UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the fiscal year ended February 25, 2006

Commission File Number 0-20214

BED BATH & BEYOND INC.

(Exact name of registrant as specified in its charter)

New York		11-2250488
(State of incorporation)		(IRS Employer Identification No.)

650 Liberty Avenue, Union, New Jersey 07083

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: 908/688-0888

Securities registered pursuant to Section 12(b) of the Act:

		Name of each exchange on
Title of each class		which registered
None		None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock (par value $ 0.01 per share)

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No ý

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

As of August 27, 2005, the aggregate market value of the common stock held by non-affiliates (which was computed by reference to the closing price on such date of such stock on the NASDAQ National Market) was $11,604,780,015.*

The number of shares outstanding of the issuer’s common stock (par value $0.01 per share) at May 2, 2006: 282,233,013.

Documents Incorporated by Reference

Portions of the Registrant’s definitive proxy statement for the 2006 Annual Meeting of Shareholders pursuant to Regulation 14A are incorporated by reference in Part III hereof.

* For purposes of this calculation, all outstanding shares of common stock have been considered held by non-affiliates other than the 15,666,224 shares beneficially owned by directors and executive officers, including in the case of the Co-Chairmen trusts and foundations affiliated with them. In making such calculation, the Registrant does not determine the affiliate or non-affiliate status of any shares for any other purpose.

PART I

Unless otherwise indicated, the term “Company” refers collectively to Bed Bath & Beyond Inc. and subsidiaries as of February 25, 2006. The Company’s fiscal year is comprised of the 52 or 53 week period ending on the Saturday nearest February 28. Accordingly, fiscal 2005, 2004 and 2003 represented 52 weeks and ended on February 25, 2006, February 26, 2005 and February 28, 2004, respectively. Unless otherwise indicated, all references herein to periods of time (e.g., quarters and years) are to fiscal periods.

ITEM 1 - BUSINESS

Introduction

Bed Bath & Beyond Inc. and subsidiaries (the “Company”) is a nationwide chain of retail stores, operating under the names Bed Bath & Beyond (“BBB”), Christmas Tree Shops (“CTS”) and Harmon. The Company sells a wide assortment of merchandise principally including domestics merchandise and home furnishings as well as food, giftware and health and beauty care items. The Company believes that it is the nation’s largest operator of stores selling predominantly domestics merchandise and home furnishings while offering a breadth and depth of selection in most of its product categories that exceeds what is generally available in department stores or other specialty retail stores.

History

The Company was founded in 1971 by Leonard Feinstein and Warren Eisenberg, the Co-Chairmen of the Company. Each has more than 45 years of experience in the retail industry.

The Company commenced operations in 1971 with the opening of two stores, which primarily sold bed linens and bath accessories. In 1985, the Company introduced its first store carrying a full line of domestics merchandise and home furnishings. The Company began using the name “Bed Bath & Beyond” in 1987 in order to reflect the expanded product line offered by its stores and to distinguish its stores from conventional specialty retail stores offering only domestics merchandise or home furnishings. In June 2003, the Company acquired CTS, a retailer of giftware and household items, which operated 23 stores located in Connecticut, Maine, Massachusetts, New Hampshire, New York and Rhode Island. In March 2002, the Company acquired Harmon, a health and beauty care retailer, which operated 27 stores located in Connecticut, New Jersey and New York.

Operations

It is the Company’s goal to offer quality merchandise at everyday low prices; to maintain a wide assortment of merchandise; to present merchandise in a distinctive manner designed to maximize customer convenience and reinforce customer perception of wide selection; and to emphasize dedication to customer service and satisfaction.

Pricing. The Company believes in maintaining everyday low prices. The Company regularly monitors price levels at its competitors in order to ensure that its prices are in accordance with its pricing philosophy. The Company believes that the application of its everyday low price philosophy is an important factor in establishing its reputation among customers.

Merchandise Assortment. The Company sells a wide assortment of merchandise principally including domestics merchandise and home furnishings as well as food, giftware and health and beauty care items. Domestics merchandise includes categories such as bed linens and related items, bath items and kitchen textiles. Home furnishings includes categories such as kitchen and tabletop items, fine tabletop, basic housewares and general home furnishings. The Company encourages local store personnel to tailor the merchandise mix as appropriate to respond to changing trends and conditions. The factors taken into account in selecting the merchandise mix for a particular store include store size and configuration and local market conditions such as climate and demographics. The Company, on an ongoing basis, tests new merchandise

categories and adjusts the categories of merchandise carried in its stores and may add new departments or adjust the size of existing departments as required. Additionally, the Company continues to integrate the merchandise assortments within its concepts. The Company believes that the process of adding new departments, integrating the Company’s merchandise within concepts, and expanding or reducing the size of various departments in response to changing conditions is an important part of its merchandising strategy.

Merchandise Presentation. BBB has developed a distinctive style of merchandise presentation. Primarily all of the stores have groups of related product lines presented together in separate areas of each store, creating the appearance that the store is comprised of several individual specialty stores for different product lines. BBB believes that its format of merchandise presentation makes it easy for customers to locate products, reinforces customer perception of wide selection and communicates to customers that its stores offer a level of customer service generally associated with smaller specialty stores.

