1
BED BATH & BEYOND ANNUAL REPORT 2000
SELECTED FINANCIAL DATA
FISCAL YEAR ENDED (1)
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share March 3, February 26, February 27, February 28, March 1, February 25,
and selected operating data) 2001 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF EARNINGS DATA:
Net sales (2) $ 2,396,655 $ 1,857,505 $ 1,382,345 $ 1,057,135 $ 816,912 $ 597,352
Gross profit (2) 986,459 766,801 576,125 441,016 341,168 250,036
Operating profit 272,838 209,340 158,052 118,914 90,607 67,585
Net earnings 171,922 131,229 97,346 73,142 55,015 39,459
Net earnings per share -
Diluted (3) $ .59 $ .46 $ .34 $ .26 $ .20 $ .14
SELECTED OPERATING DATA:
Number of stores open (at period end) 311 241 186 141 108 80
Total square feet of store space
(at period end) 12,204,000 9,815,000 7,688,000 5,767,000 4,347,000 3,214,000
Percentage increase in comparable
store net sales 5.0% 9.2% 7.6% 6.4% 6.1% 3.8%
BALANCE SHEET DATA (AT PERIOD END):
Working capital $ 532,524 $ 360,585 $ 267,557 $ 188,293 $ 127,333 $ 91,331
Total assets 1,195,725 865,800 633,148 458,330 329,925 235,810
Long-term debt -- -- -- -- -- 5,000
Shareholders' equity $ 817,018 $ 559,045 $ 411,087 $ 295,397 $ 214,361 $ 151,446
FISCAL YEAR ENDED (1)
- -------------------------------------------------------------------------------------
(in thousands, except per share February 26, February 27, February 28,
and selected operating data) 1995 1994 1993
- -------------------------------------------------------------------------------------
STATEMENT OF EARNINGS DATA:
Net sales (2) $ 437,807 $ 304,571 $ 216,411
Gross profit (2) 183,819 127,972 90,528
Operating profit 51,685 36,906 26,660
Net earnings 30,013 21,887 15,960
Net earnings per share -
Diluted (3) $ .11 $ .08 $ .06
SELECTED OPERATING DATA:
Number of stores open (at period end) 61 45 38
Total square feet of store space
(at period end) 2,339,000 1,512,000 1,128,000
Percentage increase in comparable
store net sales 12.0% 10.6% 7.2%
BALANCE SHEET DATA (AT PERIOD END):
Working capital $ 74,390 $ 56,001 $ 34,842
Total assets 176,678 121,468 76,654
Long-term debt 16,800 13,300 --
Shareholders' equity $ 108,939 $ 77,305 $ 54,643
(1) Each fiscal year represents 52 weeks, except for fiscal 2000 (ended March 3,
2001) which represents 53 weeks and fiscal 1996 which represents 52 weeks
and 6 days.
(2) Certain reclassifications have been made to selected financial data from
prior years to conform to the fiscal 2000 presentation.
(3) 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 2000, 1998, 1996
and 1993. The Company has not declared any cash dividends in any of the
fiscal years noted above.
2
BED BATH & BEYOND ANNUAL REPORT 2000
8
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
- -----------------------------------------------------------------------------------------------------------------------------
March 3, February 26, February 27, March 3, February 26,
2001 2000 1999 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0% 29.0% 34.4%
Cost of sales, including buying,
occupancy and indirect costs 58.8 58.7 58.3 29.3 35.3
Gross profit 41.2 41.3 41.7 28.6 33.1
Selling, general and administrative expenses 29.8 30.0 30.2 28.0 33.3
Operating profit 11.4 11.3 11.4 30.3 32.5
Earnings before provision for income taxes 11.8 11.6 11.7 31.0 33.2
Net earnings 7.2 7.1 7.0 31.0 34.8
FISCAL 2000 COMPARED WITH FISCAL 1999
In fiscal 2000 (53 weeks), the Company expanded store space by 24.3%, from
9,815,000 square feet at fiscal year end 1999 (52 weeks) to 12,204,000 square
feet at fiscal year end 2000. The 2,389,000 square feet increase was the result
of opening 70 new superstores and expanding two existing stores.
Net sales in fiscal 2000 increased $539.2 million to $2.397 billion,
representing an increase of 29.0% over the $1.858 billion net sales in fiscal
1999 (see Recent Accounting Pronouncements). Approximately 83% 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 2000 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
both fiscal 2000 and fiscal 1999. No other individual product category accounted
for 10% or more of net sales during either fiscal year.
