Pier 1 2016 Annual Report Download - page 49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
dependent upon numerous factors, assumptions and estimates. Benefit costs may be significantly affected by changes in key
actuarial assumptions such as discount rates, 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 5 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
noncurrent. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than
not that such 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. The Company is subject to income tax in
many jurisdictions, including the United States, various states, provinces, localities and foreign countries, for which the Company
records estimated reserves for unrecognized tax benefits for both domestic and foreign income tax issues. At any point in time,
multiple tax years are subject to audit by these various jurisdictions. However, the timing of these audits and negotiations with
taxing authorities may yield results different from those currently estimated. See Note 7 of the Notes to Consolidated Financial
Statements for further discussion.
Earnings per share — Basic earnings per share amounts were determined by dividing net income 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.
Earnings per share amounts were calculated as follows (in thousands except per share amounts):
Year Ended
February 27,
2016 February 28, 2015 March 1, 2014
Net income $39,634 $75,162 $107,531
Weighted average shares outstanding:
Basic 84,939 91,081 104,121
Effect of dilutive stock options 316 696 1,268
Effect of dilutive restricted stock 115 351 859
Diluted 85,370 92,128 106,248
Earnings per share:
Basic $ 0.47 $ 0.83 $ 1.03
Diluted $ 0.46 $ 0.82 $ 1.01
Outstanding stock options totaling 402,311 for fiscal 2016, 114,623 for fiscal 2015 and 6,624 for fiscal 2014 were excluded
from the computation of earnings per share, as the effect would be antidilutive.
Stock-based compensation — The Company’s stock-based compensation relates to stock options, restricted stock awards
and director deferred stock units. Accounting guidance requires all companies to measure and recognize compensation expense
at an amount equal to the fair value of share-based payments granted. Compensation expense is recognized for any unvested
stock option awards and restricted stock awards on a straight-line basis or ratably over the requisite service period. Stock option
exercise prices equal the fair market value of the shares on the date of the grant. The fair value of stock options is calculated
using a Black-Scholes option pricing model. For time-based and certain performance-based restricted stock awards,
compensation expense is measured and recorded using the closing price of the Company’s stock on the date of grant. If the
date of grant for stock options or restricted stock awards occurs on a day when the Company’s stock is not traded, the closing
price on the last trading day before the date of grant is used. A portion of the performance-based shares vests upon the
Company satisfying certain performance targets. The Company records compensation expense for these awards with a
performance condition when it is probable that the condition will be achieved. The compensation expense ultimately recognized,
if any, related to these awards will equal the grant date fair value for the number of shares for which the performance condition
has been satisfied. The remaining performance-based shares are based on a market condition and may vest if certain annual
PIER 1 IMPORTS, INC. 2016 Form 10-K 43