Form 10-Q
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 May 29, 2010

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 001-07832

 

PIER 1 IMPORTS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

   

75-1729843

(State or other jurisdiction of
incorporation or organization)
   

(I.R.S. Employer

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 [    ].

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes [    ]  No [    ]

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             

    Accelerated filer     X    

Non-accelerated filer             

  (Do not check if a smaller reporting company)   Smaller reporting company             

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

As of June 29, 2010, 117,156,985 shares of the registrant’s common stock, $0.001 par value, were outstanding.


Table of Contents

PIER 1 IMPORTS, INC.

INDEX TO QUARTERLY FORM 10-Q

 

PART I. FINANCIAL INFORMATION

   Page

Item 1.    Financial Statements

  

Consolidated Statements of Operations for the Three Months Ended May 29, 2010 and May 30, 2009

   3

Consolidated Balance Sheets as of May 29, 2010, February 27, 2010 and May 30, 2009

   4

Consolidated Statements of Cash Flows for the Three Months Ended May 29, 2010 and May 30, 2009

   5

Consolidated Statement of Shareholders’ Equity for the Three Months Ended May 29, 2010

   6

Notes to Consolidated Financial Statements

   7

Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations

   18

Item 3.     Quantitative and Qualitative Disclosures about Market Risk

   25

Item 4.     Controls and Procedures

   25

PART II. OTHER INFORMATION

  

Item 1.      Legal Proceedings

   25

Item 1A.  Risk Factors

   25

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

   25

Item 3.     Defaults upon Senior Securities

   26

Item 4.     Reserved

   26

Item 5.     Other Information—Submission of Matters to a Vote of Security Holders

   26

Item 6.     Exhibits

   27

Signatures

   28

 

2


Table of Contents

PART I

 

Item 1. Financial Statements.

PIER 1 IMPORTS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except per share amounts)

(unaudited)

 

     Three Months Ended  
     May 29,
2010
    May 30,
2009
 

Net sales

   $ 306,259      $ 281,130   

Operating costs and expenses:

    

Cost of sales (including buying and store occupancy costs)

     191,862        196,316   

Selling, general and administrative expenses

     101,052        105,557   

Depreciation and amortization

     5,079        5,961   
                
     297,993        307,834   
                

Operating income (loss)

     8,266        (26,704

Nonoperating (income) and expenses:

    

Interest and investment income

     (348     (527

Interest expense

     1,442        2,937   

Gain on repurchase of debt

     -        (47,832

Other income

     (688     (10,409
                
     406        (55,831
                

Income before income taxes

     7,860        29,127   

Income tax provision (benefit)

     190        (187
                

Net income

   $ 7,670      $ 29,314   
                

Earnings per share:

    

Basic

   $ 0.07      $ 0.32   
                

Diluted

   $ 0.07      $ 0.32   
                

Average shares outstanding during period:

    

Basic

     116,197        91,113   
                

Diluted

     116,921        91,113   
                

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

 

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PIER 1 IMPORTS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands except share amounts)

(unaudited)

 

     May 29,
2010
    February 27,
2010
    May 30,
2009
 

ASSETS

  

Current assets:

      

Cash and cash equivalents, including temporary investments of $164,448, $176,503 and $124,880, respectively

   $ 204,828      $ 187,912      $ 135,848   

Accounts receivable, net of allowance for doubtful accounts of $2,416, $2,516 and $1,337, respectively

     17,301        14,701        16,169   

Inventories

     303,193        313,496        294,181   

Income tax receivable

     539        561        2,481   

Prepaid expenses and other current assets

     37,303        37,157        40,867   
                        

Total current assets

     563,164        553,827        489,546   

Properties, net of accumulated depreciation of $445,017, $439,662 and $426,656, respectively

     56,518        55,837        69,497   

Other noncurrent assets

     33,373        33,310        34,114   
                        
   $ 653,055      $ 642,974      $ 593,157   
                        

LIABILITIES AND SHAREHOLDERS’ EQUITY

  

Current liabilities:

      

Accounts payable

   $ 74,969      $ 65,344      $ 61,083   

Current portion long-term debt

     25,971        16,435        -   

Gift cards and other deferred revenue

     44,098        44,356        45,394   

Accrued income taxes payable

     1,856        4,967        4,500   

Other accrued liabilities

     99,707        106,073        106,834   
                        

Total current liabilities

     246,601        237,175        217,811   

Long-term debt

     9,500        19,000        103,771   

Other noncurrent liabilities

     82,271        83,665        91,575   

Shareholders’ equity:

      

Common stock, $0.001 par, 500,000,000 shares authorized, 125,232,000, 125,232,000 and 100,779,000 issued, respectively

     125        125        101   

Paid-in capital

     245,831        264,477        207,713   

Retained earnings

     201,358        193,688        136,155   

Cumulative other comprehensive income (loss)

     (603     (699     866   

Less — 8,269,000, 9,645,000 and 10,291,000 common shares in treasury, at cost, respectively

     (132,028     (154,457     (164,835
                        
     314,683        303,134        180,000   

Commitments and contingencies

     -        -        -   
                        
   $ 653,055      $ 642,974      $ 593,157   
                        

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

 

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PIER 1 IMPORTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

     Three Months Ended  
     May 29,
2010
    May 30,
2009
 

Cash flow from operating activities:

    

Net income

   $ 7,670      $ 29,314   

Adjustments to reconcile to net cash provided by operating activities:

    

Depreciation and amortization

     7,578        8,399   

(Gain)/loss on disposal of fixed assets

     (1,650     168   

Stock-based compensation expense

     1,392        1,236   

Deferred compensation

     1,046        1,221   

Lease termination expense

     450        4,585   

Amortization of deferred gains

     (1,894     (1,979

Gain on repurchase of convertible bonds

     -        (47,832

Other

     662        2,263   

Changes in cash from:

    

Inventories

     10,303        22,150   

Accounts receivable, prepaid expenses and other current assets

     (14,163     10,273   

Income tax receivable

     22        (332

Accounts payable and accrued expenses

     2,116        (21,293

Accrued income taxes payable

     (3,111     66   

Defined benefit plan liabilities

     (29     (1,696

Other noncurrent assets

     (89     (470

Other noncurrent liabilities

     (1     (19
                

Net cash provided by operating activities

     10,302        6,054   
                

Cash flow from investing activities:

    

Capital expenditures

     (6,337     (395

Proceeds from disposition of properties

     10,560        678   

Proceeds from sale of restricted assets

     756        3,317   

Purchase of restricted investments

     (756     (3,074
                

Net cash provided by investing activities

     4,223        526   
                

Cash flow from financing activities:

    

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

     2,391        310   

Repurchase of convertible bonds

     -        (26,840
                

Net cash provided by (used in) financing activities

     2,391        (26,530
                

Change in cash and cash equivalents

     16,916        (19,950

Cash and cash equivalents at the beginning of the period

     187,912        155,798   
                

Cash and cash equivalents at the end of the period

   $ 204,828      $ 135,848   
                

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

 

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PIER 1 IMPORTS, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MAY 29, 2010

(in thousands)

(unaudited)

 

     Common Stock    Paid-in
Capital
    Retained
Earnings
   Cumulative
Other
Comprehensive
Income (Loss)
    Treasury
Stock
    Total
Shareholders'
Equity
 
     Outstanding
Stock
   Amount            

Balance February 27, 2010

   115,587    $ 125    $ 264,477      $ 193,688    $ (699   $ (154,457   $ 303,134   

Comprehensive income:

                 

Net income

   -      -      -        7,670      -        -        7,670   

Other comprehensive income:

                 

Pension adjustments

   -      -      -        -      137        -        137   

Currency translation adjustments

   -      -      -        -      (41     -        (41
                       

Comprehensive income

                    7,766   
                       

Restricted stock compensation

   997      -      (14,942     -      -        15,963        1,021   

Stock option compensation expense

   -      -      371        -      -        -        371   

Exercise of stock options, directors deferred and other

   379      -      (4,075     -      -        6,466        2,391   
                                                   

Balance May 29, 2010

   116,963    $ 125    $ 245,831      $ 201,358    $ (603   $ (132,028   $ 314,683   
                                                   

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

 

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PIER 1 IMPORTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MAY 29, 2010 AND May 30, 2009

(unaudited)

Throughout this report, references to the “Company” include Pier 1 Imports, Inc. and its consolidated subsidiaries. The accompanying unaudited financial statements should be read in conjunction with the Company’s Form 10-K for the year ended February 27, 2010. All adjustments that are, in the opinion of management, necessary for a fair presentation of the financial position as of May 29, 2010, and the results of operations and cash flows for the three months ended May 29, 2010 and May 30, 2009 have been made and consist only of normal recurring adjustments, except as otherwise described herein. During fiscal 2010, the par value of the Company’s common stock was reduced to $0.001 per share. The change was reflected on the Company’s balance sheet by a reduction in the common stock account and a corresponding increase in the paid-in capital account. All periods presented have been adjusted to reflect the par value change. As of May 29, 2010, the Company had no financial instruments with fair market values that were materially different from their carrying values.

The results of operations for the three months ended May 29, 2010 and May 30, 2009 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.

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 dilutive effect of the Company’s weighted average number of stock options outstanding and shares of unvested restricted stock. 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. There were 5,194,000 and 11,494,000, stock options outstanding with exercise prices greater than the average market price of the Company’s common shares as of May 29, 2010 and May 30, 2009, respectively. Earnings per share for the three months ended May 29, 2010 and May 30, 2009 was calculated as follows (in thousands except per share amounts):

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

     Three Months Ended
     May 29,
2010
   May 30,
2009

Net income, basic and diluted

   $ 7,670    $ 29,314
             

Average shares outstanding during period:

     

Basic

     116,197      91,113

Effect of dilutive stock options

     278      -

Effect of dilutive restricted stock

     446      -
             

Diluted

     116,921      91,113
             

Earnings per share:

     

Basic

   $ 0.07    $ 0.32
             

Diluted

   $ 0.07    $ 0.32
             

Note 2 – Comprehensive income

The components of comprehensive income for the three months ended May 29, 2010 and May 30, 2009 were as follows (in thousands):

 

     Three Months Ended
     May 29,
2010
    May 30,
2009

Net income

   $ 7,670      $ 29,314

Currency translation adjustments

     (41     1,560

Pension adjustments

     137        501
              

Comprehensive income

   $ 7,766      $ 31,375
              

Note 3 – Stock-based compensation

For the three months ended May 29, 2010, the Company recorded stock-based compensation expense related to stock options and restricted stock of $1,392,000, or $0.01 per share. For the three months ended May 30, 2009, the Company recorded stock-based compensation expense related to stock options and restricted stock of $1,236,000, or $0.01 per share. The Company recognized no net tax benefit related to stock-based compensation during the first three months of fiscal 2011 or fiscal 2010 as a result of the Company’s valuation allowance on all deferred tax assets in both years.

During the first quarter of fiscal 2011, the Company granted 648,500 shares of restricted stock, of which 342,750 shares are service-based and will be expensed over a three-year service period. The remaining 305,750 shares are performance-based and will be expensed over a three-year period if the Company achieves certain performance targets as determined by the Compensation Committee for fiscal years 2011, 2012, and 2013. The 342,750 service-based awards and 100,875 of the performance-based awards have a weighted average grant date fair value of $8.64, which was determined based on the closing stock price on the date of the grant. A grant date fair value for the remaining 204,875 performance-based awards will be established at a future date when performance targets are set for fiscal years 2012 and 2013. The Company also granted 62,500 performance-based shares to the chief executive officer in accordance with the renewal and extension of his employment agreement dated December 15, 2009. The shares have a grant date fair value of $6.50 and will vest if certain performance targets are met by the Company for fiscal

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

2011. As of May 29, 2010, there was approximately $1,152,000 of total unrecognized compensation expense related to unvested stock option awards that is expected to be recognized over a weighted average period of 1.5 years and $8,317,000 of total unrecognized compensation expense related to restricted stock that is expected to be recognized over a weighted average period of 2.8 years.

