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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 1, 2003

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)

Registrant’s telephone number, including area code: (508) 651-7400

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

The aggregate market value of the voting stock held by non-affiliates of the Registrant on August 2, 2002 was approximately $2,221,132,000 based on the closing price of $31.70 on the New York Stock Exchange as of such date.

There were 69,292,607 shares of the Registrant’s Common Stock, $.01 par value, outstanding as of March 31, 2003.

Documents Incorporated by Reference

Portions of the Proxy Statement for the Registrant’s 2003 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 to become a leading warehouse club operator in the eastern United States. As of February 1, 2003, BJ’s operated 140 warehouse clubs in 16 states. The table below shows the number of BJ’s locations by state.

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 1, 2003 is referred to as “2002” or “fiscal 2002” 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 retailers.

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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 places added focus on the retail customer, its Inner Circle^® member, through merchandising strategies that emphasize a customer-friendly shopping experience. 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 seeks to establish and maintain the industry leading position in each market where it operates. 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^® and MasterCard^® payment cards chainwide.

Expansion

Since the beginning of 1997, BJ’s has grown from 81 clubs to 140 clubs in operation at February 1, 2003. Approximately 45% 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 12 or 13 new clubs in the current year, all of which are expected to be in existing markets. For at least the next two years, BJ’s plans to increase the square footage of the chain by approximately 10% annually.

In addition to the club openings shown above, BJ’s relocated one club in each of 2000 and 2001.

Store Profile

As of February 1, 2003, BJ’s operated 124 traditional size “big box” warehouse clubs that averaged approximately 111,000 square feet and 16 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.

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Construction and site development costs for a full-sized owned BJ’s club generally range from $5 million to $7 million. Land acquisition costs for a club generally range from $3 million to $5 million but can be significantly higher in some locations. BJ’s also invests approximately $2.7 million for fixtures and equipment and $2 million for inventory (net of accounts payable) and incurs approximately $.8 to $.9 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 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 6,500 active stockkeeping units (SKU’s). By contrast, supermarkets normally stock from 27,000 to 52,000 SKU’s, and supercenters typically stock up to 125,000 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 61% of BJ’s sales in 2002. The remaining 39% 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, prerecorded media, 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 items that can also be found 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 continued to expand its private label program during 2002. Products are sold under two labels: “Executive Choice^™” for products targeted to business members, and “Berkley and Jensen^™” 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 2002, products sold under BJ’s private labels had achieved a sales penetration of approximately 5% on an annualized basis. BJ’s expects its private label products to represent an increasing percentage of total sales over time.

BJ’s is testing pharmacies in the four Atlanta clubs opened in 2002 and in three existing Massachusetts clubs, which were retrofitted for this business. The Company plans to continue testing pharmacies in additional clubs in 2003. In 2002, BJ’s also began offering members the ability to purchase and activate phone cards and gift cards at the cash registers.

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, communications centers for cellular phones and wireless needs, on-site photo service, BJ’s Vacations^®, a selection of garden sheds, patios and sunrooms, a propane tank filling service, and a muffler and brake service operated in conjunction with Monro Muffler/Brake and Speedy Auto Service.

As of February 1, 2003, BJ’s had 68 gas stations in operation at 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

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generally maintained its gas prices at well below 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 2003.

The Company’s “BJ’s Premier Benefits^™” 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, an automobile buying service, BJ’s Vacations and printing of business forms and checks.

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: Inner Circle members and business members. BJ’s Inner Circle members are likely to be home owners whose incomes 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 for their personal needs. The Company had approximately 8.2 million members (including supplemental cardholders) at February 1, 2003. BJ’s offered free memberships in conjunction with its entry into the Atlanta market in 2002. Excluding the free first-year memberships offered during the preopening and initial opening periods for the four new clubs in the Atlanta market, the Company had approximately 7.6 million members (including supplemental cardholders) at February 1, 2003.

BJ’s generally 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 supplemental business memberships cost $20 each.

BJ’s plans to launch a premium membership program in 2003. Geared to high frequency, high volume consumer members, the program will offer a 2% rebate, capped at $500 per year, on generally all in-club purchases for an annual fee of $75.

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 television and radio advertising (some of which is vendor funded) during the holiday season. BJ’s also employs dedicated marketing personnel who solicit potential business members and who contact other selected organizations 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. In 2003, BJ’s plans to significantly upgrade its customer relationship management capabilities with the objective of developing new tools to drive shopping frequency and encourage membership renewals.

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 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 reduced freight expenses and lower receiving costs.

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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 so that it does not require ticketing at the club. Merchandise for sale is generally displayed on pallets containing large quantities of each item, thereby reducing labor required for handling, stocking and restocking. Back-up merchandise is generally stored in steel racks above the sales floor.

