e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. |
For the quarterly period ended November 25, 2006
OR
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o |
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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)
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Delaware
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75-1729843 |
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(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification Number) |
100 Pier 1 Place, Fort Worth, Texas 76102
(Address of principal executive offices, including zip code)
(817) 252-8000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ. No o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o. No þ.
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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Class |
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Shares outstanding as of December 27, 2006 |
Common Stock, $1.00 par value
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87,742,804 |
PIER 1 IMPORTS, INC.
INDEX TO QUARTERLY FORM 10-Q
2
PART I
Item 1. Financial Statements.
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
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Three Months Ended |
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Nine Months Ended |
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Nov. 25, |
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Nov. 26, |
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Nov. 25, |
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Nov. 26, |
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2006 |
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2005 |
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2006 |
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2005 |
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Net sales |
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$ |
402,714 |
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$ |
456,690 |
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$ |
1,149,504 |
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$ |
1,270,679 |
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Operating costs and expenses: |
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Cost of sales (including buying and
store occupancy costs) |
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278,131 |
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289,374 |
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792,172 |
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830,776 |
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Selling, general and administrative expenses |
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183,442 |
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155,430 |
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484,170 |
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430,583 |
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Depreciation and amortization |
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12,110 |
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14,050 |
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39,338 |
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42,144 |
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473,683 |
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458,854 |
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1,315,680 |
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1,303,503 |
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Operating loss |
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(70,969 |
) |
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(2,164 |
) |
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(166,176 |
) |
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(32,824 |
) |
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Nonoperating (income) and expenses: |
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Interest and investment income |
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(947 |
) |
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(464 |
) |
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(6,655 |
) |
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(2,226 |
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Interest expense |
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4,218 |
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|
884 |
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11,113 |
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1,663 |
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Other income |
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(1,477 |
) |
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(1,477 |
) |
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1,794 |
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420 |
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2,981 |
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(563 |
) |
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Loss from continuing operations before income taxes |
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(72,763 |
) |
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(2,584 |
) |
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(169,157 |
) |
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(32,261 |
) |
Income tax expense (benefit) |
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(45 |
) |
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3,073 |
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(615 |
) |
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(11,775 |
) |
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Loss from continuing operations |
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(72,718 |
) |
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(5,657 |
) |
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(168,542 |
) |
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(20,486 |
) |
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Discontinued operations: |
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Loss from discontinued operations |
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(1,524 |
) |
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(638 |
) |
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(9,342 |
) |
Income tax benefit |
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(231 |
) |
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Loss from discontinued operations |
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(1,524 |
) |
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(407 |
) |
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(9,342 |
) |
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Net loss |
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($ |
72,718 |
) |
|
($ |
7,181 |
) |
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($ |
168,949 |
) |
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($ |
29,828 |
) |
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Loss per share from continuing operations: |
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Basic and diluted |
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($ |
0.83 |
) |
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($ |
0.06 |
) |
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($ |
1.93 |
) |
|
($ |
0.23 |
) |
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Loss per share from discontinued operations: |
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Basic and diluted |
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($ |
0.02 |
) |
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($ |
0.01 |
) |
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($ |
0.11 |
) |
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Loss per share: |
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Basic and diluted |
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($ |
0.83 |
) |
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($ |
0.08 |
) |
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($ |
1.94 |
) |
|
($ |
0.34 |
) |
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Dividends declared per share: |
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$ |
0.10 |
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$ |
0.20 |
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$ |
0.30 |
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Average shares outstanding during period: |
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Basic and diluted |
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87,503 |
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86,747 |
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87,302 |
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86,544 |
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The accompanying notes are an integral part of these financial statements.
3
PIER 1 IMPORTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
(unaudited)
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November 25, |
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February 25, |
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November 26, |
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2006 |
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2006 |
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2005 |
|
ASSETS |
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Current assets: |
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Cash and cash equivalents, including temporary investments
of $159,843, $238,463 and $6,545, respectively |
|
$ |
172,252 |
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$ |
246,115 |
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$ |
21,291 |
|
Beneficial interest in securitized receivables |
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|
50,000 |
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|
59,567 |
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Other accounts receivable, net |
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30,018 |
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|
13,916 |
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29,355 |
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Inventories |
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392,407 |
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368,978 |
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|
438,782 |
|
Income tax receivable |
|
|
43,447 |
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|
18,011 |
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|
22,810 |
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Assets of discontinued operations |
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32,359 |
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|
40,971 |
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Prepaid expenses and other current assets |
|
|
77,913 |
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45,544 |
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40,284 |
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Total current assets |
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716,037 |
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|
774,923 |
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653,060 |
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Properties, net |
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251,326 |
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298,922 |
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309,960 |
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Other noncurrent assets |
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|
50,518 |
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|
96,016 |
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|
78,280 |
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$ |
1,017,881 |
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$ |
1,169,861 |
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$ |
1,041,300 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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Notes payable |
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$ |
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$ |
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$ |
9,500 |
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Accounts payable |
|
|
121,622 |
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|
105,916 |
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|
|
99,788 |
|
Gift cards and other deferred revenue |
|
|
64,685 |
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|
63,835 |
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|
|
57,425 |
|
Accrued income taxes payable |
|
|
2,361 |
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|
|
4,763 |
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|
|
3,758 |
|
Liabilities related to discontinued operations |
|
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|
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|
16,841 |
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|
17,421 |
|
Other accrued liabilities |
|
|
139,456 |
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|
97,493 |
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|
|
113,156 |
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Total current liabilities |
|
|
328,124 |
|
|
|
288,848 |
|
|
|
301,048 |
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Long-term debt |
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|
184,000 |
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184,000 |
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19,000 |
|
Other noncurrent liabilities |
|
|
96,222 |
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|
|
107,031 |
|
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|
110,287 |
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Shareholders equity: |
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Common stock, $1.00 par, 500,000,000 shares authorized,
100,779,000 issued |
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|
100,779 |
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|
|
100,779 |
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|
100,779 |
|
Paid-in capital |
|
|
126,890 |
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|
132,075 |
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|
138,863 |
|
Retained earnings |
|
|
395,797 |
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|
582,221 |
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|
600,892 |
|
Cumulative other comprehensive loss |
|
|
(2,726 |
) |
|
|
(583 |
) |
|
|
(2,147 |
) |
Less 13,076,000, 13,761,000 and 13,919,000 common
shares in treasury, at cost, respectively |
|
|
(211,205 |
) |
|
|
(222,254 |
) |
|
|
(224,804 |
) |
Less unearned compensation |
|
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|
|
|
|
(2,256 |
) |
|
|
(2,618 |
) |
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|
|
|
|
|
|
|
|
|
|
|
|
409,535 |
|
|
|
589,982 |
|
|
|
610,965 |
|
Commitments and contingencies |
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|
|
|
|
|
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|
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|
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|
|
|
|
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$ |
1,017,881 |
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|
$ |
1,169,861 |
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|
$ |
1,041,300 |
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The accompanying notes are an integral part of these financial statements.
4
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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|
|
|
|
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|
Nine Months Ended |
|
|
|
November 25, |
|
|
November 26, |
|
|
|
2006 |
|
|
2005 |
|
Cash flow from operating activities: |
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|
Net loss |
|
$ |
(168,949 |
) |
|
$ |
(29,828 |
) |
Adjustments to reconcile to net cash used in operating activities: |
|
|
|
|
|
|
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|
Depreciation and amortization |
|
|
48,087 |
|
|
|
58,433 |
|
Loss on disposal of fixed assets |
|
|
231 |
|
|
|
360 |
|
Loss on impairment of fixed assets |
|
|
29,839 |
|
|
|
964 |
|
Stock-based compensation expense |
|
|
4,233 |
|
|
|
417 |
|
Deferred compensation |
|
|
5,551 |
|
|
|
6,764 |
|
Lease termination expense |
|
|
2,859 |
|
|
|
2,148 |
|
Deferred income taxes |
|
|
23,869 |
|
|
|
|
|
Other |
|
|
(3,486 |
) |
|
|
1,454 |
|
Changes in cash from: |
|
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|
|
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|
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|
Sale of receivables in exchange for beneficial interest in securitized receivables |
|
|
(15,914 |
) |
|
|
(68,947 |
) |
Purchase of proprietary credit card receivables and other |
|
|
(97,740 |
) |
|
|
|
|
Proceeds from the sale of proprietary credit card operations |
|
|
142,788 |
|
|
|
|
|
Inventories |
|
|
(22,587 |
) |
|
|
(74,553 |
) |
Other accounts receivable, prepaid expenses and other current assets |
|
|
(28,077 |
) |
|
|
(31,386 |
) |
Income tax receivable |
|
|
(25,555 |
) |
|
|
(22,810 |
) |
Accounts payable and accrued expenses |
|
|
22,523 |
|
|
|
7,799 |
|
Accrued income taxes payable |
|
|
(2,539 |
) |
|
|
(7,974 |
) |
Other noncurrent assets |
|
|
643 |
|
|
|
(1,094 |
) |
Other noncurrent liabilities |
|
|
(217 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(84,441 |
) |
|
|
(158,253 |
) |
|
|
|
|
|
|
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(25,234 |
) |
|
|
(40,180 |
) |
Proceeds from disposition of properties |
|
|
104 |
|
|
|
1,369 |
|
Proceeds from sale of discontinued operations (net of $3,397
cash included in sale of discontinued operations) |
|
|
11,601 |
|
|
|
|
|
Proceeds from sale of Pier 1 National Bank (net of $2,208
cash included in sale of Pier 1 National Bank) |
|
|
10,754 |
|
|
|
|
|
Proceeds from sale of restricted investments |
|
|
217 |
|
|
|
|
|
Purchase of restricted investments |
|
|
(2,000 |
) |
|
|
|
|
Collections of principal on beneficial interest in securitized receivables |
|
|
21,907 |
|
|
|
45,070 |
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
17,349 |
|
|
|
6,259 |
|
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
Cash dividends |
|
|
(17,475 |
) |
|
|
(25,972 |
) |
Purchases of treasury stock |
|
|
|
|
|
|
(4,047 |
) |
Proceeds from stock options exercised, stock purchase plan and other, net |
|
|
3,887 |
|
|
|
5,999 |
|
Notes payable borrowings |
|
|
69,000 |
|
|
|
86,500 |
|
Repayments of notes payable |
|
|
(69,000 |
) |
|
|
(77,000 |
) |
Debt issuance costs |
|
|
(283 |
) |
|
|
(1,276 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(13,871 |
) |
|
|
(15,796 |
) |
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
(80,963 |
) |
|
|
(167,790 |
) |
Cash and cash equivalents at beginning of period (including
cash held for sale of $7,100 and $3,359, respectively) |
|
|
253,215 |
|
|
|
189,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
172,252 |
|
|
$ |
21,291 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
5
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE NINE MONTHS ENDED NOVEMBER 25, 2006
(in thousands except per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Outstanding |
|
|
|
|
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury |
|
|
Unearned |
|
|
Shareholders |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Loss |
|
|
Stock |
|
|
Compensation |
|
|
Equity |
|
Balance February 25, 2006 |
|
|
86,939 |
|
|
$ |
100,779 |
|
|
$ |
132,075 |
|
|
$ |
582,221 |
|
|
($ |
583 |
) |
|
($ |
222,254 |
) |
|
($ |
2,256 |
) |
|
$ |
589,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(168,949 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(168,949 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,143 |
) |
|
|
|
|
|
|
|
|
|
|
(2,143 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(171,092 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock compensation |
|
|
220 |
|
|
|
|
|
|
|
(5,053 |
) |
|
|
|
|
|
|
|
|
|
|
3,561 |
|
|
|
2,256 |
|
|
|
764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option compensation |
|
|
|
|
|
|
|
|
|
|
3,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options, stock purchase
plan and other |
|
|
544 |
|
|
|
|
|
|
|
(3,601 |
) |
|
|
|
|
|
|
|
|
|
|
7,488 |
|
|
|
|
|
|
|
3,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends ($ .20 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,475 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,475 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance November 25, 2006 |
|
|
87,703 |
|
|
$ |
100,779 |
|
|
$ |
126,890 |
|
|
$ |
395,797 |
|
|
($ |
2,726 |
) |
|
($ |
211,205 |
) |
|
$ |
|
|
|
$ |
409,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
6
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED NOVEMBER 25, 2006
AND NOVEMBER 26, 2005
(unaudited)
Throughout this report, references to the Company include Pier 1 Imports, Inc. and all its
consolidated subsidiaries. The accompanying unaudited financial statements should be read in
conjunction with the Form 10-K for the year ended February 25, 2006. All adjustments that are, in
the opinion of management, necessary for a fair presentation of the financial position as of
November 25, 2006, and the results of operations and cash flows for the three and nine months ended
November 25, 2006 and November 26, 2005 have been made and consist only of normal recurring
adjustments, except as otherwise described herein. The results of operations for the three and
nine months ended November 25, 2006 and November 26, 2005 are not indicative of results to be
expected for the fiscal year because of, among other things, seasonality factors in the retail
business. Historically, the strongest sales of the Companys products have occurred during the
holiday season beginning in November and continuing through December. The Company conducts
business as one operating segment. On March 20, 2006, the Company sold its subsidiary based in the
United Kingdom, The Pier Retail Group Limited (The Pier). For all periods presented, The Pier
has been classified as discontinued operations. The classification of certain amounts previously
reported in the consolidated statement of cash flow for the nine months ended November 26, 2005,
has been modified to conform to the November 25, 2006 method of presentation.
