UNITED STATES
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 25, 2012
Commission File Number 0-20214
BED BATH & BEYOND INC.
(Exact name of registrant as specified in its charter)
New York |
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11-2250488 |
(State of incorporation) |
|
(IRS Employer Identification No.) |
650 Liberty Avenue, Union, New Jersey 07083
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: 908/688-0888
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Name of each exchange on which registered |
Common stock, $.01 par value |
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The NASDAQ Stock Market LLC |
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(NASDAQ Global Select Market) |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
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 registrants 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. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer x |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o Nox
As of August 27, 2011, 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 $12,750,872,956.*
The number of shares outstanding of the registrants common stock (par value $0.01 per share) at March 24, 2012: 233,773,500.
Documents Incorporated by Reference
Portions of the Registrants definitive proxy statement for the 2012 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A are incorporated by reference in Part III hereof.
* For purposes of this calculation, all outstanding shares of common stock have been considered held by non-affiliates other than the 12,388,011 shares beneficially owned by directors and executive officers, including in the case of the Co-Chairmen 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.
Unless otherwise indicated, the term Company refers collectively to Bed Bath & Beyond Inc. and subsidiaries as of February 25, 2012. The Companys fiscal year is comprised of the 52 or 53 week period ending on the Saturday nearest February 28. Accordingly, fiscal 2011, 2010 and 2009 represented 52 weeks and ended on February 25, 2012, February 26, 2011 and February 27, 2010, respectively. Unless otherwise indicated, all references herein to periods of time (e.g., quarters and years) are to fiscal periods.
Introduction
Bed Bath & Beyond Inc. and subsidiaries (the Company) is a chain of retail stores, operating under the names Bed Bath & Beyond (BBB), Christmas Tree Shops (CTS), Harmon and Harmon Face Values (Harmon) and buybuy BABY. In addition, the Company is a partner in a joint venture which operates two stores in the Mexico City market under the name Home & More. The Company sells a wide assortment of domestics merchandise and home furnishings. Domestics merchandise includes categories such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings, consumables and certain juvenile products. The Company offers a breadth and depth of selection in most of its product categories that exceeds what is generally available in department stores or other specialty retail stores.
History
The Company was founded in 1971 by Leonard Feinstein and Warren Eisenberg, the Co-Chairmen of the Company. Each has more than 50 years of experience in the retail industry.
The Company commenced operations in 1971 with the opening of two stores, which primarily sold bed linens and bath accessories. In 1985, the Company introduced 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 stores and to distinguish its stores from conventional specialty retail stores offering only domestics merchandise or home furnishings. In March 2002, the Company acquired Harmon, a health and beauty care retailer, which operated 27 stores at the time located in Connecticut, New Jersey and New York. In June 2003, the Company acquired CTS, a retailer of giftware and household items, which operated 23 stores at the time located in Connecticut, Maine, Massachusetts, New Hampshire, New York and Rhode Island. In March 2007, the Company acquired buybuy BABY, a retailer of infant and toddler merchandise, which operated 8 stores at the time located in Maryland, New Jersey, New York and Virginia. In December 2007, the Company opened its first international BBB store in Ontario, Canada. In May 2008, the Company became a partner in a joint venture which operates two stores in the Mexico City market under the name Home & More.
Total net sales of the Company were $9.500 billion, $8.759 billion and $7.829 billion for fiscal 2011, 2010 and 2009, respectively. Net sales outside of the U.S. were not material for fiscal 2011, 2010 and 2009. Refer to Part II, Item 7 and Item 8 of this Form 10-K for additional financial information.
Operations
It is the Companys goal to offer quality merchandise at everyday low prices; to maintain a wide assortment of merchandise; 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.
Pricing. The Company believes in maintaining everyday low prices. The Company regularly monitors price levels at its competitors in order to ensure that its prices are in accordance with its pricing philosophy. The Company believes that the application of its everyday low price philosophy is an important factor in establishing its reputation among customers.
Merchandise Assortment. The Company sells a wide assortment of domestics merchandise and home furnishings. Domestics merchandise includes categories such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings, consumables and certain juvenile products. The Company encourages local store personnel to tailor the merchandise mix as appropriate to respond to changing trends and conditions. The factors taken into account in selecting the merchandise mix for a particular store include store size, configuration and local market conditions, such as climate and demographics. 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. Additionally, the Company continues to integrate the merchandise assortments within its concepts. The Company believes that the process of adding new departments, integrating the Companys merchandise within concepts, and expanding or reducing the size of various departments in response to changing conditions is an important part of its merchandising strategy.
Merchandise Presentation. The Company has developed a distinctive style of merchandise presentation. Primarily all of the Companys stores have groups of related product lines presented together in separate areas of each store, creating the appearance that the store is comprised of several individual specialty stores for different product lines. The Company believes that this format of merchandise presentation makes it easy for customers to locate products, reinforces customer perception of wide selection and communicates to customers that its stores offer a level of customer service generally associated with smaller specialty stores.
The Company believes that its extensive merchandise selection, rather than fixturing, should be the focus of customer attention and, accordingly, primarily uses simple modular fixturing throughout its stores. This fixturing is primarily designed so that it can be easily reconfigured to adapt to changes in the stores merchandise mix and presentation. The Company believes that its merchandise displays create an exciting and attractive shopping environment that encourages impulse purchases of additional items.
Advertising. In general, the Company relies on word of mouth advertising, its reputation for offering a wide assortment of quality merchandise at everyday low prices and the use of paid advertising. Primary vehicles of paid advertising used by the Company include full-color circulars and other advertising pieces distributed via direct mail or inserts, as well as digital media including email, mobile, social and search advertising. Also, to support the opening of new stores, the Company primarily uses grand opening newspaper advertising and email.
Customer Service. The Company places a strong focus on customer service and seeks to make shopping at its stores as pleasant and convenient as possible. Most stores are open seven days and six evenings a week in order to enable customers to shop at times that are convenient for them. In addition, the Companys websites, www.bedbathandbeyond.com, www.christmastreeshops.com, www.harmondiscount.com, www.facevalues.com, www.buybuybaby.com and www.bedbathandbeyond.ca as well as the Companys facebook pages are available for customers to access 24 hours a day, seven days a week.
Suppliers
In fiscal 2011, the Company purchased its merchandise from approximately 5,600 suppliers with the Companys largest supplier accounting for approximately 8% of the Companys merchandise purchases and the Companys 10 largest suppliers accounting for approximately 22% of such purchases. The Company purchases substantially all of its merchandise in the United States, the majority from domestic sources 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
The Companys merchandise displays allow a substantial amount of merchandise to be displayed on the sales floor at all times. Merchandise not displayed on the sales floor is typically stored in warehouse space within the store. In addition, the Company maintains 12 supplemental storage locations as well as three central distribution centers. The majority of the Companys merchandise is directly shipped to stores from vendors through third party carriers and service providers; the remainder of the Companys merchandise is shipped to stores through its distribution centers.
In addition, the Company maintains two E-Service fulfillment centers.
Employees
As of February 25, 2012, the Company employed approximately 48,000 persons in full-time and part-time positions. The Company believes that its relations with its employees are very good and that the labor turnover rate among its management employees is lower than that generally experienced within the industry.
Seasonality
The Companys sales exhibit seasonality with sales levels generally higher in the calendar months of August, November and December, and generally lower in February.
Expansion Program
The Company is engaged in an ongoing expansion program involving the opening of new stores in both new and existing markets, the expansion or relocation of existing stores and the continuous review of strategic acquisitions. In the 20 year period from the beginning of fiscal 1992 to the end of fiscal 2011, the Company has grown from 34 stores to 1,173 stores. The Companys 1,173 stores operate in 50 states, the District of Columbia, Puerto Rico and Canada, including: 993 BBB stores operating in 50 states, the District of Columbia, Puerto Rico and Canada; 71 CTS stores operating in 20 states; 45 Harmon stores operating in four states; and 64 buybuy BABY stores operating in 26 states. Total square footage grew from approximately 0.9 million square feet at the beginning of fiscal 1992 to approximately 36.1 million square feet at the end of fiscal 2011. During fiscal 2011, the Company opened a total of 38 new stores, including 13 BBB stores throughout the United States and Canada and five CTS stores, one Harmon store and 19 buybuy BABY stores throughout the United States, and closed two BBB stores and two Harmon stores, all of which resulted in the aggregate addition of approximately 1.1 million square feet of store space. In addition, the Company is a partner in a joint venture which operates two stores in the Mexico City market under the name Home & More.
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 stores and expand existing stores as opportunities arise. The Company believes throughout the United States and Canada, there is an opportunity to open in excess of 1,300 BBB stores as well as grow the CTS and buybuy BABY concepts from coast to coast.
In determining where to open new stores, the Company evaluates a number of factors, including the availability of real estate, demographic information (such as data relating to income and education levels, age and occupation) and distribution. The Company has built its management structure with a view toward its expansion and believes that, as a result, it has the management depth necessary to support its anticipated expansion program.
Competition
The Company operates in the fragmented and highly competitive retail industry. The Company competes with many different types of retail stores that sell many or most of the same products. Such competitors include but are not limited to: (i) department stores, which often carry many of the same product lines as the Companys stores but do not typically have the same depth or breadth of product selection, (ii) specialty stores, which often have a depth of product selection but typically carry only a limited portion of the product lines carried by the Companys stores, (iii) discount and mass merchandise stores, (iv) national chains and (v) internet online only
retailers. In addition, the Companys stores compete, to a more limited extent, with factory outlet stores that typically offer limited quantities or limited lines of quality merchandise at discount prices. Other entities continue to introduce new concepts that include many of the product lines carried by the Companys stores. There can be no assurance that the operation of competitors will not have a material adverse effect on the Company.
Tradenames and Service Marks
The Company uses the Bed Bath & Beyond name and logo and the Beyond any store of its kind tag line as service marks in connection with retail services. The Company has registered these marks and others, including names and logos of CTS, Harmon and buybuy BABY, 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, including having registered the Bed Bath & Beyond name and logo and the Beyond any store of its kind tag line in Canada. Management believes that its name recognition and service marks are important elements of the Companys merchandising strategy.
