UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 26, 2000.
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 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) 252-8000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------------------------- -------------------------
Common Stock, $1 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Company (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Company was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the Company's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]
As of May 3, 2000, the approximate aggregate market value of voting
stock held by non-affiliates of the Registrant was $948,800,000 using the
closing sales price on this day of $9.75. It is assumed for purposes of
this computation an affiliate includes all persons registered as Registrant
insiders with the Securities and Exchange Commission.
As of May 3, 2000, 98,754,714 shares of the Registrant's Common Stock,
$1.00 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents have been incorporated herein by
reference:
1) Registrant's Annual Report to Shareholders for the fiscal year
ended February 26, 2000 in Parts I and II hereof and;
2) Registrant's Proxy Statement for the 2000 Annual Meeting in Part
III hereof.
PART I
Item 1. Business.
(a) General Development of Business.
From fiscal 1995 through fiscal 2000, the Company (references to the
"Company" or "Pier 1" shall include Pier 1 Imports, Inc. and its
consolidated subsidiaries throughout this document) expanded its specialty
retail operations from 628 to 785 North American retail stores. In fiscal
2000, the Company continued to execute its expansion plan in North America
by opening 63 new Pier 1 stores while closing 30 stores. Subject to changes
in the retail environment, availability of suitable store sites and adequate
financing, the Company plans to open approximately 65 new stores and close
20 to 25 stores in North America in fiscal 2001, depending upon lease
renewal negotiations, relocation space availability and general economic
conditions. A majority of the stores the Company expects to close in fiscal
2001 are anticipated to be replaced with a more favorable location within
the same market.
Set forth below is a list by city of Pier 1 stores opened in North
America in fiscal 2000:
Anchorage, AK Langley, BC
Auburn Hills, MI Laurel, MD
Austin, TX Lawrence, KS
Baton Rouge, LA Layton, UT
Bedford Hills, NY Macon, GA
Brampton, OT Manhattan Beach, CA
Brea, CA Maplewood, MN
Buford, GA Mount Pleasant, SC
Calgary, AB (2 locations) Nepean, OT
Canoga Park, CA Oakville, OT
Chandler, AZ Owensboro, KY
Columbia, MD Panama City, FL
Columbus, OH Peoria, IL
Comstock Park, MI Phoenix, AZ
Coralville, IA Plainfield, IN
Cranston, RI Port Charlotte, FL
Crystal Lake, IL Riverside, CA
Destin, FL Rocky Mount, NC
Douglasville, GA Rolling Hills Estates, CA
Dublin, CA Saint Bruno de Montarville, OT
Emeryville, CA Saint Catharines, OT
Escondido, CA San Diego, CA
Florence, SC Schaumburg, IL
Forsyth, IL Seekonk, MA
Fresno, CA Terre Haute, IN
Fort Myers, FL Valdosta, GA
Gaithersburg, MD Victoria, BC
Gulfport, MS Waterloo, OT
Harlingen, TX West Lebanon, NH
Irving, TX Wheaton, IL
Kansas City, MO Wilkes-Barre Township, PA
Throughout fiscal 2000, the Company continued its program to remodel
and remerchandise store interiors to improve the visual merchandising of its
products. This program incorporates store improvements such as better
lighting, wider aisles, a more open view for ease of shopping and greater
use of "lifestyle merchandising" by grouping products in home-use settings.
A remodeling program, directed at refurbishing older stores, supports this
remerchandising effort. This program, originally scheduled to upgrade more
than 700 stores by the end of fiscal 2001, was approximately 90% complete at
fiscal 2000 year-end.
Presently, Pier 1 maintains regional distribution center facilities in
or near Baltimore, Maryland; Columbus, Ohio; Chicago, Illinois; Fort Worth,
Texas; Ontario, California and Savannah, Georgia.
The Company owns 90% of the capital stock of The Pier Retail Group
Limited ("The Pier"), located in the United Kingdom, which operates 21
retail stores offering decorative home furnishings and related items in a
setting similar to Pier 1 stores. At the end of fiscal 2000, the Company's
net investment in The Pier was $18.3 million. During fiscal 2000, The Pier
opened three new stores in England, bringing total retail operations to 18
stores in England, two stores in Scotland, and one store in Wales. The Pier
expects to open three new stores in the U.K. during fiscal 2001.
During fiscal 1994, the Company initiated an arrangement to supply
Sears de Mexico S.A. ("Sears Mexico") with Pier 1 merchandise to be sold in
a "store within a store" format in certain Sears Mexico stores throughout
Mexico. In fiscal 1998, the Company amended its agreement with Sears Mexico
to an arrangement that will substantially insulate the Company from currency
fluctuations, which have reduced its profitability in the past. In fiscal
2000, Sears Mexico opened one new store offering Pier 1 merchandise. As of
February 26, 2000, Pier 1 merchandise was offered in 12 Sears Mexico stores.
Expansion plans for fiscal 2001 include three new stores and the possible
relocation of two existing stores to more favorable locations within the
same Sears Mexico stores.
The Company entered into a product distribution agreement with Sears
Roebuck de Puerto Rico, Inc. ("Sears Puerto Rico") in fiscal 1996 for Sears
Puerto Rico to market and sell Pier 1 merchandise in a "store within a
store" format in certain Sears Puerto Rico stores. Sears Puerto Rico
operates a total of 10 stores in Puerto Rico and as of February 26, 2000,
seven of these stores offered Pier 1 merchandise. The Company has no
immediate plans for further expansion in Puerto Rico but would consider
future sites.
In fiscal 1996, a wholly-owned subsidiary of the Company entered into a
franchise agreement with Akatsuki Printing Co., Ltd. (collectively
"Akatsuki") and Skylark Group to develop Pier 1 retail stores in Japan. The
agreement provides for the licensing of up to 100 total stores. In fiscal
2000, Akatsuki closed 9 underperforming stores. At the end of fiscal 2000,
Akatsuki operated 9 Pier 1 stores in Tokyo, its surrounding areas and other
metropolitan markets. The Company and Akatsuki will consider further
expansion in Japan based upon future economic conditions within the country
and store performance.
In fiscal 1998, the Company purchased a national bank and its assets in
Omaha, Nebraska, now operating under the name of Pier 1 National Bank. The
bank holds the credit card accounts for the Company's proprietary credit
card. As of February 26, 2000, the Company, through the bank, had
approximately 4,000,000 proprietary cardholders with approximately 1,022,000
active accounts (accounts with a purchase within the previous 12 months).
The Company's proprietary credit card sales accounted for 26.3% of total
U.S. store sales in fiscal 2000. The Company continues to expand its
proprietary credit card business by attracting new accounts with a
discounted first time purchase as well as enhancing customer loyalty with
marketing promotions targeted to cardholders.
(b) Financial Information About Industry Segments.
The Company operates in one business segment consisting of the retail
sale of imported decorative home furnishings, gifts and related items.
Financial information with respect to the Company's business is found
in the Company's Consolidated Financial Statements, which are incorporated
by reference into Item 8 herein.
(c) Narrative Description of Business.
The specialty retail operations of Pier 1 consist of a chain of retail
stores operating under the names "Pier 1 Imports" and "The Pier," selling a
wide variety of furniture, decorative home furnishings, dining and kitchen
goods, bath and bedding accessories and other specialty items for the home.
On February 26, 2000, Pier 1 operated 751 stores in 48 states of the
United States and 34 stores in four Canadian provinces and supported nine
franchised stores in nine states. Additionally, the Company operated 21
stores in the United Kingdom under the name "The Pier." The Company
supplies merchandise and licenses the Pier 1 Imports name to Sears Mexico
and Sears Puerto Rico, which sell Pier 1 merchandise in a "store within a
store" format in 12 Sears Mexico stores and in seven Sears Puerto Rico
stores. There were nine franchised stores operating in Tokyo, its
surrounding areas and other metropolitan markets as of February 26, 2000.
The Company-operated Pier 1 stores in the United States and Canada average
approximately 7,500 square feet in size of retail selling space. The stores
are generally freestanding units located near major shopping centers or
malls in all major United States metropolitan areas and many of the primary
smaller markets. In fiscal 2000, net sales of the Company totaled $1,231.1
million. Pier 1 stores generally have their highest sales volumes during
November and December, reflecting the Christmas selling season.
The Company's growth strategy for the future is to expand its North
American store base to more than 1,200 locations. Immediate plans to
achieve this expansion include, for fiscal 2001, the net opening of
approximately 40 new North American stores, three new retail stores for The
Pier in the U.K., and three new locations in Mexico located within the Sears
Mexico stores.
Additionally, the Company's future growth plans include the launching
of its e-commerce store for the sale of selected merchandise, along with an
online clearance store and an enhanced bridal and gift registry. The
expected launch date of the improved website is June 2000. The Company may
also consider other development opportunities, including but not limited to
acquisitions or strategic alliances with other businesses.
The Company offers a diverse selection of products consisting of nearly
5,000 items imported from approximately 60 countries around the world.
While the broad categories of Pier 1's merchandise remain constant,
individual items within these product groupings change frequently in order
to meet the demands of customers. The principal categories of merchandise
include the following:
FURNITURE - This product group consists of furniture and the related
furniture pads and pillows to be used on patios and in sun rooms, living,
dining, kitchen and bedroom areas. The group constituted approximately 38%
of total North American retail sales of Pier 1 in fiscal year 2000, 35% in
fiscal 1999 and 34% in fiscal 1998. These goods are imported from a variety
of countries such as Italy, Malaysia, Chile, Mexico, China, the Philippines
and Indonesia, and are also obtained from domestic sources. The furniture
is made of metal or handcrafted natural materials, including rattan, pine,
beech, rubberwood and selected hardwoods with either natural, stained or
painted finishes. Pier 1 also sells upholstered furniture.
DECORATIVE ACCESSORIES - This product group constituted the broadest
category of merchandise in Pier 1's sales mix and contributed approximately
22% to Pier 1's total North American retail sales in fiscal year 2000, 23%
in fiscal 1999 and 26% in fiscal 1998. These items are imported from
approximately 40 countries and include brass, marble and wood items, as well
as lamps, vases, dried and silk flowers, baskets, wall decorations and
numerous other decorative items. A majority of these products are
handcrafted from natural materials.
HOUSEWARES - This product group is imported mainly from the Far East
and Europe and includes ceramics, dinnerware and other functional and
decorative items. These goods accounted for approximately 12% of total
North American retail sales of Pier 1 in fiscal year 2000, 13% in fiscal
1999 and 14% in fiscal 1998.
BED & BATH - This product group is imported mainly from India, the
United Kingdom, Italy, Thailand and China, and is also obtained from
domestic sources. The group includes bath and fragrance products, candles
and bedding. These goods accounted for approximately 18% of total North
American retail sales of Pier 1 in fiscal year 2000, 19% in fiscal 1999 and
18% in fiscal 1998.
SEASONAL - This product group consists of merchandise to celebrate
holiday and spring/summer entertaining and is imported mainly from Europe,
Canada, Taiwan, China and India. These items accounted for approximately
10% of total North American retail sales of Pier 1 in fiscal year 2000, 10%
in fiscal 1999 and 8% in fiscal 1998.
Pier 1 merchandise largely consists of items that require a significant
degree of handcraftsmanship. Pier 1 imports most items directly from
foreign suppliers. Pier 1 is not dependent on any particular supplier and
has enjoyed long-standing relationships with many vendors. During fiscal
2000, Pier 1 sold merchandise imported from approximately 60 different
countries with 30% of its sales from merchandise produced in China, 12% from
merchandise produced in India and 25% from merchandise produced in
Indonesia, Mexico, Thailand, the Philippines and Italy. The remaining 33%
of sales was from merchandise produced in various Asian, European, Central
American, South American and African countries or obtained from United
States manufacturers. In selecting the source of a product, Pier 1
considers quality, dependability of delivery and cost. For the most part,
the imported merchandise is handcrafted in cottage industries and small
factories.
The Company has six regional distribution centers located in or near
Baltimore, Maryland; Columbus, Ohio; Chicago, Illinois; Fort Worth, Texas;
Ontario, California and Savannah, Georgia and leases additional space from
time to time. Imported merchandise and a portion of domestic purchases are
delivered to the distribution centers, unpacked and made available for
shipment to the various stores in the centers' region. Due to the time
delays involved in procuring merchandise from foreign suppliers, Pier 1
maintains a substantial inventory to assure a sufficient supply of products
in its stores.
The Company is in the highly competitive specialty retail business and
primarily competes with small specialty sections of large department stores,
home furnishing stores, small specialty import stores and discount stores.
Management believes that its stores compete on the basis of price,
merchandise assortment, merchandise visual presentation and customer
service. The Company believes its stores enjoy a competitive edge over
competing retailers due to greater name recognition, established vendor
relationships and the extent and variety of the merchandise offered. While
other retail stores change their items less frequently, Pier 1
differentiates itself by offering an array of unique and frequently changing
products.
As a retailer of imported merchandise, the Company is subject to
certain risks that typically do not affect retailers of domestically
produced merchandise. The Company must order merchandise from four to
twelve months in advance of delivery and pay for the merchandise at the time
it is loaded for transport to designated U.S. and international
destinations. Additionally, dock strikes, fluctuations in foreign currency
exchange rates, restrictions on the convertibility of the dollar and other
currencies, duties, taxes and other charges on imports, import quota systems
and other restrictions generally placed on foreign trade can affect the
price, delivery and availability of ordered merchandise. The inability to
import products from certain countries or the imposition of significant
tariffs could have a material adverse effect on the results of operations of
the Company. Freight costs contribute a substantial amount to the cost of
imported merchandise. The Company negotiated new ocean freight carrier
contracts in fiscal 2000, which will help prevent increased rates for the
next two years.
