FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended August 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from [ ] to [ ]
Commission File Number 1-7832
PIER 1 IMPORTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1729843
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
301 Commerce Street, Suite 600, Fort Worth, Texas 76102
(Address of principal executive offices including zip code)
(817) 878-8000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ]. No [ ].
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares outstanding as of October 3, 1997
- ----------------------------- ----------------------------------------
Common Stock, $1.00 par value 67,486,059
<PAGE>
PART I
------
Item 1. Financial Statements.
--------------------
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
Aug. 30, Aug. 31, Aug. 30, Aug. 31,
1997 1996 1997 1996
-------- -------- -------- ---------
Net sales $258,105 $231,050 $487,348 $436,342
Operating costs and expenses:
Cost of sales (including
buying and store occupancy) 151,442 141,057 281,529 264,652
Selling, general and
administrative expenses 73,011 62,581 143,949 123,127
Depreciation and amortization 5,695 4,898 11,110 9,673
-------- -------- -------- --------
230,148 208,536 436,588 397,452
-------- -------- -------- --------
Operating income 27,957 22,514 50,760 38,890
Nonoperating (income) and expense:
Interest and investment income (255) (83) (549) (1,744)
Interest expense 2,071 3,559 4,098 7,812
Trading loss (recovery) (6,355) -- (6,355) --
-------- -------- -------- --------
(4,539) 3,476 (2,806) 6,068
-------- -------- -------- --------
Income before income taxes 32,496 19,038 53,566 32,822
Provision for income taxes 10,454 7,618 18,885 13,129
-------- -------- -------- --------
Net income $ 22,042 $ 11,420 $ 34,681 $ 19,693
======== ======== ======== ========
Net income per share:
Primary $.32 $.17 $.50 $.31
======== ======== ======== ========
Fully diluted $.30 $.17 $.48 $.30
======== ======== ======== ========
Average shares outstanding during
period, including common stock
equivalents:
Primary 68,872 65,315 68,684 62,772
======== ======== ======== ========
Fully diluted 75,908 68,869 75,734 68,694
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
PIER 1 IMPORTS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
(Unaudited)
August 30, March 1,
1997 1997
ASSETS ---------- ----------
Current assets:
Cash, including temporary investments of $16,998
and $22,188, respectively $ 29,787 $ 32,280
Accounts receivable, net 6,128 4,128
Inventories 240,477 220,013
Other current assets 75,735 66,097
-------- --------
Total current assets 352,127 322,518
Properties, net 215,075 216,836
Other assets 31,491 30,914
-------- --------
$598,693 $570,268
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term
debt $ 1,650 $ 1,641
Accounts payable and accrued liabilities 106,318 105,541
-------- --------
Total current liabilities 107,968 107,182
Long-term debt 115,211 114,454
Other non-current liabilities 25,238 25,584
Stockholders' equity:
Common stock, $1.00 par, 200,000,000 shares
authorized, 68,040,000 and 45,361,000 issued 68,040 45,361
Paid-in capital 166,670 166,475
Retained earnings 125,478 118,721
Cumulative currency translation adjustments (1,648) (1,385)
Less - 588,000 and 373,000 common shares in
treasury, at cost, respectively (7,812) (5,437)
Less - unearned compensation (452) (687)
-------- --------
350,276 323,048
-------- --------
$598,693 $570,268
======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
August 30, August 31,
1997 1996
---------- ----------
Cash flow from operating activities:
Net income $34,681 $19,693
Adjustments to reconcile to net cash provided by
operating activities:
Depreciation and amortization 11,110 9,673
Deferred taxes and other 1,772 1,984
Investment gain -- (1,607)
Changes in cash from:
Inventories (20,064) (8,036)
Accounts receivable and other current assets (3,745) (18,122)
Accounts payable and accrued expenses 7,623 7,124
