Pier 1 2010 Annual Report Download - page 51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
All 10,424,035, 12,302,323 and 13,102,360 outstanding stock options and shares of unvested restricted
stock were excluded from the computation of the fiscal 2010, 2009 and 2008, respectively, income (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 due 2036 have not been included in the Company’s diluted earnings
per share calculations for those periods as the average common stock price has not exceeded the initial
conversion price of $15.19 per share.
Stock-based compensation – The Company grants stock options and restricted stock for a fixed number
of shares to employees with stock option exercise prices equal to the fair market value of the shares on the date
of the grant. Accounting guidance requires all companies to measure and recognize compensation expense at an
amount equal to the fair value of share-based payments granted under compensation arrangements.
Currently, the Company’s stock-based compensation relates to stock options, restricted stock awards and
director deferred stock units. Compensation expense is recognized for any unvested stock option awards
outstanding on a straight-line basis over the requisite service period. The fair values of the options are calculated
using a Black-Scholes option pricing model. The Company records compensation expense for stock-based
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 Company estimates forfeitures based on its historical forfeiture experience, and adjusts forfeiture
estimates based on actual forfeiture experience for all awards with service conditions. The effect of forfeiture
adjustments for the year was insignificant.
Adoption of new accounting standards
Accounting Standards Codification
In June 2009, the Financial Accounting Standards Board (“FASB”) issued “The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting Principles.” This guidance
establishes the Accounting Standards Codification (the “ASC”) as the single source of authoritative accounting
principles recognized by FASB for all nongovernmental entities in the preparation of financial statements in
accordance with generally accepted accounting principles in the United States (“GAAP”). For SEC registrants,
rules and interpretive releases of the SEC under federal securities laws are also considered authoritative sources
of GAAP. The provisions of this guidance are effective for financial statements issued for interim and annual
periods ending after September 15, 2009. The Company adopted the provisions of this guidance during the fiscal
year ended February 27, 2010 and has updated citations to accounting standards included in the Company’s
financial statements. The adoption of the ASC did not have an impact on the Company’s consolidated financial
position, results of operations or cash flows.
Convertible Debt
Effective March 1, 2009, the Company adopted new accounting guidance, which clarifies that issuers of
convertible debt instruments that may be settled in cash upon conversion must separately account for the liability
and equity components in a manner that will reflect the entities nonconvertible debt borrowing rate when interest
cost is recognized in subsequent periods. See Note 5 of the Notes to Consolidated Financial Statements for
discussion regarding this adoption.
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