See
Notes
to Condensed Consolidated Financial Statements.
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC. AND
SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
(unaudited)
|
|
(All
amounts in thousands)
|
|
|
|
|
|
|
|
Six
Months Ended
|
|
Three
Months Ended
|
|
|
|
Successor
|
|
Predecessor
|
|
Successor
|
|
Predecessor
|
|
|
|
December
2, 2006
|
|
November
26, 2005
|
|
December
2, 2006
|
|
November
26, 2005
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
1,641,613
|
|
$
|
1,596,257
|
|
$
|
984,767
|
|
$
|
945,409
|
|
Other
Revenue
|
|
|
19,554
|
|
|
15,841
|
|
|
12,134
|
|
|
8,517
|
|
|
|
|
1,661,167
|
|
|
1,612,098
|
|
|
996,901
|
|
|
953,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales (Exclusive of Depreciation and Amortization)
|
|
|
1,027,383
|
|
|
1,014,056
|
|
|
600,469
|
|
|
588,721
|
|
Selling
and Administrative Expenses
|
|
|
534,641
|
|
|
498,593
|
|
|
287,581
|
|
|
264,153
|
|
Depreciation
|
|
|
72,176
|
|
|
45,063
|
|
|
37,192
|
|
|
22,435
|
|
Amortization
|
|
|
22,897
|
|
|
482
|
|
|
11,964
|
|
|
458
|
|
Interest
Expense
|
|
|
70,630
|
|
|
3,344
|
|
|
35,216
|
|
|
1,531
|
|
Other
(Income) Loss, Net
|
|
|
(1,663
|
)
|
|
2,492
|
|
|
(682
|
)
|
|
2,611
|
|
|
|
|
1,726,064
|
|
|
1,564,030
|
|
|
971,740
|
|
|
879,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
Income Before Income Tax (Benefit)
Expense
|
|
|
(64,897
|
)
|
|
48,068
|
|
|
25,161
|
|
|
74,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Income Tax (Benefit)Expense
|
|
|
(24,836
|
)
|
|
18,602
|
|
|
13,414
|
|
|
28,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss) Income
|
|
|
(40,061
|
)
|
|
29,466
|
|
|
11,747
|
|
|
45,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Unrealized (Loss) on Non-Marketable
Securities,
Net of Tax
|
|
|
-
|
|
|
(2
|
)
|
|
-
|
|
|
(2
|
)
|
Total
Comprehensive (Loss) Income
|
|
$
|
(40,061
|
)
|
$
|
29,464
|
|
$
|
11,747
|
|
$
|
45,371
|
|
See
Notes
to Condensed Consolidated Financial Statements.
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC. AND
SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(Unaudited)
|
|
(All
amounts in thousands)
|
|
|
|
|
|
Six
Months Ended
|
|
|
|
Successor
|
|
Predecessor
|
|
|
|
December
2, 2006
|
|
November
26, 2005
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
(40,061
|
)
|
$
|
29,466
|
|
Adjustments
to Reconcile Net Income (Loss) to Net Cash Provided
by
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
72,176
|
|
|
45,063
|
|
Amortization
|
|
|
22,897
|
|
|
-
|
|
Accretion
|
|
|
5,759
|
|
|
-
|
|
Interest
Rate Cap Contract - Adjustment to Market
|
|
|
1,675
|
|
|
-
|
|
Provision
for Losses on Accounts Receivable
|
|
|
1,460
|
|
|
1,905
|
|
Provision
for Deferred Income Taxes
|
|
|
(25,602
|
)
|
|
(1,726
|
)
|
Loss
on Disposition of Fixed Assets and Leaseholds
|
|
|
91
|
|
|
2,130
|
|
Non-Cash
Stock Compensation Expense
|
|
|
4,513
|
|
|
-
|
|
Non-Cash
Rent Expense and Other
|
|
|
7,196
|
|
|
3,210
|
|
Changes
in Assets and Liabilities
|
|
|
|
|
|
|
|
Investments
|
|
|
(192
|
)
|
|
53,589
|
|
Accounts
Receivable
|
|
|
(2,313
|
)
|
|
(22,766
|
)
|
Merchandise
Inventories
|
|
|
(205,074
|
)
|
|
(179,490
|
)
|
Prepaid
and Other Current Assets
|
|
|
(2,174
|
)
|
|
(1,328
|
)
|
Accounts
Payable
|
|
|
191,431
|
|
|
254,583
|
|
Accrued
and Other Current Liabilities
|
|
|
44,318
|
|
|
37,898
|
|
Net
Cash Provided by Operating Activities
|
|
|
76,100
|
|
|
222,534
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
Cash
Paid for Property and Equipment
|
|
|
(39,176
|
)
|
|
(45,993
|
)
|
Change
in Restricted Cash and Cash Equivalents
|
|
|
8
|
|
|
105
|
|
Proceeds
From Sale of Fixed Assets
|
|
|
4,648
|
|
|
656
|
|
Issuance
of Notes Receivable
|
|
|
(33
|
)
|
|
(31
|
)
|
Other
|
|
|
47
|
|
|
15
|
|
|
|
|
|
|
|
|
|
Net
Cash Used in Investing Activities
|
|
|
(34,506
|
)
|
|
(45,248
|
)
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
Proceeds
from Long Term Debt - ABL Line of Credit
|
|
|
244,900
|
|
|
-
|
|
Principal
Payments on Long Term Debt
|
|
|
(1,105
|
)
|
|
(100,960
|
)
|
Principal
Payments on Term Loan
|
|
|
(13,500
|
)
|
|
-
|
|
Principal
Payments on ABL Line of Credit
|
|
|
(292,139
|
)
|
|
-
|
|
Equity
Investment
|
|
|
200
|
|
|
44
|
|
|
|
|
|
|
|
|
|
Net
Cash Used in Financing Activities
|
|
|
(61,644
|
)
|
|
(100,916
|
)
|
Increase
(Decrease) in Cash and Cash Equivalents
|
|
|
(20,050
|
)
|
|
76,370
|
|
Cash
and Cash Equivalents at Beginning of Period
|
|
|
58,376
|
|
|
47,953
|
|
Cash
and Cash Equivalents at End of Period
|
|
$
|
38,326
|
|
$
|
124,323
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information;
|
|
|
|
|
|
|
|
Interest
Paid
|
|
$
|
68,673
|
|
$
|
3,921
|
|
Income
Taxes Paid
|
|
$
|
2,825
|
|
$
|
16,064
|
|
|
|
|
|
|
|
|
|
Non-Cash
Investing Activities: Accrued Purchases of Property and
Equipment
|
|
$
|
(773
|
)
|
$
|
3,784
|
|
|
|
|
|
|
|
|
|
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
AND THREE MONTH PERIODS ENDED DECEMBER 2, 2006 (SUCCESSOR) AND
NOVEMBER
26, 2005 (PREDECESSOR)
(UNAUDITED)
1.
Basis of Presentation
The
condensed consolidated financial statements include the accounts of Burlington
Coat Factory Investments Holdings, Inc. and all its subsidiaries (“Company").
Burlington Coat Factory Investments Holdings, Inc. has no operations and
its
only asset is all of the stock in Burlington Coat Factory Warehouse Corporation.
All discussions of operations in this report relate to Burlington Coat
Factory
Warehouse Corporation and its subsidiaries (“BCFWC”), which are reflected in the
financial statements of Burlington Coat Factory Investments Holdings, Inc.
and
its subsidiaries (“Holdings”). Except as expressly indicated or unless the
context otherwise requires, as used herein the “Company”, “we”, “us”, or “our”
means Burlington Coat Factory Investments Holdings, Inc. and its subsidiaries.
The accompanying financial statements are unaudited, but in the opinion
of
management reflect all adjustments (which are of a normal and recurring
nature)
necessary for a fair presentation of the results of operations for the
interim
periods. The balance sheet at June 3, 2006 has been derived from the audited
financial statements in the Company's financial statements as of June 3,
2006.
Because the Company's business is seasonal in nature, the operating results
for
the six and three month periods ended December 2, 2006 and the corresponding
periods ended November 26, 2005 are not necessarily indicative of results
for
the fiscal year.
Although
BCFWC continued as the same legal entity after the Merger Transaction (described
below in Note 2), the accompanying condensed consolidated balance sheets,
statements of operations and cash flows are presented for two periods:
Predecessor and Successor, which relate to the period preceding the Merger
and
the period succeeding the Merger, respectively. We refer to the operations
of
BCFWC and subsidiaries for both the Predecessor and Successor
periods.
2. Merger
Transaction
On
January 18, 2006, BCFWC entered into an Agreement and Plan of Merger, dated
as
of January 18, 2006 (the “Merger Agreement”), by and among BCFWC, Burlington
Coat Factory Holdings, Inc. (f/k/a BCFWC Acquisition, Inc.) (“Parent”) and BCFWC
Mergersub, Inc. (“Merger Sub”) to sell all of the outstanding common stock of
BCFWC to Parent through a merger with Merger Sub, which were entities directly
and indirectly owned by entities affiliated with Bain Capital Partners,
LLC
(collectively, the “Equity Sponsors” or “Investors”).
