3 Page Case Analysis And 1 Page Update

KEL082 Revised April 1, 2007

ARTUR RAVIV AND TIMOTHY THOMPSON

Bed Bath & Beyond: The Capital Structure Decision

“Bed Bath & Beyond’s earnings report could have been called Bed Bath & Brag,” according to the New Jersey newspaper The Record in April 2004.1 However, Bed Bath & Beyond (BBBY) had the performance to back up its boastfulness. Since going public in 1992, the home goods retailer, based in Union, New Jersey, had never missed an earnings estimate. For fiscal year 2003 (ending February 29, 2004) BBBY announced net income of $399 million on net sales of $4.5 billion, representing 22 percent growth in revenue and 32 percent growth in income over the previous fiscal year (see Exhibit 1 through Exhibit 4 for financial information).

In 2004 BBBY was amidst a large-scale expansion after adding 85 new stores in the preceding fiscal year. This growth had been financed internally with cash from operations. As analysts noted in summer 2003, the growing cash position of the company was causing return on equity to deteriorate. For a management constantly seeking ways to improve shareholder return, adding debt to the balance sheet was one possibility. In early 2004 interest rates were at an all-time low, making it an attractive time to consider issuing debt and executing either a share repurchase or a one-time special dividend.

Company History and Overview BBBY was founded in 1971 by Warren Eisenberg and Leonard Feinstein. Initially, Eisenberg and

Feinstein opened two stores, one in New York and one in New Jersey, under the name bed n bath. These small specialty stores carried primarily bed linens and bath accessories. In 1985 the company opened its first superstore, carrying a full line of domestics merchandise (bed linens, bath items, and kitchen textiles) and home furnishings (kitchen and tabletop items, small appliances, and basic housewares). In 1987 the company switched its name to Bed Bath & Beyond to reflect its broad merchandise offering. In March 2003 the co-founders turned over the CEO title to Steven Temares but retained their status as full-time co-chairmen.2

BBBY had been one of the early pioneers of the “big box” retail concept, which entailed dedicating a large, stand-alone store to a category that had previously been part of the offerings of large, general merchandise stores. While large department stores typically devoted about 20,000 square feet to home furnishings, BBBY stores averaged over 33,000 square feet and sometimes exceeded 80,000 square feet. This large size enabled BBBY to stock more than 30,000 SKUs (stock keeping units) in a typical store. By carrying a broad variety of household items, from bedding to bath items to kitchenware, BBBY offered one-stop shopping convenience for customers. In addition to its

1 Joan Verdon, “Bed Bath & Beyond’s Earnings Climb, Top Analysts’ Projections,” The Record, April 6, 2004. 2 Eisenberg and Feinstein remained actively involved in the day-to-day management of the business and retained significant ownership (more than 4 million shares each).

©2004 by the Kellogg School of Management, Northwestern University. This case was prepared by Phillip Gresh ’05 and Shannon Hennessy ’05 under the supervision of Professors Artur Raviv and Timothy Thompson. Cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. To order copies or request permission to reproduce materials, call 800-545-7685 (or 617-783-7600 outside the United States or Canada) or e-mail [email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise— without the permission of the Kellogg School of Management.

D o

N ot

C op

y or

P os

t

This document is authorized for educator review use only by V.K Unni, Bryant University until May 2019. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

BED BATH & BEYOND KEL082

broader merchandise selection, BBBY maintained an everyday lower price policy that put its prices at or below department store sale prices.

Historically, sales for BBBY were less seasonal than for many other retailers, and brand name items comprised the majority of sales. BBBY used several of its stores to test new merchandise and constantly updated its merchandising mix. Recent additions included fine china and window treatments.

In look and feel, BBBY stores differed from competing stores. Groups of related products were displayed together in different parts of the store, creating the impression that the superstore was comprised of several separate specialty stores. In each store, a “racetrack” walkway ran throughout, encouraging customers to shop many different categories. Rather than investing in expensive store furnishings, BBBY put the focus on its merchandise, which was displayed from floor to ceiling. As most of the inventory was on display in the store, approximately 85 to 90 percent of store space was devoted to selling area (with the remainder used for warehousing, receiving, and office space).

In addition to its Bed Bath & Beyond stores, BBBY also owned Harmon Stores, a discount health and beauty aid retailer, and Christmas Tree Shops (CTS), a retailer of home décor, giftware, and seasonal merchandise. At the end of fiscal year 2003 BBBY operated 575 Bed Bath & Beyond stores, 30 Harmon stores, and 24 CTS stores. Generally, stores were located in the suburban areas of medium- and large-sized cities. BBBY leased all of its stores over terms ranging from five to twenty years in duration (see Exhibit 5).

Impressive Results in a Fragmented Industry BBBY was widely admired by equity analysts, despite management’s tendency to conclude

quarterly earnings calls within 15 minutes without allowing for questions. Considered one of the best- performing retail companies, and even one of the top-performing public companies, by 2003 BBBY had experienced a fortyfold increase in stock price since its 1992 initial public offering. This success could be attributed to several factors:

Good Customer Experience Leading to High Store Productivity. In addition to the broad merchandise selection at competitive prices, customers could expect top-notch service. Employees were always nearby and willing to provide customer assistance—even store managers regularly spent time on the store floor assisting customers. As a result, BBBY stores were more productive than competitors, as measured by sales per square foot.

Decentralized Store Control. Because corporate management believed it existed to serve the stores, store managers were given a high level of autonomy in selecting merchandise and managing its presentation. Local store personnel monitored inventory and reordered as much as 75 percent of the merchandise. In addition to reducing stockouts and excess inventory, this strategy empowered local managers to carry the merchandise that met local needs.

High Margins. Despite its everyday low pricing strategy, BBBY’s operating margin of 14.3 percent far exceeded the 5.1 percent margin of direct competitor Linens ’n Things (see Exhibit 6 for financial information on competitors). Store managers, who understood the local climate, were able to identify good areas for markups and drive volume on those items. BBBY also carried private-label merchandise, which provided customers with high-quality items at a reasonable price and supplied healthy margins to BBBY. Finally, BBBY did not run sales and used markdowns primarily to clear excess inventory of discontinued items.

