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 (FEE REQUIRED)
For the fiscal year ended January 27, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File Number 1-10259
WABAN INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0109661
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Mercer Road 01760
Natick, Massachusetts (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (508) 651-6500
-------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- ------------------------
<S> <C>
Common Stock, par value $.01 New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
6-1/2% Convertible Subordinated Debentures due July 1, 2002 New York Stock Exchange
</TABLE>
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, 15, 1996 was $847,473,000.
There were 32,980,007 shares of the Registrant's Common Stock, $.01 par
value, outstanding as of March 15, 1996.
----------------------
Documents Incorporated by Reference
Portions of the Proxy Statement for the Annual Meeting of Stockholders to
be held on June 11, 1996 (Part III).
<PAGE>
PART I
Item 1. Business
The Company operates two warehouse merchandising businesses: BJ's
Wholesale Club ("BJ's") and HomeBase. BJ's introduced the warehouse club
concept to New England in 1984 and is the third largest membership warehouse
chain nationwide. BJ's sells a narrow assortment of brand name food and
general merchandise within a wide range of product categories. HomeBase is
the second largest operator of home improvement warehouse stores in the
western United States and offers a very broad assortment of home improvement
and building supply products. As of January 27, 1996, the Company operated 71
BJ's warehouse clubs and 79 HomeBase warehouse stores.
Both BJ's and HomeBase utilize the efficiencies provided by the warehouse
merchandising format to offer their customers first-quality, brand name
merchandise at prices substantially below those available through traditional
channels of distribution. BJ's and HomeBase both emphasize productivity,
efficiency, and disciplined inventory management in order to minimize the
cost of carrying and handling merchandise. Each employs sophisticated
management information systems to facilitate efficient purchasing,
distribution and pricing of inventory. Both chains purchase most of their
merchandise directly from manufacturers and operate cross-docking facilities
where truckload shipments received from vendors are separated and reassembled
for immediate delivery to individual warehouse stores.
The Company was formed in 1989, when Zayre Corp. (now The TJX Companies,
Inc. ("TJX")), as part of its restructuring, combined its BJ's Wholesale Club
and HomeBase divisions to form "Waban Inc." In June 1989, TJX distributed all
of the Company's outstanding common stock to its shareholders on a pro rata
basis.
BJ's Wholesale Club
General
BJ's Wholesale Club introduced the warehouse club concept to New England
in 1984 and has since expanded in the New England and Mid-Atlantic states, as
well as in southern Florida. BJ's operates 71 warehouse clubs in twelve
states and has over 3.5 million members. The table below shows BJ's locations
by state.
Number of
State Locations
- ----- ----------
New York 17
Massachusetts 12
New Jersey 9
Maryland 6
Pennsylvania 6
Virginia 6
Connecticut 4
Florida 4
New Hampshire 3
Maine 2
Delaware 1
Rhode Island 1
--
Total 71
==
Industry Overview
Warehouse clubs typically sell a narrow assortment of food and general
merchandise 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 traditional wholesale and
retail distribution channels, such as supermarkets, discount stores, office
supply stores, consumer electronics stores, automotive stores and wholesale
distributors and jobbers. The Company believes that it is difficult for these
higher cost channels of distribution to effectively compete with 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
1
<PAGE>
and operating costs substantially below those of traditional retailers. Two
broad groups of customers, individual households and small businesses, have
been attracted to the savings on brand name merchandise made possible by the
high sales volumes and low operating costs achieved by warehouse clubs. The
customers at warehouse clubs are generally limited to members who pay an
annual fee.
The warehouse club industry has grown from sales of approximately $14
billion in 1988 to approximately $41 billion in 1995, rapidly gaining market
share of both food and general merchandise sales. The Company believes that
continued growth in the industry's market share will come from the addition
of new clubs as well as from sales growth of existing clubs, primarily at the
expense of more traditional channels of distribution.
Expansion
Over the last five years BJ's increased the number of its warehouse clubs
from 27 to 71.
Warehouse Warehouse Warehouse Warehouse
Clubs Clubs Clubs Clubs
in Operation Opened Closed in Operation
Fiscal Year at Beginning During During at End
Ended January of Year the Year the Year of Year
- -------------- -------------- ----------- ----------- --------------
1992 27 6 4 29
1993 29 10 -- 39
1994 39 13 -- 52
1995 52 11 1 62
1996 62 9 -- 71
BJ's currently plans to open approximately nine new warehouse clubs in
1996 (the fiscal year ending January 25, 1997). BJ's store opening strategy
for 1996 is focused on filling in existing markets, with expansion in future
years planned for both existing and contiguous market areas. Although
expansion within existing markets may initially affect sales at existing
warehouse clubs adversely, the Company believes that this strategy increases
market penetration by increasing the frequency of shopping by current
members. In addition, BJ's anticipates improving operational efficiencies in
distribution costs and management supervision by concentrating its warehouse
clubs geographically.
Store Profile
The average size of 65 of the 71 BJ's warehouse clubs in operation at
January 27, 1996 was approximately 112,000 square feet. BJ's also operated
six smaller format clubs with an average size of approximately 69,000 square
feet. Including space for parking, a typical BJ's warehouse club requires
eight to ten acres of land. BJ's warehouse clubs are located in both
free-standing locations and "strip malls." In some locations, BJ's warehouse
clubs are combined with other large store retailers in shopping centers known
as power centers.
Construction and site development costs for a new BJ's warehouse club
average approximately $5.0 million. Land acquisition costs for a warehouse
club generally range from $2.5 million to $5.5 million, but can be
significantly higher in some locations. Opening a traditional-sized BJ's
warehouse club entails an initial capital investment of approximately $2.0
million for fixtures and equipment, as well as approximately $2.0 million for
inventory (net of accounts payable) and pre-opening expenses.
Since November 1994 the Company has opened one 74,000 square foot and five
68,000 square foot warehouse clubs in smaller market areas. The Company will
continue to evaluate the effectiveness of this format for less densely
populated markets during 1996. Of the nine new BJ's units planned to be
opened in 1996, three are expected to be in the smaller format.
Merchandising
BJ's merchandising strategy is to provide its members with a broad range
of high quality, brand name merchandise at everyday prices consistently lower
than the prices available through traditional wholesalers, discount retailers
or supermarkets. BJ's limits specific items in each product line to fast
selling styles, sizes and colors and, therefore, carries an average of
approximately 4,000 active stock-keeping units ("SKUs"). By contrast,
supermarkets typically stock approximately 25,000 SKUs, and discount stores
typically stock approximately 60,000 SKUs. BJ's works closely with
manufacturers to develop packaging and sizes which are best suited to selling
through the warehouse club format in order to minimize handling costs and to
provide increased value to its members.
2
<PAGE>
In recent years, food has accounted for an increasing percentage of BJ's
sales mix and currently represents approximately 61% of sales. The remaining
39% consists of a wide variety of general merchandise items. Food categories
at BJ's include frozen foods, meat and dairy products, dry grocery items,
fresh produce, canned goods, and household paper products and cleaning
supplies. BJ's offers fresh meat and bakery departments in nearly all its
clubs. General merchandise includes office supplies, office equipment,
televisions, stereos, small appliances, auto accessories, tires, jewelry,
housewares and apparel. Other products and services offered by BJ's include
cellular phones, greeting cards, optical centers, lottery ticket counters, an
auto buying service and a travel service.
To ensure that its merchandise selection is closely attuned to the tastes
of its members, BJ's employs regional buyers, each of whom is responsible for
tailoring the product selection in individual warehouse clubs to the regional
and ethnic tastes of the local market.
Membership
Paid membership is an integral part of the warehouse club concept. In
addition to providing a source of revenue which permits the Company to offer
low prices, membership also reinforces customer loyalty and acts as a
screening device, allowing BJ's to concentrate on serving high volume repeat
customers. BJ's internal demographic studies indicate that its customers are
more likely to be home owners and tend to have incomes, ages and family sizes
which are above the average for its trading areas. BJ's has two primary types
of members: business members and Inner Circle (household) members. At January
27, 1996, the Company had over 3.5 million members (including supplemental
cardholders).
BJ's charges an annual membership fee for individuals and qualified
businesses of $30 for the primary membership card and provides one free
supplemental card to each primary member. Additional supplemental cards for
business members cost $15 each. BJ's membership policy is less restrictive
than certain of its competitors, who require individual members to belong to
certain qualifying groups. The Company believes that its more liberal
membership policy has attracted incremental sales without adversely affecting
its costs.
Advertising
BJ's increases customer awareness of its warehouse clubs primarily through
public relations efforts, new store marketing programs and direct mail
solicitations. BJ's employs a team of dedicated marketing personnel who
solicit potential business members and who contact selected community groups
to increase the number of members. From time to time, BJ's runs free trial
membership promotions to attract new members with the objective of converting
them to paid membership status and also uses one-day passes to introduce
non-members to its warehouse clubs.
BJ's policy is generally to limit advertising and promotional expenses to
new warehouse club openings and to utilize print and electronic media
advertising sparingly. The Company uses limited vendor-funded television and
radio advertising during the holiday season. These policies result in very
low marketing expenses as compared to typical discount retailers and
supermarkets.
Warehouse Club Operations
The Company's ability to achieve profitable operations while offering high
quality merchandise at low prices depends upon the efficient operation of its
warehouse clubs and high sales volumes. BJ's buys virtually all of its
merchandise at volume discounts from manufacturers for shipment either to a
BJ's cross-docking facility or directly to BJ's warehouse clubs. This
eliminates many of the costs associated with traditional multiple-step
distribution channels, including distributors' commissions and the costs of
storing merchandise in central distribution facilities.
BJ's routes a significant percentage of its general merchandise as well as
an increasing percentage of food purchases through cross-docking facilities
which break down truckload quantity shipments from manufacturers and
re-allocate these goods for shipment, generally on a same-day basis, to
individual warehouse clubs. This permits BJ's to negotiate better volume
discounts and reduces freight expense, the number of trucks received at each
warehouse club and related receiving costs.
BJ's works closely with manufacturers to minimize the amount of handling
required once merchandise is received at a warehouse club. Most merchandise
is pre-marked by the manufacturer with the universal product code (UPC) so
that it does not require ticketing at the warehouse club. In addition, BJ's
minimizes labor costs because its warehouse clubs are self-serve. 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 on racks above the sales floor. BJ's
goal is to keep at least one day's supply of each item on the selling floor.
BJ's has been able to limit inventory losses to levels well below those
typical of discount retailers by strictly controlling the exits of its
warehouse clubs, by generally limiting customers to members and by using
state-of-the-
3
<PAGE>
art electronic article surveillance. Problems associated with payments by
check have also been insignificant, since the memberships of customers who
issue dishonored checks are terminated. Also, bank information from business
members is verified prior to the establishment of check purchase limits.
In October 1995, BJ's began accepting MasterCard in all its clubs. At the
same time, BJ's introduced a co- branded MasterCard. Purchases made at BJ's
with the card earn a 2% rebate. All other purchases with the BJ's MasterCard
earn a 1% rebate. Rebates are issued in the form of "BJ's Bucks," which can
be redeemed by members only at BJ's clubs. In addition to MasterCard, BJ's
permits members to pay for their purchases by cash, check, Discover card, or
a BJ's credit card, which is provided by a major financial institution on a
non-recourse basis.
Management Information Systems
Over the past several years, BJ's has made a significant investment in
enhancing the efficiency with which it handles purchases and captures sales
information. BJ's was the first warehouse club to introduce scanning devices
which work in conjunction with its electronic point of sale (EPOS) terminals.
Sales data from the EPOS terminals is continually transmitted to a
minicomputer in the warehouse club and transmitted daily to a mainframe
computer which provides detailed sales information to the Company's
management and merchants. BJ's utilizes a sophisticated merchandise
replenishment algorithm to suggest quantities to be re-ordered, which are
then monitored daily by BJ's buying staff. BJ's fully integrated system also
maintains detailed purchasing data on individual members, permitting BJ's
merchants and store managers to track changes in members' buying behavior.
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 the Company. Major competitors that operate
warehouse clubs include Price-Costco Inc. and Sam's Clubs (a division of
Wal-Mart Stores, Inc.).
A large number of competitive membership warehouse clubs have opened in
the Northeast in recent years. Sixty-two of BJ's 71 warehouse clubs have at
least one competitive membership warehouse club in their trading areas at an
average distance of approximately 7 miles.
The Company believes price is the major competitive factor in the markets
in which BJ's competes. Other competitive factors include store location,
merchandise selection and name recognition. The Company believes that its
efficient, low cost form of distribution gives it a significant competitive
advantage compared to more traditional channels of wholesale and retail
distribution. As a regional chain, BJ's strives to differentiate itself from
other membership warehouse club operators by its attention to local buying
preferences and seasonality.
HomeBase
General
HomeBase opened its first warehouse store in California in October 1983
and as of January 27, 1996, operated 79 warehouse stores in 10 states
(including two stores identified for closing as part of HomeBase's
restructuring; see "Strategic Initiatives and Restructuring"). HomeBase's
warehouse stores are located in the western United States. The table below
shows HomeBase's locations by state as of January 27, 1996.
Number of
State Locations
- ----- ----------
California 46
Washington 9
Colorado 6
Arizona 4
New Mexico 3
Oregon 3
Utah 3
Nevada 2
Texas 2
Idaho 1
--
Total 79
==
4
<PAGE>
Industry Overview
Warehouse-format home centers typically provide lower prices than
traditional channels of home improvement and building supply product
distribution. The warehouse format also generally offers a very broad
assortment of home improvement products, combined with a high level of
service from knowledgeable, well trained warehouse staff. These factors are
communicated to customers through ongoing, aggressive advertising.
The warehouse format generally serves two broad customer groups within the
home improvement industry. The first group consists of individuals and
families that are making purchases and completing projects generally for
their own homes on a Do-It-Yourself basis. These DIY customers range from
casual to serious, and require varying levels of support in planning and
selecting their purchases. The second customer group consists of professional
contractors and facility managers who use home improvement and building
supply products on a daily basis in their businesses.
