1) Basis of Presentation

 

The accompanying consolidated financial statements have been prepared without audit. In the opinion of management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals and elimination of intercompany balances and transactions) necessary to present fairly the financial position of Bed Bath & Beyond Inc. and subsidiaries (the "Company") as of May 27, 2017 and February 25, 2017 and the results of its operations, comprehensive income and cash flows for the three months ended May 27, 2017 and May 28, 2016, respectively.

 

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 U.S. generally accepted accounting principles (“GAAP”). Reference should be made to Bed Bath & Beyond Inc.'s Annual Report on Form 10-K for the fiscal year ended February 25, 2017 for additional disclosures, including a summary of the Company's significant accounting policies, and to subsequently filed Forms 8-K.

 

Certain reclassifications have been made to the fiscal 2016 consolidated balance sheet and statement of cash flows to conform to the fiscal 2017 consolidated balance sheet and statement of cash flows presentation.

 

The Company accounts for its operations as two operating segments: North American Retail and Institutional Sales. The Institutional Sales operating segment, which is comprised of Linen Holdings, does not meet the quantitative thresholds under GAAP and therefore is not a reportable segment. Net sales outside of the U.S. for the Company were not material for the three months ended May 27, 2017 and May 28, 2016.

 

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. Sales of domestics merchandise and home furnishings accounted for approximately 36.2% and 63.8% of net sales, respectively, for the three months ended May 27, 2017 and approximately 36.6% and 63.4% of net sales, respectively, for the three months ended May 28, 2016.

 

As the Company operates in the retail industry, its results of operations are affected by general economic conditions and consumer spending habits.

2) Acquisitions

 

On June 13, 2016, the Company acquired One Kings Lane, Inc., an online authority in home décor and design, offering a unique collection of select home goods, designer and vintage items. Since the date of acquisition, the results of One Kings Lane’s operations, which were not material, have been included in the Company’s results of operations and no proforma disclosure of financial information has been presented. One Kings Lane is included in the North American Retail operating segment.

 

On November 23, 2016, the Company acquired PersonalizationMall.com, LLC (“PMall”), an industry-leading online retailer of personalized products, for an aggregate purchase price of approximately $189.4 million. Since the date of acquisition, the result of PMall’s operations, which were not material, have been included in the Company’s results of operations and no proforma disclosure of financial information has been presented. PMall is included in the North American Retail operating segment.

 

The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities assumed at the date of acquisition for PMall. The Company is in the process of finalizing the valuation of certain assets acquired and liabilities assumed; thus, the amounts below are subject to change until the anniversary of the acquisition.

 

 

(in millions)		As of November 23, 2016
Current assets		$	15.1
Property and equipment and other non-current assets			9.3
Goodwill			185.5
Intangible assets			10.4
Total assets acquired			220.3
Accounts payable and other liabilities			(30.9	)
Total net assets acquired		$	189.4

 

Included within intangible assets above is approximately $10.0 million for tradenames, which is not subject to amortization. The tradenames and goodwill are expected to be deductible for tax purposes.

 

On January 27, 2017, the Company acquired certain assets including the brand, website and certain intellectual property assets and assumed certain contractual obligations of Chef Central, a retailer of kitchenware, cookware and homeware items catering to cooking and baking enthusiasts. Since the date of acquisition, the results of Chef Central’s operations, which were not material, have been included in the Company’s results of operations and no proforma disclosure of financial information has been presented. Chef Central is included in the North American Retail operating segment.

 

On March 6, 2017, the Company acquired Decorist, Inc., an online interior design platform that provides personalized home design services. Since the date of acquisition, the results of Decorist’s operations, which were not material, have been included in the Company’s results of operations for the three months ended May 27, 2017, and no proforma disclosure of financial information has been presented. Decorist is included in the North American Retail operating segment.

3) Recent Accounting Pronouncements

 

In November 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes . This guidance requires an entity to classify deferred tax assets and liabilities as noncurrent assets and liabilities on the balance sheet. ASU 2015-17 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, with earlier adoption permitted. ASU 2015-17 can be adopted either prospectively or retrospectively to each prior reporting period presented. At the beginning of the first quarter of fiscal 2017, the Company adopted this guidance retrospectively, which resulted in decreases to other current assets of $218.8 million and deferred rent and other liabilities of $23.4 million and an increase to other assets of $195.5 million as of February 25, 2017.

