Pier 1 2015 Annual Report Download - page 49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Earnings per share — Basic earnings per share amounts were determined by dividing net income by the weighted average
number of common shares outstanding for the period. Diluted earnings per share amounts were similarly computed, and have
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):
2015 2014 2013
Net Income $75,162 $107,531 $129,444
Weighted average shares outstanding:
Basic 91,081 104,121 106,222
Effect of dilutive stock options 696 1,268 1,337
Effect of dilutive restricted stock 351 859 700
Diluted 92,128 106,248 108,259
Earnings per share:
Basic $ 0.83 $ 1.03 $ 1.22
Diluted $ 0.82 $ 1.01 $ 1.20
Outstanding stock options totaling 114,623 for fiscal 2015, 6,624 for fiscal 2014 and 961,575 for fiscal 2013 were excluded
from the computation of earnings per share, 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 may 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 May 2014, the Financial Accounting Standards Board issued Accounting
Standards Update 2014-09, “Revenue from Contracts with Customers,” which creates a new Topic, Accounting Standards
Codification Topic 606. The standard is principle-based and provides a five-step model to determine when and how revenue is
recognized. The core principle is that a company should recognize revenue when it transfers promised goods or services to
customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods
or services. This standard is effective for the Company beginning in fiscal 2018 at the earliest, and allows for either full
retrospective adoption or modified retrospective adoption. The Company is currently evaluating the impact of the adoption of
Topic 606 on its financial statements.
In April 2015, the Financial Accounting Standards Board issued Accounting Standards Update 2015-03, “Interest — Imputation of
Interest”. To simplify presentation of debt issuance costs, the amendments in this standard would require that debt issuance costs be
presented in the balance sheet as a direct deduction from the carrying amount of debt, consistent with debt discounts or premiums.
The recognition and measurement guidance for debt issuance costs would not be affected by the amendments in this standard. This
Accounting Standards Update is the final version of Proposed Accounting Standards Update 2014-250, “Interest — Imputation of
Interest (Subtopic 835-30)”, which has been deleted. The standard is effective for the Company beginning in fiscal 2017. The
Company is currently evaluating the impact of the adoption on its consolidated financial statements.
PIER 1 IMPORTS, INC. 2015 Form 10-K 43