2 KELLOGG SCHOOL OF MANAGEMENT

D o

N ot

C op

y or

P os

t

This document is authorized for educator review use only by V.K Unni, Bryant University until May 2019. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

KEL082 BED BATH & BEYOND

Low Cost Structure. The BBBY culture focused on “wringing every possible nickel out of overhead.”3 For example, on the cover of its 2002 annual report, BBBY urged shareholders to elect to receive future annual reports and proxies via the Internet to save on mailing expenses. Corporate headquarters were housed in a nondescript yellow-brick building in Union, New Jersey. Many stores saved money on real estate by being located in free-standing buildings rather than more expensive regional malls. BBBY procurement policies were set up to maximize savings: initial purchases were made through the corporate buying office, and reordering was done by store managers. This system facilitated buyer/vendor negotiations on price for aggregate volume along with fewer stockouts and less excess inventory as local managers best understood demand patterns in their stores. BBBY also saved on distribution by shipping merchandise directly from vendors to stores and avoiding the use of central distribution centers. In addition, BBBY spent less on advertising than many other retailers, relying on word of mouth and low-cost mail circulars to drive traffic to its stores.

As of April 2004 BBBY was the largest superstore domestics retailer, although its market share was estimated at just 4 percent. Department stores and mass merchandisers (such as Target and Wal- Mart) accounted for the bulk of category sales. JC Penney, a mall-based department store chain, had the largest share in the market but had been losing share as it encountered financial difficulties. Kohl’s, a discount department store located primarily in malls, also had considerable presence in the category. Target was acclaimed for its success in selling private-label home goods. Wal-Mart and Target, the leading general merchandise stores, had departments devoted to domestics and home furnishings but also carried a wide variety of other items, from apparel to electronics to health and beauty care items. Similarly, JC Penney and Kohl’s offered apparel, shoes, and accessories in addition to their housewares departments. BBBY’s success had attracted some direct superstore competitors, most notably Linens ’n Things, which was second in sales. In addition, BBBY competed with specialty stores such as Williams Sonoma and its subsidiaries Pottery Barn, Hold Everything, West Elm, and Chambers.

Financing Continued Expansion Since going public, BBBY had grown from 34 Bed Bath & Beyond stores to 575 by the end of

fiscal year 2003. In addition, BBBY acquired Harmon in March 2002 for $25 million and CTS in June 2003 for $200 million in all-cash transactions.

In its 2003 10-K, company management confirmed its commitment to ongoing expansion. BBBY was expected to add 80 to 90 new stores in fiscal year 2004, eventually building to 1,050 stores within the United States. International expansion was also reportedly under consideration. As of February 28, 2004, management had already leased sites for 57 new stores and projected that opening these stores would entail $79.9 million in merchandise inventories; $43.1 million for furniture, fixtures, and leasehold improvements; and $11.8 million for store opening expenses.

BBBY stated its intention to use internally generated funds to finance its expansion. Cash, cash equivalents, and short-term investment securities on hand at the end of fiscal year 2003 had grown more than 40 percent in the preceding year to $867 million. It was estimated that BBBY’s cash balance was $400 million higher than its ongoing requirements for growth and operations. Analysts expressed some concern about deteriorating return on equity, as the interest earned on investments had been subject to declining interest rates. BBBY did not pay dividends.

3 Don Hogsett, “Big Box Bucks Retail Trend With Sky-High Performance,” Home Textiles Today, December 22, 2003.

KELLOGG SCHOOL OF MANAGEMENT 3

D o

N ot

C op

y or

P os

t

This document is authorized for educator review use only by V.K Unni, Bryant University until May 2019. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

B

4

ED BATH & BEYOND KEL082

KELLOGG SCHOOL OF MANAGEMENT

Although many analysts considered BBBY’s balance sheet a strength that permitted greater flexibility, some commented on the risks of its growing cash balance. A sell-side equity analyst commented, “They ended the year with $867 million in cash and short-term securities even after a $200 million all-cash acquisition. By 2007, we project their cash balance to grow to over $3 billion.” A buy-side analyst expanded on this view: “I think BBBY is an excellent concept and company. . . . Clearly, they are doing something right with regard to managing their business, since their results have been fantastic for as long as I can remember and the stores are awesome. However, a big issue among investors is their capital structure. No investor wants to see all that cash sitting on BBBY’s books. They use it for store growth and small acquisitions, but they really do have too much excess cash. We have been begging the company to initiate a share repurchase program, but they are very old- fashioned and set in their ways: cash is king and debt is bad.” BBBY’s management might have been worried about the reaction of the ratings agencies to increasing its leverage. Exhibits 7A and 7B show median values of key financial ratios for bonds in various Standard and Poor’s bond rating categories.

4 Don Hogsett, “BBBY Profits Jump 37%,” Home Textiles Today, April 5, 2004.

Significantly, BBBY had no long-term debt on its balance sheet. Upon acquiring CTS, BBBY immediately paid down its debt ($21.2 million, including prepayment penalties). The company maintained lines of credit for $125 million but had no outstanding borrowing under these lines. Industry journalist Don Hogsett commented on BBBY’s debt-free balance sheet: “In another boost to profits, the retailer doesn’t borrow money; it banks it, generating interest income as opposed to the interest expense that choked so many other companies.”4

As of early April 2004 BBBY was in a position to issue a mix of short-term and long-term maturity bonds that would have a blended interest rate of 4.5 percent. (Exhibit 9 shows the prevailing market interest rates.) Given the low interest rates in early 2004, the climate seemed favorable for BBBY to consider adding debt to its capital structure. The Federal Reserve Funds rate was at a 46- year low of 1 percent, although speculation was mounting that the Fed would soon raise its rate and trigger an increase in interest rates. BBBY’s window of opportunity for issuing debt at low rates seemed to be growing shorter.

These concerns raised questions about BBBY’s historical capital structure: was it the most effective one for the future? By paying out excess cash and issuing debt, BBBY could improve return to equity holders and raise earnings per share. Exhibit 8 shows pro forma figures at a 40 percent debt- to-total capital structure. This pro forma assumes that the company would use $400 million in excess cash and $636.3 million in borrowed funds to repurchase its shares. BBBY could also consider adding significantly more debt, such as recapitalizing to 80 percent debt-to-total capital. In the 80 percent debt-to-total capital scenario, it would borrow $1.27 billion and use those funds, in addition to the excess cash, to execute a share repurchase. Another suggested possibility was to pay out the funds to shareholders via a one-time special dividend. Although share repurchases were more commonly used, management was cognizant of the recent changes in taxation policy that were thought to have eliminated the tax disadvantages of dividends.

