Edgar Filing: BJS WHOLESALE CLUB INC

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 2, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-13143

BJ'S WHOLESALE CLUB, INC.
(Exact name of registrant as specified in its charter)

Delaware 04-3360747
(State or other (I.R.S. Employer
jurisdiction
of incorporation or
organization) Identification No.)
One Mercer Road
Natick, Massachusetts 01760
(Address of principal
executive offices) (Zip Code)

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

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

Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, par value
$.01 New York Stock Exchange
Preferred Share Purchase
Rights New York Stock Exchange

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

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

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

The aggregate market value of the voting stock held by non-affiliates of the
Registrant on March 31, 2002 was approximately $3,179,398,000 based on the
closing price of $44.70 on the New York Stock Exchange as of such date.

There were 71,246,351 shares of the Registrant's Common Stock, $.01 par
value, outstanding as of March 31, 2002.

Documents Incorporated by Reference

Portions of the Proxy Statement for the Registrant's 2002 Annual Meeting of
Stockholders (Part III).

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PART I

Item 1. Business

General

BJ's Wholesale Club introduced the warehouse club concept to New England in
1984 and has since expanded to become a leading warehouse club operator in the
eastern United States. As of February 2, 2002, BJ's operated 130 warehouse
clubs in 15 states and had approximately 6.9 million members. The table below
shows the number of BJ's locations by state.

Number of
State Locations
----- ---------

New York...... 28
Florida....... 19
Massachusetts. 14
New Jersey.... 14
Pennsylvania.. 11
Ohio.......... 8
Connecticut... 7
Maryland...... 7
Virginia...... 6
North Carolina 5
New Hampshire. 4
Rhode Island.. 3
Maine......... 2
Delaware...... 1
South Carolina 1
---
TOTAL...... 130
===

On July 28, 1997, BJ's Wholesale Club, Inc., a Delaware corporation, ("BJ's"
or the "Company") became an independent, publicly owned entity when Waban Inc.
("Waban"), BJ's parent company at the time, distributed to its stockholders on
a pro rata basis all of the Company's outstanding common stock. Before that
date, BJ's business had operated as a division of Waban.

The fiscal year ended February 2, 2002 is referred to as "2001" or "fiscal
2001" below. Other fiscal years are referred to in a similar manner.

Industry Overview

Warehouse clubs offer a narrow assortment of brand name food and general
merchandise items within a wide range of product categories. In order to
achieve high sales volumes and rapid inventory turnover, merchandise selections
are generally limited to items that are brand name leaders in their categories.
Since warehouse clubs sell a diversified selection of product categories, they
attract customers from a wide range of other wholesale and retail distribution
channels, such as supermarkets, supercenters, department stores, drug stores,
discount stores, office supply stores, consumer electronics stores, automotive
stores and wholesale distributors. BJ's believes that it is difficult for these
higher cost channels of distribution to match the low prices offered by
warehouse clubs.

Warehouse clubs eliminate many of the merchandise handling costs associated
with traditional multiple-step distribution channels by purchasing full
truckloads of merchandise directly from manufacturers and by storing
merchandise on the sales floor rather than in central warehouses. By operating
no-frills, self-service warehouse facilities, warehouse clubs have fixturing
and operating costs substantially below those of traditional retailers. Because
of their higher sales volumes and rapid inventory turnover, warehouse clubs
generate cash from the sale of a large portion of their inventory before they
are required to pay merchandise vendors. As a result, a greater

percentage of the inventory is financed through vendor payment terms than by
working capital. Two broad groups of customers, individual households and small
businesses, have been attracted to the savings made possible by the high sales
volumes and operating efficiencies achieved by warehouse clubs. Customers at
warehouse clubs are generally limited to members who pay an annual fee.
Business Model

The Company has developed an operating model that it believes differentiates
it from its warehouse club competition. First, BJ's seeks to establish and
maintain the leading industry position in each market where it operates.
Second, by clustering its clubs, BJ's achieves the benefit of name recognition
and maximizes the efficiencies of management support, distribution and
marketing activities. Finally, BJ's places added focus on the retail customer,
its Inner Circle(R) member, through merchandising strategies that emphasize a
customer-friendly shopping experience. BJ's creates an exciting shopping
experience for its members with a constantly changing mix of food and general
merchandise items and carries a broader product assortment than its warehouse
club competitors. By supplementing the warehouse format with aisle markers,
express check-out lanes and low-cost video-based sales aids, BJ's makes
shopping more efficient for its members. BJ's is also the only major warehouse
club operator to accept manufacturers' coupons, which provides added value for
its members, and to accept VISA(R) and MasterCard(R) payment cards chainwide.
Beginning in 2000, BJ's equipped its clubs to process on-line debit
transactions. Management believes these strategies aimed at the general
consumer allow BJ's to achieve higher operating margins than its warehouse club
competitors.

Expansion

Since the beginning of 1996, BJ's has grown from 71 clubs to 130 clubs in
operation at February 2, 2002. Approximately 46% of BJ's clubs have been in
operation for fewer than six years, and most of these are considered to be in
the early stages of maturation.

BJ's plans to open approximately 13 or 14 new clubs in the current year,
entering the Atlanta market with five new clubs, and continuing to fill in
existing markets. Longer term, BJ's plans to increase the square footage of the
chain by an average of 10% annually.

Clubs Clubs Clubs Clubs
in Operation Opened Closed in Operation
at Beginning During During at End
Year of Year the Year the Year of Year
---- ------------ -------- -------- ------------

1996 71 10 -- 81
1997 81 4 1 84
1998 84 12 -- 96
1999 96 11 -- 107
2000 107 11 -- 118
2001 118 12 -- 130

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

Store Profile

As of February 2, 2002, BJ's operated 115 traditional size "big box"
warehouse clubs that averaged approximately 111,000 square feet and 15 smaller
format warehouse clubs that averaged approximately 69,000 square feet. The
smaller format clubs are designed to serve markets whose population is not
sufficient to support a full-sized warehouse club. Including space for parking,
a typical full-sized BJ's club requires nine to eleven acres of land. The
smaller version typically requires approximately eight acres. BJ's clubs are
located in both free-standing locations and shopping centers.

Construction and site development costs for a full-sized owned BJ's club
generally range from $5 million to $7 million. Land acquisition costs for a
club generally range from $3 million to $5 million, but can be significantly
higher in some locations. BJ's also invests approximately $2.6 million for
fixtures and equipment and $2 million for inventory (net of accounts payable),
and incurs approximately $.8 million for preopening costs in a new full-sized
club.

Merchandising

BJ's services its existing members and attracts new members by providing a
broad range of high quality, brand name merchandise at everyday prices that are
consistently lower than the prices of traditional wholesalers, discount
retailers, supermarkets, supercenters and specialty retail operations. BJ's
limits the items offered in each product line to fast selling styles, sizes and
colors, carrying an average of approximately 6,000 active stockkeeping units
(SKU's). By contrast, supermarkets normally stock from 27,000 to 52,000 SKU's,
and supercenters typically stock up to 125,000 SKU's. BJ's works closely with
manufacturers to develop packaging and sizes which are best suited to selling
through the warehouse club format in order to minimize handling costs and to
provide increased value to members.

Excluding gasoline, food accounted for approximately 61% of BJ's sales in
2001. The remaining 39% consisted of a wide variety of general merchandise
items. Food categories at BJ's include frozen foods, fresh meat and dairy
products, dry grocery items, fresh produce and flowers, canned goods, and
household paper products and cleaning supplies. General merchandise includes
office supplies and equipment, consumer electronics, prerecorded media, small
appliances, auto accessories, tires, jewelry, housewares, health and beauty
aids, computer software, books, greeting cards, apparel, tools, toys and
seasonal items. BJ's believes that more than 70% of its products are items that
can also be found in supermarkets.

To ensure that its merchandise selection is closely attuned to the tastes of
its members, BJ's employs regional buyers who are responsible for tailoring the
product selection in individual warehouse clubs to the regional and ethnic
tastes of the local market. BJ's is increasingly using checkout data to
understand and respond to member preferences.

BJ's continued to expand its private label program during 2001. Products are
sold under two labels: "Executive Choice(TM)" for products targeted to business
members, and "Berkley and Jensen(TM)" for products targeted to BJ's Inner
Circle members. BJ's private label products are premium quality only and
generally are priced 20% lower than the top branded competing product. At the
end of 2001, products sold under BJ's private labels had achieved a sales
penetration of nearly 4% on an annualized basis. BJ's expects its private label
products to represent an increasing percentage of total revenues over time.

BJ's plans to test pharmacies in the five Atlanta clubs scheduled to open in
2002 and in three existing Massachusetts clubs, which are being retrofitted for
this business.

In 2002, BJ's also plans to begin offering members the ability to purchase
and activate phone cards and gift certificates at the cash registers, which is
expected to substantially boost those businesses.

BJ's also offers a number of specialty services that are designed to enable
members to complete more of their shopping at BJ's and to encourage more
frequent trips to the clubs. Most of these services are provided by outside
operators in space leased from BJ's. Specialty services include full-service
optical stores, food courts, some of which offer brand name fast food service,
on-site photo service, BJ's Vacations(R), a selection of garden sheds and
gazebos, a propane tank filling service, and a muffler and brake service
operated in conjunction with Monro Muffler/Brake and Speedy Auto Service, and
Tuffy Automobile Service Centers. A test of a mini-branch bank concept
continues in three BJ's clubs.

As of February 2, 2002, BJ's has opened gas stations at 55 of its clubs. The
gas stations are generally self-service, relying on "pay at the pump"
technology that accepts MasterCard, VISA, Discover(R) and debit card
transactions. Cash is also accepted at some locations. Both regular and premium
gasoline are available. BJ's has generally maintained its gas prices at well
below the average prices in each market. Results to date have shown increased
sales and membership at clubs with gas stations. BJ's plans to continue
expanding this service in 2002.

The Company's "BJ's Premier Benefits(TM)" program is designed to enhance the
value of BJ's membership, particularly to business members. Included in the
program are discounted payroll processing, payment processing of all major
credit cards, participation in an established preferred medical provider
network that provides

comprehensive health care services at discounted rates, local and long-distance
phone and Internet access, rebates on the buying and selling of residential
real estate, BJ's Vacations and printing of business forms, checks and signs.
Unlike its warehouse club competitors who charge a premium for similar
services, participation in Premier Benefits is open to all BJ's members and is
included in the regular cost of BJ's membership.

Membership

Paid membership is an essential part of the warehouse club concept. In
addition to providing a source of revenue which permits BJ's to offer low
prices, membership reinforces customer loyalty. BJ's has two types of members:
business members and Inner Circle members. BJ's Inner Circle members are likely
to be home owners whose incomes are above the average for the Company's trading
areas. BJ's believes that a significant percentage of its business members also
shops BJ's actively for their personal needs. The Company had approximately 6.9
million members (including supplemental cardholders) at February 2, 2002.

