UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 29, 2003

 

Commission File Number   0-20214

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                                                                 Yes ý    No o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Securities Exchange Act).

Yes ý    No o

 

Number of shares outstanding of the issuer’s Common Stock:

 

Class		Outstanding at November 29, 2003
Common Stock - $0.01 par value		298,384,140

 

 

BED BATH & BEYOND INC. AND SUBSIDIARIES

 

INDEX

 

PART I - FINANCIAL INFORMATION
	Item 1.  Financial Statements
	Consolidated Balance Sheets November 29, 2003 (unaudited) and March 1, 2003	3
	Consolidated Statements of Earnings Three Months Ended and Nine Months Ended November 29, 2003 (unaudited) and November 30, 2002 (unaudited)	4
	Consolidated Statements of Cash Flows Nine Months Ended November 29, 2003 (unaudited) and November 30, 2002 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6-9
	Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations	10-15
	Item 3.  Quantitative and Qualitative Disclosures about Market Risk	15
	Item 4.  Controls and Procedures	15
PART II - OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K	16
	Signatures	16
	Exhibit Index	17
	Certifications	26-30

 

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BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except per share data)

 

		(unaudited)
		November 29, 2003			March 1, 2003
Assets
Current assets:
Cash and cash equivalents		$	620,331		$	515,670
Short term investment securities		84,059			100,927
Merchandise inventories		1,167,808			915,671
Other current assets		94,825			62,123
Total current assets		1,967,023			1,594,391
Long term investment securities		133,876			148,005
Property and equipment, net		506,064			423,907
Goodwill		145,932			15,556
Other assets		26,166			6,983
		$	2,779,061		$	2,188,842
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	529,440		$	362,965
Accrued expenses and other current liabilities		340,047			246,198
Income taxes payable		27,315			71,008
Total current liabilities		896,802			680,171
Deferred rent and other liabilities		82,316			56,750
Total liabilities		979,118			736,921
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 and outstanding - November 29, 2003, 298,384 shares and March 1, 2003, 294,430 shares		2,984			2,944
Additional paid-in capital		386,794			294,034
Retained earnings		1,410,165			1,154,943
Total shareholders’ equity		1,799,943			1,451,921
		$	2,779,061		$	2,188,842

 

See accompanying Notes to Consolidated Financial Statements.

 

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BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Statements of Earnings

(in thousands, except per share data)

(unaudited)

 

		Three Months Ended						Nine Months Ended
		November 29, 2003			November 30, 2002			November 29, 2003			November 30, 2002
Net sales		$	1,174,740		$	936,030		$	3,180,053		$	2,615,872
Cost of sales		687,753			549,806			1,866,741			1,540,951
Gross profit		486,987			386,224			1,313,312			1,074,921
Selling, general and administrative expenses		325,528			266,996			905,536			763,305
Operating profit		161,459			119,228			407,776			311,616
Interest income		1,965			2,905			7,219			8,497
Earnings before provision for income taxes		163,424			122,133			414,995			320,113
Provision for income taxes		62,918			47,021			159,773			123,243
Net earnings		$	100,506		$	75,112		$	255,222		$	196,870
Net earnings per share - Basic		$	0.34		$	0.26		$	0.86		$	0.67
Net earnings per share - Diluted		$	0.33		$	0.25		$	0.84		$	0.65
Weighted average shares outstanding - Basic		297,279			293,307			296,018			292,491
Weighted average shares outstanding - Diluted		305,156			301,345			304,122			300,918

 

See accompanying Notes to Consolidated Financial Statements.

 

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BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands, unaudited)

 

		Nine Months Ended
		November 29, 2003			November 30, 2002
Cash Flows from Operating Activities:
Net earnings		$	255,222		$	196,870
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		60,686			57,066
Amortization of bond premium		1,079			—
Tax benefit from exercise of stock options		43,691			26,945
Deferred income taxes		2,575			(9,533		)
(Increase) decrease in assets, net of effects of acquisitions:
Merchandise inventories		(182,532		)	(219,192		)
Other current assets		(24,799		)	(22,041		)
Other assets		(6,998		)	195
Increase (decrease) in liabilities, net of effects of acquisitions:
Accounts payable		150,131			150,503
Accrued expenses and other current liabilities		33,789			54,351
Income taxes payable		(44,523		)	(8,859		)
Deferred rent and other liabilities		12,555			9,735
Net cash provided by operating activities		300,876			236,040
Cash Flows from Investing Activities:
Purchase of investment securities		(222,224		)	(317,271		)
Redemption of investment securities		252,770			70,000
Payment for acquisitions, net of cash acquired		(175,487		)	(24,097		)
Capital expenditures		(79,168		)	(122,464		)
Net cash used in investing activities		(224,109		)	(393,832		)
Cash Flows from Financing Activities:
Proceeds from exercise of stock options		49,109			21,327
Prepayment of acquired debt		(21,215		)	—
Net cash provided by financing activities		27,894			21,327
Net increase (decrease) in cash and cash equivalents		104,661			(136,465		)
Cash and cash equivalents:
Beginning of period		515,670			429,496
End of period		$	620,331		$	293,031

