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 November 27, 1999
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) 252-8000
(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 December 20, 1999
- ----------------------------- ------------------------------------------
Common Stock, $1.00 par value 94,971,462
<PAGE>
PART I
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Item 1. Financial Statements.
--------------------
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
Nov. 27, Nov. 28, Nov. 27, Nov. 28,
1999 1998 1999 1998
-------- -------- -------- --------
Net sales $298,223 $274,618 $851,012 $806,615
Operating costs and expenses:
Cost of sales (including
buying and store occupancy) 172,194 150,524 501,688 454,766
Selling, general and
administrative expenses 88,339 82,995 251,166 241,484
Depreciation and amortization 10,246 8,611 29,379 22,160
-------- -------- -------- --------
270,779 242,130 782,233 718,410
-------- -------- -------- --------
Operating income 27,444 32,488 68,779 88,205
Nonoperating (income) and expenses:
Interest and investment income (198) (248) (1,224) (1,887)
Interest expense 2,006 1,924 5,429 6,116
-------- -------- -------- --------
1,808 1,676 4,205 4,229
-------- -------- -------- --------
Income before income taxes 25,636 30,812 64,574 83,976
Provision for income taxes 9,485 11,715 23,892 31,917
-------- -------- -------- --------
Net income $ 16,151 $ 19,097 $ 40,682 $ 52,059
======== ======== ======== ========
Net income per share:
Basic $.17 $.20 $.42 $.53
===== ==== ==== ====
Diluted $.16 $.19 $.41 $.50
===== ==== ==== ====
Average shares outstanding during
period:
Basic 96,295 97,021 96,299 98,450
======= ======= ======= =======
Diluted 103,242 107,050 104,439 109,760
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
PIER 1 IMPORTS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except per share amounts)
November 27, February 27,
1999 1999
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash, including temporary investments of $16,330
and $32,434, respectively $ 34,392 $ 41,945
Accounts receivable, net 6,491 9,060
Inventories 279,608 258,773
Prepaid expenses and other current assets 91,079 72,165
-------- --------
Total current assets 411,570 381,943
Properties, net 217,067 226,262
Other assets 45,041 45,786
-------- --------
$673,678 $653,991
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term
debt $ -- $ 350
Accounts payable and accrued liabilities 136,066 129,482
-------- --------
Total current liabilities 136,066 129,832
Long-term debt 84,107 96,008
Other non-current liabilities 28,572 24,257
Shareholders' equity:
Common stock, $1.00 par, 500,000,000 shares
authorized, 100,779,000 issued 100,779 100,779
Paid-in capital 156,558 159,631
Retained earnings 233,453 201,457
Cumulative other comprehensive income (1,542) (1,850)
Less - 4,680,000 and 3,107,000 common shares in
treasury, at cost, respectively (63,904) (54,654)
Less - unearned compensation (411) (1,469)
-------- --------
424,933 403,894
-------- --------
$673,678 $653,991
======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
November 27, November 28,
1999 1998
------------ ------------
Cash flow from operating activities:
Net income $40,682 $52,059
Adjustments to reconcile to net cash provided by
operating activities:
Depreciation and amortization 29,379 22,160
Deferred taxes and other 7,554 62
Change in cash from:
Inventories (20,835) (43,593)
Accounts receivable and other current assets (4,276) (3,857)
Accounts payable and accrued expenses 8,026 6,290
Other assets, liabilities, and other, net (3,159) 1,552
------- -------
Net cash provided by operating activities 57,371 34,673
------- -------
Cash flow from investing activities:
Capital expenditures (38,417) (67,948)
Proceeds from disposition of properties 19,001 35,967
Beneficial interest in securitized receivables (12,569) 5,072
------- -------
Net cash used in investing activities (31,985) (26,909)
------- -------
Cash flow from financing activities:
Cash dividends (8,686) (8,599)
Purchases of treasury stock (15,273) (65,777)
Proceeds from stock options exercised, stock
purchase plan and other, net 3,263 4,006
Repayments of long-term debt (16,278) (18,665)
Proceeds from issuance of long-term debt 4,035 29,000
------- -------
Net cash used in financing activities (32,939) (60,035)
------- -------
Change in cash and cash equivalents (7,553) (52,271)
Cash and cash equivalents at beginning of period 41,945 80,729
------- -------
Cash and cash equivalents at end of period $34,392 $28,458
======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED NOVEMBER 27, 1999