D o

N ot

C op

y or

P os

t

This document is authorized for educator review use only by V.K Unni, Bryant University until May 2019. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

B E

D B

A T

H &

B E

Y O

N D

K

E L

08 2

E xh

ib it

1: S

el ec

te d

F in

an ci

al D

at a

fo r

B ed

B at

h &

B ey

on d

($ in

th ou

sa nd

s, e

xc ep

t p er

s ha

re a

nd s

el ec

te d

op er

at in

g da

ta )

F is

ca l Y

ea r

E nd

ed :a

29 -F

eb

20 04

1-

M ar

20

03

2- M

ar

20 02

3-

M ar

20

01

26 -F

eb

20 00

27

-F eb

19

99

28 -F

eb

19 98

1-

M ar

19

97

25 -F

eb

19 96

26

-F eb

19

95

27 -F

eb

19 94

28

-F eb

19

93

S ta

te m

en t o

f e ar

ni ng

s da

ta

N et

s al

es (

$)

4, 47

7, 98

1

3, 66

5, 16

4

2, 92

7, 96

2

2, 39

6, 65

5

1, 85

7, 50

5

1, 38

2, 34

5

1, 05

7, 13

5

81 6,

91 2

59

7, 35

2

43 7,

80 7

30

4, 57

1

21 6,

41 1

G

ro w

th r

at e

22 .2

%

25 .2

%

22 .2

%

29 .0

%

34 .4

%

30 .8

%

29 .4

% 36

.8 %

36 .4

% 43

.7 %

40 .7

% N

/A G

ro ss

p ro

fit

1, 87

6, 66

4

1, 51

8, 54

7

1, 20

7, 56

6

98 6,

45 9

76

6, 80

1

57 6,

12 5

44

1, 01

6

34 1,

16 8

25

0, 03

6

18 3,

81 9

12

7, 97

2

90 ,5

28

G ro

ss m

ar gi

ns

41 .9

%

41 .4

%

41 .2

%

41 .2

%

41 .3

%

41 .7

% 41

.7 %

41 .8

% 41

.9 %

42 .0

% 42

.0 %

41 .8

% O

pe ra

tin g

pr of

it 63

9, 34

3

48 0,

05 7

34

6, 10

0

27 2,

83 8

20

9, 34

0

15 8,

05 2

11

8, 91

4

90 ,6

07

67 ,5

85

51 ,6

85

36 ,9

06

26 ,6

60

O pe

ra tin

g m

ar gi

ns

14 .3

%

13 .1

%

11 .8

% 11

.4 %

11 .3

% 11

.4 %

11 .2

% 11

.1 %

11 .3

% 11

.8 %

12 .1

% 12

.3 %

N et

e ar

ni ng

s 39

9, 47

0

30 2,

17 9

21

9, 59

9

17 1,

92 2

13

1, 22

9

97 ,3

46

73 ,1

42

55 ,0

15

39 ,4

59

30 ,0

13

21 ,8

87

15 ,9

60

G ro

w th

r at

e 32

.2 %

37

.6 %

27

.7 %

31

.0 %

34

.8 %

33

.1 %

32 .9

% 39

.4 %

31 .5

% 37

.1 %

37 .1

% N

/A N

et m

ar gi

ns

8. 9%

8.

2%

7. 5%

7.

2%

7. 1%

7.

0% 6.

9% 6.

7% 6.

6% 6.

9% 7.

2% 7.

4% D

ilu te

d E

P S

( $)

b 1.

31

1. 00

0.

74

0. 59

0.

46

0. 34

0.

26

0. 20

0.

14

0. 11

0.

08

0. 06

S

el ec

te d

op er

at in

g da

ta

S to

re s

op en

— en

d of

pe

rio d

57 5

49 0

39 6

31 1

24 1

18 6

14 1

10 8

80 61

45 38

T ot

al s

qu ar

e fo

ot ag

e— en

d of

p er

io d

19 ,3

53 ,0

00

17 ,2

55 ,0

00

14 ,7

24 ,0

00

12 ,2

04 ,0

00

9, 81

5, 00

0

7, 68

8, 00

0

5, 76

7, 00

0

4, 34

7, 00

0

3, 21

4, 00

0 2,

33 9,

00 0

1, 51

2, 00

0 1,

12 8,

00 0

% in

cr ea

se in

c om

pa ra

bl e

sa m

e- st

or e

sa le

s 6.

3% 7.

9% 7.

1% 5.

0% 9.

2% 7.

6% 6.

4% 6.

1% 3.

8% 12

.0 %

10 .6

% 7.

2%

S el

ec te

d ba

la nc

e sh

ee t d

at a

W or

ki ng

c ap

ita l (

$)

1, 19

9, 75

2

91 4,

22 0

71

5, 43

9

53 2,

52 4

36

0, 58

5 26

7, 55

7

18 8,

29 3

12

7, 33

3

91 ,3

31

74 ,3

90

56 ,0

01

34 ,8

42

T ot

al a

ss et

s 2,

86 5,

02 3

2,

18 8,

84 2

1,

64 7,

51 7

1,

19 5,

72 5

86

5, 80

0 63

3, 14

8

45 8,

33 0

32

9, 92

5

23 5,

81 0

17

6, 67

8

12 1,

46 8

76

,6 54

R

et ur

n on

a ss

et sc

15 .8

%

15 .8

% 15

.4 %

16 .7

% 17

.5 %

17 .8

% 18

.6 %

19 .4

% 19

.1 %

20 .1

% 22

.1 %

N /A

Lo ng

-t er

m d

eb t

—

—

—

—

—

—

—

—

5, 00

0

16 ,8

00

13 ,3

00

—

S ha

re ho

ld er

s' e

qu ity

1,

99 0,

82 0

1,

45 1,

92 1

1,

09 4,

35 0

81

7, 01

8

55 9,

04 5

41 1,

08 7

29

5, 39

7

21 4,

36 1

15

1, 44

6

10 8,

93 9

77

,3 05

54

,6 43

R

et ur

n on

e qu

ity b

20 .1

% 23

.7 %

23 .0

% 25

.0 %

27 .1

% 27

.6 %

28 .7

% 30

.1 %

30 .3

% 32

.2 %

33 .2

% N

/A

S ou

rc e:

C om

pa ny

’s 2

00 2

A nn

ua l R

ep or

t a nd

F is

ca l Y

ea r

E nd

in g

E ar

ni ng

s R

el ea

se .

