FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended July 31, 1999
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
One Mercer Road
Natick, Massachusetts 01760
(Address of principal executive offices) (Zip Code)
(508) 651-7400
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No_____.
----
The number of shares of the Registrant's common stock outstanding as of August
28, 1999: 73,657,900
1
PART I. FINANCIAL INFORMATION
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Thirteen Weeks Ended
---------------------------------------------
July 31, August 1,
1999 1998
------------ ----------
(Dollars in Thousands except Per Share Amounts)
Net sales $ 1,015,039 $ 859,599
Membership fees and other 21,877 18,091
------------ ----------
Total revenues 1,036,916 877,690
------------ ----------
Cost of sales, including buying and occupancy costs 922,680 781,679
Selling, general and administrative expenses 70,577 60,989
Preopening expenses 2,630 1,172
------------ ----------
Operating income 41,029 33,850
Interest (income) expense, net (695) (352)
------------ ----------
Income before income taxes 41,724 34,202
Provision for income taxes 15,940 13,339
------------ ----------
Net income $ 25,784 $ 20,863
============ ==========
Net income per common share:
Basic $ 0.35 $ 0.28
============ ==========
Diluted $ 0.34 $ 0.27
============ ==========
Number of common shares for earnings per share computations:
Basic 73,700,932 75,372,462
Diluted 75,444,238 76,685,022
The accompanying notes are an integral part of the financial statements.
2
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Twenty-Six Weeks Ended
---------------------------------------------
July 31, August 1,
1999 1998
--------------- ---------------
(Dollars in Thousands except Per Share Amounts)
Net sales $ 1,873,800 $ 1,614,351
Membership fees and other 42,840 35,567
--------------- ---------------
Total revenues 1,916,640 1,649,918
--------------- ---------------
Cost of sales, including buying and occupancy costs 1,709,610 1,475,258
Selling, general and administrative expenses 138,086 122,091
Preopening expenses 4,655 2,563
Pension termination costs - 1,521
--------------- ---------------
Operating income 64,289 48,485
Interest (income) expense, net (1,108) (220)
--------------- ---------------
Income before income taxes and cumulative effect of accounting principle changes 65,397 48,705
Provision for income taxes 25,243 18,995
--------------- ---------------
Income before cumulative effect of accounting principle changes 40,154 29,710
Cumulative effect of accounting principle changes - (19,326)
--------------- ---------------
Net income $ 40,154 $ 10,384
=============== ===============
Net income per common share:
Basic earnings per share:
Income before cumulative effect of accounting principle changes $ 0.54 $ 0.39
Cumulative effect of accounting principle changes - (0.25)
--------------- ---------------
Net income $ 0.54 $ 0.14
=============== ===============
Diluted earnings per share:
Income before cumulative effect of accounting principle changes $ 0.53 $ 0.39
Cumulative effect of accounting principle changes - (0.25)
--------------- ---------------
Net income $ 0.53 $ 0.14
=============== ===============
Number of common shares for earnings per share computations:
Basic 73,761,869 75,264,008
Diluted 75,447,527 76,561,988
The accompanying notes are an integral part of the financial statements.
