Bed, Bath and Beyond 2008 Annual Report Download - page 35

BED BATH & BEYOND 2008 ANNUAL REPORT
33
Vesting of restricted stock awarded to certain of the Company’s executives is dependent on the Company’s achievement of a
performance-based test for the fiscal year of grant, and assuming achievement of the performance-based test, time vesting,
subject, in general, to the executive remaining in the Company’s employ on specified vesting dates. The Company recognizes
compensation expense related to these awards based on the assumption that the performance-based test will be achieved.
Vesting of restricted stock awarded to the Company’s other employees is based solely on time vesting.
Changes in the Company’s restricted stock for the fiscal year ended February 28, 2009 were as follows:
Weighted Average
Number of Grant Date
(Shares in thousands) Restricted Shares Fair Value
Unvested restricted stock, beginning of year 2,766)$ 38.05
Granted 1,377)31.67
Vested (366) 37.40
Forfeited (153) 35.75
Unvested restricted stock, end of year 3,624)$ 35.79
Review of Equity Grants and Procedures and Related Matters in Fiscal 2006
In June 2006, the Company’sBoard 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
independent legal 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 identified various deficiencies in the process of granting and documenting stock options and restricted shares. As a
result of these deficiencies, the special committee recommended, among other things, revised measurement dates for certain
stock option grants. The exercise price for most of these stock option grants was less than the fair market value of the Company’s
common stock on the revised measurement date.
As a result of these revised measurement dates, and the correction of various other errors, the Company determined that it had
certain unrecorded non-cash equity-based compensation charges related to fiscal years prior to 2006. (See “Staff Accounting
Bulletin No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial
Statements,” Note 3.)
The Company’s Board of Directors also approved a remediation program intended to protect over 1,600 employees from certain
potential adverse tax consequences. These adverse tax consequences arise pursuant to Internal Revenue Code Section 409A as
aresult of historical deficiencies associated with certain of the Company’s stock option grants that were disclosed through
the Company’s stock option review. As a result of this program, the Company made cash payments totaling approximately
$30.0 million to over 1,600 employees in the fourth quarter of fiscal 2006, which resulted in a non-recurring, pre-tax stock-based
compensation charge. The cash outlay primarily represents payments to employees in connection with increasing the exercise
prices on certain stock option grants so as to protect them from certain potential adverse tax consequences. No executive officer
received such payments. The Company believes it is likely the Company will recoup a substantial portion of the cash outlay over
the next several years through higher proceeds from future stock option exercises, although this recovery would not flow through
the income statement.
During fiscal 2007, the United States Attorney’s Office for the District of New Jersey concluded its inquiry and indicated it would
take no further action related to this matter. During the fiscal first quarter of 2009, the SEC Division of Enforcement informed the
Company that it concluded its inquiry and was recommending that no enforcement action be taken with respect to this matter.