UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 26, 2000
COMMISSION FILE NUMBER 0-20214
BED BATH & BEYOND INC.
(Exact name of registrant as specified in its charter)
NEW YORK 11-2250488
(State of incorporation) (I.R.S. Employer Identification No.)
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Registrant's telephone number, including area code: (908) 688-0888
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
NUMBER OF SHARES OUTSTANDING OF THE ISSUER'S COMMON STOCK:
CLASS OUTSTANDING AT AUGUST 26, 2000
----- ------------------------------
Common Stock - $0.01 par value 283,038,968
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BED BATH & BEYOND INC. AND SUBSIDIARIES
INDEX
PAGE NO.
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PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets
August 26, 2000 and February 26, 2000 3
Consolidated Statements of Earnings
Three Months and Six Months Ended
August 26, 2000 and August 28, 1999 4
Consolidated Statements of Cash Flows
Six Months Ended August 26, 2000 and August 28, 1999 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Exhibit Index 10
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BED BATH & BEYOND INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)
August 26, February 26,
2000 2000
---------- ----------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 147,700 $ 144,031
Merchandise inventories 594,602 470,433
Prepaid expenses and other current
assets 38,635 32,904
---------- ----------
Total current assets 780,937 647,368
---------- ----------
Property and equipment, net 245,686 208,911
Other assets 10,904 9,521
---------- ----------
$1,037,527 $ 865,800
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 214,250 $ 145,114
Accrued expenses and other current
liabilities 120,974 108,079
Income taxes payable 32,074 33,590
---------- ----------
Total current liabilities 367,298 286,783
---------- ----------
Deferred rent 21,616 19,972
---------- ----------
Total liabilities 388,914 306,755
---------- ----------
Shareholders' equity:
Preferred stock - $0.01 par value;
authorized - 1,000 shares; no shares
issued or outstanding -- --
Common stock - $0.01 par value;
authorized - 350,000 shares; issued
and outstanding - August 26, 2000,
283,039 shares and February 26, 2000,
280,812 shares 2,830 2,808
Additional paid-in capital 117,598 94,994
Retained earnings 528,185 461,243
---------- ----------
Total shareholders' equity 648,613 559,045
---------- ----------
$1,037,527 $ 865,800
========== ==========
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See accompanying Notes to Consolidated Financial Statements.
BED BATH & BEYOND INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
--------------------------- ---------------------------
August 26, August 28, August 26, August 28,
2000 1999 2000 1999
---------- ---------- ---------- ----------
Net sales $ 597,001 $ 457,586 $1,059,736 $ 816,958
Cost of sales, including buying,
occupancy and indirect costs 355,502 272,016 630,891 485,174
---------- ---------- ---------- ----------
Gross profit 241,499 185,570 428,845 331,784
Selling, general and administrative expenses 171,490 131,990 322,497 250,189
---------- ---------- ---------- ----------
Operating profit 70,009 53,580 106,348 81,595
Interest income 1,431 923 3,393 2,225
---------- ---------- ---------- ----------
Earnings before provision for income taxes 71,440 54,503 109,741 83,820
Provision for income taxes 27,862 21,256 42,799 32,690
---------- ---------- ---------- ----------
Net earnings $ 43,578 $ 33,247 $ 66,942 $ 51,130
========== ========== ========== ==========
Net earnings per share - Basic $ 0.15 $ 0.12 $ 0.24 $ 0.18
Net earnings per share - Diluted $ 0.15 $ 0.12 $ 0.23 $ 0.18
Weighted average shares outstanding - Basic 282,872 279,556 282,298 279,305
Weighted average shares outstanding - Diluted 291,363 288,334 290,661 288,204
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See accompanying Notes to Consolidated Financial Statements.
BED BATH & BEYOND INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands, unaudited)
Six Months Ended
--------------------------
August 26, August 28,
2000 1999
--------- ---------
Cash Flows from Operating Activities:
Net earnings $ 66,942 $ 51,130
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 20,691 14,198
Tax benefit from exercise of stock options 13,312 3,685
Deferred income taxes (3,865) (2,507)
Increase in assets:
Merchandise inventories (124,169) (79,198)
Prepaid expenses and other current
assets (2,360) (2,999)
Other assets (889) (1,765)
Increase (decrease) in liabilities:
Accounts payable 69,136 52,188
Accrued expenses and other current
liabilities 12,895 20,266
Income taxes payable (1,516) 4,514
Deferred rent 1,644 1,821
--------- ---------
Net cash provided by operating activities 51,821 61,333
--------- ---------
Cash Flows from Investing Activities:
Capital expenditures (57,466) (24,217)
--------- ---------
Net cash used in investing activities (57,466) (24,217)
--------- ---------
Cash Flows from Financing Activities:
Proceeds from exercise of stock options 9,314 3,333
--------- ---------
Net cash provided by financing activities 9,314 3,333
--------- ---------
Net increase in cash and cash equivalents 3,669 40,449
Cash and cash equivalents:
Beginning of period 144,031 90,396
--------- ---------
End of period $ 147,700 $ 130,845
========= =========
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See accompanying Notes to Consolidated Financial Statements.