BBB believes that its extensive merchandise selection, rather than fixturing, should be the focus of customer attention and, accordingly, typically uses simple modular fixturing throughout its stores. This fixturing is primarily designed so that it can be easily reconfigured to adapt to changes in the store’s merchandise mix and presentation. BBB believes that its merchandise displays create an exciting and attractive shopping environment that encourages impulse purchases of additional items.

Advertising. In general, the Company relies on “word of mouth advertising” and its reputation for offering a wide assortment of quality merchandise at everyday low prices, supplemented by the use of paid advertising. The Company distributes full-color circulars and other advertising pieces as its primary vehicles of paid advertising. Also, to support the opening of new stores, the Company primarily uses “grand opening” circulars and newspaper advertising.

Customer Service. The Company places a strong focus on customer service and seeks to make shopping at its stores as pleasant and convenient as possible. Most stores are open seven days (and six evenings) a week in order to enable customers to shop at times that are convenient for them. In addition, the Company’s websites, www.bedbathandbeyond.com, www.christmastreeshops.com and www.harmondiscount.com are available for customers to access 24 hours a day, seven days a week.

Suppliers

The Company purchases its merchandise from approximately 4,300 suppliers. In fiscal 2005, the Company’s largest supplier accounted for approximately 4% of the Company’s merchandise purchases and the Company’s 10 largest suppliers accounted for approximately 18% of such purchases. The Company purchases substantially all of its merchandise in the United States, the majority from domestic sources and the balance from importers. The Company purchases a small amount of its merchandise directly from overseas sources. The Company has no long-term contracts for the purchase of merchandise. The Company believes that most merchandise, other than brand name goods, is available from a variety of sources and that most brand name goods can be replaced with comparable merchandise.

Warehousing

The Company’s merchandise displays allow a substantial amount of merchandise to be displayed on the sales floor at all times. Merchandise not displayed on the sales floor is typically stored in warehouse space within the store. In addition, the Company maintains twelve supplemental storage locations as well as two central distribution centers. Merchandise is shipped directly to stores from vendors through a network of third party carriers, service providers and the central distribution centers.

In addition, the Company maintains two E-Service fulfillment centers.

Employees

As of February 25, 2006, the Company employed approximately 33,000 persons in full-time and part-time positions. The Company believes that its relations with its employees are very good and that the labor turnover rate among its management employees is lower than that generally experienced within the industry.

Seasonality

The Company exhibits less seasonality than many other retail businesses, although sales levels are generally higher in August, November and December, and generally lower in February and April.

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. In the fourteen year period from the beginning of fiscal 1992 to the end of fiscal 2005, the Company has grown from 34 stores to 809 stores. The Company’s 809 stores operate in 46 states, the District of Columbia and Puerto Rico, including: 742 BBB stores operating in 46 states, the District of Columbia and Puerto Rico; 29 CTS stores operating in 8 states; and 38 Harmon stores operating in 3 states. Total square footage grew from approximately 917,000 square feet at the beginning of fiscal 1992 to approximately 25.5 million square feet at the end of fiscal 2005. During fiscal 2005, the Company opened 83 BBB stores, three CTS stores and four Harmon stores, and closed one BBB store and one Harmon store, which resulted in the aggregate addition of approximately 2.6 million square feet of store space.

The Company intends to continue its expansion program and believes that the continued growth of the Company is dependent, in large part, on the success of this program. As part of its expansion program, the Company expects to open new stores and expand existing stores as opportunities arise.

In determining where to open new stores, the Company evaluates a number of factors, including the availability of real estate, demographic information (such as data relating to income and education levels, age and occupation) and distribution. The Company has built its management structure with a view toward its expansion and believes that, as a result, it has the management depth necessary to support its anticipated expansion program.

Inflation

The Company does not believe that its operating results have been materially affected by inflation during the past year. There can be no assurance, however, that the Company’s operating results will not be affected by inflation in the future.

Competition

The Company believes it is the preeminent retailer in its segment of the home goods industry, which is fragmented and highly competitive. In addition, the stores compete with many different types of retail stores that sell many or most of the same products. Such competitors include: (i) department stores, which often carry many of the same product lines as the Company’s stores but do not typically have the same depth or breadth of product selection, (ii) specialty stores, which often have a depth of product selection but typically carry only a limited portion of the product lines carried by the Company’s stores, (iii) discount and mass merchandise stores and (iv) national chains. In addition, the Company’s stores compete, to a more limited extent, with factory outlet stores that typically offer limited quantities or limited lines of quality merchandise at discount prices.

The visibility of the Company has encouraged competitors to imitate its stores’ format and methods. Other retail chains continue to introduce new store concepts that include many of the product lines carried by the Company’s stores. There can be no assurance that the operation of store competitors will not have a material effect on the Company.

