SEC Info - BJ’s Wholesale Club Holdings, Inc.

Net sales

i 15,096,913

i 12,888,556

i 12,724,454

Membership fee income

i 333,104

i 302,151

i 282,893

Total revenues

i 15,430,017

i 13,190,707

i 13,007,347

Cost of sales

i 12,451,061

i 10,763,926

i 10,646,452

Selling, general and administrative expenses

i 2,326,755

i 2,059,430

i 2,051,324

Pre-opening expense

i 9,809

i 15,152

i 6,118

Operating income

i 642,392

i 352,199

i 303,453

Interest expense, net

i 84,385

i 108,230

i 164,535

Income from continuing operations before income taxes

i 558,007

i 243,969

i 138,918

Provision for income taxes

i 136,825

i 56,212

i 11,826

Income from continuing operations

i 421,182

i 187,757

i 127,092

Income (loss) from discontinued operations, net of income taxes

( i 152

)

( i 581

)

i 169

Net income

i 421,030

i 187,176

i 127,261

Income per share attributable to common stockholders — basic:

Income from continuing operations

i 3.09

i 1.38

i 1.09

Loss from discontinued operations

i —

( i 0.01

)

i —

Net income

i 3.09

i 1.37

i 1.09

Income per share attributable to common stockholders — diluted:

Income from continuing operations

i 3.03

i 1.35

i 1.05

Loss from discontinued operations

i —

Net income

i 3.03

i 1.35

i 1.05

Weighted-average number of common shares outstanding:

Basic

i 136,111

i 136,174

i 116,599

Diluted

i 138,876

i 139,109

i 121,135

Other comprehensive income (loss):

Postretirement medical plan adjustment, net of income tax of $12, $385 and $94, respectively

( i 33

)

( i 990

)

i 240

Amounts reclassified from other comprehensive income (loss), net of tax

i 6,081

i -

Unrealized gain (loss) on cash flow hedge, net of income tax of $4, $5,554 and $5,454, respectively

i 10

( i 14,281

)

( i 13,956

)

Total other comprehensive income (loss)

i 6,058

( i 15,271

)

( i 13,716

)

Total comprehensive income

i 427,088

i 171,905

i 113,545

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

BJ’S WHOLESALE CLUB HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CONTINGENTLY REDEEMABLE COMMON STOCK AND

STOCKHOLDERS’ EQUITY (DEFICIT)

(Amount in thousands)

Contingently Redeemable Common Stock Common Stock Additional Paid-in Accumulated Accumulated Other Comprehensive Treasury Stock Total Stockholders’ Equity

Shares Amount Shares Amount Capital Deficit Loss Shares Amount (Deficit)

Balance, February 3, 2018

i 1,456

i 10,438

i 87,073

i 871

i 2,883

( i 1,036,012

)

i 2,401

—

( i 1,029,857

)

Net income

—

i 127,261

—

i 127,261

Postretirement medical plan adjustment, net of tax

—

i 240

—

i 240

Unrealized loss on cash flow hedge, net of tax

—

( i 13,956

)

—

( i 13,956

)

Dividends paid

—

( i 25

)

—

( i 25

)

Common stock issued for public offering, net of related fees

—

i 43,125

i 431

i 685,458

—

i 685,889

Common stock issued under stock incentive plans

—

i 4,875

i 49

( i 49

)

—

Stock reclassification as a result of public offering

( i 1,736

)

( i 13,202

)

i 1,736

i 17

i 13,185

—

i 13,202

Common stock issued related to follow-on offering

—

i 1,290

i 13

( i 13

)

—

Common stock repurchased upon vesting of stock awards

—

( i 782

)

( i 19,109

)

( i 19,109

)

Stock compensation expense

—

i 57,677

—

i 57,677

Options exercised prior to public offering

i 280

i 2,792

—

( i 2,210

)

—

( i 2,210

)

Call of shares prior to public offering

—

( i 28

)

—

( i 12

)

—

( i 12

)

Net shares used to pay tax withholdings upon option exercise

—

( i 22,883

)

—

( i 22,883

)

Net cash received on option exercises

—

i 8,061

—

i 8,061

Cumulative effect of change in accounting principle

—

( i 6,362

)

—

( i 6,362

)

Balance, February 2, 2019

—

i 138,099

i 1,381

i 742,072

( i 915,113

)

( i 11,315

)

( i 782

)

( i 19,109

)

( i 202,084

)

Net income

—

i 187,176

i —

—

i 187,176

Postretirement medical plan adjustment, net of tax

—

( i 990

)

—

( i 990

)

Unrealized loss on cash flow hedge, net of tax

—

( i 14,281

)

—

( i 14,281

)

Dividends paid

—

( i 25

)

—

( i 25

)

Common stock issued under stock incentive plans

—

i 2,536

i 25

( i 25

)

—

Common stock issued under ESPP plan

—

i 88

i 1

i 1,728

—

i 1,729

Stock compensation expense

—

i 18,796

—

i 18,796

Net cash received on option exercises

—

i 11,072

—

i 11,072

Treasury stock purchases

—

( i 2,643

)

( i 67,305

)

( i 67,305

)

Cumulative effect of change in accounting principle

—

i 11,568

—

i 11,568

Balance, February 1, 2020

—

i 140,723

i 1,407

i 773,618

( i 716,369

)

( i 26,586

)

( i 3,425

)

( i 86,414

)

( i 54,344

)

Net income

—

i 421,030

—

i 421,030

Postretirement medical plan adjustment, net of tax

—

( i 33

)

—

( i 33

)

Unrealized loss on cash flow hedge, net of tax

—

i 10

—

i 10

Amounts reclassified from other comprehensive income, net of tax — — — — — — i 6,081 — — i 6,081

Dividends paid

—

( i 25

)

—

( i 25

)

Common stock issued under stock incentive plans

—

i 2,598

i 26

( i 26

)

—

Common stock issued under ESPP plan

—

i 107

i 1

i 2,675

—

i 2,676

Stock compensation expense

—

i 32,150

—

i 32,150

Net cash received on option exercises

—

i 17,985

—

i 17,985

Treasury stock purchases

—

( i 2,811

)

( i 106,203

)

( i 106,203

)

Balance, January 30, 2021

—

i 143,428

i 1,434

i 826,377

( i 295,339

)

( i 20,528

)

( i 6,236

)

( i 192,617

)

i 319,327

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

BJ’S WHOLESALE CLUB HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

Fiscal Year Ended

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

i 421,030

i 187,176

i 127,261

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

i 167,454

i 157,000

i 162,223

Amortization of debt issuance costs and accretion of original issues discount

i 4,362

i 5,172

i 6,556

Debt extinguishment and refinancing charges

i 4,077

i 2,167

i 23,602

Impairment charges

i —

i 13,306

i 3,962

Stock-based compensation expense

i 32,150

i 18,796

i 57,677

Deferred income tax provision (benefit)

( i 9,197

)

i 10,246

( i 12,314

)

Changes in operating leases and other non-cash items

i 9,389

i 2,028

i 2,362

Increase (decrease) in cash due to changes in:

Accounts receivable

i 33,634

( i 12,053

)

( i 3,976

)

Merchandise inventories

( i 124,193

)

( i 29,196

)

( i 33,168

)

Prepaid expenses and other current assets

( i 3,496

)

i 22,169

i 26,338

Other assets

( i 1,682

)

i 1,710

i 874

Accounts payable

i 201,663

( i 30,468

)

i 64,932

Accrued expenses

i 97,690

i 15,640

i 3,303

Other non-current liabilities

i 35,665

( i 8,550

)

( i 2,529

)

Net cash provided by operating activities

i 868,546

i 355,143

i 427,103

CASH FLOWS FROM INVESTING ACTIVITIES

Additions to property and equipment, net of disposals

( i 218,333

)

( i 196,901

)

( i 145,913

)

Proceeds from sale leaseback transactions

i 25,893

i 21,606

i —

Net cash used in investing activities

( i 192,440

)

( i 175,295

)

( i 145,913

)

CASH FLOWS FROM FINANCING ACTIVITIES

Payments on long term debt

( i 3,297

)

( i 14,829

)

( i 36,167

)

Paydown of the First Lien Term Loan and extinguishment of Second Lien Term Loan

( i 510,000

)

( i 200,000

)

( i 975,633

)

Proceeds from ABL facility

i 996,000

i 1,390,000

i 1,587,000

Payments on ABL facility

( i 1,064,000

)

( i 1,301,000

)

( i 1,515,000

)

Debt issuance costs paid

i —

( i 21

)

( i 982

)

Dividends paid

( i 25

)

( i 25

)

( i 25

)

Capital lease and financing obligations payments

( i 984

)

( i 612

)

( i 691

)

Net cash received (paid) from stock option exercises

i 17,985

i 11,072

( i 14,240

)

Net cash received from Employee Stock Purchase Program (ESPP)

i 2,676

i 1,728

i —

Acquisition of treasury stock

( i 106,203

)

( i 67,305

)

( i 19,109

)

Proceeds from IPO, net of underwriters' discount and commission

i —

i 690,970

Payment of IPO costs

i —

( i 5,081

)

Proceeds from financing obligations

i 5,056

i 4,202

i —

Other financing activities

i —

( i 40

)

Net cash used in financing activities

( i 662,792

)

( i 176,790

)

( i 288,998

)

Net increase (decrease) in cash and cash equivalents

i 13,314

i 3,058

( i 7,808

)

Cash and cash equivalents, beginning of period

i 30,204

i 27,146

i 34,954

Cash and cash equivalents, end of period

i 43,518

i 30,204

i 27,146

Supplemental cash flow information:

Interest paid

i 65,274

i 96,861

i 152,882

Income taxes paid

i 154,668

i 40,351

i 15,845

Non-cash financing and investing activities:

Lease liabilities arising from obtaining right-of-use assets

i 154,714

i 166,602

i —

Conversion of contingently redeemable common stock into common stock

i —

i 13,202

Property additions included in accrued expenses

i 13,131

i 11,247

i 13,849

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

BJ’S WHOLESALE CLUB HOLDINGS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.	Description of Business

BJ’s Wholesale Club Holdings, Inc. and its wholly-owned subsidiaries (the "Company" or "BJ’s") is a leading warehouse club operator concentrated primarily on the east coast of the United States of America. As of January 30, 2021, BJ’s operated i 221 warehouse clubs in i 17 states.

BJ’s business is moderately seasonal in nature. Historically, the Company has realized a slightly higher portion of net sales, operating income and cash flows from operations in the second and fourth fiscal quarters, attributable primarily to the impact of the summer and year-end holiday season, respectively. The quarterly results have been and will continue to be affected by the timing of new club openings and their associated pre-opening expenses. As a result of these factors, the financial results for any single quarter or for periods of less than a year are not necessarily indicative of the results that may be achieved for a full fiscal year.

