UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
[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 27, 1993.
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. [ X ]
As of May 5, 1993, there were 37,388,689 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 $396 million.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K Incorporated Document
- --------------------- ---------------------
Item 1(b) and Part II 1993 Annual Report to Shareholders
Part III Proxy Statement for 1993 Annual Meeting
<PAGE>
Items 6, 7, 8 and 14 of the Company's Annual Report on Form 10-K for the year
ended February 27, 1993, are amended and restated as set forth below.
Item 6. Selected Financial Data.
Pier 1 Imports, Inc.
FINANCIAL SUMMARY (Unaudited)
($ in millions except per share amounts)
4-Year
Compound
Annual Year Ended
Growth -------------------------------------
Rate 1993 1992 1991 1990 1989
------- ------ ------ ------ ------ ------
Summary of operations:
Net sales 11.0% $629.2 586.7 562.7 516.9 414.6
Gross profit 9.7% $246.2 228.4 210.5 210.1 169.7
Selling, general and
administrative
expenses 11.2% $180.2 172.4 169.9 148.8 117.8
Depreciation and
amortization 10.9% $15.1 15.0 14.3 13.1 10.0
Nonoperating
expense, net
of income(1) 10.7% $15.0 16.3 12.3 9.7 10.0
Income before income
taxes and equity in
net income (loss)
of subsidiary(2) 3.0% $35.9 30.5 14.0 38.5 31.9
Equity in net income
(loss) of subsidiary ($3.6) 4.5 (2.4) - -
Net income for common
stockholders 1.6% $23.0 26.3 6.3 25.3 21.6
Per common share data
(adjusted for stock
splits and dividends):(3)
Net income for common
stockholders $0.59 0.68 0.16 0.64 0.64
Cash dividends declared $0.06 - 0.15 0.12 0.08
Stockholders' equity 10.6% $5.11 4.56 4.07 4.60 3.42
Other financial data:
Working capital 17.7% $225.2 160.0 126.7 144.3 117.2
Current ratio 4.1% 3.4 3.0 2.1 3.2 2.9
Total assets 11.3% $460.5 386.4 428.9 350.5 299.9
Long-term debt 5.0% $147.2 106.8 140.6 92.6 121.3
Stockholders' equity 14.7% $200.5 177.1 156.3 181.4 115.8
Weighted average shares
outstanding and
common stock equivalents
(millions)(3) 39.2 38.9 38.4 39.5 33.8
Effective tax rate 25.9% 28.3 35.8 33.7 31.5
Return on common
stockholders'
average equity 12.2% 15.8 3.7 17.0 20.6
Return on average
total assets 5.4% 6.5 1.6 7.8 7.7
Pre-tax return on sales 5.7% 5.2 2.5 7.4 7.7
- --------------------
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 gains in fiscal year 1993.
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 14 of the Notes to Consolidated Financial Statements.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Pier 1 Imports, Inc. (the "Company") is North America's largest specialty
retailer of decorative home furnishings, gifts and related items, with 605
stores in operation in 43 states, the District of Columbia and four Canadian
provinces at February 27, 1993. In April 1993, the Company completed the sale
of its 49.5% interest in Sunbelt Nursery Group, Inc. ("Sunbelt") to General Host
Corporation ("General Host") for common stock of General Host. Sunbelt is a
102-store chain of lawn and garden centers with units in Texas, Oklahoma,
Arizona and California. The Company's ownership interest in Sunbelt was
accounted for on the equity method during fiscal years 1993 and 1992.
Results of Operations - The following table summarizes the Company's
consolidated results of operations (excluding trading gains) expressed as a
percentage of sales for the three-year period ended February 27, 1993.
For the Years Ended
------------------------
1993 1992 1991
------ ------ ------
Sales 100.0% 100.0% 100.0%
Gross profit 39.1 38.9 37.4
Selling, general and administrative
expenses 28.6 29.4 30.2
Depreciation and amortization 2.4 2.6 2.5
Operating income 8.1 7.0 4.7
Interest expense, net 2.5 2.8 2.2
Gain on sale of subsidiary stock -- 1.0 --
Income before income taxes and equity in
net income (loss) of subsidiary 5.7 5.2 2.5
Income before equity in net income (loss)
of subsidiary 4.2 3.7 1.6
Equity in net income (loss) of subsidiary (0.6) 0.8 (0.4)
Net income 3.7 4.5 1.2
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 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 deposited by the Company 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 has 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 the 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 of fiscal 1993 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. The financial statements for the first and second
quarters of fiscal 1993 do not require restatement. 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.
