UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 2, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File No. 1-7832
PIER 1 IMPORTS, INC.
(Exact name of Company as specified in its charter)
DELAWARE 75-1729843
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 Commerce Street, Suite 600
Fort Worth, Texas 76102
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (817) 878-8000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------------------------- --------------------------
Common Stock, $1 par value New York Stock Exchange
11 1/2% Sub. Debentures Due 2003 New York Stock Exchange
6 7/8% Convertible Sub. Notes Due 2002 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Company (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Company was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the Company's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
As of May 8, 1996, there were 39,685,508 shares of Common Stock, $1.00
par value, outstanding, and the aggregate market value of the Common Stock of
the Company held by non-affiliates was approximately $536 million.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K Incorporated Document
Part III Proxy Statement for 1996 Annual Meeting
<PAGE> PART I
Item 1. Business.
(a) General Development of Business.
From fiscal 1990 through fiscal 1996, the Company, through its wholly-
owned subsidiary, Pier 1 Imports (U.S.), Inc. ("Pier 1 (U.S.)"), expanded its
specialty retail operations from 517 North American retail stores to 662
stores. In fiscal year 1996, the Company continued to execute its expansion
plan by opening 56 new North American Pier 1 Imports stores, including 8
mall-based "The Market of Pier 1" stores, and closed 22 stores. The number
of new stores opened during the last fiscal year exceeded the previous fiscal
year's rate when the Company opened 42 new Pier 1 Imports stores. Throughout
the fiscal year the Company continued its focus on cost efficiencies and
expense controls. Subject to changes in the retail environment, availability
of suitable store sites and adequate financing, the Company plans to open
approximately 50 new Pier 1 Imports stores in fiscal year 1997 and plans to
close approximately 20 to 30 stores which closings depend on lease renewal
negotiations and relocation space availability.
Set forth below is a list by city of Pier 1-operated stores opened in
North America in fiscal 1996:
Abilene, TX Longview, TX
Albany, GA Mobile, AL
Anderson, IN New Orleans, LA
Beachwood, OH Newport Beach, CA
Bloomington, IN* Norman, OK
Bloomington, IL Paducah, KY
Bloomington, MN Pensacola, FL
Cape Girardeau, MO Phoenix, AZ*
Carbondale, IL Pittsfield, MA
Champaign, IL Plano, TX
Cincinnati, OH Rapid City, SD
Fayetteville, NC Reading, PA
Flagstaff, AZ Rochester, MI*
Fort Smith, AR Schaumberg, IL
Friendswood, TX Sebring, FL
Galveston, TX Sioux Falls, SD
Grapevine, TX Spartanburg, SC
Greendale, WI* Stockton, CA
Gresham, OR Tampa, FL
Hattiesburg, MS Terre Haute, IN
Helena, MT Tuscaloosa, AL
Henderson, NV Twin Falls, ID
Indianapolis, IN Tyler, TX*
Jackson, TN Victorville, CA
Johnson City, TN W. Little Rock, AR
Kennewick, WA Waterloo, IA
King of Prussia, PA Wichita, KS
Kingston, NY Woodbridge, NJ
* relocation of store closed in fiscal 1996
Set forth below is a list by city of Pier 1-operated stores closed in
North America in fiscal 1996:
Austin, TX Little Rock, AR
Bedford, TX Littleton, CO
Bloomington, IN Niles, IL
Cincinnati, OH Phoenix, AZ
Cincinnati, OH Portland, OR
Dallas, TX Rochester, MI
Dallas, TX San Diego, CA
Greenfield, WI Schaumberg, IL
La Grange, IL Southfield, MI
Lansing, MI Wayne, PA
Las Vegas, NV Tyler, TX
Presently, Pier 1 (U.S.) maintains regional distribution center
facilities in or near Baltimore, Maryland; Columbus, Ohio; Chicago, Illinois;
Fort Worth, Texas; Los Angeles, California; and Savannah, Georgia.
In fiscal 1993, the Company invested in preference stock of The Pier
Retail Group Limited ("The Pier") located in the United Kingdom. At the
Company's sole option, the preference stock may be converted into a 90%
controlling interest of The Pier. At the end of fiscal 1996, the Company's
net investment in The Pier 1 was $5.8 million. The Company also guarantees a
bank line available to The Pier 1 of 4.1 million British Pounds or $6.3
million and as of March 2, 1996, $5.4 million was outstanding under this
line. The Pier is a fourteen-store retail operation that offers decorative
home furnishings and related items in a store setting similar to that
operated by the Company. At fiscal 1996 year-end, The Pier operated thirteen
stores in England and one store in Wales.
During fiscal 1994, Pier 1 (U.S.) initiated an arrangement to supply
Sears de Mexico S.A. ("Sears Mexico") with Pier 1 (U.S.) merchandise to be
sold in certain Sears Mexico stores throughout Mexico. Presently, six Sears
Mexico stores located in Mexico City, one store in Monterrey, Nuevo Leon, one
store in Leon, Guanajuanto, one store in Acapulco, Guerrero, and one store in
Merida, Yucatan offer Pier 1 (U.S.) merchandise.
Pier 1 (U.S.) entered into another separate agreement with Sears Roebuck
de Puerto Rico, Inc. ("Sears Puerto Rico") in fiscal 1996 for Sears Puerto
Rico to market and sell Pier 1 Imports merchandise in the Sears Puerto Rico
stores. Sears Puerto Rico operates 10 stores in Puerto Rico of which three
stores offer Pier 1 Imports merchandise.
Additionally in fiscal 1996, a wholly-owned subsidiary of the Company
entered into a franchise agreement with Akatsuki Printing Co., Ltd. and
Skylark Group ("Akatsuki") to develop Pier 1 Imports retail stores in Japan.
Akatsuki opened its first licensed store in Tokyo in April 1996 and plans to
open an additional four stores by October 1996. The agreement provides for
the licensing of up to an additional 95 stores if the initial five stores
prove to be successful during a 12 month test period.
In December 1995, the Company purchased for $40 million the remaining
90% partnership interest previously held by unrelated third parties in the
Mellon/Pier 1 Properties Limited Partnership-I in which the Company held a
10% ownership interest. The partnership was formed to construct and lease 33
Pier 1 Imports stores in the United States to the Company.
On July 31, 1995, the Company completed a settlement agreement with
Sunbelt Nursery Group, Inc. concerning Sunbelt's default on 13 Sunbelt
nursery stores subleased from the Company. Pursuant to the settlement
agreement, Sunbelt has agreed to a claim by the Company of $14.7 million and
agreed to continue to sublease the 13 stores at market rates for up to three
years or until the Company is able to find a buyer for the properties.
Additionally, Sunbelt is obligated to make future deferred payments out of
its cash flow above specified levels up to a total of $8 million, with the
ability to prepay the obligation at a significant discount. Sunbelt
estimates that payments to the Company will commence in 2009 and the
obligation will be fully satisfied in the year 2016. Sunbelt stated that the
delay of the commencement of payments to the Company results from Sunbelt's
estimate that certain financial requirements enabling it to pay the
obligation will not be met until 2009. If Sunbelt fully performs its
obligations relating to these and other terms of the settlement agreement,
the remaining $6.7 million of the Company's claim will be deemed satisfied.
As of March 2, 1996, the Company has sold one of the 13 subleased stores.
(b) Financial Information About Industry Segments.
The Company operates in one business segment consisting of the retail
sale of decorative home furnishings and related items.
Financial information with respect to the Company's business is found in
the Company's Consolidated Financial Statements which are set forth in Item 8
herein.
(c) Narrative Description of Business.
The specialty retail operations of Pier 1 (U.S.) consist of a chain of
retail stores operating under the name "Pier 1 Imports", "The Market of Pier
1" and "The Pier", selling a wide variety of furniture, decorative home
furnishings, dining and kitchen goods, accessories and other specialty items
for the home, and distinctive casual clothing and fashion accessories;
however, casual clothing and fashion accessories will be deemphasized during
fiscal 1997 and phased out in the following year.
On March 2, 1996, Pier 1 (U.S.) operated 636 stores in 47 states of the
United States, 25 stores in two Canadian provinces and 1 store in Puerto
Rico. It also had 24 franchised stores in 18 states. Additionally, the
Company, through certain subsidiaries, operated 14 stores in the United
Kingdom under the name The Pier. The Company supplies merchandise and
licenses the Pier 1 Imports name to Sears Mexico and Sears Puerto Rico which
sell Pier 1 (U.S.) merchandise in dedicated retail space in 10 Sears Mexico
stores and in three Sears Puerto Rico stores. The Company has one franchise
store in Tokyo. The company-operated Pier 1 (U.S.) stores in the United
States and Canada average approximately 7,500 square feet in size of retail
selling space, and are generally freestanding units located near major
shopping centers or malls, predominately located in all major United States
metropolitan areas and many of the primary smaller markets. In fiscal 1996,
net sales of Pier 1 (U.S.) totalled $810.7 million. Pier 1 (U.S.) stores
have their highest sales volumes during November and December, reflecting the
Christmas selling season.
Pier 1 (U.S.) offers a diverse selection of products consisting of over
5,000 items. While the broad categories of Pier 1 (U.S.)'s merchandise
remain constant, individual items within these product groupings change
frequently in order to meet the demands of customers. The principal
categories of merchandise include the following:
FURNITURE - This product group consists of furniture to be used on
patios and in sun rooms, living, dining and kitchen areas, and constituted
approximately 27.8%, 27.5% and 26.8% of the total retail sales of Pier 1
(U.S.) in fiscal years 1996, 1995, and 1994, respectively. These goods are
mainly imported from Italy, Malaysia, Chile, China, the Philippines and
Indonesia, and are made of metal and handcrafted natural materials, including
rattan, pine, beech, rubberwood, and selected hardwoods with either natural,
stained or painted finishes.
DECORATIVE HOME FURNISHINGS - This product group constituted the
broadest category of merchandise in Pier 1 (U.S.)'s sales mix and contributed
approximately 27.4%, 25.7% and 24.4% to Pier 1 (U.S.)'s total retail sales in
fiscal years 1996, 1995 and 1994, respectively. These items are imported
from approximately 40 countries and include brass, marble and wood items, as
well as lamps, vases, dried and silk flowers, baskets, wall decorations and
numerous other decorative items, practically all of which are handcrafted
from natural materials.
DINING AND KITCHEN GOODS - This product group is imported from India,
the Far East and Europe and includes ceramics, dinnerware and other
functional and decorative items. These goods accounted for approximately
14.7%, 15.2% and 14.1% of the total retail sales of Pier 1 (U.S.) in fiscal
years 1996, 1995 and 1994, respectively.
TEXTILES - This product group consists of chair pads, custom order
fabrics as well as window coverings, bedspreads, and pillows, of which most
items are produced from original designs created both domestically and in
India, Indonesia, China, France and Australia. These goods accounted for
approximately 11.9%, 12.9% and 13.5% of the total retail sales of Pier 1
(U.S.) in fiscal years 1996, 1995 and 1994, respectively.
CLOTHING, JEWELRY AND FASHION ACCESSORIES - This product group is
imported from India, Greece, Thailand and Indonesia and accounted for
approximately 7.4%, 8.7% and 12.1% of the total retail sales of Pier 1 (U.S.)
in fiscal years 1996, 1995 and 1994, respectively.
Merchandise offered for sale in Pier 1 (U.S.) stores largely consists of
items that require a significant degree of handcraftsmanship. Most items are
imported directly by Pier 1 (U.S.) from foreign suppliers. Pier 1 (U.S.) is
not dependent on any particular supplier and has enjoyed long-standing
relationships with many vendors. During fiscal 1996, Pier 1 (U.S.) imported
approximately 27.5% of its purchases from China, 17.5% from India, and 31.4%
from Indonesia, Japan, Thailand, the Philippines, and Italy. The remaining
23.6% was imported from various Asian, European, Central American, South
American and African countries or obtained from United States manufacturers,
wholesalers or importers. In selecting the source of a product, Pier 1
(U.S.) considers quality, dependability of delivery and cost. For the most
part, the imported merchandise is handcrafted in cottage industries and small
factories.
Pier 1 (U.S.) currently maintains 6 regional distribution centers
located in or near Baltimore, Maryland; Los Angeles, California; Fort Worth,
Texas; Chicago, Illinois; Savannah, Georgia; and Columbus, Ohio, and leases
additional space from time to time and on a temporary basis. Imported
merchandise and a portion of domestic purchases are delivered to the
distribution centers, unpacked, and made available for shipment to the
various stores in the center's region. The merchandise is then distributed
to the retail stores by contract carriers. Due to the time delays involved
in procuring merchandise from foreign suppliers, Pier 1 (U.S.) maintains a
substantial inventory in order to be assured of a sufficient supply of
products to its customers. A stock of regularly reordered items and
temporary inventory surpluses have, from time to time, been carried at the
distribution centers.
Pier 1 (U.S.) stores have no direct national competitors. The major
competition arises at a local level from other retailers offering similar
lines of merchandise, such as small specialty sections of large department
stores, home furnishing stores, small specialty import stores and discount
stores. The Company believes Pier 1 (U.S.) enjoys a competitive edge over
these stores, due to its greater name awareness and the extent and variety of
the merchandise offered at Pier 1 (U.S.) stores. While other competing
stores may offer a few items that change somewhat infrequently, Pier 1 (U.S.)
offers over 5,000 items of which approximately forty percent (40%) change
each year and 50% of the total assortment is exclusive products.
As a retailer of imported merchandise, Pier 1 (U.S.) is subject to
certain risks that typically do not affect retailers of domestically produced
merchandise, including the need to order merchandise from four to twelve
months in advance of delivery and to pay for such merchandise at the time it
is loaded for transport to designated U.S., international or Canadian
destinations. Additionally, dock strikes, fluctuations in currency values
and monetary exchange rates, restrictions on the convertibility of the dollar
and other currencies, duties, taxes and other charges on imports, import
quota systems and other restrictions generally placed on foreign trade can
affect the price, delivery and availability of ordered merchandise. The
inability to import products from certain countries or the imposition of
significant tariffs could have a material adverse effect on the results of
operations of Pier 1 (U.S.).
The 1988 Omnibus Trade and Competitiveness Act ("1988 Act") was signed
into law. This legislation was enacted partly in response to a perceived
decline in U.S. global competitiveness and the continuing presence of unfair
trade practices that limit U.S. exporters' access to foreign markets. Under
the law, unfair trade practices of countries around the world may be
investigated by the office of the United States Trade Representative, and
such investigations may lead to sanctions which could take the form of quotas
or increased duties on imports into the U.S.
Section 301 of the Trade Act of 1974, as amended by the 1988 Act,
transfers international trade decision making authority from the President to
the U.S. Trade Representative and makes investigation of a country's unfair
trade practices mandatory under certain circumstances with time tables for a
conclusion of the investigation. Generally, the U.S. Trade Representative is
required to take some action within 30 days (subject to being postponed for
180 days) after the conclusion of the investigation. One such action may be
to designate the subject country a priority foreign country whose trade
practices, if corrected, would provide the greatest potential for expansion
of U.S. exports. As of April 30, 1996, the U.S. Trade Representative
identified China as a priority foreign country under the Special 301
intellectual property provision for failure to implement an intellectual
property agreement with the United States.
The United States may employ other measures besides Section 301 to
implement its international trade policies and objectives, such as the
withdrawal, selectively or entirely, of most favored nation ("MFN") status to
countries around the world which would cause import duties to increase.
Presently, the President has indicated he would renew the MFN status of the
Peoples Republic of China. Annually, the MFN status with China is subject to
review and renewal which, if lost entirely, would cause the Company to source
affected goods from other countries. Any type of sanction on imports is
likely to increase the Company's import costs or limit the availability of
products purchased from sanctioned countries. In such event, the Company
will seek similar products from other countries.
The United States and more than 100 other countries culminated seven
years of negotiations with an agreement which became effective January 1,
1995 to reduce, over time, tariff and non-tariff barriers to world trade in
goods and services and to establish a World Trade Organization to replace the
General Agreement on Tariffs and Trade. Any agreement which may reduce
tariff and non-tariff barriers in international trade is considered
beneficial to the Company's business in the United States and around the
world.
Pier 1 (U.S.) owns four federally registered service marks under which
its company-operated and franchised stores do business. These registrations
are numbered 948,076 and 1,620,518 for the mark PIER 1 IMPORTS and 1,104,059
for the mark PIER 1 and 1,907,947 for the mark PIER 1 IMPORTS FOR A CHANGE.
On March 2, 1996, Pier 1 (U.S.) employed 9,399 persons: 5,175 were
full-time employees of which 519 were full-time employees at Pier 1 (U.S.)'s
home office and 4,224 were part-time employees.
The Company maintains a wholly owned foreign subsidiary incorporated
under the laws of Hong Kong to manage certain merchandise procurement, export
and financial service functions for Pier 1 (U.S.). Also the Company
maintains a wholly owned foreign subsidiary incorporated under the laws of
Bermuda which owns the right to license and to franchise the Pier 1 (U.S.)
trademarks outside the United States and Canada. Additionally, the Company
owns the preference stock of The Pier which, at the Company's sole option,
may be converted into a 90% controlling interest in The Pier.
Item 2. Properties.
(a) Properties of the Company.
As a holding company, the Company does not own any physical property
materially important to the conduct of its business operations. The
Company's home office in Fort Worth, Texas is leased by Pier 1 (U.S.).
(b) Properties of Pier 1 (U.S.).
Pier 1 (U.S.) leases certain properties consisting principally of retail
stores, warehouses and office space. Pier 1 (U.S.) leases currently provide
136,777 square feet of office space in downtown Fort Worth for the Company's
home office. Most of Pier 1 (U.S.)'s North American retail store operations
are conducted pursuant to leases which are classified as operating leases,
and at March 2, 1996, the present value of Pier 1 (U.S.)'s minimum future
operating lease commitments aggregated approximately $374 million.
Pier 1 (U.S.) currently owns and leases distribution space of
approximately 2.75 million square feet. Additional temporary space
requirements can be met by leasing space on a short-term basis.
The following table shows the distribution by state of Pier 1 (U.S.)
North American stores operated by Pier 1 (U.S.) as of March 2, 1996:
United States and Puerto Rico
- -----------------------------
Alabama 7 Nebraska 4
Arizona 10 Nevada 3
Arkansas 3 New Hampshire 4
California 82 New Jersey 19
Colorado 14 New Mexico 2
Connecticut 13 New York 31
Delaware 2 North Carolina 12
District of Columbia 1 North Dakota 3
Florida 44 Ohio 31
Georgia 18 Oklahoma 6
Idaho 3 Oregon 5
Illinois 34 Pennsylvania 23
Indiana 13 Puerto Rico 1
Iowa 6 Rhode Island 2
Kansas 6 South Carolina 7
Kentucky 6 South Dakota 2
Louisiana 9 Tennessee 13
Maryland 16 Texas 53
Massachusetts 21 Utah 4
Michigan 21 Virginia 21
Minnesota 14 Washington 16
Mississippi 4 West Virginia 1
Missouri 11 Wisconsin 13
Montana 2 Wyoming 1
Canada
- --------
Ontario 16
Quebec 9
Warehouse properties that are owned or leased by Pier 1 (U.S.) are as
follows:
Owned/Leased
Location Approx. Sq. Ft. Facility
- ---------------------- -------------- --------
Baltimore, Maryland 634,186 sq. ft. Leased
Columbus, Ohio 527,127 sq. ft. Leased
Chicago, Illinois 297,552 sq. ft. Owned
Fort Worth, Texas 454,868 sq. ft. Owned
Rancho Cucamonga, California 417,000 sq. ft. Leased
Savannah, Georgia 393,216 sq. ft. Owned
The Company has agreements with unaffiliated parties to lease certain
stores and distribution center space. These unaffiliated parties are
committed to make available up to $96.8 million for development or
acquisition of properties leased by Pier 1 (U.S.). As of March 2, 1996, the
Company utilized $88.2 million of that availability. Agreements with these
parties mature over the next two years, and Company management is
continuously monitoring financial markets to optimize renewal terms.
Item 3. Legal Proceedings.
There are various claims, lawsuits, investigations and pending actions
against the Company and its subsidiaries incident to the operation of their
businesses. Liability, if any, associated with these matters is not
determinable at March 2, 1996. While a certain number of the lawsuits
involve substantial amounts, it is the opinion of management, after
consultation with counsel, that the ultimate resolutions of such litigation
will not have a material adverse effect on the Company's financial position,
results of operations or liquidity.
On December 27, 1995, a derivative suit, entitled Harry Lewis v. Clark
A. Johnson et al., was filed by a stockholder on behalf of the Company in the
Delaware Chancery Court against each member of the Company's Board of
Directors. The complaint alleges that the Directors violated their
fiduciary duties to the Company and its stockholders by not adequately
supervising the officers, employees and agents of the Company who were
responsible for the trading activities that resulted in the $19.3 million in
losses. The suit seeks an accounting to the Company for the damages it
sustained.
On January 3, 1996, a second derivative suit, entitled John P. McCarthy
Profit Sharing Plan, et al. v. Clark A. Johnson et al., was filed by a
stockholder on behalf of the Company in the District Court of Tarrant County,
Texas against each member of the Board of Directors, two executive officers
of the Company and an outside financial consultant of the Company. The
complaint alleges that the Directors and executives of the Company violated
their duties to the Company and its stockholders by gross mismanagement and
waste of the Company's assets exceeding $34 million and that the defendants
engaged in conspiracy and fraud by concealing and misrepresenting facts to
the Company and its stockholders. The suit seeks an award in the amount of
all damages sustained by the Company.
On January 24, 1996, a suit, entitled Hernan Velasquez v. Clark A.
Johnson et al., was filed in the District Court of Tarrant County, Texas
against the Company and each member of the Company's Board of Directors. The
complaint asserts a class action by Company stockholders purchasing and/or
holding Company common stock between July 8, 1994, and December 22, 1995, and
alleges fraud and violations of the Texas Securities Act in the dissemination
of materially false and misleading information concerning the Company's
financial condition. The suit seeks compensatory and exemplary damages in
excess of $50 million in connection with purchases by the stockholder class
of Company common stock during the class period.
On February 12, 1996, the Company filed a related cross-claim suit
against S. Jay Goldinger, the financial consultant, and his firm, Capital
Insight, and a third-party claim against a brokerage firm, Refco, Inc.,
asserting conspiracy and fraud and seeking damages sustained by the Company
from the trading activities managed by Goldinger.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of the Company's security
holders during the fourth quarter of the Company's fiscal year.
Executive Officers of the Company
CLARK A. JOHNSON, age 65, has served as Chairman and Chief Executive
Officer of the Company, and a member of the Executive Committee since March
1988. He has been a Director of the Company since March 1983. From May 1985
to March 1988, Mr. Johnson was President and Chief Executive Officer of the
Company. He is a Director of Albertson's, Inc., InterTAN, Inc., Metro Media
International Group, Anacomp, Inc. and Heritage Media Corporation.
MARVIN J. GIROUARD, age 56, has served as President and Chief Operating
Officer of the Company and as a Director since August 1988. From May 1985
until August 1988, he served as Senior Vice President - Merchandising of Pier
1 (U.S.). Additionally, he serves as a Director of ENSERCH Corporation.
J. RODNEY LAWRENCE, age 50, has served as Senior Vice President of Legal
Affairs and Secretary of the Company and Pier 1 (U.S.) since June 1992, and
served as Vice President of Legal Affairs and Secretary of the Company from
November 1985 to June 1992.
E. MITCHELL WEATHERLY, age 48, has served as Senior Vice President of
Human Resources of the Company since June 1992 and served as Vice President
of Human Resources of the Company from June 1989 to June 1992 and of Pier 1
(U.S.) from August 1985 to June 1992.
PHIL E. SCHNEIDER, age 44, has served as Senior Vice President of
Marketing of the Company and Pier 1 (U.S.) since May 1993 and served as Vice
President of Advertising of Pier 1 (U.S.) from January 1988 to May 1993.
CHARLES H. TURNER, age 39, has served as Senior Vice President of Stores
of the Company and Pier 1 (U.S.) since August 1994 and served as Controller
and Principal Accounting Officer of the Company from January 1992 to August
1994.
PERRY R. MCNEELY, age 48, has served as Senior Vice President of
Logistics of the Company and Pier 1 (U.S.) since June 1994.
JAY R. JACOBS, age 41, has served as Senior Vice President of
Merchandising of the Company since May 1995 and served as Vice President of
Pier 1 (U.S.) Divisional Merchandising from May 1993 to May 1995.
