Pier 1 2016 Annual Report Download - page 56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
have a grant date in fiscal 2016 because the performance targets for future fiscal years, which are a key term of the award, have
not been established and, therefore, both parties did not have a mutual understanding of all key terms of the award. The CEO
must be employed by the Company on the last day of each respective fiscal year in order for the performance-based shares to
vest. These shares could also vest under certain termination events. During fiscal 2016, the Company also began expensing
performance-based restricted shares awarded in previous fiscal years that were based on the fiscal 2016 performance target.
These performance-based shares expensed during fiscal 2016 had a grant date fair value of $13.11 per share. However, the
fiscal 2016 performance target was not achieved and the related expense was reversed. In addition, the CEO also received an
award of performance-based shares during fiscal 2016 that are based on a market condition and may vest following the end of
fiscal 2018 if certain annual equivalent returns of total shareholder return targets are achieved in comparison to a peer group. The
grant date fair value for these performance-based shares was determined using a lattice valuation model in accordance with
accounting guidelines, and the Company began expensing these shares at a value of $6.76 per share during fiscal 2016.
Restricted stock awarded to certain employees — During fiscal 2016, the Company awarded long-term incentive awards
under the 2006 Plan and 2015 Plan to certain employees. Fiscal 2016 long-term incentive awards were comprised of restricted
stock grants that were divided between time-based and performance-based awards. The time-based shares vest 33%, 33% and
34% each year over a three-year period beginning on the first anniversary of the award date provided that the participant is
employed on the vesting date, and in accordance with accounting guidelines the Company began expensing the time-based
shares at $14.04 per share during fiscal 2016. A portion of the performance-based shares may vest following the end of fiscal
2018 upon the Company satisfying a certain targeted level of a performance measure established in fiscal 2016. The Company
began expensing these performance-based shares during fiscal 2016 which had a grant date fair value of $13.06. Vesting for
these performance-based shares is conditioned upon the participant being employed on the date of filing of the Company’s fiscal
2018 Annual Report on Form 10-K with the SEC. During fiscal 2016, the Company also began expensing performance-based
restricted shares awarded in previous fiscal years that were based on the fiscal 2016 performance target. These performance-
based shares had a grant date fair value of $13.11 per share. Certain shares that do not vest because the performance target is
not met during one fiscal year may vest in future fiscal years if certain aggregate levels of the performance measure are achieved.
During fiscal 2016, the Company also awarded performance-based shares based on a market condition which may vest
following the end of fiscal 2018 if certain annual equivalent returns of total shareholder return targets are achieved in comparison
to a peer group. The fair value for these performance-based shares was determined using a lattice valuation model in
accordance with accounting guidelines, and the Company began expensing these shares at a value of $8.07 per share during
fiscal 2016.
As of February 27, 2016 and February 28, 2015, the Company had 1,333,346 and 1,025,638 unvested shares of restricted
stock awards outstanding, respectively (excluding shares unvested with respect to CEO grants). During fiscal 2016, 966,296
shares of restricted stock were awarded, 123,379 shares of restricted stock vested, and 535,209 shares of restricted stock
were forfeited. The weighted average fair market value at the date of grant of the restricted stock shares awarded during fiscal
2016 was $12.94 per share and is being expensed over the requisite service period. This amount does not include
performance-based restricted shares that the Company will begin expensing in future fiscal years when the targeted performance
measures are set, but does include performance-based restricted shares awarded in previous fiscal years that were based on a
fiscal 2016 targeted performance measure.
Restricted stock compensation expense — Compensation expense for restricted stock was $4,978,000, $7,240,000 and
$11,890,000 in fiscal 2016, 2015 and 2014, respectively. For performance-based awards, the grant date fair value is based on
the probable outcome of Pier 1 Imports achieving performance targets. However, targets for fiscal 2016, 2015 and 2014 were
not achieved and the maximum number of shares did not vest. As a result, compensation expense in fiscal 2016 was lowered by
$2,200,000, of which $650,000 related to expense recorded in fiscal 2015. Compensation expense was reduced by
$3,200,000 and $1,475,000 in fiscal 2015 and 2014, respectively. As of February 27, 2016, there was $21,309,000 of total
unrecognized compensation expense related to restricted stock that may be recognized over a weighted average period of 1.5
years. The total fair value of restricted stock awards vested was $2,510,000, $7,098,000 and $17,810,000 in fiscal 2016, 2015
and 2014, respectively.
The Company realized a total tax benefit related to stock-based compensation of $1,270,000, $5,856,000 and $3,993,000
during fiscal years 2016, 2015 and 2014, respectively, of which $585,000, $2,936,000 and $2,265,000 were recorded as
excess tax benefits. See Note 7 of the Notes to Consolidated Financial Statements for additional discussion of income taxes.
Stock options — Under the CEO’s initial employment agreement effective February 19, 2007, the CEO received stock option
grants with a term of ten years from the grant date. As of February 27, 2016, outstanding options covering 944,000 shares were
exercisable. The options were granted as an employment inducement award and not under any equity incentive plan adopted by
the Company.
50 PIER 1 IMPORTS, INC. 2016 Form 10-K