Bed, Bath and Beyond 2006 Annual Report Download - page 13

BED BATH& BEYOND ANNUAL REPORT 2006
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Stock-Based Compensation: Under SFAS No. 123R, the Company uses a Black-Scholes option-pricing model to determine the fair
value of its stock options. The Black-Scholes model includes various assumptions, including the expected life of stock options, the
expected volatility and the expected risk free interest rate. These assumptions reflect the Company’s best estimates, but they
involve inherent uncertainties based on market conditions generally outside the control of the Company. As a result, if other
assumptions had been used, total stock-based compensation cost, as determined in accordance with SFAS No. 123R could have
been materially impacted. Furthermore, if the Company uses different assumptions for future grants, stock-based compensation
cost could be materially impacted in future periods.
The Company is required to record stock-based compensation expense net of estimated forfeitures. The Company’s forfeiture rate
assumption used in determining its stock-based compensation expense is estimated based on historical data. The actual forfeiture
rate could differ from these estimates.
Income Taxes: The Company accounts for its income taxes using the asset and liability method. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in earnings in the period that includes the enactment date.
Judgment is required in determining the provision for income taxes and related accruals, deferred tax assets and liabilities. In
the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. Additionally,
the Company’s tax returns are subject to audit by various tax authorities. Although the Company believes that its estimates are
reasonable, actual results could differ from these estimates.
FORWARD LOOKING STATEMENTS
This Annual Report and, in particular, Management’s Discussion and Analysis of Financial Condition and Results of Operations,
and the Shareholder Letter, contain forward looking statements within the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended. The Company’s actual results and future financial condition may differ materially from those expressed in
any such forward looking statements as a result of many factors that may be outside the Company’s control. Such factors include,
without limitation: changes in the retailing environment and consumer preferences and spending habits; demographics and
other macro-economic factors that may impact the level of spending for the types of merchandise sold by the Company; general
economic conditions; unusual weather patterns; competition from existing and potential competitors; competition from other
channels of distribution; pricing pressures; the cost of labor, merchandise and other costs and expenses; the ability to find suitable
locations at acceptable occupancy costs to support the Company’s expansion program; and matters arising out of or related to
the Company’s stock option grants and procedures and related matters, including the outcome or any other matters arising out
of the informal inquiry commenced by the SEC or the inquiry commenced by the United States Attorney’s office for the District
of New Jersey, the possibility that the SEC or the United States Attorney’s office for the District of New Jersey may not agree with
all of the special committee’s findings and recommendations and may require additional or different remediation or may bring
proceedings in respect of such matters, any other proceedings which may be brought against the Company by other govern-
mental agencies, any tax implications relating to the Company’s stock option grants, the outcome of the shareholder derivative
actions filed against certain of the Company’s officers and its directors and the possibility of other private litigation relating to
such stock option grants and related matters.