3
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
July 31, January 30, August 1,
1999 1999 1998
------------ ------------ ------------
(Dollars in Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 40,834 $ 12,150 $ 9,361
Marketable securities - 100 97
Accounts receivable 40,117 51,134 33,905
Merchandise inventories 411,244 372,740 350,562
Current deferred income taxes 8,351 7,859 7,270
Prepaid expenses 12,594 12,607 9,786
------------ ------------ ------------
Total current assets 513,140 456,590 410,981
------------ ------------ ------------
Property at cost:
Land and buildings 324,328 322,712 297,076
Leasehold costs and improvements 47,431 45,861 43,453
Furniture, fixtures and equipment 255,473 236,231 216,977
------------ ------------ ------------
627,232 604,804 557,506
Less accumulated depreciation and amortization 190,878 168,957 156,904
------------ ------------ ------------
436,354 435,847 400,602
------------ ------------ ------------
Property under capital leases 6,219 6,219 6,219
Less accumulated amortization 2,032 1,949 1,866
------------ ------------ ------------
4,187 4,270 4,353
------------ ------------ ------------
Other assets 11,932 10,923 10,484
------------ ------------ ------------
Total assets $ 965,613 $ 907,630 $ 826,420
============ ============ ============
LIABILITIES
Current liabilities:
Accounts payable $ 283,390 $ 213,702 $ 228,399
Accrued expenses and other current liabilities 109,159 121,951 90,167
Accrued federal and state income taxes 9,079 11,757 (11,204)
Obligations under capital leases due within one year 210 201 193
------------ ------------ ------------
Total current liabilities 401,838 347,611 307,555
------------ ------------ ------------
Long-term debt - 30,000 12,300
Obligations under capital leases, less portion
due within one year 2,153 2,249 2,343
Other noncurrent liabilities 37,425 34,928 36,209
Deferred income taxes 7,597 7,800 5,306
STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized 180,000,000
shares, issued 74,152,588, 73,805,000
and 37,705,000 shares 742 738 377
Additional paid-in capital 81,987 78,376 108,472
Retained earnings 446,082 405,928 353,858
Treasury stock, at cost, 445,160 shares (12,211) - -
------------ ------------ ------------
Total stockholders' equity 516,600 485,042 462,707
------------ ------------ ------------
Total liabilities and stockholders' equity $ 965,613 $ 907,630 $ 826,420
============ ============ ============
The accompanying notes are an integral part of the financial statements.
4
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Twenty-Six Weeks Ended
----------------------------------
July 31, August 1,
1999 1998
------------- ------------
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 40,154 $ 10,384
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 22,593 20,053
Loss on property disposals 79 129
Other noncash items (net) 34 84
Deferred income taxes (695) 37
Increase (decrease) in cash
due to changes in:
Accounts receivable 11,017 4,417
Merchandise inventories (38,504) (18,288)
Prepaid expenses 13 2,824
Other assets (1,033) 438
Accounts payable 69,688 28,013
Accrued expenses (737) (6,586)
Accrued income taxes (2,678) (5,857)
Other noncurrent liabilities 2,497 (187)
------------- ------------
Net cash provided by operating activities 102,428 54,787
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities - (95)
Maturity of marketable securities 100 -
Property additions (35,164) (33,950)
Proceeds from property disposals 13 183
------------- ------------
Net cash used in investing activities (35,051) (33,862)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations (87) (79)
Repayment of long-term debt (30,000) (30,200)
Purchase of treasury stock (16,472) -
Proceeds from sale and issuance of common stock 7,866 4,814
Contribution to capital by Waban Inc. - 1,188
------------- ------------
Net cash used in financing activities (38,693) (24,277)
------------- ------------
Net increase (decrease) in cash and cash equivalents 28,684 (3,352)
Cash and cash equivalents at beginning of year 12,150 12,713
------------- ------------
Cash and cash equivalents at end of period $ 40,834 $ 9,361
============= ============
Supplemental cash flow information:
Interest paid $ 104 $ 263
Income taxes paid 28,616 24,815
Noncash financing and investing activities:
Treasury stock issued for compensation plans 4,261 -
The accompanying notes are an integral part of the financial statements.
