Bed, Bath and Beyond 2007 Annual Report Download - page 13

BED BATH& BEYOND ANNUAL REPORT 2007
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• The expected volatility is based solely on the implied volatility of the Company’s call options. The Company’s call options
used to determine implied volatility are actively traded on multiple exchanges, had remaining maturities in excess of twelve
months, had market prices close to the exercise prices of the employee stock options and were measured on the stock
option grant date. The Company believes the resulting implied volatility used to determine the fair value of its stock options
represents what marketplace participants would likely use in determining an exchange price for an option.
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.
The Company intends to reinvest the unremitted earnings of its Canadian subsidiary. Accordingly, no provision has been made for
U.S. or additional non-U.S. taxes with respect to these earnings. In the event of repatriation to the U.S., such earnings would be
subject to U.S. income taxes in most cases.
During the first quarter of 2007, the Company adopted FIN 48. Under FIN 48, the Company recognizes the tax benefit from an
uncertain tax position only if it is at least more likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from
such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon
settlement with the taxing authorities.
The Company expects that FIN 48 may, over time, create more volatility in the effective tax rate from quarter to quarter because
the Company is required each quarter to determine whether new information changes the assessment of both the probability
that a tax position will effectively be sustained and the appropriateness of the amount of recognized benefit.
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: general economic conditions including the housing market and fuel costs; changes in the retailing environ-
ment and consumer preferences and spending habits; demographics and other macroeconomic factors that may impact the
level of spending for the types of merchandise sold by the Company; 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; the impact of failed auctions for auction rate securities held by the Company; and matters arising out of or related
to the Company’s stock option grants and procedures and related matters, including the outcome of the informal inquiry com-
menced by the SEC, the possibility that the SEC may not agree with all of the special committee’s findings and recommendations
and may require additional or different remediation, any other proceedings which may be brought against the Company by
the SEC or other governmental agencies, any tax implications relating to the Company’s stock option grants, the outcome of a
shareholder derivative action filed against certain of the Company’s officers and directors and related matters, and the possibility
of other private litigation relating to such stock option grants and related matters.