Available Information
The Company makes available as soon as reasonably practicable after filing with the Securities and Exchange Commission (SEC), free of charge, through its website, www.bedbathandbeyond.com, the Companys annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, electronically filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934.
Executive Officers of the Registrant
The following table sets forth the name, age and business experience of the Executive Officers of the Registrant:
Name |
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Age |
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Positions |
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Warren Eisenberg |
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81 |
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Co-Chairman and Director |
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|
|
|
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Leonard Feinstein |
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75 |
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Co-Chairman and Director |
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|
|
|
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Steven H. Temares |
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53 |
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Chief Executive Officer and Director |
|
|
|
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Arthur Stark |
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56 |
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President and Chief Merchandising Officer |
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|
|
|
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Matthew Fiorilli |
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55 |
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Senior Vice President Stores |
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|
|
|
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Eugene A. Castagna |
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46 |
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Chief Financial Officer and Treasurer |
Warren Eisenberg is a Co-Founder of the Company and has served as Co-Chairman since 1999. He has served as a Director since 1971. Mr. Eisenberg served as Chairman from 1992 to 1999, and served as Co-Chief Executive Officer from 1971 to 2003.
Leonard Feinstein is a Co-Founder of the Company and has served as Co-Chairman since 1999. He has served as a Director since 1971. Mr. Feinstein served as President from 1992 to 1999, and served as Co-Chief Executive Officer from 1971 to 2003.
Steven H. Temares has been Chief Executive Officer since 2003 and has served as a Director since 1999. Mr. Temares was President and Chief Executive Officer from 2003 to 2006, President and Chief Operating Officer from 1999 to 2003 and Executive Vice President and Chief Operating Officer from 1997 to 1999. Mr. Temares joined the Company in 1992.
Arthur Stark has been President and Chief Merchandising Officer since 2006. Mr. Stark has served as Chief Merchandising Officer since 1999 and was a Senior Vice President from 1999 to 2006. Mr. Stark joined the Company in 1977.
Matthew Fiorilli has been Senior Vice President - Stores since 1999. Mr. Fiorilli joined the Company in 1973.
Eugene A. Castagna has been Chief Financial Officer and Treasurer since 2006. Mr. Castagna served as Assistant Treasurer from 2002 to 2006 and as Vice President - Finance from 2000 to 2006. Mr. Castagna is a certified public accountant and joined the Company in 1994.
The Companys executive 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.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The Companys actual results and future financial condition may differ materially from those expressed in any such forward-looking statements as a result of many factors. Such factors include the following:
General economic factors beyond the Companys control and changes in the economic climate could adversely affect the Companys performance.
General economic factors that are beyond the Companys control impact the Companys forecasts and actual performance. These factors include housing markets, recession, inflation, deflation, consumer credit availability, consumer debt levels, fuel and energy costs, interest rates, tax rates and policy, unemployment trends, the impact of natural disasters, civil disturbances and terrorist activities, conditions affecting the retail environment for the home and other matters that influence consumer spending. Changes in the economic climate could adversely affect the Companys performance.
The Company operates in the highly competitive retail business where any unanticipated changes in the pricing and other practices of competitors may adversely affect the Companys performance.
The retail business is highly competitive. The Company competes for customers, employees, locations, merchandise, services and other important aspects of the business with many other local, regional and national retailers. Those competitors range from specialty retail stores to department stores, discounters and internet online retailers. Unanticipated changes in the pricing and other practices of those competitors, including promotional activity, may adversely affect the Companys performance.
The Companys failure to anticipate and respond in a timely fashion to changes in consumer preferences and demographic factors could have a material adverse affect on the Companys financial condition and results of operations.
The Companys success depends on its ability to anticipate and respond in a timely manner to changing merchandise trends, customer demands and demographics. The Companys failure to anticipate, identify or react appropriately to changes in customer tastes, preferences, spending patterns and other lifestyle decisions could lead to, among other things, excess inventories or a shortage of products and could have a material adverse affect on the Companys financial condition and results of operations.
Unusual weather patterns could adversely affect the Companys performance.
The Companys operating results could be negatively impacted by unusual weather patterns. Frequent or unusually heavy snow, ice or rain storms, hurricanes, floods, tornados or extended periods of unseasonable temperatures could adversely affect the Companys performance.
A major disruption of the Companys information technology systems could negatively impact operating results.
The Companys operating results could be negatively impacted by a major disruption of the Companys information technology systems. The Company relies heavily on these systems to process transactions, manage inventory replenishment, summarize results and control distribution of products. Despite numerous safeguards and careful contingency planning, the system is still subject to power outages, computer viruses, telecommunication failures, security breaches and other catastrophic events. A major disruption of the system and its backup mechanisms may cause the Company to incur significant costs to repair the systems, experience a critical loss of data and result in business interruptions.
A privacy breach of the Companys data security systems or those of its third party service providers could have a negative impact on the Companys operating results and financial performance due to possible loss of consumer confidence, as well as potential government penalties and private litigation.
The Company stores certain information about its customers and employees in the ordinary course of business. The Company invests considerable resources in protecting this sensitive information but is still subject to a possible security event. A breach of its security systems or those of its third party service providers resulting in unauthorized access to stored personal information could negatively impact the Companys operating results and financial performance. Certain aspects of the business, particularly the Company website, heavily depend on consumers entrusting personal financial information to be transmitted securely over public networks. A loss of consumer confidence could result in lost future sales and have a material adverse effect on the Companys reputation. In addition, a privacy breach could cause the Company to incur significant costs to restore the integrity of its systems, and could result in significant costs in government penalties and private litigation.
A failure of the Companys suppliers to adhere to appropriate laws or standards could negatively impact its reputation.
The Company purchases substantially all of its merchandise in the United States, the majority from domestic sources and the balance from importers. The Company purchases a small amount of its merchandise directly from overseas sources. The failure of one of the Companys domestic or foreign suppliers to adhere to labor, environmental, health and safety laws and standards could negatively impact the Companys reputation and have an adverse effect on the Companys results of operations.
Changes in statutory, regulatory, and other legal requirements at a local, state and national level could potentially impact the Companys operating and financial results.
The Company is subject to numerous statutory, regulatory and legal requirements at a local, state and national level. The Companys operating results could be negatively impacted by developments in these areas due to the costs of compliance in addition to possible government penalties and litigation in the event of deemed noncompliance. Changes in the regulatory environment in the area of product safety, environmental protection, privacy and information security, wage and hour laws, among others, could potentially impact the Companys operations and financial results.
Changes to accounting rules, regulations and tax laws, or new interpretations of existing accounting standards or tax laws could negatively impact the Companys operating results and financial position.
The Companys operating results and financial position could be negatively impacted by changes to accounting rules and regulations or new interpretations of existing accounting standards. These changes may include, without limitation, changes to lease accounting standards. The Companys effective income tax rate could be impacted by changes in accounting standards as well as changes in tax laws or the interpretations of these tax laws by courts and taxing authorities which could negatively impact the Companys financial results.
The success of the Company is dependent, in part, on managing costs of labor, merchandise and other expenses that are subject to factors beyond the Companys control.
The Companys success depends, in part, on its ability to manage operating costs and to look for opportunities to reduce costs. The Companys ability to meet its labor needs while controlling costs is subject to external factors such as unemployment levels, prevailing wage rates, minimum wage legislation, labor organizing activities and changing demographics. The Companys ability to find qualified vendors and obtain access to products in a timely and efficient manner can be adversely affected by political instability, the financial instability of suppliers, suppliers noncompliance with applicable laws, transportation costs and other factors beyond the Companys control.
The Company depends upon its employees in all areas of the organization to execute its business plan and, ultimately, to satisfy its customers.
The Companys ability to attract and retain qualified employees in all areas of the organization may be affected by a number of factors, including geographic relocation of employees, operations or facilities and the highly competitive markets in which the Company operates, including the markets for the types of skilled individuals needed to support the Companys continued growth domestically, interactively and, over the longer term, internationally.
The Companys growth depends, in part, on its ability to open new stores, execute its interactive strategies and operate profitably.
The Companys growth depends, in part, on its ability to open new stores, execute its interactive strategies and operate profitably. The Companys ability to open additional stores successfully will depend on a number of factors, including its identification and availability of suitable store locations; its success in negotiating leases on acceptable terms; its hiring and training of skilled store operating personnel, especially management; and its timely development of new stores, including the availability of construction materials and labor and the absence of significant construction and other delays in store openings based on weather or other events. This increases the cost of doing business and the risk that the Companys business practices could result in liabilities that may adversely affect its performance, despite the exercise of reasonable care.
The continued uncertainty in the financial markets could have an adverse effect on the Companys ability to access its cash and cash equivalents.
The Company may have amounts of cash and cash equivalents at financial institutions that are in excess of federally insured limits. While the Company closely manages its cash and cash equivalents balances to minimize risk, with the current financial environment and instability of financial institutions, the Company can not be assured that it will not experience losses on its deposits.
Funds associated with auction rate securities held by the Company may not be liquid or readily available.
The Companys investment in securities consists partially of auction rate securities that are not currently liquid or readily available to convert to cash and, therefore, the Company has classified such auction rate securities as long term investment securities. The Company does not anticipate that any potential lack of liquidity in these auction rate securities, even for an extended period of time, will affect its ability to finance its operations, including its expansion program, share repurchase program and planned capital expenditures. However, if the interest rate environment changes, the Company may incur further temporary impairment losses.
If uncertainties in the credit and capital markets continue and these markets deteriorate further, the Company may conclude that the decline in value is other than temporary and incur realized losses, including up to the full amount of the investments in auction rate securities, which could negatively affect the Companys financial position, cash flow and results of operations.
ITEM 1B UNRESOLVED STAFF COMMENTS
None.
Most of the Companys stores are located 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 in free standing buildings.
The Companys 1,173 stores are located in 50 states, the District of Columbia, Puerto Rico and Canada and range in size from approximately 5,000 to 100,000 square feet, but are predominantly between 20,000 and 50,000 square feet. Approximately 85% to 90% of store space is used for selling areas and the balance for warehouse, receiving and office space.
