UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended February 25, 1995.
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 Company as specified in its charter)
DELAWARE 75-1729843
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 Commerce Street, Suite 600
Fort Worth, Texas 76102
(Address of principal executive offices (Zip Code)
Company's telephone number, including area code: (817) 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 the Company (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Company was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the Company's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
As of May 3, 1995, there were 37,737,008 shares of Common Stock, $1.00
par value, outstanding, and the aggregate market value of the Common Stock of
the Company held by non-affiliates was approximately $316 million.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K Incorporated Document
- --------------------- ---------------------
Part III Proxy Statement for 1995 Annual Meeting
PART I
Item 1. Business.
(a) General Development of Business.
From fiscal 1990 through fiscal 1995, the Company, through its
subsidiary, Pier 1 Imports (U.S.), Inc. ("Pier 1"), expanded its specialty
retail operations from 517 retail stores to 628 stores. In fiscal year 1995,
the Company continued to execute its expansion plan by opening 42 new Pier 1
Imports stores, including one store representing a test of a mall-based
concept, and closed 50 stores. The number of new stores opened during the
fiscal year paralleled the previous fiscal year's rate when the Company
opened 48 new Pier 1 Imports stores. Throughout the fiscal year, the Company
continued its focus on cost efficiencies and expense controls. Subject to
changes in the retail environment, availability of suitable store sites and
adequate financing, the Company plans to open 55 new Pier 1 Imports stores
and six to ten mall-based stores in fiscal year 1996.
Set forth below is a list by city of Pier 1-operated stores
opened in fiscal 1995:
Altoona, PA Littleton, CO
Anderson, SC Manchester, CT
Auburn, MA Manchester, NH
Bloomington, IN Manhattan, KS
Bridgewater, NJ Middletown, NY
Council Bluffs, IA Midland, TX
Culver City, CA Naples, FL
Dothan, AL Orlando, FL
Enfield, CT Paramus, NJ
Fairborn, OH Peoria, AZ
Fort Worth, TX Puyallup, WA
Grand Island, NE Rochester, MN
Grand Junction, CO San Angelo, TX
Green Bay, WI Saugus, MA
Hampton, VA Scottsdale, AZ
Holland, MI Sioux City, IA
Holyoke, MA St. Charles, IL
Hyannis, MA Tallahassee, FL
Idaho Falls, ID Traverse City, MI
Jacksonville, FL Tupelo, MS
Lake Jackson, TX West Covina, CA
Presently, Pier 1 maintains regional distribution center
facilities in or near Baltimore, Maryland; Columbus, Ohio; Chicago, Illinois;
Fort Worth, Texas; Los Angeles, California; and Savannah, Georgia. For the
distribution centers in Fort Worth and Columbus, the Company has filed
applications to create Foreign Trade Zones to facilitate the shipment of
goods from overseas sources to Canadian and Mexican Pier 1 retail units.
In fiscal 1994, the Company recorded a non-cash special
charge of $21.3 million before taxes for a store-closing provision that was
established to reflect the anticipated costs to close 49 stores with
histories of underperformance and high occupancy costs and to close the
Canadian distribution center and administrative offices. At the end of
fiscal 1995, the Company had closed 46 stores, and in March 1995, the
Canadian distribution center and related administrative offices were closed.
Agreements have been reached with a majority of landlords regarding lease
terminations for the remaining stores in the store-closing program.
In fiscal 1993, the Company invested in preference stock of
The Pier Retail Group Limited ("The Pier") located in the United Kingdom. As
of February 25, 1995, loans to and investments in The Pier aggregated $3.3
million, with additional debt guarantees of approximately $6.4 million. The
Pier is an eleven-store retail chain that offers decorative home furnishings
and related items in a store setting similar to that operated by the Company.
In fiscal 1996 The Pier plans to add an additional five stores in the United
Kingdom.
In fiscal 1994, Pier 1 entered into a product distribution
agreement with Sears de Mexico S.A. ("Sears") to supply Sears with Pier 1
merchandise to be sold by Sears in retail space exclusively dedicated to the
sale of Pier 1 merchandise within certain Sears stores in Mexico. Presently,
the "store-within-a-store" concept is operating in six (6) locations in
Mexico City and one (1) location in Monterrey. Under the terms of the
arrangement Sears provides the dedicated retail selling space and the sales
associates to manage the business on a local level. Sears pays Pier 1 for
the merchandise after its retail sale and pays certain fees for the use of
Pier 1's trademarks and merchandising services.
In December 1994, the Company completed a private placement of
$12.5 million of 8 1/2% exchangeable debentures due December 1, 2000,
providing for mandatory exchange of the debentures into the 2.1 million
shares of General Host common stock held by the Company. The Company
received net proceeds of $11.1 million from the sale of the exchangeable
debentures and intends to utilize the funds for general corporate purposes.
On December 9, 1994, the Board of Directors announced the
adoption of a Shareholder Rights Plan consisting of a dividend of one common
share purchase right payable on each share of the Company's common stock
outstanding on December 21, 1994, pursuant to a Rights Agreement between the
Company and First Interstate Bank of Texas, N.A., as rights agent.
Additionally, one share purchase right will be issued with respect to each
share of common stock issued after December 21, 1994.
(b) Financial Information About Industry Segments.
The Company operates in one business segment consisting of the
retail sale of decorative home furnishings and related items.
Financial information with respect to the Company's business
is found in the Company's Consolidated Financial Statements which are set
forth in Item 8 herein.
(c) Narrative Description of Business.
The specialty retail operations of Pier 1 consist of a chain
of retail stores operating in the United States, Canada, and Puerto Rico
under the name "Pier 1 Imports" along with relationships involving
international retail operations in the United Kingdom and Mexico, selling a
wide variety of furniture, decorative home furnishings, dining and kitchen
goods, accessories and other specialty items for the home, and distinctive
casual clothing and fashion accessories.
On February 25, 1995, Pier 1 operated 603 stores in 46 states
of the United States, and Puerto Rico, and 25 stores in two Canadian
provinces as well as additional international operations in the United
Kingdom and Mexico. It also had franchised 31 stores in 21 states. The
company-operated Pier 1 stores average approximately 7,500 square feet in
size of retail selling space, and are generally located in strip shopping
centers or are freestanding units, predominately located near or in suburbs
of metropolitan areas. During fiscal 1995, net sales of Pier 1 totalled
$712.0 million. Pier 1 stores have their highest sales volumes during
November and December, reflecting the Christmas selling season.
Pier 1 offers a diverse selection of products consisting of
over 5,000 items. While the broad categories of Pier 1's merchandise remain
constant, individual items within these product groupings change frequently
in order to meet the demands of customers. The principal categories of
merchandise include the following:
FURNITURE - This product group consists of furniture to be
used in sun rooms, living, dining and kitchen areas, and on patios and
constituted approximately 27.5%, 26.8% and 26.3% of the total retail sales of
Pier 1 in fiscal years 1995, 1994 and 1993, respectively. These goods are
mainly imported from Taiwan, Hong Kong, China, the Philippines and Indonesia,
and are made of metal and handcrafted natural materials, including rattan,
buri, willow, pine, beech, rubber, and selected hardwoods with either natural
or painted finishes.
DECORATIVE HOME FURNISHINGS - This product group constituted
the most diverse category of merchandise in Pier 1's sales mix and
contributed approximately 25.7%, 24.4% and 23.7% to Pier 1's total retail
sales in fiscal years 1995, 1994 and 1993, respectively. These items are
imported from approximately 40 countries and include brass, marble and wood
items as well as lamps, vases, dried and silk flowers, baskets, wall
decorations and numerous other decorative items, practically all of which are
handcrafted from natural materials.
DINING AND KITCHEN GOODS - This product group is imported from
India, the Far East and Europe and includes ceramics, dinnerware and other
functional and decorative items. These goods accounted for approximately
15.2%, 14.1% and 14.1% of the total retail sales of Pier 1 in fiscal years
1995, 1994 and 1993, respectively.
TEXTILES - This product group consists of linen items,
padding, custom order fabrics as well as window coverings, bedspreads, and
pillows, of which most items are produced from original designs created both
domestically and in India. These goods accounted for approximately 12.9%,
13.5% and 13.9% of the total retail sales of Pier 1 in fiscal years 1995,
1994 and 1993, respectively.
CLOTHING, JEWELRY AND FASHION ACCESSORIES - This product group
is imported from India, Greece and Indonesia and accounted for approximately
8.7%, 12.1% and 14.4% of the total retail sales of Pier 1 in fiscal years
1995, 1994 and 1993 respectively.
Merchandise offered for sale in Pier 1 stores largely consists
of items that require a significant degree of handcraftsmanship. Most items
are imported directly by Pier 1 from foreign suppliers. Pier 1 is not
dependent on any particular supplier and has enjoyed long-standing
relationships with many vendors. During fiscal 1995, Pier 1 imported
approximately 23.7% of its purchases from China, 18.2% from India, and 31.4%
from Indonesia, Japan, Thailand, the Philippines, and Italy. The remaining
26.7% was imported from various Asian, European, Central American, South
American and African countries or obtained from United States manufacturers,
wholesalers or importers. In selecting the source of a product, Pier 1
considers quality, dependability of delivery and cost. For the most part,
the imported merchandise is handcrafted in cottage industries and small
factories.
Pier 1 currently maintains six regional distribution centers
located in or near Baltimore, Maryland; Los Angeles, California; Fort Worth,
Texas; Chicago, Illinois; Savannah, Georgia; and Columbus, Ohio, and leases
additional space from time to time and on a temporary basis. Imported
merchandise and a portion of domestic purchases are delivered to the
distribution centers, unpacked, and made available for shipment to the
various stores in the center's region. The merchandise is then distributed
to the retail stores by contract carriers. Due to the time delays involved
in procuring merchandise from foreign suppliers, Pier 1 is required to
maintain a significant amount of inventory in order to be assured of a
sufficient supply of products to its customers. A stock of regularly
reordered items and temporary inventory surpluses have, from time to time,
been carried at the distribution centers.
Pier 1 stores have no direct national competitors. The major
competition arises at a local level from other retailers offering similar
lines of merchandise, such as small specialty sections of large department
stores, home furnishing stores, small specialty import stores and discount
stores. The Company believes Pier 1 enjoys a competitive edge over these
stores, due to its greater name awareness and the extent and variety of the
merchandise offered at Pier 1 stores. While other competing stores may offer
a few items that change somewhat infrequently, Pier 1 offers over 5,000 items
of which approximately forty percent (40%), change each year.
As a retailer of imported merchandise, Pier 1 is subject to
certain risks that typically do not affect retailers of domestically produced
merchandise, including the need to order merchandise from four to twelve
months in advance of delivery and to pay for such merchandise at the time it
is loaded for transport to designated U.S., international or Canadian
destinations. Additionally, dock strikes, fluctuations in currency values
and monetary exchange rates, restrictions on the convertibility of the dollar
and other currencies, duties, taxes and other charges on imports, import
quota systems and other restrictions generally placed on foreign trade can
affect the price, delivery and availability of ordered merchandise. The
inability to import products from certain countries or the imposition of
significant tariffs could have a material adverse effect on the results of
operations of Pier 1.
