UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended November 27, 2010
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-07832
PIER 1 IMPORTS, INC. |
(Exact name of registrant as specified in its charter) |
Delaware |
75-1729843 |
|||
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
100 Pier 1 Place, Fort Worth, Texas 76102 |
(Address of principal executive offices, including zip code) |
(817) 252-8000 |
(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 [ X ] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
Accelerated filer X | |||
Non-accelerated filer |
(Do not check if a smaller reporting company) | Smaller reporting company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
As of December 30, 2010, 117,276,818 shares of the registrants common stock, $0.001 par value, were outstanding.
INDEX TO QUARTERLY FORM 10-Q
PART I. FINANCIAL INFORMATION |
Page | |||
3 | ||||
Consolidated Balance Sheets as of November 27, 2010, February 27, 2010 and November 28, 2009 |
4 | |||
5 | ||||
Consolidated Statement of Shareholders Equity for the Nine Months Ended November 27, 2010 |
6 | |||
7 | ||||
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |
19 | |||
Item 3. Quantitative and Qualitative Disclosures about Market Risk |
27 | |||
27 | ||||
PART II. OTHER INFORMATION |
||||
27 | ||||
27 | ||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
27 | |||
27 | ||||
28 | ||||
28 | ||||
28 | ||||
29 |
2
PART I
Item 1. | Financial Statements. |
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
November 27,
2010 |
November 28,
2009 |
November 27,
2010 |
November 28,
2009 |
|||||||||||||
Net sales |
$ | 353,759 | $ | 327,075 | $ | 969,887 | $ | 894,878 | ||||||||
Operating costs and expenses: |
||||||||||||||||
Cost of sales (including buying and store occupancy costs) |
209,690 | 207,215 | 596,970 | 608,616 | ||||||||||||
Selling, general and administrative expenses |
117,524 | 111,620 | 312,917 | 308,218 | ||||||||||||
Depreciation and amortization |
4,666 | 5,469 | 14,653 | 17,281 | ||||||||||||
331,880 | 324,304 | 924,540 | 934,115 | |||||||||||||
Operating income (loss) |
21,879 | 2,771 | 45,347 | (39,237 | ) | |||||||||||
Nonoperating (income) and expenses: |
||||||||||||||||
Interest and investment income |
(413 | ) | (392 | ) | (1,168 | ) | (1,348 | ) | ||||||||
Interest expense |
1,424 | 16,041 | 4,516 | 21,986 | ||||||||||||
Gain on retirement of debt |
- | - | - | (49,654 | ) | |||||||||||
Other (income) loss |
(632 | ) | 3,904 | (1,945 | ) | (6,946 | ) | |||||||||
379 | 19,553 | 1,403 | (35,962 | ) | ||||||||||||
Income (loss) before income taxes |
21,500 | (16,782 | ) | 43,944 | (3,275 | ) | ||||||||||
Income tax provision (benefit) |
496 | (55,595 | ) | 886 | (55,622 | ) | ||||||||||
Net income |
$ | 21,004 | $ | 38,813 | $ | 43,058 | $ | 52,347 | ||||||||
Earnings per share: |
||||||||||||||||
Basic |
$ | 0.18 | $ | 0.37 | $ | 0.37 | $ | 0.55 | ||||||||
Diluted |
$ | 0.18 | $ | 0.37 | $ | 0.37 | $ | 0.55 | ||||||||
Average shares outstanding during period: |
||||||||||||||||
Basic |
116,479 | 104,384 | 116,363 | 95,649 | ||||||||||||
Diluted |
117,680 | 104,384 | 117,202 | 95,649 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
3
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
(unaudited)
The accompanying notes are an integral part of these financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended | ||||||||
November 27,
2010 |
November 28,
2009 |
|||||||
Cash flow from operating activities: |
||||||||
Net income |
$ | 43,058 | $ | 52,347 | ||||
Adjustments to reconcile to net cash provided by (used in) operating activities: |
||||||||
Depreciation and amortization |
24,178 | 25,048 | ||||||
(Gain)/loss on disposal of fixed assets |
(1,687 | ) | 202 | |||||
Stock-based compensation expense |
3,668 | 2,861 | ||||||
Deferred compensation |
3,127 | 2,875 | ||||||
Lease termination expense |
680 | 7,439 | ||||||
Amortization of deferred gains |
(5,683 | ) | (5,880 | ) | ||||
Gain on retirement of convertible bonds |
- | (49,654 | ) | |||||
Charges related to the conversion of 9% Convertible Notes |
- | 18,308 | ||||||
Other |
2,662 | 3,486 | ||||||
Changes in cash from: |
||||||||
Inventories |
(24,941 | ) | (23,268 | ) | ||||
Accounts receivable, prepaid expenses and other current assets |
(10,149 | ) | (3,415 | ) | ||||
Income taxes receivable |
(411 | ) | (54,766 | ) | ||||
Accounts payable and accrued expenses |
6,979 | (4,825 | ) | |||||
Income taxes payable |
(2,654 | ) | 316 | |||||
Defined benefit plan liabilities |
(2,830 | ) | (1,754 | ) | ||||
Make whole interest provision on 9% Convertible Notes |
- | (13,782 | ) | |||||
Other noncurrent assets |
(311 | ) | (313 | ) | ||||
Other noncurrent liabilities |
(31 | ) | (18 | ) | ||||
Net cash provided by (used in) operating activities |
35,655 | (44,793 | ) | |||||
Cash flow from investing activities: |
||||||||
Capital expenditures |
(19,659 | ) | (3,229 | ) | ||||
Proceeds from disposition of properties |
10,619 | 717 | ||||||
Proceeds from sale of restricted investments |
3,818 | 3,440 | ||||||
Purchase of restricted investments |
(3,815 | ) | (3,200 | ) | ||||
Collection of notes receivable |
1,500 | 1,500 | ||||||
Net cash used in investing activities |
(7,537 | ) | (772 | ) | ||||
Cash flow from financing activities: |
||||||||
Proceeds from stock options exercised, stock purchase plan and other, net |
3,251 | 317 | ||||||
Repayment of long-term debt |
(9,500 | ) | - | |||||
Retirement of convertible bonds |
- | (31,593 | ) | |||||
Debt issuance costs |
- | (4,408 | ) | |||||
Net cash used in financing activities |
(6,249 | ) | (35,684 | ) | ||||
Change in cash and cash equivalents |
21,869 | (81,249 | ) | |||||
Cash and cash equivalents at beginning of period |
187,912 | 155,798 | ||||||
Cash and cash equivalents at end of period |
$ | 209,781 | $ | 74,549 | ||||
The accompanying notes are an integral part of these financial statements.
5
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE NINE MONTHS ENDED NOVEMBER 27, 2010
(in thousands)
(unaudited)
Common Stock |
Paid-in
Capital |
Retained
Earnings |
Cumulative
Other Comprehensive Income (Loss) |
Treasury
Stock |
Total
Shareholders Equity |
|||||||||||||||||||||||
Outstanding
Stock |
Amount | |||||||||||||||||||||||||||
Balance February 27, 2010 |
115,587 | $ | 125 | $ | 264,477 | $ | 193,688 | $ | (699 | ) | $ | (154,457 | ) | $ | 303,134 | |||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||
Net income |
- | - | - | 43,058 | - | - | 43,058 | |||||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||||||
Pension adjustments |
- | - | - | - | (149 | ) | - | (149 | ) | |||||||||||||||||||
Currency translation adjustments, net |
- | - | - | - | 586 | - | 586 | |||||||||||||||||||||
Comprehensive income |
43,495 | |||||||||||||||||||||||||||
Restricted stock compensation |
988 | - | (12,920 | ) | - | - | 15,811 | 2,891 | ||||||||||||||||||||
Stock option compensation expense |
- | - | 777 | - | - | - | 777 | |||||||||||||||||||||
Exercise of stock options, directors deferred, and other |
690 | - | (8,200 | ) | - | - | 11,451 | 3,251 | ||||||||||||||||||||
Balance November 27, 2010 |
117,265 | $ | 125 | $ | 244,134 | $ | 236,746 | $ | (262 | ) | $ | (127,195 | ) | $ | 353,548 | |||||||||||||
The accompanying notes are an integral part of these financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED NOVEMBER 27, 2010
AND NOVEMBER 28, 2009
(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 27, 2010. All adjustments that are, in the opinion of management, necessary for a fair presentation of the financial position as of November 27, 2010, and the results of operations and cash flows for the three and nine months ended November 27, 2010 and November 28, 2009 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 27, 2010 and November 28, 2009, are not indicative of results to be expected for the fiscal year because of, among other things, seasonality factors in the retail business. Historically, the strongest sales of the Companys products have occurred during the holiday season beginning in November and continuing through December. The Company conducts business as one operating segment. As of November 27, 2010, the Company had no financial instruments with fair market values that were materially different from their carrying values.
Note 1 Earnings per share
Basic earnings per share amounts were determined by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share amounts were similarly computed, but included the dilutive effect of the Companys weighted average number of stock options outstanding and shares of unvested restricted stock. Stock options for which the exercise price was greater than the average market price were not included in the computation of diluted earnings per share as the effect would be antidilutive. There were 3,530,000 and 11,745,000 stock options outstanding with exercise prices greater than the average market price of the Companys common shares for the three months ended November 27, 2010 and November 28, 2009, respectively. There were 5,003,000 and 11,745,000 stock options outstanding with exercise prices greater than the average market price of the Companys common shares for the nine months ended November 27, 2010 and November 28, 2009, respectively. Earnings per share for the three and nine months ended November 27, 2010 and November 28, 2009 was calculated as follows (in thousands except per share amounts):
Three Months Ended | Nine Months Ended | |||||||||||||||
November 27,
2010 |
November 28,
2009 |
November 27,
2010 |
November 28,
2009 |
|||||||||||||
Net income, basic and diluted |
$ | 21,004 | $ | 38,813 | $ | 43,058 | $ | 52,347 | ||||||||
Average shares outstanding during period: |
||||||||||||||||
Basic |
116,479 | 104,384 | 116,363 | 95,649 | ||||||||||||
Effect of dilutive stock options |
494 | - | 260 | - | ||||||||||||
Effect of dilutive restricted stock |
707 | - | 579 | - | ||||||||||||
Diluted |
117,680 | 104,384 | 117,202 | 95,649 | ||||||||||||
Earnings per share: |
||||||||||||||||
Basic |
$ | 0.18 | $ | 0.37 | $ | 0.37 | $ | 0.55 | ||||||||
Diluted |
$ | 0.18 | $ | 0.37 | $ | 0.37 | $ | 0.55 | ||||||||
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 2 Comprehensive income
The components of comprehensive income for the three and nine months ended November 27, 2010 and November 28, 2009 were as follows (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
November 27,
2010 |
November 28,
2009 |
November 27,
2010 |
November 28,
2009 |
|||||||||||||
Net income |
$ | 21,004 | $ | 38,813 | $ | 43,058 | $ | 52,347 | ||||||||
Currency translation adjustments, net |
579 | 287 | 586 | 936 | ||||||||||||
Pension adjustments |
(420 | ) | 107 | (149 | ) | 716 | ||||||||||
Comprehensive income |
$ | 21,163 | $ | 39,207 | $ | 43,495 | $ | 53,999 | ||||||||
Note 3 Stock-based compensation
For the three and nine months ended November 27, 2010, the Company recorded stock-based compensation expense related to stock options and restricted stock of $1,059,000 or $0.01 per share, and $3,668,000, or $0.03 per share, respectively. For the three and nine months ended November 28, 2009, the Company recorded stock-based compensation expense related to stock options and restricted stock of $645,000, or less than $0.01 per share, and $2,861,000, or $0.03 per share, respectively. The Company recognized no net tax benefit related to stock-based compensation during the first nine months of fiscal 2011 or fiscal 2010 as a result of the Companys valuation allowance on all deferred tax assets in both years.
As of November 27, 2010, there was approximately $734,000 of total unrecognized compensation expense related to unvested stock option awards that is expected to be recognized over a weighted average period of 1.3 years and $6,397,000 of total unrecognized compensation expense related to unvested restricted stock that may be recognized over a weighted average period of 2.1 years.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 4 Costs associated with exit activities
As part of the ordinary course of business, the Company terminates leases prior to their expiration when certain stores or distribution center facilities are closed or relocated as deemed necessary by the evaluation of its real estate portfolio. These decisions are based on store profitability, lease renewal obligations, relocation space availability, local market conditions and prospects for future profitability. In connection with these lease terminations, the Company has recorded estimated liabilities to cover the termination costs. At the time of closure, neither the write-off of fixed assets nor the write-down of inventory related to such stores was material. Additionally, employee severance costs associated with these closures were not significant. The estimated liabilities were recorded based upon the Companys remaining lease obligations less estimated subtenant rental income. Revisions during the periods presented related to changes in estimated buyout terms or subtenant receipts expected on closed facilities. Expenses related to lease termination obligations are included in selling, general and administrative expenses in the Companys consolidated statements of operations. The following table represents a rollforward of the liability balances for the nine months ended November 27, 2010 and November 28, 2009 related to these closures (in thousands):
Nine Months Ended | ||||||||
November 27,
2010 |
November 28,
2009 |
|||||||
Beginning of period |
$ | 4,901 | $ | 4,998 | ||||
Original charges |
155 | 4,708 | ||||||
Revisions |
525 | 2,731 | ||||||
Cash payments |
(2,221 | ) | (6,792 | ) | ||||
End of period |
$ | 3,360 | $ | 5,645 | ||||
Note 5 Debt repayment
During the second quarter of fiscal 2011, the Company repaid $9,500,000 of industrial revenue bonds with proceeds received from the sale of its distribution center near Chicago, Illinois. This distribution center was sold during the first quarter of fiscal 2011 for a purchase price of $11,800,000 and the Company recorded a gain of $1,650,000 related to this transaction, which was included in selling, general and administrative expenses.
