UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended February 26, 1994.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to ______________
Commission File No. 1-7832
PIER 1 IMPORTS, INC.
(Exact name of Registrant 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)
Registrant's telephone number, including area code: (817) 878-8000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $1 par value New York Stock Exchange
11 1/2% Sub. Debentures Due 2003 New York Stock Exchange
6 7/8% Convertible Sub. Notes Due 2002 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether 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 such shorter period that
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 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 Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
As of May 4, 1994, there were 37,547,477 shares of Common Stock, $1.00
par value, outstanding, and the aggregate market value of the Common Stock of
Registrant held by non-affiliates was approximately $311 million.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K Incorporated Document
Part III Proxy Statement for 1994 Annual Meeting
Items 7 and 8 of Registrant's Annual Report on Form 10-K for the year
ended February 26, 1994, are amended and restated as set forth below.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Pier 1 Imports, Inc. is North America's largest specialty retailer of
decorative home furnishings, gifts and related items, with stores in 47
states, Puerto Rico and Canada, and additional international operations in
England and Mexico. Registrant reported record sales of $685,393,000 for
fiscal 1994 and net income of $5,933,000, or $.16 per share, after providing
an after-tax special charge of $16,507,000 in the fourth quarter for the
store-closing provision and adjusting the carrying value of General Host
common stock. If the special charge had not been provided, net income for
the year would have totalled $22,440,000, or $.60 per share, compared to
$23,017,000, or $.62 per share, last year. Stores in operation at fiscal
year-end aggregated 586 after removing stores to be closed. In early fiscal
1994, Registrant sold its interest in Sunbelt to General Host.
Fiscal Years Ended February 26, 1994 and February 27, 1993
Net sales in fiscal 1994 grew $56.2 million or 8.9% over the prior year
with same-store sales growth of 4.8%. Last year net total sales grew 7.3%
and same-store sales grew 3.7%. Forty-eight (48) new stores opened during
the year and 17 stores closed, before giving effect to the provision for the
closing of 49 stores.
Sales on Registrant's proprietary credit card were $98.6 million (14.4%
of total sales) during the 1994 fiscal year, an increase of $38 million or
62.6% over the prior year. Credit card receivables were $48.2 million at
fiscal 1994 year-end, an increase of 45.0% over the previous year-end.
Registrant actively pursues increasing the cardholder base in order to use
the cardholder list as a basis for direct mail advertising and because it
believes that such a base increases customer loyalty and repeat business.
Sales on Registrant's credit card are encouraged through specific promotions.
Gross profit, after related buying and store occupancy costs, expressed
as a percentage of net sales, declined 1.2% from 39.1% in fiscal 1993 to
37.9% in fiscal 1994. Store occupancy costs, expressed as a percentage of
net sales, improved slightly due to higher sales volumes. The sales mix of
furniture and decorative goods remained unchanged as a percentage of sales;
however, promotional markdowns and other discounts caused reduced margins on
these goods. Sales from clothing, jewelry and accessories compared to total
sales declined, as did the gross profit rate due to additional promotional
markdowns taken in fiscal 1994 compared with fiscal 1993.
Selling, general and administrative expenses, including advertising,
increased 0.2% to 28.8% as a percentage of sales in fiscal 1994 compared to
28.6% in fiscal 1993. In total dollars, expenses for fiscal 1994 increased
$17.2 million over the prior year primarily due to 31 net new stores opened
during the year (before giving effect to the provision for the closing of 49
stores), new point-of-sale register equipment installed in all stores, new
selling programs introduced in stores, losses related to the earthquake in
California and severe weather during fiscal 1994. Selling, general and
administrative expenses also include a provision for a write-down of the
carrying value of Registrant's holdings of General Host common stock. Based
upon prices at year-end, the market value of General Host common stock was
$5,565,000 less than Registrant's original carrying amount. After an
assessment of factors which may have contributed to this decline, Registrant
estimated $2,000,000 of this decline to be other than temporary and recorded
a corresponding adjustment in the book value of General Host common stock.
The remaining decline of $3,565,000 is considered to be temporary. On April
8, 1994, General Host announced that it had written down to zero its entire
investment in Sunbelt.
The store-closing provision was a special charge to fiscal 1994
earnings of $21.3 million before taxes that was established to reflect the
anticipated costs to close 49 identified stores with histories of
underperformance and high occupancy costs and to close the Canadian
distribution center and administrative offices. Merchandise distribution to
Canadian stores will be performed from U. S. distribution centers. Of the 49
stores, 15 had been planned for closing at an estimated cost of $0.2 million
prior to adoption of the store-closing program. The store closings are
expected to be substantially completed during fiscal 1995, with $19.3 million
of payments and write-downs expected in fiscal 1995 and $2.0 million expected
in fiscal 1996. After-tax cash payments to complete the program are
anticipated to total approximately $10.4 million in fiscal 1994 and $1.4
million in fiscal 1996, the funds for which will be provided from working
capital and operations. Revenues in fiscal 1994 for the closed stores
aggregated $38.1 million, and Registrant anticipates that the reduction in
revenues for these stores coupled with the corresponding elimination of store
occupancy costs aggregating 35% of store revenues and other operating costs
will improve 1995 fiscal year pre-tax earnings by approximately $1.7 million.
The components of the store-closing provision consists of lease termination
costs of $15.9 million (net of $3.9 million of estimated sublease revenue),
fixed asset write-downs of $2.1 million, expected interim operating losses
of $1.7 million, inventory liquidation costs of $1.2 million, and severance
and relocation costs of $0.4 million.
Lease termination costs reflect the estimated settlements Registrant
will pay landlords to terminate lease arrangements and the shortfall of
sublease revenues over lease payments for stores that Registrant determined
were economical to sublease. Fixed assets, consisting primarily of leasehold
improvements, were written down to their estimated net realizable value.
Inventory liquidation cost was determined by estimating additional markdowns
to be taken to dispose of each store's inventory. Operating losses were
computed on the basis of past performance of the respective stores and
anticipated results for the 1995 fiscal year. Severance and relocation costs
consisted almost entirely of benefits to be paid to Canadian employees as
prescribed by Canadian law.
Operating income declined $25.8 million to $25.1 million in fiscal 1994
from $50.9 million in the prior year, due to the special charges in fiscal
1994 and the gross profit rate decline from fiscal 1993.