On
April
13, 2006, the transaction was consummated by the Equity Sponsors through
a $2.1
billion merger of Acquisition Sub with and into BCFWC, with BCFWC being
the
surviving corporation in the merger (the “Merger”). Under the Merger Agreement,
the former holders of BCFWC’s common stock, par value $1.00 per share, received
$45.50 per share. The Merger consideration was funded through the use of
BCFWC’s
available cash, cash equity contributions from the Equity Sponsors and
the debt
financings as described more fully below. We refer to the April 13, 2006
Merger
as the “Merger Transaction.”
Immediately
following the consummation of the Merger Transaction, Parent entered into
a
Contribution Agreement with Holdings to effectuate an exchange of shares
whereby
Parent delivered to Holdings all of the outstanding shares in BCFWC, and
Holdings simultaneously issued and delivered to the parent 1,000 shares
of
common stock constituting all of Holdings’ issued and outstanding
stock.
The
following principal equity capitalization and financing transactions occurred
in
connection with the Merger Transaction:
|
•
|
|
Aggregate
cash equity contributions of approximately $445 million were
made by the
Equity Sponsors and $0.8 million in cash from members of management;
and
|
|
•
|
|
BCFWC
(1) entered into an $800 million secured ABL Credit Facility, of
which $225 million was drawn at closing, (2) entered into a $900
million secured term loan agreement, all of which was drawn at
closing,
(3) issued $305 million face amount 11 1/8% Senior Notes due
2014 at a
discount of which all the $299 million proceeds were used to
finance the
Merger Transaction and (4) received a cash contribution
from Holdings of $75 million from an issuance of $99.3 million
14 ½ %
Senior Discount Notes due 2014, all of which was also used to
finance the
Merger Transaction.
|
The
proceeds from the equity capitalization and financing transactions, together
with $193 million of our available cash, were used to fund the:
|
•
|
|
Purchase
of common stock outstanding of approximately $2.1 billion;
|
|
•
|
|
Settlement
of all stock options of BCFWC under the terms of the Merger Agreement
of
approximately $13.8 million; and
|
|
•
|
|
Fees
and expenses related to the Merger Transaction and the related
financing
transactions of approximately $90.8
million.
|
Immediately
following the consummation of the Merger Transaction, the Equity Sponsors
indirectly owned 98.5% of the Parent and management owned 1.5% of the Parent.
In
connection with the Merger Transaction, effective as of April 13, 2006,
the
Certificate of Incorporation of BCFWC Mergersub, Inc. became the BCFWC’s
Certificate of Incorporation which resulted in the following changes to
the
BCFWC’s authorized capital stock from 5,000,000 preferred shares, par value
$1.00 per share, and 100,000,000 common shares, par value $1.00 per share
to
1,000 preferred shares, par value $0.01 per share, and 10,000 common shares,
par
value $1.00 per share, authorized shares of capital stock. As of June 3,
2006
and December 2, 2006, 1,000 shares of BCFWC common stock were held by Holdings
and all 1,000 shares of Holdings were held by Parent.
3. Principles
of Consolidation
The
unaudited condensed consolidated financial statements include the accounts
of
Burlington Coat Factory Investments Holdings, Inc. and all its subsidiaries
in
which it has the controlling financial interest through direct ownership
of a
majority voting interest or a controlling managerial interest. All subsidiaries
are wholly owned except one, of which we own seventy-five percent. The
investment is consolidated, net of its minority interest. All significant
intercompany accounts and transactions have been eliminated.
Holdings
was incorporated in the State of Delaware on April 10, 2006. Holdings’
Certificate of Incorporation authorizes 1,000 shares of common stock, par
value
of $0.01 per share. All 1,000 shares are issued and outstanding and Parent
is
the only holder of record of this stock.
Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in
the
United States of America have been condensed or omitted. It is suggested
that
these condensed consolidated financial statements be read in conjunction
with
the financial statements and notes thereto included in the Company's
registration statement filed with the SEC on October 10, 2006 on Form S-4,
as
amended.
4.
Restricted Cash and Cash Equivalents
Restricted
cash and cash equivalents consist of $11.4 million pledged as collateral
for
certain insurance contracts and $2.4 million contractually restricted and
related to the acquisition and maintenance of a building related to a store
operated by the Company.
5.
Inventories
Merchandise
inventories as of December 2, 2006 and June 3, 2006 are valued at the lower
of
cost, on a First In First Out (FIFO) basis, or market, as determined by
the
retail inventory method. The Company records its cost of merchandise (net
of
purchase discounts and certain vendor allowances), certain merchandise
acquisition costs (primarily commissions and import fees), inbound freight,
warehouse outbound freight, and freight on internally transferred merchandise
in
the line item "Cost of Sales" in the Company's Condensed Consolidated Statement
of Operations. Costs associated with the Company's warehousing, distribution,
buying, and store receiving functions are included in the line items "Selling
and Administrative Expenses", "Depreciation” and “Amortization” in the Company's
Condensed Consolidated Statement of Operations. Warehousing and purchasing
costs
included in Selling and Administrative Expenses amounted to $30.6 million
and
$16.3 million for the six and three month periods ended December 2, 2006,
respectively, and $24.6 million and $12.7 million for the three and six
month
periods ended November 26, 2005, respectively. Depreciation related to
the
warehousing and purchasing functions amounted to $5.1 million and
$2.7 million
for the six and three month periods ended December 2, 2006 and $4.2 million
and
$2.0 million for the six and three month periods ended November 26, 2005.
Also
included in Selling and Administrative Expenses are payroll and payroll
related
expenses, occupancy related expenses, advertising expenses, store operating
expenses and corporate overhead expenses. The Company also establishes
reserves
for potentially excess and obsolete inventories based on current inventory
levels, historical analysis of product sales and current market conditions.
The
reserves are revised, if necessary, on a quarterly basis for adequacy. The
Company's reserves against inventory were $28.8 million and $8.9 million
as of
December 2, 2006 and June 3, 2006, respectively. The increase in the reserves
against inventory primarily relates to additional estimated inventory shrinkage
for the six months ended December 2, 2006.
6.
Investments
The
Company classifies its investments in debt and equity securities into
held-to-maturity, available-for-sale or trading categories in accordance
with
the provisions of Statement of Financial Accounting Standards ("SFAS")
No. 115,
Accounting
For Certain Investments in Debt and Equity Securities. Debt
securities are classified as held-to-maturity when the Company has the
positive
intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost. Debt securities not classified
as
held-to-maturity are classified as trading securities and are carried at
fair
market value, with unrealized gains and losses included in net income (loss).
The Company's investments not classified as held-to-maturity or trading
securities are classified as available-for-sale and are carried at fair
market
value, with unrealized gains and losses, net of tax, reported as a separate
component of stockholders' equity. At the balance sheet dates presented,
investments consisted of (in thousands):
|
|
December
2, 2006
|
|
|
|
Cost
|
|
Unrealized
Gains
|
|
Fair
Market
Value
|
|
Trading
Securities (Current):
|
|
|
|
|
|
|
|
|
|
|
Short
Term Municipal Bond Investments
|
|
$
|
150
|
|
$
|
0
|
|
$
|
150
|
|
Equity
Investments
|
|
|
431
|
|
|
202
|
|
|
633
|
|
|
|
$
|
581
|
|
$
|
202
|
|
$
|
783
|
|
|
|
June
3, 2006
|
|
|
|
Cost
|
|
Unrealized
Gains
|
|
Fair
Market
Value
|
|
Trading
Securities (Current):
|
|
|
|
|
|
|
|
|
|
|
Equity
Investments
|
|
$
|
431
|
|
$
|
160
|
|
$
|
591
|
|
7.
Revenue Recognition
The
Company records revenue at the time of sale and delivery of merchandise
net of
allowances for estimated future returns.
with
Staff Accounting Bulletin ("SAB") No. 101, Revenue
Recognition in Financial Statements, as
revised and rescinded by SAB No. 104, Revenue
Recognition.
Layaway
sales are recognized upon delivery of merchandise to the customer. The
amount of
cash received upon initiation of the layaway is recorded as a deposit liability
within other current liabilities. Gift cards are recorded as a liability
at the
time of issuance, and upon redemption the related sale is recorded. Except
where
prohibited by law, after 12 months of non-use, a monthly maintenance fee
is
deducted from the remaining balance of the gift card and is recorded as
other
revenue.
8.
Other Income (Loss), Net
Other
Income (Loss), Net consists of investment income, losses from disposition
of
fixed assets and other miscellaneous income items. Investment income amounted
to
$2.1 million and $1.3 million for the six and three month periods ended
December
2, 2006, respectively, compared with investment income of $2.8 million
and $1.4
million for the similar six and three month periods of a year ago. Losses
from
disposition of fixed assets amounted to $0.1 million for each of the six
and
three month periods ended December 2, 2006. Losses from disposition of
fixed
assets amounted to $2.1 million and $0.7 million for the six and three
month
periods ended November 26, 2005. For the six and three month periods ended
December 2, 2006, the Company recorded miscellaneous losses of $0.8 million
related to the write-off of the net book value of assets damaged at one
of its
store locations. During the comparative six and three month periods of
fiscal
2006, the Company recorded miscellaneous losses of $3.5 million related
to the
write-off of the net book value of assets damaged during Hurricanes Katrina
and
Wilma.