 

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting , which simplifies several aspects of the accounting for share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 requires, on a prospective basis, recognition of excess tax benefits and tax deficiencies (resulting from an increase or decrease in the fair value of an award from grant date to the vesting or exercise date) in the provision for income taxes as a discrete item in the period in which they occur. The ASU also changes the classification of excess tax benefits from a financing activity to an operating activity in the Company’s consolidated statements of cash flows. In addition, ASU 2016-09 allows companies to make an accounting policy election to either estimate expected forfeitures or account for them as they occur. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those years, with early adoption permitted. The Company adopted ASU 2016-09 during the first quarter of fiscal 2017. During the three months ended May 27, 2017, the Company recognized in income tax expense a discrete tax expense of $7.6 million related to tax deficiencies. Additionally, the Company elected to account for forfeitures as an estimate of the number of awards that are expected to vest, which is consistent with its accounting policy prior to adoption of ASU 2016-09. The Company adopted the provisions of ASU 2016-09 related to changes in the consolidated statements of cash flows on a retrospective basis. As such, excess tax benefits are now classified as an operating activity in the Company’s Consolidated Statements of Cash Flows instead of as a financing activity. As a result, excess tax benefits of $1.3 million for the three months ended May 28, 2016 were reclassified from financing activities to operating activities. ASU 2016-09 also requires that the value of shares withheld from employees upon vesting of stock awards in order to satisfy any applicable tax withholding requirements is presented within financing activities in the Company’s Consolidated Statements of Cash Flows, which is consistent with the Company’s historical presentation, and therefore had no impact to the Company.

 

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) . This guidance requires an entity to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In July 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date . This guidance deferred the effective date of ASU 2014-09 for one year from the original effective date. In accordance with the deferral, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. In 2016, the FASB issued several amendments to clarify various aspects of the implementation guidance. ASU 2014-09 can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption. The Company does not expect to adopt this ASU until required, and has not yet selected the transition method. The Company is in the process of analyzing its revenue streams and quantifying the effects, if any, to the areas discussed above, and currently does not expect the adoption of this standard will have a material impact on its consolidated financial position, results of operations, or cash flows.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . This guidance requires an entity to recognize lease liabilities and a right-of-use asset for all leases on the balance sheet and to disclose key information about the entity's leasing arrangements. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with earlier adoption permitted. ASU 2016-02 must be adopted using a modified retrospective approach for all leases existing at, or entered into after the date of initial adoption, with an option to elect to use certain transition relief. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures, but expects that it will result in a significant increase in the assets and liabilities recorded on the consolidated balance sheet.

 

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business . ASU 2017-01 requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of identifiable assets, the set of assets would not represent a business. Also, in order to be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to produce outputs. Under the update, fewer sets of assets are expected to be considered businesses. ASU 2017-01 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The adoption of this guidance is not expected to have a significant effect on the Company's consolidated financial position, results of operations, or cash flows.

 

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment . ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill to measure the amount of impairment loss, if any, under the second step of the current goodwill impairment test. Under the update, the goodwill impairment loss would be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual reporting periods beginning after December 15, 2019, with early adoption permitted. The adoption of this guidance is not expected to have a significant effect on the Company's consolidated financial position, results of operations, or cash flows.

4) Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., “the exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches, including quoted market prices and discounted cash flows. The hierarchy for inputs used in measuring fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect a company’s judgment concerning the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an asset or liability must be classified in its entirety based on the lowest level of input that is significant to the measurement of fair value. The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:

 

 

• Level 1 – Valuations based on quoted prices in active markets for identical instruments that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

 

• Level 2 – Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

 

• Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

 

As of May 27, 2017, the Company’s financial assets utilizing Level 1 inputs included long term trading investment securities traded on active securities exchanges. The Company did not have any financial assets utilizing Level 2 inputs. Financial assets utilizing Level 3 inputs included long term investments in auction rate securities consisting of preferred shares of closed end municipal bond funds (See “Investment Securities,” Note 6). 

 

Fair Value of Financial Instruments

 

The Company’s financial instruments include cash and cash equivalents, investment securities, accounts payable, long term debt and certain other liabilities. The Company’s investment securities include auction rate securities, which are stated at their approximate fair value. The book value of the financial instruments, excluding the Company’s long term debt, is representative of their fair values. The fair value of the Company’s long term debt is approximately $1.407 billion as of May 27, 2017, which is based on quoted prices in active markets for identical instruments (i.e., Level 1 valuation), compared to the carrying value of approximately $1.500 billion.

5) Cash and Cash Equivalents

 

Included in cash and cash equivalents are credit and debit card receivables from banks, which typically settle within five business days, of $100.6 million and $86.6 million as of May 27, 2017 and February 25, 2017, respectively.