During fiscal 1994, cash was utilized to reduce short-term debt, fund
inventory and fixtures for new store development, expand the Pier 1 credit
card program, and pay dividends to shareholders. Due to lower interest
income on declining cash balances, net interest expense increased $1.8
million in fiscal 1994 over the prior year.
Registrant's effective income tax rate for fiscal 1994 increased to 29%
compared to 25.9% in fiscal 1993, primarily due to an increase in the state
tax effective rate.
Registrant's equity in losses from Sunbelt was $3.6 million in fiscal
1993. In April 1993, Registrant completed the sale of its 49.5% interest in
Sunbelt. Sunbelt's results were not included in Registrant's earnings during
fiscal 1994.
Net income for fiscal 1994 aggregated $5.9 million, or $.16 per share,
compared to income of $23.0 million, or $.62 per share last year.
Fiscal Years Ended February 27, 1993 and February 29, 1992
During fiscal 1993, net sales grew $42.6 million or 7.3% with same-store
sales contributing 3.7% over fiscal 1992. Sales from stores opened in fiscal
years 1993 and 1992 increased fiscal 1993 sales levels by 3.6% when compared
to fiscal 1992. Twenty-six new stores (net 20) were opened during fiscal
1993.
Gross profit, after related buying and store occupancy costs, expressed
as a percentage of net sales, increased to 39.1% during fiscal 1993 from
38.9% in fiscal 1992. The improvement was the result of store occupancy
costs which, as a percentage of sales, improved due to higher sales volumes.
Merchandise gross margin in fiscal 1993 remained unchanged as a percentage of
sales from fiscal 1992 due to a similar merchandise mix in both years, and,
although promotional sales discounts increased in fiscal 1993 from a year
ago, there was a reduction in the amount of clearance markdowns and shrinkage
in fiscal 1993 versus fiscal 1992.
Selling, general and administrative expenses, including advertising,
improved 0.8% to 28.6% as a percentage of sales in fiscal 1993 compared to
29.4% in fiscal 1992. In total dollars, expenses for fiscal 1993 increased
$7.7 million over the prior year, principally due to 20 net new stores in
operation by the end of fiscal 1993. This increase resulted in higher
payroll and store-related costs as well as increased catalog and other
promotional advertising. These increased costs from fiscal 1992 were
partially offset by expense control, favorable medical insurance claim
experience, lower Pier 1 credit card expenses, the reduction in scope of the
mid-year physical inventory counts, and decreased litigation costs.
Operating income increased $9.9 million to $50.9 million in fiscal 1993
from $41 million a year earlier, mainly due to revenue growth from both new
store openings and existing store sales and the reductions in controllable
expenses.
Net interest expense decreased $1.4 million during fiscal 1993 from
fiscal 1992 due to a decline in Registrant's debt (net of cash) position and
a slight decrease in Registrant's effective interest rate.
During fiscal 1992, Registrant recorded a one-time gain of $5.9 million
related to the sale of 50.5% of Sunbelt's common stock.
Registrant's effective income tax rate for fiscal 1993 decreased to 25.9%
from 28.3% due to the benefit of lower tax rates on income from foreign
subsidiaries and tax-favored investment income.
Registrant recorded equity in losses of Sunbelt during fiscal 1993 of
$3.6 million compared to income of $4.5 million in fiscal 1992. During
fiscal 1993, Registrant included only 49.5% of Sunbelt's earnings during an
unprofitable year, compared to 100% in fiscal 1992 when Sunbelt experienced
greater profits.
Net income for fiscal 1993 of $23.0 million, or $.62 per share, was below
last year's $26.3 million, or $.71 per share, as a result of Sunbelt's losses
in fiscal 1993 and the gain on sale of Sunbelt stock in fiscal 1992.
LIQUIDITY AND CAPITAL RESOURCES
The sources of liquidity during the past three years have been earnings
from operations, working capital changes, long-term borrowings, and the sale
of 50.5% of Sunbelt stock in fiscal 1992. Primarily, these funds were
utilized to reduce short-term debt, acquire property and equipment, finance
the expansion of inventories and the Pier 1 credit card program, and pay
dividends.
During fiscal 1994, increases in inventory and capital expenditures were
required to support the opening of 48 new stores. Financing for new store
land and building costs is provided by operating leases. Registrant's new
store development plan for fiscal 1995 is approximately 50 stores. Inventory
and fixtures for the development plan are estimated to cost approximately $15
million, which will be funded by operations, working capital and bank lines
of credit. Cash requirements to fund the store-closing program in fiscal
1995 are estimated to aggregate $16 million and will be funded through
working capital and operations.
New store construction financing is expected to be provided by operating
leases. Registrant is expanding existing lease facilities and exploring
additional financing opportunities currently available in the capital
markets. In connection with leases for 38 stores executed in prior years,
Registrant has guaranteed the residual building values at approximately $25
million. Minimum future operating lease commitments expected for fiscal 1995
aggregate to $86 million, and the present value of total existing operating
lease commitments is $372 million. These commitments will be funded from
operating cash flow.
Working capital requirements are currently provided by cash, short-term
revolving lines of credit, including bankers' acceptances and working capital
loans, in an aggregate amount of approximately $165 million. Registrant's
current ratio was 3.5 to 1 at the end of fiscal 1994 compared to 3.4 to 1 a
year earlier.
In connection with the sale of 43.3% of Sunbelt common stock in a public
offering in the 1992 fiscal year, Registrant agreed to guarantee Sunbelt's
two bank lines of credit aggregating $10 million in order to assure that
Sunbelt would have access to funds in order to implement its aggressive store
expansion and renovation plans and to continue to be a major competitor in
its markets. Registrant subsequently provided Sunbelt with an additional $2
million line of credit. With the April 1993 sale of Registrant's 49.5%
interest in Sunbelt to General Host, Registrant agreed to keep the $12
million credit facility in place until April 1994. All of the $12 million is
currently outstanding. In order for Sunbelt to meet repayment obligations
under this line, Sunbelt must obtain replacement financing. To enable
Sunbelt to raise these funds, Registrant has granted Sunbelt a temporary
extension of the credit facility until June 30, 1994. Also, Registrant is
committed to provide Sunbelt $25 million of non-revolving store development
financing through April 1996. Registrant has arranged for a bank group to
provide financing by which Registrant leases from an unaffiliated third party
and subleases store sites to Sunbelt. Under this leasing facility, the
leases are required to be refinanced by Sunbelt from September 1994 to
October 1995. If Sunbelt defaults on refinancing these store leases as the
terms expire, Registrant will be required to obtain other financing.
