1
EXHIBIT 13
Fiscal Year Ended(1)
--------------------------------------------------------------------------------------------------
(in thousands, except per share February 26, February 27, February 28, March 1, February 25, February 26, February 27, February 28,
and selected operating data) 2000 1999 1998 1997 1996 1995 1994 1993
===================================================================================================================================
STATEMENT OF EARNINGS DATA:
Net sales $1,877,966 $1,397,197 $1,066,612 $ 823,178 $ 601,252 $ 440,261 $ 305,767 $ 216,712
Gross profit 766,856 576,125 441,016 341,168 250,036 183,819 127,972 90,528
Operating profit 209,340 158,052 118,914 90,607 67,585 51,685 36,906 26,660
Net earnings 131,229 97,346 73,142 55,015 39,459 30,013 21,887 15,960
Net earnings per share -
Diluted (2) $ .91 $ .68 $ .51 $ .39 $ .28 $ .22 $ .16 $ .12
SELECTED OPERATING DATA:
Number of stores open
(at period end) 241 186 141 108 80 61 45 38
Total square feet of store
space (at period end) 9,815,000 7,688,000 5,767,000 4,347,000 3,214,000 2,339,000 1,512,000 1,128,000
Percentage increase in
comparable store net sales 9.2% 7.6% 6.4% 6.1% 3.8% 12.0% 10.6% 7.2%
BALANCE SHEET DATA (AT PERIOD END):
Working capital (3) $ 360,585 $ 267,557 $ 188,293 $ 127,333 $ 91,331 $ 74,390 $ 56,001 $ 34,842
Total assets 865,800 633,148 458,330 329,925 235,810 176,678 121,468 76,654
Long - term debt - - - - 5,000 16,800 13,300 --
Shareholders' equity $ 559,045 $ 411,087 $ 295,397 $ 214,361 $ 151,446 $ 108,939 $ 77,305 $ 54,643
(1) Each fiscal year represents 52 weeks, except for fiscal 1996 which
represents 52 weeks and 6 days.
(2) Net earnings per share amounts have been adjusted for two-for-one stock
splits of the Company's common stock (each of which was effected in the
form of a 100% stock dividend), which were distributed in fiscal
1998, 1996 and 1993. The Company has not declared any cash dividends in
any of the fiscal years noted above.
(3) Certain reclassifications have been made to selected financial data from
prior years to conform to the fiscal 1999 presentation.
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated (i) selected statement
of earnings data of the Company expressed as a percentage of net sales and (ii)
the percentage change from the prior year in selected statement of earnings
data:
FISCAL YEAR ENDED
--------------------------------------------------------------------------
PERCENTAGE PERCENTAGE CHANGE
OF NET SALES FROM PRIOR YEAR
- ----------------------------------------------------------------------------------------------------------------------
FEBRUARY 26, FEBRUARY 27, FEBRUARY 28, FEBRUARY 26, FEBRUARY 27,
2000 1999 1998 2000 1999
- ----------------------------------------------------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0% 34.4% 31.0%
Cost of sales, including buying,
occupancy and indirect costs 59.2 58.8 58.7 35.3 31.2
Gross profit 40.8 41.2 41.3 33.1 30.6
Selling, general and
administrative expenses 29.7 29.9 30.2 33.4 29.8
Operating profit 11.1 11.3 11.1 32.5 32.9
Earnings before provision
for income taxes 11.5 11.6 11.4 33.2 33.1
Net earnings 7.0 7.0 6.9 34.8 33.1
3
FISCAL 1999 COMPARED WITH FISCAL 1998
In fiscal 1999, the Company expanded store space by 27.7%, from 7,688,000 square
feet at fiscal year end 1998 to 9,815,000 square feet at fiscal year end 1999.
The 2,127,000 square feet increase was the result of opening 55 new superstores
and expanding four existing stores.
Net sales in fiscal 1999 increased $480.8 million to $1.878 billion,
representing an increase of 34.4% over the $1.397 billion net sales in fiscal
1998. Approximately 75% of the increase was attributable to new store net sales
and the balance to an increase in comparable store net sales.
Approximately 55% and 45% of net sales in fiscal 1999 were attributable to sales
of domestics merchandise and home furnishings, respectively. The Company
estimates that bed linens accounted for approximately 21% of net sales during
fiscal 1999 and fiscal 1998. No other individual product category accounted for
10% or more of net sales during either fiscal year.
Gross profit in fiscal 1999 was $766.9 million or 40.8% of net sales, compared
with $576.1 million or 41.2% of net sales a year ago. The decrease in gross
profit as a percentage of net sales was primarily attributable to a different
mix of sales during fiscal 1999 compared to the mix of sales during the prior
year, as well as a continued emphasis on providing value pricing to the
customer.