BJ's Wholesale Club, Inc., the primary operating subsidiary of the registrant, was previously an independent publicly traded corporation until its acquisition on September 30, 2011, by a subsidiary of Beacon Holding Inc., a company incorporated on June 24, 2011 by investment funds affiliated with or advised by CVC Capital Partners ("CVC") and Leonard Green & Partners, L.P. ("Leonard Green") (the "Sponsors") for the purpose of the acquisition. On February 23, 2018, Beacon Holding Inc. changed its name to BJ's Wholesale Club Holdings, Inc. On July 2, 2018, BJ's Wholesale Club Holdings, Inc. became a publicly traded entity in connection with its IPO of common stock and listing on the New York Stock Exchange ("NYSE") under the ticker symbol "BJ".

The novel coronavirus ("COVID-19") pandemic has severely impacted the economies of the U.S. and other countries around the world. In the preparation of these financial statements and related disclosures we have assessed the impact that COVID-19 has had on our estimates, assumptions and accounting policies and made additional disclosures, as necessary.

2.	Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The consolidated financial statements include the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The Company’s fiscal year ends on the Saturday closest to January 31. Fiscal year 2020 ("2020") consists of the 52 weeks ended January 30, 2021, fiscal year 2019 ("2019") consists of the 52 weeks ended February 1, 2020 and fiscal year 2018 ("2018") consists of the 52 weeks ended February 2, 2019.

Reclassification

We adjusted the statement of cash flows for fiscal years 2019 and 2018 to reclassify the change in book overdraft amounts into the accounts payable and accrued expenses line items, all within net cash provided by operating activities.

Initial Public Offering and Secondary Offerings

On July 2, 2018, the Company completed its IPO, in which the Company issued and sold i 43,125,000 shares of its common stock (including i 5,625,000 shares of common stock that were subject to the underwriters’ option to purchase additional shares) at an initial public offering price of $ i 17.00 per share. The Company received total aggregate proceeds of $ i 685.9 million, net of underwriters’ discounts, commissions and other transaction expenses, which totaled $ i 47.2 million.

On July 2, 2018, the Company used the net proceeds from the IPO to extinguish the total outstanding balance of $ i 623.3 million of its senior secured second lien term loan facility (the "Second Lien Term Loan"). See Note 5, Debt and Credit Arrangements, for further discussion regarding the Second Lien Term Loan extinguishment.

On October 1, 2018, certain selling stockholders completed the registered sale of i 32,200,000 shares of the Company’s common stock at a public offering price of $ i 26.00 per share. Of the i 32,200,000 shares sold, i 4,200,000 shares represented the underwriters’ exercise of their overallotment option. The Company did not receive any proceeds from this offering or incur underwriters’ discounts or commissions on the sale. The Company incurred transaction costs of $ i 2.4 million primarily for legal, accounting and printer services related to the offering.

On March 11, 2019, certain selling stockholders completed a registered sale (the "March 2019 Secondary Offering") of i 19,550,000 shares of the Company's common stock at a public offering price of $ i 25.08 per share. Of the i 19,550,000 shares sold, i 2,550,000 shares represented the underwriters' exercise of their overallotment option. The Company did not receive any proceeds from the March 2019 Secondary Offering or incur underwriters' discounts or commissions on the sale. The Company incurred transaction costs of $ i 1.2 million primarily for legal, accounting and printer services related to the March 2019 Secondary Offering.

On June 6, 2019, certain selling stockholders completed a registered sale (the "June 2019 Secondary Offering") of i 17,500,000 shares of the Company's common stock at a public offering price of $ i 24.65 per share. The Company did not receive any proceeds from the June 2019 Secondary Offering or incur underwriters’ discounts or commissions on the sale. The Company incurred immaterial transaction costs related to the June 2019 Secondary Offering.

On June 27, 2019, the Company completed a registered sale of i 9,977,024 shares of the Company's common stock at a price of $ i 25.41 per share. In connection with this offering, the Company repurchased i 2,500,000 shares at $ i 25.41 per share. The Company did not receive any proceeds from this offering or incur underwriters’ discounts or commissions on the sale. The Company incurred immaterial transaction costs related to the June 27, 2019 offering. The Sponsors, CVC and Leonard Green Partners no longer hold any shares of the Company's common stock.

Stock Split

On June 15, 2018, the Company effected a i seven-to-one stock split of its issued and outstanding shares of common stock and proportional adjustment to the existing conversion ratios for each series of the Company’s Contingently Redeemable Common Stock (see Note 9). Accordingly, all shares and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this stock split and adjustment of the contingently redeemable common stock conversion ratios.

Deferred Offering Costs

The Company capitalized certain legal, professional, accounting and other third-party fees that were directly associated with the IPO as deferred offering costs. Upon the consummation of the IPO, $ i 47.2 million was recorded in stockholders’ deficit as a reduction of additional paid-in capital.

Estimates Included in Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and stockholders’ equity, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The significant estimates relied upon in preparing these consolidated financial statements are estimating workers' compensation and general liability self-insurance reserves. The inherent uncertainty of future loss projections could cause actual claims to differ from our estimates.

Segment Reporting

The Company’s club retail operations, which represent substantially all of the Company’s consolidated total revenues, are the Company’s only reportable operating segment. All of the Company’s identifiable assets are located in the United States. The Company does not have significant sales outside the United States, nor does any customer represent more than 10% of total revenues for any period presented.

The following table summarizes the percentage of net sales by category:

Fiscal Year

2020

2019

2018

Grocery ⁽¹⁾

i 77

i 72

i 73

General merchandise and services

i 14

i 15

i 14

Gasoline and other

i 9

i 13

(1)

Grocery includes the legacy perishables, edible grocery and non-edible grocery division.

Concentration Risk

An adverse change in the Company’s relationships with its key suppliers could have a material effect on the business and results of operations of the Company. Currently, one distributor consolidates a substantial majority of perishables for shipment to the clubs. While the Company believes that such a consolidation is in its best interest overall, a prolonged disruption in logistics processes could materially impact sales and profitability for the near term.

The warehouse clubs are primarily located in the eastern United States. Sales from the New York metropolitan area made up approximately i 25% of net sales in each of fiscal years 2020, 2019 and 2018.

Financial instruments that potentially subject the Company to concentrations of credit risk principally consist of cash held in financial institutions. The Company considers the credit risk associated with these financial instruments to be minimal. Cash is held by financial institutions with high credit ratings and the Company has not historically sustained any credit losses associated with its cash balances.

Cash and Cash Equivalents

Highly liquid investments with a maturity of three months or less at the time of purchase are considered to be cash equivalents. Book overdrafts not subject to offset with other accounts with the same financial institution are classified as accounts payable.

Accounts Receivable

Accounts receivable consists primarily of credit card receivables and receivables from vendors related to rebates and coupons and is stated net of allowances for doubtful accounts of $ i 3.1 million and $ i 0.9 million at January 30, 2021 and February 1, 2020, respectively. The determination of the allowance for doubtful accounts is based on BJ’s historical experience applied to an aging of accounts and a review of individual accounts with a known potential for write-off.

Merchandise Inventories

Inventories are stated at the lower of cost and determined under the average cost method, or net realizable value. 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 writes down inventory for estimated 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 and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. Buildings and improvements are depreciated over estimated useful lives of i 33 years. Interest related to the development of buildings is capitalized during the construction period. Leasehold costs and improvements are amortized over the remaining lease term (which includes renewal periods that are reasonably assured) or the asset’s estimated useful life, whichever is shorter. Furniture, fixtures and equipment are depreciated over estimated useful lives, ranging from three to ten years. Depreciation expense was $ i 155.6 million in fiscal year 2020, $ i 143.5 million in fiscal year 2019 and $ i 140.4 million in fiscal year 2018.

Certain costs incurred in connection with developing or obtaining computer software for internal use are capitalized. Capitalized software costs are included in furniture, fixtures, and equipment and are amortized on a straight-line basis over the estimated useful life of the software, which is three years. Software costs not meeting the criteria for capitalization are expensed as incurred.

Expenditures for betterments and major improvements that significantly enhance the value and increase the estimated useful life of the assets are capitalized and depreciated over the new estimated useful life. Repairs and maintenance costs on all assets are expensed as incurred.

Deferred Issuance Costs

The Company defers costs directly associated with acquiring third-party financing. Debt issuance costs related to the term loans are recorded as a direct deduction from the carrying amount of the debt. Debt issuance costs associated with the ABL Facility (as defined in Note 5) are recorded within other assets. Debt issuance costs are amortized over the term of the related financing arrangements on a straight-line basis, which is materially consistent with the effective interest method. Amortization of deferred debt issuance costs is recorded in interest expense and was $ i 2.5 million in fiscal year 2020, $ i 2.7 million in fiscal year 2019 and $ i 3.3 million in fiscal year 2018.

Goodwill and Indefinite-Lived Intangible Assets

Goodwill and indefinite-lived trade name intangible assets are not subject to amortization. The Company assesses the recoverability of its goodwill and trade name annually in the fourth quarter or whenever events or changes in circumstances indicate it may be impaired. The Company has determined it has one reporting unit for goodwill impairment testing purposes.

The Company may assess its goodwill for impairment initially using a qualitative approach ("step zero") to determine whether conditions exist to indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value. If management concludes, based on its assessment of relevant events, facts and circumstances that it is more likely than not that a reporting unit’s carrying value is greater than its fair value, then a quantitative analysis will be performed to determine if there is any impairment. The Company may also elect to initially perform a quantitative analysis instead of starting with step zero. The quantitative assessment for goodwill is an assessment requires comparing the carrying value of a reporting unit, including goodwill, to its fair value. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and no further testing is required. If the carrying amount of the reporting unit exceeds its fair value, an impairment charge is recorded to write down goodwill to its implied fair value and is recorded as a component of selling, general and administrative expenses ("SG&A"). The Company assessed the recoverability of goodwill in fiscal years 2020, 2019 and 2018 and determined that there was no impairment.

The Company assesses the recoverability of its trade name whenever there are indicators of impairment, or at least annually in the fourth quarter. If the recorded carrying value of the trade name exceeds its estimated fair value, the Company records a charge to write the intangible asset down to its estimated fair value as a component of SG&A. The Company assessed the recoverability of the BJ’s trade name and determined that its estimated fair value exceeded its carrying value and that i no impairment was necessary in fiscal years 2020, 2019 or 2018.

Impairment of Long-Lived Assets

The Company reviews the realizability of long-lived assets periodically and whenever a triggering event occurs that indicates an impairment loss may have been incurred using fair value measurements with unobservable inputs (Level 3). Current and expected operating results and cash flows and other factors are considered in connection with management’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 estimated fair value of the assets being evaluated. In fiscal year 2020, the Company recorded i no impairment charges. In fiscal year 2019, the Company recorded $ i 13.3 million of impairment charges to lower the carrying value of the assets to their estimated fair value. The total impairment charges consisted of $ i 1.7 million related to IT assets, $ i 2.0 million related to fixed assets and $ i 9.6 million related to operating lease right of use ("ROU") assets. The fixed asset impairment charges and operating lease ROU asset impairment charges related to four club locations. The combined fixed assets and ROU asset carrying value of these four locations after the impairment charge was $ i 10.5 million. In fiscal year 2018, the Company recorded an impairment loss of $ i 4.0 million on one club to lower the carrying value of the fixed assets to their estimated fair value less cost to sell.