The United States and more than 100 other countries culminated seven
years of negotiations with an agreement which became effective January 1,
1995 to reduce, over time, tariff and non-tariff barriers to world trade in
goods and services and established the World Trade Organization to replace
the General Agreement on Tariffs and Trade. The Company considers any
agreement that reduces tariff and non-tariff barriers in international trade
beneficial to its business in the United States and around the world.
The World Trade Organization provides a framework for international
trade matters and includes a process for the resolution of trade disputes
among the member countries. In recent years, the dispute resolution process
of the World Trade Organization has been utilized to resolve differences
about market access between the European Union, the United States and other
countries. In some instances these trade disputes have led to the threat by
countries of sanctions against each other, which have included import
prohibitions and increases in duty rates on imported items.
Currently, China is not a member of the World Trade Organization but
has been negotiating with the United States, the European Union and other
members of the World Trade Organization on an accession agreement acceptable
to the World Trade Organization members. Presently in the United States,
legislation is pending before Congress, which would grant permanent normal
trade relations status to China. Congress is expected to vote on China's
status before Memorial Day 2000.
The 1988 Omnibus Trade and Competitiveness Act was signed into law
amending the Trade Act of 1974. This legislation was enacted partly in
response to a perceived decline in U.S. global competitiveness and the
continuing presence of unfair trade practices that limit U.S. exporters'
access to foreign markets. Under the law, the office of the U.S. Trade
Representative may investigate unfair trade practices of countries around
the world. These investigations may lead to sanctions, which could take the
form of quotas or increased duties on imports into the U.S.
The U.S. Trade Representative is required to take some action within 30
days (subject to being postponed for 180 days) after the conclusion of its
investigation of countries alleged to have committed unfair trade practices.
Upon a determination that a country has committed an unfair trade practice,
the U.S. Trade Representative may designate the subject country a priority
foreign country and impose sanctions in the form of quotas or increased
duties. On previous occasions, the U.S. Trade Representative has identified
certain countries, which supply merchandise to the Company as priority
foreign countries. These designations, however, were rescinded after the
U.S. Trade Representative and the countries reached agreements regarding the
basis for the designations.
The United States employs other measures besides this trade legislation
to implement its international trade policies and objectives. For example,
the United States may withdraw most favored nation status from a country,
resulting in higher import duties on products from that country. Any type
of sanction on imports is likely to increase the Company's import costs or
limit the availability of products purchased from sanctioned countries. In
that case, the Company will seek similar products from other countries.
The Company owns three federally registered service marks under which
its Company-operated and franchised stores do business. These registrations
are numbered 948,076 and 1,620,518 for the mark PIER 1 IMPORTS and 1,104,059
for the mark PIER 1. Also the Company has registered and has applications
pending for the registration of Pier 1 trademarks and service marks in the
United States and in numerous foreign countries.
On February 26, 2000, the Company employed approximately 13,600
associates in North America; approximately 5,300 were full-time employees,
while 8,300 were part-time employees.
The Company maintains a wholly-owned foreign subsidiary incorporated
under the laws of Hong Kong to manage certain merchandise procurement,
export and financial service functions. Also, a wholly-owned foreign
subsidiary incorporated under the laws of Bermuda owns the right to license
and to franchise the Company's trademarks and service marks outside the
United States, Canada and Puerto Rico.
Certain statements contained in Item 1, Item 7 and elsewhere in this
report may constitute "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934. 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 a timely fashion. The foregoing risks and
uncertainties are in addition to others discussed elsewhere in this report.
Item 2. Properties.
The Company leases its corporate office containing approximately
195,000 square feet of office space in Fort Worth, Texas.
The Company leases almost all of its retail stores, its warehouses and
other office space. At February 26, 2000, the present value of the
Company's minimum future operating lease commitments at 10% totaled
approximately $568 million.
The Company currently owns and leases distribution space of
approximately 3 million square feet. The Company also acquires temporary
space from time to time through short-term leases.
The following table shows the distribution by state of Pier 1's North
American stores as of February 26, 2000:
United States
- -------------
Alabama 10 Montana 4
Alaska 1 Nebraska 4
Arizona 15 Nevada 4
Arkansas 5 New Hampshire 5
California 85 New Jersey 18
Colorado 17 New Mexico 4
Connecticut 13 New York 38
Delaware 3 North Carolina 18
Florida 59 North Dakota 3
Georgia 25 Ohio 33
Hawaii 2 Oklahoma 6
Idaho 3 Oregon 10
Illinois 38 Pennsylvania 28
Indiana 15 Rhode Island 4
Iowa 7 South Carolina 11
Kansas 8 South Dakota 2
Kentucky 8 Tennessee 16
Louisiana 13 Texas 56
Maryland 17 Utah 6
Massachusetts 19 Virginia 25
Michigan 24 Washington 19
Minnesota 16 West Virginia 2
Mississippi 6 Wisconsin 12
Missouri 13 Wyoming 1
Canada
- ------
Alberta 2
British Columbia 2
Ontario 23
Quebec 7
Warehouse properties that are owned or leased by Pier 1 are as follows:
Owned/Leased
Location Approx. Sq. Ft. Facility
- ------------------- --------------- ------------
Baltimore, Maryland 618,000 sq. ft. Leased
Columbus, Ohio 527,000 sq. ft. Leased
Chicago, Illinois 517,000 sq. ft. Owned
Fort Worth, Texas 460,000 sq. ft. Owned
Ontario, California 747,000 sq. ft. Leased
Savannah, Georgia 445,000 sq. ft. Owned
In support of its long-range growth plan, the Company continued to
expand its distribution facilities. In fiscal 2000, the Company replaced
its West Coast distribution center with a new, leased, built-to-suit
facility in Ontario, California, which was fully functional by June 1999.
The new facility contains nearly 750,000 square feet, expandable to
1,000,000 square feet. The Company believes its distribution facilities are
sufficient to sustain current growth plans for the next two to three years.
Item 3. Legal Proceedings.
The Company is subject to various claims, lawsuits, investigations and
pending actions against the Company and its subsidiaries incident to the
operation of their businesses. Liability, if any, associated with these
matters is not determinable at February 26, 2000; however, the Company
considers them to be either ordinary and routine in nature or immaterial in
amount. While a certain number of the lawsuits involve substantial amounts,
management, after consultation with counsel, does not currently expect such
litigation will have a material adverse effect on the Company's financial
position, results of operations or liquidity. The Company intends to
vigorously defend itself against the claims asserted against the Company in
these lawsuits.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of the Company's security
holders during the fourth quarter of the Company's 2000 fiscal year.
Executive Officers of the Company
MARVIN J. GIROUARD, age 60, has served as Chairman and Chief Executive
Officer of the Company since March 1999 and has been a member of the
Executive Committee since December 1998. He has been a Director of the
Company since August 1988. From June 1998 to February 1999, Mr. Girouard
served as President and Chief Executive Officer of the Company and from
August 1988 to June 1998 he served as President and Chief Operating Officer
of the Company. From May 1985 until August 1988, he served as Senior Vice
President of Merchandising.
CHARLES H. TURNER, age 43, has served as Senior Vice President of
Finance, Chief Financial Officer and Treasurer of the Company since August
1999. He served as Senior Vice President of Stores of the Company from
August 1994 to August 1999 and served as Controller and Principal Accounting
Officer of the Company from January 1992 to August 1994.
ROBERT A. ARLAUSKAS, age 45, has served as Senior Vice President of
Stores of the Company since September 1999, and from November 1995 to
September 1999 he served as Vice President of West Zone Operations of Pier 1
Imports (U.S.), Inc.
JAY R. JACOBS, age 45, has served as Senior Vice President of
Merchandising of the Company since May 1995. He served as Vice President of
Divisional Merchandising of Pier 1 Imports (U.S.), Inc. from May 1993 to May
1995 and served as Director of Divisional Merchandising of Pier 1 Imports
(U.S.), Inc. from July 1991 to May 1995.
J. RODNEY LAWRENCE, age 54, has served as Senior Vice President of
Legal Affairs and Secretary of the Company since June 1992, and served as
Vice President of Legal Affairs and Secretary of the Company from November
1985 to June 1992.
PHIL E. SCHNEIDER, age 48, has served as Senior Vice President of
Marketing of the Company since May 1993 and served as Vice President of
Advertising of Pier 1 Imports (U.S.), Inc. from January 1988 to May 1993.
DAVID A. WALKER, age 49, has served as Senior Vice President of
Logistics and Allocations of the Company since September 1999, and from
January 1996 to September 1999 he served as Vice President of Planning and
Allocations of Pier 1 Imports (U.S.), Inc.
E. MITCHELL WEATHERLY, age 52, has served as Senior Vice President of
Human Resources of the Company since June 1992 and served as Vice President
of Human Resources of the Company from June 1989 to June 1992 and of Pier 1
Imports (U.S.), Inc. from August 1985 to June 1992.
The officers of the Company are appointed by the Board of Directors,
hold office until their successors are elected and qualified and/or until
their earlier death, resignation or removal.
None of the above executive officers has any family relationship with
any other of such officers. None of such officers was selected pursuant to
any arrangement or understanding between him and any other person.
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters.
Information required by this Item is incorporated by reference to the
section entitled "Market Price and Dividend Information" set forth in the
Company's Annual Report to Shareholders for the fiscal year ended February
26, 2000.
The Company's common stock is traded on the New York Stock Exchange.
As of May 2000, there were approximately 35,000 shareholders of the
Company's common stock.
During fiscal 2000, the Company repurchased nearly 4.4 million shares
of its outstanding common stock. In May 2000, the Company repurchased an
additional two million shares, leaving approximately three million shares
available for repurchase under the previously approved Board of Directors
stock buyback program. Future purchases of common stock will be made from
open market or private transactions from time to time depending on
prevailing market conditions, the Company's available cash and the Company's
consideration of any loan covenant restrictions and its credit ratings.
In February 2000, the Company called its $39.2 million outstanding
principal amount of 5 3/4% convertible subordinated notes due October 1,
2003 for redemption on March 23, 2000 at a redemption price of 103% of par.
Prior to redemption, $39,164,000 of the notes were converted into 4,764,450
shares of the Company's common stock at a conversion price of $8.22 per
share, and $15,000 of the notes were redeemed for cash at a redemption price
of 103% of par value.
Certain of the Company's existing loan agreements require the Company
to maintain specified financial ratios and limit certain investments and
distributions to shareholders, including cash dividends, loans to
shareholders and purchases of treasury stock. During fiscal 2000, the
Company paid cash dividends totaling approximately $11.5 million, or $.12
per share. The Company's Board of Directors currently expects to continue
to pay cash dividends in fiscal 2001 but intends to retain most of its
future earnings for the expansion of the Company's business. The Company
paid a cash dividend of $.03 per share on May 17, 2000. 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.
Item 6. Selected Financial Data.
Information required by this Item is incorporated by reference to the
section entitled "Financial Summary" set forth in the Company's Annual
Report to Shareholders for the fiscal year ended February 26, 2000.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Information required by this Item is incorporated by reference to the
section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" set forth in the Company's Annual
Report to Shareholders for the fiscal year ended February 26, 2000.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Information required by this Item is incorporated by reference to the
section entitled "Market Risk Disclosures" set forth in the Company's Annual
Report to Shareholders for the fiscal year ended February 26, 2000.
Item 8. Financial Statements and Supplementary Data.
Information required by this Item is incorporated by reference to the
material in the Company's consolidated financial statements and notes
thereto set forth in the Company's Annual Report to Shareholders for the
fiscal year ended February 26, 2000:
Consolidated Statements of Operations for the Years Ended
February 26, 2000, February 27, 1999 and February 28, 1998
Consolidated Balance Sheets at February 26, 2000 and February 27, 1999
Consolidated Statements of Cash Flows for the Years Ended
February 26, 2000, February 27, 1999 and February 28, 1998
Consolidated Statements of Shareholders' Equity for the Years Ended
February 26, 2000, February 27, 1999 and February 28, 1998
Notes to Consolidated Financial Statements
Report of Independent Auditors
The unaudited quarterly information required by this Item is
incorporated by reference to the section entitled "Market Price and Dividend
Information" set forth in the Company's Annual Report to Shareholders for
the fiscal year ended February 26, 2000.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Company.
Information regarding directors of the Company required by this Item is
incorporated by reference to the section entitled "Election of Directors -
Nominees for Directors" set forth in the Company's Proxy Statement for its
2000 Annual Meeting of Shareholders.
The information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934 required by this Item is incorporated by
reference to the section entitled "Section 16(a) Beneficial Ownership
Reporting Compliance" set forth in the Company's Proxy Statement for its
2000 Annual Meeting of Shareholders.
Item 11. Executive Compensation.
The information required by this Item is incorporated herein by
reference to the section entitled "Executive Compensation" set forth in the
Company's Proxy Statement for its 2000 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is incorporated herein by
reference to the section entitled "Election of Directors - Security
Ownership of Management" set forth in the Company's Proxy Statement for its
2000 Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions.
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) List of consolidated financial statements, schedules and exhibits
filed as part of this report.
1. Financial Statements
Consolidated Statements of Operations for the Years Ended
February 26, 2000, February 27, 1999 and
February 28, 1998
Consolidated Balance Sheets at February 26, 2000
and February 27, 1999
Consolidated Statements of Cash Flows for the Years Ended
February 26, 2000, February 27, 1999 and
February 28, 1998
Consolidated Statements of Shareholders' Equity for
the Years Ended
February 26, 2000, February 27, 1999 and
February 28, 1998
Notes to Consolidated Financial Statements
Report of Independent Auditors
2. Financial Statement Schedules
* Schedule II - Valuation and Qualifying Accounts and
Reserves
* Report of Independent Auditors
Schedules other than those referred to above have been
omitted because they are not required or are not applicable
or because the information required to be set forth therein
either is not material or is included in the financial
statements or notes thereto.
3. Exhibits
See Exhibit Index.
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: May 23, 2000 PIER 1 IMPORTS, INC.
