FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended November 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-7832
PIER 1 IMPORTS, INC.
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(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
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(Address of principal executive offices, including zip code)
(817) 252-8000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 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 January 7, 2003
------------------------------- ----------------------------------------
Common Stock, $1.00 par value 92,835,741
PART I
Item 1. Financial Statements.
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
<Table>
<Caption>
Three Months Ended Nine Months Ended
Nov. 30, Dec. 1, Nov. 30, Dec. 1,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net sales $ 438,501 $ 387,360 $ 1,233,832 $ 1,069,995
Operating costs and expenses:
Cost of sales (including buying and store
occupancy costs) 246,741 221,952 713,150 632,134
Selling, general and administrative expenses 130,156 115,043 367,101 324,674
Depreciation and amortization 12,305 10,695 34,365 31,782
------------ ------------ ------------ ------------
389,202 347,690 1,114,616 988,590
------------ ------------ ------------ ------------
Operating income 49,299 39,670 119,216 81,405
Nonoperating (income) and expenses:
Interest and investment income (627) (659) (2,163) (1,485)
Interest expense 566 571 1,769 1,627
------------ ------------ ------------ ------------
(61) (88) (394) 142
------------ ------------ ------------ ------------
Income before income taxes 49,360 39,758 119,610 81,263
Provision for income taxes 18,260 14,712 44,256 30,070
------------ ------------ ------------ ------------
Net income $ 31,100 $ 25,046 $ 75,354 $ 51,193
============ ============ ============ ============
Earnings per share:
Basic $ .34 $ .27 $ .81 $ .54
============ ============ ============ ============
Diluted $ .33 $ .26 $ .79 $ .53
============ ============ ============ ============
Dividends declared per share: $ .05 $ .04 $ .15 $ .12
============ ============ ============ ============
Average shares outstanding during period:
Basic 92,536 93,421 93,092 94,774
============ ============ ============ ============
Diluted 94,810 94,976 95,631 96,218
============ ============ ============ ============
</Table>
The accompanying notes are an integral part of these financial statements.
PIER 1 IMPORTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except per share amounts)
<Table>
<Caption>
November 30, March 2, December 1,
2002 2002 2001
------------ ------------ ------------
(unaudited) (unaudited)
ASSETS
Current assets:
Cash, including temporary investments of $133,902,
$213,488 and $98,992, respectively $ 150,716 $ 235,609 $ 124,978
Beneficial interest in securitized receivables 49,662 44,620 48,606
Other accounts receivable, net 20,494 6,205 8,594
Inventories 382,180 275,433 302,781
Prepaid expenses and other current assets 41,616 43,286 34,122
------------ ------------ ------------
Total current assets 644,668 605,153 519,081
Properties, net 246,786 209,954 213,736
Other noncurrent assets 46,727 47,565 48,886
------------ ------------ ------------
$ 938,181 $ 862,672 $ 781,703
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 390 $ 356 $ 356
Accounts payable and accrued liabilities 232,861 208,040 172,670
------------ ------------ ------------
Total current liabilities 233,251 208,396 173,026
Long-term debt 25,000 25,356 25,356
Other noncurrent liabilities 48,941 43,264 41,563
Shareholders' equity:
Common stock, $1.00 par, 500,000,000 shares
authorized, 100,779,000 issued 100,779 100,779 100,779
Paid-in capital 143,977 140,190 139,362
Retained earnings 491,269 429,910 384,614
Cumulative other comprehensive income (2,380) (4,702) (4,077)
Less -- 7,959,000, 7,362,000 and 7,577,000
common shares in treasury, at cost, respectively (102,656) (80,521) (78,912)
Less -- unearned compensation -- -- (8)
------------ ------------ ------------
630,989 585,656 541,758
------------ ------------ ------------
$ 938,181 $ 862,672 $ 781,703
============ ============ ============
</Table>
The accompanying notes are an integral part of these financial statements.
