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 25, 1995.
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 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
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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 3, 1995, there were 37,737,008 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 $316 million.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K Incorporated Document
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Part III Proxy Statement for 1995 Annual Meeting
<PAGE>
Items 5, 6, 7, 8 and 14 of the Company's Annual Report on Form 10-K
for the year ended February 25, 1995, are amended and restated as set forth
below.
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters.
MARKET PRICE AND DIVIDEND INFORMATION
Market Price(1) Cash Dividends
Fiscal 1995 High Low Per Share
- ----------- ------ ------ --------------
First Quarter 9 1/8 7 3/8 $0.025
Second Quarter 8 5/8 7 1/8 0.025
Third Quarter 8 3/4 7 3/8 0.030
Fourth Quarter 10 1/8 7 1/2 0.030
Fiscal 1994
- -----------
First Quarter 12 1/4 8 3/8 $0.020
Second Quarter 10 1/8 8 1/4 0.025
Third Quarter 11 1/4 8 3/8 0.025
Fourth Quarter 10 7/8 8 3/8 0.025
(1) Market prices do not reflect impact of 5% stock dividend distributed May
1995.
The Company's common stock is traded on the New York Stock
Exchange. As of May 3, 1995, there were approximately 16,000 shareholders of
record of the Company's common stock.
Certain of the Company's existing loan agreements limit specific
payments and distributions, including cash dividends, loans to shareholders
and purchases of treasury stock. Generally the Company may make "restricted
payments," as defined in the loan agreements, which include the payment of
cash dividends, up to an aggregate maximum of approximately $12.8 million as
of February 25, 1995. Additionally, the Company is required to maintain
various financial ratios. The Company's Board of Directors currently expects
to pay modest cash dividends in fiscal 1996, but intends to retain most of
future earnings for the expansion of the Company's business. A cash dividend
of $.03 per share was paid May 17, 1995 and a stock dividend of 5% per share
was paid May 8, 1995. The Company's dividend policy will depend upon the
earnings, financial condition and capital needs of the Company and other
factors deemed relevant by the Company's Board of Directors.
<PAGE>
Item 6. Selected Financial Data.
FINANCIAL SUMMARY (Unaudited)
($ in millions except per share amounts)
4-Year
Compound
Annual Year Ended
Growth -------------------------------------
Rate 1995 1994 1993 1992 1991
-------- ---- ---- ---- ---- ----
Summary of operations:
Net sales 6.1% $712.0 685.4 629.2 586.7 562.7
Gross profit 7.2% $277.6 259.6 246.2 228.4 210.5
Selling, general and
administrative
expenses 4.9% $206.0 195.4 180.2 172.4 169.9
Depreciation and
amortization 2.8% $ 16.0 15.8 15.1 15.0 14.3
Store-closing pro-
vision $ - 21.3 - - -
Nonoperating expense,
net of income(1) 16.0% $ 22.3 18.8 15.0 16.3 12.3
Income before income
taxes and equity in
net income (loss)
of subsidiary 24.1% $ 33.2 8.4 35.9 30.5 14.0
Equity in net income
(loss) of subsidiary $ - - (3.6) 4.5 (2.4)
Net income for common
stockholders 36.9% $ 22.1 5.9 23.0 26.3 6.3
Per common share data
(adjusted for stock
splits and dividends):(2)
Net income for common
stockholders 36.8% $ .56 .15 .59 .68 .16
Cash dividends declared $ .11 .10 .07 - .15
Stockholders' equity 8.3% $ 5.60 5.09 5.11 4.56 4.07
Other financial data:
Working capital 20.3% $265.0 229.0 225.2 160.0 126.7
Current ratio 4.1 3.5 3.4 3.0 2.1
Total assets 3.2% $485.9 463.3 460.5 386.4 428.9
Long-term debt 2.4% $154.4 145.2 147.2 106.8 140.6
Stockholders' equity 9.2% $222.4 201.1 200.5 177.1 156.3
Weighted average shares
outstanding and common
stock equivalents
(millions)(2) 0.8% 39.7 39.5 39.2 38.9 38.4
Effective tax rate 33.6% 29.0 25.9 28.3 35.8
Return on common
stockholders'
average equity 10.4% 3.0 12.2 15.8 3.7
Return on average
total assets 4.6% 1.3 5.4 6.5 1.6
Pre-tax return on sales 4.7% 1.2 5.7 5.2 2.5
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(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 1995, 1994 and 1993, and the
write-down of General Host securities in fiscal years 1995 and 1994.
(2) Reflects the effect of a 5% stock dividend distributed May 8, 1995, a 3%
stock dividend distributed November 19, 1991 and a 2% stock dividend
distributed May 15, 1991.
<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 imported decorative home furnishings, gifts and related
items, with 628 stores in 46 states, Puerto Rico and Canada, along with
relationships involving international retail operations in the United Kingdom
and Mexico as of the fiscal 1995 year-end. The Company reported record sales
of $712.0 million for fiscal 1995 and net income of $22.1 million, or $.56
per share, after recording trading losses of $2.8 million and a non-cash,
after-tax special charge of $5.2 million in the third quarter to reflect a
write-down of the carrying value of the Company's holdings of General Host
Corporation ("General Host") common stock. 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 adjusted to reflect the
impact of the stock dividend.
FISCAL YEARS ENDED FEBRUARY 25, 1995 AND FEBRUARY 26, 1994
During fiscal 1995, net sales increased by $26.6 million, or 3.9%,
to $712.0 million compared with fiscal 1994 net sales of $685.4 million.
This growth was primarily attributable to growth in same-store sales which
increased 4.8% compared to fiscal 1994. During fiscal 1995, the Company
opened 42 new stores. Sales of hard goods merchandise such as furniture and
decorative accessories increased 12% in fiscal 1995 over fiscal 1994, and
sales of soft goods merchandise such as apparel and jewelry decreased 21% in
fiscal 1995 compared to the prior year. Hard goods and soft goods sales
contributed approximately 91% and 9%, respectively, of total sales during
fiscal 1995. The Company's sales mix shifted during fiscal 1995 to reflect
the Company's focus on increasing consumer demand for furniture and
decorative accessories coupled with lower demand for apparel and related
accessories. This sales shift resulted in higher average ticket sales and a
5.1% increase in sales per average square foot of retail selling space to
$154.03 from $146.57 in the prior year. Sales of $26.7 million from stores
closed during the year pursuant to the store-closing program, initiated at
the end of fiscal 1994, were excluded from the Company's reported sales for
fiscal 1995. Sales in these stores were included in fiscal 1994 reported
sales and aggregated $37.7 million.
Sales on the Company's proprietary credit card were $124.7 million,
or 17.5% of total sales, during the 1995 fiscal year, an increase of $26.1
million, or 26.4%, over the prior fiscal year. Credit card receivables
totalled $62.6 million at the end of fiscal 1995, a 29.9% increase over the
prior fiscal year. 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 proprietary credit card
are encouraged through specific marketing promotions.
Gross profit, after related buying and store occupancy costs,
expressed as a percentage of sales, increased 1.1% to 39.0% in fiscal 1995
from 37.9% in fiscal 1994. The increase resulted primarily from leveraging
relatively fixed store occupancy costs through greater sales, combined with
the closing of 49 stores (which as a group had higher occupancy costs as a
percentage of sales than did the remaining population of stores). Gross
profit on merchandise, as a percentage of sales, remained unchanged at 53.4%
in fiscal 1995 compared to fiscal 1994. During fiscal 1995, the contribution
of the components of gross profit changed as margins improved in furniture
due to a reduction in merchandise discounts and clearance markdowns, and
margins decreased in decorative accessories and dining and kitchen as a
result of clearance markdowns aimed at decreasing inventory levels. Soft
goods gross profit components were down from 52% last year to 50% in fiscal
1995 as a result of intentional lowering of retail prices to stimulate sales.
