Bed, Bath and Beyond 2007 Annual Report Download

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2007 Annual Report • Notice of Annual Meeting • Proxy Statement
To Our Fellow Shareholders:
Since our Company was founded in 1971, long before we became a public company in 1992, we
have been, and we believe it essential that we are, our own worst critics. We know everything we
do today can be done better – and needs to be in order for us to continue to succeed. This truth lies
at the heart of the culture we strive for in our Company, which is based on a constant desire for
improvement, and on the spirit of entrepreneurship and empowerment which we have mentioned
frequently through the years. This culture has been a central theme in our annual letters to you,
and its place in our message to you is no different today. If anything, the role of this culture in the
continued success of our Company is more important today than ever.
Continued on page 1

Table of contents

  • Page 1
    2007 Annual Report • Notice of Annual Meeting • Proxy Statement To Our Fellow Shareholders: Since our Company was founded in 1971, long before we became a public company...of the culture we strive for in our Company, which is based on a constant desire for improvement, and on the spirit of ...

  • Page 2
    ... fiscal 2003 information. (6) In fiscal 2007, 2006, 2005 and 2004, the Company repurchased approximately $734 million, $301 million, $598 million and $350 million of its common stock, respectively. (7) In fiscal 2006, the Company adopted Staff Accounting Bulletin 108, "Considering the Effects of...

  • Page 3
    ...to continue to test new merchandise initiatives throughout our stores, and in doing so, strive to increase their productivity. Our bridal and gift registry business, as well as our online sales activities, afford us an important opportunity to attract new shoppers to the Bed Bath & Beyond experience...

  • Page 4
    ..., health and beauty care items and infant and toddler merchandise. The Company's stores combine superior service and a broad selection of items at everyday low prices. Shares of Bed Bath & Beyond Inc. are traded on the NASDAQ National Market under the symbol BBBY and are included in the Standard...

  • Page 5
    ... not have a material effect on its consolidated results of operations and financial condition for fiscal 2007. Also, in December 2007, the Company opened its first international store in Canada and is actively pursuing its expansion opportunities in Canada. BED BATH & BEYOND ANNUAL REPORT 2007 3

  • Page 6
    ...an equivalent number of weeks for each annual period. buybuy BABY is excluded from the comparable store sales percentage for fiscal 2007, but will be included in the Company's comparable store sales calculation starting in the first quarter of fiscal 2008. BED BATH & BEYOND ANNUAL REPORT 2007 4

  • Page 7
    ...scal 2006 versus six months in fiscal 2005, additional stock-based compensation charges primarily related to the revised measurement dates, increased legal and accounting charges associated with the stock option review (see "Review of Equity Grants and Procedures and Related Matters in Fiscal 2006...

  • Page 8
    ... million in fiscal 2005. The decrease in net cash used in financing activities was primarily attributable to common stock repurchased of $301.0 million in fiscal 2006 compared to $598.2 million in fiscal 2005 under the Company's stock repurchase program. BED BATH & BEYOND ANNUAL REPORT 2007 6

  • Page 9
    ...rent, income taxes, workers' compensation and general liability reserves and other various accruals. As the timing and/or amounts of any cash payment is uncertain, the related amounts have been reï¬,ected only in the Total column in the table above. (2) (3) BED BATH & BEYOND ANNUAL REPORT 2007 7

  • Page 10
    ... the business combination. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early adoption is not permitted. BED BATH & BEYOND ANNUAL REPORT 2007 8

  • Page 11
    ..., 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...

  • Page 12
    .... Self Insurance: The Company utilizes a combination of insurance and self insurance for a number of risks including workers' compensation, general liability, automobile liability and employee related health care benefits (a portion of which is paid by its employees). Liabilities associated with...

  • Page 13
    ...'s stock option grants, the outcome of a shareholder derivative action filed against certain of the Company's officers and directors and related matters, and the possibility of other private litigation relating to such stock option grants and related matters. BED BATH & BEYOND ANNUAL REPORT 2007...

  • Page 14
    ...credit and gift card liabilities Current income taxes payable Total current liabilities Deferred rent and other liabilities Income taxes payable Total liabilities Commitments and contingencies Shareholders' equity: Preferred stock...385) 2,649,151) $ 3,959,304) BED BATH & BEYOND ANNUAL REPORT 2007 12

  • Page 15
    CONSOLIDATED STATEMENTS OF EARNINGS Bed Bath & Beyond Inc. and Subsidiaries (in thousands, except per share data) Net sales Cost of sales Gross profit Selling, general and administrative expenses Operating profit Interest income Earnings before provision for income taxes Provision for income ...