(In thousands except per share amounts)
(Unaudited)
<CAPTION>
Cumulative
Other Total
Common Paid-in Retained Comprehensive Treasury Unearned Shareholders'
Stock Capital Earnings Income Stock Compensation Equity
------- -------- -------- ------------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 27, 1999 $100,779 $159,631 $201,457 ($1,850) ($54,654) ($1,469) $403,894
--------
Comprehensive income
Net income 40,682 40,682
Other comprehensive income, net of tax:
Foreign currency translation adjustments 308 308
--------
Comprehensive income 40,990
--------
Purchases of treasury stock (15,273) (15,273)
Restricted stock grant and amortization 709 (1,392) 1,058 375
Stock purchase plan, exercise of stock
options and other (3,782) 7,415 3,633
Cash dividends, declared or paid ($.09
per share) (8,686) (8,686)
-------- -------- -------- ------- -------- ------- --------
Balance, November 27, 1999 $100,779 $156,558 $233,453 ($1,542) ($63,904) ($ 411) $424,933
======== ======== ======== ======= ======== ======= ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED NOVEMBER 27, 1999
AND NOVEMBER 28, 1998
(Unaudited)
The accompanying unaudited financial statements should be read in
conjunction with the Form 10-K for the year ended February 27, 1999. All
adjustments that are, in the opinion of management, necessary for a fair
statement of the financial position as of November 27, 1999, and the results
of operations and cash flows for the three and nine months ended November 27,
1999 and November 28, 1998 have been made and consist only of normal
recurring adjustments. The results of operations for the three and nine
months ended November 27, 1999 and November 28, 1998 are not indicative of
results to be expected for the fiscal year because of, among other things,
seasonality factors in the retail business. The classifications of certain
amounts previously reported in the statement of cash flows for the nine
months ended November 28, 1998 have been modified to conform with the
November 27, 1999 method of presentation.
Note 1 - Net income per share
Basic net income per share was determined by dividing net income by the
weighted average number of common shares outstanding. Diluted net income per
share amounts are similarly computed, but include the effect, when dilutive,
of the Company's weighted average number of stock options outstanding and the
average number of common shares that would be issuable upon conversion of the
Company's convertible securities. To determine diluted net income, interest
and amortization of debt issue costs, net of any applicable taxes, have been
added back to net income to reflect assumed conversions.
Net income per share for the three and nine months ended November 27,
1999 and November 28, 1998 are calculated as follows (in thousands except per
share data):
Three Months Ended Nine Months Ended
Nov. 27, Nov. 28, Nov. 27, Nov. 28,
1999 1998 1999 1998
-------- -------- -------- --------
Net income $16,151 $19,097 $40,682 $52,059
Assumed conversion of 5 3/4%
subordinated notes:
Plus interest and amortization of
debt issue costs, net of tax 526 748 1,834 2,424
------- ------- ------- -------
Diluted net income $16,677 $19,845 $42,516 $54,483
======= ======= ======= =======
Average shares outstanding during period:
Basic 96,295 97,021 96,299 98,450
Plus assumed exercise of stock
options 467 669 613 1,201
Plus assumed conversion of 5 3/4%
subordinated notes to common stock 6,480 9,360 7,527 10,109
------- ------- ------- -------
Diluted 103,242 107,050 104,439 109,760
======= ======= ======= =======
Net income per share:
Basic $.17 $.20 $.42 $.53
==== ==== ==== ====
Diluted $.16 $.19 $.41 $.50
==== ==== ==== ====
Note 2 - Comprehensive income
The components of comprehensive income, net of related tax, for the
three and nine months ended November 27, 1999 and November 28, 1998 are as
follows (in thousands):
Three Months Ended Nine Months Ended
Nov. 27, Nov. 28, Nov. 27, Nov. 28,
1999 1998 1999 1998
-------- -------- -------- --------
Net income $16,151 $19,097 $40,682 $52,059
Foreign currency translation adjustments 259 (41) 308 (456)
------- ------- ------- -------
Comprehensive income $16,410 $19,056 $40,990 $51,603
======= ======= ======= =======
Note 3 - Repurchases of long-term debt
As of November 27, 1999, the Company had repurchased and retired $15.9
million principal amount of its 5 3/4% convertible subordinated notes due
2003 for $15.6 million in cash. These repurchases were made by the Company
in an open market transaction at an average price of 98.2% of par.