Selling, general and administrative expenses, including marketing,
as a percentage of sales, increased 0.4% to 28.9% in fiscal 1995 compared to
28.5% in fiscal 1994. In total dollars, these expenses for fiscal 1995
increased $10.6 million over fiscal 1994, with $7.0 million of the increase
attributable to expenses that normally increase proportionately with sales,
such as store salaries and marketing. These variable expenses, as a
percentage of sales, remained essentially unchanged from last year.
Management bonuses increased by $3.6 million as a result of increased
earnings. Net proprietary credit card expenses declined by $1.2 million,
primarily as a result of increased finance charge income, and all other
selling, general and administrative expenses increased by $1.2 million.
In fiscal 1994, the Company recorded a special charge of $21.3
million before taxes for a store-closing provision that was established to
reflect the anticipated costs to close 49 stores with histories of
underperformance and high occupancy costs and to close the Canadian
distribution center and administrative offices. At the end of fiscal 1995,
the Company had closed 46 stores; the Canadian distribution center and
administrative offices were closed in March 1995. Agreements have been
reached with a majority of landlords regarding lease terminations for stores
in the store-closing program. The balance of the store-closing reserve at
fiscal 1995 year-end was $11.8 million, which consisted primarily of
anticipated final cash requirements associated with lease termination costs.
The $9.5 million utilized out of the store-closing reserve during fiscal 1995
consisted of lease termination costs of $3.0 million, fixed asset write-downs
and inventory liquidation costs of $4.8 million, interim operating losses and
other costs of $1.4 million and severance costs of $0.3 million.
Operating income improved $28.5 million to $55.6 million in fiscal
1995 from $27.1 million in the prior year.
During fiscal 1995, net interest expense declined primarily due to
lower effective interest rates coupled with lower debt, net of cash balances.
The Company has regularly designated a portion of its excess cash
and short-term investments for management by a financial consultant in a
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. In late December 1995, the Company was made aware of
non-recurring losses of $19.3 million resulting from inappropriate and
substantial trading activities in the discretionary account. 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 trading losses, the
Company has restated its fiscal year 1995 financial statements to record $2.8
million of the trading losses during that year and the Company has recorded
$16.5 million of the trading losses in fiscal 1996. Fiscal 1995, 1994 and
1993 quarterly financial statements have also been restated to reflect the
trading losses and gains during those periods based on the information
available to the Company at this time. The restatements of the various
quarters have no effect on net income for the full 1994 and 1993 fiscal
years. The Company deposited a total of $12.5 million in the discretionary
account in fiscal 1995, and during the first, second and third fiscal
quarters incurred net trading losses in the account of $1.5 million, $4.2
million and $5.7 million, respectively, and during the fourth quarter
attained a net trading gain of $8.6 million. During the first, second and
third fiscal quarters of fiscal 1994 the Company 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.
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
benefit is not considered likely based on the information available at this
time. The Company and a Special Committee of the Board of Directors that was
established to investigate the matter have investigated the transactions and
the surrounding circumstances, and the Company is attempting to obtain
additional information to resolve uncertainties which have arisen. The
Company and the Special Committee found no evidence to suggest that the
Company's net losses from these trading activities will exceed $19.3 million.
While it is possible that further findings may cause the Company to make
adjustments in the future as additional uncertainties are resolved, any such
adjustments which might result in restatement of financial statements are not
expected to result in any additional net losses, but rather would reflect
offsetting adjustments among periods. See: Notes 2 and 8 of the Notes to
Consolidated Financial Statements.
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, in exchange for 1.9 million shares of General Host common
stock. Subsequently, General Host distributed two 5% stock dividends,
resulting in an increase in the Company's holdings to 2.1 million shares of
General Host common stock at February 25, 1995. In 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 on prices at fiscal
year-end 1994, the market value of General Host common stock was $5.6 million
less than the Company's original carrying amount. After an assessment of
factors which may have contributed to the decline, the Company estimated $2.0
million of this decline to be other than temporary and recorded a
corresponding charge to income in fiscal 1994. The remaining $3.6 million
decline in market value was considered to be temporary. In spite of
favorable developments relating to General Host, the General Host stock price
did not improve during fiscal 1995. Consequently, in the third quarter of
fiscal 1995, the Company concluded that these developments were not having
the expected positive effect on General Host's market price per share, and a
non-cash, pre-tax special charge of $7.5 million was recorded to reflect an
other than temporary decline in the market value of the General Host common
stock. As a result of the issuance of the Company's exchangeable debentures
in December 1994, the General Host common stock is no longer available for
sale, and the Company no longer has market risk in relation to the General
Host common stock. See: Liquidity and Capital Resources.
The Company's effective income tax rate for fiscal 1995 increased
to 33.6% from 29% in fiscal 1994. The effective rate for fiscal 1995
exclusive of the aforementioned trading losses would be 31%. The increase is
primarily due to the benefit of tax-favored investment income last fiscal
year compared to this fiscal year and an increase in the effective state
income tax rate this fiscal year as compared to fiscal 1994. The Company's
effective income tax rate for fiscal 1996 (before considering trading
losses) is expected to increase to 35-40% due to the benefit of favorable tax
treatment from the sale of Sunbelt common stock recognized in fiscal years
1995 and 1994 and no longer available in fiscal 1996. After taking into
consideration trading losses, the effective income tax rate for fiscal 1996
is expected to be between 65 and 70%.
Net income for fiscal 1995 aggregated $22.1 million, or $.56 per
share, compared to income of $5.9 million, or $.15 per share, last year.
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%. Sales of hard goods merchandise
such as furniture and decorative accessories increased 12% in fiscal 1994
over fiscal 1993, and sales of soft goods such as apparel and jewelry
decreased 8% in fiscal 1994 compared to the prior year. Hard goods and soft
goods sales contributed approximately 87% and 13%, respectively, of total
sales during fiscal 1994. Fiscal 1993 total sales grew 7.3% and same-store
sales grew 3.7% from the previous year. Forty-eight (48) new stores were
opened and 17 stores were closed during fiscal 1994, before giving effect to
the store-closing program.
Sales on the Company's proprietary credit card were $98.6 million,
or 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.
Gross profit, after related buying and store occupancy costs,
expressed as a percentage of sales, declined 1.2% from 39.1% in fiscal 1993
to 37.9% in fiscal 1994. Store occupancy costs, expressed as a percentage of
sales, improved slightly due to higher same-store sales volumes. Sales of
furniture and decorative items sustained increased promotional markdowns and
other discounts which caused reduced margins on these goods. Gross profit
rates on apparel, jewelry and accessories declined due to additional
promotional markdowns taken in fiscal 1994 compared with fiscal 1993.
Selling, general and administrative expenses, including marketing,
improved 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 stores opened
during the year (before giving effect to the store-closing provision), new
point-of-sale register equipment installed in all stores, new selling
programs introduced in stores and losses related to the earthquake in
California 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 stores with histories of underperformance and
high occupancy costs and to close the Canadian distribution center and
administrative offices. 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 components of the store-closing provision consisted of lease
termination costs of $15.9 million (net of $3.9 million of estimated sublease
revenue), fixed asset write-downs and inventory liquidation costs of $3.3
million, expected interim operating losses and other costs of $1.7 million
and severance costs of $0.4 million. Lease termination costs reflected the
estimated settlements the Company would 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 which, in most cases, was zero.