By: /s/ Marvin J. Girouard
Marvin J. Girouard, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Signature Title Date
/s/ Marvin J. Girouard Chairman and May 23, 2000
Marvin J. Girouard Chief Executive Officer
/s/ Charles H. Turner Senior Vice President, May 23, 2000
Charles H. Turner Chief Financial Officer
and Treasurer
/s/ Susan E. Barley Principal Accounting May 23, 2000
Susan E. Barley Officer
/s/ John H. Burgoyne Director May 23, 2000
John H. Burgoyne
/s/ Dr. Michael R. Ferrari Director May 23, 2000
Dr. Michael R. Ferrari
/s/ James M. Hoak, Jr. Director May 23, 2000
James M. Hoak, Jr.
/s/ Sally F. McKenzie Director May 23, 2000
Sally F. McKenzie
/s/ Tom M. Thomas Director May 23, 2000
Tom M. Thomas
<PAGE>
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Pier 1 Imports,
Inc. as of February 26, 2000 and February 27, 1999, and for each of the
three years in the period ended February 26, 2000 and have issued our report
thereon dated April 3, 2000, incorporated by reference in this Annual Report
(Form 10-K). Our audits also included the financial statement schedule
listed in Item 14(a) of the Annual Report (Form 10-K). This schedule is the
responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Fort Worth, Texas
April 3, 2000
<PAGE>
SCHEDULE II
PIER 1 IMPORTS, INC. AND CONSOLIDATED SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year Ended
---------------------------------------------
February 26, February 27, February 28,
2000 1999 1998
------------ ------------ ------------
Balance at beginning of year $ 230 $ 142 $ 267
Additions charged to income -- 88 1
Balances written off, net of
recoveries (186) -- (126)
---------- ---------- ------------
Balance at end of year $ 44 $ 230 $ 142
========== ========== ============
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
3(i) Certificate of Incorporation and Amendments thereto incorporated
herein by reference to Exhibit 3(i) to Registrant's Form 10-Q for
the quarter ended May 30, 1998.
3(ii) Bylaws of the Company, Restated as of December 7, 1994,
incorporated herein by reference to Exhibit 3(ii) to the Company's
Form 10-Q for the quarter ended November 26, 1994.
4.1 Rights Agreement dated December 9, 1994, between the Company and
First Interstate Bank, N.A., as rights agent, incorporated herein
by reference to Exhibit 4 to the Company's Registration Statement
on Form 8-A, Reg. No. 1-7832, filed December 20, 1994.
4.2 Indenture, dated September 18, 1996, between the Company and Wells
Fargo Bank (Texas), N.A., as Trustee, relating to 5 3/4%
Convertible Subordinated Notes Due 2003, incorporated herein by
reference to Exhibit 4.1 to Amendment No. 2 to the Company's
Registration Statement on Form S-3, Reg. No. 333-10677, filed
September 11, 1996.
As permitted by Item 601(b)(4)(iii) of Regulation S-K, Exhibit
Number 4 omits instruments relating to issues of long-term debt of
the Company and its subsidiaries, the total authorized principal
amount of which for each issue does not exceed 10% of the
consolidated total assets of the Company and its subsidiaries.
The Company agrees to furnish a copy of any such instrument to the
Securities and Exchange Commission upon request.
10.1* Form of Indemnity Agreement between the Company and the directors
and executive officers of the Company, incorporated herein by
reference to Exhibit 10(l) to the Company's Form 10-K for the
fiscal year ended February 29, 1992.
10.2* The Company's Supplemental Executive Retirement Plan effective May
1, 1986, as amended and restated as of January 1, 1996,
incorporated herein by reference to Exhibit 10.2 to the Company's
Form 10-K for the fiscal year ended March 1, 1997.
10.3* The Company's Supplemental Retirement Plan effective September 28,
1995, incorporated herein by reference to Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended June 1, 1996.
10.4* The Company's Benefit Restoration Plan as Amended and Restated
effective July 1, 1995, incorporated herein by reference to
Exhibit 10.5.1 to the Company's Form 10-Q for the quarter ended
May 27, 1995.
10.5* The Company's Restricted Stock Plan effective March 5, 1990,
incorporated herein by reference to Exhibit 10(p) to the Company's
Form 10-K for the fiscal year ended March 3, 1990.
10.6* The Company's Management Restricted Stock Plan, effective June 24,
1993, incorporated herein by reference to Exhibit 10.7 to the
Company's Form 10-K for the fiscal year ended February 25, 1995.
10.7* The Company's 1989 Employee Stock Option Plan, effective June 29,
1989, incorporated herein by reference to Exhibit 10(q) to the
Company's Form 10-K for the fiscal year ended March 3, 1990; as
amended by Amendment No. 1 to the 1989 Employee Stock Option Plan,
incorporated herein by reference to the Company's Form 10-Q for
the quarter ended June 1, 1996.
10.8* The Company's 1989 Non-Employee Director Stock Option Plan,
effective June 29, 1989, incorporated herein by reference to
Exhibit 10(r) to the Company's Form 10-K for the fiscal year ended
March 3, 1990.
10.9* Form of Post-Employment Consulting Agreement between the Company
and its executive officers, incorporated herein by reference to
Exhibit 10(r) to the Company's Form 10-K for the fiscal year ended
February 29, 1992.
10.10* The Company's Management Medical and Tax Benefit Plans,
incorporated herein by reference to Exhibit 10.18 to the Company's
Form 10-K for the fiscal year ended February 26, 1994.
10.11.1 Pooling and Servicing Agreement, dated February 12, 1997, among
Pier 1 Imports (U.S.), Inc., Pier 1 Funding, Inc. and Texas
Commerce Bank National Association, as Trustee, incorporated
herein by reference to Exhibit 10.13 to the Company's Form 10-K
for the fiscal year ended March 1, 1997.
10.11.2 Amendments Nos. 1, 2 and 3 to the Pooling and Servicing Agreement,
incorporated herein by reference to Exhibit 10.13.2 to the
Company's Form 10-K for the fiscal year ended February 28, 1998.
10.12* Form of Deferred Compensation Agreement, between the Company and
senior executive officers, incorporated herein by reference to
Exhibit 10.1 to the Company's Form 10-Q for the quarter ended
November 29, 1997.
10.13* Senior Management Annual Bonus Plan, incorporated herein by
reference to Exhibit 10.1 to the Company's Form 10-Q for the
quarter ended May 31, 1997.
10.14.1 Revolving Credit Agreement, dated November 12, 1998, among the
Company, certain of its subsidiaries, NationsBank, N.A., Bank One,
Texas, N.A., and Wells Fargo Bank (Texas), National Association,
incorporated herein by reference to Exhibit 10.1 to the Company's
Form 10-Q for the quarter ended November 28, 1998.
10.14.2 First Amendment to Credit Agreement, dated December 30, 1999.
10.15* Special Officer Compensation Agreement, incorporated herein by
reference to Exhibit 10.2 to the Company's Form 10-Q for the
quarter ended November 28, 1998.
10.16* The Company's 1999 Stock Option Plan, effective June 24, 1999,
incorporated herein by reference to Exhibit 10.1 to the Company's
Form 10-Q for the quarter ended August 28, 1999.
10.17* Forms of Director and Employee Stock Option Agreements,
incorporated herein by reference to Exhibit 10.2 to the Company's
Form 10-Q for the quarter ended August 28, 1999.
13 Annual Report to Shareholders for the fiscal year ended February
26, 2000.
21 Roster of Subsidiaries of the Company.
23 Consent of Independent Auditors.
27 Financial Data Schedule for Twelve-Month Period Ended February 26,
2000.
*Management Contracts and Compensatory Plans
EXHIBIT 10.14.2
FIRST AMENDMENT TO CREDIT AGREEMENT
-------------------------------------
THIS DOCUMENT is entered into as of December 30, 1999, between PIER 1
IMPORTS, INC., a Delaware corporation ("Borrower"), those Lenders (defined
below) who have signed a signature page to this document, BANK OF AMERICA,
N.A. (formerly NationsBank, N.A., as Administrative Agent for Lenders), and
BANK ONE, N.A., (assignee of Bank One, Texas, N.A.) and WELLS FARGO BANK
(TEXAS), NATIONAL ASSOCIATION, as Co-Agents for Lenders.
Borrower, Lenders, Administrative Agent, and Co-Agents are party to the
Credit Agreement (as it may have been renewed, extended, and amended through
the date of this document, the "Credit Agreement") dated as of November 12,
1998. Borrower and certain Lenders have agreed, upon the following terms
and conditions, to amend the Credit Agreement as provided in Paragraph 2
below. Accordingly, for adequate and sufficient consideration, Borrower,
Required Lenders, and Administrative Agent agree as follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this document (A)
terms defined in the Credit Agreement have the same meanings when used in
this document and (B) references to "Sections," "Schedules," and "Exhibits"
are to the Credit Agreement's section, schedules, and exhibits.
2. AMENDMENT. Section 9.2 is entirely amended as follows:
9.2 RESTRICTED PAYMENTS. No Company may declare, make, or pay any
Restricted Payment (a) while any Default Condition exists or (b) that would
cause the total Restricted Payments by all Companies during any fiscal year
of the Companies to exceed $40,000,000 for all of the Companies.
3. CONDITIONS PRECEDENT. Notwithstanding any contrary provision, the
foregoing paragraph is not effective unless and until (A) the
representations and warranties in this document are true and correct and (B)
Administrative Agent receives (1) counterparts of this document executed by
Borrower, Required Lenders, and each Guarantor, and (2) a $5,000.00
amendment fee for each Lender who has executed the document and delivered it
to Administrative Agent by 5:00 p.m. Dallas time on December 30, 1999, which
Administrative Agent shall promptly pay to such Lenders upon receipt.
4. RATIFICATIONS. To induce Lenders to enter into this document, Borrower
(A) ratifies and confirms all provisions of the Credit Documents as amended
by this document, (B) ratifies and confirms that all guaranties, and
assurances granted, conveyed, or assigned to Administrative Agent or any
Lender under the Credit Documents (as they may have been renewed, extended,
and amended) are not released, reduced, or otherwise adversely affected by
this document and continue to guarantee and assure full payment and
performance of the present and future Obligation, and (C) agrees to perform
those acts and duly authorize, execute, acknowledge, deliver, file, and
record those additional documents, and certificates as Administrative Agent
or any Lender may request in order to create, perfect, preserve, and protect
those guaranties, and assurances.
5. REPRESENTATIONS. To induce Lenders to enter into this document,
Borrower represents and warrants to Lenders that as of the date of this
document (A) all representations and warranties in the Credit Documents are
true and correct in all material respects except to the extent that (1) any
of them speak to a different specific date or (2) the facts on which any of
them were based have been changed by transactions contemplated or permitted
by the Credit Agreement, and (B) no Material-Adverse Event, Event of
Default, or Potential Default exists.
6. EXPENSES. Borrower shall pay all costs, fees, and expenses paid or
incurred by Administrative Agent incident to this document, including,
without limitation, the reasonable fees and expenses of Administrative
Agent's counsel in connection with the negotiation, preparation, delivery,
and execution of this document and any related documents.
7. MISCELLANEOUS. All references in the Credit Documents to the "Credit
Agreement" refer to the Credit Agreement as amended by this document. This
document is a "Credit Document" referred to in the Credit Agreement;
therefore, the provisions relating to Credit Documents in Sections 1 and 14
are incorporated in this document by reference. Except as specifically
amended and modified in this document, the Credit Agreement is unchanged and
continues in full force and effect. This document may be executed in any
number of counterparts with the same effects as if all signatories had
signed the same document. All counterparts must be construed together to
constitute one and the same instrument. This document binds and inures to
each of the undersigned and their respective successors and permitted
assigns, subject to Section 14.10. THIS DOCUMENT AND THE OTHER CREDIT
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES IN RESPECT OF
THE MATTERS COVERED BY THE CREDIT DOCUMENTS AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the date first stated above in this First Amendment to
Credit Agreement.
PIER 1 IMPORTS, INC., as Borrower BANK OF AMERICA, N.A., (formerly
NationsBank, N.A.), as
Administrative Agent and a Lender
By ____________________________ By _______________________________
BANK ONE, N.A., (assignee of Bank WELLS FARGO BANK (TEXAS), NATIONAL
One, Texas, N.A.), as a Co-Agent ASSOCIATION, as a Co-Agent and a
and a Lender Lender
By ____________________________ By _______________________________
THE BANK OF TOKYO-MITSUBISHI, LTD., CHASE BANK OF TEXAS, NATIONAL
as a Lender ASSOCIATION, as a Lender
By ____________________________ By _______________________________
FLEET NATIONAL BANK, as a Lender CREDIT LYONNAIS, NEW YORK BRANCH,
as a Lender
By ____________________________ By _______________________________
<PAGE>
CONSENT AND AGREEMENT
To induce Lenders to enter into this document, the undersigned jointly
and severally (a) consent and agree to this document's execution and
delivery, (b) ratify and confirm that all guaranties, assurances, and
subordinations granted, conveyed, or assigned to Administrative Agent or any
Lender under the Credit Documents (as they may have been renewed, extended,
and amended) are not released, diminished, impaired, reduced, or otherwise
adversely affected by this document and continue to guarantee, assure, and
subordinate other debt to the full payment and performance of all present
and future Obligation, (c) agree to perform those acts and duly authorize,
execute, acknowledge, deliver, file, and record those additional guaranties,
and other agreements, documents, instruments, and certificates as Lender may
reasonably deem necessary or appropriate in order to create, perfect,
preserve, and protect those guaranties, assurances, and subordinations, and
(d) waive notice of acceptance of this consent and agreement, which consent
and agreement binds the undersigned and their successors and permitted
assigns and inures to each Lender and its successors and permitted assigns.
PIER 1 SERVICES COMPANY, as a PIER 1 ASSETS, INC.
Guarantor PIER 1 LICENSING, INC.
PIER 1 HOLDINGS, INC.
