UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________ 

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended November 25, 2017

June 1, 2019

Commission File Number 0-20214

BED BATH & BEYOND INC.

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)

Registrant’s

Registrant's telephone number, including area code: 908/(908) 688-0888

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, $.01 par valueBBBYThe Nasdaq Stock Market LLC
(Nasdaq Global Select Market)
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  ☒      No  ☐

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 Yes  ☒      No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large"large accelerated filer,” “accelerated" "accelerated filer,” “smaller" "smaller reporting company”company" and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☒ Accelerated filer  ☐
Non-accelerated filer  ☐ (Do not check if a smaller reporting company) 

Smaller reporting company  ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B)13(a) of the SecuritiesExchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 Yes  ☐      No  ☒

Number of shares outstanding of the issuer’sissuer's Common Stock:

Class Outstanding at November 25, 2017June 1, 2019
Common Stock - $0.01 par value 142,412,779127,773,766





BED BATH & BEYOND INC. AND SUBSIDIARIES


INDEX

    
PART I - FINANCIAL INFORMATION
 
    
 
Item 1.
Financial Statements (unaudited)
 
    
 
Consolidated Balance Sheets
November 25, 2017 June 1, 2019 and February 25, 2017March 2, 2019
 
    
 
Consolidated Statements of Earnings
Operations Three and Nine Months Ended November 25, 2017June 1, 2019 and November 26, 2016June 2, 2018
 
   
 
Consolidated Statements of Comprehensive (Loss) Income
Three and Nine Months Ended November 25, 2017June 1, 2019 and November 26, 2016June 2, 2018
 
    
 
Consolidated Statements of Cash Flows
NineShareholders' Equity Three Months Ended November 25, 2017June 1, 2019 and November 26, 2016June 2, 2018
 
    
 
Notes to Consolidated Financial Statements of Cash Flows Three Months Ended June 1, 2019 and June 2, 2018
 
    
 
Notes to Consolidated Financial Statements
Item 2.
Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations
 
    
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
    
 
Item 4.
Controls and Procedures
 
    
PART II - OTHER INFORMATION
 
    
 
Item 1.
Legal Proceedings
 
    
 
Item 1A.
Risk Factors
 
    
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
    
 
Item 5.6.
Other InformationExhibits
 
    
 
Item 6.Signatures
Exhibits 
 
Signatures
Exhibit Index
    
 Certifications 

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BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except per share data)

(unaudited)

  November 25, February 25,
  2017 2017
     
Assets        
Current assets:        
Cash and cash equivalents $453,103  $488,329 
Merchandise inventories  3,199,669   2,905,660 
Other current assets  287,719   197,912 
         
Total current assets  3,940,491   3,591,901 
         
Long term investment securities  107,709   89,592 
Property and equipment, net  1,840,959   1,837,129 
Goodwill  716,283   697,085 
Other assets  583,436   606,948 
         
Total assets $7,188,878  $6,822,655 
         
Liabilities and Shareholders' Equity        
Current liabilities:        
Accounts payable $1,455,355  $1,179,088 
Accrued expenses and other current liabilities  584,121   484,114 
Merchandise credit and gift card liabilities  321,591   309,478 
Current income taxes payable  -   59,821 
         
Total current liabilities  2,361,067   2,032,501 
         
Deferred rent and other liabilities  520,952   511,303 
Income taxes payable  66,061   67,971 
Long term debt  1,491,952   1,491,603 
         
Total liabilities  4,440,032   4,103,378 
         
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 341,682 and 339,533, respectively; outstanding 142,413 and 146,274 shares, respectively  3,417   3,395 
Additional paid-in capital  2,039,213   1,974,781 
Retained earnings  11,170,287   11,003,890 
Treasury stock, at cost; 199,269 and 193,259 shares, respectively  (10,422,816)  (10,215,539)
Accumulated other comprehensive loss  (41,255)  (47,250)
         
Total shareholders' equity  2,748,846   2,719,277 
         
Total liabilities and shareholders' equity $7,188,878  $6,822,655 

 June 1, 2019 March 2, 2019
    
Assets 
  
Current assets: 
  
    Cash and cash equivalents$700,389
 $508,971
    Short term investment securities201,664
 485,799
    Merchandise inventories2,540,852
 2,618,922
    Prepaid expenses and other current assets254,187
 296,280
    
        Total current assets3,697,092
 3,909,972
    
Long term investment securities20,677
 20,010
Property and equipment, net1,822,679
 1,853,091
Operating lease assets1,990,963
 —
Goodwill—
 391,052
Other assets456,784
 396,416
    
Total assets$7,988,195
 $6,570,541
    
Liabilities and Shareholders' Equity 
  
Current liabilities: 
  
    Accounts payable$1,066,282
 $1,094,078
    Accrued expenses and other current liabilities590,087
 623,734
    Merchandise credit and gift card liabilities343,087
 339,322
    Current operating lease liabilities410,417
 —
    Current income taxes payable21,209
 20,498
    
        Total current liabilities2,431,082
 2,077,632
    
Other liabilities184,242
 395,409
Income taxes payable47,745
 49,235
Operating lease liabilities1,775,081
 —
Long term debt1,488,051
 1,487,934
    
        Total liabilities5,926,201
 4,010,210
    
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 343,419 and
    342,582, respectively; outstanding 127,774 and 132,233 shares, respectively
3,434
 3,426
    Additional paid-in capital2,138,362
 2,118,673
    Retained earnings10,679,515
 11,112,887
    Treasury stock, at cost; 215,645 and 210,349 shares, respectively(10,697,540) (10,616,045)
    Accumulated other comprehensive loss(61,777) (58,610)
    
        Total shareholders' equity2,061,994
 2,560,331
    
        Total liabilities and shareholders' equity$7,988,195
 $6,570,541
See accompanying Notes to Consolidated Financial Statements.

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BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Statements of Earnings

Operations

(in thousands, except per share data)

(unaudited)

  Three Months Ended Nine Months Ended
         
  November 25, November 26, November 25, November 26,
  2017 2016 2017 2016
         
Net sales $2,954,539  $2,955,484  $8,633,037  $8,681,803 
                 
Cost of sales  1,913,478   1,862,710   5,523,302   5,448,544 
                 
Gross profit  1,041,061   1,092,774   3,109,735   3,233,259 
                 
Selling, general and administrative expenses  932,701   881,491   2,685,517   2,527,977 
                 
Operating profit  108,360   211,283   424,218   705,282 
                 
Interest expense, net  13,621   18,254   49,367   52,768 
                 
Earnings before provision for income taxes  94,739   193,029   374,851   652,514 
                 
Provision for income taxes  33,438   66,605   144,037   236,136 
                 
Net earnings $61,301  $126,424  $230,814  $416,378 
                 
Net earnings per share - Basic $0.44  $0.86  $1.65  $2.78 
Net earnings per share - Diluted $0.44  $0.85  $1.64  $2.76 
                 
Weighted average shares outstanding - Basic  138,418   147,643   139,872   149,842 
Weighted average shares outstanding - Diluted  138,790   148,583   140,381   150,950 
                 
Dividends declared per share $0.150  $0.125  $0.450  $0.375 

 Three Months Ended
 June 1, 2019 June 2, 2018
    
Net sales$2,572,989
 $2,753,667
    
Cost of sales1,685,810
 1,788,819
    
    Gross profit887,179
 964,848
    
Selling, general and administrative expenses892,754
 883,619
    
Goodwill and other impairments401,267
 —
    
    Operating (loss) profit(406,842) 81,229
    
Interest expense, net15,898
 16,732
    
    (Loss) earnings before provision for income taxes(422,740) 64,497
    
(Benefit) provision for income taxes(51,655) 20,921
    
    Net (loss) earnings$(371,085) $43,576
    
Net (loss) earnings per share - Basic$(2.91) $0.32
Net (loss) earnings per share - Diluted$(2.91) $0.32
    
Weighted average shares outstanding - Basic127,614
 135,987
Weighted average shares outstanding - Diluted127,614
 136,601
    
Dividends declared per share$0.17
 $0.16
See accompanying Notes to Consolidated Financial Statements.

-4-



BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive (Loss) Income

(in thousands, unaudited)

  Three Months Ended Nine Months Ended
  November 25, November 26, November 25, November 26,
  2017 2016 2017 2016
         
Net earnings $61,301  $126,424  $230,814  $416,378 
                 
Other comprehensive (loss) income:                
                 
Change in temporary impairment of auction rate securities, net of taxes  (20)  (75)  190   (200)
Pension adjustment, net of taxes  1,750   267   2,354   930 
Currency translation adjustment  (7,347)  (8,041)  3,451   (481)
                 
Other comprehensive (loss) income  (5,617)  (7,849)  5,995   249 
                 
Comprehensive income $55,684  $118,575  $236,809  $416,627 

 Three Months Ended
 June 1, 2019 June 2, 2018
    
Net (loss) earnings$(371,085) $43,576
    
Other comprehensive loss: 
  
    
Change in temporary impairment of auction rate securities, net of taxes493
 315
    Pension adjustment, net of taxes(27) 136
    Currency translation adjustment(3,633) (4,130)
    
Other comprehensive loss(3,167) (3,679)
    
Comprehensive (loss) income$(374,252) $39,897

See accompanying Notes to Consolidated Financial Statements.

-5-



BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Shareholders' Equity

(in thousands, unaudited)

  Nine Months Ended
     
  November 25, November 26,
  2017 2016
     
Cash Flows from Operating Activities:        
         
Net earnings $230,814  $416,378 
Adjustments to reconcile net earnings to net cash provided by operating activities:        
Depreciation and amortization  227,407   215,164 
Stock-based compensation  52,833   54,298 
Deferred income taxes  17,114   36,857 
Other  (273)  (1,090)
Increase in assets, net of effect of acquisitions:        
Merchandise inventories  (290,576)  (405,198)
Trading investment securities  (17,806)  (15,345)
Other current assets  (89,425)  (127,487)
Other assets  (5,034)  (10,289)
Increase (decrease) in liabilities, net of effect of acquisitions:        
Accounts payable  311,430   536,577 
Accrued expenses and other current liabilities  90,947   90,595 
Merchandise credit and gift card liabilities  11,926   6,408 
Income taxes payable  (61,626)  (73,055)
Deferred rent and other liabilities  14,111   20,367 
         
Net cash provided by operating activities  491,842   744,180 
         
Cash Flows from Investing Activities:        
         
Redemption of held-to-maturity investment securities  -   86,240 
Capital expenditures  (263,963)  (276,436)
Investment in unconsolidated joint venture  -   (3,318)
Payment for acquisitions, net of cash acquired  (6,097)  (200,477)
         
Net cash used in investing activities  (270,060)  (393,991)
         
Cash Flows from Financing Activities:        
         
Proceeds from exercise of stock options  10,161   20,258 
Payment of deferred financing costs  (430)  - 
Payment of dividends  (60,058)  (37,358)
Repurchase of common stock, including fees  (207,277)  (375,541)
         
Net cash used in financing activities  (257,604)  (392,641)
         
Effect of exchange rate changes on cash and cash equivalents  596   (115)
         
Net decrease in cash and cash equivalents  (35,226)  (42,567)
         
Cash and cash equivalents:        
         
Beginning of period  488,329   515,573 
End of period $453,103  $473,006 

 Common Stock
Additional Paid-
in Capital
Retained
Earnings
Treasury Stock
Accumulated Other
Comprehensive
Loss
Total
 SharesAmountSharesAmount
Balance at March 3, 2018341,795
$3,418
$2,057,975
$11,343,503
(201,297)$(10,467,972)$(48,296)$2,888,628
         
Net earnings   43,576
   43,576
         
Other comprehensive loss, net of tax      (3,679)(3,679)
         
Effect of Adoption of ASU 2014-09   (4,221)   (4,221)
         
Dividend declared   (22,286)   (22,286)
         
Issuance of restricted shares, net383
4
(4)    —
         
Payment and vesting of performance stock units464
4
(4)    —
         
Stock-based compensation expense, net  24,271
    24,271
         
Director fees paid in stock—
—
—
    —
         
Repurchase of common stock, including fees    (1,214)(22,110) (22,110)
Balance at June 2, 2018342,642
$3,426
$2,082,238
$11,360,572
(202,511)$(10,490,082)$(51,975)$2,904,179

 Common Stock
Additional Paid-
in Capital
Retained
Earnings
Treasury Stock
Accumulated Other
Comprehensive
Loss
Total
 SharesAmountSharesAmount
Balance at March 2, 2019342,582
$3,426
$2,118,673
$11,112,887
(210,349)$(10,616,045)$(58,610)$2,560,331
         
Net loss   (371,085)   (371,085)
         
Other comprehensive loss, net of tax      (3,167)(3,167)
         
Effect of Adoption of ASU 2016-02   (40,700)   (40,700)
         
Dividend declared   (21,587)   (21,587)
         
Issuance of restricted shares, net290
3
(3)    —
         
Payment and vesting of performance stock units547
5
(5)    —
         
Stock-based compensation expense, net  19,697
    19,697
         
Repurchase of common stock, including fees    (5,296)(81,495) (81,495)
Balance at June 1, 2019343,419
$3,434
$2,138,362
$10,679,515
(215,645)$(10,697,540)$(61,777)$2,061,994

See accompanying Notes to Consolidated Financial Statements.

