UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended February 27, 2010
Commission File Number 0-20214
BED BATH & BEYOND INC.
(Exact name of registrant as specified in its charter)
New York |
|
11-2250488 |
(State of incorporation) |
|
(IRS Employer Identification No.) |
650 Liberty Avenue, Union, New Jersey 07083
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: 908/688-0888
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Name of each exchange on which registered |
Common stock, $.01 par value |
|
The NASDAQ Stock Market LLC |
|
|
(NASDAQ Global Select Market) |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer x |
|
|
Accelerated filer o |
|
|
|
|
Non-accelerated filer o |
|
|
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of August 29, 2009, the aggregate market value of the common stock held by non-affiliates (which was computed by reference to the closing price on such date of such stock on the NASDAQ National Market) was $9,193,094,656.*
The number of shares outstanding of the issuers common stock (par value $0.01 per share) at March 27, 2010: 263,260,391.
Documents Incorporated by Reference
Portions of the Registrants definitive proxy statement for the 2010 Annual Meeting of Shareholders pursuant to Regulation 14A are incorporated by reference in Part III hereof.
* |
|
For purposes of this calculation, all outstanding shares of common stock have been considered held by non-affiliates other than the 15,160,275 shares beneficially owned by directors and executive officers, including in the case of the Co-Chairmen trusts and foundations affiliated with them. In making such calculation, the Registrant does not determine the affiliate or non-affiliate status of any shares for any other purpose. |
Unless otherwise indicated, the term Company refers collectively to Bed Bath & Beyond Inc. and subsidiaries as of February 27, 2010. The Companys fiscal year is comprised of the 52 or 53 week period ending on the Saturday nearest February 28. Accordingly, fiscal 2009, 2008, and 2007 represented 52 weeks and ended on February 27, 2010, February 28, 2009, and March 1, 2008, respectively. Unless otherwise indicated, all references herein to periods of time (e.g., quarters and years) are to fiscal periods.
Introduction
Bed Bath & Beyond Inc. and subsidiaries (the Company) is a chain of retail stores, operating under the names Bed Bath & Beyond (BBB), Christmas Tree Shops (CTS), Harmon and Harmon Face Values (Harmon) and buybuy BABY. In addition, the Company is a partner in a joint venture which operates two stores in the Mexico City market under the name Home & More. The Company sells a wide assortment of domestics merchandise and home furnishings, which include food, giftware, health and beauty care items and infant and toddler merchandise. The Company believes that it is the nations largest operator of stores selling predominantly domestics merchandise and home furnishings while offering a breadth and depth of selection in most of its product categories that exceeds what is generally available in department stores or other specialty retail stores.
History
The Company was founded in 1971 by Leonard Feinstein and Warren Eisenberg, the Co-Chairmen of the Company. Each has more than 49 years of experience in the retail industry.
The Company commenced operations in 1971 with the opening of two stores, which primarily sold bed linens and bath accessories. In 1985, the Company introduced its first store carrying a full line of domestics merchandise and home furnishings. The Company began using the name Bed Bath & Beyond in 1987 in order to reflect the expanded product line offered by its stores and to distinguish its stores from conventional specialty retail stores offering only domestics merchandise or home furnishings. In March 2002, the Company acquired Harmon, a health and beauty care retailer, which operated 27 stores at the time located in Connecticut, New Jersey and New York. In June 2003, the Company acquired CTS, a retailer of giftware and household items, which operated 23 stores at the time located in Connecticut, Maine, Massachusetts, New Hampshire, New York and Rhode Island. In March 2007, the Company acquired buybuy BABY, a retailer of infant and toddler merchandise, which operated 8 stores at the time located in Maryland, New Jersey, New York and Virginia. In December 2007, the Company opened its first international BBB store in Ontario, Canada. In May 2008, the Company became a partner in a joint venture which operates two stores in the Mexico City market under the name Home & More.
Operations
It is the Companys goal to offer quality merchandise at everyday low prices; to maintain a wide assortment of merchandise; to present merchandise in a distinctive manner designed to maximize customer convenience and reinforce customer perception of wide selection; and to emphasize dedication to customer service and satisfaction.
Pricing. The Company believes in maintaining everyday low prices. The Company regularly monitors price levels at its competitors in order to ensure that its prices are in accordance with its pricing philosophy. The Company believes that the application of its everyday low price philosophy is an important factor in establishing its reputation among customers.
Merchandise Assortment. The Company sells a wide assortment of domestics merchandise and home furnishings, which include food, giftware, health and beauty care items and infant and toddler merchandise. Domestics merchandise includes categories such as bed linens and related items, bath items and kitchen textiles. Home furnishings includes categories such as kitchen and tabletop items, fine tabletop, basic housewares and general home furnishings.
The Company encourages local store personnel to tailor the merchandise mix as appropriate to respond to changing trends and conditions. The factors taken into account in selecting the merchandise mix for a particular store include store size and configuration and local market conditions such as climate and demographics. The Company, on an ongoing basis, tests new merchandise categories and adjusts the categories of merchandise carried in its stores and may add new departments or adjust the size of existing departments as required. Additionally, the Company continues to integrate the merchandise assortments within its concepts. The Company believes that the process of adding new departments, integrating the Companys merchandise within concepts, and expanding or reducing the size of various departments in response to changing conditions is an important part of its merchandising strategy.
Merchandise Presentation. BBB has developed a distinctive style of merchandise presentation. Primarily all of the BBB stores have groups of related product lines presented together in separate areas of each store, creating the appearance that the store is comprised of several individual specialty stores for different product lines. BBB believes that its format of merchandise presentation makes it easy for customers to locate products, reinforces customer perception of wide selection and communicates to customers that its stores offer a level of customer service generally associated with smaller specialty stores.
BBB believes that its extensive merchandise selection, rather than fixturing, should be the focus of customer attention and, accordingly, primarily uses simple modular fixturing throughout its stores. This fixturing is primarily designed so that it can be easily reconfigured to adapt to changes in the stores merchandise mix and presentation. BBB believes that its merchandise displays create an exciting and attractive shopping environment that encourages impulse purchases of additional items.
Advertising. In general, the Company relies on word of mouth advertising, its reputation for offering a wide assortment of quality merchandise at everyday low prices and the use of paid advertising. The Company distributes full-color circulars and other advertising pieces as its primary vehicles of paid advertising via direct mail or inserts. Also, to support the opening of new stores, the Company primarily uses grand opening direct mail and newspaper advertising.
Customer Service. The Company places a strong focus on customer service and seeks to make shopping at its stores as pleasant and convenient as possible. Most stores are open seven days and six evenings a week in order to enable customers to shop at times that are convenient for them. In addition, the Companys websites, www.bedbathandbeyond.com, www.christmastreeshops.com, www.harmondiscount.com, www.facevalues.com and www.buybuybaby.com are available for customers to access 24 hours a day, seven days a week.
Suppliers
In fiscal 2009, the Company purchased its merchandise from approximately 5,200 suppliers with the Companys largest supplier accounting for approximately 4% of the Companys merchandise purchases and the Companys 10 largest suppliers accounting for approximately 20% of such purchases. The Company purchases substantially all of its merchandise in the United States, the majority from domestic sources and the balance from importers. The Company purchases a small amount of its merchandise directly from overseas sources. The Company has no long term contracts for the purchase of merchandise. The Company believes that most merchandise, other than brand name goods, is available from a variety of sources and that most brand name goods can be replaced with comparable merchandise.
Warehousing
The Companys merchandise displays allow a substantial amount of merchandise to be displayed on the sales floor at all times. Merchandise not displayed on the sales floor is typically stored in warehouse space within the store. In addition, the Company maintains 11 supplemental storage locations as well as three central distribution centers. The majority of the Companys merchandise is directly shipped to stores from vendors through third party carriers and service providers; the remainder of the Companys merchandise is shipped to stores through its distribution centers.
In addition, the Company maintains two E-Service fulfillment centers.
Employees
As of February 27, 2010, the Company employed approximately 41,000 persons in full-time and part-time positions. The Company believes that its relations with its employees are very good and that the labor turnover rate among its management employees is lower than that generally experienced within the industry.
Seasonality
The Company exhibits less seasonality than many other retail businesses, although sales levels are generally higher in the calendar months of August, November and December, and generally lower in February.
Expansion Program
The Company is engaged in an ongoing expansion program involving the opening of new stores in both new and existing markets, the expansion or relocation of existing stores and the continuous review of strategic acquisitions. In the 18 year period from the beginning of fiscal 1992 to the end of fiscal 2009, the Company has grown from 34 stores to 1,100 stores. The Companys 1,100 stores operate in 49 states, the District of Columbia, Puerto Rico and Canada, including: 965 BBB stores operating in 49 states, the District of Columbia, Puerto Rico and Canada; 61 CTS stores operating in 15 states; 45 Harmon stores operating in three states; and 29 buybuy BABY stores operating in 14 states. Total square footage grew from approximately 0.9 million square feet at the beginning of fiscal 1992 to approximately 33.7 million square feet at the end of fiscal 2009. During fiscal 2009, the Company opened a total of 67 new stores, including 39 BBB stores throughout the United States and Canada, nine CTS stores, five Harmon stores and 14 buybuy BABY stores, and closed four BBB stores, all of which resulted in the aggregate addition of approximately 1.7 million square feet of store space. In addition, the Company is a partner in a joint venture which operates two stores in the Mexico City market under the name Home & More.
