<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended November 25, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
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Commission File Number 1-7832
PIER 1 IMPORTS, INC.
-------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-1729843
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
301 Commerce Street, Suite 600, Fort Worth, Texas 76102
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(Address of principal executive offices, including zip code)
(817)252-8000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X]. No [ ].
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares outstanding as of December 30, 2000
----------------------------- ------------------------------------------
Common Stock, $1.00 par value 95,899,461
<PAGE> 2
PIER 1 IMPORTS, INC.
INDEX TO QUARTERLY FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Operations for the Three and Nine Months Ended
November 25, 2000 and November 27, 1999..................................................3
Consolidated Balance Sheets,
November 25, 2000, February 26, 2000 and November 27, 1999...............................4
Consolidated Statements of Cash Flows for the Nine Months Ended
November 25, 2000 and November 27, 1999..................................................5
Consolidated Statement of Shareholders' Equity for the Nine Months Ended
November 25, 2000........................................................................6
Notes to Consolidated Financial Statements......................................................7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................................................13
Item 6. Exhibits and Reports on Form 8-K........................................................13
Signatures ........................................................................................14
</TABLE>
2
<PAGE> 3
PART I
Item 1. Financial Statements.
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Nov. 25, Nov. 27, Nov. 25, Nov. 27,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 343,493 $ 298,223 $ 981,012 $ 851,012
Operating costs and expenses:
Cost of sales (including buying and
store occupancy) 196,333 172,194 571,590 501,688
Selling, general and administrative
expenses 98,228 88,339 284,315 251,166
Depreciation and amortization 10,653 10,246 31,503 29,379
--------- --------- --------- ---------
305,214 270,779 887,408 782,233
--------- --------- --------- ---------
Operating income 38,279 27,444 93,604 68,779
Non operating (income) and expenses:
Interest and investment income (226) (198) (1,061) (1,224)
Interest expense 1,097 2,006 2,347 5,429
--------- --------- --------- ---------
871 1,808 1,286 4,205
--------- --------- --------- ---------
Income before income taxes 37,408 25,636 92,318 64,574
Provision for income taxes 13,839 9,485 34,157 23,892
--------- --------- --------- ---------
Net income $ 23,569 $ 16,151 $ 58,161 $ 40,682
========= ========= ========= =========
Earnings per share:
Basic $ .25 $ .17 $ .60 $ .42
========= ========= ========= =========
Diluted $ .24 $ .16 $ .59 $ .41
========= ========= ========= =========
Average shares outstanding during period:
Basic 95,977 96,295 96,461 96,299
========= ========= ========= =========
Diluted 97,560 103,242 98,250 104,439
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
PIER 1 IMPORTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Nov. 25, Feb. 26, Nov. 27,
2000 2000 1999
------------ ------------ ------------
(unaudited) (unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash, including temporary investments of $2,952,
$39,898 and $16,330, respectively $ 19,452 $ 50,376 $ 34,392
Beneficial interest in securitized receivables 74,262 53,820 53,571
Other accounts receivable, net 8,058 5,637 6,491
Inventories 340,523 268,906 279,608
Prepaid expenses and other current assets 37,030 36,541 37,508
------------ ------------ ------------
Total current assets 479,325 415,280 411,570
Properties, net 212,081 213,032 217,067
Other assets 37,803 42,398 45,041
------------ ------------ ------------
$ 729,209 $ 670,710 $ 673,678
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ -- $ 39,179 $ --
Accounts payable and accrued liabilities 147,061 136,787 136,066
------------ ------------ ------------
Total current liabilities 147,061 175,966 136,066
Long-term debt 55,000 25,000 84,107
