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 November 3, 2001
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 November
20, 2001: 72,225,772
PART I. FINANCIAL INFORMATION
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Thirteen Weeks Ended
-----------------------------------------------
November 3, October 28,
2001 2000
-------------- --------------
(Dollars in Thousands except Per Share Amounts)
Net sales $ 1,238,414 $ 1,151,506
Membership fees and other 30,437 26,647
-------------- -------------
Total revenues 1,268,851 1,178,153
-------------- -------------
Cost of sales, including buying and occupancy costs 1,131,249 1,049,198
Selling, general and administrative expenses 84,790 82,636
Preopening expenses 5,525 3,059
-------------- -------------
Operating income 47,287 43,260
Interest income, net 739 1,277
Loss on contingent lease obligations (105,000) -
-------------- -------------
Income (loss) before income taxes (56,974) 44,537
Provision (benefit) for income taxes (23,510) 17,146
-------------- -------------
Net income (loss) $ (33,464) $ 27,391
============== =============
Net income per common share:
Basic $ (0.46) $ 0.38
============== =============
Diluted $ (0.46) $ 0.37
============== =============
Number of common shares for earnings per share computations:
Basic 72,525,981 72,516,968
Diluted 72,525,981 73,959,812
The accompanying notes are an integral part of the financial statements.
-2-
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Thirty-Nine Weeks Ended
--------------------------------------
November 3, October 28,
2001 2000
----------- -----------
(Dollars in Thousands except Per Share Amounts)
Net sales $ 3,649,762 $ 3,349,832
Membership fees and other 86,832 76,235
------------ ------------
Total revenues 3,736,594 3,426,067
------------ ------------
Cost of sales, including buying and occupancy costs 3,333,252 3,058,070
Selling, general and administrative expenses 253,931 240,484
Preopening expenses 7,997 6,783
------------ ------------
Operating income 141,414 120,730
Interest income, net 3,295 3,993
Loss on contingent lease obligations (105,000) -
------------ ------------
Income before income taxes 39,709 124,723
Provision for income taxes 13,713 48,018
------------ ------------
Net income $ 25,996 $ 76,705
============ ============
Net income per common share:
Basic $ 0.36 $ 1.05
============ ============
Diluted $ 0.35 $ 1.03
============ ============
Number of common shares for earnings per share computations:
Basic 72,710,585 73,019,851
Diluted 74,245,914 74,558,791
The accompanying notes are an integral part of the financial statements.
-3-
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED BALANCE SHEETS
November 3, February 3, October 28,
2001 2001 2000
----------- ----------- -----------
(Unaudited) (Unaudited)
(Dollars in Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 48,308 $ 120,392 $ 64,866
Accounts receivable 56,786 55,250 59,844
Merchandise inventories 667,246 495,285 584,902
Current deferred income taxes 21,607 7,677 6,358
Prepaid expenses 16,586 15,967 6,455
----------- ----------- -----------
Total current assets 810,533 694,571 722,425
----------- ----------- -----------
Property at cost:
Land and buildings 420,067 364,418 358,044
Leasehold costs and improvements 74,358 67,565 62,178
Furniture, fixtures and equipment 351,953 331,129 306,607
----------- ----------- -----------
846,378 763,112 726,829
Less: accumulated depreciation and amortization 255,411 239,198 225,357
----------- ----------- -----------
590,967 523,914 501,472
----------- ----------- -----------
Property under capital leases 3,319 3,319 3,319
Less: accumulated amortization 2,406 2,281 2,240
----------- ----------- -----------
913 1,038 1,079
----------- ----------- -----------
Deferred income taxes 20,874 - -
Other assets 21,164 14,211 12,645
----------- ----------- -----------
Total assets $ 1,444,451 $ 1,233,734 $ 1,237,621
=========== =========== ===========
LIABILITIES
Current liabilities:
Accounts payable $ 472,106 $ 335,060 $ 442,221
Accrued expenses and other current liabilities 144,498 147,536 123,943
Accrued federal and state income taxes 16,717 31,807 7,970
Obligations under capital leases due within one year 272 240 235
Contingent lease obligations 33,795 - -
----------- ----------- -----------
Total current liabilities 667,388 514,643 574,369
