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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950134-01-502674.txt : 20010601
<SEC-HEADER>0000950134-01-502674.hdr.sgml : 20010601
ACCESSION NUMBER: 0000950134-01-502674
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 6
CONFORMED PERIOD OF REPORT: 20010303
FILED AS OF DATE: 20010531
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: PIER 1 IMPORTS INC/DE
CENTRAL INDEX KEY: 0000278130
STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-HOME FURNITURE, FURNISHINGS & EQUIPMENT STORES [5700]
IRS NUMBER: 751729843
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0228
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-07832
FILM NUMBER: 1651819
BUSINESS ADDRESS:
STREET 1: 301 COMMERCE ST STE 600
CITY: FORT WORTH
STATE: TX
ZIP: 76102
BUSINESS PHONE: 8178788000
MAIL ADDRESS:
STREET 1: 301 COMMERCE STREET
STREET 2: SUITE 600
CITY: FORT WORTH
STATE: TX
ZIP: 76102
FORMER COMPANY:
FORMER CONFORMED NAME: PIER 1 INC
DATE OF NAME CHANGE: 19860921
FORMER COMPANY:
FORMER CONFORMED NAME: PIER 1 IMPORTS INC/GA
DATE OF NAME CHANGE: 19840729
FORMER COMPANY:
FORMER CONFORMED NAME: NEWCORP INC
DATE OF NAME CHANGE: 19800423
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>d86853e10-k405.txt
<DESCRIPTION>FORM 10-K FOR FISCAL YEAR ENDED MARCH 3, 2001
<TEXT>
<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the fiscal year ended MARCH 3, 2001.
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 No. 1-7832
PIER 1 IMPORTS, INC.
(Exact name of Company as specified in its charter)
DELAWARE 75-1729843
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 COMMERCE STREET, SUITE 600
FORT WORTH, TEXAS 76102
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (817) 252-8000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Company (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 Company
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the Company's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ X ]
As of May 2, 2001, the approximate aggregate market value of voting
stock held by non-affiliates of the Registrant was $1,089,600,000 using the
closing sales price on this day of $11.66. It is assumed for purposes of this
computation an affiliate includes all persons registered as Registrant insiders
with the Securities and Exchange Commission.
As of May 2, 2001, 96,365,006 shares of the Registrant's Common Stock,
$1.00 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents have been incorporated herein by
reference:
1) Registrant's Annual Report to Shareholders for the fiscal year ended
March 3, 2001 in Parts I and II hereof and;
2) Registrant's Proxy Statement for the 2001 Annual Meeting in Part III
hereof.
<PAGE> 2
<PAGE> 3
PART I
Item 1. Business.
(a) General Development of Business.
Throughout this document, references to the "Company" include Pier 1
Imports, Inc. and its consolidated subsidiaries. References to "Pier 1" relate
to the Company's retail locations operating under the name Pier 1 Imports.
References to "The Pier" relate to the Company's retail locations in the United
Kingdom operating under the name The Pier. References to "Cargo" relate to the
Company's retail locations operating under the name Cargo Furniture and Home.
From fiscal 1996 through fiscal 2001, the Company expanded its
specialty retail operations from 688 to 899 worldwide retail stores. In fiscal
2001, the Company continued to execute its expansion plan in North America by
opening a net 41 new Pier 1 stores and acquiring a 21-store retail chain, Cargo.
Subject to changes in the retail environment, availability of suitable store
sites and adequate financing, Pier 1 plans to open approximately 85 new stores
and close approximately 25 stores in North America in fiscal 2002, depending
upon lease renewal negotiations, relocation space availability and general
economic conditions. Almost all of the stores expected to close in fiscal 2002
are anticipated to be replaced with a more favorable location within the same
market. Cargo and The Pier are not expected to open any new stores during fiscal
2002.
Set forth below is a list by city of Pier 1 stores opened in North
America in fiscal 2001:
Aventura, FL Lynnwood, WA
Baytown, TX Manassas, VA
Bel Air, MD Mobile, AL
Benton Harbor, MI Morgantown, WV
Birmingham, AL Muskegon, MI
Bozeman, MT New Bern, NC
Burlington, NC Norwalk, CT
Calgary, AB Norwood, OH
Camarillo, CA Old Saybrook, CT
Cleveland, TN Orlando, FL
Concord, NC Park City, UT
Edmonton, AB Rancho Santa Margarita, CA
Elizabethtown, KY Rochester, NY
Elmhurst, IL Rockwall, TX
Eugene, OR Round Rock, TX
Fairfax, VA Sanford, NC
Fairview Heights, IL Shrewsbury, PA
Findlay, OH Skokie, IL
Fond Du Lac, WI South Charleston, WV
Fort Wayne, IN Southbury, CT
Fremont, CA Springfield, MO
Frisco, TX Stroudsburg, PA
Glen Allen, VA Taylor, MI
Goshen, IN Tonawanda, NY
Greeley, CO Troy, MI
Greenwood, SC Vancouver, BC
Hagerstown, MD Vestal, NY
Hanover, PA Warsaw, IN
Jacksonville, NC West Bend, WI
Jonesboro, AR Westerly, RI
Kokomo, IN Winchester, VA
Laredo, TX Winter Park, FL
Las Cruces, NM
During fiscal 2001, Pier 1 completed its program to remodel and
remerchandise store interiors to improve the visual merchandising of its
products in Pier 1 stores. This program, which upgraded more than 90% of the
stores, included store improvements such as better lighting, wider aisles, a
more open view for ease of shopping and greater use of "lifestyle merchandising"
by grouping products in home-use settings. A remodeling program, directed at
refurbishing older stores, supported this remerchandising effort. The Company
expects to continue to remodel and remerchandise store interiors as management
deems necessary.
Presently, Pier 1 maintains regional distribution center facilities in
or near Baltimore, Maryland; Chicago, Illinois; Columbus, Ohio; Fort Worth,
Texas; Ontario, California and Savannah, Georgia.
On February 21, 2001, the Company acquired certain assets and assumed
certain liabilities of Cargo Furniture, Inc. for $3,931,000, including cash
acquired. These assets and liabilities were included in the Company's balance
sheet as
2
<PAGE> 4
of March 3, 2001. Due to the timing of the acquisition, the newly formed
corporation operating under the name of Cargo Furniture and Home had no impact
on the Company's fiscal 2001 results of operations. Cargo is a 21-store retailer
and wholesaler of youth and casual lifestyle furniture, gifts and home decor.
Cargo stores are located in Texas, Virginia, Maryland, Georgia, Oklahoma, and
Kansas with distribution facilities in Fort Worth, TX and Chase City, Virginia.
Cargo utilizes a web site at cargohome.com to attract customers and provide
information regarding placing orders and store locations.
The Company owns 90% of the capital stock of The Pier, located in the
United Kingdom, which operates 23 retail stores offering decorative home
furnishings and related items in a setting similar to Pier 1 stores. At the end
of fiscal 2001, the Company's net investment in The Pier was $19.4 million.
During fiscal 2001, The Pier opened two new stores in England, bringing total
retail operations to 19 stores in England, three stores in Scotland, and one
store in Wales. Additionally, The Pier opened a new online store at pier.co.uk.
The Pier expects to close one store and upgrade several existing locations in
the U.K. during fiscal 2002. The Pier operates two distribution facilities near
London, England.
During fiscal 1994, the Company initiated an arrangement to supply
Sears de Mexico S.A. ("Sears Mexico") with Pier 1 merchandise to be sold in a
"store within a store" format in certain Sears Mexico stores. In fiscal 1998,
the Company amended its agreement with Sears Mexico to an arrangement that
substantially insulates the Company from currency fluctuations in the value of
the Mexican peso, which had reduced its profitability in the past. In fiscal
2001, Sears Mexico opened one new store offering Pier 1 merchandise. As of March
3, 2001, Pier 1 merchandise was offered in 13 Sears Mexico stores. Expansion
plans for fiscal 2002 include three new stores in Mexico.
The Company entered into a product distribution agreement with Sears
Roebuck de Puerto Rico, Inc. ("Sears Puerto Rico") in fiscal 1996 for Sears
Puerto Rico to market and sell Pier 1 merchandise in a "store within a store"
format in certain Sears Puerto Rico stores. Sears Puerto Rico operates a total
of ten stores in Puerto Rico, and as of March 3, 2001, seven of these stores
offered Pier 1 merchandise. The Company has no immediate plans for further
expansion in Puerto Rico but would consider future sites.
In fiscal 1996, a wholly-owned subsidiary of the Company entered into a
franchise agreement with Akatsuki Printing Co., Ltd. and Skylark Co., Ltd.
(collectively "Akatsuki") to develop Pier 1 retail stores in Japan. At the end
of fiscal 2001, Akatsuki operated nine Pier 1 stores in Tokyo, its surrounding
areas and other metropolitan markets. Akatsuki has informed the Company that it
will not seek to renew its current franchise agreement beyond its expiration
date of March 31, 2002 and will, at or prior to that time, close all of its
licensed Pier 1 stores in Japan.
In fiscal 1998, the Company purchased a credit card bank in Omaha,
Nebraska, now operating under the name of Pier 1 National Bank (the "Bank"). The
Bank holds the credit card accounts for the Pier 1 proprietary credit card. As
of March 3, 2001, Pier 1, through the Bank, had over 4,500,000 proprietary
cardholders with approximately 1,131,000 active accounts (accounts with a
purchase within the previous 12 months). Sales on the Pier 1 proprietary credit
card accounted for 28.9% of total U.S. store sales in fiscal 2001. Pier 1
continues to expand its proprietary credit card business by attracting new
accounts with a discounted first-time purchase, periodic deferred payment
options and enhanced customer loyalty through targeted promotions. Cargo is
initiating its own proprietary credit card in September 2001 and will also
utilize this bank.
In June 2000, Pier 1 launched its e-commerce website at pier1.com. More
than 2,000 merchandise items are offered for sale to customers, along with gift
certificates, an online clearance store and a Bridal & Gift Registry program.
Pier 1's web site allows customers to shop online, make changes or additions to
gift registries and offers the ease of returning internet purchases to their
neighborhood Pier 1 store. This website is also being utilized as a marketing
channel to reach new customers.
(b) Financial Information about Industry Segments.
In fiscal 2001, the Company operated in one business segment consisting
of the retail sale of imported decorative home furnishings, gifts and related
items.
Financial information with respect to the Company's business is found
in the Company's Consolidated Financial Statements, which are incorporated by
reference into Item 8 herein.
(c) Narrative Description of Business.
The specialty retail operations of the Company consist of three chains
of retail stores operating under the names "Pier 1 Imports", "The Pier", and
"Cargo" selling a wide variety of furniture, decorative home furnishings, dining
and kitchen goods, bath and bedding accessories and other specialty items for
the home.
On March 3, 2001, the Company operated 791 Pier 1 stores in 48 states
of the United States and 35 Pier 1 stores in four Canadian provinces, and
supported nine franchised stores in nine states of the U.S. Additionally, the
Company operated 23 stores in the United Kingdom under the name The Pier and 21
Cargo stores located in six states of the United States. The Company supplies
merchandise and licenses the Pier 1 Imports name to Sears Mexico and Sears
Puerto
3
<PAGE> 5
Rico, which sell Pier 1 merchandise in a "store within a store" format in 13
Sears Mexico stores and in seven Sears Puerto Rico stores. There were nine
franchised stores operating in Tokyo, its surrounding areas and other
metropolitan markets as of March 3, 2001. The Company-operated Pier 1 stores in
the United States and Canada average approximately 7,500 square feet of retail
selling space. The stores are generally freestanding units located near major
shopping centers or malls in all major U.S. metropolitan areas and many of the
primary smaller markets. In fiscal 2001, net sales of the Company totaled
$1,411.5 million. Pier 1 stores generally have their highest sales volumes
during November and December, reflecting the holiday selling season.
Pier 1's growth strategy for the future is to expand its North American
store base to more than 1,200 locations. Immediate plans to achieve this
expansion include, for fiscal 2002, the opening of approximately 85 new stores
while closing approximately 25 stores, the majority of which will be relocated
to more favorable locations within the same markets. In the next few years, the
Company expects Cargo to begin to expand nationally as a value-oriented retailer
of home furnishings for children and families. The Company plans to grow Cargo
to a 200- to 300-store concept over the next ten years. The Company currently
has no plans to expand outside of the United States, Canada, and Mexico.
Pier 1 offers a diverse selection of products consisting of nearly
5,000 items imported from over 50 countries around the world. While the broad
categories of Pier 1's merchandise remain constant, individual items within
these product groupings change frequently in order to meet the demands of
customers. The principal categories of merchandise include the following:
FURNITURE - This product group consists of furniture, furniture pads
and pillows to be used on patios and in living, dining, kitchen and bedroom
areas and in sun rooms. The group constituted approximately 40% Pier 1's of
total North American retail sales in fiscal year 2001, 38% in fiscal 2000 and
35% in fiscal 1999. These goods are imported from a variety of countries such as
Italy, Malaysia, Brazil, Mexico, China, the Philippines and Indonesia, and are
also obtained from domestic sources. The furniture is made of metal or
handcrafted natural materials, including rattan, pine, beech, rubberwood and
selected hardwoods with either natural, stained or painted finishes. Pier 1 also
sells upholstered furniture.
DECORATIVE ACCESSORIES - This product group constituted the broadest
category of merchandise in Pier 1's sales mix and contributed approximately 22%
to Pier 1's total North American retail sales in fiscal years 2001 and 2000 and
contributed 23% in fiscal 1999. These items are imported from approximately 40
countries and include brass, marble and wood items, as well as lamps, vases,
dried and silk flowers, baskets, wall decorations and numerous other decorative
items. A majority of these products are handcrafted from natural materials.
HOUSEWARES - This product group is imported mainly from the Far East
and Europe and includes ceramics, dinnerware and other functional and decorative
items. These goods accounted for approximately 12% of Pier 1's total North
American retail sales in fiscal years 2001 and 2000, and 13% of sales in fiscal
1999.
BED & BATH - This product group is imported mainly from India, the
United Kingdom, Italy, Thailand and China, and is also obtained from domestic
sources. The group includes bath and fragrance products, candles and bedding.
These goods accounted for approximately 17% of Pier 1's total North American
retail sales in fiscal year 2001, 18% in fiscal 2000 and 19% in fiscal 1999.
SEASONAL - This product group consists of merchandise to celebrate
holiday and spring/summer entertaining and is imported mainly from Europe,
Canada, Taiwan, China and India. These items accounted for approximately 9% of
Pier 1's total North American retail sales in fiscal year 2001, and 10% in
fiscal years 2000 and 1999.
Pier 1 merchandise largely consists of items that require a significant
degree of handcraftsmanship and are mostly imported directly from foreign
suppliers. For the most part, the imported merchandise is handcrafted in cottage
industries and small factories. Pier 1 is not dependent on any particular
supplier and has enjoyed long-standing relationships with many vendors. In
selecting the source of a product, Pier 1 considers quality, dependability of
delivery and cost. During fiscal 2001, Pier 1 sold merchandise imported from
over 50 different countries with 34% of its sales from merchandise produced in
China, 10% from merchandise produced in India and 25% from merchandise produced
in Indonesia, Mexico, Thailand, the Philippines and Italy. The remaining 31% of
sales was from merchandise produced in various Asian, European, Central
American, South American and African countries or was obtained from U.S.
manufacturers.
Pier 1 has six regional distribution centers located in or near
Baltimore, Maryland, Chicago, Illinois, Columbus, Ohio, Fort Worth, Texas,
Ontario, California and Savannah, Georgia and leases additional space from time
to time. Imported merchandise and a portion of domestic purchases are delivered
to the distribution centers, unpacked and made available for shipment to the
various stores in each center's region. Due to the time delays involved in
procuring merchandise from foreign suppliers, Pier 1 maintains a substantial
inventory to assure a sufficient supply of products in its stores.
