1
Exhibit 13
1996
----------------
25th Anniversary
BED BATH & BEYOND
-----------------
ANNUAL REPORT
--------------------------------
Beyond any store of its kind.(R)
2
Founded in 1971, Bed Bath & Beyond Inc. is a nationwide chain of
"superstores" selling predominantly better quality domestics merchandise and
home furnishings. The Company's 114 stores principally range from 30,000 to
50,000 square feet, with some stores exceeding 80,000 square feet. They combine
superior service and a huge selection of items at everyday low prices within a
constantly evolving shopping environment that has proven to be both fun and
exciting for customers. Bed Bath & Beyond Inc.'s shares are traded on the
NASDAQ National Market System under the symbol "BBBY".
Store Locations
1 Alabama 7 New Jersey
2 Arizona 1 New Mexico
14 California 11 New York
2 Colorado 2 North Carolina
3 Connecticut 4 Ohio
11 Florida 1 Oklahoma
5 Georgia 2 Pennsylvania
8 Illinois 2 Tennessee
2 Indiana 13 Texas
1 Kansas 7 Virginia
4 Maryland 1 Washington
4 Massachusetts 1 Wisconsin
4 Michigan
1 Missouri 114 Total
Contents
Selected Financial Data 1
Letter to Shareholders 2 - 9
Management's Discussion and
Analysis of Financial Condition
and Results of Operations 10-13
Consolidated Financial Statements 14-24
Corporate Data INSIDE BACK COVER
3
SELECTED FINANCIAL DATA
FISCAL YEAR ENDED(1)
-----------------------------------------------------------------------------------
(in thousands, except per share MARCH 1, FEBRUARY 25, FEBRUARY 26, FEBRUARY 27, FEBRUARY 28,
and selected operating data) 1997 1996 1995 1994 1993
================================================================================================================================
INCOME STATEMENT DATA:
Net sales $ 823,178 $ 601,252 $ 440,261 $ 305,767 $ 216,712
Gross profit 341,168 250,036 183,819 127,972 90,528
Operating profit 90,607 67,585 51,685 36,906 26,660
Net earnings(2) 55,015 39,459 30,013 21,887 15,960
Net earnings per share(2)(3) $ .78 $ .57 $ .43 $ .32 $ .24
SELECTED OPERATING DATA:
Number of stores open
(at period end) 108 80 61 45 38
Total square feet of store space
(at period end) 4,347,000 3,214,000 2,339,000 1,512,000 1,128,000
Net sales per average square foot of
total store space $ 218 $ 217 $ 229 $ 232 $ 212
Percentage increase in comparable store
net sales 6.1% 3.8% 12.0% 10.6% 7.2%
BALANCE SHEET DATA (AT PERIOD END):
Working capital $ 121,679 $ 87,727 $ 71,902 $ 54,432 $ 34,501
Total assets 329,925 235,810 176,678 121,468 76,654
Long-term debt -- 5,000 16,800 13,300 --
Shareholders' equity $ 214,361 $ 151,446 $ 108,939 $ 77,305 $ 54,643
(1) Each fiscal year is 52 weeks, except for March 1, 1997 which represents 52
weeks and 6 days.
(2) Bed Bath & Beyond Inc. was an S corporation for Federal and certain state
income tax purposes until June 9, 1992. Provision for income taxes and net
earnings in fiscal 1992 reflect a provision for pro forma income taxes as
if the Company and its subsidiaries had been liable for Federal, state and
local income taxes as taxable corporate entities.
(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 on June 21, 1993
and April 30, 1996.
NET SALES NET EARNINGS PER SHARE NET EARNINGS
($ in millions) (in dollars) ($ in millions)
92 216.7 0.24 16
93 305.8 0.32 21.9
94 440.3 0.43 30
95 601.3 0.57 39.5
96 823.2 0.78 55
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TO OUR FELLOW SHAREHOLDERS:
Bed Bath & Beyond's Silver Anniversary Year was memorable in many ways.
In addition to recording the strongest financial results in our 25 year history,
our Company also achieved several significant milestones.
Among these were:
- - the debut of our 100th unit (located in Irvine, California), one of
twenty-eight new superstores opening during fiscal 1996;
- - the second two-for-one stock split since "going public" in 1992;
- - the addition of our stock to both the Standard & Poor's Mid-Cap 400 and
Nasdaq-100 indices;
- - the appointment of Steven H. Temares to the newly-established position of
Executive Vice President-Chief Operating Officer; and
- - the elimination of the balance of our long-term debt.
TOTAL ASSETS
($ in millions)
92 76.7
93 121.5
94 176.7
95 235.8
96 329.9
[CAPTION]
OUR COMPANY
HAS NEVER
ENJOYED A
STRONGER FINANCIAL
POSITION.
OUR FIRST QUARTER CENTURY - A RETROSPECTIVE:
Bed Bath & Beyond began operations in 1971 with the opening of two small "bed
n bath" stores, one in New York and one in New Jersey. In the intervening two
and one-half decades, our Company has evolved into the preeminent nationwide
chain of domestics merchandise and home furnishings "superstores". Significant
milestones occurred in 1985, when our superstore format was introduced, and in
1987, when the "Bed Bath & Beyond" name, which recognized our expanded
merchandising offerings, was adopted.
Since our modest beginning on the East Coast, we have now grown to a chain of
114 stores in 26 states. In every market we have entered over the years,
consumer acceptance of our stores has been outstanding.
[PHOTO OF LEONARD FEINSTEIN AND WARREN EISENBERG, CO-CHIEF EXECUTIVE OFFICERS]
5
From inception, we've believed very strongly in running a highly
decentralized company. This is one of our major strengths, one which
differentiates us from most other retailers. It has taken 25 years of developing
the people who have made possible our continued growth in a decentralized
manner, a distinct advantage that we enjoy. While a decentralized company can
become centralized, it is nearly impossible for a centralized company to become
decentralized. We operate in an environment in which all of our store managers,
area managers, district managers and regional directors, regardless of any prior
experience in retailing, begin their careers as associates or department
managers, and are trained to be Bed Bath & Beyond entrepreneurs and merchants.
