Pier 1 2010 Annual Report Download

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2010 Annual Report
Annual Meeting of Shareholders
June 29, 2010

Table of contents

  • Page 1
    2010 Annual Report Annual Meeting of Shareholders June 29, 2010

  • Page 2
    PIER 1 IMPORTS IS THE PLACE TO DISCOVER UNIQUE HOME FURNISHINGS AND GIFTS FROM AROUND THE WORLD. Our authentic and distinctive merchandise reflects the diverse cultures of the many countries we explore. We offer a broad assortment of items and styles, with something for everyone - useful, decorative...

  • Page 3
    ... robust and effective business model, which delivers highly favorable results. We work closely with creative and reliable vendors to deliver unique and authentic products to our customers. We have extraordinarily talented and passionate associates who really care about Pier 1 Imports and bring their...

  • Page 4
    ... our net closings to below 15 stores with a plan for new net openings in fiscal 2012. Last year in our shareholder letter we talked about our eight business priorities which keep us focused on great merchandise, great stores and a lean and efficient infrastructure. They have served us well and will...

  • Page 5
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  • Page 6

  • Page 7
    ... No. 001-07832 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) Company's telephone number, including area code: (817) 252...

  • Page 8
    ... About Market Risk. Financial Statements and Supplementary Data. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Controls and Procedures. Other Information. PART III Item 10. Item 11. Item 12. Item 13. Item 14. Directors, Executive Officers and Corporate...

  • Page 9
    ... Baltimore, Maryland; Columbus, Ohio; Fort Worth, Texas; Ontario, California; Savannah, Georgia; and Tacoma, Washington. The Company ceased operations at its Company-owned 514,000 square foot distribution center near Chicago, Illinois, at the end of the first quarter of fiscal 2010. The Company has...

  • Page 10
    .... FURNITURE - This merchandise group consists of furniture and furniture cushions to be used in living, dining, office, kitchen and bedroom areas, sunrooms, and on patios. Also included in this group are wall decorations and mirrors. This product group constituted approximately 40% of Pier 1 Imports...

  • Page 11
    ...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 the date of purchase without limitation as to reason. Most...

  • Page 12
    ... suitable store sites and distribution center locations, the availability of a qualified labor force and management, the availability and proper functioning of technology and communications systems supporting the Company's key business processes, the ability of the Company to import merchandise from...

  • Page 13
    ... State of Texas. Prior to joining the Company, Mr. Carter practiced law with the Fort Worth, Texas law firm of Brackett and Ellis, LLP. DONALD L. KINNISON, age 52, was named Senior Vice President of Marketing and Visual Merchandising in March 2008 and was named an officer of the Company in July 2009...

  • Page 14
    ...regional distribution centers in Maryland, Ohio, Texas, California, Georgia and Washington. At these distribution centers, merchandise is received, allocated, and shipped to the Company's stores. Major catastrophic events such as fire or flooding, malfunction or disruption of the information systems...

  • Page 15
    ... has business relationships with third parties to provide essential services such as the extension of credit to its customers and maintenance of the Company's rewards program. The Company makes a diligent effort to ensure that all providers of these services are observing proper internal control...

  • Page 16
    ... competitive specialty retail business competing with specialty sections of large department stores, home furnishing stores, small specialty stores and mass merchandising discounters. Management believes that as it is competing for sales, it does so on the basis of pricing and quality of products...

  • Page 17
    ... 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 18
    ... in the form of penalties. Risks Associated with International Trade As a retailer of imported merchandise, the Company is subject to certain risks that typically do not affect retailers of domestically produced merchandise. The Company may order merchandise well in advance of delivery and generally...

  • Page 19
    ... the Company's import costs or limit the availability of merchandise purchased from sanctioned countries. In that case, the Company may be required to seek similar merchandise from other countries. Risks Relating to Liquidity A disruption in the global credit and equity markets could adversely...

  • Page 20
    ...sell this property. As of February 27, 2010, the Company owned or leased under operating leases the following warehouse properties in or near the following cities: Location Baltimore, Maryland Chicago, Illinois Columbus, Ohio Fort Worth, Texas Ontario, California Savannah, Georgia Tacoma, Washington...

