Pier 1 2009 Annual Report Download

Download and view the complete annual report

Please find the complete 2009 Pier 1 annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 173

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173

2009 Annual Report
Annual Meeting of Shareholders
July 1, 2009

Table of contents

  • Page 1
    2009 Annual Report Annual Meeting of Shareholders July 1, 2009

  • Page 2
    ... customers can find long-time favorites as well as something new. It's the thrill of the bazaar. The expected and the unexpected. Our associates bring our brand to life. We value their creativity, talent and dedication. In short, there is only one authentic global importer - the ever-original Pier...

  • Page 3
    ..., we needed a bigger team. By September 2007 we had added an additional 11 buyers to the team, bringing our total number to 22. Enlarging our team has created smaller spans of control with greater specialization, and allowed our buying team more time to source and develop new products. Over the past...

  • Page 4
    ... of 350,000 square feet in fiscal 2009, and to close our Chicago distribution center in the first quarter of fiscal 2010. The third business priority is to tighten up the supply chain from vendors to our stores to reduce both costs and lead times. We have made changes to consolidation, renegotiated...

  • Page 5
    ... Our seventh business priority is to give our customers a rewarding and satisfying shopping experience. All great shopping experiences begin and end with customer service. We strive to ensure that every store associate has the selling skills and tools required to give our customers great service. We...

  • Page 6
    ..., our management team, and our associates continue to work diligently every day to ensure the success of our company. As we look down the road on our journey, it is difficult to predict what the economy holds in store for fiscal 2010. Clarity on our mission and our strategy has served us well and we...

  • Page 7
    Form 10-K Form 10-K 2009 Annual Report

  • Page 8
    ... PIER 1 IMPORTS, INC. (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 100 Pier 1 Place Fort Worth, Texas (Address of principal executive offices) 75-1729843 (I.R.S. Employer Identification No.) 76102 (Zip Code) Company...

  • Page 9
    ...Data...Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...Controls and Procedures...Other Information...PART III 16 18 20 36 38 78 78 79 Item 10. Item 11. Item 12. Item 13. Item 14. Directors, Executive Officers and Corporate Governance...Executive Compensation...

  • Page 10
    ..., 2009, Pier 1 Imports merchandise was offered in seven Sears Puerto Rico stores. Sears Puerto Rico has no plans for new ''store within a store'' locations in Puerto Rico during fiscal 2010. During fiscal 2007, the Company sold its credit card operations, which included its credit card bank located...

  • Page 11
    ... of furniture, decorative home furnishings, dining and kitchen goods, epicurean products, bath and bedding accessories, candles and other specialty items for the home. On February 28, 2009, the Company operated 1,011 Pier 1 Imports stores in the United States and 81 Pier 1 Imports stores in Canada...

  • Page 12
    ... specialty retail business and competes primarily with specialty sections of large department stores, furniture and decorative home furnishings retailers, small specialty stores, and mass merchandising discounters. The Company allows customers to return merchandise within a reasonable time after...

  • Page 13
    ... suitable sites for locating stores and distribution centers, the availability of a qualified labor force and management, the availability and proper functioning of technology and communications systems supporting the Company's key business processes, the ability of the Company to import merchandise...

  • Page 14
    ... recession and is suffering from a near collapse of the credit and financial markets. The market value of domestic and foreign companies has declined significantly since August 2008, which has adversely affected the savings and investments of United States consumers. Consumer confidence and spending...

  • Page 15
    ... 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 16
    ...profitable state. Current locations may not continue to be desirable as demographics change, and the Company may choose to close an underperforming store before its lease expires and incur lease termination costs associated with that closing. The Company cannot give assurance that opening new stores...

  • Page 17
    ...Company's ability to manage the merchandise supply chain, sell merchandise, accomplish payment functions or report financial data. Although the Company maintains off-site data backups, a concentration of technology related risk does exist in certain locations. The Company outsources certain business...

  • Page 18
    ... about its customers and employees. The use of this information by the Company is regulated at the international, federal and state levels, as well as by certain third party contracts. If the Company's security and information systems are compromised or our business associates fail to comply...

  • Page 19
    ..., because the Company imports merchandise from countries around the world, the Company may be affected from time to time by antidumping petitions filed with the United States Commerce Department and International Trade Commission by U.S. producers of competing products alleging that foreign...

  • Page 20
    ... on the New York Stock Exchange (''NYSE''). Continued listing on the NYSE is contingent upon the Company's ability to meet certain listing criteria including, among others, an average closing share price over a consecutive 30 trading-day period of at least $1.00. On May 4, 2009, the Company received...

  • Page 21
    ...investors willing to hold or acquire the Company's stock, which could limit the ability to raise capital by issuing additional shares in the future. It could also negatively impact the perception of the Company's financial situation which may cause some vendors, creditors and other business partners...

  • Page 22
    ...present value of the Company's minimum future operating lease commitments discounted at 10% totaled approximately $736.4 million. The following table sets forth the distribution of Pier 1 Imports' U.S. and Canadian stores by state and province as of February 28, 2009: United States Alabama ...Alaska...

  • Page 23
    ... 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 for each quarter of fiscal 2009 and 2008...

  • Page 24
    ... 150 100 50 0 2/28/2004 2/26/2005 2/25/2006 3/3/2007 3/1/2008 2/28/2009 Pier 1 Imports, Inc. S&P 500 Stock Index S&P Retail Stores Composite Index 30APR200900143795 Purchases of Equity Securities by the Issuer and Affiliated Purchasers There were no purchases of common stock of the Company...