BJ’s has been able to limit inventory shrinkage 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 is the only warehouse club operator to accept both MasterCard and VISA chainwide. Additionally, BJ’s members may pay for their purchases by cash, check, debit cards or Discover Card.

In 2002, BJ’s rolled out a new BJ’s co-branded MasterCard underwritten by a major financial institution on a non-recourse basis. Purchases made at BJ’s with the co-branded MasterCard earn a 1.5% rebate. All other purchases with the BJ’s MasterCard earn rebates ranging from 0.5% to 1.0%. Rebates up to $500 per year per membership account are issued by the financial institution in the form of BJ’s Bucks^® checks redeemable for merchandise at any BJ’s club.

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. In recent years, BJ’s implemented “360 degree” scanning, upgraded the cash register printers at the checkout stations in its clubs to enhance the efficiency of the checkout process and implemented an on-line refund system at the clubs to more effectively process sales returns. In 2002, BJ’s completed the implementation of a new inventory replenishment system and installed self checkout technology in 40 clubs. BJ’s plans to roll out self checkout to 60 additional clubs in 2003.

Sales data is generally analyzed daily for replenishment purposes. Detailed purchasing data 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.), each of which operates on a nationwide basis.

A large number of competitive membership warehouse clubs exists in BJ’s markets. Approximately 86% of BJ’s 124 full-sized 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.

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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 1, 2003, BJ’s had approximately 17,000 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.

Available Information

BJ’s makes available free of charge on its website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (“SEC”). Internet users can access this information on BJ’s website at http://www.bjs.com.

Item 2.    Properties

BJ’s operated 140 warehouse club locations as of February 1, 2003, of which 87 are leased under long-term leases and 43 are owned. BJ’s owns the buildings at the remaining 10 locations, which are subject to long-term ground leases. A listing of the number of BJ’s locations in each state is shown on page 1.

The unexpired terms of BJ’s leases range from approximately 1.5 to 38 years, and average approximately 13 years. BJ’s has options to renew all but one of its leases for periods that range from approximately 10 to 50 years and average approximately 21 years. These leases require fixed monthly rental payments which are subject to various adjustments. Certain leases require payment of a percentage of the warehouse 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 166,000 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 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. The Company opened a new owned 480,000 square foot cross-dock facility in Jacksonville, Florida, in April 2003.

See Note E 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 1, 2003.

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Item 4A.    Executive Officers of the Registrant

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.

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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 1, 2003 and February 2, 2002 were:

The approximate number of stockholders of record at March 31, 2003 was 2,200. The Company has never declared or paid any cash dividends on its common stock and does not anticipate paying cash dividends in the foreseeable future. For restrictions on the payment of dividends, see Note D of Notes to the Consolidated Financial Statements included elsewhere in this report.

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Item 6.    Selected Financial Data

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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 1, 2003 is referred to as “2002.” Other fiscal years are referred to in a similar manner.

Critical Accounting Policies and Estimates

The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company reviews its estimates on an ongoing basis and makes judgments about the carrying value of assets and liabilities based on a number of factors. These factors include historical experience, guidance provided by outside experts and assumptions made by management that are believed to be reasonable under the circumstances. This section summarizes critical accounting policies and the related judgments involved in their application.

The Company recognizes revenue from the sale of merchandise when the customer takes delivery of and title to the merchandise, typically at the time of purchase in the club. In the limited instances when the customer is not able to take delivery at the club, shipping terms are normally FOB shipping point. In all cases, revenue from the sale of merchandise is not recognized until title and risk of loss pass to the customer. Membership fee revenue is recognized on a straight-line basis over the life of the membership, which is typically twelve months.

In determining comparable club information, the Company includes all clubs that were open for at least 13 months at the beginning of the period and were in operation during all of both periods being compared. However, if a club is in the process of closing, it is excluded from comparable clubs. The Company includes relocated clubs and expansions in comparable clubs. The Company reports comparable club sales information on a “same-week basis” whenever it is comparing sales between two fiscal years having 52 weeks in one year and 53 weeks in another. Sales for the 52 weeks ended February 2, 2002 were compared with sales for the last 52 weeks of the fiscal year ended February 3, 2001 to have a proper comparison for comparable sales reporting.