  • Page 21
    Item 3. Legal Proceedings. The Company is a party to various legal proceedings and claims in the ordinary course of its business. The Company believes that the outcome of these matters will not have a material adverse effect on its consolidated financial position, results of operations or ...

  • Page 22
    ... 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 for each quarter of fiscal...

  • Page 23
    ... 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 February 27, 2010. The information used in the graph below was obtained from Bloomberg. PIER 1 IMPORTS...

  • Page 24
    ...and prior years. All financial information in this report relates to continuing operations, unless stated otherwise. The decrease in selling, general and adminstrative expenses for fiscal years 2010, 2009 and 2008 relate primarily to initiatives to reduce costs Company-wide. See detailed description...

  • Page 25
    ... "Company") is a global importer and is one of North America's largest specialty retailers of imported decorative home furnishings and gifts. The Company directly imports merchandise from many countries, and sells a wide variety of decorative accessories, furniture collections, bed and bath products...

  • Page 26
    ...loyal customer base. Going forward, the Company plans to broaden communications to target new and former customers by using more mass acquisition mediums. Marketing expense for fiscal 2011 is currently expected to remain around 4.5% of sales. Management will continue its efforts to lower real estate...

  • Page 27
    ... until it meets the Company's established definition of a comparable store. FISCAL YEARS ENDED FEBRUARY 27, 2010 AND FEBRUARY 28, 2009 Net Sales Net sales consisted almost entirely of sales to retail customers, net of discounts and returns, but also included delivery revenues and wholesale sales and...

  • Page 28
    ...de C.V. which sells Pier 1 Imports merchandise primarily in a "store within a store" format. At the end of fiscal 2010, there were 35 of these locations in Mexico. During the third quarter of fiscal 2010, the company ended its relationship with Sears Roebuck de Puerto Rico, Inc. and closed all seven...

  • Page 29
    ... in total number of stores as well as planned efficiencies in store staffing compared to fiscal 2009. Marketing expense increased $2.0 million and 20 basis points as a percentage of sales as a result of an increase in the number of newspaper inserts, radio advertising and internet media in the...

  • Page 30
    ... of $8.1 million in fiscal 2009. During the first quarter of fiscal 2010, a foreign subsidiary of the Company purchased $78.9 million of the Company's outstanding 6.375% convertible senior notes due 2036 (the "6.375% Notes") in privately negotiated transactions at a purchase price of $27.4 million...

  • Page 31
    ... 50 basis points on both net sales and comparable store calculations in fiscal 2009 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. 25

  • Page 32
    ...(1) The Company supplies merchandise and licenses the Pier 1 Imports name to Grupo Sanborns, S.A. de C.V. and Sears Roebuck de Puerto Rico, Inc. which sell Pier 1 Imports merchandise primarily in a "store within a store" format. At the end of fiscal 2009, there were 35 and seven locations in Mexico...

  • Page 33
    ... of approximately $9.2 million from $39.8 million in fiscal 2008. This decrease was primarily the result of the sale of the home office building and related assets during fiscal 2009, lower net book values on certain store-level long-lived assets because of impairment charges taken during and since...

  • Page 34
    ... leasehold improvements for stores, $2.2 million for information systems enhancements and $0.6 million related to the Company's distribution centers. Financing activities for fiscal 2010 used a net $35.7 million, primarily as a result of the use of $31.6 million to purchase and subsequently retire...

  • Page 35
    ... granted pursuant to approved plans. The Company does not currently have authorization from its Board of Directors to repurchase shares of its common stock in the open market. A summary of the Company's contractual obligations and other commercial commitments as of February 27, 2010 is listed below...

  • Page 36
    ... costs associated with improving its store portfolio. At the end of fiscal 2010, the Company had ceased operations at the Chicago distribution center and plans to sell the property. If the property is sold, the Company intends to repay the industrial revenue bonds related to the distribution center...