In 1988, the Omnibus Trade and Competitiveness Act was signed
into law. This legislation was enacted in response to a perceived decline in
U.S. global competitiveness and the continuing presence of unfair trade
practices that limit U.S. exporters' access to foreign markets. Under the
law, unfair trade practices of countries around the world may be investigated
by the United States Trade Representative and such investigations may lead to
sanctions which could take the form of quotas or increased duties on imports
into the U.S.
On March 3, 1994, President Clinton signed an executive order
re-instituting a trade provision known as Special 301 which is designed to
allow negotiations before countries are designated as priority foreign
countries. Priority foreign countries are the nations whose trade practices,
if corrected, would provide the greatest potential for expansion of U.S.
exports. In April 1995 the Office of the U.S. Trade Representative in its
annual report under Special 301 did not designate any country as a priority
foreign country which would have triggered immediate negotiations and the
threat of trade sanctions. The United States may employ other measures to
implement its international trade policies and objectives, such as the
withdrawal, selectively or entirely, of most favored nation ("MFN") status to
countries around the world, which would cause U.S. import duties to increase.
Presently, the President is considering the MFN status of the Peoples
Republic of China, which, if lost entirely, would cause the Company to source
affected goods from other countries. Any type of sanction is likely to
increase the Company's import costs or limit the availability of products
purchased from sanctioned countries. In such event, the Company will seek
similar products from other countries.
In April 1994, the United States and more than 100 other
countries culminated over six years of negotiations with an agreement to
reduce, over time, tariff and non-tariff barriers to world trade in goods and
services and which created a new world trade organization to replace the
General Agreement on Tariffs and Trade next year. United States
congressional approval was obtained in December 1994. Any agreement which
may reduce tariff and non-tariff barriers in international trade is
considered beneficial to the Company's business in the United States and
around the world.
Pier 1 owns three federally registered service marks under
which its company-operated and franchised stores do business. These
registrations are numbered 948,076 and 1,620,518 for the mark PIER 1 IMPORTS
and 1,104,059 for the mark PIER 1.
On February 25, 1995, Pier 1 employed 8,671 persons: 504 were
full time employees at Pier 1's home office, 3,781 were full time employees
and 4,386 were part time employees.
The Company maintains one wholly owned foreign subsidiary,
which is incorporated under the laws of Hong Kong. The foreign subsidiary
manages certain merchandise procurement, export and financial service
functions for Pier 1.
Item 2. Properties.
(a) Properties of the Company.
As a holding company, the Company does not own any physical
property materially important to the conduct of its business operations. The
Company's home office in Fort Worth, Texas is leased by Pier 1.
(b) Properties of Pier 1.
Pier 1 leases certain properties consisting principally of
retail stores, warehouses and office space. In July 1985, Pier 1 entered
into a lease agreement which currently provides 128,770 square feet of office
space in downtown Fort Worth for the Company's home office. Most of Pier 1's
retail store operations are conducted pursuant to leases which are classified
as operating leases, and at February 25, 1995, the present value of Pier 1's
minimum future operating lease commitments for various stores and warehouses
aggregated approximately $393 million.
Pier 1 currently owns and leases distribution space of
approximately 3 million square feet. Additional temporary space requirements
are met by leasing space on a short term basis.
The following table shows the distribution by state of Pier 1
stores operated by Pier 1 as of February 25, 1995:
United States and Puerto Rico
- -----------------------------
Alabama 5 Nebraska 4
Arizona 9 Nevada 3
Arkansas 2 New Hampshire 4
California 80 New Jersey 18
Colorado 15 New Mexico 2
Connecticut 13 New York 30
Delaware 2 North Carolina 11
District of Columbia 1 North Dakota 3
Florida 41 Ohio 31
Georgia 17 Oklahoma 5
Idaho 2 Oregon 5
Illinois 33 Pennsylvania 22
Indiana 10 Puerto Rico 1
Iowa 5 Rhode Island 2
Kansas 5 South Carolina 6
Kentucky 5 Tennessee 11
Louisiana 8 Texas 51
Maryland 16 Utah 4
Massachusetts 20 Virginia 21
Michigan 23 Washington 15
Minnesota 13 West Virginia 1
Mississippi 3 Wisconsin 13
Missouri 10 Wyoming 1
Montana 1
Canada
- ------
Ontario 16
Quebec 9
Warehouse properties that are owned or leased by Pier 1 are as
follows:
Owned/Leased
Location Approx. Sq. Ft. Facility
- -------- --------------- ------------
Baltimore, Maryland 634,186 sq. ft. Leased
Columbus, Ohio 527,127 sq. ft. Leased
Chicago, Illinois 297,552 sq. ft. Owned
Fort Worth, Texas 454,868 sq. ft. Owned
Rancho Cucamonga, California 515,990 sq. ft. Leased
Savannah, Georgia 393,216 sq. ft. Owned
Pier 1 participates in a limited partnership to provide for
financing and construction of Pier 1 retail stores. As of February 28, 1995,
the partnership owned 33 retail stores that are currently open and operating.
The investment by the partnership in land and buildings approximated $44.3
million.
The Company has agreements with unaffiliated groups to lease
certain stores and distribution center space. These unaffiliated groups are
committed to make available up to $111.8 million for development or
acquisition of properties leased by Pier 1. As of February 25, 1995, the
Company has used $82.8 million of that availability. Of the $82.8 million,
Pier 1 has utilized $22.8 million to finance the development of 13 nursery
centers for a subsidiary of Sunbelt Nursery Group, Inc. ("Sunbelt"). These
properties are leased by Pier 1 and subleased to the Sunbelt subsidiary (see
"Item 7-Liquidity and Capital Resources"). Agreements with these groups mature
over the next three years, and the Company is continuously monitoring
financial markets to optimize renewal terms.
Item 3. Legal Proceedings.
There are various claims, lawsuits, investigations and pending
actions against the Company and its subsidiaries incident to the operation of
their businesses. Liability, if any, associated with these matters is not
determinable at February 25, 1995. While a certain number of the lawsuits
involve substantial amounts, it is the opinion of management, after
consultation with counsel, that the ultimate resolutions of such litigation
will not have a material adverse effect on the Company's financial position,
results of operations or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of the Company's
security holders during the fourth quarter of the Company's fiscal year.
EXECUTIVE OFFICERS OF THE COMPANY
CLARK A. JOHNSON, age 64, has served as Chairman and Chief Executive
Officer of the Company and a member of the Executive Committee since March
1988. He has been a Director of the Company since March 1983. From May 1985
to March 1988, Mr. Johnson was President and Chief Executive Officer of the
Company. He is a Director of Albertson's, Inc., InterTAN, Inc., The Actava
Group Inc., Anacomp, Inc. and Heritage Media Corporation.
MARVIN J. GIROUARD, age 55, has served as President and Chief Operating
Officer of the Company and as a Director since August 1988. From May 1985
until August 1988, he served as Senior Vice President - Merchandising of Pier
1. Additionally, he serves as a Director of ENSERCH Corporation.
ROBERT G. HERNDON, age 61, has served as Executive Vice President of the
Company since August 1988 and Chief Financial Officer since November 1985.
He served as Senior Vice President from November 1985 to August 1988. He is
a director of The Leather Factory.
J. RODNEY LAWRENCE, age 49, has served as Senior Vice President of Legal
Affairs and Secretary of the Company and Pier 1 since June 1992, and served
as Vice President of Legal Affairs and Secretary of the Company from November
1985 to June 1992.
E. MITCHELL WEATHERLY, age 47, has served as Senior Vice President of
Human Resources of the Company since June 1992 and served as Vice President
of Human Resources of the Company from June 1989 to June 1992 and of Pier 1
from August 1985 to June 1992.
PHIL E. SCHNEIDER, age 43, has served as Senior Vice President of
Marketing of the Company and Pier 1 since May 1993 and served as Vice
President of Advertising of Pier 1 from January 1988 to May 1993.
CHARLES H. TURNER, age 38, has served as Senior Vice President of Stores
of the Company and Pier 1 since August 1994 and served as Controller and
Principal Accounting Officer of the Company from January 1992 to August 1994.
PERRY R. MCNEELY, age 47, has served as Senior Vice President of
Logistics of the Company and Pier 1 since June 1994.
JAY R. JACOBS, age 40, has served as Senior Vice President of
Merchandising of the Company since May 1995 and served as Vice President of
Pier 1 Divisional Merchandising from May 1993 to May 1995.
The officers of the Company, who are appointed by the Board of
Directors, hold office until their successors are elected and qualified, or
until their earlier death, resignation or removal.
None of the above executive officers has any family relationship with
any other of such officers. None of such officers was selected pursuant to
any arrangement or understanding between him and any other person.
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters.
MARKET PRICE AND DIVIDEND INFORMATION
Market Price(1) Cash Dividends
Fiscal 1995 High Low Per Share
- ----------- ------ ------ --------------
First Quarter 9 1/8 7 3/8 $0.025
Second Quarter 8 5/8 7 1/8 0.025
Third Quarter 8 3/4 7 3/8 0.030
Fourth Quarter 10 1/8 7 1/2 0.030
Fiscal 1994
- -----------
First Quarter 12 1/4 8 3/8 $0.020
Second Quarter 10 1/8 8 1/4 0.025
Third Quarter 11 1/4 8 3/8 0.025
Fourth Quarter 10 7/8 8 3/8 0.025
(1) Market prices do not reflect impact of 5% stock dividend distributed May
1995.
The Company's common stock is traded on the New York Stock
Exchange. As of May 3, 1995, there were approximately 16,000 shareholders of
record of the Company's common stock.
Certain of the Company's existing loan agreements limit specific
payments and distributions, including cash dividends, loans to shareholders
and purchases of treasury stock. Generally the Company may make "restricted
payments," as defined in the loan agreements, which include the payment of
cash dividends, up to an aggregate maximum of approximately $13.9 million as
of February 25, 1995. Additionally, the Company is required to maintain
various financial ratios. The Company's Board of Directors currently expects
to pay modest cash dividends in fiscal 1996, but intends to retain most of
future earnings for the expansion of the Company's business. A cash dividend
of $.03 per share was paid May 17, 1995 and a stock dividend of 5% per share
was paid May 8, 1995. The Company's dividend policy will depend upon the
earnings, financial condition and capital needs of the Company and other
factors deemed relevant by the Company's Board of Directors.
Item 6.Selected Financial Data.