  • Page 25
    Item 6. Selected Financial Data. FINANCIAL SUMMARY 2009 Year Ended 2008 2007(1) 2006 2005 ($ in millions except per share amounts) SUMMARY OF OPERATIONS(2): Net sales ...Gross profit(3) ...Selling, general and administrative expenses(4) ...Depreciation and amortization ...Operating income (loss) ...

  • Page 26
    ... 8 of this report. In fiscal years 2009 and 2008, the Company recorded minimal state and foreign tax provisions and provided a valuation allowance on the deferred tax asset arising from the tax benefit of fiscal 2009 and 2008 losses. The decrease in the Company's effective tax rate for fiscal 2007...

  • Page 27
    ...variety of decorative accessories, furniture collections, bed and bath products, candles, housewares and other seasonal assortments in its stores. The Company conducts business as one operating segment. The Company operates stores in the United States and Canada under the name ''Pier 1 Imports'' and...

  • Page 28
    ... of the significant cost savings efforts throughout the year. The Company also made significant changes to its marketing strategy during fiscal 2009. The timing of marketing expenditures was shifted in order to utilize more of the budget in the all important holiday selling period. Most notably, the...

  • Page 29
    ... Net sales consisted almost entirely of sales to retail customers, net of discounts and returns, but also included delivery revenues and wholesale sales and royalties. Sales by retail concept during fiscal years 2009, 2008 and 2007 were as follows (in thousands): 2009 2008 2007 Stores ...Direct to...

  • Page 30
    ...compared to fiscal 2008. During fiscal 2009, the Company opened one new store and closed 26 store locations. As of February 28, 2009, the Company operated 1,092 stores in the United States and Canada. The Company continues to evaluate every lease in its current real estate portfolio and will attempt...

  • Page 31
    ... campaign introduced late in the third quarter of fiscal 2009 running through the early part of the fourth quarter. The timing of marketing expenditures was shifted in order to utilize more of the budget in the all important holiday selling period. Other variable expenses such as store supplies and...

  • Page 32
    ... Net sales consisted almost entirely of sales to retail customers, net of discounts and returns, but also included delivery revenues and wholesale sales and royalties. Sales by retail concept during fiscal years 2008, 2007 and 2006 were as follows (in thousands): 2008 2007 2006 Stores ...Direct to...

  • Page 33
    ... 2008, the Company opened four new stores and closed 83 store locations, including all Pier 1 Kids and clearance stores. In addition, the Company closed its direct to consumer business. As of March 1, 2008, the Company operated 1,117 stores in the United States and Canada. A summary reconciliation...

  • Page 34
    ... of sales, resulting primarily from decreases in salaries and wages related to a reduction in the number of home office and field administrative employees in the first half of fiscal 2008. Decreases in other non-store payroll expenses included a $5.0 million decrease in retirement plan settlement...

  • Page 35
    ... 2009. In addition, the Company plans to exit approximately 514,000 square feet of additional distribution center space by closing its Chicago distribution center during the first quarter of fiscal 2010. The Company continues to focus on managing inventory levels and is closely monitoring the timing...

  • Page 36
    ... related to home office leasehold improvements, $2.7 million for information systems enhancements and $1.4 million related to the Company's distribution centers. Financing activities for fiscal 2009 provided a net $2.2 million, primarily related to the Company's stock purchase plan. The Company...

  • Page 37
    .... The interest rates on the Company's industrial revenue bonds are variable and reset weekly. The estimated interest payments included in the table were calculated based upon the rate in effect at fiscal 2009 year end. Represents estimated commitment fees for trade and standby letters of credit, and...

  • Page 38
    ...-year renewal option and provisions for terminating the lease at the end of the fifth lease year. On May 4, 2009, the Company received notice from NYSE Regulation, Inc. (''NYSE Regulation'') that the Company was in compliance with the New York Stock Exchange (''NYSE'') continued listing standards...

  • Page 39
    ...change under the Company's 6.375% convertible senior notes due 2036 (the ''Notes'') includes the Company's common stock ceasing to be listed on a national securities exchange or quoted on the Nasdaq National Market or another established automated over-the-counter trading market in the United States...

  • Page 40
    ...levels, vendor payment terms, management of expenses, and capital expenditures. The Company's turnaround plan includes making conservative inventory purchases, managing those inventories, continuing to make the Company's merchandise offering more compelling, and improving the in-store experience. In...

  • Page 41
    ... the accounting policies and estimates considered most critical are as follows: Revenue recognition-The Company recognizes revenue from retail sales, net of sales tax and third-party credit card fees, upon customer receipt or delivery of merchandise, including sales under deferred payment promotions...

  • Page 42
    ... supplemental retirement plans (the ''Plans'') for certain of its current and former 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, years of service and years...

  • Page 43
    ... on the historical volatility of the common stock of the Company for a period approximating the expected life. The risk free interest rate utilized is the United States Treasury rate that most closely matches the weighted average expected life at the time of the grant. The expected dividend yield...

  • Page 44
    ...contracts. The Company uses such contracts to hedge exposures to changes in foreign currency exchange rates associated with purchases denominated in foreign currencies, primarily euros. The Company operates stores in Canada and is subject to fluctuations in currency conversion rates related to these...

  • Page 45
    ... with the standards of the Public Company Accounting Oversight Board (United States), Pier 1 Imports, Inc.'s internal control over financial reporting as of February 28, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations...

  • Page 46
    Pier 1 Imports, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per share amounts) Year Ended 2008 2009 2007 Net sales ...Operating costs and expenses: Cost of sales (including buying and store occupancy costs) Selling...before income taxes ...Provision (benefit) for income taxes ......

  • Page 47
    Pier 1 Imports, Inc. CONSOLIDATED BALANCE SHEETS (in thousands except share amounts) 2009 2008 ASSETS Current assets: Cash and cash equivalents, including temporary investments of $142,523 and $87,837, respectively ...Other accounts receivable, net of allowance for doubtful accounts of $1,579 and ...