The table below sets forth the locations of the Companys stores as of February 25, 2012:
Alabama |
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16 |
Alaska |
|
2 |
Arizona |
|
27 |
Arkansas |
|
7 |
California |
|
116 |
Colorado |
|
25 |
Connecticut |
|
23 |
Delaware |
|
3 |
Florida |
|
80 |
Georgia |
|
30 |
Hawaii |
|
1 |
Idaho |
|
7 |
Illinois |
|
44 |
Indiana |
|
23 |
Iowa |
|
8 |
Kansas |
|
9 |
Kentucky |
|
9 |
Louisiana |
|
13 |
Maine |
|
8 |
Maryland |
|
20 |
Massachusetts |
|
43 |
Michigan |
|
37 |
Minnesota |
|
12 |
Mississippi |
|
7 |
Missouri |
|
16 |
Montana |
|
6 |
Nebraska |
|
5 |
Nevada |
|
8 |
New Hampshire |
|
14 |
New Jersey |
|
80 |
New Mexico |
|
5 |
New York |
|
91 |
North Carolina |
|
33 |
North Dakota |
|
2 |
Ohio |
|
40 |
Oklahoma |
|
8 |
Oregon |
|
10 |
Pennsylvania |
|
42 |
Rhode Island |
|
5 |
South Carolina |
|
15 |
South Dakota |
|
2 |
Tennessee |
|
20 |
Texas |
|
81 |
Utah |
|
13 |
Vermont |
|
3 |
Virginia |
|
33 |
Washington |
|
23 |
West Virginia |
|
3 |
Wisconsin |
|
11 |
Wyoming |
|
2 |
District of Columbia |
|
2 |
Puerto Rico |
|
3 |
Alberta, Canada |
|
7 |
British Columbia, Canada |
|
6 |
Novia Scotia, Canada |
|
1 |
Ontario, Canada |
|
12 |
Prince Edward Island, Canada |
|
1 |
Total |
|
1,173 |
The Company leases primarily all of its existing stores. The leases provide for original lease terms that generally range from 10 to 15 years and most leases provide for renewal options, often at increased rents. The Company evaluates leases on an ongoing basis which may lead to renegotiated lease terms, including rents during renewal options, or the possible relocation of stores. 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 expected lease term, beginning when the Company obtains possession of the premises) and/or for contingent rent (based upon store sales exceeding stipulated amounts).
In addition, the Company leases storage space in 14 locations, totaling approximately 1.6 million square feet, that provide supplemental merchandise storage space and fulfillment of the Companys E-Service activities. This space is used to supplement the warehouse facilities in the Companys stores in proximity to these locations. In addition, the Company also owns two distribution centers totaling approximately 1.5 million square feet. In fiscal 2012, a new 800,000 square foot E-Service fulfillment center in Georgia is planned to become operational.
As of February 25, 2012, the Company occupied approximately 465,000 square feet of office space at five locations for procurement
and corporate office functions. Two owned facilities in Union, New Jersey and one owned facility in Middleboro, Massachusetts comprise approximately 345,000 square feet with the remaining 120,000 square feet within leased facilities in Farmingdale and
Garden City, New York. The relocation of the Companys offices from Farmingdale and Garden City, New York to its Union, New Jersey corporate headquarters buildings will be substantially completed by the end of the summer of fiscal 2012.
The Company is party to various legal proceedings arising in the ordinary course of business, which the Company does not believe to be material to the Companys business or financial condition.
ITEM 4 MINE SAFETY DISCLOSURES
Not Applicable.
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
The following table sets forth the high and low reported closing prices of the Companys common stock on the NASDAQ National Market System for the periods indicated.
|
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High |
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Low |
| ||
Fiscal 2011: |
|
|
|
|
| ||
1st Quarter |
|
$ |
57.30 |
|
$ |
45.07 |
|
2nd Quarter |
|
60.31 |
|
49.73 |
| ||
3rd Quarter |
|
63.44 |
|
55.26 |
| ||
4th Quarter |
|
63.22 |
|
57.46 |
| ||
|
|
High |
|
Low |
| ||
Fiscal 2010: |
|
|
|
|
| ||
1st Quarter |
|
$ |
48.25 |
|
$ |
41.08 |
|
2nd Quarter |
|
45.87 |
|
36.01 |
| ||
3rd Quarter |
|
45.13 |
|
35.96 |
| ||
4th Quarter |
|
50.82 |
|
43.74 |
| ||
The common stock is quoted through the NASDAQ National Market System under the symbol BBBY. On March 24, 2012, there were approximately 5,400 shareholders of record of the common stock (without including individual participants in nominee security position listings). On March 24, 2012, the last reported sale price of the common stock was $66.11.
The Company has not paid cash dividends on its common stock since its 1992 initial public offering and does not currently plan 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 Companys earnings, financial condition and requirements, business conditions and other factors. See Item 8 - Financial Statements and Supplementary Data.
Since 2004 through the end of fiscal 2011, the Company has repurchased approximately $4.0 billion of its common stock through several share repurchase programs. The Companys purchases of its common stock during the fourth quarter of fiscal 2011 were as follows:
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Approximate Dollar |
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Total Number of |
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Value of Shares |
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Shares Purchased as |
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that May Yet Be |
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Part of Publicly |
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Purchased Under |
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Total Number of |
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Average Price |
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Announced Plans |
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the Plans or |
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Period |
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Shares Purchased (1) |
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Paid per Share (2) |
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or Programs (1) |
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Programs (1) (2) |
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November 27, 2011 - December 24, 2011 |
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1,710,100 |
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$ |
60.97 |
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1,710,100 |
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$ |
1,173,610,779 |
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December 25, 2011 - January 21, 2012 |
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1,908,700 |
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$ |
59.20 |
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1,908,700 |
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$ |
1,060,618,133 |
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January 22, 2012 - February 25, 2012 |
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2,322,200 |
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$ |
60.87 |
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2,322,200 |
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$ |
919,256,214 |
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Total |
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5,941,000 |
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$ |
60.36 |
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5,941,000 |
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$ |
919,256,214 |
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(1) Between December 2004 and December 2010, the Companys Board of Directors authorized, through several share repurchase programs, the repurchase of $4.950 billion of its shares of common stock. The Company has authorization to make repurchases from time to time in the open market or through other parameters approved by the Board of Directors pursuant to existing rules and regulations. Shares purchased indicated in this table also include the withholding of a portion of restricted shares to cover taxes on vested restricted shares.
(2) Excludes brokerage commissions paid by the Company.
Stock Price Performance Graph
The graph shown below compares the performance of the Companys common stock with that of the S&P 500 Index, the S&P Specialty Retail Index and the S&P Retail Composite Index over the same period (assuming the investment of $100 in the Companys common stock and each of the three Indexes on March 3, 2007, and the reinvestment of dividends, if any).
ITEM 6 - SELECTED FINANCIAL DATA
Consolidated Selected Financial Data |
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Fiscal Year Ended (1) |
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(in thousands, except per share |
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February 25, |
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February 26, |
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February 27, |
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February 28, |
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March 1, |
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and selected operating data) |
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2012 |
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2011 |
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2010 |
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2009 |
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2008 (2) |
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Statement of Earnings Data: |
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Net sales |
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$ |
9,499,890 |
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$ |
8,758,503 |
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$ |
7,828,793 |
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$ |
7,208,340 |
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$ |
7,048,942 |
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Gross profit |
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3,930,933 |
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3,622,929 |
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3,208,119 |
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2,873,236 |
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2,925,231 |
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Operating profit |
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1,568,369 |
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1,288,458 |
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980,687 |
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673,896 |
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838,022 |
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Net earnings |
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989,537 |
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791,333 |
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600,033 |
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425,123 |
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562,808 |
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Net earnings per share - Diluted |
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$ |
4.06 |
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$ |
3.07 |
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$ |
2.30 |
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$ |
1.64 |
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$ |
2.10 |
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Selected Operating Data: |
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Number of stores open (at period end) |
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1,173 |
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1,139 |
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1,100 |
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1,037 |
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971 |
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Total square feet of store space (at period end) |
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36,125,000 |
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35,055,000 |
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33,740,000 |
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32,050,000 |
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30,181,000 |
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Percentage increase in comparable store sales |
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5.9 |
% |
7.8 |
% |
4.4 |
% |
(2.4 |
)% |
1.0 |
% | |||||
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Comparable store net sales (in 000s) |
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$ |
9,157,183 |
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$ |
8,339,112 |
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$ |
7,409,203 |
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$ |
6,746,472 |
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$ |
6,457,268 |
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Number of comparable stores |
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1,076 |
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1,013 |
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942 |
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874 |
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792 |
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Balance Sheet Data (at period end): |
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Working capital |
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$ |
2,803,809 |
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$ |
2,751,398 |
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$ |
2,413,791 |
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$ |
1,609,831 |
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$ |
1,065,599 |
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Total assets |
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5,724,546 |
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5,646,193 |
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5,152,130 |
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4,268,843 |
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3,844,093 |
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Long-term debt |
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Shareholders equity (3) (4) |
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$ |
3,922,528 |
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$ |
3,931,659 |
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$ |
3,652,904 |
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$ |
3,000,454 |
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$ |
2,561,828 |
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(1) Each fiscal year represents 52 weeks.
(2) On March 22, 2007, the Company acquired Buy Buy BABY, Inc.
(3) The Company has not declared any cash dividends in any of the fiscal years noted above.
(4) In fiscal 2011, 2010, 2009, 2008 and 2007, the Company repurchased approximately $1.218 billion, $688 million, $95 million, $48 million and $734 million of its common stock, respectively.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
OVERVIEW
Bed Bath & Beyond Inc. and subsidiaries (the Company) is a chain of retail stores, operating under the names Bed Bath & Beyond (BBB), Christmas Tree Shops (CTS), Harmon and Harmon Face Values (Harmon) and buybuy BABY. In addition, the Company is a partner in a joint venture which operates two stores in the Mexico City market under the name Home & More. The Company sells a wide assortment of domestics merchandise and home furnishings. Domestics merchandise includes categories such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings, consumables and certain juvenile products. The Companys objective is to be a customers first choice for products and services in the categories offered, in the markets in which the Company operates.
