<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 23, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
PIER 1 IMPORTS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 75-1932993
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
J. RODNEY LAWRENCE, ESQ.
SENIOR VICE PRESIDENT, LEGAL AFFAIRS
301 COMMERCE STREET, SUITE 600 PIER 1 IMPORTS, INC.
FORT WORTH, TEXAS 76102 301 COMMERCE STREET, SUITE 600
(817) 878-8000 FORT WORTH, TEXAS 76102
(Address, including zip code, and telephone (817) 878-8000
number, including area code, of (Name, address, including zip code, and
registrant's principal executive offices) telephone number, including area code,
of agent for service)
</TABLE>
Copies to:
C. WILLIAM BLAIR, ESQ. JAY R. SCHIFFERLI, ESQ.
KELLY, HART & HALLMAN, P.C. KELLEY DRYE & WARREN LLP
201 MAIN STREET, SUITE 2500 TWO STAMFORD PLAZA
FORT WORTH, TEXAS 76102 281 TRESSER BOULEVARD
(817) 332-2500 STAMFORD, CONNECTICUT 06901
(203) 324-1400
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
----------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
----------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT MAXIMUM MAXIMUM
OF SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER NOTE OFFERING PRICE REGISTRATION FEE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Convertible Subordinated
Notes Due 2006.............. $57,500,000(1) 100% $57,500,000 $19,827.59
- --------------------------------------------------------------------------------------------------
Common Stock, $1 par value........ (2) -- -- --
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(1) Includes $7,500,000 aggregate principal amount of Notes which the
Underwriters have the option to purchase solely to cover over-allotments, if
any.
(2) There are being registered hereunder such presently undeterminable number of
shares as may be required for issuance upon conversion of the Notes. No
additional consideration will be received by the Registrant upon conversion
of the Notes, and pursuant to Rule 457(i) no additional filing fee is
required.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************
SUBJECT TO COMPLETION, DATED AUGUST 23, 1996
PROSPECTUS
$50,000,000
[PIER 1 IMPORTS LOGO]
% CONVERTIBLE SUBORDINATED NOTES DUE 2006
---------------------
Pier 1 Imports, Inc. (the "Company") is offering $50,000,000 aggregate
principal amount of % Convertible Subordinated Notes due 2006 (the
"Notes"). Interest on the Notes will be payable semi-annually on April 1 and
October 1 of each year, commencing April 1, 1997. The Notes are convertible at
any time prior to maturity, unless previously redeemed or repurchased, into
shares of Common Stock, par value $1.00 per share (the "Common Stock"), of the
Company, at a conversion price of $ per share, subject to adjustment
under certain circumstances. The Common Stock is traded on the New York Stock
Exchange under the symbol "PIR." On August 21, 1996, the last reported sale
price for the Common Stock on the New York Stock Exchange was $16 3/8 per share.
The Notes are unsecured and subordinate to all Senior Indebtedness (as
defined). At August 1, 1996, Senior Indebtedness was $109.3 million. The
Indenture does not restrict the incurrence of additional indebtedness by the
Company or any of its subsidiaries. See "Description of the
Notes -- Subordination." The Notes will mature on October 1, 2006. The Company
may redeem the Notes, in whole or in part, on or after October 1, 1998, at the
redemption prices set forth herein, plus accrued but unpaid interest except that
until October 1, 1999 the Notes cannot be redeemed by the Company unless the
30-day average closing price of the Common Stock equals or exceeds 150% of the
then effective Conversion Price. See "Description of the Notes -- Optional
Redemption by the Company." Upon a Change of Control (as defined), each holder
of the Notes will have the right, at the holder's option, to require the Company
to repurchase such holder's Notes at a purchase price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest to the date of
repurchase. See "Description of the Notes -- Repurchase at the Option of Holders
Upon Change of Control."
The Company will apply for listing of the Notes on the New York Stock
Exchange.
---------------------
SEE "INVESTMENT CONSIDERATIONS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY SUCH STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
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<S> <C> <C> <C>
Per Note.......................................... 100% % %
Total(4).......................................... $50,000,000 $ $
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(1) Plus accrued interest, if any, from the date of issuance.
(2) The Company has agreed to indemnify the several Underwriters identified
elsewhere herein against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(3) Before deducting expenses payable by the Company, estimated at $ .
(4) The Company has granted the Underwriters a 30-day option to purchase up to
an additional $7,500,000 principal amount of Notes solely for the purpose of
covering over-allotments, if any. If the Underwriters exercise such option
in full, the Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company would be $57,500,000, $ and $ ,
respectively. See "Underwriting."
---------------------
The Notes are offered by the Underwriters, subject to prior sale, when, as
and if delivered to and accepted by the Underwriters, and subject to the
Underwriters' right to reject orders in whole or in part. It is expected that
delivery of the Notes will be made against payment therefor on or about
September , 1996 at the offices of Forum Capital Markets L.P., Old Greenwich,
Connecticut.
JEFFERIES & COMPANY, INC. FORUM CAPITAL MARKETS L.P.
September , 1996
<PAGE> 3
[GRAPHIC CONTAINING A PHOTOGRAPH OF THE INTERIOR OF A PIER 1 STORE.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AND THE
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements, including notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
Pier 1 Imports, Inc. ("Pier 1" or the "Company") is North America's largest
specialty retailer of imported decorative home furnishings, gifts and related
items with 705 stores in 47 states, Puerto Rico, Canada, the United Kingdom,
Japan and Mexico. Pier 1 stores offer a diverse selection of quality merchandise
presented in an upscale atmosphere which allows customers to choose unique items
expressing their individual tastes, interests and character. Key factors
supporting the Company's success have been the variety, quality and value of its
merchandise. Pier 1's assortment of merchandise consists of over 5,000 products
imported from 44 countries, features up to 50% proprietary items and is enriched
with approximately 40% new merchandise each season. The Company differentiates
itself through its global sourcing capabilities, reflecting 34 years of
experience and the considerable resources that the Company has applied to
developing vendor relationships and the buying function.
Over the last several years, the Company has experienced significant
positive momentum in its operating performance, reflecting the successful
implementation of key strategic initiatives. Sales increased from $586.7 million
in fiscal 1992 to $810.7 million in fiscal 1996, a compound annual growth rate
of 8.4%. Over the same period, operating income increased from $41.0 million to
$72.7 million, a compound annual growth rate of 15.4%. Through July 1996, the
Company posted same store sales gains in 24 of the prior 25 months.
The Company's business strategy focuses on (i) increasing profitable sales
in existing stores through an upgraded merchandise assortment, stronger customer
focus, a comprehensive remerchandising and remodeling program and other
marketing initiatives; (ii) growing the domestic store base through new store
openings; and (iii) developing partnerships and franchising arrangements in
international markets. The core initiatives supporting this strategy include the
following:
Upgraded and Broadened Merchandise Assortment. Pier 1 offers a broad range
of merchandise consisting of decorative accessories, furniture, housewares,
apparel, bed and bath items and seasonal goods. The Company carries over 5,000
products, approximately 85% of which are directly imported from 44 countries.
Through attention to style, color, texture and quality, Pier 1 has steadily
upgraded its product offering over the last decade. Within the last year, Pier 1
has established an in-house product development capability to further expand its
proprietary product lines and to ensure consistency across its merchandise
assortment. To further refine its focus on home furnishings, the Company is
emphasizing its furniture category which carries higher price points and is
planning to discontinue its apparel line in all stores in fiscal 1998.
Stronger Customer Focus. As a destination retailer with a majority of its
customers making targeted shopping visits to its stores, the Company stresses
superior customer service and has taken steps to elevate the richness of the
customer's shopping experience. Representative of this commitment to an enhanced
customer shopping experience are the new "100% Greet" and "Best Seller" programs
which focus store associates on initiating contact with customers and offering
solutions to their home furnishing and decorating needs. Store associates
regularly receive training in support of these programs and other customer
service initiatives. A national bridal and gift registry program will be fully
implemented by November 1996, which, in combination with new wrapping and
mailing stations, will provide an added convenience for shoppers.
Remerchandising/Remodeling Program. Pier 1 embarked upon a major program in
fiscal 1996 to redesign all store interiors to improve the visual merchandising
of its products. This program will incorporate improvements such as better
lighting, wider aisles, a more open view for ease of shopping and greater use of
"lifestyle merchandising" by grouping products in attractive, home-use settings
to assist customers with decorating ideas. This remerchandising effort will be
accompanied by a major remodeling program to refurbish older stores.
3
<PAGE> 5
Shift in Advertising Strategy. The Company instituted a major change in its
advertising strategy in fiscal 1996 by shifting a majority of its advertising
spending to a national television campaign. Previously, the Company relied
primarily on newspaper advertising as its major marketing tool. The Company's
television advertising features image-building ads as compared to the
promotional ads it typically employed in newspaper advertising. Management
believes its television advertising has contributed to same store sales growth
and has been effective in expanding Pier 1's customer base. The shift in
advertising has had the additional benefit of improving merchandise margins
through less reliance on promotional pricing.
Proprietary Credit Card Program. Pier 1 has offered its proprietary card
since 1988 and views its credit card as an important part of its marketing
strategy. In the last two years, the number of cardholders increased from
932,000 to nearly 1.9 million, with proprietary credit card sales representing
23.2% of total Pier 1 sales in fiscal 1996. Sales on Pier 1's proprietary credit
card average $130 per transaction as compared to average third party credit card
transactions of $55 and cash transactions of $18. Management believes the
Company's strong credit card program is a valuable tool for building a larger
customer base, increasing customer loyalty and improving average transaction
size.
Global Expansion Strategy. The Company's global expansion strategy is to
continue its growth by opening stores in existing and new North American markets
while building its international presence. The number of stores worldwide has
increased from 585 at the end of fiscal 1992 to 705 stores currently. In fiscal
1997, Pier 1 anticipates opening 50 to 55 stores in North America while closing
20 to 25 stores. The Company anticipates the opening of additional stores
internationally, principally through franchise agreements. Since April 1996, two
Pier 1 franchised stores have been opened in Tokyo, Japan, which, if successful,
could lead to the development of up to 100 stores in Japan by the year 2000. The
Company currently expects that the Japanese franchise program will serve as the
model for future international expansion.
The Company's strong management information systems enable it to
effectively implement its strategic initiatives. Over the past ten years, the
Company has invested more than $35 million in state-of-the-art data processing
systems to better serve its customers and improve inventory management. Future
capital investments are anticipated to further improve logistical support and
distribution functions.
The Company's executive offices are located at 301 Commerce Street, Suite
600, Fort Worth, Texas 76102 and its telephone number is (817) 878-8000. The
Company was founded in 1962 and is incorporated in Delaware.
4
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SUMMARY FINANCIAL AND OPERATING DATA
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AT OR FOR
THE THREE
AT OR FOR THE FISCAL YEAR ENDED MONTHS ENDED
----------------------------------------------------------------- -----------------
FEBRUARY 29, FEBRUARY 27, FEBRUARY 26, FEBRUARY 25, MARCH 2, MAY 27, JUNE 1,
1992 1993 1994 1995 1996 1995 1996
------------ ------------ ------------ ------------ -------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE, RATIO AND OTHER OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................... $586.7 $629.2 $685.4 $712.0 $810.7 $176.8 $205.3
Gross profit...................... 228.4 246.2 259.6 277.6 325.5 69.1 81.7
Operating income.................. 41.0 50.9 27.1 55.6 72.7 13.0 16.4
Nonrecurring charges(1)........... -- -- 23.2 10.3 30.5 30.0 --
Net income (loss)................. 26.3 23.0 5.9 22.1 10.0 (18.3) 8.3
Net income (loss) per
share(2)(3)..................... $ 0.68 $ 0.59 $ 0.15 $ 0.56 $ 0.25 ($0.46) $ 0.21
Weighted average number of shares
outstanding and common share
equivalents(2).................. 38.9 39.2 39.5 39.7 39.8 39.8 40.2
OTHER OPERATING DATA:
Change in same store sales(4)..... (3.3)% 3.7% 4.8% 4.8% 6.5% 2.7% 10.8%
Retail square footage
(in millions)(5)................ 4.4 4.5 4.5 4.8 5.1 4.9 5.2
Average sales per square
foot(6)......................... $132.3 $139.3 $144.6 $150.9 $162.0 $153.5 $163.8
Number of stores (worldwide)(5)... 585 605 588 634 688 665 697
Capital expenditures (in
millions)....................... $ 6.2 $ 12.6 $ 24.6 $ 17.5 $ 22.1 $ 4.0 $ 9.1
Ratio of earnings to fixed
charges(7)...................... 1.7x 1.7x 1.2x 1.7x 1.6x 2.0x
Ratio of earnings before
nonrecurring charges to fixed
charges(7)(8)................... 1.7x 1.7x 1.6x 1.9x 2.2x 2.0x
Supplemental pro forma ratio of
earnings to fixed
charges(7)(9)(10)............... 1.9x 2.4x
</TABLE>
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AT JUNE 1, 1996
-------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(9) ADJUSTED(10)
------ ------------ ---------------
(IN MILLIONS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................................ $254.9 $184.2 $ 211.3
Total assets................................................... 545.7 472.2 506.8
Long-term debt and capital leases.............................. 180.2 52.3 86.9
Total stockholders' equity..................................... 236.2 295.5 295.5
</TABLE>
- ---------------
(1) Nonrecurring charges include net trading losses (gains) of ($0.1) million,
$2.8 million and $16.5 million in fiscal years 1994, 1995 and 1996,
respectively, and $16.0 million for the first quarter of fiscal 1996; the
provision for Sunbelt Nursery Group, Inc. defaults of $14.0 million in
fiscal 1996 and for the first quarter of fiscal 1996; the write-down of
General Host Corporation securities of $2.0 million and $7.5 million in
fiscal years 1994 and 1995, respectively, and a $21.3 million store closing
provision in fiscal year 1994.
(2) Reflects the effect of the 5% stock dividend distributed May 8, 1995.
(3) Fully diluted net income per share is $0.20 for the three months ended June
1, 1996.
(4) Expressed as a percentage increase (decrease) from prior year, based on
sales of stores opened prior to the beginning of the preceding fiscal year
and still open at the end of the period. Changes in same store sales
reflect a 52-week comparison for all fiscal years presented.
(5) As of period end. Retail square footage is the number of square feet of
space devoted to selling space in all open stores. Retail square footage
and number of stores at the end of fiscal 1994 have been adjusted to
exclude 50 stores as a result of a store closing program authorized in
February 1994.
(6) Reflects average sales per square foot of selling space which is calculated
by dividing total store sales by the weighted average retail square
footage.
(7) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of pre-tax income plus fixed charges. Fixed charges consist of
interest expense, amortization of debt issue expense and original issue
discount, and an estimated portion of rental expense representing interest
costs.
(8) For purposes of computing ratio of earnings before nonrecurring charges to
fixed charges, earnings before nonrecurring charges include pre-tax income
before nonrecurring charges plus fixed charges. Nonrecurring charges are
described in note (1) above.
(9) Pro forma to reflect the conversion/redemption of the 6 7/8% convertible
notes due 2002, and the proposed securitization of the Pier 1 credit card
receivables with the proceeds therefrom used for the retirement of the
11 1/2% subordinated debentures due 2003, the 11% senior notes due 2001 and
$24.6 million of the revolving credit facility. See "Recent Developments."
(10) As adjusted for the receipt of the proceeds of this offering and the
application thereof. See "Use of Proceeds."
5
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THE OFFERING
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Notes Offered...................... $50,000,000 principal amount of % Convertible
Subordinated Notes due 2006.
Maturity Date...................... October 1, 2006.
Interest Payment Dates............. April 1 and October 1, commencing April 1, 1997.
Interest........................... % per annum.
Conversion......................... The Notes are convertible at the option of the holder
into Common Stock at any time prior to maturity, unless
previously redeemed or repurchased, at a conversion
price of $ per share, subject to adjustment in
certain circumstances. See "Description of the
Notes -- Conversion of the Notes."
Redemption at the Option of
the Company...................... The Notes are not redeemable prior to October 1, 1998.
Thereafter, the Notes are redeemable at any time and
from time to time at the option of the Company, in whole
or in part, at the redemption prices set forth herein,
plus accrued and unpaid interest, except that, until
October 1, 1999, the Notes cannot be redeemed unless the
30-day average closing price of the Common Stock equals
or exceeds 150% of the then effective Conversion Price.
See "Description of the Notes -- Optional Redemption by
the Company."
Repurchase at the Option of Holders
Upon Change of Control........... Upon a Change of Control (as defined), the Company will
offer to repurchase the Notes at a repurchase price
equal to 100% of the principal amount thereof, plus
accrued and unpaid interest to the date of repurchase.
See "Description of the Notes -- Repurchase at the
Option of Holders Upon Change of Control."
Subordination...................... The Notes are unsecured and subordinate to all existing
and future Senior Indebtedness (as defined). At August
1, 1996, Senior Indebtedness was $109.3 million. The
Indenture does not restrict the incurrence of additional
indebtedness by the Company or any of its subsidiaries.
See "Description of the Notes -- Subordination."
Use of Proceeds.................... To retire $15.4 million of outstanding indebtedness,
fund approximately $5 million for the Company's store
remodeling program, and apply the balance for working
capital and other general corporate purposes. See "Use
of Proceeds."
New York Stock Exchange
Common Stock Symbol.............. PIR.
Trading............................ An application will be made to list the Notes on the New
York Stock Exchange.
</TABLE>
6
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INVESTMENT CONSIDERATIONS
Prospective purchasers of the Notes should carefully consider the following
matters, together with the other information contained elsewhere in this
Prospectus, before making an investment in the Notes offered hereby.
COMPETITION
The retail industry generally is highly competitive. Pier 1 primarily
competes with small specialty sections of large department stores, home
furnishing stores, small specialty import stores and discount stores. An
intensely competitive environment may cause Pier 1 to engage in a marketing
program that relies on promotional sales that would lower gross margins. The
Company believes that Pier 1 enjoys an advantage over competing stores due to
its greater name recognition, its established vendor relationships and the
extent and variety of its merchandise.
ECONOMIC CONDITIONS
As with most retail businesses, the Company's results of operations may be
adversely affected by unfavorable local, regional or national economic
conditions, including those affecting levels of disposable income and consumer
debt. In particular, as a retailer of furniture and decorative home furnishings,
the Company benefits from new home construction and sales of existing homes.
There can be no assurance that home sales will continue to increase or will not
decline in the future, which could result in a decrease in demand for some Pier
1 products.
SEASONALITY
Due to the Christmas selling season, the Company's business is seasonal,
with approximately 15% of sales during the last five years occurring in December
of each year. The occurrence of a poor retailing environment or an impairment of
the Company's ability to supply merchandise to its stores during the Christmas
selling season could adversely affect results of operations.
MERCHANDISE
As with all retailers, the Company's sales are dependent upon a positive
response to its merchandise assortment. Much of Pier 1's home furnishings
products display distinctive styles, and although home furnishings are not
subject to the high volatility of clothing fashion trends, Pier 1's sales may be
susceptible to changing trends and preferences of home furnishings purchasers.
Because of the long lead times required to order and obtain delivery of imported
merchandise, the Company would not be able to respond quickly to a rapid change
in customer preferences.
FOREIGN SOURCING OF MERCHANDISE
Pier 1 directly imports approximately 85% of its merchandise from foreign
countries. As a result, the Company must order merchandise from four to 12
months in advance of delivery to the Company's regional warehouses in the United
States and must carefully coordinate its advertising and marketing programs to
provide product availability to meet customer demand. In addition, dock strikes,
import quotas, duties, taxes and other charges on imports, fluctuations in
currency exchange rates, restrictions on foreign currency convertibility into
U.S. dollars and any other restrictions placed on foreign trade can adversely
affect the price, availability and delivery time of Pier 1's merchandise. The
inability to import products from certain countries or the imposition of
significant tariffs could have a material adverse effect on the Company's
results of operations. During the past year, China, from which the Company
acquired approximately 27.5% of its merchandise, was investigated and designated
under the Trade Act of 1974, as amended, as possibly subject to sanctions (such
as quotas or increased duties) for failure to protect certain intellectual
property rights of U.S. companies. An agreement was subsequently reached with
China to end that designation prior to the imposition of any sanctions.
Additionally, China has been, and continues to be, subject to annual review of
its most favored nation ("MFN") trade status. In June 1996, the President
renewed China's MFN status, but if in the
7
<PAGE> 9
future China's MFN status were lost, Chinese products would be subject to
possible quotas and increased tariffs. 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. If products from any country should become
subject to significant quotas or tariffs, the Company would seek to obtain
similar products from other countries. See "Business -- Importing Risks."
SUBORDINATION
The Notes will be unsecured and subordinated in right of payment in full to
all existing and future Senior Indebtedness (as defined) of the Company. As a
result of such subordination, in the event of bankruptcy, liquidation or
reorganization of the Company, or upon the acceleration of any Senior
Indebtedness, the Senior Indebtedness must be paid in full before the Company
may make any payments with respect to the principal of or interest on the Notes
and any other obligations ranking pari passu with the Notes. As of August 1,
1996, outstanding Senior Indebtedness aggregated $109.3 million. The Indenture
does not prohibit or limit incurring additional Senior Indebtedness, and the
Company may incur additional Senior Indebtedness in the future. As of June 1,
1996, the Company had $80.0 million of committed bank lines of credit, of which
$40.0 million was outstanding, and $126.2 million of uncommitted bank lines of
credit, of which $69.6 million was outstanding. See "Description of the
Notes -- Subordination."
The Company is a holding company which operates its business through
subsidiaries. The Notes are obligations only of the Company and not of the
subsidiaries. As an equity holder of its subsidiaries, the right of the Company
to receive assets from a subsidiary upon the bankruptcy, liquidation or
reorganization of such subsidiary (and therefore the right of the holders to
participate in these assets) will be effectively subordinated to the claims of
all creditors of that subsidiary, except to the extent that the Company is
recognized as a creditor of the subsidiary. As of June 1, 1996, the Company's
subsidiaries had $25.0 million in senior debt.
ABSENCE OF FINANCIAL COVENANTS
The Indenture contains no financial performance covenants. The Company is
not required under the Indenture to meet any financial tests that measure the
Company's working capital, interest coverage, fixed charge coverage or net worth
in order to comply with the terms of the Indenture. Although the Company
currently must comply with various financial covenants in its loan agreements,
to the extent these agreements are terminated and not replaced with other
agreements containing such requirements, the Company would no longer have to
meet financial performance covenants.
REPURCHASE OF NOTES
Upon a Change of Control (as defined), the Company will be obligated to
offer to repurchase the Notes from each holder at 100% of the principal amount
plus accrued and unpaid interest to the date of repurchase. See "Description of
the Notes -- Repurchase at the Option of Holders Upon Change of Control." In the
event of a Change of Control, there can be no assurance that the Company would
have sufficient funds to pay the repurchase price for all Notes tendered. In
addition, current or future credit agreements and guarantees to which the
Company is a party may contain limitations on such repurchases. If the Company
were restricted from making such repurchase and could not obtain the consent of
the lenders or could not refinance the loans, the Company would remain
restricted from repurchasing the Notes. In such event, the Company's failure to
repurchase the Notes would constitute an event of default under the Indenture,
which may in turn constitute defaults under other Company indebtedness, in which
case the subordination provisions of the Indenture would likely restrict
payments to holders.
8
<PAGE> 10
RECENT DEVELOPMENTS
PROPOSED SECURITIZATION OF CREDIT CARD RECEIVABLES
The Company proposes to securitize substantially all its proprietary credit
card receivables in September 1996 through a private placement of trust
certificates. If the transaction is completed, the Company would receive
approximately $70 million in cash and would use the proceeds to retire
outstanding long-term debt consisting of $17.5 million of 11 1/2% subordinated
debentures due 2003, $25.0 million of 11% senior notes due 2001 and $24.6
million of the Company's bank revolving credit facility. The Company would be
required to pay an estimated $3 million in redemption and other fees to retire
the 11 1/2% subordinated debentures and the 11% senior notes and would record an
extraordinary loss of approximately $3 million, after tax. The Company expects
it would experience interest savings in the current and future years.
CONVERSION OF 6 7/8% CONVERTIBLE NOTES
In July 1996, the Company called its $62.8 million of outstanding 6 7/8%
convertible notes due 2002 for redemption. As a result, $62.7 million of those
notes were converted into 5,483,823 shares of Common Stock and $69,000 of the
notes were redeemed by the Company for cash. The conversion of the notes
increased the Company's equity capitalization by $62.6 million.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Notes
offered hereby (after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company) are estimated to be
approximately $ million ($ million if the Underwriters' over-allotment
option is exercised in full).
The Company intends to utilize $15.4 million of such net proceeds to retire
the remaining outstanding balance of its bank revolving credit facility. Such
indebtedness bears interest at a floating rate which is currently 6.44% per
annum and was incurred to finance the purchase of the remaining 90% ownership
interest not previously owned by the Company in a limited partnership formed to
construct and lease 33 Pier 1 stores. The Company intends to use approximately
$5 million of such net proceeds in the Company's store remodeling program and to
use the remainder for working capital and other general corporate purposes.
9
<PAGE> 11
CAPITALIZATION
The following table sets forth as of June 1, 1996 (i) the actual
capitalization of the Company, (ii) pro forma capitalization to reflect the
proposed securitization of the Company's credit card receivables and the
anticipated use of $70.0 million in cash proceeds therefrom and the
conversion/redemption of the Company's 6 7/8% convertible notes due 2002, in
each case as described in "Recent Developments," and (iii) pro forma
capitalization, as adjusted to reflect the sale of the $50.0 million aggregate
principal amount of Notes offered hereby and the anticipated use of the
estimated net proceeds therefrom. This table should be read in conjunction with
the Consolidated Financial Statements of the Company and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt and current portion of long-term
debt and capital leases(1)...................... $ 7,523 $ 5,023 $ 5,023
======== ======== =========
Long-term debt:
11% Senior Notes due 2001(2).................... $ 25,000 $ -- $ --
Revolving Credit Facility(3).................... 40,000 15,358 --
Other senior debt and capital lease
obligations.................................. 25,029 25,029 25,029
11 1/2% Subordinated Debentures due 2003(4)..... 15,548 -- --
8 1/2% Exchangeable Debentures due 2000(5)...... 11,899 11,899 11,899
6 7/8% Convertible Notes due 2002(6)............ 62,750 -- --
% Convertible Notes due 2006.................. -- -- 50,000
-------- --------- ----------
Total long-term debt.................... 180,226 52,286 86,928
-------- --------- ----------
Stockholders' equity:
Common Stock, $1.00 par, 200,000,000 shares
authorized, 39,877,000 outstanding(6)(7)..... 39,877 45,361 45,361
Paid-in capital(6).............................. 111,238 168,354 168,354
Retained earnings(8)............................ 88,319 85,099 85,099
Cumulative translation adjustments.............. (1,015) (1,015) (1,015)
Less -- 173,000 common shares in treasury at
cost......................................... (1,474) (1,474) (1,474)
Less -- subscriptions receivable and unearned
compensation................................. (793) (793) (793)
-------- --------- ----------
Total stockholders' equity.............. 236,152 295,532 295,532
-------- --------- ----------
Total capitalization.................... $416,378 $ 347,818 $ 382,460
======== ======== =========
</TABLE>
- ---------------
(1) Includes $2.5 million recorded as the current portion of the 11 1/2%
subordinated debentures due 2003. The $2.5 million was retired as scheduled
in July 1996.
(2) Assumed to be retired from the proceeds of the proposed securitization of
the Pier 1 credit card receivables in September 1996.
(3) Assumed $24.6 million to be retired from the proceeds of the proposed
securitization of the Pier 1 credit card receivables in September 1996 and
$15.4 million to be retired from the proceeds of this offering.
(4) Net of unamortized original issue discount of $1.9 million. The debt is
assumed to be retired from the proceeds of the proposed securitization of
the Pier 1 credit card receivables in September 1996.
(5) Net of unamortized original issue discount of $0.6 million.
(6) Reflects conversion and redemption of the 6 7/8% convertible notes due 2002
after June 1, 1996. See "Recent Developments -- Conversion of 6 7/8%
Convertible Notes." Paid-in capital has been adjusted for accrued interest
and unamortized debt issue costs related to the Notes.
(7) Does not include 1.4 million shares of Common Stock issuable upon the
exercise of outstanding options granted under the Company's 1980 Stock
Option Plan, the 1989 Employee Stock Option Plan and the 1989 Non-Employee
Director Stock Option Plan.
(8) Assumes approximately $3 million of extraordinary charges that would result
from the proposed early retirement of the 11 1/2% subordinated debentures
due 2003 and the 11% senior notes due 2001 if the proposed securitization of
the Company's credit card receivables were completed. The extraordinary
charges include redemption fees, unamortized original issue discount and
unamortized debt issue costs.
10
<PAGE> 12
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's Common Stock is listed on the New York Stock Exchange and
traded under the symbol "PIR." The following table sets forth for the periods
indicated the high and low sales prices per share of the Company's Common Stock,
as reported for New York Stock Exchange consolidated transactions, and cash
dividends paid per share.
<TABLE>
<CAPTION>
CASH DIVIDENDS
HIGH LOW PER SHARE
---- ---- --------------
<S> <C> <C> <C>
Fiscal year ending March 1, 1997
Second Quarter (through August 21, 1996)............ $17 3/8 $14 3/8 $ .04
First Quarter....................................... 15 3/4 12 .04
Fiscal year ended March 2, 1996
Fourth Quarter...................................... 13 1/4 9 5/8 .04
Third Quarter....................................... 10 7/8 8 7/8 .03
Second Quarter...................................... 10 7 3/4 .03
First Quarter....................................... 9 1/2 8 .03
Fiscal year ended February 25, 1995
Fourth Quarter...................................... 9 5/8 7 1/8 .03
Third Quarter....................................... 8 3/8 7 .03
Second Quarter...................................... 8 1/4 6 3/4 .02
First Quarter....................................... 8 3/4 7 .02
</TABLE>
On August 21, 1996, the last reported sales price of the Common Stock was
$16 3/8.
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 $15 million as of June 1,
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.
11
<PAGE> 13
SELECTED FINANCIAL DATA
The following financial data, with the exception of "Other Operating Data,"
for the 1992 through 1996 fiscal years were derived from the audited
consolidated financial statements of the Company. The consolidated financial
statements of the Company at or for each of the three-month periods ended May
27, 1995 and June 1, 1996 are unaudited, but in the Company's opinion reflect
all adjustments, consisting only of normal recurring adjustments (except for the
trading losses and the provision for Sunbelt Nursery Group, Inc. defaults
included in "Nonoperating expenses, net of income" for the three months ended
May 27, 1995), necessary for a fair presentation of such information. Because of
the seasonal nature of the Company's business, the results of the three-month
periods are not necessarily indicative of the results to be expected for a full
fiscal year. The selected financial data presented below should be read in
conjunction with the Consolidated Financial Statements and related notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS
AT OR FOR THE FISCAL YEAR ENDED ENDED
--------------------------------------------------------------- ---------------
FEBRUARY FEBRUARY FEBRUARY FEBRUARY MARCH 2, MAY 27, JUNE 1,
29, 1992 27, 1993 26, 1994 25, 1995 1996 1995 1996
----------- ----------- ----------- ----------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT PER SHARE, RATIO AND OTHER OPERATING DATA)
STATEMENT OF OPERATIONS DATA:
Net sales............................... $ 586.7 $ 629.2 $ 685.4 $ 712.0 $810.7 $176.8 $205.3
Gross profit............................ 228.4 246.2 259.6 277.6 325.5 69.1 81.7
Selling, general & administrative
expenses.............................. 172.4 180.2 195.4 206.0 235.6 52.1 60.5
Depreciation and amortization........... 15.0 15.1 15.8 16.0 17.2 4.1 4.8
Store-closing provision................. -- -- 21.3 -- -- -- --
Operating income........................ 41.0 50.9 27.1 55.6 72.7 13.0 16.4
Nonoperating expense, net of
income(1)............................. 16.3 15.0 18.8 22.3 44.3 32.9 2.6
Income (loss) before income taxes and
equity in net income (loss) of Sunbelt
Nursery Group, Inc.(2)................ 30.5 35.9 8.4 33.2 28.4 (19.9) 13.8
Equity in net income (loss) of Sunbelt
Nursery Group, Inc.................... 4.5 (3.6) -- -- -- -- --
Net income (loss)....................... 26.3 23.0 5.9 22.1 10.0 (18.3) 8.3
Net income (loss) per share(3)(4)....... 0.68 0.59 0.15 0.56 0.25 (0.46) 0.21
Cash dividends per share(3)............. $ -- $ 0.06 $ 0.09 $ 0.10 $ 0.13 $ 0.03 $ 0.04
Weighted average number of shares
outstanding and common share
equivalents(3)........................ 38.9 39.2 39.5 39.7 39.8 39.8 40.2
OTHER OPERATING DATA:
Change in same store sales(5)........... (3.3)% 3.7% 4.8% 4.8% 6.5% 2.7% 10.8%
Retail square footage (in
millions)(6).......................... 4.4 4.5 4.5 4.8 5.1 4.9 5.2
Average sales per square foot(7)........ $ 132.3 $ 139.3 $ 144.6 $ 150.9 $162.0 $153.5 $163.8
Number of stores(6)..................... 585 605 588 634 688 665 697
Capital expenditures (in millions)...... $ 6.2 $ 12.6 $ 24.6 $ 17.5 $ 22.1 $ 4.0 $ 9.1
Ratio of earnings to fixed charges(8)... 1.7x 1.7x 1.2x 1.7x 1.6x 2.0x
Ratio of earnings before nonrecurring
charges to fixed charges(8)(9)........ 1.7x 1.7x 1.6x 1.9x 2.2x 2.0x
Supplemental pro forma ratio of earnings
to fixed charges(8)(10)............... 1.9x 2.4x
BALANCE SHEET DATA:
Working capital......................... $ 160.0 $ 225.2 $ 229.0 $ 265.0 $246.8 $231.2 $254.9
Total assets............................ 386.4 460.5 463.3 485.9 531.1 464.2 545.7
Long-term debt and capital leases....... 106.8 147.2 145.2 154.4 180.1 143.0 180.2
Total stockholders' equity.............. 177.1 200.5 201.1 222.4 227.9 204.4 236.2
</TABLE>
- ---------------
(footnotes on following page)
12
<PAGE> 14
(1) Nonoperating expense, net of income is comprised of interest expense and
interest income in each fiscal year presented, and in addition includes the
following nonrecurring charges: net trading losses (gains) of ($0.1)
million, $2.8 million and $16.5 million in fiscal years 1994, 1995 and
1996, respectively, and $16.0 million for the first quarter of fiscal 1996;
the provision for Sunbelt Nursery Group, Inc. defaults of $14.0 million in
fiscal 1996 and for the first quarter of fiscal 1996; and the write-down of
General Host Corporation securities of $2.0 million and $7.5 million in
fiscal years 1994 and 1995, respectively.
