Pier 1 2016 Annual Report Download - page 36

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Contractual Obligations
A summary of the Company’s contractual obligations and other commercial commitments as of February 27, 2016, is listed
below (in thousands):
Amount of Commitment per Period
Total Less Than 1 Year 1to 3 Years 3to 5 Years More Than 5 Years
Operating leases $1,253,629 $237,436 $390,121 $266,865 $359,207
Purchase obligations (1) 191,964 191,964 — — —
Standby letters of credit (2) 27,891 27,891 — — —
Industrial revenue bonds (2) 9,500 — — — 9,500
Interest on industrial revenue bonds (3) 41 4 8 8 21
Interest and related fees on revolving credit facility (4) 1,628 1,251 377 — —
Term loan facility 197,000 2,000 4,000 4,000 187,000
Interest and related fees on term loan facility (5) 44,409 8,775 17,280 16,920 1,434
Other obligations (6) (7) 55,807 2,862 31,762 2,070 19,113
Total $1,781,869 $472,183 $443,548 $289,863 $576,275
(1) As of February 27, 2016, the Company had approximately $192.0 million of outstanding purchase orders, which were primarily related to merchandise inventory. Such orders are generally
cancelable at the discretion of the Company until the order has been shipped. The table above excludes certain executory contracts for goods and services that tend to be recurring in nature
and similar in amount year over year.
(2) The Company also has an outstanding standby letter of credit totaling $9.7 million related to the Company’s industrial revenue bonds. This amount is excluded from the table above as it is
not incremental to the Company’s total outstanding commitments.
(3) The interest rates on the Company’s industrial revenue bonds are variable and reset weekly. The estimated interest payments included in the table were calculated based upon the rate in effect
at fiscal 2016 year end and exclude fees for the related standby letter of credit, as these fees are included in interest and related fees on the Revolving Credit Facility.
(4) Represents estimated commitment fees for trade and standby letters of credit, and unused balance fees on the Company’s Revolving Credit Facility. Fees are calculated based upon balances
at fiscal 2016 year end and the applicable rates in effect under the terms of the Revolving Credit Facility.
(5) The interest rates on the Company’s Term Loan Facility are variable. The estimated interest payments included in the table were calculated based upon the rate in effect at fiscal 2016 year end.
Currently a principal reduction in the amount of $0.5 million is made on the last day of each calendar quarter, therefore the principal is reduced by $2.0 million annually.
(6) Other obligations include various commitments including the Company’s liability under its unfunded retirement plans. See Note 5 of the Notes to Consolidated Financial Statements for
further discussion of the Company’s employee benefit plans.
(7) Excluded from this table, but recorded on the Company’s balance sheet, is the portion of reserves for uncertain tax positions of $1.0 million for which the Company is not reasonably able to
estimate when or if cash settlement with the respective taxing authority will occur.
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 in the Company’s supplemental retirement plans. The assets of the two sub-trusts consisted of interest
bearing investments of less than $0.1 million at both February 27, 2016 and February 28, 2015, 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 are included in other noncurrent assets and are comprised of
investments and life insurance policies. The investments totaled $9.9 million and $10.6 million at February 27, 2016 and
February 28, 2015, respectively. The investments were held primarily in mutual funds and are stated at fair value. These sub-
trusts also own and are the beneficiaries of life insurance policies on the lives of former key executives. These policies are stated
at fair value. The cash surrender value of the policies was approximately $5.9 million and $5.7 million as of February 27, 2016
and February 28, 2015, respectively, and the death benefit was approximately $11.4 million and $11.3 million, respectively.
In addition, the Company owns and is the beneficiary of a number of insurance policies on the lives of former key executives that
were unrestricted as to use at the end of fiscal 2016. The cash surrender value of the unrestricted policies was approximately
$13.4 million and $13.1 million at February 27, 2016 and February 28, 2015, respectively, and was included in other noncurrent
assets. These policies had a death benefit of approximately $20.1 million and $19.9 million as of February 27, 2016 and
February 28, 2015, respectively. At the discretion of the Company’s Board, contributions of cash or unrestricted life insurance
policies may be made to one or more of the sub-trusts.
Sources of Working Capital
The Company’s sources of working capital for fiscal 2016 were primarily cash from operations and the Revolving Credit Facility.
The Company has a variety of sources for liquidity, which include available cash balances and borrowings against the Company’s
Revolving Credit Facility and Term Loan Facility. The Company’s current plans for fiscal 2017 include a capital expenditure plan
slightly higher than fiscal 2016 and continuation of cash dividends and repurchases of the Company’s common stock. The
Company does not presently anticipate any other significant cash outflows in fiscal 2017 other than those discussed herein or
those occurring in the normal course of business.
30 PIER 1 IMPORTS, INC. 2016 Form 10-K