The Company is in the highly competitive specialty retail business and
primarily competes with small specialty sections of large department stores,
home furnishing stores, small specialty import stores and discount stores.
Management believes that its stores compete on the basis of price, merchandise
assortment, merchandise visual presentation and customer service. The Company
also believes its Pier 1 stores enjoy a competitive edge over competing
retailers due to greater name recognition, established vendor relationships and
the extent and variety of the merchandise
4
<PAGE> 6
offered. While other retail stores change their items less frequently, Pier 1
differentiates itself by offering an array of unique and frequently changing
products. The Company believes that the Cargo acquisition gives it the
opportunity to address the underserved children's furniture and accessories
market.
As a retailer of imported merchandise, the Company is subject to
certain risks that typically do not affect retailers of domestically produced
merchandise. The Company typically orders merchandise from four to twelve months
in advance of delivery and pays for the merchandise at the time it is loaded for
transport to designated U.S. and international destinations. Dock strikes,
fluctuations in foreign currency exchange rates, restrictions on the
convertibility of the dollar and other currencies, duties, taxes and other
charges on imports, import quota systems and other restrictions generally placed
on foreign trade can affect the price, delivery and availability of ordered
merchandise. The inability to import products from certain countries or the
imposition of significant tariffs could also have a material adverse effect on
the results of operations of the Company. Freight costs contribute a substantial
amount to the cost of imported merchandise. Pier 1 negotiated new ocean freight
carrier contracts in fiscal 2000 which should stabilize its ocean freight rates
through fiscal 2002.
The United States and more than 100 other countries culminated seven
years of negotiations with an agreement which became effective January 1, 1995
to reduce, over time, tariff and non-tariff barriers to world trade in goods and
services and established the World Trade Organization to replace the General
Agreement on Tariffs and Trade. The World Trade Organization provides a
framework for international trade matters and includes a process for the
resolution of trade disputes among the member countries. In recent years, the
dispute resolution process of the World Trade Organization has been utilized to
resolve disputes regarding market access between the European Union, the United
States and other countries. In some instances these trade disputes have led to
the threat by countries of sanctions against each other, which have included
import prohibitions and increases in duty rates on imported items. The Company
considers any agreement that reduces tariff and non-tariff barriers in
international trade beneficial to its business in the United States and around
the world.
Currently, China is not a member of the World Trade Organization but
has been negotiating with the United States, the European Union and other
members of the World Trade Organization on an accession agreement acceptable to
the World Trade Organization members. Presently, the U.S. maintains the trade
status of normal trade relations ("NTR") with China providing, among other
things, favorable import duty rates for goods coming into the U.S. However, the
President and/or Congress may revoke the NTR status when the decision on the
annual NTR extension is considered by the President and Congress beginning in
June 2001. The debate in Congress to permit the extension of NTR status to China
may be more heated and less certain this year than in previous years.
The 1988 Omnibus Trade and Competitiveness Act was signed into law
amending the Trade Act of 1974. This legislation was enacted partly in response
to a perceived decline in U.S. global competitiveness and the continuing
presence of unfair trade practices that limit U.S. exporters' access to foreign
markets. Under the law, the office of the U.S. Trade Representative may
investigate unfair trade practices of countries around the world. These
investigations may lead to sanctions, which could take the form of quotas or
increased duties on imports into the U.S.
The U.S. Trade Representative is required to take action within 30 days
(subject to being postponed for 180 days) after the conclusion of its
investigation of countries alleged to have committed unfair trade practices.
Upon a determination that a country has committed an unfair trade practice, the
U.S. Trade Representative may designate the subject country a priority foreign
country and impose sanctions in the form of quotas or increased duties. On
previous occasions, the U.S. Trade Representative has identified certain
countries which supply merchandise to the Company as priority foreign countries.
These designations, however, were rescinded after the U.S. Trade Representative
and the countries reached agreements regarding the basis for the designations.
The United States employs other measures besides this trade legislation
to implement its international trade policies and objectives. For example, the
United States may withdraw most favored nation status from a country, resulting
in higher import duties on products from that country. Any type of sanction on
imports is likely to increase the Company's import costs or limit the
availability of products purchased from sanctioned countries. In that case, the
Company will seek similar products from other countries.
The Company, through certain of its wholly-owned subsidiaries, owns
three federally registered service marks under which its Pier 1 Imports stores
do business and one federally registered service mark under which its Cargo
stores do business. These registrations are numbered 948,076 and 1,620,518 for
the mark PIER 1 IMPORTS, 1,104,059 for the mark PIER 1 and 1,348,743 for the
mark CARGO. Additionally, certain subsidiaries of the Company have registered
and have applications pending for the registration of Pier 1 and Cargo
trademarks and service marks in the United States and in numerous foreign
countries.
On March 3, 2001, Pier 1 employed approximately 14,600 associates in
North America, of which approximately 6,500 were full-time employees and 8,100
were part-time employees.
The Company maintains a wholly-owned foreign subsidiary incorporated
under the laws of Hong Kong to manage certain merchandise procurement, export
and financial service functions. Also, a wholly-owned foreign subsidiary
incorporated under the laws of Bermuda owns the right to license and to
franchise the Company's trademarks and service marks outside the United States,
Canada and Puerto Rico.
5
<PAGE> 7
Certain statements contained in Item 1, Item 7 and elsewhere in this
report may constitute "forward-looking statements" within the meaning of Section
21E of the Securities Exchange Act of 1934. The Company may also make
forward-looking statements in other reports filed with the Securities and
Exchange Commission and in material delivered to the Company's shareholders.
Forward-looking statements provide current expectations of future events based
on certain assumptions. These statements encompass information that does not
directly relate to any historical or current fact and often may be identified
with words such as "anticipates," "believes," "expects," "estimates," "intends,"
"plans," "projects" and other similar expressions. Management's expectations and
assumptions regarding planned store openings, financing of Company obligations
from operations and other future results are subject to risks, uncertainties and
other factors that could cause actual results to differ materially from the
anticipated results or other expectations expressed in the forward-looking
statements. Risks and uncertainties that may affect Company operations and
performance include, among others, weather conditions that may affect sales,
volatility of fuel and utility costs, the general strength of the economy and
levels of consumer spending, consumer confidence, the availability of new sites
for expansion along with sufficient labor to facilitate growth, the strength of
new home construction and sales of existing homes, the ability of the Company to
import merchandise from foreign countries without significantly restrictive
tariffs, duties or quotas and the ability of the Company to ship items from
foreign countries at reasonable rates in a timely fashion. The foregoing risks
and uncertainties are in addition to others discussed elsewhere in this report.
The Company assumes no obligation to update or otherwise revise its
forward-looking statements even if experience or future changes make it clear
that any projected results expressed or implied will not be realized.
Item 2. Properties.
The Company leases approximately 195,000 square feet of office space
for its Pier 1 corporate office and leases approximately 10,200 square feet of
additional office space for its Cargo subsidiary. Both corporate office
facilities are located in Fort Worth, Texas.
The Company leases almost all of its retail stores, its warehouses and
other office space. At March 3, 2001, the present value of the Company's minimum
future operating lease commitments discounted at 10% totaled approximately $625
million. The Company currently owns and leases distribution space of
approximately four million square feet. The Company also acquires temporary
distribution space from time to time through short-term leases.
The following table shows the distribution of Pier 1's North American
stores by state and province as of March 3, 2001:
<TABLE>
<S> <C> <C> <C>
United States
- -------------
Alabama 12 Montana 5
Alaska 1 Nebraska 4
Arizona 14 Nevada 4
Arkansas 6 New Hampshire 5
California 86 New Jersey 18
Colorado 18 New Mexico 5
Connecticut 16 New York 38
Delaware 3 North Carolina 23
Florida 61 North Dakota 3
Georgia 25 Ohio 34
Hawaii 2 Oklahoma 5
Idaho 3 Oregon 10
Illinois 38 Pennsylvania 30
Indiana 19 Rhode Island 5
Iowa 7 South Carolina 12
Kansas 7 South Dakota 2
Kentucky 9 Tennessee 17
Louisiana 13 Texas 61
Maryland 18 Utah 7
Massachusetts 19 Virginia 26
Michigan 28 Washington 19
Minnesota 15 West Virginia 4
Mississippi 6 Wisconsin 14
Missouri 13 Wyoming 1
Canada
- ------
Alberta 4 Ontario 22
British Columbia 3 Quebec 6
</TABLE>
6
<PAGE> 8
As of March 3, 2001, Pier 1 owned or leased the following warehouse properties:
<TABLE>
<CAPTION>
Owned/Leased
Location Approx. Sq. Ft. Facility
- -------- --------------- ------------
<S> <C> <C>
Baltimore, Maryland 796,000 sq. ft. Leased
Chicago, Illinois 514,000 sq. ft Owned
Columbus, Ohio 527,000 sq. ft. Leased
Fort Worth, Texas 512,000 sq. ft. Owned
Ontario, California 747,000 sq. ft. Leased
Savannah, Georgia 548,000 sq. ft. Owned
</TABLE>
The Company also leases approximately 93,000 square feet of warehouse
space in the United Kingdom for The Pier's operations and approximately 74,000
square feet of warehouse space in the United States for Cargo's operations. The
Company is currently leasing additional space under short-term agreements and
believes its distribution facilities are sufficient for the next two years.
Item 3. Legal Proceedings.
The Company is subject to various claims, lawsuits, investigations and
pending actions against the Company and its subsidiaries incident to the
operation of their businesses. Liability, if any, associated with these matters
is not determinable at March 3, 2001; however, the Company considers them to be
either ordinary and routine in nature or immaterial in amount. While a certain
number of the lawsuits involve substantial amounts, management, after
consultation with counsel, does not currently expect such litigation will have a
material adverse effect on the Company's financial position, results of
operations or liquidity. The Company intends to vigorously defend itself against
the claims asserted in these lawsuits.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of the Company's security
holders during the fourth quarter of the Company's 2001 fiscal year.
Executive Officers of the Company
MARVIN J. GIROUARD, age 61, has served as Chairman and Chief Executive
Officer of the Company since March 1999 and has been a member of the Executive
Committee since December 1998. He has been a Director of the Company since
August 1988. From June 1998 to February 1999, Mr. Girouard served as President
and Chief Executive Officer of the Company and from August 1988 to June 1998 he
served as President and Chief Operating Officer of the Company. From May 1985
until August 1988, he served as the Company's Senior Vice President of
Merchandising.
CHARLES H. TURNER, age 44, has served as Senior Vice President of
Finance, Chief Financial Officer and Treasurer of the Company since August 1999.
He served as Senior Vice President of Stores of the Company from August 1994 to
August 1999 and served as Controller and Principal Accounting Officer of the
Company from January 1992 to August 1994.
ROBERT A. ARLAUSKAS, age 46, has served as Senior Vice President of
Stores of the Company since September 1999. He served as Vice President of West
Zone Operations of Pier 1 Imports (U.S.), Inc. from August 1995 to September
1999 and served as Director of West Zone Operations of Pier 1 Imports (U.S.),
Inc. from June 1993 to August 1995.
JAY R. JACOBS, age 46, has served as Senior Vice President of
Merchandising of the Company since May 1995. He served as Vice President of
Divisional Merchandising of Pier 1 Imports (U.S.), Inc. from May 1993 to May
1995 and served as Director of Divisional Merchandising of Pier 1 Imports
(U.S.), Inc. from July 1991 to May 1993.
J. RODNEY LAWRENCE, age 55, has served as Senior Vice President of
Legal Affairs and Secretary of the Company since June 1992, and served as Vice
President of Legal Affairs and Secretary of the Company from November 1985 to
June 1992.
PHIL E. SCHNEIDER, age 49, has served as Senior Vice President of
Marketing of the Company since May 1993 and served as Vice President of
Advertising of Pier 1 Imports (U.S.), Inc. from January 1988 to May 1993.
DAVID A. WALKER, age 50, has served as Senior Vice President of
Logistics and Allocations of the Company since September 1999. He served as Vice
President of Planning and Allocations of Pier 1 Imports (U.S.), Inc. from
January 1994 to September 1999 and served as Director of Merchandise Services of
Pier 1 Imports (U.S.), Inc. from October 1989 to January 1994.
7
<PAGE> 9
E. MITCHELL WEATHERLY, age 53, has served as Senior Vice President of
Human Resources of the Company since June 1992 and served as Vice President of
Human Resources of the Company from June 1989 to June 1992 and of Pier 1 Imports
(U.S.), Inc. from August 1985 to June 1992.
The officers of the Company are appointed by the Board of Directors,
hold office until their successors are elected and qualified and/or until their
earlier death, resignation or removal.
None of the above executive officers has any family relationship with
any other of such officers. None of such officers was selected pursuant to any
arrangement or understanding between him and any other person.
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters.
Information required by this Item is incorporated by reference to the
section entitled "Market Price and Dividend Information" set forth in the
Company's Annual Report to Shareholders for the fiscal year ended March 3, 2001.
The Company's common stock is traded on the New York Stock Exchange. As
of May 2001, there were approximately 35,000 shareholders of record of the
Company's common stock.
During fiscal 2001, the Company repurchased nearly 3.3 million shares
of its outstanding common stock. In December 2000, the Board of Directors
approved the repurchase of an additional five million shares of the Company's
common stock. As of May 23, 2001, one million shares of the Company's common
stock had been repurchased in fiscal 2002, leaving approximately 5.8 million
shares available for repurchase under the approved Board of Directors stock
buyback program. Future repurchases of common stock will be made through open
market or private transactions from time to time depending on prevailing market
conditions, the Company's available cash and the Company's consideration of any
loan covenant restrictions and its credit ratings.
In March 2000, the Company redeemed its $39.2 million outstanding
principal amount of 5 3/4% convertible subordinated notes originally due October
1, 2003. The notes were redeemable at 103% of par on March 23, 2000 or
convertible into the Company's common stock at a price of $8.22 per share. Prior
to redemption, the Company converted $39,164,000 of the notes into 4,764,450
shares of the Company's common stock and redeemed $15,000 of the notes for cash.
Certain of the Company's existing loan agreements require the Company
to maintain specified financial ratios and limit certain investments and
distributions to shareholders, including cash dividends, loans to shareholders
and repurchases of the Company's common stock. During fiscal 2001, the Company
paid cash dividends totaling approximately $14.5 million, or $.15 per share. The
Company's Board of Directors currently expects to continue to pay cash dividends
in fiscal 2002, but intends to retain most of its future earnings for the
expansion of the Company's business. The Company paid a cash dividend of $.04
per share on May 16, 2001. The Company's dividend policy will depend upon the
earnings, financial condition and capital needs of the Company and other factors
deemed relevant by the Company's Board of Directors.
Item 6. Selected Financial Data.
Information required by this Item is incorporated by reference to the
section entitled "Financial Summary" set forth in the Company's Annual Report to
Shareholders for the fiscal year ended March 3, 2001.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Information required by this Item is incorporated by reference to the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" set forth in the Company's Annual Report to
Shareholders for the fiscal year ended March 3, 2001.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Information required by this Item is incorporated by reference to the
section entitled "Market Risk Disclosures" set forth in the Company's Annual
Report to Shareholders for the fiscal year ended March 3, 2001.
8
<PAGE> 10
Item 8. Financial Statements and Supplementary Data.
