Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(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 29, 2008

 

 

OR

 

 

o

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 001-07832

 

 

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)

 

 

100 Pier 1 Place, Fort Worth, Texas 76102

 

 

(Address of principal executive offices, including zip code)

 

 

 

 

 

(817) 252-8000

 

 

(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 such 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 o.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

o

 

 

Accelerated filer

x

Non-accelerated filer

o

(Do not check if a smaller reporting company)

 

Smaller reporting company

o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Shares outstanding as of December 30, 2008

Common Stock, $1.00 par value

 

89,265,194

 

 

 



Table of Contents

 

PIER 1 IMPORTS, INC.

 

INDEX TO QUARTERLY FORM 10-Q

 

 

Page

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

Consolidated Statements of Operations for the Three and Nine Months Ended November 29, 2008 and December 1, 2007

3

 

 

 

 

 

 

 

Consolidated Balance Sheets as of November 29, 2008, March 1, 2008 and December 1, 2007

4

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended November 29, 2008 and December 1, 2007

5

 

 

 

 

 

 

 

Consolidated Statement of Shareholders’ Equity for the Nine Months Ended November 29, 2008

6

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

7

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

30

 

 

 

 

 

Item 4.

Controls and Procedures

30

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

30

 

 

 

 

 

Item 1A.

Risk Factors

30

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

 

 

 

 

 

Item 3.

Defaults upon Senior Securities

31

 

 

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

31

 

 

 

 

 

Item 5.

Other Information

.31

 

 

 

 

 

Item 6.

Exhibits

31

 

 

 

 

 

Signatures

32

 

2



Table of Contents

 

PART I

 

Item 1.        Financial Statements.

 

PIER I IMPORTS, INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except share amounts)

(unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

November 29,

 

December 1,

 

November 29,

 

December 1,

 

 

 

2008

 

2007

 

2008

 

2007

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

300,906

 

$

374,181

 

$

931,420

 

$

1,075,122

 

 

 

 

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of sales (including buying and store occupancy costs)

 

213,015

 

248,286

 

669,788

 

774,525

 

Selling, general and administrative expenses

 

115,339

 

123,698

 

331,750

 

373,279

 

Depreciation and amortization

 

7,321

 

10,347

 

23,511

 

31,349

 

 

 

335,675

 

382,331

 

1,025,049

 

1,179,153

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

(34,769

)

(8,150

)

(93,629

)

(104,031

)

 

 

 

 

 

 

 

 

 

 

Nonoperating (income) and expenses:

 

 

 

 

 

 

 

 

 

Interest and investment income

 

(1,274

)

(1,624

)

(3,616

)

(6,994

)

Interest expense

 

3,804

 

3,759

 

11,105

 

11,716

 

Other income

 

(632

)

(674

)

(1,920

)

(1,327

)

 

 

1,898

 

1,461

 

5,569

 

3,395

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

(36,667

)

(9,611

)

(99,198

)

(107,426

)

Income tax provision

 

188

 

351

 

637

 

2,323

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(36,855

)

$

(9,962

)

$

(99,835

)

$

(109,749

)

 

 

 

 

 

 

 

 

 

 

Loss per share:

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.41

)

$

(0.11

)

$

(1.12

)

$

(1.25

)

 

 

 

 

 

 

 

 

 

 

Average shares outstanding during period:

 

 

 

 

 

 

 

 

 

Basic and diluted

 

88,885

 

88,178

 

88,761

 

87,991

 

 

The accompanying notes are an integral part of these financial statements.

 

3



Table of Contents

 

PIER 1 IMPORTS, INC.

 

CONSOLIDATED BALANCE SHEETS

(in thousands except per share amounts)

(unaudited)

 

 

 

November 29,

 

March 1,

 

December 1,

 

 

 

2008

 

2008

 

2007

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents, including temporary investments of $105,897, $87,837 and $74,107, respectively

 

$

117,438

 

$

93,433

 

$

82,652

 

Accounts receivable, net

 

22,776

 

23,121

 

28,224

 

Inventories

 

398,724

 

411,709

 

432,782

 

Income tax receivable

 

2,788

 

13,632

 

14,150

 

Prepaid expenses and other current assets

 

46,099

 

41,445

 

47,093

 

Total current assets

 

587,825

 

583,340

 

604,901

 

 

 

 

 

 

 

 

 