BJ's generally charges $40 per year for a primary Inner Circle membership
that includes one free supplemental membership. Members in the same household
may purchase additional supplemental memberships for $20 each. A business
membership also costs $40 per year and includes one free supplemental
membership. Additional supplemental business memberships cost $20 each.

Advertising and Public Relations

BJ's increases customer awareness of its warehouse clubs primarily through
direct mail, public relations efforts, new store marketing programs, and
television and radio advertising (some of which is vendor funded) during the
holiday season. BJ's also employs dedicated marketing personnel who solicit
potential business members and who contact other selected organizations to
increase the number of members. From time to time, BJ's runs free trial
membership promotions to attract new members, with the objective of converting
them to paid membership status, and also uses one-day passes to introduce
non-members to its warehouse clubs. These programs result in very low marketing
expenses compared with typical retailers.

Club Operations

BJ's ability to achieve profitable operations depends upon high sales
volumes and the efficient operation of its warehouse clubs. The Company buys
most of its merchandise at volume discounts from manufacturers for shipment
either to a BJ's cross-dock facility or directly to BJ's clubs. This eliminates
many of the costs associated with traditional multiple-step distribution
channels, including distributors' commissions and the costs of storing
merchandise in central distribution facilities.

BJ's routes the majority of its purchases through cross-dock facilities
which break down truckload quantity shipments from manufacturers and reallocate
these goods for shipment to individual clubs, generally on a same-day basis.
BJ's efficient distribution systems result in better volume discounts, reduced
freight expenses and lower receiving costs.

The Company works closely with manufacturers to minimize the amount of
handling required once merchandise is received at a club. Most merchandise is
pre-marked by the manufacturer so that it does not require ticketing at the
club. Merchandise for sale is generally displayed on pallets containing large
quantities of each item, thereby reducing labor required for handling, stocking
and restocking. Back-up merchandise is generally stored in steel racks above
the sales floor.

BJ's has been able to limit inventory losses to levels well below those
typical of other retailers by strictly controlling the exits of its clubs, by
generally limiting customers to members and by using state-of-the-art
electronic article surveillance technology. BJ's inventory shrinkage was less
than .20% of net sales in each of the last five fiscal years. Problems
associated with payments by check have been insignificant, as members who issue
dishonored checks are restricted to cash-only terms. BJ's policy is to accept
returns of merchandise within 30 days after purchase.

BJ's is the only warehouse club operator to accept both MasterCard and VISA
chainwide. Beginning in 2000, BJ's equipped its clubs to process on-line debit
transactions. Additionally, BJ's members may pay for their purchases by cash,
check or Discover Card.

In 2002, BJ's plans to roll out a new BJ's co-branded MasterCard
underwritten by a major financial institution on a non-recourse basis.
Purchases made at BJ's with the co-branded MasterCard will earn a 1.5% rebate.
All other purchases with the BJ's MasterCard will earn rebates ranging from .5%
to 1.0%. Rebates up to $500 per year per membership account will be issued in
the form of BJ's Bucks(R) certificates redeemable for merchandise at any BJ's
club.

Information Systems

Over the course of its development, BJ's has made a significant investment
in information systems. BJ's was the first warehouse club operator to introduce
scanning devices which work in conjunction with its electronic point of sale
(EPOS) terminals. Beginning in 2000, BJ's rolled out "360 degree" scanning and
upgraded the cash register printers at the checkout stations in its clubs to
enhance the efficiency of the checkout process. In 2001, an on-line refund
system was implemented at the clubs to more effectively process sales returns.
In 2002, BJ's plans to complete the implementation of a new inventory
replenishment system and to test self-checkout technology in two Massachusetts
clubs.

Sales data is analyzed daily for replenishment purposes. Detailed purchasing
data permits the buying staff and store managers to track changes in members'
buying behavior. Detailed shrinkage information by SKU by club allows
management to quickly identify inventory shrinkage problems and formulate
effective action plans.

Competition

BJ's competes with a wide range of national, regional and local retailers
and wholesalers selling food or general merchandise in its markets, including
supermarkets, supercenters, general merchandise chains, specialty chains and
other warehouse clubs, some of which have significantly greater financial and
marketing resources than BJ's. Major competitors that operate warehouse clubs
include Costco Wholesale Corporation and Sam's Clubs (a division of Wal-Mart
Stores, Inc.).

A large number of competitive membership warehouse clubs exists in BJ's
markets. Approximately 86% of BJ's 115 full-sized warehouse clubs have at least
one competitive membership warehouse club in their trading areas at a distance
of about ten miles or less. None of the smaller format clubs has direct
competition from other warehouse clubs within ten miles.

BJ's believes price is the major competitive factor in the markets in which
it competes. Other competitive factors include store location, merchandise
selection, member services and name recognition. BJ's believes its efficient,
low-cost form of distribution gives it a significant competitive advantage over
more traditional channels of wholesale and retail distribution.

Seasonality

Sales and net income have typically been strongest in the fourth quarter
holiday season and lowest in the first quarter of each fiscal year.

Employees

As of February 2, 2002, BJ's had approximately 15,800 full-time and
part-time employees ("team members"). None of the Company's team members is
represented by a union. BJ's considers its relations with its team members to
be excellent.

Item 2. Properties

BJ's operated 130 warehouse club locations as of February 2, 2002, of which
80 are leased under long-term leases and 40 are owned. BJ's owns the buildings
at the remaining 10 locations, which are subject to long-term ground leases. A
listing of BJ's locations within each state is shown on page 2.

The unexpired terms of BJ's leases range from approximately 1.5 to 39 years,
and average approximately 14 years. BJ's has options to renew all but one of
its leases for periods that range from approximately 5 to 50 years and average
approximately 21 years. These leases require fixed monthly rental payments
which are subject to various adjustments. Certain leases require payment of a
percentage of the warehouse club's gross sales in excess of certain amounts.
Generally, all leases require that BJ's pay all property taxes, insurance,
utilities and other operating costs.

BJ's home offices in Natick, Massachusetts, occupy 156,000 square feet under
leases expiring January 31, 2006, with options to extend these leases through
January 31, 2011. The Company also leases two cross-dock facilities, which
occupy a total of 776,000 square feet under leases which expire in 2010 and
2021, with options to extend these leases through 2025 and 2041, respectively.

See Note D of Notes to Consolidated Financial Statements included elsewhere
in this report for additional information with respect to the Company's leases.

Item 3. Legal Proceedings

BJ's is involved in various legal proceedings that are typical of a retail
business. Although it is not possible to predict the outcome of these
proceedings or any related claims, the Company believes that such proceedings
or claims will not, individually or in the aggregate, have a material adverse
effect on its financial condition or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of the Company's security holders during
the fourth quarter of the fiscal year ended February 2, 2002.

Item 4A. Executive Officers of the Registrant

Name Age Office and Employment During Last Five Years
---- --- --------------------------------------------

Herbert J. Zarkin 63 Chairman of the Board of the Company since July 1997; President, Chief
Executive Officer and Director of Waban (1993-1997); Executive Vice
President of Waban (1989-1993); President of the BJ's Division of Waban (the
"BJ's Division") (1990-1993)

John J. Nugent... 55 President, Chief Executive Officer and Director of the Company since July
1997; Executive Vice President of Waban and President of the BJ's Division
(1993-1997)

Frank D. Forward. 47 Executive Vice President and Chief Financial Officer of the Company since
July 1997; Executive Vice President, Finance of the BJ's Division from
February 1997 to July 1997; Senior Vice President, Finance of the BJ's
Division (1994-1997)

Laura J. Sen..... 45 Executive Vice President, Merchandising of the Company since July 1997;
Executive Vice President, Merchandising of the BJ's Division from February
1997 to July 1997; Senior Vice President, General Merchandise of the BJ's
Division (1993-1997)

Michael T. Wedge. 48 Executive Vice President, Club Operations of the Company since July 1997;
Executive Vice President, Sales Operations of the BJ's Division from February
1997 to July 1997; Senior Vice President, Sales Operations of the BJ's
Division (1993-1997)

Sarah M. Gallivan 59 Vice President and General Counsel of the Company since July 1997; Vice
President and General Counsel of Waban (1989-1997)

All officers serve at the discretion of the Board of Directors and hold
office until the next annual meeting of the Board of Directors and until their
successors are elected and qualified.

PART II

Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters

The common stock of the Company is listed on the New York Stock Exchange
(symbol "BJ"). The quarterly high and low stock prices for the fiscal years
ended February 2, 2002 and February 3, 2001 were:

Fiscal Year Ended Fiscal Year Ended
February 2, 2002 February 3, 2001
----------------- -----------------
Quarter High Low High Low
------- ------ ------ ------ ------

First.. $48.35 $41.33 $41.38 $26.75
Second. 57.24 41.34 38.00 27.88
Third.. 56.86 39.25 37.94 29.25
Fourth. 52.70 39.57 43.35 28.88

The approximate number of stockholders of record at March 31, 2002 was
2,300. The Company has never declared or paid any cash dividends on its common
stock and does not anticipate paying cash dividends in the foreseeable future.
For restrictions on the payment of dividends, see Note C of Notes to the
Consolidated Financial Statements included elsewhere in this report.