Information required by this Item is incorporated by reference to the
material in the Company's consolidated financial statements described below and
notes thereto set forth in the Company's Annual Report to Shareholders for the
fiscal year ended March 3, 2001:
Consolidated Statements of Operations for the Years
Ended March 3, 2001, February 26, 2000 and
February 27, 1999
Consolidated Balance Sheets at March 3, 2001 and February 26, 2000
Consolidated Statements of Cash Flows for the Years
Ended March 3, 2001, February 26, 2000 and
February 27, 1999
Consolidated Statements of Shareholders' Equity for
the Years Ended March 3, 2001, February 26,
2000 and February 27, 1999
Notes to Consolidated Financial Statements
Report of Independent Auditors
The unaudited quarterly information required by this Item is
incorporated by reference to the section entitled "Market Price and Dividend
Information" set forth in the Company's Annual Report to Shareholders for the
fiscal year ended March 3, 2001 and February 26, 2000.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Company.
Information regarding directors of the Company required by this Item is
incorporated by reference to the section entitled "Election of Directors -
Nominees for Directors" set forth in the Company's Proxy Statement for its 2001
Annual Meeting of Shareholders.
The information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934 required by this Item is incorporated by
reference to the section entitled "Section 16(a) Beneficial Ownership Reporting
Compliance" set forth in the Company's Proxy Statement for its 2001 Annual
Meeting of Shareholders.
Item 11. Executive Compensation.
The information required by this Item is incorporated herein by
reference to the section entitled "Executive Compensation" set forth in the
Company's Proxy Statement for its 2001 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is incorporated herein by
reference to the section entitled "Election of Directors - Security Ownership of
Management" set forth in the Company's Proxy Statement for its 2001 Annual
Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions.
None.
9
<PAGE> 11
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) List of consolidated financial statements, schedules and
exhibits filed as part of this report.
1. Financial Statements
Consolidated Statements of Operations for the Years
Ended March 3, 2001, February 26, 2000 and
February 27, 1999
Consolidated Balance Sheets at March 3, 2001 and February
26, 2000
Consolidated Statements of Cash Flows for the Years
Ended March 3, 2001, February 26, 2000 and
February 27, 1999
Consolidated Statements of Shareholders' Equity for
the Years Ended March 3, 2001, February 26,
2000 and February 27, 1999
Notes to Consolidated Financial Statements
Report of Independent Auditors
2. Financial Statement Schedules
Schedules have been omitted because they are not
required or are not applicable or because the
information required to be set forth therein either
is not material or is included in the financial
statements or notes thereto.
3. Exhibits
See Exhibit Index.
(b) Reports on Form 8-K.
None.
10
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: May 30, 2001 PIER 1 IMPORTS, INC.
By: /s/ Marvin J. Girouard
---------------------------
Marvin J. Girouard, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Marvin J. Girouard Chairman and May 30, 2001
- --------------------------- Chief Executive Officer
Marvin J. Girouard
/s/ Charles H. Turner Senior Vice President, May 30, 2001
- --------------------------- Chief Financial Officer and Treasurer
Charles H. Turner
/s/ Susan E. Barley Principal Accounting Officer May 30, 2001
- ---------------------------
Susan E. Barley
/s/ John H. Burgoyne Director May 30, 2001
- ---------------------------
John H. Burgoyne
/s/ Dr. Michael R. Ferrari Director May 30, 2001
- ---------------------------
Dr. Michael R. Ferrari
/s/ James M. Hoak, Jr. Director May 30, 2001
- ---------------------------
James M. Hoak, Jr.
/s/ Sally F. McKenzie Director May 30, 2001
- ---------------------------
Sally F. McKenzie
/s/ Tom M. Thomas Director May 30, 2001
- ---------------------------
Tom M. Thomas
</TABLE>
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3(i) Certificate of Incorporation and Amendments thereto incorporated
herein by reference to Exhibit 3(i) to Registrant's Form 10-Q
for the quarter ended May 30, 1998.
3(ii) Bylaws of the Company, Restated as of December 7, 1994,
incorporated herein by reference to Exhibit 3(ii) to the
Company's Form 10-Q for the quarter ended November 26, 1994.
4.1 Rights Agreement dated December 9, 1994, between the Company and
First Interstate Bank, N.A., as rights agent, incorporated
herein by reference to Exhibit 4 to the Company's Registration
Statement on Form 8-A, Reg. No. 1-7832, filed December 20, 1994.
10.1* Form of Indemnity Agreement between the Company and the
directors and executive officers of the Company, incorporated
herein by reference to Exhibit 10(l) to the Company's Form 10-K
for the fiscal year ended February 29, 1992.
10.2* The Company's Supplemental Executive Retirement Plan effective
May 1, 1986, as amended and restated as of January 1, 1996,
incorporated herein by reference to Exhibit 10.2 to the
Company's Form 10-K for the fiscal year ended March 1, 1997.
10.2.1* Amendments to the Company's Supplemental Executive Retirement
Plan.
10.3* The Company's Supplemental Retirement Plan effective September
28, 1995, incorporated herein by reference to Exhibit 10.1 to
the Company's Form 10-Q for the quarter ended June 1, 1996.
10.4* The Company's Benefit Restoration Plan as Amended and Restated
effective July 1, 1995, incorporated herein by reference to
Exhibit 10.5.1 to the Company's Form 10-Q for the quarter ended
May 27, 1995.
10.5* The Company's Restricted Stock Plan effective March 5, 1990,
incorporated herein by reference to Exhibit 10(p) to the
Company's Form 10-K for the fiscal year ended March 3, 1990.
10.6* The Company's Management Restricted Stock Plan, effective June
24, 1993, incorporated herein by reference to Exhibit 10.7 to
the Company's Form 10-K for the fiscal year ended February 25,
1995.
10.7* The Company's 1989 Employee Stock Option Plan, effective June
29, 1989, incorporated herein by reference to Exhibit 10(q) to
the Company's Form 10-K for the fiscal year ended March 3, 1990;
as amended by Amendment No. 1 to the 1989 Employee Stock Option
Plan, incorporated herein by reference to the Company's Form
10-Q for the quarter ended June 1, 1996.
10.8* The Company's 1989 Non-Employee Director Stock Option Plan,
effective June 29, 1989, incorporated herein by reference to
Exhibit 10(r) to the Company's Form 10-K for the fiscal year
ended March 3, 1990.
10.9* Form of Post-Employment Consulting Agreement between the Company
and its executive officers, incorporated herein by reference to
Exhibit 10(r) to the Company's Form 10-K for the fiscal year
ended February 29, 1992.
10.10* The Company's Management Medical and Tax Benefit Plans,
incorporated herein by reference to Exhibit 10.18 to the
Company's Form 10-K for the fiscal year ended February 26, 1994.
10.11.1 Pooling and Servicing Agreement, dated February 12, 1997, among
Pier 1 Imports (U.S.), Inc., Pier 1 Funding, Inc. and Texas
Commerce Bank National Association, as Trustee, incorporated
herein by reference to Exhibit 10.13 to the Company's Form 10-K
for the fiscal year ended March 1, 1997.
10.11.2 Amendments Nos. 1, 2 and 3 to the Pooling and Servicing
Agreement, incorporated herein by reference to Exhibit 10.13.2
to the Company's Form 10-K for the fiscal year ended February
28, 1998.
10.11.3 Amendment No. 4 to the Pooling and Servicing Agreement.
</TABLE>
<PAGE> 14
<TABLE>
<S> <C>
10.12* Form of Deferred Compensation Agreement, between the Company and
senior executive officers, incorporated herein by reference to
Exhibit 10.1 to the Company's Form 10-Q for the quarter ended
November 29, 1997.
10.13* Senior Management Annual Bonus Plan, incorporated herein by
reference to Exhibit 10.1 to the Company's Form 10-Q for the
quarter ended May 31, 1997.
10.14.1 Revolving Credit Agreement, dated November 12, 1998, among the
Company, certain of its subsidiaries, NationsBank, N.A., Bank
One, Texas, N.A., and Wells Fargo Bank (Texas), National
Association, incorporated herein by reference to Exhibit 10.1 to
the Company's Form 10-Q for the quarter ended November 28, 1998.
10.14.2 First Amendment to the Revolving Credit Agreement, dated
December 30, 1999, incorporated herein by reference to Exhibit
10.14.2 to the Company's Form 10-K for the fiscal year ended
February 26, 2000.
10.15* The Company's 1999 Stock Option Plan, effective June 24, 1999,
incorporated herein by reference to Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended August 28, 1999.
10.16* Forms of Director and Employee Stock Option Agreements,
incorporated herein by reference to Exhibit 10.2 to the
Company's Form 10-Q for the quarter ended August 28, 1999.
13 Annual Report to Shareholders for the fiscal year ended March 3,
2001.
21 Roster of Subsidiaries of the Company.
23 Consent of Independent Auditors.
</TABLE>
*Management Contracts and Compensatory Plans
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2.1
<SEQUENCE>2
<FILENAME>d86853ex10-2_1.txt
<DESCRIPTION>AMENDMENTS TO SUPPLEMENTAL EXEC. RETIREMENT PLAN
<TEXT>
<PAGE> 1
EXHIBIT 10.2.1
FIRST AMENDMENT
TO THE
PIER 1 IMPORTS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
AS RESTATED
WHEREAS, PIER 1 IMPORTS, INC. (the "Company") has heretofore adopted
the PIER 1 IMPORTS, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN; and
WHEREAS, such plan was restated on January 1, 1996, (the restated plan
herein referred to as the "Plan"); and
WHEREAS, the Company desires to amend the Plan's definition of
"Employer" contained in Section 2.8 of the Plan to include within such
definition wholly owned non-corporate business trust(s) of the Company;
NOW, THEREFORE pursuant to Section 8.1 of the Plan, effective October
1, 1996, the Plan is amended as follows:
1. Section 2.8 of the Plan is amended to read as follows:
Employer. "Employer" means any of Pier 1, its subsidiaries,
including a business trust directly or indirectly wholly owned
by Pier 1, and each of their respective successors.
IN WITNESS WHEREOF, the Company has caused this Amendment to be
executed as of the stated effective date.
PIER 1 IMPORTS, INC.,
a Delaware corporation
By:
----------------------------------
E. Mitchell Weatherly
Senior Vice President
<PAGE> 2
PIER 1 IMPORTS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
1996 RESTATEMENT
AMENDMENT NO. 2
This Amendment No. 2 to the restated Pier 1 Imports, Inc. Supplemental
Executive Retirement Plan, originally effective May 1, 1986 and restated as of
January 1, 1996, as amended October 11, 1996 and June 26, 1997 (the "Plan"), is
made on this 26th day of September, 2000, by Pier 1 Imports, Inc., a Delaware
corporation (the "Company").
WHEREAS, the Company desires to eliminate the restriction on the
maximum amount of the Supplemental Retirement Benefit payable annually to any
Participant under the Plan; and
WHEREAS, pursuant to Section 8.1 of the Plan, the Board of Directors of
the Company may amend the Plan at any time, in whole or in part;
NOW, THEREFORE, the Plan is hereby amended as follows:
FIRST: Section 4.1 of the Plan is hereby amended to read in its
entirety as follows:
4.1 BENEFIT
Upon separation from employment, a Participant shall receive a
Supplemental Retirement Benefit from this Plan which, along with the
Participant's benefits from primary Social Security, shall equal
approximately fifty percent (50%) of the Participant's Highest Average
Compensation. The computation of said Supplemental Retirement Benefit
shall be made in accordance with the following provisions of this
Article IV.
SECOND: This Amendment No. 2 shall be effective as of September 26,
2000, and shall not operate or be construed to alter, modify or amend the Plan
except as expressly set forth herein. The terms and provisions of the Plan, as
expressly amended hereby, shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Amendment No. 2 to be
executed as of September 26, 2000.
PIER 1 IMPORTS, INC.
By:
----------------------------
J. Rodney Lawrence
Senior Vice President
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.11.3
<SEQUENCE>3
<FILENAME>d86853ex10-11_3.txt
<DESCRIPTION>AMENDMENT NO.4 TO THE POOLING & SERVICING AGRMT.
<TEXT>
<PAGE> 1
EXHIBIT 10.11.3
AMENDMENT NO. 4 TO
POOLING AND SERVICING AGREEMENT
This AMENDMENT NO. 4, dated as of March 30, 2001, to POOLING AND
SERVICING AGREEMENT, dated as of February 12, 1997, as amended by Amendment No.
1, dated as of May 30, 1997, Amendment No. 2, dated as of October 29, 1997, and
Amendment No. 3, dated as of January 13, 1998 (the Pooling and Servicing
Agreement, as amended by Amendments No. 1, No. 2 and No. 3, is herein referred
to as the "Agreement"), among PIER 1 FUNDING, LLC, a Delaware limited liability
company and successor to Pier 1 Funding, Inc., a Delaware corporation, as
Transferor (the "Transferor"), PIER 1 IMPORTS, INC., a Delaware corporation, as
Servicer (the "Servicer"), and THE CHASE MANHATTAN BANK, a New York banking
Association and successor to Texas Commerce Bank National Association, as
Trustee (the "Trustee").
WHEREAS, the Transferor, the Servicer and the Trustee have entered into
the Agreement and wish to further amend the Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained, the parties hereto hereby agree as follows:
SECTION 1. Defined Terms.
"Effective Date" means the earlier of March 31, 2001, or the first date
on which each of the parties hereto shall have executed and delivered to the
others one or more counterparts of this Amendment.
Unless otherwise defined herein, the terms used herein shall have the
meanings assigned to such terms in, or incorporated by reference to the
Agreement.
SECTION 2. Amendments to the Agreement.
The Agreement is hereby amended, effective on the Effective Date, as
follows:
(a) Section 1.1 of the Agreement shall be amended in the definition of
"Cash Equivalents" by:
(1) appending to the end of the first phrase of such
definition beginning after the word "evidence" the following phrase:
, the maturity dates of which shall not be later than
the expected distribution dates of the funds:
and
(2) amending and restating clause (h) to read as follows:
<PAGE> 2
any other relatively risk-free investments (excluding
options) approved in writing by each Rating Agency
which would not cause the Trust to become an
"investment company" within the meaning of the
Investment Company Act.
(b) Section 2.10 of the Agreement shall be amended by:
(1) appending the following proviso to the end of the first
sentence thereof prior to subsection (a):
; provided, however, that the reassignment of Removed
Accounts may be effected no more frequently than once
in any 30-day period:
and
(2) deleting subclause (x) from clause (ii) of Section 2.10(e)
such that clause (ii) shall read in its entirety as follows:
(ii) a random selection procedure was used by the
Transferor in selecting the Removed Accounts or
Participation Interests;
(c) Section 9.2(a) of the Agreement shall be amended by deleting the
fourth and fifth sentences preceding the end of Section 9.2(a) and inserting in
their place the following sentence:
In the case of an Insolvency Event only, the Transferor or any of its
Affiliates shall be permitted to bid for the Receivables and,
additionally, shall have the right to match any bid by a third person
and be granted the right to purchase the Receivables at such matched
bid price.
(d) Section 12.4 of the Agreement relating to Defeasance shall be
deleted in its entirety.
(e) Section 13.1(a) of the Agreement shall be amended by amending and
restating clause (ix) thereof and the following proviso to read as follows:
(ix) adding any provision to, changing in any manner or eliminating any
provision of, this Agreement or any Supplement, or modifying in any
manner the rights of Certificateholders of any Series then issued and
outstanding; provided, however, in each case that (x) the Transferor
shall have delivered to the Trustee an Officer's Certificate to the
effect that the Transferor reasonably believes that such action shall
not adversely affect in any material respect the interests of any
Investor Certificateholder and that such amendment shall not
significantly change the permitted activities of the Trust or result in
the disallowance of sales accounting treatment of the transfer of the
Receivables to the Trust under generally accepted accounting principles
as provided in then existing accounting literature, (y) except with
respect to clauses (i) and (ii), the Rating Agency Condition shall have
been
2
<PAGE> 3
satisfied with respect to any such amendment and (z) a Tax Opinion is
delivered in connection with any such amendment.