The Company receives various types of cash consideration from vendors, principally in the form of rebates based on purchasing or selling certain volumes of product; time-based rebates or allowances, which may include product placement allowances or exclusivity arrangements covering a predetermined period of time; price protection rebates and allowances for retail reductions on certain merchandise; and salvage allowances for product that is damaged, defective or becomes out-of-date. The Company recognizes such vendor rebates and allowances based on a systematic and rational allocation of the cash consideration offered to the underlying transaction that results in progress by the Company toward earning the rebates and allowances, provided the amounts to be earned are probable and reasonably estimable. Otherwise, rebates and allowances are recognized only when predetermined milestones are met. Vendor rebates and allowances are typically realized as a reduction of cost of sales when the merchandise is sold or otherwise disposed of.

The Company also receives cash consideration from vendors for demonstrating their products in the clubs or for advertising their products, particularly in the BJ’s Journal, a publication sent to BJ’s members several times a year. Cash consideration for product demonstrations is recognized as a reduction of selling, general and administrative (“SG&A”) expenses in the period during which the demonstrations are performed. Cash consideration for advertising vendors’ products is recognized as a reduction of SG&A expenses in the period in which the advertising takes place. In both cases, cash consideration represents a reimbursement of specific, incremental and identifiable SG&A costs incurred by the Company to sell the vendors’ products.

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Merchandise 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. Records are maintained at the stockkeeping unit (SKU) level. A report that details the number of weeks of selling supply for each SKU allows the merchandising staff to make timely markdown decisions to help maintain rapid inventory turnover, which is essential in the Company’s business. The carrying value of any SKU whose selling price is marked down to below cost is immediately reduced to that selling price.

The Company takes physical inventories of merchandise on a cycle basis at every location each year. A second physical inventory is taken at the end of the year at selected locations. The Company estimates a reserve for inventory shrinkage for the period between physical inventories. This estimate is based on historical results of previous physical inventories, shrinkage trends or other judgments management believes to be reasonable under the circumstances.

The Company reviews the realizability of its long-lived assets annually and whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Current and expected operating results and cash flows and other factors are considered in connection with the Company’s reviews. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows of individual clubs and consolidated net cash flows for long-lived assets not identifiable to individual clubs. Significant judgments are made in projecting future cash flows and are based on a number of factors, including the maturity level of the club, historical experience of clubs with similar characteristics, recent trends and general economic assumptions. The time period for newer clubs to become profitable varies, especially for clubs in a new market. BJ’s does not consider newer clubs at risk for impairment of long-lived assets until they meet planned dates for maturity. Impairment losses are measured as the difference between the carrying amount and the fair value of the impaired assets.

As of February 1, 2003, the Company had not established a valuation allowance for its deferred tax assets because those 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 record and projected earnings. Significant changes in projections of future taxable income could result in the Company’s establishment of a valuation allowance, which would reduce the carrying value of deferred tax assets.

During the fiscal year ended February 2, 2002, the Company established reserves for its liability related to House2Home, Inc. (“House2Home”) leases. Pursuant to an agreement with The TJX Companies, Inc. (“TJX”), BJ’s agreed to indemnify TJX for 100% of House2Home’s lease liabilities guaranteed by TJX through January 31, 2003 and for 50% of any such liabilities thereafter. House2Home filed for bankruptcy in November 2001. (See Note B of Notes to Consolidated Financial Statements for additional information.) BJ’s recorded liabilities were based on the present value of rent liabilities under the House2Home leases, including estimated real estate taxes and common area maintenance charges, reduced by estimated income from the subleasing of these properties. An annual discount rate of 6% was used to calculate the present value of these lease obligations. This rate was based on estimated incremental borrowing rates for the Company during the weighted-average period of time over which these obligations are expected to be paid.

A considerable amount of judgment was involved in determining BJ’s net liability related to House2Home leases, particularly in estimating potential sublease income. The Company obtained an independent appraisal to help make this determination. Assumptions included an average period of time it would take to sublease the properties and the amount of potential sublease income for each property. The Company continually evaluates the adequacy of its House2Home reserves based on progress made in settling its obligations and the status of ongoing negotiations. A significant number of House2Home leases were settled in 2002 and an adjustment to reduce the House2Home reserve was made in the third quarter of 2002. Because the vast majority of the House2Home settlements to date have been made through lump sum settlements and because the Company believes that most of the remaining leases will be settled in the same manner, the Company is now basing the determination of its liability on estimated lump sum settlements instead of the previous assumption that the properties would be subleased. The Company may still satisfy its obligations by subleasing properties, which could change the timing of cash outflows.

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During the fiscal year ended February 1, 2003, the Company established reserves for its lease liabilities for three clubs which were closed in November 2002. Two of these clubs were in the Columbus, Ohio, market and one was in North Dade, Florida. See Note C of Notes to Consolidated Financial Statements for additional information. BJ’s recorded liabilities are based on the present value of rent liabilities under these leases, including estimated real estate taxes and common area maintenance charges, reduced by estimated income from the subleasing of these properties. An annual discount rate of 6% was used to calculate the present value of these lease obligations. This rate was based on the estimated incremental borrowing rate for the Company during the weighted-average period of time over which these obligations are expected to be paid.

