1992,
respectively.
In addition, a non-qualified retirement savings plan is available for
the purpose of providing deferred compensation for certain employees whose
benefits under the qualified plan are limited under Section 401(k) of the
Internal Revenue Code.
The Company maintains a Supplemental Executive Retirement Plan for
certain of its executive officers. The plan provides that upon retirement,
disability, death or other termination of employment a participant will
receive annual benefits. Retirement benefits under the plan vest for each
participant at the rate of 10% per year over 10 years of service. The
Company's accrued contributions to the plan were $765,000, $554,000 and
$443,000 in fiscal 1994, 1993 and 1992, respectively.
Note 9 - Matters concerning stockholders' equity
Stock purchase plan - Substantially all employees and directors are
eligible to participate in the Pier 1 Imports, Inc. Stock Purchase Plan under
which the Company's common stock is purchased on behalf of employees at
market prices through regular payroll deductions. Each employee participant
may contribute up to 10% of the eligible portions of annual compensation and
directors may contribute a maximum equal to their monthly directors' fees.
The Company contributes from 10% to 100% of the participants' contributions,
depending upon length of participation and date of entry into the plan.
Approximately 268,000 shares were allocated to Stock Purchase Plan
participants during fiscal 1994, all of which were purchased on the open
market. Company contributions to the Plan were $867,000, $841,000 and
$830,000 in fiscal years 1994, 1993 and 1992, respectively.
Restricted stock grant plans - In 1993 and 1992, the Company issued
17,414 shares and 19,157 shares, respectively, of its common stock to key
officers pursuant to a Management Restricted Stock Plan which provides for
the issuance of up to 250,000 shares. The shares of restricted stock were
awarded in conjunction with granting of stock options to those officers, with
the number of shares awarded representing 25% of the number of stock options
granted. The restricted stock will vest at the times and to the extent that
25% of such stock options have been exercised and the option shares have been
held for two years.
In 1991 the Company issued 292,825 shares of its common stock to key
officers pursuant to a Restricted Stock Grant Plan which provides for
issuance of up to 500,000 shares. These shares vest and the cost of these
shares will be expensed over a ten-year period of continued employment.
Unvested shares are returned to the plan if employment is terminated for any
reason.
Stock option plans - In June 1989, the Company adopted two stock option
plans, the 1989 Employee Stock Option Plan and the 1989 Non-Employee Director
Stock Option Plan. Options have been granted at the fair market value of
shares on date of grant and may be granted to qualify as Incentive Stock
Options under Section 422 of the Internal Revenue Code or as non-qualified
options. The Company may grant options covering up to 1,500,000 and 150,000
shares of the Company's common stock under the 1989 Employee Stock Option
Plan and the 1989 Non-Employee Director Stock Option Plan, respectively.
In 1990, the 1980 Stock Option Plan expired subject to outstanding
granted options covering 589,871 shares at fiscal year-end 1994.
A summary of stock option transactions related to the plans, adjusted
for the 2% and 3% stock dividends, during the years ended February 26, 1994
and February 27, 1993, is as follows:
Shares Option Prices
--------- -------------
Outstanding at February 29, 1992 1,405,980 $3.16 - 12.30
Options granted 96,649 6.75 - 11.13
Options exercised (428,755) 3.20 - 12.30
Options cancelled or expired (157,376) 4.28 - 10.59
--------- -------------
Outstanding at February 27, 1993 916,498 3.16 - 12.30
Options granted 220,277 8.75 - 9.00
Options exercised (72,864) 3.16 - 8.00
Options cancelled or expired (12,189) 4.28 - 10.59
--------- -------------
Outstanding at February 26, 1994 1,051,722 $3.20 - 12.30
========= =============
At February 26, 1994 and February 27, 1993 outstanding options covering
634,111 and 518,530 shares were exercisable and 832,385 and 1,040,473 shares
were available for grant, respectively.
Transactions with Intermark - Prior to June 1991, Intermark, Inc.
("Intermark") was the largest shareholder and exercised voting control of the
Company. On June 6, 1991, Intermark sold its shares of the Company's common
stock through a secondary public offering. On June 17, 1991, the Company
repurchased all shares of the Company's preferred stock held by Intermark.
In consideration of such repurchase, the Company delivered to Intermark all
shares of the preferred stock of a wholly owned subsidiary of Intermark that
were owned by the Company which had a stated value of $5.8 million on the
Company's balance sheet. The difference in the cost of the shares held by
the Company and the preferred shares held by Intermark reduced the Company's
capital by $4.4 million.
