Bed Bath & Beyond Inc (BBBY) SEC Quarterly Report (10-Q) for Q4 2015

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended November 28, 2015

Commission File Number 0-20214

BED BATH & BEYOND INC.

(Exact name of registrant as specified in its charter)

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

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.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

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

 BED BATH & BEYOND INC. AND SUBSIDIARIES

INDEX

BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Balance Sheets

 (in thousands, except per share data)

(unaudited)

 BED BATH & BEYOND INC. AND SUBSIDIARIES

 Consolidated Statements of Earnings

 (in thousands, except per share data)

 (unaudited)

See accompanying Notes to Consolidated Financial Statements.

 BED BATH & BEYOND INC. AND SUBSIDIARIES

 Consolidated Statements of Comprehensive Income

 (in thousands, unaudited)

 See accompanying Notes to Consolidated Financial Statements.

BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands, unaudited)

See accompanying Notes to Consolidated Financial Statements.

BED BATH & BEYOND INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

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

Overview

Bed Bath & Beyond Inc. and subsidiaries (the "Company") is a retailer which operates under the names Bed Bath & Beyond ("BBB"), Christmas Tree Shops, Christmas Tree Shops andThat! or andThat! (collectively, "CTS"), Harmon or Harmon Face Values (collectively, "Harmon"), buybuy BABY ("Baby") and World Market, Cost Plus World Market or Cost Plus (collectively, "Cost Plus World Market"). Customers can purchase products from the Company either in-store, online or through a mobile device. The Company has the developing ability to have customer purchases picked up in-store or shipped direct to the customer from the Company's distribution facilities, stores or vendors. In addition, the Company operates Of a Kind, an e-commerce website that features specially commissioned, limited edition items from emerging fashion and home designers, which was acquired in the second quarter of fiscal 2015. The Company also operates Linen Holdings, a provider of a variety of textile products, amenities and other goods to institutional customers in the hospitality, cruise line, healthcare and other industries. Additionally, the Company is a partner in a joint venture which operates seven retail stores in Mexico under the name Bed Bath & Beyond, which includes one store opened since the beginning of the fiscal fourth quarter.

The Company accounts for its operations as two operating segments: North American Retail and Institutional Sales. The Institutional Sales operating segment, which is comprised of Linen Holdings, does not meet the quantitative thresholds under U.S. generally accepted accounting principles and therefore is not a reportable segment.

The Company sells a wide assortment of domestics merchandise and home furnishings. Domestics merchandise includes categories such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings, consumables and certain juvenile products.

The Company's strategy begins and ends with an intense focus on its customers:

The Company's objective is to be its customers' first choice for products and services in the categories offered, in the markets, channels and countries in which the Company operates, as those customers express their life interests and travel through their various life stages. The Company strives to accomplish this objective by offering an extensive breadth, depth and differentiated assortment of merchandise at the right value; and by offering excellent customer service, including new service ideas and solutions. The Company is also enhancing its ability to achieve this objective through its ongoing commitment to world class information and interactive technology, comprehensive analytics and targeted marketing and communications.

Operating in the highly competitive retail industry, the Company, along with other retail companies, is influenced by a number of factors including, but not limited to, general economic conditions including the housing market, unemployment levels and commodity prices; the overall macroeconomic environment and related changes in the retailing environment; consumer preferences, spending habits and adoption of new technologies; unusual weather patterns and natural disasters; competition from existing and potential competitors; competition from other channels of distribution; and the ability to find suitable locations at acceptable occupancy costs and other terms to support the Company's plans for new stores. The Company cannot predict whether, when or the manner in which these factors could affect the Company's operating results.

The following represents an overview of the Company's financial performance for the periods indicated:

Capital expenditures for the nine months ended November 28, 2015 and November 29, 2014 were $244.3 million and $232.7 million, respectively. Fiscal 2015 capital expenditures included expenditures for technology enhancements, new stores, existing store improvements, the new customer contact center, the new distribution facility in Las Vegas and other projects. The Company continues to review and prioritize its capital needs and remains committed to making the required investments in its infrastructure to help position the Company for continued growth and success.