N ot

e: T

he c

om pa

ny h

as n

ev er

d ec

la re

d a

ca sh

d iv

id en

d.

a Y

ea r

en di

ng 2

/2 9/

04 is

F is

ca l Y

ea r

20 03

. b

N et

E P

S a

m ou

nt s

fo r f

is ca

l 2 00

0 an

d pr

io r

ha ve

b ee

n ad

ju st

ed fo

r tw

o- fo

r- on

e st

oc k

sp lit

s, d

is tr

ib ut

ed in

fi sc

al 2

00 0,

1 99

8, 1

99 6,

a nd

1 99

3.

c B as

ed o

n av

er ag

e to

ta l a

ss et

s. D

oe s

no t i

nc lu

de a

fte r-

ta x

in te

re st

e xp

en se

fo r

19 94

–1 99

6.

K E

L L

O G

G S

C H

O O

L O

F M

A N

A G

E M

E N

T

5

D o

N ot

C op

y or

P os

t

This document is authorized for educator review use only by V.K Unni, Bryant University until May 2019. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

B E

D B

A T

H &

B E

Y O

N D

K

E L

08 2

E xh

ib it

2: B

al an

ce S

he et

fo r

B ed

B at

h &

B ey

on d,

F Y

E 2

00 1–

20 03

( $

in th

ou sa

nd s)

29

-F eb

-2 00

4 1-

M ar

-2 00

3 2-

M ar

-2 00

2 C

ur re

nt as

se ts

:

C as

h an

d ca

sh e

qu iv

al en

ts

82 5,

01 5

51 5,

67 0

42 9,

49 6

S ho

rt -t

er m

in ve

st m

en t s

ec ur

iti es

41

,5 80

10

0, 92

7 —

M

er ch

an di

se in

ve nt

or ie

s 1,

01 2,

33 4

91 5,

67 1

75 3,

97 2

O th

er c

ur re

nt a

ss et

s 90

,3 57

62

,1 23

43

,2 49

T

ot al

c ur

re nt

a ss

et s

1, 96

9, 28

6 1,

59 4,

39 1

1, 22

6, 71

7 N

on cu

rr en

t a ss

et s:

Lo ng

-t er

m in

ve st

m en

t s ec

ur iti

es

21 0,

78 8

14 8,

00 5

51 ,9

09

P ro

pe rt

y an

d eq

ui pm

en t,

ne t

51 6,

16 4

42 3,

90 7

36 1,

74 1

G oo

dw ill

a nd

o th

er a

ss et

s 16

8, 78

5 22

,5 39

7,

15 0

T ot

al a

ss et

s 2,

86 5,

02 3

2, 18

8, 84

2 1,

64 7,

51 7

C ur

re nt

li ab

ili tie

s:

A

cc ou

nt s

pa ya

bl e

39 8,

65 0

36 2,

96 5

27 0,

91 7

A cc

ru ed

e xp

en se

s an

d ot

he r

cu rr

en t l

ia bi

lit ie

s 33

7, 03

9 24

6, 19

8 19

0, 92

3 In

co m

e ta

xe s

pa ya

bl e

33 ,8

45

71 ,0

08

49 ,4

38

T ot

al c

ur re

nt li

ab ili

tie s

76 9,

53 4

68 0,

17 1

51 1,

27 8

N on

cu rr

en t l

ia bi

lit ie

s

D ef

er re

d re

nt a

nd o

th er

li ab

ili tie

s 10

4, 66

9 56

,7 50

41

,8 89

T

ot al

li ab

ili tie

s 87

4, 20

3 73

6, 92

1 55

3, 16

7 S

ha re

ho ld

er s'

e qu

ity :

C

om m

on s

to ck

— $0

.0 1

pa r

va lu

e; a

ut ho

riz ed

— 90

0, 00

0 sh

ar es

; i ss

ue d

an d

ou ts

ta nd

in g—

F eb

ru ar

y 28

, 2 00

4, 3

00 ,2

78 s

ha re

s an

d M

ar ch

1 ,

20 03

, 2 94

,4 30

s ha

re s

3, 00

3

2,

94 4

2, 91

4

A dd

iti on

al p

ai d-

in c

ap ita

l 43

3, 40

4 29

4, 03

4 23

8, 67

2 R

et ai

ne d

ea rn

in gs

1,

55 4,

41 3

1, 15

4, 94

3 85

2, 76

4 T

ot al

s ha

re ho

ld er

s' e

qu ity

1,

99 0,

82 0

1, 45

1, 92

1 1,

09 4,

35 0

T ot

al li

ab ili

tie s

an d

sh ar

eh ol

de rs

' e qu

ity

2, 86

5, 02

3 2,

18 8,

84 2

1, 64

7, 51

7

K E

L L

O G

G S

C H

O O

L O

F M

A N

A G

E M

E N

T

6

D o

N ot

C op

y or

P os

t

This document is authorized for educator review use only by V.K Unni, Bryant University until May 2019. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

B E

D B

A T

H &

B E

Y O

N D

K

E L

08 2

E xh

ib it

3: In

co m

e S

ta te

m en

t f or

B ed

B at

h &

B ey

on d,

F Y

E 2

00 1–

20 03

( $

in th

ou sa

nd s)

29

-F eb

-2 00

4

1-

M ar

-2 00

3 2-

M ar

-2 00

2

N et

s al

es

4, 47

7, 98

1

3,

66 5,

16 4

2, 92

7, 96

2 C

os t o

f s al

es

2, 60

1, 31

7

2, 14

6, 61

7 1,

72 0,

39 6

G ro

ss p

ro fit

1,

87 6,

66 4

1, 51

8, 54

7 1,

20 7,

56 6

S el

lin g,

g en

er al

, a nd

a dm

in is

tr at

iv e

ex pe

ns es

1,

23 7,

32 1

1, 03

8, 49

0 86

1, 46

6 O

pe ra

tin g

pr of

it 63

9, 34

3

48

0, 05

7 34

6, 10

0 In

te re

st in

co m

e 10

,2 02

11

,2 91

10 ,9

72 E

ar ni

ng s

be fo

re p

ro vi

si on

fo r

in co

m e

ta xe

s 64

9, 54

5 49

1, 34

8 35

7, 07

2 P

ro vi

si on

fo r

in co

m e

ta xe

s 25

0, 07

5 18

9, 16

9 13

7, 47

3 N

et e

ar ni

ng s

39 9,

47 0

30 2,

17 9

21 9,

59 9

N et

e ar

ni ng

s pe

r sh

ar e—

ba si

c 1.

35

1. 03

0.

76

N et

e ar

ni ng

s pe

r sh

ar e—

di lu

te d

1. 31

1.

