-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EPdTS9q+kQ05V+gEWi4YJpniSZkdM/GoVyL3Tp74M0Q6s+oppA33AGv8O57YtOEH YI1qjmLeDUYLSQ9JiimKiw== 0000950134-02-012392.txt : 20021011 0000950134-02-012392.hdr.sgml : 20021011 20021011130740 ACCESSION NUMBER: 0000950134-02-012392 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020831 FILED AS OF DATE: 20021011 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07832 FILM NUMBER: 02787224 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: NEWCORP INC DATE OF NAME CHANGE: 19800423 FORMER COMPANY: FORMER CONFORMED NAME: PIER 1 IMPORTS INC/GA DATE OF NAME CHANGE: 19840729 FORMER COMPANY: FORMER CONFORMED NAME: PIER 1 INC DATE OF NAME CHANGE: 19860921 10-Q 1 d00346e10vq.txt FORM 10-Q FOR QUARTER ENDED AUGUST 31, 2002 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended August 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------ ------------- Commission File Number 1-7832 PIER 1 IMPORTS, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 75-1729843 - ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number)
301 Commerce Street, Suite 600, Fort Worth, Texas 76102 - -------------------------------------------------------------------------------- (Address of principal executive offices, including zip code) (817) 252-8000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]. No [ ]. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class Shares outstanding as of October 9, 2002 - ---------------------------------- ---------------------------------------- Common Stock, $1.00 par value 92,584,447
PART I Item 1. Financial Statements. PIER 1 IMPORTS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per share amounts) (unaudited)
Three Months Ended Six Months Ended Aug. 31, Sept. 1, Aug. 31, Sept. 1, 2002 2001 2002 2001 ------------- ------------- ------------- ------------- Net sales $ 410,902 $ 357,248 $ 795,331 $ 682,635 Operating costs and expenses: Cost of sales (including buying and store occupancy costs) 245,973 219,709 466,409 410,182 Selling, general and administrative expenses 118,612 105,134 236,945 209,631 Depreciation and amortization 11,329 10,391 22,060 21,087 ------------- ------------- ------------- ------------- 375,914 335,234 725,414 640,900 ------------- ------------- ------------- ------------- Operating income 34,988 22,014 69,917 41,735 Nonoperating (income) and expenses: Interest and investment income (699) (355) (1,536) (826) Interest expense 645 448 1,203 1,056 ------------- ------------- ------------- ------------- (54) 93 (333) 230 ------------- ------------- ------------- ------------- Income before income taxes 35,042 21,921 70,250 41,505 Provision for income taxes 12,969 8,119 25,996 15,358 ------------- ------------- ------------- ------------- Net income $ 22,073 $ 13,802 $ 44,254 $ 26,147 ============= ============= ============= ============= Earnings per share: Basic $ .24 $ .15 $ .47 $ .27 ============= ============= ============= ============= Diluted $ .23 $ .14 $ .46 $ .27 ============= ============= ============= ============= Dividends declared per share: $ .05 $ .04 $ .10 $ .08 ============= ============= ============= ============= Average shares outstanding during period: Basic 93,032 95,074 93,370 95,450 ============= ============= ============= ============= Diluted 95,471 96,343 96,042 96,839 ============= ============= ============= =============
The accompanying notes are an integral part of these financial statements. PIER 1 IMPORTS, INC. CONSOLIDATED BALANCE SHEETS (in thousands except per share amounts)
August 31, March 2, September 1, 2002 2002 2001 ------------- ------------- ------------- (unaudited) (unaudited) ASSETS Current assets: Cash, including temporary investments of $137,919, $213,488 and $47,620, respectively $ 149,513 $ 235,609 $ 64,363 Beneficial interest in securitized receivables 40,831 44,620 89,059 Other accounts receivable, net 12,494 6,205 6,260 Inventories 357,252 275,433 300,731 Prepaid expenses and other current assets 40,482 43,286 35,719 ------------- ------------- ------------- Total current assets 600,572 605,153 496,132 Properties, net 233,497 209,954 211,303 Other noncurrent assets 47,144 47,565 48,144 ------------- ------------- ------------- $ 881,213 $ 862,672 $ 755,579 ============= ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 388 $ 356 $ -- Accounts payable and accrued liabilities 210,590 208,040 153,531 ------------- ------------- ------------- Total current liabilities 210,978 208,396 153,531 Long-term debt 25,000 25,356 25,000 Other noncurrent liabilities 47,073 43,264 38,841 Shareholders' equity: Common stock, $1.00 par, 500,000,000 shares authorized, 100,779,000 issued 100,779 100,779 100,779 Paid-in capital 144,052 140,190 139,878 Retained earnings 464,808 429,910 363,295 Cumulative other comprehensive income (2,797) (4,702) (3,517) Less -- 8,426,000, 7,362,000 and 5,660,000 common shares in treasury, at cost, respectively (108,680) (80,521) (62,194) Less -- unearned compensation -- -- (34) ------------- ------------- ------------- 598,162 585,656 538,207 ------------- ------------- ------------- $ 881,213 $ 862,672 $ 755,579 ============= ============= =============
