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 4, 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
September 1, 2001: 72,772,792
PART I. FINANCIAL INFORMATION
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Thirteen Weeks Ended
----------------------------------
August 4, July 29,
2001 2000
-------------- -------------
(Dollars in Thousands except Per Share Amounts)
Net sales $ 1,277,176 $ 1,177,253
Membership fees and other 28,534 24,975
-------------- -------------
Total revenues 1,305,710 1,202,228
-------------- -------------
Cost of sales, including buying and occupancy costs 1,160,842 1,070,962
Selling, general and administrative expenses 84,461 79,904
Preopening expenses 2,194 1,981
-------------- -------------
Operating income 58,213 49,381
Interest income, net 1,132 1,384
-------------- -------------
Income before income taxes 59,345 50,765
Provision for income taxes 22,848 19,545
-------------- -------------
Net income $ 36,497 $ 31,220
============== ==============
Net income per common share:
Basic $ 0.50 $ 0.43
============== ==============
Diluted $ 0.49 $ 0.42
============== ==============
Number of common shares for earnings per share computations:
Basic 72,982,364 72,904,873
Diluted 74,499,694 74,380,427
The accompanying notes are an integral part of the financial statements.
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BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Twenty-Six Weeks Ended
-----------------------------------
August 4, July 29,
2001 2000
---------------- ----------------
(Dollars in Thousands except Per Share Amounts)
Net sales $ 2,411,348 $ 2,198,326
Membership fees and other 56,395 49,588
---------------- ----------------
Total revenues 2,467,743 2,247,914
---------------- ----------------
Cost of sales, including buying and occupancy costs 2,202,003 2,008,872
Selling, general and administrative expenses 169,141 157,848
Preopening expenses 2,472 3,724
---------------- ----------------
Operating income 94,127 77,470
Interest income, net 2,556 2,716
---------------- ----------------
Income before income taxes 96,683 80,186
Provision for income taxes 37,223 30,872
---------------- ----------------
Net income $ 59,460 $ 49,314
================ ================
Net income per common share:
Basic $ 0.82 $ 0.67
================ ================
Diluted $ 0.80 $ 0.66
================ ================
Number of common shares for earnings per share computations:
Basic 72,802,887 73,271,293
Diluted 74,398,794 74,858,429
The accompanying notes are an integral part of the financial statements.
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BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED BALANCE SHEETS
August 4, February 3, July 29,
2001 2001 2000
----------- ----------- ------------
(Unaudited) (Unaudited)
(Dollars in Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 136,022 $ 120,392 $ 103,050
Accounts receivable 49,445 55,250 50,799
Merchandise inventories 517,123 495,285 473,207
Current deferred income taxes 7,952 7,677 6,238
Prepaid expenses 14,261 15,967 14,219
----------- ------------ ------------
Total current assets 724,803 694,571 647,513
----------- ------------ ------------
Property at cost:
Land and buildings 406,218 364,418 350,106
Leasehold costs and improvements 70,906 67,565 61,787
Furniture, fixtures and equipment 351,254 331,129 303,556
----------- ------------ ------------
828,378 763,112 715,449
Less accumulated depreciation and amortization 262,670 239,198 227,356
----------- ------------ ------------
565,708 523,914 488,093
----------- ------------ ------------
Property under capital leases 3,319 3,319 3,319
Less accumulated amortization 2,364 2,281 2,198
----------- ------------ ------------
955 1,038 1,121
----------- ------------ ------------
Other assets 19,668 14,211 12,286
----------- ------------ ------------
Total assets $ 1,311,134 $ 1,233,734 $ 1,149,013
=========== ============ ============
LIABILITIES
Current liabilities:
Accounts payable $ 358,973 $ 335,060 $ 374,381
Accrued expenses and other current liabilities 137,743 147,536 115,307
Accrued federal and state income taxes 22,508 31,807 17,557
Obligations under capital leases due within one year 258 240 229
----------- ------------ ------------
Total current liabilities 519,482 514,643 507,474
----------- ------------ ------------
Obligations under capital leases, less portion due
within one year 1,701 1,828 1,942
Other noncurrent liabilities 45,805 44,453 43,460
Deferred income taxes 7,704 7,895 8,660
STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized 180,000,000
shares, issued 74,410,190 shares 744 744 744
Additional paid-in capital 70,180 75,583 80,742
Retained earnings 707,988 648,528 566,366
Treasury stock, at cost, 1,264,673, 1,947,341 and
1,974,923 shares (42,470) (59,940) (60,375)
----------- ------------ ------------
Total stockholders' equity 736,442 664,915 587,477
----------- ------------ ------------
Total liabilities and stockholders' equity $ 1,311,134 $ 1,233,734 $ 1,149,013
=========== ============ ============
The accompanying notes are an integral part of the financial statements.