  • Page 37
    ... are sales, management of inventory levels, vendor payment terms, management of expenses, and capital expenditures. The Company's focus remains on making conservative inventory purchases, managing those inventories, continuing to evolve the Company's merchandise offering, and improving the in-store...

  • Page 38
    ... estimated merchandise returns may be required. Gift cards - Revenue associated with gift cards is recognized when merchandise is sold and a gift card is redeemed as payment. Gift card breakage is estimated and recorded as income based upon an analysis of the Company's historical data and expected...

  • Page 39
    ... such as the discount rate, compensation 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. Stock-based compensation - The fair value of stock options is amortized as...

  • Page 40
    ... the Company's gain on the transactions included the write off of a portion of this unamortized discount. As of February 27, 2010, the remaining unamortized discount related to the 6.375% Notes totaled $142,000. Fair Value Measurements and Disclosure In April 2009, new guidance was issued related to...

  • Page 41
    ...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 those...

  • Page 42
    ... 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 27, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations...

  • Page 43
    Pier 1 Imports, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per share amounts) Year Ended 2009 $ 1,320,677 $ 2010 Net sales Operating costs and expenses: Cost of sales (including buying and store occupancy costs) Selling, general and administrative expenses Depreciation and ...

  • Page 44
    ...Current liabilities: Accounts payable Current portion convertible debt Gift cards and other deferred revenue Accrued income taxes payable Other accrued liabilities Total current liabilities Long-term debt Other noncurrent liabilities Shareholders' equity: Common stock, $0.001 par, 500,000,000 shares...

  • Page 45
    ...1,124 (1) Interest paid in fiscal 2010 includes $13,782 in make-whole interest related to the conversion of the Company's 9% Senior Convertible Notes due 2036. See Note 5 of the Notes to Consolidated Financial Statements for further information regarding this payment. The accompanying notes are an...

  • Page 46
    ...(loss), net of tax as applicable: Pension adjustments Currency translation adjustments Comprehensive income Restricted stock compensation Stock option compensation expense Stock purchase plan, directors deferred, and other Adoption of new accounting guidance on convertible debt Beneficial conversion...

  • Page 47
    ...AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization - Pier 1 Imports, Inc. (together with its consolidated subsidiaries, the "Company") 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...

  • Page 48
    ... average cost or market value. Cost is calculated based upon the actual landed cost of an item at the time it is received in the Company's warehouse using vendor invoices, the cost of warehousing and transporting merchandise to the stores and other direct costs associated with purchasing merchandise...

  • Page 49
    ...franchise stores in fiscal 2008. 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 50
    ... 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 51
    ... for any unvested stock option awards outstanding on a straight-line basis over the requisite service period. The fair values of the options are calculated using a Black-Scholes option pricing model. The Company records compensation expense for stock-based awards with a performance condition...

  • Page 52
    ... NOTE 4 - COSTS ASSOCIATED WITH EXIT ACTIVITIES As part of the ordinary course of business, the Company terminates leases prior to their expiration when certain stores or distribution center facilities are closed or relocated as deemed necessary by the evaluation of its real estate portfolio. These...

  • Page 53
    ... in the Company's consolidated statements of operations. The write-off of fixed assets and associated intangible assets related to Pier 1 Imports store closures, excluding clearance and Pier 1 Kids stores, was approximately $177,000, $56,000 and $751,000 in fiscal 2010, 2009 and 2008, respectively...

  • Page 54
    ...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 rate, including standby letter of credit fees, was 3.2%, 3.5% and 5.2% for fiscal 2010, 2009 and 2008, respectively...

  • Page 55
    ... 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 conversion feature of the 6.375% Notes and the call option each met the requirements of the accounting guidance on financial instruments...

  • Page 56
    ...notes were converted into common stock during the third quarter, the remaining unamortized debt discount and debt issuance costs of $13,616,000 were charged to interest expense at that time. Effective March 1, 2009, the Company adopted the new guidance on "Accounting for Convertible Debt Instruments...

  • Page 57
    ... and bankers acceptances for merchandise purchases, $45,950,000 related to standby letters of credit for the Company's workers' compensation and general liability insurance policies, $19,429,000 related to standby letters of credit related to the Company's industrial revenue bonds, and $9,100,000...

