Bed, Bath and Beyond 2009 Annual Report Download - page 27

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BED BATH & BEYOND 2009 ANNUAL REPORT
25
Auction Rate Securities
As of February 27, 2010 and February 28, 2009, the Company’s available-for-sale investment securities represented approxi-
mately $137.9 million and approximately $176.0 million par value of auction rate securities, respectively, less temporary valuation
adjustments of approximately $2.1 million and $2.6 million, respectively. Since these valuation adjustments are deemed to be
temporary, they are recorded in accumulated other comprehensive income (loss), net of a related tax benefit, and did not affect
the Company’s earnings. These securities at par are invested in preferred shares of closed end municipal bond funds, which are
required, pursuant to the Investment Company Act of 1940, to maintain minimum asset coverage ratios of 200%. All of these
available-for-sale investments carried triple-A credit ratings from one or more of the major credit rating agencies as of February
27, 2010 and February 28, 2009, and none of them are mortgage-backed debt obligations. The Company believes that the unreal-
ized losses are temporary and reflect the investments’ current lack of liquidity. As of February 27, 2010 and February 28, 2009, the
Company’s available-for-sale investments have been in a continuous unrealized loss position for 12 months or more. Due to their
lack of liquidity, the Company classified $120.8 million and $171.4 million of these investments as long term investment securities
at February 27, 2010 and February 28, 2009, respectively. In addition, the Company classified approximately $15.0 million of these
securities as short term investment securities at February 27, 2010 due to expected redemptions at par during the first half of
fiscal 2010.
As of February 27, 2010 and February 28, 2009, the Company’s trading investment securities included approximately $40.5 mil-
lion at fair value ($42.8 million at par) and $41.4 million at fair value ($43.2 million at par), respectively, of auction rate securities
which are invested in securities collateralized by student loans. As of February 27, 2010 and February 28, 2009, these securities
were more than 100% collateralized with approximately 90% of such collateral in the aggregate being guaranteed by the United
States government. All of these trading investment securities also carried triple-A ratings from one or more of the major credit
rating agencies as of February 27, 2010 and February 28, 2009. During fiscal 2009, the Company recognized a pre-tax unrealized
loss of approximately $0.5 million in the consolidated statement of earnings to reflect the decrease in the fair value of these
securities. In fiscal 2008, the Company entered into an agreement (the “Agreement”) with the investment firm that sold the
Company these securities. By entering into the Agreement, the Company (1) received the right (“Put Option”) to sell these
auction rate securities back to the investment firm at par, at its sole discretion, anytime during the period from June 30, 2010
through July 2, 2012, and (2) gave the investment firm the right to purchase these auction rate securities or sell them on the
Company’s behalf at par anytime after the execution of the Agreement through July 2, 2012. The Company elected to measure
the Put Option at fair value and recorded it as a long term investment. As of February 27, 2010, the fair value of the Put Option
was approximately $2.3 million and during fiscal 2009, the Company recorded pre-tax income of approximately $0.5 million to
reflect the increase in its fair value. The recording of the change in fair value of the Put Option and these securities resulted in
no net impact to the consolidated statement of earnings for fiscal 2009. The Company anticipates that any future changes in the
fair value of the Put Option will be offset by the changes in the fair value of the related auction rate securities with no material
impact to the consolidated statement of earnings.
Because the Company intends to exercise its Put Option right as soon as practicably possible during fiscal 2010, these securities of
$40.5 million and the related Put Option of $2.3 million were classified as short term investment securities as of February 27, 2010.
During fiscal 2009 and 2008, approximately $38.5 million and $107.6 million, respectively, of auction rate securities were
redeemed at par. Subsequent to the end of fiscal 2009 through April 22, 2010, the Company additionally redeemed approximate-
ly $14.1 million of short term available-for-sale securities at par.
U.S. Treasury Securities
As of February 27, 2010, the Company’s short term held-to-maturity securities included approximately $373.6 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.
Other trading investment securities
The Company’s other trading investment securities, which are provided as investment options to the participants of the nonquali-
fied deferred compensation plan, are stated at fair market value. The values of these trading investment securities included in the
table above are approximately $12.1 million and $6.4 million as of February 27, 2010 and February 28, 2009, respectively.