The Company believes that demographic and lifestyle factors such as the
aging of baby boomers, the increase in home-centered activities and the aging
housing stock will create growing demand for home improvement products and
services. The Company believes that the overall market for home improvement
products was approximately $134 billion in 1995.
Over the last ten years, warehouse-format home center retailers have
gained significant market share in the United States by offering lower
prices, greater product selection and more in-stock merchandise than
traditional home center, hardware and lumber yard operators. In addition,
warehouse stores have been able to take advantage of economies created by
large sales volumes.
Strategic Initiatives and Restructuring
In 1993 HomeBase introduced a series of strategic initiatives designed to
strengthen its market position in the western United States and improve its
profitability. These initiatives included (i) a significant increase in the
level of customer service offered at HomeBase stores, through an increase in
the number of salespeople, including hiring experienced tradespeople and
others with specialized product knowledge in home improvement fields, and
enhanced sales and service training for both new and existing store
employees, (ii) improvement in gross margin through buying efficiencies
created by centralization of the merchandise replenishment function, improved
distribution of merchandise to reduce freight costs, and selective price
increases, and (iii) an aggressive marketing program to communicate to
customers the benefits of shopping at HomeBase and its improved levels of
customer service. In the third quarter of 1993 a new management team, led by
a senior executive from BJ's, was installed at HomeBase to implement these
strategic initiatives.
The Company recorded a pre-tax restructuring charge of $101.1 million in
the fourth quarter of 1993 primarily to cover expenses related to the
repositioning of HomeBase. The restructuring has enabled HomeBase to focus
its management efforts and financial resources on strengthening its
competitive position in the western United States. This charge reflects (i)
the closing of all eight of the Company's stores in midwestern markets
(Chicago and Toledo), which were outside HomeBase's primary market area, (ii)
the planned closing of 12 additional stores, 10 of which were closed by
January 27, 1996, and (iii) liquidating certain discontinued merchandise
during 1994. The Company is actively seeking to assign or sublease six closed
stores, as well as the other two stores identified for closing which were
still in operation at January 27, 1996.
Expansion
HomeBase is currently the largest or second largest home improvement
operator in most of the metropolitan markets which it serves. HomeBase's
current expansion strategy is oriented towards reinforcing its position in
these existing markets and expanding selectively to contiguous markets.
The following table shows the number of HomeBase stores opened and closed
during the last five years:
Warehouse Warehouse Warehouse Warehouse
Stores Stores Stores Stores
in Operation Opened Closed in Operation
Fiscal Year at Beginning During During at End
Ended January of Year the Year the Year of Year
- -------------- -------------- ----------- ----------- --------------
1992 66 7 -- 73
1993 73 13 -- 86
1994 86 5 9 82
1995 82 3 8 77
1996 77 4 2 79
5
<PAGE>
HomeBase plans to open approximately six warehouse stores (including the
relocation of one store) in 1996, which will be located in existing market
areas. Over the past two years, HomeBase has completed the remodeling of 23
older warehouse stores and will continue this program in 1996. By spring of
1996, over 50% of the HomeBase chain, including 13 new stores opened since
September 1993, will reflect its new prototype design.
Store Profile
The average size of the 79 HomeBase warehouse stores in operation at
January 27, 1996 was 102,000 square feet. Most HomeBase warehouse stores also
utilize additional outside selling space for nursery and garden centers.
HomeBase's warehouse stores are located in both free-standing locations and
"strip malls." In some locations, HomeBase warehouse stores are combined with
membership warehouse clubs or other large store retailers in shopping centers
known as power centers.
Including space for parking, a typical new HomeBase warehouse store
requires eight to ten acres of land. Construction and site development costs
for a new HomeBase warehouse store average $5.0 million. Land acquisition
costs for a new warehouse store generally range from $2.0 million to $6.0
million. A new HomeBase warehouse store entails an initial capital investment
of approximately $1.6 million for fixtures and equipment. In addition to
capital expenditures, each new warehouse store requires an investment of
approximately $2.5 million for inventory (net of accounts payable) and
pre-opening expenses.
Merchandising
HomeBase's large product offering provides a broad selection of brand name
merchandise to both DIY customers and professional contractors. The Company
believes that its 28,000 SKU selection is broader than the selection offered
by traditional home center competitors.
HomeBase believes that the operating efficiencies of the warehouse format
provide substantial savings over other channels of home improvement and
building supply product distribution. In order to achieve greater operational
efficiencies and reduce freight and handling costs, as well as improve the
manner in which it acquires products, HomeBase has centralized its
merchandise replenishment operations and improved its logistics of
distribution. This program also permits the Company to redeploy more store
personnel to customer service activities.
Merchandise sold by HomeBase includes lumber, building materials, plumbing
supplies and fixtures, electrical materials and fixtures, kitchen cabinets,
hand and power tools, hardware, paints, garden supplies, nursery items, home
decorative items and related seasonal and household merchandise. HomeBase's
brand name orientation allows customers to compare HomeBase's prices to the
same items offered by competitors. In selected categories, HomeBase
supplements these brand name offerings with high quality private label
products at lower prices.
Marketing and Advertising
HomeBase addresses its primary target customers through a mix of
newspaper, direct mail, radio and television advertising. The primary
advertising medium is newspaper advertisements, including both freestanding
inserts and run-of-press-ads. Television and radio advertising is used to
reinforce HomeBase's image of providing superior customer service and a broad
assortment of merchandise at everyday low prices. Additionally, the Company
participates in or hosts a variety of home shows, customer hospitality events
and contractor product shows. HomeBase solicits vendor participation in many
of its advertising programs.
Warehouse Operations
HomeBase is committed to providing superior service to every customer.
Carefully selected home improvement specialists, many of whom have extensive
experience in their respective fields, are available throughout the store to
assist DIY customers and professional contractors. HomeBase's project design
centers and kitchen design centers feature computer assisted design tools
where customers can work with design coordinators to conceptualize and plan
virtually any home improvement project.
HomeBase believes that it is important to expand the DIY marketplace by
encouraging new DIY customers and upgrading the skills and confidence levels
of existing DIY customers. HomeBase provides assistance and training to DIY
customers, including regularly scheduled customer clinics on a wide range of
home improvement projects. Delivery and installation are also available as
services to DIY customers.
A series of programs has been designed by HomeBase to specifically address
the needs of contractors. A majority of HomeBase warehouse stores have
Contractor Desks, with staff dedicated to handling contractors'
6
<PAGE>
special needs, including the ability to receive faxed orders and pre-assemble
them for pick-up, and quickly obtaining special items and sizes. HomeBase
will also deliver bulk purchases to job sites for a nominal fee. HomeBase
warehouse stores offer extended hours, opening early in the morning to serve
professional contractors.
HomeBase strives to develop the skills of its store personnel to ensure
that customers consistently receive knowledgeable and courteous assistance.
HomeBase's training programs emphasize the importance of customer service and
improve store employees' selling skills. HomeBase provides extensive training
for its entry level warehouse store personnel through a comprehensive
in-house training program that combines on-the-job training with formal
seminars and meetings. On an ongoing basis, warehouse store personnel attend
frequent in-house training sessions conducted by HomeBase's training staff or
by manufacturers' representatives, and they receive sales, product and other
information in frequent meetings with their managers. HomeBase's satellite
television system (HBTV) permits it to simultaneously broadcast training
sessions from its Irvine, California headquarters to every individual
warehouse store location.
Most of HomeBase's merchandise is purchased from manufacturers for
shipment either directly to the selling warehouse store or to cross-docking
facilities where large shipments are broken down and separated for transfer
to individual warehouse stores, generally on a same-day basis. By operating
no-frills warehouse stores, HomeBase's fixturing and operating costs are kept
substantially below those of traditional home improvement retailers.
HomeBase offers its own private label credit card to customers under a
non-recourse program operated by a major financial institution and also
accepts MasterCard, Visa, Discover and American Express.
Management Information Systems
HomeBase uses a fully integrated management information system to monitor
sales, track inventory and provide rapid feedback on the performance of its
business. Each HomeBase warehouse store operates point-of-sale terminals
which capture information on each item sold via UPC scanning. Minicomputers
at each warehouse store process and consolidate this information during the
selling day and transmit it each night to HomeBase's information center via
satellite, where it is processed daily to support merchandising, inventory
replenishment and promotional decisions.
HomeBase introduced scanning to the home improvement industry and is a
leader in implementing electronic data interchange ("EDI"). EDI permits both
HomeBase and its vendors to save money and reduce errors by electronically
transmitting purchase order information. HomeBase now uses EDI with over
1,200 vendors and continues to expand its use of this technology.
Competition
HomeBase competes with other home improvement warehouse stores and a wide
range of businesses engaged in the wholesale or retail sale of home
improvement and building supply merchandise, including home centers, hardware
stores, lumber yards and discount stores. The Company believes the major
competitive factors in the markets in which HomeBase competes are customer
service, price, product selection, location and name recognition. The Company
believes that its improved level of customer service, the value offered by
HomeBase's low prices and the one-stop shopping available through its full
range of home improvement products give it an advantage over many of its
traditional home center competitors. The major competitor in HomeBase's
market areas that also uses the warehouse merchandising format is The Home
Depot, Inc., which has significantly greater financial and marketing
resources than the Company. Approximately 85% of HomeBase's warehouse stores
compete with Home Depot units. HomeBase also competes with Builders Square (a
division of Kmart Corp.), and a number of smaller regional operators such as
Eagle Hardware & Garden, Inc., Orchard Supply Hardware Corporation, and
Contractor's Warehouse (a division of Grossman's Inc.). Approximately 95% of
HomeBase's warehouse stores have at least one warehouse home improvement
retailer in their trading areas at an average distance of approximately 3
miles.
Employees
As of January 27, 1996, the Company had approximately 19,000 employees, of
whom approximately 3,000 were part-time employees. Approximately 1,300
employees were corporate and divisional management and office support
employees; the balance were warehouse personnel.
None of the Company's employees is represented by unions. The Company
considers its relations with its employees to be excellent.
7
<PAGE>
Item 2. Properties
The Company operated 150 warehouse locations as of January 27, 1996, of
which 105 are leased under long- term leases and 36 are owned. The Company
owns the buildings at the remaining nine locations, which are subject to
long-term ground leases.
The unexpired terms of warehouse location leases range from 4.0 years to
37.9 years, and average approximately 13.9 years. The Company has options to
renew all of its leases for periods that range from approximately 5 to 50
years and average approximately 18.9 years. These leases require fixed
monthly rental payments which are subject to various adjustments. In
addition, certain leases require payment of a percentage of the warehouse's
gross sales in excess of certain amounts. Most leases require that the
Company pay all property taxes, insurance, utilities and other operating
costs.
The Company's principal executive offices in Natick, Massachusetts, which
include the home office of its BJ's division, occupy approximately 125,000
square feet under a lease expiring January 31, 1999, with an option to extend
this lease through January 31, 2001. The Company also maintains a home office
for its HomeBase division in Irvine, California, occupying approximately
164,000 square feet under a lease expiring July 24, 2004, with options to
extend this lease through July 24, 2019.
See Note D of Notes to the Consolidated Financial Statements included
elsewhere in this report for additional information with respect to the
Company's leases.
Certain of the Company's locations are financed through long-term secured
financings. See Note C of Notes to the Consolidated Financial Statements for
additional information with respect to such financings.
Listings of BJ's and HomeBase locations within each state are shown on
pages 1 and 4, respectively.
Item 3. Legal Proceedings
The Company is involved in various legal proceedings incident to the
character of its business. Although it is not possible to predict the outcome
of these proceedings, or any claims against the Company related thereto, the
Company believes that such proceedings 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 27, 1996.
Item 4A. Executive Officers of the Registrant
The following persons are the executive officers of the Company as of the
date hereof:
<TABLE>
<CAPTION>
Office and Employment
Name Age During Last Five Years
- ---- --- ----------------------
<S> <C> <C>
Sumner L. Feldberg 71 Chairman of the Board of the Company since February 1989; Chairman of
the Board of The TJX Companies, Inc. from 1989 to 1995.
Herbert J. Zarkin 57 President, Chief Executive Officer and Director of the Company since May
1993; Executive Vice President of the Company (1989-1993); President of
BJ's Wholesale Club (1990-1993).
John J. Nugent 49 Executive Vice President of the Company and President of BJ's Wholesale
Club since September 1993; Senior Vice President of BJ's Wholesale Club
(1991-1993); Director of Sales Operations of BJ's Wholesale Club (1989-1993).
Allan P. Sherman 51 Executive Vice President of the Company since May 1993 and President of
HomeBase since September 1993; President of BJ's Wholesale Club (May
1993 to September 1993); Senior Vice President and General Merchandise
Manager--Non-Food of BJ's Wholesale Club (1991-1993).
Sarah M. Gallivan 53 Vice President, General Counsel and Secretary of the Company since
December 1989.
8
<PAGE>
Edward J. Weisberger 54 Senior Vice President and Chief Financial Officer since September 1994;
Vice President--Finance of the Company (April 1989 to September 1994).
</TABLE>
All officers hold office until the next annual meeting of the Board of
Directors in 1996 and until their successors are elected and qualified.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The common stock of the Company is listed on the New York Stock Exchange
(symbol WBN). The quarterly high and low stock prices for the fiscal years
ended January 27, 1996 and January 28, 1995 were:
Fiscal Year Ended Fiscal Year Ended
January 27, 1996 January 28, 1995
----------------- ------------------
Quarter High Low High Low
- ------- ------- ------ ------- --------
First 20-3/8 15-7/8 20-1/8 14-1/8
Second 16-3/4 13-1/2 19 14-1/2
Third 19-1/4 15-1/2 20 16-3/4
Fourth 19-5/8 15-1/4 19-3/4 14-7/8
The approximate number of stockholders of record at March 30, 1996 was
4,100. The Company has not paid any dividends. For restrictions on the
payment of dividends, see Note C of Notes to the Consolidated Financial
Statements.