Asset Retirement Obligations

An asset retirement obligation represents a legal obligation associated with the retirement of a tangible long-lived asset that is incurred upon the acquisition, construction, development or normal operation of that long-lived asset. The Company recognizes asset retirement obligations in the period in which they are placed in service, if a reasonable estimate of fair value can be made. The asset retirement obligation is subsequently adjusted for changes in fair value. The associated estimated asset retirement costs are capitalized in leasehold improvements and depreciated over their useful life. The Company’s asset retirement obligations relate to the future removal of gasoline tanks and solar panels installed at leased clubs and the related assets associated with the gas stations and solar panel locations. See Note 14 for further information on the amounts accrued.

Workers' Compensation and General Liability Self-insurance Reserves

We are primarily self-insured for workers’ compensation and general liability claims. Amounts in excess of certain levels, which range from $ i 0.3 million to $ i 1.0 million per occurrence, are insured as a risk reduction strategy, to mitigate catastrophic losses. 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. The estimates are developed utilizing actuarial methods and are based on historical claims experience and other actuarial assumptions related to loss development factors. The inherent uncertainty of future loss projections could cause actual claims to differ from our estimates. When historical losses are not a good measure of future liability, such as in the event of COVID-19, we base our estimates of ultimate liability on our interpretation of current law, claims filed to date and other relevant factors which are subject to change. These accruals are included in accrued expenses and other current liabilities and other non-current liabilities in the Company's Consolidated Balance Sheets.

Revenue Recognition - Performance Obligations

The Company identifies each distinct performance obligation to transfer goods (or bundle of goods) or services. The Company recognizes revenue as it satisfies a performance obligation by transferring control of the goods or services to the customer.

Merchandise sales—The Company recognizes sales of merchandise at clubs and gas stations when the customer takes possession of the goods and tenders payment. Sales of merchandise at the Company’s clubs and gas stations, excluding sales taxes, represented approximately i 95% of the Company’s net sales and approximately i 93% of the Company’s total revenues for fiscal year 2020. Sales taxes are recorded as a liability at the point of sale. Revenue is recorded at the point of sale based on the transaction price on the shelf sign, net of any applicable discounts, sales taxes and expected refunds. For e-commerce sales, the Company recognizes sales when control of the merchandise is transferred to the customer, which is typically at the shipping point.

BJ's Perks Rewards and My BJ's Perks programs— The Company’s BJ’s Perks Rewards^®membership program allows participating members to earn i 2% cash back, up to a maximum of $ i 500 per year, on qualified purchases made at BJ’s. The Company also offers a co-branded credit card program, the My BJ’s Perks^®program, which allows My BJ’s Perks^® Mastercardcredit card holders to earn up to i 5% cash back on eligible purchases made at BJ’s up to i 2% cash back on purchases made with the card outside of BJ’s. Cash back is in the form of electronic awards issued in $ i 10 increments that may be used online or in-club at the register and expire six months from the date issued.

Earned awards may be redeemed on future purchases made at the Company. The Company recognizes revenue for earned awards when customers redeem such awards as part of a purchase at one of the Company’s clubs or the Company’s website. The Company accounts for these transactions as multiple element arrangements and allocates the transaction price to separate performance obligations using their relative fair values. The Company includes the fair value of award dollars earned in deferred revenue at the time the award dollars are earned. This liability was $ i 25.5 million at January 30, 2021 and $ i 26.7 million at February 1, 2020.

Royalty revenue received in connection with the My BJ's Perks co-brand credit card program is variable consideration and is considered deferred until the card holder makes a purchase. The Company's total deferred royalty revenue related to the outstanding My BJ's Perks credit card program was $ i 13.5 million and $ i 14.8 million at January 30, 2021 and February 1, 2020, respectively. The timing of revenue recognition of these awards is driven by actual customer activities, such as redemptions and expirations. At January 30, 2021, the Company expects to recognize $ i 13.4 million of the deferred revenue in fiscal year 2021, and expects the remainder will be recognized in the years thereafter.

Membership—The Company charges a membership fee to its customers. That fee allows customers to shop in the Company’s clubs, shop on the Company’s website and purchase gasoline at the Company’s gas stations for the duration of the membership, which is generally i 12 months. Because the Company has the obligation to provide access to its clubs, website and gas stations for the duration of the membership term, the Company recognizes membership fees on a straight-line basis over the life of the membership. The Company’s deferred revenue related to membership fees was $ i 155.6 million and $ i 144.0 million at January 30, 2021 and February 1, 2020, respectively.

Gift Card Programs—The Company sells BJ’s gift cards that allow customers to redeem the card for future purchases equal to the amount of the original purchase price of the gift card. Revenue from gift card sales is recognized upon redemption of the gift card because the Company’s performance obligation to redeem the gift card for merchandise is satisfied when the gift card is redeemed. Deferred revenue related to gift cards was $ i 10.3 million at both January 30, 2021 and February 1, 2020. The Company recognized approximately $ i 39.7 million, $ i 49.1 million and $ i 50.0 million of revenue from gift card redemptions in the fiscal years ended January 30, 2021, February 1, 2020 and February 2, 2019, respectively.

Warranty Programs

The Company passes on any manufacturers’ warranties to members. In addition, BJ’s includes an extended warranty on tires sold at the clubs, under which BJ’s customers receive tire repair services or tire replacement in certain circumstances. This warranty is included in the sale price of the tire and it cannot be declined by the customers. The Company is fully liable for claims under the tire warranty program. As the primary obligor in these arrangements, associated revenue is recognized on the date of sale and an estimated warranty obligation is accrued based on claims experience. The liability for future claims under this program is not material to the financial statements.

Extended warranties are also offered on certain types of products such as appliances, electronics and jewelry. These warranties are provided by a third party at fixed prices to BJ’s. No liability is retained to satisfy warranty claims under these arrangements. The Company is not the primary obligor under these warranties, and as such net revenue is recorded on these arrangements at the time of sale. Revenue from warranty sales is included in net sales on the income statement.

Determine the Transaction Price

The transaction price is the amount of consideration the Company expects to receive under the arrangement. The Company is required to estimate variable consideration (if any) and to factor that estimate into the determination of the transaction price. The Company may offer sales incentives to customers, including discounts. The Company has significant experience with return patterns and relies on this experience to estimate expected returns when determining the transaction price.

Returns and Refunds—The Company’s products are generally sold with a right of return and may provide other credits or incentives, which are accounted for as variable consideration when estimating the amount of revenue to recognize. The Company records an allowance for returns based on current period revenues and historical returns experience. The Company analyzes actual historical returns, current economic trends, changes in sales volume and acceptance of the Company’s products when evaluating the adequacy of the sales returns allowance in any accounting period.

The sales returns reserve, which reduces sales and cost of sales for the estimated impact of returns, was $ i 7.2 million in fiscal year 2020, $ i 6.5 million in fiscal year 2019 and $ i 6.8 million in fiscal year 2018.

Customer Discounts—Discounts given to customers are usually in the form of coupons and instant markdowns and are recognized as redeemed and recorded in contra-revenue accounts, as they are part of the transaction price of the merchandise sale. Manufacturer coupons that are available for redemption at all retailers are not reduced from the sale price of merchandise.

Agent Relationships

The Company enters into certain agreements with service providers that offer goods and services to the Company’s members. These service providers sell goods and services including home improvement services and cell phones to the Company’s customers. In exchange, the Company receives payments in the form of commissions and other fees. The Company evaluates the relevant criteria to determine whether they serve as the principal or agent in these contracts with customers, in determining whether it is appropriate in these arrangements to record the gross amount of merchandise sales and related costs, or the net amount earned as commissions. When the Company is considered the principal in a transaction, revenue is recorded gross; otherwise, revenue is recorded on a net basis. Commissions received from these service providers are considered variable consideration and are constrained until the third-party customer makes a purchase from one of the service providers.

Significant Judgments

Standalone Selling Prices—For arrangements that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation on a relative standalone selling price basis.

Policy Elections

In addition to those previously disclosed, the Company made the following accounting policy elections and practical expedients:

Portfolio Approach—The Company uses the portfolio approach when multiple contracts or performance obligations are involved in the determination of revenue recognition.

Taxes—The Company excludes from the transaction price any taxes collected from customers that are remitted to taxing authorities.

Shipping and Handling Charges—Charges that are incurred before and after the customer obtains control of goods are deemed to be fulfillment costs.

Time Value of Money—The Company’s payment terms are less than one year from the transfer of goods. Therefore, the Company does not adjust promised amounts of consideration for the effects of the time value of money.

Disclosure of Remaining Performance Obligations—The Company does not disclose the aggregate amount of the transaction price allocated to remaining performance obligations for contracts that are one year or less in term. Additionally, the Company does not disclose the aggregate amount of the transaction price allocated to remaining performance obligations when the transaction price is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a good or service that forms part of a series of distinct goods or services.

Cost of Sales

The Company’s cost of sales includes the direct costs of sold merchandise, which includes customs, taxes, duties and inbound shipping costs, inventory shrinkage and adjustments and reserves for excess, aged and obsolete inventory. Cost of goods sold also includes certain distribution center costs and allocations of certain indirect costs, such as occupancy, depreciation, amortization, labor and benefits.

Presentation of Sales Tax Collected from Customers and Remitted to Governmental Authorities

In the ordinary course of business, sales tax is collected on items purchased by the members that are taxable in the jurisdictions when the purchases take place. These taxes are then remitted to the appropriate taxing authority. These taxes collected are excluded from revenues in the financial statements.

Vendor Rebates and Allowances

The Company receives various types of cash consideration from vendors, principally in the form of rebates, based on purchasing or selling certain volumes of product, time-based rebates or allowances, which may include product placement allowances or exclusivity arrangements covering a predetermined period of time, price protection rebates and allowances for retail price reductions on certain merchandise and salvage allowances for product that is damaged, defective or becomes out-of-date.

Such vendor rebates and allowances are recognized based on a systematic and rational allocation of the cash consideration offered to the underlying transaction that results in progress by BJ’s toward earning the rebates and allowances, provided the amounts to be earned are probable and reasonably estimable. Otherwise, rebates and allowances are recognized only when predetermined milestones are met. The Company recognizes product placement allowances as a reduction of cost of sales in the period in which the product placement is completed. Time-based rebates or allowances are recognized as a reduction of cost of sales over the performance period on a straight-line basis. All other vendor rebates and allowances are recognized as a reduction of cost of sales when the merchandise is sold or otherwise disposed.