Inventory liquidation cost was determined by estimating additional markdowns
to be taken to dispose of each store's inventory. Operating losses were
estimated on the basis of past performance of the respective stores and
anticipated results for the 1995 fiscal year. Severance 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 store-closing provision
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 $0.9
million in fiscal 1994 over the prior year.
The Company has regularly designated a portion of its excess cash
and short-term investments for management by a financial consultant in a
discretionary account. The amount of funds deposited by the Company has
varied during each year, and the funds were generally all withdrawn near the
end of each fiscal year. In late December 1995, the Company was made aware
of non-recurring losses of $19.3 million resulting from inappropriate and
substantial trading activities in the discretionary account. 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 option contracts were often used in
a manner that provided a high degree of speculation and leverage to the
invested funds. Fiscal 1994 and 1993 quarterly financial statements have
been restated to reflect the trading losses and gains during those periods
based on the information available to the Company at this time. The
restatements had no effect on net income for the 1994 and 1993 full 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 fiscal
quarters the Company 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. See: Notes 2 and 8 of the Notes to Consolidated
Financial Statements.
During the fourth quarter of fiscal 1994, the Company recorded a
provision for a 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 $5.6 million less than the Company's
original carrying amount. After an assessment of factors which may have
contributed to this decline, the Company estimated $2.0 million of this
decline to be other than temporary and recorded a corresponding charge to
income to adjust the book value of the General Host common stock. The
remaining decline of $3.6 million was considered to be temporary.
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, in the prior
year.
LIQUIDITY AND CAPITAL RESOURCES
At February 25, 1995, cash and cash equivalents had increased to
$50.6 million from $17.1 million at February 26, 1994, due to cash flow from
operations of $46.5 million, net proceeds from the issuance of exchangeable
debentures of $11.1 million, net proceeds from the pay-off of the credit
facility from Sunbelt of $2.0 million, partially offset by capital
expenditures of $17.5 million, cash dividends of $4.1 million, a sinking fund
payment of $2.5 million on the Company's subordinated debentures and other
investing and financing activities of $2.1 million. During the first quarter
of fiscal 1996, the Company suffered net cash trading losses of $15.9 million
in the discretionary account described in Note 2 of the Notes to Consolidated
Financial Statements.
Cash provided by operating activities of $46.5 million during
fiscal 1995 compared favorably to $4.4 million during fiscal 1994. The
improvement was primarily due to higher earnings, reduced inventory levels
and slightly slower growth of the Company's proprietary credit card
receivable in fiscal 1995 versus fiscal 1994.
During fiscal 1995, capital expenditures of $11.6 million were
required to support the opening of 42 new stores. The Company's new store
development plan for fiscal 1996 provides for the opening of approximately 55
stores. Financing for new store land and building costs will be provided by
operating leases. Inventory and fixtures for the fiscal 1996 development
plan are estimated to cost approximately $16 million, which will be funded by
operations, working capital and bank lines of credit. Final cash
requirements to fund the store-closing program from fiscal 1994 for lease
terminations and inventory liquidation costs are expected to be approximately
$11.8 million in fiscal 1996 and will be funded through working capital and
operations. Twenty-two (22) stores are expected to close in fiscal 1996 as
their leases expire.
The Company currently has a $60 million short-term lease financing
facility, of which $28.6 million was unused at 1995 fiscal year-end. In
addition, the Company maintains a $51.4 million intermediate-term lease
financing facility for 41 stores. The property leases for these 41 stores
require that upon expiration of the leases over the next three years, unless
the leases are extended by the parties, the Company must either obtain
alternative financing for the properties or arrange for the sale of
properties to a third party or purchase the properties for approximately $50
million. In order to continue to finance new store land and building costs
through operating leases, the Company is expanding these facilities and
exploring additional financing opportunities currently available in the
capital markets. The Company's minimum future operating lease commitments
expected for fiscal 1996 aggregate $93 million, and the present value of
total existing operating lease commitments is $393 million. These
commitments will be funded from operating cash flow.
Working capital requirements are currently provided by cash and
short-term revolving lines of credit, including bankers' acceptances and
working capital loans. The Company's current ratio was 4.1 to 1 at the end of
fiscal 1995 compared to 3.5 to 1 a year earlier.
In April 1993, the Company sold its 49.5% ownership interest in
Sunbelt to General Host and committed to provide Sunbelt a $12 million credit
facility through April 1994 and up to $25 million of non-revolving store
development financing through April 1996. In October 1994, in connection
with the sale by General Host of its 49.5% interest in Sunbelt to a third
party unrelated to the Company or General Host, the Company received payment
of the amounts owed under the credit facility and agreed to extend $22.8
million of the non-revolving store development financing to Sunbelt until
June 30, 1998, at market rental rates. Additionally, the Company guarantees
other Sunbelt store lease commitments aggregating $4.5 million with a present
value of approximately $3.5 million.
In April 1995, Sunbelt defaulted on 13 store sublease agreements
with the Company comprising the $22.8 million of non-revolving store
development financing, and the Company terminated the subleases. At the date
of the filing of the Company's Form 10-K on May 26, 1995, negotiations were
in process with Sunbelt regarding the Company's claims as well as the
disposition of these properties through sales to third parties or acquisition
by Sunbelt. In management's opinion, losses to the Company were not then
expected to be material to the Company's consolidated balance sheet or
liquidity.
After extended negotiations with Sunbelt were completed in the
second quarter of fiscal 1996, the Company recorded a charge of $14.0 million
as its best estimate of the costs to disengage from its financial support of
Sunbelt. The charge includes estimated losses resulting from the lease
termination costs associated with the 13 nursery store subleases and from the
Company's guarantee of other Sunbelt store leases. As of February 1996, one
of the nursery store subleases has been terminated at costs consistent with
the Company's previously recorded charge.
In December 1994, the Company completed a private placement of
$12.5 million of 8 1/2% exchangeable debentures due December 1, 2000,
providing for mandatory exchange of the debentures into the 2.1 million
shares of General Host common stock held by the Company (after recognition of
stock dividends). The net proceeds received by the Company from the sale of
the exchangeable debentures was $11.1 million. The Company intends to
utilize the net proceeds, together with existing financial resources, for
working capital and other general corporate purposes.
In fiscal 1995, the Company paid cash dividends aggregating $.11
per common share or $4.1 million. The Board of Directors anticipates a
continuation of its current quarterly 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 The Pier aggregate $3.3 million,
with additional debt guarantees of approximately $6.4 million. Fiscal 1996
store expansion plans include the opening of five stores, and the Company
expects to invest approximately $6.5 million in The Pier during the fiscal
year. The Pier is presently an 11-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. When purchase commitments are denominated in foreign currencies,
the Company may enter 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
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.