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BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(in thousands, unaudited)
 Three Months Ended
 June 1, 2019 June 2, 2018
Cash Flows from Operating Activities: 
  
    
  Net (loss) earnings$(371,085) $43,576
  Adjustments to reconcile net earnings to net cash provided by operating activities: 
  
    Depreciation and amortization83,542
 79,578
    Goodwill and other impairments401,267
 —
    Stock-based compensation19,348
 23,572
    Deferred income taxes(54,514) (3,548)
    Other(2,301) (1,109)
    Decrease (increase) in assets: 
  
        Merchandise inventories76,455
 82,252
        Trading investment securities21
 (2,069)
        Other current assets137
 104,954
        Other assets88
 (482)
    (Decrease) increase in liabilities: 
  
        Accounts payable(10,996) (78,717)
        Accrued expenses and other current liabilities(30,580) (5,401)
        Merchandise credit and gift card liabilities3,896
 5,553
        Income taxes payable(880) (3,767)
        Operating lease assets and liabilities, net(23,922) —
        Other liabilities(389) 602
    
  Net cash provided by operating activities90,087
 244,994
    
Cash Flows from Investing Activities: 
  
    
    Purchase of held-to-maturity investment securities(57,000) (5,625)
    Redemption of held-to-maturity investment securities343,000
 238,125
    Capital expenditures(68,375) (97,813)
    
  Net cash provided by investing activities217,625
 134,687
    
Cash Flows from Financing Activities: 
  
    
    Payment of dividends(21,894) (21,414)
    Repurchase of common stock, including fees(81,495) (22,110)
    
  Net cash used in financing activities(103,389) (43,524)
    
  Effect of exchange rate changes on cash, cash equivalents and restricted cash(2,095) (3,651)
    
  Net increase in cash, cash equivalents and restricted cash202,228
 332,506
    
Cash, cash equivalents and restricted cash: 
  
    
  Beginning of period529,971
 367,140
  End of period$732,199
 $699,646
See accompanying Notes to Consolidated Financial Statements.


BED BATH & BEYOND INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

(unaudited)

1) Basis of Presentation

1)Basis of Presentation
The accompanying consolidated financial statements have been prepared without audit. In the opinion of management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals and elimination of intercompany balances and transactions) necessary to present fairly the financial position of Bed Bath & Beyond Inc. and subsidiaries (the "Company") as of November 25, 2017June 1, 2019 and February 25, 2017March 2, 2019 and the results of its operations, andshareholders' equity, comprehensive (loss) income for the three and nine months ended November 25, 2017 and November 26, 2016, respectively, and its cash flows for the ninethree months ended November 25, 2017June 1, 2019 and November 26, 2016,June 2, 2018, respectively.

The accompanying unaudited consolidated financial statements are presented in accordance with the requirements for Form 10-Q and consequently do not include all the disclosures normally required by U.S. generally accepted accounting principles (“GAAP”("GAAP"). Reference should be made to Bed Bath & Beyond Inc.'s Annual Report on Form 10-K for the fiscal year ended February 25, 2017March 2, 2019 for additional disclosures, including a summary of the Company's significant accounting policies, and to subsequently filed Forms 8-K.

Certain reclassifications have been made to the fiscal 2016Form 8-Ks.


The consolidated balance sheet and statement of cash flows for the three months ended June 2, 2018 was revised to conforminclude restricted cash due to the adoption of the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash in fiscal 2017 consolidated balance sheet and statement of cash flows presentation.

2018.

The Company accounts for its operations as two operating segments: North American Retail and Institutional Sales. The Institutional Sales operating segment, which is comprised of Linen Holdings, does not meet the quantitative thresholds under GAAP and therefore is not a reportable segment. Net sales outside of the U.S. for the Company were not material for the three and nine months ended November 25, 2017June 1, 2019 and November 26, 2016.

The Company sells a wide assortment of domestics merchandise and home furnishings. Domestics merchandise includes categories such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings, consumables and certain juvenile products. Sales of domestics merchandise and home furnishings accounted for approximately35.7% and 64.3% of net sales, respectively, for the three months ended November 25, 2017 and approximately 36.4% and 63.6% of net sales, respectively, for the three months ended November 26, 2016. Sales of domestics merchandise and home furnishings accounted for approximately 37.0% and 63.0% of net sales, respectively, for the nine months ended November 25, 2017 and approximately 37.3% and 62.7% of net sales, respectively, for the nine months ended November 26, 2016.June 2, 2018. As the Company operates in the retail industry, its results of operations are affected by general economic conditions and consumer spending habits.

2) Acquisitions

On June 13, 2016, the Company acquired One Kings Lane, Inc., an online authority in home décor and design, offering a unique collection of select home goods, designer and vintage items. Since the date of acquisition, the results of One Kings Lane’s operations, which were not material, have been included in the Company’s results of operations and no proforma disclosure of financial information has been presented. One Kings Lane is included in the North American Retail operating segment.

On November 23, 2016, the Company acquired PersonalizationMall.com, LLC (“PMall”), an industry-leading online retailer of personalized products, for an aggregate purchase price of approximately $190.3 million. Since the date of acquisition, the result of PMall’s operations, which were not material, have been included in the Company’s results of operations and no proforma disclosure of financial information has been presented. PMall is included in the North American Retail operating segment.

In the third quarter of fiscal 2017, the Company has finalized the valuation of assets acquired and liabilities assumed. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition.

-7-
  

(in millions) As of November 23, 2016
   
Current assets $15.5 
Property and equipment and other non-current assets  9.3 
Goodwill  194.2 
Intangible assets  10.4 
Total assets acquired  229.4 
     
Accounts payable and other liabilities  (39.1)
     
Total net assets acquired $190.3 

Included within intangible assets above is approximately $10.0 million for tradenames, which is not subject to amortization. The tradenames and goodwill are expected to be deductible for tax purposes.

On January 27, 2017, the Company acquired certain assets including the brand, website and certain intellectual property assets and assumed certain contractual obligations of Chef Central, a retailer of kitchenware, cookware and homeware items catering to cooking and baking enthusiasts. Since the date of acquisition, the results of Chef Central’s operations, which were not material, have been included in the Company’s results of operations and no proforma disclosure of financial information has been presented. Chef Central is included in the North American Retail operating segment.

On March 6, 2017, the Company acquired Decorist, Inc., an online interior design platform that provides personalized home design services. Since the date of acquisition, the results of Decorist’s operations, which were not material, have been included in the Company’s results of operations for the three and nine months ended November 25, 2017, and no proforma disclosure of financial information has been presented. Decorist is included in the North American Retail operating segment.

3) Restructuring Activities

In the second quarter of fiscal 2017, the Company accelerated the realignment of its store management structure to support its customer-focused initiatives and omnichannel growth and expensed pre-tax cash restructuring charges of approximately $16.9 million, primarily for severance and related costs in conjunction with this realignment. During the nine months ended November 25, 2017, the Company paid $14.7 million of these costs.

4)2) Recent Accounting Pronouncements

In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. This guidance requires an entity to classify deferred tax assets and liabilities as noncurrent assets and liabilities on the balance sheet. ASU 2015-17 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, with earlier adoption permitted. ASU 2015-17 can be adopted either prospectively or retrospectively to each prior reporting period presented. At the beginning of the first quarter of fiscal 2017, the Company adopted this guidance retrospectively, which resulted in decreases to other current assets of $218.8 million and deferred rent and other liabilities of $23.4 million and an increase to other assets of $195.5 million as of February 25, 2017.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 requires, on a prospective basis, recognition of excess tax benefits and tax deficiencies (resulting from an increase or decrease in the fair value of an award from grant date to the vesting or exercise date) in the provision for income taxes as a discrete item in the period in which they occur. The ASU also changes the classification of excess tax benefits from a financing activity to an operating activity in the Company’s consolidated statements of cash flows. In addition, ASU 2016-09 allows companies to make an accounting policy election to either estimate expected forfeitures or account for them as they occur. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those years, with early adoption permitted. The Company adopted ASU 2016-09 during the first quarter of fiscal 2017. During the three and nine months ended November 25, 2017, the Company recognized in income tax expense discrete tax expenses of $0.4 million and $9.4 million related to tax deficiencies, respectively. Additionally, the Company elected to account for forfeitures as an estimate of the number of awards that are expected to vest, which is consistent with its accounting policy prior to adoption of ASU 2016-09. The Company adopted the provisions of ASU 2016-09 related to changes in the consolidated statements of cash flows on a retrospective basis. As such, excess tax benefits are now classified as an operating activity in the Company’s Consolidated Statements of Cash Flows instead of as a financing activity. As a result, excess tax benefits of $1.5 million for the nine months ended November 26, 2016 were reclassified from financing activities to operating activities. ASU 2016-09 also requires that the value of shares withheld from employees upon vesting of stock awards in order to satisfy any applicable tax withholding requirements is presented within financing activities in the Company’s Consolidated Statements of Cash Flows, which is consistent with the Company’s historical presentation, and therefore had no impact to the Company.

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In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This guidance requires an entity to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In July 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This guidance deferred the effective date of ASU 2014-09 for one year from the original effective date. In accordance with the deferral, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. In 2016, the FASB issued several amendments to clarify various aspects of the implementation guidance. ASU 2014-09 can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption. The Company does not expect to adopt this ASU until required, and has not yet selected the transition method. The Company is in the process of analyzing its revenue streams and quantifying the effects to the areas discussed above, and expects the adoption to result in a change in the timing of revenue recognition for merchandise shipped to a customer and for its customer loyalty and rewards programs, as well as a change in the timing of recognizing advertising expense related to direct response advertising. The Company currently does not expect the adoption of this standard will have a material impact on its consolidated financial position, results of operations, or cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This guidance requires an entity to recognize lease liabilities and a right-of-use asset for all leases on the balance sheet and to disclose key information about the entity's leasing arrangements. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with earlier adoption permitted. In July 2018, the FASB approved an amendment to the new guidance that allows companies the option of using the effective date of the new standard as the initial application (at the beginning of the period in which it is adopted, rather than at the beginning of the earliest comparative period) and to recognize the effects of applying the new ASU 2016-02 must beas a cumulative effect adjustment to the opening balance sheet or retained earnings.

The Company adopted this accounting standard at the beginning of the first quarter of fiscal 2019 using a modified retrospective approachthe new transition election to not restate comparative periods. The Company elected the package of practical expedients upon adoption, which permits the Company to not reassess under the new standard the Company's prior conclusions about lease identification, lease classification and initial direct costs. In addition, the Company elected not to separate lease and non-lease components for all real estate leases existing at, or entered into afterand did not elect the date of initial adoption, with an optionhindsight practical expedient. Lastly, the Company elected the short-term lease exception policy, permitting it to elect to use certain transition relief. The Company is currently evaluatingexclude the impactrecognition requirements of this new standard from leases with initial terms of 12 months or less. Upon adoption, the Company recognized operating lease assets of approximately $2.0 billion and operating lease liabilities of approximately $2.2 billion on its consolidated financialbalance sheet. In addition, upon adoption deferred rent and various lease incentives which were recorded as of March 2, 2019 were reclassified as a component of the right-of-use assets. Upon adoption, the Company recognized a cumulative adjustment decreasing opening retained earnings by approximately $40.7 million due to the impairment of certain right-of-use assets. The adoption of the new standard did not have a material impact on the consolidated statements of operations or cash flows.
3) Revenue Recognition

Sales are recognized upon purchase by customers at the Company’s retail stores or upon delivery for products purchased from its websites. The value of point-of-sale coupons and related disclosures, but expectspoint-of-sale rebates that it will result in a significant increasereduction of the price paid by the customer are recorded as a reduction of sales. Shipping and handling fees that are billed to a customer in a sale transaction are recorded in sales. Taxes, such as sales tax, use tax and value added tax, are not included in sales.



Revenues from gift cards, gift certificates and merchandise credits are recognized when redeemed. Gift cards have no provisions for reduction in the assetsvalue of unused card balances over defined time periods and have no expiration dates. For the three months ended June 1, 2019, the Company recognized net sales for gift card and merchandise credit redemptions of approximately $50.6 million which were included in merchandise credit and gift card liabilities recorded on the consolidated balance sheet.

sheet as of March 2, 2019.


Sales returns are provided for in the period that the related sales are recorded based on historical experience. Although the estimate for sales returns has not varied materially from historical provisions, actual experience could vary from historical experience in the future if the level of sales return activity changes materially. In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifyingfuture, if the DefinitionCompany concludes that an adjustment is required due to material changes in the returns activity, the liability for estimated returns and the corresponding right of return asset will be adjusted accordingly. As of June 1, 2019, the liability for estimated returns of $86.7 million is included in accrued expenses and other current liabilities and the corresponding right of return asset for merchandise of $52.0 million is included in prepaid expenses and other current assets.

