Pier 1 2012 Annual Report Download - page 45

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 a
global importer and 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 Operadora 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 91.1%,
90.5% and 90.9% of its net sales, with 8.2%, 8.8% and 8.6% provided by stores in Canada, and the remainder
from royalties primarily received from Sears Operadora de Mexico S.A. de C.V. during fiscal 2012, 2011 and
2010, respectively. As of February 25, 2012, February 26, 2011 and February 27, 2010, $5,061,000, $1,709,000
and $1,749,000, 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 closest to February 28th. Fiscal 2012 ended February 25, 2012, fiscal 2011 ended
February 26, 2011 and fiscal 2010 ended February 27, 2010, 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 25, 2012 and February 26, 2011, the Company’s short-term investments classified as cash equivalents
included investments in money market mutual funds totaling $248,624,000 and $261,274,000, 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 25, 2012, February 26, 2011, and February 27, 2010, the Company had cumulative
other comprehensive income (loss) balances of ($386,000), $1,664,000 and ($177,000), respectively, related to
cumulative translation adjustments. The adjustments for currency translation during fiscal 2012, 2011 and 2010
resulted in other comprehensive income (loss), net of tax, as applicable, of ($2,050,000), $1,841,000 and
($13,000), respectively. Taxes on the portion of its cumulative currency translation adjustment considered not to
be permanently reinvested abroad were insignificant in fiscal 2012, 2011 and 2010.
Concentrations of risk – The Company has risk of 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
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