1
BED BATH &
BEYOND(R)
1998 ANNUAL REPORT
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Beyond any store of its kind(R).
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BED BATH & BEYOND ANNUAL REPORT 1998
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Selected Financial Data
FISCAL YEAR ENDED(1)
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(in thousands, except per share and February 27, February 28, March 1, February 25, February 26, February 27, February 28,
selected operating data) 1999 1998 1997 1996 1995 1994 1993
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STATEMENT OF EARNINGS DATA:
Net sales $1,397,197 $1,066,612 $ 823,178 $ 601,252 $ 440,261 $ 305,767 $ 216,712
Gross profit 576,125 441,016 341,168 250,036 183,819 127,972 90,528
Operating profit 158,052 118,914 90,607 67,585 51,685 36,906 26,660
Net earnings 97,346 73,142 55,015 39,459 30,013 21,887 15,960
Net earnings per share - Diluted(2) $ .68 $ .51 $ .39 $ .28 $ .22 $ .16 $ .12
SELECTED OPERATING DATA:
Number of stores open
(at period end) 186 141 108 80 61 45 38
Total square feet of store space
(at period end) 7,688,000 5,767,000 4,347,000 3,214,000 2,339,000 1,512,000 1,128,000
Percentage increase in comparable
store net sales 7.6% 6.4% 6.1% 3.8% 12.0% 10.6% 7.2%
BALANCE SHEET DATA (AT PERIOD END):
Working capital $ 249,574 $ 175,617 $ 121,679 $ 87,727 $ 71,902 $ 54,432 $ 34,501
Total assets 633,148 458,330 329,925 235,810 176,678 121,468 76,654
Long-term debt -- -- -- 5,000 16,800 13,300 --
Shareholders' equity $ 411,087 $ 295,397 $ 214,361 $ 151,446 $ 108,939 $ 77,305 $ 54,643
(1) Each fiscal year represents 52 weeks, except for fiscal 1996 which
represents 52 weeks and 6 days.
(2) Net earnings per share amounts have been adjusted for two-for-one stock
splits of the Company's common stock (each of which was effected in the
form of a 100% stock dividend), which were distributed in fiscal 1998,
1996 and 1993. The Company has not declared any cash dividends in any of
the fiscal years noted above.
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STORE LOCATIONS (as of May 7, 1999)
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Alabama 3 Indiana 3 Nevada 1 South Carolina 1
Arizona 4 Kansas 2 New Jersey 10 Tennessee 3
California 22 Kentucky 1 New Mexico 1 Texas 16
Colorado 5 Maryland 8 New York 13 Utah 1
Connecticut 4 Massachusetts 5 North Carolina 2 Vermont 1
Delaware 1 Michigan 7 Ohio 6 Virginia 10
Florida 20 Minnesota 1 Oklahoma 2 Washington 4
Georgia 7 Missouri 5 Oregon 1 Wisconsin 1
Illinois 11 Nebraska 1 Pennsylvania 6
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TOTAL 189
Call 1-800-GO BEYOND(R) for exact locations.
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CONTENTS
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Letter to Shareholders 2
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Management's Discussion
and Analysis of Financial
Condition and Results of Operations 10-13
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Consolidated Financial Statements 14-24
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Corporate Data 25
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BED BATH & BEYOND ANNUAL REPORT 1998
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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 189 stores principally range in size 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 (a few of which are pictured in this
report) 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 stock is traded on the NASDAQ National Market under the symbol BBBY and
is included in the Standard & Poor's MidCap 400 Index and the NASDAQ-100 Index.
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[The following table was depicted as a bar chart in the printed material.]
NET EARNINGS PER SHARE
(in dollars)
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
.22 .28 .39 .51 .68
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[The following table was depicted as a bar chart in the printed material.]
NET EARNINGS
(in millions)
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
30.0 39.5 55.0 73.1 97.3
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[The following table was depicted as a bar chart in the printed material.]
NET SALES
(in millions)
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
440.3 601.3 823.2 1,066.6 1,397.2
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TO OUR FELLOW SHAREHOLDERS
Two years ago, we reviewed the significant accomplishments of Bed Bath &
Beyond's Silver Anniversary Year, which included the opening of our 100th store.
Of fiscal 1997's notable accomplishments, surpassing $1 billion in net sales for
the first time certainly stands out. We're now very pleased to report to you
that our Company's performance in fiscal 1998 exceeded that of any prior year,
and we believe, has set the stage for even more impressive results in the years
ahead.
1998 AT A GLANCE: Net sales for the year ended February 27, 1999 were $1.397
billion, an increase of 31.0% from the prior year. Comparable store sales
advanced by 7.6%;
Net earnings of $97.3 million ($.68 per share), improved by 33.1% from $73.1
million ($.51 per share), representing the seventh consecutive year of earnings
increases over 30%;
[PHOTOS OMITTED]
Leonard Feinstein and
Warren Eisenberg
Co-Chief Executive Officers
Our debt-free balance sheet has strengthened, with working capital increasing by
42.1%; average returns on shareholders' equity and total assets were 27.6%, and
17.8%, respectively, among the highest in all of retailing;
Standard & Poor's recently assigned an investment grade credit rating to Bed
Bath & Beyond based on our "leadership position in the highly competitive home
furnishings industry, successful merchandising strategy, strong financial
profile and stable outlook";
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Forty-five new superstores were opened in fiscal 1998, more than in any other
year. At year-end, we operated 186 stores in 34 states;
In support of our ambitious growth program, we continue to make sizable
investments in our infrastructure, and are expanding the ranks of the seasoned
executives who will provide leadership well into the 21st century.
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[The following table was depicted as a bar chart in the printed material.]
