================================================================================
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 30, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
--------------
Commission File Number 001-13143
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, 1999 was approximately $1,938,241,000 based on the
closing price of $26.3125 on the New York Stock Exchange on such date.
There were 73,880,162 shares of the Registrant's Common Stock, $.01 par
value, outstanding as of March 31, 1999.
Documents Incorporated by Reference
Portions of the Proxy Statement for the Registrant's 1999 Annual Meeting of
Stockholders (Part III).
================================================================================
<PAGE>
PART 1
Item 1. Business
General
BJ's Wholesale Club 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 Ohio and southern Florida. As of January 30, 1999, BJ's operated 96
warehouse clubs in 13 states and had over five million members. The table below
shows the number of BJ's locations by state.
Number of
State Locations
----- ---------
New York........................................ 23
Massachusetts................................... 13
New Jersey...................................... 12
Pennsylvania.................................... 10
Connecticut..................................... 7
Florida......................................... 6
Maryland........................................ 6
Virginia........................................ 6
New Hampshire................................... 4
Ohio............................................ 4
Maine........................................... 2
Rhode Island.................................... 2
Delaware........................................ 1
---
Total........................................ 96
===
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.
The fiscal year ended January 30, 1999 is referred to as "1998" or "fiscal
1998" below. Other fiscal 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, supercenters, department stores, 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 seeks to
establish and maintain the leading industry position in the markets in which it
operates. Secondly, by clustering its clubs, BJ's maximizes the efficiencies of
management support, distribution and marketing activities. Finally, 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 operator 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 and carries a broader product assortment than its warehouse
competitors. Management believes these strategies aimed at the general consumer
allow BJ's to achieve higher warehouse club operating margins.
Expansion
Since the beginning of 1993, BJ's has grown from 39 clubs to 96 clubs in
operation at January 30, 1999. As a result, approximately 61% of BJ's 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 approximately ten new clubs in the current year,
expanding its presence in southern Florida and Ohio and filling 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
at Beginning During During at End
Year of Year the Year the Year of Year
----- ------------ ----------- ---------- ------------
1993................... 39 13 -- 52
1994................... 52 11 1 62
1995................... 62 9 -- 71
1996................... 71 10 -- 81
1997................... 81 4 1 84
1998................... 84 12 -- 96
Store Profile
As of January 30, 1999, BJ's operated 82 traditional size "big box"
warehouse clubs that averaged approximately 112,000 square feet and 14 smaller
format warehouse clubs that averaged approximately 69,000 square feet. The
smaller format clubs are 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 club requires nine to eleven acres of land. The
smaller version typically requires approximately eight acres. BJ's clubs are
located in both free-standing locations and shopping centers.
Construction and site development costs for a full-sized BJ's club average
approximately $5 million. Land acquisition costs for a 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 club entails an initial capital investment of
approximately $2.6 million for fixtures and equipment, as well as approximately
$2 million for inventory (net of accounts payable), and preopening costs.
Merchandising
BJ's services its existing 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
3
<PAGE>
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
("SKU's"). By contrast, supermarkets normally stock approximately 25,000 SKU's,
and discount stores typically stock approximately 60,000 SKU's. 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 1998, food accounted for approximately 60% of BJ's sales. The remaining
40% 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.
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.
BJ's introduced a private label program during 1998, which it expects to
develop over the next several years, to offer greater value to its members. Two
labels are in use: "Executive Choice(TM)" for products targeted to business
members, and "Berkley & Jensen(TM)" for products targeted to BJ's Inner Circle
members. BJ's private label products will be premium quality only, and will
generally be priced 20% lower than the top branded product within its category.
Initial private label products are commodity items such as paper towels, bath
tissue, diapers, juices, detergents, analgesics, vitamins and supplements. Over
time, BJ's expects its private label products to represent an increasing
percentage of total revenues.
BJ's also offers a number of specialty services designed to enable members
to complete more of their shopping at BJ's which, management believes,
encourages more frequent trips to the clubs. Most of these services are provided
by outside operators licensed to operate in BJ's space. Included are
full-service optical stores, food courts, some of which offer brand name fast
food service, one-hour photo service, a selection of garden sheds and gazebos, a
propane tank filling service, and a muffler and brake service operated in
conjunction with Munro Muffler Brake and Speedy Auto Service, and Tuffy
Automobile Service Centers. A test of a mini-branch bank concept continues in
three of BJ's clubs and is being expanded in 1999. In addition, BJ's began
marketing home and business alarm systems in early 1999 through Protection
One(R).
In 1998, BJ's opened gas stations at five of its clubs to test whether
offering gas at wholesale prices would have a positive impact on membership and
sales. Initial results have been promising. The gas stations are self-service,
relying on "pay at the pump" technology that accepts MasterCard(R), VISA(R),
Discover(R) and debit card transactions. Both regular and premium gas is
available. To date, BJ's has generally maintained its price at 10 to 12 cents
per gallon less than the average prices in each market. BJ's plans to expand
this service in 1999.
The Company introduced its "BJ's Premier Benefits(TM)" program in 1998,
which is designed to enhance the value of BJ's membership, particularly to
business members. Included in the program are discounted payment processing for
all major credit cards, participation in an established preferred medical
provider network that makes comprehensive health care services available to BJ's
members at discounted rates, local and long-distance phone and Internet access,
rebates on the buying and selling of residential real estate, travel services
and printing of business forms, checks and signs. Participation in BJ's Premier
Benefits is open to all BJ's members and is included in the regular cost of BJ's
membership.
4
<PAGE>
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 who 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 30, 1999, the Company had over five million members (including
supplemental cardholders).
BJ's charges $35 per year for a primary Inner Circle membership that
includes one free supplemental membership. Members in the same household may
purchase additional supplemental memberships for $15 each. Effective February 1,
1999, a business membership also costs $35 per year and includes one free
supplemental membership. Additional supplemental business memberships cost $15
each. BJ's membership policy is open to all, whereas the Company's 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
direct mail, public relations efforts, new store marketing programs, and limited
vendor-funded television and radio advertising during the holiday season. BJ's
also employs 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 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 retailers.
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 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 to individual clubs, generally on a same-day
basis. This permits BJ's to negotiate better volume discounts and reduces
freight expense, the number of trucks received at each club and related
receiving costs.
The Company works closely with manufacturers to minimize the amount of
handling required once merchandise is received at a club. Most merchandise is
pre-marked by the manufacturer with the universal product code (UPC) so that it
does not require ticketing at the club. In addition, BJ's minimizes labor costs
by designing its 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 other retailers by strictly controlling the exits of its clubs, by
generally limiting customers to members and by using state-of-the-art electronic
article surveillance technology. BJ's inventory shrinkage was less than .20% of
net sales in 1998. Problems associated with payments by check have been
insignificant, as members who issue dishonored checks are restricted to
cash-only terms. BJ's policy is to accept returns of merchandise within a
reasonable time after purchase.
5
<PAGE>
In October 1995, BJ's became the first warehouse club chain to accept the
MasterCard credit card and in September 1997, became the first warehouse club
chain to accept VISA. Additionally, BJ's members may pay for their purchases by
cash, check or Discover 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 operator 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.
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.).
A large number of competitive membership warehouse clubs exists in BJ's
markets. Approximately 88% of BJ's 82 "big box" warehouse clubs have at least
one competitive membership warehouse club in their trading areas at a distance
of about 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, member services 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 fourth quarter
holiday season and lowest in the first quarter of each fiscal year.
Employees
As of January 30, 1999, BJ's had approximately 12,500 employees ("team
members") of whom approximately 300 were considered part-time employees (persons
who work less than 20 hours per week). Approximately 750 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 96 warehouse club locations as of January 30, 1999, of which
55 are leased under long-term leases and 30 are owned. BJ's owns the buildings
at the remaining 11 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 one to 42
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 21 years. These leases require fixed monthly rental
payments which are subject to various adjustments. Certain leases require
payment of a percentage of the warehouse's gross sales in excess of certain
amounts. Generally, all leases require that BJ's pay all property taxes,
insurance, utilities and other operating costs.
6
<PAGE>
BJ's home offices in Natick, Massachusetts, occupy 142,000 square feet
under leases expiring January 31, 2001, 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. To support BJ's growth, the Company plans, by the end of 2000, to
add capacity to its distribution system that would approximately double the
square footage of its existing cross-docking facility serving southeastern,
mid-Atlantic and midwest markets.
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.
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 30, 1999.