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<Table>
<Caption>
Nine Months Ended
November 30, December 1,
2002 2001
------------ ------------
Cash flow from operating activities:
Net income $ 75,354 $ 51,193
Adjustments to reconcile to net cash provided by
operating activities:
Depreciation and amortization 34,365 31,782
Loss on disposal of fixed assets 2,223 2,337
Deferred compensation 3,410 3,529
Other 8,076 3,070
Changes in cash from:
Inventories (106,747) 7,456
Other accounts receivable and other current assets (17,912) (3,002)
Accounts payable and accrued expenses 33,975 30,818
Other noncurrent assets (405) (2,823)
Other noncurrent liabilities (500) 2,276
------------ ------------
Net cash provided by operating activities 31,839 126,636
------------ ------------
Cash flow from investing activities:
Capital expenditures (73,062) (47,209)
Proceeds from disposition of properties 667 12,482
Beneficial interest in securitized receivables (5,042) 26,797
------------ ------------
Net cash used in investing activities (77,437) (7,930)
------------ ------------
Cash flow from financing activities:
Cash dividends (13,995) (11,388)
Purchases of treasury stock (40,161) (34,639)
Proceeds from stock options exercised,
stock purchase plan and other, net 15,225 4,746
Repayments of long-term debt (364) --
Borrowings under long-term debt -- 712
------------ ------------
Net cash used in financing activities (39,295) (40,569)
------------ ------------
Change in cash and cash equivalents (84,893) 78,137
Cash and cash equivalents at beginning of period 235,609 46,841
------------ ------------
Cash and cash equivalents at end of period $ 150,716 $ 124,978
============ ============
</Table>
The accompanying notes are an integral part of these financial statements.
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED NOVEMBER 30, 2002
(in thousands except per share amounts)
(unaudited)
<Table>
<Caption>
Cumulative
Common Stock Other Total
--------------------- Paid-in Retained Comprehensive Treasury Shareholders'
Shares Amount Capital Earnings Income Stock Equity
--------- --------- --------- --------- ------------- --------- -------------
Balance March 2, 2002 93,389 $ 100,779 $ 140,190 $ 429,910 $ (4,702) $ (80,521) $ 585,656
Comprehensive income:
Net income -- -- -- 75,354 -- -- 75,354
Other comprehensive income, net of tax:
Currency translation
adjustments -- -- -- -- 2,322 -- 2,322
---------
Comprehensive income 77,676
---------
Purchases of treasury shares (2,134) -- -- -- -- (40,161) (40,161)
Exercise of stock options, stock
purchase plan and other 1,516 -- 3,787 -- -- 18,026 21,813
Cash dividends, declared or paid
($.15 per share) -- -- -- (13,995) -- -- (13,995)
--------- --------- --------- --------- --------- --------- ---------
Balance November 30, 2002 92,771 $ 100,779 $ 143,977 $ 491,269 $ (2,380) $(102,656) $ 630,989
========= ========= ========= ========= ========= ========= =========
</Table>
The accompanying notes are an integral part of these financial statements.
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED NOVEMBER 30, 2002
AND DECEMBER 1, 2001
(unaudited)
The accompanying unaudited financial statements should be read in conjunction
with the Form 10-K for the year ended March 2, 2002. All adjustments that are,
in the opinion of management, necessary for a fair statement of the financial
position as of November 30, 2002, and the results of operations and cash flows
for the three and nine months ended November 30, 2002 and December 1, 2001 have
been made and consist only of normal recurring adjustments. The results of
operations for the three and nine months ended November 30, 2002 and December 1,
2001 are not indicative of results to be expected for the fiscal year because
of, among other things, seasonality factors in the retail business. The
classification of certain amounts previously reported in the statement of cash
flows for the nine months ended December 1, 2001 has been modified to conform to
the November 30, 2002 method of presentation.