00

0. 74

W

ei gh

te d

av er

ag e

sh ar

es o

ut st

an di

ng —

ba si

c 29

6, 85

4 29

2, 92

7 28

9, 87

7 W

ei gh

te d

av er

ag e

sh ar

es o

ut st

an di

ng —

di lu

te d

30 4,

69 0

30 1,

14 7

29 8,

66 7

K E

L L

O G

G S

C H

O O

L O

F M

A N

A G

E M

E N

T

7

D o

N ot

C op

y or

P os

t

This document is authorized for educator review use only by V.K Unni, Bryant University until May 2019. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

B E

D B

A T

H &

B E

Y O

N D

K

E L

08 2

E xh

ib it

4: S

ta te

m en

t o f C

as h

F lo

w s

fo r

B ed

B at

h &

B ey

on d,

F Y

E 2

00 1–

20 03

( $

in th

ou sa

nd s)

29 -F

eb -2

00 4

1- M

ar -2

00 3

2- M

ar -2

00 2

C as

h flo

w s

fr om

o pe

ra tin

g ac

tiv iti

es :

N

et e

ar ni

ng s

39 9,

47 0

30 2,

17 9

21 9,

59 9

A dj

us tm

en ts

to r

ec on

ci le

n et

e ar

ni ng

s to

n et

c as

h pr

ov id

ed b

y op

er at

in g

ac tiv

iti es

: D

ep re

ci at

io n

an d

am or

tiz at

io n

84 ,6

45

74 ,8

25

62 ,5

47

A m

or tiz

at io

n of

b on

d pr

em iu

m

1, 18

5 98

5 —

T

ax b

en ef

it fr

om e

xe rc

is e

of s

to ck

o pt

io ns

64

,8 32

31

,1 76

31

,9 80

D

ef er

re d

in co

m e

ta xe

s (3

,0 61

) (1

3, 29

1) 1,

73 3

(I nc

re as

e) d

ec re

as e

in a

ss et

s, n

et o

f e ffe

ct s

of a

cq ui

si tio

ns :

M

er ch

an di

se in

ve nt

or ie

s (2

7, 05

8)

(1 45

,7 89

) (1

47 ,2

68 )

O th

er c

ur re

nt a

ss et

s (2

,0 55

) (7

,9 27

) 64

4 O

th er

a ss

et s

5, 46

6 19

0 20

6 In

cr ea

se (

de cr

ea se

) in

li ab

ili tie

s, n

et o

f e ffe

ct s

of a

cq ui

si tio

ns :

A

cc ou

nt s

pa ya

bl e

19 ,3

41 86

,1 44

78 ,5

16 A

cc ru

ed e

xp en

se s

an d

ot he

r cu

rr en

t l ia

bi lit

ie s

36 ,6

28

52 ,8

91

62 ,1

23

In co

m e

ta xe

s pa

ya bl

e (3

7, 99

3) 20

,3 78

17 ,4

50 D

ef er

re d

re nt

a nd

o th

er li

ab ili

tie s

7, 04

2 17

,5 56

10

,4 26

N

et c

as h

pr ov

id ed

b y

op er

at in

g ac

tiv iti

es

$5 48

,4 42

$4

19 ,3

17

$3 37

,9 56

C

as h

flo w

s fr

om in

ve st

in g

ac tiv

iti es

:

P ur

ch as

e of

in ve

st m

en t s

ec ur

iti es

(3

61 ,0

13 )

(3 68

,0 08

) (5

1, 90

9)

R ed

em pt

io n

of in

ve st

m en

t s ec

ur iti

es

35 7,

02 0

17 0,

00 0

—

P ay

m en

ts fo

r ac

qu is

iti on

s, n

et o

f c as

h ac

qu ire

d (1

75 ,4

87 )

(2 4,

09 7)

—

C

ap ita

l e xp

en di

tu re

s (1

12 ,9

99 )

(1 35

,2 54

) (1

21 ,6

32 )

N et

c as

h us

ed in

in ve

st in

g ac

tiv iti

es

$( 29

2, 47

9)

$( 35

7, 35

9)

$( 17

3, 54

1)

C as

h flo

w s

fr om

fi na

nc in

g ac

tiv iti

es :

P

ro ce

ed s

fr om

e xe

rc is

e of

s to

ck o

pt io

ns

74 ,5

97

24 ,2

16

25 ,7

53

P re

pa ym

en t o

f a cq

ui re

d de

bt

(2 1,

21 5)

—

—

N

et c

as h

pr ov

id ed

b y

fin an

ci ng

a ct

iv iti

es

$5 3,

38 2

$2 4,

21 6

$2 5,

75 3

N et

in cr

ea se

in c

as h

an d

ca sh

e qu

iv al

en ts

30

9, 34

5 86

,1 74

19

0, 16

8 C

as h

an d

ca sh

e qu

iv al

en ts

:

B eg

in ni

ng o

f p er

io d

51 5,

67 0

42 9,

49 6

23 9,

32 8

E nd

o f p

er io

d 82

5, 01

5 51

5, 67

0 42

9, 49

6

K E

L L

O G

G S

C H

O O

L O

F M

A N

A G

E M

E N

T

8

D o

N ot

C op

y or

P os

t

This document is authorized for educator review use only by V.K Unni, Bryant University until May 2019. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

B E

D B

A T

H &

B E

Y O

N D

K

E L

08 2

E xh

ib it

5: E

xc er

pt fr

om B

ed B

at h

& B

ey on

d’ s

20 03

A nn

ua l R

ep or

t R eg

ar di

ng O

pe ra

tin g

Le as

es

T he

c om

pa ny

le as

es r

et ai

l st

or es

, a s

w el

l a s

w ar

eh ou

se s,

o ff

ic e

fa ci

lit ie

s, a

nd e

qu ip

m en

t, un

de r

ag re

em en

ts e

xp ir

in g

at v

ar io

us d

at es

th

ro ug

h 20

29 .

C er

ta in

l ea

se s

pr ov

id e

fo r

co nt

in ge

nt r

en ts

( w

hi ch

a re

b as

ed u

po n

st or

e sa

le s

ex ce

ed in

g st

ip ul

at ed

a m

ou nt

s an

d ar

e im

m at

er ia

l i n

fi sc

al 2

00 3,

2 00

2, a

nd 2

00 1)

, s ch

ed ul

ed r

en t i

nc re

as es

, a nd

r en

ew al

o pt

io ns

g en

er al

ly r

an gi

ng f

ro m

f iv

e to

tw en

ty y

ea rs

. T he

C

om pa

ny is

o bl

ig at

ed u

nd er

a m

aj or

ity o

f t he

le as

es to

p ay

fo r t

ax es

, i ns

ur an

ce , a

nd c

om m

on a

re a

m ai

nt en

an ce

c ha

rg es

.