 

See accompanying Notes to Consolidated Financial Statements.

 

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BED BATH & BEYOND INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)

 

1)            Basis of Presentation

 

The accompanying consolidated financial statements, except for the March 1, 2003 consolidated balance sheet, have been prepared without audit.  In the opinion of management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of Bed Bath & Beyond Inc. and subsidiaries (the “Company”) as of November 29, 2003 and March 1, 2003 and the results of their operations for both the three months and nine months ended November 29, 2003 and November 30, 2002, respectively, and their cash flows for the nine months ended November 29, 2003 and November 30, 2002, respectively. Because of the seasonality of the specialty retailing business, operating results of the Company on a quarterly basis may not be indicative of operating results for the full year.

 

The accompanying unaudited consolidated financial statements are presented in accordance with the requirements for Form 10-Q and consequently do not include all the disclosures normally required by accounting principles generally accepted in the United States of America.  Reference should be made to Bed Bath & Beyond Inc.’s Annual Report on Form 10 – K for the fiscal year ended March 1, 2003 for additional disclosures, including a summary of the Company’s significant accounting policies.

 

Certain reclassifications have been made to the March 1, 2003 balance sheet to conform to the November 29, 2003 presentation.

 

2)            Stock-Based Compensation

 

In fiscal 2002, the Company adopted SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” SFAS No. 148 is an amendment of SFAS No. 123, “Accounting for Stock-Based Compensation,” and provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation.  In addition, the Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used.

 

As permitted under SFAS No. 148, the Company elected not to adopt the fair value based method of accounting for its stock-based compensation plans, but continues to apply the provisions of Accounting Principles Board Opinion  No. 25 “Accounting for Stock Issued to Employees.”  The Company has complied with the disclosure requirements of SFAS No. 148.

 

Accordingly, no compensation cost has been recognized in connection with the stock option plans.  Set forth below are the Company’s net earnings and net earnings per share “as reported,” and as if compensation cost had been recognized (“pro forma”) in accordance with the fair value provisions of SFAS No. 148:

 

		For the Three Months Ended						For the Nine Months Ended
(in thousands, except per share data)		November 29, 2003			November 30, 2002			November 29, 2003			November 30, 2002
Net earnings:
As reported		$	100,506		$	75,112		$	255,222		$	196,870
Deduct: Total stock-based employee compensation expense determined under fair value based method, net of related tax effects		(7,810		)	(6,238		)	(22,284		)	(19,903		)
Pro forma		$	92,696		$	68,874		$	232,938		$	176,967
Net earnings per share:
Basic:
As reported		$	0.34		$	0.26		$	0.86		$	0.67
Pro forma		$	0.31		$	0.23		$	0.79		$	0.61
Diluted:
As reported		$	0.33		$	0.25		$	0.84		$	0.65
Pro forma		$	0.31		$	0.23		$	0.78		$	0.60

 

3)            Recently Adopted Accounting Pronouncements

 

In fiscal 2003, the Company adopted the following pronouncements:

 

Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations.” The standard requires entities to record the fair value of a liability for an asset retirement obligation in the period in which the obligation is incurred.  The adoption of SFAS No. 143 did not have a material impact on the Company’s consolidated financial statements.

 

SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” Among other items, this Standard updates and clarifies existing accounting pronouncements related to reporting gains and losses from the extinguishment of debt and certain lease modifications that have economic effects similar to sale-leaseback transactions.  The adoption of SFAS No. 145 did not have a material impact on the Company’s consolidated financial statements.

 

Financial Accounting Standards Board Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others” (“FIN No. 45”). FIN No. 45 elaborates on the disclosures for interim and annual reports regarding obligations under certain guarantees issued by a guarantor. Under FIN No. 45, the guarantor is required to recognize a liability for the fair value of the obligation undertaken in issuing the guarantee

 

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at the inception of a guarantee. The recognition and measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements for FIN No. 45 are effective for interim and annual financial statements issued after December 15, 2002. The adoption of FIN No. 45 did not have a material impact on the Company’s consolidated financial statements.

