Note 6 - Stock-Based Compensation

6 Months Ended

Aug. 31, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

6) Stock-Based Compensation

The Company measures all employee stock-based compensation awards using a fair value method and records such expense, net of estimated forfeitures, in its consolidated financial statements. Currently, the Company’s stock-based compensation relates to restricted stock awards and stock options. The Company’s restricted stock awards are considered nonvested share awards.

Stock-based compensation expense for the three and six months ended August 31, 2013 was approximately $13.6 million ($8.8 million after tax or $0.04 per diluted share) and approximately $28.4 million ($18.1 million after tax or $0.08 per diluted share), respectively. Stock-based compensation expense for the three and six months ended August 25, 2012 was approximately $11.0 million ($6.7 million after tax or $0.03 per diluted share) and approximately $23.8 million ($15.1 million after tax or $0.07 per diluted share), respectively. In addition, the amount of stock-based compensation cost capitalized for the six months ended August 31, 2013 and August 25, 2012 was approximately $0.8 million and $0.7 million, respectively.

Incentive Compensation Plans

The Company currently grants awards under the Bed Bath & Beyond 2012 Incentive Compensation Plan (the “2012 Plan”), which amended and restated the Bed Bath & Beyond 2004 Incentive Compensation Plan (the “2004 Plan”). The 2012 Plan includes an aggregate of 43.2 million common shares authorized for issuance. Outstanding awards that were covered by the 2004 Plan continue to be in effect under the 2012 Plan.

The 2012 Plan is a flexible compensation plan that enables the Company to offer incentive compensation through stock options (whether nonqualified stock options or incentive stock options), restricted stock awards, stock appreciation rights, performance awards and other stock based awards, including cash awards. Under the 2012 Plan, grants are determined by the Compensation Committee for those awards granted to executive officers and by an appropriate committee for all other awards granted. Awards of stock options and restricted stock generally vest in five equal annual installments beginning one to three years from the date of grant.

The Company generally issues new shares for stock option exercises and restricted stock awards. As of August 31, 2013, unrecognized compensation expense related to the unvested portion of the Company’s stock options and restricted stock awards was $30.9 million and $154.2 million, respectively, which is expected to be recognized over a weighted average period of 3.2 years and 3.9 years, respectively.

Stock Options

Stock option grants are issued at fair market value on the date of grant and generally become exercisable in either three or five equal annual installments beginning one year from the date of grant for options issued since May 10, 2010, and beginning one to three years from the date of grant for options issued prior to May 10, 2010, in each case, subject, in general to the recipient remaining in the Company’s employ or service on specified vesting dates. Option grants expire eight years after the date of grant for stock options issued since May 10, 2004, and expire ten years after the date of grant for stock options issued prior to May 10, 2004. All option grants are nonqualified.

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.

	Six Months Ended
Black-Scholes Valuation Assumptions  (1)	August 31, 2013			August 25, 2012
Weighted Average Expected Life (in years)  (2)		6.6			6.5
Weighted Average Expected Volatility  (3)		29.27	%		31.07	%
Weighted Average Risk Free Interest Rates  (4)		1.11	%		1.14	%
Expected Dividend Yield		-			-

(1) Forfeitures are estimated based on historical experience.

(2) The expected life of stock options is estimated based on historical experience.

(3) 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.

(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 six months ended August 31, 2013 were as follows:

(Shares in thousands)	Number of Stock Options			Weighted Average Exercise Price
Options outstanding, beginning of period		5,006		$	42.32
Granted		563			69.78
Exercised		(916	)		39.54
Forfeited or expired		(2	)		37.79
Options outstanding, end of period		4,651		$	46.19
Options exercisable, end of period		2,862		$	39.28

The weighted average fair value for the stock options granted during the first six months of fiscal 2013 and 2012 was $22.28 and $22.95, respectively. The weighted average remaining contractual term and the aggregate intrinsic value for options outstanding as of August 31, 2013 was 4.0 years and $128.4 million, respectively. The weighted average remaining contractual term and the aggregate intrinsic value for options exercisable as of August 31, 2013 was 2.7 years and $98.6 million, respectively. The total intrinsic value for stock options exercised during the first six months of fiscal 2013 and 2012 was $27.5 million and $24.3 million, respectively.

Net cash proceeds from the exercise of stock options for the first six months of fiscal 2013 were $36.2 million and the net associated income tax benefit was $15.6 million.

Restricted Stock

Restricted stock awards are issued and measured at fair market value on the date of grant and generally become vested in five equal annual installments beginning one to three years from the date of grant, subject, in general, to the recipient remaining in the Company’s employ or service on specified vesting dates. 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 six months ended August 31, 2013 were as follows:

(Shares in thousands)	Number of Restricted Shares			Weighted Average Grant-Date Fair Value
Unvested restricted stock, beginning of period		4,063		$	45.98
Granted		942			69.59
Vested		(928	)		38.24
Forfeited		(80	)		51.50
Unvested restricted stock, end of period		3,997		$	53.23