  • Page 48
    ......Stock-based compensation expense ...Deferred compensation ...Lease termination expense ...Deferred income taxes ...Amortization of deferred gains ...Other ...Change in cash from: Sale of receivables in exchange for beneficial interest in securitized receivables Purchase of proprietary credit card...

  • Page 49
    ... income (loss), net of tax as applicable: Pension adjustments ...Currency translation adjustments ...Comprehensive loss ...Restricted stock compensation ...Stock option compensation expense ...Exercise of stock options, stock purchase plan and other ...Balance February 28, 2009 ...245 - 1,022 89,874...

  • Page 50
    ... is one of North America's largest specialty retailers of imported decorative home furnishings and gifts, 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 primarily operated...

  • Page 51
    ... 2009, 2008 and 2007. Concentrations of risk-The Company has some degree of risk concentration with respect to sourcing the Company's inventory purchases. However, the Company believes alternative merchandise sources could be procured over a relatively short period of time. Pier 1 Imports sells...

  • Page 52
    ... BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) its exposure associated with the repatriation of funds from its Canadian operations. At February 28, 2009 and March 1, 2008, there were no outstanding contracts to hedge exposure associated with the Company's merchandise purchases...

  • Page 53
    ... estimated useful lives of such assets. Depreciation related to the Company's distribution centers is included in cost of sales. All other depreciation costs are included in depreciation and amortization. Depreciation costs were $30,556,000, $39,478,000 and $49,984,000 in fiscal 2009, 2008 and 2007...

  • Page 54
    ... stores in fiscal 2008 and 2007. Amounts billed to customers for shipping and handling are included in net sales and the costs incurred by the Company for these items are recorded in cost of sales. Gift cards-Revenue associated with gift cards is recognized when merchandise is sold and a gift card...

  • Page 55
    ... discount rate, compensation increase rates, or retirement dates used to determine the projected benefit obligation. Additionally, changes made to the provisions of the Plans may impact current and future benefit costs. In accordance with accounting rules, changes in benefit obligations associated...

  • Page 56
    ...options and restricted stock for a fixed number of shares to employees with stock option exercise prices equal to the fair market value of the shares on the date of the grant. The Company accounts for stock-based compensation under the provisions of SFAS No. 123 (Revised 2004), ''Share-Based Payment...

  • Page 57
    ... from operating activities. The Company's turnaround plan includes making conservative inventory purchases, managing those inventories, continuing to make the Company's merchandise offering more compelling, and improving the in-store experience. In addition, the Company will continue to focus on...

  • Page 58
    ... to the above properties, the Company had an office building and related assets with net book value of $80,539,000 as of March 1, 2008 which it utilized as its corporate headquarters. On June 9, 2008, the Company sold its corporate headquarters building and accompanying land to Chesapeake Plaza...

  • Page 59
    ... 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...

  • Page 60
    ... 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 rate, including standby letter of credit fees, was 3.5% for fiscal 2009 and 5.2% for both fiscal 2008 and 2007. In February...

  • Page 61
    ... so long as the Company remains listed on the New York Stock Exchange, The American Stock Exchange, or the Nasdaq National Market or their respective successors. The cost of $9,145,000 of the purchased call option is included in shareholders' equity. EITF Issue No. 00-19, ''Accounting for Derivative...

  • Page 62
    ... and third-party credit card receivables. The Company sold its corporate headquarters building during fiscal 2009, and as a result, the building was removed from the assets securing borrowings under the Company's secured credit facility at that time. During fiscal 2009 and 2008, the Company had no...

  • Page 63
    ... information is presented below. CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Year Ended February 28, 2009 (in thousands) Pier 1 Imports, Inc. Guarantor Subsidiaries NonGuarantor Subsidiaries Eliminations Total Net sales ...Cost of sales (including buying and store occupancy costs) ...Selling...

  • Page 64
    ... STATEMENT OF OPERATIONS Year Ended March 1, 2008 (in thousands) Pier 1 Imports, Inc. Guarantor Subsidiaries NonGuarantor Subsidiaries Eliminations Total Net sales ...Cost of sales (including buying and store occupancy costs) ...Selling, general and administrative (including depreciation and...

  • Page 65
    ...Pier 1 Imports, Inc. Guarantor Subsidiaries NonGuarantor Subsidiaries Eliminations Total Net sales ...Cost of sales (including buying and store occupancy costs) ...Selling...from subsidiaries Discontinued operations: Loss from discontinued operations . Benefit for income taxes ... $ - - $1,615,951...

  • Page 66
    ... STATEMENTS (Continued) CONSOLIDATING CONDENSED BALANCE SHEET February 28, 2009 (in thousands) Pier 1 Imports, Inc. Guarantor Subsidiaries NonGuarantor Subsidiaries Eliminations Total ASSETS Current assets: Cash and cash equivalents ...Other accounts receivable, net ...Inventories ...Income...

  • Page 67
    ...BALANCE SHEET March 1, 2008 (in thousands) Pier 1 Imports, Inc. Guarantor Subsidiaries NonGuarantor Subsidiaries Eliminations Total ASSETS Current assets: Cash and cash equivalents ...Other accounts... EQUITY Current liabilities: Accounts payable ...Intercompany payable (receivable) ...Gift cards ...

  • Page 68
    ... by investing activities . Cash flow from financing activities: Proceeds from stock options exercised, stock purchase plan and other, net . . Advances (to) from subsidiaries ...Net cash provided by (used in) financing activities ...Change in cash and cash equivalents ...Cash and cash equivalents at...

