Pier 1 2010 Annual Report Download - page 37

Download and view the complete annual report

Please find page 37 of the 2010 Pier 1 annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 148

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148

insurance policies with cash surrender values of approximately $5.0 million at February 27, 2010 and death
benefits of approximately $11.7 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 $17.1 million at February 27, 2010 and was
included in other noncurrent assets. These policies had a death benefit of approximately $27.0 million at
February 27, 2010. 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 2010 were cash flows from internally generated
funds, and the collection of income tax receivables. The Company has a variety of sources for liquidity, which
include available cash balances and available lines of credit. The Company’s current plans for fiscal 2011 include
a capital expenditure budget of approximately $25.0 million and the repayment of its $16.6 million 6.375%
Notes. The Company does not presently anticipate any other significant cash outflows in fiscal 2011 other than
those occurring in the normal course of business or as discussed herein.
The liquidity of the Company has significantly improved during fiscal 2010. The Company’s key drivers
of cash flows are sales, management of inventory levels, vendor payment terms, management of expenses, and
capital expenditures. The Company’s focus remains on making conservative inventory purchases, managing
those inventories, continuing to evolve the Company’s merchandise offering, and improving the in-store
experience. In addition, the Company’s ongoing mission is to maximize its revenues, while seeking out ways to
reduce its cost base and still preserve liquidity. If for some reason consumer spending begins to decline to levels
seen a year ago, the Company could experience a material adverse effect on its financial condition and ability to
generate cash flows from operations. As a result, the Company could become dependent on the availability of
adequate capital to fund its operations and carry out its turnaround strategy. While there can be no assurance that
the Company will sustain positive cash flows or profitability over the long-term, given the Company’s cash
position and the various liquidity options available, the Company believes it has sufficient liquidity to fund its
obligations, capital expenditure requirements and the repayment of its convertible debt through fiscal 2011.
OFF-BALANCE SHEET ARRANGEMENTS
Other than the operating leases, letters of credit and purchase obligations discussed above, the Company
has no off-balance sheet arrangements.
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. The use of estimates is pervasive
throughout the consolidated financial statements, but the accounting policies and estimates considered most
critical are as follows:
31