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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 3, 2001
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
-----------------------------------
Commission File Number 001-13143
BJ'S WHOLESALE CLUB, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-3360747
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
One Mercer Road
NATICK, MASSACHUSETTS 01760
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (508) 651-7400
-----------------------------------
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
Title of each class ON WHICH REGISTERED
------------------- -------------------
Common Stock, par value $.01 New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes[ X ] No[__].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of the Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on March 31, 2001 was approximately $3,474,806,000 based on the
closing price of $47.85 on the New York Stock Exchange on such date.
There were 72,782,067 shares of the Registrant's Common Stock, $.01 par value,
outstanding as of March 31, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's 2001 Annual Meeting of
Stockholders (Part III).
PART I
Item 1. Business
General
BJ's Wholesale Club introduced the warehouse club concept to New England in
1984 and has since expanded in the eastern United States and the state of Ohio.
As of February 3, 2001, BJ's operated 118 warehouse clubs in 15 states and had
approximately 6.6 million members. The table below shows the number of BJ's
locations by state.
Number of
State Locations
----- ---------
New York........................................................... 26
Massachusetts...................................................... 14
New Jersey......................................................... 14
Florida............................................................ 13
Pennsylvania....................................................... 10
Ohio............................................................... 8
Connecticut........................................................ 7
Maryland........................................................... 6
Virginia........................................................... 6
New Hampshire...................................................... 4
North Carolina..................................................... 3
Rhode Island....................................................... 3
Maine.............................................................. 2
Delaware........................................................... 1
South Carolina..................................................... 1
---
TOTAL............................................................ 118
===
On July 28, 1997, BJ's Wholesale Club, Inc., a Delaware corporation, ("BJ's"
or the "Company") became an independent, publicly owned entity when Waban Inc.
("Waban"), BJ's parent company at the time, distributed to its stockholders on
a pro rata basis all of the Company's outstanding common stock. Before that
date, BJ's business had operated as a division of Waban.
The fiscal year ended February 3, 2001 is referred to as "2000" or "fiscal
2000" below. Other fiscal years are referred to in a similar manner.
Industry Overview
Warehouse clubs offer a narrow assortment of brand name food and general
merchandise items within a wide range of product categories. In order to
achieve high sales volumes and rapid inventory turnover, merchandise selections
are generally limited to items that are brand name leaders in their categories.
Since warehouse clubs sell a diversified selection of product categories, they
attract customers from a wide range of other wholesale and retail distribution
channels, such as supermarkets, supercenters, department stores, drug stores,
discount stores, office supply stores, consumer electronics stores, automotive
stores and wholesale distributors. BJ's believes that it is difficult for these
higher cost channels of distribution to match the low prices offered by
warehouse clubs.
Warehouse clubs eliminate many of the merchandise handling costs associated
with traditional multiple-step distribution channels by purchasing full
truckloads of merchandise directly from manufacturers and by storing
merchandise on the sales floor rather than in central warehouses. By operating
no-frills, self-service warehouse facilities, warehouse clubs have fixturing
and operating costs substantially below those of traditional
2
retailers. Because of their higher sales volumes and rapid inventory turnover,
warehouse clubs generate cash from the sale of a large portion of their
inventory before they are required to pay merchandise vendors. As a result, a
greater percentage of the inventory is financed through vendor payment terms
than by working capital. Two broad groups of customers, individual households
and small businesses, have been attracted to the savings made possible by the
high sales volumes and operating efficiencies achieved by warehouse clubs.
Customers at warehouse clubs are generally limited to members who pay an annual
fee.
Business Model
The Company has developed an operating model that it believes differentiates
it from its warehouse club competition. First, BJ's seeks to establish and
maintain the leading industry position in each market where it operates.
Second, by clustering its clubs, BJ's achieves the benefit of name recognition
and maximizes the efficiencies of management support, distribution and
marketing activities. Finally, BJ's places added focus on the retail customer,
its Inner Circle(R) member, through merchandising strategies that emphasize a
customer-friendly shopping experience. BJ's creates an exciting shopping
experience for its members with a constantly changing mix of food and general
merchandise items and carries a broader product assortment than its warehouse
club competitors. By supplementing the warehouse format with aisle markers,
express check-out lanes and low-cost video-based sales aids, BJ's makes
shopping more efficient for its members. BJ's is also the only major warehouse
club operator to accept manufacturers' coupons, which provides added value for
its members, and to accept VISA(R), MasterCard(R) and Discover(R) payment cards
chainwide. In 2000, BJ's equipped its clubs to process on-line debit
transactions. Management believes these strategies aimed at the general
consumer allow BJ's to achieve higher operating margins than its warehouse club
competitors.
Expansion
Since the beginning of 1995, BJ's has grown from 62 clubs to 118 clubs in
operation at February 3, 2001. Approximately 48% of BJ's clubs have been in
operation for fewer than six years, and most of these are considered to be in
the early stages of maturation.
BJ's plans to open approximately fourteen new clubs, including two
relocations, in the current year, expanding its presence in Florida and the
Carolinas, and continuing to fill in existing markets. Longer term, BJ's plans
to increase the square footage of the chain by an average of 10% annually.
Clubs Clubs Clubs Clubs
in Operation Opened Closed in Operation
at Beginning During During at End
Year of Year the Year the Year of Year
---- ------------ -------- -------- ------------
1995............................. 62 9 -- 71
1996............................. 71 10 -- 81
1997............................. 81 4 1 84
1998............................. 84 12 -- 96
1999............................. 96 11 -- 107
2000............................. 107 11 -- 118
In addition to the club openings shown above, BJ's relocated one club in
2000.
Store Profile
As of February 3, 2001, BJ's operated 104 traditional size "big box"
warehouse clubs that averaged approximately 111,000 square feet and 14 smaller
format warehouse clubs that averaged approximately 69,000 square feet. The
smaller format clubs are designed to serve markets whose population is not
sufficient to support a full-sized warehouse club. Including space for parking,
a typical full-sized BJ's club requires nine to eleven acres of land. The
smaller version typically requires approximately eight acres. BJ's clubs are
located in both free-standing locations and shopping centers.
3
Construction and site development costs for a full-sized BJ's club generally
range from $5.0 million to $7.0 million. Land acquisition costs for a club
generally range from $3.0 million to $5.0 million, but can be significantly
higher in some locations. BJ's also invests approximately $2.6 million for
fixtures and equipment and $2 million for inventory (net of accounts payable),
and incurs approximately $.8 million for preopening costs in a new full-sized
club.
Merchandising
BJ's services its existing members and attracts new members by providing a
broad range of high quality, brand name merchandise at everyday prices that are
consistently lower than the prices of traditional wholesalers, discount
retailers, supermarkets, supercenters and specialty retail operations. BJ's
limits the items offered in each product line to fast selling styles, sizes and
colors, carrying an average of approximately 6,000 active stockkeeping units
(SKU's). By contrast, supermarkets normally stock approximately 25,000 SKU's,
and discount stores typically stock up to 60,000 SKU's. BJ's works closely with
manufacturers to develop packaging and sizes which are best suited to selling
through the warehouse club format in order to minimize handling costs and to
provide increased value to members.
Excluding gasoline, food accounted for approximately 60% of BJ's sales in
2000. The remaining 40% consisted of a wide variety of general merchandise
items. Food categories at BJ's include frozen foods, fresh meat and dairy
products, dry grocery items, fresh produce and flowers, canned goods, and
household paper products and cleaning supplies. General merchandise includes
office supplies and equipment, consumer electronics, small appliances, auto
accessories, tires, jewelry, housewares, health and beauty aids, computer
software, books, greeting cards, apparel, tools, toys and seasonal items. BJ's
believes that more than 70% of its products are also sold in supermarkets.
To ensure that its merchandise selection is closely attuned to the tastes of
its members, BJ's employs regional buyers who are responsible for tailoring the
product selection in individual warehouse clubs to the regional and ethnic
tastes of the local market. BJ's is increasingly using checkout data to
understand and respond to member preferences.
BJ's expanded its private label program during 2000. Products are sold under
two labels: "Executive Choice(TM)" for products targeted to business members,
and "Berkley and Jensen(TM)" for products targeted to BJ's Inner Circle
members. BJ's private label products are premium quality only and generally are
priced 20% lower than the top branded competing product. At the end of 2000,
products sold under BJ's private labels had achieved a sales penetration of
3.3% on an annualized basis. BJ's expects its private label products to
represent an increasing percentage of total revenues over time.
BJ's also offers a number of specialty services that are designed to enable
members to complete more of their shopping at BJ's and to encourage more
frequent trips to the clubs. Most of these services are provided by outside
operators in space leased from BJ's. Specialty services include full-service
optical stores, food courts, some of which offer brand name fast food service,
one-hour photo service, travel services, a selection of garden sheds and
gazebos, a propane tank filling service, and a muffler and brake service
operated in conjunction with Monro Muffler/Brake and Speedy Auto Service, and
Tuffy Automobile Service Centers. A test of a mini-branch bank concept
continues in three of BJ's clubs.
As of February 3, 2001, BJ's has opened gas stations at 34 of its clubs. The
gas stations are generally self-service, relying on "pay at the pump"
technology that accepts MasterCard, VISA, Discover and debit card transactions.
Cash is also accepted at some locations. Both regular and premium gasoline are
available. BJ's has generally maintained its price at 6 to 10 cents per gallon
less than the average prices in each market. Results to date have shown
increased sales and membership at clubs with gas stations. BJ's plans to
continue expanding this service in 2001.
4
The Company's "BJ's Premier Benefits(TM)" program is designed to enhance the
value of BJ's membership, particularly to business members. Included in the
program are discounted payroll processing, payment processing of all major
credit cards, participation in an established preferred medical provider
network that provides comprehensive health care services at discounted rates,
local and long-distance phone and Internet access, rebates on the buying and
selling of residential real estate, travel services and printing of business
forms, checks and signs. Participation in Premier Benefits is open to all BJ's
members and is included in the regular cost of BJ's membership.
Membership
Paid membership is an essential part of the warehouse club concept. In
addition to providing a source of revenue which permits BJ's to offer low
prices, membership reinforces customer loyalty. BJ's has two types of members:
business members and Inner Circle members. BJ's Inner Circle members are likely
to be home owners who have incomes which are above the average for the
Company's trading areas. BJ's believes that a significant percentage of its
business members also shops BJ's actively for their personal needs. The Company
had approximately 6.6 million members (including supplemental cardholders) at
February 3, 2001, which was 13.5% higher than the previous year.