The percentage increase in comparable store net sales was 9.2% in fiscal 1999
compared with 7.6% in fiscal 1998. The increase in comparable store net sales
relative to the prior year reflects a number of factors including the continued
consumer acceptance of the Company's merchandise offerings, the continued
emphasis on providing value pricing to the customer, a strong focus on customer
service and the generally favorable retailing environment.
Selling, general and administrative expenses ("SG&A") were $557.5 million or
29.7% of net sales in fiscal 1999 compared to $418.1 million or 29.9% of net
sales in fiscal 1998. The decrease in SG&A as a percentage of net sales
primarily reflects a relative decrease in payroll and payroll related items and
a relative decrease in occupancy costs. Expenses associated with new or expanded
stores are charged to earnings as incurred.
The difference between the increase in earnings before provision for income
taxes of 33.2% from fiscal 1998 to fiscal 1999 compared to the year to year
increase in operating profit of 32.5% was attributable to interest income.
4
FISCAL 1998 COMPARED WITH FISCAL 1997
In fiscal 1998, the Company expanded store space by 33.3%, from 5,767,000 square
feet at fiscal year end 1997 to 7,688,000 square feet at fiscal year end 1998.
The 1,921,000 square feet increase was the result of opening 45 new superstores
and expanding three existing stores.
Net sales in fiscal 1998 increased $330.6 million to $1.397 billion,
representing an increase of 31.0% over the $1.067 billion net sales in fiscal
1997. Approximately 77% of the increase was attributable to new store net sales
and the balance to an increase in comparable store net sales.
Approximately 55% and 45% of net sales in fiscal 1998 were attributable to sales
of domestics merchandise and home furnishings, respectively. The Company
estimates that bed linens accounted for approximately 21% of net sales during
fiscal 1998 and fiscal 1997. No other individual product category accounted for
10% or more of net sales during either fiscal year.
Gross profit in fiscal 1998 was $576.1 million or 41.2% of net sales, compared
with $441.0 million or 41.3% of net sales in fiscal 1997. The decrease in gross
profit as a percentage of net sales was primarily attributable to a different
mix of sales during fiscal 1998 compared to the mix of sales during fiscal 1997
and an increase in coupons redeemed associated with the Company's marketing
program.
The percentage increase in comparable store net sales was 7.6% in fiscal 1998
compared with 6.4% in fiscal 1997. The increase in comparable store net sales
relative to fiscal 1997 reflected a number of factors, including the continued
consumer acceptance of the Company's merchandise offerings, a strong focus on
customer service and the generally favorable retailing environment.
SG&A was $418.1 million or 29.9% of net sales in fiscal 1998 compared to $322.1
million or 30.2% of net sales in fiscal 1997. The decrease in SG&A as a
percentage of net sales primarily reflected a relative decrease in payroll and
payroll related items, which were partially offset by an increase in occupancy
costs. Expenses associated with new or expanded stores were charged to earnings
as incurred.
Operating profit was $158.1 million in fiscal 1998, an increase of $39.1 million
or 32.9% from fiscal 1997, reflecting primarily the increase in net sales which
was partially offset by increases in cost of sales and SG&A.
The difference between the increase in earnings before provision for income
taxes of 33.1% from fiscal 1997 to fiscal 1998 compared to the year to year
increase in operating profit of 32.9% was attributable to interest income.
5
EXPANSION PROGRAM
The Company is engaged in an ongoing expansion program involving the opening of
new stores in both new and existing markets and the expansion or replacement of
existing stores with larger stores. In the eight year period from the beginning
of fiscal 1992 to the end of fiscal 1999, the chain has grown from 34 stores to
241 stores. Total square footage grew from 917,000 square feet at the beginning
of fiscal 1992 to 9,815,000 square feet at the end of fiscal 1999.
The Company intends to continue its expansion program and currently anticipates
that in fiscal 2000 it will open at least 60 new stores (see details under
"Liquidity and Capital Resources" below). The Company believes that a
predominant portion of any increase in its net sales in fiscal 2000 will
continue to be attributable to new store net sales. Accordingly, the continued
growth of the Company is dependent, in large part, upon the Company's ability to
execute its expansion program successfully, of which there can be no assurance.
LIQUIDITY AND CAPITAL RESOURCES
The Company has been able to finance both its normal operations and its
expansion program principally through internally generated funds during the
preceding five years. For the foreseeable future, the Company intends to retain
all earnings for use in the operation and expansion of its business.
The Company's merchandise inventory has grown from $270.4 million at the end of
fiscal 1997, to $360.3 million at the end of fiscal 1998 and to $470.4 million
at the end of fiscal 1999. The increases in inventory between the fiscal years
were primarily attributable to the addition of new store space.