A considerable amount of judgment was involved in determining BJ’s net liability related to the closed club leases, particularly in estimating potential sublease income. Based on its knowledge of real estate conditions in the local markets and its experience in those markets, the Company assumed an average period of time it would take to sublease the properties and the amount of potential sublease income for each property. Net payments that the Company makes to settle its lease obligations will reduce operating cash flows in varying amounts over the remaining terms of the leases, which expire at various times up to 2019. Instead of subleasing the properties, the Company may satisfy its obligations through lump sum settlements, which could result in accelerated cash outflows.

The Company is primarily self-insured for worker’s compensation and general liability claims. Reported reserves for these claims are derived from estimated ultimate costs based upon individual claim file reserves and estimates for incurred but not reported claims. Estimates are based on valuations provided by third-party actuaries, historical loss development factors, and other assumptions believed to be reasonable under the circumstances.

The Company is involved in various legal proceedings that are typical of a retail business. Along with outside legal counsel, the Company assesses its exposure related to these proceedings and determines the amount of accruals required, if any, for these contingencies.

Results of Operations

The following table presents income statement data for continuing operations for the last three fiscal years:

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Net sales increased by 12.2% from 2001 to 2002 and by 7.1% from 2000 to 2001. 2000 was a 53-week fiscal year. These increases were due to the opening of new clubs and gasoline stations and to comparable club sales increases. Increases in comparable club sales represented 16% of the total increase in net sales from 2001 to 2002 and, on a same-week basis, 41% of the total increase in net sales from 2000 to 2001. New clubs accounted for the remainder of the increases.

Comparable club sales increased by 2.0% from 2001 to 2002 and, on a same-week basis, increased by 3.6% from 2000 to 2001. Additionally, the Company expanded the number of gasoline stations it operates from 34 at the end of 2000 to 55 at the end of 2001 and 68 at the end of 2002. Excluding sales of gasoline, comparable club sales increased by 1.1% from 2001 to 2002 and by 3.1% from 2000 to 2001. Comparable club sales results in 2002 reflected a generally weaker economic climate, price deflation in a number of food and general merchandise categories and increased competition.

Total revenues included membership fees of $117.9 million in 2002, $105.6 million in 2001 and $90.1 million in 2000. The increases were due mainly to an increase in BJ’s membership fee from $35 to $40, effective January 1, 2001, and to new members. Because members renew throughout the year and because membership fee income is realized over the life of the membership, the benefit of the fee increase was spread over 2001 and 2002. Business members renewed at a rate of 87% and Inner Circle members renewed at a rate of 83% in both 2002 and 2001.

The Company entered the Atlanta market with four new clubs in 2002. Because Atlanta was a market where BJ’s had no other clubs, very limited name recognition and two entrenched competitors, the Company tested a program of free first-year memberships during the preopening and initial opening periods of the new Atlanta clubs in 2002. Because of the initial free membership offer, the Company believes that it attracted more members and generated more sales in these clubs in 2002 than would have been the case if new members had to pay a membership fee. The Company will generate incremental income from members who renew their membership for a fee in 2003 in this market. Sales are expected to decrease to a more normalized volume in 2003 than was experienced as a result of the initial free memberships offered the previous year in the Atlanta market clubs.

Cost of sales (including buying and occupancy costs) was 91.31% of net sales in 2002, 90.72% in 2001 and 90.56% in 2000. The increase in the cost of sales percentage from 2001 to 2002 was due to decreased merchandise gross margins and the increased sales contribution of gasoline, which together combined for approximately 63% of the increase in the cost of sales ratio, and higher occupancy expenses, which accounted for most of the remainder of the increase. Gross margins on merchandise sales were lower in 2002 because of an unfavorable sales mix toward lower margin consumables and because of certain pricing initiatives begun in the fourth quarter to drive additional sales. The gross margin rate on gasoline sales is significantly lower than the overall gross margin rate for the rest of BJ’s business. Occupancy expenses increased as a percentage of sales due to lower than planned comparable club sales increases and the opening of 25 new clubs (which generally start out with lower sales volumes than mature clubs) in the last eighteen months. The increase in the cost of sales percentage from 2000 to 2001 was attributable mainly to the increased sales contribution of gasoline, higher expenses for utilities and other occupancy costs, and initial excess capacity at the Company’s new cross-dock facility in Burlington, New Jersey. Excluding gas, merchandise gross margin as a percentage of sales in 2001 rose slightly over the previous year.

