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 August 1, 1998
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 29, 1998: 37,688,238
PART I. FINANCIAL INFORMATION
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Thirteen Weeks Ended
----------------------
August 1, July 26,
1998 1997
---------- ----------
(Dollars in Thousands
except Per Share Amounts)
Net sales $859,599 $773,682
Membership fees and other 13,507 11,773
-------- --------
Total revenues 873,106 785,455
-------- --------
Cost of sales, including buying and occupancy costs 781,679 703,275
Selling, general and administrative expenses 61,575 54,222
-------- --------
Operating income 29,852 27,958
Interest (income) expense, net (352) 3,600
-------- --------
Income before income taxes 30,204 24,358
Provision for income taxes 11,779 9,403
-------- --------
Net income $ 18,425 $ 14,955
======== ========
Net income per common share:
Basic $ 0.49 $ 0.40
======== ========
Diluted $ 0.48 $ 0.40
======== ========
Number of common shares for earnings per
share computations:
Basic 37,686,231 37,484,937
Diluted 38,342,511 37,484,937
The accompanying notes are an integral part of the financial statements.
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Twenty-Six Weeks Ended
----------------------
August 1, July 26,
1998 1997
---------- ----------
(Dollars in Thousands
except Per Share Amounts)
Net sales $1,614,351 $1,437,940
Membership fees and other 32,143 26,462
--------- ---------
Total revenues 1,646,494 1,464,402
--------- ---------
Cost of sales, including buying and occupancy costs 1,475,258 1,315,474
Selling, general and administrative expenses 123,039 105,596
Pension termination costs 1,521 -
--------- ---------
Operating income 46,676 43,332
Interest (income) expense, net (220) 7,482
--------- ---------
Income before income taxes 46,896 35,850
Provision for income taxes 18,289 13,838
--------- ---------
Net income $ 28,607 $ 22,012
========= =========
Net income per common share:
Basic $ 0.76 $ 0.59
========= =========
Diluted $ 0.75 $ 0.59
========= =========
Number of common shares for earnings per
share computations:
Basic 37,632,004 37,484,937
Diluted 38,280,994 37,484,937
The accompanying notes are an integral part of the financial statements.
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
August 1, January 31, July 26,
1998 1998 1997
----------- ----------- -----------
(Dollars in Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 9,361 $ 12,713 $ 5,000
Marketable securities 97 - -
Accounts receivable 33,905 38,322 24,981
Merchandise inventories 350,562 332,274 333,324
Current deferred income taxes 7,270 6,826 6,605
Prepaid expenses 12,186 14,050 8,178
--------- --------- ---------
Total current assets 413,381 404,185 378,088
--------- --------- ---------
Property at cost:
Land and buildings 297,076 282,619 274,533
Leasehold costs and improvements 43,453 42,541 39,923
Furniture, fixtures and equipment 216,977 207,127 196,980
--------- --------- ---------
557,506 532,287 511,436
Less accumulated depreciation
and amortization 156,904 140,216 128,034
--------- --------- ---------
400,602 392,071 383,402
--------- --------- ---------
Property under capital leases 6,219 6,219 6,219
Less accumulated amortization 1,866 1,784 1,701
--------- --------- ---------
4,353 4,435 4,518
--------- --------- ---------
Other assets 10,484 10,945 10,553
--------- --------- ---------
Total assets $ 828,820 $ 811,636 $ 776,561
========= ========= =========
LIABILITIES
Current liabilities:
Accounts payable $ 228,399 $ 200,386 $ 211,678
Accrued expenses and other
current liabilities 62,694 71,648 57,288
Accrued federal and state
income taxes 446 7,009 1,485
Obligations under capital leases
due within one year 193 185 177
--------- --------- ---------
Total current liabilities 291,732 279,228 270,628
--------- --------- ---------
Long-term debt 12,300 42,500 72,000
Obligations under capital leases,
less portion due within one year 2,343 2,430 2,513
Other noncurrent liabilities 36,209 36,396 30,676
Deferred income taxes 5,306 4,825 1,706
STOCKHOLDERS' EQUITY
Common stock, par value $.01,
authorized 180,000,000 shares,
issued and outstanding 37,705,000,
37,504,214 and 37,484,937 shares 377 375 375
Additional paid-in capital 108,472 102,408 101,419
Retained earnings 372,081 343,474 297,244
--------- --------- ---------
Total stockholders' equity 480,930 446,257 399,038
--------- --------- ---------
Total liabilities and
stockholders' equity $ 828,820 $ 811,636 $ 776,561
========= ========= =========
The accompanying notes are an integral part of the financial statements.