SECTION 3. Execution in Counterparts.
This Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which counterparts,
when so executed and delivered, shall be deemed to be an original and all of
which counterparts, taken together, shall constitute but one and the same
Amendment.
SECTION 4. Consents; Binding Effect.
The execution and delivery by the Transferor, the Servicer and the
Trustee of this Amendment shall constitute the written consent of each of them,
as required by Section 13.1 of the Agreement, to this Amendment.
On the Effective Date, this Amendment shall be binding upon, and inure
to the benefit of, the parties hereto and their respective successors and
assigns.
SECTION 5. Governing Law.
This Amendment shall be governed by and construed in accordance with
the laws of the State of New York.
SECTION 6. Severability of Provisions.
Any provision of this Amendment which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
SECTION 7. Captions.
The captions in this Amendment are for convenience of reference only
and shall not define or limit any of the terms or provisions hereof.
SECTION 8. Agreement to Remain in Full Force and Effect.
Except as amended hereby, the Agreement shall remain in full force and
effect and is hereby ratified, adopted and confirmed in all respects. This
Amendment shall be deemed to be an amendment to the Agreement. All references in
the Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of
like import, and all references to the Agreement in any other agreement or
document shall hereafter be deemed to refer to the Agreement as amended hereby.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
executed as of the date and year first above written.
PIER 1 IMPORTS (U.S.), INC.,
as Servicer
By
-------------------------------------
J. Rodney Lawrence
Senior Vice President
PIER 1 FUNDING, LLC,
as Transferor
By
-------------------------------------
J. Gregory Coffey
Vice President
THE CHASE MANHATTAN BANK,
as Trustee
By
-------------------------------------
Alan Lai
Vice President
4
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>4
<FILENAME>d86853ex13.txt
<DESCRIPTION>ANNUAL REPORT TO SHAREHOLDERS FOR YEAR END 3/3/01
<TEXT>
<PAGE> 1
EXHIBIT 13
FINANCIAL SUMMARY
($ in millions except per share amounts)
<TABLE>
<CAPTION>
4-Year
Compound Year Ended
Annual -----------------------------------------------------------
Growth Rate 2001(1) 2000 1999 1998 1997
----------- --------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net sales 10.5% $ 1,411.5 1,231.1 1,138.6 1,075.4 947.1
Gross profit 11.5% $ 594.5 512.5 500.4 461.5 384.5
Selling, general and administrative expenses 9.9% $ 399.8 349.4 334.6 315.8 274.5
Depreciation and amortization 21.5% $ 43.2 40.0 31.1 23.9 19.8
Operating income 13.8% $ 151.5 123.2 134.7 121.7 90.2
Nonoperating (income) and expenses, net(2) (39.8%) $ 1.3 4.6 5.0 (2.3) 9.9
Income before income taxes and extraordinary
charges 16.9% $ 150.2 118.6 129.6 124.0 80.3
Income before extraordinary charges 18.4% $ 94.7 74.7 80.4 78.0 48.2
Extraordinary charges from early retirement
of debt, net of income tax benefit $ -- -- -- -- 4.1
Net income 21.1% $ 94.7 74.7 80.4 78.0 44.1
PER SHARE AMOUNTS
(ADJUSTED FOR STOCK SPLITS AND DIVIDENDS):
Basic earnings before extraordinary charges 18.3% $ .98 .78 .82 .77 .50
Basic earnings 20.8% $ .98 .78 .82 .77 .46
Diluted earnings before extraordinary charges 19.9% $ .97 .75 .77 .72 .47
Diluted earnings 21.9% $ .97 .75 .77 .72 .44
Cash dividends declared 21.0% $ .15 .12 .12 .09 .07
Shareholders' equity 13.4% $ 5.52 4.60 4.12 3.89 3.34
OTHER FINANCIAL DATA:
Working capital(3) 11.5% $ 333.0 239.3 252.1 280.8 215.3
Current ratio(3) 2.4% 3.3 2.4 2.9 3.3 3.0
Total assets 6.6% $ 735.7 670.7 654.0 653.4 570.3
Long-term debt (31.6%) $ 25.0 25.0 96.0 114.9 114.5
Shareholders' equity 13.3% $ 531.9 440.7 403.9 392.7 323.0
Weighted average diluted shares
outstanding (millions) 96.3 95.8 98.1 101.1 96.8
Effective tax rate(4) 37.0% 37.0 38.0 37.1 40.0
Return on average shareholders' equity 5.1% 19.5% 17.7 20.2 21.8 16.0
Return on average total assets 14.0% 13.5% 11.3 12.3 12.8 8.0
Pre-tax return on sales(5) 5.7% 10.6% 9.6 11.4 11.5 8.5
</TABLE>
(1) Fiscal 2001 consisted of a 53-week year. All other fiscal years presented
reflect 52-week years.
(2) Nonoperating (income) and expenses, net, were comprised of interest expense
and interest and investment income in each fiscal year presented, and in
addition, included net recoveries associated with trading activities in
fiscal 1998.
(3) The reduction in fiscal 2000 working capital and current ratio was the
result of the Company's call of its outstanding 5 3/4% convertible
subordinated notes. The notes were primarily converted into shares of the
Company's common stock in March 2000. Excluding the reclassification of the
5 3/4% notes from long-term to short-term, working capital would have been
$278.5 million with a current ratio of 3.0 to 1 at fiscal 2000 year-end.
(4) No income tax expense was provided on the net recoveries associated with
trading activities, which resulted in a lower effective tax rate in fiscal
1998.
(5) Calculated before fiscal 1997 extraordinary charges from the early
retirement of debt, net of income tax benefit.
1
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Pier 1 Imports, Inc. (the "Company") is one of North America's largest specialty
retailers of unique decorative home furnishings, gifts and related items, with
nearly 900 stores in 48 states, Canada, Puerto Rico, the United Kingdom, Mexico
and Japan as of fiscal 2001 year-end. The Company directly imports merchandise
from over 50 countries around the world and designs proprietary offerings that
become exclusive Pier 1 Imports offerings. In February 2001, the Company
acquired certain assets and assumed certain liabilities of Cargo Furniture, Inc.
("Cargo"). Cargo, a 21-store retailer and wholesaler of casual lifestyle
furniture, gifts and home decor, had no impact on the Company's fiscal 2001
operations due to the timing of the acquisition, but is reflected in the
Company's fiscal 2001 year-end balance sheet. During fiscal 2001, the Company
reported record sales of $1,411.5 million and net income of $94.7 million, or
$.97 per diluted share.
FISCAL YEARS ENDED MARCH 3, 2001 AND FEBRUARY 26, 2000
During fiscal 2001, the Company recorded net sales of $1,411.5 million, an
increase of $180.4 million, or 14.7%, over net sales of $1,231.1 million for the
prior fiscal year. Due to the Company's fiscal calendar, fiscal 2001 consisted
of a 53-week year, while fiscal 2000 and 1999 were 52-week years. Same-store
sales for fiscal 2001 improved 7.8% excluding the 53rd week of sales activity.
The Company's new advertising campaign, proprietary credit card and other
promotions and continued focus on a value pricing initiative, which began in
fiscal 2000, resulted in higher customer traffic, average purchases per customer
and conversion ratios during fiscal 2001.
The Company's continued efforts to expand by opening new stores also contributed
to sales growth during fiscal 2001. The Company opened 65 new stores and closed
24 stores in North America during fiscal 2001, bringing the Pier 1 North
American store count up to 826 at year-end. With the addition of Cargo, the
store count worldwide, including North America, Puerto Rico, the United Kingdom,
Mexico and Japan, totaled 899 at the end of fiscal 2001 compared to 834 at the
end of fiscal 2000.
Increased use of the Company's proprietary credit card added to the Company's
sales growth during fiscal 2001. Sales on the proprietary credit card were
$377.0 million and accounted for 28.9% of U.S. store sales during fiscal 2001,
an increase of $76.5 million over proprietary credit card sales in the prior
year of $300.5 million, which represented 26.3% of U.S. store sales during that
year. Proprietary credit credit card customers spent an average of $152 per
transaction in fiscal 2001 compared to $142 per transaction in fiscal 2000. The
Company attributes the growth in sales on the card to continued efforts to open
new accounts, deferred payment options offered with furniture promotions and
enhanced customer loyalty through targeted promotions.
Gross profit, after related buying and store occupancy costs, expressed as a
percentage of sales, increased 50 basis points in fiscal 2001 to 42.1% from
41.6% in fiscal 2000. Merchandise margins, as a percentage of sales, declined
from 54.6% in fiscal 2000 to 54.2% in fiscal 2001, a decrease of 40 basis
points. The decrease was a result of management's concerted decision to continue
to give value back to customers by offering unique merchandise at affordable
prices. In addition, the effect of a full year of price reductions taken as a
result of the value pricing initiative started in May 1999 and continuing
throughout fiscal 2000 created downward pressure on fiscal 2001 merchandise
margins. This decline was also due in part to higher freight rates during the
first half of fiscal 2001 as compared to the same period in fiscal 2000. The
decreases in merchandise margins were more than offset by the leveraging of
relatively fixed rental costs over a higher sales base. Store occupancy costs
improved 90 basis points as a percentage of sales from 13.0% in fiscal 2000 to
12.1% in fiscal 2001.
As a percentage of sales, selling, general and administrative expenses,
including marketing, improved 10 basis points to 28.3% in fiscal 2001 from 28.4%
in fiscal 2000. In total dollars, selling, general and administrative expenses
for fiscal 2001 increased $50.4 million over the prior fiscal year. Expenses
that normally increase proportionately with sales and number of stores, such as
marketing, store payroll, supplies
2
<PAGE> 3
and equipment rental, increased by $34.3 million, but as a percentage of sales
declined nearly 20 basis points to 20.2% this fiscal year. Marketing as a
percentage of sales decreased 20 basis points as a result of reduced spending on
newspaper and magazine advertisements, along with leveraging marketing
expenditures over a higher sales base. As a percentage of sales, the decrease in
marketing expenses was offset by a 10 basis point increase in store payroll when
comparing the two fiscal years. This increase was largely attributable to store
bonuses awarded based on sales gains. All other selling, general and
administrative expenses increased by $16.0 million, and increased 10 basis
points as a percentage of sales. This increase was primarily due to an increase
in information technology and other non-store salaries, partially offset by
effective management of other administrative expenses and a reduction in net
credit card costs.
Depreciation and amortization increased by $3.2 million to $43.2 million in
fiscal 2001 primarily because of the Company's increased capital expenditures
throughout fiscal 2001 and 2000, especially expenditures on technology-related
assets which tend to have relatively short useful lives.
In fiscal 2001, operating income for the year improved to $151.5 million or
10.7% of sales, from $123.2 million or 10.0% of sales in fiscal 2000, an
increase of 23.0% or $28.3 million.
Interest income decreased slightly to $1.9 million in fiscal 2001 from $2.3
million in fiscal 2000 due to lower average cash balances during the current
fiscal year. Interest expense was $3.1 million in fiscal 2001 compared to $6.9
million in fiscal 2000, a decline of $3.8 million. The decrease in interest
expense was primarily due to the repurchase of $28.6 million of the Company's 5
3/4% convertible subordinated notes during fiscal 2000 and the retirement of the
remaining $39.2 million of these notes during the first quarter of fiscal 2001.
See Note 5 of the Notes to Consolidated Financial Statements.
The Company's effective tax rate remained constant at 37% of income before
income taxes for both fiscal 2001 and 2000.
Net income in fiscal 2001 was $94.7 million, or $.97 per share on a diluted
basis, an increase of $20.0 million, or 26.7% as compared to fiscal 2000's net
income of $74.7 million, or $.75 per share on a diluted basis. Net income, as a
percentage of sales, improved from 6.1% in fiscal 2000 to 6.7% in fiscal 2001.
FISCAL YEARS ENDED FEBRUARY 26, 2000 AND FEBRUARY 27, 1999
During fiscal 2000, net sales increased $92.5 million to $1,231.1 million, or
8.1% above the sales level achieved in fiscal 1999. Same-store sales for fiscal
2000 grew 2.7%. The growth in sales was largely attributable to a net increase
of 33 new North American stores in fiscal 2000. In fiscal 1999, the Company
began to experience a slow down in same-store sales growth, with same-store
sales growth of 3.2%, a trend that continued into the first and second quarters
of fiscal 2000. The lower same-store sales gains were believed to be the result
of an overly aggressive pricing strategy that was not well received by
customers. As a result, the Company initiated a new value pricing strategy in
the first quarter of fiscal 2000. This strategy was geared toward reducing
prices to a more competitive level in certain merchandise categories, especially
in decorative accessories and housewares. Throughout fiscal year 2000, the
Company reduced prices on approximately 15% of its merchandise. In addition, the
Company began focusing its buying strategy to include more basic merchandise at
competitive price points, without sacrificing quality, style or gross margin
rates. The results of the Company-initiated value pricing strategy were very
positive for the latter half of fiscal 2000, a trend that continued into fiscal
2001. Net sales increases in fiscal 2000 were driven by sales of furniture,
which delivered a 16.2% increase over the previous fiscal year. Additionally,
the Company experienced increases for fiscal 2000 in housewares of 9.6%, bed and
bath of 5.0% and decorative accessories of 3.9% over the results of fiscal 1999.
Net new store openings in fiscal 2000 were the primary contributor to sales
growth in fiscal 2000 over fiscal 1999. The Company opened 63 new stores and
closed 30 stores in North America during fiscal 2000, bringing the North
American store count to 785 at the end of the 2000 fiscal year. Stores
worldwide, including
3
<PAGE> 4
North America, Puerto Rico, the United Kingdom, Mexico and Japan, totaled 834 at
the end of the 2000 fiscal year compared to 805 at the end of the 1999 fiscal
year.
The Company's proprietary credit card was another important contributor to sales
growth, with sales totaling $300.5 million for fiscal 2000. This represented an
increase of $24.3 million, or 8.8%, over proprietary credit card sales of $276.2
million for fiscal 1999. During fiscal 2000, proprietary credit card sales
accounted for 26.3% of total U.S. store sales compared to 26.0% for the prior
fiscal year. Proprietary credit card customers spent an average of $142 per
transaction in fiscal 2000 compared to $134 per transaction in fiscal 1999. The
Company continued to grow sales on the proprietary credit card by opening new
accounts and enhancing customer loyalty with marketing promotions targeted to
cardholders.
Gross profit in fiscal 2000 totaled $512.5 million, an increase of $12.1
million, or 2.4%, over fiscal 1999. Expressed as a percentage of sales, the
Company's gross profit, after related buying and store occupancy costs,
decreased 240 basis points to 41.6% in fiscal 2000 from 44.0% in fiscal 1999.
Merchandise margins, as a percentage of sales, decreased 160 basis points to
54.6% in fiscal 2000 from 56.2% in fiscal 1999. The decline in merchandise
margins was principally the result of higher ocean freight rates coupled with
the value pricing of selected merchandise categories. The Company negotiated new
carrier contracts during fiscal 2000 that should stabilize ocean freight rates
until fiscal 2002. The Company's new value pricing strategy introduced at the
beginning of fiscal 2000 also created downward pressure on margins for a
majority of the year. Store occupancy costs, as a percentage of sales, increased
to 13.0% during fiscal 2000 from 12.2% in fiscal 1999. This increase was
primarily caused by two separate sale-leaseback transactions. In June 1998, the
Company sold and leased back 25 store properties that it previously owned, which
generated rental expense for those stores during the first half of fiscal 2000
compared to the first half of fiscal 1999. The Company also sold and leased back
an additional 12 store properties in September 1999. As a result of these
sale-leaseback transactions, the Company experienced a reduction in depreciation
expense, which is not classified as a component of store occupancy costs.
