Pier 1 2016 Annual Report Download - page 19

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ITEM 1A. RISK FACTORS.
Risks Relating to Liquidity
If the Company is unable to generate sufficient cash flows from operations, it may not be
able to fund its obligations, including debt related payments and capital expenditure
requirements. Insufficient cash flows from operations could result in the substantial
utilization of the Company’s secured revolving credit facility or similar financing, which may
limit the Company’s ability to conduct certain activities.
The Company is dependent upon generating sufficient cash flows from operations to fund its obligations. The Company
maintains a secured revolving credit facility to enable it to issue merchandise and special purpose standby letters of credit as well
as to fund working capital requirements. Borrowings under the secured revolving credit facility are subject to a borrowing base
calculation consisting of a percentage of certain eligible assets of the Company and are subject to advance rates and
commercially reasonable reserves. Substantial utilization of the available borrowing base will result in various restrictions on the
Company, including restrictions on the ability of the Company to repurchase its common stock or pay dividends and an increase
in the lender’s control over the Company’s cash accounts. See Note 4 of the Notes to Consolidated Financial Statements for
additional discussion — Secured Revolving Credit Facility and Term Loan Facility. The Company entered into a senior secured
term loan facility in April of 2014. The proceeds of borrowing under the facility were used for general corporate purposes,
including working capital needs, capital expenditures, and share repurchases and dividends permitted under the facility. Those
borrowings have increased the Company’s interest expense and financial leverage. The facility contains a number of affirmative
and restrictive covenants that may also limit the Company’s actions. Significant decreases in cash flows from operations could
result in the Company borrowing increased amounts under its credit facilities to fund operational needs and increased utilization
of letters of credit. These actions could result in the Company being subject to increased restrictions as described above and
increase interest expense and overall leverage.
A disruption in the global credit and equity markets could negatively impact the Company’s
ability to obtain financing on acceptable terms.
In the future, the Company could become dependent on the availability of adequate capital to fund its operations. Disruption in
the global credit and equity markets and future disruptions in the financial markets could negatively affect the Company’s ability to
enter into new financing agreements or obtain funding through the sale of Company securities. A decline in economic conditions
could also result in difficulties for financial institutions and other parties that the Company does business with, which could
potentially affect the Company’s ability to access financing under existing arrangements or to otherwise recover amounts as they
become due under the Company’s contractual agreements. The inability of the Company to obtain financing as needed on
acceptable terms to fund its operations may have a negative impact on the Company’s business and financial results.
Item 1B. Unresolved Staff Comments.
None.
PIER 1 IMPORTS, INC. 2016 Form 10-K 13