----------- ----------- -----------
Obligations under capital leases, less portion due
within one year 1,632 1,828 1,887
Noncurrent contingent lease obligations 71,205 - -
Other noncurrent liabilities 46,610 44,453 44,604
Deferred income taxes - 7,895 8,809
STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized 180,000,000
shares, issued 74,410,190 shares 744 744 744
Additional paid-in capital 69,010 75,583 76,642
Retained earnings 674,524 648,528 593,757
Treasury stock, at cost, 2,184,418, 1,947,341 and
2,052,965 shares (86,662) (59,940) (63,191)
----------- ----------- -----------
Total stockholders' equity 657,616 664,915 607,952
----------- ----------- -----------
Total liabilities and stockholders' equity $ 1,444,451 $ 1,233,734 $ 1,237,621
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
-4-
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirty-Nine Weeks Ended
-----------------------------------------------
November 3, October 28,
2001 2000
------------------ ------------------
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 25,996 $ 76,705
Loss on contingent lease obligations 105,000 -
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property 45,217 39,938
Loss on property disposals 315 166
Other noncash items (net) 93 80
Deferred income taxes (42,699) 84
Tax benefit from exercise of stock options 17,565 9,716
Increase (decrease) in cash due to changes in:
Accounts receivable (1,536) (7,846)
Merchandise inventories (171,961) (138,131)
Prepaid expenses (619) 9,027
Other assets (7,024) (1,215)
Accounts payable 137,046 96,110
Accrued expenses 8,397 (2,687)
Accrued income taxes (15,090) (12,836)
Other noncurrent liabilities 2,157 6,173
------------------ ------------------
Net cash provided by operating activities 102,857 75,284
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable securities - (5,001)
Sale of marketable securities - 5,001
Property additions (123,897) (72,601)
Proceeds from property disposals 2 201
------------------ ------------------
Net cash used in investing activities (123,895) (72,400)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of capital lease obligations (164) (148)
Proceeds from sale and issuance of common stock 16,852 8,468
Purchase of treasury stock (67,734) (64,346)
------------------ ------------------
Net cash used in financing activities (51,046) (56,026)
------------------ ------------------
Net decrease in cash and cash equivalents (72,084) (53,142)
Cash and cash equivalents at beginning of year 120,392 118,008
------------------ ------------------
Cash and cash equivalents at end of period $ 48,308 $ 64,866
================== ==================
Supplemental cash flow information:
Interest paid, net $ (72) $ (46)
Income taxes paid 71,502 60,770
Noncash financing and investing activities:
Treasury stock issued for compensation plans 41,012 27,511
The accompanying notes are an integral part of the financial statements.
-5-
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Common
Stock Additional Total
Par Value Paid-in Retained Treasury Stockholders'
$.01 Capital Earnings Stock Equity
------------- -------------- ------------- ------------- ---------------
(Dollars in Thousands except Per Share Amount)
Balance, January 29, 2000 $ 744 $ 85,958 $ 517,052 $ (26,356) $ 577,398
Net income - - 76,705 - 76,705
Sale and issuance of common stock - (9,316) - 27,511 18,195
Purchase of treasury stock - - - (64,346) (64,346)
------------- -------------- ------------- ------------- ---------------
Balance, October 28, 2000 $ 744 $ 76,642 $ 593,757 $ (63,191) $ 607,952
============= ============== ============= ============= ===============
Balance, February 3, 2001 $ 744 $ 75,583 $ 648,528 $ (59,940) $ 664,915
Net income - - 25,996 - 25,996
Sale and issuance of common stock - (6,573) - 41,012 34,439
Purchase of treasury stock - - - (67,734) (67,734)
------------- -------------- ------------- ------------- ---------------
Balance, November 3, 2001 $ 744 $ 69,010 $ 674,524 $ (86,662) $ 657,616
============= ============== ============= ============= ===============
The accompanying notes are an integral part of the financial statements.
-6-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The results for the quarter and nine months ended November 3, 2001 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 February 3, 2001.