Executive Officers of the Registrant

The following table sets forth the name, age and business experience of the Executive Officers of the Registrant:

Name	Age	Positions

Warren Eisenberg	75	Co-Chairman

Leonard Feinstein	69	Co-Chairman

Steven H. Temares	47	Chief Executive Officer and Director

Arthur Stark	51	President and Chief Merchandising Officer

Matthew Fiorilli	49	Senior Vice President – Stores

Eugene A. Castagna	40	Chief Financial Officer and Treasurer

Mr. Eisenberg is a co-founder of the Company and has been serving as Co-Chairman since April 2003. He was Co-Chairman and Co-Chief Executive Officer from 1999-2003. Mr. Eisenberg was Chairman and Co-Chief Executive Officer from 1992-1999. Mr. Eisenberg served as President and Co-Chief Executive Officer from the Company’s founding in 1971 until 1992.

Mr. Feinstein is a co-founder of the Company and has been serving as Co-Chairman since April 2003. He was Co-Chairman and Co-Chief Executive Officer from 1999-2003. Mr. Feinstein was President and Co-Chief Executive Officer from 1992-1999. Mr. Feinstein served as Co-Chief Executive Officer, Treasurer and Secretary from the Company’s founding in 1971 until 1992.

Mr. Temares has been a Director of the Company since 1999 and Chief Executive Officer since 2003. Mr. Temares was President and Chief Executive Officer from 2003-January 2006. Mr. Temares was President and Chief Operating Officer from 1999-2003 and Executive Vice President and Chief Operating Officer from 1997-1999. Prior to 1997, he was Director of Real Estate and General Counsel. Mr. Temares joined the Company in 1992.

Mr. Stark has been President of the Company since January 2006 and Chief Merchandising Officer since 1999. Mr. Stark was Senior Vice President from 1999-2006 and Vice President – Merchandising from 1998-1999. Mr. Stark was Director of Store Operations – Western Region from 1997-1998. Mr. Stark joined the Company in 1977.

Mr. Fiorilli has been Senior Vice President - Stores since January 1999. Mr. Fiorilli was Vice President - Stores from 1998 until 1999 and Director of Store Operations - Eastern Region from 1994 until 1998. Mr. Fiorill joined the Company in 1973.

Mr. Castagna, a certified public accountant, has been Chief Financial Officer and Treasurer since January 2006. Mr. Castagna served as Assistant Treasurer from 2002 to 2006 and as Vice President – Finance from 2001 to 2006. Prior to 2001, Mr. Castagna was Vice President – Controller. Mr. Castagna joined the Company in 1994.

The Company’s executive officers are elected by the Board of Directors for one-year terms and serve at the discretion of the Board of Directors. No family relationships exist between any of the executive officers or directors of the Company.

ITEM 1A – RISK FACTORS

FORWARD LOOKING STATEMENTS

This Form 10-K contains forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. 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 the following:

Consumer Preferences and Demographic Factors

The Company’s success depends on our ability to anticipate and respond in a timely manner to changing merchandise trends, customer demands and demographics. The Company’s failure to anticipate, identify or react appropriately to changes in customer tastes, preferences, spending patterns and other lifestyle decisions could lead to, among other things, excess inventories or a shortage of products and could have a material adverse affect on the Company’s financial condition and results of operations.

General Economic Conditions

General economic factors that are beyond the Company’s control impact the Company’s forecasts and actual performance. These factors include interest rates, recession, inflation, deflation, consumer credit availability, consumer debt levels, fuel and energy costs, tax rates and policy, unemployment trends, the impact of natural disasters and terrorist activities, and other matters that influence consumer spending. Changes in the economic climate could adversely affect the Company’s performance.

Unusual Weather Patterns

The Company’s operating results could be negatively impacted by unusual weather patterns. Frequent or unusually heavy snow, ice or rain storms, hurricanes, floods, tornados or extended periods of unseasonable temperatures could adversely affect the Company’s performance.

Competition and Pricing Pressures

The retail business is highly competitive. The Company competes for customers, associates, locations, merchandise, services and other important aspects of the business with many other local, regional and national retailers. Those competitors range from specialty retail stores to department stores and discounters. Unanticipated changes in the pricing and other practices of those competitors may adversely affect the Company’s performance.

Cost of Labor, Merchandise and Other Expenses

The Company’s success depends, in part, on our ability to manage operating costs and to look for opportunities to reduce costs. The Company’s ability to meet its labor needs while controlling costs is subject to external factors such as unemployment levels, prevailing wage rates, minimum wage legislation and changing demographics. The Company’s ability to find qualified vendors and obtain access to products in a timely and efficient manner can be adversely affected by political instability, the financial instability of suppliers, suppliers’ noncompliance with applicable laws, transportation costs and other factors beyond the Company’s control.

Expansion Program

The Company’s growth depends, in part, on our ability to open new stores and operate profitably. Our ability to open additional stores successfully will depend on a number of factors, including our identification and availability of suitable store locations; our success in negotiating leases on acceptable terms; our hiring and training of skilled store operating personnel, especially management; and our timely development of new stores, including the

