Pier 1 2009 Annual Report Download - page 51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1—DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Cash and cash equivalents, including temporary investments—The Company considers all highly
liquid investments with an original maturity date of three months or less to be cash equivalents, except
for those investments that are restricted and have been set aside in a trust to satisfy retirement
obligations. As of February 28, 2009 and March 1, 2008, the Company’s short-term investments
classified as cash equivalents included investments in money market mutual funds totaling $142,523,000
and $87,837,000, respectively. The effect of foreign currency exchange rate fluctuations on cash was not
material.
Translation of foreign currencies—Assets and liabilities of foreign operations are translated into
U.S. dollars at fiscal year end exchange rates. Income and expense items are translated at average
exchange rates prevailing during the year. Translation adjustments arising from differences in exchange
rates from period to period are included as a separate component of shareholders’ equity and are
included in other comprehensive income (loss). As of February 28, 2009, March 1, 2008 and March 3,
2007, the Company had cumulative other comprehensive income (loss) balances of ($162,000),
$3,422,000 and $2,440,000, respectively, related to cumulative translation adjustments. The adjustments
for currency translation during fiscal 2009, 2008 and 2007 resulted in other comprehensive income
(loss), net of tax, as applicable, of ($3,584,000), $982,000 and ($2,550,000), respectively. Taxes on the
portion of its cumulative currency translation adjustment considered not to be permanently reinvested
abroad were insignificant in fiscal 2009, 2008 and 2007.
Concentrations of risk—The Company has some degree of risk concentration with respect to
sourcing the Company’s inventory purchases. However, the Company believes alternative merchandise
sources could be procured over a relatively short period of time. Pier 1 Imports sells merchandise
imported from over 50 different countries, with more than 40% of its sales derived from merchandise
produced in China, approximately 10% derived from merchandise produced in each of India,
Indonesia, Vietnam, and the United States and approximately 10% collectively derived from
merchandise produced in Thailand, Brazil, the Philippines, Italy, Mexico and Spain. The remaining
sales were from merchandise produced in various Asian, European, Central American, South
American, African countries and Canada.
Financial instruments—The fair value of financial instruments is determined by reference to
various market data and other valuation techniques as appropriate. Other than the 6.375% convertible
senior notes due 2036, there were no assets or liabilities with a fair value significantly different from
the recorded value as of February 28, 2009 and March 1, 2008. The fair value of these notes was
$42,900,000 and $133,650,000 based on quoted market values as of February 28, 2009 and March 1,
2008, respectively. On March 20, 2009, a foreign subsidiary of the Company purchased a portion of
these convertible notes at a price which would imply a fair value of the total outstanding prior to the
purchase of approximately $56,000,000. Changes in the market interest rates and other factors affecting
convertible notes affect the fair value of the Company’s fixed rate notes, but do not affect the
Company’s financial position, results of operations or cash flows related to these instruments.
Risk management instruments: The Company may utilize various financial instruments to manage
interest rate and market risk associated with its on- and off-balance sheet commitments.
From time to time, the Company hedges certain commitments denominated in foreign currencies
through the purchase of forward contracts. The forward contracts are purchased to cover a portion of
commitments to buy merchandise for resale. The Company also, on occasion, uses contracts to hedge
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