5
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in Thousands except Per Share Amounts)
-----------------------------------------------------------------------------------
Common Additional Total
Stock Paid-in Retained Treasury Stockholders'
Par Value $.01 Capital Earnings Stock Equity
-------------- ------------ ----------- ---------- --------------
Balance, January 31, 1998 $ 375 $ 102,408 $ 343,474 $ - $ 446,257
Net income - - 10,384 - 10,384
Sale and issuance of common stock 2 4,876 - - 4,878
Contribution to capital by Waban Inc. - 1,188 - - 1,188
-------------- ------------ ----------- ---------- --------------
Balance, August 1, 1998 $ 377 $ 108,472 $ 353,858 $ - $ 462,707
============== ============ =========== ========== ==============
Balance, January 30, 1999 $ 738 $ 78,376 $ 405,928 $ - $ 485,042
Net income - - 40,154 - 40,154
Sale and issuance of common stock 4 3,611 - 4,261 7,876
Purchase of treasury stock - - - (16,472) (16,472)
-------------- ------------ ----------- ---------- --------------
Balance, July 31, 1999 $ 742 $ 81,987 $ 446,082 $ (12,211) $ 516,600
============== ============ =========== ========== ==============
The accompanying notes are an integral part of the financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The results for the quarter and six months ended July 31, 1999 are not
necessarily indicative of the results for the full fiscal year or any future
period because, among other things, 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 historically been strongest in the
fourth quarter holiday season and lowest in the first quarter of each fiscal
year.
2. The interim financial statements are unaudited and reflect all normal
recurring adjustments considered necessary by the Company for a fair
presentation of its financial statements in accordance with generally accepted
accounting principles.
3. These interim financial statements should be read in conjunction with the
consolidated financial statements and related notes in the Company's Annual
Report on Form 10-K for the fiscal year ended January 30, 1999.
4. The Company completed a two-for-one stock split on March 2, 1999 in the form
of a 100% stock dividend paid to stockholders of record as of February 16, 1999.
All historical earnings per share amounts have been restated to reflect the two-
for-one split.
5. During the quarter ended May 2, 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.
6. 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 recorded a noncash post-tax charge of $19.3 million, or $.25 per
diluted share, as of the beginning of the fiscal year to reflect the cumulative
effect of these accounting principle changes.
7
7. The following details the calculation of earnings per share for the periods
presented below (amounts in thousands except per share amounts):
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
---- ---- ---- ----
Income before cumulative effect of
accounting principle changes $25,784 $20,863 $40,154 $29,710
======= ======= ======= =======
Weighted-average number of common
shares outstanding, used for basic
computation 73,701 75,372 73,762 75,264
Plus: Incremental shares from assumed
conversion of stock options 1,743 1,313 1,686 1,298
------- ------- ------- -------
Weighted-average number of common
and dilutive potential common shares
outstanding 75,444 76,685 75,448 76,562
======= ======= ======= =======
Basic income per share before
cumulative effect of accounting
principle changes $ 0.35 $ 0.28 $ 0.54 $ 0.39
======= ======= ======= =======
Diluted income per share before
cumulative effect of accounting
principle changes $ 0.34 $ 0.27 $ 0.53 $ 0.39
======= ======= ======= =======
8. Certain amounts in the prior year's financial statements have been
reclassified for comparative purposes.
9. The Company operated 100 clubs on July 31, 1999 versus 88 clubs on August
1, 1998.
8
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Thirteen Weeks (Second Quarter) and Twenty-Six Weeks Ended July 31, 1999 versus
Thirteen and Twenty-Six Weeks Ended August 1, 1998.
Results of Operations
- ---------------------
Net sales for the second quarter ended July 31, 1999 rose 18.1% to $1.0 billion
from $860 million reported in last year's second quarter. Net sales for the
first half of the year totaled $1.9 billion, 16.1% higher than last year's
comparable period. These increases were due to the opening of new stores and to
comparable store sales increases of 7.5% in the second quarter and 6.3% year-to-
date. Warm weather during the second quarter of 1999 drove strong sales of air
conditioners, fans and other summer seasonal merchandise.
Total revenues in the second quarter included membership fees of $19.5 million
versus $15.9 million in last year's second quarter, an increase of 22.8%. Year-
to-date membership fees were $38.1 million versus $31.3 million last year, an
increase of 21.6%. Membership fee revenues are recognized over the life of the
membership, which is typically twelve months. Consequently, this year's results
benefited from an increase in the membership fee for "Inner Circle" members from
$30 to $35, effective February 1, 1998 and, to a lesser extent, an increase in
the membership fee for business members from $30 to $35, effective February 1,
1999.
