Pier 1 2011 Annual Report Download - page 40

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funds from its Canadian operations. Changes in the fair value of the derivatives are included in the Company’s
consolidated statements of operations as such contracts are not designated as hedges under the applicable
accounting guidance. Forward contracts that hedge merchandise purchases generally have maturities not
exceeding six months. Changes in the fair value and settlement of these forwards are included in cost of sales. At
February 26, 2011, 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.
Interest Rate Risk
The Company manages its exposure to changes in interest rates by optimizing the use of variable and
fixed rate debt. The interest rate exposure on the Company’s secured credit facility and industrial revenue bonds
is based upon variable interest rates and therefore is affected by changes in market interest rates. As of
February 26, 2011, the Company had $9.5 million in long-term debt outstanding related to its industrial revenue
bonds and no cash borrowings outstanding on its secured credit facility. A hypothetical 10% adverse change in
the interest rates applicable to either or both of these variable rate instruments would have a negligible impact on
the Company’s earnings and cash flows.
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