On December 20, 2010, subsequent to quarter-end, the Company called for redemption all of the remaining outstanding 6.375% convertible senior notes due 2036 (the 6.375% Notes), which have a face value of $16,577,000. The redemption date for these notes is February 15, 2011.
Note 6 Condensed financial statements
The Companys 6.375% 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. In lieu of providing separate audited financial statements for the Guarantor Subsidiaries, condensed consolidating financial information is presented below.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Three Months Ended November 27, 2010
(in thousands)
(unaudited)
Pier 1
Imports, Inc. |
Guarantor
Subsidiaries |
Non-
Guarantor Subsidiaries |
Eliminations | Total | ||||||||||||||||
Net sales |
$ | - | $ | 350,856 | $ | 2,903 | $ | - | $ | 353,759 | ||||||||||
Cost of sales (including buying and store occupancy costs) |
- | 207,222 | 2,468 | - | 209,690 | |||||||||||||||
Selling, general and administrative (including depreciation and amortization) |
533 | 121,625 | 32 | - | 122,190 | |||||||||||||||
Operating income (loss) |
(533 | ) | 22,009 | 403 | - | 21,879 | ||||||||||||||
Nonoperating (income) expenses |
(2,399 | ) | 2,778 | - | - | 379 | ||||||||||||||
Income before income taxes |
1,866 | 19,231 | 403 | - | 21,500 | |||||||||||||||
Provision for income taxes |
- | 462 | 34 | - | 496 | |||||||||||||||
Net income after income taxes |
1,866 | 18,769 | 369 | - | 21,004 | |||||||||||||||
Net income (loss) from subsidiaries |
19,138 | 369 | - | (19,507 | ) | - | ||||||||||||||
Net income (loss) |
$ | 21,004 | $ | 19,138 | $ | 369 | $ | (19,507 | ) | $ | 21,004 | |||||||||
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Three Months Ended November 28, 2009
(in thousands)
(unaudited)
Pier 1
Imports, Inc. |
Guarantor
Subsidiaries |
Non-
Guarantor Subsidiaries |
Eliminations | Total | ||||||||||||||||
Net sales |
$ | - | $ | 325,168 | $ | 2,854 | $ | (947 | ) | $ | 327,075 | |||||||||
Cost of sales (including buying and store occupancy costs) |
- | 205,667 | 2,495 | (947 | ) | 207,215 | ||||||||||||||
Selling, general and administrative (including depreciation and amortization) |
349 | 116,563 | 177 | - | 117,089 | |||||||||||||||
Operating income (loss) |
(349 | ) | 2,938 | 182 | - | 2,771 | ||||||||||||||
Nonoperating expenses |
16,699 | 2,853 | 1 | - | 19,553 | |||||||||||||||
Income (loss) before income taxes |
(17,048 | ) | 85 | 181 | - | (16,782 | ) | |||||||||||||
Provision (benefit) for income taxes |
- | (55,614 | ) | 19 | - | (55,595 | ) | |||||||||||||
Net income (loss) after income taxes |
(17,048 | ) | 55,699 | 162 | - | 38,813 | ||||||||||||||
Net income (loss) from subsidiaries |
55,861 | 162 | - | (56,023 | ) | - | ||||||||||||||
Net income (loss) |
$ | 38,813 | $ | 55,861 | $ | 162 | $ | (56,023 | ) | $ | 38,813 | |||||||||
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Nine Months Ended November 27, 2010
(in thousands)
(unaudited)
Pier 1
Imports, Inc. |
Guarantor
Subsidiaries |
Non-
Guarantor Subsidiaries |
Eliminations | Total | ||||||||||||||||
Net sales |
$ | - | $ | 962,252 | $ | 7,635 | $ | - | $ | 969,887 | ||||||||||
Cost of sales (including buying and store occupancy costs) |
- | 590,415 | 6,555 | - | 596,970 | |||||||||||||||
Selling, general and administrative (including depreciation and amortization) |
1,425 | 326,055 | 90 | - | 327,570 | |||||||||||||||
Operating income (loss) |
(1,425 | ) | 45,782 | 990 | - | 45,347 | ||||||||||||||
Nonoperating (income) expense |
(7,180 | ) | 8,585 | (2 | ) | - | 1,403 | |||||||||||||
Income before income taxes |
5,755 | 37,197 | 992 | - | 43,944 | |||||||||||||||
Provision for income taxes |
- | 790 | 96 | - | 886 | |||||||||||||||
Net income after income taxes |
5,755 | 36,407 | 896 | - | 43,058 | |||||||||||||||
Net income (loss) from subsidiaries |
37,303 | 896 | - | (38,199 | ) | - | ||||||||||||||
Net income (loss) |
$ | 43,058 | $ | 37,303 | $ | 896 | $ | (38,199 | ) | $ | 43,058 | |||||||||
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Nine Months Ended November 28, 2009
(in thousands)
(unaudited)
Pier 1
Imports, Inc. |
Guarantor
Subsidiaries |
Non-
Guarantor Subsidiaries |
Eliminations | Total | ||||||||||||||||
Net sales |
$ | - | $ | 890,287 | $ | 7,339 | $ | (2,748 | ) | $ | 894,878 | |||||||||
Cost of sales (including buying and store occupancy costs) |
- | 605,035 | 6,403 | (2,822 | ) | 608,616 | ||||||||||||||
Selling, general and administrative (including depreciation and amortization) |
1,327 | 323,907 | 265 | - | 325,499 | |||||||||||||||
Operating income (loss) |
(1,327 | ) | (38,655 | ) | 671 | 74 | (39,237 | ) | ||||||||||||
Nonoperating income |
(32,948 | ) | (908 | ) | (2,106 | ) | - | (35,962 | ) | |||||||||||
Income (loss) before income taxes |
31,621 | (37,747 | ) | 2,777 | 74 | (3,275 | ) | |||||||||||||
Provision (benefit) for income taxes |
- | (55,690 | ) | 68 | - | (55,622 | ) | |||||||||||||
Net income after income taxes |
31,621 | 17,943 | 2,709 | 74 | 52,347 | |||||||||||||||
Net income (loss) from subsidiaries |
20,652 | 2,709 | - | (23,361 | ) | - | ||||||||||||||
Net income (loss) |
$ | 52,273 | $ | 20,652 | $ | 2,709 | $ | (23,287 | ) | $ | 52,347 | |||||||||
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED BALANCE SHEET
November 27, 2010
(in thousands)
(unaudited)
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED BALANCE SHEET
February 27, 2010
(in thousands)
(unaudited)
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED BALANCE SHEET
November 28, 2009
(in thousands)
(unaudited)
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Nine Months Ended November 27, 2010
(in thousands)
(unaudited)
Pier 1
Imports, Inc. |
Guarantor
Subsidiaries |
Non-
Guarantor Subsidiaries |
Eliminations | Total | ||||||||||||||||
Cash flow from operating activities: |
||||||||||||||||||||
Net cash provided by operating activities |
$ | 9,644 | $ | 25,754 | $ | 257 | $ | - | $ | 35,655 | ||||||||||
Cash flow from investing activities: |
||||||||||||||||||||
Capital expenditures |
- | (19,659 | ) | - | - | (19,659 | ) | |||||||||||||
Proceeds from disposition of properties |
- | 10,619 | - | - | 10,619 | |||||||||||||||
Proceeds from sale of restricted investments |
- | 3,818 | - | - | 3,818 | |||||||||||||||
Purchase of restricted investments |
(3,815 | ) | (3,815 | ) | ||||||||||||||||
Collection of note receivable |
- | 1,500 | - | - | 1,500 | |||||||||||||||
Net cash used in investing activities |
- | (7,537 | ) | - | - | (7,537 | ) | |||||||||||||
Cash flow from financing activities: |
||||||||||||||||||||
Proceeds from stock options exercised, stock purchase plan and other, net |
3,251 | - | - | - | 3,251 | |||||||||||||||
Advances (to) from subsidiaries |
(10,460 | ) | 10,278 | 182 | - | - | ||||||||||||||
Repayment of long-term debt |
- | (9,500 | ) | - | - | (9,500 | ) | |||||||||||||
Net cash (used in) provided by financing activities |
(7,209) | 778 | 182 | - | (6,249) | |||||||||||||||
Change in cash and cash equivalents |
2,435 | 18,995 | 439 | - | 21,869 | |||||||||||||||
Cash and cash equivalents at beginning of period |
38,433 | 147,233 | 2,246 | - | 187,912 | |||||||||||||||
Cash and cash equivalents at end of period |
$ | 40,868 | $ | 166,228 | $ | 2,685 | $ | - | $ | 209,781 | ||||||||||
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Nine Months Ended November 28, 2009
(in thousands)
(unaudited)
Pier 1
Imports, Inc. |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Eliminations | Total | ||||||||||||||||
Cash flow from operating activities: |
||||||||||||||||||||
Net cash provided by (used in) operating activities |
$ | (38,808 | ) | $ | (7,562 | ) | $ | 1,577 | $ | - | $ | (44,793 | ) | |||||||
Cash flow from investing activities: |
||||||||||||||||||||
Capital expenditures |
- | (3,229 | ) | - | - | (3,229 | ) | |||||||||||||
Proceeds from disposition of properties |
- | 717 | - | - | 717 | |||||||||||||||
Proceeds from sale of restricted investments |
- | 3,440 | - | - | 3,440 | |||||||||||||||
Purchase of restricted investments |
(3,200 | ) | (3,200 | ) | ||||||||||||||||
Collection of note receivable |
- | 1,500 | - | - | 1,500 | |||||||||||||||
Net cash used in investing activities |
- | (772 | ) | - | - | (772 | ) | |||||||||||||
Cash flow from financing activities: |
||||||||||||||||||||
Proceeds from stock options exercised, stock purchase plan and other, net |
317 | - | - | - | 317 | |||||||||||||||
Cash dividends |
- | 3,000 | (3,000 | ) | - | - | ||||||||||||||
Debt issuance costs |
(1,738 | ) | (2,670 | ) | - | - | (4,408 | ) | ||||||||||||
Advances (to) from subsidiaries |
6,481 | (5,194 | ) | (1,287 | ) | - | - | |||||||||||||
Retirement of convertible bonds |
(4,753 | ) | - | (26,840 | ) | - | (31,593 | ) | ||||||||||||
Net cash provided by (used in) financing activities |
307 | (4,864 | ) | (31,127 | ) | - | (35,684 | ) | ||||||||||||
Change in cash and cash equivalents |
(38,501 | ) | (13,198 | ) | (29,550 | ) | - | (81,249 | ) | |||||||||||
Cash and cash equivalents at beginning of period |
61,648 | 62,399 | 31,751 | - | 155,798 | |||||||||||||||
Cash and cash equivalents at end of period |
$ | 23,147 | $ | 49,201 | $ | 2,201 | $ | - | $ | 74,549 | ||||||||||
Note 7 Defined benefit plans
The Company maintains supplemental retirement plans (the Plans) for certain of its executive officers. The Plans provide that upon death, disability, reaching retirement age, or certain termination events, a participant will receive benefits based on the participants highest compensation, years of service and years of plan participation. Benefit costs are determined using actuarial cost methods to estimate the total benefits ultimately payable to executive officers and this cost is allocated to the respective service periods.
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Plans are not funded and thus have no plan assets. The actuarial assumptions used to calculate benefit costs are reviewed annually, or in the event of a material change in the Plans or participation in the Plans. The components of net periodic benefit costs for the three and nine months ended November 27, 2010 and November 28, 2009 were as follows (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
November 27,
2010 |
November 28,
2009 |
November 27,
2010 |
November 28,
2009 |
|||||||||||||
Components of net periodic benefits cost: |
||||||||||||||||
Service cost |
$ | 290 | $ | 224 | $ | 832 | $ | 673 | ||||||||
Interest cost |
152 | 191 | 522 | 573 | ||||||||||||
Amortization of unrecognized prior service costs |
103 | 103 | 308 | 308 | ||||||||||||
Amortization of net actuarial loss |
41 | 5 | 66 | 15 | ||||||||||||
Settlement charge |
145 | - | 145 | 40 | ||||||||||||
Curtailment charge |
- | - | - | 353 | ||||||||||||
Net periodic benefit cost |
$ | 731 | $ | 523 | $ | 1,873 | $ | 1,962 | ||||||||
Note 8 Nonoperating income and expense
During the first quarter of the prior year, a foreign subsidiary of the Company purchased $78,941,000 of the Companys outstanding 6.375% Notes in privately negotiated transactions at a purchase price of $27,399,000, including accrued interest. The Company recognized a gain of $47,811,000 in connection with this transaction.