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BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Twenty-Six Weeks Ended
----------------------------------------
August 4, July 29,
2001 2000
---------- -----------
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 59,460 $ 49,314
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property 29,740 26,121
Loss on property disposals 122 49
Other noncash items (net) 63 54
Deferred income taxes (466) 55
Tax benefit from exercise of stock options 15,121 5,733
Increase (decrease) in cash due to changes in:
Accounts receivable 5,805 1,199
Merchandise inventories (21,838) (26,436)
Prepaid expenses 1,706 1,263
Other assets (5,503) (833)
Accounts payable 23,913 28,270
Accrued expenses (1,662) (11,056)
Accrued income taxes (9,299) (3,249)
Other noncurrent liabilities 1,352 5,029
---------- -----------
Net cash provided by operating activities 98,514 75,513
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Property additions (79,706) (45,401)
Proceeds from property disposals 2 5
---------- -----------
Net cash used in investing activities (79,704) (45,396)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of capital lease obligations (109) (99)
Proceeds from sale and issuance of common stock 12,598 4,796
Purchase of treasury stock (15,669) (49,772)
---------- -----------
Net cash used in financing activities (3,180) (45,075)
---------- -----------
Net increase (decrease) in cash and cash equivalents 15,630 (14,958)
Cash and cash equivalents at beginning of year 120,392 118,008
---------- -----------
Cash and cash equivalents at end of period $ 136,022 $ 103,050
========== ===========
Supplemental cash flow information:
Interest paid, net $ (48) $ (27)
Income taxes paid 46,988 34,066
Noncash financing and investing activities:
Treasury stock issued for compensation plans 33,139 15,753
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 - - 49,314 - 49,314
Sale and issuance of common stock - (5,216) - 15,753 10,537
Purchase of treasury stock - - - (49,772) (49,772)
-------- --------- -------- -------- -------
Balance, July 29,2000 $ 744 $ 80,742 $ 566,366 $ (60,375) $ 587,477
======== ========= ======== ======== =======
Balance, February 3, 2001 $ 744 $ 75,583 $ 648,528 $ (59,940) $ 664,915
Net income - - 59,460 - 59,460
Sale and issuance of common stock - (5,403) - 33,139 27,736
Purchase of treasury stock - - - (15,669) (15,669)
-------- --------- -------- -------- -------
Balance, August 4, 2001 $ 744 $ 70,180 $ 707,988 $ (42,470) $ 736,442
======== ========= ======== ======== =======
The accompanying notes are an integral part of the financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The results for the quarter and six months ended August 4, 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 Twenty-Six Weeks Ended
----------------------- ------------------------
August 4, July 29, August 4, July 29,
2001 2000 2001 2000
-------- ------- -------- -------
Interest income $ 1,132 $ 1,403 $ 2,556 $ 2,735
Capitalized interest 128 113 256 245
Interest expense on debt (76) (75) (151) (148)
Interest expense on capital leases (52) (57) (105) (116)
-------- ------- -------- -------
Interest income, net $ 1,132 $ 1,384 $ 2,556 $ 2,716
======== ======= ======== =======
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 Twenty-Six Weeks Ended
----------------------- --------------------------
August 4, July 29, August 4, July 29,
2001 2000 2001 2000
--------- -------- -------- --------
Net income $ 36,497 $ 31,220 $ 59,460 $ 49,314
========= ======== ======== ========
Weighted-average number of common
shares outstanding, used for basic
computation 72,982 72,905 72,803 73,271
Plus: Incremental shares from assumed
exercise of stock options 1,518 1,475 1,596 1,587
--------- -------- -------- --------
Weighted-average number of common
and dilutive potential common shares
outstanding 74,500 74,380 74,399 74,858
========= ======== ======== ========
Basic earnings per share $ 0.50 $ 0.43 $ 0.82 $ 0.67
========= ======== ======== ========
Diluted earnings per share $ 0.49 $ 0.42 $ 0.80 $ 0.66
========= ======== ======== ========
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6. The Financial Accounting Standards Board issued three new standards as of
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 nonamortization
and amortization 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.
