Pier 1 2007 Annual Report Download

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2007 Annual Report
Annual Meeting of Shareholders
June 28, 2007

Table of contents

  • Page 1
    2007 Annual Report Annual Meeting of Shareholders June 28, 2007

  • Page 2
    Form 10-K Form 10-K ® 2007 Annual Report

  • Page 3
    ...75-1729843 (I.R.S. Employer Identification No.) 100 Pier 1 Place Fort Worth, Texas (Address of principal executive offices) 76102 (Zip Code) Company's telephone number, including area code: (817) 252-8000 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each...

  • Page 4
    ... with Accountants on Accounting and Financial Disclosure . . 9A. Controls and Procedures ...9B. Other Information ...PART III Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder...

  • Page 5
    ... center facilities in or near Baltimore, Maryland; Chicago, Illinois; Columbus, Ohio; Fort Worth, Texas; Ontario, California; Savannah, Georgia; and Tacoma, Washington. Upon the expiration of its lease during fiscal 2007, the Pier 1 Kids distribution facility in Fort Worth, Texas was closed...

  • Page 6
    ... Sears Puerto Rico stores. Company-operated Pier 1 stores in the United States and Canada average approximately 9,800 gross square feet, which includes an average of approximately 7,900 square feet of retail selling space. The stores consist of freestanding units located near shopping centers or...

  • Page 7
    ... Europe and includes ceramics, dinnerware and other functional and decorative items. These goods accounted for approximately 12% of Pier 1's total U.S. and Canadian retail sales in fiscal year 2007, 13% in fiscal years 2006 and 2005. BED, BATH & CANDLES - This product group is imported mainly from...

  • Page 8
    ...for future returns based on historical experience and other known factors. On March 3, 2007, the Company employed approximately 15,400 associates in the United States and Canada, of which approximately 7,100 were full-time employees and 8,300 were part-time employees. (d) Financial Information about...

  • Page 9
    ... supply chain could impact its ability to deliver merchandise to its stores and customers, which could impact its sales and results of operations. The Company maintains regional distribution centers in Maryland, Illinois, Ohio, Texas, California, Georgia and Washington. At these distribution centers...

  • Page 10
    ... manage and execute the Company's marketing initiatives could have a negative impact on the business. The success and growth of the Company is partially dependent on generating customer traffic in order to gain sales momentum in its stores and on its e-commerce web site. Successful marketing...

  • Page 11
    ... turnover in the stores and the distribution facilities, which could have an adverse effect on the business. Management will continue to assess the Company's compensation structure in an effort to attract future qualified candidates or retain current experienced management team members. Occasionally...

  • Page 12
    ... operation of its business. Failure of any critical software applications, technology infrastructure, telecommunications, data communications, or networks could have a material adverse effect on the Company's ability to manage the merchandise supply chain, sell products, accomplish payment functions...

  • Page 13
    ... the prices that they charge in their home country market or in third country markets or at less than their cost of production. Such petitions, if successful, could significantly increase the United States import duties on those products. In that event, the Company might possibly decide to pay the...

  • Page 14
    ... Pier 1 Kids' administrative offices from their 21,000 square-foot offices, also located in Fort Worth, Texas, to its corporate headquarters during the second quarter of fiscal 2007 prior to the expiration of that lease in September 2006. The Company leases the majority of its retail stores...

  • Page 15
    ...warehouse properties in or near the following cities: Location Approx. Sq. Ft. Owned/Leased Facility Baltimore, Maryland ...Chicago, Illinois ...Columbus, Ohio ...Fort Worth, Texas ...Fort Worth, Texas ...Ontario, California ...Savannah, Georgia ...Tacoma, Washington ... ... 981,000 sq. ft. 514,000...

  • Page 16
    ... Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Prices of Common Stock The following table shows the high and low closing sale prices of the Company's common stock on the New York Stock Exchange (the "NYSE"), as reported in the consolidated transaction reporting system...

  • Page 17
    ... shares available for grant under the Pier 1 Imports, Inc. 2006 Stock Incentive Plan. (2) Equity compensation plans not approved by security holders represent the employment inducement stock options granted under the President and Chief Executive Officer's employment agreement. See Note 11 of the...

  • Page 18
    ... dividends were reinvested at the average of the closing stock prices at the beginning and end of the quarter. The total cumulative dollar returns shown on the graph represent the value that such investments would have had on March 3, 2007. PIER 1 IMPORTS, INC. STOCK PERFORMANCE GRAPH $300 $250 $200...