4. The components of interest income, net were as follows (amounts in
thousands):
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------- -----------------------
Nov. 3, Oct. 28, Nov. 3, Oct. 28,
2001 2000 2001 2000
------ ------- -------- --------
Interest income $ 739 $1,280 $ 3,295 $ 4,015
Capitalized interest 128 129 384 374
Interest expense on debt (77) (76) (228) (224)
Interest expense on capital leases (51) (56) (156) (172)
------ ------- -------- -------
Interest income, net $ 739 $ 1,277 $ 3,295 $ 3,993
====== ======= ======== =======
5. The following details the calculation of earnings per share for the periods
presented below (amounts in thousands except per share amounts):
Thirteen Weeks Ended Thirty-Nine Weeks Ended
--------------------- -----------------------
Nov. 3, Oct. 28, Nov. 3, Oct. 28,
2001 2000 2001 2000
-------- ------- -------- --------
Net income (loss) $(33,464) $27,391 $ 25,996 $ 76,705
======== ======= ======== ========
Weighted-average number of common
shares outstanding, used for basic
computation 72,526 72,517 72,711 73,020
Plus: Incremental shares from assumed
exercise of stock options - 1,443 1,535 1,539
-------- ------- -------- --------
Weighted-average number of common
and dilutive potential common shares
outstanding 72,526 73,960 74,246 74,559
======== ======= ======== ========
Basic earnings (loss) per share $ (0.46) $ 0.38 $ 0.36 $ 1.05
======== ======= ======== ========
Diluted earnings (loss) per share $ (0.46) $ 0.37 $ 0.35 $ 1.03
======== ======= ======== ========
-7-
6. In the quarter ended November 3, 2001, the Company recorded a pre-tax charge
of $105.0 million for its estimated loss associated with 41 current House2Home,
Inc. leases. On an after-tax basis, this charge was $63.0 million, or $.87 per
share. Both BJ's and House2Home (formerly HomeBase, Inc.) had been part of Waban
Inc. prior to 1997 and were part of The TJX Companies, Inc. ("TJX") prior to
1989. In connection with the spin-off of Waban from TJX in 1989, Waban agreed to
indemnify TJX against any liabilities TJX might incur with respect to these
leases. Pursuant to a subsequent agreement, 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 under Chapter 11 of the United States Bankruptcy Code on November 7,
2001.
The loss recorded in the third quarter was 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. A discount rate of 6% was used to calculate the
present value of the obligations. Payments that the Company makes to settle its
lease indemnification obligations will reduce operating cash flows in varying
amounts over the remaining terms of the House2Home leases, which extend up to 15
years. The Company believes that these payments will not have a material impact
on its future financial condition or cash flows and that the reserves recorded
in the financial statements adequately provide for its indemnification
obligations. However, there can be no assurance that the Company'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 ability to successfully
sublease the House2Home properties.
7. The Financial Accounting Standards Board has issued four new standards since
June 2001:
. Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," addresses financial accounting and reporting for all
business combinations initiated after June 30, 2001 and for combinations
accounted for using the purchase method for which the date of acquisition
is after June 30, 2001.
. SFAS No. 142, "Goodwill and Other Intangible Assets," addresses financial
accounting and reporting for acquired goodwill and other intangible assets
and how they should be accounted for after initial recognition in the
financial statements. This statement becomes effective in 2002, except
that goodwill and intangible assets acquired after June 30, 2001 will be
subject immediately to the provisions of the statement.
. SFAS No. 143, "Accounting for Asset Retirement Obligations," addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. This statement becomes effective in 2003.
. SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," supersedes SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144
establishes a single accounting model for long-lived assets to be disposed
of by sale and resolves significant implementation issues related to SFAS
No. 121. This statement becomes effective in 2002.
-8-
The adoption of SFAS Nos. 141, 142 and 144 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. The Company
is in the process of evaluating the requirements of SFAS No. 143.
8. The Company operated 125 clubs on November 3, 2001 versus 114 clubs on
October 28, 2000.
9. Certain amounts in the prior year's financial statements have been
reclassified for comparative purposes.
-9-
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Thirteen Weeks (Third Quarter) and Thirty-Nine Weeks Ended November 3, 2001
versus Thirteen and Thirty-Nine Weeks Ended October 28, 2000.