During the second quarter of the prior year, the Company entered into separate privately negotiated exchange agreements under which it retired $64,482,000 of the Companys outstanding 6.375% Notes. Under the exchange agreements, the exchanging holders received $61,255,000 in aggregate principal of the Companys new 9% convertible senior notes due 2036 (the 9% Notes). In addition to this exchange, the Company also purchased $5,000,000 of the outstanding 6.375% Notes for $4,750,000 in cash. The Company recognized a net gain of $1,843,000 related to these transactions during the second quarter of fiscal 2010.
During the third quarter of the prior year, all $61,255,000 of the Companys 9% Notes were voluntarily converted into shares of the Companys common stock. The Company incurred non-operating charges of $18,308,000 in connection with this voluntary conversion.
Other income during the first nine months of fiscal 2010 was primarily related to the recovery of $10,000,000 as a result of the settlement of a foreign litigation matter.
Note 9 Income taxes
The Company continues to provide a valuation allowance against all deferred tax assets. As a result, the Company did not record any significant current or deferred federal tax benefit or expense on its operations for the first nine months of fiscal 2011. Minimal provisions for state and foreign income tax were made during the period.
The Company recorded an income tax benefit of $55,595,000 during the third quarter of fiscal 2010 primarily as a result of the Worker, Homeownership and Business Assistance Act of 2009 . This new law allowed businesses with net operating losses incurred in either 2008 or 2009 to elect to carry back such losses up to five years. This benefit resulted from the reversal of approximately $56,000,000 of the Companys valuation allowance on its deferred tax asset for its net operating loss carryforwards that were allowed to be carried back under the new law.
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 10 Subsequent event
Subsequent to the quarter-end, the Company entered into a new private-label credit card program agreement (the Program Agreement) with Chase Bank USA, N.A. (Chase) which replaced the original private-label credit card agreement dated August 30, 2006 between the Company and Chase (the Original Agreement). The Program Agreement was effective January 1, 2011. The term of the Program Agreement is 18 months and the Company will continue to receive ongoing payments based on credit card sales.
The Original Agreement between the Company and Chase was terminated on December 31, 2010. As consideration for terminating the Original Agreement, the Company received a lump-sum payment from Chase on December 30, 2010 of $28,300,000 plus all remaining sums owed to the Company pursuant to the purchase and sale agreement between the parties dated August 30, 2006. The Company did not incur any penalties in connection with the termination of the agreement.
18
PART I
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
The following discussion and analysis of financial condition, results of operations, and liquidity and capital resources should be read in conjunction with the Companys consolidated financial statements as of February 27, 2010, 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 27, 2010.
Management Overview
Pier 1 Imports, Inc. (together with its consolidated subsidiaries, the Company) is a global importer and is one of North Americas largest specialty retailers of imported decorative home furnishings and gifts. The Company directly imports merchandise from many countries and sells a wide variety of decorative accessories, furniture collections, bed and bath products, candles, housewares, gifts and other seasonal assortments in its stores. The results of operations for the three and nine months ended November 27, 2010 and November 28, 2009 are not indicative of results to be expected for the fiscal year because of, among other things, seasonality factors in the retail business. Historically, the strongest sales of the Companys products have occurred during the holiday season beginning in November and continuing through December. The Company conducts business as one operating segment and operates stores in the United States and Canada under the name Pier 1 Imports. As of November 27, 2010, the Company operated 1,047 stores in the United States and Canada.
For the third quarter of fiscal 2011, the Company experienced net income for the fifth consecutive quarter, primarily as a result of an increase in comparable store sales, improved merchandise margins and controlled expenses.
Comparable store sales for the quarter and year-to-date periods grew 10.2% and 11.8%, respectively, which was attributable to increases in average ticket, conversion rate and traffic over last year. Sales per retail square foot were $163 for the trailing twelve months ended November 27, 2010, compared to $150 for the same period last year. Management believes that the Companys results will continue to improve as a result of its unique merchandise assortments, carefully managed cost base, the improved in-store experience and strong focus placed on the customer. In addition, the Company believes it has the right multi-channel marketing initiatives in place for the remainder of the fiscal year to continue to drive customers into its stores.
Merchandise margins improved to 58.9% of sales for the third quarter of fiscal 2011 and 58.6% for the year-to-date period, compared to 56.6% and 54.4% for the same respective periods in the prior year. The increases in merchandise margins were the result of reduced vendor and supply chain costs, well-managed inventory levels and decreased clearance activity. Management remains focused on maximizing margins through negotiating advantageous vendor costs and ensuring an efficient supply chain and related expenses. The Company expects merchandise margins to be at least 57% of sales for the fourth quarter of fiscal 2011.
Inventory was in line with the Companys expectations and was $338.4 million at the end of the third quarter, relatively flat compared to inventory at the end of the third quarter last year of $339.6 million. Management continues to strategically manage inventory purchases and monitor inventory levels to keep in line with consumer demand. The Company anticipates inventory levels at the end of fiscal 2011 to be near inventory levels at fiscal 2010 year end.
19
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. (continued) |
Store occupancy costs for the quarter were $64.4 million, or 18.2% of sales, a $0.8 million decrease compared to $65.2 million, or 19.9% of sales in the same quarter last year. Year-to-date, store occupancy costs were $195.9 million, or 20.2% of sales, compared to $200.2 million, or 22.4% of sales for the same period last year. This decrease was primarily attributable to the reduced store count since the end of the third quarter last year coupled with the benefit from favorable rent negotiations last year and approximately 125 additional lease renewals in the current year. The Company expects to close one store during the fourth quarter of fiscal 2011 to end the year with approximately 1,046 stores.
Marketing expenses increased $3.5 million for the quarter and $4.7 million for the year-to-date period compared to the same periods last year. In an effort to encourage both frequency and new visits to stores, the Companys marketing strategy for the fourth quarter includes radio and television advertising, online marketing, and expanding social media presence. The Companys current forecasted marketing spend is approximately $66.0 million for fiscal 2011.
Results of Operations
Management reviews a number of key performance indicators to evaluate the Companys financial performance. The following table summarizes those key performance indicators for the three and nine months ended November 27, 2010 and November 28, 2009:
Three Months Ended | Nine Months Ended | |||||||||||||||
November 27,
2010 |
November 28,
2009 |
November 27,
2010 |
November 28,
2009 |
|||||||||||||
Key Performance Indicators |
||||||||||||||||
Total sales growth (decline) |
8.2% | 8.7% | 8.4% | (3.9%) | ||||||||||||
Comparable stores sales growth (decline) |
10.2% | 13.7% | 11.8% | (0.6%) | ||||||||||||
Merchandise margins as a % of sales |
58.9% | 56.6% | 58.6% | 54.4% | ||||||||||||
Gross profit as a % of sales |
40.7% | 36.6% | 38.4% | 32.0% | ||||||||||||
Selling, general and administrative expenses as a % of sales |
33.2% | 34.1% | 32.3% | 34.4% | ||||||||||||
Operating income (loss) as a % of sales |
6.2% | 0.8% | 4.7% | (4.4%) | ||||||||||||
Net income as a % of sales (1) |
5.9% | 11.9% | 4.4% | 5.8% |
For the period ended | ||||||||
November 27,
2010 |
November 28,
2009 |
|||||||
Inventory per retail square foot |
$41 | $41 | ||||||
Sales per average retail square foot (2) |
$163 | $150 | ||||||
Total retail square footage (in thousands) |
8,238 | 8,329 | ||||||
Total retail square footage decline from the same period last year |
(1.1%) | (4.3%) |
(1) |
Net income for the nine months ended November 28, 2009 included a $10.0 million gain related to the recovery of a litigation settlement, a $49.7 million gain related to the Companys convertible debt transactions during the period, and an $18.3 million charge related to the Companys convertible debt transactions. |
(2) |
Sales per average retail square foot is calculated using a rolling 12-month total of store sales over a 13-month retail square footage weighted average. |
20
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. (continued) |
Net Sales Net sales consisted almost entirely of sales to retail customers, net of discounts and returns, but also included delivery service revenues and wholesale sales and royalties. Sales by retail concept during the period were as follows (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
November 27,
2010 |
November 28,
2009 |
November 27,
2010 |
November 28,
2009 |
|||||||||||||
Stores |
$ | 349,180 | $ | 323,490 | $ | 958,620 | $ | 886,275 | ||||||||
Other (1) |
4,579 | 3,585 | 11,267 | 8,603 | ||||||||||||
Net sales |
$ | 353,759 | $ | 327,075 | $ | 969,887 | $ | 894,878 | ||||||||
(1) |
Other sales consisted primarily of wholesale sales and royalties received from Grupo Sanborns, S.A. de C.V., and gift card breakage. |
Net sales for the third quarter of fiscal 2011 were $353.8 million, an increase of 8.2% or $26.7 million from last years third quarter net sales of $327.1 million. Net sales increased $75.0 million, or 8.4%, from $894.9 million to $969.9 million during the nine-month period ended November 27, 2010 when compared to the same period last year. Comparable store sales for the quarter and year-to-date periods increased 10.2% and 11.8%, respectively, which was attributable to increases in average ticket, conversion rate and traffic over last year. The Canadian dollar continued to strengthen compared to the U.S. dollar, contributing to an increase in comparable store sales by approximately 50 basis points for the quarter and 80 basis points year-to-date. Sales per retail square foot for the year-to-date period were $163 compared to $150 for the same period last year and $152 at the end of last fiscal year. The store count at the end of the third quarter of fiscal year 2011 was 1,047 compared to 1,059 at the same time last year.
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 28, 2009 |
$ | 894,878 | ||
Incremental sales growth (decline) from: |
||||
New stores opened during fiscal 2011 |
1,591 | |||
Comparable stores |
101,932 | |||
Closed stores and other |
(28,514 | ) | ||
Net sales for the nine months ended November 27, 2010 |
$ | 969,887 | ||
A summary reconciliation of the Companys stores open at the beginning of fiscal 2011 to the number open at the end of the third quarter follows:
United States | Canada | Total | ||||||||||
Open at February 27, 2010 |
973 | 81 | 1,054 | |||||||||
Openings |
3 | - | 3 | |||||||||
Closings |
(8 | ) | (2 | ) | (10 | ) | ||||||
Open at November 27, 2010 (1) |
968 | 79 | 1,047 | |||||||||
(1) |
The Company supplies merchandise and licenses the Pier 1 Imports name to Grupo Sanborns, S.A. de C.V., which sells Pier 1 Imports merchandise primarily in a store within a store format. At November 27, 2010, there were 37 locations in Mexico. These locations were excluded from the table above. |
21
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. (continued) |
Gross Profit Gross profit, which is calculated by deducting store occupancy costs from merchandise margin dollars, was 40.7% expressed as a percentage of sales for the third quarter of fiscal 2011 compared to 36.6% for the same period last year, a 410 basis point improvement. Year-to-date gross profit was 38.4% of sales, compared to 32.0% last year. Merchandise margins increased 230 basis points to 58.9% of sales for the third quarter and 420 basis points to 58.6% of sales for the nine-month period ended November 27, 2010, from the comparable periods a year ago. Reduced vendor and supply chain costs, well-managed inventory levels, and decreased clearance activity positively impacted merchandise margins compared to the same periods last year. Store occupancy costs for the quarter were $64.4 million, or 18.2% of sales, a $0.8 million decrease compared to $65.2 million, or 19.9% of sales in the same quarter last year. Year-to-date, store occupancy costs were $195.9 million, or 20.2% of sales compared to $200.2 million, or 22.4% of sales for the same period last year. This decrease was primarily attributable to the reduced store count since the end of the third quarter last year coupled with the benefit from favorable rent negotiations last year and approximately 125 additional lease renewals in the current year. Additionally, property taxes and insurance costs decreased when compared to the prior year, slightly offset by an increase in utility and maintenance costs.