BED BATH & BEYOND INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) BASIS OF PRESENTATION
The accompanying consolidated financial statements, except for the February 26, 2000 consolidated balance sheet, have been prepared without audit. In the opinion of Management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of Bed Bath & Beyond Inc. and subsidiaries (the "Company") as of August 26, 2000 and February 26, 2000 and the results of their operations for the three months and six months ended August 26, 2000 and August 28, 1999, respectively, and their cash flows for the six months ended August 26, 2000 and August 28, 1999, respectively. Because of the seasonality of the specialty retailing business, operating results of the Company on a quarterly basis may not be indicative of operating results for the full year.
The accompanying unaudited consolidated financial statements are presented in accordance with the requirements for Form 10-Q and consequently do not include all the disclosures normally required by generally accepted accounting principles. Reference should be made to Bed Bath & Beyond Inc.'s Annual Report for the fiscal year ended February 26, 2000 for additional disclosures, including a summary of the Company's significant accounting policies.
2) STOCK SPLIT
In July 2000, the Board of Directors approved a two-for-one split of the Company's common stock effected in the form of a 100% stock dividend. The stock dividend was distributed on August 11, 2000 to shareholders of record on July 28, 2000. Accordingly, all shareholders' equity, share and per share amounts for all periods presented have been retroactively adjusted to give effect to the stock split.
3) NEW ACCOUNTING PRONOUNCEMENTS
The FASB Emerging Issues Task Force ("EITF") reached a consensus with respect to the issue of "Accounting for Certain Sales Incentives", including point of sale coupons, rebates and free merchandise. They concluded that the value of point of sale coupons and rebates, which result in a reduction of the price paid by the customer, should be recorded as a reduction of sales and that free merchandise incentives should be recorded as cost of sales. The Company will adopt the EITF in the fourth quarter of the current fiscal year, as required. The Company currently records its point of sale coupons and rebates in cost of sales and free merchandise incentives in sales. The reclassifications will not have an impact on gross profit, operating profit or net earnings.
The Task Force also reached a consensus with respect to the issue of "Accounting for Shipping and Handling Fees and Costs". They concluded that amounts billed to a customer in a sale transaction related to shipping and handling represent revenues and costs related to shipping and handling represent cost of sales. The Company currently nets revenues and costs in selling, general and administrative expenses ("SG&A") and, upon adoption, will reclassify such shipping and handling revenues to sales and shipping and handling costs to cost of sales. The Company will adopt the EITF in the fourth quarter of the current fiscal year, as required. The Company does not believe the amount of the reclassifications related to shipping and handling fees and costs is material. The reclassifications will not have an impact on operating profit or net earnings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months August 26, 2000 vs. Three Months August 28, 1999
Net sales for the second quarter ended August 26, 2000 were $597.0 million, an increase of $139.4 million or approximately 30.5% over net sales of $457.6 million for the corresponding quarter last year. Approximately 81.2% of the increase was attributable to new store net sales. The increase in comparable store net sales in the second quarter of 2000 was approximately 6.1%. The increase in net sales reflects a number of factors, including but not limited to, the continued consumer acceptance of the Company's merchandise offerings and customer service and the generally favorable retailing environment. Approximately 55% and 45% of net sales for the second quarter were attributable to sales of domestics merchandise and home furnishings merchandise, respectively.
Gross profit for the second quarter of 2000 was $241.5 million or 40.5% of net sales compared with $185.6 million or 40.6% of net sales during the second quarter of 1999.
SG&A was $171.5 million in the second quarter of 2000 compared with $132.0 million in the same quarter last year and as a percentage of net sales were 28.7% and 28.8%, respectively.
Six Months August 26, 2000 vs. Six Months August 28, 1999
Net sales for the six months ended August 26, 2000 were $1.1 billion, an increase of $242.8 million or approximately 29.7% over net sales of $817.0 million for the corresponding period last year. Approximately 82.2% of the increase was attributable to new store net sales. The increase in comparable store net sales for the first six months of 2000 was approximately 5.6%.