  • Page 69
    ... activities . Cash flow from financing activities: Proceeds from stock options exercised, stock purchase plan and other, net . . Debt issuance costs ...Advances (to) from subsidiaries ...Net cash provided by (used in) financing activities ...Change in cash and cash equivalents ...Cash and cash...

  • Page 70
    ...: 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 71
    ..., reaching retirement age and certain termination events, a participant will receive benefits based on highest compensation, years of service and years of plan participation. The Company recorded expenses related to the Plans of $3,210,000, $3,511,000 and $15,112,000 in fiscal 2009, 2008 and 2007...

  • Page 72
    ... fiscal 2009 and 2008 ...Weighted average assumptions used to determine: Benefit obligation, end of year: Discount rate ...Lump-sum conversion discount rate ...Rate of compensation increase(2) ...Net periodic benefit cost for years ended: Discount rate ...Lump-sum conversion discount rate ...Rate of...

  • Page 73
    ...(the ''CEO''). The employment agreement set forth that on February 19, 2007, the CEO would be granted two options to purchase an aggregate of 3,000,000 shares of the Company's common stock. The exercise price per share would be the fair market value of the Company's common stock on the following day...

  • Page 74
    ...2009 and March 1, 2008, outstanding options covering 1,259,250 and 802,625 shares were exercisable under the 2006 Plan, respectively. Options were granted at exercise prices equal to the fair market value of the Company's common stock at the date of grant. Employee options issued under the 2006 Plan...

  • Page 75
    ... of share-based payments granted under compensation arrangements. Prior to February 26, 2006, the Company accounted for stock option grants using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, ''Accounting for Stock Issued to Employees,'' and recognized...

  • Page 76
    ...The Company recorded stock-based compensation expense related to stock options of approximately $3,528,000, or $0.04 per share, $4,278,000, or $ 0.05 per share, and $4,494,000, or $0.05 per share, in fiscal 2009, 2008 and 2007, respectively. The Company recognized no net tax benefit related to stock...

  • Page 77
    ...557,000 in fiscal 2009, 2008 and 2007, respectively. Stock purchase plan-Substantially all Company employees are eligible to participate in the Pier 1 Imports, Inc. Stock Purchase Plan under which the Company's common stock is purchased on behalf of employees at market prices through regular payroll...

  • Page 78
    ..., 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 79
    ... Master Trust had $100,000,000 of outstanding 2001-1 Class A Certificates issued to a third party through September 6, 2006. The 2001-1 Class A Certificates bore interest at a floating rate equal to the rate on commercial paper issued by the third party plus a credit spread. Since the securitization...

  • Page 80
    ... ...Total provision (benefit) for income taxes ... The Company files a U.S. federal income tax return and income tax returns in various states and foreign jurisdictions. The Company has settled and closed all Internal Revenue Service (''IRS'') examinations of the Company's tax returns for all years...

  • Page 81
    ...the statutory federal income tax rate of 35% in fiscal 2009, 2008 and, 2007, and income tax reported in continuing operations in the consolidated statements of operations is as follows (in thousands): 2009 2008 2007 Tax benefit at statutory federal income tax rate State income taxes, net of federal...

  • Page 82
    ... tax positions were $13,908,000. On a quarterly and annual basis, the Company accrues for the effects of open uncertain tax positions. A summary of amounts recorded for unrecognized tax benefits at the beginning and end of fiscal 2009 and 2008 are presented below, in thousands: Unrecognized Tax...

  • Page 83
    ... During the fourth quarter of fiscal 2006, the Company's Board of Directors authorized management to sell its operations of The Pier with stores located in the United Kingdom and Ireland. The Company met the criteria of SFAS 144 that allowed it to classify The Pier as held for sale and present its...

  • Page 84
    ... 2010. NOTE 14-SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for the years ended February 28, 2009 and March 1, 2008 are set forth below (in thousands except per share amounts): Fiscal 2009 5/31/2008 Three Months Ended 8/30/2008 11/29/2008 2/28/2009 Net sales...

  • Page 85
    ... registered public accounting firm, has audited the Company's internal control over financial reporting as of February 28, 2009, as stated in their report which is included in this Annual Report on Form 10-K. /s/ Alexander W. Smith Alexander W. Smith President and Chief Executive Officer /s/ Charles...

  • Page 86
    ... internal control over financial reporting as of February 28, 2009, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Pier 1 Imports, Inc. as of February 28, 2009...

  • Page 87
    ...the section entitled ''Matters Relating to Corporate Governance, Board Structure, Director Compensation and Stock Ownership-Non-Employee Director Compensation for the Fiscal Year Ended February 28, 2009'' set forth in the Company's Proxy Statement for its 2009 Annual Meeting of Shareholders. Item 12...

  • Page 88
    ... Shareholders' Equity for the Years Ended February 28, 2009, March 1, 2008 and March 3, 2007 Notes to Consolidated Financial Statements 2. Financial Statement Schedules Schedules have been omitted because they are not required or are not applicable or because the information required to be set forth...

  • Page 89
    ... undersigned, thereunto duly authorized. PIER 1 IMPORTS, INC. Date: April 28, 2009 By: /s/ ALEXANDER W. SMITH Alexander W. Smith, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons...

  • Page 90
    Signature Title Date /s/ KAREN W. KATZ Karen W. Katz Director April 28, 2009 /s/ TERRY E. LONDON Terry E. London Director April 28, 2009 /s/ CECE SMITH Cece Smith Director April 28, 2009 83

  • Page 91
    ...2006, among Pier 1 Imports, Inc., the Guarantors parties thereto and the Initial Purchaser named therein, incorporated herein by reference to Exhibit 4.3 to the Company's Form 8-K filed February 16, 2006. Form of Indemnity Agreement between the Company and the directors and executive officers of the...

