Pier 1 2016 Annual Report Download - page 34

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
million increase in inventory. The increase in inventory over fiscal 2014 was primarily due to increased purchases during fiscal
2015 in anticipation of higher forecasted sales including increased inventory for the Company’s special order program and
additional purchases made due to the shift in the timing of Chinese New Year.
Cash Flows from Investing Activities
During fiscal 2016, the Company’s investing activities used $51.7 million, compared to $83.3 million during fiscal 2015. Total
capital expenditures in fiscal 2016 were $51.8 million, which were deployed toward infrastructure and technology development,
supply chain upgrades, existing store improvements and new store openings. The Company expects total capital expenditures to
be approximately $55 million in fiscal 2017 to support ongoing investments in technology, stores and distribution centers.
During fiscal 2015, the Company’s investing activities used $83.3 million, compared to $70.2 million during fiscal 2014. Total
capital expenditures in fiscal 2015 were $81.9 million, which were deployed toward the opening of 30 new stores, new
merchandise fixtures for existing stores, other leasehold improvements, and technology and infrastructure initiatives, including
enhancements to the omni-channel platform. The Company also invested in its distribution network and completed its second
fulfillment center in Columbus, Ohio.
Cash Flows from Financing Activities
Financing activities for fiscal 2016 used $97.2 million, primarily resulting from cash outflows of $75.0 million for repurchases of
the Company’s common stock pursuant to the April 2014 program and the payment of quarterly cash dividends of $0.07 per
share per quarter for each quarter of fiscal 2016, totaling $23.7 million. See “Share Repurchase Program” below for more
information.
Financing activities for fiscal 2015 used $9.0 million of cash, primarily related to cash outflows of $185.5 million for repurchases
of the Company’s common stock pursuant to the April 2014 program and the share repurchase program approved by the Board
in October of 2013, which included $11.6 million for shares repurchased in fiscal 2014 that settled in fiscal 2015, and the
payment of quarterly cash dividends of $0.06 per share per quarter for each quarter of fiscal 2015, totaling $21.6 million. This
utilization of cash was offset by $198.0 million of net proceeds from borrowings under the Term Loan Facility. See “Revolving
Credit Facility,” “Term Loan Facility” and “Share Repurchase Program” below for more information.
Revolving Credit Facility
The Company completed a second amendment to its Revolving Credit Facility in April of 2014, in order to allow additional
borrowings under the Term Loan Facility that closed at the same time. The Revolving Credit Facility is secured primarily by
merchandise inventory and third-party credit card receivables and certain related assets on a first priority basis and is secured on
a second lien basis by substantially all other assets of certain of the Company’s subsidiaries, subject to certain exceptions. Credit
extensions under the Revolving Credit Facility are limited to the lesser of $350.0 million or the amount of the calculated borrowing
base, which was $341.4 million as of February 27, 2016. Under the Revolving Credit Facility, the Company had no cash
borrowings and $37.6 million in letters of credit and bankers’ acceptances outstanding, with $303.8 million remaining available
for cash borrowings, all as of February 27, 2016.
Term Loan Facility
The Term Loan Facility matures on April 30, 2021, and is secured by a second lien on all assets subject to a first lien 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. At the Company’s option, borrowings under the Term Loan Facility will bear interest, payable quarterly or, if earlier, at
the end of each interest period, at either (a) the LIBOR rate (as defined in the Term Loan Facility) subject to a 1% floor plus 350
basis points per year or (b) the base rate (as defined in the Term Loan Facility) subject to a 2% floor plus 250 basis points per
year. As of February 27, 2016, the Company had $197.0 million outstanding under the Term Loan Facility with a carrying value of
$192.9 million, net of unamortized discounts and debt issuance costs. The proceeds of the loan were used for general corporate
purposes, including working capital needs, capital expenditures, and share repurchases and dividends permitted under the Term
Loan Facility. The Term Loan Facility is 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 is subject to an annual excess cash flow
repayment requirement, as defined in the facility. At the Company’s option, and subject to the requirements and provisions of the
Term Loan Facility, the Company can prepay borrowings under the Term Loan Facility at any time. The fair value of the Term
Loan Facility was approximately $188.1 million as of February 27, 2016, which was measured at fair value using the quoted
market price. The Term Loan Facility was classified as Level 2 based on the frequency and volume of trading for which the price
28 PIER 1 IMPORTS, INC. 2016 Form 10-K