The Companys strategy is to achieve this objective through excellent customer service, an extensive breadth and depth of assortment, everyday low prices and introduction of new merchandising offerings, supported by the continuous development and improvement of its infrastructure.
Operating in the highly competitive retail industry, the Company, along with other retail companies, is influenced by a number of factors including, but not limited to, general economic conditions including the housing market, the overall macroeconomic environment and related changes in the retailing environment, consumer preferences and spending habits, unusual weather patterns and natural disasters, competition from existing and potential competitors, and the ability to find suitable locations at acceptable occupancy costs to support the Companys expansion program.
The Company continues to face a number of economic challenges impacting consumer confidence and spending, including relatively high unemployment and commodity prices and a sluggish housing market. The Company cannot predict whether, when or the manner in which these economic conditions will change.
The Company remains committed to making the required investments in its infrastructure to help position the Company for continued success. The Company continues to review and prioritize its capital needs while continuing to make investments, principally for new stores, existing store improvements, information technology enhancements including increased spending on its interactive platforms, and other projects whose impact is considered important to its future.
The following represents an overview of the Companys financial performance for the periods indicated:
· Net sales in fiscal 2011 increased approximately 8.5% to $9.500 billion; net sales in fiscal 2010 increased approximately 11.9% to $8.759 billion over net sales of $7.829 billion in fiscal 2009.
· Comparable store sales for fiscal 2011 increased by approximately 5.9% as compared with an increase of approximately 7.8% in fiscal 2010 and an increase of approximately 4.4% in fiscal 2009.
A store is considered a comparable store when it has been open for twelve full months following its grand opening period (typically four to six weeks). Stores relocated or expanded are excluded from comparable store sales if the change in square footage would cause meaningful disparity in sales over the prior period. In the case of a store to be closed, such stores sales are not considered comparable once the store closing process has commenced.
· Gross profit for fiscal 2011 was $3.931 billion or 41.4% of net sales compared with $3.623 billion or 41.4% of net sales for fiscal 2010 and $3.208 billion or 41.0% of net sales for fiscal 2009.
· Selling, general and administrative expenses (SG&A) for fiscal 2011 were $2.363 billion or 24.9% of net sales compared with $2.334 billion or 26.7% of net sales for fiscal 2010 and $2.227 billion or 28.5% of net sales for fiscal 2009.
· The effective tax rate was 37.0%, 38.8% and 39.1% for fiscal years 2011, 2010 and 2009, respectively. The tax rate included discrete tax items of an approximate $20.7 million net benefit, $0.9 million net expense and $3.2 million net expense, respectively, for fiscal 2011, 2010 and 2009.
· For the fiscal year ended February 25, 2012, net earnings per diluted share were $4.06 ($989.5 million), an increase of approximately 32%, as compared with net earnings per diluted share of $3.07 ($791.3 million) for fiscal 2010, which was an increase of approximately 33% from net earnings per diluted share of $2.30 ($600.0 million) for fiscal 2009. For fiscal year ended February 25, 2012, the increase in net earnings per diluted share is the result of the items described above, as well as the impact of the Companys repurchases of its common stock. For the fiscal year ended February 26, 2011, the increase in net earnings per diluted share primarily reflects the favorable movements in gross profit and SG&A expenses.
During fiscal 2011, 2010 and 2009, the Companys capital expenditures were $243.4 million, $183.5 million and $153.7 million, respectively. In addition, during fiscal 2011, 2010 and 2009, the Company repurchased 21.5 million, 15.9 million and 2.7 million shares, respectively, of its common stock at a total cost of approximately $1.218 billion, $687.6 million and $94.9 million, respectively.
The Company plans to continue to expand its operations and invest in its infrastructure to reach its long term objectives. In fiscal 2012, the Company expects to open approximately 40 new stores across all concepts. During fiscal 2011, the Company opened a total of 38 new stores, including 13 BBB stores throughout the United States and Canada, five CTS stores, one Harmon store and 19 buybuy BABY stores, and closed two BBB stores and two Harmon stores.
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 in dollar amounts from the prior year in selected statement of earnings data:
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Fiscal Year Ended |
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Percentage |
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Percentage Change |
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of Net Sales |
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from Prior Year |
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February 25, |
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February 26, |
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February 27, |
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February 25, |
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February 26, |
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2012 |
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2011 |
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2010 |
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2012 |
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2011 |
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Net sales |
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100.0 |
% |
100.0 |
% |
100.0 |
% |
8.5 |
% |
11.9 |
% |
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Cost of sales |
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58.6 |
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58.6 |
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59.0 |
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8.4 |
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11.1 |
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Gross profit |
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41.4 |
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41.4 |
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41.0 |
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8.5 |
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12.9 |
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Selling, general and administrative expenses |
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24.9 |
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26.7 |
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28.5 |
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1.2 |
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4.8 |
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Operating profit |
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16.5 |
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14.7 |
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12.5 |
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21.7 |
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31.4 |
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Earnings before provision for income taxes |
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16.5 |
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14.8 |
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12.6 |
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21.4 |
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31.2 |
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Net earnings |
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10.4 |
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9.0 |
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7.7 |
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25.0 |
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31.9 |
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Net Sales
Net sales in fiscal 2011 increased $741.4 million to $9.500 billion, representing an increase of 8.5% over $8.759 billion of net sales in fiscal 2010, which increased $929.7 million or 11.9% over the $7.829 billion of net sales in fiscal 2009. For fiscal 2011, approximately 68.6% of the increase in net sales was attributable to an increase in the Companys comparable store sales and the balance of the increase was primarily attributable to an increase in the Companys new store sales. For fiscal 2010, approximately 65.2% of the increase in net sales was attributable to an increase in the Companys comparable store sales and the balance of the increase was primarily attributable to an increase in the Companys new store sales.
For fiscal 2011, comparable store sales for 1,076 stores represented $9.157 billion of net sales; for fiscal 2010, comparable store sales for 1,013 stores represented $8.339 billion of net sales; and for fiscal 2009, comparable store sales for 942 stores represented $7.409 billion of net sales. Comparable store sales increased by approximately 5.9% for fiscal 2011 and increased by approximately 7.8% for fiscal 2010. The increase in comparable store sales for fiscal 2011 was due to increases in both the number of transactions and the average transaction amount.
Sales of domestics merchandise accounted for approximately 40%, 41% and 41% of net sales in fiscal 2011, 2010 and 2009, respectively, of which the Company estimates that bed linens accounted for approximately 12%, 12% and 13% of net sales in fiscal 2011, 2010 and 2009, respectively. The remaining net sales in fiscal 2011, 2010 and 2009 of 60%, 59% and 59%, respectively, represented sales of home furnishings. No other individual product category accounted for 10% or more of net sales during fiscal 2011, 2010 or 2009.
Gross Profit
Gross profit in fiscal 2011, 2010 and 2009 was $3.931 billion or 41.4% of net sales, $3.623 billion or 41.4% of net sales and $3.208 billion or 41.0% of net sales, respectively. The gross profit margin as a percentage of net sales for fiscal 2011 included a reduction in markdowns, offset by an increase in inventory acquisition costs and a shift in the mix of merchandise sold to lower margin categories. The increase in gross profit between fiscal 2010 and 2009 as a percentage of net sales was primarily due to a decrease in coupon expense as a percentage of net sales, partially offset by a shift in the mix of merchandise sold to lower margin categories.
Selling, General and Administrative expenses
SG&A was $2.363 billion or 24.9% of net sales in fiscal 2011, $2.334 billion or 26.7% of net sales in fiscal 2010 and $2.227 billion or 28.5% of net sales in fiscal 2009. The decrease in SG&A between fiscal 2011 and 2010 as a percentage of net sales was primarily due to relative decreases in payroll and payroll-related items (including salaries and medical insurance), occupancy (including rent and depreciation), advertising and store expenses, all of which benefited from the increase in comparable store sales. In addition, advertising expenses as a percentage of net sales benefited from a reduction in the mailing of advertising pieces. The decrease in SG&A between fiscal 2010 and 2009 as a percentage of net sales was primarily due to relative decreases in payroll and occupancy expenses, as well as a relative decrease in advertising expenses resulting from a reduction in the distribution of advertising pieces. Payroll and occupancy (including rent and depreciation) expense benefited from the approximate 7.8% increase in comparable store sales.
Operating Profit
Operating profit for fiscal 2011 was $1.568 billion or 16.5% of net sales, $1.288 billion or 14.7% of net sales in fiscal 2010 and $980.7 million or 12.5% of net sales in fiscal 2009. The change in operating profit as a percentage of net sales between fiscal 2011 and 2010 was the result of the change in SG&A as a percentage of net sales as described above. The change in operating profit between fiscal 2010 and 2009 was a result of the changes in the gross profit margin and SG&A as a percentage of net sales as described above.
Interest Income
Interest income was $1.1 million, $4.5 million and $4.6 million in fiscal 2011, 2010 and 2009, respectively.
Income Taxes
The effective tax rate was 37.0% for fiscal 2011, 38.8% for fiscal 2010 and 39.1% for fiscal 2009. For fiscal 2011, the tax rate included an approximate $20.7 million net benefit primarily due to the settlement of certain discrete tax items from on-going examinations, the recognition of favorable discrete state tax items and from changing the blended state tax rate of deferred income taxes. For fiscal 2010, the tax rate included an approximate $0.9 million net expense primarily due to the recognition of certain discrete tax items, partially offset by the changing of the blended state tax rate of deferred income taxes. For fiscal 2009, the tax rate included an approximate $3.2 million net expense primarily due to the recognition of certain discrete tax items partially offset by the changing of the blended state tax rate of deferred income taxes. The remaining increase in the 2009 effective tax rate was primarily due to slightly higher state taxes.
The Company expects continued volatility in the effective tax rate from year to year because the Company is required each year to determine whether new information changes the assessment of both the probability that a tax position will effectively be sustained and the appropriateness of the amount of recognized benefit.