Cost of sales (including buying and occupancy costs) was 90.9% of net sales in
both this year's and last year's second quarter. For the first six months, the
cost of sales percentage was 91.2% this year versus 91.4% last year. This
improvement was due primarily to strong sales in higher margin categories in the
first quarter.
Selling, general and administrative ("SG&A") expenses were 7.0% of net sales in
the second quarter versus 7.1% in last year's comparable period. Year-to-date
SG&A expenses were 7.4% of net sales this year versus 7.6% last year. These
decreases were attributable mainly to leveraging fixed expenses against
increased comparable store sales and a growing number of clubs and to cost
savings resulting from a new medical benefit program for employees that became
effective on January 1, 1999.
Preopening expenses were $2.6 million in the second quarter this year compared
with $1.2 million in last year's second quarter. Year-to-date preopening
expenses totaled $4.7 million this year versus $2.6 million last year. The
Company opened four new clubs in the first six months of this year, all of them
in June, and also opened one new club in August. Last year the Company opened
two new clubs in February, one in March and one in July.
During the quarter ended May 2, 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.
9
Operating income in the second quarter rose to $41.0 million, an increase of
21.2% over last year's second quarter operating income of $33.9 million. Year-
to-date operating income this year was $64.3 million, 28.6% higher than last
year's $50.0 million before pension termination costs.
The components of net interest (income) expense were as follows (in thousands):
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
---- ---- ---- ----
Interest expense on debt $ 62 $ 120 $ 172 $ 449
Capitalized interest (61) (186) (179) (319)
Interest income (760) (352) (1,227) (484)
----- ----- ------- -----
Interest on debt (net) (759) (418) (1,234) (354)
Interest on capital leases 64 66 126 134
----- ----- ------- -----
Interest (income) expense, net $(695) $(352) $(1,108) $(220)
===== ===== ======= =====
This year's increase in net interest income was due primarily to lower net
borrowing levels.
The Company's year-to-date provision for income taxes was 38.6% of pre-tax
income this year versus 39.0% in last year's comparable period. This year's tax
rate is lower than last year due to an expected reduction in the effective state
income tax rate for the full year.
Second quarter net income was $25.8 million, or $.34 per diluted share, compared
with $20.9 million, or $.27 per diluted share, in last year's second quarter.
Net income in this year's first six months was $40.2 million, or $.53 per
diluted share, versus income before the cumulative effect of accounting
principle changes of $29.7 million, or $.39 per diluted share, in last year's
first half.
The Company adopted changes in methods of accounting for membership fee revenues
and preopening expenses as of the beginning of last year. Including a noncash
post-tax charge of $19.3 million, or $.25 per diluted share, to reflect the
cumulative effect of these changes, the Company posted net income of $10.4
million, or $.14 per diluted share, in the first six months of 1998.
Over the remainder of the year, the Company expects to continue to benefit from
the increases in the cost of membership fees although the effect of last year's
increase in the Inner Circle membership fee will diminish as the year
progresses. The Company also expects to continue to benefit from the changes in
the Company's medical program in the second half of the year; the impact of
these changes is expected to be somewhat less in the fourth quarter as they
became effective on January 1, 1999. Preopening expenses may vary from quarter
to quarter depending on the timing and number of club openings.
Year 2000 Compliance
- --------------------
The Company has worked for several years to prepare its financial, merchandising
and other information technology ("IT") systems for the Year 2000. The Company
believes that its Year 2000 assessment, remediation and testing efforts with
regard to IT systems is substantially complete, except for the scheduled
replacement of personal computers in certain home office departments, which is
scheduled to be completed by October 1999, and the testing noted below.
