BED BATH & BEYOND INC (Form: 10-K, Received: 05/02/2018 16:52:44)

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following are included herein:

Consolidated Balance Sheets as of March 3, 2018 and February 25, 2017

Consolidated Statements of Earnings for the fiscal years ended March 3, 2018, February 25, 2017, and February 27, 2016

Consolidated Statements of Comprehensive Income for the fiscal years ended March 3, 2018, February 25, 2017, and February 27, 2016

Consolidated Statements of Shareholders’ Equity for the fiscal years ended March 3, 2018, February 25, 2017, and February 27, 2016

Consolidated Statements of Cash Flows for the fiscal years ended March 3, 2018, February 25, 2017, and February 27, 2016

Notes to Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firm

BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except per share data)

	March 3, 2018			February 25, 2017

Assets
Current assets:
Cash and cash equivalents	$	346,140		$	488,329
Short term investment securities		378,039			-
Merchandise inventories		2,730,874			2,905,660
Prepaid expenses and other current assets		516,025			197,912

Total current assets		3,971,078			3,591,901

Long term investment securities		19,517			89,592
Property and equipment, net		1,909,289			1,837,129
Goodwill		716,283			697,085
Other assets		424,639			606,948

Total assets	$	7,040,806		$	6,822,655

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	1,197,504		$	1,179,088
Accrued expenses and other current liabilities		633,100			484,114
Merchandise credit and gift card liabilities		335,081			309,478
Current income taxes payable		-			59,821

Total current liabilities		2,165,685			2,032,501

Deferred rent and other liabilities		431,592			511,303
Income taxes payable		62,823			67,971
Long term debt		1,492,078			1,491,603

Total liabilities		4,152,178			4,103,378

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 341,795 and 339,533 shares, respectively; outstanding 140,498 and 146,274 shares, respectively		3,418			3,395
Additional paid-in capital		2,057,975			1,974,781
Retained earnings		11,343,503			11,003,890
Treasury stock, at cost		(10,467,972	)		(10,215,539	)
Accumulated other comprehensive loss		(48,296	)		(47,250	)

Total shareholders' equity		2,888,628			2,719,277

Total liabilities and shareholders' equity	$	7,040,806		$	6,822,655

See accompanying Notes to Consolidated Financial Statements.

BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Statements of Earnings

(in thousands, except per share data)

	Twelve Months Ended
	March 3, 2018		February 25, 2017		February 27, 2016


Net sales	$	12,349,301	$	12,215,757	$	12,103,887

Cost of sales		7,906,286		7,639,407		7,483,577

Gross profit		4,443,015		4,576,350		4,620,310

Selling, general and administrative expenses		3,681,694		3,441,140		3,205,407

Operating profit		761,321		1,135,210		1,414,903

Interest expense, net		65,661		69,555		87,458

Earnings before provision for income taxes		695,660		1,065,655		1,327,445

Provision for income taxes		270,802		380,547		485,956

Net earnings	$	424,858	$	685,108	$	841,489

Net earnings per share - Basic	$	3.05	$	4.61	$	5.15
Net earnings per share - Diluted	$	3.04	$	4.58	$	5.10

Weighted average shares outstanding - Basic		139,238		148,590		163,257
Weighted average shares outstanding - Diluted		139,739		149,708		165,016

Dividends declared per share	$	0.60	$	0.50	$	-

See accompanying Notes to Consolidated Financial Statements.

BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(in thousands)

	Twelve Months Ended
	March 3, 2018			February 25, 2017			February 27, 2016

Net earnings	$	424,858		$	685,108		$	841,489

Other comprehensive (loss) income:

Change in temporary impairment of auction rate securities, net of taxes		95			(351	)		1,584
Pension adjustment, net of taxes		2,021			1,710			(351	)
Currency translation adjustment		(2,548	)		6,389			(13,918	)
Reclassification due to the adoption of ASU 2018-02		(614	)		-			-

Other comprehensive (loss) income		(1,046	)		7,748			(12,685	)

Comprehensive income	$	423,812		$	692,856		$	828,804

See accompanying Notes to Consolidated Financial Statements.

BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders' Equity

(in thousands)

	Common Stock				Additional Paid-			Retained			Treasury Stock						Accumulated Other Comprehensive
	Shares		Amount		in Capital			Earnings			Shares			Amount			Loss			Total
Balance at February 28, 2015		336,667	$	3,367	$	1,796,692		$	9,553,376			(162,489	)	$	(8,567,932	)	$	(42,313	)	$	2,743,190

Net earnings									841,489												841,489

Other comprehensive loss, net of tax																		(12,685	)		(12,685	)

Shares sold under employee stock option plans, net of taxes		255		3		18,944															18,947

Issuance of restricted shares, net		590		6		(6	)														-

Payment and vesting of performance stock units		98		1		(1	)														-

Stock-based compensation expense, net						69,017															69,017

Director fees paid in stock		3				167															167

Repurchase of common stock, including fees												(18,434	)		(1,100,585	)					(1,100,585	)
Balance at February 27, 2016		337,613		3,377		1,884,813			10,394,865			(180,923	)		(9,668,517	)		(54,998	)		2,559,540

Net earnings									685,108												685,108

Other comprehensive income, net of tax																		7,748			7,748

Dividend declared									(76,083	)											(76,083	)

Shares sold under employee stock option plans, net of taxes		634		6		15,700															15,706

Issuance of restricted shares, net		1,102		11		(11	)														-

Payment and vesting of performance stock units		180		1		(1	)														-

Stock-based compensation expense, net						74,114															74,114

Director fees paid in stock		4				166															166

Repurchase of common stock, including fees												(12,336	)		(547,022	)					(547,022	)
Balance at February 25, 2017		339,533		3,395		1,974,781			11,003,890			(193,259	)		(10,215,539	)		(47,250	)		2,719,277

Net earnings									424,858												424,858

Other comprehensive loss, net of tax									614									(1,046	)		(432	)

Dividend declared									(85,859	)											(85,859	)

Shares sold under employee stock option plans, net of taxes		359		4		10,157															10,161

Issuance of restricted shares, net		1,575		16		(16	)														-

Payment and vesting of performance stock units		321		3		(3	)														-

Stock-based compensation expense, net						72,904															72,904

Director fees paid in stock		7		-		152															152

Repurchase of common stock, including fees												(8,038	)		(252,433	)					(252,433	)
Balance at March 3, 2018		341,795	$	3,418	$	2,057,975		$	11,343,503			(201,297	)	$	(10,467,972	)	$	(48,296	)	$	2,888,628

See accompanying Notes to Consolidated Financial Statements.

BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

	Twelve Months Ended
	March 3, 2018			February 25, 2017			February 27, 2016

Cash Flows from Operating Activities:
Net earnings	$	424,858		$	685,108		$	841,489
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		313,107			290,914			273,947
Stock-based compensation		70,510			71,911			66,965
Deferred income taxes		175,351			24,878			56,997
Other		(69	)		(1,032	)		398
Decrease (increase) in assets, net of effect of acquisitions:
Merchandise inventories		176,672			(38,493	)		(121,748	)
Trading investment securities		(16,036	)		(18,780	)		(2,270	)
Other current assets		(258,853	)		(18,464	)		(16,171	)
Other assets		(4,754	)		(14,480	)		(27,904	)
Increase (decrease) in liabilities, net of effect of acquisitions:
Accounts payable		13,210			49,458			(48,148	)
Accrued expenses and other current liabilities		80,375			(8,586	)		6,694
Merchandise credit and gift card liabilities		25,510			11,390			(7,872	)
Income taxes payable		(64,941	)		(8,307	)		(15,036	)
Deferred rent and other liabilities		(75,251	)		17,754			15,213

Net cash provided by operating activities		859,689			1,043,271			1,022,554

Cash Flows from Investing Activities:

Purchase of held-to-maturity investment securities		(292,500	)		-			(103,017	)
Redemption of held-to-maturity investment securities		-			86,240			126,875
Redemption of available-for-sale investment securities		-			-			28,905
Capital expenditures		(375,793	)		(373,574	)		(328,395	)
Investment in unconsolidated joint venture		-			(3,318	)		-
Payment for acquisitions, net of cash acquired		(6,119	)		(201,277	)		-

Net cash used in investing activities		(674,412	)		(491,929	)		(275,632	)

Cash Flows from Financing Activities:

Proceeds from exercise of stock options		10,313			20,424			9,109
Payment of other liabilities		(434	)		-			(7,646	)
Payment of dividends		(80,877	)		(55,612	)		-
Repurchase of common stock, including fees		(252,433	)		(547,022	)		(1,100,585	)

Net cash used in financing activities		(323,431	)		(582,210	)		(1,099,122	)

Effect of exchange rate changes on cash and cash equivalents		(4,035	)		3,624			(7,801	)

Net decrease in cash and cash equivalents		(142,189	)		(27,244	)		(360,001	)

Cash and cash equivalents:

Beginning of period		488,329			515,573			875,574
End of period	$	346,140		$	488,329		$	515,573

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

Nature of Operations

Bed Bath & Beyond Inc. and subsidiaries (the “Company”) is an omnichannel retailer selling a wide assortment of domestics merchandise and home furnishings which operates under the names Bed Bath & Beyond (“BBB”), Christmas Tree Shops, Christmas Tree Shops andThat! or andThat! (collectively, “CTS”), Harmon, Harmon Face Values or Face Values (collectively, “Harmon”), buybuy BABY (“Baby”) and World Market, Cost Plus World Market or Cost Plus (collectively, “Cost Plus World Market”). Customers can purchase products from the Company either in-store, online, with a mobile device or through a customer contact center. The Company generally has the ability to have customer purchases picked up in-store or shipped direct to the customer from the Company’s distribution facilities, stores or vendors. In addition, the Company operates Of a Kind, an e-commerce website that features specially commissioned, limited edition items from emerging fashion and home designers; One Kings Lane, an authority in home décor and design, offering a unique collection of select home goods, designer and vintage items; PersonalizationMall.com (“PMall”), an industry-leading online retailer of personalized products; Chef Central, a retailer of kitchenware, cookware and homeware items catering to cooking and baking enthusiasts; and Decorist, an online interior design platform that provides personalized home design services. The Company also operates Linen Holdings, a provider of a variety of textile products, amenities and other goods to institutional customers in the hospitality, cruise line, healthcare and other industries. Additionally, the Company is a partner in a joint venture which operates retail stores in Mexico under the name Bed Bath & Beyond.

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 U.S. generally accepted accounting principles and therefore is not a reportable segment. Net sales outside of the U.S. for the Company were not material for fiscal 2017, 2016, and 2015.

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 (including furniture and wall décor), consumables and certain juvenile products. Sales of domestics merchandise and home furnishings accounted for approximately 35.5% and 64.5% of net sales, respectively, for fiscal 2017, 36.8% and 63.2% of net sales, respectively, for fiscal 2016 and 35.9% and 64.1% of net sales, respectively, for fiscal 2015. As the Company operates in the retail industry, its results of operations are affected by general economic conditions and consumer spending habits.

Fiscal Year

The Company’s fiscal year is comprised of the 52 or 53-week period ending on the Saturday nearest February 28th. Accordingly, fiscal 2017 represented 53 weeks and ended March 3, 2018. Fiscal 2016 and fiscal 2015 represented 52 weeks and ended on February 25, 2017 and February 27, 2016, respectively.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company accounts for its investment in the joint venture under the equity method.

Certain reclassifications have been made to the fiscal 2016 consolidated balance sheet to conform to the fiscal 2017 consolidated balance sheet presentation, as well as to the fiscal 2016 and 2015 consolidated statements of cash flows to conform to the fiscal 2017 consolidated statement of cash flows presentation.

All significant intercompany balances and transactions have been eliminated in consolidation.

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.

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 five business days, of $95.6 million and $86.6 million as of March 3, 2018 and February 25, 2017, respectively.

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 Company’s 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 March 3, 2018 and February 25, 2017, 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.

Inventory Valuation

Merchandise inventories are stated at the lower of cost or market. Inventory costs are primarily calculated using the weighted average retail inventory 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 Company’s 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 Company’s 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 Company’s 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 Company’s merchandise inventories.

Property and Equipment

Property and equipment are stated at cost and are depreciated 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 ten 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 $125.7 million, $131.6 million, and $130.9 million for fiscal 2017, 2016 and 2015, respectively.

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. As of March 3, 2018, the Company completed a quantitative impairment analysis of goodwill related to its reporting units. In completing this analysis, significant assumptions and estimates are required, including, but not limited to, projecting future cash flows, determining appropriate discount rates and terminal growth rates, and other assumptions. Although the Company believes the assumptions and estimates made are reasonable and appropriate, different assumptions and estimates could materially impact its reported financial results. Based upon the analysis performed, the Company concluded that no goodwill impairment existed as the fair value of each reporting unit was in excess of its carrying value. As of March 3, 2018, for certain other indefinite lived intangible assets, the Company assessed qualitative factors in order to determine whether any events and circumstances existed which indicated that it was more likely than not that the fair value of its indefinite lived intangible assets did not exceed their carrying values and concluded no such events or circumstances existed which would require an impairment test being performed. 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 March 3, 2018 and February 25, 2017, respectively, are $305.4 million and $305.3 million for indefinite lived tradenames and trademarks.

Self Insurance

The Company utilizes a combination of insurance and self insurance for a number of risks including workers’ compensation, general liability, cyber liability, property 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 Company’s 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.

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 $81.6 million and $80.3 million as of March 3, 2018 and February 25, 2017, 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 $133.4 million and $119.4 million as of March 3, 2018 and February 25, 2017, respectively.

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. Since 2004 through the end of fiscal 2017, the Company has repurchased approximately $10.5 billion of its common stock through share repurchase programs. The Company also acquires shares of its common stock to cover employee related taxes withheld on vested restricted stock and performance stock unit awards.

