<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended April 27, 1996
Commission file number 1-10259
WABAN INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0109661
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Mercer Road
Natick, Massachusetts 01760
(Address of principal executive offices) (Zip Code)
(508) 651-6500
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
The number of shares of the Registrant's common stock outstanding as of May 25,
1996: 33,048,234
<PAGE>
<TABLE>
PART I FINANCIAL INFORMATION
WABAN INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Thirteen Weeks Ended
-----------------------
April 27, April 29,
1996 1995
----------- -----------
(In Thousands Except
Per Share Amounts)
<S> <C> <C>
Net sales $974,630 $884,455
------- -------
Cost of sales, including buying and occupancy costs 834,793 755,553
Selling, general and administrative expenses 119,423 111,328
Interest on debt and capital leases (net) 4,815 4,027
------- -------
Total expenses 959,031 870,908
------- -------
Income before income taxes 15,599 13,547
Provision for income taxes 6,084 5,283
------- -------
Net income $ 9,515 $ 8,264
======= =======
Net income per common share (see Exhibit 11 for
detailed computations):
Primary and fully diluted $ 0.28 $ 0.25
======= =======
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
WABAN INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
April 27, January 27, April 29,
1996 1996 1995
----------- ----------- -----------
(Dollars In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,744 $ 32,155 $ 15,980
Marketable securities 22,704 20,339 67,162
Accounts receivable 52,696 59,221 36,110
Merchandise inventories 637,083 570,236 576,880
Current deferred income taxes 21,320 21,445 22,286
Prepaid expenses 11,870 10,755 18,446
--------- --------- ---------
Total current assets 754,417 714,151 736,864
--------- --------- ---------
Property at cost:
Land and buildings 391,042 376,930 310,794
Leasehold costs and improvements 85,661 84,052 73,285
Furniture, fixtures and equipment 294,628 288,929 249,189
--------- --------- ---------
771,331 749,911 633,268
Less accumulated depreciation
and amortization 179,994 169,711 140,865
--------- --------- ---------
591,337 580,200 492,403
--------- --------- ---------
Property under capital leases 15,139 15,640 16,857
Less accumulated amortization 6,672 6,904 7,223
--------- --------- ---------
8,467 8,736 9,634
--------- --------- ---------
Property held for sale (net) 56 4,603 11,682
Deferred income taxes 11,481 11,557 5,968
Other assets 12,667 13,204 14,049
--------- --------- ---------
Total assets $1,378,425 $1,332,451 $1,270,600
========= ========= =========
LIABILITIES
Current liabilities:
Current installments of long-
term debt 12,861 12,828 12,793
Accounts payable 323,134 275,963 291,111
Restructuring reserve 5,629 7,175 11,613
Accrued expenses and other
current liabilities 130,926 143,316 119,571
Accrued federal and state
income taxes 5,882 8,771 5,026
Obligations under capital leases
due within one year 537 648 908
--------- --------- ---------
Total current liabilities 478,969 448,701 441,022
--------- --------- ---------
Real estate debt 500 924 1,361
General corporate debt 24,000 24,000 36,000
Senior subordinated debt 100,000 100,000 100,000
Convertible subordinated debt 108,600 108,600 108,600
Obligations under capital leases,
less portion due within one year 11,703 11,789 12,215
Noncurrent restructuring reserve 20,503 20,623 18,111
Other noncurrent liabilities 64,958 62,694 55,713
STOCKHOLDERS' EQUITY
Common stock, par value $.01,
authorized 190,000,000 shares,
issued 33,296,935, 33,296,935
and 33,292,715 shares 333 333 333
Additional paid-in capital 329,734 328,619 326,747
Unrealized holding gains (losses) 8 22 (2)
Retained earnings 244,728 235,213 170,500
Treasury stock, at cost, 275,148,
567,571 and 0 shares (5,611) (9,067) -
--------- --------- ---------
Total stockholders' equity 569,192 555,120 497,578
--------- --------- ---------
Total liabilities and
stockholders' equity $1,378,425 $1,332,451 $1,270,600
========= ========= =========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
WABAN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Thirteen Weeks Ended
--------------------
April 27, April 29,
1996 1995
--------- ---------
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,515 $ 8,264
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization of property 13,497 11,084
Loss on property disposals 374 42