Other assets, liabilities and other, net (232) 957
------- -------
Net cash provided by operating activities 31,145 11,666
------- -------
Cash flow from investing activities:
Capital expenditures (24,583) (21,199)
Proceeds from disposition of properties 5,758 235
Cost of Sunbelt Nursery Group, Inc. properties (22) (1,023)
Beneficial interest in securitized receivables (7,881) --
Acquisition of national bank charter (1,003) --
Proceeds from investments -- 4,665
------- -------
Net cash used in investing activities (27,731) (17,322)
------- -------
Cash flow from financing activities:
Cash dividends (4,192) (3,397)
Repayments of long-term debt -- (2,500)
Net borrowings under line of credit agreements -- 11,853
(Payments) proceeds from (purchases) sales of
capital stock, treasury stock, and other, net (1,715) 1,714
Net cash (used in) provided by financing ------- -------
activities (5,907) 7,670
------- -------
Change in cash and cash equivalents (2,493) 2,014
------- -------
Cash and cash equivalents at beginning of period 32,280 13,534
------- -------
Cash and cash equivalents at end of period $29,787 $15,548
======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED AUGUST 30, 1997
(In thousands)
(Unaudited)
<CAPTION>
Cumulative
Currency Total
Common Paid-in Retained Translation Treasury Unearned Stockholders'
Stock Capital Earnings Adjustments Stock Compensation Equity
------- -------- -------- ----------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 1, 1997 $45,361 $166,475 $118,721 ($1,385) ($5,437) ($687) $323,048
Purchases of treasury stock (6,811) (6,811)
Restricted stock grant and amortization 66 (178) 287 175
Stock purchase plan, exercise of stock
options and other 129 (1,105) 4,614 3,638
Currency translation adjustments (263) (263)
Cash dividends, declared or paid ($.06
per share) (4,192) (4,192)
Three for two stock split 22,679 (22,627) (52) --
Net income 34,681 34,681
------- -------- -------- ------- ------- ----- --------
Balance, August 30, 1997 $68,040 $166,670 $125,478 ($1,648) ($7,812) ($452) $350,276
======= ======== ======== ======= ======= ===== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE> PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED AUGUST 30, 1997
AND AUGUST 31, 1996
(Unaudited)
The accompanying unaudited financial statements should be read in
conjunction with the Form 10-K for the year ended March 1, 1997. All
adjustments that are, in the opinion of management, necessary for a fair
statement of the financial position as of August 30, 1997, and the results of
operations and cash flows for the interim periods ended August 30, 1997 and
August 31, 1996 have been made and consist only of normal recurring
adjustments, except for the net trading loss recovery recorded for the three
and six months ended August 30, 1997. The results of operations for the
three and six months ended August 30, 1997 and August 31, 1996 are not
indicative of results to be expected for the fiscal year because of, among
other things, seasonality factors in the retail business. The classification
of certain amounts previously reported in the statement of financial position
as of March 1, 1997 has been modified to conform with the August 30, 1997
method of presentation.
Note 1 - Net income per share
Primary net income per share was determined by dividing net income by
applicable average shares outstanding. Fully diluted net income per share
amounts are similarly computed, but include the effect, when dilutive, of the
Company's potentially dilutive securities. To determine fully diluted net
income, interest and debt issue costs, net of any applicable taxes, have been
added back to net income to reflect assumed conversions.
Primary average shares include common shares outstanding and common
stock equivalents attributable to outstanding stock options. In addition to
common and common equivalent shares, fully diluted average shares include
common shares that would be issuable upon conversion of the Company's
convertible securities.