Gross profit for the first six months of 2000 was $428.8 million or 40.5% of net sales compared with $331.8 million or 40.6% of net sales during the same period last year.
SG&A was $322.5 million in the first six months of 2000 compared with $250.2 million for the same period last year and as a percentage of net sales were 30.4% and 30.6%, respectively. The decrease in SG&A, as a percentage of net sales, primarily reflects a relative decrease in occupancy costs.
EXPANSION PROGRAM
The Company is engaged in an ongoing expansion program involving the opening of new stores in both existing and new markets and the expansion or replacement of existing stores with larger stores. As a result of this program, the total number of stores has increased to 272 stores at the end of the second quarter of 2000 compared with 201 stores at the end of the corresponding quarter last year. Total square footage grew to approximately 10.8 million square feet at the end of the second quarter of 2000, from approximately 8.3
million square feet at the end of the second quarter of last year. The total number of stores and the total square footage does not include the Company's electronic service site which was launched on November 28, 1999.
During the first six months of fiscal 2000, the Company opened 31 new superstores resulting in an aggregate addition of 1.0 million square feet to total store space. The Company anticipates opening approximately 33 additional stores and expanding two existing stores by the end of the fiscal year, aggregating approximately 1.1 million square feet of store space for the year.
FINANCIAL CONDITION
Total assets at August 26, 2000 were $1.0 billion compared with $865.8 million at February 26, 2000, an increase of $171.7 million. Of the total increase, $133.6 million represented an increase in current assets and $38.2 million represented an increase in non-current assets. The increase in current assets was primarily attributable to an increase in merchandise inventories, which resulted from new store space and, to a lesser extent, changes in merchandising mix.
Total liabilities at August 26, 2000 were $388.9 million compared with $306.8 million at February 26, 2000, an increase of $82.2 million. The increase was primarily attributable to a $69.1 million increase in accounts payable (resulting from an increase in inventories) and a $12.9 million increase in accrued expenses and other current liabilities.
Shareholders' equity was $648.6 million at August 26, 2000 compared with $559.0 million at February 26, 2000. The increase reflects net earnings for the first six months of fiscal 2000 and additional paid-in capital from the exercise of stock options.
Capital expenditures for the first six months of fiscal 2000 were $57.5 million compared with $24.2 million for the corresponding period last year. The increase is primarily attributable to expenditures for furniture, fixtures and leasehold improvements for the 31 new superstores opened during the first six months compared to expenditures for furniture, fixtures and leasehold improvements for the 15 new superstores opened and two stores expanded in the same period last year, as well as the cost of store renovations and information technology additions.
FORWARD LOOKING STATEMENTS
This Form 10-Q may contain forward looking statements. Important factors which may affect these statements are contained in the Company's Annual Report to shareholders for the fiscal year ended February 26, 2000.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits to this report are listed on the Exhibit Index included elsewhere herein.
(b) No reports on Form 8-K were filed by the Company during the three month period ended August 26, 2000.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: October 10, 2000 By: /s/ Eugene A. Castagna
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Eugene A. Castagna
Vice President - Finance and Principal
Accounting Officer
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EXHIBIT INDEX
Exhibit No. Exhibit Page No.
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10.1 Form of Standard Stock Option Agreement
11 - 13
27 Financial Data Schedule 14
(Filed electronically with SEC only)
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Exhibit 10.1
FORM OF STANDARD STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT dated as of ______________ between BED BATH & BEYOND INC., a New York corporation, and_____________(the "Optionee").
PRELIMINARY STATEMENT
Pursuant to the Bed Bath & Beyond Inc. ____ Stock Option Plan
("the Plan"), the Committee that administers the Plan (the "Committee")
has authorized the granting to Optionee of an option to purchase
_________ shares of the Company's common stock, par value $.01 per
share ("Common Stock"), subject to the Plan and the terms and
conditions set forth herein. The parties hereto desire to enter into
this Agreement in order to set forth the terms of such option.