Common stock dividend - On March 15, 1991 and November 19, 1991,
Company announced stock dividends of 2% and 3%. Based on the closing price
of the Company's common stock at the date of each dividend, the market values
of the shares distributed were approximately $4,005,000 and $10,169,000,
respectively.
Loans to officers - 1991 - In fiscal 1991, the Board of Directors
approved the sale of 210,000 treasury shares of common stock to certain
corporate officers in exchange for promissory notes of $892,500 which
approximated fair market value. These notes were reflected as a reduction to
stockholders' equity in 1991. In fiscal 1992, the Board of Directors
authorized the Company to accept approximately 77,600 common shares from
these officers, at the current fair market value, in payment for the
outstanding loan balances.
Loans to officers - 1988 - The Board of Directors approved loans to
certain corporate officers in 1988 to enable those officers to acquire Pier 1
common stock through open market purchases. These demand notes were
unsecured, accrued interest at floating rates, and, if not demanded, would
mature in 1997. In fiscal 1992, the Board of Directors authorized the
Company to accept approximately 112,600 common shares from certain of these
officers at current market value, which together with cash payments, reduced
the principal amount outstanding at February 26, 1994 to $776,000.
Note 10 - Income taxes
In fiscal 1993, the Company adopted SFAS 109. Under SFAS 109, the
deferred tax provision is determined under the liability method. Under this
method, deferred tax assets and liabilities are recognized based on
differences between financial statement and tax bases of assets and
liabilities using presently enacted tax rates. Adoption of the statement had
no effect on results of operations.
The provision for income taxes consists of (in thousands):
1994 1993 1992
------ ------ ------
Federal:
Current $5,356 $8,875 $7,232
Deferred (4,966) (1,431) (153)
State:
Current 2,598 1,765 1,237
Deferred (1,127) (302) --
Foreign:
Current 562 402 340
------ ------ ------
$2,423 $9,309 $8,656
====== ====== ======
Deferred tax liabilities (assets) at February 26, 1994 and February 27,
1993 are comprised of the following (in thousands):
1994 1993
-------- -------
Deferred tax liabilities:
Depreciation $ 8,117 $ 5,938
Deferred store costs 4,697 3,947
Other 856 495
-------- -------
13,670 10,380
-------- -------
Deferred tax assets:
Inventory $ (24) $(1,087)
Accrued average rent (6,126) (5,118)
Accrued vacation/deferred compensation (2,494) (2,319)
Deferred gain on sale/leaseback (1,493) (1,672)
Bad debts (708) (850)
Store-closing provision (8,454) --
Other (2,998) (817)
-------- -------
(22,297) (11,863)
-------- -------
$( 8,627) $(1,483)
======== =======
The difference between income taxes at the statutory federal income tax
rate of 35 percent in fiscal 1994, 34 percent in fiscal 1993 and fiscal 1992,
and income tax reported in the consolidated statement of operations is as
follows (in thousands):
1994 1993 1992
------ ------- -------
Tax at statutory federal tax rate $2,925 $12,208 $10,381
Tax treatment on sale of subsidiary
stock (282) -- (2,312)
State income taxes, net of federal
benefit 856 966 816
Tax-favored investment income (284) (574) --
Targeted jobs tax credit (395) (332) (229)
Foreign income taxed at lower rates (528) (2,959) --
Other, net 131 -- --
------ ------- -------
$2,423 $ 9,309 $ 8,656
====== ======= =======
Note 11 - Commitments and lease obligations
The Company leases certain property consisting principally of retail
stores, warehouses and transportation equipment under leases expiring through
the year 2012. Substantially all retail store locations are leased, for
terms varying from 10 to 15 years with varying renewal options. Certain
leases provide for additional rental payments based on a percentage of sales
in excess of a specified base.
Capital leases are recorded in the Company's balance sheet as assets
along with the related debt obligation. All other lease obligations are
operating leases, and payments are reflected in the Company's consolidated
statement of operations as rental expense. The composition of capital leases
reflected as assets in the accompanying consolidated balance sheet is as
follows (in thousands):
1994 1993
------ ------
Buildings $ 477 $ 477
Equipment, furniture and fixtures 538 538
------ ------
1,015 1,015
Less accumulated depreciation 827 738
------ ------
$ 188 $ 277
====== ======
At February 26, 1994, the Company has the following minimum lease
commitments in the years indicated (in thousands):
Capital Operating
Fiscal Year Leases Leases
----------- ------- ---------
1995 $285 $ 86,025
1996 205 83,125
1997 119 75,968
1998 87 69,372
1999 -- 57,618
Thereafter -- 201,629
---- --------
Total lease commitments 696 $573,737
========
Less imputed interest 221
----
Present value of total capital lease
obligations including current
portion of $234 $475
====
Present value of total operating lease
commitments $372,000
========
Rental expense incurred was $89,518,000, $85,511,000 and $81,042,000
including contingent rentals of $788,000, $821,000 and $559,000 based upon a
percentage of sales and net of sublease incomes totalling $1,252,000,
$870,000 and $836,000 in fiscal 1994, 1993 and 1992, respectively.