A s

of F

eb ru

ar y

28 , 2

00 4,

fu tu

re m

in im

um le

as e

pa ym

en ts

u nd

er n

on ca

nc el

ab le

o pe

ra tin

g le

as es

a re

a s

fo llo

w s:

F

is ca

l Y ea

r A

m ou

nt (

in th

ou sa

nd s)

20 04

27 3,

93 4

20 05

28 5,

29 8

20 06

28 3,

05 1

20 07

27 4,

32 5

20 08

26 5,

99 1

T he

re af

te r

1, 34

4, 56

3

T

ot al

fu tu

re m

in im

um le

as e

pa ym

en ts

2,

72 7,

16 2

E xp

en se

s fo

r al

l o pe

ra tin

g le

as es

w er

e $2

51 .0

m ill

io n,

$ 21

9. 8

m ill

io n,

a nd

$ 17

8. 7

m ill

io n

fo r

fis ca

l 2 00

3, 2

00 2,

a nd

2 00

1, r

es pe

ct iv

el y.

K E

L L

O G

G S

C H

O O

L O

F M

A N

A G

E M

E N

T

9

D o

N ot

C op

y or

P os

t

This document is authorized for educator review use only by V.K Unni, Bryant University until May 2019. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

B E

D B

A T

H &

B E

Y O

N D

K

E L

08 2

E xh

ib it

6: C

om pa

ra bl

es D

at a

fo r

B ed

B at

h &

B ey

on d

($ in

th ou

sa nd

s ex

ce pt

p er

s ha

re a

nd r

at io

d at

a) a

B ed

B at

h &

B

ey on

d W

ill ia

m s

S on

om a

Li ne

ns 'n

T

hi ng

s T

ar ge

t K

oh l’s

JC

P en

ne y

B es

t B uy

S al

es (

$)

4, 47

7, 98

1

2, 75

4, 36

8

2, 39

5, 27

2

48 ,1

63 ,0

00

10 ,2

82 ,0

94

17 ,7

86 ,0

00

24 ,5

47 ,0

00

5- yr

C A

G R

26 .5

% 18

.9 %

17 .6

% 9.

5% 22

.8 %

–9 .8

% 19

.5 %

E B

IT (

$)

63 9,

34 3

25

4, 78

7

12 1,

95 3

3,

51 9,

00 0

1,

02 3,

30 4

79

0, 00

0

1, 30

4, 00

0

E B

IT m

ar gi

ns 14

.3 %

9. 3%

5. 1%

7. 3%

10 .0

% 4.

4% 5.

3%

N et

in co

m e

($ )

39 9,

47 0

15

7, 21

1

74 ,8

25

1, 84

1, 00

0

59 1,

15 2

(9

28 ,0

00 )

80 0,

00 0

5-

yr C

A G

R 32

.2 %

23 .4

% 14

.5 %

14 .5

% 25

.2 %

N /A

29 .9

% N

et m

ar gi

ns 8.

9% 5.

7% 3.

1% 3.

8% 5.

7% –5

.2 %

3. 3%

R et

ur n

on c

om m

on e

qu ity

20

.1 %

19

.5 %

9.

8%

16 .6

%

14 .1

%

–1 7.

1%

23 .4

%

A nn

ua l d

iv id

en ds

( $)

N

/A

N /A

N

/A

0. 28

N

/A

0. 50

0.

40

5- yr

C A

G R

N

/A

N /A

N

/A

7. 0%

N

/A

–2 7.

4%

N /A

C as

h an

d eq

ui va

le nt

s 86

6, 59

5 16

3, 91

0

13 6,

12 9

71 6,

00 0

14

7, 03

3

2, 99

4, 00

0

2, 60

0, 00

0

A cc

ou nt

s re

ce iv

ab le

—

31

,5 73

55

,7 86

5,

77 6,

00 0

1,

15 0,

15 7

23

3, 00

0

34 3,

00 0

In

ve nt

or y

1,

01 2,

33 4

40

4, 10

0

70 1,

92 8

5,

34 3,

00 0

1,

60 6,

99 0

3,

15 6,

00 0

2,

60 7,

00 0

P

P &

E , n

et

51

6, 16

4

76 5,

03 0

37

7, 24

4

16 ,9

69 ,0

00

3, 32

4, 24

3

3, 51

5, 00

0

2, 24

4, 00

0

T ot

al a

ss et

s

2, 86

5, 02

3

1, 47

0, 73

5

1, 33

5, 27

3

31 ,3

92 ,0

00

6, 69

8, 45

0

18 ,3

00 ,0

00

8, 65

2, 00

0

T ot

al d

eb tb

—

37

,3 77

—

11

,0 83

,0 00

1,

08 8,

50 2

5,

37 4,

00 0

85

0, 00

0

T ot

al li

ab ili

tie s

87

4, 20

3

66 6,

14 4

57

3, 55

4

20 ,3

27 ,0

00

2, 50

7, 11

1

12 ,8

75 ,0

00

5, 23

0, 00

0

S ha

re ho

ld er

s' e

qu ity

1,

99 0,

82 0

80

4, 59

1

76 1,

71 9

11

,0 65

,0 00

4,

19 1,

33 9

5,

42 5,

00 0

3,

42 2,

00 0

M ar

ke t c

ap ita

liz at

io n

12 ,1

71 ,0

14

3, 89

9, 88

5

1, 59

3, 83

4

40 ,4

20 ,1

63

16 ,0

89 ,4

77

9, 51

7, 07

9

16 ,9

82 ,7

48

In te

re st

e xp

en se

c —

(8

51 )

1, 04

5

55 9,

00 0

75

,2 40

26

1, 00

0

N /A

E

B IT

in te

re st

c ov

er ag

ed N

/A

N /A

11

6. 7

6.

3

13 .6

3.