Subsequent to the end of the third quarter, the Company repurchased and
retired an additional $12.6 million principal amount of its 5 3/4%
convertible subordinated notes due 2003 for $12.7 million in cash. These
repurchases were also made in open market transactions at an average price of
99.7% of par. No significant gains or losses were recognized on these
purchases. The Company utilized its excess operating funds to repurchase the
outstanding debt.
<PAGE>
PART I
------
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
---------------------------------------------------------------
General
Pier 1 Imports, Inc. ("the Company") is North America's largest
specialty retailer of imported decorative home furnishings, including
furniture, dining and kitchen goods, bath and bedding accessories and other
related items for the home. While the broad categories of merchandise remain
relatively constant, individual products within these categories change
frequently in order to meet consumer demands. The Company has over 800
retail locations in 48 states, Puerto Rico, Canada, the United Kingdom,
Mexico and Japan with merchandise directly imported from over 60 countries
around the world.
Results of Operations
Net sales for the third quarter of fiscal 2000 grew 8.6% to $298.2
million from $274.6 million a year earlier. Same-store sales for the third
quarter of fiscal 2000 increased 2.8% over the comparable period of fiscal
1999. Net sales for the first nine months of fiscal 2000 were $851.0
million, up 5.5% from last year's $806.6 million. Same-store sales for the
first nine months of fiscal 2000 remained flat compared to the same period
last year. The growth in net sales was largely the result of a net increase
of 36 new North American stores as of the end of the third quarter of fiscal
2000 compared to the end of the third quarter of fiscal 1999. Contributing
to the overall growth in net sales, same-store sales were up for the third
quarter primarily as a result of the positive response received from
customers on the Company's current merchandise mix as well as pricing shifts
that were initiated earlier in the fiscal year. The Company began
implementation of a new value pricing strategy geared toward reducing prices
on approximately 15% of products in the stores, especially in the categories
of decorative accessories and housewares. Additionally, the Company began
focusing its buying strategy to include more basic merchandise with
competitive price points, without sacrificing quality or style. The results
of the Company-initiated value pricing strategy have been positive. The
Company expects the full implementation of this strategy to take 12 to 18
months from the initial steps, which began in April 1999.
Store openings continued as planned during the first nine months of
fiscal 2000. The Company opened 28 new stores and closed four stores in
North America during the third quarter of fiscal 2000. The North American
store count at the end of the third quarter of fiscal 2000 was 787 compared
to 751 a year earlier. Stores worldwide, including North America, Puerto
Rico, the United Kingdom, Mexico and Japan, totaled 836 at the fiscal 2000
third quarter-end.
Net sales on the Company's proprietary credit card totaled $225.6
million during the first nine months of fiscal 2000, an increase of 7.1% over
sales of $210.6 million for the same period of fiscal 1999. For the first
nine months of fiscal 2000, proprietary credit card sales accounted for 28.5%
of total U.S. store sales, an increase from 28.0% for the year earlier
period. Proprietary credit card customers spent an average of $150 per
transaction for the first nine months of fiscal 2000, compared to $141 per
transaction for the same period last year. The Company continues to
encourage sales on its proprietary credit card through marketing promotions
targeted to cardholders.
Gross profit, after related buying and store occupancy costs, expressed
as a percentage of sales, decreased 2.9% from 45.2% to 42.3% for the third
quarter of fiscal 2000 and decreased 2.6% of sales from 43.6% to 41.0% for
the first nine months of fiscal 2000 compared to the same periods a year
earlier. The decrease in gross profit for the third quarter and the first
nine months of fiscal 2000 resulted from lower merchandise margins coupled
with an increase in store occupancy costs.
