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 August 30, 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 smaller reporting company.

 

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 October 3, 2008

Common Stock, $1.00 par value

 

89,016,161

 

 

 



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 Six Months Ended August 30, 2008 and September 1, 2007

 

3

 

 

 

 

 

Consolidated Balance Sheets as of August 30, 2008, March 1, 2008 and September 1, 2007

 

4

 

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended August 30, 2008 and September 1, 2007

 

5

 

 

 

 

 

Consolidated Statement of Shareholders’ Equity for the Six Months Ended August 30, 2008

 

6

 

 

 

 

 

Notes to Consolidated Financial Statements

 

7

 

 

 

 

Item 2.

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

 

19

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

27

 

 

 

 

Item 4.

Controls and Procedures

 

27

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

27

 

 

 

 

Item 1A.

Risk Factors

 

27

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

27

 

 

 

 

Item 3.

Defaults upon Senior Securities

 

28

 

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

 

28

 

 

 

 

Item 5.

Other information

 

28

 

 

 

 

Item 6.

Exhibits

 

28

 

 

 

 

Signatures

 

29

 

2



Table of Contents

 

PART I

Item 1.        Financial Statements.

 

PIER I IMPORTS, INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except per share amounts)

(unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

August 30,
2008

 

September 1,
2007

 

August 30,
2008

 

September 1,
2007

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

320,494

 

$

344,566

 

$

630,514

 

$

700,941

 

 

 

 

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of sales (including buying and store occupancy costs)

 

234,359

 

257,042

 

456,773

 

526,239

 

Selling, general and administrative expenses

 

107,043

 

117,457

 

216,411

 

249,581

 

Depreciation and amortization

 

7,517

 

10,444

 

16,190

 

21,002

 

 

 

348,919

 

384,943

 

689,374

 

796,822

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

(28,425

)

(40,377

)

(58,860

)

(95,881

)

 

 

 

 

 

 

 

 

 

 

Nonoperating (income) and expenses:

 

 

 

 

 

 

 

 

 

Interest and investment income

 

(1,471

)

(2,438

)

(2,342

)

(5,370

)

Interest expense

 

3,696

 

4,000

 

7,301

 

7,957

 

Other income

 

(656

)

(405

)

(1,288

)

(653

)

 

 

1,569

 

1,157

 

3,671

 

1,934

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

(29,994

)

(41,534

)

(62,531

)

(97,815

)

Income tax provision

 

162

 

1,875

 

449

 

1,972

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(30,156

)

$

(43,409

)

$

(62,980

)

$

(99,787

)

 

 

 

 

 

 

 

 

 

 

Loss per share:

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.34

)

$

(0.49

)

$

(0.71

)

$

(1.14

)

 

 

 

 

 

 

 

 

 

 

Average shares outstanding during period:

 

 

 

 

 

 

 

 

 

Basic and diluted

 

88,778

 

88,000

 

88,699

 

87,898

 

 

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 share amounts)

(unaudited)

 

 

 

August 30,
2008

 

March 1,
2008

 

September 1,
2007

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents, including temporary investments of $178,936, $87,837 and $112,468, respectively

 

$

191,114

 

$

93,433

 

$

121,872

 

Accounts receivable, net

 

18,389

 

23,121

 

20,533

 

Inventories

 

379,050

 

411,709

 

374,468

 

Income tax receivable

 

3,345

 

13,632

 

15,143

 

Prepaid expenses and other current assets

 

45,732

 

41,445

 

47,318

 

Total current assets

 

637,630

 

583,340

 

579,334

 

 

 

 

 

 

 

 

 

Office building and related assets

 

 

80,539

 

82,855

 

Other properties, net of accumulated depreciation of $422,377, $408,609 and $400,801, respectively

 

105,052

 

114,952

 

129,768

 

Other noncurrent assets

 

42,021

 

43,073

 

46,524

 

 

 

 

 

 

 

 

 

 

 

$

784,703

 

$

821,904

 

$

838,481

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

118,955

 

$

106,084

 

$

125,253

 

Gift cards and other deferred revenue

 

53,936

 

63,101

 

64,318

 

Accrued income taxes payable

 

4,500

 

5,000

 

3,120

 

Other accrued liabilities

 

109,043

 

101,817

 

102,321

 

Total current liabilities

 

286,434

 

276,002

 

295,012

 

 

 

 

 

 

 

 

 

Long-term debt

 

184,000

 

184,000

 

184,000

 

Other noncurrent liabilities

 