TOTAL ASSETS
(in millions)
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
176.7 235.8 329.9 458.3 633.1
COMPANY OPERATING PRINCIPLES: Over the years we've developed a unique corporate
culture based on four operating principles which are consistently applied,
providing our valued customers with truly unparalleled shopping experiences:
Focus on Customer Satisfaction and Loyalty: From the beginning, our major focus
has been on customer satisfaction. Vast merchandise assortments presented in a
customer friendly manner, extremely high in-stock positions, maximum assistance
from sales associates with knowledge of the products, minimum waiting at
checkouts, informative signing, and a liberal return policy are all components
of customer service in our stores. So is our Everyday Low Pricing policy, which
assures the customer our best price everyday, without promotional gimmicks or
"midnight madness" events.
The bright, talented managers and associates who run our stores are trained to
never say "no" to a customer. If necessary, they defer to someone who can say
"yes", someone who can somehow please the customer.
Simply put, our stores are fun places to shop. Our racetrack layout, high impact
displays, and constantly changing merchandise mix, all contribute to item sales
greater than anyone else in our industry segment selling the same item. By
focusing on
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customer satisfaction, and offering customers new and exciting products, we
continue to achieve outstanding sales results.
Maintain Entrepreneurial Culture with Decentralized Management: A major portion
of everyday decision-making is vested in the personnel who run our stores. They
are home grown to be entrepreneurs and merchants. They reorder most of the
merchandise, understand the profitability and productivity of each item, and the
relationship between volumes and margins. Our store merchants consistently
identify high markup items and drive the volume on these products. They decide
what items to feature, and reorder the merchandise that will produce optimal
results in their particular store. We give employees at all levels the power and
responsibility to take whatever action is necessary to consistently deliver
excellent customer service. Our superior financial results, which are in sharp
contrast to those of most of our competitors, reflect the successful application
of these principles.
[PHOTO OMITTED]
Steven H. Temares
Executive Vice President --
Chief Operating Officer
The entrepreneurial people who run our business make a tremendous difference,
and we remain committed to filling store operations positions from within.
Indeed, every one of our Regional Vice Presidents of Stores, Regional, District,
Area, and Store Managers has come up through our store ranks.
The outstanding opportunities for professional and personal growth that we
offer, and the recognition and rewards that come with them, have resulted in an
extraordinarily high employee retention rate.
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Develop a Committed, Knowledgeable Team: The Regional, District and Area
Managers previously referred to have been with Bed Bath & Beyond, on average,
for almost 10 years. Turnover at the store manager level and higher since 1992
has been under 5%. Similarly, employee turnover in our merchandising
organization has been exceptionally low. Everyone enjoys being on a winning
team.
[The following table was depicted as a bar chart in the printed material.]
SHAREHOLDERS' EQUITY
(in millions)
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
108.9 151.4 214.4 295.4 411.1
While we are committed to "promoting from within" with respect to all store
operations personnel, we recognize that it is occasionally necessary to attract
outstanding individuals from outside the Company for other specialized areas of
our business. In real estate, construction, information technology, human
resources, advertising and marketing, legal, finance, loss prevention, planning,
purchasing and logistics, to name several, we have successfully recruited dozens
of individuals who are adding their collective talents to the accomplishment of
our long-term goals and objectives.
Constantly Change and Innovate: It's often been said that change is inevitable,
that the only thing you can count on in life is change. Not only do we believe
it, we virtually live by it! With respect to merchandising, we are constantly
innovating, offering our customers the very latest products, at everyday low
prices, with customer service levels second to none.
Because of our decentralized culture, we customize many of our own information
technology solutions. We devote considerable resources to these activities, and
our progress to date has been significant.
Consistent with our philosophy of change, all but ten stores that were open at
the time of our 1992 initial public offering have been expanded and/or
relocated, and we have plans to remodel or relocate three of those ten locations
this year.
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Similar changes and innovation may be found throughout the Company. We assume
that almost everything we do can, and should, be done better. Importantly,
our customers understand and appreciate the changes.
[PHOTO OMITTED]
Ronald Curwin
Chief Financial Officer and Treasurer
GROWING NATIONALLY: While opening 45 new superstores in 1998, compared with 33
opened last year, we entered for the first time, the states of Delaware,
Nebraska, South Carolina, Utah and Vermont. At year-end, we operated 186 stores
in 34 states. Total store space increased to 7.7 million square feet, an
increase of approximately 33.3% over the prior year.
Our plans for fiscal 1999 include opening approximately 50 new superstores,
several expansions, and our initial entry into several states.
We believe that there is an opportunity for Bed Bath & Beyond to expand, over
the next few years, to as many as 600 stores within the United States. We expect
our profitable growth to continue well into the new century.
INDUSTRY OVERVIEW: Bed Bath & Beyond operates in a highly-fragmented sector of
the retail industry. Whereas other sectors are dominated by 2 or 3 operators
with market shares from twenty to as high as thirty-five percent, the largest
home goods superstore operators have relatively minor market shares.
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Our Company's share is estimated to be approximately 2%, another indication that
we have substantial room for growth.
[The following table was depicted as a bar chart in the printed material.]
STORE EXPANSION
1994 1995 1996 1997 1998
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61 80 108 141 186
TOTAL SQUARE FOOTAGE
(in thousands) 2,339 3,214 4,347 5,767 7,688
Favorable demographic and societal trends also support our belief in Bed Bath &
Beyond's continuing growth. The home has increasingly become a focal point in
people's lives. Whereas total consumer expenditures grew by about 28% during a
recent six year period, increases in expenditures for home goods exceeded 35%
during that same period. The 35 to 54 age group, which has the highest home
ownership levels, and spends the most per year on home-related merchandise,
represents another strong positive for the future.
Despite this generally favorable background, few operators in our retail sector
have been successful. In fact, most have done poorly, or failed. The few which
are profitable achieve operating margins considerably lower than those of Bed
Bath & Beyond.
We strongly believe that our approach to customer service, unique corporate
culture, and highly motivated associates, have made, and will continue to make,
the difference. In fact, we expect that our corporate culture and organization
will enable us to widen the lead between ourselves and our competitors in the
years ahead.