Gross profit in fiscal 2000 was $986.5 million or 41.2% of net sales, compared
with $766.8 million or 41.3% of net sales a year ago.
The percentage increase in comparable store net sales was 5.0% in fiscal 2000
compared with 9.2% in fiscal 1999. The fiscal 2000 increase in comparable store
net sales primarily reflects a strong focus on customer service.
Selling, general and administrative expenses ("SG&A") were $713.6 million or
29.8% of net sales in fiscal 2000 compared to $557.5 million or 30.0% of net
sales in fiscal 1999. The decrease in SG&A as a percentage of net sales
primarily reflects a decrease in occupancy costs and costs associated with new
store openings, partially offset by an increase in payroll and payroll related
items. Preopening 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 31.0% from fiscal 1999 to fiscal 2000 compared to the year to year
increase in operating profit of 30.3% was attributable to interest income.
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 $475.2 million to $1.858 billion,
representing an increase of 34.4% over the $1.382 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.
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BED BATH & BEYOND ANNUAL REPORT 2000
9
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
both 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 $766.8 million or 41.3% of net sales, compared
with $576.1 million or 41.7% of net sales in fiscal 1998. 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 fiscal 1998,
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 fiscal 1998 reflected 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.
SG&A was $557.5 million or 30.0% of net sales in fiscal 1999 compared to $418.1
million or 30.2% of net sales in fiscal 1998. The decrease in SG&A as a
percentage of net sales primarily reflected a decrease in payroll and payroll
related items and occupancy costs. Preopening expenses associated with new or
expanded stores were 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.
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 nine year period from the beginning
of fiscal 1992 to the end of fiscal 2000, the chain has grown from 34 stores to
311 stores. Total square footage grew from 917,000 square feet at the beginning
of fiscal 1992 to 12,204,000 square feet at the end of fiscal 2000.
The Company intends to continue its expansion program and currently anticipates
that in fiscal 2001 it will open at least 80 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 2001 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. The Company's merchandise inventory has grown from $360.3
million at the end of fiscal 1998, to $470.4 million at the end of fiscal 1999
and to $606.7 million at the end of fiscal 2000. 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 $267.6 million at the end of fiscal
1998, to $360.6 million at the end of fiscal 1999, and to $532.5 million at the
end of fiscal 2000. 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
$140.4 million, $90.1 million and $62.3 million during fiscal 2000, 1999 and
1998, respectively.
Under the Company's revolving Credit Agreement (the "Credit Agreement")
concluded in November 1994, and as subsequently amended, the Company may borrow
up to $25.0 million for loans and letters of credit. The Credit Agreement
matures in October 2001.
4
BED BATH & BEYOND ANNUAL REPORT 2000
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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 2000, fiscal
1999 or fiscal 1998. The Company believes that during fiscal 2001, internally
generated funds will be sufficient to fund both its normal operations and its
expansion program.
As of March 30, 2001, the Company has leased sites for 62 new superstores
planned for opening in fiscal 2001, including one new store already opened in
Wilkes Barre, Pennsylvania.
Approximate aggregate costs for the 62 leased stores are estimated at $91.8
million for merchandise inventories, $39.3 million for furniture and fixtures
and leasehold improvements and $16.5 million for preopening expenses (which will
be expensed as incurred). In addition to the 62 locations already leased, the
Company expects to open approximately 18 additional locations during fiscal
2001. 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In the fourth quarter of fiscal 2000, the Company adopted the provisions of the
Financial Accounting Standards Board's Emerging Issues Task Force ("EITF") Issue
No. 00-14, "Accounting for Certain Sales Incentives", which provides that the
value of point of sale coupons and rebates that result in a reduction of the
price paid by the customer be recorded as a reduction of sales, and that free
merchandise incentives be recorded as cost of sales. Prior to adoption, the
Company recorded its point of sale coupons and rebates in cost of sales. Upon
adoption, the Company has reclassified such sales incentives as a reduction of
sales in its consolidated statements of earnings for fiscal 2000, 1999 and 1998.
The reclassification had no impact on gross profit, operating profit or net
earnings.
In the fourth quarter of fiscal 2000, the Company also adopted the provisions of
EITF Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs",
which provides that amounts billed to a customer in a sale transaction related
to shipping and handling represent revenues. Prior to adoption, the Company
recorded such revenues and costs in selling, general and administrative expense.