Operating Expenses and Depreciation Selling, general and administrative expenses for the third quarter of fiscal 2011 were $117.5 million, or 33.2% of sales, an increase of $5.9 million from the same quarter last year. Year-to-date selling, general and administrative expenses were $312.9 million, or 32.3% of sales, an increase of $4.7 million. Selling, general and administrative expenses for the quarter and year-to-date periods included the charges summarized in the tables below (in thousands):
November 27, 2010 | November 28, 2009 |
Increase /
(Decrease) |
||||||||||||||||||
Quarter |
Expense | % of Sales | Expense | % of Sales | ||||||||||||||||
Store payroll |
$ | 56,909 | 16.1 | % | $ | 54,584 | 16.7 | % | $ | 2,325 | ||||||||||
Marketing |
23,579 | 6.7 | % | 20,116 | 6.2 | % | 3,463 | |||||||||||||
Store supplies, services and other |
6,034 | 1.7 | % | 6,903 | 2.1 | % | (869 | ) | ||||||||||||
Variable costs |
86,522 | 24.5 | % | 81,603 | 24.9 | % | 4,919 | |||||||||||||
Administrative payroll |
21,522 | 6.1 | % | 19,356 | 5.9 | % | 2,166 | |||||||||||||
Other relatively fixed expenses |
9,067 | 2.5 | % | 9,750 | 3.0 | % | (683 | ) | ||||||||||||
Relatively fixed costs |
30,589 | 8.6 | % | 29,106 | 8.9 | % | 1,483 | |||||||||||||
Lease termination costs and other |
413 | 0.1 | % | 911 | 0.3 | % | (498 | ) | ||||||||||||
Other charges |
413 | 0.1 | % | 911 | 0.3 | % | (498 | ) | ||||||||||||
$ | 117,524 | 33.2 | % | $ | 111,620 | 34.1 | % | $ | 5,904 | |||||||||||
22
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. (continued) |
November 27, 2010 | November 28, 2009 | Increase / | ||||||||||||||||||
Year-to-Date |
Expense | % of Sales | Expense | % of Sales | (Decrease) | |||||||||||||||
Store payroll |
$ | 159,867 | 16.5 | % | $ | 153,984 | 17.2 | % | $ | 5,883 | ||||||||||
Marketing |
47,289 | 4.9 | % | 42,602 | 4.8 | % | 4,687 | |||||||||||||
Store supplies, services and other |
18,453 | 1.9 | % | 21,339 | 2.4 | % | (2,886 | ) | ||||||||||||
Variable costs |
225,609 | 23.3 | % | 217,925 | 24.4 | % | 7,684 | |||||||||||||
Administrative payroll |
58,710 | 6.1 | % | 54,052 | 6.0 | % | 4,658 | |||||||||||||
Other relatively fixed expenses |
28,465 | 2.9 | % | 24,800 | 2.8 | % | 3,665 | |||||||||||||
Relatively fixed costs |
87,175 | 9.0 | % | 78,852 | 8.8 | % | 8,323 | |||||||||||||
Lease termination costs and other |
1,784 | 0.2 | % | 11,441 | 1.3 | % | (9,657 | ) | ||||||||||||
Gain on sale - Chicago distribution center |
(1,650 | ) | (0.2 | %) | - | 0.0 | % | (1,650 | ) | |||||||||||
Other charges |
134 | 0.0 | % | 11,441 | 1.3 | % | (11,307 | ) | ||||||||||||
$ | 312,918 | 32.3 | % | $ | 308,218 | 34.4 | % | $ | 4,700 | |||||||||||
Expenses that fluctuate proportionately with sales and number of stores, such as store payroll, marketing, store supplies and other related expenses, increased $4.9 million from the same quarter last year and $7.7 million year-to-date. Store payroll increased $2.3 million for the quarter and $5.9 million year-to-date primarily as a result of additional associate hours at the stores to accommodate the higher sales volume, increased state unemployment taxes, and increased store bonuses. Marketing expenditures increased $3.5 million for the quarter and $4.7 million year-to-date. Marketing expenses were $23.6 million, or 6.7% of sales for the third quarter and $47.3 million, or 4.9% of sales for the year-to-date period, primarily from an increase in television and radio advertising partially offset by a decrease in expenses associated with the reduction of retail event mailers and advertising in newspapers. Other variable expenses, primarily supplies and equipment rental, decreased $0.9 million from the same quarter last year and $2.9 million year-to-date from the same periods last year. The decreases in the quarter and year-to-date periods were primarily due to the purchase of point of sale equipment that was previously rented. This purchase resulted in a decrease in equipment rental expense for the Companys stores.
Relatively fixed selling, general and administrative expenses increased $1.5 million, but decreased 30 basis points as a percentage of sales, from the same quarter last year and increased $8.3 million, or 20 basis points as a percentage of sales, year-to-date from the same period as last year. Administrative payroll increased $2.2 million for the quarter and $4.7 million for the first nine months of fiscal 2011, primarily as a result of an increase in management bonus accrual, and a slight increase in salaries and benefits. All other relatively fixed expenses decreased $0.7 million for the quarter and increased $3.7 million for the year-to-date period. The increase for the year-to-date period was primarily related to favorable trends in the prior fiscal year for general insurance costs and foreign currency exchange rate gains that have not been repeated in the current fiscal year.
Lease termination costs and other expenses were $0.4 million for the quarter and $1.8 million for the year-to-date period, a decrease of $0.5 million and $9.7 million, respectively. These decreases were primarily the result of decreased activity in lease terminations and buyout agreements along with the closing of fewer stores this year compared to last year. In addition, during the first quarter of fiscal 2011, the Company sold its distribution center near Chicago and recorded a gain of approximately $1.6 million.
23
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. (continued) |
Depreciation and amortization expense for the third quarter and year-to-date periods was $4.7 million and $14.7 million, respectively, compared to $5.5 million and $17.3 million for the same periods last year. The decreases were primarily the result of certain assets becoming fully depreciated during fiscal 2010, coupled with store closures and minimal capital expenditures in fiscal years 2008 through 2010.
Operating income for the quarter was $21.9 million compared to $2.8 million for last years third quarter. For the year-to-date period, operating income totaled $45.3 million compared to a $39.2 million loss for the same period last year.
Nonoperating Income and Expense During the third quarter of fiscal 2011 nonoperating expense was $0.4 million, compared to $19.6 million for the same period in fiscal 2010, primarily as a result of $18.3 million in charges associated with the voluntary conversion of the Companys 9% convertible senior notes due 2036 during the third quarter of the prior year. Nonoperating expense year-to-date was $1.4 million, compared to nonoperating income of $36.0 million in the same period last year, which was primarily related to $49.7 million of gains related to repurchases and an exchange of a portion of the Companys 6.375% convertible senior notes due 2036 (the 6.375% Notes). In addition, the Company settled a lawsuit during the first nine months of fiscal 2010 and recorded a $10.0 million gain as a result of the recovery. These gains were partially offset by the $18.3 million in charges taken during fiscal 2010 on the voluntary conversion of the Companys debt as stated above.
Income Taxes The Company continues to provide a valuation allowance against all deferred tax assets. As a result no significant current or deferred federal tax benefit or expense was recorded on the results of the first nine months of fiscal 2011 and minimal state and foreign tax provisions were made during the period.
The Company recorded an income tax benefit of $55.6 million during the third quarter of fiscal 2010 primarily as a result of the Worker, Homeownership and Business Assistance Act of 2009 . This new law allowed businesses with net operating losses incurred in either 2008 or 2009 to elect to carry back such losses up to five years. This benefit resulted from the reversal of approximately $56.0 million of the Companys valuation allowance on its deferred tax asset for its net operating loss carryforwards that were allowed to be carried back under the new law.
Net Income During the third quarter of fiscal 2011, the Company recorded net income of $21.0 million, or $0.18 per share, compared to $38.8 million, or $0.37 per share, for the same period last year. Net income for the first nine months of fiscal 2011 was $43.1 million, or $0.37 per share, compared to $52.3 million, or $0.55 per share, for the first nine months of fiscal 2010.
Liquidity and Capital Resources
The Company ended the first nine months of fiscal 2011 with $209.8 million in cash and temporary investments compared to $74.5 million a year ago. Operating activities in the first nine months of fiscal 2011 provided $35.7 million of cash, primarily as the result of net income, which was partially offset by an increase in inventory and accounts receivable.
Inventory levels at the end of the third quarter of fiscal 2011 were $338.4 million, a decrease of $1.2 million or 0.3%, from the third quarter of fiscal 2010. Inventory levels increased $24.9 million, or 8.0%, from inventory levels at the end of fiscal 2010, primarily as a result of the Company building its inventories in preparation for the holiday selling season. Inventory per retail square foot at the end of the third quarter of fiscal 2011 was flat at $41 compared to the same period last year. The Company continues to focus on managing inventory levels and closely monitoring merchandise purchases to keep inventory in line with consumer demand. Current inventory levels are in line with the Companys plan for the fiscal year. The Company expects inventory to be near last years levels at the end of fiscal 2011.
24
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. (continued) |
During the first nine months of fiscal 2011, investing activities used $7.5 million compared to $0.8 million during the same period last year. Capital expenditures were $19.7 million in fiscal 2011 compared to $3.2 million in fiscal 2010, consisting primarily of $10.5 million for new and existing stores and $8.3 million for information systems enhancements. Capital expenditures for fiscal 2011 are expected to be approximately $35.0 million. Proceeds from the sale of the Companys distribution center near Chicago, Illinois during first quarter of fiscal 2011 provided $10.6 million.
Financing activities used $6.2 million, primarily related to the repayment of $9.5 million of industrial revenue bonds, partially offset by the exercises of employee stock options during the first nine months of fiscal 2011. During the same period last year, financing activities used $35.7 million, which was primarily the result of $36.0 million related to the Companys convertible debt transactions.
At the end of the third quarter, the Companys minimum operating lease commitments remaining for fiscal 2011 were $52.6 million. The present value of total existing minimum operating lease commitments discounted at 10% was $588.4 million at the fiscal 2011 third quarter end compared to $654.9 million at the fiscal 2010 third quarter end.
During the first nine months of fiscal 2011, the Company sold its distribution center near Chicago, Illinois for a purchase price of $11.8 million and recorded a gain of approximately $1.6 million related to this transaction. The Company repaid approximately $9.5 million of industrial revenue bonds related to the distribution center with proceeds received from the sale. As of November 27, 2010, the Company had $16.5 million classified as the current portion of long-term debt, which relates to the Companys 6.375% Notes. On December 20, 2010, subsequent to quarter-end, the Company called for redemption all of the remaining outstanding 6.375% Notes. The redemption date for all remaining 6.375% Notes outstanding is February 15, 2011.
The Companys bank facilities at the end of the third quarter of fiscal 2011 included a $300 million credit facility, expiring in May 2012, which is secured by the Companys eligible merchandise inventory and third-party credit card receivables. As of November 27, 2010, the Company had no cash borrowings and approximately $58.4 million in letters of credit and bankers acceptances outstanding. The calculated borrowing base was $279.3 million, of which $220.9 million was available for additional borrowings. As of the end of the third quarter of fiscal 2011, the Company was in compliance with all required covenants stated in the agreement.
Subsequent to the quarter-end, the Company received a lump-sum payment from Chase Bank USA, N.A. (Chase) on December 30, 2010 of $28.3 million plus all remaining sums owed to the Company pursuant to the purchase and sale agreement between the Company and Chase dated August 30, 2006. See Note 10 of the Notes to Consolidated Financial Statements for further discussion regarding this payment.
Working capital requirements are expected to be funded with cash from operations, available cash balances, and if required, borrowings against lines of credit. Given the Companys cash position and the various liquidity options available, the Company believes it has sufficient liquidity to fund operational obligations, capital expenditure requirements and the repayment of its debt.
25
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. (continued) |
Forward-looking Statements
Certain matters discussed in this quarterly report, except for historical information contained herein, may constitute forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The Company may also make forward-looking statements in other reports filed with the SEC and in material delivered to the 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 and closings, financing of Company obligations from operations, success of its marketing, merchandising and store operations strategies, and other future results are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. Risks and uncertainties that may affect Company operations and performance include, among others, the effects of terrorist attacks or other acts of war, conflicts or war involving the United States or its allies or trading partners, labor strikes, weather conditions or natural disasters, volatility of fuel and utility costs, the on-going recession and the actions taken by the United States and other countries to stimulate the economy or to prevent the worsening of the recession, the general strength of the economy and levels of consumer spending, consumer confidence, suitable store sites and distribution center locations, the availability of a qualified labor force and management, the availability and proper functioning of technology and communications systems supporting the 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 of acceptable quality to its U.S. distribution centers at reasonable prices and rates and in a timely fashion. The foregoing risks and uncertainties are in addition to others discussed elsewhere in this report which may also affect Company operations and performance. The Company assumes no obligation to update or otherwise revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied will not be realized. Additional information concerning these risks and uncertainties is contained in the Companys Annual Report on Form 10-K for the year ended February 27, 2010, as filed with the Securities and Exchange Commission.
Impact of Inflation
Inflation has not had a significant impact on the operations of the Company.
26
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 27, 2010.
Item 4. | Controls and Procedures. |
The Company maintains disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, (the Exchange Act), that are designed to ensure that information required to be disclosed by the Company in its reports filed or furnished under the Exchange Act is (a) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and that such information is (b) accumulated and communicated to the Companys management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding the required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, an evaluation was conducted under the supervision and with the participation of the 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 27, 2010. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded, with reasonable assurance, that the Companys disclosure controls and procedures were effective as of such date.
There has not been any 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
PART II
Item 1. | Legal Proceedings. |
The Company is a party to various legal proceedings and claims in the ordinary course of its business. The Company believes that the outcome of these matters will not have a material adverse effect on its consolidated financial position, results of operations or liquidity.