Item 6. Selected Financial Data

Fiscal Year Ended
---------------------------------------------------------

Feb. 2, Feb. 3, Jan. 29, Jan. 30, Jan. 31,
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
(53 Weeks) (53 Weeks)
(Dollars in Thousands except Per Share Data)
Income Statement Data
Net sales......................................... $5,161,164 $4,828,273 $4,115,825 $3,476,846 $3,159,786
Membership fees and other......................... 118,566 103,822 90,422 75,335 67,556
---------- ---------- ---------- ---------- ----------
Total revenues.................................... 5,279,730 4,932,095 4,206,247 3,552,181 3,227,342
---------- ---------- ---------- ---------- ----------
Cost of sales, including buying and occupancy
costs........................................... 4,686,429 4,376,451 3,725,638 3,154,017 2,872,303
Selling, general and administrative expenses...... 350,000 339,305 293,538 255,087 231,203
Preopening expenses............................... 10,343 8,471 9,536 7,743 3,190
Pension termination costs......................... -- -- -- 1,521 --
---------- ---------- ---------- ---------- ----------
Operating income.................................. 232,958 207,868 177,535 133,813 120,646
Interest income (expense), net.................... 3,934 5,955 3,785 956 (8,733)
Loss on contingent lease obligations.............. (106,359) -- -- -- --
---------- ---------- ---------- ---------- ----------
Income before income taxes and cumulative
effect of accounting principle changes.......... 130,533 213,823 181,320 134,769 111,913
Provision for income taxes........................ 48,185 82,322 70,171 52,964 43,646
---------- ---------- ---------- ---------- ----------
Income before cumulative effect of accounting
principle changes............................... 82,348 131,501 111,149 81,805 68,267
Cumulative effect of accounting principle
changes......................................... -- -- -- (19,326) --
---------- ---------- ---------- ---------- ----------
Net income........................................ $ 82,348 $ 131,501 $ 111,149 $ 62,479 $ 68,267
========== ========== ========== ========== ==========
Income per common share:
Basic earnings per share:
Income before cumulative effect of
accounting principle changes................. $ 1.14 $ 1.80 $ 1.51 $ 1.09 $ 0.91
Cumulative effect of accounting principle
changes...................................... -- -- -- (0.26) --
---------- ---------- ---------- ---------- ----------
Net income..................................... $ 1.14 $ 1.80 $ 1.51 $ 0.83 $ 0.91
========== ========== ========== ========== ==========
Diluted earnings per share:
Income before cumulative effect of
accounting principle changes................. $ 1.11 $ 1.77 $ 1.47 $ 1.07 $ 0.90
Cumulative effect of accounting principle
changes...................................... -- -- -- (0.25) --
---------- ---------- ---------- ---------- ----------
Net income..................................... $ 1.11 $ 1.77 $ 1.47 $ 0.82 $ 0.90
========== ========== ========== ========== ==========
Pro forma amounts assuming accounting
principle changes are applied retroactively (see
Note below):
Net income..................................... $ 82,348 $ 131,501 $ 111,149 $ 81,805 $ 65,699
========== ========== ========== ========== ==========
Basic earnings per common share................ $ 1.14 $ 1.80 $ 1.51 $ 1.09 $ 0.88
========== ========== ========== ========== ==========
Diluted earnings per common share.............. $ 1.11 $ 1.77 $ 1.47 $ 1.07 $ 0.87
========== ========== ========== ========== ==========
Balance Sheet Data
Working capital................................... $ 127,818 $ 179,928 $ 133,476 $ 108,979 $ 124,957
Total assets...................................... 1,421,884 1,233,734 1,131,019 952,468 848,792
Long-term debt and obligations under capital
leases.......................................... 1,558 1,828 2,050 32,249 44,930
Stockholders' equity.............................. 686,567 664,915 577,398 485,042 446,257

Clubs open at end of year......................... 130 118 107 96 84

Note: Pro forma amounts reflect results as if the changes in methods of
accounting for membership fee revenues and preopening expenses adopted
during the fiscal year ended January 30, 1999 had been in effect for all
periods presented.

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Introduction

BJ's Wholesale Club, Inc., which previously had been a wholly owned
subsidiary of Waban Inc., became a separate and independent public entity on
July 28, 1997, when Waban distributed to its stockholders on a pro rata basis
all of the Company's outstanding common stock (the "spin-off").

Unless noted otherwise, the fiscal year ended February 2, 2002 is referred
to as "2001." Other fiscal years are referred to in a similar manner.

Critical Accounting Policies and Estimates

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

The Company recognizes revenue from the sale of merchandise at the time of
purchase by the customer. Membership fee revenue is recognized on a
straight-line basis over the life of the membership, which is typically twelve
months.

Merchandise inventories are stated at the lower of cost, determined under
the average cost method, or market. The Company recognizes the write-down of
slow-moving or obsolete inventory in cost of sales when such write-downs are
probable and estimable. Records are maintained at the stockkeeping unit (SKU)
level. A report that details the number of weeks of selling supply for each SKU
allows the merchandising staff to make timely markdown decisions to help
maintain rapid inventory turnover, which is essential in the Company's
business. The carrying value of any SKU whose selling price is marked down to
below cost is immediately reduced to that selling price.

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

The Company reviews the realizability of its long-lived assets whenever
events or changes in circumstances indicate that their carrying amounts may not
be recoverable. Current and expected operating results and cash flows and other
factors are considered in connection with the Company's reviews. For purposes
of evaluating the recoverability of long-lived assets, the recoverability test
is performed using undiscounted net cash flows of individual clubs and
consolidated net cash flows for long-lived assets not identifiable to
individual clubs. Significant judgments are made in projecting future cash
flows and are based on a number of factors, including the maturity level of the
club, historical experience of clubs with similar characteristics, recent
trends and general economic assumptions. Impairment losses are measured as the
difference between the carrying amount and the fair value of the impaired
assets.

As of February 2, 2002, the Company had not established a valuation
allowance for its deferred tax assets because those assets can be realized by
offsetting deferred tax liabilities and future taxable income, which management
believes will more likely than not be earned, based on the Company's historical
record and projected earnings. Significant changes in projections of future
taxable income could result in the Company's establishment of a valuation
allowance, which would reduce the carrying value of deferred tax assets.

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

A considerable amount of judgment was involved in determining BJ's net
liability related to House2Home leases, particularly in estimating potential
sublease income. The Company obtained an independent appraisal to help make
this determination. Assumptions included an average period of time it would
take to sublease the properties and the amount of potential sublease income for
each property. Net 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 expire at various
times up to 2016. Instead of subleasing the properties, BJ's may satisfy its
obligations through lump-sum settlements, which could result in accelerated
cash outflows. The Company believes that the liabilities recorded in the
balance sheet adequately provide for its obligations. However, there can be no
assurance that the Company's actual liability under the TJX indemnification
agreement will not vary materially from amounts recorded in the financial
statements due to a number of factors, including future economic factors which
may affect the ability to successfully sublease the House2Home properties.

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

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

Results of Operations

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

Fiscal Year Ended
--------------------------------------------------------
February 2, 2002 February 3, 2001 January 29, 2000
------------------ ----------------- -----------------
(53 weeks)
% of % of % of
$ Net Sales $ Net Sales $ Net Sales
-------- --------- -------- --------- -------- ---------
(Dollars in Millions except Per Share Amounts)

Net sales............................... $5,161.1 100.0% $4,828.3 100.0% $4,115.8 100.0%
Membership fees and other............... 118.6 2.3 103.8 2.2 90.4 2.2
-------- ----- -------- ----- -------- -----
Total revenues.......................... 5,279.7 102.3 4,932.1 102.2 4,206.2 102.2
-------- ----- -------- ----- -------- -----
Cost of sales, including buying and
occupancy costs....................... 4,686.4 90.8 4,376.4 90.7 3,725.7 90.5
Selling, general and administrative
expenses.............................. 350.0 6.8 339.3 7.0 293.5 7.1
Preopening expenses..................... 10.3 .2 8.5 .2 9.5 .3
-------- ----- -------- ----- -------- -----
Operating income........................ 233.0 4.5 207.9 4.3 177.5 4.3
Interest income, net.................... 3.9 .1 5.9 .1 3.8 .1
Loss on contingent lease obligations.... (106.4) (2.1) -- -- -- --
-------- ----- -------- ----- -------- -----
Income before income taxes.............. 130.5 2.5 213.8 4.4 181.3 4.4
Provision for income taxes.............. 48.2 .9 82.3 1.7 70.2 1.7
-------- ----- -------- ----- -------- -----
Net income.............................. $ 82.3 1.6% $ 131.5 2.7% $ 111.1 2.7%
======== ===== ======== ===== ======== =====
Diluted net income per common share..... $ 1.11 $ 1.77 $ 1.47
======== ======== ========
Number of clubs in operation at year end 130 118 107

Net sales increased by 6.9% from 2000 to 2001 and by 17.3% from 1999 to
2000. 2000 was a 53-week fiscal year. The increases in both years were due to
the opening of new stores and to comparable store sales increases. Comparable
store net sales (on a same-week basis) increased by 3.6% from 2000 to 2001 and
by 5.1% from 1999 to 2000. Additionally, the Company expanded the number of
gasoline stations it operates from 19 at the end of 1999 to 34 at the end of
2000 and 55 at the end of 2001.

Total revenues included membership fees of $106.7 million in 2001, $91.3
million in 2000 and $79.3 million in 1999. The increase from 2000 to 2001 was
due mainly to an increase in the membership fee for Business and Inner Circle
members from $35 to $40, effective January 1, 2001, and to new members. The
increase from 1999 to 2000 was attributable primarily to new members.
Membership renewal rates in 2001 were within one percent of the previous year's
all-time high rates for the Company. Business members renewed at a rate of 87%
and Inner Circle members renewed at a rate of 83% in 2001.

Cost of sales (including buying and occupancy costs) was 90.80% of net sales
in 2001, 90.64% in 2000 and 90.52% in 1999. The increase in the cost of sales
percentage from 2000 to 2001 was attributable mainly to the increased sales
contribution of gasoline, higher expenses for utilities and other occupancy
costs, and initial excess capacity at the Company's new cross-dock facility in
Burlington, New Jersey. The increase in the cost of sales percentage from 1999
to 2000 was due primarily to the increased contribution of gasoline sales. The
gross margin on gas is significantly lower than the overall gross margin for
the rest of BJ's business. Excluding gas, merchandise gross margin as a
percentage of sales rose slightly over the previous year in both 2001 and 2000.

Selling, general and administrative ("SG&A") expenses were 6.78% of net
sales in 2001, 7.03% in 2000 and 7.13% in 1999. The SG&A percentage was
favorably impacted in the last two years by leveraging fixed expenses against
both increased comparable store sales and a growing number of clubs, by
effective control over operating expenses, particularly payroll, and by
increased gasoline sales, which have low related SG&A costs. Significant

technology investments made over the past few years have been a key factor in
increasing payroll efficiency. The Company completed its rollout of debit card
acceptance during 2000, which has helped to slow the growth rate of credit
costs experienced before 2000.

In 2000, the Company recorded pretax charges of $2.6 million associated with
the relocation of its cross-dock facility from Bristol, Pennsylvania, to
Burlington, New Jersey. This relocation was completed in April 2001. The
Company recorded $1.6 million of the charges in SG&A expenses and $1.0 million
in cost of sales, including buying and occupancy expenses.

Preopening expenses were $10.3 million in 2001, $8.5 million in 2000 and
$9.5 million in 1999. The Company opened twelve new clubs in 2001 and eleven
new clubs in each of 2000 and 1999. One club was relocated in each of 2001 and
2000. A portion of 1999's preopening expenses was incurred for a club which
opened in February 2000.

Interest income, net was $3.9 million in 2001, $5.9 million in 2000 and $3.8
million in 1999. The decrease from 2000 to 2001 was attributable primarily to
lower interest rates, which reduced income earned on invested cash. The
increase from 1999 to 2000 was due primarily to higher invested cash balances.
See Note K of Notes to Consolidated Financial Statements for a summary of the
components of interest income and expense.