Net income per share for the three and six months ended August 30,
1997 and August 31, 1996 are calculated as follows:
Three Months Ended Six Months Ended
Aug. 30, Aug. 31, Aug. 30, Aug. 31,
1997 1996 1997 1996
-------- -------- -------- ---------
(in thousands except per share amounts)
Net income $22,042 $11,420 $34,681 $19,693
Assumed conversion of 6 7/8%
subordinated notes:
Plus interest and debt issue
costs, net of tax -- 291 -- 970
Assumed conversion of 5 3/4%
subordinated notes:
Plus interest and debt issue
costs, net of tax 812 -- 1,623 --
------- ------- ------- -------
Fully diluted net income $22,854 $11,711 $36,304 $20,663
======= ======= ======= =======
Average shares outstanding during period,
including common stock equivalents:
Primary 68,872 65,315 68,684 62,772
Plus assumed exercise of stock
options 43 25 57 39
Plus assumed conversion of 6 7/8%
subordinated notes to common
stock -- 3,529 -- 5,883
Plus assumed conversion of 5 3/4%
subordinated notes to common
stock 6,993 -- 6,993 --
------ ------ ------ ------
Fully diluted 75,908 68,869 75,734 68,694
====== ====== ====== ======
Net income per share:
Primary $.32 $.17 $.50 $.31
==== ==== ==== ====
Fully diluted $.30 $.17 $.48 $.30
==== ==== ==== ====
Primary net income per share would have been reduced by $.01 for the
six months ended August 31, 1996 had the 6 7/8% convertible subordinated
notes been converted at the beginning of the 1997 fiscal year. For the three
months ended August 31, 1996, there would have been no effect on primary net
income per share had the 6 7/8% convertible subordinated notes been converted
at the beginning of the 1997 fiscal year. The 6 7/8% convertible
subordinated notes were converted in July 1996.
Note 2 - Trading loss recovery
As a consequence of the $19.3 million of trading losses announced by
the Company in December 1995 and the stockholder derivative suit filed on
behalf of the Company, entitled John P. McCarthy Profit Sharing Plan, et al.
v. Clark A. Johnson et al., the Company filed cross-claims against other
defendants and a third-party claim against a commodities brokerage firm that
executed the trades. In July 1997, the court approved a settlement among the
Company, its directors and officers and the commodities brokerage firm that
executed trades for the Company's financial consultant, pursuant to which
such commodities brokerage firm paid the Company $7.5 million. The
commodities brokerage firm and the Company and its directors and current
officers who were parties to the suit provided mutual releases, and such
parties' claims against each other were dismissed. Of this $7.5 million
partial recovery of the trading losses, $1.1 million was considered a
recovery of current year legal fees, resulting in a net recovery of trading
losses of $6.4 million.
Note 3 - Impact of new accounting standards
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share." SFAS No. 128 requires dual presentation of net income
per share on the face of all income statements issued after December 31, 1997
for all entities with complex capital structures. At that time the Company
will be required to change the method currently used to compute net income
per share and to restate net income per share for all prior periods. The
impact of SFAS No. 128 on primary and fully diluted net income per share
amounts for the second quarter and six months ended August 30, 1997 and
August 31, 1996 is not expected to be material.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", and No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 130 requires that an enterprise report, by
major component and as a single total, the change in its equity during the
period from nonowner sources, and SFAS No. 131 establishes annual and interim
reporting requirements for an enterprise's operating segments and related
disclosures about its products and services, geographical areas in which it
operates and major customers. Both statements are effective for fiscal years
beginning after December 15, 1997, with earlier application permitted.
Adoption of these statements is not expected to materially impact the
Company's consolidated financial position or statements of operations,
stockholders' equity and cash flows. Effects of the adoption of these
statements will primarily be limited to the form and content of the Company's
disclosures.
<PAGE>
PART I
------
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Pier 1 Imports, Inc. ("the Company") recorded net sales of $258.1
million and $487.3 million for the second quarter and first six months of
fiscal 1998, respectively, an increase of 11.7% over both the second quarter
and first six months of fiscal 1997. Same-store sales for the second quarter
of fiscal 1998 grew 16.1% over the comparable period of fiscal 1997,
primarily due to the continued success of the national television advertising
campaign and the store remodel and remerchandising programs which have
improved the layout and design of approximately 50 stores since the second
quarter of last fiscal year. Same-store sales increased 15.6% for the first
six months of fiscal 1998 compared to the first six months of fiscal 1997.