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Twenty-Six Weeks Ended
----------------------
August 1, July 26,
1998 1997
---------- --------
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 28,607 $ 22,012
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization of property 20,053 18,300
Loss on property disposals 129 226
Other noncash items (net) 84 -
Deferred income taxes 37 (1,895)
Increase (decrease) in cash
due to changes in:
Accounts receivable 4,417 9,025
Merchandise inventories (18,288) (38,108)
Prepaid expenses 1,864 (2,087)
Other assets 438 (415)
Accounts payable 28,013 11,654
Accrued expenses (3,817) (6,980)
Accrued income taxes (6,563) (10,946)
Other noncurrent liabilities (187) 2,210
-------- --------
Net cash provided by operating activities 54,787 2,996
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (95) -
Property additions (33,950) (23,544)
Property disposals 183 275
-------- --------
Net cash used in investing activities (33,862) (23,269)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations (79) (65)
Borrowing (repayment) of long-term debt (30,200) 72,000
Proceeds from sale and issuance of common stock 4,814 -
Contribution to capital by Waban Inc. 1,188 -
Decrease in loans and advances from Waban Inc. - (46,662)
-------- --------
Net cash provided by (used in) financing
activities (24,277) 25,273
-------- --------
Net increase (decrease) in cash and cash
equivalents (3,352) 5,000
Cash and cash equivalents at beginning of year 12,713 -
-------- --------
Cash and cash equivalents at end of period $ 9,361 $ 5,000
======== ========
Supplemental cash flow information:
Interest paid $ 263 $ 7,500
Income taxes paid 24,815 26,679
Noncash financing and investing activities:
Contribution to capital by Waban Inc. - 101,419
The accompanying notes are an integral part of the financial statements.
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in Thousands except Per Share Amounts)
-----------------------------------------------
Common
Stock Additional Total
Par Value Paid-In Retained Stockholders'
$.01 Capital Earnings Equity
--------- --------- ---------- -----------
Balance, January 25, 1997 $ 375 $ - $275,232 $275,607
Net income - - 22,012 22,012
Contribution to capital by
Waban Inc. - 101,419 - 101,419
----- -------- -------- --------
Balance, July 26, 1997 $ 375 $101,419 $297,244 $399,038
===== ======== ======== ========
Balance, January 31, 1998 $ 375 $102,408 $343,474 $446,257
Net income - - 28,607 28,607
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 $372,081 $480,930
===== ======== ======== ========
The accompanying notes are an integral part of the financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BJ's Wholesale Club, Inc. ("BJ's" or the "Company"), which previously had
been a wholly-owned subsidiary of Waban Inc. ("Waban"), became a separate and
independent public entity on July 28, 1997, when Waban distributed to its
stockholders on a pro rata basis all of the Company's outstanding common
stock (the "spin-off"). The financial statements of the Company include
the financial statements of those subsidiaries of Waban which, prior to the
spin-off, operated Waban's BJ's Wholesale Club Division.
As of July 26, 1997, Waban transferred all of the assets and liabilities of
its BJ's Wholesale Club Division to the Company and contributed all of the
Company's intercompany debt of approximately $101 million to the Company's
equity.
The historical capitalization of the Company was retroactively restated to
reflect the issuance of 37,484,937 shares of common stock, the number of shares
of the Company's common stock distributed to Waban's stockholders on July 28,
1997.
2. The results for the first six months are not necessarily indicative of
the results for the full fiscal year 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 typically been strongest in the Christmas holiday season and lowest in
the first quarter of each fiscal year.
3. 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.
4. These interim financial statements should be read in conjunction with the
consolidated financial statements and related notes contained in the Company's
Annual Report on Form 10-K for the fiscal year ended January 31, 1998.