The Company's working capital increased from $188.3 million at the end of fiscal
1997, to $267.6 million at the end of fiscal 1998, and to $360.6 million at the
end of fiscal 1999. The increases between the fiscal years were primarily the
result of increases in merchandise inventories and cash and cash equivalents,
which were partially offset by increases in accounts payable and accrued
expenses and other current liabilities.
The Company's expansion program requires the Company to make capital
expenditures for furniture and fixtures, leasehold improvements and computer
equipment on an ongoing basis. The Company's total capital expenditures were
$90.1 million, $62.3 million and $41.3 million during fiscal 1999, 1998 and
1997, respectively.
6
Under the Company's revolving Credit Agreement (the "Credit Agreement")
concluded in November 1994, and as subsequently amended, the Company may borrow
up to $45.0 million for loans and letters of credit. The Credit Agreement
matures in October 2001.
The Credit Agreement contains certain covenants which, among other things, place
limitations on payment of dividends, capital expenditures and certain expenses.
Additionally, there are restrictions on additional borrowings and a requirement
that the Company maintain certain financial ratios. The Company does not believe
that any of these covenants will materially affect its business or its expansion
program as currently planned.
The Company did not borrow under the Credit Agreement during fiscal 1999 or
fiscal 1998. The Company believes that during fiscal 2000 internally generated
funds will be sufficient to fund both its normal operations and its expansion
program.
As of March 24, 2000, the Company has leased sites for 50 new superstores
planned for opening in fiscal 2000, including two new stores already opened in
Montgomeryville, Pennsylvania and Providence, Rhode Island.
Approximate aggregate costs for the 50 leased stores are estimated at $83.1
million for merchandise inventories, $48.6 million for furniture and fixtures
and leasehold improvements and $14.1 million for preopening expenses (which will
be expensed as incurred). In addition to the 50 locations already leased, the
Company expects to open at least ten additional locations during fiscal
2000. The costs that the Company is expected to incur in connection with the
anticipated opening of other superstores for which sites have not yet been
leased cannot presently be determined.
7
FORWARD LOOKING STATEMENTS
This Annual Report and, in particular, Management's Discussion and Analysis of
Financial Condition and Results of Operations, contain forward looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. The Company's actual results of operations and future
financial condition may differ materially from those expressed in any such
forward looking statements as a result of many factors that may be beyond the
Company's control. Such factors include, without limitation: general economic
conditions, changes in the retailing environment and consumer spending habits,
demographics and other macroeconomic factors that may impact the level of
spending for the types of merchandise sold by the Company; unusual weather
patterns; competition from existing and potential competitors; competition from
other channels of distribution; pricing pressures; the ability to find suitable
locations at reasonable occupancy costs to support the Company's expansion
program; the availability of trained qualified management personnel to support
the Company's growth; and the cost of labor, merchandise and other costs and
expenses.
SEASONALITY
The Company's business exhibits less seasonality than many other retail
businesses, although sales levels are generally higher in August, November and
December, and generally lower in February and March.
8
CONSOLIDATED BALANCE SHEETS
BED BATH & BEYOND INC. AND SUBSIDIARIES
(in thousands, except per share data)
FEBRUARY 26, FEBRUARY 27,
2000 1999
---- ----
ASSETS
Current assets:
Cash and cash equivalents $144,031 $ 90,396
Merchandise inventories 470,433 360,337
Prepaid expenses and other current assets 32,904 22,529
-------- --------
Total current assets 647,368 473,262
-------- --------
Property and equipment, net 208,911 150,438
Other assets 9,521 9,448
-------- --------
$865,800 $633,148
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $145,114 $ 99,370
Accrued expenses and other current liabilities 108,079 89,725
Income taxes payable 33,590 16,610
-------- --------
Total current liabilities 286,783 205,705
-------- --------
Deferred rent 19,972 16,356
-------- --------
Total liabilities 306,755 222,061
-------- --------
Commitments and contingencies (notes 3, 6 and 8)
Shareholders' equity:
Preferred stock - $0.01 par value; authorized - 1,000
shares; no shares issued or outstanding --- ---
Common stock - $0.01 par value; authorized -
350,000 shares; issued and outstanding -
February 26, 2000, 140,406 shares and
February 27, 1999, 139,418 shares 1,404 1,394
Additional paid-in capital 96,398 79,679
Retained earnings 461,243 330,014
-------- --------
Total shareholders' equity 559,045 411,087
-------- --------
$865,800 $633,148
======== ========
See accompanying Notes to Consolidated Financial Statements.