Selling, general and administrative expenses were 6.93% of net sales in 2002, 6.77% in 2001 and 7.02% in 2000. The increase in the SG&A ratio in 2002 was due principally to increases in payroll, debit and credit card expenses and medical insurance, partially offset by lower incentive pay expenses and the increased contribution of gasoline sales, which have low related SG&A costs. The Company also included $1.8 million of asset impairment charges in SG&A in 2002. The SG&A ratio in general was unfavorably impacted by the effect of lower than planned comparable club sales increases on certain fixed expenses. The decrease in the SG&A ratio from 2000 to 2001 was due mainly to increased comparable club sales, lower payroll expenses as a percentage of sales and the increased contribution of gasoline sales.

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Total SG&A expenses rose by $51.4 million from 2001 to 2002 and by $11.0 million from 2000 (a 53-week year) to 2001. These increases were due mainly to an increase in the number of clubs in operation in both periods. Payroll and payroll benefits accounted for 82% of all SG&A expenses in 2002, and 83% in each of 2001 and 2000. Payroll and payroll benefits accounted for 69% of the increase in total SG&A expenses from 2001 to 2002 and 94% of the increase in total SG&A expenses from 2000 to 2001. The amount of the increase from 2001 to 2002 contributed by payroll and related benefits was lower than usual, primarily because of lower incentive pay expenses in 2002. Excluding the effect of expenses incurred in connection with the relocation of a cross-dock facility in 2000 (see next paragraph), payroll and related benefits accounted for 82% of the increase in total SG&A expenses from 2000 to 2001.

In 2000, the Company recorded pretax 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 expenses. In 2002, the Company extended subleases for its former cross-dock facility in Bristol, Pennsylvania, and consequently reduced its related lease liabilities by $1.0 million. The credit was recorded in SG&A expenses.

Preopening expenses were $11.7 million in 2002, $10.3 million in 2001 and $8.5 million in 2000. The Company opened thirteen new clubs in 2002, twelve new clubs in 2001 and eleven new clubs in 2000. One club was relocated in each of 2001 and 2000. A portion of 2002’s preopening expenses was incurred for a new cross-dock facility which opened in Jacksonville, Florida, in April 2003.

Interest income, net was $0.3 million in 2002, $4.1 million in 2001 and $6.2 million in 2000. The decrease in net interest income from 2001 to 2002 was due primarily to lower invested cash balances, net of borrowings, resulting mainly from slower inventory turns, from treasury stock purchases of approximately $83 million and House2Home lease obligation payments of approximately $50 million in the last twelve months. The decrease from 2000 to 2001 was attributable primarily to lower interest rates, which reduced income earned on invested cash. See Note L of Notes to Consolidated Financial Statements for a summary of the components of interest income and expense.

The Company recorded a pretax charge of $105.0 million in the third quarter of 2001 for its estimated loss associated with House2Home leases. This loss was based on the present value of rent liabilities under these leases, including estimated real estate taxes and common area maintenance charges, reduced by estimated income from the subleasing of these properties. An annual discount of 6% was used to calculate the present value of these lease obligations. The Company also recorded accretion charges of $1.4 million in connection with these obligations in 2001.

Based on the Company’s continuing evaluation of its remaining obligations and the significant progress made in settling liabilities for House2Home leases, the Company recorded a $20 million pretax gain in 2002 to reduce its estimated liability related to its contingent lease obligations. This was partially offset by pretax accretion charges of $4.4 million recorded in 2002 in connection with these obligations. See Note B of Notes to Consolidated Financial Statements for additional information.

The Company’s income tax provision was 38.1% of pretax income from continuing operations in 2002, 36.9% in 2001 and 38.5% in 2000. The lower rate in 2001 was due primarily to the effect of the tax benefit on the loss of contingent lease obligations, which was recorded at an incremental tax rate of 40%. Excluding the loss on contingent lease obligations, the Company’s income tax was 38.0% of pretax income from continuing operations in 2002, 38.3% in 2001 and 38.5% in 2000. The decreases in the overall effective rates were due mainly to lower effective state income tax rates in each of the last two fiscal years.

Income from continuing operations was $145.8 million, or $2.05 per diluted share, in 2002, $83.8 million, or $1.13 per diluted share, in 2001 and $132.6 million, or $1.78 per diluted share, in 2000. These amounts

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included a post-tax gain from the reduction in the Company’s House2Home lease reserve of $12.0 million, or $.17 per diluted share, in 2002 and a post-tax loss of $63.0 million, or $.85 per diluted share, in 2001 to establish its liabilities for House2Home lease obligations.