FINANCIAL SUMMARY (Unaudited)
($ in millions except per share amounts)
10-Year
Compound
Annual Year Ended
Growth -------------------------------------------------------------------------------------
Rate 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
-------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Summary of operations:(1)
Net sales 15.2% $712.0 685.4 629.2 586.7 562.7 516.9 414.6 327.2 262.3 203.9 173.5
Gross profit 15.1% $277.6 259.6 246.2 228.4 210.5 210.1 169.7 135.2 109.0 81.6 68.1
Selling, general and
administrative
expenses 14.9% $206.0 195.4 180.2 172.4 169.9 148.8 117.8 96.0 78.6 59.3 51.4
Depreciation and
amortization 19.0% $ 16.0 15.8 15.1 15.0 14.3 13.1 10.0 7.9 5.5 3.5 2.8
Store-closing pro-
vision $ - 21.3 - - - - - - - - -
Write-down of General
Host securities $ 7.5 2.0 - - - - - - - - -
Interest expense, net 14.9% $ 12.0 16.8 15..0 16.3 12.3 9.7 10.0 8.1 3.6 3.6 3.0
Income before income
taxes and equity in
net income (loss)
of subsidiary 12.7% $ 36.0 8.4 35.9 30.5 14.0 38.5 31.9 23.2 21.3 15.2 10.9
Equity in net income
(loss) of subsidiary $ - - (3.6) 4.5 (2.4) - - - - - -
Net income for common
stockholders 15.5% $ 24.9 5.9 23.0 26.3 6.3 25.3 21.6 15.8 12.0 8.6 5.9
Per common share data
(adjusted for stock
splits and dividends):(2)
Net income for common
stockholders 11.1% $ .63 .15 .59 .68 .16 .64 .64 .47 .37 .31 .22
Cash dividends declared $ .11 .10 .07 - .15 .12 .08 .06 .02 .01 -
Stockholders' equity 16.0% $ 5.67 5.09 5.11 4.56 4.07 4.60 3.42 2.79 2.33 1.73 1.28
Other financial data:
Working capital 21.4% $267.8 229.0 225.2 160.0 126.7 144.3 117.2 87.2 96.8 43.4 38.6
Current ratio 4.1 3.5 3.4 3.0 2.1 3.2 2.9 2.3 3.3 2.4 3.5
Total assets 20.4% $488.7 463.3 460.5 386.4 428.9 350.5 299.9 257.9 218.3 106.6 76.5
Long-term debt 19.2% $154.4 145.2 147.2 106.8 140.6 92.6 121.3 96.5 101.5 26.7 26.7
Stockholders' equity 20.7% $225.2 201.1 200.5 177.1 156.3 181.4 115.8 94.1 74.4 48.5 34.3
Weighted average shares
outstanding and common
stock equivalents
(millions)(2) 4.0% 39.7 39.5 39.2 38.9 38.4 39.5 33.8 33.8 32.0 28.1 26.7
Effective tax rate 31.0% 29.0 25.9 28.3 35.8 33.7 31.5 30.8 43.7 43.2 46.0
Return on common
stockholders'
average equity 11.0% 3.0 12.2 15.8 3.7 17.0 20.6 18.8 19.5 20.8 18.6
Return on average
total assets 5.1% 1.3 5.4 6.5 1.6 7.8 7.7 6.6 7.4 9.4 8.2
Pre-tax return on sales 5.1% 1.2 5.7 5.2 2.5 7.4 7.7 7.1 8.1 7.5 6.3
<FN>
(1) This financial summary is prepared on the basis of continuing operations after the distribution of the common shares of two
subsidiaries to shareholders in December 1985, and before the tax benefits of operating loss carryforwards fully utilized in
fiscal 1986.
(2) Reflects the effect of a 5% stock dividend distributed May 8, 1995, a 3% stock dividend distributed November 19, 1991, a 2%
stock dividend distributed May 15, 1991, stock splits on July 2, 1987, January 13, 1987 and July 18, 1986, and a 10% stock
dividend distributed February 28, 1986.
</FN>
/TABLE
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Pier 1 Imports, Inc. (the "Company") is North America's largest
specialty retailer of imported decorative home furnishings, gifts and related
items, with 628 stores in 46 states, Puerto Rico and Canada, along with
relationships involving international retail operations in the United Kingdom
and Mexico as of the fiscal 1995 year-end. The Company reported record sales
of $712.0 million for fiscal 1995 and net income of $24.9 million, or $.63
per share, after recording a non-cash, after-tax special charge of $5.2
million in the third quarter to reflect a write-down of the carrying value of
the Company's holdings of General Host Corporation ("General Host") common
stock. Net income before the special charge would have been $30.1 million,
or $.76 per share, for fiscal 1995. In March 1995, the Company announced a
5% common stock dividend distributable to stockholders of record on May 1,
1995. All per share amounts have been adjusted to reflect the impact of the
stock dividend.
FISCAL YEARS ENDED FEBRUARY 25, 1995 AND FEBRUARY 26, 1994
During fiscal 1995, net sales increased by $26.6 million, or 3.9%,
to $712.0 million compared with fiscal 1994 net sales of $685.4 million.
This growth was primarily attributable to growth in same-store sales which
increased 4.8% compared to fiscal 1994. During fiscal 1995, the Company
opened 42 new stores. Sales of hard goods merchandise such as furniture and
decorative accessories increased 12% in fiscal 1995 over fiscal 1994, and
sales of soft goods merchandise such as apparel and jewelry decreased 21% in
fiscal 1995 compared to the prior year. Hard goods and soft goods sales
contributed approximately 91% and 9%, respectively, of total sales during
fiscal 1995. The Company's sales mix shifted during fiscal 1995 to reflect
the Company's focus on increasing consumer demand for furniture and
decorative accessories coupled with lower demand for apparel and related
accessories. This sales shift resulted in higher average ticket sales and a
5.1% increase in sales per average square foot of retail selling space to
$154.03 from $146.57 in the prior year. Sales of $26.7 million from stores
closed during the year pursuant to the store-closing program, initiated at
the end of fiscal 1994, were excluded from the Company's reported sales for
fiscal 1995. Sales in these stores were included in fiscal 1994 reported
sales and aggregated $37.7 million.
Sales on the Company's proprietary credit card were $124.7 million,
or 17.5% of total sales, during the 1995 fiscal year, an increase of $26.1
million, or 26.4%, over the prior fiscal year. Credit card receivables
totalled $62.6 million at the end of fiscal 1995, a 29.9% increase over the
prior fiscal year. The Company 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 the Company's proprietary credit card
are encouraged through specific marketing promotions.
Gross profit, after related buying and store occupancy costs,
expressed as a percentage of sales, increased 1.1% to 39.0% in fiscal 1995
from 37.9% in fiscal 1994. The increase resulted primarily from leveraging
relatively fixed store occupancy costs through greater sales, combined with
the closing of 49 stores (which as a group had higher occupancy costs as a
percentage of sales than did the remaining population of stores). Gross
profit on merchandise, as a percentage of sales, remained unchanged at 53.4%
in fiscal 1995 compared to fiscal 1994. During fiscal 1995, the contribution
of the components of gross profit changed as margins improved in furniture
due to a reduction in merchandise discounts and clearance markdowns, and
margins decreased in decorative accessories and dining and kitchen as a
result of clearance markdowns aimed at decreasing inventory levels. Soft
goods gross profit components were down from 52% last year to 50% in fiscal
1995 as a result of intentional lowering of retail prices to stimulate sales.
Selling, general and administrative expenses, including marketing,
as a percentage of sales, increased 0.4% to 28.9% in fiscal 1995 compared to
28.5% in fiscal 1994. In total dollars, these expenses for fiscal 1995
increased $10.6 million over fiscal 1994, with $7.0 million of the increase
attributable to expenses that normally increase proportionately with sales,
such as store salaries and marketing. These variable expenses, as a
percentage of sales, remained essentially unchanged from last year.
Management bonuses increased by $3.6 million as a result of increased
earnings. Net proprietary credit card expenses declined by $1.2 million,
primarily as a result of increased finance charge income, and all other
selling, general and administrative expenses increased by $1.2 million.
In fiscal 1994, the Company recorded a special charge of $21.3
million before taxes for a store-closing provision that was established to
reflect the anticipated costs to close 49 stores with histories of
underperformance and high occupancy costs and to close the Canadian
distribution center and administrative offices. At the end of fiscal 1995,
the Company had closed 46 stores; the Canadian distribution center and
administrative offices were closed in March 1995. Agreements have been
reached with a majority of landlords regarding lease terminations for stores
in the store-closing program. The balance of the store-closing reserve at
fiscal 1995 year-end was $11.8 million, which consisted primarily of
anticipated final cash requirements associated with lease termination costs.
The $9.5 million utilized out of the store-closing reserve during fiscal 1995
consisted of lease termination costs of $3.0 million, fixed asset write-downs
and inventory liquidation costs of $4.8 million, interim operating losses and
other costs of $1.4 million and severance costs of $0.3 million.
Operating income improved $28.5 million to $55.6 million in fiscal
1995 from $27.1 million in the prior year.
During fiscal 1995, net interest expense declined primarily due to
lower effective interest rates coupled with lower debt, net of cash balances.
In April 1993, the Company completed the sale of its 49.5%
ownership interest in Sunbelt to General Host, a third party unrelated to the
Company or Sunbelt, in exchange for 1.9 million shares of General Host common
stock. Subsequently, General Host distributed two 5% stock dividends,
resulting in an increase in the Company's holdings to 2.1 million shares of
General Host common stock at February 25, 1995. In fiscal 1994, the Company
recorded a provision for the write-down of the carrying value of the
Company's holdings of General Host common stock. Based on prices at fiscal
year-end 1994, the market value of General Host common stock was $5.6 million
less than the Company's original carrying amount. After an assessment of
factors which may have contributed to the decline, the Company estimated $2.0
million of this decline to be other than temporary and recorded a
corresponding charge to income in fiscal 1994. The remaining $3.6 million
decline in market value was considered to be temporary. In spite of
favorable developments relating to General Host, the General Host stock price
did not improve during fiscal 1995. Consequently, in the third quarter of
fiscal 1995, the Company concluded that these developments were not having
the expected positive effect on General Host's market price per share, and a
non-cash, pre-tax special charge of $7.5 million was recorded to reflect an
other than temporary decline in the market value of the General Host common
stock. As a result of the issuance of the Company's exchangeable debentures
in December 1994, the General Host common stock is no longer available for
sale, and the Company no longer has market risk in relation to the General
Host common stock. See: Liquidity and Capital Resources.
The Company's effective income tax rate for fiscal 1995 increased
to 31% from 29% in fiscal 1994, primarily due to the benefit of tax-favored
investment income last fiscal year compared to this fiscal year and an
increase in the effective state income tax rate this fiscal year as compared
to fiscal 1994. The Company's effective income tax rate for fiscal 1996 is
expected to increase to 35-40% due to the benefit of favorable tax treatment
from the sale of Sunbelt common stock recognized in fiscal years 1995 and
1994.