  • Page 16
    CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Bed Bath & Beyond Inc. and Subsidiaries (in thousands) Balance at February 26, 2005 Net earnings Shares sold under employee stock option plans, including tax benefit 2,300 Issuance of restricted shares, net 1,031 Stock-based compensation expense ...

  • Page 17
    ..., net of effect of acquisition: Accounts payable Accrued expenses and other current liabilities Merchandise credit and gift card liabilities Income taxes payable Deferred rent and other liabilities Net cash provided by operating activities Cash Flows from Investing Activities: Purchase of held-to...

  • Page 18
    ... 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. BED BATH & BEYOND ANNUAL REPORT 2007 16

  • Page 19
    ... Insurance The Company utilizes a combination of insurance and self insurance for a number of risks including workers' compensation, general liability, automobile liability and employee related health care benefits (a portion of which is paid by its employees). BED BATH & BEYOND ANNUAL REPORT 2007...

  • Page 20
    ... for reduction in the value of unused card balances over defined time periods and have no expiration dates, but are subject to state escheat regulations; as such, the Company does not record income associated with unredeemed gift cards. Sales returns are provided for in the period that the...

  • Page 21
    ...), "Share-Based Payment" ("SFAS No. 123R") which requires companies to measure all employee stock-based compensation awards using a fair value method and record such expense in its consolidated financial statements. The Company adopted SFAS No. 123R on August 28, 2005 (the "date of adoption") under...

  • Page 22
    ... in Garden City, New York, buybuy BABY operated a total of 8 stores at the time of acquisition, in Maryland, New Jersey, New York and Virginia. The stores range in size from approximately 28,000 to 60,000 square feet and offer a broad assortment of premier BED BATH & BEYOND ANNUAL REPORT 2007 20

  • Page 23
    ... special committee retained independent counsel who engaged outside accounting advisors to assist with the review. This review was completed and on October 9, 2006, the special committee presented its report to the Company's Board of Directors. The review of stock option grants and procedures identi...

  • Page 24
    ... under the uncommitted lines of credit. As of March 3, 2007, there was approximately $6.9 million of outstanding letters of credit and approximately $40.0 million of outstanding unsecured standby letters of credit, primarily for certain insurance programs. BED BATH & BEYOND ANNUAL REPORT 2007 22

  • Page 25
    ...securities was $393.0 million and $102.5 million, respectively. As of March 3, 2007, the Company had gross unrecognized holding losses of approximately $1.3 million, relating to held-to-maturity investment securities with fair values totaling $405.8 million. BED BATH & BEYOND ANNUAL REPORT 2007 23

  • Page 26
    ... for income tax purposes. The significant components of the Company's deferred tax assets and liabilities consist of the following: (in thousands) Deferred Tax Assets: Inventories Deferred rent and other rent credits Insurance Stock-based compensation Merchandise credits and gift card liabilities...

  • Page 27
    ... In fiscal 2007, the Company leased retail space from entities controlled by management of buybuy BABY. The Company paid such entities occupancy costs of approximately $7.1 million, $6.3 million and $6.5 million in fiscal 2007, 2006 and 2005, respectively. BED BATH & BEYOND ANNUAL REPORT 2007 25

  • Page 28
    ... Company, subject to certain Plan limitations. This match will vest over a specified period of time. The Company's match was approximately $0.7 million, $0.4 million and $0.1 million for fiscal 2007, 2006 and 2005, respectively, which was expensed as incurred. BED BATH & BEYOND ANNUAL REPORT 2007...

  • Page 29
    ...123R which requires companies to measure all employee stock-based compensation awards using a fair value method and record such expense in its consolidated financial statements. The Company adopted SFAS No. 123R on August 28, 2005 (the "date of adoption") under the modified prospective application...

  • Page 30
    ... generally issues new shares for stock option exercises and restricted stock awards. Under the 2004 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. BED BATH & BEYOND ANNUAL REPORT...

  • Page 31
    ... during fiscal 2007, 2006 and 2005 were $28.2 million, $58.8 million and $60.7 million, respectively. Net cash proceeds from the exercise of stock options for fiscal 2007 were $22.7 million and the associated income tax benefits were $8.7 million. BED BATH & BEYOND ANNUAL REPORT 2007 29

  • Page 32
    ... $30.0 million to over 1,600 employees in the fourth quarter of fiscal 2006, which resulted in a non-recurring, pre-tax stock-based compensation charge. The cash outlay primarily represents payments to employees in connection with increasing the exercise BED BATH & BEYOND ANNUAL REPORT 2007 30

  • Page 33
    ... this recovery would not ï¬,ow through the income statement. The Company continues to cooperate with the informal inquiry of the SEC regarding the Company's stock option grant practices. The United States Attorney's Office for the District of New Jersey has concluded its inquiry with respect to...