Results of Operations
Net sales for the third quarter ended November 3, 2001 rose 7.5% to $1.24
billion from $1.15 billion reported in last year's third quarter. Net sales for
the first nine months of the current year totaled $3.6 billion, 9.0% higher than
last year's comparable period. These increases were due to the opening of new
stores and gasoline stations and comparable store sales increases of 2.9% for
the third quarter and 3.8% year-to-date. Consistent with the trend to date, food
sales continued to be strong in the third quarter, while general merchandise
sales remained soft, particularly after the terrorist attacks on September 11,
2001. Total revenues in the third quarter included membership fees of $27.2
million versus $23.1 million in last year's third quarter. Year-to-date
membership fees were $78.2 million versus $67.4 million last year. This year's
results benefited from an increase in the membership fee for Business and Inner
Circle members from $35 to $40, effective January 1, 2001.
Cost of sales (including buying and occupancy costs) was 91.35% of net sales in
this year's third quarter versus 91.12% in the comparable period last year. For
the first nine months, the cost of sales percentage was 91.33% versus 91.29%
last year. These decreases were due mainly to the increased sales contribution
of gasoline, higher expenses for utilities and other occupancy costs, and
initial excess capacity costs at the Company's new cross-dock facility in
Burlington, New Jersey. Because of a less favorable merchandise mix in this
year's third quarter, the merchandise gross margin rate (excluding gasoline) was
slightly lower than the rate in last year's third quarter. On a year-to-date
basis, this year's gross margin rate was higher than last year's rate.
Selling, general and administrative ("SG&A") expenses were 6.85% of net sales in
the third quarter versus 7.18% in last year's comparable period. Year-to-date
SG&A expenses were 6.96% of net sales this year versus 7.18% last year. These
percentage decreases were attributable mainly to effective control of expenses,
particularly payroll, an increase in gasoline sales, which have low related SG&A
costs, and reduced year-to-date advertising costs for new clubs.
Preopening expenses were $5.5 million in the third quarter compared with $3.1
million in last year's third quarter. Year-to-date preopening expenses totaled
$8.0 million this year versus $6.8 million last year. The Company has opened
seven new clubs this year, all in the third quarter. Last year the Company
opened seven new clubs through October, three of which opened in the third
quarter, and relocated one club.
Third quarter operating income of $47.3 million was 9.3% higher than last year's
$43.3 million in the comparable period. Excluding preopening expenses, third
quarter operating income was 14.0% higher than last year's third quarter
operating income. Year-to-date operating income was $141.4 million, 17.1% higher
than last year's $120.7 million.
-10-
Interest income, net was $.7 million in the third quarter versus $1.3 million in
last year's third quarter. For the first nine months, interest income, net was
$3.3 million compared with last year's $4.0 million. These decreases were due
mainly to lower interest rates, which reduced income earned on invested cash.
In the quarter ended November 3, 2001, the Company recorded a pre-tax charge of
$105.0 million for its estimated loss associated with 41 current House2Home,
Inc. leases. On an after-tax basis, this charge was $63.0 million, or $.87 per
share. Both BJ's and House2Home (formerly HomeBase, Inc.) had been part of Waban
Inc. prior to 1997 and were part of The TJX Companies, Inc. ("TJX") prior to
1989. In connection with the spin-off of Waban from TJX in 1989, Waban agreed to
indemnify TJX against any liabilities TJX might incur with respect to these
leases. Pursuant to a subsequent agreement, 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 under Chapter 11 of the United States Bankruptcy Code on November 7,
2001.
The loss on contingent lease obligations recorded in the third quarter was 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. A discount rate of 6%
was used to calculate the present value of the obligations.
The Company's year-to-date tax provision was 34.5% of pre-tax income versus
38.5% of pre-tax income in last year's comparable period. This decrease was due
to the effect of the tax benefit on the loss on contingent lease obligations.
The Company recorded a net loss of $33.5 million, or $.46 per share, in this
year's third quarter and net income of $26.0 million, or $.35 per diluted share,
year-to-date. Excluding the loss on contingent lease obligations, third quarter
net income was $29.5 million, or $.40 per diluted share, compared with $27.4
million, or $.37 per diluted share, in last year's third quarter. Excluding the
loss on contingent lease obligations, net income in this year's first nine
months was $89.0 million, or $1.20 per diluted share, versus $76.7 million, or
$1.03 per diluted share, in last year's comparable period.
The Company expects to open five new clubs in the fourth quarter, one more than
the number of new clubs opened in last year's fourth quarter. Additionally, the
Company plans to relocate one club in this year's fourth quarter.