Upon promotion to store manager, they are empowered to make merchandising and
operational decisions not customary in a centralized operation. The importance
of this distinction, and the philosophy upon which it is based, cannot be
overemphasized. Some might say that this is a difficult and expensive way to
operate, and we agree, but we also say it's well worth it! It is our operating
philosophy, or culture, if you will, that sets us apart from others in our
industry. It's what gives us the significant advantage we enjoy over our
competition, who simply cannot copy what we do and achieve the results we do.
Our stores, our "bottom line" and our balance sheet have proven, time and time
again, that this is so.
[CAPTION]
OUR ABILITY TO IDENTIFY AND CREATE GOOD MARKUP
ITEMS AND "MERCHANDISE
THE MIX"
HAS BEEN A
STRONG KEY TO OUR SUCCESS.
Our Company has accomplished much over the past 25 years, but we are most
proud of the outstanding management team, second to none in our industry, that
has been assembled since 1971. On a day to day basis our Company is run by our
new Executive Vice President-Chief Operating Officer,
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Steven Temares, age 38, and five other key managers who have been with the
Company an average of 15 years, and whose average age is 40. Having worked
themselves, during their successful careers at Bed Bath & Beyond, in practically
every store operations or merchandising position, they continue to spend time
each week in our stores, working with their fellow employees, and greeting and
assisting customers. Exceptionally bright and hardworking, our key managers
operate as an incredibly effective team in directing the activities of the
approximately 7,000 associates who work in our stores and offices.
SHAREHOLDERS' EQUITY
($ in millions)
92 54.6
93 77.3
94 108.9
95 151.4
96 214.4
[CAPTION]
OUR UNIQUE CORPORATE CULTURE
IS FOCUSED ON
"THE BOTTOM
LINE" AND ON BUILDING SHAREHOLDER VALUE.
Also, from the very beginning, our Company has operated on the premise
that the customer is the most important person in our business. The closer our
associates are to the customer, the more important that associate, and the
associate's ideas, are to Bed Bath & Beyond. Many creative ideas over the years
have come from store personnel, who conceived of many of these ideas through
their day to day contacts with customers.
Another guiding principle of our Company has been change. Only through
constant innovation and evolution have we been able to remain the industry
leader and continue to widen our lead. New customer service initiatives, new
merchandise items, new departments, new fixturing, combined with the
aforementioned new ideas, are truly our lifeblood. We have created, and will
continue to foster, a unique environment in which each individual is encouraged
to think of how to "do it better", and is rewarded by seeing his or her new idea
rolled out company-wide.
"Merchandising the mix" has been another key to our success. We have
proven over and over again our ability to not only identify and create good
markup items, but to drive the volume on such items. The result is not simply
higher sales volume, but higher gross margins as well. In our decentralized
environment, our personnel know very well that it is not just buying and pricing
the item that controls gross profit, but that by selling a better mix, and
driving the volume on higher margin merchandise, superior results are attained.
From inception in 1971, our stores have consistently featured top
national brands, literally the best in the industry. As an important element in
our merchandising philosophy, they reinforce our quality value pricing image to
the customer. We seek to avoid carrying merchandise where the vendor establishes
the retail selling price. This also distinguishes us from other retailers who,
in order to secure such products, may ask "department store prices" for them.
Thus, while we provide Bed Bath & Beyond shoppers with value-priced,
nationally-branded merchandise, through "merchandising the mix", we achieve
healthy gross margins.
In the twenty-five years we have been in business, we have always
believed that there are no shortcuts. We realize that you must invest the time,
the energy, the effort, and often the emotion, in order to produce outstanding
results. We have also found it
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essential to invest heavily in the infrastructure necessary to support a much
larger chain of retail stores. We continue to allocate significant resources to
the recruitment and training of personnel and to the accelerated development of
logistical support and computerized systems.
Successful retail businesses cannot be built, and mediocre businesses
cannot be transformed, literally overnight. Indeed, even a successful retailer
must constantly modify, innovate and improve every aspect of its business, if it
is to continue to achieve exceptional results. That is why we will strive, in
our next twenty-five years, to adhere to the business principles which have
served our Company so well during the past quarter century.
FINANCIAL REVIEW OF 1996:
Net sales for the fiscal year (fifty-two weeks, six days) ended March 1,
1997 were $823.2 million, compared with fiscal 1995 (fifty-two weeks) net sales
of $601.3 million, an increase of 36.9%. Comparable store sales for fiscal 1996
increased by 6.1% from last year.
Net earnings increased 39.4% to $55.0 million, or $.78 per share, from
$39.5 million, or $.57 per share. Internally-generated cash flow not only
completely funded our expansion program in 1996, but also enabled Bed Bath &
Beyond to achieve a strong, flexible, debt-free balance sheet on March 1, 1997.
With working capital at that date of $121.7 million, compared with $87.7 million
at the prior fiscal year-end, and a $45.0 million bank credit facility,
currently not being used, our Company has never enjoyed a stronger financial
position.
[CAPTION]
WE'VE ALWAYS
LIVED WITH
COMPETITORS,
AND HAVE FARED
QUITE WELL AGAINST
THEM.
STORE EXPANSION
NUMBER OF STORES TOTAL SQUARE FOOTAGE
(IN THOUSANDS)
92 38 1,128
93 45 1,512
94 61 2,339
95 80 3,214
96 108 4,347
EXPANSION PROGRAM:
Our new store expansion program accelerated during the fiscal year with
the opening of twenty-eight new superstores and the expansion of two additional
stores, bringing to 108 the number of stores operating at year-end. In fiscal
1996, we entered four new states (Missouri, New Mexico, North Carolina, and
Tennessee), and increased total store space by approximately 35%, from 3.2
million square feet to 4.3 million square feet. During fiscal 1997, we plan to
open approximately 30 additional new superstores, in both new and existing
markets, and to enter several states, including Oregon and Wisconsin, for the
first time.