Item 1A. | Risk Factors. |
There are no material changes from risk factors previously disclosed in the Companys Annual Report on Form 10-K for the fiscal year ended February 27, 2010.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
There were no purchases of common stock of the Company made during the nine months ended November 27, 2010 by Pier 1 Imports, Inc. or any affiliated purchaser of Pier 1 Imports, Inc. as defined in Rule 10-b-18(a)(3) under the Securities Exchange Act of 1934.
Item 3. | Defaults upon Senior Securities. |
None.
27
Item 4. | Reserved. |
Item 5. | Other Information. |
Effective January 1, 2011, Pier 1 Imports, Inc. (the Company) established the Pier 1 Imports, Inc. Deferred Compensation Plan (the Plan). The Plan permits select members of management and highly compensated employees of the Companys affiliates to defer up to 50% of their compensation (generally W-2 earnings). The Companys named executive officers are eligible to participate in the Plan. A copy of the Plan is attached as Exhibit No. 10.2 to this Report on Form 10-Q. The following is a brief description of the material terms and conditions of the Plan.
Participants compensation deferrals and earnings on those deferrals are fully vested. The Companys matching contribution is (i) 100% of the first one percent of the participants compensation deferral, and (ii) 50% of the next four percent of the participants compensation deferral. Matching contributions are subject to the same vesting requirements as the Companys 401(k) retirement plan. The 401(k) plans vesting schedule is 20% per year of service (as defined in the plan) beginning with two years of service. Participants are fully vested in the Companys matching contributions plus earnings after six years of service with the Company.
Each participant may allocate their deferral amounts and Company matching contributions among a variety of different deemed investment crediting options. Subject to Plan rules, participants may elect to have their deferral account balance paid to them while employed or after separation from the Company. Vested matching account balances are distributed to participants only after separation from the Company.
The Pier 1 Umbrella Trust (the Trust) was amended effective January 1, 2011 to add the Plan to the Trust. A copy of this amendment is included as Exhibit No. 10.1 to this Report on Form 10-Q.
Effective with the commencement of the Plan, the Pier 1 Benefit Restoration Plan II will be closed to further contributions by participants pursuant to the terms of the amendment to such plan included as Exhibit No. 10.3 to this Report on Form 10-Q.
Item 6. | Exhibits. |
The Exhibit Index following the signature page to this Quarterly Report on Form 10-Q lists the exhibits furnished as required by Item 601 of Regulation S-K and is incorporated herein by reference.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PIER 1 IMPORTS, INC. (Registrant)
Date: |
January 4, 2011 |
By: |
/s/ Alexander W. Smith |
|||||
Alexander W. Smith, President and | ||||||||
Chief Executive Officer | ||||||||
Date: |
January 4, 2011 |
By: |
/s/ Charles H. Turner |
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Charles H. Turner, Executive Vice President and | ||||||||
Chief Financial Officer | ||||||||
Date: |
January 4, 2011 |
By: |
/s/ Laura A. Coffey |
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Laura A. Coffey, Principal Accounting Officer |
29
EXHIBIT INDEX
Exhibit No. |
Description |
|
3(i) | Restated Certificate of Incorporation of Pier 1 Imports, Inc. as filed with the Delaware Secretary of State on October 12, 2009, incorporated herein by reference to Exhibit 3(i) to the Companys Form 10-Q for the quarter ended November 28, 2009. | |
3(ii) | Amended and Restated Bylaws of Pier 1 Imports, Inc. (as amended through October 9, 2009), incorporated herein by reference to Exhibit 3(ii) to the Companys Form 8-K filed October 16, 2009. | |
10.1* | Pier 1 Umbrella Trust Amendment No. 2, effective January 1, 2011. | |
10.2* | Pier 1 Imports, Inc. Deferred Compensation Plan, effective January 1, 2011. | |
10.3* | Amendment No. 1, effective January 1, 2011, to Pier 1 Benefit Restoration Plan II, as amended and restated effective January 1, 2009. | |
10.4* | Pier 1 Imports Non-Employee Director Compensation Plan, as amended through October 8, 2010. | |
10.5** | Credit Card Program Agreement by and between Pier 1 Imports (U.S.), Inc. and Chase Bank USA, N.A., dated December 30, 2010, incorporated herein by reference to Exhibit 10.1 to the Companys Form 8-K filed on December 30, 2010. | |
31.1* | Certification of the Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a). | |
31.2* | Certification of the Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a). | |
32.1* | Section 1350 Certifications. |
* | Filed herewith |
** | Portions of this exhibit have been omitted pursuant to a request for confidential treatment. |
Exhibit 10.1
PIER 1 UMBRELLA TRUST
AMENDMENT NO. 2
This Amendment No.2 (Amendment) is made to the Pier 1 Umbrella Trust dated December 21, 2005 (the Trust Agreement) by and between Pier 1 Imports, Inc., Pier 1 Imports (U.S.), Inc., and Pier 1 Services Company on the one hand, and Wells Fargo Bank National Association, on the other hand. This Amendment No. 2 is made effective January 1, 2011.
RECITALS
This Amendment is entered into with reference to the following facts:
A. | The Trust Agreement may be amended pursuant to Section 7.02-1 without the Written Consent of Participants if such amendment will not have a material adverse effect on the rights of any Participant. |
B. | The Company and the Trustee now desire to amend the Trust Agreement to (i) cause an additional plan to become a Plan subject to the Trust Agreement, and (ii) establish a Subtrust for such Plan. |
AGREEMENT
The Company and the Trustee hereby agree:
1. | The Company and the Trustee incorporate the above recitals into this Amendment and affirm such recitals are true and correct. All capitalized terms used in this Amendment, unless specifically defined herein, have the same meanings attributed to them in the Trust Agreement. |
2. | Except as amended by this Amendment, the Trust Agreement remains unchanged and in full force and effect. If there is any conflict between the provisions of the Trust Agreement and the provisions of this Amendment, the provisions of this Amendment shall control. |
3. | Effective January 1, 2011, the Pier 1 Imports, Inc. Deferred Compensation Plan is hereby added as one of the Plans as set forth in the PREAMBLE to the Trust Agreement and is a Plan subject to the Trust Agreement. |
4. | Pursuant to Section 2.03-1 of the Trust Agreement, the Trustee will establish a Subtrust effective January 1, 2011 for the Pier 1 Imports, Inc. Deferred Compensation Plan. |
IN WITNESS WHEREOF, the Company and the Trustee have caused this Amendment No. 2 to be executed by their respective duly authorized officers effective January 1, 2011.
PIER 1 IMPORTS (U.S.), INC., | PIER 1 IMPORTS, INC., | |||||||
a Delaware corporation | a Delaware corporation | |||||||
By: |
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By: |
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Its: |
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Its: |
|
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Date: December 20, 2010 | Date: December 20, 2010 | |||||||
TRUSTEE: | ||||||||
PIER 1 SERVICES COMPANY, | WELLS FARGO BANK NATIONAL | |||||||
a Delaware statutory trust | ASSOCIATION | |||||||
By: Pier 1 Holdings, Inc., | ||||||||
Its Managing Trustee | ||||||||
By: |
|
By: |
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Its: |
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Its: |
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Date: December 20, 2010 | Date: December 20, 2010 |
Exhibit 10.2
PIER 1 IMPORTS, INC.
DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 2011
TABLE OF CONTENTS
Page | ||||||
ARTICLE I | TITLE AND EFFECTIVE DATE OF THE PLAN | 1 | ||||
ARTICLE II | DEFINITIONS AND CONSTRUCTION OF THE PLAN DOCUMENTS | 1 | ||||
ARTICLE III | ELIGIBILITY | 4 | ||||
ARTICLE IV | PARTICIPANT DEFERRALS | 4 | ||||
ARTICLE V | COMPANY CONTRIBUTIONS | 6 | ||||
ARTICLE VI | ACCOUNTS | 7 | ||||
ARTICLE VII | DISTRIBUTIONS | 8 | ||||
ARTICLE VIII | BENEFICIARY | 13 | ||||
ARTICLE IX | ADMINISTRATION OF THE PLAN | 13 | ||||
ARTICLE X | CLAIMS PROCEDURE | 14 | ||||
ARTICLE XI | NATURE OF COMPANYS OBLIGATION | 14 | ||||
ARTICLE XII | MISCELLANEOUS | 15 |
-i-
PIER 1 IMPORTS, INC.
DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 2011
This Pier 1 Imports, Inc. Deferred Compensation Plan is established effective as of January 1, 2011, by Pier 1 Imports, Inc. (the Company). The purpose of the Pier 1 Imports, Inc. Deferred Compensation Plan is to permit select members of management and highly compensated employees of the Company to defer current compensation.
ARTICLE I
TITLE AND EFFECTIVE DATE OF THE PLAN
Section 1.01 Title. This Plan shall be known as the Pier 1 Imports, Inc. Deferred Compensation Plan (hereinafter referred to as the Plan).
Section 1.02 Effective Date. The effective date of this Plan is January 1, 2011.
ARTICLE II
DEFINITIONS AND CONSTRUCTION OF THE PLAN DOCUMENTS
As used herein, the following words and phrases shall have the meanings specified below unless a different meaning is clearly required by the context:
Section 2.01 Aggregate Account. Aggregate Account is the account described in Article VI as a bookkeeping record for each Participant of this Plan. A Participants Aggregate Account shall consist of the sum or aggregate of the Annual Accounts on any day beginning January 1, 2011. A Participants Aggregate Account may, at the discretion of the Company, include one or more sub-accounts, including but not limited to the Annual Accounts, to reflect the amounts credited to a Participant under the various terms of this Plan.
Section 2.02 Annual Account. Annual Account shall mean a bookkeeping account maintained for a Participant for each Plan Year the Participant elects Deferrals in which such Deferrals, the related Deferral Match and earnings thereon are credited. A Participants Annual Account for each Plan Year may, at the discretion of the Company, include one or more sub-accounts, including but not limited to Deferral Sub-Account and Match Sub-Account (as defined in Section 6.01), to reflect the amounts credited to a Participant under various terms of the Plan.
Section 2.03 Annual Bonus. Annual Bonus shall mean for each Plan Year, the amount of annual bonus earned by an Executive Participant in the Fiscal Year commencing in such Plan Year, but which is otherwise paid in the following Plan Year. Annual Bonus shall only include the Company home office annual bonus, the Company regional manager annual bonus, the Company distribution center annual bonus, and any other annual Fiscal Year bonus designated by the Committee.
Section 2.04 Annual Retainer. Annual Retainer shall mean the cash retainer paid to a Director Participant during a Plan Year, including any committee chair retainer and chairman of the board retainer.
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Section 2.05 Base Salary. Base Salary shall mean the base pay paid to an Executive Participant in a Plan Year including the compensation paid under the following Company payroll codes which are typically included in the calculation of base pay: bereavement, floating holiday, holiday pay, jury duty, time off, regular pay, retro pay, sick pay, and vacation pay. No other forms of compensation shall be included in the definition of Base Salary.
Section 2.06 Beneficiary. Beneficiary shall mean the person or persons designated by a Participant as being entitled to receive any benefits under this Plan.
Section 2.07 Board of Directors. The term Board of Directors shall mean the Board of Directors of Pier 1 Imports, Inc.
Section 2.08 Code. Code shall mean the Internal Revenue Code of 1986, as amended.
Section 2.09 Committee. Committee means the Compensation Committee of the Board of Directors of Pier 1 Imports, Inc. or such other committee as may be designated by such Board of Directors or the Compensation Committee of such board. The Committee shall be the plan administrator for purposes of ERISA and shall manage and administer the Plan in accordance with this document, except for the administrative functions required to be performed by the Company as set forth in this document.
Section 2.10 Company. Company shall mean and include Pier 1 Imports, Inc. and/or Related Employers, as such terms are defined in the Pier 1 Associates 401(k) Plan.
Section 2.11 Deferral Agreement. Deferral Agreement means the written or electronic form of agreement referred to in Section 3.02 hereof which is prescribed by the Company and submitted by a Participant to the Company before the relevant Election Date.
Section 2.12 Deferral Match. Deferral Match shall mean the Companys matching contribution described in Section 5.01.
Section 2.13 Deferrals. Deferrals shall mean the amounts deferred pursuant to Sections 4.01, 4.02, 4.03 and 4.04.
Section 2.14 Director Participant. Director Participant shall mean a Non-Employee Director who is participating in the Plan within the meaning of Article III hereof.
Section 2.15 Discretionary Contribution. Discretionary Contribution shall have the meaning set forth in Section 5.03.