The Company recorded pretax charges of $106.4 million in 2001 for its
estimated loss associated with House2Home, Inc. ("House2Home") leases. On an
after-tax basis, these charges were $63.8 million, or $.87 per diluted share.
House2Home filed for bankruptcy under Chapter 11 of the United States
Bankruptcy Code on November 7, 2001. 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.

The loss on contingent lease obligations recorded in 2001 was based on the
present value of rent liabilities under House2Home leases, including estimated
real estate taxes and common area maintenance charges, reduced by estimated
income from the subleasing of these properties. An annual discount rate of 6%
was used to calculate the present value of the obligations.

The Company's income tax provision was 36.9% of pretax income in 2001, 38.5%
in 2000 and 38.7% in 1999. The decrease in the rates from 2001 to 2002 was due
primarily to the effect of the tax benefit on the loss of contingent lease
obligations, which was recorded at an incremental tax rate of 40%. Excluding
the loss on contingent lease obligations, the Company's income tax was 38.3% of
pretax income in 2001. The Company's effective state income tax rates have
decreased slightly in each of the last two fiscal years.

Net income was $82.3 million, or $1.11 per diluted share, in 2001. Excluding
the loss on contingent lease obligations, pro forma net income was $146.2
million, or $1.98 per diluted share, in 2001 versus reported net income of
$131.5 million, or $1.77 per diluted share, in 2000, and $111.1 million, or
$1.47 per diluted share, in 1999. (The 2001 pro forma net income and per share
amounts are not stated in accordance with accounting principles generally
accepted in the United States, but the Company believes this information may be
useful because of the nature of the loss, which is described above.)

The Company expects to continue to benefit in 2002 from the membership fee
increases that became effective January 1, 2001. Because members renew
throughout the year and because membership fee income is realized over the life
of the membership, the benefit of the fee increases is spread over a two-year
period. The

Company expects that this benefit will be partially offset by the effect of
higher than normal medical cost inflation on employee benefit costs,
significantly higher property insurance costs in the wake of the terrorist
attacks on September 11, 2001 and comparative excess capacity in the first
quarter at the Company's new cross-dock facility, which opened in April 2001 in
Burlington, New Jersey. Interest income is also projected to be lower than last
year for the first half of 2002 because of considerably lower interest rates.

A more evenly distributed schedule of new club openings in 2002 compared to
2001, when all new clubs were opened in the second half of the year, is
expected to create uneven quarterly comparisons in preopening expenses. Based
on the 2002 club opening schedule, these costs are projected to be higher than
last year in the first two quarters and lower than last year in the third and
fourth quarters.

The Company plans to test pharmacies in the five new Atlanta clubs scheduled
to open in 2002 and in three existing Massachusetts clubs, which are being
retrofitted for this business. Because Atlanta is a market where BJ's has no
other clubs, very limited name recognition and two entrenched competitors, the
Company also plans to test a program of free first-year memberships during the
preopening and initial opening periods of the new Atlanta clubs.

In 2002, the Company plans to roll out a new BJ's co-branded MasterCard
underwritten by a major financial institution on a non-recourse basis.
Purchases made at BJ's with the co-branded MasterCard will earn a 1.5% rebate.
All other purchases with the BJ's MasterCard will earn rebates ranging from .5%
to 1.0%. Rebates up to $500 per year per membership account will be issued in
the form of "BJ's Bucks" certificates redeemable for merchandise at any BJ's
club.

Seasonality

The Company's business, in common with the business of retailers generally,
is subject to seasonal influences. The Company's sales and operating income
have typically been strongest in the fourth quarter holiday season and lowest
in the first quarter of each fiscal year.

Recently Issued Accounting Standards

The Financial Accounting Standards Board issued four new standards in 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
are 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.

Emerging Issues Task Force ("EITF") Issue No. 01-09, "Accounting for
Consideration Given by a Vendor to a Customer," addresses the income statement
characterization of consideration given by a vendor to a customer and provides
guidance on recognizing and measuring sales incentives. EITF Issue No. 01-09
becomes effective in 2002.

The adoption of SFAS Nos. 141, 142 and 144 and EITF Issue No. 01-09 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 $211.9 million in 2001
compared with $155.7 million in 2000 and $205.8 million in 1999. The lower
amount in 2000 was attributable mainly to the decrease in cash provided by the
change in accounts payable. Accounts payable balances were higher than normal
at the beginning of 2000 due in part to the January replenishment of
inventories in categories with millennium-related demand, much of which was
paid for after the end of January 2000. Cash provided by net income before
depreciation and amortization and the post-tax loss on contingent lease
obligations was $207.8 million in 2001 versus $186.5 million in 2000 and $157.6
million in 1999.

Cash expended for property additions was $166.3 million in 2001 versus $98.7
million in 2000. Included in 2001's property additions was $13.0 million of
cash expended for clubs that will open in 2002. The Company opened twelve new
clubs in 2001 and eleven new clubs in 2000, and relocated one club in each
year. Five of the 2001 openings were at owned locations. Two of the 2000
openings and the relocated club (whose land was purchased in 1999) were at
owned locations. The Company also opened 21 new gas stations in 2001 and 15 new
gas stations in 2000.

The Company expects that capital expenditures will total approximately $180
million in 2002, based on opening 13 or 14 new clubs and 20 to 25 gas stations,
purchasing one club which was previously leased and providing initial capital
for a third cross-dock facility scheduled to open in Florida in the spring of
2003. The Company expects to own approximately four of the new club locations
opening in 2002 and also plans to spend approximately $10-$15 million in 2002
for clubs that will open in 2003. The timing of actual club openings and the
amount of related expenditures could vary from these estimates due, among other
things, to the complexity of the real estate development process.

In May and September of 2001, the Board of Directors authorized the
repurchase of an additional $50 million and $100 million, respectively, of the
Company's common stock in addition to the $150 million previously authorized.
During 2001, the Company repurchased 2,145,700 shares of common stock for $95.8
million, or an average price of $44.64 per share. From the inception of its
share repurchase activities in August 1998, the Company has repurchased a total
of $226.1 million of common stock at an average cost of $31.76 per share. As of
February 2, 2002, the Company's remaining repurchase authorization was $73.9
million.

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 $2.3 million was outstanding at
February 2, 2002. The Company is required to pay an annual facility fee which
is currently 0.15% 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 0.30%, (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 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 is in compliance with the covenants and other requirements set
forth in its credit agreement. BJ's has no credit rating triggers that would
accelerate the maturity date of debt if borrowings were outstanding under its
credit agreement. The Company expects to enter into a new credit agreement
before the current agreement expires.

The Company also maintains a separate $41 million facility for letters of
credit, primarily to support the purchase of inventories, of which $12.8
million was outstanding at February 2, 2002, and an additional $20 million
uncommitted credit line for short-term borrowings.

Increases in inventories and accounts payable from February 3, 2001 to
February 2, 2002 were due mainly to the addition of new clubs. Increases in
deferred tax assets since the end of last year were attributable primarily to
the recording of related liabilities for lease indemnification obligations in
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 expire at various times up to
2016. As of February 2, 2002, the present value of these obligations totaled
$106.2 million, including $44.1 million classified as current liabilities. This
reflects the fact that BJ's is responsible for 100% of House2Home's lease
liabilities through January 31, 2003 and the assumption of a certain average
time period before sublease income begins to be realized. BJ's and TJX share
equal responsibility for House2Home's leases after January 31, 2003. The
Company may satisfy its obligations through lump-sum settlements, which could
accelerate the timing of cash outflows. The Company believes that these
payments will not have a material impact on its future financial condition or
cash flows and that the liabilities recorded in the financial statements
adequately provide for its indemnification obligations. However, there can be
no assurance that 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.

The following summarizes the Company's contractual cash obligations as of
February 2, 2002 and the effect these obligations are expected to have on its
liquidity and cash flows in future periods (in thousands):

Contingent
Capital Operating Lease
Payments Due by Period Total Leases Leases Obligations
---------------------- ---------- ------- ---------- -----------

Less than 1 year.... $ 134,908 $ 449 $ 90,391 $ 44,068
1-3 years........... 327,569 1,368 294,163 32,038
More than 3 years... 1,182,457 570 1,151,783 30,104
---------- ------ ---------- --------
$1,644,934 $2,387 $1,536,337 $106,210
========== ====== ========== ========

Cash and cash equivalents totaled $87.2 million as of February 2, 2002, and
there were no borrowings outstanding on that date. Based on the expectation
that a new credit agreement will be in place before the current agreement
expires, the Company believes that its current resources, together with
anticipated cash flow from operations, will be sufficient to finance its
operations through the term of the new credit agreement. 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, employee medical benefit costs and
preopening expenses, planned capital expenditures, planned store and gas
station openings, lease obligations under the Company's indemnification
agreement with TJX, and other information with respect to the Company's plans
and strategies. Any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes," "anticipates," "plans,"
"estimates," "expects" and similar expressions are

intended to identify forward-looking statements. There are a number of
important factors that could cause actual events or the Company's actual
results to differ materially from those indicated by such forward-looking
statements, including, without limitation, the factors set forth below and
other factors noted elsewhere in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, particularly those noted under
"Critical Accounting Policies and Estimates." In addition, any forward-looking
statements represent the Company's estimates only as of the day this annual
report was first filed with the Securities and Exchange Commission and should
not be relied upon as representing the Company's estimates as of any subsequent
date. While the Company may elect to update forward-looking statements at some
point in the future, the Company specifically disclaims any obligation to do
so, even if its estimates change.

BJ's warehouse clubs are located in the eastern United States, primarily in
the Northeast. The Company's business may be adversely affected from time to
time by economic downturns in its markets. In addition, the Company may be
impacted by state and local regulation in its markets and temporarily impacted
by weather conditions prevailing in its markets.

The Company competes with national, regional and local retailers and
wholesalers, including national chains in the warehouse merchandising business,
some of which have significantly greater financial and marketing resources than
the Company, which could adversely affect the Company's business, operating
results and financial condition.

In connection with the spin-off in 1997, Waban received a letter ruling from
the Internal Revenue Service to the effect that, for federal income tax
purposes, the distribution of the Company's stock to Waban's stockholders (the
"Distribution") and related asset transfers would be tax-free to Waban's
stockholders. Certain future events not within the control of the Company or
House2Home, including, for example, certain dispositions of the Company's
common stock or House2Home's common stock, could cause the Distribution not to
qualify for tax-free treatment. If this occurred, the related tax liability
would be payable by House2Home, although the Company has agreed to indemnify
House2Home under certain circumstances for all or a portion of such tax
liability.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company believes that its potential exposure to market risk as of
February 2, 2002 is not material because of the short contractual maturities of
its cash and cash equivalents. No bank debt was outstanding at February 2,
2002. The Company has not used derivative financial instruments. See Summary of
Accounting Policies--Disclosures about Fair Value of Financial Instruments and
Note C in Notes to Consolidated Financial Statements.

Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

Page
----

Consolidated Statements of Income for the fiscal years ended February 2, 2002,
February 3, 2001 and January 29, 2000................................................................. 20

Consolidated Balance Sheets as of February 2, 2002 and February 3, 2001................................. 21

Consolidated Statements of Cash Flows for the fiscal years ended February 2, 2002, February 3, 2001 and
January 29, 2000...................................................................................... 22

Consolidated Statements of Stockholders' Equity for the fiscal years ended February 2, 2002, February 3,
2001 and January 29, 2000............................................................................. 23

Notes to Consolidated Financial Statements.............................................................. 24

Selected Quarterly Financial Data (Unaudited)........................................................... 34

Report of Independent Accountants....................................................................... 35

Report of Management.................................................................................... 35

BJ'S WHOLESALE CLUB, INC.

CONSOLIDATED STATEMENTS OF INCOME

Fiscal Year Ended
-----------------------------------------------

February 2, February 3, January 29,
2002 2001 2000
------------ ------------ ------------
(53 weeks)
(Dollars in Thousands except Per Share Amounts)
Net sales................................................... $ 5,161,164 $ 4,828,273 $ 4,115,825
Membership fees and other................................... 118,566 103,822 90,422
------------ ------------ ------------
Total revenues............................................. 5,279,730 4,932,095 4,206,247
------------ ------------ ------------
Cost of sales, including buying and occupancy costs......... 4,686,429 4,376,451 3,725,638
Selling, general and administrative expenses................ 350,000 339,305 293,538
Preopening expenses......................................... 10,343 8,471 9,536
------------ ------------ ------------
Operating income........................................... 232,958 207,868 177,535
Interest income, net........................................ 3,934 5,955 3,785
Loss on contingent lease obligations........................ (106,359) -- --
------------ ------------ ------------
Income before income taxes.................................. 130,533 213,823 181,320
Provision for income taxes.................................. 48,185 82,322 70,171
------------ ------------ ------------
Net income................................................. $ 82,348 $ 131,501 $ 111,149
============ ============ ============
Net income per common share:
Basic...................................................... $ 1.14 $ 1.80 $ 1.51
============ ============ ============
Diluted.................................................... $ 1.11 $ 1.77 $ 1.47
============ ============ ============
Number of common shares for earnings per share computations:
Basic...................................................... 72,519,032 72,870,668 73,657,016
Diluted.................................................... 73,981,148 74,380,544 75,391,489

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

BJ'S WHOLESALE CLUB, INC.

CONSOLIDATED BALANCE SHEETS

February 2, February 3,
2002 2001
----------- -----------

(Dollars in Thousands)
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 87,158 $ 120,392
Accounts receivable......................................................... 61,027 55,250
Merchandise inventories..................................................... 560,001 495,285
Current deferred income taxes............................................... 27,226 7,677
Prepaid expenses............................................................ 17,406 15,967
---------- ----------
Total current assets.................................................... 752,818 694,571
---------- ----------
Property at cost:
Land and buildings.......................................................... 449,619 364,418
Leasehold costs and improvements............................................ 74,647 67,565
Furniture, fixtures and equipment........................................... 369,671 331,129
---------- ----------
893,937 763,112
Less: accumulated depreciation and amortization............................. 259,562 239,198
---------- ----------
634,375 523,914
---------- ----------
Property under capital leases.................................................. 3,319 3,319
Less: accumulated amortization.............................................. 2,447 2,281
---------- ----------
872 1,038
---------- ----------
Deferred income taxes.......................................................... 12,571 --
Other assets................................................................... 21,248 14,211
---------- ----------
Total assets............................................................ $1,421,884 $1,233,734
========== ==========
LIABILITIES
Current liabilities:
Accounts payable............................................................ $ 381,112 $ 335,060
Accrued expenses and other current liabilities.............................. 166,183 147,536
Accrued federal and state income taxes...................................... 33,352 31,807
Obligations under capital leases due within one year........................ 285 240
Contingent lease obligations due within one year............................ 44,068 --
---------- ----------
Total current liabilities............................................... 625,000 514,643
---------- ----------
Obligations under capital leases, less portion due within one year............. 1,558 1,828
Contingent lease obligations, less portion due within one year................. 62,142 --
Other noncurrent liabilities................................................... 46,617 44,453
Deferred income taxes.......................................................... -- 7,895
Commitments and contingencies.................................................. -- --

STOCKHOLDERS' EQUITY
Preferred stock, par value $.01, authorized 20,000,000 shares, no shares issued -- --
Common stock, par value $.01, authorized 180,000,000 shares, issued 74,410,190
shares....................................................................... 744 744
Additional paid-in capital..................................................... 68,574 75,583
Retained earnings.............................................................. 730,851 648,528
Treasury stock, at cost, 2,816,753 and 1,947,341 shares........................ (113,602) (59,940)
---------- ----------
Total stockholders' equity.............................................. 686,567 664,915
---------- ----------
Total liabilities and stockholders' equity.............................. $1,421,884 $1,233,734
========== ==========

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

BJ'S WHOLESALE CLUB, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Fiscal Year Ended
----------------------------------------

February 2, February 3, January 29,
2002 2001 2000
------------ ------------ ------------
(53 weeks)
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................................... $ 82,348 $ 131,501 $ 111,149
Adjustments to reconcile net income to net cash provided by operating
activities:
Loss on contingent lease obligations.............................. 106,359 -- --
Depreciation and amortization of property......................... 61,680 54,953 46,476
Loss on property disposals........................................ 447 654 1,295
Other noncash items (net)......................................... 130 115 117
Deferred income taxes............................................. (40,015) (2,149) 2,426
Tax benefit from exercise of stock options........................ 17,831 10,705 8,524
Increase (decrease) in cash due to changes in:
Accounts receivable........................................... (5,777) (3,252) (864)
Merchandise inventories....................................... (64,716) (48,514) (74,031)
Prepaid expenses.............................................. (1,439) (485) (2,875)
Other assets.................................................. (7,138) (2,804) (674)
Accounts payable.............................................. 46,052 (11,051) 87,571
Accrued expenses.............................................. 12,535 8,981 14,121
Accrued income taxes.......................................... 1,545 11,001 9,049
Contingent lease obligations.................................. (149) -- --
Other noncurrent liabilities.................................. 2,164 6,022 3,503
------------ ------------ ------------
Net cash provided by operating activities............................ 211,857 155,677 205,787
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable securities.................................... -- (5,001) (1,582)
Sale of marketable securities........................................ -- 5,001 --
Maturity of marketable securities.................................... -- -- 1,682
Property additions................................................... (166,312) (98,680) (87,475)
Proceeds from property disposals..................................... 2 301 125
------------ ------------ ------------
Net cash used in investing activities................................ (166,310) (98,379) (87,250)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of capital lease obligations............................... (225) (202) (180)
Repayment of long-term debt.......................................... -- -- (30,000)
Cash dividends paid on preferred stock of subsidiary................. (25) (25) (25)
Proceeds from sale and issuance of common stock...................... 17,243 9,659 7,712
Purchase of treasury stock........................................... (95,774) (64,346) (35,024)
------------ ------------ ------------
Net cash used in financing activities................................ (78,781) (54,914) (57,517)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents................. (33,234) 2,384 61,020
Cash and cash equivalents at beginning of year....................... 120,392 118,008 56,988
------------ ------------ ------------
Cash and cash equivalents at end of year............................. $ 87,158 $ 120,392 $ 118,008
============ ============ ============
Supplemental cash flow information:
Interest paid, net of capitalized interest........................ $ (96) $ (21) $ 203
Income taxes paid................................................. 86,655 74,470 58,696
Noncash financing and investing activities:
Treasury stock issued for compensation plans...................... 42,112 30,762 8,668

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

BJ'S WHOLESALE CLUB, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Common Stock Additional Treasury Stock Total
-------------- Paid-in Retained ----------------- Stockholders'
Shares Amount Capital Earnings Shares Amount Equity
------ ------- ----------- --------- ------ --------- --------------
(In Thousands)
Balance, January 30, 1999...... 73,805 $ 738 $ 78,376 $ 405,928 -- $ -- $ 485,042
Net income.................. -- -- -- 111,149 -- -- 111,149
Sale and issuance of common
stock..................... 605 6 7,582 -- 324 8,668 16,256
Cash dividends on preferred
stock of subsidiary....... -- -- -- (25) -- -- (25)
Purchase of treasury stock.. -- -- -- -- (1,191) (35,024) (35,024)
------ ------- ----------- --------- ------ --------- --------------
Balance, January 29, 2000...... 74,410 744 85,958 517,052 (867) (26,356) 577,398
Net income.................. -- -- -- 131,501 -- -- 131,501
Sale and issuance of common
stock..................... -- -- (10,375) -- 1,008 30,762 20,387
Cash dividends on preferred
stock of subsidiary....... -- -- -- (25) -- -- (25)
Purchase of treasury stock.. -- -- -- -- (2,088) (64,346) (64,346)
------ ------- ----------- --------- ------ --------- --------------
Balance, February 3, 2001...... 74,410 744 75,583 648,528 (1,947) (59,940) 664,915
Net income.................. -- -- -- 82,348 -- -- 82,348
Sale and issuance of common
stock..................... -- -- (7,009) -- 1,276 42,112 35,103
Cash dividends on preferred
stock of subsidiary....... -- -- -- (25) -- -- (25)
Purchase of treasury stock.. -- -- -- -- (2,146) (95,774) (95,774)
------ ------- ----------- --------- ------ --------- --------------
Balance, February 2, 2002...... 74,410 $ 744 $ 68,574 $ 730,851 (2,817) $(113,602) $ 686,567
====== ======= =========== ========= ====== ========= ==============

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

BJ'S WHOLESALE CLUB, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Accounting Policies

Basis of Presentation

The consolidated financial statements of BJ's Wholesale Club, Inc. (the
"Company") include the financial statements of all of the Company's
subsidiaries, all of whose common stock is wholly owned by the Company.

Fiscal Year

The Company's fiscal year ends on the Saturday closest to January 31. The
fiscal years ended February 2, 2002 and January 29, 2000 included 52 weeks. The
fiscal year ended February 3, 2001 included 53 weeks.

Cash Equivalents and Marketable Securities

The Company considers highly liquid investments with a maturity of three
months or less at time of purchase to be cash equivalents. Investments with
maturities exceeding three months are classified as marketable securities.

Merchandise Inventories

Inventories are stated at the lower of cost, determined under the average
cost method, or market. The Company recognizes the write-down of slow-moving or
obsolete inventory in cost of sales when such write-downs are probable and
estimable. The Company recognizes a reserve for inventory shrinkage for the
period between physical inventories based on historical results of previous
physical inventories, shrinkage trends or other judgments management believes
to be reasonable under the circumstances.