During fiscal 2017, the Company repurchased approximately 8.0 million shares of its common stock at a total cost of approximately $252.4 million. During fiscal 2016, the Company repurchased approximately 12.3 million shares of its common stock at a total cost of approximately $547.0 million. During fiscal 2015 the Company repurchased approximately 18.4 million shares of its common stock at a total cost of approximately $1.101 billion. The Company has approximately $1.5 billion remaining of authorized share repurchases as of March 3, 2018.

During fiscal 2016, the Company’s Board of Directors authorized a quarterly dividend program. During fiscal 2017 and 2016, total cash dividends of $80.9 million and $55.6 million were paid, respectively. Subsequent to the end of the fourth quarter of fiscal 2017, on April 11, 2018, the Company’s Board of Directors declared a quarterly dividend increase to $0.16 per share to be paid on July 17, 2018 to shareholders of record at the close of business on June 15, 2018. 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.

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 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 the financial instruments, excluding the Company’s long term debt, is representative of their fair values (See “Fair Value Measurements,” Note 4). The fair value of the Company’s long term debt is approximately $1.310 billion as of March 3, 2018, 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.

Revenue Recognition

Sales are recognized upon purchase by customers at the Company’s retail stores or upon delivery for products purchased from its websites. The value of point-of-sale coupons and point-of-sale rebates that result in a reduction of the price paid by the customer are recorded as a reduction of sales. Shipping and handling fees that are billed to a customer in a sale transaction are recorded in sales. Taxes, such as sales tax, use tax and value added tax, are not included in sales.

Revenues from gift cards, gift certificates and merchandise credits are recognized when redeemed. Gift cards have no provisions for reduction in the value of unused card balances over defined time periods and have no expiration dates.

Sales returns are provided for in the period that the related sales are recorded based on historical experience. Although the estimate for sales returns has not varied materially from historical provisions, actual experience could vary from historical experience in the future if the level of sales return activity changes materially. In the future, if the Company concludes that an adjustment to the sales return accrual is required due to material changes in the returns activity, the reserve will be adjusted accordingly.

Cost of Sales

Cost of sales includes the cost of merchandise, buying costs and costs of the Company’s distribution network including inbound freight charges, distribution facility costs, receiving costs, internal transfer costs and shipping and handling costs.

Vendor Allowances

The Company receives allowances from vendors in the normal course of business for various reasons including direct cooperative advertising, purchase volume and reimbursement for other expenses. Annual terms for each allowance include the basis for earning the allowance and payment terms, which vary by agreement. All vendor allowances are recorded as a reduction of inventory cost, except for direct cooperative advertising allowances which are specific, incremental and identifiable. The Company recognizes purchase volume allowances as a reduction of the cost of inventory in the quarter in which milestones are achieved. Advertising costs were reduced by direct cooperative allowances of $38.5 million, $37.4 million, and $31.7 million for fiscal 2017, 2016, and 2015, respectively.

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.

Advertising Costs

Expenses associated with direct response advertising are expensed over the period during which the sales are expected to occur, generally five to eight weeks, and all other expenses associated with store advertising are charged to earnings as incurred. Net advertising costs amounted to $444.4 million, $381.1 million, and $338.1 million for fiscal 2017, 2016, and 2015, respectively.

Stock-Based Compensation

The Company measures all employee stock-based compensation awards using a fair value method and records such expense 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.

Income Taxes

The Company files a consolidated federal income tax return. Income tax returns are also filed with each taxable jurisdiction in which the Company conducts business.

The Company accounts for its income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit 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.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act, (the “Tax Act”). The Tax Act included a mandatory one-time tax on accumulated earnings of foreign subsidiaries, and as a result, all previously unremitted earnings for which no U.S. deferred tax liability had been previously accrued has now been subject to U.S. tax. Notwithstanding the U.S. taxation of these amounts, the Company intends to continue to reinvest the unremitted earnings of its Canadian subsidiary. Accordingly, no additional provision has been made for U.S. or additional non-U.S. taxes with respect to these earnings, except for the transition tax resulting from the Tax Act. In the event of repatriation to the U.S., it is expected that such earnings would be subject to non-U.S. withholding taxes offset, in whole or in part, by U.S. foreign tax credits.

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.

Judgment is required in determining the provision for income 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 Company’s 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.

Earnings per Share

The Company presents earnings per share on a basic and diluted basis. Basic earnings per share is computed by dividing net earnings by the weighted average number of shares outstanding. Diluted earnings per share is 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 of approximately 8.0 million, 4.4 million, and 2.6 million shares were excluded from the computation of diluted earnings per share as the effect would be anti-dilutive for fiscal 2017, 2016, and 2015, respectively.

Recent Accounting Pronouncements

In November 2015, the Financial Accounting Standards Board (“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 fiscal year ended March 3, 2018, the Company recognized in income tax expense discrete tax expenses of $13.0 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 $1.5 million and $10.3 million for the twelve months ended February 25, 2017 and February 27, 2016, respectively, 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 February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220), which allows a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Act. The amount of the reclassification is calculated based on the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts at the date of the enactment of the Tax Act related to items that remained in accumulated other comprehensive income (loss) at that time. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018 and early adoption is permitted. The Company early adopted this ASU in the fourth quarter of fiscal 2017 and reclassified $0.6 million of stranded deferred tax benefits from accumulated other comprehensive income (loss) to retained earnings.

In May 2014, the 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 majority of the Company’s revenue is generated from the sale of product in its retail stores, which will continue to be recognized when control of the product is transferred to the customer. The Company has substantially completed its analysis of its revenue streams and expects the adoption to result in the following changes:

A change in the timing of recognizing advertising expense related to direct response advertising. These costs that were previously expensed over the period during which the sales were expected to occur will now be expensed the first time the advertising takes place.

A change in the presentation of the sales return reserve on the consolidated balance sheet, as estimated costs of returns will be recorded as a current asset rather than netted with the sales return reserve.

Changes in the presentation of certain other revenue streams on the consolidated statement of earnings between net sales, cost of sales, and selling, general and administrative expenses.

The Company will adopt this standard in the first quarter of fiscal 2018 using the modified retrospective method and will record the cumulative effect of applying this standard to opening retained earnings. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position, results of operations, or cash flows on an ongoing basis, including any changes in its consolidated balance sheet or statements of earnings.

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.

2. RESTRUCTURING ACTIVITIES

In the second quarter of fiscal 2017, the Company accelerated the realignment of its store management structure to support its customer-focused initiatives and omnichannel growth and expensed pre-tax cash restructuring charges of approximately $16.9 million, primarily for severance and related costs in conjunction with this realignment. During fiscal 2017, the Company paid $16.7 million of these costs.

3. ACQUISITIONS

During the second quarter of fiscal 2015, the Company acquired Of a Kind, Inc., an e-commerce website that features specially commissioned, limited edition items from emerging fashion and home designers. Since the date of acquisition, the results of Of a Kind’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. Of a Kind is included in the North American Retail operating segment.

On June 13, 2016, the Company acquired One Kings Lane, Inc., an 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, an industry-leading online retailer of personalized products, for an aggregate purchase price of approximately $190.3 million. Since the date of acquisition, the result of PMall’s operations, which were not material, have been included in the results of operations and no proforma disclosure of financial information has been presented. PMall is included in the North American Retail operating segment.