Net income for fiscal 1995 aggregated $24.9 million, or $.63 per
share, compared to income of $5.9 million, or $.15 per share, last year.
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%. Sales of hard goods merchandise
such as furniture and decorative accessories increased 12% in fiscal 1994
over fiscal 1993, and sales of soft goods such as apparel and jewelry
decreased 8% in fiscal 1994 compared to the prior year. Hard goods and soft
goods sales contributed approximately 87% and 13%, respectively, of total
sales during fiscal 1994. Fiscal 1993 total sales grew 7.3% and same-store
sales grew 3.7% from the previous year. Forty-eight (48) new stores were
opened and 17 stores were closed during fiscal 1994, before giving effect to
the store-closing program.
Sales on the Company's proprietary credit card were $98.6 million,
or 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.
Gross profit, after related buying and store occupancy costs,
expressed as a percentage of sales, declined 1.2% from 39.1% in fiscal 1993
to 37.9% in fiscal 1994. Store occupancy costs, expressed as a percentage of
sales, improved slightly due to higher same-store sales volumes. Sales of
furniture and decorative items sustained increased promotional markdowns and
other discounts which caused reduced margins on these goods. Gross profit
rates on apparel, jewelry and accessories declined due to additional
promotional markdowns taken in fiscal 1994 compared with fiscal 1993.
Selling, general and administrative expenses, including marketing,
improved 0.1% to 28.5% as a percentage of sales in fiscal 1994 compared to
28.6% in fiscal 1993. In total dollars, expenses for fiscal 1994 increased
$15.2 million over the prior year primarily due to 31 net new stores opened
during the year (before giving effect to the store-closing provision), new
point-of-sale register equipment installed in all stores, new selling
programs introduced in stores and losses related to the earthquake in
California during fiscal 1994.
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 stores with histories of underperformance and
high occupancy costs and to close the Canadian distribution center and
administrative offices. 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 components of the store-closing provision consisted of lease
termination costs of $15.9 million (net of $3.9 million of estimated sublease
revenue), fixed asset write-downs and inventory liquidation costs of $3.3
million, expected interim operating losses and other costs of $1.7 million
and severance costs of $0.4 million. Lease termination costs reflected the
estimated settlements the Company would pay landlords to terminate lease
arrangements and the shortfall of sublease revenues over lease payments for
stores that the Company determined were economical to sublease. Fixed
assets, consisting primarily of leasehold improvements, were written down to
their estimated net realizable value which, in most cases, was zero.
Inventory liquidation cost was determined by estimating additional markdowns
to be taken to dispose of each store's inventory. Operating losses were
estimated on the basis of past performance of the respective stores and
anticipated results for the 1995 fiscal year. Severance costs consisted
almost entirely of benefits to be paid to Canadian employees as prescribed by
Canadian law.
Operating income declined $23.8 million to $27.1 million in fiscal
1994 from $50.9 million in the prior year, due to the store-closing provision
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.
During the fourth quarter of fiscal 1994, the Company recorded a
provision for a write-down of the carrying value of the Company's holdings of
General Host common stock. Based upon prices at year-end, the market value
of General Host common stock was $5.6 million less than the Company's
original carrying amount. After an assessment of factors which may have
contributed to this decline, the Company estimated $2.0 million of this
decline to be other than temporary and recorded a corresponding charge to
income to adjust the book value of the General Host common stock. The
remaining decline of $3.6 million was considered to be temporary.
The Company'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.
The Company's equity in losses from Sunbelt was $3.6 million in
fiscal 1993. In April 1993, the Company completed the sale of its 49.5%
interest in Sunbelt. Sunbelt's results were not included in the Company's
earnings during fiscal 1994.
Net income for fiscal 1994 aggregated $5.9 million, or $.15 per
share, compared to income of $23.0 million, or $.59 per share, in the prior
year.
LIQUIDITY AND CAPITAL RESOURCES
At February 25, 1995, cash and cash equivalents had increased to
$54.2 million from $17.1 million at February 26, 1994, due to cash flow from
operations of $50.2 million, net proceeds from the issuance of exchangeable
debentures of $11.1 million, net proceeds from the pay-off of the credit
facility from Sunbelt of $2.0 million, partially offset by capital
expenditures of $17.5 million, cash dividends of $4.1 million, a sinking fund
payment of $2.5 million on the Company's subordinated debentures and other
investing and financing activities of $2.1 million.
Cash provided by operating activities of $50.2 million during
fiscal 1995 compared favorably to $4.4 million during fiscal 1994. The
improvement was primarily due to higher earnings, reduced inventory levels
and slightly slower growth of the Company's proprietary credit card
receivable in fiscal 1995 versus fiscal 1994.
During fiscal 1995, capital expenditures of $11.6 million were
required to support the opening of 42 new stores. The Company's new store
development plan for fiscal 1996 provides for the opening of approximately 55
stores. Financing for new store land and building costs will be provided by
operating leases. Inventory and fixtures for the fiscal 1996 development
plan are estimated to cost approximately $16 million, which will be funded by
operations, working capital and bank lines of credit. Final cash
requirements to fund the store-closing program from fiscal 1994 for lease
terminations and inventory liquidation costs are expected to be approximately
$11.8 million in fiscal 1996 and will be funded through working capital and
operations. Twenty-two (22) stores are expected to close in fiscal 1996 as
their leases expire.
The Company currently has a $60 million short-term lease financing
facility, of which $28.6 million was unused at 1995 fiscal year-end. In
addition, the Company maintains a $51.4 million intermediate-term lease
financing facility for 41 stores. The property leases for these 41 stores
require that upon expiration of the leases over the next three years, unless
the leases are extended by the parties, the Company must either obtain
alternative financing for the properties or arrange for the sale of
properties to a third party or purchase the properties for approximately $50
million. In order to continue to finance new store land and building costs
through operating leases, the Company is expanding these facilities and
exploring additional financing opportunities currently available in the
capital markets. The Company's minimum future operating lease commitments
expected for fiscal 1996 aggregate $93 million, and the present value of
total existing operating lease commitments is $393 million. These
commitments will be funded from operating cash flow.
Working capital requirements are currently provided by cash and
short-term revolving lines of credit, including bankers' acceptances and
working capital loans. The Company's current ratio was 4.1 to 1 at the end of
fiscal 1995 compared to 3.5 to 1 a year earlier.
In April 1993, the Company sold its 49.5% ownership interest in
Sunbelt to General Host and committed to provide Sunbelt a $12 million credit
facility through April 1994 and up to $25 million of non-revolving store
development financing through April 1996. In October 1994, in connection
with the sale by General Host of its 49.5% interest in Sunbelt to a third
party unrelated to the Company or General Host, the Company received payment
of the amounts owed under the credit facility and agreed to extend $22.8
million of the non-revolving store development financing to Sunbelt until
June 30, 1998, at market rental rates. Additionally, the Company guarantees
other Sunbelt store lease commitments aggregating $4.5 million with a present
value of approximately $3.5 million.
In April 1995, Sunbelt defaulted on 13 store subleases to the
Company comprising the $22.8 million of non-revolving store development
financing, and the Company terminated the subleases. Negotiations are in
process with Sunbelt regarding the Company's claims as well as the
disposition of these properties through sales to third parties or acquisition
by Sunbelt. In management's opinion, losses to the Company, which cannot be
currently estimated, will not be material to the Company's financial position
or liquidity.
In December 1994, the Company completed a private placement of
$12.5 million of 8 1/2% exchangeable debentures due December 1, 2000,
providing for mandatory exchange of the debentures into the 2.1 million
shares of General Host common stock held by the Company (after recognition of
stock dividends). The net proceeds received by the Company from the sale of
the exchangeable debentures was $11.1 million. The Company intends to
utilize the net proceeds, together with existing financial resources, for
working capital and other general corporate purposes.
In fiscal 1995, the Company paid cash dividends aggregating $.11
per common share or $4.1 million. The Board of Directors anticipates a
continuation of its current quarterly cash dividends to shareholders.
In fiscal 1993, the Company invested in preference stock of The
Pier Retail Group Limited ("The Pier") located in the United Kingdom.
Currently, investment in and loans to the The Pier aggregate $3.3 million,
with additional debt guarantees of approximately $6.4 million. Fiscal 1996
store expansion plans include the opening of five stores, and the Company
expects to invest approximately $6.5 million in The Pier during the fiscal
year. The Pier is presently an 11-store retail operation that offers
decorative home furnishings and related items in a store setting similar to
that operated by the Company.
The Company's inventory purchases are made almost entirely in U.S.
dollars. When purchase commitments are denominated in foreign currencies,
the Company may enter into forward exchange contracts when they are available
in order to manage its exposure to foreign currency exchange fluctuations.
The Company believes the funds provided from operations, coupled
with the Company's cash position and available lines of credit, are
sufficient to meet its foreseeable cash requirements.
IMPACT OF INFLATION AND CHANGING PRICES
Inflation has not had a significant impact on the operations of the
Company.
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 25, 1995, February 26, 1994
and February 27, 1993
Consolidated Balance Sheet at February 25, 1995 and
February 26, 1994
Consolidated Statement of Cash Flows for the Years
Ended February 25, 1995, February 26, 1994 and
February 27, 1993
Consolidated Statement of Stockholders' Equity for the
Years Ended February 25, 1995, February 26, 1994 and
February 27, 1993
Notes to Consolidated Financial Statements
Financial Statement Schedules:
For the Years Ended February 25, 1995, February 26, 1994
and February 27, 1993
VIII Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are not required or
are not applicable or the required information is shown in the financial
statements or notes thereto.