Cash consideration is also received for advertising products in publications sent to BJ’s members. Such cash consideration is recognized as a reduction of SG&A to the extent it represents a reimbursement of specific, incremental and identifiable SG&A costs incurred by BJ’s to sell the vendors’ products. If the cash consideration exceeds the costs being reimbursed, the excess is characterized as a reduction of cost of sales. Cash consideration for advertising vendors’ products is recognized in the period in which the advertising takes place.

Manufacturers’ Incentives Tendered by Consumers

Consideration from manufacturers’ incentives (such as rebates or coupons) is recorded gross in net sales when the incentive is generic and can be tendered by a consumer at any reseller and the Company receives direct reimbursement from the manufacturer, or clearinghouse authorized by the manufacturer, based on the face value of the incentive. If these conditions are not met, such consideration is recorded as a decrease in cost of sales.

Leases

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-2, Leases (FASB Accounting Standards Codification ("ASC") Topic 842, Leases) which requires recognition on the balance sheet for the rights and obligations created by leases with terms greater than twelve months. Consistent with prior GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend primarily on its classification as a finance or operating lease. However, unlike prior GAAP—which required only finance (formerly capital) leases to be recognized on the balance sheet—the new ASU requires both types of leases to be recognized on the balance sheet.

The Company adopted ASC 842 using the modified retrospective method at the beginning of fiscal year 2019. In accordance with ASC 842, the Company did not recast comparative periods in transition to ASC 842 and instead reported comparative periods under ASC 840. Adoption of the standard resulted in the initial recognition of $ i 2.040 billion of operating lease right-of-use ("ROU") assets and $ i 2.071 billion of operating lease liabilities as of February 3, 2019. The difference between the assets and liabilities is attributable to the reclassification of certain existing lease-related assets and liabilities as an adjustment to the ROU assets. Finance leases were not impacted by the adoption of the new guidance as finance lease liabilities and the corresponding assets were recorded on the consolidated balance sheet under the previous guidance. The adoption of this standard did not have a material impact on the Company’s annual audited Consolidated Statements of Operations and Comprehensive Income, Statements of Contingently Redeemable Common Stock and Stockholders’ Equity (Deficit) or Cash Flows, and had a $ i 11.6 million impact on beginning retained earnings in fiscal year 2019 primarily associated with the impact of the Company's deferred gain on prior years' sale leaseback transactions, net of tax. The Company elected the transition package of practical expedients permitted within the new standard which, among other things, allowed it to carry-forward the historical lease classification. The Company did not elect the practical expedient to use hindsight in determining the lease term and in assessing impairment of ROU assets and therefore continued to utilize lease terms determined under previous lease guidance.

Pre-opening Expenses

Pre-opening expenses consist of direct incremental costs of opening or relocating a facility and are expensed as incurred.

Advertising Costs

Advertising costs generally consist of efforts to acquire new members and typically include media advertising (some of which is vendor-funded). BJ’s expenses advertising as incurred as a component of SG&A. Advertising expenses were approximately i 0.6%, i 0.6% and i 0.7% of net sales in fiscal years 2020, 2019 and 2018, respectively.

Stock-based Compensation

The fair value of service-based employee awards is recognized as compensation expense on a straight-line basis over the requisite service period of the award. The fair value of the performance-based awards is recognized as compensation expense ratably over the service period of each performance tranche. The fair value of the stock-based awards is determined using the Black-Scholes option pricing model. Determining the fair value of options at the grant date requires judgment, including estimating the expected term that stock options will be outstanding prior to exercise and the associated volatility.

Prior to the consummation of the IPO on June 28, 2018, the estimated fair value of the Company's stock was determined by its board of directors, with input from management and considering third-party valuations of common stock. Subsequent to the IPO date, the Company's common stock was listed on the NYSE and its value is determined by the market price on the NYSE. See Note 10 for additional description of the accounting for stock-based awards.

Earnings Per Share

Basic net income per share attributable to common stockholders is calculated by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period, including contingently redeemable common stock recorded outside of stockholders’ equity. Basic income from continuing operations per share attributable to common stockholders is calculated by dividing income from continuing operations available to common stockholders by the weighted-average number of common shares outstanding for the period, including contingently redeemable common stock recorded outside of stockholders’ equity. Basic loss from discontinuing operations per share attributable to common stockholders is calculated by dividing loss from discontinuing operations available to common stockholders by the weighted-average number of common shares outstanding for the period, including contingently redeemable common stock recorded outside of stockholders’ equity.

Diluted net income per share attributable to common stockholders is calculated by dividing net income available to common stockholders by the diluted weighted-average number of common shares outstanding for the period. Diluted income from continuing operations per share attributable to common stockholders is calculated by dividing income from continuing operations available to common stockholders by the diluted weighted-average number of common shares outstanding for the period. Diluted loss from discontinuing operations per share attributable to common stockholders is calculated by dividing loss from discontinuing operations available to common stockholders by the diluted weighted-average number of common shares outstanding for the period.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying values and their respective tax bases, using enacted tax rates expected to be applicable in the years in which the temporary differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company evaluates the realizability of its deferred tax assets and establishes a valuation allowance when it is more likely than not that all or a portion of the deferred tax assets will not be realized. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected, scheduling of anticipated reversals of taxable temporary differences, and considering prudent and feasible tax planning strategies.

The Company records liabilities for uncertain income tax positions based on a two-step process. The first step is recognition, where an individual tax position is evaluated as to whether it has a likelihood of greater than 50% of being sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation processes. For tax positions that are currently estimated to have less than a 50% likelihood of being sustained, no tax benefit is recorded. For tax positions that have met the recognition threshold in the first step, the Company performs the second step of measuring the benefit to be recorded. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized on ultimate settlement. The actual benefits ultimately realized may differ from the estimates. In future periods, changes in facts, circumstances and new information may require the Company to change the recognition and measurement estimates regarding individual tax positions. Changes in recognition and measurement estimates are recorded in income tax expense and liability in the period in which such changes occur.

Any interest or penalties incurred related to unrecognized tax benefits are recorded as a component of the provision for income tax expense.

Derivative Financial Instruments

All derivatives are recognized as either assets or liabilities on the Consolidated Balance Sheets and measurement of these instruments is at fair value. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded as a component of accumulated other comprehensive income and are recognized in the consolidated statement of operations when the hedged item affects earnings. Any portion of the change in fair value that is determined to be ineffective is immediately recognized in earnings as SG&A. Derivative gains or losses included in accumulated other comprehensive income are reclassified into earnings at the time the hedged transaction occurs as a component of SG&A.

Fair Value of Financial Instruments

Certain assets and liabilities are carried at fair value in accordance with GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The Company uses a three-level hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

•

Level 1 - Quoted market prices in active markets for identical assets or liabilities.

•

Level 2 - Observable inputs other than quoted market prices included in Level 1 such as quoted market prices for markets that are not active or other inputs that are observable or can be corroborated by observable market data.

•

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Comprehensive Income

Comprehensive income is a measure of net income and all other changes in equity that result from transactions other than with equity holders, and would normally be recorded in the consolidated statements of stockholders’ equity and the consolidated statements of comprehensive income. Other comprehensive income consists of unrealized gains and losses from derivative instruments designated as cash flow hedges and postretirement medical plan adjustments.

Recently Issued Accounting Pronouncements

Reference Rate Reform (ASU 2021-01 and ASU 2020-04)

On January 7, 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848). The amendments clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Specifically, certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. Amendments to the expedients and exceptions in Topic 848 capture the incremental consequences of the scope clarification and tailor the existing guidance to derivative instruments affected by the discounting transition. The amendments are effective immediately for all entities. An entity may elect to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final Update, up to the date that financial statements are available to be issued. If an entity elects to apply any of the amendments for an eligible hedging relationship, any adjustments as a result of those elections must be reflected as of the date the entity applies the election. The amendments do not apply to contract modifications made after December 31, 2022, new hedging relationships entered into after December 31, 2022, and existing hedging relationships evaluated for effectiveness in periods after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship (including periods after December 31, 2022). The Company has determined the adoption of this standard will not have a material impact on the Company's consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions to the current guidance on contract modifications and hedging relationships to ease the financial reporting burdens of the expected market transition from London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company has determined the adoption of this standard will not have a material impact on the Company's consolidated financial statements.

Recently Adopted Accounting Pronouncements

Fair Value Measurement (ASU 2018-13)

In August 2018, the FASB issued ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement which updates the guidance to Fair Value Measurement (Topic 820). The updated guidance modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. The amendments on changes in unrealized gains and losses, the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company adopted ASU 2018-13 at the beginning of fiscal year 2020 on a prospective basis and the adoption of this standard did not have a material impact on the Company's consolidated financial statements.

Intangibles-Goodwill and Other-Internal-Use Software (ASU 2018-15)

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40). The update related to accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The update allows entities who are customers in hosting arrangements that are service contracts to apply the existing internal-use software guidance to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The update specifies classification for capitalizing implementation costs and related amortization expense within the financial statements and requires additional disclosures. The updated guidance is effective for fiscal reporting periods, including interim reporting within those periods, beginning after December 15, 2019. The Company adopted this standard at the beginning of fiscal year 2020 on a prospective basis. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

Goodwill Impairment (ASU 2017-04)

In January 2017, the FASB issued ASU 2017-04, which provides amendments to Accounting Standards Codification 350, Intangibles - Goodwill and Other, to eliminate Step 2 from the goodwill impairment test. Entities should perform their goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. The Company adopted ASU 2017-04 at the beginning of fiscal year 2020 on a prospective basis and the adoption of this standard did not have a material impact on the Company's consolidated financial statements.

Credit Losses (ASU 2016-13)

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). This new guidance changes how entities account for credit impairment for trade and other receivables, as well as for certain financial assets and other instruments. ASU 2016-13 replaces the current "incurred loss" model with an "expected loss" model. Under the "incurred loss" model, a loss (or allowance) is recognized only when an event has occurred (such as a payment delinquency) that causes the entity to believe that a loss is probable (i.e., that it has been "incurred"). Under the "expected loss" model, an entity recognizes a loss (or allowance) upon initial recognition of the asset that reflects all future events that will lead to a loss being realized, regardless of whether it is probable that the future event will occur. The "incurred loss" model considers past events and current conditions, while the "expected loss" model includes expectations for the future which have yet to occur. The Company adopted ASU 2016-13 at the beginning of fiscal year 2020 and the adoption of this standard did not have a material impact on the Company's consolidated financial statements.

3.	Related Party Transactions

Management Agreement

The Company had a management services agreement with the Sponsors for ongoing consulting and advisory services that terminated upon consummation of the Company's IPO. The management services agreement provided for the aggregate payment of management fees to the Sponsors (or advisory affiliates thereof) of $ i 8.0 million per year, plus out of pocket expenses. The Company incurred no management fees or out of pocket expenses in fiscal years 2020 and 2019, and $ i 3.3 million of such fees in fiscal year 2018. Management fees and expenses are reported in SG&A in the Consolidated Statements of Operations and Comprehensive Income.