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements
Financial Statements:
Report of Independent Accountants
Consolidated Statement of Operations for the
Years Ended February 25, 1995, February 26, 1994
and February 27, 1993
Consolidated Balance Sheet at February 25, 1995 and
February 26, 1994
Consolidated Statement of Cash Flows for the Years
Ended February 25, 1995, February 26, 1994 and
February 27, 1993
Consolidated Statement of Stockholders' Equity for the
Years Ended February 25, 1995, February 26, 1994 and
February 27, 1993
Notes to Consolidated Financial Statements
Financial Statement Schedules:
For the Years Ended February 25, 1995, February 26, 1994
and February 27, 1993
VIII Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are not required or
are not applicable or the required information is shown in the financial
statements or notes thereto.<PAGE>
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, after the restatement described in Note 2, present
fairly, in all material respects, the financial position of Pier 1 Imports,
Inc. and its subsidiaries at February 25, 1995 and February 26, 1994, and the
results of their operations and their cash flows for each of the three years
in the period ended February 25, 1995, 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 7, 1995, except for
Notes 2, 8, 11, and 17,
as to which the date is
February 29, 1996
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands except per share amounts)
Year Ended
----------------------------
1995 1994 1993
-------- -------- --------
Net sales $711,985 $685,393 $629,235
Operating costs and expenses:
Cost of sales (including buying and
store occupancy) 434,412 425,801 383,053
Selling, general and administrative
expenses 206,022 195,444 180,218
Depreciation and amortization 15,989 15,771 15,097
Store-closing provision -- 21,250 --
-------- -------- --------
656,423 658,266 578,368
-------- -------- --------
Operating income 55,562 27,127 50,867
Nonoperating (income) and expense:
Interest income (2,231) (4,334) (3,406)
Interest expense 14,223 21,177 19,401
Trading losses (gains) (Note 2) 2,799 (72) (1,039)
Write-down of General Host securities 7,543 2,000 --
-------- -------- --------
22,334 18,771 14,956
-------- -------- --------
Income before income taxes and equity
in net loss of subsidiary 33,228 8,356 35,911
Provision for income taxes 11,168 2,423 9,309
-------- -------- --------
Income before equity in net loss of
subsidiary 22,060 5,933 26,602
Equity in net loss of subsidiary -- -- (3,585)
-------- -------- --------
Net income $ 22,060 $ 5,933 $ 23,017
======== ======== ========
Net income per share $.56 $.15 $.59
==== ==== ====
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEET
(in thousands except share data)
1995 1994
-------- --------
ASSETS
Current assets:
Cash, including temporary investments of $42,536
and $7,466, respectively $ 50,566 $ 17,123
Accounts receivable, net of allowance for doubtful
accounts of $2,335 and $2,072, respectively 64,229 51,722
Inventories 200,968 219,646
Other current assets 34,325 32,901
-------- --------
Total current assets 350,088 321,392
Properties, net 105,618 111,510
Other assets 30,219 30,400
-------- --------
$485,925 $463,302
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital leases $ 2,638 $ 2,639
Accounts payable and accrued liabilities 82,419 89,772
-------- --------
Total current liabilities 85,057 92,411
Long-term debt 154,432 145,231
Deferred income taxes 2,538 3,407
Other non-current liabilities 21,501 21,160
Stockholders' equity:
Common stock, $1.00 par, 100,000,000 shares
authorized, 37,826,000 and 37,617,000 issued,
respectively 37,826 37,617
Paid-in capital 93,833 92,670
Retained earnings 94,516 76,597
Cumulative currency translation adjustments (1,195) (964)
Less--162,000 and 98,000 common shares in
treasury, at cost, respectively (1,477) (884)
Less--subscriptions receivable and unearned
compensation (1,106) (1,369)
Less--unrealized loss on marketable equity securities -- (2,574)
-------- --------
222,397 201,093
Commitments and contingencies (Notes 2, 12, 15, and 17) -------- --------
$485,925 $463,302
======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands)
Year Ended
---------------------------
1995 1994 1993
------- ------- -------
Cash flow from operating activities:
Net income $22,060 $ 5,933 $23,017
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 15,989 15,771 15,097
Deferred taxes and other 3,515 (3,006) (764)
Equity in undistributed losses
of subsidiary -- -- 3,585
Store-closing provision -- 21,250 --
Write-down of General Host securities 7,543 2,000 --
Change in cash from:
Inventories 18,352 (30,053) (8,201)
Accounts receivable and other
current assets (16,071) (17,550) (3,670)
Accounts payable and accrued expenses 417 10,103 446
Store-closing reserve (4,650) -- --
Other assets, liabilities, and
other, net (618) (28) 1,011
Net cash provided by operating ------- ------- -------
activities 46,537 4,420 30,521
------- ------- -------
Cash flow from investing activities:
Capital expenditures (17,471) (24,617) (12,619)
Proceeds from disposition of properties 62 791 159
Loans to Sunbelt Nursery Group, Inc. (9,600) (1,000) --
Proceeds from Sunbelt Nursery Group, Inc. 11,600 2,105 --
Other investments (2,093) (2,353) --
Net cash used in investing ------- ------- -------
activities (17,502) (25,074) (12,460)
------- -------- -------
Cash flow from financing activities:
Cash dividends (4,138) (3,560) (2,409)
Proceeds from issuance of long-term debt 11,060 -- 72,353
Repayments of long-term debt (2,500) -- (35,362)
Net (payments) borrowings under line of
credit agreements -- (33,000) 9,983
(Payments) proceeds from (purchases) sales of
capital stock, treasury stock, and other (14) 752 1,958
Net cash provided by (used in) ------- ------- -------
financing activities 4,408 (35,808) 46,523
------- ------- -------
Change in cash 33,443 (56,462) 64,584
Cash at beginning of year 17,123 73,585 9,001
------- ------- -------
Cash at end of year $50,566 $17,123 $73,585
======= ======= =======
The accompanying notes are an integral part of these financialstatements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED FEBRUARY 25, 1995 (in thousands)
<CAPTION>
Cumulative Subscriptions
Currency Receivable Unrealized Loss Total
Common Paid-in Retained Translation Treasury and Unearned on Marketable Stockholders'
Stock Capital Earnings Adjustments Stock Compensation Equity Securities Equity
------- ------- -------- ----------- -------- ------------ ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance February 29, 1992 $37,225 $92,303 $53,844 $ 570 $(4,551) $(2,260) $ -- $177,131
Purchase of treasury stock -- -- -- -- (1,226) -- -- (1,226)
Restricted stock grant and
amortization -- (18) -- -- (511) 582 -- 53
Exercise of stock options
and other 382 899 (39) -- 3,689 -- -- 4,931
Currency translation
adjustments -- -- -- (1,003) -- -- -- (1,003)
Cash dividends ($.07
per common 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 ($.10
per common share) -- -- (3,560) -- -- -- -- (3,560)
Net income -- -- 5,933 -- -- -- -- 5,933
------- ------- ------- ------- ------- ------- ------ --------
Balance February 26, 1994 37,617 92,670 76,597 (964) (884) (1,369) (2,574) 201,093
Purchase of treasury stock -- -- -- -- (2,575) -- -- (2,575)
Restricted stock grant and
amortization -- (2) -- -- (61) 263 -- 200
Exercise of stock options
and other 209 1,165 (3) -- 2,043 -- -- 3,414
Currency translation
adjustments -- -- -- (231) -- -- -- (231)
Realized loss on
marketable equity
securities -- -- -- -- -- -- 2,574 2,574
Cash dividends ($.11
per common share) -- -- (4,138) -- -- -- -- (4,138)
Net income -- -- 22,060 -- -- -- -- 22,060
------- ------- ------- ------- ------- ------- ------- --------
Balance February 25, 1995 $37,826 $93,833 $94,516 $(1,195) $(1,477) $(1,106) $ -- $222,397
======= ======= ======= ======= ======= ======= ======= ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
/TABLE
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - SUMMARY 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. Material intercompany
transactions and balances have been eliminated. The preparation of financial
statements includes management's use of estimates in conformity with
generally accepted accounting principles.
Reclassifications - Certain reclassifications have been made in the
prior years' consolidated financial statements to conform to the fiscal 1995
presentation.
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 1995 ended February 25, 1995,
fiscal 1994 ended February 26, 1994, and fiscal 1993 ended February 27, 1993.
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 fluctuations on
cash is not material.