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 25, 1995
and February 26, 1994, and the results of their operations and their cash
flows for each of the three years in the period ended February 25, 1995, 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 LLP
- ------------------------
Fort Worth, Texas
April 7, 1995
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands except per share amounts)
Year Ended
----------------------------
1995 1994 1993
-------- -------- --------
Net sales $711,985 $685,393 $629,235
Operating costs and expenses:
Cost of sales (including buying and
store occupancy) 434,412 425,801 383,053
Selling, general and administrative
expenses 206,022 195,444 180,218
Depreciation and amortization 15,989 15,771 15,097
Store-closing provision -- 21,250 --
-------- -------- --------
656,423 658,266 578,368
-------- -------- --------
Operating income 55,562 27,127 50,867
Other expenses:
Write-down of General Host securities 7,543 2,000 --
Interest income (2,231) (4,406) (4,445)
Interest expense 14,223 21,177 19,401
-------- -------- --------
Income before income taxes and equity
in net loss of subsidiary 36,027 8,356 35,911
Provision for income taxes 11,168 2,423 9,309
-------- -------- --------
Income before equity in net loss of
subsidiary 24,859 5,933 26,602
Equity in net loss of subsidiary -- -- (3,585)
-------- -------- --------
Net income $ 24,859 $ 5,933 $ 23,017
======== ======== ========
Net income per share $.63 $.15 $.59
==== ==== ====
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED BALANCE SHEET
(in thousands except share data)
1995 1994
-------- --------
ASSETS
Current assets:
Cash, including temporary investments of $46,173
and $7,466, respectively $ 54,203 $ 17,123
Accounts receivable, net of allowance for doubtful
accounts of $2,335 and $2,072, respectively 64,229 51,722
Inventories 200,968 219,646
Other current assets 33,487 32,901
-------- --------
Total current assets 352,887 321,392
Properties, net 105,618 111,510
Other assets 30,219 30,400
-------- --------
$488,724 $463,302
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital leases $ 2,638 $ 2,639
Accounts payable and accrued liabilities 82,419 89,772
-------- --------
Total current liabilities 85,057 92,411
Long-term debt 154,432 145,231
Deferred income taxes 2,538 3,407
Other non-current liabilities 21,501 21,160
Stockholders' equity:
Common stock, $1.00 par, 100,000,000 shares
authorized, 37,826,000 and 37,617,000 issued,
respectively 37,826 37,617
Paid-in capital 93,833 92,670
Retained earnings 97,315 76,597
Cumulative currency translation adjustments (1,195) (964)
Less--162,000 and 98,000 common shares in
treasury, at cost, respectively (1,477) (884)
Less--subscriptions receivable and unearned
compensation (1,106) (1,369)
Less--unrealized loss on marketable equity securities -- (2,574)
-------- --------
225,196 201,093
Commitments and contingencies (Notes 11, 14 and 17) -------- --------
$488,724 $463,302
======== ========
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands)
Year Ended
---------------------------
1995 1994 1993
------- ------- -------
Cash flow from operating activities:
Net income $24,859 $ 5,933 $23,017
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 15,989 15,771 15,097
Deferred taxes and other 3,515 (3,006) (764)
Equity in undistributed losses
of subsidiary -- -- 3,585
Store-closing provision -- 21,250 --
Write-down of General Host securities 7,543 2,000 --
Change in cash from:
Inventories 18,352 (30,053) (8,201)
Accounts receivable and other
current assets (15,233) (17,550) (3,670)
Accounts payable and accrued expenses 417 10,103 446
Store-closing reserve (4,650) -- --
Other assets, liabilities, and
other, net (618) (28) 1,011
Net cash provided by operating ------- ------- -------
activities 50,174 4,420 30,521
------- ------- -------
Cash flow from investing activities:
Capital expenditures (17,471) (24,617) (12,619)
Proceeds from disposition of properties 62 791 159
Loans to Sunbelt Nursery Group, Inc. (9,600) (1,000) --
Proceeds from Sunbelt Nursery Group, Inc. 11,600 2,105 --
Other investments (2,093) (2,353) --
Net cash used in investing ------- ------- -------
activities (17,502) (25,074) (12,460)
------- ------- -------
Cash flow from financing activities:
Cash dividends (4,138) (3,560) (2,409)
Proceeds from issuance of long-term debt 11,060 -- 72,353
Repayments of long-term debt (2,500) -- (35,362)
Net (payments) borrowings under line of
credit agreements -- (33,000) 9,983
(Payments) proceeds from (purchases) sales of
capital stock, treasury stock, and other (14) 752 1,958
Net cash provided by (used in) ------- ------- -------
financing activities 4,408 (35,808) 46,523
------- ------- -------
Change in cash 37,080 (56,462) 64,584
Cash at beginning of year 17,123 73,585 9,001
------- ------- -------
Cash at end of year $54,203 $17,123 $73,585
======= ======= =======
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED FEBRUARY 25, 1995 (in thousands)
Cumulative Subscriptions
Currency Receivable Unrealized Loss Total
Common Paid-in Retained Translation Treasury and Unearned on Marketable Stockholders'
Stock Capital Earnings Adjustments Stock Compensation Equity Securities Equity
------- ------- -------- ----------- -------- ------------ ----------------- -------------
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 ($.10
per common share) -- -- (3,560) -- -- -- -- (3,560)
Net income -- -- 5,933 -- -- -- -- 5,933
------- ------- ------- ------- ------- ------- ------ --------
Balance February 26, 1994 37,617 92,670 76,597 (964) (884) (1,369) (2,574) 201,093
Purchase of treasury stock -- -- -- -- (2,575) -- -- (2,575)
Restricted stock grant and
amortization -- (2) -- -- (61) 263 -- 200
Exercise of stock options
and other 209 1,165 (3) -- 2,043 -- -- 3,414
Currency translation
adjustments -- -- -- (231) -- -- -- (231)
Realized loss on
marketable equity
securities -- -- -- -- -- -- 2,574 2,574
Cash dividends ($.11
per common share) -- -- (4,138) -- -- -- -- (4,138)
Net income -- -- 24,859 -- -- -- -- 24,859
------- ------- ------- ------- ------- ------- ------- --------
Balance February 25, 1995 $37,826 $93,833 $97,315 $(1,195) $(1,477) $(1,106) $ -- $225,196
======= ======= ======= ======= ======= ======= ======= ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
/TABLE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation - The consolidated financial statements of
Pier 1 Imports, Inc. and its consolidated subsidiaries (the "Company")
include the accounts of all subsidiary companies. Material intercompany
transactions and balances have been eliminated. The preparation of financial
statements includes management's use of estimates in conformity with
generally accepted accounting principles.
Reclassifications - Certain reclassifications have been made in the
prior years' consolidated financial statements to conform to the fiscal 1995
presentation.
Fiscal periods - The Company utilizes 5-4-4 (week) quarterly
accounting periods with the fiscal year of 52 weeks ending on the Saturday
nearest the last day of February. Fiscal 1995 ended February 25, 1995,
fiscal 1994 ended February 26, 1994, and fiscal 1993 ended February 27, 1993.
Cash and cash equivalents - The Company considers all highly liquid
investments with an original maturity date of three months or less to be cash
equivalents. The effect of foreign currency exchange rate fluctuations on
cash is not material.
Marketable equity securities - The Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" (SFAS 115), for fiscal 1995. Under SFAS 115,
equity securities available for sale are recorded at their fair value, with
unrealized gains and losses accumulated and included as a separate component
of stockholders' equity, net of related income tax effects. Adjustments for
any impairments in the market value of equity securities available for sale
(based on market conditions) that are deemed to be other than temporary are
included as a loss in the current year's operations.
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.
Financial instruments - The fair value of financial instruments is
determined by reference to various market data and other valuation techniques
as appropriate. Unless otherwise disclosed, the fair values of financial
instruments approximate their recorded values.
The Company utilizes various financial instruments to manage
interest rate and market risk associated with its on- and off-balance sheet
commitments. Interest rate swap agreements have been used to modify the
interest characteristics of a portion of the Company's debt. The
differential to be paid or received is accrued as interest rates change and
recognized as an adjustment to interest expense on the consolidated statement
of operations. The fair values of the swap agreements are not recognized in
the consolidated financial statements. Additionally, interest rate floors
have occasionally been used to lock in rates to minimize the Company's risks
to market rate fluctuations. The costs of these interest rate floors are
amortized to interest expense over the term of the contract. The unamortized
cost is included as an asset on the Company's consolidated balance sheet.
The Company hedges certain commitments denominated in foreign
currency through the purchase of forward contracts. The forward contracts
are purchased only to cover specific commitments to buy merchandise for
resale; any gains or losses on such contracts are included in the cost of the
merchandise purchased.
The Company enters into interest rate swap, interest rate floor, and
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. The Company
does not expect non-performance by any of the counterparties, and any losses
incurred in the event of non-performance would not be material.
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 initial direct costs associated with 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 is based on the liability method.
Under this method, deferred tax assets and liabilities are recognized based
on differences between financial statement and tax bases of assets and
liabilities using presently enacted tax rates. Deferred federal income
taxes, net of applicable foreign tax credits, are not provided on the
undistributed earnings of foreign subsidiaries to the extent the Company
intends to permanently reinvest such earnings abroad. At February 25, 1995,
such undistributed earnings aggregated $15.2 million.
Net income per share - Net income per share during a period is
computed by dividing net income by the weighted average number of common
shares outstanding plus common stock equivalents which were 39,698,000,
39,530,000 and 39,227,000 for fiscal 1995, 1994 and 1993, respectively.
Common stock equivalents for fiscal 1995, 1994 and 1993 were 328,000, 465,000
and 625,000, respectively. Computation of the weighted average shares for
each year gives retroactive effect to the 5% stock dividend to be distributed
May 8, 1995. Fully diluted net income 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 income. Fully
diluted net income per share resulted in less than 3% dilution of primary net
income per share for each of the three fiscal years ended February 25, 1995
and all quarterly periods presented with the exception of the second and
fourth quarters of fiscal year 1995 and the second quarter of fiscal year
1994.
Note 2 - PROPRIETARY CREDIT CARD INFORMATION
The Company's proprietary credit card is managed and administered by
an unrelated third party. Origination costs of $1,168,000, $976,000 and
$480,000 were deferred during fiscal years 1995, 1994 and 1993, respectively.
The Company is amortizing these initial direct origination costs over 36
months, which the Company believes is the approximate average active life of
an account. These proprietary cards have no expiration date and no annual
fee. At February 25, 1995 and February 26, 1994, deferred costs, net of
amortization, totalled $1,544,000 and $1,135,000, respectively.
Concentrations of credit risk with respect to customer receivables
are limited due to the large number of customers comprising the Company's
base and their dispersion across many different geographic areas of the
country.