(2) Fiscal 1992 includes a gain on the sale of subsidiary stock of $5.9
million.
(3) Reflects the effect of the 5% stock dividend distributed May 8, 1995.
(4) Fully diluted net income per share is $0.20 for the three months ended June
1, 1996.
(5) Expressed as a percentage increase (decrease) from prior year, based on
sales of stores opened prior to the beginning of the preceding fiscal year
and still open at the end of the period. Changes in same store sales
reflect a 52-week comparison for all fiscal years presented.
(6) As of period end. Retail square footage is the number of square feet of
space devoted to selling space in all open stores. Retail square footage
and number of stores at the end of fiscal 1994 have been adjusted to
exclude 50 stores as a result of a store closing program authorized in
February 1994.
(7) Reflects average sales per square foot of selling space which is calculated
by dividing total store sales by the weighted average retail square
footage.
(8) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of pre-tax income plus fixed charges. Fixed charges consist of
interest expense, amortization of debt issue expense and original issue
discount, and an estimated portion of rental expense representing interest
costs.
(9) For purposes of computing the ratio of earnings before nonrecurring charges
to fixed charges, earnings before nonrecurring charges include pre-tax
income before nonrecurring charges plus fixed charges. Nonrecurring charges
include the items described in note (1) above, as well as the store closing
provision recorded in fiscal 1994.
(10) Pro forma to reflect the conversion/redemption of the 6 7/8% convertible
notes due 2002, and the proposed securitization of the Pier 1 credit card
receivables with the proceeds therefrom used for the retirement of the
11 1/2% subordinated debentures due 2003, the 11% senior notes due 2001 and
$24.6 million of the revolving credit facility (see "Recent Developments");
and adjusted for the receipt of the proceeds of this offering. See "Use of
Proceeds."
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information
in "Selected Financial Data" and the Consolidated Financial Statements of the
Company and notes thereto included elsewhere herein.
GENERAL
The Company is North America's largest specialty retailer of imported
decorative home furnishings, gifts and related items, with 705 stores as of
August 15, 1996, in 47 states, Puerto Rico, Canada, the United Kingdom, Mexico
and Japan. For the 53-week period of fiscal 1996, the Company reported sales of
$810.7 million and net income of $10.0 million, or $0.25 per share, after
recording pre-tax special charges of $14.0 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 $0.85 per share on a fully diluted basis. In July 1996,
the Company called its $62.8 million of outstanding 6 7/8% convertible notes due
2002 for redemption, resulting in all but $69,000 of the Notes being converted
into Common Stock. In September 1996, the Company proposes to secure its
proprietary credit card receivables which would result in a cash payment of
approximately $70 million, which, if completed, would be used to retire a
portion of existing long-term debt. See "-- Liquidity and Capital Resources." 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. If completed, the Company's proposed securitization of its proprietary
credit card receivables and the use of the proceeds thereof would affect
significantly the financial condition of the Company discussed below. See
"Recent Developments -- Proposed Securitization of Receivables."
RESULTS OF OPERATIONS
Three Months Ended June 1, 1996 and May 27, 1995
The Company recorded net sales of $205.3 million for the first quarter of
fiscal 1997, a 16.1% increase over the $176.8 million recorded for the same
period of fiscal 1996. Same store sales for the first quarter of fiscal 1997
grew 10.8% compared to the first quarter of fiscal 1996. The improvement in same
store sales resulted from an 11% increase in store traffic which management
believes is due to the national television advertising campaign implemented
during the second quarter of last year, the continued focus on customer service
programs and the Company's store remodeling and remerchandising programs which
have improved the layout and design of approximately 40 stores since the first
quarter of last year. Hard goods sales, such as furniture and decorative
accessories, increased 16.5% during the first quarter of fiscal 1997, while soft
goods sales of apparel, jewelry and accessories decreased 21.7% during the first
quarter of fiscal 1997 compared to the first quarter of fiscal 1996,
respectively. Hard goods and soft goods sales contributed 93.3% and 6.7%,
respectively, of merchandise sales for the first quarter of fiscal 1997. The
Company plans to de-emphasize apparel in stores as a part of the remodel program
during fiscal 1997, and management expects to completely discontinue soft goods
in all Pier 1 stores in fiscal 1998. Sales on the Company's proprietary credit
card were $55.6 million, or 27.1% of total sales, for the first quarter of
fiscal 1997, an increase of $12.1 million, or 27.9% over the same period last
year. The Company opened 12 new North American stores and closed six stores
during the first quarter of fiscal 1997, bringing the North American store count
to 668 at the end of the fiscal 1997 first quarter compared to 643 stores at the
end of the first quarter of fiscal 1996. The number of stores worldwide
aggregated 697 at the end of the first quarter of fiscal 1997.
Gross profit, after related buying and store occupancy costs, expressed as
a percentage of sales, increased 0.7% to 39.8% for the first quarter of fiscal
1997 compared to 39.1% for the first quarter of fiscal 1996. Merchandise margins
decreased to 53.9% for the first three months of fiscal 1997 from 54.6% for the
same period a year ago, primarily due to soft goods promotions. In addition, the
Company's expanding international operations produce lower margin rates compared
to its North American operations. Hard goods merchandise margins improved for
the first quarter of fiscal 1997. Store occupancy costs, as a percentage of
sales, improved 1.3% to 14.2% during the first three months of fiscal 1997 over
the comparable period of fiscal 1996 primarily
14
<PAGE> 16
due to higher sales leveraging relatively fixed rates on store leases coupled
with the Company's purchase (in the fourth quarter of fiscal 1996) of the
remaining 90% interest in a limited partnership which owns 33 Pier 1 stores
previously leased to the Company, thus eliminating base rent expenses for those
stores.
Selling, general and administrative expenses, including marketing, as a
percentage of sales, increased 0.1% to 29.5% in the first quarter of fiscal 1997
compared to the same period last year. In total dollars, expenses for the first
quarter of fiscal 1997 increased $8.5 million versus the first quarter of fiscal
1996 primarily due to a $4.6 million increase in payroll expenses, which
decreased 0.4% as a percentage of sales, a $2.5 million increase in marketing
expenditures due to the national television advertising campaign that started in
July 1995 and a $1.1 million increase in store operating expenses, which
increased 0.2% as a percentage of sales, due to increased costs associated with
selling supplies. Other selling, general and administrative expenses increased
$0.3 million.
Operating income increased $3.4 million, or 26.4%, to $16.4 million during
the first quarter of fiscal 1997 compared to $13.0 million in the first quarter
of fiscal 1996.
Net interest expense decreased $0.3 million during the first quarter of
fiscal 1997 compared to the same period of fiscal 1996 primarily due to higher
investment income earned on the investment in Whiffletree Partners, L.P., an
investment fund, in the first quarter of fiscal 1997, offset partially by an
increase in interest expense resulting from higher floating rate debt coupled
with interest expense on the $40.0 million debt used to acquire the remaining
90% interest in a limited partnership which owns 33 Pier 1 stores.
In late December 1995, the Company was made aware of trading losses of
$19.3 million resulting from trading activities in a discretionary investment
account managed by a financial consultant. The Company has regularly designated
a portion of its excess cash and short-term investments for management by a
financial consultant in the discretionary investment 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 recorded $16.5 million and
$2.8 million of the net trading losses in fiscal 1996 and fiscal 1995,
respectively, with $16.0 million of the net trading losses recorded in the first
quarter of fiscal 1996. 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 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 investigated the matter and found no evidence to suggest that
the Company's net losses from these trading activities will exceed the $19.3
million recorded in fiscal years 1996 and 1995.
In April 1993, the Company completed the sale of its 49.5% ownership
interest in Sunbelt to General Host Corporation ("General Host") in exchange for
1.9 million shares of General Host common stock. In connection with the sale,
the Company committed to provide Sunbelt a $12.0 million credit facility through
April 1994 and up to $25.0 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 nursery store sublease agreements with the
Company comprising the $22.8 million non-revolving store development financing,
and the Company terminated the subleases. At the same time, Sunbelt defaulted on
three nursery store lease agreements guaranteed by the Company; however such
defaults were subsequently cured. During the first quarter of fiscal 1996, the
Company recorded a pre-tax charge of $14.0 million which represented 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
15
<PAGE> 17
related costs. The Company currently has outstanding guarantees on other Sunbelt
store lease commitments which aggregated $4.1 million with a present value of
approximately $3.4 million at the end of the first quarter of fiscal 1997. The
Company is not aware of any defaults on these leases. As of June 1996, two
nursery store properties had been sold at costs consistent with the Company's
estimates 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.
The Company's effective income tax rate for fiscal 1997 is estimated at 40%
compared to 40% recorded in the first quarter of fiscal 1996, exclusive of the
aforementioned trading losses.
Net income for the first quarter of fiscal 1997 aggregated $8.3 million or
$0.20 per share on a fully diluted basis compared to net income before special
charges of $6.2 million or $0.15 per share on a fully diluted basis for the
first quarter of fiscal 1996. Special charges in the first quarter of fiscal
1996 included the $16.0 million in trading losses and the $14.0 million
provision for Sunbelt defaults.
Fiscal Years Ended March 2, 1996 and February 25, 1995
Net sales increased $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 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 in the prior year. 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 compared to average third party credit card
transactions of $55 and cash transactions of $18, 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 new 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 stores
previously leased to the Company, thus
16
<PAGE> 18
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 print advertising to 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
tags. Other costs included in fiscal 1996 selling, general and administrative
expenses were $1.2 million related to the investigation of the trading losses in
the discretionary account as discussed above.
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 as discussed below
and in "Three Months Ended June 1, 1996 and May 27, 1995" above.
In relation to losses resulting from trading activities in a discretionary
investment account managed by a financial consultant, the Company recorded $16.5
million of the net trading losses in fiscal 1996 and restated its fiscal 1995
financial statements to record $2.8 million of the net trading losses during
that year. The Company deposited a total of $19.5 million in the discretionary
investment 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. See " Three Months Ended June 1, 1996 and May 27,
1995" above.
In connection with Sunbelt's default in April 1995 of the 13 store
subleases with the Company, the Company entered into a settlement agreement with
Sunbelt in July 1995 concerning such default 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
$6.0 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 buyers for the
properties, if earlier. Sunbelt also agreed to cure the previous defaults on
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 $8.0 million (which may be prepaid with $4.0 million in
payments made by May 1997 or with $6.0 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. For additional information, see "Three Months Ended June
1, 1996 and May 27, 1995" above.
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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. For additional information, see "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 $0.25 per primary
share, compared to net income of $22.1 million, or $0.56 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 such as furniture and decorative
accessories increased 12% in fiscal 1995 over fiscal 1994, and sales of soft
goods 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 items as a result of clearance
markdowns aimed at decreasing inventory levels. Soft goods gross profit
components were down from 52% in fiscal 1994 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
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a percentage of sales, remained essentially unchanged from the prior 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 fiscal 1994.
During fiscal 1995, net interest expense declined primarily due to lower
effective interest rates coupled with lower debt, net of cash balances.
In relation to losses resulting from trading activities in a discretionary
investment account managed by a financial consultant, the Company deposited a
total of $12.5 million in the discretionary investment 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. See "Three Months Ended June 1, 1996 and May 27,
1995" above.
Subsequent to the April 1993 sale of the Company's interest in Sunbelt to
General Host for 1.9 million shares of General Host's common stock, 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 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. Despite 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 $0.56 per share,
compared to income of $5.9 million, or $0.15 per share, last year.
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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 and increased to
$17.5 million at the end of the first quarter of fiscal 1997. 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 during fiscal 1996
was primarily due to the recording of net trading losses of $16.5 million 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. The increase in cash during the
first quarter of fiscal 1997 was primarily due to cash flow from operations of
$11.7 million and the net proceeds of $4.7 million from the liquidation of the
investment in Whiffletree Partners, L.P., offset partially by capital
expenditures of $9.1 million, net payments under line of credit agreements of
$1.8 million, cash dividend payments of $1.6 million and payments on the reserve
for Sunbelt defaults of $1.0 million.
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 stores to the Company. The Company paid
approximately $40 million for this remaining ownership interest which was funded
through a $65 million revolving credit facility obtained in December 1995.
Capital expenditures of $10.7 million were used during fiscal 1996 to
support the opening of 48 Pier 1 stores and eight mall-based stores in North
America and expenditures of $5.3 million were used to remodel 35 stores.
Beginning in fiscal 1996, the Company began a store remodeling program to
refurbish aging stores in the chain. Thirty-five additional stores are planned
for refurbishment in fiscal 1997 at an estimated cost of $7 million. The Company
plans to remodel 150 additional stores during the following three years that
will require estimated expenditures of $33.9 million. The Company's 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 cash flow from operations and
a three-year, $65 million revolving credit facility obtained in December 1995,
$25.0 million of which was available at the end of the first quarter of fiscal
1997, and other short-term (12-month) bank facilities aggregating $141.2
million, $71.6 million of which was available at the end of the first quarter of
fiscal 1997. The short-term bank facilities consist of $15.0 million of
committed lines of credit and $126.2 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 $129.0 million in excess
of current borrowings at the end of the first quarter of fiscal 1997. 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 the end of the first quarter of fiscal 1997, the most
restrictive of these agreements limited the aggregate of such payments to $15.3
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. The Company is in compliance
with the provisions of all loan agreements and lease guarantees. The Company's
current ratio was 3.4 to 1 at the end of the first quarter of fiscal 1997
compared to 3.5 to 1 at fiscal 1996 year-end and 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
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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. 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 operating lease commitments for the last three quarters of
fiscal 1997 aggregate $72.0 million, and the present value of total existing
operating lease commitments is $366.0 million. These commitments will be funded
from operating cash flow.
In July 1996, the Company called its $62.8 million of outstanding 6 7/8%
convertible notes due 2002 for redemption. As a result, $62.7 million of the
6 7/8% notes were converted into 5,483,823 shares of Common Stock and $69,000 of
such notes were redeemed by the Company. The conversion of the notes increased
the Company's equity capitalization by $62.6 million. In October 1995, the
Company announced that its Board of Directors authorized the purchase of up to
three million shares of the 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.
The Company proposes to securitize substantially all its proprietary credit
card receivables in September 1996 through a private placement of trust
certificates. If the transaction is completed, the Company would receive
approximately $70 million in cash and intends to use the proceeds to retire
outstanding long-term debt consisting of $17.5 million of 11 1/2% subordinated
debentures due 2003, $25.0 million of 11% senior notes due 2001 and $24.6
million of the Company's bank revolving credit facility. The Company would be
required to pay an estimated $3 million in redemption and other fees to retire
the 11 1/2% subordinated debentures and the 11% senior notes and would record an
extraordinary loss of approximately $3 million, after tax. The Company expects
it would also experience interest savings in the current and future years.
In fiscal 1993, the Company invested in preference stock of The Pier Retail
Group, Limited ("The Pier"), a 15-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 option, the preference stock
may be converted into a 90% controlling interest of The Pier. At the end of the
first quarter of fiscal 1997, the Company's net investment in The Pier was $6.0
million. At the end of the first quarter of fiscal 1997, the Company also
guaranteed a bank line available to The Pier of L4.1 million or $6.3 million of
which $4.8 million was outstanding. The Company expects to invest approximately
$4 million of additional funds in The Pier's operations during fiscal 1997,
approximately $2 million of which is expected to be used to reduce The Pier's
bank debt guaranteed by the Company.
The Pier plans to close one store near the end of fiscal 1997 and focus on
profitability rather than expansion. From fiscal 1993 to the first quarter of
fiscal 1997, The Pier's operating losses aggregated $7.9 million. With this
change in focus, several steps are underway to improve operating results,
including utilization of the Company's overseas purchasing function to
supplement that function at The Pier; implementation of store associate training
programs focused on customer service and selling to stimulate same-store sales
growth; use of the Company's visual merchandising standards to differentiate The
Pier from its local competition; and improvement of the warehouse and
distribution functions, based on 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. These
improvements 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. The Company anticipates that the years following fiscal 1998 will reflect
continued improvements in this trend such that the expected future undiscounted
cash flows of The Pier will exceed the carrying amount of the Company's
investment in The Pier. This estimate of recoverability of the Company's
investment is dependent upon the actual results of operations of The Pier
realizing the projected amounts. As a result, 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 $12.7 million and will
be funded through working capital and operations. As of June 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 aggregates
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$4.1 million with a present value of $3.4 million at the end of the first
quarter of fiscal 1997. 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 $3.0 million in a limited partnership,
Whiffletree Partners, L.P. In April 1996, the Company divested its interest in
Whiffletree Partners, L.P. for $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 that 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.
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BUSINESS
Pier 1 is North America's largest specialty retailer of imported decorative
home furnishings, gifts and related items with 705 stores in 47 states, Puerto
Rico, Canada, the United Kingdom, Japan and Mexico. Pier 1 stores offer a
diverse selection of quality merchandise presented in an upscale atmosphere
which allows customers to choose unique items expressing their individual
tastes, interests and character. Key factors supporting the Company's success
have been the variety, quality and value of its merchandise. Pier 1's assortment
of merchandise consists of over 5,000 products imported from 44 countries,
features up to 50% proprietary items and is enriched with approximately 40% new
merchandise each season. The Company differentiates itself through its global
sourcing capabilities, reflecting 34 years of experience and the considerable
resources that the Company has applied to developing vendor relationships and
the buying function.
Over the last several years, the Company has experienced significant
positive momentum in its operating performance, reflecting the successful
implementation of key strategic initiatives. Sales increased from $586.7 million
in fiscal 1992 to $810.7 million in fiscal 1996, a compound annual growth rate
of 8.4%. Over the same period, operating income increased from $41.0 million to
$72.7 million, a compound annual growth rate of 15.4%. Through July 1996, the
Company posted same store sales gains in 24 of the prior 25 months.
BUSINESS STRATEGY
The Company's business strategy focuses on (i) increasing profitable sales
in existing stores through an upgraded merchandise assortment, stronger customer
focus, a comprehensive remerchandising and remodeling program and other
marketing initiatives; (ii) growing the domestic store base through new store
openings; and (iii) developing partnerships and franchising arrangements in
international markets. The core initiatives supporting this strategy include the
following:
Upgraded and Broadened Merchandise Assortment. Pier 1 offers a broad range
of merchandise consisting of decorative accessories, furniture, housewares,
apparel, bed and bath items and seasonal goods. The Company carries over 5,000
products, approximately 85% of which are directly imported from 44 countries.
Through attention to style, color, texture and quality, Pier 1 has steadily
upgraded its product offering over the last decade. Within the last year, Pier 1
has established an in-house product development capability to further expand its
proprietary product lines and to ensure consistency across its merchandise
assortment. To further refine its focus on home furnishings, the Company is
emphasizing its furniture category which carries higher price points and is
planning to discontinue its apparel line in all stores in fiscal 1998.
Stronger Customer Focus. As a destination retailer with a majority of its
customers making targeted shopping visits to its stores, the Company stresses
superior customer service and has taken steps to elevate the richness of the
customer's shopping experience. Representative of this commitment to an enhanced
customer shopping experience are the new "100% Greet" and "Best Seller" programs
which focus store associates on initiating contact with customers and offering
solutions to their home furnishing and decorating needs. Store associates
regularly receive training in support of these programs and other initiatives. A
national bridal and gift registry program will be fully implemented by November
1996, which, in combination with new wrapping and mailing stations, will provide
an added convenience for shoppers.
Remerchandising/Remodeling Program. Pier 1 embarked upon a major program
beginning in fiscal 1996 to redesign all store interiors to improve the visual
merchandising of its products. This program will incorporate improvements such
as better lighting, wider aisles, a more open view for ease of shopping and
greater use of "lifestyle merchandising" by grouping products in attractive,
home-use settings to assist customers with decorating ideas. This
remerchandising effort will be accompanied by a major remodeling program to
refurbish older stores.
Shift in Advertising Strategy. The Company instituted a major change in its
advertising strategy in fiscal 1996 by shifting a majority of its advertising
spending to a national television campaign. Previously, the Company relied
primarily upon newspaper advertising as its major marketing tool. The Company's
television advertising features image-building ads as compared to the
promotional ads it typically employed in its
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newspaper advertising. Management believes its television advertising has
contributed to same store sales growth and has been effective in expanding Pier
1's customer base. The shift in advertising has had the additional benefit of
improving merchandise margins through less reliance on promotional pricing.
Proprietary Credit Card Program. Pier 1 has offered its proprietary card
since 1988 and views its credit card as an important part of its marketing
strategy. In the last two years, the number of cardholders increased from
932,000 to nearly 1.9 million, with proprietary credit card sales representing
23.2% of total Pier 1 sales in fiscal 1996. Sales on Pier 1's proprietary credit
card average $130 per transaction as compared to average third party credit card
transactions of $55 and cash transactions of $18. Management believes the
Company's strong credit card program is a valuable tool for building a larger
customer base, increasing customer loyalty and improving average transaction
size.
Global Expansion Strategy. The Company's global expansion strategy is to
continue its growth by opening stores in existing and new North American markets
while building its international presence. The number of stores worldwide has
increased from 585 at the end of fiscal 1992 to 705 stores currently. In fiscal
1997, Pier 1 anticipates opening 50 to 55 stores in North America while closing
20 to 25 stores. The Company anticipates the opening of additional stores
internationally, principally through franchise agreements. Since April 1996, two
Pier 1 franchised stores have been opened in Tokyo, Japan, which, if successful,
could lead to the development of up to 100 stores in Japan by the year 2000. The
Company currently expects that the Japanese franchise program will serve as the
model for future international expansion.
The Company's strong management information systems enable it to
effectively implement its strategic initiatives. Over the past ten years, the
Company has invested more than $35 million in state-of-the-art data processing
systems to better serve its customers and improve inventory management. Future
capital investments are anticipated to further improve logistical support and
distribution functions.
RETAIL OPERATIONS
Pier 1 operates stores in 47 states, Puerto Rico, Canada, the United
Kingdom, Japan and Mexico. The 15 stores in the United Kingdom operate under the
name The Pier. The Company has a relationship with Sears de Mexico and Sears de
Puerto Rico pursuant to which Pier 1 merchandise is sold in dedicated retail
space in 10 Sears stores in Mexico and four in Puerto Rico. The Company has two
franchise stores in Tokyo. See "-- Foreign Operations." No one state or foreign
country accounts for more than 14% of total sales and no one store accounts for
more than 0.5% of total sales. This diversification helps mitigate the effects
of local or regional economic downturns. Company-operated stores are generally
free-standing or located in point positions in upscale strip centers in or near
suburbs of metropolitan areas. Stores average approximately 7,500 square feet of
retail selling space. The Company is testing a smaller prototype store in
selected resort areas and continues to test market a mall-based concept under
the name "The Market of Pier 1." Pier 1 also operates 11 clearance centers in
the U.S. allowing the Company to move excess store inventory on an orderly basis
and improve margins on clearance items while permitting the conventional stores
to display new merchandise. The average Pier 1 store achieves annual sales of
slightly more than $1.2 million, with the highest sales volume occurring during
November and December, reflecting the Christmas selling season.
Pier 1's specialty retail operations have grown over the past decade from
306 stores to 705 stores worldwide. In addition, the Company currently
franchises 20 stores in the United States. The Company opened 12 North American
stores and closed six stores during the first quarter of fiscal 1997, bringing
the North American store count to 668 at the end of the fiscal 1997 first
quarter compared to 643 stores the prior year. Subject to changes in the retail
environment, availability of suitable store sites and adequate financing, the
Company plans to open 50 to 55 stores in North America and to close
approximately 20 to 25 stores in fiscal year 1997. In the last three years, 66%
of the 150 new stores that the Company opened were in single-store markets,
where one key location serves a wide market area.
MERCHANDISING
Pier 1's product assortment is selected and designed to provide items that
are distinctive and specifically suited to the tastes of its customers. Although
the general categories of the merchandise sold in Pier 1 stores
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remain the same, individual items within each general product group are
frequently changed to respond to the interests and demands of customers. By
continually upgrading and changing the product assortment, Pier 1 generates
additional store traffic by encouraging customers to revisit stores to see new
items. Products fall generally in the following categories:
Furniture designed for use in living, dining and kitchen areas as well as
sun rooms and covered patios constituted 32.8%, 33.1% and 31.6% of the total
retail sales of Pier 1 in fiscal years 1996, 1995 and 1994, respectively. These
goods are mainly imported from Italy, Malaysia, Chile, China, the Philippines
and Indonesia, and are handcrafted from natural materials, including rattan,
pine, beech and rubberwood with either natural, stained or painted finishes.
This product category also includes metal and upholstered furniture, glass table
tops and seating pads.
Decorative Accessories constituted the broadest group of merchandise in
Pier 1's sales mix and contributed 27.0%, 27.5% and 28.3% to Pier 1's total
retail sales in fiscal years 1996, 1995 and 1994, respectively. These items are
imported from approximately 40 countries and include brass, stone and wood
items, as well as pillows, dried florals, wall decor, baskets and window
treatments.
Housewares are imported from Italy, India and elsewhere in the Far East and
Europe and include dinnerware, table top textiles, stemware and barware, as well
as additional decorative and functional kitchen or foodservice related items.
These goods accounted for 14.1%, 14.3% and 14.0% of the total retail sales of
Pier 1 in fiscal years 1996, 1995 and 1994, respectively.
Bed, Bath and Candles is comprised of bedding, bath and home fragrance
products, as well as candles. These rapidly growing categories are imported from
the United Kingdom, Germany, Italy, India and the Far East. These goods
accounted for 9.2%, 7.8% and 7.4% of the total retail sales of Pier 1 in fiscal
years 1996, 1995 and 1994, respectively.
Seasonal categories of merchandise are comprised of toys, games, festive
decorations, picnic, poolside and garden accessories. Pier 1 purchases
merchandise to complement both holiday decorating and gift giving, as well as
seasonal entertaining. These product categories are purchased from over 20
countries including Sri Lanka, Greece and The Czech Republic. These goods
accounted for 9.3%, 8.5% and 6.5% of the total retail sales of Pier 1 in fiscal
years 1996, 1995 and 1994, respectively.
Apparel, which includes jewelry and fashion accessories, is imported from
India, Greece, Thailand and Indonesia and accounted for 7.6%, 8.8% and 12.2% of
the total retail sales of Pier 1 in fiscal years 1996, 1995 and 1994,
respectively. The decreases in sales of soft goods are a result of the Company's
focus on increasing consumer demand for home related products coupled with lower
demand for apparel and related accessories. The Company plans to de-emphasize
apparel in stores during fiscal 1997 and to discontinue sales of soft goods in
all its stores during fiscal 1998.
Most of Pier 1's merchandise is directly imported from foreign suppliers
and is handcrafted in cottage industries and small factories. Pier 1 is not
dependent on any particular supplier and has enjoyed long-standing relationships
with many vendors. During fiscal 1996, Pier 1 imported approximately 27.5% of
its purchases from China, 17.5% from India, and another 31.4% was imported 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 considers quality,
dependability of delivery and cost.
CUSTOMER SERVICE
Pier 1's goal is to provide the highest level of customer service. This
process begins with the selection of store managers, attracting those
entrepreneurial women and men who understand their primary job is serving
customers and training store associates. The average store manager is 34 years
old and has served the Company for eight years; 55% of the managers are women.
Managers are compensated on store sales and profit performance and are motivated
to produce positive results. The Company focuses its hiring practices on
candidates who enjoy serving people and present a helpful, caring demeanor.
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As part of its emphasis on customer service, the Company instituted the
"100% Greet" program which requires 100% of the sales associates to greet
customers 100% of the time. The Company's "Best Seller" program supplements 100%
Greet and encourages sales associates to offer solutions to customers' home
furnishing and decorating challenges. Additional sales initiatives, originating
from the field or home office, are communicated to store personnel on a regular
basis. The Company monitors levels of customer assistance and sales techniques
with approximately 6,000 "mystery customers" who report to the Company on
service and 100% Greet standards via a toll-free number after shopping Pier 1
stores. Each mystery customer call is logged and a written report is sent to
each individual store on its performance.
MARKETING
Pier 1 uses various media to convey its message of variety, quality and
value to its target customers, consisting principally of television and magazine
advertising, promotional sales inserts in newspapers and by direct mail, and
mailings to Pier 1's proprietary credit card customers. The Company's current
domestic advertising budget is 4.4% of its domestic annual sales. Market
research has revealed that Pier 1's customer base consists primarily of women
(70%) with half of the customers between the ages of 25 and 44. Over 75% of Pier
1's customers have some college education and work full or part time. The median
household income of its customers is $50,000. The Company uses its market
research to focus its advertising campaigns.
The Company instituted a major change in its advertising program in fiscal
1996 by implementing a national network television campaign focusing on image
building rather than promotions. Prior to this campaign the Company relied on
newspaper advertising as its major marketing tool. Careful media analysis,
however, revealed a decline in newspaper readership by the Company's target
customers and low penetration among younger consumers. Television commercials
air monthly on network programs including several popular NBC and Fox prime time
shows, NBC's Today Show, ten cable networks and top-rated syndicated programs.
The Company has designated 67% of its fiscal 1997 advertising budget for
television advertising, funded in part by the discontinuation of most newspaper
advertising. The TV commercials present a typical shopping experience at Pier 1
stores and feature actual customers sharing their personal reasons for shopping
at Pier 1 stores. Since the national television advertising was instituted, Pier
1 has experienced strong same store sales increases and significant increases in
store traffic and gross margins.
In addition to television advertising, the Company continues to rely on
promotional and seasonal sales inserts that support monthly store promotions;
nearly 20% of its domestic advertising budget is dedicated to this effort. Nine
monthly inserts are distributed through newspapers and direct mail to over 14
million customers in the top sales-producing zip codes surrounding each store.
The Company allocates 10% of its domestic advertising budget to magazine
advertising, selecting popular home and shelter magazines to showcase Pier 1's
newest, most fashion-forward merchandise, with an emphasis on style and quality.
The Company initiated its proprietary credit card program in 1988 and views
its credit card as an important part of its marketing strategy. In the last two
years, the number of cardholders increased from 932,000 to nearly 1.9 million
with proprietary credit card sales increasing from $126.8 million to $188.3
million during the same period. Sales on Pier 1's proprietary credit card
averaged $130 per transaction compared to average third-party credit card
purchases of $55 and average cash transactions of $18. During the past fiscal
year, credit card purchases represented 23.2% of total sales. The Company
increases its cardholder base using in-store credit card promotions aided by
sales-oriented quick-credit approvals, combined with targeted, direct-mail
offerings to potential new customers. With its recently upgraded cardholder
database, the Company is initiating programs to stimulate sales from credit
customers, such as promotional mailings for birthdays, relocations and card
anniversaries; quarterly newsletters to Pier 1's top 5% of its credit
cardholders; awards for reaching specified purchase levels; and efforts to
reactivate inactive accounts by sending different promotional material depending
on the length of time of inactivity. Future programs anticipate using the
purchase history of customers to target promotions for specific lines of
merchandise.
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Management recently instituted a national bridal and gift registry as a new
marketing tool that will be fully implemented by November 1996. The bridal
registry will be supported by the addition of wrapping and mailing stations in
each store, enabling purchases to be shipped conveniently nationwide.
FOREIGN OPERATIONS
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 retail stores in Japan. Akatsuki recently opened
its first two licensed stores in Tokyo, and initial sales have exceeded
Akatsuki's expectations. Akatsuki plans to open an additional three stores in
the Tokyo area in this fiscal year. The franchise 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. The Company currently expects that
the Japanese franchise program will serve as the model for future international
expansion elsewhere.
In fiscal 1993, the Company invested in preference stock of The Pier, which
has become a 15-store retail chain located 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 the
first quarter of fiscal 1997, the Company's net investment in The Pier was $6.0
million. The Company also guarantees a bank line available to The Pier of L4.1
million or $6.3 million and as of June 1, 1996, $4.8 million was outstanding
under this line. The Pier plans to close one store near the end of fiscal 1997
and focus on profitability rather than expansion.
