PIER 1 IMPORTS INC/DE - 10-Q Quarterly Report

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x. No o.

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)


				Three Months Ended						Nine Months Ended

				Nov. 29,			Nov. 30,			Nov. 29,			Nov. 30,
				2003			2002			2003			2002

Net sales				$	482,444		$	438,501		$	1,312,987		$	1,233,832
Operating costs and expenses:
	Cost of sales (including buying and store occupancy costs)				274,346			246,741			767,580			713,150
	Selling, general and administrative expenses				143,997			130,156			397,500			367,101
	Depreciation and amortization				13,140			12,305			37,564			34,365

					431,483			389,202			1,202,644			1,114,616

			Operating income		50,961			49,299			110,343			119,216
Nonoperating (income) and expenses:
	Interest and investment income				(462	)		(627	)		(1,623	)		(2,163	)
	Interest expense				322			566			1,344			1,769

					(140	)		(61	)		(279	)		(394	)

			Income before income taxes		51,101			49,360			110,622			119,610
Provision for income taxes					18,907			18,260			40,930			44,256

Net income				$	32,194		$	31,100		$	69,692		$	75,354

Earnings per share:
		Basic		$	.36		$	.34		$	.78		$	.81

		Diluted		$	.35		$	.33		$	.76		$	.79

Dividends per share:				$	.08		$	.05		$	.22		$	.15

Average shares outstanding during period:
		Basic			89,005			92,536			89,520			93,092

		Diluted			91,588			94,810			91,803			95,631


			November 29,			March 1,			November 30,
			2003			2003			2002

ASSETS
Current assets:
	Cash, including temporary investments of $164,136, $225,882 and $133,902, respectively		$	178,731		$	242,114		$	150,716
	Beneficial interest in securitized receivables			51,237			40,538			49,662
	Other accounts receivable, net			20,243			11,420			20,494
	Inventories			404,152			333,350			382,180
	Prepaid expenses and other current assets			38,158			36,179			41,616

		Total current assets		692,521			663,601			644,668
Properties, net				272,262			254,503			246,786
Other noncurrent assets				48,310			49,383			46,727

			$	1,013,093		$	967,487		$	938,181

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Current portion of long-term debt and notes payable		$	6,000		$	393		$	390
	Accounts payable			100,153			76,742			86,465
	Gift cards, gift certificates and merchandise credits outstanding			40,486			37,924			32,509
	Accrued income taxes payable			14,591			25,798			25,402
	Other accrued liabilities			108,943			102,732			88,485

		Total current liabilities		270,173			243,589			233,251
Long-term debt				19,000			25,000			25,000
Other noncurrent liabilities				60,518			54,962			48,941
Shareholders’ equity:
	Common stock, $1.00 par, 500,000,000 shares authorized, 100,779,000 issued			100,779			100,779			100,779
	Paid-in capital			145,126			144,247			143,977
	Retained earnings			589,785			539,776			491,269
	Cumulative other comprehensive income (loss)			1,603			(2,210	)		(2,380	)
	Less — 11,559,000, 10,045,000 and 7,959,000 common shares in treasury, at cost, respectively			(173,891	)		(138,656	)		(102,656	)

				663,402			643,936			630,989

				1,013,093			967,487			938,181
Commitments and contingencies				—			—			—

			$	1,013,093		$	967,487		$	938,181


					Nine Months Ended

					November 29,			November 30,
					2003			2002

Cash flow from operating activities:
	Net income				$	69,692		$	75,354
	Adjustments to reconcile to net cash provided by operating activities:
			Depreciation and amortization			48,268			42,595
			(Gain) loss on disposal of fixed assets			(552	)		477
			Deferred compensation			6,637			4,172
			Tax benefit from options exercised by employees			4,355			6,364
			Other			5,938			830
	Changes in cash from:
		Inventories				(70,802	)		(106,747	)
		Other accounts receivable, prepaid expenses and other current assets				(18,477	)		(17,912	)
		Accounts payable and accrued expenses				29,344			31,947
		Accrued income taxes payable				(11,207	)		(4,336	)
		Other noncurrent assets				(754	)		(405	)
		Other noncurrent liabilities				(500	)		(500	)

