-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ICh0PfXp9fgq0WlXnHKQI8QSic/nVS0HG0qAFI9i0jwNNcvE3AiXgwjhiJgsX5qa 1vY/C4eMF6hhSNQB+pLqmA== /in/edgar/work/20000526/0000950123-00-005455/0000950123-00-005455.txt : 20000919 0000950123-00-005455.hdr.sgml : 20000919 ACCESSION NUMBER: 0000950123-00-005455 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000226 FILED AS OF DATE: 20000526 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BED BATH & BEYOND INC CENTRAL INDEX KEY: 0000886158 STANDARD INDUSTRIAL CLASSIFICATION: [5700 ] IRS NUMBER: 112250488 STATE OF INCORPORATION: NY FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-20214 FILM NUMBER: 644020 BUSINESS ADDRESS: STREET 1: 650 LIBERTY AVENUE CITY: UNION STATE: NJ ZIP: 07083 BUSINESS PHONE: 2013791520 MAIL ADDRESS: STREET 1: 715 MORRIS AVENUE CITY: SPRINGFIELD STATE: NJ ZIP: 07081 10-K 1 BED BATH & BEYOND INC. 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended February 26, 2000 Commission File Number 0-20214 BED BATH & BEYOND INC. ---------------------- (Exact name of registrant as specified in its charter) NEW YORK 11-2250488 -------- ---------- (State of incorporation) (IRS Employer Identification No.) 650 LIBERTY AVENUE, UNION, NEW JERSEY 07083 --------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 908/688-0888 ------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ---------------- None None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK (PAR VALUE $ 0.01 PER SHARE) ----------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of May 12, 2000, the aggregate market value of the common stock held by non-affiliates (which was computed by reference to the closing price on such date of such stock on the NASDAQ National Market) was $5,112,598,095.* The number of shares outstanding of the issuer's common stock (par value $0.01 per share) at May 12, 2000: 141,301,404 DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- Portions of the Registrant's definitive proxy statement dated May 22, 2000 pursuant to Regulation 14A are incorporated by reference in Part III hereof. Portions of the Registrant's Annual Report to Shareholders for the fiscal year ended February 26, 2000 are incorporated by reference in Part II hereof. * For purposes of this calculation, all outstanding shares of common stock have been considered held by non-affiliates other than the 10,007,154 shares beneficially owned by directors and executive officers, including in the case of the Co-Chief Executive Officers trusts and foundations affiliated with them. In making such calculation, the Registrant does not determine the affiliate or non-affiliate status of any shares for any other purpose. ================================================================================ 2 TABLE OF CONTENTS
FORM 10-K ITEM NO. NAME OF ITEM PAGE PART I Item 1. Business............................................................................. 3 Item 2. Properties............................................................................11 Item 3. Legal Proceedings.....................................................................12 Item 4. Submission of Matters to a Vote of Security Holders.................................................................12 PART II Item 5. Market for the Registrant's Common Equity And Related Shareholder Matters..................................................12 Item 6. Selected Financial Data...............................................................13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................................13 Item 7A. Quantitative and Qualitative Disclosures About Market Risk......................................................................13 Item 8. Financial Statements and Supplementary Data...........................................13 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................................................................13 PART III Item 10. Directors and Executive Officers of the Registrant...................................................................13 Item 11. Executive Compensation................................................................13 Item 12. Security Ownership of Certain Beneficial Owners and Management............................................................13 Item 13. Certain Relationships and Related Transactions.....................................................................13 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..............................................................14
2 3 PART I Unless otherwise indicated, the terms "Company" and "Bed Bath & Beyond" refer collectively to Bed Bath & Beyond Inc. and its subsidiaries. The Company's fiscal year is comprised of the 52 or 53 week period ending on the Saturday nearest February 28. Accordingly, fiscal 1999 represented 52 weeks and ended on February 26, 2000; fiscal 1998 represented 52 weeks and ended on February 27, 1999;and fiscal 1997 represented 52 weeks and ended on February 28, 1998. Unless otherwise indicated, all references herein to periods of time (e.g., quarters and years) are to fiscal periods. ITEM 1 - BUSINESS INTRODUCTION Bed Bath & Beyond believes that it is the nation's largest operator of "superstores" selling predominantly better quality domestics merchandise and home furnishings typically found in better department stores. The term "superstore" as used herein means a store, other than a department store, that is larger in size than the typical stores in its market selling similar product categories and offering a breadth and depth of selection in most of its product categories that far exceeds what is available in such stores. The Company offers a wide assortment of merchandise at everyday low prices that are substantially below regular department store prices and generally comparable to or below department store sale prices. The Company's domestics merchandise line includes items such as bed linens, bath accessories and kitchen textiles, and the Company's home furnishings line includes items such as cookware, dinnerware, glassware and basic housewares. The Company believes that it offers a breadth and depth of selection in most of its product categories that far exceeds what is generally available in department stores or other specialty retail stores and that this enables it to offer customers the convenience of one-stop shopping for most household items. As of May 12, 2000, the Company operated 247 stores in 39 states: Alabama (3), Arizona (5), Arkansas (2), California (32), Colorado (6), Connecticut (5), Delaware (1), Florida (27), Georgia (11), Illinois (13), Indiana (3), Iowa (1), Kansas (3), Kentucky (2), Louisiana (1), Maryland (8), Massachusetts (5), Michigan (9), Minnesota (1), Missouri (5), Nebraska (1), Nevada (1), New Jersey (15), New Mexico (1), New York (14), North Carolina (4), Ohio (7), Oklahoma (3), Oregon (1), Pennsylvania (9), Rhode Island (1), South Carolina (2), Tennessee (5), Texas (18), Utah (3), Vermont (1), Virginia (12), Washington (4) and Wisconsin (2). Of these stores, 244 use the superstore format that was pioneered by the Company in 1985. These stores are on average approximately 41,000 square feet in size and carry the Company's full line of both domestics merchandise and home furnishings. The other three stores, all established prior to 1986, are smaller stores that primarily carry domestics merchandise. HISTORY The Company was founded in 1971 by Leonard Feinstein and Warren Eisenberg, the Co-Chief Executive Officers of the Company. Each has more than 40 years of experience in the retail industry. The Company commenced operations in 1971 with the opening of two stores, one in New York and one in New Jersey. These stores sold primarily bed linens and bath accessories. In 1985, the Company introduced its superstore format with the opening of its first store carrying a full line of domestics merchandise and home furnishings. The Company began using the name "Bed Bath & Beyond" in 1987 in order to reflect the expanded product line offered by its superstores and to distinguish its superstores from conventional specialty retail stores offering only domestics merchandise or only home furnishings. 3 4 The Company has been engaged in an ongoing expansion program involving the opening of new superstores (including 55 in 1999, 45 in 1998, and 33 in 1997) and the expansion of existing stores (including four in 1999, three in 1998 and 1997). As a result of its expansion program, the Company's store space has increased from approximately 917,000 square feet at the beginning of 1992 to approximately 9,815,000 square feet at the end of 1999. The Company's expansion program is continuing, and the Company currently anticipates that in fiscal 2000 it will open at least 60 new superstores, which includes the six new superstores opened through May 12, 2000. MERCHANDISING AND MARKETING The Company's strategy for merchandising and marketing is to offer better quality merchandise at everyday low prices; to maintain a breadth and depth of selection in most of its product categories that far exceeds what is generally available in department stores or other specialty retail stores; to present merchandise in a distinctive manner designed to maximize customer convenience and reinforce customer perception of wide selection; and to emphasize dedication to customer service and satisfaction. MERCHANDISE SELECTION The Company's superstores offer both domestics merchandise and home furnishings, including: Domestics Merchandise - bed linens and related items: sheets, comforters, duvet covers, bedspreads, quilts, window treatments (such as curtains and valances), decorative pillows, blankets, dust ruffles, bed pillows and mattress pads. - bath items: towels, shower curtains and liners, waste baskets, mirrors, hampers, robes and slippers, scales, bathroom rugs, wall hardware and bath accessories. - kitchen textiles: tablecloths, placemats, cloth napkins, dish towels and chair pads. Home Furnishings - kitchen and tabletop items: cookware, cutlery, kitchen gadgets, dinnerware, bakeware, flatware, drinkware, serveware, glassware, food storage containers, tea kettles, trash cans and cleaning supplies. - basic housewares: storage items, closet-related items (such as hangers, organizers and shoe racks), general housewares (such as brooms, garbage pails and ironing boards), lifestyle accessories (such as lamps, chairs, ready to assemble furniture, furniture covers, accent rugs, wicker, fountains and clocks) and small electric appliances (such as blenders, food processors, coffee makers, vacuums, irons, toaster ovens and hair dryers). - general home furnishings: giftwrap, candles, personal care products (such as soaps and lotions), picture frames, wall art, juvenile items (such as toys and children's books), artificial plants and flowers and seasonal merchandise (such as summer and holiday related items). The Company, on an ongoing basis, tests new merchandise categories and adjusts the categories of merchandise carried in its stores and may add new departments or adjust the size of existing departments as required. The Company believes that the process of adding new departments and expanding or reducing the size of various departments in response to changing conditions is an important part of its merchandising strategy. 