  • Page 19
    ... DATA: Working capital ...Current ratio ...Total assets ...Long-term debt ...Shareholders' equity ...Weighted average diluted shares outstanding (millions) ...Effective tax rate(5) ...Return on average shareholders' equity ...Return on average total assets ...Pre-tax return on sales ... $1,623...

  • Page 20
    ... its stores. During fiscal year 2007, the Company opened 34 new stores and closed 64 stores. The Company operates stores in the United States and Canada under the names "Pier 1 Imports" ("Pier 1"), and "Pier 1 Kids." Pier 1 Kids stores sell children's home furnishings and decorative accessories. As...

  • Page 21
    ... right product mix and merchandising and marketing programs to drive traffic into the stores and onto its web site to improve comparable store sales. In an attempt to reverse the negative trends, the Company introduced dramatic shifts in the look of its merchandising design, which failed to meet the...

  • Page 22
    ... 2008, the Company plans to open five new store locations and close approximately 60 stores. 3) Provide a compelling merchandise selection. To regain its competitive edge, the Company must provide a merchandise assortment that evolves and adapts to the changing needs and preferences of its customer...

  • Page 23
    ...approximately 60 stores, including 10 Pier 1 Kids stores. A summary reconciliation of the Company's stores open at the beginning of fiscal 2007, 2006 and 2005 to the number open at the end of each period follows (openings and closings include relocated stores): United States Canada Total(2) Open at...

  • Page 24
    ... merchandise as an additional product assortment line and to no longer expand Pier 1 Kids locations as a stand-alone store concept. The Company recorded a $4.9 million charge for the settlement of and legal fees related to class action lawsuits primarily regarding compensation matters in California...

  • Page 25
    ... in depreciation expense related to new store openings in the United States and Canada, and software applications launched subsequent to the end of fiscal 2006. In fiscal 2007, the Company had an operating loss of $226.2 million, $183.4 million worse than the prior years' operating loss of $42...

  • Page 26
    ... 2005. A summary reconciliation of the Company's stores open at the beginning of fiscal 2006, 2005 and 2004 to the number open at the end of each period follows (openings and closings include relocated stores): United States Canada Continuing Operations(1) Discontinued Operations(2) Total Open at...

  • Page 27
    ... an effort to stimulate sales, the Company began to offer a 12-month, no interest promotion on larger purchases as well as supporting special incentives for store associates to encourage customers to open new proprietary credit card accounts. While the proprietary credit card generated modest income...

  • Page 28
    ...million recognized in fiscal 2005 related to pre-opening store rental expense for leases entered into in years prior to fiscal 2005. The Company's lease termination expense increased $1.8 million or 10 basis points as a percentage of sales, primarily as a result of closing stores in fiscal 2006 with...

  • Page 29
    ...12.2 million for fixtures and leasehold improvements related to new and existing stores, $11.4 million for information systems enhancements and home office capital additions, and $5.0 million in expenditures for the Company's distribution centers. Fiscal 2008 capital expenditures are projected to be...

  • Page 30
    ... the operations of the Company and from borrowings against lines of credit. During fiscal 2008, the Company plans to open five new stores and close approximately 60 stores as leases expire or are otherwise ended. New store locations will be financed primarily through operating leases. Total capital...

  • Page 31
    ...summary, the Company's primary uses of cash in fiscal 2007 were to fund operating expenses; redeem outstanding Class A Certificates at the Master Trust; provide for new and existing store development; fund capital additions related to distribution centers and information systems development; and pay...

  • Page 32
    ... Company recognizes revenue from retail sales, net of sales tax and third party credit card processing fees, upon customer receipt or delivery of merchandise, including sales under deferred payment promotions on its proprietary credit card. Typically, credit card receivable deferral programs offer...

  • Page 33
    ... offered to eligible employees except that claims in excess of $200,000 per occurrence per year are covered by a purchased insurance policy. The Company records a provision for estimated claims that have been incurred but not reported. Such claim amounts are estimated based on historical average...

  • Page 34
    ...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 highest compensation and years of service. These...

  • Page 35
    ... Risk. Market risks relating to the Company's operations result primarily from changes in foreign exchange rates and interest rates. The Company has only limited involvement with derivative financial instruments, does not use them for trading purposes and is not a party to any leveraged derivatives...