Note 1 Loss per share
Basic loss per share amounts were determined by dividing net loss by the weighted average number of
common shares outstanding for the period. Diluted loss per share amounts were similarly computed,
but included the effect, when dilutive, of the Companys weighted average number of stock options
and unvested restricted stock outstanding. As the effect would have been antidilutive, all
13,625,705 and 13,139,850 stock options and shares of unvested restricted stock were excluded from
the computation of the fiscal 2007 and fiscal 2006, respectively, third quarter and year-to-date
loss per share. Losses per share for the three and nine months ended November 25, 2006 and
November 26, 2005 were calculated as follows (in thousands except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
November 25, |
|
|
November 26, |
|
|
November 25, |
|
|
November 26, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Loss from continuing operations, basic and diluted |
|
$ |
(72,718 |
) |
|
$ |
(5,657 |
) |
|
$ |
(168,542 |
) |
|
$ |
(20,486 |
) |
Loss from discontinued operations, basic and diluted |
|
|
|
|
|
|
(1,524 |
) |
|
|
(407 |
) |
|
|
(9,342 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, basic and diluted |
|
$ |
(72,718 |
) |
|
$ |
(7,181 |
) |
|
$ |
(168,949 |
) |
|
$ |
(29,828 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
87,503 |
|
|
|
86,747 |
|
|
|
87,302 |
|
|
|
86,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
($ |
0.83 |
) |
|
($ |
0.06 |
) |
|
($ |
1.93 |
) |
|
($ |
0.23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share from discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
|
|
|
($ |
0.02 |
) |
|
($ |
0.01 |
) |
|
($ |
0.11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
($ |
0.83 |
) |
|
($ |
0.08 |
) |
|
($ |
1.94 |
) |
|
($ |
0.34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 2 Discontinued operations
During the fourth quarter of fiscal 2006, the Companys Board of Directors authorized management to
sell its operations of The Pier with stores located in the United Kingdom and Ireland. The Company
met the criteria of Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets that required it to classify The Pier as held for
sale and present its results of operations as discontinued for all periods presented. On March 20,
2006, the Company sold The Pier to Palli Limited for approximately $15,000,000. Palli Limited is a
wholly owned subsidiary of Lagerinn ehf, an Iceland corporation owned by Jakup a dul Jacobsen.
Collectively Lagerinn and Mr. Jacobsen beneficially owned approximately 9.9% of the Companys
common stock as of the date of the sale. Net sales for The Pier were $3,323,000 for the period
ended March 20, 2006, compared to $19,552,000 and $49,865,000 for the three and nine months,
respectively, ended November 26, 2005. Expenses incurred by the Company in March related to The
Pier were $407,000, net of taxes, which included an insignificant gain on the sale.
Note 3 Comprehensive loss
The components of comprehensive loss for the three and nine months ended November 25, 2006 and
November 26, 2005 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
November 25, |
|
|
November 26, |
|
|
November 25, |
|
|
November 26, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net loss |
|
$ |
(72,718 |
) |
|
$ |
(7,181 |
) |
|
$ |
(168,949 |
) |
|
$ |
(29,828 |
) |
Currency translation adjustments |
|
|
(253 |
) |
|
|
(207 |
) |
|
|
(2,143 |
) |
|
|
(721 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(72,971 |
) |
|
$ |
(7,388 |
) |
|
$ |
(171,092 |
) |
|
$ |
(30,549 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4 Stock-based compensation
On February 26, 2006, the Company adopted the provisions of SFAS No. 123 (Revised 2004),
Share-Based Payments (SFAS 123R). SFAS 123R requires all companies to measure and recognize
compensation expense at an amount equal to the fair value of share-based payments granted under
compensation arrangements. Prior to February 26, 2006, the Company accounted for stock option
grants using the intrinsic value method in accordance with Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, and recognized no compensation expense for stock
option grants since all options granted had an exercise price equal to the market value of the
underlying common stock on the date of grant.
The Company adopted SFAS 123R using the modified prospective method. Under the modified
prospective method, the Company records stock-based compensation expense for all awards granted on
or after the date of adoption and for the portion of previously granted awards that remained
unvested at the date of adoption. Accordingly, prior period amounts have not been restated.
Currently, the Companys stock-based compensation relates to stock options and restricted stock
awards. Compensation expense is recognized for any unvested stock option awards outstanding as of
the date of adoption on a straight-line basis over the remaining vesting period. The fair values
of the options are calculated using a Black-Scholes option pricing model.
On March 23, 2006, the board of directors approved the adoption of the Pier 1 Imports, Inc. 2006
Stock Incentive Plan (the 2006 Plan), which replaced the 1999 Stock Plan and the 1993 Restricted
Stock Plan. The 2006 Plan was approved by the shareholders on June 22, 2006. The aggregate number
of shares available at the inception of the 2006 Plan included the new authorization of 1,500,000
shares, plus 560,794 shares that remained available for grant under the 1999 Stock Plan and the
1993 Restricted Stock Plan on March 23, 2006. Any shares forfeited under these plans are returned
to the 2006 Plan and become eligible for grant. A total of 2,055,764 shares has been granted under
the new plan as of
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
November 25, 2006. On November 25, 2006, there was a total of 1,096,060 shares available for grant
under the 2006 Plan.
Stock Options
For the three and nine months ended November 25, 2006, the Companys compensation expense related
to stock option grants was approximately $682,000, or $0.01 per share, and $3,469,000, or $0.04 per
share, respectively. At November 25, 2006, there was approximately $7,891,000 of total
unrecognized compensation expense related to unvested stock option awards. This expense is
expected to be recognized over a weighted average period of 1.82 years.
SFAS 123R requires that forfeitures be estimated at the time of grant. The Company estimates
forfeitures based on its historical forfeiture experience. For periods prior to fiscal 2007, the
Company recognized forfeitures as they occurred. In accordance with SFAS 123R, the Company adjusts
forfeiture estimates based on actual forfeiture experience for all awards with service conditions.
The effect of forfeiture adjustments for the third quarter ended November 25, 2006 was
insignificant.