MANAGEMENT DEVELOPMENT: We continue to strengthen our senior management ranks in
order to support our rapidly expanding business. We have done so by recognizing
the contributions of exceptional, seasoned executives who have been instrumental
in Bed Bath & Beyond's consistent growth.
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In January, together with Chief Operating Officer Steven Temares, we proudly
announced the officer-level promotions of eleven executives who, on average,
have served the Company for over fourteen years. Arthur Stark and Matthew
Fiorilli were named Senior Vice Presidents. Joining Jonathan Rothstein as Vice
Presidents were: Michael Honeyman; Phillip Kornbluh; Allan Rauch; William
Waltzinger; Timothy Brewster; Martin Eisenberg; Edward Kopil; Martin Lynch and
William Onksen.
[PHOTO OMITTED]
Matthew Fiorilli
Senior Vice President -
Stores
As we continue to grow, we look forward to broadening the leadership ranks in
our Company.
WHAT'S AHEAD? It promises to be exciting. When we next address you in a Bed Bath
& Beyond annual report we will have ushered in a new decade and a new century.
There will be many celebrations, and much talk, about the bright future that
lies ahead. Certainly, technological developments that no one could have
envisioned three decades ago, when our Company began operations with two small
stores, present a myriad of exciting new opportunities.
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Success in the future will be achieved by those who can best adapt to change,
while continuing to stress customer satisfaction. Fortunately, constant change
and customer service have always been primary elements of the Bed Bath & Beyond
corporate culture. Enhanced shareholder value has been a notable result.
[PHOTO OMITTED]
Arthur Stark
Senior Vice President -
Merchandising
Our constant discovery of new, creative ways to further build upon our industry
leading position, including the development of exciting new products found
exclusively at Bed Bath & Beyond, encourages us to look toward the new
millennium with confidence. So do the contributions of our over 10,000
employees, who every day provide our customers with many reasons to frequently
shop in our stores, and of our many vendor partners and landlords with whom we
share our success.
With all of us working together, while remaining focused on the Bed Bath &
Beyond customer, we hope to report to you, a year from now, that the financial
results of our fiscal 1999 operations were our best ever.
Sincerely,
/s/ Warren Eisenberg
Warren Eisenberg
Chairman and Co-Chief Executive Officer
/s/ Leonard Feinstein
Leonard Feinstein
President and Co-Chief Executive Officer
May 7, 1999
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BED BATH & BEYOND ANNUAL REPORT 1998 10
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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 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
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PERCENTAGE PERCENTAGE CHANGE
OF NET SALES FROM PRIOR YEAR
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February 27, February 28, March 1, February 27, February 28,
1999 1998 1997 1999 1998
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Net sales 100.0% 100.0% 100.0% 31.0% 29.6%
Cost of sales, including buying, occupancy
and indirect costs 58.8 58.7 58.6 31.2 29.8
Gross profit 41.2 41.3 41.4 30.6 29.3
Selling, general and administrative expenses 29.9 30.2 30.4 29.8 28.6
Operating profit 11.3 11.1 11.0 32.9 31.2
Earnings before provision for income taxes 11.6 11.4 11.1 33.1 33.0
Net earnings 7.0 6.9 6.7 33.1 32.9
FISCAL 1998 COMPARED WITH FISCAL 1997
In fiscal 1998, the Company expanded store space by 33.3%, from 5,767,000 square
feet at fiscal year-end 1997 to 7,688,000 square feet at fiscal year-end 1998.
The 1,921,000 square feet increase was the result of opening forty-five new
superstores and expanding three existing stores.
Net sales in fiscal 1998 increased $330.6 million to $1.397 billion,
representing an increase of 31.0% over the $1.067 billion net sales in fiscal
1997. Approximately 77% of the increase was attributable to new store net sales
and the balance to an increase in comparable store net sales.
Approximately 55% and 45% of net sales in fiscal 1998 were attributable to sales
of domestics merchandise and home furnishings, respectively. The Company
estimates that bed linens accounted for approximately 21% of net sales during
fiscal 1998 and fiscal 1997. No other individual product category accounted for
10% or more of net sales during either fiscal year.
Gross profit in fiscal 1998 was $576.1 million or 41.2% of net sales, compared
with $441.0 million or 41.3% of net sales a year ago. The decrease in gross
profit as a percentage of net sales was primarily attributable to a different
mix of sales during fiscal 1998 compared to the mix of sales during the prior
year and an increase in coupons redeemed associated with the Company's marketing
program.
The percentage increase in comparable store net sales was 7.6% in fiscal 1998
compared with 6.4% in fiscal 1997. The increase in comparable store net sales
relative to the prior year reflects a number of factors, including the continued
consumer acceptance of the Company's merchandise offerings, a strong focus on
customer service and the generally favorable retailing environment.
Selling, general and administrative expenses ("SG&A") were $418.1 million or
29.9% of net sales in fiscal 1998 compared to $322.1 million or 30.2% of net
sales in fiscal 1997. The decrease in SG&A as a percentage of net sales
primarily reflects a relative decrease in payroll and payroll related items,
which were partially offset by an increase in occupancy costs. Expenses
associated with new, relocated or expanded stores are charged to earnings as
incurred.
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BED BATH & BEYOND ANNUAL REPORT 1998 11
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Operating profit was $158.1 million in fiscal 1998, an increase of $39.1 million
or 32.9% from fiscal 1997, reflecting primarily the increase in net sales which
was partially offset by increases in cost of sales and SG&A.
The increase in earnings before provision for income taxes of 33.1% from fiscal
1997 to fiscal 1998 compared to the year to year increase in operating profit of
32.9% was attributable to interest income.
FISCAL 1997 COMPARED WITH FISCAL 1996
In fiscal 1997, the Company expanded store space by 32.7%, from 4,347,000 square
feet at fiscal year-end 1996 to 5,767,000 square feet at fiscal year-end 1997.