9
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------------------------
Jan. 27, Jan. 28, Jan. 29, Jan. 30, Jan. 25,
1996 1995 1994 1993 1992
----------- ------------ ------------ ------------ ------------
(53 weeks)
(Dollars in Thousands Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $ 3,978,384 $ 3,650,281 $ 3,589,341 $ 3,357,794 $ 2,783,585
--------- ---------- ---------- ---------- ----------
Cost of sales, including buying and
occupancy costs 3,387,992 3,110,787 3,086,670 2,881,334 2,399,765
Selling, general and administrative
expenses 455,523 418,404 423,026 401,905 322,705
Restructuring charge -- -- 101,133 -- --
Cost of closing BJ's warehouse
clubs in Chicago -- -- -- -- 5,500
Discontinuation of HomeClub name -- -- -- -- 3,400
Interest on debt and capital
leases (net) 15,431 14,898 12,489 6,280 3,292
--------- ---------- ---------- ---------- ----------
Income (loss) before income taxes
and cumulative effect of
accounting principle changes 119,438 106,192 (33,977) 68,275 48,923
Provision (benefit) for income
taxes 46,461 41,202 (15,290) 24,033 18,914
--------- ---------- ---------- ---------- ----------
Income (loss) before cumulative
effect of accounting principle
changes 72,977 64,990 (18,687) 44,242 30,009
Cumulative effect of accounting
principle changes -- -- 905 -- --
--------- ---------- ---------- ---------- ----------
Net income (loss) $ 72,977 $ 64,990 $ (17,782) $ 44,242 $ 30,009
========= ========== ========== ========== ==========
Income (loss) per common share:
Primary earnings per share:
Income (loss) before cumulative
effect of accounting principle
changes $ 2.20 $ 1.95 $ (0.56) $ 1.33 $ 1.01
Cumulative effect of accounting
principle changes -- -- 0.02 -- --
--------- ---------- ---------- ---------- ----------
Net income (loss) $ 2.20 $ 1.95 $ (0.54) $ 1.33 $ 1.01
========= ========== ========== ========== ==========
Fully diluted earnings per share:
Income (loss) before
cumulative effect of
accounting principle changes $ 2.05 $ 1.83 $ (0.56) $ 1.31 $ 1.01
Cumulative effect of accounting
principle changes -- -- 0.02 -- --
--------- ---------- ---------- ---------- ----------
Net income (loss) $ 2.05 $ 1.83 $ (0.54) $ 1.31 $ 1.01
========= ========== ========== ========== ==========
Number of common shares for
earnings per share computations:
Primary 33,220,445 33,405,014 33,082,362 33,191,497 29,807,255
Fully diluted 37,784,238 37,792,893 33,082,362 35,706,763 29,810,348
Balance Sheet Data:
Working capital $ 265,450 $ 308,749 $ 213,315 $ 286,313 $ 268,559
Total assets 1,332,451 1,237,521 1,072,994 1,006,663 786,405
Long-term debt and obligations
under capital leases 245,313 258,763 174,054 192,630 86,774
Stockholders' equity 555,120 488,089 420,492 436,610 388,645
Warehouses open at end of year:
BJ's Wholesale Club 71 62 52 39 29
HomeBase 79 77 82 86 73
</TABLE>
10
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company's fiscal year ends on the last Saturday in January. The fiscal
year ended January 27, 1996 is referred to as "1995" or "fiscal 1995" below.
The fiscal years ended January 28, 1995 and January 29, 1994 are referred to
as "1994" or "fiscal 1994" and "1993" or "fiscal 1993," respectively.
Results of Operations
The following table presents selected income statement and segment data
for the last three fiscal years:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------------------
January 27, 1996 January 28, 1995 January 29, 1994
--------------------- -------------------- ---------------------
% of % of % of
$ Net Sales $ Net Sales $ Net Sales
-------- --------- ------- --------- ------- ----------
(Dollars in Millions Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $3,978.4 100.0% $3,650.3 100.0% $3,589.3 100.0%
Cost of sales, including
buying and occupancy costs 3,388.0 85.2 3,110.8 85.2 3,086.7 86.0
Selling, general and
administrative expenses 455.5 11.4 418.4 11.5 423.0 11.8
Restructuring charge -- -- -- -- 101.1 2.8
Interest on debt and capital
leases (net) 15.4 .4 14.9 .4 12.5 .3
------- -------- ----- -------- ----- --------
Income (loss) before income
taxes and cumulative effect
of accounting principle
changes 119.5 3.0 106.2 2.9 (34.0) (.9)
Provision (benefit) for
income taxes 46.5 1.2 41.2 1.1 (15.3) (.4)
------- -------- ----- -------- ----- --------
Income (loss) before
cumulative effect of
accounting principle
changes 73.0 1.8 65.0 1.8 (18.7) (.5)
Cumulative effect of
accounting principle
changes -- -- -- -- .9 --
------- -------- ----- -------- ----- --------
Net income (loss) $ 73.0 1.8% $ 65.0 1.8% $ (17.8) (.5)%
======= ======== ===== ======== ===== ========
Fully diluted net income
(loss) per common share $ 2.05 $ 1.83 $ (.54)
======= ===== =====
Selected Segment Data:
BJ's Wholesale Club:
Net sales $2,529.6 100.0% $2,293.1 100.0 % $2,003.4 100.0 %
Operating income $ 86.5 3.4% $ 68.8 3.0% $ 45.2 2.3%
HomeBase:
Net sales $1,448.8 100.0% $1,357.2 100.0% $1,586.0 100.0%
Operating income (loss) $ 55.8 3.8% $ 60.7 4.5% $ (55.8) (3.5)%
</TABLE>
In the fourth quarter of 1993, the Company recorded a $101.1 million
pre-tax restructuring charge, primarily related to repositioning its HomeBase
division. Results for 1993 excluded sales and operating income or losses from
October 31, 1993 to January 29, 1994 for the eight midwestern HomeBase
warehouse stores that closed in that quarter, and from November 28, 1993 to
January 29, 1994 for the other 16 HomeBase warehouse stores planned to be
closed. The Company's results for 1994 also excluded the sales and operating
losses of those 16 stores, eight of which were closed during 1994. Sales from
all 24 warehouse stores were excluded from the computation of comparable
store sales growth from 1993 to 1994.
11
<PAGE>
HomeBase's reported sales and operating income for 1995 included all
stores in operation. Sales from the eight warehouse stores which closed in
1994 and the two warehouse stores which closed in 1995 were excluded from the
computation of comparable store sales growth from 1994 to 1995.
Sales
Total sales of the Company increased by 9.0% from 1994 to 1995 and by 1.7%
from 1993 to 1994. The increases in both years were due to the opening of new
warehouse stores. Adjusting 1993 and 1994 sales for HomeBase stores whose
sales and operating income were charged to the reserve in 1994, total sales
for the Company increased by 6.4% from 1994 to 1995 and by 10.0% from 1993 to
1994. Comparable store sales increases (decreases) for the last two fiscal
years were as follows:
<TABLE>
<CAPTION>
1995 vs. 1994 vs.
1994 1993
-------- ----------
<S> <C> <C>
BJ's Wholesale Club 0.4% (2.5)%
HomeBase (5.0)% (1.1)%
Total (1.8)% (1.9)%
</TABLE>
Comparable store sales at BJ's over the last two years were affected by
increased competition and the opening of new BJ's clubs in the same markets
as existing BJ's clubs, especially in 1994. BJ's had comparable store sales
increases in each of the last nine months of fiscal 1995.
HomeBase's comparable store sales in the last two years were affected by
increased competition, as well as weak economic conditions in California,
where HomeBase has its largest concentration of stores. Sales in 1995 also
were impacted by significant deflation in lumber prices, a general slowdown
in housing turnover, and severe weather in the western United States in the
first quarter of 1995.
Cost of Sales
Cost of sales (including buying and occupancy costs) as a percentage of
sales was 85.2% in both 1995 and 1994, and 86.0% in 1993. Although BJ's,
which has lower gross margins than HomeBase, contributed an increasing
proportion of sales throughout the period from 1993 to 1995, the cost of
sales percentage was flat in 1995 and decreased by .8% in 1994, primarily
because the cost of sales ratio at HomeBase declined in both years.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses as a percentage of
sales were 11.4% in 1995, 11.5% in 1994, and 11.8% in 1993. The ratio of SG&A
expenses to sales declined in both 1995 and 1994 because of BJ's increased
proportion of consolidated sales and its improved SG&A ratios in both years.
SG&A expenses as a percentage of sales are lower at BJ's than at HomeBase,
which offers a higher level of customer service. HomeBase's SG&A expense
ratio rose in 1994 and 1995, due primarily to increased store payroll to
provide improved customer service.
Restructuring
The Company's $101.1 million pre-tax restructuring charge in 1993 related
principally to store closings and the write-down of discontinued inventory at
HomeBase. The charge, which was recorded in the fourth quarter of fiscal
1993, anticipated the closing of 24 HomeBase warehouse stores. As of January
27, 1996, eighteen of these stores have been closed. Two additional stores
are expected to close in the future, which will bring the number of HomeBase
stores closed in connection with the restructuring to twenty. Four stores
that were originally included in the restructuring are no longer designated
for closing, due to their improved performance. The discontinued merchandise
has been liquidated.
The Company is still obligated under leases for six closed stores which
had not been subleased as of January 27, 1996. In the fourth quarter of 1995,
the Company increased its restructuring reserves by $6.0 million pre-tax
($3.6 million net of tax benefits), primarily to adjust estimated lease
obligations related to these six stores. This addition to the reserves was
offset by a corresponding adjustment in the Company's income tax liabilities
(see "Income Taxes" below).
The balance remaining in the restructuring reserves at January 27, 1996
totalled $30.7 million. Approximately $24 million was reserved for lease
obligations (net of sublease income), $4 million for store closing costs and
$3 million (which is netted against property held for sale) for losses on the
disposal of owned property. These reserves are based on a number of
estimates, and actual future costs could vary from these estimates, depending
on certain factors, principally the Company's ability to sublease, assign or
sell closed HomeBase locations on anticipated terms.
12
<PAGE>
Operating Income
BJ's operating income was $86.5 million in 1995, $68.8 million in 1994,
and $45.2 million in 1993. Operating income in 1993 included a pre-tax charge
of $2.2 million related to the relocation of BJ's Syracuse, NY club. BJ's
improvement in operating income over the three-year period reflects a more
favorable merchandising mix, with a shift from high-ticket, lower margin
categories, to higher margin categories, efficiencies in merchandise
acquisition and distribution (cross-docking facilities are now operated by
BJ's instead of by third parties), tight expense control, and expense
leverage from operating additional warehouse clubs.
HomeBase's operating income was $55.8 million in 1995, compared with $60.7
million in 1994 and an operating loss of $55.8 million in 1993, which
included a pre-tax restructuring charge of $98.5 million and operating losses
of $7.6 million for stores in the restructuring reserve. The improvement in
operating income from 1993 ($50.3 million before restructuring related items)
to 1994 was due to higher gross margins which more than offset higher store
payrolls, reflecting HomeBase's strategic initiative to improve customer
service and achieve higher margins through a better mix of sales,
efficiencies in merchandise distribution and selective price increases.
Operating income decreased from 1994 to 1995 primarily because of the impact
of lower-than-expected sales volumes.
Interest
The components of net interest expense in the last three years were as
follows (in millions):
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------
Jan. 27, 1996 Jan. 28, 1995 Jan. 29, 1994
-------------- -------------- ----------------
<S> <C> <C> <C>
Interest expense on debt $19.8 $19.1 $11.4
Interest and investment income (6.0) (6.0) (1.5)
------------ ------------ --------------
Interest on debt (net) 13.8 13.1 9.9
Interest on capital leases 1.6 1.8 2.6
------------ ------------ --------------
Interest on debt and capital leases (net) $15.4 $14.9 $12.5
============ ============ ==============
</TABLE>
The increases in interest expense on debt and in interest and investment
income from 1993 to 1994 were due primarily to the issuance of $100 million
of 11% Senior Subordinated Notes in May 1994 and the investment of the net
proceeds of $97.3 million. Interest expense on debt in 1995 included a full
year's interest on the Senior Subordinated Notes versus a partial year in
1994. This was mostly offset by a reduction in interest on the Company's
9.58% Senior Notes (average balance reduced by $12 million) and an increase
in capitalized interest of approximately $1.0 million.
Income Taxes
The Company's income tax provision was 38.9% of pre-tax income in 1995 and
38.8% in 1994, compared to an income tax benefit of 45.0% in 1993. The
Company's provision for income taxes in 1993 included 38.2% of pre-tax income
before the restructuring charge and a 40.5% tax benefit from the
restructuring charge. During 1995 the statute of limitations expired for
certain taxable years. As a result, previously accrued tax liabilities of
approximately $3.6 million related to these years were no longer required.
This excess amount was reclassified to the Company's restructuring reserve
liabilities with no impact on the Company's provision for income taxes (see
"Restructuring" above).
Accounting Changes
In the first quarter of 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
and SFAS No. 112, "Employers' Accounting for Postemployment Benefits." The
cumulative effect of these accounting principle changes increased (decreased)
after-tax income by the following amounts (in millions):
<TABLE>
<CAPTION>
<S> <C>
SFAS No. 109, "Accounting for Income Taxes" $1.6
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," net of tax benefit (.2)
SFAS No. 112, "Employers' Accounting for Postemployment Benefits," net of
tax benefit (.5)
-----
$ .9
=====
</TABLE>
13
<PAGE>
Net Income
Net income for 1995 was $73.0 million, or $2.05 per share, fully diluted,
compared to net income of $65.0 million, or $1.83 per share, in 1994 and a
net loss of $17.8 million, or $.54 per share, in 1993. Net income in 1993
would have been $47.3 million, or $1.37 per share, fully diluted, excluding
the restructuring charge, the cost of relocating BJ's Syracuse, NY club,
operating losses of the HomeBase stores that were subsequently included in
the restructuring reserve and the net cumulative effect of accounting
changes.