Effective January 1, 2001, BJ's charges $40 per year for a primary Inner
Circle membership that includes one free supplemental membership. Members in
the same household may purchase additional supplemental memberships for $20
each. A business membership also costs $40 per year and includes one free
supplemental membership. Additional paid supplemental business memberships cost
$20 each. BJ's membership is open to all, whereas the Company's warehouse club
competitors have typically required individual members to belong to certain
qualifying groups. BJ's believes that its more liberal membership policy has
attracted incremental sales without adversely affecting its costs.
Advertising and Public Relations
BJ's increases customer awareness of its warehouse clubs primarily through
direct mail, public relations efforts, new store marketing programs, and
limited vendor-funded television and radio advertising during the holiday
season. BJ's also employs dedicated marketing personnel who solicit potential
business members and who contact selected community groups to increase the
number of members. From time to time, BJ's runs free trial membership
promotions to attract new members, with the objective of converting them to
paid membership status, and also uses one-day passes to introduce non-members
to its warehouse clubs. These programs result in very low marketing expenses
compared with typical retailers.
Club Operations
BJ's ability to achieve profitable operations depends upon high sales
volumes and the efficient operation of its warehouse clubs. The Company buys
most of its merchandise at volume discounts from manufacturers for shipment
either to a BJ's cross-dock facility or directly to BJ's clubs. This eliminates
many of the costs associated with traditional multiple-step distribution
channels, including distributors' commissions and the costs of storing
merchandise in central distribution facilities.
BJ's routes the majority of its purchases through cross-dock facilities
which break down truckload quantity shipments from manufacturers and reallocate
these goods for shipment to individual clubs, generally on a same-day basis.
BJ's efficient distribution systems result in better volume discounts, reduced
freight expenses and lower receiving costs.
The Company works closely with manufacturers to minimize the amount of
handling required once merchandise is received at a club. Most merchandise is
pre-marked by the manufacturer with the universal product code (UPC) so that it
does not require ticketing at the club. Merchandise for sale is displayed on
pallets containing large quantities of each item, thereby reducing labor
required for handling, stocking and restocking.
5
Back-up merchandise is generally stored in steel racks above the sales floor.
BJ's goal is to keep at least one day's supply of each item on the selling
floor.
BJ's has been able to limit inventory losses to levels well below those
typical of other retailers by strictly controlling the exits of its clubs, by
generally limiting customers to members and by using state-of-the-art
electronic article surveillance technology. BJ's inventory shrinkage was less
than .20% of net sales in each of the last five fiscal years. Problems
associated with payments by check have been insignificant, as members who issue
dishonored checks are restricted to cash-only terms. BJ's policy is to accept
returns of merchandise within 30 days after purchase.
BJ's was the first warehouse club chain to accept MasterCard and VISA.
Beginning in 2000, BJ's equipped its clubs to process on-line debit
transactions. Additionally, BJ's members may pay for their purchases by cash,
check or Discover Card.
Information Systems
Over the course of its development, BJ's has made a significant investment
in information systems. BJ's was the first warehouse club operator to introduce
scanning devices which work in conjunction with its electronic point of sale
(EPOS) terminals. During 2000, BJ's rolled out "360 degree" scanning and
upgraded the cash register printers at the checkout stations in its clubs to
enhance the efficiency of the checkout process. Sales data is analyzed daily
for replenishment purposes. Detailed purchasing data on individual members
permits the buying staff and store managers to track changes in members' buying
behavior. Detailed shrinkage information by SKU by club allows management to
quickly identify inventory shrinkage problems and formulate effective action
plans.
Competition
BJ's competes with a wide range of national, regional and local retailers
and wholesalers selling food or general merchandise in its markets, including
supermarkets, supercenters, general merchandise chains, specialty chains and
other warehouse clubs, some of which have significantly greater financial and
marketing resources than BJ's. Major competitors that operate warehouse clubs
include Costco Wholesale Corporation and Sam's Clubs (a division of Wal-Mart
Stores, Inc.).
A large number of competitive membership warehouse clubs exists in BJ's
markets. Approximately 86% of BJ's 104 "big box" warehouse clubs have at least
one competitive membership warehouse club in their trading areas at a distance
of about ten miles or less. None of the smaller format clubs has direct
competition from other warehouse clubs within ten miles.
BJ's believes price is the major competitive factor in the markets in which
it competes. Other competitive factors include store location, merchandise
selection, member services and name recognition. BJ's believes its efficient,
low-cost form of distribution gives it a significant competitive advantage over
more traditional channels of wholesale and retail distribution.
Seasonality
Sales and net income have typically been strongest in the fourth quarter
holiday season and lowest in the first quarter of each fiscal year.
Employees
As of February 3, 2001, BJ's had approximately 14,700 full-time and part-
time employees ("team members"). None of the Company's team members is
represented by a union. BJ's considers its relations with its team members to
be excellent.
6
Item 2. Properties
BJ's operated 118 warehouse club locations as of February 3, 2001, of which
73 are leased under long-term leases and 35 are owned. BJ's owns the buildings
at the remaining 10 locations, which are subject to long-term ground leases. A
listing of BJ's locations within each state is shown on page 2.
The unexpired terms of BJ's leases range from approximately one to 40 years,
and average approximately 14 years. BJ's has options to renew all but one of
its leases for periods that range from approximately 5 to 50 years and average
approximately 20 years. These leases require fixed monthly rental payments
which are subject to various adjustments. Certain leases require payment of a
percentage of the warehouse club's gross sales in excess of certain amounts.
Generally, all leases require that BJ's pay all property taxes, insurance,
utilities and other operating costs.
BJ's home offices in Natick, Massachusetts, occupy 156,000 square feet under
leases expiring January 31, 2006, with options to extend these leases through
January 31, 2011. The Company also leases two cross-dock facilities, which,
effective in April 2001, occupy a total of 776,000 square feet under leases
which expire in 2010 and 2021, with options to extend these leases through 2025
and 2041, respectively.
See Note D of Notes to Consolidated Financial Statements included elsewhere
in this report for additional information with respect to the Company's leases.
Item 3. Legal Proceedings
BJ's is involved in various legal proceedings that are typical of a retail
business. Although it is not possible to predict the outcome of these
proceedings or any related claims, the Company believes that such proceedings
or claims will not, individually or in the aggregate, have a material adverse
effect on its financial condition or results of operations.
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 February 3, 2001.
7
Item 4A. Executive Officers of the Registrant
Name Age Office and Employment During Last Five Years
---- --- --------------------------------------------
Herbert J. Zarkin.. 62 Chairman of the Board of the Company since July 1997;
President, Chief Executive Officer and Director of
Waban (1993-1997); Executive Vice President of Waban
(1989-1993); President of the BJ's Division of Waban
(the "BJ's Division") (1990-1993)
John J. Nugent..... 54 President, Chief Executive Officer and Director of
the Company since July 1997; Executive Vice President
of Waban and President of the BJ's Division (1993-
1997)
Frank D. Forward... 46 Executive Vice President and Chief Financial Officer
of the Company since July 1997; Executive Vice
President, Finance of the BJ's Division from February
1997 to July 1997; Senior Vice President, Finance of
the BJ's Division (1994-1997)
Laura J. Sen....... 44 Executive Vice President, Merchandising of the
Company since July 1997; Executive Vice President,
Merchandising of the BJ's Division from February 1997
to July 1997; Senior Vice President, General
Merchandise of the BJ's Division (1993-1997)
Michael T. Wedge... 47 Executive Vice President, Club Operations of the
Company since July 1997; Executive Vice President,
Sales Operations of the BJ's Division from February
1997 to July 1997; Senior Vice President, Sales
Operations of the BJ's Division (1993-1997)
Sarah M. Gallivan.. 58 Vice President and General Counsel of the Company
since July 1997; Vice President and General Counsel
of Waban (1989-1997)
All officers serve at the discretion of the Board of Directors and hold
office until the next annual meeting of the Board of Directors and until their
successors are elected and qualified.
8
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 "BJ"). The quarterly high and low stock prices for the fiscal years
ended February 3, 2001 and January 29, 2000, adjusted for the effect of the
two-for-one stock split on March 2, 1999, were:
Fiscal Year Ended Fiscal Year Ended
February 3, 2001 January 29, 2000
----------------- -----------------
Quarter High Low High Low
------- ----------------- -----------------
First.................................... $ 41.38 $ 26.75 $ 28.75 $ 20.38
Second................................... 38.00 27.88 33.19 24.50
Third.................................... 37.94 29.25 32.44 25.75
Fourth................................... 43.35 28.88 39.00 29.19
The approximate number of stockholders of record at March 31, 2001 was
2,300. The Company has never declared or paid any cash dividends on its common
stock. The Company currently intends to retain earnings to support its growth
strategy and does not anticipate paying cash dividends in the foreseeable
future. For restrictions on the payment of dividends, see Note C of Notes to
the Consolidated Financial Statements included elsewhere in this report.