104,112

 

94,158

 

97,321

 

 

 

 

 

 

 

 

 

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

 

126,177

 

126,795

 

125,663

 

Retained earnings

 

173,114

 

236,094

 

232,318

 

Cumulative other comprehensive income

 

8

 

373

 

3,012

 

Less — 11,802,000, 12,172,000 and 12,359,000 common shares in treasury, at cost, respectively

 

 

 

 

 

 

 

 

 

(189,921

)

(196,297

)

(199,624

)

 

 

210,157

 

267,744

 

262,148

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

784,703

 

$

821,904

 

$

838,481

 

 

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)

 

 

 

Six Months Ended

 

 

 

August 30,
2008

 

September 1,
2007

 

 

 

 

 

 

 

Cash flow from operating activities:

 

 

 

 

 

Net loss

 

$

(62,980

)

$

(99,787

)

Adjustments to reconcile to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation and amortization

 

22,408

 

27,172

 

(Gain) loss on disposal of fixed assets

 

68

 

(1,404

)

Loss on impairment of fixed assets and long-lived assets

 

 

4,164

 

Stock-based compensation expense

 

4,502

 

3,182

 

Deferred compensation

 

2,185

 

1,891

 

Lease termination expense

 

2,978

 

4,820

 

Other

 

(1,555

)

281

 

Changes in cash from:

 

 

 

 

 

Inventories

 

32,659

 

(14,405

)

Accounts receivable, prepaid expenses and other current assets

 

(4,985

)

(6,066

)

Income tax receivable

 

13,290

 

24,474

 

Accounts payable and accrued expenses

 

(7,022

)

8,770

 

Accrued income taxes payable

 

(723

)

434

 

Defined benefit plan liabilities

 

(59

)

(6,282

)

Other noncurrent assets

 

641

 

305

 

Other noncurrent liabilities

 

(195

)

(586

)

Net cash provided by (used in) operating activities

 

1,212

 

(53,037

)

 

 

 

 

 

 

Cash flow from investing activities:

 

 

 

 

 

Capital expenditures

 

(7,203

)

(2,665

)

Proceeds from disposition of properties

 

102,452

 

3,505

 

Proceeds from sale of restricted assets

 

908

 

6,373

 

Purchase of restricted investments

 

(944

)

(589

)

Net cash provided by investing activities

 

95,213

 

6,624

 

 

 

 

 

 

 

Cash flow from financing activities:

 

 

 

 

 

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

 

1,256

 

2,105

 

Debt issuance costs

 

 

(998

)

Net cash provided by financing activities

 

1,256

 

1,107

 

 

 

 

 

 

 

Change in cash and cash equivalents

 

97,681

 

(45,306

)

Cash and cash equivalents at beginning of period

 

93,433

 

167,178

 

Cash and cash equivalents at end of period

 

$

191,114

 

$

121,872

 

 

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 SIX MONTHS ENDED AUGUST 30, 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

 

 

 

 

(62,980

)

 

 

(62,980

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension adjustments

 

 

 

 

 

766

 

 

766

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments

 

 

 

 

 

(1,131

)

 

(1,131

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(63,345

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock compensation

 

303

 

 

(3,891

)

 

 

4,893

 

1,002

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock option compensation expense

 

 

 

3,500

 

 

 

 

3,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options, stock purchase plan and other

 

67

 

 

(227

)

 

 

1,483

 

1,256

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance August 30, 2008

 

88,977

 

$

100,779

 

$

126,177

 

$

173,114

 

$

8

 

$

(189,921

)

$

210,157

 

 

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 SIX MONTHS ENDED AUGUST 30, 2008

AND SEPTEMBER 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 August 30, 2008, and the results of operations and cash flows for the three and six months ended August 30, 2008 and September 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 six months ended August 30, 2008 and September 1, 2007, respectively, 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 – 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 13,284,048 and 14,153,480 stock options outstanding and shares of unvested restricted stock were excluded from the computation of the second quarter and year-to-date loss per share for fiscal 2009 and fiscal 2008, respectively.  Loss per share for the three and six months ended August 30, 2008 and September 1, 2007 was calculated as follows (in thousands except per share amounts):

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

August 30,

 

September 1,

 

August 30,

 

September 1,

 

 

 

2008

 

2007

 

2008

 

2007

 

Net loss, basic and diluted

 

$

(30,156

)

$

(43,409

)

$

(62,980

)

$

(99,787

)

 

 

 

 

 

 

 

 