Liquidity and Capital Resources
Net cash provided by operating activities was $99.5 million in 1995 versus
$123.1 million in 1994. Excluding cash flow generated by the Company's
restructuring, net cash provided by operating activities was $103.3 million
in 1995 and $95.6 million in 1994.
Cash expended for property additions was $163.5 million in 1995 and $111.7
million in 1994. The Company opened nine new BJ's clubs and four new HomeBase
warehouse stores, including the relocation of one store, in 1995. In the
previous year, the Company opened a total of 14 new stores. Eleven of the
stores opened in each year were owned. The Company also remodeled 12 HomeBase
warehouse stores during 1995 and 11 HomeBase warehouse stores during 1994.
The increase in cash expended for property additions from 1994 to 1995 was
due in part to a higher level of expenditures in 1995 for future store
openings and for renovations.
The Company's capital expenditures are expected to total approximately
$135 million in 1996, based on opening nine new BJ's clubs and six new
HomeBase warehouse stores, including the relocation of one HomeBase store.
The Company also plans to renovate approximately 12 HomeBase warehouse stores
during the year. The timing of actual store openings and the amount of
related expenditures could vary from these estimates due to the complexity of
the real estate development process.
As of January 27, 1996, the Company had closed 18 HomeBase warehouse
stores in connection with its restructuring and was still obligated under
leases for six of these stores. The Company expects to close two additional
HomeBase stores that are currently in operation.
The Company's restructuring has generated approximately $68 million of
cash flow through January 27, 1996 (net of tax benefits), including
approximately $4 million in fiscal 1995. The net cash outflow in connection
with the disposition of the remaining warehouse locations, including
long-term lease obligations, is estimated to be approximately $5 million to
$10 million (net of tax benefits). The remaining terms of the leases 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 dispose of closed HomeBase locations on anticipated
terms.
During the second quarter of fiscal 1995, the Company's Board of Directors
authorized the repurchase of up to $50,000,000 of Waban's common stock in
open market transactions. Repurchased shares may be used for the Company's
Stock Incentive Plan or may be reissued at such time as the Company's
convertible subordinated debentures are presented for conversion into common
stock, or for other corporate purposes. As of January 27, 1996, the Company
had repurchased 622,300 shares at a total cost of $9.9 million. A total of
54,729 of these shares have been reissued in connection with the Company's
Stock Incentive Plans.
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.
As of January 27, 1996, 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. At January 27, 1996, $9.9 million of standby letters of credit
were outstanding under the line's sub-facility. The remainder of the line of
credit was available for use at the end of the fiscal year. The Company has
not borrowed against this line of credit.
Cash, cash equivalents and marketable securities totalled $52.5 million as
of January 27, 1996. The Company expects that its current resources, together
with anticipated cash flow from operations, will be sufficient to finance its
operations through 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 HomeBase
stores closed in connection with the restructuring.
14
<PAGE>
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.
Statements of Financial Accounting Standards Nos. 121 and 123
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
and SFAS No. 123, "Accounting for Stock-Based Compensation," become effective
for the Company's fiscal year ending January 25, 1997.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. It also requires that long-lived assets
and certain identifiable intangibles to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell. The Company does
not expect SFAS No. 121 to have a material effect on its financial statements
in the fiscal year ending January 25, 1997.
SFAS No. 123 provides a choice of adopting its fair value based method of
expense recognition for stock-based awards granted to employees or applying
the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees." The Company expects to continue to apply the accounting
provisions of APB No. 25 and adopt the disclosure-only provisions of SFAS No.
123 in 1996; consequently, SFAS No. 123 is expected to have no effect on the
Company's financial position or results of operations in the fiscal year
ending January 25, 1997.
Forward-Looking Statements
This Annual Report on Form 10-K contains "forward-looking statements,"
including certain information with respect to the Company's plans and
strategy for its business. For this purpose, any statements contained herein
that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words
"believes," "anticipates," "plans," "expects" and similar expressions are
intended to identify forward-looking statements. There are a number of
important factors that could cause actual events or the Company's actual
results to differ materially from those indicated by such forward-looking
statements. These factors include, without limitation, those set forth below,
as well as other factors noted elsewhere in this Annual Report on Form 10-K.
Regional Economic Conditions. BJ's warehouse clubs are located primarily
in the northeastern United States and HomeBase's warehouse stores are located
primarily in the western United States, particularly California. Both BJ's
and HomeBase have been adversely affected from time to time by economic
downturns experienced in their respective geographic markets and future
economic downturns in such regions could adversely affect the Company's
results of operations.
Competition. The Company's businesses compete with a large number and
variety of wholesalers and retailers, including several large national chains
in the warehouse merchandising business, some of which have significantly
greater financial and marketing resources than the Company. Competition
exists primarily in the areas of price, product selection and service.
Competitive factors could require price reductions or increased operational
costs, including increased expenditures for marketing and customer service
that could adversely affect the Company's operating results. The Company also
experiences competition for qualified personnel and suitable new warehouse
locations. See "Business--BJ's Wholesale Club--Competition" and
"Business--HomeBase--Competition."
15
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
Page
<S> <C>
Consolidated Statements of Income for the fiscal years ended January 27, 1996, January 28,
1995 and January 29, 1994 17
Consolidated Balance Sheets as of January 27, 1996 and January 28, 1995 18
Consolidated Statements of Cash Flows for the fiscal years ended January 27, 1996, January
28, 1995 and January 29, 1994 19
Consolidated Statements of Stockholders' Equity for the fiscal years ended January 27, 1996,
January 28, 1995 and January 29, 1994 20
Notes to Consolidated Financial Statements 21
Selected Quarterly Financial Data 31
Report of Independent Accountants 32
Report of Management 32
Schedule:
II Valuation and Qualifying Accounts 33
Consent and Report of Independent Accountants 34
</TABLE>
16
<PAGE>
WABAN INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
January 27, January 28, January 29,
1996 1995 1994
----------- ----------- -------------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C>
Net sales $3,978,384 $3,650,281 $3,589,341
--------- --------- -----------
Cost of sales, including buying and
occupancy costs 3,387,992 3,110,787 3,086,670
Selling, general and administrative expenses 455,523 418,404 423,026
Restructuring charge -- -- 101,133
Interest on debt and capital leases (net) 15,431 14,898 12,489
--------- --------- -----------
Total expenses 3,858,946 3,544,089 3,623,318
--------- --------- -----------
Income (loss) before income taxes and cumulative
effect of accounting principle changes 119,438 106,192 (33,977)
Provision (benefit) for income taxes 46,461 41,202 (15,290)
--------- --------- -----------
Income (loss) before cumulative effect of
accounting principle changes 72,977 64,990 (18,687)
Cumulative effect of accounting principle changes -- -- 905
--------- --------- -----------
Net income (loss) $ 72,977 $ 64,990 $ (17,782)
========= ========= ===========
Income (loss) per common share:
Primary earnings per share:
Income (loss) before cumulative effect of
accounting principle changes $ 2.20 $ 1.95 $ (0.56)
Cumulative effect of accounting principle changes -- -- 0.02
--------- --------- -----------
Net income (loss) $ 2.20 $ 1.95 $ (0.54)
========= ========= ===========
Fully diluted earnings per share:
Income (loss) before cumulative effect of
accounting principle changes $ 2.05 $ 1.83 $ (0.56)
Cumulative effect of accounting principle changes -- -- 0.02
--------- --------- -----------
Net income (loss) $ 2.05 $ 1.83 $ (0.54)
========= ========= ===========
Number of common shares for earnings per share
computations:
Primary 33,220 33,405 33,082
Fully diluted 37,784 37,793 33,082
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
WABAN INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 27, January 28,
1996 1995
----------- -------------
(Dollars in Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 32,155 $ 65,040
Marketable securities 20,339 63,933
Accounts receivable 59,221 51,875
Merchandise inventories 570,236 512,619
Current deferred income taxes 21,445 22,900
Prepaid expenses 10,755 8,992
--------- -----------
Total current assets 714,151 725,359
--------- -----------
Property at cost:
Land and buildings 376,930 289,781
Leasehold costs and improvements 84,052 72,874
Furniture, fixtures and equipment 288,929 237,373
--------- -----------
749,911 600,028
Less accumulated depreciation and amortization 169,711 130,245
--------- -----------
580,200 469,783
--------- -----------
Property under capital leases 15,640 17,129
Less accumulated amortization 6,904 7,150
--------- -----------
8,736 9,979
--------- -----------
Property held for sale (net) 4,603 12,251
Deferred income taxes 11,557 7,150
Other assets 13,204 12,999
--------- -----------
Total assets $1,332,451 $1,237,521
========= ===========
LIABILITIES
Current liabilities:
Current installments of long-term debt $ 12,828 $ 12,763
Accounts payable 275,963 249,842
Restructuring reserve 7,175 14,079
Accrued expenses and other current liabilities 143,316 136,403
Accrued federal and state income taxes 8,771 2,536
Obligations under capital leases due within one year 648 987
--------- -----------
Total current liabilities 448,701 416,610
--------- -----------
Real estate debt 924 1,752
General corporate debt 24,000 36,000
Senior subordinated debt 100,000 100,000
Convertible subordinated debt 108,600 108,600
Obligations under capital leases, less portion due within one year 11,789 12,411
Noncurrent restructuring reserve 20,623 22,900
Other noncurrent liabilities 62,694 51,159
STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized 190,000,000 shares,
issued 33,296,935 and 33,186,418 shares 333 332
Additional paid-in capital 328,619 325,565
Unrealized holding gains (losses) 22 (44)
Retained earnings 235,213 162,236
Treasury stock, at cost, 567,571 shares (9,067) --
--------- -----------
Total stockholders' equity 555,120 488,089
--------- -----------
Total liabilities and stockholders' equity $1,332,451 $1,237,521
========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
WABAN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
January 27, January 28, January 29,
1996 1995 1994
----------- ----------- -------------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 72,977 $ 64,990 $ (17,782)
Adjustments to reconcile net income to net cash provided
by operating activities:
Restructuring charge -- -- 101,133
Depreciation and amortization of property 46,654 40,425 37,039
Loss on property disposals 813 2,016 790
Amortization of premium on marketable securities 752 388 9
Other noncash items (net) 1,292 1,963 3,102
Deferred income taxes 3,004 11,942 (41,518)
Increase (decrease) in cash due to changes in:
Accounts receivable (7,346) 10,572 (21,042)
Merchandise inventories (57,617) (7,431) 10,048
Prepaid expenses (1,763) 670 (1,121)
Other assets (854) (318) (1,042)
Accounts payable 26,121 (3,390) 14,215
Restructuring reserves (14,460) (25,769) (15,850)
Accrued expenses 12,152 11,754 5,302
Accrued income taxes 6,235 (434) (953)
Other noncurrent liabilities 11,535 15,738 18,698
--------- --------- -----------
Net cash provided by operating activities 99,495 123,116 91,028
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (146,778) (120,944) --
Sale of marketable securities 131,632 37,303 11,839
Maturity of marketable securities 58,352 19,082 5,066
Property additions (163,512) (111,704) (131,974)
Property disposals 8,559 16,140 14,839
--------- --------- -----------
Net cash used in investing activities (111,747) (160,123) (100,230)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt, net of issuance costs
of $2,747 in FYE 1/95 -- 97,253 --
Repayment of long-term debt (12,763) (15,374) (2,222)
Repayment of capital lease obligations (961) (1,227) (5,024)
Purchase of treasury stock (9,906) -- --
Proceeds from sale and issuance of common stock 2,997 1,518 681
--------- --------- -----------
Net cash provided by (used in) financing activities (20,633) 82,170 (6,565)
--------- --------- -----------
Net increase (decrease) in cash and cash equivalents (32,885) 45,163 (15,767)
Cash and cash equivalents at beginning of year 65,040 19,877 35,644
--------- --------- -----------
Cash and cash equivalents at end of year $ 32,155 $ 65,040 $ 19,877
========= ========= ===========
Supplemental cash flow information:
Interest paid $ 21,038 $ 18,280 $ 13,682
Income taxes paid 37,222 29,723 25,099
Noncash financing and investing activities:
Capital lease obligations -- -- 329
Treasury stock issued for compensation plans 839 -- --
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
WABAN INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In Thousands Except Per Share Amounts)
-----------------------------------------------------------------------------
Common Unrealized
Stock Additional Holding Total
Par Value Paid-In Gains Retained Treasury Stockholders'
$.01 Capital (Losses) Earnings Stock Equity
----------- -------- ----------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 30, 1993 $330 $321,252 $ -- $115,028 $ -- $436,610
Net loss -- -- -- (17,782) -- (17,782)
Sale and issuance of common
stock 1 1,663 -- -- -- 1,664
--------- ------ --------- ----- ----- --------
Balance, January 29, 1994 331 322,915 -- 97,246 -- 420,492
Net income -- -- -- 64,990 -- 64,990
Unrealized holding losses -- -- (44) -- -- (44)
Sale and issuance of common
stock 1 2,650 -- -- -- 2,651
--------- ------ --------- ----- ----- --------
Balance, January 28, 1995 332 325,565 (44) 162,236 -- 488,089
Net income -- -- -- 72,977 -- 72,977
Unrealized holding gains -- -- 66 -- -- 66
Purchase of treasury stock -- -- -- -- (9,906) (9,906)
Sale and issuance of common
stock 1 3,054 -- -- 839 3,894
--------- ------ --------- ----- ----- --------
Balance, January 27, 1996 $333 $328,619 $22 $235,213 $(9,067) $555,120
========= ====== ========= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Accounting Policies
Basis of Presentation
The consolidated financial statements of Waban Inc. (the "Company")
include the financial statements of all of the Company's subsidiaries, all of
which are wholly-owned.