In the fourth quarter of this year, the Company expects to continue to benefit
from the membership fee increase noted above. Because members renew throughout
the year and because membership fee income is recognized over the life of the
membership, the benefit of the fee increase is being recognized over a two-year
period. This year's fourth quarter comparison will also be positively impacted
by last year's $2.6 million pre-tax charge associated with the relocation of the
Company's cross-dock facility from Bristol, Pennsylvania, to Burlington, New
Jersey.
-11-
The expected benefits noted in the preceding paragraph are projected to be
offset by a number of factors. The percentage increase in comparable store sales
for the fourth quarter may be less than that of the first three quarters to date
due to uncertainty in the economy, which has dampened general merchandise sales.
General merchandise sales historically have contributed a higher proportion of
the Company's total sales in the fourth quarter. The Company will continue to
absorb initial excess capacity costs for its new cross-dock facility in
Burlington, New Jersey, which opened in April 2001, and which has approximately
twice the capacity of the facility it replaced. Higher than normal rate
increases for employee medical benefits are expected to continue in the fourth
quarter and into next year. Fourth quarter preopening expenses are expected to
increase over last year, as the Company plans to open five new clubs, relocate
one club and incur a modest amount of preopening expenses for clubs expected to
open in early 2002. Four new clubs were opened in last year's fourth quarter.
Advertising costs for new clubs are also expected to increase over last year due
to the large number of late third quarter and fourth quarter openings. Fourth
quarter interest income is projected to be significantly lower than last year's
fourth quarter as interest rates continue to be well below those of a year ago.
Beginning in the fourth quarter, the Company will be recording an accretion
charge related to changes in the present value of its contingent lease
obligations. Finally, the Company will not benefit from the impact of a 53-week
fiscal year, as it did in 2000. The Company estimates that the extra week
contributed approximately three cents per diluted share to last year's fourth
quarter financial results. Taking all these factors together, the percentage
increase in fourth quarter earnings per share over last year is expected to be
less than that of the first three quarters to date (excluding the loss on
contingent lease obligations).
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
The Financial Accounting Standards Board has issued four new standards since
June 2001:
. Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," addresses financial accounting and reporting for all
business combinations initiated after June 30, 2001 and for combinations
accounted for using the purchase method for which the date of acquisition
is after June 30, 2001.
. SFAS No. 142, "Goodwill and Other Intangible Assets," addresses financial
accounting and reporting for acquired goodwill and other intangible assets
and how they should be accounted for after initial recognition in the
financial statements. This statement becomes effective in 2002, except that
goodwill and intangible assets acquired after June 30, 2001 will be subject
immediately to the provisions of the statement.
. SFAS No. 143, "Accounting for Asset Retirement Obligations," addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. This statement becomes effective in 2003.
-12-
. SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," supersedes SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144
establishes a single accounting model for long-lived assets to be disposed
of by sale and resolves significant implementation issues related to SFAS
No. 121. This statement becomes effective in 2002.
The adoption of SFAS Nos. 141, 142 and 144 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. The Company is in the
process of evaluating the requirements of SFAS No. 143.
Liquidity and Capital Resources
Net cash provided by operating activities was $102.9 million in the first nine
months of 2001 versus $75.3 million in last year's comparable period. Cash
provided by net income before depreciation and amortization and the post-tax
loss on contingent lease obligations was $134.2 million year-to-date versus
$116.6 million in last year's comparable period. Cash provided by the tax
benefit from the exercise of stock options was $7.8 million higher than last
year through the first nine months.
Cash expended for property additions was $123.9 million in the first nine months
of 2001 versus $72.6 million in the first nine months of 2000. The Company has
opened seven new clubs year-to-date versus seven new clubs and one relocation in
the comparable period last year. The relocation of the Company's cross-dock
facility to Burlington, New Jersey, was completed in April 2001. All five clubs
plus one relocation expected to open in the fourth quarter, as well as several
new clubs scheduled for opening in 2002, are currently under construction. Five
of this year's openings will be at owned locations; three of last year's new
clubs are owned. Thirteen new gas stations were opened in the first nine months
of this year versus twelve in last year's comparable period.
The Company's capital expenditures are expected to total approximately $150
million in 2001, based on plans to open twelve new clubs, relocate one club, and
open approximately 25 gas stations. Total expected capital expenditures in 2001
include approximately $20 million for clubs projected to open in 2002. 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.