 

4)            Investment Securities

 

Investment securities at November 29, 2003 consist primarily of U.S. Government Agency debt securities and municipal debt securities. Because the Company has the ability and intent to hold the securities until maturity, it classifies its securities as held-to-maturity. These investment securities are recorded at amortized or accreted cost, adjusted for the amortization of premiums or the accretion of discounts, where applicable.

 

Premiums and discounts are amortized and accreted, respectively, over the life of the related held-to-maturity securities as an adjustment to interest using the effective interest method. Interest income is recognized when earned.

 

5)            Earnings Per Share

 

The Company presents earnings per share on a basic and diluted basis.  Basic earnings per share has been computed by dividing net earnings by the weighted average number of shares outstanding.  Diluted earnings per share has been computed by dividing net earnings by the weighted average number of shares outstanding including the dilutive effect of stock options.

 

Options for which the exercise price was greater than the average market price of common shares for the three months and nine months ended November 29, 2003 and November 30, 2002 were not included in the computation of diluted earnings per share as the effect would be anti-dilutive. These consisted of options totaling 103,900 and 268,200 for the three months and 669,027 and 131,465 for the nine months ended November 29, 2003 and November 30, 2002, respectively.

 

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6)            Supplemental Cash Flow Information

 

The Company paid income taxes of $165.4 million and $115.4 million in the first nine months of fiscal 2003 and 2002, respectively.

 

7)            Acquisitions

 

On June 19, 2003, the Company acquired Christmas Tree Shops, Inc. (“CTS”). The results of CTS’s operations have been included in the consolidated financial statements since the date of acquisition. At the date of acquisition, CTS, headquartered in South Yarmouth, Massachusetts, operated 23 stores in 6 states.  CTS is a retailer of giftware and household items selling a broad assortment of merchandise in many categories including home décor, giftware, housewares, food, paper goods, and seasonal products at low prices.

 

The aggregate all cash purchase price was $194.4 million, net of cash acquired, including $18.9 million in deferred payments payable in cash over the next three years.

 

The acquisition has been accounted for under the purchase method of accounting in accordance with SFAS No. 141, “Business Combinations”. Accordingly, the total purchase price has been preliminarily allocated to the assets acquired and liabilities assumed based on their estimated fair

 

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values at June 19, 2003, including a debt prepayment penalty, with the excess of the purchase price over the net assets acquired of approximately $130.4 million being allocated to goodwill. The Company is in the process of finalizing the valuations of certain assets acquired and liabilities assumed, thus the allocation of the purchase price is subject to refinement.

 

The unaudited pro forma financial information presented below includes the reduction of net interest income due to the purchase price paid and the prepayment of CTS’s debt, the reduction of certain selling, general and administrative expenses directly attributable to the transaction, and the related pro forma income tax effects, in each case as if they occurred as of the beginning of each respective period.

 

		For the Three Months Ended						For the Nine Months Ended
		November 29, 2003			November 30, 2002			November 29, 2003			November 30, 2002
		(Unaudited)			(Pro Forma)			(Pro Forma)			(Pro Forma)
(in thousands, except per share data)
Net sales		$	1,174,740		$	1,050,990		$	3,284,381		$	2,901,764
Net earnings		100,506			83,717			258,231			212,763
Earnings per share:
Basic		0.34			0.29			0.87			0.73
Diluted		0.33			0.28			0.85			0.71

 

The unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations that would have occurred had the CTS acquisition been consummated at the beginning of the respective periods.

 

On March 5, 2002, the Company acquired Harmon Stores, Inc., a health and beauty care retailer, which did not have a material effect on its consolidated results of operations or financial condition.

 

9

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Results of Operations

 

Three Months Ended November 29, 2003 vs. Three Months Ended November 30, 2002

 

Net sales for the third quarter ended November 29, 2003 were $1.175 billion, an increase of $238.7 million or approximately 25.5% over net sales of $936.0 million for the corresponding quarter last year.  Approximately 31% of the increase was attributable to Bed Bath & Beyond new store sales and 49% of the increase was attributable to Christmas Tree Shops, Inc. (“CTS”) sales.  (See Note 7 “Acquisitions” in the notes to the unaudited consolidated financial statements).  The increase in comparable store sales in the third quarter of 2003 was 6.4%.  The increase in comparable store sales is due to a number of factors, including but not limited to, the continued consumer acceptance of the Company’s merchandise offerings, a strong focus on customer service and the continued success of the Company’s advertising program.  Approximately 53% and 47% of Bed Bath & Beyond store sales for the third quarter were attributable to sales of domestics merchandise and home furnishings, respectively.