Section 2.16 Election Date. The Election Date is the date established by the Company as the date on or before which an Executive or a Non-Employee Director must submit a valid Deferral Agreement to the Company. The applicable Election Dates for an Executive, who has been designated by the Company as eligible to participate in the Plan, or a Non-Employee Director are as follows: (i) for the first Plan Year commencing January 1, 2011, the Election Date is December 31, 2010, (ii) in the case of the first Plan Year in which an Executive or a Non-Employee Director initially becomes eligible to participate in the Plan during the Plan Year, a date which is no later than the thirtieth (30th) day immediately following the date the Executive or a Non-Employee Director initially became eligible to participate in the Plan, and (iii) for any Plan Year following the first Plan Year in which an Executive or a Non-Employee Director becomes eligible to participate in the Plan, December 31 of the immediately preceding Plan Year. For purposes of the preceding sentence:
(1) A Participant who terminates employment with the Company and who is thereafter reemployed by the Company and designated upon such reemployment or thereafter as eligible to participate in the Plan shall upon such designation be deemed to be initially eligible to participate in the Plan;
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Effective January 1, 2011
(2) A Participant to whom paragraph (1) does not apply who voluntarily suspends his deferrals under the Plan and who thereafter desires to resume such deferrals shall not be deemed to be initially eligible to participate in the Plan;
(3) A Participant who ceases to be eligible to participate in the Plan for any reason but who remains employed with the Company and thereafter again becomes eligible to participate in the Plan shall not be deemed to be initially eligible to participate in the Plan; and
(4) For the Plan Year commencing January 1, 2011, clause (ii) above shall not apply to any Executive or Non-Employee Director who is eligible to participate in the Plan as of January 1, 2011.
Section 2.17 ERISA. ERISA means the Employee Retirement Income Security Act of 1974, as amended.
Section 2.18 Executive. Executive shall mean any management employee or highly compensated employee of the Company.
Section 2.19 Executive Participant. Executive Participant shall mean an Executive who is participating in the Plan within the meaning of Article III hereof.
Section 2.20 Fiscal Year. Fiscal Year shall mean the Companys fiscal year.
Section 2.21 401(k) Plan. 401(k) Plan shall mean the Pier 1 Associates 401(k) Plan, as it shall be amended from time to time.
Section 2.22 Non-Employee Director. Non-Employee Director shall mean a member of the Board of Directors who is not an employee of the Company.
Section 2.23 Participant. Participant means an Executive Participant and a Director Participant.
Section 2.24 Plan. Plan means this Pier 1 Imports, Inc. Deferred Compensation Plan described in this document, as amended from time to time.
Section 2.25 Plan Year. The Plan Year is the calendar year.
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Section 2.26 Quarterly Bonus. Quarterly Bonus shall mean for each Plan Year, the amount of quarterly bonus earned by an Executive Participant in the Fiscal Year commencing in such Plan Year, which includes the last Quarterly Bonus for a Fiscal Year which is otherwise paid in the following Plan Year. A Quarterly Bonus shall only include the Company home office quarterly bonus, the Company regional manager and/or multi-manager quarterly bonus, the Company distribution center quarterly bonus, and any other Fiscal Year quarterly bonus designated by the Committee.
Section 2.27 Taxable Year. Taxable Year shall mean a twelve (12) consecutive month period beginning January 1 and ending December 31.
Section 2.28 Vested Deferral Match. Vested Deferral Match has the meaning set forth in Section 5.02.
Section 2.29 Vested Discretionary Contribution. Vested Discretionary Contribution shall have the meaning set forth in Section 5.04.
ARTICLE III
ELIGIBILITY
Section 3.01 Eligibility. Each Non-Employee Director shall be eligible for participation in this Plan. An Executives eligibility for participation in this Plan shall be determined with respect to each Plan Year by the Company, in its sole discretion; provided, however, that no Executive shall be selected for participation in this Plan unless he qualifies as a member of a select group of management or as a highly compensated employee of the Company within the meaning of Section 201(2) of ERISA, and such Executive has met the eligibility service requirement of the 401(k) Plan.
Section 3.02 Participation. To become a Participant, each Executive, after having been notified by the Company that he is eligible for participation and each Non-Employee Director shall complete and timely submit to the Company a Deferral Agreement. No Deferral Agreement shall be effective before acceptance by the Company.
Section 3.03 Subsequent Eligibility. If deferrals are stopped for any reason, such Participant shall lose his eligibility for deferral election in this Plan until (i) for a Non-Employee Director, the next immediately following Election Date, and (ii) for an Executive, he is again selected by the Company pursuant to Section 3.01 hereof.
ARTICLE IV
PARTICIPANT DEFERRALS
Section 4.01 Base Salary Deferral. Through the timely submission to the Company of a Deferral Agreement no later than the Election Date, an Executive Participant may irrevocably defer the receipt of a whole percentage of Base Salary otherwise payable to the Executive Participant beginning with the first full payroll period beginning in the following Plan Year [or the first full payroll period beginning after an Election Date under Section 2.16(ii)] and ending with the last full payroll period beginning in the following Plan Year [or the last full payroll period beginning in the Plan Year of an Election Date under Section 2.16(ii)]. The whole percentage of Base Salary deferred may not exceed fifty percent (50%) of the Executive Participants Base Salary for the payroll periods described in the previous sentence occurring in the applicable Plan Year. Amounts so deferred shall be credited to such Executive Participants Annual Account as described in Section 6.01.
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Section 4.02 Annual Bonus Deferral. Through the timely submission to the Company of a Deferral Agreement no later than the Election Date, an Executive Participant may irrevocably defer the receipt of a whole percentage of Annual Bonus otherwise payable to the Executive Participant in the future. The whole percentage of Annual Bonus deferred may not exceed fifty percent (50%) of the Executive Participants Annual Bonus earned during the Fiscal Year commencing in the Plan Year following the submission of the Deferral Agreement. Amounts so deferred shall be credited to such Executive Participants Annual Account as described in Section 6.01.
Section 4.03 Quarterly Bonus Deferral. Through the timely submission to the Company of a Deferral Agreement no later than the Election Date, an Executive Participant may irrevocably defer the receipt of a whole percentage of Quarterly Bonus otherwise payable to the Executive Participant in the future. The whole percentage of Quarterly Bonus deferred may not exceed fifty percent (50%) of the Executive Participants Quarterly Bonus earned during the Fiscal Year commencing in the Plan Year following the submission of the Deferral Agreement. Amounts so deferred shall be credited to such Executive Participants Annual Account as described in Section 6.01.
Section 4.04 Annual Retainer Deferral. Through the timely submission to the Company of a Deferral Agreement no later than the Election Date, a Director Participant may irrevocably defer the receipt of a whole percentage of Annual Retainer otherwise payable to the Director Participant in the future for services that have yet to be rendered. The whole percentage of Annual Retainer deferred may not exceed one hundred percent (100%) of the Director Participants Annual Retainer earned in such following Plan Year. Amounts so deferred shall be credited to such Director Participants Annual Account as described in Section 6.01.
Section 4.05 Deferral Agreement. To make an effective deferral under the Plan, an Executive selected to participate in the Plan pursuant to Section 3.02 and a Non-Employee Director must submit a Deferral Agreement to the Company on or before the applicable Election Date. A valid Deferral Agreement submitted on or before the applicable Election Date shall cause a portion of an Executive Participants Base Salary, Annual Bonus, or Quarterly Bonus, or a Non-Employee Directors Annual Retainer (as applicable) to be deferred. An Executive who has been selected to participate in the Plan pursuant to Section 3.02 or a Non-Employee Director, each of whom declines to participate at that time, may thereafter submit a Deferral Agreement to the Company for a subsequent Plan Year provided that he is still eligible for Plan participation for that Plan Year and provided that such agreement is submitted prior to the applicable Election Date. Such subsequent Deferral Agreement shall cause Base Salary, Annual Bonus, Quarterly Bonus or an Annual Retainer (as applicable) to be deferred. In no event, however, may a Deferral Agreement provide for the deferral of Base Salary, an Annual Bonus, Quarterly Bonus or Annual Retainer that has been earned as of the date the Deferral Agreement is executed by the Participant.
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Section 4.06 Duration of a Deferral Agreement. A Deferral Agreement is only in effect for the deferral of Base Salary and Annual Retainer earned in the applicable Plan Year and the Annual Bonus and Quarterly Bonus earned in the Fiscal Year commencing in the applicable Plan Year. The Deferral Agreement does not apply to any other Deferrals, and a new Deferral Agreement must be completed to defer a Base Salary, Annual Bonus, Quarterly Bonus and Annual Retainer for any subsequent Plan Year.
Section 4.07 Deferral Agreement Changes. Once a Deferral Agreement is complete for a Plan Year and submitted to the Company on or before the applicable Election Date for a Plan Year, a Participant may elect by the submission of another Deferral Agreement to the Company to stop, increase or decrease the amount of Deferrals for such Plan Year provided that the change in Deferrals is submitted on or before the applicable Election Date for such Plan Year.
Section 4.08 Change in Employment Status. Deferrals shall stop for any Executive Participant who has a change in employment status and continuation of his deferrals would cause this Plan to cease to be a plan which covers a select group of management or highly compensated employees within the meaning of Section 201(2) of ERISA.
Section 4.09 Nonforfeitable Right to Deferral Sub-Account. Each Participant shall have a one hundred percent (100%) nonforfeitable and vested right to the value of each Deferral Sub-Account attributable to his Deferrals under Sections 4.01, 4.02, 4.03 and 4.04, and the earnings on such accounts under Section 6.03.
ARTICLE V
COMPANY CONTRIBUTIONS
Section 5.01 Company Matching Contribution. With respect to each Deferral made under Sections 4.01, 4.02 and 4.03, the Company shall credit to an Executive Participants Annual Account an additional amount equal to the sum of (i) one hundred percent (100%) of the first one percent (1%) of an Executive Participants elected Deferral of each of Base Salary, Annual Bonus or Quarterly Bonus (as applicable), and (ii) fifty percent (50%) of the next four percent (4%) of an Executive Participants elected Deferral of each of Base Salary, Annual Bonus or Quarterly Bonus (as applicable). The foregoing amounts shall be credited to such Executive Participants Annual Account for each Plan Year as set forth in Section 6.01 below. Director Participants shall not receive Company matching contributions. The Company matching contributions which are described in this Section are referred to herein as the Deferral Match.
Section 5.02 Vesting of Deferral Match. An Executive Participant is vested (that is, the whole or portion of the Deferral Match becomes nonforfeitable) in any Deferral Match arising under Section 5.01 of this Plan (plus earnings thereon pursuant to Section 6.03) according to the provisions of the 401(k) Plan that are applicable to the vesting of Company matching contributions under such 401(k) Plan, irrespective of whether a Participant is actually participating in the 401(k) Plan. The portion of an Executive Participants Deferral Match which is vested shall be referred to herein as the Vested Deferral Match.
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Section 5.03 Company Discretionary Contribution. The Company may credit to an Executive Participants Annual Account an amount as it determines in its sole and complete discretion. The foregoing amounts shall be credited to such Executive Participants Annual Account for each Plan Year as set forth in Section 6.01 below. The Company discretionary contributions which are described in this Section are referred to herein as the Discretionary Contributions.
Section 5.04 Vested Discretionary Contributions. An Executive Participant is vested in any Discretionary Contribution arising under Section 5.03 of this Plan (plus earnings thereon pursuant to Section 6.03) in accordance with a vesting schedule, which could be time based, performance based, or both, as determined by the Company in its complete and sole discretion at the time a Discretionary Contribution is credited to an Executive Participants Annual Account for a Plan Year. If vesting is time based, then no vesting (whether in whole or in part) can occur for a period of twelve (12) months from the date the Discretionary Contribution is credited to the Executive Participants Annual Account as provided in Section 6.01. If vesting is performance based, then the performance period cannot end on or before the date that is the six month anniversary of the date the Discretionary Contribution is credited to the Executive Participants Annual Account. The Company Discretionary Contribution which is vested shall be referred to herein as the Vested Discretionary Contribution.
ARTICLE VI
ACCOUNTS
Section 6.01 Annual Accounts. For each Plan Year, an Annual Account shall be established for each Participant to which Deferrals shall be credited to such Annual Account on the date such Deferrals are made. Annual Bonus Deferrals and Fiscal Year end Quarterly Bonus Deferrals shall be credited to the Annual Account for a Plan Year which is immediately prior to the Plan Year in which such bonuses are paid. A Deferral Match shall be credited to such Annual Account on the same date the related Deferral is credited to such Annual Account. A Discretionary Contribution shall be credited to such Annual Account as determined by the Company in its sole and complete discretion. Within each Annual Account may be (i) a Deferral Sub-Account in which all Deferrals for a Plan Year and any earnings thereon as set forth below in Section 6.03, shall be credited, (ii) a Match Sub-Account in which the Deferral Match for a Plan Year, and earnings thereon as set forth below in Section 6.03, shall be credited, (iii) a Discretionary Contribution Sub-Account in which Discretionary Contributions for a Plan Year, and earnings thereon as set forth below in Section 6.03, shall be credited, and (iv) other sub-account(s) as determined by the Company.
Section 6.02 Investment. A Participants Aggregate Account will be treated as having been directed by the Participant into various investment options selected by the Committee. Investment options might include different levels of risk and return such as, but not limited to, equity funds, balanced funds, bond funds, money market funds, and fixed interest accounts. Allocation of investment options shall be made in increments of not less than 1% of a Participants Annual Account. Participants may either allocate investment options in each of their Annual Accounts or allocate investment options in their Aggregate Account. Participants may re-direct investments in the various investment options daily. The Committee has the authority to select, add or remove investment options as it determines in its sole discretion.