NOTE 1 - EARNINGS PER SHARE
Basic earnings per share amounts were determined by dividing net income by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share amounts were similarly computed, but included the effect,
when dilutive, of the Company's weighted average number of stock options
outstanding. Stock options for which the exercise price was greater than the
average market price of common shares were not included in the computation of
diluted earnings per share as the effect would be antidilutive. As of November
30, 2002 and December 1, 2001, there were stock options outstanding of 2,779,500
and 477,300, respectively, with exercise prices greater than the average market
price of the Company's common shares. Earnings per share for the three and nine
months ended November 30, 2002 and December 1, 2001 were calculated as follows
(in thousands except per share amounts):
<Table>
<Caption>
Three Months Ended Nine Months Ended
Nov. 30, Dec. 1, Nov. 30, Dec. 1,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net income (Basic and Diluted) $ 31,100 $ 25,046 $ 75,354 $ 51,193
========== ========== ========== ==========
Average shares outstanding during period:
Basic 92,536 93,421 93,092 94,774
Plus assumed exercise of stock options 2,274 1,555 2,539 1,444
---------- ---------- ---------- ----------
Diluted 94,810 94,976 95,631 96,218
========== ========== ========== ==========
Earnings per share:
Basic $ .34 $ .27 $ .81 $ .54
========== ========== ========== ==========
Diluted $ .33 $ .26 $ .79 $ .53
========== ========== ========== ==========
</Table>
NOTE 2 - COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, for the three and
nine months ended November 30, 2002 and December 1, 2001 are as follows (in
thousands):
<Table>
<Caption>
Three Months Ended Nine Months Ended
Nov. 30, Dec. 1, Nov. 30, Dec. 1,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net income $ 31,100 $ 25,046 $ 75,354 $ 51,193
Currency translation adjustments 417 (560) 2,322 (962)
---------- ---------- ---------- ----------
Comprehensive income $ 31,517 $ 24,486 $ 77,676 $ 50,231
========== ========== ========== ==========
</Table>
NOTE 3 - ADOPTION OF NEW ACCOUNTING STANDARDS
In the first quarter of fiscal 2003, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets,"
which superseded Accounting Principles Board ("APB") Opinion No. 17, "Intangible
Assets." This statement addresses the initial recognition and measurement of
intangible assets acquired outside of a business combination and the accounting
for goodwill and other intangible assets subsequent to their acquisition. SFAS
No. 142 also provides that intangible assets with finite useful lives be
amortized and that goodwill and intangible assets with indefinite lives will not
be amortized, but will rather be tested for impairment upon adoption and on an
annual basis thereafter. The Company completed the initial impairment test and
concluded that goodwill was not impaired as of August 31, 2002. The adoption of
SFAS No. 142 during the first quarter of fiscal 2003 did not have a material
impact on the Company's consolidated balance sheets or its statements of
operations, shareholders' equity and cash flows. The impact of the
non-amortization provisions of SFAS No. 142, if applied at the beginning of
fiscal year 2002, would have resulted in third quarter net income of $25,135,000
versus reported net income of $25,046,000 and year-to-date net income of
$51,389,000 versus reported net income of $51,193,000. Basic and diluted
earnings per share would have remained at $0.27 and $0.26, respectively, for the
third quarter and $0.54 and $0.53, respectively, for the year-to-date period.
In the first quarter of fiscal 2003, the Company also adopted SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," which replaced
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 144 retains the fundamental
provisions of SFAS No. 121 with additional guidance on estimating cash flows
when performing a recoverability test, requires that a long-lived asset to be
disposed of, other than by sale, be classified as "held and used" until it is
disposed of and establishes more restrictive criteria to classify an asset as
"held for sale." SFAS No. 144 also supersedes APB Opinion No. 30, "Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," regarding the disposal of a segment of a business and extends the
reporting of a discontinued operation to a "component of an entity" and requires
the operating losses thereon to be recognized in the period in which they occur.
The adoption of SFAS No. 144 did not have a material impact on the Company's
consolidated balance sheets or its statements of operations, shareholders'
equity and cash flows.
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
GENERAL
Pier 1 Imports, Inc. (the "Company") is one of North America's largest specialty
retailers of unique decorative home furnishings, gifts and related items for the
home. The Company, through certain subsidiaries, operates stores in the United
States and Canada under the names "Pier 1 Imports" and "Cargokids!"
("Cargokids"). In the United Kingdom, retail locations operate under the name
"The Pier." The Company has over 1,000 retail locations in 50 states, Canada,
Puerto Rico, the United Kingdom and Mexico with merchandise directly imported
from over 40 countries around the world.
RESULTS OF OPERATIONS
Net sales consisted almost entirely of sales to retail customers net of
discounts and returns, but also included wholesale sales and royalties received
from franchise stores and joint ventures, and delivery service revenues. Sales
by retail concept during the period were as follows (in thousands):
<Table>
<Caption>
Three Months Ended Nine Months Ended
November 30, December 1, November 30, December 1,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Pier 1 Imports stores $ 417,064 $ 367,283 $ 1,180,308 $ 1,019,206
The Pier stores 14,913 12,561 34,713 30,002
Cargokids stores 3,142 3,401 8,690 8,353
Internet 1,654 929 4,022 2,211
Other (1) 1,728 3,186 6,099 10,223
------------ ------------ ------------ ------------
Net Sales $ 438,501 $ 387,360 $ 1,233,832 $ 1,069,995
============ ============ ============ ============
</Table>
(1) Other sales consisted of wholesale sales and royalties received from
franchise stores, international joint ventures in Mexico and Puerto
Rico, and Cargokids' contract sales. Amounts from the prior fiscal year
also included sales to the Company's franchise stores in Japan and
Cargokids' dealer sales.