Fiscal Years Ended February 29, 1992 and March 2, 1991
During fiscal 1992, net sales grew $24.0 million, or 4.3%, with same-store
sales declining 3.3% compared to fiscal 1991. Sales from stores opened in
fiscal years 1992 and 1991 increased fiscal 1992 sales levels by 7.6% when
compared to fiscal 1991. Twenty-eight new stores (net 17) were opened during
fiscal 1992.
Gross profit, after related buying and store occupancy costs, expressed as
a percentage of net sales, increased from 37.4% during fiscal 1991 to 38.9% in
fiscal 1992. This 1.5% improvement was principally the result of selective
price increases on certain products early in the fiscal year, improved
merchandise mix and distribution efficiencies (which aggregated 2.4%), partially
offset by increased store occupancy costs (0.9%).
Selling, general and administrative expenses, including advertising,
comprised 29.4% of sales in fiscal 1992 and improved 0.8% over the 30.2% in
fiscal 1991. In total dollars, selling, general and administrative expenses for
fiscal 1992 increased $2.5 million over the prior fiscal year, principally due
to the increased number of stores in operation during fiscal 1992 that resulted
in higher payroll costs and other store-related expenses, partially offset by
decreased marketing expenses and lower net proprietary credit card costs in
fiscal 1992 versus fiscal 1991.
Depreciation and amortization expense increased during fiscal year 1992 due
primarily to opening 17 net new stores since March 2, 1991.
Operating income increased to $41.0 million or 7.0% of sales from $26.3
million or 4.7% of sales due primarily to revenue growth from new store
openings, improved gross profit rates, and effective expense control.
Net interest expense as a percentage of sales increased to 2.8% in fiscal
1992 from 2.2% in fiscal 1991. This increase was primarily due to higher levels
of average debt outstanding during fiscal 1992 as a result of the Sunbelt
acquisition and to higher than average interest rates paid.
The Company recorded a gain of $5.9 million related to the initial public
offering of Sunbelt common stock and the subsequent sale of an additional
600,000 shares of Sunbelt's common stock owned by the Company. Of the net
proceeds to Sunbelt, $18 million was paid to the Company and applied to debt
reduction.
The Company's effective income tax rate for fiscal 1992 decreased to 28.3%
from 35.8% in the prior year due primarily to favorable tax treatment on the
gain from the sale of Sunbelt's common stock.
The Company recorded equity in net income of Sunbelt for fiscal 1992 of
$4.5 million versus a net loss of $2.4 million for fiscal 1991. Sunbelt's
business is highly seasonal in nature, with its highest sales and gross profits
earned during the spring selling season, while the fall and winter seasons are
generally unprofitable. In fiscal 1992, however, the Company's earnings
included 100% of Sunbelt's earnings during its profitable spring season and only
56.6% of Sunbelt's losses during the unprofitable months following September
1991.
Based on reasons previously discussed, net income for fiscal year 1992 of
$26.3 million, or $.68 per share, improved from $6.3 million, or $.16 per share
in fiscal 1991.
Liquidity and Capital Resources
The Company's debt, net of cash, during fiscal 1993 declined $14.2 million.
Cash flow from operations of $30.5 million contributed to the overall reduction
of the Company's net debt position. In April 1992, the Company issued $75
million of 6 7/8% Convertible Subordinated Notes due 2002. The proceeds were
used to pay off the balance of a $100 million revolving credit and competitive
advance facility and to provide capital for general corporate purposes. Other
sources of liquidity over the previous three years have been working capital,
bank lines of credit, operating leases, and the sale of 50.5% of Sunbelt stock
in fiscal 1992. These funds have been used to reduce short- and long-term debt,
fund inventory and fixtures for new store development, further enhance the Pier
1 credit card program, invest in Sunbelt and pay dividends to stockholders. The
Company's cash balance at February 27, 1993 was $74 million.
During fiscal 1993, increases in inventory and capital expenditures were
required by the opening of 26 (net 20) new stores and a new distribution center.
Such new facilities were funded by operating leases. The Company's plan for
fiscal 1994 is to open 40 new stores. Inventory and fixtures for the new store
development in fiscal 1994 are anticipated to cost $10 million, which will be
funded by working capital, operations and bank lines of credit.
Funding for construction of new stores planned for fiscal 1994 is expected
to be provided by operating leases. Unaffiliated groups are presently committed
to make available up to $15 million for development or acquisition of stores
leased by the Company. Agreements with these groups are expected to be renewed
or replaced beginning in two to five years, and Company management anticipates
renewals or replacements under substantially the same terms and conditions. In
connection with financing of 35 stores by these unaffiliated groups, the Company
has guaranteed the residual value of these buildings at approximately $24
million at the end of the lease terms. The Company's minimum future operating
lease commitments for fiscal 1994 including the new stores are $90 million and
the present value of total operating lease commitments is $442 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; and letters of credit in an aggregate amount of approximately $157
million, of which $33 million is currently outstanding as short-term borrowings
and an additional $50 million has been committed under various outstanding
letters of credit issued principally in conjunction with overseas merchandise
procurements. The Company's current ratio was 3.4 to 1 at the end of fiscal
1993 compared to 3.0 to 1 a year earlier.