The accompanying notes are an integral part of these financial statements. PIER 1 IMPORTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Six Months Ended August 31, September 1, 2002 2001 ------------- ------------- Cash flow from operating activities: Net income $ 44,254 $ 26,147 Adjustments to reconcile to net cash (used in) provided by operating activities: Depreciation and amortization 22,060 21,087 Loss on disposal of fixed assets 1,176 995 Deferred compensation 2,440 2,583 Other 4,940 1,862 Changes in cash from: Inventories (81,819) 9,534 Other accounts receivable and other current assets (6,126) (561) Accounts payable and accrued expenses 8,940 11,610 Other noncurrent assets (542) (785) Other noncurrent liabilities (500) 644 ------------- ------------- Net cash (used in) provided by operating activities (5,177) 73,116 ------------- ------------- Cash flow from investing activities: Capital expenditures (46,598) (29,165) Proceeds from disposition of properties 629 7,608 Beneficial interest in securitized receivables 3,789 (13,656) ------------- ------------- Net cash used in investing activities (42,180) (35,213) ------------- ------------- Cash flow from financing activities: Cash dividends (9,356) (7,661) Purchases of treasury stock (40,161) (15,912) Proceeds from stock options exercised and stock purchase plan and other, net 11,142 3,192 Repayments of long-term debt (364) -- ------------- ------------- Net cash used in financing activities (38,739) (20,381) ------------- ------------- Change in cash and cash equivalents (86,096) 17,522 Cash and cash equivalents at beginning of period 235,609 46,841 ------------- ------------- Cash and cash equivalents at end of period $ 149,513 $ 64,363 ============= =============
The accompanying notes are an integral part of these financial statements. PIER 1 IMPORTS, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED AUGUST 31, 2002 (in thousands except per share amounts) (unaudited)
Cumulative Common Stock Other Total ------------------------- Paid-in Retained Comprehensive Treasury Shareholders' Shares Amount Capital Earnings Income Stock Equity ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance March 2, 2002 93,389 $ 100,779 $ 140,190 $ 429,910 $ (4,702) $ (80,521) $ 585,656 Comprehensive income: Net income -- -- -- 44,254 -- -- 44,254 Other comprehensive income, net of tax: Currency translation adjustments -- -- -- -- 1,905 -- 1,905 ----------- Comprehensive income 46,159 ----------- Purchases of treasury stock (2,134) -- -- -- -- (40,161) (40,161) Exercise of stock options, stock purchase plan and other 1,049 -- 3,862 -- -- 12,002 15,864 Cash dividends, declared or paid ($.10 per share) -- -- -- (9,356) -- -- (9,356) ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance August 31, 2002 92,304 $ 100,779 $ 144,052 $ 464,808 $ (2,797) $ (108,680) $ 598,162 =========== =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. PIER 1 IMPORTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED AUGUST 31, 2002 AND SEPTEMBER 1, 2001 (unaudited) The accompanying unaudited financial statements should be read in conjunction with the Form 10-K for the year ended March 2, 2002. All adjustments that are, in the opinion of management, necessary for a fair statement of the financial position as of August 31, 2002, and the results of operations and cash flows for the three and six months ended August 31, 2002 and September 1, 2001 have been made and consist only of normal recurring adjustments. The results of operations for the three and six months ended August 31, 2002 and September 1, 2001 are not indicative of results to be expected for the fiscal year because of, among other things, seasonality factors in the retail business. The classification of certain amounts previously reported in the statement of cash flows for the six months ended September 1, 2001 has been modified to conform to the August 31, 2002 method of presentation. NOTE 1 - EARNINGS PER SHARE Basic earnings per share amounts were determined by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share amounts were similarly computed, but included the effect, when dilutive, of the Company's weighted average number of stock options outstanding. Earnings per share for the three and six months ended August 31, 2002 and September 1, 2001 are calculated as follows (in thousands except per share amounts):
Three Months Ended Six Months Ended Aug. 31, Sept. 1, Aug. 31, Sept. 1, 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Net income (Basic and Diluted) $ 22,073 $ 13,802 $ 44,254 $ 26,147 =========== =========== =========== =========== Average shares outstanding during period: Basic 93,032 95,074 93,370 95,450 Plus assumed exercise of stock options 2,439 1,269 2,672 1,389 ----------- ----------- ----------- ----------- Diluted 95,471 96,343 96,042 96,839 =========== =========== =========== =========== Earnings per share: Basic $ .24 $ .15 $ .47 $ .27 =========== =========== =========== =========== Diluted $ .23 $ .14 $ .46 $ .27 =========== =========== =========== ===========