Upon adoption, the Company has reclassified such shipping and handling fees to
sales and shipping and handling costs to cost of sales in its consolidated
statements of earnings for fiscal 2000, 1999 and 1998. The reclassification had
no impact on operating profit or net earnings.
As a result of these reclassifications, previously reported net sales decreased
by approximately $20.5 million and $14.9 million and cost of sales decreased by
approximately $20.4 million and $14.9 million in fiscal 1999 and fiscal 1998,
respectively.
FORWARD LOOKING STATEMENTS
This Annual Report and, in particular, Management's Discussion and Analysis of
Financial Condition and Results of Operations, and the Shareholder Letter,
contain forward looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. The Company's actual results 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.
5
BED BATH & BEYOND ANNUAL REPORT 2000
11
CONSOLIDATED BALANCE SHEETS
Bed Bath & Beyond Inc. and Subsidiaries
March 3, February 26,
(in thousands, except per share data) 2001 2000
- --------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 239,328 $ 144,031
Merchandise inventories 606,704 470,433
Prepaid expenses and other current assets 39,681 32,904
- --------------------------------------------------------------------------------------
Total current assets 885,713 647,368
- --------------------------------------------------------------------------------------
Property and equipment, net 302,656 208,911
Other assets 7,356 9,521
- --------------------------------------------------------------------------------------
$1,195,725 $ 865,800
======================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 192,401 $ 145,114
Accrued expenses and other current liabilities 128,800 108,079
Income taxes payable 31,988 33,590
- --------------------------------------------------------------------------------------
Total current liabilities 353,189 286,783
- --------------------------------------------------------------------------------------
Deferred rent and other liabilities 25,518 19,972
- --------------------------------------------------------------------------------------
Total liabilities 378,707 306,755
- --------------------------------------------------------------------------------------
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 -
March 3, 2001, 287,890 shares and
February 26, 2000, 280,812 shares 2,879 2,808
Additional paid - in capital 180,974 94,994
Retained earnings 633,165 461,243
- --------------------------------------------------------------------------------------
Total shareholders' equity 817,018 559,045
- --------------------------------------------------------------------------------------
$1,195,725 $ 865,800
======================================================================================
See accompanying Notes to Consolidated Financial Statements.
6
BED BATH & BEYOND ANNUAL REPORT 2000
12
CONSOLIDATED STATEMENTS OF EARNINGS
Bed Bath & Beyond Inc. and Subsidiaries
Fiscal Year Ended
- ----------------------------------------------------------------------------------------------------------
March 3, February 26, February 27,
(in thousands, except per share data) 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------
Net sales $2,396,655 $1,857,505 $1,382,345
Cost of sales, including buying, occupancy and indirect costs 1,410,196 1,090,704 806,220
- ----------------------------------------------------------------------------------------------------------
Gross profit 986,459 766,801 576,125
Selling, general and administrative expenses 713,621 557,461 418,073
- ----------------------------------------------------------------------------------------------------------
Operating profit 272,838 209,340 158,052
Interest income 9,001 5,790 3,517
- ----------------------------------------------------------------------------------------------------------
Earnings before provision for income taxes 281,839 215,130 161,569
Provision for income taxes 109,917 83,901 64,223
- ----------------------------------------------------------------------------------------------------------
Net earnings $ 171,922 $ 131,229 $ 97,346
==========================================================================================================
Net earnings per share - Basic $ .61 $ .47 $ .35
Net earnings per share - Diluted $ .59 $ .46 $ .34
Weighted average shares outstanding - Basic 283,925 279,930 277,684
Weighted average shares outstanding - Diluted 292,876 288,234 286,472
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Bed Bath & Beyond Inc. and Subsidiaries
Common Stock Additional
----------------------- Paid-in Retained
(in thousands) Shares Amount Capital Earnings Total
- -------------------------------------------------------------------------------------------------------------------------------
Balance at February 28, 1998 276,176 $ 2,762 $ 59,967 $ 232,668 $ 295,397
Net earnings 97,346 97,346
Shares sold under employee stock option plans 2,660 26 18,318 18,344
- -------------------------------------------------------------------------------------------------------------------------------
Balance at February 27, 1999 278,836 2,788 78,285 330,014 411,087
Net earnings 131,229 131,229
Shares sold under employee stock option plans 1,976 20 16,709 16,729
- -------------------------------------------------------------------------------------------------------------------------------