Selling, general and administrative expenses, including marketing, as a
percentage of sales, were 28.4% for fiscal 2000, a 100 basis point decrease from
the 29.4% for fiscal 1999. In total dollars, selling, general and administrative
expenses for fiscal 2000 increased $14.8 million over the prior fiscal period.
Expenses that normally increase proportionately with sales and number of stores,
such as store payroll, equipment rental, supplies and marketing expenses,
increased $13.6 million, but declined 50 basis points as a percentage of sales
from 20.9% last fiscal year to 20.4% this fiscal year. The slight increase in
marketing expenditures was moderated by well-controlled store salaries and other
store expenses. In fiscal 1999, the Company replaced leased point of sale
equipment with purchased equipment, resulting in a decrease in equipment rental
expense and an increase in depreciation expense for fiscal 2000. All other
selling, general and administrative expense increased $1.2 million, but also
declined 50 basis points as a percentage of sales to 8.0% for fiscal 2000. The
dollar increase was largely the result of a nonrecurring credit of $1.8 million
received in fiscal 1999 as a settlement on a receivable previously deemed
uncollectible. Excluding the effect of the nonrecurring item from fiscal 1999,
other expenses declined for fiscal 2000, primarily as a result of lower
non-store payroll costs, as a percentage of sales, coupled with a reduction in
net credit card costs.
Depreciation and amortization expense for fiscal 2000 was $40.0 million, or 3.2%
of sales, compared to $31.1 million, or 2.7% of sales, for fiscal 1999.
Increased depreciation expense for fiscal 2000 was primarily the result of
increased investments in capital expenditures throughout fiscal 2000 and 1999,
the largest of which was the replacement of leased store point of sale equipment
with purchased equipment during fiscal 1999. As a result, in fiscal 2000 the
Company recorded a full year of depreciation expense on the fiscal 1999 capital
expenditures compared to only a partial year of depreciation expense in fiscal
1999. Partially offsetting the increased expense was a reduction of depreciation
expense on the stores which the Company opted to sell and lease back in the
third quarter of fiscal 2000 and the second quarter of fiscal 1999.
Operating income declined $11.5 million to $123.2 million, or 10.0% of sales, in
fiscal 2000 from $134.7 million, or 11.8% of sales, in fiscal 1999.
4
<PAGE> 5
During fiscal 2000, net interest expense was $4.6 million compared to $5.0
million for the prior year. The decline in net interest expense was primarily
the result of the repurchases of the Company's 5 3/4% convertible subordinated
notes of $28.6 million in fiscal 2000 and $18.3 million in fiscal 1999.
The Company's effective income tax rate for fiscal 2000 was 37% compared to 38%
for fiscal 1999. The decline in the estimated effective income tax rate was
attributable to a reduction in state income taxes.
Fiscal 2000 net income totaled $74.7 million, representing 6.1% of sales, or
$.75 per share on a diluted basis. In fiscal 1999, net income was 7.1% of sales
and totaled $80.4 million, or $.77 per share on a diluted basis.
LIQUIDITY AND CAPITAL RESOURCES
As of the end of fiscal 2001, the Company's cash and temporary investments
totaled $46.8 million compared to $50.4 million in fiscal 2000. Operating
activities generated $110.1 million of cash versus $119.6 million last year.
Increased inventory levels were the primary reason for the reduction in
operating cash flow. Inventory levels were anticipated to be higher when
compared to last year as a result of furniture promotions planned in the first
quarter of fiscal 2002 along with an increase in store count for fiscal 2001.
The Company opened 41 net North American stores during fiscal 2001 compared to
33 net new stores in fiscal 2000. Additionally, the Company plans to open 31
stores during the first half of fiscal 2002 compared to 19 stores opened during
the first half of fiscal 2001.
Net cash used in investing activities totaled $70.4 million during fiscal 2001
versus last year's $39.8 million. Of that amount, capital expenditures were
$45.3 million and were used primarily for new and existing store development.
The Company opened 65 new stores in North America and three international retail
locations, requiring $20.1 million of the total amounts expended for capital
purchases. The Company remodeled 22 stores in fiscal 2001 at a cost of $6.4
million. Continuing with its commitment to invest in current store locations,
the Company spent $5.1 million to improve floor plans and upgrade fixtures on
existing stores. The Company also spent $7.6 million for technical resources and
other system enhancements. During fiscal 2001, the Company continued to
experience favorable sales trends on its proprietary credit card resulting in a
net increase of $21.6 million in its beneficial interest in securitized
receivables. This increase was primarily the result of the Company's recent "no
payment, no finance charge" promotion in February 2001. The Company offered
similar promotions on three separate occasions throughout fiscal 2001 versus one
promotion offered in October of fiscal 2000. Additionally, the Company invested
$3.9 million in the acquisition of Cargo.
During fiscal 2001, the Company paid $34.3 million to repurchase 3,269,500
common shares under the Board of Directors-approved stock buyback program. In
December 2000, the Board of Directors approved the repurchase of an additional
five million shares of the Company's common stock. As of the end of the fiscal
year, slightly less than 6.8 million shares remain authorized for repurchase.
The Company expects that future repurchases of common stock will be made through
open market or private transactions from time to time depending on prevailing
market conditions, the Company's available cash, loan covenant restrictions and
consideration of its corporate credit ratings. Cash used for dividends increased
$3.0 million to $14.5 million in total as a result of the Company's 33% increase
of its quarterly cash dividend in June 2000 to $.04 per share paid in fiscal
2001 from $.03 per share paid in fiscal 2000. Subsequent to fiscal 2001, the
Company declared a cash dividend of $.04 per share payable on May 16, 2001 to
shareholders of record on May 2, 2001. The Company expects to continue to pay
cash dividends, in fiscal 2002, but to retain most of its future earnings for
expansion of the Company's business. Other financing activities, primarily the
exercise of stock options, provided cash of $5.6 million during fiscal 2001.
In March 2000, the Company redeemed its $39.2 million outstanding principal
amount of 5 3/4% convertible subordinated notes originally due October 1, 2003.
The notes were redeemable at 103% of par on March 23, 2000 or convertible into
the Company's common stock at a price of $8.22 per share. Prior to redemption,
the Company converted $39,164,000 of the notes into 4,764,450 shares of the
Company's common stock and redeemed $15,000 of the notes for cash.
5
<PAGE> 6
At fiscal 2001 year-end, the Company's sources of working capital were cash flow
from operations, sales of proprietary credit card receivables and bank lines of
credit. The bank facilities include a $125 million credit facility which expires
in 2003, all of which was available at fiscal 2001 year-end. Borrowings and
repayments on this facility totaled $82.5 million for fiscal year 2001.
Additionally, the Company has other long-term and short-term bank facilities
used principally for the issuance of letters of credit totaling $148.9 million,
of which $73.5 million was available at fiscal 2001 year-end. Most of the
Company's loan agreements require the Company to maintain certain financial
ratios and limit certain investments and distributions to shareholders,
including cash dividends and repurchases of common stock. The Company's current
ratio was 3.3 to 1 at fiscal 2001 year-end compared to 2.4 to 1 at fiscal 2000
year-end. Excluding the effect of the call of the Company's 5 3/4% convertible
subordinated notes, which resulted in a reclassification of these notes from
long-term to short-term, the current ratio would have been 3.0 to 1 at fiscal
2000 year-end. The Company's minimum operating lease commitments expected for
fiscal 2002 total $139.6 million. The present value of total existing minimum
operating lease commitments discounted at 10% is $625.0 million. The Company
plans to continue to fund these commitments from operating cash flow.
The Company's inventory purchases are made almost entirely in U.S. dollars. When
purchase commitments are denominated in foreign currencies, the Company may
enter into forward foreign exchange contracts, when they are available, in order
to manage its exposure to foreign currency fluctuations.
During fiscal 2002, the Company plans to open approximately 85 new stores and
remodel or expand approximately ten existing stores. The Company also plans to
close approximately 25 stores during fiscal 2002 as their leases expire or
otherwise end, the majority of which will be relocated to more favorable
locations within the same markets. The new store buildings and land will be
financed primarily through operating leases. Total capital expenditures for
fiscal 2002 are expected to be $55 to $60 million, with $36 million projected
for store development and $18 million planned for information systems that will
provide infrastructure and support for growth. The Company's working capital
requirements for fiscal 2002 are not expected to increase significantly versus
fiscal 2001 working capital.
In summary, the Company's primary uses of cash in fiscal 2001 were to fund
operating expenses, satisfy inventory requirements, provide for new and existing
store development and repurchase common stock of the Company. Historically, the
Company has financed its operations primarily from internally generated funds
and borrowings under the Company's credit facilities. The Company believes that
the funds provided from operations, available lines of credit and sales of its
proprietary credit card receivables will be sufficient to finance working
capital and capital expenditure requirements through the end of fiscal year
2002.
MARKET RISK DISCLOSURES
Market risks relating to the Company's operations result primarily from changes
in foreign exchange rates and interest rates. The Company has only limited
involvement with derivative financial instruments, does not use them for trading
purposes and is not a party to any leveraged derivatives.
The Company periodically enters into forward foreign exchange contracts to hedge
some of its foreign currency exposure. The Company uses such contracts to hedge
exposures to changes in foreign currency exchange rates, primarily Italian Lira,
Canadian Dollars and British Pounds, associated with purchases denominated in
foreign currencies. Gains and losses on these contracts have been deferred and
recognized as an adjustment of the transaction price when it occurs. Forward
contracts generally have maturities not exceeding six months. At March 3, 2001,
the notional amount of the Company's foreign currency derivative instruments
totaled approximately $2.4 million with a negligible fair market value.
The Company manages its exposure to changes in interest rates by optimizing the
use of variable and fixed rate debt. The Company had $25.0 million of variable
rate borrowings at March 3, 2001. A hypothetical 10% adverse change in interest
rates would have a negligible impact on the Company's earnings and cash flows.
6
<PAGE> 7
Collectively, the Company's exposure to these market risk factors was not
significant and did not materially change from February 26, 2000.
IMPACT OF INFLATION AND CHANGING PRICES
Inflation has not had a significant impact on the operations of the Company
during the preceding three years.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which was amended by SFAS No. 137 and SFAS
No. 138. This statement establishes accounting and reporting guidelines for
derivatives and requires the Company to record all derivatives as assets or
liabilities on the balance sheet at fair value. This statement is effective for
the Company beginning in fiscal 2002. The Company has only limited involvement
with derivative financial instruments, does not use them for trading purposes
and is not a party to any leveraged derivatives. However, the Company
periodically enters into forward foreign exchange contracts to hedge some of its
foreign currency exposure. The Company uses such contracts to hedge exposures to
changes in foreign currency exchange rates associated with purchases denominated
in foreign currencies. The Company has analyzed the implementation requirements
and does not anticipate that the adoption of SFAS No. 133 will have a material
impact on the Company's consolidated balance sheets or statements of operations,
shareholders' equity and cash flows.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
statement replaces, in its entirety, SFAS No. 125 issued in June 1996. The new
statement is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001, and is not to be
applied retroactively to financial statements for prior periods. SFAS No. 140
establishes new conditions for a securitization to be accounted for as a sale of
receivables, changes the requirements for an entity to be a qualifying
special-purpose entity and modifies under what conditions a transferor has
retained effective control over transferred assets. The new statement also
requires additional disclosures for fiscal years ending after December 15, 2000
relating to securitized financial assets and retained interests in securitized
financial assets. These disclosures are included in Note 2 of the Notes of
Consolidated Financial Statements. The Company has analyzed the new requirements
of SFAS No. 140, made the necessary amendments to its securitization agreements
and believes that it will continue to receive sale treatment for its securitized
proprietary credit card receivables. Therefore, the Company does not anticipate
that the implementation of SFAS No. 140 will have a material impact on the
Company's consolidated balance sheets or statements of operations, shareholders'
equity and cash flows.
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this annual report, other than historical
information, may constitute "forward-looking statements" that are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those described in the forward-looking statements. The Company
may also make forward-looking statements in other reports filed with the
Securities and Exchange Commission and in material delivered to the Company's
shareholders. Forward-looking statements provide current expectations of future
events based on certain assumptions. These statements encompass information that
does not directly relate to any historical or current fact and often may be
identified with words such as "anticipates," "believes," "expects," "estimates,"
"intends," "plans," "projects" and other similar expressions. Management's
expectations and assumptions regarding planned store openings, financing of
Company obligations from operations and other future results are subject to
risks, uncertainties and other factors that could cause actual results to differ
materially from the anticipated results or other expectations expressed in the
forward-looking statements. Risks and uncertainties that may affect Company
operations and performance include, among others, weather conditions that may
affect sales, the general strength of the economy and levels of consumer
7
<PAGE> 8
spending, the availability of new sites for expansion along with sufficient
labor to facilitate growth, the strength of new home construction and sales of
existing homes, the ability of the Company to import merchandise from foreign
countries without significantly restrictive tariffs, duties or quotas and the
ability of the Company to ship items from foreign countries at reasonable rates
in timely fashion. The foregoing risks and uncertainties are in addition to
others discussed elsewhere in this annual report. The Company assumes no
obligation to update or otherwise revise its forward-looking statements even if
experience or future changes make it clear that any projected results expressed
or implied will not be realized.
8
<PAGE> 9
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of Pier 1 Imports, Inc.
We have audited the accompanying consolidated balance sheets of Pier 1 Imports,
Inc. as of March 3, 2001 and February 26, 2000, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended March 3, 2001. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Pier 1 Imports,
Inc. at March 3, 2001 and February 26, 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 3, 2001, in conformity with accounting principles generally accepted in
the United States.