Office building and related assets

 

 

80,539

 

81,698

 

Other properties, net of accumulated depreciation of $427,702, $408,609 and $406,447, respectively

 

95,977

 

114,952

 

122,337

 

Other noncurrent assets

 

38,655

 

43,073

 

44,640

 

 

 

$

722,457

 

$

821,904

 

$

853,576

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

98,372

 

$

106,084

 

$

138,871

 

Gift cards and other deferred revenue

 

51,407

 

63,101

 

63,051

 

Accrued income taxes payable

 

5,123

 

5,000

 

3,200

 

Other accrued liabilities

 

113,445

 

101,817

 

112,295

 

Total current liabilities

 

268,347

 

276,002

 

317,417

 

 

 

 

 

 

 

 

 

Long-term debt

 

184,000

 

184,000

 

184,000

 

Other noncurrent liabilities

 

98,511

 

94,158

 

98,491

 

 

 

 

 

 

 

 

 

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

 

124,114

 

126,795

 

126,245

 

Retained earnings

 

136,259

 

236,094

 

222,356

 

Cumulative other comprehensive (loss) income

 

(1,880

)

373

 

2,343

 

Less — 11,661,000, 12,172,000 and 12,281,000 common shares in treasury, at cost, respectively

 

(187,673

)

(196,297

)

(198,055

)

 

 

171,599

 

267,744

 

253,668

 

Commitments and contingencies

 

 

 

 

 

 

$

722,457

 

$

821,904

 

$

853,576

 

 

The accompanying notes are an integral part of these financial statements.

 

4



Table of Contents

 

PIER 1 IMPORTS, INC

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Nine Months Ended

 

 

 

November 29,

 

December 1,

 

 

 

2008

 

2007

 

Cash flow from operating activities:

 

 

 

 

 

Net loss

 

$

(99,835

)

$

(109,749

)

Adjustments to reconcile to net cash used in operating activities:

 

 

 

 

 

Depreciation and amortization

 

32,783

 

41,248

 

(Gain) loss on disposal of fixed assets

 

94

 

(1,130

)

Loss on impairment of fixed assets and other long-lived assets

 

4,606

 

4,164

 

Stock-based compensation expense

 

4,215

 

4,416

 

Deferred compensation

 

3,156

 

2,692

 

Lease termination expense

 

4,557

 

10,991

 

Amortization of deferred gains

 

(4,744

)

(1,628

)

Other

 

(1,509

)

1,022

 

Changes in cash from:

 

 

 

 

 

Inventories

 

12,985

 

(72,719

)

Accounts receivable, prepaid expenses and other current assets

 

(11,732

)

(16,919

)

Income tax receivable

 

13,847

 

25,467

 

Accounts payable and accrued expenses

 

(28,748

)

27,075

 

Accrued income taxes payable

 

(931

)

582

 

Defined benefit plan liabilities

 

(89

)

(6,282

)

Other noncurrent assets

 

1,224

 

406

 

Other noncurrent liabilities

 

(770

)

(2,195

)

Net cash used in operating activities

 

(70,891

)

(92,559

)

 

 

 

 

 

 

Cash flow from investing activities:

 

 

 

 

 

Capital expenditures

 

(11,326

)

(5,557

)

Proceeds from disposition of properties

 

102,455

 

4,282

 

Proceeds from sale of restricted investments

 

1,483

 

6,373

 

Purchase of restricted investments

 

(944

)

(589

)

Collection of notes receivable

 

1,500

 

1,500

 

Net cash provided by investing activities

 

93,168

 

6,009

 

 

 

 

 

 

 

Cash flow from financing activities:

 

 

 

 

 

Proceeds from stock options exercised, stock purchase plan and other, net

 

1,728

 

3,022

 

Debt issuance costs

 

 

(998

)

Net cash provided by financing activities

 

1,728

 

2,024

 

 

 

 

 

 

 

Change in cash and cash equivalents

 

24,005

 

(84,526

)

Cash and cash equivalents at beginning of period

 

93,433

 

167,178

 

Cash and cash equivalents at end of period

 

$

117,438

 

$

82,652

 

 

The accompanying notes are an integral part of these financial statements.

 

5



Table of Contents

 

PIER 1 IMPORTS, INC.