The approximately $60 billion domestics and home furnishings industry
remains highly fragmented. Most sales of these products are still generated by
the department stores and the national chains. With all of our growth, Bed Bath
& Beyond enjoys less than a 2% market share. We presently operate in 28 of the
40 largest markets in the United States, and in those 28 markets there are
opportunities to open additional stores, and to upgrade existing units. We are
also pursuing growth opportunities in the remaining larger markets, as well as
in selected smaller markets. These factors, combined with strong demographics,
and the desire of many
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consumers to upgrade their home environments, support the assumptions underlying
our long-term strategic goals.
COMPETITIVE ENVIRONMENT:
Bed Bath & Beyond has always faced numerous competitors, including
department stores, national chains and other superstore operators, and has fared
quite well against them. Since we became a public company in 1992, our
attractive financial results have tempted others to try to emulate our success.
We are frequently shopped by our competitors, including their top executives.
While they may copy our merchandise items, customer services, racetrack layout,
displays and fixtures, or even promotional ideas, there is simply no way they
can replicate our organization, develop our merchandising and operational
strengths, or generally clone our culture. While we know that past performance
does not assure future success, we are intent on exploiting the opportunity to
widen the gap in operating performance that clearly exists between Bed Bath &
Beyond and its competitors.
[CAPTION]
BED BATH & BEYOND
OFFERS AN
UNSURPASSED
BREADTH AND
DEPTH OF
MERCHANDISE AND
OUTSTANDING
CUSTOMER SERVICE.
AS WE LOOK TO THE FUTURE:
Bed Bath & Beyond, now a quarter-century old, is the leader in a young,
dynamic, fast-growing segment of the retail industry.
To summarize:
- - Our results, based upon well-tested operating and merchandising
philosophies, have been consistently strong;
- - Our Company has developed a proven, successful concept, which is rapidly
being rolled out across the country;
- - With only 114 stores in 26 states, expansion opportunities are plentiful;
- - We are solidifying our infrastructure to support planned growth;
- - Our experienced, entrepreneurial managers and associates truly enjoy the
business they've developed and nurtured, and they're doing an outstanding
job;
- - A strong, unleveraged financial position, provides exceptional resources
and flexibility.
And yet, with all of this going for us, and in spite of our performance
to date, we are never fully satisfied. We have not come this far, only to relax
our collective efforts to constantly reinvent our Company, to make it better
tomorrow than it is today. As we move towards the 21st Century, we reaffirm our
deep-seated commitment to the Bed Bath & Beyond customer from coast-to-coast,
upon whose loyal patronage our continued success ultimately depends.
Sincerely,
/s/ Warren Eisenberg
Warren Eisenberg,
Chairman and Co-Chief
Executive Officer
/s/ Leonard Feinstein
Leonard Feinstein,
President and Co-Chief
Executive Officer
May 9, 1997
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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 income
statement data of the Company expressed as a percentage of net sales and (ii)
the percentage change from the prior year in selected income statement data:
FISCAL YEAR ENDED
-----------------------------------------------------------------------------------------
PERCENTAGE OF NET SALES PERCENTAGE CHANGE FROM PRIOR YEAR
-----------------------------------------------------------------------------------------
MARCH 1, FEBRUARY 25, FEBRUARY 26, MARCH 1, FEBRUARY 25,
1997 1996 1995 1997 1996
=================================================================================================================================
Net sales 100.0% 100.0% 100.0% 36.9% 36.6%
Cost of sales, including buying,
occupancy and indirect costs 58.6 58.4 58.2 37.2 37.0
Gross profit 41.4 41.6 41.8 36.4 36.0
Selling, general and
administrative expenses 30.4 30.3 30.0 37.3 38.1
Operating profit 11.0 11.2 11.7 34.1 30.8
Earnings before provision
for income taxes 11.1 11.1 11.6 36.5 31.5
Net earnings 6.7 6.6 6.8 39.4 31.5
FISCAL 1996 COMPARED WITH FISCAL 1995
In fiscal 1996, the Company expanded store space by 35.3%, from 3,214,000
square feet at fiscal year-end 1995 to 4,347,000 square feet at fiscal year-end
1996. The 1,133,000 square feet increase was the result of opening twenty-eight
new superstores and expanding two existing stores.
Net sales in fiscal 1996 increased $221.9 million to $823.2 million,
representing an increase of 36.9% over the $601.3 million net sales of fiscal
1995. Approximately 84% of the increase is attributable to new store net sales
and the balance to an increase in comparable store net sales. Net sales per
average square foot of store space increased in fiscal 1996 to $218 from $217 in
fiscal 1995.
Approximately 55% and 45% of net sales for fiscal 1996 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 1996 and fiscal 1995. No other individual product category accounted for
10% or more of net sales during either fiscal year.
Gross profit for fiscal 1996 was $341.2 million or 41.4% of net sales
compared with $250.0 million or 41.6% of net sales, a year ago. The decrease in
gross profit as a percentage of net sales was attributable to a number of
factors, including a different mix of sales during fiscal 1996 compared to the
mix of sales during the prior year, and an increase in coupons redeemed
associated with the circular marketing program.
The percentage increase in comparable store net sales was 6.1% in fiscal 1996
compared with 3.8% in fiscal 1995. The increase in comparable net sales relative
to the prior year primarily reflects a number of factors, including but not
limited to, the continued consumer acceptance of the Company's merchandise
offerings and customer service and the generally favorable retailing
environment.
