FORM 10-Q/A
Amendment No. 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended May 27, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from [ ] to [ ]
Commission File Number 1-7832
PIER 1 IMPORTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1729843
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
301 Commerce Street, Suite 600, Fort Worth, Texas 76102
(Address of principal executive offices, including zip code)
(817) 878-8000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ]. No [ ].
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares outstanding as of June 30, 1995
----------------------------- --------------------------------------
Common Stock, $1.00 par value 39,345,127
Items 1 and 2 of Part I and Item 6 of Part II of the Company's Quarterly
Report on Form 10-Q for the quarter ended May 27, 1995, are amended and
restated as set forth below.
PART I
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Item 1. Financial Statements.
---------------------
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
Three Months Ended
May 27, May 28,
1995 1994
-------- --------
(as restated)
Net sales $176,815 $161,486
Operating costs and expenses:
Cost of sales (including buying and
store occupancy) 107,677 96,135
Selling, general and administrative expenses 52,058 50,188
Depreciation and amortization 4,123 3,853
-------- --------
163,858 150,176
-------- --------
Operating income 12,957 11,310
Nonoperating (income) and expense:
Interest income (345) (305)
Interest expense 3,272 3,604
Trading losses (Note 1) 15,956 1,544
Provision for Sunbelt Nursery Group, Inc.
defaults (Note 2) 14,000 --
-------- --------
32,883 4,843
-------- --------
Income (loss) before income taxes (19,926) 6,467
Provision (benefit) for income taxes (1,591) 2,476
-------- --------
Net income (loss) $(18,335) $ 3,991
======== ========
Net income (loss) per share $(.46) $.10
======== ========
Average shares outstanding during period,
including common stock equivalents 39,827 39,596
======== ========
The accompanying notes are an integral part of these financial statements.
PIER 1 IMPORTS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
(Unaudited)
May 27, February 25,
1995 1995
------------ ------------
(as restated)
ASSETS
Current assets:
Cash, including temporary investments of
$6,765 and $42,536, respectively $ 15,481 $ 50,566
Accounts receivable, net 72,489 64,229
Inventories 204,263 200,968
Other current assets 32,453 34,325
-------- --------
Total current assets 324,686 350,088
Properties, net 104,771 105,618
Other assets 34,750 30,219
-------- --------
$464,207 $485,925
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of
long-term debt $ 4,220 $ 2,638
Accounts payable and accrued liabilities 89,283 82,419
-------- --------
Total current liabilities 93,503 85,057
Long-term debt 143,032 154,432
Deferred income taxes 2,537 2,538
Other non-current liabilities 20,731 21,501
Stockholders' equity:
Common stock, $1.00 par, 200,000,000 shares
authorized, 39,877,000 and 37,826,000
issued, respectively 39,877 37,826
Paid-in capital 110,627 93,833
Retained earnings 57,199 94,516
Cumulative currency translation adjustments (1,123) (1,195)
Less - 134,000 and 162,000 common shares in
treasury, at cost, respectively (1,208) (1,477)
Less - subscriptions receivable and unearned
compensation (968) (1,106)
-------- --------
204,404 222,397
-------- --------
$464,207 $485,925
======== ========
The accompanying notes are an integral part of these financial statements.
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
May 27, May 28,
1995 1994
--------- ---------
(as restated)
Cash flow from operating activities:
Net income (loss) $(18,335) $ 3,991
Adjustments to reconcile to net cash used in
operating activities:
Depreciation and amortization 4,123 3,853
Deferred taxes and other 1,046 3,307
Provision for Sunbelt Nursery Group, Inc.
defaults 14,000 --
Change in cash from:
Inventories (3,295) 2,164
Accounts receivable and other current assets (6,407) (13,785)
Accounts payable and accrued expenses (2,991) (9,065)
Store-closing reserve (4,043) (325)
Other assets, liabilities, and other, net (193) (563)
-------- --------
Net cash used in operating activities (16,095) (10,423)
-------- --------
Cash flow from investing activities:
Capital expenditures (3,969) (3,971)
Proceeds from disposition of properties 213 3
Loan to Sunbelt Nursery Group, Inc. -- (9,600)
Other investments (5,000) (1,193)
-------- --------
Net cash used in investing activities (8,756) (14,761)
-------- --------
Cash flow from financing activities:
Cash dividends (1,208) (939)
Repayments of long-term debt (11,500) --
Net borrowings under line of credit agreements 1,600 22,000
Proceeds from sales of capital stock,
treasury stock, and other, net 874 468
-------- --------
Net cash (used in) provided by financing
activities (10,234) 21,529
-------- --------
Change in cash and cash equivalents (35,085) (3,655)
Cash and cash equivalents at beginning of period 50,566 17,123
-------- --------
Cash and cash equivalents at end of period $ 15,481 $ 13,468
======== ========
The accompanying notes are an integral part of these financial statements.
