Pier 1 2015 Annual Report Download - page 36

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
insurance policies. The investments totaled $10.6 million and $6.7 million at February 28, 2015 and March 1, 2014, respectively.
The investments were held primarily in mutual funds and are stated at fair value. Some of the sub-trusts also own and are the
beneficiaries of life insurance policies on the lives of former key executives. These polices are stated at fair value. The cash
surrender value of the policies was approximately $5.7 million and $6.7 million as of February 28, 2015 and March 1, 2014,
respectively, and the death benefit was approximately $11.3 million and $13.1 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 2015. The cash surrender value of the unrestricted policies was approximately
$13.1 million and $18.1 million at February 28, 2015 and March 1, 2014, respectively, and was included in other noncurrent
assets. These policies had a death benefit of approximately $19.9 million and $26.4 million as of February 28, 2015 and
March 1, 2014, respectively. At the discretion of the Board of Directors, 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 2015 were primarily from operations and the Term Loan 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 2016 include a capital expenditure plan
lower than fiscal 2015, decreasing purchases of inventory and continuation of cash dividends and share repurchases. The
Company does not presently anticipate any other significant cash outflows in fiscal 2016 other than those discussed herein or
those occurring in the normal course of business.
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, and continuing to evolve the Company’s merchandise offerings while also maximizing its revenues, seeking out ways
to make its cost base more efficient and effective and preserving liquidity. 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, including debt related payments, capital
expenditure requirements, cash dividends and share repurchases through fiscal 2016.
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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of the Company’s consolidated financial statements in accordance with accounting principles generally accepted
in the United States requires the use of estimates that affect the reported value of assets, liabilities, revenues and expenses.
These estimates are based on historical experience and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for the Company’s conclusions. The Company continually evaluates the
information used to make these estimates as the business and the economic environment changes. Historically, actual results
have not varied materially from the Company’s estimates. The Company does not currently anticipate a significant change in its
assumptions related to these estimates. Actual results may differ from these estimates under different assumptions or conditions.
The Company’s significant accounting policies can be found in Note 1 of the Notes to Consolidated Financial Statements. The
policies and estimates discussed below include the financial statement elements that are either judgmental or involve the
selection or application of alternative accounting policies and are material to the Company’s financial statements. Unless
specifically addressed below, the Company does not believe that its critical accounting policies are subject to market risk
exposure that would be considered material, and, as a result, has not provided a sensitivity analysis. The use of estimates is
pervasive throughout the consolidated financial statements, but the accounting policies and estimates considered most critical
are as follows:
Revenue recognition — Revenue is recognized upon customer receipt or delivery for retail sales. A reserve has been
established for estimated merchandise returns based upon historical experience and other known factors. Should actual returns
differ from the Company’s estimated reserve for merchandise returns, revisions to the estimate may be required. The Company’s
revenues are reported net of discounts and returns, net of sales tax and third-party credit card fees, and include wholesale sales
and royalties. Amounts billed to customers for shipping and handling are included in net sales.
30 PIER 1 IMPORTS, INC. 2015 Form 10-K