The officers of the Company are appointed by the Board of Directors,
hold office until their successors are elected and qualified and/or until
their earlier death, resignation or removal.
None of the above executive officers has any family relationship with
any other of such officers. None of such officers was selected pursuant to
any arrangement or understanding between him and any other person.
<PAGE> PART II
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters.
Market Price
-------------- Cash Dividends
Fiscal 1996 High Low Per Share(2)
- ---------------- ------ ----- --------------
First Quarter(1) 9 1/2 8 $0.03
Second Quarter 10 7 3/4 0.03
Third Quarter 10 7/8 8 7/8 0.03
Fourth Quarter 13 1/4 9 5/8 0.04
Fiscal 1995(1)
- ----------------
First Quarter 8 3/4 7 $0.02
Second Quarter 8 1/4 6 3/4 0.02
Third Quarter 8 3/8 7 0.03
Fourth Quarter 9 5/8 7 1/8 0.03
- ----------------------
(1) Market prices and cash dividends have been adjusted to reflect the
effect of the 5% stock dividend distributed May 8, 1995.
(2) For restrictions on the payments of dividends, see Management's
Discussion and Analysis of Financial Condition and Results of Operations
- Liquidity and Capital Resources.
The Company's common stock is traded on the New York Stock Exchange. As
of May 8, 1996, there were approximately 22,000 stockholders of the Company's
common stock.
Certain of the Company's existing loan and lease agreements limit
specific payments and distributions, including cash dividends, loans to
stockholders and purchases of treasury stock. Generally the Company may make
"restricted payments", as defined in the loan agreements, which include the
payment of cash dividends, up to an aggregate maximum of approximately $11.2
million as of March 2, 1996. Additionally, the Company is required to
maintain various other financial ratios. The Company's Board of Directors
currently expects to pay cash dividends in fiscal 1997, but intends to retain
most of future earnings for the expansion of the Company's business. The
Company's dividend policy will depend upon the earnings, financial condition
and capital needs of the Company and other factors deemed relevant by the
Company's Board of Directors.
<PAGE>
Item 6. Selected Financial Data.
<TABLE> Pier 1 Imports, Inc.
FINANCIAL SUMMARY (Unaudited)
($ in millions except per share amounts)
<CAPTION>
4-Year
Compound
Annual Year Ended
Growth ----------------------------------
Rate 1996 1995 1994 1993 1992
-------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Summary of operations:
Net sales 8.4% $810.7 712.0 685.4 629.2 586.7
Gross profit 9.3% $325.5 277.6 259.6 246.2 228.4
Selling, general and
administrative expenses 8.1% $235.6 206.0 195.4 180.2 172.4
Depreciation and
amortization 3.5% $ 17.2 16.0 15.8 15.1 15.0
Store-closing provision $ -- - 21.3 - -
Operating income 15.4% $ 72.7 55.6 27.1 50.9 41.0
Nonoperating expense,
net of income (1) $ 44.3 22.3 18.8 15.0 16.3
Income before income taxes
and equity in net income
(loss) of subsidiary (2) $ 28.4 33.2 8.4 35.9 30.5
Equity in net income
(loss) of Sunbelt Nursery
Group, Inc. $ - - - (3.6) 4.5
Net income for common
stockholders $ 10.0 22.1 5.9 23.0 26.3
Per common share data:(3)
Net income for common
stockholders $.25 .56 .15 .59 .68
Cash dividends declared $.13 .10 .09 .06 -
Stockholders' equity 5.9% $5.73 5.60 5.09 5.11 4.56
Other financial data:
Working capital 11.4% $246.8 265.0 229.0 225.2 160.0
Current ratio 3.5 4.1 3.5 3.4 3.0
Total assets 8.3% $531.1 485.9 463.3 460.5 386.4
Long-term debt 14.0% $180.1 154.4 145.2 147.2 106.8
Stockholders' equity 6.5% $227.9 222.4 201.1 200.5 177.1
Weighted average shares
outstanding and common
stock equivalents
(millions) (3) 39.8 39.7 39.5 39.2 38.9
Effective tax rate (4) 64.7% 33.6 29.0 25.9 28.3
Return on average stock-
holders' equity 4.5% 10.4 3.0 12.2 15.8
Return on average total assets 2.0% 4.6 1.3 5.4 6.5
Pre-tax return on sales 3.5% 4.7 1.2 5.7 5.2
- ---------------------
<FN>
(1) Nonoperating expense, net of income is comprised of interest expense and interest income in each fiscal year presented, and in
addition includes net trading losses or gains in fiscal years 1996, 1995 and 1994, the provision for Sunbelt Nursery Group, Inc.
defaults in fiscal 1996 and the write-down of General Host securities in fiscal years 1995 and 1994.
(2) Fiscal 1992 includes a gain on the sale of subsidiary stock of approximately $5.9 million.
(3) Reflects the effect of a 5% stock dividend distributed May 8, 1995.
(4) The Company has not recorded any tax benefit on the fiscal 1996 and 1995 net trading losses, which resulted in higher effective
tax rates in those years.
</FN>
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Pier 1 Imports, Inc. (the "Company") is North America's largest
specialty retailer of imported decorative home furnishings, gifts and related
items, with 688 stores in 47 states, Puerto Rico, Canada, and expanding
international operations in the United Kingdom, Mexico and Japan as of fiscal
1996 year-end. The Company directly imports merchandise from 44 countries
around the world and designs proprietary assortments that become exclusively
Pier 1 Imports offerings. The Company reported sales of $810.7 million for
the 53-week period of fiscal 1996 and net income of $10.0 million, or $.25
per share, after recording pre-tax special charges of $14 million to
disengage from financial support of Sunbelt Nursery Group, Inc. ("Sunbelt")
and approximately $18 million of net trading losses and related expenses.
Net income before special charges was $35.6 million, or $.85 per share on a
fully diluted basis. On May 8, 1995, the Company distributed a 5% stock
dividend, or approximately 1.9 million shares, to stockholders of record on
May 1, 1995. All prior fiscal year per share amounts have been adjusted to
reflect the impact of the stock dividend.
FISCAL YEARS ENDED MARCH 2, 1996 AND FEBRUARY 25, 1995
Net sales grew $98.7 million, or 13.9%, to $810.7 million for the 53-
week period of fiscal 1996 compared to $712.0 million for the 52-week period
of fiscal 1995. For the comparable 52-week period of fiscal 1996 versus the
same period of fiscal 1995, total sales increased 12.0% and same-store sales
increased 6.5%. The growth in sales is partially attributable to the
national television advertising campaign which began in July 1995 and
increased customer traffic and transactions in the stores. In addition, the
Company has instituted new in-store selling programs, redesigned stores to
enhance visual merchandising, and remodeled 35 stores in fiscal 1996 as part
of a long-term strategy to refurbish aging stores. During fiscal 1996, the
Company opened 48 conventional Pier 1 (U.S.) stores and eight mall-based
stores, and closed 22 stores in North America, resulting in an 8.0% increase
in the weighted average store count (which is calculated based on the number
of days a store is open during a given period) over the prior year. Hard
goods sales, such as furniture and decorative accessories, contributed 93% of
total sales, while soft goods sales of apparel, jewelry and accessories
comprised 7% of total sales. Hard goods sales increased 11.8% during fiscal
1996, while soft goods sales declined 6.2% in fiscal 1996 compared to the
year earlier. The Company continues to improve store sales by de-emphasizing
apparel and focusing merchandise selection on products for the home and
family. Sales per average square foot of retail selling space increased to
$164.39 in fiscal 1996 from $154.03 a year ago. Net sales for fiscal years
1996 and 1995 excluded $3.6 million and $26.7 million, respectively, for
stores included in the fiscal 1994 store-closing program.
Sales on the Company's proprietary credit card comprised 23.2% of the
Company's net sales for fiscal 1996 and aggregated $188.3 million for the 53-
week year, up 48.5% from a year earlier. Proprietary credit card receivables
totalled $76.9 million at fiscal 1996 year-end, an increase of 22.7% compared
to the prior fiscal year. Proprietary credit card customers spent an average
of $130 per transaction in fiscal 1996, and the number of active cardholder
accounts grew 31% over fiscal 1995. Sales on the Company's proprietary
credit card are encouraged through targeted marketing promotions.
Gross profit, after related buying and store occupancy costs, expressed
as a percentage of sales, increased 1.2% to 40.2% in fiscal 1996 from 39.0%
in fiscal 1995. Merchandise margins improved to 54.1% in fiscal 1996 from
53.4% in fiscal 1995. The margin growth was due to a shift from newspaper
advertising that emphasized promotional discounts to national television
advertising that focused on bringing new customers into the stores. In
addition, margins improved for the Company with increased emphasis on hard
goods and decreased emphasis on soft goods, as well as the use of 11
Clearance Centers allowing fresh merchandise to be delivered to the stores
throughout the year. Store occupancy costs, as a percentage of sales,
decreased to 14.0% during fiscal 1996 from 14.5% in fiscal 1995. This
improvement was primarily due to leveraging relatively fixed occupancy
expenses on a greater sales base, partially offset by slightly higher market
rates, in the aggregate, on new store leases entered into during fiscal 1996
and incremental increases in floating rate leases linked to LIBOR for
approximately 55 store operating leases. In addition, the Company purchased
the remaining 90% interest in a limited partnership which owns 33 Pier 1
(U.S.) stores previously leased to the Company, thus eliminating base rent
expenses for those stores beginning after December 1995. See: Liquidity and
Capital Resources.
Selling, general and administrative expenses, including marketing,
aggregated 29.1% of sales in fiscal 1996 compared to 28.9% of sales in fiscal
1995. In dollars, the fiscal 1996 increase of $29.6 million over the prior
year was affected by the 53-week year compared to the fiscal 1995 52-week
year, as well as increases in expenses that normally grow proportionately
with sales and net new stores, such as store salaries and supplies. Although
marketing expenses declined slightly as a percentage of sales, expenses
increased $2.5 million to support the shift from primarily print advertising
to primarily television advertising beginning in mid-summer of fiscal 1996.
Additionally, supply expenses increased 0.4% as a percentage of sales or $4.6
million due, in part, to increased costs associated with bags, boxes,
tissues, and funding of the new exclusive Pier 1 (U.S.) tags. Other costs
included in fiscal 1996 selling, general and administrative expenses were
$1.2 million related to the investigation of the trading losses. See: Notes
2 and 9 of the Notes to Consolidated Financial Statements.
During fiscal 1996, the Company utilized $6.0 million of the remaining
fiscal 1994 store-closing reserve which consisted of $5.0 million for lease
termination costs and $1.0 million for interim operating losses and other
costs. In addition, the Company credited $1.4 million to income during
fiscal 1996 for its changes in estimates relating to the fiscal 1994 store-
closing program. The remaining liability of $4.4 million is for final
payments on lease termination costs on three stores for which settlement
agreements are pending. During the fourth quarter of fiscal 1996, the
Company identified five underperforming stores to close and recorded a charge
of $1.4 million consisting of costs for lease terminations of $0.9 million
and fixed asset write-downs of $0.5 million.
In fiscal 1996, operating income improved to 9.0% of sales, a $17.1
million increase over fiscal 1995 in which operating income was 7.8% of
sales.
Net interest expense increased in fiscal 1996 compared to fiscal 1995
primarily due to decreased interest income on lower cash balances and short-
term investments coupled with higher debt levels beginning in the second half
of fiscal 1996.
The Company's special charges in fiscal years 1996 and 1995 included
trading losses and losses related to Sunbelt and General Host Corporation
("General Host") as discussed below.
In late December 1995, the Company was made aware of trading losses of
$19.3 million resulting from substantial trading activities in a
discretionary account. The Company has regularly designated a portion of its
excess cash and short-term investments for management by a financial
consultant in the discretionary account. The amount of funds deposited by
the Company has varied during each year, and the funds were generally
withdrawn near the end of each fiscal year. According to statements of the
account provided by brokerage firms that executed trading activity at the
financial consultant's instructions, the funds were invested in treasury
bonds, treasury bond futures contracts and options on treasury bond futures
contracts. The futures and options contracts were often used in a manner
that provided a high degree of speculation and leverage to the invested
funds. As a result of the investigations of the trading losses, the Company
has recorded $16.5 million of the net trading losses in fiscal 1996 and has
restated its fiscal 1995 financial statements to record $2.8 million of the
net trading losses during that year. Fiscal 1996, 1995 and 1994 quarterly
financial statements have been restated to reflect the trading losses and
gains during those periods based on the information available to the Company.
The restatements of the various quarters have no effect on net income for the
full 1994 fiscal year. The Company deposited a total of $19.5 million in the
discretionary account in fiscal 1996, and during the first and second
quarters incurred net trading losses in the account of $16.0 million and $0.6
million, respectively, and during the third quarter attained a net trading
gain of $0.1 million. During the first, second and third fiscal quarters of
fiscal 1995, the Company incurred net trading losses in the account of $1.5
million, $4.2 million and $5.7 million, respectively, and during the fourth
quarter attained a net trading gain of $8.6 million. To the extent trading
losses are not offset by trading gains, the Company has not recorded any tax
benefit on these losses since the realization of such benefit is not
considered likely based on the information available at this time. The
Company and a Special Committee of the Board of Directors and its advisers
investigated the matter and found no evidence to suggest that the Company's
net losses from these trading activities will exceed $19.3 million in the
aggregate. See: Notes 2 and 9 of the Notes to Consolidated Financial
Statements.
In April 1993, the Company completed the sale of its 49.5% ownership
interest in Sunbelt to General Host and, in connection with the sale,
committed to provide Sunbelt a $12 million credit facility through April 1994
and up to $25 million of non-revolving store development financing through
April 1996. In October 1994, in connection with the sale by General Host of
its 49.5% interest in Sunbelt to a third party unrelated to the Company or
General Host, the Company received payment of the amounts owed under the
credit facility and agreed to extend $22.8 million of the non-revolving store
development financing to Sunbelt until June 30, 1998, at market rental rates.
The Company also had outstanding guarantees on other Sunbelt store lease
commitments which aggregated $4.5 million with a present value of
approximately $3.4 million at fiscal 1996 year-end. In April 1995, Sunbelt
defaulted on 13 store sublease agreements with the Company comprising the
$22.8 million of non-revolving store development financing, and the Company
terminated the subleases. Sunbelt also defaulted on three nursery store
lease agreements guaranteed by the Company. In July 1995, the Company
entered into a settlement agreement with Sunbelt concerning Sunbelt's default
on the 13 store sublease agreements and store lease agreements guaranteed by
the Company. Pursuant to the settlement agreement, Sunbelt agreed to a claim
by the Company of $14.7 million (secured by a second lien on up to $6 million
of Sunbelt's assets) and agreed to continue to sublease the 13 stores for up
to three years or until the Company is able to find a buyer for the
properties. Sunbelt also cured the defaults on the three nursery store
leases guaranteed by the Company. Additionally, Sunbelt is obligated to make
future deferred payments out of its cash flow above specified levels up to a
total of $8 million (which may be prepaid with $4 million in payments made by
May 1997 or with $6 million in payments made by May 1998). The remaining
$6.7 million of the Company's claim will be deemed satisfied if Sunbelt fully
performs its obligations relating to these and other terms of the settlement
agreement. During the first quarter of fiscal 1996, the Company recorded a
pre-tax charge of $14 million which represents the estimated cost to
disengage from its financial support of Sunbelt. The charge reflects the
Company's estimated losses resulting from the lease termination costs
associated with the 13 nursery store subleases and other related costs. As
of March 1996, two nursery store properties had been sold at costs consistent
with the Company's estimates used to record the charge. The Company believes
that it is reasonably possible that a change in this estimate could occur in
the near term; however, no further charge is warranted at this time.
In the third quarter of fiscal 1995, the Company recorded a non-cash,
pre-tax special charge of $7.5 million to reflect an 'other than temporary'
decline in the market value of the General Host common stock held by the
Company. As a result of the issuance of the Company's exchangeable
debentures in December 1994, the General Host common stock is no longer
available for sale, and the Company no longer has market risk in relation to
the General Host common stock. For additional information, see the results
of operations comparison of fiscal years ended February 25, 1995 and February
26, 1994 below.
The Company's effective income tax rate for fiscal 1996 increased to
64.7% from 33.6% in fiscal 1995. The effective rates for fiscal 1996 and
1995, exclusive of the effects of the aforementioned net trading losses,
would have been 41% and 31%, respectively. The increase in these rates is
primarily due to the benefit of favorable tax treatment from the sale of
Sunbelt common stock recognized in fiscal 1995 and no longer available in
fiscal 1996. The effective income tax rate for fiscal 1997 is expected to
approximate 40%.
Net income for fiscal 1996 aggregated $10.0 million, or $.25 per primary
share, compared to net income of $22.1 million, or $.56 per primary share in
fiscal 1995. Before special charges in fiscal years 1996 and 1995, net
income improved 18.5% to $35.6 million in fiscal 1996 compared to $30.1
million in fiscal 1995. Special charges in fiscal 1995 included the $7.5
million write-down of the General Host common stock and net trading losses of
$2.8 million.
FISCAL YEARS ENDED FEBRUARY 25, 1995 AND FEBRUARY 26, 1994
During fiscal 1995, net sales increased $26.6 million, or 3.9%, to
$712.0 million compared with fiscal 1994 net sales of $685.4 million. This
growth was primarily attributable to growth in same-store sales which
increased 4.8% compared to fiscal 1994. During fiscal 1995, the Company
opened 42 new North American stores. Sales of hard goods merchandise such as
furniture and decorative accessories increased 12% in fiscal 1995 over fiscal
1994, and sales of soft goods merchandise such as apparel and jewelry
decreased 21% in fiscal 1995 compared to the prior year. Hard goods and soft
goods sales contributed approximately 91% and 9%, respectively, of total
sales during fiscal 1995. The Company's sales mix shifted during fiscal 1995
to reflect the Company's focus on increasing consumer demand for furniture
and decorative accessories coupled with lower demand and less Company
emphasis on apparel and related accessories. This sales shift resulted in
higher average ticket sales and a 5.1% increase in sales per average square
foot of retail selling space to $154.03 from $146.57 in the prior year.
Sales of $26.7 million from stores closed during the year pursuant to the
fiscal 1994 store-closing program were excluded from the Company's reported
sales for fiscal 1995. Sales in these stores were included in fiscal 1994
reported sales and aggregated $37.7 million.
Sales on the Company's proprietary credit card were $126.8 million, or
17.8% of total sales, during the 1995 fiscal year, an increase of $25.6
million, or 25.3%, over the prior fiscal year. Proprietary credit card
receivables totalled $62.6 million at the end of fiscal 1995, a 29.9%
increase over the prior fiscal year. The Company actively pursues increasing
the cardholder base in order to use the cardholder list as a basis for direct
mail advertising and because it believes that such a base increases customer
loyalty and repeat business. Sales on the Company's proprietary credit card
are encouraged through specific marketing promotions.
Gross profit, after related buying and store occupancy costs, expressed
as a percentage of sales, increased 1.1% to 39.0% in fiscal 1995 from 37.9%
in fiscal 1994. The increase resulted primarily from leveraging relatively
fixed store occupancy costs through greater sales, combined with the closing
of 49 stores (which as a group had higher occupancy costs as a percentage of
sales than did the remaining population of stores). Gross profit on
merchandise, as a percentage of sales, remained unchanged at 53.4% in fiscal
1995 compared to fiscal 1994. During fiscal 1995, the contribution of the
components of gross profit changed as margins improved in furniture due to a
reduction in merchandise discounts and clearance markdowns, and margins
decreased in decorative accessories and dining and kitchen as a result of
clearance markdowns aimed at decreasing inventory levels. Soft goods gross
profit components were down from 52% last year to 50% in fiscal 1995 as a
result of intentional lowering of retail prices to stimulate sales.
Selling, general and administrative expenses, including marketing, as a
percentage of sales, increased 0.4% to 28.9% in fiscal 1995 compared to 28.5%
in fiscal 1994. In total dollars, these expenses for fiscal 1995 increased
$10.6 million over fiscal 1994, with $7.0 million of the increase
attributable to expenses that normally increase proportionately with sales,
such as store salaries and marketing. These variable expenses, as a
percentage of sales, remained essentially unchanged from last year.
Management bonuses increased by $3.6 million as a result of increased
earnings. Net proprietary credit card expenses declined by $1.2 million,
primarily as a result of increased finance charge income, and all other
selling, general and administrative expenses increased by $1.2 million.
In fiscal 1994, the Company recorded a special charge of $21.3 million
before taxes for a store-closing provision that was established to reflect
the anticipated costs to close 49 stores with histories of under-performance
and high occupancy costs and to close the Canadian distribution center and
administrative offices. At the end of fiscal 1995, the Company had closed 46
stores; the Canadian distribution center and administrative offices were
closed in March 1995. Agreements have been reached with a majority of
landlords regarding lease terminations for stores in the store-closing
program. The balance of the store-closing reserve at fiscal 1995 year-end
was $11.8 million, which consisted primarily of anticipated final cash
requirements associated with lease termination costs. The $9.5 million
utilized out of the store-closing reserve during fiscal 1995 consisted of
lease termination costs of $3.0 million, fixed asset write-downs and
inventory liquidation costs of $4.8 million, interim operating losses and
other costs of $1.4 million and severance costs of $0.3 million.
Operating income improved $28.5 million to $55.6 million in fiscal 1995
from $27.1 million in the prior year.
During fiscal 1995, net interest expense declined primarily due to lower
effective interest rates coupled with lower debt, net of cash balances.
In late December 1995, the Company was made aware of trading losses of
$19.3 million resulting from substantial trading activities in a
discretionary account managed by a financial consultant. Fiscal 1995 and
1994 quarterly financial statements have been restated to reflect the trading
losses and gains during those periods based on the information available to
the Company. The restatements of the various quarters have no effect on net
income for the full 1994 fiscal year. The Company deposited a total of $12.5
million in the discretionary account in fiscal 1995, and during the first,
second and third fiscal quarters incurred net trading losses in the account
of $1.5 million, $4.2 million and $5.7 million, respectively, and during the
fourth quarter attained a net trading gain of $8.6 million. During the
first, second and third fiscal quarters of fiscal 1994 the Company incurred
net trading losses in the account of $4.0 million, $6.2 million and $4.6
million, respectively, and during the fourth quarter attained a net trading
gain of $14.8 million. To the extent trading losses are not offset by
trading gains, the Company has not recorded any tax benefit on these losses
since the realization of such benefit is not considered likely based on the
information available at this time. See: Notes 2 and 9 of the Notes to
Consolidated Financial Statements.
In April 1993, the Company completed the sale of its 49.5% ownership
interest in Sunbelt to General Host, a third party unrelated to the Company
or Sunbelt, in exchange for 1.9 million shares of General Host common stock.
Subsequently, General Host distributed two 5% stock dividends, resulting in
an increase in the Company's holdings to 2.1 million shares of General Host
common stock at February 25, 1995. In fiscal 1994, the Company recorded a
provision for the write-down of the carrying value of the Company's holdings
of General Host common stock. Based on prices at fiscal year-end 1994, the
market value of General Host common stock was $5.6 million less than the
Company's original carrying amount. After an assessment of factors which may
have contributed to the decline, the Company estimated $2.0 million of this
decline to be 'other than temporary' and recorded a corresponding charge to
income in fiscal 1994. The remaining $3.6 million decline in market value
was considered to be temporary. In spite of favorable developments relating
to General Host, the General Host stock price did not improve during fiscal
1995. Consequently, in the third quarter of fiscal 1995, the Company
concluded that these developments were not having the expected positive
effect on General Host's market price per share, and a non-cash, pre-tax
special charge of $7.5 million was recorded to reflect an 'other than
temporary' decline in the market value of the General Host common stock. As
a result of the issuance of the Company's exchangeable debentures in December
1994, the General Host common stock is no longer available for sale, and the
Company no longer has market risk in relation to the General Host common
stock.
The Company's effective income tax rate for fiscal 1995 increased to
33.6% from 29% in fiscal 1994. The effective rate for fiscal 1995 exclusive
of the effects of the aforementioned net trading losses would be 31%. The
increase is primarily due to the benefit of tax-favored investment income in
fiscal 1994 compared to fiscal 1995 and an increase in the effective state
income tax rate for fiscal 1995 as compared to fiscal 1994.