Amortization of premium on marketable securities 47 244
Other noncash items (net) 244 192
Deferred income taxes 211 1,769
Increase (decrease) in cash
due to changes in:
Accounts receivable 6,525 15,765
Merchandise inventories (66,847) (64,261)
Prepaid expenses (1,115) (9,454)
Other assets 372 (1,206)
Accounts payable 47,171 41,269
Restructuring reserves (1,666) (7,255)
Accrued expenses (241) (4,448)
Accrued income taxes (2,889) 2,490
Other noncurrent liabilities 2,264 4,554
------- -------
Net cash provided by (used in) operating
activities 7,462 (951)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (6,048) (49,389)
Sale of marketable securities 3,610 27,517
Maturity of marketable securities - 18,590
Property additions (36,756) (45,320)
Property disposals 4,415 104
------- -------
Net cash used in investing activities (34,779) (48,498)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (391) (361)
Repayment of capital lease obligations (197) (275)
Purchase of treasury stock (3,453) -
Proceeds from sale and issuance of
common stock 7,947 1,025
------- -------
Net cash provided by financing
activities 3,906 389
------- -------
Net decrease in cash and cash
equivalents (23,411) (49,060)
Cash and cash equivalents at
beginning of year 32,155 65,040
------- -------
Cash and cash equivalents at
end of period $ 8,744 $15,980
======= ======
Supplemental cash flow information:
Interest paid $ (157) $ (15)
Income taxes paid 8,762 997
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
WABAN INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<CAPTION>
(In Thousands Except Per Share Amounts)
-------------------------------------------------------------
Common Unrealized Total
Stock Additional Holding Stock-
Par Value Paid-In Gains Retained Treasury holders'
$.01 Capital (Losses) Earnings Stock Equity
--------- ---------- ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 28,
1995 $ 332 $325,565 $ (44) $162,236 $ - $488,089
Net income - - - 8,264 - 8,264
Unrealized
holding gains - - 42 - - 42
Sale and issuance
of common stock 1 1,182 - - - 1,183
----- -------- ----- -------- ------- --------
Balance, April 29,
1995 $ 333 $326,747 $ (2) $170,500 $ - $497,578
===== ======== ===== ======== ======= ========
Balance, January 27,
1996 $ 333 $328,619 $ 22 $235,213 $(9,067) $555,120
Net income - - - 9,515 - 9,515
Unrealized
holding losses - - (14) - - (14)
Purchase of
treasury stock - - - - (3,453) (3,453)
Sale and issuance
of common stock - 1,115 - - 6,909 8,024
----- -------- ----- -------- ------ --------
Balance, April 27,
1996 $ 333 $329,734 $ 8 $244,728 $(5,611) $569,192
===== ======== ===== ======== ====== ========
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The results for the first three months are not necessarily indicative of
results for the full fiscal year because the Company's business, in common with
the business of retailers generally, is subject to seasonal influences. BJ's
Wholesale Club's sales and profits have typically been strongest in the
Christmas holiday season, while HomeBase's sales and profits have typically
been strongest in the spring building season.
2. The financial statements are unaudited and reflect all normal recurring
adjustments considered necessary by the Company for a fair presentation of its
financial statements in accordance with generally accepted accounting
principles.
3. These interim financial statements should be read in conjunction with the
consolidated financial statements and related notes contained in the Annual
Report on Form 10-K for the fiscal year ended January 27, 1996.
4. Presented below is information relative to the operating results of the
Company's business segments (dollars in thousands):
</TABLE>
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------
April 27, April 29,
1996 1995
----------- -----------
<S> <C> <C>
Net sales:
BJ's Wholesale Club $ 622,388 $ 531,106
HomeBase 352,242 353,349
--------- ---------
$ 974,630 $ 884,455
========= =========
Operating income:
BJ's Wholesale Club $ 14,036 $ 9,923
HomeBase 8,255 9,510
General corporate expense (1,877) (1,859)
--------- ---------
20,414 17,574
Interest on debt and capital
leases (net) (4,815) (4,027)
-------- ---------
Income before income taxes $ 15,599 $ 13,547
======== =========
</TABLE>
Warehouses in operation - end of period:
- ---------------------------------------
BJ's Wholesale Club 72 62
HomeBase 82 79
5. Certain amounts in the prior year's financial statements have been
reclassified for comparative purposes.