Net credit card charges on the Company's proprietary credit card
accounts are included in selling, general and administrative expenses. A
summary of the Company's proprietary credit card results for each of the last
three fiscal years follows (in thousands):
1995 1994 1993
-------- ------- -------
Costs:
Processing fees $ 6,536 $ 6,114 $ 5,049
Provision for bad debts 3,285 2,195 1,855
-------- ------- -------
9,821 8,309 6,904
-------- ------- -------
Income:
Finance charge income 8,800 6,087 4,998
Insurance and other income 237 238 165
-------- ------- -------
9,037 6,325 5,163
-------- ------- -------
Net costs $ 784 $ 1,984 $ 1,741
======== ======= =======
Pier 1 Preferred Customer Card sales $124,666 $98,625 $60,661
======== ======= =======
Net costs as a percent of Pier 1 card sales 0.6% 2.0% 2.9%
==== ==== ====
Note 3 - PROPERTIES
Properties are summarized as follows at February 25, 1995 and
February 26, 1994 (in thousands):
1995 1994
-------- --------
Land $ 7,203 $ 7,205
Buildings 34,037 33,063
Equipment, furniture and fixtures 95,208 90,505
Leasehold interests and improvements 78,688 79,022
Construction in progress 209 190
-------- --------
215,345 209,985
Less accumulated depreciation and
amortization 109,727 98,475
-------- --------
Properties, net $105,618 $111,510
======== ========
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 25, 1995 and
February 26, 1994 (in thousands):
1995 1994
------- -------
Trade accounts payable $29,008 $27,937
Accrued payroll and fringes 21,039 16,933
Accrued taxes, other than income 7,652 7,610
Store-closing reserve 11,759 21,250
Other accrued liabilities and expenses 12,961 16,042
------- -------
Accounts payable and accrued liabilities $82,419 $89,772
======= =======
Accrued average rent $14,678 $15,034
Other non-current liabilities 6,823 6,126
------- -------
Other non-current liabilities $21,501 $21,160
======= =======
Note 5 - STORE-CLOSING PROVISION
In fiscal 1994, the Company recorded a special charge of $21.3
million before taxes for a store-closing provision that was established to
reflect the anticipated costs to close 49 stores with histories of
underperformance and high occupancy costs and to close the Canadian
distribution center and administrative offices. At the end of fiscal 1995,
the Company had closed 46 stores; the Canadian distribution center and
administrative offices closed in March 1995. Agreements have been reached
with a majority of landlords regarding lease terminations for stores in the
store-closing program. The balance of the store-closing reserve at fiscal
1995 year-end was $11.8 million, which consisted primarily of anticipated
final cash requirements associated with lease termination costs to be paid in
fiscal 1996. The components of the fiscal 1994 store-closing provision and
an analysis of the amounts charged against the reserve in fiscal 1995 are
outlined in the following table (in thousands):
Lease termination costs $15,825
Fixed asset write-downs and inventory
liquidation costs 3,318
Interim operating losses and other 1,702
Severance costs 405
-------
Store-closing provision/reserve at
February 26, 1994 21,250
-------
Costs charged against the reserve:
Lease termination costs (3,028)
Fixed asset write-downs and inventory
liquidation costs (4,841)
Interim operating losses and other (1,352)
Severance costs (270)
-------
Store-closing reserve at February 25, 1995 $11,759
=======
Note 6 - CURRENT AND LONG-TERM DEBT
The Company has lines of credit available which aggregate
approximately $169 million. The lines may be used for short-term borrowings
through working capital loans, bankers' acceptances or letters of credit. At
year-end, approximately $56 million had been utilized to issue letters of
credit primarily to support overseas merchandise purchase orders, leaving
$113 million of available lines of credit. The weighted average interest
rate on short-term borrowings outstanding during the year was 5.2%.
Long-term debt is summarized as follows (in thousands):
1995 1994
-------- --------
11 1/2% subordinated debentures, net
of unamortized discount of
$2,444 and $2,812, respectively $ 20,056 $ 22,188
Industrial revenue bonds 25,000 25,000
11% senior notes 25,000 25,000
6 7/8% convertible subordinated notes 75,000 75,000
8 1/2% exchangeable debentures, net
of unamortized discount of $728 11,772 --
Capital lease obligations 242 475
Other -- 207
-------- --------
157,070 147,870
Less - portion due within one year 2,638 2,639
-------- --------
$154,432 $145,231
======== ========
In July 1983, the Company 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 commenced 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, the Company entered into industrial revenue
development bond loan agreements aggregating $25 million which mature in the
year 2026. Proceeds were used to construct three warehouse distribution
facilities. These bonds are 7-day lower floater put bonds and interest rates
float with the market rates for similar tax-exempt debt issues. Interest is
payable monthly.
In May 1991, the Company 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, the Company issued $75 million of 6 7/8% convertible
subordinated notes. These notes are convertible into shares of common stock
of the Company at $11.43 per share (adjusted for the 5% stock dividend
distributable May 8, 1995) at any time at or prior to maturity which is April
1, 2002. The notes may be redeemed by the Company at any time on or after
April 1, 1995 in whole or in part. Redemption prior to the year 2000 would
be at a premium. Interest on the notes is payable each April 1 and October
1.
In December 1994, the Company issued $12.5 million of 8 1/2%
exchangeable debentures. The debentures are due December 1, 2000, and are
mandatorily exchangeable at that date into 2.1 million shares of General Host
Corporation ("General Host") common stock held by the Company. If at any
time after December 1, 1997, the closing market price of General Host common
stock shall have been equal to or greater than $7.375 for the prior 20
consecutive trading days, the debentures will be mandatorily exchanged 30
days thereafter for the General Host shares plus accrued interest. Interest
is payable each June 1 and December 1.
Long-term debt matures as follows (in thousands):
1996 $ 2,638
1997 2,566
1998 7,538
1999 7,500
2000 7,500
Thereafter 129,328
--------
$157,070
========
Some of the Company's loan agreements require that the Company
maintain certain financial ratios and limit specific payments and equity
distributions including cash dividends, loans to shareholders and purchases
of treasury stock. At year-end, the most restrictive of the agreements
limits the aggregate of such payments to $13.9 million.
Note 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
As of February 25, 1995, the fair value of long-term debt was $162.7
million compared to its recorded value of $157.1 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.
The Company 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 the Company's exposure to interest rate fluctuations
on its $25 million of floating rate industrial revenue bonds as well as
approximately $75 million of store operating lease agreements with rental
payments linked to LIBOR. This swap agreement was designated as a hedge
contract and, therefore, the differential between the floating and fixed
interest rates to be paid is recognized over the life of the agreement.
Under this swap agreement, the Company has paid a fixed rate of 6.25% and,
since inception, has received an average floating rate of 4.52%. In
addition, the Company has subsequently augmented the swap through the
purchase of an interest rate floor with the effect that the Company will
receive payments under the swap based on a floating rate not less than 6.25%
from February 6, 1995 until August 5, 1995. The Company's weighted average
interest rate, including the effect of hedging activities was 7.8%, 10.0% and
9.4% for the 1995, 1994 and 1993 fiscal years, respectively. The weighted
average interest rate, excluding the effects of hedging activities, would
have been 7.9%, 8.3% and 7.7% for the 1995, 1994 and 1993 fiscal years,
respectively. The fair value of these hedging agreements was $45,000 at
February 25, 1995, and represents the estimated amount, which was obtained
from counterparties, that the Company would receive to terminate the
agreement at February 25, 1995.
At February 25, 1995, the Company had approximately $10 million of
forward exchange contracts outstanding with an immaterial fair value and with
maturities ranging from two to ten months.
Note 8 - EMPLOYEE BENEFIT PLANS
In 1986, the Company 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, have been
employed for a minimum of twelve months and have worked 1,000 hours are
eligible to participate in the plan. Employees contributing from 1% to 5% of
their compensation receive matching Company contributions of up to 3%.
Company contributions to the plan were $1,282,000, $1,114,000 and $915,000 in
fiscal 1995, 1994 and 1993, respectively.
In addition, a non-qualified retirement savings plan is available
for the purpose of providing deferred compensation for certain employees
whose benefits under the qualified plan are limited under Section 401(k) of
the Internal Revenue Code.
The Company maintains a Supplemental Executive Retirement Plan for
certain of its executive officers. The Plan provides that upon death,
disability or reaching retirement age, 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. The Company's accrued
contributions to the Plan were $850,000, $765,000 and $554,000 in fiscal
1995, 1994 and 1993, respectively.
Note 9 - 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 the Company's common stock is purchased on behalf of employees at
market prices through regular payroll deductions. Each employee participant
may contribute up to 10% of the eligible portions of annual compensation and
directors may contribute part or all of their monthly directors' fees. The
Company contributes from 10% to 100% of the participants' contributions,
depending upon length of participation and date of entry into the Plan.
Approximately 318,000 shares were allocated to Stock Purchase Plan
participants during fiscal 1995, of which 208,000 shares were issued from
treasury and 110,000 shares were purchased on the open market. Company
contributions to the Plan were $844,000, $867,000 and $841,000 in fiscal
years 1995, 1994 and 1993, respectively.
Restricted stock grant plans - In fiscal 1995, 1994 and 1993, the
Company issued 19,584 shares, 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. Shares not vested are returned
to the Plan if employment is terminated for any reason.
In 1991, the Company 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, the Company 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. The Company may grant options covering up to 1,500,000
shares of the Company's common stock under the 1989 Employee Stock Option
Plan and up to 150,000 shares under the 1989 Non-Employee Director Stock
Option Plan.
In 1990, the 1980 Stock Option Plan expired subject to outstanding
granted options covering 556,762 shares at fiscal year-end 1995.
A summary of stock option transactions related to the Plans,
adjusted for stock dividends distributed prior to fiscal year-end 1995,
during the years ended February 25, 1995 and February 26, 1994, is as
follows:
Shares Option Prices
--------- -------------
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
Options granted 400,330 7.63 - 9.50
Options exercised (126,505) 3.20 - 9.00
Options cancelled or expired (77,709) 4.28 - 9.00
--------- -------------
Outstanding at February 25, 1995 1,247,838 $3.84 - 12.30
========= =============
At February 25, 1995 and February 26, 1994, outstanding options
covering 687,855 and 634,111 shares were exercisable and 509,764 and 832,385
shares were available for grant, respectively.
Common stock dividend - On March 15, 1995, the Company announced a
5% common stock dividend distributable May 8, 1995 to stockholders of record
on May 1, 1995. Based on an average of the closing price of the Company's
common stock the day before, and for a two-week period following, the date of
the dividend declaration, the market value of the 1.9 million shares to be
distributed is approximately $18.3 million. The effect of this dividend has
not been reflected in the February 25, 1995 balance sheet.
Share purchase rights plan - On December 9, 1994, the Board of
Directors adopted a Share Purchase Rights Plan and declared a dividend of one
common stock purchase right (a "Right") payable on each outstanding share of
the Company's common stock on December 21, 1994. The Rights, which will
expire on December 21, 2004, are initially not exercisable, and until
becoming exercisable will trade only with the associated common stock. After
the Rights become exercisable, each Right entitles the holder to purchase at
a specified exercise price one share of common stock. The Rights will become
exercisable after the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons have
acquired beneficial ownership of 15% or more of the outstanding common stock
or (ii) ten business days (or such later date as determined by the Board of
Directors) following the commencement of, or announcement of an intention to
make, a tender or exchange offer the consummation of which would result in
beneficial ownership by a person or group of 15% or more of the outstanding
common stock. If the Company were acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power were sold, proper provision would be made so that each Right would
entitle its holder to purchase, upon the exercise of the Right at the then
current exercise price, that number of shares of common stock of the
acquiring company having a market value of twice the exercise price of the
Right. If any person or group were to acquire beneficial ownership of 15% or
more of the Company's outstanding common stock, each Right would entitle its
holder (other than such acquiring person whose Rights would become void) to
purchase, upon the exercise of the Right at the then current exercise price,
that number of shares of the Company's common stock having a market value on
the date of such 15% acquisition of twice the exercise price of the Right.