Hard goods sales, such as furniture and decorative accessories, increased
18.1% during the second quarter of fiscal 1998 compared to the second quarter
of fiscal 1997. The Company discontinued soft goods in all Pier 1 Import
stores at the end of fiscal 1997, which represented 6.0% of total merchandise
sales during the second quarter of fiscal 1997. Sales on the Company's
proprietary credit card totaled $131.4 million, or 27.0% of total sales, for
the first six months of fiscal 1998 versus proprietary credit card sales of
$116.1 million, or 26.6% of total sales, for the first six months of fiscal
1997. Continued growth in the Company's proprietary credit card sales is a
result of targeted marketing promotions. The Company opened 23 new North
American stores and closed 12 stores during the first six months of fiscal
1998, bringing the North American store count to 698 at the end of the fiscal
1998 second quarter compared to 677 stores at the end of the fiscal 1997
second quarter. Stores worldwide, including North America, Puerto Rico and
international operations in the United Kingdom, Mexico and Japan, aggregated
736 at the fiscal 1998 second quarter-end.
Gross profit, after related buying and store occupancy costs,
expressed as a percentage of sales, increased 240 basis points to 41.3% for
the second quarter of fiscal 1998 and increased 290 basis points to 42.2% for
the first six months of fiscal 1998 compared to the same periods in fiscal
1997. These increases are principally the result of the decrease in
clearance and promotional markdowns on apparel, which was discontinued last
fiscal year, slightly offset by the approximate $1.1 million in duty refunds
that were included in gross profit for the second quarter of fiscal 1997 as a
result of retroactive legislation passed in August 1996. Store occupancy
costs, as a percentage of sales, improved 80 basis points to 12.6% for the
second quarter of fiscal 1998 and improved 80 basis points to 12.9% for the
first six months of fiscal 1998 versus comparable periods of fiscal 1997.
This increase was primarily due to higher sales leveraging relatively fixed
rental rates on store leases, coupled with the Company's purchase (in the
fourth quarter of fiscal 1997) of two corporations that had previously leased
store locations to the Company, thereby eliminating base rent expenses for
those stores.
Selling, general and administrative expenses, including marketing, as
a percentage of sales, increased 120 basis points to 28.3% in the second
quarter of fiscal 1998 and increased 130 basis points to 29.5% for the first
half of fiscal 1998 compared to the same periods of fiscal 1997. In total
dollars, selling, general and administrative expenses increased $10.4 million
for the second quarter of fiscal 1998 and increased $20.8 million for the
first six months of fiscal 1998 versus the comparable periods of fiscal 1997.
Of the $10.4 million increase in these expenses for the second quarter of
fiscal 1998, $7.0 million was attributable to expenses that normally vary
with sales, such as salaries and wages, store supplies and marketing
expenses. The remaining $3.4 million increase was primarily a result of
increased salary costs for the store remodeling and remerchandising programs,
timing differences of national television advertising expenses compared to
last fiscal year and the classification of funding costs of securitized
receivables as selling, general and administrative expense with no similar
corresponding expense in the prior fiscal year. The net increase also
reflects a $1.0 million decrease in legal expense relating to a previously
reported trading loss. This reduction of the legal fees is a result of the
litigation settlement discussed in Note 2 of the Consolidated Financial
Statements.
Operating income increased $5.5 million, or 24.2%, to $28.0 million
during the second quarter of fiscal 1998 from $22.5 million in the second
quarter of fiscal 1997. For the first six months of fiscal 1998, operating
income increased $11.9 million, or 30.5%, to $50.8 million compared to $38.9
million for the same period a year ago.
Interest and investment income increased $0.2 million during the
second quarter of fiscal 1998 and decreased $1.2 million during the first six
months of fiscal 1998. The increase for the second quarter of fiscal 1998 is
a result of higher average invested balances during this period compared to
those a year ago. The decrease for the first six months of fiscal 1998 is
primarily the result of the recording of $1.6 million of investment income
earned on an investment in a limited partnership in the first six months of
fiscal 1997. This investment in the limited partnership was liquidated in
the first quarter of fiscal 1997.