6) Investment Securities

 

The Company’s investment securities as of May 27, 2017 and February 25, 2017 are as follows:

 

(in millions)		May 27, 2017				February 25, 2017
Available-for-sale securities:
Long term		$	19.5			$	19.3
Trading securities:
Long term			76.6				70.3
Total investment securities		$	96.1			$	89.6

 

Auction Rate Securities

 

As of May 27, 2017 and February 25, 2017, the Company’s long term available-for-sale investment securities represented approximately $20.3 million par value of auction rate securities consisting of preferred shares of closed end municipal bond funds, less temporary valuation adjustments of approximately $0.8 million and $1.0 million, respectively. Since these valuation adjustments are deemed to be temporary, they are recorded in accumulated other comprehensive loss, net of a related tax benefit, and did not affect the Company’s net earnings.

 

Long Term Trading Investment Securities

 

The Company’s long term trading investment securities, which are provided as investment options to the participants of the nonqualified deferred compensation plan, are stated at fair market value. The values of these trading investment securities included in the table above are approximately $76.6 million and $70.3 million as of May 27, 2017 and February 25, 2017, respectively.

- 10 -

 

7) Property and Equipment

 

As of May 27, 2017 and February 25, 2017, included in property and equipment, net is accumulated depreciation of approximately $2.9 billion and $2.8 billion, respectively.

8) Long Term Debt

 

Senior Unsecured Notes

 

On July 17, 2014, the Company issued $300 million aggregate principal amount of 3.749% senior unsecured notes due August 1, 2024, $300 million aggregate principal amount of 4.915% senior unsecured notes due August 1, 2034 and $900 million aggregate principal amount of 5.165% senior unsecured notes due August 1, 2044 (collectively, the “Notes”). Interest on the Notes is payable semi-annually on February 1 and August 1 of each year.

 

The Notes were issued under an indenture (the “Base Indenture”), as supplemented by a first supplemental indenture (together, with the Base Indenture, the “Indenture”), which contains various restrictive covenants, which are subject to important limitations and exceptions that are described in the Indenture. The Company was in compliance with all covenants related to the Notes as of May 27, 2017.

 

Revolving Credit Agreement

 

The Company has a $250 million five year senior unsecured revolving credit facility agreement (“Revolver”), expiring in August 2019, with various lenders. During the three months ended May 27, 2017, the Company did not have any borrowings under the Revolver.

 

The Revolver contains customary affirmative and negative covenants and also requires the Company to maintain a minimum leverage ratio. The Company was in compliance with all covenants related to the Revolver as of May 27, 2017.

 

Deferred financing costs associated with the Notes and the Revolver of approximately $10.1 million were capitalized. In the accompanying Consolidated Balance Sheets, the deferred financing costs are included in long term debt, net of amortization, for the Notes and are included in other assets, net of amortization, for the Revolver. These deferred financing costs for the Notes and the Revolver are being amortized over the term of each of the Notes and the term of the Revolver and such amortization is included in interest expense, net in the Consolidated Statements of Earnings. Interest expense related to the Notes and the Revolver, including the commitment fee and the amortization of deferred financing costs, was approximately $18.2 million and $18.7 million for the three months ended May 27, 2017 and May 28, 2016, respectively.

 

Lines of Credit

 

At May 27, 2017, the Company maintained two uncommitted lines of credit of $100 million each, with expiration dates of August 30, 2017 and February 25, 2018, respectively. These uncommitted lines of credit are currently and are expected to be used for letters of credit in the ordinary course of business. During the first three months of fiscal 2017, the Company did not have any direct borrowings under the uncommitted lines of credit. Although no assurances can be provided, the Company intends to renew both uncommitted lines of credit before the respective expiration dates.

9) Shareholders’ Equity

 

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.

 

Between December 2004 and September 2015, the Company’s Board of Directors authorized, through several share repurchase programs, the repurchase of $11.950 billion of its shares of common stock. The Company also acquires shares of its common stock to cover employee related taxes withheld on vested restricted stock and performance stock unit awards. In the first three months of fiscal 2017, the Company repurchased approximately 3.3 million shares of its common stock for a total cost of approximately $127.3 million, bringing the aggregate total of common stock repurchased to approximately 196.5 million shares for a total cost of approximately $10.3 billion since the initial authorization in December 2004. The Company has approximately $1.6 billion remaining of authorized share repurchases as of May 27, 2017.