Merchandise margins, as a percentage of sales, decreased 2.5% to 55.9%
in the third quarter of fiscal 2000 compared to the same period last year.
Merchandise margins for the first nine months of fiscal 2000 were 54.9% of
sales, down 1.3% from the first nine months of fiscal 1999. The decline in
merchandise margins for the quarter and first nine months of fiscal 2000 was
primarily due to higher ocean freight rates than the year earlier periods.
The third quarter merchandise margins were further reduced by stronger sales
of furniture, which have slightly lower margins. Additionally, the Company's
new value pricing strategy introduced at the beginning of fiscal 2000
resulted in lower margins for both the three- and nine-month periods of
fiscal 2000 compared to the same periods of fiscal 1999. The Company expects
merchandise margins to continue to experience downward pressure over the
remainder of the fiscal year and into the first half of fiscal 2001 due to
the continuation of the value pricing initiatives and the increases in
overseas shipping freight rates.
Store occupancy costs, as a percentage of sales, increased 0.4% to 13.6%
for the third quarter of fiscal 2000 and increased 1.3% of sales to 13.9% for
the first nine months of fiscal 2000 compared to the same periods of fiscal
1999. During the third quarter of fiscal 2000, the Company sold 12 store
properties and simultaneously entered into leases on these properties. This
sale-leaseback transaction increased rental expense for the third quarter,
which was slightly offset by a reduction in depreciation expense. When
compared to the year earlier period, year to date store occupancy costs as a
percentage of sales increased due to a non-recurring gain of $2.7 million
that was realized in the second quarter of fiscal 1999 as a result of the
relinquishment of a real estate option. Excluding the non-recurring gain,
store occupancy costs, as a percentage of sales, were 12.9% for the first
nine months of fiscal 1999. A sale-leaseback transaction in the second
quarter of fiscal 1999 of 25 store properties was the primary reason for the
comparative increase in store occupancy costs for the nine-month period of
fiscal 2000.
As a percentage of sales, selling, general and administrative expenses,
including marketing, decreased 0.6% to 29.6% in the third quarter of fiscal
2000 and decreased 0.4% of sales to 29.5% for the first nine months of fiscal
2000 compared to the same periods a year earlier. In total dollars, selling,
general and administrative expenses increased $5.3 million for the third
quarter of fiscal 2000 and increased $9.7 million for the first nine months
of fiscal 2000 versus the comparable periods of fiscal 1999. Expenses that
normally vary proportionately with sales and net new stores, such as store
salaries, equipment rental, supplies and marketing, increased $3.1 million
for the third quarter of fiscal 2000 and $8.4 million for the first nine
months of fiscal 2000 versus the comparable periods of fiscal 1999.
Increased marketing expenses for the three- and nine-month periods were
offset by well-controlled store salaries and supplies expenses. Additionally
in fiscal 1999, the Company replaced leased point of sale equipment with
purchased equipment, resulting in a decrease in equipment rental expense and
an increase in depreciation expense. All other selling, general and
administrative expenses increased $2.2 million for the third quarter of
fiscal 2000 and $1.3 million for the first nine months of fiscal 2000 over
the same periods last year. These increases were largely the result of a
non-recurring credit of $1.8 million for a settlement received in the third
quarter of fiscal 1999 on a previously deemed uncollectible receivable.
Other expenses, such as non-store salaries, increased slightly for the third
quarter and first nine months, but were partially offset by expense controls
and a reduction in net credit card costs.
Depreciation and amortization expense for the third quarter of fiscal
2000 was $10.2 million, or 3.4% of sales, compared to $8.6 million, or 3.1%
of sales, for the same period a year earlier. For the first nine months of
fiscal 2000, depreciation and amortization expense was $29.4 million, or 3.5%
of sales, and for the same period last year was $22.2 million, or 2.7% of
sales. These increases were primarily attributable to investments in capital
expenditures during fiscal 1999, including the previously discussed purchase
of point of sale equipment. Partially offsetting the increased expense was a
reduction of depreciation expense on the store properties that the Company
sold and leased back during the second quarter of fiscal 1999 and the third
quarter of fiscal 2000.