The Company intends to continue its expansion program and believes that the continued growth of the Company is dependent, in large part, on the success of this program. As part of its expansion program, the Company expects to open new stores and expand existing stores as opportunities arise. The Company believes throughout the United States and Canada, there is an opportunity to open in excess of 1,300 BBB stores as well as grow the CTS and buybuy Baby concepts from coast to coast.
In determining where to open new stores, the Company evaluates a number of factors, including the availability of real estate, demographic information (such as data relating to income and education levels, age and occupation) and distribution. The Company has built its management structure with a view toward its expansion and believes that, as a result, it has the management depth necessary to support its anticipated expansion program.
Competition
The Company believes it is the preeminent retailer in its segment of the home goods industry, which is fragmented and highly competitive. In addition, the BBB stores compete with many different types of retail stores that sell many or most of the same products. Such competitors include: (i) department stores, which often carry many of the same product lines as the Companys stores but do not typically have the same depth or breadth of product selection, (ii) specialty stores, which often have a depth of product selection but typically carry only a limited portion of the product lines carried by the Companys stores, (iii) discount and mass merchandise stores and (iv) national chains. In addition, the Companys stores compete, to a more limited extent, with factory outlet stores that typically offer limited quantities or limited lines of quality merchandise at discount prices.
Other retail chains continue to introduce new store concepts that include many of the product lines carried by the Companys stores.
There can be no assurance that the operation of store competitors will not have a material effect on the Company.
Tradenames and Service Marks
The Company uses the Bed Bath & Beyond name and logo and the Beyond any store of its kind tag line as service marks in connection with retail services. The Company has registered these marks and others, including names and logos of CTS, Harmon and buybuy BABY, with the United States Patent and Trademark Office. The Company also has registered or has applications pending with the trademark registries of several foreign countries, including having registered the Bed Bath & Beyond name and logo and the Beyond any store of its kind tag line in Canada. Management believes that its name recognition and service marks are important elements of the Companys merchandising strategy.
Available Information
The Company makes available as soon as reasonably practicable after filing with the Securities and Exchange Commission (SEC), free of charge, through its website, www.bedbathandbeyond.com, the Companys annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, electronically filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The Companys 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 Companys control. Such factors include the following:
General Economic Conditions
General economic factors that are beyond the Companys control impact the Companys forecasts and actual performance. These factors include housing markets, recession, inflation, deflation, consumer credit availability, consumer debt levels, fuel and energy costs, interest rates, tax rates and policy, unemployment trends, the impact of natural disasters and terrorist activities, conditions affecting the retail environment for the home and other matters that influence consumer spending. Changes in the economic climate could adversely affect the Companys performance.
Competition and Pricing Pressures
The retail business is highly competitive. The Company competes for customers, associates, locations, merchandise, services and other important aspects of the business with many other local, regional and national retailers. Those competitors range from specialty retail stores to department stores and discounters. Unanticipated changes in the pricing and other practices of those competitors, including promotional activity, may adversely affect the Companys performance.
Consumer Preferences and Demographic Factors
The Companys success depends on our ability to anticipate and respond in a timely manner to changing merchandise trends, customer demands and demographics. The Companys failure to anticipate, identify or react appropriately to changes in customer tastes, preferences, spending patterns and other lifestyle decisions could lead to, among other things, excess inventories or a shortage of products and could have a material adverse affect on the Companys financial condition and results of operations.
Unusual Weather Patterns
The Companys operating results could be negatively impacted by unusual weather patterns. Frequent or unusually heavy snow, ice or rain storms, hurricanes, floods, tornados or extended periods of unseasonable temperatures could adversely affect the Companys performance.
Cost of Labor, Merchandise and Other Expenses
The Companys success depends, in part, on its ability to manage operating costs and to look for opportunities to reduce costs. The Companys ability to meet its labor needs while controlling costs is subject to external factors such as unemployment levels, prevailing wage rates, minimum wage legislation and changing demographics. The Companys ability to find qualified vendors and obtain access to products in a timely and efficient manner can be adversely affected by political instability, the financial instability of suppliers, suppliers noncompliance with applicable laws, transportation costs and other factors beyond the Companys control.
Expansion Program
The Companys growth depends, in part, on its ability to open new stores and operate profitably. The Companys ability to open additional stores successfully will depend on a number of factors, including its identification and availability of suitable store locations; its success in negotiating leases on acceptable terms; its hiring and training of skilled store operating personnel, especially management; and its timely development of new stores, including the availability of construction materials and labor and the absence of significant construction and other delays in store openings based on weather or other events. In addition, as the Companys business continues to grow, it is subject to more complex regulations and may be the target of private actions alleging violations of such regulations. This increases the cost of doing business and the risk that the Companys business practices could result in liabilities that may adversely affect its performance, despite the exercise of reasonable care.
Auction Rate Securities
As of February 27, 2010, the Company held approximately $178.6 million of net investments in auction rate securities. These securities are invested in preferred shares of closed end municipal bond funds, which are required, pursuant to the Investment Company Act of 1940, to maintain minimum asset coverage ratios of 200% and also are invested in securities collateralized by student loans which are currently more than 100% collateralized and with approximately 90% of such collateral in the aggregate being guaranteed by the United States government. None of the auction rate securities held by the Company are mortgage-backed debt obligations. Beginning in mid-February 2008, the auction process for the Companys auction rate securities failed and continues to fail. These failed auctions result in a lack of liquidity in the securities but do not affect the underlying collateral of the securities. All of these investments carry triple-A credit ratings from one or more of the major credit rating agencies and the Company believes that given their high credit quality, it will ultimately recover at par all amounts invested in these securities.
During fiscal 2008, the Company entered into an agreement (the Agreement) with the investment firm that sold the Company a portion of its auction rate securities which have a par value of approximately $42.8 million at February 27, 2010. By entering into the Agreement, the Company (1) received the right (Put Option) to sell these auction rate securities back to the investment firm at par, at its sole discretion, anytime during the period from June 30, 2010 through July 2, 2012, and (2) gave the investment firm the right to purchase these auction rate securities or sell them on the Companys behalf at par anytime after the execution of the Agreement through July 2, 2012. As of February 27, 2010, the fair value of this option was approximately $2.3 million. The Company anticipates that any future changes in the fair value of the related auction rate securities will be offset by the changes in the fair value of the Put Option with no material impact to the consolidated statement of earnings. Because the Company intends to exercise its right to redeem these securities as soon as practicably possible during fiscal 2010, the fair value of these securities of approximately $40.5 million and the related option of approximately $2.3 million were classified as short term investment securities as of February 27, 2010.
As of February 27, 2010, the remainder of the Companys investment in auction rate securities of approximately $137.9 million at par had a temporary valuation adjustment of approximately $2.1 million to reflect their current lack of liquidity. Since this valuation adjustment is deemed to be temporary it was recorded in accumulated other comprehensive income (loss), net of a related tax benefit, and did not affect the Companys net earnings for fiscal 2009. The Company does not anticipate that any potential lack of liquidity in these auction rate securities, even for an extended period of time, will affect its ability to finance its operations, including its expansion program and planned capital expenditures. However, if the interest rate environment changes, the Company may incur further temporary impairment losses. If uncertainties in the credit and capital markets continue and these markets deteriorate further, the Company may conclude that the decline in value is other than temporary and incur realized losses, including up to the full amount of the investments in auction rate securities, which could negatively affect the Companys financial position, cash flow and results of operations. During fiscal 2009 and 2008, approximately $38.5 million and $107.6 million, respectively, of auction rate securities, were redeemed at par. As of February 27, 2010, the Company classified approximately $15.0 million of these securities as short term investment securities due to expected redemptions at par during the first half of fiscal 2010. Subsequent to the end of fiscal 2009 through April 22, 2010, the Company additionally redeemed approximately $14.1 million of these securities at par. The classification and valuation of these securities will continue to be reviewed quarterly.
Review of Equity Grants and Procedures and Related Matters
In June 2006, the Companys Board of Directors appointed a special committee of independent 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. The review identified various deficiencies in the process of granting and documenting stock options and restricted shares. As a result of the deficiencies, the Company revised the measurement dates for various option grants.
The Companys past stock option granting procedures have exposed the Company to risk factors that could have an adverse affect on the Companys financial condition, including any tax implications relating to the Companys stock option grants.
ITEM 1B UNRESOLVED STAFF COMMENTS
None.
Most of the Companys stores are located in suburban areas of medium and large-sized cities. These stores are situated in strip and power strip shopping centers, as well as in major off-price and conventional malls, and in free standing buildings.
The Companys 1,100 stores are located in 49 states, the District of Columbia, Puerto Rico and Canada and range in size from approximately 5,000 to 100,000 square feet, but are predominantly between 20,000 and 50,000 square feet. Approximately 85% to 90% of store space is used for selling areas and the balance for warehouse, receiving and office space.