  • Page 36
    ... notes pay a fixed annual rate of 6.375% for the first five years and a fixed rate of 6.125% thereafter. Changes in market interest rates generally affect the fair value of fixed rate debt instruments, but would not affect the Company's financial position, results of operations or cash flows related...

  • Page 37
    ...with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Pier 1 Imports, Inc.'s internal control over financial reporting as of March 3, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring...

  • Page 38
    Pier 1 Imports, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share amounts) 2007 Year Ended 2006 2005 Net sales ...Operating costs and expenses: Cost of sales (including buying and store occupancy costs) . Selling, general and administrative expenses ...Depreciation and ...

  • Page 39
    ... income taxes payable ...Liabilities related to discontinued operations ...Other accrued liabilities ...Total current liabilities ...Long-term debt ...Other noncurrent liabilities ...Shareholders' equity: Common stock, $1.00 par, 500,000,000 shares authorized, 100,779,000 issued ...Paid-in capital...

  • Page 40
    ... in securitized receivable . . (15,914) Purchase of proprietary credit card receivables and other ...(97,740) Proceeds from the sale of proprietary credit card operations ...144,622 Inventories ...9,757 Other accounts receivable, prepaid expenses and other current assets ...(14,428) Income tax...

  • Page 41
    ...of tax as applicable: Minimum pension liability adjustments ...Currency translation adjustments ...Comprehensive loss ...Adjustment to initially apply SFAS No. 158 ...Restricted stock compensation . Stock option compensation expense ...Exercise of stock options, stock purchase plan and other ...Cash...

  • Page 42
    ...North America's largest specialty retailers of imported decorative home furnishings, gifts and related items, with retail stores located in the United States and Canada. Additionally, the Company has merchandise in "store within a store" locations in Mexico and Puerto Rico that are operated by Sears...

  • Page 43
    ... in the Company's consolidated statements of operations. Both the changes in fair value and settlement of these contracts are included in cost of sales for forwards related to merchandise purchases and in selling, general and administrative expense for the contracts associated with the repatriation...

  • Page 44
    ... credit losses of 4.75% of the outstanding balance, expected payment within a six-month period and a discount rate representing the average market rate the Company would expect to pay if it sold securities representing ownership in the excess receivables not required to collateralize the Class...

  • Page 45
    ... the sale of the Company's credit card business in fiscal 2007, these deferred programs will result in an upfront reduction of sales based on the fees charged by Chase Bank USA N.A. ("Chase") for such programs going forward. A reserve has been established for estimated merchandise returns based upon...

  • Page 46
    ...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 highest compensation and years of service. These...

  • Page 47
    ...periods in which the average common stock price exceeds the initial conversion price of $15.19 per share. Stock-based compensation - The Company grants stock options and restricted stock for a fixed number of shares to employees with stock option exercise prices equal to the fair market value of the...

  • Page 48
    ... discussion related to the accounting for stock-based employee compensation. SFAS 123R requires disclosure of pro forma information for periods prior to adoption. The following table details the effect on net income (loss) and earnings (loss) per share from continuing operations, illustrating...

  • Page 49
    ... management to sell its operations of The Pier Retail Group Limited ("The Pier") with stores located in the United Kingdom and Ireland. The Company met the criteria of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" that allowed it to classify The Pier as held for sale...

  • Page 50
    ..., the Company's proprietary credit card receivables were generated under open-ended revolving credit accounts issued by its subsidiary, Pier 1 National Bank, to finance purchases of merchandise and services offered by the Company. These accounts had various billing and payment structures, including...

  • Page 51
    Pier 1 Imports, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Company had an agreement with a third party to provide certain credit card processing and related credit services, while the Company maintained control over credit policy decisions and customer service standards. Net ...

  • Page 52
    ... to do business within certain geographical markets where franchise stores were previously granted exclusive rights to operate and favorable operating leases acquired from a third party. These intangible assets were included in other non-current assets in the Company's consolidated balance sheets...

  • Page 53
    ... Acquired operating leases, net ...$ Goodwill, not amortized ...$ 862 - Estimated future amortization expense related to intangible assets at March 3, 2007 is as follows (in thousands): Fiscal Year Amortization Expense 2008 ...2009 ...2010 ...2011 ...2012 ...Thereafter ...Total future amortization...

  • Page 54
    ... 7 - LEASE TERMINATION OBLIGATIONS At times, the Company may terminate leases prior to their expiration when certain stores or storage facilities are closed or relocated to more favorable locations as deemed necessary by the evaluation of the real estate portfolio. These decisions are based on lease...