Registrant expects financing of Sunbelt's store sites to remain at the same
or similar terms and conditions as are currently in place. In addition to
the above, Registrant also guarantees approximately $4.5 million of Sunbelt
store lease commitments. Registrant's line of credit and leasing commitments
are collateralized by 4.2 million shares of Sunbelt's common stock.
The Board of Directors anticipates a continuation of its current cash
dividends to shareholders.
In fiscal 1993, Registrant invested in preference stock of The Pier
Retail Group Limited ("The Pier") located in the United Kingdom. Currently,
investment in and loans to The Pier aggregate $3.4 million, with additional
debt guarantees of approximately $4 million. The Pier is a ten-store retail
operation that offers decorative home furnishings and related items in a
store setting similar to that operated by Registrant.
Registrant's inventory purchases are made almost entirely in U.S.
dollars. To the extent purchases are made in foreign currencies, Registrant
usually enters into forward exchange contracts when they are available in
order to manage its exposure to foreign currency exchange fluctuations.
Registrant believes the funds provided from operations, coupled with
Registrant's cash position and available lines of credit, are more than
sufficient to meet its foreseeable cash requirements.
Impact of Inflation and Changing Prices
Inflation has not had a significant impact on the operations of
Registrant.
Impact of New Accounting Standards
The adoption of Financial Accounting Standards Board's Statements No. 114
and 115 is expected to have no material impact on Registrant's results of
operations.
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements
Financial Statements:
- --------------------
Report of Independent Accountants
Consolidated Statement of Operations for the
Years ended February 26, 1994, February 27, 1993
and February 29, 1992
Consolidated Balance Sheet at February 26, 1994 and
February 27, 1993
Consolidated Statement of Cash Flows for the years
ended February 26, 1994, February 27, 1993 and
February 29, 1992
Consolidated Statement of Stockholders' Equity for the
years ended February 26, 1994, February 27, 1993 and
February 29, 1992
Notes To Consolidated Financial Statements
Financial Statement Schedules
For the years Ended February 26, 1994, February 27, 1993
and February 29, 1992
II Amounts Receivable From Related Parties and Underwriters,
Promoters and Employees Other Than Related Parties
V Property, Plant and Equipment
VI Accumulated Depreciation and Amortization of Property
Plant and Equipment
VIII Valuation and Qualifying Accounts and Reserves
IX Short-Term Borrowings
X Supplementary Income Statement Information
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
Pier 1 Imports, Inc.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Pier 1 Imports, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Pier 1 Imports, Inc. and its subsidiaries at February 26, 1994
and February 27, 1993, and the results of their operations and their cash
flows for each of the three years in the period ended February 26, 1994, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse
- --------------------
Fort Worth, Texas
April 14, 1994
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands except per share amounts)
Year Ended
------------------------------
1994 1993 1992
-------- -------- --------
Net sales $685,393 $629,235 $586,659
Operating costs and expenses
Cost of sales (including buying and
store occupancy) 425,801 383,053 358,216
Selling, general and administrative
expenses 197,444 180,218 172,478
Depreciation and amortization 15,771 15,097 15,006
Store-closing provision 21,250 -- --
-------- -------- --------
660,266 578,368 545,700
-------- -------- --------
Operating income 25,127 50,867 40,959
Gain on sale of subsidiary stock -- -- 5,886
Interest income 4,406 4,445 594
Interest expense (21,177) (19,401) (16,906)
-------- -------- --------
Income before income taxes and equity
in net income (loss) of subsidiary 8,356 35,911 30,533
Provision for income taxes 2,423 9,309 8,656
-------- -------- --------
Income before equity in net income
(loss) of subsidiary 5,933 26,602 21,877
Equity in net income (loss) of
subsidiary -- (3,585) 4,456
-------- -------- --------
Net income 5,933 23,017 26,333
Cumulative dividends on preferred
stock -- -- 11
-------- -------- --------
Net income available to common stockholders $ 5,933 $ 23,017 $ 26,322
======== ======== ========
Net income per common share $.16 $.62 $.71
==== ==== ====
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED BALANCE SHEET
(in thousands)
1994 1993
-------- --------
ASSETS
Current assets:
Cash, including temporary investments of $7,466
and $66,823, respectively $ 17,123 $ 73,585
Accounts receivable, net of allowance for doubtful
accounts of $2,072 and $2,404, respectively 51,722 34,920
Inventories 219,646 189,593
Other current assets 32,901 20,038
-------- --------
Total current assets 321,392 318,136
Properties, net 111,510 108,011
Other assets 30,400 34,350
-------- --------
$463,302 $460,497
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 2,639 $ 33,139
Accounts payable and accrued liabilities 89,772 59,791
-------- --------
Total current liabilities 92,411 92,930
Long-term debt 145,231 147,246
Deferred income taxes 3,407 514
Other non-current liabilities 21,160 19,313
Stockholders' equity:
Common stock, $1.00 par, 100,000,000 shares author-
ized, 37,617,000 and 37,607,000 outstanding,
respectively 37,617 37,607
Paid-in capital 92,670 93,184
Retained earnings 76,597 74,413
Cumulative translation adjustments (964) (433)
Less--98,000 and 263,000 common shares in
treasury, at cost, respectively (884) (2,599)
Less--subscriptions receivable and unearned
compensation (1,369) (1,678)
Less--unrealized loss on marketable equity securities (2,574) --
-------- --------
201,093 200,494
Commitments and contingent liabilities
-------- --------
$463,302 $460,497
======== ========
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended
------------------------------
1994 1993 1992
------- ------- -------
Cash flow from operating activities:
Net income $ 5,933 $23,017 $26,333
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 15,771 15,097 15,006
Deferred taxes and other (3,006) (764) 4,475
Equity in undistributed losses
(earnings) of subsidiary -- 3,585 (4,456)
Gain on sale of subsidiary stock -- -- (5,886)
Store-closing provision and other 23,250 -- --
Change in cash from:
Inventories (30,053) (8,201) 761
Accounts receivable and other
current assets (17,550) (3,670) 1,054
Accounts payable and accrued expenses 10,103 446 7,557
Other assets, liabilities, and
other, net 1,077 1,011 (13)