The table below sets forth the locations of the Companys stores as of February 27, 2010:
Alabama |
|
13 |
Alaska |
|
2 |
Arizona |
|
27 |
Arkansas |
|
7 |
California |
|
108 |
Colorado |
|
25 |
Connecticut |
|
23 |
Delaware |
|
2 |
Florida |
|
76 |
Georgia |
|
27 |
Idaho |
|
7 |
Illinois |
|
42 |
Indiana |
|
21 |
Iowa |
|
8 |
Kansas |
|
8 |
Kentucky |
|
8 |
Louisiana |
|
13 |
Maine |
|
7 |
Maryland |
|
20 |
Massachusetts |
|
42 |
Michigan |
|
35 |
Minnesota |
|
9 |
Mississippi |
|
7 |
Missouri |
|
14 |
Montana |
|
6 |
Nebraska |
|
5 |
Nevada |
|
8 |
New Hampshire |
|
13 |
New Jersey |
|
80 |
New Mexico |
|
5 |
New York |
|
87 |
North Carolina |
|
30 |
North Dakota |
|
2 |
Ohio |
|
39 |
Oklahoma |
|
7 |
Oregon |
|
9 |
Pennsylvania |
|
39 |
Rhode Island |
|
5 |
South Carolina |
|
13 |
South Dakota |
|
1 |
Tennessee |
|
20 |
Texas |
|
77 |
Utah |
|
12 |
Vermont |
|
3 |
Virginia |
|
31 |
Washington |
|
21 |
West Virginia |
|
3 |
Wisconsin |
|
10 |
Wyoming |
|
2 |
District of Columbia |
|
2 |
Puerto Rico |
|
3 |
Alberta, Canada |
|
5 |
British Columbia, Canada |
|
2 |
Novia Scotia, Canada |
|
1 |
Ontario, Canada |
|
7 |
Prince Edward Island, Canada |
|
1 |
Total |
|
1,100 |
The Company leases primarily all of its existing stores. The leases provide for original lease terms that generally range from 10 to 15 years and most leases provide for renewal options, often at increased rents. The Company evaluates leases on an ongoing basis which may lead to renegotiated lease terms, including rents during renewal options, or the possible relocation of stores. Certain leases provide for scheduled rent increases (which, in the case of fixed increases, the Company accounts for on a straight-line basis over the expected lease term, beginning when the Company obtains possession of the premises) and/or for contingent rent (based upon store sales exceeding stipulated amounts).
In addition, the Company leases storage space in 14 locations, totaling approximately 1.4 million square feet, that provide supplemental merchandise storage space and fulfillment of BBBs E-Service activities. This space is used to supplement the warehouse facilities in the Companys stores in proximity to these locations. In addition, the Company also owns two distribution centers totaling approximately 1.5 million square feet.
As of February 27, 2010, the Company occupied approximately 355,000 square feet of office space at four locations for procurement and corporate office functions. Leased facilities in Farmingdale and Garden City, New York comprise approximately 120,000 square feet with the remaining approximately 235,000 square feet within owned facilities in Union, New Jersey and Middleboro, Massachusetts. In addition, the Company owns a building in Union, New Jersey next to the corporate office location to support its continuing headquarters growth.
The Company is party to various legal proceedings arising in the ordinary course of business, which the Company does not believe to be material to the Companys business or financial condition.
Executive Officers of the Registrant
The following table sets forth the name, age and business experience of the Executive Officers of the Registrant:
Name |
|
Age |
|
Positions |
|
|
|
|
|
Warren Eisenberg |
|
79 |
|
Co-Chairman and Director |
|
|
|
|
|
Leonard Feinstein |
|
73 |
|
Co-Chairman and Director |
|
|
|
|
|
Steven H. Temares |
|
51 |
|
Chief Executive Officer and Director |
|
|
|
|
|
Arthur Stark |
|
55 |
|
President and Chief Merchandising Officer |
|
|
|
|
|
Matthew Fiorilli |
|
53 |
|
Senior Vice President Stores |
|
|
|
|
|
Eugene A. Castagna |
|
44 |
|
Chief Financial Officer and Treasurer |
Warren Eisenberg is a Co-Founder of the Company and has served as Co-Chairman since 1999. He has served as a Director since 1971. Mr. Eisenberg served as Chairman from 1992 to 1999, and served as Co-Chief Executive Officer from 1971 to 2003.
Leonard Feinstein is a Co-Founder of the Company and has served as Co-Chairman since 1999. He has served as a Director since 1971. Mr. Feinstein served as President from 1992 to 1999, and served as Co-Chief Executive Officer from 1971 to 2003.
Steven H. Temares has been Chief Executive Officer since 2003 and has served as a Director since 1999. Mr. Temares was President and Chief Executive Officer from 2003 to 2006, President and Chief Operating Officer from 1999 to 2003 and Executive Vice President and Chief Operating Officer from 1997 to 1999. Mr. Temares joined the Company in 1992.
Arthur Stark has been President and Chief Merchandising Officer since 2006. Mr. Stark has served as Chief Merchandising Officer since 1999 and was a Senior Vice President from 1999 to 2006. Mr. Stark joined the Company in 1977.
Matthew Fiorilli has been Senior Vice President - Stores since 1999. Mr. Fiorilli joined the Company in 1973.
Eugene A. Castagna has been Chief Financial Officer and Treasurer since 2006. Mr. Castagna served as Assistant Treasurer from 2002 to 2006 and as Vice President - Finance from 2000 to 2006. Mr. Castagna is a certified public accountant and joined the Company in 1994.
The Companys executive officers are elected by the Board of Directors for one-year terms and serve at the discretion of the Board of Directors. No family relationships exist between any of the executive officers or directors of the Company.
ITEM 5 - MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The following table sets forth the high and low reported closing prices of the Companys common stock on the NASDAQ National Market System for the periods indicated.
|
|
High |
|
Low |
|
||
Fiscal 2009: |
|
|
|
|
|
||
1st Quarter |
|
$ |
31.70 |
|
$ |
19.52 |
|
2nd Quarter |
|
37.46 |
|
27.34 |
|
||
3rd Quarter |
|
39.79 |
|
34.93 |
|
||
4th Quarter |
|
42.03 |
|
37.36 |
|
||
|
|
High |
|
Low |
|
||
Fiscal 2008: |
|
|
|
|
|
||
1st Quarter |
|
$ |
34.59 |
|
$ |
26.80 |
|
2nd Quarter |
|
31.82 |
|
26.98 |
|
||
3rd Quarter |
|
32.76 |
|
17.17 |
|
||
4th Quarter |
|
26.72 |
|
18.30 |
|
||
The common stock is quoted through the NASDAQ National Market System under the symbol BBBY. On March 27, 2010, there were approximately 5,800 shareholders of record of the common stock (without including individual participants in nominee security position listings). On March 27, 2010, the last reported sale price of the common stock was $44.00.
The Company has not paid cash dividends on its common stock since its 1992 initial public offering and does not currently plan to pay dividends on its common stock. The payment of any future dividends will be determined by the Board of Directors in light of conditions then existing, including the Companys earnings, financial condition and requirements, business conditions and other factors. See Item 8 - Financial Statements and Supplementary Data.
The Companys purchases of its common stock during the fourth quarter of fiscal 2009 were as follows:
|
|
|
|
|
|
|
|
Approximate Dollar |
|
||
|
|
|
|
|
|
Total Number of |
|
Value of Shares |
|
||
|
|
|
|
|
|
Shares Purchased as |
|
that May Yet Be |
|
||
|
|
|
|
|
|
Part of Publicly |
|
Purchased Under |
|
||
|
|
Total Number of |
|
Average Price |
|
Announced Plans |
|
the Plans or |
|
||
Period |
|
Shares Purchased (1) |
|
Paid per Share |
|
or Programs (1) |
|
Programs (1) (2) |
|
||
November 29, 2009 - December 26, 2009 |
|
3,700 |
|
$ |
38.19 |
|
3,700 |
|
$ |
852,396,962 |
|
December 27, 2009 - January 23, 2010 |
|
222,600 |
|
$ |
40.81 |
|
222,600 |
|
$ |
843,312,520 |
|
January 24, 2010 - February 27, 2010 |
|
479,700 |
|
$ |
39.58 |
|
479,700 |
|
$ |
824,325,393 |
|
Total |
|
706,000 |
|
$ |
39.96 |
|
706,000 |
|
$ |
824,325,393 |
|
(1) Between December 2004 and September 2007, the Companys Board of Directors authorized, through several share repurchase programs, the repurchase of $2.950 billion of its shares of common stock. The Company was authorized to make repurchases from time to time in the open market or through other parameters approved by the Board of Directors pursuant to existing rules and regulations. Shares purchased indicated in this table also include the withholding of a portion of restricted shares to cover taxes on vested restricted shares.
(2) Excludes brokerage commissions paid by the Company.
Stock Price Performance Graph
The graph shown below compares the performance of the Companys common stock with that of the S&P 500 Index, the S&P Specialty Retail Index and the S&P Retail Composite Index over the same period (assuming the investment of $100 in the Companys common stock and each of the three Indexes on February 26, 2005, and the reinvestment of dividends, if any).