The Company sells a Business. ASU 2017-01 requires that when substantially allwide assortment of domestics merchandise and home furnishings. Domestics merchandise includes categories such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings (including furniture and wall décor), consumables and certain juvenile products. Sales of domestics merchandise and home furnishings accounted for approximately 35.6% and 64.4% of net sales, respectively, for the fair valuethree months ended June 1, 2019, and approximately 36.0% and 64.0% of net sales, respectively, for the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of identifiable assets, the set of assets would not represent a business. Also, in order to be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to produce outputs. Under the update, fewer sets of assets are expected to be considered businesses. ASU 2017-01 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The adoption of this guidance is not expected to have a significant effect on the Company's consolidated financial position, results of operations, or cash flows.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill to measure the amount of impairment loss, if any, under the second step of the current goodwill impairment test. Under the update, the goodwill impairment loss would be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual reporting periods beginning after December 15, 2019, with early adoption permitted. The adoption of this guidance is not expected to have a significant effect on the Company's consolidated financial position, results of operations, or cash flows.

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three months ended June 2, 2018.

5)

4) Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., “the"the exit price”price") in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches, including quoted market prices and discounted cash flows. The hierarchy for inputs used in measuring fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect a company’scompany's judgment concerning the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an asset or liability must be classified in its entirety based on the lowest level of input that is significant to the measurement of fair value. The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:

•

Level 1 –- Valuations based on quoted prices in active markets for identical instruments that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

•

Level 2 –- Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

•

Level 3 –- Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

As of November 25, 2017, the Company’s financial assets utilizing Level 1 inputs included long term trading investment securities traded on active securities exchanges.

The Company did not have any financial assets utilizing Level 2 inputs. Financial assets utilizing Level 3 inputs included long term investments in auction rate securities consisting of preferred shares of closed end municipal bond funds (See “Investment"Investment Securities,”" Note 7)6). 

Fair Value of Financial Instruments

The Company’sCompany's financial instruments include cash and cash equivalents, investment securities, accounts payable, long term debt and certain other liabilities. The Company’sCompany's investment securities includeconsist primarily of U.S. Treasury securities, which are stated at amortized cost, and auction rate securities, which are stated at their approximate fair value. The book value of the financial instruments, excluding the Company’sCompany's long term debt, is representative of their fair values. The fair value of the Company’sCompany's long term debt is approximately $1.380$1.151 billion as of November 25, 2017,June 1, 2019, which is based on quoted prices in active markets for identical instruments (i.e., Level 1 valuation), compared to the carrying value of approximately $1.500$1.495 billion.

6)

5) Cash and Cash Equivalents



Included in cash and cash equivalents are credit and debit card receivables from banks, which typically settle within five business days, of $208.6$86.8 million and $86.6$92.9 million as of November 25, 2017June 1, 2019 and February 25, 2017,March 2, 2019, respectively.

7)

6) Investment Securities

The Company’sCompany's investment securities as of November 25, 2017June 1, 2019 and February 25, 2017March 2, 2019 are as follows:

(in millions) November 25,
2017		 February 25,
2017
Available-for-sale securities:        
Long term $19.5  $19.3 
         
Trading securities:        
Long term  88.2   70.3 
Total investment securities $107.7  $89.6 

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(in millions)June 1, 2019 March 2, 2019
Available-for-sale securities: 
  
   Long term$20.6
 $19.9
    
Held-to-maturity securities:   
   Short term201.7
 485.8
Total investment securities$222.3
 $505.7



Auction Rate Securities

As of November 25, 2017June 1, 2019 and February 25, 2017,March 2, 2019, the Company’sCompany's long term available-for-sale investment securities represented approximately $20.3 million par value of auction rate securities consisting of preferred shares of closed end municipal bond funds, less temporary valuation adjustments of approximately $0.7$0.3 million and $1.0$(0.4) million, respectively. Since these valuation adjustments are deemed to be temporary, they are recorded in accumulated other comprehensive loss, net of a related tax benefit, and did not affect the Company’sCompany's net earnings.

Long Term Trading Investment

U.S. Treasury Securities

The


As of June 1, 2019 and March 2, 2019, the Company’s longshort term trading investmentheld-to-maturity securities which are provided as investment options to the participantsincluded approximately $201.7 million and $485.8 million of the nonqualified deferred compensation plan,U.S. Treasury Bills with remaining maturities of less than one year, respectively. These securities are stated at their amortized cost which approximates fair market value. The values of these trading investment securities includedvalue, which is based on quoted prices in the table above are approximately $88.2 million and $70.3 million as of November 25, 2017 and February 25, 2017, respectively.

active markets for identical instruments (i.e., Level 1 valuation).

8)

7) Property and Equipment

As of November 25, 2017June 1, 2019 and February 25, 2017,March 2, 2019, included in property and equipment, net is accumulated depreciation of approximately $3.0$3.6 billion and $2.8$3.5 billion, respectively.

8) Leases

The Company leases retail stores, as well as distribution facilities, offices and equipment, under agreements expiring at various dates through 2041. The leases provide for original lease terms that generally range from 10 to 15 years and most leases provide for a series of five year renewal options, often at increased rents, the exercise of which is at the Company's sole discretion. In recognizing the lease right-of-use assets and lease liabilities, the Company utilizes the lease term for which it is reasonably certain to use the underlying asset, including consideration of options to extend or terminate the lease. Certain leases provide for contingent rents (which are based upon store sales exceeding stipulated amounts and are immaterial for the three months ended June 1, 2019 and June 2, 2018), scheduled rent increases and renewal options. The Company is obligated under a majority of the leases to pay for taxes, insurance and common area maintenance charges.

Companies are required to use the rate implicit in the lease whenever that rate is readily determinable and if the interest rate is not readily determinable, then a lessee may use its incremental borrowing rate. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. The Company determined discount rates based on the rates of its unsecured borrowings, which are then adjusted for the appropriate lease term and effects of full collateralization. In determining the Company's operating lease assets and operating lease liabilities, the Company applied these incremental borrowing rates to the minimum lease payments within each lease agreement.

The components of total lease cost for the three months ended June 1, 2019, were as follows.


(in thousands)Statement of Operations LocationThree months ended June 1, 2019
Operating lease costCost of sales and SG&A$143,900
Finance lease cost:

     Depreciation of propertySG&A648
     Interest on lease liabilitiesInterest expense, net2,222
Variable lease costCost of sales and SG&A47,895
Sublease incomeSG&A(278)
     Total lease cost
$194,387


As of June 1, 2019, assets and liabilities related to the Company's operating and finance leases are as follows:
(in thousands)Consolidated Balance Sheet LocationJune 1, 2019
Assets  
Operating leasesOperating lease assets$1,990,963
Finance leasesProperty and equipment, net71,231
     Total Lease assets $2,062,194
   
Liabilities  
Current:  
     Operating leasesCurrent operating lease liabilities$410,417
     Finance leasesAccrued expenses and other current liabilities1,511
Noncurrent:  
     Operating leasesOperating lease liabilities1,775,081
     Finance leasesOther liabilities103,581
Total lease liabilities $2,290,590


As of June 1, 2019, the Company's lease liabilities mature as follows:
(in thousands)Operating Leases Finance Leases
Fiscal Year:   
Remainder of 2019$390,167
 $7,811
2020548,353
 10,469
2021450,764
 10,434
2022352,797
 10,407
2023259,691
 10,524
Thereafter642,185
 259,584
Total lease payments$2,643,957
 $309,229
Less imputed interest(458,459) (204,137)
Present value of lease liabilities$2,185,498
 $105,092


The Company's lease terms and discount rates are as follows:


June 1, 2019
Weighted-average remaining lease term (in years)
     Operating leases6.0
     Finance leases26.4
Weighted-average discount rate
     Operating leases6.1%
     Finance leases8.9%

Other information for the Company's leases is as follows:
(in thousands) Three months ended June 1, 2019
Cash paid for amounts included in the measurement of lease liabilities  
     Operating cash flows from operating leases $166,514
     Operating cash flows from finance leases 2,580
Operating lease assets obtained in exchange for new operating lease liabilities 109,647


At the beginning of fiscal 2019, the Company adopted ASU2016-02, and as required, the following disclosure is provided for periods prior to adoption. As of March 2, 2019, future minimum lease payments under non-cancelable operating leases were as follows:
(in thousands)Operating Leases
Fiscal Year: 
2019609,613
2020534,055
2021434,908
2022334,587
2023241,863
Thereafter616,170
Total future minimum lease payments2,771,196


As of March 2, 2019, the capital lease obligations were approximately $3.8 million for which the current and long-term portions were included within accrued expenses and other current liabilities and other liabilities, respectively, in the consolidated balance sheet. Monthly minimum lease payments are accounted for as principal and interest payments. The minimum capital lease payments, including interest, by fiscal year were: $0.9 million in fiscal 2019; $0.8 million in fiscal 2020; $0.7 million in fiscal 2021; $0.6 million in fiscal 2022; $0.6 million in fiscal 2023; and $1.0 million thereafter.

The Company has financing obligations, related to two sale/leaseback agreements, which approximated the discounted fair value of the minimum lease payments, had a residual fair value at the end of the lease term and are being amortized over the term of the respective agreements, including option periods, of 32 and 37 years. As of March 2, 2019, the sale/leaseback financing obligations were approximately $101.7 million, for which the current and long-term portions were included within accrued expenses and other current liabilities and other liabilities, respectively, in the consolidated balance sheet. Monthly lease payments are accounted for as principal and interest payments (at approximate annual interest rates of 7.2% and 10.6%). These sale/leaseback financing obligations, excluding the residual fair value at the end of the lease term, mature as follows: $0.8 million in fiscal 2019; $0.9 million in fiscal 2020; $0.9 million in fiscal 2021; $1.0 million in fiscal 2022; $1.0 million in fiscal 2023; and $75.4 million thereafter.

9) Goodwill and Other Indefinite Lived Intangible Assets
The Company reviews goodwill and other intangibles that have indefinite lives for impairment annually as of the end of the fiscal year 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. Significant assumptions and estimates are required, including, but not limited to, projecting future cash flows, determining appropriate discount rates and terminal growth rates, and


other assumptions, to estimate the fair value of goodwill and indefinite lived intangible assets. Although the Company believes the assumptions and estimates made are reasonable and appropriate, different assumptions and estimates could materially impact its reported financial results. Prior to March 2, 2019, the Company has not historically recorded an impairment to its goodwill and other indefinite lived intangible assets. In fiscal 2018, the Company recognized non-cash pre-tax goodwill impairment charges of $285.1 million and $40.1 million for the North American Retail and Institutional Sales reporting units, respectively.
As of June 1, 2019, the Company completed a quantitative impairment analysis of goodwill related to its reporting units by comparing the fair value of a reporting unit with its carrying amount. The Company performed a discounted cash flow analysis and market multiple analysis for each reporting unit. Based upon the analysis performed, the Company recognized a non-cash pre-tax goodwill impairment charge of $391.1 million for the North American Retail reporting unit. The non-cash pre-tax impairment charge was primarily the result of a sustained decline in the Company's market capitalization.
Other indefinite-lived intangible assets were recorded as a result of acquisitions and primarily consist of tradenames. The Company values its tradenames using a relief-from-royalty approach, which assumes the value of the tradename is the discounted cash flows of the amount that would be paid by a hypothetical market participant had they not owned the tradename and instead licensed the tradename from another company. As of June 1, 2019, for certain other indefinite lived intangible assets, the Company completed a quantitative impairment analysis by comparing the fair value of the tradenames to their carrying value and recognized a non-cash pre-tax tradename impairment charge of $10.2 million, within goodwill and other impairments in the consolidated statement of operations, for certain tradenames. As of June 1, 2019, for the remaining other indefinite lived intangibles assets, the Company assessed qualitative factors in order to determine whether any events and circumstances existed which indicated that it was more likely than not that the fair value of these other indefinite lived assets did not exceed their carrying values and concluded no such events or circumstances existed which would require an impairment test be performed. 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.
Included within other assets in the accompanying consolidated balance sheets as of June 1, 2019 and March 2, 2019, respectively, are $133.6 million and $143.8 million for indefinite lived tradenames and trademarks.

10) Long Term Debt

Senior Unsecured Notes

On July 17, 2014, the Company issued $300 million aggregate principal amount of 3.749% senior unsecured notes due August 1, 2024, $300 million aggregate principal amount of 4.915% senior unsecured notes due August 1, 2034 and $900 million aggregate principal amount of 5.165% senior unsecured notes due August 1, 2044 (collectively, the “Notes”"Notes"). Interest on the Notes is payable semi-annually on February 1 and August 1 of each year.

In fiscal 2018, the Company purchased and retired approximately $4.6 million of senior unsecured notes due August 1, 2024.

The Notes were issued under an indenture (the “Base Indenture”"Base Indenture"), as supplemented by a first supplemental indenture (together, with the Base Indenture, the “Indenture”"Indenture"), which contains various restrictive covenants, which are subject to important limitations and exceptions that are described in the Indenture. The Company was in compliance with all covenants related to the Notes as of November 25, 2017.

June 1, 2019.


Revolving Credit Agreement

On November 14, 2017, the Company replaced its existing $250 million five year senior unsecured revolving credit facility agreement with various lenders with a new $250 million five year senior unsecured revolving credit facility agreement ("Revolver") with various lenders maturing November 14, 2022. The new Revolver has essentially the same terms and requirements as the prior revolving credit facility agreement. During the ninethree months ended November 25, 2017,June 1, 2019, the Company did not have any borrowings under eitherthe Revolver.