4 5 The Company's merchandise consists primarily of better quality merchandise typically found at better department stores. For those product lines that have brand names associated with them, the Company generally offers leading brand name merchandise (including Wamsutta, Martex, Fieldcrest, Cannon, Croscill, Laura Ashley, Calphalon, Mikasa, Krups, J.A. Henckels, All-Clad, Portmeirion, Black & Decker, Rubbermaid, Springs, Braun, Kitchenaid, Cuisinart, Hoover, Gillette, Brita, Pillowtex, Pacific Coast Feather Co., Conair, Waverly and Homedics). The Company estimates that brand name merchandise accounts for a significant portion of its net sales. The Company offers a breadth and depth of product selection that enables customers to select among a wide assortment of styles, brands, colors and designs within each of the Company's major product lines. The Company also generally maintains consistent in-stock availability of merchandise in order to reinforce customer perception of wide selection and build customer loyalty. The Company estimates that most of its superstores carry in excess of 31,000 active stock-keeping units. PRICING POLICY The Company's pricing policy is to maintain everyday low prices that are substantially below regular department store prices and generally comparable to or below department store sale prices. The Company regularly monitors price levels at its competitors in order to ensure that the Company's prices are being maintained in accordance with its pricing policy. The Company believes that the application of its everyday low price policy is essential to maintaining the integrity of this policy and is an important factor in establishing its reputation among customers. Because the Company has an everyday low price policy, the Company does not run sales. However, the Company uses periodic markdowns and semi-annual clearances for merchandise that it has determined to discontinue carrying. In addition, the Company's full-color circulars and mailing pieces include a coupon, which is redeemed at the point-of-sale. The Company also honors competitor coupons. MERCHANDISE PRESENTATION The Company has developed a distinctive style of merchandise presentation. In each superstore, groups of related product lines are presented together in separate areas of the store, creating the appearance that a Bed Bath & Beyond superstore is comprised of several individual specialty stores for different product lines. A "racetrack layout" that runs throughout the store facilitates moving between areas and encourages customers to shop the entire store. The Company believes that its format of merchandise presentation makes it easy for customers to locate products, reinforces customer perception of wide selection and communicates to customers that Bed Bath & Beyond superstores offer a level of customer service generally associated with smaller specialty stores. Merchandise is displayed in each of these separate areas from floor to ceiling (generally 10 to 14 feet high) and, in addition, seasonal merchandise and impulse items are prominently displayed in the front of the store. The Company believes that its extensive merchandise selection, rather than fixturing, should be the focus of customer attention and, accordingly, typically uses simple modular fixturing throughout the store. This fixturing is designed so that it can be easily reconfigured to adapt to changes in the store's merchandise mix and presentation. The Company believes that its floor to ceiling displays create an exciting and attractive shopping environment that encourages impulse purchases of additional items. CUSTOMER SERVICE The Company places great emphasis on customer service and satisfaction and, over the past 29 years, has sought to make this a defining feature of its corporate culture. All managers provide leadership by example in this area by regularly spending time assisting customers on the selling floor. The Company believes that its success in the area of customer service is evidenced by its ability to rely primarily on "word of mouth 5 6 advertising". The Company seeks to make shopping at its stores as pleasant and convenient as possible. Each area within a store is staffed with knowledgeable sales personnel who are available to assist customers in choosing merchandise, to answer questions and to resolve any problems that may arise. In order to make checking out convenient, check-out lines are continually monitored and additional cashiers are added as necessary in order to minimize waiting time. Returning merchandise is simplified through a return policy that permits customers to return most items without presenting a sales receipt. Most Bed Bath & Beyond stores are open seven days (and six evenings) a week in order to enable customers to shop at times that are convenient for them. The Company further augmented its services in fiscal 1999 through the launching of the first phase of its E-Service initiative. The Company's website, www.bedbathandbeyond.com, offers a broad range of online services and features, including shopping. ADVERTISING In general, the Company relies on "word of mouth advertising" and on its reputation for offering a wide assortment of quality merchandise at everyday low prices, supplemented by the use of paid advertising. The Company uses full-color circulars and mailing pieces as its primary vehicles of paid advertising. Also, to support the opening of new stores, the Company uses "grand opening" full-color circulars and newspaper advertising. The Company believes that its ability to rely primarily on "word of mouth advertising" will continue and that its limited use of paid advertising permits it to spend less on advertising than a number of its competitors. EXPANSION The Company is engaged in an ongoing expansion program involving the opening of new stores in both existing and new markets and the expansion or replacement of existing stores with larger stores. As a result of this program, the total number of stores has increased from 34 at the beginning of fiscal 1992 to 241 at the end of fiscal 1999, and the total square footage of store space has increased from approximately 917,000 square feet at the beginning of fiscal 1992 to approximately 9,815,000 square feet at the end of fiscal 1999. During 1999, the Company opened 55 new superstores and expanded four stores, which resulted in the addition of approximately 2,127,000 square feet of store space. The table below sets forth information concerning the Company's expansion program for the periods indicated:
STORE SPACE NUMBER OF STORES ---------------------------- ----------------------------- REPLACED NEW BEGINNING END BEGINNING END YEAR STORES (1) STORES (2) OF YEAR OF YEAR OF YEAR OF YEAR ---- ---------- ---------- -------- ------- ------- ------- (IN SQUARE FEET) 1992 5 4 917,000 1,128,000 34 38 1993 4 9 1,128,000 1,512,000 38 45 1994 4 16 1,512,000 2,339,000 45 61 1995 2 19 2,339,000 3,214,000 61 80 1996 2 28 3,214,000 4,347,000 80 108 1997 3 33 4,347,000 5,767,000 108 141 1998 3 45 5,767,000 7,688,000 141 186 1999 4 55 7,688,000 9,815,000 186 241
(1) A replaced store is an existing store that was either expanded or replaced by a new store in the same area. (2) Excludes any new store that replaced an existing store in the same area. The Company intends to continue its expansion program and believes that the continued growth of the Company is dependent, in large part, on the success of this program. As part of its expansion program, the Company expects to open new superstores and, in addition, expects to expand existing stores as opportunities arise. 6 7 The Company expects to open new superstores in existing markets and new markets. In determining where to open new superstores, the Company evaluates a number of factors, including the availability of prime real estate and demographic information (such as data relating to income and education levels, age and occupation). The Company believes that because it does not use central distribution centers and since it relies on paid advertising to only a limited extent, it has the flexibility to enter a new market with only one or two stores. The Company will consider opening additional stores in that market, once the stores have been proven successful. From the end of fiscal 1999 through May 12, 2000, the Company has opened six stores which are located in: Colma, CA; Winston Salem, NC; Montgomeryville, PA; Providence, RI; Johnson City, TN; and Nashville, TN. During the balance of 2000, the Company currently anticipates that it will open at least 54 additional stores and relocate or expand two stores. The Company has built its management structure with a view towards its expansion and believes that as a result the Company has the management depth necessary to support its anticipated expansion program. Each of the Company's area managers typically supervise up to three stores. Each of the Company's district managers typically supervise four to ten stores. STORE OPERATIONS MERCHANDISING The Company maintains its own central buying staff, comprised of two Vice President - General Merchandising Managers, four divisional merchandise managers, twenty-five buyers and ten assistant buyers. Senior members of this buying staff report to the Senior Vice President-Chief Merchandising Officer. The merchandise mix for each store is selected by the central buying staff, in consultation with store managers and other local store personnel. The central buying staff is responsible for selecting the merchandise, for ordering the initial inventory required upon the opening of each store, for ordering the first shipment of any new product line that may be subsequently added to a store's merchandise mix and for ordering seasonal merchandise. After a store is opened, local store personnel are primarily responsible for monitoring inventory levels and reordering merchandise as required. In addition, local store personnel are encouraged to monitor local sales trends and market conditions and tailor the merchandise mix as appropriate to respond to changing trends and conditions. The Company believes that its policy of having the reordering performed at the local store level, rather than centrally, and having local store personnel determine the appropriate quantity to reorder encourages entrepreneurship at the store level and better ensures that in-stock availability will be maintained in accordance with the specific requirements of each store. The factors taken into account in selecting the merchandise mix for a particular store include store size and configuration and local market conditions such as climate and demographics. The Company purchases its merchandise from approximately 3,100 suppliers. In 1999, the Company's largest supplier accounted for approximately 6% of the Company's merchandise purchases and the Company's 10 largest suppliers accounted for approximately 26% of such purchases. The Company purchases substantially all of its merchandise in the United States, the majority from domestic manufacturers and the balance from importers. The Company purchases a small amount of its merchandise directly from overseas sources. The Company has no long-term contracts for the purchase of merchandise. The Company believes that most merchandise, other than brand name goods, is available from a variety of sources and that most brand name goods can be replaced with comparable merchandise. WAREHOUSING Merchandise is shipped to each store from the Company's vendors, making it unnecessary for the Company to maintain any central distribution centers. As a result of the floor to ceiling displays used by the 7 8 Company, a substantial