The adoption of SFAS No. 141 and SFAS No. 142 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, which was just
recently issued.
7. The Company operated 118 clubs on August 4, 2001 versus 111 clubs on July
29, 2000.
8. Certain amounts in the prior year's financial statements have been
reclassified for comparative purposes.
-8-
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Thirteen Weeks (Second Quarter) and Twenty-Six Weeks Ended August 4, 2001 versus
Thirteen and Twenty-Six Weeks Ended July 29, 2000.
Results of Operations
Net sales for the second quarter ended August 4, 2001 rose 8.5% to $1.3 billion
from $1.2 billion reported in last year's second quarter. Net sales for the
first half of the current year totaled $2.4 billion, 9.7% 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 3.9% for the
second quarter and 4.2% year-to-date. Total revenues in the second quarter
included membership fees of $25.9 million versus $22.3 million in last year's
second quarter. Year-to-date membership fees were $51.1 million versus $44.2
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 90.89% of net sales in
this year's second quarter versus 90.97% in the comparable period last year. For
the first six months, the cost of sales percentage was 91.32% versus 91.38% last
year. These decreases in percentage were due primarily to a favorable
merchandise mix, which reflected strong sales in a number of departments that
have above-average margins and soft sales in certain lower-margin categories.
This year's second quarter also produced improved gasoline margins over last
year as the Company realized a temporary benefit that resulted from declining
gasoline prices. These favorable factors were partially offset by the increased
sales contribution of gasoline, higher expenses for utilities and other
occupancy costs and, beginning in the second quarter, initial excess capacity
costs at the Company's new cross-dock facility in Burlington, New Jersey.
Selling, general and administrative ("SG&A") expenses were 6.61% of net sales in
the second quarter versus 6.79% in last year's comparable period. Year-to-date
SG&A expenses were 7.01% of net sales this year versus 7.18% last year. These
percentage decreases were attributable mainly to effective control of payroll
expenses, reduced advertising costs for new clubs (four new clubs were opened in
last year's first half versus none this year), and an increase in gasoline
sales, which have low related SG&A costs.
Preopening expenses were $2.2 million in the second quarter compared with $2.0
million in last year's second quarter. Year-to-date preopening expenses totaled
$2.5 million this year versus $3.7 million last year, when the Company opened
four new clubs. No new clubs were opened in the first half of this year, but
preopening expenses were incurred for clubs that are scheduled to open in the
second half of the year.
Second quarter operating income of $58.2 million was 17.9% higher than last
year's $49.4 million in the comparable period. Year-to-date operating income was
$94.1 million, 21.5% higher than last year's $77.5 million.
-9-
Interest income, net was $1.1 million in the second quarter versus $1.4 million
in last year's second quarter. For the first six months, interest income, net
was $2.6 million compared with last year's $2.7 million. These decreases were
due primarily to lower interest rates, which reduced income earned on invested
cash.
The Company's year-to-date tax provision was 38.5% of pre-tax income both this
year and last year.
Second quarter net income was $36.5 million, or $.49 per diluted share, compared
with $31.2 million, or $.42 per diluted share, in last year's second quarter.
Net income in this year's first six months totaled $59.5 million, or $.80 per
diluted share, versus $49.3 million, or $.66 per diluted share, in last year's
first half.
Over the remainder of the 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. The income benefit in 2001 is projected to be offset by several factors.