NOTE 2 - COMPREHENSIVE INCOME The components of comprehensive income, net of related tax, for the three and six months ended August 31, 2002 and September 1, 2001 are as follows (in thousands):
Three Months Ended Six Months Ended Aug. 31, Sept. 1, Aug. 31, Sept. 1, 2002 2001 2002 2001 ------------ ------------ ------------- ------------- Net income $ 22,073 $ 13,802 $ 44,254 $ 26,147 Currency translation adjustments 686 329 1,905 (402) ------------ ------------ ------------- ------------- Comprehensive income $ 22,759 $ 14,131 $ 46,159 $ 25,745 ============ ============ ============= =============
NOTE 3 - ADOPTION OF NEW ACCOUNTING STANDARDS In the first quarter of fiscal 2003, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," which supersedes Accounting Principles Board ("APB") Opinion No. 17, "Intangible Assets." This statement addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS No. 142 also provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives will not be amortized, but will rather be tested for impairment upon adoption and on an annual basis thereafter. The Company completed the initial impairment test and concluded that goodwill was not impaired as of August 31, 2002. The adoption of SFAS No. 142 during the first quarter of fiscal 2003 did not have a material impact on the Company's consolidated balance sheets or its statements of operations, shareholders' equity and cash flows. The impact of the non-amortization provisions of SFAS No. 142, if applied at the beginning of fiscal year 2002, would have resulted in second quarter net income of $13,865,000 versus reported net income of $13,802,000 and year-to-date net income of $26,254,000 versus reported net income of $26,147,000. Basic and diluted earnings per share would have remained at $0.15 and $0.14, respectively, for the second quarter and $0.27 for both basic and diluted earnings per share for the year-to-date period. In the first quarter of fiscal 2003, the Company also adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144 retains the fundamental provisions of SFAS No. 121 with additional guidance on estimating cash flows when performing a recoverability test, requires that a long-lived asset to be disposed of, other than by sale, be classified as "held and used" until it is disposed of and establishes more restrictive criteria to classify an asset as "held for sale." SFAS No. 144 also supersedes APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," regarding the disposal of a segment of a business and extends the reporting of a discontinued operation to a "component of an entity" and requires the operating losses thereon to be recognized in the period in which they occur. The adoption of SFAS No. 144 did not have a material impact on the Company's consolidated balance sheets or its statements of operations, shareholders' equity and cash flows. PART I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. GENERAL Pier 1 Imports, Inc. (the "Company") is one of North America's largest specialty retailers of unique decorative home furnishings, gifts and related items for the home. The Company, through certain subsidiaries, operates stores in North America under the names "Pier 1 Imports" and "Cargokids!" ("Cargokids"). In the United Kingdom, retail locations operate under the name "The Pier." The Company has over 1,000 retail locations in 48 states, Canada, Puerto Rico, the United Kingdom and Mexico with merchandise directly imported from over 40 countries around the world. RESULTS OF OPERATIONS Net sales consisted almost entirely of sales to retail customers net of discounts and returns, but also included wholesale sales and royalties received from franchise stores and joint ventures, and delivery service revenues. Sales by retail concept during the period were as follows (in thousands):
Three Months Ended Six Months Ended August 31, September 1, August 31, September 1, 2002 2001 2002 2001 --------------- --------------- --------------- --------------- Pier 1 Imports stores $ 393,679 $ 341,043 $ 763,243 $ 651,923 The Pier 10,805 8,929 19,800 17,441 Cargokids stores 2,795 2,735 5,549 4,952 Internet 1,459 755 2,368 1,282 Other (1) 2,164 3,786 4,371 7,037 --------------- --------------- --------------- --------------- Net Sales $ 410,902 $ 357,248 $ 795,331 $ 682,635 =============== =============== =============== ===============