BED BATH & BEYOND STORES

Alabama		9
Arizona		15
Arkansas		3
California		84
Colorado		20
Connecticut		12
Delaware		1
Florida		55
Georgia		21
Idaho		4
Illinois		32
Indiana		16
Iowa		6
Kansas		7
Kentucky		7
Louisiana		10
Maine		2
Maryland		16
Massachusetts		20
Michigan		28
Minnesota		9
Mississippi		4
Missouri		12
Montana		1
Nebraska		4
Nevada		5
New Hampshire		6
New Jersey		33
New Mexico		3
New York		49
North Carolina		22
North Dakota		2
Ohio		32
Oklahoma		5
Oregon		8
Pennsylvania		26
Rhode Island		3
South Carolina		12
Tennessee		14
Texas		60
Utah		9
Vermont		1
Virginia		23
Washington		17
West Virginia		1
Wisconsin		9
District of Columbia		1
Puerto Rico		3
Total		742

CHRISTMAS TREE SHOPS STORES

Connecticut		3
Maine		1
Massachusetts		16
New Hampshire		2
New Jersey		1
New York		3
Rhode Island		2
Vermont		1
Total		29

HARMON STORES

Connecticut		2
New Jersey		27
New York		9
Total		38

The Company leases primarily all of its existing stores. The leases provide for original lease terms that generally range from five to twenty years and certain leases provide for renewal options, often at increased rents. Certain leases provide for scheduled rent increases (which, in the case of fixed increases, the Company accounts for on a straight-line basis over the expected lease term, beginning when the Company obtains possession of the premises) and/or for contingent rent (based upon store sales exceeding stipulated amounts).

In addition, the Company leases storage space in fifteen locations, totaling approximately 690,000 square feet, that provide supplemental merchandise storage space and fulfillment of BBB’s E-Service activities. This space is used to supplement the warehouse facilities in the Company’s stores in proximity to these locations. In addition, the Company also owns a distribution center of approximately 770,000 square feet.

As of February 25, 2006, the Company leased a combined total of 270,000 square feet in three locations (Union, New Jersey; Farmingdale, New York; and South Yarmouth, Massachusetts) for its corporate office and procurement functions. Subsequent to fiscal 2005, the Company purchased the Union, New Jersey corporate office location.

ITEM 3 - LEGAL PROCEEDINGS

There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company is a party.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders through solicitation of proxies or otherwise during the fourth quarter of the fiscal year ended February 25, 2006.

PART II

ITEM 5 - MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The following table sets forth the high and low reported closing prices of the Company’s common stock on the NASDAQ National Market System for the periods indicated.

	High		Low
Fiscal 2005:
1st Quarter	$	40.80	$	35.57
2nd Quarter	46.84		40.65
3rd Quarter	43.18		37.01
4th Quarter	43.33		35.50

Fiscal 2004:
1st Quarter	$	41.90	$	35.39
2nd Quarter	39.75		33.89
3rd Quarter	44.09		36.72
4th Quarter	41.58		36.99

The common stock is quoted through the NASDAQ National Market System under the symbol BBBY. On May 2, 2006, there were approximately 3,300 shareholders of record of the common stock (without including individual participants in nominee security position listings). On May 2, 2006, the last reported sale price of the common stock was $38.26.

The Company has not paid cash dividends on its common stock since its 1992 initial public offering and does not currently plan to pay dividends on its common stock. The payment of any future dividends will be determined by the Board of Directors in light of conditions then existing, including the Company’s earnings, financial condition and requirements, business conditions and other factors. See Item 8 - Financial Statements and Supplementary Data.

ITEM 6 - SELECTED FINANCIAL DATA

Consolidated Selected Financial Data

	Fiscal Year Ended (1)
(in thousands, except per share	February 25,			February 26,			February 28,			March 1,			March 2,
and selected operating data)	2006			2005			2004 (2)			2003			2002

Statement of Earnings Data:

Net sales	$	5,809,562		$	5,147,678		$	4,477,981		$	3,665,164		$	2,927,962

Gross profit	2,485,748			2,186,301			1,876,664			1,518,547			1,207,566

Operating profit	879,171			792,414			639,343			480,057			346,100

Net earnings	572,847			504,964			399,470			302,179			219,599

Net earnings per share - Diluted (3)	$	1.92		$	1.65		$	1.31		$	1.00		$	0.74

Selected Operating Data:

Number of stores open (at period end)	809			721			629			519			396

Total square feet of store space (at period end)	25,502,000			22,945,000			20,472,000			17,452,000			14,724,000

Percentage increase in comparable store sales	4.6		%	4.5		%	6.3		%	7.9		%	7.1		%

Balance Sheet Data (at period end):

Working capital	$	1,082,399		$	1,223,409		$	1,199,752		$	914,220		$	715,439

Total assets	3,382,140			3,199,979			2,865,023			2,188,842			1,647,517

Long-term debt	—			—			—			—			—

Shareholders’ equity (4)	$	2,262,450		$	2,203,762		$	1,990,820		$	1,451,921		$	1,094,350

(1) Each fiscal year represents 52 weeks.

(2) On June 19, 2003, the Company acquired Christmas Tree Shops, Inc. (see Note 2 to the Consolidated Financial Statements).

(3) The Company has not declared any cash dividends in any of the fiscal years noted above.

