================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
--------------
Commission File Number 1-13143
BJ'S WHOLESALE CLUB, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3360747
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Mercer Road
Natick, Massachusetts 01760
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 651-7400
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------ ------------------
Common Stock, par value $.01 New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 |X| No |_|.
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 the 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. |X|
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on March 31, 1998 was approximately $1,463,162,000, based on the
closing price of $39.00 on the New York Stock Exchange on such date.
There were 37,643,811 shares of the Registrant's Common Stock, $.01 par
value, outstanding as of March 31, 1998.
--------------
Documents Incorporated by Reference
Portions of the Proxy Statement for the Registrant's 1998 Annual Meeting
of Stockholders (Part III).
<PAGE>
PART 1
Item 1. Business
General
On July 28, 1997, BJ's Wholesale Club, Inc. ("BJ's" or the "Company") became
an independent, publicly owned entity when Waban Inc. ("Waban"), BJ's parent
company at the time, distributed to its stockholders on a pro rata basis all of
the Company's outstanding common stock. Before that date, the BJ's business had
operated as a division of Waban.
BJ's introduced the warehouse club concept to New England in 1984 and has
since expanded in the northeastern and Mid-Atlantic states, as well as in
southern Florida. As of January 31, 1998, BJ's operated 84 warehouse clubs in
twelve states and had over 4.5 million members. The table below shows the number
of BJ's locations by state.
Number of
State Locations
----- ---------
New York........................................ 21
Massachusetts................................... 13
New Jersey...................................... 10
Pennsylvania.................................... 9
Florida......................................... 6
Maryland........................................ 6
Virginia........................................ 6
Connecticut..................................... 5
New Hampshire................................... 4
Maine........................................... 2
Delaware........................................ 1
Rhode Island.................................... 1
---
Total........................................ 84
===
The Company's fiscal year ends on the last Saturday in January. The fiscal
year ended January 31, 1998 is referred to as "1997" below. Earlier years are
referred to in a similar manner.
Industry Overview
Warehouse clubs offer a narrow assortment of brand name food and general
merchandise items within a wide range of product categories. In order to achieve
high sales volumes and rapid inventory turnover, merchandise selections are
generally limited to items that are brand name leaders in their categories.
Since warehouse clubs sell a diversified selection of product categories, they
attract customers from a wide range of other wholesale and retail distribution
channels, such as supermarkets, discount stores, office supply stores, consumer
electronics stores, automotive stores and wholesale distributors. The Company
believes that it is difficult for these higher cost channels of distribution to
match the low prices offered by warehouse clubs.
Warehouse clubs eliminate many of the merchandise handling costs associated
with traditional multiple-step distribution channels by purchasing directly from
manufacturers and by storing merchandise on the sales floor rather than in
central warehouses. By operating no-frills, self-service warehouse facilities,
warehouse clubs have fixturing and operating costs substantially below those of
traditional retailers. Because of their higher volume and rapid inventory
turnover, warehouse clubs generally have the opportunity to generate cash from
the sale of a large portion of their inventory before they are required to pay
merchandise vendors. As a result, a greater percentage of the inventory is
financed through payment terms provided by vendors rather than by working
capital. Two broad groups of customers, individual households and small
businesses, have been attracted to the savings made possible by the high sales
volumes and operating efficiencies achieved by warehouse clubs. The customers at
warehouse clubs are generally limited to members who pay an annual fee.
2
<PAGE>
Business Model
The Company has developed an operating model that it believes differentiates
it from its warehouse club competition. First, BJ's endeavors to have the
leading industry position in the markets in which it operates. By clustering its
clubs, BJ's seeks to maximize the efficiencies of management support,
distribution and marketing activities. Secondly, BJ's places added focus on the
retail customer, its Inner Circle(R) member, through merchandising strategies
that emphasize a customer-friendly shopping experience. By supplementing the
warehouse format with aisle markers, express check-out lanes and low-cost
video-based sales aids, BJ's makes shopping more efficient for its members. BJ's
is also the only major warehouse club to accept manufacturers' coupons, which
provides added value for its members. Additionally, BJ's emphasizes the creation
of an exciting shopping experience for its retail members with a constantly
changing mix of food and general merchandise items. Management believes these
strategies aimed at the general consumer allow BJ's to achieve higher warehouse
club operating margins.
Expansion
Since the beginning of fiscal 1992, BJ's has grown from 29 clubs to 84 clubs
in operation at January 31, 1998. As a result, approximately 68% of BJ's
Wholesale Clubs have been in operation for fewer than six years, and many of
these are considered to be in the early stages of maturation.
BJ's plans to open twelve to thirteen new clubs in the current year. It
expects to enter one new market, Cleveland, Ohio, expand its presence in
southern Florida and fill in existing markets. Longer term, BJ's plans to
increase the square footage of the chain by approximately 10% annually.
Clubs Clubs Clubs Clubs
in Operation Opened Closed in Operation
Fiscal at Beginning During During at End
Year of Year the Year the Year of Year
---- ------- -------- -------- -------
1992...................... 29 10 -- 39
1993...................... 39 13 -- 52
1994...................... 52 11 1 62
1995...................... 62 9 -- 71
1996...................... 71 10 -- 81
1997...................... 81 4 1 84
Store Profile
As of January 31, 1998, BJ's operated 74 traditional size "big box"
warehouse clubs that averaged approximately 112,000 square feet and ten smaller
format warehouse clubs that averaged approximately 69,000 square feet. Two of
the new BJ's warehouse clubs planned for 1998 are expected to be in the smaller
format, which is designed to serve markets whose population is not sufficient to
support a full-sized warehouse club. Including space for parking, a typical
full-sized BJ's warehouse club requires eight to ten acres of land. The smaller
version typically requires approximately eight acres. BJ's warehouse clubs are
located in both free-standing locations and shopping centers.
Construction and site development costs for a full-sized BJ's warehouse club
average approximately $5.0 million. Land acquisition costs for a warehouse club
generally range from $2.5 million to $5.5 million, but can be significantly
higher in some locations. Opening a traditional-sized BJ's warehouse club
entails an initial capital investment of approximately $2.6 million for fixtures
and equipment, as well as approximately $2.0 million for inventory (net of
accounts payable) and preopening expenses.
3
<PAGE>
Merchandising
BJ's services its current members and attracts new members by providing a
broad range of high quality, brand name merchandise at everyday prices that are
consistently lower than the prices of traditional wholesalers, discount
retailers, supermarkets and specialty retail operations. BJ's limits the items
offered in each product line to fast selling styles, sizes and colors and,
therefore, carries an average of approximately 5,000 active stock-keeping units
("SKUs"). By contrast, supermarkets normally stock approximately 25,000 SKUs,
and discount stores typically stock approximately 60,000 SKUs. BJ's works
closely with manufacturers to develop packaging and sizes which are best suited
to selling through the warehouse club format in order to minimize handling costs
and to provide increased value to members.
In 1997, food accounted for 61% of BJ's sales. The remaining 39% consisted
of a wide variety of general merchandise items. Food categories at BJ's include
frozen foods, fresh meat and dairy products, dry grocery items, fresh produce,
canned goods, and household paper products and cleaning supplies. General
merchandise includes office supplies and equipment, consumer electronics, small
appliances, auto accessories, tires, jewelry, housewares, health and beauty
aids, computer software, books, greeting cards, apparel, tools, toys and
seasonal items.
BJ's also offers a number of specialty services designed to enable members
to complete more of their shopping at BJ's and to encourage more frequent visits
to the clubs. Included are full-service optical stores, travel services,
cellular phones and pagers, food courts offering brand name fast food service,
rotisserie chicken prepared on site, one-hour photo service, an auto buying
service, discounted mortgage and moving services and a selection of garden sheds
and gazebos. To enhance this aspect of the business, BJ's is also testing
several additional services including mini-branch banks, gas stations and
muffler and brake service.
To ensure that its merchandise selection is closely attuned to the tastes of
its members, BJ's employs regional buyers who are responsible for tailoring the
product selection in individual warehouse clubs to the regional and ethnic
tastes of the local market.
Membership
Paid membership is an essential part of the warehouse club concept. In
addition to providing a source of revenue which permits BJ's to offer low
prices, membership reinforces customer loyalty. BJ's has two primary types of
members: business members and Inner Circle members. BJ's Inner Circle members
are likely to be home owners and have incomes which are above the average for
the Company's trading areas. BJ's believes that a significant percentage of its
business members are also active BJ's shoppers for their personal needs. At
January 31, 1998, the Company had over 4.5 million members (including
supplemental cardholders).
Effective February 1, 1998, BJ's charges $35 per year for a primary Inner
Circle membership that includes one free supplemental membership. A business
membership is $30 per year. Additional supplemental business memberships cost
$15 each. BJ's membership policy is open to all, whereas the Company's warehouse
club competitors have typically required individual members to belong to certain
qualifying groups. BJ's believes that its more liberal membership policy has
attracted incremental sales without adversely affecting its costs.
Advertising and Public Relations
BJ's increases customer awareness of its warehouse clubs primarily through
public relations efforts, new store marketing programs, direct mail and limited
vendor-funded television and radio advertising during the Christmas holiday
season. BJ's also employs a team of dedicated marketing personnel who solicit
potential business members and who contact selected community groups to increase
the number of members. From time to time, BJ's runs free trial membership
promotions to attract new members with
4
<PAGE>
the objective of converting them to paid membership status and also uses one-day
passes to introduce non-members to its warehouse clubs. These programs result in
very low marketing expenses compared with typical discount retailers and
supermarkets.
Warehouse Club Operations
BJ's ability to achieve profitable operations depends upon the efficient
operation of its warehouse clubs and high sales volumes. The Company buys most
of its merchandise at volume discounts from manufacturers for shipment either to
a BJ's cross-docking facility or directly to BJ's warehouse clubs. This
eliminates many of the costs associated with traditional multiple-step
distribution channels, including distributors' commissions and the costs of
storing merchandise in central distribution facilities.
BJ's routes a significant percentage of its purchases through cross-docking
facilities which break down truckload quantity shipments from manufacturers and
reallocate these goods for shipment, generally on a same-day basis, to
individual warehouse clubs. This permits BJ's to negotiate better volume
discounts and reduces freight expense, the number of trucks received at each
warehouse club and related receiving costs.
The Company works closely with manufacturers to minimize the amount of
handling required once merchandise is received at a warehouse club. Most
merchandise is pre-marked by the manufacturer with the universal product code
(UPC) so that it does not require ticketing at the warehouse club. In addition,
BJ's minimizes labor costs by designing its warehouse clubs to be self-service
for members. Merchandise for sale is displayed on pallets containing large
quantities of each item, thereby reducing labor required for handling, stocking
and restocking. Back-up merchandise is generally stored in steel racks above the
sales floor. BJ's goal is to keep at least one day's supply of each item on the
selling floor.
BJ's has been able to limit inventory losses to levels well below those
typical of discount retailers by strictly controlling the exits of its warehouse
clubs, by generally limiting customers to members and by using state-of-the-art
electronic article surveillance technology. Problems associated with payments by
check have been insignificant, since members who issue dishonored checks are
restricted to cash-only terms.
In October 1995, BJ's became the first warehouse club chain to accept the
MasterCard(R) credit card, and at the same time introduced a co-branded BJ's
MasterCard underwritten by a major financial institution on a non-recourse
basis. Purchases made at BJ's warehouse clubs with the co-branded BJ's
MasterCard earn a 2% rebate. All other purchases with the BJ's MasterCard earn a
1% rebate. Rebates are issued in the form of BJ's Bucks(R), which can be
redeemed by members only at BJ's warehouse clubs. In September 1997, BJ's became
the first warehouse club chain to accept VISA(R). Additionally, BJ's members may
pay for their purchases by cash, check or Discover(R) Card.
Information Systems
Over the course of its development, BJ's has made a significant investment
in information systems. BJ's was the first warehouse club to introduce scanning
devices which work in conjunction with its electronic point of sale (EPOS)
terminals. Sales data is analyzed daily for replenishment purposes. Detailed
purchasing data on individual members permits the buying staff and store
managers to track changes in members' buying behavior. Detailed shrinkage data
by SKU by club allows management to quickly identify inventory shrinkage
problems and formulate effective action plans.