Net income for fiscal 1995 aggregated $22.1 million, or $.56 per share,
compared to income of $5.9 million, or $.15 per share, last year.
LIQUIDITY AND CAPITAL RESOURCES
Cash, including temporary investments, aggregated $13.5 million at
fiscal 1996 year-end compared to $50.6 million at fiscal 1995 year-end. Cash
from operating activities produced $11.4 million during fiscal 1996 compared
to $46.5 million in fiscal 1995. The decrease in cash from operations was
primarily due to the net trading losses of $16.5 million recorded during
fiscal 1996 and a build-up of inventory during fiscal 1996 compared to a
reduction of inventory levels during fiscal 1995. This inventory increase at
the end of fiscal 1996 was the result of timing of normal shipments for
Spring and Summer merchandise affected by the 53rd week in the fiscal year,
as well as the Chinese New Year celebration (which is a long holiday for many
of the Company's vendors) that occurred later in fiscal 1996 than in fiscal
1995, causing Spring inventory shipments to be earlier than in fiscal 1995.
In December 1995, the Company purchased the remaining 90% ownership
interest, previously held by unrelated third parties, in a limited
partnership in which the Company held a 10% ownership interest. The
partnership was formed to construct and lease 33 Pier 1 (U.S.) stores to the
Company. The Company paid approximately $40 million for this remaining
ownership interest which was funded through a $65 million competitive advance
and revolving credit facility obtained in December 1995.
Capital expenditures of $16.0 million were required during fiscal 1996
to support the opening of 48 Pier 1 (U.S.) stores and eight mall-based stores
in North America. Beginning in fiscal 1996, the Company began a store
remodeling program to refurbish aging stores in the chain. Thirty-five
stores were remodeled in fiscal 1996 and 35 additional stores are planned for
refurbishment in fiscal 1997 at an estimated cost of $6.7 million. The
Company's new store development plan for fiscal 1997 provides for the opening
of approximately 50 U.S. stores, primarily in single-store markets.
Financing for new store land and building costs will be provided by operating
leases. Inventory and fixtures for the fiscal 1997 development plan are
estimated to cost approximately $18 million, which will be funded by
operations, working capital and bank lines of credit. Thirty-one stores in
North America are expected to be closed in fiscal 1997; 26 of these have
expiring leases, and the remaining five stores are included in a $1.4 million
store-closing reserve recorded in the fourth quarter of fiscal 1996.
Working capital requirements are provided by a three-year, $65 million
competitive advance and revolving credit facility obtained in December 1995,
$25 million of which was available at fiscal 1996 year-end, and other short-
term (12-month) bank facilities aggregating $144 million, $94 million of
which was available at fiscal 1996 year-end. The short-term bank facilities
consist of $15 million of committed lines of credit and $129 million of
uncommitted lines. Provisions of certain of the Company's loan agreements
currently limit the total amount of borrowings under all debt facilities to
an aggregate of $116.9 million in excess of current borrowings at fiscal 1996
year-end. One short-term bank facility providing a $15 million committed
line and a $15 million uncommitted line of credit will expire in May 1996.
Management expects that this bank facility will either be renewed or replaced
with substantially the same terms and conditions. Most of the Company's loan
and lease guarantee agreements require the Company to maintain certain
financial ratios and limit certain investments and distributions to
stockholders, including cash dividends and purchases of treasury stock. At
fiscal 1996 year-end, the most restrictive of these agreements limited the
aggregate of such payments to $11.2 million. The Company requested and
received agreement from its lenders to either exempt or waive the net trading
losses and Sunbelt default special charges from the calculation of certain
restrictive covenants. Management believes the Company is in compliance with
the provisions of all loan agreements and lease guarantees at fiscal 1996
year-end. The Company's current ratio was 3.5 to 1 at fiscal 1996 year-end
compared to 4.1 to 1 at fiscal 1995 year-end.
The Company currently has a $45 million short-term store development and
lease financing facility, of which approximately $9 million is unused. In
addition, the Company maintains approximately $52 million in intermediate-
term lease financing facilities for 41 stores. The property leases for these
41 stores require that upon expiration of the leases over the next two years,
unless the leases are extended by the parties, the Company must either obtain
alternative financing for the properties or arrange for the sale of the
properties to a third party or purchase the properties for approximately $50
million. In order to continue to finance new store land and building costs
through operating leases, the Company is exploring other financing
opportunities currently available in the capital markets. The Company's
minimum future operating lease commitments expected for fiscal 1997 aggregate
$95 million, and the present value of total existing operating lease
commitments is $374 million. These commitments will be funded from operating
cash flow.
The Company previously announced that, depending upon market conditions,
it may utilize a portion of its surplus cash to purchase up to $25 million of
the Company's 6 7/8% convertible notes. During fiscal 1996, the Company
purchased $12.3 million of these notes, leaving $62.7 million of the
Company's convertible notes outstanding at the end of the 1996 fiscal year.
In addition, in October 1995, the Company announced that its Board of
Directors authorized the purchase of up to three million shares of the
Company's common stock in open market or private transactions from time to
time depending on prevailing market conditions. To date, no significant
number of shares has been repurchased.
In fiscal 1996, the Company paid cash dividends aggregating $.13 per
share and distributed a 5% stock dividend. The Company currently expects to
continue to pay cash dividends in fiscal 1997 and intends to retain most of
its future earnings for expansion of the Company's business.
In fiscal 1993, the Company invested in preference stock of The Pier, a
14-store retail chain in the United Kingdom that offers decorative home
furnishings and related items in a store setting similar to that operated by
the Company. At the Company's sole option, the preference stock may be
converted into a 90% controlling interest of The Pier. At the end of fiscal
1996, the Company's net investment in The Pier was $5.8 million. The Company
also guarantees a bank line available to The Pier of 4.1 million British
Pounds or $6.3 million and as of March 2, 1996, $5.4 million was outstanding
under this line. The Pier plans to operate 14 stores during fiscal 1997, and
the Company expects to invest $4 million of additional funds in these
operations during fiscal 1997, $2 million of which is expected to be used to
reduce The Pier's bank debt guaranteed by the Company.
Because of The Pier's history of operating losses, aggregating $6.8
million since fiscal 1993, the Company intends to curtail further investments
to fund store development and expansion of The Pier until it becomes
profitable. With the focus of The Pier shifting from growth to
profitability, several steps are underway to improve operating results,
including utilization of the Company's overseas purchasing function which
will allow elimination of this function at The Pier; implementation of store
associate training programs focused on customer service and selling with
anticipation of same-store sales growth; use of the Company's visual
merchandising standards to differentiate The Pier from its local competition;
and improvements in the warehouse and distribution functions based on
instituting the Company's systems to allow The Pier to reduce its warehouse
requirements. Prior to fiscal 1997, the Company had provided limited
management and operational support to The Pier. The support discussed above
can be provided at minimal cost to the Company. Projections of The Pier's
results indicate marginal profitability and positive cash flow in fiscal
1998. Years following fiscal 1998 reflect continued improvements in this
trend such that the expected future undiscounted cash flows of The Pier
exceeds the carrying amount of the Company's investment in The Pier. This
estimate of recoverability of the Company's investment is sensitive to change
based on the actual results of operations of The Pier compared to projected
amounts. As such, the Company believes that it is reasonably possible that a
change in this estimate could occur in the near term, requiring a charge to
earnings but no such charge is warranted at this time.
Cash requirements to fund the Company's previously established reserve
to disengage financial support of Sunbelt are expected to be approximately
$13.8 million in fiscal 1997 and will be funded through working capital and
operations. As of March 1996, two of the thirteen nursery store properties
have been sold at costs consistent with the Company's previously recorded
reserve. The Company's guarantees of other Sunbelt store lease commitments
aggregated $4.5 million with a present value of approximately $3.4 million at
fiscal 1996 year-end. The Company is not aware of any defaults on these
leases. The Company believes that it is reasonably possible that a change in
this estimate could occur in the near term; however, no further charge is
warranted at this time.
In March 1993, the Company invested $3 million in a limited partnership
investment in Whiffletree Partners, L.P., an investment fund. In April 1996,
the Company divested its interest in Whiffletree Partners, L.P. for
approximately $4.7 million, yielding a three-year compound annual return of
approximately 14.7% after termination costs.
The Company's inventory purchases are made almost entirely in U.S.
dollars. When purchase commitments are denominated in foreign currencies,
the Company may enter into forward exchange contracts when they are available
in order to manage its exposure to foreign currency exchange fluctuations.
Management believes the funds provided from operations, coupled with the
Company's cash position and available lines of credit, are sufficient to meet
its foreseeable cash requirements.
IMPACT OF INFLATION AND CHANGING PRICES
Inflation has not had a significant impact on the operations of the
Company.
IMPACT OF NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." This standard, which is required to be adopted in fiscal 1997, mandates
the Company to review long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. If it is determined that an impairment loss has occurred
based on expected future cash flows, then the loss should be recognized in
the income statement and certain disclosures regarding the impairment should
be made in the financial statements. The impact on the Company of adopting
this standard is expected to have no material effect on results of
operations.
The FASB issued SFAS No. 123, "Accounting and Disclosure of Stock-Based
Compensation," in October 1995. This standard is effective for the
Company's 1997 fiscal year. The Company will continue to account for stock
option grants in accordance with Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees," and thus adoption of SFAS No. 123
will have no effect on the results of operations.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements
Financial Statements:
Reports of Independent Auditors
Consolidated Statements of Operations for the Years Ended
March 2, 1996, February 25, 1995 and February 26, 1994
Consolidated Balance Sheets at March 2, 1996 and
February 25, 1995
Consolidated Statements of Cash Flows for the Years Ended
March 2, 1996, February 25, 1995, and February 26, 1994
Consolidated Statements of Stockholders' Equity for the Years
Ended March 2, 1996, February 25, 1995, and
February 26, 1994
Notes to Consolidated Financial Statements
Financial Statement Schedules:
For the Years Ended March 2, 1996, February 25, 1995, and
February 26, 1994
Report of Independent Accountants on Financial Statement
Schedules
II - Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are not required or are not
applicable or the required information is shown in the financial statements
or notes thereto.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors of Pier 1 Imports, Inc.
We have audited the accompanying consolidated balance sheet of Pier 1
Imports, Inc. as of March 2, 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended.
Our audit also included the financial statement schedule listed in the Index
at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit. The
consolidated financial statements and schedules of Pier 1 Imports, Inc. for
the years ended February 25, 1995 and February 26, 1994, were audited by
other auditors whose report dated April 7, 1995, except for Notes 2, 8, 11,
and 17, as to which the date is February 29, 1996, expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated 1996 financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Pier 1 Imports, Inc. at March 2, 1996, and the consolidated
results of its operations and its cash flows for the year ended March 2,
1996, in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth herein.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Fort Worth, Texas
April 11, 1996
<PAGE> REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Pier 1 Imports, Inc.
In our opinion, the consolidated balance sheet and the related
consolidated statements of operations, of cash flows and changes in
stockholders' equity as of and for each of the two years in the period ended
February 25, 1995, after the restatement described in Note 2, present fairly,
in all material respects, the financial position, results of operations and
cash flow of Pier 1 Imports, Inc. and its subsidiaries as of and for each of
the two years ended February 25, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above. We
have not audited the consolidated financial statements of Pier 1 Imports,
Inc. for any period subsequent to February 25, 1995.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
April 7, 1995, except for Notes 2, 8,
11, and 17, as to which the
date is February 29, 1996
<PAGE> Pier 1 Imports, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
Year Ended
----------------------------
1996 1995 1994
-------- -------- --------
Net sales $810,707 $711,985 $685,393
Operating costs and expenses:
Cost of sales (including buying and
store occupancy) 485,186 434,412 425,801
Selling, general and administrative
expenses 235,617 206,022 195,444
Depreciation and amortization 17,204 15,989 15,771
Store-closing provision -- -- 21,250
-------- -------- --------
738,007 656,423 658,266
-------- -------- --------
Operating income 72,700 55,562 27,127
Nonoperating (income) and expense:
Interest income (935) (2,231) (4,334)
Interest expense 14,723 14,223 21,177
Trading losses (gains) 16,463 2,799 (72)
Provision for Sunbelt Nursery Group,
Inc. defaults 14,000 -- --
Write-down of General Host securities -- 7,543 2,000
-------- -------- --------
44,251 22,334 18,771
-------- -------- --------
Income before income taxes 28,449 33,228 8,356
Provision for income taxes 18,400 11,168 2,423
-------- -------- --------
Net income $ 10,049 $ 22,060 $ 5,933
======== ======== ========
Net income per share $.25 $.56 $.15
======== ======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE> Pier 1 Imports, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
1996 1995
-------- --------
ASSETS
Current assets:
Cash, including temporary investments of $1,588
and $42,536, respectively $ 13,534 $ 50,566
Accounts receivable, net of allowance for doubtful
accounts of $3,949 and $2,335, respectively 77,735 64,229
Inventories 223,166 200,968
Other current assets 33,078 34,325
-------- --------
Total current assets 347,513 350,088
Properties, net 144,627 105,618
Other assets 38,956 30,219
-------- --------
$531,096 $485,925
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 4,454 $ 2,638
Accounts payable and accrued liabilities 96,246 82,419
-------- --------
Total current liabilities 100,700 85,057
Long-term debt 180,100 154,432
Deferred income taxes -- 2,538
Other non-current liabilities 22,373 21,501
Stockholders' equity:
Common stock, $1.00 par, 200,000,000 shares
authorized, 39,877,000 and 37,826,000 issued,
respectively 39,877 37,826
Paid-in capital 110,899 93,833
Retained earnings 81,633 94,516
Cumulative currency translation adjustments (1,072) (1,195)
Less--303,000 and 162,000 common shares in
treasury, at cost, respectively (2,545) (1,477)
Less--subscriptions receivable and unearned
compensation (869) (1,106)
-------- --------
227,923 222,397
Commitments and contingencies
-------- --------
$531,096 $485,925
======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE> Pier 1 Imports, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended
---------------------------
1996 1995 1994
------- ------- -------
Cash flow from operating activities:
Net income $10,049 $22,060 $ 5,933
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 17,204 15,989 15,771
Deferred taxes and other 4,509 3,515 (3,006)
Store-closing provision -- -- 21,250
Write-down of General Host securities -- 7,543 2,000
Provision for Sunbelt Nursery Group, Inc.
defaults 14,000 -- --
Change in cash from:
Inventories (22,198) 18,352 (30,053)
Accounts receivable and other
current assets (13,346) (16,071) (17,550)
Accounts payable and accrued expenses 7,159 417 10,103
Store-closing reserve (6,020) (4,650) --
Other assets, liabilities, and
other, net 27 (618) (28)
Net cash provided by operating ------- ------- -------
activities 11,384 46,537 4,420
------- ------- -------
Cash flow from investing activities:
Capital expenditures (22,127) (17,471) (24,617)
Acquisition of limited partnership
interest (40,000) -- --
Proceeds from disposition of properties
and other, net 84 62 791
Loans to Sunbelt Nursery Group, Inc. -- (9,600) (1,000)
Proceeds from Sunbelt Nursery Group, Inc. -- 11,600 2,105
Other investments (7,600) (2,093) (2,353)
Net cash used in investing ------- ------- -------
activities (69,643) (17,502) (25,074)
------- -------- -------
Cash flow from financing activities:
Cash dividends (5,158) (4,138) (3,560)
Proceeds from issuance of long-term debt 40,000 11,060 --
Repayments of long-term debt (14,750) (2,500) --
Net borrowings (payments) under line of
credit agreements 1,700 -- (33,000)
(Payments) proceeds from (purchases) sales
of capital stock, treasury stock, and
other, net (565) (14) 752
Net cash provided by (used in) ------- ------- -------
financing activities 21,227 4,408 (35,808)
------- ------- -------
Change in cash and cash equivalents (37,032) 33,443 (56,462)
Cash and cash equivalents at beginning
of year 50,566 17,123 73,585
------- ------- -------
Cash and cash equivalents at end of year $13,534 $50,566 $17,123
======= ======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
Pier 1 Imports, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands except share data)
<CAPTION>
Cumulative Subscriptions
Currency Receivable Unrealized Loss Total
Common Paid-in Retained Translation Treasury and Unearned on Marketable Stockholders'
Stock Capital Earnings Adjustments Stock Compensation Equity Securities Equity
------- ------- -------- ----------- -------- ------------ ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance February 27, 1993 $37,607 $ 93,184 $74,413 ($ 433) ($2,599) ($1,678) $ -- $200,494
Purchase of treasury stock -- -- -- -- (1,545) -- -- (1,545)
Restricted stock grant and
amortization -- (62) -- -- 9 309 -- 256
Exercise of stock options
and other 10 (452) (189) -- 3,251 -- -- 2,620
Currency translation
adjustments -- -- -- (531) -- -- -- (531)
Unrealized loss on marketable
equity securities -- -- -- -- -- -- (2,574) (2,574)
Cash dividends ($.09
per share) -- -- (3,560) -- -- -- -- (3,560)
Net income -- -- 5,933 -- -- -- -- 5,933
------- -------- ------- ------- ------- ------- ------ --------
Balance February 26, 1994 37,617 92,670 76,597 (964) (884) (1,369) (2,574) 201,093
Purchase of treasury stock -- -- -- -- (2,575) -- -- (2,575)
Restricted stock grant and
amortization -- (2) -- -- (61) 263 -- 200
Exercise of stock options
and other 209 1,165 (3) -- 2,043 -- -- 3,414
Currency translation
adjustments -- -- -- (231) -- -- -- (231)
Realized loss on marketable
equity securities -- -- -- -- -- -- 2,574 2,574
Cash dividends ($.10
per share) -- -- (4,138) -- -- -- -- (4,138)
Net income -- -- 22,060 -- -- -- -- 22,060
------- -------- ------- ------- ------- ------- ------- --------
Balance February 25, 1995 37,826 93,833 94,516 (1,195) (1,477) (1,106) -- 222,397
Purchase of treasury stock -- -- -- -- (4,090) -- -- (4,090)
Restricted stock grant and
amortization 7 123 -- -- 29 237 -- 396
Exercise of stock options
and other 166 682 365 -- 2,993 -- -- 4,206
Currency translation
adjustments -- -- -- 123 -- -- -- 123
Cash dividends ($.13
per share) -- -- (5,158) -- -- -- -- (5,158)
Stock dividend (5%) 1,878 16,261 (18,139) -- -- -- -- --
Net income -- -- 10,049 -- -- -- -- 10,049
------- -------- ------- ------- ------- ------- ------- --------
Balance March 2, 1996 $39,877 $110,899 $81,633 ($1,072) ($2,545) ($ 869) $ -- $227,923
======= ======== ======= ======= ======= ======= ======= ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Organization - Pier 1 Imports, Inc. is North America's largest specialty
retailer of imported decorative home furnishings, gifts and related items,
with retail stores located in the United States, Canada, Puerto Rico and
expanding international operations in the United Kingdom, Mexico and Japan.
Concentrations of risk with respect to sourcing the Company's inventory
purchases are limited due to the large number of vendors or suppliers and
their geographic dispersion around the world. The Company sources the
largest amount of inventory from China; however, management believes that
this merchandise could be replaced by manufacturers from other countries at
comparable terms.
Basis of consolidation - The consolidated financial statements of Pier 1
Imports, Inc. and its consolidated subsidiaries (the "Company") include the
accounts of all subsidiary companies. Material intercompany transactions and
balances have been eliminated.
Use of estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
Reclassifications - Certain reclassifications have been made in the
prior years' consolidated financial statements to conform to the fiscal 1996
presentation.
Fiscal periods - The Company utilizes 5-4-4 (week) quarterly accounting
periods with the fiscal year ending on the Saturday nearest the last day of
February. Fiscal 1996 consisted of a 53-week year (which occurs every seven
years) and fiscal 1995 and 1994 were 52-week years. Fiscal 1996 ended March
2, 1996, fiscal 1995 ended February 25, 1995, and fiscal 1994 ended
February 26, 1994.
Cash and cash equivalents - The Company considers all highly liquid
investments with an original maturity date of three months or less to be cash
equivalents. The effect of foreign currency exchange rate fluctuations on
cash is not material.
Marketable securities - The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," for fiscal 1995. Under SFAS No. 115, trading
account assets are recorded at their fair value, with unrealized gains and
losses recorded as trading gains or losses in the Company's statement of
operations. See Notes 2 and 9 of the Notes to Consolidated Financial
Statements. Debt and equity securities available for sale are recorded at
their fair value, with unrealized gains and losses accumulated and included
as a separate component of stockholders' equity, net of related income tax
effects. Adjustments for any impairments in the market value of equity
securities available for sale (based on market conditions) that are deemed to
be 'other than temporary' are included as a loss in the current year's
operations.
Translation of foreign currencies - Assets and liabilities of foreign
operations are translated into U.S. dollars at fiscal year-end exchange
rates. Income and expense items are translated at average exchange rates
prevailing during the year. Translation adjustments arising from differences
in exchange rates from period to period are included as a separate component
of stockholders' equity.
Financial instruments - The fair value of financial instruments is
determined by reference to various market data and other valuation techniques
as appropriate. Unless otherwise disclosed, the fair values of financial
instruments approximate their recorded values.
Risk management instruments: The Company utilizes various financial
instruments to manage interest rate and market risk associated with its on-
and off-balance sheet commitments. Interest rate swap agreements have been
used to modify the interest characteristics of a portion of the Company's
debt. The differential to be paid or received is accrued as interest rates
change and recognized as an adjustment to interest expense on the
consolidated statement of operations. The fair values of the swap agreements
are not recognized in the consolidated financial statements. Additionally,
interest rate floors have occasionally been used to lock-in rates to minimize
the Company's risks to market rate fluctuations. The costs of these interest
rate floors are amortized to interest expense over the term of the contract.
The Company hedges certain commitments denominated in foreign currency
through the purchase of forward contracts. The forward contracts are
purchased only to cover specific commitments to buy merchandise for resale;
any gains or losses on such contracts are included in the cost of the
merchandise purchased.
The Company enters into interest rate swap, interest rate floor, and
foreign exchange forward contracts only with major financial institutions and
continually monitors its positions with, and the credit quality of, these
counterparties to its off-balance sheet financial instruments. The Company
does not expect non-performance by any of the counterparties, and any losses
incurred in the event of non-performance would not be material. As of March
2, 1996, the Company had no interest rate swap or interest rate floor
agreements in place.
Trading account instruments: Financial instruments that were used in
trading activities were recorded at their fair values, with realized and
unrealized gains and losses recorded as trading gains or losses in the
Company's statement of operations.
Inventories - Inventories are comprised primarily of finished
merchandise and are stated at the lower of average cost or market; cost is
determined principally on the first-in, first-out method.
Properties, maintenance and repairs - Buildings, equipment, furniture
and fixtures, and leasehold interests and improvements are carried at cost
less accumulated depreciation. Depreciation is based on the straight-line
method over estimated useful lives or lease terms, if shorter.
Expenditures for maintenance, repairs and renewals which do not
materially prolong the useful lives of the assets are charged to expense as
incurred. In the case of disposals, assets and the related depreciation are
removed from the accounts and the net amount, less proceeds from disposal, is
credited or charged to income.
Deferred costs - Certain initial direct costs associated with new
proprietary credit card accounts are capitalized and amortized over the
average life of an account. Preopening costs associated with the new stores
are capitalized and expensed over one year.
Advertising costs - All advertising costs are expensed the first time
the advertising takes place. Advertising costs were $32,093,000,
$29,566,000 and $26,620,000 in fiscal 1996, 1995 and 1994, respectively. The
amounts of prepaid advertising at fiscal year-ends 1996, 1995 and 1994 were
$456,000, $71,000 and $260,000, respectively.
Income taxes - Income tax expense is based on the liability method.
Under this method, deferred tax assets and liabilities are recognized based
on differences between financial statement and tax bases of assets and
liabilities using presently enacted tax rates. Deferred federal income
taxes, net of applicable foreign tax credits, are not provided on the
undistributed earnings of foreign subsidiaries to the extent the Company
intends to permanently reinvest such earnings abroad. At March 2, 1996, such
undistributed earnings aggregated $16.5 million.
Stock based compensation - The Company grants stock options and
restricted stock for a fixed number of shares to employees with grant prices
equal to the fair market value of the shares at the date of grant. The
Financial Accounting Standards Board ("FASB") issued SFAS No. 123,
"Accounting and Disclosure of Stock-Based Compensation," in October 1995.