Net cash provided by operating ------- ------- -------
activities 5,525 30,521 44,831
------- ------- -------
Cash flow from investing activities:
Capital expenditures (24,617) (12,619) (6,169)
Proceeds from disposition of properties 791 159 14,076
Other investments (2,353) -- --
Net cash (used in)/provided by ------- ------- -------
investing activities (26,179) (12,460) 7,907
------- ------- -------
Cash flow from financing activities:
Cash dividends (3,560) (2,409) (11)
Proceeds from issuance of long-term debt -- 72,353 24,344
Repayments of long-term debt -- (35,362) (59,738)
Net (payments)/borrowings under line of
credit agreements (33,000) 9,983 (46,000)
Proceeds from subsidiary stock sale -- -- 18,072
Proceeds from sales of capital stock,
treasury stock, and other 752 1,958 3,144
Net cash (used in)/provided by ------- ------- -------
financing activities (35,808) 46,523 (60,189)
------- ------- -------
Change in cash (56,462) 64,584 (7,451)
Cash at beginning of year 73,585 9,001 16,452
------- ------- -------
Cash at end of year $17,123 $73,585 $ 9,001
======= ======= =======
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED FEBRUARY 26, 1994 (in thousands)
Subscriptions Unrealized Loss
Cumulative Receivable and on Marketable Total
Preferred Common Paid-in Retained Translation Treasury Unearned Equity Stockholders'
Stock Stock Capital Earnings Adjustments Stock Compensation Securities Equity
--------- ------ ------- -------- ----------- -------- -------------- --------------- -------------
Balance March 2,
1991 $1,500 $36,156 $86,916 $41,133 $1,064 ($6,831) ($3,688) $ -- $156,250
Purchase of treasury
stock -- -- -- -- -- (2,187) 893 -- (1,294)
Restricted stock
grant and
amortization -- -- (37) -- -- (255) 535 -- 243
Adjust to Sunbelt
fiscal year-end
date -- -- -- (1,177) -- -- -- -- (1,177)
Exercise of stock
options and
other -- (2) (1,363) (160) -- 4,722 -- -- 3,197
Currency translation
adjustments -- -- -- -- (494) -- -- -- (494)
Cash dividends on
preferred stock -- -- -- (11) -- -- -- -- (11)
Three percent stock
dividend -- 1,071 9,098 (10,169) -- -- -- -- --
Retirement of
preferred stock (1,500) -- (2,311) (2,105) -- -- -- -- (5,916)
Net income -- -- -- 26,333 -- -- -- -- 26,333
------ ------- ------- ------- ------ ------- ------ ------- --------
Balance February 29,
1992 -- 37,225 92,303 53,844 570 (4,551) (2,260) -- 177,131
Purchase of treasury
stock -- -- -- -- -- (1,226) -- -- (1,226)
Restricted stock
grant and
amortization -- -- (18) -- -- (511) 582 -- 53
Exercise of stock
options and
other -- 382 899 (39) -- 3,689 -- -- 4,931
Currency translation
adjustments -- -- -- -- (1,003) -- -- -- (1,003)
Cash dividends ($.07
per common share) -- -- -- (2,409) -- -- -- -- (2,409)
Net income -- -- -- 23,017 -- -- -- -- 23,017
------ ------- ------- ------- ----- ------- ------ ------- --------
Balance February 27,
1993 -- 37,607 93,184 74,413 (433) (2,599) (1,678) -- 200,494
Purchase of treasury
stock -- -- -- -- -- (1,545) -- -- (1,545)
Restricted stock
grant and
amortization -- -- (62) -- -- 9 309 -- 256
Exercise of stock
options and
other -- 10 (452) (189) -- 3,251 -- -- 2,620
Currency translation
adjustments -- -- -- -- (531) -- -- -- (531)
Unrealized loss on
marketable equity
securities -- -- -- -- -- -- -- (2,574) (2,574)
Cash dividends ($.10
per common share) -- -- -- (3,560) -- -- -- -- (3,560)
Net income -- -- -- 5,933 -- -- -- -- 5,933
------ ------- ------- ------- ------- ------- ------- ------- --------
Balance February 26,
1994 $ -- $37,617 $92,670 $76,597 ($ 964) ($ 884) ($1,369) ($2,574) $201,093
====== ======= ======= ======= ======= ======= ======= ======= ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
/TABLE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Statement of significant accounting policies
Basis of consolidation - The consolidated financial statements of Pier
1 Imports, Inc. and its consolidated subsidiaries include the accounts of all
subsidiary companies. Material intercompany transactions and balances have
been eliminated.
Fiscal periods - Registrant utilizes 5-4-4 quarterly accounting periods
with the fiscal year of 52 weeks ending on the Saturday nearest the last day
of February. Fiscal 1994 ended February 26, 1994, fiscal 1993 ended February
27, 1993, and fiscal 1992 ended February 29, 1992.
Cash and cash equivalents - Registrant 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 changes on cash is
not material.
Marketable equity securities - Registrant records marketable equity
securities at the lower of cost or market. Unrealized gains and losses on
non-current marketable equity securities and related income tax effects are
accumulated and included as a separate component of stockholders' equity.
Adjustments for any impairments in the value (based on market conditions)
that are deemed to be other than temporary are included as a loss in the
current year's operations. In fiscal 1994, General Host Corporation
("General Host") common stock was Registrant's only non-current marketable
equity security. The General Host investment was originally recorded at
$17,945,000; this amount was determined as the average quoted market price of
General Host common stock during the 30-day period immediately preceding the
sale to General Host of Registrant's ownership interest in 4.2 million shares
of the common stock of Sunbelt Nursery Group, Inc. ("Sunbelt"). In 1994,
this carrying amount was reduced by $2,000,000 by a provision for an other
than temporary decline in the market value of this common stock. As of
February 26, 1994, the quoted market price of the General Host common stock
aggregated $12,380,000, which resulted in an unrealized loss of $3,565,000
that is recorded, net of tax, as a component of Registrant's stockholders'
equity.
Translation of foreign currencies - Assets and liabilities are
translated to U.S. dollars at fiscal year-end exchange rates. Income and
expense items are translated at average rates of exchange prevailing during
the year. Translation adjustments are accumulated in a separate component of
stockholders' equity.
Registrant 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. At February 26, 1994, Registrant had approximately
$5.7 million of forward exchange contracts outstanding with an immaterial
fair value and with maturities ranging from one to nine months.
Registrant enters into foreign exchange forward contracts only with
major financial institutions and continually monitors its positions with, and
the credit quality of, these counterparties to its off-balance sheet
financial instruments. Registrant does not expect non-performance by any of
the counterparties, and any losses incurred in the event of non-performance
would not be material.