  • Page 92
    ...for the quarter ended May 31, 2008. Amendment to the Pier 1 Imports, Inc. Stock Purchase Plan. Secured Credit Agreement, dated November 22, 2005, among the Company, certain of its subsidiaries, Bank of America, N.A., Wells Fargo Retail Finance, LLC, Wachovia Bank, National Association, HSBC Bank USA...

  • Page 93
    ... the Company's Form 10-K for the year ended March 1, 2008. Pier 1 Imports Non-Employee Director Compensation Plan, as amended December 15, 2008, incorporated by reference to Exhibit 10.7 to the Company's Form 10-Q for the quarter ended November 29, 2008. Pier 1 Imports Benefit Restoration Plan I, as...

  • Page 94
    ... 2007. Amendment No. 2 to the Credit Card Program Agreement by and among Pier 1 Imports (U.S.), Inc. and Chase Bank USA, N.A., incorporated herein by reference to Exhibit 10.4 to the Company's Form 10-Q for the quarter ended September 1, 2007. Real Estate Purchase Agreement by and between Chesapeake...

  • Page 95
    Notice of Annual Meeting of Shareholders Proxy Statement Proxy 2009 Annual Report

  • Page 96
    ... of directors and management cordially invite you to attend Pier 1 Imports' annual meeting of shareholders to be held at 10:00 a.m., local time, on Wednesday, July 1, 2009, at Pier 1 Imports' corporate headquarters, Mezzanine Level, Conference Center Room C, 100 Pier 1 Place, Fort Worth, Texas 76102...

  • Page 97
    ... local time, at Pier 1 Imports' corporate headquarters, Mezzanine Level, Conference Center Room C, 100 Pier 1 Place, Fort Worth, Texas 76102 for the following purposes: (1) to elect as directors the eight nominees named in the attached proxy statement to hold office until the next annual meeting of...

  • Page 98
    ... you this full set of proxy materials, including a proxy card; and (ii) notifying you of the availability of our proxy materials on the Internet. The Notice of Annual Meeting, Proxy Statement and 2009 Annual Report are available on our web site at http://www.pier1.com/annualreport. Additionally, you...

  • Page 99
    ... annual meeting of shareholders on July 1, 2009, beginning at 10:00 a.m., local time. The annual meeting will be held at Pier 1 Imports' corporate headquarters, Mezzanine Level, Conference Center Room C, 100 Pier 1 Place, Fort Worth, Texas 76102. Shareholders will be admitted to the annual meeting...

  • Page 100
    ... come before the annual meeting or any adjournment or postponement of the meeting. Who is entitled to vote at the annual meeting? Holders of Pier 1 Imports' common stock at the close of business on May 4, 2009, are entitled to receive this notice and to vote their shares at the annual meeting...

  • Page 101
    ... notice to our corporate secretary at 100 Pier 1 Place, Fort Worth, Texas 76102; • timely delivery of a valid, later-dated proxy; or • voting in person at the annual meeting. If you are a beneficial owner of shares, you may submit new voting instructions by contacting your broker, bank or other...

  • Page 102
    ... to vote at the annual meeting will be available at the annual meeting and for ten days prior to the meeting for any purpose germane to the meeting, between the hours of 8:00 a.m. and 5:00 p.m., local time, at our corporate headquarters at 100 Pier 1 Place, Fort Worth, Texas 76102, by contacting our...

  • Page 103
    ... VOTE REQUIRED Election of Directors Majority of the shares entitled to vote present in person or represented by proxy at the annual meeting Majority of the outstanding shares entitled to vote on the proposal Yes Amendment of Certificate of Incorporation of Pier 1 Imports, Inc. (Reverse Stock...

  • Page 104
    ... your home or business, and also will give you an electronic link to the proxy voting site. Shareholders of Record: You may enroll in MLinkSM offered by Pier 1 Imports' transfer agent, Mellon Investor Services LLC, for online access to our future proxy statement and annual report materials by going...

  • Page 105
    ...Relations Department in writing at Pier 1 Imports, Inc., Attn.: Investor Relations Department, 100 Pier 1 Place, Fort Worth, Texas 76102, or by telephone at (817) 252-7835 or toll-free at (888) 807-4371. Director Independence It is Pier 1 Imports' policy that the board of directors will at all times...

  • Page 106
    ...directors, 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...

  • Page 107
    ...business experience; and • chief executive officer, chief financial officer or other senior management experience. Internal Process for Identifying Candidates Members of the nominating and corporate governance committee or other Pier 1 Imports directors or executive officers may, from time to time...

  • Page 108
    ... board of directors in overseeing Pier 1 Imports' accounting, auditing, financial reporting and systems of internal controls. As part of its duties, the audit committee is directly responsible for the appointment, compensation, retention and oversight of Pier 1 Imports' independent registered public...

  • Page 109
    ... of total compensation and non-employee director compensation. The market data was from a peer group of specialty retailers, all of which were publicly traded at the time the market data was provided. Executive Committee. The executive committee directs and manages Pier 1 Imports' business and...

  • Page 110
    ... to DSU's based on the closing price of Pier 1 Imports' common stock on the day the fees are paid. The DSU's are credited to an account maintained by Pier 1 Imports for each non-employee director. Each DSU is the economic equivalent of one share of Pier 1 Imports' common stock. Each DSU is eligible...

  • Page 111
    ... units and cash fees, for the period of service as a director, and (ii) DSU's are paid in cash to the extent applicable plan limitations at such time preclude distributions of Pier 1 Imports' common stock. Fiscal 2009 Non-Employee Director Compensation Table The following table sets forth a summary...