9
CONSOLIDATED STATEMENTS OF EARNINGS
BED BATH & BEYOND INC. AND SUBSIDIARIES
(in thousands, except per share data)
FISCAL YEAR ENDED
----------------------------------------------------
FEBRUARY 26, FEBRUARY 27, FEBRUARY 28,
2000 1999 1998
---- ---- ----
Net sales $1,877,966 $1,397,197 $1,066,612
Cost of sales, including buying, occupancy and indirect costs 1,111,110 821,072 625,596
---------- ---------- ----------
Gross profit 766,856 576,125 441,016
Selling, general and administrative expenses 557,516 418,073 322,102
---------- ---------- ----------
Operating profit 209,340 158,052 118,914
Interest income 5,790 3,517 2,484
---------- ---------- ----------
Earnings before provision for income taxes 215,130 161,569 121,398
Provision for income taxes 83,901 64,223 48,256
---------- ---------- ----------
Net earnings $ 131,229 $ 97,346 $ 73,142
========== ========== ==========
Net earnings per share - Basic $ .94 $ .70 $ .53
Net earnings per share - Diluted $ .91 $ .68 $ .51
Weighted average shares outstanding - Basic 139,965 138,842 137,665
Weighted average shares outstanding - Diluted 144,117 143,236 142,362
See accompanying Notes to Consolidated Financial Statements.
10
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
BED BATH & BEYOND INC. AND SUBSIDIARIES
COMMON STOCK ADDITIONAL
------------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ------- -------- -----
(in thousands)
Balance at March 1, 1997 137,206 $ 1,372 $ 53,463 $159,526 $214,361
Net earnings 73,142 73,142
Shares sold under employee stock option
plans 882 9 7,885 7,894
-------------------------------------------------------------------------------
Balance at February 28, 1998 138,088 1,381 61,348 232,668 295,397
Net earnings 97,346 97,346
Shares sold under employee stock option
plans 1,330 13 18,331 18,344
-------------------------------------------------------------------------------
Balance at February 27, 1999 139,418 1,394 79,679 330,014 411,087
Net earnings 131,229 131,229
Shares sold under employee stock option
plans 988 10 16,719 16,729
-------------------------------------------------------------------------------
BALANCE AT FEBRUARY 26, 2000 140,406 $ 1,404 $ 96,398 $461,243 $559,045
See accompanying Notes to Consolidated Financial Statements.
11
CONSOLIDATED STATEMENTS OF CASH FLOWS
BED BATH & BEYOND INC. AND SUBSIDIARIES
FISCAL YEAR ENDED
----------------------------------------------------
(in thousands) FEBRUARY 26, FEBRUARY 27, FEBRUARY 28,
2000 1999 1998
---- ---- ----
Cash Flows from Operating Activities:
Net earnings $ 131,229 $ 97,346 $ 73,142
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 31,625 23,217 18,238
Tax benefit from exercise of stock options 8,932 11,546 4,438
Deferred income taxes (8,197) (5,166) (6,345)
(Increase) decrease in assets:
Merchandise inventories (110,096) (89,980) (83,172)
Prepaid expenses and other current assets (2,347) (2,223) (718)
Other assets 96 (1,276) (606)
Increase in liabilities:
Accounts payable 45,744 34,652 16,897
Accrued expenses and other current liabilities 18,354 16,115 25,687
Income taxes payable 16,980 4,595 1,883
Deferred rent 3,616 3,766 2,902
--------- --------- ---------
Net cash provided by operating activities 135,936 92,592 52,346
--------- --------- ---------
Cash Flows from Investing Activities:
Capital expenditures (90,098) (62,274) (41,287)
--------- --------- ---------
Net cash used in investing activities (90,098) (62,274) (41,287)
--------- --------- ---------
Cash Flows from Financing Activities:
Proceeds from exercise of stock options 7,797 6,798 3,456
--------- --------- ---------
Net cash provided by financing activities 7,797 6,798 3,456
--------- --------- ---------
Net increase in cash and cash equivalents 53,635 37,116 14,515
Cash and cash equivalents:
Beginning of period 90,396 53,280 38,765
--------- --------- ---------
End of period $ 144,031 $ 90,396 $ 53,280
========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
A. Nature of Operations
Bed Bath & Beyond Inc. (the "Company") is a nationwide chain of "superstores"
selling predominantly better quality domestics merchandise and home furnishings.
As the Company operates in the retail industry, its results of operations are
affected by general economic conditions and consumer spending habits.
B. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly owned.
All significant intercompany balances and transactions have been eliminated in
consolidation.
C. Fiscal Year
The Company's fiscal year is comprised of the 52 or 53 week period ending on the
Saturday nearest February 28. Accordingly, fiscal 1999, 1998 and 1997
represented 52 weeks and ended on February 26, 2000, February 27, 1999 and
February 28, 1998, respectively.
D. Earnings Per Share and Stock-Based Compensation
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share", which requires a dual presentation of earnings per
share - basic and diluted. 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 options.
The Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation".
As permitted under SFAS No. 123, the Company has elected not to adopt the fair
value based method of accounting for its stock-based compensation plans, but
will continue to apply the provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB No. 25"). The Company has
complied with the disclosure requirements of SFAS No. 123.
E. Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with maturities of
three months or less to be cash equivalents.
13
F. Merchandise Inventories
Merchandise inventories are stated at the lower of cost or market, determined by
means of the retail inventory method of accounting.
G. Property and Equipment
Property and equipment are stated at cost. Depreciation is computed primarily
using the straight-line method over the estimated useful lives of the assets
(three to ten years for furniture, fixtures and equipment and three to five
years for computer equipment). Leasehold improvements are amortized using the
straight-line method over the lesser of their estimated useful life or the life
of the lease.
The cost of maintenance and repairs is charged to earnings as incurred;
significant renewals and betterments are capitalized. Maintenance and repairs
amounted to $24.2 million, $17.3 million and $12.2 million for fiscal 1999, 1998
and 1997, respectively.
H. Deferred Rent
The Company accounts for scheduled rent increases contained in its leases on a
straight-line basis over the noncancelable lease term.
I. Shareholders' Equity
In June 1998, the Board of Directors of the Company approved a two-for-one split
of the Company's common stock effected in the form of a 100% stock dividend. The
stock dividend was distributed on July 31, 1998 to shareholders of record on
July 10, 1998.
Unless otherwise stated, all references to common shares outstanding and net
earnings per share in the consolidated financial statements are on a post-split
basis.
J. Revenue Recognition
The Company recognizes revenue at the time of sale of merchandise to its
customers.
K. Preopening Expenses
Expenses associated with new or expanded stores are charged to earnings as
incurred.
L. Advertising Costs
Expenses associated with store advertising are charged to earnings as incurred.
14
M. Income Taxes
The Company files a consolidated Federal income tax return. Separate state
income tax returns are filed with each state in which the Company conducts
business.
The Company accounts for its income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in earnings in the period that includes the
enactment date.
N. Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents, accounts
payable and accrued expenses and other current liabilities. The book value of
cash and cash equivalents, accounts payable and accrued expenses and other
current liabilities are representative of their fair values due to the
short-term maturity of these instruments.
O. Impairment of Long-Lived Assets
The Company periodically reviews the carrying value of its long-lived assets for
impairment. When changes in circumstances warrant measurement, impairment losses
for store fixed assets are calculated by comparing the present value of
projected individual store cash flows over the lease terms to the asset carrying
values. The Company does not believe that any material impairment currently
exists related to its long-lived assets.
P. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Q. Reclassifications
Certain reclassifications have been made to the fiscal 1998 and 1997
consolidated financial statements to conform to the fiscal 1999 consolidated
financial statement presentation.
15
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
FEBRUARY 26, FEBRUARY 27,
(in thousands) 2000 1999
---- ----
Furniture, fixtures and equipment $ 162,061 $ 119,754
Leasehold improvements 114,549 84,467
Computer equipment 44,143 26,434
---------- ----------
320,753 230,655
Less: Accumulated depreciation
and amortization (111,842) (80,217)
----------- ------------
$ 208,911 $ 150,438
========= =========
3. CREDIT AGREEMENT
Under the Company's revolving Credit Agreement (the "Credit Agreement")
concluded in November 1994, and as subsequently amended, the Company may borrow
up to $45.0 million for loans and letters of credit. The Credit Agreement
matures in October 2001. Interest on all borrowing is determined based upon
several alternative rates as stipulated in the Credit Agreement.
The Credit Agreement contains certain covenants which, among other things, place
limitations on payment of dividends, capital expenditures and certain expenses.
Additionally, there are restrictions on additional borrowings and a requirement
that the Company maintain certain financial ratios. The Company does not believe
that any of these covenants have materially affected its business. Under the
terms of these covenants, approximately $65.6 million was available for the
payment of dividends at February 26, 2000.
The Company did not borrow under the Credit Agreement during fiscal 1999 or
fiscal 1998. As of February 26, 2000 and February 27, 1999, there were
approximately $5.3 million and $1.7 million in outstanding letters of credit,
respectively.