During the third quarter of fiscal 2017, the Company finalized the valuation of assets acquired and liabilities assumed. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition.

(in millions)	As of November 23, 2016

Current assets	$	15.5
Property and equipment and other non-current assets		9.3
Goodwill		194.2
Intangible assets		10.4
Total assets acquired		229.4

Accounts payable and other liabilities		(39.1	)

Total net assets acquired	$	190.3

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. (See “Transactions and Balances with Related Parties,” Note 9).

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 and no proforma disclosure of financial information has been presented. Decorist is included in the North American Retail operating segment.

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 March 3, 2018, the Company’s financial assets utilizing Level 1 inputs include short 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 5).

INVESTMENT SECURITIES

The Company’s investment securities as of March 3, 2018 and February 25, 2017 are as follows:

(in millions)	March 3, 2018		February 25, 2017
Available-for-sale securities:
Long term	$	19.4	$	19.3

Trading securities:
Short term		86.3		-
Long term		-		70.3

Held-to-maturity securities:
Short term		291.7		-
Total investment securities	$	397.4	$	89.6

Auction Rate Securities

As of March 3, 2018 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 $0.9 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.

In fiscal 2015, approximately $30.7 million of these securities were tendered at a price of approximately 94% of par value for which the Company incurred a realized loss of approximately $1.8 million, which is included within interest expense, net in the consolidated statement of earnings for fiscal 2015.

U.S. Treasury Securities

As of March 3, 2018, the Company’s short term held-to-maturity securities included approximately $291.7 million of U.S. Treasury Bills with remaining maturities of less than one year. These securities are stated at their amortized cost which approximates fair value, which is based on quoted prices in active markets for identical instruments (i.e., Level 1 valuation). As of February 25, 2017, the Company had no short term held-to-maturity securities.

Trading Investment Securities

The Company’s trading investment securities, which are provided as investment options to the participants of the nonqualified deferred compensation plan, are stated at fair market value (See “Employee Benefit Plans,” Note 11). The values of these trading investment securities included in the table above are approximately $86.3 million and $70.3 million as of March 3, 2018 and February 25, 2017, respectively.

6. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

*(in thousands)*	March 3, 2018			February 25, 2017

Land and buildings	$	588,115		$	579,514
Furniture, fixtures and equipment		1,409,157			1,332,038
Leasehold improvements		1,543,452			1,454,749
Computer equipment and software		1,500,199			1,290,690
		5,040,923			4,656,991

Less: Accumulated depreciation		(3,131,634	)		(2,819,862	)
Property and equipment, net	$	1,909,289		$	1,837,129

7. 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 (the “2024 Notes”), $300 million aggregate principal amount of 4.915% senior unsecured notes due August 1, 2034 (the “2034 Notes”) and $900 million aggregate principal amount of 5.165% senior unsecured notes due August 1, 2044 (the “2044 Notes” and, together with the 2024 Notes and the 2034 Notes, 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 March 3, 2018.

The Notes are unsecured, senior obligations and rank equal in right of payment to any of the Company’s existing and future senior unsecured indebtedness. The Company may redeem the Notes at any time, in whole or in part, at the redemption prices described in the Indenture plus accrued and unpaid interest to the redemption date. If a change in control triggering event, as defined by the Indenture governing the Notes, occurs unless the Company has exercised its right to redeem the Notes, the Company will be required to make an offer to the holders of the Notes to purchase the Notes at 101% of their principal amount, plus accrued and unpaid interest.

Revolving Credit Agreement

On November 14, 2017, the Company replaced its existing $250 million five year senior unsecured revolving credit facility agreement with various lenders with a new $250 million five year senior unsecured revolving credit facility agreement ("Revolver") with various lenders maturing November 14, 2022. The new Revolver has essentially the same terms and requirements as the prior revolving credit facility agreement. For fiscal 2017 and 2016, the Company did not have any borrowings under the Revolver.

Borrowings under the Revolver accrue interest at either (1) a fluctuating rate equal to the greater of the prime rate, as defined in the Revolver, the Federal Funds Rate plus 0.50%, or one-month LIBOR plus 1.0% and, in each case, plus an applicable margin based upon the Company’s leverage ratio which is calculated quarterly, (2) a periodic fixed rate equal to LIBOR plus an applicable margin based upon the Company’s leverage ratio which is calculated quarterly or (3) an agreed upon fixed rate. In addition, a commitment fee is assessed, which is included in interest expense, net in the consolidated statement of earnings. The Revolver contains customary affirmative and negative covenants and also requires the Company to maintain a maximum leverage ratio. The Company was in compliance with all covenants related to the Revolver as of March 3, 2018.

Deferred financing costs associated with the Notes and the current and former Revolvers of approximately $10.5 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 statement of earnings. Interest expense related to the Notes and the Revolver, including the commitment fee and the amortization of the deferred financing costs, was approximately $74.4 million, $73.4 million, and $73.0 million for fiscal 2017, 2016 and 2015, respectively.

Lines of Credit

At March 3, 2018, the Company maintained two uncommitted lines of credit of $100 million each, with expiration dates of August 29, 2018 and February 24, 2019, 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 fiscal 2017 and 2016, the Company did not have any direct borrowings under the uncommitted lines of credit. As of March 3, 2018, there was approximately $29.8 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 March 3, 2018, the Company maintained unsecured standby letters of credit of $39.4 million, primarily for certain insurance programs.

8.	PROVISION FOR INCOME TAXES

On December 22, 2017, the U.S. government enacted the Tax Act. The Tax Act significantly revised the U.S. tax code by, among other things, (i) reducing the federal corporate income tax rate, effective January 1, 2018, from 35% to 21%, (ii) imposing a one-time transition tax on earnings of foreign subsidiaries deemed to be repatriated and (iii) implementing a modified territorial tax system.

Subsequent to the Tax Act, the Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which allows companies to record provisional amounts during a remeasurement period not to exceed one year after the enactment date while the accounting impact remains under analysis.

The Company has reasonably estimated the impact of the Tax Act in its fiscal 2017 provision for income taxes in accordance with its interpretation of the Tax Act and available guidance. The Tax Act resulted in a net unfavorable tax impact of approximately $10.5 million recorded in the fiscal fourth quarter of 2017. The net unfavorable tax impact included the following: (1) re-measurement of the Company’s net deferred tax assets that existed on December 22, 2017; (2) deferred taxes that were created after December 22, 2017 that were deducted at the federal statutory rate of 32.66%, but will reverse at the newly enacted 21% federal statutory rate; (3) the transition tax on accumulated foreign earnings; and (4) the decrease in the federal statutory tax rate in fiscal 2017.