  • Page 58
    ... The Company registered these notes with the Securities and Exchange Commission...information is presented below. CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Year Ended February 27, 2010 (in thousands) Pier 1 Imports, Inc. Net sales Cost of sales (including buying and store occupancy costs) Selling...

  • Page 59
    ... 28, 2009 (in thousands) Pier 1 Imports, Inc. Net sales Cost of sales (including buying and store occupancy costs) Selling, general and administrative (including depreciation and amortization) Operating income (loss) Nonoperating (income) expenses Income (loss) before income taxes Provision (benefit...

  • Page 60
    ... 97 38,530 69,750 3,548 $ 111,828 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable Intercompany payable (receivable) Current portion of convertible debt Gift cards and other deferred revenue Accrued income taxes payable (receivable) Other accrued liabilities Total current...

  • Page 61
    ...2009 (in thousands) Pier 1 Guarantor Non-Guarantor Imports, Inc. Subsidiaries Subsidiaries Eliminations ASSETS Current assets: Cash and cash equivalents Accounts...SHAREHOLDERS' EQUITY Current liabilities: Accounts payable Intercompany payable (receivable) Gift cards and other deferred revenue Accrued ...

  • Page 62
    ... of properties Proceeds from the sale of restricted investments Purchase of restricted investments Collections of a note receivable Net cash used in investing activities Cash flow from financing activities: Proceeds from stock options exercised, stock purchase plan and other, net Cash dividends...

  • Page 63
    ... 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 beginning...

  • Page 64
    ... 2010, 2009 and 2008, respectively. In addition, the Company offers non-qualified deferred compensation plans for the purpose of providing deferred compensation for certain employees whose benefits under the qualified plan may be limited under Section 401(k) of the Internal Revenue Code. The Company...

  • Page 65
    ... 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 $2,484,000, $3,210,000 and $3,511,000 in fiscal 2010, 2009 and 2008, respectively. The Plans...

  • Page 66
    ... 2010 and 2009 Weighted average assumptions used to determine: Benefit obligation, end of year: Discount rate Lump-sum conversion discount rate Rate of compensation increase (1) Net periodic benefit cost for years ended: Discount rate Lump-sum conversion discount rate Rate of compensation increase...

  • Page 67
    ... 27, 2010, there was a total of 3,983,748 shares available for grant under the 2006 Plan. Stock option grants - On January 27, 2007, the Board of Directors approved an employment agreement for the Company's President and Chief Executive Officer (the "CEO"). The employment agreement set forth that...

  • Page 68
    ... under certain conditions, such as a change in control of the Company, unless the Board of Directors determines otherwise prior to a change of control event. As of February 27, 2010, there were no shares available for grant under the 1999 Stock Plan. All future stock option grants will be made from...

  • Page 69
    ...model with the following weighted average assumptions: 2010 Weighted average fair value of options granted Risk-free interest rates Expected stock price volatility Expected dividend yields Weighted average expected lives 63 $0.33 1.70% 112.05% 0.00% 4 years 2009 $3.42 2.60% 51.29% 0.00% 5 years 2008...

  • Page 70
    ... stock-based compensation expense related to stock options of approximately $2,020,000, or $0.02 per share, $3,528,000, or $0.04 per share, and $4,278,000, or $ 0.05 per share, in fiscal 2010, 2009 and 2008, respectively. The Company recognized no net tax benefit related to stock based compensation...

  • Page 71
    ... for the director deferred stock awards was $149,000, $1,015,000 and $1,084,000 in fiscal 2010, 2009 and 2008, 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...

  • Page 72
    ... Chase. The sale was comprised of the Company's proprietary credit card receivables, certain charged-off accounts, and the common stock of Pier 1 National Bank. The Company received cash proceeds for the majority of the sales price and was entitled to receive additional proceeds of $10,750,000, plus...

  • Page 73
    ... 2008 or 2009 to elect to carry back such losses up to five years. This benefit resulted from the reversal of $55,856,000 of the Company's valuation allowance on its deferred tax asset for its net operating loss carryforwards that were carried back under the new law. The Internal Revenue Service...