Marketable securities - The Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115), for fiscal 1995. Under SFAS 115, trading
account assets are recorded at their fair value, with unrealized gains and
losses recorded as trading gains or losses in the Company's statement of
operations. See Notes 2 and 8 of the Notes to Consolidated Financial
Statements. Debt and equity securities available for sale are recorded at
their fair value, with unrealized gains and losses accumulated and included
as a separate component of stockholders' equity, net of related income tax
effects. Adjustments for any impairments in the market value of equity
securities available for sale (based on market conditions) that are deemed to
be other than temporary are included as a loss in the current year's
operations.
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.
Financial instruments - The fair value of financial instruments is
determined by reference to various market data and other valuation techniques
as appropriate. Unless otherwise disclosed, the fair values of financial
instruments approximate their recorded values.
Risk management instruments: The Company utilizes various financial
instruments to manage interest rate and market risk associated with its on-
and off-balance sheet commitments. Interest rate swap agreements have been
used to modify the interest characteristics of a portion of the Company's
debt. The differential to be paid or received is accrued as interest rates
change and recognized as an adjustment to interest expense on the
consolidated statement of operations. The fair values of the swap agreements
are not recognized in the consolidated financial statements. Additionally,
interest rate floors have occasionally been used to lock in rates to minimize
the Company's risks to market rate fluctuations. The costs of these interest
rate floors are amortized to interest expense over the term of the contract.
The unamortized cost is included as an asset on the Company's consolidated
balance sheet.
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.
The Company enters into interest rate swap, interest rate floor, and
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.
Trading account instruments: Financial instruments that were used
in trading activities are recorded at the fair value, with realized and
unrealized gains and losses recorded as trading gains or losses in the
Company's statement of operations.
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 initial direct costs associated with 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 is based on 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. 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 25, 1995,
such undistributed earnings aggregated $15.2 million.
Net income per share - Net income per share during a period is
computed by dividing net income by the weighted average number of common
shares outstanding plus common stock equivalents which were 39,698,000,
39,530,000 and 39,227,000 for fiscal 1995, 1994 and 1993, respectively.
Common stock equivalents for fiscal 1995, 1994 and 1993 were 328,000, 465,000
and 625,000, respectively. Computation of the weighted average shares for
each year gives retroactive effect to the 5% stock dividend to be distributed
May 8, 1995. 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 25, 1995
and all quarterly periods presented with the exception of the fourth quarter
of fiscal year 1995.
Note 2 - SUBSEQUENT EVENT - TRADING LOSSES
In late December 1995, the Company was made aware of non-recurring
losses of $19.3 million resulting from inappropriate and substantial 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 over the last nine years 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 at this time. As a result, the
Company has restated its financial statements to reflect the 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 the matter have investigated the transactions and the surrounding
circumstances, and the Company is attempting to obtain additional information
to resolve uncertainties which have arisen. The Company and the Special
Committee found no evidence to suggest that the Company's net losses from
these trading activities will exceed $19.3 million. 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 are not expected to result in
any additional net losses, but rather would reflect offsetting adjustments
among periods.
Restatements of the financial statements indicate significant
trading losses during the first three quarters of each of the fiscal years
ended February 25, 1995 and February 26, 1994, and then a substantial
recovery of such losses in the fourth fiscal quarter of each of those years.
Restatements of the financial statements for the fiscal year ended February
27, 1993 reflected trading losses in the third quarter and a recovery of such
losses in the fourth quarter. The Company's restatements had no effect on
net income for the full years ended February 26, 1994 and February 27, 1993.
The effect on the financial statements for the full fiscal year ended
February 25, 1995 is to reduce net income by trading losses of $2,799,000.
Trading losses in fiscal 1996 total $16,463,000. These amounts do not
include any possible conflicting claims which might arise involving the
financial consultant or other parties. Should such claims arise, they are
expected to be the subject of protracted legal proceedings. The Company has
not recorded any tax benefit on these losses since the realization of such
benefit is not considered likely based on the information available at this
time. Net income per share for fiscal 1995 was reduced by $0.07 per share to
$0.56 per share. The effect on net income and net income per share for the
quarterly periods in fiscal 1995 and 1994 is included in Note 18.
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. 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 trading losses. The recorded losses have not been reduced by any
possible recoveries from such sources.
On December 27, 1995, a derivative suit, entitled Harry Lewis v.
Clark A. Johnson et al., was filed by a shareholder 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 shareholders 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, a second derivative suit, entitled John P.
McCarthy Profit Sharing Plan, et al. v. Clark A. Johnson et al., was filed by
a shareholder 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 an 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 shareholders 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 shareholders. 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 shareholders 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 shareholder class
of Company common stock during the class period.
Note 3 - PROPRIETARY CREDIT CARD INFORMATION
The Company's proprietary credit card is managed and administered by
an unrelated third party. Origination costs of $1,168,000, $976,000 and
$480,000 were deferred during fiscal years 1995, 1994 and 1993, respectively.
The Company is amortizing these initial direct origination costs over 36
months, which the Company believes is the approximate average active life of
an account. These proprietary cards have no expiration date and no annual
fee. At February 25, 1995 and February 26, 1994, deferred costs, net of
amortization, totalled $1,544,000 and $1,135,000, 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 included in selling, general and administrative expenses. A
summary of the Company's proprietary credit card results for each of the last
three fiscal years follows (in thousands):
1995 1994 1993
-------- ------- -------
Costs:
Processing fees $ 6,536 $ 6,114 $ 5,049
Provision for bad debts 3,285 2,195 1,855
-------- ------- -------
9,821 8,309 6,904
-------- ------- -------
Income:
Finance charge income 8,800 6,087 4,998
Insurance and other income 237 238 165
-------- ------- -------
9,037 6,325 5,163
-------- ------- -------
Net costs $ 784 $ 1,984 $ 1,741
======== ======= =======
Pier 1 Preferred Customer Card sales $124,666 $98,625 $60,661
======== ======= =======
Net costs as a percent of Pier 1 card sales 0.6% 2.0% 2.9%
==== ==== ====
Note 4 - PROPERTIES
Properties are summarized as follows at February 25, 1995 and
February 26, 1994 (in thousands):
1995 1994
-------- --------
Land $ 7,203 $ 7,205
Buildings 34,037 33,063
Equipment, furniture and fixtures 95,208 90,505
Leasehold interests and improvements 78,688 79,022
Construction in progress 209 190
-------- --------
215,345 209,985
Less accumulated depreciation and
amortization 109,727 98,475
-------- --------
Properties, net $105,618 $111,510
======== ========
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 25, 1995 and
February 26, 1994 (in thousands):
1995 1994
------- -------
Trade accounts payable $29,008 $27,937
Accrued payroll and fringes 21,039 16,933
Accrued taxes, other than income 7,652 7,610
Store-closing reserve 11,759 21,250
Other accrued liabilities and expenses 12,961 16,042
------- -------
Accounts payable and accrued liabilities $82,419 $89,772
======= =======
Accrued average rent $14,678 $15,034
Other non-current liabilities 6,823 6,126
------- -------
Other non-current liabilities $21,501 $21,160
======= =======
Note 6 - STORE-CLOSING PROVISION
In fiscal 1994, the Company recorded a special charge of $21.3
million before taxes for a store-closing provision that was established to
reflect the anticipated costs to close 49 stores with histories of
underperformance and high occupancy costs and to close the Canadian
distribution center and administrative offices. At the end of fiscal 1995,
the Company had closed 46 stores; the Canadian distribution center and
administrative offices closed in March 1995. Agreements have been reached
with a majority of landlords regarding lease terminations for stores in the
store-closing program. The balance of the store-closing reserve at fiscal
1995 year-end was $11.8 million, which consisted primarily of anticipated
final cash requirements associated with lease termination costs to be paid in
fiscal 1996. The components of the fiscal 1994 store-closing provision and
an analysis of the amounts charged against the reserve in fiscal 1995 are
outlined in the following table (in thousands):
Lease termination costs $15,825
Fixed asset write-downs and inventory
liquidation costs 3,318
Interim operating losses and other 1,702
Severance costs 405
-------
Store-closing provision/reserve at
February 26, 1994 21,250
-------
Costs charged against the reserve:
Lease termination costs (3,028)
Fixed asset write-downs and inventory
liquidation costs (4,841)
Interim operating losses and other (1,352)
Severance costs (270)
-------
Store-closing reserve at February 25, 1995 $11,759
=======
Note 7 - CURRENT AND LONG-TERM DEBT
The Company has lines of credit available which aggregate
approximately $169 million. The lines may be used for short-term borrowings
through working capital loans, bankers' acceptances or letters of credit. At
year-end, approximately $56 million had been utilized to issue letters of
credit primarily to support overseas merchandise purchase orders, leaving
$113 million of available lines of credit. The weighted average interest
rate on short-term borrowings outstanding during the year was 5.2%.