9
Item 6. Selected Financial Data
Fiscal Year Ended
--------------------------------------------------------
Feb. 3, Jan. 29, Jan. 30, Jan. 31, Jan. 25,
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(53 Weeks) (53 Weeks)
(Dollars in Thousands except Per Share Data)
Income Statement Data
Net sales............... $4,828,273 $4,115,825 $3,476,846 $3,159,786 $2,859,950
Membership fees and
other.................. 103,822 90,422 75,335 67,556 64,746
---------- ---------- ---------- ---------- ----------
Total revenues.......... 4,932,095 4,206,247 3,552,181 3,227,342 2,924,696
---------- ---------- ---------- ---------- ----------
Cost of sales, including
buying and occupancy
costs.................. 4,376,451 3,725,638 3,154,017 2,872,303 2,605,602
Selling, general and
administrative
expenses............... 339,305 293,538 255,087 231,203 208,077
Preopening expenses..... 8,471 9,536 7,743 3,190 6,447
Pension termination
costs.................. -- -- 1,521 -- --
---------- ---------- ---------- ---------- ----------
Operating income........ 207,868 177,535 133,813 120,646 104,570
Interest income
(expense), net......... 5,955 3,785 956 (8,733) (16,838)
---------- ---------- ---------- ---------- ----------
Income before income
taxes and cumulative
effect of accounting
principle changes...... 213,823 181,320 134,769 111,913 87,732
Provision for income
taxes.................. 82,322 70,171 52,964 43,646 34,108
---------- ---------- ---------- ---------- ----------
Income before cumulative
effect of accounting
principle changes...... 131,501 111,149 81,805 68,267 53,624
Cumulative effect of
accounting principle
changes................ -- -- (19,326) -- --
---------- ---------- ---------- ---------- ----------
Net income.............. $ 131,501 $ 111,149 $ 62,479 $ 68,267 $ 53,624
========== ========== ========== ========== ==========
Income per common share:
Basic earnings per
share:
Income before
cumulative effect of
accounting principle
changes............... $ 1.80 $ 1.51 $ 1.09 $ 0.91 $ 0.72
Cumulative effect of
accounting principle
changes............... -- -- (0.26) -- --
---------- ---------- ---------- ---------- ----------
Net income............. $ 1.80 $ 1.51 $ 0.83 $ 0.91 $ 0.72
========== ========== ========== ========== ==========
Diluted earnings per
share:
Income before
cumulative effect of
accounting principle
changes............... $ 1.77 $ 1.47 $ 1.07 $ 0.90 $ 0.72
Cumulative effect of
accounting principle
changes............... -- -- (0.25) -- --
---------- ---------- ---------- ---------- ----------
Net income............. $ 1.77 $ 1.47 $ 0.82 $ 0.90 $ 0.72
========== ========== ========== ========== ==========
Pro forma amounts
assuming accounting
principle changes are
applied retroactively:
Net income............. $ 131,501 $ 111,149 $ 81,805 $ 65,699 $ 53,201
========== ========== ========== ========== ==========
Basic earnings per
common share.......... $ 1.80 $ 1.51 $ 1.09 $ 0.88 $ 0.71
========== ========== ========== ========== ==========
Diluted earnings per
common share.......... $ 1.77 $ 1.47 $ 1.07 $ 0.87 $ 0.71
========== ========== ========== ========== ==========
Balance Sheet Data
Working capital......... $ 179,928 $ 133,476 $ 108,979 $ 124,957 $ 62,942
Total assets............ 1,233,734 1,131,019 952,468 848,792 737,211
Long-term debt and
obligations under
capital leases......... 1,828 2,050 32,249 44,930 2,592
Loans and advances from
Waban Inc.............. -- -- -- -- 148,081
Stockholders' equity.... 664,915 577,398 485,042 446,257 275,607
Clubs open at end of
year................... 118 107 96 84 81
10
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
BJ's Wholesale Club, Inc., which previously had been a wholly owned
subsidiary of Waban Inc., became a separate and independent public entity on
July 28, 1997, when Waban distributed to its stockholders on a pro rata basis
all of the Company's outstanding common stock (the "spin-off").
Unless noted otherwise, the fiscal year ended February 3, 2001 is referred
to as "2000." Other fiscal years are referred to in a similar manner.
Accounting Principle Changes
During 1998 (the fiscal year ended January 30, 1999), the Company adopted
changes in methods of accounting for membership fee revenues and preopening
expenses. The Company had previously recognized membership fee revenues as
income when received. Under its current accounting method, the Company
recognizes membership fee revenues as income over the life of the membership,
which is typically twelve months. Previously, preopening expenses were charged
ratably to operations between the date a new club opened and the end of the
fiscal year. Upon implementing American Institute of CPA's Statement of
Position ("AICPA SOP") 98-5, "Reporting on the Costs of Start-up Activities,"
the Company recognizes club preopening expenses when incurred. For additional
information on these accounting principle changes, see Note A of Notes to
Consolidated Financial Statements.
The following table excludes the cumulative effect of accounting principle
changes from 1998's net income:
Fiscal Year Ended
--------------------------------------------------------
February 3, 2001 January 29, 2000 January 30, 1999
------------------ ------------------ ------------------
(53 weeks)
% of % of % of
$ Net Sales $ Net Sales $ Net Sales
-------- --------- -------- --------- -------- ---------
(Dollars in Millions except Per Share Amounts)
Net sales............... $4,828.3 100.0% $4,115.8 100.0% $3,476.8 100.0%
Membership fees and
other.................. 103.8 2.2 90.4 2.2 75.4 2.2
-------- ----- -------- ----- -------- -----
Total revenues.......... 4,932.1 102.2 4,206.2 102.2 3,552.2 102.2
-------- ----- -------- ----- -------- -----
Cost of sales, including
buying and occupancy
costs.................. 4,376.4 90.7 3,725.7 90.5 3,154.1 90.7
Selling, general and
administrative
expenses............... 339.3 7.0 293.5 7.1 255.1 7.3
Preopening expenses..... 8.5 .2 9.5 .3 7.7 .2
Pension termination
costs.................. -- -- -- -- 1.5 .1
-------- ----- -------- ----- -------- -----
Operating income........ 207.9 4.3 177.5 4.3 133.8 3.9
Interest income, net.... 5.9 .1 3.8 .1 1.0 --
-------- ----- -------- ----- -------- -----
Income before income
taxes.................. 213.8 4.4 181.3 4.4 134.8 3.9
Provision for income
taxes.................. 82.3 1.7 70.2 1.7 53.0 1.5
-------- ----- -------- ----- -------- -----
Net income.............. $ 131.5 2.7% $ 111.1 2.7% $ 81.8 2.4%
======== ===== ======== ===== ======== =====
Diluted net income per
common share........... $ 1.77 $ 1.47 $ 1.07
======== ======== ========
Number of clubs in
operation at year end.. 118 107 96
11
Stock Split
On February 4, 1999, the Company's Board of Directors declared a two-for-one
stock split effected in the form of a 100% stock dividend, which was
distributed on March 2, 1999 to stockholders of record on February 16, 1999.
The split was effected by reissuing the 803,638 treasury shares held by the
Company and issuing 36,098,862 additional shares of common stock on the
distribution date. The stock split is recorded in the financial statements for
the fiscal year ended January 30, 1999. All historical earnings per share
amounts have been restated to reflect the stock split. Reference to stock
activity before the distribution of the split has not been restated unless
otherwise noted.
Results of Operations
Net sales increased by 17.3% from 1999 to 2000 and by 18.4% from 1998 to
1999. 2000 was a 53-week fiscal year. The increases in both years were due to
the opening of new stores and to comparable store sales increases. Comparable
store net sales (on a same-week basis) increased by 5.1% from 1999 to 2000 and
by 7.3% from 1998 to 1999. The Company's strong comparable store sales
performance in 1999 was driven by a healthy consumer spending environment,
favorable weather conditions throughout the year and millennium-related demand
in the fourth quarter. Additionally, the Company expanded the number of gas
stations it operates from five at the end of 1998 to 19 at the end of 1999 and
34 at the end of 2000.
Total revenues included membership fees of $91.3 million in 2000, $79.3
million in 1999, and $65.5 million in 1998. The increase from 1999 to 2000 was
attributable primarily to new members. The increase from 1998 to 1999 was due
to new members, as well as increases in the fees for Inner Circle members,
effective February 1, 1998, and for business members, effective February 1,
1999.
Cost of sales (including buying and occupancy costs) was 90.64% of net sales
in 2000, 90.52% in 1999 and 90.71% in 1998. The increase in the cost of sales
percentage from 1999 to 2000 was due primarily to the increased contribution of
gasoline sales. The gross margin on gas is significantly lower than the overall
gross margin for the rest of BJ's business. Excluding gas, merchandise gross
margin as a percentage of sales was slightly higher in 2000 than it was in
1999. The decrease in the cost of sales percentage from 1998 to 1999 was due
mainly to a favorable merchandise mix, which resulted in a higher merchandise
gross margin, and to leveraging fixed buying and occupancy costs against strong
comparable store sales. This was offset in part by the impact of increased
gasoline sales.
Selling, general and administrative ("SG&A") expenses were 7.03% of net
sales in 2000, 7.13% in 1999 and 7.34% in 1998. The SG&A percentage was
favorably impacted in the last two years by leveraging fixed expenses against
both increased comparable store sales and a growing number of clubs, by
effective control over operating expenses and by increased gasoline sales,
which have low related SG&A costs. The Company completed its rollout of debit
card acceptance during 2000, which helped to slow the growth rate of credit
costs experienced in recent years. In 1999, the Company realized cost savings
over 1998 from a new medical plan for employees, which became effective on
January 1, 1999.
In 2000, the Company recorded pre-tax charges of $2.6 million associated
with the relocation of its cross-dock facility from Bristol, Pennsylvania, to
Burlington, New Jersey. This relocation was completed in April 2001. The
Company recorded $1.6 million of the charges in SG&A expenses, and $1.0 million
in cost of sales, including buying and occupancy costs.
Preopening expenses were $8.5 million in 2000, $9.5 million in 1999 and $7.7
million in 1998. The Company opened eleven new clubs in each of 2000 and 1999
and twelve in 1998. One club was relocated in 2000. A portion of 1999's
preopening expenses was incurred for a club which opened in February 2000.
During 1998, the Company recorded a pre-tax charge of $1.5 million in
connection with the termination of the Waban Inc. Retirement Plan, in which
certain of the Company's employees participated. On a post-tax basis, this
charge amounted to $.9 million, or $.01 per diluted share.
12
Interest income, net was $5.9 million in 2000, $3.8 million in 1999 and $1.0
million in 1998. The increases during this period were due primarily to higher
invested cash balances and lower borrowing levels than those of 1998. See Note
K of Notes to Consolidated Financial Statements for a summary of the components
of interest income and expense.
The Company's income tax provision was 38.5% of pre-tax income in 2000,
38.7% in 1999 and 39.3% in 1998. The decreases in the rates in the last two
years were due to reductions in the effective state income tax rates.
Net income was $131.5 million, or $1.77 per diluted share, in 2000, and
$111.1 million, or $1.47 per diluted share, in 1999 versus income before the
cumulative effect of accounting principle changes of $81.8 million, or $1.07
per diluted share, in 1998. The cumulative effect of accounting principle
changes reduced net income in 1998 by $19.3 million, or $.25 per diluted share.
Net income in 1998 was $62.5 million, or $.82 per diluted share.
The following table excludes the cumulative effect of accounting principle
changes and the pension termination charge from 1998's results:
Fiscal Year Ended
--------------------------------------------
Feb. 3, 2001 Jan. 29, 2000 Jan. 30, 1999
-------------- -------------- --------------
$ % Incr. $ % Incr. $ % Incr.
------ ------- ------ ------- ------ -------
(Dollars in Millions except Per Share
Amounts)
Operating income............... $207.9 17.1% $177.5 31.2% $135.3 17.2%
Net income..................... 131.5 18.3 111.1 34.4 82.7 21.6
Diluted earnings per share..... 1.77 20.4 1.47 34.9 1.09 22.5
During the last two years, the Company has increased the number of gas
stations in operation from five at the end of 1998 to 19 at the end of 1999 and
34 at the end of 2000. Although the gas stations themselves operate at a much
lower margin rate than does the rest of BJ's business, they have had a very
positive effect on club sales and membership. Consequently, where it is
possible to do so, the Company plans to include a gas station in its new clubs
and to continue adding gas stations in existing clubs.