7
<PAGE>
Item 4A. Executive Officers of the Registrant
Office and Employment
Name Age During Last Five Years
- ---- --- ----------------------
Herbert J. Zarkin..... 60 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........ 52 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, Sales Operations of
the BJ's Division (1991-1993)
Frank D. Forward...... 44 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.......... 42 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...... 45 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..... 56 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.
8
<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 years ended January 30, 1999 and January 31, 1998,
adjusted for the effect of the two-for-one stock split distributed on March 2,
1999, were:
Fiscal Year Ended Fiscal Year Ended
January 30, 1999 January 31, 1998
--------------------- -----------------------
Quarter High Low High Low
------- --------- ---------- --------- ----------
First $ 20 5/16 $14 15/16 $ -- $ --
Second 20 31/32 18 1/16 -- --
Third 19 3/8 16 1/8 15 25/32 13 5/32
Fourth 23 5/32 17 1/32 16 5/32 13
The approximate number of stockholders of record at March 31, 1999 was
2,467. The Company has never declared or 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.
9
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------------------------------
Jan. 30, 1999 Jan. 31, 1998 Jan. 25, 1997 Jan. 27, 1996 Jan. 28, 1995
------------- ------------- ------------- ------------- -------------
(53 Weeks)
(Dollars in Thousands except Per Share Data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales .................................... $ 3,476,846 $ 3,159,786 $ 2,859,950 $ 2,470,307 $ 2,237,029
Membership fees and other .................... 75,335 67,556 64,746 61,096 58,360
----------- ----------- ----------- ----------- -----------
Total revenues ............................... 3,552,181 3,227,342 2,924,696 2,531,403 2,295,389
----------- ----------- ----------- ----------- -----------
Cost of sales, including buying
and occupancy costs ........................ 3,154,017 2,872,303 2,605,602 2,263,532 2,054,167
Selling, general and
administrative expenses .................... 255,087 231,203 208,077 180,426 170,717
Preopening expenses .......................... 7,743 3,190 6,447 4,788 5,997
Pension termination costs .................... 1,521 -- -- -- --
----------- ----------- ----------- ----------- -----------
Operating income ............................. 133,813 120,646 104,570 82,657 64,508
Interest (income) expense, net ............... (956) 8,733 16,838 14,757 13,665
----------- ----------- ----------- ----------- -----------
Income before income taxes and
cumulative effect of accounting
principle changes ........................... 134,769 111,913 87,732 67,900 50,843
Provision for income taxes ................... 52,964 43,646 34,108 26,350 19,941
----------- ----------- ----------- ----------- -----------
Income before cumulative effect
of accounting principle changes ............. 81,805 68,267 53,624 41,550 30,902
Cumulative effect of accounting
principle changes ........................... (19,326) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income ................................... $ 62,479 $ 68,267 $ 53,624 $ 41,550 $ 30,902
=========== =========== =========== =========== ===========
Income per common share:
Basic earnings per share:
Income before cumulative effect
of accounting principle changes ............ $ 1.09 $ 0.91 $ 0.72 $ 0.55 $ 0.41
Cumulative effect of accounting
principle changes .......................... (0.26) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income ................................. $ 0.83 $ 0.91 $ 0.72 $ 0.55 $ 0.41
=========== =========== =========== =========== ===========
Diluted earnings per share:
Income before cumulative effect
of accounting principle changes ............ $ 1.07 $ 0.90 $ 0.72 $ 0.55 $ 0.41
Cumulative effect of accounting
principle changes .......................... (0.25) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income .................................. $ 0.82 $ 0.90 $ 0.72 $ 0.55 $ 0.41
=========== =========== =========== =========== ===========
Pro forma amounts assuming accounting
principle changes are applied
retroactively:
Net income ................................... $ 81,805 $ 65,699 $ 53,201 $ 40,289 $ 27,773
=========== =========== =========== =========== ===========
Earnings per common share - basic ............ $ 1.09 $ 0.88 $ 0.71 $ 0.54 $ 0.37
=========== =========== =========== =========== ===========
Earnings per common share - diluted .......... $ 1.07 $ 0.87 $ 0.71 $ 0.54 $ 0.37
=========== =========== =========== =========== ===========
Balance Sheet Data:
Working capital .............................. $ 108,979 $ 124,957 $ 62,942 $ 77,207 $ 58,252
Total assets ................................. 907,630 811,636 737,211 676,675 563,931
Long-term debt and obligations
under capital leases ........................ 32,249 44,930 2,592 2,731 2,960
Loans and advances from Waban Inc. ........... -- -- 148,081 181,730 142,512
Stockholders' equity ......................... 485,042 446,257 275,607 221,983 180,433
Clubs open at end of year .................... 96 84 81 71 62
</TABLE>
10
<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.
Unless noted otherwise, the fiscal year ended January 30, 1999 is referred
to as "1998". Other fiscal years are referred to in a similar manner.
Accounting Principle Changes
During the quarter ended October 31, 1998, the Company adopted changes in
methods of accounting for membership fee revenues and preopening expenses. The
Company had previously recognized membership fee revenues when received. Under
its new accounting method, the Company now recognizes membership fee revenues as
income over the life of the membership, which is typically twelve months.
Previously, preopening expenses were charged ratably to operations between the
date a new club opened and the end of the fiscal year. In implementing American
Institute of CPA's Statement of Position ("AICPA SOP") 98-5,"Reporting on the
Costs of Start-up Activities," the Company now recognizes club preopening
expenses when incurred.
The Company has included the effect of these accounting changes in its
financial statements for the fiscal year ended January 30, 1999. The cumulative
effect of these accounting changes on prior years was recorded as of the
beginning of the first quarter of 1998. Previous years' results are not
restated. For additional information on these accounting principle changes, see
Note A of Notes to Consolidated Financial Statements.
The following pro forma information gives effect to the retroactive
application of the newly adopted accounting changes for all periods presented:
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------------------------------
January 30, 1999 January 31, 1998 January 25, 1997
------------------------- ------------------------ -----------------------
(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>
Pro forma information
Net sales .................................... $ 3,476.8 100.0% $ 3,159.8 100.0% $ 2,860.0 100.0%
Membership fees and other .................... 75.4 2.2 65.1 2.1 63.5 2.2
--------- --------- --------- --------- --------- ---------
Total revenues ............................... 3,552.2 102.2 3,224.9 102.1 2,923.5 102.2
--------- --------- --------- --------- --------- ---------
Cost of sales, including buying
and occupancy costs ......................... 3,154.1 90.7 2,872.3 90.9 2,605.6 91.1
Selling, general and administrative
expenses .................................... 255.1 7.3 231.2 7.3 208.1 7.3
Preopening expenses .......................... 7.7 .2 5.0 .2 5.9 .2
Pension termination costs .................... 1.5 .1 -- -- -- --
--------- --------- --------- --------- --------- ---------
Operating income ............................. 133.8 3.9 116.4 3.7 103.9 3.6
Interest (income) expense, net ............... (1.0) -- 8.7 .3 16.9 .5
--------- --------- --------- --------- --------- ---------
Income before income taxes ................... 134.8 3.9 107.7 3.4 87.0 3.1
Provision for income taxes ................... 53.0 1.5 42.0 1.3 33.8 1.2
--------- --------- --------- --------- --------- ---------
Net income ................................... $ 81.8 2.4% $ 65.7 2.1% $ 53.2 1.9%
========= ========= ========= ========= ========= =========
Diluted net income per common
share ....................................... $ 1.07 $ .87 $ .71
========= ========= =========
Number of clubs in operation
at year end ................................. 96 84 81
</TABLE>
11
<PAGE>
Stock Split
On February 4, 1999, the Company's Board of Directors declared a
two-for-one stock split effected in the form of a 100% stock dividend, which was
distributed on March 2, 1999 to stockholders of record on February 16, 1999. The
split was executed by reissuing the 803,638 treasury shares held by the Company
and issuing 36,098,862 additional shares of common stock on the distribution
date. The stock split is recorded in the financial statements for the fiscal
year ended January 30, 1999. All historical earnings per share amounts have been
restated to reflect the stock split. Reference to stock activity before the
distribution of the split has not been restated unless otherwise noted.
Results of Operations
Net sales increased by 10.0% from 1997 to 1998 and by 10.5% from 1996 to
1997. 1997 was a 53-week fiscal year. The increases in both years were due to
the opening of new stores and to comparable store sales increases. Comparable
store net sales (on a same-week basis) increased by 5.2% from 1997 to 1998 and
by 3.1% from 1996 to 1997.