The Company has agreements with unaffiliated groups to lease certain
stores and distribution center space. These unaffiliated groups are
presently committed to make available up to $101.8 million for development or
acquisition of stores leased by the Company. Presently, the Company has used
$99.5 million of that availability. Agreements with these groups mature over
the next five years, and the Company management is continuously monitoring
financial markets to optimize renewal terms. In connection with the
financing of 38 stores by these unaffiliated groups, the Company has
guaranteed the residual value of these buildings at approximately $25 million
at the end of the lease terms.
The Company's lease commitments include amounts due to Comdisco, Inc.
for a computer leased in June 1991 for a period of five years at an annual
rent of approximately $1.1 million. The Company considered competitive bids
from several firms before entering into the lease. In a matter unrelated to
this leasing transaction, in April 1993, Kenneth N. Pontikes, Chairman and
President of Comdisco, Inc. was invited to and did become a Director of the
Company.
In fiscal 1993, the Company invested in preference stock of The Pier,
located in the United Kingdom. The Company guarantees approximately $4
million of debt for The Pier.
Note 12 - Litigation
In addition to the legal matters discussed in Note 2, there are other
various claims, lawsuits, investigations and pending actions against the
Company and its subsidiaries incident to the operations of its business.
Liability, if any, associated with these other matters is not determinable at
February 26, 1994; however, the Company considers them to be ordinary and
routine in nature. While certain of the lawsuits involve substantial
amounts, it is the opinion of management that the ultimate resolution of such
litigation will not have a material adverse effect on the Company's financial
position, results of operations or liquidity.
Note 13 - Cash flow information
The following is supplemental cash flow information (in thousands):
1994 1993 1992
------- ------- -------
Cash paid during the year for:
Interest $20,445 $16,835 $14,033
Income taxes $17,732 $17,126 $ 4,439
Note 14 - Investment in Sunbelt Nursery Group, Inc. and subsequent event
At fiscal year-end 1993, the Company had a 49.5% ownership interest in
Sunbelt. The Company reported the results of Sunbelt using the equity method
of accounting. Under such method, the Company's share of net earnings (or
losses) of Sunbelt was included as a separate item in the consolidated
statement of operations.
In April 1993, the Company completed the sale of its 49.5% ownership
interest in Sunbelt to General Host, a third party unrelated to the Company
or Sunbelt. The Company received as compensation for the Sunbelt shares 1.9
million shares of General Host common stock, which represented approximately
9.7% of that company's outstanding common stock. At the date of sale, the
Company's net investment in Sunbelt totaled $17,992,000 and the market value
of the General Host common stock received as the purchase price of Sunbelt
was $17,945,000. To assist in the transition of ownership to General Host,
Clark A. Johnson, Chairman and Chief Executive Officer of the Company, served
on Sunbelt's Board of Directors until November 1993.
In connection with the Company's sale of its Sunbelt investment to
General Host, the Company provided Sunbelt a line of credit aggregating $12
million, all of which was outstanding at February 26, 1994. In order for
Sunbelt to meet repayment obligations under this line, Sunbelt must obtain
replacement financing. To enable Sunbelt to raise these funds, the Company
has granted Sunbelt a temporary extension of the credit facility until June
30, 1994. Also, the Company is committed to provide Sunbelt $25 million of
non-revolving store development financing through April 1996. The Company
has arranged for a bank group to provide the current financing by which the
Company leases from an unaffiliated third party and subleases store sites to
Sunbelt. Under this leasing facility, the leases are required to be
refinanced by Sunbelt from September 1994 to October 1995. If Sunbelt
defaults on refinancing these store leases as the terms expire, the Company
will be required to obtain other financing. The Company expects financing of
Sunbelt's store sites to remain at same or similar terms and conditions as
are currently in place. In addition to the above, the Company also
guarantees approximately $4.5 million of Sunbelt store lease commitments.
The Company's line of credit and leasing commitments are collateralized by
4.2 million shares of Sunbelt's common stock. The last sale price for
Sunbelt common stock reported on the American Stock Exchange on February 25,
1994, was $2.81.
Note 15 - Subsequent event - stock dividend
In March 1995, the Company announced a 5% common stock dividend
distributable to stockholders of record on May 1, 1995. All per share
amounts have been retroactively adjusted to reflect the impact of the stock
dividend.