Other Relationships

One of the Company’s suppliers, Advantage Solutions Inc., is controlled by affiliates of the Sponsors. Advantage Solutions Inc. is a provider of in-club product demonstration and sampling services. Currently, the Company engages them from time to time to provide ancillary support services, including temporary club labor as needed. The Company incurred approximately $ i 13.5 million, $ i 42.6 million and $ i 43.9 million of costs payable to Advantage Solutions for services rendered during fiscal years 2020, 2019 and 2018, respectively. The demonstration and sampling service fees are fully funded by merchandise vendors who participate in the program.

The Company believes the terms obtained or consideration paid or received, as applicable, in connection with the transactions were comparable to terms available or amounts that would be paid or received, as applicable, in arms’ length transactions with unrelated parties.

4.	Leases

The Company adopted ASC 842 as of February 3, 2019, using the modified retrospective method and applying transitional relief allowing entities to initially apply the requirements at the adoption date by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, results and disclosures for the reporting periods beginning on February 3, 2019 are reported and presented under ASC 842, while prior period amounts and disclosures are not adjusted and continue to be reported and presented under ASC 840.

As part of the adoption, the Company elected the following practical expedients:

A package of practical expedients allowing the Company to: a) carry forward its historical lease classification; b) avoid reassessing whether any expired or existing contracts are or contain leases; and c) avoid reassessing initial direct costs for any existing leases.

A practical expedient related to land easements, allowing the Company to carry forward the accounting treatment for land easements on existing agreements and eliminating the need to reassess existing lease contracts to determine if land easements are separate leases under ASC 842.

The Company did not elect the following practical expedients:

A practical expedient that would allow the Company to use hindsight in determining the lease term and to assess impairment of the entity's ROU assets, since election of this expedient could make adoption more complex given that re-evaluation of the lease term.

A practical expedient allowing the Company to not separate lease components from non-lease components (e.g., common area maintenance costs) since currently the Company does not combine lease and non-lease components for any of its real estate leases.

In accordance with ASC 842, the Company determines if an arrangement is a lease at inception or modification of a contract and classifies each lease as either an operating or finance lease at commencement. The Company only reassesses lease classification subsequent to commencement upon a change to the expected lease term or the contract being modified. The Company has operating and finance leases for the Company's clubs, and operating leases for the Company's distribution centers, corporate office, and stand-alone gas stations. Operating leases, net of accumulated amortization, are included in operating lease ROU assets, and current and non-current operating lease liabilities, on the Consolidated Balance Sheets. Finance leases are included in property and equipment, accrued expenses and other current liabilities, and other non-current liabilities on the Consolidated Balance Sheets. Lease liabilities are calculated using the effective interest method, regardless of classification, while the amortization of the ROU assets varies depending upon classification. Finance lease classification results in a front-loaded expense recognition pattern over the lease term, which amortizes the ROU assets by recognizing interest expense and amortization expense as separate components of lease expense and calculates the amortization expense component on a straight-line basis. Conversely, operating lease classification results in a straight-line expense recognition pattern over the lease term and recognizes lease expense as a single expense component, which results in amortization of the ROU assets that equals the difference between lease expense and interest expense. Lease expense for finance and operating leases are included in SG&A on the Consolidated Statement of Operations and Comprehensive Income. Leases with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheets.

The Company is generally obligated for the cost of property taxes, insurance, and maintenance relating to its leases, which are often variable lease payments. Such costs are presented as occupancy costs for finance and operating leases included in SG&A on the Consolidated Statement of Operations and Comprehensive Income.

Certain of the Company's lease agreements provide for lease payments based on future sales volumes at the leased location, or include rental payments adjusted periodically for inflation or based on an index, which are not measurable at the inception of the lease. The Company expenses such variable amounts in the period incurred, which is the period in which it becomes probable that the specified target that triggers the variable lease payments will be achieved. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the reasonably certain lease term. The operating lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Where the Company's leases do not provide an implicit rate, the Company uses a collateralized incremental borrowing rate ("IBR") to determine the present value of lease payments. The collateralized IBR is based on a synthetic credit rating that is externally prepared on an annual basis at the measurement date, and that the Company adjusts quarterly with a yield curve that approximates the Company's market risk profile.

In calculating the present value of the lease payments, the Company has elected to utilize its estimated IBR based on the original lease term and not the remaining lease term. The initial primary term of the Company's operating leases ranges from i 5 to i 44 years, with most of these leases having an initial term of i 20 years. The initial primary term of the Company's two finance leases are i 20 years.

As of both January 30, 2021 and February 1, 2020, assets recorded under finance leases were $ i 19.3 million and accumulated amortization associated with finance leases was $ i 10.6 million and $ i 9.5 million, respectively. ROU assets recorded as operating leases were $ i 2.363 billion and $ i 2.209 billion, respectively. Accumulated amortization associated with operating leases was $ i 304.7 million and $ i 148.7 million, respectively. As of January 30, 2021 and February 1, 2019, the Company also recorded non-cash increases of $ i 154.7 million and $ i 176.2 million to ROU assets and liabilities resulting from lease reassessments, respectively. There was i no decrease in fiscal year 2020 and a decrease of $ i 9.6 million to ROU assets resulting from lease impairment charges in fiscal year 2019.

The following table is a summary of the Company’s components of total lease costs for the years ended January 30, 2021 and February 1, 2020 (in thousands):

	*January 30, 2021*			*February 1, 2020*
Operating lease cost	$	i 327,325		$	i 322,346
Finance lease cost:
Amortization of right-of-use assets		i 564			i 1,128
Interest on lease liabilities		i 3,965			i 2,503
Total finance lease costs		i 4,529			i 3,631
Sublease income		( i 251	)		i —
Variable lease costs		i 230			i 98
Net lease costs	$	i 331,833		$	i 326,075

The weighted-average remaining lease term and weighted-average discount rate for operating and finance leases as of January 30, 2021 were as follows:

	*Operating Leases*			*Finance Leases*
Weighted-average remaining lease term (in years)		i 9.1			i 8.3
Weighted-average discount rate percentage		i 8.1	%		i 8.3	%

Cash paid for amounts included in the measurement of lease liabilities were as follows (in thousands):

Operating cash flows paid for operating leases	$	i 317,997
Operating cash flows paid for interest portion of finance leases		i 3,965
Financing cash flows paid for principal portion of finance leases		i 984

Future lease commitments to be paid by the Company as of January 30, 2021 were as follows (in thousands):

Fiscal Year	*Operating Leases*			*Finance Leases*
2021	$	i 329,095		$	i 3,439
2022		i 331,441			i 3,439
2023		i 322,620			i 3,439
2024		i 303,559			i 3,439
2025		i 286,256			i 3,766
Thereafter		i 1,958,707			i 13,076
Total future minimum lease payments		i 3,531,678			i 30,598
Less: imputed interest		( i 1,411,325	)		( i 15,378	)
Present value of lease liabilities	$	i 2,120,353		$	i 15,220

As of January 30, 2021, the Company had certain executed real estate and gas station leases that have not yet commenced and therefore are not reflected in the tables above. These leases are expected to commence in fiscal year 2021 with lease terms ranging from i 15 years to i 20 years.

5.	Debt and Credit Arrangements

Debt consisted of the following at January 30, 2021 and February 1, 2020 (in thousands):

	*January 30, 2021*			*February 1, 2020*
ABL Facility	$	i 310,000		$	i 378,000
First Lien Term Loan		i 801,920			i 1,315,216
Unamortized debt discount and debt issuance costs		( i 5,745	)		( i 12,531	)
Less: Current portion		( i 260,000	)		( i 343,377	)
Long-term debt	$	i 846,175		$	i 1,337,308

ABL Facility

On August 17, 2018, the Company amended its ABL Facility to extend the maturity date from February 3, 2022 to August 17, 2023 and reduce the applicable interest rates and letter of credit fees on the facility. Total fees associated with the refinancing were approximately $ i 1.0 million. The Company capitalized approximately $ i 0.9 million of new debt issuance costs and had immaterial write-offs of previously capitalized debt issuance costs and third-party fees.

The ABL Facility is comprised of a $ i 950.0 million revolving credit facility and a $ i 50.0 million term loan. The ABL Facility is secured on a senior basis by certain "liquid assets" of the Company and secured on a junior basis by certain "fixed assets" of the Company. The $50.0 million term loan payment terms are restricted in that the term loan cannot be repaid unless all loans outstanding under the ABL Facility are repaid, and once repaid, cannot be re-borrowed. The availability under the $950.0 million revolving credit facility is restricted based on eligible monthly merchandise inventories and receivables as defined in the facility agreement. As amended, interest on the revolving credit facility is calculated either at LIBOR plus a range of i 125 to i 175 basis points or a base rate plus a range of i 25 to i 75 basis points; and interest on the term loan is calculated at LIBOR plus a range of i 200 to i 250 basis points or a base rate plus a range of i 100 to i 150 basis points, in all cases based on excess availability. The applicable spread of LIBOR and base rate loans at all levels of excess availability steps down by i 12.5 basis points upon achieving total net leverage of i 3.00 to 1.00. The ABL Facility also provides a sub-facility for issuance of letters of credit subject to certain fees defined in the ABL Facility agreement. The ABL Facility is subject to various commitment fees during the term of the facility based on utilization of the revolving credit facility, which is scheduled to mature on August 17, 2023.

At January 30, 2021, there was $ i 310.0 million outstanding in borrowings under the ABL Facility and $ i 15.0 million in outstanding letters of credit. The agreement governing the ABL Facility provides for a step down in the interest rate upon the achievement of certain debt ratings upgrades, which were achieved in July 2020. As of January 30, 2021, the interest rate on the revolving credit facility was i 1.25% and unused capacity was $ i 641.1 million.

At February 1, 2020, there was $ i 378.0 million outstanding in borrowings under the ABL Facility and $ i 17.5 million in outstanding letters of credit. As of February 1, 2020, the interest rate on the revolving credit facility was i 2.78% and unused capacity was $ i 496.3 million.

First Lien Term Loan

On August 13, 2018, the Company amended its First Lien Term Loan to reduce the applicable interest rates and reduce the principal on the loan. The Company drew $ i 350.0 million under its ABL Facility to fund the transaction. As amended, the First Lien Term Loan had an initial principal amount of $ i 1,537.7 million and interest was calculated either at LIBOR plus i 275 to i 300 basis points or a base rate plus i 175 to i 200 basis points based on the Company achieving a net leverage ratio of i 3.00 to 1.00, which was achieved in July 2020. Total fees associated with the refinancing were approximately $ i 1.8 million and were expensed. The Company wrote off $ i 4.4 million of previously capitalized debt issuance costs and original issue discounts.

The Company's First Lien Term Loan matures on February 3, 2024. Voluntary prepayments are permitted. Principal payments must be made on the First Lien Term Loan pursuant to an annual excess cash flow calculation when the net leverage ratio exceeds i 3.50 to 1.00. The First Lien Term Loan is subject to certain affirmative and negative covenants but no financial covenants. It is secured on a senior basis by certain "fixed assets" of the Company and on a junior basis by certain "liquid" assets of the Company.