ITEM 6 - SELECTED FINANCIAL DATA
Consolidated Selected Financial Data |
|
Fiscal Year Ended (1) |
|
|||||||||||||
(in thousands, except per share |
|
February 27, |
|
February 28, |
|
March 1, |
|
March 3, |
|
February 25, |
|
|||||
and selected operating data) |
|
2010 |
|
2009 |
|
2008 (2) |
|
2007 |
|
2006 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Statement of Earnings Data: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net sales |
|
$ |
7,828,793 |
|
$ |
7,208,340 |
|
$ |
7,048,942 |
|
$ |
6,617,429 |
|
$ |
5,809,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Gross profit |
|
3,208,119 |
|
2,873,236 |
|
2,925,231 |
|
2,835,402 |
|
2,485,748 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating profit |
|
980,687 |
|
673,896 |
|
838,022 |
|
889,401 |
|
879,171 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net earnings |
|
600,033 |
|
425,123 |
|
562,808 |
|
594,244 |
|
572,847 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net earnings per share - Diluted |
|
$ |
2.30 |
|
$ |
1.64 |
|
$ |
2.10 |
|
$ |
2.09 |
|
$ |
1.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Selected Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Number of stores open (at period end) |
|
1,100 |
|
1,037 |
|
971 |
|
888 |
|
809 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total square feet of store space (at period end) |
|
33,740,000 |
|
32,050,000 |
|
30,181,000 |
|
27,794,000 |
|
25,502,000 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Percentage increase in comparable store sales |
|
4.4 |
% |
(2.4 |
)% |
1.0 |
% |
4.9 |
% |
4.6 |
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Comparable store net sales (in 000s) |
|
$ |
7,409,203 |
|
$ |
6,746,472 |
|
$ |
6,457,268 |
|
$ |
6,068,694 |
|
$ |
5,281,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Number of comparable stores |
|
942 |
|
874 |
|
792 |
|
683 |
|
605 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance Sheet Data (at period end): |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Working capital |
|
$ |
2,413,791 |
|
$ |
1,609,831 |
|
$ |
1,065,599 |
|
$ |
1,553,541 |
|
$ |
1,082,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total assets |
|
5,152,130 |
|
4,268,843 |
|
3,844,093 |
|
3,959,304 |
|
3,382,140 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Shareholders equity (3) (4) |
|
$ |
3,652,904 |
|
$ |
3,000,454 |
|
$ |
2,561,828 |
|
$ |
2,649,151 |
(5) |
$ |
2,262,450 |
|
(1) Each fiscal year represents 52 weeks, except for fiscal 2006 (ended March 3, 2007) which represents 53 weeks.
(2) On March 22, 2007, the Company acquired Buy Buy BABY, Inc.
(3) The Company has not declared any cash dividends in any of the fiscal years noted above.
(4) In fiscal 2009, 2008, 2007, 2006, and 2005, the Company repurchased approximately $95 million, $48 million, $734 million, $301 million and $598 million of its common stock, respectively.
(5) In fiscal 2006, the Company adopted Staff Accounting Bulletin 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements resulting in a one-time net reduction to Shareholders equity of $34.3 million.
ITEM 7 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Bed Bath & Beyond Inc. and subsidiaries (the Company) is a chain of retail stores, operating under the names Bed Bath & Beyond (BBB), Christmas Tree Shops (CTS), Harmon and Harmon Face Values (Harmon) and buybuy BABY. In addition, the Company is a partner in a joint venture which operates two stores in the Mexico City market under the name Home & More. The Company sells a wide assortment of domestics merchandise and home furnishings, which include food, giftware, health and beauty care items and infant and toddler merchandise. The Companys objective is to be a customers first choice for products and services in the categories offered, in the markets in which the Company operates.
The Companys strategy is to achieve this objective through excellent customer service, an extensive breadth and depth of assortment, everyday low prices, introduction of new merchandising offerings and development of its infrastructure.
Operating in the highly competitive retail industry, the Company, along with other retail companies, is influenced by a number of factors including, but not limited to, general economic conditions including the housing market, the overall macroeconomic environment and related changes in the retailing environment, consumer preferences and spending habits, unusual weather patterns, competition from existing and potential competitors, and the ability to find suitable locations at acceptable occupancy costs to support the Companys expansion program.
Although there appears to be some indication of improvement in economic conditions, the difficult conditions affecting the overall macroeconomic environment continued to impact the retail sector in general. The Company believes that the uncertainty in the macroeconomic environment and factors such as the high unemployment rate and issues specific to the housing industry, including a reduction in home values, continued to negatively impact consumer confidence and the level of discretionary spending by consumers. The Company cannot predict whether, when or the manner in which these economic conditions will change.
In addition, during the difficult conditions affecting the overall macroeconomic environment, a number of businesses in the retail industry have liquidated, including those within the Companys sector of retailing. The Company believes that this industry consolidation will provide an opportunity to gain market share and to improve its competitive position over the long term; however, the Company cannot, with any level of certainty, estimate the impact these liquidations will have on its future results of operations.
In light of the risks posed by the current macroeconomic environment, the Company continues to systematically review all expenditures with the goal of prudently managing its business. At the same time, the Company remains committed to making the required investments in its infrastructure to help position the Company for continued success. The Company continues to review and prioritize its capital needs while continuing to make investments, principally for new stores, existing store improvements, information technology enhancements, and other projects whose impact is considered important to its future.
During fiscal 2009, the Company experienced an approximate 4.4% increase in comparable store sales as compared with an approximate 2.4% decrease in comparable store sales for fiscal 2008. Fiscal 2009 net sales and comparable store sales reflected consumer acceptance of the Companys merchandise offerings. Fiscal 2008 net sales and comparable store sales were negatively affected by the economic slowdown, including issues specific to the housing industry and the liquidation sales of a number of retailers, including a then significant competitor.
The following represents an overview of the Companys financial performance for the periods indicated:
|
· |
Net sales in fiscal 2009 increased approximately 8.6% to $7.829 billion; net sales in fiscal 2008 increased approximately 2.3% to $7.208 billion over net sales of $7.049 billion in fiscal 2007. |
|
|
|
|
· |
Comparable store sales for fiscal 2009 increased by approximately 4.4% as compared with a decrease of approximately 2.4% in fiscal 2008 and an increase of approximately 1.0% in fiscal 2007. |
|
|
A store is considered a comparable store when it has been open for twelve full months following its grand opening period (typically four to six weeks). Stores relocated or expanded are excluded from comparable store sales if the change in square footage would cause meaningful disparity in sales over the prior period. In the case of a store to be closed, such stores sales are not considered comparable once the store closing process has commenced. |
|
|
|
|
· |
Gross profit for fiscal 2009 was $3.208 billion or 41.0% of net sales compared with $2.873 billion or 39.9% of net sales for fiscal 2008 and $2.925 billion or 41.5% of net sales for fiscal 2007. |
|
|
|
|
· |
Selling, general and administrative expenses (SG&A) for fiscal 2009 were $2.227 billion or 28.5% of net sales compared with $2.199 billion or 30.5% of net sales for fiscal 2008 and $2.087 billion or 29.6% of net sales for fiscal 2007. |
|
|
|
|
· |
The effective tax rate was 39.1%, 37.8% and 35.0% for fiscal years 2009, 2008 and 2007, respectively. |
|
|
|
|
· |
Net earnings for the fiscal year ended February 27, 2010 were $2.30 per diluted share ($600.0 million), compared to fiscal 2008 net earnings of $1.64 per diluted share ($425.1 million) and fiscal 2007 net earnings of $2.10 per diluted share ($562.8 million). |
During fiscal 2009, 2008 and 2007, the Companys capital expenditures were $153.7 million, $215.9 million and $358.2 million, respectively. Included in fiscal 2007s capital expenditures were costs associated with a new distribution center and a new E-service fulfillment center to support the Companys growth.
The Company plans to continue to expand its operations and invest in its infrastructure to reach its long term objectives. In fiscal 2010, the Company expects to open approximately 60 new stores, including approximately 30 BBB stores throughout the United States and Canada, approximately 10 CTS stores, and approximately 20 buybuy BABY stores. During fiscal 2009, the Company opened a total of 67 new stores, including 39 BBB stores throughout the United States and Canada, nine CTS stores, five Harmon stores and 14 buybuy BABY stores and closed four BBB stores.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated (i) selected statement of earnings data of the Company expressed as a percentage of net sales and (ii) the percentage change in dollar amounts from the prior year in selected statement of earnings data:
|
|
Fiscal Year Ended |
|
||||||||
|
|
Percentage |
|
Percentage Change |
|
||||||
|
|
of Net Sales |
|
from Prior Year |
|
||||||
|
|
February 27, |
|
February 28, |
|
March 1, |
|
February 27, |
|
February 28, |
|
|
|
2010 |
|
2009 |
|
2008 |
|
2010 |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
8.6 |
% |
2.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
59.0 |
|
60.1 |
|
58.5 |
|
6.6 |
|
5.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
41.0 |
|
39.9 |
|
41.5 |
|
11.7 |
|
(1.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
28.5 |
|
30.5 |
|
29.6 |
|
1.3 |
|
5.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
12.5 |
|
9.3 |
|
11.9 |
|
45.5 |
|
(19.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before provision for income taxes |
|
12.6 |
|
9.5 |
|
12.3 |
|
44.2 |
|
(21.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
7.7 |
|
5.9 |
|
8.0 |
|
41.1 |
|
(24.5 |
) |
Net Sales
Net sales in fiscal 2009 increased $620.5 million to $7.829 billion, representing an increase of 8.6% over $7.208 billion of net sales in fiscal 2008, which increased $159.4 million or 2.3% over the $7.049 billion of net sales in fiscal 2007. For fiscal 2009, approximately 51.4% of the increase in net sales was attributable to an increase in the Companys new store sales and the balance of the increase was primarily attributable to the increase in the Companys comparable store sales. For fiscal 2008, the increase in net sales was generated by the Companys new store sales increase of 4.6% partially offset by the decrease in comparable store sales.
