Bed, Bath and Beyond 2015 Annual Report Download - page 76

• 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.
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.
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 carry-forwards. 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., in most cases such earnings would be subject to U.S. income taxes.
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.
Potential volatility in the effective tax rate from year to year may occur as the Company is required each year 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.
The Company also accrues for certain other taxes as required by their operations.
Judgment is required in determining the provision for income and other 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 various 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 the Shareholder Letter, contain forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 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.
Such factors include, without limitation: general economic conditions including the housing market, a
challenging overall macroeconomic environment and related changes in the retailing environment; consumer
preferences, spending habits and adoption of new technologies; demographics and other macroeconomic factors
64