SFAS 123R requires disclosure of pro forma information for periods prior to adoption. On September
29, 2005, the Companys Board of Directors approved the accelerated vesting of approximately
3,800,000 unvested stock options awarded to employees under the Companys stock option plans. The
following table details the effect on net loss and loss per share from continuing operations for
the three and nine months ended November 26, 2005, illustrating the effect of applying the fair
value recognition provisions of SFAS 123R (in thousands except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
November 26, |
|
|
November 26, |
|
|
|
2005 |
|
|
2005 |
|
Net loss from continuing operatons, as reported |
|
($ |
5,657 |
) |
|
($ |
20,486 |
) |
|
|
|
|
|
|
|
|
|
Stock-based employee compensation
expense included in reported net loss,
net of related tax effects |
|
|
181 |
|
|
|
265 |
|
|
|
|
|
|
|
|
|
|
Less total stock-based employee compensation
expense determined under fair value-based
method, net of related tax effects |
|
|
(20,000 |
) |
|
|
(24,358 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss |
|
($ |
25,476 |
) |
|
($ |
44,579 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations: |
|
|
|
|
|
|
|
|
Basic and diluted as reported |
|
($ |
0.06 |
) |
|
($ |
0.23 |
) |
|
|
|
|
|
|
|
Basic and diluted pro forma |
|
($ |
0.29 |
) |
|
($ |
0.52 |
) |
|
|
|
|
|
|
|
The Companys stock incentive plans provide for the granting of stock options to certain
employees of the Company to purchase shares of common stock. Options are granted at exercise
prices equal to the market value of the Companys common stock at the date of grant. Options
issued under employee plans vest over a period of four years and have a contractual life of ten
years. A summary of stock option transactions related to the stock option plans for the nine
months ended November 25, 2006 is as follows:
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Value |
|
|
|
Stock Options |
|
|
Price |
|
|
Life |
|
|
(in thousands) |
|
Outstanding at beginning of period |
|
|
12,738,025 |
|
|
$ |
15.41 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
1,745,500 |
|
|
|
7.55 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(98,950 |
) |
|
|
7.77 |
|
|
|
|
|
|
|
|
|
Cancelled |
|
|
(1,117,000 |
) |
|
|
16.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period |
|
|
13,267,575 |
|
|
$ |
14.32 |
|
|
|
6.29 |
|
|
$ |
651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
|
|
10,802,325 |
|
|
$ |
15.33 |
|
|
|
5.62 |
|
|
$ |
651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised for the nine months ended November 25, 2006 and
November 26, 2005 was approximately $372,000 and $2,145,000, respectively. The intrinsic value of
a stock option is the amount by which the market value of the underlying stock exceeds the exercise
price of the option. The fair value of the options granted during the respective period were
estimated on the date of grant using the Black-Scholes pricing model based on the following
weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
November 25, |
|
November 26, |
|
|
2006 |
|
2005 |
Weighted average fair value of options granted |
|
$ |
3.58 |
|
|
$ |
4.75 |
|
Risk-free interest rate |
|
|
5.21 |
% |
|
|
3.84 |
% |
Expected stock price volatility |
|
|
49.49 |
% |
|
|
40.00 |
% |
Expected dividend yields |
|
|
0.5 |
% |
|
|
2.2 |
% |
Weighted average expected lives |
|
5 years |
|
5 years |
A summary of the Companys nonvested options as of and for the nine months ended November 25,
2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant-Date |
|
|
|
Options |
|
|
Fair Value |
|
Nonvested at beginning of period |
|
|
1,300,000 |
|
|
$ |
4.75 |
|
Granted |
|
|
1,745,500 |
|
|
|
3.58 |
|
Vested |
|
|
(388,500 |
) |
|
|
4.75 |
|
Cancelled |
|
|
(191,750 |
) |
|
|
4.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at end of period |
|
|
2,465,250 |
|
|
$ |
3.97 |
|
|
|
|
|
|
|
|
Restricted Stock Awards
At November 25, 2006, the Company had 358,130 unvested shares of restricted stock awards
outstanding to executive officers. During the nine months ended November 25, 2006, 65,340
restricted stock awards vested, 39,630 restricted stock awards were cancelled and 260,100
restricted stock awards were granted. A portion of the stock grant vests ratably over a three year
period of continued employment and the remainder of the grant vests if certain defined earnings targets are met at the
end of three years. The fair value at the date of grant of the restricted stock shares granted
during fiscal 2006 pursuant to the Management Restricted Stock Plan was $14.25 and is being
expensed over the vesting
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
period. The fair value at the date of grant of the restricted stock shares granted during
fiscal 2007 pursuant to the 2006 Plan was $7.55 and is being expensed over the requisite vesting
period.
Compensation expense for restricted stock was approximately $764,000, or $ 0.01 per share, and
$417,000, or less than $0.01 per share, for the nine months ended November 25, 2006 and November
26, 2005, respectively. As of November 25, 2006, there was approximately $3,038,000 of total
unrecognized compensation expense related to restricted stock that is expected to be recognized
over a weighted average period of 1.2 years.
Note 5 Expiration of securitization of proprietary credit card receivables agreement
On September 6, 2006, the Company allowed its agreement to securitize its proprietary credit card
receivables to expire. At the time of expiration, the Company purchased $144,007,000 of
proprietary credit card receivables, previously held by the Pier 1 Master Trust, an unconsolidated
subsidiary, for $100,000,000 in cash and in exchange for $44,007,000 of beneficial interest. The
Master Trust, upon approval from Class A Certificate holders, paid $100,000,000 to redeem the Class
A Certificates that were outstanding.
Note 6 Sale of proprietary credit card operations
On November 21, 2006, the Company completed the sale of its proprietary credit card operations to
Chase Bank USA, N.A. (Chase). The sale was comprised of the Companys proprietary credit card
receivables, certain charged-off accounts and the common stock of Pier 1 National Bank. The
Company received cash proceeds at closing of $155,750,000 based on estimated balances and will
receive additional amounts related to the finalization of the closing balances. Additional
proceeds of $10,750,000, plus any accrued interest, will be received over the life of the
agreement. The net deferred gain associated with this sale will be recognized in nonoperating
income over the ten-year life of the agreement described below and is not expected to have a
material impact in any accounting period. In conjunction with the sale of its proprietary credit
card operations, the Company recorded a termination fee of $2,500,000 related to a contract with a
third-party credit card servicer, which has been included in selling, general and administrative
expenses.
In addition, the Company and Chase have entered into a long-term program agreement. Under this
agreement, the Company will continue to support the card through marketing programs and will
receive additional payments over the life of the agreement for transaction level incentives,
marketing support and other program terms.
Note 7 Impairment of long-lived assets
Impairment charges were $24,785,000, or $0.28 per share, and $29,839,000, or $0.34 per share, for
the three and nine months ended November 25, 2006, respectively, and were included in selling,
general and administrative expenses. These impairment charges related to long-lived assets at
underperforming stores were based on cash flow projections for those stores. These cash flows were
estimated based on managements estimate of future sales, merchandise margins, and expenses over
the remaining expected terms of the leases. Estimates used in the third quarter were updated from
those used in prior periods as a result of the worsening sales and gross margin trends experienced
during the quarter. In the event that actual future results are worse than managements current
estimates, an additional charge for asset impairments may be recorded and such charges could have
an impact on the Companys balance sheet and statement of operations.
Note 8 Lease termination obligation
At times, the Company may terminate leases prior to their expiration when certain stores or storage
facilities are closed or relocated to more favorable locations, or as deemed necessary by the
evaluation of the real estate portfolio. These decisions are based on lease renewal obligations,
relocation space availability, local market conditions and prospects for future profitability. In
connection with these lease terminations, the Company has recorded estimated liabilities in
accordance with SFAS No. 146,
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Accounting for Costs Associated with Exit or Disposal Activities.
The estimated liabilities were recorded based upon the Companys remaining lease obligations less
estimated subtenant rental income.
Revisions during the period related to changes in estimated subtenant receipts expected on closed
facilities. Expenses related to lease termination obligations are included in selling, general and
administrative expenses in the Companys consolidated statements of operations. The write-off of
fixed assets related to such stores has not been material and the write-down of inventory and
employee severance cost associated with these closures was not significant. The following table
represents a rollforward of the liability balances for the nine months ended November 25, 2006 and
November 26, 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
November 25, |
|
|
November 26, |
|
|
|
2006 |
|
|
2005 |
|
Beginning of period |
|
$ |
2,859 |
|
|
$ |
1,475 |
|
|
|
|
|
|
|
|
|
|
Original charges |
|
|
2,719 |
|
|
|
2,022 |
|
Revisions |
|
|
140 |
|
|
|
126 |
|
Cash payments |
|
|
(2,829 |
) |
|
|
(2,112 |
) |
|
|
|
|
|
|
|
End of period |
|
$ |
2,889 |
|
|
$ |
1,511 |
|
|
|
|
|
|
|
|
Note 9 Condensed financial statements
The Companys 6.375% convertible senior notes (the Notes) are fully and unconditionally
guaranteed, on a joint and several basis, by all of the Companys material domestic consolidated
subsidiaries (the Guarantor Subsidiaries). The subsidiaries that do not guarantee such Notes are
comprised of the Companys foreign subsidiaries and certain other insignificant domestic
consolidated subsidiaries (the Non-Guarantor Subsidiaries). Each of the Guarantor Subsidiaries
is wholly owned. On June 13, 2006, the Company registered these Notes with the Securities and
Exchange Commission. In lieu of providing separate audited financial statements for the Guarantor
Subsidiaries, condensed consolidating financial information is presented below.