For fiscal 2009, comparable store sales for 942 stores represented $7.409 billion of net sales; for fiscal 2008, comparable store sales for 874 stores represented $6.746 billion of net sales; and for fiscal 2007, comparable store sales for 792 stores represented $6.457 billion of net sales. Comparable store sales increased by approximately 4.4% for fiscal 2009 and decreased by approximately 2.4% for fiscal 2008. Fiscal 2009 net sales and comparable store sales reflected consumer acceptance of the Companys merchandise offerings. For fiscal 2008, net sales and comparable store sales were negatively affected by the economic slowdown including issues specific to the housing industry, and the liquidation sales of a number of retailers, including a then significant competitor.
Sales of domestics merchandise accounted for approximately 41%, 43% and 44% of net sales in fiscal 2009, 2008 and 2007, respectively, of which the Company estimates that bed linens accounted for approximately 13%, 13% and 14% of net sales in fiscal 2009, 2008 and 2007, respectively. The remaining net sales in fiscal 2009, 2008 and 2007 of 59%, 57% and 56%, respectively, represented sales of home furnishings. No other individual product category accounted for 10% or more of net sales during fiscal 2009, 2008 or 2007.
Gross Profit
Gross profit in fiscal 2009, 2008 and 2007 was $3.208 billion or 41.0 % of net sales, $2.873 billion or 39.9% of net sales and $2.925 billion or 41.5% of net sales, respectively. The increase in gross profit between fiscal 2009 and 2008 as a percentage of net sales was primarily due to decreases in inventory acquisition costs, coupon redemptions and markdowns, partially offset by a shift in the mix of merchandise sold as the Company continues to experience a higher percentage of sales of home furnishings. The decrease in gross
profit between fiscal 2008 and 2007 as a percentage of net sales was primarily due to an increase in inventory acquisition costs, an increase in coupon redemptions and the shift in the mix of merchandise sold as the Company continued to experience a higher percentage of sales of home furnishings.
Selling, General and Administrative expenses
SG&A was $2.227 billion or 28.5 % of net sales in fiscal 2009, $2.199 billion or 30.5% of net sales in fiscal 2008 and $2.087 billion or 29.6% of net sales in fiscal 2007. The decrease in SG&A between fiscal 2009 and 2008 as a percentage of net sales was primarily due to a relative decrease in advertising expenses resulting from a decrease in the distribution of advertising pieces. Also contributing to the decrease were relative decreases in payroll expenses and occupancy costs (including rent, utilities and depreciation). The increase in SG&A between fiscal 2008 and 2007 as a percentage of net sales was primarily due to the 2.4% decline in comparable store sales, resulting in relative increases in occupancy costs (including rent, depreciation and real estate taxes), as well as relative increases in payroll-related items (including salaries and benefits). Also contributing to the increase in SG&A as a percentage of net sales were relative increases in advertising expenses, including increases in postage, paper and other production costs.
Operating Profit
Operating profit for fiscal 2009 was $980.7 million or 12.5% of net sales, $673.9 million or 9.3% of net sales in fiscal 2008 and $838.0 million or 11.9% of net sales in fiscal 2007. The changes in operating profit as a percentage of net sales were a result of the changes in the gross profit margin and SG&A as a percentage of net sales as described above.
Interest Income
Interest income was $4.6 million, $9.4 million and $27.2 million in fiscal 2009, 2008 and 2007, respectively. Interest income decreased in fiscal 2009 compared to fiscal 2008 primarily as a result of lower interest rates partially offset by an increase in the fair value of the trading investment securities related to the Companys nonqualified deferred compensation plan. Interest income decreased in fiscal 2008 compared to fiscal 2007 primarily as a result of lower interest rates.
Income Taxes
The effective tax rate was 39.1% for fiscal 2009, 37.8% for fiscal 2008 and 35.0% for fiscal 2007. For fiscal 2009, the tax rate included an approximate $3.2 million provision primarily due to the recognition of certain discrete tax items partially offset by the changing of the blended state tax rate of deferred income taxes. The remaining increase in the 2009 effective tax rate was primarily due to slightly higher state taxes. For fiscal 2008, the tax rate included an approximate $0.8 million benefit primarily due to the recognition of certain discrete tax items and the changing of the blended state tax rate of deferred income taxes.
The Company expects continued volatility in the effective tax rate from year to year because 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.
EXPANSION PROGRAM
The Company is engaged in an ongoing expansion program involving the opening of new stores in both new and existing markets, the expansion or relocation of existing stores and the continuous review of strategic acquisitions. In the 18 year period from the beginning of fiscal 1992 to the end of fiscal 2009, the chain has grown from 34 to 1,100 stores. Total square footage grew from 0.9 million square feet at the beginning of fiscal 1992 to 33.7 million square feet at the end of fiscal 2009. During fiscal 2009, the Company opened a total of 67 new stores, including 39 BBB stores throughout the United States and Canada, nine CTS stores, five Harmon stores and 14 buybuy BABY stores, and closed four BBB stores, all of which resulted in the aggregate addition of approximately 1.7
million square feet of store space. In May 2008, the Company became a partner in a joint venture which operates two stores in the Mexico City market under the name Home & More.
The Company plans to continue to expand its operations and invest in its infrastructure to reach its long term objectives. In fiscal 2010, the Company expects to open approximately 60 new stores, including approximately 30 BBB stores throughout the United States and Canada, approximately 10 CTS stores and approximately 20 buybuy BABY stores.
LIQUIDITY AND CAPITAL RESOURCES
The Company has no outstanding bank borrowings and has been able to finance its operations, including its expansion program, entirely through internally generated funds. For fiscal 2010, the Company believes that it will continue to finance its operations, including its expansion program and planned capital expenditures, entirely through internally generated funds. Capital expenditures for fiscal 2010, principally for new stores, existing store improvements, and information technology enhancements and other projects, are planned to be approximately $225.0 million.
Fiscal 2009 compared to Fiscal 2008
Net cash provided by operating activities in fiscal 2009 was $905.4 million, compared with $584.0 million in fiscal 2008. Year over year, the Company experienced a decrease in cash used for the net components of working capital (primarily accounts payable, accrued expenses and other current liabilities and income taxes payable, partially offset by merchandise inventories), and an increase in net earnings.
Inventory per square foot was $52.15 as of February 27, 2010, an increase of approximately 1.8% from $51.24 as of February 28, 2009. The Company continues to focus on optimizing inventory productivity while maintaining appropriate in-store merchandise levels to support sales.
Net cash used in investing activities in fiscal 2009 was $488.7 million, compared with $113.1 million in fiscal 2008. In fiscal 2009, net cash used in investing activities was due to $335.0 million of purchases of investment securities, net of redemptions, and $153.7 million of capital expenditures. In fiscal 2008, net cash used in investing activities was primarily due to $215.9 million of capital expenditures partially offset by $107.6 million of redemptions of investment securities.
Net cash provided by financing activities in fiscal 2009 was $11.2 million, compared with net cash used in financing activities of $26.8 million in fiscal 2008. The increase in net cash provided was primarily due to an $82.1 million increase in cash proceeds from the exercise of stock options partially offset by a $46.8 million increase in common stock repurchases.
Fiscal 2008 compared to Fiscal 2007
Net cash provided by operating activities in fiscal 2008 was $584.0 million, compared with $614.5 million in fiscal 2007. Year over year, the Company experienced a decrease in cash provided by net earnings, partially offset by lower cash used for the net components of working capital (primarily income taxes payable and merchandise inventories offset by merchandise credit and gift card liabilities and accrued expenses and other current liabilities).
Inventory per square foot was $51.24 as of February 28, 2009, a decrease of approximately 4.4% from $53.58 as of March 1, 2008.
Net cash used in investing activities in fiscal 2008 was $113.1 million, compared with net cash provided by investing activities of $101.7 million in fiscal 2007. In fiscal 2008, net cash used in investing activities was primarily due to $215.9 million of capital expenditures partially offset by $107.6 million of redemptions of investment securities. In fiscal 2007, net cash provided by
investing activities was due to $545.8 million of redemptions of investment securities, net of purchases, partially offset by $358.2 million of capital expenditures and $85.9 million in payment for the acquisition of buybuy BABY.
Net cash used in financing activities in fiscal 2008 was $26.8 million, compared with $705.5 million in fiscal 2007. The decrease in net cash used in financing activities was primarily attributable to a decrease in common stock repurchases.