  • Page 55
    ...exempt bonds mature in the year 2026. The Company's interest rates on the loans are based on the bond interest rates, which are market driven, reset weekly and are similar to other tax-exempt municipal debt issues. The Company's weighted average effective interest rates, including commitment fees of...

  • Page 56
    ... against the new secured credit facility. Of the outstanding balance, approximately $52,400,000 related to trade letters of credit for merchandise purchases, $48,800,000 related to standby letters of credit for the Company's workers' compensation and general liability insurance policies, $19,429...

  • Page 57
    ... information is presented below. CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Year Ended March 3, 2007 (In thousands) Pier 1 Imports, Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Net sales ...Cost of sales (including buying and store occupancy costs) ...Selling...

  • Page 58
    ...) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Year Ended February 25, 2006 (In thousands) Pier 1 Imports, Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Net sales ...Cost of sales (including buying and store occupancy costs) ...Selling, general and administrative...

  • Page 59
    ...) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Year Ended February 26, 2005 (In thousands) Pier 1 Imports, Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Net sales ...Cost of sales (including buying and store occupancy costs) ...Selling, general and administrative...

  • Page 60
    ...BALANCE SHEET March 3, 2007 (In thousands) Pier 1 Imports, Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total ASSETS Current assets: Cash and cash equivalents...Other accounts...' EQUITY Current liabilities: Accounts payable ...Intercompany payable (receivable) Gift cards and...

  • Page 61
    ... SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ...Intercompany payable (receivable) ...Gift cards and other deferred revenue ...Accrued income taxes payable (receivable) ...Liabilities related to discontinued operations ...Other accrued liabilities ...Total current liabilities ...Long...

  • Page 62
    ...: Cash dividends ...Proceeds from stock options exercised, stock purchase plan and other, net ...Notes payable borrowings ...Repayments of notes payable ...Debt issuance costs ...Advances (to) from subsidiaries ...Net cash provided by (used in) financing activities ...Change in cash and cash...

  • Page 63
    ... ...Purchases of treasury stock ...Proceeds from stock options exercised, stock purchase plan and other, net ...Issuance of long-term debt ...Notes payable borrowings ...Repayments of notes payable ...Debt issuance costs ...Purchase of call option ...Contributions from parent ...Advances from...

  • Page 64
    ...10 - EMPLOYEE BENEFIT PLANS The Company offers a qualified, defined contribution employee retirement plan to all its full- and parttime personnel who are at least 18 years old and have been employed for a minimum of six months. Employees contributing 1% to 5% of their compensation receive a matching...

  • Page 65
    ...") for certain of its executive officers. The Plans provide that upon death, disability, reaching retirement age and certain termination events, a participant will receive benefits based on highest compensation and years of service. The Company recorded expenses related to the Plans of $15,112,000...

  • Page 66
    ... ...$ Weighted average assumptions used to determine: Benefit obligation, end of year: Discount rate ...Lump-sum conversion discount rate ...Rate of compensation increase ...Net periodic benefit cost for years ended: Discount rate ...Lump-sum conversion discount rate ...Rate of compensation increase...

  • Page 67
    ... Plan, which resulted in awards of stock options and restricted stock totaling 1,123,100 shares. Stock option grants - On January 27, 2007, the Board of Directors approved an employment agreement for the Company's new President and Chief Executive Officer (the "CEO"). The employment agreement set...

  • Page 68
    ... to take certain actions with respect to stock options, like accelerating the vesting, upon certain corporate changes (as defined in the 2006 Plan). The exercise price of the options is the fair market value of the common stock on the date of grant. Non-employee director options are fully vested...

  • Page 69
    ... SFAS 123R was effective for the Company at the beginning of fiscal 2007. A summary of stock option transactions related to the stock option plans during the three fiscal years ended March 3, 2007 is as follows: Weighted Average Exercise Price Weighted Average Fair Value at Date of Grant Exercisable...

  • Page 70
    ... most closely matches the weighted average expected life at the time of the grant. The expected dividend yield is based on the annual dividend rate at the time of grant. At March 3, 2007, there was approximately $9,414,000 of total unrecognized compensation expense related to unvested stock option...

  • Page 71
    ...As of March 3, 2007, there was $2,486,000 of total unrecognized compensation expense related to restricted stock that may be recognized over a weighted average period of 1.4 years if all performance targets are met. Director deferred stock units - The 2006 Plan and the 1999 Stock Plan also authorize...

