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BED BATH& BEYOND ANNUAL REPORT 2007
21
infant and toddler merchandise in categories including furniture, car seats, strollers, feeding, bedding, bath, health and safety
essentials, toys, learning and development products, clothing and a unique selection of seasonal and holiday products. (See
“Transactions and Balances with Related Parties,” Note 8).
The results of buybuy BABY’s operations, which are not material, have been included in the consolidated financial statements
since the date of acquisition.
3. STAFF ACCOUNTING BULLETIN NO. 108, CONSIDERING THE EFFECTS OF PRIOR YEAR MISSTATEMENTS
WHEN QUANTIFYING MISSTATEMENTS IN CURRENT YEAR FINANCIAL STATEMENTS
In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) 108, “Considering
the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements.” The transition
provisions of SAB 108 permit the Company to adjust for the cumulative effect on retained earnings of immaterial errors relating
to prior years. SAB 108 also requires the adjustment of any prior quarterly financial statements within the fiscal year of adoption
for the effects of such errors on the quarters when the information is next presented. Such adjustments do not require previously
filed reports with the SEC to be amended. The Company adopted SAB 108 at the end of fiscal 2006. In accordance with SAB 108,
the Company adjusted beginning retained earnings for fiscal 2006 in the accompanying consolidated financial statements for the
items described below. The Company considers these adjustments to be immaterial to prior periods.
Review of Equity Grants and Procedures and Related Matters in Fiscal 2006
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 committee deemed appropriate. The special committee retained inde-
pendent 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 APB No. 25, 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 measurement 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 determined that from fiscal year 1993 through fiscal 2005, it had certain unrecorded non-cash equity-based compen-
sation charges associated with its equity-based compensation plans.
As a result, the Company 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 beginning
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:
(in thousands) Net Adjustment, After
Net Adjustment, Net Income Tax as a % of Net
Fiscal Year 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