The Revolver contains customary affirmative and negative covenants and also requires the Company to maintain a maximum leverage ratio. The Company was in compliance with all covenants related to the Revolver as of November 25, 2017.

June 1, 2019.




Deferred financing costs associated with the Notes and the current and former Revolversrevolving credit facilities of approximately $10.5 million were capitalized. In the accompanying Consolidated Balance Sheets, the deferred financing costs are included in long term debt, net of amortization, for the Notes, and are included in other assets, net of amortization, for the Revolver. These deferred financing costs for the Notes and the Revolver are being amortized over the term of each of the Notes and the term of the Revolver and such amortization is included in interest expense, net in the Consolidated Statements of Earnings. Interest expense related to the Notes and the Revolver,revolving credit facilities, including the commitment fee and the amortization of deferred financing costs, was approximately $18.2 million and $17.9 million for both the three months ended November 25, 2017June 1, 2019 and November 26, 2016, respectively and $54.7 million for both the nine months ended November 25, 2017 and November 26, 2016.

June 2, 2018.

Lines of Credit

At November 25, 2017,June 1, 2019, the Company maintained two uncommitted lines of credit of $100 million each, with expiration dates of August 29, 201830, 2019 and February 25, 2018,23, 2020, 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 the first ninethree months of fiscal 2017,2019, the Company did not have any direct borrowings under the uncommitted lines of credit. Although no assurances can be provided, the Company intends to renew both uncommitted lines of credit before the respective expiration dates.

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11) Shareholders' Equity
 

10) Shareholders’ Equity

The Company has authorization 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.

Between December 2004 and September 2015, the Company’sCompany's Board of Directors authorized, through several share repurchase programs, the repurchase of $11.950 billion of its shares of common stock. The Company also acquires shares of its common stock to cover employee related taxes withheld on vested restricted stock and performance stock unit awards. In the first ninethree months of fiscal 2017,2019, the Company repurchased approximately 6.05.3 million shares of its common stock for a total cost of approximately $207.3$81.5 million, bringing the aggregate total of common stock repurchased to approximately 199.3215.6 million shares for a total cost of approximately $10.4$10.7 billion since the initial authorization in December 2004. The Company has approximately $1.5$1.3 billion remaining of authorized share repurchases as of November 25, 2017.

June 1, 2019.

During fiscal 2016, the Company’sCompany's Board of Directors authorized a quarterly dividend program. During the ninethree months ended November 25, 2017June 1, 2019 and November 26, 2016, quarterlyJune 2, 2018, total cash dividends totaling $0.45of $21.9 million and $0.375 per share$21.4 million were declared by the Company’s Board of Directors, of which $0.30 and $0.25 per share was paid, respectively. Subsequent to the end of the thirdfirst quarter of fiscal 2017,2019, on December 20, 2017,July 8, 2019, the Company’sCompany's Board of Directors declared a quarterly dividend of $0.15$0.17 per share to be paid on April 17, 2018October 15, 2019 to shareholders of record as of the close of business on March 16, 2018.September 13, 2019. The Company expects to pay quarterly cash dividends on its common stock in the future, subject to the determination by the Board of Directors, based on an evaluation of the Company’sCompany's earnings, financial condition and requirements, business conditions and other factors.

Cash dividends, if any, are accrued as a liability on the Company’sCompany's consolidated balance sheets and recorded as a decrease to additional paid-in capitalretained earnings when declared.

11)

12) Stock-Based Compensation

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

Stock-based compensation expense for the three and nine months ended November 25, 2017June 1, 2019 was approximately $15.9$19.3 million ($10.317.0 million after tax or $0.07$0.13 per diluted share) and approximately $52.8 million ($32.5 after tax or $0.23 per diluted share), respectively.. Stock-based compensation expense for the three and nine months ended November 26, 2016June 2, 2018 was approximately $16.7$23.6 million ($11.015.9 million after tax or $0.07$0.12 per diluted share) and approximately $54.3 million ($34.7 million after tax or $0.23 per diluted share), respectively.. In addition, the amount of stock-based compensation cost capitalized for the ninethree months ended November 25, 2017June 1, 2019 and November 26, 2016June 2, 2018 was approximately $1.5$0.3 million and $1.6$0.7 million, respectively.

Incentive Compensation Plans

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



The 2012 Plan is a flexible compensation plan that enables the Company to offer incentive compensation through stock options (whether nonqualified stock options or incentive stock options), restricted stock awards, stock appreciation rights, performance awards and other stock based awards, including cash awards. Under the 2012 Plan, grants are determined by the Compensation Committee for those awards granted to executive officers and by an appropriate committee for all other awards granted. AwardsStock option grants generally become exercisable in either three or five equal annual installments beginning one year from the date of grant, subject, in general, to the recipient remaining in the Company's service on specified vesting dates. Restricted stock options and restricted stockawards generally vestbecome vested in five to seven equal annual installments beginning one to three years from the date of grant. Awards of performancegrant, subject, in general, to the recipient remaining in the Company's service on specified vesting dates. Performance stock units generally vest over a period of three to four years from the date of grant dependent on the Company’sCompany's achievement of performance-based tests and subject, in general, to the executive remaining in the Company’sCompany's service on specified vesting dates.

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The Company generally issues new shares for stock option exercises, restricted stock awards and vesting of performance stock units.

On May 22, 2018, the Company adopted the Bed Bath & Beyond 2018 Incentive Compensation Plan (the “2018 Plan”), subject to and effective upon shareholder approval, which was obtained on June 29, 2018. The 2018 Plan is generally based on the provisions of the 2012 Plan as currently in effect and also includes an aggregate share reserve of 4.6 million shares of common stock. The 2012 Plan will continue in effect without modification in accordance with its existing terms. The 2012 Plan and the 2018 Plan have a total of 47.8 million shares authorized for issuance.

Stock Options

Stock option grants are issued at fair market value on the date of grant and generally become exercisable in either three or five equal annual installments beginning one year from the date of grant, for options issued since May 10, 2010, and beginning one to three years from the date of grant for options issued prior to May 10, 2010, in each case, subject, in general, to the recipient remaining in the Company’sCompany's service on specified vesting dates. Option grants expire eight years after the date of grant. All option grants are nonqualified. As of November 25, 2017,June 1, 2019, unrecognized compensation expense related to the unvested portion of the Company’sCompany's stock options was $20.2$10.4 million, which is expected to be recognized over a weighted average period of 3.02.1 years.

The fair value of the stock options granted was estimated on the date of the grant using a Black-Scholes option-pricing model that uses the assumptions noted in the following table.

  Nine Months Ended
Black-Scholes Valuation Assumptions  (1) November 25,
2017		 November 26,
2016
     
Weighted Average Expected Life (in years)  (2)  6.7   6.6 
Weighted Average Expected Volatility  (3)  26.49%  26.96%
Weighted Average Risk Free Interest Rates  (4)  2.17%  1.46%
Expected Dividend Yield (5)  1.60%  1.10%

 Three Months Ended
Black-Scholes Valuation Assumptions (1)June 1, 2019 June 2, 2018
Weighted Average Expected Life (in years) (2)7.6
 6.7
Weighted Average Expected Volatility (3)39.41% 34.96%
Weighted Average Risk Free Interest Rates (4)2.39% 2.92%
Expected Dividend Yield (5)4.34% 3.80%
(1) Forfeitures are estimated based on historical experience.

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

(3) Expected volatility is based on the average of historical and implied volatility. The historical volatility is determined by observing actual prices of the Company’sCompany's stock over a period commensurate with the expected life of the awards. The implied volatility represents the implied volatility of the Company’sCompany's call options, which are actively traded on multiple exchanges, had remaining maturities in excess of twelve months, had market prices close to the exercise prices of the employee stock options and were measured on the stock option grant date.

(4) Based on the U.S. Treasury constant maturity interest rate whose term is consistent with the expected life of the stock options.

(5) Expected dividend yield is estimated based on anticipated dividend payouts.

Changes in the Company’sCompany's stock options for the ninethree months ended November 25, 2017June 1, 2019 were as follows:

(Shares in thousands) Number of Stock
Options		 Weighted Average
Exercise Price
Options outstanding, beginning of period  3,906  $56.48 
Granted  694   37.50 
Exercised  (359)  28.33 
Forfeited or expired  -   - 
Options outstanding, end of period  4,241  $55.76 
Options exercisable, end of period  2,447  $60.38 


(Shares in thousands)
Number of Stock
Options
 
Weighted Average
Exercise Price
Options outstanding, beginning of period4,395
 $47.53
Granted144
 15.68
Exercised—
 —
Forfeited or expired(674) 46.00
Options outstanding, end of period3,865
 $46.61
Options exercisable, end of period2,421
 $57.95


The weighted average fair value for the stock options granted during the first ninethree months of fiscal 20172019 and 20162018 was $9.50$4.18 and $11.87,$4.31, respectively. The weighted average remaining contractual term and the aggregate intrinsic value for options outstanding as of November 25, 2017June 1, 2019 was 4.34.4 years and the aggregate intrinsic value was $0.$0, respectively. The weighted average remaining contractual term for options exercisable as of November 25, 2017June 1, 2019 was 2.93.3 years and the aggregate intrinsic value was $0. The total intrinsic value forThere were no stock options exercised during the first ninethree months of fiscal 20172019 and 2016 was $3.9 million and $9.0 million, respectively.

2018.
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Restricted Stock
 

Net cash proceeds from the exercise of stock options for the first nine months of fiscal 2017 were $10.2 million and the net associated income tax expense was $0.2 million.

Restricted Stock

Restricted stock awards are issued and measured at fair market value on the date of grant and generally become vested in five to seven equal annual installments beginning one to three years from the date of grant, subject, in general, to the recipient remaining in the Company’sCompany's service on specified vesting dates. Vesting of restricted stock is based solely on time vesting. As of November 25, 2017,June 1, 2019, unrecognized compensation expense related to the unvested portion of the Company’sCompany's restricted stock awards was $150.8$101.7 million, which is expected to be recognized over a weighted average period of 4.74.1 years.

Changes in the Company’sCompany's restricted stock for the ninethree months ended November 25, 2017June 1, 2019 were as follows:

(Shares in thousands) Number of Restricted
Shares		 Weighted Average
Grant-Date Fair
Value
Number of Restricted
Shares
 
Weighted Average
Grant-Date Fair
Value
Unvested restricted stock, beginning of period  3,492  $58.12 3,747
 $41.73
Granted  1,738   35.54 428
 15.71
Vested  (720)  59.46 (510) 52.18
Forfeited  (264)  50.20 (138) 38.20
Unvested restricted stock, end of period  4,246  $49.14 3,527
 $37.20


Performance Stock Units

Performance stock units (“PSUs”("PSUs") are issued and measured at fair market value on the date of grant. Vesting of PSUs awarded to certain of the Company’sCompany's executives is dependent on the Company’sCompany's achievement of a performance-based test during a one-year period from the date of grant and during a three-year period from the date of grant and, assuming achievement of the performance-based test, time vesting over periods of up to four years, subject, in general, to the executive remaining in the Company’sCompany's service on specified vesting dates. PerformanceFor awards granted in fiscal 2018 and prior, performance during the three-year period were based on Return on Invested Capital ("ROIC") or a combination of Earnings Before Interest and Taxes ("EBIT") margin and ROIC relative to a peer group. For awards granted in fiscal 2019, performance during a one-year period will be based on Earnings Before Interest and Taxes (“EBIT”) margin relative to a peer group of theone-year Company EBIT goal and performance during the three-year period will be based on a three-year cumulative Company EBIT goal and a relative three-year Total Shareholder Return on Invested Capital (“ROIC”("TSR") or a combination of EBIT margin and ROICgoal relative to sucha peer group. The PSU awards based on EBIT margin and ROIC range from a floor of zero to a cap of 150% of target achievement. PSUs are converted into shares of common stock upon payment following vesting. Upon grant of the PSUs, the Company recognizes compensation expense related to these awards based on the assumption that 100%Company's estimate of the targetpercentage of the award that will be achieved. The Company evaluates the target assumptionestimate on these awards on a quarterly basis and adjusts compensation expense related to these awards, as appropriate. As of November 25, 2017,June 1, 2019, unrecognized compensation expense related to the unvested portion of the Company’sCompany's performance stock units was $29.4$16.9 million, which is expected to be recognized over a weighted average period of 1.91.8 years.

Changes in the Company’sCompany's PSUs for the ninethree months ended November 25, 2017June 1, 2019 were as follows:

(Shares in thousands) Number of Performance
Stock Units		 Weighted Average
Grant-Date Fair
Value
Unvested performance stock units, beginning of period  1,014  $55.19 
Granted  660   37.50 
Vested  (322)  57.28 
Forfeited  -   - 
Unvested performance stock units, end of period  1,352  $46.06 

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12)

(Shares in thousands)
Number of Performance
Stock Units
 
Weighted Average
Grant-Date Fair
Value
Unvested performance stock units, beginning of period2,082
 $27.16
Granted77
 15.68
Vested(547) 34.91
Forfeited or performance condition adjustments(979) 24.19
Unvested performance stock units, end of period633
 $23.66


13) Earnings per Share

The Company presents earnings per share on a basic and diluted basis. Basic earnings per share has been computed by dividing net earnings by the weighted average number of shares outstanding. Diluted earnings per share has been computed by dividing net earnings by the weighted average number of shares outstanding, including the dilutive effect of stock-based awards as calculated under the treasury stock method.