  • Page 72
    Pier 1 Imports, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 12 - INCOME TAXES The provision (benefit) for income taxes for each of the last three fiscal years consists of (in thousands): 2007 2006 2005 Federal: Current ...Deferred ...State: Current ...Deferred ...Foreign: ...

  • Page 73
    ... average rent ...15,280 Fixed assets, net ...11,236 Self insurance reserves ...8,665 Deferred gain on sale of credit card operations ...8,212 Cumulative foreign currency translation ...854 Deferred revenue and revenue reserves ...3,455 Purchased call option ...2,785 Other ...5,831 Total deferred...

  • Page 74
    ...in California primarily regarding compensation matters. Cash outlays related to the settlements are expected to be completed in fiscal 2008. There are various claims, lawsuits, investigations and pending actions against the Company and its subsidiaries incident to the operations of its business. The...

  • Page 75
    Pier 1 Imports, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) financial data for the years ended March 3, 2007 and February 25, 2006 are set forth below (in thousands except per share amounts): Fiscal 2007(1) 5/27/2006 Three Months Ended 8/26/2006 11/25/2006 3/3/2007 Net sales...$...

  • Page 76
    ...included in this Annual Report on Form 10-K. During the second quarter of fiscal 2007, the Company implemented a new general ledger accounting system. The Company followed an information systems implementation process that required significant preimplementation planning, design and testing, and post...

  • Page 77
    ... Board (United States), the consolidated balance sheets of Pier 1 Imports, Inc. as of March 3, 2007 and February 25, 2006, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended March 3, 2007 and our report dated...

  • Page 78
    ... by this item is incorporated by reference to the section entitled "Matters Relating to Corporate Governance, Board Structure, Director Compensation and Stock Ownership" set forth in the Company's Proxy Statement for its 2007 Annual Meeting of Shareholders. No director or nominee for director of the...

  • Page 79
    ..."Executive Compensation" and the section entitled "Matters Relating to Corporate Governance, Board Structure, Director Compensation and Stock Ownership - Non-Employee Director Compensation for the Fiscal Year Ended March 3, 2007" set forth in the Company's Proxy Statement for its 2007 Annual Meeting...

  • Page 80
    ... exhibits filed as part of this report. 1. Financial Statements Report of Independent Registered Public Accounting Firm Consolidated Statements of Operations for the Years Ended March 3, 2007, February 25, 2006 and February 26, 2005 Consolidated Balance Sheets at March 3, 2007 and February 25, 2006...

  • Page 81
    ... Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PIER 1 IMPORTS, INC. Date: May 15, 2007 By: /s/ Alexander W. Smith Alexander W. Smith, President and Chief Executive Officer Pursuant to the requirements of...

  • Page 82
    ...10(r) to the Company's Form 10-K for the fiscal year ended February 29, 1992. Pier 1 Executive Health Expense Reimbursement Plan. Pooling and Servicing Agreement, dated February 12, 1997, among Pier 1 Imports (U.S.), Inc., Pier 1 Funding, Inc. and Texas Commerce Bank National Association, as Trustee...

  • Page 83
    ... ended September 1, 2001. The Company's Stock Purchase Plan, as amended June 25, 2004, incorporated herein by reference to Appendix C, page C-1, of the Company's Proxy Statement for the fiscal year ended February 28, 2004. Employment Agreement between Pier 1 Imports, Inc. and Gregory S. Humenesky...

  • Page 84
    ...to the Pier 1 Imports, Inc. 2006 Stock Incentive Plan. Non-Employee Director Compensation Plan, incorporated herein by reference to the Company's Form 10-Q for the quarter ended August 26, 2006. Non-Employee Director Compensation Plan, as amended March 4, 2007. Benefit Restoration Plan I, as amended...

  • Page 85
    Notice of Annual Meeting of Shareholders Proxy Statement Proxy ® 2007 Annual Report

  • Page 86
    ... 1 IMPORTS, INC. 100 Pier 1 Place Fort Worth, Texas 76102 May 24, 2007 Dear Shareholder: The board of directors and management cordially invite you to attend Pier 1's annual meeting of shareholders to be held at 10:00 a.m., local time, on Thursday, June 28, 2007, at Pier 1's corporate headquarters...