Long-term debt is summarized as follows (in thousands):
1995 1994
-------- --------
11 1/2% subordinated debentures, net
of unamortized discount of
$2,444 and $2,812, respectively $ 20,056 $ 22,188
Industrial revenue bonds 25,000 25,000
11% senior notes 25,000 25,000
6 7/8% convertible subordinated notes 75,000 75,000
8 1/2% exchangeable debentures, net
of unamortized discount of $728 11,772 --
Capital lease obligations 242 475
Other -- 207
-------- --------
157,070 147,870
Less - portion due within one year 2,638 2,639
-------- --------
$154,432 $145,231
======== ========
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 commenced 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 rates for similar tax-exempt debt issues. 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 $11.43 per share (adjusted for the 5% stock dividend
distributable May 8, 1995) 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. Redemption prior to the year 2000 would
be at a premium. Interest on the notes is payable each April 1 and October
1.
In December 1994, the Company issued $12.5 million of 8 1/2%
exchangeable debentures. The debentures are due December 1, 2000, and are
mandatorily exchangeable at that date into 2.1 million shares of General Host
Corporation ("General Host") common stock held by the Company. If at any
time after December 1, 1997, the closing market price of General Host common
stock shall have been equal to or greater than $7.375 for the prior 20
consecutive trading days, the debentures will be mandatorily exchanged 30
days thereafter for the General Host shares plus accrued interest. Interest
is payable each June 1 and December 1.
Long-term debt matures as follows (in thousands):
1996 $ 2,638
1997 2,566
1998 7,538
1999 7,500
2000 7,500
Thereafter 129,328
--------
$157,070
========
Some of 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 $12.8 million.
Note 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
A financial consultant retained by the Company to manage the
Company's excess cash and short-term investments used some of the Company's
funds to trade in treasury bonds, treasury bond futures contracts, options on
treasury bond futures contracts and other financial instruments. During
fiscal 1995, 1994 and 1993 the Company deposited $12.5 million, $22.1 million
and $10.0 million, respectively, with the financial consultant and withdrew
$9.0 million, $22.1 million and $10.0 million of the invested funds,
respectively, by the end of each such fiscal year. At February 25, 1995, the
Company had outstanding treasury bond futures contracts with a notional
amount of $122 million which had a fair market value of $0.3 million. These
contracts derive value from changes in market interest rates without the
purchase and sale of the underlying securities. There were no open positions
at either February 26, 1994 or February 27, 1993. The average fair value of
the trading account was $1.9 million, $3.6 million and $3.2 million in fiscal
years 1995, 1994 and 1993, respectively. Net realized and unrealized gains
and (losses) associated with these trading activities totalled ($2.8)
million, $0.1 million and $1.0 million in fiscal years 1995, 1994, and 1993,
respectively.
As of February 25, 1995, the fair value of long-term debt was $162.7
million compared to its recorded value of $157.1 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 floating rate industrial revenue bonds as well as
approximately $75 million of store operating lease agreements with rental
payments linked to LIBOR. This swap agreement was designated as a hedge
contract and, therefore, the differential between the floating and fixed
interest rates to be paid is recognized over the life of the agreement.
Under this swap agreement, the Company has paid a fixed rate of 6.25% and,
since inception, has received an average floating rate of 4.52%. In
addition, the Company has subsequently augmented the swap through the
purchase of an interest rate floor with the effect that the Company will
receive payments under the swap based on a floating rate not less than 6.25%
from February 6, 1995 until August 5, 1995. The Company's weighted average
interest rate, including the effect of hedging activities was 7.8%, 10.0% and
9.4% for the 1995, 1994 and 1993 fiscal years, respectively. The weighted
average interest rate, excluding the effects of hedging activities, would
have been 7.9%, 8.3% and 7.7% for the 1995, 1994 and 1993 fiscal years,
respectively. The fair value of these hedging agreements was $45,000 at
February 25, 1995, and represents the estimated amount, which was obtained
from counterparties, that the Company would receive to terminate the
agreement at February 25, 1995.
At February 25, 1995, the Company had approximately $10 million of
forward exchange contracts outstanding with an immaterial fair value and with
maturities ranging from two to ten months.
Note 9 - 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, have been
employed for a minimum of twelve months and have worked 1,000 hours are
eligible to participate in the plan. Employees contributing from 1% to 5% of
their compensation receive matching Company contributions of up to 3%.
Company contributions to the plan were $1,282,000, $1,114,000 and $915,000 in
fiscal 1995, 1994 and 1993, 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 death,
disability or reaching retirement age, 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 $850,000, $765,000 and $554,000 in fiscal
1995, 1994 and 1993, respectively.
Note 10 - 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 part or all of 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 318,000 shares were allocated to Stock Purchase Plan
participants during fiscal 1995, of which 208,000 shares were issued from
treasury and 110,000 shares were purchased on the open market. Company
contributions to the Plan were $844,000, $867,000 and $841,000 in fiscal
years 1995, 1994 and 1993, respectively.
Restricted stock grant plans - In fiscal 1995, 1994 and 1993, the
Company issued 19,584 shares, 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. Shares not vested are returned
to the Plan if employment is terminated for any reason.
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
shares of the Company's common stock under the 1989 Employee Stock Option
Plan and up to 150,000 shares under the 1989 Non-Employee Director Stock
Option Plan.
In 1990, the 1980 Stock Option Plan expired subject to outstanding
granted options covering 556,762 shares at fiscal year-end 1995.
A summary of stock option transactions related to the Plans,
adjusted for stock dividends distributed prior to fiscal year-end 1995,
during the years ended February 25, 1995 and February 26, 1994, is as
follows:
Shares Option Prices
--------- -------------
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
Options granted 400,330 7.63 - 9.50
Options exercised (126,505) 3.20 - 9.00
Options cancelled or expired (77,709) 4.28 - 9.00
--------- -------------
Outstanding at February 25, 1995 1,247,838 $3.84 - 12.30
========= =============
At February 25, 1995 and February 26, 1994, outstanding options
covering 687,855 and 634,111 shares were exercisable and 509,764 and 832,385
shares were available for grant, respectively.
Common stock dividend - On March 15, 1995, the Company announced a
5% common stock dividend distributable May 8, 1995 to stockholders of record
on May 1, 1995. Based on an average of the closing price of the Company's
common stock the day before, and for a two-week period following, the date of
the dividend declaration, the market value of the 1.9 million shares to be
distributed is approximately $18.3 million. The effect of this dividend has
not been reflected in the February 25, 1995 balance sheet.