  • Page 112
    ... for grant under the Pier 1 Imports, Inc. 2006 Stock Incentive Plan. The following table shows the Pier 1 Imports' common stock closing price by date used to calculate the number of DSU's to be received for deferred director fees plus Pier 1 Imports' match. This closing price also represents the...

  • Page 113
    ...Tom M. Thomas ... Total ... On December 15, 2008, the board of directors amended and restated Pier 1 Imports' non-employee director compensation plan. Pursuant to the amended and restated plan, each non-employee director will continue to receive an annual cash retainer of $150,000. In addition, the...

  • Page 114
    ...1 Imports, Inc. 2006 Stock Incentive Plan's maximum calendar year limit of 375,000 units per individual. Security Ownership of Management The following table indicates the ownership of Pier 1 Imports' common stock by each director and nominee, each executive officer named in the Summary Compensation...

  • Page 115
    ...28, 2009''. A DSU is the economic equivalent of one share of Pier 1 Imports' common stock. (3) Mr. Walker's employment ended on August 15, 2008. At that time, Mr. Walker directly owned 57,493 shares of Pier 1 Imports' common stock, and non-qualified stock options totaling 639,500 shares. The options...

  • Page 116
    ... Exchange Act of 1934 requires Pier 1 Imports' directors and executive officers, and persons who own more than 10% of a registered class of Pier 1 Imports' equity securities to file with the SEC and the NYSE reports disclosing their ownership and changes in ownership of Pier 1 Imports' common stock...

  • Page 117
    ... of management at Drake University. ROBERT B. HOLLAND, III Robert B. Holland, III, age 56, has been a director of Pier 1 Imports since June 2007. During fiscal 2009, he was a member of the compensation committee. He represented the United States on the board of executive directors of the World Bank...

  • Page 118
    ... executive vice president, group executive, international of The TJX Companies, Inc. He also serves as a director and chairman of the compensation committee of Papa John's International, Inc. Mr. Smith is not related to Cece Smith. CECE SMITH Cece Smith, age 64, has been a director of Pier 1 Imports...

  • Page 119
    ... 1-for-15, or 1-for-20). Approval of this proposal by the shareholders would give the board of directors authority to implement the reverse stock split at any time on or before the day prior to the 2010 annual meeting of shareholders. In addition, notwithstanding the approval of this proposal by the...

  • Page 120
    ...fractional shares following the aggregation and sale by the exchange agent of all fractional shares otherwise issuable. At the close of business on May 4, 2009, Pier 1 Imports had 90,489,276 shares of common stock issued and outstanding. Based on the number of shares of common stock currently issued...

  • Page 121
    ... shares of Pier 1 Imports' common stock based on the reverse stock split ratio selected by the board of directors. Pier 1 Imports' common stock is currently registered under Section 12(b) of the Securities Exchange Act of 1934 (the ''Exchange Act'') and we are subject to the periodic reporting...

  • Page 122
    ... number of all outstanding equity awards, the number of shares available for issuance and awardable and the exercise price, grant price or purchase price relating to any award under Pier 1 Imports' Stock Plans will be proportionately adjusted using the split ratio selected by the board of directors...

  • Page 123
    ... by one or more physical stock certificates) will be required to exchange their old stock certificate(s) (''Old Certificate(s)'') for shares held in book-entry form through the Depository Trust Company's Direct Registration System representing the appropriate number of shares of Pier 1 25

  • Page 124
    ...(s) in exchange for new shares held in book-entry form. Pursuant to applicable rules of the NYSE, your Old Certificate(s) representing pre-split shares cannot be used for either transfers or deliveries made on the NYSE. Accordingly, you must exchange your Old Certificate(s) in order to effect...

  • Page 125
    ... of a fractional share interest will not give the holder any voting, dividend or other rights, except to receive the abovedescribed cash payment. Pier 1 Imports will be responsible for any brokerage fees or commissions related to the exchange agent's selling in the open market shares that would...

  • Page 126
    ... one year at the Effective Time. Information Reporting and Backup Withholding. Information returns generally will be required to be filed with the IRS with respect to the receipt of cash in lieu of a fractional share of Pier 1 Imports' common stock pursuant to the reverse stock split in the case of...

  • Page 127
    ... States for 183 days or more during the year of the reverse stock split will be taxed on their gain (including gain from the sale of shares of Pier 1 Imports' common stock and net of applicable U.S. losses from sales or exchanges of other capital assets recognized during the year) at a flat rate...

  • Page 128
    ...change the number of authorized shares of Pier 1 Imports' common stock. The reduction in the par value would reduce the amount required to be carried by Pier 1 Imports as stated capital, thereby potentially increasing our paid-in capital available for other corporate purposes. The board of directors...

  • Page 129
    ... of directors' authority to issue such shares and to eliminate the terms and provisions of the Formula Rate Preferred Stock currently set forth in the Certificate of Incorporation. The purpose for increasing the number of authorized shares of preferred stock is to give Pier 1 Imports the flexibility...

  • Page 130
    ...directors to issue such shares, and to eliminate the terms and provisions of the Formula Rate Preferred Stock currently set forth in the Certificate of Incorporation. ITEM 5-Proposal to Ratify the Audit Committee's Approval to Engage Ernst & Young LLP as Pier 1 Imports' Independent Registered Public...

  • Page 131
    ...of common stock entitled to vote present in person or represented by proxy at the annual meeting is required to ratify the approval to engage Ernst & Young LLP as Pier 1 Imports' independent registered public accounting firm for fiscal 2010. If a proxy card is signed and returned but no direction is...

  • Page 132
    ...-described review and discussions with management and the independent registered public accounting firm, the committee recommended to the board of directors that Pier 1 Imports' audited consolidated financial statements be included in Pier 1 Imports' Annual Report on Form 10-K for the fiscal year...