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MAY 27, 1995
(In thousands)
(Unaudited)
Cumulative Subscriptions
Currency Receivable Total
Common Paid-in Retained Translation Treasury and Unearned Stockholders'
Stock Capital Earnings Adjustments Stock Compensation Equity
------- -------- -------- ----------- -------- ------------- -------------
Balance, February 25, 1995 $37,826 $ 93,833 $94,516 $(1,195) $(1,477) $(1,106) $222,397
Restricted stock grant and amortization 7 44 (129) 138 60
Stock Purchase Plan, exercise of stock
options and other 166 489 365 398 1,418
Currency translation adjustments 72 72
Cash dividends, declared or paid (1,208) (1,208)
Stock dividend (5%) 1,878 16,261 (18,139) --
Net loss (as restated) (18,335) (18,335)
------- -------- ------- ------- ------- ------- --------
Balance, May 27, 1995 (as restated) $39,877 $110,627 $57,199 $(1,123) $(1,208) $ (968) $204,404
======= ======== ======= ======= ======= ======= ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MAY 27, 1995 AND MAY 28, 1994
(Unaudited)
The accompanying unaudited financial statements should be read in
conjunction with the Form 10-K, and Amendment No. 1 to Form 10-K, for the
year ended February 25, 1995. All adjustments that are, in the opinion of
management, necessary for a fair statement of the financial position as of
May 27, 1995, and the results of operations and cash flows for the three
months ended May 27, 1995 and May 28, 1994, as restated, have been made and
consist only of normal recurring adjustments except for net trading losses
described in Note 1 and the provision for Sunbelt Nursery Group, Inc.
defaults described in Note 2. The results of operations for the three months
ended May 27, 1995 and May 28, 1994, as restated, are not indicative of
results to be expected for the fiscal year because of, among other things,
seasonality factors in the retail business.
Note 1 - Trading losses
In late December 1995, the Company was made aware of losses of $19.3
million resulting from trading activities in a discretionary account by a
financial consultant retained to manage the Company's excess cash and short-
term investments. Net trading losses recorded in fiscal 1996 and 1995
totalled $16.5 million and $2.8 million, respectively. The Company has
restated its financial statements for the quarter ended May 27, 1995 to
record net trading losses which aggregated $16.0 million. The Company has
not recorded any tax benefit on these losses since the realization of such
benefit is not considered likely based on the information available at this
time. The effect of the net trading losses on net income for the 1996 first
fiscal quarter was a reduction of $0.40 per share.
Note 2 - Provision for Sunbelt Nursery Group, Inc. defaults and subsequent
event
In April 1995, Sunbelt Nursery Group, Inc. ("Sunbelt") defaulted on 13
nursery store sublease agreements with the Company comprising $22.8 million
of non-revolving store development financing, and the Company terminated the
subleases. Sunbelt has also defaulted on three nursery store leases
guaranteed by the Company. The Company continues to negotiate with Sunbelt
regarding a settlement of the Company's claims as a result of the defaults.
In July 1995, the Company announced that, based upon the then current
status of these negotiations and on recently completed analyses of the costs
resulting from the termination of the 13 nursery store subleases, the
estimated cost to disengage from its financial support of Sunbelt would
range from $14 million to $17.5 million. The outcome of negotiations for an
agreement with Sunbelt and Sunbelt's performance under the agreement may
reduce the high end of the range. The Company restated its first quarter
financial statements to record this charge, which had previously been
recorded in the fiscal 1996 second quarter, and the result was a reduction of
$0.21 per share to net income. The effective tax rate of 40% was applied to
this charge for interim reporting purposes. The charge reflects the
Company's estimated losses resulting from the lease termination costs
associated with the 13 nursery stores and from the Company's guarantees of
other Sunbelt store leases. The Company believes that it is reasonably
possible that a change in this estimate could occur in the near term;
however, no further charge is warranted at this time.
Note 3 - Net income (loss) per share
Primary net income (loss) per share was determined by dividing net
income (loss) by applicable average shares outstanding. Fully diluted net
income (loss) per share amounts are similarly computed, but include the
effect, when dilutive, of the Company's potentially dilutive securities. To
determine fully dilutive net income (loss), interest and debt issue costs,
net of any applicable taxes, have been added back to net income (loss) to
reflect assumed conversions. The computation of fully diluted net income
(loss) per share for the three months ended May 27, 1995 and May 28, 1994 was
antidilutive for both periods; therefore, the amounts reported for primary
and fully diluted net income (loss) per share are the same.