Share purchase rights plan - On December 9, 1994, the Board of
Directors adopted a Share Purchase Rights Plan and declared a dividend of one
common stock purchase right (a "Right") payable on each outstanding share of
the Company's common stock on December 21, 1994. The Rights, which will
expire on December 21, 2004, are initially not exercisable, and until
becoming exercisable will trade only with the associated common stock. After
the Rights become exercisable, each Right entitles the holder to purchase at
a specified exercise price one share of common stock. The Rights will become
exercisable after the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons have
acquired beneficial ownership of 15% or more of the outstanding common stock
or (ii) ten business days (or such later date as determined by the Board of
Directors) following the commencement of, or announcement of an intention to
make, a tender or exchange offer the consummation of which would result in
beneficial ownership by a person or group of 15% or more of the outstanding
common stock. If the Company were acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power were sold, proper provision would be made so that each Right would
entitle its holder to purchase, upon the exercise of the Right at the then
current exercise price, that number of shares of common stock of the
acquiring company having a market value of twice the exercise price of the
Right. If any person or group were to acquire beneficial ownership of 15% or
more of the Company's outstanding common stock, each Right would entitle its
holder (other than such acquiring person whose Rights would become void) to
purchase, upon the exercise of the Right at the then current exercise price,
that number of shares of the Company's common stock having a market value on
the date of such 15% acquisition of twice the exercise price of the Right.
The Board of Directors may at its option, at any time after such 15%
acquisition but prior to the acquisition of more than 50% of the Company's
outstanding common stock, exchange all or part of the then outstanding and
exercisable Rights (other than those held by such acquiring person whose
Rights would become void) for common stock at an exchange rate per Right of
one-half the number of shares of common stock receivable upon exercise of a
Right. The Board of Directors may, at any time prior to such 15%
acquisition, redeem all the Rights at a redemption price of $.01 per Right.
Note 11 - INCOME TAXES
The provision for income taxes consists of (in thousands):
1995 1994 1993
------- ------ ------
Federal:
Current $ 8,733 $5,356 $8,875
Deferred (436) (4,966) (1,431)
State:
Current 2,040 2,598 1,765
Deferred (93) (1,127) (302)
Foreign:
Current 924 562 402
------- ------ ------
$11,168 $2,423 $9,309
======= ====== ======
Deferred tax liabilities (assets) at February 25, 1995 and February
26, 1994 are comprised of the following (in thousands):
1995 1994
-------- --------
Deferred tax liabilities:
Depreciation $11,758 $10,326
Deferred store costs 2,453 2,488
Other 930 856
-------- --------
15,141 13,670
-------- --------
Deferred tax assets:
Inventory (4,128) (24)
Accrued average rent (6,024) (6,126)
Accrued vacation/deferred compensation (3,320) (2,494)
Deferred gain on sale/leaseback (1,564) (1,493)
Bad debts (732) (708)
Store-closing reserve/provision (4,734) (8,454)
Write-down of General Host securities (2,209) (1,588)
Trading losses (1,120) --
Other (1,586) (1,410)
-------- --------
(25,417) (22,297)
Valuation allowance 1,120 --
-------- --------
(24,297) (22,297)
-------- --------
$( 9,156) $( 8,627)
======== ========
The difference between income taxes at the statutory federal income
tax rate of 35 percent in fiscal 1995 and fiscal 1994 and 34 percent in
fiscal 1993, and income tax reported in the consolidated statement of
operations is as follows (in thousands):
1995 1994 1993
------- ------ -------
Tax at statutory federal tax rate $11,630 $2,925 $12,208
Tax treatment on sale of subsidiary
stock (1,959) (282) --
Trading losses without tax benefit 1,120 -- --
State income taxes, net of federal
benefit 1,080 856 966
Tax-favored investment income (61) (284) (574)
Targeted jobs tax credit (524) (395) (332)
Foreign income taxed at lower rates (425) (528) (2,959)
Other, net 307 131 --
------- ------ -------
$11,168 $2,423 $ 9,309
======= ====== =======
Note 12 - COMMITMENTS AND CONTINGENCIES
Leases - The Company leases certain property consisting principally
of retail stores, warehouses and transportation equipment under leases
expiring through the year 2015. Substantially all retail store locations are
leased for initial 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):
1995 1994
------ ------
Buildings $ 477 $ 477
Equipment, furniture and fixtures 538 538
------ ------
1,015 1,015
Less accumulated depreciation 912 827
------ ------
$ 103 $ 188
====== ======
At February 25, 1995, the Company had the following minimum lease
commitments in the years indicated (in thousands):
Capital Operating
Fiscal Year Leases Leases
----------- ------- ---------
1996 $205 $ 93,427
1997 119 85,509
1998 87 78,663
1999 -- 65,663
2000 -- 57,331
Thereafter -- 244,684
---- --------
Total lease commitments 411 $625,277
========
Less imputed interest 169
----
Present value of total capital lease
obligations including current
portion $242
====
Present value of total operating lease
commitments $392,582
========
Rental expense incurred was $92,072,000, $89,518,000 and
$85,511,000, including contingent rentals of $766,000, $788,000 and $821,000
based upon a percentage of sales and net of sublease incomes totalling
$1,552,000, $1,252,000 and $870,000 in fiscal 1995, 1994 and 1993,
respectively.
The Company has commitments from unaffiliated parties to make
available up to $111.8 million for development or acquisition of stores
leased by the Company. As of February 25, 1995, the Company utilized $82.8
million of that availability. Agreements with these parties mature over the
next three years, and Company management is continuously monitoring financial
markets to optimize renewal terms. In connection with the financing of 41
stores by two of the unaffiliated parties, the property leases require that
upon expiration of the leases over the next three years, unless extended by
agreement of the parties, the Company must either obtain alternative
financing for the properties or arrange for the sale of the properties to a
third party or purchase the properties for approximately $50 million.
Guarantees - In fiscal 1993, the Company invested in preference
stock of The Pier Retail Group Limited ("The Pier"), an 11-store retail chain
located in the United Kingdom. The Company guarantees a $6.4 million bank
line available to The Pier. As of February 25, 1995, $6.0 million was
outstanding under this line.
Refer to Note 15 for additional guarantees of Sunbelt Nursery Group,
Inc. ("Sunbelt") lease obligations.
Legal matters - There are 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 matters
is not determinable at February 25, 1995; 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, after consultation with
counsel, 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):
1995 1994 1993
------- ------- -------
Cash paid during the year for:
Interest $13,477 $20,445 $16,835
Income taxes 15,457 17,732 17,126
Note 14 - INVESTMENT IN GENERAL HOST CORPORATION
In 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 on prices at fiscal year-end 1994, the market value of the General Host
common stock was $5.6 million less than the Company's original carrying
amount. After an assessment of factors which may have contributed to the
decline, the Company estimated $2.0 million of this decline to be other than
temporary and recorded a corresponding adjustment in the book value of the
General Host common stock. The remaining $3.6 million was considered to be
temporary. In the third quarter of fiscal 1995, the Company concluded that
the decline in the market value of the General Host common stock was other
than temporary and a non-cash, pre-tax special charge of $7.5 million was
recorded to reflect an other than temporary write-down of the carrying value
of the General Host common stock. As a result of the issuance of the
Company's exchangeable debentures in December 1994, the General Host common
stock is no longer available for sale, and the Company no longer has market
risk in relation to the General Host common stock.
Note 15 - SUNBELT NURSERY GROUP, INC.
At fiscal year-end 1993, the Company held 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 losses
from 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, in exchange for 1.9 million shares of General Host common stock.
Subsequently, General Host paid two 5% stock dividends, resulting in an
increase in the Company's holdings to 2.1 million shares of General Host
common stock.