During fiscal 1994, Pier 1 entered into an arrangement to supply Sears de
Mexico with Pier 1 merchandise to be sold in certain Sears stores throughout
Mexico. Presently 10 Sears stores in Mexico offer Pier 1 merchandise. This
program was slowed by the Mexican recession, but improved results are expected
in fiscal 1997. In fiscal 1996, the Company entered into a separate agreement
with Sears Roebuck de Puerto Rico to market and sell Pier 1 merchandise in
Puerto Rico. The Sears de Puerto Rico and Pier 1 alliance is growing: currently
four Sears de Puerto Rico Pier 1 stores are in operation and the Company
anticipates that two more stores will be opened in Puerto Rico in fiscal 1997.
The Company maintains two wholly owned foreign subsidiaries; one which is
incorporated under the laws of Hong Kong and manages certain merchandise
procurement, export and financial service functions for Pier 1, and a second
which is incorporated under the laws of Bermuda and owns the right to license
the Pier 1 trademarks outside the U.S. and Canada.
DISTRIBUTION
Pier 1 currently operates six 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 on a temporary basis. Imported merchandise and a portion of
domestic purchases are delivered to the distribution centers and staged for
shipment to the various stores in the center's region. The merchandise is then
distributed to retail stores by contract carriers. Due to the time delays
involved in procuring merchandise from foreign suppliers, Pier 1 is required to
maintain a significant amount of 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.
COMPETITION
Pier 1 primarily competes with small specialty sections of large department
stores, home furnishing stores, small specialty import stores and discount
stores. Management believes that its stores compete on the basis of price, depth
and breadth of merchandise assortment and customer service. The Company believes
Pier 1 stores enjoy a competitive edge over competing retailers due to greater
name recognition, established vendor relationships and the extent and variety of
the merchandise offered. While other stores may offer fewer items and change
them less frequently, Pier 1 differentiates itself by offering an array of
unique and frequently changing products.
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IMPORTING RISKS
As a retailer of imported merchandise, the Company 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 the obligation 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 foreign currency
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 the Company.
In 1988, the Omnibus Trade and Competitiveness Act was signed into law
amending the Trade Act of 1974 (the "Act"). This legislation was enacted 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 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.
Under the Act 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
its investigation of countries alleged to have committed unfair trade practices.
Upon a determination that a country has committed an unfair trade practice, the
U.S. Trade Representative may designate the subject country a priority foreign
country whose trade practices, if corrected, would provide the greatest
potential for expansion of U.S. exports. On three previous occasions, the U.S.
Trade Representative identified China as a priority foreign country under the
Act, which designations were rescinded after agreements were reached with China
regarding the bases for the designations.
The United States may employ other measures besides the Act to implement
its international trade policies and objectives, such as the withdrawal of MFN
status to countries around the world which would cause import duties to
increase. In June 1996, the President renewed the MFN status of the People's
Republic of China; however, annually, the MFN status with China is subject to
review and renewal which, if lost, 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.
TRADE MARKS
Pier 1 owns five federally registered service marks under which its
Company-operated and franchised stores do business. These registrations are for
the marks PIER 1 IMPORTS, PIER 1, PIER 1 IMPORTS FOR A CHANGE and FOR A CHANGE.
Also the Company has registered, and has applications pending for the
registration of, Pier 1 trademarks in numerous foreign countries.
EMPLOYEES
On March 2, 1996, Pier 1 employed approximately 9,399 persons: 519 were
full time employees at the Company's home office, 4,224 were part time employees
in its retail stores and distribution centers and 4,656 were full time employees
in the stores and distribution centers. The employees of the Company are not
covered by any collective bargaining agreement. The Company considers its
relationship with its employees to be good.
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PROPERTIES
Pier 1 leases certain properties consisting principally of retail stores,
distribution centers and office space. Pier 1 has leased through February 28,
2004, a total of 136,777 square feet of office space in downtown Fort Worth for
the Company's home office. Most of the retail store properties are operated
under leases that are classified as operating leases. Pier 1 currently owns or
leases six distribution centers providing approximately 2.75 million square feet
of space in Baltimore, Maryland; Los Angeles, California; Fort Worth, Texas;
Chicago, Illinois; Savannah, Georgia; and Columbus, Ohio. Additional space
requirements could be accommodated, if necessary, by leasing additional space.
At March 2, 1996, the present value of Pier 1's future operating lease
commitments aggregated approximately $374 million.
The Company has agreements with unaffiliated groups to lease certain stores
and distribution center space. These unaffiliated groups are committed to make
available up to $96.8 million for development or acquisition of stores leased by
Pier 1. As of June 1, 1996, the Company had used $86.3 million of that
availability. Agreements with these groups mature over the next two years, and
the Company is continuously monitoring financial markets to optimize renewal
terms.
LEGAL PROCEEDINGS
As a result of the trading losses incurred in a discretionary investment
account managed by a financial consultant, several lawsuits were filed with
respect to the Company as described below.
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.
Four other derivative suits filed in Delaware have been consolidated into this
proceeding. 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. A motion by the
defendants to dismiss the suit is pending.
On January 3, 1996, a 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 $34.0 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. The
Company has filed cross claims against the financial consultant and third party
claims against a commodities brokerage firm which executed transactions for the
financial consultant, asserting conspiracy and fraud and seeking damages
sustained by the Company from the trading activities. Pursuant to an agreement
with the plaintiffs, the current directors and officers of the Company were
dismissed from the suit without prejudice.
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. This
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.
In addition, 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 this time. While a certain number of the lawsuits (including
those discussed above) involve substantial amounts, it is the opinion of
management, after consultation with counsel, that the ultimate
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resolutions of such litigation will not have a material adverse effect on the
Company's financial position, results of operation or liquidity.
DISPOSITION OF SUNBELT
In April 1993, the Company sold its 49.5% interest in Sunbelt to General
Host in exchange for 1.9 million shares of General Host's Common Stock.
Subsequently, General Host paid a 5% stock dividend, resulting in the Company's
holding 2.1 million shares of General Host's Common Stock. In connection with
the sale, the Company agreed to make available to Sunbelt up to $25.0 million of
non-revolving store development financing (the "Lease Commitment") and to
provide Sunbelt a $12.0 million credit facility (the "Credit Facility") 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, the Company agreed to extend $22.8
million of the Lease Commitment to Sunbelt until June 30, 1998, at market rental
rates and the Company received payment of amounts owed under the Credit
Facility. Additionally, the Company guarantees approximately $4.1 million of
other Sunbelt lease obligations with a present value of approximately $3.4
million as of June 1, 1996. In April 1995, Sunbelt defaulted on 13 store
sublease agreements with the Company comprising the $22.8 million of the Lease
Commitment, 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
$8.0 million (which may be prepaid with $4.0 million in payments made by May
1997 or with $6.0 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 $14.0 million which represents the estimated cost to disengage
from its financial support of Sunbelt.
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MANAGEMENT
Listed below are the executive officers of Pier 1 Imports, Inc.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- --------------------------------------------------
<S> <C> <C>
Clark A. Johnson 65 Chairman of the Board and Chief Executive Officer
Marvin J. Girouard 57 President and Chief Operating Officer
Stephen F. Mangum 42 Senior Vice President, Chief Financial Officer and
Treasurer
J. Rodney Lawrence 51 Senior Vice President of Legal Affairs and
Secretary
E. Mitchell Weatherly 48 Senior Vice President of Human Resources
Phil E. Schneider 44 Senior Vice President of Marketing
Charles H. Turner 39 Senior Vice President of Stores
Perry R. McNeely 48 Senior Vice President of Logistics
Jay R. Jacobs 41 Senior Vice President of Merchandising
</TABLE>
Clark A. Johnson 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 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 Imports
(U.S.), Inc. ("Pier 1 (U.S.)"). Additionally, he serves as a Director of ENSERCH
Corporation.
Stephen F. Mangum has served as Senior Vice President, Chief Financial
Officer and Treasurer of the Company since August 1996. From March 1993 until
July 1996, he served as chief financial officer of Bloomingdales, Inc. From
September 1987 to March 1993, Mr. Mangum served as vice president of finance and
control of Hecht Company, a division of May Department Stores.
J. Rodney Lawrence has served as Senior Vice President of Legal Affairs and
Secretary of the Company 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 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.
Phil E. Schneider has served as Senior Vice President of Marketing of the
Company since May 1993 and served as Vice President of Advertising of Pier 1
(U.S.) from January 1988 to May 1993.
Charles H. Turner has served as Senior Vice President of Stores of the
Company since August 1994 and served as principal accounting officer of the
Company from January 1992 to August 1994.
Perry R. McNeely has served as Senior Vice President of Logistics of the
Company since June 1994.
Jay R. Jacobs 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.
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DESCRIPTION OF THE NOTES
The Notes will be issued under an indenture (the "Indenture") between the
Company and Wells Fargo Bank (Texas), N.A., as trustee (the "Trustee"), a copy
of which will be filed as an exhibit to the Registration Statement. The
following are summaries of certain terms applicable to the Notes and do not
purport to be complete. The summaries are subject to, and qualified in their
entirety by reference to, the provisions of the Indenture, including the
definitions therein of certain terms. Whenever reference is made to defined
terms of the Indenture, such defined terms are incorporated herein by reference.
GENERAL
The Notes will be unsecured general obligations of the Company, subordinate
in right of payment to certain other obligations of the Company as described
under "-- Subordination," and convertible into Common Stock as described under
"-- Conversion of the Notes." The Notes will be limited to $50.0 million
aggregate principal amount ($57.5 million if the Underwriters' over-allotment
option is exercised in full) and will mature on October 1, 2006 (the "Maturity
Date"). The Notes will bear interest at the rate per annum shown on the cover
page hereof from the date of original issue or from the most recent Interest
Payment Date (as defined) to which interest has been paid or duly provided for,
and accrued but unpaid interest will be payable semi-annually in arrears on
April 1 and October 1 of each year, commencing April 1, 1997 (each, an "Interest
Payment Date"), or, if any such day is not a business day, on the next
succeeding business day. Interest will be paid to Noteholders of record
("Holders") at the close of business on March 15 and September 15, respectively,
immediately preceding the relevant Interest Payment Date (each, a "Regular
Record Date"). Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
Principal and premium, if any, and interest will be payable, and the Notes
may be presented for conversion, registration of transfer and exchange, at the
office or agency of the Company maintained for those purposes in New York, New
York (which will be a corporate trust office designated by the Trustee), except
that, at the option of the Company, payment of interest may be made by check
mailed to the address of the Holder entitled thereto as it appears on the Note
Register on the related record date.
The Notes will be issued in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple thereof. No service charge
will be made for any transfer or exchange of Notes, but, subject to certain
exceptions set forth in the Indenture, the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
The Indenture does not contain any restrictions on the payment of dividends
or on the repurchase of securities by the Company or any financial covenants,
nor does the Indenture require the Company to maintain any sinking fund or other
reserve for the payment of the Notes.
CONVERSION OF THE NOTES
The Notes are convertible at any time prior to the Maturity Date (subject
to earlier redemption or repurchase, as described below) into shares of Common
Stock of the Company at the Conversion Price, subject to adjustment under
certain circumstances as described below.
The Conversion Price is subject to adjustment as set forth in the Indenture
upon the occurrence of certain events, including: (i) the issuance of Common
Stock as a dividend or other distribution on any class of capital stock of the
Company; (ii) a subdivision or combination of outstanding shares of Common
Stock; (iii) the issuance or distribution of capital stock of the Company or the
issuance or distribution of options, rights, warrants or convertible or
exchangeable securities entitling the holder thereof to subscribe for, purchase,
convert into or exchange for capital stock of the Company at less than the
current market price of such capital stock on the date of issuance or
distribution (provided that the issuance of capital stock upon the exercise of
such options, rights, or warrants or the conversion or exchange of convertible
or exchangeable securities will not cause an adjustment in the conversion price
if no such adjustment would have been required at the time such options, rights
or warrants or convertible or exchangeable securities were issued); (iv) the
dividend or other distribution to all holders of Common Stock of evidences of
indebtedness of the Company or assets
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<PAGE> 34
(including securities, but excluding shares of capital stock and those rights,
warrants, dividends and distributions referred to above and dividends and
distributions in connection with the liquidation, dissolution or winding up of
the Company or paid exclusively in cash); (v) dividends or other distributions
consisting exclusively of cash (excluding any cash portion of distributions
referred to in clause (iv)) to all holders of Common Stock to the extent such
distributions, combined together with (A) all such all cash distributions made
within the preceding 12 months with respect to which no adjustment has been made
plus (B) any cash and the fair market value of other consideration payable with
respect to any tender offers by the Company or any of its subsidiaries for
Common Stock concluded within the preceding 12 months with respect to which no
adjustment has been made, exceeds 15% of the Company's market capitalization
(being the product of the then current market price of the Common Stock
multiplied by the number of shares of Common Stock then outstanding) on the
record date for such distribution; and (vi) the purchase of Common Stock
pursuant to a tender offer made by the Company or any of its subsidiaries to the
extent that the aggregate consideration, together with (A) any cash and the fair
market value of any other consideration payable in any other tender offer
expiring within 12 months preceding such tender offer with respect to which no
adjustment has been made plus (B) the aggregate amount of any such all cash
distributions referred to in clause (v) above to all holders of Common Stock
within the 12 months preceding the expiration of such tender offer with respect
to which no adjustments have been made, exceeds 15% of the Company's market
capitalization on the expiration of such tender offer.
Notwithstanding the foregoing, (a) if the options, rights or warrants or
convertible or exchangeable securities described in clause (iii) of the
preceding paragraph are exercisable only upon the occurrence of certain
triggering events, then the Conversion Price will not be adjusted until such
triggering events occur and (b) if options, rights or warrants or convertible or
exchangeable securities expire unexercised, the Conversion Price will be
readjusted to take into account only the actual number of such options, rights
or warrants or convertible or exchangeable securities which were exercised. In
addition, the provisions of the preceding paragraph will not apply to the
issuance of Common Stock upon the exercise of the Company's outstanding stock
options under the 1980 Stock Option Plan, the 1989 Employee Stock Option Plan
and the 1989 Non-Employee Director Stock Option Plan, unless the exercise or
conversion price thereof is changed after the date of the Indenture (other than
solely by operation of the anti-dilution provision thereof).
No adjustment will be made to the Conversion Price until cumulative
adjustments to the Conversion Price amount to at least 1% of the Conversion
Price, as last adjusted. Except as stated above, the Conversion Price will not
be adjusted for the issuance of Common Stock or any securities convertible into
or exchangeable for Common Stock or carrying the right to purchase any of the
foregoing, or the payment of dividends on the Common Stock. The Company from
time to time may reduce the Conversion Price if the Board of Directors of the
Company has made a determination that such reduction would be in the best
interests of the Company, which determination shall be conclusive.
In the event of (i) any reclassification or change of the Common Stock or
(ii) a consolidation, merger or combination to which the Company is a party or a
sale or conveyance to another entity of the property and assets of the Company
as an entirety or substantially as an entirety, in each case as a result of
which holders of Common Stock will be entitled to receive stock, other
securities, other property or assets (including cash) with respect to or in
exchange for such Common Stock, each Holder will have the right thereafter to
convert such Holder's Notes into the kind and amount of shares of stock, other
securities or other property or assets which the Holder would have owned or have
been entitled to receive immediately upon such consolidation, merger,
combination, sale or conveyance had such Note been converted into Common Stock
immediately prior to the effective date of such reclassification, change,
consolidation, merger, combination, sale or conveyance. Certain of the foregoing
events may also constitute or result in a Change of Control requiring the
Company to offer to repurchase the Notes. See "-- Repurchase at the Option of
Holders Upon Change of Control."
Fractional shares of Common Stock will not be issued upon conversion. A
person otherwise entitled to a fractional share of Common Stock upon conversion
will receive cash equal to the equivalent fraction of the current market price
of a share of Common Stock on the business day prior to conversion.
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<PAGE> 35
Except as provided below, a Holder who surrenders a Note (or portion
thereof) between the close of business on a Regular Record Date and the next
Interest Payment Date will receive interest on such Interest Payment Date with
respect to the Note (or portion thereof) so converted through such Interest
Payment Date. If, however, such Regular Record Date is on or after March 15,
2000, any Note surrendered for conversion between such date and the related
Interest Payment Date must be accompanied by a payment equal to the interest on
such Note (or portion thereof converted) payable by the Company on such Interest
Payment Date, which payment will be returned to such Holder if the Company
defaults in the payment of such interest. Except as otherwise provided, no
payment of interest on converted Notes will be payable by the Company on any
Interest Payment Date subsequent to the date of conversion, and no adjustment
will be made upon conversion of any Note for interest accrued thereon or
dividends paid on Common Stock issued.
OPTIONAL REDEMPTION BY THE COMPANY
The Notes are not redeemable at the option of the Company prior to October
1, 1998. Thereafter, the Notes will be redeemable, in whole or from time to time
in part, upon not less than 30 days' nor more than 60 days' prior notice of the
redemption date, mailed by first class mail to each Holder's last address as it
appears in the Note Register, at the Redemption Prices established for the
Notes, together with accrued but unpaid interest, if any, to the date fixed for
redemption. Notwithstanding the foregoing, prior to October 1, 1999, the Notes
cannot be redeemed at the option of the Company unless the average closing price
of the Common Stock for a period of 30 consecutive trading days ending within 20
days before the notice of redemption is mailed equals or exceeds 150% of the
then effective Conversion Price. The Redemption Prices for the Notes (expressed
as percentages of the principal amount) are as follows:
<TABLE>
<CAPTION>
FOR THE 12
MONTHS
AFTER OCTOBER 1, PERCENTAGE
- ---------------- ----------
<S> <C>
1998......................................... %
1999......................................... %
2000......................................... %
2001......................................... %
2002......................................... %
2003 and thereafter.......................... 100%
</TABLE>
If less than all the Notes are to be redeemed, the Trustee will select the
Notes to be redeemed in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed, or, if the
Notes are not so listed, on a pro rata basis by lot or by such method that
complies with applicable legal requirements and that the Trustee considers fair
and appropriate. The Trustee may select for redemption portions of the principal
amount of Notes that have a denomination larger than $1,000. Notes and portions
thereof will be redeemed in the amount of $1,000 or integral multiples of
$1,000. The Trustee will make the selection from Notes outstanding and not
previously called for redemption.
REPURCHASE AT THE OPTION OF HOLDERS UPON CHANGE OF CONTROL
If a Change of Control (as defined) occurs, the Company will offer to
repurchase each Holder's Notes pursuant to an offer as described below (the
"Change of Control Offer") at a purchase price equal to 100% of the principal
amount of such Holder's Notes, plus accrued but unpaid interest, if any, to the
date of purchase.
Under the Indenture, a "Change of Control" means the occurrence of any of
the following events after the date of the Indenture (i) any person or group
(within the meaning of Section 13(d) or Section 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")), becomes the direct or indirect
beneficial owner of shares of capital stock of the Company representing greater
than 50% of the combined voting power of all outstanding shares of capital stock
of the Company entitled to vote in the election of directors under ordinary
circumstances; (ii) subject to certain exceptions, the Company consolidates with
or merges into any other entity and the outstanding Common Stock is changed or
exchanged as a result; (iii) the Company conveys, transfers or leases all or
substantially all of its assets to any other entity; (iv) at any time
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<PAGE> 36
Continuing Directors (as defined) do not constitute a majority of the Board of
Directors of the Company; or (v) on any day (a "Calculation Date") the Company
makes any distribution or distributions of cash, property or securities (other
than regular quarterly dividends, Common Stock, preferred stock which is
substantially equivalent to Common Stock or rights to acquire Common Stock or
preferred stock which is substantially equivalent to Common Stock) to holders of
Common Stock, or the Company or any of its subsidiaries purchases or otherwise
acquires Common Stock, and the sum of the fair market value of such distribution
or purchase on the Calculation Date, plus the fair market value, when made, of
all other such distributions and purchases which have occurred during the 12
month period ending on the Calculation Date, in each case expressed as a
percentage of the aggregate market price of all of the shares of Common Stock
outstanding at the close of business on the last day prior to the date of each
such distribution or purchase, exceeds 50%. "Continuing Director" means at any
date a member of the Company's Board of Directors (i) who is a member of such
Board on the date hereof or (ii) who was nominated or elected by at least
two-thirds of the directors who were Continuing Directors at the time of such
nomination or election or whose election to the Company's Board of Directors was
recommended or endorsed by at least two-thirds of the directors who were
Continuing Directors at the time of such election. Under this definition, if the
present Board of Directors of the Company were to approve a new director or
directors and then resign, no Change of Control would occur even though the
present Board of Directors would thereafter cease to be in office.
Within 30 days after any Change of Control, unless the Company has
previously mailed a notice of optional redemption by the Company of all of the
Notes, the Company will mail a notice of the Change of Control Offer to each
Holder by first class mail at such Holder's last address as it appears on the
Note Register stating: (i) that a Change of Control has occurred and that the
Company is offering to repurchase all of such Holder's Notes; (ii) the
circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma income, cash flow and capitalization of
the Company after giving effect to such Change of Control); (iii) the repurchase
price (the "Change of Control Payment"); (iv) the expiration date of the Change
of Control Offer, which must be no earlier than 30 days nor later than 60 days
from the date such notice is mailed; (v) the date such purchase will be
effected, which must be no later than 30 days after the expiration date of the
Change of Control Offer; (vi) that unless the Company defaults in the payment of
the Change of Control Payment, all Notes accepted for payment pursuant to the
Change of Control Offer will cease to accrue interest after the Change of
Control Payment Date; (vii) the Conversion Price; (viii) the name and address of
the paying agent and conversion agent; (ix) that Notes must be surrendered to
the paying agent to collect the Change of Control Payment; and (x) any other
information required by applicable law and any other procedures that a Holder
must follow in order to have such Notes repurchased.
In the event the Company is required to make a Change of Control Offer, the
Company will comply with any applicable securities laws and regulations,
including, to the extent applicable, Section 14(e), Rule 14e-1 and any other
tender offer rules under the Exchange Act which may then be applicable in
connection with any offer by the Company to purchase Notes at the option of
Holders.
The Company, could, in the future, enter into certain transactions,
including certain recapitalizations of the Company, that would not constitute a
Change of Control under the Indenture, but that would increase the amount of
Senior Indebtedness (or any other indebtedness) outstanding at such time. The
incurrence of significant amounts of additional indebtedness could have an
adverse effect on the Company's ability to service its indebtedness, including
the Notes. If a Change of Control were to occur, there can be no assurance that
the Company would have sufficient funds at the time of such event to pay the
Change of Control Payment for all Notes tendered by Holders.
Certain of the Company's existing and future agreements relating to its
indebtedness could prohibit the purchase by the Company of the Notes pursuant to
the tender by Holders pursuant to a Change of Control Offer. Depending on the
financial circumstances of the Company, such purchase by the Company could cause
a breach of certain covenants contained in such agreements. A default by the
Company on its obligation to pay the Change of Control Payment could, pursuant
to cross-default provisions, result in acceleration of the payment of other
indebtedness of the Company outstanding at that time. See "-- Subordination."
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<PAGE> 37
SUBORDINATION
The payment of principal of and premium, if any, and interest on the Notes
will be, to the extent set forth in the Indenture, subordinated in right of
payment to the prior payment in full of all Senior Indebtedness (as defined).
Upon any payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of creditors
or marshalling of assets, whether voluntary, involuntary or in receivership,
bankruptcy, insolvency or similar proceedings, the holders of all Senior
Indebtedness will first be entitled to receive payment in full of all amounts
due or to become due thereon before Holders will be entitled to receive any
payment on account of principal of and premium, if any, and interest on the
Notes or on account of any other monetary claims under or with respect to the
Notes, and before the Company may acquire any Notes for cash, property, assets
or securities. No payments on account of principal of and premium, if any, and
interest on the Notes may be made if at the time thereof: (i) there exists a
default in the payment of all or any portion of the obligations under any Senior
Indebtedness or (ii) there exists a default in any covenant with respect to the
Senior Indebtedness that would permit acceleration of the maturity thereof
(other than as specified in clause (i) of this sentence) which has not been
cured or waived and is continuing, and the Trustee and the Company receive
written notice from any holder of such Senior Indebtedness stating that no
payment may be made with respect to the Notes, provided that no such default
will prevent any payment on, or with respect to, the Notes for more than 120
days unless the maturity of such Senior Indebtedness is accelerated.
The Holders will be subrogated to the rights of the holders of the Senior
Indebtedness to the extent of payments made on Senior Indebtedness upon any
distribution of assets in any such proceedings out of the distributive share of
the Notes.
"Senior Indebtedness" means the principal of (and premium, if any), and
interest on (a) all existing indebtedness of the Company (including indebtedness
of others guaranteed by the Company) other than the Notes and the 8 1/2%
exchangeable debentures due 2000 (which rank pari passu with the Notes), which
is (i) for money borrowed or (ii) evidenced by a note or similar instrument
given in connection with the acquisition of any businesses, properties or assets
of any kind, (b) obligations of the Company as lessee under leases required to
be capitalized on the balance sheet of the lessee under generally accepted
accounting principles and leases of property or assets made as part of any sale
and leaseback transaction to which the Company is a party, (c) amendments,
renewals, extensions, modifications and refundings of any such indebtedness or
obligation and (d) any future indebtedness of the Company described in (a)
above, and amendments, renewals, extensions, modifications and refundings
thereof, provided that the instrument creating or evidencing any such future
indebtedness or obligation provides that such indebtedness or obligation is
senior in right of payment to the Notes. Senior Indebtedness does not include
indebtedness or amounts owed (except to banks or other financial institutions)
for compensation to employees, or for goods or materials purchased, or services
utilized, in the ordinary course of business of the Company or of any other
person from whom such indebtedness or amount was assumed.
The Notes are unsecured obligations of the Company, and, accordingly, will
rank pari passu with all obligations of the Company that arise by operation of
law or are imposed by any judicial or governmental authority. The Notes are
obligations exclusively of the Company, and accordingly, will be effectively
subordinated to all indebtedness and other liabilities and commitments
(including trade payables and lease obligations) of its Subsidiaries. The right
of the Company, and, therefore, the right of creditors of the Company (including
Holders) to receive assets of any such Subsidiary upon the liquidation or
reorganization of such Subsidiary or otherwise, as a practical matter, will be
effectively subordinated to the claims of such Subsidiary's creditors, except to
the extent the Company is itself recognized as a creditor of such Subsidiary or
such other creditors have agreed to subordinate their claims to the payment of
the Notes, in which case the claims of the Company would still be subordinate to
any secured claim on the assets of such Subsidiary and any indebtedness of such
Subsidiary senior to that held by the Company.
At August 1, 1996, $109.3 million of Senior Indebtedness was outstanding.
The Company will from time to time incur additional indebtedness constituting
Senior Indebtedness.
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<PAGE> 38
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company, without the consent of the Holders of any of the Notes, may
consolidate with or merge into any other entity or convey, transfer, sell or
lease its assets substantially as an entirety to any entity, provided that: (i)
either (a) the Company is the continuing corporation or (b) the entity formed by
such consolidation or into which the Company is merged or the entity to which
such assets are sold, leased, transferred, conveyed or disposed is organized
under the laws of the United States or any state thereof or the District of
Columbia and expressly assumes by supplemental indenture all obligations of the
Company under the Notes and the Indenture, (ii) immediately before and
immediately after giving effect to such merger, consolidation, conveyance,
transfer, sale, lease or disposition no Event of Default, and no event which,
after notice or lapse of time or both, would become an Event of Default, under
the Indenture has occurred and is continuing, (iii) immediately after giving
effect to such merger, consolidation, conveyance, transfer, sale, lease or
disposition, the Notes and the Indenture, as supplemented, will be valid and
enforceable obligations of the Company or such successor and (iv) the Company
has delivered to the Trustee an Officer's Certificate and an opinion of counsel,
each stating that such merger, consolidation, conveyance, transfer, sale, lease
or disposition and such supplemental indenture comply with the applicable
provisions of the Indenture.
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture: (a) failure to
pay principal of or premium, if any, on any Note when due and payable, whether
at maturity, upon redemption, upon a Change of Control Offer or otherwise,
whether or not such payment is prohibited by the subordination provisions of the
Indenture; (b) failure to pay any interest on any Note when due, which failure
continues for 30 days, whether or not such payment is prohibited by the
subordination provisions of the Indenture; (c) failure to perform the other
covenants of the Company in the Indenture, which failure continues for 60 days
after written notice as provided in the Indenture; (d) failure to pay when due
principal of, or the acceleration of payment of, any indebtedness for money
borrowed by the Company or any of its Subsidiaries in excess of $10 million,
individually or in the aggregate, if such indebtedness is not discharged, or
such acceleration is not annulled, within 10 days after written notice as
provided in the Indenture; and (e) certain events of bankruptcy, insolvency or
reorganization of the Company or any Subsidiary. Subject to the provisions of
the Indenture relating to the duties of the Trustee in case of the occurrence of
an Event of Default, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request or direction of any
Holders, unless such Holders have offered to the Trustee reasonable indemnity.
Subject to such provisions for the indemnification of the Trustee, Holders of a
majority in aggregate principal amount of the outstanding Notes will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee.
If an Event of Default occurs and is continuing, either the Trustee or the
Holders of at least 25% in aggregate principal amount of the then outstanding
Notes by notice to the Company and Trustee may declare the unpaid principal of,
premium, if any, and interest on all outstanding Notes due and payable;
provided, however, that if an Event of Default under clause (e) above occurs,
all unpaid principal of, premium, if any, and interest on all outstanding Notes
will automatically become due and payable without any declaration or other act
on the part of the Trustee or any Holders. After such acceleration, but before a
judgment or decree based on acceleration, Holders of a majority in aggregate
principal amount of the then outstanding Notes may, under certain circumstances,
rescind and annul such acceleration if all Events of Default, other than the
nonpayment of accelerated principal, have been cured or waived as provided in
the Indenture. For information as to waiver of defaults, see "-- Modifications,
Amendments and Waivers."
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder unless (i) such Holder has previously given to the
Trustee written notice of a continuing Event of Default, (ii) Holders of at
least 25% in aggregate principal amount of the then outstanding Notes have made
written request and offered satisfactory indemnity to the Trustee to institute
such proceeding as Trustee, (iii) the Trustee failed to institute such
proceeding within 60 days after the receipt of such request and offer of
indemnity and (iv) during such 60-day
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<PAGE> 39
period, no direction inconsistent with such request is given to the Trustee by
the Holders of a majority in aggregate principal amount of the then outstanding
Notes.
MODIFICATIONS, AMENDMENTS AND WAIVERS
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the then outstanding Notes held by persons other than
affiliates of the Company; provided, however, that no such modification or
amendment may, without the consent of the Holder of each outstanding Note
affected thereby, (i) change the stated maturity of, or any installment of
interest on, or waive a default in the payment of principal, premium, if any, or
interest on, any Note, (ii) reduce the principal amount of any Note or reduce
the rate or extend the time of payment of interest on any Note, (iii) increase
the Conversion Price (other than in connection with a reverse stock split as
provided in the Indenture), (iv) change the place or currency of payment of
principal of, or premium or repurchase price, if any, or interest on, any Note,
(v) impair the right to institute suit for the enforcement of any payment on or
with respect to any Note, (vi) adversely affect the right to exchange or convert
Notes, (vii) reduce the percentage of the aggregate principal amount of
outstanding Notes, the consent of the Holders of which is necessary to modify or
amend the Indenture, (viii) reduce the percentage of the aggregate principal
amount of outstanding Notes, the consent of the Holders of which is necessary
for waiver of compliance with certain provisions of the Indenture or for waiver
of certain defaults, (ix) modify the provisions of the Indenture with respect to
the subordination of the Notes in a manner adverse to the Holders, (x) except as
permitted by the Indenture, consent to the assignment or transfer by the Company
of any of its rights and obligations thereunder, (xi) modify the provisions of
the Indenture with respect to the right to require the Company to repurchase
Notes in a manner adverse to the Holders or (xii) modify the provisions of the
Indenture with respect to the vote necessary to amend this provision.
Holders of a majority in aggregate principal amount of the then outstanding
Notes held by persons other than affiliates of the Company may, on behalf of all
Holders, waive any past default under the Indenture or Event of Default, except
a default in the payment of principal of, premium, if any, or interest on any of
the Notes or a provision which under the Indenture cannot be amended without the
consent of the Holder of each outstanding Note.
Amendments and supplements of the Indenture may be made by the Company and
the Trustee without the consent of any Holder, in part, to: (i) cure any
ambiguity, defect or inconsistency (which does not adversely affect the rights
of any Holder); (ii) comply with the restriction on mergers, consolidations, and
asset sales or with the provisions relating to conversion upon such events;
(iii) add to the covenants of the Company further covenants, restrictions,
conditions or provisions for the protection of the Holders; (iv) make any change
that does not adversely affect the legal rights of any Holder under the
Indenture; or (v) comply with requirements of the Securities and Exchange
Commission in order to effect or maintain qualification of the Indenture under
the Trust Indenture Act.