 

 

Average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic and diluted

 

88,778

 

88,000

 

88,699

 

87,898

 

 

 

 

 

 

 

 

 

 

 

Net loss per share:

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.34

)

$

(0.49

)

$

(0.71

)

$

(1.14

)

 

7



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Note 2 – Comprehensive loss

 

The components of comprehensive loss for the three and six months ended August 30, 2008 and September 1, 2007 were as follows (in thousands):

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

August 30,

 

September 1,

 

August 30,

 

September 1,

 

 

 

2008

 

2007

 

2008

 

2007

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(30,156

)

$

(43,409

)

$

(62,980

)

$

(99,787

)

Currency translation adjustments

 

(1,075

)

25

 

(1,131

)

604

 

Pension adjustments

 

566

 

 

766

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

$

(30,665

)

$

(43,384

)

$

(63,345

)

$

(99,183

)

 

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 six months ended August 30, 2008, the Company recorded stock-based compensation expense related to stock options and restricted stock of $2,150,000, or $0.02 per share, and $4,502,000, or $0.05 per share, respectively.  For the three and six months ended September 1, 2007, the Company recorded stock-based compensation expense related to stock options and restricted stock of $1,027,000, or $0.01 per share, and $3,182,000, or $0.04 per share, respectively.  The Company recognized no net tax benefit related to stock-based compensation during the first half of fiscal 2009 or fiscal 2008 as a result of the Company’s valuation allowance on all deferred tax assets in both years.

 

As of August 30, 2008, there was approximately $6,095,000 of total unrecognized compensation expense related to unvested stock option awards that is expected to be recognized over a weighted average period of 1.99 years and $4,214,000 of total unrecognized compensation expense related to restricted stock that may be recognized over a weighted average period of 2.05 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 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 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.

 

8



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The following table represents a rollforward of the liability balances for the six months ended August 30, 2008 and September 1, 2007 related to these closures (in thousands):

 

 

 

Six Months Ended

 

 

 

August 30,

 

September 1,

 

 

 

2008

 

2007

 

 

 

 

 

 

 

Beginning of period

 

$

5,628

 

$

2,436

 

 

 

 

 

 

 

Original charges

 

2,782

 

5,221

 

Revisions

 

196

 

(401

)

Cash payments

 

(2,455

)

(2,748

)

 

 

 

 

 

 

End of period

 

$

6,151

 

$

4,508

 

 

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 $(145,000) and $252,000, or less than $(0.01) and less than $0.01 per share, during the three and six months ended August 30, 2008, respectively.  Cash outflows related to these lease terminations were $1,507,000 for fiscal 2009 year-to-date.

 

Note 5 – 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.

 

9



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS

Three Months Ended August 30, 2008

(in thousands)

(unaudited)

 

 

 

Pier 1
Imports, Inc.

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

318,249

 

$

3,632

 

$

(1,387

)

$

320,494

 

Cost of sales (including buying and store occupancy costs)

 

 

232,511

 

3,338

 

(1,490

)

234,359

 

Selling, general and administrative (including depreciation and amortization)

 

2,190

 

112,320

 

50

 

 

114,560

 

Operating income (loss)

 

(2,190

)

(26,582

)

244

 

103

 

(28,425

)

Nonoperating (income) expenses

 

(283

)

1,942

 

(90

)

 

1,569

 

Income (loss) before income taxes

 

(1,907

)

(28,524

)

334

 

103

 

(29,994

)

Provision for income taxes

 

 

152

 

10

 

 

162

 

Net income (loss) after income taxes

 

(1,907

)

(28,676

)

324

 

103

 

(30,156

)

Net income (loss) from subsidiaries

 

(28,352

)

324

 

 

28,028

 

 

Net income (loss)

 

$

(30,259

)

$

(28,352

)

$

324

 

$

28,131

 

$

(30,156

)

 

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS

Three Months Ended September 1, 2007

(in thousands)

(unaudited)

 

 

 

Pier 1 
Imports, Inc.