The Board of Directors may at its option, at any time after such 15%
acquisition but prior to the acquisition of more than 50% of the Company's
outstanding common stock, exchange all or part of the then outstanding and
exercisable Rights (other than those held by such acquiring person whose
Rights would become void) for common stock at an exchange rate per Right of
one-half the number of shares of common stock receivable upon exercise of a
Right. The Board of Directors may, at any time prior to such 15%
acquisition, redeem all the Rights at a redemption price of $.01 per Right.
Note 10 - INCOME TAXES
The provision for income taxes consists of (in thousands):
1995 1994 1993
------- ------ ------
Federal:
Current $ 8,733 $5,356 $8,875
Deferred (436) (4,966) (1,431)
State:
Current 2,040 2,598 1,765
Deferred (93) (1,127) (302)
Foreign:
Current 924 562 402
------- ------ ------
$11,168 $2,423 $9,309
======= ====== ======
Deferred tax liabilities (assets) at February 25, 1995 and February
26, 1994 are comprised of the following (in thousands):
1995 1994
-------- --------
Deferred tax liabilities:
Depreciation $11,758 $10,326
Deferred store costs 2,453 2,488
Other 930 856
-------- --------
15,141 13,670
-------- --------
Deferred tax assets:
Inventory (4,128) (24)
Accrued average rent (6,024) (6,126)
Accrued vacation/deferred compensation (3,320) (2,494)
Deferred gain on sale/leaseback (1,564) (1,493)
Bad debts (732) (708)
Store-closing reserve/provision (4,734) (8,454)
Write-down of General Host securities (2,209) (1,588)
Other (1,586) (1,410)
-------- --------
(24,297) (22,297)
-------- --------
$( 9,156) $( 8,627)
======== ========
The difference between income taxes at the statutory federal income
tax rate of 35 percent in fiscal 1995 and fiscal 1994 and 34 percent in
fiscal 1993, and income tax reported in the consolidated statement of
operations is as follows (in thousands):
1995 1994 1993
------- ------ -------
Tax at statutory federal tax rate $12,609 $2,925 $12,208
Tax treatment on sale of subsidiary
stock (1,959) (282) --
State income taxes, net of federal
benefit 1,266 856 966
Tax-favored investment income (61) (284) (574)
Targeted jobs tax credit (524) (395) (332)
Foreign income taxed at lower rates (425) (528) (2,959)
Other, net 262 131 --
------- ------ -------
$11,168 $2,423 $ 9,309
======= ====== =======
Note 11 - COMMITMENTS AND CONTINGENCIES
Leases - The Company leases certain property consisting principally
of retail stores, warehouses and transportation equipment under leases
expiring through the year 2015. Substantially all retail store locations are
leased for initial 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 the Company's balance sheet as assets
along with the related debt obligation. All other lease obligations are
operating leases, and payments are reflected in the Company'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):
1995 1994
------ ------
Buildings $ 477 $ 477
Equipment, furniture and fixtures 538 538
------ ------
1,015 1,015
Less accumulated depreciation 912 827
------ ------
$ 103 $ 188
====== ======
At February 25, 1995, the Company had the following minimum lease
commitments in the years indicated (in thousands):
Capital Operating
Fiscal Year Leases Leases
----------- ------- ---------
1996 $205 $ 93,427
1997 119 85,509
1998 87 78,663
1999 -- 65,663
2000 -- 57,331
Thereafter -- 244,684
---- --------
Total lease commitments 411 $625,277
========
Less imputed interest 169
----
Present value of total capital lease
obligations including current
portion $242
====
Present value of total operating lease
commitments $392,582
========
Rental expense incurred was $92,072,000, $89,518,000 and
$85,511,000, including contingent rentals of $766,000, $788,000 and $821,000
based upon a percentage of sales and net of sublease incomes totalling
$1,552,000, $1,252,000 and $870,000 in fiscal 1995, 1994 and 1993,
respectively.
The Company has commitments from unaffiliated parties to make
available up to $111.8 million for development or acquisition of stores
leased by the Company. As of February 25, 1995, the Company utilized $82.8
million of that availability. Agreements with these parties mature over the
next three years, and Company management is continuously monitoring financial
markets to optimize renewal terms. In connection with the financing of 41
stores by two of the unaffiliated parties, the property leases require that
upon expiration of the leases over the next three years, unless extended by
agreement of the parties, the Company must either obtain alternative
financing for the properties or arrange for the sale of the properties to a
third party or purchase the properties for approximately $50 million.
Guarantees - In fiscal 1993, the Company invested in preference
stock of The Pier Retail Group Limited ("The Pier"), an 11-store retail chain
located in the United Kingdom. The Company guarantees a $6.4 million bank
line available to The Pier. As of February 25, 1995, $6.0 million was
outstanding under this line.
Refer to Note 14 for additional guarantees of Sunbelt Nursery Group,
Inc. ("Sunbelt") lease obligations.
Legal matters - There are various claims, lawsuits, investigations
and pending actions against the Company and its subsidiaries incident to the
operations of its business. Liability, if any, associated with these matters
is not determinable at February 25, 1995; however, the Company considers them
to be ordinary and routine in nature. While certain of the lawsuits involve
substantial amounts, it is the opinion of management, after consultation with
counsel, that the ultimate resolution of such litigation will not have a
material adverse effect on the Company's financial position, results of
operations or liquidity.
Note 12 - CASH FLOW INFORMATION
The following is supplemental cash flow information (in thousands):
1995 1994 1993
------- ------- -------
Cash paid during the year for:
Interest $13,477 $20,445 $16,835
Income taxes 15,457 17,732 17,126
Note 13 - INVESTMENT IN GENERAL HOST CORPORATION
In fiscal 1994, the Company recorded a provision for the write-down
of the carrying value of the Company's holdings of General Host common stock.
Based on prices at fiscal year-end 1994, the market value of the General Host
common stock was $5.6 million less than the Company's original carrying
amount. After an assessment of factors which may have contributed to the
decline, the Company estimated $2.0 million of this decline to be other than
temporary and recorded a corresponding adjustment in the book value of the
General Host common stock. The remaining $3.6 million was considered to be
temporary. In the third quarter of fiscal 1995, the Company concluded that
the decline in the market value of the General Host common stock was other
than temporary and a non-cash, pre-tax special charge of $7.5 million was
recorded to reflect an other than temporary write-down of the carrying value
of the General Host common stock. As a result of the issuance of the
Company's exchangeable debentures in December 1994, the General Host common
stock is no longer available for sale, and the Company no longer has market
risk in relation to the General Host common stock.
Note 14 - SUNBELT NURSERY GROUP, INC.
At fiscal year-end 1993, the Company held a 49.5% ownership interest
in Sunbelt. The Company reported the results of Sunbelt using the equity
method of accounting. Under such method, the Company's share of net losses
from Sunbelt was included as a separate item in the consolidated statement of
operations.
In April 1993, the Company completed the sale of its 49.5% ownership
interest in Sunbelt to General Host, a third party unrelated to the Company
or Sunbelt, in exchange for 1.9 million shares of General Host common stock.
Subsequently, General Host paid two 5% stock dividends, resulting in an
increase in the Company's holdings to 2.1 million shares of General Host
common stock.
In connection with the Company's sale of its Sunbelt investment to
General Host, the Company committed to provide Sunbelt a $12 million credit
facility through April 1994 and up to $25 million of non-revolving store
development financing through April 1996. In October 1994, in connection
with the sale by General Host of its 49.5% interest in Sunbelt to a third
party unrelated to the Company or General Host, the Company received payment
of the amounts owed under the credit facility and agreed to extend $22.8
million of the non-revolving store development financing to Sunbelt until
June 30, 1998, at market rental rates. Additionally, the Company guarantees
other Sunbelt store lease commitments aggregating $4.5 million with a present
value of approximately $3.5 million.
Note 15 - RELATED PARTIES
Since 1989, the Company has maintained a one-eighth joint ownership
interest in a Cessna jet aircraft with Berman Industries, Inc., a company
wholly-owned by Martin L. Berman. In March 1993, the Company invested $3
million in a limited partnership investment in Whiffletree Partners, L.P., an
investment management company, which is managed by Palisade Capital
Securities, L.L.C. Martin L. Berman is Chairman and Chief Executive Officer
of Palisade Capital Securities, L.L.C. In April 1994, the Company entered
into an agreement with Smith Barney, Inc. to act as trustee of the Company's
401(k) defined contribution plan and to serve as investment advisor to
participants of the plan. Until April 1995, Martin L. Berman was a managing
director of Smith Barney, Inc. Mr. Berman was elected to the Company's Board
of Directors in June 1994.
Since fiscal 1988, interest bearing loans have been outstanding to
certain Company officers. The balance of these loans at February 25, 1995
was $802,000, and maturity is in fiscal 1998.
The Company'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. Kenneth N. Pontikes, former
Chairman and President of Comdisco, Inc., was elected to the Company's Board
of Directors and served in that capacity from April 1993 until June 1994.
Note 16 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data (in thousands of dollars except
per share amounts) for the years ended February 25, 1995 and February 26,
1994 are set forth below:
Three Months Ended
--------------------------------------
Fiscal 1995 5/28/94 8/27/94 11/26/94 2/25/95
----------- -------- -------- -------- --------
Net sales $161,486 $185,403 $165,761 $199,335
Gross profit 65,351 70,233 66,097 75,892
Net income(1) 5,535 8,656 223 10,445
Primary net income per
common share(1)(2)(3) $.14 $.22 $.01 $.26
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)(1)(4) 4,702 7,343 4,042 (10,154)
Primary net income (loss) per
common share(1)(2)(3)(4) $.12 $.19 $.10 $(.26)
(1) Fiscal 1995 third quarter net income and fiscal 1994 fourth quarter net
loss includes a $7,543 and a $2,000 write-down of investment in the
common stock of General Host, respectively.
(2) Fully diluted net income per share resulted in less than 3% dilution of
primary net income per share for both years and for all periods presented
with the exception of a $.01 dilution in the second quarter of fiscal
year 1995, a $.02 dilution in the fourth quarter of fiscal year 1995, and
a $.01 dilution in the second quarter of fiscal year 1994.
(3) Reflects the effect of the 5% stock dividend to be distributed May 8,
1995.
(4) Fourth quarter net loss includes $21,250 provision for store closings.
Note 17 - SUBSEQUENT EVENT (UNAUDITED)
In April 1995, Sunbelt defaulted on 13 store subleases to the
Company comprising the $22.8 million of non-revolving store development
financing, and the Company terminated the subleases. Negotiations are in
process with Sunbelt regarding the Company's claims as well as the
disposition of these properties through sales to third parties or acquisition
by Sunbelt. In management's opinion, losses to the Company, which cannot be
currently estimated, will not be material to the Company's financial position
or liquidity.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Company.
