Pier 1 2011 Annual Report Download - page 49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Advertising costs – Advertising production costs are expensed the first time the advertising takes place.
Advertising costs were $55,723,000, $51,625,000 and $49,506,000 in fiscal 2011, 2010 and 2009, respectively.
Prepaid advertising at the end of fiscal years 2011 and 2010 was $2,077,000 and $2,085,000, respectively.
Defined benefit plans – The Company maintains supplemental retirement plans (the “Plans”) for certain
of its current and former executive officers. The Plans provide that upon death, disability, reaching retirement
age or certain termination events, a participant will receive benefits based on highest compensation, years of
service and years of plan participation. These benefit costs are dependent upon numerous factors, assumptions
and estimates. Benefit costs may be significantly affected by changes in key actuarial assumptions such as the
discount rate, compensation increase rates, or retirement dates used to determine the projected benefit obligation.
Additionally, changes made to the provisions of the Plans may impact current and future benefit costs. In
accordance with accounting rules, changes in benefit obligations associated with these factors may not be
immediately recognized as costs in the statement of operations, but recognized in future years over the remaining
average service period of plan participants. See Note 6 of the Notes to Consolidated Financial Statements for
further discussion.
Income taxes – The Company accounts for income taxes using the asset and liability method. Under this
method, deferred tax assets and liabilities are determined based on differences between financial reporting and
income tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. Deferred tax assets and liabilities are recorded in the
Company’s consolidated balance sheet and are classified as current or noncurrent based on the classification of
the related assets or liabilities for financial reporting purposes. A valuation allowance is recorded to reduce the
carrying amounts of deferred tax assets unless it is more likely than not those assets will be realized. In assessing
the need for a valuation allowance, all available evidence is considered including past operating results, estimates
of future income, and tax planning strategies. At any point in time, multiple tax years are subject to audit by
various jurisdictions and the Company records reserves for estimates of tax exposures for foreign and domestic
tax audits. However, negotiations with taxing authorities may yield results different from those currently
estimated. See Note 9 of the Notes to Consolidated Financial Statements for further discussion.
Earnings per share – Basic earnings per share amounts were determined by dividing net income (loss)
by the weighted average number of common shares outstanding for the period. Diluted earnings per share
amounts were similarly computed, and have included the effect, if dilutive, of the Company’s weighted average
number of stock options outstanding and shares of unvested restricted stock.
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