Selling, general and administrative expenses ("SG&A"), were $250.6 million or
30.4% of net sales in fiscal 1996 compared to $182.5 million or 30.3% of net
sales in fiscal 1995. The increase in SG&A as a percentage of net sales
primarily reflects an increase in occupancy costs, which was partially offset by
a decrease in payroll and payroll related items. Expenses associated with new,
relocated or expanded stores are charged to earnings as incurred.
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The costs associated with the Company's computer systems, including personnel
costs, hardware leasing costs and software costs, were approximately $9.8
million in fiscal 1996, $6.9 million in fiscal 1995 and $4.8 million in fiscal
1994, and the Company estimates will be approximately $12.5 million in fiscal
1997.
Operating profit was $90.6 million in fiscal 1996, an increase of $23.0
million or 34.1% from fiscal 1995, reflecting primarily the increase in net
sales which was partially offset by increases in cost of sales and SG&A.
The change in the effective tax rate reflects a decrease in the amount
provided for state and local taxes due primarily to the composition of states in
which the Company currently conducts business.
FISCAL 1995 COMPARED WITH FISCAL 1994
In fiscal 1995, the Company expanded store space by 37.4%, from 2,339,000
square feet at fiscal year-end 1994 to 3,214,000 square feet at fiscal year-end
1995. The 875,000 square feet increase was the result of opening nineteen new
superstores and expanding two existing stores.
Net sales in fiscal 1995 increased $161.0 million to $601.3 million,
representing an increase of 36.6% over the $440.3 million net sales volume of
fiscal 1994. Approximately 91% of the increase is attributable to new store net
sales and the balance to an increase in comparable store net sales.
The Company estimates that bed linens accounted for approximately 21% and 20%
of net sales during fiscal 1995 and fiscal 1994, respectively. No other
individual product category accounted for 10% or more of net sales during either
fiscal year.
Gross profit for fiscal 1995 was $250.0 million or 41.6% of net sales
compared with $183.8 million or 41.8% of net sales, a year ago. The decrease in
gross profit as a percentage of net sales was attributable to a number of
factors, including a different mix of sales during fiscal 1995 compared to the
mix of sales during the prior year, and an increase in coupons redeemed
associated with the circular marketing program.
The percentage increase in comparable store net sales was 3.8% in fiscal 1995
compared with 12.0% in fiscal 1994. The slower rate of growth in comparable
store net sales relative to the prior year primarily reflects the general
slowdown in the retail sector.
Net sales per average square foot of store space declined to $217 from $229
in fiscal 1994, due principally to the timing of the significant new store space
added in fiscal 1995.
SG&A was $182.5 million or 30.3% of net sales in fiscal 1995 compared to
$132.1 million or 30.0% of net sales in fiscal 1994. The increase in SG&A as a
percentage of net sales primarily reflects an increase in occupancy costs, which
was partially offset by a decrease in payroll and payroll related items.
Expenses associated with new, relocated or expanded stores are charged to
earnings as incurred.
Operating profit was $67.6 million in fiscal 1995, an increase of $15.9
million or 30.8% from fiscal 1994, reflecting primarily the increase in net
sales which was partially offset by increases in cost of sales and SG&A.
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 five-year period from the
beginning of fiscal 1992 to the end of fiscal 1996, the chain has grown from 34
stores to 108 stores. Total square footage grew from 917,000 square feet at the
beginning of fiscal 1992 to 4,347,000 square feet at the end of fiscal 1996.
A major portion of the increase in the Company's net sales during each of the
preceding five years was attributable to new store net sales as distinguished
from increases in comparable store net sales, with new store net sales
accounting for approximately 84%, 91%, 78%, 75% and 70% of the increase in net
sales in fiscal 1996, 1995, 1994, 1993 and 1992, respectively.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
The Company intends to continue its expansion program and currently
anticipates that in fiscal 1997 it will open approximately 30 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 1997 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 $108.4 million at the end
of fiscal 1994 to $148.4 million at the end of fiscal 1995, and to $187.2
million at the end of fiscal 1996. The increase in inventory between the end of
fiscal 1995 and fiscal 1996 was attributable to the addition of new store space
during the period, which was partially offset by a decrease in inventory levels
at existing stores. This decrease in inventory levels at existing stores as of
the end of fiscal 1996 primarily reflected the timing of fiscal year-end
inventory receipts. The increase in merchandise inventory between the end of
fiscal 1994 and fiscal 1995 was primarily attributable to the addition of new
store space.
The Company's working capital increased from $71.9 million at the end of
fiscal 1994 to $87.7 million at the end of fiscal 1995, and to $121.7 million at
the end of fiscal 1996. The increase between the end of fiscal 1995 and the end
of fiscal 1996 was primarily reflected in an increase in merchandise inventories
and cash and cash equivalents, which was partially offset by increases in
accounts payable and accrued expenses and other current liabilities. The
increase between the end of fiscal 1994 and the end of fiscal 1995 was primarily
reflected in an increase in merchandise inventories, which was 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 and leasehold improvements on an ongoing
basis. The Company's total capital expenditures were $35.1 million, $24.5
million and $24.5 million during fiscal 1996, 1995 and 1994, respectively.
Under a credit agreement (the "Credit Agreement") concluded in November 1994,
and subsequently amended in October 1995 and in February 1997, the Company may
borrow up to $45.0 million under a revolving credit commitment for loans and
letters of credit. The Credit Agreement matures in October 1998, at which time
any revolving credit loans outstanding may be converted to a term loan payable
in twelve quarterly installments maturing 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 have materially affected its business or
will affect its expansion program as currently planned.
The Company borrowed under the Credit Agreement primarily in order to meet
seasonal cash requirements as well as capital expenditures and inventory
requirements for new store space opened during the year. During fiscal 1996, the
outstanding amount of indebtedness did not exceed $6.0 million and there was no
amount of outstanding indebtedness at the end of the fiscal year. The
outstanding amounts of indebtedness under the Credit Agreement were $5.0 million
and $16.8 million at the end of fiscal 1995 and 1994, respectively. The
weighted-average interest rates on such indebtedness were 6.45%, 7.27% and 6.96%
at the end of fiscal 1996, 1995 and 1994, respectively.