amount of merchandise is displayed on the sales floor of each store at all times. Additional merchandise not displayed on the sales floor is stored in separate warehouse space that is included in each store (with an estimated 10% to 15% of the space of each store being dedicated to warehouse and receiving space). In the case of a few stores, merchandise is also stored at nearby supplemental storage space leased by the Company. At present, the warehouse space included in the Company's stores provides approximately 88% of the Company's warehouse space requirements and such nearby supplemental storage space provides the balance. MANAGEMENT The Company seeks to encourage responsiveness and entrepreneurship at the store level by providing its managers with a relatively high degree of autonomy relating to operations and merchandising. This is reflected in the Company's policy of having reordering conducted at the store level, as well as in the Company's policy of encouraging managers to tailor the merchandise mix of each store in response to local sales trends and market conditions. In general, stores are staffed with one to three assistant managers and three to six department managers who report to a store manager, who in turn is supervised by an area or district manager. Area and district managers report to one of several regional managers or directly to one of five regional Vice Presidents of Stores, who in turn report to the Senior Vice President of Stores. Decisions relating to pricing and advertising for all stores are made centrally in the Company's Buying Office, and certain store support functions (such as finance and information technology) are performed centrally in the Company's Corporate Office. TRAINING The Company places great emphasis on the training of store level management. All entry management personnel are generally required to work in different departments of the store in order to acquire an overall understanding of store operations. In addition, all associates receive formalized training, including sales techniques and product knowledge, through the Bed Bath & Beyond University program. The Company's policy is to generally build its management organization from within. Each of the Company's area, district and regional managers was recruited from the ranks of the Company's store managers and each of the Company's store managers joined the Company in an entry level position. The Company believes that its policy of promoting from within, as well as the opportunities for advancement generated by its ongoing expansion program, serve as an incentive to persons to seek and retain employment with the Company and results in low turnover among its managers. EMPLOYEES As of February 26, 2000, the Company employed approximately 12,000 persons, of whom approximately 8,000 were full-time employees and 4,000 were part-time employees. None of the Company's employees are covered by collective bargaining agreements. The Company believes that its relations with its employees are excellent and that the labor turnover rate among its management employees is lower than that experienced in the industry. SEASONALITY The Company's business exhibits less seasonality than many other retail businesses, although sales levels are generally higher in August, November and December, and generally lower in February and March. 8 9 COMPETITION The market for domestics merchandise and home furnishings is fragmented and highly competitive. While the Company believes it is the preeminent marketer in the superstore segment of the home goods industry, it competes directly with a number of chains of superstores selling domestics merchandise and home furnishings. In addition, the Company competes with many different types of retail stores that sell many or most of the products sold by the Company. Such competitors include: (i) better department stores, which often carry many of the same product lines as the Company but do not typically have the same depth or breadth of product selection, (ii) specialty stores (such as specialty linens or housewares retailers), which often have a depth of product selection but typically carry only a limited portion of the product lines carried by the Company, and (iii) discount and mass merchandise stores. In addition, the Company competes to a more limited extent with factory outlet stores that typically offer limited quantities or limited lines of better quality merchandise at discount prices. Some of the Company's competitors operate substantially more stores and have substantially greater financial and other resources than the Company, including, in a few cases, better name recognition. The Company believes that it is the largest operator of superstores selling predominantly better quality domestics merchandise and home furnishings typically found in better department stores, and that it is well positioned to compete successfully in its markets as measured by several factors, including pricing, breadth and quality of product selection, in-stock availability of merchandise, effective merchandise presentation, customer service and store locations. The visibility of the Company has encouraged superstore competitors to imitate the Company's format and methods. Other retail chains continue to introduce new store concepts which include many of the product lines carried by the Company. There can be no assurance that the operation of competitors, including those companies operating stores similar to those of Bed Bath & Beyond, will not have a material effect on the Company. TRADE NAMES AND SERVICE MARKS The Company uses its nationally recognized "Bed Bath & Beyond" name and logo and its "Beyond any store of its kind" tag line as service marks in connection with retail services. The Company has registered these marks and others with the United States Patent and Trademark Office. The Company also has registered or has applications pending with the trademark registries of several foreign countries. Management believes that its nationally recognized name and its service marks are an important element of the Company's merchandising strategy. 9 10 EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the name, age and business experience of the Executive Officers of the Registrant:
NAME AGE POSITIONS - ---- --- --------- Warren Eisenberg 69 Co-Chairman, Co-Chief Executive Officer and Director Leonard Feinstein 63 Co-Chairman, Co-Chief Executive Officer and Director Steven H. Temares 41 President, Chief Operating Officer and Director Ronald Curwin 70 Chief Financial Officer and Treasurer Arthur Stark 45 Chief Merchandising Officer and Senior Vice President Matthew Fiorilli 43 Senior Vice President - Stores
Mr. Eisenberg, a co-founder of the Company, has been a director and officer of the Company since the Company commenced operations in 1971 (serving as President and Co-Chief Executive Officer until 1992, as Chairman and Co-Chief Executive Officer until 1999, thereafter as Co-Chairman and Co-Chief Executive Officer). Mr. Feinstein, a co-founder of the Company, has been a director and officer of the Company since the Company commenced operations in 1971 (serving as Co-Chief Executive Officer, Treasurer and Secretary until 1992, as President and Co-Chief Executive Officer until 1999, thereafter as Co-Chairman and Co-Chief Executive Officer). Mr. Temares was promoted to President and Chief Operating Officer of the Company in January 1999. Prior to 1999, Mr. Temares served as Executive Vice President - Chief Operating Officer from 1997 to 1999 and previously was Director of Real Estate and General Counsel. Mr. Curwin, a certified public accountant, joined the Company in 1994 as Chief Financial Officer and Treasurer. Mr. Stark joined the Company in 1977. Mr. Stark was promoted to Chief Merchandising Officer and Senior Vice President in January 1999. Prior to 1999, Mr. Stark was Vice President - Merchandising from 1998 until 1999, Director of Store Operations - Western Region from 1994 until 1998. Mr. Fiorilli joined the Company in 1973. Mr. Fiorilli was promoted to Senior Vice President - Stores in January 1999. Prior to 1999, Mr. Fiorilli was Vice President - Stores from 1998 until 1999, Director of Store Operations - Eastern Region from 1994 until 1998. The Company's officers are elected by the Board of Directors for one-year terms and serve at the discretion of the Board of Directors. No family relationships exist between any of the executive officers or directors of the Company. 10 11 ITEM 2 - PROPERTIES The Company's 247 stores are located in 39 states, principally in suburban areas of medium and large sized cities. These stores are situated in strip and power strip shopping centers, as well as in major off-price and conventional malls, and free standing buildings. The Company's superstores range in size from 13,000 to 103,000 square feet, but are predominantly between 30,000 and 50,000 square feet in major markets. The Company's three smaller stores range in size from 7,000 to 11,000 square feet. In both superstores and smaller stores, approximately 80% to 85% of store space is used for selling areas and the balance for warehouse, receiving and office space. The table below sets forth the number of stores located in each state as of May 12, 2000:
Number Number State of Stores State of Stores ----- --------- ----- --------- Alabama 3 Nebraska 1 Arizona 5 Nevada 1 Arkansas 2 New Jersey 15 California 32 New Mexico 1 Colorado 6 New York 14 Connecticut 5 North Carolina 4 Delaware 1 Ohio 7 Florida 27 Oklahoma 3 Georgia 11 Oregon 1 Illinois 13 Pennsylvania 9 Indiana 3 Rhode Island 1 Iowa 1 South Carolina 2 Kansas 3 Tennessee 5 Kentucky 2 Texas 18 Louisiana 1 Utah 3 Maryland 8 Vermont 1 Massachusetts 5 Virginia 12 Michigan 9 Washington 4 Minnesota 1 Wisconsin 2 Missouri 5
The Company currently leases all of its existing stores. The leases provide for original lease terms that generally range from five to fifteen years and certain leases provide for renewal options that range from five to fifteen years, often at increased rents. Certain leases provide for scheduled rent increases (which, in the case of fixed increases, the Company accounts for on a straight line basis over the noncancelable lease term) and/or for contingent rent (based upon store sales exceeding stipulated amounts). The Company also leases merchandise storage space in seven locations amounting to approximately 164,000 square feet. This space is used to supplement the warehouse facilities in the Company's stores in proximity to these locations. See Item 1 "Business--Store Operations--Warehousing." The Company's Corporate Office is located in 87,100 square feet of office space in Union, New Jersey, and the Company's Buying Office is located in 56,400 square feet of office space in Farmingdale, New York. The Company plans to lease additional office space at both of these locations. 11 12 ITEM 3 - LEGAL PROCEEDINGS There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company is a party. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders through solicitation of proxies or otherwise during the fourth quarter of the fiscal year ended February 26, 2000. PART II ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The following table sets forth the high and low reported sales prices of the Company's common stock on the NASDAQ National Market System for the periods indicated. These quotations reflect inter-dealer prices, without retail markups, markdowns or commissions.