Total revenues included membership fees of $65.5 million in 1998 and pro
forma membership fees of $56.4 million and $54.9 million in 1997 and 1996,
respectively. Membership fees in 1998 benefited from the addition of new stores
and an increase in the fee for Inner Circle, or retail, members from $30 to $35,
effective February 1, 1998.
Cost of sales (including buying and occupancy costs) as a percentage of net
sales was 90.7% in 1998, 90.9% in 1997 and 91.1% in 1996. The decreases in the
cost of sales percentage resulted from the Company's ability to introduce higher
margin products into the merchandise mix, to achieve economies of scale and
other efficiencies in its distribution and inventory management operations, and
to leverage certain fixed buying and occupancy costs on increased comparable
store sales.
Selling, general and administrative expenses were 7.3% of net sales in each
of 1998, 1997 and 1996. Credit expenses have risen in the last two years due to
the increased level of credit card sales resulting mainly from the Company's
acceptance of VISA beginning in September 1997 and to increased costs in 1998
for the Company's co-branded MasterCard. The Company also incurred incremental
marketing costs in 1998 to support its entry into the Ohio market and higher
general and administrative expenses after July 1997 as a result of operating as
an independent publicly owned entity. 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.
Preopening expenses were $7.7 million in 1998 versus pro forma preopening
expenses of $5.0 million and $5.9 million in 1997 and 1996, respectively. The
Company opened twelve new clubs in 1998, including two in February, four in 1997
and ten in 1996.
Waban's Board of Directors approved the termination of the Waban Inc.
Retirement Plan effective July 26, 1997. In accordance with generally accepted
accounting principles, the costs to terminate the Plan were not recognized until
the Plan was settled, which occurred in the first quarter of 1998. Accordingly,
during the fiscal year ended January 30, 1999, the Company recorded a pre-tax
charge of $1.5 million in connection with the settlement of the Plan, in which
certain of the Company's employees participated. On a post-tax basis, this
charge amounted to $.9 million, or $.01 per share.
12
<PAGE>
The components of net interest (income) expense in the last three fiscal
years were as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------
Jan. 30, 1999 Jan. 31, 1998 Jan. 25, 1997
------------- ------------- -------------
(Dollars in Millions)
<S> <C> <C> <C>
Interest expense on debt ........................ $ .2 $ 8.9 $16.6
Interest income ................................. (1.4) (.5) (.1)
----- ----- -----
Interest on debt (net) .......................... (1.2) 8.4 16.5
Interest on capital leases ...................... .2 .3 .3
----- ----- -----
Interest on debt and capital leases (net) ....... $(1.0) $ 8.7 $16.8
===== ===== =====
</TABLE>
Interest expense on debt is presented net of capitalized interest of $.7
million in 1998, $.4 million in 1997 and $1.0 million in 1996. As described in
more detail below, interest expense (net) after July 28, 1997 was reduced
because of significantly lower borrowing levels and interest rates applied to
those borrowings after the spin-off.
The Company's income tax provision was 39.3% of pre-tax income in 1998,
39.0% in 1997 and 38.9% in 1996.
Income before the cumulative effect of accounting principle changes was
$81.8 million, or $1.07 per diluted share, in 1998 versus pro forma net income
of $65.7 million, or $.87 per diluted share, in 1997 and $53.2 million, or $.71
per diluted share, in 1996. The cumulative effect of accounting principle
changes reduced net income in 1998 by $19.3 million, or $.25 per diluted share.
Net income in 1998 was $62.5 million, or $.82 per diluted share.
BJ's Wholesale Club, Inc. commenced operations as a separate entity
immediately following its July 28, 1997 spin-off from Waban. Therefore, reported
financial results through the first half of 1997 reflect BJ's historical
position as a division of Waban 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 assumed to be approximately $.5 million per quarter higher
than the amounts included in the historical financial statements for periods
preceding the spin-off. However, interest on intercompany borrowings charged 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
approximately $101 million of BJ's intercompany debt immediately prior to the
spin-off.
The following table: 1) restates 1997's and 1996's historical results for
the effects of the spin-off noted in the preceding paragraph; 2) presents data
on a pro forma basis, as if the newly adopted accounting principles for
membership fees and preopening expenses had been in effect for all periods
shown; and 3) excludes the pension termination charge from 1998's results:
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------------------
Jan. 30, 1999 Jan. 31, 1998 Jan. 25, 1997
------------------- --------------------- -------------------
$ % Incr. $ % Incr. $ % Incr.
------ ------- ------ ------- ------ -------
(Dollars in Millions except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
Pro forma information
Operating income .......................... $135.3 17.2% $115.4 13.3% $101.9 29.6%
Net income ................................ 82.7 21.6 68.0 16.9 58.2 29.8
Diluted net income per share .............. 1.09 22.5 .89 15.6 .77 30.5
</TABLE>
13
<PAGE>
Effective February 1, 1999, the Company increased its membership fee for
business members from $30 to $35. The fee for Inner Circle members of $35
remains unchanged. The effect of this increase is expected to be less
significant than that of the $5 increase charged to Inner Circle members one
year earlier, as business members account for approximately 25% of total
members.
Year 2000 Compliance
The Company has worked for several years to prepare its financial,
merchandising and other information technology ("IT") systems for the Year 2000.
The Company estimates that its Year 2000 assessment, remediation and testing
efforts with regard to IT systems were substantially complete as of January 30,
1999, except for the scheduled replacement of personal computers in certain home
office departments, which will be completed by October 1999, and the testing
noted below. All major IT systems have been assessed for Year 2000 compliance
and the Company believes that currently known Year 2000 issues have been
remedied. Based on these efforts, the Company does not believe that Year 2000
issues related to IT systems will have a material adverse effect on the
Company's results of operations, financial position or cash flows. The Company
intends to retest systems which are modified or upgraded before January 1, 2000
for Year 2000 compliance, regardless of whether the modification is related to
the Year 2000 issue, and intends to institute a moratorium on all new systems
applications in its fourth quarter of 1999. The Company also plans to conduct a
series of monthly production simulation tests of cyclical data over a ten-month
period in 1999 to help ensure existing systems will be Year 2000 compliant.
Since August 1998, the Company has successfully conducted two disaster recovery
tests simulating dates beyond Year 2000 and plans to conduct a series of three
additional disaster recovery tests between April 1999 and the end of 1999. All
of the Company's Year 2000 testing is performed in tandem with the Company's
third-party data processing center.
The Company has also been reviewing its major non-IT systems for Year 2000
issues, including refrigeration, security and utilities systems. BJ's estimates
that its Year 2000 assessment, remediation and testing efforts with regard to
non-IT systems are substantially complete. Based on these efforts, the Company
does not believe that Year 2000 issues related to non-IT systems will have a
material adverse effect on the Company's results of operations, financial
position or cash flows.
BJ's is working with key vendors and other third parties with whom it does
business to minimize the potential adverse impact on the Company if they fail to
address the Year 2000 issue successfully. The Company has formed a committee,
with representatives from various departments in the Company, to examine the
Year 2000 readiness of the Company's business partners. The Company has sent a
questionnaire regarding Year 2000 issues to its 200 highest volume merchandise
vendors, all active freight vendors and 100 of its highest volume
non-merchandise vendors, as well as a random sample of more than 300 other
vendors. The majority of responses are expected to be received by the end of the
first quarter. If necessary, the Company will seek alternate sources to replace
vendors who may not be Year 2000 compliant. The Year 2000 committee will also
attempt to evaluate the Year 2000 readiness of key third parties or vendors who
share data with the Company, including banks and mail houses. Although some of
the Company's agreements with manufacturers and its merchandise vendors contain
provisions requiring them to indemnify the Company under some circumstances,
there can be no assurance that such indemnification arrangements will cover all
of the Company's liabilities and costs, if any, in connection with claims
related to the Year 2000 issue.
BJ's estimates that its total historical and anticipated costs of Year 2000
assessment, remediation and testing will total approximately $1.5 million.
Approximately 15% of this total is expected to be incurred in 1999.
The Company believes that its most likely worst case Year 2000 scenario
would probably result from a large number of key third parties with whom the
Company does business not being Year 2000 compliant. Among the factors that
would tend to mitigate the consequences of this scenario are that the Company
sells a broad assortment of products and is not dependent on any particular
class of mer-
14
<PAGE>
chandise; the Company is not dependent on a small number of vendors; the Company
purchases most of its inventory from well-established, brand name vendors; and
there are expected to be alternate sources to replace vendors who encounter Year
2000 problems. However, there can be no assurance that the third parties with
whom the Company does business will be successful in addressing the Year 2000
issue or that their failure to successfully address the issue will not have an
adverse effect on the Company's financial condition and results of operations.