This standard is effective for the Company's 1997 fiscal year and adoption of
SFAS No. 123 will have no effect on the results of operations. The Company
will continue to account for stock option grants in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and, accordingly, will recognize no compensation expense for the
stock option grants.
Net income per share - Net income per share during a period is computed
by dividing net income by the weighted average number of common shares
outstanding, including common stock equivalents, which were 39,778,000,
39,698,000 and 39,530,000 for fiscal 1996, 1995 and 1994, respectively.
Computation of the weighted average shares for fiscal 1995 and 1994 gives
retroactive effect to the 5% stock dividend distributed May 8, 1995. Fully
diluted net income per share is based on the assumed conversion of all of the
6 7/8% convertible subordinated notes into common stock, whereby interest
expense and debt issue costs, net of tax, on the 6 7/8% convertible
subordinated notes is added back to net income. Fully diluted net income per
share resulted in less than 3% dilution of primary net income per share for
each of the three fiscal years ended March 2, 1996.
Impact of recently issued accounting standards - In March 1995, the FASB
issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," which requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. SFAS
No. 121 also addresses the accounting for long-lived assets that are expected
to be disposed of by a company. The Company will adopt SFAS No. 121 in the
first quarter of fiscal 1997 and, based on current circumstances, does not
believe the effect of adoption will be material.
Note 2 - Trading Losses
In late December 1995, the Company was made aware of losses of $19.3
million resulting from substantial trading activities in a discretionary
account by a financial consultant retained to manage the Company's excess
cash and short-term investments. The Company maintained a relationship with
the consultant over the last nine years and provided funds under his
management which at one time reached $22 million. In executing these trading
transactions, the consultant may have acted outside the scope of instructions
from the Company and improperly attributed transactions to the Company.
These transactions are recorded on statements the Company received from
brokerage firms that executed the transactions purportedly in accordance with
the consultant's instructions. Management believes that these statements
represent the best evidence of the transactions that is available to the
Company. As a result, the Company has restated its financial statements for
affected periods to reflect the gains and losses in the periods indicated by
brokerage firm statements.
Restatements of the financial statements indicate significant trading
losses during the first three quarters of each of the fiscal years ended
February 25, 1995 and February 26, 1994, and then a substantial recovery of
such losses in the fourth fiscal quarter of the fiscal years ended February
25, 1995 and February 26, 1994. Restatements of fiscal 1996 indicate
significant trading losses in the first and second quarters of the fiscal
year. The Company's restatements had no effect on net income for the full
fiscal year ended February 26, 1994. The effect on the financial statements
for the full fiscal years ended March 2, 1996 and February 25, 1995 was to
reduce net income by net trading losses of $16.5 million and $2.8 million,
respectively. These amounts do not include any conflicting claims involving
the financial consultant or other parties, which are expected to be the
subject of protracted legal proceedings. The Company has not recorded any
tax benefit on these losses since the realization of such benefit is not
considered likely based on the information available at this time. The
amounts of the net trading losses or gains for the quarterly periods in
fiscal 1996 and 1995 are included in Note 17.
The Company has attempted to obtain additional information from the
financial consultant with respect to its purported trading transactions, but
the consultant has not cooperated with these efforts. The ability of the
Company to obtain such information, particularly at dates which are relevant
to the Company's financial reporting requirements through March 2, 1996, is
not ascertainable. The Company has been authorized by the Board of Directors
to pursue all legal remedies to recoup the lost funds against any and all
parties responsible for the trading losses. The recorded losses have not
been reduced by any possible recoveries from such sources.
On December 27, 1995, a derivative suit, entitled Harry Lewis v. Clark
A. Johnson et al., was filed by a stockholder on behalf of the Company in the
Delaware Chancery Court against each member of the Company's Board of
Directors. The complaint alleges that the Directors violated their fiduciary
duties to the Company and its stockholders by not adequately supervising the
officers, employees and agents of the Company who were responsible for the
trading activities that resulted in the $19.3 million in losses. The suit
seeks an accounting to the Company for the damages it sustained.
On January 3, 1996, another derivative suit, entitled John P. McCarthy
Profit Sharing Plan, et al. v. Clark A. Johnson et al., was filed by a
stockholder on behalf of the Company in the District Court of Tarrant County,
Texas against each member of the Board of Directors, two executive officers
of the Company and the outside financial consultant of the Company. The
complaint alleges that the Directors and executives of the Company violated
their duties to the Company and its stockholders by gross mismanagement and
waste of the Company's assets exceeding $34 million and that the defendants
engaged in conspiracy and fraud by concealing and misrepresenting facts to
the Company and its stockholders. The suit seeks an award in the amount of
all damages sustained by the Company. On February 12, 1996, the Company
filed a related cross-claim suit against S. Jay Goldinger, the financial
consultant, and his firm, Capital Insight, and a third-party claim against a
brokerage firm, Refco, Inc., asserting conspiracy and fraud and seeking
damages sustained by the Company from the trading activities managed by
Goldinger.
On January 24, 1996, a suit, entitled Hernan Velasquez v. Clark A.
Johnson et al., was filed in the District Court of Tarrant County, Texas
against the Company and each member of the Company's Board of Directors. The
complaint asserts a class action by Company stockholders purchasing and/or
holding Company common stock between July 8, 1994 and December 22, 1995, and
alleges fraud and violations of the Texas Securities Act in the dissemination
of materially false and misleading information concerning the Company's
financial condition. The suit seeks compensatory and exemplary damages in
excess of $50 million in connection with purchases by the stockholder class
of Company common stock during the class period.
The Company maintains Directors and Officers liability insurance and, as
such, the Company's directors and officers will seek indemnification against
all of these matters. The ultimate outcome of these complaints cannot
presently be determined.
Note 3 - Provision for Sunbelt Nursery Group, Inc. Defaults
In April 1993, the Company completed the sale of its 49.5% ownership
interest in Sunbelt Nursery Group, Inc. ("Sunbelt") to General Host
Corporation ("General Host"), a third party unrelated to the Company or
Sunbelt, in exchange for 1.9 million shares of General Host common stock.
Subsequently, General Host paid two 5% stock dividends, resulting in an
increase in the Company's holdings to 2.1 million shares of General Host
common stock.
In connection with the Company's sale of its Sunbelt investment to
General Host, the Company committed to provide Sunbelt a $12 million credit
facility through April 1994 and up to $25 million of non-revolving store
development financing through April 1996. In October 1994, in connection
with the sale by General Host of its 49.5% interest in Sunbelt to a third
party unrelated to the Company or General Host, the Company received payment
of the amounts owed under the credit facility and agreed to extend $22.8
million of the non-revolving store development financing to Sunbelt until
June 30, 1998, at market rental rates.
In April 1995, Sunbelt defaulted on 13 store sublease agreements with
the Company comprising the $22.8 million of non-revolving store development
financing, and the Company terminated the subleases. In July 1995, the
Company entered into a settlement agreement with Sunbelt which required the
Company to record a pre-tax charge of $14 million in its fiscal 1996 first
quarter as its best estimate of the costs to disengage from its financial
support of Sunbelt. The charge includes estimated losses resulting from
terminating the subleases and disposing of the properties. As of March 1996,
two nursery store properties had been sold at costs consistent with the
Company's estimates used to record the charge. The Company also guarantees
other Sunbelt store lease commitments aggregating $4.5 million with a present
value of approximately $3.4 million at fiscal 1996 year-end. The Company
believes that it is reasonably possible that a change in this estimate could
occur in the near term; however, no further charge is warranted at this time.
Note 4 - Proprietary Credit Card Information
The Company's proprietary credit card is managed and administered by an
unrelated third party. Origination costs of $2,269,000, $1,168,000 and
$976,000 were deferred during fiscal years 1996, 1995 and 1994, respectively.
The Company is amortizing these initial direct origination costs over 36
months, which the Company believes is the approximate average active life of
an account. These proprietary cards have no expiration date and no annual
fee. At March 2, 1996 and February 25, 1995, deferred costs, net of
amortization, totalled $2,948,000 and $1,544,000, respectively.
Concentrations of credit risk with respect to customer receivables are
limited due to the large number of customers comprising the Company's
customer base and their location in many different geographic areas of the
country. Customer receivables are classified as current assets, including
amounts which are due after one year, in accordance with retail industry
practices. The Company's policy is to write-off accounts when they become
210 days past due or whenever deemed uncollectible by management, whichever
is sooner. Collection efforts continue subsequent to write-off.
Net proprietary credit card costs, including finance charge income, are
included in selling, general and administrative expenses. A summary of the
Company's proprietary credit card results for each of the last three fiscal
years follows (in thousands):
1996 1995 1994
------ ------ ------
Costs:
Processing fees $6,932 $6,536 $6,114
Provision for bad debts 5,763 3,285 2,195
------ ------ ------
12,695 9,821 8,309
------ ------ ------
Income:
Finance charge income 11,245 8,800 6,087
Insurance and other income 312 237 238
------ ------ ------
11,557 9,037 6,325
------ ------ ------
Net proprietary credit card
costs $1,138 $784 $1,984
====== ====== ======
Pier 1 Preferred Customer Card sales $188,303 $126,836 $101,227
====== ====== ======
Costs as a percent of Pier 1 card sales 6.74% 7.74% 8.21%
====== ====== =======
Note 5 - Properties
Properties are summarized as follows at March 2, 1996 and February 25,
1995 (in thousands):
1996 1995
------- -------
Land $28,485 $7,203
Buildings 52,710 34,037
Equipment, furniture and fixtures 103,108 95,208
Leasehold interests and improvements 84,877 78,688
Construction in progress 402 209
------- -------
269,582 215,345
Less accumulated depreciation and
amortization 124,955 109,727
------- -------
Properties, net $144,627 $105,618
======= =======
Note 6 - Accounts Payable and Accrued Liabilities/Other Non-Current
Liabilities
The following is a summary of accounts payable and accrued liabilities
and other non-current liabilities at March 2, 1996 and February 25, 1995 (in
thousands):
1996 1995
------- -------
Trade accounts payable $32,070 $29,008
Accrued payroll and other employee-
related liabilities 19,146 21,039
Sunbelt default reserve 13,784 --
Accrued taxes, other than income 8,200 7,652
Store-closing reserves 5,255 11,759
Accrued insurance, other than worker's
compensation 4,230 2,068
Accrued interest 4,070 3,387
Other 9,491 7,506
-------- --------
Accounts payable and accrued liabilities $96,246 $82,419
======== ========
Accrued average rent $13,819 $14,678
Other 8,554 6,823
------- -------
Other non-current liabilities $22,373 $21,501
======= =======
Note 7 - Store-Closing Provisions
At the end of fiscal 1994, the Company recorded a pre-tax special
charge of $21.3 million for a store-closing provision that was established to
reflect the anticipated costs to close 49 stores with histories of
underperformance and high occupancy costs, and to close the Canadian
distribution center and administrative offices. At the end of fiscal 1996,
the Company had closed 48 stores and the Canadian distribution center and
administrative offices. The balance of the fiscal 1994 store-closing reserve
at fiscal 1996 year-end was $4.4 million. The remaining components of the
fiscal 1994 store-closing reserve and an analysis of the amounts charged
against the reserve in each fiscal year are outlined in the following table
(in thousands):
Fiscal 1996
-------------------
Fiscal Changes
1995 in
1994 Activity 1995 Activity Estimates 1996
------- --------- ------- --------- --------- -------
Lease termination
costs $15,825 ($3,028) $12,797 ($4,968) ($3,450) $4,379
Fixed asset
write-downs and
inventory liquida-
tion costs 3,318 (4,841) (1,523) -- 1,523 --
Interim operating
losses and other 1,702 (1,352) 350 (974) 624 --
Severance costs 405 (270) 135 (78) (57) --
------- --------- ------- --------- --------- ------
$21,250 ($9,491) $11,759 ($6,020) ($1,360) $4,379
======= ========= ======= ========= ========= ======
After considering the remaining terminations, approximately $1.4
million of the fiscal 1994 store-closing provision was credited to income in
the fourth quarter of fiscal 1996 to reflect changes in original estimates.
Negotiations to sublease the one store remaining to be closed and payments of
lease terminations costs on two other stores remaining in the fiscal 1994
store-closing program are nearing completion with final payments estimated to
aggregate $4.4 million.
During the fourth quarter of fiscal 1996, the Company identified
five stores which have not satisfied the Company's performance expectations.
A charge of $1.4 million was recorded to close these stores. The charge
consists of $0.5 million to reduce the recorded amount of the stores' fixed
assets to their net realizable values and $0.9 million of estimated lease
termination costs.
Note 8 - Long-term Debt and Available Credit
Long-term debt is summarized as follows (in thousands):
1996 1995
------- -------
11 1/2% subordinated debentures,
net of unamortized discount of
$2,062 and $2,444, respectively $17,938 $20,056
Industrial revenue bonds 25,000 25,000
11% senior notes 25,000 25,000
6 7/8% convertible subordinated notes 62,750 75,000
8 1/2% exchangeable debentures,
net of unamortized discount of
$626 and $728, respectively 11,874 11,772
Competitive advance and revolving
credit facility 40,000 --
Capital lease obligations 104 242
-------- --------
182,666 157,070
Less - portion due within one year 2,566 2,638
-------- --------
$180,100 $154,432
======== ========
In July 1983, the Company issued $25 million of 11 1/2% subordinated
debentures. Interest is payable on January 15 and July 15. Mandatory annual
$2.5 million sinking fund payments commenced in July 1994 and will continue
until maturity in July 2003. The debentures are callable at any time at par
plus accrued interest.
In fiscal 1987, the Company entered into industrial revenue development
bond loan agreements aggregating $25 million which mature in the year 2026.
Proceeds were used to construct three warehouse distribution facilities.
These bonds are seven-day lower floater put bonds and interest rates float
with market rates for similar tax-exempt debt issues. Interest is payable
monthly.
In May 1991, the Company issued $25 million of 11% senior notes due
June 1, 2001. Annual principal reductions in the amount of $5 million are
due beginning June 1, 1997. Interest is payable each June 1 and December 1.
In April 1992, the Company issued $75 million of 6 7/8% convertible
subordinated notes. These notes are convertible into shares of common stock
of the Company at $11.43 per share (adjusted for the 5% stock dividend
distributed May 8, 1995) at any time at or prior to maturity which is April
1, 2002. The notes may be redeemed by the Company at any time on or after
April 1, 1995 in whole or in part. Redemption prior to the year 2000 would
be at a premium. Since April 1, 1995, the Company has purchased $12.3
million of these notes. Interest on the notes is payable each April 1 and
October 1.
In December 1994, the Company issued $12.5 million of 8 1/2%
exchangeable debentures. The debentures are due December 1, 2000, and are
mandatorily exchangeable at that date into 2.1 million shares of General Host
common stock held by the Company. If at any time after December 1, 1997, the
closing market price of General Host common stock shall have been equal to or
greater than $7.375 for the prior 20 consecutive trading days, the debentures
will be mandatorily exchanged 30 days thereafter for the General Host shares
plus accrued interest. Interest is payable each June 1 and December 1.
In December 1995, the Company obtained a three-year, $65 million
competitive advance and revolving credit facility (included in the $209
million lines of credit discussed below). The maturity and interest rate,
which floats with the market rate, of each borrowing within the competitive
advance and revolving credit facility is determined separately. At fiscal
1996 year-end, the Company had utilized $40 million of this facility to
purchase the remaining 90% ownership interest, previously held by unrelated
third parties, in a limited partnership in which the Company had a 10%
ownership interest. At fiscal 1996 year-end, the rate on outstanding
borrowings under this facility was 6.75%.
Long-term debt matures as follows (in thousands):
Fiscal 1997 $ 2,566
1998 7,538
1999 47,500
2000 7,500
2001 20,000
Thereafter 97,562
--------
$182,666
========
Some of the Company's loan and lease agreements require that the
Company maintain certain financial ratios and limit specific payments and
equity distributions including cash dividends, loans to stockholders and
purchases of treasury stock. At fiscal 1996 year-end, the most restrictive
of the agreements limits the aggregate of such payments to $11.2 million.
The Company has lines of credit available which aggregate approximately
$209 million. The lines may be used for short-term working capital
requirements or overseas merchandise letters of credit. At fiscal 1996 year-
end, approximately $90 million (of which $40 million is classified as long-
term) had been utilized, leaving $119 million of available lines of credit;
however, under the terms of certain loan and lease agreements, additional
borrowings were limited to $116.9 million at fiscal 1996 year-end. The
weighted average interest rate on short-term working capital loans
outstanding during the year was 6.7%.
Note 9 - Fair Value of Financial Instruments
A financial consultant retained by the Company to manage the Company's
excess cash and short-term investments used some of the Company's funds to
trade in treasury bonds, treasury bond futures contracts, options on treasury
bond futures contracts and other financial instruments. During fiscal 1996,
1995 and 1994, the Company deposited $19.5 million, $12.5 million and $22.1
million, respectively, with the financial consultant and withdrew $3.7
million, $9.0 million and $22.1 million of the invested funds, respectively,
by the end of each such fiscal year. There were no open positions at either
March 2, 1996 or February 26, 1994. At February 25, 1995, the Company had
outstanding treasury bond futures contracts with a notional amount of $122
million which had a carrying and a fair market value of $0.3 million. These
contracts derive value from changes in market interest rates without the
purchase and sale of the underlying securities. The trading account was
closed prior to the end of fiscal 1996. The average fair value of the
trading account was $0.6 million, $1.9 million and $3.6 million during fiscal
years 1996, 1995 and 1994, respectively. Net realized and unrealized gains
and (losses) associated with these trading activities totalled approximately
($16.5) million, ($2.8) million and $0.1 million in fiscal years 1996, 1995
and 1994, respectively.
As of March 2, 1996, the fair value of long-term debt was $198.6
million compared to its recorded value of $182.7 million. The fair value of
long-term debt was estimated based on the quoted market values for the same
or similar issues, or rates currently available for debt with similar terms.
There are no other significant assets or liabilities with a fair value
different from the recorded value.
Until August 5, 1995, the Company had an interest rate hedging
agreement on $100 million of notional principal with a commercial bank for
the purpose of limiting the Company's exposure to interest rate fluctuations
on its $25 million of floating rate industrial revenue bonds, as well as
approximately $75 million of store operating lease agreements with rental
payments linked to LIBOR. This swap agreement was designated as a hedge
contract and, therefore, the differential between the floating and fixed
interest rates to be paid was recognized over the life of the agreement.
Under this swap agreement, the Company paid a fixed rate of 6.25% and, since
inception, had received an average floating rate of 4.93%. In addition, the
Company augmented the swap through the purchase of an interest rate floor
with the effect that the Company received payments under the swap based on a
floating rate not less than 6.25% from February 6, 1995 until August 5, 1995.
The Company's weighted average interest rate, including the effects of
hedging activities, was 8.3%, 7.8% and 10.0% for the 1996, 1995 and 1994
fiscal years, respectively. The weighted average interest rate, excluding
the effects of hedging activities, would have been 8.6%, 7.9% and 8.3% for
the 1996, 1995 and 1994 fiscal years, respectively. This swap agreement
expired on August 5, 1995 and was not renewed.
At March 2, 1996, the Company had approximately $4 million of forward
exchange contracts outstanding with negligible fair and recorded values and
with maturities ranging from one to six months.
Note 10 - Employee Benefit Plans
In 1986, the Company adopted a qualified, defined contribution employee
retirement plan. Except for the initial enrollment period, all full- and
part-time personnel who are at least 21 years old, have been employed for a
minimum of twelve months and have worked 1,000 hours in the preceding twelve
months are eligible to participate in the plan. Employees contributing from
1% to 5% of their compensation receive matching Company contributions of up
to 3%. Company contributions to the plan were $1,400,000, $1,282,000 and
$1,114,000 in fiscal 1996, 1995 and 1994, respectively.
In addition, a non-qualified retirement savings plan is available for
the purpose of providing deferred compensation for certain employees whose
benefits under the qualified plan are limited under Section 401(k) of the
Internal Revenue Code.
The Company maintains supplemental retirement plans ("the Plans") for
certain of its executive officers. The Plans provide that upon death,
disability, retirement age or termination, a participant will receive
benefits based on highest compensation and years of service. The Company
recorded expenses related to the Plans of $1,152,000, $850,000 and $765,000
in fiscal 1996, 1995 and 1994, respectively.
Note 11 - Matters Concerning Stockholders' Equity
Stock purchase plan - Substantially all employees and directors 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 deductions. Each employee participant
may contribute up to 10% of the eligible portions of annual compensation and
directors may contribute part or all of their monthly directors' fees. The
Company contributes from 10% to 100% of the participants' contributions,
depending upon length of participation and date of entry into the Plan.
Approximately 288,000 shares were allocated to Stock Purchase Plan
participants during fiscal 1996, all of which were issued from treasury.
Company contributions to the Plan were $896,000, $844,000 and $867,000 in
fiscal years 1996, 1995 and 1994, respectively.
Restricted stock grant plans - In fiscal 1996, 1995 and 1994, the
Company issued 16,247 shares, 19,584 shares and 17,414 shares, respectively,
of its common stock to key officers pursuant to a Management Restricted Stock
Plan which provides for the issuance of up to 250,000 shares. The shares of
restricted stock were awarded in conjunction with granting of stock options
to those officers, with the number of shares awarded representing 25% of the
number of stock options granted. The restricted stock will vest at the times
and to the extent that 25% of such stock options have been exercised and the
option shares have been held for two years. The cost of these restricted
stock shares is being expensed over the specified vesting period. Shares not
vested are returned to the Plan if employment is terminated for any reason.
In 1991, the Company issued 292,825 shares of its common stock to key
officers pursuant to a Restricted Stock Grant Plan which provides for
issuance of up to 500,000 shares. These shares vest and the cost of these
shares is being expensed over a ten-year period of continued employment.
Unvested shares are returned to the Plan if employment is terminated for any
reason.
Stock option plans - In June 1989, the Company adopted two stock option
plans, the 1989 Employee Stock Option Plan and the 1989 Non-Employee Director
Stock Option Plan. Under the employee plan, options have been granted at the
fair market value of shares on date of grant and may be granted to qualify as
Incentive Stock Options under Section 422 of the Internal Revenue Code or as
non-qualified options. Under the director plan, non-qualified options
covering 3,000 shares are granted once each year to each non-employee
director. The Company may grant options covering up to 1,500,000 shares of
the Company's common stock under the employee plan and up to 150,000 shares
under the director plan. Both plans are subject to adjustments for stock
dividends.
In 1990, the 1980 Stock Option Plan expired subject to outstanding
granted options covering 457,691 shares at fiscal year-end 1996.
A summary of stock option transactions related to the stock option
plans during the years ended March 2, 1996 and February 25, 1995 is as
follows:
Shares Option Prices
--------- ----------------
Outstanding at February 26, 1994 1,051,722 $3.20 - $12.30
Options granted 400,330 7.63 - 9.50
Options exercised (126,505) 3.20 - 9.00
Options cancelled or expired (77,709) 4.28 - 9.00
--------- ----------------
Outstanding at February 25, 1995 1,247,838 3.84 - 12.30
Options granted (includes
effect of 5% stock dividend) 460,154 9.26 - 10.38
Options exercised (226,796) 3.65 - 9.52
Options cancelled or expired (73,060) 4.88 - 10.38
--------- ----------------
Outstanding at March 2, 1996 1,408,136 $3.85 - $11.69
========= =================
At March 2, 1996 and February 25, 1995, outstanding options covering
705,441 and 687,855 shares were exercisable and 264,279 and 509,764 shares
were available for grant, respectively.
Common stock dividend - On March 15, 1995, the Company announced a 5%
common stock dividend which was distributed May 8, 1995 to stockholders of
record on May 1, 1995. Based on an average of the closing price of the
Company's common stock the day before, and for a two-week period following,
the date of the dividend declaration, the market value of the 1.9 million
shares distributed was $18.1 million.