Several additional key initiatives include: continuing to add new functionality and assortment to its selling websites, mobile sites and applications; improving customer data integration and customer relations management capabilities; continuing to enhance the service offerings to its customers; continuing to strengthen and deepen its information technology, analytics, marketing and e-commerce groups; and creating more flexible fulfillment options that will allow the Company to deliver orders more quickly and lower the Company's shipping costs. These and other investments are expected to, among other things, provide a seamless and compelling customer experience across the Company's in-store, online and mobile shopping environments.

During the nine months ended November 28, 2015, the Company opened a total of 20 new stores and closed seven stores as well as developed a new customer contact center, which officially opened in the fiscal third quarter, to support the anticipated growth across all channels, countries and concepts and provide a seamless customer service experience. The Company plans to continue to actively manage its real estate portfolio in order to permit store sizes, layouts, locations and offerings to evolve over time to optimize market profitability and will renovate or reposition stores within markets when appropriate. During fiscal 2015, including the stores opened through November 28, 2015, the Company expects company-wide to open approximately 29 new stores and close approximately 11 stores. Additionally, during fiscal 2015, the Company expects to continue to invest in technology related projects, including the deployment of new systems and equipment in its stores, enhancements to its omnichannel capabilities, ongoing investment in data analytics, the continued build out and utilization of a data center in North Carolina and the continued development of a new point of sale system.

During the three months ended November 28, 2015 and November 29, 2014, the Company repurchased approximately 3.3 million and 10,000 shares, respectively, of its common stock at a total cost of approximately $194.2 million and $0.7 million, respectively. During the nine months ended November 28, 2015, the Company repurchased approximately 11.5 million shares of its common stock at a total cost of approximately $773.5 million. During the nine months ended November 29, 2014, including the initial delivery of approximately 15.4 million shares under an accelerated share repurchase agreement, the Company repurchased approximately 21.1 million shares of its common stock at a total cost of approximately $1.3 billion. The Company's share repurchase program may be influenced by several factors, including business and market conditions. In addition, the Company reviews its alternatives with respect to its capital structure on an ongoing basis.

Results of Operations

Net Sales

Net sales for the three months ended November 28, 2015 were $2.952 billion, an increase of $9.1 million or approximately 0.3% over net sales of $2.943 billion for the corresponding quarter last year. On a constant currency basis, which is a non-GAAP measure, net sales for the three months ended November 28, 2015 increased approximately 0.7%. Net sales and comparable sales of the Company's foreign operations are calculated on a constant currency basis by translating the current year's respective sales of its foreign operations at the same exchange rates used in the prior year. The non-GAAP measure of net sales on a constant currency basis is intended to provide visibility into the Company's operations by excluding the effects of foreign currency exchange rate fluctuations. For the three months ended November 28, 2015, the 0.3% increase in net sales was primarily attributable to an increase in net sales from new stores and Linen Holdings of 0.7%, partially offset by the decline in comparable sales of approximately 0.4%.

For the nine months ended November 28, 2015, net sales were $8.686 billion, an increase of $141.4 million or approximately 1.7% over net sales of $8.545 billion for the corresponding nine months last year. On a constant currency basis, which is a non-GAAP measure, net sales for the nine months ended November 28, 2015 increased approximately 2.0%. For the nine months ended November 28, 2015, approximately 46% of the increase was attributable to an increase in comparable sales and the remainder was primarily attributable to an increase in the Company's new store sales and Linen Holdings.

The decrease in comparable sales for the three months ended November 28, 2015 was approximately 0.4% as compared to an increase of approximately 1.7%, for the three months ended November 29, 2014. The increase in comparable sales for the nine months ended November 28, 2015 was approximately 0.8% as compared with an increase of approximately 1.9%, for the nine months ended November 29, 2014. The decrease in comparable sales for the three months ended November 28, 2015 was due to an increase in the average transaction amount, offset by a decrease in the number of transactions. The increase in comparable sales for the nine months ended November 28, 2015 was due to an increase in the average transaction amount, partially offset by a slight decrease in the number of transactions. On a constant currency basis, comparable sales were flat and increased approximately 1.2%, as compared with the three and nine months ended November 29, 2014.