5. Interest (income) expense, net included interest on intercompany
indebtedness to Waban of $3.7 million and $7.6 million in the quarter and six
months ended July 26, 1997, respectively.
Selling, general and administrative ("SG&A") expenses included certain
allocations of overhead incurred by Waban that supported the Company's
business prior to the spin-off. These allocated expenses totaled $1.0
million and $2.2 million in the quarter and six months ended July 26, 1997,
respectively.
6. Effective July 26, 1997, Waban's Board of Directors approved the
termination of the Waban Inc. Retirement Plan, in which certain of the
Company's employees participated. In accordance with generally accepted
accounting principles, the costs to terminate the Plan were not recognized
until the Plan was settled, which occurred in this year's first quarter.
Accordingly, during the six months ended August 1, 1998, the Company recorded
a pre-tax charge of $1.5 million in connection with the settlement of the
Plan. On a post-tax basis, this charge amounted to $.9 million, or $.02 per
share.
7. The following details the calculation of earnings per share for the
periods presented below:
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
August 1, July 26, August 1, July 26,
1998 1997 1998 1997
-------- -------- -------- -------
Net income $18,425,000 $14,955,000 $28,607,000 $22,012,000
=========== =========== =========== ===========
Weighted-average number
of common shares out-
standing, used for
basic computation 37,686,231 37,484,937 37,632,004 37,484,937
Plus: Incremental shares
from assumed conversion
of stock options 656,280 - 648,990 -
----------- ----------- ---------- ----------
Weighted-average number
of common and dilutive
potential common shares
outstanding 38,342,511 37,484,937 38,280,994 37,484,937
=========== =========== =========== ==========
Basic net income per
common share $0.49 $0.40 $0.76 $0.59
===== ===== ===== =====
Diluted net income per
common share $0.48 $0.40 $0.75 $0.59
===== ===== ===== =====
8. The Company operated 88 clubs on August 1, 1998 versus 82 clubs on July
26, 1997.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Thirteen Weeks (Second Quarter) and Twenty-Six Weeks (Six Months) Ended
August 1, 1998 versus Thirteen and Twenty-Six Weeks Ended July 26, 1997.
Results of Operations
- ---------------------
Net sales for the second quarter ended August 1, 1998 rose 11.1% to $860
million from $774 million reported in last year's second quarter. Net sales
for the first half of the year totaled $1.6 billion, 12.3% higher than last
year's comparable period. These increases were due to the opening of new
stores and to comparable store sales increases of 5.0% in the second quarter
and 5.4% year-to-date. This year's second quarter and first half sales
benefited from favorable weather conditions, which generated strong seasonal
sales.
Total revenues in the second quarter included membership fees of $11.3
million versus $9.8 million in last year's second quarter, an increase of
16.0%. Year-to-date membership fees were $27.9 million versus $22.8 million
last year, an increase of 22.3%. This year's results benefited from an
increase in the membership fee for "Inner Circle" members from $30.00 to
$35.00, effective February 1, 1998. The business membership fee was not
changed.
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 91.4% this year versus 91.5% last
year. This improvement reflected the leveraging of certain fixed buying and
occupancy costs on higher comparable store sales. Merchandise gross margins
were approximately the same as last year, both in the second quarter and
year-to-date.
Selling, general and administrative ("SG&A") expenses were 7.2% of net sales
in the second quarter versus 7.0% in last year's comparable period. Year-to-
date SG&A expenses were 7.6% of net sales this year versus 7.3% last year.
These increases were attributable mainly to higher credit, marketing and
preopening costs, as well as increased expenses incurred as a result of the
Company's operating as a separate, publicly owned entity. Higher credit
expenses were due both to the increased level of credit card sales resulting
from the Company's acceptance of VISA and to increased costs for the
Company's co-branded MasterCard. Increased marketing costs were incurred to
support the Company's entry into the Cleveland, Ohio, market. Higher
preopening expenses resulted from opening more new clubs during the first
half of this year than in the same period last year.