The Company has made reasonable estimates of the impact of the Tax Act; however some aspects of these estimates are provisional and subject to adjustment in fiscal 2018 under the measurement period allowed by the SEC. The provisional amounts are related to the remeasurement of the Company’s net deferred tax assets and the transition tax on accumulated foreign earnings, which collectively totaled approximately $26.8 million. The Company believes the remeasurement of its net deferred tax assets is complete, except for changes in estimates that can result from finalizing the filing of its 2017 U.S. income tax return and changes that may be a direct impact of other provisional amounts due to the enactment of the Tax Act. The estimated transition tax was recorded based on the Company’s initial evaluation of the impact of the Tax Act and is subject to change during fiscal 2018 as the Company continues to refine, analyze and update the underlying data, computations and assumptions used to prepare this provisional amount during the measurement period. In addition, these estimates may be impacted as the Company further analyzes available tax accounting methods and elections, and state tax conformity to the federal tax changes and guidance issued by regulatory bodies that provide interpretive guidance of the Tax Act. Any adjustments to the provisional amounts will be recognized as a component of the provision for income taxes in the period in which such adjustments are determined within the annual period following the enactment of the Tax Act. Additionally, the Company continues to evaluate the Global Intangible Low-Taxed Income (“GILTI”) provisions of the Tax Act and the impact, if any, on its consolidated financial statements. As a result, the Company has not included any amount related to GILTI in its consolidated financial statements as of March 3, 2018.

The components of the provision for income taxes are as follows:

	FISCAL YEAR ENDED
(in thousands)	March 3, 2018		February 25, 2017		February 27, 2016

Current:
Federal	$	82,044	$	313,571	$	389,039
State and local		13,554		42,101		39,991
		95,598		355,672		429,030

Deferred:
Federal		157,057		20,295		42,592
State and local		18,147		4,580		14,334
		175,204		24,875		56,926
	$	270,802	$	380,547	$	485,956

At March 3, 2018 and February 25, 2017, included in other assets is a net deferred income tax asset of $11.0 million and $195.5 million, respectively. These amounts represent the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company’s deferred tax assets and liabilities consist of the following:

*(in thousands)*	March 3, 2018			February 25, 2017

Deferred tax assets:
Inventories	$	26,657		$	33,120
Deferred rent and other rent credits		47,893			73,577
Insurance		22,274			60,789
Stock-based compensation		23,690			41,715
Nonqualified deferred compensation plan		19,671			27,857
Merchandise credits and gift card liabilities		36,793			63,031
Accrued expenses		29,557			57,401
Obligations on distribution facilities		26,210			40,363
Carryforwards and other tax credits		48,221			40,481
Other		28,972			61,937

Deferred tax liabilities:
Depreciation		(125,067	)		(137,144	)
Goodwill		(54,254	)		(69,127	)
Intangibles		(55,091	)		(82,688	)
Prepaid expenses		(52,723	)		-
Other		(11,778	)		(15,843	)
	$	11,025		$	195,469

At March 3, 2018, the Company has federal net operating loss carryforwards of $4.6 million (tax effected), which will begin expiring in 2025, state net operating loss carryforwards of $4.0 million (tax effected), which will expire between 2018 and 2031, California state enterprise zone credit carryforwards of $2.3 million (tax effected), which will expire in 2023, but require taxable income in the enterprise zone to be realizable.

The Company has not established a valuation allowance for the net deferred tax asset as it is considered more likely than not that it is realizable through a combination of future taxable income and the deductibility of future net deferred tax liabilities.

The following table summarizes the activity related to the gross unrecognized tax benefits from uncertain tax positions:

*(in thousands)*	March 3, 2018			February 25, 2017

Balance at beginning of year	$	76,415		$	72,807

Increase related to current year positions		11,437			14,491
Increase related to prior year positions		4,128			413
Decrease related to prior year positions		(1,823	)		(4,202	)
Settlements		(1,448	)		-
Lapse of statute of limitations		(13,266	)		(7,094	)

Balance at end of year	$	75,443		$	76,415

Gross unrecognized tax benefits are classified in non-current income taxes payable (or a contra deferred tax asset) on the consolidated balance sheet for uncertain tax positions taken (or expected to be taken) on a tax return. As of March 3, 2018 and February 25, 2017, approximately $75.4 million and $76.3 million, respectively, of gross unrecognized tax benefits would impact the Company’s effective tax rate. As of March 3, 2018 and February 25, 2017, the liability for gross unrecognized tax benefits included approximately $9.6 million and $8.1 million, respectively, of accrued interest. The Company recorded an increase of interest of approximately $1.5 million for the fiscal year ended March 3, 2018 and a decrease of interest of $2.4 million for the fiscal year ended February 25, 2017 for gross unrecognized tax benefits in the consolidated statement of earnings.

The Company anticipates that any adjustments to gross unrecognized tax benefits which will impact income tax expense, due to the expiration of statutes of limitations, could be approximately $12 million in the next twelve months. However, actual results could differ from those currently anticipated.

As of March 3, 2018, the Company operated in all 50 states, the District of Columbia, Puerto Rico, Canada and several other international countries and files income tax returns in the United States and various state, local and international jurisdictions. The Company is open to examination for state and local jurisdictions with varying statutes of limitations, generally ranging from three to five years.

For fiscal 2017, the effective tax rate is comprised of the federal statutory income tax rate of 32.66%, the State income tax rate, net of federal benefit, of 4.12%, the net impact of the Tax Act of 3.86%, provision for uncertain tax positions of 0.32% and other income tax benefits of 2.03%. For fiscal 2016, the effective tax rate is comprised of the federal statutory income tax rate of 35.00%, the State income tax rate, net of federal benefit, of 3.25%, provision for uncertain tax positions of 0.28% and other income tax benefits of 2.82%. For fiscal 2015, the effective tax rate is comprised of the federal statutory income tax rate of 35.00%, the State income tax rate, net of federal benefit, of 3.07%, provision for uncertain tax positions of 0.07% and other income tax benefits of 1.53%.

TRANSACTIONS AND BALANCES WITH RELATED PARTIES

In fiscal 2002, the Company had an interest in certain life insurance policies on the lives of its Co-Chairmen and their spouses. The Company’s interest in these policies was equivalent to the net premiums paid by the Company. The agreements relating to the Company’s interest in the life insurance policies on the lives of its Co-Chairmen and their spouses were terminated in fiscal 2003. Upon termination in fiscal 2003, the Co-Chairmen paid to the Company $5.4 million, representing the total amount of premiums paid by the Company under the agreements and the Company was released from its contractual obligation to make substantial future premium payments. In order to confer a benefit to its Co-Chairmen in substitution for the aforementioned terminated agreements, the Company has agreed to pay to the Co-Chairmen, at a future date, an aggregate amount of $4.2 million, which is included in accrued expenses and other current liabilities as of March 3, 2018 and February 25, 2017.

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. Ron Eisenberg, the son of Warren Eisenberg, the Company’s Co-Chairman, was the founder and owner of Chef Central, and joined the Company as an employee to build Chef Central branded stores or departments. Mr. Eisenberg brought more than 30 years of specialty retail experience and the transaction also added knowledgeable and talented associates to the Company with great culinary retailing expertise. Warren Eisenberg recused himself from Board of Director deliberations relating to the transaction (See “Acquisitions,” Note 3).

10.

LEASES

The Company leases retail stores, as well as distribution facilities, offices and equipment, under agreements expiring at various dates through 2042. Certain leases provide for contingent rents (which are based upon store sales exceeding stipulated amounts and are immaterial in fiscal 2017, 2016, and 2015), scheduled rent increases and renewal options. The Company is obligated under a majority of the leases to pay for taxes, insurance and common area maintenance charges.