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 to cover the termination costs. At the time of closure, neither the write-off 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 three months ended May 29, 2010 and May 30, 2009 related to these closures (in thousands):

 

     Three Months Ended  
     May 29,
2010
    May 30,
2009
 

Beginning of period

   $ 4,901      $ 4,998   

Original charges

     148        3,830   

Revisions

     302        755   

Cash payments

     (834     (3,276
                

End of period

   $ 4,517      $ 6,307   
                

Note 5 – Condensed financial statements

The Company’s 6.375% convertible senior notes due 2036 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 financial statements for the Guarantor Subsidiaries, condensed consolidating financial information is presented below.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS

Three Months Ended May 29, 2010

(in thousands)

(unaudited)

 

     Pier 1
Imports,
Inc.
    Guarantor
Subsidiaries
   Non-
Guarantor
Subsidiaries
    Eliminations     Total

Net sales

   $ -      $ 303,982    $ 2,277      $ -      $ 306,259

Cost of sales (including buying and store occupancy costs)

     -        189,920      1,942        -        191,862

Selling, general and administrative (including depreciation and amortization)

     408        105,694      29        -        106,131
                                     

Operating income (loss)

     (408     8,368      306        -        8,266

Nonoperating (income) expense

     (2,380     2,787      (1     -        406
                                     

Income before income taxes

     1,972        5,581      307        -        7,860

Provision for income taxes

     -        160      30        -        190
                                     

Net income after income taxes

     1,972        5,421      277        -        7,670

Net income (loss) from subsidiaries

     5,698        277      -        (5,975     -
                                     

Net income (loss)

   $ 7,670      $ 5,698    $ 277      $ (5,975   $ 7,670
                                     

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS

Three Months Ended May 30, 2009

(in thousands)

(unaudited)

 

     Pier 1
Imports,
Inc.
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Total  

Net sales

   $ -      $ 279,988      $ 2,122      $ (980   $ 281,130   

Cost of sales (including buying and store occupancy costs)

     -        195,497        1,843        (1,024     196,316   

Selling, general and administrative (including depreciation and amortization)

     440        111,033        45        -        111,518   
                                        

Operating income (loss)

     (440     (26,542     234        44        (26,704

Nonoperating income

     (310     (6,767     (922     (47,832     (55,831
                                        

Income (loss) before income taxes

     (130     (19,775     1,156        47,876        29,127   

Provision (benefit) for income taxes

     -        (210     23        -        (187
                                        

Net income (loss) after income taxes

     (130     (19,565     1,133        47,876        29,314   

Net income (loss) from subsidiaries

     (18,432     1,133        -        17,299        -   
                                        

Net income (loss)

   $ (18,562   $ (18,432   $ 1,133      $ 65,175      $ 29,314   
                                        

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

CONSOLIDATING CONDENSED BALANCE SHEET

May 29, 2010

(in thousands)

(unaudited)

 

     Pier 1
Imports, Inc.
    Guarantor
Subsidiaries
   Non-
Guarantor
Subsidiaries
    Eliminations     Total

ASSETS

           

Current assets:

           

Cash and cash equivalents

   $ 40,579      $ 161,879    $ 2,370      $ -      $ 204,828

Accounts receivable, net

     -        15,219      2,082        -        17,301

Inventories

     -        303,193      -        -        303,193

Income tax receivable

     -        539      -        -        539

Prepaid expenses and other current assets

     813        36,490      -        -        37,303
                                     

Total current assets

     41,392        517,320      4,452        -        563,164

Properties, net

     -        52,911      3,607        -        56,518

Investment in subsidiaries

     75,543        16,781      -        (92,324     -

Other noncurrent assets

     3,522        29,851      -        -        33,373
                                     
   $ 120,457      $ 616,863    $ 8,059      $ (92,324   $ 653,055
                                     

LIABILITIES AND SHAREHOLDERS’ EQUITY

           

Current liabilities:

           

Accounts payable

   $ 55      $ 74,884    $ 30      $ -      $ 74,969

Intercompany payable (receivable)

     (210,917     219,901      (8,984     -        -

Current portion long-term debt

     16,471        9,500          25,971

Gift cards and other deferred revenue

     -        44,098      -        -        44,098

Accrued income taxes payable

     -        1,856      -        -        1,856

Other accrued liabilities

     165        99,310      232        -        99,707
                                     

Total current liabilities

     (194,226     449,549      (8,722     -        246,601

Long-term debt

     -        9,500      -        -        9,500

Other noncurrent liabilities

     -        82,271      -        -        82,271

Shareholders’ equity

     314,683        75,543      16,781        (92,324     314,683
                                     
   $ 120,457      $ 616,863    $ 8,059      $ (92,324   $ 653,055
                                     

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

CONSOLIDATING CONDENSED BALANCE SHEET

February 27, 2010

(in thousands)

 

    Pier 1
Imports, Inc.
    Guarantor
Subsidiaries
  Non-
Guarantor
Subsidiaries
    Eliminations     Total

ASSETS

         

Current assets:

         

Cash and cash equivalents

  $ 38,433      $ 147,233   $ 2,246      $ -      $ 187,912

Accounts receivable, net

    -        13,011     1,690        -        14,701

Inventories

    -        313,496     -        -        313,496

Income tax receivable

    -        79     482        -        561

Prepaid expenses and other current assets

    97        37,060     -        -        37,157
                                   

Total current assets

    38,530        510,879     4,418        -        553,827

Properties, net

    -        52,204     3,633        -        55,837

Investment in subsidiaries

    69,750        16,985     -        (86,735     -

Other noncurrent assets

    3,548        29,762     -        -        33,310
                                   
  $ 111,828      $ 609,830   $ 8,051      $ (86,735   $ 642,974
                                   

LIABILITIES AND SHAREHOLDERS’ EQUITY

         

Current liabilities:

         

Accounts payable

  $ 223      $ 65,081   $ 40      $ -      $ 65,344

Intercompany payable (receivable)

    (207,865     217,029     (9,164     -        -

Current portion long-term debt

    16,435        -     -        -        16,435

Gift cards and other deferred revenue

    -        44,356     -        -        44,356

Accrued income taxes payable (receivable)

    -        5,001     (34     -        4,967

Other accrued liabilities

    (99     105,948     224        -        106,073
                                   

Total current liabilities

    (191,306     437,415     (8,934     -        237,175

Long-term debt

    -        19,000     -        -        19,000

Other noncurrent liabilities

    -        83,665     -        -        83,665

Shareholders’ equity

    303,134        69,750     16,985        (86,735     303,134
                                   
  $ 111,828      $ 609,830   $ 8,051      $ (86,735   $ 642,974
                                   

 

13


Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

CONSOLIDATING CONDENSED BALANCE SHEET

May 30, 2009

(in thousands)

(unaudited)

 

    Pier 1
Imports, Inc.
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Total

ASSETS

         

Current assets:

         

Cash and cash equivalents

  $ 60,512      $ 72,562      $ 2,774      $ -      $ 135,848

Accounts receivable, net

    -        15,220        949        -        16,169

Inventories

    -        294,099        82        -        294,181

Income tax receivable

    -        1,999        482        -        2,481

Prepaid expenses and other current assets

    948        39,919        -        -        40,867
                                     

Total current assets

    61,460        423,799        4,287        -        489,546

Properties, net

    -        65,786        3,711        -        69,497

Investment in subsidiaries

    (202     46,439        -        (46,237     -

Other noncurrent assets

    2,984        29,723        1,407        -        34,114
                                     
  $ 64,242      $ 565,747      $ 9,405      $ (46,237   $ 593,157
                                     

LIABILITIES AND SHAREHOLDERS’ EQUITY

         