The Company's comparable sales metric considers sales consummated through all retail channels – in-store, online and through a mobile device. Customers today may take advantage of the Company's omnichannel environment by using more than one channel when making a purchase. The Company believes an integrated experience must exist among these channels to provide a seamless customer experience. A few examples are: a customer may be assisted by an in-store associate to create a wedding or baby registry, while the guests may ultimately purchase a gift from the Company's websites; or, a customer may research a particular item, and read other customer reviews on the Company's websites before visiting a store to consummate the actual purchase; or a customer may reserve an item online for in-store pick up; or while in a store, a customer may make the purchase on a mobile device for in home delivery from either a distribution facility, a store or directly from a vendor. In addition, the Company accepts returns in-store without regard to the channel in which the purchase was consummated, therefore resulting in reducing store sales by sales originally consummated through customer facing online websites and mobile applications. As the Company's retail operations are integrated and it cannot reasonably track the channel in which the ultimate sale is initiated, the Company can however provide directional information on where the sale was consummated.

For the three months ended November 28, 2015, comparable sales consummated through customer facing online websites and mobile applications increased in excess of 25% over the corresponding three month period in the prior year, while comparable sales consummated in-store declined in the low single-digit percentage range. For the nine months ended November 28, 2015, comparable sales consummated through customer facing online websites and mobile applications increased approximately 30% over the corresponding nine month period in the prior year, while comparable sales consummated in-store declined in the low single-digit percentage range.

For the three and nine months ended November 28, 2015, comparable sales represented $2.875 billion and $8.422 billion of net sales, respectively. For the three and nine months ended November 29, 2014, comparable sales represented $2.868 billion and $8.290 billion of net sales, respectively.

Sales of domestics merchandise and home furnishings for the Company accounted for approximately 36.5% and 63.5% of net sales, respectively, for the three months ended November 28, 2015 and November 29, 2014. Sales of domestics merchandise and home furnishings for the Company accounted for approximately 37.5% and 62.5% of net sales, respectively, for the nine months ended November 28, 2015 and approximately 37.4% and 62.6% of net sales, respectively, for the nine months ended November 29, 2014.

Gross Profit

Gross profit for the three months ended November 28, 2015 was $1.115 billion, or 37.8% of net sales, compared with $1.129 billion, or 38.4% of net sales, for the three months ended November 29, 2014. The decrease in the gross profit margin as a percentage of net sales for the three months ended November 28, 2015 was primarily attributed to an increase in inventory acquisition costs. Also contributing to the decrease was an increase in coupon expense resulting from a slight increase in the number of redemptions and a slight increase in the average coupon amount.

Gross profit for the nine months ended November 28, 2015 was $3.300 billion, or 38.0% of net sales, compared with $3.294 billion, or 38.5% of net sales, for the nine months ended November 29, 2014. The decrease in the gross profit margin as a percentage of net sales for the nine months ended November 28, 2015 was primarily attributed to, in order of magnitude, an increase in inventory acquisition costs and an increase in coupon expense resulting from an increase in redemptions and a slight increase in the average coupon amount. Also contributing to the decrease in gross profit as a percentage of net sales was an increase in net direct to customer shipping expense.

Selling, General and Administrative Expenses

SG&A for the three months ended November 28, 2015 was $822.5 million, or 27.9% of net sales, compared with $776.3 million, or 26.4% of net sales, for the three months ended November 29, 2014. Of the increase in SG&A as a percentage of net sales for the three months ended November 28, 2015, approximately 45 basis points was attributable to a non-recurring benefit relating to a credit card litigation settlement in the third quarter of fiscal 2014, which was not anniversaried in the third quarter of fiscal 2015. The majority of the remaining increase in SG&A, as a percentage of net sales, in order of magnitude, was attributable to an increase in payroll and payroll related items (including salaries) and an increase in advertising expense due in part to the growth in digital advertising.

SG&A for the nine months ended November 28, 2015 was $2.384 billion, or 27.4% of net sales, compared with $2.272 billion, or 26.6% of net sales, for the nine months ended November 29, 2014. Of the increase in SG&A as a percentage of net sales for the nine months ended November 28, 2015, approximately 15 basis points was attributable to a non-recurring benefit relating to a credit card litigation settlement in the third quarter of fiscal 2014, which was not anniversaried in the third quarter of fiscal 2015. Also contributing to the SG&A increase, as a percentage of net sales, in order of magnitude, was an increase in technology expenses and related depreciation, an increase in payroll and payroll related items (including salaries) and an increase in advertising expense due in part to the growth in digital advertising.