PART I
------
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Pier 1 Imports, Inc. ("the Company") recorded net sales of $176.8
million for the first quarter of fiscal 1996, a 9.5% increase compared to the
same period of fiscal 1995. New stores contributed a majority of the sales
growth with 16 stores opened and one store closed during the first three
months of fiscal 1996. Same-store sales for the first quarter of fiscal 1996
increased approximately 3% versus the same period a year ago. This
improvement resulted from a continued increase in hard goods merchandise
sales such as furniture and decorative accessories, offset partially by a
decrease in soft goods merchandise sales which includes apparel and jewelry.
Hard goods and soft goods sales contributed approximately 90% and 10%,
respectively, of total sales during the first three months of fiscal 1996.
Sales on the Company's proprietary credit card were $43.5 million, or 24.6%
of total sales, during the first quarter of fiscal 1996, an increase of $10.7
million, or 32.4%, over the same period last year. The Company's North
American store count aggregated 643 at fiscal 1996 first quarter-end compared
to 590 at fiscal 1995 first quarter-end.
Gross profit, after related buying and store occupancy costs,
expressed as a percentage of sales, decreased to 39.1% for the first quarter
of fiscal 1996 from 40.5% for the same period of fiscal 1995. This decline
was primarily due to a shift in advertising and promotional strategies to
stimulate customer traffic which resulted in higher promotional discounts
during this year's first quarter. Store occupancy costs, as a percentage of
sales, increased 0.3% to 15.5% during the first three months of fiscal 1996
from 15.2% for the same period of fiscal 1995 due to slightly higher
occupancy rates on new stores opened in the fiscal 1996 first quarter. The
Company opened 16 new stores during the first quarter of fiscal 1996 compared
to four new stores opened in the comparable period of fiscal 1995.
Selling, general and administrative expenses, including marketing, as
a percentage of sales, decreased 1.7% to 29.4% in the first quarter of fiscal
1996 from 31.1% for the comparable period of fiscal 1995. In total dollars,
expenses for the first quarter of fiscal 1996 increased $1.9 million over the
first quarter of fiscal 1995, primarily due to a $3.0 million increase
attributable to expenses that normally increase proportionately with sales,
such as store salaries, and a $0.7 million increase in net proprietary credit
card costs. These increases were partially offset by a $1.1 million decrease
in bonuses primarily due to changes in the store manager bonus program, and a
shift of marketing expenditures (estimated at $1.8 million), from the first
quarter to later quarters during the current fiscal year, as the Company's
national television campaign is scheduled to begin in the second quarter of
fiscal 1996. The Company expects its marketing expenditures this fiscal year
to be approximately the same percentage of sales as fiscal year 1995. Other
general and administrative expenses increased by $1.1 million.
Operating income increased $1.7 million to $13.0 million during the
first quarter of fiscal 1996 compared to $11.3 million in the first quarter
of fiscal 1995.
Net interest expense declined $0.4 million during the first quarter of
fiscal 1996 compared to the same period of fiscal 1995 due to lower effective
interest rates coupled with lower debt levels.
In late December 1995, the Company was made aware of losses of $19.3
million resulting from trading activities in a discretionary account. The
Company has regularly designated a portion of its excess cash and short-term
investments for management by a financial consultant in the discretionary
account. The amount of funds deposited by the Company has varied during each
year, and the funds were generally withdrawn near the end of each fiscal
year. According to statements of the account provided by brokerage firms
that executed trading activity at the financial consultant's instructions,
the funds were invested in treasury bonds, treasury bond futures contracts
and options on treasury bond futures contracts. The futures and options
contracts were often used in a manner that provided a high degree of
speculation and leverage to the invested funds. As a result of the
investigations of the trading losses, the Company recorded $16.5 million and
$2.8 million of the net trading losses in fiscal 1996 and fiscal 1995,
respectively, with $16.0 million of the net trading losses recorded in the
first quarter of fiscal 1996. The Company has not recorded any tax benefit
on these losses since the realization of such benefit is not considered
likely based on the information available at this time. The Company and a
Special Committee of the Board of Directors investigated the matter and found
no evidence to suggest that the Company's net losses from these trading
activities will exceed $19.3 million in the aggregate.
In April 1993, the Company completed the sale of its 49.5% ownership
interest in Sunbelt Nursery Group, Inc. ("Sunbelt") to General Host
Corporation ("General Host") and, in conjunction with the sale, 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.