HIGH LOW ---- --- Fiscal 1998 : ------------- 1st Quarter $ 27 3/4 $ 20 2nd Quarter 28 31/32 18 1/4 3rd Quarter 32 3/16 17 1/8 4th Quarter 35 3/16 27 1/2 Fiscal 1999 : ------------- 1st Quarter $ 39 3/8 $ 29 1/8 2nd Quarter 38 15/16 25 1/2 3rd Quarter 37 27 3/8 4th Quarter 36 22 7/16 Fiscal 2000 : ------------- 1st Quarter (through May 12, 2000) $ 45 1/2 $ 22
The common stock is quoted through the NASDAQ National Market System under the symbol BBBY. On May 12, 2000, there were approximately 640 shareholders of record of the common stock (without including individual participants in nominee security position listings). On May 12, 2000, the last reported sale price of the common stock was $38 15/16. For the foreseeable future, the Company intends to retain all earnings for use in the operation and expansion of its business and, accordingly, the Company currently has no plans to pay dividends on its common stock. The payment of any future dividends will be determined by the Board of Directors in light of conditions then existing, including the Company's earnings, financial condition and requirements, restrictions in financing agreements, business conditions and other factors. At present, the Company's ability to pay dividends is limited under its Credit Agreement. See Item 8 - Financial Statements and Supplementary Data. 12 13 ITEM 6 - SELECTED FINANCIAL DATA The information required by this item is included in the registrant's Annual Report to Shareholders for the fiscal year ended February 26, 2000 on the inside front cover and is incorporated herein by reference. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is included in the registrant's Annual Report to Shareholders for the fiscal year ended February 26, 2000 on pages 10 through 13 and is incorporated herein by reference. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK None. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements required by this item are included in the registrant's Annual Report to Shareholders for the fiscal year ended February 26, 2000 on pages 14 through 23 and are incorporated herein by reference. These financial statements are indexed under Item 14(a)(1). ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III The Executive Officers of the Registrant information required by Part III, Item 10 - Directors and Executive Officers of the Registrant is included in this document; all other information required by Part III (Item 10 - Directors and Executive Officers of the Registrant, Item 11 - Executive Compensation, Item 12 - Security Ownership of Certain Beneficial Owners and Management, and Item 13 - Certain Relationships and Related Transactions) is incorporated herein by reference from the Registrant's definitive Proxy Statement for the Annual Meeting of Shareholders to be held June 29, 2000 filed with the Commission pursuant to Regulation 14A. The Compensation Report of the Board of Directors and the performance graph included in such Proxy Statement shall not be deemed incorporated herein by reference. 13 14 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) FINANCIAL STATEMENTS The following financial statements and reports are incorporated by reference to pages 14 through 23 of the Company's Annual Report to Shareholders for the fiscal year ended February 26, 2000: Consolidated Balance Sheets as of February 26, 2000 and February 27, 1999 Consolidated Statements of Earnings for the fiscal years ended February 26, 2000, February 27, 1999 and February 28, 1998 Consolidated Statements of Shareholders' Equity for the fiscal years ended February 26, 2000, February 27, 1999 and February 28, 1998 Consolidated Statements of Cash Flows for the fiscal years ended February 26, 2000, February 27, 1999 and February 28, 1998 Notes to Consolidated Financial Statements Independent Auditors' Report (a) (2) FINANCIAL STATEMENT SCHEDULE Schedule I -- The supplementary income statement schedule is included in this report. (a) (3) EXHIBITS The exhibits to this Report are listed in the Exhibit Index included elsewhere herein. (b) No reports on Form 8-K were filed by the Company during the fourth quarter of the fiscal year covered by this report. 14 15 SCHEDULE 1 BED BATH & BEYOND INC. AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT SCHEDULE (IN THOUSANDS)
YEAR ENDED --------------------------------------------------------------------- FEBRUARY 26, FEBRUARY 27, FEBRUARY 28, 2000 1999 1998 ---- ---- ---- ITEM ---- Advertising Costs $28,176 $20,800 $15,701 ======= ======= =======
15 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BED BATH & BEYOND INC. BY: /s/ Warren Eisenberg -------------------------- WARREN EISENBERG CO-CHAIRMAN, CO-CHIEF EXECUTIVE OFFICER AND DIRECTOR Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE - --------- -------- ---- /s/ Warren Eisenberg Co-Chairman, Co-Chief May 25, 2000 - ----------------------------------- Executive Officer and Director WARREN EISENBERG /s/ Leonard Feinstein Co-Chairman, Co-Chief May 25, 2000 - ------------------------------------ Executive Officer and Director LEONARD FEINSTEIN /s/ Steven H. Temares President, Chief Operating Officer May 25, 2000 - -------------------------------------- and Director Steven H. Temares Chief Financial Officer May 25, 2000 /s/ Ronald Curwin and Treasurer - ------------------------------------ (Principal Financial Officer) RONALD CURWIN /s/ Eugene A. Castagna Vice President - Controller May 25, 2000 - ---------------------------------- (Principal Accounting Officer) EUGENE A. CASTAGNA /s/ Klaus Eppler Director May 25, 2000 - ------------------------------------ KLAUS EPPLER /s/ Robert S. Kaplan Director May 25, 2000 - ------------------------------------- ROBERT S. KAPLAN /s/ Robert J. Swartz Director May 25, 2000 - -------------------------------------- ROBERT J. SWARTZ
16 17 ANNUAL REPORT ON FORM 10-K ITEM 14 (a)(3) EXHIBITS BED BATH & BEYOND INC. FISCAL YEAR ENDED FEBRUARY 26, 2000 18 EXHIBIT INDEX Unless otherwise indicated, exhibits are incorporated by reference to the correspondingly numbered exhibits to the Company's Registration Statement on Form S-1 (Commission File No. 33-47250)
EXHIBIT NO. EXHIBIT --- ------- 3.1 Restated Certificate of Incorporation 3.2 Certificate of Amendment to the Company's Certificate of Incorporation (incorporated by reference to Exhibit 3 to the Company's Quarterly Report on Form 10-Q/A for the quarter ended August 25, 1996) 3.3 Certificate of Amendment to the Company's Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 30, 1997) 3.4 Certificate of Change of Bed Bath & Beyond Inc. Under Section 805-A of the Business Corporation Law (incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 30, 1997) 3.5 Amended and Restated By-laws, as amended through June 26, 1997 (incorporated by reference to Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 30, 1997) 3.6 Certificate of Amendment of Certificate of Incorporation (incorporated by reference to Exhibit 3.6 to the Company's Form 10-K for the year ended February 27, 1999) 3.7 Amended By-Laws of Bed Bath & Beyond Inc. (As amended through December 17, 1998) (incorporated by reference to Exhibit 3.7 to the Company's on Form 10-K for the year ended February 27, 1999) 3.8 Amended By-Laws of Bed Bath & Beyond Inc. (As amended through September 22, 1999) (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 28, 1999) 10.1 Credit Agreement among the Company, bed 'n bath Stores, Inc., BBBL, Inc., BBBY Management Corporation, Chemical Bank New Jersey, N.A., Chemical Bank and Chemical Bank New Jersey, N.A. as Agent (incorporated by reference to Exhibit 28 to the Company's Form 8-K dated November 14, 1994) 10.2* Agreement Concerning "Split Dollar" Life Insurance Plan, dated May 9, 1994, among the Company, Jay D.Waxenberg, as trustee of the Warren Eisenberg Life Insurance Trust, Warren Eisenberg and Maxine Eisenberg (incorporated by reference to Exhibit 10.12 to the Company's Form 10-K for the year ended February 27, 1994)
18 19 10.3* Agreement Concerning "Split Dollar" Life Insurance Plan, dated May 9, 1994, among the Company, Jay D.Waxenberg, as trustee of the Leonard Joseph Feinstein Life Insurance Trust, Leonard Joseph Feinstein and Susan Feinstein (incorporated by reference to Exhibit 10.13 to the Company's Form 10-K for the year ended February 27, 1994) 10.4* Agreement Concerning "Split Dollar" Life Insurance Plan, dated June 16, 1995, among the Company, Jay D. Waxenberg, as trustee of the Warren Eisenberg Life Insurance Trust, Warren Eisenberg and Maxine Eisenberg (incorporated by reference to Exhibit 10.12 to the Company's Form 10-K for the year ended February 27, 1994) 10.5* Agreement Concerning "Split Dollar" Life Insurance Plan, dated June 16, 1995, among the Company, Jay D. Waxenberg, as trustee of the Leonard Joseph Feinstein Life Insurance Trust, Leonard Joseph Feinstein and Susan Feinstein (incorporated by reference to Exhibit 10.13 to the Company's Form 10-K for the year ended February 27, 1994) 10.6 First Amendment to the Credit Agreement among the Company, bed 'n bath Stores, Inc., BBBL, Inc., BBBY Management Corporation, Chemical Bank New Jersey, N.A., Chemical Bank and Chemical Bank New Jersey, N.A. as Agent, dated October 1, 1995 (incorporated by reference to Exhibit 10.9 to the Company's Form 10-K for the year ended March 1, 1997) 10.7 Second Amendment to the Credit Agreement among the Company, bed 'n bath Stores, Inc., BBBL, Inc., BBBY Management Corporation, Chemical Bank New Jersey, N.A., Chemical Bank and Chemical Bank New Jersey, N.A. as Agent, dated February 24, 1997 (incorporated by reference to Exhibit 10.11 to the Company's Form 10-K for the year ended March 1, 1997) 10.8 Third Amendment to the Credit Agreement among the Company, bed 'n bath Stores, Inc., BBBL, Inc., BBBY Management Corporation, and The Chase Manhattan Bank, dated September 11, 1997 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 29, 1997) 10.9 Fourth Amendment to the Credit Agreement among the Company, bed 'n bath Stores, Inc., BBBL, Inc., BBBY Management Corporation, and The Chase Manhattan Bank, dated September 19, 1997 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 29, 1997) 10.10* Employment Agreement between the Company and Warren Eisenberg, dated as of June 30, 1997 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 30, 1997) 10.11* Employment Agreement between the Company and Leonard Feinstein, dated as of June 30, 1997 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 30, 1997) 10.12* Stock Option Agreement between the Company and Warren Eisenberg, dated as of August 26, 1997 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 30, 1997)