Operating Profit

Operating profit for the three months ended November 28, 2015 was $292.9 million, or 9.9% of net sales, compared with $352.7 million, or 12.0% of net sales, during the comparable period last year. For the nine months ended November 28, 2015, operating profit was $916.3 million, or 10.5% of net sales, compared with $1.022 billion, or 12.0% of net sales, during the comparable period last year. The changes in operating profit as a percentage of net sales were the result of the changes in gross profit margin and SG&A as a percentage of net sales as described above.

The Company believes operating margin compression is likely to continue through the remainder of fiscal 2015 as a result of several items, including increases in, as a percentage of net sales, investments in compensation and benefits, advertising and technology expenses and related depreciation related to the Company's ongoing investments.

Interest Expense, net

Interest expense, net for the three months ended November 28, 2015 was $18.1 million compared to $19.6 million for the three months ended November 29, 2014. For the three months ended November 28, 2015, interest expense, net primarily related to interest on the senior unsecured notes issued in July 2014 and the sale/leaseback obligations related to certain distribution facilities.

Interest expense, net for the nine months ended November 28, 2015 was $63.0 million compared to $31.2 million for the nine months ended November 29, 2014. For the nine months ended November 28, 2015, interest expense, net primarily related to interest on the senior unsecured notes issued in July 2014 and the sale/leaseback obligations related to certain distribution facilities.

Income Taxes

The effective tax rate for the three months ended November 28, 2015 was 35.3% compared with 32.3% for the three months ended November 29, 2014. The tax rate for the three months ended November 28, 2015 included net benefits of approximately $6.9 million and for the three months ended November 29, 2014 included a net benefit of approximately $16.7 million, due to discrete tax events occurring during these quarters.

The effective tax rate for the nine months ended November 28, 2015 was 37.0% compared with 35.8% for the nine months ended November 29, 2014. The tax rate for the nine months ended November 28, 2015 included a net benefit of approximately $7.6 million, due to discrete tax events during the first nine months of fiscal 2015, and for the nine months ended November 29, 2014 included a net benefit of approximately $19.3 million, due to the recognition of favorable discrete federal and state tax items.

Potential volatility in the effective tax rate from quarter to quarter may occur as the Company is required each quarter to determine whether new information changes the assessment of both the probability that a tax position will effectively be sustained and the appropriateness of the amount of recognized benefit.

Net Earnings

As a result of the factors described above, net earnings for the three and nine months ended November 28, 2015 were $177.8 million and $537.9 million, respectively, compared with $225.4 million and $636.4 million, respectively, for the corresponding period in fiscal 2014.

Growth

The Company strives to do more for and with its customers by: offering an extensive breadth, depth and differentiated assortment of merchandise at the right value; presenting merchandise in a distinctive manner designed to maximize customer convenience and reinforce customer perception of a wide selection; and providing excellent customer service, including new ideas and solutions. The Company is pursuing its growth objectives by investing in its omnichannel retail capabilities, optimizing its store operations and market coverage, including international expansion; leveraging its combined expertise and product knowledge to provide products and services to hospitality, travel and other institutional customers; and continuously reviewing opportunities for strategic acquisitions.

The Company continues to grow, differentiate and leverage its merchandise assortment and service offerings across all channels, concepts and countries in which it operates, to better engage with its customers wherever, whenever and however they express their life interests and travel through their life stages. Through its investments in analytics, marketing and technology, the Company is leveraging available information to be able to interact with and service its customers more personally and directly.