Pursuant to the sale to General Host, the Company is committed to providing
Sunbelt a $12 million credit facility either in guarantees of Sunbelt
indebtedness or direct loans until April 28, 1994. The Company's commitments
are collateralized by 4.2 million shares of Sunbelt's common stock. In
addition, through April 28, 1996, the Company has agreed to make available up
to $25 million of properties for lease to Sunbelt, which properties will either
be acquired or constructed by an unaffiliated third party. The Company has
agreed to guarantee Sunbelt's lease obligations under this agreement.
In fiscal 1993, the Company paid cash dividends aggregating $.065 per
common share or $2.4 million. In the last quarter of fiscal 1993, the Board of
Directors voted an increase in the quarterly cash dividend of $.02 per share
from the previously paid $.015 per quarter during fiscal 1993.
During fiscal 1993, the Company invested in preference stock of The Pier
Retail Group Limited ("The Pier") located in the United Kingdom. This
investment in and loans to The Pier aggregated approximately $2 million at
fiscal year end 1993. The Pier is a four-store retail operation that offers
decorative home furnishings and related items in a store setting similar to that
operated by the Company. The Pier plans during the upcoming year to open six
new retail locations in England, which will require additional funding of
approximately $2 million.
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. Additionally, the Company is not
aware of any trends, events or uncertainties that are likely to have a material
effect on the Company's results of operations, capital resources or liquidity.
Impact of Inflation and Changing Prices
Inflation has not had a significant impact on the operations of the
Company.
Impact of New Accounting Standards
Adoption of the Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," during
fiscal 1993 had no effect on results of operations.
The Financial Accounting Standards Board issued Statement No. 107,
"Disclosure about Fair Value of Financial Instruments," in December 1991. This
standard requires disclosure of fair value of financial instruments for which
it is practicable to estimate fair value. The Company adopted this standard in
fiscal 1993 and the required disclosure is included in the appropriate section
for each significant category of financial instruments.
The Financial Accounting Standards Board issued Statement No. 109,
"Accounting for Income Taxes," in February 1992. This standard 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.
The Financial Accounting Standards Board issued Statement No. 112,
"Employers' Accounting for Postemployment Benefits," in November 1992. This
standard, which is required to be adopted in 1994, requires employers to
recognize the obligation to provide postemployment benefits on an accrual basis
if certain conditions are met. The impact on the Company of adopting this
standard is expected to have no effect on results of operations.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements
Financial Statements:
- --------------------
Report of Independent Accountants
Consolidated Statements of Operations for the three years
ended February 27, 1993
Consolidated Balance Sheets at February 27, 1993 and February 29, 1992
Consolidated Statements of Cash Flows for the three years
ended February 27, 1993
Consolidated Statements of Stockholders' Equity for the
three years ended February 27, 1993
Notes to Consolidated Financial Statements
Financial Statement Schedules, previously filed May 26, 1993
For the three years ended February 27, 1993
II Accounts 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
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
<PAGE>
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 index
appearing under Item 14(a)(1) and (2) present fairly, in all material respects,
the financial position of Pier 1 Imports, Inc. and its subsidiaries at February
27, 1993 and February 29, 1992, and the results of their operations and their
cash flows for each of the three years in the period ended February 27, 1993,
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 8, 1993, except for Note 14
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
----------------------------
1993 1992 1991
-------- -------- --------
Net sales $629,235 $586,659 $562,663
Operating costs and expenses:
Cost of sales (including buying and
store occupancy) 383,053 358,216 352,089
Selling, general and administrative
expenses 180,218 172,478 169,948
Depreciation and amortization 15,097 15,006 14,337
-------- -------- --------
578,368 545,700 536,374
-------- -------- --------
Operating income 50,867 40,959 26,289
Nonoperating (income) and expense:
Interest income (3,406) (594) --
Interest expense 19,401 16,906 12,340
Net trading gains (Note 2) (1,039) -- --
Gain on sale of subsidiary stock -- (5,886) --
-------- -------- --------
14,956 10,426 12,340