Effective July 26, 1997, Waban Inc.'s Board of Directors approved the
termination of the Waban Inc. Retirement Plan, in which certain of the
Company's employees participated. In accordance with generally accepted
accounting principles, the costs to terminate the Plan were not recognized
until the Plan was settled, which occurred in this year's first quarter.
Accordingly, during the first half, the Company recorded a pre-tax charge of
$1.5 million in connection with the settlement of the Plan. On a post-tax
basis, this charge amounted to $.9 million, or $.02 per share.
The components of net interest expense were as follows (in thousands):
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ---------------------
August 1, July 26, August 1, July 26,
1998 1997 1998 1997
---- ---- ---- ----
Interest expense on debt $ (66) $3,539 $ 131 $7,358
Interest income (352) (10) (485) (18)
----- ------ ------ ------
Interest (income) expense
on debt, net (418) 3,529 (354) 7,340
Interest on capital leases 66 71 134 142
----- ------ ------ ------
Interest (income) expense,
net $(352) $3,600 $ (220) $7,482
===== ====== ====== ======
Interest expense on debt was net of capitalized interest of $186,000 in this
year's second quarter and $319,000 year-to-date. Last year's capitalized
interest was $204,000 in the second quarter and $284,000 year-to-date. As
described in more detail below, the decrease in interest expense this year as
compared to last year is due to significantly lower borrowing levels and
interest rates applied to those borrowings.
The Company's year-to-date provision for income taxes was 39.0% of pre-tax
income this year versus 38.6% in last year's comparable period.
Net income for the second quarter rose to $18.4 million, or $.48 per diluted
share, from $15.0 million, or $.40 per diluted share, in last year's second
quarter. For the first six months, net income was $28.6 million, or $.75 per
diluted share, versus last year's $22.0 million, or $.59 per diluted share.
BJ's Wholesale Club, Inc. commenced operations as a separate entity
immediately following its July 28, 1997 spin-off from Waban Inc. Therefore,
reported financial results through the first half of 1997 reflect BJ's
historical position as a division of Waban Inc. and, as such, may not be
indicative of performance after the spin-off. As a separate, publicly owned
company, BJ's is incurring corporate overhead costs approximately $.5 million
per quarter higher than the amounts included in the historical financial
statements for periods preceding the spin-off. However, interest on
intercompany borrowings at an annual rate of 10% prior to the spin-off has
been replaced by interest on bank borrowings at an assumed rate of
approximately 6.5% per year, and the level of debt has been reduced
substantially by the contribution to capital of approximately $101 million of
BJ's intercompany debt in connection with the spin-off. Restating last
year's historical results for these changes, and reflecting common stock
equivalents expected to be included in earnings per share calculations after
the spin-off, second quarter net income rose 14.3% to $18.4 million, or $.48
per diluted share, from $16.1 million, or $.42 per diluted share, in the
second quarter of 1997. Excluding this year's first quarter pension
termination charge, on the same restated basis, year-to-date net income rose
21.2% to $29.5 million, or $.77 per diluted share, compared to $24.3 million,
or $.64 per diluted share, in the first half of last year.
Over the remainder of the year, the Company expects to continue to benefit
from the increase in Inner Circle membership fees, but this benefit is
expected to be largely offset by the same factors that affected the first
half, namely higher preopening costs (resulting from a significant increase
over last year in the number of planned new club openings), increased credit
expenses and a higher-than-usual level of marketing expenses to support the
Company's entry into the Cleveland market. As was the case in the first
half, the impact of these factors may vary from quarter to quarter due to,
among other things, timing issues associated with membership fee revenue, new
club openings and the cycling of the Company's acceptance of VISA, which
began in last year's third quarter. Additionally, the Company will not
benefit from the impact of the 53-week fiscal year, as it did in the fourth
quarter of 1997.
On September 3, 1998, the Company issued a press release addressing its
method of accounting for membership fees. The Company recognizes membership
fee revenue upon receipt of payment by its members, a policy which it has
followed since its inception in 1984 and which the Company believes is an
industry-wide standard. The Company has responded to SEC comment letters
reviewing this subject in 1991 and also this year and believes that its
accounting practice is correct. The Company's method of accounting for
membership fee income is disclosed in annual filings with the SEC on Form 10-K
and on the Form S-1 filed in connection with BJ's spin-off from Waban Inc. in
1997, which was reviewed by the SEC. If the Company were to adopt an
accounting change in the future, either voluntarily, or because of a change
in generally accepted accounting principles, it would record a one-time, non-
cash charge at the time of adoption, and on an ongoing basis the Company
believes that the effect on its reported earnings would be immaterial.