The 1,420,000 square feet increase was the result of opening thirty-three new
superstores and expanding three existing stores.
Net sales in fiscal 1997 increased $243.4 million to $1.067 billion,
representing an increase of 29.6% over the $823.2 million net sales in fiscal
1996. Approximately 81% 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 1997 were attributable to sales
of domestics merchandise and home furnishings, respectively. The Company
estimated that bed linens accounted for approximately 21% of net sales during
fiscal 1997 and fiscal 1996. No other individual product category accounted for
10% or more of net sales during either fiscal year.
Gross profit in fiscal 1997 was $441.0 million or 41.3% of net sales compared
with $341.2 million or 41.4% of net sales, in fiscal 1996. The decrease in gross
profit as a percentage of net sales was primarily attributable to a different
mix of sales during fiscal 1997 compared to the mix of sales during fiscal 1996
and an increase in coupons redeemed associated with the Company's marketing
program.
The percentage increase in comparable store net sales was 6.4% in fiscal 1997
compared with 6.1% in fiscal 1996. The increase in comparable store net sales
relative to fiscal 1996 reflected a number of factors, including the continued
consumer acceptance of the Company's merchandise offerings, a strong focus on
customer service and the generally favorable retailing environment.
SG&A was $322.1 million or 30.2% of net sales in fiscal 1997 compared to $250.6
million or 30.4% of net sales in fiscal 1996. The decrease in SG&A as a
percentage of net sales primarily reflected a relative decrease in costs
associated with new store openings as well as a decrease in payroll and payroll
related items, which were partially offset by an increase in occupancy costs.
Expenses associated with new, relocated or expanded stores were charged to
earnings as incurred.
Operating profit was $118.9 million in fiscal 1997, an increase of $28.3 million
or 31.2% from fiscal 1996, reflecting primarily the increase in net sales which
was partially offset by increases in cost of sales and SG&A.
The increase in earnings before provision for income taxes of 33.0% from fiscal
1996 to fiscal 1997 compared to the year to year operating profit of 31.2% 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 five-year period from the beginning
of fiscal 1994 to the end of fiscal 1998, the chain has grown from 45 stores to
186 stores. Total square footage grew from 1,512,000 square feet at the
beginning of fiscal 1994 to 7,688,000 square feet at the end of fiscal 1998.
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 77%, 81%, 84%, 91% and 78% of the increase in net
sales in fiscal 1998, 1997, 1996, 1995 and 1994, respectively.
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BED BATH & BEYOND ANNUAL REPORT 1998 12
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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 1999 it will open approximately 50 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 1999 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 $187.2 million at the end of
fiscal 1996, to $270.4 million at the end of fiscal 1997 and to $360.3 million
at the end of fiscal 1998. 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 $121.7 million at the end of fiscal
1996, to $175.6 million at the end of fiscal 1997, and to $249.6 million at the
end of fiscal 1998. 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 and leasehold improvements on an ongoing
basis. The Company's total capital expenditures were $62.3 million, $41.3
million and $35.1 million during fiscal 1998, 1997 and 1996, 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 $45.0 million for loans and letters of credit. The Credit
Agreement matures in October 2001.
The Credit Agreement contains certain covenants which, among other things, place
limitations on payment of dividends, capital expenditures and certain expenses.
Additionally, there are restrictions on additional borrowings and a requirement
that the Company maintain certain financial ratios. The Company does not believe
that any of these covenants will materially affect its business or its expansion
program as currently planned.
The Company did not borrow under the Credit Agreement during fiscal 1998 or
fiscal 1997. The Company believes that during fiscal 1999, 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.
As of March 26, 1999, the Company has leased sites for thirty-seven new
superstores planned for opening in fiscal 1999, including three new stores
already opened in Dublin, California; Fort Collins, Colorado; and Reno, Nevada.
Approximate aggregate costs for the thirty-seven leased stores are estimated at
$68.5 million for merchandise inventories, $23.7 million for furniture and
fixtures and leasehold improvements and $11.9 million for preopening expenses
(which will be expensed as incurred). In addition to the thirty-seven locations
already leased, the Company expects to open approximately thirteen additional
locations during fiscal 1999. 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.
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BED BATH & BEYOND ANNUAL REPORT 1998 13
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YEAR 2000
The Company has conducted an extensive review of its computer systems and
operations to identify the areas that could be affected by the Year 2000 issue.
A plan was developed which focuses on the Company's information systems and
third-party relationships.
With respect to the Company's information systems, the Company has completed
remediation and testing of its mission critical systems and believes that its
information systems are Year 2000 compliant. The Company will test new
installations, versions or changes implemented during the remainder of fiscal
1999. The Company expects to complete its contingency plans to address the most
reasonably likely worst case Year 2000 scenarios by the third quarter of fiscal
1999.
With respect to its third-party relationships, the Company has contacted its
largest suppliers, vendors and service providers to assess their state of Year
2000 readiness. This process is effectively complete and the Company is in the
process of developing contingency plans, which are expected to be completed by
the third quarter of fiscal 1999 and which include developing alternate
third-party relationships, if necessary. Potential sources of risk include the
inability of principal vendors and suppliers to be Year 2000 compliant, which
could result in delays in product deliveries from vendors, and disruption of the
Company's distribution channel. The Company believes the geographically diverse
nature of its business and its large vendor and supplier base should minimize
such potential sources of risk.
Based on the efforts to date, the Company does not believe that the Year 2000
issue will have a material adverse effect on its consolidated financial
condition or results of operations. The Company's costs incurred to date
associated with the Year 2000 issue were not material. The Company estimates
that the costs associated with the completion of the Year 2000 project,
excluding any costs that may be incurred by the Company as a result of the
failure of any third-parties to become Year 2000 compliant, will also not be
material.