The Company believes that during fiscal 1997, internally generated funds,
supplemented, if necessary, by borrowings under the Credit Agreement, will be
sufficient to fund both its normal operations and its expansion program.
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As of March 28, 1997, the Company has leased sites for twenty-three new
superstores planned for opening in fiscal 1997, including four new stores
already opened in Northville, Michigan; Charlotte, North Carolina; San Antonio,
Texas; and Madison, Wisconsin (the Company's first store in that state).
Other new stores expected to open in fiscal 1997 will be located in
Birmingham, Alabama; Oceanside and Thousand Oaks, California; Golden, Colorado;
Augusta, Georgia; Naperville, Illinois; Ballwin, Kansas City and St. Peters,
Missouri; East Hanover and Woodbridge, New Jersey; Buffalo and New York City
(Queens), New York; Tigard, Oregon (the Company's first store in that state);
Pittsburgh (2), Pennsylvania; Grapevine and San Antonio, Texas; and Richmond,
Virginia.
Approximate aggregate costs for the twenty-three leased stores are estimated
at $45.5 million for merchandise inventories, $14.8 million for furniture and
fixtures and leasehold improvements, and $6.0 million for preopening expenses
(which will be expensed as incurred). In addition to the foregoing twenty-three
locations already leased, the Company expects to open approximately seven
additional locations. 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 PRONOUNCEMENT
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS No. 128), was issued. SFAS No. 128 simplifies the
standards for computing earnings per share and makes the United States standards
for computing earnings per share more comparable to international standards.
SFAS No. 128 requires presentation of "basic" earnings per share (which excludes
dilution) and "diluted" earnings per share. The Company does not believe the
adoption of SFAS No. 128 in fiscal 1997 will have a material impact on the
Company's reported earnings per share. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997 and requires
restatement of all prior period earnings per share presented.
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 retail 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; pricing
pressures; the availability of trained qualified management personnel to support
the Company's expansion; and the cost of labor, merchandise and other costs and
expenses.
INFLATION AND SEASONALITY
The Company does not believe that its operating results have been materially
affected by inflation during the three preceding years. There can be no
assurance, however, that the Company's operating results will not be affected by
inflation in the future.
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.
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CONSOLIDATED BALANCE SHEETS
BED BATH & BEYOND INC. AND SUBSIDIARIES
MARCH 1, FEBRUARY 25,
(in thousands, except share and per share data) 1997 1996
========================================================================================
ASSETS
Current assets:
Cash and cash equivalents $ 38,765 $ 10,267
Merchandise inventories 187,185 148,383
Prepaid expenses and other current assets 1,605 1,630
---------------------
Total current assets 227,555 160,280
---------------------
Property and equipment, net (note 2) 88,332 66,635
Other assets (notes 5 and 6) 14,038 8,895
---------------------
$329,925 $235,810
=====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 47,821 $ 39,025
Accrued expenses and other current liabilities (note 3) 47,923 26,947
Income taxes payable 10,132 6,581
---------------------
Total current liabilities 105,876 72,553
---------------------
Long-term debt (note 4) -- 5,000
Deferred rent 9,688 6,811
---------------------
115,564 84,364
---------------------
Commitments and contingencies (notes 4, 7 and 9)
Shareholders' equity:
Preferred stock - $0.01 par value; authorized - 1,000,000
shares; no shares issued or outstanding -- --
Common stock - $0.01 par value; authorized -
March 1, 1997, 150,000,000 shares and
February 25, 1996, 100,000,000 shares;
issued and outstanding - March 1, 1997,
68,603,022 shares and February 25, 1996,
68,067,972 shares 686 681
Additional paid-in capital 54,149 46,254
Retained earnings 159,526 104,511
---------------------
Total shareholders' equity 214,361 151,446
---------------------
$329,925 $235,810
=====================
See accompanying Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF EARNINGS
BED BATH & BEYOND INC. AND SUBSIDIARIES
FISCAL YEAR ENDED
-----------------------------------------------
MARCH 1, FEBRUARY 25, FEBRUARY 26,
(in thousands, except share and per share data) 1997 1996 1995
===================================================================================================
Net sales $ 823,178 $ 601,252 $ 440,261
Cost of sales, including buying, occupancy and
indirect costs 482,010 351,216 256,442
-----------------------------------------------
Gross profit 341,168 250,036 183,819
Selling, general and administrative expenses 250,561 182,451 132,134
-----------------------------------------------
Operating profit 90,607 67,585 51,685
Interest income (expense), net 704 (705) (816)
-----------------------------------------------
Earnings before provision for income taxes 91,311 66,880 50,869
Provision for income taxes (note 5 36,296 27,421 20,856
-----------------------------------------------
Net earnings $ 55,015 $ 39,459 $ 30,013
===============================================
Net earnings per share $ .78 $ .57 $ .43
===============================================
Weighted-average shares outstanding 70,555,244 69,412,170 69,138,766
===============================================
See accompanying Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
BED BATH & BEYOND INC. AND SUBSIDIARIES
COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED
(in thousands) SHARES AMOUNT CAPITAL EARNINGS TOTAL
==============================================================================================================
Balance at February 27, 1994 67,592 $ 338 $ 41,928 $ 35,039 $ 77,305
Net earnings 30,013 30,013
Shares sold under employee stock option
plan (note 11) 177 1 1,620 1,621
-----------------------------------------------------------
Balance at February 26, 1995 67,769 339 43,548 65,052 108,939
Net earnings 39,459 39,459
Shares sold under employee stock option
plan (note 11) 299 2 3,046 3,048
Reclassification of additional paid-in
capital to common stock in connection
with the 2 for 1 stock split (note 1(g)) 340 (340) --
-----------------------------------------------------------
Balance at February 25, 1996 68,068 681 46,254 104,511 151,446
Net earnings 55,015 55,015
Shares sold under employee stock option
plan (note 11) 535 5 7,895 7,900
-----------------------------------------------------------
BALANCE AT MARCH 1, 1997 68,603 $ 686 $ 54,149 $159,526 $214,361
===========================================================
See accompanying Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
BED BATH & BEYOND INC. AND SUBSIDIARIES
FISCAL YEAR ENDED
--------------------------------------