  • Page 74
    ...,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 2010 and 2009 are presented below, in thousands: Unrecognized Tax Benefits - March 1, 2008 Gross...

  • Page 75
    ...000, $43,000 and $46,000, based upon a percentage of sales, and net of sublease incomes totaling $292,000, $281,000 and $332,000 in fiscal 2010, 2009 and 2008, respectively. During fiscal 2009, the Company sold its corporate headquarters building and accompanying land to Chesapeake Plaza, L.L.C., an...

  • Page 76
    ... individually or in aggregate, on the Company's financial position, results of operations or liquidity. NOTE 12 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for the years ended February 27, 2010 and February 28, 2009 are set forth below (in thousands except per...

  • Page 77
    ... the Exchange Act is (a) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is (b) accumulated and communicated to the Company's management, including the Chief Executive Officer and...

  • Page 78
    ...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 27, 2010 and February 28, 2009 and the related consolidated statements of operations, shareholders' equity and cash flows for each of...

  • Page 79
    ..." and "Matters Relating to Corporate Governance, Board Structure, Director Compensation and Stock Ownership - Director Independence" set forth in the Company's Proxy Statement for its 2010 Annual Meeting of Shareholders. Item 14. Principal Accounting Fees and Services. Information required by this...

  • Page 80
    ...' Equity for the Years Ended February 27, 2010, February 28, 2009 and March 1, 2008 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 81
    ... the undersigned, thereunto duly authorized. PIER 1 IMPORTS, INC. Date: April 28, 2010 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 82
    ... 3(ii) to the Company's Form 8-K filed on October 16, 2009. Indenture dated February 14, 2006 and Form of 6.375% Convertible Senior Notes due 2036, among Pier 1 Imports, Inc., the Subsidiary Guarantors parties thereto and JPMorgan Chase Bank, National Association, incorporated herein by reference...

  • Page 83
    ... to the Company's Form 10-Q for the quarter ended August 29, 2009. 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, N.A., JPMorgan Chase Bank...

  • Page 84
    ...to Pier 1 Imports, Inc. 2006 Stock Incentive Plan (Omnibus Plan) Restated as Amended Through March 25, 2008, incorporated herein by reference to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended November 28, 2009. Form of Restricted Stock Award Agreement - April 9, 2010 Performance-Based...

  • Page 85
    ...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 10.3 to the Company's Form 10-Q for the quarter ended November 28, 2009. Office Lease between Chesapeake Plaza, L.L.C and Pier 1 Services Company, dated...

  • Page 86
    99.1 99.2 Pier 1 Imports, Inc. Stock Purchase Plan Audit Report Description of Capital Stock *Management Contracts and Compensatory Plans

  • Page 87
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  • Page 88

  • Page 89
    ... 1 IMPORTS, INC. 100 Pier 1 Place Fort Worth, Texas 76102 May 17, 2010 Dear Shareholder: The board 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 Tuesday, June 29, 2010, at Pier 1 Imports' corporate...

  • Page 90

  • Page 91
    ... the annual meeting of shareholders of Pier 1 Imports, Inc., a Delaware corporation ("Pier 1 Imports"), will be held on Tuesday, June 29, 2010, at 10:00 a.m., local time, at Pier 1 Imports' corporate headquarters, Mezzanine Level, Conference Center Room C, 100 Pier 1 Place, Fort Worth, Texas 76102...

  • Page 92

  • Page 93
    PIER 1 IMPORTS, INC. 100 Pier 1 Place Fort Worth, Texas 76102 PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS To Be Held June 29, 2010 Questions and Answers Regarding the Proxy Statement and Annual Meeting Why did I receive a notice in the mail regarding the Internet availability of proxy ...

  • Page 94
    ...: 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 and notice of Internet availability of proxy materials by going to http://bnymellon.com/shareowner/isd and logging into...

  • Page 95
    ... 1 Imports' transfer agent, Mellon Investor Services LLC, you are considered, with respect to those shares, the "shareholder of record." The Notice and the Notice of Annual Meeting of Shareholders have been sent directly to you by us. If your shares are held in a stock brokerage account or by a bank...