9.
Income Taxes
As
of
December 2, 2006, the Company had a current deferred tax asset of $32.3
million
and a non-current deferred tax liability of $586.5 million. As of June
3, 2006,
the Company had a current deferred tax asset of $27.9 million and a non-current
deferred tax liability of $607.6 million. Income taxes are provided on
an
interim basis based upon the Company's estimate of the effective annual
income
tax rate. As of December 2, 2006 and June 3, 2006, valuation allowances
amounted
to $10.6 million and related primarily to state tax net operating losses.
The
Company believes it is unlikely that it will be able to utilize the benefit
of
these losses in the future. Current deferred tax assets consisted primarily
of
certain operating costs and certain inventory related costs not currently
deductible for tax purposes and tax loss carry forwards. Non-current deferred
tax liabilities primarily reflected rent expense, pre-opening costs, intangible
costs and depreciation expense not currently deductible for tax
purposes.
10.
Intangible Assets
The
Company accounts for intangible assets in compliance with SFAS No. 142,
Goodwill
and Other Intangible Assets.
The
Company’s intangible assets primarily represent tradenames and net favorable
lease positions. The tradename asset “Burlington Coat Factory” is expected to
generate cash flows indefinitely and does not have an estimable or finite
useful
life; and therefore, is accounted for as an indefinite-lived asset not
subject
to amortization. The values of favorable and unfavorable lease positions
are
amortized on a straight line basis over the expected lease terms. Amortization
of net favorable lease positions is included in “Amortization” on the
accompanying Condensed Consolidated Statement of Operations.
The
Company tests identifiable intangible assets with an indefinite life for
impairment, at a minimum on an annual basis, relying on a number of factors,
including operating results, business plans and projected future cash flows.
The
impairment test for identifiable assets not subject to amortization consists
of
a comparison of the fair value of the intangible assets with its carrying
amount. Identifiable intangible assets that are subject to amortization
are
evaluated for impairment using a process similar to that used to evaluate
other
long-lived assets as described in Note 24. An impairment loss is recognized
for
the amount by which the carrying value exceeds the fair value of the
asset.
Intangible
assets as of December 2, 2006 and June 3, 2006 are as follows (in
thousands):
|
|
December
2, 2006
|
|
June
3, 2006
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Amount
|
|
Tradename
|
|
|
|
$
|
526,300
|
|
$
|
-
|
|
$
|
526,300
|
|
$
|
526,300
|
|
$
|
-
|
|
|
|
$
|
526,300
|
|
|
|
|
Net
Favorable Leases
|
|
|
|
$
|
631,149
|
|
$
|
(22,268
|
)
|
$
|
608,881
|
|
$
|
631,149
|
|
$
|
(4,473
|
)
|
|
|
$
|
626,676
|
|
|
|
|
Amortization
expense related to net favorable leases amounted to $17.8 million and $9.4
million for the six and three month periods ended December 2, 2006,
respectively. Amortization expense of net favorable leases for each of
the next
five fiscal
years
is
estimated to be as follows: fiscal 2008 - $33.4 million; fiscal 2009 -
$33.4
million; fiscal 2010 - $33.4 million; fiscal 2011 - $33.4 million; and
fiscal
2012 - $33.2 million. Amortization for the remainder of fiscal 2007 is
expected
to be approximately $15.8 million.
11.
Goodwill
Goodwill
represents the excess of the acquisition cost over the estimated fair value
of
tangible assets and other identifiable assets acquired less liabilities
assumed.
Other identifiable intangible assets include tradenames and net favorable
leases. Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets
(“SFAS
No. 142”) replaces the amortization of goodwill and indefinite-lived
intangible assets with periodic tests for the impairment of these assets.
SFAS
No. 142 requires a comparison, at least annually, of the net book value of
the assets and liabilities associated with a reporting unit, including
goodwill,
with the fair value of the reporting unit, which corresponds to the discounted
cash flows of the reporting unit, in the absence of an active market for
such
unit. The Company’s annual impairment test for impairment of all reporting units
occurs during the fourth quarter of each year. The Company has recorded
$59.0
million in goodwill in connection with the Merger Transaction.
12.
Other Assets
Other
assets consist primarily of deferred financing fees, notes receivable and
the
net accumulation of excess rent income, accounted for on a straight line
basis,
over actual rental income receipts.
13.
Other Current Liabilities
Other
current liabilities primarily consist of sales tax payable, unredeemed
store
credits and gift certificates, accrued payroll costs, accrued insurance
costs,
accrued operating expenses, layaway deposits, payroll taxes payable, current
portion of deferred rent expense and other miscellaneous items.
14.
Other Liabilities
Other
liabilities primarily consist of deferred lease incentives and the net
accumulation of excess straight line rent expense over actual rental
expenditures. Deferred lease incentives are funds received or receivable
from
landlords used primarily to offset the costs of store remodelings. These
deferred lease incentives are amortized over the expected lease term including
rent holiday periods and option periods where the exercise of the option
can be
reasonably assured.
15.
Lines of Credit
In
connection with the Merger Transaction, BCFWC entered into an $800 million
Available Business Line (ABL) senior secured revolving credit facility.
The
facility is for a five year period at an interest rate of LIBOR plus a
spread
which is determined by the Company’s annual average borrowings outstanding. The
maximum borrowing under the facility during the six month period ended
December
2, 2006 was $365.0 million. Average borrowings during the period amounted
to
$274.4 million at an average interest rate of 7.1%. At December 2, 2006
and June
3, 2006, $165.0 million and $212.2 million, respectively, were outstanding
under
this credit facility. Commitment fees of .25% are charged on the unused
portion
of the facility and are included in the line item “Interest Expense” on the
Company’s Condensed Consolidated Statements of Operations.
16.
Store Exit Costs
The
Company establishes reserves covering future lease obligations of closed
stores.
These reserves are included in the line item “Other Liabilities” in the
Company’s Condensed Consolidated Balance Sheets. Reserves at December 2, 2006
and June 3, 2006 consisted of (in thousands):
Fiscal
Year Reserve Established
|
|
Balance
at
June
3, 2006
|
|
Additions
|
|
Payments
|
|
Balance
at
December
2, 2006
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
$
|
377
|
|
|
-
|
|
$
|
(
80
|
)
|
$
|
297
|
|
2006
|
|
|
494
|
|
|
-
|
|
|
(494
|
)
|
|
-
|
|
|
|
$
|
871
|
|
|
-
|
|
$
|
(574
|
)
|
$
|
297
|
|
The
Company believes that these reserves are adequate to cover the expected
contractual lease payments and other ancillary costs related to the closings.
Scheduled rent related payments for the costs over the remainder of the
contractual obligation periods are: fiscal 2007 - $0.1 million, fiscal
2008 -
$0.1 million and fiscal 2009 - $0.1 million.
17.
Long Term Debt
Long-term
debt consists of (in thousands):
|
|
December
2, 2006
|
|
June
3, 2006
|
|
Industrial
Revenue Bonds, 6.0% due in semi-annual payments of various amounts
from
September 1, 2004 to September 1, 2010
|
|
$
|
4,190
|
|
$
|
5,000
|
|
Promissory
Note, 4.43% due in monthly payments of $8 through December
23, 2011
|
|
|
412
|
|
|
447
|
|
Promissory
Note, non-interest bearing, due in monthly payments of $17
through January 1, 2012
|
|
|
1,033
|
|
|
1,133
|
|
Senior
Notes, 11⅛% due at maturity on April 15, 2014, semi-annual
interest payments from October 15, 2006 to April 15,
2014
|
|
|
299,415
|
|
|
299,179
|
|
Senior
Discount Notes, 14.5% due at maturity on October 15, 2014.
Semi-annual discount accretion to maturity amount from October 15,
2006 to April 15, 2008
and semi-annual interest payments from October 15, 2008 to October
15,
2014.
|
|
|
82,040
|
|
|
76,517
|
|
$900
million senior secured term loan facility, Libor plus 2.25% due
in
quarterly payments of $2,250 from May 30, 2006 to May 28, 2012 with
remaining balance payable quarterly in equal amounts through
May 28,
2013.
|
|
|
884,250
|
|
|
897,750
|
|
$800
million ABL senior secured revolving facility, Libor plus spread
based
on average outstanding balance.
|
|
|
165,000
|
|
|
212,239
|
|
|
|
|
|
|
|
|
|
Capital
Lease Obligations
|
|
|
26,054
|
|
|
26,214
|
|
Subtotal
|
|
|
1,462,394
|
|
|
1,518,479
|
|
Less
Current Portion
|
|
|
(10,461
|
)
|
|
(10,360
|
)
|
Long-Term
Debt and Obligations Under Capital Leases
|
|
$
|
1,451,933
|
|
$
|
1,508,119
|
|
The
Company has $60.7 million in deferred financing fees, net of accumulated
amortization, as of December 2, 2006 and $66.3 million as of June 3, 2006
related to its long term debt instruments recorded in the line item “Other
Assets” on the Condensed Consolidated Balance Sheets. Amortization of deferred
financing fees is included in the line item “Amortization” on the Company’s
Condensed Consolidated Statement of Operations and amounted to $5.1 million
and
$2.6 million for the six and three month periods ended December 2, 2006,
and
$0.5 million and $0.5 million for the six and three month periods ended
November
26, 2005, respectively. Amortization expense for the remainder of fiscal
2007 is
estimated to be $5.1 million. Amortization expense for each of the next
five
fiscal years is estimated to be as follows: fiscal 2008 - $10.3 million;
fiscal
2009 - $10.4 million; fiscal 2010 - $10.4 million; fiscal 2011 - $9.8 million
and fiscal 2012 - $6.7 million. Deferred financing fees have a remaining
weighted average amortization period of approximately 5.8 years.