(4) In fiscal 2005 and 2004, the Company repurchased approximately $598 million and $350 million of its common stock, respectively.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated (i) selected statement of earnings data of the Company expressed as a percentage of net sales and (ii) the percentage change in dollar amounts from the prior year in selected statement of earnings data:

	Fiscal Year Ended
	Percentage						Percentage Change
	of Net Sales						from Prior Year
	February 25,		February 26,		February 28,		February 25,		February 26,
	2006		2005		2004		2006		2005

Net sales	100.0	%	100.0	%	100.0	%	12.9	%	15.0	%

Cost of sales	57.2		57.5		58.1		12.2		13.8

Gross profit	42.8		42.5		41.9		13.7		16.5

Selling, general and administrative expenses	27.7		27.1		27.6		15.3		12.7

Operating profit	15.1		15.4		14.3		10.9		23.9

Earnings before provision for income taxes	15.8		15.8		14.5		12.8		24.9

Net earnings	9.9		9.8		8.9		13.4		26.4

Net Sales

Net sales in fiscal 2005 increased $661.9 million to $5.810 billion, representing an increase of 12.9% over the $5.148 billion of net sales in fiscal 2004, which increased $669.7 million or 15.0% over net sales of $4.478 billion in fiscal 2003. Approximately 64% of the increase in fiscal 2005 was attributable to an increase in the Company’s new store sales, and the balance of the increase was primarily attributable to the increase in comparable store sales. The increase in comparable store sales for fiscal 2005 of 4.6% was due to a number of factors, including but not limited to, the continued consumer acceptance of the Company’s merchandise offerings and a strong focus on customer service with an emphasis on responding to customer feedback. For fiscal 2004, approximately 56% of the increase in net sales was attributable to an increase in the Company’s new store sales, approximately 15% of the increase was attributable to the net sales of CTS (acquired on June 19, 2003) and the balance of the increase was primarily attributable to the increase in comparable store sales.

Sales of domestics merchandise accounted for approximately 47%, 48% and 51% of net sales in fiscal 2005, 2004 and 2003, respectively, of which the Company estimates that bed linens accounted for approximately 16%, 17% and 16% of net sales in fiscal 2005, 2004 and 2003, respectively. The remaining net sales in fiscal 2005, 2004 and 2003 of 53%, 52% and 49%, respectively, represented sales of home furnishings and other items. The change in the product mix between fiscal 2004 and 2003 is primarily the result of the acquisition of CTS in June 2003. No other individual product category accounted for 10% or more of net sales during fiscal 2005, 2004 or 2003.

Gross Profit

Gross profit in fiscal 2005, 2004 and 2003 was $2.486 billion or 42.8% of net sales, $2.186 billion or 42.5% of net sales and $1.877 billion or 41.9% of net sales, respectively. The increase in gross profit between fiscal 2005 and 2004 and between fiscal 2004 and 2003 as a percentage of net sales was primarily attributable to lower inventory acquisition costs of the Company’s current merchandise offerings.

Selling, general and administrative expenses

Selling, general and administrative expenses (“SG&A”) were $1.607 billion or 27.7% of net sales in fiscal 2005 compared to $1.394 billion or 27.1% of net sales in fiscal 2004. The increase in SG&A as a percentage of net sales is primarily due to the expensing of stock options and related changes in the compensation program, reflecting the early adoption of Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”).

SG&A as a percentage of net sales decreased to 27.1% in fiscal 2004 from 27.6% in fiscal 2003 primarily as a result of a relative decrease in payroll and payroll related items, occupancy costs and other expenses, which primarily resulted from the comparable store sales increase. These relative decreases were partially offset by a relative increase in net advertising costs. SG&A in fiscal 2004 was $1.394 billion as compared to $1.237 billion in fiscal 2003.

Operating Profit

Operating profit increased to $879.2 million in fiscal 2005 compared to $792.4 million in fiscal 2004. The improvements in operating profit were a result of the increase in net sales and a relative increase in gross profit as a percentage of net sales partially offset by a relative increase in SG&A as a percentage of net sales, as discussed above.

Operating profit increased to $792.4 million in fiscal 2004 compared to $639.3 million in fiscal 2003. The improvements in operating profit were a result of the increase in net sales and a relative increase in gross profit as a percentage of net sales and a relative decrease in SG&A as a percentage of net sales, as discussed above.

Interest income

Interest income increased to $35.9 million in fiscal 2005 compared to $18.8 million in fiscal 2004 primarily due to an increase in the Company’s average investment interest rate as a result of the upward trend in short term interest rates. Interest income increased in fiscal 2004 from $10.2 million in fiscal 2003 primarily due to an increase in the cash invested and an increase in the Company’s average investment interest rate as a result of the upward trend in short term interest rates.

Income taxes

The effective tax rate was 37.40% for fiscal 2005, 37.75% for fiscal 2004 and 38.50% for fiscal 2003. The decreases are primarily due to a reduction in the weighted average effective tax rate resulting from a change in the mix of the business within the taxable jurisdictions in which the Company operates. For fiscal 2006, the effective tax rate is estimated at approximately 36.60%.

EXPANSION PROGRAM

The Company intends to continue its expansion program and currently plans to open new stores in fiscal 2006 (see details under “Liquidity and Capital Resources” below). The Company believes that a predominant portion of any increase in its net sales in fiscal 2006 will continue to be attributable to new store net sales. Accordingly, the continued growth of the Company is dependent, in large part, upon the Company’s ability to execute its expansion program successfully.