-------- -------- --------
Income before income taxes and equity
in net income (loss) of subsidiary 35,911 30,533 13,949
Provision for income taxes 9,309 8,656 4,988
-------- -------- --------
Income before equity in net income
(loss) of subsidiary 26,602 21,877 8,961
Equity in net income (loss) of
subsidiary (3,585) 4,456 (2,396)
-------- -------- --------
Net income 23,017 26,333 6,565
Cumulative dividends on preferred
stock -- 11 250
-------- -------- --------
Net income $ 23,017 $ 26,322 $ 6,315
======== ======== ========
Net income per share $0.59 $0.68 $0.16
======== ======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
Pier 1 Imports, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands)
1993 1992
-------- --------
ASSETS
Current assets:
Cash, including temporary investments of $66,823
in fiscal 1993 $ 73,585 $ 9,001
Accounts receivable, net of allowance for doubtful
accounts of $2,404 and $3,185, respectively 34,920 33,519
Inventories 189,593 181,392
Other current assets 20,038 16,161
-------- --------
Total current assets 318,136 240,073
Properties, net 108,011 114,512
Investments in and advances to subsidiary 22,423 23,804
Other assets 11,927 8,016
-------- --------
$460,497 $386,405
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 33,139 $ 23,228
Accounts payable and accrued liabilities 59,791 56,884
-------- --------
Total current liabilities 92,930 80,112
Long-term debt 147,246 106,787
Deferred income taxes 514 4,854
Other non-current liabilities 19,313 17,521
Stockholders' equity:
Common stock, $1.00 par, 100,000,000 shares authorized,
37,607,000 and 37,225,000 issued, respectively 37,607 37,225
Paid-in capital 93,184 92,303
Retained earnings 74,413 53,844
Cumulative translation adjustments (433) 570
Less--263,000 and 471,000 common shares in
treasury, at cost, respectively (2,599) (4,551)
Less--subscriptions receivable and unearned
compensation (1,678) (2,260)
-------- --------
200,494 177,131
Commitments and contingent liabilities
-------- --------
$460,497 $386,405
======== ========
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
---------------------------
1993 1992 1991
------- ------- -------
Cash flow from operating activities:
Net income $23,017 $26,333 $ 6,565
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 15,097 15,006 14,337
Deferred taxes and other (764) 4,475 2,642
Equity in undistributed losses (earnings)
of subsidiary 3,585 (4,456) 2,396
Gain on sale of subsidiary stock -- (5,886) --
Change in cash from:
Inventories (8,201) 761 (25,895)
Accounts receivable and other
current assets (3,670) 1,054 (8,013)
Accounts payable and accrued expenses 446 7,557 3,979
Other assets, liabilities, and
other, net 1,011 (13) 5,896
Net cash provided by operating ------- ------- -------
activities 30,521 44,831 1,907
------- ------- -------
Cash flow from investing activities:
Capital expenditures (12,619) (6,169) (32,154)
Proceeds from disposition of properties 159 14,076 4,910
Investments in securities -- -- 9,500
Investment in subsidiary -- -- (47,689)
Net cash (used in) provided by ------- ------- -------
investing activities (12,460) 7,907 (65,433)
------- ------- -------
Cash flow from financing activities:
Cash dividends (2,409) (11) (5,806)
Proceeds from issuance of long-term debt 72,353 24,344 48,545
Repayments of long-term debt (35,362) (59,738) (1,248)
Net borrowings (payments) under line of
credit agreements 9,983 (46,000) 41,500
Proceeds from subsidiary stock sale -- 18,072 --
Proceeds from sales of and (payments for)
capital stock, treasury stock, and other 1,958 3,144 (9,774)
Net cash provided by (used in) ------- ------- -------
financing activities 46,523 (60,189) 73,217
------- ------- -------
Change in cash and cash equivalents 64,584 (7,451) 9,691
Cash and cash equivalents at beginning of year 9,001 16,452 6,761
------- ------- -------
Cash and cash equivalents at end of year $73,585 $ 9,001 $16,452
======= ======= =======
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 27, 1993 (in thousands)
<CAPTION>
Cumulative Subscriptions
Currency Receivable
Preferred Common Paid-in Retained Translation Treasury and Unearned
Stock Stock Capital Earnings Adjustments Stock Compensation
--------- ------ ------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance March 3, 1990 $1,500 $35,460 $85,511 $61,557 $ 564 $(3,143) $ --
Purchase of treasury stock -- -- -- -- -- (12,932) --
Restricted stock grant and amortization -- -- -- -- -- 3,042 (2,795)
Subscription receivable -- -- (1,010) -- -- 1,903 (893)
Exercise of stock options and other -- -- (893) -- -- 4,299 --
Currency translation adjustments -- -- -- -- 500 -- --
Cash dividends ($.15 per common share) -- -- -- (5,806) -- -- --
Stock dividend (2%) -- 696 3,308 (4,005) -- -- --
Excess purchase price investment
acquired from related party -- -- -- (17,178) -- -- --
Net income -- -- -- 6,565 -- -- --
------ ------ ------- ------- ------- ------ -------