EXPANSION PROGRAM
The Company is engaged in an ongoing expansion program involving the opening of new stores in both new and existing markets, the expansion or relocation of existing stores and the continuous review of strategic acquisitions. In the 20-year period from the beginning of fiscal 1992 to the end of fiscal 2011, the chain has grown from 34 to 1,173 stores. Total square footage grew from 0.9 million square feet at the beginning of fiscal 1992 to 36.1 million square feet at the end of fiscal 2011. During fiscal 2011, the Company opened a total of 38 new stores, including 13 BBB stores throughout the United States and Canada, five CTS stores, one Harmon store and 19 buybuy BABY stores, and closed two BBB stores and two Harmon stores, all of which resulted in the aggregate addition of approximately 1.1 million square feet of store space. In May 2008, the Company became a partner in a joint venture which operates two stores in the Mexico City market under the name Home & More.
The Company plans to continue to expand its operations and invest in its infrastructure to reach its long term objectives. In fiscal 2012, the Company expects to open approximately 40 new stores across all concepts. In order to further improve the communication, collaboration, coordination and execution across all concepts, activities and platforms, the Company plans to incur costs to relocate its offices from Farmingdale and Garden City, New York to its Union, New Jersey corporate headquarters buildings. The relocation is expected to be substantially completed by the end of the summer of fiscal 2012.
LIQUIDITY AND CAPITAL RESOURCES
The Company has been able to finance its operations, including its expansion program, entirely through internally generated funds. For fiscal 2012, the Company believes that it will continue to finance its operations, including its expansion program, share repurchase program and planned capital expenditures, entirely through existing and internally generated funds. Capital expenditures for fiscal 2012, principally for new stores, existing store improvements, and information technology enhancements, including increased spending on interactive platforms, and other projects are planned to be in the range of approximately $275.0 million to $325.0 million, subject to the timing and composition of the projects. Capital expenditures include the following major initiatives: the development of an enhanced website; an additional 800,000 square foot E-Service fulfillment center in Georgia; the relocation of the Farmingdale and Garden City, New York offices to the Companys corporate headquarters in Union, New Jersey; and the initial phase of a new IT data center to support the Companys ongoing technology initiatives.
Fiscal 2011 compared to Fiscal 2010
Net cash provided by operating activities in fiscal 2011 was $1.225 billion, compared with $987.4 million in fiscal 2010. Year-over-year, the Company experienced an increase in net earnings, partially offset by an increase in cash used for the net components of working capital (primarily accounts payable and income taxes payable, partially offset by merchandise inventories).
Inventory per square foot was $57.35 as of February 25, 2012, as compared to $56.17 as of February 26, 2011.
Net cash used in investing activities in fiscal 2011 was $364.0 million, compared with $341.0 million in fiscal 2010. In fiscal 2011, net cash used in investing activities was due to $243.4 million of capital expenditures and $120.6 million of purchases of investment securities, net of redemptions. In fiscal 2010, net cash used in investing activities was due to $157.5 million of purchases of investment securities, net of redemptions, and $183.5 million of capital expenditures.
Net cash used in financing activities for fiscal 2011 was $1.042 billion, compared with $559.0 million in fiscal 2010. The increase in net cash used was primarily due to a $530.4 million increase in common stock repurchases partially offset by a $45.4 million increase in cash proceeds from the exercise of stock options.
Fiscal 2010 compared to Fiscal 2009
Net cash provided by operating activities in fiscal 2010 was $987.4 million, compared with $905.4 million in fiscal 2009. Year-over-year, the Company experienced an increase in net earnings, partially offset by an increase in cash used for the net components of working capital (primarily merchandise inventories and income taxes payable, partially offset by deferred rent and other liabilities).
Inventory per square foot was $56.17 as of February 26, 2011, as compared to $52.15 as of February 27, 2010. This increase of approximately 7.7% was primarily due to increased inventory levels required to support recent increases in comparable store sales and the timing of merchandise receipts.
Net cash used in investing activities in fiscal 2010 was $341.0 million, compared with $488.7 million in fiscal 2009. In fiscal 2010, net cash used in investing activities was due to $157.5 million of purchases of investment securities, net of redemptions, and $183.5 million of capital expenditures. In fiscal 2009, net cash used in investing activities was due to $335.0 million of purchases of investment securities, net of redemptions, and $153.7 million of capital expenditures.
Net cash used in financing activities for fiscal 2010 was $559.0 million, compared with net cash provided by financing activities of $11.2 million in fiscal 2009. The increase in net cash used was primarily due to a $592.7 million increase in common stock repurchases partially offset by a $26.0 million increase in cash proceeds from the exercise of stock options.
Auction Rate Securities
As of February 25, 2012, the Company held approximately $80.2 million of net investments in auction rate securities. Beginning in mid-February 2008, the auction process for the Companys auction rate securities failed and continues to fail. These failed auctions result in a lack of liquidity in the securities but do not affect the underlying collateral of the securities. All of these investments carry triple-A credit ratings from one or more of the major credit rating agencies and the Company believes that given their high credit quality, it will ultimately recover at par all amounts invested in these securities. As of February 25, 2012, these securities had a temporary valuation adjustment of approximately $3.7 million to reflect their current lack of liquidity. Since this valuation adjustment is deemed to be temporary, it was recorded in accumulated other comprehensive (loss) income, net of a related tax benefit, and did not affect the Companys net earnings for fiscal 2011. As of February 25, 2012, the Company classified approximately $6.5 million of these securities as short term investment securities due to expected redemptions at par during fiscal 2012.
During fiscal 2011, approximately $29.0 million of auction rate securities were redeemed at par. Subsequent to the end of fiscal 2011 through April 13, 2012, the Company redeemed approximately $6.5 million at par.
The Company does not anticipate that any potential lack of liquidity in its auction rate securities, even for an extended period of time, will affect its ability to finance its operations, including its expansion program, share repurchase program, and planned capital expenditures. The Company continues to monitor efforts by the financial markets to find alternative means for restoring the liquidity of these investments. These investments will remain primarily classified as non-current assets until the Company has better visibility as to when their liquidity will be restored. The classification and valuation of these securities will continue to be reviewed quarterly.
Other Fiscal 2011 Information
At February 25, 2012, the Company maintained two uncommitted lines of credit of $100 million each, with expiration dates of February 29, 2012 and September 2, 2012, respectively. Subsequent to the end of fiscal 2011, the expiration date on the line of credit that would have otherwise expired on February 29, 2012 was extended to February 28, 2013. These uncommitted lines of credit are currently and are expected to be used for letters of credit in the ordinary course of business. During fiscal 2011, the Company did not have any direct borrowings under the uncommitted lines of credit. As of February 25, 2012, there was approximately $8.5 million of outstanding letters of credit. Although no assurances can be provided, the Company intends to renew both uncommitted lines of credit before the respective expiration dates. In addition, as of February 25, 2012, the Company maintained unsecured standby letters of credit of $61.3 million, primarily for certain insurance programs.
Between December 2004 and December 2010, the Companys Board of Directors authorized, through several share repurchase programs, the repurchase of $4.950 billion of the Companys common stock.
Since 2004 through the end of fiscal 2011, the Company has repurchased approximately $4.0 billion of its common stock through several share repurchase programs. The Company has approximately $919 million remaining of authorized share repurchases as of February 25, 2012. The execution of the Companys share repurchase program will consider current business and market conditions.
The Company has authorization to make repurchases from time to time in the open market or through other parameters approved by the Board of Directors pursuant to existing rules and regulations.
The Company has contractual obligations consisting mainly of operating leases for stores, offices, warehouse facilities and equipment, purchase obligations and other long-term liabilities which the Company is obligated to pay as of February 25, 2012 as follows:
(in thousands) |
|
Total |
|
Less than 1 |
|
1-3 years |
|
4-5 years |
|
After 5 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating Lease Obligations (1) |
|
$ |
3,038,397 |
|
$ |
466,029 |
|
$ |
827,065 |
|
$ |
651,050 |
|
$ |
1,094,253 |
|
Purchase Obligations (2) |
|
751,973 |
|
751,973 |
|
|
|
|
|
|
| |||||
Other long-term liabilities (3) |
|
462,888 |
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total Contractual Obligations |
|
$ |
4,253,258 |
|
$ |
1,218,002 |
|
$ |
827,065 |
|
$ |
651,050 |
|
$ |
1,094,253 |
|
(1) The amounts presented represent the future minimum lease payments under non-cancelable operating leases. In addition to minimum rent, certain of the Companys leases require the payment of additional costs for insurance, maintenance and other costs. These additional amounts are not included in the table of contractual commitments as the timing and/or amounts of such payments are not known. As of February 25, 2012, the Company has leased sites for 26 locations planned for opening in fiscal 2012 or 2013, for which aggregate minimum rental payments over the term of the leases are approximately $106.3 million and are included in the table above.
(2) Purchase obligations primarily consist of purchase orders for merchandise.
(3) Amounts recorded as deferred rent and other liabilities and income taxes payable in the Consolidated Balance Sheet as of February 25, 2012 have been reflected only in the Total column in the table above as the timing and/or amount of any cash payment is uncertain. Deferred rent and other liabilities are primarily comprised of deferred rent, workers compensation and general liability reserves and various other accruals.
SEASONALITY
The Companys sales exhibit seasonality with sales levels generally higher in the calendar months of August, November and December, and generally lower in February.
INFLATION
The Company does not believe that its operating results have been materially affected by inflation during the past year. There can be no assurance, however, that the Companys operating results will not be affected by inflation in the future.
CRITICAL ACCOUNTING POLICIES
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires the Company to establish accounting policies and to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on other assumptions that it believes to be relevant under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. In particular, judgment is used in areas such as inventory valuation, impairment of long-lived assets, goodwill and other indefinite lived intangible assets, accruals for self insurance, litigation, store opening, expansion, relocation and closing costs, stock-based compensation and income and certain other taxes. Actual results could differ from these estimates.
Inventory Valuation: Merchandise inventories are stated at the lower of cost or market. Inventory costs for BBB, buybuy BABY and Harmon are calculated using the weighted average retail inventory method and inventory costs for CTS are calculated using the first in first out cost method.
Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail values of inventories. The cost associated with determining the cost-to-retail ratio includes: merchandise purchases, net of returns to vendors, discounts and volume and incentive rebates; inbound freight expenses; duty, insurance and commissions.
