<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended April 29, 1995
Commission file number 1-10259
WABAN INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0109661
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Mercer Road
Natick, Massachusetts 01760
(Address of principal executive offices) (Zip Code)
(508) 651-6500
(Registrant's telephone number, including area code)
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 .
--- ---
The number of shares of Registrant's common stock outstanding as of May 27,
1995: 33,292,715
<PAGE>
<TABLE>
PART I FINANCIAL INFORMATION
WABAN INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Thirteen Weeks Ended
-----------------------
April 29, April 30,
1995 1994
----------- -----------
(In Thousands Except
Per Share Amounts)
<S> <C> <C>
Net sales $884,455 $820,840
------- -------
Cost of sales, including buying and occupancy costs 755,553 703,735
Selling, general and administrative expenses 111,328 99,108
Interest on debt and capital leases (net) 4,027 3,032
------- -------
Total expenses 870,908 805,875
------- -------
Income before income taxes 13,547 14,965
Provision for income taxes 5,283 5,836
------- -------
Net income $ 8,264 $ 9,129
======= =======
Net income per common share (see Exhibit 11 for
detailed computations):
Primary and fully diluted $ 0.25 $ 0.27
======= =======
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
WABAN INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
April 29, January 28, April 30,
1995 1995 1994
----------- ----------- -----------
(Dollars In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,980 $ 65,040 $ 19,154
Marketable securities 67,162 63,933 -
Accounts receivable 36,110 51,875 53,110
Merchandise inventories 576,880 512,619 540,200
Current deferred income taxes 35,150 34,460 34,892
Prepaid expenses 18,446 8,992 16,715
--------- --------- ---------
Total current assets 749,728 736,919 664,071
--------- --------- ---------
Property at cost:
Land and buildings 310,794 289,781 233,216
Leasehold costs and improvements 73,285 72,874 59,992
Furniture, fixtures and equipment 249,189 237,373 202,401
--------- --------- ---------
633,268 600,028 495,609
Less accumulated depreciation
and amortization 140,865 130,245 105,430
--------- --------- ---------
492,403 469,783 390,179
--------- --------- ---------
Property under capital leases 16,857 17,129 18,379
Less accumulated amortization 7,223 7,150 7,258
--------- --------- ---------
9,634 9,979 11,121
--------- --------- ---------
Property held for sale (net) 11,682 12,251 27,787
Deferred income taxes - - 2,344
Other assets 14,049 12,999 11,033
--------- --------- ---------
Total assets $1,277,496 $1,241,931 $1,106,535
========= ========= =========
LIABILITIES
Current liabilities:
Short-term debt $ - $ - $ 20,000
Current installments of long-
term debt 12,793 12,763 12,731
Accounts payable 291,111 249,842 272,853
Restructuring reserve 11,613 14,079 23,652
Accrued expenses and other
current liabilities 151,335 164,945 124,790
Accrued federal and state
income taxes 5,026 2,536 941
Obligations under capital leases
due within one year 908 987 1,219
--------- --------- ---------
Total current liabilities 472,786 445,152 456,186
--------- --------- ---------
Real estate debt 1,361 1,752 2,155
General corporate debt 36,000 36,000 48,000
Senior subordinated debt 100,000 100,000 -
Convertible subordinated debt 108,600 108,600 108,600
Obligations under capital leases,
less portion due within one year 12,215 12,411 13,100
Noncurrent restructuring reserve 18,111 22,900 27,971
Other noncurrent liabilities 23,949 22,617 20,178
Deferred income taxes 6,896 4,410 -
STOCKHOLDERS' EQUITY
Common stock, par value $.01,
authorized 190,000,000 shares,
issued and outstanding 33,292,715,
33,186,418 and 33,129,723 shares 333 332 331
Additional paid-in capital 326,747 325,565 323,639
Unrealized holding losses (2) (44) -
Retained earnings 170,500 162,236 106,375
--------- --------- ---------
Total stockholders' equity 497,578 488,089 430,345
--------- --------- ---------
Total liabilities and
stockholders' equity $1,277,496 $1,241,931 $1,106,535
========= ========= =========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
WABAN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Thirteen Weeks Ended
--------------------
April 29, April 30,
1995 1994
--------- ---------
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,264 $ 9,129
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization of property 11,084 9,696
Loss on property disposals 42 133
Amortization of premium on marketable securities 244 -
Other non-cash items (net) 192 191
Deferred income taxes 1,769 4,727
Increase (decrease) in cash
due to changes in:
Accounts receivable 15,765 9,337
Merchandise inventories (64,261) (35,012)
Prepaid expenses (9,454) (7,053)
Other assets (net) (1,206) (434)
Accounts payable 41,269 19,621
Restructuring reserves (7,255) (6,617)
Accrued expenses (1,226) 650
Accrued income taxes 2,490 (2,029)
Other noncurrent liabilities 1,332 733
------- -------
Net cash provided by (used in) operating