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Three Months Ended November 25, 2006
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pier 1 |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Imports, |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Net sales |
|
$ |
|
|
|
$ |
400,843 |
|
|
$ |
9,370 |
|
|
$ |
(7,499 |
) |
|
$ |
402,714 |
|
Cost of sales (including buying
and store occupancy costs) |
|
|
|
|
|
|
277,334 |
|
|
|
8,381 |
|
|
|
(7,584 |
) |
|
|
278,131 |
|
Selling, general and administrative
(including depreciation and
amortization) |
|
|
232 |
|
|
|
194,929 |
|
|
|
391 |
|
|
|
|
|
|
|
195,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(232 |
) |
|
|
(71,420 |
) |
|
|
598 |
|
|
|
85 |
|
|
|
(70,969 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating (income) expenses |
|
|
(1,075 |
) |
|
|
3,054 |
|
|
|
(185 |
) |
|
|
|
|
|
|
1,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income
taxes |
|
|
843 |
|
|
|
(74,474 |
) |
|
|
783 |
|
|
|
85 |
|
|
|
(72,763 |
) |
Income tax provision (benefit) |
|
|
|
|
|
|
(106 |
) |
|
|
61 |
|
|
|
|
|
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing
operations |
|
|
843 |
|
|
|
(74,368 |
) |
|
|
722 |
|
|
|
85 |
|
|
|
(72,718 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from subsidiaries |
|
|
(73,646 |
) |
|
|
722 |
|
|
|
|
|
|
|
72,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(72,803 |
) |
|
$ |
(73,646 |
) |
|
$ |
722 |
|
|
$ |
73,009 |
|
|
$ |
(72,718 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Three Months Ended November 26, 2005
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pier 1 |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Imports, |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Net sales |
|
$ |
|
|
|
$ |
455,064 |
|
|
$ |
13,693 |
|
|
$ |
(12,067 |
) |
|
$ |
456,690 |
|
Cost of sales (including buying
and store occupancy costs) |
|
|
|
|
|
|
289,993 |
|
|
|
11,952 |
|
|
|
(12,571 |
) |
|
|
289,374 |
|
Selling, general and administrative
(including depreciation and
amortization) |
|
|
233 |
|
|
|
169,012 |
|
|
|
235 |
|
|
|
|
|
|
|
169,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(233 |
) |
|
|
(3,941 |
) |
|
|
1,506 |
|
|
|
504 |
|
|
|
(2,164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating (income) expenses |
|
|
250 |
|
|
|
(96 |
) |
|
|
266 |
|
|
|
|
|
|
|
420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income
taxes |
|
|
(483 |
) |
|
|
(3,845 |
) |
|
|
1,240 |
|
|
|
504 |
|
|
|
(2,584 |
) |
Income tax provision (benefit) |
|
|
|
|
|
|
2,995 |
|
|
|
78 |
|
|
|
|
|
|
|
3,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing
operations |
|
|
(483 |
) |
|
|
(6,840 |
) |
|
|
1,162 |
|
|
|
504 |
|
|
|
(5,657 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from subsidiaries |
|
|
(7,202 |
) |
|
|
(362 |
) |
|
|
|
|
|
|
7,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
(1,524 |
) |
|
|
|
|
|
|
(1,524 |
) |
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued
operations |
|
|
|
|
|
|
|
|
|
|
(1,524 |
) |
|
|
|
|
|
|
(1,524 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(7,685 |
) |
|
$ |
(7,202 |
) |
|
$ |
(362 |
) |
|
$ |
8,068 |
|
|
$ |
(7,181 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Nine Months Ended November 25, 2006
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pier 1 |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Imports, |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Net sales |
|
$ |
|
|
|
$ |
1,143,386 |
|
|
$ |
29,935 |
|
|
$ |
(23,817 |
) |
|
$ |
1,149,504 |
|
Cost of sales (including buying
and store occupancy costs) |
|
|
|
|
|
|
789,145 |
|
|
|
27,176 |
|
|
|
(24,149 |
) |
|
|
792,172 |
|
Selling, general and administrative
(including depreciation and
amortization) |
|
|
1,264 |
|
|
|
521,331 |
|
|
|
913 |
|
|
|
|
|
|
|
523,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(1,264 |
) |
|
|
(167,090 |
) |
|
|
1,846 |
|
|
|
332 |
|
|
|
(166,176 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating (income) expenses |
|
|
(2,541 |
) |
|
|
6,050 |
|
|
|
(528 |
) |
|
|
|
|
|
|
2,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income
taxes |
|
|
1,277 |
|
|
|
(173,140 |
) |
|
|
2,374 |
|
|
|
332 |
|
|
|
(169,157 |
) |
Income tax provision (benefit) |
|
|
|
|
|
|
(906 |
) |
|
|
291 |
|
|
|
|
|
|
|
(615 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing
operations |
|
|
1,277 |
|
|
|
(172,234 |
) |
|
|
2,083 |
|
|
|
332 |
|
|
|
(168,542 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from subsidiaries |
|
|
(170,558 |
) |
|
|
1,676 |
|
|
|
|
|
|
|
168,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
(638 |
) |
|
|
|
|
|
|
(638 |
) |
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
(231 |
) |
|
|
|
|
|
|
(231 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued
operations |
|
|
|
|
|
|
|
|
|
|
(407 |
) |
|
|
|
|
|
|
(407 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(169,281 |
) |
|
$ |
(170,558 |
) |
|
$ |
1,676 |
|
|
$ |
169,214 |
|
|
$ |
(168,949 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Nine Months Ended November 26, 2005
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pier 1 |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Imports, |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Net sales |
|
$ |
|
|
|
$ |
1,265,848 |
|
|
$ |
47,665 |
|
|
$ |
(42,834 |
) |
|
$ |
1,270,679 |
|
Cost of sales (including buying
and store occupancy costs) |
|
|
|
|
|
|
832,445 |
|
|
|
41,592 |
|
|
|
(43,261 |
) |
|
|
830,776 |
|
Selling, general and administrative
(including depreciation and
amortization) |
|
|
932 |
|
|
|
471,021 |
|
|
|
774 |
|
|
|
|
|
|
|
472,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(932 |
) |
|
|
(37,618 |
) |
|
|
5,299 |
|
|
|
427 |
|
|
|
(32,824 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating (income) expenses |
|
|
492 |
|
|
|
(1,603 |
) |
|
|
548 |
|
|
|
|
|
|
|
(563 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income
taxes |
|
|
(1,424 |
) |
|
|
(36,015 |
) |
|
|
4,751 |
|
|
|
427 |
|
|
|
(32,261 |
) |
Income tax provision (benefit) |
|
|
|
|
|
|
(12,076 |
) |
|
|
301 |
|
|
|
|
|
|
|
(11,775 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing
operations |
|
|
(1,424 |
) |
|
|
(23,939 |
) |
|
|
4,450 |
|
|
|
427 |
|
|
|
(20,486 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from subsidiaries |
|
|
(28,831 |
) |
|
|
(4,892 |
) |
|
|
|
|
|
|
33,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
(9,342 |
) |
|
|
|
|
|
|
(9,342 |
) |
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued
operations |
|
|
|
|
|
|
|
|
|
|
(9,342 |
) |
|
|
|
|
|
|
(9,342 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(30,255 |
) |
|
$ |
(28,831 |
) |
|
$ |
(4,892 |
) |
|
$ |
34,150 |
|
|
$ |
(29,828 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED BALANCE SHEET
November 25, 2006
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Pier 1 |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Imports, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
114,970 |
|
|
$ |
45,173 |
|
|
$ |
12,109 |
|
|
$ |
|
|
|
$ |
172,252 |
|
Other accounts receivable, net |
|
|
81 |
|
|
|
28,554 |
|
|
|
1,383 |
|
|
|
|
|
|
|
30,018 |
|
Inventories |
|
|
|
|
|
|
392,407 |
|
|
|
|
|
|
|
|
|
|
|
392,407 |
|
Income tax receivable |
|
|
|
|
|
|
43,467 |
|
|
|
(20 |
) |
|
|
|
|
|
|
43,447 |
|
Prepaid expenses and other
current assets |
|
|
|
|
|
|
77,913 |
|
|
|
|
|
|
|
|
|
|
|
77,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
115,051 |
|
|
|
587,514 |
|
|
|
13,472 |
|
|
|
|
|
|
|
716,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties, net |
|
|
|
|
|
|
245,250 |
|
|
|
6,076 |
|
|
|
|
|
|
|
251,326 |
|
Investment in subsidiaries |
|
|
303,265 |
|
|
|
40,359 |
|
|
|
|
|
|
|
(343,624 |
) |
|
|
|
|
Other noncurrent assets |
|
|
7,916 |
|
|
|
42,602 |
|
|
|
|
|
|
|
|
|
|
|
50,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
426,232 |
|
|
$ |
915,725 |
|
|
$ |
19,548 |
|
|
$ |
(343,624 |
) |
|
$ |
1,017,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
28 |
|
|
$ |
121,269 |
|
|
$ |
325 |
|
|
$ |
|
|
|
$ |
121,622 |
|
Intercompany payable
(receivable) |
|
|
(154,525 |
) |
|
|
174,872 |
|
|
|
(20,347 |
) |
|
|
|
|
|
|
|
|
Gift cards and other deferred
revenue |
|
|
|
|
|
|
64,685 |
|
|
|
|
|
|
|
|
|
|
|
64,685 |
|
Accrued income taxes
payable (receivable) |
|
|
|
|
|
|
3,176 |
|
|
|
(815 |
) |
|
|
|
|
|
|
2,361 |
|
Other accrued liabilities |
|
|
3,293 |
|
|
|
136,137 |
|
|
|
26 |
|
|
|
|
|
|
|
139,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
(151,204 |
) |
|
|
500,139 |
|
|
|
(20,811 |
) |
|
|
|
|
|
|
328,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
165,000 |
|
|
|
19,000 |
|
|
|
|
|
|
|
|
|
|
|
184,000 |
|
Other noncurrent liabilities |
|
|
2,901 |
|
|
|
93,321 |
|
|
|
|
|
|
|
|
|
|
|
96,222 |
|
Shareholders equity |
|
|
409,535 |
|
|
|
303,265 |
|
|
|
40,359 |
|
|
|
(343,624 |
) |
|
|
409,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
426,232 |
|
|
$ |
915,725 |
|
|
$ |
19,548 |
|
|
$ |
(343,624 |
) |
|
$ |
1,017,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED BALANCE SHEET
February 25, 2006
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Pier 1 |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Imports, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
130,779 |
|
|
$ |
100,769 |
|
|
$ |
14,567 |
|
|
$ |
|
|
|
$ |
246,115 |
|
Beneficial interest in
securitized receivables |
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
Other accounts receivable, net |
|
|
279 |
|
|
|
12,444 |
|
|
|
1,193 |
|
|
|
|
|
|
|
13,916 |
|
Inventories |
|
|
|
|
|
|
368,978 |
|
|
|
|
|
|
|
|
|
|
|
368,978 |
|
Income tax receivable |
|
|
|
|
|
|
17,927 |
|
|
|