(1) Other sales consisted of wholesale sales and royalties received from franchise stores, international joint ventures in Mexico and Puerto Rico, and Cargokids' contract sales. Amounts from the prior fiscal year also included sales to the Company's franchise stores in Japan and Cargokids' dealer sales. The Company recorded net sales of $410.9 million for the second quarter of fiscal 2003, an increase of 15.0% over last year's second quarter net sales of $357.2 million. Same-store sales for the second quarter of fiscal 2003 increased 5.8% over last year's comparable period. Net sales for the first six months of fiscal 2003 improved 16.5% to $795.3 million from $682.6 million for the comparable period a year ago. Same-store sales for the first half of fiscal 2003 increased 7.4% over last year's comparable period. Successful integrated marketing initiatives and favorable customer response to the Company's value pricing strategy and to the new merchandise that arrived in stores in late July and throughout August contributed to the positive sales gains. The Company has continued to experience increased customer traffic and average ticket for the first half of fiscal 2003. In addition, the increase in net sales was also attributable to the net increase of 103 new North American Pier 1 stores at the end of the second quarter of fiscal 2003 compared to the end of the comparable period last fiscal year. Increases in North American Pier 1 stores sales were partially offset by a reduction in sales due to the Company's discontinued operations in Japan, the termination of one franchise store agreement, and lower contract sales at Cargokids as management shifted its focus to concentrate on retail sales. The North American Pier 1 store count totaled 949 at the end of the second quarter compared to 846 stores a year ago. During the second quarter, the Company opened 30 and closed six North American Pier 1 stores and closed one Cargokids store, which resulted in an increase of 3% in total retail square footage during the quarter and an increase of 13% over the same quarter last year. During the first half of fiscal 2003, the Company opened 55 and closed 16 North American Pier 1 stores and closed one Cargokids store, which resulted in an increase of 5% in total retail square footage from the beginning of fiscal 2003. Including Cargokids locations, the worldwide store count across North America, Puerto Rico, the United Kingdom and Mexico totaled 1,012 as of August 31, 2002. A summary reconciliation of the Company's stores open at the beginning of fiscal 2003 to the number open at the end of the second quarter follows (openings and closings include relocated stores):
Pier 1 North American International (1) Cargokids Total --------------- ---------------- --------------- --------------- Open at March 2, 2002 910 46 18 974 Openings 55 -- -- 55 Closings (16) -- (1) (17) --------------- --------------- --------------- --------------- Open at August 31, 2002 949 46 17 1,012 =============== =============== =============== ===============
(1) International stores were located in Puerto Rico, the United Kingdom and Mexico. Net sales on the Company's proprietary credit card during the second quarter totaled $107.4 million, an increase of 3.9% over proprietary credit card sales of $103.4 million for the same period last fiscal year. Proprietary credit card sales totaled $208.3 million for the first six months of fiscal 2003, an increase of 4.4% over the same period last year. Second quarter proprietary credit card sales comprised 28.4% versus 31.4% of total sales in the same period last fiscal year, while year-to-date proprietary credit card sales accounted for 28.3% of total U.S. store sales versus 31.7% of sales in the year earlier period. The Company continues to increase overall sales on its proprietary credit card by opening new accounts and developing customer loyalty through marketing promotions targeted to cardholders. Gross profit, after related buying and store occupancy costs, expressed as a percentage of sales, increased over 160 basis points to 40.1% for the second quarter of fiscal 2003 and increased 140 basis points to 41.4% for the first six months of fiscal 2003. As a percentage of sales, merchandise margins increased 160 basis points for the second quarter and 110 basis points for the six-month period ended August 31, 2002 from the comparable periods a year ago. Merchandise margin increases were primarily the result of lower promotional and clearance activity during the first and second quarters of fiscal 2003, as well as slightly higher margin rates before discounts as a result of lower prices charged by vendors. Store occupancy costs for the second quarter, as a percentage of sales, were 13.3%, an improvement of nearly 10 basis points compared to the year ago quarter. Year-to-date, store occupancy costs improved 30 basis points compared to the same period last year. Store occupancy improvements resulted from leveraging relatively fixed rental costs over a higher sales base. Selling, general and administrative expenses for the second quarter of fiscal 2003 were $118.6 million, an increase of $13.5 million over the same quarter last year, but a decline of 50 basis points as a percentage of sales, to 28.9% this year from 29.4% last year. Year-to-date selling, general and administrative expenses increased $27.3 million. As a percentage of sales, when compared to the same period last year, year-to-date selling, general and administrative expenses declined 90 basis points. Expenses that normally grow proportionately with sales and number of stores, such as store payroll, marketing, store supplies and equipment rental, increased $6.8 million and $16.3 million for the quarter and year-to-date