Interest expense decreased $1.5 million during the second quarter of
fiscal 1998 and $3.7 million during the first six months of fiscal 1998
versus the same periods of fiscal 1997. This decrease is primarily a result
of the conversion of the 6 7/8% convertible subordinated notes in the second
quarter of fiscal 1997, the exchange of the 8 1/2% exchangeable debentures,
the retirement of the 11 1/2% subordinated debentures due 2003 and the 11%
senior notes due 2001 in the third quarter of fiscal 1997 and the repayment
of $40 million outstanding under the Company's bank revolving credit facility
in the third and fourth quarters of fiscal 1997. This decrease was partially
offset by interest expense related to the issuance in the third quarter of
fiscal 1997 of the 5 3/4% convertible subordinated notes due 2003.
In the second quarter of fiscal 1998, the Company received a $7.5
million partial recovery of a trading loss previously reported in December
1995. Of this settlement, $1.1 million was considered a recovery of current
year legal fees resulting in a net recovery of trading losses of $6.4
million. The Company did not record any tax benefit on the previously
reported trading loss and thus no tax expense has been provided for the net
recovery.
The Company's effective income tax rate for fiscal 1998, exclusive of
the aforementioned trading loss recovery, is estimated at 40%, unchanged from
the 40% recorded during the first six months of fiscal 1997.
Net income before special charges or credits for the second quarter of
fiscal 1998 aggregated $15.7 million or $.22 per share on a fully diluted
basis compared to net income of $11.4 million or $.17 per share on a fully
diluted basis for the second quarter of fiscal 1997. Net income before
special charges or credits for the first six months of fiscal 1998 aggregated
$28.3 million or $.40 per share on a fully diluted basis compared to net
income of $19.7 or $.30 per share on a fully diluted basis for the first six
months of fiscal 1997. Special credits for the second quarter and first six
months of fiscal 1998 included the net trading loss recovery of $6.4 million
or $.08 per share on a fully diluted basis.
Liquidity and Capital Resources
Cash, including temporary investments, decreased $2.5 million to $29.8
million at the end of the second quarter of fiscal 1998 from $32.3 million at
fiscal 1997 year-end. This decrease is primarily due to capital expenditures
of $24.6 million, increased beneficial interest in securitized receivables of
$7.9 million, cash dividend payments of $4.2 million, acquisition of a bank
charter and other assets of $1.0 million and repurchases of the Company's
stock in open market transactions of $3.4 million. These cash expenditures
were partially offset by cash flow from operations of $31.1 million and
proceeds from disposition of properties of $5.8 million, which includes $4.0
million received in connection with the disposition of certain Sunbelt
Nursery Group, Inc. ("Sunbelt") properties as further discussed below. Other
investing and financing activities provided net cash of $1.7 million. Cash
flow from operations improved $19.5 million during the first six months of
fiscal 1998 over the same period of fiscal 1997 largely due to higher net
income (adjusted for non-cash and non-operating related items) of $47.6
million for the first six months of fiscal 1998, which includes the
aforementioned $6.4 million net trading loss recovery, compared to $29.7
million for the same period of fiscal 1997.
Working capital requirements will continue to be provided by
operations, sales of proprietary credit card receivables and a committed
three-year, $65 million competitive advance and revolving credit facility,
all of which was available at the end of the second quarter of fiscal 1998,
other short-term (12-month) bank facilities aggregating $117.1 million, $46.1
million of which was available at the end of the second quarter of fiscal
1998 and other committed letters of credit totaling $25.5 million at the
fiscal 1998 second quarter-end. The short-term bank facilities consist of
$4.2 million of committed lines of credit and $112.9 million of uncommitted
lines. The Company's current ratio at the end of the second quarter of
fiscal 1998 was 3.3 to 1 compared to 3.0 to 1 at fiscal year end 1997. The
Company's minimum operating lease commitments remaining for fiscal 1998 are
$50 million, and the present value of total existing minimum operating lease
commitments is $361 million. These commitments are expected to be funded
from operating cash flow.
The Company has commitments from unaffiliated parties to make
available up to $25.0 million for the development or acquisition of stores
for lease to the Company. At the end of the second quarter of fiscal 1998,
the Company utilized $23.7 million of that availability. This facility
expires December 30, 1997, at which time the Company expects to extend the
term of the facility, refinance under similar terms or purchase the
properties covered under the facility.