As
of
December 2, 2006, the Company is in compliance with all of its debt
covenants. The
agreements regarding the ABL Credit Facility and the Term Loan as well
as
indenture governing the BCFWC Senior Notes and Holdings Senior Discount
Notes
contain covenants that, among other things, limit our ability and the ability
of
our restricted subsidiaries to pay dividends on, redeem or repurchase capital
stock; make investments and other restricted payments; incur additional
indebtedness or issue preferred stock; create liens; permit dividend or
other
payment restrictions on our restricted subsidiaries; sell all or substantially
all of our assets or consolidate or merge with or into other companies;
and
engage in transactions with affiliates.
18. Comprehensive
Income
The
Company presents comprehensive income (loss) as a component of stockholders'
equity in accordance with SFAS No. 130, Reporting
Comprehensive Income.
For the
six and three month periods ended December 2, 2006, comprehensive income
(loss)
consisted of net income (loss). For the six and three month periods ended
November 26, 2005, comprehensive income (loss) consisted of net income
(loss)
and net unrealized gains (losses) on available-for-sale
investments.
19. Segment
Information
The
Company has one reportable segment, operating within the United States.
Sales by
major product categories are as follows (in thousands):
|
|
Six
Months Ended
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
Predecessor
|
|
Successor
|
|
Predecessor
|
|
|
|
December
2, 2006
|
|
November
26, 2005
|
|
December
2, 2006
|
|
November
26, 2005
|
|
Apparel
|
|
$
|
1,308,687
|
|
$
|
1,266,721
|
|
$
|
801,267
|
|
$
|
765,257
|
|
Home
Products
|
|
|
332,926
|
|
|
329,536
|
|
|
183,500
|
|
|
180,152
|
|
|
|
$
|
1,641,613
|
|
$
|
1,596,257
|
|
$
|
984,767
|
|
$
|
945,409
|
|
Apparel
includes all clothing items for men, women and children and apparel accessories,
such as jewelry, perfumes and watches. Home Products includes linens, home
furnishings, gifts, baby furniture and baby furnishings.
20.
Other Revenue
Other
Revenue consists of rental income received from leased departments, subleased
rental income, layaway, alteration and other service charges and other
miscellaneous items. Layaway, alteration and other service fees amounted
to $8.7
million and $6.6 million for the six and three month periods ended December
2,
2006 and $5.3 million and $3.1 million for the six and three month periods
ended
November 26, 2005, respectively. Rental income from leased departments
amounted
to $4.8 million and $2.5 million for the six and three month periods ended
December 2, 2006, respectively, and $4.8 million and $2.6 million for the
comparative periods of a year ago. Subleased rental income and other
miscellaneous revenue items amounted to $6.0 million and $3.0 million for
the
six and three month periods ended December 2, 2006 and $5.7 million and
$2.8
million for the six and three month periods ended November 26,
2005.
21.
Vendor Rebates and Allowances
Rebates
and allowances received from vendors are accounted for in compliance with
Emerging Issues Task Force ("EITF") Issue No. 02-16, Accounting
by a Customer (including a Reseller) for Certain Consideration Received
from a
Vendor.
EITF
Issue No. 02-16 specifically addresses whether a reseller should account
for
cash consideration received from a vendor as an adjustment of cost of sales,
revenue, or as a reduction to a cost incurred by the reseller. Rebates
and
allowances received from vendors that are dependent on purchases of inventories
are recognized as a reduction of cost of goods sold when the related inventory
is sold or marked down. Rebates and allowances that are reimbursements
of
specific expenses are recognized as a reduction of selling and administrative
expenses when earned, up to the amount of the incurred cost. Any vendor
reimbursement in excess of the related incurred cost is recorded as a reduction
of cost of sales. Rebates and allowances that were reimbursements of specific
expenses, which were recognized as a reduction of selling and administrative
expenses, amounted to $0.5 million and $0.3 million for the six and three
month
periods ended December 2, 2006, respectively, and $0.5 million and $0.3
million
for the six and three month periods ended November 26, 2005,
respectively.
22. Capitalized
Computer Software Costs
In
March
1998, the American Institute of Certified Public Accountants (“AICPA”) issued
Statement of Position ("SOP") 98-1, Accounting
For the Costs of Computer Software Developed For or Obtained for
Internal-Use.
The SOP
requires the capitalization of certain costs incurred in connection with
developing or obtaining software for internal use. The Company capitalized
$5.5
million and $2.4 million for the six and three month periods ended December
2,
2006, respectively, and $2.7 million and $1.5 million relating to these
costs
during the six and three month periods ended November 26, 2005, respectively.
23.
Stock Option and Award Plans and Stock-Based Compensation
On
April
13, 2006, the Parent’s Board of Directors adopted the 2006 Management Incentive
Plan (“Plan”). The Plan provides for the granting of service-based and
performance-based stock options and restricted stock to executive officers
and
other key employees of the Company and its subsidiaries. Pursuant to the
Plan
employees are granted options to purchase “units” of common stock in the Parent.
Each unit consists of nine shares of Class A common stock and one share of
Class L common stock of the Parent. The shares comprising a unit are in
the same
proportion as the shares of Class A and Class L common stock
held
by
all
stockholders of the Parent. The options are exercisable only for whole
units and
cannot be separately exercised for the individual classes of the Parent
common
stock. There are 511,122 units reserved under the Plan consisting of 4,600,098
shares of Class A common stock of Holdings and 511,122 shares of Class
L common
stock of Holdings.
The
units
granted were granted in three tranches with exercise prices as follows:
Tranche
1: $90 per unit; Tranche 2: $180 per Unit; and Tranche 3: $270 per unit.
The
service-based awards generally cliff vest 40% on the second anniversary
of the
award with the remaining ratably over the subsequent three years. All options
become exercisable upon a change of control and unless determined otherwise
by
the plan administrator. Upon cessation of employment, options that have
not
vested will terminate immediately, units issued upon the exercise of vested
options will be callable and unexercised vested options will be exercisable
for
a period of 60 days. The final exercise date for any option granted is
the tenth
anniversary of the grant date.
As
of
December 2, 2006, the Parent granted 407,500 options to
purchase units. All options granted to date are service based awards. On
June 4,
2006, we adopted SFAS No. 123R (Revised 2004), “Share-Based
Payment,” using
the
modified prospective method, which requires companies to record stock
compensation expense for all non-vested and new awards beginning as of
the
adoption date. Accordingly, prior period amounts presented herein have
not been
restated. For the six and three month periods ended December 2, 2006, we
recognized non-cash stock compensation expense of $1.5 million and $0.8
million,
respectively which is included in the line item “Selling and Administrative
Expense” on our Company’s Condensed Consolidated Statements of Operations. The
adoption of SFAS 123R had no impact on our cash flow from operations or
financing activities. At December 2, 2006, there is approximately $14.7
million
of unearned non-cash stock-based compensation that we expect to recognize
as
expense over the next 4.4 years. The service based awards are expensed
on a
straight line basis over the requisite service period of five years. During
the
six and three month periods ended December 2, 2006, there were options
granted
to purchase 70,000 units and 40,000 units, respectively. During the six
months
ended December 2, 2006, 10,000 options to purchase units were cancelled.
During
the period, no options were exercised. At December 2, 2006, no options
were
exercisable.