 

 

During fiscal 2016, the Company’s Board of Directors authorized a quarterly dividend program. Quarterly dividends of $0.125 per share in each quarter, totaling $0.50 per share for fiscal 2016 were declared by the Company’s Board of Directors, of which $0.375 per share was paid in fiscal 2016. On April 5, 2017, the Company’s Board of Directors declared a quarterly dividend of $0.15 per share to be paid on July 18, 2017 to shareholders of record at the close of business on June 16, 2017. Subsequent to the end of the first quarter of fiscal 2017, on June 22, 2017, the Company’s Board of Directors declared a quarterly dividend of $0.15 per share to be paid on October 17, 2017 to shareholders of record as of the close of business on September 15, 2017. The Company expects to pay quarterly cash dividends on its common stock in the future, subject to the determination by the Board of Directors, based on an evaluation of the Company’s earnings, financial condition and requirements, business conditions and other factors.

 

Cash dividends, if any, are accrued as a liability on the Company’s consolidated balance sheets and recorded as a decrease to additional paid-in capital when declared.

10) Stock-Based Compensation

 

The Company measures all employee stock-based compensation awards using a fair value method and records such expense, net of estimated forfeitures, in its consolidated financial statements. Currently, the Company’s stock-based compensation relates to restricted stock awards, stock options and performance stock units. The Company’s restricted stock awards are considered nonvested share awards.

 

Stock-based compensation expense for the three months ended May 27, 2017 and May 28, 2016 was approximately $21.5 million ($12.4 after tax or $0.09 per diluted share) and $20.7 million ($12.9 million after tax or $0.08 per diluted share), respectively. In addition, the amount of stock-based compensation cost capitalized for both the three months ended May 27, 2017 and May 28, 2016 was approximately $0.5 million.

 

Incentive Compensation Plans

 

The Company currently grants awards under the Bed Bath & Beyond 2012 Incentive Compensation Plan (the “2012 Plan”), which amended and restated the Bed Bath & Beyond 2004 Incentive Compensation Plan (the “2004 Plan”). The 2012 Plan includes an aggregate of 43.2 million common shares authorized for issuance and the ability to grant incentive stock options. Outstanding awards that were covered by the 2004 Plan continue to be in effect under the 2012 Plan.

 

The 2012 Plan is a flexible compensation plan that enables the Company to offer incentive compensation through stock options (whether nonqualified stock options or incentive stock options), restricted stock awards, stock appreciation rights, performance awards and other stock based awards, including cash awards. Under the 2012 Plan, grants are determined by the Compensation Committee for those awards granted to executive officers and by an appropriate committee for all other awards granted. Awards of stock options and restricted stock generally vest in five equal annual installments beginning one to three years from the date of grant. Awards of performance stock units generally vest over a period of four years from the date of grant dependent on the Company’s achievement of performance-based tests and subject, in general, to the executive remaining in the Company’s service on specified vesting dates.

 

The Company generally issues new shares for stock option exercises, restricted stock awards and vesting of performance stock units.

 

Stock Options

 

Stock option grants are issued at fair market value on the date of grant and generally become exercisable in either three or five equal annual installments beginning one year from the date of grant for options issued since May 10, 2010, and beginning one to three years from the date of grant for options issued prior to May 10, 2010, in each case, subject, in general, to the recipient remaining in the Company’s service on specified vesting dates. Option grants expire eight years after the date of grant. All option grants are nonqualified. As of May 27, 2017, unrecognized compensation expense related to the unvested portion of the Company’s stock options was $25.0 million, which is expected to be recognized over a weighted average period of 3.7 years.

 

 

The fair value of the stock options granted was estimated on the date of the grant using a Black-Scholes option-pricing model that uses the assumptions noted in the following table.

 

		Three Months Ended
Black-Scholes Valuation Assumptions  (1)		May 27, 2017				May 28, 2016
Weighted Average Expected Life (in years)  (2)			6.7				6.6
Weighted Average Expected Volatility  (3)			26.49	%			26.96	%
Weighted Average Risk Free Interest Rates  (4)			2.17	%			1.46	%
Expected Dividend Yield (5)			1.60	%			1.10	%

 

(1) Forfeitures are estimated based on historical experience.

(2) The expected life of stock options is estimated based on historical experience.

(3) Expected volatility is based on the average of historical and implied volatility. The historical volatility is determined by observing actual prices of the Company’s stock over a period commensurate with the expected life of the awards. The implied volatility represents the implied volatility of the Company’s 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.

(4) Based on the U.S. Treasury constant maturity interest rate whose term is consistent with the expected life of the stock options.

(5) Expected dividend yield is estimated based on anticipated dividend payouts.