16
4. PROVISION FOR INCOME TAXES
The components of the provision for income taxes are as follows:
FISCAL YEARS
-----------------------------------
(in thousands) 1999 1998 1997
---- ---- ----
Current:
Federal $ 82,652 $ 61,098 $ 44,981
State and local 9,446 8,291 9,620
-------- -------- --------
92,098 69,389 54,601
-------- -------- --------
Deferred:
Federal (7,356) (4,549) (5,587)
State and local (841) (617) (758)
-------- -------- --------
(8,197) (5,166) (6,345)
-------- -------- --------
$ 83,901 $ 64,223 $ 48,256
======== ======== ========
Included in prepaid expenses and other current assets and in other assets are
deferred income taxes which reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred tax assets consist of the following:
FEBRUARY 26, FEBRUARY 27,
(in thousands) 2000 1999
---- ----
Deferred rent $ 7,789 $ 6,502
Inventories 11,332 7,489
Other, net 10,177 7,110
------ -----
$ 29,298 $ 21,101
======== ========
For fiscal 1999, the effective tax rate is comprised of the Federal statutory
income tax rate of 35.00% and the State income tax rate, net of Federal benefit,
of 4.00%. For fiscal 1998 and 1997, the effective tax rate is comprised of the
Federal statutory income tax rate of 35.00% and the State income tax rate, net
of Federal benefit, of 4.75%.
17
5. TRANSACTIONS AND BALANCES WITH RELATED PARTIES
A. The Company has an interest in certain life insurance policies on the lives
of its Co-Chairmen. The beneficiaries of these policies are related to the
aforementioned individuals. The Company's interest in these policies is
equivalent to the net premiums paid by the Company. At February 26, 2000 and
February 27, 1999, other assets include $4.0 million and $3.4 million,
respectively, representing the Company's interest in the life insurance
policies.
B. The Company obtains certain payroll services from a related party. The
Company paid fees for such services of $557,000, $424,000 and $308,000 for
fiscal years 1999, 1998 and 1997, respectively.
C. The Company made charitable contributions to the Mitzi and Warren Eisenberg
Family Foundation, Inc. (the "Eisenberg Foundation") and the Feinstein Family
Foundation, Inc. (the "Feinstein Foundation") in the aggregate amounts of
$488,000, $390,000 and $300,000 for fiscal 1999, 1998 and 1997, respectively.
The Eisenberg Foundation and the Feinstein Foundation are each not-for-profit
corporations of which Messrs. Eisenberg and Feinstein, the Co-Chairmen of the
Company, and their family members are the trustees and officers.
6. LEASES
The Company leases retail stores, as well as warehouses, office facilities and
equipment, under agreements expiring at various dates through 2021. Certain
leases provide for contingent rents (which are based upon store sales exceeding
stipulated amounts and are immaterial in fiscal 1999, 1998 and 1997), scheduled
rent increases and renewal options generally ranging from five to fifteen years.
The Company is obligated under a majority of the leases to pay for taxes,
insurance and common area maintenance charges.
As of February 26, 2000, future minimum lease payments under noncancelable
operating leases are as follows:
FISCAL YEAR (in thousands) AMOUNTS
----------- -------
2000 131,339
2001 135,785
2002 134,717
2003 131,887
2004 127,657
Thereafter 835,310
----------
Total minimum lease payments $1,496,695
==========
As of March 24, 2000, the Company had executed leases for 50 stores planned for
opening in fiscal 2000.
Expenses for all operating leases were $113.3 million, $89.5 million and $70.2
million for fiscal 1999, 1998 and 1997, respectively.
18
7. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution 401(k) savings plan (the "Plan") covering
all eligible employees. Participants may defer between 1% and 15% of annual
pre-tax compensation subject to statutory limitations. The Company has an option
to contribute an amount as determined by the Board of Directors. In addition,
each participant may elect to make voluntary, non-tax deductible contributions
in excess of the pre-tax compensation limit up to 15% of compensation. As of
February 26, 2000, the Company has made no contributions to the Plan.
8. COMMITMENTS AND CONTINGENCIES
Under terms of employment agreements with its Co-Chairmen extending through June
2002, the Company is required to pay each a base salary (which may be increased
by the Board of Directors) of $750,000 per annum. The agreements also provide
for other terms and conditions of employment, including termination payments.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, 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.
9. SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid income taxes of $67.2 million, $53.5 million and $48.5 million
in fiscal 1999, 1998, and 1997, respectively.
19
10. STOCK OPTION PLANS
Under its 1998 Stock Option Plan, its 1996 Stock Option Plan and its Amended
1992 Stock Option Plan, (the "Stock Option Plans"), the Company may grant
options to purchase not more than an aggregate of 6.0 million, 4.0 million and
11.2 million shares of common stock, respectively, subject to adjustment under
certain circumstances. The options under the Stock Option Plans may be either
non-qualified or incentive stock options within the meaning of the Internal
Revenue Code of 1986. Options have been granted at market value and are
exercisable in five equal annual installments beginning one to three years after
the date of grant and expire ten years from the date of grant.