The Company has not yet formally developed contingency plans to address this or
other scenarios. As the Company completes its retesting of systems and performs
its inquiries of third parties with whom it does business, it will evaluate the
need to develop formal contingency plans. The Company does intend to prepare a
guide for all of its locations to address potential issues which might arise at
the time of the millennium change, and plans to have information systems
personnel on duty around the clock at that time to help deal with those issues.
The foregoing discussion of the Company's Year 2000 readiness contains
forward-looking statements, including estimates of the costs of the Company's
Year 2000 implementation efforts, the percentage of completion of those efforts
and the dates on which the Company believes it will complete those efforts. Such
statements are based upon management's current estimates, using numerous
assumptions regarding future events, including the continued availability of
certain resources, third party remediation plans, and other factors. There can
be no assurance that these forward-looking statements will prove to be accurate,
and actual results could differ materially from those currently anticipated.
Specific factors that could cause such material differences include, but are not
limited to, the availability and cost of personnel trained in Year 2000 issues,
the ability to assess, remedy and test all relevant computer code and embedded
technology, the ability of third parties with whom the Company has business
relationships (including its third-party data processing center) to successfully
address their Year 2000 issues and similar uncertainties.
The foregoing information is intended to qualify as "Year 2000 readiness
disclosure" within the meaning of the Year 2000 Information and Readiness
Disclosure Act to the maximum amount permitted by such Act.
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 fourth quarter holiday season and lowest in the
first quarter of each fiscal year.
Recent Accounting Standards
During this year's second quarter, the Company adopted AICPA SOP 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which provides guidance as to whether certain internal use
software costs should be capitalized as a long-lived asset or expensed when
incurred. The effect of adopting this standard was not material.
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," became effective in 1999. Because the Company had no
items of other comprehensive income, there are no differences between
comprehensive income and net income as reported in the statements of income.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued and becomes effective in 2000. The adoption of
this statement is not expected to have a material impact on the Company's
results of operations, financial position or cash flows or to produce any major
changes in current disclosures.
15
<PAGE>
Liquidity and Capital Resources
Net cash provided by operating activities was $113.8 million in 1998
compared with $63.1 million in 1997. This increase resulted mainly from an
increase in cash due to the changes in accrued and deferred income taxes of
$23.5 million and an increase in cash provided by net income before the
cumulative effect of accounting principle changes of $13.5 million. In addition,
cash used for the growth in inventories net of accounts payable in 1998 was $9.5
million less than it was in 1997.
Cash expended for property additions was $78.3 million in 1998 versus $50.3
million in 1997. The Company opened twelve new clubs in 1998 and four new clubs
in 1997. One club in the Hartford, Connecticut market was closed in 1997. Two of
the 1998 openings were at owned locations and a third owned building was opened
in 1998 at another location that is subject to a long-term ground lease. Two of
the 1997 openings were at owned locations.
The Company's capital expenditures are estimated to total approximately $95
million in 1999, based on opening approximately ten new clubs. 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.
During the third quarter of 1998, the Company's Board of Directors
authorized the repurchase of up to $50 million of the Company's common stock in
open market or privately negotiated transactions. Through January 30, 1999, the
Company repurchased 846,801 shares of common stock for $30.9 million, or an
average price of $36.53 per share, or $18.26 per share on a post-stock split
basis.
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 $4.9 million
was outstanding at January 30, 1999. The Company is required to pay an annual
facility fee which is currently 0.10% 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 0.25%, (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, prohibit the payment of cash dividends on the
Company's common stock and generally limit the repurchase of the Company's
common stock to $50 million.
The Company also maintains a separate line in the amount of $41 million for
letters of credit, primarily to support the purchase of inventories, of which
$12.0 million was outstanding at January 30, 1999, and an additional $20 million
uncommitted credit line for short-term borrowings.
Increases in inventories and accounts payable from January 31, 1998 to
January 30, 1999 were due to the addition of new clubs. The increase in accrued
expenses and other current liabilities over the same time period was due mainly
to the change in method of accounting for membership fee income. A total of
$35.2 million of deferred membership fee income was included in accrued expenses
and other current liabilities at January 30, 1999.
Cash and cash equivalents totaled $12.2 million as of January 30, 1999.
Borrowings as of January 30, 1999 consisted of $10 million under the Company's
bank credit agreement and $20 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
29, 2000. However, the Company may from time to time seek to obtain additional
financing.
16
<PAGE>
Factors Which Could Affect Future Operating Results
This report contains a number of "forward-looking statements," including
statements regarding expected increases in membership fee revenues and credit
expenses, planned capital expenditures, planned store openings, Year 2000
compliance, exposure to market risk 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,"
"estimates," "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. The Company does not assume any
obligations to update any forward-looking statements herein.
BJ's warehouse clubs are located in the eastern United States, primarily in
the Northeast. The Company's business may be adversely affected from time to
time by future economic downturns in its markets. In addition, the Company may
be impacted by state and local regulation in its markets and temporarily
impacted by weather conditions prevailing 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.
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 thereafter it will
indemnify TJX for 50% of such liabilities. 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, the success of the Company's key vendors and other third
parties in achieving Year 2000 compliance and new club opening plans discussed
above.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company believes that its potential exposure to market risk as of
January 30, 1999 is not material because of the short contractual maturities of
its cash, cash equivalents, marketable securities and bank debt. The Company has
not used derivative financial instruments. See Summary of Accounting Policies -
Disclosures about Fair Value of Financial Instruments and Note C in Notes to the
Consolidated Financial Statements.
17
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Statements of Income for the fiscal years ended January 30, 1999,
January 31, 1998 and January 25, 1997.................................................................. 19
Consolidated Balance Sheets as of January 30, 1999 and January 31, 1998................................ 20
Consolidated Statements of Cash Flows for the fiscal years ended January 30, 1999,
January 31, 1998 and January 25, 1997.................................................................. 21
Consolidated Statements of Stockholders' Equity for the fiscal years ended
January 30, 1999, January 31, 1998 and January 25, 1997................................................ 22
Notes to Consolidated Financial Statements............................................................. 23
Selected Quarterly Financial Data...................................................................... 37
Report of Independent Accountants...................................................................... 38
Report of Management................................................................................... 38
</TABLE>
18
<PAGE>
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------
January 30, January 31, January 25,
1999 1998 1997
----------- ----------- -----------
(53 weeks)
(Dollars in Thousands except Per Share Amounts)
<S> <C> <C> <C>
Net sales................................................... $ 3,476,846 $ 3,159,786 $ 2,859,950
Membership fees and other................................... 75,335 67,556 64,746
----------- ----------- -----------
Total revenues.............................................. 3,552,181 3,227,342 2,924,696
----------- ----------- -----------
Cost of sales, including buying and occupancy costs......... 3,154,017 2,872,303 2,605,602
Selling, general and administrative expenses................ 255,087 231,203 208,077
Preopening expenses......................................... 7,743 3,190 6,447
Pension termination costs................................... 1,521 -- --
----------- ----------- -----------
Operating income............................................ 133,813 120,646 104,570
Interest (income) expense, net.............................. (956) 8,733 16,838
----------- ----------- -----------
Income before income taxes and cumulative effect
of accounting principle changes........................... 134,769 111,913 87,732
Provision for income taxes.................................. 52,964 43,646 34,108
----------- ----------- -----------
Income before cumulative effect of accounting principle
changes................................................... 81,805 68,267 53,624
Cumulative effect of accounting principle changes........... (19,326) -- --
----------- ----------- -----------
Net income.................................................. $ 62,479 $ 68,267 $ 53,624
=========== =========== ===========
Net income per common share:
Basic earnings per share:
Income before cumulative effect of accounting
principle changes...................................... $ 1.09 $ 0.91 $ 0.72
Cumulative effect of accounting principle changes......... (0.26) -- --
----------- ----------- -----------
Net income................................................ $ 0.83 $ 0.91 $ 0.72
=========== =========== ===========
Diluted earnings per share:
Income before cumulative effect of accounting
principle changes....................................... $ 1.07 $ 0.90 $ 0.72
Cumulative effect of accounting principle changes......... (0.25) -- --
----------- ----------- -----------
Net income................................................ $ 0.82 $ 0.90 $ 0.72
=========== =========== ===========
Number of common shares for earnings
per share computations:
Basic..................................................... 74,804,538 74,962,346 74,969,874