Balance at February 26, 2000 280,812 2,808 94,994 461,243 559,045
Net earnings 171,922 171,922
Shares sold under employee stock option plans 7,078 71 85,980 86,051
- -------------------------------------------------------------------------------------------------------------------------------
Balance at March 3, 2001 287,890 $ 2,879 $ 180,974 $ 633,165 $ 817,018
===============================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
7
BED BATH & BEYOND ANNUAL REPORT 2000
13
CONSOLIDATED STATEMENTS OF CASH FLOWS
Bed Bath & Beyond Inc. and Subsidiaries
Fiscal Year Ended
- -----------------------------------------------------------------------------------------------------------------------------------
March 3, February 26, February 27,
(in thousands) 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net earnings $ 171,922 $ 131,229 $ 97,346
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 46,650 31,625 23,217
Tax benefit from exercise of stock options 48,295 8,932 11,546
Deferred income taxes (3,939) (8,197) (5,166)
(Increase) decrease in assets:
Merchandise inventories (136,271) (110,096) (89,980)
Prepaid expenses and other current assets 2,627 (2,347) (2,223)
Other assets (1,124) 96 (1,276)
Increase (decrease) in liabilities:
Accounts payable 47,287 45,744 34,652
Accrued expenses and other current liabilities 20,721 18,354 16,115
Income taxes payable (1,602) 16,980 4,595
Deferred rent 3,370 3,616 3,766
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 197,936 135,936 92,592
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Capital expenditures (140,395) (90,098) (62,274)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (140,395) (90,098) (62,274)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from exercise of stock options 37,756 7,797 6,798
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 37,756 7,797 6,798
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 95,297 53,635 37,116
Cash and cash equivalents:
Beginning of period 144,031 90,396 53,280
- -----------------------------------------------------------------------------------------------------------------------------------
End of period $ 239,328 $ 144,031 $ 90,396
===================================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
8
BED BATH & BEYOND ANNUAL REPORT 2000
14
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 2000 represented 53 weeks and
ended on March 3, 2001; fiscal 1999 and fiscal 1998 represented 52 weeks and
ended on February 26, 2000 and February 27, 1999, respectively.
D. RECENT ACCOUNTING PRONOUNCEMENTS
In the fourth quarter of fiscal 2000, the Company adopted the provisions of the
Financial Accounting Standards Board's Emerging Issues Task Force ("EITF") Issue
No. 00-14, "Accounting for Certain Sales Incentives", which provides that the
value of point of sale coupons and rebates that result in a reduction of the
price paid by the customer be recorded as a reduction of sales, and that free
merchandise incentives be recorded as cost of sales. Prior to adoption, the
Company recorded its point of sale coupons and rebates in cost of sales. Upon
adoption, the Company has reclassified such sales incentives as a reduction of
sales in its consolidated statements of earnings for fiscal 2000, 1999 and 1998.
The reclassification had no impact on gross profit, operating profit or net
earnings.
In the fourth quarter of fiscal 2000, the Company also adopted the provisions of
EITF Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs",
which provides that amounts billed to a customer in a sale transaction related
to shipping and handling represent revenues. Prior to adoption, the Company
recorded such revenues and costs in selling, general and administrative expense.
Upon adoption, the Company has reclassified such shipping and handling fees to
sales and shipping and handling costs to cost of sales in its consolidated
statements of earnings for fiscal 2000, 1999 and 1998. The reclassification had
no impact on operating profit or net earnings.
As a result of these reclassifications, previously reported net sales decreased
by approximately $20.5 million and $14.9 million and cost of sales decreased by
approximately $20.4 million and $14.9 million in fiscal 1999 and fiscal 1998,
respectively.
E. 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 options.
F. STOCK-BASED COMPENSATION
As permitted under Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation", the Company has elected not to adopt
the fair value based method of accounting for its stock-based compensation
plans, but continues 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.
G. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments purchased with maturities of
three months or less to be cash equivalents.
H. MERCHANDISE INVENTORIES
Merchandise inventories are stated at the lower of cost or market, determined by
the retail inventory method of accounting.
9
BED BATH & BEYOND ANNUAL REPORT 2000
15
I. 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
(five 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 $28.4 million, $24.2 million and $17.3 million for fiscal 2000, 1999
and 1998, respectively.
J. DEFERRED RENT
The Company accounts for scheduled rent increases contained in its leases on a
straight-line basis over the noncancelable lease term. Deferred rent amounted to
$23.3 million and $20.0 million as of March 3, 2001 and February 26, 2000,
respectively.