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. Rate
increases for utilities and employee medical benefits are expected to be higher
than normal throughout 2001. Expenses are also planned in 2001 for preopening
costs for clubs expected to open in early 2002 and for the relocation of one
club (another previously planned relocation was canceled). Finally, the Company
will not benefit from the impact of a 53-week fiscal year, as it did in 2000.
Taken together, these expenses have the potential to offset the first year
benefit from the membership fee increase.
The incurrence of preopening costs and advertising costs for new clubs is
projected to be heavily weighted toward the second half of this year; six new
clubs are forecasted to open in the third quarter of this year; six new club
openings and the one relocation are anticipated in the fourth quarter.
Because most of the fourth quarter openings are projected to occur in November,
a significant portion of their preopening costs is expected to be incurred in
the third quarter.
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 issued three new standards as of 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 nonamortization
and amortization provisions of the statement.
-10-
. 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.
The adoption of SFAS No. 141 and SFAS No. 142 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, which was just recently
issued.
Liquidity and Capital Resources
Net cash provided by operating activities was $98.5 million in the first half of
2001 versus $75.5 million in last year's comparable period. Cash provided by net
income before depreciation and amortization was $89.2 million in the first half
of 2001 versus $75.4 million in last year's comparable period. Cash provided by
the tax benefit from the exercise of stock options was $9.4 million higher than
last year through the first six months.
Cash expended for property additions was $79.7 million in the first half of 2001
versus $45.4 million in the first half of 2000. The Company opened four new
clubs in last year's first half. No new clubs were opened in this year's first
half; however, all twelve of this year's scheduled new clubs, which include five
owned locations, and one relocation are currently under construction, and the
relocation of the Company's cross-dock facility to Burlington, New Jersey, was
completed in April 2001. Nine new gas stations were opened in the first six
months of this year versus five 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 approximately twelve new clubs, relocate
one club, and open approximately 25 gas stations. Total expected capital
expenditures in 2001 include approximately $20 to $25 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 half of 2001, the Company repurchased 359,700 shares of common
stock for $15.7 million, an average price of $43.56 per share. On May 24, 2001,
the Board of Directors authorized the repurchase of an additional $50 million of
the Company's stock. From the inception of its repurchase activities in August
1998 through August 4, 2001, the Company has repurchased a total of $146.0
million of stock at an average price of $27.38 per share. Including the new
authorization, the Company's remaining repurchase authorization was $54.0
million as of August 4, 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 August 4, 2001.
The Company is required to pay an annual facility fee which is currently 0.10%
of the total commitment. Interest on borrowings is payable at the Company's
option either at (a) the Eurodollar rate plus a margin which is currently 0.25%,
(b) the agent bank's prime rate or (c) a rate determined by competitive bidding.
The facility fee and Eurodollar margin are both subject to change based upon the
Company's fixed charge coverage ratio. The agreement contains covenants which,
among other things, include minimum net worth and fixed charge coverage
requirements and a maximum funded debt-to-capital limitation, prohibit the
payment of cash dividends on the Company's common stock, and generally limit the
cumulative repurchase of
-11-
the Company's common stock to $50 million plus 50% of net income (as defined by
the agreement) earned after January 30, 1998.
The Company also maintains a separate $41 million facility for letters of
credit, primarily to support the purchase of inventories, of which $24.1 million
was outstanding at August 4, 2001, and an additional $20 million uncommitted
credit line for short-term borrowings.
The increase in inventory from July 29, 2000 to August 4, 2001 was due mainly to
new clubs. The increase in inventory since February 3, 2001 was due mainly to
normal seasonal requirements.
Cash and cash equivalents totaled $136.0 million as of August 4, 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, utility costs, employee medical
benefit costs, preopening and advertising expenses, 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, 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 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.
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 August 4,
2001 is not material because of the short contractual maturities of its cash and
cash equivalents. No bank debt was outstanding at August 4, 2001. The Company
has not used derivative financial instruments.
-12-
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
None
(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 4, 2001.
-13-
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 13, 2001 /S/ JOHN J. NUGENT
--------------------------- ------------------
John J. Nugent
President and Chief Executive Officer
(Principal Executive Officer)
Date: September 13, 2001 /S/ FRANK D. FORWARD
--------------------------- --------------------
Frank D. Forward
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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