84 |
|
|
|
|
|
|
|
18,011 |
|
Assets of discontinued
operations |
|
|
|
|
|
|
|
|
|
|
32,359 |
|
|
|
|
|
|
|
32,359 |
|
Prepaid expenses and other
current assets |
|
|
|
|
|
|
45,547 |
|
|
|
(3 |
) |
|
|
|
|
|
|
45,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
131,058 |
|
|
|
595,665 |
|
|
|
48,200 |
|
|
|
|
|
|
|
774,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties, net |
|
|
|
|
|
|
292,027 |
|
|
|
6,895 |
|
|
|
|
|
|
|
298,922 |
|
Investment in subsidiaries |
|
|
475,698 |
|
|
|
25,074 |
|
|
|
|
|
|
|
(500,772 |
) |
|
|
|
|
Other noncurrent assets |
|
|
9,588 |
|
|
|
86,349 |
|
|
|
79 |
|
|
|
|
|
|
|
96,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
616,344 |
|
|
$ |
999,115 |
|
|
$ |
55,174 |
|
|
$ |
(500,772 |
) |
|
$ |
1,169,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
201 |
|
|
$ |
103,700 |
|
|
$ |
2,015 |
|
|
$ |
|
|
|
$ |
105,916 |
|
Intercompany payable
(receivable) |
|
|
(142,171 |
) |
|
|
125,165 |
|
|
|
17,006 |
|
|
|
|
|
|
|
|
|
Gift cards and other deferred
revenue |
|
|
|
|
|
|
63,835 |
|
|
|
|
|
|
|
|
|
|
|
63,835 |
|
Accrued income taxes
payable (receivable) |
|
|
|
|
|
|
10,563 |
|
|
|
(5,800 |
) |
|
|
|
|
|
|
4,763 |
|
Liabilities related to discontinued
operations |
|
|
|
|
|
|
|
|
|
|
16,841 |
|
|
|
|
|
|
|
16,841 |
|
Other accrued liabilities |
|
|
885 |
|
|
|
96,570 |
|
|
|
38 |
|
|
|
|
|
|
|
97,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
(141,085 |
) |
|
|
399,833 |
|
|
|
30,100 |
|
|
|
|
|
|
|
288,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
165,000 |
|
|
|
19,000 |
|
|
|
|
|
|
|
|
|
|
|
184,000 |
|
Other noncurrent liabilities |
|
|
2,447 |
|
|
|
104,584 |
|
|
|
|
|
|
|
|
|
|
|
107,031 |
|
Shareholders equity |
|
|
589,982 |
|
|
|
475,698 |
|
|
|
25,074 |
|
|
|
(500,772 |
) |
|
|
589,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
616,344 |
|
|
$ |
999,115 |
|
|
$ |
55,174 |
|
|
$ |
(500,772 |
) |
|
$ |
1,169,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED BALANCE SHEET
November 26, 2005
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Pier 1 |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Imports, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
210 |
|
|
$ |
17,941 |
|
|
$ |
3,140 |
|
|
$ |
|
|
|
$ |
21,291 |
|
Beneficial interest in
securitized receivables |
|
|
|
|
|
|
59,567 |
|
|
|
|
|
|
|
|
|
|
|
59,567 |
|
Other accounts receivable, net |
|
|
|
|
|
|
27,934 |
|
|
|
1,421 |
|
|
|
|
|
|
|
29,355 |
|
Inventories |
|
|
|
|
|
|
438,782 |
|
|
|
|
|
|
|
|
|
|
|
438,782 |
|
Income tax receivable |
|
|
|
|
|
|
22,870 |
|
|
|
(60 |
) |
|
|
|
|
|
|
22,810 |
|
Assets of discontinued
operations |
|
|
|
|
|
|
|
|
|
|
40,971 |
|
|
|
|
|
|
|
40,971 |
|
Prepaid expenses and other
current assets |
|
|
|
|
|
|
40,284 |
|
|
|
|
|
|
|
|
|
|
|
40,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
210 |
|
|
|
607,378 |
|
|
|
45,472 |
|
|
|
|
|
|
|
653,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties, net |
|
|
|
|
|
|
302,108 |
|
|
|
7,852 |
|
|
|
|
|
|
|
309,960 |
|
Investment in subsidiaries |
|
|
483,660 |
|
|
|
13,449 |
|
|
|
|
|
|
|
(497,109 |
) |
|
|
|
|
Other noncurrent assets |
|
|
736 |
|
|
|
77,466 |
|
|
|
78 |
|
|
|
|
|
|
|
78,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
484,606 |
|
|
$ |
1,000,401 |
|
|
$ |
53,402 |
|
|
$ |
(497,109 |
) |
|
$ |
1,041,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable |
|
$ |
|
|
|
$ |
9,500 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9,500 |
|
Accounts payable |
|
|
3 |
|
|
|
97,533 |
|
|
|
2,252 |
|
|
|
|
|
|
|
99,788 |
|
Intercompany payable
(receivable) |
|
|
(128,971 |
) |
|
|
108,637 |
|
|
|
20,334 |
|
|
|
|
|
|
|
|
|
Gift cards and other deferred
revenue |
|
|
|
|
|
|
57,425 |
|
|
|
|
|
|
|
|
|
|
|
57,425 |
|
Accrued income taxes
payable (receivable) |
|
|
|
|
|
|
3,899 |
|
|
|
(141 |
) |
|
|
|
|
|
|
3,758 |
|
Liabilities related to discontinued
operations |
|
|
|
|
|
|
|
|
|
|
17,421 |
|
|
|
|
|
|
|
17,421 |
|
Other accrued liabilities |
|
|
292 |
|
|
|
112,777 |
|
|
|
87 |
|
|
|
|
|
|
|
113,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
(128,676 |
) |
|
|
389,771 |
|
|
|
39,953 |
|
|
|
|
|
|
|
301,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
19,000 |
|
|
|
|
|
|
|
|
|
|
|
19,000 |
|
Other noncurrent liabilities |
|
|
2,317 |
|
|
|
107,970 |
|
|
|
|
|
|
|
|
|
|
|
110,287 |
|
Shareholders equity |
|
|
610,965 |
|
|
|
483,660 |
|
|
|
13,449 |
|
|
|
(497,109 |
) |
|
|
610,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
484,606 |
|
|
$ |
1,000,401 |
|
|
$ |
53,402 |
|
|
$ |
(497,109 |
) |
|
$ |
1,041,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Nine Months Ended November 25, 2006
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Pier 1 |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Imports, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries(1) |
|
|
Eliminations |
|
|
Total(1) |
|
Cash flow from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities |
|
$ |
10,109 |
|
|
$ |
(87,270 |
) |
|
$ |
(7,262 |
) |
|
$ |
(18 |
) |
|
$ |
(84,441 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
(25,234 |
) |
|
|
|
|
|
|
|
|
|
|
(25,234 |
) |
Proceeds from disposition of
properties |
|
|
|
|
|
|
104 |
|
|
|
|
|
|
|
|
|
|
|
104 |
|
Proceeds from sale of
discontinued operations |
|
|
|
|
|
|
11,601 |
|
|
|
|
|
|
|
|
|
|
|
11,601 |
|
Proceeds from sale of
Pier 1 National Bank |
|
|
|
|
|
|
10,754 |
|
|
|
|
|
|
|
|
|
|
|
10,754 |
|
Proceeds from sale of
restricted investments |
|
|
|
|
|
|
217 |
|
|
|
|
|
|
|
|
|
|
|
217 |
|
Purchase of
restricted investments |
|
|
|
|
|
|
(2,000 |
) |
|
|
|
|
|
|
|
|
|
|
(2,000 |
) |
Collections of principal on
beneficial interest in
securitized receivables |
|
|
|
|
|
|
21,907 |
|
|
|
|
|
|
|
|
|
|
|
21,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by
investing activities |
|
|
|
|
|
|
17,349 |
|
|
|
|
|
|
|
|
|
|
|
17,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends |
|
|
(17,475 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
18 |
|
|
|
(17,475 |
) |
Proceeds from stock options
exercised, stock purchase
plan and other, net |
|
|
3,786 |
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
3,887 |
|
Notes payable borrowings |
|
|
|
|
|
|
69,000 |
|
|
|
|
|
|
|
|
|
|
|
69,000 |
|
Repayments of notes payable |
|
|
|
|
|
|
(69,000 |
) |
|
|
|
|
|
|
|
|
|
|
(69,000 |
) |
Debt issuance costs |
|
|
|
|
|
|
(283 |
) |
|
|
|
|
|
|
|
|
|
|
(283 |
) |
Advances (to) from subsidiaries |
|
|
(12,229 |
) |
|
|
14,525 |
|
|
|
(2,296 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities |
|
|
(25,918 |
) |
|
|
14,325 |
|
|
|
(2,296 |
) |
|
|
18 |
|
|
|
(13,871 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
(15,809 |
) |
|
|
(55,596 |
) |
|
|
(9,558 |
) |
|
|
|
|
|
|
(80,963 |
) |
Cash and cash equivalents at
beginning of period |
|
|
130,779 |
|
|
|
100,769 |
|
|
|
21,667 |
|
|
|
|
|
|
|
253,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
end of period |
|
$ |
114,970 |
|
|
$ |
45,173 |
|
|
$ |
12,109 |
|
|
$ |
|
|
|
$ |
172,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Including cash held for sale of $7,100 at beginning of period. |
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Nine Months Ended November 26, 2005
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Pier 1 |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Imports, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries(1) |
|
|
Eliminations |
|
|
Total(1) |
|
Cash flow from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities |
|
$ |
2,922 |
|
|
$ |
(143,085 |
) |
|
$ |
5,528 |
|
|
$ |
(23,618 |
) |
|
$ |
(158,253 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
(35,600 |
) |
|
|
(4,580 |
) |
|
|
|
|
|
|
(40,180 |
) |
Proceeds from disposition of
properties |
|
|
|
|
|
|
1,369 |
|
|
|
|
|
|
|
|
|
|
|
1,369 |
|
Collections of principal on
beneficial interest in
securitized receivables |
|
|
|
|
|
|
45,070 |
|
|
|
|
|
|
|
|
|
|
|
45,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities |
|
|
|
|
|
|
10,839 |
|
|
|
(4,580 |
) |
|
|
|
|
|
|
6,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends |
|
|
(25,972 |
) |
|
|
(51 |
) |
|
|
(23,567 |
) |
|
|
23,618 |
|
|
|
(25,972 |
) |
Purchase of treasury stock |
|
|
(4,047 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,047 |
) |
Proceeds from stock options
exercised, stock purchase
plan and other, net |
|
|
5,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,999 |
|
Borrowings under short-term debt |
|
|
|
|
|
|
86,500 |
|
|
|
|
|
|
|
|
|
|
|
86,500 |
|
Repayments of notes payable |
|
|
|
|
|
|
(77,000 |
) |
|
|
|
|
|
|
|
|
|
|
(77,000 |
) |
Debt issuance costs |
|
|
(40 |
) |
|
|
(1,236 |
) |
|
|
|
|
|
|
|
|
|
|
(1,276 |
) |
Advances (to) from subsidiaries |
|
|
20,866 |
|
|
|
(15,568 |
) |
|
|
(5,298 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities |
|
|
(3,194 |
) |
|
|
(7,355 |
) |
|
|
(28,865 |
) |
|
|
23,618 |
|
|
|
(15,796 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
(272 |
) |
|
|
(139,601 |
) |
|
|
(27,917 |
) |
|
|
|
|
|
|
(167,790 |
) |
Cash and cash equivalents at
beginning of period |
|
|
482 |
|
|
|
157,542 |
|
|
|
31,057 |
|
|
|
|
|
|
|
189,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
end of period |
|
$ |
210 |
|
|
$ |
17,941 |
|
|
$ |
3,140 |
|
|
$ |
|
|
|
$ |
21,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Including cash held for sale of $3,359 at beginning of period. |
Note 10 Benefit plans
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. Pension expense is
determined using various actuarial cost methods to estimate the total benefits ultimately payable
to executive officers and this cost is allocated to respective service periods.