Other non-current liabilities 31,159 29,081 28,572
Shareholders' equity:
Common stock, $1.00 par, 500,000,000 shares
authorized, 100,779,000 issued 100,779 100,779 100,779
Paid-in capital 140,075 155,711 156,558
Retained earnings 312,187 264,678 233,453
Cumulative other comprehensive income (4,387) (1,536) (1,542)
Less - 4,861,000, 6,949,000 and 4,680,000 common
shares in treasury, at cost, respectively (52,543) (78,668) (63,904)
Less - unearned compensation (122) (301) (411)
------------ ------------ ------------
495,989 440,663 424,933
------------ ------------ ------------
$ 729,209 $ 670,710 $ 673,678
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
November 25, November 27,
2000 1999
-------------- --------------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 58,161 $ 40,682
Adjustments to reconcile to net cash provided by
operating activities:
Depreciation and amortization 31,503 29,379
Deferred taxes and other 5,265 7,554
Change in cash from:
Inventories (71,617) (20,835)
Other accounts receivable and other current assets (4,623) (4,276)
Accounts payable and accrued expenses 13,181 8,026
Other assets, liabilities, and other, net 1,987 (3,159)
-------------- --------------
Net cash provided by operating activities 33,857 57,371
-------------- --------------
Cash flow from investing activities:
Capital expenditures (33,980) (38,417)
Proceeds from disposition of properties 294 19,001
Beneficial interest in securitized receivables (20,442) (12,569)
-------------- --------------
Net cash used in investing activities (54,128) (31,985)
-------------- --------------
Cash flow from financing activities:
Cash dividends (10,652) (8,686)
Purchases of treasury stock (34,028) (15,273)
Proceeds from stock options exercised, stock
purchase plan and other, net 4,042 3,263
Repayments of long-term debt (40,015) (16,278)
Borrowings under long-term debt 70,000 4,035
-------------- --------------
Net cash used in financing activities (10,653) (32,939)
-------------- --------------
Change in cash and cash equivalents (30,924) (7,553)
Cash and cash equivalents at beginning of period 50,376 41,945
-------------- --------------
Cash and cash equivalents at end of period $ 19,452 $ 34,392
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED NOVEMBER 25, 2000
(in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Cumulative
Other Total
Common Paid-in Retained Comprehensive Treasury Unearned Shareholders'
Stock Capital Earnings Income Stock Compensation Equity
---------- ---------- ---------- ------------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 26, 2000 $ 100,779 $ 155,711 $ 264,678 $ (1,536) $ (78,668) $ (301) $ 440,663
----------
Comprehensive income:
Net income 58,161 58,161
Other comprehensive income,
net of tax:
Foreign currency translation
adjustments (2,851) (2,851)
----------
Comprehensive income 55,310
----------
Purchases of treasury shares (34,028) (34,028)
Restricted stock grant and
amortization 179 179
Stock purchase plan, exercise
of stock options and other (1,123) 6,267 5,144
Cash dividends, declared or paid
($.11 per share) (10,652) (10,652)
Conversion of 5 3/4% convertible
debt (14,513) 53,886 39,373
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, November 25, 2000 $ 100,779 $ 140,075 $ 312,187 $ (4,387) $ (52,543) $ (122) $ 495,989
========== ========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED NOVEMBER 25, 2000
AND NOVEMBER 27, 1999
(unaudited)
The accompanying unaudited financial statements should be read in
conjunction with the Form 10-K for the year ended February 26, 2000. All
adjustments that are, in the opinion of management, necessary for a fair
statement of the financial position as of November 25, 2000, and the results of
operations and cash flows for the three and nine months ended November 25, 2000
and November 27, 1999 have been made and consist only of normal recurring
adjustments. The results of operations for the three and nine months ended
November 25, 2000 and November 27, 1999 are not indicative of results to be
expected for the fiscal year because of, among other things, seasonality factors
in the retail business. The classifications of certain amounts previously
reported in the balance sheet for the nine months ended November 27, 1999 have
been modified to conform with the February 26, 2000 and the November 25, 2000
methods of presentation.