5
<PAGE>
Competition
BJ's competes with a wide range of national, regional and local retailers
and wholesalers selling food or general merchandise in its markets, including
supermarkets, general merchandise chains, specialty chains and other warehouse
clubs, some of which have significantly greater financial and marketing
resources than BJ's. Major competitors that operate warehouse clubs include
Costco Companies, Inc. and Sam's Clubs (a division of Wal-Mart Stores, Inc.).
There is a large number of competitive membership warehouse clubs in BJ's
markets. Approximately 85% of BJ's 74 "big box" warehouse clubs have at least
one competitive membership warehouse club in their trading areas at a distance
of ten miles or less. None of the smaller format clubs has direct competition
from other warehouse clubs.
BJ's believes price is the major competitive factor in the markets in which
it competes. Other competitive factors include store location, merchandise
selection and name recognition. BJ's believes its efficient, low cost form of
distribution gives it a significant competitive advantage over more traditional
channels of wholesale and retail distribution.
Seasonality
Sales and net income have typically been strongest in the Christmas holiday
season and lowest in the first quarter of each fiscal year.
Employees
As of January 31, 1998, BJ's had approximately 11,600 employees ("team
members") of whom approximately 300 were considered part-time employees (persons
who work less than 20 hours per week). Approximately 700 team members were
employed in management and office support functions; the balance worked in the
warehouse clubs and cross-docking facilities. None of the Company's team members
is represented by unions. BJ's considers its relations with its team members to
be excellent.
Item 2. Properties
BJ's operated 84 warehouse locations as of January 31, 1998, of which 46 are
leased under long-term leases and 28 are owned. BJ's owns the buildings at the
remaining ten locations, which are subject to long-term ground leases. A listing
of BJ's locations within each state is shown on page 2.
The unexpired terms of BJ's leases range from approximately two to 43 years,
and average approximately 15 years. BJ's has options to renew all but one of its
leases for periods that range from approximately 5 to 50 years and average
approximately 20 years. These leases require fixed monthly rental payments which
are subject to various adjustments. Certain leases require payment of a
percentage of the club's gross sales in excess of certain amounts. All leases
require that BJ's pay all property taxes, insurance, utilities and other
operating costs.
BJ's home offices in Natick, Massachusetts, occupy 142,000 square feet under
leases expiring January 31, 1999 with options to extend these leases through
January 31, 2006. The Company also leases two cross-docking facilities, which
occupy a total of 442,000 square feet under leases which expire in 2005 and
2010, with options to extend these leases through 2015 and 2025, respectively.
See Note D of Notes to Consolidated Financial Statements included elsewhere
in this report for additional information with respect to the Company's leases.
Item 3. Legal Proceedings
BJ's is involved in various legal proceedings that are typical of a retail
business. Although it is not possible to predict the outcome of these
proceedings or any related claims against the Company, BJ's believes that such
proceedings or claims will not, individually or in the aggregate, have a
material adverse effect on its financial condition or results of operations.
6
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the Company's security holders during
the fourth quarter of the fiscal year ended January 31, 1998.
Item 4A. Executive Officers of the Registrant
Office and Employment
Name Age During Last Five Years
- ---- --- ----------------------
Herbert J. Zarkin .. 59 Chairman of the Board of the Company since July
1997; President, Chief Executive Officer and
Director of Waban (1993-1997); Executive Vice
President of Waban (1989-1993); President of the
BJ's Division of Waban (the "BJ's Division")
(1990-1993)
John J. Nugent ..... 51 President, Chief Executive Officer and Director of
the Company since July 1997; Executive Vice
President of Waban and President of the BJ's
Division (1993-1997); Senior Vice President of the
BJ's Division (1991-1993); Director of Sales
Operations of the BJ's Division (1989-1993)
Frank D. Forward ... 43 Executive Vice President and Chief Financial Officer
of the Company since July 1997; Executive Vice
President, Finance of the BJ's Division from
February 1997 to July 1997; Senior Vice President,
Finance of the BJ's Division (1994-1997); Vice
President, Finance of the BJ's Division (1991-1994)
Laura J. Sen ....... 41 Executive Vice President, Merchandising of the
Company since July 1997; Executive Vice President,
Merchandising of the BJ's Division from February
1997 to July 1997; Senior Vice President, General
Merchandise of the BJ's Division (1993-1997); Vice
President, Logistics of the BJ's Division
(1991-1993)
Michael T. Wedge ... 44 Executive Vice President, Club Operations of the
Company since July 1997; Executive Vice President,
Sales Operations of the BJ's Division from February
1997 to July 1997; Senior Vice President, Sales
Operations of the BJ's Division (1993-1997); Vice
President, Sales Operations of the BJ's Division
(1991-1993)
Sarah M. Gallivan .. 55 Vice President and General Counsel of the Company
since July 1997; Vice President and General Counsel
of Waban (1989-1997)
All officers serve at the discretion of the Board of Directors and hold
office until the next annual meeting of the Board of Directors and until their
successors are elected and qualified.
7
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
The common stock of the Company began trading on July 29, 1997 and is listed
on the New York Stock Exchange (symbol "BJ"). The quarterly high and low stock
prices for the fiscal year ended January 31, 1998 were:
Quarter High Low
------- --------- ---------
Third 31 9/16 26 5/16
Fourth 32 5/16 26
The approximate number of stockholders of record at March 31, 1998 was
3,330. The Company has not paid any cash dividends on its common stock. The
Company currently intends to retain earnings to support its growth strategy and
does not anticipate paying cash dividends in the foreseeable future. For
restrictions on the payment of dividends, see Note C of Notes to the
Consolidated Financial Statements included elsewhere in this report.
8
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------------------------------------
Jan. 31, 1998 Jan. 25, 1997 Jan. 27, 1996 Jan. 28, 1995 Jan. 29, 1994
------------- ------------- ------------- ------------- --------------
(53 Weeks)
(Dollars in Thousands except Per Share Data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales ........................... $3,159,786 $2,859,950 $2,470,307 $2,237,029 $1,957,441
Membership fees and other ........... 66,688 62,882 59,301 56,062 45,944
---------- ---------- ---------- ---------- ----------
Total revenues ...................... 3,226,474 2,922,832 2,529,608 2,293,091 2,003,385
---------- ---------- ---------- ---------- ----------
Cost of sales, including buying
and occupancy costs ................ 2,872,303 2,605,602 2,263,532 2,054,167 1,807,586
Selling, general and
administrative expenses ............ 233,525 212,660 183,419 174,416 155,425
---------- ---------- ---------- ---------- ----------
Operating income .................... 120,646 104,570 82,657 64,508 40,374
Interest on debt and capital
leases (net) ....................... 8,733 16,838 14,757 13,665 7,807
---------- ---------- ---------- ---------- ----------
Income before income taxes and
cumulative effect of accounting
principle changes .................. 111,913 87,732 67,900 50,843 32,567
Provision for income taxes .......... 43,646 34,108 26,350 19,941 12,351
---------- ---------- ---------- ---------- ----------
Income before cumulative effect
of accounting principle changes .... 68,267 53,624 41,550 30,902 20,216
Cumulative effect of accounting
principle changes .................. -- -- -- -- 2,107
---------- ---------- ---------- ---------- ----------
Net income .......................... $ 68,267 $ 53,624 $ 41,550 $ 30,902 $ 22,323
========== ========== ========== ========== ==========
Income per common share:
Basic earnings per share:
Income before cumulative effect
of accounting principle changes .. $ 1.82 $ 1.43 $ 1.11 $ 0.82 $ 0.54
Cumulative effect of accounting
principle changes ................ -- -- -- -- 0.06
---------- ---------- ---------- ---------- ----------
Net income ........................ $ 1.82 $ 1.43 $ 1.11 $ 0.82 $ 0.60
========== ========== ========== ========== ==========
Diluted earnings per share:
Income before cumulative effect
of accounting principle changes .. $ 1.81 $ 1.43 $ 1.11 $ 0.82 $ 0.54
Cumulative effect of accounting
principle changes ................ -- -- -- -- 0.06
---------- ---------- ---------- ---------- ----------
Net income ........................ $ 1.81 $ 1.43 $ 1.11 $ 0.82 $ 0.60
========== ========== ========== ========== ==========
Balance Sheet Data:
Working capital ..................... $ 124,957 $ 62,942 $ 77,207 $ 58,252 $ 71,248
Total assets ........................ 811,636 737,211 676,675 563,931 506,034
Long-term debt and obligations
under capital leases ............... 44,930 2,592 2,731 2,960 3,262
Loans and advances from Waban Inc. .. -- 148,081 181,730 142,512 152,427
Stockholders' equity ................ 446,257 275,607 221,983 180,433 149,531
Clubs open at end of year ........... 84 81 71 62 52
</TABLE>
9
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
BJ's Wholesale Club, Inc., which previously had been a wholly owned
subsidiary of Waban Inc., became a separate and independent public entity on
July 28, 1997, when Waban distributed to its stockholders on a pro rata basis
all of the Company's outstanding common stock (the "spin-off"). The financial
statements of the Company include the financial statements of those subsidiaries
of Waban which, prior to the spin-off, were part of Waban's BJ's Wholesale Club
Division.
Fiscal year references apply to BJ's Wholesale Club, Inc.'s fiscal year which
ends on the last Saturday in January of the following calendar year. For
example, the fiscal year ended January 31, 1998 is referred to as "1997".
Results of Operations
The following table presents selected income statement data for the last
three fiscal years:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------------
January 31, 1998 January 25, 1997 January 27, 1996
---------------- ---------------- ----------------
(53 weeks)
% of % of % of
$ Net Sales $ Net Sales $ Net Sales
------- --------- -------- --------- -------- ---------
(Dollars in Millions except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
Net sales .............................. $3,159.8 100.0% $2,859.9 100.0% $2,470.3 100.0%
Membership fees and other .............. 66.7 2.1 62.9 2.2 59.3 2.4
-------- ------ -------- ------ -------- ------
Total revenues ......................... 3,226.5 102.1 2,922.8 102.2 2,529.6 102.4
-------- ------ -------- ------ -------- ------
Cost of sales, including
buying and occupancy costs ........... 2,872.3 90.9 2,605.6 91.1 2,263.5 91.6
Selling, general and
administrative expenses .............. 233.6 7.4 212.6 7.4 183.4 7.4
-------- ------ -------- ------ -------- ------
Operating income ....................... 120.6 3.8 104.6 3.7 82.7 3.4
Interest on debt and capital
leases (net) ......................... 8.7 .2 16.9 .6 14.8 .6
-------- ------ -------- ------ -------- ------
Income before income taxes ............. 111.9 3.6 87.7 3.1 67.9 2.8
Provision for income taxes ............. 43.6 1.4 34.1 1.2 26.3 1.1
-------- ------ -------- ------ -------- ------
Net income ............................. $ 68.3 2.2% $ 53.6 1.9% $ 41.6 1.7%
======== ====== ======== ====== ======== ======
Diluted net income per common
share ................................ $ 1.81 $ 1.43 $ 1.11
======== ======== ========
Number of clubs in operation at
year end ............................. 84 81 71
</TABLE>
Net sales increased by 10.5% from 1996 to 1997 (a 53-week fiscal year) and
by 15.8% from 1995 to 1996. The increases in both years were due mainly to the
opening of new stores. Comparable store net sales (on a same-week basis)
increased by 3.1% from 1996 to 1997 and by 5.6% from 1995 to 1996.
Total revenues included membership fees of $57.9 million in 1997, $54.3
million in 1996 and $51.3 million in 1995. Net sales and membership fees in the
last three years have been positively impacted by successful trial membership
promotional programs conducted by the Company.
Cost of sales (including buying and occupancy costs) as a percentage of net
sales was 90.9% in 1997, 91.1% in 1996 and 91.6% in 1995. The decreases in the
cost of sales percentage resulted from the Company's ability to introduce higher
margin products into the merchandise mix and to achieve economies of scale and
other efficiencies in its distribution and inventory management operations.
