Pier 1 2011 Annual Report Download - page 60

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
value of options exercised for the fiscal years ended 2011, 2010, and 2009 was approximately $1,185,000, $0 and
$2,000, respectively. The intrinsic value of a stock option is the amount by which the market value of the
underlying stock exceeds the exercise price of the option.
The fair value of the stock options is amortized on a straight-line basis as compensation expense over the
vesting periods of the options. The fair value of options granted during the respective period was estimated as of
the date of grant using the Black-Scholes option-pricing model with the following weighted average
assumptions:
2011 2010 2009
Weighted average fair value of options granted $7.16 $0.33 $3.42
Risk-free interest rates 2.65% 1.70% 2.60%
Expected stock price volatility 118.88% 112.05% 51.29%
Expected dividend yields 0.00% 0.00% 0.00%
Weighted average expected lives 5 years 4 years 5 years
Option valuation models are used in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility and the average life of options. The Company uses
expected volatilities and risk-free interest rates that correlate with the expected term of the option when
estimating an option’s fair value. To determine the expected term of the option, the Company bases its estimates
on historical exercise activity of grants with similar vesting periods. Expected volatility is based on the historical
volatility of the common stock of the Company for a period approximating the expected life. The risk free
interest rate utilized is the United States Treasury rate that most closely matches the weighted average expected
life at the time of the grant. The expected dividend yield is based on the annual dividend rate at the time of grant
or estimates of future anticipated dividend rates.
At February 26, 2011, there was approximately $606,000 of total unrecognized compensation expense
related to unvested stock option awards. This expense is expected to be recognized over a weighted average
period of 1.1 years. The Company recorded stock-based compensation expense related to stock options of
approximately $904,000, or $0.01 per share, $2,020,000, or $0.02 per share, and $3,528,000, or $0.04 per share,
in fiscal 2011, 2010 and 2009, respectively. The Company recognized no net tax benefit related to stock based
compensation during fiscal 2011, 2010 or fiscal 2009 as a result of the Company’s valuation allowance on all
deferred tax assets. See Note 9 of the Notes to Consolidated Financial Statements for additional discussion of
income taxes.
A summary of the Company’s nonvested options as of February 26, 2011 is as follows:
Options
Weighted
Average Grant
Date Fair
Value
Nonvested at February 27, 2010 1,745,950 $ 1.64
Granted 6,000 7.16
Vested (1,428,850) 1.23
Cancelled (10,400) 7.56
Nonvested at February 26, 2011 312,700 $ 3.43
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