Current liabilities:

         

Accounts payable

  $ 77      $ 60,785      $ 221      $ -      $ 61,083

Intercompany payable (receivable)

    (229,255     239,575        (10,320     -        -

Gift cards and other deferred revenue

    -        45,394        -        -        45,394

Accrued income taxes payable (receivable)

    48        4,618        (166     -        4,500

Other accrued liabilities

    1,761        105,002        71        -        106,834
                                     

Total current liabilities

    (227,369     455,374        (10,194     -        217,811

Long-term debt

    159,443        19,000        (26,840     (47,832     103,771

Other noncurrent liabilities

    -        91,575        -        -        91,575

Shareholders’ equity

    132,168        (202     46,439        1,595        180,000
                                     
  $ 64,242      $ 565,747      $ 9,405      $ (46,237   $ 593,157
                                     

 

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Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS

Three Months Ended May 29, 2010

(in thousands)

(unaudited)

 

     Pier 1
Imports, Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations    Total  

Cash flow from operating activities:

           

Net cash provided by (used in) operating activities

   $ 2,806      $ 7,551      $ (55   $ -    $ 10,302   

Cash flow from investing activities:

           

Capital expenditures

     -        (6,337     -        -      (6,337

Proceeds from disposition of properties

     -        10,560        -        -      10,560   

Proceeds from sale of restricted investments

     -        756        -        -      756   

Purchase of restricted investments

     -        (756     -        -      (756
                                       

Net cash provided by investing activities

     -        4,223        -        -      4,223   

Cash flow from financing activities:

           

Proceeds from stock options exercised and other, net

     2,391        -        -        -      2,391   

Advances (to) from subsidiaries

     (3,051     2,872        179        -      -   
                                       

Net cash (used in) provided by financing activities

     (660     2,872        179        -      2,391   

Change in cash and cash equivalents

     2,146        14,646        124        -      16,916   

Cash and cash equivalents at beginning of period

     38,433        147,233        2,246        -      187,912   
                                       

Cash and cash equivalents at end of period

   $ 40,579      $ 161,879      $ 2,370      $ -    $ 204,828   
                                       

 

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Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS

Three Months Ended May 30, 2009

(in thousands)

(unaudited)

 

     Pier 1
Imports, Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations    Total  

Cash flow from operating activities:

           

Net cash provided by operating activities

   $ 1,175      $ 4,226      $ 653      $ -    $ 6,054   

Cash flow from investing activities:

           

Capital expenditures

     -        (395     -        -      (395

Proceeds from disposition of properties

     -        678        -        -      678   

Proceeds from sale of restricted investments

     -        3,317        -        -      3,317   

Purchase of restricted investments

     -        (3,074     -        -      (3,074
                                       

Net cash provided by investing activities

     -        526        -        -      526   

Cash flow from financing activities:

           

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

     310        -        -        -      310   

Advances (to) from subsidiaries

     (2,621     5,411        (2,790     -      -   

Repurchase of convertible bonds

     -        -        (26,840     -      (26,840
                                       

Net cash (used in) provided by financing activities

     (2,311     5,411        (29,630     -      (26,530

Change in cash and cash equivalents

     (1,136     10,163        (28,977     -      (19,950

Cash and cash equivalents at beginning of period

     61,648        62,399        31,751        -      155,798   
                                       

Cash and cash equivalents at end of period

   $ 60,512      $ 72,562      $ 2,774      $ -    $ 135,848   
                                       

Note 6 – Defined benefit plans

The Company maintains supplemental retirement plans (the “Plans”) for certain of its executive officers. The Plans provide that upon death, disability, reaching retirement age, or certain termination events, a participant will receive benefits based on highest compensation, years of service and years of plan participation. Benefit costs are determined using actuarial cost methods to estimate the total benefits ultimately payable to executive officers and this cost is allocated to the respective service periods.

The Plans are not funded and thus have no plan assets. The actuarial assumptions used to calculate benefit costs are reviewed annually, or in the event of a material change in the Plans or participation in the Plans. The components of net periodic benefit costs for the three months ended May 29, 2010 and May 30, 2009 were as follows (in thousands):

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

     Three Months Ended
     May 29,
2010
   May 30,
2009

Components of net periodic benefits cost:

     

Service cost

   $ 271    $ 224

Interest cost

     185      191

Amortization of unrecognized prior service costs

     102      103

Amortization of net actuarial loss

     13      5

Settlement charge

     -      40

Curtailment charge

     -      353
             

Net periodic benefit cost

   $ 571    $ 916
             

Note 7 – Nonoperating income and expense

During the first quarter of fiscal 2010, a foreign subsidiary of the Company purchased $78,941,000 of the Company’s outstanding 6.375% convertible senior notes due 2036 in privately negotiated transactions at a purchase price of $27,399,000, including accrued interest. The Company recognized a gain of approximately $48,000,000 in connection with this transaction.

Other income during the first quarter of fiscal 2010 was primarily related to the recovery of $10,000,000 as a result of a foreign litigation settlement.

Note 8 – Income taxes

The Company continues to provide a valuation allowance against all deferred tax assets. As a result, the Company did not record any current or deferred federal tax benefit or expense on its operations for the first quarter of fiscal 2011. Minimal provisions for state and foreign income tax were made during the period.

Note 9 – Subsequent event

During the first quarter of fiscal 2011, the Company sold its distribution center near Chicago, Illinois for a purchase price of $11,800,000 and recorded a gain of approximately $1,600,000 related to this transaction, which was included in selling, general and administrative expenses. On July 1, 2010, the Company repaid $9,500,000 of industrial revenue bonds related to the distribution center with proceeds received from the sale. The $9,500,000 in bonds was classified as a current liability as of May 29, 2010.

 

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Table of Contents

PART I

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of financial condition, results of operations, and liquidity and capital resources should be read in conjunction with the Company’s consolidated financial statements as of February 27, 2010, and for the year then ended, and related Notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations, all contained in the Company’s Annual Report on Form 10-K for the year ended February 27, 2010.