At any one time, inventories include items that have been written down to the Companys best estimate of their realizable value. Judgment is required in estimating realizable value and factors considered are the age of merchandise and anticipated demand. Actual realizable value could differ materially from this estimate based upon future customer demand or economic conditions.
The Company estimates its reserve for shrinkage throughout the year based on historical shrinkage and any current trends, if applicable. Actual shrinkage is recorded at year end based upon the results of the Companys physical inventory counts for locations at which counts were conducted. For locations where physical inventory counts were not conducted in the fiscal year, an estimated shrink reserve is recorded based on historical shrinkage and any current trends, if applicable. Historically, the Companys shrinkage has not been volatile.
The Company accrues for merchandise in transit once it takes legal ownership and title to the merchandise; as such, an estimate for merchandise in transit is included in the Companys merchandise inventories.
Impairment of Long-Lived Assets: The Company reviews long-lived assets for impairment when events or changes in circumstances indicate the carrying value of these assets may exceed their current fair values. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the assets. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. The Company has not historically recorded any material impairment to its long-lived assets. In the future, if events or market conditions affect the estimated fair value to the extent that a long-lived asset is impaired, the Company will adjust the carrying value of these long-lived assets in the period in which the impairment occurs.
Goodwill and Other Indefinite Lived Intangible Assets: The Company reviews goodwill and other intangibles that have indefinite lives for impairment annually or when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. Impairment testing is based upon the best information available including estimates of fair value which incorporate assumptions marketplace participants would use in making their estimates of fair value. The Company has not historically recorded an impairment to its goodwill and other indefinite lived intangible assets. The Company completed its annual impairment testing of goodwill and other indefinite lived intangible assets and determined that, as of February 25, 2012, no impairment existed because the fair value of these assets substantially exceeded their carrying values. In the future, if events or market conditions affect the estimated fair value to the extent that an asset is impaired, the Company will adjust the carrying value of these assets in the period in which the impairment occurs.
Self Insurance: The Company utilizes a combination of insurance and self insurance for a number of risks including workers compensation, general liability, automobile liability and employee related health care benefits (a portion of which is paid by its employees). Liabilities associated with the risks that the Company retains are estimated by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. Although the Companys claims experience has not displayed substantial volatility in the past, actual experience could materially vary from its historical experience in the future. Factors that affect these estimates include but are not limited to: inflation, the number and severity of claims and regulatory changes. In the future, if the Company concludes an adjustment to self insurance accruals is required, the liability will be adjusted accordingly.
Litigation: The Company records an estimated liability related to its various claims and legal actions arising in the ordinary course of business when and to the extent that it concludes a liability is probable and the amount of the loss can be reasonably estimated. Such estimated loss is based on available information and advice from outside counsel, where appropriate. As additional information becomes available, the Company reassesses the potential liability related to claims and legal actions and revises its estimated liabilities, as appropriate. The Company expects the ultimate disposition of these matters will not have a material adverse effect on the Companys consolidated financial position, results of operations or liquidity. The Company also cannot predict the nature and validity
of claims which could be asserted in the future, and future claims could have a material impact on its earnings.
Store Opening, Expansion, Relocation and Closing Costs: Store opening, expansion, relocation and closing costs, including markdowns, asset residual values and projected occupancy costs, are charged to earnings as incurred.
Stock-Based Compensation: The Company uses a Black-Scholes option-pricing model to determine the fair value of its stock options. The Black-Scholes model includes various assumptions, including the expected life of stock options, the expected risk free interest rate and the expected volatility. These assumptions reflect the Companys best estimates, but they involve inherent uncertainties based on market conditions generally outside the control of the Company. As a result, if other assumptions had been used, total stock-based compensation cost could have been materially impacted. Furthermore, if the Company uses different assumptions for future grants, stock-based compensation cost could be materially impacted in future periods.
The Company determines its assumptions for the Black-Scholes option-pricing model in accordance with the accounting guidance related to stock compensation.
· The expected life of stock options is estimated based on historical experience.
· The expected risk free interest rate is based on the U.S. Treasury constant maturity interest rate whose term is consistent with the expected life of the stock options.
· Expected volatility is based on the average of historical and implied volatility. The historical volatility is determined by observing actual prices of the Companys stock over a period commensurate with the expected life of the awards. The implied volatility represents the implied volatility of the Companys call options, which are actively traded on multiple exchanges, had remaining maturities in excess of twelve months, had market prices close to the exercise prices of the employee stock options and were measured on the stock option grant date.
The Company is required to record stock-based compensation expense net of estimated forfeitures. The Companys forfeiture rate assumption used in determining its stock-based compensation expense is estimated based on historical data. The actual forfeiture rate could differ from these estimates.
Taxes: 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 carry-forwards. 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.
The Company intends to reinvest the unremitted earnings of its Canadian subsidiary. Accordingly, no provision has been made for U.S. or additional non-U.S. taxes with respect to these earnings. In the event of repatriation to the U.S., in most cases such earnings would be subject to U.S. income taxes.
The Company recognizes the tax benefit from an uncertain tax position only if it is at least more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the taxing authorities.
The Company expects continued volatility in the effective tax rate from year to year because the Company is required each year to determine whether new information changes the assessment of both the probability that a tax position will effectively be sustained and the appropriateness of the amount of recognized benefit.
The Company also accrues for certain other taxes as required by their operations.
Judgment is required in determining the provision for income and other taxes and related accruals, deferred tax assets and liabilities. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. Additionally, the Companys various tax returns are subject to audit by various tax authorities. Although the Company believes that its estimates are reasonable, actual results could differ from these estimates.
FORWARD-LOOKING STATEMENTS
This Form 10-K and Managements 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 Companys actual results and future financial condition may differ materially from those expressed in any such forward-looking statements as a result of many factors. Such factors include, without limitation: general economic conditions including the housing market, a challenging overall macroeconomic environment and related changes in the retailing environment, consumer preferences and spending habits; demographics and other macroeconomic factors that may impact the level of spending for the types of merchandise sold by the Company; civil disturbances and terrorist attacks; unusual weather patterns and natural disasters; competition from existing and potential competitors; competition from other channels of distribution; pricing pressures; the ability to attract and retain qualified employees in all areas of the organization; the cost of labor, merchandise and other costs and expenses; the ability to find suitable locations at acceptable occupancy costs and other terms to support the Companys expansion program; the impact of failed auctions for auction rate securities held by the Company; uncertainty in financial markets; disruptions to the Companys information technology systems including but not limited to security breaches of the Companys systems protecting consumer and employee information; reputational risk arising from the acts of third parties; changes to statutory, regulatory and legal requirements; changes to, or new, tax laws or interpretation of existing tax laws; and changes to, or new, accounting standards including, without limitation, changes to lease accounting standards. The Company does not undertake any obligation to update its forward-looking statements.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of February 25, 2012, the Companys investments include cash and cash equivalents of approximately $1.003 billion, short term investment securities of approximately $756.4 million and long term investment securities of approximately $95.8 million at weighted average interest rates of 0.00%, 0.04% and 0.24%, respectively.
As of February 25, 2012, the Company held approximately $80.2 million of net investments in auction rate securities. Beginning in mid-February 2008, the auction process for the Companys auction rate securities failed and continues to fail. These failed auctions result in a lack of liquidity in the securities but do not affect the underlying collateral of the securities. All of these investments carry triple-A credit ratings from one or more of the major credit rating agencies and the Company believes that given their high credit quality, it will ultimately recover at par all amounts invested in these securities. As of February 25, 2012, these securities had a temporary valuation adjustment of approximately $3.7 million to reflect their current lack of liquidity. Since this valuation adjustment is deemed to be temporary, it was recorded in accumulated other comprehensive (loss) income, net of a related tax benefit, and did not affect the Companys net earnings for fiscal 2011. As of February 25, 2012, the Company classified approximately $6.5 million of these securities as short term investment securities due to expected redemptions at par during fiscal 2012.
During fiscal 2011, approximately $29.0 million of auction rate securities were redeemed at par. Subsequent to the end of fiscal 2011 through April 13, 2012, the Company redeemed approximately $6.5 million at par.