/s/ Ernst & Young LLP
Fort Worth, Texas
April 10, 2001
9
<PAGE> 10
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------
2001 2000 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 1,411,498 $ 1,231,095 $ 1,138,590
Operating costs and expenses:
Cost of sales (including buying and
store occupancy) 817,043 718,547 638,173
Selling, general and administrative
expenses 399,755 349,394 334,629
Depreciation and amortization 43,184 39,973 31,130
----------- ----------- -----------
1,259,982 1,107,914 1,003,932
----------- ----------- -----------
Operating income 151,516 123,181 134,658
Nonoperating (income) and expenses:
Interest and investment income (1,854) (2,349) (2,868)
Interest expense 3,130 6,918 7,916
----------- ----------- -----------
1,276 4,569 5,048
----------- ----------- -----------
Income before income taxes 150,240 118,612 129,610
Provision for income taxes 55,590 43,887 49,253
----------- ----------- -----------
Net income $ 94,650 $ 74,725 $ 80,357
=========== =========== ===========
Basic earnings per share $ .98 $ .78 $ .82
=========== =========== ===========
Diluted earnings per share $ .97 $ .75 $ .77
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE> 11
PIER 1 IMPORTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
<TABLE>
<CAPTION>
2001 2000
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash, including temporary investments of $31,142
and $39,898, respectively $ 46,841 $ 50,376
Beneficial interest in securitized receivables 75,403 53,820
Other accounts receivable, net of allowance for
doubtful accounts of $295 and $44, respectively 8,370 5,637
Inventories 310,704 268,906
Prepaid expenses and other current assets 35,748 36,541
--------- ---------
Total current assets 477,066 415,280
Properties, net 211,751 213,032
Other assets 46,893 42,398
--------- ---------
$ 735,710 $ 670,710
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ -- $ 39,179
Accounts payable and accrued liabilities 144,110 136,787
--------- ---------
Total current liabilities 144,110 175,966
Long-term debt 25,000 25,000
Other noncurrent liabilities 34,721 29,081
Shareholders' equity:
Common stock, $1.00 par, 500,000,000 shares
authorized, 100,779,000 issued 100,779 100,779
Paid-in capital 139,424 155,711
Retained earnings 344,809 264,678
Cumulative other comprehensive income (3,115) (1,536)
Less - 4,619,000 and 6,949,000 common shares
in treasury, at cost, respectively (49,933) (78,668)
Less - unearned compensation (85) (301)
--------- ---------
531,879 440,663
Commitments and contingencies
--------- ---------
$ 735,710 $ 670,710
========= =========
</TABLE>
11
<PAGE> 12
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands except share amounts)
<TABLE>
<CAPTION>
Year Ended
-----------------------------------
2001 2000 1999
--------- --------- ---------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 94,650 $ 74,725 $ 80,357
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 43,184 39,973 31,130
Deferred taxes and other 9,137 11,033 (2,575)
Change in cash from:
Inventories (39,127) (10,133) (24,103)
Accounts receivable and other current assets (5,847) 586 2,500
Accounts payable and accrued expenses 6,280 8,962 12,826
Other assets, liabilities and other, net 1,738 (5,528) (4,409)
--------- --------- ---------
Net cash provided by operating activities 110,015 119,618 95,726
--------- --------- ---------
Cash flow from investing activities:
Capital expenditures (45,251) (45,984) (78,055)
Proceeds from disposition of properties 353 19,425 36,408
Net cost from disposition of Sunbelt
Nursery Group, Inc. properties -- (439) (597)
Acquisitions, net of cash acquired (3,917) -- (4,235)
Beneficial interest in securitized receivables (21,583) (12,820) 3,145
--------- --------- ---------
Net cash used in investing activities (70,398) (39,818) (43,334)
--------- --------- ---------
Cash flow from financing activities:
Cash dividends (14,494) (11,504) (11,522)
Purchases of treasury stock (34,270) (31,806) (65,777)
Proceeds from issuance of long-term debt 82,500 4,035 --
Repayments of long-term debt (82,515) (36,242) (20,325)
Proceeds from stock options exercised, stock purchase
plan and other, net 5,627 4,148 6,448
--------- --------- ---------
Net cash used in financing activities (43,152) (71,369) (91,176)
--------- --------- ---------
Change in cash and cash equivalents (3,535) 8,431 (38,784)
Cash and cash equivalents at beginning of year 50,376 41,945 80,729
--------- --------- ---------
Cash and cash equivalents at end of year $ 46,841 $ 50,376 $ 41,945
========= ========= =========
- ----------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid $ 3,171 $ 7,137 $ 7,929
========= ========= =========
Income taxes paid $ 58,302 $ 40,883 $ 43,084
========= ========= =========
During fiscal 2001, the Company issued 4,764,450 shares of its common
stock upon the conversion of $39,164,000 principal amount of 5 3/4%
convertible subordinated notes.
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 13
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Cumulative
Other Total
Common Paid-in Retained Comprehensive Treasury Unearned Shareholders'
Stock Capital Earnings Income Stock Compensation Equity
--------- --------- --------- ------------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance February 28, 1998 $ 67,903 $ 166,824 $ 165,345 $ (1,108) $ (3,149) $ (3,084) $ 392,731
Comprehensive income:
Net income -- -- 80,357 -- -- -- 80,357
Other comprehensive income,
net of tax:
Currency translation
adjustments -- -- -- (742) -- -- (742)
---------
Comprehensive income 79,615
---------
Purchases of treasury stock -- -- -- -- (65,777) -- (65,777)
Restricted stock forfeits and amortization -- -- -- -- -- 1,758 1,758
Exercise of stock options, stock purchase
plan and other -- (7,308) -- -- 14,272 -- 6,964
Cash dividends ($.12 per share) -- -- (11,522) -- -- -- (11,522)
Three for two stock split 32,866 -- (32,723) -- -- (143) --
Conversion of 5 3/4% convertible debt 10 115 -- -- -- -- 125
--------- --------- --------- --------- --------- --------- ---------
Balance February 27, 1999 100,779 159,631 201,457 (1,850) (54,654) (1,469) 403,894
--------- --------- --------- --------- --------- --------- ---------
Comprehensive income:
Net income -- -- 74,725 -- -- -- 74,725
Other comprehensive income,
net of tax:
Currency translation
adjustments -- -- -- 314 -- -- 314
---------
Comprehensive income 75,039
---------
Purchases of treasury stock -- -- -- -- (31,806) -- (31,806)
Restricted stock forfeits and amortization -- 709 -- -- (1,392) 1,168 485
Exercise of stock options, stock purchase
plan and other -- (4,629) -- -- 9,184 -- 4,555
Cash dividends ($.12 per share) -- -- (11,504) -- -- -- (11,504)
--------- --------- --------- --------- --------- --------- ---------
Balance February 26, 2000 100,779 155,711 264,678 (1,536) (78,668) (301) 440,663
--------- --------- --------- --------- --------- --------- ---------
Comprehensive income:
Net income -- -- 94,650 -- -- -- 94,650
Other comprehensive income,
net of tax:
Currency translation
adjustments -- -- -- (1,579) -- -- (1,579)
---------
Comprehensive income 93,071
---------
Purchases of treasury stock -- -- -- -- (34,270) -- (34,270)
Restricted stock forfeits and amortization -- -- -- -- -- 216 216
Exercise of stock options, stock purchase
plan and other -- (1,774) (25) -- 9,119 -- 7,320
Cash dividends ($.15 per share) -- -- (14,494) -- -- -- (14,494)
Conversion of 5 3/4% convertible debt -- (14,513) -- -- 53,886 -- 39,373
--------- --------- --------- --------- --------- --------- ---------
Balance March 3, 2001 $ 100,779 $ 139,424 $ 344,809 $ (3,115) $ (49,933) $ (85) $ 531,879
========= ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Pier 1 Imports, Inc. is one of North America's largest specialty
retailers of imported decorative home furnishings, gifts and related items, with
retail stores located in the United States, Canada, Puerto Rico, the United
Kingdom, Mexico and Japan. Concentrations of risk with respect to sourcing the
Company's inventory purchases are limited due to the large number of vendors or
suppliers and their geographic dispersion around the world. The Company sources
its largest amount of imported inventory from China. Management believes that
alternative merchandise could be obtained from manufacturers in other countries
over time.
BASIS OF CONSOLIDATION - The consolidated financial statements of Pier 1
Imports, Inc. and its consolidated subsidiaries (the "Company") include the
accounts of all subsidiary companies except Pier 1 Funding, LLC, which is a
non-consolidated, bankruptcy remote, securitization subsidiary. See Note 2 of
the Notes to Consolidated Financial Statements. Material intercompany
transactions and balances have been eliminated.
ACQUISITIONS - The Company completed its acquisition of certain assets and
assumption of certain liabilities of Cargo Furniture, Inc. ("Cargo") for
$3,931,000, including cash acquired, on February 21, 2001. These assets and
liabilities were included in the Company's consolidated balance sheet as of
March 3, 2001; however, this acquisition had no effect on the Company's fiscal
2001 operations. Cargo is a 21-store retailer and wholesaler of casual lifestyle
furniture, gifts and home decor with a focus on children's furniture. This
acquisition was accounted for under the purchase method of accounting, and
resulted in goodwill of $2,843,000 which will be amortized using the
straight-line method over 20 years. The pro forma effect on the Company's
results of operations, as if the acquisition had been completed at the beginning
of fiscal 2001, was not significant.
USE OF ESTIMATES - Preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
FISCAL PERIODS - The Company utilizes 5-4-4 (week) quarterly accounting periods
with the fiscal year ending on the Saturday nearest the last day of February.
Fiscal 2001 consisted of a 53-week year and fiscal 2000 and 1999 were 52-week
years. Fiscal 2001 ended March 3, 2001, fiscal 2000 ended February 26, 2000 and
fiscal 1999 ended February 27, 1999.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments
with an original maturity date of three months or less to be cash equivalents.
The effect of foreign currency exchange rate fluctuations on cash is not
material.
TRANSLATION OF FOREIGN CURRENCIES - Assets and liabilities of foreign operations
are translated into U.S. dollars at fiscal year-end exchange rates. Income and
expense items are translated at average exchange rates prevailing during the
year. Translation adjustments arising from differences in exchange rates from
period to period are included as a separate component of shareholders' equity
and are included in comprehensive income.
FINANCIAL INSTRUMENTS - The fair value of financial instruments is determined by
reference to various market data and other valuation techniques as appropriate.
Unless otherwise disclosed, the fair values of financial instruments approximate
their recorded values.
Risk management instruments: The Company may utilize various financial
instruments to manage interest rate and market risk associated with its on- and
off-balance sheet commitments.
14
<PAGE> 15
The Company hedges certain commitments denominated in foreign currencies through
the purchase of forward contracts. The forward contracts are purchased only to
cover specific commitments to buy merchandise for resale; any gains or losses on
such contracts are included in the cost of the merchandise purchased.
The Company enters into forward foreign exchange contracts with major financial
institutions and continually monitors its positions with, and the credit quality
of, these counterparties to its off-balance sheet financial instruments. The
Company does not expect non-performance by any of the counterparties, and any
losses incurred in the event of non-performance would not be material.
BENEFICIAL INTEREST IN SECURITIZED RECEIVABLES - In February 1997, the Company
sold all of its proprietary credit card receivables to a special purpose
wholly-owned subsidiary, Pier 1 Funding, Inc., predecessor to Pier 1 Funding,
LLC ("Funding"), which transferred the receivables to the Pier 1 Imports Credit
Card Master Trust (the "Master Trust"). The Master Trust issues beneficial
interests in the Master Trust that represent undivided interests in the assets
of the Master Trust consisting of the transferred receivables and all proceeds
of such receivables. The beneficial interests in the Master Trust include the
interests retained by Funding which are represented by the Class B Certificates
($14.1 million) and the residual interest in the Master Trust (the excess of the
principal amount of receivables held in the Master Trust over the portion
represented by the certificates sold to investors and the Class B Certificates).
The Company estimates fair value of its beneficial interest in the Master Trust
based on the present value of future expected cash flows estimated using
management's best estimates of the key assumptions including credit losses and
timeliness of payments.
INVENTORIES - Inventories are comprised primarily of finished merchandise and
are stated at the lower of average cost or market; cost is determined
principally on a weighted average method.
PROPERTIES, MAINTENANCE AND REPAIRS - Buildings, equipment, furniture and
fixtures, and leasehold interests and improvements are carried at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over estimated remaining useful lives of the assets ranging from three to
thirty years. Depreciation costs were $41,882,000, $38,672,000 and $30,014,000
in fiscal 2001, 2000 and 1999, respectively. Amortization of improvements to
leased properties is based upon the shorter of the remaining lease term or the
estimated useful lives of such assets.
Expenditures for maintenance, repairs and renewals which do not materially
prolong the useful lives of the assets are charged to expense as incurred. In
the case of disposals, assets and the related depreciation are removed from the
accounts and the net amount, less proceeds from disposal, is credited or charged
to income.
REVENUE RECOGNITION - The Company recognizes revenue at the point of sale or at
the time the merchandise is shipped to the customer. Revenue from gift cards,
gift certificates and merchandise credits is deferred until redemption.
ADVERTISING COSTS - All advertising costs are expensed the first time the
advertising takes place. Advertising costs were $59,721,000, $54,970,000 and
$47,491,000 in fiscal 2001, 2000 and 1999, respectively. The amounts of prepaid
advertising at the end of fiscal years 2001 and 2000 were $2,086,000 and
$727,000, respectively.
INCOME TAXES - Income tax expense is based on the liability method. Under this
method, deferred tax assets and liabilities are recognized based on differences
between financial statement and tax bases of assets and liabilities using
presently enacted tax rates. Deferred federal income taxes, net of applicable
foreign tax credits, are not provided on the undistributed earnings of foreign
subsidiaries to the extent the Company intends to permanently reinvest such
earnings abroad.
STOCK-BASED COMPENSATION - The Company grants stock options and restricted stock
for a fixed number of shares to employees with stock option exercise prices
equal to the fair market value of the shares on the date
15
<PAGE> 16
of grant. The Company continues to account for stock option grants and
restricted stock grants in accordance with Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly,
recognizes no compensation expense for the stock option grants.
EARNINGS PER SHARE - Basic earnings per share amounts were determined by
dividing net income by the weighted average number of common shares outstanding
for the period. Diluted earnings per share amounts were similarly computed, but
included the effect, when dilutive, of the Company's weighted average number of
stock options outstanding and the average number of common shares that would be
issuable upon conversion of the Company's convertible securities. To determine
diluted earnings per share, interest and amortization of debt issue costs
related to the subordinated notes, net of any applicable taxes, have been added
back to net income to reflect assumed conversions.
The following earnings per share calculations reflect the effect of the
Company's conversion of its 5 3/4% convertible subordinated notes, which were
primarily converted, without interest, on or before March 23, 2000. Earnings per
share amounts are calculated as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
2001 2000 1999
-------- -------- --------
<S> <C> <C> <C>
Net income $ 94,650 $ 74,725 $ 80,357
Plus interest and debt issue costs, net
of tax, on the assumed conversion
of the 5 3/4% subordinated notes -- 2,237 3,083
-------- -------- --------
Diluted net income $ 94,650 $ 76,962 $ 83,440
======== ======== ========
Average shares outstanding:
Basic 96,306 95,766 98,120
Plus assumed exercise of stock
options 1,325 644 1,101
Plus assumed conversion of the
5 3/4% subordinated notes 321 6,887 9,643
-------- -------- --------
Diluted 97,952 103,297 108,864
======== ======== ========
Earnings per share:
Basic $ .98 $ .78 $ .82
======== ======== ========
Diluted $ .97 $ .75 $ .77
======== ======== ========
</TABLE>
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. At the end of fiscal years 2001,
2000 and 1999, there were 1,078,200, 1,157,025 and 1,543,500, respectively,
stock options outstanding with exercise prices greater than the average market
price of the Company's common shares.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS - In June 1998, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which was amended by SFAS No. 137 and SFAS No. 138. This statement
establishes accounting and reporting guidelines for derivatives and requires the
Company to record all derivatives as assets or liabilities on the balance sheet
at fair value. This statement is effective for the Company beginning in fiscal
2002. The Company has only limited involvement with derivative financial
instruments, does not use them for trading purposes and is not a party to any
leveraged derivatives. However, the Company periodically enters into forward
foreign exchange contracts to hedge some of its
16
<PAGE> 17
foreign currency exposure. The Company uses such contracts to hedge exposures to
changes in foreign currency exchange rates associated with purchases denominated
in foreign currencies. The Company has analyzed the implementation requirements
and does not anticipate that the adoption of SFAS No. 133 will have a material
impact on the Company's consolidated balance sheets or statements of operations,
shareholders' equity and cash flows.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
statement replaces, in its entirety, SFAS No. 125 issued in June 1996. The new
statement is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001 and is not to be
applied retroactively to financial statements for prior periods. SFAS No. 140
establishes new conditions for a securitization to be accounted for as a sale of
receivables, changes the requirements for an entity to be a qualifying
special-purpose entity and modifies under what conditions a transferor has
retained effective control over transferred assets. The new statement also
requires additional disclosures for fiscal years ending after December 15, 2000
relating to securitized financial assets and retained interests in securitized
financial assets. These disclosures are included in Note 2 of the Notes to
Consolidated Financial Statements. The Company has analyzed the new requirements
of SFAS No. 140, made the necessary amendments to its securitization agreements
and believes that it will continue to receive sale treatment for its securitized
proprietary credit card receivables. Therefore, the Company does not anticipate
that the implementation of SFAS No. 140 will have a material impact on the
Company's consolidated balance sheets or statements of operations, shareholders'
equity and cash flows.