  • Page 96
    ...the annual meeting by written 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...

  • Page 97
    ... 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 8:30 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 corporate secretary at (817) 252...

  • Page 98
    .... If you plan to attend the annual meeting, please bring it with you to the annual meeting. If you are a beneficial owner of shares and you plan to attend the annual meeting, you must present proof of your ownership of Pier 1 Imports' common stock, such as a bank or brokerage account statement, to...

  • Page 99
    ... request. To request either of these accommodations, please contact our Investor Relations Department on or before June 15, 2010. You may make your request by mail to Pier 1 Imports, Inc., Attn.: Investor Relations Department, 100 Pier 1 Place, Fort Worth, Texas 76102 or by telephone at (817) 252...

  • Page 100
    ... 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, or nominating and corporate governance committee by sending an email to [email protected]...

  • Page 101
    ... skills, perspectives and experience required of Pier 1 Imports' board of directors. 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, identify potential candidates...

  • Page 102
    ... directors at Pier 1 Imports' 2010 annual meeting of shareholders. Committees of the Board of Directors and Risk Oversight There are four standing committees of the board of directors. They are the audit committee, the compensation committee, the executive committee, and the nominating and corporate...

  • Page 103
    ... by Pier 1 Imports' 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 proposed awards to all eligible levels of management. That presentation may also include survey data from...

  • Page 104
    ... or recommend the amount or form of executive or non-employee director compensation. Executive Committee. The executive committee has the authority to manage Pier 1 Imports' business and affairs in the intervals between board of directors meetings. In doing so, the executive committee has all of the...

  • Page 105
    ...executive chairman of the board of directors receives an additional annual cash retainer of $75,000. The annual retainers for fiscal 2010 were paid on March 2, 2009. For fiscal 2010, non-employee directors did not receive stock option or restricted stock grants or meeting fees. All of Pier 1 Imports...

  • Page 106
    ... 22, 2009, which was the date the pro rata non-executive chairman of the board annual cash retainer was paid to Mr. Ferrari. These closing prices were used to calculate the number of DSU's to be received for deferred director fees plus any Pier 1 Imports' match. These closing prices also represent...

  • Page 107
    ...employee director on February 27, 2010 are shown below: Aggregate Number of Outstanding Stock Options...London Cece Smith As discussed, Mr. Thomas resigned as a director of Pier 1 Imports on August 21, 2009. At the time of his resignation, Mr. Thomas held unexercised stock option awards. Those awards...

  • Page 108
    ... as a director on April 19, 2010. As of that date, Mr. Holland did not hold any unexercised stock option awards, and the balance in his DSU account, after adjustment for the period of service following his resignation, was 150,083, and he was the beneficial owner of 25,000 shares of Pier 1 Imports...

  • Page 109
    ...' Code of Business Conduct and Ethics is available on its web site at www.pier1.com under the heading Investor Relations - Corporate Governance. The policy applies to any transaction or series of transactions in which Pier 1 Imports is a participant, the amount involved exceeds $120,000 annually...

  • Page 110
    ...Matters Relating to Corporate Governance, Board Structure, Director Compensation and Stock Ownership," the primary qualities and characteristics nominees to the board of directors should possess are management and leadership experience; knowledge relevant to the business of Pier 1 Imports; diversity...

  • Page 111
    ... has served on the board of directors since joining the Company as president and chief executive officer in February 2007. During fiscal 2010, Mr. Smith served as a member of the executive committee as well as a member of a special committee to address various corporate finance matters including the...

  • Page 112
    ...account the deducted funds plus Pier 1 Imports' contribution on the participant's behalf. The plan allows Pier 1 Imports as the plan administrator to use the contributed funds to purchase shares of Pier 1 Imports' common stock either on the open market or directly from Pier 1 Imports. No open market...

  • Page 113
    ... his or her compensation. The plan provides that non-employee directors may contribute to the plan all or a portion of their cash director fees. Subject to the plan's limitations, compensation deductions may be increased or decreased at any time by the participant. Pier 1 Imports will contribute to...