				Net cash provided by operating activities		61,942			31,839

Cash flow from investing activities:
	Capital expenditures					(87,904	)		(73,062	)
	Proceeds from disposition of properties					33,953			667
	Beneficial interest in securitized receivables					(12,049	)		(5,042	)

				Net cash used in investing activities		(66,000	)		(77,437	)

Cash flow from financing activities:
	Cash dividends					(19,683	)		(13,995	)
	Purchases of treasury stock					(52,292	)		(40,161	)
	Proceeds from stock options exercised, stock purchase plan and other, net					13,040			15,225
	Repayments of notes payable					(390	)		(364	)

				Net cash used in financing activities		(59,325	)		(39,295	)

Change in cash and cash equivalents						(63,383	)		(84,893	)
Cash and cash equivalents at beginning of period						242,114			235,609

Cash and cash equivalents at end of period					$	178,731		$	150,716

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED NOVEMBER 29, 2003
(in thousands except per share amounts)
(unaudited)


			Common Stock										Cumulative
													Other						Total
			Outstanding					Paid-in		Retained			Comprehensive			Treasury			Shareholders'
			Shares			Amount		Capital		Earnings			(Loss) Income			Stock			Equity

Balance March 1, 2003				90,685		$	100,779	$	144,247	$	539,776		$	(2,210	)	$	(138,656	)	$	643,936
Comprehensive income:
	Net income			—			—		—		69,692			—			—			69,692
	Other comprehensive income, net of tax:
		Currency translation adjustments		—			—		—		—			3,813			—			3,813

Comprehensive income																				73,505

Purchases of treasury stock				(2,688	)		—		—		—			—			(52,292	)		(52,292	)
Exercise of stock options, stock purchase plan and other				1,143			—		879		—			—			17,057			17,936
Cash dividends ($.22 per share)				—			—		—		(19,683	)		—			—			(19,683	)

Balance November 29, 2003				89,140		$	100,779	$	145,126	$	589,785		$	1,603		$	(173,891	)	$	663,402

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED NOVEMBER 29, 2003
AND NOVEMBER 30, 2002
(unaudited)

The accompanying unaudited financial statements should be read in conjunction with the Form 10-K for the year ended March 1, 2003. All adjustments that are, in the opinion of management, necessary for a fair statement of the financial position as of November 29, 2003, and the results of operations and cash flows for the three and nine months ended November 29, 2003 and November 30, 2002 have been made and consist only of normal recurring adjustments. The results of operations for the three and nine months ended November 29, 2003 and November 30, 2002 are not indicative of results to be expected for the fiscal year because of, among other things, seasonality factors in the retail business. The classification of certain amounts previously reported in the consolidated balance sheet as of November 30, 2002, and in the consolidated statement of cash flows for the nine months then ended has been modified to conform to the November 29, 2003 method of presentation.

Basic earnings per share amounts were determined by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share amounts were similarly computed, but included the effect, when dilutive, of the Company’s weighted average number of stock options outstanding. Stock options for which the exercise price was greater than the average market price of common shares were not included in the computation of diluted earnings per share as the effect would be antidilutive. As of November 29, 2003 there were no stock options outstanding with exercise prices greater than the average market price of the Company’s common shares. As of November 30, 2002, there were 2,779,500 stock options outstanding with exercise prices greater than the average market price of the Company’s common shares. Earnings per share for the three and nine months ended November 29, 2003 and November 30, 2002 were calculated as follows (in thousands except per share amounts):


Delaware		75-1729843

(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)


Class		Shares outstanding as of December 29, 2003

Common Stock, $1.00 par value		88,611,859


PART I
	Item 1. Financial Statements.
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
	Item 4. Controls and Procedures.
PART II
	Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
Exhibit Index
EX-31.1 Certification of Chief Executive Officer
EX-31.2 Certification of Chief Financial Officer
EX-32.1 Certification Pursuant to Section 906

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x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934