Pier 1 2014 Annual Report Download - page 30

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Cash Flows from Financing Activities
Financing activities for fiscal 2014 used $193.9 million, primarily related to the Company using $192.3 million to repurchase the
Company’s common stock and paying quarterly cash dividends of $0.05 per share per quarter for the first three quarters and
$0.06 per share for the fourth quarter of fiscal 2014, totaling $21.7 million. The Company repurchased $203.9 million of its
shares in fiscal 2014, $11.6 million of that amount were settled in March of fiscal 2015. Amounts repurchased but settled
subsequent to year end are considered non-cash financing activities and are excluded from the Consolidated Statements of
Cash Flows. These cash outflows were partially offset by the receipt of $21.2 million in proceeds related primarily to employee
stock option exercises and the Company’s employee stock purchase plan.
Financing activities for fiscal 2013 used $97.9 million, primarily related to the Company using $100.0 million to repurchase the
Company’s common stock and paying quarterly cash dividends of $0.04 per share per quarter for the first three quarters and
$0.05 per share for the fourth quarter of fiscal 2013, totaling $18.0 million. The cash outflows were partially offset by the receipt of
$20.1 million in proceeds related primarily to employee stock option exercises and the Company’s employee stock purchase plan.
Revolving Credit Facility and Term Loan Facility
On June 18, 2013, the Company amended, renewed and extended its secured revolving credit facility (“Revolving Credit
Facility”). The Revolving Credit Facility was amended to extend the maturity date from April 4, 2016 to June 18, 2018 and
increase the amount of the facility from $300 million to $350 million. The amended Revolving Credit Facility also includes a
$100 million accordion feature, which under certain circumstances enables the Company to request that the facility be increased
to an amount not to exceed $450 million. The Revolving Credit Facility continues to be secured by the Company’s merchandise
inventory and credit card receivables. As of March 1, 2014, the Company had no cash borrowings and approximately
$40.2 million in letters of credit and bankers’ acceptances outstanding. The calculated borrowing base was $328.0 million, of
which approximately $287.8 million remained available for additional borrowings. At the end of fiscal 2014, the Company was in
compliance with all required covenants stated in the agreement.
The Company’s Revolving Credit Facility may limit certain investments and, in some instances, limit payment of cash dividends
and repurchases of the Company’s common stock. The Company will not be restricted from paying certain dividends unless
credit extensions on the line result in availability over a specified period of time that is projected to be less than 17.5% of the
lesser of either $350 million or the calculated borrowing base, subject to the Company meeting a fixed charge coverage
requirement when availability over the same specified period of time is projected to be less than 30% of the lesser of either
$350 million or the calculated borrowing base. See Note 4 of the Notes to Consolidated Financial Statements for further
discussion of the Company’s Revolving Credit Facility.
The Company expects to complete a second amendment to the Company’s Revolving Credit Facility on or about April 30, 2014,
in order to allow additional borrowings under a new senior secured term loan facility that is expected to close on the same day.
Substantially all of the other material terms and conditions applicable under the Revolving Credit Facility are anticipated to remain
unchanged. The Revolving Credit Facility will remain secured primarily by merchandise inventory and credit card receivables and
certain related assets on a first priority basis and, following the incurrence of the new senior secured term loan facility
indebtedness discussed below, is expected to be secured on a second lien basis by substantially all other assets of certain of
the Company’s subsidiaries, subject to certain exceptions.
The Company expects to close a new $200 million senior secured term loan facility (the “Term Loan Facility”) on or about April
30, 2014. The Term Loan Facility is anticipated to mature on April 30, 2021 and to be secured by a second lien on all assets
previously pledged as security under the Revolving Credit Facility and a first lien on substantially all other assets of certain of the
Company’s subsidiaries, subject to certain exceptions. The Term Loan Facility is expected to provide for incremental facilities,
subject to certain conditions, including the meeting of certain leverage ratio requirements as defined therein, to the extent such
amounts exceed an incremental $200 million. The Term Loan Facility will be subject to quarterly amortization of principal equal to
0.25% of the original aggregate principal amount of the loans, with the balance due at final maturity. The Company will be subject
to an annual excess cash flow repayment requirement, as defined in the anticipated agreement, beginning with the fiscal year
ending February 2015. At the Company’s option, and subject to the expected requirements and provisions of the Term Loan
Facility, the Company can prepay the Term Loan Facility at any time prior to twelve months after closing subject to a 1% penalty
in certain cases, and without penalty thereafter.
The Company expects net proceeds to be approximately $194 million, after payment of all fees and discounts, and estimates
related interest expense to be approximately $9 million per year. A 100 basis point change in the interest rate would result in
approximately $2 million of additional interest expense. The proceeds of the loan will be used for general corporate purposes,
including working capital needs and capital expenditures, and share repurchases and dividends permitted under the debt
agreement. At the Company’s option, borrowings are expected to bear interest, payable quarterly or, if earlier, at the end of
26 PIER 1 IMPORTS, INC. 2014 Form 10-K