Net sales for the third quarter of fiscal 2003 ended November 30, 2002 were
$438.5 million, up 13.2% from last year's net sales of $387.4 million.
Year-to-date sales grew 15.3% to $1,233.8 million from $1,070.0 million a year
ago. Same-store sales for the quarter grew 4.6% and year-to-date same-store
sales were up 6.4% over last year. The Company's value-oriented merchandise and
integrated marketing efforts focusing on the customer resulted in increased
traffic and transaction counts and contributed to this sales growth. In
addition, sales increases were the result of a net increase of 83 stores at the
end of the third quarter of fiscal 2003 compared to the end of the same period
last fiscal year. Increases in retail sales were slightly offset by a reduction
in sales as the result of the Company's cessation of sales to its venture
partner in Japan and lower contract sales at Cargokids as management shifted its
focus to concentrate on retail sales.
During the quarter, the Company continued to execute its store expansion plan by
opening 35 and closing four Pier 1 stores and opening two Cargokids stores and
two "store-within-a-store" concepts at The Pier, which resulted in an overall
increase of 3.7% in total retail square footage during the quarter and an
increase of 9.9% over the same quarter last year. During the first nine months
of fiscal 2003, the Company opened 90 and closed
20 North American Pier 1 stores, opened four and closed one Cargokids stores,
and opened two "store-within-a-store" concepts at The Pier, which resulted in an
increase of 8.4% in total retail square footage from the beginning of fiscal
2003. The North American Pier 1 store count totaled 980 at the end of the third
quarter compared to 899 stores a year ago. Including Cargokids and all other
worldwide locations, the Company's store count totaled 1,049 at the end of the
third quarter of fiscal 2003.
A summary reconciliation of the Company's stores open at the beginning of fiscal
2003 to the number open at the end of the third quarter follows (openings and
closings include relocated stores):
<Table>
<Caption>
Pier 1 North
American International (1) Cargokids Total
------------ ----------------- ------------ ------------
Open at March 2, 2002 910 46 18 974
Openings 90 2 4 96
Closings (20) -- (1) (21)
------------ ------------ ------------ ------------
Open at November 30, 2002 980 48 21 1,049
============ ============ ============ ============
</Table>
(1) International stores were located in Puerto Rico, the United Kingdom
and Mexico.
Net sales on the Company's proprietary credit card totaled $113.1 million and
$321.3 million for the quarter and first nine months of fiscal 2003,
respectively, representing increases of 4.4% over the same periods of fiscal
2002. Third quarter proprietary credit card sales comprised 28.3% versus 30.6%
of total sales in the same period last fiscal year, while year-to-date
proprietary credit card sales accounted for 28.3% versus 31.3% of sales in the
year earlier period. The Company continues to increase overall sales on its
proprietary credit card by opening new accounts and developing customer loyalty
through marketing promotions targeted to cardholders.
Gross profit, after related buying and store occupancy costs, expressed as a
percentage of sales, increased 100 basis points to 43.7% for the third quarter
of fiscal 2003 and increased 130 basis points to 42.2% of sales for the first
nine months of fiscal 2003. As a percentage of sales, merchandise margins
increased 100 basis points for the third quarter and 110 basis points for the
nine-month period ended November 30, 2002 over the comparable periods a year
ago. Merchandise margin increases were primarily the result of decreased freight
costs, leveraging of purchasing power with vendors and leveraging of fixed
warehouse costs. Store occupancy costs for the quarter were flat compared to the
same quarter last year at 12.5% of sales; year-to-date store occupancy costs
declined 20 basis points to 13.0% of sales. Most of the leveraging of fixed
rental costs occurred earlier in the year because mature stores represented a
greater percentage of total sales in the earlier part of the year, and newer
stores tend to achieve lower sales per square foot until they reach maturity.