By: PIER 1 HOLDINGS, INC., PIER 1 IMPORTS, (U.S.), INC.,
Managing Trustee as Guarantor
By _______________________ By _______________________________
EXHIBIT 13
Pier 1 Imports, Inc.
FINANCIAL SUMMARY
($ in millions except per share amounts)
Year Ended
----------------------------------------
2000 1999 1998 1997 1996
-------- ------- ------- ------ ------
Summary of operations:
Net sales $1,231.1 1,138.6 1,075.4 947.1 810.7
Gross profit $512.5 500.4 461.5 384.5 325.5
Selling, general and
administrative expenses $349.4 334.6 315.8 274.5 235.6
Depreciation and
amortization $40.0 31.1 23.9 19.8 17.2
Operating income $123.2 134.7 121.7 90.2 72.7
Nonoperating (income) and
expenses, net(1) $4.6 5.0 (2.3) 9.9 44.3
Income before income taxes
and extraordinary charges $118.6 129.6 124.0 80.3 28.4
Income before extraordinary
charges $ 74.7 80.4 78.0 48.2 10.0
Extraordinary charges from
early retirement of debt,
net of income tax benefit $ -- -- -- 4.1 --
Net income $ 74.7 80.4 78.0 44.1 10.0
Per share amounts (adjusted for
stock splits and dividends):
Basic earnings before
extraordinary charges $ .78 .82 .77 .50 .11
Basic earnings $ .78 .82 .77 .46 .11
Diluted earnings before
extraordinary charges $ .75 .77 .72 .47 .11
Diluted earnings $ .75 .77 .72 .44 .11
Cash dividends declared $ .12 .12 .09 .07 .06
Shareholders' equity $ 4.60 4.12 3.89 3.34 2.57
Other financial data:
Working capital(2) $239.3 252.1 280.8 215.3 246.8
Current ratio(2) 2.4 2.9 3.3 3.0 3.5
Total assets $670.7 654.0 653.4 570.3 531.1
Long-term debt $ 25.0 96.0 114.9 114.5 180.1
Shareholders' equity $440.7 403.9 392.7 323.0 227.9
Weighted average shares
outstanding (millions) 95.8 98.1 101.1 96.8 88.5
Effective tax rate(3) 37.0% 38.0 37.1 40.0 64.7
Return on average
shareholders' equity 17.7% 20.2 21.8 16.0 4.5
Return on average total assets 11.3% 12.3 12.8 8.0 2.0
Pre-tax return on sales(4) 9.6% 11.4 11.5 8.5 3.5
- ---------------------
(1) Nonoperating (income) and expenses, net, were comprised of interest
expense and interest and investment income in each fiscal year
presented, and in addition, included net losses or recoveries associated
with trading activities in fiscal years 1998 and 1996, and the provision
for Sunbelt Nursery Group, Inc. defaults in fiscal year 1996.
(2) The reduction in the fiscal year 2000 working capital and current ratio
was the result of the Company's call of its outstanding 5 3/4%
convertible subordinated notes. The notes were primarily converted into
shares of the Company's common stock in March 2000. Excluding the
reclassification of the 5 3/4% notes from long-term to short-term,
working capital would have been $278.5 million with a current ratio of
3.0 to 1 at fiscal 2000 year-end.
(3) No income tax expense was provided on the net recoveries associated with
trading activities, which resulted in a lower effective tax rate in
fiscal year 1998. Additionally, the Company had not recorded any income
tax benefit on the fiscal year 1996 net loss associated with trading
activities, which resulted in a higher effective tax rate in that year.
(4) Calculated before fiscal year 1997 extraordinary charges from the early
retirement of debt, net of income tax benefit.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Pier 1 Imports, Inc. (the "Company") is one of North America's largest
specialty retailers of imported decorative home furnishings, gifts and
related items, with over 800 stores in 48 states, Canada, Puerto Rico, the
United Kingdom, Mexico and Japan as of fiscal 2000 year-end. The Company
directly imports merchandise from over 60 countries around the world and
designs proprietary assortments that become exclusive Pier 1 Imports
offerings. The Company reported record sales of $1,231.1 million for fiscal
2000. Net income was $74.7 million, or $.75 per diluted share.
FISCAL YEARS ENDED FEBRUARY 26, 2000 AND FEBRUARY 27, 1999
During fiscal 2000, net sales increased $92.5 million to $1,231.1
million, or 8.1% above the sales level achieved in fiscal 1999. Same-store
sales for fiscal 2000 grew 2.7%. The growth in sales was largely
attributable to a net increase of 33 new North American stores in fiscal
2000. In fiscal 1999, the Company began to experience a slow down in same-
store sales growth, with same-store sales of 3.2%, a trend that continued
into the first and second quarters of fiscal 2000. The lower same-store
sales gains appeared to be the product of an overly aggressive pricing
strategy that was not well received by customers. As a result, the Company
initiated a new value pricing strategy in the first quarter of fiscal 2000.
This strategy was geared toward reducing prices to a more competitive level
in certain merchandise categories, especially in decorative accessories and
housewares. Throughout fiscal year 2000, the Company reduced prices on
approximately 15% of its merchandise. In addition, the Company began
focusing its buying strategy to include more basic merchandise at
competitive price points, without sacrificing quality, style or gross
margin rates. The results of the Company-initiated value pricing strategy
were very positive for the latter half of fiscal 2000, a trend that has
continued into fiscal 2001. Net sales increases in fiscal 2000 were driven
by sales of furniture, which delivered a 16.2% increase over the previous
fiscal year. Additionally, the Company experienced increases for fiscal
2000 in housewares of 9.6%, bed and bath of 5.0% and decorative accessories
of 3.9% over the results of fiscal 1999.
Net new store openings in fiscal 2000 were the primary contributor to
sales growth this fiscal year over last fiscal year. The Company opened 63
new stores and closed 30 stores in North America during the fiscal year,
bringing the North American store count to 785 at the end of the 2000 fiscal
year. Stores worldwide, including North America, Puerto Rico, the United
Kingdom, Mexico and Japan, totaled 834 at the end of the 2000 fiscal year
compared to 805 at the end of the 1999 fiscal year.
The Company's proprietary credit card was another important contributor
to sales growth, with sales totaling $300.5 million for fiscal 2000. This
represented an increase of $24.3 million, or 8.8%, over proprietary credit
card sales of $276.2 million for fiscal 1999. During fiscal 2000,
proprietary credit card sales accounted for 26.3% of total U.S. store sales
compared to 26.0% for the prior fiscal year. Proprietary credit card
customers spent an average of $142 per transaction in fiscal 2000 compared
to $134 per transaction in fiscal 1999. The Company continues to grow sales
on the proprietary credit card by opening new accounts and enhancing
customer loyalty with marketing promotions targeted to cardholders.
Gross profit in fiscal 2000 totaled $512.5 million, an increase of $12.1
million, or 2.4% over fiscal 1999. Expressed as a percentage of sales, the
Company's gross profit, after related buying and store occupancy costs,
decreased 240 basis points to 41.6% in fiscal 2000 from 44.0% in fiscal
1999. Merchandise margins, as a percentage of sales, decreased 160 basis
points to 54.6% in fiscal 2000 from 56.2% in fiscal 1999. The decline in
merchandise margins was principally the result of higher ocean freight rates
coupled with the value pricing of selected merchandise categories. The
Company has negotiated new carrier contracts that should prevent further
increases in ocean freight for the next two years. The Company's new value
pricing strategy introduced at the beginning of fiscal 2000 also created
downward pressure on margins for a majority of the year. Store occupancy
costs, as a percentage of sales, increased to 13.0% during fiscal 2000 from
12.2% in fiscal 1999. This increase was primarily caused by two separate
sale-leaseback transactions. In June 1998, the Company sold and leased back
25 store properties that it previously owned, which generated rental expense
for those stores during the first half of fiscal 2000 compared to the first
half of fiscal 1999. The Company also sold and leased back an additional 12
store properties in September 1999. As a result of these sale-leaseback
transactions, the Company experienced a reduction in depreciation expense on
these store properties which is not a component of store occupancy costs.
Selling, general and administrative expenses, including marketing, as a
percentage of sales, were 28.4% for fiscal 2000, representing a 100 basis
point decrease from the 29.4% for fiscal 1999. In total dollars, selling,
general and administrative expenses for fiscal 2000 increased $14.8 million
over the prior fiscal period. Expenses that normally increase
proportionately with sales and number of stores, such as store payroll,
equipment rental, supplies and marketing expenses, increased $13.6 million,
but declined 50 basis points as a percentage of sales from 20.9% last fiscal
year to 20.4% this fiscal year. The slight increase in marketing
expenditures was moderated by well-controlled store salaries and other store
expenses. 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 for fiscal 2000. All
other selling, general and administrative expense increased $1.2 million,
but also declined 50 basis points as a percentage of sales to 8.0% for
fiscal 2000. The dollar increase was largely the result of a non-recurring
credit of $1.8 million received in fiscal 1999 as a settlement on a
receivable previously deemed uncollectible. Excluding the effect of the
non-recurring item from fiscal 1999, other expenses declined for fiscal
2000, primarily the result of lower non-store payroll costs, as a percentage
of sales, coupled with a reduction in net credit card costs.
Depreciation and amortization expense for fiscal 2000 was $40.0 million,
or 3.2% of sales, compared to $31.1 million, or 2.7% of sales for fiscal
1999. Increased depreciation expense for fiscal 2000 was primarily the
result of increased investments in capital expenditures throughout fiscal
2000 and 1999, the largest of which was the replacement of leased store
point of sale equipment with purchased equipment during fiscal 1999. As a
result, in fiscal 2000 the Company recorded a full year of depreciation
expense on the fiscal 1999 capital expenditures compared to only a partial
year of depreciation expense in fiscal 1999. Partially offsetting the
increased expense was a reduction of depreciation expense on the stores
which the Company opted to sell and lease back in the third quarter of
fiscal 2000 and the second quarter of fiscal 1999.
Operating income declined $11.5 million to $123.2 million, or 10.0% of
sales, in fiscal 2000 from $134.7 million, or 11.8% of sales, in fiscal
1999.
During fiscal 2000, net interest expense was $4.6 million compared to
$5.0 million for the prior year. The decline in net interest expense was
primarily the result of the repurchases of the Company's 5 3/4% convertible
subordinated notes of $28.6 million in fiscal 2000 and $18.3 million in
fiscal 1999.
The Company's effective income tax rate for fiscal 2000 was 37% compared
to 38% for fiscal 1999. The decline in the estimated effective income tax
rate was attributable to a reduction in state income taxes. The effective
income tax rate for fiscal 2001 is expected to remain at 37%.
Fiscal 2000 net income totaled $74.7 million, representing 6.1% of
sales, or $.75 per share on a diluted basis. In fiscal 1999, net income was
7.1% of sales and totaled $80.4 million, or $.77 per share on a diluted
basis.
FISCAL YEARS ENDED FEBRUARY 27, 1999 AND FEBRUARY 28, 1998
Net sales in fiscal 1999 increased $63.2 million to $1,138.6 million, a
5.9% increase over net sales of $1,075.4 million in fiscal 1998. This
increase was due to a slight improvement in same-store sales and an increase
in the number of North American stores. Compared to the previous fiscal
year, same-store sales grew 3.2% in fiscal 1999. This growth was in
addition to same-store sales increases of 15.6% in fiscal 1998 and 12.9% in
fiscal 1997. The overall slow down in sales growth was primarily due to
increased competition with other retailers in certain merchandise
categories. However, the Company experienced sales increases in fiscal 1999
over fiscal 1998 of 11.1% in furniture, 8.3% in decorative accessories and
8.6% in bed and bath.
Throughout the fiscal year, the Company continued its store remodeling
and remerchandising programs. In fiscal 1999, those programs provided
approximately 200 new and existing stores with an updated store layout and
design. The new floor plans and fixture designs assisted in the
presentation of a wider merchandise selection. Additionally, the Company
opened 63 new stores and closed 30 stores in North America during fiscal
1999. The North American store count was 751 at the end of the 1999 fiscal
year compared to 718 at the end of the 1998 fiscal year. Stores worldwide,
including North America, Puerto Rico, the United Kingdom, Mexico and Japan,
totaled 805 at the end of the 1999 fiscal year.
Sales on the Company's proprietary credit card totaled $276.2 million in
fiscal 1999. This represented an increase of $18.7 million, or 7.2%, over
proprietary credit card sales of $257.5 million for the prior fiscal year.
Proprietary credit card sales accounted for 26.0% of total U.S. store sales
in fiscal 1999. Proprietary credit card customers spent an average of $134
per transaction in fiscal 1999 compared to $129 per transaction in fiscal
1998. The number of active cardholder accounts was approximately 1,085,000
at the end of fiscal 1999. The Company continued to encourage sales on the
proprietary credit card through targeted marketing promotions.
Gross profit, after related buying and store occupancy costs, expressed
as a percentage of sales, increased 110 basis points to 44.0% in fiscal 1999
from 42.9% in fiscal 1998. Merchandise margins, as a percentage of sales,
improved 130 basis points to 56.2% in fiscal 1999 from 54.9% in fiscal 1998.
The improvement in merchandise margins was principally due to increases in
the initial markup of merchandise sold. In addition, margins increased
because of a decline in lower margin international sales coupled with larger
duty refunds and improved freight rates. Partially offsetting this
improvement was an increase in clearance and promotional markdowns that were
used to facilitate sales of certain seasonal merchandise in the first half
of fiscal 1999. Store occupancy costs, as a percentage of sales, increased
to 12.2% during fiscal 1999 from 12.0% in fiscal 1998. This increase was
largely the result of additional store rental expense due to the sale-
leaseback of 25 store properties previously owned by the Company. The sale-
leaseback transactions also resulted in a reduction of depreciation expense.