activities (951) 3,072
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (49,389) -
Sale of marketable securities 27,517 -
Maturity of marketable securities 18,590 -
Property additions (45,320) (21,010)
Property disposals 104 9
------- -------
Net cash used in investing activities (48,498) (21,001)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of short-term debt - 20,000
Repayment of long-term debt (361) (3,003)
Repayment of capital lease obligations (275) (324)
Proceeds from sale and issuance of
common stock 1,025 533
------- -------
Net cash provided by financing
activities 389 17,206
------- -------
Net decrease in cash and cash
equivalents (49,060) (723)
Cash and cash equivalents at
beginning of year 65,040 19,877
------- -------
Cash and cash equivalents at
end of period $ 15,980 $19,154
======= ======
Supplemental cash flow information:
Interest paid $ (15) $ 286
Income taxes paid 997 3,138
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The results for the first quarter are not necessarily indicative of results
for the full fiscal year because the Company's business, in common with the
business of retailers generally, is subject to seasonal influences. BJ's sales
and profits have been strongest in the Christmas holiday season, while
HomeBase's sales and profits have typically been strongest in the spring
building season.
2. The financial statements are unaudited and reflect all normal recurring
adjustments considered necessary by the Company for a fair presentation of its
financial statements in accordance with generally accepted accounting
principles.
3. These interim financial statements should be read in conjunction with the
consolidated financial statements and related notes contained in the Annual
Report on Form 10-K for the fiscal year ended January 28, 1995.
4. The Company classifies its marketable securities as available-for-sale
securities in accordance with Statement of Financial Accounting Standards No.
115. At April 29, 1995, marketable securities consisted of high quality debt
securities issued by states or their political subdivisions. The amortized
cost basis of marketable securities approximated fair value at April 29, 1995.
All of the Company's marketable securities had maturities of less than two
years, with approximately 90% maturing in less than one year.
5. In the quarter ended January 29, 1994, the Company recorded a pre-tax
restructuring charge of $101.1 million primarily related to repositioning its
HomeBase division. Eight HomeBase warehouse stores were closed in that
quarter. The results for the quarter ended April 30, 1994 included the sales
and operating income of 67 HomeBase stores. Sixteen other HomeBase stores that
closed or planned to be closed as a result of the restructuring were excluded.
As of January 28, 1995, sixteen HomeBase warehouse stores had been closed
in connection with the restructuring. Four stores that were originally
included in the restructuring will not be closed, due to their improved
performance. The results of the remaining stores planned for closing (four as
of January 28, 1995 and three as of April 29, 1995) are included in HomeBase's
sales and operating income in the current fiscal year, until they begin
closing.
6. Presented below is information relative to the operating results of the
Company's business segments (dollars in thousands).
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------
April 29, April 30,
1995 1994
----------- -----------
<S> <C> <C>
Net sales:
BJ's Wholesale Club $ 531,106 $ 486,787
HomeBase 353,349 334,053
--------- ---------
$ 884,455 $ 820,840
========= =========
Operating income:
BJ's Wholesale Club $ 9,923 $ 8,083
HomeBase 9,510 11,792
General corporate expense (1,859) (1,878)
--------- ---------
17,574 17,997
Interest on debt and capital
leases (net) (4,027) (3,032)
-------- ---------
Income before income taxes $ 13,547 $ 14,965
======== =========
</TABLE>
Warehouses in operation - end of period:
- ---------------------------------------
BJ's Wholesale Club 62 52
HomeBase 79 80
<PAGE>
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Thirteen Weeks (First Quarter) Ended April 29, 1995 versus Thirteen Weeks Ended
April 30, 1994.
Results of Operations
- ---------------------
Consolidated net sales for the quarter ended April 29, 1995 were $884.5
million, an increase of 7.7% over $820.8 million reported in last year's first
quarter. The increase was due to the opening of new warehouse stores and the
inclusion of certain HomeBase warehouse stores whose sales were charged to the
restructuring reserve last year (see Note 5 of Notes to Consolidated Financial
Statements). Comparable store sales decreased 3.4% at BJ's Wholesale Club and
decreased 6.3% at HomeBase. BJ's comparable store sales were affected by
increased competition and by the opening of new BJ's clubs in the same markets
as existing BJ's clubs. Comparable store sales at HomeBase were impacted by
increased competition and by unusually harsh weather conditions in the western
United States during March and April.
