Pier 1 2011 Annual Report Download - page 46

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 primarily in “store within a
store” locations in Mexico and El Salvador that are operated by Sears Roebuck de Mexico, S.A. de C.V. and
Corporacion de Tiendas Internationales, S.A. de C.V., respectively.
Basis of consolidation – The consolidated financial statements of the Company include the accounts of
all subsidiary companies, and 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 90.5%,
90.9% and 90.9% of its net sales, with 8.8%, 8.6% and 8.5% provided by stores in Canada, and the remainder
from royalties primarily received from Sears Roebuck de Mexico S.A. de C.V. during fiscal 2011, 2010 and
2009, respectively. As of February 26, 2011, February 27, 2010 and February 28, 2009, $1,709,000, $1,749,000
and $2,308,000, respectively, of the Company’s long-lived assets were located in Canada. There were no long-
lived assets in Mexico or El Salvador 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 2011 ended February 26, 2011, fiscal 2010 ended
February 27, 2010, and fiscal 2009 ended February 28, 2009, all of which contained 52 weeks.
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 26, 2011 and February 27, 2010, the Company’s short-term investments classified as cash equivalents
included investments in money market mutual funds totaling $261,274,000 and $176,503,000, 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 26, 2011, February 27, 2010, and February 28, 2009, the Company had cumulative
other comprehensive income (loss) balances of $1,664,000, ($177,000) and ($164,000), respectively, related to
cumulative translation adjustments. The adjustments for currency translation during fiscal 2011, 2010 and 2009
resulted in other comprehensive income (loss), net of tax, as applicable, of $1,841,000, ($13,000) and
($3,584,000), respectively. Taxes on the portion of its cumulative currency translation adjustment considered not
to be permanently reinvested abroad were insignificant in fiscal 2011, 2010 and 2009.
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
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