Stock-based awards for the three and nine months ended November 25, 2017 of approximately 8.37.7 million and 7.98.5 million respectively, and November 26, 2016 of approximately 4.3 million and 4.5 million, respectively, were excluded from the computation of diluted earnings per share as the effect would be anti-dilutive.

anti-dilutive for the three months ended June 1, 2019 and June 2, 2018, respectively.

13)

14) Supplemental Cash Flow Information

The Company paid income taxes of $201.9$3.8 million and $272.0$3.2 million in the first ninethree months of fiscal 20172019 and 2016,2018, respectively. In addition, the Company had interest payments of approximately $42.9$2.2 million in both the first ninethree months of fiscal 20172019 and 2016.

2018.

The Company recorded an accrual for capital expenditures of $22.9$35.8 million and $15.6$28.0 million as of November 25, 2017June 1, 2019 and November 26, 2016,June 2, 2018, respectively. In addition, the Company recorded an accrual for dividends payable of $24.9$28.0 million and $20.1$26.3 million as of November 25, 2017June 1, 2019 and November 26, 2016,June 2, 2018, respectively.

14) Subsequent Events

15) Restructuring Activities
In the first quarter of fiscal 2019, the Company expensed pre-tax restructuring charges of approximately $3.9 million, related to the realignment of its store management structure to support its customer-focused initiatives and omnichannel growth. These charges primarily were for severance and related costs in conjunction with this realignment. The Company paid $2.3 million of these costs during the first quarter of fiscal 2019.

16) Commitments and Contingencies
The District Attorney's office for the County of Ventura, together with District Attorneys for other counties in California (together, the “District Attorneys"), recently concluded an investigation regarding the management and disposal at the Company's stores in California of certain materials that may be deemed hazardous or universal waste under California law. On December 22, 2017, H.R.1 - An ActMarch 19, 2019, the District Attorneys provided the Company with a settlement demand that included a proposed civil penalty, reimbursement of investigation costs, and certain injunctive relief, including modifications to provide for reconciliation pursuantthe Company's existing compliance program, which already includes associate training, on-going review of disposal rules applicable to titles IIvarious product categories, and V of the concurrent resolution on the budget for fiscal year 2018, also known as the Tax Cuts and Jobs Act, (the “Act”) was enacted.specialized third-party disposal. The Company is currently reviewingworking with the componentsDistrict Attorneys towards a resolution of this matter and has recorded an accrual for the Actestimated probable loss for this matter as of June 1, 2019 and evaluatingMarch 2, 2019. While no assurance can be given as to its impact, which could beultimate outcome, the Company does not believe that the final resolution of this matter will have a material effect on the Company’s fiscal year 2017 consolidated financial statementsposition, results of operations or liquidity.

The Company maintains employment agreements with its Co-Founders. Under these agreements, the Co-Founders could at any time elect senior status (i.e., to be continued to be employed to provide non-line executive consultative services). On May 11, 2017, the Co-Founders notified the Company that they elected to commence their Senior Status Period, effective May 21, 2017. The Co-Founders are entitled to a base salary, termination payments, postretirement benefits and other terms and conditions of employment pursuant to the senior status provisions of these employment agreements. On April 21, 2019, Warren Eisenberg and Leonard Feinstein transitioned to the role of Co-Founders and Co-Chairmen Emeriti of the Board of Directors of the Company.  As a result of this transition, Mr. Eisenberg and Mr. Feinstein ceased to be officers of the Company effective as of April 21, 2019, and became entitled to the payments and benefits provided under their employment agreements that apply in the case of a termination without cause, which generally include continued senior status payments until May 2027 and continued participation for the Co-


Founders (and their spouses, if applicable) at the Company's expense in employee plans and programs. In addition, the Co-Founders are entitled to supplemental pension payments specified in their employment agreements until the death of the survivor of the Co-Founder and his spouse, reduced by the continued senior status payments referenced in the foregoing sentence.

Pursuant to their respective restricted stock and performance stock unit agreements, shares of restricted stock and performance-based stock units granted to Messrs. Eisenberg and Feinstein vested upon their resignation as members of the Board of Directors effective May 1, 2019, subject, however, to attainment of any applicable performance goals and the certification of the applicable performance-based tests by the Compensation Committee, as provided under their award agreements.

The Company's Chief Executive Officer ("CEO") departed the Company effective as of May 12, 2019. In accordance with the terms of the CEO's employment and equity award agreements, the CEO was entitled to three times the then-current salary, payable over three years in normal payroll installments, except that any amount due prior to the six months after his departure, will be paid in a lump sum after such six-month period. Such amounts will be reduced by any compensation earned with any subsequent employer or otherwise and will be subject to the CEO's compliance with a one-year non-competition and non-solicitation covenant. Further, as a result of this departure, the time-vesting component of the CEO's equity-based awards accelerated, including (i) stock options (which currently are “underwater”), (ii) PSU awards which had previously met the related disclosures, includingperformance-based test, had been certified by the Compensation Committee, and remained subject solely to time-vesting, and (iii) PSU awards (assuming target level of performance) which remain subject to attainment of any performance goals and the certification of the applicable performance-based tests by the Compensation Committee, as provided under his award agreements.

The CEO was also party to a one-time, non-cash expensesupplemental executive retirement benefit agreement (“SERP”) and a related escrow agreement, pursuant to which the CEO was entitled to receive a supplemental retirement benefit as a result of the separation from service from the Company. Pursuant to the SERP, as a result of the separation from service with the Company as of May 12, 2019 being treated as a termination without cause, the CEO is entitled to a lump sum payment equal to the present value of an annual amount equal to 50% of the CEO's annual base salary on the date of termination of employment if such annual amount were paid for a period of 10 years in accordance with the Company’s normal payroll practices, subject to the CEO's timely execution and non-revocation of a release of claims in favor of the Company, which will be paid on the first business day following the six-month anniversary of the CEO's termination of service. Although the SERP provides that the CEO will be protected from any impact resulting from the possible application of Section 409A of the Code to the terms of the SERP due to the complexities surrounding Section 409A, the Company believes that no such payment will be required.

The Company has expensed pre-tax charges related to a decrease inboth the valuetransition of Messrs. Eisenberg and Feinstein to the role of Co-Founders and Co-Chairmen Emeriti of the Company’s net deferred tax assets.

On December 27, 2017,Board of Directors of the Company terminatedand the departure of the Company's CEO of approximately $34.8 million.


In addition, the Company maintains employment agreements with other executives which provide for severance pay and, in some instances, certain other supplemental retirement benefits.

The Company records an estimated liability related to its nonqualified deferred compensation plan (“NQDC”). After December 27, 2017, no participant deferrals will be acceptedvarious claims and all balances will be liquidated more than 12 months but less than 24 months after December 27, 2017. Until the final payment date, the NQDC will continue to operatelegal actions arising in the ordinary course exceptof business when and to the extent that no new participant deferralsit concludes a liability is probable and the amount of the loss can be reasonably estimated. Such estimated loss 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 claims and legal actions and revises its estimated liabilities, as appropriate. The Company expects the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity. The Company also cannot predict the nature and validity of claims which could be credited to participant accounts underasserted in the NQDC.

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future, and future claims could have a material impact on its earnings.




ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Bed Bath & Beyond Inc. and subsidiaries (the “Company”"Company") is an omnichannel retailer selling a wide assortment of domestics merchandise and home furnishings which operates under the names Bed Bath & Beyond (“BBB”("BBB"), Christmas Tree Shops, Christmas Tree Shops andThat! or andThat! (collectively, “CTS”"CTS"), Harmon, Harmon Face Values, or Face Values (collectively, “Harmon”"Harmon"), buybuy BABY (“Baby”("Baby") and World Market, Cost Plus World Market, or Cost Plus (collectively, “Cost"Cost Plus World Market”Market"). Customers can purchase products either in-store, online, with a mobile device or through a customer contact center. The Company generally has the ability to have customer purchases picked up in-store or shipped direct to the customer from the Company’sCompany's distribution facilities, stores or vendors. In addition, the Company operates Of a Kind, an e-commerce website that features specially commissioned, limited edition items from emerging fashion and home designers; One Kings Lane, an authority in home décor and design, offering a unique collection of select home goods, designer and vintage items; PersonalizationMall.com (“PMall”("PMall"), an industry-leading online retailer of personalized products; Chef Central, a retailer of kitchenware, cookware and homeware items catering to cooking and baking enthusiasts; and Decorist, an online interior design platform that provides personalized home design services. The Company also operates Linen Holdings, a provider of a variety of textile products, amenities and other goods to institutional customers in the hospitality, cruise line, healthcare and other industries. Additionally, the Company is a partner in a joint venture which operates eight retail stores in Mexico under the name Bed Bath & Beyond.

The Company accounts for its operations as two operating segments: North American Retail and Institutional Sales. The Institutional Sales operating segment, which is comprised of Linen Holdings, does not meet the quantitative thresholds under U.S. generally accepted accounting principles and therefore is not a reportable segment.

The Company offers an extensive selection of high quality domestics merchandise and home furnishings across all channels, concepts and countries in which it operates and strives to provide a noticeably better shopping experience through best-in-class services and solutions.

The Company’sCompany's mission is to be trusted by its customers as the expert for the home and heart-felt life events. These include certain life events that evoke strong emotional connections such as getting married, moving to a new home, having a baby, going to college and decorating a room, which the Company supports through its wedding and baby registries, mover and student life programs, and its design consultation services. The Company’s ability to achieve


To advance its mission, is driven by three broad objectives: first, to present a meaningfully differentiated and complete product assortment for the home, of the right quality product, at the right value; second, to provide services and solutions that enhance the usage and enjoyment of its offerings; and third, to deliver a convenient, engaging, and inspiring shopping experience that is intelligently personalized over time. The Company is undertakingexecuting on a number of strategic initiativescomprehensive plan to support each of these objectives, as well as to drive change across the organization in order to improve operational efficienciestransform its business and to create future growth. Through this focused approach,position the Company believes it will further strengthenfor long-term success. On May 13, 2019, the Company announced that Mary Winston, a seasoned public company executive who recently joined the Company's Board of Directors (the "Board"), was appointed Interim Chief Executive Officer (CEO), after the then CEO stepped down. The Board has formed a CEO search committee to identify a permanent CEO. During this interim period, the Board and management team are taking a more holistic approach to the Company's on-going business transformation and have identified four key near-term priorities that include: 1) stabilizing and driving top-line growth; 2) resetting the cost structure; 3) reviewing and optimizing the Company’s asset base, including its competitive position to beportfolio of retail banners; and 4) refining the customer’s first choice for the home and heart-felt life events.

Company’s organization structure.

The integration of retail store and customer facing digital channels allows the Company to provide its customers with a seamless shopping experience. In-store purchases are primarily fulfilled from that store’sstore's inventory, or may also be shipped to a customer from one of the Company’sCompany's distribution facilities, from a vendor, or from another store. Online purchases,Purchases, including web and mobile, can be shipped to a customer from the Company’sCompany's distribution facilities, directly from vendors, or from a store. The Company’sCompany's customers can also choose to pick up online orders in a store, as well as return online purchases to a store. Customers can also make online purchases through one of the Company’sCompany's customer contact centers and in-store through The Beyond Store, the Company’sCompany's proprietary, web-based platform. These capabilities allow the Company to better serve customers across various channels.

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,to: general economic conditions including the housing market, unemployment levels and commodity prices; the overall macroeconomic environment and related changes in the retailing environment; consumer preferences, spending habits and adoption of new technologies; unusual weather patterns and natural disasters; competition from existing and potential competitors across all channels; potential supply chain disruption; the ability to find suitable locations at acceptable occupancy costs and other terms to support the Company’sCompany's plans for new stores; and the ability to assess and implement technologies in support of the Company’sCompany's development of its omnichannel capabilities. The Company cannot predict whether, when or the manner in which these factors could affect the Company’sCompany's operating results.

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The results of operations for the three and nine months ended November 25, 2017 include Decorist since the date of acquisition, March 6, 2017.

The following represents an overview of the Company’sCompany's financial performance for the periods indicated:

Net sales for the three months ended November 25, 2017June 1, 2019 were $2.955$2.573 billion, relatively flata decrease of approximately 6.6% as compared with the three months ended November 26, 2016. Net sales for the nine months ended November 25, 2017 were $8.633 billion, a decrease of approximately 0.6% as compared with the nine months ended November 26, 2016.June 2, 2018.




Comparable sales for the three months ended November 25, 2017June 1, 2019 decreased by approximately 0.3%6.6%, as compared to a decrease of approximately 1.4%0.6% for the three months ended November 26, 2016.June 2, 2018. For the three months ended November 25, 2017,June 1, 2019, comparable sales consummated in-store declined in the high-single-digit percentage range, partially offset by a slight increase in comparable sales consummated through customer facing digital channels continued to have strong growth over the corresponding period in the prior year, while comparable sales consummated in-store declined in the low-single-digit percentage range.channels.