The Plans are not funded and thus have no plan assets. However, a trust has been established for
the purpose of setting aside funds to be used to settle the pension obligations upon retirement or
death of
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
certain participants. The trust assets are consolidated in the Companys financial statements and
consist of interest yielding investments in the amounts of $25,062,000 included in other current
assets at November 25, 2006, and $21,892,000 included in other noncurrent assets at November 26,
2005. These investments are restricted and may be used only to satisfy retirement obligations to
certain participants. The Company contributed $2,000,000 to the trust during the second quarter of
fiscal 2007. Additional cash contributions to the trust of approximately $6,000,000 are planned
prior to the end of the fiscal year. The actuarial assumptions used to calculate pension costs are
reviewed annually. The components of net periodic benefit costs for the three and nine months
ended November 25, 2006 and November 26, 2005 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
November 25, |
|
|
November 26, |
|
|
November 25, |
|
|
November 26, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Components of net periodic benefits cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
602 |
|
|
$ |
511 |
|
|
$ |
1,804 |
|
|
$ |
1,532 |
|
Interest cost |
|
|
482 |
|
|
|
397 |
|
|
|
1,448 |
|
|
|
1,193 |
|
Amortization of unrecognized prior service costs |
|
|
200 |
|
|
|
208 |
|
|
|
602 |
|
|
|
623 |
|
Amortization of net actuarial loss |
|
|
810 |
|
|
|
866 |
|
|
|
2,429 |
|
|
|
2,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
2,094 |
|
|
$ |
1,982 |
|
|
$ |
6,283 |
|
|
$ |
5,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11 Income taxes
During the second quarter, the Company established a valuation allowance of $24,613,000 related to
deferred tax assets. In evaluating the likelihood that sufficient
earnings would be available in the near future to realize the deferred tax assets, the Company
considered cumulative losses over three years including the current year. The Company concluded
that a valuation allowance was necessary based upon this evaluation and the guidance provided in
SFAS No. 109 Accounting for Income Taxes.
In addition, net deferred tax assets arising from current year losses in excess of the amount
expected to be carried back to offset taxable income in a prior year were fully reserved through a
valuation allowance recorded in the second and third quarters. As these deferred tax assets were
established and fully reserved during fiscal 2007, there was no net impact to the provision of
income taxes.
At the end of the third quarter, the net deferred tax assets and the offsetting valuation allowance
totaled $59,162,000.
Note 12 Legal matters
During the second quarter of fiscal 2007, the Company recorded a pre-tax charge of $4,567,000, or
($0.05) per share, for the settlement of and legal fees related to a class action lawsuit regarding
compensation matters, which was included in selling, general and administrative expense.
Note 13 New accounting pronouncements
In July 2006, the Financial Accounting Standards Board (the FASB) issued FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes An Interpretation of FASB Statement No. 109 (FIN
48), which clarifies the accounting for uncertainty in tax positions. FIN 48 prescribes the
minimum recognition threshold a tax position is required to meet before being recognized in the
financial statements. It also provides guidance on derecognition, measurement, classification,
interest and penalties, accounting in interim periods, disclosure and transition. The provisions
of FIN 48 are effective for the Company as of the beginning of fiscal 2008, with the cumulative
effect of the change in accounting principle recorded as an adjustment to opening retained
earnings. The Company is in the process of determining the future impact of the adoption of FIN 48
will have on its consolidated balance sheet and statements of operations, shareholders equity and
cash flows.
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In September 2006, the Securities and Exchange Commission staff published Staff Accounting Bulletin
No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements (SAB 108). SAB 108 explains how the effects of prior year
uncorrected errors must be considered in quantifying misstatements in the current year financial
statements. SAB 108 offers a special one-time transition provision for correcting certain prior
year misstatements that were uncorrected as of the beginning of the fiscal year of adoption. SAB
108 is effective for the Company as of the end of fiscal year 2007. The Company does not expect
the adoption of this statement to have a material impact on its consolidated balance sheet and
statements of operations, shareholders equity and cash flows.
In September 2006, the FASB issued SFAS No. 157 Fair Value Measurement (SFAS 157). SFAS 157
provides a definition of fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS 157 is effective for the Company as of the
beginning of fiscal year 2009. The Company does not expect the adoption of this statement to have
a material impact on its consolidated balance sheet and statements of operations, shareholders
equity and cash flows.
In September 2006, the FASB issued SFAS No. 158 Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS
158). SFAS 158 requires companies to recognize the funded status of postretirement benefit plans
as an asset or liability in the financial statements. The transition date for recognition of an
asset or liability related to the funded status of an entitys plan is effective for the Company as
of the end of fiscal year 2007. The Company is in the process of determining the effect the
adoption of the recognition of this liability will have on its consolidated balance sheet and
statement of shareholders equity. However, upon adoption, the Company expects to record an
additional liability with an offset to other comprehensive income of approximately $10,000,000 to
$12,000,000 at the end of fiscal 2007. In addition, SFAS 158 requires an employer to measure its
postretirement benefit plan assets and benefit obligations as of the date of the employers fiscal
year-end. This portion of the statement is effective for the Company for fiscal 2009 and will have
no impact on the Companys consolidated financial statements as it currently values benefit
obligations at its fiscal year-end.
23
PART I
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Management Overview
Pier 1 Imports, Inc. (together with its consolidated subsidiaries, the Company) is one of North
Americas largest specialty retailers of unique decorative home furnishings, gifts and related
items. The Company directly imports merchandise from over 40 countries, and sells a wide variety
of furniture collections, decorative accessories, bed and bath products, housewares and other
seasonal assortments in its stores. The Company operates stores under the names Pier 1 Imports
(Pier 1) and Pier 1 Kids. Pier 1 Kids stores sell childrens home furnishings and decorative
accessories. As of November 25, 2006, the Company operated 1,257 stores in the United States,
Canada, Puerto Rico and Mexico. The Company conducts business as one operating segment.
The following discussion and analysis of financial condition, results of operations, and liquidity
and capital resources should be read in conjunction with the Companys consolidated financial
statements as of February 25, 2006, and for the year then ended, and related Notes and Managements
Discussion and Analysis of Financial Condition and Results of Operations, all contained in the
Companys Annual Report on Form 10-K for the year ended February 25, 2006.
Discontinued Operations During the fourth quarter of fiscal 2006, the Companys Board of
Directors authorized management to sell its operations of The Pier Retail Group Limited (The
Pier), the Companys subsidiary based in the United Kingdom. The sale of The Pier was completed
in March 2006. As a result, The Piers prior period operations are considered discontinued and
have been reclassified accordingly. Expenses incurred during March by the Company related to The
Pier were $0.4 million, net of taxes. Discussions below relate to continuing operations, unless
stated otherwise.
Management reviews a number of key indicators to evaluate the Companys financial performance. The
results of operations for the three and nine months ended November 25, 2006, and November 26, 2005,
are not indicative of results to be expected for the fiscal year because of, among other things,
seasonality factors in the retail business. Historically, the strongest sales of the Companys
products have occurred during the holiday season beginning in November and continuing through
December. The following table summarizes those key performance indicators for the three and nine
months ended November 25, 2006 and November 26, 2005:
24
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
Nov. 25, |
|
Nov. 26, |
|
Nov. 25, |
|
Nov. 26, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
Key Performance Metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales growth |
|
|
(11.8 |
%) |
|
|
(2.2 |
%) |
|
|
(9.5 |
%) |
|
|
(4.0 |
%) |
Comparable stores sales growth |
|
|
(12.9 |
%) |
|
|
(6.1 |
%) |
|
|
(11.6 |
%) |
|
|
(8.6 |
%) |
Merchandise margins as a % of sales |
|
|
49.7 |
% |
|
|
52.5 |
% |
|
|
50.9 |
% |
|
|
51.6 |
% |
Store occupancy as a % of sales |
|
|
18.7 |
% |
|
|
15.9 |
% |
|
|
19.8 |
% |
|
|
17.0 |
% |
Selling, general and administrative expenses
as a % of sales |
|
|
45.6 |
% |
|
|
34.0 |
% |
|
|
42.1 |
% |
|
|
33.9 |
% |
Operating loss as a % of sales |
|
|
(17.6 |
%) |
|
|
(0.5 |
%) |
|
|
(14.5 |
%) |
|
|
(2.6 |
%) |
Loss from continuing operations as a % of sales |
|
|
(18.1 |
%) |
|
|
(1.2 |
%) |
|
|
(14.7 |
%) |
|
|
(1.6 |
%) |
Loss from continuing operations per share |
|
($ |
.83 |
) |
|
($ |
.06 |
) |
|
($ |
1.93 |
) |
|
($ |
.23 |
) |
Inventory per retail square foot |
|
$ |
41.35 |
|
|
$ |
45.74 |
|
|
$ |
41.35 |
|
|
$ |
45.74 |
|
Total retail square footage (in thousands) |
|
|
9,489 |
|
|
|
9,593 |
|
|
|
9,489 |
|
|
|
9,593 |
|
Total retail square footage growth (decline) from
the same period last year |
|
|
(1.1 |
%) |
|
|
5.8 |
% |
|
|
(1.1 |
%) |
|
|
5.8 |
% |
Net sales during the third quarter and the first nine months of fiscal 2007 declined 11.8% and
9.5%, respectively, and comparable store sales declined 12.9% and 11.6% during the respective
periods. The Company recorded a loss from continuing operations during the third quarter and
year-to-date periods of $72.7 million and $168.5 million, respectively. Losses per share from
continuing operations were $0.83 and $1.93 for the respective periods.
During the third quarter, the Company continued to experience a decline in sales. The Company has
seen a persistent weakness in customer traffic throughout the year as retailers in the Companys
sector are competing for market share and consumers discretionary funds. To stay with the
competition, the Company has struggled to find the right marketing programs and media that will
drive traffic to its stores and increase sales.
During the third quarter, the Company slightly shifted its focus to gifts and decorative items for
the holiday season, adding more unique merchandise that was exclusive, value-priced and had both a
traditional and contemporary appeal to meet customers decorating needs. The Company is committed
to be diligent in controlling expenses, evaluating the real estate portfolio, and monitoring
inventory levels.
After Christmas and in January, the Company expects to begin clearance of merchandise to make room
for the introduction of new spring lines. The new product assortment will include items of updated
traditional style with broad appeal as well as items from around the world in the unique style that
has become synonymous with Pier 1. The Company plans for furniture to comprise approximately 35%
of the new merchandise mix as compared to approximately 40% in prior years. In addition, the
Company continues to try to find merchandise that has great value without compromising superior
quality. The Company plans to introduce the new lines in mid to late January 2007.