The Company does not anticipate that any potential lack of liquidity in its auction rate securities, even for an extended period of time, will affect its ability to finance its operations, including its expansion program and planned capital expenditures. The Company continues to monitor efforts by the financial markets to find alternative means for restoring the liquidity of these investments. These
investments will remain primarily classified as non-current assets until the Company has better visibility as to when their liquidity will be restored. The classification and valuation of these securities will continue to be reviewed quarterly.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following are included herein: | |
|
|
Consolidated Balance Sheets as of February 25, 2012 and February 26, 2011 | |
|
|
|
|
|
|
|
|
|
|
BED BATH & BEYOND INC. AND SUBSIDIARIES
(in thousands, except per share data)
|
|
February 25, |
|
February 26, |
| ||
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Assets |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
1,003,166 |
|
$ |
1,183,587 |
|
Short term investment securities |
|
756,389 |
|
605,608 |
| ||
Merchandise inventories |
|
2,071,890 |
|
1,968,907 |
| ||
Other current assets |
|
311,494 |
|
315,736 |
| ||
|
|
|
|
|
| ||
Total current assets |
|
4,142,939 |
|
4,073,838 |
| ||
|
|
|
|
|
| ||
Long term investment securities |
|
95,785 |
|
121,446 |
| ||
Property and equipment, net |
|
1,198,255 |
|
1,116,297 |
| ||
Other assets |
|
287,567 |
|
334,612 |
| ||
|
|
|
|
|
| ||
Total assets |
|
$ |
5,724,546 |
|
$ |
5,646,193 |
|
|
|
|
|
|
| ||
Liabilities and Shareholders Equity |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Accounts payable |
|
$ |
752,064 |
|
$ |
709,550 |
|
Accrued expenses and other current liabilities |
|
329,174 |
|
306,847 |
| ||
Merchandise credit and gift card liabilities |
|
209,646 |
|
193,061 |
| ||
Current income taxes payable |
|
48,246 |
|
112,982 |
| ||
|
|
|
|
|
| ||
Total current liabilities |
|
1,339,130 |
|
1,322,440 |
| ||
|
|
|
|
|
| ||
Deferred rent and other liabilities |
|
339,266 |
|
292,364 |
| ||
Income taxes payable |
|
123,622 |
|
99,730 |
| ||
|
|
|
|
|
| ||
Total liabilities |
|
1,802,018 |
|
1,714,534 |
| ||
|
|
|
|
|
| ||
Commitments and contingencies |
|
|
|
|
| ||
|
|
|
|
|
| ||
Shareholders equity: |
|
|
|
|
| ||
Preferred stock - $0.01 par value; authorized - 1,000 shares; no shares issued or outstanding |
|
|
|
|
| ||
Common stock - $0.01 par value; authorized - 900,000 shares; issued 330,576 and 325,222 shares, respectively; outstanding 235,515 and 251,666 shares, respectively |
|
3,306 |
|
3,253 |
| ||
Additional paid-in capital |
|
1,417,337 |
|
1,191,123 |
| ||
Retained earnings |
|
6,535,824 |
|
5,546,287 |
| ||
Treasury stock, at cost |
|
(4,032,060 |
) |
(2,814,104 |
) | ||
Accumulated other comprehensive (loss) income |
|
(1,879 |
) |
5,100 |
| ||
|
|
|
|
|
| ||
Total shareholders equity |
|
3,922,528 |
|
3,931,659 |
| ||
|
|
|
|
|
| ||
Total liabilities and shareholders equity |
|
$ |
5,724,546 |
|
$ |
5,646,193 |
|
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Earnings
Bed Bath & Beyond Inc. and Subsidiaries
|
|
FISCAL YEAR ENDED |
| |||||||
|
|
February 25, |
|
February 26, |
|
February 27, |
| |||
(in thousands, except per share data) |
|
2012 |
|
2011 |
|
2010 |
| |||
|
|
|
|
|
|
|
| |||
Net sales |
|
$ |
9,499,890 |
|
$ |
8,758,503 |
|
$ |
7,828,793 |
|
|
|
|
|
|
|
|
| |||
Cost of sales |
|
5,568,957 |
|
5,135,574 |
|
4,620,674 |
| |||
|
|
|
|
|
|
|
| |||
Gross profit |
|
3,930,933 |
|
3,622,929 |
|
3,208,119 |
| |||
|
|
|
|
|
|
|
| |||
Selling, general and administrative expenses |
|
2,362,564 |
|
2,334,471 |
|
2,227,432 |
| |||
|
|
|
|
|
|
|
| |||
Operating profit |
|
1,568,369 |
|
1,288,458 |
|
980,687 |
| |||
|
|
|
|
|
|
|
| |||
Interest income, net |
|
1,119 |
|
4,520 |
|
4,568 |
| |||
|
|
|
|
|
|
|
| |||
Earnings before provision for income taxes |
|
1,569,488 |
|
1,292,978 |
|
985,255 |
| |||
|
|
|
|
|
|
|
| |||
Provision for income taxes |
|
579,951 |
|
501,645 |
|
385,222 |
| |||
|
|
|
|
|
|
|
| |||
Net earnings |
|
$ |
989,537 |
|
$ |
791,333 |
|
$ |
600,033 |
|
|
|
|
|
|
|
|
| |||
Net earnings per share - Basic |
|
$ |
4.12 |
|
$ |
3.11 |
|
$ |
2.33 |
|
Net earnings per share - Diluted |
|
$ |
4.06 |
|
$ |
3.07 |
|
$ |
2.30 |
|
|
|
|
|
|
|
|
| |||
Weighted average shares outstanding - Basic |
|
240,016 |
|
254,297 |
|
257,755 |
| |||
Weighted average shares outstanding - Diluted |
|
243,890 |
|
258,079 |
|
260,375 |
|
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Shareholders Equity
Bed Bath & Beyond Inc. and Subsidiaries
|
|
Common Stock |
|
Additional Paid- |
|
Retained |
|
Treasury Stock |
|
Accumulated Other |
|
|
| ||||||||||
(in thousands) |
|
Shares |
|
Amount |
|
in Capital |
|
Earnings |
|
Shares |
|
Amount |
|
Income (Loss) |
|
Total |
| ||||||
Balance at February 28, 2009 |
|
314,678 |
|
$ |
3,147 |
|
$ |
878,568 |
|
$ |
4,154,921 |
|
(54,977 |
) |
$ |
(2,031,642 |
) |
$ |
(4,540 |
) |
$ |
3,000,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net earnings |
|
|
|
|
|
|
|
600,033 |
|
|
|
|
|
|
|
600,033 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Change in temporary impairment of auction rate securities, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
325 |
|
325 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Pension adjustment, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,260 |
|
1,260 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
3,683 |
|
3,683 |
| ||||||
Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
605,301 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Shares sold under employee stock option plans, net of taxes |
|
4,503 |
|
45 |
|
96,431 |
|
|
|
|
|
|
|
|
|
96,476 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Issuance of restricted shares, net |
|
1,369 |
|
14 |
|
(14 |
) |
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Stock-based compensation expense, net |
|
|
|
|
|
45,411 |
|
|
|
|
|
|
|
|
|
45,411 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Director fees paid in stock |
|
3 |
|
|
|
119 |
|
|
|
|
|
|
|
|
|
119 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Repurchase of common stock, including fees |
|
|
|
|
|
|
|
|
|
(2,678 |
) |
(94,857 |
) |
|
|
(94,857 |
) | ||||||
Balance at February 27, 2010 |
|
320,553 |
|
3,206 |
|
1,020,515 |
|
4,754,954 |
|
(57,655 |
) |
(2,126,499 |
) |
728 |
|
3,652,904 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net earnings |
|
|
|
|
|
|
|
791,333 |
|
|
|
|
|
|
|
791,333 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Change in temporary impairment of auction rate securities, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
(663 |
) |
(663 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Pension adjustment, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
343 |
|
343 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
4,692 |
|
4,692 |
| ||||||
Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
795,705 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Shares sold under employee stock option plans, net of taxes |
|
3,804 |
|
38 |
|
125,058 |
|
|
|
|
|
|
|
|
|
125,096 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Issuance of restricted shares, net |
|
863 |
|
9 |
|
(9 |
) |
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Stock-based compensation expense, net |
|
|
|
|
|
45,465 |
|
|
|
|
|
|
|
|
|
45,465 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Director fees paid in stock |
|
2 |
|
|
|
94 |
|
|
|
|
|
|
|
|
|
94 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Repurchase of common stock, including fees |
|
|
|
|
|
|
|
|
|
(15,901 |
) |
(687,605 |
) |
|
|
(687,605 |
) | ||||||
Balance at February 26, 2011 |
|
325,222 |
|
3,253 |
|
1,191,123 |
|
5,546,287 |
|
(73,556 |
) |
(2,814,104 |
) |
5,100 |
|
3,931,659 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net earnings |
|
|
|
|
|
|
|
989,537 |
|
|
|
|
|
|
|
989,537 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Change in temporary impairment of auction rate securities, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
(297 |
) |
(297 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Pension adjustment, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,596 |
) |
(4,596 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,086 |
) |
(2,086 |
) | ||||||
Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
982,558 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Shares sold under employee stock option plans, net of taxes |
|
4,645 |
|
46 |
|
179,546 |
|
|
|
|
|
|
|
|
|
179,592 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Issuance of restricted shares, net |
|
706 |
|
7 |
|
(7 |
) |
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Stock-based compensation expense, net |
|
|
|
|
|
46,501 |
|
|
|
|
|
|
|
|
|
46,501 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Director fees paid in stock |
|
3 |
|
|
|
174 |
|
|
|
|
|
|
|
|
|
174 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Repurchase of common stock, including fees |
|
|
|
|
|
|
|
|
|
(21,505 |
) |
(1,217,956 |
) |
|
|
(1,217,956 |
) | ||||||
Balance at February 25, 2012 |
|
330,576 |
|
$ |
3,306 |
|
$ |
1,417,337 |
|
$ |
6,535,824 |
|
(95,061 |
) |
$ |
(4,032,060 |
) |
$ |
(1,879 |
) |
$ |
3,922,528 |
|
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows
Bed Bath & Beyond Inc. and Subsidiaries
|
|
FISCAL YEAR ENDED |
| |||||||
|
|
February 25, |
|
February 26, |
|
February 27, |
| |||
(in thousands) |
|
2012 |
|
2011 |
|
2010 |
| |||
|
|
|
|
|
|
|
| |||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
| |||
Net earnings |
|
$ |
989,537 |
|
$ |
791,333 |
|
$ |
600,033 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
| |||
Depreciation |
|
183,873 |
|
183,820 |
|
184,232 |
| |||
Stock-based compensation |
|
45,223 |
|
44,276 |
|
44,235 |
| |||
Tax benefit from stock-based compensation |
|
63 |
|
(3,453 |
) |
(5,986 |
) | |||
Deferred income taxes |
|
30,238 |
|
(15,988 |
) |
(22,811 |
) | |||
Other |
|
(1,622 |
) |
(1,757 |
) |
(405 |
) | |||
(Increase) decrease in assets: |
|
|
|
|
|
|
| |||
Merchandise inventories |
|
(102,983 |
) |
(209,204 |
) |
(117,364 |
) | |||
Trading investment securities |
|
(4,538 |
) |
(5,469 |
) |
(5,610 |
) | |||
Other current assets |
|
24,948 |
|
(17,736 |
) |
(4,397 |
) | |||
Other assets |
|
900 |
|
(2,899 |
) |
526 |
| |||
Increase (decrease) in liabilities: |
|
|
|
|
|
|
| |||
Accounts payable |
|
31,582 |
|
102,307 |
|
96,279 |
| |||
Accrued expenses and other current liabilities |
|
19,822 |
|
29,809 |
|
37,905 |
| |||
Merchandise credit and gift card liabilities |
|
16,585 |
|
20,257 |
|
7,183 |
| |||
Income taxes payable |
|
(37,392 |
) |
25,456 |
|
70,487 |
| |||
Deferred rent and other liabilities |
|
29,048 |
|
46,655 |
|
21,100 |
| |||
Net cash provided by operating activities |
|
1,225,284 |
|
987,407 |
|
905,407 |
| |||
|
|
|
|
|
|
|
| |||
Cash Flows from Investing Activities: |
|
|
|
|
|
|
| |||
Purchase of held-to-maturity investment securities |
|
(1,605,851 |
) |
(1,511,555 |
) |
(403,582 |
) | |||
Redemption of held-to-maturity investment securities |
|
1,456,250 |
|
1,286,270 |
|
30,025 |
| |||
Redemption of available-for-sale investment securities |
|
28,975 |
|
24,975 |
|
38,545 |
| |||
Redemption of trading investment securities |
|
|
|
42,825 |
|
|
| |||
Capital expenditures |
|
(243,374 |
) |
(183,474 |
) |
(153,680 |
) | |||
Net cash used in investing activities |
|
(364,000 |
) |
(340,959 |
) |
(488,692 |
) | |||
|
|
|
|
|
|
|
| |||
Cash Flows from Financing Activities: |
|
|
|
|
|
|
| |||
Proceeds from exercise of stock options |
|
171,088 |
|
125,700 |
|
99,727 |
| |||
Excess tax benefit from stock-based compensation |
|
5,163 |
|
2,944 |
|
6,306 |
| |||
Repurchase of common stock, including fees |
|
(1,217,956 |
) |
(687,605 |
) |
(94,857 |
) | |||
Net cash (used in) provided by financing activities |
|
(1,041,705 |
) |
(558,961 |
) |
11,176 |
| |||
|
|
|
|
|
|
|
| |||
Net (decrease) increase in cash and cash equivalents |
|
(180,421 |
) |
87,487 |
|
427,891 |
| |||
|
|
|
|
|
|
|
| |||
Cash and cash equivalents: |
|
|
|
|
|
|
| |||
Beginning of period |
|
1,183,587 |
|
1,096,100 |
|
668,209 |
| |||
End of period |
|
$ |
1,003,166 |
|
$ |
1,183,587 |
|
$ |
1,096,100 |
|
See accompanying Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
Bed Bath & Beyond Inc. and Subsidiaries
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
A. Nature of Operations
Bed Bath & Beyond Inc. and subsidiaries (the Company) is a chain of retail stores, operating under the names Bed Bath & Beyond (BBB), Christmas Tree Shops (CTS), Harmon and Harmon Face Values (Harmon) and buybuy BABY. In addition, the Company is a partner in a joint venture which operates two stores in the Mexico City market under the name Home & More. The Company sells a wide assortment of domestics merchandise and home furnishings. Domestics merchandise includes categories such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings, consumables and certain juvenile products. As the Company operates in the retail industry, its results of operations are affected by general economic conditions and consumer spending habits.