Effective January 1, 2001, the Company increased the membership fee for its
Inner Circle and Business members from $35 to $40. Paid supplemental
memberships were also increased from $15 to $20. Because members renew
throughout the year and because membership fee income is realized over the life
of the membership, the benefit of the fee increases will be spread over a two-
year period. The income benefit in 2001 is projected to be largely offset by
several factors. The Company will incur incremental costs for its new
cross-dock facility in Burlington, New Jersey, which opened in April 2001, and
which has approximately double the capacity of the facility it is replacing.
Rate increases for utilities and employee medical benefits are expected to be
higher than normal in 2001. Expenses are also planned in 2001 for the
relocation of two clubs and for preopening costs for clubs expected to open
early in 2002. Finally, the Company will not benefit from the impact of the 53-
week fiscal year, as it did in 2000. Taken together, these expenses have the
potential to offset the first year benefit from the membership fee increases.
Seasonality
The Company's business, in common with the business of retailers generally,
is subject to seasonal influences. The Company's sales and operating income
have typically been strongest in the fourth quarter holiday season and lowest
in the first quarter of each fiscal year.
Recently Issued Accounting Standards
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued. The
adoption of this statement, which becomes effective in 2001, is not expected to
have a material impact on the Company's results of operations, financial
position or cash flows, or to produce any major changes in current disclosures.
13
Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No. 101
was released on December 3, 1999 and provides the staff's views in applying
generally accepted accounting principles to selected revenue recognition
issues. The implementation of SAB 101 in 2000 did not have a material effect on
the Company's results of operations, financial position or cash flows.
In March 2000, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation". This pronouncement, which became effective July 1, 2000,
clarifies the application of Accounting Principles Board Opinion No. 25 for
certain stock compensation issues. The implementation of FASB Interpretation
No. 44 in 2000 had no effect on the Company's results of operations, financial
position or cash flows.
Liquidity and Capital Resources
Net cash provided by operating activities was $155.7 million in 2000
compared with $205.8 million in 1999. This decrease was attributable mainly to
the decrease in cash provided by the change in accounts payable. Accounts
payable balances were higher than normal at the beginning of 2000 due in part
to the January replenishment of inventories in categories with millennium-
related demand, much of which was paid for after the end of January. Cash
provided by net income before depreciation and amortization was $186.5 million
in 2000 versus $157.6 million in 1999.
Cash expended for property additions was $98.7 million in 2000 versus $87.5
million in 1999. The Company opened eleven new clubs in each of 2000 and 1999
and relocated one club in 2000. Two of the 2000 openings and the relocated club
were at owned locations. One of the 1999 openings was at an owned location. The
Company also opened 15 new gas stations in 2000 and 14 gas stations in 1999.
The Company expects that capital expenditures will total approximately $150
million in 2001, based on opening approximately fourteen new clubs, including
the relocation of two clubs, opening approximately 25 gas stations, and
relocating the Company's cross-dock facility from Bristol, Pennsylvania, to
Burlington, New Jersey. The new 634,000 square foot facility, which opened in
April of 2001, is approximately twice the size of the previous facility. The
Company expects to own five or six of the new club locations opening in 2001
and also plans to spend approximately $20 to $25 million in 2001 for clubs that
will open in 2002. The timing of actual location openings and the amount of
related expenditures could vary from these estimates due, among other things,
to the complexity of the real estate development process.
In May 2000, the Board of Directors authorized the repurchase of $50 million
of the Company's common stock in addition to the $100 million previously
authorized. During 2000, the Company repurchased 2,088,200 shares of common
stock for $64.3 million, or an average price of $30.81 per share. From the
inception of its share repurchase activities in August 1998, the Company has
repurchased a total of $130.3 million of stock at an average cost of $26.20 per
share. As of February 3, 2001, the Company's remaining repurchase authorization
was $19.7 million.
The Company has a $200 million unsecured credit agreement with a group of
banks which expires July 9, 2002. The agreement includes a $50 million sub-
facility for letters of credit, of which $3.4 million was outstanding at
February 3, 2001. The Company is required to pay an annual facility fee which
is currently 0.10% of the total commitment. Interest on borrowings is payable
at the Company's option either at (a) the Eurodollar rate plus a margin which
is currently 0.25%, (b) the agent bank's prime rate or (c) a rate determined by
competitive bidding. The facility fee and Eurodollar margin are both subject to
change based upon the Company's fixed charge coverage ratio. The agreement
contains covenants which, among other things, include minimum net worth and
fixed charge coverage requirements and a maximum funded debt-to-capital
limitation, prohibit the payment of cash dividends on the Company's common
stock, and generally limit the cumulative repurchase of the Company's common
stock to $50 million plus 50% of net income (as defined by the agreement)
earned after January 30, 1998.
14
The Company also maintains a separate $41 million facility for letters of
credit, primarily to support the purchase of inventories, of which $10.8
million was outstanding at February 3, 2001, and an additional $20 million
uncommitted credit line for short-term borrowings.
Increases in inventories from January 29, 2000 to February 3, 2001 were due
primarily to the addition of new clubs.
Cash and cash equivalents totaled $120.4 million as of February 3, 2001, and
there were no borrowings outstanding on that date. The Company expects that its
current resources, together with anticipated cash flow from operations, will be
sufficient to finance its operations through February 2, 2002. However, the
Company may from time to time seek to obtain additional financing.
Factors Which Could Affect Future Operating Results
This report contains a number of "forward-looking statements," including
statements regarding membership fee income, utility costs, employee medical
benefit costs and preopening expenses, planned capital expenditures, planned
store, gas station and cross-dock facility openings and relocations, plans to
expand BJ's private label program, and other information with respect to the
Company's plans and strategies. Any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates," "plans,"
"estimates," "expects" and similar expressions are intended to identify
forward-looking statements. There are a number of important factors that could
cause actual events or the Company's actual results to differ materially from
those indicated by such forward-looking statements, including, without
limitation, the factors set forth below. In addition, any forward-looking
statements represent the Company's estimates only as of the day this annual
report was first filed with the Securities and Exchange Commission and should
not be relied upon as representing the Company's estimates as of any subsequent
date. While the Company may elect to update forward-looking statements at some
point in the future, the Company specifically disclaims any obligation to do
so, even if its estimates change.
BJ's warehouse clubs are located in the eastern United States, primarily in
the Northeast. The Company's business may be adversely affected from time to
time by economic downturns in its markets. In addition, the Company may be
impacted by state and local regulation in its markets and temporarily impacted
by weather conditions prevailing in its markets.
The Company competes with national, regional and local retailers and
wholesalers, including national chains in the warehouse merchandising business,
some of which have significantly greater financial and marketing resources than
the Company, which could adversely affect the Company's business, operating
results and financial condition.
In connection with the spin-off of Waban by The TJX Companies, Inc. ("TJX")
in 1989, Waban and TJX entered into an agreement pursuant to which Waban agreed
to indemnify TJX against any liabilities that TJX might incur with respect to
42 current HomeBase leases as to which TJX was either a lessee or guarantor. In
connection with the spin-off of the Company from Waban in 1997, the Company
agreed to indemnify TJX for any liabilities TJX may incur with respect to
HomeBase leases through January 31, 2003, and thereafter it will indemnify TJX
for 50% of such liabilities. Although HomeBase is primarily liable for these
leases, there can be no assurance that HomeBase will be able to make all future
payments under these leases. As of February 3, 2001, the Company's maximum
undiscounted pre-tax contingent liability under the TJX indemnification
agreement was estimated to be approximately $220 to $230 million. As of January
31, 2003, the estimated amount decreases to approximately $130 to $140 million.
These amounts include estimated real estate taxes and common area maintenance
charges. These estimates do not take into consideration the reduction in the
Company's contingent liability that would result from any subleasing of the
properties. Pursuant to the agreements entered into in connection with the
Company's spin-off from Waban, BJ's may not renew any of its real estate leases
(other than ground leases) for which HomeBase may be liable during any period
in which BJ's does not meet certain minimum standards of creditworthiness. BJ's
currently meets such standards.
15
In connection with the spin-off in 1997, Waban received a letter ruling from
the Internal Revenue Service to the effect that, for federal income tax
purposes, the distribution of the Company's stock to Waban's stockholders (the
"Distribution") and related asset transfers would be tax-free to Waban's
stockholders. Certain future events not within the control of the Company or
HomeBase, including, for example, certain dispositions of the Company's common
stock or HomeBase's common stock, could cause the Distribution not to qualify
for tax-free treatment. If this occurred, the related tax liability would be
payable by HomeBase, although the Company has agreed to indemnify HomeBase
under certain circumstances for all or a portion of such tax liability.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company believes that its potential exposure to market risk as of
February 3, 2001 is not material because of the short contractual maturities of
its cash and cash equivalents. No bank debt was outstanding at February 3,
2001. The Company has not used derivative financial instruments. See Summary of
Accounting Policies--Disclosures about Fair Value of Financial Instruments and
Note C in Notes to the Consolidated Financial Statements.
16
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
----
Consolidated Statements of Income for the fiscal years ended February 3,
2001, January 29, 2000 and January 30, 1999............................. 18
Consolidated Balance Sheets as of February 3, 2001 and January 29, 2000.. 19
Consolidated Statements of Cash Flows for the fiscal years ended February
3, 2001, January 29, 2000 and January 30, 1999.......................... 20
Consolidated Statements of Stockholders' Equity for the fiscal years
ended February 3, 2001, January 29, 2000 and January 30, 1999........... 21
Notes to Consolidated Financial Statements............................... 22
Selected Quarterly Financial Data........................................ 32
Report of Independent Accountants........................................ 33
Report of Management..................................................... 33
17
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Year Ended
-----------------------------------------------
February 3, January 29, January 30,
2001 2000 1999
--------------- --------------- ---------------
(53 weeks)
(Dollars in Thousands except Per Share Amounts)
Net sales..................... $ 4,828,273 $ 4,115,825 $ 3,476,846
Membership fees and other..... 103,822 90,422 75,335
--------------- --------------- ---------------
Total revenues............... 4,932,095 4,206,247 3,552,181
--------------- --------------- ---------------
Cost of sales, including
buying and occupancy costs... 4,376,451 3,725,638 3,154,017
Selling, general and
administrative expenses...... 339,305 293,538 255,087
Preopening expenses........... 8,471 9,536 7,743
Pension termination costs..... -- -- 1,521
--------------- --------------- ---------------
Operating income............. 207,868 177,535 133,813
Interest income, net.......... 5,955 3,785 956
--------------- --------------- ---------------
Income before income taxes and
cumulative effect of
accounting principle
changes...................... 213,823 181,320 134,769
Provision for income taxes.... 82,322 70,171 52,964
--------------- --------------- ---------------
Income before cumulative
effect of accounting
principle changes............ 131,501 111,149 81,805
Cumulative effect of
accounting principle
changes...................... -- -- (19,326)
--------------- --------------- ---------------
Net income.................. $ 131,501 $ 111,149 $ 62,479
=============== =============== ===============
Net income per common share:
Basic earnings per share:
Income before cumulative
effect of accounting
principle changes.......... $ 1.80 $ 1.51 $ 1.09
Cumulative effect of
accounting principle
changes.................... -- -- (0.26)
--------------- --------------- ---------------
Net income.................. $ 1.80 $ 1.51 $ 0.83
=============== =============== ===============
Diluted earnings per share:
Income before cumulative
effect of accounting
principle changes.......... $ 1.77 $ 1.47 $ 1.07
Cumulative effect of
accounting principle
changes.................... -- -- (0.25)
--------------- --------------- ---------------
Net income.................. $ 1.77 $ 1.47 $ 0.82
=============== =============== ===============
Number of common shares for
earnings per share
computations:
Basic....................... 72,870,668 73,657,016 74,804,538
Diluted..................... 74,380,544 75,391,489 76,095,876
The accompanying notes are an integral part of the financial statements.