As of November 28, 2015, the Company operated 1,526 stores plus its various websites, other interactive platforms and distribution facilities. The Company's 1,526 stores operate in all 50 states, the District of Columbia, Puerto Rico and Canada, including: 1,022 BBB stores, 276 Cost Plus World Market stores, 100 Baby stores, 78 CTS stores and 50 Harmon stores. During the nine months ended November 28, 2015, the Company opened a total of 20 new stores and closed seven stores as well as developed a new customer contact center, which officially opened in the fiscal third quarter, to support the anticipated growth across all channels, countries and concepts and provide a seamless customer service experience. At the end of the third quarter of 2015, Company-wide total store square footage, net of openings and closings, for all of its concepts, was approximately 43.2 million square feet. In addition, the Company has distribution facilities totaling 6.0 million square feet including a new distribution facility in Las Vegas opened during the nine months ended November 28, 2015. In the fall of fiscal 2016, the Company plans to open another distribution facility in Lewisville, Texas and will continue to assess sites throughout the country in order to gain greater distribution efficiencies. The Company also operates websites at bedbathandbeyond.com, bedbathandbeyond.ca, christmastreeshops.com, harmondiscount.com, buybuybaby.com, worldmarket.com and ofakind.com. Additionally, the Company is a partner in a joint venture which as of November 28, 2015, operated a total of six retail stores in Mexico under the name Bed Bath & Beyond and opened its seventh store subsequent to the end of the fiscal third quarter.

The Company plans to continue to expand its operations and invest in its infrastructure to reach its long-term objectives. During fiscal 2015, including the stores opened through November 28, 2015, the Company expects company-wide to open approximately 29 new stores and close approximately 11 stores. Additionally, in connection with leveraging its merchandise offerings and optimizing its operations, the Company continues to expand, across selected stores, the number of specialty departments such as health and beauty care, baby, specialty food, and beverage. Also, the Company is committed to the continued growth of its merchandise categories and channels and is growing the number of items it is able to have shipped directly to customers from a vendor. The continued growth of the Company is dependent, in part, upon the Company's ability to execute these and other key initiatives successfully.

Liquidity and Capital Resources

The Company has been able to finance its operations, including its growth, through internally generated funds. For fiscal 2015, the Company believes that it can continue to finance its operations, including its growth, share repurchases, planned capital expenditures and debt service obligations, through existing and internally generated funds. In addition, if necessary, the Company could borrow under the Revolver. Capital expenditures for fiscal 2015 are planned to be approximately $350 million, with a significant portion for technology related projects, including the deployment of new systems and equipment in stores, enhancements to omnichannel capabilities, the ongoing investment in data analytics, the continued build out and utilization of a data center in North Carolina, the continued development of a new point-of-sale system; and enhancements to its distribution facilities to improve capacity and productivity; with the remainder for new stores, existing store improvements, and other projects. These planned capital expenditures are subject to the timing and composition of the projects. In addition, the Company reviews its alternatives with respect to its capital structure on an ongoing basis.

Fiscal 2015 compared to Fiscal 2014

Net cash provided by operating activities for the nine months ended November 28, 2015 was $489.9 million, compared with $502.2 million in the corresponding period in fiscal 2014. Year over year, the Company experienced a decrease in net earnings, as adjusted for non-cash expenses (primarily deferred income taxes) offset by a decrease in cash used in the net components of working capital (primarily accounts payable, partially offset by other current assets).

Retail inventory, which includes inventory in the Company's distribution facilities for direct to customer shipments, was approximately $3.2 billion, an increase of approximately 4.6% compared to retail inventory as of November 29, 2014. The Company's distribution facilities include the Company's newest Las Vegas distribution facility which opened during the first nine months of fiscal 2015.

Net cash used in investing activities for the nine months ended November 28, 2015 was $105.3 million, compared to net cash provided by investing activities of $121.7 million in the corresponding period of fiscal 2014. For the nine months ended November 28, 2015, net cash used in investing activities was due to $244.3 million of capital expenditures, partially offset by $138.9 million of redemptions of investment securities, net of purchases. For the nine months ended November 29, 2014, net cash provided by investing activities was primarily due to $354.4 million of redemptions of investment securities, net of purchases, partially offset by $232.7 million of capital expenditures.

Net cash used in financing activities for the nine months ended November 28, 2015 was $762.9 million, compared to net cash provided by financing activities of $56.9 million in the corresponding period of fiscal 2014. For the nine months ended November 28, 2015, net cash used in financing activities was primarily due to $773.5 million of common stock repurchases. For the nine months ended November 29, 2014, net cash provided by financing activities was primarily due to $1.5 billion of proceeds from the issuance of senior unsecured notes, partially offset by $1.3 billion of common stock repurchases which included the initial delivery of shares under an accelerated share repurchase agreement and a $165.0 million prepayment under an accelerated share repurchase agreement.