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 estimates that its Year 2000 implementation effort with
regard to IT systems was approximately 85% complete as of August 1, 1998 and
will be substantially complete by the end of fiscal 1998 without any material
adverse effect on its results of operations, financial position or cash
flows. All major IT systems have been tested for Year 2000 compliance. 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. In August 1998, the Company
conducted a disaster recovery test simulating dates beyond Year 2000 and plans
to conduct a series of four additional disaster recovery tests between October
1998 and the end of 1999.
The Company is also in the process of reviewing its major non-IT systems for
Year 2000 issues, including refrigeration, security and utilities systems.
BJ's estimates that its Year 2000 implementation effort with regard to non-IT
systems is more than 90% complete as of August 1, 1998 and will be
substantially complete by the end of fiscal 1998. 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 to minimize the potential adverse impact on the Company if they fail
to address the Year 2000 issue successfully. The Company has formed a
committee, with representatives from various departments in the Company, to
examine the Year 2000 readiness of the Company's business partners. The
Company plans to send a questionnaire regarding Year 2000 issues to its 200
highest volume merchandise vendors, all active freight vendors and 100 of its
highest volume non-merchandise vendors, as well as a random sample of more
than 300 other vendors. If necessary, the Company will seek alternate
sources to replace vendors who may not be Year 2000 compliant. The Year 2000
committee will also attempt to evaluate the Year 2000 readiness of key third
parties or vendors who share data with the Company, including banks and mail
houses.
BJ's estimates that its total historical and estimated costs of Year 2000
remediation will be approximately $1 million.
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
is not dependent on a small number of vendors, that the Company purchases
most of its inventory from well-established, brand name vendors, and that
there are expected to be alternate sources of supply to vendors who encounter
Year 2000 problems. 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.
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 Christmas holiday season and lowest in
the first quarter of each fiscal year.
Recent Accounting Standards
- ---------------------------
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," in March 1998 and SOP 98-5, "Reporting on the Costs of Start-Up
Activities," in April 1998.
During this year's second quarter, the Company adopted SOP 98-1, which
provides guidance as to whether certain internal-use software costs should be
capitalized as a long-lived asset or expensed when incurred. The effect of
adopting this standard was not material.
SOP 98-5 provides guidance on the financial reporting of start-up costs and
organization costs and becomes effective in the Company's fiscal year ending
January 29, 2000, but may be adopted earlier. This pronouncement will
require the Company to expense preopening costs incurred in connection with
opening a facility when they are incurred. The Company currently charges
preopening costs to operations within the fiscal year that a new facility
opens, amortizing such costs between the date the facility opens and the end
of the fiscal year. Thus, the general effect of SOP 98-5 on the Company will
be to accelerate the recognition of preopening expenses. The initial
application of SOP 98-5 must be reported as a cumulative effect of a change
in accounting principle. The Company has not yet decided whether it will
adopt this standard in 1998.
Since June 1997, Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income," SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," SFAS No. 132, "Employers'
Disclosure about Pensions and Other Postretirement Benefits," and SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," were
issued. Each of these statements becomes effective in the Company's current
fiscal year ending January 30, 1999, except for SFAS No. 133, which becomes
effective in the third quarter of the fiscal year ending January 29, 2000.
The adoption of these statements 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 $54.8 million in the first six
months of 1998 versus $3.0 million in last year's comparable period. The
increase in cash provided by operating activities was attributable primarily
to a lower accounts payable-to-inventory ratio at the beginning of this year,
as compared to the beginning of last year.
Cash expended for property additions was $34.0 million in the first half of
1998 versus $23.5 million in the first half of 1997. The Company opened four
new clubs in this year's first half, including the Company's first two clubs
in the Cleveland market. Two new clubs were opened in last year's first
half.