Inventories - Inventories are comprised primarily of finished
merchandise and are stated at the lower of average cost or market; cost is
determined principally on the first-in, first-out method.
Properties, maintenance and repairs - Buildings, equipment, furniture
and fixtures, and leasehold interests and improvements are carried at cost
less accumulated depreciation. Depreciation is based on the straight-line
method over estimated useful lives or lease terms, if shorter.
Expenditures for maintenance, repairs and renewals which do not
materially prolong the useful lives of the assets are charged to expense as
incurred. In the case of disposals, assets and the related depreciation are
removed from the accounts and the net amount, less proceeds from disposal, is
credited or charged to income.
Deferred costs - Certain costs associated with the acquisition of new
proprietary credit card accounts are capitalized and amortized over the
average life of an account. Preopening costs associated with new stores are
capitalized and expensed over one year.
Advertising costs - All advertising costs are expensed the first time
the advertising takes place.
Income taxes - Income tax expense for fiscal 1994 and 1993 is based on
the liability method under Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (SFAS 109). See Note 9 for further
description. SFAS 109 was issued in February 1992 and was adopted by
Registrant in the fourth quarter retroactively to the beginning of the 1993
fiscal year. The adoption had no effect on Registrant's financial position
or results of operations. Deferred federal income taxes, net of applicable
foreign tax credits, are not provided on the undistributed earnings of
foreign subsidiaries to the extent Registrant intends to permanently reinvest
such earnings abroad. At February 26, 1994, such undistributed earnings
aggregated $9.9 million.
Earnings per share - Earnings per share during a period are computed on
the weighted average number of common shares plus common stock equivalents
outstanding and were 37,648,000, 37,359,000 and 37,023,000 for fiscal 1994,
1993 and 1992, respectively. Computation of weighted average shares
outstanding for fiscal 1994, 1993 and 1992 includes common stock equivalents
of 443,000, 595,000 and 590,000, respectively. The computation of weighted
average number of shares for each year gives retroactive effect to the 2%
stock dividend distributed May 15, 1991 and the 3% stock dividend distributed
November 19, 1991. Fully diluted earnings per share is based on the assumed
conversion of all of the 6-7/8% Convertible Subordinated Notes into common
stock, whereby interest expense and debt issue costs, net of tax, on the 6-
7/8% Convertible Subordinated Notes is added back to net earnings. Fully
diluted earnings per share resulted in less than 3% dilution of primary
earnings per share for each of the three fiscal years ended February 26, 1994
and all periods presented with the exception of the first and second quarters
of fiscal years 1994 and 1993.
Note 2 - Proprietary credit card information
Registrant's Preferred Customer Card is managed and administered by an
unrelated third party. Credit card account origination costs of $976,000,
$480,000 and $528,000 were deferred during fiscal years 1994, 1993 and 1992,
respectively. Registrant is amortizing these costs over 36 months, which
Registrant believes is the approximate average active life of an account.
The credit cards have no expiration date and no annual fee for the use of the
card. At February 26, 1994 and February 27, 1993, deferred costs, net of
amortization, totalled $1,135,000 and $759,000, respectively.
Concentrations of credit risk with respect to customer receivables are
limited due to the large number of customers comprising Registrant's base and
their dispersion across many different geographic areas of the country.
Net credit card charges on Registrant's proprietary credit card
accounts are netted against selling, general and administrative expenses. A
summary of Registrant's credit card results for each of the three fiscal
years ended February 26, 1994 follows (in thousands):
1994 1993 1992
------- ------- -------
Costs:
Processing fees $ 6,114 $ 5,049 $ 4,875
Bad debt expense 2,195 1,855 2,702
------- ------- -------
8,309 6,904 7,577
------- ------- -------
Income:
Finance charges 6,087 4,998 4,751
Insurance and other income 238 165 185
------- ------- -------
6,325 5,163 4,936
------- ------- -------
Net credit card costs $ 1,984 $ 1,741 $ 2,641
======= ======= =======
Pier 1 Preferred Card sales $98,625 $60,661 $48,998
======= ======= =======
Net cost as a percent of
credit sales 2.0% 2.9% 5.4%
==== ==== ====
Note 3 - Properties
Properties are summarized as follows at February 26, 1994 and February
27, 1993 (in thousands):
1994 1993
-------- --------
Land $ 7,205 $ 7,204
Buildings 33,063 32,688
Equipment, furniture and fixtures 90,505 85,413
Leasehold interests and improvements 79,022 71,545
Construction in progress 190 214
-------- --------
209,985 197,064
Less accumulated depreciation and
amortization 98,475 89,053
-------- --------
Properties, net $111,510 $108,011
======== ========
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, 1994 and February 27, 1993
(in thousands):
1994 1993
------- -------
Trade accounts payable $27,937 $23,603
Accrued payroll and fringes 16,933 17,637
Accrued taxes, other than income 2,913 2,412
Accrued interest 3,397 3,560
Accrued real property tax 4,697 3,830
Store-closing provision 21,250 --
Other accrued liabilities and expenses 12,645 8,749
------- -------
Accounts payable & accrued liabilities $89,772 $59,791
======= =======
Accrued average rent $15,034 $13,531
Other non-current liabilities 6,126 5,782
------- -------
Other non-current liabilities $21,160 $19,313
======= =======
Note 5 - Store-closing provision and other
The store-closing provision of $21.3 million and the $2.0 million
adjustment to the carrying value of General Host common stock were special
charges in fiscal 1994. The store-closing provision reflects the anticipated
costs associated with closing certain underperforming stores. This provision
includes estimated costs related to leases, fixed assets, relocation,
inventory liquidation and losses from operations during the interim period
before closings. The adjustment to the carrying value of General Host common
stock is management's estimate of the portion of the decline in the market
value that is other than temporary.
Note 6 - Current and long-term debt
Registrant has various lines of credit available which aggregate
approximately $165 million. At year-end, approximately $41 million had been
committed under various outstanding letters of credit issued primarily in
conjunction with overseas merchandise procurements, leaving $124 million of
available lines of credit. The lines may be used for borrowings through
working capital loans, bankers' acceptances or letters of credit. The
weighted average interest rate on short-term borrowings outstanding during
the year was 4.0%.