Management Overview

Pier 1 Imports, Inc. (together with its consolidated subsidiaries, the “Company”) is a global importer and is one of North America’s largest specialty retailers of imported decorative home furnishings and gifts. The Company directly imports merchandise from many countries and sells a wide variety of decorative accessories, furniture collections, bed and bath products, candles, housewares and other seasonal assortments in its stores. The results of operations for the three months ended May 29, 2010 and May 30, 2009 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 and operates stores in the United States and Canada under the name Pier 1 Imports. As of May 29, 2010, the Company operated 1,050 stores in the United States and Canada.

During the first quarter of fiscal 2011, the Company experienced first quarter operating income for the first time in six years, primarily as a result of an increase in comparable store sales, improved merchandise margins, well-managed inventory and controlled expenses.

Comparable store sales for the first three months of fiscal 2011 increased 14.3% compared to a decline of 7.5% in fiscal 2010, primarily as a result of increases in store traffic, conversion rate and average ticket. Helping to drive the improvement in sales was an increase in total sales on the Company’s privately branded loyalty card. During the first quarter of fiscal 2011, sales on the Pier 1 rewards card increased to 25.9% of U.S. store sales from 25.2% in fiscal 2010. Management believes that the Company’s results will continue to improve as a result of its merchandise assortments, the improved in-store experience and the strong focus placed on the customer.

The Company’s merchandise margins improved to 58.6% during the first quarter of fiscal 2011 compared to 54.2% for the same period last year. The increase in margins was a result of decreased clearance activity, reduced vendor and supply chain costs and well-managed inventory levels. For fiscal 2011, the Company expects merchandise margin to be at least 56%.

Inventory was in line with the Company’s expectations and was $303.2 million at the end of the first quarter compared to $294.2 million at the end of the first quarter last year. Management continues to strategically manage inventory purchases and monitor inventory levels to keep in line with consumer demand.

Store occupancy costs for the quarter were $65.2 million, a decline of $2.3 million compared to the same period last year. This decrease was the result of reduced store count and negotiated rental rate reductions on existing stores. The Company expects to open three to five and close 10 to 15 stores during fiscal 2011.

Marketing expenses for the quarter remained relatively flat when compared to the same period last year, but are expected to be slightly higher than originally planned during the third and fourth quarters of fiscal 2011.

 

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Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

 

The Company has seen improved response to its recent marketing campaigns and plans to increase its spending during the fall and holiday selling season. The current forecasted marketing spend is now approximately $65.0 million for fiscal 2011.

The Company ended the first quarter of fiscal 2011 with $204.8 million in cash and cash equivalents, an increase of $16.9 million when compared to the end of fiscal 2010. During the first quarter of fiscal 2011, the Company finalized the sale of its distribution center near Chicago, Illinois, for a purchase price of $11.8 million, recording a gain of $1.6 million. On July 1, 2010, the Company repaid $9.5 million of industrial revenue bonds related to the distribution center by utilizing proceeds it received from the sale, which reduced the Company’s total debt, including the current portion, to approximately $26 million.

Including cash and available credit, the Company had total liquidity of $318.0 million as of the end of the first quarter. Although the Company’s improved performance during the first quarter of fiscal 2011 is encouraging, management realizes it must continue to be prudent in managing inventory purchases, as well as control expenses throughout the balance of fiscal 2011.

Results of Operations

Management reviews a number of key indicators to evaluate the Company’s financial performance. The following table summarizes those key performance indicators for the three months ended May 29, 2010 and May 30, 2009:

 

     Three Months Ended
     May 29,
2010
  May 30,
2009

Key Performance Indicators

    

Total sales growth (decline)

   8.9%   (9.3%)

Comparable stores sales growth (decline)

   14.3%   (7.5%)

Sales per average retail square foot

   $155   $147

Merchandise margins as a % of sales

   58.6%   54.2%

Gross profit as a % of sales

   37.4%   30.2%

Selling, general and administrative expenses as a % of sales

   33.0%   37.5%

Operating income (loss) as a % of sales

   2.7%   (9.5%)

Net income as a % of sales (1)

   2.5%   10.4%
     May 29,
2010
  May 30,
2009

Inventory per retail square foot

   $37   $35

Total retail square footage (in thousands)

   8,260   8,438

Total retail square footage decline from the same period last year

   (2.1%)   (3.8%)

 

(1)

Net income for the three months ended May 30, 2009 included a $10.0 million gain related to the recovery of a litigation settlement and a $47.8 million gain from the repurchase of a portion of the Company’s convertible debt during the period.

Net Sales – Net sales consisted almost entirely of sales to retail customers, net of discounts and returns, but also included delivery service revenues and wholesale sales and royalties. Sales by retail concept during the period were as follows (in thousands):

 

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Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

 

     Three Months Ended
     May 29,
2010
   May 30,
2009

Stores

   $ 303,205    $ 279,168

Other (1)

     3,054      1,962
             

Net sales

   $ 306,259    $ 281,130
             

 

(1)

Other sales consisted primarily of wholesale sales and royalties received from Grupo Sanborns, S.A. de C.V. and gift card breakage.

Net sales for the first quarter of fiscal 2011 were $306.3 million, an increase of 8.9% over last year’s first quarter net sales of $281.1 million. Comparable store sales for the quarter increased 14.3%, compared to a decline of 7.5% for the same period in the prior year. The increase in sales was primarily the result of an increase in store traffic, conversion rate and average ticket. Without the effects of Canadian currency conversion rates, the increase in comparable store sales would have been 12.9% for the quarter. Total store count as of May 29, 2010 was 1,050 compared to 1,073 stores a year ago. During the first quarter of fiscal 2011, sales on the Pier 1 rewards card increased to 25.9% of U.S. store sales from 25.2% in the first quarter of fiscal 2010.

The increase in sales for the three-month period was comprised of the following components (in thousands):

 

     Net Sales  

Net sales for the three months ended May 30, 2009

   $ 281,130   

Incremental sales increase (decline) from:

  

New stores opened during fiscal 2011

     196   

Comparable stores

     38,071   

Closed stores and other

     (13,138
        

Net sales for the three months ended May 29, 2010

   $ 306,259   
        

A summary reconciliation of stores open at the beginning of fiscal 2011 to the number open at the end of the first quarter follows:

 

     United States     Canada     Total  

Open at February 27, 2010

   973      81      1,054   

Openings

   2      -      2   

Closings

   (4   (2   (6
                  

Open at May 29, 2010 (1)

   971      79      1,050   
                  

 

(1)

The Company supplies merchandise and licenses the Pier 1 Imports name to Grupo Sanborns, S.A. de C.V., which sells Pier 1 Imports merchandise primarily in a “store within a store” format. At May 29, 2010, there were 35 locations in Mexico. These locations were excluded from the table above.