LIQUIDITY AND CAPITAL RESOURCES

The Company has been able to finance its operations, including its expansion program, through internally generated funds. Net cash provided by operating activities in fiscal 2005 was $660.4 million, compared with $607.0 million in fiscal 2004. The increase in net cash provided by operating activities was primarily attributable to an increase in net income and the timing of certain liability payments, partially offset by an increase in other current assets (primarily due to receivables from the settlement of credit card litigation and hurricane related insurance claims), an increase in merchandise inventories (primarily the result of new store space) and an increase in income taxes paid.

Inventory per square foot was $51.04 as of February 25, 2006 and $50.21 as of February 26, 2005. The Company continues to focus on optimizing inventory productivity while maintaining appropriate in-store merchandise levels to support sales growth.

Net cash used in investing activities in fiscal 2005 was $67.6 million, compared with $353.7 million in fiscal 2004. The decrease in net cash used in investing activities was attributable to a decrease in purchases of investment securities partially offset by a decrease in redemptions of investment securities and an increase in capital expenditures.

Net cash used in financing activities in fiscal 2005 was $567.3 million, compared with $325.7 million in fiscal 2004. The increase in net cash used in financing activities was primarily attributable to common stock repurchased of $598 million in the current year compared to $350 million in the prior year under the Company’s stock repurchase program.

At February 25, 2006, the Company maintained two uncommitted lines of credit of $100 million and $75 million, with expiration dates of September 3, 2006 and February 28, 2006, respectively. These uncommitted lines of credit are currently and are expected to be used for letters of credit in the ordinary course of business. In addition, under these uncommitted lines of credit, the Company can obtain unsecured standby letters of credit. During fiscal 2005, the Company did not have any direct borrowings under the uncommitted lines of credit. As of February 25, 2006, there was approximately $11.5 million of outstanding letters of credit and approximately $33.7 million of outstanding unsecured standby letters of credit, primarily for certain insurance programs. Subsequent to the end of fiscal 2005, the Company extended the $75 million uncommitted line of credit to February 28, 2007. Although no assurances can be provided, the Company intends to renew the $100 million uncommitted line of credit before the expiration date. The Company believes that during fiscal 2006, internally generated funds will be sufficient to fund its operations, including its expansion program.

The Company has contractual obligations consisting mainly of operating leases for stores, offices, warehouse facilities and equipment, purchase obligations and deferred acquisition payments which the Company is obligated to pay as of February 25, 2006 as follows:

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

Operating Lease Obligations	$	3,067,143	$	340,806	$	687,529	$	617,538	$	1,421,270
Purchase Obligations	415,513		415,513		—		—		—
Deferred Acquisition Payments	6,667		6,667		—		—		—

Total Contractual Obligations	$	3,489,323	$	762,986	$	687,529	$	617,538	$	1,421,270

As of February 25, 2006, the Company has leased sites for 56 new stores planned for opening in fiscal 2006 or 2007, for which aggregate minimum rental payments over the term of the leases are approximately $355.7 million and are included in the table above.

Purchase obligations primarily consist of purchase orders for merchandise and capital expenditures.

Other significant commitments and contingencies include the following:

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

• Some of the Company’s operating lease agreements have scheduled rent increases. The Company accounts for these scheduled rent increases on a straight-line basis over the expected lease term, beginning when the Company obtains possession of the premises, thus creating deferred rent.

Subsequent to fiscal 2005, the Company purchased the Union, New Jersey corporate office location.

SEASONALITY

The Company exhibits less seasonality than many other retail businesses, although sales levels are generally higher in August, November and December, and generally lower in February and April.

INFLATION

RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (“FASB”) issued 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. In addition, the adoption of SFAS No. 123R requires additional accounting and disclosure related to income tax and cash flow effects resulting from stock-based compensation. The Company adopted SFAS No. 123R on August 28, 2005 (the “date of adoption”), the beginning of its third quarter of fiscal 2005, the year ended February 25, 2006. While SFAS No. 123R is not required to be effective until the first annual reporting period that begins after June 15, 2005, early adoption was encouraged and the Company elected to adopt before the required effective date.

The Company adopted SFAS No.123R under the modified prospective application. Under this application, prior period amounts are not restated to include the effects of stock-based compensation. As a result, certain components of the Company’s financial statements will not be comparable until the third quarter of fiscal 2006, the anniversary of the adoption of SFAS No. 123R. The Company will continue to comply with the disclosure requirements of SFAS No. 123R, which include the effect on net earnings and earnings per share “as reported” and as if compensation expense had been recorded for the comparable periods reported, respectively. The impact of recording stock-based compensation expense and other changes made to the Company’s overall compensation plan was approximately $0.06 per diluted share for fiscal 2005. The Company estimates the impact will be approximately $0.06 per diluted share for the first half of fiscal 2006.

