Pier 1 2009 Annual Report Download - page 39

determined to be out of compliance with this standard. As of May 1, 2009, the Company’s average
global market capitalization over a consecutive 30 trading-day period was greater than $25 million.
As discussed in Note 5 to the Consolidated Financial Statements, the definition of a fundamental
change under the Company’s 6.375% convertible senior notes due 2036 (the ‘‘Notes’’) includes the
Company’s common stock ceasing to be listed on a national securities exchange or quoted on the
Nasdaq National Market or another established automated over-the-counter trading market in the
United States. The Company believes that it will continue to be able to satisfy the above requirement
for the listing or quotation of its common stock. If the Company is, however, unable to comply with
this provision of the Notes, the holders of the Notes could, at their option, require the Company to
repurchase all or a portion of their Notes. Such an event could have a material adverse effect on the
Company if the Company does not have sufficient cash, is unable to raise sufficient additional capital
for such repurchases, or is otherwise unable to refinance the Notes.
On March 20, 2009, a foreign subsidiary of the Company purchased $78.9 million of the
Company’s outstanding Notes at a purchase price of $27.4 million, including accrued interest. The
foreign subsidiary intends to hold the notes until maturity. As a result of this transaction, the Company
has reduced its outstanding convertible debt to $86.1 million on a consolidated basis. The Company
expects to recognize a gain of approximately $49.0 million in connection with this transaction during
the first quarter of fiscal 2010. From time to time the Company may continue to seek to retire or
purchase its remaining outstanding Notes through cash purchases and/or exchanges for equity securities,
in open market purchases, privately negotiated transactions or otherwise. Such repurchases or
exchanges, if any, will depend on prevailing market conditions, the Company’s liquidity requirements,
contractual restrictions and other factors. The amounts involved will be subject to compliance with all
debt agreements and may be material. See Note 13 of the Notes to Consolidated Financial Statements for
further discussion. As a result of the put feature of the Company’s 6.375% convertible senior notes due
2036, the Company anticipates that the remaining $86.1 million in Notes will have to be repaid or
refinanced on or before February 15, 2011. If the Company does not have sufficient cash, is unable to
raise sufficient additional capital for such repurchases, or is otherwise unable to refinance the Notes,
such repayment could have a material adverse effect on the Company, its business, financial condition
and results of operations.
The Company has an umbrella trust, currently consisting of four sub-trusts (the ‘‘Trusts’’), which
was established for the purpose of setting aside funds to be used to settle certain benefit plan
obligations. Two of the sub-trusts are restricted to satisfy obligations to certain participants of the
Company’s supplemental retirement plans. These trusts consisted of interest bearing investments of less
than $0.1 million at both February 28, 2009 and March 1, 2008, and were included in other noncurrent
assets in fiscal 2009 and 2008. The remaining two sub-trusts are restricted to meet the funding
requirements of the Company’s non-qualified deferred compensation plans. These trusts’ assets
consisted of interest bearing investments totaling $0.2 million at February 28, 2009 and $1.5 million at
March 1, 2008, and were included in other noncurrent assets. These trusts also own and are the
beneficiaries of life insurance policies with cash surrender values of approximately $5.4 million at
February 28, 2009, and death benefits of approximately $13.5 million. In addition, the Company owns
and is the beneficiary of a number of insurance policies on the lives of current and former key
executives that are unrestricted as to use. The cash surrender value of these unrestricted policies was
approximately $16.0 million at February 28, 2009, and was included in other noncurrent assets. The
death benefit related to the unrestricted policies was approximately $24.9 million. At 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 2009 were cash flows from internally
generated funds, the sale of the Company’s home office building and related assets and collections of
income tax receivables. The Company has a variety of sources for liquidity, which include available cash
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