Fiscal Year
The Company's fiscal year ends on the last Saturday in January.
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.
See Notes K and L for further information.
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
Buildings, furniture, fixtures and equipment are depreciated by use of the
straight-line method over the estimated useful lives of the assets. Leasehold
costs and improvements are amortized by use of the straight-line method over
the lease term or their estimated useful life, whichever is shorter.
Preopening Costs
Preopening costs consist of direct incremental costs of opening a facility
and are charged to operations within the fiscal year that a new warehouse
store or club opens.
Membership Fees
Membership fees are included in revenue when received, but not before a
warehouse club opens.
Interest on Debt and Capital Leases
Interest on debt and capital leases in the Statement of Income is
presented net of interest income and investment income of $5,996,000 in 1995,
$5,979,000 in 1994 and $1,507,000 in 1993.
Capitalized Interest
The Company capitalizes interest related to the development of owned
facilities. Interest in the amount of $3,118,000, $2,134,000 and $2,773,000
was capitalized in 1995, 1994 and 1993, respectively.
Stock-Based Compensation
The Company applies the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations in accounting for its
stock-based compensation.
Net Income Per Common Share
Primary and fully diluted net income per common share are based on the
weighted average number of common and common equivalent shares and other
dilutive securities outstanding in each year.
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
21
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Other
Certain amounts in prior years' financial statements have been
reclassified for comparative purposes.
A. Cumulative Effect of Accounting Principle Changes
Effective January 31, 1993 (the first day of fiscal 1993), the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." The cumulative effect
of these accounting principle changes increased (decreased) after-tax
income by the following amounts (in thousands):
<TABLE>
<CAPTION>
<S> <C>
SFAS No. 109, "Accounting for Income Taxes" $1,616
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," net
of tax benefit of $138 (210)
SFAS No. 112, "Employers' Accounting for Postemployment Benefits," net of tax benefit of
$328 (501)
-----
$ 905
=====
</TABLE>
B. Restructuring Reserve
In the fourth quarter of 1993, the Company recorded a pre-tax
restructuring charge of $101.1 million ($60.2 million post-tax) primarily
related to repositioning its HomeBase division, which included:
1) closing all eight HomeBase warehouses in the midwestern markets of
Chicago and Toledo;
2) closing or relocating an additional 16 HomeBase warehouses which had
limited potential for long-term profitability. This group of
warehouses consisted mostly of older units which did not have
desirable locations or were not suitable for the current HomeBase
prototype;
3) liquidating discontinued merchandise; and
4) related administrative expenses.
As of January 27, 1996, eighteen HomeBase stores have been closed in
connection with the restructuring, including the entire midwestern market.
Two additional stores are expected to close in the future, which will
bring the number of HomeBase stores closed in connection with the
restructuring to twenty. Four stores that were originally included in the
restructuring are no longer designated for closing, due to their improved
performance. The discontinued merchandise has been liquidated.
The majority of charges to the restructuring reserves in 1995 were related
to lease obligations for closed stores. In the fourth quarter of 1995, the
Company increased its restructuring reserves by $6.0 million pre-tax ($3.6
million net of tax benefits), primarily to adjust estimated lease
obligations related to the six stores which have been closed, but have not
been subleased as of January 27, 1996. This addition to the reserves was
offset by a corresponding adjustment in the Company's income tax
liabilities (see Note F). The Company believes that the balance remaining
in the restructuring reserves as of January 27, 1996 is appropriate.
In addition to the restructuring reserves included in current and
noncurrent liabilities in the balance sheets, property held for sale was
stated net of a reserve for write-down of $2,917,000 at January 27, 1996
and $2,974,000 at January 28, 1995.
22
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
C. Debt
At January 27, 1996 and January 28, 1995, long-term debt, exclusive of
current installments, consisted of the following:
<TABLE>
<CAPTION>
January 27, January 28,
1996 1995
----------- -----------
(In Thousands)
<S> <C> <C>
Real estate debt, interest at 8.25% to 9.25%,
maturing through March 1, 2003 $ 924 $ 1,752
========= =========
General Corporate Debt:
Senior notes, interest at 9.58%,
maturing May 31, 1996 through
May 31, 1998 $ 24,000 $ 36,000
========= =========
Senior Subordinated Debt:
Senior subordinated notes, interest at 11%,
maturing May 15, 2004 $100,000 $100,000
========= =========
Convertible Subordinated Debt:
Convertible debentures, interest at 6.5%,
maturing July 1, 2002 $108,600 $108,600
========= =========
</TABLE>
The aggregate maturities of long-term debt outstanding at January 27, 1996
were as follows:
<TABLE>
<CAPTION>
Real General Senior Convertible
Estate Corporate Subordinated Subordinated
Fiscal Years Ending January Debt Debt Debt Debt Total
- ------------------------------ ---- ------- ---------- ---------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
1998 $474 $12,000 $ -- $ -- $ 12,474
1999 72 12,000 -- -- 12,072
2000 79 -- -- -- 79
2001 86 -- -- -- 86
Later years 213 -- 100,000 108,600 208,813
-- ----- -------- -------- ------
Total $924 $24,000 $100,000 $108,600 $233,524
== ===== ======== ======== ======
</TABLE>
As of January 27, 1996, real estate debt was collateralized by land and
buildings with a net book value of $17,259,000.
In May 1994, the Company issued $100 million of 11% senior subordinated
notes due May 15, 2004. The Company's 9.58% unsecured senior notes are
payable in five annual installments of $12 million each, which began May
31, 1994. The 6.5% convertible subordinated debentures are convertible
into the Company's common stock at a conversion price of $24.75 per share.
The Company's senior note, senior subordinated debt and bank credit
agreements contain covenants which, among other things, include minimum
working capital, net worth and fixed charge coverage requirements and a
maximum funded debt-to-capital limitation, and limit the payment of cash
dividends on common stock. Under the most restrictive requirement, cash
dividends are limited to not more than 25% of the Company's consolidated
net income for the immediately preceding fiscal year.
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. 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. There are no compensating balance requirements
under this agreement. At January 27, 1996, $9.9 million of standby letters
of credit were outstanding under the line's subfacility. The remainder of
the line of credit was available for use at the end of the fiscal year.
The Company has not borrowed against this line of credit.
At January 27, 1996, the Company had additional letter of credit
facilities of approximately $29.2 million primarily to support the
purchase of inventories, of which approximately $16.6 million were
outstanding. For
23
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
letters of credit under $500,000, the Company also has a $1 million standby
facility, of which $97,000 was outstanding at January 27, 1996.
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 10 years.
Future minimum lease payments as of January 27, 1996 were:
<TABLE>
<CAPTION>
Capital Operating
Fiscal Years Ending January Leases Leases
- --------------------------- ------ -----------
(In Thousands)
<S> <C> <C>
1997 $ 2,181 $ 102,684
1998 1,831 106,014
1999 1,859 107,608
2000 1,882 105,188
2001 1,882 103,433
Later years 17,489 1,010,860
------ -----------
Total minimum lease payments 27,124 $1,535,787
===========
Less amount representing interest 14,687
------
Present value of net minimum capital lease
payments $12,437
=======
</TABLE>
Rental expense under operating leases (including contingent rentals which
were not material) amounted to $99,982,000, $87,366,000 and $90,699,000 in
1995, 1994 and 1993, respectively. These amounts exclude rent of $5.2
million, $12.5 million and $3.6 million charged to the restructuring
reserve in 1995, 1994 and 1993, respectively.
The table of future minimum lease payments above includes lease
commitments for six HomeBase stores which have closed in connection with
HomeBase's restructuring as of January 27, 1996, but which were not
subleased or assigned at that date. As of January 27, 1996, the Company
was also contingently liable on one HomeBase warehouse store lease that
was assigned to a third party; the Company believes that this contingent
liability will not have a material effect on its financial condition.
The Company is involved in various legal proceedings incident to the
character of its business. Although it is not possible to predict the
outcome of these proceedings, or any claims against the Company related
thereto, the Company believes that such proceedings will not, individually
or in the aggregate, have a material effect on its financial condition or
results of operations.
E. Capital Stock, Stock Options and Stock Purchase Plans
Under its 1989 Stock Incentive Plan and its 1995 Director Stock Option
Plan, the Company has granted certain key employees and its non-employee
directors options, which expire five to ten years from the grant date, to
purchase common stock at prices equal to 100% of market price on the grant
date. Options outstanding are exercisable over various periods generally
starting one year after the grant date. At January 27, 1996, 953,031
shares were exercisable under these plans.
24
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Option activity during the past three years was as follows:
<TABLE>
<CAPTION>
Number of
Option Prices Options
-------------- ----------
<S> <C> <C>
Fiscal Year Ended January 29, 1994:
Options granted $12.625-$13.375 908,131
Options exercised $ 6.25-$9.125 (78,165)
Cancellations $ 8.125-$25.625 (942,346)
----------
Outstanding at January 29, 1994 $ 6.25-$25.625 1,502,901
Fiscal Year Ended January 28, 1995:
Options granted $ 16.625-$19.25 1,427,200
Options exercised $ 6.25-$15.875 (119,873)
Cancellations $ 6.25-$25.625 (267,499)
----------
Outstanding at January 28, 1995 $ 6.25-$25.625 2,542,729
Fiscal Year Ended January 27, 1996:
Options granted $15.625-$18.875 270,500
Options exercised $ 6.25-$17.75 (189,126)
Cancellations $ 8.125-$25.625 (144,553)
----------
Outstanding at January 27, 1996 $12.625-$25.625 2,479,550
==========
</TABLE>
The Company has also issued, at no cost, restricted stock awards to
certain key employees under its 1989 Stock Incentive Plan. The
restrictions on the transferability of those shares tied to Company
performance lapse over periods that range up to eight years; for other
awards, restrictions on the sale of shares lapse over periods that range
up to four years. The market price of restricted stock issued is charged
to income ratably over the period during which the restrictions lapse. In
1995, 1994 and 1993 the Company issued 2,500, 5,500 and 237,250 restricted
shares, respectively; 18,110, 24,500 and 229,145 restricted shares were
returned to the Company and cancelled in 1995, 1994 and 1993,
respectively.
At the Company's Annual Meeting of Stockholders in June 1995, an amendment
to increase the maximum number of shares of common stock issuable under
the 1989 Stock Incentive Plan from 3,750,000 to 5,750,000 was approved.
The 1995 Director Stock Option Plan was adopted at the same meeting. The
maximum number of shares of common stock issuable under this plan is
150,000. As of January 27, 1996 and January 28, 1995, respectively,
2,198,972 and 309,309 shares were reserved for future stock awards under
the 1989 Stock Incentive Plan. As of January 27, 1996, 129,000 shares were
reserved for future stock awards under the 1995 Director Stock Option
Plan.
In 1989 the Company adopted a shareholder rights plan designed to
discourage attempts to acquire the Company on terms not approved by the
Board of Directors. Under the plan, shareholders were issued one Right for
each share of common stock owned, which entitles them to purchase 1/100
share of Series A Junior Participating Preferred Stock ("Series A
Preferred Stock") at an exercise price of $75. The Company has designated
1,900,000 shares of Series A Preferred Stock for use under the rights
plan; none has been issued. Generally the terms of the Series A Preferred
Stock are designed so that each 1/100 share of Series A Preferred Stock is
the economic equivalent of one share of the Company's common stock. In the
event any person acquires 15% or more of the Company's outstanding stock,
the Rights become exercisable for the number of common shares which, at
the time, would have a market value of two times the exercise price of the
Right.
The Company has authorized 10,000,000 shares of preferred stock, $.01 par
value, of which no shares have been issued.
SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in
October 1995 and becomes effective for the Company's fiscal year ending
January 25, 1997. SFAS No. 123 provides a choice of adopting its fair
value based method of expense recognition for stock-based awards granted
to employees or applying the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees." The Company expects to
continue to apply the accounting provisions of APB No. 25 and adopt the
disclosure-only provisions of SFAS No. 123 in 1996; consequently, SFAS No.
123 is expected to have no effect on the Company's financial position or
results of operations in the fiscal year ending January 25, 1997.
25
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
F. Income Taxes
Effective January 31, 1993 (the first day of fiscal 1993), the Company
adopted SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 changed
the Company's method of accounting for income taxes from the income
statement approach prescribed by Accounting Principles Board Opinion No.
11 to an assets and liabilities approach. The cumulative effect of this
accounting change was to increase net income by $1,616,000 in 1993 (See
Note A).
The provision (benefit) for income taxes on income (loss) before the
cumulative effect of accounting changes includes the following:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------
January 27, January 28, January 29,
1996 1995 1994
----------- ----------- ------------
(In Thousands)
<S> <C> <C> <C>
Federal
Current $35,226 $23,979 $ 18,450
Deferred 2,407 8,957 (29,555)
State
Current 8,188 5,887 3,665
Deferred 640 2,379 (7,850)
--------- --------- ---------
Total income tax provision
(benefit) $46,461 $41,202 $(15,290)
========= ========= =========
</TABLE>
The following is a reconciliation of the statutory federal income tax
rates and the effective income tax rates on income (loss) before the
cumulative effect of accounting principle changes:
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
January 27, January 28, January 29,
1996 1995 1994
---------- ----------- ------------
<S> <C> <C> <C>
Statutory federal income tax rate 35% 35% (35)%
State income taxes, net of federal tax
benefit 5 5 (8)
Targeted jobs tax credit -- (1) (3)
Other (1) -- 1
------ ------ ------
Effective income tax rates 39% 39% (45)%
====== ====== ======
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities as of January 27, 1996 and January 28, 1995 are as follows:
<TABLE>
<CAPTION>
January 27, January 28,
1996 1995
----------- -----------
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Self-insurance reserves $25,381 $20,061
Rental step liabilities 8,534 7,625
Restructuring reserves 12,440 16,181
Capital leases 1,499 1,385
Compensation and benefits 5,644 5,370
Other 4,732 5,456
--------- -------
Total deferred tax assets 58,230 56,078
--------- -------
Deferred tax liabilities:
Accelerated depreciation-property 24,254 25,608
Other 974 420
--------- -------
Total deferred tax liabilities 25,228 26,028
--------- -------
Net deferred tax assets $33,002 $30,050
========= =======
</TABLE>
26
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
During 1995 the statute of limitations expired for certain taxable years.