10
All of the Company's major IT systems have been assessed for Year 2000
compliance and the Company believes that currently known Year 2000 issues have
been remedied. Based on these efforts, the Company does not believe that Year
2000 issues related to IT systems will have a material adverse effect on the
Company's results of operations, financial position or cash flows. The Company
intends to retest systems which are modified or upgraded before January 1, 2000
for Year 2000 compliance, regardless of whether the modification is related to
the Year 2000 issue, and intends to institute a moratorium on all new systems
applications in its fourth quarter of 1999. The Company also plans to continue a
series of monthly production simulation tests of cyclical data through October
1999 to help determine whether existing systems will be Year 2000 compliant.
Since August 1998, the Company has successfully conducted three disaster
recovery tests simulating dates beyond Year 2000 and plans to conduct one
additional disaster recovery test in October. All of the Company's Year 2000
testing is performed in tandem with the Company's third-party data processing
center.
The Company has also been reviewing its major non-IT systems for Year 2000
issues, including refrigeration, security and utilities systems. BJ's estimates
that its Year 2000 assessment, remediation and testing efforts with regard to
non-IT systems are substantially complete. Based on these efforts, the Company
does not believe that Year 2000 issues related to non-IT systems will have a
material adverse effect on the Company's results of operations, financial
position or cash flows.
BJ's is working with key vendors and other third parties with whom it does
business in an effort to minimize the potential adverse impact on the Company if
they fail to address the Year 2000 issue successfully. The Company has a
committee, with representatives from various departments in the Company, which
is examining the Year 2000 readiness of the Company's business partners. The
Company sent a questionnaire regarding Year 2000 issues to more than 900 of its
business partners, including its 200 highest volume merchandise vendors, all
active freight vendors, 100 of its highest volume non-merchandise vendors and a
random sample of other vendors. Approximately 40% of the vendors responded to
the first mailing. A review of these responses did not indicate any Year 2000
issues that would be expected to materially impact the Company. The Company has
sent a follow-up mailing to those who did not answer the first mailing. The
Company may seek alternate sources to replace vendors who are not expected to be
Year 2000 compliant. The Year 2000 committee is also currently evaluating the
Year 2000 readiness of key third parties or vendors who share data with the
Company, including banks and mail houses. Although some of the Company's
agreements with manufacturers and its merchandise vendors contain provisions
requiring them to indemnify the Company under some circumstances, there can be
no assurance that such indemnification arrangements would cover all of the
Company's liabilities and costs, if any, in connection with claims related to
the Year 2000 issue.
BJ's estimates that its total historical and anticipated costs of Year 2000
assessment, remediation and testing will total approximately $1.6 million,
including estimated internal payroll costs. Approximately 95% of this total has
been incurred through July 31, 1999.
The Company believes that its most likely worst case Year 2000 scenario would
probably result from a large number of key third parties with whom the Company
does business not being Year 2000 compliant. Among the factors that would tend
to mitigate the consequences of this scenario are that the Company sells a broad
assortment of products and is not dependent on any particular class of
merchandise; the Company is not dependent on a small number of vendors; the
Company purchases most of its inventory from well-established, brand name
vendors; and there are expected to be alternate sources to replace merchandise
vendors who encounter Year
11
2000 problems. However, there can be no assurance that the third parties with
whom the Company does business will be successful in addressing the Year 2000
issue or that their failure to successfully address the issue will not have an
adverse effect on the Company's financial condition and results of operations.
The Company has not yet formally developed contingency plans to address this or
other scenarios. As the Company completes its retesting of systems and performs
its inquiries of third parties with whom it does business, it will evaluate the
need to develop formal contingency plans. The Company is in the process of
preparing a guide for all of its locations to address potential issues which
might arise at the time of the millennium change and plans to have information
systems personnel on duty around the clock at that time to help deal with those
issues.