NOTE 1 - 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 include the
effect, when dilutive, of the Company's weighted average number of stock options
outstanding and the average number of common shares that would have been
issuable upon conversion of the Company's convertible securities. To determine
dilutive earnings, interest and debt issue costs, net of any applicable taxes,
have been added back to net income to reflect assumed conversions.
The following earnings per share calculations reflect the effect of the
Company's conversion of its 5 3/4% convertible subordinated notes, which were
primarily converted, without interest, on or before March 23, 2000.
Earnings per share for the three and nine months ended November 25,
2000 and November 27, 1999 are calculated as follows (in thousands except per
share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Nov. 25, Nov. 27, Nov. 25, Nov. 27,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $ 23,569 $ 16,151 $ 58,161 $ 40,682
Assumed conversion of 5 3/4% subordinated
notes:
Plus interest and debt issue costs,
net of tax -- 526 -- 1,834
---------- ---------- ---------- ----------
Diluted net income $ 23,569 $ 16,677 $ 58,161 $ 42,516
========== ========== ========== ==========
Average shares outstanding during period:
Basic 95,977 96,295 96,461 96,299
Plus assumed exercise of stock options 1,583 467 1,353 613
Plus assumed conversion of 5 3/4%
subordinated notes to common stock -- 6,480 436 7,527
---------- ---------- ---------- ----------
Diluted 97,560 103,242 98,250 104,439
========== ========== ========== ==========
Earnings per share:
Basic $ .25 $ .17 $ .60 $ .42
========== ========== ========== ==========
Diluted $ .24 $ .16 $ .59 $ .41
========== ========== ========== ==========
</TABLE>
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS (continued)
NOTE 2 - COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, for the
three and nine months ended November 25, 2000 and November 27, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Nov. 25, Nov. 27, Nov. 25, Nov. 27,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $ 23,569 $ 16,151 $ 58,161 $ 40,682
Foreign currency translation adjustments (2,170) 259 (2,851) 308
---------- ---------- ---------- ----------
Comprehensive income $ 21,399 $ 16,410 $ 55,310 $ 40,990
========== ========== ========== ==========
</TABLE>
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
During the first quarter of fiscal 2001, the Company issued 4,764,450
shares of common stock upon the conversion of $39,164,000 principal amount of
5 3/4% convertible subordinated notes.
NOTE 4 - IMPACT OF NEW 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", which was amended by SFAS No.
137 and SFAS No. 138. 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 has only limited
involvement with derivative financial instruments, does not use them for trading
purposes and is not a party to any leveraged derivatives. However, 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, associated with purchases
denominated in foreign currencies. The Company has analyzed 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.
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
This statement replaces, in its entirety, SFAS No. 125 issued in June 1996. The
new standard is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. The new standard
is effective for recognition and reclassification of collateral and for
disclosures relating to securitization transactions and collateral for fiscal
years ending after December 15, 2000. This statement is not to be applied
retroactively to financial statements for prior periods. Although SFAS No. 140
has changed many of the rules regarding securitizations, it continues to require
an entity to recognize in the balance sheet the financial and servicing assets
it controls and the liabilities it has incurred and to remove financial assets
from the balance sheet when control has been surrendered in accordance with the
criteria provided in the statement. The Company is analyzing the implementation
requirements and does not anticipate that the adoption of SFAS No. 140 will have
a material impact on the Company's consolidated balance sheets or statements of
operations, shareholders' equity and cash flows.
8
<PAGE> 9
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
Pier 1 Imports, Inc. ("the Company") is one of North America's largest
specialty retailers of imported decorative home furnishings, including
furniture, dining and kitchen goods, bath and bedding accessories and other
related items for the home. While the broad categories of merchandise remain
relatively constant, individual products within these categories change
frequently in order to meet customer demands. The Company has over 800 retail
locations in 48 states, Canada, Puerto Rico, the United Kingdom, Mexico and
Japan with merchandise directly imported from nearly 60 countries around the
world.