Share purchase rights plan - On December 9, 1994, the Board of
Directors adopted a Share Purchase Rights Plan and declared a dividend of one
common stock purchase right (a "Right") payable on each outstanding share of
the Company's common stock on December 21, 1994. The Rights, which will
expire on December 21, 2004, are initially not exercisable, and until
becoming exercisable will trade only with the associated common stock. After
the Rights become exercisable, each Right entitles the holder to purchase at
a specified exercise price one share of common stock. The Rights will become
exercisable after the earlier to occur of (i) ten days following a public
announcement that a person or group of affiliated or associated persons have
acquired beneficial ownership of 15% or more of the outstanding common stock
or (ii) ten business days (or such later date as determined by the Board of
Directors) following the commencement of, or announcement of an intention to
make, a tender or exchange offer the consummation of which would result in
beneficial ownership by a person or group of 15% or more of the outstanding
common stock. If the Company were acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power were sold, proper provision would be made so that each Right would
entitle its holder to purchase, upon the exercise of the Right at the then
current exercise price, that number of shares of common stock of the
acquiring company having a market value of twice the exercise price of the
Right. If any person or group were to acquire beneficial ownership of 15% or
more of the Company's outstanding common stock, each Right would entitle its
holder (other than such acquiring person whose Rights would become void) to
purchase, upon the exercise of the Right at the then current exercise price,
that number of shares of the Company's common stock having a market value on
the date of such 15% acquisition of twice the exercise price of the Right.
The Board of Directors may at its option, at any time after such 15%
acquisition but prior to the acquisition of more than 50% of the Company's
outstanding common stock, exchange all or part of the then outstanding and
exercisable Rights (other than those held by such acquiring person whose
Rights would become void) for common stock at an exchange rate per Right of
one-half the number of shares of common stock receivable upon exercise of a
Right. The Board of Directors may, at any time prior to such 15%
acquisition, redeem all the Rights at a redemption price of $.01 per Right.
Note 12 - Income Taxes
The provision for income taxes consists of (in thousands):
1996 1995 1994
------- ------- -------
Federal:
Current $18,801 $8,733 $5,356
Deferred (3,864) (436) (4,966)
State:
Current 3,583 2,040 2,598
Deferred (446) (93) (1,127)
Foreign:
Current 326 924 562
------- ------- -------
$18,400 $11,168 $2,423
======= ======= =======
Deferred tax assets (liabilities) at March 2, 1996 and February 25, 1995
are comprised of the following (in thousands):
1996 1995
------- -------
Deferred tax assets:
Capital loss carryforwards $2,784 $2,209
Inventory 924 4,128
Deferred compensation 4,123 3,359
Bad debts 1,511 691
Accrued average rent 6,208 6,024
Trading losses 3,950 1,120
Losses on The Pier Retail
Group Ltd. 2,712 711
Other 879 663
------- -------
23,091 18,905
Valuation allowance (6,039) (1,120)
------- -------
Total deferred tax assets 7,052 17,785
------- -------
Deferred tax liabilities:
Fixed assets, net ($3,586) ($8,629)
------- -------
Total deferred tax liabilities ($3,586) ($8,629)
------- -------
Net deferred tax assets $13,466 $9,156
======= =======
At March 2, 1996, the Company had net capital loss carryforwards of
$7,048,000 for income tax purposes that expire in the year 2000. For
financial reporting purposes, the valuation allowance has been recognized to
offset the deferred tax assets relating to trading losses and losses on The
Pier Retail Group Limited.
The Company's federal income tax returns for fiscal years 1991 through
1993 have been examined by the Internal Revenue Service ("IRS"). The field
portion of the examination has been completed and the IRS has issued a
Revenue Agent Report claiming the Company has a liability for tax and
interest of approximately $8.5 million for these years. The Company intends
to challenge the IRS examination team's position through the Appellate
Division of the IRS. The Company has recorded a liability for its estimate
of the outcome of this matter. This estimate is sensitive to change based on
the Company's experience through the appeals process. As such, the Company
believes that it is reasonably possible that a change in this estimate could
occur in the near term.
The difference between income taxes at the statutory federal income tax
rate of 35 percent in fiscal 1996, 1995 and 1994, and income tax reported in
the consolidated statement of operations is as follows (in thousands):
1996 1995 1994
------- ------- -------
Tax at statutory federal tax rate $9,957 $11,630 $2,925
Tax treatment on sale of
subsidiary stock -- (1,959) (282)
Valuation allowance 7,977 1,120 --
State income taxes, net of
federal benefit 1,280 1,080 856
Tax-favored investment income (88) (61) (284)
Targeted jobs tax credit (215) (524) (395)
Net foreign income taxed at lower
rates (365) (425) (528)
Other, net (146) 307 131
------- ------- -------
$18,400 $11,168 $2,423
======= ======= =======
Note 13 - Commitments and Contingencies
Leases - The Company leases certain property consisting principally of
retail stores, warehouses and transportation equipment under leases expiring
through the year 2015. Most retail store locations are leased for initial
terms from 10 to 15 years with varying renewal options and escalation
clauses. Certain leases provide for additional rental payments based on a
percentage of sales in excess of a specified base.
Capital leases are recorded in the Company's balance sheet as assets
along with the related debt obligation. All other lease obligations are
operating leases, and payments are reflected in the Company's consolidated
statement of operations as store occupancy. The composition of capital
leases reflected as assets in the accompanying consolidated balance sheet is
as follows (in thousands):
1996 1995
------ ------
Buildings $477 $477
Equipment, furniture and fixtures 538 538
------ ------
1,015 1,015
Less accumulated depreciation 974 912
------ ------
$41 $103
====== ======
At March 2, 1996, the Company had the following minimum lease
commitments in the years indicated (in thousands):
Capital Operating
Fiscal Year Leases Leases
---------- ------- ---------
1997 $119 $ 94,531
1998 87 84,576
1999 -- 71,479
2000 -- 62,898
2001 -- 54,153
Thereafter -- 219,289
------- --------
Total lease commitments 206 $586,926
========
Less imputed interest 102
-------
Present value of total
capital lease obligations
including current portion $104
=======
Present value of total
operating lease
commitments $374,318
========
Rental expense incurred was $96,693,000, $92,072,000 and $89,518,000,
including contingent rentals of $784,000, $766,000 and $788,000 based upon a
percentage of sales and net of sublease incomes totalling $1,647,000,
$1,552,000 and $1,252,000 in fiscal 1996, 1995 and 1994, respectively.
The Company has commitments from unaffiliated parties to make available
up to $96.8 million for development or acquisition of stores leased by the
Company. As of March 2, 1996, the Company utilized $88.2 million of that
availability. Agreements with these parties mature over the next two years,
and Company management is continuously monitoring financial markets to
optimize renewal terms. In connection with the financing of 41 stores by two
of the unaffiliated parties, the property leases require that upon expiration
of the leases over the next two years, unless extended by agreement of the
parties, the Company must either obtain alternative financing for the
properties or arrange for the sale of the properties to a third party or
purchase the properties for approximately $50 million.
Retail operations in the United Kingdom - In fiscal 1993, the Company
invested in preference stock of The Pier Retail Group Limited ("The Pier"), a
14-store retail chain in the United Kingdom that offers decorative home
furnishings and related items in a store setting similar to that operated by
the Company. The Pier also operates a distribution center and an
administrative office. At the end of fiscal 1996, the Company's net
investment in The Pier was $5.8 million. The Company also guarantees a 4.1
million British Pounds or $6.3 million bank line available to The Pier and as
of March 2, 1996, $5.4 million was outstanding under this line. The Pier
plans to operate 14 stores during fiscal 1997, and the Company plans to
invest $4 million of additional funds in these operations during fiscal 1997,
$2 million of which is expected to be used to reduce The Pier's bank debt
guaranteed by the Company.
Because of The Pier's history of operating losses, aggregating $6.8
million since fiscal 1993, the Company intends to curtail further investments
to fund store development and other expansion of The Pier until it becomes
profitable. Projections of The Pier's results indicate marginal
profitability and positive cash flow in fiscal 1998. Years following fiscal
1998 reflect continued improvements in this trend such that the expected
future undiscounted cash flows of The Pier exceeds the carrying amount of the
Company's investment in The Pier. This estimate of recoverability of the
Company's investment is sensitive to change based on the actual results of
operations of The Pier compared to projected amounts. As such, the Company
believes that it is reasonably possible that a change in this estimate could
occur in the near term.
Legal matters - In addition to the legal matters discussed in Note 2,
there are various other claims, lawsuits, investigations and pending actions
against the Company and its subsidiaries incident to the operations of its
business. Liability, if any, associated with these other matters is not
determinable at March 2, 1996; however, the Company considers them to be
ordinary and routine in nature. While certain of the lawsuits involve
substantial amounts, it is the opinion of management, after consultation with
counsel, that the ultimate resolution of such litigation will not have a
material adverse effect on the Company's financial position, results of
operations or liquidity.
Note 14 - Cash Flow Information
The following is supplemental cash flow information (in thousands):
1996 1995 1994
------- ------- -------
Cash paid during the year for:
Interest $12,937 $13,477 $20,445
Income taxes 22,405 15,457 17,732
Note 15 - Investment in General Host Corporation
In fiscal 1994, the Company recorded a provision for the write-down of
the carrying value of the Company's holdings of General Host common stock.
Based on prices at fiscal year-end 1994, the market value of the General Host
common stock was $5.6 million less than the Company's original carrying
amount. After an assessment of factors which may have contributed to the
decline, the Company estimated $2.0 million of this decline to be 'other than
temporary' and recorded a corresponding adjustment in the book value of the
General Host common stock. The remaining $3.6 million was considered to be
temporary. In the third quarter of fiscal 1995, the Company concluded that
the decline in the market value of the General Host common stock was 'other
than temporary' and a non-cash, pre-tax special charge of $7.5 million was
recorded to reflect an 'other than temporary' write-down of the carrying
value of the General Host common stock. As a result of the issuance of the
Company's exchangeable debentures in December 1994, the General Host common
stock is no longer available for sale, and the Company no longer has market
risk in relation to the General Host common stock.
Note 16 - Related Parties
Since 1989, the Company has maintained a one-eighth joint ownership
interest in a Cessna jet aircraft with Berman Industries, Inc., a company
wholly owned by Martin L. Berman, who has been a member of the Company's
Board of Directors since June 1994. In November 1995, the Company terminated
this joint interest agreement in the Cessna jet aircraft with Berman
Industries, Inc. In March 1993, the Company invested $3 million in a limited
partnership fund with Whiffletree Partners, L.P., which is managed by
Whiffletree Corporation, one of whose principals is Steven E. Berman, a
brother of Martin L. Berman. Whiffletree Corporation is an affiliate of
Palisade Capital Management, L.L.C., of which Martin L. Berman is Chairman
and Chief Executive Officer. In April 1996, the Company divested its
interest in Whiffletree Partners, L.P. for net proceeds of approximately $4.7
million after deducting fees of $0.3 million. In April 1994, the Company
entered into an agreement with Smith Barney, Inc. to act as trustee of the
Company's 401(k) defined contribution plan and to serve as investment advisor
to participants of the plan. Until April 1995, Martin L. Berman was a
managing director of Smith Barney, Inc.
Since fiscal 1988, interest bearing loans have been outstanding to
certain Company officers. At March 2, 1996, one officer had a loan balance
of $829,000, and maturity of this loan is in fiscal 1998.
The Company's lease commitments include amounts due to Comdisco, Inc.
for a computer leased in June 1991 for a period of five years at an annual
rent of approximately $1.1 million. In May 1994, the Company extended this
lease commitment for an additional two years through July 1998. Kenneth N.
Pontikes, former Chairman and President of Comdisco Inc., was elected to the
Company's Board of Directors and served in that capacity from April 1993
until June 1994.
Note 17 - Selected Quarterly Financial Data (Unaudited)
Summarized quarterly financial data (in thousands of dollars
except per share amounts) for the years ended March 2, 1996 and February 25,
1995 are set forth below:
Three Months Ended
--------------------------------------
Fiscal 1996 5/27/95 8/26/95 11/25/95 3/02/96
----------- -------- -------- -------- --------
Net sales(1)(2) $176,815 $199,456 $190,185 $244,251
Gross profit(1)(2) 69,138 74,758 78,571 103,054
Net income (loss)(2)(3)(4) (18,335) 8,900 6,949 12,535
Primary net income (loss)
per share(2)(3)(4)(5) ($.46) $.22 $.18 $.31
Three Months Ended
--------------------------------------
Fiscal 1995 5/28/94 8/27/94 11/26/94 2/25/95
----------- -------- -------- -------- --------
Net sales(1) $161,486 $185,403 $165,761 $199,335
Gross profit(1) 65,351 70,233 66,097 75,892
Net income (loss)(3)(6) 3,991 4,504 (5,526) 19,091
Primary net income (loss)
per share(3)(5)(6)(7) $.10 $.11 ($.14) $.48
(1) The restatements of earnings as discussed in Note 2 for the quarters of
fiscal years 1996 and 1995 had no effect on the Company's previously
reported sales and gross profit.
(2) The fiscal 1996 fourth quarter consisted of a 14-week quarter (which
occurs every seven years) compared to a typical 13-week quarter.
(3) Fiscal 1996 first, second and third quarters net income (loss) includes
trading (losses) gains of ($15,956), ($602) and $95, respectively.
Fiscal 1995 first, second, third and fourth quarters net income (loss)
includes trading (losses) gains of ($1,544), ($4,152), ($5,749) and
$8,646, respectively.
(4) Fiscal 1996 first quarter net loss includes a pre-tax charge of $14,000
for Sunbelt defaults.
(5) Fully diluted net income per share resulted in less than 3% dilution of
primary net income per share for fiscal years 1996 and 1995 and all
periods presented with the exception of a $.01 dilution in the second
and third quarters of fiscal year 1996, a $.02 dilution in the fourth
quarter of fiscal 1996, and a $.05 dilution in the fourth quarter of
fiscal year 1995.
(6) Fiscal 1995 third quarter net income (loss) includes a charge of $7,543
for the write-down of investment in the common stock of General Host.
(7) Reflects the effect of the 5% stock dividend distributed May 8, 1995.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Information regarding a change in the Company's auditors on March 1,
1996, is contained in the Company's Current Report on Form 8-K/A, filed March
21, 1996.
PART III
Item 10. Directors and Executive Officers of the Company.
Information required by this Item is incorporated herein by reference to
the Sections entitled "Election of Directors" and "Certain Relationships and
Related Transactions" set forth in the Company's Proxy Statement for its 1996
Annual Meeting of Shareholders.
The information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934 is incorporated herein by reference to the
Section entitled "Certain Relationships and Related Transactions" set forth
in the Company's Proxy Statement for its 1996 Annual Meeting of Shareholders.
Item 11. Executive Compensation.
The information required by this Item is incorporated herein by
reference to the Section entitled "Executive Compensation" set forth in the
Company's Proxy Statement for its 1996 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is incorporated herein by
reference to the Sections entitled "Election of Directors - Security
Ownership of Management" and "Election of Directors - Security Ownership of
Certain Beneficial Holders" set forth in the Company's Proxy Statement for
its 1996 Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item is incorporated herein by
reference to the Section entitled "Certain Relationships and Related
Transactions" set forth in the Company's Proxy Statement for its 1996 Annual
Meeting of Shareholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following consolidated financial statements, schedules and
exhibits are filed as part of this report.
1. Financial Statements
* Reports of Independent Auditors
* Consolidated Statements of Operations for the years ended
March 2, 1996, February 25, 1995 and February 26, 1994
* Consolidated Balance Sheets at March 2, 1996 and February 25,
1995
* Consolidated Statements of Cash Flows for the years ended
March 2, 1996, February 25, 1995 and February 26, 1994
* Consolidated Statements of Stockholders' Equity for the years
ended March 2, 1996, February 25, 1995 and February 26, 1994
2. Financial Statement Schedules
For the Years Ended March 2, 1996, February 25, 1995, and
February 26, 1994
* Report of Independent Accountants on Financial Statement
Schedules
* II - Valuation and Qualifying Accounts and Reserves
Schedules other than those referred to above have been omitted because
they are not required or are not applicable or because the information
required to be set forth therein either is not material or is included in the
financial statements or notes thereto.
(b) Reports on Form 8-K
On March 8, 1996, the Company filed a Current Report on Form 8-K,
reporting a change in the Company's independent auditors.
On March 21, 1996, the Company filed an amendment to its Form 8-K,
reporting a change in the Company's independent auditors.
(c) Exhibits
See Exhibit Index.
(d) Not applicable.
<PAGE> SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: May 30, 1996 PIER 1 IMPORTS, INC.
By: /s/ Clark A. Johnson
Clark A. Johnson, Chairman
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 on behalf of the
Company and in the capacities and on the dates indicated.
Signature Title Date
/s/ Susan E. Barley Controller and May 30, 1996
Susan E. Barley Principal Accounting Officer
/s/ Clark A. Johnson Chairman of the Board May 30, 1996
Clark A. Johnson of Directors
/s/ Marvin J. Girouard Director May 30, 1996
Marvin J. Girouard
/s/ Charles R. Scott Director May 30, 1996
Charles R. Scott
/s/ Sally F. McKenzie Director May 30, 1996
Sally F. McKenzie
/s/ James M. Hoak, Jr. Director May 30, 1996
James M. Hoak, Jr.
/s/ Martin L. Berman Director May 30, 1996
Martin L. Berman
/s/ Craig C. Gordon Director May 30, 1996
Craig C. Gordon
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Pier 1 Imports, Inc.
Our audits of the consolidated financial statements referred to in our report
dated April 7, 1995, except for Notes 2, 8, 11 and 17, as to which the date
is February 29, 1996, appearing in Item 8 of this 1996 Annual Report on Form
10-K for Pier 1 Imports, Inc., also included an audit of the Financial
Statement Schedules listed in Item 8 of this Form 10-K for the years ended
February 25, 1995 and February 26, 1994. In our opinion, these Financial
Statement Schedules present fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Fort Worth, Texas
April 7, 1995, except for
Notes 2,8,11 and 17, as to
which the date is February 29, 1996
<PAGE> SCHEDULE II
PIER 1 IMPORTS, INC. AND CONSOLIDATED SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year Ended
----------------------------------------
March 2, February 25, February 26,
1996 1995 1994
---------- ------------ ------------
Balance at beginning of year $ 2,335 $ 2,072 $ 2,404
Additions charged to income 5,763 3,285 2,097
Balances written off, net of
recoveries (4,149) (3,022) (2,429)
---------- ------------ ------------
Balance at end of year $ 3,949 $ 2,335 $ 2,072
========== ============ ============
<PAGE> EXHIBIT INDEX
Exhibit No. Description
3(i) Certificate of Incorporation and Amendments thereto.
3(ii) Bylaws of the Company, Restated as of December 7, 1994,
incorporated herein by reference to Exhibit 3(ii) to the
Company's Form 10-Q for the quarter ended November 26, 1994.
4 Rights Agreement dated December 9, 1994, between the Company
and First Interstate Bank, N.A., as rights agent, incorporated
herein by reference to Exhibit 4 to the Company's Registration
Statement on Form 8-A, Reg. No. 1-7832, filed December 20,
1994.
4.1 Indenture, dated April 9, 1992, between the Company and
Ameritrust Texas National Association, as Trustee, relating to
6-7/8% Convertible Subordinated Notes Due 2002, incorporated
herein by reference to Exhibit 4(a) to the Company's Form 10-K
for the fiscal year ended February 29, 1992.
4.2 Revolving Credit Agreement, dated December 15, 1995, among the
Company, certain of its subsidiaries, First Interstate Bank of
Texas, N.A., Bank One, Texas, N.A., NationsBank of Texas, N.A.,
and Credit Lyonnais New York Branch, incorporated herein by
reference to Exhibit 10.1 to the Company's Form 10-Q for
quarter ended November 25, 1995.
As permitted by Item 601(b)(4)(iii) of Regulation S-K, Exhibit
Number 4 omits instruments relating to issues of long-term debt
of the Company and its subsidiaries, the total authorized
principal amount of which for each issue does not exceed 10% of
the consolidated total assets of the Company and its
subsidiaries. The Company agrees to furnish a copy of any such
instrument to the Securities and Exchange Commission upon
request.
10.1* Form of Indemnity Agreement between the Company and the
directors and executive officers of the Company, incorporated
herein by reference to Exhibit 10(l) to the Company's Form 10-K
for the fiscal year ended February 29, 1992.
10.2* The Company's Supplemental Executive Retirement Plan effective
May 1, 1986, as amended and restated as of January 1, 1996.
10.3* Pier 1 Benefit Restoration Plan as Amended and Restated
effective July 1, 1995, incorporated herein by reference to
Exhibit 10.5.1 to the Company's Form 10-Q for the quarter ended
May 27, 1995.
10.4* The Company's Restricted Stock Plan effective March 5, 1990,
incorporated herein by reference to Exhibit 10(p) to the
Company's Form 10-K for the fiscal year ended March 3, 1990.
10.5* The Company's Management Restricted Stock Plan, effective June
24, 1993, incorporated herein by reference to Exhibit 10.7 to
the Company's Form 10-K for the fiscal year ended February 25,
1995.
10.6* The Company's 1989 Employee Stock Option Plan, effective June
29, 1989, incorporated herein by reference to Exhibit 10(q) to
the Company's Form 10-K for the fiscal year ended March 3,
1990.
10.7* The Company's 1989 Non-Employee Director Stock Option Plan,
effective June 29, 1989, incorporated herein by reference to
Exhibit 10(r) to the Company's Form 10-K for the fiscal year
ended March 3, 1990.
10.8* Form of Post-Employment Consulting Agreement between the
Company and its executive officers, incorporated herein by
reference to Exhibit 10(r) to the Company's Form 10-K for the
fiscal year ended February 29, 1992.
10.9* The Company's Senior Management Bonus Plan, incorporated herein
by reference to Exhibit 10.16 to the Company's Form 10-K for
the fiscal year ended February 26, 1994.
10.10* The Company's Executive Bonus Plan, incorporated herein by
reference to Exhibit 10.17 to the Company's Form 10-K for the
fiscal year ended February 26, 1994.
10.11* The Company's Management Medical and Tax Benefit Plans,
incorporated herein by reference to Exhibit 10.18 to the
Company's Form 10-K for the fiscal year ended February 26,
1994.
10.12.1 Lease Guarantee dated as of December 30, 1992, between the
Company and Pier Group, Inc., together with First and Second
Amendments, incorporated herein by reference to Exhibit 10.13
to the Company's Form 10-K for the fiscal year ended February
26, 1994.
10.12.2 Third Amendment to Lease Guarantee dated June 20, 1994, between
the Company and Pier Group, Inc., incorporated herein by
reference to Exhibit 10.13.1 to the Company's Form 10-Q for the
quarter ended August 27, 1994.
10.12.3 Fourth Amendment to Lease Guarantee dated April 1, 1996,
between the Company and Pier Group, Inc.
10.13.1 Lease Guarantee dated as of December 30, 1992, among the
Company, Pier 1 Imports (U.S.), Inc. and Pier Group, Inc.,
together with First and Second Amendments, incorporated herein
by reference to Exhibit 10.14 to the Company's Form 10-K for
the fiscal year ended February 26, 1994.
10.13.2 Third Amendment to Lease Guarantee dated June 20, 1994, between
the Company, Pier 1 Imports (U.S.), Inc. and Pier Group, Inc.,
incorporated herein by reference to Exhibit 10.14.1 to the
Company's Form 10-Q for the quarter ended August 27, 1994.
10.13.3 Fourth Amendment to Lease Guarantee dated April 1, 1996 between
the Company, Pier 1 Imports (U.S.), Inc. and Pier Group, Inc.
10.14 Agreement of Settlement dated July 31, 1995 between Pier Lease,
Inc., the Company, Sunbelt Nursery Group, Inc., Wolfe Nursery,
Inc. and Timothy R. Duoos, incorporated herein by reference to
Exhibit 10.15 to Sunbelt Nursery Group, Inc.'s Form 10-K/A-2
for the fiscal year ended January 31, 1995.
21 Roster of Subsidiaries of the Company
23 Consents of Independent Auditors
27 Financial Data Schedule for Twelve-Month Period Ended March 2,
1996.
_______________________
*Management Contracts and Compensatory Plans
EXHIBIT 3(i)
CERTIFICATE OF INCORPORATION
OF
PIER 1 IMPORTS, INC.
The undersigned, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
FIRST: The name of the corporation is
PIER 1 IMPORTS, INC.
SECOND: The registered office of the corporation is to be located at
1209 Orange Street, in the City of Wilmington in the County of New Castle, in
the State of Delaware. The name of its registered agent at such address is
The Corporation Trust Company.
THIRD: The purpose for which the corporation is formed is to engage in
any lawful act or activity for which a corporation may be organized under the
General Corporation Law of the State of Delaware.
FOURTH: The number of shares of stock which the corporation shall have
authority to issue is Twenty-Five Million (25,000,000) shares of Common Stock
having a par value of One Dollar ($1.00) per share and One Million
(1,000,000) shares of Preferred Stock having a par value of One Dollar
($1.00) per share.