 

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED NOVEMBER 29, 2008

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Cumulative

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

Other

 

 

 

Total

 

 

 

Outstanding

 

 

 

Paid-in

 

Retained

 

Comprehensive

 

Treasury

 

Shareholders’

 

 

 

Stock

 

Amount

 

Capital

 

Earnings

 

Income (Loss)

 

Stock

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance March 1, 2008

 

88,607

 

$

100,779

 

$

126,795

 

$

236,094

 

$

373

 

$

(196,297

)

$

267,744

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

(99,835

)

 

 

(99,835

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension adjustments

 

 

 

 

 

1,101

 

 

1,101

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments

 

 

 

 

 

(3,354

)

 

(3,354

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(102,088

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock compensation

 

283

 

 

(3,199

)

 

 

4,563

 

1,364

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock option compensation expense

 

 

 

2,851

 

 

 

 

2,851

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options, stock purchase plan and other

 

228

 

 

(2,333

)

 

 

4,061

 

1,728

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance November 29, 2008

 

89,118

 

$

100,779

 

$

124,114

 

$

136,259

 

$

(1,880

)

$

(187,673

)

$

171,599

 

 

The accompanying notes are an integral part of these financial statements.

 

6



Table of Contents

 

PIER 1 IMPORTS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED NOVEMBER 29, 2008

AND DECEMBER 1, 2007

(unaudited)

 

Throughout this report, references to the “Company” include Pier 1 Imports, Inc. and all its consolidated subsidiaries.  The accompanying unaudited financial statements should be read in conjunction with the Form 10-K for the year ended March 1, 2008.  All adjustments that are, in the opinion of management, necessary for a fair presentation of the financial position as of November 29, 2008, and the results of operations and cash flows for the three and nine months ended November 29, 2008 and December 1, 2007 have been made and consist only of normal recurring adjustments, except as otherwise described herein.  The results of operations for the three and nine months ended November 29, 2008 and December 1, 2007, are not indicative of results to be expected for the fiscal year because of, among other things, seasonality factors in the retail business.  Historically, the strongest sales of the Company’s products have occurred during the holiday season beginning in November and continuing through December.  The Company conducts business as one operating segment.  The classification of certain amounts previously reported in the consolidated statements of cash flows for the nine months ended December 1, 2007, has been modified to conform to the November 29, 2008 method of presentation.

 

Note 1 – Loss per share

 

Basic loss per share amounts were determined by dividing net loss by the weighted average number of common shares outstanding for the period.  Diluted loss per share amounts were similarly computed, but would have included the effect, if dilutive, of the Company’s weighted average number of stock options outstanding and shares of unvested restricted stock.  As the effect would have been antidilutive, all 12,933,535 and 13,724,660 stock options outstanding and shares of unvested restricted stock were excluded from the computation of the third quarter and year-to-date loss per share for fiscal 2009 and fiscal 2008, respectively.  Loss per share for the three and nine months ended November 29, 2008 and December 1, 2007 was calculated as follows (in thousands except per share amounts):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

November 29,

 

December 1,

 

November 29,

 

December 1,

 

 

 

2008

 

2007

 

2008

 

2007

 

 

 

 

 

 

 

 

 

 

 

Net loss, basic and diluted

 

$

(36,855

)

$

(9,962

)

$

(99,835

)

$

(109,749

)

 

 

 

 

 

 

 

 

 

 

Average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic and diluted

 

88,885

 

88,178

 

88,761

 

87,991

 

 

 

 

 

 

 

 

 

 

 

Net loss per share:

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.41

)

$

(0.11

)

$

(1.12

)

$

(1.25

)

 

7



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Note 2 – Comprehensive loss

 

The components of comprehensive loss for the three and nine months ended November 29, 2008 and December 1, 2007 were as follows (in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

November 29,

 

December 1,

 

November 29,

 

December 1,

 

 

 

2008

 

2007

 

2008

 

2007

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(36,855

)

$

(9,962

)

$

(99,835

)

$

(109,749

)

Currency translation adjustments

 

(2,223

)

202

 

(3,354

)

806

 

Pension adjustments

 

335

 

(871

)

1,101

 

(871

)

 

 

 

 

 

 

 

 

 

 

Total comprehensive loss

 

$

(38,743

)

$

(10,631

)

$

(102,088

)

$

(109,814

)

 

Note 3 – Stock-based compensation

 