The following table summarizes stock option transactions:
NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
------ --------------
Outstanding at March 1, 1997 7,496,080 $ 5.93
Options granted 4,349,800 14.71
Options exercised (881,902) 3.91
Options canceled (359,080) 8.73
-----------
Outstanding at February 28, 1998 10,604,898 9.61
Options granted 2,770,200 23.54
Options exercised (1,330,149) 5.10
Options canceled (308,680) 12.20
------------
Outstanding at February 27, 1999 11,736,269 13.34
Options granted 2,766,950 30.97
Options exercised (987,687) 7.88
Options canceled (403,532) 19.34
------------
OUTSTANDING AT FEBRUARY 26, 2000 13,112,000 $17.29
========== ======
Options exercisable:
At February 28, 1998 2,211,538 $ 4.64
At February 27, 1999 2,538,809 $ 7.67
AT FEBRUARY 26, 2000 3,620,090 $ 9.61
20
The stock option committees appointed pursuant to the Stock Option Plans
determine the number of shares and the option price per share for all options
issued under the Stock Option Plans.
The following tables summarize information pertaining to stock options
outstanding and exercisable at February 26, 2000:
OPTIONS OUTSTANDING
---------------------------------------------------------------------------------
WEIGHTED-AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
---------------------------------------------------------------------------------
$ 2.13 to 4.73 2,008,270 4.09 $ 4.20
5.67 to 12.23 1,996,267 5.62 8.74
12.38 to 16.22 3,642,933 7.36 14.61
16.73 to 23.66 2,521,280 8.24 22.87
23.87 to 37.50 2,943,250 9.32 30.44
---------
$ 2.13 TO 37.50 13,112,000 7.21 $ 17.29
==========
OPTIONS EXERCISABLE
---------------------------------------------------------------------------------
RANGE OF NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES EXERCISABLE EXERCISE PRICE
---------------------------------------------------------------------------------
$ 2.13 to 4.73 1,212,050 $ 3.96
5.67 to 12.23 1,104,427 7.57
12.38 to 16.22 1,046,973 15.27
16.73 to 23.66 214,200 21.16
23.87 to 37.50 42,440 26.03
---------
$ 2.13 TO 37.50 3,620,090 $ 9.61
=========
The Company applies APB No. 25 and related interpretations in accounting for its
Stock Option Plans. Accordingly, no compensation cost has been recognized in
connection with the Stock Options Plans. Set forth below are the Company's net
earnings and net earnings per share "as reported", and as if compensation cost
had been recognized in accordance with the fair value provisions of SFAS No.
123:
FISCAL YEARS
---------------------------------------------------
(in thousands, except per share data) 1999 1998 1997
----------- ---------- ----------
NET EARNINGS:
As reported $ 131,229 $ 97,346 $ 73,142
Pro forma $ 119,158 $ 89,519 $ 69,257
NET EARNINGS PER SHARE:
Basic:
As reported $ 0.94 $ 0.70 $ 0.53
Pro forma $ 0.85 $ 0.64 $ 0.50
Diluted:
As reported $ 0.91 $ 0.68 $ 0.51
Pro forma $ 0.83 $ 0.62 $ 0.49
21
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants for fiscal 1999, 1998 and 1997, respectively: dividend yield of 0% for
all years; expected volatility of 42% for all years; risk free interest rates of
5.95%, 5.58% and 6.36%; and expected lives of seven years for 1999 and six years
for 1998 and 1997. The weighted-average fair value of options granted during the
year is $16.67, $12.12 and $7.58 for fiscal 1999, 1998 and 1997, respectively.
11. SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
FISCAL 1999 QUARTER ENDED
-------------------------
MAY 29, AUGUST 28, NOVEMBER 27, FEBRUARY 26,
(in thousands, except per share data) 1999 1999 1999 2000
---- ---- ---- ----
Net sales $359,372 $457,586 $486,457 $574,551
Gross profit 146,214 185,570 196,784 238,288
Operating profit 28,015 53,580 50,607 77,138
Earnings before provision
for income taxes 29,317 54,503 51,978 79,332
Provision for income taxes 11,434 21,256 20,271 30,940
Net earnings $ 17,883 $ 33,247 $ 31,707 $ 48,392
EPS - Basic (1) $ .13 $ .24 $ .23 $ .34
EPS - Diluted (1) $ .12 $ .23 $ .22 $ .34
FISCAL 1998 QUARTER ENDED
-------------------------
MAY 30, AUGUST 29, NOVEMBER 28, FEBRUARY 27,
(in thousands, except per share data) 1998 1998 1998 1999
---- ---- ---- ----
Net sales $269,571 $344,946 $363,431 $419,249
Gross profit 110,179 141,943 148,473 175,530
Operating profit 20,744 41,760 40,154 55,394
Earnings before provision
for income taxes 21,561 42,331 40,915 56,762
Provision for income taxes 8,750 16,827 16,264 22,562
Net earnings $ 12,991 $ 25,504 $ 24,651 $ 34,200
EPS - Basic (1) $ .09 $ .18 $ .18 $ .25
EPS - Diluted (1) $ .09 $ .18 $ .17 $ .24
(1) Net earnings per share ("EPS") amounts for each quarter are required to
be computed independently and may not equal the amount computed for the
total year.