The Board of Directors is authorized, subject to limitations prescribed
by law and the provisions of this Article FOURTH, to provide for the issuance
of the shares of Preferred Stock in one or more series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix such voting powers, full or limited, or no voting powers,
and such designations, preferences and relative, participating, optional or
other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof.
The authority of the Board with respect to each series shall include,
but not be limited to, determination to the following:
(a) The number of shares constituting that series and the distinctive
designation of that series;
(b) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(c) Whether that series shall be convertible into, or exchangeable of
any other class or series, and, if so, the terms and conditions of such
conversion or exchange, including provisions for adjustment of the conversion
or exchange rate in such events as the Board of Directors shall determine;
(d) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution, distribution of assets or winding up
of the corporation, and the relative rights of priority, if any, of payment
of shares of that series;
(e) Whether or not the shares of that series shall be redeemable for
cash property or other rights, and, if so, the terms and conditions of such
redemption, including the date or dates upon or after which they shall be
redeemable;
(f) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of
such sinking fund;
(g) Any other relative rights, preferences and limitations of that
series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment, before any dividends shall be paid or
declared and set apart for payment, on the Common Stock with respect to the
same dividend period.
FIFTH: The name and address of the Sole Incorporator is as follows:
NAME ADDRESS
J. Rodney Lawrence Pier 1 Inc.
301 Commerce Street, Suite 600
Fort Worth, Texas 76102
SIXTH: The number of directors of the corporation shall be such as from
time to time shall be fixed by, or in the manner provided in, the bylaws.
Election of directors need not be by written ballot unless the bylaws so
provide.
SEVENTH: The corporation shall have the power, to the full extent
permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended from time to time, to indemnify each director, officer,
employee or agent who serves or has served the corporation and each director,
officer, employee or agent who serves or has served at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
EIGHTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, amend or
repeal the bylaws of the corporation.
NINTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers
conferred herein on stockholders, directors and officers are subject to this
reserved power.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal this 28th day of April, 1986.
/s/ J. Rodney Lawrence
Sole Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
PIER 1 IMPORTS, INC.
Pier 1 Imports, Inc. (the "Company"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Company held
on March 25, 1987, resolutions were duly adopted setting forth the following
proposed amendments of the Certificate of Incorporation of the Company, and
directing that they be submitted to the stockholders at the next annual
meeting of stockholders:
A. That Article Seventh of the Company's Certificate of
Incorporation be amended to read as follows:
"SEVENTH: (a) Limitation on Certain Liability of Directors
and Officers. A director or officer of the corporation shall not
be personally liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director or
officer, except for liability (i) for any breach of the director's
or officer's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director or officer is found by
a court of law to have derived an improper personal benefit.
(b) Right to Indemnification. Each person who was or is
made a party or is threatened to be made a party to or is involved
in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is
the legal representative, is or was a director or officer of the
corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the corporation to the
fullest extent authorized by the Delaware General Corporation Law,
as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits
the corporation to provide broader indemnification rights than said
law permitted the corporation to provide prior to such amendment),
against all expense, liability and loss including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid
or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of his or her
heirs, executors and administrators; provided however, that, except
as provided in paragraph (c) hereof, the corporation shall
indemnify any such person seeking indemnification in connection
with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board of
Directors of the corporation. The right to indemnification
conferred in this Article shall be a contract right and shall
include the right to be paid by the corporation the expenses
incurred in defending any such proceeding in advance of its final
disposition; provided however, that if the Delaware General
Corporation Law requires, the payment of such expenses incurred by
a director or officer in his or her capacity as a director or
officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including,
without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon
delivery to the corporation of an undertaking, by or on behalf of
such director or officer, to repay all amounts so advanced if it
shall ultimately be determined that such director or officer is not
entitled to be indemnified under this Article or otherwise. The
corporation may, by action of its Board of Directors, provide
indemnification to other employees or agents of the corporation
with the same scope and effect as the foregoing indemnification of
directors and officers.
(c) Right of Claimant to Bring Suit. If a claim under
paragraph (b) of this Article is not paid in full by the
corporation within forty-five days after a written claim has been
received by the corporation, the claimant may at any time
thereafter bring suit against the corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the
claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has
been tendered to the corporation) that the claimant has not met the
standards of conduct which make it permissible under the Delaware
General Corporation Law for the corporation to indemnify the
claimant for the amount claimed, but the burden of proving such
defense shall be on the corporation. Neither the failure of the
corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to
the commencement of such action that indemnification of the
claimant is proper in the circumstances because he or she has met
the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the
corporation (including its Board of Directors, independent legal
counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable
standard of conduct.
(d) Non-Exclusivity of Rights. The right to indemnification
and the payment of expenses incurred in defending a proceeding in
advance of its final disposition conferred in this Article shall
not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate
of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
(e) Insurance. The corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or
agent of the corporation or another corporation, partnership, joint
venture, trust or other enterprise against any such expense,
liability or loss, whether or not the corporation would have the
power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law."
B. That the first paragraph of Article Fourth of the Company's
Certificate of Incorporation be amended to read as follows:
"FOURTH: The number of shares of stock which the corporation
shall have authority to issue is One Hundred Million (100,000,000)
shares of Common Stock having a par value of One Dollar ($1.00) per
share and Five Million (5,000,000) shares of Preferred Stock having
a par value of One Dollar ($1.00) per share."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, an annual meeting of the stockholders of the Company was duly
called and held on June 24, 1987 upon notice in accordance with Section 222
of the General Corporation Law of the State of Delaware, at which meeting the
necessary number of shares as required by statute were voted in favor of the
amendments.
THIRD: That such amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of the Company shall not be reduced under or
by reason of such amendments.
IN WITNESS WHEREOF, Pier 1 Imports, Inc. has caused this certificate to be
signed and attested by its duly authorized officers, this 1st day of July,
1987.
PIER 1 IMPORTS, INC.
By: /s/ Clark A. Johnson
Clark A. Johnson, President
ATTEST:
/s/ J. Rodney Lawrence
J. Rodney Lawrence, Secretary
<PAGE> CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PIER 1 IMPORTS, INC.
Pier 1 Imports, Inc., a Delaware corporation (the "Corporation"),
pursuant to Section 242 of the General Corporation Law of the State of
Delaware hereby certifies that:
FIRST: On August 6, 1987, the Board of Directors of the Corporation,
acting by unanimous consent in accordance with the General Corporation Law of
the State of Delaware and the By-laws of the Corporation, adopted the
following resolution setting forth and recommending a proposed amendment to
the Certificate of Incorporation of the Corporation, as amended by the
Certificate of Designation filed by the Corporation on February 17, 1987 with
respect to the Corporation's $.25 Preferred Stock:
RESOLVED, that the Board of Directors hereby adopts and declares
advisable the following amendments to the Company's Certificate of
Incorporation, as amended by the Certificate of Designation filed by the
Company on February 17, 1987 with respect to the Company's $.25 Preferred
Stock (the "Certificate of Designation"):
The designation of the Company's $.25 Preferred Stock is amended so
that it shall be "Formula Rate Preferred Stock," and the text of the
Certificate of Designation is amended to read in its entirety as
follows:
"RESOLVED: That pursuant to authority conferred upon the Board of
Directors by the Certificate 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, limitations or restrictions
thereof, of such shares, in addition to those set forth in the
Certificate of Incorporation, as follows:
(a) The initial series of Preferred Stock shall be designated
Formula Rate Preferred Stock.
(b) The number of shares constituting the Formula Rate Preferred
Stock shall be 5,000,000 shares.
(c) The Formula Rate Preferred Stock shall have a Par value of
$1.00 Per share.
(d) In the event of a voluntary or involuntary liquidation,
dissolution, or winding up of the Company, the holders of Formula Rate
Preferred Stock shall be entitled to receive, out of the assets of the
Company, whether such assets are capital or surplus, an amount equal to
$.66 2/3 per share of Formula Rate Preferred Stock (the "Liquidation
Preference"), before any payment shall be made or any assets distributed
to the holders of Common Stock; 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 the Liquidation Preference per
share which the holders of the Formula Rate Preferred Stock shall be
entitled to receive shall be adjusted to be equal to the Liquidation
Preference then in effect for shares of Formula Rate Preferred Stock
multiplied by a fraction the numerator of which is the number of shares
of Formula Rate Preferred Stock outstanding immediately prior to the
distribution of shares (in the case of a stock split by way of a stock
dividend) or the effectiveness of the stock split (in the case of a
stock split by way of a reclassification of shares) and the denominator
of which is the number of shares of Formula Rate Preferred Stock
outstanding immediately after such stock split. If upon such
liquidation, dissolution, or winding up of the Company the assets thus
distributed among the holders of Formula Rate Preferred Stock shall be
insufficient to permit the payment to such stockholders of the full
preferential amounts aforesaid, then the entire assets of the Company
are to be distributed ratably among the holders of Formula Rate
Preferred Stock. After payment or distribution to the holders of
Formula Rate Preferred Stock of the full preferential amounts aforesaid,
the holders of Common Stock shall be entitled to receive, ratably, all
remaining assets of the Company. A consolidation or merger of the
Company with or into any other corporation or corporations, or a sale of
all or substantially all of the assets of the Company, shall not be
deemed to be a liquidation, dissolution, or winding up within the
meaning of this paragraph.
(e) The holders of the Formula Rate Preferred Stock shall be
entitled to receive, subject only to the availability of funds legally
available therefor, a cumulative annual cash dividend in the sum of
Sixteen and Two-Thirds Cents ($.16 2/3) per share, and no more, which
shall be payable in one or more installments, when and as may be
declared 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 holders of the Formula Rate Preferred Stock shall be
entitled to receive shall be adjusted to be equal to the per share
dividend then in effect for shares of Formula Rate Preferred Stock
multiplied by a fraction the numerator of which is the number of shares
of Formula Rate Preferred Stock outstanding immediately prior to the
distribution of shares (in the case of a stock split by way of a stock
dividend) or the effectiveness of the stock split (in the case of a
stock split by way of a reclassification of shares) and the denominator
of which is the number of shares of Formula Rate Preferred Stock
outstanding immediately after such stock split. The resulting dividend
rate shall hereinafter be referred to as the "Formula Rate." Dividends
on the Formula Rate Preferred Stock shall begin to accrue at the Formula
Rate from and after the date upon which the shares of stock are
distributed (in the case of a stock split by way of a stock dividend) or
the reclassification becomes effective (in the case of a stock split by
way of reclassification of shares). In the event of any such adjustment
the Company shall (i) prepare a certificate setting forth the
calculation of the Formula Rate which certificate shall be kept by the
Secretary of the Company and made available to any holder of Formula
Rate Preferred Stock who requests such certificate, and (ii) notify
holders of such stock of the adjustment. The Formula Rate shall
continue in effect unless and until the Company effects another stock
split, in which case the Formula Rate shall be further adjusted pursuant
to the procedure set forth above. Except as provided in this
subparagraph (e), the holders of Formula Rate Preferred Stock shall not
be entitled to receive or participate in any cash dividends which may be
declared by the Board of Directors or paid by the Company.
(f) The holders of the Formula Rate Preferred Stock are entitled to
vote with the holders of the Common Stock as a single class, as follows:
1. On matters subject to a vote by holders of Common Stock the
holders of Formula Rate Preferred Stock shall be entitled to ten (10)
votes per share, voting as a single class together with the Common
Stock, which is entitled to one vote per share.
2. The affirmative vote of at least two-thirds of the shares of
the Formula Rate Preferred Stock, voting as a single class, shall be
required (i) to authorize, effect or validate any amendment, alteration
or repeal of any of the provisions of the Company's Certificate of
Incorporation which would adversely affect the preferences, special
rights or powers of the Formula Rate Preferred Stock (provided, however,
that an amendment that would authorize or create or increase the
authorized number of shares of any stock ranking junior to the Formula
Rate Preferred Stock shall not be deemed to adversely affect the
preferences, rights or powers of the Formula Rate Preferred Stock); or
(ii) to authorize, designate or create, or increase the authorized
number of shares of, any capital stock of the Company of any class or
series, or any security convertible into such capital stock, ranking
prior to the Formula Rate Preferred Stock as to dividends or rights upon
liquidation, dissolution or winding up. In addition, the affirmative
vote of the holders of at least a majority of the Formula Rate Preferred
Stock, voting as a single class, shall be required to authorize,
designate or create or increase the authorized number of shares of, any
class or series of capital stock of the Company or any security
convertible into capital stock of the Company of any class ranking on a
parity with the Formula Rate Preferred Stock as to dividends and
liquidation rights. No affirmative vote or consent of the holders of
the Formula Rate Preferred Stock is required for the creation,
designation or classification of, or an increase or decrease in the
number of shares of, Formula Rate Preferred Stock out of presently
authorized shares of Preferred Stock.
3. Whenever the cumulative annual dividend on the Formula Rate
Preferred Stock shall be in arrears for as much as one calendar year,
the number of directors of the Company shall be increased by two, and
the holders of the Formula Rate Preferred Stock shall have, in addition
to any other voting rights, the exclusive and special right, voting
separately as a class, to elect by the affirmative vote of the holders
of at least a majority of the Formula Rate Preferred Stock, two persons
to fill such newly created directorships. Whenever such right of the
holders of the Formula Rate Preferred Stock shall have vested, it may be
exercised initially either at a special meeting of such holders called
as provided below, or at any annual meeting of stockholders, and
thereafter at annual meetings of stockholders. This special voting
right shall continue until such time as all dividends accumulated on the
Formula Rate Preferred Stock shall have been paid in full, at which time
the special right shall terminate, subject to revesting in the event of
each and every subsequent default in an annual dividend which continues
for as much as one calendar year. For purposes only of this
subparagraph (3) of this paragraph (f), each holder of Formula Rate
Preferred Stock shall be entitled to cast one vote for each share of
Formula Rate Preferred Stock held by such holder. At any time when such
special voting power shall have vested in the holders of the shares of
Formula Rate Preferred Stock as provided in this subparagraph (3), a
proper officer of the Company shall, upon the written request of the
holders of record of at least 10% of the number of shares of Formula
Rate Preferred Stock at the time outstanding, addressed to the Secretary
of the Company, call a special meeting of the holders of shares of
Formula Rate Preferred Stock and of any other class of stock having
voting power, for the purpose of electing directors. Such meeting shall
be held at the earliest practicable date at the principal office of the
Company. If such meeting shall not be called by a proper officer of the
Company within 20 days after personal service of said written request
upon the Secretary of 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 may designate in writing one of
their numbers to call such meeting at the expense of the Company, and
such meeting may be called by such person so designated upon the notice
required for annual meetings of stockholders and shall be held at said
principal office. Any holder of shares of Formula Rate Preferred Stock
so designated shall have access to the stock books of the Company for
the purpose of causing meetings of stockholders to be called pursuant to
these provisions. Notwithstanding the provisions of this subparagraph
(3), no such special meeting shall be called during the 90 days
immediately preceding the date fixed for the next annual meeting of
stockholders. At any meeting held for the purpose of electing directors
at which the holders of shares of Formula Rate Preferred Stock shall
have the special right, voting separately as a class, to elect directors
as provided in this subparagraph (3), the presence, in person or by
proxy, of the holders of a majority of the number of shares of Formula
Rate Preferred Stock at the time outstanding shall be required to
constitute a quorum of such class for the election of any director by
the holders of the Formula Rate Preferred Stock as a class, each share
of Formula Rate Preferred Stock counting, for purposes only of
determining the presence of such a quorum, as one share of Formula Rate
Preferred Stock. At any such meeting or adjournment thereof, (i) the
absence of a quorum of Formula Rate Preferred Stock shall not prevent
the election of the directors other than the two directors to be elected
by the holders of shares of Formula Rate Preferred Stock voting as a
class and the absence of a quorum for the election of such other
directors shall not prevent the election of the directors to be elected
by holders of shares of Formula Rate Preferred Stock voting as a class
and (ii) in the absence of either or both such quorums, a majority of
the holders present in person or by proxy of the stock or stocks which
lack a quorum shall have power to adjourn the meeting for the election
of directors which they are entitled to elect from time to time, without
notice other than announcement at the meeting, until a quorum shall be
present. During any period the holders of shares of Formula Rate
Preferred Stock have the right to vote as a class for the directors as
provided in this subparagraph (3), the directors so elected by the
holders of the Formula Rate Preferred Stock shall continue in office
until termination of the right of the holders of the Formula Rate
Preferred Stock to vote as a class for two directors, and any vacancies
in the Board of Directors shall be filled only by vote of a majority
(which majority may consist of only a single director) of the remaining
directors theretofore elected by the class or classes of stock which
elected the director whose office shall have become vacant.
(g) The Company shall have the right, but not the obligation, to
redeem on 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 sum of $1.66 2/3 in cash for each
outstanding share of the Formula Rate Preferred Stock (the "Redemption
Price"); provided, however, that in the event the Company effects a
stock split, either by way of lawful stock dividend to the holders of,
or a reclassification of the shares of, the Formula Rate Preferred
Stock, then the Redemption Price shall be adjusted to an amount per
share equal to ten (10) times the Formula Rate, as determined pursuant
to the procedure set forth in paragraph (e) of this Certificate of
Designation, such adjusted Redemption Price to take effect from and
after the date upon which such Formula Rate shall take effect. In the
event of any such adjustment the Company shall (i) prepare a certificate
setting forth the calculation of the adjusted Redemption Price, which
certificate shall be kept by the Secretary of the Company and made
available to any holder of Formula Rate Preferred Stock who requests
such certificate, and which may be set forth in the same certificate as
required by paragraph (e) of this Certificate of Designation, and (ii)
notify holders of such stock of the adjustment. Payment of the
Redemption Price shall be made within 30 days following the Redemption
Date to the holders of record as of the Redemption Date.
(h) On the Redemption Date the Company shall, and before such
Redemption Date the Company may, deposit for the pro rata benefit of the
holders of the shares of the Formula Rate Preferred Stock so called for
redemption the funds necessary for such redemption with a bank or trust
company in the Borough of Manhattan, The City of New York having a
capital and surplus of at least $50,000,000. Any monies so deposited by
the Company and unclaimed at the end of five years from the Redemption
Date shall revert to the general funds of the Company. After such
reversion, any such bank or trust company shall, upon demand, pay over
to the Company such unclaimed amounts and thereupon such bank or trust
company shall be relieved of all responsibility in respect thereof to
such holder and such holder shall look only to the Company for the
payment of the Redemption Price. Any interest accrued on funds so
deposited pursuant to this paragraph (h) shall be paid from time to time
to the Company for its own account.
(i) Upon the deposit of funds pursuant to paragraph (h) in respect
of shares of the Formula Rate Preferred Stock called for redemption,
notwithstanding that any certificates for such shares shall not have
been surrendered for cancellation, the shares represented thereby shall
no longer be deemed outstanding, the rights to receive any dividends
thereon shall cease to accrue from and after the Redemption Date and all
rights of the holders of the shares of the Formula Rate Preferred Stock
called for redemption shall cease and terminate, excepting only the
right to receive the Redemption Price therefor.
(j) In order to conform the dividend rights of the holders of the
shares of $.25 Preferred Stock, as amended by the foregoing paragraphs
of this Certificate, to the intention of the Board of Directors in
declaring a stock split by way of a stock dividend to holders of the
Common and Preferred Stock of the Company payable on July 2, 1987 to
holders of record as of June 24, 1987, dividends, if any, which may have
accrued (but which have not been declared) on shares of $.25 Preferred
Stock at any rate in excess of $.16 2/3 per share per annum between July
2, 1987, and the date the amendments to the Certificate effected by
these resolutions become effective shall be, and they hereby are,
cancelled."
FURTHER RESOLVED, that, pursuant to Section 242 of the Delaware
General Corporation Law, the proper officers of the Corporation are
hereby authorized and directed to cause the amendment to the Certificate
of Incorporation of the Corporation, as amended by the Certificate of
Designation, proposed to be adopted by the preceding resolution (the
"Proposed Amendment") to be submitted to the stockholders of the
Corporation at the next Annual Meeting of the stockholders of the
Corporation for the purpose of voting to approve or disapprove the
Proposed Amendment; provided, however, that the Proposed Amendment need
not be submitted to such a vote if, prior to said Annual Meeting, the
Proposed Amendment shall have been adopted by the written consent of the
stockholders of the Corporation pursuant to Section 228 of the Delaware
General Corporation Law.
FURTHER RESOLVED, that, if the Proposed Amendment shall be approved
and adopted by the stockholders of the Corporation in accordance 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 of Incorporation and certifying that said resolution has
been duly adopted in accordance with the provisions of Section 242 of
the Delaware General Corporation Law, and to cause the same to be filed
with the Secretary of State of the State of Delaware and a certified
copy recorded in the Office of the Recorder of Deeds of New Castle
County, and to do all acts and things whatsoever, whether within or
without the State of Delaware, which may be necessary or proper to
effect said amendment.
SECOND: Thereafter the foregoing proposed amendment was approved by the
written consent of the holders of more than 50% of the voting power of the
Common Stock, par value $1.00 per share and the $.25 Preferred Stock, par
value $1.00 per share (the "Preferred Stock"), of the Corporation, voting
together as a single class, and by the written consent of the holders of more
than 66 1/3% of the Preferred Stock of the Corporation, voting separately as
a class, pursuant to Section 228 of the General Corporation Law of the State
of Delaware.
THIRD: The foregoing amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Pier 1 Imports, Inc., has caused this Certificate of
Amendment to be duly executed this 29th day of October, 1987.
PIER 1 IMPORTS, INC.
By: /s/ R. G. Herndon
Senior Vice President
ATTEST:
/s/ J. Rodney Lawrence
Secretary
<PAGE> CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PIER 1 IMPORTS, INC.
PIER 1 IMPORTS, INC., organized and existing under the General
Corporation Law of the State of Delaware, does hereby certify:
FIRST: That at a meeting of the Board of Directors of the corporation
held on March 15, 1995, the Board duly adopted a resolution declaring
advisable the following amendment to the Certificate of Incorporation of the
corporation and directing that the amendment be submitted to the stockholders
of the corporation at the next annual meeting of stockholders:
The first paragraph of Article Fourth of the corporation's
Certificate of Incorporation be amended to read as follows:
"FOURTH: The number of shares of stock which the
corporation shall have authority to issue is two hundred
million (200,000,000) shares of Common Stock having a par
value of one dollar ($1.00) per share and five million
(5,000,000) shares of Preferred Stock having a par value
of one dollar ($1.00) per share."
SECOND: That such amendment was duly adopted in accordance with Section
242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the corporation has caused this certificate to be
executed by its duly authorized officer this 22nd day of June, 1995.
PIER 1 IMPORTS, INC.
By: /s/ J. Rodney Lawrence
J. Rodney Lawrence
Senior Vice President
EXHIBIT 10.2
PIER 1 IMPORTS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective May 1, 1986
Restated as of January 1, 1996
<PAGE> PIER 1 IMPORTS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
ARTICLE I-PURPOSE
The purpose of this Supplemental Executive Retirement Plan (hereinafter
referred to as the "Plan") is to provide supplemental retirement benefits for
a select group of management or highly compensated employees of Pier 1
Imports, Inc. It is intended that the Plan will aid in retaining and
attracting employees of exceptional ability by providing such individuals
with these benefits. This Plan shall be effective as of May 1, 1986, and
shall be restated as of January 1, 1996.
ARTICLE II-DEFINITIONS
For the purposes of this Plan, the following terms shall have the
meanings indicated unless the context clearly indicates otherwise:
2.1 Beneficiary
"Beneficiary" means the person, persons or entity entitled under Article
V to receive Plan benefits after a Participant's death.
2.2 Board
"Board" means the Board of Directors of Pier 1 Imports, Inc.
2.3 Cause
"Cause" means that the Participant:
(a) Has misappropriated, stolen or embezzled funds of the
Employer; or
(b) Has committed an act of deceit, fraud, dereliction of duty, or
gross or willful misconduct; or
(c) Has been convicted of either a felony or a crime involving
moral turpitude or entered a plea of nolo contendre in response to an
indictment for such crime or felony; or
(d) Has intentionally disclosed confidential information of the
Employer except when such disclosure is made pursuant to the direction
of the Employer or in accordance with Employer policy; or
(e) Has engaged in competitive behavior against the Employer, has
purposely aided a competitor of the Employer or has misappropriated or
aided in misappropriating a material opportunity of the Employer.