10
<PAGE>
Selling, general and administrative expenses were 7.4% of net sales in each
of 1997, 1996 and 1995. Credit expenses have risen in the last two years as the
Company began accepting MasterCard in October 1995 and VISA in September 1997.
The Company has been able to offset these increases by effectively controlling
other operating expenses and leveraging certain fixed costs on increased sales
resulting from both comparable store sales increases and a growing number of
clubs. In comparing 1997 to 1996, the Company benefited from lower preopening
expenses because it opened fewer new clubs in 1997, but incurred incremental
general and administrative expenses as a result of operating as an independent
publicly traded entity.
The components of net interest expense in the last three fiscal years were
as follows (dollars in millions):
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------
Jan. 31, 1998 Jan. 25, 1997 Jan. 27, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Interest expense on debt .................. $ 8.9 $16.6 $14.6
Interest income ........................... (.5) (.1) (.1)
----- ----- -----
Interest on debt (net) .................... 8.4 16.5 14.5
Interest on capital leases ................ .3 .3 .3
----- ----- -----
Interest on debt and capital leases (net) . $ 8.7 $16.8 $14.8
===== ===== =====
</TABLE>
Interest expense on debt was net of capitalized interest of $.4 million in
1997, $1.0 million in 1996 and $1.5 million in 1995. As described in more detail
below, interest expense in 1997 was lower than in 1996 because of significantly
lower borrowing levels and interest rates applied to those borrowings after the
spin-off.
The Company's income tax provision was 39.0% of pre-tax income in 1997,
38.9% in 1996 and 38.8% in 1995.
Net income was $68.3 million, or $1.81 per share diluted, in 1997 versus
$53.6 million, or $1.43 per share diluted, in 1996 and $41.6 million, or $1.11
per share diluted, in 1995.
BJ's Wholesale Club, Inc. commenced operations as a separate entity
immediately following its July 28, 1997 spin-off from Waban Inc. Therefore,
reported financial results through the first half of 1997 reflect BJ's
historical position as a division of Waban Inc. and, as such, may not be
indicative of performance after the spin-off. As a separate, publicly owned
company, BJ's is incurring SG&A costs expected to be approximately $.5 million
per quarter in addition to the amounts shown in the historical financial
statements for periods preceding the spin-off. However, interest on intercompany
borrowings at an annual rate of 10% prior to the spin-off has been replaced by
interest on bank borrowings at an assumed rate of approximately 6.5% per year,
and the level of debt has been reduced substantially by the contribution to
capital of $101.3 million of BJ's intercompany debt in connection with the
spin-off. Restating historical results for these changes, and reflecting common
stock equivalents expected to be included in earnings per share calculations
after the spin-off, operating income, net income and diluted net income on an
"analytical basis" for the last three years were as follows:
11
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------
Jan. 31, 1998 Jan. 25, 1997 Jan. 27, 1996
------------- ------------- -------------
$ % Incr. $ % Incr. $ % Incr.
---- ------ ---- ------ ---- ------
(Dollars in Millions except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
Operating income $119.6 16.6% $102.6 27.2% $80.7 29.0%
Net income 70.6 20.5 58.6 27.1 46.1 29.9
Diluted net income per share 1.86 20.8 1.54 27.3 1.21 30.1
</TABLE>
Waban's Board of Directors approved the termination of the Waban Inc.
Retirement Plan effective July 26, 1997. However, in accordance with generally
accepted accounting principles, the additional cost to terminate the Plan is not
recognized until the Plan termination is settled. Accordingly, the Company
expects to record a post-tax charge applicable to its Plan participants of
approximately $1.0 million in the fiscal year ending January 30, 1999, when the
Plan termination is settled.
Effective February 1, 1998, the Company increased its membership fees for
Inner Circle members from $30.00 to $35.00. Business membership fees were not
changed. While the Company expects to benefit in 1998 from the fee increase,
this benefit is expected to be largely offset by several factors. The Company is
planning a significantly higher number of club openings in 1998, approximately
twelve or thirteen versus four in 1997, which will result in increased
preopening costs. Secondly, the Company expects that its credit expenses will
continue to rise as a result of both the strong acceptance of the VISA card and
increased costs associated with the BJ's co-branded MasterCard. Thirdly, the
Company will not benefit from the impact of the 53-week fiscal year, as it did
in 1997. Finally, the Company is planning a higher-than-usual level of marketing
expenses to support its entry into the Cleveland market.
The Company has worked for several years to prepare its financial,
merchandising and other computer-based systems for the Year 2000. The Company
estimates that its Year 2000 implementation effort was approximately 80%
complete at the end of 1997 and will be substantially complete by the end of
1998 without any material adverse effect on its results of operations, financial
position or cash flows. Additionally, the Company is working with key vendors
and other third parties with whom it will be doing business to minimize the
adverse impact that they could have on the Company if they fail to address the
Year 2000 issue successfully.
Seasonality
The Company's business, in common with the business of retailers generally,
is subject to seasonal influences. The Company's sales and operating income have
typically been strongest in the Christmas holiday season and lowest in the first
quarter of each fiscal year.
Recent Accounting Standards
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," was issued in June 1997. This statement establishes
standards for reporting and displaying comprehensive income and its components
in the financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was also issued in June 1997. This statement requires that public
business enterprises report certain information about operating segments and
related disclosures about products and services, geographic areas and major
customers.
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" was issued in February 1998. This statement
standardizes disclosure requirements for pension and other postretirement
benefits, requires additional information on changes in benefit obligations and
fair values of plan assets, and eliminates certain existing disclosure
requirements.
12
<PAGE>
SFAS Nos. 130, 131 and 132 become effective in the Company's fiscal year
ending January 30, 1999. The adoption of these statements is expected to have no
impact on the Company's results of operations, financial position or cash flows
and to produce no major changes in current disclosures.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," in March 1998. This statement provides guidance as to whether
certain internal-use software costs should be capitalized as a long-lived asset
or expensed when incurred. SOP 98-1 becomes effective in the Company's fiscal
year ending January 29, 2000, but may be adopted earlier. The Company is in the
process of evaluating the requirements of SOP 98-1, but does not expect that it
will materially affect its results of operations, financial position or cash
flows. The Company has not yet decided whether it will adopt this standard in
1998.
Liquidity and Capital Resources
Net cash provided by net income plus depreciation was $105.7 million in 1997
versus $87.4 million in 1996. A total of $63.1 million was provided by operating
activities in 1997 compared with $105.2 million in 1996. This decrease was
attributable primarily to a lower accounts payable-to-inventory ratio at January
31, 1998, due in part to the effect of the 53rd week.
Cash expended for property additions was $50.3 million in 1997 versus $71.7
million in 1996. The Company opened four new clubs in 1997 and two new clubs in
February 1998. One club in the Hartford, Connecticut, market was closed in 1997.
The Company opened ten new clubs in 1996.
The Company's capital expenditures are expected to total approximately $110
million in 1998, based on opening a total of twelve to thirteen new clubs. The
Company plans to enter the Cleveland, Ohio, market by opening approximately
three new clubs in 1998. The timing of actual club openings and the amount of
related expenditures could vary from these estimates due, among other things, to
the complexity of the real estate development process.
Prior to the spin-off, the Company's operations and expansion were financed
through loans advanced by Waban as needed. In July 1997, the Company entered
into a $200 million unsecured credit agreement with a group of banks which
expires July 9, 2002. The agreement, which was amended in December 1997,
includes a $50 million sub-facility for letters of credit, of which $17 million
was outstanding at January 31, 1998. The Company is required to pay an annual
facility fee which is currently 0.15% of the total commitment. Interest on
borrowings is payable at the Company's option either at (a) the Eurodollar rate
plus a margin which is currently 0.30%, (b) the agent bank's prime rate or (c) a
rate determined by competitive bidding. The facility fee and Eurodollar margin
are both subject to change based upon the Company's fixed charge coverage ratio.
The agreement contains covenants which, among other things, include minimum net
worth and fixed charge coverage requirements and a maximum funded
debt-to-capital limitation, and which prohibit the payment of cash dividends on
the Company's common stock.
The Company also maintains a separate line in the amount of $30 million for
letters of credit, primarily to support the purchase of inventories, of which
$5.4 million was outstanding at January 31, 1998, and an additional $20 million
uncommitted credit line for short-term borrowings.
Cash and cash equivalents totaled $12.7 million as of January 31, 1998.
Borrowings as of January 31, 1998 consisted of $35 million under the Company's
bank credit agreement and $7.5 million under its uncommitted credit line. The
Company expects that its current resources, together with anticipated cash flow
from operations, will be sufficient to finance its operations through January
30, 1999. However, the Company may from time to time seek to obtain additional
financing.
13
<PAGE>
Factors Which Could Affect Future Operating Results
This report contains a number of "forward-looking statements," including
statements regarding expected expenses to be incurred by BJ's as a stand-alone
entity, planned capital expenditures, planned store openings, charges expected
to be incurred in connection with the termination of the Waban Inc. Retirement
Plan and other information with respect to the Company's plans and strategies.
Any statements contained herein that are not statements of historical fact may
be deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects" and similar expressions are
intended to identify forward-looking statements. There are a number of important
factors that could cause actual events or the Company's actual results to differ
materially from those indicated by such forward-looking statements, including,
without limitation, the factors set forth below.
BJ's warehouse clubs are located in the eastern United States, primarily in
the Northeast. The Company's business has been adversely affected from time to
time by economic downturns experienced in its markets, and future economic
downturns in its markets could adversely affect the Company. In addition, the
Company may be impacted by weather conditions prevailing in its markets and by
state and local regulation in its markets.
The Company competes with national, regional and local retailers and
wholesalers, including national chains in the warehouse merchandising business,
some of which have significantly greater financial and marketing resources than
the Company, which could adversely affect the Company's business, operating
results and financial condition.
Although the BJ's business has a substantial operating history as a division
of Waban, the Company has been a stand-alone entity only since its spin-off from
Waban in July 1997. Any difficulties experienced by the Company in connection
with its transition to being a stand-alone entity could adversely affect the
Company's business, operating results and financial condition.
In connection with the spin-off of Waban by The TJX Companies, Inc. ("TJX")
in 1989, Waban and TJX entered into an agreement pursuant to which Waban agreed
to indemnify TJX against any liabilities that TJX might incur with respect to 44
current HomeBase leases as to which TJX was either a lessee or guarantor. In
connection with the spin-off of the Company from Waban in 1997, the Company
agreed to indemnify TJX with respect to any liabilities TJX may incur with
respect to HomeBase leases through January 31, 2003 and for 50% of such
liabilities thereafter. Although HomeBase is primarily liable for these leases,
there can be no assurance that HomeBase will be able to make all future payments
under these leases. Pursuant to the Company's spin-off from Waban, BJ's may not
renew any of its real estate leases (other than ground leases) for which
HomeBase may be liable during any period in which BJ's does not meet certain
minimal standards of creditworthiness.
In connection with the spin-off in 1997, Waban received a letter ruling from
the Internal Revenue Service to the effect that, for Federal income tax
purposes, the distribution of the Company's stock to Waban's stockholders (the
"Distribution") and related asset transfers would be tax-free to Waban's
stockholders. Certain future events not within the control of the Company or
HomeBase, including, for example, certain dispositions of the Company's common
stock or HomeBase's common stock, could cause the Distribution not to qualify
for tax-free treatment. If this occurred, the related tax liability would be
payable by HomeBase, although the Company has agreed to indemnify HomeBase under
certain circumstances for all or a portion of such tax liability.