On November 1, 2019, the Company borrowed $ i 200.0 million from the ABL Facility. The proceeds from the Company's borrowing were used to pay a portion of the principal amount due on the First Lien Term Loan. In connection with the payment, the Company expensed $ i 2.0 million of previously capitalized deferred debt issuance costs and original issue discount.

On January 29, 2020, the Company amended its First Lien Term Loan to reduce the applicable interest rates. As amended, the First Lien Term Loan has an initial principal amount of $ i 1,315.2 million and interest is calculated either at LIBOR plus i 225 basis points basis or a base rate plus i 125 basis points and provided for a i 25 basis point step down in the interest rate upon the achievement of certain debt ratings upgrades. Total fees associated with the refinancing were approximately $ i 1.7 million. The Company wrote off $ i 0.1 million of previously capitalized debt issuance costs and original issue discount and expensed $ i 1.7 million of new third-party fees.

On July 13, 2020, the Company paid $ i 150.0 million of the principal amount due on the First Lien Term Loan. In connection with the payment, the Company expensed $ i 1.3 million of previously capitalized deferred debt issuance costs and original issue discount. On July 29, 2020, due to upgrades in credit ratings, the base rate was reduced to LIBOR plus i 200 basis points.

At January 30, 2021, there was $ i 801.9 million outstanding on the First Lien Term Loan. The agreement governing the First Lien Term Loan provides for a step down in the interest rate upon the achievement of certain debt ratings upgrades, which were achieved in July 2020. At January 30, 2021, the interest rate for the First Lien Term Loan was i 2.13% and at February 1, 2020, there was $ i 1,315.2 million outstanding on the First Lien Term Loan and at February 1, 2020, the interest rate for the First Lien Term Loan was i 3.90%.

Second Lien Term Loan

On July 2, 2018, the Company paid off the Second Lien Term Loan by extinguishing the entire outstanding amount of $ i 623.3 million. In connection with the debt extinguishment, the Company paid a $ i 6.2 million prepayment premium. The Company recorded debt extinguishment charges of $ i 19.2 million in conjunction with the paydown, of which $ i 13.0 million represents write-off of previously capitalized deferred debt issuance costs associated with the Second Lien Term Loan.

Future minimum payments

Scheduled future minimum principal payments on debt as of January 30, 2021 are as follows (in thousands):

Fiscal Year:	*Principal Payments*
2021	$	i 260,000
2022		i —
2023		i 851,920
2024		i —
2025		i —
Thereafter		i —
Total	$	i 1,111,920

6.	Interest Expense, Net

The following details the components of interest expense for the periods presented (in thousands):

Fiscal Year Ended

Interest on debt

i 65,064

i 96,747

i 128,643

Interest on capital lease and financing obligations

i 3,965

i 2,503

i 4,119

Debt issuance costs amortization

i 2,496

i 2,745

i 3,322

Original issue discount amortization

i 1,865

i 2,427

i 3,233

Loss on debt extinguishment

i 4,077

i 3,820

i 25,405

Loss on cash flow hedge

i 6,927

i —

Capitalized interest

( i 9

)

( i 12

)

( i 187

)

Interest expense, net

i 84,385

i 108,230

i 164,535

7.	Intangible Assets and Liabilities

Intangible assets and liabilities consist of the following (in thousands):

Gross Carrying Amount

Accumulated Amortization

Net Amount

Goodwill

i 924,134

i —

i 924,134

Intangible Assets Not Subject to Amortization:

BJ’s trade name

i 90,500

—

i 90,500

Intangible Assets Subject to Amortization:

Member relationships

i 245,000

( i 202,266

)

i 42,734

Private label brands

i 8,500

( i 6,611

)

i 1,889

Total intangible assets

i 344,000

( i 208,877

)

i 135,123

Gross Carrying Amount

Accumulated Amortization

Net Amount

Goodwill

i 924,134

i —

i 924,134

Intangible Assets Not Subject to Amortization:

BJ’s trade name

i 90,500

—

i 90,500

Intangible Assets Subject to Amortization:

Member relationships

i 245,000

( i 191,113

)

i 53,887

Private label brands

i 8,500

( i 5,902

)

i 2,598

Total intangible assets

i 344,000

( i 197,015

)

i 146,985

The Company records amortization expenses of intangible assets as a component of SG&A. Member relationships are amortized over i 15.3 years and private label brands are amortized over i 12 years.

The Company recorded amortization expenses of $ i 11.9 million, $ i 13.5 million and $ i 21.8 million as a component of SG&A for the fiscal years ended January 30, 2021, February 1, 2020 and February 2, 2019, respectively. The Company estimates that amortization expenses related to intangible assets will be as follows in each of the next five fiscal years (in thousands):

	*Intangible Assets*
2021	$	i 10,483
2022		i 9,230
2023		i 7,866
2024		i 6,517
2025		i 5,630

8.	Commitment and Contingencies

The Company is involved in various legal proceedings that are typical of a retail business. In accordance with applicable accounting guidance, an accrual will be established for legal proceedings if and when those matters present loss contingencies that are both probable and estimable. The Company does not believe the resolution of any current proceedings will result in a material loss to the consolidated financial statements.

9.	Contingently Redeemable Common Stock

The Company and certain current and former management employees were parties to the Management Stockholders Agreement (the "MSA"). Grants of equity by the Company to employees were governed by the terms of individual equity award agreements and the MSA. The MSA specified certain transfer restrictions, tag-along and drag-along rights, put and call rights and various other rights and restrictions applicable to any equity held by employees. The call right permitted the Company to repurchase common stock held by an employee stockholder following a minimum holding period and prior to the expiration of a specified time period following the later of the employee’s termination of employment with the Company or acquisition of the common stock. If the employee’s employment was terminated for cause, the repurchase price was the least of (a) the fair market value as of the repurchase date, (b) the fair market value at issuance or (c) the price paid by the employee stockholder for such shares. If the employee’s employment was terminated other than for cause, the repurchase price was the fair market value as of the repurchase date.

The MSA also gave employees the ability to put any shares back to the Company at fair market value upon death or disability while actively employed. As neither death nor disability while actively employed is a certainty, the shares of common stock held by the employee stockholders were considered to be contingently redeemable common stock and were accounted for outside of stockholders’ equity until the shares of common stock were either repurchased by the Company or the put right terminated. Both the Company’s repurchase right and the employee stockholder’s put right terminated upon the consummation the IPO. The contingently redeemable common stock was recorded at fair value of the common stock at the date of issuance. Because meeting the contingency is not probable, the contingently redeemable common stock was not remeasured to fair value at each reporting date. When the Company executed its IPO in 2018, all remaining grants under the MSA were reclassified to common stock. As of both January 30, 2021 and February 1, 2020, there is no contingently redeemable common stock recorded on the Consolidated Balance Sheet.

Prior to the IPO, when the Company exercised its call option to repurchase shares classified outside of stockholders’ equity, it was deemed to be a constructive retirement of the contingently redeemable share for accounting purposes. The Company recorded the excess of the fair value paid to repurchase the share over the carrying value of the contingently redeemable share within additional paid-in capital, as the Company had an accumulated deficit.

10.

Stock Incentive Plans

On June 13, 2018, the Company’s board of directors adopted, and its stockholders approved, the BJ's Wholesale Club Holdings, Inc. 2018 Incentive Award Plan (the "2018 Plan"). The 2018 Plan provides for the grant of stock options, restricted stock, dividend equivalents, stock payments, restricted stock units, performance shares, other incentive awards, stock appreciation rights, and cash awards. Prior to the adoption of the 2018 Plan, the Company granted stock-based compensation to employees and non-employee directors, respectively, under the Fourth Amended and Restated 2011 Stock Option Plan of BJ's Wholesale Club Holdings, Inc. (f/k/a Beacon Holdings, Inc.), as amended (the "2011 Plan"), and the 2012 Director Stock Option Plan of BJ's Wholesale Club Holdings, Inc. (f/k/a Beacon Holding Inc.), as amended (the "2012 Director Plan"). No further grants will be made under 2011 Plan or the 2012 Director Plan.

The 2018 Plan authorizes the issuance of i 13,148,058 shares, including i 985,369 shares that were reserved but not issued under the 2011 Plan and the 2012 Director Plan. If an award under the 2018 Plan, 2011 Plan or 2012 Director Plan is forfeited, expires or is settled for cash, any shares subject to such award may, to the extent of such forfeiture, expiration or cash settlement, be used again for new grants under the 2018 Plan. Additionally, shares tendered or withheld to satisfy grant or exercise price, or tax withholding obligations associated with an award under the 2018 Plan, the 2011 Plan or the 2012 Director Plan will be added to the shares authorized for grant under the 2018 Plan. The following shares may not be used again for grant under the 2018 Plan: (1) shares subject to a stock appreciation right ("SAR"), that are not issued in connection with the stock settlement of the SAR on its exercise and (2) shares purchased on the open market with the cash proceeds from the exercise of options under the 2018 Plan, 2011 Plan or 2012 Director Plan. As of January 30, 2021, there were i 5,835,226 shares available for future issuance under the 2018 Plan.

Stock option awards are generally granted with vesting periods of three years. All options have a contractual term of ten years. The Company recognized $ i 32.2 million ($ i 23.2 million post-tax), $ i 18.8 million ($ i 13.5 million post-tax) and $ i 57.7 million ($ i 41.5 million post-tax) of total stock-based compensation for fiscal years 2020, 2019 and 2018, respectively. As of January 30, 2021, there was approximately $ i 40.8 million of unrecognized compensation cost, which is expected to be recognized over the next three years.

The fair value of the options was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions (no dividends were expected):

Fiscal Year Ended

Risk-free interest rate range

i 0.44%- i 0.44%

i 2.36% - i 2.36%

i 2.56% - i 2.73%

Expected volatility

i 25.0

i 25.8

i 26.9

Weighted-average expected option life (in years)

i 6.0

i 5.9

Weighted-average grant-date fair value

i 6.29

i 8.37

i 5.16

The risk-free interest rate was based on United States Treasury yields in effect at the time of the grant for notes with terms comparable to the awards. The expected option life represents an estimate of the period of time options are expected to remain outstanding based upon an average of the vesting and contractual terms of the options. Forfeitures are recorded as incurred.