18
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED BALANCE SHEETS
February 3, January 29,
2001 2000
----------- -----------
(Dollars in Thousands)
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 120,392 $ 118,008
Accounts receivable................................ 55,250 51,998
Merchandise inventories............................ 495,285 446,771
Current deferred income taxes...................... 7,677 5,995
Prepaid expenses................................... 15,967 15,482
---------- ----------
Total current assets............................. 694,571 638,254
---------- ----------
Property at cost:
Land and buildings................................. 364,418 342,817
Leasehold costs and improvements................... 67,565 59,350
Furniture, fixtures and equipment.................. 331,129 279,381
---------- ----------
763,112 681,548
Less accumulated depreciation and amortization..... 239,198 201,486
---------- ----------
523,914 480,062
---------- ----------
Property under capital leases........................ 3,319 3,319
Less accumulated amortization...................... 2,281 2,115
---------- ----------
1,038 1,204
---------- ----------
Other assets......................................... 14,211 11,499
---------- ----------
Total assets..................................... $1,233,734 $1,131,019
========== ==========
LIABILITIES
Current liabilities:
Accounts payable................................... $ 335,060 $ 346,111
Accrued expenses and other current liabilities..... 147,536 137,641
Accrued federal and state income taxes............. 31,807 20,806
Obligations under capital leases due within one
year.............................................. 240 220
---------- ----------
Total current liabilities........................ 514,643 504,778
---------- ----------
Obligations under capital leases, less portion due
within one year..................................... 1,828 2,050
Other noncurrent liabilities......................... 44,453 38,431
Deferred income taxes................................ 7,895 8,362
STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized
180,000,000 shares,
issued 74,410,190 shares............................ 744 744
Additional paid-in capital........................... 75,583 85,958
Retained earnings.................................... 648,528 517,052
Treasury stock, at cost, 1,947,341 and 867,370
shares.............................................. (59,940) (26,356)
---------- ----------
Total stockholders' equity....................... 664,915 577,398
---------- ----------
Total liabilities and stockholders' equity....... $1,233,734 $1,131,019
========== ==========
The accompanying notes are an integral part of the financial statements.
19
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended
-----------------------------------
February 3, January 29, January 30,
2001 2000 1999
----------- ----------- -----------
(53 weeks)
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................ $131,501 $111,149 $ 62,479
Adjustments to reconcile net income to net
cash provided
by operating activities:
Cumulative effect of accounting
principle changes...................... -- -- 19,326
Depreciation and amortization of
property............................... 54,953 46,476 40,854
Loss on property disposals.............. 654 1,295 659
Other noncash items (net)............... 115 117 206
Deferred income taxes................... (2,149) 2,426 1,942
Tax benefit from exercise of stock
options................................ 10,705 8,524 2,618
Increase (decrease) in cash due to
changes in:
Accounts receivable................... (3,252) (864) (12,812)
Merchandise inventories............... (48,514) (74,031) (40,466)
Prepaid expenses...................... (485) (2,875) 3
Other assets.......................... (2,804) (674) (25)
Accounts payable...................... (11,051) 87,571 20,998
Accrued expenses...................... 8,981 14,121 12,727
Accrued income taxes.................. 11,001 9,049 17,104
Other noncurrent liabilities.......... 6,022 3,503 (1,468)
-------- -------- --------
Net cash provided by operating
activities............................... 155,677 205,787 124,145
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable securities......... (5,001) (1,582) (95)
Sale of marketable securities............. 5,001 -- --
Maturity of marketable securities......... -- 1,682 --
Property additions........................ (98,680) (87,475) (78,338)
Proceeds from property disposals.......... 301 125 548
-------- -------- --------
Net cash used in investing activities..... (98,379) (87,250) (77,885)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of capital lease obligations.... (202) (180) (165)
Repayment of long-term debt............... -- (30,000) (12,500)
Cash dividends paid on preferred stock of
subsidiary............................... (25) (25) (25)
Proceeds from sale and issuance of common
stock.................................... 9,659 7,712 3,291
Purchase of treasury stock................ (64,346) (35,024) (30,930)
Contribution to capital by Waban Inc...... -- -- 1,188
-------- -------- --------
Net cash used in financing activities..... (54,914) (57,517) (39,141)
-------- -------- --------
Net increase in cash and cash
equivalents.............................. 2,384 61,020 7,119
Cash and cash equivalents at beginning of
year..................................... 118,008 56,988 49,869
-------- -------- --------
Cash and cash equivalents at end of year.. $120,392 $118,008 $ 56,988
======== ======== ========
Supplemental cash flow information:
Interest paid, net...................... $ (21) $ 203 $ 420
Income taxes paid....................... 74,470 58,696 33,918
Noncash financing and investing
activities:
Treasury stock issued for compensation
plans and
in connection with stock split......... 30,762 8,668 30,930
The accompanying notes are an integral part of the financial statements.
20
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Total
Common Stock Paid-in Retained Treasury Stockholders'
Par Value $.01 Capital Earnings Stock Equity
-------------- ---------- -------- -------- -------------
(Dollars In Thousands except Per Share Amount)
Balance, January 31,
1998................... $375 $102,408 $343,474 $ -- $446,257
Net income............ -- -- 62,479 -- 62,479
Sale and issuance of
common stock......... 2 4,433 -- 1,638 6,073
Cash dividends on
preferred stock of
subsidiary........... -- -- (25) -- (25)
Purchase of treasury
stock................ -- -- -- (30,930) (30,930)
Two-for-one stock
split................ 361 (29,653) -- 29,292 --
Contribution to
capital by Waban
Inc.................. -- 1,188 -- -- 1,188
---- -------- -------- -------- --------
Balance, January 30,
1999................... 738 78,376 405,928 -- 485,042
Net income............ -- -- 111,149 -- 111,149
Sale and issuance of
common stock......... 6 7,582 -- 8,668 16,256
Cash dividends on
preferred stock of
subsidiary........... -- -- (25) -- (25)
Purchase of treasury
stock................ -- -- -- (35,024) (35,024)
---- -------- -------- -------- --------
Balance, January 29,
2000................... 744 85,958 517,052 (26,356) 577,398
Net income............ -- -- 131,501 -- 131,501
Sale and issuance of
common stock......... -- (10,375) -- 30,762 20,387
Cash dividends on
preferred stock of
subsidiary........... -- -- (25) -- (25)
Purchase of treasury
stock................ -- -- -- (64,346) (64,346)
---- -------- -------- -------- --------
Balance, February 3,
2001................... $744 $ 75,583 $648,528 $(59,940) $664,915
==== ======== ======== ======== ========
The accompanying notes are an integral part of the financial statements.
21
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Accounting Policies
Basis of Presentation
The consolidated financial statements of BJ's Wholesale Club, Inc. (the
"Company") include the financial statements of all of the Company's
subsidiaries, all of whose common stock is wholly owned by the Company.
Fiscal Year
Through January 30, 1999, the Company's fiscal year ended each year on the
last Saturday in January. Beginning with the fiscal year ended January 29,
2000, the Company's fiscal year ended on the Saturday closest to January 31.
The fiscal year ended February 3, 2001 included 53 weeks. The fiscal years
ended January 29, 2000 and January 30, 1999 included 52 weeks.
Cash Equivalents and Marketable Securities
The Company considers highly liquid investments with a maturity of three
months or less at time of purchase to be cash equivalents. Investments with
maturities exceeding three months are classified as marketable securities.
Merchandise Inventories
Inventories are stated at the lower of cost, determined under the average
cost method, or market. The Company recognizes the write-down of slow-moving or
obsolete inventory in cost of sales when such write-downs are probable and
estimable.
Property and Equipment
Property is depreciated by use of the straight-line method for financial
reporting purposes. Buildings are depreciated over 33 1/3 years. Leasehold
costs and improvements are amortized over the lease term or their estimated
useful life, whichever is shorter. Furniture, fixtures and equipment are
depreciated over three to ten years. Interest related to the development of
owned facilities is capitalized.
Impairment of Long-lived Assets
The Company periodically reviews the realizability of its long-lived assets
in relation to current and expected operating results and cash flows in order
to assess whether there has been an impairment of their carrying values.
Accounts Payable
The Company's banking arrangements provide for the daily replenishment of
vendor payable accounts as checks are presented. The balances of checks
outstanding in these bank accounts totaling $54,918,000 at February 3, 2001 and
$57,571,000 at January 29, 2000 are included in accounts payable on the balance
sheet.
Membership Fees
Membership income is recognized over the life of the membership, which is
typically twelve months. (See Notes A. and L.)
Preopening Costs
Preopening costs consist of direct incremental costs of opening or
relocating a facility and are charged to operations as incurred. (See Note A.)
22
Stock-Based Compensation
The Company applies the accounting provisions prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
("APB 25") and related Interpretations in accounting for its stock-based
compensation.
Disclosures about Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of these instruments.
Recently Issued Accounting Standards
In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued.
The adoption of this statement, which becomes effective in 2001, is not
expected to have a material impact on the Company's results of operations,
financial position or cash flows, or to produce any major changes in current
disclosures.
Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No.
101 was released on December 3, 1999 and provides the staff's views in
applying generally accepted accounting principles to selected revenue
recognition issues. The implementation of SAB 101 did not have a material
effect on the Company's results of operations, financial position or cash
flows.