The Company accounts for share-based compensation transactions in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123R”).  SFAS 123R requires all companies to measure and recognize compensation expense at an amount equal to the fair value of share-based payments granted under compensation arrangements.  The fair values for options granted during the respective periods were estimated as of the date of grant using the Black-Scholes option-pricing model and are amortized on a straight-line basis as compensation expense over the vesting periods of the options.  For the three and nine months ended November 29, 2008, the Company recorded stock-based compensation expense (benefit) related to stock options and restricted stock of ($287,000), or less than ($0.01) per share, and $4,215,000, or $0.05 per share, respectively.  For the three and nine months ended December 1, 2007, the Company recorded stock-based compensation expense related to stock options and restricted stock of $1,235,000, or $0.01 per share, and $4,416,000, or $0.05 per share, respectively.  During the third quarter of fiscal 2009, the Company reversed $1,420,000 in stock-based compensation expense related to a performance stock option grant, which was no longer considered probable to vest.  The Company recognized no net tax benefit related to stock-based compensation during the first nine months of fiscal 2009 or fiscal 2008 as a result of the Company’s valuation allowance on all deferred tax assets in both years.

 

During the third quarter of fiscal 2009, the Company granted 30,000 stock options with an exercise price of $4.24 and a grant date fair value of $2.27 per share.  As of November 29, 2008, there was approximately $3,345,000 of total unrecognized compensation expense related to unvested stock option awards that is expected to be recognized over a weighted average period of 2.24 years and $3,274,000 of total unrecognized compensation expense related to restricted stock that is expected to be recognized over a weighted average period of 1.96 years.  The above amounts of unrecognized compensation expense do not include performance-based grants of stock options and restricted stock which are not expected to vest.

 

Note 4 – Costs associated with exit activities

 

As part of the ordinary course of business, the Company terminates leases prior to their expiration when certain stores or distribution center facilities are closed or relocated as deemed necessary by the evaluation of its real estate portfolio.  These decisions are based on store profitability, lease renewal obligations, relocation space availability, local market conditions and prospects for future profitability. In connection with these lease terminations, the Company has recorded estimated liabilities in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.”  At the time of closure, neither the write-off

 

8



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

of fixed assets nor the write-down of inventory related to such stores was material.  Additionally, employee severance costs associated with these closures were not significant.  The estimated liabilities were recorded based upon the Company’s remaining lease obligations less estimated subtenant rental income.  Revisions during the periods presented related to changes in estimated buyout terms or subtenant receipts expected on closed facilities.  Expenses related to lease termination obligations are included in selling, general and administrative expenses in the Company’s consolidated statements of operations.  The following table represents a rollforward of the liability balances for the nine months ended November 29, 2008 and December 1, 2007 related to these closures (in thousands):

 

 

 

Nine Months Ended

 

 

 

November 29,

 

December 1,

 

 

 

2008

 

2007

 

 

 

 

 

 

 

Beginning of period

 

$

5,628

 

$

2,436

 

 

 

 

 

 

 

Original charges

 

3,839

 

11,442

 

Revisions

 

718

 

(451

)

Cash payments

 

(4,192

)

(4,595

)

 

 

 

 

 

 

End of period

 

$

5,993

 

$

8,832

 

 

Included in the table above are lease termination costs related to the closure of all of the Company’s clearance and Pier 1 Kids stores and the direct to consumer channel during fiscal 2008.  Revisions of the lease termination costs associated with these closures were $391,000 and $642,000, or less than $0.01 per share for each period, during the three and nine months ended November 29, 2008, respectively.  Cash outflows related to these lease terminations were $2,129,000 for fiscal 2009 year-to-date.

 

Note 5 – Asset impairment

 

The Company recorded impairment charges of $4,606,000, or $0.05 per share, during the third quarter and first nine months of fiscal 2009. The Company did not record any impairment charges during the third quarter of fiscal 2008, but recorded $4,164,000, or $0.05 per share, for the first nine months of fiscal 2008.  These impairment charges related to long-lived assets and intangible assets at underperforming stores and were based on future cash flow projections for those stores.  These cash flows were estimated based on management’s estimate of future sales, merchandise margins, and expenses over the remaining expected terms of the leases.  Estimates used in the third quarter were updated from those used in prior periods to incorporate actual results experienced during the quarter.  In the event that actual future results are worse than management’s current estimates, additional charges for asset impairments may be recorded and such charges could have a significant impact on the Company’s balance sheet and statement of operations.  These impairment charges were included in selling, general and administrative expenses.