NOTE 2 - PROPRIETARY CREDIT CARD INFORMATION
The proprietary credit card receivables, securitized as discussed below, arise
primarily under open-end revolving credit accounts issued by the Company's
subsidiary, Pier 1 National Bank, to finance purchases of merchandise and
services offered by the Company. These accounts have various billing and payment
structures, including varying minimum payment levels. The Company has an
agreement with a third party to provide certain credit card processing and
related credit services, while the Company maintains control over credit policy
decisions and customer service standards.
As of fiscal 2001 year-end, the Company had approximately 4,583,000 proprietary
cardholders and approximately 1,131,000 customer credit accounts considered
active (accounts with a purchase within the previous 12 months). The Company's
proprietary credit card sales accounted for 28.9% of total U.S. store sales in
fiscal 2001. A summary of the Company's proprietary credit card results for each
of the last three fiscal years follows (in thousands):
17
<PAGE> 18
<TABLE>
<CAPTION>
2001 2000 1999
--------- --------- ---------
<S> <C> <C> <C>
Income:
Finance charge income, net of
debt service costs $ 21,759 $ 16,780 $ 15,117
Insurance and other income 253 287 314
--------- --------- ---------
22,012 17,067 15,431
--------- --------- ---------
Costs:
Processing fees 13,608 10,763 9,456
Bad debts 5,285 4,664 6,356
--------- --------- ---------
18,893 15,427 15,812
--------- --------- ---------
Net proprietary credit card
income (expense) $ 3,119 $ 1,640 $ (381)
========= ========= =========
Proprietary credit card sales $ 377,045 $ 300,462 $ 276,184
========= ========= =========
Costs as a percent of proprietary
credit card sales 5.01% 5.13% 5.73%
========= ========= =========
Gross proprietary credit card
receivables at year-end $ 122,876 $ 100,095 $ 87,601
========= ========= =========
Proprietary credit card sales as a
percent of total U.S. store sales 28.9% 26.3% 26.0%
========= ========= =========
</TABLE>
In February 1997, the Company securitized its entire portfolio of proprietary
credit card receivables (the "Receivables"). The Company sold all existing
Receivables to a special-purpose wholly-owned subsidiary, Pier 1 Funding, Inc.,
predecessor to Pier 1 Funding, LLC ("Funding"), which transferred the
Receivables to the Pier 1 Imports Credit Card Master Trust (the "Master Trust").
The Master Trust issues beneficial interests in the Master Trust that represent
undivided interests in the assets of the Master Trust consisting of the
Receivables and all proceeds of the Receivables. On a daily basis, the Company
sells to Funding for transfer to the Master Trust all newly generated
Receivables, except those failing certain eligibility criteria, and receives as
the purchase price payments of cash (funded from the amount of undistributed
principal collections from the Receivables in the Master Trust) and residual
interests in the Master Trust. Proceeds received from sales of such Receivables
approximated $347 million, $303 million and $290 million during fiscal 2001,
2000 and 1999, respectively. Gains/losses resulting from such sales were not
material in any of the periods presented above. The Company has no obligation to
reimburse Funding, the Master Trust or purchasers of any certificates issued by
the Master Trust for credit losses from the Receivables.
Funding was capitalized by the Company as a special-purpose wholly-owned
subsidiary that is subject to certain covenants and restrictions, including a
restriction from engaging in any business or activity unrelated to acquiring and
selling interests in receivables. The Master Trust is not consolidated with the
Company.
In the initial sale of the Receivables, the Company sold $84.1 million of the
Receivables and received $49.6 million in cash and $34.1 million in beneficial
interests in the Master Trust. The Master Trust sold to third parties $50.0
million of Series 1997-1 Class A Certificates, which bear interest at 6.74% and
mature in May 2002. Funding retained $14.1 million of Series 1997-1 Class B
Certificates, which are currently non-interest bearing and subordinated to the
Class A Certificates. Funding also retained the residual interest in the Master
Trust. As of March 3, 2001 and February 26, 2000, the Company had $75.4 million
and $53.8 million, respectively, in beneficial interests (comprised primarily of
principal and interest related to the underlying
18
<PAGE> 19
Receivables) in the Master Trust. Based on estimated future cash flow
projections, the fair value of the Company's retained interest approximates
historical cost.
Beginning in October 2001, unless prefunded through a new series of
certificates, principal collections of Receivables allocable to Series 1997-1
Certificates will be used to amortize the outstanding balances of the Series
1997-1 Certificates and will not be available to fund the purchase of new
receivables being transferred from the Company. Under generally accepted
accounting principles, if the structure of the securitization meets certain
requirements, these transactions are accounted for as sales of receivables. The
Company's securitization, as discussed above, was accounted for as a sale. The
Company expects no material impact on net income in future years as a result of
the sale, although the precise amounts will be dependent on a number of factors
such as interest rates and levels of securitization.
NOTE 3 - PROPERTIES
Properties are summarized as follows at March 3, 2001 and February 26, 2000 (in
thousands):
<TABLE>
<CAPTION>
2001 2000
-------- --------
<S> <C> <C>
Land $ 22,353 $ 22,384
Buildings 59,716 59,761
Equipment, furniture and fixtures 207,956 183,313
Leasehold interests and improvements 170,706 157,801
-------- --------
460,731 423,259
Less accumulated depreciation and
amortization 248,980 210,227
-------- --------
Properties, net $211,751 $213,032
======== ========
</TABLE>
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES/OTHER NONCURRENT LIABILITIES
The following is a summary of accounts payable and accrued liabilities and other
noncurrent liabilities at March 3, 2001 and February 26, 2000 (in thousands):
<TABLE>
<CAPTION>
2001 2000
-------- --------
<S> <C> <C>
Trade accounts payable $ 52,637 $ 57,203
Accrued payroll and other
employee-related liabilities 33,685 23,515
Accrued taxes, other than income 15,576 13,073
Gift cards, gift certificates and
merchandise credits outstanding 18,989 15,494
Accrued income taxes payable 7,786 12,152
Other 15,437 15,350
-------- --------
Accounts payable and
accrued liabilities $144,110 $136,787
======== ========
Accrued average rent $ 17,590 $ 16,260
Other 17,131 12,821
-------- --------
Other noncurrent liabilities $ 34,721 $ 29,081
======== ========
</TABLE>
19
<PAGE> 20
NOTE 5 - LONG-TERM DEBT AND AVAILABLE CREDIT
Long-term debt is summarized as follows at March 3, 2001 and February 26, 2000
(in thousands):
<TABLE>
<CAPTION>
2001 2000
------- -------
<S> <C> <C>
Industrial revenue bonds $25,000 $25,000
5 3/4% convertible subordinated notes -- 39,179
------- -------
25,000 64,179
Less - portion due within one year -- 39,179
------- -------
Long-term debt $25,000 $25,000
======= =======
</TABLE>
In fiscal 1987, the Company entered into industrial revenue development bond
loan agreements aggregating $25 million. Proceeds were used to construct three
warehouse distribution facilities. The loan agreements and related tax-exempt
bonds mature in the year 2026. The Company's interest rates on the loans are
based on the bond interest rates, which are market driven, reset weekly and are
similar to other tax-exempt municipal debt issues. The Company's weighted
average interest rates were 5.7% and 4.8% for fiscal 2001 and 2000,
respectively.
In September 1996, the Company issued $86.3 million principal amount of 5 3/4%
convertible subordinated notes due October 1, 2003. The notes were convertible
at any time prior to maturity, unless previously redeemed or repurchased, into
shares of common stock of the Company at a conversion price of $8.22 per share,
adjusted for stock splits. The Company had the option to redeem the notes, in
whole or in part, on or after October 2, 1999, at a redemption price (expressed
as a percentage of principal amount) of 103% of par value which was scheduled to
decline annually to 100% of par value at the maturity date. During fiscal 2000,
the Company purchased and retired $28.6 million principal amount of these notes
at an average price of 98.8% of par. Interest on the notes was payable
semiannually on April 1 and October 1 of each year. In February 2000, the
Company announced its intention to call the remaining $39.2 million outstanding
principal amount of these notes for redemption on March 23, 2000. The notes were
convertible into common stock of the Company at any time prior to the close of
business on March 22, 2000, at a conversion price of $8.22 per share. During
March 2000, the Company converted $39,164,000 of the notes into 4,764,450 shares
of the Company's common stock and redeemed $15,000 of the notes for cash at a
redemption price of 103% of par value. The conversion and redemption of these
notes during fiscal 2001 reduced the Company's debt by $39.2 million and
increased its capitalization by $39.4 million.
Long-term debt matures as follows (in thousands):
<TABLE>
<CAPTION>
Long-Term
Fiscal Year Debt
- ----------- ---------
<S> <C>
2002 $ --
2003 --
2004 --
2005 --
2006 --
Thereafter 25,000
-------
Total long-term debt $25,000
=======
</TABLE>
The Company has a $125 million unsecured credit facility available, which
expires in November 2003. The interest rate on these borrowings is determined
based upon a spread to LIBOR that varies depending upon either the Company's
senior debt rating or leverage ratio. All of the $125 million revolving credit
facility was
20
<PAGE> 21
available at fiscal 2001 year-end. The weighted average interest rate on
borrowings outstanding was 7.2% for fiscal 2001. The Company had no borrowings
under this facility during fiscal 2000.
The Company has a $120 million short-term line of credit, which may be used to
issue merchandise letters of credit. At fiscal 2001 year-end, approximately
$46.5 million had been utilized, leaving $73.5 million available. The Company
also has $28.9 million of other special-purpose credit lines, all of which were
fully utilized at fiscal 2001 year-end.
Most of the Company's loan agreements require that the Company maintain certain
financial ratios and limit specific payments and equity distributions including
cash dividends, loans to shareholders and repurchases of common stock.
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
At March 3, 2001, the Company had approximately $2.4 million of forward foreign
exchange contracts outstanding with negligible fair values and with maturities
ranging from one to six months.
As of February 26, 2000, the fair value of the 5 3/4% convertible notes was
$40.4 million compared to the recorded value of $39.2 million. The fair value of
these debentures was estimated based on the quoted market value as of February
26, 2000 for the debentures. There were no other significant assets or
liabilities with a fair value different from the recorded value as of March 3,
2001 and February 26, 2000.
NOTE 7 - EMPLOYEE BENEFIT PLANS
The Company offers a qualified, defined contribution employee retirement plan to
all its full- and part-time personnel who are at least 18 years old and have
been employed for a minimum of six months. Employees contributing 1% to 5% of
their compensation receive a matching Company contribution of up to 3%. Company
contributions to the plan were $1,790,000, $1,753,000 and $1,653,000 in fiscal
2001, 2000 and 1999, respectively.
In addition, a non-qualified retirement savings plan is available for the
purpose of providing deferred compensation for certain employees whose benefits
under the qualified plan are limited under Section 401(k) of the Internal
Revenue Code. The Company's expense for this non-qualified plan was not
significant for fiscal 2001, 2000 and 1999.
The Company maintains supplemental retirement plans (the "Plans") for certain of
its executive officers. The Plans provide that upon death, disability or
reaching retirement age, a participant will receive benefits based on highest
compensation and years of service. The Company recorded expenses related to the
Plans of $1,850,000, $1,409,000 and $1,633,000 in fiscal 2001, 2000 and 1999,
respectively.
NOTE 8 - MATTERS CONCERNING SHAREHOLDERS' EQUITY
STOCK SPLIT - On July 29, 1998, the Company distributed 32,866,000 common shares
pursuant to a three for two stock split, effected in the form of a 50% common
stock dividend, to shareholders of record on July 15, 1998.
STOCK PURCHASE PLAN - Substantially all employees and directors are eligible to
participate in the Pier 1 Imports, Inc. Stock Purchase Plan under which the
Company's common stock is purchased on behalf of employees at market prices
through regular payroll deductions. Each employee participant may contribute up
to 10% of the eligible portions of compensation and directors may contribute
part or all of their directors' fees. The Company contributes from 10% to 100%
of the participants' contributions, depending upon length of participation and
date of entry into the plan. Company contributions to the plan were $921,000,
$954,000 and $1,032,000 in fiscal years 2001, 2000 and 1999, respectively.
21
<PAGE> 22
RESTRICTED STOCK GRANT PLANS - In fiscal 1998, the Company issued 238,500 shares
of its common stock to key officers pursuant to a Management Restricted Stock
Plan which provides for the issuance of up to 415,600 shares. The fiscal 1998
restricted stock grant vests over a four-year period of continued employment.
The fair value at the date of grant of these restricted stock shares is being
expensed over the aforementioned vesting period. The fair value at the date of
grant of the restricted shares granted in fiscal 1998 was $3,000,000. Shares not
vested are returned to the plan if employment is terminated for any reason. To
date, 107,184 shares have been returned to the plan.
In fiscal 1991, the Company issued 726,804 shares of its common stock to key
officers pursuant to a Restricted Stock Grant Plan which provided for the
issuance of up to 1,037,214 shares. These shares vest, and the fair value at the
date of grant is expensed, over a ten-year period of continued employment.
Unvested shares are returned to the plan upon employment termination. As of
March 3, 2001, 407,742 shares have been returned to the plan. In fiscal 2000,
the Restricted Stock Grant Plan was terminated by the Board of Directors and is
no longer available for issuance of common stock to key officers. The final
vesting period was March 2000.
Total compensation expense for both of the restricted stock grant plans was
$216,000, $485,000 and $1,759,000 for fiscal 2001, 2000 and 1999, respectively.
STOCK OPTION PLANS - In June 1999, the Company adopted the Pier 1 Imports, Inc.
1999 Stock Plan (the "Plan"). The Plan will ultimately replace the Company's two
previous stock option plans, which were the 1989 Employee Stock Option Plan (the
"Employee Plan") and the 1989 Non-Employee Director Stock Option Plan (the
"Director Plan").
The Plan provides for the granting of options to directors and employees with an
exercise price not less than the fair market value of the common stock on the
date of the grant. Options may be either Incentive Stock Options authorized
under Section 422 of the Internal Revenue Code or non-qualified options, which
do not qualify as Incentive Stock Options. Current director compensation
provides for non-qualified options covering 6,000 shares to be granted once each
year to each non-employee director. Additionally, the Plan authorizes a Director
Deferred Stock Program. As the program is currently implemented by the Board of
Directors, each director must defer a minimum of 50% and may defer up to 100% of
the director's cash fees into a deferred stock account. The amount deferred
receives a 50% matching contribution from the Company. The Plan provides that a
maximum of 7,000,000 shares of common stock may be issued under the Plan, of
which not more than 250,000 may be issued in exchange for deferred stock units.
Options issued to non-director employees vest equally over a period of four
years while directors' options are fully vested at the date of issuance.
Additionally, employee options will fully vest upon retirement or, under certain
conditions, a change in control of the Company. As of March 3, 2001 and February
26, 2000, respectively, there were 3,525,887 and 4,913,638 shares available for
grant under the Plan, of which 200,381 and 227,638 may be used for deferred
stock issuance. Additionally, outstanding options covering 429,600 and 45,000
shares were exercisable and 49,619 and 22,362 shares were issuable in exchange
for deferred stock units at fiscal years ended 2001 and 2000, respectively. The
Plan will expire in June 2009, and the Board of Directors may at any time
suspend or terminate the Plan or amend the Plan, subject to certain limitations.