Balance March 2, 1991 1,500 36,156 86,916 41,133 1,064 (6,831) (3,688)
Purchase of treasury stock -- -- -- -- -- (2,187) 893
Restricted stock grant and amortization -- -- (37) -- -- (255) 535
Adjust to Sunbelt fiscal year-end date -- -- -- (1,177) -- -- --
Exercise of stock options and other -- (2) (1,363) (160) -- 4,722 --
Currency translation adjustments -- -- -- -- (494) -- --
Cash dividends on preferred stock -- -- -- (11) -- -- --
Stock dividend (3%) -- 1,071 9,098 (10,169) -- -- --
Retirement of preferred stock (1,500) -- (2,311) (2,105) -- -- --
Net income -- -- -- 26,333 -- -- --
------ ------ ------ ------- ------- ------ -------
Balance February 29, 1992 -- 37,225 92,303 53,844 570 (4,551) (2,260)
Purchase of treasury stock -- -- -- -- -- (1,226) --
Restricted stock grant and amortization -- -- (18) -- -- (511) 582
Exercise of stock options and other -- 382 899 (39) -- 3,689 --
Currency translation adjustments -- -- -- -- (1,003) -- --
Cash dividends ($.06 per common share) -- -- -- (2,409) -- -- --
Net income -- -- -- 23,017 -- -- --
------ ------ ------- ------- ------- ------- -------
Balance February 27, 1993 $ -- $37,607 $93,184 $74,413 $ (433) $(2,599) $(1,678)
====== ======= ======= ======= ======= ======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
Pier 1 Imports, Inc.
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 (the "Company") include the
accounts of all subsidiary companies. All material intercompany transactions
and balances have been eliminated. At February 27, 1993, the Company had a
49.5% ownership interest in Sunbelt Nursery Group, Inc. ("Sunbelt") (see Note
13). The Company reports the results of Sunbelt using the equity method of
accounting. Under such method, the Company's share of net earnings (or losses)
of Sunbelt is included as a separate item in the consolidated statement of
operations.
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 1993 ended February 27, 1993, fiscal 1992 ended
February 29, 1992, and fiscal 1991 ended March 2, 1991. In fiscal 1992 the
Company changed its practice with regard to reporting Sunbelt's results to
coincide with Sunbelt's fiscal year ending in January.
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.
Translation of foreign currencies - Assets and liabilities are translated
into 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.
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.
Income taxes - Income tax expense for fiscal 1993 is based on the liability
method under Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" (SFAS 109). See Note 9 for further discussion. 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.
Net income per share - Net income per share during a period is computed on
the weighted average number of common shares plus common stock equivalents
outstanding and were 39,227,000, 38,874,000 and 38,357,000 for fiscal 1993, 1992
and 1991, respectively. Computation of weighted average shares outstanding for
fiscal 1993, 1992 and 1991 includes common stock equivalents of 625,000, 620,000
and 272,000, 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 income. 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 27, 1993 and all periods presented with the exception of
a $.01 dilution in the first, second and fourth quarters of fiscal 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
year ended February 27, 1993. Restatements of the financial statements indicate
trading losses during the third quarter of fiscal 1993 and a recovery of such
losses in the fourth quarter of fiscal 1993. The Company did not invest funds
with the financial consultant during fiscal 1992. 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 1993 are included in Note 15.
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 $480,000,
$528,000 and $583,000 were deferred during fiscal years 1993, 1992 and 1991,
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 27, 1993 and February 29, 1992, deferred costs, net of amortization,
totalled $759,000 and $840,000, 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 costs related to the Company's proprietary credit card
accounts are included in selling, general and administrative expense. A summary
of the Company's credit card results for each of the three fiscal years in the
period ended February 27, 1993 follows (in thousands):
1993 1992 1991
------- ------- -------
Costs:
Processing fees $ 5,049 $ 4,875 $ 4,659
Bad debt expense 1,855 2,702 3,218
------- ------- -------
6,904 7,577 7,877
------- ------- -------
Income:
Finance charges 4,998 4,751 3,984
Insurance and other income 165 185 205
------- ------- -------
5,163 4,936 4,189
------- ------- -------
Net credit card costs $ 1,741 $ 2,641 $ 3,688
======= ======= =======
Pier 1 Preferred Card sales $60,661 $48,998 $48,769
======= ======= =======
Net cost as a percent of credit sales 2.9% 5.4% 7.6%
==== ==== ====
The above costs include no allocation of corporate overhead expenses.