FORWARD LOOKING STATEMENTS
This Annual Report and, in particular, Management's Discussion and Analysis of
Financial Condition and Results of Operations, contain forward looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. The Company's actual results of operations and future
financial condition may differ materially from those expressed in any such
forward looking statements as a result of many factors that may be beyond the
Company's control. Such factors include, without limitation: general economic
conditions, changes in the retailing environment and consumer spending habits,
demographics and other macroeconomic factors that may impact the level of
spending for the types of merchandise sold by the Company; unusual weather
patterns; competition from existing and potential competitors; competition from
other channels of distribution; pricing pressures; the ability to find suitable
locations at reasonable occupancy costs to support the Company's expansion
program; the availability of trained qualified management personnel to support
the Company's growth; and the cost of labor, merchandise and other costs and
expenses.
SEASONALITY
The Company's business exhibits less seasonality than many other retail
businesses, although sales levels are generally higher in August, November and
December, and generally lower in February and March.
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BED BATH & BEYOND ANNUAL REPORT 1998 14
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Consolidated Balance Sheets
Bed Bath & Beyond Inc. and Subsidiaries
February 27, February 28,
(in thousands, except share and per share data) 1999 1998
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ASSETS
Current assets:
Cash and cash equivalents $ 90,396 $ 53,280
Merchandise inventories 360,337 270,357
Prepaid expenses and other current assets 4,546 2,323
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Total current assets 455,279 325,960
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Property and equipment, net (note 2) 150,438 111,381
Other assets (notes 4 and 5) 27,431 20,989
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$633,148 $458,330
==============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 99,370 $ 64,718
Accrued expenses and other current liabilities 89,725 73,610
Income taxes payable 16,610 12,015
- ----------------------------------------------------------------------------------------------
Total current liabilities 205,705 150,343
- ----------------------------------------------------------------------------------------------
Deferred rent 16,356 12,590
- ----------------------------------------------------------------------------------------------
Total liabilities 222,061 162,933
- ----------------------------------------------------------------------------------------------
Commitments and contingencies (notes 3, 6 and 8)
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 -
February 27, 1999, 350,000,000 shares and
February 28, 1998, 150,000,000 shares;
issued and outstanding - February 27, 1999,
139,418,120 shares and February 28, 1998,
138,087,946 shares 1,394 1,381
Additional paid-in capital 79,679 61,348
Retained earnings 330,014 232,668
- ----------------------------------------------------------------------------------------------
Total shareholders' equity 411,087 295,397
- ----------------------------------------------------------------------------------------------
$633,148 $458,330
==============================================================================================
See accompanying Notes to Consolidated Financial Statements.
17
BED BATH & BEYOND ANNUAL REPORT 1998 15
- --------------------------------------------------------------------------------
Consolidated Statements of Earnings
Bed Bath & Beyond Inc. and Subsidiaries
FISCAL YEAR ENDED
- -----------------------------------------------------------------------------------------------------------
February 27, February 28, March 1,
(in thousands, except share and per share data) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
Net sales $ 1,397,197 $ 1,066,612 $ 823,178
Cost of sales, including buying, occupancy and indirect costs 821,072 625,596 482,010
- -----------------------------------------------------------------------------------------------------------
Gross profit 576,125 441,016 341,168
Selling, general and administrative expenses 418,073 322,102 250,561
- -----------------------------------------------------------------------------------------------------------
Operating profit 158,052 118,914 90,607
Interest income 3,517 2,484 704
- -----------------------------------------------------------------------------------------------------------
Earnings before provision for income taxes 161,569 121,398 91,311
Provision for income taxes (note 4) 64,223 48,256 36,296
- -----------------------------------------------------------------------------------------------------------
Net earnings $ 97,346 $ 73,142 $ 55,015
===========================================================================================================
Net earnings per share - Basic $ .70 $ .53 $ .40
Net earnings per share - Diluted $ .68 $ .51 $ .39
Weighted average shares outstanding - Basic 138,842,151 137,664,704 136,817,412
Weighted average shares outstanding - Diluted 143,235,599 142,362,018 141,129,962
See accompanying Notes to Consolidated Financial Statements.
18
BED BATH & BEYOND ANNUAL REPORT 1998 16
- --------------------------------------------------------------------------------
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 25, 1996 136,136 $ 1,362 $ 45,573 $104,511 $151,446
Net earnings 55,015 55,015
Shares sold under employee stock option plans (note 10) 1,070 10 7,890 7,900
- -------------------------------------------------------------------------------------------------------------------
Balance at March 1, 1997 137,206 1,372 53,463 159,526 214,361
Net earnings 73,142 73,142
Shares sold under employee stock option plans (note 10) 882 9 7,885 7,894
- -------------------------------------------------------------------------------------------------------------------
Balance at February 28, 1998 138,088 1,381 61,348 232,668 295,397
Net earnings 97,346 97,346
Shares sold under employee stock option plans (note 10) 1,330 13 18,331 18,344
- -------------------------------------------------------------------------------------------------------------------
Balance at February 27, 1999 139,418 $ 1,394 $ 79,679 $330,014 $411,087
===================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
19
BED BATH & BEYOND ANNUAL REPORT 1998 17
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
Bed Bath & Beyond Inc. and Subsidiaries
FISCAL YEAR ENDED
- ----------------------------------------------------------------------------------------------------------------
February 27, February 28, March 1,
(in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net earnings $ 97,346 $ 73,142 $ 55,015
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 23,217 18,238 13,439
Deferred income taxes (5,166) (6,345) (2,895)
(Increase) decrease in assets:
Merchandise inventories (89,980) (83,172) (38,802)
Prepaid expenses and other current assets (2,223) (718) 25
Other assets (1,276) (606) (2,248)
Increase in liabilities:
Accounts payable 34,652 16,897 8,796
Accrued expenses and other current liabilities 16,115 25,687 20,976
Income taxes payable 4,595 1,883 3,551
Deferred rent 3,766 2,902 2,877
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 81,046 47,908 60,734
- ----------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Capital expenditures (62,274) (41,287) (35,136)
- ----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (62,274) (41,287) (35,136)
- ----------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from long-term debt -- -- 17,000
Repayment of long-term debt -- -- (22,000)
Proceeds from exercise of stock options 18,344 7,894 7,900
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 18,344 7,894 2,900
- ----------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 37,116 14,515 28,498
Cash and cash equivalents:
Beginning of period 53,280 38,765 10,267
- ----------------------------------------------------------------------------------------------------------------
End of period $ 90,396 $ 53,280 $ 38,765
================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
20
BED BATH & BEYOND ANNUAL REPORT 1998 18
- --------------------------------------------------------------------------------
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 in fiscal 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, fiscal 1998
represented 52 weeks and ended on February 27, 1999; fiscal 1997 represented 52
weeks and ended on February 28, 1998; and fiscal 1996 represented 52 weeks and 6
days and ended on March 1, 1997.