 

Gross profit for the third quarter of 2003 was $487.0 million or 41.5% of net sales, compared with $386.2 million or 41.3% of net sales during the third quarter of 2002.  The increase in gross profit as a percentage of net sales was primarily attributable to an improved markup on the mix of Bed Bath & Beyond product purchased partially offset by a lower markup on the mix of CTS product purchased.

 

Selling, general and administrative expenses (“SG&A”) were $325.5 million in the third quarter of 2003 compared with $267.0 million in the same quarter last year and as a percentage of net sales were 27.7% and 28.5%, respectively.  The decrease in SG&A as a percentage of net sales was primarily attributable to a decrease in costs associated with new store openings, occupancy costs and other store expenses, partially offset by an increase in payroll and payroll related items and advertising expenses.

 

As a result of the foregoing, operating profit increased to $161.5 million, compared with the $119.2 million during the third quarter of 2002.

 

Interest income was $2.0 million for the third quarter of 2003 compared to $2.9 million for the third quarter of 2002 due to a decrease in the average investment interest rate partially offset by an increase in cash invested.

 

The effective tax rate was 38.5% for both the third quarter of 2003 and 2002 due to the weighted average effective tax rate remaining consistent in the states in which the Company currently conducts its business.

 

As a result of the factors described above, net earnings increased to $100.5 million, compared with $75.1 million in the third quarter of 2002.

 

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Nine Months Ended November 29, 2003 vs. Nine Months Ended November 30, 2002

 

Net sales for the nine months ended November 29, 2003 were $3.180 billion, an increase of $564.2 million or approximately 21.6% over net sales of $2.616 billion for the corresponding period last year. Approximately 44% of the increase was attributable to Bed Bath & Beyond new store sales and 34% of the increase was attributable to CTS sales.  The increase in comparable store sales for the first nine months of 2003 was 5.6%.  The increase in comparable store sales is due to a number of factors, including but not limited to, the continued consumer acceptance of the Company’s merchandise offerings, a strong focus on customer service and the continued success of the Company’s advertising program.

 

Gross profit for the first nine months of 2003 was $1.313 billion or 41.3% of net sales, compared with $1.075 billion or 41.1% of net sales during the first nine months of 2002.  The increase in gross profit as a percentage of net sales was primarily attributable to an improved markup on the mix of Bed Bath & Beyond product purchased partially offset by a lower markup on the mix of CTS product purchased.

 

SG&A was $905.5 million in the first nine months of 2003 compared with $763.3 million in the same period last year and as a percentage of net sales were 28.5% and 29.2%, respectively.  The decrease in SG&A as a percentage of net sales was primarily attributed to a decrease in costs associated with new store openings, occupancy costs and other store expenses, partially offset by an increase in advertising expenses and payroll and payroll related items.

 

As a result of the foregoing, operating profit increased to $407.8 million, compared with the $311.6 million during the first nine months of 2002.

 

Interest income was $7.2 million for the first nine months of 2003 compared to $8.5 million for the first nine months of 2002 due to a decrease in the average investment interest rate partially offset by an increase in cash invested.

 

The effective tax rate was 38.5% for both the first nine months of 2003 and 2002 due to the weighted average effective tax rate remaining consistent in the states in which the Company currently conducts its business.

 

As a result of the factors described above, net earnings increased to $255.2 million, compared with $196.9 million in the first nine months of 2002.

 

Expansion Program

 

The Company is engaged in an ongoing expansion program involving the opening of new stores in both new and existing markets and the expansion or relocation of existing stores. As a result of this program, the Company operated 569 Bed Bath & Beyond stores and 30 Harmon stores at the end of the third quarter of 2003, compared with 489 Bed Bath & Beyond stores and 29 Harmon stores at the end of the corresponding quarter last year. Additionally, the Company acquired 23 CTS stores as of June 19, 2003 and subsequently opened one additional store in the second quarter of 2003 bringing the total number of CTS stores to 24.

 

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At November 29, 2003, Company-wide total square footage was approximately 20.3 million square feet. Bed Bath & Beyond store space grew to approximately 19.2 million square feet at the end of the third quarter of 2003 from approximately 17.2 million square feet at the end of the third quarter of last year.