  • Page 34
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders Bed Bath & Beyond Inc.: We have audited the accompanying consolidated balance sheets of Bed Bath & Beyond Inc. and subsidiaries (the Company) as of March 1, 2008 and March 3, 2007, and the related ...

  • Page 35
    ... reporting as of March 1, 2008, based on criteria established in Internal Control - Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Bed Bath & Beyond...

  • Page 36
    BED BATH & BEYOND INC. NOTICE OF ANNUAL MEETING OF SHAREHOLDERS JULY 3, 2008 TIME 9:00 A.M. on Thursday, July 3, 2008 PLACE Madison Hotel One Convent Road Morristown, New Jersey 07960 ITEMS OF BUSINESS (1) To elect eight directors until the Annual Meeting in 2009 and until their respective ...

  • Page 37
    ... with Bed Bath & Beyond's transfer agent, American Stock Transfer & Trust Company, you are considered the shareholder of record with respect to those shares, and these proxy materials are being sent directly to you. If you hold restricted stock under the Company's 2004 Incentive Compensation Plan...

  • Page 38
    ... applicable rules, Proposals 1 and 2 are "discretionary" items upon which New York Stock Exchange member brokerage firms that hold shares as a nominee may vote on behalf of the beneficial owners if such beneficial owners have not furnished voting instructions by the tenth day before the Annual...

  • Page 39
    ... copies of this document or our 2007 Annual Report on Form 10-K, please contact: Bed Bath & Beyond Inc., 650 Liberty Avenue, Union, NJ 07083, Attention: Investor Relations Dept., Telephone: (908) 688-0888. ELECTION OF DIRECTORS (PROPOSAL 1) How is the Board of Directors structured and who has been...

  • Page 40
    ...%, of the Board of Directors and committees on which he served. The Company encourages, but does not require, the directors to attend the Company's Annual Meeting of Shareholders. All of the Company's directors attended the 2007 Annual Meeting of Shareholders. BED BATH & BEYOND PROXY STATEMENT 38

  • Page 41
    ... director fees were paid in shares of Common Stock of the Company pursuant to the Bed Bath & Beyond Plan to Pay Directors Fees in Stock and the number of shares was determined (in accordance with the terms of such plan) based on the fair market value per share on the second business day following...

  • Page 42
    ... standards set forth in The NASDAQ Stock Market's Marketplace Rule 4200(a)(15). This determination was based on the fact that each of these directors is not an executive officer or employee of the Company or any other individual having a relationship which, in the opinion of the Board of Directors...

  • Page 43
    ... as the Committee that is authorized to make grants and awards under the Company's incentive compensation plan to executive officers and such other officers and employees as the Committee may determine; and (iii) reviewing and reporting to the Board on such other matters as may be appropriately...

  • Page 44
    ...of the Company's internal control over financial reporting as integrated with the annual audit of the Company's financial statements and the quarterly reviews of the financial statements included in its Form 10-Q filings. In fiscal 2007 and 2006, audit-related fees included fees associated with...

  • Page 45
    ... 2002 to 2006 and as Vice President - Finance from 2000 to 2006. Mr. Castagna is a certified public accountant and joined the Company in 1994. Matthew Fiorilli has been Senior Vice President - Stores since January 1999. Mr. Fiorilli joined the Company in 1973. BED BATH & BEYOND PROXY STATEMENT 43

  • Page 46
    ... of 2007, the Compensation Committee consulted Exequity LLP for a general review in determining compensation for our named executive officers and received from Exequity LLP advice that the compensation of our named executive officers was still consistent with the market. BED BATH & BEYOND PROXY...

  • Page 47
    ... & Associates LLC ("JFR") to conduct a compensation review for the named executive officers and certain other officers. JFR had not previously worked with the Company in any capacity. Under the direction of the Committee, the compensation review included a peer group competitive market review and...

  • Page 48
    ... the accounting rules pertaining to the compensation cost of stock-based payments to employees and the desirability of achieving various goals, including promoting long-term employee stock ownership, enhancing employee retention, minimizing dilution, providing employees with rewards for the Company...

  • Page 49
    ... 2007, these grants are made on May 10 of each year (or the following trading day should such date fall on a weekend or holiday). Consistent with the Company's historic practice, the stock options vest over time, subject, in general, to the named executive officers remaining employed by the Company...

  • Page 50
    ... cash compensation of $840,000, restricted stock having a market value on the date of grant of $750,000 and options having a Stock Option Fair Value of $590,000. In approving the awards, the Compensation Committee took into account the percentage increase of the aggregate BED BATH & BEYOND PROXY...

  • Page 51
    ...cer's 401(k) plan account, and the payment of a portion of the named executive officer's premiums for healthcare and basic life insurance. In addition, effective January 1, 2006, the Company adopted a nonqualified deferred compensation plan for the benefit of certain highly compensated employees...