The Company also had outstanding guarantees on other Sunbelt store lease
commitments which aggregated $4.5 million with a present value of
approximately $3.5 million at fiscal 1995 year-end. In April 1995, Sunbelt
defaulted on 13 nursery store sublease agreements with the Company comprising
the $22.8 million of non-revolving store development financing, and the
Company terminated the subleases. Sunbelt also defaulted on three nursery
store lease agreements guaranteed by the Company. During the first quarter
of fiscal 1996, the Company recorded a pre-tax charge of $14 million which
represented the estimated cost to disengage from its financial support of
Sunbelt. The charge reflects the Company's estimated losses resulting from
the lease termination costs associated with the 13 nursery stores and from
the Company's guarantees of other Sunbelt store leases. The Company believes
that it is reasonably possible that a change in this estimate could occur in
the near term; however, no further charge is warranted at this time.
The Company's effective income tax rate for fiscal 1996 exclusive of
the aforementioned trading losses is estimated at 40.0% compared to 31.0% for
fiscal 1995. The increase is primarily due to the benefit of tax-favored
foreign income last fiscal year coupled with the tax benefit from the sale of
Sunbelt common stock recognized in fiscal year 1995. After taking into
consideration the net trading losses, the effective income tax rate for
fiscal 1996 will be approximately 65%.
Liquidity and Capital Resources
Cash, including temporary investments, declined to $15.5 million at
the end of the first quarter of fiscal 1996 from $50.6 million at fiscal 1995
year-end. During the first quarter of fiscal 1996, the Company suffered net
cash trading losses of $16.0 million in the discretionary trading account.
Other uses of cash included the retirement of $11.5 million of the Company's
convertible notes, capital expenditures of $4.0 million, payments on the
store-closing program of $4.0 million, investments in The Pier Retail Group
Limited of $5.0 million, a $3.3 million increase in inventory levels as a
result of seasonal build-up, an $8.5 million increase in the Company's
proprietary credit card receivable due to various promotions and incentives
offered during the first quarter of fiscal 1996 and changes in other working
capital of $1.1 million. These cash uses were partially offset by income,
exclusive of the aforementioned trading losses and non-cash related items
aggregating $16.8 million and cash flow from other investing and financing
activities of $1.5 million.
The Company previously announced that, depending upon market
conditions, it may utilize a portion of its surplus cash during fiscal 1996
to purchase up to $25 million of the Company's 6 7/8% convertible notes.
During the first quarter of fiscal 1996, the Company purchased $11.5 million
of these notes, leaving $63.5 million of the Company's 6 7/8% convertible
notes outstanding at the end of the first quarter of fiscal 1996.
Final cash requirements to fund the store-closing program from fiscal
1994 for lease terminations are expected to be approximately $7.8 million for
the remainder of fiscal 1996 and will be funded through working capital and
operations. During the first quarter of fiscal 1996, approximately $4.0
million was expended and charged against the reserve for lease termination
costs.
Cash requirements to cover the estimated losses resulting from the
Sunbelt defaults will be funded through working capital and operations and
are not expected to have a significant impact on the Company's liquidity.
Working capital requirements will continue to be provided by cash and
$168.5 million in short-term revolving lines of credit. Under these lines of
credit at May 27, 1995, $1.6 million was outstanding in the form of short-
term borrowings and an additional $68.5 million was committed under letters
of credit. The Company's current ratio at the end of the first quarter of
fiscal 1996 was 3.5 to 1 compared to 4.1 to 1 at fiscal year end 1995 and 3.2
to 1 at the end of the first quarter of fiscal 1995. The Company's minimum
operating lease commitments remaining for fiscal 1996 are $74 million, and
the present value of total existing minimum operating lease commitments is
$386 million.
During the first three months of fiscal 1996, the Company distributed
a 5% stock dividend, paid a $.03 per share cash dividend and has declared a
cash dividend of $.03 per share payable on August 16, 1995 to shareholders of
record on August 2, 1995. The Company currently expects to continue to pay
cash dividends in fiscal 1996, but intends to retain most of its future
earnings for expansion of the Company's business.
Management continues to believe that earnings from Company store
operations for the fiscal year ending March 2, 1996 will increase 12% to 15%
over the previous year.
PART II
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Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits See Exhibit Index.
(b) Reports on Form 8-K None.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this amended report to be signed on its behalf
by the undersigned thereunto duly authorized.
PIER 1 IMPORTS, INC. (Registrant)
Date: May 17, 1996 By: /s/ Clark A. Johnson
------------ -------------------------------------------
Clark A. Johnson, Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Date: May 17, 1996 By: /s/ Susan E. Barley
------------ -------------------------------------------
Susan E. Barley, Vice President and
Controller
(Principal Accounting Officer)
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
10.2.4 Eleventh Amendment to Lease Contract By and Between City
Center Development Co. and Pier 1 Imports (U.S.), Inc. dated
April 10, 1995, previously filed July 10, 1995.
10.5.1 Pier 1 Benefit Restoration Plan As Amended and Restated
Effective July 1, 1995, previously filed July 10, 1995.
27 Financial Data Schedule for Three-Month Period ended May 27,
1995, as restated.