Presented below is a summary of the stock option activity and weighted-average exercise prices for fiscal year ended January 30, 2021:

(Options in thousands)

Number of Securities to be Issued Upon Exercise of Outstanding Options

Weighted- average Exercise Price

Weighted-average Remaining Contractual Life (in years)

Outstanding, beginning of period

i 5,213

i 14.00

Granted

i 441

i 25.07

Forfeited

( i 91

)

i 21.78

Exercised

( i 1,890

)

i 9.41

Outstanding, end of period

i 3,673

i 17.50

i 7.3

Vested and expected to vest, end of period

i 3,673

i 17.50

i 7.3

Exercisable, end of period

i 2,285

i 14.33

i 6.8

The total intrinsic value of options exercised in fiscal years 2020, 2019 and 2018 was $ i 45.0 million, $ i 37.1 million and $ i 88.2 million, respectively. The Company received a tax benefit related to these option exercises of approximately $ i 12.6 million, $ i 10.4 million and $ i 24.8 million in fiscal years 2020, 2019 and 2018, respectively. As of January 30, 2021, the total intrinsic value of options vested and expected to vest was $ i 90.2 million.

Presented below is a summary of our non-vested restricted shares, restricted stock units and performance stock and weighted-average grant-date fair values for the fiscal year ended January 30, 2021:

Restricted Stock

Restricted Stock Units

Performance Stock

(Shares in thousands)

Shares

Weighted-average Grant-Date Fair Value

Shares

Weighted-average Grant-Date Fair Value

Shares

Weighted-average Grant-Date Fair Value

Outstanding, beginning of period

i 1,445

i 25.22

i 30

i 25.83

i —

Granted

i 773

i 26.95

i 31

i 33.38

i 527

i 23.96

Forfeited

( i 98

)

i 24.49

i —

Vested

( i 545

)

i 24.69

( i 32

)

i 25.41

i —

Outstanding, end of period

i 1,575

i 26.29

i 29

i 34.54

i 527

i 23.96

2018 Employee Stock Purchase Plan

On June 14, 2018, the Company’s board of directors adopted and its stockholders approved the BJ's Wholesale Club Holdings, Inc. 2018 Employee Stock Purchase Plan (the "ESPP"), which became effective the day prior to the first day of public trading of the Company’s equity securities. The aggregate number of shares of common stock that was be reserved for issuance under our ESPP was be equal to the sum of (i) i 973,014 shares and (ii) an annual increase on the first day of each calendar year beginning in 2019 and ending in 2028 equal to the lesser of (A) i 486,507 shares, (B) i 0.5% of the shares outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year and (C) such smaller number of shares as determined by the board of directors. The offering under the ESPP commenced on January 1, 2019. The amount of expense recognized in the fiscal years ended January 30, 2021 and February 1, 2020 was $ i 0.6 million and $ i 0.4 million respectively.

Treasury Shares Acquired on Restricted Stock Awards

On June 27, 2019, the Company completed an offering of i 9,977,024 shares of the Company's common stock and, in connection with the offering, the Company repurchased i 2,500,000 shares of common stock at a price of $ i 25.41 per share. These repurchased shares are being held in treasury.

In addition, i 212,173 shares and i 143,205 shares were reacquired to satisfy employees’ tax withholding obligations upon the vesting of restricted stock awards in fiscal year 2020 and fiscal year 2019, respectively. These reacquired shares were recorded as $ i 6.5 million and $ i 3.8 million of treasury stock in fiscal years 2020 and 2019, respectively.

Share Repurchase Program

On December 19, 2019, the Company's board of directors authorized the repurchase of up to $ i 250.0 million of the Company's outstanding common stock from time to time as market conditions warrant (the "Program"). The Program expires at the end of fiscal year 2021. We initiated the Program to mitigate potentially dilutive effects of stock options and shares of restricted stock granted by the Company, in addition to enhancing shareholder value. As of January 30, 2021, $ i 150.3 million remained available to purchase under the Program. The Company repurchased i 2,599,282 shares during fiscal year 2020 and i no shares in fiscal year 2019.

11.

Income Taxes

The provision for income taxes from continuing operations includes the following (in thousands):

Fiscal Year Ended

Federal:

Current

i 94,947

i 29,187

i 14,641

Deferred

( i 1,130

)

i 9,541

( i 9,563

)

State:

Current

i 51,074

i 16,780

i 11,877

Deferred

( i 8,066

)

i 704

( i 5,129

)

Total income tax provision

i 136,825

i 56,212

i 11,826

A reconciliation of the statutory federal income tax rate with the Company’s effective income tax rate is as follows:

Fiscal Year Ended

Statutory federal income tax rates

i 21.0

State income taxes, net of federal tax benefit

i 6.1

i 5.7

i 3.8

Effect of federal rate change

i —

( i 1.8

)

Work opportunity and solar energy tax credit

( i 0.6

)

( i 1.0

)

( i 1.3

)

Charitable contributions

( i 0.2

)

( i 0.2

)

( i 0.5

)

Prior year adjustments

( i 0.2

)

i 0.1

Share-based compensation

( i 1.5

)

( i 2.7

)

( i 10.8

)

Other

( i 0.1

)

i 0.1

( i 2.0

)

Effective income tax rate

i 24.5

i 23.0

i 8.5

Significant components of the Company’s deferred tax assets and liabilities as of January 30, 2021 and February 1, 2020 are as follows (in thousands):

	*January 30, 2021*			*February 1, 2020*
Deferred tax assets:
Operating lease liability	$	i 593,699		$	i 590,952
Self-insurance reserves		i 34,272			i 28,459
Rental step liabilities		i —			i 266
Compensation and benefits		i 28,549			i 14,583
Interest		i —			i 4,281
Capital lease and financing obligations		i 2,881			i 2,061
Interest rate swap		i 8,620			i 10,988
Environment clean up reserve		i 4,450			i 4,027
Startup costs		i 2,413			i 2,838
Other		i 18,412			i 16,959
Total deferred tax assets	$	i 693,296		$	i 675,414

Deferred tax liabilities:
Operating lease right-of-use assets	$	i 576,425		$	i 576,787
Fixed assets		i 104,458			i 90,317
Intangible assets		i 37,834			i 41,156
Debt costs		i 1,849			i 3,605
Lease incentive gain		i 525			i 735
Other		i 11,564			i 9,014
Total deferred tax liabilities		i 732,655			i 721,614
Net deferred tax liabilities	$	( i 39,359	)	$	( i 46,200	)

The ultimate realization of deferred tax assets is dependent upon the Company’s ability to generate sufficient taxable income during the periods in which the temporary differences become deductible. The Company has determined that it is more likely than not that the results of future operations and the reversals of existing taxable temporary differences will generate sufficient taxable income to realize the deferred tax assets. Therefore, no valuation allowance has been recorded. In making this determination, the Company considered historical levels of income as well as projections for future periods.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	*Fiscal Year Ended*			*Fiscal Year Ended*
	*January 30, 2021*			*February 1, 2020*
Balance, beginning of period	$	i 2,161		$	i 2,524
Reductions for tax positions taken during prior years		i —			( i 244	)
Additions for tax positions taken during the current year		i 97			i 90
Lapses in statute of limitations		( i 57	)		( i 41	)
Audit resolution		i —			( i 168	)
Balance, end of period	$	i 2,201		$	i 2,161

The total amount of unrecognized tax benefits, reflective of federal tax benefits at both January 30, 2021 and February 1, 2020 that, if recognized, would favorably affect the effective tax rate was $ i 1.9 million.

As of January 30, 2021, management has determined it is reasonably possible that the total amount of unrecognized tax benefits could decrease within the next twelve months by less than $ i 0.1 million, due to the expected resolution of state tax audits and the expiration of statute of limitations. The Company’s tax years from 2016 forward remain open and are subject to examination by the Internal Revenue Service or various state taxing jurisdictions.

The Company classifies interest expense and any penalties related to income tax uncertainties as a component of income tax expense, which is consistent with the recognition of these items in prior reporting periods. For the period ended January 30, 2021, the Company recognized no interest expense. For the periods ended February 1, 2020 and February 2, 2019, the Company recognized $ i 0.3 million and $ i 0.4 million in interest income, respectively. As of both January 30, 2021 and February 1, 2020, the Company had $ i 0.2 million of accrued interest related to income tax uncertainties.

12.

Retirement Plans

Under BJ’s 401(k) savings plans, participating employees may make pretax contributions up to i 50% of covered compensation subject to federal limits. The Company matches employee contributions at i 50% of the first i six percent of covered compensation. The Company’s expense under these plans was $ i 11.6 million, $ i 10.0 million and $ i 9.3 million for fiscal years 2020, 2019 and 2018, 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. The Company’s contributions equaled i 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 full fiscal years of service. Pretax expense under this plan was $ i 2.8 million, $ i 2.6 million and $ i 2.4 million in fiscal years 2020, 2019 and 2018, respectively.

13.

Postretirement Medical Benefits

The Company has a defined-benefit postretirement medical plan which covers employees who retire after age i 55 with at least i 10 years of service, who are not eligible for Medicare, and who participated in a Company-sponsored medical plan. Spouses and eligible dependents are also covered under the plan. Amounts contributed by retired employees under this plan are based on years of service prior to retirement. The plan was amended in 2015 to limit eligibility to only those who met the eligibility criteria, of age and years of service, by June 30, 2017. The plan can no longer accept any new enrollees, with estimated future benefit payments ending by June 30, 2027.

The Company recognizes the funded status of the postretirement medical plan in the Consolidated Balance Sheets. The funded status represents the difference between the projected benefit liability obligation of the plan and the fair value of the plan’s assets. Previously unrecognized deferred amounts such as actuarial gains and losses and the impact of plan changes are included in accumulated other comprehensive income. Changes in these amounts in future years are adjusted as they occur through accumulated other comprehensive income. The discount rates presented in the tables below were selected by referencing yields on high quality corporate bonds, using the Citigroup Pension Yield Curve.

Obligation and Funded Status

The changes in obligation and funded status of the plan at January 30, 2021 and February 1, 2020 were as follows (in thousands):

	*Fiscal Year Ended*			*Fiscal Year Ended*
	*January 30, 2021*			*February 1, 2020*
Change in Obligation
Projected benefit obligation, beginning of period	$	i 3,606		$	i 4,174
Company service cost		i 58			i 88
Interest cost		i 57			i 115
Plan participants’ contributions		i 197			i 225
Net actuarial loss		( i 271	)		( i 279	)
Benefit payments made directly by the Company		( i 901	)		( i 717	)
Projected benefit obligation, end of period	$	i 2,746		$	i 3,606
Change in Plan Assets
Fair value of plan assets, beginning of period	$	i —		$	i —
Company contributions		i 704			i 492
Plan participants’ contributions		i 197			i 225
Benefit payments made directly by the Company		( i 901	)		( i 717	)
Fair value of plan assets, end of period		i —			i —
Funded status, end of year	$	( i 2,746	)	$	( i 3,606	)

The funded status of the plan as of January 30, 2021 is recognized as a net liability in other non-current liabilities on the Consolidated Balance Sheets. The Company expects to contribute approximately $ i 0.6 million to the postretirement plan in fiscal year 2021.