Selling, general and administrative expenses for the third quarter of fiscal
2003 were $130.2 million, an increase of $15.1 million over the same quarter
last year but flat as a percentage of sales at 29.7%. Expenses that normally
grow proportionately with sales and number of stores, such as store payroll,
marketing, store supplies and equipment rental, increased $12.9 million over the
same quarter last year, representing an increase of 50 basis points as a
percentage of sales. Store payroll continues to be well controlled, increasing
$6.3 million but decreasing as a percentage of sales by 10 basis points for the
quarter. Marketing expenditures were $22.3 million or 5.1% of sales for the
quarter, an increase of 50 basis points over the same quarter last year. Store
supplies and equipment expenses for the third quarter of fiscal 2003 increased
$1.9 million over last year's third quarter, an increase of 10 basis points when
expressed as a percentage of sales. Non-variable selling, general and
administrative expenses increased by $2.3 million for the quarter, representing
a decline of 50 basis points as a percentage of sales. Home office payroll,
including bonus, increased by $0.6 million and declined 30 basis points as a
percentage of sales for the quarter from last year's third quarter. All other
selling, general and administrative expenses increased $1.7 million during the
third quarter and declined 20 basis points as a percentage of sales.
Selling, general and administrative expenses increased $42.4 million during the
first nine months of fiscal 2003, yet declined 60 basis points as a percentage
of sales when compared to the same period last year. Year-to-date variable
expenses increased $30.4 million but declined almost 30 basis points as a
percentage of sales when compared to the same period a year ago. Year-to-date,
store payroll, including bonus, increased $24.3 million and 30 basis points as a
percentage of sales as a result of higher bonus accruals that were based on
sales gains over the prior year. Marketing expenditures for the first nine
months of fiscal 2003 were $61.2 million or 5.0% of year-to-date sales, a
decrease of 30 basis points compared to the same period last year. Timing of
marketing expenditures varies slightly between fiscal quarters; however, the
Company expects these expenses to be consistent with last year at approximately
4.5% of sales for the fiscal year ending March 1, 2003. Store supplies and
equipment expenses increased $1.2 million year-to-date, a decrease of 30 basis
points as a percentage of sales from the same period a year ago. Store supplies,
as a percentage of sales for fiscal 2003, are expected to be below last year,
primarily as a result of a redesigned program for bags, boxes and tissue that
was implemented earlier in the year. Non-variable selling, general and
administrative expenses increased $12.0 million during the first nine months of
fiscal 2003, a decline of slightly more than 20 basis points as a percentage of
sales compared to the same period last year. Year-to-date, home office payroll,
including bonus, increased $8.6 million and 20 basis points as a percentage of
sales. This increase was a result of a higher corporate bonus accrual
year-to-date due to increased profits compared to target amounts. All other
selling, general and administrative expenses for the year-to-date period
increased $3.4 million and declined 40 basis points as a percentage of sales.
Operating income for the quarter was $49.3 million, or 11.2% of sales, compared
to $39.7 million, or 10.2% of sales, during last year's third quarter. For the
first nine months of fiscal 2003, operating income increased 46.4% to $119.2
million from $81.4 million for the same period a year ago.
The Company's effective income tax rate for fiscal 2003 is estimated at 37%,
consistent with fiscal 2002.
Net income for the third quarter of fiscal 2003 was $31.1 million, or $.33 per
diluted share, compared to net income of $25.0 million, or $.26 per diluted
share, for the third quarter of fiscal 2002. Net income year-to-date was $75.4
million, or $.79 per diluted share, compared to net income of $51.2 million, or
$.53 per diluted share, for the prior year. For the quarter and year-to-date
periods, net income increased 24.2% and 47.2%, respectively, compared to the
same periods a year ago.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the third quarter of fiscal 2003 with $150.7 million of cash
compared to $125.0 million a year ago. Total cash generated from operations was
$31.8 million compared to $126.6 million a year ago. Net income, adjusted for
non-cash and non-operating related items, was $123.4 million and served as the
Company's primary source of operating cash for the nine months ended November
30, 2002. The decline in cash generated from operations was primarily the result
of an increase of $106.7 million in inventories during the first nine months of
fiscal 2003 compared to a decline of $7.5 million in inventory levels during the
same period last year. Inventory growth resulted partially from the addition of
70 net new Pier 1 stores since the end of fiscal 2002. In addition, as a result
of a threatened dockworkers' strike on the west coast, certain shipments were
accelerated to accommodate planned store openings and marketing initiatives
expected to begin in January through March of calendar year 2003. The Company
believes its current inventory levels are well positioned with North American
Pier 1 inventory per retail square foot of $49 at November 30, 2002, compared to
$43 and $53 per retail square foot at the end of the same periods of fiscal 2002
and 2001, respectively. Increases in accounts payable and accrued expenses
provided cash of $34.0 million year-to-date. These increases resulted primarily
from the increase in inventory and from growth in the liability for unredeemed
gift cards. The remainder was due to higher expense accruals for taxes,
insurance, and other working capital accruals due primarily to the increased
number of stores this year, increased insurance costs, and higher bonus accruals
based on the Company's strong sales
and profitability this year. Increases in other accounts receivable and other
current assets required cash of $17.9 million year-to-date, and were primarily
the result of an increase in third-party credit card receivables from timing
differences in post-Thanksgiving sales when compared to the same period a year
ago. All other operating activities used cash of $1.0 million.