 

9



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Note 6 – Long-term debt and available credit

 

Long-term debt is summarized as follows at November 29, 2008 and December 1, 2007 (in thousands):

 

 

 

November 29,

 

December 1,

 

 

 

2008

 

2007

 

 

 

 

 

 

 

Industrial revenue bonds

 

$

19,000

 

$

19,000

 

6.375% convertible senior notes

 

165,000

 

165,000

 

 

 

184,000

 

184,000

 

Less - portion due within one year

 

 

 

 

 

 

 

 

 

Long-term debt

 

$

184,000

 

$

184,000

 

 

The Company has $19,000,000 in industrial revenue bond loan agreements, which have been outstanding since 1987.  Proceeds were used to construct warehouse/distribution facilities.  The loan agreements and related tax-exempt bonds mature in the year 2026.  The Company’s interest rates on the loans are based on the bond interest rates, which are market driven, reset weekly and are similar to other tax-exempt municipal debt issues.

 

In February 2006, the Company issued $165,000,000 of 6.375% convertible senior notes due 2036 (the “Notes”) in a private placement, and subsequently registered the Notes with the Securities and Exchange Commission in June 2006.  The Notes are governed by an Indenture dated February 14, 2006 (the “Indenture”).  The Notes bear interest at a rate of 6.375% per year until February 15, 2011 and at a rate of 6.125% per year thereafter.  Interest is payable semiannually in arrears on February 15 and August 15 of each year, and commenced August 15, 2006.  The Notes are convertible into cash and, if applicable, shares of the Company’s common stock based on an initial conversion rate, subject to adjustments, of 65.8328 shares per $1,000 principal amount of Notes (which represents an initial conversion price of approximately $15.19 per share representing a 40% conversion premium at issuance).  Holders of the Notes may convert their Notes only under the following circumstances: (1) during any fiscal quarter (and only during such fiscal quarter) commencing after May 27, 2006, if the last reported sale price of the Company’s common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price on such last trading day; (2) if the Company has called the Notes for redemption; or (3) upon the occurrence of specified corporate transactions.  In general, upon conversion of a Note, a holder will receive cash equal to the lesser of the principal amount of the Note or the conversion value of the Note, plus common stock of the Company for any conversion value in excess of the principal amount.  The Company may redeem the Notes at its option on or after February 15, 2011 for cash at 100% of the principal amount.

 

The holders of the Notes can, at their option, require the Company to purchase all or a portion of their Notes at a repurchase price in cash equal to 100% of the principal amount of the repurchased Notes at February 15, 2011, February 15, 2016, February 15, 2021, February 15, 2026 and February 15, 2031, or if a fundamental change occurs.  “Fundamental change” is defined in the Indenture and will be deemed to have occurred upon (1) certain changes in beneficial ownership of the Company’s common equity as described in the Indenture, (2) certain share exchanges, consolidations, mergers, or asset transactions as described in the Indenture, (3) “Continuing Directors” as defined in the Indenture ceasing to constitute at least a majority of the Company’s board of directors, (4) the Company’s stockholders approving any plan or proposal for the Company’s liquidation or dissolution, or (5) the Company’s common stock ceasing to be listed on a national securities exchange or quoted on the Nasdaq National Market or another established automated over-the-counter trading market in the United States.

 

10



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The Company has a $325,000,000 secured credit facility, which matures in May 2012 and is secured by the Company’s eligible merchandise inventory, and third-party credit card receivables.  As of November 29, 2008, the Company had no outstanding cash borrowings and had utilized $93,000,000 in letters of credit and bankers’ acceptances.  Should the availability under this facility be less than $32,500,000, the Company will be required to comply with certain financial covenants as stated in the agreement.  The Company does not anticipate falling below this minimum availability in the foreseeable future.  As of November 29, 2008, the Company’s calculated borrowing base was $275,100,000.  After excluding the required minimum $32,500,000 and the $93,000,000 in utilized letters of credit and bankers’ acceptances from the borrowing base, $149,600,000 remained available for cash borrowings.  The Company was in compliance with required debt covenants stated in the agreement at the end of the third quarter of fiscal 2009.