  • Page 114
    ... Financial Officer Michael R. Benkel ...Senior Vice President, Planning and Allocations Gregory S. Humenesky ...Executive Vice President, Human Resources Sharon M. Leite ...Executive Vice President, Stores Executive Group(2) ...Non-Executive Director Group(3) ...Non-Executive Officer Employee Group...

  • Page 115
    ...stock option awards granted under Mr. Smith's February 19, 2007 employment agreement. Refer to note #8 to the Pier 1 Imports, Inc. consolidated financial statements in the 2010 Form 10-K, and the Compensation Discussion and Analysis and the Summary Compensation Table below for additional information...

  • Page 116
    ...fees for services related to the annual audit of the consolidated financial statements, required statutory audits, reviews of Pier 1 Imports' quarterly reports on Form 10-Q, the registered public accounting firm's report on Pier 1 Imports' internal control over financial reporting, as required under...

  • Page 117
    ... 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 ended February 27, 2010, for...

  • Page 118
    ... benchmarks yield a pattern of superior-pay-for-average-performance. The problem is exacerbated when companies include annual bonus payments among earnings used to calculate supplemental executive retirement plan (SERP) benefit levels, guaranteeing excessive levels of lifetime income through...

  • Page 119
    ...proposals that Pier 1 Imports shareholders defeated at our annual meetings held on June 28, 2007, June 20, 2008 and July 1, 2009. The proposal requests that the board of directors implement a performance-based incentive plan for senior executives (covering both annual performance-based incentive and...

  • Page 120
    ... board of directors. For fiscal 2010, Pier 1 Imports' long-term incentive plan for senior executives consisted of cash performance awards issued under the Pier 1 Imports, Inc. 2006 Stock Incentive Plan. Under the award, long-term incentives in the form of a cash award are payable if Pier 1 Imports...

  • Page 121
    ... and policies for its named executive officers for fiscal 2010 and to put into perspective the tabular disclosures and related narratives that follow it. Compensation Policies, Principles, and Objectives Pier 1 Imports has established business priorities as part of our ongoing strategy to return our...

  • Page 122
    ...adapt and learn). In fiscal 2010, however, Pier 1 Imports management, through its human resources compensation group and Pier 1 Imports' chief executive officer, recommended to the compensation committee no base pay increase for Pier 1 Imports' named executive officers at the beginning of the fiscal...

  • Page 123
    ...fiscal 2010 was 45% of annual base salary for Pier 1 Imports' chief executive officer and 35% of annual base salary for the other named executive officers, except Mr. Benkel whose annual component was 25% of his annual base salary. The plan required participants to be employed with Pier 1 Imports at...

  • Page 124
    ... plan also assists Pier 1 Imports in attracting and retaining executives and key members of management. The plan is described and discussed below under the caption "Non-Qualified Deferred Compensation Table for the Fiscal Year Ended February 27, 2010." Employment Agreements - From time to time, Pier...

  • Page 125
    ...'s initial employment agreement states that if Pier 1 Imports' aggregate EBITDA for fiscal years 2009 and 2010 equal or exceed the sum of the fiscal 2009 EBITDA Target plus the fiscal 2010 EBITDA Target, then the Option 2 shares that did not vest at the end of fiscal 2009 could be earned and vest...

  • Page 126
    ... their meeting in March of 2009. The presentation included recommendations 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 short- and long-term incentive awards to...

  • Page 127
    ... Pier 1 Imports considers the effect of limitations on deductibility of compensation for federal income tax purposes. Section 162(m) of the Internal Revenue Code generally denies public companies like Pier 1 Imports a federal income tax deduction for compensation paid to the chief executive officer...

  • Page 128
    ... February 27, 2010, February 28, 2009 and March 1, 2008 The following table sets forth a summary of the compensation in the past three fiscal years for services rendered in all capacities to Pier 1 Imports and its subsidiaries by the chief executive officer, chief financial officer and the three...