During the first nine months of fiscal 2003, the Company spent a net of $77.4
million in investing activities, which included $73.1 million in capital
expenditures. New and existing store development and remodels accounted for
$32.7 million of the total amount expended for capital purchases. Capital
expenditures on distribution centers, including the land purchase and
construction costs for the new distribution center in Savannah, Georgia, totaled
$17.0 million. Additionally, the Company spent $11.7 million for land and
architectural and design fees for the new Company headquarters and $11.7 million
for information systems enhancements and other miscellaneous additions. Total
capital expenditures for fiscal 2003, net of proceeds from the sale-leaseback of
the Savannah distribution center anticipated prior to the end of February 2003,
are expected to be approximately $80 to $85 million. Gross capital expenditures
are expected to be $100 to $105 million for fiscal 2003, including approximately
$18 million in land and construction costs for the new Company headquarters and
approximately $20 million for the construction of the Savannah distribution
center. The Company estimates capital expenditures for fiscal 2004 to be in the
range of $110 to $115 million. Of this amount, the Company plans to spend
approximately $40 million for construction of the new Company headquarters and
the remainder primarily on store development and information systems. The
Company expects the final $30 million in construction costs for the new
headquarters to be spent in fiscal 2005. Initially the Company plans to pay for
the new headquarters with operating funds with an option to mortgage all or part
of it, or enter into a sale-leaseback arrangement depending on interest rates
and the Company's cash position at that time. All other capital expenditures are
expected to be funded through operating cash flows and existing financing
arrangements.
Through the first nine months of fiscal 2003, the Company's beneficial interest
in securitized receivables increased $5.0 million to $49.7 million, primarily as
a result of an increase in the total receivables portfolio in the Master Trust
from $140.7 million at fiscal 2002 year-end to $145.2 million at the end of the
third quarter of fiscal 2003. These proprietary credit card receivables have
increased as a result of an increase in total credit card sales. The Company has
continued to have $100 million of these receivables securitized at both fiscal
2002 year-end and the end of the third quarter of fiscal 2003.
Financing activities for the first nine months of fiscal 2003 used a net $39.3
million of the Company's cash resources. Year-to-date, the Company repurchased
2,134,000 shares of its common stock for $40.2 million including fees, leaving
$109.9 million remaining authorized for repurchase under the stock buyback
program approved by the Board of Directors during the first quarter of fiscal
2003. Dividend payments totaled $14.0 million for the first nine months of
fiscal 2003, and other financing activities, primarily the exercise of stock
options, provided net cash of $15.2 million.
At the end of the third quarter, the Company's minimum operating lease
commitments remaining for fiscal 2003 were $44.5 million. The present value of
total existing minimum operating lease commitments discounted at 10% was $742.1
million at fiscal 2003 third quarter-end. The Company expects to continue to
fund all operating lease commitments from operating cash flow.
Working capital requirements are expected to continue to be funded through cash
flow from operations, bank lines of credit and sales of proprietary credit card
receivables. The Company's bank facilities consist of a $125 million revolving
credit facility, which expires in November of 2003, all of which was available
at the end of the third quarter of fiscal 2003. The Company also has other
long-term and short-term bank facilities totaling $153.8 million, used
principally for the issuance of letters of credit; $56.0 million of these
facilities was available at November 30, 2002. The Company's current ratio was
2.8 to 1 at the end of the third quarter of fiscal 2003 compared to 3.0 to 1 at
the end of fiscal year 2002.