0

N /A

T

ot al

d eb

t t o

ca pi

ta le

N /A

4. 4%

0. 0%

50 .0

% 20

.6 %

49 .8

% 19

.9 %

B on

d ra

tin gf

N /A

N /A

N /A

A +

A –

B B

+ B

B B

– B

on d

ra tin

g la

st u

pd at

ed N

/A N

/A N

/A 8/

21 /0

1 12

/4 /0

0 5/

29 /0

3 6/

21 /0

1 a

20 03

fi sc

al y

ea r

en di

ng 2

/2 9/

20 04

fo r

B ed

B at

h &

B ey

on d,

2 /1

/2 00

4 fo

r W

ill ia

m s

S on

om a,

1 /3

/2 00

4 fo

r Li

ne ns

‘n T

hi ng

s, 1

/3 1/

20 04

fo r

T ar

ge t,

1/ 31

/2 00

4 fo

r K

oh l’s

a nd

J C

P en

ne y,

2 /2

8/ 20

04 fo

r B

es t B

uy .

b In

cl ud

es S

T d

eb t,

cu rr

en t m

at ur

iti es

, L T

d eb

t, an

d ca

pi ta

l l ea

se s.

c F

ro m

2 00

3 an

nu al

r ep

or ts

. d

C al

cu la

te d

us in

g S

ta nd

ar d

an d

P oo

r’s E

B IT

In te

re st

C ov

er ag

e fo

rm ul

as in

E xh

ib it

8.

e C

al cu

la te

d as

to ta

l d eb

t a s

pe rc

en ta

ge o

f t ot

al d

eb t a

nd s

ha re

ho ld

er ’s

e qu

ity .

f B on

d ra

tin gs

b as

ed o

n S

ta nd

ar d

an d

P oo

r’s r

at in

g sy

st em

. M oo

dy ’s

h ad

e qu

iv al

en t r

at in

gs fo

r ea

ch c

om pa

ny .

K E

L L

O G

G S

C H

O O

L O

F M

A N

A G

E M

E N

T

10

D o

N ot

C op

y or

P os

t

This document is authorized for educator review use only by V.K Unni, Bryant University until May 2019. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

B E

D B

A T

H &

B E

Y O

N D

K

E L

08 2

E xh

ib it

7A : S

ta nd

ar d

an d

P oo

r’s T

hr ee

-Y ea

r M

ed ia

n K

ey In

du st

ria l F

in an

ci al

R at

io s,

2 00

0– 20

02

A A

A A

A A

B B

B B

B B

C C

C E

B IT

in te

re st

c ov

er ag

e (x

) 23

.4

13 .3

6.

3 3.

9 2.

2 1.

0 0.

1 E

B IT

D A

in te

re st

c ov

er ag

e (x

) 25

.3

16 .9

8.

5 5.

4 3.

2 1.

7 0.

7 F

F O

/to ta

l d eb

t ( %

) 21

4. 2

65 .7

42

.2

30 .6

19

.7

10 .4

3.

2 F

re e

op er

at in

g ca

sh fl

ow /to

ta l d

eb t (

% )

15 6.

6 33

.6

22 .3

12

.8

7. 3

1. 5

(2 .8

) R

et ur

n on

c ap

ita l (

% )

35 .0

26

.6

18 .1

13

.1

11 .5

8.

0 1.

2

O pe

ra tin

g in

co m

e/ sa

le s

(% )

23 .4

24

.0

18 .1

15

.5

15 .4

14

.7

8. 8

Lo ng

-t er

m d

eb t/c

ap ita

l ( %

) (1

.1 )

21 .1

33

.8

40 .3

53

.6

72 .6

78

.3

T ot

al d

eb t/c

ap ita

l ( %

) 5.

0 35

.9

42 .6

47

.0

57 .7

75

.1

91 .7

N

um be

r of

c om

pa ni

es

6 20

12

1 22

4 27

9 26

4 56

A

ve ra

ge d

ef au

lt ra

te , p

as t 1

5 ye

ar sa

0. 52

%

1. 31

% 2.

32 %

6. 64

% 19

.5 2%

35 .7

6% 54

.3 8%

S ou

rc e:

S ta

nd ar

d &

P oo

r’s

a B

as ed

o n

th e

bo nd

’s o

rig in

al r

at in

gs .

K E

L L

O G

G S

C H

O O

L O

F M

A N

A G

E M

E N

T

11

D o

N ot

C op

y or

P os

t

This document is authorized for educator review use only by V.K Unni, Bryant University until May 2019. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

B E

D B

A T

H &

B E

Y O

N D

K

E L

08 2

E xh

ib it

7B : F

or m

ul as

fo r

K ey

R at

io s

E ar

ni ng

s fr

om c

on tin

ui ng

o pe

ra tio

ns a

be fo

re in

te re

st a

nd ta

xe s

E

B IT

in te

re st

c ov

er ag

e =

G

ro ss

in te

re st

in cu

rr ed

b ef

or e

su bt

ra ct

in g

ca pi

ta liz

ed in

te re

st a

nd in

te re

st in

co m

e

E ar

ni ng

s fr

om c

on tin

ui ng

o pe

ra tio

ns b

ef or

e in

te re

st , t

ax es

, a nd

D &

A

E

B IT

D A

in te

re st

c ov

er ag

e =

G

ro ss

in te

re st

in cu

rr ed

b ef

or e

su bt

ra ct

in g

ca pi

ta liz

ed in

te re

st a

nd in

te re

st in

co m

e

N et

in co

m e

fr om

c on

tin ui

ng o

pe ra

tio ns

p lu

s D

& A

, d ef

er re

d in

co m

e ta

xe s,

a nd

o th

er n

on ca

sh it

em s

F un

ds fr

om o

pe ra

tio ns

/to ta

l d eb

t =

LT d

eb tb

+ cu

rr en

t m at

ur iti

es , c

om m

er ci

al p

ap er

, a nd

o th

er s

ho rt

-t er

m b

or ro

w in

gs

F F

O –

C ap

E x

–( +)

in cr

ea se

(d ec

re as

e) in

w or

ki ng

c ap

ita l (

ex cl

ud in

g ch

an ge

s in

c as

h, m

ar ke

ta bl

e se

cu rit

ie s,

a nd

S T

d eb

t)