 

Note 7 – Condensed financial statements

 

The Company’s 6.375% convertible senior notes (the “Notes”) are fully and unconditionally guaranteed, on a joint and several basis, by all of the Company’s material domestic consolidated subsidiaries (the “Guarantor Subsidiaries”).  The subsidiaries that do not guarantee such Notes are comprised of the Company’s foreign subsidiaries and certain other insignificant domestic consolidated subsidiaries (the “Non-Guarantor Subsidiaries”).  Each of the Guarantor Subsidiaries is wholly owned.  In lieu of providing separate audited financial statements for the Guarantor Subsidiaries, condensed consolidating financial information is presented below.

 

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS

Three Months Ended November 29, 2008

(in thousands)

(unaudited)

 

 

 

Pier 1
Imports, Inc.

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

298,856

 

$

3,790

 

$

(1,740

)

$

300,906

 

Cost of sales (including buying and store occupancy costs)

 

 

211,351

 

3,425

 

(1,761

)

213,015

 

Selling, general and administrative (including depreciation and amortization)

 

489

 

122,107

 

64

 

 

122,660

 

Operating income (loss)

 

(489

)

(34,602

)

301

 

21

 

(34,769

)

Nonoperating (income) expenses

 

(96

)

2,153

 

(159

)

 

1,898

 

Income (loss) before income taxes

 

(393

)

(36,755

)

460

 

21

 

(36,667

)

Provision for income taxes

 

 

188

 

 

 

188

 

Net income (loss) after income taxes

 

(393

)

(36,943

)

460

 

21

 

(36,855

)

Net income (loss) from subsidiaries

 

(36,483

)

460

 

 

36,023

 

 

Net income (loss)

 

$

(36,876

)

$

(36,483

)

$

460

 

$

36,044

 

$

(36,855

)

 

11



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS

Three Months Ended December 1, 2007

(in thousands)

(unaudited)

 

 

 

Pier 1
Imports, Inc.

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

372,020

 

$

11,760

 

$

(9,599

)

$

374,181

 

Cost of sales (including buying and store occupancy costs)

 

 

246,857

 

11,002

 

(9,573

)

248,286

 

Selling, general and administrative (including depreciation and amortization)

 

419

 

133,592

 

34

 

 

134,045

 

Operating income (loss)

 

(419

)

(8,429

)

724

 

(26

)

(8,150

)

Nonoperating (income) expenses

 

298

 

1,319

 

(156

)

 

1,461

 

Income (loss) before income taxes

 

(717

)

(9,748

)

880

 

(26

)

(9,611

)

Provision for income taxes

 

 

351

 

 

 

351

 

Net income (loss) after income taxes

 

(717

)

(10,099

)

880

 

(26

)

(9,962

)

Net income (loss) from subsidiaries

 

(9,219

)

880

 

 

8,339

 

 

Net income (loss)

 

$

(9,936

)

$

(9,219

)

$

880

 

$

8,313

 

$

(9,962

)

 

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS

Nine Months Ended November 29, 2008

(in thousands)

(unaudited)

 

 

 

Pier 1
Imports, Inc.

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

925,124

 

$

11,641

 

$

(5,345

)

$

931,420

 

Cost of sales (including buying and store occupancy costs)

 

 

664,897

 

10,624

 

(5,733

)

669,788

 

Selling, general and administrative (including depreciation and amortization)

 

3,199

 

351,904

 

158

 

 

355,261

 

Operating income (loss)

 

(3,199

)

(91,677

)

859

 

388

 

(93,629

)

Nonoperating (income) expenses

 

(1,285

)

7,198

 

(344

)

 

5,569

 

Income (loss) before income taxes

 

(1,914

)

(98,875

)

1,203

 

388

 

(99,198

)

Provision for income taxes

 

 

627

 

10

 

 

637

 

Net income (loss) after income taxes

 

(1,914

)

(99,502

)

1,193

 

388

 

(99,835

)

Net income (loss) from subsidiaries

 

(98,309

)

1,193

 

 

97,116

 

 

Net income (loss)

 

$

(100,223

)

$

(98,309

)

$

1,193

 

$

97,504

 

$

(99,835

)

 

12



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS

Nine Months Ended December 1, 2007

(in thousands)

(unaudited)

 

 

 

Pier 1
Imports, Inc.