Property and Equipment

Property is depreciated by use of the straight-line method for financial
reporting purposes. Buildings are depreciated over 33 1/3 years. Leasehold
costs and improvements are amortized over the lease term or their estimated
useful life, whichever is shorter. Furniture, fixtures and equipment are
depreciated over three to ten years. Interest related to the development of
owned facilities is capitalized.

Normal repairs and maintenance are expensed as incurred.

Impairment of Long-lived Assets

The Company reviews the realizability of its long-lived assets whenever
events or changes in circumstances indicate that their carrying amounts may not
be recoverable. Current and expected operating results and cash flows and other
factors are considered in connection with the Company's reviews. For purposes
of evaluating the recoverability of long-lived assets, the recoverability test
is performed using undiscounted net cash flows of individual clubs and
consolidated net cash flows for long-lived assets not identifiable to
individual clubs. Impairment losses are measured as the difference between the
carrying amount and the fair value of the impaired assets.

Accounts Payable

The Company's banking arrangements provide for the daily replenishment of
vendor payable accounts as checks are presented. The balances of checks
outstanding in these bank accounts totaling $72,004,000 at February 2, 2002 and
$54,918,000 at February 3, 2001 are included in accounts payable on the balance
sheet.

Revenue Recognition

Preopening Costs

Preopening costs consist of direct incremental costs of opening or
relocating a facility and are charged to operations as incurred.

Advertising Costs

Advertising costs generally consist of promoting new memberships and new
store openings and also include television and radio advertising (some of which
is vendor-funded) during the holiday season. The Company expenses advertising
costs as incurred.

Stock-Based Compensation

The Company applies the accounting provisions prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
("APB 25") and related Interpretations in accounting for its stock-based
compensation.

Disclosures about Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of these instruments.

Recently Issued Accounting Standards

The Financial Accounting Standards Board issued four new standards in 2001:

Estimates Included in Financial Statements

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets

and liabilities and the disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

A. Spin-off of the Company from Waban Inc. and Related Party Transactions

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").

Pursuant to the spin-off, the Company and Waban entered into a Tax Sharing
Agreement to provide for the payment of taxes and the entitlement to tax
refunds for periods prior to the spin-off date. Each party has agreed to
indemnify the other in specified circumstances if certain events occurring
after July 28, 1997 cause the spin-off or certain related transactions to
become taxable.

After the spin-off, the Company provided certain services to Waban (which
has since changed its name to House2Home, Inc. (formerly HomeBase, Inc.)) at
rates negotiated in accordance with a Services Agreement entered into between
the Company and House2Home. The amounts received by the Company for these
services were not material.

B. Loss on Contingent Lease Obligations

In connection with the spin-off of Waban by The TJX Companies, Inc. ("TJX")
in 1989, Waban and TJX entered into an agreement pursuant to which Waban agreed
to indemnify TJX against any liabilities that TJX might incur with respect to
41 current House2Home leases as to which TJX was either a lessee or guarantor.
Pursuant to a subsequent agreement, BJ's agreed to indemnify TJX for 100% of
House2Home's lease liabilities 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. In 2001, the Company recorded pretax
charges of $106.4 million (including interest accretion charges of $1.4
million) for its estimated loss associated with House2Home leases. On a
post-tax basis, these charges totaled $63.8 million, or $.87 per diluted share.
This loss was based on the present value of rent liabilities under these
leases, including estimated real estate taxes and common area maintenance
charges, reduced by estimated income from the subleasing of these properties.
An annual discount rate of 6% was used to calculate the present value of these
lease 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 expire at various times up to
2016. The Company believes that these payments will not have a material impact
on its future financial condition or cash flows and that the liabilities
recorded in the financial statements adequately provide for its indemnification
obligations. However, there can be no assurance that 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.

C. Debt

minimum net worth and fixed charge coverage requirements and a maximum funded
debt-to-capital limitation, and prohibit the 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 expects to enter into a new credit agreement
before the current agreement expires.

The Company also maintains a separate line in the amount of $41 million for
letters of credit, primarily to support the purchase of inventories, of which
$12.8 million was outstanding at February 2, 2002, and an additional $20
million uncommitted credit line for short-term borrowings.

There were no bank borrowings outstanding at February 2, 2002 and February
3, 2001.

D. Commitments and Contingencies

The Company is obligated under long-term leases for the rental of real
estate and equipment, some of which are classified as capital leases pursuant
to SFAS No. 13, "Accounting for Leases." In addition, the Company is generally
required to pay insurance, real estate taxes and other operating expenses and,
in some cases, additional rentals based on a percentage of sales or other
factors. The real estate leases range up to 45 years and have varying renewal
options. The equipment leases range up to 5 years.

Future minimum lease payments as of February 2, 2002 were:

Capital Operating
Fiscal Years Ending Leases Leases
------------------- ------- ----------

(Dollars in Thousands)
February 1, 2003................................... $ 449 $ 90,391
January 31, 2004................................... 456 99,217
January 29, 2005................................... 456 98,334
January 28, 2006................................... 456 96,612
February 3, 2007................................... 456 93,247
Later years........................................ 114 1,058,536
------ ----------
Total minimum lease payments....................... 2,387 $1,536,337
==========

Less amount representing interest.................. 544
------
Present value of net minimum capital lease payments $1,843
======

Total minimum operating lease payments above have not been reduced by
minimum sublease rentals of $1,730,000 due in the future under noncancelable
subleases of BJ's properties.

Rental expense under operating leases (including contingent rentals, which
were not material) amounted to $76,895,000, $68,906,000 and $57,148,000 in
2001, 2000 and 1999 respectively.

The Company is involved in various legal proceedings that are typical of a
retail business. Although it is not possible to predict the outcome of these
proceedings or any related claims, the Company believes that such proceedings
or claims will not, individually or in the aggregate, have a material adverse
effect on its financial condition or results of operations.

E. Capital Stock

During 2001, the Board of Directors authorized the repurchase of an
additional $150 million of the Company's common stock in addition to the $150
million previously authorized. In 2001, the Company repurchased 2,145,700
shares of common stock for $95,774,000, or an average price of $44.64 per
share. The

Company repurchased 2,088,200 shares for $64,346,000 in 2000 and 1,190,702
shares for $35,024,000 in 1999. As of February 2, 2002, the Company's remaining
repurchase authorization was $73,926,000.

The Company has a shareholder rights plan, originally adopted in 1997 and
amended in 1999, pursuant to which shareholders are issued one-half of a Right
for each share of common stock. Each Right entitles the holder to purchase from
the Company 1/1000 share of Series A Junior Participating Preferred Stock
("Series A Preferred Stock") at a price of $120. The Company has designated
100,000 shares of Series A Preferred Stock for issuance under the shareholder
rights plan; none has been issued to date. Generally, the terms of the Series A
Preferred Stock are designed so that 1/1000 share of Series A Preferred Stock
is the economic equivalent of one share of the Company's common stock. The
Rights are exercisable only if a person acquires 20% or more of the Company's
common stock or commences a tender offer that would result in such person
owning 30% or more of the Company's common stock. In addition, in general, if
after a person has become a 20% owner, the Company is involved in a business
combination transaction in which it is not the surviving corporation or in
connection with which the Company's common stock is changed, or the Company
disposes of 50% or more of its assets or earning power, each Right that has not
previously been exercised or voided will entitle its holder to purchase that
number of shares of common stock of such other person which equals $120 divided
by one-half of the then current market price of such common stock. The Company
will generally be entitled to redeem the Rights at $.01 per Right at any time
until the tenth business day following public announcement that a person has
become a 20% owner. The Rights expire on July 10, 2007, unless earlier redeemed
or exchanged.

The Company has authorized 20,000,000 shares of preferred stock, $.01 par
value, of which no shares have been issued.

In December 1997, one of the Company's subsidiaries issued 126 shares of
non-voting preferred stock to individual stockholders at $2,200 per share.
These shares are each entitled to receive ongoing annual dividends of $200 per
share. The minority interest in this subsidiary is equal to the preferred
shares' preference in an involuntary liquidation of $277,200 and is included in
other noncurrent liabilities in the Company's consolidated balance sheets at
February 2, 2002 and February 3, 2001.

F. Stock Incentive Plans

Under its 1997 Stock Incentive Plan, the Company has granted certain key
employees options to purchase common stock at prices equal to 100% of market
price on the grant date. These options, which expire ten years from the grant
date, are generally exercisable 25% per year starting one year after the grant
date. The maximum number of shares of common stock issuable under this plan is
5,249,402 shares, plus shares subject to awards granted under the BJ's
Wholesale Club, Inc. 1997 Replacement Stock Incentive Plan (the "Replacement
Plan") which are not actually issued because such awards expire or are
canceled. Under the Replacement Plan, which expired on January 28, 1998, BJ's
employees who held Waban stock options and restricted stock were granted
replacement BJ's options and restricted stock, which preserved the same
inherent value, vesting terms and expiration dates as the Waban awards they
replaced in connection with the spin-off.

Under its 1997 Director Stock Option Plan, BJ's external directors are
granted options to purchase common stock at prices equal to 100% of market
price on the grant date. These options expire ten years from the grant date and
are exercisable in three equal annual installments beginning on the first day
of the month which includes the first anniversary of the date of grant. A
maximum of 300,000 shares may be issued under the 1997 Director Stock Incentive
Plan.

As of February 2, 2002 and February 3, 2001, respectively, 633,570 and
1,349,287 shares were reserved for future stock awards under the Company's
stock incentive plans.

The Company applies APB 25 and related Interpretations in accounting for its
stock-based compensation. Total pretax compensation cost recognized in the
statements of income for stock-based employee compensation awards was $29,000
in 2001, $23,000 in 2000 and $19,000 in 1999 and consisted entirely of
restricted stock

expense, which is charged to income ratably over the periods during which the
restrictions lapse. 2,000 shares of restricted stock were issued during 2000 at
a weighted-average grant-date fair value of $37.06. No restricted stock was
issued in 2001 or 1999. No compensation cost has been recognized under APB 25
for the Company's stock options because the exercise price equaled the market
price of the underlying stock on the date of grant.

Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, "Accounting for Stock-Based Compensation," and has
been determined as if the Company had accounted for its stock options under the
fair value method of that statement. The fair value for these options was
estimated at the grant date using the Black-Scholes option pricing model with
the following weighted-average assumptions: risk-free interest rates of 4.00%,
6.12% and 6.19% in 2001, 2000 and 1999, respectively; volatility factor of the
expected market price of the Company's common stock of .40 in 2001 and .42 in
2000 and 1999; and expected life of the options of 5 years in 2001, 2000 and
1999. No dividends were expected. The weighted-average fair value of options
granted was $18.75 in 2001, $16.21 in 2000 and $13.20 in 1999.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.