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

342,877

 

$

10,522

 

$

(8,833

)

$

344,566

 

Cost of sales (including buying and store occupancy costs)

 

 

256,066

 

9,799

 

(8,823

)

257,042

 

Selling, general and administrative (including depreciation and amortization)

 

490

 

127,356

 

55

 

 

127,901

 

Operating income (loss)

 

(490

)

(40,545

)

668

 

(10

)

(40,377

)

Nonoperating (income) expenses

 

(868

)

2,185

 

(160

)

 

1,157

 

Income (loss) before income taxes

 

378

 

(42,730

)

828

 

(10

)

(41,534

)

Provision for income taxes

 

 

1,722

 

153

 

 

1,875

 

Net income (loss) after income taxes

 

378

 

(44,452

)

675

 

(10

)

(43,409

)

Net income (loss) from subsidiaries

 

(43,777

)

675

 

 

43,102

 

 

Net income (loss)

 

$

(43,399

)

$

(43,777

)

$

675

 

$

43,092

 

$

(43,409

)

 

10



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS

Six Months Ended August 30, 2008

(in thousands)

(unaudited)

 

 

 

Pier 1
Imports, Inc.

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

626,269

 

$

7,850

 

$

(3,605

)

$

630,514

 

Cost of sales (including buying and store occupancy costs)

 

 

453,545

 

7,200

 

(3,972

)

456,773

 

Selling, general and administrative (including depreciation and amortization)

 

2,709

 

229,797

 

95

 

 

232,601

 

Operating income (loss)

 

(2,709

)

(57,073

)

555

 

367

 

(58,860

)

Nonoperating (income) expenses

 

(1,189

)

5,045

 

(185

)

 

3,671

 

Income (loss) before income taxes

 

(1,520

)

(62,118

)

740

 

367

 

(62,531

)

Provision for income taxes

 

 

439

 

10

 

 

449

 

Net income (loss) after income taxes

 

(1,520

)

(62,557

)

730

 

367

 

(62,980

)

Net income (loss) from subsidiaries

 

(61,827

)

730

 

 

61,097

 

 

Net income (loss)

 

$

(63,347

)

$

(61,827

)

$

730

 

$

61,464

 

$

(62,980

)

 

CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS

Six Months Ended September 1, 2007

(in thousands)

(unaudited)

 

 

 

Pier 1
Imports, Inc.

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

697,990

 

$

18,069

 

$

(15,118

)

$

700,941

 

Cost of sales (including buying and store occupancy costs)

 

 

524,771

 

16,767

 

(15,299

)

526,239

 

Selling, general and administrative (including depreciation and amortization)

 

942

 

269,521

 

120

 

 

270,583

 

Operating income (loss)

 

(942

)

(96,302

)

1,182

 

181

 

(95,881

)

Nonoperating (income) expenses

 

(1,653

)

3,908

 

(321

)

 

1,934

 

Income (loss) before income taxes

 

711

 

(100,210

)

1,503

 

181

 

(97,815

)

Provision for income taxes

 

 

1,767

 

205

 

 

1,972

 

Net income (loss) after income taxes

 

711

 

(101,977

)

1,298

 

181

 

(99,787

)

Net income (loss) from subsidiaries

 

(100,679

)

1,298

 

 

99,381

 

 

Net income (loss)

 

$

(99,968

)

$

(100,679

)

$

1,298

 

$

99,562

 

$

(99,787

)

 

11



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

CONSOLIDATING CONDENSED BALANCE SHEET
August 30, 2008
(in thousands)
(unaudited)

 

 

 

Pier 1
Imports, Inc.

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Total

 

 

 

ASSETS

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

116,432

 

$

52,500

 

$

22,182

 

$

 

$

191,114

 

Accounts receivable, net

 

24

 

16,350

 

2,015

 

 

18,389

 

Inventories

 

 

379,050

 

 

 

379,050

 

Income tax receivable

 

 

2,914

 

431

 

 

3,345

 

Prepaid expenses and other current assets

 

498

 

45,234

 

 

 

45,732

 

Total current assets

 

116,954

 

496,048

 

24,628

 

 

637,630

 

 

 

 

 

 

 

 

 

 

 

 

 

Office building and related assets

 

 

 

 

 

 

Other properties, net

 

 

101,264

 

3,788

 

 

105,052

 

Investment in subsidiaries

 

83,732

 

44,452

 

 

(128,184

)

 

Other noncurrent assets

 

6,056

 

35,965

 

 

 

42,021

 

 

 

$

206,742

 

$

677,729

 

$

28,416

 

$

(128,184

)

$

784,703

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

82

 

$

118,673

 

$

200

 

$

 

$

118,955

 

Intercompany payable (receivable)

 

(169,138

)

185,294

 

(16,156

)

 

 

Gift cards and other deferred revenue

 

 

53,936

 

 

 

53,936

 

Accrued income taxes payable (receivable)

 

48

 

4,595

 

(143

)

 

4,500

 

Other accrued liabilities

 