DISCHARGE OF INDENTURE
The Indenture provides that the Company may defease and be discharged from
its obligations under the Notes while the Notes remain outstanding (except for
certain obligations to convert the Notes into Common Stock, register the
transfer, substitution or exchange of Notes, replace stolen, lost or mutilated
Notes, maintain an office or agency in New York, New York and compensate and
indemnify the Trustee), if all outstanding Notes will become due and payable at
their scheduled maturity within one year and the Company has irrevocably
deposited, or caused to be deposited, with the Trustee (or another trustee
satisfying the requirements of the Indenture), in trust for such purpose, (a)
money in an amount or, (b) U.S. Government Obligations which through the payment
of principal, premium, if any, and interest in accordance with their terms
(without reinvestment of such interest or principal) will provide not later than
one day before the due date of the Notes money in an amount, or (c) a
combination thereof, which is sufficient to pay the principal of, premium, if
any, and interest on the outstanding Notes at maturity or upon redemption,
together with all other amounts payable by the Company under the Indenture,
provided that in the case of (b) or (c) an opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
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<PAGE> 40
has been delivered to the Trustee stating that such U.S. Government Obligations
or U.S. Government Obligations and cash, as the case may be, are sufficient to
pay the principal of, premium, if any, and interest on the outstanding Notes at
maturity or upon redemption, together with all other amounts payable by the
Company under the Indenture. Such defeasance will become effective 91 days after
such deposit only if, among other things, (i) no Default or Event of Default
with respect to the Notes has occurred and is continuing on the date of such
deposit or will occur as a result of such deposit or at any time during the
period ending on the 91st day after the date of such deposit, (ii) such
defeasance does not result in a breach or violation of, or constitute a default
under, any other agreement or instrument to which the Company is a party or by
which it is bound and (iii) the Company has delivered to the Trustee (A) either
a private Internal Revenue Service ruling or an opinion of counsel that Holders
will not recognize income, gain or loss for federal income tax purposes as a
result of such deposit, defeasance and discharge and will be subject to federal
income tax on the same amount, in the same manner, and at the same times, as
would have been the case if such deposit, defeasance and discharge had not
occurred, (B) an opinion of counsel to the effect that the deposit will not
result in the Company, the Trustee or the trust being deemed to be an
"investment company" under the Investment Company Act of 1940, as amended, and
(C) an Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent relating to a discharge have been complied with.
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to
such State's conflict of law principles.
CONCERNING THE TRUSTEE
The Trustee makes loans to and is a depository for funds of the Company.
The Trustee is a participating lender in the amounts of: $20 million of the
Company's $65 million revolving credit facility; $10 million of the Company's
$105 million trade finance facility; $5 million in standby letters of credit
supporting $25 million of industrial revenue bonds guaranteed by the Company;
and $12 million of a $45 million store development and lease facility of a
company that leases stores to the Company, which leases are guaranteed by the
Company. The Trustee is resigning as the Company's transfer agent for the Common
Stock. The Trustee may in the future perform other services for the Company and
its subsidiaries in the normal course of its business. The Indenture does not
preclude the Trustee from enforcing its rights as a creditor, including rights
as a holder of Senior Indebtedness.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 200,000,000 shares
of Common Stock, par value $1.00 per share, and 5,000,000 shares of Preferred
Stock, par value $1.00 per share. At August 1, 1996, there were 45,242,289
shares of Common Stock outstanding and no shares of Preferred Stock outstanding.
The transfer agent and registrar for the Common Stock is Wells Fargo Bank
(Texas), N.A., which will be replaced by Chase Mellon Shareholder Services, LLC.
The following statements with respect to the Company's capital stock include
summaries of certain provisions of the Company's Certificate of Incorporation
and By-Laws. These statements do not purport to be complete and are qualified in
their entirety by reference to such documents.
COMMON STOCK
Each outstanding share of Common Stock entitles the holder thereof to one
vote on all matters voted upon by stockholders of the Company. Holders of Common
Stock are not entitled to any cumulative voting rights or to any preemptive
rights other than pursuant to the Share Purchase Rights Plan discussed below.
The outstanding shares of Common Stock are fully paid and nonassessable.
In the event of any liquidation, dissolution or winding up of the affairs
of the Company, subject to the rights of holders of any Preferred Stock, each
outstanding share of Common Stock entitles its holder to receive pro rata any
assets remaining after satisfaction of corporate liabilities.
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<PAGE> 41
All outstanding shares of Common Stock are entitled to share equally in
such dividends as the Board of Directors of the Company, in its discretion, may
validly declare from funds legally available therefor. For information on
restrictions on the payment of dividends, see "Price Range of Common Stock and
Dividends."
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 and authorized the issuance of Rights for subsequently issued Common Stock.
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) 10 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 provisions 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 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 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 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
$0.01 per Right. The foregoing summary of the Rights does not purport to be
complete and is subject to the more complete description thereof set forth in
the Company's Registration Statement on Form 8-A dated December 20, 1994, and to
the Rights Agreement dated as of December 9, 1994, between the Company and First
Interstate Bank of Texas, N.A., as Rights Agent.
PREFERRED STOCK
The Board of Directors of the Company is authorized, without further action
by the Company's stockholders, from time to time to issue shares of Preferred
Stock in one or more series and may, at the time of issuance, fix the voting
rights, liquidation preferences, dividend rates, redemption rights and terms and
certain other rights and limitations of each series. In February 1987, the
Company designated a series of 5,000,000 shares of Preferred Stock, which in
October 1987 became the Formula Rate Preferred Stock, and 1,500,000 shares were
issued. In June 1991, the Company repurchased and redeemed all outstanding
shares of the Formula Rate Preferred Stock, which is currently held in the
Company's treasury.
The Company's Board of Directors may, without further action by the
Company's stockholders, from time to time direct the reissuance of shares of
Formula Rate Preferred Stock or cancel and retire any or all of the Formula Rate
Preferred Stock and direct the issuance of one or more new series of Preferred
Stock and at the time of issuance determine the rights, preferences and
limitations of each series. The Board of Directors without stockholder approval
can issue Preferred Stock with voting and conversion rights that could adversely
affect holders of Common Stock. Satisfaction of any dividend preferences of
outstanding Preferred Stock would reduce the amount of funds available for the
payment of dividends on Common Stock. Holders of Preferred Stock normally would
be entitled to receive a preference payment in the event of any liquidation,
dissolution or winding up of the Company before any payment is made to holders
of Common Stock.
40
<PAGE> 42
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary is a general discussion of certain federal income tax
consequences of purchasing, holding, converting and disposing of the Notes. This
summary is based on laws, regulations, rulings and judicial decisions now in
effect, all of which are subject to change, possibly with retroactive effect.
This summary is presented for informational purposes only and relates only to
persons who purchase the Notes pursuant to this Prospectus, who hold the Notes
or shares of Common Stock issued on conversion of the Notes as "capital assets"
within the meaning of section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code") and who are United States Holders of the Notes. For
purposes of this discussion a "United States Holder" means a beneficial owner of
Notes that is an individual citizen or resident of the United States, a
corporation or partnership organized under the laws of the United States or of
any state or political subdivision thereof, an estate, trust or other person or
entity the income of which is includible in gross income for tax purposes
regardless of its source, or any other holder who is subject to tax on a net
income basis with respect to the Notes.
This summary does not purport to deal with all potential federal income tax
considerations, does not discuss state, local or foreign tax consequences and
does not cover special rules applicable to taxpayers who may fall into special
classes, such as non-resident alien individuals, foreign corporations or other
non-United States persons, financial institutions, insurance companies, mutual
funds, subchapter S corporations, trusts, exempt institutions, broker/dealers
and taxpayers who may be subject to the alternative minimum tax.
INTEREST
Interest on a Note will generally be taxable to a holder of Notes as
ordinary income at the time it is paid or accrued in accordance with the
holder's method of accounting for tax purposes. The rules relating to original
issue discount will not be applicable to the Notes as the issue price of the
Notes will not be less than the stated redemption price at maturity.
CONVERSION OF NOTES INTO COMMON STOCK
In general, no gain or loss will be recognized for income tax purposes on a
conversion of the Notes into shares of Common Stock. Cash paid in lieu of a
fractional share of Common Stock, however, will result in taxable gain (or
loss), which will be capital gain (or loss) to the extent that the amount of
such cash exceeds (or is exceeded by) the portion of the adjusted basis of the
Note allocable to such fractional share. The adjusted basis of shares of Common
Stock received on conversion will equal the adjusted basis of the Note
converted, reduced by the portion of adjusted basis allocated to any fractional
share of Common Stock exchanged for cash. The holding period of an investor in
Common Stock received on conversion will include the period during which the
converted Note was held. Any interest deemed paid to a holder of Notes in
connection with a conversion will be taxable as ordinary income.
Adjustment of Conversion Price
The conversion price of the Notes is subject to adjustment under certain
circumstances. See "Description of Notes -- Conversion of the Notes." Pursuant
to Treasury Regulations promulgated under Section 305 of the Code, a holder of
Notes may be treated as having received a constructive distribution from the
Company, resulting in ordinary income to the extent of the Company's earnings
and profits as of the end of the taxable year (subject to a possible dividends
received deduction in the case of corporate holders), upon an adjustment of the
conversion price of the Notes if (i) the adjustment results in an increase in
the holder's proportionate interest in the assets or earnings and profits of the
Company and (ii) the adjustment is not made pursuant to a bona fide, reasonable
anti-dilution formula. An adjustment made to compensate for certain taxable
distributions to holders of Common Stock would not be considered an adjustment
made pursuant to such a formula. In addition, the failure to fully adjust the
conversion price of the Notes to reflect distributions of stock dividends to
holders of Common Stock may result in a taxable dividend to such holders of
Common Stock.
41
<PAGE> 43
Distribution on Common Stock
Distributions on the Common Stock into which Notes have been converted will
be taxable as dividends to the extent of the Company's current and/or
accumulated earnings and profits, as determined under United States federal
income tax principles. Such dividends may be eligible for the dividends received
deduction in the case of holders which are domestic corporations, subject to
applicable limitations. To the extent that the amount of any distribution
exceeds the Company's current and accumulated earnings and profits for a taxable
year, the distribution will first be treated as a tax-free return of capital,
causing a reduction in the adjusted basis of the Common Stock (thereby
increasing the amount of gain, or decreasing the amount of loss, to be
recognized by the investor on a subsequent disposition of the Common Stock), and
the balance in excess of adjusted basis will be taxed as capital gain.
DISPOSITION OF NOTES OR COMMON STOCK
Each holder of Notes generally will recognize gain or loss upon the sale,
redemption, repurchase, retirement or other disposition of such holder's Notes
measured by the difference, if any, between (i) the amount of cash and the fair
market value of any property received (except to the extent that such cash or
other property is attributable to the payment of accrued interest not previously
included in income, which amount will be taxable as ordinary income) and (ii)
the holder's adjusted tax basis in such Notes, which generally will be the
holder's cost. Each holder of Common Stock into which the Notes are converted
generally will recognize gain or loss upon the sale or other disposition of the
Common Stock measured under rules similar to those described in the preceding
sentence for the Notes. Special rules may apply to redemptions of Common Stock
which may result in different treatment. Any such gain or loss recognized on the
sale, redemption, repurchase, retirement or other disposition of a Note or share
of Common Stock should be capital gain or loss and would be long-term capital
gain or loss if the Notes or the Common Stock had been held for more than one
year at the time of the sale or exchange. A holder's initial basis in a Note
will be the cash price paid for the Notes. Any interest payment received by a
holder in connection with a redemption, repurchase, retirement or other
disposition of Notes will be taxed as ordinary income.
BACKUP WITHHOLDING
A holder of Notes or Common Stock may be subject to "back-up withholding"
at a rate of 31% with respect to certain "reportable payments," including
interest payments, dividend payments and, under certain circumstances, principal
payments on the Notes. These back-up withholding rules apply if the holder,
among other things, (i) fails to furnish a social security number or other
taxpayer identification number ("TIN") certified under penalties of perjury
within a reasonable time after request, (ii) furnishes an incorrect TIN, (iii)
fails to report properly interest or dividends, (iv) under certain
circumstances, fails to provide a certified statement, signed under penalties of
perjury, that the TIN furnished is the correct number and that such holder is
not subject to back-up withholding or (v) does not certify its foreign or other
exempt status. A holder who does not provide the Company with such holder's
correct TIN also may be subject to penalties imposed by the Internal Revenue
Service. Any amount withheld from a payment to a holder under the back-up
withholding rules is creditable against the holder's federal income tax
liability, provided the required information is furnished to the Internal
Revenue Service. Back-up withholding will not apply, however, with respect to
payments made to certain holders, including corporations, tax-exempt
organizations and certain foreign persons, provided their exemption from back-up
withholding is properly established. The Company will report to holders of Notes
and Common Stock and to the Internal Revenue Service the amount of any
"reportable payments" required to be reported by the Company under U.S. Treasury
Regulations for each calendar year and the amount of tax withheld, if any, with
respect to such payments.
THE U.S. FEDERAL INCOME TAX DISCUSSION ABOVE IS INTENDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE TO A PARTICULAR HOLDER OF NOTES.
PROSPECTIVE PURCHASERS OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE APPLICATION TO THEM OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS
RELEVANT TO THEIR PARTICULAR CIRCUMSTANCES.
42
<PAGE> 44
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement (the
"Underwriting Agreement") among the Company and each of the Underwriters named
below (the "Underwriters"), the Company has agreed to sell an aggregate of $50
million principal amount of Notes to the Underwriters, and the Underwriters have
severally agreed to purchase the principal amount of Notes set forth opposite
their respective names in the table below.
<TABLE>
<CAPTION>
AMOUNT OF
UNDERWRITER NOTES
------------------------------------------------------------------------ -----------
<S> <C>
Jefferies & Company, Inc................................................ $
Forum Capital Markets L.P...............................................
-----------
Total......................................................... $50,000,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the Notes are subject to certain conditions. The
Underwriters are committed to purchase all the Notes offered hereby if any of
the Notes are purchased.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the Notes to the public initially at the public offering price
set forth on the cover page of this Prospectus, and to certain dealers at such
price less a concession not in excess of % of the principal amount of
Notes. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of % of the principal amount of Notes to other dealers. After
the Offering, the public offering price, the concession to selected dealers and
the reallowance to other dealers may be changed by the Underwriters.
The Company has granted to the Underwriters an option, expiring 30 days
from the date of this Prospectus, to purchase from the Company up to $7,500,000
additional principal amount of Notes at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage thereof that the Notes to be
purchased by it shown in the above table bears to $50 million, and the Company
will be obligated, pursuant to the option, to sell such additional Notes to the
Underwriters. The Underwriters may exercise such option only to cover
over-allotments, if any, made in connection with this offering.
The Company has agreed to indemnify the Underwriters against certain
liabilities that may be incurred in connection with the offering of the Notes,
including liabilities under the Securities Act, or to contribute to certain
payments that the Underwriters may be required to make in respect thereof.
An application will be made to list the Notes on the New York Stock
Exchange.
Forum Capital Markets L.P. has in the past performed, and may in the future
perform, investment banking or financial advisory services for the Company.
Affiliates of Forum Capital Markets L.P. have an interest in the Company's
8 1/2% exchangeable debentures due 2000.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the
Company by Kelly, Hart & Hallman (a professional corporation), Fort Worth,
Texas, and for the Underwriters by Kelley Drye & Warren LLP, New York, New York
and Stamford, Connecticut.
43
<PAGE> 45
EXPERTS
The consolidated financial statements and financial statement schedule of
the Company at March 2, 1996, and for the year then ended, incorporated by
reference in this Prospectus and the Registration Statement and the consolidated
financial statements of the Company at March 2, 1996, and for the year then
ended appearing herein have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and
incorporated herein by reference, and are included and incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of the Company at February 25, 1995,
and for each of the two years in the period ended February 25, 1995, included in
this Prospectus and the Registration Statement, and the consolidated financial
statements, including financial statement schedules, at February 25, 1995, and
for each of the two years ended February 25, 1995, incorporated in this
Prospectus and the Registration Statement by reference to the Annual Report on
Form 10-K of the Company for the year ended March 2, 1996, have been so included
and incorporated in reliance upon the reports of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information can be inspected and copied at
the office of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as at the regional offices of the Commission at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and 75 Park Place, New York, New York 10007. Copies of such
information can be obtained by mail from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. Copies of such information can also be inspected at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
The Company has filed with the Commission in Washington, D.C. a
Registration Statement on Form S-3 (including all amendments thereto, the
"Registration Statement") under the Securities Act with respect to the
securities offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. For further
information pertaining to the Company and the securities offered hereby,
reference is made to the Registration Statement and the exhibits thereto, which
may be examined without charge at the public reference facilities maintained by
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and via the Commission's home page on the Internet
(http://www.sec.gov), and copies of which may be obtained from the Commission
upon payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents and information heretofore filed with the
Commission by the Company are hereby incorporated by reference into this
Prospectus.
1. The Company's Annual Report on Form 10-K for the fiscal year ended
March 2, 1996.
2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 1, 1996.
3. The Company's Current Reports on Form 8-K and 8-K/A, dated March 8,
1996, and March 21, 1996, respectively.
4. The description of the Company's common stock, par value $1.00 per
share, contained in the Company's Registration Statement on Form 8-B,
filed on September 17, 1986.
5. The description of the Rights to Purchase Common Stock contained in
the Company's Registration Statement on Form 8-A, dated December 20,
1994.
44
<PAGE> 46
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering
of the Notes offered hereby shall be deemed to be incorporated by reference into
this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request a copy of the documents incorporated by reference herein, other than
exhibits thereto not specifically incorporated by reference. Such requests
should be directed to Pier 1 Imports, Inc., 301 Commerce Street, Suite 600, Fort
Worth, Texas 76102, Attention: Corporate Secretary, telephone (817) 878-8000.
45
<PAGE> 47
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Auditors and Accountants...................................... F-2
Consolidated Statements of Operations................................................ F-4
Consolidated Balance Sheets.......................................................... F-5
Consolidated Statements of Cash Flows................................................ F-6
Consolidated Statements of Stockholders' Equity...................................... F-7
Notes to Consolidated Financial Statements........................................... F-8
</TABLE>
F-1
<PAGE> 48
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. 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 audit. The consolidated financial statements 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.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Fort Worth, Texas
April 11, 1996
F-2
<PAGE> 49
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, 3,
9, and 12, as to which the
date is February 29, 1996
F-3
<PAGE> 50
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------- YEAR ENDED
JUNE 1, MAY 27, --------------------------------
1996 1995 1996 1995 1994
----------- ----------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................. $ 205,292 $ 176,815 $810,707 $711,985 $685,393
Operating costs and expenses:
Cost of sales (including buying and
store occupancy)..................... 123,595 107,677 485,186 434,412 425,801
Selling, general and administrative
expenses............................. 60,546 52,058 235,617 206,022 195,444
Depreciation and amortization........... 4,775 4,123 17,204 15,989 15,771
Store-closing provision................. -- -- -- -- 21,250
--------- --------- -------- -------- --------
188,916 163,858 738,007 656,423 658,266
Operating income................ 16,376 12,957 72,700 55,562 27,127
Nonoperating (income) and expense:
Interest income......................... (1,661) (345) (935) (2,231) (4,334)
Interest expense........................ 4,253 3,272 14,723 14,223 21,177
Trading losses (gains).................. -- 15,956 16,463 2,799 (72)
Provision for Sunbelt Nursery Group,
Inc. defaults........................ -- 14,000 14,000 -- --
Write-down of General Host securities... -- -- -- 7,543 2,000
--------- --------- -------- -------- --------
2,592 32,883 44,251 22,334 18,771
--------- --------- -------- -------- --------
Income (loss) before income
taxes......................... 13,784 (19,926) 28,449 33,228 8,356
Provision (benefit) for income taxes...... 5,511 (1,591) 18,400 11,168 2,423
--------- --------- -------- -------- --------
Net income (loss)......................... $ 8,273 $ (18,335) $ 10,049 $ 22,060 $ 5,933
========= ========= ======== ======== ========
Primary net income (loss) per share....... $ .21 $ (.46) $ .25 $ .56 $ .15
========= ========= ======== ======== ========
Fully diluted net income (loss) per
share................................... $ .20 $ (.46) $ .25 $ .56 $ .15
========= ========= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 51
PIER 1 IMPORTS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 1, MARCH 2, FEBRUARY 25,
1996 1996 1995
----------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash, including temporary investments of $6,533
(unaudited), $1,588 and $42,536, respectively......... $ 17,521 $ 13,534 $ 50,566
Accounts receivable, net of allowance for doubtful
accounts of $3,767 (unaudited), $3,949 and $2,335,
respectively.......................................... 86,425 77,735 64,229
Inventories.............................................. 222,460 223,166 200,968
Other current assets..................................... 33,753 33,078 34,325
--------- -------- --------
Total current assets............................. 360,159 347,513 350,088
Properties, net............................................ 152,666 144,627 105,618
Other assets............................................... 32,891 38,956 30,219
--------- -------- --------
$ 545,716 $531,096 $485,925
========= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt...... $ 7,523 $ 4,454 $ 2,638
Accounts payable and accrued liabilities................. 97,723 96,246 82,419
--------- -------- --------
Total current liabilities........................ 105,246 100,700 85,057
Long-term debt............................................. 180,226 180,100 154,432
Deferred income taxes...................................... -- -- 2,538
Other non-current liabilities.............................. 24,092 22,373 21,501
Stockholders' equity:
Common stock, $1.00 par, 200,000,000 shares authorized,
39,877,000 (unaudited), 39,877,000 and 37,826,000
issued, respectively.................................. 39,877 39,877 37,826
Paid-in capital.......................................... 111,238 110,899 93,833
Retained earnings........................................ 88,319 81,633 94,516
Cumulative currency translation adjustments.............. (1,015) (1,072) (1,195)
Less -- 173,000 (unaudited), 303,000 and 162,000 common
shares in treasury, at cost, respectively............. (1,474) (2,545) (1,477)
Less -- subscriptions receivable and unearned
compensation.......................................... (793) (869) (1,106)
--------- -------- --------
236,152 227,923 222,397
Commitments and contingencies
--------- -------- --------
$ 545,716 $531,096 $485,925
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 52
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------- YEAR ENDED
JUNE 1, MAY 27, --------------------------------
1996 1995 1996 1995 1994
----------- ----------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net income (loss)............................. $ 8,273 $ (18,335) $ 10,049 $ 22,060 $ 5,933
Adjustments to reconcile to net cash provided
by operating activities:
Depreciation and amortization.............. 4,775 4,123 17,204 15,989 15,771
Deferred taxes and other................... 757 1,046 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 14,000 -- --
Investment gain............................ (1,607) -- -- -- --
Change in cash from:
Inventories.............................. 5,328 (3,295) (22,198) 18,352 (30,053)
Accounts receivable and other current
assets................................ (8,499) (6,407) (13,346) (16,071) (17,550)
Accounts payable and accrued expenses.... 387 (2,991) 7,159 417 10,103
Store-closing reserve.................... (4) (4,043) (6,020) (4,650) --
Other assets, liabilities, and other,
net................................... 2,270 (193) 27 (618) (28)
------- --------- -------- -------- --------
Net cash provided by (used in)
operating activities................ 11,680 (16,095) 11,384 46,537 4,420
------- --------- -------- -------- --------
Cash flow from investing activities:
Capital expenditures.......................... (9,147) (3,969) (22,127) (17,471) (24,617)
Acquisition of limited partnership interest... -- -- (40,000) -- --
Proceeds from disposition of properties and
other, net................................. 106 213 84 62 791
Loans to Sunbelt Nursery Group, Inc. ......... -- -- -- (9,600) (1,000)
Proceeds from Sunbelt Nursery Group, Inc. .... -- -- -- 11,600 2,105
Reserve for Sunbelt Nursery Group, Inc.
defaults................................... (1,010) -- -- -- --
Proceeds (payments) from investments.......... 4,665 (5,000) (7,600) (2,093) (2,353)
------- --------- -------- -------- --------
Net cash used in investing
activities.......................... (5,386) (8,756) (69,643) (17,502) (25,074)
------- --------- -------- -------- --------
Cash flow from financing activities:
Cash dividends................................ (1,587) (1,208) (5,158) (4,138) (3,560)
Proceeds from issuance of long-term debt...... -- -- 40,000 11,060 --
Repayments of long-term debt.................. -- (11,500) (14,750) (2,500) --
Net borrowings (payments) under line of credit
agreements................................. (1,802) 1,600 1,700 -- (33,000)
Proceeds (payments) from (purchases) sales of
capital stock, treasury stock, and other,
net........................................ 1,082 874 (565) (14) 752
------- --------- -------- -------- --------
Net cash provided by (used in)
financing activities................ (2,307) (10,234) 21,227 4,408 (35,808)
------- --------- -------- -------- --------
Change in cash and cash equivalents............. 3,987 (35,085) (37,032) 33,443 (56,462)
Cash and cash equivalents at beginning of year
or period..................................... 13,534 50,566 50,566 17,123 73,585
------- --------- -------- -------- --------
Cash and cash equivalents at end of year or
period........................................ $17,521 $ 15,481 $ 13,534 $ 50,566 $ 17,123
======= ========= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 53
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CUMULATIVE SUBSCRIPTIONS UNREALIZED LOSS
CURRENCY RECEIVABLE ON MARKETABLE TOTAL
COMMON PAID-IN RETAINED TRANSLATION TREASURY AND UNEARNED EQUITY STOCKHOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENTS STOCK COMPENSATION 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) $ -- $227,923
Purchase of treasury
stock (unaudited)...... -- -- -- -- (78) -- -- (78)
Restricted stock grant
and amortization
(unaudited)............ -- -- -- -- -- 76 -- 76
Stock purchase plan,
exercise of stock
options and other
(unaudited)............ -- 339 -- -- 1,149 -- -- 1,488
Currency translation
adjustments
(unaudited)............ -- -- -- 57 -- -- -- 57
Cash dividends ($.04 per
share) (unaudited)..... -- -- (1,587) -- -- -- -- (1,587)
Net income (unaudited)... -- -- 8,273 -- -- -- -- 8,273
------- -------- -------- ------- ------- -------- ------- ---------
Balance June 1, 1996
(unaudited)............ $39,877 $111,238 $88,319 $(1,015) $(1,474) $ (793) $ -- $236,152
======= ======== ======== ======= ======= ======== ======= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 54
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION RELATING TO THE THREE MONTHS ENDED JUNE 1, 1996 AND MAY 27,
1995 IS UNAUDITED)
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
F-8
<PAGE> 55
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
F-9
<PAGE> 56
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, and 40,153,000
(unaudited) and 39,827,000 (unaudited) for the three months ending June 1, 1996,
and May 27, 1995, 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 and for the three
months ended May 27, 1995. Fully diluted net income per share is $0.20 for the
three months ended June 1, 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.
UNAUDITED INTERIM FINANCIAL STATEMENTS -- All adjustments that are, in the
opinion of management, necessary for a fair statement of the financial position
as of June 1, 1996, and the results of operations and cash flows for the three
months ended June 1, 1996 and May 27, 1995 have been made and consist only of
normal recurring adjustments, except for the trading losses and the provision
for Sunbelt Nursery Group, Inc. defaults recorded for the three months ended May
27, 1995. The results of operations for the three months ended June 1, 1996 and
May 27, 1995 are not indicative of results to be expected for the fiscal year
because of, among other things, seasonality factors in the retail business.
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
F-10
<PAGE> 57
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
F-11
<PAGE> 58
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
F-12
<PAGE> 59
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
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%
======== ======== ========
</TABLE>
NOTE 5 -- PROPERTIES
Properties are summarized as follows at March 2, 1996 and February 25, 1995
(in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
F-13
<PAGE> 60
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
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):
<TABLE>
<CAPTION>
FISCAL 1996
---------------------
FISCAL CHANGES
1995 IN
1994 ACTIVITY 1995 ACTIVITY ESTIMATES 1996
------- -------- ------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Lease termination costs............. $15,825 $ (3,028) $12,797 $ (4,968) $(3,450) $4,379
Fixed asset write-downs and
inventory liquidation 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
======= ======== ======= ======== ======= ======
</TABLE>
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.
F-14
<PAGE> 61
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- LONG-TERM DEBT AND AVAILABLE CREDIT
Long-term debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
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. (See Note 18 of the Notes to
Consolidated Financial Statements.)
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
F-15
<PAGE> 62
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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):
<TABLE>
<S> <C>
Fiscal 1997....................................................... $ 2,566
1998....................................................... 7,538
1999....................................................... 47,500
2000....................................................... 7,500
2001....................................................... 20,000
Thereafter................................................. 97,562
--------
$182,666
========
</TABLE>
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
F-16
<PAGE> 63
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
F-17
<PAGE> 64
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
SHARES OPTION PRICES
--------- --------------
<S> <C> <C>
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
========= ==============
</TABLE>
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
F-18
<PAGE> 65
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
Deferred tax assets (liabilities) at March 2, 1996 and February 25, 1995
are comprised of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
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.............................. 17,052 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
======= =======
</TABLE>
F-19
<PAGE> 66
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
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
======= ======= ======
</TABLE>
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):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Buildings.......................................................... $ 477 $ 477
Equipment, furniture and fixtures.................................. 538 538
------ ------
1,015 1,015
Less accumulated depreciation...................................... 974 912
------ ------
$ 41 $ 103
====== ======
</TABLE>
F-20
<PAGE> 67
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At March 2, 1996, the Company had the following minimum lease commitments
in the years indicated (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
----------- ------- ---------
<S> <C> <C>
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
========
</TABLE>
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 L4.1 million 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
F-21
<PAGE> 68
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest............................................ $12,937 $13,477 $20,445
Income taxes........................................ 22,405 15,457 17,732
</TABLE>
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 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.
F-22
<PAGE> 69
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------
FISCAL 1996 5/27/95 8/26/95 11/25/95 3/02/96
- ------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------
FISCAL 1995 5/28/94 8/27/94 11/26/94 2/25/95
- ------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
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
</TABLE>
- ---------------
(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.
NOTE 18 -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS' REPORT
In July 1996, the Company called its $62.8 million of outstanding 6 7/8%
Convertible Subordinated Notes due 2002 for redemption. As a result, $62.7
million of the 6 7/8% notes were converted into 5,483,823 shares of Common Stock
and $69,000 of such notes were redeemed by the Company. The conversion of the
notes increased the Company's equity capitalization by $62.6 million.
F-23
<PAGE> 70
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR
THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN, IN CONNECTION WITH THE OFFERING
CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Investment Considerations................. 7
Recent Developments....................... 9
Use of Proceeds........................... 9
Capitalization............................ 10
Price Range of Common Stock and
Dividends............................... 11
Selected Financial Data................... 12
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 14
Business.................................. 23
Management................................ 31
Description of the Notes.................. 32
Description of Capital Stock.............. 39
Certain United States Federal Income Tax
Consequences............................ 41
Underwriting.............................. 43
Legal Matters............................. 43
Experts................................... 44
Available Information..................... 44
Incorporation of Certain Documents by
Reference............................... 44
Financial Statements...................... F-1
</TABLE>
$50,000,000
PIER 1 IMPORTS
% CONVERTIBLE SUBORDINATED NOTES
DUE 2006
--------------------
PROSPECTUS
--------------------
JEFFERIES & COMPANY, INC.
FORUM CAPITAL MARKETS L.P.
September , 1996
<PAGE> 71
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the securities being registered hereby, other
than underwriting discounts and commissions.
<TABLE>
<S> <C>
SEC Registration Fee.................................................... $ 19,827.59
NASD Filing Fee......................................................... 6,250.00
Printing and Engraving Expenses......................................... 150,000.00
Legal Fees and Expenses................................................. 100,000.00
Accounting Fees and Expenses............................................ 35,000.00
Blue Sky Fees and Expenses.............................................. 5,000.00
Trustees' Fees.......................................................... 18,000.00
Rating Agency Fees...................................................... 50,000.00
Miscellaneous........................................................... 15,922.41
-----------
Total......................................................... $400,000.00
===========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated in the State of Delaware. Under Section 145 of
the Delaware General Corporation Law, a Delaware corporation has the power,
under specified circumstances, to indemnify its directors, officers, employees
and agents in connection with actions, suits or proceedings brought against them
by a third party or in the right of the corporation, by reason of the fact that
they were or are such directors, officers, employees or agents, against expenses
and liabilities incurred in any such action, suit or proceeding so long as they
acted in good faith and in a manner that they reasonably believed to be in, or
not opposed to, the best interests of such corporation, and with respect to any
criminal action, that they had no reasonable cause to believe their conduct was
unlawful. With respect to suits by or in the right of the corporation, however,
indemnification is generally limited to attorneys' fees and other expenses and
is not available if such person is adjudged to be liable to such corporation
unless the court determines that indemnification is appropriate. A Delaware
corporation also has the power to purchase and maintain insurance on behalf of
such persons. Article Seventh of the Certificate of Incorporation of the
Company, as amended, provides for mandatory indemnification of directors and
officers to the fullest extent permitted by Delaware corporation law.
The Company has entered into indemnification agreements with all its
directors and executive officers and may in the future enter into such
indemnification agreements with any of its officers, employees, agents and
future directors. Such indemnification agreements are intended to provide a
contractual right to indemnification, to the extent permitted by law, for
expenses (including attorneys' fees), judgments, penalties, fines and amounts
paid in settlement actually and reasonably incurred by the person to be
indemnified in connection with any proceeding (including, to the extent
permitted by law, any derivative action) to which they are, or are threatened to
be made, a party by reason of their status in such positions. Such
indemnification agreements do not change the basic legal standards for
indemnification set forth in Delaware corporation law or the Certificate of
Incorporation of the Company. Such provisions are intended to be in furtherance,
and not in limitation of, the general right to indemnification provided in the
Certificate of Incorporation and By-Laws of the Company.