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Thirteen Weeks (First Quarter) Ended April 27, 1996 versus Thirteen Weeks Ended
April 29, 1995.
Results of Operations
- ---------------------
Consolidated net sales for the quarter ended April 27, 1996 were $974.6
million, an increase of 10.2% over last year's first quarter. This increase
was due to the opening of new stores and a comparable store sales increase at
BJ's Wholesale Club of 7.3%, partially offset by a comparable store sales
decrease of 4.5% at HomeBase.
Cost of sales (including buying and occupancy costs) was 85.7% of sales in this
year's first quarter versus 85.4% in the comparable period last year. The
increase in the cost of sales ratio was attributable primarily to the increased
proportion of consolidated sales contributed by BJ's, which has higher cost of
sales than HomeBase.
Selling, general and administrative ("SG&A") expenses were 12.3% of sales in
the first quarter this year compared to 12.6% in last year's first quarter.
This decrease was also due to BJ's larger share of consolidated sales. SG&A
expenses as a percentage of sales are lower at BJ's than at HomeBase, which
offers a higher level of customer service.
BJ's operating income in this year's first quarter was $14.0 million, a 41.4%
increase over last year's $9.9 million. This increase reflected comparable
store sales increases as well as improved gross selling margins and the
leveraging of fixed expenses. Toward the end of the first quarter, BJ's mailed
out a trial membership invitation to non-members in all of its markets, with
the objective of converting trial members to full paying members. A similar
program was offered at the end of April last year.
Operating income at HomeBase was $8.3 million in the first quarter, a 13.2%
decrease from $9.5 million in the same period last year. This decrease was due
mainly to lower than expected sales, which resulted in a higher SG&A-to-sales
ratio.
The components of net interest expense were as follows (in thousands):
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------
April 27, April 29,
1996 1995
--------- ---------
<S> <C> <C>
Interest expense on debt $ 4,936 $5,337
Interest and investment income (519) (1,733)
----- -----
Interest on debt (net) 4,417 3,604
Interest on capital leases 398 423
------ -----
Interest on debt and capital
leases (net) $ 4,815 $4,027
====== =====
</TABLE>
Interest expense on debt was net of capitalized interest of $694,000 this year
and $529,000 last year. The decrease in interest expense on debt was due
primarily to a $12 million reduction in the balance of the Company's 9.58%
Senior Notes. Interest and investment income was lower this year because of
decreased investments in marketable securities.
The Company's provision for income taxes was 39% of pre-tax income in both this
year's and last year's first quarter.
Net income for the first quarter was $9.5 million, or $.28 per share, compared
to $8.3 million, or $.25 per share, in the first quarter of last year.
Liquidity and Capital Resources
- -------------------------------
During the first quarter, the Company opened one new BJ's club and three new
HomeBase warehouse stores. In the same period last year, three new HomeBase
warehouse stores were opened. The renovation of six older HomeBase stores was
also completed during this year's first quarter, bringing the total number of
stores reflecting Homebase's new prototype design to 42. Cash expended for
property additions in the first quarter was $36.8 million versus $45.3 million
last year.
The Company's capital expenditures are expected to total approximately $140
million in the current fiscal year, based on opening approximately eight
additional BJ's clubs and three additional HomeBase warehouse stores, including
the relocation of one unit, over the remainder of the year. Approximately
eight additional HomeBase stores are also slated for renovation by the
beginning of the next fiscal year. The timing of actual store openings and the
amount of related expenditures could vary from these estimates due to, among
other things, the complexity of the real estate development process.
As of April 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 generated approximately $4 million of cash flow in
the first quarter of this year, net of tax benefits. The net cash outflow in
connection with the disposition of the remaining warehouse locations, including
long-term lease obligations, is estimated to be approximately $9 million to $14
million (net of tax benefits). The terms of the remaining 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 first quarter, the Company repurchased 140,000 shares of common
stock on the open market at an average cost of $24.67. Cumulatively, the
Company has spent $13.4 million to purchase 762,300 shares of its common stock
at an average cost of $17.53, pursuant to the $50 million repurchase program
approved by the Board of Directors in June 1995.
