Bed, Bath and Beyond 2006 Annual Report Download - page 9

BED BATH& BEYOND ANNUAL REPORT 2006
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Related Matters” and “Rent and Lease Accounting” below. The Company considers these adjustments to be immaterial to prior
periods.
Review of Equity Grants and Procedures and Related Matters In June 2006, the Company’s Board of Directors appointed a
special committee of two independent members of the Board of Directors, with authority, among other things, to conduct an
investigation with respect to the setting of exercise prices for employee stock options and related matters as the special commit-
tee deemed appropriate. The special committee retained independent counsel who engaged outside accounting advisors to assist
with the review. This review was completed and on October 9, 2006, the special committee presented its report to the Company’s
Board of Directors.
The review of stock option grants and procedures identified various deficiencies in the process of granting and documenting stock
options and restricted shares described below. As a result of the deficiencies, the special committee recommended, among other
things, that the Company revise the measurement dates under Accounting Principles Board Opinion No. 25, “Accounting for Stock
Issued to Employees,” for 16 annual option grant dates, 26 monthly grant dates and 2 special grant dates (revisions of 2 annual, 4
monthly and 1 special grant dates have no accounting impact because prices on the revised dates were lower than on the meas-
urement dates previously recorded by the Company). As a result of these revised measurement dates and the correction of various
other errors relating to the accounting for equity-based compensation, the Company has determined that from fiscal year 1993
through fiscal 2005, it had certain unrecorded non-cash equity-based compensation charges associated with its equity-based
compensation plans. The Company filed a Form 8-K dated October 10, 2006, which provides further details regarding the special
committee’s review.
As a result, the Company has recorded an adjustment for unrecorded expense over the affected period (fiscal year 1993 through
2005) of $61.8 million, including related tax items. In accordance with the provisions of SAB 108, the Company decreased begin-
ning retained earnings for fiscal year 2006 by $61.8 million within the accompanying Consolidated Financial Statements.
The Company does not believe that the net effect of this adjustment was material, either quantitatively or qualitatively, in any of
the years covered by the review. In reaching that determination, the following quantitative measures were considered:
Net Adjustment, After
Net Adjustment, Net Income Tax as a % of Net
Fiscal Year (in thousands) After Tax As Reported Income As Reported
2005 $ 11,488 $ 572,847 2.01%
2004 12,493 504,964 2.47%
2003 13,607 399,470 3.41%
2002 8,600 302,179 2.85%
2001 7,391 219,599 3.37%
2000 5,272 171,922 3.07%
1999 1,340 131,229 1.02%
1998 923 97,346 0.95%
1997 405 73,142 0.55%
1996 163 55,015 0.30%
1995 56 39,459 0.14%
1994 22 30,013 0.07%
1993 2 21,887 0.01%
Total $ 61,762
Rent and Lease Accounting The Company accounts for scheduled rent increases contained in its leases on a straight-line basis
over the term of the lease. In fiscal 2004, due to clarification by the Office of the Chief Accountant of the SEC, the Company
changed its method of accounting to define the beginning of the lease term as the date the Company obtained possession of the
leased premises. Prior to fiscal 2004, the Company’s method of accounting defined the beginning of the lease term as the date the
Company commenced lease payments. The Company has recorded an adjustment to retained earnings and deferred rent and
other liabilities to reflect these accounts as if the Company had always defined the beginning of the lease term as the date the
Company obtained possession of the leased premises and to correspondingly increase deferred tax assets. The Company does not
believe that the net effect of this adjustment which includes fiscal years 1993 through 2003 was material.