Other factors which could affect future operating results of the Company
include, without limitation, the successful implementation of the Company's Year
2000 remediation plans and new club opening plans discussed above.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
14
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
----
Consolidated Statements of Income for the fiscal years ended
January 31, 1998, January 25, 1997 and January 27, 1996 16
Consolidated Balance Sheets as of January 31, 1998 and January 25, 1997 17
Consolidated Statements of Cash Flows for the fiscal years ended
January 31, 1998, January 25, 1997 and January 27, 1996 18
Consolidated Statements of Stockholders' Equity for the fiscal years ended
January 31, 1998, January 25, 1997 and January 27, 1996 19
Notes to Consolidated Financial Statements 20
Selected Quarterly Financial Data 31
Report of Independent Accountants 32
Report of Management 33
15
<PAGE>
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Year Ended
-----------------------------------
January 31, January 25, January 27,
1998 1997 1996
---------- ---------- ----------
(53 weeks)
(Dollars in Thousands
except Per Share Amounts)
Net sales .................................. $3,159,786 $2,859,950 $2,470,307
Membership fees and other .................. 66,688 62,882 59,301
---------- ---------- ----------
Total revenues ............................. 3,226,474 2,922,832 2,529,608
---------- ---------- ----------
Cost of sales, including buying and
occupancy costs .......................... 2,872,303 2,605,602 2,263,532
Selling, general and administrative expenses 233,525 212,660 183,419
---------- ---------- ----------
Operating income ........................... 120,646 104,570 82,657
Interest on debt and capital leases (net) .. 8,733 16,838 14,757
---------- ---------- ----------
Income before income taxes ................. 111,913 87,732 67,900
Provision for income taxes ................. 43,646 34,108 26,350
---------- ---------- ----------
Net income ................................. $ 68,267 $ 53,624 $ 41,550
========== ========== ==========
Net income per common share:
Basic ................................... $ 1.82 $ 1.43 $ 1.11
========== ========== ==========
Diluted ................................. $ 1.81 $ 1.43 $ 1.11
========== ========== ==========
Number of common shares for earnings per
share computations:
Basic ................................... 37,481,173 37,484,937 37,484,937
Diluted ................................. 37,743,899 37,484,937 37,484,937
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, January 25,
1998 1997
-------- --------
(Dollars in Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 12,713 $ --
Accounts receivable ..................................... 38,322 34,006
Merchandise inventories ................................. 332,274 295,216
Current deferred income taxes ........................... 6,826 6,549
Prepaid expenses ........................................ 14,050 6,091
-------- --------
Total current assets ................................. 404,185 341,862
-------- --------
Property at cost:
Land and buildings ...................................... 282,619 265,971
Leasehold costs and improvements ........................ 42,541 34,764
Furniture, fixtures and equipment ....................... 207,127 186,696
-------- --------
532,287 487,431
Less accumulated depreciation and amortization .......... 140,216 106,821
-------- --------
392,071 380,610
-------- --------
Property under capital leases .............................. 6,219 6,219
Less accumulated amortization ........................... 1,784 1,618
-------- --------
4,435 4,601
-------- --------
Other assets ............................................... 10,945 10,138
-------- --------
Total assets .......................................... $811,636 $737,211
======== ========
LIABILITIES
Current liabilities:
Accounts payable ........................................ $200,386 $200,024
Accrued expenses and other current liabilities .......... 71,648 66,302
Accrued federal and state income taxes .................. 7,009 12,431
Obligations under capital leases due within one year .... 185 163
-------- --------
Total current liabilities ............................ 279,228 278,920
-------- --------
Long-term debt ............................................. 42,500 --
Obligations under capital leases, less portion due
within one year ........................................... 2,430 2,592
Other noncurrent liabilities ............................... 36,396 28,466
Deferred income taxes ...................................... 4,825 3,545
Loans and advances from Waban Inc. ......................... -- 148,081
STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized 180,000,000 shares,
issued and outstanding 37,504,214 and 37,484,937 shares .. 375 375
Additional paid-in capital ................................. 102,408 --
Retained earnings .......................................... 343,474 275,232
-------- --------
Total stockholders' equity ........................... 446,257 275,607
-------- --------
Total liabilities and stockholders' equity ........... $811,636 $737,211
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------
January 31, January 25, January 27,
1998 1997 1996
--------- --------- ---------
(53 Weeks)
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income ................................................. $ 68,267 $ 53,624 $ 41,550
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property ................ 37,426 33,796 27,185
Loss on property disposals ............................... 576 256 142
Other noncash items (net) ................................ 130 -- --
Deferred income taxes .................................... 1,003 1,453 (1,040)
Increase (decrease) in cash due to changes in:
Accounts receivable .................................... (4,316) (3,064) (7,740)
Merchandise inventories ................................ (37,058) (23,778) (37,581)
Prepaid expenses ....................................... (7,959) 641 (1,039)
Other assets ........................................... (835) (1,431) (700)
Accounts payable ....................................... 362 30,909 18,911
Accrued expenses ....................................... 2,996 7,995 9,014
Accrued income taxes ................................... (5,422) 2,329 (3,278)
Other noncurrent liabilities ........................... 7,930 2,432 5,177
--------- --------- ---------
Net cash provided by operating activities .................. 63,100 105,162 50,601
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions ......................................... (50,291) (71,722) (90,212)
Property disposals ......................................... 3,343 440 98
--------- --------- ---------
Net cash used in investing activities ...................... (46,948) (71,282) (90,114)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations ..................... (140) (231) (304)
Borrowings of long-term debt ............................... 42,500 -- --
Cash dividends paid on preferred stock of subsidiary ....... (25) -- --
Proceeds from sale and issuance of common stock ............ 983 -- --
Increase (decrease) in loans and advances from Waban Inc. .. (46,757) (33,649) 39,218
--------- --------- ---------
Net cash provided by (used in) financing activities ........ (3,439) (33,880) 38,914
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ..... 12,713 -- (599)
Cash and cash equivalents at beginning of year ........... -- -- 599
--------- --------- ---------
Cash and cash equivalents at end of year ................. $ 12,713 $ -- $ --
========= ========= =========
Supplemental cash flow information:
Interest paid .............................................. $ 9,127 $ 16,889 $ 14,811
Income taxes paid .......................................... 48,065 30,325 30,668
Noncash financing and investing activities:
Contribution to capital by Waban Inc. ...................... 101,324 -- --
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in Thousands except Per Share Amounts)
---------------------------------------------------
Common Additional Total
Stock Paid-in Retained Stockholders'
Par Value $.01 Capital Earnings Equity
-------------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Balance, January 28, 1995 ................ $ 375 $ -- $ 180,058 $ 180,433
Net income ............................. -- -- 41,550 41,550
--------- --------- --------- ---------
Balance, January 27, 1996 ................ 375 -- 221,608 221,983
Net income ............................. -- -- 53,624 53,624
--------- --------- --------- ---------
Balance, January 25, 1997 ................ 375 -- 275,232 275,607
Net income ............................. -- -- 68,267 68,267
Sale and issuance of common stock ...... -- 1,084 -- 1,084
Cash dividends on preferred stock
of subsidiary ........................ -- -- (25) (25)
Contribution to capital by Waban Inc. .. -- 101,324 -- 101,324
--------- --------- --------- ---------
Balance, January 31, 1998 ............... $ 375 $ 102,408 $ 343,474 $ 446,257
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Accounting Policies
Basis of Presentation
The consolidated financial statements of BJ's Wholesale Club, Inc. (the
"Company") include the financial statements of all of the Company's
subsidiaries, all of whose common stock is wholly owned by the Company.
Fiscal Year
The Company's fiscal year ends on the last Saturday in January. The fiscal
year ended January 31, 1998 included 53 weeks. The fiscal years ended January
25, 1997 and January 27, 1996 each included 52 weeks.
Cash Equivalents and Marketable Securities
The Company considers highly liquid investments with a maturity of three
months or less at time of purchase to be cash equivalents. Investments with
maturities exceeding three months are classified as marketable securities.
Merchandise Inventories
Inventories are stated at the lower of cost, determined under the average
cost method, or market. The Company recognizes the write-down of slow-moving or
obsolete inventory in cost of sales when such write-downs are probable and
estimable.
Property and Equipment
Property is depreciated by use of the straight-line method for financial
reporting purposes. Buildings are depreciated over 33 1/3 years. Leasehold costs
and improvements are amortized over the lease term or their estimated useful
life, whichever is shorter. Furniture, fixtures and equipment are depreciated
over three to ten years.
Membership Fees
In accordance with industry practice, membership fees are included in
revenue when received, but not before a warehouse club opens.
Preopening Costs
Preopening costs consist of direct incremental costs of opening a facility
and are charged to operations within the fiscal year that a new warehouse club
opens.
Interest on Debt and Capital Leases
Interest on debt and capital leases in the Statements of Income is presented
net of interest income of $463,000 in 1997, $51,000 in 1996 and $54,000 in 1995.
Capitalized Interest
The Company capitalizes interest related to the development of owned
facilities. Interest in the amount of $430,000, $966,000 and $1,547,000 was
capitalized in 1997, 1996 and 1995, respectively.
Stock-Based Compensation
The Company applies the accounting provisions prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations in accounting for its stock-based compensation.
20
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Disclosures about Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of these instruments. Because of the short
contractual maturities of the Company's bank debt, its carrying amount also
approximates fair value (See Note C of Notes to the Consolidated Financial
Statements).
Estimates Included in Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Other
Certain amounts in prior years' financial statements have been reclassified
for comparative purposes.
A. Spin-off of the Company from Waban Inc.
The Company, which previously had been a wholly owned subsidiary of Waban
Inc. ("Waban"), became a separate and independent public entity on July 28,
1997, when Waban distributed to its stockholders on a pro rata basis all of the
Company's outstanding common stock (the "spin-off"). The financial statements of
the Company include the financial statements of those subsidiaries of Waban
which, prior to the spin-off, operated Waban's BJ's Wholesale Club Division.
As of July 26, 1997, Waban transferred all of the assets and liabilities of
its BJ's Wholesale Club Division to the Company and contributed all of the
Company's intercompany debt of $101.3 million to the Company's equity in
connection with the spin-off.
Pursuant to the spin-off, the Company adopted its own employee benefit plans
providing substantially the same benefits as Waban's plans at the date of the
spin-off. Assets and liabilities applicable to the Company's employees were
transferred by Waban to the Company's plans after the spin-off.
The Company adopted its own stock incentive plans effective with the
spin-off. Awards granted to the Company's employees under these plans included
stock options to purchase shares of the Company's common stock and restricted
stock awards in replacement of Waban options and awards outstanding at the
spin-off date.
Also pursuant to the spin-off, the Company and Waban entered into a Tax
Sharing Agreement to provide for the payment of taxes and the entitlement of tax
refunds for periods prior to the spin-off date. Each party has agreed to
indemnify the other in specified circumstances if certain events occurring after
July 28, 1997 cause the spin-off or certain related transactions to become
taxable.
B. Related Party Transactions
Prior to the spin-off, Waban loaned funds to the Company as needed. The
intercompany balance was considered to be long-term debt. Waban charged interest
to the Company at an annual rate of 10% based on the Company's average monthly
intercompany balance (net of cash). The Company's intercompany interest expense
was $7,642,000 in 1997 (all of which was incurred in the first half of the
fiscal year), $17,557,000 in 1996 and $16,032,000 in 1995.
21
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Selling, general and administrative expenses included certain allocations of
overhead incurred by Waban that supported the Company's business prior to the
spin-off. These expenses totalled $2,246,000 in 1997 (all of which was incurred
in the first half of the fiscal year), $3,891,000 in 1996 and $3,587,000 in 1995
and were generally allocated based on specific identification and management's
estimates of the time devoted to supporting the Company.
Under Waban's cash management system, checks issued by its divisions but not
yet presented to banks resulted in overdraft balances in certain periods. The
Company had an overdraft balance of $2.3 million as of January 25, 1997, which
was included in accrued expenses and other current liabilities on the balance
sheet.
Since the spin-off, the Company has provided certain services to Waban (now
known as HomeBase, Inc. ("HomeBase") ) at rates negotiated in accordance with a
Services Agreement entered into between the Company and HomeBase. The amounts
received by the Company for these services were not material.