During the first nine months of 2001, the Company repurchased 1,485,700 shares
of common stock for $67.7 million, or an average price of $45.59 per share. On
May 24, 2001 and September 25, 2001, the Board of Directors authorized the
repurchase of an additional $50 million and $100 million, respectively, of the
Company's stock. From the inception of its repurchase activities in August 1998
through November 3, 2001, the Company has repurchased a total of $198.0 million
of stock at an average price of $30.66 per share. The Company's remaining
repurchase authorization was $102.0 million as of November 3, 2001.
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 $3.7 million was outstanding at November 3,
2001. The Company is required to pay an annual facility fee which is currently
0.10% of the total commitment. Interest on borrowings is payable at the
Company's option either at (a) the Eurodollar rate plus a margin which is
currently 0.25%, (b) the agent bank's prime rate or (c) a rate determined by
competitive bidding. The facility fee and Eurodollar margin are both subject to
change based upon the Company's fixed charge coverage ratio. The agreement
contains covenants which, among other things, include minimum net worth and
fixed charge coverage requirements and a maximum funded debt-to-capital
limitation, and prohibit the
-13-
payment of cash dividends on the Company's common stock. In September 2001, the
agreement was amended to generally limit the cumulative repurchase of the
Company's common stock to $110 million plus 50% of net income (as defined by the
agreement) earned after January 30, 1998.
The Company also maintains a separate $41 million facility for letters of
credit, primarily to support the purchase of inventories, of which $6.7 million
was outstanding at November 3, 2001, and an additional $20 million uncommitted
credit line for short-term borrowings.
The increases in inventory and accounts payable from October 28, 2000 to
November 3, 2001 were due mainly to new clubs. The increases in inventory and
accounts payable since February 3, 2001 were due mainly to normal seasonal
requirements and new clubs. Increases in deferred tax assets since last year
were attributable to the recording of associated liabilities for contingent
lease obligations in the quarter ended November 3, 2001.
Payments that the Company makes to settle its lease indemnification obligations
will reduce operating cash flows in varying amounts over the remaining terms of
the House2Home leases, which extend up to 15 years. The Company believes that
these payments will not have a material impact on its future financial condition
or cash flows and that the reserves recorded in the financial statements
adequately provide for its indemnification obligations. However, there can be no
assurance that the Company'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 ability to successfully sublease the House2Home properties.
Cash and cash equivalents totaled $48.3 million as of November 3, 2001 and there
were no borrowings outstanding on that date. The Company expects that its
current resources, together with anticipated cash flow from operations, will be
sufficient to finance its operations through the next twelve months. However,
the Company may from time to time seek to obtain additional financing.
Factors Which Could Affect Future Operating Results
This report contains a number of "forward-looking statements," including
statements regarding membership fee income, comparable store sales, employee
medical benefit costs, preopening and advertising expenses, contingent lease
obligations under the Company's indemnification agreement with TJX, earnings per
share, planned capital expenditures, planned store and gas station openings and
relocations 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, general
economic conditions and consumer confidence levels; weather conditions; state
and local regulation in the Company's markets; competitive conditions; the
Company's success in settling lease obligations under the Company's
indemnification agreement with TJX; and events which might cause the Company's
1997 spin-off from Waban Inc. 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 February 3, 2001.
-14-
Any forward-looking statements represent the Company's estimates only as of the
day this quarterly report was first filed with the Securities and Exchange
Commission and should not be relied upon as representing the Company's estimates
as of any subsequent date. While the Company may elect to update forward-looking
statements at some point in the future, the Company specifically disclaims any
obligation to do so, even if its estimates change.
Quantitative and Qualitative Disclosures About Market Risk
The Company believes that its potential exposure to market risk as of November
3, 2001 is not material because of the short contractual maturities of its cash
and cash equivalents. No bank debt was outstanding at November 3, 2001. The
Company has not used derivative financial instruments.
-15-
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10.21c Third Amendment dated as of September 21, 2001
to the Credit Agreement dated July 9, 1997.
(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
November 3, 2001.
-16-
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: December 12, 2001 /S/ JOHN J. NUGENT
---------------------- -------------------
John J. Nugent
President and Chief Executive Officer
(Principal Executive Officer)
Date: December 12, 2001 /S/ FRANK D. FORWARD
---------------------- --------------------
Frank D. Forward
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
-17-