As a result, previously accrued tax liabilities of approximately $3.6
million related to these years are no longer required. This excess amount
has been reclassified to the Company's restructuring reserve liabilities
(see Note B), with no impact on the Company's provision for income taxes.
The Company has not established a valuation allowance because its deferred
tax assets can be realized by offsetting taxable income mainly in the
carryback period, and also against 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.
G. Pensions
The Company has 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. Benefits are based on compensation
earned in each year of service. No benefits have accrued under this plan
since July 4, 1992, when it was frozen. In December 1993, the Company
terminated its unfunded defined benefit plan which provided additional
retirement benefits for certain key employees, and in June 1995,
terminated its non-contributory retirement plan covering directors who
were not employees or officers of the Company. The net income effect of
the termination and settlement of these plans was not material.
Net periodic pension cost under the Company's plans, presented in
accordance with SFAS No. 87, includes the following components (in
thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------
January 27, January 28, January 29,
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Service cost $ 182 $ 209 $ 451
Interest cost on projected benefit obligation 429 435 592
Actual return on assets (1,245) (73) (380)
Net amortization and deferrals 892 (264) 21
-------- ------ ------
Net pension cost $ 258 $ 307 $ 684
======== ====== ======
</TABLE>
The following table sets forth the funded status of the Company's defined
benefit pension plan for full-time employees as of January 27, 1996 and
January 28, 1995 (amounts related to the Directors' plan at January 28,
1995 are immaterial) in accordance with SFAS No. 87 (in thousands):
<TABLE>
<CAPTION>
January 27, 1996 January 28, 1995
----------------- -----------------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested benefits $ 5,991 $4,622
Nonvested benefits -- 474
---------- ------
$ 5,991 $5,096
========== ======
Projected benefit obligation $ 5,991 $5,096
Plan assets at fair market value 5,997 5,106
---------- ------
Projected benefit obligation less than plan assets (6) (10)
Prior service cost reduction not yet recognized -- 17
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions (1,088) (891)
---------- ------
Prepaid pension cost included in balance sheets $(1,094) $ (884)
========== ======
</TABLE>
The weighted average discount rates used in determining the actuarial
present value of the projected benefit obligation were 7.25% and 8.0%,
respectively, in 1995 and 1994. The expected long-term rate of return on
assets used was 9.0% in 1995 and 1994. The Company's funding policy is to
contribute annually an amount allowable for federal income tax purposes.
Pension plan assets consist primarily of equity and fixed income securities.
Under the Company's 401(k) Savings 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
27
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
of covered compensation and 50% of the next four percent, payable at the
end of the year. Beginning in 1996, the Company's matching contribution
will be payable as of the end of each calendar quarter. The Company's
expense under these plans was $3,922,000 in 1995, $3,561,000 in 1994 and
$3,277,000 in 1993.
In 1994, the Company established a non-contributory defined contribution
retirement plan for certain key employees. Under the plan, the Company
funds annual retirement contributions for the designated participants, on
an after-tax basis. For 1995 and 1994, the Company's contribution equalled
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
$963,000 in 1995 and $875,000 in 1994.
H. Postretirement Medical Benefits
The Company sponsors a defined benefit postretirement medical plan that
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.
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," requires employers to recognize postretirement benefits
over the periods during which employees render services rather than at the
time benefits are paid. SFAS No. 106 was implemented by the Company by
recognizing the transition obligation of $348,000 in the first quarter of
1993.
Net periodic postretirement medical benefit cost presented in accordance
with SFAS No. 106, includes the following components:
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
January 27, January 28, January 29,
1996 1995 1994
----------- ----------- -------------
(In Thousands)
<S> <C> <C> <C>
Service cost $ 120 $128 $100
Interest cost 44 42 38
Net amortization and deferrals (10) -- --
--------- --------- -----------
Net periodic postretirement benefit cost $ 154 $170 $138
========= ========= ===========
</TABLE>
The following table sets forth the status of the Company's postretirement
medical plan and the amount recognized in the Company's balance sheets at
January 27, 1996 and January 28, 1995 in accordance with SFAS No. 106:
<TABLE>
<CAPTION>
January 27, January 28,
1996 1995
----------- -------------
(In Thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retired participants $ -- $ --
Fully eligible active participants 63 37
Other active participants 515 387
----- ------
Unfunded accumulated postretirement benefit obligation 578 424
Unrecognized net gain 232 232
----- ------
Accrued postretirement benefit cost included in balance
sheet $810 $656
===== ======
</TABLE>
For measurement purposes, an annual rate of increase in the per capita
cost of medical coverage of 9.5% in 1995 grading down to 5% after 9 years
was assumed as of January 28, 1995, and an annual rate of increase in the
per capita cost of medical coverage of 8% in 1996 grading down to 4.5%
after 8 years was assumed as of January 27, 1996. Increasing the assumed
health care cost trend rate one percentage point would increase the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1995 by $30,000 and would increase the
accumulated postretirement benefit obligation as of January 27, 1996 by
$101,000.
28
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% as of January 27, 1996 and 8.0%
as of January 28, 1995.
I. Accrued Expenses and Other Current Liabilities
The major components of accrued expenses and other current liabilities are
as follows:
<TABLE>
<CAPTION>
January 27, January 28,
1996 1995
----------- -------------
(In Thousands)
<S> <C> <C>
Employee compensation $ 23,666 $ 25,783
Self-insurance reserves 25,962 21,214
Fixed asset additions 18,468 23,674
Sales and use taxes, rent, utilities, advertising and
other 75,220 65,732
------- --------
$143,316 $136,403
======= ========
</TABLE>
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 above
$200,000 for group medical claims. In addition to the amounts shown above
in current liabilities, noncurrent self-insurance reserves of $36.8
million and $28.5 million as of January 27, 1996 and January 28, 1995,
respectively, are included in other noncurrent liabilities.
J. Selected Information by Major Business Segment
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
January 27, January 28, January 29,
1996 1995 1994
----------- ----------- -------------
(In Thousands)
<S> <C> <C> <C>
Net sales:
BJ's Wholesale Club $2,529,608 $2,293,091 $2,003,385
HomeBase 1,448,776 1,357,190 1,585,956
--------- --------- -----------
$3,978,384 $3,650,281 $3,589,341
========= ========= ===========
Operating income (loss):
BJ's Wholesale Club $ 86,460 $ 68,804 $ 45,216
HomeBase (net of $98,533 restructuring charge
in FYE 1/94) 55,762 60,706 (55,805)
General corporate expense (including $2,600
restructuring charge in FYE 1/94) (7,353) (8,420) (10,899)
--------- --------- -----------
134,869 121,090 (21,488)
Interest on debt and capital leases (net) (15,431) (14,898) (12,489)
--------- --------- -----------
Income (loss) before income taxes and cumulative effect
of accounting principle changes $ 119,438 $ 106,192 $ (33,977)
========= ========= ===========
Identifiable assets:
BJ's Wholesale Club $ 682,687 $ 569,122 $ 501,230
HomeBase 597,270 539,426 551,887
Corporate (cash, cash equivalents and
marketable securities) 52,494 128,973 19,877
--------- --------- -----------
$1,332,451 $1,237,521 $1,072,994
========= ========= ===========
Depreciation and amortization:
BJ's Wholesale Club $ 27,475 $ 22,529 $ 16,825
HomeBase 19,179 17,896 20,214
--------- --------- -----------
$ 46,654 $ 40,425 $ 37,039
========= ========= ===========
Capital expenditures:
BJ's Wholesale Club $ 93,261 $ 71,017 $ 95,170
HomeBase 65,047 51,918 37,974
--------- --------- -----------
$ 158,308 $ 122,935 $ 133,144
========= ========= ===========
</TABLE>
29
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
K. Investments in Marketable Securities
The Company classifies all of its investments in marketable securities as
available-for-sale securities in accordance with SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities."
Marketable securities at January 27, 1996 and January 28, 1995 included
the following:
<TABLE>
<CAPTION>
Amortized Gross Unrealized Gross Unrealized Aggregate
Cost Basis Holding Gains Holding Losses Fair Value
----------- ---------------- ---------------- -------------
(In Thousands)
<S> <C> <C> <C> <C>
Fiscal year ended January 27, 1996
Debt securities issued by states or
their political subdivisions $20,303 $40 $ (4) $20,339
========= ========= ========== ========
Fiscal year ended January 28, 1995
Debt securities issued by states or
their political subdivisions $54,017 $35 $(108) $53,944
Corporate debt securities 9,989 -- -- 9,989
--------- --------- ---------- --------
$64,006 $35 $(108) $63,933
========= ========= ========== ========
</TABLE>
The contractual maturities of marketable securities at January 27, 1996
and January 28, 1995 were as follows:
<TABLE>
<CAPTION>
Amortized Aggregate
Cost Basis Fair Value
----------- -------------
(In Thousands)
<S> <C> <C>
Fiscal year ended January 27, 1996
Less than one year $ 7,535 $ 7,552
1-5 years 12,768 12,787
--------- --------
$20,303 $20,339
========= ========
Fiscal year ended January 28, 1995
Less than one year $47,421 $47,384
1-5 years 16,585 16,549
--------- --------
$64,006 $63,933
========= ========
</TABLE>
Other information on marketable securities was as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------
January 27, January 28,
1996 1995
----------- -------------
(In Thousands)
<S> <C> <C>
Sales proceeds $131,632 $37,303
Gross realized gains (losses) 257 (165)
Increase in unrealized holding gains (losses), net of taxes 66 (44)
</TABLE>
The specific identification method is used as the basis for computing
realized gains or losses on the sale of marketable securities.
L. Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity
of these instruments.
Marketable Securities
The fair value of the Company's marketable securities is based on quoted
values provided by an independent pricing service utilized by broker
dealers and mutual fund companies.
Real Estate Debt and General Corporate Debt
The fair value of the Company's real estate debt and general corporate
debt is estimated based on the current rates for similar issues or on the
current rates offered to the Company for debt of the same remaining
maturities.
30
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued
Subordinated Debt
The fair value of the Company's subordinated debt is based on quoted market
prices.
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
January 27, 1996 January 28, 1995
-------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 32,155 $ 32,155 $ 65,040 $ 65,040
Marketable securities 20,339 20,339 63,933 63,933
Real estate debt (1,752) (1,850) (2,515) (2,611)
General corporate debt (36,000) (37,577) (48,000) (48,422)
Senior subordinated debt (100,000) (103,250) (100,000) (97,500)
Convertible subordinated debt (108,600) (108,600) (108,600) (97,740)
</TABLE>
M. Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- --------- ------- -----------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C>
Fiscal year ended January 27, 1996
Net sales $884,455 $1,051,882 $965,990 $1,076,057
Gross earnings (a) 128,902 160,604 140,506 160,380
Net income 8,264 24,404 14,544 25,765
Per common share, fully diluted .25 .68 .42 .71
Fiscal year ended January 28, 1995
Net sales $820,840 $ 951,804 $905,606 $ 972,031
Gross earnings (a) 117,105 143,448 130,718 148,223
Net income 9,129 21,142 13,399 21,320
Per common share, fully diluted .27 .59 .38 .59
</TABLE>
(a) Gross earnings equals net sales less cost of sales, including buying
and occupancy costs.
31
<PAGE>
COOPERS & LYBRAND COOPERS & LYBRAND LOGO
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Waban Inc.:
We have audited the accompanying consolidated balance sheets of Waban Inc.
and subsidiaries as of January 27, 1996 and January 28, 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three fiscal years in the period ended January 27, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Waban Inc. and
subsidiaries as of January 27, 1996 and January 28, 1995 and the consolidated
results of their operations and their cash flows for each of the three fiscal
years in the period ended January 27, 1996 in conformity with generally
accepted accounting principles.
As discussed in Notes A, F and H to the Consolidated Financial Statements,
the Company changed its methods of accounting for postretirement benefits
other than pensions, for postemployment benefits and for income taxes in the
fiscal year ended January 29, 1994.
/s/Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 27, 1996
REPORT OF MANAGEMENT
The financial statements and related financial information in this annual
report have been prepared by and are the responsibility of management. The
financial statements were prepared in accordance with generally accepted
accounting principles and necessarily include amounts which are based upon
judgments and estimates made by management.
The Company maintains a system of internal controls designed to provide, at
appropriate cost, reasonable assurance that assets are safeguarded,
transactions are executed in accordance with management's authorization and
the accounting records may be relied upon for the preparation of financial
statements. The accounting and control systems are continually reviewed by
management and modified as necessary in response to changing business
conditions and the recommendations of the Company's internal auditors and
independent public accountants.
The Audit Committee, which is comprised of members of the Board of Directors
who are neither officers nor employees, meets periodically with management,
the internal auditors and the independent public accountants to review
matters relating to the Company's financial reporting, the adequacy of
internal accounting control and the scope and results of audit work. The
internal auditors and the independent public accountants have free access to
the Committee.
The financial statements have been audited by Coopers & Lybrand L.L.P., whose
opinion as to their fair presentation in accordance with generally accepted
accounting principles appears above.