Note 16 - Selected quarterly financial data (unaudited)
Summarized quarterly financial data (in thousands of dollars except per
share amounts) for the years ended February 26, 1994 and February 27, 1993
are set forth below:
Three Months Ended
-----------------------------------------
Fiscal 1994 5/29/93 8/28/93 11/27/93 2/26/94
----------- -------- -------- -------- --------
Net sales(1) $158,593 $181,441 $163,457 $181,902
Gross profit(1) $61,690 $65,834 $63,022 $69,046
Net income (loss), as
restated(2)(3) $721 $1,116 ($508) $4,604
Primary net income (loss)
per common share, as
restated(2)(4)(5) $.02 $.03 ($.01) $.12
Net income (loss), as
previously reported(3) $4,702 $7,343 $4,042 ($10,154)
Primary net income (loss),
per common share, as
previously reported(4)(5) $.12 $.19 $.10 ($.26)
Three Months Ended
-----------------------------------------
Fiscal 1993 5/30/92 8/29/92 11/28/92 2/27/93
----------- -------- -------- -------- --------
Net sales(1) $152,083 $166,416 $144,923 $165,813
Gross profit(1) $59,732 $61,548 $56,655 $68,247
Net income (loss), as
restated(2)(6) $8,055 $7,453 ($172) $7,681
Net income (loss) per
common share, as
restated(2)(4)(5)(6) $.21 $.19 ($.00) $.19
Net income, as previously
reported(7) $8,055 $7,453 $2,247 $5,262
Primary net income per
common share, as
previously reported(4)(5) $.21 $.19 $.06 $.13
- --------------------
(1) The restatements of earnings for the quarters of fiscal 1994 and
1993 had no effect on the Company's previously reported sales and gross
profit.
(2) Fiscal 1994 first quarter, second quarter, third quarter and fourth
quarter net income (loss) includes trading (losses) gains of ($3,981),
($6,227), ($4,550) and $14,830, respectively. Fiscal 1993 third quarter and
fourth quarter net income (loss) includes trading (losses) gains of ($2,438)
and $3,477, respectively.
(3) Fourth quarter net income (loss) includes $21,250 provision for
store closings and $2,000 write-down of investment in the common stock of
General Host Corporation.
(4) Fully diluted net income per share resulted in less than 3%
dilution of primary net income per share for both years and for all periods
presented with the exception of a $.01 dilution in the first, second and
fourth quarters of fiscal year 1993.
(5) Reflects the effect of the 5% stock dividend distributed May 8,
1995.
(6) The financial statements for the first and second quarters of
fiscal 1993 were not restated.
(7) SFAS 109 was issued in February 1992 and was adopted by the Company
in the fourth quarter retroactively to the beginning of the 1993 fiscal year.
The adoption had no effect on the Company's financial position or results of
operations.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following consolidated financial statements,
schedules and exhibits are filed as part of this report.
1. Financial Statements
* Report of Independent Accountants
* Consolidated Statements of Operations for the
Years ended February 26, 1994, February 27, 1993
and February 29, 1992
* Consolidated Balance Sheets at February 26, 1994 and
February 27, 1993
* Consolidated Statements of Cash Flows for the years
ended February 26, 1994, February 27, 1993 and
February 29, 1992
* Consolidated Statements of Stockholders' Equity for
the years ended February 26, 1994, February 27,
1993 and February 29, 1992
2. Financial Statement Schedules, previously filed May 23,
1994
* II Amounts Receivable From Related Parties and
Underwriters, Promoters and Employees Other
Than Related Parties
* V Property, Plant and Equipment
* VI Accumulated Depreciation and Amortization of
Property Plant and Equipment
* VIII Valuation and Qualifying Accounts and Reserves
* IX Short-Term Borrowings
* X Supplementary Income Statement Information
Schedules other than those referred to above have been omitted
because they are not required or are not applicable or because the
information required to be set forth therein either is not material or is
included in the financial statements or notes thereto.
(b) Reports on Form 8-K
Not applicable.
(c) Exhibits
See Exhibit Index.
(d) Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
PIER 1 IMPORTS, INC.
Date: June 21, 1996 By: /s/ Clark A. Johnson
-------------- ---------------------------------
Clark A. Johnson
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: June 21, 1996 By: /s/ Susan E. Barley
------------- ---------------------------------
Susan E. Barley
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
23 Consent of Independent Accountants.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-9970, 33-32166, and 33-50278) of Pier 1
Imports, Inc. of our report dated April 14, 1994, except for Note 15, as to
which the date is April 7, 1995, and Note 2, as to which the date is February
29, 1996, in Item 8 of this Form 10-K/A.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Fort Worth, Texas
June 21, 1996