The Company has 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 May 1996, the annual
facility fee that the Company is required to pay was reduced from $300,000 to
$225,000, and the surcharge on borrowings made at LIBOR was reduced from 0.45%
to 0.40%. These rates are both subject to further change, based upon the
Company's fixed charge coverage ratio. At April 27, 1996, $7.7 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 as of the end of the
first quarter. The Company has not borrowed against this line of credit.
Increases in inventory and accounts payable since the end of the fiscal year
were due primarily to normal seasonal requirements. Increases in inventory and
accounts payable from April 29, 1995 to April 27, 1996 were attributable
primarily to new stores.
Cash, cash equivalents and marketable securities totalled $31.4 million as of
April 27, 1996. The Company expects that its current resources, together with
anticipated cash flow from operations, will be sufficient to finance its
operations into the fiscal year ending January 31, 1998. 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.
Seasonality
- -----------
BJ's sales and operating income have typically been strongest in the Christmas
holiday season and lowest in the first quarter of each fiscal year. HomeBase's
sales and earnings are typically lower in the first and fourth quarters than
they are in the second and third quarters, which correspond to the most active
season for home construction.
<PAGE>
PART II. Other Information
-----------------
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
11.0 Statement regarding computation of per share
earnings.
27.0 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K with
the Securities and Exchange Commission during the quarter
ended April 27, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WABAN INC.
----------
(Registrant)
Date: June 6, 1996 /S/ HERBERT J. ZARKIN
----------------------------- ------------------------------
Herbert J. Zarkin
President and
Chief Executive Officer
Date: June 6, 1996 /S/ EDWARD J. WEISBERGER
----------------------------- ------------------------------
Edward J. Weisberger
Senior Vice President and
Chief Financial Officer
<PAGE>
<TABLE>
Exhibit 11
WABAN INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(Unaudited)
<CAPTION>
Thirteen Weeks Ended
--------------------
April 27, April 29,
1996 1995
----------- -----------
<S> <C> <C>
Net income as reported $ 9,515,000 $ 8,264,000
========== ==========
Net income used for primary
computation $ 9,515,000 $ 8,264,000
Add (where dilutive):
Tax effected interest and
amortization of debt expense
on convertible debt 1,085,000 1,085,000
---------- ----------
Net income used for fully
diluted computation $10,600,000 $ 9,349,000
========== ==========
Weighted average number of
common shares outstanding 32,916,276 33,229,762
Add (where dilutive):
Assumed exercise of those
options that are common
stock equivalents net of
treasury shares deemed to
have been repurchased 676,031 320,201
---------- ----------
Weighted average number of
common and common equivalent
shares outstanding, used for
primary computation 33,592,307 33,549,963
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 85,186 -
Assumed exercise of
convertible securities 4,387,879 4,387,879
---------- ----------
Adjusted shares outstanding
used for fully diluted
computation 38,065,372 37,937,842
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Waban
Inc. consolidated statements of income and consolidated balance sheets filed
with the Form 10-Q for the quarter ended April 27, 1996 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-25-1997
<PERIOD-END> APR-27-1996
<CASH> 8,744
<SECURITIES> 22,704
<RECEIVABLES> 52,696
<ALLOWANCES> 0
<INVENTORY> 637,083
<CURRENT-ASSETS> 754,417
<PP&E> 786,470
<DEPRECIATION> 186,666
<TOTAL-ASSETS> 1,378,425
<CURRENT-LIABILITIES> 478,969
<BONDS> 244,803
<COMMON> 333
0
0
<OTHER-SE> 568,859
<TOTAL-LIABILITY-AND-EQUITY> 1,378,425
<SALES> 974,630
<TOTAL-REVENUES> 974,630
<CGS> 834,793
<TOTAL-COSTS> 834,793
<OTHER-EXPENSES> 119,423
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,815
<INCOME-PRETAX> 15,599
<INCOME-TAX> 6,084
<INCOME-CONTINUING> 9,515
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,515
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