Cost of sales (including buying and occupancy costs) was 85.4% of sales in this
year's first quarter versus 85.7% in the comparable period last year. This
decrease was due primarily to higher gross selling margins at HomeBase.
Selling, general and administrative ("SG&A") expenses were 12.6% of sales in
the first quarter this year compared with 12.1% in last year's first quarter.
This increase was attributable to HomeBase's higher percentage of SG&A expenses
this year over last year, which was caused primarily by this year's lower per-
store sales volume.
BJ's operating income in this year's first quarter was $9.9 million, a 22.8%
increase over $8.1 million in the comparable period last year. This increase
reflected effective control of expenses, a merchandise mix which favorably
impacted gross selling margins and leverage from operating 62 warehouse clubs
this year compared to 52 last year. BJ's launched a direct mail marketing
program at the end of the first quarter, with the objective of building
membership and sales in subsequent periods.
Operating income at HomeBase was $9.5 million in the first quarter, a 19.4%
decrease from $11.8 million in the same period last year. Improved gross
merchandise margins were more than offset by the impact of lower than expected
sales and increased SG&A expenses. Last year's results excluded sales and
operating income or losses of HomeBase stores planned to be closed in
connection with the Company's restructuring. As of the beginning of this
fiscal year, four stores included in the restructuring reserve were still
operating. (One closed in April.) Their results are included in HomeBase's
sales and operating income after January 28, 1995 until they begin closing.
The effect on comparable store sales and operating income of including the
results of these four stores is not material.
The components of net interest expense were as follows (in thousands):
<TABLE>
<CAPTION>
Quarter Ended
--------------------
April 29, April 30,
1995 1994
--------- ---------
<S> <C> <C>
Interest expense on debt $ 5,337 $3,050
Interest and investment income (1,733) (472)
----- -----
Interest on debt (net) 3,604 2,578
Interest on capital leases 423 454
------ -----
Interest on debt and capital
leases (net) $ 4,027 $3,032
====== =====
</TABLE>
Interest expense on debt was net of capitalized interest of $529,000 this year
and $641,000 last year. The increases in interest expense on debt and interest
and investment income this year were due primarily to the issuance of $100
million of 11% Senior Subordinated Notes in May 1994 and the investment of the
proceeds in short-term marketable securities.
The Company's provision for income taxes was 39% of pre-tax income in both this
year's and last year's first quarter.
Net income for the first quarter was $8.3 million, or $.25 per share, compared
to $9.1 million, or $.27 per share, in the first quarter of last year.
Liquidity and Capital Resources
- -------------------------------
Cash expended for property additions in the first quarter was $45.3 million
this year compared to $21.0 million last year. Three new HomeBase warehouse
stores were opened in the first quarter of this year versus one new HomeBase
warehouse store last year.
The Company expects to open approximately ten new BJ's clubs in this fiscal
year. Four or five of these clubs are expected to be in the 68,000 square foot
format in smaller markets. In addition to the three HomeBase warehouse stores
opened in the first quarter, one HomeBase store will be relocated to a new site
this year. The Company's capital expenditures are expected to be approximately
$165 million in this fiscal year, including an estimated $85 million for new
store real estate. The timing and amount of actual openings and expenditures
could vary from these estimates due to the complexity of the real estate
development process.
As of April 29, 1995, the Company has closed 17 HomeBase warehouse stores in
connection with its restructuring and is still obligated under leases for six
of these stores. One other owned store, which had been closed, was sold in May
1995.
The Company's restructuring has generated approximately $61 million of cash
flow through April 29, 1995, including a net cash outflow of approximately $3
million in this year's first quarter. Cash flow to be realized in connection
with the disposition of the remaining warehouse locations, excluding long-term
lease obligations, is expected to be approximately $10 million to $15 million
(including tax benefits). The net cash outflow for long-term lease obligations
(net of tax benefits) is expected to approximate $8 million to $13 million over
the remaining terms of the leases, which expire at various dates through 2011.
In some cases, the Company has made lump sum cash payments to settle lease
obligations, and it may settle other future lease obligations in the same
manner. The actual remaining cash flows could vary from the estimates above,
depending on certain factors, principally the Company's ability to sublease or
sell closed HomeBase locations on anticipated terms.