Information required by this Item is incorporated herein by
reference to the Sections entitled "Election of Directors" and "Certain
Relationships and Related Transactions" set forth in the Company's Proxy
Statement for its 1995 Annual Meeting of Shareholders.
The information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934 is incorporated herein by reference to the
Section entitled "Certain Relationships and Related Transactions" set forth
in the Company's Proxy Statement for its 1995 Annual Meeting of Shareholders.
Item 11. Executive Compensation.
The information required by this Item is incorporated herein by
reference to the Section entitled "Executive Compensation" set forth in the
Company's Proxy Statement for its 1995 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is incorporated herein by
reference to the Sections entitled "Security Ownership of Management" set
forth in the Company's Proxy Statement for its 1995 Annual Meeting of
Shareholders.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item is incorporated herein by
reference to the Section entitled "Certain Relationships and Related
Transactions" set forth in the Company's Proxy Statement for its 1995 Annual
Meeting of Shareholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following consolidated financial statements, schedules and
exhibits are filed as part of this report.
1. Financial Statements
* Report of Independent Accountants
* Consolidated Statement of Operations for the years ended
February 25, 1995, February 26, 1994 and February 27, 1993
* Consolidated Balance Sheet at February 25, 1995 and
February 26, 1994
* Consolidated Statement of Cash Flows for the years ended
February 25, 1995, February 26, 1994 and February 27, 1993
* Consolidated Statement of Stockholders' Equity for the
years ended February 25, 1995, February 26, 1994 and
February 27, 1993
2. Financial Statement Schedules
* Report of Independent Accountants
VIII-Valuation and Qualifying Accounts and Reserves
Schedules other than those referred to above have been omitted
because they are not required or are not applicable or the information
required to be set forth therein either is not material or is included in the
financial statements or notes thereto.
(b) Reports on Form 8-K
None
(c) Exhibits
See Exhibit Index.
(d) Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: PIER 1 IMPORTS, INC.
May 26, 1995 By: /s/ Clark A. Johnson
Clark A. Johnson, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Company and in the capacities and on the dates indicated.
Signature Title Date
/s/ Robert G. Herndon Chief Financial Officer May 26, 1995
Robert G. Herndon
/s/ Susan E. Barley Controller and May 26, 1995
Susan E. Barley Principal Accounting Officer
/s/ Clark A. Johnson Chairman of the Board May 26, 1995
Clark A. Johnson of Directors
/s/ Marvin J. Girouard Director May 26, 1995
Marvin J. Girouard
/s/ Charles R. Scott Director May 26, 1995
Charles R. Scott
/s/ Sally F. McKenzie Director May 26, 1995
Sally F. McKenzie
/s/ James M. Hoak, Jr. Director May 26, 1995
James M. Hoak, Jr.
/s/ Martin L. Berman Director May 26, 1995
Martin L. Berman
/s/ Craig Gordon Director May 26, 1995
Craig C. Gordon
SCHEDULE VIII
PIER 1 IMPORTS, INC. AND CONSOLIDATED SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
RESERVE FOR DOUBTFUL ACCOUNTS
-----------------------------
Year Ended
-----------------------------------------
February 25, February 26, February 27,
1995 1994 1993
------------ ------------ ------------
Balance at beginning of year $ 2,072 $ 2,404 $ 3,185
Additions charged to income 3,285 2,097 2,327
Balances written off, net of
recoveries (3,022) (2,429) (3,108)
------- ------- -------
Balance at end of year $ 2,335 $ 2,072 $ 2,404
======= ======= =======
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3(i) Certificate of Incorporation and Amendments thereto,
incorporated herein by reference to Exhibit 3(a) to the
Company's Form 10-K for the fiscal year ended March 3, 1990.
3(ii) Bylaws of the Company, Restated as of December 7, 1994,
incorporated herein by reference to Exhibit 3(ii) to the
Company's Form 10-Q for the quarter ended November 26, 1994.
4 Rights Agreement dated December 9, 1994, between the Company
and First Interstate Bank, N.A., as rights agent, incorporated
by reference to Exhibit 4 to the Company's Registration
Statement on Form 8-A, Reg. No. 1-7832, filed December 20,
1994.
4.1 Indenture, dated April 9, 1992, between the Company and
Ameritrust Texas National Association, as Trustee, relating to
6-7/8% Convertible Subordinated Notes Due 2002, incorporated
herein by reference) to Exhibit 4(a) to the Company's Form 10-K
for the fiscal year ended February 29, 1992.
As permitted by Item 601(b)(4)(iii) of Regulation S-K, Exhibit
Number 4 omits instruments relating to issues of long-term debt
of the Company and its subsidiaries, the total authorized
principal amount of which for each issue does not exceed 10% of
the consolidated total assets of the Company and its
subsidiaries. The Company agrees to furnish a copy of any such
instrument to the Securities and Exchange Commission upon
request.
10.1* The Company's Amended and Restated Stock Purchase Plan as of
December 7, 1994.
10.2.1 Lease Contract dated July 19, 1985, between Pier 1 and City
Center Development Co., together with the First through Seventh
Amendments, incorporated herein by reference to Exhibit 10(b)
to the Company's Form 10-K for the fiscal year ended February
28, 1993.
10.2.2 Eighth Amendment to Lease Contract dated as of September 1,
1993, between Pier 1 and City Center Development Co.,
incorporated herein by reference to Exhibit 10.2.2 to the
Company's Form 10-K for the fiscal year ended February 26,
1994.
10.2.3 Ninth Amendment to Lease Contract dated January 1, 1994, and
Tenth Amendment to Lease Contract dated March 1, 1994
10.3* Form of Indemnity Agreement between the Company and the
directors and executive officers of the Company, incorporated
herein by reference to Exhibit 10(l) to the Company's Form 10-K
for the fiscal year ended February 29, 1992.
10.4* The Company's Supplemental Executive Retirement Plan effective
May 1, 1986, as amended, incorporated herein by reference to
Exhibit 10(d) to the Company's Form 10-K for the fiscal year
ended February 28, 1993.
10.5* The Company's Benefit Restoration Plan, effective April 1,
1990, incorporated herein by reference to Exhibit 10(y) to the
Company's Form 10-K for the fiscal year ended March 2, 1991.
10.6* The Company's Restricted Stock Plan, effective March 5, 1990,
incorporated herein by reference to Exhibit 10(p) to the
Company's Form 10-K for the fiscal year ended March 3, 1990.
10.7* The Company's Management Restricted Stock Plan, effective June
24, 1993, incorporated herein by reference Exhibit 10.7 to the
Company's Form 10-K for the fiscal year ended February 25,
1995.
10.8* The Company's 1989 Employee Stock Option Plan, effective June
29, 1989, incorporated herein by reference to Exhibit 10(q) to
the Company's Form 10-K for the fiscal year ended March 3, 1990
and incorporated.
10.9* The Company's 1989 Non-Employee Director Stock Option Plan
effective June 29, 1989, incorporated herein by reference to
Exhibit 10(r) to the Company's Form 10-K for the fiscal year
ended March 3, 1990.
10.10* Form of Post-Employment Consulting Agreement between the
Company and its executive officers, incorporated herein by
reference to Exhibit 10(r) to the Company's Form 10-K for the
fiscal year ended February 29, 1992.
10.11.1 Revolving Credit Loan Agreement dated as of August 14, 1992,
among the Company, Pier 1 Imports (U.S.), Inc. and Bank One,
Texas, N.A., incorporated herein by reference to Exhibit 10(j)
to the Company's Form 10-K for the fiscal year ended February
28, 1993.
10.11.2 First, Second and Third Amendments to Revolving Credit Loan
Agreement dated as of August 14, 1992, among the Company, Pier
1 Imports (U.S.), Inc. and Bank One, Texas, N.A., incorporated
herein by reference to Exhibit 10.11.2 to the Company's Form
10-K for the fiscal year ended February 26, 1994.
10.11.3 Fourth Amendment to Revolving Credit Loan Agreement dated as of
August 30, 1994, among the Company, Pier 1 and Bank One, Texas,
N.A., incorporated herein by reference to Exhibit 10.11.3 to
the Company's Form 10-Q for the quarter ended August 27, 1994.
10.12 Lease Guarantee dated as of December 30, 1992, among the
Company, Pier 1 Licensing, Inc. (successor in interest to CMEI,
Inc.), and Pier Set, Inc., together with Supplements and First
and Second Amendments, incorporated herein by reference to
Exhibit 10.12 to the Company Form 10-K for the fiscal year
ended February 26, 1994.
10.13.1 Lease Guarantee dated as of December 30, 1992, between the
Company and Pier Group, Inc., together with First and Second
Amendments, incorporated herein by reference to Exhibit 10.13
to the Company Form 10-K for the fiscal year ended February 26,
1994.
10.13.2 Third Amendment to Lease Guarantee dated June 20, 1994,
incorporated herein by reference to Exhibit 10.13.1 to the
Company's Form 10-Q for the quarter ended August 27, 1994.
10.14.1 Lease Guarantee dated as of December 30, 1992, among the
Company, Pier 1 Imports (U.S.), Inc. and Pier Group, Inc.,
together with First and Second Amendments incorporated herein
by reference to Exhibit 10.14 to the Company's Form 10-K for
the fiscal year ended February 26, 1994.
10.14.2 Third Amendment to Lease Guarantee dated June 20, 1994 to
Exhibit 10.14.2 incorporated herein by reference to the
Company's Form 10-Q for the quarter ended August 27, 1994.
10.15.1 Amended and Restated Credit Facilities Agreement dated as of
October 14, 1994, between the Company and Sunbelt.
10.15.2 Extension Agreement and Waiver among the Company, Sunbelt and
Pier-SNG, Inc., incorporated herein by reference to Exhibit
10.15.2 to the Company's Form 10-K for the fiscal year ended
February 26, 1994.
10.15.3 Second Extension Agreement dated as of June 29, 1994 between
the Company, Sunbelt and Pier-SNG, Inc., incorporated herein by
reference to Exhibit 10.15.3 to the Company's Form 10-Q for the
quarter ended May 28, 1994.
10.15.4 Third Extension Agreement dated as of September 21, 1994
between the Company, Sunbelt and Pier-SNG, Inc., incorporated
herein by reference to Exhibit 10.15.4 to the Company's Form
10-Q for the quarter ended August 27, 1994.
10.16* The Company's Senior Management Bonus Plan, incorporated herein
by reference to Exhibit 10.16 to the Company's Form 10-K for
the fiscal year ended February 26, 1994.
10.17* The Company's Executive Bonus Plan, incorporated herein by
reference to Exhibit 10.17 to the Company's Form 10-K for the
fiscal year ended February 26, 1994.
10.18* The Company's Management Medical and Tax Benefit Plans,
incorporated herein by reference to Exhibit 10.18 to the
Company's Form 10-K for the fiscal year ended February 26,
1994.
21 Roster of Subsidiaries of the Company.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
_______________________
* Management Contracts and Compensatory Plans