2.4 Change of Control of the Employer
"Change of Control of the Employer" shall be deemed to have occurred if:
(a) Any "person" [as defined in Sections 3(a)(9) and 13(d)(3) of
the Securities Exchange Act of 1934 (the "Act")] becomes the "beneficial
owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the Act) of
securities of the Pier 1, representing 35% or more of the voting power
of the outstanding securities of Pier 1 having the right under ordinary
circumstances to vote at an election of the Board of Directors of Pier
1; or
(b) There shall occur a change in the composition of a majority of
the Board of Directors within a two (2) year period which change shall
not have been affirmatively approved by a majority of the Board of
Directors as constituted immediately prior to the commencement of such
period; or
(c) At any meeting of the stockholders of Employer called for the
purpose of electing directors, a majority of persons nominated by the
Board of Directors for election as directors shall fail to be elected.
2.5 Committee
"Committee" means the Employees Retirement Plan Committee appointed to
administer the Employees Retirement Plan for the employees of Pier 1 Imports,
Inc. or any successor tax-qualified retirement plan, or any other Committee
chosen by the Board.
2.6 Compensation
"Compensation" means the rate at which salary is being paid to a
Participant by Employer as of the last day of a calendar year and any bonuses
actually paid to a Participant by Employer during that calendar year.
2.7 Deferred Retirement Date
"Deferred Retirement Date" means the first day of the month coincident
with or next following the date that the Participant actually separates from
employment after the Participant's Normal Retirement Date.
2.8 Employer
"Employer" means any of Pier 1, its subsidiaries, and their respective
successors.
2.9 Good Reason
"Good Reason" means, without the written consent of the Participant:
(a) A reduction in the Participant's base salary or a reduction in
the Participant's benefits received from the Employer (other than in
connection with an across-the-board reduction in salaries and/or
benefits for similarly situated employees of the Employer or pursuant to
the Employer's standard retirement policy), in each case as in effect
immediately prior to a Change of Control; or
(b) The relocation of the Participants full-time office to a
location greater than fifty (50) miles from the Employers current
corporate office; or
(c) A reduction in the Participants corporate title as in effect
immediately prior to a Change of Control; or
(d) The failure by the Employer to obtain the assumption of this
agreement by any successor as contemplated in this Plan.
2.10 Highest Average Compensation
"Highest Average Compensation" means the sum of the Participants
Compensation paid during the highest paid three (3) full calendar years of
employment with Employer prior to termination of employment (whether or not
such years are consecutive) divided by three (3); provided, however, that if
the Participant has been employed for less than three (3) full calendar
years, the "Highest Average Compensation" shall be determined by using the
sum of the Participants Compensation paid during the number of completed
months of employment divided by the number of actual completed months of
employment multiplied by twelve (12).
2.11 Normal Retirement Date
"Normal Retirement Date" means the first day of the month coincidental
with or next following the date on which a Participant attains age sixty-five
(65).
2.12 Participant
"Participant" means any individual who is participating or has
participated in this Plan pursuant to Article III.
2.13 Pier 1
"Pier 1" means Pier 1 Imports, Inc., a Delaware corporation and its
successors.
2.14 Retirement
"Retirement" means separation from employment with the Employer at the
Participant's Normal Retirement Date or Deferred Retirement Date. Retirement
shall also mean the date as of which a Participant separates from employment
within twenty-four (24) months of a Change of Control of the Employer due to
termination of the employment of a Participant without regard to Years of
Credited Service unless such separation is:
(a) By the Employer for Cause or Total and Permanent Disability;
or
(b) Because of the Participant's death; or
(c) By the Participant other than:
(i) For Good Reason; or
(ii) Upon the Participant's voluntary separation from
employment after his/her Normal Retirement Date.
2.15 Supplemental Retirement Benefit
"Supplemental Retirement Benefit" means the benefit determined under
Article IV of this Plan.
2.16 Termination
"Termination" means separation from employment with the Employer for any
reason other than Retirement, death or Total and Permanent Disability.
2.17 Total and Permanent Disability
"Total and Permanent Disability" means a physical or mental condition
which, in the opinion of the Committee, prevents a Participant from
satisfactorily performing the Participants usual duties for the Employer, or
any other employer, or such other duties as the Employer, or any other
employer, may make available to the Participant. For the purpose of this
section, other duties will give due regard to the Participant's position and
earnings prior to disability and will take into consideration the
qualifications of such Participant by reason of training, education and
experience. The Committees decision as to total and permanent disability will
be based upon medical reports and/or other evidence satisfactory to the
Committee.
2.18 Years of Credited Service
"Years of Credited Service" means the years of credited vesting service
with the Employer, determined in accordance with the provisions of The
Employees Retirement Plan of the Employer, or any successor tax-qualified
retirement plan.
ARTICLE III-PARTICIPATION AND VESTING
3.1 Participation
Participation in this Plan shall be limited to those employees of the
Employer nominated by the Chief Executive Officer of Pier 1 and approved by
the Committee and by the Board, and who elect to participate in this Plan by
executing a Participation Agreement in the form designated by the Committee.
3.2 Supplemental Retirement Benefit Vesting
(a) Vesting Percentage. Each Participant shall become vested in a
Supplemental Retirement Plan Benefit based upon the following schedule:
Years of Credited Service Vesting Percentage
Less than 1 0%
1 but less than 2 10
2 but less than 3 20
3 but less than 4 30
4 but less than 5 40
5 but less than 6 50
6 but less than 7 60
7 but less than 8 70
8 but less than 9 80
9 but less than 10 90
10 or more 100
(b) Prior Years of Credited Service. For purposes of this Plan,
Years of Credited Service earned prior to the date of Plan adoption by
the Employer shall be limited to five (5).
(c) Conditions for Immediate Vesting. Regardless of a
Participant's actual Years of Credited Service or age, a Participant
shall be one hundred percent (100%) vested in a Supplemental Retirement
Benefit upon Retirement, termination of employment due to Total and
Permanent Disability, or death.
(d) Initial Participants. Notwithstanding anything in this
Article to the contrary, any employee of the Employer who becomes a
Participant in this Plan within 30 days of the effective date of this
Plan shall be at least fifty percent (50%) vested in any Plan Benefits
herein upon attaining age fifty-five (55).
ARTICLE IV-SUPPLEMENTAL RETIREMENT BENEFITS
4.1 Benefit
Upon separation from employment, a Participant shall receive a
Supplemental Retirement Benefit from this Plan which, along with the
Participant's benefits from primary Social Security, shall equal
approximately fifty percent (50%) of the Participant's Highest Average
Compensation. The computation of said Supplemental Retirement Benefit shall
be made in accordance with the following provisions of this Article IV, but
in no event shall the amount of the Supplemental Retirement Benefit paid
annually to any Participant exceed three hundred and fifty thousand dollars
($350,000).
4.2 Retirement; Disability; Death
If a Participant separates from employment due to Retirement, Total and
Permanent Disability, or death prior to the commencement of benefits under
this Plan, the Employer shall pay to the Participant a Supplemental
Retirement Benefit calculated as follows:
(a) Fifty percent (50%) times the Participant's Highest Average
Compensation.
(b) Increase the amount determined in (a) by six percent (6%)
compounded annually for fifteen (15) years.
(c) Sum the annual amounts determined in (b).
(d) The sum of a Participant's primary Social Security benefit
determined at the time of and according to the laws in effect at the
Participant's Retirement Date increased two percent (2%) compounded
annually for fifteen (15) years. However, if a Participant separates
from employment before the Normal Retirement Date, the primary Social
Security benefit shall be determined based upon the primary Social
Security benefit the Participant would have received at the Normal
Retirement Date based upon the assumption the Participant will receive
no future compensation after the date of separation from employment and
based upon the relevant Social Security law at the time of separation
from employment.
(e) The sum of the annual premium charged by the Employer to
active employees for the Employer-provided major medical and
hospitalization insurance coverage for Participants and their dependents
in the year of separation from service increased two percent (2%)
compounded annually for fifteen (15) years.
(f) (c) offset by (d) and (e) divided by one hundred eighty (180).
4.3 Adjustments for Deferred Retirement
If the Participant separates from employment at a Deferred Retirement
Date, the Employer shall pay to the Participant a Supplemental Retirement
Benefit as calculated in paragraph 4.2 above, but adjusted as follows:
(a) The percentage of Highest Average Compensation set forth in
paragraph 4.2(a) shall be increased by five (5) percentage points for
each Year of Credited Service performed past the Participant's Normal
Retirement Date, but in no event shall the increase be more than fifteen
(15) percentage points;
(b) The calculation of Highest Average Compensation shall not take
into consideration any Compensation earned after the Participant attains
age 65; and
(c) The Participant shall forfeit twenty percent (20%) of the
Supplemental Retirement Benefit otherwise due for each Year of Credited
Service performed past the Participant's attained age seventy (70).
4.4 Termination
If a Participant separates from employment due to Termination, the
Employer shall pay to the Participant the Supplemental Retirement Benefit
calculated under paragraph 4.2 above, multiplied by the vesting percentage of
benefit as provided in paragraph 3.2 above.
4.5 Form of Benefit Payment
Effective as of December 20, 1991, each Participant shall, upon becoming
a Participant, irrevocably elect in writing that his or her benefits under
this Plan be paid in one of the following forms:
(a) Equal monthly installments paid over a period of one hundred
eighty (180) months;
(b) A lump sum;
(c) An annuity for the life of the Participant; or
(d) A joint and survivor annuity over the lives of Participant and
the Participant's Beneficiary.
Those individuals who are already Participants on December 20, 1991, but
who are not yet receiving benefits under this Plan, shall within ten (10)
days after such date irrevocably elect in writing one of the foregoing forms
for the payment of his or her benefits under this Plan. The forms of payment
specified in subparagraphs (b), (c) and (d) above shall be the actuarial and
financial equivalents of the form of payment specified in subparagraph (a)
above.
For purposes of determining actuarial equivalence, the benefits referred
to in subparagraphs (b), (c) and (d) above shall be discounted at a rate
equal to the lesser of (i) the Pension Benefit Guaranty Corporation interest
rate for immediate annuities, as published in Appendix B to Part 2619 of
Title 29 of the Code of Federal Regulations, or any successor or replacement
rate (the "PBGC rate") in effect on January 1 of each year; or (ii) a twenty-
four (24) month rolling average of the PBGC rate, using the current rate as
of the beginning of the month in which the calculation is made and the
twenty-three (23) previous months.
Beginning January 1, 1996, the vested, accrued benefit shall be
calculated as of January 1 each year for each Participant, and in no event
shall the vested, accrued benefit be less than such benefit calculated for a
previous year. For example, if a Participant has elected a lump-sum benefit
and the lump-sum benefit as of January 1, 1996 is $750,000 but, due to an
increase in the discount rate, drops to $700,000 as of January 1, 1997, the
Participants vested, accrued lump-sum benefit as of January 1, 1997 would be
$750,000.
4.6 Withholding; Payroll Taxes
To the extent required by the law in effect at the time payments are
made, the Employer shall withhold from payments made hereunder any taxes
required to be withheld from a Participant's wages by the federal, state or
local government.
4.7 Commencement of Payments
Any benefit due under this Article shall commence on the appropriate
date as set forth below:
(a) Supplemental Retirement Benefits due as a result of Retirement
shall commence within thirty (30) days of the earlier of:
(i) The Participant's Retirement and attaining age sixty-five
(65); or
(ii) The Participant's death.
(b) Supplemental Retirement Benefits due as a result of
Termination or Total and Permanent Disability shall commence within
thirty (30) days of the earlier of the Participant's attaining age
sixty-five (65) or death;
(c) Supplemental Retirement Benefits due as a result of death
shall commence within thirty (30) days of the death of the Participant.
4.8 Payment to Guardian
If a Plan benefit is payable to a minor or a person declared incompetent
or to a person incapable of handling the disposition of property, the
Committee may direct payment of such Plan benefit to the guardian, legal
representative or person having the care and custody of such minor,
incompetent or person. The Committee may require proof of incompetency,
minority, incapacity or guardianship as it may deem appropriate prior to
distribution of the Plan benefit. Such distribution shall completely
discharge the Committee and Employer from all liability with respect to such
benefit.
4.9 Major Medical and Hospitalization Insurance Coverage
If a Participant separates from employment for any reason whatsoever,
such Participant (for himself and his dependents) shall have the right to
participate, during the fifteen (15) years immediately after the date such
Participant attains age sixty-five (65), in the Employer-provided major
medical and hospitalization insurance coverage, if any, made available
generally to the Employers active employees and their dependents; provided,
however, that such Participant shall pay, or reimburse the Employer for, the
total premium (i.e., Employer and employee portions) for such insurance
coverage at such times as the Employer and such active employees pay their
respective premiums for such insurance coverage.
ARTICLE V-BENEFICIARY DESIGNATION
5.1 Beneficiary Designation
Each Participant shall have the right, at any time, to designate any
person or persons as his Beneficiary or Beneficiaries (both primary and
contingent) to whom payment under this Plan shall be paid in the event of
death prior to complete distribution to the Participant of the benefits due
under the Plan. Each Beneficiary designation shall be in a written form
prescribed by the Committee and will be effective only when filed with the
Committee during the Participant's lifetime. If a Participant's Compensation
is community property, any Beneficiary designation shall be valid or
effective only as permitted under applicable law.
5.2 Amendments
Any Beneficiary designation may be changed by a Participant without the
consent of any designated Beneficiary by the filing of a new Beneficiary
designation with the Committee. The filing of a new Beneficiary designation
form will cancel all Beneficiary designations previously filed.
5.3 No Beneficiary Designation
If any Participant fails to designate a Beneficiary in the manner
provided above, or if the Beneficiary designated by a deceased Participant
predeceases the Participant, the Committee, in its discretion, shall direct
the Employer to distribute such Participant's benefits (or the balance
thereof) as follows:
(a) To the Participant's surviving spouse, if any; or
(b) If the Participant shall have no surviving spouse, then to the
Participant's children in equal shares, by right of representation; or
(c) If the Participant shall have no surviving spouse or children,
then to the Participant's estate.
5.4 Effect of Payment
Payment to the Beneficiary shall completely discharge Employers
obligations under this Plan.
5.5 Death of Beneficiary
Following commencement of payment of Plan benefits, if the Beneficiary
designated by a deceased Participant dies before receiving complete
distribution of the benefits, the Committee shall direct the Employer to
distribute the balance of such benefits:
(a) As designated by the Beneficiary in accordance with the
provisions in paragraph 5.1 above; or
(b) If the Beneficiary shall not have made such designation, then
to the Beneficiarys estate.
ARTICLE VI-ADMINISTRATION
6.1 Committee; Duties
This Plan shall be administered by the Committee. Members of the
Committee may be Participants under this Plan.
6.2 Agents
The Committee may appoint an individual to be the Committees agent with
respect to the day-to-day administration of the Plan. In addition, the
Committee may, from time to time, employ other agents and delegate to them
such administrative duties as it sees fit, and may from time to time consult
with counsel who may be counsel to the Employer.
6.3 Binding Effect of Decisions
The decision or action of the Committee with respect to any question
arising out of or in connection with the administration, interpretation and
application of the Plan and the rules and regulations promulgated hereunder
shall be final and binding upon all persons having any interest in the Plan.
6.4 Indemnity of Committee
The Company shall indemnify and hold harmless the members of the
Committee against any and all claims, loss, damage, expense or liability
arising from any action or failure to act with respect to this Plan, except
in the case of gross negligence or willful misconduct by the Committee.
ARTICLE VII-CLAIMS PROCEDURE
7.1 Claim
Any person claiming a benefit, requesting an interpretation or ruling
under the Plan, or requesting information under the Plan shall present the
request in writing to the Committee which shall respond in writing as soon as
practicable.
7.2 Denial of Claim
If the claim or request is denied, the written notice of denial shall be
made within ninety (90) days of the date of receipt of such claim or request
by the Committee and shall state:
(a) The reason for denial, with specific reference to the Plan
provisions on which the denial is based.
(b) A description of any additional material or information
required and an explanation of why it is necessary.
(c) An explanation of the Plans claims review procedure.
7.3 Review of Claim
Any person whose claim or request is denied or who has not received a
response within ninety (90) days may request review by notice given in
writing to the Committee within sixty (60) days of receiving a response or
one hundred fifty (150) days from the date the claim was received by the
Committee. The claim or request shall be reviewed by the Committee who may,
but shall not be required to, grant the claimant a hearing. On review, the
claimant may have representation, examine pertinent documents, and submit
issues and comments in writing.
7.4 Final Decision
The decision on review shall normally be made within sixty (60) days
after the Committees receipt of a request for review. If an extension of time
is required for a hearing or other special circumstances, the claimant shall
be notified and the time shall be one hundred twenty (120) days after the
Committees receipt of a request for review. The decision shall be in writing
and shall state the reason and the relevant Plan provisions. All decisions on
review shall be final and bind all parties concerned.
ARTICLE VIII-TERMINATION, SUSPENSION OR AMENDMENT
8.1 Amendment or Termination
The Board may, in its sole discretion, amend or terminate this Plan at
any time, in whole or in part; provided, however, that no such amendment or
termination shall adversely affect the benefits of Participants which have
vested in accordance with paragraph 3.2 above prior to such action, the
benefits of any Participant who has previously retired, or the benefits of
any Beneficiary of a Participant who has died; provided further, however,
that the amendment or termination of this Plan shall not alter in any manner
the timing or form of benefit payments under this Plan.
8.2 Successor Employer
The provisions of this Plan shall be binding upon and inure to the
benefit of any successor or assign of the Employer. If a successor Employer
amends or terminates this Plan, no such amendment or termination shall
adversely affect the benefits of Participants which have vested in accordance
with paragraph 3.2 above prior to such action, the benefits of any
Participant who has previously retired, or the benefits of any Beneficiary of
a Participant who has previously died.
ARTICLE IX-MISCELLANEOUS
9.1 Unsecured General Creditor
Benefits to be provided under this Plan are unfunded obligations of the
Employer. Participants and their Beneficiaries, heirs, successors, and
assigns shall have no secured interest or claim in any property or assets of
Employer, nor shall they be Beneficiaries of, or have any rights, claims or
interests in any life insurance policies, annuity contracts or the proceeds
therefrom owned or which may be acquired by Employer ("Policies"). Except as
provided in paragraph 9.2, such Policies or other assets of Employer shall
not be held under any trust for the benefit of Participants, their
Beneficiaries, heirs, successors or assigns, or be considered in any way as
collateral security for the fulfilling of the obligations of Employer under
this Plan.
9.2 Trust Fund
Employer shall be responsible for the payment of all benefits provided
under the Plan. At its discretion, Employer may establish one (1) or more
trusts, with such trustees as the Board may approve, for the purpose of
providing for the payment of such benefits. Although such a trust shall be
irrevocable, its assets shall be held for payment of all Employers general
creditors in the event of insolvency. To the extent any benefits provided
under the Plan are paid from any such trust, Employer shall have no further
obligation to pay them. If not paid from the trust, such benefits shall
remain the obligation of Employer.
9.3 Nonassignability
Neither a Participant nor any other person shall have any right to
commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise
encumber, hypothecate or convey in advance of actual receipt the amounts, if
any, payable hereunder, or any part thereof. No part of the amounts payable
shall, prior to actual payment, be subject to seizure or sequestration for
the payment of any debts, judgments, alimony or separate maintenance owed by
a Participant or any other person, nor be transferable by operation of law in
the event of a Participant's or any other persons bankruptcy or insolvency.
9.4 Not a Contract of Employment
The terms and conditions of this Plan shall not be deemed to constitute
a contract of employment between Employer and the Participant, and the
Participant (or his Beneficiary) shall have no rights against the Employer
except as may otherwise be specifically provided herein. Moreover, nothing in
this Plan shall be deemed to give a Participant the right to be retained in
the service of Employer or to interfere with the right of Employer to
discipline or discharge him at any time.
9.5 Suicide
Notwithstanding the provisions of Article IV, no benefit shall be paid
to a Beneficiary if the Participant's death occurs as a result of suicide
during the twelve (12) successive calendar months beginning with the calendar
month following the commencement of an individuals participation in this
Plan.
9.6 Participant's Cooperation
A Participant will cooperate with Employer by furnishing any and all
information requested by Employer in order to facilitate the payment of
benefits hereunder, and by taking such physical examinations and such other
action as may be requested by Employer.
9.7 Terms
Whenever any words are used herein in the masculine, they shall be
construed as though they were used in the feminine in all cases where they
would so apply; and wherever any words are used herein in the singular or in
the plural, they shall be construed as though they were used in the plural or
the singular, as the case may be, in all cases where they would so apply.
9.8 Captions
The captions of the articles, sections and paragraphs of this Plan are
for convenience only and shall not control or affect the meaning or
construction of any of its provisions.
9.9 Governing Law
The provisions of this Plan shall be construed and interpreted according
to the laws of the State of Delaware.
9.10 Validity
In case any provision of this Plan shall be illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining parts
hereof, but this Plan shall be construed and enforced as if such illegal and
invalid provision had never been inserted herein.
9.11 Successors
The provisions of this Plan shall bind and inure to the benefit of
Employer and its successors and assigns. The term successors as used herein
shall include any corporate or other business entity which shall, whether by
merger, consolidation, purchase or otherwise acquire all or substantially all
of the business and assets of Employer, and successors of any such
corporation or other business entity.
9.12 Notice
Any notice or filing required or permitted to be given to the Committee
under the Plan shall be sufficient if in writing and hand delivered, or sent
by registered or certified mail, to any member of the Committee, the
President of the Employer, or the Employer's Statutory Agent. Such notice
shall be deemed given as of the date of delivery or, if delivery is made by
mail, as of three (3) days following the date shown on the postmark or on the
receipt for registration or certification.
EXHIBIT 10.12.3
FOURTH AMENDMENT TO LEASE GUARANTEE
This Fourth Amendment to Lease Guarantee (hereinafter referred to as
"this Fourth Amendment") is entered into as of the 1st day of April, 1996,
among PIER 1 IMPORTS, INC., a Delaware corporation (the "Guarantor"), and
PIER GROUP, INC., a Delaware corporation ("Lessor").
WHEREAS, Guarantor and Lessor previously entered into a Lease Guarantee
(the "Lease Guarantee") dated December 30, 1992, whereby Guarantor guaranteed
the full payment and performance when due of all rent, indebtedness, and
obligations now or hereafter existing or owing to Lessor pursuant to lease
agreements from time to time entered into with Pier Lease, Inc., a Delaware
corporation, and with Pier 1 Imports (U.S.), Inc., a Delaware corporation;
and
WHEREAS, the Lease Guarantee was amended by a First Amendment to Lease
Guarantee dated as of April 28, 1993 (the "First Amendment"); and
WHEREAS, the Lease Guarantee was amended by a Second Amendment to Lease
Guarantee dated as of April 25, 1994 (the "Second Amendment"); and
WHEREAS, the Lease Guarantee was amended by a Third Amendment to Lease
Guarantee dated as of June 20, 1994 (the "Third Amendment"); and
WHEREAS, Guarantor and Lessor have agreed to amend the Lease Guarantee
as more fully set forth hereinafter.
NOW, THEREFORE, in consideration of the premises and other valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Guarantor and the Lessor agree as follows:
1. The definitions of "Cash Flow Available For Fixed Charges,"
"Consolidated Tangible Net Worth" and "Restricted Investments" in Section 3
of the Lease Guarantee are amended to read in their entirety as follows:
"Cash Flow Available For Fixed Charges" shall mean the sum of
Consolidated Net Income plus depreciation and amortization plus
interest expense plus taxes plus operating lease expense calculated
on a rolling four (4) quarter basis, as determined in accordance
with GAAP, less Maintenance Capital Expenditures for the Guarantor
on a Consolidated basis.
"Consolidated Tangible Net Worth" shall mean the sum of
consolidated capital, surplus and retained earnings of the Guarantor
less Intangible Assets of the Guarantor, determined in accordance with
GAAP.