RESULTS OF OPERATIONS
Net sales for the third quarter of fiscal 2001 were $343.5 million, up
15.2% from last year's net sales of $298.2 million. For the first nine months of
fiscal 2001, net sales grew to $981.0 million from $851.0 million, representing
a 15.3% increase over the comparable period of fiscal 2000. Same store sales for
both the third quarter and the first nine months of fiscal 2001 improved 10.6%
over the same periods last year. Sales have continued to improve partly as a
result of the Company's focus on a value pricing initiative that began in the
first quarter of last fiscal year. This initiative resulted in an improved
average ticket and conversion ratio and higher customer traffic for the third
quarter and first nine months of fiscal 2001 compared to the same periods a year
ago. Net sales for the third quarter and first nine months of fiscal 2000
suffered from late shipments on basic merchandise items, which resulted in
insufficient inventory levels last year. Inventory levels during the first nine
months of fiscal 2001 have sustained strong sales growth and the Company
believes they are on plan at the end of the third quarter to support sales for
the holiday season and the opening of approximately 35 new stores over the next
six months.
The increase in net sales was also attributable to the net increase of
32 North American stores at the end of the third quarter of fiscal 2001 compared
to the end of the same quarter of fiscal 2000. The North American store count
totaled 819 at the end of the current quarter compared to 787 stores a year
earlier. During the third quarter, the Company opened 28 new stores and closed
three stores in North America and opened one store in the United Kingdom. The
worldwide store count was 871 and total retail square footage was 6.2 million at
November 25, 2000.
Net sales on the Company's proprietary credit card totaled $277.9
million for the first nine months of fiscal 2001, an increase of $52.3 million,
or 23.2%, over proprietary credit card sales of $225.6 million for the same
period of fiscal 2000. For the first nine months of fiscal 2001, proprietary
credit card sales accounted for 30.6% of total U.S. store sales, an increase
from 28.5% for the year earlier period. Proprietary credit card customers spent
an average of $162 per transaction for the first nine months of fiscal 2001,
compared to $150 for the same period a year ago. The Company continues to grow
sales on its proprietary credit card by opening new accounts and developing
customer loyalty through marketing promotions targeted to cardholders.
Gross profit, after related buying and store occupancy costs,
expressed as a percentage of sales, improved nearly 60 basis points to 42.8% for
the third quarter of fiscal 2001 and improved nearly 70 basis points to 41.7%
for the first nine months of fiscal 2001 from the same periods last year.
Merchandise margins declined slightly less than 50 basis points as a percentage
of sales to 55.4% for the third quarter of fiscal 2001 compared to the same
period last year. For the nine-month period, merchandise margins were 54.6% of
sales for fiscal 2001, down 30 basis points from 54.9% of sales for the same
period a year ago. The decline in merchandise margins during the third quarter
of fiscal 2001 was largely due to successful
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
promotions in October and November featuring various furniture items. The slight
decreases in merchandise margins were offset by improvements in store occupancy
expense which decreased 110 basis points, as a percentage of sales, from 13.6%
for the third quarter of fiscal 2000 to 12.5% for the third quarter of this
fiscal year. Store occupancy costs also improved 100 basis points to 12.9% for
the first nine months of fiscal 2001. These improvements in store occupancy were
achieved by leveraging relatively fixed rental rates over a higher sales base.
As a percentage of sales, selling, general and administrative
expenses, including marketing, improved 100 basis points to 28.6% for the third
quarter of fiscal 2001 and improved 50 basis points to 29.0% for the first nine
months of fiscal 2001 compared to the same periods a year earlier. In total,
selling, general and administrative expenses increased $9.9 million for the
third quarter of fiscal 2001 and increased $33.1 million for the first nine
months of fiscal 2001 versus the comparable periods of fiscal 2000. Expenses
that normally vary proportionately with sales, such as store salaries, equipment
rental, supplies and marketing, decreased 90 basis points, as a percentage of
sales, for the third quarter of fiscal 2001 and 70 basis points for the
nine-month period when compared to the year earlier periods. This improvement
was achieved by carefully controlling store payroll and other store expenses.