In March 2000, The Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44, "Accounting for Certain Transactions involving
Stock Compensation." This pronouncement, which became effective July 1, 2000,
clarifies the application of APB 25 for certain stock compensation issues. The
application of FASB Interpretation No. 44 in 2000 had no effect on the
Company's results of operations, financial position or cash flows.
Estimates Included in Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Other
Certain amounts in the prior years' financial statements have been
reclassified for comparative purposes.
A. Accounting Principle Changes
During the fiscal year ended January 30, 1999, the Company adopted changes
in methods of accounting for membership fee revenues and preopening expenses.
The Company had previously recognized membership fee revenues as income
when received. Under its current accounting method, the Company recognizes
membership fee revenues as income over the life of the membership, which is
typically twelve months. The Company recorded a noncash charge of $18,216,000
(after reduction for income taxes of $11,646,000), or $.24 per diluted share,
as of the beginning of 1998 to reflect the cumulative effect of this change on
prior years.
23
Prior to 1998, preopening expenses were charged ratably to operations
between the date a new club opened and the end of the fiscal year. Upon
implementing the provisions of the American Institute of CPA's Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities," the Company
recognizes club preopening expenses when incurred. The Company recorded a
noncash charge of $1,110,000 (after reduction for income taxes of $710,000), or
$.01 per diluted share, as of the beginning of 1998 to reflect the cumulative
effect of this change on prior years.
B. Spin-off of the Company from Waban Inc. and Related Party Transactions
The Company, which previously had been a wholly owned subsidiary of Waban
Inc. ("Waban"), became a separate and independent public entity on July 28,
1997, when Waban distributed to its stockholders on a pro rata basis all of the
Company's outstanding common stock (the "spin-off").
Pursuant to the spin-off, the Company and Waban entered into a Tax Sharing
Agreement to provide for the payment of taxes and the entitlement to tax
refunds for periods prior to the spin-off date. Each party has agreed to
indemnify the other in specified circumstances if certain events occurring
after July 28, 1997 cause the spin-off or certain related transactions to
become taxable.
Since the spin-off, the Company has provided certain services to Waban
(which has since changed its name to HomeBase, Inc. ("HomeBase")) at rates
negotiated in accordance with a Services Agreement entered into between the
Company and HomeBase. The amounts received by the Company for these services
were not material.
C. Debt
The Company has a $200 million unsecured credit agreement with a group of
banks which expires July 9, 2002. The agreement includes a $50 million sub-
facility for letters of credit, of which $3.4 million was outstanding at
February 3, 2001. The Company is required to pay an annual facility fee which
is currently 0.10% of the total commitment. Interest on borrowings is payable
at the Company's option either at (a) the Eurodollar rate plus a margin which
is currently 0.25%, (b) the agent bank's prime rate or (c) a rate determined by
competitive bidding. The facility fee and Eurodollar margin are both subject to
change based upon the Company's fixed charge coverage ratio. The agreement
contains covenants which, among other things, include minimum net worth and
fixed charge coverage requirements and a maximum funded debt-to-capital
limitation, prohibit the payment of cash dividends on the Company's common
stock, and generally limit the cumulative repurchase of the Company's common
stock to $50 million plus 50% of net income (as defined by the agreement)
earned after January 30, 1998.
The Company also maintains a separate line in the amount of $41 million for
letters of credit, primarily to support the purchase of inventories, of which
$10.8 million was outstanding at February 3, 2001, and an additional $20
million uncommitted credit line for short-term borrowings.
There were no bank borrowings outstanding at February 3, 2001 and January
29, 2000.
D. Commitments and Contingencies
The Company is obligated under long-term leases for the rental of real
estate and fixtures and equipment, some of which are classified as capital
leases pursuant to SFAS No. 13. In addition, the Company is generally required
to pay insurance, real estate taxes and other operating expenses and, in some
cases, additional rentals based on a percentage of sales or increases in the
Consumer Price Index. The real estate leases range up to 45 years and have
varying renewal options. The fixture and equipment leases range up to 5 years.
24
Future minimum lease payments as of February 3, 2001 were:
Capital Operating
Fiscal Years Ending Leases Leases
------------------- ------- ----------
(Dollars in
Thousands)
February 2, 2002......................................... $ 427 $ 81,943
February 1, 2003......................................... 449 80,378
January 31, 2004......................................... 456 81,961
January 29, 2005......................................... 456 81,440
January 28, 2006......................................... 456 79,718
Later years.............................................. 570 864,185
------ ----------
Total minimum lease payments............................. 2,814 $1,269,625
==========
Less amount representing interest........................ 746
------
Present value of net minimum capital lease payments...... $2,068
======
Rental expense under operating leases (including contingent rentals, which
were not material) amounted to $68,906,000, $57,148,000 and $48,226,000 in
2000, 1999 and 1998, respectively.
The Company is involved in various legal proceedings that are typical of a
retail business. Although it is not possible to predict the outcome of these
proceedings or any related claims, the Company believes that such proceedings
or claims will not, individually or in the aggregate, have a material adverse
effect on its financial condition or results of operations.
In connection with the spin-off of Waban by The TJX Companies, Inc. ("TJX")
in 1989, Waban and TJX entered into an agreement pursuant to which Waban agreed
to indemnify TJX against any liabilities that TJX might incur with respect to
42 current HomeBase leases as to which TJX was either a lessee or guarantor. In
connection with the spin-off of the Company from Waban in 1997, the Company
agreed to indemnify TJX for any liabilities TJX may incur with respect to
HomeBase leases through January 31, 2003, and thereafter it will indemnify TJX
for 50% of such liabilities. Although HomeBase is primarily liable for these
leases, there can be no assurance that HomeBase will be able to make all future
payments under these leases. As of February 3, 2001, the Company's maximum
undiscounted pre-tax contingent liability under the TJX indemnification
agreement was estimated to be approximately $220 to $230 million. As of January
31, 2003, the estimated amount decreases to approximately $130 to $140 million.
These amounts include estimated real estate taxes and common area maintenance
charges. These estimates do not take into consideration the reduction in the
Company's contingent liability that would result from any subleasing of the
properties.
E. Capital Stock
On February 4, 1999, the Company's Board of Directors declared a two-for-one
stock split effected in the form of a 100% stock dividend, which was
distributed on March 2, 1999 to stockholders of record on February 16, 1999.
The split was effected by reissuing the 803,638 treasury shares held by the
Company and issuing 36,098,862 additional shares of common stock on the
distribution date. The stock split is recorded in the financial statements for
the fiscal year ended January 30, 1999. All historical earnings per share
amounts have been restated to reflect the stock split. Reference to stock
activity before the distribution of the split has not been restated unless
otherwise noted.
The Company has a shareholder rights plan, originally adopted in 1997 and
amended in 1999, pursuant to which shareholders are issued one-half of a Right
(as adjusted for the two-for-one stock split) for each share of common stock.
Each Right entitles the holder to purchase from the Company 1/1000 share of
Series A Junior Participating Preferred Stock ("Series A Preferred Stock") at a
price of $120. The Company has designated 100,000 shares of Series A Preferred
Stock for issuance under the shareholder rights plan; none has been issued to
date. Generally, the terms of the Series A Preferred Stock are designed so that
1/1000 share of Series A Preferred Stock is the economic equivalent of one
share of the Company's common stock. The Rights are
25
exercisable only if a person acquires 20% or more of the Company's common stock
or commences a tender offer that would result in such person owning 30% or more
of the Company's common stock. In addition, in general, if after a person has
become a 20% owner, the Company is involved in a business combination
transaction in which it is not the surviving corporation or in connection with
which the Company's common stock is changed, or the Company disposes of 50% or
more of its assets or earning power, each Right that has not previously been
exercised or voided will entitle its holder to purchase that number of shares
of common stock of such other person which equals $120 divided by one-half of
the then current market price of such common stock. The Company will generally
be entitled to redeem the Rights at $.01 per Right at any time until the tenth
business day following public announcement that a person has become a 20%
owner. The Rights expire on July 10, 2007, unless earlier redeemed or
exchanged.
The Company has authorized 20,000,000 shares of preferred stock, $.01 par
value, of which no shares have been issued.
In December 1997, one of the Company's subsidiaries issued 126 shares of
non-voting preferred stock to individual stockholders at $2,200 per share.
These shares are each entitled to receive ongoing annual dividends of $200 per
share. The minority interest in this subsidiary is equal to the preferred
shares' preference in an involuntary liquidation of $277,200 and is included in
other noncurrent liabilities in the Company's consolidated balance sheets at
February 3, 2001 and January 29, 2000.
F. Stock Incentive Plans
All references in this footnote to historical awards, outstanding awards and
available shares for future grants under the Company's stock incentive plans
and related per share amounts reflect the two-for-one stock split distributed
on March 2, 1999.
Under its 1997 Stock Incentive Plan, the Company has granted certain key
employees options to purchase common stock at prices equal to 100% of market
price on the grant date. These options, which expire ten years from the grant
date, are generally exercisable 25% per year starting one year after the grant
date. The maximum number of shares of common stock issuable under this plan is
5,249,402 shares, plus shares subject to awards granted under the BJ's
Wholesale Club, Inc. 1997 Replacement Stock Incentive Plan (the "Replacement
Plan") which are not actually issued because such awards expire or are
canceled. Under the Replacement Plan, which expired on January 28, 1998, BJ's
employees who held Waban stock options and restricted stock were granted
replacement BJ's options and restricted stock, which preserved the same
inherent value, vesting terms and expiration dates as the Waban awards they
replaced in connection with the spin-off.
Under its 1997 Director Stock Option Plan, BJ's external directors are
granted options to purchase common stock at prices equal to 100% of market
price on the grant date. These options expire ten years from the grant date and
are exercisable in three equal annual installments beginning on the first day
of the month which includes the first anniversary of the date of grant. A
maximum of 300,000 shares may be issued under the 1997 Director Stock Incentive
Plan.
As of February 3, 2001 and January 29, 2000, respectively, 1,349,287 and
2,635,708 shares were reserved for future stock awards under the Company's
stock incentive plans.
The Company applies APB 25 and related Interpretations in accounting for its
stock-based compensation. Total pre-tax compensation cost recognized in the
statements of income for stock-based employee compensation awards was $23,000
in 2000, $19,000 in 1999 and $163,000 in 1998 and consisted entirely of
restricted stock expense, which is charged to income ratably over the periods
during which the restrictions lapse. 2,000 shares of restricted stock were
issued during 2000 at a weighted-average grant-date fair value of $37.0625. No
restricted stock was issued in 1999. During 1998, 2,000 shares of restricted
stock were issued at a weighted-average grant-date fair value of $19.72. No
compensation cost has been recognized under APB 25 for the Company's stock
options because the exercise price equaled the market price of the underlying
stock on the date of grant.