D. ACCOUNTING STANDARDS
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share", which requires a dual presentation of earnings per
share - basic and diluted. Basic earnings per share has been computed by
dividing net income by the weighted average number of shares outstanding.
Diluted earnings per share has been computed by dividing net income by the
weighted average number of shares outstanding including the dilutive effect of
stock options.
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation". As permitted under SFAS No. 123, the Company has elected not
to adopt the fair value based method of accounting for its stock-based
compensation plans, but will continue to apply the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25"). The Company has complied with the disclosure requirements of
SFAS No. 123.
E. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments purchased with maturities of
three months or less to be cash equivalents.
F. MERCHANDISE INVENTORIES
Merchandise inventories are stated at the lower of cost or market, determined by
means of the retail inventory method of accounting.
G. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of furniture, fixtures
and equipment is computed primarily using the straight-line method over the
estimated useful lives of the assets, which is generally three to ten years.
Leasehold purchases are amortized using the straight-line method over the life
of the lease and 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 $17.3 million, $12.2 million and $9.6 million for fiscal 1998, 1997
and 1996, respectively.
H. DEFERRED RENT
The Company accounts for scheduled rent increases contained in its leases on a
straight-line basis over the noncancelable lease term.
I. SHAREHOLDERS' EQUITY
In March 1996, the Board of Directors of the Company approved a two-for-one
split of the Company's common stock effected in the form of a 100% stock
dividend. The stock split was distributed on April 30, 1996 to shareholders of
record on April 10, 1996.
21
BED BATH & BEYOND ANNUAL REPORT 1998 19
- --------------------------------------------------------------------------------
In June 1998, the Board of Directors of the Company approved a two-for-one split
of the Company's common stock effected in the form of a 100% stock dividend. The
stock dividend was distributed on July 31, 1998 to shareholders of record on
July 10, 1998.
Unless otherwise stated, all references to common shares outstanding and net
earnings per share in the consolidated financial statements are on a post-split
basis.
In June 1998, the Company's Certificate of Incorporation was amended to increase
the number of authorized shares of common stock (par value $.01 per share) from
150,000,000 shares to 350,000,000 shares.
J. PREOPENING EXPENSES
Expenses associated with new, relocated or expanded stores are charged to
earnings as incurred.
K. ADVERTISING COSTS
Expenses associated with store advertising are charged to earnings as incurred.
L. 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.
M. 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.
N. IMPAIRMENT OF LONG-LIVED ASSETS
When changes in circumstances warrant measurement, impairment losses for store
fixed assets are calculated by comparing the present value of projected
individual store cash flows over the lease terms to the asset carrying values.
The Company does not believe that any material impairment currently exists
related to its long-lived assets.
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:
February 27, February 28,
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Furniture, fixtures and equipment $ 146,188 $ 102,633
Leasehold improvements 81,326 63,070
Leasehold purchases 3,141 3,141
- --------------------------------------------------------------------------------
230,655 168,844
Less: Accumulated depreciation
and amortization (80,217) (57,463)
- --------------------------------------------------------------------------------
$ 150,438 $ 111,381
================================================================================
22
BED BATH & BEYOND ANNUAL REPORT 1998 20
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(Continued)
3. CREDIT AGREEMENT
Under the Company's revolving Credit Agreement (the "Credit Agreement")
concluded in November 1994, and as subsequently amended, the Company may borrow
up to $45.0 million for loans and letters of credit. The Credit Agreement
matures in October 2001. Interest on all borrowing is determined based upon
several alternative rates as stipulated in the Credit Agreement.
The Credit Agreement contains certain covenants which, among other things, place
limitations on payment of dividends, capital expenditures and certain expenses.
Additionally, there are restrictions on additional borrowings and a requirement
that the Company maintain certain financial ratios. The Company does not believe
that any of these covenants have materially affected its business. Under the
terms of these covenants, approximately $48.7 million was available for the
payment of dividends at February 27, 1999.
The Company did not borrow under the Credit Agreement during fiscal 1998 or
fiscal 1997. As of February 27, 1999 and February 28, 1998, there were
approximately $1.7 million and $1.4 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) 1998 1997 1996
- --------------------------------------------------------------------------------
Current:
Federal $ 61,098 $ 44,981 $ 32,157
State and local 8,291 9,620 7,034
- --------------------------------------------------------------------------------
69,389 54,601 39,191
- --------------------------------------------------------------------------------
Deferred:
Federal (4,549) (5,587) (2,527)
State and local (617) (758) (368)
- --------------------------------------------------------------------------------
(5,166) (6,345) (2,895)
- --------------------------------------------------------------------------------
$ 64,223 $ 48,256 $ 36,296
================================================================================
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:
February 27, February 28,
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Deferred rent $ 6,502 $ 5,004
Inventories 7,489 4,599
Other 7,110 6,332
- --------------------------------------------------------------------------------
$21,101 $15,935
================================================================================
For fiscal 1998, 1997 and 1996, 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%.