MARCH 1, FEBRUARY 25, FEBRUARY 26,
(in thousands) 1997 1996 1995
=========================================================================================================
Cash Flows from Operating Activities:
Net earnings $ 55,015 $ 39,459 $ 30,013
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 13,439 9,902 7,193
Loss from disposal of property and equipment -- 192 29
(Increase) decrease in assets:
Merchandise inventories (38,802) (39,995) (33,406)
Prepaid expenses and other current assets 25 1,530 1,163
Other assets (5,143) (2,429) (1,875)
Increase in liabilities:
Accounts payable 8,796 11,522 10,498
Accrued expenses and other current liabilities 20,976 12,123 5,673
Income taxes payable 3,551 2,799 2,393
Deferred rent 2,877 1,981 1,512
------------------------------------
Net cash provided by operating activities 60,734 37,084 23,193
------------------------------------
Cash Flows from Investing Activities:
Capital expenditures (35,136) (24,528) (24,523)
------------------------------------
Net cash used in investing activities (35,136) (24,528) (24,523)
------------------------------------
Cash Flows from Financing Activities:
Proceeds from long-term debt 17,000 55,060 64,500
Repayment of long-term debt (22,000) (66,860) (61,000)
Proceeds from exercise of stock options 7,900 3,048 1,621
------------------------------------
Net cash provided by (used in) financing activities 2,900 (8,752) 5,121
------------------------------------
Net increase in cash and cash equivalents 28,498 3,804 3,791
Cash and cash equivalents:
Beginning of period 10,267 6,463 2,672
------------------------------------
End of period $ 38,765 $ 10,267 $ 6,463
====================================
See accompanying Notes to Consolidated Financial Statements.
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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
Effective February 26, 1996, the Company changed its fiscal year-end from
the 52 or 53 week period ending on the Sunday nearest February 28 to the 52 or
53 week period ending on the Saturday nearest February 28. Accordingly, the 1996
fiscal year consisted of 52 weeks and 6 days and ended on March 1, 1997; the
1995 fiscal year consisted of 52 weeks and ended on February 25, 1996; and the
1994 fiscal year consisted of 52 weeks and ended on February 26, 1995.
d. Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with
maturities of three months or less to be cash equivalents.
e. Merchandise Inventories
Merchandise inventories are stated at the lower of cost or market,
determined by means of the retail inventory method of accounting.
f. Property and Equipment
Property and equipment are stated at cost. Depreciation of furniture,
fixtures and equipment is computed primarily by the straight-line method over
the estimated useful lives of the assets, which is generally five to ten years.
Leasehold costs are amortized by the straight-line method over the life of the
lease and leasehold improvements are amortized by 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 $9.6 million, $6.9 million and $4.7 million for fiscal 1996, 1995
and 1994, respectively.
g. Shareholders' Equity
In March 1996, the Board of Directors of the Company approved a
two-for-one split of the Company's common stock in the form of a 100% stock
dividend. The stock split was distributed on April 30, 1996 to shareholders of
record on April 10, 1996. Accordingly, all share and per share data have been
adjusted to give effect to the stock split.
In July 1996, the Company's Certificate of Incorporation was amended to
increase the number of authorized shares of common stock (par value $.01 per
share) from 100,000,000 shares to 150,000,000 shares.
h. Preopening Expenses
Expenses associated with new, relocated or expanded stores are charged to
earnings as incurred.
i. Occupancy Costs
The Company accounts for scheduled rent increases contained in its leases
on a straight-line basis over the noncancelable lease term. At March 1, 1997 and
February 25, 1996, the accompanying consolidated balance sheets include deferred
rent liabilities of $9.7 million and $6.8 million, respectively, relating to
such scheduled rent increases.
j. Advertising Costs
Expenses associated with store advertising are charged to earnings as
incurred. For the 1996, 1995 and 1994 fiscal years, advertising expenses
amounted to $12.3 million, $9.3 million and $6.7 million, respectively.
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k. 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.
l. Earnings Per Share
Earnings per share is calculated using the weighted average shares and
dilutive common equivalent shares (stock options) outstanding during the period.
m. Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents,
accounts payable, accrued expenses and other current liabilities and long-term
debt. 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. The book value of the
Company's long-term debt at February 25, 1996 is considered to approximate its
fair value, based on current market rates and conditions.
n. Accounting Standards
In fiscal 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123). 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.
In fiscal 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". There was no material impact on the
Company's financial condition or results of operations as a result of the
adoption.
o. 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.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
MARCH 1, FEBRUARY 25,
(in thousands) 1997 1996
========================================================================
Furniture, fixtures and equipment $ 72,576 $ 47,495
Leasehold improvements 53,562 43,507
Leasehold purchases 4,331 4,331
-----------------------------
130,469 95,333
Less: Accumulated depreciation
and amortization (42,137) (28,698)
-----------------------------
$ 88,332 $ 66,635
=============================
Depreciation and amortization expense was $13.4 million, $9.9 million and $7.2
million for fiscal 1996, 1995 and 1994, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
MARCH 1, FEBRUARY 25,
(in thousands) 1997 1996
=====================================================
Sales taxes payable $ 5,079 $ 4,448
Other 42,844 22,499
------------------------
$47,923 $26,947
========================
4. LONG-TERM DEBT
Under a credit agreement (the "Credit Agreement") concluded in November
1994, and subsequently amended in October 1995 and in February 1997, the Company
may borrow up to $45.0 million under a revolving credit commitment for loans and
letters of credit. The Credit Agreement matures in October 1998, at which time
any revolving credit loans outstanding may be converted to a term loan payable
in twelve quarterly installments maturing in October 2001. Interest on all
borrowing is determined based upon several alternative rates as stipulated in
the Credit Agreement. During fiscal 1996, 1995 and 1994, interest rates on
outstanding debt ranged from 5.70% to 7.25%, 5.92% to 9.00% and 5.00% to 9.00%,
respectively. As of March 1, 1997, there were no outstanding borrowings under
the Credit Agreement and approximately $1.0 million in outstanding letters of
credit.