During the second quarter of fiscal 1998, approximately $8.3 million
was charged against the Company's previously established reserve to disengage
from the financial support of Sunbelt. This charge reflects the Company's
sale of the remaining six of 13 store properties leased to Sunbelt. The
properties were sold at costs consistent with the previously recorded
reserve. The Company continues to guarantee other Sunbelt store lease
commitments through 2001 aggregating $2.6 million with a present value of
approximately $2.3 million at the end of the second quarter of fiscal 1998.
The Company is not aware of any defaults on these leases. Any cash payments
to satisfy these guarantees would be funded through working capital and
operations.
During the first six months of fiscal 1998, the Company repurchased
under a Board of Directors approved program 300,000 shares (100,000 shares
were purchased prior to a three for two stock split) of its common stock in
open market transactions for approximately $5.1 million, of which $3.4
million was paid in the second quarter of fiscal 1998. In addition,
approximately 65,000 shares of common stock were acquired as payment for the
exercise of employee stock options.
During the first six months of fiscal 1998, the Company paid cash
dividends aggregating $.06 per share (adjusted for the three for two stock
split distributed July 30, 1997) and declared a cash dividend of $.035 per
share payable on November 19, 1997 to shareholders of record on November 5,
1997. The Company currently expects to continue to pay cash dividends in
fiscal 1998 but to retain most of its future earnings for expansion of the
Company's business.
In August 1997, Moody's Investor Service ("Moody's") upgraded the
rating of the Company's 5 3/4% convertible subordinated notes due 2003 to Ba3
from B1 and upgraded the rating of the Company's unsecured bank debt to Ba1
from Ba2. The upgraded ratings reflect the Company's improved leverage,
sustained operating cash flow and successful remodel and remerchandising
programs.
<PAGE>
PART II
-------
Item 1. Legal Proceedings.
-----------------
In connection with the derivative suit filed by a stockholder
on behalf of the Company on January 3, 1996, in the District Court
in Tarrant County, Texas, entitled John P. McCarthy Profit Sharing
Plan, et al. v. Clark A. Johnson, et al., and relating to trading
losses announced by the Company in December 1995, the Company filed
cross-claims against other defendants and a third-party claim
against a commodities brokerage firm that executed the trades. On
July 3, 1997, and July 18, 1997, the court approved a settlement
among the Company, its directors and officers and the commodities
brokerage firm that executed trades for the Company's financial
consultant, pursuant to which such commodities brokerage firm paid
the Company $7.5 million, the commodities brokerage firm and the
Company and its directors and current officers who were parties to
the suit provided mutual releases, and such parties' claims against
each other were dismissed. The suit continues with respect to the
claims and parties that were not part of the settlement.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits See Exhibit Index.
(b) Reports on Form 8-K On July 18, 1997, the Company filed an
update on Form 8-K, reporting a partial
settlement of existing litigation.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PIER 1 IMPORTS, INC. (Registrant)
Date: October 14, 1997 By: /s/ Clark A. Johnson
---------------- ----------------------------------------
Clark A. Johnson, Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Date: October 14, 1997 By: /s/ Stephen F. Mangum
---------------- ----------------------------------------
Stephen F. Mangum, Senior Vice President
and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
10.1 Form of Deferred Compensation Agreement
27 Financial Data Schedule for Six-Month Period Ended August 30,
1997
DEFERRED COMPENSATION AGREEMENT
DEFERRED COMPENSATION AGREEMENT ("Agreement") dated as of the
__th day of __________, 1997, between Pier 1 Services Company, a Delaware
business trust (the "Company"), and ______________ ("Employee").
WHEREAS, Employee is currently employed by the Company;
WHEREAS, Employee's services will continue to be of substantial
value to the Company; and
WHEREAS, the Company and Employee mutually desire to enter into
an agreement providing for the deferral of payment of certain of Employee's
compensation for services rendered during any fiscal year of the Company.
NOW, THEREFORE, it is agreed as follows:
1. Definitions. The following terms when used in this
Agreement shall have the respective meanings set forth below unless their
context clearly indicates otherwise:
A. "Compensation" means the amount of any compensation (including
taxable benefits) payable by the Company to, or accruing to the
benefit of, Employee for federal income tax purposes, which is
taxable to Employee with respect to any tax year of the Company.