The
following table summarizes information about the stock options outstanding
under
Parent’s 2006 Plan as of December 2, 2006:
Option
Units Outstanding
|
|
Option
Units Exercisable
|
|
|
|
Range
of
Exercise
Prices
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Tranche
1
|
|
$
|
90.00
|
|
|
135,833
|
|
|
9.4
years
|
|
$
|
90.00
|
|
|
0
|
|
Tranche
2
|
|
$
|
180.00
|
|
|
135,833
|
|
|
9.4
years
|
|
$
|
180.00
|
|
|
0
|
|
Tranche
3
|
|
$
|
270.00
|
|
|
135,834
|
|
|
9.4
years
|
|
$
|
270.00
|
|
|
0
|
|
|
|
|
|
|
|
407,500
|
|
|
|
|
|
|
|
|
0
|
|
The
fair
value of each stock option granted is estimated on the date of grant using
the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants under Parent’s 2006 Plan in fiscal 2006 and fiscal
2007:
|
|
|
|
Risk-Free
Interest Rate
|
|
|
4.75
|
%
|
Expected
Volatility
|
|
|
70
|
%
|
Expected
Life
|
|
|
4.5
years
|
|
Contractual
Life
|
|
|
10
years
|
|
Expected
Dividend Yield
|
|
|
0.0
|
%
|
Fair
Value of Option Units Granted
|
|
|
|
|
Tranche
1
|
|
$
|
53.13
|
|
Tranche
2
|
|
$
|
38.79
|
|
Tranche
3
|
|
$
|
30.53
|
|
Pre-Transaction
Stock-Based Compensation Accounting
Prior
to
the closing of the Merger transaction, BCFWC applied APB 25 in accounting
for
its stock option awards. Accordingly, compensation expense has not been
recorded
for the six and three month periods ended November 26, 2005. The following
table
illustrates the effect on net income for the six and three month periods
ended
November 26, 2005 had BCFWC applied the fair value recognition provisions
of
SFAS No. 123 (in thousands):
|
|
Six
Months Ended
November
26, 2005
|
|
Three
Months Ended
November
26, 2005
|
|
|
|
|
|
|
|
Net
Income as Reported
|
|
$
|
29,466
|
|
$
|
45,373
|
|
Expense
Under Fair Value Method, Net of Tax Effect
|
|
|
(336
|
)
|
|
(133
|
)
|
Pro
forma Net Income
|
|
$
|
29,130
|
|
$
|
45,240
|
|
The
fair
value of each stock option granted was estimated on the date of grant using
the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in fiscal 2005 (no options were granted during
fiscal 2004 or fiscal 2006):
|
|
Grant
1
|
|
Grant
2
|
|
Number
of Shares
|
|
|
87,700
|
|
|
73,600
|
|
Risk-Free
Interest Rate
|
|
|
4.10
|
%
|
|
4.10
|
%
|
Expected
Volatility
|
|
|
37.65
|
%
|
|
38.00
|
%
|
Expected
Life
|
|
|
5.5
years
|
|
|
5.5
years
|
|
Contractual
Life
|
|
|
10
years
|
|
|
10
years
|
|
Expected
Dividend Yield
|
|
|
0.20
|
%
|
|
0.20
|
%
|
Fair
Value of Options Granted
|
|
$
|
6.79
|
|
$
|
9.85
|
|
Any
unexercised stock options at the time of the consummation of the Merger
transaction were cancelled and each holder received an amount in cash,
less
applicable withholding taxes, equal to $45.50 per share less the exercise
price
of each option.
Non-vested
restricted stock:
At
their option, in lieu of receiving an all cash retention bonus, members
of
management collectively received $5.9 million in shares of non-vested restricted
stock in the form of common stock of Parent. These shares vest on April
13,
2007. Non-vested restricted stock compensation is being amortized over
a one
year vesting period and amounted to $2.9 million and $1.4 million for the
six
and three month periods ended December 2, 2006. Deferred compensation expense
is
recorded as additional paid-in-capital.
24.
Impairment of Long-Lived Assets
The
Company accounts for impaired long-lived assets in accordance with SFAS
No. 144,
Accounting
for the Impairment or Disposal of Long-Lived Assets.
This
statement requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity be reviewed for impairment whenever events
or
changes in circumstances indicate that the carrying amount of an asset
may not
be recoverable. Also, long-lived assets and certain intangibles to be disposed
of should be reported at the lower of the carrying amount or fair value
less
cost to sell. The Company considers historical performance and future estimated
results in its evaluation of potential impairment and then compares the
carrying
amount of the asset to the estimated future cash flows expected to result
from
the use of the asset. If the carrying amount of the asset exceeds the estimated
expected undiscounted future cash flows, the Company measures the amount
of the
impairment by comparing the carrying amount of the asset to its fair value.
The
estimation of fair value is measured by discounting expected future cash
flows
at the rate the Company utilizes to evaluate potential investments. Impairment
charges recorded during each of the six and three month periods ended
December 2, 2006 amounted to $3.6 million. For the six and three month
periods
ended November 26, 2005 impairment charges amounted to and $1.3 million
and $0.9
million.
25.
Discontinued Operations
The
Company continuously monitors and evaluates store profitability. Based
upon
these evaluations, the decision to permanently close a store or to relocate
a
store within its same trading market is made. Only those stores permanently
closed, where sales by another store will not absorb a significant amount
of the
closed store's sales, are included in the Company's calculation of discontinued
operations. There were no discontinued operations recorded during the six
and
three month periods ended December 2, 2006 or for the same periods ended
November 26, 2005.
26.
Advertising Costs
The
Company's net advertising costs consist primarily of newspaper and television
costs. The production costs of net advertising are charged to expenses
as
incurred. Net advertising expenses for the six and three month periods
ended
December 2, 2006 were $41.3 million and $30.8 million, respectively. For
the six
and three month periods ended November 26, 2005, advertising costs were
$37.2
million and $24.2 million, respectively. The Company nets certain cooperative
advertising reimbursements received from vendors against specific, incremental,
identifiable costs incurred in connection with selling the vendors' products.
Any excess reimbursement is characterized as a reduction of inventory and
is
recognized as a reduction to cost of sales as inventories are sold. Vendor
rebates netted against advertising expense were $0.3 million and less than
$0.1
million for the six and three month periods ended December 2, 2006, respectively
and $0.4 million and $0.3 million for the comparative six and three month
periods of a year ago.
27.
Lease Accounting
The
Company calculates rent expense on a straight line basis over the lesser
of the
lease term including renewal options, if reasonably assured, or the economic
life of the leased premises, taking into consideration rent escalation
clauses,
rent holidays and other lease concessions. The Company expenses rent during
the
construction or build-out phase of the leased property.
28.
Derivatives and Hedging Activities
SFAS
No. 133, as amended, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in
other contracts, and for hedging activities. It requires the recording
of all
derivatives as either assets or liabilities on the balance sheet, measured
at
estimated fair value and the recognition of any unrealized gains and losses.
BCFWC
entered into two interest rate cap agreements to manage interest rate risk
associated with its long-term debt obligations. These agreements are classified
as “Other Assets” within our Condensed Consolidated Balance Sheets. Each
agreement became effective on May 12, 2006. One interest rate cap agreement
has
a notional principal amount of $300,000,000 with a cap rate of seven percent,
and terminates on May 31, 2011. The other agreement has a notional principal
amount of $700,000,000 with a cap rate of seven percent, and terminates
on May
29, 2009. We do not monitor these interest rate cap agreements for hedge
effectiveness. Losses associated with these contracts amounted to $1.7
million
and $0.6 million during the six and three month periods ended December
2, 2006
and are included in the line item “Interest Expense” on the Company’s Condensed
Consolidated Statements of Operations. The fair market value of the interest
rate contracts at December 2, 2006 amounted to $0.6 million and $2.3 million
at
June 3, 2006.
29.
Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash, cash equivalents and investments. The
Company
manages the credit risk associated with cash equivalents and investments
by
investing with high-quality institutions and, by policy, limiting investments
only to those which meet prescribed investment guidelines. The Company
has a
policy of making investments in debt securities with short-term ratings
of A-1
(or equivalent) or long-term ratings of A and A-2 (or equivalent). The
Company
maintains cash accounts that, at times, may exceed federally insured limits.
The
Company has not experienced any losses from maintaining cash accounts in
excess
of such limits. Management believes that it is not exposed to any significant
risks on its cash and cash equivalent accounts.
30.
Reclassifications
Certain
reclassifications have been made to the Condensed Consolidated Statement
of
Operations for the six and three month periods ended November 26, 2005
to
conform to the classifications used in the current period. Line of credit
commitment fees of $0.2 million and $0.1 million previously recorded in
the line
item “Selling and Administrative Expense” have been reclassified and included in
the line item “Interest Expense.” Deferred financing fee amortization of $0.5
million and $0.5 million for the six and three month periods ended November
26,
2005 have been reclassified from “Selling and Administrative Expense” to
“Amortization”.
31.
Recent Accounting Pronouncements
a. In
December 2004, the FASB issued SFAS No. 123(R), “Share
Based Payment.”
This
statement establishes standards for the accounting of transactions in which
an
entity exchanges its equity instruments for goods and services, primarily
with
respect to accounting for transactions in which an entity obtains employee
services in share-based payment transactions. It also addresses transactions
in
which an entity incurs liabilities in exchange for goods and services that
are
based on the fair value of the entity’s equity instruments or that may be
settled by the issuance of those equity instruments. Entities will be required
to measure the cost of employee services received in exchange for an award
of
equity instruments based on the grant-date fair value of the award (with
limited
exceptions). That cost will be recognized over the period during which
an
employee is required to provide service in exchange for the award (usually
the
vesting period). The grant-date fair value of employee share options and
similar
instruments will be estimated using option-pricing models. If an equity
award is
modified after the grant date, incremental compensation cost will be recognized
in an amount equal to the excess of the fair value of the modified award
over
the fair value of the original award immediately before the modification.