C. Debt
In July 1997, the Company entered into a $200 million unsecured credit
agreement with a group of banks which expires July 9, 2002. The agreement, which
was amended in December 1997, includes a $50 million sub-facility for letters of
credit, of which $17 million was outstanding at January 31, 1998. The Company is
required to pay an annual facility fee which is currently 0.15% of the total
commitment. Interest on borrowings is payable at the Company's option either at
(a) the Eurodollar rate plus a margin which is currently 0.30%, (b) the agent
bank's prime rate or (c) a rate determined by competitive bidding. The facility
fee and Eurodollar margin are both subject to change based upon the Company's
fixed charge coverage ratio. The agreement contains covenants which, among other
things, include minimum net worth and fixed charge coverage requirements and a
maximum funded debt-to-capital limitation, and which prohibit the payment of
cash dividends to the Company's common stockholders.
The Company also maintains a separate line in the amount of $30 million for
letters of credit, primarily to support the purchase of inventories, of which
$5.4 million was outstanding at January 31, 1998, and an additional $20 million
uncommitted credit line for short-term borrowings.
The Company's long-term debt as of January 31, 1998 consisted of $35 million
under its bank credit agreement and $7.5 million under its uncommitted credit
line. The weighted-average interest rate on the borrowings was 5.92%. These
borrowings are classified as long-term debt pursuant to the Company's intention
and ability to refinance these obligations on a long-term basis under its bank
credit agreement.
D. Commitments and Contingencies
The Company is obligated under long-term leases for the rental of real
estate and fixtures and equipment, some of which are classified as capital
leases pursuant to SFAS No. 13. In addition, the Company is generally required
to pay insurance, real estate taxes and other operating expenses and, in some
cases, additional rent based on a percentage of sales or increases in the
Consumer Price Index. The real estate leases range up to 45 years and have
varying renewal options. The fixture and equipment leases range up to 5 years.
22
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum lease payments as of January 31, 1998 were:
Capital Operating
Fiscal Years Ending January Leases Leases
--------------------------- ------ ------
(In Thousands)
1999 ................................................. $ 426 $ 46,972
2000 ................................................. 427 51,199
2001 ................................................. 427 51,013
2002 ................................................. 427 49,497
2003 ................................................. 449 47,153
Later years .......................................... 1,938 532,340
------ --------
Total minimum lease payments ......................... 4,094 $778,174
========
Less amount representing interest .................... 1,479
------
Present value of net minimum capital lease payments .. $2,615
======
Rental expense under operating leases (including contingent rentals which
were not material) amounted to $43,558,000, $40,185,000 and $37,561,000 in 1997,
1996 and 1995, respectively.
The Company is involved in various legal proceedings that are typical of a
retail business. Although it is not possible to predict the outcome of these
proceedings or any related claims against the Company, the Company believes that
such proceedings or claims will not, individually or in the aggregate, have a
material adverse effect on its financial condition or results of operations.
In connection with the spin-off of Waban by The TJX Companies, Inc. ("TJX")
in 1989, Waban and TJX entered into an agreement pursuant to which Waban agreed
to indemnify TJX against any liabilities that TJX might incur with respect to 44
current HomeBase leases as to which TJX was either a lessee or guarantor. In
settlement of legal proceedings filed by TJX in 1997, the Company agreed that it
will indemnify TJX with respect to any liabilities that TJX may incur with
respect to HomeBase leases through January 31, 2003 and thereafter it will
indemnify TJX for 50% of such liabilities. The Company believes that since
HomeBase is primarily liable for these leases, the Company's contingent
liability under this agreement will not have a material effect on the Company's
financial condition.
E. Capital Stock, Stock Options and Stock Purchase Plans
The historical capitalization of the Company has been retroactively restated
to reflect the issuance of 37,484,937 shares of common stock, the number of
shares of the Company's common stock distributed to Waban stockholders on July
28, 1997. In addition, the Company has authorized 20,000,000 shares of preferred
stock, $.01 par value, of which no shares have been issued.
In connection with the spin-off, and pursuant to the BJ's Wholesale Club,
Inc. 1997 Replacement Stock Incentive Plan (the "Replacement Plan"), BJ's
employees who held Waban stock options and restricted stock were granted
replacement BJ's options and restricted stock. These replacement awards
preserved the same inherent value, vesting terms and expiration dates as the
Waban awards they replaced as of the spin-off date. The maximum number of shares
issuable under the Replacement Plan was 2,500,000. A total of 1,871,354 options
and 3,945 restricted shares were issued under the plan, which expired on January
28, 1998.
At January 31, 1998, the Company had two remaining stock-based compensation
plans. Under its 1997 Stock Incentive Plan, the Company has granted certain key
employees options, which expire ten years from the grant date, to purchase
common stock at prices equal to 100% of market price on
23
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the grant date. Options outstanding are exercisable 25% per year starting one
year after the grant date. The maximum number of shares of common stock issuable
under the 1997 Stock Incentive Plan is 1,000,000, plus 624,701 shares which had
not been issued under the Replacement Plan when it expired, plus shares subject
to awards granted under the Replacement Plan which are not actually issued
because such awards expire or are cancelled.
Under its 1997 Director Stock Option Plan, BJ's external directors who held
Waban stock options as of the spin-off date were granted 35,060 replacement BJ's
options which preserved the same inherent value, vesting terms and expiration
dates as the Waban options they replaced. A maximum of 150,000 shares may be
issued under the 1997 Director Stock Incentive Plan, which provides for annual
awards to directors.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related Interpretations in
accounting for its stock-based compensation. Total pre-tax compensation cost
recognized in income for stock-based employee compensation awards to the
Company's employees was $171,000 in 1997 and $200,000 in 1996, and consisted
entirely of restricted stock expense, which is charged to income ratably over
the periods during which the restrictions lapse. During 1996, 1,000 shares of
restricted Waban stock were issued to the Company's employees at a
weighted-average grant-date fair value of $24.75. No restricted stock (other
than the replacement shares noted above) was issued in 1997. No compensation
cost was recognized for the Company's stock options under APB 25 because the
exercise price equaled the market price of the underlying stock on the date of
the grant.
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
and has been determined as if the Company had accounted for its stock options
under the fair value method of that statement. The fair value for these options
was estimated at the grant date using the Black-Scholes option pricing model
with the following weighted-average assumptions : risk-free interest rates of
6.01%, 6.47% and 5.80% in 1997,1996 and 1995, respectively; volatility factor of
the expected market price of the Company's common stock of .35 in 1997 and .37
in 1996 and 1995, and expected life of the options of 5 years in 1997 and 4.5
years in 1996 and 1995. No dividends were expected.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The Company's
pro forma information for each of the last three fiscal years follows (in
thousands except for earnings per share information):
1997 1996 1995
------- ------- -------
Pro forma net income..................... $65,951 $52,837 $41,099
Pro forma earnings per share:
Basic.................................. $1.76 $1.41 $1.10
Diluted................................ $1.75 $1.41 $1.10
24
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The effects of applying the provisions of FASB Statement No. 123 for pro
forma disclosure are not necessarily representative of the effects on reported
net income for future years because options vest over several years and
additional awards generally are made each year. In accordance with the
transition requirements of FASB Statement No. 123, the pro forma disclosures
above include stock options awarded only after January 28, 1995.
Presented below is a summary of the status of BJ's Wholesale Club, Inc.
stock option activity from the date of the spin-off to January 31, 1998. Also
shown is a summary of activity related to Waban stock options held by Company
employees for the fiscal years ended January 27, 1996 and January 25, 1997 and
the six-month period ended July 28, 1997:
<TABLE>
<CAPTION>
Weighted-
Number of Average
Options Exercise Price
----------- --------------
<S> <C> <C>
Fiscal year ended January 27, 1996:
Waban options outstanding at beginning of year ......... 1,521,300 $16.19
Granted ................................................ 206,000 15.63
Exercised .............................................. (107,530) 9.97
Forfeited .............................................. (25,585) 16.19
---------
Outstanding at January 27, 1996 ........................ 1,594,185 16.53
Fiscal year ended January 25, 1997:
Granted ................................................ 558,050 23.85
Exercised .............................................. (218,949) 15.74
Forfeited .............................................. (36,390) 18.49
---------
Outstanding at January 25, 1997 ........................ 1,896,896 18.74
For the period ended July 26, 1997:
Granted ................................................ 47,500 27.55
Exercised .............................................. (202,344) 17.81
Forfeited .............................................. (25,835) 19.04
---------
Outstanding at July 26, 1997 ........................... 1,716,217 19.09
=========
BJ's options substituted for Waban options, and
outstanding at July 28, 1997 .......................... 1,906,414 15.72
Granted ................................................ 532,500 30.13
Exercised .............................................. (45,416) 14.55
Forfeited .............................................. (15,317) 18.30
---------
BJ's options outstanding at January 31, 1998 ........... 2,378,181 18.95
=========
Exercisable at :
January 27, 1996 (Waban options) ....................... 594,156 16.60
January 25, 1997 (Waban options) ....................... 857,680 16.62
January 31, 1998 (BJ's options) ........................ 1,137,718 14.34
Weighted-average fair value of
options granted during the year:
Fiscal Year Ended January 1996 (Waban options) ......... $ 6.21
Fiscal Year Ended January 1997 (Waban options) ......... 9.74
Fiscal Year Ended January 1998 (BJ's options) ......... 12.33
</TABLE>
25
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Additional information related to stock options outstanding at January 31, 1998
is presented below:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- ---------------------
Weighted-
Weighted- Average Weighted-
Average Remaining Average
Number Exercise Contractual Number Exercise
Range of Exercise Prices Outstanding Price Life(yrs.) Exercisable Price
------------------------ ----------- ----- ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
$10.43-$15.28 1,173,118 $13.27 6.0 912,425 $12.92
$18.89-$21.99 665,999 19.96 8.1 225,293 20.09
$26.84-$30.125 539,064 30.07 9.7 -- --
--------- ---------
$10.43-$30.125 2,378,181 18.95 7.4 1,137,718 14.34
========= =========
</TABLE>
As of January 31, 1998, 1,222,458 shares were reserved for future stock
awards under the Company's 1997 Stock Incentive Plan and 1997 Director Stock
Option Plan.
In 1997, the Company adopted a shareholder rights plan, pursuant to which
shareholders are issued one Right for each share of common stock. Each Right
entitles the holder to purchase from the Company 1/1000 share of Series A Junior
Participating Preferred Stock ("Series A Preferred Stock") at a price of $120.
The Company has designated 100,000 shares of Series A Preferred Stock for
issuance under the shareholder rights plan; none has been issued. Generally, the
terms of the Series A Preferred Stock are designed so that 1/1000 share of
Series A Preferred Stock is the economic equivalent of one share of the
Company's common stock. The Rights are exercisable only if a person acquires 20%
or more of the Company's common stock or commences a tender offer that would
result in such person owning 30% or more of the Company's common stock. In
general, if any person becomes a 20% owner, each Right not owned by such person
will enable its holder to purchase that number of shares of the Company's common
stock equal to $120 divided by one-half of the then current market price of the
Company's common stock. In addition, in general, if after a person has become a
20% owner, the Company is involved in a business combination transaction in
which it is not the surviving corporation or in connection with which the
Company's common stock is changed, or the Company disposes of 50% or more of its
assets or earning power, each Right that has not previously been exercised or
voided will entitle its holder to purchase that number of shares of common stock
of such other person which equals $120 divided by one-half of the then current
market price of such common stock. The Company will generally be entitled to
redeem the Rights at $.01 per Right at any time until the tenth business day
following public announcement that a person has become a 20% owner. The Rights
expire on July 10, 2007, unless earlier redeemed or exchanged.
In December 1997, one of the Company's subsidiaries issued 126 shares of
non-voting preferred stock to individual stockholders at $2,200 per share. These
shares are entitled to receive annual dividends of $200 per share beginning with
the calendar year ended December 31, 1997. The minority interest in this
subsidiary is equal to the preferred shares' liquidation value of $277,200 and
is included in other noncurrent liabilities in the Company's consolidated
balance sheet at January 31, 1998.