19 20 10.13* Stock Option Agreement between the Company and Leonard Feinstein, dated as of August 26, 1997 (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 30, 1997) 10.14* Company's 1992 Stock Option Plan, as amended through August 26, 1997 (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 30, 1997) 10.15* Company's 1996 Stock Option Plan, as amended through August 26, 1997 (incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 30, 1997) 10.16* Employment Agreement between the Company and Steven H. Temares (dated as of December 1, 1994) (incorporated by reference to Exhibit 10.16 to the Company's Form 10-K for the year ended February 28, 1998) 10.17* Form of Employment Agreement between the Company and certain executives (including all of the executive officers of the Company other than the Co-Chief Executive Officers, the Chief Operating Officer and the Chief Financial Officer) (dated as of December 1, 1994) (incorporated by reference to Exhibit 10.17 to the Company's Form 10-K for the year ended February 28, 1998) 10.18* Bed Bath & Beyond Inc. 1998 Stock Option Plan (incorporated by reference to Exhibit 10 to the to the Company's Quarterly Report on Form 10-Q for the quarter ended May 30, 1998) 10.19 Fifth Amendment to the Credit Agreement among the Company, bed 'n bath Stores, Inc., BBBL, Inc., Bed Bath & Beyond of California Limited Liability Company, BBBY Management Corporation and The Chase Manhattan Bank, dated October 26, 1998 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 29, 1998) 10.20 Second Amended and Restated Revolving Credit Note among the Company, bed 'n bath Stores, Inc., BBBL, Inc., Bed Bath & Beyond of California Limited Liability Company, BBBY Management Corporation and The Chase Manhattan Bank, dated October 26, 1998 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 29, 1998) 10.21* Stock Option Agreement between the Company and Warren Eisenberg, dated as of August 13, 1999 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 27, 1999) 10.22* Stock Option Agreement between the Company and Leonard Feinstein, dated as of August 13, 1999 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 27, 1999)
20 21 10.23* Form of Standard Stock Option Agreement (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 27, 1999) 13** Company's 1999 Annual Report, certain portions of which have been incorporated by reference herein 21** Subsidiaries of the Company Commission File No. 33-1 23** Independent Auditors' Consent 27 Financial Data Schedule (Filed electronically with SEC only)
- ----------------------- * This is a management contract or compensatory plan or arrangement. ** Filed herewith. 21 EX-13 2 COMPANY'S 1999 ANNUAL REPORT 1 EXHIBIT 13
Fiscal Year Ended(1) -------------------------------------------------------------------------------------------------- (in thousands, except per share February 26, February 27, February 28, March 1, February 25, February 26, February 27, February 28, and selected operating data) 2000 1999 1998 1997 1996 1995 1994 1993 =================================================================================================================================== STATEMENT OF EARNINGS DATA: Net sales $1,877,966 $1,397,197 $1,066,612 $ 823,178 $ 601,252 $ 440,261 $ 305,767 $ 216,712 Gross profit 766,856 576,125 441,016 341,168 250,036 183,819 127,972 90,528 Operating profit 209,340 158,052 118,914 90,607 67,585 51,685 36,906 26,660 Net earnings 131,229 97,346 73,142 55,015 39,459 30,013 21,887 15,960 Net earnings per share - Diluted (2) $ .91 $ .68 $ .51 $ .39 $ .28 $ .22 $ .16 $ .12 SELECTED OPERATING DATA: Number of stores open (at period end) 241 186 141 108 80 61 45 38 Total square feet of store space (at period end) 9,815,000 7,688,000 5,767,000 4,347,000 3,214,000 2,339,000 1,512,000 1,128,000 Percentage increase in comparable store net sales 9.2% 7.6% 6.4% 6.1% 3.8% 12.0% 10.6% 7.2% BALANCE SHEET DATA (AT PERIOD END): Working capital (3) $ 360,585 $ 267,557 $ 188,293 $ 127,333 $ 91,331 $ 74,390 $ 56,001 $ 34,842 Total assets 865,800 633,148 458,330 329,925 235,810 176,678 121,468 76,654 Long - term debt - - - - 5,000 16,800 13,300 -- Shareholders' equity $ 559,045 $ 411,087 $ 295,397 $ 214,361 $ 151,446 $ 108,939 $ 77,305 $ 54,643
(1) Each fiscal year represents 52 weeks, except for fiscal 1996 which represents 52 weeks and 6 days. (2) Net earnings per share amounts have been adjusted for two-for-one stock splits of the Company's common stock (each of which was effected in the form of a 100% stock dividend), which were distributed in fiscal 1998, 1996 and 1993. The Company has not declared any cash dividends in any of the fiscal years noted above. (3) Certain reclassifications have been made to selected financial data from prior years to conform to the fiscal 1999 presentation. 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth for the periods indicated (i) selected statement of earnings data of the Company expressed as a percentage of net sales and (ii) the percentage change from the prior year in selected statement of earnings data:
FISCAL YEAR ENDED -------------------------------------------------------------------------- PERCENTAGE PERCENTAGE CHANGE OF NET SALES FROM PRIOR YEAR - ---------------------------------------------------------------------------------------------------------------------- FEBRUARY 26, FEBRUARY 27, FEBRUARY 28, FEBRUARY 26, FEBRUARY 27, 2000 1999 1998 2000 1999 - ---------------------------------------------------------------------------------------------------------------------- Net sales 100.0% 100.0% 100.0% 34.4% 31.0% Cost of sales, including buying, occupancy and indirect costs 59.2 58.8 58.7 35.3 31.2 Gross profit 40.8 41.2 41.3 33.1 30.6 Selling, general and administrative expenses 29.7 29.9 30.2 33.4 29.8 Operating profit 11.1 11.3 11.1 32.5 32.9 Earnings before provision for income taxes 11.5 11.6 11.4 33.2 33.1 Net earnings 7.0 7.0 6.9 34.8 33.1
3 FISCAL 1999 COMPARED WITH FISCAL 1998 In fiscal 1999, the Company expanded store space by 27.7%, from 7,688,000 square feet at fiscal year end 1998 to 9,815,000 square feet at fiscal year end 1999. The 2,127,000 square feet increase was the result of opening 55 new superstores and expanding four existing stores. Net sales in fiscal 1999 increased $480.8 million to $1.878 billion, representing an increase of 34.4% over the $1.397 billion net sales in fiscal 1998. Approximately 75% of the increase was attributable to new store net sales and the balance to an increase in comparable store net sales. Approximately 55% and 45% of net sales in fiscal 1999 were attributable to sales of domestics merchandise and home furnishings, respectively. The Company estimates that bed linens accounted for approximately 21% of net sales during fiscal 1999 and fiscal 1998. No other individual product category accounted for 10% or more of net sales during either fiscal year. Gross profit in fiscal 1999 was $766.9 million or 40.8% of net sales, compared with $576.1 million or 41.2% of net sales a year ago. The decrease in gross profit as a percentage of net sales was primarily attributable to a different mix of sales during fiscal 1999 compared to the mix of sales during the prior year, as well as a continued emphasis on providing value pricing to the customer. The percentage increase in comparable store net sales was 9.2% in fiscal 1999 compared with 7.6% in fiscal 1998. The increase in comparable store net sales relative to the prior year reflects a number of factors including the continued consumer acceptance of the Company's merchandise offerings, the continued emphasis on providing value pricing to the customer, a strong focus on customer service and the generally favorable retailing environment. Selling, general and administrative expenses ("SG&A") were $557.5 million or 29.7% of net sales in fiscal 1999 compared to $418.1 million or 29.9% of net sales in fiscal 1998. The decrease in SG&A as a percentage of net sales primarily reflects a relative decrease in payroll and payroll related items and a relative decrease in occupancy costs. Expenses associated with new or expanded stores are charged to earnings as incurred. The difference between the increase in earnings before provision for income taxes of 33.2% from fiscal 1998 to fiscal 1999 compared to the year to year increase in operating profit of 32.5% was attributable to interest income. 4 FISCAL 1998 COMPARED WITH FISCAL 1997 In fiscal 1998, the Company expanded store space by 33.3%, from 5,767,000 square feet at fiscal year end 1997 to 7,688,000 square feet at fiscal year end 1998. The 1,921,000 square feet increase was the result of opening 45 new superstores and expanding three existing stores. Net sales in fiscal 1998 increased $330.6 million to $1.397 billion, representing an increase of 31.0% over the $1.067 billion net sales in fiscal 1997. Approximately 77% of the increase was attributable to new store net sales and the balance to an increase in comparable store net sales. Approximately 55% and 45% of net sales in fiscal 1998 were attributable to sales of domestics merchandise and home furnishings, respectively. The Company estimates that bed linens accounted for approximately 21% of net sales during fiscal 1998 and fiscal 1997. No other individual product category accounted for 10% or more of net sales during either fiscal year. Gross profit in fiscal 1998 was $576.1 million or 41.2% of net sales, compared with $441.0 million or 41.3% of net sales in fiscal 1997. The decrease in gross profit as a percentage of net sales was primarily attributable to a different mix of sales during fiscal 1998 compared to the mix of sales during fiscal 1997 and an increase in coupons redeemed associated with the Company's marketing program. The percentage increase in comparable store net sales was 7.6% in fiscal 1998 compared with 6.4% in fiscal 1997. The increase in comparable store net sales relative to fiscal 1997 reflected a number of factors, including the continued consumer acceptance of the Company's merchandise offerings, a strong focus on customer service and the generally favorable retailing environment. SG&A was $418.1 million or 29.9% of net sales in fiscal 1998 compared to $322.1 million or 30.2% of net sales in fiscal 1997. The decrease in SG&A as a percentage of net sales primarily reflected a relative decrease in payroll and payroll related items, which were partially offset by an increase in occupancy costs. Expenses associated with new or expanded stores were charged to earnings as incurred. Operating profit was $158.1 million in fiscal 1998, an increase of $39.1 million or 32.9% from fiscal 1997, reflecting primarily the increase in net sales which was partially offset by increases in cost of sales and SG&A. The difference between the increase in earnings before provision for income taxes of 33.1% from fiscal 1997 to fiscal 1998 compared to the year to year increase in operating profit of 32.9% was attributable to interest income. 