Bed, Bath and Beyond 2008 Annual Report Download - page 14

BED BATH & BEYOND 2008 ANNUAL REPORT
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(which vest over 3-7 years) on the date of grant. The historical volatility is determined by observing actual prices of the
Company’s stock over a period commensurate with the expected life of the awards. The implied volatility represents the
implied volatility of the Company’s call options, which 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. For fiscal 2007 and 2006, the expected volatility was based solely on the implied volatility of
the Company’s call options, which had the same attributes as described above.
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 fiscal 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 will continue to create 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
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, fuel costs, and a declining overall macroeconomic
environment; changes in the retailingenvironment 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 expansionprogram; the impact of failed auctions for auction rate securities held by
the Company; and matters arising out of or related tothe Company’s stock option grants and procedures and related matters,
including any tax implications relating to the Company’s stock option grants. The Company does not undertake any obligation to
update its forward-looking statements. The SEC Division of Enforcement has concluded its inquiry with respect to matters arising
out of and related to the Company’s historical stock option grants and procedures and related matters and has advised the
Company that the Division is recommending no enforcement action be taken related to this matter.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
the Shareholder Letter, contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of