 

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Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

 

Gross Profit – Gross profit for the first quarter of fiscal 2011, which is calculated by deducting store occupancy costs from merchandise margin dollars, was 37.4% as a percentage of sales compared to 30.2% for the same period last year. Merchandise margins for the first quarter increased 440 basis points to 58.6% of sales over last year’s 54.2% of sales. Reduced vendor and supply chain costs coupled with decreased clearance activity and well managed inventory levels positively impacted merchandise margins compared to the same period last year. Store occupancy costs were $65.2 million for the first quarter of fiscal 2011 compared to $67.5 million for the same period last year. The decline was primarily the result of negotiated rental reductions with the Company’s landlords in addition to a lower overall store count. Additionally, property taxes and insurance costs decreased when compared to the prior year, slightly offset by an increase in maintenance costs.

Operating Expenses and Depreciation – Selling, general and administrative expenses for the first quarter of fiscal 2011 were $101.1 million, a decrease of $4.5 million when compared to the same period last year. As a percentage of sales, these expenses decreased 450 basis points as a result of the leveraging of relatively fixed costs over a higher sales base.

Selling, general and administrative expenses for the quarter included the charges summarized in the table below (in thousands):

 

Quarter

   May 29, 2010     May 30, 2009     Increase /
(Decrease)
 
   Expense         % of Sales     Expense        % of Sales    

Store payroll

   $ 50,847      16.6   $ 50,779    18.1   $ 68   

Marketing

     13,568      4.4     13,099    4.7     469   

Store supplies, services and other

     7,234      2.4     7,008    2.5     226   
                                   

Variable costs

     71,649      23.4     70,886    25.2     763   

Administrative payroll

     18,786      6.1     18,234    6.5     552   

Other relatively fixed expenses

     11,205      3.7     9,385    3.3     1,820   
                                   

Relatively fixed costs

     29,991      9.8     27,619    9.8     2,372   

Lease termination costs and other

     1,062      0.3     6,884    2.4     (5,822

(Gain) loss on sale of fixed assets

     (1,650   -0.5     168    0.1     (1,818
                                   

Special charges

     (588   -0.2     7,052    2.5     (7,640
                                   
   $ 101,052      33.0   $ 105,557    37.5   $ (4,505
                                   

Expenses that tend to fluctuate with sales and number of stores, such as store payroll, marketing, store supplies and equipment rental increased $0.8 million. Store payroll, including bonus, remained relatively flat when compared to the same period last year. Marketing expenditures were $13.6 million, an increase of $0.5 million from the first quarter of fiscal 2010, and a decrease of 30 basis points as a percentage of sales. The increase in dollars was primarily as a result of an increase in newspaper inserts, direct mail and radio, partly offset by a decrease in television advertising and catalogs. Marketing expenses for the first quarter were $13.6 million or 4.4% as a percentage of sales. Other variable expenses, primarily supplies and equipment rental, increased $0.2 million when compared to the same period last year.

Relatively fixed selling, general and administrative expenses during the first quarter of fiscal 2011 increased $2.4 million from the same period last year, but remained flat as a percentage of sales. Administrative payroll increased $0.6 million during the first quarter of fiscal 2011 when compared to last year, primarily as a result of a slight increase in salaries and an increase in accrued management bonuses. All other relatively fixed costs increased $1.8 million or 40 basis points as a percentage of sales. This increase relates primarily to the foreign currency revaluation which was an expense of $0.1 million in the current year compared to a $1.1 million gain in the prior year.

 

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Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

 

Lease termination costs and other expenses were $1.1 million, a decrease of $5.8 million from the first quarter of the prior year. This decrease was primarily the result of decreased activity in lease terminations and buyout agreements. In addition, only six stores were closed during the first quarter of fiscal 2011 compared to 19 store closures during the first quarter of fiscal 2010. During the first quarter of fiscal 2011, the Company sold its distribution center near Chicago, Illinois, and recorded a gain of $1.6 million.

Depreciation and amortization expense for the first quarter of fiscal 2011 was $5.1 million compared to $6.0 million for the same period last year. This decrease was primarily the result of certain assets becoming fully depreciated during fiscal 2010, coupled with store closures and minimal capital expenditures last year.

The operating income for the first quarter of fiscal 2011 was $8.3 million compared to a loss of $26.7 million for last year’s first quarter. This improvement was primarily the result of an increase in comparable store sales, improved merchandise margins, well-managed inventory and controlled expenses.

Nonoperating income and expense – During the first quarter of fiscal 2011 nonoperating expense was $0.4 million, compared to nonoperating income of $55.8 million for the same period in fiscal 2010. This decrease was primarily the result of the Company recording a gain of $47.8 million related to the repurchase of a portion of its debt during the first quarter of fiscal 2010, with no comparable gain in the current year. In addition, the Company settled a lawsuit during the first quarter of fiscal 2010 and recorded a $10.0 million gain as a result of the recovery.

Income taxes – The Company continues to provide a valuation allowance against all deferred tax assets. As a result, no current or deferred federal tax benefit or expense was recorded on the results of the first quarter of fiscal 2011 and only minimal state and foreign tax provisions were made during the period.

Net Income – Net income for the first quarter of fiscal 2011 was $7.7 million, or $0.07 per share, compared to $29.3 million, or $0.32 per share, for the first quarter of fiscal 2010.

Liquidity and Capital Resources

The Company ended the first quarter of fiscal 2011 with $204.8 million in cash and temporary investments compared to $187.9 million at the end of fiscal 2010. Operating activities in the first quarter of fiscal 2011 provided $10.3 million of cash, primarily as a result of the Company’s net income, a decrease in inventory and an increase in accounts payable. These cash inflows were partially offset by an increase in accounts receivable and prepaid assets and a decrease in income taxes payable.

Inventory levels at the end of the first quarter of fiscal 2011 were $303.2 million, down $10.3 million or 3.3%, from inventory levels at the end of fiscal 2010. At the end of the first quarter of fiscal 2011, inventory per retail square foot was $37 compared to $38 at fiscal 2010 year end. The Company continues to focus on managing inventory levels and closely monitoring merchandise purchases to keep inventory in line with consumer demand. Total inventory at the end of fiscal 2011 is expected to be approximately $300 million to $320 million.

During the first three months of fiscal 2011, investing activities provided $4.2 million compared to $0.5 million during the same period last year. Proceeds from the sale of the Company’s distribution center near Chicago, Illinois provided $10.6 million. Capital expenditures were $6.3 million in fiscal 2011 compared to $0.4 million in fiscal 2010. Capital expenditures for fiscal 2011 are now expected to be approximately $35.0 million.