Note 4 - Properties
Properties are summarized as follows at February 27, 1993 and February 29,
1992 (in thousands):
1993 1992
-------- --------
Land $ 7,204 $ 7,841
Buildings 32,688 33,027
Equipment, furniture and fixtures 85,413 79,965
Leasehold interests and improvements 71,545 67,462
Construction in progress 214 259
-------- --------
197,064 188,554
Less accumulated depreciation and amortization (89,053) (74,042)
-------- --------
Properties, net $108,011 $114,512
======== ========
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 27, 1993 and February 29, 1992 (in
thousands):
1993 1992
------- -------
Trade accounts payable $23,603 $21,000
Accrued payroll and fringes 17,637 14,413
Accrued taxes, other than income 6,241 6,385
Accrued income taxes 371 5,990
Accrued interest 3,560 1,839
Other accrued liabilities and expenses 8,379 7,257
------- -------
Accounts payable and accrued liabilities $59,791 $56,884
======= =======
Accrued average rent $13,531 $11,247
Other non-current liabilities 5,782 6,274
------- -------
Other non-current liabilities $19,313 $17,521
======= =======
Note 6 - Current and long-term debt
The Company has various lines of credit available which aggregate
approximately $157 million. The lines may be used for borrowings through
working capital loans, bankers' acceptances or letters of credit. At year end,
$33 million had been drawn and approximately $50 million had been committed
under various outstanding letters of credit issued primarily in conjunction with
overseas merchandise procurements, leaving $74 million of available lines of
credit. The weighted average interest rate on short-term borrowings outstanding
during the year was 4.4%.
Long-term debt is summarized as follows (in thousands):
1993 1992
-------- --------
11 1/2% subordinated debentures, net
of original issue discount of
$3,179 and $3,547, respectively $ 21,821 $ 21,453
Industrial revenue bonds 25,000 25,000
11% senior notes 25,000 25,000
6 7/8% convertible subordinated notes 75,000 --
Competitive advance facility -- 35,000
Capital lease obligations 564 546
Other -- 18
-------- --------
147,385 107,017
Less - portion due within one year 139 230
-------- --------
$147,246 $106,787
======== ========
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 27, 1993, the fair value of long-term debt was $166.6
million compared to its recorded value of $147.4 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 swap agreement outstanding with a
commercial bank. Under this agreement, the Company pays interest on a $100
million notional principal amount based on a fixed rate of 9.5% through maturity
in November 1993. This interest rate swap instrument was designated as a hedge
contract against interest rate fluctuations on outstanding floating rate
obligations. Accordingly, the differential to be paid or received is accrued
as interest rates change and is recognized over the life of the agreement. In
addition, through a separate agreement, the bank has an option to receive a
fixed rate of 6.25% and pay 3-month LIBOR for a notional amount of $100 million
from November 1993 to August 1995. The fair value of these interest rate swap
and option instruments was $6.4 million at year end and represented the
estimated amount, which was obtained from counterparties, that the Company would
pay to terminate the agreements at February 27, 1993.
Long-term debt matures as follows (in thousands):
1994 $ 139
1995 2,670
1996 2,623
1997 2,569
1998 7,564
Thereafter 131,820
--------
$147,385
========
Certain 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
$18 million.
Note 7 - 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 may contribute from
1% to 5% of their compensation and the Company contributes up to 3%. Company
contributions to the plan were $915,000, $714,000 and $698,000 in fiscal 1993,
1992 and 1991, 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 $554,000, $443,000 and $367,000 in fiscal 1993,
1992 and 1991, respectively.
Note 8 - 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 315,900 shares were allocated to Stock Purchase Plan participants
during fiscal 1993, all of which were purchased on the open market. Company
contributions to the Plan were $841,000, $830,000 and $843,000 in fiscal years
1993, 1992 and 1991, respectively.
Restricted stock grant plans - In 1992, the Company awarded, subject to and
effective upon shareholder approval, 19,157 shares of its common stock to key
officers pursuant to a Management Restricted Stock Plan which provides for
issuance of up to 250,000 shares. The shares of restricted stock were awarded
in conjunction with granting of stock options to those officers in September
1992, 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. This plan is subject to approval by the Company's
shareholders in June 1993.
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 620,801 shares at fiscal year-end 1993.
A summary of stock option transactions related to the plans, adjusted for
stock dividends, during the years ended February 27, 1993 and February 29, 1992,
is as follows:
Shares Option Prices
--------- -------------
Outstanding at March 2, 1991 1,453,602 $3.16 - 11.63
Options granted 91,925 3.25 - 12.30
Options exercised (79,467) 3.20 - 5.88
Options cancelled or expired (60,080) 4.28 - 12.30
--------- -------------
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
========= =============
At February 27, 1993 and February 29, 1992 outstanding options covering
518,530 and 795,165 shares were exercisable and 1,040,473 and 980,037 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, the
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. The notes accrued interest at 9%, with the principal due in 1996.