Year-to-date marketing expense, as a percentage of sales, decreased 30 basis
points from the prior year and also contributed to this improvement. Marketing
expense, as a percentage of sales, for the 2001 fiscal year is still expected to
be comparable to fiscal 2000. All other selling, general and administrative
expenses increased $12.3 million, an increase of 20 basis points, as a
percentage of sales, for the first nine months of fiscal 2001. This increase was
primarily the result of an accrual for incentive bonuses for general management.
The effect of this bonus accrual was offset by other well-managed expenses and
resulted in a 10 basis point decrease in all other selling, general and
administrative expenses, as a percentage of sales, for the third quarter of
fiscal 2001 compared to the same quarter a year ago.
Operating income for the third quarter of fiscal 2001 improved 39.5%
to $38.3 million, or 11.1% of sales, from $27.4 million, or 9.2% of sales, for
the third quarter of last year. For the first nine months of fiscal 2001,
operating income improved 36.1% to $93.6 million, or 9.5% of sales, compared to
$68.8 million, or 8.1% of sales, for the same period in fiscal 2000.
Net interest expense declined $0.9 million to $0.9 million for the
third quarter of fiscal 2001 and declined $2.9 million to $1.3 million for the
first nine months of fiscal 2001 from the comparable periods a year ago. The
decrease in interest expense was due to the repurchase of $28.6 million of the
Company's 5 3/4% convertible subordinated notes throughout fiscal 2000 and the
subsequent retirement of the remaining $39.2 million of the outstanding
principal amount of these notes in the first quarter of fiscal 2001.
The Company's effective income tax rate for fiscal 2001 is estimated
at 37%, consistent with the first nine months of fiscal 2000.
Net income for the third quarter of fiscal 2001 was $23.6 million, or
6.9% of sales, compared to net income of $16.2 million, or 5.4% of sales, for
the third quarter of fiscal 2000. Diluted earnings per share for the third
quarter of fiscal 2001 were $.24, representing a 50% increase over last year's
$.16 per diluted share. For the first nine months of fiscal 2001, net income
increased 43.0% to $58.2 million, or $.59 per share on a diluted basis, from
$40.7 million, or $.41 per share on a diluted basis.
LIQUIDITY AND CAPITAL RESOURCES
Net income, adjusted for non-cash and non-operating related items, was
$94.9 million and served as the Company's primary source of operating cash flow
for the nine months ended November 25, 2000. Year-to-date, net cash provided by
operating activities totaled $33.9 million. Increased merchandise inventory
purchases totaling $71.6 million year-to-date were the primary use of cash
generated from operations. At the end of the third quarter of fiscal 2001,
inventory levels increased to support the opening of new stores during the third
quarter and continued to be on plan to meet holiday sales projections and to
support the opening of
10
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
approximately 35 new stores over the next six months.
During the first nine months of fiscal 2001, the Company's net
investing activities of $54.1 million consisted principally of capital
expenditures and increases in the beneficial interest in securitized
receivables. Capital expenditures totaling $34.0 million were primarily used to
support new store openings, remodels and fixture and floor plan upgrades of
existing stores. The Company estimates capital expenditures will be slightly
less than $50 million for this fiscal year, while fiscal year 2002 capital
expenditures are estimated at $50 to $60 million to further new store
development, system enhancements and store relocations or remodels. During the
fiscal 2001 nine-month period, the Company continued to experience favorable
sales trends on its proprietary credit card resulting in a net increase of $20.4
million in the beneficial interest in securitized receivables. This net increase
in the Company's proprietary credit card sales was primarily the result of a
more successful promotion offered to cardholders this fiscal year over the same
promotion offered in the year earlier period.