5 EXPANSION PROGRAM The Company is engaged in an ongoing expansion program involving the opening of new stores in both new and existing markets and the expansion or replacement of existing stores with larger stores. In the eight year period from the beginning of fiscal 1992 to the end of fiscal 1999, the chain has grown from 34 stores to 241 stores. Total square footage grew from 917,000 square feet at the beginning of fiscal 1992 to 9,815,000 square feet at the end of fiscal 1999. The Company intends to continue its expansion program and currently anticipates that in fiscal 2000 it will open at least 60 new stores (see details under "Liquidity and Capital Resources" below). The Company believes that a predominant portion of any increase in its net sales in fiscal 2000 will continue to be attributable to new store net sales. Accordingly, the continued growth of the Company is dependent, in large part, upon the Company's ability to execute its expansion program successfully, of which there can be no assurance. LIQUIDITY AND CAPITAL RESOURCES The Company has been able to finance both its normal operations and its expansion program principally through internally generated funds during the preceding five years. For the foreseeable future, the Company intends to retain all earnings for use in the operation and expansion of its business. The Company's merchandise inventory has grown from $270.4 million at the end of fiscal 1997, to $360.3 million at the end of fiscal 1998 and to $470.4 million at the end of fiscal 1999. The increases in inventory between the fiscal years were primarily attributable to the addition of new store space. The Company's working capital increased from $188.3 million at the end of fiscal 1997, to $267.6 million at the end of fiscal 1998, and to $360.6 million at the end of fiscal 1999. The increases between the fiscal years were primarily the result of increases in merchandise inventories and cash and cash equivalents, which were partially offset by increases in accounts payable and accrued expenses and other current liabilities. The Company's expansion program requires the Company to make capital expenditures for furniture and fixtures, leasehold improvements and computer equipment on an ongoing basis. The Company's total capital expenditures were $90.1 million, $62.3 million and $41.3 million during fiscal 1999, 1998 and 1997, respectively. 6 Under the Company's revolving Credit Agreement (the "Credit Agreement") concluded in November 1994, and as subsequently amended, the Company may borrow up to $45.0 million for loans and letters of credit. The Credit Agreement matures in October 2001. The Credit Agreement contains certain covenants which, among other things, place limitations on payment of dividends, capital expenditures and certain expenses. Additionally, there are restrictions on additional borrowings and a requirement that the Company maintain certain financial ratios. The Company does not believe that any of these covenants will materially affect its business or its expansion program as currently planned. The Company did not borrow under the Credit Agreement during fiscal 1999 or fiscal 1998. The Company believes that during fiscal 2000 internally generated funds will be sufficient to fund both its normal operations and its expansion program. As of March 24, 2000, the Company has leased sites for 50 new superstores planned for opening in fiscal 2000, including two new stores already opened in Montgomeryville, Pennsylvania and Providence, Rhode Island. Approximate aggregate costs for the 50 leased stores are estimated at $83.1 million for merchandise inventories, $48.6 million for furniture and fixtures and leasehold improvements and $14.1 million for preopening expenses (which will be expensed as incurred). In addition to the 50 locations already leased, the Company expects to open at least ten additional locations during fiscal 2000. The costs that the Company is expected to incur in connection with the anticipated opening of other superstores for which sites have not yet been leased cannot presently be determined. 7 FORWARD LOOKING STATEMENTS This Annual Report and, in particular, Management's Discussion and Analysis of Financial Condition and Results of Operations, contain forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The Company's actual results of operations and future financial condition may differ materially from those expressed in any such forward looking statements as a result of many factors that may be beyond the Company's control. Such factors include, without limitation: general economic conditions, changes in the retailing environment and consumer spending habits, demographics and other macroeconomic factors that may impact the level of spending for the types of merchandise sold by the Company; unusual weather patterns; competition from existing and potential competitors; competition from other channels of distribution; pricing pressures; the ability to find suitable locations at reasonable occupancy costs to support the Company's expansion program; the availability of trained qualified management personnel to support the Company's growth; and the cost of labor, merchandise and other costs and expenses. SEASONALITY The Company's business exhibits less seasonality than many other retail businesses, although sales levels are generally higher in August, November and December, and generally lower in February and March. 8 CONSOLIDATED BALANCE SHEETS BED BATH & BEYOND INC. AND SUBSIDIARIES (in thousands, except per share data)
FEBRUARY 26, FEBRUARY 27, 2000 1999 ---- ---- ASSETS Current assets: Cash and cash equivalents $144,031 $ 90,396 Merchandise inventories 470,433 360,337 Prepaid expenses and other current assets 32,904 22,529 -------- -------- Total current assets 647,368 473,262 -------- -------- Property and equipment, net 208,911 150,438 Other assets 9,521 9,448 -------- -------- $865,800 $633,148 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $145,114 $ 99,370 Accrued expenses and other current liabilities 108,079 89,725 Income taxes payable 33,590 16,610 -------- -------- Total current liabilities 286,783 205,705 -------- -------- Deferred rent 19,972 16,356 -------- -------- Total liabilities 306,755 222,061 -------- -------- Commitments and contingencies (notes 3, 6 and 8) Shareholders' equity: Preferred stock - $0.01 par value; authorized - 1,000 shares; no shares issued or outstanding --- --- Common stock - $0.01 par value; authorized - 350,000 shares; issued and outstanding - February 26, 2000, 140,406 shares and February 27, 1999, 139,418 shares 1,404 1,394 Additional paid-in capital 96,398 79,679 Retained earnings 461,243 330,014 -------- -------- Total shareholders' equity 559,045 411,087 -------- -------- $865,800 $633,148 ======== ========
See accompanying Notes to Consolidated Financial Statements. 9 CONSOLIDATED STATEMENTS OF EARNINGS BED BATH & BEYOND INC. AND SUBSIDIARIES (in thousands, except per share data)
FISCAL YEAR ENDED ---------------------------------------------------- FEBRUARY 26, FEBRUARY 27, FEBRUARY 28, 2000 1999 1998 ---- ---- ---- Net sales $1,877,966 $1,397,197 $1,066,612 Cost of sales, including buying, occupancy and indirect costs 1,111,110 821,072 625,596 ---------- ---------- ---------- Gross profit 766,856 576,125 441,016 Selling, general and administrative expenses 557,516 418,073 322,102 ---------- ---------- ---------- Operating profit 209,340 158,052 118,914 Interest income 5,790 3,517 2,484 ---------- ---------- ---------- Earnings before provision for income taxes 215,130 161,569 121,398 Provision for income taxes 83,901 64,223 48,256 ---------- ---------- ---------- Net earnings $ 131,229 $ 97,346 $ 73,142 ========== ========== ========== Net earnings per share - Basic $ .94 $ .70 $ .53 Net earnings per share - Diluted $ .91 $ .68 $ .51 Weighted average shares outstanding - Basic 139,965 138,842 137,665 Weighted average shares outstanding - Diluted 144,117 143,236 142,362
See accompanying Notes to Consolidated Financial Statements. 10 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY BED BATH & BEYOND INC. AND SUBSIDIARIES
COMMON STOCK ADDITIONAL ------------------------- PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS TOTAL ------ ------ ------- -------- ----- (in thousands) Balance at March 1, 1997 137,206 $ 1,372 $ 53,463 $159,526 $214,361 Net earnings 73,142 73,142 Shares sold under employee stock option plans 882 9 7,885 7,894 ------------------------------------------------------------------------------- Balance at February 28, 1998 138,088 1,381 61,348 232,668 295,397 Net earnings 97,346 97,346 Shares sold under employee stock option plans 1,330 13 18,331 18,344 ------------------------------------------------------------------------------- Balance at February 27, 1999 139,418 1,394 79,679 330,014 411,087 Net earnings 131,229 131,229 Shares sold under employee stock option plans 988 10 16,719 16,729 ------------------------------------------------------------------------------- BALANCE AT FEBRUARY 26, 2000 140,406 $ 1,404 $ 96,398 $461,243 $559,045
See accompanying Notes to Consolidated Financial Statements. 11 CONSOLIDATED STATEMENTS OF CASH FLOWS BED BATH & BEYOND INC. AND SUBSIDIARIES
FISCAL YEAR ENDED ---------------------------------------------------- (in thousands) FEBRUARY 26, FEBRUARY 27, FEBRUARY 28, 2000 1999 1998 ---- ---- ---- Cash Flows from Operating Activities: Net earnings $ 131,229 $ 97,346 $ 73,142 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 31,625 23,217 18,238 Tax benefit from exercise of stock options 8,932 11,546 4,438 Deferred income taxes (8,197) (5,166) (6,345) (Increase) decrease in assets: Merchandise inventories (110,096) (89,980) (83,172) Prepaid expenses and other current assets (2,347) (2,223) (718) Other assets 96 (1,276) (606) Increase in liabilities: Accounts payable 45,744 34,652 16,897 Accrued expenses and other current liabilities 18,354 16,115 25,687 Income taxes payable 16,980 4,595 1,883 Deferred rent 3,616 3,766 2,902 --------- --------- --------- Net cash provided by operating activities 135,936 92,592 52,346 --------- --------- --------- Cash Flows from Investing Activities: Capital expenditures (90,098) (62,274) (41,287) --------- --------- --------- Net cash used in investing activities (90,098) (62,274) (41,287) --------- --------- --------- Cash Flows from Financing Activities: Proceeds from exercise of stock options 7,797 6,798 3,456 --------- --------- --------- Net cash provided by financing activities 7,797 6,798 3,456 --------- --------- --------- Net increase in cash and cash equivalents 53,635 37,116 14,515 Cash and cash equivalents: Beginning of period 90,396 53,280 38,765 --------- --------- --------- End of period $ 144,031 $ 90,396 $ 53,280 ========= ========= =========