Section 102(b)(7) of the Delaware General Corporation Law provides that a
certificate of incorporation may contain a provision eliminating or limiting the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director provided that such
provision does not eliminate or limit the liability of a director (i) for any
breach of the director'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 Delaware
General Corporation Law (relating to liability for unauthorized acquisitions or
redemptions of, or dividends on, capital stock) or (iv) for
II-1
<PAGE> 72
any transaction from which the director derived an improper personal benefit.
Article Seventh of the Company's Certificate of Incorporation, as amended,
contains such a provision.
The above discussion of the Company's Certificate of Incorporation and
Sections 102(b)(7) and 145 of Delaware General Corporation Law is not intended
to be exhaustive and is qualified in its entirety by such Certificate of
Incorporation and statutes.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<S> <C>
*1.1 -- Form of Underwriting Agreement.
*4.1 -- Form of Indenture to be dated as of September , 1996, between the
Company and Wells Fargo Bank (Texas), N.A. as Trustee, relating to
the Notes.
*4.2 -- Form of % Convertible Subordinated Note due 2006 (included in
Exhibit 4.1)
*5.1 -- Opinion of Kelly, Hart & Hallman re legality.
12.1 -- Statement re Computation of Ratios
*23.1 -- Consent of Kelly, Hart & Hallman (included in Exhibit 5.1).
23.2 -- Consent of Price Waterhouse.
23.3 -- Consent of Ernst & Young.
24.1 -- Power of Attorney (included on signature page to this Registration
Statement).
25.1 -- Statement of Eligibility and Qualification of Trustee on Form T-1.
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE> 73
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Fort Worth, State of Texas, on August 22, 1996.
PIER 1 IMPORTS, INC.
By /s/ CLARK A.JOHNSON
------------------------------------
Clark A. Johnson
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of PIER 1 IMPORTS, INC., hereby
appoint CLARK A. JOHNSON and J. RODNEY LAWRENCE, or either of them, our true and
lawful attorneys and agents, to do any and all acts and things in our name and
on our behalf in our capacities indicated below, which said attorneys and
agents, or each of them, may deem necessary or advisable to enable said
corporation to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, including, without limitation,
power and authority to sign for us, or any of us, in our names in the capacities
indicated below, any and all amendments (including post-effective amendments)
hereto, and we hereby ratify and confirm all that said attorneys and agents, or
each of them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons on the 22nd
day of August, 1996, in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE OR CAPACITY
- --------------------------------------------- --------------------------------------------
<C> <S>
/s/ CLARK A. JOHNSON Chairman of the Board and Chief Executive
- --------------------------------------------- Officer
Clark A. Johnson
/s/ MARVIN J. GIROUARD President, Chief Operating Officer and
- --------------------------------------------- Director
Marvin J. Girouard
/s/ STEPHEN F. MANGUM Senior Vice President, Chief Financial
- --------------------------------------------- Officer and Principal Accounting Officer
Stephen F. Mangum
/s/ MARTIN L. BERMAN Director
- ---------------------------------------------
Martin L. Berman
/s/ CRAIG C. GORDON Director
- ---------------------------------------------
Craig C. Gordon
/s/ JAMES M. HOAK Director
- ---------------------------------------------
James M. Hoak
/s/ SALLY F. MCKENZIE Director
- ---------------------------------------------
Sally F. McKenzie
/s/ CHARLES R. SCOTT Director
- ---------------------------------------------
Charles R. Scott
</TABLE>
II-3
<PAGE> 74
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<S> <C>
12.1 Statement re Computation of Ratios
23.2 Consent of Price Waterhouse.
23.3 Consent of Ernst & Young.
24.1 Power of Attorney (included on signature page to this Registration
Statement).
25.1 Statement of Eligibility and Qualification of Trustee on Form T-1.
</TABLE>
<PAGE> 1
EXHIBIT 12.1
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(AMOUNTS IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE
FOR THE FISCAL YEAR ENDED THREE MONTHS
---------------------------------------------------------------------- ENDED
FEBRUARY 29, FEBRUARY 27, FEBRUARY 26, FEBRUARY 25, MARCH 2, JUNE 1,
1992 1993 1994 1995 1996 1996
------------ -------------- ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Pre-tax income from continuing
operations......................... $ 30,533 $ 35,911 $ 8,356 $ 33,228 $ 28,449 $ 13,784
------------ -------------- ------------ ------------ -------- ------------
Fixed charges:
Interest expense and amortization
of debt issue expense and
original issue discount......... 16,907 19,401 21,177 14,223 14,723 4,253
Estimated portion of rental expense
representing interest costs........ 28,675 29,955 32,063 33,876 35,468 9,031
Dividends on preferred stock......... 11
------------ -------------- ------------ ------------ -------- ------------
Total fixed charges.................. 45,593 49,356 53,240 48,099 50,191 13,284
------------ -------------- ------------ ------------ -------- ------------
Earnings before income taxes and
fixed charges...................... 76,126 85,267 61,596 81,327 78,640 27,068
========= ========== ========= ========= ======= ==========
Ratio of earnings to fixed charges... 1.7 1.7 1.2 1.7 1.6 2.0
========= ========== ========= ========= ======= ==========
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of our report dated April 7, 1995, except as
to Notes 2, 3, 9 and 12, regarding the trading losses and Sunbelt Nursery Group,
Inc. as to which the date is February 29, 1996, relating to the financial
statements of Pier 1 Imports, Inc., which appears in such Prospectus. We also
consent to the incorporation by reference in the Prospectus constituting part of
this Registration Statement on Form S-3 of our report appearing on page 21 of,
and our report on the financial statement schedules in, Pier 1 Imports, Inc.'s
Annual Report on Form 10-K for the year ended March 2, 1996. We also consent to
the reference to us under the heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Fort Worth, Texas
August 22, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-00000) and related Prospectus of Pier 1
Imports, Inc. for the registration of $50,000,000 of Convertible Subordinated
Notes Due 2006 and to the inclusion herein and incorporation by reference
therein of our report dated April 11, 1996, with respect to the consolidated
financial statements included herein and 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, filed with the Securities and Exchange
Commission.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Fort Worth, Texas
August 20, 1996
<PAGE> 1
EXHIBIT 25.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------------------------
Form T-1
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
-------------------------------------------------------
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
P.O. Box 4441 76-0034784
Houston, Texas 77210-4441 (I.R.S. Employer
(713) 250-3795 Identification Number)
(Address of Principal
Executive Offices)
-------------------------------------------------------
PIER 1 IMPORTS, INC.
(Exact name of obligor as specified in its charter)
DELAWARE
(State of Incorporation)
75-1729843
(I.R.S. Employer Identification Number)
301 COMMERCE ST.
SUITE 600
FORT WORTH, TX 76102
(Address of Principal Executive Office)
PIER 1 IMPORTS, INC. ___% CONVERTIBLE SUBORDINATED NOTES DUE 2006
(Title of the indenture securities)
================================================================================
<PAGE> 2
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Name: Address:
------------------------------------- ----------------
Comptroller of the Currency Washington, D.C.
Federal Reserve Bank Dallas, Texas
Federal Deposit Insurance Corporation Washington, D.C.
National Bank Examiners Dallas, Texas
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such affiliation.
None.
Item 3. Voting Securities of the Trustee.
Furnish the following information as to each class of voting securities of the
trustee:
Col. A Col. B
Title of Class Amount Outstanding
-------------- ------------------
N/A
Item 4. Trusteeships Under Other Indentures.
If the trustee is a trustee under another indenture under which any other
securities, or certificates of interest or participation in any other
securities, of the obligor are outstanding, furnish the following information:
(a) Title of the securities outstanding under each such other indenture.
(b) A brief statement of the facts relied upon as a basis for the claim
that no conflicting interest within the meaning of Section 310(b)(1)
of the Act arises as a result of the trusteeship under any such other
indenture, including a statement as to how the indenture securities
will rank as compared with the securities issued under such other
indenture.
N/A
<PAGE> 3
Item 5. Interlocking Directorates and Similar Relationships with the Obligor
or Underwriters.
If the trustee or any of the directors or executive officers of the trustee is
a director, officer, partner, employee, appointee, or representative of the
obligor or of any underwriter for the obligor, identify each such person having
any such connection and state the nature of each such connection.
N/A
Item 6. Voting Securities of the Trustee Owned by the Obligor or its
Officials.
Furnish the following information as to the voting securities of the trustee
owned beneficially by the obligor and each director, partner, and executive
officer of the obligor:
- --------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D
------------- -------------- ------------ -------------------------
Name of Owner Title of Class Amount Owned Percentage of Voting
Beneficially Securities Represented
by Amount Given in Col. C
- --------------------------------------------------------------------------------
N/A
Item 7. Voting Securities of the Trustee Owned by Underwriters or their
Officials.
Furnish the following information as to the voting securities of the trustee
owned beneficially by each underwriter for the obligor and each director,
partner, and executive officer of each such underwriter:
- --------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D
------------- -------------- ------------ -------------------------
Name of Owner Title of Class Amount Owned Percentage of Voting
Beneficially Securities Represented
by Amount Given in Col. C
- --------------------------------------------------------------------------------
N/A
Item 8. Securities of the Obligor Owned or Held by the Trustee.
Furnish the following information as to securities of the obligor owned
beneficially or held as collateral security for obligations in default by the
trustee:
- --------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D
- -------------- ---------------------- ------------ -------------------
Title of Class Whether the Securities Amount Owned Percentage of Class
are Voting or Beneficially or Held Represented by
Non-Voting Securities as Collateral Security Amount Given in
for Obligations in Col. C
Default
- --------------------------------------------------------------------------------
N/A
<PAGE> 4
Item 9. Securities of Underwriters Owned by or Held by the Trustee.
If the trustee owns beneficially or holds as collateral security for
obligations in default any securities of an underwriter for the obligor,
furnish the following information as to each class of securities of such
underwriter any of which are so owned or held by the trustee:
- --------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D
--------------- ------ ------------ -------------------
Title of Issuer Amount Amount Owned Percentage of Class
and Title of Outstanding Beneficially or Represented by Amount
Class Held as Collateral Given in Col. C
Security for Obligations
in Default By Trustee
- --------------------------------------------------------------------------------
N/A
Item 10. Ownership or Holdings by the Trustee of Voting Securities of Certain
Affiliates or Security Holders of the Obligor.
If the trustee owns beneficially or holds as collateral security for
obligations in default voting securities of a person who, to the knowledge of
the trustee (1) owns ten percent (10%) or more of the voting securities of the
obligor or (2) is an affiliate, other than a subsidiary, of the obligor,
furnish the following information as to the voting securities of such person:
- --------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D
--------------- ------ ------------ -------------------
Title of Issuer Amount Amount Owned Percentage of Class
and Title of Outstanding Beneficially or Held Represented by Amount
Class as Collateral Security Given in Col. C
for Obligations in
Default By Trustee
- --------------------------------------------------------------------------------
N/A
Item 11. Ownership or Holdings by the Trustee of any Securities of a Person
Owning 50 Percent or More of the Voting Securities of the Obligor.
If the trustee owns beneficially or holds as collateral security for
obligations in default any securities of a person who, to the knowledge of the
trustee, owns fifty percent (50%) or more of the voting securities of the
obligor, furnish the following information as to each class of securities of
such person any of which are so owned or held by the trustee:
- --------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D
--------------- ------ ------------ -------------------
Title of Issuer Amount Amount Owned Percentage of Class
and Title of Outstanding Beneficially or Held Represented by Amount
Class as Collateral Security Given in Col. C
for Obligations in
Default By Trustee
- --------------------------------------------------------------------------------
N/A
<PAGE> 5
Item 12. Indebtedness of the Obligor to the Trustee.
Except as noted in the instructions, if the obligor is indebted to the
trustee, furnish the following information:
- --------------------------------------------------------------------------------
Col. A Col. B Col. C
------------ ----------- --------
Nature of Amount Date Due
Indebtedness Outstanding
- --------------------------------------------------------------------------------
N/A
Item 13. Defaults by the Obligor.
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such default.
N/A
(b) If the trustee is a trustee under another indenture under which any
other securities, or certificates of interest or participation in any other
securities, of the obligor are outstanding, or is trustee for more than one
outstanding series of securities under the indenture, state whether there has
been a default under any such indenture or series, identify the indenture or
series affected, and explain the nature of any such default.
N/A
Item 14. Affiliations with the Underwriters.
If any underwriter is an affiliate of the trustee, describe each such
affiliation.
N/A
Item 15. Foreign Trustee.
Identify the order or rule pursuant to which the foreign trustee is authorized
to act as sole trustee under the indentures qualified or to be qualified under
the Act.
N/A
Item 16. List of Exhibits.
List below all exhibits filed as a part of this statement of eligibility.
Exhibits identified in brackets below, on file with the Commission, are
incorporated herein by reference as exhibits hereto.
Exhibit 1. A copy of the Articles of Association of the Trustee as now
in effect.
Exhibit 2. A copy of the certificate of authority of the Trustee to
commence business, if not contained in the Articles of
Association.
Exhibit 3. A copy of the authorization of the Trustee to exercise
corporate trust powers, if such authorization is not contained
in the documents specified in paragraph (1) or (2) above.
<PAGE> 6
Exhibit 4. A copy of the existing by-laws of the Trustee.
Exhibit 5. Not applicable.
Exhibit 6. The consent of the Trustee required by Section 321(b) of the
Trust Indenture Act of 1939.
Exhibit 7. A copy of the latest report of condition of the Trustee
published pursuant to law or the requirements of its supervising
or examining authority.
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the trustee,
Wells Fargo Bank (Texas), N.A., a national banking association organized and
existing under the laws of the United States, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Houston and State of Texas, on the 14th day of
August, 1996.
WELLS FARGO BANK (TEXAS), N.A.
By: /s/ TERI D. BANKS
----------------------------
Name: Teri D. Banks
--------------------------
Title: Vice President
-------------------------
<PAGE> 7
Exhibit 1
A copy of the Articles of Association of the Trustee as now in effect.
<PAGE> 8
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION
AMENDED AND RESTATED ARTICLES OF ASSOCIATION
(AS AMENDED THROUGH AUGUST 20, 1996)
CHARTER NUMBER 17612
I.
The title of this Association shall be Wells Fargo Bank
(Texas), National Association.
II.
The main office of the Association shall be in Houston, County
of Harris, State of Texas. The general business of the Association shall be
conducted at its main office and its branches.
III.
The Board of Directors of this Association shall consist of
not less than five nor more than twenty-five persons, the exact number of
directors within such minimum and maximum limits to be fixed and determined
from time to time by resolution of a majority of the full Board of Directors or
by resolution of the shareholders at any annual or special meeting thereof.
Unless otherwise provided by the laws of the United States, any vacancy in the
Board of Directors for any reason, including an increase in the number thereof,
may be filled by action of the Board of Directors. Between annual meetings of
shareholders, the Board of Directors may not increase the number of directors
to a number which: (a) exceeds by more than two the number of directors last
elected by shareholders if such number was fifteen or less; or (b) exceeds by
more than four the number of directors last elected by shareholders if such
number was sixteen or more. As long as required by applicable law, each
director of the Association shall own a combination of common and preferred
stock of the Association or of a holding company owning the Association with an
aggregate par, fair market or equity value of not less than $1,000, as of
either (i) the date of purchase, (ii) the date
<PAGE> 9
the person became a director, or (iii) the date of that person's most recent
election to the Board of Directors, whichever is more recent.
IV.
A. The annual meeting of the shareholders for the election of
directors and the transaction of whatever other business may be brought before
said meeting shall be held at the main office or such other place as the Board
of Directors may designate, on the day of each year specified therefor in the
By-Laws, but if no election is held on that day, it may be held on any
subsequent day according to the provisions of law; and all elections shall be
held according to such lawful regulations as may be prescribed by the Board of
Directors.
B. Nominations for election to the Board of Directors may be
made by the Board of Directors or by any shareholder of any outstanding class
of stock of the Association entitled to vote for election of directors.
Nominations, other than those made by or on behalf of the existing management
of the Association, shall be made in writing and shall be delivered or mailed
to the President of the Association and to the Comptroller of the Currency,
Washington, D.C., not less than 14 days nor more than 50 days prior to any
meeting of shareholders called for the election of directors; provided,
however, that if less than 21 days' notice of the meeting is given to
shareholders, such nomination shall be mailed or delivered to the President of
the Association and to the Comptroller of the Currency not later than the close
of business on the seventh day following the day on which the notice of meeting
was mailed. Such notification shall contain the following information to the
extent known to the notifying shareholder: (a) the name and address of each
proposed nominee; (b) the principal occupation of each proposed nominee; (c)
the total number of shares of capital stock of the Association that will be
voted for each proposed nominee; (d) the name and residence address of the
notifying shareholder; and (e) the number of shares of capital stock of the
Association owned by the notifying shareholder. Nominations not made in
accordance herewith may, in his discretion, be disregarded by the chairman of
the meeting, and upon his instructions, the vote tellers may disregard all
votes cast for each such nominee.
-2-
<PAGE> 10
C. For so long as cumulative voting for directors is required
by applicable law, in all elections of directors, the number of votes each
common shareholder may cast will be determined by multiplying the number of
shares he or she owns by the number of directors to be elected. Those votes
may be cumulated and cast for a single candidate or may be distributed among
two or more candidates in the manner selected by the shareholder. On all other
questions, and if cumulative voting for directors is not required by applicable
law, on all questions, each common shareholder shall be entitled to one vote
for each share of stock held by him or her.
D. Any director may be removed by a majority vote of the
shareholders entitled to vote at a meeting called to remove him or her, for any
cause deemed sufficient by the shareholders present or represented at such
meeting, as long as notice of the meeting stating that the purpose or one of
the purposes is to remove him or her is provided. For so long as cumulative
voting for directors is required by applicable law, a director may not be
removed if the number of votes sufficient to elect him or her under cumulative
voting is voted against his or her removal.
V.
A. The authorized amount of capital stock of this Association
shall be 5,000,000 shares of Common Stock of the par value of ten dollars
($10.00) each; but said capital stock may be increased or decreased from time
to time, in accordance with the provisions of the laws of the United States.
B. No holder of shares of the capital stock of any class of
the Association shall have any preemptive or preferential right of subscription
to any shares of any class of stock of the Association, whether now or
hereafter authorized, or to any obligations convertible into stock of the
Association, issued, or sold, nor any right of subscription to any thereof
other than such, if any, as the Board of Directors in its discretion may from
time to time determine and at such price as the Board of Directors may from
time to time fix.
C. If the capital stock is increased by a stock dividend,
each shareholder shall be entitled to his proportionate amount of such increase
in accordance with the number of shares
-3-
<PAGE> 11
of capital stock owned by him at the time the increase is authorized by the
shareholders, unless another time subsequent to the date of the shareholders'
meeting is specified in a resolution adopted by the shareholders at the time
the increase is authorized.
D. The Association, at any time and from time to time, may
authorize and issue debt obligations whether or not subordinated, without the
approval of shareholders.
VI.
A. The Board of Directors shall appoint one of its members
President of this Association, who shall be Chairman of the Board, unless the
Board appoints another director to be the Chairman. The Board of Directors
shall have the power to appoint one or more Vice Presidents and to appoint a
Secretary and such other officers and employees as may be required to transact
the business of this Association.
B. The Board of Directors shall have the power to define the
duties of the officers and employees of the Association; to delegate the
performance of its duties, but not the responsibility for its duties, to the
officers, employees, and agents of the Association; to fix the salaries to be
paid to them; to dismiss them; to require bonds from them and to fix the
penalty thereof; to regulate the manner in which any increase of the capital of
the Association shall be made; to manage and administer the business and
affairs of the Association; to make all by-laws that it may be lawful for them
to make; and generally to do and perform all acts that it may be legal for a
Board of Directors to do and perform.
VII.
The Board of Directors shall have the power to change the
location of the main office to any other place within the limits of Houston,
Texas, without the approval of the shareholders, but subject to the approval of
the Comptroller of the Currency and shall have the power to establish or change
the location of any branch or branches of the Association to any
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<PAGE> 12
other location, without the approval of the shareholders but subject to the
approval of the Comptroller of the Currency.
VIII.
The corporate existence of this Association shall continue
until terminated in accordance with the laws of the United States.
IX.
The Board of Directors of this Association, or any three or
more shareholders owning, in the aggregate, not less than 25 percent of the
stock of this Association, may call a special meeting of shareholders at any
time. Unless otherwise provided by the laws of the United States, a notice of
the time, place and purpose of every annual and special meeting of the
shareholders shall be given by first-class mail, postage prepaid, mailed at
least ten days prior to the date of such meeting to each shareholder of record
at his address as shown upon the books of this Association.
X.
A. Right to Indemnification. Each person who was or is made
a party or is threatened to be made a party to or is otherwise involved in any
threatened, pending or completed 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 Association or is or was
serving at the request of the Association 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 an employee benefit plan,
shall be indemnified and held harmless by the Association (except as provided
in the last sentence of this subsection) 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 Association to provide broader
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<PAGE> 13
indemnification rights than permitted prior thereto). The aforesaid indemnity
shall be provided without regard to whether the basis of such proceeding is
alleged action in an official capacity while serving as a director, officer,
employee, or agent, or in any other capacity while serving as a director,
officer, employee or agent. The aforesaid indemnity shall protect such person
against all expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties, and amounts 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 B. hereof, with respect to proceedings to enforce rights to
indemnification, the Association shall indemnify any such person 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
Association. The conditional right to indemnification conferred in this
section shall be a contract right and shall include the right to be paid by the
Association the expenses incurred in defending any such proceeding in advance
of its final disposition (an "advancement of expenses"); provided, however,
that, if required by applicable law or regulation, an advancement of 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, including, without limitation, service to an employee benefit
plan) shall be made only upon (i) delivery to the Association of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined by final judicial or
administrative decision from which there is no further right to appeal that
such director or officer is not entitled to be indemnified for such expenses
under this section or otherwise and (ii) compliance with any other actions
required by applicable law or regulation to be taken prior to an advancement of
expenses. The Association may, by action of its Board of Directors, grant
rights to indemnification and to the advancement of expense to employees and
agents of the Association and to any director, officer, employee or agent of
any of its subsidiaries with the same scope and effect as the foregoing
indemnification of directors and officers. Notwithstanding the foregoing, (i)
no person shall be indemnified hereunder by the Association against expenses,
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<PAGE> 14
penalties, or other payments incurred in an administrative proceeding or action
instituted by an appropriate bank regulatory agency which proceeding or action
results in a final order assessing civil money penalties or requiring
affirmative action by an individual or individuals in the form of payments to
the Association, and (ii) no person shall be indemnified hereunder by the
Association and no advancement of expenses shall be made to any person
hereunder to the extent such indemnification or advancement of expenses would
violate or conflict with any applicable federal statute now or hereafter in
force or final regulation now or hereafter promulgated by the Office of the
Comptroller of the Currency ("OCC") or the Federal Deposit Insurance
Corporation ("FDIC"). The Association shall comply with any requirements
imposed on it by any such statute or regulation in connection with any
indemnification or advancement of expenses hereunder by the Association.
B. Right of Claimant to Bring Suit. If a claim under
paragraph A. of the section is not paid in full by the Association within
thirty (30) days after written claim has been received by the Association, the
claimant may at any time thereafter bring suit against the Association to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the Association to recover an
advancement of expenses pursuant to the terms of an undertaking, the claimant
shall be entitled to be paid also the expense of prosecuting or defending such
claim. It shall be a defense to any such action brought by the claimant to
enforce a right to indemnification hereunder (other than an action brought to
enforce a claim for an advancement of expenses where the required undertaking,
if any, has been tendered to the Association) that the claimant has not met an
applicable standard for indemnification under the Delaware General Corporation
Law. In any suit brought by the Association to recover an advancement of
expenses pursuant to the terms of an undertaking, the Association shall be
entitled to recover such expenses upon a final adjudication that the claimant
has not met any applicable standard for indemnification under the Delaware
General Corporation Law. Neither the failure of the Association (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 standards of conduct set forth in the Delaware
General
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<PAGE> 15
Corporation Law, nor an actual determination by the Association (including its
Board of Directors, independent legal counsel, or its stockholders) that the
claimant has not met such applicable standards of conduct under the Delaware
General Corporation Law, shall create a presumption that the claimant has not
met such applicable standards of conduct or, in the case of such a suit brought
by the claimant, be a defense to such suit.
C. Non-Exclusivity of Rights. The rights to indemnification
and the advancement of expenses conferred in this section shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Articles of Association, by-law, agreement,
vote of stockholders or disinterested directors or otherwise.
D. Insurance. The Association may, at its expense, purchase,
maintain or make payment or reimbursement for premiums on insurance to protect
itself and any director, officer, employee or agent of the Association or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Association would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law; provided, however, that such
insurance shall explicitly exclude insurance coverage for a formal order of the
OCC or FDIC assessing civil money penalties against an Association director or
employee.
XI.
A director of the Association shall not be personally liable
to the Association or its shareholder(s) for monetary damages for breach of
fiduciary duty as a director, except that this Article XI shall not eliminate
or limit a director's liability (i) for any breach of the director's duty of
loyalty to the Association or its shareholder(s), (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for any willful or negligent violation of applicable
law with respect to payment of dividends or purchase or redemption by the
Association of its own stock, or (iv) for any transaction from which the
director derived an improper personal benefit. If the Delaware General
Corporation Law is amended after approval by the shareholder(s)
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<PAGE> 16
of this provision to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of the
Association shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended from time to time.
Any repeal or modification of the foregoing paragraph by the
shareholder(s) of the Association shall not adversely affect any right or
protection of a director of the Association existing at the time of such repeal
or modification.
XII.
These Articles of Association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this Association, unless the vote of the holders of a
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount.
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<PAGE> 17
Exhibit 2
A copy of the certificate of authority of the Trustee to commence business, if
not contained in the Articles of Association.
<PAGE> 18
COMPTROLLER OF THE CURRENCY
TREASURY DEPARTMENT OF THE UNITED STATES
WASHINGTON, D. C.
WHEREAS, satisfactory evidence has been presented to the Comptroller
of the Currency that FIRST INTERSTATE BANK OF TEXAS, NATIONAL ASSOCIATION
located in Houston, State of Texas has complied with all provisions of the
statutes of the United States required to be complied with before being
authorized to commence the business of banking as a National Banking
Association.
NOW, THEREFORE, I hereby certify that the above-named association is
authorized to commence the business of banking as a National Banking
Association.
IN TESTIMONY WHEREOF, witness my
signature and seal of office this
24th day of January 1983.
Charter No. 17612 /s/ Peter C. Kraft
-----------------------------------
Comptroller of the Currency
<PAGE> 19
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION
ASSISTANT SECRETARY'S CERTIFICATE
I, Pui-Mei Wong, Assistant Secretary of Wells Fargo Bank (Texas),
National Association, a national banking association, do hereby certify that
effective June 1, 1996, the title of First Interstate Bank of Texas, National
Association, charter number 17612, was changed to Wells Fargo Bank (Texas),
National Association.
I further certify that attached hereto are:
A full, true and correct copy of the original letter received
from the Office of the Comptroller of the Currency,
Washington, D.C., evidencing the recording of said name
change; and
A full, true and correct copy of the action of the sole
stockholder of First Interstate Bank of Texas, National
Association by written consent dated May 20, 1996, approving
said name change.
IN WITNESS WHEREOF, I have hereunto subscribed my name on this 13th
day of August 1996.
/s/ Pui-Mei Wong
-----------------------------------
Pui-Mei Wong, Assistant Secretary
<PAGE> 20
Comptroller of the Currency
Administrator of National Banks
Multinational Banking Division
250 E Street, SW
Washington, D.C. 20219
May 30, 1996
Mr. Robert S. Singley
Assistant Secretary
Wells Fargo Bank, N.A.
111 Sutter Street, 16th Floor
MAC 0188-165
San Francisco, California 94163
Dear Mr. Singley:
The Office of the Comptroller of the Currency (OCC) has received your letter
concerning the title change and the appropriate amendment to the articles of
association. The OCC has recorded that effective June 1, 1996, the title of
First Interstate Bank of Texas, N.A., charter number 17612, will be changed to
Wells Fargo Bank (Texas), National Association.
As a result of the Garn-St. Germain Depository Institutions Act of 1982, the
OCC is no longer responsible for the approval of national bank name changes nor
does it maintain official records on the use of alternative titles. The use of
other titles or the retention of the rights to any previously used title is the
responsibility of the bank's board of directors. Legal counsel should be
consulted to determine whether or not the new title, or any previously used
title, could be challenged by competing institutions under the provisions of
federal or state law.
Sincerely,
/s/ Cindy L. Hausch-Booth
Cindy L. Hausch-Booth
Senior Licensing Analyst
Charter Number 17612
Application Control Number 96-ML-04-0006
<PAGE> 21
FIRST INTERSTATE BANK OF TEXAS, N.A.
ACTION OF SOLE STOCKHOLDER BY WRITTEN CONSENT
MAY 20, 1996
Wells Fargo & Company, being the sole stockholder of First Interstate
Bank of Texas, N.A. (the "Association"), hereby waives notice of a special
meeting of stockholders of the Association and consents to the adoption of the
following resolution in lieu of such meeting:
RESOLVED, that effective June 1, 1996, Article First of the
Articles of Association of the Association be amended to read in its
entirety as follows:
The name of this association shall be Wells Fargo Bank
(Texas), National Association.
IN WITNESS WHEREOF, Wells Fargo & Company has caused this consent to
be signed by its officers thereunto duly authorized as of the day and year
first above written.
WELLS FARGO & COMPANY
By:/s/ Rodney L. Jacobs
-----------------------------------
Rodney L. Jacobs
Vice Chairman
By:/s/ Guy Rounsaville, Jr.
-----------------------------------
Guy Rounsaville, Jr.
Executive Vice President
<PAGE> 22
Exhibit 3
A copy of the authorization of the Trustee to exercise corporate trust
powers, if such authorization is not contained in the documents specified in
paragraph (1) or (2) above.
<PAGE> 23
COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
TRUST CERTIFICATE
WHEREAS, FIRST INTERSTATE BANK OF TEXAS, N.A., located in Houston,
State of Texas, being a National Banking Association, organized under the
statutes of the United States, has made application for authority to act as
fiduciary;
AND WHEREAS, applicable provisions of the statutes of the United
States authorize the grant of such authority;
NOW THEREFORE, I hereby certify that the said association is
authorized to act in all fiduciary capacities permitted by such statutes.
IN TESTIMONY WHEREOF, witness my
signature and seal of Office this
Twentieth day of April 1988.
[Graphic of Seal of Office of
Comptroller of the Currency]
/s/ Robert L. Clarke
-------------------------------------
Robert L. Clarke, Comptroller of the
Currency
CHARTER NO. 17612
<PAGE> 24
Exhibit 4
A copy of the existing by-laws of the Trustee.
<PAGE> 25
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION
BY-LAWS
(As Amended Through August 20, 1996)
ARTICLE I
Meetings of Shareholders
Section 1.1. Annual Meeting. The regular annual meeting of
shareholders for the election of directors and the transaction of whatever
other business may properly come before the meeting, shall be held at the
principal office of the Association, 1000 Louisiana, Houston, Harris County,
Texas, or such other place as the Board of Directors (the "Board") may
designate, on the fourth Tuesday of February of each year, or on the next
succeeding business day, if the day fixed falls on a legal holiday, at 10:00
a.m. or at such other hour as may be designated by the Board. Notice of such
meeting shall be mailed postage prepaid at least ten days prior to the date
thereof, addressed to each shareholder at his address appearing on the books of
the Association. If, from any cause, an election of directors is not held on
such day, the Board shall order the election to be held as soon thereafter as
practicable, and notice thereof shall be given in the manner herein provided
for the annual meeting.
Section 1.2. Special Meetings. Except as otherwise provided
by law, special meetings of the shareholders may be called for any purpose at
any time by the Board of Directors or any three or more shareholders owning, in
the aggregate, not less than 25% of the stock of the Association. Every such
special meeting, unless otherwise provided by law, shall be called by mailing,
postage prepaid, not less than ten days prior to the date fixed for such
meeting, to each shareholder, at its address appearing on the books of the
Association, a notice stating the time, place and purpose of the meeting.
Section 1.3. Nominations for Director. Nominations for
election to the Board may be made by the Board or by any shareholder entitled
to vote for the election of directors in accordance with the procedures
specified in the Articles of Association.
<PAGE> 26
Section 1.4. Organization of Shareholders Meetings. At each
meeting of shareholders the Chairman of the Board or, in the absence of the
Chairman, the President, or, in the absence of both, the person appointed by
the holders of a majority of the shares represented at the meeting, shall serve
as chairman of the meeting and shall appoint a person to serve as secretary of
the meeting. The secretary of the meeting shall serve as judge of the election
of directors, and shall record in the minutes of the meeting the number of
shares represented in person and by proxy, the result of the election of
directors, and any other action taken at the meeting.
Section 1.5. Proxies. Any shareholder may vote at any
meeting of the shareholders by a proxy duly authorized in writing, but no
officer or employee of the Association shall act as proxy. Proxies shall be
valid only for one meeting, to be specified therein, and any adjournments of
such meeting. Proxies shall be dated and shall be filed with the records of
the meeting.
Section 1.6. Quorum. A majority of the outstanding capital
stock, represented in person or by proxy, shall constitute a quorum at any
meeting of shareholders, unless otherwise provided by law. A majority of the
votes cast shall decide every question or matter submitted to the shareholders
at any meeting, unless otherwise provided by law or by the Articles of
Association.