Also under the modified prospective application, the Company records stock-based compensation expense for all awards granted on or after the date of adoption and for the portion of previously granted awards that remained unvested at the date of adoption. Currently, the Company’s stock-based compensation relates to restricted stock awards and stock options. The Company’s restricted stock awards are considered nonvested share awards as defined under SFAS No. 123R. Prior to the third quarter of fiscal 2005, the Company applied the provisions of Accounting Principles Board (“APB”) No. 25, “Accounting for Stock Issued to Employees,” as permitted under SFAS No. 148, “Accounting for

Stock-Based Compensation – Transition and Disclosure – an amendment of FASB Statement No. 123.” During the first half of fiscal 2005, which ended on August 27, 2005, the Company recognized compensation expense for restricted stock awards over the service period, but did not recognize compensation expense for stock options, since the options were granted at market value on the date of grant.

Stock-based compensation expense for the fiscal year ended February 25, 2006, which includes the expense of stock options beginning in the third quarter of fiscal 2005 and restricted stock awards from the date of grant, was $25.6 million ($16.0 million after tax or $0.05 per diluted share). The amount of stock-based compensation cost capitalized as of February 25, 2006 was approximately $0.9 million.

During fiscal 2004, in anticipation of adopting SFAS No. 123R, the Company revised its overall approach to compensation for its employees, including stock-based compensation, and adopted the Bed Bath & Beyond 2004 Incentive Compensation Plan (the “2004 Plan”). The 2004 Plan is a flexible compensation plan that enables the Company to offer incentive compensation through stock options, stock appreciation rights, restricted stock awards and performance awards, including cash awards. As a result, during fiscal 2005, awards consisting of a combination of stock options and performance-based restricted stock were granted to executive officers and other executives and awards consisting of restricted stock were granted to the Company’s other employees who traditionally have received stock options. Awards of stock options and restricted stock generally vest in five equal annual installments beginning one to three years from the date of grant.

Prior to fiscal 2004, the Company had adopted various stock option plans (the “Prior Plans”), all of which solely provided for the granting of stock options. Upon adoption of the 2004 Plan, the common stock available under the Prior Plans became available for issuance under the 2004 Plan. No further option grants may be made under the Prior Plans, although outstanding awards under the Prior Plans will continue to be in effect.

Under the 2004 Plan and the Prior Plans, an aggregate of 83.4 million shares of common stock were authorized for issuance. The Company generally issues new shares for stock option exercises and restricted stock awards. The number of shares and the price per share is determined by the Compensation Committee for those awards granted to executive officers and by an appropriate committee for all other awards granted.

As of February 25, 2006, unrecognized compensation expense related to the unvested portion of the Company’s stock options and restricted stock awards was $123.1 million and $33.1 million, respectively, which is expected to be recognized over a weighted average period of 3.6 years and 5.2 years, respectively.

In October 2005, the FASB issued FASB Staff Position (“FSP”) 13-1, “Accounting for Rental Costs Incurred during a Construction Period.” FSP 13-1 requires rental costs associated with ground or building operating leases that are incurred during a construction period be recognized as rental expense. FSP 13-1 becomes effective for the first reporting period beginning after December 15, 2005. The Company does not believe that the adoption of FSP 13-1 will have a material impact on the Company’s consolidated financial statements.

In June 2005, the FASB’s Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 05-6, “Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination.” EITF 05-6 requires leasehold improvements purchased after the beginning of the initial lease term to be amortized over the shorter of the assets’ useful life or a term that includes the original lease term plus any renewals that are reasonably assured at the date the leasehold improvements are purchased. This guidance was effective for reporting periods beginning after June 29, 2005. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections - a replacement of APB No. 20 and SFAS No. 3,” which changes the requirements for the accounting for, and reporting of, a change in accounting principle. SFAS No. 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005; however, the statement does not change the transition provisions of any existing accounting pronouncements. The Company does not believe that the adoption of SFAS No.154 will have a

CRITICAL ACCOUNTING POLICIES

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires the Company to establish accounting policies and to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on other assumptions that it believes to be relevant under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. In particular, judgment is used in areas such as the inventory valuation, impairment of long-lived assets, goodwill and other indefinitely lived intangible assets, accruals for self insurance, litigation, store opening, expansion, relocation and closing costs, stock-based compensation and income taxes. Actual results could differ from these estimates.

Inventory Valuation: Merchandise inventories are stated at the lower of cost or market. Inventory costs for BBB and Harmon are calculated using the retail inventory method and inventory cost for CTS is calculated using the first-in, first-out cost 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 written down to the Company’s best estimate of their realizable value. Judgment is required in estimating realizable value and factors considered are the age of merchandise and anticipated demand. Actual realizable value could differ materially from this estimate based upon future customer demand or economic conditions.

The Company estimates its reserve for shrinkage throughout the year, based on historical shrinkage. Actual shrinkage is recorded at year-end based upon the results of the Company’s physical inventory count. Historically, the Company’s shrinkage has not been volatile.

Impairment of Long-Lived Assets: The Company reviews long-lived assets for impairment annually or when events or changes in circumstances indicate the carrying value of these assets may exceed their current fair values. 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 fair value. The Company has not historically had any material impairment of long-lived assets. In the future, if events or market conditions affect the fair value of the Company’s long-lived assets to the extent that an asset is impaired, the Company will adjust the carrying value of these assets in the period in which the impairment occurs.

