Pier 1 2008 Annual Report Download - page 39

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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. (together with its consolidated subsidiaries, the “Company”) is one
of North America’s largest specialty retailers of imported decorative home furnishings and gifts, 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 primarily 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”). The Pier has been
included in discontinued operations in the Company’s financial statements for fiscal years 2007 and 2006.
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 11 of the Notes to Consolidated Financial
Statements for further discussion. 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 90.9%,
92.3% and 93.0% of its net sales, with 8.7%, 7.3% and 6.7% provided by stores in Canada, and the remainder
from royalties received from Sears Roebuck de Mexico S.A. de C.V. during fiscal 2008, 2007 and 2006,
respectively. As of March 1, 2008, March 3, 2007 and February 25, 2006, $4,572,000, $5,510,000 and
$8,765,000, 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 2008 consisted of a 52-week year, fiscal 2007
consisted of a 53-week year and fiscal 2006 consisted of a 52-week year. Fiscal 2008 ended March 1, 2008,
fiscal 2007 ended March 3, 2007 and fiscal 2006 ended February 25, 2006.
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
March 1, 2008 and March 3, 2007, the Company’s short-term investments classified as cash equivalents
included investments in money market mutual funds totaling $87,837,000 and $160,721,000, 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 1, 2008, March 3, 2007 and February 25, 2006, the Company had cumulative
other comprehensive income balances of $3,422,000, $2,440,000 and $4,990,000, respectively, related to
cumulative translation adjustments. The adjustments for currency translation during fiscal 2008, 2007 and
2006 resulted in other comprehensive income (loss), net of tax, as applicable, of $982,000, ($2,550,000) and
($306,000), respectively. During fiscal 2006, the Company provided deferred taxes of $531,000 on the portion
of its cumulative currency translation adjustment considered not to be permanently reinvested abroad. Taxes on
this portion of cumulative currency translation adjustments were insignificant in fiscal 2008 and 2007.
37