26
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
F. Earnings Per Share
The following details the calculation of earnings per share for the last
three fiscal years:
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------
January 31, January 25, January 27,
1998 1997 1996
----------- ----------- -----------
(Dollars in Thousands except Per Share Amounts)
<S> <C> <C> <C>
Net income ..................................... $ 68,267 $ 53,624 $ 41,550
Less: Preferred stock dividends ................ 25 -- --
----------- ----------- -----------
Income available to common stockholders ........ $ 68,242 $ 53,624 $ 41,550
=========== =========== ===========
Weighted-average number of common shares
outstanding, used for basic computation ..... 37,481,173 37,484,937 37,484,937
Plus: Incremental shares from assumed conversion
of stock options ............................ 262,726 -- --
----------- ----------- -----------
Weighted-average number of common and dilutive
potential common shares outstanding ......... 37,743,899 37,484,937 37,484,937
=========== =========== ===========
Basic earnings per share ....................... $ 1.82 $ 1.43 $ 1.11
=========== =========== ===========
Diluted earnings per share ..................... $ 1.81 $ 1.43 $ 1.11
=========== =========== ===========
</TABLE>
G. Income Taxes
Until July 26, 1997, the Company was included in the consolidated federal
income tax returns of Waban and was charged or credited with its proportionate
share of the consolidated income tax provision. The Company is filing its own
tax returns as a separate company for periods subsequent to the spin-off.
The provision for income taxes includes the following:
Fiscal Year Ended
-------------------------------------
January 31, January 25, January 27,
1998 1997 1996
----------- ----------- -----------
(Dollars in Thousands)
Federal
Current ........................ $ 35,229 $ 27,208 $ 22,710
Deferred ....................... 1,722 1,153 (814)
State
Current ........................ 7,414 5,447 4,680
Deferred ....................... (719) 300 (226)
-------- -------- --------
Total income tax provision . $ 43,646 $ 34,108 $ 26,350
======== ======== ========
27
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following is a reconciliation of the statutory federal income tax rates
and the effective income tax rates:
Fiscal Year Ended
-------------------------------------
January 31, January 25, January 27,
1998 1997 1996
----------- ----------- ------------
Statutory federal income tax rate ...... 35% 35% 35%
State income taxes, net of
federal tax benefit .................. 4 4 4
-- -- --
Effective income tax rates ............. 39% 39% 39%
== == ==
Significant components of the Company's deferred tax assets and liabilities
as of January 31, 1998 and January 25, 1997 were as follows:
January 31, January 25,
1998 1997
----------- -----------
(Dollars in Thousands)
Deferred tax assets:
Self-insurance reserves ..................... $13,326 $11,516
Rental step liabilities ..................... 4,317 3,951
Compensation and benefits ................... 3,742 3,392
Other ....................................... 2,714 2,071
------- -------
Total deferred tax assets ................ 24,099 20,930
------- -------
Deferred tax liabilities:
Accelerated depreciation-property ........... 19,480 15,375
Real estate taxes ........................... 1,850 2,390
Other ....................................... 768 161
------- -------
Total deferred tax liabilities ........... 22,098 17,926
------- -------
Net deferred tax assets ........................ $ 2,001 $ 3,004
======= =======
The Company has not established a valuation allowance because its deferred
tax assets can be realized by offsetting deferred tax liabilities and future
taxable income, which management believes will more likely than not be earned,
based on the Company's historical earnings record.
H. Pensions
The Company participates in the Waban Inc. Retirement Plan, a
non-contributory defined benefit retirement plan covering full-time employees
who have attained twenty-one years of age and have completed one year of
service. No benefits have accrued under this plan since July 4, 1992, when it
was frozen. The Company's expense under this plan amounted to $34,000, $129,000
and $124,000 in 1997, 1996 and 1995, respectively.
Waban's Board of Directors approved the termination of the Waban Inc.
Retirement Plan effective July 26, 1997. However, in accordance with generally
accepted accounting principles, the cost to terminate the Plan will not be
recognized until the Plan termination is settled. Accordingly, the Company
expects to record a post-tax charge applicable to its Plan participants of
approximately $1.0 million in the fiscal year ending January 30, 1999.
28
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Waban does not segregate plan assets or liabilities by each participating
subsidiary company and, as a result, the following tables present the periodic
pension cost and funded status of the Waban plan in accordance with SFAS No. 87:
Fiscal Year Ended
----------------------
January 31, January 25, January 27,
1998 1997 1996
------------------------------------
(Dollars in Thousands)
Service cost ........................ $ 149 $ 180 $ 182
Interest cost on projected
benefit obligation ............... 463 455 429
Actual return on assets ............. (593) (940) (1,245)
Net amortization and deferrals ...... 41 561 892
----- ----- ------
Net pension cost .................... $ 60 $ 256 $ 258
===== ===== ======
January 31, January 25,
1998 1997
----------- -----------
(Dollars in Thousands)
Actuarial present value of accumulated
benefit obligation:
Vested benefits ................................ $ 7,597 $6,451
======= ======
Projected benefit obligation ..................... $ 7,597 $6,451
Plan assets at fair market value ................. 7,869 6,455
------- ------
Projected benefit obligation less than
plan assets ................................... (272) (4)
Unrecognized net loss from past experience
different from that assumed and effects
of changes in assumptions ..................... (1,400) (878)
------- ------
Prepaid pension cost included in balance sheets .. $(1,672) $ (882)
======= ======
The weighted-average discount rates used in determining the actuarial
present value of the projected benefit obligation were 6.75% in 1997 and 7.25%
in 1996. The expected long-term rate of return on assets used was 9.0% in 1997
and 1996. Waban's funding policy is to contribute annually an amount allowable
for federal income tax purposes. In anticipation of the pending termination of
the plan, pension plan assets consisted primarily of short-term fixed income
securities at the end of 1997. BJ's Wholesale Club, Inc. has recorded $877
thousand of prepaid pension cost on its balance sheet at January 31, 1998 as its
share of the Waban plan's prepaid pension cost.
Effective October 1, 1997, assets and liabilities applicable to the
Company's employees in Waban's 401(k) Savings Plans were transferred to BJ's own
401(k) Savings Plans. Under these plans, participating employees may make
pre-tax contributions up to 15% of covered compensation. The Company matches
employee contributions at 100% of the first one percent of covered compensation
and 50% of the next four percent. The Company's expense under these plans was
$2,382,000, $2,259,000 and $1,867,000 in 1997, 1996 and 1995, respectively.
29
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of the spin-off, assets and liabilities related to the Company's
employees in Waban's non-contributory defined contribution retirement plan for
certain key employees were transferred to the Company, which established its own
similar plan. Under this plan, the Company funds annual retirement contributions
for the designated participants, on an after-tax basis. For the last three
years, the Company's contributions equaled 5% of the participants' base salary.
Participants become fully vested in their contribution accounts at the end of
the fiscal year in which they complete four years of service. The Company's
expense under this plan was $650,000, $522,000 and $485,000 in 1997, 1996 and
1995, respectively.
I. Postretirement Medical Benefits
As of the spin-off, liabilities related to the Company's employees in
Waban's defined benefit postretirement medical plan were transferred to the
Company, which established its own similar plan. This plan covers employees and
their spouses who retire after age 55 with at least 10 years of service, who are
not eligible for Medicare, and who participated in a Company-sponsored medical
plan. Amounts contributed by retired employees under this plan are based on
years of service prior to retirement. The plan is not funded.
Net periodic postretirement medical benefit cost, presented in accordance
with SFAS No. 106, includes the following components:
Fiscal Year Ended
-------------------------------------
January 31, January 25, January 27,
1998 1997 1996
----------- ----------- -----------
(Dollars in Thousands)
Service cost......................... $108 $62 $57
Interest cost........................ 36 27 21
Net amortization and deferrals....... -- (2) (5)
---- --- ---
Net periodic postretirement
benefit cost ..................... $144 $87 $73
==== === ===
The following table sets forth the status of the Company's postretirement
medical plan and the amount recognized in the Company's balance sheets at
January 31, 1998 and January 25, 1997 in accordance with SFAS No. 106:
January 31, January 25,
1998 1997
----------- -----------
(Dollars in Thousands)
Accumulated postretirement benefit obligation:
Retired participants ............................ $ -- $ --
Fully eligible active participants .............. 9 32
Other active participants ....................... 661 368
---- ----
Unfunded accumulated postretirement benefit
obligation ...................................... 670 400
Unrecognized net gain (loss) ...................... (58) 68
---- ----
Accrued postretirement benefit cost
included in balance sheets ...................... $612 $468
==== ====
30
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For measurement purposes, an annual rate of increase in the per capita cost
of medical coverage of 7.5% in 1997 grading down to 4.5% after 7 years was
assumed as of January 25, 1997. Increasing the assumed health care cost trend
rate one percentage point would increase the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for 1997 by
$19,000 and would increase the accumulated postretirement benefit obligation as
of January 31, 1998 by $81,000.
The weighted-average discount rates used in determining the accumulated
postretirement benefit obligation as of January 31, 1998 and January 25, 1997
were 6.75% and 7.25%, respectively.
J. Accrued Expenses and Other Current Liabilities
The major components of accrued expenses and other current liabilities are
as follows:
January 31, January 25,
1998 1997
----------- -----------
(Dollars in Thousands)
Employee compensation............................. $17,466 $14,998
Self-insurance reserves........................... 11,777 13,134
Sales and use taxes, rent, utilities,
advertising and other........................... 42,405 38,170
------- -------
$71,648 $66,302
======= =======
The Company's reported expense and reserves for insurance are derived from
estimated ultimate cost based upon individual claim file reserves. The Company
maintains insurance coverage for individual occurrences above $250,000 for
worker's compensation and general liability, and individual occurrences above
$200,000 per year for group medical claims. In addition to the amounts shown
above in current liabilities, noncurrent self-insurance reserves of $20.8
million and $15.3 million as of January 31, 1998 and January 25, 1997,
respectively, were included in other noncurrent liabilities.
K. Selected Quarterly Financial Data (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(Dollars in Thousands except Per Share Amounts)
Fiscal year ended January 31, 1998
Net sales ................... $664,258 $773,682 $744,023 $977,823
Total revenues .............. 678,947 785,455 762,438 999,634
Gross earnings (a) .......... 66,748 82,180 83,093 122,150
Net income .................. 7,057 14,955 13,818 32,437
Net income per common share:
Basic .................... 0.19 0.40 0.37 0.86
Diluted .................. 0.19 0.40 0.36 0.85
Fiscal year ended January 25, 1997
Net sales ................... $608,626 $720,022 $681,847 $849,455
Total revenues .............. 622,388 733,688 697,818 868,938
Gross earnings (a) .......... 60,079 76,453 73,906 106,792
Net income .................. 5,383 12,686 9,675 25,880
Net income per common share:
Basic and diluted ........ 0.14 0.34 0.26 0.69
- ---------
(a) Gross earnings equals total revenues less cost of sales, including buying
and occupancy costs.
31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of BJ's Wholesale Club, Inc.:
We have audited the accompanying consolidated balance sheets of BJ's Wholesale
Club, Inc. and subsidiaries as of January 31, 1998 and January 25, 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three fiscal years in the period ended January 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of BJ's Wholesale
Club, Inc. and subsidiaries as of January 31, 1998 and January 25, 1997 and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended January 31, 1998 in conformity with
generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 2, 1998
32
<PAGE>
REPORT OF MANAGEMENT
The financial statements and related financial information in this annual report
have been prepared by and are the responsibility of management. The financial
statements were prepared in accordance with generally accepted accounting
principles and necessarily include amounts which are based upon judgments and
estimates made by management.
The Company maintains a system of internal controls designed to provide, at
appropriate cost, reasonable assurance that assets are safeguarded, transactions
are executed in accordance with management's authorization and the accounting
records may be relied upon for the preparation of financial statements. The
accounting and control systems are continually reviewed by management and
modified as necessary in response to changing business conditions and the
recommendations of the Company's internal auditors and independent public
accountants.