B. "Deferral Account" means an appropriate bookkeeping account or
record maintained by the Company for the sole purpose of measuring
and determining the amounts, if any, to be paid to Employee pursuant
to this Agreement with respect to Deferred Amounts. The Deferral
Account shall not constitute or be treated as an escrow or trust
fund of any kind, and Employee shall not be entitled to any amounts
from the Deferred Account except as provided in this Agreement.
C. "Deferral Date" means any date as of which a Deferred Amount (as
hereinafter defined) of compensation otherwise payable by the
Company to, or accruing to the benefit of, Employee shall be
deferred pursuant to the terms of this Agreement.
D. "Deferred Amount" means, either:
(i) the amount of Compensation (excluding salary and cash
reimbursements) which, when combined with all Compensation
(excluding salary and cash reimbursements) previously paid to
or accrued to the benefit of Employee with respect to such tax
year, exceeds the difference of (I) the Section 162(m) Maximum
Amount, minus (II) the lesser of (a) the sum of the annual
taxable gross salary of Employee plus annual taxable cash
reimbursements payable to Employee plus taxable benefits
accruable for the benefit of Employee with respect to such tax
year and (b) the Section 162(m) Maximum Amount, or
(ii) if elected by Employee prior to the first day of a Company's
tax year, the amount of Compensation which, when combined with
all Compensation previously paid to or accrued to the benefit
of Employee with respect to such tax year, exceeds the Section
162(m) Maximum Amount.
With respect to the Company's 1998 fiscal year, Deferred Amount may
include only Compensation relating to services rendered by, or
accruing to the benefit of, Employee subsequent to __________, 1997.
E. "Section 162(m) Maximum Amount" means $1,000,000 (or such other
amount of remuneration specified in any amendment or successor
provision to Section 162(m) of the Internal Revenue Code of 1986, as
amended, and the Treasury regulations promulgated thereunder).
2. Compensation Deferrals. If at any time and from time to time a
Deferred Amount of compensation shall be payable by the Company to, or accrue
to the benefit of, Employee, the Deferred Amount shall, in lieu of being then
paid to Employee, be deferred to later payment by the Company to Employee in
accordance with the terms of this Agreement. As of each Deferral Date
throughout the term of this Agreement, Employee's Deferral Account shall be
credited with an amount equal to the Deferred Amount. In the case of the
lapsing of restrictions relating to restricted stock which constitute a
Deferred Amount, the shares of common stock as to which restrictions lapse
shall be credited to Employee's Deferral Account, and all subsequent
dividends and other distributions with respect to such shares, whether in
cash, securities or other property, shall, in lieu of being distributed to
Employee, be credited to Employee's Deferral Account at the time of any such
distribution.
3. Interest Credit. The Deferral Account shall be credited on the
payment date provided in Paragraph 4 with interest on Deferred Amounts
(consisting of cash) from the respective Deferral Dates to the payment date.
The interest rate(s) to determine such interest shall be the same interest
rate(s) applicable to the relevant periods of time as shall be applicable to
employee contributions under the Company's Benefit Restoration Plan, and if
the Benefit Restoration Plan shall cease to be in effect, then at such
interest rate(s) as shall be established from time to time by the
Compensation Committee of the Board of Directors of the Company. No interest
shall be credited to Deferred Amounts consisting of shares of stock or other
property, as dividends and other distributions, if any, credited to the
Deferred Account with respect to shares of stock or other property shall
constitute the only earnings with respect to such non-cash property.
4. Payment of Amounts Credited to Deferral Amount. The Company shall
distribute to Employee or, if applicable, his estate all amounts previously
credited to his Deferral Account on the first day of the month following the
90th day after the retirement or death of Employee or other termination of
Employee's employment with the Company.