In connection with the Company's sale of its Sunbelt investment to
General Host, the Company committed to provide Sunbelt a $12 million credit
facility through April 1994 and up to $25 million of non-revolving store
development financing through April 1996. In October 1994, in connection
with the sale by General Host of its 49.5% interest in Sunbelt to a third
party unrelated to the Company or General Host, the Company received payment
of the amounts owed under the credit facility and agreed to extend $22.8
million of the non-revolving store development financing to Sunbelt until
June 30, 1998, at market rental rates. Additionally, the Company guarantees
other Sunbelt store lease commitments aggregating $4.5 million with a present
value of approximately $3.5 million.
Note 16 - RELATED PARTIES
Since 1989, the Company has maintained a one-eighth joint ownership
interest in a Cessna jet aircraft with Berman Industries, Inc., a company
wholly-owned by Martin L. Berman. In March 1993, the Company invested $3
million in a limited partnership investment in Whiffletree Partners, L.P., an
investment management company, which is managed by Palisade Capital
Securities, L.L.C. Martin L. Berman is Chairman and Chief Executive Officer
of Palisade Capital Securities, L.L.C. In April 1994, the Company entered
into an agreement with Smith Barney, Inc. to act as trustee of the Company's
401(k) defined contribution plan and to serve as investment advisor to
participants of the plan. Until April 1995, Martin L. Berman was a managing
director of Smith Barney, Inc. Mr. Berman was elected to the Company's Board
of Directors in June 1994.
Since fiscal 1988, interest bearing loans have been outstanding to
certain Company officers. The balance of these loans at February 25, 1995
was $802,000, and maturity is in fiscal 1998.
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. Kenneth N. Pontikes, former
Chairman and President of Comdisco, Inc., was elected to the Company's Board
of Directors and served in that capacity from April 1993 until June 1994.
Note 17 - SUBSEQUENT EVENT - SUNBELT NURSERY GROUP, INC.
In April 1995, Sunbelt defaulted on 13 store sublease agreements
with the Company comprising the $22.8 million of non-revolving store
development financing, and the Company terminated the subleases. At the date
of the filing of the Company's Form 10-K on May 26, 1995, negotiations were
in process with Sunbelt regarding the Company's claims as well as the
disposition of these properties through sales to third parties or acquisition
by Sunbelt. In management's opinion, losses to the Company were not then
expected to be material to the Company's consolidated balance sheet or
liquidity.
After extended negotiations with Sunbelt were completed in the
second quarter of fiscal 1996, the Company recorded a charge of $14.0 million
as its best estimate of the costs to disengage from its financial support of
Sunbelt. The charge includes estimated losses resulting from the lease
termination costs associated with the 13 nursery store subleases and from the
Company's guarantee of other Sunbelt store leases. As of February 1996, one
of the nursery store subleases has been terminated at costs consistent with
the Company's previously recorded charge.
Note 18 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data (in thousands of dollars except
per share amounts) for the years ended February 25, 1995 and February 26,
1994 are set forth below:
Three Months Ended
--------------------------------------
Fiscal 1995 5/28/94 8/27/94 11/26/94 2/25/95
----------- -------- -------- -------- --------
Net sales(1) $161,486 $185,403 $165,761 $199,335
Gross profit(1) 65,351 70,233 66,097 75,892
Net income (loss), as
restated(2)(3) 3,991 4,504 (5,526) 19,091
Primary net income (loss)
per common share, as
restated(2)(3)(4)(5) $.10 $.11 $(.14) $.48
Net income as previously
reported(3) $5,535 $8,656 $223 $10,445
Primary net income per common
share as previously
reported(3)(4)(5) $.14 $.22 $.01 $.26
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)(6) 721 1,116 (508) 4,604
Primary net income (loss)
per common share, as
restated(2)(3)(4)(5)(6) $.02 $.03 ($.01) $.12
Net income (loss) as
previously reported(3)(6) $4,702 $7,343 $4,042 $(10,154)
Primary net income (loss) per
common share as previously
reported(3)(4)(5)(6) $.12 $.19 $.10 $(.26)
(1) The restatements of earnings for the quarters of fiscal 1995 and 1994 had
no effect on the Company's previously reported sales and gross profit.
(2) Fiscal 1995 first quarter, second quarter, third quarter and fourth
quarter net income (loss) includes trading (losses) gains of ($1,544),
($4,152), ($5,749) and $8,646, respectively. 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.
(3) Fiscal 1995 third quarter net income and fiscal 1994 fourth quarter net
loss include charges of $7,543 and $2,000, respectively, for the write-
down of investment in the common stock of General Host.
(4) Fully diluted net income per share resulted in less than 3% dilution of
primary net income per share for fiscal year 1995 and for all periods
presented with the exception of a $.05 dilution in the fourth quarter of
fiscal year 1995.
(5) Reflects the effect of the 5% stock dividend distributed May 8, 1995.
(6) Fourth quarter net income includes $21,250 provision for store closings.
PART IV
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 Statement of Operations for the years ended
February 25, 1995, February 26, 1994 and February 27, 1993
* Consolidated Balance Sheet at February 25, 1995 and
February 26, 1994
* Consolidated Statement of Cash Flows for the years ended
February 25, 1995, February 26, 1994 and February 27, 1993
* Consolidated Statement of Stockholders' Equity for the
years ended February 25, 1995, February 26, 1994 and
February 27, 1993
2. Financial Statement Schedules
* Report of Independent Accountants
VIII-Valuation and Qualifying Accounts and Reserves
Schedules other than those referred to above have been omitted
because they are not required or are not applicable or 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
None
(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: February 29, 1996 By: /s/ Clark A. Johnson
----------------------------
Clark A. Johnson, Chairman
and Chief Executive Officer
<PAGE>
SCHEDULE VIII
PIER 1 IMPORTS, INC. AND CONSOLIDATED SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
RESERVE FOR DOUBTFUL ACCOUNTS
-----------------------------
Year Ended
------------------------------------------
February 25, February 26, February 27,
1995 1994 1993
------------ ------------ ------------
Balance at beginning of year $ 2,072 $ 2,404 $ 3,185
Additions charged to income 3,285 2,097 2,327
Balances written off, net of
recoveries (3,022) (2,429) (3,108)
------- ------- -------
Balance at end of year $ 2,335 $ 2,072 $ 2,404
======= ======= =======
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
23 Consent of Independent Accountants.
27 Financial Data Schedule.
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) and Form S-3
(No. 33-49356) of Pier 1 Imports, Inc. of our report dated April 7, 1995,
except for Notes 2, 8 and 17, 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
February 29, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENT OF OPERATIONS AND BALANCE SHEET AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-25-1995
<PERIOD-END> FEB-25-1995
<CASH> 50,566
<SECURITIES> 0
<RECEIVABLES> 66,564
<ALLOWANCES> 2,335
<INVENTORY> 200,968
<CURRENT-ASSETS> 350,088
<PP&E> 215,345
<DEPRECIATION> 109,727
<TOTAL-ASSETS> 485,925
<CURRENT-LIABILITIES> 85,057
<BONDS> 154,432
<COMMON> 37,826
0
0
<OTHER-SE> 184,571
<TOTAL-LIABILITY-AND-EQUITY> 485,925
<SALES> 711,985
<TOTAL-REVENUES> 711,985
<CGS> 434,412
<TOTAL-COSTS> 656,423
<OTHER-EXPENSES> 10,342
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,223
<INCOME-PRETAX> 33,228
<INCOME-TAX> 11,168
<INCOME-CONTINUING> 22,060
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,060
<EPS-PRIMARY> .56
<EPS-DILUTED> 0
</TABLE>