593

 

108,387

 

63

 

 

109,043

 

Total current liabilities

 

(168,415

)

470,885

 

(16,036

)

 

286,434

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

165,000

 

19,000

 

 

 

184,000

 

Other noncurrent liabilities

 

 

104,112

 

 

 

104,112

 

Shareholders’ equity

 

210,157

 

83,732

 

44,452

 

(128,184

)

210,157

 

 

 

$

206,742

 

$

677,729

 

$

28,416

 

$

(128,184

)

$

784,703

 

 

12



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

 

 

13



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

CONSOLIDATING CONDENSED BALANCE SHEET

September 1, 2007

(in thousands)

(unaudited)

 

 

 

Pier 1
Imports, Inc.

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

76,384

 

$

33,364

 

$

12,124

 

$

 

$

121,872

 

Accounts receivable, net

 

11

 

18,884

 

1,638

 

 

20,533

 

Inventories

 

 

374,468

 

 

 

374,468

 

Income tax receivable

 

 

14,841

 

302

 

 

15,143

 

Prepaid expenses and other current assets

 

 

47,318

 

 

 

47,318

 

Total current assets

 

76,395

 

488,875

 

14,064

 

 

579,334

 

 

 

 

 

 

 

 

 

 

 

 

 

Office building and related assets

 

 

82,855

 

 

 

82,855

 

Other properties, net

 

 

125,876

 

3,892

 

 

129,768

 

Investment in subsidiaries

 

143,987

 

42,102

 

 

(186,089

)

 

Other noncurrent assets

 

7,119

 

39,405

 

 

 

46,524

 

 

 

$

227,501

 

$

779,113

 

$

17,956

 

$

(186,089

)

$

838,481

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

38

 

$

120,267

 

$

4,948

 

$

 

$

125,253

 

Intercompany payable (receivable)

 

(200,391

)

229,387

 

(28,996

)

 

 

Gift cards and other deferred revenue

 

 

64,318

 

 

 

64,318

 

Accrued income taxes payable (receivable)

 

48

 

3,220

 

(148

)

 

3,120

 

Other accrued liabilities

 

658

 

101,613

 

50

 

 

102,321

 

Total current liabilities

 

(199,647

)

518,805

 

(24,146

)

 

295,012

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

165,000

 

19,000

 

 

 

184,000

 

Other noncurrent liabilities

 

 

97,321

 

 

 

97,321

 

Shareholders’ equity

 

262,148

 

143,987

 

42,102

 

(186,089

)

262,148

 

 

 

$

227,501

 

$

779,113

 

$

17,956

 

$

(186,089

)

$

838,481

 

 

14



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS

Six Months Ended August 30, 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

 

$

2,974

 

$

(1,492

)

$

(270

)

$

 

$

1,212

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow from investing activities:

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(7,203

)

 

 

(7,203

)

Proceeds from disposition of properties

 

 

102,452

 

 

 

102,452

 

Proceeds from sale of restricted investments

 

 

908

 

 

 

908

 

Purchase of restricted investments

 

 

(944

)

 

 

(944

)

Net cash provided by investing activities

 

 

95,213

 

 

 

95,213

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow from financing activities:

 

 

 

 

 

 

 

 

 

 

 

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

 

1,256

 

 

 

 

1,256

 

Debt issuance costs

 

 

 

 

 

 

Advances (to) from subsidiaries

 

59,172

 

(68,045

)

8,873

 

 

 

Net cash (used in) provided by financing activities

 

60,428

 

(68,045

)

8,873

 

 

1,256

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in cash and cash equivalents

 

63,402

 

25,676

 

8,603

 

 

97,681

 

Cash and cash equivalents at beginning of period

 

53,030

 

26,824

 

13,579

 

 

93,433

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

116,432

 

$

52,500

 

$

22,182

 

$

 

$

191,114

 

 

15



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS

Six Months Ended September 1, 2007

(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

 

$

4,469

 

$

(64,032

)

$

6,526

 

$

 

$

(53,037

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow from investing activities:

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(2,665

)

 

 

(2,665

)

Proceeds from disposition of properties

 

 

3,505

 

 

 

3,505

 

Proceeds from sale of restricted investments

 

 

6,373

 

 

 

6,373

 

Purchase of restricted investments

 

 

(589

)

 

 

(589

)

Net cash provided by investing activities

 

 

6,624

 

 

 

6,624

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow from financing activities:

 

 

 

 

 

 

 

 

 

 

 

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