Long-term debt is summarized as follows (in thousands):
1994 1993
-------- --------
11-1/2% subordinated debentures, net
of original issue discount of
$2,812 and $3,179, respectively $ 22,188 $ 21,821
Industrial revenue bonds 25,000 25,000
11% senior notes 25,000 25,000
6-7/8% convertible subordinated notes 75,000 75,000
Capital lease obligations 475 564
Other 207 --
-------- --------
147,870 147,385
Less - portion due within one year 2,639 139
-------- --------
$145,231 $147,246
======== ========
In July 1983, Registrant issued $25 million of 11-1/2% subordinated
debentures. Interest is payable on January 15 and July 15. Mandatory annual
$2.5 million sinking fund payments will commence in July 1994 and will
continue until they mature in July 2003. The debentures are callable at any
time at par plus accrued interest.
In fiscal 1987, Registrant entered into industrial revenue development
bond loan agreements aggregating $25 million which mature in the year 2026.
Proceeds were used to construct three warehouse distribution facilities.
These bonds are 7-day lower floater put bonds and interest rates float with
the market rate for tax-exempt paper. Interest is payable monthly.
In May 1991, Registrant issued $25 million of 11% senior notes due June
1, 2001. Annual principal reductions in the amount of $5 million are due
beginning June 1, 1997. Interest is payable each June 1 and December 1.
In April 1992, Registrant issued $75 million of 6-7/8% Convertible
Subordinated Notes. These notes are convertible into shares of common stock
of Registrant at $12.00 per share at any time at or prior to maturity which
is April 1, 2002. The notes may be redeemed by Registrant at any time on or
after April 1, 1995 in whole or in part, but redemption prior to the year
2000 would be at a premium. Interest on the notes is payable each April 1
and October 1.
As of February 26, 1994, the fair value of long-term debt was $155.0
million compared to its recorded value of $147.9 million. The fair value of
long-term debt was estimated based on the quoted market values for the same
or similar debt issues, or rates currently available for debt with similar
terms. There are no other significant assets or liabilities with a fair
value different from the recorded value.
Registrant has an interest rate hedging agreement on $100 million of
notional principal with a commercial bank, maturing August 5, 1995, for the
purpose of limiting Registrant's exposure to interest rate fluctuations on
its $25 million of industrial revenue bonds as well as approximately $75
million of store operating lease agreements with rental payments linked to
LIBOR. This agreement was designated as a hedge contract and, therefore, the
differential to be paid or received is recognized over the life of the
agreement. Registrant pays 6.25% under the agreement and, since inception,
has received an average of 4.01%. Registrant's weighted average interest
rate, including the effect of hedging activities, was 10.0%, 9.4% and 9.1%
for the 1994, 1993 and 1992 fiscal years, respectively. The weighted average
interest rate, excluding the effects of hedging activities, would have been
8.3%, 7.7% and 7.9% for the 1994, 1993 and 1992 fiscal years, respectively.
The fair value of this hedging agreement is $2.2 million at February
26, 1994, and represents the estimated amount, which was obtained from
counterparties, that Registrant would pay to terminate the agreement at
February 26, 1994. Registrant regularly monitors its position with, and the
credit quality of, the financial institution that is counterpart to this
financial instrument, and it does not anticipate nonperformance by the
counterparty.
Long-term debt matures as follows (in thousands):
1995 $ 2,639
1996 2,940
1997 2,566
1998 7,537
1999 7,500
Thereafter 124,688
--------
$147,870
========
Registrant's loan agreements require that Registrant maintain certain
financial ratios and limit specific payments and equity distributions
including cash dividends, loans to shareholders and purchases of treasury
stock. At year-end, the most restrictive of the agreements limits the
aggregate of such payments to $10 million.
Note 7 - Employee benefit plans
In 1986, Registrant adopted a qualified, defined contribution employee
retirement plan. Except for the initial enrollment period, all full- and
part-time personnel who are at least 21 years old and who have been employed
for six months are eligible to participate in the plan. Employees
contributing from 1% to 5% of their compensation receive Registrant
contributions of up to 3%. Registrant contributions to the plan were
$1,114,000, $915,000 and $714,000 in fiscal 1994, 1993 and 1992,
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.
Registrant maintains a Supplemental Executive Retirement Plan for
certain of its executive officers. The plan provides that upon retirement,
disability, death or other termination of employment a participant will
receive annual benefits. Retirement benefits under the plan vest for each
participant at the rate of 10% per year over 10 years of service.
Registrant's accrued contributions to the plan were $765,000, $554,000 and
$443,000 in fiscal 1994, 1993 and 1992, respectively.
Note 8 - Matters concerning stockholders' equity
Stock purchase plan - Substantially all employees and directors are
eligible to participate in the Pier 1 Imports, Inc. Stock Purchase Plan under
which Registrant's common stock is purchased on behalf of employees at market
prices through regular payroll deductions. Each employee participant may
contribute up to 10% of the eligible portions of annual compensation and
directors may contribute a maximum equal to their monthly directors' fees.
Registrant contributes from 10% to 100% of the participants' contributions,
depending upon length of participation and date of entry into the plan.
Approximately 268,000 shares were allocated to Stock Purchase Plan
participants during fiscal 1994, all of which were purchased on the open
market. Registrant contributions to the Plan were $867,000, $841,000 and
$830,000 in fiscal years 1994, 1993 and 1992, respectively.
Restricted stock grant plans - In 1993 and 1992, Registrant issued
17,414 shares and 19,157 shares, respectively, of its common stock to key
officers pursuant to a Management Restricted Stock Plan which provides for
the issuance of up to 250,000 shares. The shares of restricted stock were
awarded in conjunction with granting of stock options to those officers, with
the number of shares awarded representing 25% of the number of stock options
granted. The restricted stock will vest at the times and to the extent that
25% of such stock options have been exercised and the option shares have been
held for two years.
In 1991 Registrant issued 292,825 shares of its common stock to key
officers pursuant to a Restricted Stock Grant Plan which provides for
issuance of up to 500,000 shares. These shares vest and the cost of these
shares will be expensed over a ten-year period of continued employment.
Unvested shares are returned to the plan if employment is terminated for any
reason.
Stock option plans - In June 1989, Registrant adopted two stock option
plans, the 1989 Employee Stock Option Plan and the 1989 Non-Employee Director
Stock Option Plan. Options have been granted at the fair market value of
shares on date of grant and may be granted to qualify as Incentive Stock
Options under Section 422 of the Internal Revenue Code or as non-qualified
options. Registrant may grant options covering up to 1,500,000 and 150,000
shares of Registrant's common stock under the 1989 Employee Stock Option Plan
and the 1989 Non-Employee Director Stock Option Plan, respectively.