See accompanying Notes to Consolidated Financial Statements. 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS A. Nature of Operations Bed Bath & Beyond Inc. (the "Company") is a nationwide chain of "superstores" selling predominantly better quality domestics merchandise and home furnishings. As the Company operates in the retail industry, its results of operations are affected by general economic conditions and consumer spending habits. B. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All significant intercompany balances and transactions have been eliminated in consolidation. C. Fiscal Year The Company's fiscal year is comprised of the 52 or 53 week period ending on the Saturday nearest February 28. Accordingly, fiscal 1999, 1998 and 1997 represented 52 weeks and ended on February 26, 2000, February 27, 1999 and February 28, 1998, respectively. D. Earnings Per Share and Stock-Based Compensation The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", which requires a dual presentation of earnings per share - basic and diluted. Basic earnings per share has been computed by dividing net earnings by the weighted average number of shares outstanding. Diluted earnings per share has been computed by dividing net earnings by the weighted average number of shares outstanding including the dilutive effect of stock options. The Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation". As permitted under SFAS No. 123, the Company has elected not to adopt the fair value based method of accounting for its stock-based compensation plans, but will continue to apply the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). The Company has complied with the disclosure requirements of SFAS No. 123. E. Cash and Cash Equivalents The Company considers all highly liquid instruments purchased with maturities of three months or less to be cash equivalents. 13 F. Merchandise Inventories Merchandise inventories are stated at the lower of cost or market, determined by means of the retail inventory method of accounting. G. Property and Equipment Property and equipment are stated at cost. Depreciation is computed primarily using the straight-line method over the estimated useful lives of the assets (three to ten years for furniture, fixtures and equipment and three to five years for computer equipment). Leasehold improvements are amortized using the straight-line method over the lesser of their estimated useful life or the life of the lease. The cost of maintenance and repairs is charged to earnings as incurred; significant renewals and betterments are capitalized. Maintenance and repairs amounted to $24.2 million, $17.3 million and $12.2 million for fiscal 1999, 1998 and 1997, respectively. H. Deferred Rent The Company accounts for scheduled rent increases contained in its leases on a straight-line basis over the noncancelable lease term. I. Shareholders' Equity In June 1998, the Board of Directors of the Company approved a two-for-one split of the Company's common stock effected in the form of a 100% stock dividend. The stock dividend was distributed on July 31, 1998 to shareholders of record on July 10, 1998. Unless otherwise stated, all references to common shares outstanding and net earnings per share in the consolidated financial statements are on a post-split basis. J. Revenue Recognition The Company recognizes revenue at the time of sale of merchandise to its customers. K. Preopening Expenses Expenses associated with new or expanded stores are charged to earnings as incurred. L. Advertising Costs Expenses associated with store advertising are charged to earnings as incurred. 14 M. Income Taxes The Company files a consolidated Federal income tax return. Separate state income tax returns are filed with each state in which the Company conducts business. The Company accounts for its income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. N. Fair Value of Financial Instruments The Company's financial instruments include cash and cash equivalents, accounts payable and accrued expenses and other current liabilities. The book value of cash and cash equivalents, accounts payable and accrued expenses and other current liabilities are representative of their fair values due to the short-term maturity of these instruments. O. Impairment of Long-Lived Assets The Company periodically reviews the carrying value of its long-lived assets for impairment. When changes in circumstances warrant measurement, impairment losses for store fixed assets are calculated by comparing the present value of projected individual store cash flows over the lease terms to the asset carrying values. The Company does not believe that any material impairment currently exists related to its long-lived assets. P. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Q. Reclassifications Certain reclassifications have been made to the fiscal 1998 and 1997 consolidated financial statements to conform to the fiscal 1999 consolidated financial statement presentation. 15 2. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
FEBRUARY 26, FEBRUARY 27, (in thousands) 2000 1999 ---- ---- Furniture, fixtures and equipment $ 162,061 $ 119,754 Leasehold improvements 114,549 84,467 Computer equipment 44,143 26,434 ---------- ---------- 320,753 230,655 Less: Accumulated depreciation and amortization (111,842) (80,217) ----------- ------------ $ 208,911 $ 150,438 ========= =========
3. CREDIT AGREEMENT Under the Company's revolving Credit Agreement (the "Credit Agreement") concluded in November 1994, and as subsequently amended, the Company may borrow up to $45.0 million for loans and letters of credit. The Credit Agreement matures in October 2001. Interest on all borrowing is determined based upon several alternative rates as stipulated in the Credit Agreement. The Credit Agreement contains certain covenants which, among other things, place limitations on payment of dividends, capital expenditures and certain expenses. Additionally, there are restrictions on additional borrowings and a requirement that the Company maintain certain financial ratios. The Company does not believe that any of these covenants have materially affected its business. Under the terms of these covenants, approximately $65.6 million was available for the payment of dividends at February 26, 2000. The Company did not borrow under the Credit Agreement during fiscal 1999 or fiscal 1998. As of February 26, 2000 and February 27, 1999, there were approximately $5.3 million and $1.7 million in outstanding letters of credit, respectively. 16 4. PROVISION FOR INCOME TAXES The components of the provision for income taxes are as follows:
FISCAL YEARS ----------------------------------- (in thousands) 1999 1998 1997 ---- ---- ---- Current: Federal $ 82,652 $ 61,098 $ 44,981 State and local 9,446 8,291 9,620 -------- -------- -------- 92,098 69,389 54,601 -------- -------- -------- Deferred: Federal (7,356) (4,549) (5,587) State and local (841) (617) (758) -------- -------- -------- (8,197) (5,166) (6,345) -------- -------- -------- $ 83,901 $ 64,223 $ 48,256 ======== ======== ========
Included in prepaid expenses and other current assets and in other assets are deferred income taxes which reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company's deferred tax assets consist of the following:
FEBRUARY 26, FEBRUARY 27, (in thousands) 2000 1999 ---- ---- Deferred rent $ 7,789 $ 6,502 Inventories 11,332 7,489 Other, net 10,177 7,110 ------ ----- $ 29,298 $ 21,101 ======== ========
For fiscal 1999, the effective tax rate is comprised of the Federal statutory income tax rate of 35.00% and the State income tax rate, net of Federal benefit, of 4.00%. For fiscal 1998 and 1997, the effective tax rate is comprised of the Federal statutory income tax rate of 35.00% and the State income tax rate, net of Federal benefit, of 4.75%. 17 5. TRANSACTIONS AND BALANCES WITH RELATED PARTIES A. The Company has an interest in certain life insurance policies on the lives of its Co-Chairmen. The beneficiaries of these policies are related to the aforementioned individuals. The Company's interest in these policies is equivalent to the net premiums paid by the Company. At February 26, 2000 and February 27, 1999, other assets include $4.0 million and $3.4 million, respectively, representing the Company's interest in the life insurance policies. B. The Company obtains certain payroll services from a related party. The Company paid fees for such services of $557,000, $424,000 and $308,000 for fiscal years 1999, 1998 and 1997, respectively. C. The Company made charitable contributions to the Mitzi and Warren Eisenberg Family Foundation, Inc. (the "Eisenberg Foundation") and the Feinstein Family Foundation, Inc. (the "Feinstein Foundation") in the aggregate amounts of $488,000, $390,000 and $300,000 for fiscal 1999, 1998 and 1997, respectively. The Eisenberg Foundation and the Feinstein Foundation are each not-for-profit corporations of which Messrs. Eisenberg and Feinstein, the Co-Chairmen of the Company, and their family members are the trustees and officers. 6. LEASES The Company leases retail stores, as well as warehouses, office facilities and equipment, under agreements expiring at various dates through 2021. Certain leases provide for contingent rents (which are based upon store sales exceeding stipulated amounts and are immaterial in fiscal 1999, 1998 and 1997), scheduled rent increases and renewal options generally ranging from five to fifteen years. The Company is obligated under a majority of the leases to pay for taxes, insurance and common area maintenance charges. As of February 26, 2000, future minimum lease payments under noncancelable operating leases are as follows:
FISCAL YEAR (in thousands) AMOUNTS ----------- ------- 2000 131,339 2001 135,785 2002 134,717 2003 131,887 2004 127,657 Thereafter 835,310 ---------- Total minimum lease payments $1,496,695 ==========
As of March 24, 2000, the Company had executed leases for 50 stores planned for opening in fiscal 2000. Expenses for all operating leases were $113.3 million, $89.5 million and $70.2 million for fiscal 1999, 1998 and 1997, respectively. 18 7. EMPLOYEE BENEFIT PLAN The Company has a defined contribution 401(k) savings plan (the "Plan") covering all eligible employees. Participants may defer between 1% and 15% of annual pre-tax compensation subject to statutory limitations. The Company has an option to contribute an amount as determined by the Board of Directors. In addition, each participant may elect to make voluntary, non-tax deductible contributions in excess of the pre-tax compensation limit up to 15% of compensation. As of February 26, 2000, the Company has made no contributions to the Plan. 8. COMMITMENTS AND CONTINGENCIES Under terms of employment agreements with its Co-Chairmen extending through June 2002, the Company is required to pay each a base salary (which may be increased by the Board of Directors) of $750,000 per annum. The agreements also provide for other terms and conditions of employment, including termination payments. The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. 9. SUPPLEMENTAL CASH FLOW INFORMATION The Company paid income taxes of $67.2 million, $53.5 million and $48.5 million in fiscal 1999, 1998, and 1997, respectively. 19 10. STOCK OPTION PLANS Under its 1998 Stock Option Plan, its 1996 Stock Option Plan and its Amended 1992 Stock Option Plan, (the "Stock Option Plans"), the Company may grant options to purchase not more than an aggregate of 6.0 million, 4.0 million and 11.2 million shares of common stock, respectively, subject to adjustment under certain circumstances. The options under the Stock Option Plans may be either non-qualified or incentive stock options within the meaning of the Internal Revenue Code of 1986. Options have been granted at market value and are exercisable in five equal annual installments beginning one to three years after the date of grant and expire ten years from the date of grant. The following table summarizes stock option transactions:
