Pier 1 2016 Annual Report Download - page 47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 trusts to satisfy retirement obligations and are classified as non-current assets. As of February 27, 2016 and
February 28, 2015, the Company’s short-term investments classified as cash equivalents included investments primarily in
mutual funds totaling $110,413,000 and $69,572,000, 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 loss. As of February 27, 2016, February 28, 2015 and March 1,
2014, the Company had cumulative other comprehensive loss balances of $(9,724,000), $(7,425,000) and $(3,696,000),
respectively, related to cumulative translation adjustments. The adjustments for currency translation during fiscal 2016, 2015 and
2014 resulted in other comprehensive loss, net of tax, as applicable, of $(2,299,000), $(3,729,000) and $(2,391,000),
respectively.
Concentrations of risk — The Company has risk of geographic concentration with respect to sourcing the Company’s
inventory purchases. However, the Company believes alternative merchandise sources could be procured over a reasonable
period of time. Pier 1 Imports sells merchandise imported from many countries, with approximately 58% of its sales derived from
merchandise produced in China, 16% derived from merchandise produced in India and 17% collectively derived from
merchandise produced in Vietnam, Indonesia and the United States. The remaining sales were from merchandise produced in
various other countries around the world.
Financial instruments — The fair value of financial instruments is determined by reference to various market data and other
valuation techniques as appropriate. There were no assets or liabilities with a fair value significantly different from the recorded
value as of February 27, 2016 or February 28, 2015, unless otherwise disclosed.
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.
Periodically, 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 its exposure associated with the repatriation of funds from its Canadian operations.
As of February 27, 2016 and February 28, 2015, there were no material outstanding contracts to hedge exposure associated
with the Company’s merchandise purchases denominated in foreign currencies or the repatriation of Canadian funds. For
financial accounting purposes, the Company does not designate such contracts as hedges. Thus, changes in the fair value of
both types of forward contracts would be included in the Company’s consolidated statements of operations. The changes in fair
value and settlement of these contracts were not material and were included in cost of sales for forward contracts related to
merchandise purchases, and in SG&A expenses for forward contracts associated with the repatriation of Canadian funds.
When the Company enters into forward foreign currency exchange contracts, it enters into them with major financial institutions
and monitors its positions with, and the credit quality of, these counterparties to such financial instruments.
Accounts receivable — The Company’s accounts receivable are stated at carrying value less an allowance for doubtful
accounts. These receivables consist largely of third-party credit card receivables for which collection is reasonably assured. The
remaining receivables are periodically evaluated for collectability, and an allowance for doubtful accounts is recorded as
appropriate. At the end of fiscal 2015, accounts receivable included $6,655,000 related to life insurance settlement proceeds
that were received during the first quarter of fiscal 2016.
Inventories — The Company’s inventory is comprised of finished merchandise and is stated at the lower of weighted average
cost or market value. Cost is calculated based upon the actual landed cost of an item at the time it is received in the Company’s
distribution center using vendor invoices, the cost of warehousing and transporting merchandise to the stores and other direct
costs associated with purchasing merchandise.
The Company recognizes known inventory losses, shortages and damages when incurred and maintains a reserve for estimated
shrinkage since the last physical count, when actual shrinkage was recorded. The amount of the reserve is estimated based on
historical experience from the results of its physical inventories. The reserves for estimated shrinkage at the end of fiscal 2016
and 2015 were $5,312,000 and $5,105,000, respectively.
Properties and equipment, net — Buildings, equipment, furniture and fixtures, and leasehold improvements are carried at cost
less accumulated depreciation. Depreciation is computed using the straight-line method over estimated remaining useful lives of
PIER 1 IMPORTS, INC. 2016 Form 10-K 41