Expressed as a percentage of sales, selling, general and administrative
expenses, including marketing, remained constant at 29.4% for fiscal 1999,
when compared to a year earlier. In total dollars, selling, general and
administrative expenses for fiscal 1999 increased $18.8 million over the
prior fiscal period. Expenses that normally increase proportionately with
sales and number of stores, such as store compensation, store equipment
rental, supplies and marketing expenses, increased $19.7 million. These
variable expenses increased 60 basis points as a percentage of sales for
fiscal 1999 compared to fiscal 1998. The increase resulted primarily from
higher marketing expenditures related to the Company's expanded network
television advertising campaign and the introduction of seasonal direct mail
advertising pieces. Variable expenses also rose as a result of continued
enhancements to store systems and communications. Partially offsetting the
increase in variable expenses was a $0.9 million decrease in other selling,
general and administrative expenses. This decrease largely resulted from a
$1.8 million settlement of a receivable previously deemed uncollectible.
Depreciation and amortization expense increased $7.2 million to $31.1
million for fiscal 1999 compared to $23.9 million for fiscal 1998. This
increase was primarily attributable to the replacement of leased store point
of sale equipment with purchased equipment. Partially offsetting this
increase was a reduction of depreciation expense on the 25 store properties
which the Company sold and leased back in the second quarter of fiscal 1999.
Operating income improved $13.0 million to $134.7 million in fiscal 1999
from $121.7 million in the prior year, primarily due to revenue growth,
improved gross profit rates and effective expense control.
Interest and investment income increased $1.0 million in fiscal 1999
compared to fiscal 1998 as a result of increased interest income earned on
higher average cash balances and short-term investments. Interest expense
decreased $0.8 million during fiscal 1999 compared to fiscal 1998. The
decrease was primarily attributable to the repurchase of $18.3 million of
the Company's outstanding 5 3/4% convertible subordinated notes in the third
quarter of fiscal 1999.
In late December 1995, the Company was made aware of losses totaling
$19.3 million resulting from trading activities in a discretionary account.
During fiscal 1998, the Company recovered $11.0 million of the previously
reported losses associated with these trading activities. Of this amount,
the Company considered $1.9 million as a reimbursement of fiscal 1998 legal
fees, resulting in a net recovery of losses associated with trading
activities of $9.1 million for fiscal 1998. The Company did not record any
income tax benefit on the previously reported losses associated with trading
activities and, accordingly, no income tax expense was provided on the net
recovery of losses associated with trading activities. See Note 11 of the
Notes to Consolidated Financial Statements.
The Company's effective income tax rate for fiscal 1999 was 38% compared
to 40% recorded for fiscal 1998, exclusive of the net recovery of losses
associated with trading activities. The decline in the estimated effective
income tax rate was due primarily to reduced state income taxes.
Net income for fiscal 1999 was $80.4 million, or $.77 per share on a
diluted basis, compared to net income for fiscal 1998 of $78.0 million, or
$.72 per share on a diluted basis. Fiscal 1998 net income before special
credits was $68.9 million, or $.64 per share on a diluted basis. The
special credits in fiscal 1998 represented the previously described net
recovery of losses associated with trading activities.
LIQUIDITY AND CAPITAL RESOURCES
As of the end of fiscal 2000, the Company's cash and temporary
investments totaled $50.4 million, up $8.4 million from a year earlier.
During fiscal 2000, the Company's operations generated $119.6 million of
cash compared to $95.7 million in fiscal 1999. Inventory levels were up
$10.1 million at the end of the fiscal year primarily due to the opening of
an additional 33 net new North American stores during fiscal 2000.
Net cash used in investing activities totaled $39.8 million during
fiscal 2000 versus last year's $43.3 million. Capital expenditures for the
year totaled $46.0 million. The Company opened 63 new stores in North
America and three retail locations in the United Kingdom, requiring $19.0
million of the total amounts expended for capital purchases. Additionally,
the Company remodeled 15 stores in fiscal 2000 at a cost of $7.0 million.
Continuing the Company's focus on improving floor plans and upgrading
fixtures, an additional $8.6 million was invested in existing stores. The
Company's retained beneficial interest in its securitized receivables
increased $12.8 million as a result of favorable sales trends on the
Company's proprietary credit card. Partially offsetting these uses of cash
were net proceeds from the disposition of properties of $19.4 million, a
majority of which was received in connection with a sale-leaseback
transaction occurring in the third quarter of fiscal 2000. In September
1999, the Company sold 12 stores for $19.3 million and in return entered
into leases on these properties. The Company deferred a gain of $3.3
million on the sale-leaseback transaction, and the deferred gain is being
amortized over the initial lives of the leases.
The Company expended $43.3 million in fiscal 2000 on share repurchases
and cash dividends. The Company paid $31.8 million to repurchase 4,393,300
common shares under the Board of Directors approved stock buyback program.
As of the end of the fiscal year, slightly more than five million shares
remain authorized for repurchase. Future purchases of common stock will be
made through open market or private transactions from time to time depending
on prevailing market conditions, the Company's available cash and
consideration of any loan covenant restrictions and its corporate credit
ratings. During the year, the Company continued to pay dividends to
shareholders. Cash used for dividends remained constant at $11.5 million
for both fiscal 2000 and fiscal 1999. Subsequently, the Company declared a
cash dividend of $.03 per share payable on May 17, 2000 to shareholders of
record on May 3, 2000. The Company currently expects to continue to pay
cash dividends in fiscal 2001 but to retain most of its future earnings for
expansion of the Company's business.
During fiscal 2000, the Company expended a net $32.2 million to reduce
its total long-term debt. The reduction in debt was primarily the result of
the Company's repurchase and retirement of $28.6 million principal amount of
its 5 3/4% convertible subordinated notes for $28.3 million in cash. These
repurchases were made by the Company in open market transactions at an
average price of 98.8% of par. No significant gains or losses were
recognized on these purchases.
In February 2000, the Company called its $39.2 million outstanding
principal amount of 5 3/4% convertible subordinated notes due October 1,
2003 for redemption on March 23, 2000 at a redemption price of 103% of par.
Prior to redemption, $39,164,000 of the notes were converted into 4,764,450
shares of the Company's common stock at a conversion price of $8.22 per
share, and $15,000 of the notes were redeemed for cash at a redemption price
of 103% of par value. See Notes 5 and 12 of the Notes to Consolidated
Financial Statements.
The Company's current sources of working capital are cash flow from
operations, sales of proprietary credit card receivables and bank lines of
credit. The bank facilities consist of a $125 million credit facility which
expires in 2003, all of which was available at the end of fiscal 2000, and
other short-term 364-day bank facilities used principally for the issuance
of letters of credit totaling $168.9 million, of which $94.3 million was
available at fiscal 2000 year-end. Most of the Company's loan agreements
require the Company to maintain certain financial ratios and limit certain
investments and distributions to shareholders, including cash dividends and
repurchases of common stock. The Company's current ratio was 2.4 to 1 at
fiscal 2000 year-end compared to 2.9 to 1 at fiscal 1999 year-end.
Excluding the effect of the call of the Company's 5 3/4% convertible
subordinated notes which resulted in a reclassification of these notes from
long-term to short-term, the current ratio would have been 3.0 to 1 at
fiscal 2000 year-end. The Company's minimum operating lease commitments
expected for fiscal 2001 total $126.8 million and the present value of total
existing operating lease commitments is $568.5 million. The Company plans
to fund these commitments from operating cash flow.
During fiscal 2000, the Company settled most of its remaining lease
guarantee obligations on prior nursery stores of Wolfe Nursery, Inc. ("Wolfe
Nursery"), a subsidiary of Sunbelt Nursery Group, Inc. In its April 1998
bankruptcy, Wolfe Nursery rejected all of the leases guaranteed by the
Company. The Company has settled lease guarantees within the previously
established accrued amounts and believes it has accrued sufficient amounts
to cover its financial obligations under the remaining store lease
guarantees. The Company expects any cash payments to satisfy the remaining
guarantees will be funded through working capital.
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 foreign exchange contracts when they are
available in order to manage its exposure to foreign currency fluctuations.
The Company's new store development plan for fiscal 2001 provides for
the opening of approximately 65 new North American stores and three retail
locations in the United Kingdom. These new stores will require capital
expenditures of approximately $19 million. Operating leases are expected to
provide financing for new store land and building costs. The Company
expects inventory and fixtures for the fiscal 2001 development plan to cost
approximately $28 million, and to fund them from operations, working capital
and bank lines of credit. Additionally in fiscal 2001, the Company's plans
for its North American operations are to completely remodel 15 to 20
existing stores at an approximate cost of $8 million and to upgrade fixtures
and floor plans on over 75 stores at a cost of approximately $9 million.
The Company expects 20 to 25 stores to close in fiscal 2001, a majority of
which are anticipated to be replaced with a more favorable location within
the same market.
In fiscal 2001 the Company plans to launch its e-commerce store for
sales of selected merchandise, including an online clearance store and an
enhanced bridal and gift registry program. In fiscal 2000, the Company
invested approximately $2 million in this project and may spend up to an
additional $2 million in fiscal 2001. The Company expects to launch its
improved website in June 2000. Additionally in fiscal 2001, the Company may
also consider other development opportunities, including but not limited to
acquisitions or strategic alliances with other businesses. The costs of the
e-commerce store and other business development plans are expected to be
funded by the Company's operations, available cash and bank lines of credit.
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, are sufficient to meet its foreseeable
cash requirements.
MARKET RISK DISCLOSURES
Market risks relating to the Company's operations result primarily from
changes in foreign exchange rates and interest rates. The Company has only
limited involvement with derivative financial instruments, does not use them
for trading purposes and is not a party to any leveraged derivatives.
The Company periodically enters into forward foreign exchange contracts
to hedge some of its foreign currency exposure. The Company uses such
contracts to hedge exposures to changes in foreign currency exchange rates,
primarily Italian Lira and British Pounds, associated with purchases
denominated in foreign currencies. Gains and losses on these contracts are
deferred and recognized as an adjustment of the transaction price when it
occurs. Forward contracts generally have maturities not exceeding six
months. At February 26, 2000, the notional amount of the Company's foreign
currency derivative instruments totaled approximately $5.6 million with a
negligible fair market value.
The Company manages its exposure to changes in interest rates by
optimizing the use of variable and fixed rate debt. The Company had $25.0
million of variable rate borrowings at February 26, 2000. A hypothetical
10% adverse change would have a negligible impact on the Company's earnings
and cash flows.
Collectively, the Company's exposure to these market risk factors was
not significant and had not materially changed from February 27, 1999.
IMPACT OF YEAR 2000 ISSUES
The Year 2000 issue has not had a material adverse effect on the
Company. The Company's information systems are operating effectively. At
this time, the Company is not aware of any vendors or principal suppliers
that are not Year 2000 compliant; however, it will continue to maintain
contingency plans with respect to its third-party relationships. During
fiscal 2000, the Company incurred costs totaling $2.3 million related to
Year 2000 remediation efforts. Costs incurred prior to fiscal 2000 totaled
approximately $3.0 million.
IMPACT OF INFLATION AND CHANGING PRICES
Inflation has not had a significant impact on the operations of the
Company during the preceding three years.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting guidelines for derivatives and requires the Company
to record all derivatives as assets or liabilities on the balance sheet at
fair value. This statement is effective for the Company beginning in fiscal
2002. The Company is analyzing the implementation requirements and does not
anticipate that the adoption of SFAS No. 133 will have a material impact on
the Company's consolidated balance sheets or statements of operations,
shareholders' equity and cash flows.
FORWARD-LOOKING STATEMENTS
Except for historical information, certain matters discussed in this
annual 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 annual report.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of Pier 1 Imports, Inc.
We have audited the accompanying consolidated balance sheets of Pier 1
Imports, Inc. as of February 26, 2000 and February 27, 1999, and the related
consolidated statements of operations, shareholders' equity, and cash flows
for each of the three years in the period ended February 26, 2000. 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 in accordance with auditing standards generally
accepted in the United States. Those standards 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. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Pier 1 Imports, Inc. at February 26, 2000 and February 27, 1999, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended February 26, 2000, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Fort Worth, Texas
April 3, 2000
<PAGE>
Pier 1 Imports, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
Year Ended
---------------------------------
2000 1999 1998
---------- ---------- --------
Net sales $1,231,095 $1,138,590 $1,075,405
Operating costs and expenses:
Cost of sales (including buying and
store occupancy) 718,547 638,173 613,937
Selling, general and administrative
expenses 349,394 334,629 315,788
Depreciation and amortization 39,973 31,130 23,946
---------- ---------- --------
1,107,914 1,003,932 953,671
---------- ---------- --------
Operating income 123,181 134,658 121,734
Nonoperating (income) and expenses:
Interest and investment income (2,349) (2,868) (1,880)
Interest expense 6,918 7,916 8,704
Recovery of losses associated with
trading activities -- -- (9,101)
---------- ---------- --------
4,569 5,048 (2,277)
---------- ---------- --------
Income before income taxes 118,612 129,610 124,011
Provision for income taxes 43,887 49,253 45,964
---------- ---------- --------
Net income $74,725 $80,357 $78,047
====== ====== ======
Basic earnings per share: $.78 $.82 $.77
==== ==== ====
Diluted earnings per share: $.75 $.77 $.72
==== ==== ====
The accompanying notes are an integral part of these financial statements.