/s/ Herbert J. Zarkin /s/ Edward J. Weisberger
Herbert J. Zarkin Edward J. Weisberger
President and Senior Vice President and
Chief Executive Officer Chief Financial Officer
February 27, 1996
32
<PAGE>
WABAN INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Years Ended January 27, 1996,
January 28, 1995 and January 29, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
--------------------------
(1) (2)
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts-- Deductions-- End of
Description of Period Expenses Describe Describe Period
- ----------------------------- ---------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Year ended January 27, 1996:
Reserve for write-down of
property held for sale $ 2,974 $ -- $ 721 $ 778(a) $ 2,917
Restructuring reserve 14,079 -- -- 6,904(b) 7,175
Noncurrent restructuring
reserve 22,900 -- 5,279 7,556(b) 20,623
------ -------- ---------- --------- ----------
$39,953 $ -- $ 6,000(d) $15,238 $30,715
====== ======== ========== ========= ==========
Year ended January 28, 1995:
Reserve for write-down of
discontinued inventories $ 9,653 $ -- $ -- $ 9,653(a) $ --
Reserve for write-down of
property held for sale 17,479 -- (4,662)(c) 9,843(a) 2,974
Restructuring reserve 29,444 -- 1,955(c) 17,320(b) 14,079
Noncurrent restructuring
reserve 28,642 -- 2,707(c) 8,449(b) 22,900
------ -------- ---------- --------- ----------
$85,218 $ -- $ -- $45,265 $39,953
====== ======== ========== ========= ==========
Year ended January 29, 1994:
Reserve for write-down of
discontinued inventories $ -- $ 9,766 $ -- $ 113(a) $ 9,653
Reserve for write-down of
property held for sale -- 17,431 -- (48)(a) 17,479
Restructuring reserve -- 45,294 -- 15,850(b) 29,444
Noncurrent restructuring
reserve -- 28,642 -- -- 28,642
------ -------- ---------- --------- ----------
$ -- $101,133 $ -- $15,915 $85,218
====== ======== ========== ========= ==========
</TABLE>
(a) Net loss on sale or disposal of discontinued inventory and property held
for sale in connection with the Company's restructuring.
(b) Other costs and expenses incurred in connection with the Company's
restructuring, mainly operating losses, closing costs and settlement of
lease obligations in HomeBase warehouse stores closed or to be closed.
No operating losses were charged to the restructuring reserve after
January 28, 1995.
(c) Reclassification of components of restructuring reserve.
(d) Increase in reserves primarily to adjust estimated lease obligations
related to six stores closed in connection with the restructuring, but
not subleased as of January 27, 1996. Addition to reserves was offset by
a corresponding adjustment in the Company's income tax liabilities.
33
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
of Waban Inc. on Form S-8 (File Nos. 33-29473 and 33-40155) of our reports
dated February 27, 1996 on our audits of the consolidated financial
statements and financial statement schedule of Waban Inc. as of January 27,
1996 and January 28, 1995, and for the three years ended January 27, 1996,
January 28, 1995 and January 29, 1994, which report is included in this
Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
April 22, 1996
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Waban Inc.:
Our report on the consolidated financial statements of Waban Inc. and
Subsidiaries is included in this Form 10-K. In connection with our audits of
such financial statements, we have also audited the related financial
statement schedule listed herein.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 27, 1996
34
<PAGE>
ITEM 9. Disagreements 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 27, 1996 (the "Proxy Statement"). The information
required by this Item and not given in Item 4A, Executive Officers of the
Registrant, is incorporated by reference from the Proxy Statement.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference from
the Proxy Statement. However, information under "Executive Compensation
Committee Report" and "Performance Graph" in 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.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference from
the Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
A. The Financial Statements and Financial Statement Schedules filed as part of
this report are listed and indexed on page 16. Schedules other than those listed
in the index have been omitted because they are not applicable or the required
information has been included elsewhere in this report.
B. Listed below are all Exhibits filed as part of this report. Certain Exhibits
are incorporated by reference to documents previously filed by the Registrant
with the Securities and Exchange Commission pursuant to Rule 12b-32 under the
Securities Exchange Act of 1934, as amended.
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
3.1 Restated Certificate of Incorporation of the Company (1)
3.2 By-laws, as amended, of the Company (2)
4.1 Instruments Defining Rights of Security Holders (See Exhibits 3.1, 3.2, 4.2, 4.3 and 10.12)
4.2 Rights Agreement dated as of May 23, 1989 between the Company and Morgan Shareholder Services
Trust Company, as Rights Agent (1)
4.3 Indenture dated as of July 1, 1992 between the Company and Continental Bank, National
Association, as Trustee, with respect to 6-1/2% Convertible Subordinated Debentures due July
1, 2002 (6)
10.1 Distribution Agreement dated as of May 1, 1989 between the Company and Zayre Corp. (1)
10.2 Waban Inc. 1989 Stock Incentive Plan, as amended* (12)
10.3 Waban Inc. Executive Retirement Plan* (7)
10.4 Waban Inc. Retirement Plan for Directors, as amended September 17, 1990* (3)
10.5 Waban Inc. General Deferred Compensation Plan* (2)
10.6 Waban Inc. Growth Incentive Plan, as amended*
10.7 Executive Services Agreement dated as of June 1, 1989 between the Company and Zayre Corp. with
respect to Arthur F. Loewy* (2)
10.7a Amendment dated as of January 29, 1994 between the Company and The TJX Companies, Inc. to
Executives Services Agreement with respect to Arthur F. Loewy referred to in Exhibit 10.7* (7)
10.8 Employment Agreement dated as of May 25, 1993 with Herbert J Zarkin* (7)
10.8a Change of Control Severance Agreement dated as of May 25, 1993 with Herbert J Zarkin* (7)
35
<PAGE>
10.9 Employment Agreement dated as of February 1, 1994 with John J. Nugent* (8)
10.10 Employment Agreement dated as of September 29, 1994 with Edward J. Weisberger* (10)
10.11 Employment Agreement dated as of September 29, 1993 with Allan P. Sherman* (7)
10.11a Change of Control Severance Agreement dated as of September 29, 1993 with Allan P. Sherman*
(7)
10.11b Loan Agreement dated as of January 19, 1994 with Allan P. Sherman* (7)
10.11c Promissory Note dated as of January 19, 1994 from Allan P. Sherman to the Company* (7)
10.12 Form of Indemnification Agreement between the Company and its officers and directors* (2)
10.13 Form of Change of Control Severance Agreement between the Company and officers of the Company*
(8)
10.14 Note Purchase Agreement dated as of June 15, 1991 with respect to 9.58% Senior Notes due May
31, 1998 (4)
10.14a Amendment dated as of December 16, 1991 to Note Purchase Agreement dated as of June 15, 1991
referred to in Exhibit 10.14 (5)
10.14b Second Amendment and Waiver dated as of March 28, 1994 to Note Purchase Agreement dated as of
June 15, 1991 (8)
10.14c Third Amendment and Waiver dated as of September 29, 1994 to Note Purchase Agreement dated as
of June 15, 1991 (10)
10.15 Indenture dated as of May 15, 1994 between the Company and The First National Bank of Boston,
as Trustee, with respect to 11% Senior Subordinated Notes due May 15, 2004 (9)
10.16 Credit Agreement dated as of April 4, 1995 among the Company and certain banks (11)
10.17 Waban Inc. 1995 Director Stock Option Plan* (12)
11.0 Statement regarding computation of per share earnings
21.0 Subsidiaries of the Company
</TABLE>
*Management contract or other compensatory plan or arrangement.
(1) Incorporated herein by reference to the Registrant's Form 10 (#1-10259)
(2) Incorporated herein by reference to the Registrant's Form 10-K for the
fiscal year ended January 27, 1990
(3) Incorporated herein by reference to the Registrant's Form 10-Q for the
fiscal quarter ended October 27, 1990
(4) Incorporated herein by reference to the Registrant's Form 10-Q for the
fiscal quarter ended July 27, 1991
(5) Incorporated herein by reference to the Registrant's Form 10-K for the
fiscal year ended January 25, 1992
(6) Incorporated herein by reference to the Registrant's Form S-3 (#33-48423)
(7) Incorporated herein by reference to the Registrant's Form 10-K for the
fiscal year ended January 29, 1994
(8) Incorporated herein by reference to the Registrant's Form 10-Q for the
fiscal quarter ended April 30, 1994
(9) Incorporated herein by reference to the Registrant's Form S-3 (#33-52665)
(10) Incorporated herein by reference to the Registrant's Form 10-Q for the
fiscal quarter ended October 29, 1994
(11) Incorporated herein by reference to the Registrant's Form 10-K for the
fiscal year ended January 28, 1995
(12) Incorporated herein by reference to the Registrant's definitive Proxy
Statement on Schedule 14A (File No. 1-10259) for the Registrant's 1995
Annual Meeting of Stockholders
C. The Registrant has not filed any reports on Form 8-K during the last
quarter of the period covered by this Report.
36
<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.
WABAN INC.
Dated: April 23, 1996
/s/ HERBERT J. ZARKIN
-----------------------
Herbert J. Zarkin
President and Principal
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/ HERBERT J. ZARKIN /s/ SUMNER L. FELDBERG
- -------------------------------------------- -----------------------------
Herbert J. Zarkin, President Sumner L. Feldberg, Chairman
Principal Executive Officer and Director of the Board and Director
/s/ EDWARD J. WEISBERGER /s/ S. JAMES COPPERSMITH
- -------------------------------------------- -----------------------------
Edward J. Weisberger, Senior Vice President S. James Coppersmith, Director
and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ STANLEY H. FELDBERG /s/ KERRY L. HAMILTON
- -------------------------------------------- ------------------------------
Stanley H. Feldberg, Director Kerry L. Hamilton, Director
/s/ ALLYN L. LEVY /s/ ARTHUR F. LOEWY
- -------------------------------------------- ------------------------------
Allyn L. Levy, Director Arthur F. Loewy, Director
/s/ THOMAS J. SHIELDS /s/ LORNE R. WAXLAX
- -------------------------------------------- ------------------------------
Thomas J. Shields, Director Lorne R. Waxlax, Director
Dated: April 23, 1996
37
Exhibit 10.6
WABAN INC.
GROWTH INCENTIVE PLAN
------------------
Effective as of January 30, 1994
(as amended through March 30, 1994)
1
<PAGE>
WABAN INC.
GROWTH INCENTIVE PLAN
-----------------
TABLE OF CONTENTS
-----------------
ARTICLE PAGE
- ------------------------------------------------------ -------
ARTICLE 1. DEFINITIONS 1
ARTICLE 2. BENEFITS UNDER THIS PLAN 1
ARTICLE 3. DESIGNATION OF BENEFICIARY 3
ARTICLE 4. PLAN ADMINISTRATION AND INDEMNIFICATION 3
ARTICLE 5. EFFECT ON EMPLOYMENT RIGHTS 3
ARTICLE 6. CHANGE OF CONTROL 3
ARTICLE 7. AMENDMENT OR TERMINATION OF PLAN 4
ARTICLE 8. NON-ASSIGNMENT 4
ARTICLE 9. CONSTRUCTION 4
ARTICLE 10. RELEVANT LAW 4
<PAGE>
WABAN INC.
GROWTH INCENTIVE PLAN
------------------
Waban Inc. hereby establishes the Waban Inc. Growth Incentive Plan (the
"Plan"), effective as of January 30, 1994.
W I T N E S S E T H:
WHEREAS, the Participants are in high-level management positions in Waban
Inc. or its subsidiaries and are key to the long-term success of the Company;
WHEREAS, the Company desires to provide an incentive to focus the
Participants' attention and efforts on long-term growth and profitability;
NOW THEREFORE, the Company hereby adopts the Plan, as hereinafter set
forth, effective as of January 30, 1994.
* * * * * *
ARTICLE 1. DEFINITIONS. The following terms as used in this Plan shall
have the following meanings:
1.1 "Award Period" shall mean a period of a certain number of consecutive
fiscal years, as determined by the Committee in its discretion. Award Periods
may overlap and employees may participate simultaneously with respect to more
than one Award Period.
1.2 "Committee" shall mean the Executive Compensation Committee of the
Board of Directors of Waban Inc.
1.3 "Company" shall mean Waban Inc. and its subsidiaries.
1.4 "Effective Date" shall mean January 30, 1994.
1.5 "Incentive Unit" shall mean an incentive unit granted to each
Participant, the value of which equals a certain percentage of the growth in
the Incentive Measurement achieved over the Award Period, as determined by
the Committee.
1.6 "Incentive Measurement" shall mean any one or combination of the
following objective measures of performance or growth, as the Committee shall
determine: operating income, pre-tax income, net income, costs, any of the
preceding measures as a percent of sales, earnings per share, sales, return
on equity, and return on investment.
1.7 "Participant" shall mean an employee in a high-level management
position in the Company who is selected by the Committee, in its discretion,
to be a Participant in the Plan.
1.8 "Plan" shall mean the Waban Inc. Growth Incentive Plan, as herein set
forth, including any and all amendments hereto and restatements hereof.
ARTICLE 2. BENEFITS UNDER THIS PLAN.
2.1 Granting of Awards.
(a) The Grant. On or before the commencement of each Award Period, the
Committee shall determine (i) which employees shall be Participants in the
Plan, (ii) the amount of Incentive Units to be granted to each Participant,
and (iii) the method or formula for determining the value of each Incentive
Unit, based on the Incentive Measurement.
(b) Payment Dates. On or before the commencement of each Award Period, the
Committee shall determine (i) the date or dates on or about which payment in
respect of Incentive Units shall be made, and (ii) the amount of each
Participant's Incentive Units which may be redeemed on such payment dates.
One such payment date shall occur at some time within three (3) months after
the end of the Award Period and other date(s) may occur one (1) or more years
after such date (the "Deferred Payment Date").
2.2 Value of Incentive Units. On or before the commencement of each Award
Period, the Committee shall determine (i) the factor(s) comprising the
Incentive Measurement, and (ii) the Incentive Measurement's base value, i.e.,
the value against which growth shall be measured. Notwithstanding the prior
sentence, the Incentive Measurement's base value may be appropriately
adjusted by the Committee, pursuant to Section 2.5(i) hereof, after the
certification of the Company's financial statements by the Company's
independent public accountant for the
<PAGE>
fiscal year immediately preceding the commencement of the Award Period. In
the Committee's discretion, Incentive Measurements may vary with respect to
Incentive Unit grants made to individual Participants or groups of
Participants.