Goodwill and Other Indefinitely Lived Intangible Assets: The Company reviews goodwill and other intangibles that have indefinite lives for impairment annually or when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. Impairment testing is based upon the best information available including estimates of fair value which incorporate assumptions marketplace participants would use in making their estimates of fair value. The Company has not historically recorded an impairment to its goodwill and other indefinitely lived intangible assets. In the future, if events or market conditions affect the estimated fair value to the extent that an asset is impaired, the Company will adjust the carrying value of these assets in the period in which the impairment occurs.

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 the risks that the Company retains are estimated by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. Although the Company’s claims experience has not displayed substantial volatility in the past, actual experience could materially vary from its historical experience in the future. Factors that affect these estimates include but are not limited to: inflation, the number and severity of claims and regulatory changes. In the future, if the Company concludes an adjustment to self insurance accruals is required, the liability will be adjusted accordingly.

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. The ultimate resolution of these ongoing matters as a result of future developments could have a material impact on the Company’s earnings. The Company cannot predict the nature and validity of claims which could be asserted in the future, and future claims could have a material impact on its earnings.

Store Opening, Expansion, Relocation and Closing Costs: Store opening, expansion, relocation and closing costs, including markdowns, asset residual values and projected occupancy costs, are charged to earnings as incurred.

Stock-Based Compensation: Prior to August 28, 2005, the Company accounted for its stock-based compensation plans under the provisions of APB No. 25, “Accounting for Stock Issued to Employees,” as permitted under SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123.” During the first half of fiscal 2005, which ended on August 27, 2005, the Company recognized compensation expense for restricted stock awards over the service period, but did not recognize compensation expense for stock options, since the options were granted at market value on the date of grant.

Effective August 28, 2005, the Company adopted SFAS No. 123R under the modified prospective method. Accordingly, prior period amounts have not been restated. Under this application, the Company records stock-based compensation expense for all awards granted on or after the date of adoption and for the portion of previously granted awards that remain unvested at the date of adoption. Currently, the Company’s stock-based compensation relates to restricted stock awards and stock options. The Company’s restricted stock awards are considered nonvested share awards as defined under SFAS No. 123R.

Under SFAS No. 123R, the Company uses a Black-Scholes option-pricing model to determine the fair value of its stock options. The Black-Scholes model includes various assumptions, including the expected life of stock options, the expected volatility and the expected risk free interest rate. These assumptions reflect the Company’s best estimates, but they involve inherent uncertainties based on market conditions generally outside the control of the Company. As a result, if other assumptions had been used, total stock-based compensation cost, as determined in accordance with SFAS No. 123R could have been materially impacted. Furthermore, if the Company uses different assumptions for future grants, stock-based compensation cost could be materially impacted in future periods.

Also, under SFAS No. 123R, the Company is required to record stock-based compensation expense net of estimated forfeitures. The Company’s forfeiture rate assumption used in determining its stock-based compensation expense is estimated based on historical data. The actual forfeiture rate could differ from these estimates.

Income Taxes: The Company accounts for its income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date.

Judgment is required in determining the provision for income taxes and related accruals, deferred tax assets and liabilities. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. Additionally, the Company’s tax returns are subject to audit by various tax authorities. Although the Company believes that its estimates are reasonable, actual results could differ from these estimates.

BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except per share data)

	February 25,		February 26,
	2006		2005

Assets
Current assets:
Cash and cash equivalents	$	247,697	$	222,108
Short term investment securities	404,113		629,339
Merchandise inventories	1,301,720		1,152,028
Other current assets	118,415		93,527

Total current assets	2,071,945		2,097,002

Long term investment securities	393,862		324,209
Property and equipment, net	738,742		609,631
Other assets	177,591		169,137

	$	3,382,140	$	3,199,979

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	534,910	$	450,525
Accrued expenses and other current liabilities	249,092		254,643
Merchandise credit and gift card liabilities	113,514		87,061
Income taxes payable	92,030		81,364

Total current liabilities	989,546		873,593

Deferred rent and other liabilities	130,144		122,624

Total liabilities	1,119,690		996,217

Commitments and contingencies (notes 4, 8 and 10)

Item No.		Name of Item

		PART I
Item 1.		Business
Item 1A.		Risk Factors
Item 1B.		Unresolved Staff Comments
Item 2.		Properties
Item 3.		Legal Proceedings
Item 4.		Submission of Matters to a Vote of Security Holders

		PART II
Item 5.		Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities


Item 6.		Selected Financial Data
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk
Item 8.		Financial Statements and Supplementary Data
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.		Controls and Procedures
Item 9B.		Other Information

		PART III
Item 10.		Directors and Executive Officers of the Registrant
Item 11.		Executive Compensation
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.		Certain Relationships and Related Transactions
Item 14.		Principal Accounting Fees and Services

		PART IV
Item 15.		Exhibits and Financial Statement Schedules

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)(2)
November 27, 2005 – December 24, 2005	384,000	$	36.60	384,000	$	385,323,058
December 25, 2005 – January 21, 2006	9,185,000	36.14		9,185,000	53,358,153
January 22, 2006 – February 25, 2006	6,820,000	36.85		6,820,000	2,002,703
Total	16,389,000	$	36.45	16,389,000	$	2,002,703

TABLE OF CONTENTS

ITEM 3 - LEGAL PROCEEDINGS

PART II