In 1990, the 1980 Stock Option Plan expired subject to outstanding
granted options covering 589,871 shares at fiscal year-end 1994.
A summary of stock option transactions related to the plans, adjusted
for stock dividends, during the years ended February 26, 1994 and February
27, 1993, is as follows:
Shares Option Prices
--------- -------------
Outstanding at February 29, 1992 1,405,980 $3.16 - 12.30
Options granted 96,649 6.75 - 11.13
Options exercised (428,755) 3.20 - 12.30
Options cancelled or expired (157,376) 4.28 - 10.59
--------- -------------
Outstanding at February 27, 1993 916,498 3.16 - 12.30
Options granted 220,277 8.75 - 9.00
Options exercised (72,864) 3.16 - 8.00
Options cancelled or expired (12,189) 4.28 - 10.59
--------- -------------
Outstanding at February 26, 1994 1,051,722 $3.20 - 12.30
========= =============
At February 26, 1994 and February 27, 1993 outstanding options covering
634,111 and 518,530 shares were exercisable and 832,385 and 1,040,473 shares
were available for grant, respectively.
Transactions with Intermark - Prior to June 1991, Intermark, Inc.
("Intermark") was the largest shareholder and exercised voting control of
Registrant. On June 6, 1991, Intermark sold its shares of Registrant's
common stock through a secondary public offering. On June 17, 1991,
Registrant repurchased all shares of Registrant's preferred stock held by
Intermark. In consideration of such repurchase, Registrant delivered to
Intermark all shares of the preferred stock of a wholly owned subsidiary of
Intermark that were owned by Registrant which had a stated value of $5.8
million on Registrant's balance sheet. The difference in the cost of the
shares held by Registrant and the preferred shares held by Intermark reduced
Registrant's capital by $4.4 million.
Common stock dividend - On March 15, 1991 and November 19, 1991,
Registrant announced stock dividends of 2% and 3%. Based on the closing
price of Registrant's common stock at the date of each dividend, the market
values of the shares distributed were approximately $4,005,000 and
$10,169,000, respectively.
Loans to officers - 1991 - In fiscal 1991, the Board of Directors
approved the sale of 210,000 treasury shares of common stock to certain
corporate officers in exchange for promissory notes of $892,500 which
approximated fair market value. These notes were reflected as a reduction to
stockholders' equity in 1991. In fiscal 1992, the Board of Directors
authorized Registrant to accept approximately 77,600 common shares from these
officers, at the current fair market value, in payment for the outstanding
loan balances.
Loans to officers - 1988 - The Board of Directors approved loans to
certain corporate officers in 1988 to enable those officers to acquire Pier 1
common stock through open market purchases. These demand notes were
unsecured, accrued interest at floating rates, and, if not demanded, would
mature in 1997. In fiscal 1992, the Board of Directors authorized Registrant
to accept approximately 112,600 common shares from certain of these officers
at current market value, which together with cash payments, reduced the
principal amount outstanding at February 26, 1994 to $776,000.
Note 9 - Income taxes
In fiscal 1993, Registrant adopted SFAS 109. Under SFAS 109, the
deferred tax provision is determined under 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. Adoption of the statement had
no effect on results of operations.
The provision for income taxes consists of (in thousands):
1994 1993 1992
------ ------ ------
Federal:
Current $5,356 $8,875 $7,232
Deferred (4,966) (1,431) (153)
State:
Current 2,598 1,765 1,237
Deferred (1,127) (302) --
Foreign:
Current 562 402 340
------ ------ ------
$2,423 $9,309 $8,656
====== ====== ======
Deferred tax liabilities (assets) at February 26, 1994 and February 27,
1993 are comprised of the following (in thousands):
1994 1993
-------- -------
Deferred tax liabilities:
Depreciation $ 8,117 $ 5,938
Deferred store costs 4,697 3,947
Other 856 495
-------- -------
13,670 10,380
-------- -------
Deferred tax assets:
Inventory $ (24) $(1,087)
Accrued average rent (6,126) (5,118)
Accrued vacation/deferred compensation (2,494) (2,319)
Deferred gain on sale/leaseback (1,493) (1,672)
Bad debts (708) (850)
Store-closing provision (8,454) --
Other (2,998) (817)
-------- -------
(22,297) (11,863)
-------- -------
$( 8,627) $(1,483)
======== =======
The difference between income taxes at the statutory federal income tax
rate of 35 percent in fiscal 1994, 34 percent in fiscal 1993 and fiscal 1992,
and income tax reported in the consolidated statement of operations is as
follows (in thousands):
1994 1993 1992
------ ------- -------
Tax at statutory federal tax rate $2,925 $12,208 $10,381
Tax treatment on sale of subsidiary
stock (282) -- (2,312)
State income taxes, net of federal
benefit 856 966 816
Tax-favored investment income (284) (574) --
Targeted jobs tax credit (395) (332) (229)
Foreign income taxed at lower rates (528) (2,959) --
Other, net 131 -- --
------ ------- -------
$2,423 $ 9,309 $ 8,656
====== ======= =======
Note 10 - Commitments and lease obligations
Registrant leases certain property consisting principally of retail
stores, warehouses and transportation equipment under leases expiring through
the year 2012. Substantially all retail store locations are leased, for
terms varying from 10 to 15 years with varying renewal options. Certain
leases provide for additional rental payments based on a percentage of sales
in excess of a specified base.
Capital leases are recorded in Registrant's balance sheet as assets
along with the related debt obligation. All other lease obligations are
operating leases, and payments are reflected in Registrant's consolidated
statement of operations as rental expense. The composition of capital leases
reflected as assets in the accompanying consolidated balance sheet is as
follows (in thousands):
1994 1993
------ ------
Buildings $ 477 $ 477
Equipment, furniture and fixtures 538 538
------ ------
1,015 1,015
Less accumulated depreciation 827 738
------ ------
$ 188 $ 277
====== ======
At February 26, 1994, Registrant has the following minimum lease
commitments in the years indicated (in thousands):
Capital Operating
Fiscal Year Leases Leases
----------- ------- ---------
1995 $285 $ 86,025
1996 205 83,125
1997 119 75,968
1998 87 69,372
1999 -- 57,618
Thereafter -- 201,629
---- --------
Total lease commitments 696 $573,737
========
Less imputed interest 221
----
Present value of total capital lease
obligations including current
portion of $234 $475
====
Present value of total operating lease
commitments $372,000
========
Rental expense incurred was $89,518,000, $85,511,000 and $81,042,000
including contingent rentals of $788,000, $821,000 and $559,000 based upon a
percentage of sales and net of sublease incomes totalling $1,252,000,
$870,000 and $836,000 in fiscal 1994, 1993 and 1992, respectively.