Section 1.7. Written Consents. Any action required or
permitted to be taken by the shareholders may be taken without a meeting if all
shareholders shall individually or collectively consent in writing to such
action. Such written consent or consents shall be filed with the minutes of
the proceedings of the shareholders. Such action by written consent shall have
the same force and effect as the unanimous vote of the shareholders.
ARTICLE II
Board of Directors
Section 2.1. Number. The Board shall consist of not less
than five nor more than twenty-five persons qualified as required by law, the
exact number within such minimum and maximum limits to be fixed and determined
from time to time by resolution
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<PAGE> 27
of a majority of the full Board or by resolution of the shareholders at any
meeting thereof; provided, however, that a majority of the full Board may not
increase the number of directors to a number which: (i) exceeds by more than
two the number of directors last elected by shareholders where such number was
fifteen or less; or (ii) exceeds by more than four the number of directors last
elected by shareholders where such number was sixteen or more, but in no event
shall the number of directors exceed twenty-five.
Section 2.2. Organization Meeting. Following the annual
meeting of shareholders, the secretary of the meeting shall notify the
directors-elect of their election and of the time at which they are required to
meet at the principal office of the Association in Houston, Texas, for the
purpose of organizing the new Board and appointing officers of the Association
for the succeeding year, as provided in these by-laws. Such meeting shall be
held on the day of the election or as soon thereafter as practicable, and, in
any event, within thirty days thereof. If, at the time fixed for such meeting,
there shall not be a quorum present, the directors present may adjourn the
meeting, from time to time, until a quorum is obtained.
Section 2.3. Directors' Meetings. The regular meeting of the
Board shall be held, without notice, at the principal office of the
Association, or at such other place as the directors determine, on the fourth
Tuesday of each month other than July and December, at 10:00 a.m. When any
regular meeting of the Board falls on a legal holiday, the meeting shall be
held on the next succeeding business day unless the Board shall designate some
other day. Special meetings may be had upon call issued by the Chairman of the
Board or the President, a majority of the directors, or the owners and holders
of a majority in interest of the outstanding stock of the Association, after
notice thereof is given by the Secretary or any other officer of the
Association in person, by mail, telephone, or telegraph to each director at his
last known address at least one day prior to such meeting. No notice need be
given as to any meeting at which all of the directors are present, and the
attendance of a director at any meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of any business on the grounds that the meeting
is not lawfully called or
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<PAGE> 28
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board need be specified in the notice or
waiver of notice of such meeting, except as provided in Section 9.2 below.
Section 2.4. Quorum. A majority of the directors then in
office shall constitute a quorum at any meeting, except when otherwise provided
by law; but a lesser number may adjourn any meeting, from time to time, and the
meeting may be held, as adjourned, without further notice. The act of a
majority of the directors present at any meeting in which there is a quorum
shall be the act of the Board, unless otherwise specifically provided by law,
the Articles of Association or the by-laws.
Section 2.5. Vacancies. When any vacancy occurs among the
directors, a majority of the remaining members of the Board may elect a
director to fill such vacancy at any regular meeting of the Board or at a
special meeting called for that purpose.
Section 2.6. Term. Directors shall hold office until the
next annual meeting of shareholders following their election, and until their
successors have been duly elected and qualified.
Section 2.7. Duties of Directors. The Board shall supervise
the conduct of the Association's business, and may promulgate rules and
regulations relative thereto, and prescribe the duties and responsibilities of
the officers and employees of the Association.
Section 2.8. Presumption of Assent. A director who is
present at a meeting of the Board at which action on any corporate matter is
taken shall be presumed to have assented to the action unless his dissent shall
be entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as secretary of the meeting
before the adjournment thereof or shall forward such dissent by registered mail
to the Secretary of the Association immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in
favor of such action.
Section 2.9. Advisory Directors. The Board may appoint such
number of advisory directors as the Board may from time to time determine, each
of whom shall hold office until the next annual organization meeting of
directors following their
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<PAGE> 29
appointment. Advisory directors shall serve in an advisory capacity to the
Board, but shall not have the right to vote. Advisory directors may serve in
such capacity with respect to the Association or any branch office thereof, as
the Board may from time to time determine.
Section 2.10. Written Consents. Any action required or
permitted to be taken by the Board of Directors or any committee thereof may be
taken without a meeting if all members of the Board of Directors or such
committee shall individually or collectively consent in writing to such action.
Such written consent or consents shall be filed with the minutes of the
proceedings of the Board of Directors or such committee. Such action by
written consent shall have the same force and effect as the unanimous vote of
the Directors or committee members, as the case may be.
ARTICLE III
Committees
Section 3.1. Executive Committee. The Board may, by
resolution adopted by a majority of the number of directors fixed by these
by-laws, designate two or more directors to constitute an Executive Committee,
which committee, to the extent provided in such resolution, shall have and may
exercise all of the authority of the Board in the business and affairs of the
Association, except that the Executive Committee may not take any action that
is required by law to be taken by the full Board of Directors, including but
not necessarily limited to:
(1) Authorizing distributions of assets or dividends.
(2) Approving action required to be approved by the
shareholders.
(3) Filling vacancies on the Board of Directors or any of its
committees.
(4) Amending the Articles of Association.
(5) Adopting, amending or repealing by-laws.
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<PAGE> 30
(6) Authorizing or approving issuance or sale or contract for
sale of shares, or determining the designation and relative rights,
preferences and limitations of a class or series of shares.
The designation of the Executive Committee and the delegation
thereto of authority shall not operate to relieve the Board, or any member
thereof, of any responsibility imposed upon it or him by law.
Section 3.2. Credit Committee. The Board may, by resolution
adopted by a majority of the number of directors fixed by these by-laws,
designate a committee to be known as the Credit Committee, consisting of such
officers and/or directors as may be appointed by the Board. The directors and
officers appointed by the Board to the Credit Committee shall be appointed
annually and shall serve until their successors have been duly appointed and
qualified. The committee and such persons as may be authorized by the
committee, to the extent provided in such resolution, shall have the power to
discount and purchase notes, bills and other evidences of debt, and to buy and
sell bills of exchange, to pass upon and approve all loans and discounts or
advances of credit, and to exercise authority regarding loans and discounts or
advances of credit.
Section 3.3. Other Committees. The Board may appoint, from
time to time, other committees of one or more persons, for such purposes and
with such members and such powers as the Board may determine. The Board shall
also have the authority to appoint one or more of the advisory directors as
advisory members of any committee or committees, but such advisory members
shall not have the right to vote.
Section 3.4. Audit Committee. The Board shall appoint an
Audit Committee composed of two or more directors independent of management of
the Association, which shall meet at least once during each calendar year and
within fifteen months of the last such audit make suitable audits of the Bank,
or cause suitable audits to be made by auditors responsible only to the Board,
and at such time shall ascertain whether the Bank has been administered in
accordance with law, applicable regulations and sound business and fiduciary
principles. The Audit Committee shall also review each report of examination
of the Bank by the
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<PAGE> 31
Comptroller of the Currency and report its findings and recommendations to the
Board.
ARTICLE IV
Officers and Employees
Section 4.1. Chairman of the Board. The Board shall appoint
one of its members to be Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the Board. The Chairman of the Board shall have
such powers and duties as from time to time may be assigned by the Board.
Section 4.2. President. The Board shall appoint one of its
members to be the President of the Association. In the absence of the
Chairman, the President shall preside at any meeting of the Board. The
President shall have general executive powers, and shall have and may exercise
any and all other powers and duties pertaining by law, regulation, or practice,
to the office of President, or imposed by these by-laws. The President shall
also have and may exercise such further powers and duties as from time to time
may be conferred or assigned by the Board.
Section 4.3. Secretary. The Board shall appoint a Secretary
of the Board and of the Association, and the Secretary shall be responsible for
all moneys, funds and valuables of the Association that may come into his hands
as such. The Secretary shall keep a full and complete record of the
proceedings of the Board and of the Association. The Secretary shall be
custodian of the seal of the Association, and may affix same to instruments
requiring the seal. The Secretary shall perform any and all of the duties
usually performed by secretaries of banks.
Section 4.4. Other Officers. The Board may appoint such
other officers as from time to time may appear to the Board to be required or
desirable, including a Senior Chairman of the Board, Chairman of the Executive
Committee, Cashier, one or more Vice Chairmen of the Board, one or more
Executive Vice Presidents, one or more Senior Vice Presidents, one or more Vice
Presidents, one or more Assistant Vice Presidents, one or more Assistant
Cashiers, one or more Banking Officers, one or more Assistant Secretaries and
such other officers with titles as the Board may designate. Such officers
shall, respectively, exercise such powers and perform such duties as may be
assigned to them in
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<PAGE> 32
these by-laws, by the Board or by the President. The Board may designate as
Executive Officers such officers as the Board may deem desirable from time to
time.
Section 4.5. Term of Office and Vacancies. Officers shall
hold their offices until their successors shall have been duly elected and
qualified unless they shall resign, become disqualified or be removed.
Officers may be removed by the Board with or without cause. The Board shall
have authority to fill any vacancy occurring in such offices. Election or
appointment of an officer or agent shall not of itself create contract rights
for the officer or agent.
Section 4.6. Compensation. The compensation to be paid
officers of the Association shall be that fixed and determined by the Board
from time to time.
Section 4.7. Vice Presidents. In the absence of the
President or the Secretary, or in the event of their inability or refusal to
act, any Vice President (or in the event there be more than one Vice President,
the Vice Presidents in the order of their designation, with Executive Vice
Presidents ranking above Senior Vice Presidents and Senior Vice Presidents
ranking above Vice Presidents, and in the case of Vice Presidents of the same
designation, in the order of their election) shall perform the duties of the
President or the Secretary, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President and the Secretary.
Section 4.8. Other Duties of Officers. Each of the officers
referred to in these by-laws and any other officer of the Association that may
be appointed by the Board shall be accountable to the Board for their actions,
and shall have such additional duties, obligations, responsibilities and powers
as may from time to time be delegated to them by action of the Board. The
subordinate officers and employees of the Association shall perform such duties
as may be delegated to them by the Board, the President or the Secretary.
Section 4.9. Officers. Officers duly appointed by the Board
of Directors and acting within the scope of their authority shall have the
power to hire and to dismiss subordinate officers and employees.
-8-
<PAGE> 33
ARTICLE V
Trust Department
Section 5.1. Trust Department. There shall be a department
of the Association known as the Trust Department which shall exercise the
fiduciary powers of the Association.
Section 5.2. Trust Officers. The Board shall appoint a trust
officer who shall have the responsibility to manage, supervise and direct all
of the activities of the Trust Department in order to carry on its business in
accordance with the provisions of applicable laws and regulations, under the
direction of the Trust Committee. The Board may appoint such other officers of
the Trust Department as from time to time may appear to the Board to be
required or desirable. Such officers shall exercise such powers and perform
such duties as may be assigned.
Section 5.3. Trust Committee. There shall be a Trust
Committee composed of not less than three persons who are either directors or
officers, appointed by the Board annually or more often. The Members of the
Trust Committee shall serve until confirmation of their successors by the
Board. The Trust Committee shall have responsibility for general supervision
of the Trust Department of the Association, including the establishment of the
policies under which said Trust Department shall manage and supervise all
fiduciary accounts. Policies established by said committee shall include the
manner in which funds are to be managed and invested, the procedures for
accepting and terminating fiduciary relationships, and the manner in which all
such other duties incidental to the conduct and administration of the trust
business of the Association shall be performed.
Section 5.4. Trust Audit Committee. The Trust Audit
Committee function shall be handled by the Audit Committee, which shall be
responsible to audit the Trust Department, or cause suitable audits to be made
by auditors responsible only to the Board, and at such time shall ascertain
whether the Trust Department has been administered in accordance with law,
applicable regulations and sound fiduciary principles. The Audit Committee
shall also review each report of examination of the
-9-
<PAGE> 34
Trust Department by the Comptroller of the Currency and report its findings and
recommendations to the Board.
Section 5.5. Trust Investments. Funds held in a fiduciary
capacity shall be invested according to the instrument establishing the
fiduciary relationship and local law. Where such instrument does not specify
the character and class of investments to be made and does not explicitly vest
in the Association discretion in the matter, funds held pursuant to such
instrument shall be invested in investments in which corporate fiduciaries may
invest under local law. The investments held in each fiduciary account shall
be kept separate and distinct from the assets of the Association and shall be
adequately identified as the property of the relevant account.
Section 5.6. Books and Accounts. All books and records of
the Trust Department shall be kept separate and distinct from other books and
records of the Association. All accounts opened shall be so kept as to enable
the Association at any time to furnish information or reports required by
regulatory authorities.
ARTICLE VI
Stock and Stock Certificates
Section 6.1. Transfers. Shares of stock shall be
transferable on the books of the Association, and a transfer book shall be kept
in which all transfers of stock shall be recorded. Every person becoming a
shareholder by such transfer shall, in proportion to such person's shares,
succeed to all rights and liabilities of the prior holder of such shares.
Section 6.2. Stock Certificates. Certificates of stock shall
bear the signature of the President (which may be engraved, printed or
impressed), and shall be signed manually or by facsimile process by the
Secretary, Assistant Secretary, Cashier, Assistant Cashier, or any other
officer appointed by the Board for that purpose, to be known as an authorized
officer, and the seal of the Association shall be engraved thereon. Each
certificate shall recite on its face that the stock represented thereby is
transferable only upon the books of the Association properly endorsed.
-10-
<PAGE> 35
Section 6.3. Record Date and Closing of Transfer Books. For
the purpose of determining shareholders entitled to notice of or to vote at any
meeting, or any adjournment thereof, or entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board may provide that the stock transfer books of the
Association shall be closed for a stated period but not to exceed in any case
fifty days. If the stock transfer books shall be closed for the purpose of
determining shareholders entitled to notice of or to vote at a meeting of
shareholders, such books shall be closed for at least ten days immediately
preceding such meeting. In lieu of closing the stock transfer books, the Board
may fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than fifty days and, in case
of a meeting of shareholders, not less than ten days prior to the date on which
the particular action requiring such determination of shareholders is to be
taken. If the stock transfer books are not closed and no record date is fixed
for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which the notice of the meeting is mailed or the date on
which the resolution of the Board declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
Section 6.4. Regulations. The Board shall have power and
authority to make all such rules and regulations as they may deem expedient
concerning the issue, transfer and registration or the replacement of
certificates for shares of the capital stock of the Association.
ARTICLE VII
Corporate Seal
Section 7.1. Seal. The Chairman of the Board, the President,
the Secretary, the Cashier and any Vice President or other officer designated
by the Board shall have authority to affix the corporate seal to any document
requiring such seal, and to attest the same. The seal shall be substantially
in the following form:
-11-
<PAGE> 36
ARTICLE VIII
Miscellaneous Provisions
Section 8.1. Fiscal Year. The fiscal year of the Association
shall be the calendar year.
Section 8.2. Execution of Instruments. All agreements,
indentures, mortgages, deeds, conveyances, transfers, certificates,
declarations, receipts, discharges, releases, satisfactions, settlements,
petitions, schedules, accounts, affidavits, bonds, undertakings, proxies and
other instruments or documents may be signed, executed, acknowledged, verified,
delivered or accepted on behalf of the Association by the Chairman of the
Board, or the President, or any other Executive Officer (as the same may be
designated from time to time by the Board), or in connection with the exercise
of the Association's fiduciary powers by any Trust Officer, or in such other
manner and by such person or persons as the Board may from time to time direct.
The provisions of this Section 8.2 are supplementary to any other provision of
these by-laws.
Section 8.3. Bonds. Each officer and employee of the
Association shall be covered by a bond of suitable amount with security to be
approved by the Board, conditioned for the honest and faithful discharge of
such person's duties as an officer or employee. Such bonds may be schedule or
blanket form, and the premiums shall be paid by the Association.
Section 8.4. Suspension of Officers. The President may, at
any time, when the Board is not in session, if such officer deems it necessary
for the interest and safety of the Association, suspend the power of any
officer of the Association until the next meeting of the Board, when the
President shall report the facts and the reasons for so doing.
Section 8.5. Emergency Procedures.
-12-
<PAGE> 37
a. The Board shall have the power, in the absence or
disability of any officer, or upon the refusal of any officer to act, to
delegate and prescribe such officer's powers and duties to any other officer,
or to any director.
b. In the event of a state of disaster of sufficient
severity to prevent the conduct and management of the affairs and business of
the Association by its directors and officers as contemplated by these by-
laws, if there is an incumbent Executive Committee, any two or more available
members of the Executive Committee shall constitute a quorum of that Committee
for the full conduct and management of the affairs and business of the
Association, including, if necessary, the selection of a temporarily relocated
place of business, and, in addition, such Committee shall be empowered to
exercise all of the powers reserved to any Committee established by or pursuant
to these by-laws. In the event that there is no incumbent Executive Committee
or of the unavailability, at such time, of a minimum of two members of the then
incumbent Executive Committee, any three available directors shall constitute
the Executive Committee for the full conduct and management of the affairs and
business of the Association in accordance with the foregoing provisions of this
Section. This Section shall control over any provisions of these by-laws and
any resolutions of the Board which are contrary to the provisions of this
Section until it shall be determined by any interim Executive Committee acting
under this Section that it shall be to the advantage of the Association to
resume the conduct and management of its affairs and business under all of the
other provisions of these by-laws.
Section 8.6. Records. The Articles of Association, the
by-laws and the proceedings of all meetings of the shareholders, the Board, and
all committees established by or pursuant to these by-laws, shall be recorded
in appropriate minute books provided for that purpose. The minutes of each
meeting shall be signed by the Secretary or other person appointed to act as
secretary of the meeting, and approved by the person presiding at such meeting.
Section 8.7. Banking Hours. The Association shall be open
for business on such days of the week and during such hours as may be directed
by the Board, the President or such other officer as may be designated by the
Board.
-13-
<PAGE> 38
Section 8.8. Notice and Waiver of Notice. Whenever any
notice whatsoever is required to be given under the provisions of these
by-laws, said notice shall be deemed to be sufficient if given by mailing the
same to the person entitled to said notice at the address of such person
appearing on the books of the Association, and such notice shall be deemed to
have been given two days after the date of such mailing. A waiver of notice,
signed by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
Section 8.9. Resignations. Any director or officer may
resign at any time. Such resignations shall be made in writing and shall take
effect at the time specified therein, or, if no time be specified, at the time
of its receipt by the President or Secretary. The acceptance of a resignation
shall not be necessary to make it effective, unless expressly so provided in
the resignation.
Section 8.10. Securities of Other Corporations. Except as
otherwise provided by resolution of the Board, the President, Secretary, any
other Executive Officer, Cashier, Branch President or any Vice President of the
Association shall have power and authority to transfer, endorse for transfer,
vote, consent or take any other action with respect to any securities of
another issuer which may be held or owned by the Association and to make,
execute and deliver any waiver, proxy or consent with respect to any such
securities.
Section 8.ll. Corporate Governance. To the extent not
inconsistent with applicable federal banking statutes or regulations or the
safety and soundness of the Association, the Association hereby elects to
follow the corporate governance procedures of the Delaware General Corporation
Law, as the same may be amended from time to time.
ARTICLE IX
Inspection and Amendment
Section 9.1. Inspection. A copy of the by-laws, with all
amendments thereto, shall at all times be kept in the custody of the Secretary
to the Board, and shall be open for inspection to all shareholders during
banking hours.
-14-
<PAGE> 39
Section 9.2. Amendments. These by-laws may be amended or
repealed or new by-laws may be adopted by the Board at any regular meeting of
the Board, or at any special meeting of the Board if notice of such amendment,
repeal or adoption of new by-laws is contained in the notice of such special
meeting. The Association's shareholders also may amend or repeal the by-laws
or adopt new by-laws.
-15-
<PAGE> 40
Exhibit 5
Not applicable.
<PAGE> 41
Exhibit 6
The consent of the Trustee required by Section 321(b) of the Trust
Indenture Act of 1939.
<PAGE> 42
EXHIBIT 6
Wells Fargo Bank (Texas), N.A., as a condition to qualification under the Trust
Indenture Act of 1939, consents that reports of examination by federal, state,
territorial, or district authorities may be furnished by such authorities to
the Securities and Exchange Commission of the United States upon request of
said Commission for said reports, as provided in Section 321 of said Trust
Indenture Act of 1939.
WELLS FARGO BANK (TEXAS), N.A.
By:/s/ Teri D. Banks
-----------------------------------
Name: Teri D. Banks
---------------------------------
Title: Vice President
--------------------------------
<PAGE> 43
Exhibit 7
A copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining authority.
<PAGE> 44
<TABLE>
<S> <C>
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
Federal Financial Institutions Examination Council Expires March 31, 1999
- -------------------------------------------------------------------------------------------------------------------------
[1]
[LOGO] Please Refer to Page i,
Table of Contents, for
the required disclosure
of estimated burden.
- -------------------------------------------------------------------------------------------------------------------------
Consolidated Reports of Condition and Income for
a Bank with Domestic Offices Only and
Total Assets of $300 Million or More - FFIEC 032
Report at the Close of Business June 30, 1996 (960630)
-----------
(RCRI 9999)
This report is required by law: 12 U.S.C. Section 324 (State This report form is to be filed by banks with
member banks); 12 U.S.C. Section 1817 (State nonmember domestic offices only. Banks with branches and
banks); and 12 U.S.C. Section 161 (National banks). consolidated subsidiaries in U.S. territories and
possessions, Edge or Agreement subsidiaries, foreign
branches, consolidated foreign subsidiaries, or
International Banking Facilities must file FFIEC 031.
- -------------------------------------------------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by The Reports of Condition and Income are to be
an authorized officer and the Report of Condition must be prepared in accordance with Federal regulatory
attested to by not less than two directors (trustees) for authority instructions. NOTE: These instructions may
State nonmember banks and three directors for State member in some cases differ from generally accepted
and National banks. accounting principles.
I, John V. Prince, Vice President We, the undersigned directors (trustees), attest to
-------------------------------------------------------- the correctness of this Report of Condition
Name and Title of Officer Authorized to Sign Report (including the supporting schedules) and declare that
it has been examined by us and to the best of our
of the named bank do hereby declare that these Reports of knowledge and belief has been prepared in conformance
Condition and Income (including the supporting schedules) with the instructions issued by the appropriate
have been prepared in conformance with the instructions Federal regulatory authority and is true and correct.
issued by the appropriate Federal regulatory authority and
are true to the best of my knowledge and belief. /s/ Paul W. Carlisle, Jr.
-----------------------------------------------------
Director (Trustee)
- ------------------------------------------------------------- /s/ Joseph P. Stiglich
Signature of Officer Authorized to Sign Report -----------------------------------------------------
Director (Trustee)
July 23, 1996 /s/ P.M. Watson
- ------------------------------------------------------------- -----------------------------------------------------
Date of Signature Director (Trustee)
- -------------------------------------------------------------------------------------------------------------------------
For Banks Submitting Hard Copy Report Forms:
State Member Banks: Return the original and one copy to the National Banks: Return the original only in the
appropriate Federal Reserve District Bank. special return address envelope provided. If express
mail is used in lieu of the special return address
State Nonmember Banks: Return the original only in the envelope, return the original only to the FDIC, c/o
special return address envelope provided. If express mail is Quality Data Systems, 2127 Espey Court, Suite 204,
used in lieu of the special return address envelope, return Crofton, MD 21114.
the original only to the FDIC, c/o Quality Data Systems,
2127 Espey Court, Suite 204, Crofton, MD 21114.
- -------------------------------------------------------------------------------------------------------------------------
FDIC Certificate Number Banks should affix the address label in this space.
----------- CALL NO. 196 32 06-30-96
(RCRI 9050) STBK: 48-3778 01976 STCERT: 48-24344
WELLS FARGO BANK (TEXAS), NA
-----------------------------------------------------
Legal Title of Bank (TEXT 9010)
P.O. BOX 3326
HOUSTON
-----------------------------------------------------
City (TEXT 9130)
TEXAS 77253-3326
-----------------------------------------------------
State Abbrev. (TEXT 9200) ZIP Code (TEXT 9220)
Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency
</TABLE>
<PAGE> 45
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RI-1
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 3
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Consolidated Report of Income
for the period January 1, 1996 - June 30, 1996
All Report of Income schedules are to be reported on a calendar year-to-date basis
in thousands of dollars.
Schedule RI - Income Statement
I380 [-
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RE Loans RIAD4011 26,075 RI-01.A.1
Ag/Farm Loans RIAD4024 255 RI-01.A.2
Coml/Indl Loans RIAD4012 39,730 RI-01.A.3
Credit Cards RIAD4054 2,438 RI-01.A.4A
Other Consumer RIAD4055 7,719 RI-01.A.4B
Loans to For Govt RIAD4056 0 RI-01.A.5
State/Local: Taxable RIAD4503 0 RI-01.A.6A
State/Local: Exempt RIAD4504 910 RI-01.A.6B
All Other Loans RIAD4058 3,766 RI-01.A.7
Leases: Taxable RIAD4505 40 RI-01.B.1
Leases: Exempt RIAD4307 0 RI-01.B.2
Interest on Balances Due(1) RIAD4115 2 RI-01.C
US Treas/Govt Securities RIAD4027 9,379 RI-01.D.1
State/Local Securities: Taxable RIAD4506 0 RI-01.D.2A
State/Local Securities: Exempt RIAD4507 0 RI-01.D.2B
Other Domestic Debt securities RIAD3657 963 RI-01.D.3
Foreign Debt Sec RIAD3658 5 RI-01.D.4
Equity Securities (incl mutual funds) RIAD3659 349 RI-01.D.5
Interest on Trading Assets RIAD4069 0 RI-01.E
Interest on Fed Funds Sold RIAD4020 4,076 RI-01.F
Total Interest Inc RIAD4107 95,707 RI-01.G
</TABLE>
(1) Includes interest income on time certificates of deposit not held for
trading.
<PAGE> 46
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RI-2
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 4
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RI - Continued
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Transaction Accounts RIAD4508 3,582 RI-02.A.1
MMDAs RIAD4509 10,528 RI-02.A.2A
Other Savings RIAD4511 1,791 RI-02.A.2B
CD's ]$100 000 RIAD4174 1,663 RI-02.A.2C
Other Time Deposits RIAD4512 9,651 RI-02.A.2D
Expense of Fed Fund Purhased RIAD4180 5,029 RI-02.B
Interest Demand Notes to US Treas RIAD4185 18 RI-02.C
Interest on Mtge Indebtedness RIAD4072 27 RI-02.D
Interest on Subordinated Notes/Debent RIAD4200 708 RI-02.E
Total Interest Exp RIAD4073 32,997 RI-02.F
Net Interest Income RIAD4074 62,710 RI-03
Provision for Loan and Lease Losses RIAD4230 9,000 RI-04.A
Provision for Allocated Transfer Risk RIAD4243 0 RI-04.B
Income from Fiduciary Activities RIAD4070 2,146 RI-05.A
Service Charges on Deposit Accounts RIAD4080 25,167 RI-05.B
Noninterest income:Trading revenue RIADA220 7 RI-05.C
Other Foreign Transactions Gain/Loss RIAD4076 136 RI-05.D
Other Noninterest Income - Fee Income RIAD5407 8,156 RI-05.F.1
Other Noninterest Income - All Other RIAD5408 2,645 RI-05.F.2
Total Noninterest Inc RIAD4079 38,257 RI-05.G
Gain/Loss Sec Held to Maturities RIAD3521 0 RI-06.A
Gain/Loss Sec Available-for-sale RIAD3196 0 RI-06.B
Salaries and Benefits RIAD4135 19,361 RI-07.A
Expenses of Premises/Fixed Assets RIAD4217 7,104 RI-07.B
Other Noninterest Expense* RIAD4092 45,539 RI-07.C
Total Noninterest Exp RIAD4093 72,004 RI-07.D
Gain/Loss Income RIAD4301 19,963 RI-08
Income Taxes RIAD4302 9,696 RI-09
Gain/Loss Income RIAD4300 10,267 RI-10
Extraordinary Items RIAD4310 0 RI-11.A
Income Taxes RIAD4315 0 RI-11.B
Extraordinary/Other RIAD4320 0 RI-11.C
Net Income RIAD4340 10,267 RI-12
</TABLE>
* Describe on Schedule RI-E - Explanations.
<PAGE> 47
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RI-3
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 5
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RI - Continued
I381 [-
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Expense on Exempt After 8/7/86 RIAD4513 170 RI-M.1
Memo: Credit losses on off-bal sheet RIADA251 0 RI-M.10
Memoranda: Income Sale/Srvc Mutuals RIAD8431 0 RI-M.2
Number of Full-Time Employees RIAD4150 1,935 RI-M.4
If the reporting bank has restated balance RIAD9106 04/01/96 RI-M.7
Memoranda: Trading Rev - Interest RIAD8757 0 RI-M.8.A
Memoranda: Trading Rev - Foreign Exch RIAD8758 7 RI-M.8.B
Memoranda: Trading Rev - Equity/Index RIAD8759 0 RI-M.8.C
Memoranda: Trading Rev - Commodity RIAD8760 0 RI-M.8.D
Memoranda: Impact - Interest Income RIAD8761 88 RI-M.9.A
Memoranda: Impact - Interest Expense RIAD8762 (1,211) RI-M.9.B
Memoranda: Impact - Other Allocations RIAD8763 7 RI-M.9.C
Equity/Capital Reported Dec 31 pre yr RIAD3215 551,728 RIA01
Equity/Capital Adjustments* RIAD3216 0 RIA02
Amended Balance Previous Year RIAD3217 551,728 RIA03
Net Income/Loss RIAD4340 10,267 RIA04
Sale/Conversion of Stock RIAD4346 0 RIA05
Changes Incident to Combinations RIAD4356 251,634 RIA06
LESS: Cash Dividends on Preferred RIAD4470 0 RIA07
LESS: Cash Dividends on Common RIAD4460 0 RIA08
Changes in Accounting Prin* RIAD4411 0 RIA09
Corrections of Accounting Errors* RIAD4412 0 RIA10
Net Unrealized Holding Avail Forsale RIAD8433 (1,161) RIA11
Other Parent Transactions* RIAD4415 0 RIA12
Total Eq/Cap End of Period RIAD3210 812,468 RIA13
</TABLE>
* Describe on Schedule RI-E - Explanations.
<PAGE> 48
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RI-4
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 6
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RI-B - Charge-offs and Recoveries and Changes in Allowance for Loan and Lease Losses
Part I. Charge-offs and Recoveries on Loans and Leases
I386 [-
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charge-Offs: US RIAD4651 163 RIB1.1.A.A
Recoveries: US RIAD4661 156 RIB1.1.A.B
Charge-Offs: Non-US RIAD4652 0 RIB1.1.B.A
Recoveries: Non-US RIAD4662 0 RIB1.1.B.B
Loans to US Banks: Charge-Offs RIAD4653 0 RIB1.2.A.A
Loans to US Banks: Recoveries RIAD4663 0 RIB1.2.A.B
Loans to For Banks: Charge-Offs RIAD4654 0 RIB1.2.B.A
Loans to For Banks: Recoveries RIAD4664 0 RIB1.2.B.B
Ag/Farm Loans: Charge-Offs RIAD4655 0 RIB1.3.A
Ag/Farm Loans: Recoveries RIAD4665 0 RIB1.3.B
Coml/Indl US: Charge-Offs RIAD4645 7,650 RIB1.4.A.A
Coml/Indl US: Recoveries RIAD4617 490 RIB1.4.A.B
Coml/Indl Non-US: Charge-Offs RIAD4646 0 RIB1.4.B.A
Coml/Indl Non-US: Recoveries RIAD4618 0 RIB1.4.B.B
Credit Cards: Charge-Offs RIAD4656 428 RIB1.5.A.A
Credit Cards: Recoveries RIAD4666 26 RIB1.5.A.B
Other Consumer: Charge-Offs RIAD4657 1,233 RIB1.5.B.A
Other Consumer: Recoveries RIAD4667 279 RIB1.5.B.B
Loans to For Govt: Charge-Offs RIAD4643 0 RIB1.6.A
Loans to For Govt: Recoveries RIAD4627 0 RIB1.6.B
Other Loans: Charge-Offs RIAD4644 835 RIB1.7.A
Other Loans: Recoveries RIAD4628 359 RIB1.7.B
Leases US: Charge-Offs RIAD4658 0 RIB1.8.A.A
Leases US: Recoveries RIAD4668 0 RIB1.8.A.B
Leases Non-US: Charge-Offs RIAD4659 0 RIB1.8.B.A
Leases Non-US: Recoveries RIAD4669 0 RIB1.8.B.B
Total RIAD4635 10,309 RIB1.9.A
Total RIAD4605 1,310 RIB1.9.B
Memo: Charge-offs: Loans to fin comm. RIAD5409 0 RIB1.M.4.A
Memo: Recoveries: Loans to fin commcl RIAD5410 0 RIB1.M.4.B
Memo: Charge-offs: Loans sec construc RIAD3582 0 RIB1.M.5AA
Memo: Recoveries: Loans sec construct RIAD3583 4 RIB1.M.5AB
Memo: Charge-offs: Loans sec farmland RIAD3584 0 RIB1.M.5BA
Memo: Recoveries: Loans sec farmland RIAD3585 0 RIB1.M.5BB
Memo: Charge-offs: Loans sec multifam RIAD3588 0 RIB1.M.5DA
Memo: Recoveries: Loans sec multifaml RIAD3589 0 RIB1.M.5DB
Memo: Charge-offs: Loans sec nonfarm RIAD3590 51 RIB1.M.5EA
Memo: Recoveries: Loans sec nonfarm RIAD3591 121 RIB1.M.5EB
Memo: Charge-offs: Revolv loans 1-4 r RIAD5411 0 RIB1.M5C1A
Memo: Recoveries: Revolv loans 1-4 rs RIAD5412 0 RIB1.M5C1B
Memo: Charge-offs: Other loans 1-4 rs RIAD5413 112 RIB1.M5C2A
Memo: Recoveries: Other loans 1-4 res RIAD5414 31 RIB1.M5C2B
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RI-5
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 7
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RI-B - Continued
Part II. Changes in Allowance for Loan and Lease Losses
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance Loans/Lease: Dec 31 prev yr RIAD3124 64,089 RIB2.01
Recoveries: Allowance Loan/Lease RIAD4605 1,310 RIB2.02
LESS: Charge-Offs: Allowance Loan/Lea RIAD4635 10,309 RIB2.03
Provision: Allowance Loan/Lease RIAD4230 9,000 RIB2.04
Adjustments: Allowance Loan/Lease* RIAD4815 (1,555) RIB2.05
Bal End of Period RIAD3123 62,535 RIB2.06
Federal RIAD4780 0 RIC1
State/Local RIAD4790 0 RIC2
Foreign RIAD4795 0 RIC3
Total Taxes RIAD4770 0 RIC4
Deferred Portion of Item 4 RIAD4772 0 RIC5
Other non-interest income (RI-5.f.2) RIAD5415 0 RIE01.A
Other non-interest income (RI-5.f.2) RIAD5416 0 RIE01.B
Other non-interest income (RI-5.f.2) RIAD5417 0 RIE01.C
Other non-interest income (RI-5.f.2) RIAD4461 889 RIE01.D
Other non-interest income (RI-5.f.2) RIAD4462 998 RIE01.E
Other non-interest income (RI-5.f.2) RIAD4463 0 RIE01.F
</TABLE>
* Describe on Schedule RI-E - Explanations.