As of March 3, 2018, future minimum lease payments under non-cancelable operating leases were as follows:

*(in thousands)*	Operating Leases
Fiscal Year:
2018	$	612,097
2019		558,365
2020		477,228
2021		379,050
2022		282,746
Thereafter		732,019
Total future minimum lease payments	$	3,041,505

Expenses for all operating leases were $614.1 million, $582.2 million, and $568.1 million for fiscal 2017, 2016, and 2015, respectively.

As of March 3, 2018 and February 25, 2017, the capital lease obligations were approximately $4.5 million and $5.1 million, respectively, for which the current and long-term portions are included within accrued expenses and other current liabilities and deferred rent and other liabilities, respectively, in the consolidated balance sheet. Monthly minimum lease payments are accounted for as principal and interest payments. Interest expense for all capital leases was $0.3 million, $0.4 million, and $0.4 million for fiscal 2017, 2016, and 2015, respectively. The minimum capital lease payments, including interest, by fiscal year are: $0.9 million in fiscal 2018, $0.9 million in fiscal 2019, $0.8 million in fiscal 2020, $0.7 million in fiscal 2021, $0.6 million in fiscal 2022 and $1.6 million thereafter.

The Company has financing obligations, related to two sale/leaseback agreements, which approximated the discounted fair value of the minimum lease payments, had a residual fair value at the end of the lease term and are being amortized over the term of the respective agreements, including option periods, of 32 and 37 years. As of March 3, 2018 and February 25, 2017, the sale/leaseback financing obligations were approximately $102.5 million and $103.3 million, respectively, for which the current and long-term portions are included within accrued expenses and other current liabilities and deferred rent and other liabilities, respectively, in the consolidated balance sheet. Monthly lease payments are accounted for as principal and interest payments (at approximate annual interest rates of 7.2% and 10.6%). These sale/leaseback financing obligations, excluding the residual fair value at the end of the lease term, mature as follows: $0.8 million in fiscal 2018, $0.8 million in fiscal 2019, $0.9 million in fiscal 2020, $0.9 million in fiscal 2021, $1.0 million in fiscal 2022 and $76.5 million thereafter.

11.

EMPLOYEE BENEFIT PLANS

Defined Contribution Plans

The Company has three defined contribution savings plans covering all eligible employees of the Company (“the Plans”). During fiscal 2017, two 401(k) savings plans were merged into one of the Plans. Participants of the Plans may defer annual pre-tax compensation subject to statutory and Plan limitations. In addition, a certain percentage of an employee’s contributions are matched by the Company and vest over a specified period of time, subject to certain statutory and Plan limitations. The Company’s match was approximately $16.4 million, $15.2 million, and $13.9 million for fiscal 2017, 2016, and 2015, respectively, which was expensed as incurred.

Nonqualified Deferred Compensation Plan

On December 27, 2017, the Company terminated its nonqualified deferred compensation plan (“NQDC”). After December 27, 2017, no participant deferrals will be accepted and all balances will be liquidated more than 12 months but less than 24 months after December 27, 2017. Until the final payment date, the NQDC will continue to operate in the ordinary course, except that no new participant deferrals will be credited to participant accounts under the NQDC.

The Company’s NQDC was for the benefit of employees who are defined by the Internal Revenue Service as highly compensated. Participants of the NQDC were able to defer annual pre-tax compensation subject to statutory and plan limitations. In addition, a certain percentage of an employee’s contributions may have been matched by the Company and vested over a specified period of time, subject to certain plan limitations. The Company’s match was approximately $0.6 million, $0.5 million, and $0.6 million in fiscal 2017, 2016 and 2015, respectively, which was expensed as incurred.

Changes in the fair value of the trading securities related to the NQDC and the corresponding change in the associated liability are included within interest income and selling, general and administrative expenses respectively, in the consolidated statements of earnings. Historically, these changes have resulted in no net impact to the consolidated statements of earnings.

Defined Benefit Plan

The Company has a non-contributory defined benefit pension plan for the CTS employees, hired on or before July 31, 2003, who meet specified age and length-of-service requirements. The benefits are based on years of service and the employee’s compensation up until retirement. The Company recognizes the overfunded or underfunded status of the pension plan as an asset or liability in its statement of financial position and recognizes changes in the funded status in the year in which the changes occur. For the years ended March 3, 2018, February 25, 2017 and February 27, 2016, the net periodic pension cost was not material to the Company’s results of operations. The Company has a $14.3 million and $19.3 million liability, which is included in deferred rent and other liabilities as of March 3, 2018 and February 25, 2017, respectively. In addition, as of March 3, 2018 and February 25, 2017, the Company recognized a loss of $3.2 million, net of taxes of $1.1 million, and a loss of $4.7 million, net of taxes of $3.0 million, respectively, within accumulated other comprehensive loss.

12.

COMMITMENTS AND CONTINGENCIES

The Company maintains employment agreements with its Co-Chairmen. Under these agreements, the Co-Chairmen could at any time elect senior status (i.e., to be continued to be employed to provide non-line executive consultative services). On May 11, 2017, the Co-Chairmen notified the Company that they elected to commence their Senior Status Period, effective May 21, 2017. The Co-Chairmen are entitled to a base salary, termination payments, postretirement benefits and other terms and conditions of employment, pursuant to the senior status provisions of these employment agreements. In addition, the Company maintains employment agreements with other executives which provide for severance pay and, in some instances, certain other supplemental retirement benefits.

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 Company’s 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.

13.

SUPPLEMENTAL CASH FLOW INFORMATION

The Company paid income taxes of $203.9 million, $364.4 million, and $442.4 million in fiscal 2017, 2016, and 2015, respectively. In addition, the Company had interest payments of approximately $81.3 million, $81.4 million, and $81.5 million in fiscal 2017, 2016, and 2015, respectively.

The Company recorded an accrual for capital expenditures of $63.7 million, $59.0 million, and $51.7 million as of March 3, 2018, February 25, 2017 and February 27, 2016, respectively. In addition, the Company recorded an accrual for dividends payable of $25.5 million and $20.5 million as of March 3, 2018 and February 25, 2017, respectively. The Company did not declare any dividends prior to fiscal 2016.

14.

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 fiscal year ended March 3, 2018, February 25, 2017 and February 27, 2016 was approximately $70.5 million ($43.1 million after tax or $0.31 per diluted share), $71.9 million ($46.3 million after tax or $0.31 per diluted share), and approximately $67.0 million ($42.4 million after tax or $0.26 per diluted share), respectively. In addition, the amount of stock-based compensation cost capitalized for the years ended March 3, 2018 and February 25, 2017 was approximately $2.4 million and $2.2 million, respectively.

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 March 3, 2018, unrecognized compensation expense related to the unvested portion of the Company’s stock options was $17.6 million, which is expected to be recognized over a weighted average period of 2.9 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.