Accordingly, the parties hereto agree as follows:
1. Grant of Option. Subject to the Plan and the terms and conditions of this Agreement, the Company hereby grants to Optionee the option (the "Option") to purchase from the Company up to _______ shares of Common Stock at a price of $______per share. The Option shall not be immediately exercisable but shall become exercisable in installments, which shall be cumulative, as indicated below:*
Date on which Installment Number of Shares
First Vests and Becomes Exercisable In Installments
----------------------------------- -----------------
(one year from date of grant) 20% of the number of shares
originally subject to the Option
(two years from date of grant) 20% of the number of shares
originally subject to the Option
(three years from date of grant) 20% of the number of shares
originally subject to the Option
(four years from date of grant) 20% of the number of shares
originally subject to the Option
(five years from date of grant) 20% of the number of shares
originally subject to the Option
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* In some stock option agreements where the optionee has previously been granted stock options, the dates on which installments first vest and become exercisable are from three years from date of grant through seven years from date of grant. In some stock option agreements the number of shares in each installment is 33-1/3% of the number of shares originally subject to the option and in such cases the dates on which installments first vest and become exercisable are from one year from date of grant through three years from date of grant.
2. Plans Governing Terms of Option. The Option is subject in all respects to the terms and conditions of the Plan, a copy of which is attached hereto as Exhibit A.
3. Type of Option. The Option is not intended to qualify as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended.
4. Termination. The Option shall terminate on the tenth anniversary of the date hereof, unless terminated earlier pursuant to the following sentence or otherwise pursuant to the Plan. The Option shall immediately terminate upon termination of the Optionee's employment with the Company, subject to the following exceptions (i) if such termination is by reason of the death or disability of the Optionee, the unexercised portion of the Option shall continue to be exercisable for 12 months after such termination and (ii) if such termination is for any other reason, excluding termination for cause, the unexercised portion of the Option shall continue to be exercisable for three months after such termination (subject, in the case of both clauses (i) and (ii) above, to the preceding sentence).
5. Exercise. The Option may be exercised by delivering to the Company a written notice (signed by the Optionee) stating the number of shares with respect to which the Option is being exercised, together with full payment of the purchase price therefor. Payment may be made in cash or by certified check, bank draft, or money order payable to the order of the Company or, if permitted by the Committee, through delivery of shares of Common Stock (such shares to be valued as provided in the Plan). As provided in the Plan, the Committee may require Optionee to remit to the Company an amount sufficient to satisfy any federal, state or local withholding tax requirements (or make other arrangements satisfactory to the Company with regard to such taxes) prior to delivering to Optionee any shares purchased upon exercise of the Option. The Option may not be exercised with respect to a fractional share.
6. Restriction on Transfer. The Option may not be assigned or transferred except by will or the laws of descent and distribution and during the Optionee's lifetime may be exercised only by him.**
7. Notice. Any notice or communication to the Company hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, or by United States mail, to the following address (or to such other address as the Company shall from time to time specify):
** In some stock option agreements Paragraph 6 reads as follows:
The Option may not be assigned or transferred except by will or the laws of
descent and distribution and except by a written assignment (signed by the
Optionee and delivered to the Company), provided such assignment assigns all
or a portion of the Option to the Optionee's spouse, descendants or trusts for
the sole benefit of the Optionee's spouse or descendants. The Option may be
exercised only by the Optionee, the Optionee's assignee pursuant to an
assignment permitted hereunder, or by the executor or personal representative
of the Optionee or of such assignee.
Bed Bath & Beyond Inc. C/O Petitti, Eisenberg & Gamache, P.C.
Attention: Todd Eisenberg
488 Pleasant Street
New Bedford, MA 02740
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written.
BED BATH & BEYOND INC.
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF AUGUST 26, 2000 AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED AUGUST 26, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| PERIOD TYPE | 6 MOS |
| FISCAL YEAR END | MAR 03 2001 |
| PERIOD START | FEB 27 2000 |
| PERIOD END | AUG 26 2000 |
| CASH | 147,700 |
| SECURITIES | 0 |
| RECEIVABLES | 0 |
| ALLOWANCES | 0 |
| INVENTORY | 594,602 |
| CURRENT ASSETS | 780,937 |
| PP&E | 378,219 |
| DEPRECIATION | (132,533) |
| TOTAL ASSETS | 1,037,527 |
| CURRENT LIABILITIES | 367,298 |
| BONDS | 0 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 2,830 |
| OTHER SE | 645,783 |
| TOTAL LIABILITY AND EQUITY | 1,037,527 |
| SALES | 1,059,736 |
| TOTAL REVENUES | 1,059,736 |
| CGS | 630,891 |
| TOTAL COSTS | 630,891 |
| OTHER EXPENSES | 322,497 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | (3,393) |
| INCOME PRETAX | 109,741 |
| INCOME TAX | 42,799 |
| INCOME CONTINUING | 66,942 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 66,942 |
| EPS BASIC | .24 |
| EPS DILUTED | .23 |