Operating income decreased $5.1 million to $27.4 million during the
third quarter of fiscal 2000 from $32.5 million in the third quarter of
fiscal 1999. For the first nine months of fiscal 2000, operating income
decreased $19.4 million to $68.8 million compared to $88.2 million for the
same period a year ago.
Net interest expense remained relatively flat for the third quarter and
first nine months of fiscal 2000. Interest and investment income declined as
a result of lower average cash balances and short-term investments coupled
with lower average interest rates. Offsetting the decline in interest income
was a decline in interest expense due to the repurchases of the Company's
outstanding 5 3/4% convertible subordinated notes of $15.9 million in the
second and third quarters of fiscal 2000 and $18.3 million in the third
quarter of fiscal 1999.
The Company's effective income tax rate for fiscal 2000 is estimated at
37% compared to 38% recorded in the first nine months of fiscal 1999. The
decline in the tax rate was attributable to a reduction in state income tax
expense.
Net income for the third quarter of fiscal 2000 was $16.2 million, or
$.16 per share on a diluted basis, compared to net income of $19.1 million,
or $.19 per share on a diluted basis, for the third quarter of fiscal 1999.
Net income for the first nine months of fiscal 2000 was $40.7 million, or
$.41 per share on a diluted basis, compared to net income of $52.1 million,
or $.50 per share on a diluted basis, for the first nine months of fiscal
1999.
Liquidity and Capital Resources
During the first nine months of fiscal 2000, net cash provided by
operating activities was $57.4 million, an increase of $22.7 million from the
year earlier period. Net income (adjusted for non-cash and non-operating
related items) of $77.6 million was the primary source of operating cash
flow. Increased inventory levels reduced operating cash flow during the
first nine months of fiscal 2000 by $20.8 million. The increase in inventory
was primarily due to the net opening of 36 new North American stores since
the end of the third quarter last year. Additionally, an increase in
accounts receivable and other current assets along with other operating
activities further reduced operating cash flow by $7.4 million. Partially
offsetting these reductions in operating cash flow was an $8.0 million
increase in accounts payable and accrued expenses.
During the first nine months of fiscal 2000, net cash used in investing
activities totaled $32.0 million. Capital expenditures totaling $38.4
million year-to-date were primarily used for new store openings and the
Company's remodeling and remerchandising program. Additionally, an increase
in the beneficial interest in securitized receivables required $12.6 million.
Partially offsetting these uses of cash were net proceeds from the
disposition of properties of $19.0 million, a majority of which was received
in connection with a sale-leaseback transaction that occurred in the third
quarter of fiscal 2000.
Net cash used in financing activities totaled $32.9 million for the nine
months ended November 27, 1999. Fiscal year-to-date, the Company paid cash
dividends of $8.7 million, or $.09 per share, and purchased under a Board of
Directors approved program 1,981,000 shares of the Company's outstanding
common stock in open market transactions, for a total of $15.3 million.
During the third quarter, the Company repurchased an additional $1.9 million
of its 5 3/4% convertible subordinated notes, bringing the total amount of
debt retired during the first nine months of this fiscal year to $16.3
million. Cash flow increased as a result of the Company's subsidiary in the
United Kingdom borrowing $4.0 million under a long-term credit facility to
finance its operations. Other financing activities, primarily the exercise
of stock options, provided cash of $3.2 million.
The Company expects working capital requirements to continue to be
funded through cash flow from operations, sales of proprietary credit card
receivables and bank lines of credit. The bank facilities consist of: a
five-year $125 million credit facility, all of which was available at the end
of the third quarter; other short-term (12 month) bank facilities used
principally for the issuance of letters of credit totaling $146.2 million, of
which $79.7 million was available at the end of third quarter; and other
long-term bank facilities of $32.8 million, which was fully utilized at the
end of the third quarter. The Company's current ratio was 3.0 to 1 at the
end of the third quarter compared to 2.9 to 1 at the end of fiscal 1999.