Seasonality

The Company's sales exhibit seasonality with sales levels generally higher in the calendar months of August, November and December, and generally lower in February.

Critical Accounting Policies

See "Critical Accounting Policies" under Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 2015 ("2014 Form 10-K"), filed with the Securities and Exchange Commission ("SEC") and incorporated by reference herein. There were no changes to the Company's critical accounting policies during the first nine months of fiscal 2015.

Forward-Looking Statements

This Form 10-Q may contain forward-looking statements. Many of these forward-looking statements can be identified by use of words such as may, will, expect, anticipate, approximate, estimate, assume, continue, model, project, plan, and similar words and phrases. The Company's actual results and future financial condition may differ materially from those expressed in any such forward-looking statements as a result of many factors. Such factors include, without limitation: general economic conditions including the housing market, a challenging overall macroeconomic environment and related changes in the retailing environment; consumer preferences, spending habits and adoption of new technologies; demographics and other macroeconomic factors that may impact the level of spending for the types of merchandise sold by the Company; civil disturbances and terrorist acts; unusual weather patterns and natural disasters; competition from existing and potential competitors; competition from other channels of distribution; pricing pressures; liquidity; the ability to attract and retain qualified employees in all areas of the organization; the cost of labor, merchandise and other costs and expenses; potential supply chain disruption due to political instability, labor disturbances and other items; the ability to find suitable locations at acceptable occupancy costs and other terms to support the Company's plans for new stores; the ability to assess and implement technologies in support of the Company's development of its omnichannel capabilities; uncertainty in financial markets; disruptions to the Company's information technology systems including but not limited to security breaches of systems protecting consumer and employee information; reputational risk arising from challenges to the Company's or a third party supplier's compliance with various laws, regulations or standards, including those related to labor, health, safety, privacy or the environment; reputational risk arising from third-party merchandise or service vendor performance in direct home delivery or assembly of product for customers; changes to statutory, regulatory and legal requirements; new, or developments in existing, litigation, claims or assessments; changes to, or new, tax laws or interpretation of existing tax laws; changes to, or new, accounting standards including, without limitation, changes to lease accounting standards; foreign currency exchange rate fluctuations; and the integration of acquired businesses. The Company does not undertake any obligation to update its forward-looking statements.

Available Information

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company's exposure to market risk for changes in interest rates relates primarily to the Company's investment securities. The Company's market risks at November 28, 2015 are similar to those disclosed in Item 7A of the Company's 2014 Form 10-K.

As of November 28, 2015, the Company's investments include cash and cash equivalents of approximately $490.7 million and long term investment securities of approximately $74.7 million at weighted average interest rates of 0.01% and 0.15%, respectively. The book value of these investments is representative of their fair values.

The Company's senior unsecured notes have fixed interest rates and are not subject to interest rate risk. As of November 28, 2015, the fair value of the senior unsecured notes was $1.379 billion, which is based on quoted prices in active markets for identical instruments compared to the carrying value of approximately $1.500 billion.

Item 4. Controls and Procedures

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company is party to various legal proceedings arising in the ordinary course of business, which the Company does not believe to be material to the Company's business or financial condition.

Item 1A. Risk Factors

In addition to the other information set forth in this Form 10-Q, carefully consider the factors discussed under "Risk Factors" in the Company's 2014 Form 10-K as filed with the Securities and Exchange Commission. These risks could materially adversely affect the Company's business, financial condition and results of operations. These risks are not the only risks the Company faces. The Company's operations could also be affected by additional factors that are not presently known to the Company or by factors that the Company currently considers immaterial to its business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company's purchases of its common stock during the third quarter of fiscal 2015 were as follows:

(1) Between December 2004 and September 2015, the Company's Board of Directors authorized, through several share repurchase programs, the repurchase of $11.950 billion of its shares of common stock. The Company has authorization to make repurchases from time to time in the open market or through other parameters approved by the Board of Directors pursuant to existing rules and regulations. Shares purchased indicated in this table also include shares withheld to cover employee related taxes on vested restricted shares and performance stock unit awards. 

(2) Excludes brokerage commissions paid by the Company. 

Item 6. Exhibits

The exhibits to this Report are listed in the Exhibit Index included elsewhere herein.

SIGNATURES

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

EXHIBIT INDEX

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