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 1994. 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 27, 1993 to $758,000.
Note 9 - 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):
1993 1992 1991
------ ------ ------
Federal:
Current $8,875 $7,232 $6,197
Deferred (1,431) (153) (2,137)
State:
Current 1,765 1,237 580
Deferred (302) -- --
Foreign:
Current 402 340 348
------ ------ ------
$9,309 $8,656 $4,988
====== ====== ======
Deferred tax liabilities (assets) at February 27, 1993 and March 1, 1992
are comprised of the following (in thousands):
1993 1992
-------- -------
Deferred tax liabilities:
Depreciation $ 5,938 $ 6,558
Deferred store costs 3,947 3,832
Other 495 508
-------- -------
10,380 10,898
-------- -------
Deferred tax assets:
Inventory $ (1,087) $ (853)
Accrued average rent (5,118) (4,304)
Accrued vacation/deferred compensation (2,319) (1,727)
Deferred gain on sale/leaseback (1,672) (1,874)
Bad debts (850) (694)
Other (817) (1,196)
-------- -------
(11,863) (10,648)
-------- -------
$ (1,483) $ 250
======== =======
Components of the difference between the effective tax rate and the
statutory rate of expressed as a percentage of pre-tax income are as follows:
1993 1992 1991
---- ---- ----
U.S. statutory rate 34% 34% 34%
Tax treatment on sale of subsidiary
stock -- (8) --
State income taxes 3 3 3
Tax-favored investment income (2) -- --
Targeted jobs tax credit (1) (1) (2)
Foreign income taxed at lower rates (8) -- --
Other, net -- -- 1
---- ---- ----
26% 28% 36%
==== ==== ====
Note 10 - Commitments and lease obligations
The Company leases certain property consisting principally of retail
stores, warehouses and transportation equipment under leases expiring through
the year 2011. Substantially all retail store locations are leased, generally
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):
1993 1992
------ ------
Buildings $ 477 $ 477
Equipment, furniture and fixtures 538 1,123
------ ------
1,015 1,600
Less accumulated depreciation 738 1,313
------ ------
$ 277 $ 287
====== ======
At February 27, 1993, the Company has the following minimum lease
commitments in the years indicated (in thousands):
Capital Operating
Fiscal Year Leases Leases
----------- ------- ---------
1994 $285 $ 89,728
1995 285 87,731
1996 205 83,465
1997 119 76,526
1998 88 69,907
Thereafter -- 251,580
---- --------
Total lease commitments 982 $658,937
========
Less imputed interest 418
----
Present value of total capital lease
obligations including current
portion of $139 $564
====
Present value of total operating lease
commitments $442,000
========
Rental expense incurred was $85,511,000, $81,042,000 and $73,353,000
including contingent rentals of $821,000, $559,000 and $796,000 based upon a
percentage of sales and net of sublease incomes totalling $870,000, $836,000 and
$676,000 in fiscal 1993, 1992 and 1991, 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 $15 million for development or acquisition of
stores leased by the Company. Agreements with these groups are expected to be
renewed or replaced beginning in two to five years, and Company management
anticipates renewals or replacements under substantially the same terms and
conditions. In connection with the financing of 35 stores by these unaffiliated
groups, the Company has guaranteed the residual value of these buildings at
approximately $24 million at the end of the lease terms.
Note 11 - Litigation
In addition to the legal matters discussed in Note 2, there are various
other 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 27,
1993; 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.
Note 12 - Cash flow information
The following is supplemental cash flow information (in thousands):
1993 1992 1991
------- ------- -------
Cash paid during the year for:
Interest $16,835 $14,033 $15,419
Income taxes $17,126 $ 4,439 $ 8,817
Note 13 - Investment in Sunbelt Nursery Group, Inc. and subsequent event
In April 1993, the Company completed the sale of its 49.5% ownership
interest in Sunbelt to General Host Corporation ("General Host"). The Company
received as the purchase price for the Sunbelt shares 1,940,000 shares of common
stock of General Host which represents approximately 9.7% of the outstanding
common stock. This transaction resulted in no gain or loss after taxes.
Prior to the Company's decision to sell Sunbelt, the Company maintained a
49.5% minority ownership interest in Sunbelt during fiscal 1993. Prior to
fiscal 1993, the Company's ownership interest varied from 50.4% in September
1990 to 100% in November 1990, down to 56.6% in November 1991 and 49.5% in
February 1992.