In December 2002, the Company declared a quarterly cash dividend of $.06 per
share payable on February 19, 2003 to shareholders of record on February 5,
2003, a per share increase of $.01 over quarterly dividends of $.05 per share
declared during the first half of fiscal 2003. The Company currently expects to
continue to pay cash dividends but to retain most of its future earnings for
expansion of the Company's business.
The Company believes the funds provided from operations, available lines of
credit and sales of the Company's proprietary credit card receivables will be
sufficient to meet the Company's expected cash requirements for the next fiscal
year.
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this quarterly report, except for historical
information contained herein, may constitute "forward-looking statements" that
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those described in the forward-looking statements. The
Company may also make forward-looking statements in other reports filed with the
Securities and Exchange Commission and in material delivered to the Company's
shareholders. Forward-looking statements provide current expectations of future
events based on certain assumptions. These statements encompass information that
does not directly relate to any historical or current fact and often may be
identified with words such as "anticipates," "believes," "expects," "estimates,"
"intends," "plans," "projects" and other similar expressions. Management's
expectations and assumptions regarding planned store openings, financing of
Company obligations from operations and other future results are subject to
risks, uncertainties and other factors that could cause actual results to differ
materially from the anticipated results or other expectations expressed in the
forward-looking statements. Risks and uncertainties that may affect Company
operations and performance include, among others, the effects of terrorist
attacks or other acts of war, weather conditions that may affect sales, the
general strength of the economy and levels of consumer spending, the
availability of new sites for expansion along with sufficient labor to
facilitate growth, the strength of new home construction and sales of existing
homes, the ability of the Company to import merchandise from foreign countries
without significantly restrictive tariffs, duties or quotas and the ability of
the Company to ship and deliver items from foreign countries to its U.S.
distribution centers at reasonable rates and in a timely fashion. The foregoing
risks and uncertainties are in addition to others discussed elsewhere in this
quarterly report. The Company assumes no obligation to update or otherwise
revise its forward-looking statements even if experience or future changes make
it clear that any projected results expressed or implied will not be realized.
Additional information concerning these risks and uncertainties is contained in
the Company's Annual Report on Form 10-K for the year ended March 2, 2002, as
filed with the Securities and Exchange Commission.
IMPACT OF INFLATION
Inflation has not had a significant impact on the operations of the Company.
PART I
Item 4. Controls and Procedures.
As of November 30, 2002, pursuant to the requirements of Rules 13a-15 and 15d-15
of the Securities Exchange Act of 1934, an evaluation was performed under the
supervision and with the participation of the Company's management, including
the Chairman of the Board and Chief Executive Officer ("CEO") and the Executive
Vice President, Chief Financial Officer and Treasurer ("CFO"), of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on that evaluation, the Company's management, including
the CEO and CFO, concluded that the Company's disclosure controls and procedures
were effective as of November 30, 2002. There have been no significant changes
in the Company's internal controls or in other factors that could significantly
affect internal controls subsequent to November 30, 2002.
PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits See Exhibit Index.
(b) Reports on Form 8-K None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PIER 1 IMPORTS, INC. (Registrant)
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Date: January 9, 2003 By: /s/ Marvin J. Girouard
---------------------- -----------------------------------------------
Marvin J. Girouard, Chairman of the Board
and Chief Executive Officer
Date: January 9, 2003 By: /s/ Charles H. Turner
---------------------- -----------------------------------------------
Charles H. Turner, Executive Vice President,
Chief Financial Officer and Treasurer
Date: January 9, 2003 By: /s/ Susan E. Barley
---------------------- -----------------------------------------------
Susan E. Barley, Principal Accounting Officer
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CERTIFICATIONS
I, Marvin J. Girouard, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pier 1 Imports,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: January 9, 2003 By: /s/ Marvin J. Girouard
---------------------- -----------------------------------------
Marvin J. Girouard, Chairman of the Board
and Chief Executive Officer
I, Charles H. Turner, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pier 1 Imports,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: January 9, 2003 By: /s/ Charles H. Turner
--------------------- --------------------------------------------
Charles H. Turner, Executive Vice President,
Chief Financial Officer and Treasurer
Exhibit Index
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<Caption>
Exhibit No. Description
- ----------- -----------
99.1 Management's certifications required pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002.
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