<PAGE>
Pier 1 Imports, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
2000 1999
-------- --------
ASSETS
Current assets:
Cash, including temporary investments of $39,898
and $32,434, respectively $ 50,376 $ 41,945
Beneficial interest in securitized
receivables 53,820 41,000
Accounts receivable, net of allowance for doubtful
accounts of $44 and $230, respectively 5,637 9,060
Inventories 268,906 258,773
Prepaid expenses and other current assets 36,541 31,165
-------- --------
Total current assets 415,280 381,943
Properties, net 213,032 226,262
Other assets 42,398 45,786
-------- --------
$670,710 $653,991
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 39,179 $ 350
Accounts payable and accrued liabilities 136,787 129,482
-------- --------
Total current liabilities 175,966 129,832
Long-term debt 25,000 96,008
Other non-current liabilities 29,081 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 155,711 159,631
Retained earnings 264,678 201,457
Cumulative other comprehensive income (1,536) (1,850)
Less--6,949,000 and 3,107,000 common shares in
treasury, at cost, respectively (78,668) (54,654)
Less--unearned compensation (301) (1,469)
-------- --------
440,663 403,894
Commitments and contingencies
-------- --------
$670,710 $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)
Year Ended
----------------------------
2000 1999 1998
-------- -------- --------
Cash flow from operating activities:
Net income $ 74,725 $ 80,357 $ 78,047
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 39,973 31,130 23,946
Deferred taxes and other 11,033 (2,575) 1,281
Change in cash from:
Inventories (10,133) (24,103) (13,617)
Accounts receivable and other
current assets 586 2,500 (10,302)
Accounts payable and accrued expenses 8,962 12,826 25,031
Other assets, liabilities and
other, net (5,528) (4,409) 2,468
-------- -------- --------
Net cash provided by operating
activities 119,618 95,726 106,854
-------- -------- --------
Cash flow from investing activities:
Capital expenditures (45,984) (78,055) (49,854)
Proceeds from disposition of properties 19,425 36,408 8,856
Net (cost) proceeds from disposition of
Sunbelt Nursery Group, Inc. properties (439) (597) 3,905
Acquisitions -- (4,235) (1,003)
Beneficial interest in securitized
receivables (12,820) 3,145 (6,106)
-------- -------- --------
Net cash used in investing
activities (39,818) (43,334) (44,202)
-------- -------- --------
Cash flow from financing activities:
Cash dividends (11,504) (11,522) (8,934)
Purchases of treasury stock (31,806) (65,777) (10,228)
Proceeds from issuance of long-term debt 4,035 -- --
Repayments of long-term debt (36,242) (20,325) --
Proceeds from stock options exercised,
stock purchase plan and other, net 4,148 6,448 4,959
-------- -------- --------
Net cash used in financing
activities (71,369) (91,176) (14,203)
-------- -------- --------
Change in cash and cash equivalents 8,431 (38,784) 48,449
Cash and cash equivalents at beginning
of year 41,945 80,729 32,280
-------- -------- --------
Cash and cash equivalents at end of year $ 50,376 $ 41,945 $ 80,729
======== ======== ========
Supplemental cash flow information:
Interest paid $ 7,137 $ 7,929 $ 8,344
======== ======== ========
Income taxes paid $ 40,883 $ 43,084 $ 40,783
======== ======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
Pier 1 Imports, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands except per share amounts)
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 March 1, 1997 $45,361 $166,475 $118,721 ($1,385) ($5,437) ($687) $323,048
Comprehensive income:
Net income -- -- 78,047 -- -- -- 78,047
Other comprehensive income, net of tax:
Currency translation adjustments -- -- -- 277 -- -- 277
--------
Comprehensive income 78,324
--------
Purchases of treasury stock -- -- -- -- (10,228) -- (10,228)
Restricted stock grant and amortization -- 291 -- -- 2,664 (2,345) 610
Stock purchase plan, exercise of stock
options and other -- 51 -- -- 9,852 -- 9,903
Cash dividends ($.09 per share) -- -- (8,934) -- -- -- (8,934)
Three for two stock split 22,541 -- (22,489) -- -- (52) --
Conversion of 5 3/4% convertible debt 1 7 -- -- -- -- 8
-------- -------- -------- ------- -------- ------- --------
Balance February 28, 1998 67,903 166,824 165,345 (1,108) (3,149) (3,084) 392,731
-------- -------- -------- ------- -------- ------- --------
Comprehensive income:
Net income -- -- 80,357 -- -- -- 80,357
Other comprehensive income, net of tax:
Currency translation adjustments -- -- -- (742) -- -- (742)
--------
Comprehensive income 79,615
--------
Purchases of treasury stock -- -- -- -- (65,777) -- (65,777)
Restricted stock grant and amortization -- -- -- -- -- 1,758 1,758
Stock purchase plan, exercise of stock
options and other -- (7,308) -- -- 14,272 -- 6,964
Cash dividends ($.12 per share) -- -- (11,522) -- -- -- (11,522)
Three for two stock split 32,866 -- (32,723) -- -- (143) --
Conversion of 5 3/4% convertible debt 10 115 -- -- -- -- 125
-------- -------- -------- ------- -------- ------- --------
Balance February 27, 1999 100,779 159,631 201,457 (1,850) (54,654) (1,469) 403,894
-------- -------- -------- ------- -------- ------- --------
Comprehensive income:
Net income -- -- 74,725 -- -- -- 74,725
Other comprehensive income, net of tax:
Currency translation adjustments -- -- -- 314 -- -- 314
--------
Comprehensive income 75,039
--------
Purchases of treasury stock -- -- -- -- (31,806) -- (31,806)
Restricted stock grant and amortization -- 709 -- -- (1,392) 1,168 485
Stock purchase plan, exercise of stock
options and other -- (4,629) -- -- 9,184 -- 4,555
Cash dividends ($.12 per share) -- -- (11,504) -- -- -- (11,504)
-------- -------- -------- ------- -------- ------- --------
Balance February 26, 2000 $100,779 $155,711 $264,678 ($1,536) ($78,668) ($301) $440,663
======== ======== ======== ======= ======== ======= ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Pier 1 Imports, Inc. is one of North America's largest
specialty retailers of imported decorative home furnishings, gifts and
related items, with retail stores located in the United States, Canada,
Puerto Rico, the United Kingdom, Mexico and Japan. Concentrations of risk
with respect to sourcing the Company's inventory purchases are limited due
to the large number of vendors or suppliers and their geographic dispersion
around the world. The Company sources its largest amount of imported
inventory from China. Management believes that alternative merchandise
could be obtained from manufacturers in other countries over time.
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 except Pier 1 Funding, LLC, which
is a non-consolidated, bankruptcy remote, securitization subsidiary. See
Note 2 of the Notes to Consolidated Financial Statements. Material
intercompany transactions and balances have been eliminated.
Use of estimates - Preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
Reclassifications - Certain reclassifications have been made in the
prior years' consolidated financial statements to conform to the fiscal 2000
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 2000 ended February 26, 2000, fiscal 1999
ended February 27, 1999 and fiscal 1998 ended February 28, 1998.
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.
Translation of foreign currencies - Assets and liabilities of foreign
operations are translated into U.S. dollars at fiscal year-end exchange
rates. Income and expense items are translated at average exchange rates
prevailing during the year. Translation adjustments arising from
differences in exchange rates from period to period are included as a
separate component of shareholders' equity and are included in comprehensive
income.
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 may utilize various financial
instruments to manage interest rate and market risk associated with its on
and off balance sheet commitments.
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 forward foreign exchange contracts 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.
Beneficial interest in securitized receivables - In February 1997, the
Company sold all of its proprietary credit card receivables to a special
purpose wholly-owned subsidiary, Pier 1 Funding, Inc., predecessor to Pier 1
Funding, LLC ("Funding"), which transferred the receivables to the Pier 1
Imports Credit Card Master Trust (the "Master Trust"). The Master Trust
issues beneficial interests in the Master Trust that represent undivided
interests in the assets of the Master Trust consisting of the transferred
receivables and all proceeds of such receivables. The beneficial interests
in the Master Trust include the interests retained by Funding which are
represented by the Class B Certificates ($14.1 million) and the residual
interest in the Master Trust (the excess of the principal amount of
receivables held in the Master Trust over the portion represented by the
certificates sold to investors and the Class B Certificates). Due to the
short-term revolving nature of the credit card portfolio, the carrying value
of the Company's interests in the Master Trust approximates fair value.
Inventories - Inventories are comprised primarily of finished
merchandise and are stated at the lower of average cost or market; cost is
determined principally on a weighted average method.
Properties, maintenance and repairs - Buildings, equipment, furniture
and fixtures, and leasehold interests and improvements are carried at cost
less accumulated depreciation. Depreciation is computed using the
straight-line method over estimated remaining useful lives of the assets
ranging from three to thirty years. Amortization of improvements to leased
properties is based upon the shorter of the remaining lease term or the
estimated useful lives of such assets.
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.
Revenue recognition - The Company recognizes revenue at the point of
sale or at the time the merchandise is shipped to the customer. Revenue
from gift certificates and merchandise credits is deferred until redemption.
Merchandise refunds are reported at the time of return, as the effect of
returns is not significant to the Company's operating results.
Advertising costs - All advertising costs are expensed the first time
the advertising takes place. Advertising costs were $54,970,000,
$47,491,000 and $40,630,000 in fiscal 2000, 1999 and 1998, respectively.
The amounts of prepaid advertising at the end of fiscal years 2000 and 1999
were $727,000 and $1,557,000, respectively.
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.
Stock-based compensation - The Company grants stock options and
restricted stock for a fixed number of shares to employees with stock option
exercise prices equal to the fair market value of the shares on the date of
grant. The Company continues to account for stock option grants and
restricted stock grants in accordance with Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and,
accordingly, recognizes no compensation expense for the stock option grants.
Earnings per share - Basic earnings per share amounts were determined
by dividing net income by the weighted average number of common shares
outstanding for the period. Diluted earnings per share amounts were
similarly computed, but included 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 earnings per share, interest
and amortization of debt issue costs, net of any applicable taxes, have been
added back to net income to reflect assumed conversions.
Earnings per share amounts have been adjusted to reflect the effects of
the three for two stock splits, effected in the form of stock dividends,
distributed July 29, 1998 and July 30, 1997 and are calculated as follows
(in thousands except per share amounts):
2000 1999 1998
-------- -------- --------
Net income $ 74,725 $ 80,357 $ 78,047
Plus interest and debt issue costs, net of
tax, on the assumed conversion of the
5 3/4% subordinated notes 2,237 3,083 3,245
-------- -------- --------
Diluted net income $ 76,962 $ 83,440 $ 81,292
======== ======== ========
Average shares outstanding:
Basic 95,766 98,120 101,088
Plus assumed exercise of stock options 644 1,101 1,303
Plus assumed conversion of the
5 3/4% subordinated notes 6,887 9,643 10,489
------- ------- -------
Diluted 103,297 108,864 112,880
======= ======= =======
Earnings per share:
Basic $.78 $.82 $.77
==== ==== ====
Diluted $.75 $.77 $.72
==== ==== ====
Stock options for which the exercise price was greater than the average
market price of common shares were not included in the computation of
diluted earnings per share as the effect would be antidilutive. At the end
of fiscal years 2000 and 1999, there were 1,157,025 and 1,543,500,
respectively, stock options outstanding with exercise prices greater than
the average market price of common shares. No stock options were
outstanding with exercise prices greater than the average market price of
common shares as of fiscal 1998 year-end.
Impact of recently issued accounting standards - In June 1998, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and
reporting guidelines for derivatives and requires the Company to record all
derivatives as assets or liabilities on the balance sheet at fair value.
This statement is effective for the Company beginning in fiscal 2002. The
Company is analyzing the implementation requirements and does not anticipate
that the adoption of SFAS No. 133 will have a material impact on the
Company's consolidated balance sheets or statements of operations,
shareholders' equity and cash flows.
NOTE 2 - PROPRIETARY CREDIT CARD INFORMATION
The proprietary credit card receivables, securitized as discussed
below, arise primarily under open-end revolving credit accounts issued by
the Company's subsidiary, Pier 1 National Bank, to finance purchases of
merchandise and services offered by the Company. These accounts have
various billing and payment structures, including varying minimum payment
levels. The Company has an agreement with a third party to provide certain
credit card processing and related credit services, while the Company
maintains control over credit policy decisions and customer service
standards.
As of fiscal 2000 year-end, the Company had approximately 4,000,000
proprietary cardholders and approximately 1,022,000 customer credit accounts
considered active (accounts with a purchase within the previous 12 months).
The Company's proprietary credit card sales accounted for 26.3% of total
U.S. store sales in fiscal 2000. A summary of the Company's proprietary
credit card results for each of the last three fiscal years follows (in
thousands):
2000 1999 1998
-------- -------- --------
Income:
Finance charge income, net of debt
service costs $ 16,780 $ 15,117 $ 12,338
Insurance and other income 287 314 303
-------- -------- --------
17,067 15,431 12,641
-------- -------- --------
Costs:
Processing fees 10,763 9,456 8,739
Bad debts 4,664 6,356 6,845
-------- -------- --------
15,427 15,812 15,584
-------- -------- --------
Net proprietary credit card
income (expense) $ 1,640 $ (381) $ (2,943)
======== ======== ========
Proprietary credit card sales $300,462 $276,184 $257,518
======== ======== ========
Costs as a percent of proprietary credit
card sales 5.13% 5.73% 6.05%
===== ===== =====
Gross proprietary credit card receivables
at year-end $100,095 $ 87,601 $ 90,930
======== ======== ========
Proprietary credit card sales as a percent
of total U.S. store sales 26.3% 26.0% 25.9%
===== ===== =====
In February 1997, the Company securitized its entire portfolio of
proprietary credit card receivables (the "Receivables"). The Company sold
all existing Receivables to a special purpose wholly-owned subsidiary, Pier
1 Funding, Inc., predecessor to Pier 1 Funding, LLC ("Funding"), which
transferred the Receivables to the Pier 1 Imports Credit Card Master Trust
(the "Master Trust"). The Master Trust issues beneficial interests in the
Master Trust that represent undivided interests in the assets of the Master
Trust consisting of the Receivables and all proceeds of the Receivables. On
a daily basis, the Company sells to Funding for transfer to the Master Trust
all newly generated Receivables, except those failing certain eligibility
criteria, and receives as the purchase price payments of cash (funded from
the amount of undistributed principal collections from the Receivables in
the Master Trust) and residual interests in the Master Trust. The Company
has no obligation to reimburse Funding, the Master Trust or purchasers of
any certificates issued by the Master Trust for credit losses from the
Receivables.