The Audit Committee, which is comprised of members of the Board of Directors who
are neither officers nor employees, meets periodically with management, the
internal auditors and the independent public accountants to review matters
relating to the Company's financial reporting, the adequacy of internal
accounting control and the scope and results of audit work. The internal
auditors and the independent public accountants have free access to the
Committee.
The financial statements have been audited by Coopers & Lybrand L.L.P., whose
opinion as to their fair presentation in accordance with generally accepted
accounting principles appears above.
/s/ JOHN J. NUGENT /s/ FRANK D. FORWARD
John J. Nugent Frank D. Forward
President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
March 2, 1998
33
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Company will file with the Securities and Exchange Commission a
definitive Proxy Statement no later than 120 days after the close of its fiscal
year ended January 31, 1998 (the "Proxy Statement"). The information required by
this Item and not given in Item 4A, Executive Officers of the Registrant, is
incorporated by reference from the Proxy Statement.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference from the
Proxy Statement. However, information under "Executive Compensation Committee
Report" and "Performance Graph" in the Proxy Statement is not so incorporated.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference from the
Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference from the
Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
A. The Financial Statements filed as part of this report are listed and indexed
on page 15. Schedules other than those listed in the index have been omitted
because they are not applicable or the required information has been included
elsewhere in this report.
B. Listed below are all Exhibits filed as part of this report. Certain Exhibits
are incorporated by reference to documents previously filed by the Registrant
with the Securities and Exchange Commission pursuant to Rule 12b-32 under the
Securities Exchange Act of 1934, as amended.
Exhibit No. Exhibit
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Amended and Restated By-Laws (1)
4.1 Rights Agreement, dated as of July 10, 1997, between the Company and
First Chicago Trust Company of New York (2)
4.2 Specimen Certificate of Common Stock, $.01 par value per share (5)
10.1 Separation and Distribution Agreement, dated as of July 10, 1997
between the Company and Waban Inc. (3)
10.2 Services Agreement, dated as of July 28, 1997, between the Company
and Waban Inc. (3)
10.3 Tax Sharing Agreement, dated as of July 28, 1997, between the
Company and Waban Inc. (3)
10.4 Employee Benefits Agreement, dated as of July 28, 1997, between the
Company and Waban Inc. (3)
10.5 BJ's Wholesale Club, Inc. Management Incentive Plan* (4)
10.6 BJ's Wholesale Club, Inc. Growth Incentive Plan* (4)
10.7 BJ's Wholesale Club, Inc. 1997 Director Stock Option Plan* (4)
10.8 BJ's Wholesale Club, Inc. Executive Retirement Plan* (4)
10.9 BJ's Wholesale Club, Inc. 1997 Replacement Stock Incentive Plan* (4)
34
<PAGE>
10.10 BJ's Wholesale Club, Inc. 1997 Stock Incentive Plan* (4)
10.11 BJ's Wholesale Club, Inc. General Deferred Compensation Plan* (4)
10.12 Employment Agreement, dated as of July 28, 1997 with Herbert J.
Zarkin* (4)
10.13 Employment Agreement, dated as of July 28, 1997 with John J. Nugent*
(4)
10.14 Employment Agreement, dated as of July 28, 1997 with Edward J.
Weisberger* (4)
10.15 Employment Agreement, dated as of July 28, 1997 with Frank D.
Forward* (4)
10.16 Employment Agreement, dated as of July 28, 1997 with Michael T.
Wedge* (4)
10.17 Employment Agreement, dated as of July 28, 1997 with Laura J. Sen*
(4)
10.18 Employment Agreement, dated as of July 28, 1997 with Sarah M.
Gallivan* (4)
10.19 Form of Change of Control Severance Agreement between the Company
and officers of the Company* (4)
10.20 Form of Indemnification Agreement between the Company and officers
of the Company* (4)
10.21 BJ's Wholesale Club, Inc. Change of Control Severance Benefit Plan
for Key Employees* (4)
10.22 Credit Agreement, dated July 9, 1997, among the Company and certain
banks (4)
10.22a First Amendment dated as of December 19, 1997 to Credit Agreement
dated July 9, 1997
10.23 Indemnification Agreement, dated as of April 18, 1997, between the
Company and The TJX Companies, Inc. (5)
21.0 Subsidiaries of the Company
23.0 Consent of Independent Accountants
27.0 Financial Data Schedule
- ----------
*Management contract or other compensatory plan or arrangement.
(1) Incorporated herein by reference to the Company's Registration
Statement on Form S-8, dated July 10, 1997 (Commission File No.
333-31015)
(2) Incorporated herein by reference to the Company's Report on Form
8-A, dated July 10, 1997 (Commission File No. 1-13143)
(3) Incorporated herein by reference to the Current Report on Form 8-K,
dated July 28, 1997, of HomeBase, Inc. (Commission File No. 1-10259)
(4) Incorporated herein by reference to the Company's Report on Form
10-Q for the fiscal quarter ended July 26, 1997 (Commission File No.
1-13143)
(5) Incorporated herein by reference to the Company's Form S-1
(Commission File No. 333-25511)
C. The Registrant has not filed any reports on Form 8-K during the last
quarter of the period covered by this Report.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BJ'S WHOLESALE CLUB, INC.
Dated: April 21, 1998
/s/ JOHN J. NUGENT
---------------------------
John J. Nugent
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ JOHN J. NUGENT /s/ HERBERT J. ZARKIN
- ----------------------------------------- -----------------------------------
John J. Nugent, President Herbert J. Zarkin, Chairman
Chief Executive Officer and Director of the Board and Director
(Principal Executive Officer)
/s/ FRANK D. FORWARD /s/ S. JAMES COPPERSMITH
- ----------------------------------------- -----------------------------------
Frank D. Forward, Executive Vice President S. James Coppersmith, Director
and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ KERRY L. HAMILTON /s/ ALLYN L. LEVY
- ----------------------------------------- -----------------------------------
Kerry L. Hamilton, Director Allyn L. Levy, Director
/s/ THOMAS J. SHIELDS /s/ LORNE R. WAXLAX
- ----------------------------------------- -----------------------------------
Thomas J. Shields, Director Lorne R. Waxlax, Director
/s/ EDWARD J. WEISBERGER
- -----------------------------------------
Edward J. Weisberger, Director
Dated: April 21, 1998
36
Exhibit 10.22a
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated as of
December 19, 1997 by and among BJ'S WHOLESALE CLUB, INC., THE FIRST NATIONAL
BANK OF CHICAGO, BANKBOSTON, N.A., FLEET NATIONAL BANK, FIRST UNION NATIONAL
BANK, BANK OF TOKYO-MITSUBISHI TRUST COMPANY, THE LONG-TERM CREDIT BANK OF
JAPAN, LIMITED, NEW YORK BRANCH, PNC BANK, NATIONAL ASSOCIATION, and SAKURA
BANK, LIMITED.
RECITALS
WHEREAS, the parties hereto are parties to that certain Credit
Agreement dated as of July 9, 1997 (as from time to time amended, restated,
supplemented or otherwise modified, the "Credit Agreement"; capitalized terms
used but not otherwise defined herein having the definitions provided therefor
in the Credit Agreement); and
WHEREAS, the parties hereto desire to amend the Credit Agreement on
the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Amendment to Credit Agreement. Subject to the terms and conditions set forth
in Section 2 of this Amendment, upon the Effective Time (as hereinafter
defined), the Credit Agreement is hereby amended as follows:
(i) Section 6.10 of the Credit Agreement is hereby amended by
inserting a new clause (iii) at the end of such Section which shall read
as follows:
and (iii) so long as prior to and after giving effect thereto no
Default or Unmatured Default shall exist, Natick Realty, Inc. may
declare and pay dividends to its shareholders in an aggregate amount
not in excess of $100,000 in any calander year.
(ii) The Credit Agreement is hereby amended by deleting the
"Schedule 2" attached thereto and replacing with the Schedule 2 attached
to this Amendment.
2. Conditions. The effectiveness of the amendments stated in this Amendment is
subject to on or prior to the Effective Time, that the following conditions
shall have been satisfied in a manner, and in form and substance, as the case
may be, reasonably acceptable to Required Lenders:
(i) Amendment. This Amendment shall have been duly executed by the
Required Lenders and the Borrower and delivered to Agent.
<PAGE>
(ii) No Default. No Default or Event of Default under the Credit
Agreement, as amended hereby, shall have occurred and be continuing.
(iii) Warranties and Representations. The warranties and
representations of the Borrower contained in this Amendment, the Credit
Agreement, as amended hereby, and the other Loan Documents shall be true
and correct as of the date hereof, with the same effect as though made on
such date, except to the extent that such warranties and representations
expressly relate to an earlier date, in which case such warranties and
representations shall have been true and correct as of such earlier date.
The date on which all of the above events have occurred is the "Effective Time".
If the Effective Time has not occurred by December 31, 1997, this Amendment
shall be of no force and effect.
3. Continuing Credits. Notwithstanding this Amendment, the Loans owing to
Lenders by Borrower under the Credit Agreement that remain outstanding as of the
date hereof shall constitute continuing Obligations of the Borrower under the
Credit Agreement and this Amendment shall not be deemed to evidence or result in
a novation, or repayment and reborrowing, of such Loans.
4. Miscellaneous.
(a) Captions. Section captions used in this Amendment are for convenience
only, and shall not affect the construction of this Amendment.
(b) Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES BUT GIVING EFFECT TO
FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. Whenever possible each provision of
this Amendment shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Amendment shall be prohibited
by or invalid under such law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Amendment.
(c) Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts, and each
such counterpart shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
(d) Successors and Assigns. This Amendment shall be binding upon, and
shall inure to the sole benefit of the Borrower, Agent and Lenders, and their
respective successors and assigns.
(e) References. Any reference to the Credit Agreement contained in any
notice, request, certificate, or other document executed concurrently with or
after the execution and delivery of this Amendment shall be deemed to include
this Amendment unless the context shall otherwise require.
263569.3 -2-
<PAGE>
(f) Continued Effectiveness. Notwithstanding anything contained herein,
the terms of this Amendment are not intended to and do not serve to effect a
novation as to the Credit Agreement; instead, it is the express intention of the
parties hereto to reaffirm the Obligations created under the Credit Agreement
which is evidenced by the Notes. The Credit Agreement, as amended hereby, and
each of the other Loan Documents remain in full force and effect.
(g) Costs and Expenses. Borrower affirms and acknowledges that Section 9.7
of the Credit Agreement applies to this Amendment and the transactions and
agreements and documents contemplated hereunder.
5. Representations and Warranties. The Borrower represents and warrants to Agent
and Lenders that the execution, delivery and performance by the Borrower of this
Amendment are within the Borrower's corporate powers, have been duly authorized
by all necessary corporate action (including, without limitation, all necessary
shareholder approval) of the Borrower, do not require any governmental
approvals, consents or filings and do not and will not contravene or conflict
with any provision of law applicable to the Borrower, the certificate of
incorporation or bylaws of the Borrower or any order, judgment or decree of any
court or other agency of government or any contractual obligation binding upon
the Borrower, and this Amendment, the Credit Agreement, as amended hereby, and
each Loan Document is the legal, valid and binding obligation of the Borrower
enforceable against the Borrower in accordance with its terms and that the
conditions set forth in Sections 2(ii) and (iii) hereof are true, correct and
complete as of the Effective Time. The Borrower represents and warrants to Agent
and Lenders that no Subsidiaries of the Borrower are required to execute
Subsidiairy Guaranties pursuant to Section 6.21 of the Credit Agreement.
[signature pages follow]
263569.3 -3-
<PAGE>
IN WITNESS WHEREOF, this First Amendment to Credit Agreement has been duly
executed and delivered as of the day and year first above written.
BJ'S WHOLESALE CLUB, INC.
By: /s/ Arthur T. Silk, Jr.
---------------------------------
Print Name: Arthur T. Silk, Jr.