Components of Net Periodic Benefit Cost and Amounts Recognized in Other Comprehensive Income (Loss)

Net periodic postretirement benefit cost for the last three fiscal years consists of the following (in thousands):

Fiscal Year Ended

Service cost

i 58

i 88

i 143

Interest cost

i 57

i 115

i 150

Net prior service credit amortization

( i 48

)

( i 693

)

( i 693

)

Amortization of unrecognized gain

( i 638

)

( i 962

)

( i 316

)

Net periodic postretirement benefit cost

( i 571

)

( i 1,452

)

( i 716

)

Discount rate used to determine cost

i 1.74

i 3.04

i 3.00

Health care cost trend rates

i 6.00

i 6.50

The change in accumulated other comprehensive loss ("AOCL"), gross of tax, consists of the following (in thousands):

	*Fiscal Year Ended*			*Fiscal Year Ended*
	*January 30, 2021*			*February 1, 2020*
AOCL, the beginning of period	$	( i 2,282	)	$	( i 3,658	)
Net prior service credit amortization		i 48			i 693
Amortization of net actuarial gain		i 638			i 962
Net actuarial loss		( i 271	)		( i 279	)
AOCL, the end of the period	$	( i 1,867	)	$	( i 2,282	)

The Company expects to amortize approximately $ i 0.8 million of net actuarial gain from AOCL into net periodic postretirement benefit cost in fiscal year 2021.

Assumptions

The following weighted-average assumptions were used to determine the postretirement benefit obligations:

	*January 30, 2021*			*February 1, 2020*
Discount rate		i 1.74	%		i 3.04	%
Health care cost trend rate assumed for next year		i 6.00	%		i 6.50	%
Ultimate trend rate		i 5.00	%		i 5.00	%
Year that the rate reaches the ultimate trend rate	2024			2024

Cash Flows

The estimated future benefit payments for the postretirement health care plan at January 30, 2021 are (in thousands):

Fiscal Year	*Future Minimum Payments*
2021	$	i 553
2022		i 602
2023		i 568
2024		i 485
2025		i 404
2026 to 2030		i 249
Total	$	i 2,861

14.

Asset Retirement Obligations

The following is a summary of activity relating to the liability for asset retirement obligations, which the Company will incur primarily in connection with the future removal of solar panels, gasoline tanks and the related infrastructure. The following is included in other non-current liabilities on the Consolidated Balance Sheets (in thousands):

Fiscal Year Ended

Balance, beginning of period

i 17,153

i 15,248

i 12,998

Accretion expense

i 1,302

i 1,111

i 1,031

Liabilities incurred during the year

i 874

i 794

i 1,219

Balance, end of period

i 19,329

i 17,153

i 15,248

15.

Accrued Expenses and Other Current Liabilities

The major components of accrued expenses and other current liabilities are as follows (in thousands):

	*January 30, 2021*		*February 1, 2020*
Deferred membership fee income	$	i 155,580	$	i 143,969
Employee compensation		i 132,341		i 70,481
Outstanding checks and payables		i 119,761		i 97,610
Insurance reserves		i 46,042		i 48,457
Sales, property, use and other taxes		i 43,803		i 32,442
BJ’s Perks rewards		i 34,452		i 35,952
Other		i 23,429		i 17,599
Utilities, advertising and accrued interest		i 22,809		i 16,166
Deferred revenues		i 18,118		i 30,697
Fixed asset accruals		i 13,131		i 11,247
Membership fee income sales and legal reserves		i 12,360		i 10,858
Repairs and maintenance		i 11,347		i 9,993
Gift cards		i 10,293		i 10,298
Professional services		i 7,371		i 5,445
Accrued federal and state income taxes		i 788		i 6,662
Total	$	i 651,625	$	i 547,876

The following table summarizes membership fee income activity for each of the last two fiscal years (in thousands):

	*Fiscal Year Ended*			*Fiscal Year Ended*
	*January 30, 2021*			*February 1, 2020*
Deferred membership fee income, beginning of period	$	i 143,969		$	i 134,415
Cash received from members		i 344,715			i 311,705
Revenue recognized in earnings		( i 333,104	)		( i 302,151	)
Deferred membership fee income, end of period	$	i 155,580		$	i 143,969

16.

Other Non-current Liabilities

The major components of other non-current liabilities are as follows (in thousands):

	*January 30, 2021*		*February 1, 2020*
Workers’ compensation and general liability	$	i 88,982	$	i 64,882
Co-brand deferred revenue and other		i 12,579		i 15,901
Interest rate swap liability		i 25,279		i 39,244
Asset retirement obligations		i 19,329		i 17,153
Capital leases and financing obligations		i 14,118		i 15,230
Deferred wage taxes		i 20,593		i —
Total other non-current liabilities	$	i 180,880	$	i 152,410

17.

Derivative Financial Instruments

Interest Rate Swaps

On November 13, 2018, the Company entered into i three forward starting interest rate swaps (the "Interest Rate Swaps"), which were effective starting on February 13, 2019 and fixed the LIBOR component of $ i 1.2 billion of its floating rate debt at a rate of approximately i 3.0% from February 13, 2019 until February 13, 2022.

On October 30, 2020, the Company borrowed $ i 260.0 million from the ABL Facility. The proceeds from the Company's borrowing, as well as $ i 100.0 million of the Company's cash and cash equivalents, were used to pay $ i 360.0 million of the principal amount due on the First Lien Term Loan. Due to the payment of debt principal on the First Lien Term Loan, the Company determined that certain interest payments are no longer probable and that a portion of one of the interest rate swap agreements would be ineffective as a result of the payment of debt principal, and as such reclassified $ i 5.1 million of losses recorded in other comprehensive income to interest expense.

On November 10, 2020, the Company terminated one of the Interest Rate Swaps, which fixed $ i 360.0 million of its floating rate debt at a rate of approximately i 3.0%. An additional interest rate swap, which fixed $ i 240.0 million of its floating rate debt at i 3.0% was determined to be ineffective. Gains and losses on the ineffective interest rate swap agreement will be recorded as interest expense.

The Interest Rate Swaps are recorded as a liability of $ i 26.4 million in fiscal year 2020, with the net of tax amount for the effective and ineffective Interest Rate Swaps recorded in other comprehensive income and interest expense, respectively. The Interest Rate Swaps are recorded as a liability of $ i 40.0 million in fiscal year 2019, with the net of tax amount for the effective Interest Rate Swaps recorded in other comprehensive income.

The Company elected hedge accounting for the interest rate swap agreements, and as such, the effective portion of the losses was recorded as a component of other comprehensive income. There were $ i 1.7 million in unrealized gains and $ i 20.6 million of unrealized losses recorded in fiscal years 2020 and 2019, respectively.

The fair value of derivative instruments included on the Consolidated Balance Sheets are as follows (in thousands):

Accounting for Cash Flow Hedges

Notional Amount

Fixed Rate

Balance Sheet Classification

Interest rate swap

i 600,000

i 3.00

Other non-current liabilities

( i 18,828

)

( i 20,035

)

Interest rate swap

i 360,000

i 3.00

Other non-current liabilities

i —

( i 11,997

)

Interest rate swap

i 240,000

i 3.00

Other non-current liabilities

( i 7,525

)

( i 8,003

)

Net carrying amount

i 1,200,000

Total liabilities

( i 26,353

)

( i 40,035

)

18.

Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The fair values of the Company’s derivative instruments are based on quotes received from third-party banks and represent the estimated amount the Company would pay to terminate the agreements taking into consideration current interest rates as well as the creditworthiness of the counterparties. These inputs are considered to be Level 2.

Financial Assets and Liabilities

The gross carrying amount and fair value of the Company’s debt at January 30, 2021 are as follows (in thousands):

	*Carrying Amount*		*Fair Value*
First Lien Term Loan	$	i 801,920	$	i 802,256
ABL Facility		i 310,000		i 310,000
Total Debt	$	i 1,111,920	$	i 1,112,256

The fair value of debt was determined based on quoted market prices and on borrowing rates available to the Company at January 30, 2021. These inputs are considered to be Level 2.

The gross carrying amount and fair value of the Company’s debt at February 1, 2020 are as follows (in thousands):

	Carrying Amount		Fair Value
First Lien Term Loan	$	i 1,315,216	$	i 1,319,990
ABL Facility		i 378,000		i 378,000
Total Debt	$	i 1,693,216	$	i 1,697,990

The fair value of debt was determined based on quoted market prices and borrowing rates available to the Company at February 1, 2020. These inputs are considered to be Level 2.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

The Company measures certain non-financial assets and liabilities, including long-lived assets, at fair value on a non-recurring basis. See Note 2 for further information.

The Company believes that the carrying amounts of its other financial instruments, including cash, accounts receivable, and accounts payable approximates their carrying value due to the short-term maturities of these instruments.

19.

Earnings Per Share

The table below reconciles basic weighted-average common shares outstanding to diluted weighted-average common shares outstanding for fiscal years 2020, 2019 and 2018:

Fiscal Year Ended

Weighted-average common shares outstanding

i 136,110,860

i 136,173,675

i 116,599,102

Plus: Incremental shares of potentially dilutive securities

stock incentive awards

i 2,765,637

i 2,935,513

i 4,535,748

Weighted-average number of common and dilutive potential common shares outstanding

i 138,876,497

i 139,109,188

i 121,134,850

Stock options of i 276,415 and i 626,976 shares were excluded from the computation of diluted earnings for fiscal years 2020 and 2019, respectively, because their inclusion would have been anti-dilutive. Restricted shares of i 206,698 and i 466,778 were excluded from the computation of diluted earnings for fiscal years 2020 and 2019, respectively, because their inclusion would have been anti-dilutive. Similarly, stock incentive awards of i 1,190,597 shares were excluded from the computation of diluted earnings for the end of fiscal year 2018.

20.

Condensed Financial Information of Registrant (Parent Company Only)

BJ’S WHOLESALE CLUB HOLDINGS, INC.

(PARENT COMPANY ONLY)

CONDENSED BALANCE SHEETS

(Amounts in thousands)

	*Fiscal Year Ended*			*Fiscal Year Ended*
	*January 30, 2021*			*February 1, 2020*
ASSETS
Investment in subsidiaries	$	i 319,327		$	( i 54,344	)

STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred stock; $0.01 par value; 5,000 shares authorized, and no shares issued or outstanding	$	i -		$	i -
Common stock; $0.01 par value; 300,000 shares authorized, 143,428 shares issued and 137,192 shares outstanding at January 30, 2021; 300,000 shares authorized, 140,723 shares issued and 137,298 shares outstanding at February 1, 2020		i 1,434			i 1,407
Additional paid-in capital		i 805,849			i 747,032
Accumulated deficit		( i 295,339	)		( i 716,369	)
Treasury stock, at cost, 6,236 shares at January 30, 2021 and 3,425 shares at February 1, 2020		( i 192,617	)		( i 86,414	)
Total stockholders’ equity (deficit)	$	i 319,327		$	( i 54,344	)

BJ’S WHOLESALE CLUB HOLDINGS, INC.

(PARENT COMPANY-ONLY)

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Amounts in thousands, except per share amounts)

Fiscal Year Ended