	FISCAL YEAR ENDED
Black-Scholes Valuation Assumptions (1)	March 3, 2018			February 25, 2017			February 27, 2016

Weighted Average Expected Life (in years) (2)		6.7			6.6			6.7
Weighted Average Expected Volatility (3)		26.49	%		26.96	%		27.59	%
Weighted Average Risk Free Interest Rates (4)		2.17	%		1.46	%		1.93	%
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 fiscal year ended March 3, 2018 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		2,447		$	60.38

The weighted average fair value for the stock options granted in fiscal 2017, 2016, and 2015 was $9.50, $11.87, and $23.12, respectively. The weighted average remaining contractual term and the aggregate intrinsic value for options outstanding as of March 3, 2018 was 4.0 years and the aggregate intrinsic value was $0. The weighted average remaining contractual term for options exercisable as of March 3, 2018 was 2.6 years and the aggregate intrinsic value was $0. The total intrinsic value for stock options exercised during fiscal 2017, 2016, and 2015 was $3.9 million, $9.0 million, and $8.7 million, respectively.

Net cash proceeds from the exercise of stock options for fiscal 2017 were $10.2 million 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 March 3, 2018, unrecognized compensation expense related to the unvested portion of the Company’s restricted stock awards was $139.0 million, which is expected to be recognized over a weighted average period of 4.5 years.

Changes in the Company’s restricted stock for the fiscal year ended March 3, 2018 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		1,919			34.27
Vested		(761	)		58.69
Forfeited		(339	)		49.68
Unvested restricted stock, end of period		4,311		$	48.07

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 March 3, 2018, unrecognized compensation expense related to the unvested portion of the Company’s performance stock units was $23.0 million, which is expected to be recognized over a weighted average period of 1.8 years.

Changes in the Company’s PSUs for the fiscal year ended March 3, 2018 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

15.

SUMMARY OF QUARTERLY RESULTS (UNAUDITED)

	FISCAL 2017 QUARTER ENDED								FISCAL 2016 QUARTER ENDED
(in thousands, except per share data)	May 27, 2017		August 26, 2017		November 25, 2017		March 3, 2018		May 28, 2016		August 27, 2016		November 26, 2016		February 25, 2017

Net sales	$	2,742,141	$	2,936,357	$	2,954,539	$	3,716,264	$	2,738,084	$	2,988,235	$	2,955,484	$	3,533,954
Gross profit		1,000,115		1,068,559		1,041,061		1,333,280		1,023,592		1,116,893		1,092,774		1,343,091
Operating profit		147,011		168,847		108,360		337,103		213,026		280,973		211,283		429,928
Earnings before provision for income taxes		130,431		149,681		94,739		320,809		196,711		262,774		193,029		413,141
Provision for income taxes		55,148		55,451		33,438		126,765		74,092		95,439		66,605		144,411
Net earnings	$	75,283	$	94,230	$	61,301	$	194,044	$	122,619	$	167,335	$	126,424	$	268,730
EPS-Basic (1)	$	0.53	$	0.67	$	0.44	$	1.41	$	0.81	$	1.12	$	0.86	$	1.86
EPS-Diluted (1)	$	0.53	$	0.67	$	0.44	$	1.41	$	0.80	$	1.11	$	0.85	$	1.84
Dividends declared per share	$	0.150	$	0.150	$	0.150	$	0.150	$	0.125	$	0.125	$	0.125	$	0.125

(1) Net earnings per share ("EPS") amounts for each quarter are required to be computed independently and may not equal the amount computed for the total year.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors
Bed Bath & Beyond Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Bed Bath & Beyond Inc. and subsidiaries (the Company) as of March 3, 2018 and February 25, 2017, the related consolidated statements of earnings, comprehensive income, shareholders’ equity, and cash flows for each of the fiscal years in the three-year period ended March 3, 2018, and the related notes and the consolidated financial statement schedule (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 3, 2018 and February 25, 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended March 3, 2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of March 3, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated May 2, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

We have served as the Company’s auditor since 1992.

Short Hills, New Jersey
May 2, 2018

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Shareholders and Board of Directors
Bed Bath & Beyond Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Bed Bath & Beyond Inc. and subsidiaries’ (the Company) internal control over financial reporting as of March 3, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 3, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of March 3, 2018 and February 25, 2017, the related consolidated statements of earnings, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended March 3, 2018, and the related notes and consolidated financial statement schedule, (collectively, the consolidated financial statements), and our report dated May 2, 2018 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Short Hills, New Jersey
May 2, 2018

New York		11-2250488
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)

Title of each class		Name of each exchange on which registered
Common stock, $.01 par value		The Nasdaq Stock Market LLC
		(Nasdaq Global Select Market)

Large accelerated filer X		Accelerated filer __ (do not check if a smaller reporting company)
Non-accelerated filer __		Smaller reporting company ___
Emerging growth company ___

Form 10-K
Item No.		Name of Item

		PART I
Item 1.		Business
Item 1A.		Risk Factors
Item 1B.		Unresolved Staff Comments
Item 2.		Properties
Item 3.		Legal Proceedings
Item 4.		Mine Safety Disclosures

		PART II
Item 5.		Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Item 6.		Selected Financial Data
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk
Item 8.		Financial Statements and Supplementary Data
Item 9.		Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.		Controls and Procedures
Item 9B.		Other Information

		PART III
Item 10.		Directors, Executive Officers and Corporate Governance
Item 11.		Executive Compensation
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13.		Certain Relationships and Related Transactions, and Director Independence
Item 14.		Principal Accounting Fees and Services

		PART IV
Item 15.		Exhibits, Financial Statement Schedules
Item 16.		Form 10-K Summary

STORE LOCATIONS

Alabama	24	New York	103
Alaska	2	North Carolina	45
Arizona	43	North Dakota	3
Arkansas	8	Ohio	48
California	185	Oklahoma	10
Colorado	34	Oregon	16
Connecticut	24	Pennsylvania	43
Delaware	6	Rhode Island	5
Florida	97	South Carolina	24
Georgia	39	South Dakota	3
Hawaii	2	Tennessee	28
Idaho	9	Texas	119
Illinois	53	Utah	16
Indiana	23	Vermont	3
Iowa	11	Virginia	49
Kansas	12	Washington	36
Kentucky	11	West Virginia	3
Louisiana	21	Wisconsin	16
Maine	8	Wyoming	2
Maryland	23	District of Columbia	3
Massachusetts	44	Puerto Rico	3
Michigan	44	Alberta, Canada	12
Minnesota	15	British Columbia, Canada	12
Mississippi	7	Manitoba, Canada	1
Missouri	23	New Brunswick, Canada	2
Montana	9	Nova Scotia, Canada	2
Nebraska	8	Ontario, Canada	26
Nevada	15	Prince Edward Island, Canada	1
New Hampshire	15	Saskatchewan, Canada	1
New Jersey	93	Total	1,552
New Mexico	9

	High		Low
Fiscal 2017:
1st Quarter	$	41.90	$	34.70
2nd Quarter		36.49		27.21
3rd Quarter		29.50		19.26
4th Quarter		24.57		20.52

	High		Low
Fiscal 2016:
1st Quarter	$	52.09	$	42.00
2nd Quarter		46.50		41.86
3rd Quarter		46.37		38.67
4th Quarter		48.08		39.26