periods, respectively. As a percentage of sales, these variable expenses declined 100 basis points for the second quarter and 90 basis points year-to-date. Store payroll including bonus continues to be well controlled, increasing $6.8 million but remaining flat as a percentage of sales for the quarter. For the first half of fiscal 2003, store payroll including bonus increased $17.1 million or 40 basis points as a percentage of sales, which was largely the result of an increase in store bonuses, awarded based on sales gains over the prior year. Marketing expenses increased $1.1 million and $0.3 million for the quarter and year-to-date periods, respectively, but declined 30 basis points to 4.2% of sales for the quarter and to 4.9% of sales year-to-date, a decline of 80 basis points. Marketing expenses for fiscal 2003 are expected to approximate 4.5% of sales, which is consistent with fiscal 2002. Primarily as a result of implementation of a redesigned program for bags and boxes used in the stores, store supplies and equipment expenses during the second quarter and first half of fiscal 2003 declined $1.1 million, a decline of 70 basis points for the quarter and 50 basis points for the first six months. The Company expects these savings in bags and boxes to continue through the remainder of the year. Headquarters payroll increased $1.2 million for the quarter, and declined 20 basis points as a percentage of sales when compared to the second quarter last year. Headquarters payroll increased $3.2 million and decreased 10 basis points as a percentage of sales for the first six months of fiscal 2003. Headquarters bonus accruals increased $3.6 million or 90 basis points for the quarter and $5.3 million or 60 basis points year-to-date as a result of better profit results for the first half of fiscal 2003 compared to the same period a year ago. All other selling, general and administrative expenses increased $1.9 million for the quarter, a decline of 20 basis points as a percentage of sales. For the six-month period, all other selling, general and administrative increased $2.5 million and decreased 50 basis points as a percentage of sales, when compared to the same period last year. Operating income increased 58.9% to $35.0 million for the second quarter of fiscal 2003 from $22.0 million for the second quarter of fiscal 2002. For the first six months of fiscal 2003, operating income increased 67.5% to $69.9 million from $41.7 million for the same period last year. As a percentage of sales, operating income for the second quarter increased to 8.5% from 6.2% for the same period a year ago. Year-to-date, operating income increased to 8.8% of sales versus 6.1% of sales for the comparable period last year. The Company's effective income tax rate for fiscal 2003 is estimated at 37%, consistent with fiscal 2002. Net income for the second quarter of fiscal 2003 was $22.1 million, or $.23 per diluted share, compared to net income of $13.8 million, or $.14 per diluted share, for the second quarter of fiscal 2002. Net income for the first six months of fiscal 2003 was $44.3 million, or $.46 per diluted share, compared to net income of $26.1 million, or $.27 per diluted share, for the first six months of fiscal 2002. Net income for the quarter and year-to-date periods increased 59.9% and 69.3%, respectively, compared to the same periods last year. LIQUIDITY AND CAPITAL RESOURCES The Company ended the second quarter of fiscal 2003 with $149.5 million in cash and temporary investments compared to $64.4 million a year ago. Net income, adjusted for non-cash and non-operating related items, was $74.9 million and served as the Company's primary source of operating cash flows for the six months ended August 31, 2002. Operating activities in the first half of fiscal 2003 used $5.2 million of cash versus providing $73.1 million during the same period last year. The change in cash flow was primarily the result of an increase of $81.8 million in inventories during the first six months of fiscal 2003 compared to a decline in inventory levels last year of $9.5 million in the comparable period. Inventory increases in the current year were concentrated in the distribution centers and resulted from a plan to ensure adequate supply for the planned openings of 65 new stores during the remainder of fiscal 2003 and to support promotions planned for the next few months. Inventory growth also resulted from the addition of 39 net new Pier 1 stores since the end of fiscal 2002, along with 103 net new Pier 1 stores from last year's second quarter-end. Average inventory physically in stores remained consistent with last year's second quarter balance at just over $200,000 per store. The Company believes that its current levels of inventory are well positioned for the planned store openings for the remainder of fiscal 2003 and upcoming marketing initiatives. All other operating activities provided cash of $1.8 million. During the first half of fiscal 2003, the Company spent a net $42.2 million in investing activities. Capital expenditures were $46.6 million and consisted