Comparable sales for the nine months ended November 25, 2017 decreased by approximately 1.7%, as compared to a decrease of approximately 1.1% for the nine months ended November 26, 2016. For the nine months ended November 25, 2017, comparable sales consummated through customer facing digital channels continued to have strong growth over the corresponding period in the prior year, while comparable sales consummated in-store declined in the mid-single-digit percentage range.


Comparable sales include sales consummated through all retail channels which have been operating for twelve full months following the opening period (typically four to six weeks). The Company is an omnichannel retailer with capabilities that allow a customer to use more than one channel when making a purchase, including in-store, online, with a mobile device or through a customer contact center, and have it fulfilled, in most cases, either through in-store customer pickup or by direct shipment to the customer from one of the Company’sCompany's distribution facilities, stores or vendors.

Sales consummated on a mobile device while physically in a store location are recorded as customer facing digital channel sales. Customer orders taken in-store by an associate through The Beyond Store, the Company’sCompany's proprietary, web-based platform, are recorded as in-store sales. Customer orders reserved online and picked up in a store are recorded as in-store sales. In-store sales are reduced by salesSales originally consummated from customer facing digital channels and subsequently returned in-store.

in-store are recorded as a reduction of in-store sales.

Stores relocated or expanded are excluded from comparable 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 store’s sales are not considered comparable once the store closing process has commenced. One Kings Lane isStores impacted by unusual and unexpected events outside the Company’s control, including severe weather, fire or floods, are excluded from the comparable sales calculation for the three and nine months ended November 25, 2017 and will continue to be excluded until after the currently in process re-platforming of One King Lane’s systems and integration of its support services have been in place for a period of time that such that thereevent would because a meaningful comparisondisparity in One Kings Lane’s sales over the prior period. PMall, Chef CentralOne Kings Lane and Decorist are also excluded from the comparable sales calculation for the three and nine months ended November 25, 2017 and Chef Central and Decorist will continue to be excluded until after the anniversary of the respective acquisition. PMall will be included in the comparable sales calculation beginning in the fourthfirst quarter of fiscal 2017 as the anniversary of the acquisition passed in November 2017.2018. Linen Holdings is excluded from the comparable sales calculations and will continue to be excluded on an ongoing basis as it represents non-retail activity.

Gross profit for the three months ended November 25, 2017June 1, 2019 was $1.041 billion,$887.2 million, or 35.2%34.5% of net sales, compared with $1.093 billion,$964.8 million, or 37.0%35.0% of net sales, for the three months ended November 26, 2016. Gross profitJune 2, 2018.
SG&A for the ninethree months ended November 25, 2017 was $3.110 billion,June 1, 2019 were $892.8 million, or 36.0%34.7% of net sales, compared with $3.233 billion, or 37.2% of net sales, for the nine months ended November 26, 2016.

Selling, general and administrative expenses (“SG&A”) for the three months ended November 25, 2017 were $932.7$883.6 million, or 31.6% of net sales, compared with $881.5 million, or 29.8%32.1% of net sales, for the three months ended November 26, 2016. Selling, general and administrative expenses for the nine months ended November 25, 2017 were $2.686 billion, or 31.1% of net sales, compared with $2.528 billion, or 29.1% of net sales, for the nine months ended November 26, 2016.June 2, 2018.


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•
Goodwill and other impairments for the three months ended June 1, 2019 were $401.3 million or 15.6% of net sales. There were no goodwill and other impairments in the three months ended June 2, 2018.

Interest expense, net for the three and nine months ended November 25, 2017June 1, 2019 was $13.6$15.9 million, and $49.4 million, respectively, compared with $18.3 million and $52.8$16.7 million for the three and nine months ended November 26, 2016.June 2, 2018.

The effective tax rate for the three months ended November 25, 2017June 1, 2019 was 35.3%12.2%, as compared with 34.5%32.4% for the three months ended November 26, 2016.June 2, 2018. For the three months ended June 1, 2019, the effective tax rate reflects the impact of charges for goodwill and other impairments and severance costs, portions of which are non-deductible for tax purposes. The tax rates also included other discrete tax items resulting in net benefitsafter tax costs of approximately $3.3$12.5 million and $6.0$3.4 million, respectively, for the three months ended November 25, 2017June 1, 2019 and November 26, 2016, respectively.June 2, 2018.

The effective tax rate for the nine months ended November 25, 2017 was 38.4%, as compared with 36.2% for the nine months ended November 26, 2016. For the nine months ended November 25, 2017, the effective tax rate included the effect of the adoption of ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Share-Based Payment Accounting, (“ASU 2016-09, Stock Compensation”), which increased income tax expense by approximately $9.4 million. Also, the tax rates included other discrete tax items resulting in net benefits of approximately $8.5 million and $9.4 million, respectively, for the nine months ended November 25, 2017 and November 26, 2016.


For the three months ended November 25, 2017,June 1, 2019, net earningsloss per diluted share were $0.44was $(2.91) ($61.3(371.1) million), as compared with net earnings per diluted share of $0.85$0.32 ($126.443.6 million) for the three months ended November 26, 2016.June 2, 2018. The decrease in net earnings per diluted share for the three months ended November 25, 2017June 1, 2019 is the result of the decrease in net earnings due to the items described above, partially offset by the impact of the Company’sCompany's repurchases of its common stock.

For In addition, for the ninethree months ended November 25, 2017,June 1, 2019, net earnings per diluted share were $1.64 ($230.8 million), as compared with net earnings per diluted share of $2.76 ($416.4 million) for the nine months ended November 26, 2016. The decrease in net earnings per diluted share for the nine months ended November 25, 2017 is the result of the decrease in net earnings due to the items described above, partially offset by the impact of the Company’s repurchases of its common stock. For the nine months ended November 25, 2017, net earningsloss per diluted share included the unfavorable impacts of the cash restructuring charges associated with the acceleration of the realignment of its store management structureimpact of approximately $0.08,$3.03 related to the goodwill and the adoption of ASU 2016-09, Stock Compensation of approximately $0.07.

other impairments charge, severance costs and shareholder activity costs.


Capital expenditures for the ninethree months ended November 25, 2017June 1, 2019 and November 26, 2016June 2, 2018 were $264.0$68.4 million and $276.4$97.8 million, respectively. In the first ninethree months of fiscal 2017, more than 40%2019, approximately 50% of the capital expenditures were forrelated to technology projects, including investments in the Company’sCompany's digital capabilities, and the development and deployment of new systems and equipment in its stores. The remaining capital expenditures were primarily related to new store openings and investments in stores, the Company’s new Las Vegas distribution facility, which began shipping to customers during the third quarter of fiscal 2017, and its new customer contact center in Florida. existing stores.
The Company continues to review and prioritize its capital needs and remains committed to making the required investments in its infrastructure, including adding resources, to help position the Company for continued growth and success.

The Company continues to make the investments and add the resources necessary to position itself for long-term success. Key areas of investment include: continuing to improve the presentation and content as well as the functionality, general search and navigation



across its customer facing digital channels; improving customer data integration and customer relations management capabilities; continuing to enhance service offerings to its customers; continuing to strengthen and deepen its information technology, analytics, marketing and e-commerce groups; and creating more flexible fulfillment options that will improve the Company’sCompany's delivery capabilities and lower the Company’sCompany's shipping costs. These and other investments are expected to, among other things, provide a seamless and compelling customer experience across the Company’sCompany's omnichannel retail platform.

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During the ninethree months ended November 25, 2017,June 1, 2019, the Company opened 20three new stores and closed eight stores. The Company plans to continue to actively manage its real estate portfolio in order to permit store sizes, layouts, locations and offerings to evolve over time to optimize market profitability and will renovate or reposition stores within markets when appropriate. Over the past several years, the Company’sCompany's pace of its store openings has slowed, and the Company has increased the number of store closings. If theThe Company cannot reach acceptableexpects to close a minimum of approximately 40 stores in fiscal 2019, unless it is able to negotiate more favorable lease terms with its landlords as leases come up for renewal,landlords. These expected closures are primarily Bed Bath & Beyond stores. In fiscal 2019, the Company would expect the pace of store closingsexpects to increase as a result of its assumptions regarding bricks and mortar store traffic in future years as well as the continuation of the Company’s market optimization strategy. As of November 25, 2017, the Company has opened 20 new stores, with the potential of two or so more openings before the end of fiscal 2017. Also, the Company plans to closeopen approximately 15 stores, all of which would result in a net reduction of five BBB stores in fiscal 2017.new stores. Additionally, the Company expects to continue to invest in technology related projects, including the deployment of new systems and equipment in its stores, enhancements to the Company’s customer facing digital channels, ongoing investment in its data warehouse and data analytics and the continued development and deployment of a new point of sale system.


During fiscal 2016, the Company’sCompany's Board of Directors authorized a quarterly dividend program. During the ninethree months ended November 25, 2017June 1, 2019 and November 26, 2016, quarterlyJune 2, 2018, total cash dividends totaling $0.45of $21.9 million and $0.375 per share$21.4 million were declared by the Company’s Board of Directors, of which $0.30 and $0.25 per share was paid, respectively. Subsequent to the end of the thirdfirst quarter of fiscal 2017,2019, on December 20, 2017,July 8, 2019, the Company’sCompany's Board of Directors declared a quarterly dividend of $0.15$0.17 per share to be paid on April 17, 2018October 15, 2019 to shareholders of record as of the close of business on March 16, 2018.September 13, 2019. The Company expects to pay quarterly cash dividends on its common stock in the future, subject to the determination by the Board of Directors, based on an evaluation of the Company’sCompany's earnings, financial condition and requirements, business conditions and other factors.

During the three and nine months ended November 25, 2017,June 1, 2019, the Company repurchased approximately 0.95.3 million and 6.0 million shares respectively, of its common stock at a total cost of approximately $23.6 million and $207.3 million, respectively.$81.5 million. During the three and nine months ended November 26, 2016,June 2, 2018, the Company repurchased approximately 1.81.2 million and 8.3 million shares respectively, of its common stock at a total cost of approximately $76.0 million and $375.5 million, respectively.$22.1 million. The Company’sCompany's share repurchase program may be influenced by several factors, including business and market conditions. The Company reviews its alternatives with respect to its capital structure on an ongoing basis.

Results of Operations

Net Sales


Net sales for the three months ended November 25, 2017June 1, 2019 were $2.955$2.573 billion, relatively flat asa decrease of $180.7 million or approximately 6.6%, compared withto $2.754 billion of net sales for the corresponding quarter last year,year. The decrease in net sales for the three months ended June 1, 2019 was primarily due to a decrease of approximately 0.3% in comparable sales, offset by an increase in the Company’s non-comparable sales including One Kings Lane, PMall and new stores.

Net sales for the nine months ended November 25, 2017 were $8.633 billion, a decrease of $48.8 million or approximately 0.6% compared with net sales of $8.682 billion for the corresponding nine months last year, due to a decrease of approximately 1.7% in comparable sales, partially offset by an increase of approximately 1.1% in non-comparable sales including One Kings Lane, PMall and new stores.

sales.


The decrease in comparable sales for the three and nine months ended November 25, 2017June 1, 2019 was approximately 0.3% and 1.7%, respectively,6.6% as compared to a decrease of approximately 1.4% and 1.1%0.6% for the three and nine months ended November 26, 2016.June 2, 2018. The decrease in comparable sales for the three and nine months ended November 25, 2017June 1, 2019 was due to a decrease in the number of transactions in stores, partially offset by an increase in the average transaction amount.


The Company’sCompany's comparable sales metric considers sales consummated through all retail channels –- in-store, online, with a mobile device or through a customer contact center. Customers today may take advantage of the Company’sCompany's omnichannel environment by using more than one channel when making a purchase. The Company believes in an integrated and seamless customer experience. A few examples are: a customer may be assisted by an in-store associate to create a wedding or baby registry, while the guests may ultimately purchase a gift from the Company’sCompany's websites; or a customer may research a particular item, and read other customer reviews on the Company’sCompany's websites before visiting a store to consummate the actual purchase; or a customer may reserve an item online for in-store pick up; or while in a store, a customer may make the purchase on a mobile device for in home delivery from either a distribution facility, a store or directly from a vendor. In addition, the Company accepts returns in-store without regard to the channel in which the purchase was consummated, therefore resulting in reducing store sales by sales originally consummated through customer facing digital channels. As the Company’sCompany's retail operations are integrated and it cannot reasonably track the channel in which the ultimate sale is initiated, the Company can, however, provide directional information on where the sale was consummated.

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For the three months ended November 25, 2017,June 1, 2019, comparable sales consummated in-store declined in the high-single-digit percentage range, partially offset by a slight increase in comparable sales consummated through customer facing digital channels continued to have strong growth over the corresponding period in the prior year, while comparable sales consummated in-store declined in the low-single-digit percentage range. For the nine months ended November 25, 2017, comparable sales consummated through customer facing digital channels continued to have strong growth over the corresponding period in the prior year, while comparable sales consummated in-store declined in the mid-single-digit percentage range.

channels.