Financing activities provided $2.4 million, primarily related to the exercises of employee stock options during the quarter, compared to using $26.5 million for the same period last year. The change in financing activities was primarily the result of $26.8 million used in the prior year to repurchase a portion of the Company’s convertible notes.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

 

At the end of the first quarter, the Company’s minimum operating lease commitments remaining for fiscal 2011 were $157.0 million. The present value of total existing minimum operating lease commitments discounted at 10% was $617.1 million at the fiscal 2011 first quarter end compared to $714.0 million at the fiscal 2010 first quarter end.

During the first quarter of fiscal 2011, the Company sold its distribution center near Chicago, Illinois for a purchase price of $11.8 million and recorded a gain of approximately $1.6 million related to this transaction. Subsequent to quarter end, the Company repaid approximately $9.5 million of industrial revenue bonds related to the distribution center with proceeds received from the sale. The $9.5 million in bonds was classified as current portion of long-term debt as of May 29, 2010. The remaining $16.5 million classified as current portion of long-term debt relates to the Company’s 6.375% convertible senior notes due 2036. The Company anticipates that these notes will be repaid on or before February 15, 2011.

The Company’s bank facilities at the end of the first quarter of fiscal 2011 included a $300 million credit facility, expiring in May 2012, which was secured by the Company’s eligible merchandise inventory and third-party credit card receivables. As of May 29, 2010, the Company had no outstanding cash borrowings and had utilized $74.8 million in letters of credit and bankers’ acceptances. If advances under the facility result in availability of less than $30.0 million, the Company will be required to comply with a fixed charge coverage ratio as stated in the agreement. The Company does not anticipate falling below this minimum availability in the foreseeable future. As of May 29, 2010, the Company’s calculated borrowing base was $218.0 million. After excluding the required minimum of $30.0 million and the $74.8 million in utilized letters of credit and bankers’ acceptances from the borrowing base, $113.2 million remained available for cash borrowings. As of the end of the first quarter of fiscal 2011, the Company was in compliance with required covenants stated in the agreement.

Working capital requirements are expected to be funded from cash from operations, available cash balances, and if required, borrowings against lines of credit. Given the Company’s cash position and the various liquidity options available, the Company believes it has sufficient liquidity to fund operational obligations, capital expenditure requirements and the repayment of its debt.

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 SEC 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 and closings, financing of Company obligations from operations, success of its marketing, merchandising and store operations strategies, 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, conflicts or war involving the United States or its allies or trading partners, labor strikes, weather conditions or natural disasters, volatility of fuel and utility costs, the on-going recession and the actions taken by the United States and other countries to stimulate the economy or to prevent the worsening of the recession, the general strength of the economy and levels of consumer spending, consumer confidence, suitable store sites and distribution center locations, the availability of a qualified labor force and management, the availability and proper functioning of technology and communications systems supporting the Company’s key business processes, the ability of the

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

 

Company to import merchandise from foreign countries without significantly restrictive tariffs, duties or quotas, and the ability of the Company to source, ship and deliver items of acceptable quality to its U.S. distribution centers at reasonable prices and rates and in a timely fashion. The foregoing risks and uncertainties are in addition to others discussed elsewhere in this report which may also affect Company operations and performance. 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 February 27, 2010, as filed with the Securities and Exchange Commission.

Impact of Inflation

Inflation has not had a significant impact on the operations of the Company.

 

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Table of Contents

PART I

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

There are no material changes to the Company’s market risk as disclosed in its Form 10-K filed for the fiscal year ended February 27, 2010.

 

Item 4. Controls and Procedures.

The Company maintains disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), that are designed to ensure that information required to be disclosed by the Company in its reports filed or furnished under the Exchange Act is (a) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is (b) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding the required disclosure.

As required by Rules 13a-15 and 15d-15 under the Exchange Act, an evaluation was conducted under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of May 29, 2010. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded, with reasonable assurance, that the Company’s disclosure controls and procedures were effective as of such date.

There has not been any change in the Company’s internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

 

Item 1. Legal Proceedings.

The Company is a party to various legal proceedings and claims in the ordinary course of its business. The Company believes that the outcome of these matters will not have a material adverse effect on its consolidated financial position, results of operations or liquidity.

 

Item 1A. Risk Factors.

There are no material changes from risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended February 27, 2010.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

There were no purchases of common stock of the Company made during the three months ended May 29, 2010 by Pier 1 Imports, Inc. or any “affiliated purchaser” of Pier 1 Imports, Inc. as defined in Rule 10-b-18(a)(3) under the Securities Exchange Act of 1934. During the first quarter of fiscal 2011, 54,443 shares of the Company’s common stock were acquired from employees to satisfy tax withholding obligations that arose upon vesting of restricted stock granted pursuant to approved plans.

 

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Table of Contents
Item 3. Defaults upon Senior Securities.

None.

 

Item 4. Reserved.

 

Item 5. Other information — Submission of Matters to a Vote of Security Holders.

The Annual Meeting of Shareholders of the Company was held June 29, 2010 for the purpose of electing as directors the five nominees named in the proxy statement to hold office until the next annual meeting of shareholders and until their successors are elected and qualified; to approve an amendment of the Pier 1 Imports, Inc. Stock Purchase Plan to authorize an additional 3,500,000 shares of Pier 1 Imports’ common stock to the plan and to extend the term of the plan for five years; to ratify the Audit Committee’s approval to engage Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal 2011; and to vote on a shareholder proposal, if properly submitted at the meeting. The results of the election and the votes follow:

Election as directors of the five nominees named in the proxy statement to hold office until the next annual meeting of shareholders and until their successors are elected and qualified. In order to be elected, a nominee for director must receive the affirmative vote of a majority of the votes cast with respect to such nominee by the shares of common stock present in person or represented by proxy at the annual meeting and entitled to vote on the election of directors.

 

Director

 

For

 

Against

 

Abstain

 

Broker Non-Votes

John H. Burgoyne

  79,341,072   10,751,510   62,934   12,295,624

Michael R. Ferrari

  85,617,574     4,477,375   60,566   12,295,624

Terry E. London

  86,789,265     3,303,264   62,987   12,295,624

Alexander W. Smith

  85,966,109     4,141,605   47,802   12,295,624

Cece Smith

  86,816,973     3,286,614   51,929   12,295,624

Amendment of the Pier 1 Imports, Inc. Stock Purchase Plan to authorize an additional 3,500,000 shares of Pier 1 Imports’ common stock to the plan and to extend the term of the plan for five years. The affirmative vote of a majority of the shares of common stock present in person or represented by proxy at the annual meeting and entitled to vote on the matter is required for approval.