Increases in inventory and accounts payable since the end of the fiscal year
were due primarily to normal seasonal requirements. Increases in inventory and
accounts payable from April 30, 1994 to April 29, 1995 were attributable
primarily to new stores.
In April 1995, the Company entered into an agreement with a group of banks
which provides a $150 million line of credit through March 30, 1998. The
agreement includes a $20 million sub-facility for standby letters of credit.
In addition to a fee of $75,000 upon signing the agreement, the Company is
required to pay an annual facility fee of $300,000 (subject to adjustment based
upon the Company's fixed charge coverage ratio). Borrowings can be made at
prime rate, at LIBOR plus a surcharge (currently 0.45%) that depends on fixed
charge coverage, or on a competitive bid basis. No compensating balances are
required by the agreement.
The Company's cash, cash equivalents and marketable securities totalled $83.1
million as of April 29, 1995. The Company expects that its current resources,
together with anticipated cash flow from operations, will be sufficient to
finance its operations through this year and into the fiscal year ending
January 25, 1997. However, the Company may from time to time seek to obtain
additional financing. The Company's cash requirements may vary, based on,
among other things, the rate at which it disposes of the HomeBase stores that
are included in the restructuring.
Seasonality
- -----------
BJ's sales and operating income have been strongest in the Christmas holiday
season and lowest in the first quarter of each fiscal year. HomeBase's sales
and earnings are typically lower in the first and fourth quarters than they are
in the second and third quarters, which correspond to the most active season
for home construction.
<PAGE>
PART II. Other Information
-----------------
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
11.0 Statement regarding computation of per share
earnings.
(b) The Company did not file any reports on Form 8-K with
the Securities and Exchange Commission during the quarter
ended April 29, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WABAN INC.
----------
(Registrant)
Date: June 8, 1995 /S/ HERBERT J. ZARKIN
----------------------------- ------------------------------
Herbert J. Zarkin
President and
Chief Executive Officer
Date: June 8, 1995 /S/ EDWARD J. WEISBERGER
----------------------------- ------------------------------
Edward J. Weisberger
Senior Vice President and
Chief Financial Officer
<PAGE>
<TABLE>
Exhibit 11
WABAN INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(Unaudited)
<CAPTION>
Thirteen Weeks Ended
--------------------
April 29, April 30,
1995 1994
----------- -----------
<S> <C> <C>
Net income as reported $ 8,264,000 $ 9,129,000
========== ==========
Net income used for primary
computation $ 8,264,000 $ 9,129,000
Add (where dilutive):
Tax effected interest and
amortization of debt expense
on convertible debt 1,085,000 1,085,000
---------- ----------
Net income used for fully
diluted computation $ 9,349,000 $10,214,000
========== ==========
Weighted average number of
common shares outstanding 33,229,762 33,103,735
Add (where dilutive):
Assumed exercise of those
options that are common
stock equivalents net of
treasury shares deemed to
have been repurchased
320,201 273,277
---------- ----------
Weighted average number of
common and common equivalent
shares outstanding, used for
primary computation 33,549,963 33,377,012
Add (where dilutive):
Assumed exercise of
convertible securities 4,387,879 4,387,879
---------- ----------
Adjusted shares outstanding
used for fully diluted
computation 37,937,842 37,764,891
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Waban
Inc. consolidated statements of income and consolidated balance sheets filed
with the Form 10-Q for the quarter ended April 29, 1995 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-27-1996
<PERIOD-END> APR-29-1995
<CASH> 15,980
<SECURITIES> 67,162
<RECEIVABLES> 36,110
<ALLOWANCES> 0
<INVENTORY> 576,880
<CURRENT-ASSETS> 749,728
<PP&E> 650,125
<DEPRECIATION> 148,088
<TOTAL-ASSETS> 1,277,496
<CURRENT-LIABILITIES> 472,786
<BONDS> 258,176
<COMMON> 333
0
0
<OTHER-SE> 497,245
<TOTAL-LIABILITY-AND-EQUITY> 1,277,496
<SALES> 884,455
<TOTAL-REVENUES> 884,455
<CGS> 755,553
<TOTAL-COSTS> 755,553
<OTHER-EXPENSES> 111,328
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,027
<INCOME-PRETAX> 13,547
<INCOME-TAX> 5,283
<INCOME-CONTINUING> 8,264
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,264
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