This
statement is effective for the first fiscal year beginning after June 15,
2005. We adopted Statement No. 123(R) for fiscal 2007, using the
modified-prospective method. Under the modified-prospective method, we
recognized compensation cost for all awards subsequent to adopting the
standard
and for the unvested portion of previously granted awards outstanding upon
adoption. The statement permits the use of either the straight-line or
an
accelerated method to amortize the cost as an expense for awards with graded
vesting. The impact of adopting SFAS 123 (R) on Net Loss amounted to $1.0
million and $0.4 million (net of tax) for the six and three month periods
ended
December 2, 2006.
SFAS
123
(R) also amended SFAS No. 95, “Statement
of Cash Flows”
to
require the benefits for tax deductions in excess of recognized compensation
be
reported as financing cash inflows rather than as a reduction in income
taxes
paid, which is included within operating cash flows.
b. In
December 2004, the FASB issued SFAS No. 153, “Exchanges
of Nonmonetary Assets—An Amendment of APB Opinion No. 29.”
SFAS
No. 153 amends Opinion No. 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with
a
general exemption for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange is considered to have commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. We adopted SFAS No. 153 effective
June 4, 2006. The adoption of SFAS No. 153 did not have an impact on our
condensed consolidated financial statements.
c. In
May
2005, the FASB issued SFAS No. 154, “Accounting
Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB
Statement No. 3.”
SFAS
No. 154 requires retrospective application to prior periods’ financial
statements of changes in accounting principle, unless it is impracticable
to
determine either the period-specific effects or the cumulative effect of
the
change. SFAS No. 154 also requires that retrospective application of a
change in accounting principle be limited to the direct effects of the
change.
Indirect effects of a change in accounting principle, such as a change
in
nondiscretionary profit-sharing payments resulting from an accounting change,
should be recognized in the period of the accounting change. SFAS No. 154
also requires that a change in depreciation, amortization, or depletion
method
for long-lived, nonfinancial assets be accounted for as a change in accounting
estimate affected by a change in accounting principle. SFAS No. 154 is
effective for accounting changes and corrections of errors made in fiscal
years
beginning after December 15, 2005. We adopted the provisions of SFAS
No. 154 as applicable beginning in fiscal 2007. The adoption of SFAS No.
154 did not have an impact on our condensed consolidated financial statements.
d. In
June
2006, the FASB issued FASB Interpretation (“FIN”) No. 48 - Accounting
for Uncertainty in Income Taxes
- an
interpretation of FASB Statement No. 109. FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition
and
measurement of a tax position taken or expected to be taken in a tax return.
FIN
48 also provides guidance on accounting for derecognition, interest, penalties,
accounting in interim periods, disclosure and classification of matters
related
to uncertainty in income taxes, and transitional requirements upon adoption
of
FIN 48. FIN 48 is effective for fiscal years beginning after December 15,
2006.
The Company is currently in the process of assessing the impact of the
adoption
of FIN 48 on its condensed consolidated financial statements.
e. In
February 2006, the FASB issued SFAS No. 155, Accounting
for Certain Hybrid Financial Instruments
- an
amendment
of
FASB
Statements No. 133 and 140 (SFAS 155). SFAS 155 simplifies accounting for
certain hybrid instruments currently governed by SFAS No. 133, Accounting
for
Derivative Instruments and Hedging Activities (SFAS 133), by allowing fair
value
remeasurement of hybrid instruments that contain an embedded derivative
that
otherwise would require bifurcation. SFAS 155 also eliminates the guidance
in
SFAS 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial
Interests in Securitized Financial Assets, which provides such beneficial
interests are not subject to SFAS 133. SFAS 155 amends SFAS No. 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities - a replacement of FASB Statement No. 125, by eliminating the
restriction on passive derivative instruments that a qualifying special-purpose
entity may hold. This statement is effective for financial instruments
acquired
or subject to a remeasurement after the beginning of the fiscal year starting
after September 15, 2006. We do not expect the adoption of this statement
to
have a material impact on our condensed consolidated financial
statements.
f. . In
March
2006, the FASB issued SFAS No. 156, Accounting
for Servicing of Financial Assets-
an
amendment of FASB Statement No. 140 (SFAS 156). SFAS 156 requires an entity
to
recognize a servicing asset or servicing liability each time it undertakes
an
obligation to service a financial asset by entering into a servicing contract
in
specific situations. Additionally, the servicing asset or servicing liability
shall be initially measured at fair value, if practicable. SFAS 156 is
effective
as of an entity’s first fiscal year beginning after September 15, 2006. Early
adoption is permitted as of the beginning of an entity’s fiscal year, provided
the entity has not yet issued financial statements, including interim financial
statements, for any period of that fiscal year. We do not expect the adoption
of
this statement to have a material impact on our condensed consolidated
financial
statements.
g. . In
September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements
which
defines fair value, establishes a framework for measurement and expands
disclosure about fair value measurements. Where applicable, SFAS 157 simplifies
and codifies related guidance within generally accepted accounting principles.
This statement shall be effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those
fiscal
years. The Company is in the process of evaluating the impact of SFAS No.
157 on
its financial statements.
h. In
June
of 2006, the FASB ratified the consensus reached by the Emerging Issues
Task
Force (EITF) on Issue 06-3, How
Taxes Collected from Customers and Remitted to Governmental Authorities
Should
be Presented in the Income Statement.
The
scope of this consensus includes any tax assessed by a governmental authority
that is directly imposed on a revenue-producing transaction between a seller
and
a customer and may include, but is not limited to sales, use, value added
and
some excise taxes. Additionally, this consensus seeks to address how a
company should address the disclosure of such items in interim and annual
financial statements, either gross or net pursuant to APB Opinion No. 22,
Disclosure
of Accounting Policies. EITF
Issue 06-3 is effective for all financial reports for interim and annual
reporting periods beginning after December 15, 2006. The Company presents
sales
net of sales taxes in its condensed consolidated statement of operations.
No
change in presentation is anticipated as a result of adoption of EITF
06-3.
i. In
September 2006, the SEC issued SAB 108. SAB 108 provides interpretive guidance
on the consideration of the effects of prior year misstatements in quantifying
current year financial statement misstatements for the purpose of a materiality
assessment. The Company will be required to adopt the provisions of SAB
108 in
its first year ending after November 15, 2006. We do not expect the adoption
SAB
No. 108 to have a material impact on our condensed consolidated financial
statements.
32.
Condensed Guarantor Data
On
April
13, 2006, BCFWC issued $305 million aggregate principal amount of 11 ⅛%
Senior
Notes due 2014. The notes were issued under an indenture issued on April
13,
2006. Holdings and subsidiaries of BCFWC have fully and unconditionally
guaranteed these notes. In addition, Holdings and certain subsidiaries
of BCFWC
fully and unconditionally guarantee BCFWC’s obligations under the $800 million
ABL Credit Facility and $900 million term loan. These guarantees are both
joint
and several. The following condensed consolidating financial statements
present
the financial position, results of operations and cash flows of Holdings,
BCFWC,
and the guarantor subsidiaries. The Company has one non-guarantor subsidiary
that is not wholly-owned and is considered to be “minor” as that term is defined
in Rule 3-10 of Regulation S-X promulgated by the Securities and Exchange
Commission.
Neither
the Company nor any of its subsidiaries may declare or pay cash dividends
or
make other distributions of property to any affiliate unless such dividends
are
used for certain specified purposes including, among others, to pay general
corporate and overhead expenses incurred by Holdings or Parent in the ordinary
course of business, or the amount of any indemnification claims made by
any
director or officer of Holdings or Parent, to pay taxes that are due and
payable
by Holdings or any of its direct or
indirect
subsidiaries, or to pay interest on Holdings Senior Discount Notes, provided
that
no
event of default under BCFWC’s debt agreements has occurred or will occur as the
result of such interest payment.