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Section 6.03 Earnings. A Participants Deferral Sub-Account, Match Sub-Account and Discretionary Contribution Sub-Account shall include investment gains and losses accrued with respect to the investment options chosen by a Participant as set forth in Section 6.02 above. Such investment gains and losses shall be credited to the Participants Deferral Sub-Account, Match Sub-Account and a Discretionary Contribution Sub-Account (which will cause them to be credited to the Participants Annual Account and Aggregate Account) and shall be utilized solely as a benchmarking or indexing device for the measurement and determination of the amounts to be paid a Participant under this Plan. A Participant shall have no ownership interest in any investment option.
ARTICLE VII
DISTRIBUTIONS
Section 7.01 Distributions from the Deferral Sub-Account While Employed or While a Member of the Board of Directors. In addition to providing for a Deferral election for a Plan Year, a Deferral Agreement shall contain provisions allowing a Participant to designate a date or dates of payment(s) of the Deferral Sub-Account (not the Match Sub-Account) for such Plan Year as follows:
(a) If a Participant elects a Deferral under a Deferral Agreement for a Plan Year, and the percentage of Base Salary deferred by an Executive Participant is less than 5% or, in the case of a Director Participant, the percentage of Annual Retainer deferred by the Director Participant is less than 5%, then the Participant (in his Deferral Agreement) may elect a lump sum, cash distribution of such Plan Years Deferral Sub-Account to be paid in March of a Taxable Year elected by the Participant in his Deferral Agreement, provided that the Taxable Year elected can be no earlier than three (3) years from the last day of the Plan Year for which the Deferrals are credited to the Participants Annual Account.
(b) If a Participant elects a Deferral under a Deferral Agreement for a Plan Year, and the percentage of Base Salary deferred by an Executive Participant is equal to or greater than 5%, or in the case of a Director Participant, the percentage of Annual Retainer deferred by the Director Participant is equal to or greater than 5%, then the Participant (in his Deferral Agreement) may:
(i) elect a lump sum, cash distribution of such Plan Years Deferral Sub-Account to be paid in March of a Taxable Year elected by the Participant in his Deferral Agreement, provided that the Taxable Year elected can be no earlier than three (3) years from the last day of the Plan Year for which the Deferrals are credited to the Participants Annual Account, or
(ii) elect an annual installment distribution in an annual amount as calculated under Section 7.01(c) below over a period not to exceed five (5) Taxable Years of such Plan Years Deferral Sub-Account to be paid in March of each Taxable Year, provided that the Taxable Year of the first annual installment can be no earlier than three (3) years from the last day of Plan Year for which the Deferrals are credited to the Participants Annual Account.
(c) The amount to be distributed as set forth in this Section 7.01 is based on the value of Plan Years Deferral Sub-Account on the last business day in February of the Taxable Year in which a distribution is to be made under Section 7.01(a) and (b)(i) above or in which a distribution is to commence under Section 7.01(b)(ii). Each installment to be paid under Section 7.01(b)(ii) shall be equal to the value of the Plan Years Deferral Sub-Account on the last day in February of the Taxable Year in which an installment payment is due divided by the number of installments remaining to be paid.
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Section 7.02 Distributions from the Discretionary Contribution Sub-Account While Employed. Upon the Company notifying an Executive Participant that it intends to credit his Annual Account with a Discretionary Contribution, an Executive Participant may elect a lump-sum cash payment to be made within thirty (30) days of each vesting date as determined by the Company upon the crediting of a Discretionary Contribution as set forth in Section 5.03, of all or a portion of the Discretionary Contribution, plus earnings thereon, which becomes vested on such vesting date, provided that the Executive Participant is employed by the Company on such payment date.
Section 7.03 Distributions Upon Termination of Employment or Service Other than Death. To the extent a Participant has not made an election pursuant to and in accordance with Sections 7.05 and 7.06, then upon the termination of a Participants employment with the Company or service as a member of the Board of Directors for any reason other than death, the Participants vested portion of his Aggregate Account balance, valued as of the last business day of the month in which the Participants employment or service as a member of the Board of Directors ends, shall be paid to him in a lump sum, cash payment, except as set forth in Section 7.08, no later than ninety (90) days following a Participants termination of employment or end of service and the non-vested portion of such Aggregate Account balance (the non-vested Deferral Match and Discretionary Contribution) plus earnings/losses accrued on such amount, if any, shall be forfeited. Any installment payments that have commenced under Section 7.01(b)(ii) or Section 7.06 shall cease and the outstanding balance of the remaining installments shall be included in the Participants Aggregate Account balance to be distributed in lump sum as stated in the previous sentence. For purposes of the Plan, a Participant will only be deemed to have terminated employment or service with the Company if the facts and circumstances are such that he has had a separation from service with the Company pursuant to Code Section 409A(a)(2)(A)(i) and the regulations issued thereunder. In no event shall a Participant be permitted directly or indirectly to designate the Taxable Year of payment of such benefit.
Section 7.04 Distributions Upon the Death of a Participant. If a Participant dies while employed by the Company or while serving as a member of the Board of Directors, the Participants Aggregate Account (including any un-vested Deferral Match and Discretionary Contribution), valued as of the last business day of the month in which the Participants death occurred, shall be paid to his Beneficiary in a lump sum, cash payment no later than ninety (90) days following the Participants death. Any installment payments that have commenced under Section 7.01(b)(ii) or Section 7.06 shall cease and the outstanding balance of the remaining installments shall be included in the Participants Aggregate Account balance to be distributed in lump sum as stated in the previous sentence. If a Participant dies after he is no longer employed by or in the service of the Company, but is receiving installment payments under Section 7.05, all installment payments shall cease, the remaining installments shall be included in the Participants Aggregate Account balance and the Participants Aggregate Account, valued as of the last business day of the month in which the Participants death occurred, shall be paid to his Beneficiary in a lump sum, cash payment no later than ninety (90) days following the Participants death. With respect to the prior sentence, because the Participants employment or service with the Company had previously terminated, his Aggregate Account shall not include any previously forfeited un-vested Deferral Match and Discretionary Contribution and earnings thereon. In no event shall a Beneficiary be permitted directly or indirectly to designate the Taxable Year of the lump sum, cash payment described in this Section.
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Section 7.05 Installment Form of Distribution of Vested Annual Accounts Upon Termination of Employment or Service Other than Death. A Participant may elect for each Plan Year in his Deferral Agreement to receive his vested Annual Account for such Plan Year as of the date of the Participants termination of employment with the Company or service as a member of the Board of Directors for any reason other than death paid to him upon such termination in annual installments over a period of not to exceed five (5) Taxable Years. The first installment shall be an amount equal to the value of his vested Annual Account as of the last business day of the month in which the termination of employment or service occurs divided by the number of annual installments elected and such first installment shall be paid within ninety (90) days of the date of such termination of employment or service with the Company (except as set forth in Section 7.08). The next installment will be paid in March of the Taxable Year following the Taxable Year in which the first installment is paid and such remaining installments (if any) shall be paid in each March of each Taxable Year thereafter. Each installment, other than the first installment, shall be equal to the value of a Participants Annual Account as of the last business day in February of a Taxable Year in which a March installment payment is to be made divided by the number of installments remaining to be paid. The distribution of a Participants vested Annual Account as stated in this Section is conditioned upon the following occurring as of the date of termination:
(a) Such Participant has attained the age of fifty-five (55) as of the date of his termination of employment or service with the Company; and
(b) Such Participant is fully vested in his Annual Account as of the date of his termination of employment with the Company.
If either of the conditions stated in (a) or (b) above are not satisfied, then the Participant shall be paid his vested Aggregate Account in accordance with Section 7.03 above. If a Participant satisfies the conditions in (a) and (b) above, then the balance in each Annual Account for which he elected an installment payment in his Deferral Agreement shall be paid in the installments he so elected to be paid upon termination of employment or service. Any installment payments that have commenced under Section 7.01(b)(ii) or Section 7.06 shall cease, and such remaining installments shall be included in the Participants appropriate Annual Account. The amount to be paid each March shall be the sum of all installments due from each Annual Account as elected by a Participant in his Deferral Agreement. Those Annual Accounts for which no such election was made or were elected to be paid in lump sum shall be aggregated and paid in accordance with Section 7.03.
Notwithstanding the foregoing, the payment of any installments by the Company under this Section is subject to Section 7.10.
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Section 7.06 Modification of Distribution Elections. For any distribution elected in Sections 7.01 or 7.05 and for any distribution that is to occur under Section 7.03, a new distribution election may be made under a subsequent Deferral Agreement submitted to the Company provided that such new distribution election must comply with Section 7.01 if it is a distribution from the Deferral Sub-Account and Section 7.03 and 7.05 if it is a distribution upon termination of employment with the Company or service as a member of the Board of Directors other than for the death of the Participant. However, a distribution election with respect to amounts previously credited to a Participants Annual Account may only be changed under the terms and conditions specified in Code Section 409A. Except as expressly provided in Section 7.04, no acceleration of a distribution is permitted. A subsequent election that delays payment or changes the form of payment shall be permitted if and only if all of the following requirements are met:
(1) the new election does not take effect until at least twelve (12) months after the date on which the new election is made;
(2) in the case of payments made for a reason other than death, the new election delays payment for at least five (5) years from the date that payment would otherwise have been made, absent the new election; and
(3) in the case of payments made pursuant to Section 7.01, the new election is made not less than twelve (12) months before the date on which payment would have been made (or, in the case of installment payments, the first installment payment would have been made) absent the new election.
For purposes of application of the above change limitations, installment payments shall be treated as a single payment and only one change shall be allowed to be made by a Participant with respect to form of benefits to be received by such Participant under Sections 7.01, 7.03 and Section 7.05. Election changes made pursuant to this Section shall be made in accordance with rules established by the Company, and shall comply with all requirements of Code Section 409A and applicable authorities.
Notwithstanding the foregoing, the payment of any installments by the Company under this Section is subject to Section 7.10.
Section 7.07 Loans. No loans to Participants of amounts in a Participants Account shall be permitted.
Section 7.08 Key Employee Distributions. Notwithstanding any other provisions of this Article VII, in the case of any Participant who is a specified employee as such term is defined in Section 409A(a)(2)(B)(i) of the Code and the regulations issued thereunder, no distribution, whether a lump sum payment or an installment payment, may be made from the Plan to such Participant as a result of his separation from service with the Company for reasons other than by death before the date which is six (6) months after the date of such separation from service (or, if earlier, the date of death of the Participant following such separation from service). Any amounts that would have otherwise been payable during such six (6) month period shall be accumulated and paid on the earliest date on which they may be paid under this Section.
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Section 7.09 Hardship Withdrawals. A Participant who has incurred an unforeseeable emergency (as hereinafter described) may, with the consent of the Company in its sole discretion, withdraw from his vested Aggregate Account an amount not in excess of the amount necessary to satisfy such emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, which maximum amount shall be determined after taking into account the extent to which such hardship is or may be relieved through reimbursement of compensation by insurance or otherwise or by liquidation of the Participants assets (to the extent that the liquidation of such assets would not itself cause severe financial hardship). Any such withdrawal may be requested by submitting a written request to the Company which shall include such information as the Company may request in order to determine if the requirements described in this Section 7.09 are satisfied such that the withdrawal may be approved. For purposes of this Section 7.09, the term unforeseeable emergency means a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participants spouse or a dependent (as defined in Section 152(a) of the Code) of the Participant, loss of the Participants property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.
Section 7.10 Company Cash-Out Election. The Company, in its sole and absolute discretion, may require a mandatory cash, lump sum payment of the value of a vested Aggregate Account provided that:
(a) the payment results in the termination and liquidation of the entirety of the Participants interest in the Plan, including all agreements, methods, programs, or other arrangements with respect to which deferrals of compensation are treated as having been deferred under a single nonqualified deferred compensation plan under Treasury Regulation §1.409A-1(c)(2); and
(b) the lump sum payment is no greater than the applicable dollar amount under Section 402(g)(1)(B) of the Code.
Section 7.11 Code Section 409A Compliance. The intent of the parties is that payments and benefits under this Plan comply with Code Section 409A to the extent subject thereto, and, accordingly, to the maximum extent permitted, this Plan shall be interpreted and administered to be in compliance therewith. Notwithstanding anything herein to the contrary, (a) if any payments of money or other benefits due to a Participant or Beneficiary under this Plan could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A of the Code, or otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner, determined by the Company that does not cause such an accelerated or additional tax and (b) each amount to be paid or benefit to be provided to a Participant pursuant to this Plan, which constitutes deferred compensation subject to Section 409A of the Code, shall be construed as a separate identified payment for purposes of Section 409A of the Code. A Participant or a Beneficiary shall not have any right to determine a date of payment of any amount under this Plan. The Company shall consult with a Participant in good faith regarding the implementation of the provisions of this Section 7.11.
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ARTICLE VIII
BENEFICIARY
Section 8.01 Beneficiaries. If a Participant is married at the date of his death, then the Participants spouse shall be his Beneficiary under the Plan. The Participant may designate a Beneficiary, other than his spouse, provided the spouse consents to such designation in writing. A Participant may designate a Beneficiary or Beneficiaries pursuant to a beneficiary designation form. A beneficiary election form will be provided to a Participant upon written request by the Participant to the Company. If a Participant is not married and fails to deliver to the Company a beneficiary election form for this Plan, the Company shall have the right to distribute the vested portion of such Participants Aggregate Account to the estate of such Participant.