  • Page 133
    ...to hold at least $2,000 of Pier 1 Imports' common stock through the date of Pier 1 Imports' annual shareholders meeting. Mr. Thompson's address is c/o The City of New York, Office of the Comptroller, Bureau of Asset Management, 1 Centre Street, Room 736, New York, New York 10007-2341. To be approved...

  • Page 134
    ... payments among earnings used to calculate supplemental executive retirement plan (SERP) benefit levels, guaranteeing excessive levels of lifetime income through inflated pension payments. We believe the Company's Plan fails to promote the pay-for-superior-performance principle. Our Proposal offers...

  • Page 135
    ... key management participants received any incentive payments with respect to the fiscal 2009 performance of Pier 1 Imports. For fiscal 2009, Pier 1 Imports' long-term incentive plan for senior executives consisted of stock option awards and restricted stock awards (time-based) issued under the Pier...

  • Page 136
    ... and achievable annual and long-term incentive plans for its senior executives and key management team. An incentive compensation program that could permit payments to senior executives in certain circumstances when Pier 1 Imports has performed below its own expectations would fall well short of...

  • Page 137
    ...Pier 1 Imports' results significantly exceed planned financial goals. For fiscal 2009, Pier 1 Imports used a group of peer companies to benchmark executive perquisites, the base salary, short-term incentive and long-term incentive elements of total compensation and non-employee director compensation...

  • Page 138
    ...(planning and execution), people leadership (influence and execution), and personal leadership (the ability to trust, adapt and learn). In fiscal 2009, however, Pier 1 Imports management, through its human resources compensation group and Pier 1 Imports' chief executive officer, supplemented by data...

  • Page 139
    ... to support Pier 1 Imports' overall objectives of long-term company success and performance, competitiveness in the retail industry, and retention of executives. Pier 1 Imports' long-term incentive plan for fiscal 2009 was comprised of stock option awards and time-based restricted stock awards. Pier...

  • Page 140
    ... non-public information based on equity award grant dates. Pier 1 Imports' practice is for the date of grants of stock options and restricted stock for named executive officers to be the same date as grants for all other employees. Perquisites-In light of then current trends regarding the payment of...

  • Page 141
    ... of Pier 1 Imports' common stock at a price of $6.69 per share. The Options were granted as an employment inducement award, and not under any stock option or other equity incentive plan adopted by Pier 1 Imports. Option 1 for 1,000,000 shares was time-based and vested in full on February 19, 2008...

  • Page 142
    ...of Pier 1 Imports' chief executive officer and human resources compensation group on those elements of compensation, plus recommended plan design changes, if any, and a summary of all awards to all eligible levels of management. From time to time, these types of presentations may include survey data...

  • Page 143
    ... director. Shares counted toward ownership include open market purchases, beneficial ownership, exercise of stock options, DSU's, and lapse of restrictions on restricted stock. Pier 1 Imports does not have equity or other security ownership requirements or guidelines for its executive officers. Pier...

  • Page 144
    ... be required but for the fact that the individual was not serving as a Pier 1 Imports executive officer at the fiscal year-end. Change in Pension Value and Non-Equity Non-Qualified Incentive Deferred Stock Option Plan Compensation All Other Awards(3) Awards(4) Compensation Earnings(5) Compensation...

  • Page 145
    ...% of the long-term applicable Federal Rate at the time the rate for the plan was selected and the annual interest credited in calendar years 2009, 2008 and 2007 of 7.39%, 7.03% and 7.05%, respectively, by Pier 1 Imports on salary deferred by the named executive officers plus Pier 1 Imports match 47

  • Page 146
    ... Pier 1 Imports non-qualified deferred compensation plan known as the Benefit Restoration Plan II, which is subject to the same vesting requirements as Pier 1 Imports' 401(k) Retirement Plan; and (c) Pier 1 Imports matching contributions to the named executive officer's Stock Purchase Plan account...

  • Page 147
    ... Pier 1 Imports non-qualified deferred compensation plan known as the Benefit Restoration Plan II, which is subject to the same vesting requirements as Pier 1 Imports' 401(k) Retirement Plan; and (c) Pier 1 Imports matching contributions to the named executive officer's Stock Purchase Plan account...

  • Page 148
    ...of plan-based awards during the fiscal year ended February 28, 2009 to the executive officers named in the Summary Compensation Table. Pier 1 Imports distributes long-term incentive awards as soon as possible following receipt of all required approvals. Stock options are granted at the closing price...

  • Page 149
    ... price for the stock options granted, which was the closing market price of Pier 1 Imports' common stock on April 11, 2008. This column shows the full grant date fair value of the time-based restricted stock awards and the stock options to the named executive officers under SFAS 123R in fiscal 2009...

  • Page 150
    ... was determined using the closing price of Pier 1 Imports' common stock of $0.21 (the NYSE closing price on February 27, 2009, which was the last business day of fiscal 2009). Option Awards Stock Awards Equity Incentive Equity Plan Incentive Awards: Plan Market or Awards: Payout Market Number of...

  • Page 151
    ... the stated amount. (6) Upon the termination of Mr. Walker's employment on August 15, 2008, all unvested restricted stock awards (time and performance-based) were forfeited. Given Mr. Walker's age and years of service as of the date his employment ended, Mr. Walker's unvested options became 100...

  • Page 152
    ... 6, 2008, the forfeiture restrictions lapsed on 1,980 shares with a market price of $3.88 as of that date. Pension Benefits Table for the Fiscal Year Ended February 28, 2009 Pier 1 Imports' chief executive officer and the named executive officers other than Ms. Leite participate in a plan which...