In September 1999, the Company sold 12 store properties for $19.3
million and entered into leases on these properties with unaffiliated third
parties. The Company deferred gains of $1.5 million on the sale-leaseback
transaction, and these deferred gains are being amortized over the lives of
the leases. The Company's minimum operating lease commitments remaining for
fiscal 2000 are $31.5 million. The present value of total existing minimum
operating lease commitments is $522.3 million. The Company expects to fund
these commitments from operating cash flow.
In December 1999, the Company declared a cash dividend of $.03 per share
payable on February 16, 2000 to shareholders of record on February 2, 2000.
The Company currently expects to continue to pay cash dividends in fiscal
2000 but to retain most of its future earnings for expansion of the Company's
business.
Management believes the funds provided from operations, coupled with the
Company's cash position, available lines of credit and sales of its
proprietary credit card receivables, will sustain current growth plans.
Impact of Year 2000 Issues
The Company has developed a comprehensive plan to address the risks
associated with the Year 2000 issue, which arises when computers or embedded
computer chips are unable to distinguish the proper century associated with a
two-digit year in a date. The Company's Year 2000 project was divided into
five phases: 1) awareness, 2) assessment, 3) renovation, 4) validation and
5) implementation. The awareness phase was completed in the second quarter
of fiscal 1999 and the remaining phases have been addressed, as discussed
below.
Assessment. The Company has completed its assessment of all internal
technology, which includes hardware and software components. The Company has
identified no significant risks associated with embedded chips in non-
computer equipment for which it is responsible. Assessment of the compliance
status of the Company's high and medium risk vendors and service providers
continued throughout the project and satisfactory responses were received
from over 95% of such vendors and providers.
Renovation. Remediation or replacement of the Company's mission critical
software applications was completed in the second quarter of fiscal 2000, and
all remediated applications are running in production. Additionally,
remediation of hardware, operating systems, databases and other programs was
completed in the second quarter of fiscal 2000.
Validation and Implementation. The Company's usual validation procedure puts
remediated or certified-compliant versions of its software applications into
production and conducts future-date testing in a special technology
environment set up for that purpose. For mission critical applications, the
Company has conducted testing on all future dates deemed to be at risk, even
if the application was previously certified by the vendor to be Year 2000
compliant. Testing of all mission critical and non-mission critical
applications has been completed. Additionally, the Company completed its
testing of certain processes involving technology owned by third parties.
Contingency Plans. The Company has developed contingency plans to address
possible failures that would impede the normal flow of its business
processes. These plans address the Company's internal technology, vendors
and service providers. The Company has had difficulty obtaining information
concerning compliance in some foreign countries. The Company's risk from
vendors and service providers is mitigated somewhat by the broad geographic
dispersion of its physical facilities and vendors and by the large number of
alternative sources of supply for its merchandise categories. Material
adverse consequences, however, could occur from Year 2000 failures beyond the
Company's control. These include:
* Widespread or long-term failures of telecommunications, electric or
water services,
* Failure of the Company's credit card processors to provide services,
* Inability of ports and customs authorities to process imports and
exports; or
* Failure of domestic and ocean transportation services.
The Company does not believe any of these events to be reasonably likely
to occur, but occurrences in varying degrees could result in interruption of
store and distribution operations, delays in delivery of goods and reductions
in cash inflows and revenues. The Company developed risk mitigation
strategies and contingency plans to address sporadic or short-term
interruptions in services, particularly in locations of greatest exposure,
such as headquarters, centralized data processing facilities and distribution
centers.
As part of its contingency plans, the Company has addressed mission
critical systems of its business. The Company has designed contingency plans
to mitigate serious disruptions to the business beyond December 31, 1999 and
focused on the operation of the Company's business independent of third-party
service providers' Year 2000 compliance. Contingency plans provide for
maintaining increased inventory to meet consumer demands, identifying and
securing alternate sources of critical services, materials and utilities when
possible and establishing crisis teams to address unexpected problems. The
Company has finalized all of its contingency plans.