primarily of the land purchase and beginning construction costs for both the replacement of one of the Company's current distribution centers and for the Company's future headquarters along with new and existing store development and investments in information systems. Through the first half of fiscal 2003, the Company's beneficial interest in securitized receivables decreased $3.8 million as a result of a decline in the total receivables portfolio from $140.7 million at fiscal 2002 year-end to $136.9 million at the end of the second quarter of fiscal 2003. These proprietary credit card receivables have declined due to a decrease in the proprietary credit card usage as a percentage of sales and improved customer payment rates. The Company has continued to have $100 million of these receivables securitized at both fiscal 2002 year-end and the end of the second quarter of fiscal 2003. Therefore, the decline in the receivables balance resulted in a reduction in the beneficial interest. Financing activities for the first six months of fiscal 2003 used a net $38.7 million of the Company's cash resources. Year-to-date, the Company repurchased 2,134,000 shares of its common stock for $40.2 million, leaving $109.8 million remaining authorized for repurchase under the stock buyback program approved by the Board of Directors during the first quarter of fiscal 2003. Dividend payments totaled $9.4 million for the first half of fiscal 2003, and other financing activities, primarily the exercise of stock options, provided cash of $11.1 million. The Company's minimum operating lease commitments remaining for fiscal 2003 were $87.5 million. The present value of total existing minimum operating lease commitments discounted at 10% was $759.7 million at the fiscal 2003 second quarter-end. Working capital requirements are expected to continue to be funded through cash flow from operations, bank lines of credit and sales of proprietary credit card receivables. The Company's bank facilities consist of a $125 million revolving credit facility, which expires November 2003, all of which was available at the end of the second quarter of fiscal 2003. The Company also has other long-term and short-term bank facilities used principally for the issuance of letters of credit totaling $153.8 million, of which $50.1 million was available at August 31, 2002. The Company's current ratio was 2.8 to 1 at the end of the second quarter of fiscal 2003 and 2.9 to 1 at the end of fiscal year 2002. On September 26, 2002, the Company declared a cash dividend of $.05 per share payable on November 20, 2002 to shareholders of record on November 6, 2002. The Company currently expects to continue to pay cash dividends in the future but to retain most of its future earnings for expansion of the Company's business. Management believes the funds provided from operations, available lines of credit and sales of the Company's proprietary credit card receivables will be sufficient to meet the Company's expected cash requirements for the next fiscal year. OTHER EVENTS AND UNCERTAINTIES On September 30, 2002, the Pacific Maritime Association, a group representing West Coast port operators and international shipping lines, initiated a lockout at 29 West Coast ports of members of the International Longshore and Warehouse Union, effectively bringing port operations to a halt. On October 8, 2002, a federal court issued a restraining order effective until October 16, 2002 ending the lockout. The court is expected to impose an 80-day cooling off period at that time as required by the Taft Hartley Act. The Company has assessed the probable impact of the temporary loss of use of these ports and has determined that any negative effects on its results of operations will not be material. Although port operations may not return to normal for several weeks, the Company expects no significant adverse effects on its current operations since almost all seasonal merchandise purchased for the Company's holiday selling season has already been received into its stores and distribution centers, as has other merchandise in sufficient quantities to support promotional events and regular sales through the third quarter and into the fourth quarter. FORWARD-LOOKING STATEMENTS Certain matters discussed in this quarterly report, except for historical information contained herein, may constitute "forward-looking statements" that are subject to certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The Company may also make forward-looking statements in other reports filed with the Securities and Exchange Commission and in material delivered to the Company's shareholders. Forward-looking statements provide current expectations of future events based on certain assumptions. These statements encompass information that does not directly relate to any historical or current fact and often may be identified with words such as "anticipates," "believes," "expects," "estimates," "intends," "plans," "projects" and other similar expressions. Management's expectations and assumptions regarding planned store openings, financing