K. SHAREHOLDERS' EQUITY
In July 2000 and June 1998, the Board of Directors approved two-for-one splits
of the Company's common stock effected in the form of 100% stock dividends. The
stock dividends were distributed on August 11, 2000 and July 31, 1998,
respectively, to shareholders of record on July 28, 2000 and July 10, 1998,
respectively.
Unless otherwise stated, all references to common shares outstanding and net
earnings per share are on a post-split basis.
L. REVENUE RECOGNITION
The Company recognizes revenue at the time of sale of merchandise to its
customers. Revenues from the sale of gift cards, gift certificates and store
credits are recognized when redeemed. A provision for merchandise returns is
provided in the period that the related sales are recorded.
M. PREOPENING EXPENSES
Expenses associated with new or expanded stores are charged to earnings as
incurred.
N. ADVERTISING COSTS
Expenses associated with store advertising are charged to earnings as incurred.
O. 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.
P. 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.
Q. IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically reviews long-lived assets for impairment by comparing
the carrying value of the assets with their estimated future undiscounted cash
flows. If it is determined that an impairment loss has occurred, the loss would
be recognized during that period. The impairment loss is calculated as the
difference between asset carrying values and the present value of the estimated
net cash flows. The Company does not believe that any material impairment
currently exists related to its long-lived assets.
R. 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.
10
BED BATH & BEYOND ANNUAL REPORT 2000
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
March 3, February 26,
(in thousands) 2001 2000
- -------------------------------------------------------------------------
Furniture, fixtures and equipment $ 219,243 $ 162,061
Leasehold improvements 168,370 114,549
Computer equipment 73,535 44,143
- -------------------------------------------------------------------------
461,148 320,753
Less: Accumulated depreciation
and amortization (158,492) (111,842)
- -------------------------------------------------------------------------
$ 302,656 $ 208,911
=========================================================================
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 $25.0 million for loans and letters of credit. The Credit Agreement
matures in October 2001. Interest on all borrowings 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 $86.0 million was available for the
payment of dividends at March 3, 2001.
The Company did not borrow under the Credit Agreement during fiscal 2000 or
fiscal 1999. As of March 3, 2001 and February 26, 2000, there were approximately
$2.9 million and $5.3 million in outstanding letters of credit, respectively.
4. PROVISION FOR INCOME TAXES
The components of the provision for income taxes are as follows:
Fiscal Years
- -----------------------------------------------------------------------
(in thousands) 2000 1999 1998
- -----------------------------------------------------------------------
Current:
Federal $ 102,178 $ 82,652 $ 61,098
State and local 11,678 9,446 8,291
- -----------------------------------------------------------------------
113,856 92,098 69,389
- -----------------------------------------------------------------------
Deferred:
Federal (3,535) (7,356) (4,549)
State and local (404) (841) (617)
- -----------------------------------------------------------------------
(3,939) (8,197) (5,166)
- -----------------------------------------------------------------------
$ 109,917 $ 83,901 $ 64,223
=======================================================================
Included in prepaid expenses and other current assets and in deferred rent and
other liabilities are deferred income taxes of $35.4 million and $2.2 million,
respectively, 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 and liabilities consist of the following:
- ------------------------------------------------------------------------
March 3, February 26,
(in thousands) 2001 2000
- ------------------------------------------------------------------------
Deferred Tax Assets:
Inventories $ 13,729 $ 11,332
Deferred rent 9,103 7,789
Other 21,684 14,678
Deferred Tax Liability:
Depreciation (11,279) (4,501)
- ------------------------------------------------------------------------
$ 33,237 $ 29,298
========================================================================
For fiscal 2000 and 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, 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%.
11
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 March 3, 2001 and
February 26, 2000, other assets include $4.5 million and $4.0 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 $366,000, $557,000 and $424,000 for
fiscal 2000, 1999 and 1998, 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
$634,000, $488,000 and $390,000 for fiscal 2000, 1999 and 1998, 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 2000, 1999 and 1998), 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 March 3, 2001, future minimum lease payments under noncancelable operating
leases are as follows:
FISCAL YEAR (in thousands) AMOUNTS
- -------------------------------------------------------------------------
2001 $165,057
2002 175,353
2003 173,125
2004 168,773
2005 165,042
Thereafter 1,031,840
- -------------------------------------------------------------------------
Total minimum lease payments $1,879,190
=========================================================================
As of March 30, 2001, the Company had executed leases for 62 stores planned for
opening in fiscal 2001.
