Pier 1 2007 Annual Report Download - page 42

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Pier 1 Imports, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization — Pier 1 Imports, Inc. and its consolidated subsidiaries (the “Company”) is one of North
America’s largest specialty retailers of imported decorative home furnishings, gifts and related items, with
retail stores located in the United States and Canada. Additionally, the Company has merchandise in “store
within a store” locations in Mexico and Puerto Rico that are operated by Sears Roebuck de Mexico, S.A. de
C.V. and Sears Roebuck de Puerto Rico, Inc., respectively. On March 20, 2006, the Company sold its
subsidiary based in the United Kingdom, The Pier Retail Group Limited (“The Pier”). At fiscal 2006 year end,
The Pier was classified as held for sale and is included in discontinued operations for all years presented. In
the fourth quarter of fiscal 2006, the Company recorded an impairment charge of $7,441,000 to write goodwill
and long-lived assets related to The Pier down by $918,000 and $6,523,000, respectively, to fair value less
selling costs. See Note 2 of the Notes to Consolidated Financial Statements for further discussion.
Basis of consolidation — The consolidated financial statements of the Company include the accounts of
all subsidiary companies except, in fiscal 2006, Pier 1 Funding, LLC (“Funding”), which was a non-
consolidated, bankruptcy remote, securitization subsidiary. See Note 3 of the Notes to Consolidated Financial
Statements. All intercompany transactions and balances have been eliminated.
Segment information — The Company is a specialty retailer that offers a broad range of products in its
stores and conducts business as one operating segment. The Company’s domestic operations provided 92.3%,
93.0% and 93.7% of its net sales, with 7.3%, 6.7% and 6.0% provided by stores in Canada, and the remainder
from royalties received from Sears Roebuck de Mexico S.A. de C.V. during fiscal 2007, 2006 and 2005,
respectively. As of March 3, 2007, February 25, 2006 and February 26, 2005, $5,510,000, $8,765,000 and
$8,888,000, respectively, of the Company’s long-lived assets were located in Canada. There were no long-lived
assets in Mexico during any period.
Use of estimates — Preparation of the financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Fiscal periods — The Company utilizes 5-4-4 (week) quarterly accounting periods with the fiscal year
ending on the Saturday nearest the last day of February. Fiscal 2007 consisted of a 53-week year and fiscal
2006 and 2005 were 52-week years. Fiscal 2007 ended March 3, 2007, fiscal 2006 ended February 25, 2006
and fiscal 2005 ended February 26, 2005.
Cash and cash equivalents — 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 March 3, 2007 and February 25,
2006, the Company’s short-term investments classified as cash equivalents included investments in money
market mutual funds totaling $160,721,000 and $238,463,000, respectively. The effect of foreign currency
exchange rate fluctuations on cash is 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 comprehen-
sive income (loss). As of March 3, 2007, February 25, 2006 and February 26, 2005, the Company had
cumulative other comprehensive income balances of $2,440,000, $4,990,000 and $5,296,000, respectively,
related to cumulative translation adjustments. The adjustments for currency translation during fiscal 2007,
2006 and 2005 resulted in other comprehensive income (loss), net of tax, as applicable, of ($2,550,000),
($306,000) and $1,687,000, respectively. During fiscal 2006 and 2005, the Company provided deferred taxes
of $531,000 and $703,000, respectively, on the portion of its cumulative currency translation adjustment
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