For the three and nine months ended November 25, 2017,June 1, 2019, comparable sales represented $2.825$2.489 billion and $8.257of net sales. For the three months ended June 2, 2018, comparable sales represented $2.667 billion of net sales, respectively. For the three and nine months ended November 26, 2016, comparable sales represented $2.843 billion and $8.367 billion of net sales, respectively.

Domestics merchandise includes categories such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings (including furniture and wall décor), consumables and certain juvenile products. Sales of domestics merchandise and home furnishings for the Company accounted for approximately 35.7%35.6% and 64.3%64.4% of net sales, respectively, for the three months ended November 25, 2017June 1, 2019, and approximately 36.4%36.0% and 63.6%64.0% of net sales, respectively, for the three months ended June 2, 2018.
Gross Profit
Gross profit for the three months ended June 1, 2019 was $887.2 million, or 34.5% of net sales, compared with $964.8 million, or 35.0% of net sales, for the three months ended November 26, 2016. SalesJune 2, 2018. In order of domestics merchandise and home furnishings formagnitude, the Company accounted for approximately 37.0% and 63.0%of net sales, respectively, for the nine months ended November 25, 2017 and approximately 37.3% and 62.7% of net sales for the nine months ended November 26, 2016.

Gross Profit

Gross profit for the three months ended November 25, 2017 was $1.041 billion, or 35.2% of net sales, compared with $1.093 billion, or 37.0% of net sales, for the three months ended November 26, 2016. The decrease in the gross profit margin as a percentage of net sales for the three months ended November 25, 2017June 1, 2019 was primarily attributed to in order of magnitude: a decrease in merchandise margin;margin, partially offset by decreases in coupon expense and net direct-to-customer shipping expense. The decrease in coupon expense was the result of a decrease in the number of redemptions with fewer pieces distributed, partially offset by an increase in coupon expense, resulting from increases in redemptions and the average coupon amount; and an increase in net direct to customer shipping expense.

Gross profit foramount.


In addition, the nine months ended November 25, 2017 was $3.110 billion, or 36.0% of net sales, compared with $3.233 billion, or 37.2% of net sales, for the nine months ended November 26, 2016. The decreaseCompany is investing in the lifetime value of its customers through its annual Beyond Plus membership program. The richer benefits of this program, including twenty percent off entire purchase and free shipping, are realized immediately upon sale and had, and will continue to have, an impact on the Company's gross profitmargin during the period of increasing enrollment. The Beyond Plus membership fee is amortized over the one-year membership period. The Company estimated that the impact of these programs reduced gross margin as a percentage of net sales by approximately 60 basis points for the nine months ended November 25, 2017 was primarily attributed to, in orderfirst quarter of magnitude: a decrease in merchandise margin; an increase in net direct to customer shipping expense;fiscal 2019 and an increase in coupon expense, resulting from increases in redemptions andapproximately 40 basis points for the average coupon amount.

first quarter of fiscal 2018.


Selling, General and Administrative Expenses

SG&A for the three months ended November 25, 2017June 1, 2019 was $932.7$892.8 million, or 31.6%34.7% of net sales, compared with $881.5$883.6 million, or 29.8%32.1% of net sales, for the three months ended November 26, 2016.June 2, 2018. The increase in SG&A, as a percentage of net sales was primarily attributable to, in order of magnitude: an increase in advertising expenses, due in part to the growth in digital advertising; an increase in technology expenses and related depreciation and an increaseincreases in payroll and payroll related items (including medical insurance).

SG&Apayroll-related expenses (primarily due to severance), technology-related expenses, including depreciation, and shareholder activity costs.


Goodwill and other impairments
Goodwill and other impairments for the ninethree months ended November 25, 2017June 1, 2019 was $2.686 billion,$401.3 million, or 31.1%15.6% of net sales. Goodwill impairments were $391.1 million and tradename impairments were $10.2 million. The non-cash pre-tax goodwill impairment charges were primarily the result of a sustained decline in the Company's market capitalization. There were no goodwill or other impairments for the three months ended June 2, 2018.

Operating (Loss) Profit
Operating loss for the three months ended June 1, 2019 was $406.8 million, or 15.8% of net sales, compared with $2.528 billion, or 29.1%operating profit of net sales, for the nine months ended November 26, 2016. The increase in SG&A, as a percentage of net sales was primarily attributable to, in order of magnitude: an increase in advertising expenses, due in part to the growth in digital advertising; an increase in payroll and payroll related items (including salaries); an increase in technology expenses and related depreciation; and the store management restructuring charges.

Operating Profit

Operating profit for the three months ended November 25, 2017 was $108.4$81.2 million, or 3.7% of net sales, compared with $211.3 million, or 7.1% of net sales, during the comparable period last year. For the nine months ended November 25, 2017, operating profit was $424.2 million, or 4.9% of net sales, compared with $705.3 million, or 8.1%2.9% of net sales, during the comparable period last year. The changes in operating profit as a percentage of net sales were the result of the reductions in gross profit margin and the increases in SG&A as a percentage of net sales and goodwill and other impairments as described above.

The Company believes operating margin compression is likely to continue in fiscal 2017 as a result of several items, including, as a percentage of net sales, a decrease in merchandise margin and increases in, net direct to customer shipping expense; coupon expense; payroll and payroll-related expense; advertising expense; cash restructuring charges associated with the acceleration of the realignment of its store management structure; and technology expenses, including depreciation related to the Company’s ongoing investments. In addition, operating margin compression is likely to continue due to increases in the overall expense structure for the accelerated spending associated with the Company’s organizational changes and transformational initiatives, as well as the unfavorable impacts of Hurricanes Harvey, Irma and Maria.

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Interest Expense, net

Interest expense, net for the three months ended November 25, 2017June 1, 2019 was $13.6$15.9 million, compared to $18.3with $16.7 million for the three months ended November 26, 2016. June 2, 2018. For the three months ended November 25, 2017June 1, 2019 and November 26, 2016,June 2, 2018, interest expense, net primarily related to interest on the senior unsecured notes issued by the Company in July 2014. The decrease in interest expense, net was primarily the result of a $4.7 million favorable change in the value of the Company’s nonqualified deferred compensation plan (“NQDC”) investments. This favorable change was fully offset by a corresponding unfavorable change in the NQDC liability recorded in SG&A. These changes resulted in no net impact to the consolidated statement of earnings.

Interest expense, net for the nine months ended November 25, 2017 was $49.4 million compared to $52.8 million for the nine months ended November 26, 2016. For the nine months ended November 25, 2017 and November 26, 2016 interest expense, net primarily related to interest on the senior unsecured notes issued in July 2014. The decrease in interest expense, net was primarily the result of a $2.6 million favorable change in the value of the Company’s NQDC investments. This favorable change was fully offset by a corresponding unfavorable change in the NQDC liability recorded in SG&A. These changes resulted in no net impact to the consolidated statement of earnings.


Income Taxes

The effective tax rate for the three months ended November 25, 2017June 1, 2019 was 35.3%12.2%, compared with 34.5%32.4% for the three months ended November 26, 2016.June 2, 2018. For the three months ended June 1, 2019, the effective tax rate reflects the impact of charges for goodwill and other impairments and severance costs, portions of which are non-deductible for tax purposes. The tax raterates also included other discrete tax items resulting in net after tax costs of approximately $12.5 million and $3.4 million, respectively, for the three months ended November 25, 2017June 1, 2019 and November 26, 2016 included net benefits of approximately $3.3 million and $6.0 million, respectively,June 2, 2018, due to discrete federal and state tax eventsitems occurring during these quarters.

The effective tax rate for the nine months ended November 25, 2017 was 38.4% compared with 36.2% for the nine months ended November 26, 2016. For the nine months ended November 25, 2017, the effective tax rate included the effect of the adoption of ASU 2016-09, Stock Compensation, which increased income tax expense by approximately $9.4 million. The effect of this adoption in fiscal 2017 is expected to vary by quarter, and as anticipated, was heavily weighted toward the first quarter. The adoption of the standard does not affect the Company’s cash outflows for income taxes. Also, the tax rate for the nine months ended November 25, 2017 and November 26, 2016 included net benefits of approximately $8.5 million and $9.4 million, respectively, due to discrete tax events occurring during the first nine months of fiscal 2017 and 2016.




Potential volatility in the effective tax rate from year to year may occur as the Company is required each year to determine whether new information changes the assessment of both the probability that a tax position will effectively be sustained and the appropriateness of the amount of recognized benefit. 

On December 22, 2017, H.R.1 - An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, also known as the Tax Cuts and Jobs Act, (the “Act”) was enacted. The Company is currently reviewing the components of the Act and evaluating its impact, which could be material on the Company’s fiscal year 2017 consolidated financial statements and related disclosures, including a one-time, non-cash expense related to a decrease in the value of the Company’s net deferred tax assets.

Net (Loss) Earnings

As a result of the factors described above, net earningsloss for the three and nine months ended November 25, 2017June 1, 2019 were $61.3$371.1 million, and $230.8 million, respectively, compared with $126.4net earnings of $43.6 million and $416.4 million, respectively, for the corresponding period in fiscal 2016.

2018.

Growth

In

The Company has undertaken significant change to adapt to the 24-yeardynamic retail environment and the evolving needs of its customers to improve its competitive position and has been executing on a comprehensive plan to transform its business and position the Company for long-term success. During this interim period fromas described above, the Board and management team are taking a more holistic approach to the Company's on-going business transformation and have identified four key near-term priorities that include: 1) stabilizing and driving top-line growth; 2) resetting the cost structure; 3) reviewing and optimizing the Company’s asset base, including its portfolio of retail banners; and 4) refining the Company’s organization structure.

The continued growth of the Company is dependent, in part, upon the Company’s ability to execute its transformation strategy successfully.

From the beginning of fiscal 1992 to the end of the thirdfirst quarter of fiscal 2017,2019, the chainCompany has grown from 34 stores to 1,5581,536 stores plus the Company’sCompany's interactive platforms, including websites and applications, and distribution facilities. Total store square footage, net of openings and closings, grew from approximately 0.9 million square feet at the beginning of fiscal 1992 to approximately 43.843.2 million square feet at the end of the thirdfirst quarter of fiscal 2017.

2019, and included three store openings in the first quarter of fiscal 2019. In addition, as of November 25, 2017,fiscal 2019, the Company hasexpects company-wide to open approximately 15 new stores, and close a minimum of approximately 40 stores, unless it can negotiate more favorable lease terms with landlords. Over the past several years, sales from the Company’s customer facing digital channels have continued to experience strong growth.

As of June 1, 2019, the Company had distribution facilities totaling approximately 7.2 million square feet, supporting the growth of its customer facing digital channels as well as its stores and its institutional sales segment.  During the third quarter of fiscal 2017, the Company’s newest distribution facility in Las Vegas, Nevada began shipping to customers. The new facility will replace a smaller distribution facility in that area, which will close in late 2017, and provide additional capacity to support the growth of the Company’s customer facing digital channels.

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The Company plans to continue to invest in its infrastructure and its operations, including its digital, web and mobile capabilities, to reach its long-term objectives, including providing a better omnichannel experience for its customers. As of November 25, 2017, the Company has opened 20 new stores, with the potential of two or so more openings before the end of fiscal 2017. Also, the Company plans to close approximately 15 stores, all of which would result in a net reduction of five BBB stores in fiscal 2017. Also, the Company is committed to the continued growth of its merchandise categories and channels and is growing the number of items it is able to have shipped directly to customers from a vendor. The continued growth of the Company is dependent, in part, upon the Company’s ability to execute these and other key initiatives successfully.

The Company has built its management structure with a view towards its growth and believes that, as a result, it has the necessary management depth.

Liquidity and Capital Resources

The Company has been able to finance its operations, including its growth and acquisitions, substantially through internally generated funds. The Company ended the first quarter of fiscal 2019 in a strong cash position, which it anticipates maintaining, to provide the Company the flexibility to fund its ongoing initiatives and act upon other opportunities that may arise. As of June 1, 2019, the Company had approximately $922.7 million in cash and investment securities, an increase of approximately $75.8 million compared with the corresponding period in fiscal 2018. For fiscal 2017,2019, the Company believes that it can continue to finance its operations, including its growth, cash dividends, planned capital expenditures, debt service obligations, cash dividends, and share repurchases, through existing and internally generated funds. The Company believes it will end fiscal 2017 with approximately the same or slightly higher cash and investment balances than fiscal 2016. In addition, if necessary, the Company could borrow under its $250 million revolving credit facility or the available balances under its lines of credit. Capital expenditures for fiscal 20172019 are planned to be approximately $350 million to $400$375 million, subjectalthough the Company is continuing to evaluate its capital projects for the timing and composition of projects, with approximately half for information technology projects in support of the Company’s growing omnichannel capabilities.fiscal year. In addition, the Company reviews its alternatives with respect to its capital structure on an ongoing basis.