Funding was capitalized by the Company as a special purpose wholly-owned
subsidiary that is subject to certain covenants and restrictions, including
a restriction from engaging in any business or activity unrelated to
acquiring and selling interests in receivables. Neither Funding nor the
Master Trust is consolidated with the Company.
In the initial sale of the Receivables, the Company sold $84.1 million of
the Receivables and received $49.6 million in cash and $34.1 million in
beneficial interests in the Master Trust. The Master Trust sold to third
parties $50.0 million of Series 1997-1 Class A Certificates, which bear
interest at 6.74% and mature in May 2002. Funding retained $14.1 million of
Series 1997-1 Class B Certificates, which are currently non-interest bearing
and subordinated to the Class A Certificates. Funding also retained the
residual interest in the Master Trust. As of February 26, 2000 and February
27, 1999, the Company had $53.8 million and $41.0 million, respectively, in
beneficial interests in the Master Trust. Beginning in October 2001, unless
pre-funded through a new series of certificates, principal collections of
Receivables allocable to Series 1997-1 Certificates will be used to amortize
the outstanding balances of the Series 1997-1 Certificates and will not be
available to fund the purchase of new receivables being transferred from the
Company.
In October 1997, the Master Trust issued Series 1997-2 variable funding
certificates which mature in October 2002. The 1997-2 Class A Certificates
may be issued and repaid from time to time in increments of $1.0 million
that bear interest at either a fixed spread over LIBOR or the A-1/P-1
commercial paper rate plus program and administrative fees. The maximum
amount of 1997-2 Class A Certificates that may be issued varies with the
amount of Receivables in the Master Trust, but may not exceed $50.0 million.
As of February 26, 2000, $18.7 million was the maximum amount available to
be drawn on the 1997-2 Class A Certificates. Funding retained the 1997-2
Class B Certificates which are non-interest bearing and are subordinated to
the Class A Certificates and will be issued in amounts equal to 11.7% of the
corresponding Class A Certificates. As of February 26, 2000, no amounts
were outstanding related to the 1997-2 Class A Certificates.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
statement provides guidance for distinguishing transfers of financial assets
(securitizations) that are sales from transfers that are secured borrowings
which occurred after December 31, 1996. The Company's securitization, as
discussed above, was accounted for as a sale in accordance with SFAS No.
125. The Company expects no material impact on net income in future years
as a result of the sale, although the precise amounts will be dependent on a
number of factors such as interest rates and levels of securitization.
NOTE 3 - PROPERTIES
Properties are summarized as follows at February 26, 2000 and February 27,
1999 (in thousands):
2000 1999
-------- --------
Land $ 22,384 $ 31,620
Buildings 59,761 67,253
Equipment, furniture and fixtures 183,313 166,460
Leasehold interests and improvements 157,801 144,153
-------- --------
423,259 409,486
Less accumulated depreciation and
amortization 210,227 183,224
-------- --------
Properties, net $213,032 $226,262
======== ========
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES/OTHER NON-CURRENT
LIABILITIES
The following is a summary of accounts payable and accrued liabilities
and other non-current liabilities at February 26, 2000 and February 27, 1999
(in thousands):
2000 1999
-------- --------
Trade accounts payable $ 57,203 $ 52,231
Accrued payroll and other employee-related
liabilities 23,515 26,345
Accrued taxes, other than income 13,073 10,267
Gift certificates and merchandise credits
outstanding 15,494 12,406
Accrued income taxes payable 12,152 9,793
Other 15,350 18,440
-------- --------
Accounts payable and accrued liabilities $136,787 $129,482
======== ========
Accrued average rent $ 16,260 $ 15,269
Other 12,821 8,988
-------- --------
Other non-current liabilities $ 29,081 $ 24,257
======== ========
NOTE 5 - LONG-TERM DEBT AND AVAILABLE CREDIT
Long-term debt is summarized as follows at February 26, 2000 and February
27, 1999 (in thousands):
2000 1999
-------- --------
Industrial revenue bonds $25,000 $25,000
5 3/4% convertible subordinated notes 39,179 67,802
Other -- 3,556
------- --------
64,179 96,358
Less - portion due within one year 39,179 350
------- --------
Long-term debt $25,000 $96,008
======== ========
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 seven-day lower floater put bonds, and interest rates float
with market rates for similar tax-exempt debt issues. The Company's
weighted average interest rates were 4.8% and 4.9% for fiscal 2000 and 1999,
respectively. Interest is payable monthly.
In September 1996, the Company issued $86.3 million principal amount of
5 3/4% convertible subordinated notes due October 1, 2003. The notes were
convertible at any time prior to maturity, unless previously redeemed or
repurchased, into shares of common stock of the Company at a conversion
price of $8.22 per share (adjusted for the three for two stock splits,
effected in the form of stock dividends, distributed July 29, 1998 and July
30, 1997). The Company had the option to redeem the notes, in whole or in
part, on or after October 2, 1999, at a redemption price (expressed as a
percentage of principal amount) of 103% of par value which was scheduled to
decline annually to 100% of par value at the maturity date. In the event of
a change of control, holders of these notes could have, at their option,
required the Company to repurchase all or any portion of the principal
amount. During fiscal 2000 and fiscal 1999, the Company purchased and
retired $28.6 million and $18.3 million principal amount, respectively, of
these notes at an average price of 98.8% and 99.8% of par, respectively.
Interest on the notes was payable semiannually on April 1 and October 1 of
each year. In February 2000, the Company announced its intention to call
the remaining $39.2 million outstanding principal amount of these notes for
redemption on March 23, 2000. The notes were convertible into common stock
of the Company at any time prior to the close of business on March 22, 2000,
at a conversion price of $8.22 per share. During March 2000, $39,164,000 of
the notes were converted into 4,764,450 shares of the Company's common stock
and $15,000 of the notes were redeemed for cash. See Note 12 of the Notes
to Consolidated Financial Statements.
Long-term debt matures as follows (in thousands):
Fiscal 2001 $39,179
2002 --
2003 --
2004 --
2005 --
Thereafter 25,000
-------
$64,179
=======
In November 1998, the Company replaced its three-year, $65 million
competitive advance and revolving credit facility with a five-year $125
million unsecured credit facility which expires in 2003. The interest rate
on borrowings is determined based upon a spread to LIBOR that varies
depending upon either the Company's senior debt rating or leverage ratio.
At fiscal 2000 year-end, all of the new credit facility was available.
The Company has other lines of credit which total approximately $168.9
million. The lines may be used for short-term working capital requirements
and/or merchandise letters of credit. At fiscal 2000 year-end,
approximately $74.6 million had been utilized for letters of credit, leaving
$94.3 million in available lines of credit. The weighted average interest
rate on short-term working capital loans outstanding was 6.0% for fiscal
1999. The Company had no short-term working capital loans during fiscal
2000.
Most 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
repurchases of common stock.
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
As of February 26, 2000 and February 27, 1999, the fair values of the 5
3/4% convertible notes were $40.4 million and $81.7 million, respectively,
compared to the recorded values of $39.2 million and $67.8 million,
respectively. The fair value of these debentures was estimated based on the
quoted market values as of February 26, 2000 and February 27, 1999 for the
debentures. There are no other significant assets or liabilities with a
fair value different from the recorded value.
At February 26, 2000, the Company had approximately $5.6 million of
forward foreign exchange contracts outstanding with negligible fair values
and with maturities ranging from one to six months.
NOTE 7 - EMPLOYEE BENEFIT PLANS
In 1986, the Company adopted a qualified, defined contribution employee
retirement plan. All full- and part-time personnel who are at least 21
years old, have been employed for a minimum of 12 months and have worked
1,000 hours in the preceding 12 months 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 $1,753,000, $1,653,000 and $1,573,000 in fiscal 2000, 1999 and
1998, 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's expense for this non-qualified plan
was not significant for fiscal 2000, 1999 and 1998.
The Company maintains supplemental retirement plans ("the Plans") for
certain of its executive officers. The Plans provide that upon death,
disability or reaching retirement age, a participant will receive benefits
based on highest compensation and years of service. The Company recorded
expenses related to the Plans of $1,409,000, $1,633,000 and $1,185,000 in
fiscal 2000, 1999 and 1998, respectively.
NOTE 8 - MATTERS CONCERNING SHAREHOLDERS' EQUITY
Stock splits - On July 29, 1998 and July 30, 1997, the Company
distributed 32,866,000 and 22,541,000 common shares, respectively, pursuant
to the three for two stock splits, effected in the form of 50% common stock
dividends, to shareholders of record on July 15, 1998 and July 16, 1997,
respectively.
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
compensation and Directors may contribute part or all of their 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. Company contributions to the plan were $954,000, $1,032,000 and
$1,037,000 in fiscal years 2000, 1999 and 1998, respectively.
Restricted stock grant plans - In fiscal 1998, the Company issued
238,500 shares of its common stock to key officers pursuant to a Management
Restricted Stock Plan which provides for the issuance of up to 415,600
shares. The restricted stock grants will vest over a four-to-ten year
period of continued employment. The fair value at the date of grant of
these restricted stock shares is being expensed over the aforementioned
specified vesting periods. The fair value at the date of grant of the
restricted shares granted in fiscal 1998 was $3,000,000. Shares not vested
are returned to the plan if employment is terminated for any reason. To
date, 107,184 shares have been returned to the plan.
In fiscal 1991, the Company issued 726,804 shares of its common stock
to key officers pursuant to a Restricted Stock Grant Plan which provided for
the issuance of up to 1,037,214 shares. These shares vest, and the fair
value at the date of grant is expensed, over a ten year period of continued
employment. Unvested shares are returned to the plan upon employment
termination. As of February 26, 2000, 407,742 shares have been returned to
the plan. In fiscal 2000, the Restricted Stock Grant Plan was terminated by
the Board of Directors and is no longer available for issuance of common
stock to key officers. The final vesting period was March 2000.
Total compensation expense for both of the restricted stock grant plans
was $485,000, $1,759,000 and $943,000 for fiscal 2000, 1999 and 1998,
respectively.
Stock option plans - In June 1999, the Company adopted the Pier 1
Imports, Inc. 1999 Stock Plan (the "Plan"). The Plan will ultimately
replace the Company's two previous stock option plans, which were the 1989
Employee Stock Option Plan (the "Employee Plan") and the 1989 Non-Employee
Director Stock Option Plan (the "Director Plan").
The Plan provides for the granting of options to directors and
employees with an exercise price not less than the fair market value of the
common stock on the date of the grant. Options may be either Incentive
Stock Options authorized under Section 422 of the Internal Revenue Code or
non-qualified options, which do not qualify as Incentive Stock Options.
Current director compensation provides for non-qualified options covering
6,000 shares to be granted once each year to each non-employee director.
Additionally the Plan authorizes a Director Deferred Stock Program. As the
program is currently implemented by the Board of Directors, each director
must defer a minimum of 50% and may defer up to 100% of the director's cash
fees into a deferred stock account. The amount deferred receives a 50%
matching contribution from the Company. The Plan provides that a maximum of
7,000,000 shares of common stock may be issued under the Plan, of which not
more than 250,000 may be issued in exchange for deferred stock units.
Options issued to non-director employees vest equally over a period of four
years while directors' options are fully vested upon date of issuance.
Additionally, employee options will fully vest upon retirement or, under
certain conditions, a change in control of the Company. As of February 26,
2000, there were 5,141,276 shares available for grant under the Plan, of
which 227,638 may be used for deferred stock issuance. Additionally,
outstanding options covering 45,000 shares were exercisable and 22,362
shares were issuable in exchange for deferred stock units. The Plan will
expire in June 2009, and the Board of Directors may at any time suspend or
terminate the Plan or amend the Plan, subject to certain limitations.
Under the Employee Plan, options may be granted to qualify as Incentive
Stock Options under Section 422 of the Internal Revenue Code or as non-
qualified options. Most options issued under the Employee Plan vest over a
period of four to five years. As of February 26, 2000 and February 27,
1999, outstanding options covering 2,107,953 and 1,701,467 shares were
exercisable and 747,409 and 296,722 shares were available for grant,
respectively. The Employee Plan expires in June 2004. The Director Plan
expired in fiscal 2000. As of February 26, 2000 and February 27, 1999
outstanding options covering 61,764 and 109,352 shares, respectively, were
exercisable under the Director Plan. At the end of fiscal year 1999,
118,718 shares were available for grant; however, due to the expiration of
the Director Plan during fiscal 2000, no shares are available for future
grants. Both plans were subject to adjustments for stock dividends and
certain other changes to the Company's capitalization.