"Restricted Investments" shall mean any investments in, guaranties
of, or loans and advances to Persons, except (i) Obligations of the
United States government due within one (1) year from the date of
acquisition, (ii) certificates of deposit (including Eurodollar
deposits) and bankers' acceptances (from commercial banks having capital
resources in excess of $100 million) due within one (1) year from the
date of acquisition, and payable in U.S. dollars, (iii) commercial paper
rated P-1 by Moody's or A-1 by Standard & Poor's; (iv) debt of any state
or political subdivision that is rated A or better by Moody's or
Standard & Poor's and that matures within one (1) year, (v) any loan
participation program(s) for a period not to exceed sixty (60) days with
credit risk to companies with long-term debt rating by Standard & Poor's
or Moody's of not less than single A, (vi) any stock purchases made on
behalf of the Pier 1 Imports ESOP which are transferred to the ESOP
within one (1) year, (vii) readily marketable securities having a quoted
market value, (viii) the sum of dividends and other distributions on
account of any class of its stock not exceeding ten million dollars
($10,000,000) in the aggregate in such fiscal year, (ix) purchases of a
majority of the outstanding stock of any corporation, (x) travel or like
advances to officers and/or employees and loans to officers and/or
employees for the purchase of capital stock of the Guarantor (including
the capitalization of up to one-half of the accrued interest on such
loans to officers and/or employees) with such travel or like advances
and loans not exceeding ten million dollars ($10,000,000) in the
aggregate in any fiscal year, (xi) stock or securities received in
settlement of debts owing to the Guarantor or any Subsidiary not
exceeding ten million dollars ($10,000,000) in such fiscal year
including receivables arising from the sale of goods and services in the
ordinary course of business of the Guarantor and its Subsidiaries, (xii)
any stock or securities of Sunbelt Nursery Group, Inc. which the
Guarantor or any of its Subsidiaries acquires through the exercise of
its remedies with respect to any lien or security interest held by
Guarantor or any of its Subsidiaries on such stock or securities, (xiii)
any loans or guaranties made by the Guarantor or any of its Subsidiaries
to or for the benefit of Pier Retail Group Limited, a company organized
under the laws of the United Kingdom, not exceeding an aggregate
principal amount of five million dollars ($5,000,000) in any fiscal
year, (xiv) investments in or loans and advances to Guarantor, or any of
it Subsidiaries, or any Person that is wholly-owned by Guarantor and/or
its Subsidiaries, (xv) investments in or loans and advances to any
partnership, corporation or joint venture the sole purpose of which is
to obtain land and improvements used in the ordinary course of business
of Guarantor or any of its Subsidiaries, which investments in or loans
and advances to under this subsection shall not exceed seventy-five
million dollars ($75,000,000) in the aggregate at any one time
outstanding, (xvi) all investments, guaranties, loans and advances in
existence on the date hereof, together with all renewals, extensions,
rearrangements, replacements, and substitutions thereof, and (xvii) all
guaranties permitted under Section 8(g) hereof.
2. The following definitions of EBITDA, Funded Debt and Funded Debt
EBITDA Ratio are added to Section 3 of the Lease Guarantee which shall read
in their entirety as follows:
"EBITDA" shall mean Net Income plus provision for income taxes
as defined by GAAP plus interest expenses, depreciation,
amortization and non-cash charges. If any changes in GAAP require
operating leases to be included as indebtedness in the Consolidated
financial statements of the Guarantor, such operating lease expense
otherwise required to be included as interest expense shall
nevertheless be treated as lease expense for purposes of this
computation.
"Funded Debt" shall mean, at any time, the aggregate amount of
all interest bearing indebtedness for borrowed money, all
obligations under standby letters of credit (except for those
standby letters of credit issued in connection with City of
Mansfield Industrial Development Corporation Adjustable Convertible
Extendable Securities - ACESsm (Pier 1 Imports-Texas, Inc.
Project), Series 1986, the City of St. Charles, Illinois Industrial
Development Revenue Bond Adjustable Convertible Extendable
Securities - ACESsm (Pier 1 Imports-Midwest, Inc. Project), Series
1986, and the Savannah Port Authority Adjustable Convertible
Extendable Securities - ACESsm (Pier 1 Imports-Southwest, Inc.
Project), Series 1986.) and bankers acceptances and all obligations
under Capital Leases of Guarantor and its Subsidiaries. Any
changes in GAAP requiring operating leases to be included as
indebtedness in the Consolidated financial statements of the
Guarantor will be effective, for purposes of determining Funded
Debt hereunder, only for leases entered into or renewed after the
date of the required implementation of such change in GAAP;
provided however, such indebtedness excluded from the definition of
Funded Debt under the preceding provision shall be excluded from
Funded Debt only to the extent of $75,000,000 of such indebtedness
in the aggregate.
"Funded Debt EBITDA Ratio" shall mean, on any date, the ratio
of Funded Debt to EBITDA.
3. Section 8(b) of the Lease Guarantee is hereby amended to read in
its entirety as follows:
(b) Consolidated Tangible Net Worth. Permit its Consolidated
Tangible Net Worth at any time to be less than an amount equal to
the sum of (i) two hundred million dollars ($200,000,000) plus (ii)
50% of the aggregate Consolidated Net Income of the Guarantor for
the period commencing after February 25, 1995 (without deduction
for any net loss in any fiscal year ending after February 25, 1995)
and terminating at the end of the last fiscal quarter preceding the
date of any determination of Consolidated Tangible Net Worth.
4. Section 8(d)(ii) and Section 8(d)(v) of the Lease Guarantee are
hereby amended to read in their entirety as follows:
(ii) Funded Debt to Consolidated Tangible Net Worth. Permit
the ratio of Funded Debt to Consolidated Tangible Net Worth to
exceed 1.40 to 1.0 at any time.
***
(v) Maintenance of Fixed Charge Coverage. Permit the ratio
of Cash Flow Available for Fixed Charges to Fixed Charges to be
determined on the last day of each fiscal quarter for the preceding
four (4) quarters to be less than 1.25 to 1.0 at any time. For
purposes of this calculation, the $14,000,000 before tax, non-cash
charge attributable to the write-down of the Guarantor's investment
in Sunbelt Nursery Group, Inc. shall be added back to Consolidated
Net Income on an after-tax basis and investment losses in the
aggregate amount of $16,915,000 during the first and second
quarters of 1996 shall be added back in computing Consolidated Net
Income.
5. Section 8(g) of the Lease Guarantee is amended to read in its
entirety as follows:
(g) Guaranteed Debt. Create, assume or suffer to exist, or
permit any of its Subsidiaries to create, assume or suffer to
exist, any Guaranteed Debt except (i) Guaranteed Debt in existence
on the date hereof, (ii) Guaranteed Debt that is secured by assets
of the primary obligor having a fair market value at least equal to
the amount of such Guaranteed Debt, as determined by an independent
qualified appraiser selected by Guarantor (which appraisal, at
Lessor's or any Subsequent Holder's reasonable request and at
Lessor's expense, shall be promptly updated, but such request shall
not be made more often than once every 12 months), (iii) Guaranteed
Debt by Guarantor or a Subsidiary on the consolidated balance sheet
of Guarantor and its Subsidiaries, and (iv) any Guaranteed Debt by
Guarantor or any of its Subsidiaries described in Subsection (xiii)
of the definition of "Restricted Investments" in Section 3 hereof;
provided, however, that in no event shall the aggregate amount of
all consolidated Guaranteed Debt (other than the Guaranteed Debt
described in (iv) above) of Guarantor and its Subsidiaries exceed
the Consolidated Tangible Net Worth.
6. A new Section 8(i) is added to the Lease Guarantee which shall read
in its entirety as follows:
(i) Funded Debt EBITDA Ratio. Permit its Funded Debt EBITDA
Ratio to be greater than 3.5 to 1.0 at any time.
7. Except as herein specifically amended and modified above, the Lease
Guarantee, the First Amendment, the Second Amendment and the Third Amendment
are unchanged and shall continue in full force and effect.
8. Guarantor hereby consents and agrees to this Fourth Amendment and
Guarantor hereby confirms and ratifies the Lease Guarantee, the First
Amendment, the Second Amendment and the Third Amendment and each and every
term, condition, and covenant therein contained to the same extent and as
though the same were set forth herein in full.
9. The parties to this Fourth Amendment agree to be bound by the terms
and provisions of the current Arbitration Program of First Interstate Bank of
Texas, N.A. which is incorporated by reference herein and is acknowledged as
received by the parties pursuant to which any and all disputes shall be
resolved by mandatory binding arbitration upon the request of any party.
10. This Fourth Amendment may be executed in a number of identical
counterparts, each of which shall be deemed an original. In making proof of
this instrument, it shall not be necessary for any party to account for all
counterparts, and it shall be sufficient for any party to produce but one
such counterpart.
11. This Fourth Amendment to Lease Guarantee shall be binding upon and
inure to the benefit of the parties and their successors and assignees.
12. THE LEASE GUARANTEE, THE FIRST AMENDMENT, THE SECOND AMENDMENT, THE
THIRD AMENDMENT AND THIS FOURTH AMENDMENT CONSTITUTE A "LOAN AGREEMENT" AS
DEFINED IN SECTION 26.01(A) OF THE TEXAS BUSINESS AND COMMERCE CODE,
REPRESENT THE FINAL AND ENTIRE AGREEMENT AND UNDERSTANDING AMONG THE
GUARANTOR AND THE LESSOR RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF,
SUPERSEDE ALL PRIOR PROPOSALS, AGREEMENTS AND UNDERSTANDINGS RELATING TO THE
SUBJECT MATTER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment
to be executed by their respective officers thereunto duly authorized, as of
the date first written above.
GUARANTOR:
PIER 1 IMPORTS, INC.
By:
Clark A. Johnson, Chairman of the Board
and Chief Executive Officer
LESSOR:
PIER GROUP, INC.
BY:
Charles L. Horn, President
Agreed and Accepted as
of the date above written:
FIRST INTERSTATE BANK
OF TEXAS, N.A., as Agent
By:
Robin Hamilton, Vice President
EXHIBIT 10.13.3
FOURTH AMENDMENT TO LEASE GUARANTEE
This Fourth Amendment to Lease Guarantee (hereinafter referred to as
"this Fourth Amendment") is entered into as of the 1st day of April, 1996,
among PIER 1 IMPORTS, INC., a Delaware corporation ("Guarantor"), PIER 1
IMPORTS (U.S.), INC., a Delaware corporation (Pier 1 Imports, Inc. and Pier 1
Imports (U.S.), Inc. are hereinafter collectively referred to as the
"Guarantors") and PIER GROUP, INC., a Delaware corporation ("Lessor").
WHEREAS, Guarantors and Lessor previously entered into a Lease Guarantee
(the "Lease Guarantee") dated December 30, 1992, whereby Guarantors
guaranteed the full payment and performance when due of all rent,
indebtedness, and obligations now or hereafter existing or owing to Lessor
pursuant to lease agreements from time to time entered into with Pier Lease,
Inc., a Delaware corporation; and
WHEREAS, the Lease Guarantee was amended by a First Amendment to Lease
Guarantee dated as of April 28, 1993 (the "First Amendment"); and
WHEREAS, the Lease Guarantee was amended by a Second Amendment to Lease
Guarantee dated as of April 25, 1994 (the "Second Amendment"); and
WHEREAS, the Lease Guarantee was amended by a Third Amendment to Lease
Guarantee dated as of June 20, 1994 (the "Third Amendment"); and
WHEREAS, Guarantors and Lessor have agreed to amend the Lease Guarantee
as more fully set forth hereinafter.
NOW, THEREFORE, in consideration of the premises and other valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Guarantors and the Lessor agree as follows:
1. The definitions of "Cash Flow Available For Fixed Charges,"
"Consolidated Tangible Net Worth" and "Restricted Investments" in Section 3
of the Lease Guarantee are amended to read in their entirety as follows:
"Cash Flow Available For Fixed Charges" shall mean the sum of
Consolidated Net Income plus depreciation and amortization plus
interest expense plus taxes plus operating lease expense calculated
on a rolling four (4) quarter basis, as determined in accordance
with GAAP, less Maintenance Capital Expenditures for the Guarantor
on a Consolidated basis.
"Consolidated Tangible Net Worth" shall mean the sum of
consolidated capital, surplus and retained earnings of the Guarantor
less Intangible Assets of the Guarantor, determined in accordance with
GAAP.
"Restricted Investments" shall mean any investments in, guaranties
of, or loans and advances to Persons, except (i) Obligations of the
United States government due within one (1) year from the date of
acquisition, (ii) certificates of deposit (including Eurodollar
deposits) and bankers' acceptances (from commercial banks having capital
resources in excess of $100 million) due within one (1) year from the
date of acquisition, and payable in U.S. dollars, (iii) commercial paper
rated P-1 by Moody's or A-1 by Standard & Poor's; (iv) debt of any state
or political subdivision that is rated A or better by Moody's or
Standard & Poor's and that matures within one (1) year, (v) any loan
participation program(s) for a period not to exceed sixty (60) days with
credit risk to companies with long-term debt rating by Standard & Poor's
or Moody's of not less than single A, (vi) any stock purchases made on
behalf of the Pier 1 Imports ESOP which are transferred to the ESOP
within one (1) year, (vii) readily marketable securities having a quoted
market value, (viii) the sum of dividends and other distributions on
account of any class of its stock not exceeding ten million dollars
($10,000,000) in the aggregate in such fiscal year, (ix) purchases of a
majority of the outstanding stock of any corporation, (x) travel or like
advances to officers and/or employees and loans to officers and/or
employees for the purchase of capital stock of the Guarantor (including
the capitalization of up to one-half of the accrued interest on such
loans to officers and/or employees) with such travel or like advances
and loans not exceeding ten million dollars ($10,000,000) in the
aggregate in any fiscal year, (xi) stock or securities received in
settlement of debts owing to the Guarantor or any Subsidiary not
exceeding ten million dollars ($10,000,000) in such fiscal year
including receivables arising from the sale of goods and services in the
ordinary course of business of the Guarantor and its Subsidiaries, (xii)
any stock or securities of Sunbelt Nursery Group, Inc. which the
Guarantor or any of its Subsidiaries acquires through the exercise of
its remedies with respect to any lien or security interest held by
Guarantor or any of its Subsidiaries on such stock or securities, (xiii)
any loans or guaranties made by the Guarantor or any of its Subsidiaries
to or for the benefit of Pier Retail Group Limited, a company organized
under the laws of the United Kingdom, not exceeding an aggregate
principal amount of five million dollars ($5,000,000) in any fiscal
year, (xiv) investments in or loans and advances to Guarantor, or any of
it Subsidiaries, or any Person that is wholly-owned by Guarantor and/or
its Subsidiaries, (xv) investments in or loans and advances to any
partnership, corporation or joint venture the sole purpose of which is
to obtain land and improvements used in the ordinary course of business
of Guarantor or any of its Subsidiaries, which investments in or loans
and advances to under this subsection shall not exceed seventy-five
million dollars ($75,000,000) in the aggregate at any one time
outstanding, (xvi) all investments, guaranties, loans and advances in
existence on the date hereof, together with all renewals, extensions,
rearrangements, replacements, and substitutions thereof, and (xvii) all
guaranties permitted under Section 8(g) hereof.
2. The following definitions of EBITDA, Funded Debt and Funded Debt
EBITDA Ratio are added to Section 3 of the Lease Guarantee which shall read
in their entirety as follows:
"EBITDA" shall mean Net Income plus provision for income taxes
as defined by GAAP plus interest expenses, depreciation,
amortization and non-cash charges. If any changes in GAAP require
operating leases to be included as indebtedness in the Consolidated
financial statements of the Guarantor, such operating lease expense
otherwise required to be included as interest expense shall
nevertheless be treated as lease expense for purposes of this
computation.
"Funded Debt" shall mean, at any time, the aggregate amount of
all interest bearing indebtedness for borrowed money, all
obligations under standby letters of credit (except for those
standby letters of credit issued in connection with City of
Mansfield Industrial Development Corporation Adjustable Convertible
Extendable Securities - ACESsm (Pier 1 Imports-Texas, Inc.
Project), Series 1986, the City of St. Charles, Illinois Industrial
Development Revenue Bond Adjustable Convertible Extendable
Securities - ACESsm (Pier 1 Imports-Midwest, Inc. Project), Series
1986, and the Savannah Port Authority Adjustable Convertible
Extendable Securities - ACESsm (Pier 1 Imports-Southwest, Inc.
Project), Series 1986.) and bankers acceptances and all obligations
under Capital Leases of Guarantor and its Subsidiaries. Any
changes in GAAP requiring operating leases to be included as
indebtedness in the Consolidated financial statements of the
Guarantor will be effective, for purposes of determining Funded
Debt hereunder, only for leases entered into or renewed after the
date of the required implementation of such change in GAAP;
provided however, such indebtedness excluded from the definition of
Funded Debt under the preceding provision shall be excluded from
Funded Debt only to the extent of $75,000,000 of such indebtedness
in the aggregate.
"Funded Debt EBITDA Ratio" shall mean, on any date, the ratio
of Funded Debt to EBITDA.
3. Section 8(b) of the Lease Guarantee is hereby amended to read in
its entirety as follows:
(b) Consolidated Tangible Net Worth. Permit its Consolidated
Tangible Net Worth at any time to be less than an amount equal to
the sum of (i) two hundred million dollars ($200,000,000) plus (ii)
50% of the aggregate Consolidated Net Income of the Guarantor for
the period commencing after February 25, 1995 (without deduction
for any net loss in any fiscal year ending after February 25, 1995)
and terminating at the end of the last fiscal quarter preceding the
date of any determination of Consolidated Tangible Net Worth.
4. Section 8(d)(ii) and Section 8(d)(v) of the Lease Guarantee are
hereby amended to read in their entirety as follows:
(ii) Funded Debt to Consolidated Tangible Net Worth. Permit
the ratio of Funded Debt to Consolidated Tangible Net Worth to
exceed 1.40 to 1.0 at any time.
***
(v) Maintenance of Fixed Charge Coverage. Permit the ratio
of Cash Flow Available for Fixed Charges to Fixed Charges to be
determined on the last day of each fiscal quarter for the preceding
four (4) quarters to be less than 1.25 to 1.0 at any time. For
purposes of this calculation, the $14,000,000 before tax, non-cash
charge attributable to the write-down of the Guarantor's investment
in Sunbelt Nursery Group, Inc. shall be added back to Consolidated
Net Income on an after-tax basis and investment losses in the
aggregate amount of $16,915,000 during the first and second
quarters of 1996 shall be added back in computing Consolidated Net
Income.
5. Section 8(g) of the Lease Guarantee is amended to read in its
entirety as follows:
(g) Guaranteed Debt. Create, assume or suffer to exist, or
permit any of its Subsidiaries to create, assume or suffer to
exist, any Guaranteed Debt except (i) Guaranteed Debt in existence
on the date hereof, (ii) Guaranteed Debt that is secured by assets
of the primary obligor having a fair market value at least equal to
the amount of such Guaranteed Debt, as determined by an independent
qualified appraiser selected by Guarantor (which appraisal, at
Lessor's or any Subsequent Holder's reasonable request and at
Lessor's expense, shall be promptly updated, but such request shall
not be made more often than once every 12 months), (iii) Guaranteed
Debt by Guarantor or a Subsidiary on the consolidated balance sheet
of Guarantor and its Subsidiaries, and (iv) any Guaranteed Debt by
Guarantor or any of its Subsidiaries described in Subsection (xiii)
of the definition of "Restricted Investments" in Section 3 hereof;
provided, however, that in no event shall the aggregate amount of
all consolidated Guaranteed Debt (other than the Guaranteed Debt
described in (iv) above) of Guarantor and its Subsidiaries exceed
the Consolidated Tangible Net Worth.
6. A new Section 8(i) is added to the Lease Guarantee which shall read
in its entirety as follows:
(i) Funded Debt EBITDA Ratio. Permit its Funded Debt EBITDA
Ratio to be greater than 3.5 to 1.0 at any time.
7. Except as herein specifically amended and modified above, the Lease
Guarantee, the First Amendment, the Second Amendment and the Third Amendment
are unchanged and shall continue in full force and effect.
8. Each Guarantor hereby consents and agrees to this Fourth Amendment
and each Guarantor hereby confirms and ratifies the Lease Guarantee, the
First Amendment, the Second Amendment and the Third Amendment and each and
every term, condition, and covenant therein contained to the same extent and
as though the same were set forth herein in full.
9. The parties to this Fourth Amendment agree to be bound by the terms
and provisions of the current Arbitration Program of First Interstate Bank of
Texas, N.A. which is incorporated by reference herein and is acknowledged as
received by the parties pursuant to which any and all disputes shall be
resolved by mandatory binding arbitration upon the request of any party.
10. This Fourth Amendment may be executed in a number of identical
counterparts, each of which shall be deemed an original. In making proof of
this instrument, it shall not be necessary for any party to account for all
counterparts, and it shall be sufficient for any party to produce but one
such counterpart.
11. This Fourth Amendment to Lease Guarantee shall be binding upon and
inure to the benefit of the parties and their successors and assignees.
12. THE LEASE GUARANTEE, THE FIRST AMENDMENT, THE SECOND AMENDMENT, THE
THIRD AMENDMENT AND THIS FOURTH AMENDMENT CONSTITUTE A "LOAN AGREEMENT" AS
DEFINED IN SECTION 26.01(A) OF THE TEXAS BUSINESS AND COMMERCE CODE,
REPRESENT THE FINAL AND ENTIRE AGREEMENT AND UNDERSTANDING AMONG THE
GUARANTORS AND THE LESSOR RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF,
SUPERSEDE ALL PRIOR PROPOSALS, AGREEMENTS AND UNDERSTANDINGS RELATING TO THE
SUBJECT MATTER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment
to be executed by their respective officers thereunto duly authorized, as of
the date first written above.
GUARANTORS:
PIER 1 IMPORTS, INC.
By:
Clark A. Johnson, Chairman of the Board
and Chief Executive Officer
PIER 1 IMPORTS (U.S.), INC.
By:
Clark A. Johnson, Chairman of the Board
and Chief Executive Officer
LESSOR:
PIER GROUP, INC.
BY:
Charles L. Horn, President
Agreed and Accepted as
of the date above written:
FIRST INTERSTATE BANK
OF TEXAS, N.A., as Agent
By:
Robin Hamilton, Vice President
EXHIBIT 21
ROSTER OF SUBSIDIARIES OF THE COMPANY
Pier 1 Assets, Inc., a Delaware corporation
Pier 1 Licensing, Inc., a Delaware corporation
Pier 1 Imports (U.S.), Inc., a Delaware corporation
Pier Lease, Inc., a Delaware corporation
Pier-ASD, Inc., a Delaware corporation
CEEMCO, Inc., an Illinois corporation
Pier-SNG, Inc., a Delaware corporation
PIR Trading, Inc., a Delaware corporation
Pier International Limited, a Hong Kong private
company
Pier Alliance Ltd., a Bermuda limited
liability company
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-9970, No. 33-50278, and No. 33-32166) and in
the Registration Statement on Form S-3 (No. 33-49356) of our report dated
April 11, 1996, with respect to the consolidated financial statements and
schedule of Pier 1 Imports, Inc. included in its Annual Report (Form 10-K)
for the year ended March 2, 1996.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Fort Worth, Texas
May 28, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-9970, 33-32166 and 33-50278) and Form S-3
(No. 33-49356) of Pier 1 Imports, Inc. of our report dated April 7, 1995,
except for Notes 2, 8, 11 and 17, as to which the date is February 29, 1996,
included in Item 8 of this Form 10-K. We also consent to the incorporation
by reference of our report on the Financial Statement Schedules, which
appears in Item 14(a) of this Form 10-K.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Fort Worth, Texas
May 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENT OF OPERATIONS AND BALANCE SHEET AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-2-1996
<PERIOD-END> MAR-2-1996
<CASH> 13,534
<SECURITIES> 0
<RECEIVABLES> 81,684
<ALLOWANCES> 3,949
<INVENTORY> 223,166
<CURRENT-ASSETS> 347,513
<PP&E> 269,582
<DEPRECIATION> 124,955
<TOTAL-ASSETS> 531,096
<CURRENT-LIABILITIES> 100,700
<BONDS> 180,100
<COMMON> 39,877
0
0
<OTHER-SE> 188,046
<TOTAL-LIABILITY-AND-EQUITY> 531,096
<SALES> 810,707
<TOTAL-REVENUES> 810,707
<CGS> 485,186
<TOTAL-COSTS> 485,186
<OTHER-EXPENSES> 17,204
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,723
<INCOME-PRETAX> 28,449
<INCOME-TAX> 18,400
<INCOME-CONTINUING> 10,049
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,049
<EPS-PRIMARY> .25
<EPS-DILUTED> 0
</TABLE>