Expenses for all operating leases were $142.6 million, $113.3 million and $89.5
million for fiscal 2000, 1999 and 1998, respectively.
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
March 3, 2001, 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, which terms are subject to further extension, 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 and pension benefits.
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 $68.0 million, $67.2 million and $53.5 million
in fiscal 2000, 1999 and 1998, respectively.
10. STOCK OPTION PLANS
Options to purchase shares of the Company's common stock have been granted to
employees under various stock option plans. The Company may grant options to
purchase not more than an aggregate of 64.4 million shares of common stock,
subject to adjustment under certain circumstances.
12
BED BATH & BEYOND ANNUAL REPORT 2000
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Option grants have been at market value, non-qualified and generally 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:
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
- ---------------------------------------------------------------------------
Outstanding at February 28, 1998 21,209,796 $ 4.81
Options granted 5,540,400 11.77
Options exercised (2,660,298) 2.55
Options canceled (617,360 6.10
----------
Outstanding at February 27, 1999 23,472,538 6.67
Options granted 5,533,900 15.49
Options exercised (1,975,374) 3.94
Options canceled (807,064) 9.67
----------
Outstanding at February 26, 2000 26,224,000 8.65
Options granted 6,149,700 12.73
Options exercised (7,078,153) 5.33
Options canceled (1,123,562) 12.02
----------
Outstanding at March 3, 2001 24,171,985 $10.51
Options exercisable:
At February 27, 1999 5,077,618 $ 3.84
At February 26, 2000 7,240,180 $ 4.81
At March 3, 2001 4,904,297 $ 7.12
===========================================================================
The stock option committees 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 March 3, 2001:
OPTIONS OUTSTANDING
- -----------------------------------------------------------------------
WEIGHTED-AVERAGE WEIGHTED-
RANGE OF NUMBER REMAINING AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
- -----------------------------------------------------------------------
$ 1.06 to 6.12 4,295,046 4.35 $ 3.69
6.19 to 10.38 4,601,534 6.39 7.33
10.69 to 11.47 5,093,820 8.95 11.45
11.83 to 14.19 4,159,315 7.28 11.92
14.77 to 26.78 6,022,270 8.54 16.01
$ 1.06 to 26.78 24,171,985 7.26 $10.51
OPTIONS EXERCISABLE
- -----------------------------------------------------------------------
WEIGHTED-
RANGE OF NUMBER AVERAGE
EXERCISE PRICES EXERCISABLE EXERCISE PRICE
- -----------------------------------------------------------------------
$ 1.06 to 6.12 2,609,526 $ 3.40
6.19 to 10.38 832,974 7.27
10.69 to 11.47 73,300 11.15
11.83 to 14.19 554,555 12.03
14.77 to 26.78 833,942 14.98
---------
$ 1.06 to 26.78 4,904,297 $ 7.12
---------
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 option 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) 2000 1999 1998
- ---------------------------------------------------------------------------------
NET EARNINGS:
As reported $ 171,922 $ 131,229 $ 97,346
Pro forma $ 154,540 $ 119,158 $ 89,519
NET EARNINGS PER SHARE:
Basic:
As reported $ 0.61 $ 0.47 $ 0.35
Pro forma $ 0.54 $ 0.43 $ 0.32
Diluted:
As reported $ 0.59 $ 0.46 $ 0.34
Pro forma $ 0.53 $ 0.41 $ 0.31
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 2000, 1999 and 1998, respectively: dividend yield of 0% for
all years; expected volatility of 45%, 42% and 42%; risk free interest rates of
6.58%, 5.95% and 5.58%; and expected lives of seven years, seven years and six
years. The weighted-average fair value of options granted during the year is
$7.25, $8.34 and $6.06 for fiscal 2000, 1999 and 1998, respectively.