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

1,070,012

 

$

29,828

 

$

(24,718

)

$

1,075,122

 

Cost of sales (including buying and store occupancy costs)

 

 

771,628

 

27,770

 

(24,873

)

774,525

 

Selling, general and administrative (including depreciation and amortization)

 

1,362

 

403,112

 

154

 

 

404,628

 

Operating income (loss)

 

(1,362

)

(104,728

)

1,904

 

155

 

(104,031

)

Nonoperating (income) expenses

 

(1,355

)

5,227

 

(477

)

 

3,395

 

Income (loss) before income taxes

 

(7

)

(109,955

)

2,381

 

155

 

(107,426

)

Provision for income taxes

 

 

2,117

 

206

 

 

2,323

 

Net income (loss) after income taxes

 

(7

)

(112,072

)

2,175

 

155

 

(109,749

)

Net income (loss) from subsidiaries

 

(109,897

)

2,175

 

 

107,722

 

 

Net income (loss)

 

$

(109,904

)

$

(109,897

)

$

2,175

 

$

107,877

 

$

(109,749

)

 

13



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

CONSOLIDATING CONDENSED BALANCE SHEET

November 29, 2008

(in thousands)

(unaudited)

 

 

 

Pier 1
Imports, Inc.

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

43,081

 

$

51,804

 

$

22,553

 

$

 

$

117,438

 

Accounts receivable, net

 

3

 

20,988

 

1,785

 

 

22,776

 

Inventories

 

 

398,724

 

 

 

398,724

 

Income tax receivable

 

 

2,329

 

459

 

 

2,788

 

Prepaid expenses and other current assets

 

124

 

45,975

 

 

 

46,099

 

Total current assets

 

43,208

 

519,820

 

24,797

 

 

587,825

 

 

 

 

 

 

 

 

 

 

 

 

 

Office building and related assets

 

 

 

 

 

 

Other properties, net

 

 

92,215

 

3,762

 

 

95,977

 

Investment in subsidiaries

 

45,381

 

45,182

 

 

(90,563

)

 

Other noncurrent assets

 

5,791

 

32,864

 

 

 

38,655

 

 

 

$

94,380

 

$

690,081

 

$

28,559

 

$

(90,563

)

$

722,457

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

15

 

$

98,258

 

$

99

 

$

 

$

98,372

 

Intercompany payable (receivable)

 

(245,445

)

262,109

 

(16,664

)

 

 

Gift cards and other deferred revenue

 

 

51,407

 

 

 

51,407

 

Accrued income taxes payable (receivable)

 

48

 

5,218

 

(143

)

 

5,123

 

Other accrued liabilities

 

3,163

 

110,197

 

85

 

 

113,445

 

Total current liabilities

 

(242,219

)

527,189

 

(16,623

)

 

268,347

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

165,000

 

19,000

 

 

 

184,000

 

Other noncurrent liabilities

 

 

98,511

 

 

 

98,511

 

Shareholders’ equity

 

171,599

 

45,381

 

45,182

 

(90,563

)

171,599

 

 

 

$

94,380

 

$

690,081

 

$

28,559

 

$

(90,563

)

$

722,457

 

 

14



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

CONSOLIDATING CONDENSED BALANCE SHEET

March 1, 2008

(in thousands)

(unaudited)

 

 

 

Pier 1
Imports, Inc.

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

53,030

 

$

26,824

 

$

13,579

 

$

 

$

93,433

 

Accounts receivable, net

 

5

 

21,607

 

1,509

 

 

23,121

 

Inventories

 

 

411,709

 

 

 

411,709

 

Income tax receivable

 

 

13,251

 

381

 

 

13,632

 

Prepaid expenses and other current assets

 

78

 

41,367

 

 

 

41,445

 

Total current assets

 

53,113

 

514,758

 

15,469

 

 

583,340

 

 

 

 

 

 

 

 

 

 

 

 

 

Office building and related assets

 

 

80,539

 

 

 

80,539

 

Other properties, net

 

 

111,112

 

3,840

 

 

114,952

 

Investment in subsidiaries

 

145,555

 

43,354

 

 

(188,909

)

 

Other noncurrent assets

 

6,588

 

36,485

 

 

 

43,073

 

 

 

$

205,256

 

$

786,248

 

$

19,309

 

$

(188,909

)

$

821,904

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

126

 

$

104,900

 

$

1,058

 

$

 

$

106,084

 

Intercompany payable (receivable)

 

(228,310

)

253,339

 