Fiscal 20172019 compared to Fiscal 2016

2018

Net cash provided by operating activities for the ninethree months ended November 25, 2017June 1, 2019 was $491.8$90.1 million, compared with $744.2$245.0 million in the corresponding period in fiscal 2016.2018. Year over year, the Company experienced a decrease in net earnings, and an increase in cash usedprovided by the net components of working capital (primarily accounts payable,prepaid expenses and other current assets and accrued expenses and other current liabilities, partially offset by merchandise inventoriesaccounts payable) and other current assets).

a decrease in net earnings.

Retail inventory, which includes inventory in the Company’s distribution facilities for direct to customer shipments, was approximately $3.1$2.5 billion as of November 25, 2017,at June 1, 2019, a decrease of approximately 2.2%4.8% compared to retail inventory as of November 26, 2016.

at June 2, 2018. The Company continues to focus on its inventory optimization strategies.

Net cash used inprovided by investing activities for the ninethree months ended November 25, 2017June 1, 2019 was $270.1$217.6 million, compared with $394.0$134.7 million in the corresponding period of fiscal 2016.2018. For the ninethree months ended November 25, 2017,June 1, 2019, net cash used inprovided by investing activities was primarily due to $264.0 $286.0 million of redemptions of investment securities, net of purchases, partially offset by $68.4


million of capital expenditures. For the ninethree months ended November 26, 2016,June 2, 2018, net cash used inprovided by investing activities was primarily due to $276.4 million of capital expenditures and $200.5 million of payments related to acquisitions, net of acquired cash, partially offset by $86.2$232.5 million of redemptions of investment securities.

securities, net of purchases, partially offset by $97.8 million of capital expenditures.


Net cash used in financing activities for the ninethree months ended November 25, 2017June 1, 2019 was $257.6$103.4 million, compared with $392.6$43.5 million in the corresponding period of fiscal 2016.2018. The decreaseincrease in net cash used in financing activities was primarily due to a decreasean increase in common stock repurchases of $168.3 million, partially offset by an increase in the amount paid for dividends of $22.7$59.4 million.

Seasonality

The Company’sCompany's business is subject to seasonal influences. Generally, its sales volumes are higher in the calendar months of August, November and December, and lower in February.

Critical Accounting Policies

See “Critical"Critical Accounting Policies”Policies" under Item 7 of the Company’sCompany's Annual Report on Form 10-K for the fiscal year ended February 25, 2017 (“2016March 2, 2019 ("2018 Form 10-K”10-K"), filed with the Securities and Exchange Commission (“SEC”("SEC") and incorporated by reference herein. ThereExcept for the changes due to the adoption of ASU 2016-02 related to leases discussed in "Recent Accounting Pronouncements," Note 2, there were no changes to the Company’sCompany's critical accounting policies during the first ninethree months of fiscal 2017.

2019.
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Forward-Looking Statements
 

Forward-Looking Statements

This Form 10-Q may contain forward-looking statements. Many of these forward-looking statements can be identified by use of words such as may, will, expect, anticipate, approximate, estimate, assume, continue, model, project, plan, goal and similar words and phrases. The Company’sCompany's actual results and future financial condition may differ materially from those expressed in any such forward-looking statements as a result of many factors. Such factors include, without limitation: general economic conditions including the housing market, a challenging overall macroeconomic environment and related changes in the retailing environment; consumer preferences, spending habits and adoption of new technologies; demographics and other macroeconomic factors that may impact the level of spending for the types of merchandise sold by the Company; civil disturbances and terrorist acts; unusual weather patterns and natural disasters; competition from existing and potential competitors across all channels; pricing pressures; liquidity; the ability to achieve anticipated cost savings, and to not exceed anticipated costs, associated with organizational changes;changes and investments; the ability to attract and retain qualified employees in all areas of the organization;organization, including a permanent Chief Executive Officer; the cost of labor, merchandise and other costs and expenses; potential supply chain disruption due to trade restrictions, political instability, labor disturbances, product recalls, financial or operational instability of suppliers or carriers, and other items; the ability to find suitable locations at acceptable occupancy costs and other terms to support the Company’s plans for new stores; the ability to establish and profitably maintain the appropriate mix of digital and physical presence in the markets it serves; the ability to assess and implement technologies in support of the Company’s development of its omnichannel capabilities; uncertainty in financial markets; volatility in the price of the Company’s common stock and its effect, and the effect of other factors, on the Company’s capital allocation strategy; the impact of goodwill and intangible asset impairments; disruptions to the Company’s information technology systems including but not limited to security breaches of systems protecting consumer and employee information;information or other types of cybercrimes or cybersecurity attacks; reputational risk arising from challenges to the Company’s or a third party product or service supplier’s compliance with various laws, regulations or standards, including those related to labor, health, safety, privacy or the environment; reputational risk arising from third-party merchandise or service vendor performance in direct home delivery or assembly of product for customers; changes to statutory, regulatory and legal requirements, including without limitation proposed changes affecting international trade;trade, changes to, or new tax laws or interpretation of existing tax laws; new, or developments in existing, litigation, claims or assessments; changes to, or new, accounting standards; foreign currency exchange rate fluctuations; and the integration of acquired businesses. The Company does not undertake any obligation to update its forward-looking statements.

Available Information

The Company makes available as soon as reasonably practicable after filing with the SEC, free of charge, through its website, www.bedbathandbeyond.com, the Company’sCompany's 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 or 15(d) of the Securities Exchange Act of 1934.

Item 3. Quantitative and Qualitative Disclosures about Market Risk



The Company’sCompany's exposure to market risk for changes in interest rates relates primarily to the Company’sCompany's investment securities. The Company’sCompany's market risks at November 25, 2017June 1, 2019 are similar to those disclosed in Item 7A of the Company’s 2016Company's 2018 Form 10-K.

As of November 25, 2017,June 1, 2019, the Company’sCompany's investments include cash and cash equivalents of approximately $453.1$700.4 million, short-term investment securities of $201.7 million and long term investments in auction rate securities of approximately $19.5$20.6 million at weighted average interest rates of 0.54%1.60%, 2.45% and 0.15%2.67%, respectively. The book value of these investments is representative of their fair values.

The Company’sCompany's senior unsecured notes have fixed interest rates and are not subject to interest rate risk. As of November 25, 2017,June 1, 2019, the fair value of the senior unsecured notes was $1.380$1.151 billion, which is based on quoted prices in active markets for identical instruments compared to the carrying value of approximately $1.500$1.495 billion.

Item 4. Controls and Procedures

(a)
Disclosure Controls and Procedures


The Company’sCompany's management, with the participation of its Principal Executive Officer and Principal Financial Officer, have reviewed and evaluated the effectiveness of the Company’sCompany's disclosure controls and procedures (as defined in Exchange Act Rules 240.13a-15(e) and 15d-15(e)) as of November 25, 2017June 1, 2019 (the end of the period covered by this quarterly report on Form 10-Q). Based on that evaluation, the Principal Executive Officer and the Principal Financial Officer have concluded that the Company’sCompany's current disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’sSEC's rules and forms and (ii) accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure.

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(b)
Changes in Internal Control over Financial Reporting


On March 3, 2019, the Company adopted the new lease accounting standard, ASU 2016-02, Leases (Topic 842). As part of the adoption of the new lease standard, the Company implemented new lease accounting software and updated the Company's internal controls and processes. There were no other changes in the Company’sCompany's internal controls over financial reporting that occurred during the Company’sCompany's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’sCompany's internal controls over financial reporting.

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PART II - OTHER INFORMATION

Item1. Legal Proceedings

The District Attorney's office for the County of Ventura, together with District Attorneys for other counties in California (together, the “District Attorneys"), recently concluded an investigation regarding the management and disposal at the Company's stores in California of certain materials that may be deemed hazardous or universal waste under California law. On March 19, 2019, the District Attorneys provided the Company with a settlement demand that included a proposed civil penalty, reimbursement of investigation costs, and certain injunctive relief, including modifications to the Company's existing compliance program, which already includes associate training, on-going review of disposal rules applicable to various product categories, and specialized third-party disposal. The Company is working with the District Attorneys towards a resolution of this matter and has recorded an accrual for the estimated probably loss for this matter as of June 1, 2019 and as of March 2, 2019. While no assurance can be given as to its ultimate outcome, the Company does not believe that the final resolution of this matter will have a material effect on the Company’s consolidated financial position, results of operations or liquidity.

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 Company’s businessCompany's consolidated financial position, results of operations or financial condition.

liquidity.

Item1A. Risk Factors

In addition to the other information set forth in this Form 10-Q, carefully consider the factors discussed under “Risk Factors”"Risk Factors" in the Company’s 2016Company's 2018 Form 10-K as filed with the Securities and Exchange Commission. These risks could materially adversely affect the Company’sCompany's business, financial condition and results of operations. These risks are not the only risks the Company faces. The Company’sCompany's operations could also be affected by additional factors that are not presently known to the Company or by factors that the Company currently considers immaterial to its business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company’sCompany's purchases of its common stock during the thirdfirst quarter of fiscal 20172019 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 (2) or Programs (1) Programs (1) (2)
August 27, 2017 - September 23, 2017  544,200  $27.74   544,200  $1,537,804,782 
September 24, 2017 - October 21, 2017  262,800  $22.73   262,800  $1,531,832,486 
October 22, 2017 - November 25, 2017  122,200  $20.32   122,200  $1,529,349,716 
Total  929,200  $25.35   929,200  $1,529,349,716 

PeriodTotal Number of Shares Purchased (1) Average Price Paid per Share (2) 
Total Number of
Shares Purchased as
Part of Publicly or Announced Plans Programs (1)
 
Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under
the Plans or Programs (1)(2)
March 3, 2019 - March 30, 2019109,300
 $15.25
 109,300
 $1,334,548,987
March 31, 2019 - April 27, 201945,500
 $17.73
 45,500
 $1,333,742,361
April 28, 2019 - June 1, 20195,141,100
 $15.36
 5,141,100
 $1,254,761,328
Total5,295,900
 $15.38
 5,295,900
 $1,254,761,328
(1) Between December 2004 and September 2015, the Company's Board of Directors authorized, through several share repurchase programs, the repurchase of $11.950 billion of its shares of common stock. The Company has authorization 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, as indicated in this table, also include shares withheld to cover employee related taxes on vested restricted shares and performance stock unit awards.

(2) Excludes brokerage commissions paid by the Company.         

Item 5. Other Information.

On December 27, 2017, in accordance with Treasury Regulation Section 1.409A-3(j)(4)(ix)(C), the Company terminated the Bed Bath & Beyond Inc. Nonqualified Deferred Compensation Plan 2016 Restatement, effective January 1, 2016 (see Exhibit 10.1 to the Company’s Form 10-Q filed with the Commission on July 6, 2016), and its predecessor plan, the Bed Bath & Beyond Inc. Nonqualified Deferred Compensation Plan, adopted December 23, 2008 and frozen effective January 1, 2016 (see Exhibit 10.2 to the Company’s Form 10-Q filed with the Commission on July 6, 2016) and all similar arrangements (together, the “Nonqualified Deferred Compensation Plans”).

After December 27, 2017, no participant deferrals will be accepted and all balances will be liquidated more than 12 months but less than 24 months after December 27, 2017. Until the final payment date, the Nonqualified Deferred Compensation Plans will continue to operate in the ordinary course, except that no new participant deferrals will be credited to participant accounts under the Nonqualified Deferred Compensation Plans. All of the Company’s named executive officers have accounts under the Nonqualified Deferred Compensation Plans.

On December 27, 2017, the Board of Directors of Bed Bath & Beyond Inc. (the “Company”) amended Article II, Section 11B(1) of its Amended By-Laws (the “Amendment”). The Amendment clarifies that, for purposes of calculating the Required Ownership Percentage (as defined in Article II, Section 11B(2) of the Amended By-Laws) for proxy access purposes, a shareholder is not deemed to own shares with respect to which the shareholder’s economic interest has been reduced or otherwise hedged as a result of any transaction, including a short sale. The Amendment became effective on December 27, 2017. The foregoing is qualified in its entirety by reference to the text of the Company’s Amended By-Laws, a copy of which is attached as Exhibit 3.1.

Item 6. Exhibits

The exhibits to this Report are listed in the Exhibit Index included elsewhere herein.



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

BED BATH & BEYOND INC.
(Registrant)
Date: December 28, 2017By: /s/ Susan E. Lattmann
Susan E. Lattmann
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit No.Exhibit
  
3.1
Amended and Restated By-Laws of Bed Bath & Beyond Inc. (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed with the SEC on June 19, 2019)
  
10.1*10.1
Amendment datedCooperation and Support Agreement (dated as of November 1, 2017May 28, 2019) (incorporated by reference to Employment Agreement betweenExhibit 99.2 to the Company and Susan LattmannCompany's Form 8-K filed with the Commission on June 3, 2019)
  
31.131.1*
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  
31.231.2*
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  
3232*
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  
101.INSXBRL Instance Document
  
101.SCHXBRL Taxonomy Extension Schema Document
  
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
  
101.LABXBRL Taxonomy Extension Label Linkbase Document
  
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
  
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
________________
*Filed herewith.






SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
  BED BATH & BEYOND INC.

________________

(Registrant)
  
*Date: July 10, 2019This is a management contract or compensatory plan or arrangement.By: /s/ Robyn M. D'Elia
Robyn M. D'Elia
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)

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