The Company's capital expenditures are expected to total approximately $90
million in 1998, based on opening a total of approximately twelve new clubs
for the year, including the planned opening of a third club in the Cleveland
market and the Company's first club in the Columbus, Ohio, market. 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.
On August 26, 1998, the Company announced that its Board of Directors
authorized the repurchase of up to $50 million of the Company's common stock
in open market or privately negotiated transactions.
Prior to the spin-off, the Company's operations and expansion were financed
through loans advanced by Waban as needed. In July 1997, the Company entered
into a $200 million unsecured credit agreement with a group of banks which
expires July 9, 2002. The agreement, which was amended in December 1997,
includes a $50 million sub-facility for letters of credit, of which $10.0
million was outstanding at August 1, 1998. 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, and which
prohibit the payment of cash dividends on the Company's common stock.
The Company also maintains a separate line in the amount of $30 million for
letters of credit, primarily to support the purchase of inventories, of which
$21.9 million was outstanding at August 1, 1998, and an additional $20
million uncommitted credit line for short-term borrowings.
Cash and cash equivalents totaled $9.4 million as of August 1, 1998.
Borrowings as of August 1, 1998 consisted of $12.3 million under the
Company's uncommitted credit line. The Company expects that its current
resources, together with anticipated cash flow from operations, will be
sufficient to finance its operations through January 29, 2000. 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 expenses expected to be incurred by BJ's as a stand-alone
entity, expected increases in membership fee revenues and credit,
marketing and preopening expenses, planned capital expenditures, planned
store openings 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,"
"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; the ability of the Company to
continue its transition to being a stand-alone entity; 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 not to qualify
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
31, 1998.
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
- ----------------------------------------------------------
Not applicable.
PART II. OTHER INFORMATION
Item 5 - Other Events
------------
Stockholder Proposals for 1999 Annual Meeting
As set forth in the Company's proxy statement for its 1998 Annual Meeting of
Stockholders (which was held on May 28, 1998), proposals of stockholders
submitted pursuant to Rule 14a-8 under the Securities and Exchange Act of 1934
(the "Exchange Act") to be presented at the next annual meeting of stockholders
(the "1999 Annual Meeting") must be received by the Company no later than 5
p.m. EST on December 25, 1998 in order to be considered for inclusion in the
Company's proxy materials for the 1999 Annual Meeting. Proposals must be in
writing and sent via registered or certified mail addressed to Sarah M.
Gallivan, Secretary, BJ's Wholesale Club, Inc., One Mercer Road, Natick,
Massachusetts 01760.
The Company's by-laws require that the Company be given advance written
notice of stockholder nominations for election to the Company's Board of
Directors and of other matters which stockholders wish to present for action
at an annual meeting of stockholders (other than matters included in the
Company's proxy materials in accordance with Rule 14a-8 under the Exchange
Act). The Secretary must receive such notice at the address noted above not
less than 70 days nor more than 90 days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is advanced by more than 20 days, or delayed
by more than 70 days, from such anniversary date, the Secretary must receive
such notice not earlier than the 90th day prior to such annual meeting and
not later than the close of business on the later of the 70th day prior to
such annual meeting or the 10th day following the day on which public
announcement of the date of such annual meeting is first made. Assuming that
the 1999 Annual Meeting is held during the period from May 8, 1999 to August
6, 1999 (as it is expected to be), in order to comply with the time periods
set forth in the Company's by-laws, appropriate notice would need to be
provided to the Secretary of the Company at the address noted above no
earlier than February 27, 1999 and no later than March 19, 1999.
The Company's by-laws also specify requirements relating to the content of
the notice which stockholders must provide to the Secretary of the Company
for any matter, including a stockholder nomination for director, to be
properly presented at a stockholder meeting.
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
August 1, 1998.
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.
----------------------------
(Registrant)
Date: September 15, 1998 /S/ JOHN J. NUGENT
------------------ ----------------------------
John J. Nugent
President and Chief
Executive Officer
(Principal Executive Officer)
Date: September 15, 1998 /S/ FRANK D. FORWARD
------------------ ----------------------------
Frank D. Forward
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)