Results of Operations
Net Sales Net sales consisted almost entirely of sales to retail customers, net of discounts and
returns, but also included delivery service revenues and wholesale sales and royalties received
from franchise stores and Sears Roebuck de Mexico, S.A. de C.V. Sales by retail concept during the
period were as follows (in thousands):
25
Item 2. Managements Discussion and Analysis of financial Condition and Results of
Operations. (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
November 25, |
|
|
November 26, |
|
|
November 25, |
|
|
November 26, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Stores |
|
$ |
394,868 |
|
|
$ |
450,725 |
|
|
$ |
1,124,682 |
|
|
$ |
1,255,155 |
|
Direct to consumer |
|
|
4,953 |
|
|
|
4,053 |
|
|
|
13,942 |
|
|
|
9,856 |
|
Other (1) |
|
|
2,893 |
|
|
|
1,912 |
|
|
|
10,880 |
|
|
|
5,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
402,714 |
|
|
$ |
456,690 |
|
|
$ |
1,149,504 |
|
|
$ |
1,270,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other sales consisted primarily of wholesale sales and royalties received from
franchise stores and from Sears Roebuck
de Mexico, S.A. de C.V. |
Net sales for the third quarter of fiscal 2007 were $402.7 million, down 11.8% or $54.0
million from last years third quarter net sales of $456.7 million. Average ticket remained
relatively constant while average traffic counts and conversion rates were below last years
levels. Net sales declined to $1,149.5 million from $1,270.7 million, down $121.2 million or 9.5%,
during the nine-month period ended November 25, 2006 when compared to the same period last year.
Comparable store sales for the quarter and year-to-date periods declined 12.9% and 11.6%,
respectively. Sales for the nine-month period were comprised of the following incremental
components (in thousands):
|
|
|
|
|
|
|
Net Sales |
|
Net sales for the nine months ended November 26, 2005 |
|
$ |
1,270,679 |
|
|
Incremental sales growth (decline) from: |
|
|
|
|
New stores opened during fiscal 2007 |
|
|
16,877 |
|
Stores opened during fiscal 2006 |
|
|
24,993 |
|
Comparable stores |
|
|
(137,283 |
) |
Closed stores and other |
|
|
(25,762 |
) |
|
|
|
|
Net sales for the nine months ended November 25, 2006 |
|
$ |
1,149,504 |
|
|
|
|
|
During the third quarter, the Company opened ten and closed or relocated 15 Pier 1 stores in the
United States and Canada and opened one store within a store location in Mexico. During the
first nine months of fiscal 2007, the Company opened 33 and closed or relocated 35 Pier 1 stores in
the United States and Canada, closed three Pier 1 Kids stores and opened three store within a
store locations in Mexico. Total retail square footage remained constant from the beginning of
fiscal 2007 and decreased 1.1% from the third quarter of fiscal 2006. The Pier 1 and Pier 1 Kids
store count totaled 1,221 in the United States and Canada at the end of the third quarter compared
to 1,240 stores a year ago. Including Mexico and Puerto Rico, the Companys store count totaled
1,257 at the end of the third quarter of fiscal 2007. During the third quarter, the Company
introduced Pier 1 Kids merchandise within two Pier 1 store locations.
A summary reconciliation of the Companys stores open at the beginning of fiscal 2007 to the number
open at the end of the third quarter follows (openings and closings include relocated stores):
26
Item 2. Managements Discussion and Analysis of financial Condition and Results of
Operations. (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
Mexico and |
|
Continuing |
|
Discontinued |
|
|
|
|
and Canada |
|
Puerto Rico |
|
Operations |
|
Operations (1) |
|
Total |
Open at February 25, 2006 |
|
|
1,226 |
|
|
|
33 |
|
|
|
1,259 |
|
|
|
45 |
|
|
|
1,304 |
|
Openings |
|
|
33 |
|
|
|
3 |
|
|
|
36 |
|
|
|
|
|
|
|
36 |
|
Closings |
|
|
(38 |
) |
|
|
|
|
|
|
(38 |
) |
|
|
|
|
|
|
(38 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45 |
) |
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open at November 25, 2006 |
|
|
1,221 |
|
|
|
36 |
|
|
|
1,257 |
|
|
|
|
|
|
|
1,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Discontinued operations relate to The Piers operations located in the United
Kingdom and Ireland which were sold in March 2006. |
Sales on the Companys proprietary credit card declined during the third quarter with net
sales down $31.4 million, or 25.1%, to $93.8 million from last years third quarter proprietary
credit card sales of $125.1 million. Year-to-date proprietary credit card sales of $276.5 million
reflected a similar trend, with a decline of $54.2 million, or 16.4%, compared to sales of $330.6
million during the same period last year. Third quarter proprietary credit card sales comprised
25.6% of U.S. store sales compared to 29.7% last year, while year-to-date proprietary credit card
sales were 26.3% of U.S. store sales versus 28.1% last year. During the third quarter both average
traffic counts and average number of transactions per store were down this year compared to last
year. Average ticket on the Companys proprietary credit card was $160 for the third quarter, a
decrease from $189 during the same period last year. Year-to-date average ticket remained constant
at $178.
Gross Profit Gross profit after related buying and store occupancy costs, expressed as a
percentage of sales, decreased 570 basis points to 30.9% for the third quarter of fiscal 2007, and
decreased 350 basis points to 31.1% for the first nine months of fiscal 2007. As a percentage of
sales, merchandise margins decreased 280 basis points for the third quarter and 70 basis points for
the nine-month period ended November 25, 2006, from the comparable periods a year ago. The
decrease during both periods was primarily due to increased promotional discounts and clearance
markdowns. Store occupancy costs for the quarter were $75.4 million, or 18.7% of sales, an
increase of $2.8 million, or 280 basis points as a percentage of sales, compared to last years
third quarter store occupancy expense of $72.6 million. Year-to-date, store occupancy costs were
$227.5 million, or 19.8% of sales, an increase of $11.8 million, or 280 basis points as a
percentage of sales, compared to store occupancy expense of $215.7 million during the same period
last year. Store occupancy cost increases as a percentage of sales resulted from relatively fixed
rental costs on a lower sales base.
Operating Expenses, Depreciation and Income Taxes Selling, general and administrative expenses
for the third quarter of fiscal 2007 were $183.4 million, or 45.6% of sales, an increase over the
same quarter last year of $28.0 million. Year-to-date selling, general and administrative expenses
were $484.2 million, or 42.1% of sales, an increase of $53.6 million over the same period last
year.
Expenses that normally grow proportionately with sales and number of stores, such as store payroll,
marketing, store supplies, and equipment rental, increased $3.6 million and $10.6 million for the
quarter and year-to-date periods, respectively. As a percentage of sales, these variable expenses
increased 420 basis points for the third quarter and 350 basis points year-to-date. Store
salaries, including bonus, during the third quarter decreased $3.8 million, yet increased 110 basis
points as a percentage of sales, as sales were insufficient to leverage certain fixed portions of
store payroll costs incurred to maintain minimum staffing levels to provide quality customer
service. Store salaries, including bonus, for the first nine months of fiscal 2007 decreased $2.1
million, yet increased 140 basis points as a percentage of sales. Marketing expenditures during
the third quarter were $38.2 million or 9.5% of sales for the quarter, an increase of $7.9 million
from the same quarter last year and 285 basis points as a percentage of sales. Year-to-date
marketing expenses totaled $95.9 million, or 8.3% of sales, an increase of $13.2 million and
180 basis points as a percentage of sales over last year. The increase in marketing was the result
of the Companys continued emphasis on trying to improve sales through its television advertising,
catalog distribution and national magazine campaign.
27
Item 2. Managements Discussion and Analysis of financial Condition and Results of
Operations. (continued)
Relatively fixed selling, general and administrative expenses during the third quarter of
fiscal 2007 increased $24.4 million and 730 basis points as a percentage of sales. The Company
recognized impairment charges of $24.8 million on long-lived store-level assets versus
approximately $0.7 million in the year ago period. These impairment charges were based on cash
flow projections for those stores and were estimated based on managements estimate of future
sales, merchandise margins, and expenses over the remaining expected terms of the store leases.
While management believes its cash flow projections are its best estimates based on information
available at this time, such estimates may require revisions in the event actual results differ
from projections. If management had increased their assumptions of comparable store sales declines
by an additional 3% over the next four years, additional impairment charges of approximately $5.0
to $6.0 million would have been recorded.
Year-to-date relatively fixed selling, general, and administrative expenses increased $43.0 million
and 470 basis points as a percentage of sales, primarily as a result of the impairment charges
taken in the third quarter as discussed above and additional impairment charges of $5.1 million
taken during the first six months of fiscal 2007. Also for the year-to-date period, the Company
recorded a $4.6 million charge in the second quarter related to the settlement of and legal fees
related to a class action lawsuit regarding compensation matters. Non-store payroll increased $3.6
million primarily related to stock-based compensation expense on stock-based payments.
Depreciation and amortization expense for the third quarter and year-to-date periods was $12.1
million and $39.3 million, respectively, compared to $14.1 million and $42.1 million for the same
periods last year. The decreases were primarily the result of previous impairment charges of
store-level fixed assets, a reduction in depreciation expense for certain assets becoming fully
depreciated and a slight decrease in depreciation expense related to the net 19 store closures in
the United States and Canada, including Pier 1 Kids, since the fiscal 2006 third quarter-end.
These decreases were partially offset by increases in depreciation expense related to software
applications launched subsequent to the end of fiscal 2006.
The operating loss for the quarter was $71.0 million compared to $2.2 million for last years third
quarter. For the first nine months of fiscal 2007, operating loss totaled $166.2 million compared
to $32.8 million for the same period last year.
During the second quarter, the Company established a valuation allowance of $24.6 million related
to deferred tax assets. In evaluating the likelihood that sufficient
earnings would be available in the near future to realize the deferred tax assets, the Company
considered cumulative losses over three years including the current year. The Company concluded
that a valuation allowance was necessary based upon this evaluation and the guidance provided in
SFAS No. 109 Accounting for Income Taxes.
In addition, net deferred tax assets arising from current year losses in excess of the amount
expected to be carried back to offset taxable income in a prior year were fully reserved through a
valuation allowance recorded in the second and third quarters. As these deferred tax assets were
established and fully reserved during fiscal 2007, there was no net impact to the provision of
income taxes.
At the end of the third quarter, the net deferred tax assets and the offsetting valuation allowance
totaled $59.2 million.
Net Loss During the third quarter of fiscal 2007, the Company recorded a net loss of $72.7
million, or $0.83 per share, compared to $7.2 million, or $0.08 per share, for the same period last
year. Net loss, including discontinued operations, for the first nine months of fiscal 2007 was
$168.9 million, or $1.94 per share, compared to $29.8 million, or $0.34 per share, for the first
nine months of fiscal 2006.
Liquidity and Capital Resources
For the purpose of liquidity and capital resource discussions, the Companys discontinued
operations will be included in financial results. The Company ended the third quarter of fiscal
2007 with $172.3 million in cash and temporary investments compared to $21.3 million a year ago.