F re

e op

er at

in g

ca sh

fl ow

/to ta

l d eb

t =

LT d

eb tb

+ c

ur re

nt m

at ur

iti es

, c om

m er

ci al

p ap

er , a

nd o

th er

s ho

rt -t

er m

b or

ro w

in gs

E B

IT

R et

ur n

on c

ap ita

l =

A vg

. b eg

in ni

ng a

nd e

nd in

g ye

ar c

ap ita

lc

S al

es –

c os

t o f g

oo ds

s ol

d (b

ef or

e D

& A

), S

G &

A c

os ts

, a nd

R &

D c

os ts

O

pe ra

tin g

in co

m e/

sa le

s =

S

al es

LT d

eb tb

Lo ng

-t er

m d

eb t/c

ap ita

l =

LT d

eb tb

+ s

ha re

ho ld

er 's

e qu

ity (

in cl

ud in

g pr

ef er

re d

st oc

k) +

m in

or ity

in te

re st

LT d

eb tb

+ c

ur re

nt m

at ur

iti es

, c om

m er

ci al

p ap

er , a

nd o

th er

s ho

rt -t

er m

b or

ro w

in gs

T

ot al

d eb

t/E B

IT D

A =

E

ar ni

ng s

fr om

c on

tin ui

ng o

pe ra

tio ns

b ef

or e

in te

re st

, t ax

es , a

nd D

& A

F F

O –

C ap

E x

–( +)

in cr

ea se

(d ec

re as

e) in

w or

ki ng

c ap

ita l (

ex cl

ud in

g ch

an ge

s in

c as

h, m

ar ke

ta bl

e se

cu rit

ie s,

S T

d eb

t) –

co

m m

on /p

re fe

rr ed

d iv

id en

ds

LT d

eb tb

+ c

ur re

nt m

at ur

iti es

, c om

m er

ci al

p ap

er , a

nd o

th er

s ho

rt -t

er m

b or

ro w

in gs

D

is cr

et io

na ry

c as

h flo

w /to

ta l d

eb t =

S ou

rc e:

S ta

nd ar

d &

P oo

r’s C

or po

ra te

R at

in g

C rit

er io

n. R

ev is

ed A

ug us

t 2 1,

2 00

3.

a In

cl ud

in g

in te

re st

in co

m e

an d

eq ui

ty e

ar ni

ng s;

e xc

lu di

ng n

on re

cu rr

in g

ite m

s, in

te re

st e

xp en

se , d

ep re

ci at

io n,

a nd

a m

or tiz

at io

n.

b In

cl ud

es a

m ou

nt s

fo r

op er

at in

g le

as e

de bt

e qu

iv al

en t,

an d

de bt

a ss

oc ia

te d

w ith

a cc

ou nt

s re

ce iv

ab le

s al

es s

ec ur

iti za

tio n

pr og

ra m

s.

c I nc

lu de

s S

T de

bt , c

ur re

nt m

at ur

iti es

, L T

d eb

t,b n

on cu

rr en

t d ef

er re

d ta

xe s,

m in

or ity

in te

re st

, a nd

e qu

ity (

co m

m on

a nd

p re

fe rr

ed s

to ck

).

K E

L L

O G

G S

C H

O O

L O

F M

A N

A G

E M

E N

T

12

D o

N ot

C op

y or

P os

t

This document is authorized for educator review use only by V.K Unni, Bryant University until May 2019. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

B E

D B

A T

H &

B E

Y O

N D

K

E L

08 2

E xh

ib it

8: P

ro F

or m

a 20

03 R

es ul

ts fo

r A

lte rn

at iv

e C

ap ita

l S tr

uc tu

re s

($ in

th ou

sa nd

s)

A

ct ua

l 2 00

3 P

ro F

or m

a 20

03

40 %

D eb

t T o

T ot

al C

ap ita

ld

S al

es

4, 47

7, 98

1

$ 4,

47 7,

98 1

O pe

ra tin

g pr

of it

63 9,

34 3

63 9,

34 3

In te

re st

in co

m ea

10 ,2

02 5,

49 3

E B

IT

64 9,

54 5

64 4,

83 6

In te

re st

e xp

en se

b —

28 ,6

35 P

ro fit

b ef

or e

ta xe

s 64

9, 54

5 61

6, 20

1 T

ax es

c 25

0, 07

5

23 7,

23 7

P ro

fit a

fte r

ta x

39 9,

47 0

37 8,

96 4

E P

S —

ba si

c 1.

35 1.

41 E

P S

— di

lu te

d 1.

31 1.

37 A

ve ra

ge s

ha re

s ou

ts ta

nd in

g— ba

si c

29 6,

85 4

26 8,

84 5

A ve

ra ge

s ha

re s

ou ts

ta nd

in g—

di lu

te d

30 4,

69 0

27 6,

68 1

C as

h an

d eq

ui va

le nt

se 86

6, 59

5 46

6, 59

5 T

ot al

d eb

t 63

6, 32

8 T

ot al

r ep

ur ch

as e

am ou

nt f

1, 03

6, 32

8 S

ha re

ho ld

er s'

e qu

ity

1, 99

0, 82

0 95

4, 49

2 C

om m

on s

to ck

p ric

e (4

/3 0/

04 )

37 .0

0 —

M ar

ke t v

al ue

o f c

om m

on s

to ck

10

,9 83

,5 98

— S

ha re

s re

pu rc

ha se

d

28 ,0

09 a

P ro

fo rm

a in

te re

st in

co m

e ad

ju st

ed fo

r re

du ct

io n

in c

as h

ba la

nc es

. b

B as

ed o

n B

B B

Y 's

b le

nd ed

in te

re st

e xp

en se

r at

e on

d eb

t a ss

um ed

to b

e 4.

5% .

c T ax

r at

e as

su m

ed to

b e

38 .5

% , b

as ed

o n

ac tu

al 2

00 3

re su

lts .

d A

ss um

es fi

rm c

on tin

ue s

w ith

p ol

ic y

of n

ot p

ay in

g di

vi de

nd s.

e

C as

h an

d eq

ui va

le nt

s re

du ce

d by

$ 40

0 m

ill io

n in

e xc

es s

ca sh

. f I

nc lu

de s

ex ce

ss c

as h

an d

de bt

.

K E

L L

O G

G S

C H

O O

L O

F M

A N

A G

E M

E N

T

13

D o

N ot

C op

y or

P os

t

This document is authorized for educator review use only by V.K Unni, Bryant University until May 2019. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

B E

D B

A T

H &

B E

Y O

N D

K

E L

08 2

E xh

ib it

9: M

ar ke

t I nt

er es

t R at

es —

A pr

il 20

04

G ov

er nm

en t D

eb t I

nt er

es t R

at es

O ne

-y ea

r T

re as

ur y

bi ll

1.

19 %

F

iv e-

ye ar

T re

as ur

y no

te

2. 79

%

T en

-y ea

r T

re as

ur y

bo nd

3.

83 %

C or

po ra

te B

on d

R at

es

A

A A

5. 33

% A

A 5.

48 %

A 5.

75 %

B B

B 6.

10 %

S ou

rc e:

D R

I B as

ic E

co no

m ic

s

K E

L L

O G

G S

C H

O O

L O

F M

A N

A G

E M

E N

T

14

D o

N ot

C op

y or

P os

t

This document is authorized for educator review use only by V.K Unni, Bryant University until May 2019. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860