Diluted................................................... 76,095,876 75,487,798 74,969,874
Pro forma amounts assuming
accounting principle
changes are applied retroactively:
Net income................................................ $ 81,805 $ 65,699 $ 53,201
=========== =========== ===========
Earnings per common share - basic.......................... $ 1.09 $ 0.88 $ 0.71
=========== =========== ===========
Earnings per common share - diluted........................ $ 1.07 $ 0.87 $ 0.71
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 30, January 31,
1999 1998
----------- -----------
(Dollars in Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................................... $ 12,150 $ 12,713
Marketable securities ......................................................... 100 --
Accounts receivable ........................................................... 51,134 38,322
Merchandise inventories ....................................................... 372,740 332,274
Current deferred income taxes ................................................. 7,859 6,826
Prepaid expenses .............................................................. 12,607 14,050
--------- ---------
Total current assets ........................................................ 456,590 404,185
--------- ---------
Property at cost:
Land and buildings ............................................................ 322,712 282,619
Leasehold costs and improvements .............................................. 45,861 42,541
Furniture, fixtures and equipment ............................................. 236,231 207,127
--------- ---------
604,804 532,287
Less accumulated depreciation and amortization ................................... 168,957 140,216
--------- ---------
435,847 392,071
--------- ---------
Property under capital leases .................................................... 6,219 6,219
Less accumulated amortization ................................................. 1,949 1,784
--------- ---------
4,270 4,435
--------- ---------
Other assets ..................................................................... 10,923 10,945
--------- ---------
Total assets .................................................................. $ 907,630 $ 811,636
========= =========
LIABILITIES
Current liabilities:
Accounts payable .............................................................. $ 213,702 $ 200,386
Accrued expenses and other current liabilities ................................ 121,951 71,648
Accrued federal and state income taxes ........................................ 11,757 7,009
Obligations under capital leases due within one year .......................... 201 185
--------- ---------
Total current liabilities ................................................... 347,611 279,228
--------- ---------
Long-term debt ................................................................... 30,000 42,500
Obligations under capital leases, less portion due
within one year ................................................................ 2,249 2,430
Other noncurrent liabilities ..................................................... 34,928 36,396
Deferred income taxes ............................................................ 7,800 4,825
STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized 180,000,000 shares,
issued and outstanding 73,805,000 and 37,504,214 shares ......................... 738 375
Additional paid-in capital ....................................................... 78,376 102,408
Retained earnings ................................................................ 405,928 343,474
--------- ---------
Total stockholders' equity .................................................. 485,042 446,257
--------- ---------
Total liabilities and stockholders' equity .................................. $ 907,630 $ 811,636
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------
January 30, January 31, January 25,
1999 1998 1997
----------- ----------- -----------
(53 Weeks)
(Dollars in Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................... $ 62,479 $ 68,267 $ 53,624
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting principle changes................... 19,326 -- --
Depreciation and amortization of property........................... 40,854 37,426 33,796
Loss on property disposals.......................................... 659 576 256
Other noncash items (net)........................................... 206 130 --
Deferred income taxes............................................... 1,942 1,003 1,453
Increase (decrease) in cash due to changes in:
Accounts receivable............................................... (12,812) (4,316) (3,064)
Merchandise inventories........................................... (40,466) (37,058) (23,778)
Prepaid expenses.................................................. 3 (7,959) 641
Other assets...................................................... (25) (835) (1,431)
Accounts payable.................................................. 13,316 362 30,909
Accrued expenses ................................................. 12,727 2,996 7,995
Accrued income taxes.............................................. 17,104 (5,422) 2,329
Other noncurrent liabilities...................................... (1,468) 7,930 2,432
--------- --------- --------
Net cash provided by operating activities........................... 113,845 63,100 105,162
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities..................................... (95) -- --
Property additions.................................................... (78,338) (50,291) (71,722)
Proceeds from property disposals...................................... 548 3,343 440
--------- --------- --------
Net cash used in investing activities............................... (77,885) (46,948) (71,282)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations................................ (165) (140) (231)
Borrowings (repayments) of long-term debt............................. (12,500) 42,500 --
Cash dividends paid on preferred stock of subsidiary.................. (25) (25) --
Proceeds from sale and issuance of common stock....................... 5,909 983 --
Purchase of treasury stock............................................ (30,930) -- --
Contribution to capital by Waban Inc.................................. 1,188 -- --
Decrease in loans and advances from Waban Inc......................... -- (46,757) (33,649)
--------- --------- --------
Net cash used in financing activities............................... (36,523) (3,439) (33,880)
--------- --------- --------
Net increase (decrease) in cash and cash equivalents................ (563) 12,713 --
Cash and cash equivalents at beginning of year...................... 12,713 -- --
--------- --------- --------
Cash and cash equivalents at end of year............................ $ 12,150 $ 12,713 $ --
========= ========= ========
Supplemental cash flow information:
Interest paid........................................................ $ 420 $ 9,127 $ 16,889
Income taxes paid.................................................... 33,918 48,065 30,325
Noncash financing and investing activities:
Contribution to capital by Waban Inc................................. -- 101,324 --
Treasury stock issued for compensation plans and in
connection with stock split......................................... 30,930 -- --
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<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 Treasury Stockholders'
Par Value $.01 Capital Earnings Stock Equity
-------------- --------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
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
Net income................................... -- -- 62,479 -- 62,479
Sale and issuance of common stock............ 2 4,433 -- 1,638 6,073
Cash dividends on preferred stock
of subsidiary............................... -- -- (25) -- (25)
Purchase of treasury stock................... -- -- -- (30,930) (30,930)
Two-for-one stock split...................... 361 (29,653) -- 29,292 --
Contribution to capital by Waban Inc. ....... -- 1,188 -- -- 1,188
--------- -------- -------- ------- --------
Balance, January 30, 1999..................... $ 738 $ 78,376 $405,928 $ -- $485,042
========= ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<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
To date, the Company's fiscal year has ended each year on the last Saturday
in January. The fiscal years ended January 30, 1999 and January 25, 1997
included 52 weeks. The fiscal year ended January 31, 1998 included 53 weeks. In
April 1999, the Company's Board of Directors approved a change in the fiscal
year end to the Saturday closest to January 31. This will bring the Company into
conformity with the majority of retailers with fiscal years ending in January.
The first fiscal year that will end on a different day as a result of this
change will be the fiscal year ending February 3, 2001.
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. The
Company's marketable securities at January 30, 1999 consist of U.S. government
debt securities, maturing in March 1999 and are carried at cost, which
approximates fair value.
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
Effective with the fiscal year ended January 30, 1999, membership fee
income is recognized over the life of the membership, which is typically twelve
months. (See Note A.)
Preopening Costs
Preopening costs consist of direct incremental costs of opening a facility
and, effective with the fiscal year ended January 30, 1999, are charged to
operations as incurred. (See Note A.)
Interest on Debt and Capital Leases
Interest on debt and capital leases in the statements of income is
presented net of interest income of $1,404,000 in 1998, $463,000 in 1997 and
$51,000 in 1996.
Capitalized Interest
The Company capitalizes interest related to the development of owned
facilities. Interest in the amount of $657,000, $430,000 and $966,000 was
capitalized in 1998, 1997 and 1996, respectively.
23
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Stock-Based Compensation
The Company applies the accounting provisions prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
("APB 25") and related Interpretations in accounting for its stock-based
compensation.
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.)
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.
Reclassifications
Certain amounts in prior years' financial statements have been reclassified
for comparative purposes.
A. Accounting Principle Changes
During the quarter ended October 31, 1998, the Company adopted changes in
methods of accounting for membership fee revenues and preopening expenses.
The Company had previously recognized membership fee revenues when
received. Under its new accounting method, the Company now recognizes membership
fee revenues as income over the life of the membership, which is typically
twelve months. The Company recorded a noncash charge of $18,216,000 (after
reduction for income taxes of $11,646,000), or $.24 per diluted share, as of the
beginning of 1998 to reflect the cumulative effect of this change on prior
years. The effect of this change on the year ended January 30, 1999 was to
decrease income before the cumulative effect of accounting principle changes by
$3,231,000, or $.04 per diluted share, and to decrease net income (including the
cumulative effect of the accounting change) by $21,447,000, or $.28 per diluted
share.