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC. AND
SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATING BALANCE SHEETS (SUCCESSOR)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 2, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
Investments
|
|
BCFWC
|
|
Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(All
amounts in thousands)
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$
|
-
|
|
$
|
27,143
|
|
$
|
11,183
|
|
$
|
-
|
|
$
|
38,326
|
|
Restricted
Cash and Cash Equivalents
|
|
|
-
|
|
|
-
|
|
|
13,808
|
|
|
-
|
|
|
13,808
|
|
Investments
|
|
|
-
|
|
|
-
|
|
|
783
|
|
|
-
|
|
|
783
|
|
Accounts
Receivable
|
|
|
-
|
|
|
41,956
|
|
|
980
|
|
|
-
|
|
|
42,936
|
|
Merchandise
Inventories
|
|
|
-
|
|
|
1,780
|
|
|
911,479
|
|
|
-
|
|
|
913,259
|
|
Deferred
Tax Asset
|
|
|
-
|
|
|
12,090
|
|
|
20,259
|
|
|
-
|
|
|
32,349
|
|
Prepaid
and Other Current Assets
|
|
|
|
|
|
9,311
|
|
|
21,575
|
|
|
(7,807
|
)
|
|
23,079
|
|
Total
Current Assets
|
|
|
-
|
|
|
92,280
|
|
|
980,067
|
|
|
(7,807
|
)
|
|
1,064,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment - Net of Accumulated Depreciation
|
|
|
-
|
|
|
41,674
|
|
|
968,349
|
|
|
-
|
|
|
1,010,023
|
|
Goodwill
|
|
|
-
|
|
|
58,985
|
|
|
-
|
|
|
|
|
|
58,985
|
|
Trademark
|
|
|
-
|
|
|
526,300
|
|
|
-
|
|
|
|
|
|
526,300
|
|
Net
Favorable Leases
|
|
|
-
|
|
|
-
|
|
|
608,881
|
|
|
|
|
|
608,881
|
|
Other
Assets
|
|
|
384,164
|
|
|
2,096,131
|
|
|
504
|
|
|
(2,418,127
|
)
|
|
62,672
|
|
Total
Assets
|
|
$
|
384,164
|
|
$
|
2,815,370
|
|
$
|
2,557,801
|
|
$
|
(2,425,934
|
)
|
$
|
3,331,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$
|
-
|
|
$
|
634,570
|
|
$
|
1,765
|
|
$
|
-
|
|
$
|
636,335
|
|
Income
Taxes Payable
|
|
|
-
|
|
|
14,668
|
|
|
-
|
|
|
(7,807
|
)
|
|
6,861
|
|
Other
Current Liabilities
|
|
|
-
|
|
|
196,928
|
|
|
29,548
|
|
|
-
|
|
|
226,476
|
|
Current
Maturities of Long Term Debt
|
|
|
-
|
|
|
9,000
|
|
|
1,461
|
|
|
-
|
|
|
10,461
|
|
Total
Current Liabilities
|
|
|
-
|
|
|
855,166
|
|
|
32,774
|
|
|
(7,807
|
)
|
|
880,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long
Term Debt
|
|
|
-
|
|
|
1,339,665
|
|
|
112,268
|
|
|
-
|
|
|
1,451,933
|
|
Other
Liabilities
|
|
|
-
|
|
|
10,000
|
|
|
28,694
|
|
|
(10,000
|
)
|
|
28,694
|
|
Deferred
Tax Liability
|
|
|
-
|
|
|
226,375
|
|
|
360,102
|
|
|
-
|
|
|
586,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Common
Stock
|
|
|
-
|
|
|
-
|
|
|
1,568
|
|
|
(1,568
|
)
|
|
-
|
|
Capital
in Excess of Par Value
|
|
|
451,391
|
|
|
451,391
|
|
|
1,963,670
|
|
|
(2,415,061
|
)
|
|
451,391
|
|
Retained
Earnings (Accumulated Deficit)
|
|
|
(67,227
|
)
|
|
(67,227
|
)
|
|
58,725
|
|
|
8,502
|
|
|
(67,227
|
)
|
Total
Stockholders' Equity
|
|
|
384,164
|
|
|
384,164
|
|
|
2,023,963
|
|
|
(2,408,127
|
)
|
|
384,164
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
384,164
|
|
$
|
2,815,370
|
|
$
|
2,557,801
|
|
$
|
(2,425,934
|
)
|
$
|
3,331,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATING BALANCE SHEETS
(SUCCESSOR)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of June 3, 2006
|
|
|
|
Holdings
|
|
BCFWC
|
|
Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(All
amounts in thousands)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$
|
—
|
|
$
|
48,865
|
|
|
|
$
|
9,511
|
|
$
|
—
|
|
$
|
58,376
|
|
Restricted
Cash and Cash Equivalents
|
|
|
—
|
|
|
—
|
|
|
|
|
13,816
|
|
|
—
|
|
|
13,816
|
|
Investments
|
|
|
—
|
|
|
—
|
|
|
|
|
591
|
|
|
—
|
|
|
591
|
|
Accounts
Receivable
|
|
|
—
|
|
|
41,133
|
|
|
|
|
950
|
|
|
—
|
|
|
42,083
|
|
Merchandise
Inventories
|
|
|
—
|
|
|
1,416
|
|
|
|
|
706,769
|
|
|
—
|
|
|
708,185
|
|
Deferred
Tax Asset
|
|
|
—
|
|
|
12,091
|
|
|
|
|
15,825
|
|
|
—
|
|
|
27,916
|
|
Prepaid
and Other Current Assets
|
|
|
—
|
|
|
9,820
|
|
|
|
|
20,104
|
|
|
(4,428
|
)
|
|
25,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
—
|
|
|
113,325
|
|
|
|
|
767,566
|
|
|
(4,428
|
)
|
|
876,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment—Net of Accumulated Depreciation
|
|
|
—
|
|
|
46,521
|
|
|
|
|
995,877
|
|
|
—
|
|
|
1,042,398
|
|
Goodwill
|
|
|
—
|
|
|
58,985
|
|
|
|
|
—
|
|
|
—
|
|
|
58,985
|
|
Trademark
|
|
|
—
|
|
|
526,300
|
|
|
|
|
—
|
|
|
—
|
|
|
526,300
|
|
Net
Favorable Leases
|
|
|
—
|
|
|
—
|
|
|
|
|
626,676
|
|
|
—
|
|
|
626,676
|
|
Other
Assets
|
|
|
419,512
|
|
|
1,951,421
|
|
|
|
|
470
|
|
|
(2,301,676
|
)
|
|
69,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
419,512
|
|
$
|
2,696,552
|
|
|
|
$
|
2,390,589
|
|
$
|
(2,306,104
|
)
|
$
|
3,200,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$
|
—
|
|
$
|
441,811
|
|
|
|
$
|
3,093
|
|
$
|
—
|
|
$
|
444,904
|
|
Income
Taxes Payable
|
|
|
—
|
|
|
10,702
|
|
|
|
|
—
|
|
|
(4,428
|
)
|
|
6,274
|
|
Other
Current Liabilities
|
|
|
—
|
|
|
178,057
|
|
|
|
|
3,703
|
|
|
—
|
|
|
181,760
|
|
Current
Maturities of Long Term Debt
|
|
|
—
|
|
|
9,000
|
|
|
1,360
|
|
|
—
|
|
|
10,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
—
|
|
|
639,570
|
|
|
8,156
|
|
|
(4,428
|
)
|
|
643,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long
Term Debt
|
|
|
—
|
|
|
1,398,073
|
|
|
110,046
|
|
|
—
|
|
|
1,508,119
|
|
Other
Liabilities
|
|
|
—
|
|
|
10,000
|
|
|
21,974
|
|
|
(10,000
|
)
|
|
21,974
|
|
Deferred
Tax Liability
|
|
|
—
|
|
|
229,397
|
|
|
378,249
|
|
|
—
|
|
|
607,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Common
Stock
|
|
|
—
|
|
|
1
|
|
|
1,568
|
|
|
(1,569
|
)
|
|
—
|
|
Capital
in Excess of Par Value
|
|
|
446,678
|
|
|
446,677
|
|
|
1,864,120
|
|
|
(2,310,797
|
)
|
|
446,678
|
|
Retained
Earnings (Accumulated Deficit)
|
|
|
(27,166
|
)
|
|
(27,166
|
)
|
|
6,476
|
|
|
20,690
|
|
|
(27,166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Equity
|
|
|
419,512
|
|
|
419,512
|
|
|
1,872,164
|
|
|
(2,291,676
|
)
|
|
419,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
419,512
|
|
$
|
2,696,552
|
|
$
|
2,390,589
|
|
$
|
(2,306,104
|
)
|
$
|
3,200,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC. AND
SUBSIDIARIES
|
|
|
|
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS (SUCCESSOR)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Six Months Ended December 2, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
BCFWC
|
|
Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(All
amounts in thousands)
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
-
|
|
$
|
2,107
|
|
$
|
1,639,506
|
|
$
|
-
|
|
$
|
1,641,613
|
|
Other
Revenue
|
|
|
(40,061
|
)
|
|
56,484
|
|
|
15,320
|
|
|
(12,189
|
)
|
|
19,554
|
|
|
|
|
(40,061
|
)
|
|
58,591
|
|
|
1,654,826
|
|
|
(12,189
|
)
|
|
1,661,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales (Exclusive of Depreciation and Amortization)
|
|
|
-
|
|
|
1,315
|
|
|
1,026,068
|
|
|
-
|
|
|
1,027,383
|
|
Selling
and Administrative Expenses
|
|
|
-
|
|
|
76,544
|
|
|
458,097