 

During the third quarter of fiscal 2003, the Company opened 55 Bed Bath & Beyond stores. Including the stores opened through the third quarter, the Company plans to open approximately 86 Bed Bath & Beyond stores by the end of the fiscal year.

 

Financial Condition

 

Total assets at November 29, 2003 were approximately $2.779 billion compared with approximately $2.189 billion at March 1, 2003.  The net increase of $590.2 million arose from an increase in current assets of $372.6 million and an increase in non-current assets of $217.6 million.

 

The $372.6 million increase in current assets was primarily attributable to a $104.7 million increase in cash and cash equivalents (which amount is net of acquisition payments of approximately $175.5 million relating to CTS) and a $252.1 million increase in merchandise inventories, which was principally the result of new Bed Bath & Beyond store space and the acquisition of CTS.

 

The $217.6 million increase in non-current assets was primarily attributable to a $130.4 million increase in goodwill and an $82.2 million increase in net property and equipment (both primarily the result of the acquisition of CTS).

 

Total liabilities at November 29, 2003 were $979.1 million compared with $736.9 million at March 1, 2003, an increase of $242.2 million.  The increase was primarily attributable to a $166.5 million increase in accounts payable resulting from an increase in Bed Bath & Beyond merchandise inventories and the acquisition of CTS, and a $93.8 million increase in accrued expenses and other current liabilities due to the continued expansion of Bed Bath & Beyond and the acquisition of CTS.

 

Shareholders’ equity was $1.800 billion at November 29, 2003 compared with $1.452 billion at March 1, 2003.  The increase primarily reflects net earnings for the first nine months of fiscal 2003 and additional paid in capital from the exercise of stock options.

 

Capital expenditures for the first nine months of fiscal 2003 were $79.2 million compared with $122.5 million for the corresponding period last year. The decrease was primarily attributable to expenditures for leasehold improvements, furniture, fixtures, and information technology for the 79 new Bed Bath & Beyond stores opened during the first nine months of fiscal 2003, compared to expenditures for furniture, fixtures, leasehold improvements and information technology for the 92 new Bed Bath & Beyond stores opened and two stores relocated in the same period last year.

 

For fiscal 2003, the Company believes that, following the acquisition of CTS, its current operating cash flow, working capital, and cash and cash equivalents on hand will be sufficient to meet its obligations in the ordinary course of business including capital expenditures and new store openings. (See Note 7 “Acquisitions” in the notes to the unaudited consolidated financial statements).

 

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Critical Accounting Policies

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 the provision for sales returns, inventory valuation using the retail inventory method, impairment of assets, impairment of goodwill and indefinitely lived intangible assets, vendor allowances and accruals for self insurance, litigation and store openings, expansions, relocations and closings. Actual results could differ from these estimates.

 

Sales Returns: Sales returns, which are reserved for based on historical experience, are provided for in the period that the related sales are recorded.

 

Inventory Valuation: Bed Bath & Beyond merchandise inventories are stated at the lower of cost or market, using the 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 value of inventories. At any one time, inventories include items that have been marked down to the Company’s best estimate of their fair market value. Actual markdowns required could differ from this estimate.

 

Impairment of Assets: The Company periodically reviews long-lived assets for impairment by comparing the carrying value of the assets with their estimated future undiscounted cash flows. If it is determined that an impairment loss has occurred, the loss would be recognized during that period. The impairment loss is calculated as the difference between asset carrying values and the present value of the estimated net cash flows. The Company does not believe that any material impairment currently exists related to its long-lived assets.

 

Impairment of Goodwill and Indefinitely Lived Intangible Assets: As a result of the adoption of SFAS No. 142, the Company reviews goodwill and other intangibles that have indefinite lives for impairment annually and otherwise 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. (See Note 7 “Acquisitions” in the notes to the unaudited consolidated financial statements).

 

Vendor Allowances: The Company receives various types of allowances from its merchandise vendors, which are based on negotiated terms. These allowances are recorded when earned as a reduction of cost of sales or as a reduction of other costs in accordance with the provisions of the FASB’s Emerging Issues Task Force Issue No. 02-16 “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor.”

 

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Self Insurance: The Company uses self insurance for a number of risks including worker’s compensation, general liability, automobile liability and employee related health care benefits (a portion of which is paid by its employees). Liabilities associated with these risks are estimated in part by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions.

 

Litigation: The Company records an estimated liability related to various claims and legal actions arising in the ordinary course of business which 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 its pending litigation and revises its estimates as appropriate.