Previously, preopening expenses were charged ratably to operations between
the date a new club opened and the end of the fiscal year. In implementing the
provisions of the American Institute of CPA's Statement of Position ("AICPA
SOP") 98-5, "Reporting on the Costs of Start-up Activities," the Company now
recognizes club preopening expenses when incurred. The Company recorded a
noncash charge of $1,110,000 (after reduction for income taxes of $710,000), or
$.01 per diluted share, as of the beginning of 1998 to reflect the cumulative
effect of this change on prior years. The effect of this change on the year
ended January 30, 1999 was to increase income before the cumulative effect of
accounting principle changes by $959,000, or $.01 per diluted share, and to
decrease net income (including the cumulative effect of the accounting change)
by $151,000.
Although previous years' results were not restated, the pro forma amounts
at the bottom of the consolidated statements of income reflect the post-tax
effect of retroactive application on membership fee revenues and preopening
expenses that would have been made had the newly adopted accounting principles
been in effect during all periods presented.
24
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
B. Spin-off of the Company from Waban Inc. and Related Party Transactions
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.
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.
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) and $17,557,000 in 1996.
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 totaled $2,246,000 in 1997 (all of which was incurred
in the first half of the fiscal year) and $3,891,000 in 1996, and were generally
allocated based on specific identification and management's estimates of the
time devoted to supporting the Company.
Since the spin-off, the Company has provided certain services to Waban
(which has since changed its name to 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 $4.9 million was outstanding at January 30, 1999. The Company
is required to pay an annual facility fee which is currently 0.10% 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 0.25%, (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, prohibit the payment of cash
dividends on the Company's common stock and generally limit the repurchase of
the Company's common stock to $50 million.
25
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The Company also maintains a separate line in the amount of $41 million for
letters of credit, primarily to support the purchase of inventories, of which
$12.0 million was outstanding at January 30, 1999, and an additional $20 million
uncommitted credit line for short-term borrowings.
The Company's long-term debt as of January 30, 1999 consisted of $10
million borrowed under its bank credit agreement and $20 million borrowed under
its uncommitted credit line; as of January 31, 1998, long-term debt consisted of
$35 million under its bank credit agreement and $7.5 million under its
uncommitted credit line. The weighted-average interest rates on the borrowings
were 5.12% at January 30, 1999 and 5.92% at January 31, 1998. 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 rentals 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.
Future minimum lease payments as of January 30, 1999 were:
<TABLE>
<CAPTION>
Capital Operating
Fiscal Years Ending January Leases Leases
--------------------------- ------ ------
(Dollars in Thousands)
<S> <C> <C>
2000 ........................................................................ $ 427 $ 56,324
2001 ........................................................................ 427 59,331
2002 ........................................................................ 427 58,222
2003 ........................................................................ 449 56,000
2004 ........................................................................ 456 56,029
Later years ................................................................. 1,481 628,667
------ --------
Total minimum lease payments ................................................ 3,667 $914,573
========
Less amount representing interest ........................................... 1,217
------
Present value of net minimum capital lease payments ......................... $2,450
======
</TABLE>
Rental expense under operating leases (including contingent rentals, which
were not material) amounted to $48,226,000, $43,558,000 and $40,185,000 in 1998,
1997 and 1996, 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
26
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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
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.
On February 4, 1999, the Company's Board of Directors declared a
two-for-one stock split effected in the form of a 100% stock dividend, which was
distributed on March 2, 1999 to stockholders of record on February 16, 1999. The
split was executed by reissuing the 803,638 treasury shares held by the Company
and issuing 36,098,862 additional shares of common stock on the distribution
date. The stock split is recorded in the financial statements for the fiscal
year ended January 30, 1999. All historical earnings per share amounts have been
restated to reflect the stock split. Reference to stock activity before the
distribution of the split has not been restated unless otherwise noted.
The Company has a shareholder rights plan, originally adopted in 1997 and
amended in 1999, pursuant to which shareholders are issued one-half of a Right
(as adjusted for the two-for-one stock split) 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 to
date. 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 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 ongoing annual dividends of $200 per share. The
minority interest in this subsidiary is equal to the preferred shares'
preference in an involuntary liquidation value of $277,200 and is included in
other noncurrent liabilities in the Company's consolidated balance sheets at
January 30, 1999 and January 31, 1998.
27
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
F. Stock Incentive Plans
All references in this footnote to historical awards, outstanding awards
and available shares for future grants under the Company's stock incentive plans
and related per share amounts reflect the two-for-one stock split distributed on
March 2, 1999.
Under its 1997 Stock Incentive Plan, the Company has granted certain key
employees options to purchase common stock at prices equal to 100% of market
price on the grant date. These options, which expire ten years from the grant
date, 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 3,249,402 shares, plus shares subject to awards granted under the BJ's
Wholesale Club, Inc. 1997 Replacement Stock Incentive Plan (the "Replacement
Plan") which are not actually issued because such awards expire or are canceled.
Under the Replacement Plan, which expired on January 28, 1998, BJ's employees
who held Waban stock options and restricted stock were granted replacement BJ's
options and restricted stock, which preserved the same inherent value, vesting
terms and expiration dates as the Waban awards they replaced in connection with
the spin-off.
Under its 1997 Director Stock Option Plan, BJ's external directors are
granted options to purchase common stock at prices equal to 100% of market price
on the grant date. These options expire ten years from the grant date and are
exercisable in three equal annual installments beginning on the first day of the
month which includes the first anniversary of the date of grant. A maximum of
300,000 shares may be issued under the 1997 Director Stock Incentive Plan.
The Company applies APB 25 and related Interpretations in accounting for
its stock-based compensation. Total pre-tax compensation cost recognized in the
statements of income for stock-based employee compensation awards to the
Company's employees was $163,000 in 1998, $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 1998, 2,000
shares of restricted stock were issued at a weighted-average grant-date fair
value of $19.72. No restricted stock (other than 7,890 replacement shares) was
issued in 1997. During 1996, 2,000 shares of restricted Waban stock were issued
to the Company's employees at a weighted-average grant-date fair value of
$12.38. No compensation cost was recognized under APB 25 for the Company's stock
options because the exercise price equaled the market price of the underlying
stock on the date of 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
5.16%, 6.01% and 6.47% in 1998, 1997 and 1996, respectively; volatility factor
of the expected market price of the Company's common stock of .35 in 1998 and
1997, and .37 in 1996; and expected life of the options of 5 years in 1998 and
1997, and 4.5 years in 1996. No dividends were expected.
28
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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 period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------
January 30, January 31, January 25,
1999 1998 1997
----------- ----------- -----------
(Dollars in Thousands except Per Share Amounts)
<S> <C> <C> <C>
Pro forma net income....................................... $60,004 $65,951 $52,837
Pro forma earnings per share:
Basic.................................................... $0.80 $0.88 $0.70
Diluted.................................................. $0.79 $0.87 $0.70
</TABLE>
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.
29
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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 30, 1999. Also
shown is a summary of activity related to Waban stock options held by Company
employees for the fiscal year ended 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 25, 1997:
Waban options outstanding at beginning of year.......................... 3,188,370 $ 8.27
Granted................................................................. 1,116,100 11.93
Exercised............................................................... (437,898) 7.87
Forfeited............................................................. (72,780) 9.25
---------
Outstanding at January 25, 1997......................................... 3,793,792 9.37
Period ended July 26, 1997:
Granted................................................................. 95,000 13.78
Exercised............................................................... (404,688) 8.91
Forfeited............................................................. (51,670) 9.52
---------
Outstanding at July 26, 1997............................................ 3,432,434 9.55
=========
BJ's options substituted for Waban options, and
outstanding at July 28, 1997............................................ 3,812,828 7.86
Granted................................................................. 1,065,000 15.07
Exercised............................................................... (90,832) 7.28
Forfeited............................................................. (30,634) 9.15
---------
Outstanding at January 31, 1998......................................... 4,756,362 9.48
Fiscal year ended January 30, 1999:
Granted................................................................. 1,181,182 18.19
Exercised............................................................... (492,174) 6.86
Forfeited............................................................. (53,248) 13.52
---------
Outstanding at January 30, 1999......................................... 5,392,122 11.58
=========
Exercisable at:
January 25, 1997 (Waban options)........................................ 1,715,360 $ 8.31
January 31, 1998 (BJ's options)......................................... 2,275,436 7.17
January 30, 1999 (BJ's options)......................................... 2,750,178 8.35
Weighted-average fair value of options granted during the year:
Fiscal Year Ended January 1997 (Waban options).......................... $4.87
Fiscal Year Ended January 1998 (BJ's options)........................... 6.17
Fiscal Year Ended January 1999 (BJ's options)........................... 7.21
</TABLE>
30
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Additional information related to stock options outstanding at January 30, 1999
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>
$5.22 - $7.64 1,909,680 $ 6.72 5.0 1,732,478 $ 6.65
$9.45 - $13.42 1,285,792 10.02 7.1 767,700 9.99
$15.06 - $19.72 2,196,650 16.73 9.2 250,000 15.06
--------- ---------
$5.22 - $19.72 5,392,122 11.58 7.2 2,750,178 8.35
========= =========
</TABLE>
As of January 30, 1999 and January 31, 1998, respectively, 1,314,982 and
2,444,916 shares were reserved for future stock awards under the Company's stock
incentive plans.
