Bed, Bath and Beyond 2009 Annual Report Download - page 13

BED BATH & BEYOND 2009 ANNUAL REPORT
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less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale would be
presented separately in the appropriate asset and liability sections of the balance sheet. The Company has not historically record-
ed any material impairment to its long-lived assets. In the future, if events or market conditions affect the estimated fair value to
the extent that a long-lived asset is impaired, the Company will adjust the carrying value of these long-lived assets in the period
in which the impairment occurs.
Goodwill and Other Indefinitely Lived Intangible Assets: The Company reviews goodwill and other intangibles that have
indefinite lives for impairment annually or when events or changes in circumstances indicate the carrying value of these assets
might exceed their current fair values. Impairment testing is based upon the best information available including estimates of fair
value which incorporate assumptions marketplace participants would use in making their estimates of fair value. The Company
has not historically recorded an impairment to its goodwill and other indefinitely lived intangible assets. The Company completed
its annual impairment testing of goodwill and other indefinitely lived intangible assets and determined that, as of February 27,
2010, no impairment existed because the fair value of these assets substantially exceeded their carrying values. In the future, if
events or market conditions affect the estimated fair value to the extent that an asset is impaired, the Company will adjust the
carrying value of these assets in the period in which the impairment occurs.
Self Insurance: The Company utilizes a combination of insurance and self insurance for a number of risks including workers’
compensation, general liability, automobile liability and employee related health care benefits (a portion of which is paid by its
employees). Liabilities associated with the risks that the Company retains are estimated by considering historical claims experience,
demographic factors, severity factors and other actuarial assumptions. Although the Company’s claims experience has not dis-
played substantial volatility in the past, actual experience could materially vary from its historical experience in the future. Factors
that affect these estimates include but are not limited to: inflation, the number and severity of claims and regulatory changes. In
the future, if the Company concludes an adjustment to self insurance accruals is required, the liability will be adjusted accordingly.
Litigation: The Company records an estimated liability related to various claims and legal actions arising in the ordinary course of
business which is based on available information and advice from outside counsel, where appropriate. As additional information
becomes available, the Company reassesses the potential liability related to such claims and legal actions and revises its estimates,
as appropriate. The ultimate resolution of these ongoing matters as a result of future developments could have a material impact
on the Company’s earnings. The Company cannot predict the nature and validity of claims which could be asserted in the future,
and future claims could have a material impact on its earnings.
Store Opening, Expansion, Relocation and Closing Costs: Store opening, expansion, relocation and closing costs, including
markdowns, asset residual values and projected occupancy costs, are charged to earnings as incurred.
Stock-Based Compensation: The Company uses a Black-Scholes option-pricing model to determine the fair value of its stock
options. The Black-Scholes model includes various assumptions, including the expected life of stock options, the expected risk
free interest rate and the expected volatility. These assumptions reflect the Company’s best estimates, but they involve inherent
uncertainties based on market conditions generally outside the control of the Company. As a result, if other assumptions had
been used, total stock-based compensation cost could have been materially impacted. Furthermore, if the Company uses different
assumptions for future grants, stock-based compensation cost could be materially impacted in future periods.
The Company determines its assumptions for the Black-Scholes option-pricing model in accordance with the accounting guidance
related to stock compensation.
฀ •฀The฀expected฀life฀of฀stock฀options฀is฀estimated฀based฀on฀historical฀experience.฀฀
฀ •฀฀The฀expected฀risk฀free฀interest฀rate฀is฀based฀on฀the฀U.S.฀Treasury฀constant฀maturity฀interest฀rate฀whose฀term฀is฀
consistent with the expected life of the stock options.
฀ •฀฀Expected฀volatility฀is฀based฀on฀the฀average฀of฀historical฀and฀implied฀volatility.฀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.