Auction Rate Securities
As of February 27, 2010, the Company held approximately $178.6 million of net investments in auction rate securities. Beginning in mid-February 2008, the auction process for the Companys auction rate securities failed and continues to fail. These failed auctions result in a lack of liquidity in the securities but do not affect the underlying collateral of the securities. All of these investments carry triple-A credit ratings from one or more of the major credit rating agencies and the Company believes that given their high credit quality, it will ultimately recover at par all amounts invested in these securities.
During fiscal 2008, the Company entered into an agreement with the investment firm that sold the Company a portion of its auction rate securities to redeem at par approximately $42.8 million of these securities. This agreement provides for, among other things, the option to redeem these securities at par anytime during the period from June 30, 2010 through July 2, 2012. As of February 27, 2010, the fair value of this option was approximately $2.3 million. Because the Company intends to exercise its right to redeem these securities as soon as practicably possible during fiscal 2010, the fair value of these securities of approximately $40.5 million and the related option of approximately $2.3 million were classified as short term investment securities as of February 27, 2010.
During fiscal 2009, the Company recorded an unrealized loss of approximately $0.5 million related to these securities and also recorded approximately $0.5 million of pre-tax income to reflect the increase in fair value of the option to redeem these securities at par value. This resulted in no impact on the Companys net earnings. The Company anticipates that any future changes in the fair value of the related auction rate securities will be offset by the changes in the fair value of the option with no material impact to the Companys net earnings.
As of February 27, 2010, the remainder of approximately $137.9 million of these securities at par had a temporary valuation adjustment of approximately $2.1 million to reflect their current lack of liquidity. Since this valuation adjustment is deemed to be temporary, it was recorded in accumulated other comprehensive income (loss), net of a related tax benefit, and did not affect the Companys net earnings for fiscal 2009. As of February 27, 2010, the Company classified approximately $15.0 million of these securities as short term investment securities due to expected redemptions at par during the first half of fiscal 2010.
The Company does not anticipate that any potential lack of liquidity in its auction rate securities, even for an extended period of time, will affect its ability to finance its operations, including its expansion program and planned capital expenditures. The Company continues to monitor efforts by the financial markets to find alternative means for restoring the liquidity of these investments. These investments will remain primarily classified as non-current assets until the Company has better visibility as to when their liquidity will be restored. The classification and valuation of these securities will continue to be reviewed quarterly.
During fiscal 2009 and 2008, approximately $38.5 million and $107.6 million, respectively, of auction rate securities were redeemed at par. Subsequent to the end of fiscal 2009 through April 22, 2010, the Company additionally redeemed approximately $14.1 million at par.
Other Fiscal 2009 Information
At February 27, 2010, the Company maintained two uncommitted lines of credit of $100 million each, with expiration dates of September 3, 2010 and February 28, 2011, respectively. These uncommitted lines of credit are currently and are expected to be
used for letters of credit in the ordinary course of business. During fiscal 2009, the Company did not have any direct borrowings under the uncommitted lines of credit. As of February 27, 2010, there was approximately $6.1 million of outstanding letters of credit. Although no assurances can be provided, the Company intends to renew both uncommitted lines of credit before the respective expiration dates. In addition, as of February 27, 2010, the Company maintained unsecured standby letters of credit of $55.0 million, primarily for certain insurance programs.
Between December 2004 and September 2007, the Companys Board of Directors authorized, through several share repurchase programs, the repurchase of $2.950 billion of its shares of common stock. The Company was authorized to make repurchases from time to time in the open market or through other parameters approved by the Board of Directors pursuant to existing rules and regulations. The Company has approximately $824 million remaining of authorized share repurchases as of February 27, 2010. The execution of the Companys current share repurchase program will consider current business and market conditions.
The Company has contractual obligations consisting mainly of operating leases for stores, offices, warehouse facilities and equipment, purchase obligations and other long-term liabilities which the Company is obligated to pay as of February 27, 2010 as follows:
(in thousands) |
|
Total |
|
Less than 1 |
|
1-3 years |
|
4-5 years |
|
After 5 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating Lease Obligations (1) |
|
$ |
3,056,263 |
|
$ |
440,751 |
|
$ |
793,402 |
|
$ |
626,201 |
|
$ |
1,195,909 |
|
Purchase Obligations (2) |
|
701,919 |
|
701,919 |
|
|
|
|
|
|
|
|||||
Other long-term liabilities (3) |
|
349,672 |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total Contractual Obligations |
|
$ |
4,107,854 |
|
$ |
1,142,670 |
|
$ |
793,402 |
|
$ |
626,201 |
|
$ |
1,195,909 |
|
(1) The amounts presented represent the future minimum lease payments under non-cancelable operating leases. In addition to minimum rent, certain of the Companys leases require the payment of additional costs for insurance, maintenance and other costs. These additional amounts are not included in the table of contractual commitments as the timing and/or amounts of such payments are not known. As of February 27, 2010, the Company has leased sites for 21 new stores planned for opening in fiscal 2010 or 2011, for which aggregate minimum rental payments over the term of the leases are approximately $121.1 million and are included in the table above.
(2) Purchase obligations primarily consist of purchase orders for merchandise.
(3) Amounts recorded as deferred rent and other liabilities and income taxes payable in the Consolidated Balance Sheet as of February 27, 2010 have been reflected only in the Total column in the table above as the timing and/or amount of any cash payment is uncertain. Deferred rent and other liabilities are primarily comprised of deferred rent, workers compensation and general liability reserves and various other accruals.
SEASONALITY
The Company exhibits less seasonality than many other retail businesses, although sales levels are generally higher in the calendar months of August, November and December, and generally lower in February.
INFLATION
The Company does not believe that its operating results have been materially affected by inflation during the past year. There can be no assurance, however, that the Companys operating results will not be affected by inflation in the future.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2009, the Financial Accounting Standards Board (FASB) issued accounting guidance which established the FASB Accounting Standards Codification (Codification) as the exclusive source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP). Rules and interpretive releases of the Securities and Exchange Commission (SEC) are also considered sources of authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards, however it does not change current GAAP. The Codification was effective for all financial statements issued for interim and annual periods ending after September 15, 2009. Accordingly, the Company has reflected all necessary changes in this filing.
In June 2006, the FASB issued updated accounting guidance related to income taxes. This guidance addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. A company may recognize the tax benefit from uncertain tax positions 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 should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the taxing authorities. This guidance also provided direction on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and required increased disclosures. On March 4, 2007, the Company adopted this guidance and recognized a $13.1 million increase to retained earnings to reflect the change to its liability for gross unrecognized tax benefits as required. The Company also recorded additional gross unrecognized tax benefits, and corresponding higher deferred tax assets, of $35.6 million as a result of the adoption.
On March 2, 2008 and March 1, 2009, the Company adopted the accounting guidance related to fair value measurements and disclosures for financial assets and liabilities and for non-financial assets and liabilities, respectively. This guidance defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The adoption of this guidance for financial and non-financial assets and liabilities did not have a material impact on the Companys consolidated financial statements.
In April 2009, the FASB issued updated accounting guidance related to financial instruments which requires the annual disclosures about the fair value of financial instruments to be presented in interim financial statements. During the second quarter of fiscal 2009, the Company adopted this guidance which did not have a material impact on its consolidated financial statements.
In April 2009, the FASB issued updated accounting guidance related to investments in debt and equity securities which modifies the recognition requirements for other-than-temporary impairments of debt securities and enhances existing disclosures with respect to other-than-temporary impairments of debt and equity securities, however, it does not modify existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. During the second quarter of fiscal 2009, the Company adopted this guidance which did not have a material impact on the Companys consolidated financial statements.
In April 2009, the FASB issued updated accounting guidance related to fair value measurements and disclosures which provides guidance for determining fair value when there is no active market or where the price inputs being used represent distressed sales, and also amends the interim and annual disclosure requirements. During the second quarter of fiscal 2009, the Company adopted this guidance which did not have a material impact on the Companys consolidated financial statements.
In January 2010, the FASB issued updated accounting guidance related to fair value measurements and disclosures which amends and clarifies existing disclosure requirements. This updated accounting guidance requires new disclosures related to amounts transferred into and out of Level 1 and 2 fair value measurements as well as separate disclosures of purchases, sales, issuances, and settlements
related to amounts reported as Level 3 fair value measurements. This guidance also clarifies existing fair value disclosure requirements related to the level of disaggregation and the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. This guidance is effective for interim and annual periods beginning after December 15, 2009, except for the separate disclosures of purchases, sales, issuances, and settlements related to amounts reported as Level 3 fair value measurements, which is effective for fiscal years beginning after December 15, 2010. The Company does not believe the adoption of this guidance will have a material impact on its consolidated financial statements.
REVIEW OF EQUITY GRANTS AND PROCEDURES AND RELATED MATTERS
In June 2006, the Companys Board of Directors appointed a special committee of independent 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. The review identified various deficiencies in the process of granting and documenting stock options and restricted shares. As a result of the deficiencies, the Company revised the measurement dates for various option grants.
The Companys past stock option granting procedures have exposed the Company to risk factors that could have an adverse affect on the Companys financial condition, including any tax implications relating to the Companys stock option grants.