The foregoing discussion of the Company's Year 2000 readiness contains forward-
looking statements, including estimates of the costs of the Company's Year 2000
implementation efforts, the percentage of completion of those efforts and the
dates on which the Company believes it will complete those efforts. Such
statements are based upon management's current estimates, using numerous
assumptions regarding future events, including the continued availability of
certain resources, third party remediation plans, and other factors. There can
be no assurance that these forward-looking statements will prove to be accurate,
and actual results could differ materially from those currently anticipated.
Specific factors that could cause such material differences include, but are not
limited to, the availability and cost of personnel trained in Year 2000 issues,
the ability to assess, remedy and test all relevant computer code and embedded
technology, the ability of third parties with whom the Company has business
relationships (including its third-party data processing center) to successfully
address their Year 2000 issues and similar uncertainties.
The foregoing information is intended to qualify as "Year 2000 readiness
disclosure" within the meaning of the Year 2000 Information and Readiness
Disclosure Act to the maximum amount permitted by such Act.
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
historically been strongest in the fourth quarter holiday season and lowest in
the first quarter of each fiscal year.
Recent 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 currently 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.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities was $102.4 million in the first six
months of 1999 versus $54.8 million in last year's comparable period. The
increase over last year in cash provided by operating activities was
attributable mainly to the change in merchandise inventories, net of accounts
payable, and an increase in income before the cumulative effect of accounting
changes.
12
Cash expended for property additions was $35.2 million in the first half of 1999
versus $34.0 million in the first half of 1998. The Company opened four new
clubs in the first half of both this year and last year. The Company's capital
expenditures are expected to total approximately $95 million in 1999, based on
plans to open approximately ten to twelve new clubs. The timing of actual club
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 the third quarter of 1998, the Board of Directors authorized the repurchase
of up to $50 million of the Company's common stock in open market or privately
negotiated transactions. During the first six months of 1999, the Company
repurchased 610,700 shares of common stock for $16.5 million, or an average
price of $26.97 per share. Through July 31, 1999, the Company has repurchased a
total of $47.4 million of stock at an average cost of $20.57 per share.
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 July 31, 1999.
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
repurchase of the Company's common stock to $50 million.
The Company also maintains a separate $41 million facility for letters of
credit, primarily to support the purchase of inventories, of which $11.2 million
was outstanding at July 31, 1999, and an additional $20 million uncommitted
credit line for short-term borrowings.
Cash and cash equivalents totalled $40.8 million as of July 31, 1999, 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 the fiscal year ending February 3,
2001. 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 the expected impact of changes in membership fees and the
Company's medical program, the expected effective income tax rate for 1999,
planned capital expenditures, planned store openings, Year 2000 compliance 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, economic and weather conditions and
state and local regulation in the Company's markets; competitive conditions;
contingent liabilities under the Company's indemnification agreement with The
TJX Companies, Inc.; and events which might cause the Company's spin-off from
Waban (now known as HomeBase, Inc.) not to qualify
13
for tax-free treatment. Each of these factors is discussed in more detail in the
Company's Annual Report on Form 10-K for the fiscal year ended January 30, 1999.
Other factors which could affect future operating results of the Company
include, without limitation, the successful implementation of the Company's Year
2000 remediation plans, the success of the Company's key vendors and other third
parties in achieving Year 2000 compliance and new club opening plans discussed
above.
Quantitative and Qualitative Disclosures About Market Risk
- ----------------------------------------------------------
The Company believes that its potential exposure to market risk as of July 31,
1999 is not material because of the short contractual maturities of its cash,
cash equivalents and bank debt. The Company has not used derivative financial
instruments.
14
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27.0 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K with the
Securities and Exchange Commission during the quarter ended
July 31, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BJ'S WHOLESALE CLUB, INC.
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(Registrant)
Date: September 13, 1999 /S/ JOHN J. NUGENT
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John J. Nugent
President and Chief Executive Officer
(Principal Executive Officer)
Date: September 13, 1999 /S/ FRANK D. FORWARD
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Frank D. Forward
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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