Loss from discontinued operations, net of tax benefit, was $14.9 million, or $.21 per diluted share, in 2002, $1.4 million, or $.02 per diluted share, in 2001 and $1.1 million, or $.01 per diluted share, in 2000. The loss in 2002 included a post-tax loss of $12.8 million, or $.18 per diluted share, to close three clubs in November 2002 and post-tax operating losses of $2.1 million for those three clubs. Loss from discontinued operations in 2001 and 2000 consisted entirely of the operating losses of the three closed clubs.

Net income was $130.9 million, or $1.84 per diluted share, in 2002, versus $82.3 million, or $1.11 per diluted share, in 2001 and $131.5 million, or $1.77 per diluted share, in 2000.

Outlook for 2003

During the second half of 2002, BJ’s senior management team performed a strategic analysis of the Company’s current position within the warehouse club industry as well as its sales and earnings prospects for the future. On the basis of that analysis, the Company affirmed its commitment to a business model based, in part, on long-term objectives to achieve comparable club sales growth of 3-5%, annual selling square footage growth of up to 10% and annual growth in earnings per share in the range of 10-15%.

To support these objectives the Company began making new investments in merchandising, marketing, technology and club appearance that will continue throughout 2003:

Most of BJ’s initiatives in 2003 are focused on increasing sales and market share. In order to achieve sales increases, the Company plans to lower margins on certain merchandise and gasoline, increase marketing expenses to support its new CRM and merchandising initiatives and increase club payroll to execute its initiatives. The Company expects that incentive pay expenses will increase above their minimal level of 2002. BJ’s will incur initial excess capacity costs in connection with a new cross-dock facility which opened in April 2003. Net interest expense is projected to be approximately $1 million in 2003. Accretion charges on the Company’s House2Home lease liabilities are expected to decrease in 2003. The Company’s ongoing tax rate is expected to be slightly higher than 2002’s rate of 38.0% due to certain tax law changes in states where BJ’s is located.

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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

The Financial Accounting Standards Board (“FASB”) issued the following standards which became effective in the fourth quarter of 2002 or will become effective in 2003:

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This Interpretation applies immediately to variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Company believes that the adoption of this Interpretation will result in no material change from its existing reporting.

Emerging Issues Task Force Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received by a Vendor,” (“EITF 02-16”) addresses how a reseller should account for cash consideration received from a vendor. The first issue of EITF 02-16 became effective for arrangements entered into or modified after December 31, 2002. Under this issue, there is a presumption that cash consideration received by a customer from a vendor should be characterized as a reduction of cost of sales. That presumption is overcome when the consideration is a reimbursement of costs incurred by the customer to sell the vendor’s products, in which case the cash consideration should be characterized as a reduction of that cost. If the amount of cash consideration exceeds the cost being reimbursed, that excess amount should be characterized as a reduction of cost of sales. Beginning in fiscal 2003, the Company will classify any cash consideration in excess of expenses being reimbursed, should such an excess occur, as a reduction of cost of sales.

The second issue of EITF 02-16, which became effective for arrangements entered into after November 21, 2002, addresses the recognition and classification of cash consideration that is payable pursuant to a binding arrangement only if the customer completes a specified cumulative level of purchases or remains a customer for a specified period of time. The adoption of this issue resulted in no change from the Company’s existing accounting.

Liquidity and Capital Resources

Net cash provided by operating activities was $151.3 million in 2002 compared with $194.8 million in 2001 and $158.3 million in 2000. The decrease in net cash provided by operating activities in 2002 versus 2001 was due principally to payments made to settle House2Home liabilities and a decrease in cash provided by the tax benefit from the exercise of stock options. The increase in net cash provided by operating activities in 2001 versus 2000 was due mainly to an increase 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 2000. Cash provided by net income before depreciation and amortization and the net post-tax loss on contingent lease obligations, store closing costs and asset impairment losses was $208.6 million in 2002 versus $207.8 million in 2001 and $186.5 million in 2000.

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Cash expended for property additions was $134.8 million in 2002 versus $166.3 million in 2001. In 2002, the Company opened thirteen new clubs and purchased one existing club, which was previously leased. In 2001, the Company opened twelve new clubs and relocated one club. Two of the 2002 openings and five of the 2001 openings were at owned locations. The Company also opened 14 new gas stations in 2002 and 21 new gas stations in 2001. One gas station was closed in 2002.