Costs. The Company has relied primarily on internal resources for renovation
and validation of its computer systems, with support from consultants and
contractors. In the first nine months of fiscal 2000, the Company incurred
costs totaling $1.9 million related to Year 2000 assessment, remediation, and
testing. Costs incurred prior to fiscal 2000 totaled approximately $3.0
million. The Company also accelerated approximately $10.1 million in planned
capital purchases as a result of Year 2000 issues. Remaining remediation
costs are not expected to exceed $.5 million, approximately 30% to 40% of
which represents ongoing budgeted salaries to be paid to existing employees.
Significant utilization of outside resources beyond what was included in the
Company's project plan, although not expected, could cause remediation costs
to increase above these estimates.
The Company expects to fund all expenditures related to its Year 2000
readiness initiatives through cash flow from operations. These expenditures
are not expected to have an adverse effect on other operating or investment
plans.
Forward-looking Statements
Except for historical information, certain matters discussed in this
quarterly report may constitute "forward-looking statements" that are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those described in the forward-looking statements. The
Company may also make forward-looking statements in other reports filed with
the Securities and Exchange Commission and in material delivered to the
Company's shareholders. Forward-looking statements provide current
expectations of future events based on certain assumptions. These statements
encompass information that does not directly relate to any historical or
current fact and often may be identified with words such as "anticipates,"
"believes," "expects," "estimates," "intends," "plans," "projects" and other
similar expressions. Management's expectations and assumptions regarding
planned store openings, financing of Company obligations from operations and
other future results are subject to risks, uncertainties and other factors
that could cause actual results to differ materially from the anticipated
results or other expectations expressed in the forward-looking statements.
Risks and uncertainties that may affect Company operations and performance
include, among others, the general strength of the economy and levels of
consumer disposable income, the strength of new home construction and sales
of existing homes, the ability of the Company to import merchandise from
foreign countries without significantly restrictive tariffs, duties or quotas
and the ability of the Company to ship items from foreign countries at
reasonable rates in timely fashion. The foregoing risks and uncertainties
are in addition to others discussed elsewhere in this quarterly report.
Additional information concerning these risks and uncertainties is contained
in the Company's Annual Report on Form 10-K for the year ended February 27,
1999, as filed with the Securities and Exchange Commission.
Impact of Inflation
Inflation has not had a significant impact on the operations of the
Company.
<PAGE>
PART II
-------
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits See Exhibit Index.
(b) Reports on Form 8-K None.
<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: December 30, 1999 By: /s/ Marvin J. Girouard
----------------- ----------------------
Marvin J. Girouard, Chairman of the Board
and Chief Executive Officer
Date: December 30, 1999 By: /s/ Charles H. Turner
----------------- ---------------------
Charles H. Turner, Senior Vice President
and Chief Financial Officer and Treasurer
Date: December 30, 1999 By: /s/ Susan E. Barley
----------------- -------------------
Susan E. Barley, Vice President of Finance
and Principal Accounting Officer
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule for Nine-month Period Ended November 27,
1999.
<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> 9-MOS
<FISCAL-YEAR-END> FEB-26-2000
<PERIOD-END> NOV-27-1999
<CASH> 34,392
<SECURITIES> 0
<RECEIVABLES> 6,759
<ALLOWANCES> 268
<INVENTORY> 279,608
<CURRENT-ASSETS> 411,570
<PP&E> 418,142
<DEPRECIATION> 201,075
<TOTAL-ASSETS> 673,678
<CURRENT-LIABILITIES> 136,066
<BONDS> 84,107
<COMMON> 100,779
0
0
<OTHER-SE> 324,154
<TOTAL-LIABILITY-AND-EQUITY> 673,678
<SALES> 851,012
<TOTAL-REVENUES> 851,012
<CGS> 501,688
<TOTAL-COSTS> 501,688
<OTHER-EXPENSES> 29,379
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,429
<INCOME-PRETAX> 64,574
<INCOME-TAX> 23,892
<INCOME-CONTINUING> 40,682
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,682
<EPS-BASIC> .42
<EPS-DILUTED> .41
</TABLE>