G. Earnings Per Share
The following details the calculation of earnings per share for the last
three fiscal years:
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
January 30, January 31, January 25,
1999 1998 1997
------------ ------------ ------------
(Dollars in Thousands except Per Share Amounts)
<S> <C> <C> <C>
Income before cumulative effect of
accounting principle changes ................................. $ 81,805 $ 68,267 $ 53,624
Less: Preferred stock dividends ................................ 25 25 --
----------- ----------- -----------
Income available to common stockholders ........................ $ 81,780 $ 68,242 $ 53,624
=========== =========== ===========
Weighted-average number of common shares
outstanding, used for basic computation ...................... 74,804,538 74,962,346 74,969,874
Plus: Incremental shares from assumed
conversion of stock options .................................. 1,291,338 525,452 --
----------- ----------- -----------
Weighted-average number of common and dilutive
potential common shares outstanding .......................... 76,095,876 75,487,798 74,969,874
=========== =========== ===========
Basic earnings per share ....................................... $ 1.09 $ 0.91 $ 0.72
=========== =========== ===========
Diluted earnings per share ..................................... $ 1.07 $ 0.90 $ 0.72
=========== =========== ===========
</TABLE>
31
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
H. Income Taxes
Through 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 July 26, 1997.
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------
January 30, January 31, January 25,
1999 1998 1997
----------- ----------- -----------
(Dollars in Thousands)
<S> <C> <C> <C>
Federal
Current .............................................. $ 41,696 $ 35,229 $ 27,208
Deferred ............................................. 1,872 1,722 1,153
State
Current .............................................. 9,326 7,414 5,447
Deferred ............................................. 70 (719) 300
---------- ---------- ----------
Total income tax provision ....................... $ 52,964 $ 43,646 $ 34,108
========== ========== ==========
</TABLE>
The following is a reconciliation of the statutory federal income tax rates
and the effective income tax rates:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------
January 30, January 31, January 25,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
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%
=========== =========== ===========
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
as of January 30, 1999 and January 31,1998 are as follows:
January 30, January 31,
1999 1998
---------- ----------
(Dollars in Thousands)
Deferred tax assets:
Self-insurance reserves ................... $13,300 $13,326
Rental step liabilities ................... 4,534 4,317
Compensation and benefits ................. 4,925 3,742
Other ..................................... 3,028 2,714
-------- --------
Total deferred tax assets ............. 25,787 24,099
-------- --------
Deferred tax liabilities:
Accelerated depreciation-property ......... 22,240 19,480
Real estate taxes ......................... 1,675 1,850
Other ..................................... 1,813 768
-------- --------
Total deferred tax liabilities ........ 25,728 22,098
-------- --------
Net deferred tax assets ........................ $ 59 $ 2,001
======== ========
32
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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.
I. Pensions
The Company participated 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 had accrued under this plan since July 4, 1992, when it was
frozen. The Company's expense under this plan amounted to $34,000 and $129,000
in 1997 and 1996, respectively.
Waban's Board of Directors approved the termination of the Waban Inc.
Retirement Plan effective July 26, 1997. In accordance with generally accepted
accounting principles, the costs to terminate the Plan were not recognized until
the Plan was settled, which occurred in the first quarter of 1998. The Plan was
settled through lump-sum cash payments and through the purchase of
nonparticipating annuity contracts. Accordingly, the Company recorded a pre-tax
charge applicable to its Plan participants of $1,521,000 in 1998.
Waban does not segregate plan assets or liabilities by each participating
subsidiary company and, as a result, the tables which follow present disclosures
for the Waban plan.
Net periodic pension benefit cost included the following components:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------
January 30, January 31, January 25,
1999 1998 1997
----------- ----------- -----------
(Dollars in Thousands)
<S> <C> <C> <C>
Service cost ................................................ $ -- $ 149 $ 180
Interest cost ............................................... -- 463 455
Expected return on assets ................................... -- (593) (940)
Amortization of unrecognized loss ........................... -- 41 561
Loss due to settlement of plan .............................. 2,892 -- --
------ ------ ------
Net pension cost ............................................ $2,892 $ 60 $ 256
====== ====== ======
Discount rate used to determine cost ........................ 5.99% 7.25% 7.25%
Expected long-term rate of return on assets ................. -- 9.00% 9.00%
</TABLE>
33
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The following table sets forth the funded status of the Waban pension plan
and the amount recognized in the balance sheets at January 30, 1999 and January
31, 1998:
<TABLE>
<CAPTION>
January 30, January 31,
1999 1998
----------- -----------
(Dollars in Thousands)
<S> <C> <C>
Projected benefit obligation (PBO) .................... $ -- $ 7,597
Plan assets at fair market value ...................... -- 7,869
--------- ---------
Projected benefit obligation less than plan assets .... -- (272)
Unrecognized net gain (loss) .......................... -- (1,400)
--------- ---------
Prepaid pension cost included in
balance sheets ...................................... $ -- $ (1,672)
========= =========
Discount rate used to value PBO ....................... -- 6.75%
</TABLE>
BJ's Wholesale Club, Inc. included $877 thousand of prepaid pension cost on
its balance sheet at January 31, 1998.
The following tables present reconciliations of the PBO and plan assets for
the fiscal years ended January 30, 1999 and January 31, 1998:
<TABLE>
<CAPTION>
January 30, January 31,
1999 1998
----------- -----------
(Dollars in Thousands)
<S> <C> <C>
Reconciliation of PBO
PBO at beginning of year $ 7,597 $ 6,451
Service cost -- 149
Interest cost -- 463
Actuarial losses 1,528 996
Benefits and expenses paid (9,125) (462)
--------- ---------
PBO at end of year $ -- $ 7,597
========= =========
Reconciliation of Plan Assets
Fair value of plan assets at beginning of year $ 7,869 $ 6,455
Actual return on plan assets 213 1,026
Employer contributions 1,043 850
Benefits and expenses paid (9,125) (462)
--------- ---------
Fair value of plan assets at end of year $ -- $ 7,869
========= =========
</TABLE>
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
$2,471,000, $2,382,000 and $2,259,000 in 1998, 1997 and 1996, respectively.
34
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
As of the spin-off, 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 $718,000, $650,000 and $522,000 in 1998, 1997 and
1996, respectively.
