Pier 1 2008 Annual Report Download - page 30

the discretion of the Board of Directors, contributions of cash or unrestricted life insurance policies could be
made to the Trusts.
The Company’s sources of working capital for fiscal 2008 were cash flows from internally generated
funds and collections of income tax receivables. The Company has a variety of sources for liquidity, which
include available cash balances, available lines of credit and cash surrender value of life insurance policies not
restricted as to use. The Company’s current plans for fiscal 2009 include a capital expenditure budget of
approximately $15 to $18 million, which includes up to three new store openings, and a decrease in store
count of approximately 25 stores. The Company is expecting charges of approximately $6 million during fiscal
2009 in connection with planned store closures and the exit of excess leased distribution center space. The
Company does not presently anticipate any other significant cash outflows in fiscal 2009 other than those
occurring in the normal course of business. Considering these plans, expected proceeds from the sale of the
headquarters building, collection of income tax receivables, and the other sources of liquidity referred to
above, the Company believes it has sufficient liquidity to fund operational obligations and capital expenditure
requirements through fiscal year 2009.
OFF-BALANCE SHEET ARRANGEMENTS
Other than the operating leases and letters of credit discussed above, the Company’s only other off-
balance sheet arrangement related to the securitization of the Company’s proprietary credit card receivables
during a portion of fiscal 2007. The Company allowed its securitization agreement to expire during fiscal 2007
and subsequently sold its proprietary credit card operations to Chase. At the time of the expiration of the
securitization agreement, the Company purchased $144.0 million of proprietary credit card receivables,
previously held by the Pier 1 Imports Credit Card Master Trust (“Master Trust”) for $100.0 million in cash
and in exchange for $44.0 million of beneficial interest. The Master Trust, upon approval from debt security
(“Class A Certificates”) holders, paid $100.0 million to redeem the Class A Certificates that were outstanding.
Prior to the expiration of the securitization agreement, the Company sold, on a daily basis, its
proprietary credit card receivables that met certain eligibility criteria to Pier 1 Funding, LLC (“Funding”),
which transferred the receivables to the Master Trust. The Master Trust had issued $100 million face amount
of Class A Certificates to a third party. This securitization of receivables provided the Company with a portion
of its funding. However, neither Funding nor the Master Trust was consolidated in the Company’s financial
statements, and the Company had no obligation to reimburse Funding, the Master Trust or purchasers of
Class A Certificates for credit losses from the receivables. See Note 11 of the Notes to Consolidated Financial
Statements for additional information regarding the securitization of the Company’s proprietary credit card
receivables.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of the Company’s consolidated financial statements in accordance with accounting
principles generally accepted in the United States requires the use of estimates that affect the reported value of
assets, liabilities, revenues and expenses. These estimates are based on historical experience and various other
factors that are believed to be reasonable under the circumstances, the results of which form the basis for the
Company’s conclusions. The Company continually evaluates the information used to make these estimates as
the business and the economic environment changes. Historically, actual results have not varied materially
from the Company’s estimates, with the exception of the impairment of long-lived assets, the early retirement
of participants in its defined benefit plans, and income taxes as discussed below. The Company does not
currently anticipate a significant change in its assumptions related to these estimates. Actual results may differ
from these estimates under different assumptions or conditions. The Company’s significant accounting policies
can be found in Note 1 of the Notes to Consolidated Financial Statements. The policies and estimates
discussed below include the financial statement elements that are either judgmental or involve the selection or
application of alternative accounting policies and are material to the Company’s financial statements. Unless
specifically addressed below, the Company does not believe that its critical accounting policies are subject to
market risk exposure that would be considered material and as a result, has not provided a sensitivity analysis.
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