  • Page 129
    ... to service-based vesting conditions. Refer to note #8 to the Pier 1 Imports, Inc. consolidated financial statements in the 2010 Form 10-K for additional information on the valuation assumptions used in the calculation of the option awards grant date fair value included in the Summary Compensation...

  • Page 130
    ... applicable federal rate at the time the rate for the plan was selected and the annual interest credited in calendar years 2010, 2009, 2008 and 2007 of 7.47%, 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 amounts...

  • Page 131
    ... 2010 As set forth in the Compensation Discussion and Analysis above, during fiscal 2010 Pier 1 Imports granted short-term cash incentive awards pursuant to the Pier 1 Imports, Inc. 2006 Stock Incentive Plan to the named executive officers. Quarterly and annual cash incentive awards are paid if Pier...

  • Page 132
    The following table sets forth information relating to grants of plan-based awards during the fiscal year ended February 27, 2010 to the executive officers named in the Summary Compensation Table. All other Stock All Other Awards: Option Grant Awards: Exercise Date Fair Estimated Future Payouts ...

  • Page 133
    ... executive officer as of the end of fiscal 2010. Market value was determined using the closing price of Pier 1 Imports' common stock of $6.11 (the NYSE closing price on February 26, 2010, which was the last business day of fiscal 2010). Option Awards Stock Awards Equity Incentive Plan Equity Awards...

  • Page 134
    ... employed at the vesting date. (5) See footnote #1 to the "Summary Compensation Table for the Fiscal Years Ended February 27, 2010, February 28, 2009 and March 1, 2008" and footnote #2 to the "Grants of Plan-Based Awards for the Fiscal Year Ended February 27, 2010" table above for more information...

  • Page 135
    ... a change in control may constitute retirement under the plan. The following table shows 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 27, 2010. Number of Years Credited Service...

  • Page 136
    ... I along with the interest continuing to be earned on those amounts. The named executive officers did not have account balances in BRP I during fiscal 2010. • Pier 1 Imports Benefit Restoration Plan II - All unvested BRP I amounts were transferred to the Pier 1 Imports BRP II. The BRP II has the...

  • Page 137
    ... 2010 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 138
    ...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 February 27, 2010 and, where applicable, using the closing price of Pier 1 Imports...

  • Page 139
    ... the benefits for each participating named executive officer assuming the executive officer is involuntarily terminated other than for cause, or leaves the employment of Pier 1 Imports for good reason (as defined in the plan), within 24 months of a change in control (as defined in the plan) of Pier...

  • Page 140
    ...vest unless Pier 1 Imports' board of directors determines otherwise prior to the change in control event. No named executive officer has stock options granted under the 1999 Plan with an intrinsic value. Under the 2006 Plan, upon a corporate change (as defined in the plan) the vesting of options may...

  • Page 141
    ... 2010 due to a voluntary good reason termination or an involuntary without cause termination, then pursuant to his employment agreement as renewed and extended the 375,000 time-based restricted stock granted to Mr. Smith on December 18, 2009 would vest. OTHER BUSINESS Pier 1 Imports does not plan...

  • Page 142
    ... VOTE IS IMPORTANT You are encouraged to let us know your preference by voting on the Internet or by telephone, or, should you request one, by completing and returning a proxy card or voting instruction form. Michael A. Carter Senior Vice President and General Counsel, Secretary May 17, 2010 50

  • Page 143
    ...THIRD AMENDMENT TO PIER 1 IMPORTS, INC. STOCK PURCHASE PLAN WHEREAS, the Pier 1 Imports, Inc. Stock Purchase Plan (the "Plan") was established in 1980 and was most recently amended and restated on June 20, 2008; WHEREAS, on January 22, 2009, the Board of Directors of the Company, upon recommendation...

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  • Page 146
    ... the annual meeting?" 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 Way, Fort Worth, Texas from...

  • Page 147
    ...INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP Fort Worth, Texas TRANSFER AGENT Mellon Investor Services LLC 480 Washington Blvd. Jersey City, New Jersey 07310-1900 Shareholder Line Toll-Free 1-888-884-8086 http://www.bnymellon.com/shareowner/isd ANNUAL MEETING The annual meeting of...

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