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. Under the terms
of these covenants, approximately $27.5 million was available for the payment of
dividends at March 1, 1997.
5. PROVISION FOR INCOME TAXES
The components of the provision for income taxes are as follows:
FISCAL YEARS
----------------------------------------------
(in thousands) 1996 1995 1994
===========================================================================
Current:
Federal $ 32,157 $ 22,383 $ 17,156
State and local 7,034 6,901 5,410
----------------------------------------------
39,191 29,284 22,566
----------------------------------------------
Deferred:
Federal (2,527) (1,635) (1,557)
State and local (368) (228) (153)
----------------------------------------------
(2,895) (1,863) (1,710)
----------------------------------------------
$ 36,296 $ 27,421 $ 20,856
==============================================
Included 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:
MARCH 1, FEBRUARY 25,
(in thousands) 1997 1996
===============================================
Deferred rent $3,851 $2,816
Inventories 2,845 2,679
Other 2,894 1,200
---------------------
$9,590 $6,695
======================
Reconciliations of the Federal statutory income tax rate to the effective
tax rates are as follows:
FISCAL YEARS
-------------------------------------------
1996 1995 1994
===============================================================================
Federal statutory
income tax rate 35.00% 35.00% 35.00%
State income taxes, net
of Federal tax benefit 4.75 6.48 6.72
Other -- (.48) (.72)
------------------------------------------
Effective tax rate 39.75% 41.00% 41.00%
==========================================
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6. TRANSACTIONS AND BALANCES WITH RELATED PARTIES
a. The Company has an interest in certain life insurance policies on the
lives of its Chairman and President. 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 1, 1997
and February 25, 1996, other assets include $2.4 million and $1.8 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 $213,000, $161,000 and $121,000 for
fiscal years 1996, 1995 and 1994, 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
$240,000, $190,000 and $179,000 for fiscal 1996, 1995 and 1994, respectively.
The Eisenberg Foundation and the Feinstein Foundation are each not-for-profit
corporations of which Messrs. Eisenberg and Feinstein and their family members
are the trustees and officers.
7. LEASES
The Company leases retail stores, as well as warehouses, office facilities
and equipment under agreements expiring at various dates through 2017. Certain
leases provide for contingent rents (based upon store sales exceeding stipulated
amounts), 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 1, 1997, future minimum lease payments under noncancelable
operating leases are as follows:
FISCAL YEAR (in thousands) AMOUNTS
======================================================
1997 $ 54,605
1998 54,007
1999 52,353
2000 50,880
2001 50,041
Thereafter 336,112
---------
Total minimum lease payments $ 597,998
=========
As of March 28, 1997, the Company had executed leases for twenty-three
stores planned for opening in fiscal 1997.
Expenses for all operating leases were $52.0 million, $37.3 million and
$26.1 million for fiscal years 1996, 1995 and 1994, respectively.
8. 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 not to exceed $9,500, $9,500 and $9,240 for calendar
years 1997, 1996 and 1995, respectively; 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 1, 1997, the
Company has made no contributions to the Plan.
9. EMPLOYMENT AGREEMENTS
Under terms of employment agreements with its Chairman and President
extending through June 1997, 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.
10. SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid income taxes of $31.2 million, $25.2 million and $19.5
million in fiscal 1996, 1995 and 1994, respectively.
The Company also paid interest of $108,000, $991,000 and $823,000 in
fiscal 1996, 1995 and 1994, respectively.
11. STOCK COMPENSATION PLANS
Under its 1996 Stock Option Plan (the "1996 Plan"), the Company may grant
options to purchase not more than an aggregate of 2,000,000 shares of common
stock, subject to adjustment under certain circumstances. No options have been
granted under the 1996 Plan as of March 1, 1997. Under its Amended 1992 Stock
Option Plan (the "1992 Plan"), the Company may grant options to purchase not
more than an aggregate of 5,600,000 shares of common
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. STOCK COMPENSATION PLANS (CONTINUED)
stock, subject to adjustment under certain circumstances. Some or all of the
options under the stock option plans may be "incentive stock options" within the
meaning of the Internal Revenue Code of 1986. Options have been granted at
market value and are exercisable at a rate of 20% per year over a five-year
period commencing with the date of the grant, or one or two years thereafter and
expire ten years from the date of grant.