5. 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 February 27, 1999 and
February 28, 1998, other assets include $3.4 million and $2.9 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 $424,000, $308,000 and $213,000 for
fiscal 1998, 1997 and 1996, 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
$390,000, $300,000 and $240,000 for fiscal 1998, 1997 and 1996, respectively.
The Eisenberg Foundation and the Feinstein Foundation are each not-for-profit
corporations of which Messrs. Eisenberg and Feinstein, the Chairman and
President of the Company, respectively, and their family members are the
trustees and officers.
23
BED BATH & BEYOND ANNUAL REPORT 1998 21
- --------------------------------------------------------------------------------
6. LEASES
The Company leases retail stores, as well as warehouses, office facilities and
equipment, under agreements expiring at various dates through 2019. 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 February 27, 1999, future minimum lease payments under noncancelable
operating leases are as follows:
FISCAL YEAR (in thousands) AMOUNTS
================================================================================
1999 $ 96,175
2000 94,801
2001 94,364
2002 93,338
2003 91,270
Thereafter 584,398
- --------------------------------------------------------------------------------
Total minimum lease payments $1,054,346
================================================================================
As of March 26, 1999, the Company had executed leases for thirty-seven stores
planned for opening in fiscal 1999.
Expenses for all operating leases were $89.5 million, $70.2 million and $52.0
million for fiscal 1998, 1997 and 1996, 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
February 27, 1999, the Company has made no contributions to the Plan.
8. COMMITMENTS AND CONTINGENCIES
Under terms of employment agreements with its Chairman and President extending
through June 2002, the Company is required to pay each a base salary (which may
be increased by the Board of Directors) of $750,000 per annum. The agreements
also provide for other terms and conditions of employment, including termination
payments.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
9. SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid income taxes of $53.5 million, $48.5 million and $31.2 million
in fiscal 1998, 1997 and 1996, respectively.
The Company also paid interest of $62,000, $54,000 and $108,000 in fiscal 1998,
1997 and 1996, respectively.
10. STOCK OPTION PLANS
Under its 1998 Stock Option Plan, its 1996 Stock Option Plan and its Amended
1992 Stock Option Plan (the "Stock Option Plans"), the Company may grant options
to purchase not more than an aggregate of 6.0 million, 4.0 million and 11.2
million shares of common stock, respectively, subject to adjustment under
certain circumstances. The options under the Stock Option Plans may be either
non-qualified or incentive stock options within the meaning of the Internal
Revenue Code of 1986. Options have been granted at market value and are
exercisable in five equal annual installments beginning one to three years after
the date of grant and expire ten years from the date of grant.
24
BED BATH & BEYOND ANNUAL REPORT 1998 22
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(Continued)
The following table summarizes stock option transactions:
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
- --------------------------------------------------------------------------------
Outstanding at February 25, 1996 7,311,720 $ 4.48
Options granted 1,638,400 10.72
Options exercised (1,070,100) 3.13
Options canceled (383,940) 6.50
----------
Outstanding at March 1, 1997 7,496,080 5.93
==========
Options granted 4,349,800 14.71
Options exercised (881,902) 3.91
Options canceled (359,080) 8.73
----------
Outstanding at February 28, 1998 10,604,898 9.61
==========
Options granted 2,770,200 23.54
Options exercised (1,330,149) 5.10
Options canceled (308,680) 12.20
----------
Outstanding at February 27, 1999 11,736,269 $ 13.34
================================================================================
Options exercisable:
At March 1, 1997 1,645,560 $ 4.03
At February 28, 1998 2,211,538 $ 4.64
At February 27, 1999 2,538,809 $ 7.67
================================================================================
The stock option committee appointed pursuant to the Stock Option Plans
determine the number of shares and the option price per share for all options
issued under the Stock Option Plans.
The following tables summarize information pertaining to stock options
outstanding and exercisable at February 27, 1999:
OPTIONS OUTSTANDING
- --------------------------------------------------------------------------------
WEIGHTED-AVERAGE WEIGHTED-
RANGE OF NUMBER REMAINING AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
- --------------------------------------------------------------------------------
$ 2.13 to 4.73 2,430,050 5.05 $ 4.19
5.67 to 12.13 2,370,544 6.55 8.52
12.23 to 15.47 1,606,870 8.08 12.83
15.63 to 22.72 2,917,065 8.63 16.38
23.66 to 31.88 2,411,740 9.29 23.88
----------
$ 2.13 to 31.88 11,736,269 7.53 $ 13.34
==========
OPTIONS EXERCISABLE
- --------------------------------------------------------------------------------
WEIGHTED-
RANGE OF NUMBER AVERAGE
EXERCISE PRICES EXERCISABLE EXERCISE PRICE
- --------------------------------------------------------------------------------
$ 2.13 to 4.73 1,048,130 $ 3.77
5.67 to 12.13 878,584 7.03
12.23 to 15.47 128,010 13.12
15.63 to 22.72 484,085 15.84
23.66 to 31.88 -- --
---------
$ 2.13 to 31.88 2,538,809 $ 7.67
=========
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 presented "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) 1998 1997 1996
- --------------------------------------------------------------------------------
NET EARNINGS:
As reported $97,346 $73,142 $55,015
Pro forma $89,519 $69,257 $53,908
NET EARNINGS PER SHARE:
Basic:
As reported $ 0.70 $ 0.53 $ 0.40
Pro forma $ 0.64 $ 0.50 $ 0.39
Diluted:
As reported $ 0.68 $ 0.51 $ 0.39
Pro forma $ 0.62 $ 0.49 $ 0.38
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 1998, 1997 and 1996, respectively: dividend yield of 0% for
all years; expected volatility of 42% for all years; risk free interest rates of
5.58%, 6.36% and 6.62%; and expected lives of six years for all years. The
weighted-average fair value of options granted during the year is $12.12, $7.58
and $5.83 for fiscal 1998, 1997 and 1996, respectively.