  • Page 153
    ... the present value of each named executive officer's total accumulated benefit under Pier 1 Imports' Supplemental Retirement Plan as of the fiscal year ended February 28, 2009. Number of Years Credited Service(1) (#) Present Value of Accumulated Benefit ($) Payments During Last Fiscal Year ($) Name...

  • Page 154
    ... management and highly compensated employees of Pier 1 Imports to defer current compensation (generally W-2 earnings). Additionally, Pier 1 Imports recognizes the value of the past and present services of employees participating in the BRP by making matching contributions to employee deferrals plus...

  • Page 155
    ... in Pier 1 Imports' matching contributions plus earnings after six years of service with Pier 1 Imports. Each participant's deferral amount plus the Pier 1 Imports match is credited at least quarterly with an amount of interest at an annual rate equal to Moody's Corporate Bond Index plus 1%. Over...

  • Page 156
    ... 2009 in the Pier 1 Imports Benefit Restoration Plan II. Executive contribution amounts are included in each named executive officer's salary amount in the Summary Compensation Table above. (2) Reflects Pier 1 Imports' matching contribution credited to the account of each named executive officer...

  • Page 157
    ..., 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 February 28, 2009 and, where applicable, using the closing price of Pier 1 Imports' common stock of $0.21 (the NYSE closing price on...

  • Page 158
    ...Termination Retirement ($) ($) Alexander W. Smith Employment Agreement Compensation/Benefits Supplemental Retirement Plan(1) Benefit Payment ...Insurance Premiums . Stock Options ...Charles H. Turner Supplemental Retirement Plan(1) Benefit Payment ...Insurance Premiums . Restricted Stock Awards Time...

  • Page 159
    ... policy of the Committee to fully vest or accelerate restricted stock awards upon a participant's death or disability. Value shown is market price on February 28, 2009 of $0.21 per share times the number of shares. Grants of stock options under the Pier 1 Imports, Inc. 1999 Stock Plan (''1999 Plan...

  • Page 160
    ...statements in the 2009 Form 10-K, and the Compensation Discussion and Analysis and the Summary Compensation Table above for additional information regarding the material features of these stock option grants. OTHER BUSINESS Pier 1 Imports does not plan to act on any matters at the meeting other than...

  • Page 161
    YOUR VOTE IS IMPORTANT You are encouraged to let us know your preference by completing and returning the enclosed proxy card or by voting by telephone or the Internet. 5MAY200911384635 Michael A. Carter Senior Vice President and General Counsel, Secretary May 27, 2009 63

  • Page 162
    ... immediately prior to the Effective Time shall automatically be combined into one (1) validly issued, fully paid and non-assessable share of Common Stock, par value [$1.00 or $0.001] per share. The Corporation publicly announced this ratio on [ ], [2009 or 2010]. THIRD: This Certificate of Amendment...

  • Page 163
    IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be duly executed in its corporate name as of the [ ] day of [ ], [2009 or 2010]. Pier 1 Imports, Inc. By: /s/ MICHAEL A. CARTER Name: Michael A. Carter Title: Senior Vice President and General Counsel, Secretary A-2

  • Page 164
    ... No shares of the Corporation's Formula Rate Preferred Stock are outstanding, all outstanding shares having been redeemed in accordance with their terms on or about September 18, 1991. Accordingly, upon the Effective Time, all provisions relating to the Formula Rate Preferred Stock, which were added...

  • Page 165
    ... of Incorporation of the Company, the Board of Directors hereby authorizes the issuance of up to 5,000,000 shares of the Preferred Stock of the Company, and hereby fixes the designation, powers, preferences and relative, participating, optional or other special rights, and the qualifications...

  • Page 166
    by the Board of Directors from time to time; provided, however, that in the event the Company effects a stock split, either by way of a lawful stock dividend to the holders of, or a reclassification of the shares of, the Formula Rate Preferred Stock, then the amount of dividend per share which the ...

  • Page 167
    ... the Company, or within 20 days after mailing the same within the United States of America by registered mail addressed to the Secretary of the Company at its principal office, then the holders of record of at least 10% of the number of shares of Formula Rate Preferred Stock at the time outstanding...

  • Page 168
    ... or at any time after February 1, 1990 (the date on which the Company gives notice for such redemption is called the ''Redemption Date'') all, but not less than all, of the shares of the Formula Rate Preferred Stock which are issued and outstanding as of the Redemption Date, upon the payment of the...

  • Page 169
    ... with the immediately preceding resolution, the proper officers of the Corporation be, and they hereby are, authorized and directed to make and execute a Certificate of Amendment to the Certificate of Incorporation of the Corporation, setting forth the resolution to so amend the Certificate...

  • Page 170
    IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be duly executed in its corporate name as of the [ ] day of [ ], 2009. Pier 1 Imports, Inc. By: /s/ MICHAEL A. CARTER Name: Michael A. Carter Title: Senior Vice President and General Counsel, Secretary B-7

  • Page 171
    ... 2009 Reminder: You must present your admission ticket at the admissions table in order to attend the Pier 1 Imports, Inc. Annual Meeting of Shareholders. Doors will open at 9:00 a.m., local time. Below are directions to Pier 1 Imports' corporate headquarters located at 100 Pier 1 Place / 100 Energy...

  • Page 172
    ... 1 Imports, Inc. BOARD OF DIRECTORS DIRECTORS AND EXECUTIVE OFFICERS 100 Pier 1 Place Fort Worth, Texas 76102 817-252-8000 www.pier1.com COMMON STOCK Approximately 10,000 shareholders of record Traded on the New York Stock Exchange (the "NYSE") Symbol: PIR INDEPENDENT REGISTERED PUBLIC ACCOUNTING...

  • Page 173