The following table summarizes stock option transactions:
NUMBER WEIGHTED -
OF AVERAGE
SHARES EXERCISE PRICE
=====================================================================
Balance at February 27, 1994 2,642,510 $ 6.46
Options granted 848,800 12.87
Options exercised (177,080) 5.34
Options canceled (201,140) 8.87
----------
Balance at February 26, 1995 3,113,090 8.12
----------
Options granted 1,121,500 11.22
Options exercised (299,090) 5.87
Options canceled (279,640) 12.07
----------
Balance at February 25, 1996 3,655,860 8.96
----------
Options granted 819,200 21.43
Options exercised (535,050) 6.26
Options canceled (191,970) 13.00
----------
Balance at March 1, 1997 3,748,040 $11.86
==================================================================
Options exercisable:
At February 25, 1996 679,540 $ 6.46
At March 1, 1997 822,780 $ 8.05
==================================================================
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 March 1, 1997:
OPTIONS OUTSTANDING
------------------------------------------------------
WEIGHTED-AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
================ =========== ================ ================
$ 4.25 to 7.38 718,380 5.34 $ 4.65
8.16 to 9.22 620,240 6.15 8.19
9.47 to 11.34 733,700 8.12 9.49
11.47 to 18.25 884,020 7.66 13.73
19.75 to 29.06 791,700 9.43 21.39
---------
$ 4.25 to 29.06 3,748,040 7.43 $ 11.86
=========
OPTIONS EXERCISABLE
-------------------------------------------
RANGE OF NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES EXERCISABLE EXERCISE PRICE
=============== =========== ================
$ 4.25 to 7.38 428,100 $ 4.65
8.16 to 9.22 116,480 8.23
9.47 to 11.34 23,220 9.52
11.47 to 18.25 254,140 13.52
19.75 to 29.06 840 20.03
----------
$ 4.25 to 29.06 822,780 $ 8.05
==========
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 plans. Had compensation costs for options
granted in fiscal 1996 and 1995 been determined based on the fair value at the
grant dates for awards under the plans consistent with the methodology of SFAS
No. 123, the Company's pro forma net income and earnings per share would have
been $53.9 million and $.76 in fiscal 1996, respectively, and $39.1 million and
$.56 in fiscal 1995, respectively.
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 years 1996 and 1995, respectively: dividend yield of 0%
for both years; expected volatility of 42% for both years; risk-free interest
rates of 6.62% and 6.52%; and expected lives of six years for both years. The
weighted-average fair value of options granted during the year is $11.65 and
$5.89, for fiscal years 1996 and 1995, respectively.
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12. SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
FISCAL 1996 QUARTER ENDED
--------------------------------------------------------------
MAY 26, AUGUST 25, NOVEMBER 24, MARCH 1,
(in thousands, except per share data) 1996 1996 1996 1997
=============================================================================================================
Net sales $159,658 $203,503 $214,793 $245,224
Gross profit 65,788 83,937 88,664 102,779
Operating profit 12,661 25,034 22,812 30,100
Earnings before provision
for income taxes 12,803 25,071 23,037 30,400
Provision for income taxes 5,089 9,966 9,157 12,084
Net earnings $ 7,714 $ 15,105 $ 13,880 $ 18,316
Net earnings per share $ .11 $ .21 $ .20 $ .26
FISCAL 1995 QUARTER ENDED
--------------------------------------------------------------
MAY 28, AUGUST 27, NOVEMBER 26, FEBRUARY 25,
(in thousands, except per share data) 1995 1995 1995 1996
=============================================================================================================
Net sales $113,452 $150,110 $161,789 $175,901
Gross profit 46,864 62,224 66,944 74,004
Operating profit 9,787 18,936 17,101 21,761
Earnings before provision
for income taxes 9,594 18,602 16,959 21,725
Provision for income taxes 3,934 7,627 6,953 8,907
Net earnings $ 5,660 $ 10,975 $ 10,006 $ 12,818
Net earnings per share $ .08 $ .16 $ .14 $ .19
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INDEPENDENT AUDITORS' REPORT
[LOGO] KPMG Peat Marwick LLP
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 1, 1997 and February 25, 1996, and the
related consolidated statements of earnings, changes in shareholders' equity and
cash flows for each of the fiscal years in the three-year period ended March 1,
1997. 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 March 1, 1997 and February 25, 1996, and the
results of their operations and their cash flows for each of the fiscal years in
the three-year period ended March 1, 1997 in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
New York, New York
March 28, 1997
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CORPORATE DATA
EXECUTIVE OFFICERS & DIRECTORS
Warren Eisenberg
Chairman, Co-Chief Executive Officer and Director
Leonard Feinstein
President, Co-Chief Executive Officer and Director
Steven H. Temares
Executive Vice President - Chief Operating Officer
Ronald Curwin
Chief Financial Officer and Treasurer
Klaus Eppler
Director - Partner, Proskauer Rose Goetz & Mendelsohn LLP,
New York, New York
Robert S. Kaplan
Director - General Partner, Goldman, Sachs & Co.,
New York, New York
Robert J. Swartz
Director - Independent Consultant
KEY MANAGERS
Matthew Fiorilli
Director of Store Operations - Eastern Region
Harold Kislik
General Merchandise Manager - Domestics Merchandise
Phillip Kornbluh
Director of Store Planning
Jonathan Rothstein
General Merchandise Manager - Home Furnishings
Arthur Stark
Director of Store Operations - Western Region
CORPORATE OFFICE
Bed Bath & Beyond Inc.
650 Liberty Avenue
Union, New Jersey 07083
Telephone: 908/688-0888
SHAREHOLDER INFORMATION
The Company's 1996 Annual Report on Form 10-K (excluding exhibits) may be
obtained, at no cost, by writing to the Chief Financial Officer and Treasurer at
the Company's Corporate Office (Fax: 908/810-8813).
STOCK LISTING
The Common Stock of Bed Bath & Beyond Inc. is traded through the NASDAQ National
Market System 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 System during
fiscal 1995 and fiscal 1996:
High Low
=========================================
Fiscal 1995
First Quarter $13 1/4 $ 9
Second Quarter 16 1/2 10 5/16
Third Quarter 18 7/16 12 1/2
Fourth Quarter 22 7/16 15
Fiscal 1996
First Quarter $31 1/2 $19 11/16
Second Quarter 31 18 1/4
Third Quarter 29 3/4 20 3/8
Fourth Quarter 31 3/4 24 1/8
At March 28, 1997, there were approximately 500 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
INDEPENDENT AUDITORS
KPMG Peat Marwick 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 26,
1997, at the Headquarters Plaza Hotel, Three Headquarters Plaza, Morristown,
New Jersey.
25
BED BATH & BEYOND
650 LIBERTY AVENUE
UNION, NJ 07083
908/688-0888