Pier 1 2014 Annual Report Download - page 45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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):
2014 2013 2012
Net Income $107,531 $129,444 $168,938
Weighted average shares outstanding:
Basic 104,121 106,222 112,534
Effect of dilutive stock options 1,268 1,337 1,214
Effect of dilutive restricted stock 859 700 642
Diluted 106,248 108,259 114,390
Earnings per share:
Basic $ 1.03 $ 1.22 $ 1.50
Diluted $ 1.01 $ 1.20 $ 1.48
A total of 6,624; 961,575 and 2,968,250 outstanding stock options and shares of unvested restricted stock were excluded from
the computation of fiscal 2014, 2013 and 2012 earnings per share, respectively, 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 will vest 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.
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 any forfeiture adjustments was insignificant.
Adoption of new accounting standards — In February 2013, the Financial Accounting Standards Board issued Accounting
Standards Update 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other
Comprehensive Income,” which amends current comprehensive income guidance. This accounting update requires companies
to provide information regarding the amounts reclassified out of accumulated other comprehensive income by component. This
guidance was effective for the Company beginning in the first quarter of fiscal 2014 and the required disclosure is included in
Note 5 of the Notes to Consolidated Financial Statements.
PIER 1 IMPORTS, INC. 2014 Form 10-K 41