  • Page 87
    ... at the close of business on April 30, 2007 will be entitled to vote at the annual meeting. A complete list of shareholders entitled to vote will be available for examination at Pier 1's offices at 100 Pier 1 Place, Fort Worth, Texas by any shareholder during ordinary business hours for a period...

  • Page 88
    ... the proxies are voted at the meeting by notifying Pier 1's corporate secretary in writing at 100 Pier 1 Place, Fort Worth, Texas 76102 that you wish to revoke your proxy, by delivering a subsequent proxy relating to the same shares, or by attending the annual meeting and voting in person. Please...

  • Page 89
    .... The Pier 1 Imports, Inc. Corporate Governance Guidelines, Code of Business Conduct and Ethics and charters for the audit, compensation, and nominating and corporate governance committees are available on Pier 1's web site at www.pier1.com under the heading Investor Relations - Corporate Governance...

  • Page 90
    ... addressed to: [Name of Board Member], Board of Directors Pier 1 Imports, Inc. c/o Corporate Secretary 100 Pier 1 Place Fort Worth, Texas 76102 In addition, shareholders and other interested parties may communicate with the chairman of the audit committee, compensation committee, executive committee...

  • Page 91
    ... name, business or residence address, principal occupation or employment and a description of the candidate's qualifications to the Chairman of the Nominating and Corporate Governance Committee, in care of the corporate secretary, Pier 1 Imports, Inc., 100 Pier 1 Place, Fort Worth, Texas 76102. Pier...

  • Page 92
    ... programs in a manner designed to achieve these objectives. The committee also believes that the total compensation opportunity provided for the executive officers must be reasonable and consistent with compensation of comparable peer group companies and in the Dallas/Fort Worth labor market. Base...

  • Page 93
    ...compensation programs. In fiscal 2007, Pier 1 retained Hewitt Associates LLC to provide management with market data for base pay and short-term and long-term incentive comparisons from a peer group of retail companies. Market data utilized for compensation decisions was adjusted by Hewitt to account...

  • Page 94
    ...,000. The non-executive chairman fee was $2,671.23 for the time period from February 19, 2007 through the end of fiscal 2007. All of Pier 1's non-employee directors participate in Pier 1's Director Deferred Stock Unit Program as set forth in the Pier 1 Imports, Inc. 2006 Stock Incentive Plan and the...

  • Page 95
    ... a summary of the compensation with respect to the fiscal year ended March 3, 2007 for services rendered in all capacities to Pier 1 by Pier 1's non-employee directors: Change in Pension Value and Non-Qualified Non-Equity Deferred Fees Earned All Other Option Incentive Plan Compensation Stock or...

  • Page 96
    ... of stock options granted to the directors. For a discussion of the assumptions used for valuing these options in accordance with SFAS 123R, refer to note #11 to the Pier 1 Imports, Inc. consolidated financial statements in Pier 1's Annual Report on Form 10-K for the fiscal year ended March 3, 2007...

  • Page 97
    ... each non-employee director on March 3, 2007 are shown below: Aggregate Number of Outstanding Stock Options (Exercisable) Name Grant Date Expiration Date Exercise Price John H. ...2012 06/29/2011 06/23/2010 06/25/2009 06/26/2008 06/26/2007 06/23/2016 07/01/2015 06/28/2014 06/27/2013 06/28/2012...

  • Page 98
    ... 19, 2007). The annual retainers are payable monthly. Under the amended and restated plan, non-employee directors will no longer receive stock option grants or meeting fees. Each non-employee director will continue to participate in Pier 1's Director Deferred Stock Unit Program described above...

  • Page 99
    ...662,949 All directors and executive officers as a group ...6,918,644 * Represents less than 1% of the outstanding shares of the class. * * 3.69 7.38% (1) The table includes shares acquired through and held by the Pier 1 Imports, Inc. Stock Purchase Plan as of April 30, 2007 for Mr. Jacobs (7,279...

  • Page 100
    ...of Pier 1's common stock: Name and Address of Beneficial Owner Shares Beneficially Owned Percent of Class Jakup a Dul Jacobsen ...Sundaborg 7 Reykjavik, Iceland Franklin Resources, Inc...One Franklin Parkway San Mateo, California 94403 Royce & Associates, LLC ...1414 Avenue of the Americas New York...

  • Page 101
    ... at Board and Committee Meetings and at the Annual Meeting of Shareholders above. During fiscal 2007, there were no compensation committee interlocks or insider participation. Related Person Transaction Policies and Procedures Pier 1's nominating and corporate governance committee has approved...