5. Amounts Due Not to be Funded. The Company's liability to pay
deferred compensation pursuant to this Agreement shall constitute an
unfunded, unsecured liability of the Company to make payments in accordance
with the provisions hereof. Neither Employee nor any person claiming under
Employee shall have any security or other interest in any assets of the
Company by virtue of this Agreement. Nothing contained in this Agreement and
no action taken pursuant to the provisions hereof shall create or be
construed to create a trust of any kind.
6. No Assignment. The right of Employee or any other person claiming
under Employee to payments or other benefits under this Agreement may not be
assigned, transferred, pledged, anticipated, commuted or encumbered, nor
shall said benefits or payments be subject to seizure for payment of any
debts or judgment of Employee or any person claiming through or under
Employee or be transferable by operation of law in advance of payment
hereunder.
7. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Company, its successor and assigns and Employee and his
heirs, executors, administrators and legal representatives.
8. Not a Contract of Employment. This Agreement shall not be deemed to
constitute a contract of employment between the parties hereto, nor shall any
provision hereof restrict the right of the Company to discharge Employee or
restrict the right of Employee to terminate his employment.
9. Nature of Agreement. The benefits herein provided are in addition
to, and not in lieu of, any other deferred compensation or retirement
arrangement pursuant to which the Company may have made provisions for
Employee, and no such arrangement shall affect or be affected by the
provisions of this Agreement. Nothing contained in this Agreement shall be
construed to alter, abridge or in any manner affect the rights and privileges
of Employee to participate in any pension, thrift, profit sharing, stock
bonus, annuity or similar plan that the Company may now or hereafter
maintain.
10. Modification of Agreement. This Agreement cannot be amended or
modified except by written agreement duly executed by both the Company and
Employee.
11. Termination of Agreement. This Agreement shall automatically
terminate, and no further Deferral Amounts shall thereafter be credited to
Employee's Deferral Account upon the first to occur of (i) the date
Employee's employment with the Company terminates for any reason whatsoever
or (ii) unless otherwise mutually agreed between the Company and Employee,
the first day of the Company's next fiscal year following the date written
notice is delivered by either the Company or Employee to the other, stating
that the party delivering the notice has elected to terminate this Agreement;
provided, however, that any such termination shall in no way affect the
obligation of the Company to pay to Employee the amounts credited to his
Deferral Account in accordance with Paragraph 4 or to credit his Deferral
Account in accordance with paragraph 3.
12. Withholding of Tax. Notwithstanding any provision in this
Agreement to the contrary, the Company is authorized to withhold from any
amounts payable hereunder to Employee any tax required to be withheld by the
federal or any state or local government. For purposes of Paragraph 4
hereof, any amounts so withheld shall be deemed to have been paid to
Employee.
13. Governing Law. This Agreement shall be construed in accordance
with and be governed by the laws of the State of Texas.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
PIER 1 SERVICES COMPANY
By: PIER 1 HOLDINGS, INC.,
Managing Trustee
By ____________________
EMPLOYEE:
___________________________
<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> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> AUG-30-1997
<CASH> 29,787
<SECURITIES> 0
<RECEIVABLES> 6,349
<ALLOWANCES> 221
<INVENTORY> 240,477
<CURRENT-ASSETS> 352,127
<PP&E> 362,265
<DEPRECIATION> 147,190
<TOTAL-ASSETS> 598,693
<CURRENT-LIABILITIES> 107,968
<BONDS> 115,211
<COMMON> 68,040
0
0
<OTHER-SE> 282,236
<TOTAL-LIABILITY-AND-EQUITY> 598,693
<SALES> 487,348
<TOTAL-REVENUES> 487,348
<CGS> 281,529
<TOTAL-COSTS> 281,529
<OTHER-EXPENSES> 11,110
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,098
<INCOME-PRETAX> 53,566
<INCOME-TAX> 18,885
<INCOME-CONTINUING> 34,681
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,681
<EPS-PRIMARY> .50 <F1>
<EPS-DILUTED> .48 <F1>
<FN>
<F1> Shares outstanding have been adjusted to reflect a 3 for 2 stock split
effected in the form of a stock dividend, distributed July 30, 1997.
Prior financial data schedules have not been restated to reflect the
stock split.
</FN>
</TABLE>