13
BED BATH & BEYOND ANNUAL REPORT 2000
19
11. SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
(in thousands, except per share data) FISCAL 2000 QUARTER ENDED FISCAL 1999 QUARTER ENDED
- ------------------------------------------------------------------------------------------------------------------------------------
May 27, August 26, November 25, March 3, May 29, August 28, November 27, February 26,
2000 2000 2000 2001 1999 1999 1999 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $459,163 $589,381 $602,004 $746,107 $356,633 $451,715 $480,145 $569,012
Gross profit 187,293 241,284 246,080 311,802 146,214 185,570 196,784 238,233
Operating profit 36,339 70,009 64,592 101,898 28,015 53,580 50,607 77,138
Earnings before provision
for income taxes 38,301 71,440 66,664 105,434 29,317 54,503 51,978 79,332
Provision for income taxes 14,937 27,862 25,999 41,119 11,434 21,256 20,271 30,940
Net earnings $ 23,364 $ 43,578 $ 40,665 $ 64,315 $ 17,883 $ 33,247 $ 31,707 $ 48,392
EPS - Basic (1) $ .09 $ .15 $ .14 $ .22 $ .07 $ .12 $ .11 $ .17
EPS - Diluted (1) $ .08 $ .15 $ .14 $ .22 $ .06 $ .12 $ .11 $ .17
- ------------------------------------------------------------------------------------------------------------------------------------
(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.
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 March 3, 2001 and February 26, 2000, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the fiscal years in the three-year period ended March 3, 2001.
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 auditing standards generally accepted
in the United States of America. 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 March 3, 2001 and February 26, 2000, and the results
of their operations and their cash flows for each of the fiscal years in the
three-year period ended March 3, 2001 in conformity with accounting principles
generally accepted in the United States of America.
New York, New York
March 30, 2001
14
BED BATH & BEYOND ANNUAL REPORT 2000
20
DIRECTORS AND OFFICERS
- --------------------------------------------------------------------------------
DIRECTORS
WARREN EISENBERG
Co-Chairman and Co-Chief Executive Officer,
Bed Bath & Beyond Inc.
LEONARD FEINSTEIN
Co-Chairman and Co-Chief Executive Officer,
Bed Bath & Beyond Inc.
STEVEN H. TEMARES
President and Chief Operating Officer,
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
EUGENE A. CASTAGNA
Vice President - Finance
MICHAEL HONEYMAN
Vice President - Corporate Administration and Operations
RICHARD C. MCMAHON
Vice President and Chief Information Officer
ALLAN N. RAUCH
Vice President - Legal and General Counsel
G. WILLIAM WALTZINGER, JR.
Vice President - E-Service
JIM BRENDLE
Vice President - Construction and Store Development
P. TIMOTHY BREWSTER
Vice President - Stores - N.Y.C. Region
MICHAEL J. CALLAHAN
Vice President - Corporate Counsel
MARTIN EISENBERG
Vice President - Stores - Northeast Region
ALAN JACOBSON
Vice President - Stores - Western Region
LEIF TODD JOHNSON
Vice President - General Merchandising
EDWARD KOPIL
Vice President - Stores - Southern Region
PHILLIP KORNBLUH
Vice President - Visual Merchandising
RITA LITTLE
Vice President - Marketing
MARTIN LYNCH
Vice President - Merchandise Operations
STEPHEN J. MURRAY
Vice President - Information Technology
WILLIAM ONKSEN
Vice President - Stores - MidAtlantic and Midwest Regions
CHRISTINE R. PIROG
Vice President - Store Operations
CONCETTA VAN DYKE
Vice President - Human Resources
15
CORPORATE AND SHAREHOLDER INFORMATION
CORPORATE OFFICE
650 Liberty Avenue
Union, New Jersey 07083
Telephone: 908/688-0888
BUYING OFFICE
110 Bi-County Boulevard, Suite 114
Farmingdale, New York 11735
Telephone: 631/420-7050
SHAREHOLDER INFORMATION
A copy of the Company's 2000 Annual Report as filed with
the Securities and Exchange Commission may be obtained from the Investor
Relations Department at the Corporate Office. Fax: 908/810-8813
STOCK LISTING
NASDAQ National Market
Trading symbol BBBY.
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
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
2000 and fiscal 1999:
Quarter High Low
- ----------------------------------------------
Fiscal 2000
First $ 21.81 $ 11.38
Second 20.19 16.38
Third 26.44 17.44
Fourth 27.06 20.17
Fiscal 1999
First $ 19.69 $ 14.56
Second 19.47 12.75
Third 18.50 13.69
Fourth 18.00 11.22
At March 30, 2001, there were approximately 650 shareholders of record. This
number excludes individual shareholders holding stock under nominee security
position listings.
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 28,
2001, at the Headquarters Plaza Hotel, Three Headquarters Plaza, Morristown, New
Jersey.
WEBSITE
www.bedbathandbeyond.com