Year-to-date financing activities used a net of $10.7 million of the
Company's cash resources. As of November 25, 2000, the Company had repurchased
3,244,500 shares of its common stock for $34.0 million leaving 1.8 million
shares remaining authorized for repurchase under the previously approved Board
of Directors program. Subsequent to the end of the third quarter, the Company
announced that its Board of Directors had authorized the repurchase of up to 5
million additional shares of the Company's common stock. With this
authorization, the total number of shares authorized for repurchase is 6.8
million. Cash dividends paid throughout fiscal 2001 totaled $10.7 million as of
the end of the third quarter. During the first nine months of fiscal 2001, the
Company had net borrowings of $30 million on its long-term revolving credit
facility. The Company expects to pay off the outstanding balance during the
fourth quarter of fiscal 2001. Other financing activities, primarily the
exercise of stock options, provided cash of $4.0 million.
The Company's minimum operating lease commitments remaining for fiscal
2001 are $32.7 million. The present value of total future minimum operating
lease commitments discounted at 10% was $558.4 million at the fiscal 2001 third
quarter-end. The Company expects to continue to fund these commitments from
operating cash flow.
Working capital requirements are expected to be funded through cash
flow from operations, bank lines of credit and sales of proprietary credit card
receivables. The Company's bank facilities consist of a $125 million revolving
credit facility, which expires December 2003, and other short-term and long-term
bank facilities. As of November 25, 2000, the Company's available resources on
its revolving credit facility were $95 million. Other short-term (364 days) bank
facilities, used principally for the issuance of letters of credit, totaled
$123.5 million, of which $78.4 million was available at the end of the third
quarter. Additionally, the Company has $25.6 million in long-term standby
letters of credit supporting industrial revenue bond financing used for the
construction of three distribution centers. The Company's current ratio was 3.3
to 1 at the end of the third quarter compared to 2.4 to 1 at the end of fiscal
2000. 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.
In March 2000, the Company redeemed its $39.2 million outstanding
principal amount of 5 3/4% convertible subordinated notes previously due October
1, 2003. The notes were redeemable at 103% of par on March 23, 2000 or
convertible into the Company's common stock at a price of $8.22 per share. 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.
In December 2000, the Company declared a cash dividend of $0.04 per
share payable on February 14, 2001 to shareholders of record on January 31,
2001. The Company currently expects to continue to pay cash dividends in the
future but to retain most of its future earnings for expansion of the Company's
business.
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
In summary, the Company's primary uses of cash year-to-date have been
to fund operating expenses, satisfy inventory requirements, provide for new and
existing store development and repurchase common stock of the Company.
Historically, the Company has financed its operations primarily from internally
generated funds and borrowings under the Company's credit facilities. The
Company believes that the funds provided from operations, available lines of
credit and sales of its proprietary credit card receivables will be sufficient
to finance working capital and capital expenditure requirements through the end
of fiscal year 2002.
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this quarterly report, other than
historical information, 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.
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, weather conditions that may affect sales, the
general strength of the economy and levels of consumer spending, the
availability of new sites for expansion along with sufficient labor to
facilitate growth, 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 quarterly report. Additional information concerning
these risks and uncertainties is contained in the Company's Annual Report on
Form 10-K for the year ended February 26, 2000, as filed with the Securities and
Exchange Commission.
IMPACT OF INFLATION
Inflation has not had a significant impact on the operations of the
Company.
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<PAGE> 13
PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits See Exhibit Index.
(b) Reports on Form 8-K None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PIER 1 IMPORTS, INC. (Registrant)
Date: January 3, 2001 By: /s/ Marvin J. Girouard
----------------------------------------------
Marvin J. Girouard, Chairman of the Board
and Chief Executive Officer
Date: January 3, 2001 By: /s/ Charles H. Turner
----------------------------------------------
Charles H. Turner, Senior Vice President,
Chief Financial Officer and Treasurer
Date: January 3, 2001 By: /s/ Susan E. Barley
----------------------------------------------
Susan E. Barley, Principal Accounting Officer
14