The Company expects that capital expenditures will total approximately $215 to $225 million in 2003, based on plans to open 12 or 13 new clubs and 16 gas stations. The Company expects to own approximately four of the new club locations opening in 2003. The Company opened a new 480,000 square foot owned cross-dock facility in Jacksonville, Florida, in April 2003. This facility will service the Company’s growing presence in the Southeast. In addition to the purchase of the new cross-dock facility, the Company expects to refurbish approximately 30 clubs and increase capital spending for a number of technology initiatives. The timing of actual club openings and the amount of related expenditures could vary from the estimates above due, among other things, to the complexity of the real estate development process.

During 2002, the Board of Directors authorized the repurchase of an additional $100 million of the Company’s common stock in addition to the $300 million previously authorized. In 2002, the Company repurchased 2,648,700 shares of common stock for $83.5 million, or an average price of $31.51 per share. From the inception of its share repurchase activities in August 1998, the Company has repurchased a total of $309.5 million of common stock at an average cost of $31.69 per share. As of February 1, 2003, the Company’s remaining repurchase authorization was $90.5 million.

On June 12, 2002, the Company entered into a new $200 million unsecured credit agreement with a group of banks which expires June 13, 2005. The agreement includes a $50 million sub-facility for letters of credit, of which $2.3 million was outstanding at February 1, 2003. The Company is required to pay an annual facility fee which is currently 0.125% 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 0.45% or (b) a rate equal to the higher of the sum of the Federal Funds Effective Rate plus 0.50% or the agent bank’s prime rate. The Company is also required to pay a usage fee in any calendar quarter during which the average daily amount of loans and undrawn or unreimbursed letters of credit outstanding exceeds 33% of the total commitment. The usage fee, if applicable, would currently be at an annual rate of 0.05% of the average daily amount of credit used under the facility during the calendar quarter. The facility fee, Eurodollar margin and usage fee are 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. The Company is required to comply with these covenants on a quarterly basis. Under the credit agreement, the Company may pay dividends or repurchase its own stock in any amount so long as the Company remains in compliance with all other covenants. BJ’s has no credit rating triggers that would accelerate the maturity date of debt if borrowings were outstanding under its credit agreement. On August 13, 2002, the agreement was amended to change the minimum net worth requirement, thereby providing the Company additional capacity to repurchase its common stock. The Company was in compliance with the covenants and other requirements set forth in its credit agreement at February 1, 2003 and for all fiscal periods throughout the year.

In addition to the credit agreement, the Company maintains a separate $50 million facility for letters of credit, primarily to support the purchase of inventories, of which $19.2 million was outstanding at February 1, 2003, and also maintains a $25 million uncommitted credit line for short-term borrowings.

There were no bank borrowings outstanding at February 1, 2003 and February 2, 2002.

Increases in inventories and accounts payable from February 2, 2002 to February 1, 2003 were due mainly to the addition of new clubs. The average inventory per club at February 1, 2003 was 4.7% higher than it was a year earlier, due in part to lower than planned inventory turns.

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During the third quarter of 2002, the Company established reserves for its liability related to leases for three clubs which closed on November 9, 2002. (See Note C of Notes to Consolidated Financial Statements for additional information.) BJ’s recorded liabilities are based on the present value of rent liabilities under the three leases, including estimated real estate taxes and common area maintenance charges, reduced by estimated income from the subleasing of these properties. An annual discount rate of 6% was used to calculate the present value of these lease obligations. This rate was based on estimated borrowing rates for the Company that took into consideration the weighted-average period of time over which these obligations are expected to be paid.

A considerable amount of judgment was involved in determining BJ’s net liability related to the closed club leases, particularly in estimating potential sublease income. Based on its knowledge of real estate conditions in the local markets and its experience in those markets, the Company assumed an average period of time it would take to sublease the properties and the amount of potential sublease income for each property. Net payments that the Company makes to settle its lease obligations will reduce operating cash flows in varying amounts over the remaining terms of the leases, which expire at various times up to 2019. Instead of subleasing the properties, the Company may satisfy its obligations through lump sum settlements, which could result in accelerated cash outflows. As of February 1, 2003, the Company has reserved a total of $17.5 million associated with its liabilities for the closed club leases, $13.7 million of which is included in other noncurrent liabilities, with the remainder included in accrued expenses and other current liabilities on the balance sheet. The Company believes payments it will make in connection with these leases will not have a material effect on its future financial condition or cash flows and that the liabilities recorded in the balance sheet adequately provide for its obligations. However, there can be no assurance that the Company’s actual liability under the leases will not vary materially from amounts recorded in the financial statements due to a number of factors, including future economic factors which may affect the ability to successfully sublease or assign the properties. The Company considers its maximum reasonably possible undiscounted pretax exposure with respect to the leases for the three closed clubs to be approximately $51 million at February 1, 2003.