(25,029

)

 

 

Gift cards and other deferred revenue

 

 

63,101

 

 

 

63,101

 

Accrued income taxes payable (receivable)

 

48

 

5,065

 

(113

)

 

5,000

 

Other accrued liabilities

 

648

 

101,130

 

39

 

 

101,817

 

Total current liabilities

 

(227,488

)

527,535

 

(24,045

)

 

276,002

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

165,000

 

19,000

 

 

 

184,000

 

Other noncurrent liabilities

 

 

94,158

 

 

 

94,158

 

Shareholders’ equity

 

267,744

 

145,555

 

43,354

 

(188,909

)

267,744

 

 

 

$

205,256

 

$

786,248

 

$

19,309

 

$

(188,909

)

$

821,904

 

 

15



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

CONSOLIDATING CONDENSED BALANCE SHEET

December 1, 2007

(in thousands)

(unaudited)

 

 

 

Pier 1
Imports, Inc.

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

16,102

 

$

54,359

 

$

12,191

 

$

 

$

82,652

 

Accounts receivable, net

 

2

 

26,183

 

2,039

 

 

28,224

 

Inventories

 

 

432,782

 

 

 

432,782

 

Income tax receivable

 

 

13,822

 

328

 

 

14,150

 

Prepaid expenses and other current assets

 

 

47,093

 

 

 

47,093

 

Total current assets

 

16,104

 

574,239

 

14,558

 

 

604,901

 

 

 

 

 

 

 

 

 

 

 

 

 

Office building and related assets

 

 

81,698

 

 

 

81,698

 

Other properties, net

 

 

118,471

 

3,866

 

 

122,337

 

Investment in subsidiaries

 

134,072

 

42,953

 

 

(177,025

)

 

Other noncurrent assets

 

6,853

 

37,787

 

 

 

44,640

 

 

 

$

157,029

 

$

855,148

 

$

18,424

 

$

(177,025

)

$

853,576

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

37

 

$

137,347

 

$

1,487

 

$

 

$

138,871

 

Intercompany payable (receivable)

 

(264,965

)

290,864

 

(25,899

)

 

 

Gift cards and other deferred revenue

 

 

63,051

 

 

 

63,051

 

Accrued income taxes payable (receivable)

 

48

 

3,299

 

(147

)

 

3,200

 

Other accrued liabilities

 

3,241

 

109,024

 

30

 

 

112,295

 

Total current liabilities

 

(261,639

)

603,585

 

(24,529

)

 

317,417

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

165,000

 

19,000

 

 

 

184,000

 

Other noncurrent liabilities

 

 

98,491

 

 

 

98,491

 

Shareholders’ equity

 

253,668

 

134,072

 

42,953

 

(177,025

)

253,668

 

 

 

$

157,029

 

$

855,148

 

$

18,424

 

$

(177,025

)

$

853,576

 

 

16



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS

Nine Months Ended November 29, 2008

(in thousands)

(unaudited)

 

 

 

Pier 1

 

Guarantor

 

Non-Guarantor

 

 

 

 

 

 

 

Imports, Inc.

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Total

 

Cash flow from operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

5,458

 

$

(76,708

)

$

359

 

$

 

$

(70,891

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow from investing activities:

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(11,326

)

 

 

(11,326

)

Proceeds from disposition of properties

 

 

102,455

 

 

 

102,455

 

Proceeds from sale of restricted investments

 

 

1,483

 

 

 

1,483

 

Purchase of restricted investments

 

 

(944

)

 

 

(944

)

Collections of note receivable

 

 

1,500

 

 

 

1,500

 

Capitalization of subsidiary

 

 

(250

)

250

 

 

 

Net cash provided by investing activities

 

 

92,918

 

250

 

 

93,168

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow from financing activities:

 

 

 

 

 

 

 

 

 

 

 

Proceeds from stock options exercised, stock purchase plan and other, net

 

1,728

 

 

 

 

1,728

 

Advances (to) from subsidiaries

 

(17,135

)

8,770

 

8,365

 

 

 

Net cash (used in) provided by financing activities

 

(15,407

)

8,770

 

8,365

 

 

1,728

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in cash and cash equivalents

 

(9,949

)

24,980

 

8,974

 

 

24,005

 

Cash and cash equivalents at beginning of period

 

53,030

 

26,824

 

13,579

 

 

93,433