CRITICAL ACCOUNTING POLICIES
The preparation of consolidated financial statements in conformity with GAAP requires the Company to establish accounting policies and to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on other assumptions that it believes to be relevant under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. In particular, judgment is used in areas such as inventory valuation, impairment of long-lived assets, goodwill and other indefinitely lived intangible assets, accruals for self insurance, litigation, store opening, expansion, relocation and closing costs, stock-based compensation and income taxes. Actual results could differ from these estimates.
Inventory Valuation: Merchandise inventories are stated at the lower of cost or market. Inventory costs for BBB, Harmon and buybuy BABY are calculated using the weighted average retail inventory method and inventory costs for CTS are calculated using the first in first out cost method.
Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are calculated by applying a cost to retail ratio to the retail values of inventories. The cost associated with determining the cost to retail ratio includes: merchandise purchases, net of returns to vendors, discounts and volume and incentive rebates; inbound freight expenses; duty, insurance and commissions.
At any one time, inventories include items that have been written down to the Companys best estimate of their realizable value. Judgment is required in estimating realizable value and factors considered are the age of merchandise and anticipated demand. Actual realizable value could differ materially from this estimate based upon future customer demand or economic conditions.
The Company estimates its reserve for shrinkage throughout the year based on historical shrinkage and any current trends, if applicable. Actual shrinkage is recorded at year end based upon the results of the Companys physical inventory counts for locations at which counts were conducted. For locations where physical inventory counts were not conducted in the fiscal year, an estimated shrink reserve is recorded based on historical shrinkage and any current trends, if applicable. Historically, the Companys shrinkage has not been volatile.
The Company accrues for merchandise in transit once it takes legal ownership and title to the merchandise; as such, an estimate for merchandise in transit is included in the Companys merchandise inventories.
Impairment of Long-Lived Assets: The Company reviews long-lived assets for impairment annually or when events or changes in circumstances indicate the carrying value of these assets may exceed their current fair values. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the assets. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value 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 recorded 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 Companys claims experience has not displayed 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 Companys 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 Companys 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 Companys stock over a period commensurate with the expected life of the awards. The implied volatility represents the implied volatility of the Companys 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 Companys 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 updated accounting guidance related to 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.
The Company expects continued volatility in the effective tax rate from year to year because 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.
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 Companys 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 Form 10-K and Managements Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The Companys 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 Companys control. 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 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 Companys expansion program; the impact of failed auctions for auction rate securities held by the Company; and matters arising out of or related to the Companys stock option grants and procedures and related matters, including any tax implications relating to the Companys stock option grants. The Company does not undertake any obligation to update its forward-looking statements.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of February 27, 2010, the Companys investments include cash and cash equivalents of approximately $1.096 billion, short term investment securities of approximately $431.5 million and long term investment securities of approximately $132.9 million at weighted average interest rates of 0.02%, 0.15% and 0.32%, respectively.
As of February 27, 2010, the Company held approximately $178.6 million of net investments in auction rate securities. Beginning in mid-February 2008, the auction process for the Companys auction rate securities failed and continues to fail. These failed auctions result in a lack of liquidity in the securities but do not affect the underlying collateral of the securities. All of these investments carry triple-A credit ratings from one or more of the major credit rating agencies and the Company believes that given their high credit quality, it will ultimately recover at par all amounts invested in these securities.
During fiscal 2008, the Company entered into an agreement with the investment firm that sold the Company a portion of its auction rate securities to redeem at par approximately $42.8 million of these securities. This agreement provides for, among other things, the option to redeem these securities at par anytime during the period from June 30, 2010 through July 2, 2012. As of February 27, 2010, the fair value of this option was approximately $2.3 million. Because the Company intends to exercise its right to redeem these securities as soon as practicably possible during fiscal 2010, the fair value of these securities of approximately $40.5 million and the related option of approximately $2.3 million were classified as short term investment securities as of February 27, 2010.
During fiscal 2009, the Company recorded an unrealized loss of approximately $0.5 million related to these securities and also recorded approximately $0.5 million of pre-tax income to reflect the increase in fair value of the option to redeem these securities at par value. This resulted in no impact on the Companys net earnings. The Company anticipates that any future changes in the fair value of the related auction rate securities will be offset by the changes in the fair value of the option with no material impact to the Companys net earnings.
As of February 27, 2010, the remainder of approximately $137.9 million of these securities at par had a temporary valuation adjustment of approximately $2.1 million to reflect their current lack of liquidity. Since this valuation adjustment is deemed to be temporary, it was recorded in accumulated other comprehensive income (loss), net of a related tax benefit, and did not affect the Companys net earnings for fiscal 2009. As of February 27, 2010, the Company classified approximately $15.0 million of these securities as short term investment securities due to expected redemptions at par during the first half of fiscal 2010. Subsequent to the end of fiscal 2009 through April 22, 2010, the Company additionally redeemed approximately $14.1 million of these securities at par.
During fiscal 2009 and 2008, approximately $38.5 million and $107.6 million, respectively, of auction rate securities were redeemed at par.
The Company does not anticipate that any potential lack of liquidity in its auction rate securities, even for an extended period of time, will affect its ability to finance its operations, including its expansion program and planned capital expenditures. The Company continues to monitor efforts by the financial markets to find alternative means for restoring the liquidity of these investments. These investments are primarily classified as non-current assets until the Company has better visibility as to when their liquidity will be restored. The classification and valuation of these securities will continue to be reviewed quarterly.
However, if the interest rate environment changes, the Company may incur further temporary impairment losses. If uncertainties in the credit and capital markets continue and these markets deteriorate further, the Company may conclude that the decline in value is other than temporary and incur realized losses, including up to the full amount of the investments in auction rate securities, which could negatively affect the Companys financial position, cash flow and results of operations.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following are included herein:
|
Consolidated Balance Sheets as of February 27, 2010 and February 28, 2009 |
|
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
BED BATH & BEYOND INC. AND SUBSIDIARIES
(in thousands, except per share data)
|
|
February 27, |
|
February 28, |
|
||
|
|
2010 |
|
2009 |
|
||
Assets |
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
1,096,100 |
|
$ |
668,209 |
|
Short term investment securities |
|
431,476 |
|
2,000 |
|
||
Merchandise inventories |
|
1,759,703 |
|
1,642,339 |
|
||
Other current assets |
|
276,066 |
|
250,251 |
|
||
|
|
|
|
|
|
||
Total current assets |
|
3,563,345 |
|
2,562,799 |
|
||
|
|
|
|
|
|
||
Long term investment securities |
|
132,860 |
|
221,134 |
|
||
Property and equipment, net |
|
1,119,292 |
|
1,148,435 |
|
||
Other assets |
|
336,633 |
|
336,475 |
|
||
|
|
|
|
|
|
||
Total assets |
|
$ |
5,152,130 |
|
$ |
4,268,843 |
|
|
|
|
|
|
|
||
Liabilities and Shareholders Equity |
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
||
Accounts payable |
|
$ |
611,163 |
|
$ |
514,734 |
|
Accrued expenses and other current liabilities |
|
281,730 |
|
247,508 |
|
||
Merchandise credit and gift card liabilities |
|
172,804 |
|
165,621 |
|
||
