Pier 1 2014 Annual Report Download - page 32

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 March 1, 2014 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 $1,212,831 $232,761 $393,353 $263,085 $323,632
Purchase obligations (1) 231,698 231,698 — — —
Standby letters of credit (2) 28,091 28,091 — — —
Industrial revenue bonds (2) 9,500 — — — 9,500
Interest on industrial revenue bonds (3) 85 7 13 13 52
Interest and related fees on secured credit facility (4) 5,512 1,262 2,524 1,726 —
Other obligations (5) (6) 60,252 9,514 22,666 1,773 26,299
Total $1,547,969 $503,333 $418,556 $266,597 $359,483
(1) As of March 1, 2014, the Company had approximately $231.7 million of outstanding purchase orders, which were primarily related to merchandise inventory, and included $2.4 million in
merchandise letters of credit and bankers’ acceptances. 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 2014 year end and exclude fees for the related standby letter of credit which are included elsewhere in this table.
(4) Represents estimated commitment fees for trade and standby letters of credit, and unused balance fees on the Company’s $350 million secured credit facility. Fees are calculated based upon
balances at fiscal 2014 year end and the applicable rates in effect under the terms of the Company’s $350 million secured credit facility.
(5) 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.
(6) Excluded from this table, but recorded on the Company’s balance sheet, is the portion of reserves for uncertain tax positions of $0.5 million for which the Company is not reasonably able to
estimate when or if cash settlement with the respective taxing authority will occur.
The present value of the Company’s minimum future operating lease commitments discounted at 10% was $878.3 million at
fiscal 2014 year end, compared to $798.7 million at fiscal 2013 year end.
The Company expects to close a new Term Loan Facility on or about April 30, 2014. The Term Loan Facility is expected to
require principal payments of $0.5 million per quarter, beginning on or about September 30, 2014, with the remainder due in
2021. The Company expects interest payments to be approximately $9.0 million per year based on rates expected to be in
effect at issuance. These amounts are not included in the table above. See Note 4 of the Notes to Consolidated Financial
Statements for further discussion of the Company’s Term Loan 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 in the Company’s supplemental retirement plans. These trusts consisted of interest bearing investments of less than
$0.1 million at both March 1, 2014 and March 2, 2013, 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 $6.7 million and $3.7 million at March 1, 2014 and March 2, 2013, respectively, and were
included in other noncurrent assets. The investments were held primarily in mutual funds and are stated at fair value. Some of
these trusts also own and are the beneficiaries of life insurance policies with cash surrender values of approximately $6.7 million at
March 1, 2014, and death benefits of approximately $13.1 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 were unrestricted as to use at the end of fiscal
2014. The cash surrender value of these unrestricted policies was approximately $18.1 million at March 1, 2014, and was
included in other noncurrent assets. These policies had a death benefit of approximately $26.4 million at March 1, 2014. At the
discretion of the Board of Directors, contributions of cash or unrestricted life insurance policies may be made to the trusts.
Sources of Working Capital
The Company’s sources of working capital for fiscal 2014 were primarily from operations. 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 2015
include the Term Loan Facility discussed above, a capital expenditure budget similar to that of fiscal 2014, cash dividends and
share repurchases as discussed above. The Company does not presently anticipate any other significant cash outflows in fiscal
2015 other than those discussed herein or those occurring in the normal course of business.
28 PIER 1 IMPORTS, INC. 2014 Form 10-K