A summary of stock option transactions related to the stock option
plans during the three fiscal years ended February 26, 2000 is as follows
(the summary reflects the effects of the three for two stock splits,
effected in the form of stock dividends, distributed July 29, 1998 and July
30, 1997):
<PAGE>
</TABLE>
<TABLE>
Weighted Exercisable Shares
Average Weighted Average -----------------------------
Exercise Fair Value at Number of Weighted Average
Shares Price Date of Grant Shares Exercise Price
--------- -------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Outstanding at March 1, 1997 4,311,612 $ 5.31 1,357,357 $3.55
Options granted 886,500 12.55 $5.18
Options exercised (939,415) 3.93
Options cancelled or expired (269,748) 5.76
---------
Outstanding at February 28, 1998 3,988,949 7.21 1,350,332 5.16
Options granted 1,550,500 13.27 5.38
Options exercised (662,889) 6.11
Options cancelled or expired (278,730) 10.72
---------
Outstanding at February 27, 1999 4,597,830 9.20 1,810,819 6.66
Options granted 2,379,500 6.20 3.18
Options exercised (134,936) 4.63
Options cancelled or expired (793,187) 10.63
---------
Outstanding at February 26, 2000 6,049,207 7.94 2,214,717 7.28
=========
For shares outstanding at February 26, 2000:
Weighted
Average Weighted Average Shares Weighted Average
Total Exercise Remaining Currently Exercise Price -
Ranges of Exercise Prices Shares Price Contractual Life Exercisable Exercisable Shares
------------------------- --------- -------- ---------------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
$ 1.81 - $ 4.61 1,011,884 $ 3.78 4.41 922,469 $ 3.71
$ 5.81 - $ 5.81 2,009,000 5.81 9.55 -0- n/a
$ 6.25 - $ 8.50 1,871,748 7.86 7.72 844,048 7.57
$10.88 - $18.50 1,156,575 15.39 8.01 448,200 14.06
<PAGE>
The Company accounts for its stock options using the intrinsic value-
based method of accounting prescribed by APB Opinion No. 25, but is required
to disclose the pro forma effect on net income and earnings per share as if
the options were accounted for using a fair value-based method of
accounting. The fair values for options issued in fiscal 2000, 1999 and
1998 have been estimated as of the date of grant using the Black-Scholes or
a similar option pricing model with the following weighted average
assumptions for 2000, 1999 and 1998, respectively: risk-free interest rates
of 5.79%, 5.14% and 5.76%, expected volatility factors of .5150, .3655 and
.3465, expected dividend yields of 1.0%, 1.0% and 0.8% and weighted average
expected lives of six years from date of grant to date of exercise for all
options. For purposes of computing pro forma net income and earnings per
share, the fair value of the stock options is amortized on a straight-line
basis as compensation expense over the vesting periods of the options. The
pro forma effects on net income and earnings per share are as follows (in
thousands except per share amounts):
2000 1999 1998
------- ------- -------
Pro forma net income $72,317 $77,891 $76,995
======= ======= =======
Pro forma basic earnings per share $.76 $.79 $.76
==== ==== ====
Pro forma diluted earnings per share $.72 $.74 $.71
==== ==== ====
Option valuation models are used in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility and the average
life of options. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its stock options.
In addition, the pro forma net income and earnings per share amounts shown
above for fiscal 2000, 1999 and 1998 do not include the effect of any grants
made prior to fiscal 1996.
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, and authorized the
issuance of Rights for subsequently issued shares of common stock. 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) 10 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 (currently the exercise price is $14.81), 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.
Shares reserved for future issuances - As of February 26, 2000, the
Company had approximately 127,363,000 shares reserved for future issuances
under the stock plans, conversion of the 5 3/4% convertible subordinated
notes due 2003 and the share purchase rights plan. Assuming the conversion
of the subordinated notes, the requirement for reserved shares would have
been approximately 122,597,000 shares.
NOTE 9 - INCOME TAXES
The provision for income taxes for each of the last three fiscal years
consists of (in thousands):
2000 1999 1998
------- ------- -------
Federal:
Current $39,463 $47,007 $45,603
Deferred 355 (2,948) (5,442)
State:
Current 1,890 5,112 5,705
Deferred 1,370 (378) (699)
Foreign:
Current 809 460 797
------- ------- -------
$43,887 $49,253 $45,964
======= ======= =======
Deferred tax assets (liabilities) at February 26, 2000 and February 27,
1999 are comprised of the following (in thousands):
2000 1999
------- -------
Deferred tax assets:
Capital loss carryforwards $ -- $ 1,248
Inventory 4,339 3,491
Deferred compensation 5,268 5,661
Accrued average rent 7,254 6,922
Losses on a foreign
subsidiary 2,497 2,093
Self insurance reserves 2,049 3,841
Fixed assets, net 441 --
Other 1,637 2,351
-------- --------
23,485 25,607
Valuation allowance (1,916) (2,090)
-------- --------
Total deferred tax assets 21,569 23,517
-------- --------
Deferred tax liabilities:
Fixed assets, net -- (223)
------- -------
Total deferred tax liabilities -- (223)
------- -------
Net deferred tax assets $21,569 $23,294
======= =======
The Company has settled and closed all Internal Revenue Service
examinations of the Company's tax returns for all years through fiscal 1997.
Federal income tax returns for fiscal years 1998 and 1999 are currently
under examination. The Company does not anticipate that adjustments, if
any, arising from these examinations will have a material impact on the
Company's results of operations.
At February 26, 2000, the net capital loss carryforward for income tax
purposes of approximately $3.2 million expired. For financial reporting
purposes, a valuation allowance remains at February 26, 2000 to partially
offset the deferred tax asset relating to the losses of a foreign
subsidiary.
Undistributed earnings of the Company's non-U.S. subsidiaries amounted
to approximately $18.9 million at February 26, 2000. These earnings are
considered to be indefinitely reinvested and, accordingly, no additional
U.S. income taxes or non-U.S. withholding taxes have been provided.
Determination of the amount of additional taxes that would be payable if
such earnings were not considered indefinitely reinvested is not practical.
The difference between income taxes at the statutory federal income tax
rate of 35% in fiscal 2000, 1999 and 1998, and income tax reported in the
consolidated statements of operations is as follows (in thousands):
2000 1999 1998
------- ------- -------
Tax at statutory federal tax
rate $41,514 $45,364 $43,404
Valuation allowance -- -- (3,595)
State income taxes, net of
federal benefit 2,526 5,832 5,580
Work opportunity tax credit,
foreign tax credit and
R&E credit (283) (327) (541)
Net foreign income taxed at
lower rates (960) (517) (590)
Other, net 1,090 (1,099) 1,706
------- ------- -------
$43,887 $49,253 $45,964
======= ======= =======
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Leases - The Company leases certain property consisting principally of
retail stores, warehouses and material handling and computer equipment under
leases expiring through the year 2015. Most retail store locations are
leased for initial terms of 10 to 15 years with varying renewal options and
rent escalation clauses. Certain leases provide for additional rental
payments based on a percentage of sales in excess of a specified base. The
Company's lease obligations are considered operating leases, and all
payments are reflected in the accompanying consolidated statements of
operations.
During fiscal 2000 and fiscal 1999, the Company sold certain store
properties for $19.3 million and $31.0 million, respectively. These stores
were leased back from unaffiliated third parties for periods of 10 to 15
years. The resulting leases are being accounted for as operating leases.
The Company deferred gains of $3.3 million in fiscal 2000 and $1.3 million
in fiscal 1999 on these sale-leaseback transactions; the gains are being
amortized over the initial lives of the leases. Future minimum lease
commitments of these operating leases are included in the summary below of
the Company's operating leases.
At February 26, 2000, the Company had the following minimum lease
commitments in the years indicated (in thousands):
Operating
Fiscal Year Leases
----------- ---------
2001 $126,840
2002 117,253
2003 108,757
2004 102,258
2005 91,823
Thereafter 313,439
--------
Total lease commitments $860,370
========
Present value of total operating
lease commitments at 10.0% $568,484
========
Rental expense incurred was $131,835,000, $114,966,000 and
$104,797,000, including contingent rentals of $794,000, $884,000 and
$677,000, based upon a percentage of sales, and net of sublease incomes
totaling $2,141,000, $1,511,000 and $1,821,000 in fiscal 2000, 1999 and
1998, respectively.
Legal matters - In addition to the legal matters discussed in Note 11,
there are various other claims, lawsuits, investigations and pending actions
against the Company and its subsidiaries incident to the operations of its
business. Liability, if any, associated with these other matters is not
determinable at February 26, 2000; however, the Company considers them to be
ordinary and routine in nature. The Company maintains liability insurance
against most of these claims. 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 11 - TRADING ACTIVITIES
In late December 1995, the Company was made aware of losses totaling
$19.3 million resulting from substantial trading activities in a
discretionary account by a financial consultant retained to manage the
Company's excess cash and short-term investments. During fiscal 1998, the
Company settled all litigation related to the losses associated with the
trading activities. As a part of the settlement agreements with all
parties, the Company received settlements totaling $11.0 million, of which
$1.9 million was considered a reimbursement of legal fees associated with
the recovery of these losses. As the Company had not recorded any tax
benefit on the previously reported net losses associated with trading
activities, no tax expense was provided on the recovery of these losses.
NOTE 12 - SUBSEQUENT EVENT - CONVERSION OF 5 3/4% CONVERTIBLE SUBORDINATED
NOTES
In February 2000, the Company announced its intention to call on March
23, 2000 the $39.2 million outstanding principal amount of its 5 3/4%
convertible subordinated notes due October 1, 2003. The notes were
convertible, without interest, into common stock of the Company at any time
prior to the close of business on March 22, 2000, at a conversion price of
$8.22 per share. The convertible notes were redeemable at the Company's
option, in whole or in part, at any time on or after October 2, 1999 at a
redemption price of 103% of par value which was scheduled to decline
annually to 100% of par value at the maturity date. Prior to redemption,
$39,164,000 of the notes was converted into 4,764,450 shares of the
Company's common stock and $15,000 of the notes was redeemed for cash at a
redemption price of 103% of par value. The conversion and redemption of
these notes reduced the Company's debt by $39.2 million and increased its
equity capitalization by $39.4 million.
NOTE 13 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the years ended February 26,
2000 and February 27, 1999 are set forth below (in thousands except per
share amounts):
Three Months Ended
-----------------------------------------
Fiscal 2000 5/29/99 8/28/99 11/27/99 2/26/00
- ----------- -------- -------- -------- --------
Net sales $261,002 $291,787 $298,223 $380,083
Gross profit 110,083 113,212 126,029 163,224
Net income 12,645 11,886 16,151 34,043
Basic earnings per share $.13 $.12 $.17 $.36
Diluted earnings per share $.13 $.12 $.16 $.34
Three Months Ended
--------------------------------------
Fiscal 1999 5/30/98 8/29/98 11/28/98 2/27/99
- ----------- -------- -------- -------- --------
Net sales $250,508 $281,489 $274,618 $331,975
Gross profit 109,687 118,068 124,094 148,568
Net income 15,501 17,461 19,097 28,298
Basic earnings per share(1) $.15 $.18 $.20 $.29
Diluted earnings per share(1) $.14 $.17 $.19 $.27
___________________
(1) Reflects the effect of the three for two stock split, effected in the
form of a stock dividend, distributed July 29, 1998.
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
Market Price
--------------------- Cash Dividends
Fiscal 2000 High Low Per Share(1)
- ----------- -------- -------- --------------
First quarter 11 11/16 7 1/16 $.03
Second quarter 12 1/4 5 11/16 .03
Third quarter 7 1/4 5 3/8 .03
Fourth quarter 9 3/16 5 15/16 .03
Fiscal 1999
___________
First quarter(2) 20 5/8 15 51/64 $.03
Second quarter(2) 16 43/64 10 1/2 .03
Third quarter 10 13/16 6 5/16 .03
Fourth quarter 11 11/16 8 1/16 .03
(1) For restrictions on the payments of dividends, see Management's
Discussion and Analysis of Financial Condition and Results of Operations
- Liquidity and Capital Resources.
(2) Market prices and cash dividends have been adjusted to reflect the
effect of the three for two stock split, effected in the form of a stock
dividend, distributed July 29, 1998.
</TABLE>
EXHIBIT 21
ROSTER OF SUBSIDIARIES OF THE COMPANY
Pier 1 Assets, Inc., a Delaware corporation
Pier 1 Licensing, Inc., a Delaware corporation
Pier 1 Imports (U.S.), Inc., a Delaware corporation
Pier 1 Funding, LLC, a Delaware limited liability
company
Pier Lease, Inc., a Delaware corporation
Pier-SNG, Inc., a Delaware corporation
PIR Trading, Inc., a Delaware corporation
Pier International Limited, a Hong Kong private
company
Pier Alliance Ltd., a Bermuda company
The Pier Retail Group Limited, a United Kingdom
company
The Pier (Retail) Limited, a United Kingdom
company
Pier Direct Limited, a United Kingdom
company
Pier-FTW, Inc., a Delaware corporation
Pacific Industrial Properties, Inc., a Texas corporation
Pier Group, Inc., a Delaware corporation
Pier 1 Holdings, Inc., a Delaware corporation
Pier 1 Services Company, a Delaware business trust
Pier 1 National Bank, a national banking association
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-
K) of Pier 1 Imports, Inc. of our report dated April 3, 2000, included in
the 2000 Annual Report to Shareholders of Pier 1 Imports, Inc.
We consent to the incorporation by reference in the Registration Statements
on Form S-8 (No. 333-34100, No. 333-88323, No. 333-13491 and No. 33-32166)
and in the Registration Statements on Form S-3 (No. 33-49356 and No. 333-
61155) of our reports dated April 3, 2000, with respect to the consolidated
financial statements and schedule of Pier 1 Imports, Inc. included or
incorporated by reference in the Annual Report (Form 10-K) for the year
ended February 26, 2000.
/s/ Ernst & Young LLP
Fort Worth, Texas
May 23, 2000
<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-26-2000
<PERIOD-END> FEB-26-2000
<CASH> 50,376
<SECURITIES> 0
<RECEIVABLES> 5,681
<ALLOWANCES> 44
<INVENTORY> 268,906
<CURRENT-ASSETS> 415,280
<PP&E> 423,259
<DEPRECIATION> 210,227
<TOTAL-ASSETS> 670,710
<CURRENT-LIABILITIES> 175,966
<BONDS> 25,000
<COMMON> 100,779
0
0
<OTHER-SE> 339,884
<TOTAL-LIABILITY-AND-EQUITY> 670,710
<SALES> 1,231,095
<TOTAL-REVENUES> 1,231,095
<CGS> 718,547
<TOTAL-COSTS> 718,547
<OTHER-EXPENSES> 39,973
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,918
<INCOME-PRETAX> 118,612
<INCOME-TAX> 43,887
<INCOME-CONTINUING> 74,725
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,725
<EPS-BASIC> .78
<EPS-DILUTED> .75
</TABLE>