-------------------------
Title: Vice President & Treasurer
------------------------------
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By:
----------------------------------
Print Name: John D. Runger
Title:Managing Director
BANKBOSTON, N.A.,
Individually and as Syndication Agent
By:
----------------------------------
Print Name: Linda Thomas
Title: Managing Director
FLEET NATIONAL BANK
Individually and as Documentation Agent
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
FIRST UNION NATIONAL BANK
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
<PAGE>
IN WITNESS WHEREOF, this First Amendment to Credit Agreement has been duly
executed and delivered as of the day and year first above written.
BJ'S WHOLESALE CLUB, INC.
By:
---------------------------------
Print Name:
-------------------------
Title:
------------------------------
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By: /s/ John D. Runger
----------------------------------
Print Name: John D. Runger
Title:Managing Director
BANKBOSTON, N.A.,
Individually and as Syndication Agent
By:
----------------------------------
Print Name: Linda Thomas
Title: Managing Director
FLEET NATIONAL BANK
Individually and as Documentation Agent
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
FIRST UNION NATIONAL BANK
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
<PAGE>
IN WITNESS WHEREOF, this First Amendment to Credit Agreement has been duly
executed and delivered as of the day and year first above written.
BJ'S WHOLESALE CLUB, INC.
By:
---------------------------------
Print Name:
-------------------------
Title:
------------------------------
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By:
----------------------------------
Print Name: John D. Runger
Title:Managing Director
BANKBOSTON, N.A.,
Individually and as Syndication Agent
By: /s/ Linda H. Thomas
----------------------------------
Print Name: Linda Thomas
Title: Managing Director
FLEET NATIONAL BANK
Individually and as Documentation Agent
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
FIRST UNION NATIONAL BANK
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
<PAGE>
IN WITNESS WHEREOF, this First Amendment to Credit Agreement has been duly
executed and delivered as of the day and year first above written.
BJ'S WHOLESALE CLUB, INC.
By:
---------------------------------
Print Name:
-------------------------
Title:
------------------------------
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By:
----------------------------------
Print Name: John D. Runger
Title:Managing Director
BANKBOSTON, N.A.,
Individually and as Syndication Agent
By:
----------------------------------
Print Name: Linda Thomas
Title: Managing Director
FLEET NATIONAL BANK
Individually and as Documentation Agent
By: /s/ Christopher J. Kampe
----------------------------------
Print Name: Christopher J. Kampe
--------------------------
Title: Assistant Vice President
-------------------------------
FIRST UNION NATIONAL BANK
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
<PAGE>
IN WITNESS WHEREOF, this First Amendment to Credit Agreement has been duly
executed and delivered as of the day and year first above written.
BJ'S WHOLESALE CLUB, INC.
By:
---------------------------------
Print Name:
-------------------------
Title:
------------------------------
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By:
----------------------------------
Print Name: John D. Runger
Title:Managing Director
BANKBOSTON, N.A.,
Individually and as Syndication Agent
By:
----------------------------------
Print Name: Linda Thomas
Title: Managing Director
FLEET NATIONAL BANK
Individually and as Documentation Agent
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
FIRST UNION NATIONAL BANK
By: /s/ Dennis Harvey
----------------------------------
Print Name: Dennis Harvey
--------------------------
Title: SVP
-------------------------------
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Donald V. Davis
----------------------------------
Print Name: Donald V. Davis
--------------------------
Title: Vice President
-------------------------------
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
SAKURA BANK, LIMITED
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By: /s/ Michael J. Cronin, VP
----------------------------------
Print Name: MICHAEL J. CRONIN
--------------------------
Title: Vice President
-------------------------------
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
SAKURA BANK, LIMITED
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
By: /s/ Hiroshi Kitada
----------------------------------
Print Name: Hiroshi Kitada
--------------------------
Title: Deputy General Manager
-------------------------------
SAKURA BANK, LIMITED
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
SAKURA BANK, LIMITED
By: /s/ Yasumasa Kikuchi
----------------------------------
Print Name: Yasumasa Kikuchi
--------------------------
Title: Senior Vice President
-------------------------------
<PAGE>
SCHEDULE 2
December 11, 1997
1. BJ's Wholesale Club, Inc. owns 100% of the issued shares of common stock of
the following corporations:
Jurisdiction
------------
Natick Security Corp. Massachusetts
Natick Corporation Delaware
BJ's Export Inc. Barbados
BJ's MA Distribution Center, Inc. Massachusetts
BJ's PA Distribution Center, Inc. Pennsylvania
Mormax Beverages Corp. Delaware
CWC Beverages Corp. Connecticut
FWC Beverages Corp. Florida
JWC Beverages Corp. New Jersey
RWC Beverages Corp. Rhode Island
YWC Beverages Corp. New York
Mormax Corporation Massachusetts
Natick First Realty Corp. Connecticut
Natick Pembroke Realty Corp. Florida
Natick Realty, Inc.(1) Maryland
2. Natick Realty, Inc. owns 100% of the issued shares of capital stock of the
following corporations:
Jurisdiction
------------
Natick Second Realty Corp. Massachusetts
Natick NJ Flemington Realty Corp. New Jersey
Natick Fourth Realty Corp. New Jersey
Natick Fifth Realty Corp. Maryland
Natick Sixth Realty Corp. Connecticut
Natick NH Realty Corp. New Hampshire
Natick NY Realty Corp. New York
Natick MA Realty Corp. Massachusetts
Natick VA Realty Corp. Virginia
Natick NY 1992 Realty Corp. New York
Natick PA Realty Corp. Pennsylvania
Natick Portsmouth Realty Corp. New Hampshire
Natick NJ Realty Corp. New Jersey
Natick NJ 1993 Realty Corp. New Jersey
Natick CT Realty Corp. Connecticut
Natick ME 1995 Realty Corp. Maine
Natick NY 1995 Realty Corp. New York
Natick PA 1995 Realty Corp. Pennsylvania
<PAGE>
Jurisdiction
------------
Natick NH 1994 Realty Corp. New Hampshire
Natick MA 1995 Realty Corp. Massachusetts
Natick Lancaster Realty Corp. Pennsylvania
Natick Yorktown Realty Corp. New York
Natick Waterford Realty Corp. Connecticut
Natick Sennett Realty Corp. New York
Natick Bowie Realty Corp. Maryland
Natick PA Plymouth Realty Corp. Pennsylvania
(1) Natick Realty, Inc. expects to issue preferred stock aggregating 0.1% of
its capital stock in December, 1997.
Exhibit 21.0
Subsidiaries
The following is a list of Subsidiaries of BJ's Wholesale Club, Inc. as of March
31, 1998:
1. BJ's Wholesale Club, Inc. owns 100% of the issued shares of common stock of
the following corporations:
Jurisdiction
------------
Natick Security Corp. Massachusetts
Natick Corporation Delaware
BJ's Export Inc. Barbados
BJ's MA Distribution Center, Inc. Massachusetts
BJ's PA Distribution Center, Inc. Pennsylvania
Mormax Beverages Corp. Delaware
CWC Beverages Corp. Connecticut
FWC Beverages Corp. Florida
JWC Beverages Corp. New Jersey
RWC Beverages Corp. Rhode Island
YWC Beverages Corp. New York
Mormax Corporation Massachusetts
Natick First Realty Corp. Connecticut
Natick Realty, Inc. Maryland
Natick Mortgage Holdings, Inc. Delaware
2. Natick Realty, Inc. owns 100% of the issued shares of capital stock of the
following corporations:
Jurisdiction
------------
Natick Second Realty Corp. Massachusetts
Natick NJ Flemington Realty Corp. New Jersey
Natick Fourth Realty Corp. New Jersey
Natick Fifth Realty Corp. Maryland
Natick Sixth Realty Corp. Connecticut
Natick NH Realty Corp. New Hampshire
Natick NY Realty Corp. New York
Natick MA Realty Corp. Massachusetts
Natick VA Realty Corp. Virginia
Natick NY 1992 Realty Corp. New York
Natick PA Realty Corp. Pennsylvania
Natick Portsmouth Realty Corp. New Hampshire
Natick NJ Realty Corp. New Jersey
Natick NJ 1993 Realty Corp. New Jersey
Natick CT Realty Corp. Connecticut
Natick ME 1995 Realty Corp. Maine
Natick NY 1995 Realty Corp. New York
Natick PA 1995 Realty Corp. Pennsylvania
Natick NH 1994 Realty Corp. New Hampshire
Natick MA 1995 Realty Corp. Massachusetts
Natick Lancaster Realty Corp. Pennsylvania
Natick Yorktown Realty Corp. New York
Natick Waterford Realty Corp. Connecticut
Natick Sennett Realty Corp. New York
Natick Bowie Realty Corp. Maryland
Natick PA Plymouth Realty Corp. Pennsylvania
Exhibit 23.0
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
BJ's Wholesale Club, Inc. on Form S-8 (File No. 333-31015) of our report dated
March 2, 1998 on our audits of the consolidated financial statements of BJ's
Wholesale Club, Inc. and subsidiaries as of January 31, 1998 and January 25,
1997, and for the three years ended January 31, 1998, January 25, 1997 and
January 27, 1996, which report is included in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 21, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the BJ's
Wholesale Club, Inc. consolidated statements of income and consolidated balance
sheets filed with the Form 10-K for the year ended January 31, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 12,713
<SECURITIES> 0
<RECEIVABLES> 38,322
<ALLOWANCES> 0
<INVENTORY> 332,274
<CURRENT-ASSETS> 404,185
<PP&E> 538,506
<DEPRECIATION> 142,000
<TOTAL-ASSETS> 811,636
<CURRENT-LIABILITIES> 279,228
<BONDS> 44,930
0
0
<COMMON> 375
<OTHER-SE> 445,882
<TOTAL-LIABILITY-AND-EQUITY> 811,636
<SALES> 3,159,786
<TOTAL-REVENUES> 3,226,474
<CGS> 2,872,303
<TOTAL-COSTS> 2,872,303
<OTHER-EXPENSES> 233,525
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,733
<INCOME-PRETAX> 111,913
<INCOME-TAX> 43,646
<INCOME-CONTINUING> 68,267
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,267
<EPS-PRIMARY> 1.82
<EPS-DILUTED> 1.81
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the BJ's
Wholesale Club, Inc. consolidated statements of income and consolidated balance
sheets filed with the Form 10-Q for the quarter ended October 25, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> OCT-25-1997
<CASH> 8,330
<SECURITIES> 0
<RECEIVABLES> 30,901
<ALLOWANCES> 0
<INVENTORY> 401,291
<CURRENT-ASSETS> 454,609
<PP&E> 528,382
<DEPRECIATION> 139,007
<TOTAL-ASSETS> 854,760
<CURRENT-LIABILITIES> 318,580
<BONDS> 87,173
0
0
<COMMON> 375
<OTHER-SE> 412,837
<TOTAL-LIABILITY-AND-EQUITY> 854,760
<SALES> 2,181,963
<TOTAL-REVENUES> 2,226,840
<CGS> 1,994,819
<TOTAL-COSTS> 1,994,819
<OTHER-EXPENSES> 165,166
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,500
<INCOME-PRETAX> 58,355
<INCOME-TAX> 22,525
<INCOME-CONTINUING> 35,830
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,830
<EPS-PRIMARY> 0.96
<EPS-DILUTED> 0.95
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the BJ's
Wholesale Club, Inc. consolidated statements of income and consolidated balance
sheets filed with the Form 10-Q for the quarter ended April 26, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> APR-26-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 22,320
<ALLOWANCES> 0
<INVENTORY> 317,056
<CURRENT-ASSETS> 350,874
<PP&E> 499,558
<DEPRECIATION> 116,481
<TOTAL-ASSETS> 744,336
<CURRENT-LIABILITIES> 255,576
<BONDS> 2,553
0
0
<COMMON> 329
<OTHER-SE> 282,335
<TOTAL-LIABILITY-AND-EQUITY> 744,336
<SALES> 665,922
<TOTAL-REVENUES> 678,947
<CGS> 612,199
<TOTAL-COSTS> 612,199
<OTHER-EXPENSES> 51,374
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,882
<INCOME-PRETAX> 11,492
<INCOME-TAX> 4,435
<INCOME-CONTINUING> 7,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,057
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