Under the Employee Plan, options may be granted to qualify as Incentive Stock
Options under Section 422 of the Internal Revenue Code or as non-qualified
options. Most options issued under the Employee Plan vest over a period of four
to five years. As of March 3, 2001 and February 26, 2000, outstanding options
covering 2,318,042 and 2,107,953 shares were exercisable and 878,059 and 747,409
shares were available for grant, respectively. The Employee Plan expires in June
2004. The Director Plan expired in fiscal 2000. As of March 3, 2001 and February
26, 2000, outstanding options covering 61,764 shares were exercisable under the
Director Plan. Due to the expiration of the Director Plan during fiscal 2000, no
shares are available for future grants. Both plans were subject to adjustments
for stock dividends and certain other changes to the Company's capitalization.
22
<PAGE> 23
A summary of stock option transactions related to the stock option plans during
the three fiscal years ended March 3, 2001 is as follows (the summary reflects
the effect of the three for two stock split, effected in the form of a stock
dividend, distributed July 29, 1998):
<TABLE>
<CAPTION>
Weighted Exercisable Shares
Weighted Average ----------------------------
Average Fair Value Weighted
Exercise at Date Number of Average
Shares Price of Grant Shares Exercise Price
--------- -------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
Outstanding at February 28, 1998 3,988,949 $ 7.21 1,350,332 $ 5.16
Options granted 1,550,500 13.27 $ 5.38
Options exercised (662,889) 6.11
Options cancelled or expired (278,730) 10.72
---------
Outstanding at February 27, 1999 4,597,830 9.20 1,810,819 6.66
Options granted 2,379,500 6.20 3.18
Options exercised (134,936) 4.63
Options cancelled or expired (793,187) 10.63
---------
Outstanding at February 26, 2000 6,049,207 7.94 2,214,717 7.28
Options granted 1,584,000 10.49 5.31
Options exercised (569,326) 5.38
Options cancelled or expired (351,900) 8.47
---------
Outstanding at March 3, 2001 6,711,981 8.73 2,809,406 8.07
=========
</TABLE>
For shares outstanding at March 3, 2001:
<TABLE>
<CAPTION>
Weighted Weighted
Weighted Average Average
Average Remaining Shares Exercise Price-
Total Exercise Contractual Currently Exercisable
Ranges of Exercise Prices Shares Price Life Exercisable Shares
- ------------------------- --------- -------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
$ 2.85 - $ 4.61 747,408 $ 3.91 3.59 747,408 $ 3.91
$ 5.81 - $ 5.81 1,688,350 5.81 8.53 353,350 5.81
$ 6.25 - $ 10.44 3,129,098 9.09 8.10 1,035,673 7.72
$ 10.88 - $ 18.50 1,147,125 15.16 7.11 672,975 14.40
</TABLE>
The Company accounts for its stock options using the intrinsic value-based
method of accounting prescribed by APB Opinion No. 25, but is required to
disclose the pro forma effect on net income and earnings per share as if the
options were accounted for using a fair value-based method of accounting. The
fair values for options issued in fiscal 2001, 2000 and 1999 have been estimated
as of the date of grant using the Black-Scholes or a similar option pricing
model with the following weighted average assumptions for 2001, 2000 and 1999,
respectively: risk-free interest rates of 5.68%, 5.79% and 5.14%, expected
volatility factors of .5586, .5150 and .3655, expected dividend yields of 1.0%
and weighted average expected lives of six years from date of grant to date of
exercise for all options. For purposes of computing pro forma net income and
earnings per share, the fair value of the stock options is amortized on a
straight-line basis as compensation expense over the vesting periods of the
options. The pro forma effects on net income and earnings per share are as
follows (in thousands except per share amounts):
23
<PAGE> 24
<TABLE>
<CAPTION>
2001 2000 1999
------- ------- -------
<S> <C> <C> <C>
Pro forma net income $91,573 $72,317 $77,891
======= ======= =======
Pro forma basic
earnings per share $ .95 $ .76 $ .79
======= ======= =======
Pro forma diluted
earnings per share $ .93 $ .72 $ .74
======= ======= =======
</TABLE>
Option valuation models are used in estimating the fair value of traded options
that have no vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective assumptions,
including the expected stock price volatility and the average life of options.
Because the Company's stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options. In addition, the pro forma net
income and earnings per share amounts shown above for fiscal 2001, 2000 and 1999
do not include the effect of any grants made prior to fiscal 1996.
SHARE PURCHASE RIGHTS PLAN - On December 9, 1994, the Board of Directors adopted
a Share Purchase Rights Plan and declared a dividend of one common stock
purchase right (a "Right") payable on each outstanding share of the Company's
common stock on December 21, 1994, and authorized the issuance of Rights for
subsequently issued shares of common stock. The Rights, which will expire on
December 21, 2004, are initially not exercisable, and until becoming exercisable
will trade only with the associated common stock. After the Rights become
exercisable, each Right entitles the holder to purchase at a specified exercise
price one share of common stock. The Rights will become exercisable after the
earlier to occur of (i) ten days following a public announcement that a person
or group of affiliated or associated persons have acquired beneficial ownership
of 15% or more of the outstanding common stock or (ii) ten business days (or
such later date as determined by the Board of Directors) following the
commencement of, or announcement of an intention to make, a tender or exchange
offer the consummation of which would result in beneficial ownership by a person
or group of 15% or more of the outstanding common stock. If the Company were
acquired in a merger or other business combination transaction or 50% or more of
its consolidated assets or earning power were sold, proper provision would be
made so that each Right would entitle its holder to purchase, upon the exercise
of the Right at the then current exercise price (currently the exercise price is
$14.81), that number of shares of common stock of the acquiring company having a
market value of twice the exercise price of the Right. If any person or group
were to acquire beneficial ownership of 15% or more of the Company's outstanding
common stock, each Right would entitle its holder (other than such acquiring
person whose Rights would become void) to purchase, upon the exercise of the
Right at the then current exercise price, that number of shares of the Company's
common stock having a market value on the date of such 15% acquisition of twice
the exercise price of the Right. The Board of Directors may at its option, at
any time after such 15% acquisition but prior to the acquisition of more than
50% of the Company's outstanding common stock, exchange all or part of the then
outstanding and exercisable Rights (other than those held by such acquiring
person whose Rights would become void) for common stock at an exchange rate per
Right of one-half the number of shares of common stock receivable upon exercise
of a Right. The Board of Directors may, at any time prior to such 15%
acquisition, redeem all the Rights at a redemption price of $.01 per Right.
SHARES RESERVED FOR FUTURE ISSUANCES - As of March 3, 2001, the Company had
approximately 119,028,000 shares reserved for future issuances under the stock
plans and the share purchase rights plan.
NOTE 9 - INCOME TAXES
The provision for income taxes for each of the last three fiscal years consists
of (in thousands):
24
<PAGE> 25
<TABLE>
<CAPTION>
2001 2000 1999
-------- -------- --------
<S> <C> <C> <C>
Federal:
Current $ 50,455 $ 39,463 $ 47,007
Deferred 583 355 (2,948)
State:
Current 3,368 1,890 5,112
Deferred 152 1,370 (378)
Foreign:
Current 1,032 809 460
-------- -------- --------
$ 55,590 $ 43,887 $ 49,253
======== ======== ========
</TABLE>
Deferred tax assets at March 3, 2001 and February 26, 2000 are comprised of the
following (in thousands):
<TABLE>
<CAPTION>
2001 2000
-------- --------
<S> <C> <C>
Deferred tax assets:
Inventory $ 1,727 $ 4,339
Deferred compensation 7,292 5,268
Accrued average rent 7,784 7,254
Losses on a foreign subsidiary 3,301 2,497
Self insurance reserves 910 2,049
Fixed assets, net 795 441
Other 2,326 1,637
-------- --------
24,135 23,485
Valuation allowance (3,301) (1,916)
-------- --------
Net deferred tax assets $ 20,834 $ 21,569
======== ========
</TABLE>
The Company has settled and closed all Internal Revenue Service ("IRS")
examinations of the Company's tax returns for all years through fiscal 1999.
Subsequent years are not yet under IRS audit.
At February 26, 2000, the net capital loss carryforward for income tax purposes
of approximately $3.2 million expired. For financial reporting purposes, a
valuation allowance remains at March 3, 2001 to partially offset the deferred
tax asset relating to the losses of a foreign subsidiary.
Undistributed earnings of the Company's non-U.S. subsidiaries amounted to
approximately $19.4 million at March 3, 2001. These earnings are considered to
be indefinitely reinvested and, accordingly, no additional U.S. income taxes or
non-U.S. withholding taxes have been provided. Determination of the amount of
additional taxes that would be payable if such earnings were not considered
indefinitely reinvested is not practical.
The difference between income taxes at the statutory federal income tax rate of
35% in fiscal 2001, 2000 and 1999, and income tax reported in the consolidated
statements of operations is as follows (in thousands):
25
<PAGE> 26
<TABLE>
<CAPTION>
2001 2000 1999
-------- -------- --------
<S> <C> <C> <C>
Tax at statutory federal
tax rate $ 52,584 $ 41,514 $ 45,364
State income taxes, net of
federal benefit 3,200 2,526 5,832
Work opportunity tax credit,
foreign tax credit and
R&E credit (207) (283) (327)
Net foreign income taxed
at lower rates (1,048) (960) (517)
Other, net 1,061 1,090 (1,099)
-------- -------- --------
$ 55,590 $ 43,887 $ 49,253
======== ======== ========
</TABLE>
NOTE 10 - COMMITMENTS AND CONTINGENCIES
LEASES - The Company leases certain property consisting principally of retail
stores, warehouses and material handling and office equipment under leases
expiring through the year 2015. Most retail store locations are leased for
initial terms of 10 to 15 years with varying renewal options and rent escalation
clauses. Certain leases provide for additional rental payments based on a
percentage of sales in excess of a specified base. The Company's lease
obligations are considered operating leases, and all payments are reflected in
the accompanying consolidated statements of operations.
During fiscal 2000, the Company sold certain store properties for $19.3 million.
These stores were leased back from unaffiliated third parties for periods of ten
years. The resulting leases are being accounted for as operating leases. The
Company deferred gains of $3.3 million in fiscal 2000 on these sale-leaseback
transactions; the gains are being amortized over the initial lives of the
leases. Future minimum lease commitments of these operating leases are included
in the summary below of the Company's operating leases. The Company had no
sale-leaseback transactions in fiscal 2001.
At March 3, 2001, the Company had the following minimum lease commitments in the
years indicated (in thousands):
<TABLE>
<CAPTION>
Operating
Fiscal year Leases
- ----------- ---------
<S> <C>
2002 $139,589
2003 132,924
2004 124,574
2005 111,225
2006 99,131
Thereafter 333,485
--------
Total lease commitments $940,928
========
Present value of total
operating lease commitments at 10% $624,987
========
</TABLE>
Rental expense incurred was $144,035,000, $131,835,000 and $114,966,000,
including contingent rentals of $979,000, $794,000 and $884,000, based upon a
percentage of sales, and net of sublease incomes totaling $2,650,000, $2,141,000
and $1,511,000 in fiscal 2001, 2000 and 1999, respectively.
26
<PAGE> 27
LEGAL MATTERS - There are various claims, lawsuits, investigations and pending
actions against the Company and its subsidiaries incident to the operations of
its business. Liability, if any, associated with these matters is not
determinable at March 3, 2001; however, the Company considers them to be
ordinary and routine in nature. The Company maintains liability insurance
against most of these claims. While certain of the lawsuits involve substantial
amounts, it is the opinion of management, after consultation with counsel, that
the ultimate resolution of such litigation will not have a material adverse
effect on the Company's financial position, results of operations or liquidity.
NOTE 11 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the years ended March 3, 2001 and
February 26, 2000 are set forth below (in thousands except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------
Fiscal 2001 5/27/2000 8/26/2000 11/25/2000 3/3/2001
- ----------- --------- --------- ---------- --------
<S> <C> <C> <C> <C>
Net sales $299,528 337,991 343,493 430,486
Gross profit $126,646 135,616 147,160 185,033
Net income $ 16,877 17,715 23,569 36,489
Basic earnings per share $ .17 .18 .25 .38
Diluted earnings per share $ .17 .18 .24 .38
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------
Fiscal 2000 5/29/1999 8/28/1999 11/27/1999 2/26/2000
- ----------- --------- --------- ---------- --------
<S> <C> <C> <C> <C>
Net sales $261,002 291,787 298,223 380,083
Gross profit $110,083 113,212 126,029 163,224
Net income $ 12,645 11,886 16,151 34,043
Basic earnings per share $ .13 .12 .17 .36
Diluted earnings per share $ .13 .12 .16 .34
</TABLE>
27
<PAGE> 28
MARKET PRICE AND DIVIDEND INFORMATION
The Company's common stock is traded on the New York Stock Exchange. The
following tables show the high and low closing sale prices on such Exchange, as
reported in the consolidated transaction reporting system, and the dividends
paid per share, for each quarter of fiscal 2001 and 2000.
<TABLE>
<CAPTION>
Market Price
-------------------- Cash Dividends
Fiscal 2001 High Low per Share(1)
- ----------- -------- -------- --------------
<S> <C> <C> <C>
First quarter $11.8750 $ 7.8750 $ .03
Second quarter 12.7500 8.5000 .04
Third quarter 14.0000 10.4375 .04
Fourth quarter 13.8750 8.1875 .04
</TABLE>
<TABLE>
<CAPTION>
Market Price
-------------------- Cash Dividends
Fiscal 2000 High Low per Share(1)
- ----------- -------- -------- --------------
<S> <C> <C> <C>
First quarter $11.6875 $ 7.0625 $ .03
Second quarter 12.2500 5.6875 .03
Third quarter 7.2500 5.3750 .03
Fourth quarter 9.1875 5.9375 .03
</TABLE>
(1) For restrictions on the payments of dividends, see Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity
and Capital Resources.
28
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>5
<FILENAME>d86853ex21.txt
<DESCRIPTION>ROSTER OF SUBSIDIARIES OF THE COMPANY
<TEXT>
<PAGE> 1
EXHIBIT 21
ROSTER OF SUBSIDIARIES OF THE COMPANY
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Pier 1 Assets, Inc., a Delaware corporation
New Cargo Furniture, Inc., a Delaware corporation
Pier 1 Licensing, Inc., a Delaware corporation
Pier 1 Imports (U.S.), Inc., a Delaware corporation
Pier 1 Funding, LLC, a Delaware limited liability company
Pier 1 Value Services, LLC, a Virginia limited liability company
Pier Lease, Inc., a Delaware corporation
Pier-SNG, Inc., a Delaware corporation
PIR Trading, Inc., a Delaware corporation
Pier International Limited, a Hong Kong private company
Pier Alliance Ltd., a Bermuda company
The Pier Retail Group Limited, a United Kingdom company
The Pier (Retail) Limited, a United Kingdom company
Pier Direct Limited, a United Kingdom company
Pier-FTW, Inc., a Delaware corporation
Pacific Industrial Properties, Inc., a Texas corporation
Pier Group, Inc., a Delaware corporation
Pier 1 Holdings, Inc., a Delaware corporation
Pier 1 Services Company, a Delaware business trust
Pier 1 National Bank, a national banking association
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>6
<FILENAME>d86853ex23.txt
<DESCRIPTION>CONSENT OF INDEPENDET AUDITORS
<TEXT>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Pier 1 Imports, Inc. of our report dated April 10, 2001, included in the 2001
Annual Report to Shareholders of Pier 1 Imports, Inc.
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (No. 333-34100, No. 333-88323, No. 333-13491 and No. 33-32166) and in
the Registration Statements on Form S-3 (No. 33-49356 and No. 333-61155) of our
report dated April 10, 2001, with respect to the consolidated financial
statements of Pier 1 Imports, Inc. incorporated by reference in the Annual
Report (Form 10-K) for the year ended March 3, 2001.
/s/ Ernst & Young LLP
Fort Worth, Texas
May 29, 2001
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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