26
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, "Accounting for Stock-Based Compensation," and has
been determined as if the Company had accounted for its stock options under the
fair value method of that statement. The fair value for these options was
estimated at the grant date using the Black-Scholes option pricing model with
the following weighted-average assumptions: risk-free interest rates of 6.12%,
6.19% and 5.16% in 2000, 1999 and 1998, respectively; volatility factor of the
expected market price of the Company's common stock of .42 in 2000 and 1999 and
.35 in 1998; and expected life of the options of 5 years in 2000, 1999 and
1998. No dividends were expected. The weighted-average fair value of options
granted was $16.21 in 2000, $13.20 in 1999 and $7.21 in 1998.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
Fiscal Year Ended
-----------------------------------------------------
February 3, January 29, January 30,
2001 2000 1999
---------------- ---------------- ---------------
(Dollars in Thousands except Per Share Amounts)
Pro forma net income.... $ 126,161 $ 107,617 $ 60,004
Pro forma earnings per
share:
Basic.................. $ 1.73 $ 1.46 $ 0.80
Diluted................ $ 1.70 $ 1.43 $ 0.79
The effects of applying the provisions of SFAS No. 123 for pro forma
disclosure are not necessarily representative of the effects on reported net
income for future years because options vest over several years and additional
awards generally are made each year. In accordance with the transition
requirements of SFAS No. 123, the pro forma disclosures above include stock
options awarded only after January 28, 1995.
Presented below is a summary of the status of stock option activity and
weighted-average exercise prices for the last three fiscal years (number of
options in thousands):
Fiscal Year Ended
---------------------------------------------------
February 3, January 29, January 30,
2001 2000 1999
----------------- ---------------- ----------------
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- -------- ------- --------
Outstanding, beginning of
year..................... 5,143 $14.45 5,392 $11.58 4,756 $9.48
Granted................... 1,361 35.21 699 28.51 1,181 18.19
Exercised................. (1,006) 9.60 (929) 8.31 (492) 6.86
Forfeited................. (77) 21.48 ( 19) 17.11 ( 53) 13.52
------ ----- -----
Outstanding, end of year.. 5,421 20.47 5,143 14.45 5,392 11.58
------ ----- -----
Exercisable, end of year.. 2,757 12.69 2,914 10.08 2,750 8.35
====== ===== =====
27
Additional information related to stock options outstanding at February 3,
2001 is presented below (number of options in thousands):
Options Outstanding Options Exercisable
--------------------------------- ---------------------
Weighted-
Weighted- Average Weighted-
Average Remaining Average
Number Exercise Contractual Number Exercise
Range of Exercise Prices Outstanding Price Life (yrs.) Exercisable Price
------------------------ ----------- --------- ----------- ----------- ---------
$ 5.37 - $ 9.45... 1,091 $ 7.96 4.2 1,091 $ 7.96
$10.22 - $15.06... 1,308 13.25 5.9 1,060 12.83
$18.16 - $27.94... 1,104 18.55 7.6 471 18.44
$29.75 - $37.06... 1,918 33.62 9.3 135 29.75
----- -----
$ 5.37 - $37.06... 5,421 20.47 7.1 2,757 12.69
===== =====
G. Earnings Per Share
The following details the calculation of earnings per share for the last
three fiscal years:
Fiscal Year Ended
-----------------------------------------------
February 3, January 29, January 30,
2001 2000 1999
--------------- --------------- ---------------
(Dollars in Thousands except Per Share Amounts)
Income before cumulative effect
of accounting principle
changes....................... $ 131,501 $ 111,149 $ 81,805
Less: Preferred stock
dividends..................... 25 25 25
--------------- --------------- ---------------
Income available to common
stockholders.................. $ 131,476 $ 111,124 $ 81,780
=============== =============== ===============
Weighted-average number of
common shares outstanding,
used for basic computation.... 72,870,668 73,657,016 74,804,538
Plus: Incremental shares from
assumed conversion of stock
options....................... 1,509,876 1,734,473 1,291,338
--------------- --------------- ---------------
Weighted-average number of
common and dilutive potential
common shares outstanding..... 74,380,544 75,391,489 76,095,876
=============== =============== ===============
Basic earnings per share....... $ 1.80 $ 1.51 $ 1.09
=============== =============== ===============
Diluted earnings per share..... $ 1.77 $ 1.47 $ 1.07
=============== =============== ===============
Options to purchase 942,800 shares at an exercise price of $37.06 and
589,700 shares at an exercise price of $29.75 were outstanding at February 3,
2001 and January 29, 2000, respectively, but were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the common shares during the years
then ended.
28
H. Income Taxes
The provision for income taxes includes the following:
Fiscal Year Ended
-----------------------------------
February 3, January 29, January 30,
2001 2000 1999
----------- ----------- -----------
(Dollars in Thousands)
Federal:
Current................................ $73,526 $57,153 $41,696
Deferred............................... (1,094) 1,684 1,872
State:
Current................................ 10,945 10,592 9,326
Deferred............................... (1,055) 742 70
------- ------- -------
Total income tax provision............... $82,322 $70,171 $52,964
======= ======= =======
The following is a reconciliation of the statutory federal income tax rates
and the effective income tax rates:
Fiscal Year Ended
-----------------------------------
February 3, January 29, January 30,
2001 2000 1999
----------- ----------- -----------
Statutory federal income tax rates..... 35% 35% 35%
State income taxes, net of federal tax
benefit............................... 4 4 4
--- --- ---
Effective income tax rates............. 39% 39% 39%
=== === ===
Significant components of the Company's deferred tax assets and liabilities
as of February 3, 2001 and January 29, 2000 are as follows:
February 3, January 29,
2001 2000
----------- -----------
(Dollars in Thousands)
Deferred tax assets:
Self-insurance reserves............................ $13,004 $12,122
Rental step liabilities............................ 5,208 4,770
Compensation and benefits.......................... 6,354 5,519
Other.............................................. 5,885 4,268
------- -------
Total deferred tax assets........................ 30,451 26,679
------- -------
Deferred tax liabilities:
Accelerated depreciation - property................ 26,096 24,267
Real estate taxes.................................. 2,210 2,047
Other.............................................. 2,363 2,732
------- -------
Total deferred tax liabilities................... 30,669 29,046
------- -------
Net deferred tax (liabilities)....................... $ (218) $(2,367)
======= =======
The Company has not established a valuation allowance because its deferred
tax assets can be realized by offsetting deferred tax liabilities and future
taxable income, which management believes will more likely than not be earned,
based on the Company's historical earnings record.
I. Pensions
The Company participated in the Waban Inc. Retirement Plan, a non-
contributory defined benefit retirement plan covering full-time employees who
had attained twenty-one years of age and had completed one
29
year of service. Effective July 26, 1997, this plan was terminated. The Company
recorded a pre-tax charge applicable to its participants of $1,521,000 in 1998
when the plan was settled through lump-sum cash payments and through the
purchase of nonparticipating annuity contracts.
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 of covered compensation
and 50% of the next four percent. The Company's expense under these plans was
$3,166,000, $2,657,000 and $2,471,000 in 2000, 1999 and 1998, respectively.
The Company has a non-contributory defined contribution retirement plan for
certain key employees. Under this plan, the Company funds annual retirement
contributions for the designated participants on an after-tax basis. For the
last three years, the Company's contributions equaled 5% of the participants'
base salary. Participants become fully vested in their contribution accounts at
the end of the fiscal year in which they complete four years of service. The
Company's pre-tax expense under this plan was $990,000, $856,000 and $718,000
in 2000, 1999 and 1998, respectively.
J. Postretirement Medical Benefits
The Company has a defined benefit postretirement medical plan which covers
employees and their spouses who retire after age 55 with at least 10 years of
service, who are not eligible for Medicare, and who participated in a Company-
sponsored medical plan. Amounts contributed by retired employees under this
plan are based on years of service prior to retirement. The plan is not funded.
Net periodic postretirement medical benefit cost included the following
components:
Fiscal Year Ended
-----------------------------------
February 3, January 29, January 30,
2001 2000 1999
----------- ----------- -----------
(Dollars in Thousands)
Service cost........................... $185 $165 $147
Interest cost.......................... 67 62 50
Amortization of unrecognized (gain)
loss.................................. (6) 8 6
---- ---- ----
Net periodic postretirement benefit
cost.................................. $246 $235 $203
==== ==== ====
Discount rate used to determine cost... 7.75% 6.25% 6.75%
The following table sets forth the funded status of the Company's
postretirement medical plan and the amount recognized in the balance sheets at
February 3, 2001 and January 29, 2000:
February 3, January 29,
2001 2000
----------- -----------
(Dollars in Thousands)
Unfunded accumulated postretirement benefit
obligation (APBO)................................. $1,309 $1,081
Unrecognized net loss.............................. (35) (50)
------ ------
Accrued postretirement benefit cost included in
balance sheets.................................... $1,274 $1,031
====== ======
Discount rate used to value APBO................... 7.00 % 7.75 %
Weighted-average health care cost trend rate for
valuing year-end obligations:
Initial trend rate............................... 11.00 % 7.00 %
Ultimate trend rate.............................. 5.00 % 5.00 %
Year ultimate trend rate to be attained.......... 2003 2003
30
The following tables present reconciliations of the APBO and plan assets for
the fiscal years ended February 3, 2001 and January 29, 2000:
Fiscal Year Ended
-----------------------
February 3, January 29,
2001 2000
----------- -----------
(Dollars in Thousands)
Reconciliation of APBO:
APBO at beginning of year............................. $1,081 $ 979
Service cost.......................................... 185 165
Interest cost......................................... 67 62
Contributions by plan participants.................... 8 6
Actuarial (gains)..................................... (21) (121)
Benefits paid......................................... (11) (10)
------ ------
APBO at end of year................................... $1,309 $1,081
====== ======
Reconciliation of plan assets:
Fair value of plan assets at beginning of year........ $ -- $ --
Employer contributions................................ 3 4
Contributions by plan participants.................... 8 6
Benefits paid......................................... (11) (10)
------ ------
Fair value of plan assets at end of year.............. $ -- $ --
====== ======
The following table sets forth the impact of changes in the assumed health
care cost trend rates for the fiscal year ended February 3, 2001:
Dollars
in
Thousands
---------
Impact of 1% increase in health care cost trend on:
Aggregate of service and interest costs........................ $ 30
APBO at end of year............................................ 142
Impact of 1% decrease in health care cost trend on:
Aggregate of service and interest costs........................ $ (27)
APBO at end of year............................................ (127)
K. Interest
The following details the components of interest income, net for the last
three fiscal years:
Fiscal Year Ended
-----------------------------------
February 3, January 29, January 30,
2001 2000 1999
----------- ----------- -----------
(Dollars in Thousands)
Interest income......................... $6,028 $4,045 $1,404
Capitalized interest.................... 454 302 657
Interest expense on debt................ (302) (317) (842)
Interest expense on capital leases...... (225) (245) (263)
------ ------ ------
Interest income, net.................... $5,955 $3,785 $ 956
====== ====== ======
31
L. Accrued Expenses and Other Current Liabilities
The major components of accrued expenses and other current liabilities are
as follows:
February 3, January 29,
2001 2000
----------- -----------
(Dollars in Thousands)
Employee compensation.............................. $ 26,191 $ 26,617
Deferred membership fee income..................... 47,368 40,632
Sales and use taxes, self-insurance reserves, rent,
utilities, advertising and other.................. 73,977 70,392
-------- --------
$147,536 $137,641
======== ========
The following table summarizes membership fee activity for each of the last
three fiscal years:
Fiscal Year Ended
-----------------------------------
February 3, January 29, January 30,
2001 2000 1999
----------- ----------- -----------
(Dollars in Thousands)
Deferred membership fee income,
beginning of year.................... $ 40,632 $ 35,246 $ --
Cumulative effect of accounting
principle changes.................... -- -- 29,862
Cash received from members............ 98,048 84,648 70,857
Revenue recognized in earnings........ (91,312) (79,262) (65,473)
-------- -------- --------
Deferred membership fee income, end of
year................................. $ 47,368 $ 40,632 $ 35,246
======== ======== ========
M. Selected Quarterly Financial Data (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter(b)
---------- ---------- ---------- ----------
(Dollars in Thousands except Per Share
Amounts)
Fiscal year ended February 3,
2001:
Net sales....................... $1,021,073 $1,177,253 $1,151,506 $1,478,441
Total revenues.................. 1,045,686 1,202,228 1,178,153 1,506,028
Gross earnings(a)............... 107,776 131,266 128,955 187,647
Net income...................... 18,094 31,220 27,391 54,796
Per common share, diluted....... 0.24 0.42 0.37 0.74
Fiscal year ended January 29,
2000:
Net sales....................... $ 858,761 $1,015,039 $ 990,638 $1,251,387
Total revenues.................. 879,724 1,036,916 1,013,974 1,275,633
Gross earnings(a)............... 92,794 114,236 113,591 159,988
Net income...................... 14,370 25,784 23,334 47,661
Per common share, diluted....... 0.19 0.34 0.31 0.63
- --------
(a) Gross earnings equals total revenues less cost of sales, including buying
and occupancy costs.