Current income taxes payable |
|
83,857 |
|
25,105 |
|
||
|
|
|
|
|
|
||
Total current liabilities |
|
1,149,554 |
|
952,968 |
|
||
|
|
|
|
|
|
||
Deferred rent and other liabilities |
|
246,273 |
|
227,209 |
|
||
Income taxes payable |
|
103,399 |
|
88,212 |
|
||
|
|
|
|
|
|
||
Total liabilities |
|
1,499,226 |
|
1,268,389 |
|
||
|
|
|
|
|
|
||
Commitments and contingencies |
|
|
|
|
|
||
|
|
|
|
|
|
||
Shareholders equity: |
|
|
|
|
|
||
Preferred stock - $0.01 par value; authorized - 1,000 shares; no shares issued or outstanding |
|
|
|
|
|
||
Common stock - $0.01 par value; authorized - 900,000 shares; issued 320,553 and 314,678 shares, respectively; outstanding 262,898 and 259,701 shares, respectively |
|
3,206 |
|
3,147 |
|
||
Additional paid-in capital |
|
1,020,515 |
|
878,568 |
|
||
Retained earnings |
|
4,754,954 |
|
4,154,921 |
|
||
Treasury stock, at cost |
|
(2,126,499 |
) |
(2,031,642 |
) |
||
Accumulated other comprehensive income (loss) |
|
728 |
|
(4,540 |
) |
||
|
|
|
|
|
|
||
Total shareholders equity |
|
3,652,904 |
|
3,000,454 |
|
||
|
|
|
|
|
|
||
Total liabilities and shareholders equity |
|
$ |
5,152,130 |
|
$ |
4,268,843 |
|
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Earnings
Bed Bath & Beyond Inc. and Subsidiaries
|
|
FISCAL YEAR ENDED |
|
|||||||
|
|
February 27, |
|
February 28, |
|
March 1, |
|
|||
(in thousands, except per share data) |
|
2010 |
|
2009 |
|
2008 |
|
|||
|
|
|
|
|
|
|
|
|||
Net sales |
|
$ |
7,828,793 |
|
$ |
7,208,340 |
|
$ |
7,048,942 |
|
|
|
|
|
|
|
|
|
|||
Cost of sales |
|
4,620,674 |
|
4,335,104 |
|
4,123,711 |
|
|||
|
|
|
|
|
|
|
|
|||
Gross profit |
|
3,208,119 |
|
2,873,236 |
|
2,925,231 |
|
|||
|
|
|
|
|
|
|
|
|||
Selling, general and administrative expenses |
|
2,227,432 |
|
2,199,340 |
|
2,087,209 |
|
|||
|
|
|
|
|
|
|
|
|||
Operating profit |
|
980,687 |
|
673,896 |
|
838,022 |
|
|||
|
|
|
|
|
|
|
|
|||
Interest income |
|
4,568 |
|
9,412 |
|
27,210 |
|
|||
|
|
|
|
|
|
|
|
|||
Earnings before provision for income taxes |
|
985,255 |
|
683,308 |
|
865,232 |
|
|||
|
|
|
|
|
|
|
|
|||
Provision for income taxes |
|
385,222 |
|
258,185 |
|
302,424 |
|
|||
|
|
|
|
|
|
|
|
|||
Net earnings |
|
$ |
600,033 |
|
$ |
425,123 |
|
$ |
562,808 |
|
|
|
|
|
|
|
|
|
|||
Net earnings per share - Basic |
|
$ |
2.33 |
|
$ |
1.66 |
|
$ |
2.13 |
|
Net earnings per share - Diluted |
|
$ |
2.30 |
|
$ |
1.64 |
|
$ |
2.10 |
|
|
|
|
|
|
|
|
|
|||
Weighted average shares outstanding - Basic |
|
257,755 |
|
256,410 |
|
264,824 |
|
|||
Weighted average shares outstanding - Diluted |
|
260,375 |
|
258,619 |
|
268,409 |
|
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Shareholders Equity
Bed Bath & Beyond Inc. and Subsidiaries
|
|
Common Stock |
|
Additional Paid- |
|
Retained |
|
Treasury Stock |
|
Accumulated
Other |
|
|
|
||||||||||
(in thousands) |
|
Shares |
|
Amount |
|
in Capital |
|
Earnings |
|
Shares |
|
Amount |
|
Income (Loss) |
|
Total |
|
||||||
Balance at March 3, 2007 |
|
309,750 |
|
$ |
3,098 |
|
$ |
737,209 |
|
$ |
3,153,856 |
|
(32,676 |
) |
$ |
(1,249,397 |
) |
$ |
4,385 |
|
$ |
2,649,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Adoption of updated accounting guidance related to income taxes |
|
|
|
|
|
|
|
13,102 |
|
|
|
|
|
|
|
13,102 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net earnings |
|
|
|
|
|
|
|
562,808 |
|
|
|
|
|
|
|
562,808 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Temporary impairment of auction rate securities, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,516 |
) |
(4,516 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Pension adjustment, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
(736 |
) |
(736 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
(171 |
) |
(171 |
) |
||||||
Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
557,385 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Shares sold under employee stock option plans, including tax benefit |
|
1,463 |
|
14 |
|
31,367 |
|
|
|
|
|
|
|
|
|
31,381 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Issuance of restricted shares, net |
|
1,016 |
|
10 |
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Stock-based compensation expense, net |
|
|
|
|
|
45,002 |
|
|
|
|
|
|
|
|
|
45,002 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Repurchase of common stock, including fees |
|
|
|
|
|
|
|
|
|
(20,633 |
) |
(734,193 |
) |
|
|
(734,193 |
) |
||||||
Balance at March 1, 2008 |
|
312,229 |
|
3,122 |
|
813,568 |
|
3,729,766 |
|
(53,309 |
) |
(1,983,590 |
) |
(1,038 |
) |
2,561,828 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net earnings |
|
|
|
|
|
|
|
425,123 |
|
|
|
|
|
|
|
425,123 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Change in temporary impairment of auction rate securities, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
(615 |
) |
(615 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Unrealized loss included in net earnings, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
3,528 |
|
3,528 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Pension adjustment, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,593 |
) |
(4,593 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,822 |
) |
(1,822 |
) |
||||||
Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
421,621 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Shares sold under employee stock option plans, including tax benefit |
|
1,218 |
|
12 |
|
19,910 |
|
|
|
|
|
|
|
|
|
19,922 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Issuance of restricted shares, net |
|
1,224 |
|
13 |
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Stock-based compensation expense, net |
|
|
|
|
|
44,906 |
|
|
|
|
|
|
|
|
|
44,906 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Director fees paid in stock |
|
7 |
|
|
|
197 |
|
|
|
|
|
|
|
|
|
197 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Repurchase of common stock, including fees |
|
|
|
|
|
|
|
|
|
(1,668 |
) |
(48,052 |
) |
|
|
(48,052 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Effect of change in pension plan measurement date |
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
32 |
|
||||||
Balance at February 28, 2009 |
|
314,678 |
|
3,147 |
|
878,568 |
|
4,154,921 |
|
(54,977 |
) |
(2,031,642 |
) |
(4,540 |
) |
3,000,454 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net earnings |
|
|
|
|
|
|
|
600,033 |
|
|
|
|
|
|
|
600,033 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Change in temporary impairment of auction rate securities, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
325 |
|
325 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Pension adjustment, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,260 |
|
1,260 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
3,683 |
|
3,683 |
|
||||||
Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
605,301 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Shares sold under employee stock option plans, including tax benefit |
|
4,503 |
|
45 |
|
96,431 |
|
|
|
|
|
|
|
|
|
96,476 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Issuance of restricted shares, net |
|
1,369 |
|
14 |
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Stock-based compensation expense, net |
|
|
|
|
|
45,411 |
|
|
|
|
|
|
|
|
|
45,411 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Director fees paid in stock |
|
3 |
|
|
|
119 |
|
|
|
|
|
|
|
|
|
119 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Repurchase of common stock, including fees |
|
|
|
|
|
|
|
|
|
(2,678 |
) |
(94,857 |
) |
|
|
(94,857 |
) |
||||||
Balance at February 27, 2010 |
|
320,553 |
|
$ |
3,206 |
|
$ |
1,020,515 |
|
$ |
4,754,954 |
|
(57,655 |
) |
$ |
(2,126,499 |
) |
$ |
728 |
|
$ |
3,652,904 |
|
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows
Bed Bath & Beyond Inc. and Subsidiaries
|
|
FISCAL YEAR ENDED |
|
|||||||
|
|
February 27, |
|
February 28, |
|
March 1, |
|
|||
(in thousands) |
|
2010 |
|
2009 |
|
2008 |
|
|||
|
|
|
|
|
|
|
|
|||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|||
Net earnings |
|
$ |
600,033 |
|
$ |
425,123 |
|
$ |
562,808 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|||
Depreciation |
|
184,232 |
|
175,601 |
|
157,770 |
|
|||
Amortization of bond premium |
|
|
|
|
|
1,538 |
|
|||
Stock-based compensation |
|
44,235 |
|
43,708 |
|
43,755 |
|
|||
Tax benefit from stock-based compensation |
|
(5,986 |
) |
(1,183 |
) |
2,719 |
|
|||
Deferred income taxes |
|
(22,811 |
) |
(22,325 |
) |
2,315 |
|
|||
Other |
|
(405 |
) |
476 |
|
|
|
|||
(Increase) decrease in assets, net of effect of acquisition: |
|
|
|
|
|
|
|
|||
Merchandise inventories |
|
(117,364 |
) |
(25,358 |
) |
(96,673 |
) |
|||
Trading investment securities |
|
(5,610 |
) |
(17 |
) |
(3,020 |
) |
|||
Other current assets |
|
(4,397 |
) |
(3,065 |
) |
(16,217 |
) |
|||
Other assets |
|
526 |
|
(954 |
) |
529 |
|
|||
Increase (decrease) in liabilities, net of effect of acquisition: |
|
|
|
|
|
|
|
|||
Accounts payable |
|
96,279 |
|
(40,863 |
) |
(31,764 |
) |
|||
Accrued expenses and other current liabilities |
|
37,905 |
|
(13,301 |
) |
15,774 |
|
|||
Merchandise credit and gift card liabilities |
|
7,183 |
|
(5,631 |
) |
24,430 |
|
|||
Income taxes payable |
|
70,487 |
|
24,676 |
|
(74,530 |
) |
|||
Deferred rent and other liabilities |
|
21,100 |
|
27,083 |
|
25,102 |
|
|||
Net cash provided by operating activities |
|
905,407 |
|
583,970 |
|
614,536 |
|
|||
|
|
|
|
|
|
|
|
|||
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|||
Purchase of held-to-maturity investment securities |
|
(403,582 |
) |
|
|
|
|
|||
Redemption of held-to-maturity investment securities |
|
30,025 |
|
|
|
494,526 |
|
|||
Purchase of available-for-sale investment securities |
|
|
|
|
|
(1,495,155 |
) |
|||
Redemption of available-for-sale investment securities |
|
38,545 |
|
107,550 |
|
1,546,430 |
|
|||
Capital expenditures |
|
(153,680 |
) |
(215,859 |
) |
(358,210 |
) |
|||
Investment in unconsolidated joint venture, including fees |
|
|
|
(4,786 |
) |
|
|
|||
Payment for acquisition, net of cash acquired |
|