For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:

Fiscal Year Ended
--------------------------------------
February 2, February 3, January 29,
2002 2001 2000
----------- ----------- -----------

(Dollars in Thousands except Per Share
Amounts)
Pro forma net income......... $74,636 $126,161 $107,617
Pro forma earnings per share:
Basic....................... $ 1.03 $ 1.73 $ 1.46
Diluted..................... $ 1.01 $ 1.70 $ 1.43

The effects of applying the provisions of SFAS No. 123 for pro forma
disclosure are not necessarily representative of the effects on reported net
income for future years because options vest over several years and additional
awards generally are made each year.

Presented below is a summary of the status of stock option activity and
weighted-average exercise prices for the last three fiscal years (number of
options in thousands):

Fiscal Year Ended
--------------------------------------------------
February 2, 2002 February 3, 2001 January 29, 2000
---------------- ---------------- ----------------
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- -------- ------- --------

Outstanding, beginning of year 5,421 $20.47 5,143 $14.45 5,392 $11.58
Granted....................... 758 45.33 1,361 35.21 699 28.51
Exercised..................... (1,276) 13.51 (1,006) 9.60 (929) 8.31
Forfeited..................... (43) 30.82 (77) 21.48 (19) 17.11
------ ------ -----
Outstanding, end of year...... 4,860 26.08 5,421 20.47 5,143 14.45
====== ====== =====
Exercisable, end of year...... 2,609 17.72 2,757 12.69 2,914 10.08
====== ====== =====

Additional information related to stock options outstanding at February 2,
2002 is presented below (number of options in thousands):

Options Outstanding Options Exercisable
--------------------------------- ---------------------
Weighted-
Weighted- Average Weighted-
Average Remaining Average
Number Exercise Contractual Number Exercise
Range of Exercise Prices Outstanding Price Life (yrs.) Exercisable Price
------------------------ ----------- --------- ----------- ----------- ---------

$ 5.53 - $ 9.45.... 653 $ 8.49 3.6 653 $ 8.49
$10.22 - $15.06...... 787 13.59 5.2 787 13.59
$18.16 - $27.94...... 904 18.63 6.6 585 18.59
$29.75 - $41.33...... 1,766 33.78 8.3 584 32.74
$45.30 - $47.60...... 750 45.35 9.6 -- --
----- -----
$ 5.53 - $47.60..... 4,860 26.08 7.1 2,609 17.72
===== =====

G. Earnings Per Share

The following details the calculation of earnings per share for the last
three fiscal years:

Fiscal Year Ended
-----------------------------------------------
February 2, February 3, January 29,
2002 2001 2000
----------- ----------- -----------
(Dollars in Thousands except Per Share Amounts)

Net income........................................... $ 82,348 $ 131,501 $ 111,149
Less: Preferred stock dividends...................... 25 25 25
----------- ----------- -----------
Income available to common stockholders.............. $ 82,323 $ 131,476 $ 111,124
=========== =========== ===========
Weighted-average number of common shares outstanding,
used for basic computation......................... 72,519,032 72,870,668 73,657,016
Plus: Incremental shares from assumed conversion of
stock options...................................... 1,462,116 1,509,876 1,734,473
----------- ----------- -----------
Weighted-average number of common and dilutive
potential common shares outstanding................ 73,981,148 74,380,544 75,391,489
=========== =========== ===========
Basic earnings per share............................. $ 1.14 $ 1.80 $ 1.51
=========== =========== ===========
Diluted earnings per share........................... $ 1.11 $ 1.77 $ 1.47
=========== =========== ===========

Options to purchase 942,800 shares at an exercise price of $37.06 and
589,700 shares at an exercise price of $29.75 were outstanding at February 3,
2001 and January 29, 2000, respectively, but were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the common shares for the years
then ended.

H. Income Taxes

The provision for income taxes includes the following:

Fiscal Year Ended
-----------------------------------
February 2, February 3, January 29,
2002 2001 2000
----------- ----------- -----------
(Dollars in Thousands)

Federal:
Current................ $ 77,063 $73,526 $57,153
Deferred............... (32,478) (1,094) 1,684
State:
Current................ 11,137 10,945 10,592
Deferred............... (7,537) (1,055) 742
-------- ------- -------
Total income tax provision $ 48,185 $82,322 $70,171
======== ======= =======

The following is a reconciliation of the statutory federal income tax rates
and the effective income tax rates:

Fiscal Year Ended
----------------------------------
February 2, February 3, January 29,
2002 2001 2000
----------- ----------- -----------

Statutory federal income tax rates............ 35% 35% 35%
State income taxes, net of federal tax benefit 2 4 4
-- -- --
Effective income tax rates.................... 37% 39% 39%
== == ==

Significant components of the Company's deferred tax assets and liabilities
as of February 2, 2002 and February 3, 2001 were as follows:

February 2, February 3,
2002 2001
----------- -----------
(Dollars in Thousands)

Deferred tax assets:
Contingent lease obligations........... $42,484 $ --
Self-insurance reserves................ 14,046 13,004
Rental step liabilities................ 5,104 5,208
Compensation and benefits.............. 6,556 6,354
Other.................................. 7,411 5,885
------- -------
Total deferred tax assets.......... 75,601 30,451
------- -------
Deferred tax liabilities:
Accelerated depreciation - property.... 30,840 26,096
Real estate taxes...................... 2,391 2,210
Other.................................. 2,573 2,363
------- -------
Total deferred tax liabilities..... 35,804 30,669
------- -------
Net deferred tax assets (liabilities)..... $39,797 $ (218)
======= =======

The Company has not established a valuation allowance because its deferred
tax assets can be realized by offsetting deferred tax liabilities and future
taxable income, which management believes will more likely than not be earned,
based on the Company's historical earnings record and projected future earnings.

I. Pensions

Under the Company's 401(k) Savings plans, participating employees may make
pretax contributions up to 15% of covered compensation. The Company matches
employee contributions at 100% of the first one percent of covered compensation
and 50% of the next four percent. The Company's expense under these plans was
$3,245,000, $3,166,000 and $2,657,000 in 2001, 2000 and 1999, respectively.

The Company has a non-contributory defined contribution retirement plan for
certain key employees. Under this plan, the Company funds annual retirement
contributions for the designated participants on an after-tax basis. For the
last three years, the Company's contributions equaled 5% of the participants'
base salary. Participants become fully vested in their contribution accounts at
the end of the fiscal year in which they complete four years of service. The
Company's pretax expense under this plan was $991,000, $990,000 and $856,000 in
2001, 2000 and 1999, respectively.

J. Postretirement Medical Benefits

The Company has a defined benefit postretirement medical plan which covers
employees and their spouses who retire after age 55 with at least 10 years of
service, who are not eligible for Medicare, and who participated in a
Company-sponsored medical plan. Amounts contributed by retired employees under
this plan are based on years of service prior to retirement. The plan is not
funded.

Net periodic postretirement medical benefit cost included the following
components:

Fiscal Year Ended
----------------------------------
February 2, February 3, January 29,
2002 2001 2000
----------- ----------- -----------
(Dollars in Thousands)

Service cost............................ $ 225 $ 185 $ 165
Interest cost........................... 91 67 62
Amortization of unrecognized (gain) loss -- (6) 8
----- ----- -----
Net periodic postretirement benefit cost $ 316 $ 246 $ 235
===== ===== =====
Discount rate used to determine cost.... 7.00% 7.75% 6.25%

The following table sets forth the funded status of the Company's
postretirement medical plan and the amount recognized in the balance sheets at
February 2, 2002 and February 3, 2001:

February 2, February 3,
2002 2001
----------- -----------
(Dollars in Thousands)

Unfunded accumulated postretirement benefit obligation (APBO).... $1,955 $1,309
Unrecognized net loss............................................ (369) (35)
------ ------
Accrued postretirement benefit cost included in balance sheets... $1,586 $1,274
====== ======
Discount rate used to value APBO................................. 6.75% 7.00%
Weighted-average health care cost trend rate for valuing year-end
obligations:
Initial trend rate............................................ 11.00% 11.00%
Ultimate trend rate........................................... 5.00% 5.00%
Year ultimate trend rate to be attained....................... 2008 2003

The following tables present reconciliations of the APBO and plan assets for
the fiscal years ended February 2, 2002 and February 3, 2001:

Fiscal Year Ended
----------------------
February 2, February 3,
2002 2001
----------- -----------
(Dollars in Thousands)

Reconciliation of APBO:
APBO at beginning of year...................... $1,309 $1,081
Service cost................................... 225 185
Interest cost.................................. 91 67
Contributions by plan participants............. 9 8
Actuarial (gains) losses....................... 333 (21)
Benefits paid.................................. (12) (11)
------ ------
APBO at end of year............................ $1,955 $1,309
====== ======
Reconciliation of plan assets:
Fair value of plan assets at beginning of year. $ -- $ --
Employer contributions......................... 3 3
Contributions by plan participants............. 9 8
Benefits paid.................................. (12) (11)
------ ------
Fair value of plan assets at end of year....... $ -- $ --
====== ======

The following table sets forth the impact of changes in the assumed health
care cost trend rates for the fiscal year ended February 2, 2002:

Dollars in
Thousands
----------

Impact of 1% increase in health care cost trend on:
Aggregate of service and interest costs......... $ 36
APBO at end of year............................. 209

Impact of 1% decrease in health care cost trend on:
Aggregate of service and interest costs......... $ (33)
APBO at end of year............................. (189)

K. Interest

The following details the components of interest income, net for the last
three fiscal years:

Fiscal Year Ended
----------------------------------
February 2, February 3, January 29,
2002 2001 2000
----------- ----------- -----------
(Dollars in Thousands)

Interest income................... $3,945 $6,028 $4,045
Capitalized interest.............. 509 454 302
Interest expense on debt.......... (317) (302) (317)
Interest expense on capital leases (203) (225) (245)
------ ------ ------
Interest income, net.............. $3,934 $5,955 $3,785
====== ====== ======

L. Accrued Expenses and Other Current Liabilities

The major components of accrued expenses and other current liabilities are
as follows:

February 2, February 3,
2002 2001
----------- -----------
(Dollars in Thousands)

Employee compensation......................................................... $ 28,342 $ 26,191
Deferred membership fee income................................................ 54,973 47,368
Sales and use taxes, self-insurance reserves, rent, utilities, advertising and
other....................................................................... 82,868 73,977
-------- --------
$166,183 $147,536
======== ========

The following table summarizes membership fee activity for each of the last
three fiscal years:

Fiscal Year Ended
----------------------------------
February 2, February 3, January 29,
2002 2001 2000
----------- ----------- -----------
(Dollars in Thousands)