J. 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 included the following
components:
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------
January 30, January 31, January 25,
1999 1998 1997
----------- ----------- -----------
(Dollars in Thousands)
<S> <C> <C> <C>
Service cost.......................................... $ 147 $ 108 $ 62
Interest cost......................................... 50 36 27
Amortization of unrecognized (gain) loss.............. 6 -- (2)
----- ----- -----
Net periodic postretirement benefit cost.............. $ 203 $ 144 $ 87
===== ===== =====
Discount rate used to determine cost.................. 6.75% 7.25% 7.25%
</TABLE>
The following table sets forth the funded status of the Company's
postretirement medical plan and the amount recognized in the balance sheets at
January 30, 1999 and January 31, 1998:
<TABLE>
<CAPTION>
January 30, January 31,
1999 1998
--------- ---------
(Dollars in Thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retired participants ............................................. $ 15 $ --
Fully eligible active participants ............................... 20 9
Other active participants ........................................ 944 661
----- -----
Unfunded APBO ...................................................... 979 670
Unrecognized net loss .............................................. (179) (58)
----- -----
Accrued postretirement benefit cost included in balance sheets ..... $ 800 $ 612
===== =====
Discount rate used to value APBO ................................... 6.25% 6.75%
Weighted-average health care cost trend rate for valuing year-
end obligations:
Initial trend rate ............................................... 7.00% 7.50%
Ultimate trend rate .............................................. 4.50% 4.50%
Year ultimate trend rate to be attained .......................... 2004 2004
</TABLE>
35
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The following tables present reconciliations of the APBO and plan assets
for the fiscal years ended January 30, 1999 and January 31, 1998:
<TABLE>
<CAPTION>
January 30, January 31,
1999 1998
----------- -----------
(Dollars in Thousands)
<S> <C> <C>
Reconciliation of APBO
APBO at beginning of year ...................................... $ 670 $ 400
Service cost ................................................... 147 108
Interest cost .................................................. 50 36
Contributions by plan participants ............................. 4 --
Actuarial losses ............................................... 127 126
Benefits paid .................................................. (19) --
----- -----
APBO at end of year ............................................ $ 979 $ 670
===== =====
Reconciliation of Plan Assets
Fair value of plan assets at beginning of year ................. $ -- $ --
Employer contributions ......................................... 15 --
Contributions by plan participants ............................. 4 --
Benefits paid .................................................. (19) --
----- -----
Fair value of plan assets at end of year ......................... $ -- $ --
===== =====
</TABLE>
The following table sets forth the impact of changes in the assumed health
care cost trend rates for the fiscal year ended January 30, 1999:
Dollars in
Thousands
----------
Impact of 1% increase in health care cost trend on:
Aggregate of service and interest costs .............. $ 26
APBO at end of year .................................. 118
Impact of 1% decrease in health care cost trend on:
Aggregate of service and interest costs .............. $ (23)
APBO at end of year .................................. (106)
K. Accrued Expenses and Other Current Liabilities
The major components of accrued expenses and other current liabilities are
as follows:
<TABLE>
<CAPTION>
January 30, January 31,
1999 1998
----------- -----------
(Dollars in Thousands)
<S> <C> <C>
Employee compensation ..................................................... $ 19,689 $17,466
Self-insurance reserves ................................................... 14,416 11,777
Deferred membership fee income ............................................ 35,246 --
Sales and use taxes, rent, utilities, advertising and other ............... 52,600 42,405
-------- -------
$121,951 $71,648
======== =======
</TABLE>
36
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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, through December 31, 1998,
individual occurrences above $200,000 per year for group medical claims.
Beginning January 1, 1999, group medical coverage is provided under fully
insured plans. In addition to the amounts shown above in current liabilities,
noncurrent self-insurance reserves of $18.6 million and $20.8 million as of
January 30, 1999 and January 31, 1998, respectively, were included in other
noncurrent liabilities.
L. Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
(Dollars in Thousands except Per Share Amounts)
<S> <C> <C> <C> <C>
Fiscal year ended January 30, 1999
Net sales .................................... $ 754,752 $ 859,599 $ 828,477 $1,034,018
Total revenues ............................... 772,228 877,690 847,812 1,054,451
Gross earnings (a) ........................... 78,649 96,011 91,259 132,245
Income before cumulative effect of
accounting principle changes ............... 8,847 20,863 14,428 37,667
Per common share, diluted .................... 0.12 0.27 0.19 0.50
Net income (loss) ............................ (10,479) 20,863 14,428 37,667
Per common share, diluted .................... (0.14) 0.27 0.19 0.50
Fiscal year ended January 31, 1998
Net sales .................................... $ 664,258 $ 773,682 $ 744,023 $ 977,823
Total revenues ............................... 678,947 785,455 762,851 1,000,089
Gross earnings (a) ........................... 66,748 82,180 83,506 122,605
Net income ................................... 7,057 14,955 13,818 32,437
Per common share, diluted .................... 0.09 0.20 0.18 0.43
</TABLE>
- ----------
(a) Gross earnings equals total revenues less cost of sales, including buying
and occupancy costs.
37
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of BJ's Wholesale Club, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, cash flows and changes in
stockholders' equity present fairly, in all material respects, the financial
position of BJ's Wholesale Club, Inc. and subsidiaries ("the Company") at
January 30, 1999 and January 31, 1998, and the results of their operations and
their cash flows for each of the three years in the period ended January 30,
1999, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note A to the consolidated financial statements, the
Company changed its methods of accounting for membership fee revenue and
preopening expenses during the year ended January 30, 1999.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts /s/ PricewaterhouseCoopers LLP
March 1, 1999
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 PricewaterhouseCoopers LLP,
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 Chief Executive Officer Executive Vice President and
Chief Financial Officer
March 1, 1999
38
<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 30, 1999 (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 under "Election of Directors"
and "Compliance with Section 16(a) of the Securities Exchange Act of 1934."
Item 11. Executive Compensation
The information required by this Item is incorporated by reference from the
Proxy Statement under "Compensation of Directors" and "Executive Compensation."
However, information under "Executive Compensation Committee's Report on
Executive Compensation" in this 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 under "Beneficial Ownership of Common Stock."
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference from the
Proxy Statement under "Relationship with HomeBase; Conflicts of Interest."
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 18. Schedules 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.
Exhibit No. Exhibit
- ----------- -------
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Amended and Restated By-Laws (8)
4.1 Rights Agreement, dated as of July 10, 1997, between the Company
and First Chicago Trust Company of New York (2)
4.1a Amendment dated as of February 4, 1999 to Rights Agreement dated
July 10, 1997 (7)
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)
39
<PAGE>
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)
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 (6)
10.23 Indemnification Agreement, dated as of April 18, 1997, between
the Company and The TJX Companies, Inc. (5)
18.0 Letter re: Change in Accounting Principles (9)
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 (Commission File No. 333-31015)
(2) Incorporated herein by reference to the Company's Registration
Statement on Form 8-A, dated July 10, 1997 (Commission File No.
001-13143)
(3) Incorporated herein by reference to the Current Report on Form
8-K, dated July 28, 1997, of HomeBase, Inc. (Commission File No.
001-10259)
(4) Incorporated herein by reference to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended July 26, 1997
(Commission File No. 001-13143)
(5) Incorporated herein by reference to the Company's Registration
Statement on Form S-1 (Commission File No. 333-25511)
(6) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1998 (Commission
File No. 001-13143)
(7) Incorporated herein by reference to the Company's Amendment No. 1
to Registration Statement on Form 8-A/A, dated March 5, 1999
(Commission File No. 001-13143)
(8) Incorporated herein by reference to the Company's Current Report
on Form 8-K, dated as of April 7, 1999 (Commission File No.
001-13143)
(9) Incorporated herein by reference to the Company's Amendment No. 1
to Quarterly Report on Form 10-Q/A for the fiscal quarter ended
October 31, 1998 (Commission File No. 001-13143)
C. The Registrant did not file any reports on Form 8-K during the last quarter
of the period covered by this Report.
40
<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 20, 1999
/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/ BERT N. MITCHELL /s/ THOMAS J. SHIELDS
- ---------------------------------------- ----------------------------------
Bert N. Mitchell, Director Thomas J. Shields, Director
/s/ LORNE R. WAXLAX /s/ EDWARD J. WEISBERGER
- ---------------------------------------- ----------------------------------
Lorne R. Waxlax, Director Edward J. Weisberger, Director
Dated: April 20, 1999
41
Exhibit 21.0
SUBSIDIARIES
The following is a list of Subsidiaries of BJ's Wholesale Club, Inc. as of March
31, 1999:
1. BJ's Wholesale Club, Inc. owns 100% of the issued shares of common stock of
the following corporations:
Jurisdiction
------------
Natick Security Corp. Massachusetts
BJ's Northeast Operating Corp. 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
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
Natick NY College Point Realty Corp. New York
Exhibit 23.0
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-31015) of BJ's Wholesale Club, Inc. and
Subsidiaries of our report dated March 1, 1999 relating to the financial
statements, which appear in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
April 19, 1999
<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 30, 1999 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-30-1999
<PERIOD-END> JAN-30-1999
<CASH> 12,150
<SECURITIES> 100
<RECEIVABLES> 51,134
<ALLOWANCES> 0
<INVENTORY> 372,740
<CURRENT-ASSETS> 456,590
<PP&E> 611,023
<DEPRECIATION> 170,906
<TOTAL-ASSETS> 907,630
<CURRENT-LIABILITIES> 347,611
<BONDS> 32,249
0
0
<COMMON> 738
<OTHER-SE> 484,304
<TOTAL-LIABILITY-AND-EQUITY> 907,630
<SALES> 3,476,846
<TOTAL-REVENUES> 3,552,181
<CGS> 3,154,017
<TOTAL-COSTS> 3,154,017
<OTHER-EXPENSES> 264,351
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (956)
<INCOME-PRETAX> 134,769
<INCOME-TAX> 52,964
<INCOME-CONTINUING> 81,805
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (19,326)
<NET-INCOME> 62,479
<EPS-PRIMARY> 0.83
<EPS-DILUTED> 0.82
</TABLE>