Registrant has agreements with unaffiliated groups to lease certain
stores and distribution center space. These unaffiliated groups are
presently committed to make available up to $101.8 million for development or
acquisition of stores leased by Registrant. Presently, Registrant has used
$99.5 million of that availability. Agreements with these groups mature over
the next five years, and Registrant management is continuously monitoring
financial markets to optimize renewal terms. In connection with the
financing of 38 stores by these unaffiliated groups, Registrant has
guaranteed the residual value of these buildings at approximately $25 million
at the end of the lease terms.
Registrant's lease commitments include amounts due to Comdisco, Inc.
for a computer leased in June 1991 for a period of five years at an annual
rent of approximately $1.1 million. Registrant considered competitive bids
from several firms before entering into the lease. In a matter unrelated to
this leasing transaction, in April 1993, Kenneth N. Pontikes, Chairman and
President of Comdisco, Inc. was invited to and did become a Director of
Registrant.
In fiscal 1993, Registrant invested in preference stock of The Pier,
located in the United Kingdom. Registrant guarantees approximately $4
million of debt for The Pier.
Note 11 - Litigation
There are various claims, lawsuits, investigations and pending actions
against Registrant and its subsidiaries incident to the operations of its
business. Liability, if any, associated with these matters is not
determinable at February 26, 1994; however, Registrant considers them to be
ordinary and routine in nature. While certain of the lawsuits involve
substantial amounts, it is the opinion of management that the ultimate
resolution of such litigation will not have a material adverse effect on
Registrant's financial position, results of operations or liquidity.
Note 12 - Cash flow information
The following is supplemental cash flow information (in thousands):
1994 1993 1992
------- ------- -------
Cash paid during the year for:
Interest $20,445 $16,835 $14,033
Income taxes $17,732 $17,126 $ 4,439
Note 13 - Investment in Sunbelt Nursery Group, Inc. and subsequent event
At fiscal year-end 1993, Registrant had a 49.5% ownership interest in
Sunbelt. Registrant reported the results of Sunbelt using the equity method
of accounting. Under such method, Registrant's share of net earnings (or
losses) of Sunbelt was included as a separate item in the consolidated
statement of operations.
In April 1993, Registrant completed the sale of its 49.5% ownership
interest in Sunbelt to General Host, a third party unrelated to Registrant or
Sunbelt. Registrant received as compensation for the Sunbelt shares 1.9
million shares of General Host common stock, which represented approximately
9.7% of that company's outstanding common stock. At the date of sale,
Registrant's net investment in Sunbelt totaled $17,992,000 and the market
value of the General Host common stock received as the purchase price of
Sunbelt was $17,945,000. To assist in the transition of ownership to General
Host, Clark A. Johnson, Chairman and Chief Executive Officer of Registrant,
served on Sunbelt's Board of Directors until November 1993.
In connection with Registrant's sale of its Sunbelt investment to
General Host, Registrant provided Sunbelt a line of credit aggregating $12
million, all of which was outstanding at February 26, 1994. In order for
Sunbelt to meet repayment obligations under this line, Sunbelt must obtain
replacement financing. To enable Sunbelt to raise these funds, Registrant
has granted Sunbelt a temporary extension of the credit facility until June
30, 1994. Also, Registrant is committed to provide Sunbelt $25 million of
non-revolving store development financing through April 1996. Registrant has
arranged for a bank group to provide the current financing by which
Registrant leases from an unaffiliated third party and subleases store sites
to Sunbelt. Under this leasing facility, the leases are required to be
refinanced by Sunbelt from September 1994 to October 1995. If Sunbelt
defaults on refinancing these store leases as the terms expire, Registrant
will be required to obtain other financing. Registrant expects financing of
Sunbelt's store sites to remain at same or similar terms and conditions as
are currently in place. In addition to the above, Registrant also guarantees
approximately $4.5 million of Sunbelt store lease commitments. Registrant's
line of credit and leasing commitments are collateralized by 4.2 million
shares of Sunbelt's common stock. The last sale price for Sunbelt common
stock reported on the American Stock Exchange on February 25, 1994, was
$2.81.
Note 14 - Selected quarterly financial data (unaudited)
Summarized quarterly financial data (in thousands of dollars except per
share amounts) for the years ended February 26, 1994 and February 27, 1993
are set forth below:
Three Months Ended
-----------------------------------------
Fiscal 1994 5/29/93 8/28/93 11/27/93 2/26/94
----------- -------- -------- -------- --------
Net sales $158,593 $181,441 $163,457 $181,902
======= ======= ======= =======
Gross profit $61,690 $65,834 $63,022 $69,046
======= ======= ======= =======
Net income (loss) $4,702 $7,343 $4,042 ($10,154)(3)
====== ====== ====== ========
Primary net income (loss)
per common share(2) $.12 $.20 $.11 ($.27)
==== ==== ==== =====
Three Months Ended
-----------------------------------------
Fiscal 1993 5/30/92 8/29/92 11/28/92 2/27/93
----------- -------- -------- -------- --------
Net sales $152,083 $166,416 $144,923 $165,813
======== ======== ======== ========
Gross profit $59,732 $61,548 $56,655 $68,247
======= ======= ======= =======
Net income(1) $8,055 $7,453 $2,247 $5,262
====== ====== ====== ======
Primary net income per
common share(2) $.22 $.20 $.06 $.14
==== ==== ==== ====
- ----------------
(1) SFAS 109 was issued in February 1992 and was adopted by Registrant
in the fourth quarter retroactively to the beginning of the 1993 fiscal year.
The adoption had no effect on Registrant's financial position or results of
operations.
(2) Fully diluted earnings per share resulted in less than 3% dilution
of primary earnings per share for both years and for all periods presented
with the exception of a $.01 dilution in the first and second quarters of
fiscal years 1994 and 1993.
(3) Includes $21,250 provision for store closings and $2,000 write-down
of investment in the common stock of General Host Corporation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: January 12, 1995
PIER 1 IMPORTS, INC.
By: /s/ J. Rodney Lawrence
J. Rodney Lawrence
Senior Vice President