  • Page 102
    ... nominating and corporate governance committee, has increased the number of directors to be elected at the annual meeting to eight from the current number of seven. In order to be elected, a nominee for director must receive the affirmative vote of a majority of the shares of common stock present in...

  • Page 103
    ... School of Business at Texas Christian University from July 1998 through May 2003. From 1985 to 1998, he served as president of Drake University. ROBERT B. HOLLAND, III Robert B. Holland, III, age 54, represented the United States on the board of executive directors of the World Bank in various...

  • Page 104
    ... that compensation plans for senior executives be designed and implemented to promote long-term corporate value. A critical design feature of a well-conceived executive compensation plan is a close correlation between the level of pay and the level of corporate performance relative to industry peers...

  • Page 105
    ... unnecessary in light of Pier 1's current operating environment and is repetitive in certain aspects of Pier 1's current policies and practices. For fiscal 2007 and earlier years, Pier 1's annual performance based incentive for executives has been governed by our senior management bonus plan, which...

  • Page 106
    ... option awards granted during those time periods have an exercise price higher than the closing price of Pier 1's common stock at the end of fiscal 2007, which was $6.63. In order to achieve our goal of once again making Pier 1 profitable, we need to retain the flexibility to design a pay program...

  • Page 107
    ... salary is designed to reward an executive's individual performance and contribution to the organization plus promote retention. In practice, Pier 1 management through its human resources compensation group, Pier 1's chief executive officer, or both, recommends to the compensation committee base pay...

  • Page 108
    ... to support Pier 1's overall objectives of long-term company success and performance, competitiveness in the retail industry, and retention of executives. Pier 1's long-term incentive plan is comprised of stock options awards, performance based restricted stock awards and time based restricted stock...

  • Page 109
    ... than the chief executive officer, Pier 1 established the following mix of long-term incentive awards for fiscal 2007: Long-Term Incentive % of Total Long-Term Incentive Stock Options ...Restricted Stock - Time Based ...Restricted Stock - Performance Based ... 30% 40% 30% Pier 1 believes that long...

  • Page 110
    ... must pay the total premium for such coverage. Termination of employment in certain circumstances as a result of a change in control may constitute retirement under the plan. Pier 1 also offers a non-qualified deferred compensation plan known as the Pier 1 Benefit Restoration Plan, to its executives...

  • Page 111
    ... will participate in Pier 1's annual incentive bonus plan for Pier 1's 2009 and 2010 fiscal years as determined by Pier 1's board at those times. Mr. Smith's employment agreement grants two stock options ("Option 1" and "Option 2," and, collectively, the "Options"), to purchase an aggregate of 3,000...

  • Page 112
    ...meeting in March of each year. The presentation includes recommendations of Pier 1's chief executive officer, human resources compensation group, or both, on those elements of compensation, plus recommended plan design changes, if any, and a summary of all awards to all eligible levels of management...

  • Page 113
    ... Other Plan Compensation Earnings(4) Compensation(5 Name & Principal Position Fiscal Year Salary(1) ($) Stock Bonus Awards(2) ($) ($) Option Awards(3) ($) Total ($) Marvin J. Girouard ...Former Chairman and Chief Executive Officer (retired February 19, 2007) Alexander W. Smith ...President...

  • Page 114
    ...term applicable Federal Rate at the time the rate for the plan was selected and the 6.63% and 7.05% annual interest credited in calendar years 2006 and 2007, respectively, by Pier 1 on salary deferred by the named executive officers plus Pier 1 match amounts under non-qualified deferral compensation...

  • Page 115
    ... planning and tax preparation services. (5) This column reports the amount of gross-ups for taxes paid to the named executive officers. (6) This column reports (a) Pier 1 matching contributions to the named executive officers' 401(k) savings account equal to the sum of (i) one hundred percent (100...

  • Page 116
    ... employment inducement option grants described as Option 1 and Option 2 in the Compensation Discussion and Analysis above. The following table sets forth information relating to grants of plan-based awards during the fiscal year ended March 3, 2007 to the executive officers named in the Summary...

  • Page 117
    ... December 30, 2006. (4) This column shows the number of non-qualified stock options granted to the named executive officer, other than Mr. Smith, in fiscal 2007 pursuant to the Pier 1 Imports 2006 Stock Incentive Plan. All these options become exercisable in annual installments of 25% on each of the...