Deferred membership fee income, beginning of year $ 47,368 $ 40,632 $ 35,246
Cash received from members....................... 114,283 98,048 84,648
Revenue recognized in earnings................... (106,678) (91,312) (79,262)
--------- -------- --------
Deferred membership fee income, end of year...... $ 54,973 $ 47,368 $ 40,632
========= ======== ========

M. Selected Quarterly Financial Data (Unaudited)

First Second Third Fourth
Quarter Quarter Quarter Quarter (b)
---------- ---------- ---------- -----------
(Dollars in Thousands except Per Share Amounts)

Fiscal year ended February 2, 2002:
Net sales....................... $1,134,172 $1,277,176 $1,238,414 $1,511,402
Total revenues.................. 1,162,033 1,305,710 1,268,851 1,543,136
Gross earnings (a).............. 120,872 144,868 137,602 189,959
Net income (loss)............... 22,963 36,497 (33,464)(c) 56,352(d)
Per common share, diluted....... 0.31 0.49 (0.46)(c) 0.77(d)

Fiscal year ended February 3, 2001:
Net sales....................... $1,021,073 $1,177,253 $1,151,506 $1,478,441
Total revenues.................. 1,045,686 1,202,228 1,178,153 1,506,028
Gross earnings (a).............. 107,776 131,266 128,955 187,647
Net income...................... 18,094 31,220 27,391 54,796
Per common share, diluted....... 0.24 0.42 0.37 0.74

--------
(a) Gross earnings equals total revenues less cost of sales, including buying
and occupancy costs.
(b) The fourth quarter of the fiscal year ended February 3, 2001 included 14
weeks.
(c) The third quarter of the fiscal year ended February 2, 2002 included a net
loss on contingent lease obligations of $63.0 million, or $0.87 per diluted
share.
(d) The fourth quarter of the fiscal year ended February 2, 2002 included a net
loss on contingent lease obligations of $0.8 million, or $0.01 per diluted
share.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of BJ's Wholesale Club, Inc.:

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of BJ's Wholesale Club, Inc. and its subsidiaries at February 2, 2002
and February 3, 2001, and the results of their operations and their cash flows
for each of the three years in the period ended February 2, 2002, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

PRICEWATERHOUSECOOPERS LLP

/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 4, 2002

REPORT OF MANAGEMENT

The financial statements and related financial information in this annual
report have been prepared by and are the responsibility of management. The
financial statements were prepared in accordance with accounting principles
generally accepted in the United States of America and necessarily include
amounts which are based upon judgments and estimates made by management.

The Company maintains a system of internal controls designed to provide, at
appropriate cost, reasonable assurance that assets are safeguarded,
transactions are executed in accordance with management's authorization and the
accounting records may be relied upon for the preparation of financial
statements. The accounting and control systems are continually reviewed by
management and modified as necessary in response to changing business
conditions and the recommendations of the Company's internal auditors and
independent public accountants.

The Audit Committee, comprised of members of the Board of Directors who are
neither officers nor employees, meets periodically with management, the
internal auditors and the independent public accountants to review matters
relating to the Company's financial reporting, the adequacy of internal
accounting control and the scope and results of audit work. The internal
auditors and the independent public accountants have free access to the
Committee.

The financial statements have been audited by PricewaterhouseCoopers LLP,
whose opinion as to their fair presentation in accordance with accounting
principles generally accepted in the United States of America appears above.

John J. Nugent Frank D. Forward
/s/ John J. Nugent /s/ Frank D. Forward
President and Executive Vice President and
Chief Executive Officer Chief Financial Officer

March 4, 2002

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

Not applicable.

PART III

Item 10. Directors and Executive Officers of the Registrant

The Company will file with the Securities and Exchange Commission ("SEC") a
definitive Proxy Statement no later than 120 days after the close of its fiscal
year ended February 2, 2002 (the "Proxy Statement"). The information required
by this Item and not given in Item 4A, Executive Officers of the Registrant, is
incorporated by reference from the Proxy Statement under "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance."

Item 11. Executive Compensation

The information required by this Item is incorporated by reference from the
Proxy Statement. However, information under "Executive Compensation Committee's
Report on Executive Compensation" in the Proxy Statement is not so incorporated.

Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

The information required by this Item is incorporated by reference from the
Proxy Statement under "Beneficial Ownership of Common Stock."

Item 13. Certain Relationships and Related Transactions

The information required by this Item is incorporated by reference from the
Proxy Statement under "Relationship with House2Home; Conflicts of Interest."

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

A. The Financial Statements filed as part of this report are listed and indexed
on page 19. Schedules have been omitted because they are not applicable or the
required information has been included elsewhere in this report.

B. Listed below are all Exhibits filed as part of this report.

Exhibit
No. Exhibit
------- -------

3.1 Amended and Restated Certificate of Incorporation (1)

3.2 Amended and Restated By-Laws (8)

4.1 Rights Agreement, dated as of July 10, 1997, between the Company and
First Chicago Trust Company of New York (2)

4.1a Amendment dated as of February 4, 1999 to Rights Agreement dated
July 10, 1997 (7)

4.2 Specimen Certificate of Common Stock, $.01 par value per share (5)

10.1 Separation and Distribution Agreement, dated as of July 10, 1997
between the Company and Waban Inc. (3)

10.2 Services Agreement, dated as of July 28, 1997, between the Company and
Waban Inc. (3)

10.3 Tax Sharing Agreement, dated as of July 28, 1997, between the Company
and Waban Inc. (3)

10.4 Employee Benefits Agreement, dated as of July 28, 1997, between the
Company and Waban Inc. (3)

10.5 BJ's Wholesale Club, Inc. Management Incentive Plan* (4)

10.6 BJ's Wholesale Club, Inc. Growth Incentive Plan* (4)

10.7 BJ's Wholesale Club, Inc. 1997 Director Stock Option Plan, as
amended* (10)

10.8 BJ's Wholesale Club, Inc. Executive Retirement Plan, as amended* (11)

10.9 BJ's Wholesale Club, Inc. 1997 Replacement Stock Incentive Plan* (4)

10.10 BJ's Wholesale Club, Inc. 1997 Stock Incentive Plan, as amended* (9)

Exhibit
No. Exhibit
------- -------

10.11 BJ's Wholesale Club, Inc. General Deferred Compensation Plan* (4)

10.12 Employment Agreement, dated as of July 28, 1997 with Herbert J.
Zarkin* (4)

10.12a Amendment effective September 14, 2000 to July 28, 1997 Employment
Agreement with Herbert J. Zarkin*(12)

10.13 Employment Agreement, dated as of July 28, 1997 with John J.
Nugent* (4)

10.13a Amended and Restated Change of Control Severance Agreement between the
Company and John J. Nugent* (10)

10.14 Employment Agreement, dated as of July 28, 1997 with Frank D.
Forward* (4)

10.15 Employment Agreement, dated as of July 28, 1997 with Michael T.
Wedge* (4)

10.16 Employment Agreement, dated as of July 28, 1997 with Laura J. Sen* (4)

10.17 Employment Agreement, dated as of July 28, 1997 with Sarah M.
Gallivan* (4)

10.18 Amended and Restated Form of Change of Control Severance Agreement
between the Company and officers of the Company* (10)

10.19 Form of Indemnification Agreement between the Company and officers of
the Company* (4)

10.20 BJ's Wholesale Club, Inc. Change of Control Severance Benefit Plan for
Key Employees, as amended* (11)

10.21 Credit Agreement, dated July 9, 1997, among the Company and certain
banks (4)

10.21a First Amendment dated as of December 19, 1997 to Credit Agreement dated
July 9, 1997 (6)

10.21b Second Amendment dated as of September 21, 1999 to Credit Agreement
dated July 9, 1997 (10)

10.21c Third Amendment dated as of September 21, 2001 to Credit Agreement
dated July 9, 1997 (13)

10.22 Indemnification Agreement, dated as of April 18, 1997, between the
Company and The TJX Companies, Inc. (5)

21.0 Subsidiaries of the Company

23.0 Consent of Independent Accountants

*Management contract or other compensatory plan or arrangement.

(1) Incorporated herein by reference to the Company's Registration
Statement on Form S-8, (Commission File No. 333-31015)

(2) Incorporated herein by reference to the Company's Registration
Statement on Form 8-A, dated July 10, 1997 (Commission File
No. 001-13143)

(3) Incorporated herein by reference to the Current Report on Form 8-K,
dated July 28, 1997, of HomeBase, Inc. (Commission File No. 001-10259)

(4) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended July 26, 1997 (Commission File
No. 001-13143)

(5) Incorporated herein by reference to the Company's Registration
Statement on Form S-1 (Commission File No. 333-25511)

(6) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1998 (Commission file
No. 001-13143)

(7) Incorporated herein by reference to the Company's Amendment No. 1 to
Registration Statement on Form 8-A/A, dated March 5, 1999 (Commission
File No. 001-13143)

(8) Incorporated herein by reference to the Company's Current Report on
Form 8-K, dated as of April 7, 1999 (Commission File No. 001-13143)

(9) Incorporated herein by reference to the Company's Definitive Schedule
14A filed April 23, 1999 (Commission File No. 001-13143)

(10) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended October 30, 1999 (Commission
File No. 001-13143)

(11) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the fiscal year ended January 29, 2000 (Commission File
No. 001-13143)

(12) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended October 28, 2000 (Commission
File No. 001-13143)

(13) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended November 3, 2001 (Commission
File No. 001-13143)

C. The Registrant did not file any reports on Form 8-K during the last quarter
of the period covered by this Report.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Dated: April 18, 2002
/s/ JOHN J. NUGENT
----------------------
John J. Nugent
President and Chief
Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.

/s/ JOHN J. NUGENT /s/ HERBERT J. ZARKIN
-------------------------------------------- ------------------------------------------------------
John J. Nugent, President Herbert J. Zarkin, Chairman
Chief Executive Officer and Director of the Board and Director
(Principal Executive Officer)

/s/ FRANK D. FORWARD /s/ S. JAMES COPPERSMITH
-------------------------------------------- ------------------------------------------------------
Frank D. Forward, Executive Vice President S. James Coppersmith, Director
and Chief Financial Officer
(Principal Financial and Accounting Officer)

/s/ RONALD R. DION /s/ KERRY L. HAMILTON
-------------------------------------------- ------------------------------------------------------
Ronald R. Dion, Director Kerry L. Hamilton, Director

/s/ BERT N. MITCHELL /s/ THOMAS J. SHIELDS
-------------------------------------------- ------------------------------------------------------
Bert N. Mitchell, Director Thomas J. Shields, Director

/s/ LORNE R. WAXLAX /s/ EDWARD J. WEISBERGER
-------------------------------------------- ------------------------------------------------------
Lorne R. Waxlax, Director Edward J. Weisberger, Director

Dated: April 18, 2002