(b) The fourth quarter of the fiscal year ended February 3, 2001 included 14
weeks.
32
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of BJ's Wholesale Club, Inc.:
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of BJ's Wholesale Club, Inc. and its subsidiaries at February 3, 2001
and January 29, 2000, and the results of their operations and their cash flows
for each of the three years in the period ended February 3, 2001 in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note A to the consolidated financial statements, the Company
changed its methods of accounting for membership fee revenue and preopening
expenses during the year ended January 30, 1999.
PricewaterhouseCoopers LLP
/s/PricewaterhouseCoopers LLP
Boston, Massachusetts
March 5, 2001
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 accounting principles
generally accepted in the United States of America 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, comprised of members of the Board of Directors who are
neither officers nor employees, meets periodically with management, the
internal auditors and the independent public accountants to review matters
relating to the Company's financial reporting, the adequacy of internal
accounting control and the scope and results of audit work. The internal
auditors and the independent public accountants have free access to the
Committee.
The financial statements have been audited by PricewaterhouseCoopers LLP,
whose opinion as to their fair presentation in accordance with accounting
principles generally accepted in the United States of America appears above.
John J. Nugent Frank D. Forward
/s/ John J. Nugent
/s/ Frank Forward
President and
Chief Executive Executive Vice President and
Officer Chief Financial Officer
March 5, 2001
33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company will file with the Securities and Exchange Commission a definitive
Proxy Statement no later than 120 days after the close of its fiscal year ended
February 3, 2001 (the "Proxy Statement"). The information required by this Item
and not given in Item 4A, Executive Officers of the Registrant, is incorporated
by reference from the Proxy Statement under "Election of Directors" and "Section
16(a) Beneficial Ownership Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from the
Proxy Statement under "Compensation of Directors" and "Executive Compensation."
However, information under "Executive Compensation Committee's Report on
Executive Compensation" in this Proxy Statement is not so incorporated.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from the
Proxy Statement under "Beneficial Ownership of Common Stock."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from the
Proxy Statement under "Relationship with HomeBase; Conflicts of Interest."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
A. The Financial Statements filed as part of this report are listed and
indexed on page 17. Schedules have been omitted because they are not applicable
or the required information has been included elsewhere in this report.
B. Listed below are all Exhibits filed as part of this report.
EXHIBIT
NO. Exhibit
--- -------
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Amended and Restated By-Laws (8)
4.1 Rights Agreement, dated as of July 10, 1997, between the Company and
First Chicago Trust Company of New York (2)
4.1a Amendment dated as of February 4, 1999 to Rights Agreement dated
July 10, 1997 (7)
4.2 Specimen Certificate of Common Stock, $.01 par value per share (5)
10.1 Separation and Distribution Agreement, dated as of July 10, 1997 between
the Company and Waban Inc. (3)
10.2 Services Agreement, dated as of July 28, 1997, between the Company and
Waban Inc. (3)
10.3 Tax Sharing Agreement, dated as of July 28, 1997, between the Company
and Waban Inc. (3)
10.4 Employee Benefits Agreement, dated as of July 28, 1997, between the
Company and Waban Inc. (3)
10.5 BJ's Wholesale Club, Inc. Management Incentive Plan* (4)
10.6 BJ's Wholesale Club, Inc. Growth Incentive Plan* (4)
10.7 BJ's Wholesale Club, Inc. 1997 Director Stock Option Plan, as
amended* (10)
10.8 BJ's Wholesale Club, Inc. Executive Retirement Plan, as amended* (11)
10.9 BJ's Wholesale Club, Inc. 1997 Replacement Stock Incentive Plan* (4)
10.10 BJ's Wholesale Club, Inc. 1997 Stock Incentive Plan, as amended* (9)
35
10.11 BJ's Wholesale Club, Inc. General Deferred Compensation Plan* (4)
10.12 Employment Agreement, dated as of July 28, 1997 with
Herbert J. Zarkin* (4)
10.12a Amendment effective September 14, 2000 to July 28, 1997 Employment
Agreement with Herbert J. Zarkin* (12)
10.13 Employment Agreement, dated as of July 28, 1997 with John J. Nugent* (4)
10.13a Amended and Restated Change of Control Severance Agreement between the
Company and John J. Nugent* (10)
10.14 Employment Agreement, dated as of July 28, 1997 with
Frank D. Forward* (4)
10.15 Employment Agreement, dated as of July 28, 1997 with
Michael T. Wedge* (4)
10.16 Employment Agreement, dated as of July 28, 1997 with Laura J. Sen* (4)
10.17 Employment Agreement, dated as of July 28, 1997 with
Sarah M. Gallivan* (4)
10.18 Amended and Restated Form of Change of Control Severance Agreement
between the Company and officers of the Company* (10)
10.19 Form of Indemnification Agreement between the Company and officers of
the Company* (4)
10.20 BJ's Wholesale Club, Inc. Change of Control Severance Benefit Plan for
Key Employees, as amended* (11)
10.21 Credit Agreement, dated July 9, 1997, among the Company and certain
banks (4)
10.21a First Amendment dated as of December 19, 1997 to Credit Agreement dated
July 9, 1997 (6)
10.21b Second Amendment dated as of September 21, 1999 to Credit Agreement
dated July 9, 1997 (10)
10.22 Indemnification Agreement, dated as of April 18, 1997, between the
Company and The TJX Companies, Inc. (5)
21.0 Subsidiaries of the Company
23.0 Consent of Independent Accountants
*Management contract or other compensatory plan or arrangement.
(1) Incorporated herein by reference to the Company's Registration Statement
on Form S-8,(Commission File No. 333-31015)
(2) Incorporated herein by reference to the Company's Registration Statement
on Form 8-A, dated July 10, 1997 (Commission File No. 001-13143)
(3) Incorporated herein by reference to the Current Report on Form 8-K, dated
July 28, 1997, of HomeBase, Inc. (Commission File No. 001-10259)
(4) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended July 26, 1997 (Commission File
No. 001-13143)
(5) Incorporated herein by reference to the Company's Registration Statement
on Form S-1 (Commission File No. 333-25511)
(6) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1998 (Commission file
No. 001-13143)
(7) Incorporated herein by reference to the Company's Amendment No. 1 to
Registration Statement on Form 8-A/A, dated March 5, 1999 (Commission
File No. 001-13143)
(8) Incorporated herein by reference to the Company's Current Report on Form
8-K, dated as of April 7, 1999 (Commission File No. 001-13143)
36
(9) Incorporated herein by reference to the Company's Definitive Schedule 14A
filed April 23, 1999 (Commission File No. 001-13143)
(10) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended October 30, 1999 (Commission
File No. 001-13143)
(11) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the fiscal year ended January 29, 2000 (Commission File
No. 001-13143)
(12) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended October 28, 2000 (Commission
File No. 001-13143)
C. The Registrant did not file any reports on Form 8-K during the last quarter
of the period covered by this Report.
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BJ'S WHOLESALE CLUB, INC.
Dated: April 18, 2001
/s/ JOHN J. NUGENT
------------------------------
John J. Nugent
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ JOHN J. NUGENT /s/ HERBERT J. ZARKIN
- --------------------------------- -------------------------------
John J. Nugent, President Herbert J. Zarkin, Chairman
Chief Executive Officer and Director of the Board and Director
(Principal Executive Officer)
/s/ FRANK D. FORWARD /s/ S. JAMES COPPERSMITH
- ---------------------------------- --------------------------------
Frank D. Forward, Executive Vice President S. James Coppersmith, Director
and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ RONALD R. DION /s/ KERRY L. HAMILTON
- ---------------------------------- ----------------------------------
Ronald R. Dion, Director Kerry L. Hamilton, Director
/s/ BERT N. MITCHELL /s/ THOMAS J. SHIELDS
- --------------------- ----------------------------------
Bert N. Mitchell, Director Thomas J. Shields, Director
/s/ LORNE R. WAXLAX /s/ EDWARD J. WEISBERGER
- ------------------------ ----------------------------------
Lorne R. Waxlax, Director Edward J. Weisberger, Director
Dated: April 18, 2001
38