 

Store Opening, Expansion, Relocation and Closing Costs: Store opening, expansion, relocation and closing costs are charged to earnings as incurred. Prior to the adoption of SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which was effective for any exit or disposal activity initiated after December 31, 2002, costs related to store relocations and closings were estimated and provided for in the period in which management approved the relocation or closing of a store.  Actual costs related to store relocations and closings could differ from these estimates.

 

Acquisitions

 

On June 19, 2003, the Company acquired Christmas Tree Shops, Inc. (“CTS”).  The results of CTS’s operations have been included in the consolidated financial statements since the date of acquisition. At the date of acquisition, CTS, headquartered in South Yarmouth, Massachusetts, operated 23 stores in 6 states.  CTS is a retailer of giftware and household items selling a broad assortment of merchandise in many categories including home décor, giftware, housewares, food, paper goods, and seasonal products at low prices.

 

The aggregate all cash purchase price was $194.4 million, net of cash acquired, including $18.9 million in deferred payments payable in cash over the next three years.

 

On March 5, 2002, the Company acquired Harmon Stores, Inc., a health and beauty care retailer, which did not have a material effect on its consolidated results of operations or financial condition.

 

Forward Looking Statements

 

This Form 10-Q may contain forward-looking statements.  Many of these forward-looking statements can be identified by use of words such as may, will, expect, anticipate, estimate, assume, continue, project, plan, and similar words and phrases.  The Company’s actual results and future financial condition may differ materially from those expressed in any such forward-looking statements as a result of many factors that may be outside the Company’s control.  Such factors include, without limitation: general economic conditions, changes in the retailing environment and consumer spending habits, demographics and other macroeconomic factors that may impact the level of spending for the types of merchandise sold by the Company; unusual weather patterns;

 

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competition from existing and potential competitors; competition from other channels of distribution; pricing pressures; the ability to find suitable locations at reasonable occupancy costs to support the Company’s expansion program; and the cost of labor, merchandise and other costs and expenses. The Company does not undertake any obligation to update its forward-looking statements.

 

Available Information

 

The Company makes available as soon as reasonably practicable after filing with the SEC, free of charge, through its website, www.bedbathandbeyond.com, the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, electronically filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

 

The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s investment securities.  The Company’s market risks at November 29, 2003 are similar to those disclosed in Item 7a of the Company’s Form 10-K for the year ended March 1, 2003.  The Company continues to regularly evaluate these risks and continues to take measures to mitigate these risks.

 

Item 4.   Controls and Procedures

 

(a)		Evaluation of disclosure controls and procedures.  The Company’s Principal Executive Officer and Principal Financial Officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 240.13a- 15(e) and 15d-15(e)) as of November 29, 2003 (the end of the period covered by this quarterly report).  Based on that evaluation, the Principal Executive Officer and the Principal Financial Officer have concluded that the Company’s current disclosure controls and procedures are effective, providing them with material information relating to the Company as required to be disclosed in the reports the Company files or submits under the Exchange Act on a timely basis.
(b)		Changes in internal controls.  There were no changes in the Company’s internal controls over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

Item 6.    Exhibits and Reports on Form 8-K

 

(a)		The exhibits to this Report are listed in the Exhibit Index included elsewhere herein.
(b)		Report on Form 8-K:
		The Company furnished a report dated December 22, 2003, in reference to a press release in which the Company announced financial results for its fiscal third quarter ended November 29, 2003, pursuant to SEC interim filing guidance, and a press release in which the Company announced the election of a new director.
		The Company filed a report dated October 10, 2003 in reference to a press release in which the Company announced the election of two new directors.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

	BED BATH & BEYOND INC.
	(Registrant)
Date:  January 12, 2004		By:	/s/ Eugene A. Castagna
			Eugene A. Castagna
			Vice President – Finance and Principal Accounting Officer

 

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EXHIBIT INDEX

 

 

Exhibit No.		Exhibit
10.1		Agreement Terminating Agreements concerning “Split Dollar” Life Insurance Plan, dated May 9, 1994 and June 16, 1995, among the Company, Jay D. Waxenberg, as trustee of the Warren Eisenberg Life Insurance Trust, Warren Eisenberg and Maxine Eisenberg.
10.2		Agreement Terminating Agreements concerning “Split Dollar” Life Insurance Plan, dated May 9, 1994 and June 16, 1995, among the Company, Jay D. Waxenberg, as trustee of the Leonard Joseph Feinstein Life Insurance Trust and Leonard Feinstein.
31.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002.
31.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002.
32		Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.

 

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