Bed, Bath and Beyond 2007 Annual Report Download - page 31

BED BATH& BEYOND ANNUAL REPORT 2007
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As of March 1, 2008, unrecognized compensation expense related to the unvested portion of the Company’s stock options and
restricted stock awards, based on the Company’s historical treatment of options and awards as having been granted at fair market
value, was $48.4 million and $78.8 million, respectively, which is expected to be recognized over a weighted average period of
2.5 years and 4.8 years, respectively (however, see “Review of Equity Grants and Procedures and Related Matters in Fiscal 2006”
for a discussion of a special committee review of equity grant matters which resulted in, among other things, the use of revised
measurement dates for certain grants).
Stock Options
The Company historically has treated its stock options as having been granted at fair market value on the date of grant (however,
see “Review of Equity Grants and Procedures and Related Matters in Fiscal 2006” for a discussion of a special committee review of
equity grant matters which resulted in, among other things, the use of revised measurement dates for certain grants). The option
grants generally become exercisable in five equal annual installments beginning one to three years from the date of grant.
Option grants for stock options issued prior to May 10, 2004 expire ten years after the date of grant. Option grants for stock
options issued since May 10, 2004 expire eight years after the date of grant. All option grants are non-qualified.
The fair value of the stock options granted was estimated on the date of the grant using a Black-Scholes option-pricing model
that uses the assumptions noted in the following table.
FISCAL YEAR ENDED
March 1, March 3, February 25,
Black-Scholes Valuation Assumptions (1) 2008 2007 2006
Weighted Average Expected Life (in years) (2) 6.4 6.3 6.1
Weighted Average Expected Volatility (3) 25.00% 25.00% 25.00%
Weighted Average Risk Free Interest Rates (4) 4.58% 4.95% 4.02%
Expected Dividend Yield ———
(1) Beginning on the date of adoption, forfeitures are estimated based on historical experience; prior to the date of adoption, forfeitures were
recorded as they occurred.
(2) The expected life of stock options is estimated based on historical experience.
(3) 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.
(4) Based on the U.S. Treasury constant maturity interest rate whose term is consistent with the expected life of the stock options.
Changes in the Company’s stock options for the fiscal year ended March 1, 2008 were as follows:
Number of Weighted Average
(Shares in thousands) Stock Options Exercise Price
Options outstanding, beginning of year 19,836)$ 29.99
Granted 550)41.12
Exercised (1,463) 15.39
Forfeited or expired (541) 37.02
Options outstanding, end of year 18,382)$ 31.29
Options exercisable, end of year 12,189)$ 28.30
The weighted average fair value for the stock options granted in fiscal 2007, 2006 and 2005 was $15.07, $14.24 and $12.71,
respectively. The weighted average remaining contractual term and the aggregate intrinsic value for options outstanding as of
March 1, 2008 was 4.0 years and $60.7 million, respectively. The weighted average remaining contractual term and the aggregate
intrinsic value for options exercisable as of March 1, 2008 was 3.5 years and $60.2 million, respectively. The total intrinsic values for
stock options exercised during fiscal 2007, 2006 and 2005 were $28.2 million, $58.8 million and $60.7 million, respectively.
Net cash proceeds from the exercise of stock options for fiscal 2007 were $22.7 million and the associated income tax benefits
were $8.7 million.