Pier 1 2008 Annual Report Download - page 43

costs. In accordance with accounting rules, changes in benefit obligations associated with these factors may
not be immediately recognized as costs on the income statement, but recognized in future years over the
remaining average service period of plan participants. See Note 9 of the Notes to Consolidated Financial
Statements for further discussion.
Income taxes — The Company records income tax expense using the liability method for taxes. Under
this method, deferred tax assets and liabilities are recognized based on differences between financial statement
and tax bases of assets and liabilities using presently enacted tax rates. Deferred tax assets and liabilities 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. Deferred federal income taxes, net of applicable
foreign tax credits, are not provided on the undistributed earnings of foreign subsidiaries to the extent the
Company intends to permanently reinvest such earnings abroad. 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 12 of the Notes to Consolidated Financial Statements for further
discussion.
Loss per share — Basic loss per share amounts were determined by dividing loss from continuing
operations, loss from discontinued operations and net loss by the weighted average number of common shares
outstanding for the period. Diluted loss per share amounts were similarly computed, but would have included
the effect, if dilutive, of the Company’s weighted average number of stock options outstanding and shares of
unvested restricted stock.
Loss per share amounts were calculated as follows (in thousands except per share amounts):
2008 2007 2006
Loss from continuing operations, basic and diluted . ......... $(96,011) $(227,238) $(27,471)
Loss from discontinued operations, basic and diluted......... — (407) (12,333)
Net loss, basic and diluted ............................ $(96,011) $(227,645) $(39,804)
Average shares outstanding:
Basic and diluted ................................... 88,083 87,395 86,629
Loss per share from continuing operations:
Basic and diluted ................................... $ (1.09) $ (2.59) $ (.32)
Loss per share from discontinued operations:
Basic and diluted ................................... — $ (.01) $ (.14)
Net loss per share:
Basic and diluted ................................... $ (1.09) $ (2.60) $ (.46)
Stock options for which the exercise price was greater than the average market price of common shares
were not included in the computation of diluted earnings per share as the effect would be antidilutive. All
13,102,360, 13,991,195 and 12,941,025 outstanding stock options and shares of unvested restricted stock were
excluded from the computation of the fiscal 2008, 2007 and 2006, respectively, loss per share as the effect
would be antidilutive. In addition, incremental net shares for the conversion feature of the Company’s
6.375% senior convertible notes will be included in the Company’s future diluted earnings per share
calculations for those periods in which the average common stock price exceeds the initial conversion price of
$15.19 per share.
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Pier 1 Imports, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)