<PAGE> 50
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RI-6
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 8
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RI-E - Continued
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Other non-interest expense (RI-7.c) RIAD4531 10,702 RIE02.A
Other non-interest expense (RI-7.c) RIAD5418 0 RIE02.B
Other non-interest expense (RI-7.c) RIAD5419 0 RIE02.C
Other non-interest expense (RI-7.c) RIAD5420 0 RIE02.D
Other non-interest expense (RI-7.c) RIAD4464 23,820 RIE02.E
Other non-interest expense (RI-7.c) RIAD4467 0 RIE02.F
Other non-interest expense (RI-7.c) RIAD4468 0 RIE02.G
Extraordinary items and Adj (RI-11.a) RIAD4469 0 RIE03.A.1
Applicable tax effect (RI-11.b) RIAD4486 0 RIE03.A.2
Extraordinary items and Adj (RI-11.a) RIAD4487 0 RIE03.B.1
Applicable tax effect (RI-11.b) RIAD4488 0 RIE03.B.2
Extraordinary items and Adj (RI-11.a) RIAD4489 0 RIE03.C.1
Applicable tax effect (RI-11.b) RIAD4491 0 RIE03.C.2
Equity cap adjustments (RIA-2) RIAD4492 0 RIE04.A
Equity cap adjustments (RIA-2) RIAD4493 0 RIE04.B
Acctg changes effects (RIA-9) RIAD4494 0 RIE05.A
Acctg changes effects (RIA-9) RIAD4495 0 RIE05.B
Corrections (RIA-10) RIAD4496 0 RIE06.A
Corrections (RIA-10) RIAD4497 0 RIE06.B
Transactions w/parent (RIA-12) RIAD4498 0 RIE07.A
Transactions w/parent (RIA-12) RIAD4499 0 RIE07.B
Adjs. to allow for l & l loss (RIB.2.* RIAD4521 (1,555) RIE08.A
Adjs. to allow for l & l loss (RIB.2. RIAD4522 0 RIE08.B
</TABLE>
* Effective April 1, 1996, Wells Fargo and Company purchased First Interstate
Bank of Texas. The bank used push down accounting in the business combination
which is represented by the balances in RI-A, Line 6 and RI-B Part II,
Line 5.
<PAGE> 51
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-1
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 9
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Consolidated Report of Condition for Insured
Commercial and State-Chartered Savings Banks for June 30, 1996
All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the
amount outstanding as of the last business day of the quarter.
Schedule RC - Balance Sheet
C300 [-
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and Noninterest-Bearing Balances(1) RCON0081 1,001,088 RC-01.A
Interest-Bearing Balances(2) RCON0071 112 RC-01.B
Securities Held-to-Maturity RCON1754 0 RC-02.A
Securities Available-for-sale RCON1773 674,273 RC-02.B
Fed Funds Sold RCON0276 281,787 RC-03.A
Secs purchased under agreement to res RCON0277 0 RC-03.B
Loans and Lease Net of Unearned Incom RCON2122 4,228,128 RC-04.A
LESS: Allowance for Loan and Lease Lo RCON3123 62,535 RC-04.B
LESS: Allocated Transfer Risk Reserve RCON3128 0 RC-04.C
Total 4.A 4.B 4.C RCON2125 4,165,593 RC-04.D
Trading Assets RCON3545 0 RC-05
Premises and Fixed Assets RCON2145 161,476 RC-06
Other Real Estate Owned RCON2150 7,109 RC-07
Investments in Unconsol Subs RCON2130 12,856 RC-08
Customer's Liability on Acceptances RCON2155 17,243 RC-09
Intangible Assets RCON2143 461,511 RC-10
Other Assets RCON2160 87,841 RC-11
Total Assets RCON2170 6,870,889 RC-12
</TABLE>
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 52
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-2
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 10
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC - Continued
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposits - Domestic Offices RCON2200 5,602,961 RC-13.A
Domestic Deposits - Noninterest-Bearing(1) RCON6631 2,177,985 RC-13.A.1
Domestic Deposits - Interest-Bearing RCON6636 3,424,976 RC-13.A.2
Fed Funds Purchased RCON0278 160,000 RC-14.A
Secs sold under agreement to repurcha RCON0279 0 RC-14.B
Demand Notes to US Treasury RCON2840 0 RC-15.A
Trading Liabilities RCON3548 0 RC-15.B
Other Borrowed Money: Maturity [ 1yr RCON2332 2,370 RC-16.A
Other Borrowed Money: Maturity ] 1yr RCON2333 437 RC-16.B
Mortgage Indebtedness RCON2910 120,703 RC-17
Bank's Liability on Acceptances RCON2920 17,243 RC-18
Subordinated Notes and Debentures RCON3200 80,000 RC-19
Other Liabilities RCON2930 74,707 RC-20
Total Liabilities RCON2948 6,058,421 RC-21
Limited-Life Preferred Stock & Surpls RCON3282 0 RC-22
Perpetual Preferred Stock & Surplus RCON3838 0 RC-23
Common Stock RCON3230 50,000 RC-24
Surplus-exclude surplus rel pref stck RCON3839 753,362 RC-25
Undivided Profits/Capital Reserves RCON3632 10,267 RC-26.A
Unrealized holding gain(loss) secur. RCON8434 (1,161) RC-26.B
Total Equity/Capital RCON3210 812,468 RC-28
Total Lia/Pref Stock/Eq Capital RCON3300 6,870,889 RC-29
Memo item auditors RCON6724 0 RC-M.1
</TABLE>
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
<PAGE> 53
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-3
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 11
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC-A - Cash and Balances Due from Depository Institutions
Exclude assets held for trading.
C305 [-
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Items in Process of Collection RCON0020 553,105 RCA1.A
Currency and Coin RCON0080 181,944 RCA1.B
Due from US Dep'y/Foreign Banks RCON0083 0 RCA2.A
Due from Other US Dep'y RCON0085 59,579 RCA2.B
Due from For Branches/US Banks RCON0073 0 RCA3.A
Due from Other For Banks/Countries RCON0074 0 RCA3.B
Due From Federal Reserve System RCON0090 206,572 RCA4
Total RCON0010 1,001,200 RCA5
Noninterest-Bearing Due from US Coml RCON0050 59,467 RCAM.1
Held: Cost: US Treasury Securities RCON0211 0 RCB1.A
Held: Value: US Treasury Securities RCON0213 0 RCB1.B
Sale: Cost: US Treasury Securities RCON1286 305,874 RCB1.C
Sale: Value: US Treasury Securities(1) RCON1287 305,149 RCB1.D
Held: Cost: Obligations US agencies(2) RCON1289 0 RCB2.A.A
Held: Value: Obligations US agencies(2) RCON1290 0 RCB2.A.B
Sale: Cost: Obligations US agencies(2) RCON1291 0 RCB2.A.C
Sale: Value: Obligations US agencies(1)(2) RCON1293 0 RCB2.A.D
Held: Cost: Obligations US sponsored(3) RCON1294 0 RCB2.B.A
Held: Value: Obligations US sponsored(3) RCON1295 0 RCB2.B.B
Sale: Cost: Obligations US sponsored(3) RCON1297 0 RCB2.B.C
Sale: Value: Obligations US sponsored(1)(3) RCON1298 0 RCB2.B.D
</TABLE>
(1) Includes equity securities without readily determinable fair values at
historical cost in item 6.c, column D.
(2) Includes Small Business Administration "Guaranteed Loan Pool
Certificates," U.S. Maritime Administration obligations, and Export -
Import Bank participation certificates.
(3) Includes obligations (other than mortgage-backed securities) issued by the
Farm Credit System, the Federal Home Loan Bank System, the Federal Home
Loan Mortgage Corporation, the Federal National Mortgage Association, the
Financing Corporation, Resolution Funding Corporation, the Student Loan
Marketing Association, and the Tennessee Valley Authority.
<PAGE> 54
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-4
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 12
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC-B - Continued
Exclude assets held for trading.
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Held: Cost: General Obligations RCON1676 0 RCB3.A.A
Held: Value: General Obligations RCON1677 0 RCB3.A.B
Sale: Cost: General Obligations RCON1678 0 RCB3.A.C
Sale: Value: General Obligations(1) RCON1679 0 RCB3.A.D
Held: Cost: Revenue Obligations RCON1681 0 RCB3.B.A
Held: Value: Revenue Obligations RCON1686 0 RCB3.B.B
Sale: Cost: Revenue Obligations RCON1690 0 RCB3.B.C
Sale: Value: Revenue Obligations(1) RCON1691 0 RCB3.B.D
Held: Cost: Industrial Obligations RCON1694 0 RCB3.C.A
Held: Value: Industrial Obligations RCON1695 0 RCB3.C.B
Sale: Cost: Industrial Obligations RCON1696 0 RCB3.C.C
Sale: Value: Industrial Obligations(1) RCON1697 0 RCB3.C.D
Held: Cost: Security Guaranteed GNMA RCON1698 0 RCB4.A.1.A
Held: Value: Security Guaranteed GNMA RCON1699 0 RCB4.A.1.B
Sale: Cost: Security Guaranteed GNMA RCON1701 60,374 RCB4.A.1.C
Sale: Value: Security Guaranteed GNMA(1) RCON1702 59,703 RCB4.A.1.D
Held: Cost: Security Issued FNMA RCON1703 0 RCB4.A.2.A
Held: Value: Security Issued FNMA RCON1705 0 RCB4.A.2.B
Sale: Cost: Security Issued FNMA RCON1706 105,455 RCB4.A.2.C
Sale: Value: Security Issued FNMA(1) RCON1707 104,876 RCB4.A.2.D
Held: Cost: Other Pass-Through Secs RCON1709 0 RCB4.A.3.A
Held: Value: Other Pass-Through Secs RCON1710 0 RCB4.A.3.B
Sale: Cost: Other Pass-Through Secs RCON1711 0 RCB4.A.3.C
Sale: Value: Other Pass-Through Secs(1) RCON1713 0 RCB4.A.3.D
Held: Cost: Issued/Guar. FNMA, Etc. RCON1714 0 RCB4.B.1.A
Held: Value: Issued/Guar. FNMA, Etc. RCON1715 0 RCB4.B.1.B
Sale: Cost: Issued/Guar. FNMA, Etc. RCON1716 118,354 RCB4.B.1.C
Sale: Value: Issued/Guar. FNMA, Etc.(1) RCON1717 118,639 RCB4.B.1.D
Held: Cost: Collateralized MBS -FNMA RCON1718 0 RCB4.B.2.A
Held: Value: Collateralized MBS -FNMA RCON1719 0 RCB4.B.2.B
Sale: Cost: Collateralized MBS -FNMA RCON1731 0 RCB4.B.2.C
Sale: Value: Collateralized MBS -FNMA(1) RCON1732 0 RCB4.B.2.D
Held: Cost: All Other MBS RCON1733 0 RCB4.B.3.A
Held: Value: All Other MBS RCON1734 0 RCB4.B.3.B
Sale: Cost: All Other MBS RCON1735 51,439 RCB4.B.3.C
Sale: Value: All Other MBS(1) RCON1736 51,301 RCB4.B.3.D
Held: Cost: Other Debt Securities RCON1737 0 RCB5.A.A
Held: Value: Other Debt Securities RCON1738 0 RCB5.A.B
Sale: Cost: Other Debt Securities RCON1739 10,234 RCB5.A.C
Sale: Value: Other Debt Securities(1) RCON1741 10,190 RCB5.A.D
Held: Cost: Foreign Debt Securities RCON1742 0 RCB5.B.A
Held: Value: Foreign Debt Securities RCON1743 0 RCB5.B.B
Sale: Cost: Foreign Debt Securities RCON1744 275 RCB5.B.C
Sale: Value: Foreign Debt Securities(1) RCON1746 275 RCB5.B.D
Sale: Cost: Securities Mutual Funds RCON1747 0 RCB6.A.C
Sale: Value: Securities Mutual Funds(1) RCON1748 0 RCB6.A.D
Sale: Cost: Securities Fair Values RCON1749 1,024 RCB6.B.C
Sale: Value: Securities Fair Values(1) RCON1751 928 RCB6.B.D
Sale: Cost: Other Equity Securities RCON1752 23,212 RCB6.C.C
Sale: Value: Other Equity Securities(1) RCON1753 23,212 RCB6.C.D
Total Held To Maturity - Cost RCON1754 0 RCB7.A
Total Held To Maturity - Fair Value RCON1771 0 RCB7.B
Total Available For Sale - Cost RCON1772 676,241 RCB7.C
Total Available For Sale - Value(1) RCON1773 674,273 RCB7.D
</TABLE>
(1) Includes equity securities without readily determinable fair values at
historical cost in item 6.c, column D.
<PAGE> 55
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-5
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 13
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC-B - Continued
Memoranda
C312 [-
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Memoranda: Pledged(2) RCON0416 323,432 RCBM.1
Maturity and repricing data for debt
securities(2)(3)(4)
Fixed rate debt 1 months and less RCON0343 47,080 RCBM.2.A.1
Fixed rate 3-12 months RCON0344 126,921 RCBM.2.A.2
Fixed rate 1-5 years RCON0345 174,932 RCBM.2.A.3
Fixed rate over 5 years RCON0346 197,688 RCBM.2.A.4
Total fixed rate debt RCON0347 546,621 RCBM.2.A.5
Floating quarterly or more often RCON4544 87,808 RCBM.2.B.1
Floating annually or more often RCON4545 15,704 RCBM.2.B.2
Floating five years or more often RCON4551 0 RCBM.2.B.3
Floating less frequently than five ye RCON4552 0 RCBM.2.B.4
Total floating rate debt RCON4553 103,512 RCBM.2.B.5
Total debt securities RCON0393 650,133 RCBM.2.C
Debt securities restructured & in com RCON5365 0 RCBM.4
Float rate debt secs maturity [= 1 yr(2)(4) RCON5519 0 RCBM.6
Amortized Cost Held Securities Sold RCON1778 0 RCBM.7
High Risk Mortgage Secs - Amort Cost RCON8780 0 RCBM.8.A
High Risk Mortgage Secs - Fair Value RCON8781 0 RCBM.8.B
Structured Notes - Amortized Cost RCON8782 0 RCBM.9.A
Structured Notes - Fair Value RCON8783 0 RCBM.9.B
</TABLE>
- -----------
(2) Includes held-to-maturity securities at amortized cost and
available-for-sale securities at fair value.
(3) Exclude equity securities, e.g., investments in mutual funds, Federal
Reserve stock, common stock, and preferred stock.
(4) Memorandum items 2 and 6 are not applicable to savings banks that must
complete supplemental Schedule RC-J.
<PAGE> 56
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-6
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 14
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC-C - Loans and Lease Financing Receivables
Part I. Loans and Leases
Do not deduct the allowance for loan and lease losses from amounts reported in this schedule. Report total
loans and leases, net of unearned income. Exclude assets held for trading.
C315 [-
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Construction and Land Development RCON1415 127,503 RCC01.A
Secured by Farmland RCON1420 4,553 RCC01.B
Secured by 1-4: Revolving RCON1797 1,210 RCC01.C.1
Secured by 1-4: Other (first liens) RCON5367 446,746 RCC01.C.2A
Secured by 1-4: Other (junior liens) RCON5368 69,295 RCC01.C.2B
Secured by 5+ RCON1460 27,485 RCC01.D
Secured by Nonfarm Nonresidential RCON1480 579,033 RCC01.E
To US Branches/For Agencies RCON1506 0 RCC02.A.1
To Other Coml Banks US RCON1507 390 RCC02.A.2
To Other Dep'y Institutions US RCON1517 0 RCC02.B
To For Branches US Banks RCON1513 0 RCC02.C.1
To Other Banks in Foreign Countries RCON1516 5,056 RCC02.C.2
Loans to Ag/Farmers RCON1590 10,371 RCC03
Coml/Indl (US Addressee) RCON1763 2,202,030 RCC04.A
Coml/Indl (Non-US Addressee) RCON1764 32,865 RCC04.B
Acceptances - US Banks RCON1756 0 RCC05.A
Acceptances - For Banks RCON1757 0 RCC05.B
Credit Cards / Related Plans RCON2008 91,417 RCC06.A
Other RCON2011 361,388 RCC06.B
Loans to Foreign Govt. RCON2081 0 RCC07
Obligations US States/Subdivisions RCON2107 50,986 RCC08
Loans for Securities RCON1545 105,987 RCC09.A
All Other Loans RCON1564 107,647 RCC09.B
Lease Fin Rec (US Addressee) RCON2182 4,166 RCC10.A
Lease Fin Rec (Non-US Addressee) RCON2183 0 RCC10.B
LESS: Unearned Income Loans RCON2123 0 RCC11
Total Loans & Leases RCON2122 4,228,128 RCC12
</TABLE>
<PAGE> 57
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-7
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 15
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC-C - Continued
Part I. Continued
Memoranda
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Memoranda: Commercial Paper RCON1496 0 RCCM.1
Memoranda: Restruc'd Real Estate (US) RCON1687 0 RCCM.2.A.1
Memoranda: Restruc'd Real Estate (non RCON1689 0 RCCM.2.A.2
Memoranda: Restruc'd Loans & Leases RCON8691 0 RCCM.2.B
Memoranda: Restruc'd Coml/Indl(nonUS) RCON8692 0 RCCM.2.C
Maturity and repricing data for loans and leases(1)
Fixed rate loans 3 months and less RCON0348 68,074 RCCM.3.A.1
Fixed rate 3-12 months RCON0349 188,410 RCCM.3.A.2
Fixed rate 1-5 years RCON0356 1,082,418 RCCM.3.A.3
Fixed rate over 5 years RCON0357 582,369 RCCM.3.A.4
Total fixed rate loans/leases RCON0358 1,921,271 RCCM.3.A.5
Floating quarterly or more often RCON4554 1,977,750 RCCM.3.B.1
Floating annually or more often RCON4555 270,900 RCCM.3.B.2
Floating five years or more often RCON4561 3,224 RCCM.3.B.3
Floating less frequently than five ye RCON4564 30,335 RCCM.3.B.4
Total floating rate loans RCON4567 2,282,209 RCCM.3.B.5
Total loans/leases RCON1479 4,203,480 RCCM.3.C
Float rate loans w remain matur[=1 yr RCONA246 688,863 RCCM.3.D
Loans to fin comm real est, const, la(2) RCON2746 77,082 RCCM.4
Loans & leases held for sale RCON5369 0 RCCM.5
Adj rate closed-end loans sec 1-4 fam RCON5370 127,185 RCCM.6
</TABLE>
(1) Memorandum item 3 is not applicable to savings banks that must complete
supplemental Schedule RC-J.
(2) Exclude loans secured by real estate that are included in Schedule RC-C,
part 1, items 1.a through 1.e.
<PAGE> 58
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-7a
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 15a
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC-C - Continued
Part II. Loans to Small Businesses and Small Farms
Schedule RC-C, Part II is to be reported only with the June Report of Condition.
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
YES/NO - RCC01.E & RCC04 ]= $ 100,000 RCON6999 0 RCCP2.01
Number of Loans RCC01.E RCON5562 0 RCCP2.02AA
Number of Loans RCC04 RCON5563 0 RCCP2.02BA
Number of Loans RCC01.E Orig [= $100K RCON5564 718 RCCP2.03AA
Amount of Loans RCC01.E Orig [= $100K RCON5565 21,889 RCCP2.03AB
# of Loans RCC01.E $100K[Orig[=$250K RCON5566 479 RCCP2.03BA
$ of Loans RCC01.E $100K[Orig[=$250K RCON5567 47,085 RCCP2.03BB
# of Loans RCC01.E $250K [ Orig [=$1M RCON5568 557 RCCP2.03CA
$ of Loans RCC01.E $250K [ Orig [=$1M RCON5569 151,603 RCCP2.03CB
Number of Loans RCC04 Orig [= $100K RCON5570 2,951 RCCP2.04AA
Amount of Loans RCC04 Orig [= $100K RCON5571 50,344 RCCP2.04AB
# of Loans RCC04 $100K[ Orig [= $250K RCON5572 712 RCCP2.04BA
$ of Loans RCC04 $100K[ Orig [= $250K RCON5573 44,517 RCCP2.04BB
# of Loans RCC04 $250K [ Orig [= $1M RCON5574 811 RCCP2.04CA
$ of Loans RCC04 $250K [ Orig [= $1M RCON5575 88,731 RCCP2.04CB
</TABLE>
<PAGE> 59
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-7b
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 15b
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC-C - Continued
Part II. Continued
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
YES/NO - RCC01.B & RCC03 ]= $ 100,000 RCON6860 0 RCCP2.05
Number of Loans RCC01.B RCON5576 0 RCCP2.06AA
Number of Loans RCC03 RCON5577 0 RCCP2.06BA
Number of Loans RCC01.B Orig [= $100K RCON5578 32 RCCP2.07AA
Amount of Loans RCC01.B Orig [= $100K RCON5579 683 RCCP2.07AB
# of Loans RCC01.B $100K[Orig[=$250K RCON5580 11 RCCP2.07BA
$ of Loans RCC01.B $100K[Orig[=$250K RCON5581 915 RCCP2.07BB
# of Loans RCC01.B $250K [Orig[=$500K RCON5582 6 RCCP2.07CA
$ of Loans RCC01.B $250K [Orig[=$500K RCON5583 371 RCCP2.07CB
Number of Loans RCC03 - Orig [= $100K RCON5584 111 RCCP2.08AA
Amount of Loans RCC03 - Orig [= $100K RCON5585 784 RCCP2.08AB
# of Loans RCC03 - $100K[Orig[=$250K RCON5586 17 RCCP2.08BA
$ of Loans RCC03 - $100K[Orig[=$250K RCON5587 662 RCCP2.08BB
# of Loans RCC03 - $250K [Orig[=$500K RCON5588 0 RCCP2.08CA
$ of Loans RCC03 - $250K [Orig[=$500K RCON5589 0 RCCP2.08CB
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-8
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 16
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC-D - Trading Assets and Liabilities
Schedule RC-D is to be completed only by banks with $1 billion or more in total assets or with $2 billion or more
in par/notional amount of off-balance sheet derivative contracts (as reported in Schedule RC-L, items 14.a through
14.e, columns A through D).
C320 [-
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
US Treasury securities RCON3531 0 RCD01
US Govt agency obligations RCON3532 0 RCD02
Securities Issued by State and Subdiv RCON3533 0 RCD03
Pass-through Sec by FNMA/FHLMC/GNMA RCON3534 0 RCD04.A
Other MBS issued by FNMA/FHLMC/GNMA RCON3535 0 RCD04.B
All Other Mortgage-backed securities RCON3536 0 RCD04.C
Other debt securities RCON3537 0 RCD05
Certificates of deposit RCON3538 0 RCD06
Commercial paper RCON3539 0 RCD07
Bankers acceptances RCON3540 0 RCD08
Other Trading assets domestic RCON3541 0 RCD09
Gains on rate & contracts domestic RCON4549 0 RCD11
Total Trading Assets RCON3545 0 RCD12
Liability for short positions RCON3546 0 RCD13
Losses on rate & contracts RCON3547 0 RCD14
Total Trading Liabilities RCON3548 0 RCD15
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-9
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 17
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC-E - Deposit Liabilities
C325 [-
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Private - Transaction RCON2201 2,742,160 RCE1.A
Private - Demand RCON2240 1,926,755 RCE1.B
Privte - Nontransaction RCON2346 2,588,739 RCE1.C
USG - Transaction RCON2202 9,149 RCE2.A
USG - Demand RCON2280 9,149 RCE2.B
USG - Nontrancastion RCON2520 6,599 RCE2.C
State/Local - Transaction RCON2203 23,567 RCE3.A
State/Local - Demand RCON2290 18,225 RCE3.B
State/Local - Nontranscation RCON2530 10,147 RCE3.C
US Coml Banks - Transaction RCON2206 170,284 RCE4..A
US Coml Banks - Demand RCON2310 170,284 RCE4..B
US Coml Banks - Nontransaction RCON2550 773 RCE4..C
Other US Dep'y - Transaction RCON2207 1,055 RCE5.A
Other US Dep'y - Demand RCON2312 1,055 RCE5.B
Other US Dep'y - Nontransaction RCON2349 2 RCE5.C
For Banks - Transaction RCON2213 1 RCE6..A
For Banks - Demand RCON2320 1 RCE6..B
For Branch US Banks - Nontransaction RCON2236 0 RCE6..C
For Govt - Transaction RCON2216 0 RCE7.A
For Govt - Demand RCON2300 0 RCE7.B
For Govt - Nontransaction RCON2377 0 RCE7.C
Certified Checks - Transaction RCON2330 50,485 RCE8.A
Certified Checks - Demand RCON2330 50,485 RCE8.B
Total Transaction Accounts RCON2215 2,996,701 RCE9.A
Total Demand Deposits RCON2210 2,175,954 RCE9.B
Total Nontransaction Accounts RCON2385 2,606,260 RCE9.C
Memoranda: IRA/KEOGH RCON6835 153,821 RCEM.1.A
Memoranda: Brokered Deposits RCON2365 0 RCEM.1.B
Memoranda: Brokered [$100 000 RCON2343 0 RCEM.1.C.1
Memoranda: Brokered ]$100K Part [$100 RCON2344 0 RCEM.1.C.2
Memoranda: Brokered deposits[ 100,000 RCONA243 0 RCEM.1.D.1
Memoranda: Brokered deposits=]100,000 RCONA244 0 RCEM.1.D.2
Memoranda: Preferred Deposits RCON5590 29,977 RCEM.1.E
Memoranda: MMDAs RCON6810 1,224,565 RCEM.2.A.1
Memoranda: Other Savings RCON0352 337,357 RCEM.2.A.2
Memoranda: Time Deposits [$100 000 RCON6648 774,344 RCEM.2.B
Memoranda: CDs ]$100 000 RCON6645 267,965 RCEM.2.C
Memoranda: Open Acct ]$100 000 RCON6646 2,029 RCEM.2.D
Memoranda: NOW Accounts RCON2398 820,747 RCEM.3
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-10
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 18
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC-E - Continued
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maturity and repricing data for TD[100k(1)
Memoranda: Fixed TD[100k matur[=3 mos RCONA225 261,533 RCEM.5.A.1
Memoranda: Fixed TD [100k & 3-12 mos RCONA226 341,616 RCEM.5.A.2
Memoranda: Fixed TD [100k & over 1 yr RCONA227 143,339 RCEM.5.A.3
Memoranda: Float TD[100k,freq=]1 qtr RCONA228 0 RCEM.5.B.1
Memoranda: Float TD[100k,freq]1 yr [q RCONA229 27,856 RCEM.5.B.2
Memoranda: Float TD[100k,freq [annual RCONA230 0 RCEM.5.B.3
Memoranda: Float rt TD[100k,matur[=1y RCONA231 20,882 RCEM.5.C
Maturity and repricing data for TD]100k(1)
Fixed rate CD's 3 months and less RCONA232 162,469 RCEM.6.A1
Fixed rate 3-12 months RCONA233 84,785 RCEM.6.A2
Fixed rate 1-5 years RCONA234 22,386 RCEM.6.A3
Fixed rate over 5 years RCONA235 354 RCEM.6.A4
Floating quarterly or more often RCONA236 0 RCEM.6.B1
Floating annually or more often RCONA237 0 RCEM.6.B2
Floating five years or more often RCONA238 0 RCEM.6.B3
Floating less frequently than five yr RCONA239 0 RCEM.6.B4
Floating rate TD]100k, matur[= 1 year RCONA240 0 RCEM.6.C
</TABLE>
(1) Memorandum items 5 and 6 are not applicable to savings banks that must
complete supplemental Schedule RC-J.
<PAGE> 63
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-11
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 19
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC-F - Other Assets
C330 [-
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Earned Not Collected Loans RCON2164 31,581 RCF1
Net Deferred Tax Assets(1) RCON2148 0 RCF2
Excess residential mortgage servc fee RCON5371 0 RCF3
Other Assets RCON2168 56,260 RCF4
Other Assets - Line A RCON3549 15,851 RCF4.A
Other Assets - Line B RCON3550 0 RCF4.B
Other Assets - Line C RCON3551 0 RCF4.C
Total Other Assets RCON2160 87,841 RCF5
Memo: Deferred Tax Assets Disallowed RCON5610 0 RCFM.1
Expenses Accrued and Unpaid on deposit(2) RCON3645 7,851 RCG1.A
Other Expenses Accrued and Unpaid RCON3646 61,269 RCG1.B
Net Deferred Tax Liabilities(1) RCON3049 3,793 RCG2
Minority Interest in Subsidiaries RCON3000 0 RCG3
Other Liabilities RCON2938 1,794 RCG4
Other Liabilities - Line A RCON3552 568 RCG4.A
Other Liabilities - Line B RCON3553 686 RCG4.B
Other Liabilities - Line C RCON3554 586 RCG4.C
Total Other Liabilities RCON2930 74,707 RCG5
</TABLE>
(1) See discussion of deferred income taxes in Glossary entry on "income
taxes."
(2) For savings banks, includes "dividends" accrued and unpaid on deposits.
<PAGE> 64
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-12
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 20
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC-K - Quarterly Averages (1)
C355 [-
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest-Bearing Balances RCON3381 288 RCK01
US Treas/Govt/Corp Obligations(2) RCON3382 633,343 RCK02
State/Local Securities(2) RCON3383 0 RCK03
Other debt Securities(2) RCON3647 67,340 RCK04.A
Other equity Securities(3) RCON3648 24,236 RCK04.B
Fed Funds Sold Etc. RCON3365 297,765 RCK05
Total Loans RCON3360 4,272,217 RCK06.A
Real Estate Loans RCON3385 1,258,505 RCK06.B
Ag/Farm Loans RCON3386 14,376 RCK06.C
Coml/Indl Loans RCON3387 2,277,723 RCK06.D
Consumer Loans RCON3388 446,384 RCK06.E
Trading Assets RCON3401 0 RCK07
Lease Financing Receivables RCON3484 3,933 RCK08
Total Assets(4) RCON3368 6,913,169 RCK09
Transaction Accounts RCON3485 836,327 RCK10
MMDAs RCON3486 1,200,902 RCK11.A
Other Savings RCON3487 339,203 RCK11.B
CD's ]$100 000 RCON3345 255,421 RCK11.C
Other Time Deposits RCON3469 805,543 RCK11.D
Fed Funds Purchased RCON3353 357,523 RCK12
Other Borrowed Money RCON3355 10,801 RCK13
</TABLE>
(1) For all items, banks have the option of reporting either (1) an average of
daily figures for the quarter or (2) an average of weekly figures (i.e.,
the Wednesday of each week of the quarter).
(2) Quarterly averages for all debt securities should be based on amortized
cost.
(3) Quarterly averages for all equity securities should be based on historical
cost.
(4) The quarterly average for total assets should reflect all debt securities
(not held for trading) at amoritzed cost, equity securities with readily
determinable fair values at the lower of cost or fair value, and equity
securities without readily determinable fair values at historical cost.
<PAGE> 65
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-13
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 21
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC-L - Off-Balance Sheet Items
Please read carefully the instructions for the preparation of Schedule RC-L. Some of the amounts reported
in Schedule RC-L are regarded as volume indicators and not necessarily as measures of risk.