NUMBER OF WEIGHTED-AVERAGE SHARES EXERCISE PRICE ------ -------------- Outstanding at March 1, 1997 7,496,080 $ 5.93 Options granted 4,349,800 14.71 Options exercised (881,902) 3.91 Options canceled (359,080) 8.73 ----------- Outstanding at February 28, 1998 10,604,898 9.61 Options granted 2,770,200 23.54 Options exercised (1,330,149) 5.10 Options canceled (308,680) 12.20 ------------ Outstanding at February 27, 1999 11,736,269 13.34 Options granted 2,766,950 30.97 Options exercised (987,687) 7.88 Options canceled (403,532) 19.34 ------------ OUTSTANDING AT FEBRUARY 26, 2000 13,112,000 $17.29 ========== ====== Options exercisable: At February 28, 1998 2,211,538 $ 4.64 At February 27, 1999 2,538,809 $ 7.67 AT FEBRUARY 26, 2000 3,620,090 $ 9.61
20 The stock option committees appointed pursuant to the Stock Option Plans determine the number of shares and the option price per share for all options issued under the Stock Option Plans. The following tables summarize information pertaining to stock options outstanding and exercisable at February 26, 2000:
OPTIONS OUTSTANDING --------------------------------------------------------------------------------- WEIGHTED-AVERAGE RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE --------------------------------------------------------------------------------- $ 2.13 to 4.73 2,008,270 4.09 $ 4.20 5.67 to 12.23 1,996,267 5.62 8.74 12.38 to 16.22 3,642,933 7.36 14.61 16.73 to 23.66 2,521,280 8.24 22.87 23.87 to 37.50 2,943,250 9.32 30.44 --------- $ 2.13 TO 37.50 13,112,000 7.21 $ 17.29 ==========
OPTIONS EXERCISABLE --------------------------------------------------------------------------------- RANGE OF NUMBER WEIGHTED-AVERAGE EXERCISE PRICES EXERCISABLE EXERCISE PRICE --------------------------------------------------------------------------------- $ 2.13 to 4.73 1,212,050 $ 3.96 5.67 to 12.23 1,104,427 7.57 12.38 to 16.22 1,046,973 15.27 16.73 to 23.66 214,200 21.16 23.87 to 37.50 42,440 26.03 --------- $ 2.13 TO 37.50 3,620,090 $ 9.61 =========
The Company applies APB No. 25 and related interpretations in accounting for its Stock Option Plans. Accordingly, no compensation cost has been recognized in connection with the Stock Options Plans. Set forth below are the Company's net earnings and net earnings per share "as reported", and as if compensation cost had been recognized in accordance with the fair value provisions of SFAS No. 123:
FISCAL YEARS --------------------------------------------------- (in thousands, except per share data) 1999 1998 1997 ----------- ---------- ---------- NET EARNINGS: As reported $ 131,229 $ 97,346 $ 73,142 Pro forma $ 119,158 $ 89,519 $ 69,257 NET EARNINGS PER SHARE: Basic: As reported $ 0.94 $ 0.70 $ 0.53 Pro forma $ 0.85 $ 0.64 $ 0.50 Diluted: As reported $ 0.91 $ 0.68 $ 0.51 Pro forma $ 0.83 $ 0.62 $ 0.49
21 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants for fiscal 1999, 1998 and 1997, respectively: dividend yield of 0% for all years; expected volatility of 42% for all years; risk free interest rates of 5.95%, 5.58% and 6.36%; and expected lives of seven years for 1999 and six years for 1998 and 1997. The weighted-average fair value of options granted during the year is $16.67, $12.12 and $7.58 for fiscal 1999, 1998 and 1997, respectively. 11. SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
FISCAL 1999 QUARTER ENDED ------------------------- MAY 29, AUGUST 28, NOVEMBER 27, FEBRUARY 26, (in thousands, except per share data) 1999 1999 1999 2000 ---- ---- ---- ---- Net sales $359,372 $457,586 $486,457 $574,551 Gross profit 146,214 185,570 196,784 238,288 Operating profit 28,015 53,580 50,607 77,138 Earnings before provision for income taxes 29,317 54,503 51,978 79,332 Provision for income taxes 11,434 21,256 20,271 30,940 Net earnings $ 17,883 $ 33,247 $ 31,707 $ 48,392 EPS - Basic (1) $ .13 $ .24 $ .23 $ .34 EPS - Diluted (1) $ .12 $ .23 $ .22 $ .34
FISCAL 1998 QUARTER ENDED ------------------------- MAY 30, AUGUST 29, NOVEMBER 28, FEBRUARY 27, (in thousands, except per share data) 1998 1998 1998 1999 ---- ---- ---- ---- Net sales $269,571 $344,946 $363,431 $419,249 Gross profit 110,179 141,943 148,473 175,530 Operating profit 20,744 41,760 40,154 55,394 Earnings before provision for income taxes 21,561 42,331 40,915 56,762 Provision for income taxes 8,750 16,827 16,264 22,562 Net earnings $ 12,991 $ 25,504 $ 24,651 $ 34,200 EPS - Basic (1) $ .09 $ .18 $ .18 $ .25 EPS - Diluted (1) $ .09 $ .18 $ .17 $ .24
(1) Net earnings per share ("EPS") amounts for each quarter are required to be computed independently and may not equal the amount computed for the total year. 22 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Bed Bath & Beyond Inc.: We have audited the accompanying consolidated balance sheets of Bed Bath & Beyond Inc. and subsidiaries as of February 26, 2000 and February 27, 1999, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the fiscal years in the three-year period ended February 26, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bed Bath & Beyond Inc. and subsidiaries as of February 26, 2000 and February 27, 1999, and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended February 26, 2000 in conformity with generally accepted accounting principles. /s/ KPMG LLP New York, New York March 24, 2000 23 DIRECTORS AND OFFICERS DIRECTORS Warren Eisenberg Co-Chairman and Co-Chief Executive Officer of Bed Bath & Beyond Inc. Leonard Feinstein Co-Chairman and Co-Chief Executive Officer of Bed Bath & Beyond Inc. Steven H. Temares President and Chief Operating Officer of Bed Bath & Beyond Inc. Klaus Eppler Partner, Proskauer Rose LLP, New York, New York Robert S. Kaplan Managing Director, Goldman, Sachs & Co., New York, New York Robert J. Swartz Vice President, Alco Capital Group, Inc., New York, New York OFFICERS Warren Eisenberg Co-Chairman and Co-Chief Executive Officer Leonard Feinstein Co-Chairman and Co-Chief Executive Officer Steven H. Temares President and Chief Operating Officer Ronald Curwin Chief Financial Officer and Treasurer Arthur Stark Chief Merchandising Officer and Senior Vice President Matthew Fiorilli Senior Vice President - Stores Jane F. Gilmartin Vice President and General Merchandising Manager Lief Todd Johnson Vice President and General Merchandising Manager P. Timothy Brewster Vice President of Stores - N.Y.C. Region Martin Eisenberg Vice President of Stores - Northeast Region Edward Kopil Vice President of Stores - Southern Region Martin Lynch Vice President of Stores - Midwest and Western Region William Onksen Vice President of Stores - MidAtlantic Region Eugene A. Castagna Vice President - Controller Michael Honeyman Vice President - Corporate Administration and Operations Philip Kornbluh Vice President - Visual Merchandising Richard C. McMahon Vice President and Chief Information Officer Stephen J. Murray Vice President - Information Technology Christine R. Pirog Vice President - Store Operations 24 Allan N. Rauch Vice President - Legal and General Counsel Jonathan Rothstein Vice President - Product Development G. William Waltzinger, Jr. Vice President - E-Service 25 CORPORATE DATA Corporate Office Bed Bath & Beyond Inc. 650 Liberty Avenue Union, New Jersey 07083 Telephone: 908/688-0888 Shareholder Information The Company's 1999 Annual Report on Form 10-K (excluding exhibits) may be obtained, without charge, by writing to the Investor Relations Department at the Corporate Office, or by fax (908/810-8813). Stock Listing The Common Stock of Bed Bath & Beyond Inc. trades on the NASDAQ National Market under the symbol BBBY. Stock Activity The following table sets forth by fiscal quarter the high and low reported sales prices of the Company's Common Stock on the NASDAQ National Market during fiscal 1998 and fiscal 1999:
- ------------------------------------------------- QUARTER HIGH LOW Fiscal 1998 First $ 27 3/4 $ 20 Second 28 31/32 18 1/4 Third 32 3/16 17 1/8 Fourth 35 3/16 27 1/2 Fiscal 1999 First $ 39 3/8 $ 29 1/8 Second 38 15/16 25 1/2 Third 37 27 3/8 Fourth 36 22 7/16
At March 24, 2000, there were approximately 650 shareholders of record. This number excludes individual shareholders holding stock under nominee security position listings. Transfer Agent The Transfer Agent should be contacted on questions of change of address, name or ownership, lost certificates and consolidation of accounts. American Stock Transfer & Trust Company 40 Wall Street, 46th Floor New York, New York 10005 Telephone: 800/937-5449 26 Independent Auditors KPMG LLP 345 Park Avenue New York, New York 10154 Annual Meeting The Annual Meeting of Shareholders will be held at 9:00 a.m. Thursday, June 29, 2000, at the Headquarters Plaza Hotel, Three Headquarters Plaza, Morristown, New Jersey. EX-21 3 SUBSIDIARIES OF THE COMPANIES 1 Exhibit 21 SUBSIDIARIES OF BED BATH & BEYOND INC. The following are all of the subsidiaries of Bed Bath & Beyond Inc. other than: (i) 100% owned subsidiaries of Bed n Bath Stores, Inc., which subsidiaries hold no assets other than a single store lease and, in some cases, fully depreciated fixed assets; and (ii) subsidiaries which in the aggregate would not constitute a significant subsidiary.
NAME STATE BBBL, Inc. Delaware BBBY Management Corp. New Jersey Bed n Bath Stores, Inc. New Jersey Bed Bath & Beyond of California Limited Liability Company Delaware
EX-23 4 INDEPENDENT AUDITORS CONSENT 1 Exhibit 23 INDEPENDENT AUDITORS' CONSENT The Board of Directors and Shareholders Bed Bath & Beyond Inc.: We consent to incorporation by reference in the registration statements (No. 33-63902, 33-87602, 333-18011 and 333-75883) on Forms S-8 of Bed Bath & Beyond Inc. of our reports dated March 24, 2000, relating to the consolidated balance sheets of Bed Bath & Beyond Inc. and subsidiaries as of February 26, 2000 and February 27, 1999, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the fiscal years in the three-year period ended February 26, 2000 and the related schedule, which reports appear or are incorporated by reference in the February 26, 2000 annual report on Form 10-K of Bed Bath & Beyond Inc. /S/ KPMG LLP New York, New York May 25, 2000 EX-27 5 FINANCIAL DATA SCHEDULE
5 12-MOS FEB-26-2000 FEB-27-1999 FEB-26-2000 144,031 0 0 0 470,433 647,368 320,753 111,842 865,800 286,783 0 0 0 1,404 557,641 865,800 1,877,966 1,877,966 1,111,110 1,111,110 557,516 0 (5,790) 215,130 83,901 131,229 0 0 0 131,229 0.94 0.91
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