2.3 Award Opportunity. Upon the completion of each Award Period and the
certification of the Company's financial statements by the Company's
independent public accountant for the last fiscal year in said Award Period,
the Committee shall cause to be re-valued the Incentive Measurement in order
to determine the growth over the Incentive Measurement's base value and,
thus, the value of each Incentive Unit.
Notwithstanding anything to the contrary herein contained or implied, the
Committee may make appropriate adjustments to the value of the Incentive
Measurement to avoid undue windfalls or hardships due to external conditions
outside the control of management, nonrecurring or abnormal items, changes in
accounting practices, or such other matters as the Committee, in its
discretion, shall determine; however, the Committee shall make no adjustments
to the performance criteria whose effect is to increase the growth incentive
payment to the Chief Executive Officer or to other executive officers as of
the end of the year who are named in the proxy statement, except as provided
in Section 2.5 hereof.
2.4 Payment of Awards.
(a) Employees on Last Day of Award Period or Deferred Payment Date.
Participants employed by the Company on the last day of the Award Period
shall be entitled to receive payment (to the extent not deferred) as soon as
practicable thereafter; Participants employed on the Deferred Payment Date
shall be entitled to receive payment of deferred amounts, if applicable, as
soon as practicable thereafter. Notwithstanding anything to the contrary
herein contained or implied, in no event shall a Participant's incentive
payment for an Award Period exceed 300% of such Participant's annualized base
salary at the beginning of the Award Period.
(b) Termination of Employment in the Event of Death, Disability or
Retirement. If the termination of employment occurs before the end of the
Award Period due to: (i) death, (ii) disability (as defined under the
Company's long-term disability plan), or (iii) retirement on or after the
attainment of age fifty-five (55), the Participant shall be entitled to pro
rated payment in respect of Incentive Units, determined as of the end of the
fiscal year in which occurs the Participant's death, disability or
retirement. Payment shall be made as soon as practicable following the end of
the fiscal year in which death, disability or retirement has occurred. In the
event of termination of employment due to death, disability or retirement
after the end of the Award Period and prior to a Deferred Payment Date,
payment with respect to any outstanding deferred payment amount shall be made
as soon as practicable after such termination.
(c) Termination of Employment for any Reason Other than Death, Disability
or Retirement. In the event of the Participant's termination of employment
for any reason other than death, disability or retirement prior to the end of
the Award Period, the Participant shall have no rights under the Plan and
shall not be entitled to receive payment with respect to any Incentive Unit.
In the event of the Participant's termination of employment for any reason
other than death, disability or retirement prior to a Deferred Payment Date,
the Participant shall not be entitled to receive payment with respect to any
outstanding deferred payment amount. In the event of termination of
employment for cause, as determined by the Committee in its discretion, no
payment shall be made with respect to any Incentive Unit.
2.5 Restrictions on Adjustments to Performance Criteria. The Committee
shall make no adjustments to the performance criteria whose effect is to
increase the growth incentive payment to the Chief Executive Officer or to
other executive officers as of the end of the year who are named in the proxy
statement, except for the following:
(a) Events classified as extraordinary items or discontinued operations or
presented as special nonrecurring charges (or income) in accordance with
generally accepted accounting principles.
(b) Disposal of a business segment or a group of two or more warehouse
stores, a major administrative unit, or major assets, if quantified and
disclosed in Management's Discussion and Analysis of Financial Condition and
Results or Operations of the Company's Annual Report on Form 10-K.
(c) Conversion of convertible bonds or convertible preferred stock into
common stock; a repurchase by the Company of a large number of outstanding
shares of stock, if it has material impact on the performance that is being
measured; or an increase in the number of common shares for earnings per
share calculation purposes due to a new equity or convertible debenture
offering, but not by stock options, restricted stock or other stock-based
awards under the Company's 1989 Stock Incentive Plan.
2
<PAGE>
(d) Balance sheet recapitalization or restructuring that materially alters
the allocation between debt and equity for a division.
(e) Changes in accounting practice to comply with new legislation or with
rules promulgated by the S.E.C. or the F.A.S.B. and changes in tax laws that
affect tax rates, credits, or the definition of taxable income, if material.
(f) Unusual and material losses beyond the Company's control, such as acts
of God (e.g., earthquake or widespread hurricane damage).
(g) Reserves for future period events which will not occur until after the
performance measurement period.
(h) Adjustments attributable to prior periods in the case of a newly
acquired business.
(i) Adjustments of the Incentive Measurement's base value made immediately
after completion of the audit of the fiscal year immediately preceding the
performance period, made solely to "true-up" amounts that were based on
estimated results for said preceding year.
(j) Gains and losses from sales of a minority interest in a subsidiary.
(k) Net incremental expense incurred by a division as a result of opening
new warehouse stores in excess of the number incorporated in the performance
criteria. The amount of the adjustment shall be equal to the average
operating loss incurred by new warehouse stores opened by the same division
in the same fiscal year.
In no event, however, shall the Committee make any adjustment which would
cause incentive awards not to qualify as performance-based compensation under
Section 162(m) of the Internal Revenue Code.
ARTICLE 3. DESIGNATION OF BENEFICIARY. Each Participant shall have the
right to file with the Committee a written designation of one or more persons
as beneficiary(ies) who shall be entitled to receive the amount, if any,
payable under the Plan upon the Participant's death. A Participant may modify
the beneficiary designation by filing a new designation with the Committee.
The last such designation received by the Committee shall be controlling,
provided, however, that no designation or modification thereof shall be
effective unless received by the Committee prior to the Participant's death.
If no such beneficiary designation is in effect at the time of a
Participant's death, or if no designated beneficiary survives the
Participant, the amount payable under the Plan upon the Participant's death
shall be made to the Participant's surviving spouse; if there is no surviving
spouse, payment shall be made to the Participant's estate.
ARTICLE 4. PLAN ADMINISTRATION AND INDEMNIFICATION.
4.1 Plan Administration. This Plan shall be administered by the Committee.
The Committee shall have full authority to interpret the Plan; to establish,
amend, and rescind rules for carrying out the Plan; to interpret the terms
and provisions of the Plan; and to make all other determinations necessary or
advisable for its administration. The Committee's determination shall be
final and binding on all parties.
4.2 Indemnification. The Company shall indemnify and save harmless each
member of the Committee against all expenses and liabilities arising out of
membership on such Committee, excepting only expenses and liabilities arising
from such member's own gross negligence or willful misconduct, as determined
by the Board of Directors or outside counsel designated by the Board of
Directors.
ARTICLE 5. EFFECT ON EMPLOYMENT RIGHTS. This Plan shall not constitute an
employment contract and nothing contained in this Plan shall confer upon the
Participant the right to be retained in the service of the Company nor limit
the right of the Company to discharge or otherwise deal with the Participant
without regard to the existence of this Plan.
ARTICLE 6. CHANGE OF CONTROL. In the event of the merger, sale,
consolidation, dissolution, liquidation, or Change of Control of the Company
(as defined in the Change of Control Severance Benefit Plan for Key
Employees), the Committee shall thereupon cause to be re-valued the Incentive
Measurement, in the manner described herein, and shall provide that Incentive
Units be redeemed as soon as practicable thereafter in lieu of payments that
would otherwise be made under Article 2 hereof, regardless of when the end of
the Award Period or Deferred Payment Date is scheduled to occur. Such
re-valuation of the Incentive Measurement shall be determined based on (i)
the Company's actual performance or growth with respect to those fiscal years
within the Award Period which have ended prior to the merger, sale,
consolidation, dissolution, liquidation, or Change of Control, plus (ii) for
the fiscal year in which occurs the merger, sale, consolidation, dissolution,
liquidation, or Change of Control, the Company's projected performance or
growth as provided in the fiscal year's financial plan
4
<PAGE>
(as presented to the Company's Board of Directors at the beginning of the
fiscal year) pro rated based on the number of days in said fiscal year
preceding the merger, sale, consolidation, dissolution, liquidation, or
Change of Control.
ARTICLE 7. AMENDMENT OR TERMINATION OF PLAN. The Plan may be amended,
suspended or terminated in whole or in part at any time and from time to time
by the Committee. No such amendment, suspension or termination shall
retroactively impair or otherwise adversely affect the rights of any
Participant to benefits under this Plan if the end of the Award Period has
occurred prior to the date of such amendment, suspension or termination.
ARTICLE 8. NONASSIGNMENT. The right to benefits hereunder shall not be
assignable, and the Participant shall not be entitled to have such payments
commuted or made otherwise than in accordance with the provisions of the
Plan.
ARTICLE 9. CONSTRUCTION.
9.1 Heading and Captions. The headings and captions herein are provided
for reference and convenience only, shall not be considered part of the Plan,
and shall not be employed in the construction of the Plan.
9.2 Singular Includes Plural. Except where otherwise clearly indicated by
context, the singular shall include the plural, and vice-versa.
ARTICLE 10. RELEVANT LAW. This Plan shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts to the extent
such laws are not preempted by federal law.
5
Exhibit 11
WABAN INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------------
January 27, January 28, January 29,
1996 1995 1994
------------- ------------- --------------
<S> <C> <C> <C>
The computation of net income available and adjusted
shares outstanding follows:
Net income as reported $72,977,000 $64,990,000 $(17,782,000)
=========== =========== ============
Net income used for primary computation $72,977,000 $64,990,000 $(17,782,000)
Add (where dilutive):
Tax effected interest and amortization of debt
expense on convertible debt 4,341,000 4,347,000 --
----------- ----------- ------------
Net income used for fully diluted computation $77,318,000 $69,337,000 $(17,782,000)
=========== =========== ============
Weighted average number of common shares outstanding 33,014,364 33,142,641 33,082,362
Add (where dilutive):
Assumed exercise of those options that are common
stock equivalents net of treasury shares deemed
to have been repurchased 206,081 262,373 --
----------- ----------- ------------
Weighted average number of common and common equivalent
shares outstanding, used for primary computation 33,220,445 33,405,014 33,082,362
Add (where dilutive):
Shares applicable to stock options in addition to those
used in primary computation due to the use of period-end
market price when higher than average price 175,914 -- --
Assumed exercise of convertible securities 4,387,879 4,387,879 --
----------- ----------- ------------
Adjusted shares outstanding used for fully diluted
computation 37,784,238 37,792,893 33,082,362
=========== =========== ============
</TABLE>
Exhibit 21
Subsidiaries
The following is a list of Subsidiaries of Waban Inc. as of April 1, 1996:
State of Incorporation
- ------------------------------------ -------------------------
HomeClub, Inc. Nevada
HomeClub, Inc. of Texas Delaware
Fullerton Corporation Delaware
Natick Security Corp. Massachusetts
Natick Corporation Delaware
HCI Development Corp. California
HomeClub First Realty Corp. Colorado
Natick First Realty Corp. Connecticut
Natick Second Realty Corp. Massachusetts
Natick Third Realty Corp. New Jersey
Natick Fourth Realty Corp. New Jersey
Natick Fifth Realty Corp. Maryland
Natick Sixth Realty Corp. Connecticut
Natick MA Realty Corp. Massachusetts
Natick NH Realty Corp. New Hampshire
Natick NY Realty Corp. New York
HCWA Realty Corp. Washington
HCCA Realty Corp. California
Natick NY 1992 Realty Corp. New York
Natick PA Realty Corp. Pennsylvania
Natick VA Realty Corp. Virginia
HBNM Realty Corp. New Mexico
Natick Portsmouth Realty Corp. New Hampshire
HBCA 1993 Realty Corp. California
HBOR Realty Corp. Oregon
HBUT Realty Corp. Utah
HCWA 1993 Realty Corp. Washington
Natick NJ Realty Corp. New Jersey
Natick NJ 1993 Realty Corp. New Jersey
BJ's PA Distribution Center, Inc. Pennsylvania
BJ's MA Distribution Center, Inc. Massachusetts
Natick CT Realty Corp. Connecticut
HBCO Realty Corp. Colorado
HBNM 1994 Realty Corp. New Mexico
HBCO 1994 Realty Corp. Colorado
Natick ME 1995 Realty Corp. Maine
Natick NY 1995 Realty Corp. New York
Natick MA 1995 Realty Corp. Massachusetts
Natick NH 1994 Realty Corp. New Hampshire
Natick PA 1995 Realty Corp. Pennsylvania
CWC Beverages Corp. Connecticut
FWC Beverages Corp. Florida
JWC Beverages Corp. New Jersey
Mormax Beverages Corp. Delaware
Mormax Corporation Massachusetts
RWC Beverages Corp. Rhode Island
YWC Beverages Corp. New York
HBCA Pomona Realty Corp. California
HBCA Vacaville Realty Corp. California
Natick Lancaster Realty Corp. Pennsylvania
Natick Yorktown Realty Corp. New York
Natick Waterford Realty Corp. Connecticut
Natick Sennett Realty Corp. New York
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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-K for the year ended January 27, 1996 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-27-1996
<PERIOD-END> JAN-27-1996
<CASH> 32,155
<SECURITIES> 20,339
<RECEIVABLES> 59,221
<ALLOWANCES> 0
<INVENTORY> 570,236
<CURRENT-ASSETS> 714,151
<PP&E> 765,551
<DEPRECIATION> 176,615
<TOTAL-ASSETS> 1,332,451
<CURRENT-LIABILITIES> 448,701
<BONDS> 245,313
<COMMON> 333
0
0
<OTHER-SE> 554,787
[TOTAL-LIABILITIES-AND-EQUITY] 1,332,451
<SALES> 3,978,384
<TOTAL-REVENUES> 3,978,384
<CGS> 3,387,992
<TOTAL-COSTS> 3,387,992
<OTHER-EXPENSES> 455,523
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,431
<INCOME-PRETAX> 119,438
<INCOME-TAX> 46,461
<INCOME-CONTINUING> 72,977
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,977
<EPS-PRIMARY> 2.20
<EPS-DILUTED> 2.05
</TABLE>