 

Changes in the Company’s stock options for the three months ended May 27, 2017 were as follows:

 

(Shares in thousands)		Number of Stock Options				Weighted Average Exercise Price
Options outstanding, beginning of period			3,906			$	56.48
Granted			694				37.50
Exercised			(359	)			28.33
Forfeited or expired			-				-
Options outstanding, end of period			4,241			$	55.76
Options exercisable, end of period			2,441			$	60.38

 

The weighted average fair value for the stock options granted during the first three months of fiscal 2017 and 2016 was $9.50 and $11.87, respectively. The weighted average remaining contractual term for options outstanding as of May 27, 2017 was 4.82 years and the aggregate intrinsic value was $0. The weighted average remaining contractual term for options exercisable as of May 27, 2017 was 3.35 years and the aggregate intrinsic value was $0. The total intrinsic value for stock options exercised during the first three months of fiscal 2017 and 2016 was $3.9 and $8.3 million, respectively.

 

Net cash proceeds from the exercise of stock options for the first three months of fiscal 2017 were $10.2 and the net associated income tax expense was $0.2 million.

 

Restricted Stock

 

Restricted stock awards are issued and measured at fair market value on the date of grant and generally become vested in five equal annual installments beginning one to three years from the date of grant, subject, in general, to the recipient remaining in the Company’s service on specified vesting dates. Vesting of restricted stock is based solely on time vesting. As of May 27, 2017, unrecognized compensation expense related to the unvested portion of the Company’s restricted stock awards was $160.8 million, which is expected to be recognized over a weighted average period of 4.9 years.

 

 

 

Changes in the Company’s restricted stock for the three months ended May 27, 2017 were as follows:

 

(Shares in thousands)		Number of Restricted Shares				Weighted Average Grant-Date Fair Value
Unvested restricted stock, beginning of period			3,492			$	58.12
Granted			1,118				37.59
Vested			(527	)			60.96
Forfeited			(50	)			53.16
Unvested restricted stock, end of period			4,033			$	52.12

 

Performance Stock Units

 

Performance stock units (“PSUs”) are issued and measured at fair market value on the date of grant. Vesting of PSUs awarded to certain of the Company’s executives is dependent on the Company’s achievement of a performance-based test during a one-year period from the date of grant and during a three-year period from the date of grant and, assuming achievement of the performance-based test, time vesting over periods of up to four years, subject, in general, to the executive remaining in the Company’s service on specified vesting dates. Performance during the one-year period will be based on Earnings Before Interest and Taxes (“EBIT”) margin relative to a peer group of the Company and performance during the three-year period will be based on Return on Invested Capital (“ROIC”) or a combination of EBIT margin and ROIC relative to such peer group. The awards based on EBIT margin and ROIC range from a floor of zero to a cap of 150% of target achievement. PSUs are converted into shares of common stock upon payment following vesting. Upon grant of the PSUs, the Company recognizes compensation expense related to these awards based on the assumption that 100% of the target award will be achieved. The Company evaluates the target assumption on a quarterly basis and adjusts compensation expense related to these awards, as appropriate. As of May 27, 2017, unrecognized compensation expense related to the unvested portion of the Company’s performance stock units was $41.2 million, which is expected to be recognized over a weighted average period of 2.2 years.

 

Changes in the Company’s PSUs for the three months ended May 27, 2017 were as follows:

 

(Shares in thousands)		Number of Performance Stock Units				Weighted Average Grant-Date Fair Value
Unvested performance stock units, beginning of period			1,014			$	55.19
Granted			660				37.50
Vested			(322	)			57.28
Forfeited			-				-
Unvested performance stock units, end of period			1,352			$	46.06

 

11) Earnings per Share

 

The Company presents earnings per share on a basic and diluted basis. Basic earnings per share has been computed by dividing net earnings by the weighted average number of shares outstanding. Diluted earnings per share has been computed by dividing net earnings by the weighted average number of shares outstanding, including the dilutive effect of stock-based awards as calculated under the treasury stock method.

 

Stock-based awards for the three months ended May 27, 2017 and May 28, 2016 of approximately 7.2 million and 4.7 million, respectively were excluded from the computation of diluted earnings per share as the effect would be anti-dilutive.

12) Supplemental Cash Flow Information

 

The Company paid income taxes of $8.7 million and $75.2 million in the first three months of fiscal 2017 and 2016, respectively. In addition, the Company had interest payments of approximately $2.2 million in the first three months of fiscal 2017 and 2016.

 

The Company recorded an accrual for capital expenditures of $34.1 million and $29.1 million as of May 27, 2017 and May 28, 2016, respectively. In addition, the Company recorded an accrual for dividends payable of $23.6 million and $19.4 million as of May 27, 2017 and May 26, 2016, respectively.

- 14 -