C360 [-
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unused Commits: Revolv Lines Secured RCON3814 88 RCL01.A
Unused Commits: Credit Card Lines RCON3815 2,756 RCL01.B
Unused Commits: Comm Real Est, securd RCON3816 129,694 RCL01.C1
Unused Commits: Comm Real Est, not sc RCON6550 60,869 RCL01.C2
Unused Commits: Securities Underwrit RCON3817 0 RCL01.D
Unused Commits: Other Unused Commits RCON3818 2,708,666 RCL01.E
Fincl Standby Letters of Credit RCON3819 282,765 RCL02
Amount Fincl Standby Letters Conveyed RCON3820 18,298 RCL02.A
Perfm Standby Letters of Credit RCON3821 15,150 RCL03
Amount Perfm Standby Letters Conveyed RCON3822 0 RCL03.A
Commercl & Similar Letters of Credit RCON3411 52,936 RCL04
Participations in Acceptncs Conveyed RCON3428 5,626 RCL05
Participations in Acceptncs Acquired RCON3429 4,000 RCL06
Securities Borrowed RCON3432 0 RCL07
Securities Lent RCON3433 0 RCL08
Gvt resid mtg pools o/s bal sold/swap RCON3650 0 RCL09.A.1
Gvt resid mtg pools amt of exposure RCON3651 0 RCL09.A.2
Pvt resid mtg pools o/s bal sold RCON3652 0 RCL09.B.1
Pvt resid mtg pools amt of exposure RCON3653 0 RCL09.B.2
MAC agri. mtg pools o/s bal sold RCON3654 0 RCL09.C.1
MAC agri. mtg pools amt of exposure RCON3655 0 RCL09.C.2
Sml Bus:Outstanding principal balance RCONA249 0 RCL09.D.1
Amounts of retained recourse of oblig RCONA250 0 RCL09.D.2
When-issued: Gross Commits to Purchas RCON3434 0 RCL10.A
When-issued: Gross Commits to Sell RCON3435 0 RCL10.B
Spot Foreign Exchange Contracts RCON8765 0 RCL11
All Other Off-Balance Sheet Liabs RCON3430 0 RCL12
Other Off-Balance Sheet Liabilities-A RCON3555 0 RCL12.A
Other Off-Balance Sheet Liabilities-B RCON3556 0 RCL12.B
Other Off-Balance Sheet Liabilities-C RCON3557 0 RCL12.C
Other Off-Balance Sheet Liabilities-D RCON3558 0 RCL12.D
</TABLE>
<PAGE> 66
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-14
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 22
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC-L - Continued
C361 [-
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
All Other Off-Balance Sheet Assets RCON5591 0 RCL13
Other Off-Balance Sheet Assets - A RCON5592 0 RCL13.A
Other Off-Balance Sheet Assets - B RCON5593 0 RCL13.B
Other Off-Balance Sheet Assets - C RCON5594 0 RCL13.C
Other Off-Balance Sheet Assets - D RCON5595 0 RCL13.D
Int Rate Contracts - Gross Futures RCON8693 0 RCL14.A.A
Forgn Exch Contracts - Gross Futures RCON8694 0 RCL14.A.B
Equity Contracts - Gross Futures RCON8695 0 RCL14.A.C
Commodity Contracts - Gross Futures RCON8696 0 RCL14.A.D
Int Rate Contracts - Gross Forwards RCON8697 0 RCL14.B.A
Forgn Exch Contracts - Gross Forwards RCON8698 2,286 RCL14.B.B
Equity Contracts - Gross Forwards RCON8699 0 RCL14.B.C
Commodity Contracts - Gross Forwards RCON8700 0 RCL14.B.D
Int Rate Contracts - Exchg Trad Wrttn RCON8701 0 RCL14.C.1A
Forgn Exch Contracts - Exchg Trad Wrt RCON8702 0 RCL14.C.1B
Equity Contracts - Exchg Trad Written RCON8703 0 RCL14.C.1C
Commodity Contracts - Exchg Trad Wrtn RCON8704 0 RCL14.C.1D
Int Rate Contracts - Exchg Trad Purch RCON8705 0 RCL14.C.2A
Forgn Exch Contracts - Exchg Trad Pur RCON8706 0 RCL14.C.2B
Equity Contracts - Exchg Trad Purchas RCON8707 0 RCL14.C.2C
Commodity Contracts - Exchg Trade Pur RCON8708 0 RCL14.C.2D
Int Rate Contracts - OTC Written Optn RCON8709 0 RCL14.D.1A
Forgn Exch Contracts - OTC Wrtn Optns RCON8710 0 RCL14.D.1B
Equity Contracts - OTC Written Option RCON8711 0 RCL14.D.1C
Commodity Contracts - OTC Written Opt RCON8712 0 RCL14.D.1D
Int Rate Contracts - OTC Purchased Op RCON8713 1,075,000 RCL14.D.2A
Forgn Exch Contracts - OTC Purchased RCON8714 0 RCL14.D.2B
Equity Contracts - OTC Purchased Optn RCON8715 0 RCL14.D.2C
Commodity Contracts - OTC Purch Optn RCON8716 0 RCL14.D.2D
Int Rate Contracts - Gross Swaps RCON3450 60,824 RCL14.E.A
Forgn Exch Contracts - Gross Swaps RCON3826 0 RCL14.E.B
Equity Contracts - Gross Swaps RCON8719 0 RCL14.E.C
Commodity Contracts - Gross Swaps RCON8720 0 RCL14.E.D
Int Rate Contracts - Gross Held Trade RCONA126 0 RCL15.A
Forgn Exch Contracts - Gross Held Trd RCONA127 0 RCL15.B
Equity Contracts - Gross Held Trading RCON8723 0 RCL15.C
Commodity Contracts - Gross Held Trad RCON8724 0 RCL15.D
Int Rate Contracts - Marked to Market RCON8725 0 RCL16.A.A
Forgn Exch Contracts - Marked to Mrkt RCON8726 2,286 RCL16.A.B
Equity Contracts - Marked to Market RCON8727 0 RCL16.A.C
Commodity Contracts - Marked to Mrkt RCON8728 0 RCL16.A.D
Int Rate Contracts - NOT Marked RCON8729 1,135,824 RCL16.B.A
Forgn Exch Contracts - NOT Marked RCON8730 0 RCL16.B.B
Equity Contracts - NOT Marked RCON8731 0 RCL16.B.C
Commodity Contracts - NOT Marked RCON8732 0 RCL16.B.D
</TABLE>
<PAGE> 67
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-15
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 23
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC-L - Continued
I380 [-
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Int Rate Contracts Held - Pos Values RCON8733 0 RCL17.A.1A
Forgn Exch Contracts Held - Pos Value RCON8734 0 RCL17.A.1B
Equity Contracts Held - Pos Values RCON8735 0 RCL17.A.1C
Commodity Contracts Held - Pos Value RCON8736 0 RCL17.A.1D
Int Rate Contracts Held - Neg Values RCON8737 0 RCL17.A.2A
Forgn Exch Contracts Held - Neg Value RCON8738 0 RCL17.A.2B
Equity Contracts Held - Neg Values RCON8739 0 RCL17.A.2C
Commodity Contracts Held - Neg Value RCON8740 0 RCL17.A.2D
Int Rate Contracts Markd- Pos Values RCON8741 0 RCL17.B.1A
Forgn Exch Contracts Markd- Pos Value RCON8742 18 RCL17.B.1B
Equity Contracts Markd- Pos Values RCON8743 0 RCL17.B.1C
Commodity Contracts Markd- Pos Value RCON8744 0 RCL17.B.1D
Int Rate Contracts Markd- Neg Values RCON8745 0 RCL17.B.2A
Forgn Exch Contracts Markd- Neg Value RCON8746 17 RCL17.B.2B
Equity Contracts Markd- Neg Values RCON8747 0 RCL17.B.2C
Commodity Contracts Markd- Neg Value RCON8748 0 RCL17.B.2D
Int Rate Contracts Not Markd - PosVal RCON8749 5,786 RCL17.C.1A
Forgn Exch Contracts Not Markd-PosVal RCON8750 0 RCL17.C.1B
Equity Contracts Not Markd - PosVal RCON8751 0 RCL17.C.1C
Commodity Contracts Not Markd-PosVal RCON8752 0 RCL17.C.1D
Int Rate Contracts Not Markd - NegVal RCON8753 888 RCL17.C.2A
Forgn Exch Contracts Not Markd-NegVal RCON8754 0 RCL17.C.2B
Equity Contracts Not Markd - NegVal RCON8755 0 RCL17.C.2C
Commodity Contracts Not Markd-NegVal RCON8756 0 RCL17.C.2D
Unused Commitments ] 1 year RCON3833 2,012,289 RCLM.3
Participations in Commitments ] 1 Yr RCON3834 45,801 RCLM.3.A
Standby Letters of Credit - Non-U.S. RCON3377 509 RCLM.4
Con Inst Lns w/o recourse - Prv Autos RCON2741 0 RCLM.5.A
Con Inst Lns w/o recourse - Crd Cards RCON2742 0 RCLM.5.B
Con Inst Lns w/o recourse - All other RCON2743 0 RCLM.5.C
</TABLE>
<PAGE> 68
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-16
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 24
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC-M - MEMORANDA
C365 [-
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Credit to Executives/Principals RCON6164 0 RCM1.A
Number of Execs Who Borrowed $500K/5% RCON6165 0 RCM1.B
Fed Funds Sold -- Foreign Banks(1) RCON3405 0 RCM2
O/S Bal Mortgages Serviced - GNMA RCON5500 0 RCM4.A
O/S Bal Morts Serviced-FHLMC w/ recou RCON5501 0 RCM4.B.1
O/S Bal Morts Serviced-FHLMC w/o rec RCON5502 0 RCM4.B.2
O/S Bal Morts Serviced-FNMA Reg optn RCON5503 239 RCM4.C.1
O/S Bal Morts Serviced-FNMA Spec optn RCON5504 0 RCM4.C.2
O/S Bal Morts Serviced-All other RCON5505 0 RCM4.D
Customers' Liability on Acceptances: RCON2103 13,152 RCM5.A
Customers' Liability on Acceptances: RCON2104 4,091 RCM5.B
Mtge Servicing Rights RCON3164 0 RCM6.A
Other Intangible - Purch Credit Card RCON5506 0 RCM6.B.1
Other Intangible - All Other RCON5507 244,008 RCM6.B.2
Goodwill RCON3163 217,503 RCM6.C
Total Intangible Assets RCON2143 461,511 RCM6.D
Intangible Assets Grandfathered RCON6442 0 RCM6.E
Mandatory Convertible Debt Dedictated RCON3295 0 RCM7
</TABLE>
(1) Do not report federal funds sold and securities purchased under agreements
to resell with other commercial banks in the U.S. in this item.
<PAGE> 69
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-17
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 25
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC-M - CONTINUED
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Othr Real Estate - Direct & Indirect RCON5372 0 RCM8.A.1
Othr Real Estate - Construction RCON5508 0 RCM8.A.2.A
Othr Real Estate - Farmland RCON5509 0 RCM8.A.2.B
Othr Real Estate - 1-4 Family Residnt RCON5510 503 RCM8.A.2.C
Othr Real Estate - Multifamily Resid RCON5511 0 RCM8.A.2.D
Othr Real Estate - Nonfarm Nonresiden RCON5512 6,606 RCM8.A.2.E
Othr Real Estate - Total RCON2150 7,109 RCM8.A.3
Inves - Direct & Indirect invest R/E RCON5374 0 RCM8.B.1
Inves - All othr invest unconsol subs RCON5375 12,856 RCM8.B.2
Investmnts in unconsold subs - Total RCON2130 12,856 RCM8.B.3
Total Assets of Unconsolidted Subs RCON5376 9,379 RCM8.C
Noncumulative Perpetual Preferred Stk RCON3778 0 RCM9
Mutual Fund: Money Market Funds RCON6441 0 RCM10.A
Mutual Fund: Equity Securities RCON8427 0 RCM10.B
Mutual Fund: Debt Securities RCON8428 0 RCM10.C
Mutual Fund: Other Mutual Funds RCON8429 0 RCM10.D
Mutual Fund: Annuities RCON8430 0 RCM10.E
Mutual Fund: Proprietary RCON8784 0 RCM10.F
Interbank Holdings: Reciprocal RCON3836 0 RCMM.1.A
Interbank Holdings: Nonreciprocal RCON3837 0 RCMM.1.B
</TABLE>
<PAGE> 70
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-18
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 26
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC - N - Past Due and Nonaccrual Loans, Leases, and Other Assets
The FFIEC regards the information reported in all of Memorandum item 1, in items 1 through 10, column A, and in memorandum items 2
through 4, column A, as confidential.
C370 [-
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RE US: 30-89 Days RCON1245 34,732 RCN1.A.A
RE US: 90+ Days RCON1246 13,643 RCN1.A.B
RE US: Nonaccrual RCON1247 5,426 RCN1.A.C
RE NonUS: 30-89 Days RCON1248 0 RCN1.B.A
RE NonUS: 90+ Days RCON1249 0 RCN1.B.B
RE NonUS: Nonaccrual RCON1250 0 RCN1.B.C
Loans/Leases US Guaranteed-30-89 Days RCON5612 3,758 RCN10.A
Loans/Leases Guaranteed: 30-89 Days RCON5615 3,010 RCN10.A.A
Loans/Leases Guaranteed: 30-89 Days RCON5616 654 RCN10.A.B
Loans/Leases Guaranteed: 30-89 Days RCON5617 0 RCN10.A.C
Loans/Leases US Guaranteed- 90+ Days RCON5613 895 RCN10.B
Loans/Leases US Guaranteed-Nonaccrual RCON5614 0 RCN10.C
Loans US Deps: US Banks: 30-89 Days RCON5377 0 RCN2.A.A
Loans US Deps: US Banks: 90+ Days RCON5378 0 RCN2.A.B
Loans US Deps: US Banks: Nonaccrual RCON5379 0 RCN2.A.C
Loans US Deps: Foreign: 30-89 Days RCON5380 0 RCN2.B.A
Loans US Deps: Foreign: 90+ Days RCON5381 0 RCN2.B.B
Loans US Deps: Foreign: Nonaccrual RCON5382 0 RCN2.B.C
Ag/Farm: 30-89 Days RCON1594 0 RCN3.A
Ag/Farm: 90+ Days RCON1597 0 RCN3.B
Ag/Farm: Nonaccrual RCON1583 0 RCN3.C
Coml/Indl US: 30-89 Days RCON1251 11,876 RCN4.A.A
Coml/Indl US: 90+ Days RCON1252 1,043 RCN4.A.B
Coml/Indl US: Nonaccrual RCON1253 18,053 RCN4.A.C
Coml/Indl NonUS: 30-89 Days RCON1254 0 RCN4.B.A
Coml/Indl NonUS: 90+ Days RCON1255 0 RCN4.B.B
Coml/Indl NonUS: Nonaccrual RCON1256 0 RCN4.B.C
Consumer: Credit Cards: 30-89 Days RCON5383 943 RCN5.A.A
Consumer: Credit Cards: 90+ Days RCON5384 111 RCN5.A.B
Consumer: Credit Cards: Nonaccrual RCON5385 0 RCN5.A.C
Consumer: Other: 30-89 Days RCON5386 3,887 RCN5.B.A
Consumer: Other: 90+ Days RCON5387 147 RCN5.B.B
Consumer: Other: Nonaccrual RCON5388 0 RCN5.B.C
Loans Foreign Govs: 30-89 Days RCON5389 0 RCN6.A
Loans Foreign Govs: 90+ Days RCON5390 0 RCN6.B
Loans Foreign Govs: Nonaccrual RCON5391 0 RCN6.C
Other: 30-89 Days RCON5459 169 RCN7.A
Other: 90+ Days RCON5460 0 RCN7.B
Other: Nonaccrual RCON5461 1,169 RCN7.C
Leases US: 30-89 Days RCON1257 631 RCN8.A.A
Leases US: 90+ Days RCON1258 0 RCN8.A.B
Leases US: Nonaccrual RCON1259 0 RCN8.A.C
Leases NonUS: 30-89 Days RCON1271 0 RCN8.B.A
Leases NonUS: 90+ Days RCON1272 0 RCN8.B.B
Leases NonUS: Nonaccrual RCON1791 0 RCN8.B.C
Debt Securities: 30-89 Days RCON3505 0 RCN9.A
Debt Securities: 90+ Days RCON3506 0 RCN9.B
Debt Securities: Nonaccrual RCON3507 0 RCN9.C
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-19
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 27
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC - N - CONTINUED
C373 [-
Memoranda
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Restruc'd: 30-89 Days RCON1658 0 RCNM.1.A
Restruc'd: 90+ Days RCON1659 0 RCNM.1.B
Restruc'd: Nonaccrual RCON1661 0 RCNM.1.C
Comm Real Estate Loans: 30-89 Days RCON6558 79 RCNM.2.A
Comm Real Estate Loans: 90+ Days RCON6559 184 RCNM.2.B
Comm Real Estate Loans: Nonaccrual RCON6560 1,103 RCNM.2.C
Secured Loans - Const: 30-89 Days RCON2759 12,768 RCNM.3.AA
Secured Loans - Const: 90+ Days RCON2769 11,062 RCNM.3.AB
Secured Loans - Const: Nonaccrual RCON3492 962 RCNM.3.AC
Secured Loans - Farmland: 30-89 Days RCON3493 17 RCNM.3.BA
Secured Loans - Farmland: 90+ Days RCON3494 0 RCNM.3.BB
Secured Loans - Farmland: Nonaccrual RCON3495 79 RCNM.3.BC
Secd Loans 1-4 Fam-Revol: 30-89 Days RCON5398 3 RCNM.3.C1A
Secd Loans 1-4 Fam-Revol: 90+ Days RCON5399 0 RCNM.3.C1B
Secd Loans 1-4 Fam-Revol: Nonaccrual RCON5400 0 RCNM.3.C1C
Secd Loans 1-4 Fam-Other: 30-89 Days RCON5401 7,525 RCNM.3.C2A
Secd Loans 1-4 Fam-Other: 90+ Days RCON5402 1,526 RCNM.3.C2B
Secd Loans 1-4 Fam-Other: Nonaccrual RCON5403 866 RCNM.3.C2C
Secured Loans - Multifam: 30-89 Days RCON3499 0 RCNM.3.DA
Secured Loans - Multifam: 90+ Days RCON3500 0 RCNM.3.DB
Secured Loans - Multifam: Nonaccrual RCON3501 649 RCNM.3.DC
Secured Loans - Non Farm: 30-89 Days RCON3502 14,419 RCNM.3.EA
Secured Loans - Non Farm: 90+ Days RCON3503 1,055 RCNM.3.EB
Secured Loans - Non Farm: Nonaccrual RCON3504 2,870 RCNM.3.EC
Rate/Contract: Book Value: 30-89 Days RCON3522 0 RCNM.4.AA
Rate/Contract: Book Value: 90+ Days RCON3528 0 RCNM.4.AB
Rate/Contract: Replacement:30-89 Days RCON3529 0 RCNM.4.BA
Rate/Contract: Replacement: 90+ Days RCON3530 0 RCNM.4.BB
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-20
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 28
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC - O - Other Data for Deposit Insurance Assessments
C375 [-
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unposted Debits RCON0030 0 RCO1.A
Unposted Debits: Demand RCON0031 0 RCO1.B.1
Unposted Debits: Time/Savings(1) RCON0032 0 RCO1.B.2
Unposted Credits RCON3510 0 RCO2.A
Unposted Credits: Demand RCON3512 139,395 RCO2.B.1
Unposted Credits: Time/Savings(1) RCON3514 48 RCO2.B.2
Uninvested Trust Fund Cash RCON3520 0 RCO3
Demand Dep Consolidated Subsidiaries RCON2211 22,235 RCO4.A
Time/Sav Dep Consolidated Subsidiaries(1) RCON2351 0 RCO4.B
Int accrued/unpaid on deps of con sub RCON5514 0 RCO4.C
Passed-Through: Demand RCON2314 0 RCO6.A
Passed-through: Time/Saving(1) RCON2315 0 RCO6.B
Unamortized premiums(1) RCON5516 5,211 RCO7.A
Unamortized discounts(1) RCON5517 0 RCO7.B
OAKAR Deposits RCON5518 805,676 RCO8
Deposit Institution Invest. Contracts RCON8432 0 RCO10
</TABLE>
(1) For FDIC insurance assessment purposes, "time and savings deposits"
consists of nontransaction accounts and all transaction accounts other than
demand deposits.
<PAGE> 73
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-21
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 29
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC - O - Continued
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reciprocal Demand Bals - Savings Asc. RCON8785 0 RCO11.A
Reciprocal Demand Bals - Foreign Brch RCONA181 0 RCO11.B
Reciprocal Demand Bals - Cash Items RCONA182 7,695 RCO11.C
Deposits [$100 000 RCON2702 3,324,472 RCOM.1.A.1
Number of Dep. Accounts [$100 000 RCON3779 698,234 RCOM.1.A.2
Deposits ]$100 000 RCON2710 2,278,489 RCOM.1.B.1
Number of Dep. Accounts ]$100 000 RCON2722 6,062 RCOM.1.B.2
Yes/No: Bank has a better method/proc RCON6861 0 RCOM.2.A
If YES: Uninsured Deposits Amount RCON5597 0 RCOM.2.B
</TABLE>
<PAGE> 74
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-22
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 30
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC - R - Regulatory Capital
This schedule must be completed by all banks as follows: Banks that reported total assets of $1 billion or more in Schedule RC, item
12, for June 30, 1995, must complete items 2 through 9 and Memoranda items 1 and 2. Banks with assets of less than $1 billion must
complete items 1 through 3 below or Schedule RC-R in its entirety, depending on their response to item 1 below.
C380 [-
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Do You Meet Capital Requirements? Y/N RCON6056 0 RCR1
Subordinated Debt(1) and other limited
life capital
Subordinated Debt: Maturity [ 1 Year(1) RCON3780 0 RCR2.A.A
Other Limited-Life: Maturity [ 1 Year RCON3786 0 RCR2.A.B
Subordinated Debt: Matur 1 to 2 Years(1) RCON3781 0 RCR2.B.A
Other Limited-Life: Matur 1 to 2 Yrs RCON3787 0 RCR2.B.B
Subordinated Debt: Matur 2 to 3 Years(1) RCON3782 0 RCR2.C.A
Other Limited-Life: Matur 2 to 3 Yrs RCON3788 0 RCR2.C.B
Subordinated Debt: Matur 3 to 4 Years(1) RCON3783 0 RCR2.D.A
Other Limited-Life: Matur 3 to 4 Yrs RCON3789 0 RCR2.D.B
Subordinated Debt: Matur 4 to 5 Years(1) RCON3784 0 RCR2.E.A
Other Limited-Life: Matur 4 to 5 Yrs RCON3790 0 RCR2.E.B
Subordinated Debt: Matur over 5 Years(1) RCON3785 80,000 RCR2.F.A
Other Limited-Life: Matur over 5 Yrs RCON3791 0 RCR2.F.B
Amnts used for capt ratio:Tier 1 capt RCON8274 452,161 RCR3.A
Amnts used for capt ratio:Tier 2 capt RCON8275 142,535 RCR3.B
Amnts used for capt ratio:Risk-based RCON3792 594,696 RCR3.C
Amnts used for capt ratio: Allowance RCONA222 0 RCR3.D
Amnts used for capt ratio:Risk-weight RCONA223 5,577,677 RCR3.E
Amnts used for capt ratio:Average tot RCONA224 6,551,701 RCR3.F
Zero % Risk: Securities Issued By.... RCON3794 393,088 RCR4.A.1
Zero % Risk: All Other Assets RCON3795 388,516 RCR4.A.2
Zero % Risk: Credit Equiv Off-Balance(2) RCON3796 0 RCR4.B
</TABLE>
(1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7.
(2) Do not report in column B the risk-weighted amount of assets reported in
column A.
<PAGE> 75
<TABLE>
<CAPTION>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-23
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344 31
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Schedule RC - R - Continued
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
20 % Risk: Claims Cond Guaranteed RCON3798 198,555 RCR5.A.1
20 % Risk: Claims Collateralized RCON3799 56,887 RCR5.A.2
20 % Risk: All Other Assets RCON3800 1,181,422 RCR5.A.3
20 % Risk: Credit Equiv Off-Balance(1) RCON3801 163,319 RCR5.B
50 % Risk: Assets On Balance Sheet RCON3802 524,261 RCR6.A
50 % Risk: Credit Equiv Off-Balance(1) RCON3803 1,099 RCR6.B
100 % Risk: Assets On Balance Sheet RCON3804 4,192,663 RCR7.A
100 % Risk: Credit Equiv Off-Balance(1) RCON3805 1,163,766 RCR7.B
On-Balance Sheet Values Excluded From(2) RCON3806 (1,968) RCR8
Total Assets On Balance Sheet RCON3807 6,933,424 RCR9
Credit Exp - Off-Bal Sheet Derivative RCON8764 5,804 RCRM.01
Not. prin. Off-Bal Sheet Deriv Contracts(3)
Derivative Int Rate Contracts [ 1 YR RCON3809 3,944 RCRM.02.AA
Derivative Int Rate Contracts 1-5 YRS RCON8766 1,131,880 RCRM.02.AB
Derivative Int Rate Contracts ] 5 YRS RCON8767 0 RCRM.02.AC
Derivative Fgn Exch Contracts [ 1 YR RCON3812 2,286 RCRM.02.BA
Derivative Fgn Exch Contracts 1-5 YRS RCON8769 0 RCRM.02.BB
Derivative Fgn Exch Contracts ] 5 YRS RCON8770 0 RCRM.02.BC
Derivative Gold Contracts [ 1 YR RCON8771 0 RCRM.02.CA
Derivative Gold Contracts 1-5 YRS RCON8772 0 RCRM.02.CB
Derivative Gold Contracts ] 5 YRS RCON8773 0 RCRM.02.CC
Derivative P Metals Contracts [ 1 YR RCON8774 0 RCRM.02.DA
Derivative P Metals Contracts 1-5 YRS RCON8775 0 RCRM.02.DB
Derivative P Metals Contracts ] 5 YRS RCON8776 0 RCRM.02.DC
Derivative Commodity Contrcts [ 1 YR RCON8777 0 RCRM.02.EA
Derivative Commodity Contrcts 1-5 YRS RCON8778 0 RCRM.02.EB
Derivative Commodity Contrcts ] 5 YRS RCON8779 0 RCRM.02.EC
Derivative Equity Contracts [ 1 YR RCONA000 0 RCRM.02.FA
Derivative Equity Contracts 1-5 YRS RCONA001 0 RCRM.02.FB
Derivative Equity Contracts ] 5 YRS RCONA002 0 RCRM.02.FC
</TABLE>
(1) Do not report in column B the risk-weighted amount of assets reported in
column A.
(2) Include the difference between the fair value and the amortized cost of
available-for-sale securities in item 8 and report the amortized cost of
these securities in items 4 through 7 above. Item 8 also includes on-balance
sheet asset values (or portions thereof) of off-balance sheet interest rate,
foreign exchange rate, and commodity contracts and those contracts (e.g.
future contracts) not subject to risk-based capital. Exclude from item 8
margin accounts and accrued receivables as well as any portion of the
allowance for loan and lease losses in excess of the amount that may be
included in Tier 2 capital.
(3) Exclude foreign exchange contracts with an original maturity of 14 days or
less and all futures contracts.
<PAGE> 76
<TABLE>
<S> <C> <C> <C> <C>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-24
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344
32
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
Optional Narrative Statement Concerning the Amounts
Reported in the Reports of Condition and Income
at close of business on June 30, 1996
WELLS FARGO BANK (TEXAS), NA PHOENIX AZ
- --------------------------------------------------------- ------------------------------------------ ----------
Legal Title of Bank City State
The management of the reporting bank may, if it wishes, the truncated statement will appear as the bank's
submit a brief narrative statement on the amounts statement both on agency computerized records and in
reported in the Reports of Condition and Income. This computer-file releases to the public.
optional statement will be made available to the public,
along with the publicly available data in the Reports of All information furnished by the bank in the narrative
Condition and Income, in response to any request for statement must be accurate and not misleading.
individual bank report data. However, the information Appropriate efforts shall be taken by the submitting
reported in column A and in all of Memorandum item 1 of bank to ensure the statement's accuracy. The statement
Schedule RC-N is regarded as confidential and will not must be signed, in the space provided below, by a senior
be released to the public. BANKS CHOOSING TO SUBMIT THE officer of the bank who thereby attests to its accuracy.
NARRATIVE STATEMENT SHOULD ENSURE THAT THE STATEMENT
DOES NOT CONTAIN THE NAMES OR OTHER IDENTIFICATIONS OF If, subsequent to the original submission, material
INDIVIDUAL BANK CUSTOMERS, REFERENCES TO THE AMOUNTS changes are submitted for the data reported in the
REPORTED IN THE CONFIDENTIAL ITEMS IN SCHEDULE RC-N, OR Reports of Condition and Income, the existing narrative
ANY OTHER INFORMATION THAT THEY ARE NOT WILLING TO HAVE statement will be deleted from the files, and from
MADE PUBLIC OR THAT WOULD COMPROMISE THE PRIVACY OF disclosure; the bank, at its option, may replace it with
THEIR CUSTOMERS. Banks choosing not to make a statement a statement, under signature, appropriate to the amended
may check the "No comment" box below and should make no data.
entries of any kind in the space provided for the
narrative statement; i.e., DO NOT enter in this space The optional narrative statement will appear in agency
such phrases as "No statement," "Not applicable," "N/A," records and in release to the public exactly as
"No Comment," and "None." submitted (or amended as described in the preceding
paragraph) by the management of the bank (except for the
The optional statement must be entered on this sheet. truncation of statements exceeding the 750-character
The statement should not exceed 100 words. Further, limit described above). THE STATEMENT WILL NOT BE EDITED
regardless of the number of words, the statement must OR SCREENED IN ANY WAY BY THE SUPERVISORY AGENCIES FOR
not exceed 750 characters, including punctuation, ACCURACY OR RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL
indentation, and standard spacing between words and NOT SIGNIFY THAT ANY FEDERAL SUPERVISORY AGENCY HAS
sentences. If any submission should exceed 750 VERIFIED OR CONFIRMED THE ACCURACY OF THE INFORMATION
characters, as defined, it will be truncated at 750 CONTAINED THEREIN. A STATEMENT TO THIS EFFECT WILL
characters with no notice to the submitting bank and APPEAR ON ANY PUBLIC RELEASE OF THE OPTIONAL STATEMENT
SUBMITTED BY THE MANAGEMENT OF THE REPORTING BANK.
- ---------------------------------------------------------------------------------------------------------------------------
No comment: X (RCON 6979) C371 C372 [-
BANK MANAGEMENT STATEMENT (please type or print clearly) (TEXT 6980):
---------------------------------------- -----------------
Signature of Executive Officer of Bank Date of Signature
</TABLE>
<PAGE> 77
<TABLE>
<S> <C> <C> <C> <C>
WELLS FARGO BANK (TEXAS), NA Call Date: 06/30/96 ST-BK: 48-3778 FFIEC 032
P.O. BOX 29743 Page RC-25
PHOENIX, AZ 85038-9743 Vendor ID: D CERT: 24344
33
Transit Number: 11300106 Transmitted to EDS as 0008716 on 07/30/96 at 18:33:19 CST
THIS PAGE IS TO BE COMPLETED BY ALL BANKS
- ---------------------------------------------------------------------------------------------------------------------------
OMB No. For OCC: 1557-0081
OMB No. For FDIC: 3064-0052
OMB No. For Federal Reserve: 7100-0036
Expiration Date: 03/31/99
SPECIAL REPORT
(Dollar Amounts in Thousands)
CLOSE OF BUSINESS DATE: FDIC Certificate Number:
June 30, 1996 24344 C700 [-
- ---------------------------------------------------------------------------------------------------------------------------
LOANS TO EXECUTIVE OFFICERS (Complete as of each Call Report Date)
- ---------------------------------------------------------------------------------------------------------------------------
The following information is required by Public Laws 90-44 and 102-242, but does not constitute a part of the Report of
Condition. With each Report of Condition, these Laws require all banks to furnish a report of all loans or other
extensions of credit to its executive officers made since the date of the previous Report of Condition. Data regarding
individual loans or other extensions of credit are not required. If no such loans or other extensions of credit were
made during the period, insert "none" against subitem (a). (Exclude the first $15,000 of indebtedness of each executive
officer under bank credit card plan.) See Sections 215.2 and 215.3 of Title 12 of the Code of Federal Regulations
(Federal Reserve Board Regulation O) for the definitions of "executive officer" and "extension of credit," respectively.
Exclude loans and other extensions of credit to directors and principal shareholders who are not executive officers.
- ---------------------------------------------------------------------------------------------------------------------------
RCON
----
1. Number of loans made to executive officers since the previous
Call Report date. . . . . . . . . . . . . . . . . . . . . . . . . . 3561 NONE a.
2. Total dollar amount of above loans (in thousands of dollars) . . . . 3562 0 b.
3. Range of interest charged on above loans (example:
9 3/4% = 9.75) . . . . . . . . . . . . . . . . . . . . . . . . . . 7701/7702 0.00% to 0.00% c.
- ---------------------------------------------------------------------------------------------------------------------------
SIGNATURE AND TITLE OF OFFICER AUTHORIZED TO SIGN REPORT: DATE (Month, Day, Year):
/s/ John V. Prince Vice President 7/23/96
- ----------------------------------------------------------------------- ----------------------------------------------
NAME AND TITLE OF PERSON TO WHOM INQUIRIES MAY BE DIRECTED: (TEXT 8903) AREA CODE/PHONE NUMBER: (TEXT 8904)
Douglas S. Alldredge, Assistant Vice President (602) 858-8162
- ---------------------------------------------------------------------------------------------------------------------------
FDIC 8040/53 (6-95)
</TABLE>