Summarized financial information as reported by Sunbelt as of and for its
fiscal years ended January 31, 1993 and 1992 is as follows (in thousands):
Year Ended Year Ended
Jan. 31, 1993 Jan. 31, 1992
------------- -------------
Net sales $138,601 $140,078
-------- --------
Gross profit 61,149 65,018
-------- --------
Income (loss) before extraordinary items (7,242) 2,535
-------- --------
Net income (loss) $ (7,242) $ 3,214
======== ========
As of Jan. 31, 1993
-------------------
Current assets $33,636
Non-current assets 43,617
-------
Total assets $77,253
=======
Current liabilities $33,283
Non-current liabilities 4,970
Equity 39,000
-------
Total liabilities and equity $77,253
=======
Pursuant to the sale to General Host, the Company is committed to
providing Sunbelt a $12 million credit facility either in guarantees of Sunbelt
indebtedness or direct loans until April 28, 1994. The Company's commitments
are collateralized by 4.2 million shares of Sunbelt's common stock. In
addition, through April 28, 1996, the Company has agreed to make available up
to $25 million of properties to lease to Sunbelt, which properties will either
be acquired to constructed by an unaffiliated third party. The Company has
agreed to guarantee Sunbelt's lease obligations under this agreement.
Note 14 - 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 15 - Selected quarterly financial data (unaudited)
Summarized quarterly financial data (in thousands of dollars except per
share amounts) for the years ended February 27, 1993 and February 29, 1992 are
set forth below:
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)(5)(6) $ 8,055 $ 7,453 ($ 172) $ 7,681
======== ======== ======== ========
Net income (loss) per
common share, as
restated(2)(3)(4)(5) $.21 $.19 $.00 $.19
==== ==== ==== ====
Net income available to common
stockholders, as previously
reported(6) $ 8,055 $ 7,453 $ 2,247 $ 5,262
======== ======== ======== ========
Primary net income per common
share, as previously
reported(3)(4)(5) $.21 $.19 $.06 $.13
==== ==== ==== ====
Three Months Ended
-----------------------------------------
Fiscal 1992 6/01/91 8/31/91 11/30/91 2/29/92
----------- -------- -------- -------- --------
Net sales $144,881 $161,990 $130,707 $149,081
======== ======== ======== ========
Gross profit $ 57,957 $ 62,298 $ 53,103 $ 55,085
======== ======== ======== ========
Net income(7) $ 11,637 $ 5,417 $ 4,683 $ 4,596
Cumulative dividends on
preferred stock 5 5 1 --
-------- -------- -------- --------
Net income available to
common stockholders $ 11,632 $ 5,412 $ 4,682 $ 4,596
======== ======== ======== ========
Primary net income per
common share(3)(4)(8) $.30 $.14 $.12 $.12
==== ==== ==== ====
- --------------------
(1) The restatements of earnings for the quarters of fiscal 1993 had no
effect on the Company's previously reported sales and gross profit.
(2) Fiscal 1993 third quarter and fourth quarter net income (loss)
includes trading (losses) gains of ($2,419) and $3,458, respectively.
(3) 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.
(4) Reflects the effect of the 5% stock dividend distributed May 8, 1995.
(5) The financial statements for the first and second quarters of fiscal
1993 were not restated.
(6) 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.
(7) The fourth quarter of fiscal 1992 reflects a tax benefit of 3% due to
the resolution of certain issues for which estimated tax liabilities had been
accrued.
(8) Reflects the effect of the 2% stock dividend distributed May 15, 1991
and the 3% stock dividend distributed November 19, 1991.
<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 three
years ended February 27, 1993
Consolidated Balance Sheets at February 27, 1993 and
February 29, 1992
Consolidated Statements of Cash Flows for the three
years ended February 27, 1993
Consolidated Statements of Stockholders' Equity for the
three years ended February 27, 1993
2. Financial Statement Schedules, previously filed May 26,
1993
For the three years ended February 27, 1993
II - Accounts 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.
Financial statements of Sunbelt have been omitted because the
Company's proportionate share of the income from continuing operations before
income taxes, and total assets of Sunbelt are less than 20% of the respective
consolidated amounts, and the investment in and advances to Sunbelt are less
than 20% of consolidated total assets.
(b) Reports on Form 8-K
Not applicable.
(c) Exhibits
See Exhibit Index.
(d) Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PIER 1 IMPORTS, INC.
Date: July 16, 1996 By: /s/ Clark A. Johnson
------------- -------------------------------------
Clark A. Johnson, Chairman 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
- ----------- -----------
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 8, 1993, except for Note 14, as to which the date
is April 7, 1995, and Note 2, as to which the date is February 29, 1996, which
appears in this Form 10-K/A.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Fort Worth, Texas
July 15, 1996
