Pier 1 2011 Annual Report Download - page 36

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The present value of the Company’s minimum future operating lease commitments discounted at 10%
was $592.8 million at fiscal 2011 year end, compared to $635.1 million at fiscal 2010 year end. As part of the
sale of the Company’s home office building and accompanying land during fiscal 2009, the Company entered
into a lease agreement to rent office space in the building. The lease has a primary term of seven years beginning
on June 9, 2008, with one three-year renewal option and provisions for terminating the lease at the end of the
fifth lease year. The Company plans to fund its lease commitments from cash generated from the operations of
the Company and, if needed, from borrowings on its secured credit facility.
The Company has an umbrella trust, currently consisting of five sub-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 26, 2011 and
February 27, 2010, and were included in other noncurrent assets. The remaining three sub-trusts are restricted to
meet the funding requirements of the Company’s non-qualified deferred compensation plans. These trusts’ assets
consisted of investments totaling less than $0.1 million at February 26, 2011 and February 27, 2010, 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 $5.5 million at February 26, 2011 and death benefits of approximately
$11.3 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 $17.2 million at February 26, 2011 and was included in other noncurrent
assets. These policies had a death benefit of approximately $27.6 million at February 26, 2011. 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 2011 were primarily from operations and the sale of
its distribution center near Chicago. 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 2012 include a capital
expenditure budget of approximately $50 – $60 million and share repurchases of approximately $100 million as
discussed above. The Company does not presently anticipate any other significant cash outflows in fiscal 2012
other than those discussed herein or those occurring in the normal course of business, which will include
resuming payment of federal income taxes.
The liquidity of the Company continued to improve during fiscal 2011. 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
make its cost base more efficient and effective and still preserve liquidity. If for some reason consumer spending
begins to decline to levels seen during the recent recession, 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. 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 share repurchases through fiscal 2012.
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.
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