of Company obligations from operations and other future results are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. Risks and uncertainties that may affect Company operations and performance include, among others, terrorist attacks and other acts of war, labor strikes, weather conditions that may affect sales, the general strength of the economy and levels of consumer spending, the availability of new sites for expansion along with sufficient labor to facilitate growth, the strength of new home construction and sales of existing homes, the ability of the Company to import merchandise from foreign countries without significantly restrictive tariffs, duties or quotas and the ability of the Company to ship and deliver items from foreign countries to its U.S. distribution centers at reasonable rates and in a timely fashion. The foregoing risks and uncertainties are in addition to others discussed elsewhere in this quarterly report. The Company assumes no obligation to update or otherwise revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied will not be realized. Additional information concerning these risks and uncertainties is contained in the Company's Annual Report on Form 10-K for the year ended March 2, 2002, as filed with the Securities and Exchange Commission. IMPACT OF INFLATION Inflation has not had a significant impact on the operations of the Company. PART I Item 4. Controls and Procedures. As of August 31, 2002, an evaluation was performed under the supervision and with the participation of the Company's management, including the Chairman of the Board and Chief Executive Officer ("CEO") and the Executive Vice President, Chief Financial Officer and Treasurer ("CFO"), of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of August 31, 2002. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to August 31, 2002. PART II Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits See Exhibit Index. (b) Reports on Form 8-K On October 11, 2002, the Company filed a Current Report on Form 8-K, in compliance with Securities and Exchange Commission Order No. 4-460. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PIER 1 IMPORTS, INC. (Registrant) Date: October 11, 2002 By: /s/ Marvin J. Girouard -------------------- --------------------------------------------- Marvin J. Girouard, Chairman of the Board and Chief Executive Officer Date: October 11, 2002 By: /s/ Charles H. Turner -------------------- --------------------------------------------- Charles H. Turner, Executive Vice President, Chief Financial Officer and Treasurer Date: October 11, 2002 By: /s/ Susan E. Barley -------------------- --------------------------------------------- Susan E. Barley, Principal Accounting Officer CERTIFICATIONS I, Marvin J. Girouard, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Pier 1 Imports, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: October 10, 2002 By: /s/ Marvin J. Girouard -------------------- ------------------------------------------ Marvin J. Girouard, Chairman of the Board and Chief Executive Officer I, Charles H. Turner, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Pier 1 Imports, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: October 10, 2002 By: /s/ Charles H. Turner ------------------- -------------------------------------------- Charles H. Turner, Executive Vice President, Chief Financial Officer and Treasurer Exhibit Index
Exhibit No. Description - ----------- ----------- 99.1 Management's certifications required pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002.
EX-99.1 3 d00346exv99w1.txt MANAGEMENT'S CERTIFICATIONS PURSUANT TO SEC. 906 EXHIBIT 99.1 CERTIFICATIONS REQUIRED BY SEC. 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Marvin J. Girouard, the Chief Executive Officer of Pier 1 Imports, Inc., hereby certify that: 1. The quarterly report of Pier 1 Imports, Inc. for the period ended August 31, 2002 fully complies with the requirements of sections 13(a) and 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the above-mentioned report fairly presents, in all material respects, the financial condition and results of operations of Pier 1 Imports, Inc. for the period covered by the report. Date: October 10, 2002 By: /s/ Marvin J. Girouard ------------------ ------------------------------------------- Marvin J. Girouard, Chairman of the Board and Chief Executive Officer I, Charles H. Turner, the Chief Financial Officer of Pier 1 Imports, Inc., hereby certify that: 1. The quarterly report of Pier 1 Imports, Inc. for the period ended August 31, 2002 fully complies with the requirements of sections 13(a) and 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the above-mentioned report fairly presents, in all material respects, the financial condition and results of operations of Pier 1 Imports, Inc. for the period covered by the report. Date: October 10, 2002 By: /s/ Charles H. Turner ------------------ -------------------------------------------- Charles H. Turner, Executive Vice President, Chief Financial Officer and Treasurer -----END PRIVACY-ENHANCED MESSAGE-----