25
BED BATH & BEYOND ANNUAL REPORT 1998 23
- --------------------------------------------------------------------------------
11. SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
FISCAL 1998 QUARTER ENDED
- ---------------------------------------------------------------------------------------------
May 30, August 29, November 28, February 27,
(in thousands, except per share data) 1998 1998 1998 1999
- ---------------------------------------------------------------------------------------------
Net sales $269,571 $344,946 $363,431 $419,249
Gross profit 110,179 141,943 148,473 175,530
Operating profit 20,744 41,760 40,154 55,394
Earnings before provision for income taxes 21,561 42,331 40,915 56,762
Provision for income taxes 8,570 16,827 16,264 22,562
Net earnings $ 12,991 $ 25,504 $ 24,651 $ 34,200
Net earnings per share - Basic(1) $ .09 $ .18 $ .18 $ .25
Net earnings per share - Diluted(1) $ .09 $ .18 $ .17 $ .24
FISCAL 1997 QUARTER ENDED
- ---------------------------------------------------------------------------------------------
May 31, August 30, November 29, February 28,
(in thousands, except per share data) 1997 1997 1997 1998
- ---------------------------------------------------------------------------------------------
Net sales $213,662 $266,895 $280,978 $305,077
Gross profit 87,358 109,500 115,422 128,736
Operating profit 15,810 31,770 30,726 40,608
Earnings before provision for income taxes 16,447 32,274 31,440 41,237
Provision for income taxes 6,540 12,827 12,497 16,392
Net earnings $ 9,907 $ 19,447 $ 18,943 $ 24,845
Net earnings per share - Basic (1) $ .07 $ .14 $ .14 $ .18
Net earnings per share - Diluted (1) $ .07 $ .14 $ .13 $ .17
(1) Net earnings per share amounts for each quarter are required to be
computed independently and may not equal the amount computed for the total
year.
26
BED BATH & BEYOND ANNUAL REPORT 1998 24
- --------------------------------------------------------------------------------
Independent Auditors' Report [LOGO] KPMG
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF BED BATH & BEYOND INC.:
We have audited the accompanying consolidated balance sheets of Bed Bath &
Beyond Inc. and subsidiaries as of February 27, 1999 and February 28, 1998, and
the related consolidated statements of earnings, shareholders' equity and cash
flows for each of the fiscal years in the three-year period ended February 27,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bed Bath & Beyond
Inc. and subsidiaries as of February 27, 1999 and February 28, 1998, and the
results of their operations and their cash flows for each of the fiscal years in
the three-year period ended February 27, 1999 in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
New York, New York
March 26, 1999
27
BED BATH & BEYOND ANNUAL REPORT 1998 25
- --------------------------------------------------------------------------------
Corporate Data
DIRECTORS
Warren Eisenberg
Chairman and Co-Chief Executive Officer
of Bed Bath & Beyond Inc.
Leonard Feinstein
President and Co-Chief Executive Officer
of Bed Bath & Beyond Inc.
Klaus Eppler
Partner, Proskauer Rose LLP,
New York, New York
Robert S. Kaplan
Managing Director, Goldman, Sachs & Co.,
New York, New York
Robert J. Swartz
Vice President, Alco Capital Group, Inc.,
New York, New York
OFFICERS
Warren Eisenberg
Chairman and Co-Chief Executive Officer
Leonard Feinstein
President and Co-Chief Executive Officer
Steven H. Temares
Executive Vice President - Chief Operating Officer
Ronald Curwin
Chief Financial Officer and Treasurer
Arthur Stark
Senior Vice President - Merchandising
Matthew Fiorilli
Senior Vice President - Stores
Michael Honeyman
Vice President - Administration and Corporate Operations
Phillip Kornbluh
Vice President - Visual Merchandising
Allan Rauch
Vice President - Legal and General Counsel
Jonathan Rothstein
Vice President - Product Development and Marketing
G. William Waltzinger, Jr.
Vice President - Finance
P. Timothy Brewster
Vice President of Stores - N.Y.C. and Long Island Region
Martin Eisenberg
Vice President of Stores - Northeast Region
Edward Kopil
Vice President of Stores - Southern Region
Martin Lynch
Vice President of Stores - Midwest and Western Region
William Onksen
Vice President of Stores - MidAtlantic Region
CORPORATE OFFICE
Bed Bath & Beyond Inc.
650 Liberty Avenue
Union, New Jersey 07083
Telephone: 908/688-0888
SHAREHOLDER INFORMATION
The Company's 1998 Annual Report on Form 10-K (excluding exhibits) may be
obtained, without charge, by writing to the Investor Relations Department at the
Corporate Office, or by fax (908/810-8813).
STOCK LISTING
The Common Stock of Bed Bath & Beyond Inc. trades on the NASDAQ National
Market under the symbol BBBY.
STOCK ACTIVITY
The following table sets forth by fiscal quarter the high and low reported sales
prices of the Company's Common Stock on the NASDAQ National Market during fiscal
1997 and fiscal 1998 (adjusted for the Company's 2-for-1 stock split which
occurred in July 1998):
QUARTER HIGH LOW
- --------------------------------------------------------------------------------
FISCAL 1997
First $14 3/4 $11 7/16
Second 18 1/16 13 7/8
Third 18 1/8 14 13/32
Fourth 22 7/16 16
FISCAL 1998
First $27 3/4 $20
Second 28 31/32 18 1/4
Third 32 3/16 17 1/8
Fourth 35 3/16 27 1/2
At March 26, 1999, there were approximately 600 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 LLP
345 Park Avenue
New York, New York 10154
ANNUAL MEETING
The Annual Meeting of Shareholders will be held at 9:00 a.m. Friday, June 25,
1999, at the Headquarters Plaza Hotel, Three Headquarters Plaza, Morristown, New
Jersey.
(C) 1999 Bed Bath & Beyond Inc. and its subsidiaries.
[RECYCLE LOGO] Printed on recycled paper
28
BED BATH &
BEYOND(R)
650 Liberty Avenue
Union, New Jersey 07083
908-688-0888