  • Page 118
    ... on the current outstanding stock option and restricted stock awards held by each named executive officer as of the end of fiscal 2007. Market value was determined using the closing price of Pier 1's common stock of $6.63 (the NYSE closing price on March 2, 2007, which was the last business day of...

  • Page 119
    Option Awards Stock Awards Equity Incentive Plan Awards: Equity Market or Incentive Payout Plan Value of Awards: Market Unearned Number of Value of Shares, Unearned Number of Shares or Units or Shares or Units of Shares, Units Other or Other Stock Units of Rights That Rights That That Stock That ...

  • Page 120
    Option Awards Stock Awards Equity Incentive Plan Awards: Equity Market or Incentive Payout Plan Value of Awards: Market Unearned Number of Value of Shares, Unearned Number of Shares or Units or Shares or Units of Shares, Units Other or Other Stock Units of Rights That Rights That That Stock That ...

  • Page 121
    ... of each named executive officer's total accumulated benefit under the applicable retirement plan of Pier 1 in which the executive participates as of the fiscal year ended March 3, 2007. Information regarding each supplemental retirement plan can be found in the Compensation Discussion and Analysis...

  • Page 122
    ... percentage of his pre-age 65 highest average annual salary and bonus used to calculate his benefit is increased above 50% by 5% for each year of service after age 65, to a total not greater than 65%. Pier 1 has established a trust for the purpose of setting aside funds to be used to settle certain...

  • Page 123
    ... management and highly compensated employees of Pier 1 to defer current compensation (generally W-2 earnings). Additionally, Pier 1 recognizes the value of the past and present services of employees participating in the BRP by making matching contributions to employee deferrals plus paying interest...

  • Page 124
    ...restoration plans. The trusts assets are consolidated in Pier 1's financial statements and consist of interest yielding investments aggregating $1,507,000 at March 3, 2007. The trusts also own and are the beneficiaries of a number of insurance policies on the lives of current and past key executives...

  • Page 125
    ...payments to our named executive officers under existing contracts, agreements, plans or arrangements to which they are a party for various scenarios including a change in control or termination of employment, assuming the event occurred on March 3, 2007 and, where applicable, using the closing price...

  • Page 126
    ...Awards Time Based ...Performance Based ...Stock Options ...Jay R. Jacobs Post-Employment Consulting Agreement Salary Continuation ...Insurance Premiums ...Supplemental Retirement Plan(1) Benefit payment ...Insurance Premiums ...Restricted Stock Awards Time Based ...Performance Based ...Stock Options...

  • Page 127
    ... executive officer is involuntarily terminated other than for cause or leaves the employment of Pier 1 for good reason (as defined in the plan) within 24 months of a change in control (as defined in the plan) of Pier 1. (2) Under grant agreements pursuant to the 1993 Management Restricted Stock Plan...

  • Page 128
    ...termination, then pursuant to his employment agreement with Pier 1 Mr. Smith would be entitled to receive through the term of the agreement his compensation and benefits plus Option 1 would vest. The value shown for these events is determined as of the fiscal 2007 year end. In the event of Mr. Smith...

  • Page 129
    ... on Form 10-Q and the auditor's report on Pier 1's internal control over financial reporting, as required under Section 404 of the Sarbanes-Oxley Act of 2002. (2) For the fiscal year ended February 25, 2006, includes fees for services related to employee benefit plan audit and agreed-upon procedures...

  • Page 130
    ... Investor Services, LLC to assist it in soliciting proxies. Pier 1 will pay all costs associated with the solicitation, including Mellon's fees, which it expects to be approximately $7,500, and all mailing and delivery expenses. In addition to solicitations by mail, Pier 1's officers and employees...

  • Page 131
    ... of Pier 1's common stock outstanding as of April 30, 2007 must be present in person or represented by proxy at the annual meeting of shareholders in order to conduct business at the meeting. YOUR VOTE IS IMPORTANT You are encouraged to let us know your preference by completing and returning the...

  • Page 132
    ... Line Toll Free 1-888-884-8086 ANNUAL MEETING The annual meeting of shareholders will be held at 10 a.m. Central Daylight Time, Thursday, June 28, 2007, on the Mezzanine Level, Conference Center Room C, of Pier 1 Imports, Inc. Headquarters, Fort Worth, Texas. FORM 10-K REPORT AND INVESTOR RELATIONS...

  • Page 133