Section 8.02 Proper Beneficiary. If the Company is in doubt as to the proper Beneficiary to receive payments hereunder, the Company shall have the right to withhold such payments until the matter is finally adjudicated. However, any payment made by the Company, in good faith and in accordance with this Plan, shall fully discharge the Company and Committee from all further obligations with respect to that payment.
Section 8.03 Minor or Incompetent Beneficiary. In making any payments to or for the benefit of any minor or an incompetent Participant or Beneficiary, the Company, in its sole and absolute discretion may make a distribution to a legal or natural guardian of a minor or a court appointed guardian or representative of such incompetent. The receipt by a guardian or a court appointed guardian or representative shall be a complete discharge to the Company and Committee. Neither the Committee nor the Company shall have any responsibility to see to the proper application of any payments so made.
ARTICLE IX
ADMINISTRATION OF THE PLAN
Section 9.01 Committee Action. All resolutions or other actions taken by the Committee shall be made or taken according to the procedures in effect governing the Committee.
Section 9.02 Finality of Determination. Subject to the Plan, the Company shall, from time to time, establish forms and procedures for the administration of the Plan. Except as otherwise expressly provided herein, the Committee shall have the exclusive right to interpret the Plan and to decide any and all matters arising thereunder or in connection with the administration of the Plan. The decisions, actions and records of the Committee shall be conclusive and binding upon the Company and all persons having or claiming to have any right or interest in or under the Plan.
Section 9.03 Certificates and Reports. The members of the Committee and the officers and directors of the Company shall be entitled to rely on all certificates and reports with respect to the Plan made by any accountants, and opinions given by any legal counsel for the Company.
Section 9.04 Indemnification and Exculpation. The Company shall indemnify and hold harmless each member of the Committee against any and all expenses and liabilities arising out the Committees administration of the Plan. The foregoing right of indemnification shall be in addition to any other rights to which any such member of the Committee may be entitled to as a matter of law or pursuant to other agreement.
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Section 9.05 Expenses. The expenses of administering the Plan shall be borne by the Company.
ARTICLE X
CLAIMS PROCEDURE
Section 10.01 Written Claim. The value of a Participants vested Aggregate Account shall be paid in accordance with the provisions of this Plan and any applicable Deferral Agreement. The Participant, or a designated Beneficiary or any other person claiming through the Participant shall make a written request for benefits under this Plan. This written claim shall be mailed or delivered to the Company.
Section 10.02 Denied Claim. If the claim is denied, in full or in part, the Company shall provide a written notice within ninety (90) days setting forth the specific reasons for denial, and any additional material or information necessary to perfect the claim, and an explanation of why such material or information is necessary, and appropriate information and explanation of the steps to be taken if a review of the denial is desired.
Section 10.03 Review Procedure. If the claim is denied and review is desired, the Participant (or Beneficiary) shall notify the Company in writing within sixty (60) days after receipt of the written notice of denial (a claim shall be deemed denied if the Company does not take any action within the aforesaid ninety (90) day period). In requesting a review, the Participant or his Beneficiary may request a review of the Plan or other pertinent documents, may submit any written issues and comments, may request an extension of time for such written submission of issues and comments, and may request that a hearing be held before the Committee, but the decision to hold a hearing shall be within the sole discretion of the Committee.
Section 10.04 Committee Review. The decision on the review of the denied claim shall be rendered by the Committee within sixty (60) days after the receipt of the request for review (if a hearing is not held) or within sixty (60) days after the hearing if one is held. The decision shall be written and shall state the specific reasons for the decision including reference to specific provisions of this Plan or a Deferral Agreement on which the decision is based.
ARTICLE XI
NATURE OF COMPANYS OBLIGATION
Section 11.01 Companys Payment Obligation. The Companys obligations under this Plan shall be an unfunded and unsecured promise to pay. The Company shall not be obligated under any circumstances to fund its financial obligations under this Plan.
Section 11.02 Creditor Status. Any assets which the Company may acquire or set aside to help cover its financial liabilities are and must remain general assets of the Company subject to the claims of its creditors. Neither the Company nor this Plan gives the Participant any beneficial ownership interest in any asset of the Company. All rights of ownership in any such assets are and remain in the Company and Participants and their beneficiaries shall have only the rights of general creditors of the Company.
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Section 11.03 No Promise of Employment. Neither this Plan nor any agreement or writing executed pursuant hereto, including, but not limited to, any Deferral Agreement, shall be construed to promise or guarantee future employment or service as a Non-Employee Director of any person.
Section 11.04 No Guarantee of Tax Deferral. Neither this Plan nor any agreement or writing executed pursuant hereto, shall be construed as a representation or assurance that any amounts in a Participants Aggregate Account shall not be subject to taxation until such amounts are paid or distributed to such Participant or any of his Beneficiaries.
ARTICLE XII
MISCELLANEOUS
Section 12.01 Written Notice. Any notice which shall be or may be given under the Plan or a Deferral Agreement shall be in writing and shall be mailed by United States mail, postage prepaid. If notice is to be given to the Company, such notice shall be addressed to the Company, Attn: Pier 1 Imports, Inc. Deferred Compensation Plan, at the address of the Companys principal offices. If notice is to be given to the Committee, such notice shall be addressed to the Committee of the Pier 1 Imports, Inc. Deferred Compensation Plan, at the address of the Companys principal offices. If notice is to be given to a Participant, such notice shall be addressed to the address shown in such Participants Deferral Agreement.
Section 12.02 Change of Address. Any party may, from time to time, change the address to which notices shall be mailed by giving written notice of such new address.
Section 12.03 Merger, Consolidation or Acquisition. The Plan shall be binding upon the Company, its assigns, and any successor Company which shall succeed to substantially all of its assets and business through merger, acquisition or consolidation, and upon a Participant, his Beneficiary, assigns, heirs, executors and administrators.
Section 12.04 Amendment and Termination. The Company retains the sole and unilateral right to terminate, amend, modify, or supplement this Plan, in whole or in part, at any time. This right includes the right to make (i) retroactive amendments, and (ii) amendments that do not apply to former Executives and/or former Non-Employee Directors. However, no Company action under this right shall reduce the amount of the Aggregate Account, whether vested or not, of any Participant or his Beneficiary. A distribution of all or a portion of a Participants Aggregate Account upon the occurrence of a termination of the Plan shall comply with Section 409A of the Code.
Section 12.05 Nontransferability. Except insofar as prohibited by applicable law, no sale, transfer, alienation, assignment, pledge, collateralization or attachment of any benefits under this Plan shall be valid or recognized by the Company. Neither the Participant, his spouse, or designated Beneficiary shall have any power to hypothecate, mortgage, commute, modify, or otherwise encumber in advance of any of the benefits payable hereunder, nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, or alimony maintenance owed by the Participant or his Beneficiary, or be transferable by operation of law in the event of bankruptcy, insolvency, or otherwise.
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Section 12.06 Withholding for Taxes. The Company shall be entitled to withhold from payments due under the Plan or from other payments of compensation to a Participant any and all taxes of any nature required by any government to be withheld from compensation paid to employees.
Section 12.07 Domestic Relations Orders. All or any portion of a Participants Plan benefit will be paid to an individual other than such Participant pursuant to and in accordance with the provisions of a domestic relations order but only if such domestic relations order satisfies all of the requirements to be a qualified domestic relations order within the meaning of Section 414(p) of the Code and only if the timing of payment or payments under the order comply with the distribution timing requirements of Section 409A of the Code.
Section 12.08 Gender and Number. Wherever the context so requires, masculine pronouns include the feminine and singular words shall include the plural.
Section 12.09 Applicable Law. This Plan shall be governed by the laws of the State of Texas.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized officer effective as of January 1, 2011.
Pier 1 Imports, Inc. for itself and on behalf of the Company |
By:________________________________________ |
Title:______________________________________ |
December 20, 2010 |
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Exhibit 10.3
PIER 1 IMPORTS, INC.
PIER 1 BENEFIT RESTORATION PLAN II
AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2009
AMENDMENT NO. 1
This Amendment No. 1 is made to the Pier 1 Benefit Restoration Plan II as Amended and Restated Effective January 1, 2009 (the Plan). This Amendment No. 1 is made effective January 1, 2011, by Pier 1 Imports, Inc., a Delaware corporation (the Company);
WHEREAS, the Company desires to close the Plan to further contributions; and
WHEREAS, pursuant to Section 11.04 of the Plan, the Company may amend the Plan at any time, in whole or in part;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. | With respect to Article III of the Plan, participation in the Plan shall be limited to those individuals who were Participants in the Plan with Restoration Account balances as of December 31, 2010. |
2. | With respect to Article IV of the Plan, from and after the last full payroll period beginning in the 2010 Taxable Year, Participants shall not be entitled to defer compensation under the Plan, other than deferrals of the 2011 Fiscal Year annual bonus based on the annual bonus deferral election made prior to the beginning of the 2010 Taxable Year. From and after the last full payroll period beginning in the 2010 Taxable Year, no further Company matching contribution credits shall be made under the Plan, other than Company matching contribution credits on 2011 Fiscal Year annual bonus compensation deferrals. |
3. | This Amendment No. 1 shall not operate or be construed to alter, modify or amend the Plan except as expressly set forth herein. The terms and provision of the Plan, as expressly amended hereby, shall remain in full force and effect. |
IN WITNESS WHEREOF, the Company has caused this Amendment No. 1 to be executed effective January 1, 2011.
PIER 1 IMPORTS, INC. |
|
Gregory S. Humenesky |
Executive Vice President - Human Resources |
December 20, 2010 |
Exhibit 10.4
PIER 1 IMPORTS, INC.
NON-EMPLOYEE DIRECTOR COMPENSATION PLAN
ADOPTED JUNE 24, 1999
AS AMENDED OCTOBER 8, 2010
Cash Compensation:
Non-Employee Director Annual Retainer |
$ | 150,000 | ||
Audit Committee Chair Annual Retainer |
$ | 25,000 | ||
Compensation Committee Chair Annual Retainer |
$ | 25,000 | ||
Nominating and Corporate Governance Committee Chair Annual Retainer |
$ | 10,000 | ||
Non-Executive Chairman of the Board Annual Retainer |
$ | 75,000 |
Beginning in the Companys fiscal year 2012 and continuing thereafter, Non-Employee Director compensation is payable in equal monthly installments on the last business day of each fiscal month.
Non-Employee Directors are eligible to participate in the following:
|
The Director Deferred Stock Unit Awards program set forth in the Pier 1 Imports, Inc. 2006 Stock Incentive Plan. |
|
At the time a Non-Employee Director ceases to be a Director of the Company, any cash compensation which has been paid for the time period following the Directors service shall be repaid in cash to the Company. Also, the deferred stock units credited to such Director at that time shall be adjusted by the Company to remove from the credited amount (i) any portion of the deferred stock units applicable to the time period following the Directors service, plus (ii) provided that such Director has not repaid the Company for any cash compensation applicable to that time period, then at the discretion of the Company, an amount of deferred stock units equal to any such cash compensation (such units to be valued as of the date the Director ceases to be a Director). |
|
The amount of deferred stock units, as adjusted if applicable, will be exchanged for shares of the Companys common stock on a unit-to-share basis. Provided, however, that the deferred stock units (valued as of the date the Director ceases to be a Director) will be paid in cash to the extent that applicable plan limitations at such time preclude plan distributions of Pier 1 Imports, Inc. common stock. |
|
The Pier 1 Imports, Inc. Stock Purchase Plan according to its terms and provisions. |
|
The Pier 1 Imports, In.c. Deferred Compensation Plan as and when adopted and according to its terms and provisions. |
Exhibit 31.1
Certification of the Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a)
I, Alexander W. Smith, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Pier 1 Imports, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: |
January 4, 2011 |
By: |
/s/ Alexander W. Smith |
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Alexander W. Smith, President and | ||||||||
Chief Executive Officer |
Exhibit 31.2
Certification of the Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a)
I, Charles H. Turner, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Pier 1 Imports, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: |
January 4, 2011 |
By: |
/s/ Charles H. Turner |
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Charles H. Turner, Executive Vice President and | ||||||||
Chief Financial Officer |
Exhibit 32.1
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Each of the undersigned officers of Pier 1 Imports, Inc., hereby certifies that:
1. | The Quarterly Report of Pier 1 Imports, Inc. for the period ended November 27, 2010 fully complies with the requirements of sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the above-mentioned report fairly presents, in all material respects, the financial condition and results of operations of Pier 1 Imports, Inc. for the period covered by the report. |
Date: |
January 4, 2011 |
By: |
/s/ Alexander W. Smith |
|||||
Alexander W. Smith, President and Chief Executive Officer |
||||||||
Date: |
January 4, 2011 |
By: |
/s/ Charles H. Turner |
|||||
Charles H. Turner, Executive Vice President and Chief Financial Officer |