  • Page 52
    ... of the Compensation Committee of the Board of Directors The Compensation Committee of the Company's Board of Directors has submitted the following report for inclusion in this Proxy Statement: The Compensation Committee has reviewed and discussed with management the Compensation Discussion and...

  • Page 53
    ... is also reported in the Deferred Compensation Table below. Mr. Temares contributed $8,580 of his salary to the Bed Bath & Beyond Inc. 401(k) Savings Plan (the "Company 401(k)"). The actuarial present value of the benefits payable under the supplemental executive retirement benefit agreement with...

  • Page 54
    ... their active employment, their Senior Status Period and during the period of supplemental pension payments. Certain of the provisions of these agreements are expected to be modified to meet the requirements of Section 409A of the Internal Revenue Code. For a complete description of payments due...

  • Page 55
    ... of a retirement benefit payable over a ten-year period, any amount due prior to six months after the termination of employment will be paid in a lump sum on the date six months from the date of such termination of employment. Table follows on the next two pages. BED BATH & BEYOND PROXY STATEMENT...

  • Page 56
    ... a change in control occurring on February 29, 2008. Section 8(b) of the Employment Agreements for Messrs. Eisenberg and Feinstein provides for a lump sum payment of 3x current base salary upon a voluntary termination following a change in control. (3) (4) (5) (6) (7) (8) BED BATH & BEYOND PROXY...

  • Page 57
    Benefit Continuation (3) Non-Qualified Deferred Compensation Balance (4) Supplemental Pension (5) Split-Dollar Life Insurance Substitute Payment (6) Total $ $ $ 663,044 - ... 103,294 103,294 - - - - - - - - $ $ $ $ 2,338,486 858,294 103,294 2,338,486 BED BATH & BEYOND PROXY STATEMENT 55

  • Page 58
    ... starting on the third anniversary of the grant date. At the time of grant or thereafter, option awards and underlying shares of common stock, are not transferable other than by will or the laws of descent and distribution, except as the Compensation Committee may permit. BED BATH & BEYOND...

  • Page 59
    ....6150 $38.7650 $41.3450 $37.5100 $38.7950 $41.1150 Stock Awards Number of Market Value Shares or of Shares Units of or Units of Stock That Stock That Have Not Have Not Vested Vested (2) (#) ($) 146,616 4,155,097 Name Warren Eisenberg Option Expiration Date 03/30/11 03/06/12 03/06/12 04/25...

  • Page 60
    ..., some grants appear with a December 31 expiration date where that year was selected as the latest year in which any portion of such grant may be exercised. Market value based on the closing price of the Company's common stock of $28.34 per share on February 29, 2008, the last trading day in fiscal...

  • Page 61
    ... bonus or incentive compensation, welfare benefits, fringe benefits, noncash remuneration, amounts realized from the sale of stock acquired under a stock option or grant, and moving expenses. When a participant elects to make a deferral under the plan, the Company credits the account of the...

  • Page 62
    ... table has sole voting and investment power with respect to all shares of our Common Stock that he, she or it beneficially owns. Unless otherwise indicated, the address of each beneficial owner listed below is c/o Bed Bath & Beyond Inc., 650 Liberty Avenue, Union, New Jersey 07083. Number...

  • Page 63
    ... dispose or to direct the disposition of 16,423,460 shares of common stock. The address of Davis Selected Advisers, L.P. is 2949 East Elvira Road, Suite 101, Tucson, AZ 85706. Information regarding PRIMECAP Management Company was obtained from a Schedule 13G filed with the SEC on February 14, 2008...

  • Page 64
    ... Senior Lecturer, Harvard Business School Senior Director, The Goldman Sachs Goup, Inc. New York, New York Victoria A. Morrison Executive Vice President & General Counsel, Edison Properties, LLC Newark, New Jersey Fran Stoller Partner, Loeb & Loeb LLP New York, New York OFFICERS Warren Eisenberg Co...

  • Page 65
    ...under nominee security position listings. Transfer Agent The Transfer Agent should be contacted on questions of change of address, name or ownership, lost certificates and consolidation of accounts. American Stock Transfer & Trust Company 6201 15th Avenue Brooklyn, New York 11219 Telephone: 800/937...

  • Page 66
    ....com. buybuy BABY STORES 2 29 9 40 Maryland New Jersey New York 1 3 4 1 9 For exact Christmas Tree Shops locations, visit us at www.christmastreeshops.com. Virginia Total For exact buybuy BABY locations, visit us at www.buybuybaby.com. For exact Bed Bath & Beyond locations, visit us at...

  • Page 67

  • Page 68
    650 Liberty Avenue Union, NJ 07083 908-688-0888