Period	Total Number of Shares Purchased (1)		Average Price Paid per Share (2)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) (2)
November 26, 2017 - December 23, 2017		89,500	$	22.81		89,500	$	1,527,307,982
December 24, 2017 - January 20, 2018		588,600	$	22.07		588,600	$	1,514,316,652
January 21, 2018 - March 3, 2018		1,350,100	$	22.30		1,350,100	$	1,484,213,062
Total		2,028,200	$	22.25		2,028,200	$	1,484,213,062

Consolidated Selected Financial Data	Fiscal Year Ended (1)
(in thousands, except per share	March 3,			February 25,			February 27,			February 28,			March 1,
and selected operating data)	2018 (2)			2017 (3)			2016			2015			2014

Statement of Earnings Data:

Net sales	$	12,349,301		$	12,215,757		$	12,103,887		$	11,881,176		$	11,503,963

Gross profit		4,443,015			4,576,350			4,620,310			4,619,779			4,565,582

Operating profit		761,321			1,135,210			1,414,903			1,554,293			1,614,587

Net earnings		424,858			685,108			841,489			957,474			1,022,290

Net earnings per share - Diluted	$	3.04		$	4.58		$	5.10		$	5.07		$	4.79

Dividends declared per share (6)	$	0.60		$	0.50		$	-		$	-		$	-

Selected Operating Data:

Number of stores open (at period end)		1,552			1,546			1,530			1,513			1,496

Total square feet
of store space (at period end)		43,681,000			43,619,000			43,274,000			43,041,000			42,619,000

Percentage (decrease) increase in comparable sales (4)		(1.3	%)		(0.6	%)		1.0	%		2.4	%		2.4	%

Comparable sales (in 000's) (4)	$	11,813,092		$	11,701,042		$	11,722,973		$	11,517,454		$	10,660,573

Balance Sheet Data (at period end):

Working capital	$	1,805,393		$	1,559,400		$	1,757,282		$	1,933,647		$	1,752,639

Total assets		7,040,806			6,822,655			6,487,677			6,749,665			6,356,033

Long-term sale/leaseback and capital lease
obligations		105,614			107,136			109,274			106,948			108,046

Long-term debt (5)		1,492,078			1,491,603			1,491,137			1,490,672			-

Shareholders' equity (6) (7)	$	2,888,628		$	2,719,277		$	2,559,540		$	2,743,190		$	3,941,287

	Fiscal Year Ended
	Percentage									Percentage Change
	of Net Sales									from Prior Year
	March 3,			February 25,			February 27,			March 3,			February 25,
	2018			2017			2016			2018			2017

Net sales		100.0	%		100.0	%		100.0	%		1.1	%		0.9	%

Cost of sales		64.0			62.5			61.8			3.5			2.1

Gross profit		36.0			37.5			38.2			(2.9	)		(1.0	)

Selling, general and administrative
expenses		29.8			28.2			26.5			7.0			7.4

Operating profit		6.2			9.3			11.7			(32.9	)		(19.8	)

Interest expense, net		0.5			0.6			0.7			(5.6	)		(20.5	)

Earnings before provision for income
taxes		5.6			8.7			11.0			(34.7	)		(19.7	)

Provision for income taxes		2.2			3.1			4.0			(28.8	)		(21.7	)

Net earnings		3.4			5.6			7.0			(38.0	)		(18.6	)

(in thousands)	Total		Less than 1 year		1-3 years		4-5 years		After 5 years

Senior unsecured notes ⁽¹⁾	$	1,500,000	$	-	$	-	$	-	$	1,500,000
Interest on senior unsecured notes ⁽¹⁾		1,548,251		72,477		144,954		144,954		1,185,866
Operating lease obligations ⁽²⁾		3,041,505		612,097		1,035,593		661,796		732,019
Purchase obligations ⁽³⁾		1,050,107		1,050,107		-		-		-
Long-term sale/leaseback and capital lease obligations ⁽⁴⁾		322,047		10,284		20,815		20,841		270,107
Other long-term liabilities ⁽⁵⁾		388,801		-		-		-		-

Total Contractual Obligations	$	7,850,711	$	1,744,965	$	1,201,362	$	827,591	$	3,687,992

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

	*	This is a management contract or compensatory plan or arrangement.
	**	Filed herewith.
	***	This Exhibit was originally filed in paper format. Accordingly, a hyperlink has not been provided.

Signature	Capacity	Date

/s/ Warren Eisenberg	Co-Chairman and Director	May 2, 2018
Warren Eisenberg

/s/ Leonard Feinstein	Co-Chairman and Director	May 2, 2018
Leonard Feinstein

/s/ Steven H. Temares	Chief Executive Officer	May 2, 2018
Steven H. Temares	and Director

/s/ Susan E. Lattmann	Chief Financial Officer and Treasurer	May 2, 2018
Susan E. Lattmann	(Principal Financial and Accounting Officer)

/s/ Dean S. Adler	Director	May 2, 2018
Dean S. Adler

/s/ Stanley Barshay	Director	May 2, 2018
Stanley Barshay

/s/ Klaus Eppler	Director	May 2, 2018
Klaus Eppler

/s/ Patrick R. Gaston	Director	May 2, 2018
Patrick R. Gaston

/s/ Jordan Heller	Director	May 2, 2018
Jordan Heller

/s/ Victoria A. Morrison	Director	May 2, 2018
Victoria A. Morrison

s/ Johnathan B. Osborne	Director	May 2, 2018
Johnathan B. Osborne

/s/ Virginia P. Ruesterholz	Director	May 2, 2018
Virginia P. Ruesterholz

Column A	Column B		Column C		Column C			Column D		Column E
Description	Balance at Beginning of Period		Additions Charged to Income		Additions Charged to Other Accounts			Adjustments and/or Deductions		Balance at End of Period
Sales Returns and Allowance

Year Ended:
March 3, 2018	$	45.4	$	614.9	$	-		$	619.1	$	41.2
February 25, 2017		44.5		666.4		1.6	(1)		667.1		45.4
February 27, 2016		45.0		693.3		-			693.8		44.5

		Sincerely yours,



		BED BATH & BEYOND INC.

Agreed to and Accepted:		By: ________________________
		Steven Temares, CEO

____________________		Dated:______________________

	Sincerely yours,
	BED BATH & BEYOND INC.
	By:___________________________
	Warren Eisenberg
	Co-Chairman
	Dated: _____________________

Name		Jurisdiction

Bed Bath & Beyond of California Limited Liability Company		Delaware
Bed Bath & Beyond Canada L.P.		Ontario
Buy Buy Baby, Inc.		Delaware
Christmas Tree Shops, Inc.		Massachusetts
Cost Plus, Inc.		California
Cost Plus Management Services, Inc.		California
Harmon Stores, Inc.		Delaware
Harbor Linen, LLC		Delaware
Liberty Procurement Co. Inc.		New York
PersonalizationMall.com, LLC		Delaware

Date: May 2, 2018		/s/ Steven H. Temares
		Steven H. Temares
		Chief Executive Officer