 

For

 

Against

 

Abstain

 

Broker Non-Votes

83,270,985

  6,248,532   635,999   12,295,624

Ratification of the Audit Committee’s approval to engage Ernst & Young LLP as Pier 1 Imports’ independent registered public accounting firm for fiscal 2011 . The affirmative vote of a majority of the shares of common stock present in person or represented by proxy at the annual meeting and entitled to vote on the matter is required for approval.

 

For

 

Against

 

Abstain

 

Broker Non-Votes

99,369,652

  3,026,058   55,429   N/A

 

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Approval of the shareholder proposal, if properly presented at the annual meeting. To be approved, the shareholder proposal must receive the affirmative vote of a majority of the shares of common stock present in person or represented by proxy at the annual meeting and entitled to vote on the proposal.

 

For

 

Against

 

Abstain

 

Broker Non-Votes

33,803,473

  55,423,271   928,772   12,295,624

 

Item 6. Exhibits.

The Exhibit Index following the signature page to this Quarterly Report on Form 10-Q lists the exhibits furnished as required by Item 601 of Regulation S-K and is incorporated herein by reference.

 

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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)

 

Date:

 

July 2, 2010

    By:     

/s/ Alexander W. Smith

           Alexander W. Smith, President and
           Chief Executive Officer

Date:

 

July 2, 2010

    By:     

/s/ Charles H. Turner

           Charles H. Turner, Executive Vice President and
           Chief Financial Officer

Date:

 

July 2, 2010

    By:     

/s/ Laura A. Coffey

           Laura A. Coffey, Principal Accounting Officer


Table of Contents

EXHIBIT INDEX

 

Exhibit No.

 

Description

3(i)   Restated Certificate of Incorporation of Pier 1 Imports, Inc. as filed with the Delaware Secretary of State on October 12, 2009, incorporated herein by reference to Exhibit 3(i) to the Company’s Form 10-Q for the quarter ended November 28, 2009.
3(ii)   Amended and Restated Bylaws of Pier 1 Imports, Inc. (as amended through October 9, 2009), incorporated herein by reference to Exhibit 3(ii) to the Company’s Form 8-K filed on October 16, 2009.
10.1*   Third Amendment dated June 29, 2010 to Pier 1 Imports, Inc. Stock Purchase Plan.
31.1*   Certification of the Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a).
31.2*   Certification of the Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a).
32.1*   Section 1350 Certifications.

 

 

*Filed herewith
Third Amendment to Stock Purchase Plan

Exhibit 10.1

THIRD AMENDMENT TO PIER 1 IMPORTS, INC. STOCK PURCHASE PLAN

WHEREAS, the Pier 1 Imports, Inc. Stock Purchase Plan (the “Plan”) was established in 1980 and was most recently amended and restated on June 20, 2008;

WHEREAS, on January 22, 2009, the Board of Directors of the Company, upon recommendation of the Administrative Committee, approved a resolution (i) to suspend Participant compensation deductions, Company matching contributions and enrollment of new Participants under the Plan and (ii) to suspend purchases of shares of Common Stock under the Plan, each to occur after the last event in which Participant compensation deductions plus Company matching contributions could be used to purchase shares of Common Stock within the authorized aggregate amount for issuance under the Plan of 2,541,025 shares of Common Stock;

WHEREAS, the Plan was amended by an Amendment to Pier 1 Imports, Inc. Stock Purchase Plan, which established the effective date of such suspension as March 28, 2009 (the “2009 Suspension Date”); and

WHEREAS, the Plan was amended by a Second Amendment to Pier 1 Imports, Inc. Stock Purchase Plan effective as of July 14, 2009;

NOW THEREFORE:

A.    The suspension period which began on the 2009 Suspension Date will end as soon as administratively practicable after this Third Amendment to the Plan is approved by the shareholders of Pier 1 Imports, Inc. at their annual meeting on June 29, 2010. Should this Third Amendment not be approved at that meeting, then the suspension period will continue and this Third Amendment will have no force and effect. During the suspension period, all other aspects of the Plan will continue in full force and effect.

B.    The first sentence of Article VII of the Plan is replaced with the following:

“Unless previously terminated by the Board of Directors, the Plan will automatically terminate on the earlier of (i) June 29, 2015, or (ii) when an aggregate of 3,500,000 shares of Common Stock, plus 881,923 authorized shares of Common Stock which remained available for issuance under the Plan on the 2009 Suspension Date, have been issued after June 29, 2010.”

C.    All terms used in this Third Amendment, unless specifically defined herein, have the same meanings attributed to them in the Plan. As amended hereby, the Plan is specifically ratified and reaffirmed.

Signed effective as of June 29, 2010.

 

Pier 1 Imports, Inc.,
a Delaware corporation

By:

 

/s/ Gregory S. Humenesky

 

Gregory S. Humenesky

Executive Vice President

Certification of the CEO Pursuant to Rule 13a-14(a)/15d-14(a)

Exhibit 31.1

Certification of the Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a)

I, Alexander W. Smith, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Pier 1 Imports, Inc.;

 

2. Based on my knowledge, this 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 report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

 

  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:  

July 2, 2010

    By:     

/s/ Alexander W. Smith

          

Alexander W. Smith, President and

Chief Executive Officer

Certification of the CFO Pursuant to Rule 13a-14(a)/15d-14(a)

Exhibit 31.2

Certification of the Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a)

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 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 report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

 

  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:  

July 2, 2010

    By:  

/s/ Charles H. Turner

       

Charles H. Turner, Executive Vice President

and Chief Financial Officer

Section 1350 Certifications

Exhibit 32.1

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Each of the undersigned officers of Pier 1 Imports, Inc., hereby certifies that:

 

  1. The quarterly report of Pier 1 Imports, Inc. for the period ended May 29, 2010 fully complies with the requirements of sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  2. The information contained in the above-mentioned report fairly presents, in all material respects, the financial condition and results of operations of Pier 1 Imports, Inc. for the period covered by the report.

 

Date:  

July 2, 2010

    By:     

/s/ Alexander W. Smith

          

Alexander W. Smith, President and

Chief Executive Officer

Date:  

July 2, 2010

    By:     

/s/ Charles H. Turner

          

Charles H. Turner, Executive Vice President

and Chief Financial Officer