Operating activities in the first
28
Item 2. Managements Discussion and Analysis of financial Condition and Results of
Operations. (continued)
nine months of fiscal 2007 used $84.4 million of cash, primarily as a result of the Companys
net loss and the following items. Upon expiration of the Companys securitization agreement, the
Company purchased its proprietary credit card receivables by sending $100.0 million to the Pier 1
Master Trust, an unconsolidated subsidiary, to redeem its outstanding Class A Certificates. The
purchase of these receivables was offset by $142.8 million ($155.8 million less $13.0 million
received in connection with the sale of Pier 1 National Bank as described below) in proceeds
received from the sale of the proprietary credit card receivables. Inventory levels at the end of
the third quarter of fiscal 2007 were $392.4 million, an increase of $22.6 million over inventory
levels at the end of last year. The Company continues to prudently manage inventories and projects
inventory at year-end to be approximately flat compared to last year.
During the first nine months of fiscal 2007, investing activities provided $17.3 million compared
to $6.3 million during the same period last year. Collections of principal on beneficial interest
in securitized receivables provided $21.9 million compared to $45.1 million for the third quarter
of fiscal 2006. Proceeds from the sale of The Pier provided $15.0 million, partially offset by
$3.4 million in cash held by The Pier on the date of the sale. Proceeds from the sale of Pier 1
National Bank provided $13.0 million, partially offset by $2.2 million in cash held by Pier 1
National Bank on the date of the sale. Capital expenditures were $25.2 million in fiscal 2007
compared to $40.2 million in fiscal 2006, consisting primarily of $11.1 million for fixtures,
equipment, and leasehold improvements for new and existing stores, $10.0 million for information
systems enhancements and home office capital additions, and $4.1 million related to the Companys
distribution centers. The Company plans to open one new Pier 1 store in the United States during
the fourth quarter of fiscal 2007 and has plans to close or relocate approximately 35 Pier 1
stores, which includes four Pier 1 Kids stores over the same period.
Financing activities for the first nine months of fiscal 2007 used a net $13.9 million of the
Companys cash. Dividend payments totaled $17.5 million through the second quarter of fiscal 2007
and were discontinued by the Companys board of directors at that time. All other financing
activities, primarily the exercise of stock options, provided net cash of $3.6 million. The
Company utilized its secured credit facility during the third quarter of fiscal 2007. The Company
borrowed and repaid $69.0 million during the third quarter of which $22.0 million was the greatest
amount of borrowings outstanding at any one time under the credit facility. As of November 25,
2006, the Company had no outstanding cash borrowings and approximately $127.2 million in letters of
credit utilized against its secured credit facility. The borrowing base was $260.7 million, of
which $133.5 million was available for cash borrowings. This facility expires in November 2010.
At the end of the third quarter, the Companys minimum operating lease commitments remaining for
fiscal 2007 were $59.4 million. The present value of total existing minimum operating lease
commitments discounted at 10% was approximately $850.0 million at the fiscal 2007 third
quarter-end.
Two senior executives of the Company, the Chief Executive Officer and the Executive Vice President
of Stores, have announced their intentions to retire in the fourth quarter of fiscal 2007.
Payments to satisfy retirement liabilities and deferred compensation arrangements for these two
executives will be made within the next twelve months. Restricted investments of $25.1 million,
classified on the balance sheet as other current assets, are held in a trust established for the
purpose of setting aside assets to be used for the satisfaction of retirement liabilities and will
be used to satisfy a portion of the retirement obligations related to these two executives. An
additional $6.0 million in cash will be contributed to this trust in the fourth quarter of fiscal
2007. The remaining retirement-related obligations to these two executives will be settled at $8.0
million in the first quarter of fiscal 2008 and $0.7 million in the second quarter of fiscal 2008
and will be funded from existing cash balances.
Other working capital requirements are expected to be funded from existing cash on hand, proceeds
from sales of merchandise and borrowings against available lines of credit. The Companys
borrowing capacity includes the credit facility, which is secured by the Companys eligible
merchandise inventory and third-party credit card receivables.
In October 2006, the Company announced that its Board of Directors had decided to discontinue the
Companys $0.10 per share quarterly dividend. The Company believes that discontinuing the cash
29
Item 2. Managements Discussion and Analysis of financial Condition and Results of
Operations. (continued)
dividend will improve the Companys near-term liquidity and is consistent with its efforts to
provide financial flexibility as it executes the Companys turnaround strategy. The Company is not
required to comply with financial covenants under its secured credit facility unless the
availability under such agreement is less that $32.5 million. The Company was in compliance with
all required debt covenants at the end of the third quarter of fiscal 2007.
The Company believes the cash on hand, available lines of credit and proceeds from the sale of the
Companys credit card business will be sufficient to meet the Companys expected cash requirements
for the next fiscal year.
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 Companys
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.
Managements expectations and assumptions regarding planned store openings, financing of Company
obligations from operations, results from its new marketing, merchandising and store operations
strategies, and other future results are subject to risks, uncertainties and other factors that
could cause actual results to differ materially from the anticipated results or other expectations
expressed in the forward-looking statements. Risks and uncertainties that may affect Company
operations and performance include, among others, the effects of terrorist attacks or other acts of
war, conflicts or war involving the United States or its allies or trading partners, labor strikes,
weather conditions or natural disasters, volatility of fuel and utility costs, the general strength
of the economy and levels of consumer spending, consumer confidence, the availability of
appropriate sites for locating stores and distribution centers, availability of a qualified labor
force and management, the availability and proper functioning of technology and communications
systems supporting the Companys key business processes, 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 source, ship and deliver items from foreign countries to its U.S.
distribution centers at reasonable prices and rates and in a timely fashion. The foregoing risks
and uncertainties are in addition to others discussed elsewhere in this 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
Companys Annual Report on Form 10-K for the fiscal year ended February 25, 2006, as filed with the
Securities and Exchange Commission.
Impact of Inflation
Inflation has not had a significant impact on the operations of the Company.
30
PART I
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
There are no material changes to the Companys market risk as disclosed in its Form 10-K filed
for the fiscal year ended February 25, 2006.
Item 4. Controls and Procedures.
As required by Exchange Act Rules 13a-15 and 15d-15, an evaluation was conducted under the
supervision and with the participation of the Companys management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures as of November 25, 2006, and based on this evaluation
the Chief Executive Officer and Chief Financial Officer have concluded that the Companys
disclosure controls and procedures were effective as of such date to ensure that information
required to be disclosed by the Company in its reports filed or furnished under the Exchange Act is
(a) accumulated and communicated to management, including the Chief Executive Officer and the Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure, and (b)
recorded, processed, summarized and reported within the time periods specified in the SECs rules
and forms.
During the second quarter of fiscal 2007, the Company implemented a new general ledger accounting
system. The Company followed an information systems implementation process that required
significant pre-implementation planning, design and testing, and post-implementation monitoring.
Based on this process and the Companys observations, the Company does not believe that the
implementation of this system had a material effect on the internal control over financial
reporting for the second quarter and that it is not likely to materially affect the internal
control over financial reporting for future quarters. There has been no other change in the
Companys internal control over financial reporting during the period covered by this report that
has materially affected, or is reasonably likely to materially affect, the Companys internal
control over financial reporting.
PART II
Item 1. Legal Proceedings.
The Company is a party to various legal proceedings and claims in the ordinary course of its
business. During the second quarter of fiscal 2007, the Company recorded a pre-tax charge of
$4,567,000 related to the settlement of and legal fees related to a class action lawsuit regarding
compensation matters.
Item 1A. Risk Factors.
There are no material changes from risk factors previously disclosed in the Companys Annual
Report on Form 10-K for the fiscal year ended February 25, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Under the Companys secured credit facility, the Company would not be restricted from paying
dividends unless the availability under the credit facility is less than 30% of the Companys
borrowing base calculation. The Company is not required to comply with financial covenants under
its secured credit facility unless the availability under such agreement is less than $32,500,000.
The availability was $133,489,000 as of November 25, 2006.
Item 3. Defaults upon Senior Securities.
None.
31
PART II (Continued)
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 6. Exhibits.
See Exhibit Index.
32
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.
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PIER 1 IMPORTS, INC. (Registrant) |
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Date: January 2, 2007
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By:
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/s/ Marvin J. Girouard
Marvin
J. Girouard, Chairman of the Board |
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and Chief Executive Officer |
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Date: January 2, 2007
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By:
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/s/ Charles H. Turner
Charles
H. Turner, Executive Vice President, Finance, |
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Chief Financial Officer and Treasurer |
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Date: January 2, 2007
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By:
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/s/ Susan E. Barley
Susan
E. Barley, Principal Accounting Officer |
33
EXHIBIT INDEX
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Exhibit No. |
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Description |
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3(i)
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Certificate of Incorporation and Amendments thereto, incorporated herein by reference to
Exhibit 3(i) to Registrants Form 10-Q for the quarter ended May 30, 1998. |
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3(ii)
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Bylaws of the Company as amended to date thereto, incorporated herein by reference to
Exhibit 3(ii) to Registrants Form 10-K for the year ended February 25, 2006. |
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10.1
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Benefit Restoration Plan I, as amended and restated effective January 1, 2005, incorporated
herein by reference to Exhibit 10.1 to the Companys Form 8-K filed October 12, 2006. |
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10.2
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Benefit Restoration Plan II, as amended and restated effective January 1, 2005, incorporated
herein by reference to Exhibit 10.2 to the Companys Form 8-K filed October 12, 2006. |
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10.3
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1999 Stock Plan, as amended and restated December 31, 2004, incorporated herein by reference
to Exhibit 10.3 to the Companys Form 8-K filed October 12, 2006. |
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10.4
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Supplemental Executive Retirement Plan, as restated January 1, 2005, incorporated herein by
reference to Exhibit 10.4 to the Companys Form 8-K filed October 12, 2006. |
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10.5
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Supplemental Retirement Plan, as restated January 1, 2005, incorporated herein by reference
to Exhibit 10.5 to the Companys Form 8-K filed October 12, 2006. |
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10.6
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Amendment No. 1 to the Supplemental Retirement Plan, as restated January 1, 2005,
incorporated herein by reference to Exhibit 10.6 to the Companys Form 8-K filed October 12,
2006. |
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31.1*
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Certification of the Chief Executive Officer Pursuant to Exchange Act Rule
13a-14(a)/15d-14(a). |
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31.2*
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Certification of the Chief Financial Officer Pursuant to Exchange Act Rule
13a-14(a)/15d-14(a). |
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32.1*
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Section 1350 Certifications. |