22
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Bed Bath & Beyond Inc.:
We have audited the accompanying consolidated balance sheets of Bed Bath &
Beyond Inc. and subsidiaries as of February 26, 2000 and February 27, 1999, and
the related consolidated statements of earnings, shareholders' equity and cash
flows for each of the fiscal years in the three-year period ended February 26,
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bed Bath & Beyond
Inc. and subsidiaries as of February 26, 2000 and February 27, 1999, and the
results of their operations and their cash flows for each of the fiscal years in
the three-year period ended February 26, 2000 in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
New York, New York
March 24, 2000
23
DIRECTORS AND OFFICERS
DIRECTORS
Warren Eisenberg
Co-Chairman and Co-Chief Executive
Officer of Bed Bath & Beyond Inc.
Leonard Feinstein
Co-Chairman and Co-Chief Executive
Officer of Bed Bath & Beyond Inc.
Steven H. Temares
President and Chief Operating
Officer of Bed Bath & Beyond Inc.
Klaus Eppler
Partner, Proskauer Rose LLP,
New York, New York
Robert S. Kaplan
Managing Director, Goldman, Sachs & Co.,
New York, New York
Robert J. Swartz
Vice President, Alco Capital Group, Inc.,
New York, New York
OFFICERS
Warren Eisenberg
Co-Chairman and Co-Chief Executive Officer
Leonard Feinstein
Co-Chairman and Co-Chief Executive Officer
Steven H. Temares
President and Chief Operating Officer
Ronald Curwin
Chief Financial Officer and Treasurer
Arthur Stark
Chief Merchandising Officer and Senior Vice President
Matthew Fiorilli
Senior Vice President - Stores
Jane F. Gilmartin
Vice President and General Merchandising Manager
Lief Todd Johnson
Vice President and General Merchandising Manager
P. Timothy Brewster
Vice President of Stores - N.Y.C. Region
Martin Eisenberg
Vice President of Stores - Northeast Region
Edward Kopil
Vice President of Stores - Southern Region
Martin Lynch
Vice President of Stores - Midwest and Western Region
William Onksen
Vice President of Stores - MidAtlantic Region
Eugene A. Castagna
Vice President - Controller
Michael Honeyman
Vice President - Corporate Administration and Operations
Philip Kornbluh
Vice President - Visual Merchandising
Richard C. McMahon
Vice President and Chief Information Officer
Stephen J. Murray
Vice President - Information Technology
Christine R. Pirog
Vice President - Store Operations
24
Allan N. Rauch
Vice President - Legal and General Counsel
Jonathan Rothstein
Vice President - Product Development
G. William Waltzinger, Jr.
Vice President - E-Service
25
CORPORATE DATA
Corporate Office
Bed Bath & Beyond Inc.
650 Liberty Avenue
Union, New Jersey 07083
Telephone: 908/688-0888
Shareholder Information
The Company's 1999 Annual Report on Form 10-K (excluding exhibits) may be
obtained, without charge, by writing to the Investor Relations Department at the
Corporate Office, or by fax (908/810-8813).
Stock Listing
The Common Stock of Bed Bath & Beyond Inc. trades on the NASDAQ National Market
under the symbol BBBY.
Stock Activity
The following table sets forth by fiscal quarter the high and low reported sales
prices of the Company's Common Stock on the NASDAQ National Market during fiscal
1998 and fiscal 1999:
- -------------------------------------------------
QUARTER HIGH LOW
Fiscal 1998
First $ 27 3/4 $ 20
Second 28 31/32 18 1/4
Third 32 3/16 17 1/8
Fourth 35 3/16 27 1/2
Fiscal 1999
First $ 39 3/8 $ 29 1/8
Second 38 15/16 25 1/2
Third 37 27 3/8
Fourth 36 22 7/16
At March 24, 2000, there were approximately 650 shareholders of record. This
number excludes individual shareholders holding stock under nominee security
position listings.
Transfer Agent
The Transfer Agent should be contacted on questions of change of address, name
or ownership, lost certificates and consolidation of accounts.
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
Telephone: 800/937-5449
26
Independent Auditors
KPMG LLP
345 Park Avenue
New York, New York 10154
Annual Meeting
The Annual Meeting of Shareholders will be held at 9:00 a.m. Thursday, June 29,
2000, at the Headquarters Plaza Hotel, Three Headquarters Plaza, Morristown, New
Jersey.