During 2002 the Company made payments totaling $49.8 million in connection with its indemnification obligations for House2Home leases. The payments included lump sum settlements for 23 leases. Four additional House2Home properties (for which BJ’s remains contingently liable) were assigned to third parties. Based on the Company’s continuing evaluation of its remaining obligations and the progress it has made in settling House2Home leases, the Company reduced its estimated obligations by recording a $20 million pretax gain in 2002. Because the vast majority of House2Home settlements to date have been made through lump sum payments and because the Company believes that most of the remaining 14 leases will be settled in the same manner, the Company has based the determination of its liability as of February 1, 2003 on estimated lump sum settlements instead of the previous assumption that the properties would be subleased. An evaluation was made of each remaining property and some of the Company’s estimates were based on negotiations in progress. Although the terms of the remaining House2Home leases expire at various times up to 2016, the Company believes that it can settle its obligations on a more accelerated schedule than previously assumed, and this is reflected in the contractual cash obligations table shown below. As of February 1, 2003, the present value of the Company’s obligations for the remaining House2Home leases totaled $40.8 million, including $22.1 million classified as current liabilities. The Company may still satisfy its obligations by subleasing properties, which could change the timing of cash outflows. The Company believes that remaining payments will not have a material impact on its future financial condition or cash flows and that the liabilities recorded in the financial statements adequately provide for its indemnification obligations. However, there can be no assurance that BJ’s actual liability under the TJX indemnification agreement will not differ materially from amounts recorded in the financial statements due to a number of factors, including future economic factors which may affect the Company’s ability to successfully settle its House2Home obligations. The Company considers its maximum reasonably possible undiscounted pretax exposure for its House2Home lease obligations to be approximately $67 million at February 1, 2003.

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The Company has filed proofs of claim against House2Home, Inc. for claims arising under certain agreements between BJ’s and House2Home in connection with the Company’s spin-off from Waban Inc. in July 1997. These claims arise primarily from BJ’s indemnification of TJX with respect to TJX’s guarantee of House2Home leases and from the Tax Sharing Agreement dated July 28, 1997 between BJ’s and House2Home. BJ’s has filed proofs of claim totaling approximately $70 million. BJ’s intends to amend its claims as it makes future payments for House2Home leases. House2Home has indicated that it intends to contest at least a portion of BJ’s claims. The Company is unable to determine the amount, if any, of future recoveries under the claims and, therefore, has not recognized such claims in its financial statements. In early December 2002, the Official Committee of Creditors of House2Home, Inc. filed an objection in the United States Bankruptcy Court, Central District of California, Santa Ana Division, to House2Home’s motion to approve the Disclosure Statement in connection with its bankruptcy proceeding. In that objection, the creditors’ committee stated that discussions are taking place between the committee and House2Home regarding the investigation of potential claims that may exist against certain entities related to House2Home, including BJ’s. On April 11, 2003, House2Home filed its Second Amended Plan of Liquidation and a related Disclosure Statement. In these documents, House2Home indicated that unless it was successful in settling BJ’s claims informally, it was likely to object to both BJ’s lease indemnification claims and BJ’s claims under the Tax Sharing Agreement.

The following summarizes the Company’s contractual cash obligations as of February 1, 2003 and the effect these obligations are expected to have on its liquidity and cash flows in future periods:

Cash and cash equivalents totaled $32.7 million as of February 1, 2003 and no borrowings were outstanding on that date. The Company believes that its current resources, together with anticipated cash flow from operations, will be sufficient to finance its operations through the term of its credit agreement, which expires June 13, 2005. 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 factors discussed in “Outlook for 2003” above; statements regarding planned capital expenditures, planned club and gas station openings, lease obligations under the Company’s indemnification agreement with TJX, lease obligations in connection with three closed clubs, the effects of implementing SFAS No. 143 in 2003, sales penetration of private label products, pharmacy testing 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 and other factors noted elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, particularly those noted under “Critical Accounting Policies and Estimates.” 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

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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 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 House2Home, including, for example, certain dispositions of the Company’s common stock or House2Home’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 House2Home, although the Company has agreed to indemnify House2Home 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 1, 2003 is not material because of the short contractual maturities of its cash and cash equivalents on that date. No bank debt was outstanding at February 1, 2003. The Company has not used derivative financial instruments. See Summary of Accounting Policies—Disclosures about Fair Value of Financial Instruments and Note D in Notes to Consolidated Financial Statements.

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Item 8.    Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

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BJ’S WHOLESALE CLUB, INC.

CONSOLIDATED STATEMENTS OF INCOME

The accompanying notes are an integral part of the financial statements.

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BJ’S WHOLESALE CLUB, INC.

CONSOLIDATED BALANCE SHEETS