B. Fiscal Year
The Companys fiscal year is comprised of the 52 or 53 week period ending on the Saturday nearest February 28. Accordingly, fiscal 2011, 2010 and 2009 represented 52 weeks and ended on February 25, 2012, February 26, 2011 and February 27, 2010, respectively.
C. 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.
D. Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires the Company to establish accounting policies and to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on other assumptions that it believes to be relevant under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. In particular, judgment is used in areas such as inventory valuation, impairment of long-lived assets, impairment of auction rate securities, goodwill and other indefinite lived intangible assets, accruals for self insurance, litigation, store opening, expansion, relocation and closing costs, the provision for sales returns, vendor allowances, stock-based compensation and income and certain other taxes. Actual results could differ from these estimates.
E. Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with original maturities of three months or less to be cash equivalents. Included in cash and cash equivalents are credit and debit card receivables from banks, which typically settle within 5 business days, of $67.1 million and $61.9 million as of February 25, 2012 and February 26, 2011, respectively.
F. Investment Securities
Investment securities consist primarily of U.S. Treasury Bills with remaining maturities of less than one year and auction rate
securities, which are securities with interest rates that reset periodically through an auction process. The U.S. Treasury Bills are classified as short term held-to-maturity securities and are stated at their amortized cost which approximates fair value. Auction rate securities are classified as available-for-sale and are stated at fair value, which had historically been consistent with cost or par value due to interest rates which reset periodically, typically every 7, 28 or 35 days. As a result, there generally were no cumulative gross unrealized holding gains or losses relating to these auction rate securities. However, beginning in mid-February 2008 due to market conditions, the auction process for the Companys auction rate securities failed and continues to fail. These failed auctions result in a lack of liquidity in the securities, and affect their estimated fair values at February 25, 2012 and February 26, 2011, but do not affect the underlying collateral of the securities. (See Fair Value Measurements, Note 4 and Investment Securities, Note 5). All income from these investments is recorded as interest income.
Those investment securities which the Company has the ability and intent to hold until maturity are classified as held-to-maturity investments and are stated at amortized cost. Those investment securities which are bought and held principally for the purpose of selling them in the near term are classified as trading securities and are stated at fair market value.
Premiums are amortized and discounts are accreted over the life of the security as adjustments to interest income using the effective interest method. Dividend and interest income are recognized when earned.
G. Inventory Valuation
Merchandise inventories are stated at the lower of cost or market. Inventory costs for BBB, buybuy BABY and Harmon are calculated using the weighted average retail inventory method and inventory costs for CTS are calculated using the first in first out cost method.
Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail values of inventories. The cost associated with determining the cost-to-retail ratio includes: merchandise purchases, net of returns to vendors, discounts and volume and incentive rebates; inbound freight expenses; duty, insurance and commissions.
At any one time, inventories include items that have been written down to the Companys best estimate of their realizable value. Judgment is required in estimating realizable value and factors considered are the age of merchandise and anticipated demand. Actual realizable value could differ materially from this estimate based upon future customer demand or economic conditions.
The Company estimates its reserve for shrinkage throughout the year based on historical shrinkage and any current trends, if applicable. Actual shrinkage is recorded at year end based upon the results of the Companys physical inventory counts for locations at which counts were conducted. For locations where physical inventory counts were not conducted in the fiscal year, an estimated shrink reserve is recorded based on historical shrinkage and any current trends, if applicable. Historically, the Companys shrinkage has not been volatile.
The Company accrues for merchandise in transit once it takes legal ownership and title to the merchandise; as such, an estimate for merchandise in transit is included in the Companys merchandise inventories.
H. 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 (forty years for buildings; five to twenty years for furniture, fixtures and equipment; and three to seven years for computer equipment and software). Leasehold improvements are amortized using the straight-line method over the lesser of their estimated useful life or the life of the lease. Depreciation expense is primarily included within selling, general and administrative expenses.
The cost of maintenance and repairs is charged to earnings as incurred; significant renewals and betterments are capitalized. Maintenance and repairs amounted to $85.8 million, $90.2 million and $86.2 million for fiscal 2011, 2010 and 2009, respectively.
I. Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment when events or changes in circumstances indicate the carrying value of these assets may exceed their current fair values. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the assets. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. The Company has not historically recorded any material impairment to its long-lived assets. In the future, if events or market conditions affect the estimated fair value to the extent that a long-lived asset is impaired, the Company will adjust the carrying value of these long-lived assets in the period in which the impairment occurs.
J. Goodwill and Other Indefinite Lived Intangible Assets
The Company reviews goodwill and other intangibles that have indefinite lives for impairment annually or when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. Impairment testing is based upon the best information available, including estimates of fair value which incorporate assumptions marketplace participants would use in making their estimates of fair value. The Company has not historically recorded an impairment to its goodwill and other indefinite lived intangible assets. The Company completed its annual impairment testing of goodwill and other indefinite lived intangible assets and determined that, as of February 25, 2012, no impairment existed because the fair value of these assets substantially exceeded their carrying values. In the future, if events or market conditions affect the estimated fair value to the extent that an asset is impaired, the Company will adjust the carrying value of these assets in the period in which the impairment occurs.
Included within other assets in the accompanying consolidated balance sheets as of February 25, 2012 and February 26, 2011, respectively, is $198.7 million for goodwill and $30.9 million for indefinite lived tradenames.
K. Self Insurance
The Company utilizes a combination of insurance and self insurance for a number of risks including workers compensation, general liability, automobile liability and employee related health care benefits (a portion of which is paid by its employees). Liabilities associated with the risks that the Company retains are estimated by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. Although the Companys claims experience has not displayed substantial volatility in the past, actual experience could materially vary from its historical experience in the future. Factors that affect these estimates include but are not limited to: inflation, the number and severity of claims and regulatory changes. In the future, if the Company concludes an adjustment to self insurance accruals is required, the liability will be adjusted accordingly.
L. Deferred Rent
The Company accounts for scheduled rent increases contained in its leases on a straight-line basis over the term of the lease beginning as of the date the Company obtained possession of the leased premises. Deferred rent amounted to $77.9 million and $78.3 million as of February 25, 2012 and February 26, 2011, respectively.
Cash or lease incentives (tenant allowances) received pursuant to certain store leases are recognized on a straight-line basis as a reduction to rent over the lease term. The unamortized portion of tenant allowances is included in deferred rent and other liabilities. The unamortized portion of tenant allowances amounted to $120.1 million and $111.9 million as of February 25, 2012 and February 26, 2011, respectively.
M. Treasury Stock
Between December 2004 and December 2010, the Companys Board of Directors authorized, through several share repurchase programs, the repurchase of $4.950 billion of the Companys common stock.
During fiscal 2011, the Company repurchased approximately 21.5 million shares of its common stock at a total cost of approximately $1.218 billion. During fiscal 2010, the Company repurchased approximately 15.9 million shares of its common stock at a total cost of approximately $687.6 million. During fiscal 2009, the Company repurchased approximately 2.7 million shares of its common stock at a total cost of approximately $94.9 million. The Company has approximately $919 million remaining of authorized share repurchases as of February 25, 2012.
The Company has authorization to make repurchases from time to time in the open market or through other parameters approved by the Board of Directors pursuant to existing rules and regulations.
N. Fair Value of Financial Instruments
The Companys financial instruments include cash and cash equivalents, investment securities, accounts payable and certain other liabilities. The Companys investment securities consist primarily of U.S. Treasury securities, which are stated at amortized cost, and auction rate securities, which are stated at their approximate fair value. The book value of all financial instruments is representative of their fair values (See Fair Value Measurements, Note 4).