|
|
|
-
|
|
|
534,641
|
|
Depreciation
|
|
|
-
|
|
|
11,757
|
|
|
60,419
|
|
|
-
|
|
|
72,176
|
|
Amortization
|
|
|
-
|
|
|
4,904
|
|
|
17,993
|
|
|
-
|
|
|
22,897
|
|
Interest
Expense
|
|
|
-
|
|
|
63,668
|
|
|
6,962
|
|
|
-
|
|
|
70,630
|
|
Other
Income, Net
|
|
|
-
|
|
|
(658
|
)
|
|
(1,005
|
)
|
|
-
|
|
|
(1,663
|
)
|
|
|
|
- |
|
|
157,530
|
|
|
1,568,534
|
|
|
-
|
|
|
1,726,064
|
|
Income
(Loss) Before Provision (Benefit) for Income Taxes
|
|
|
(40,061
|
)
|
|
(98,939
|
)
|
|
86,292
|
|
|
(12,189
|
)
|
|
(64,897
|
)
|
Provision
(Benefit) for Income Taxes
|
|
|
-
|
|
|
(58,878
|
)
|
|
34,042
|
|
|
-
|
|
|
(24,836
|
)
|
Net
Income (Loss)
|
|
|
(40,061
|
)
|
|
(40,061
|
)
|
|
52,250
|
|
|
(12,189
|
)
|
|
(40,061
|
)
|
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC. AND
SUBSIDIARIES
|
|
|
|
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS (SUCCESSOR)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended December 2, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
BCFWC
|
|
Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(All
amounts in thousands)
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
-
|
|
$
|
1,271
|
|
$
|
983,496
|
|
$
|
-
|
|
$
|
984,767
|
|
Other
Revenue
|
|
|
11,747
|
|
|
60,974
|
|
|
8,432
|
|
|
(69,019
|
)
|
|
12,134
|
|
|
|
|
11,747
|
|
|
62,245
|
|
|
991,928
|
|
|
(69,019
|
)
|
|
996,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales (Exclusive of Depreciation and Amortization)
|
|
|
-
|
|
|
773
|
|
|
599,696
|
|
|
-
|
|
|
600,469
|
|
Selling
and Administrative Expenses
|
|
|
-
|
|
|
34,843
|
|
|
252,738
|
|
|
-
|
|
|
287,581
|
|
Depreciation
|
|
|
-
|
|
|
5,880
|
|
|
31,312
|
|
|
-
|
|
|
37,192
|
|
Amortization
|
|
|
-
|
|
|
2,457
|
|
|
9,507
|
|
|
-
|
|
|
11,964
|
|
Interest
Expense
|
|
|
-
|
|
|
31,542
|
|
|
3,674
|
|
|
-
|
|
|
35,216
|
|
Other
Income, Net
|
|
|
-
|
|
|
(658
|
)
|
|
(24
|
)
|
|
-
|
|
|
(682
|
)
|
|
|
|
- |
|
|
74,837
|
|
|
896,903
|
|
|
-
|
|
|
971,740
|
|
Income
(Loss) Before Provision (Benefit) for Income Taxes
|
|
|
11,747
|
|
|
(12,592
|
)
|
|
95,025
|
|
|
(69,019
|
)
|
|
25,161
|
|
Provision
(Benefit) for Income Taxes
|
|
|
-
|
|
|
(24,339
|
)
|
|
37,753
|
|
|
-
|
|
|
13,414
|
|
Net
Income (Loss)
|
|
$
|
11,747
|
|
$
|
11,747
|
|
$
|
57,272
|
|
$
|
(69,019
|
)
|
$
|
11,747
|
|
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC. AND
SUBSIDIARIES
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS (PREDECESSOR)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Six Months Ended November 26, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
BCFWC
|
|
Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(All
amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
-
|
|
$
|
2,216
|
|
$
|
1,594,041
|
|
$
|
-
|
|
$
|
1,596,257
|
|
Other
Revenue
|
|
|
-
|
|
|
74,283
|
|
|
15,339
|
|
|
(73,781
|
)
|
|
15,841
|
|
|
|
|
-
|
|
|
76,499
|
|
|
1,609,380
|
|
|
(73,781
|
)
|
|
1,612,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales (Exclusive of Depreciation and Amortization)
|
|
|
-
|
|
|
1,404
|
|
|
1,012,652
|
|
|
-
|
|
|
1,014,056
|
|
Selling
and Administrative Expenses
|
|
|
-
|
|
|
62,150
|
|
|
436,443
|
|
|
-
|
|
|
498,593
|
|
Depreciation
|
|
|
-
|
|
|
6,116
|
|
|
38,947
|
|
|
-
|
|
|
45,063
|
|
Amortization
|
|
|
-
|
|
|
467
|
|
|
15
|
|
|
-
|
|
|
482
|
|
Interest
Expense
|
|
|
-
|
|
|
2,057
|
|
|
1,287
|
|
|
-
|
|
|
3,344
|
|
Other
Income, Net
|
|
|
-
|
|
|
2,816
|
|
|
(324
|
)
|
|
-
|
|
|
2,492
|
|
|
|
|
-
|
|
|
75,010
|
|
|
1,489,020
|
|
|
-
|
|
|
1,564,030
|
|
Income
(Loss) Before Provision (Benefit) for Income Taxes
|
|
|
-
|
|
|
1,489
|
|
|
120,360
|
|
|
(73,781
|
)
|
|
48,068
|
|
Provision
(Benefit) for Income Taxes
|
|
|
-
|
|
|
(27,977
|
)
|
|
46,579
|
|
|
-
|
|
|
18,602
|
|
Net
Income (Loss)
|
|
|
-
|
|
|
29,466
|
|
|
73,781
|
|
|
(73,781
|
)
|
|
29,466
|
|
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC. AND
SUBSIDIARIES
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS (PREDECESSOR)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended November 26, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
BCFWC
|
|
Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(All
amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
-
|
|
$
|
1,349
|
|
$
|
944,060
|
|
$
|
-
|
|
$
|
945,409
|
|
Other
Revenue
|
|
|
-
|
|
|
66,652
|
|
|
8,636
|
|
|
(66,771
|
)
|
|
8,517
|
|
|
|
|
-
|
|
|
68,001
|
|
|
952,696
|
|
|
(66,771
|
)
|
|
953,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales (Exclusive of Depreciation and Amortization)
|
|
|
-
|
|
|
841
|
|
|
587,880
|
|
|
-
|
|
|
588,721
|
|
Selling
and Administrative Expenses
|
|
|
-
|
|
|
31,163
|
|
|
232,990
|
|
|
-
|
|
|
264,153
|
|
Depreciation
|
|
|
-
|
|
|
2,529
|
|
|
19,906
|
|
|
-
|
|
|
22,435
|
|
Amortization
|
|
|
-
|
|
|
450
|
|
|
8
|
|
|
-
|
|
|
458
|
|
Interest
Expense
|
|
|
-
|
|
|
894
|
|
|
637
|
|
|
-
|
|
|
1,531
|
|
Other
Income, Net
|
|
|
-
|
|
|
2,816
|
|
|
(205
|
)
|
|
-
|
|
|
2,611
|
|
|
|
|
-
|
|
|
38,693
|
|
|
841,216
|
|
|
-
|
|
|
879,909
|
|
Income
(Loss) Before Provision (Benefit) for Income Taxes
|
|
|
-
|
|
|
29,308
|
|
|
111,480
|
|
|
(66,771
|
)
|
|
74,017
|
|
Provision
(Benefit) for Income Taxes
|
|
|
-
|
|
|
(16,065
|
)
|
|
44,709
|
|
|
-
|
|
|
28,644
|
|
Net
Income (Loss)
|
|
|
-
|
|
|
45,373
|
|
|
66,771
|
|
|
(66,771
|
)
|
|
45,373
|
|
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC. AND
SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS (SUCCESSOR)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Six Months Ended December 2, 2006
|
|
|
|
Holdings
|
|
BCFWC
|
|
Guarantors
|
|
Elimination
|
|
Consolidated
|
|
|
|
(All
amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by Operating Activities
|
|
$
|
-
|
|
$
|
45,679
|
|
$
|
30,421
|
|
$
|
-
|
|
$
|
76,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of Property and Equipment - Continuing Operations
|
|
|
-
|
|
|
(6,909
|
)
|
|
(32,267
|
)
|
|
-
|
|
|
(39,176
|
)
|
Proceeds
Received from Sales of Assets Held for Sale
|
|
|
-
|
|
|
-
|
|
|
4,591
|
|
|
-
|
|
|
4,591
|
|
Investing
Activity-Other
|
|
|
-
|
|
|
47
|
|
|
32
|
|
|
-
|
|
|
79
|
|
Net
Cash Used in Investing Activities
|
|
|
|
|
|
(6,862
|
)
|
|
(27,644
|
)
|
|
-
|
|
|
(34,506
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from Long - Term Debt
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Proceeds
from ABL
|
|
|
-
|
|
|
244,900
|
|
|
-
|
|
|
-
|
|
|
244,900
|
|
Principal
Payments on Long Term Debt
|
|
|
-
|
|
|
-
|
|
|
(1,105
|
)
|
|
-
|
|
|
(1,105
|
)
|
Principal
Payments on Long Term Loan
|
|
|
-
|
|
|
(13,500
|
)
|
|
-
|
|
|
-
|
|
|
(13,500
|
)
|
Principal
Payments on ABL
|
|
|
-
|
|
|
(292,139
|
)
|
|
-
|
|
|
-
|
|
|
(292,139
|
)
|
Equity
Investment
|
|
|
-
|
|
|
200
|
|
|
-
|
|
|
-
|
|
|
200
|
|
Net
Cash Used in Financing Activities
|
|
|
-
|
|
|
(60,539
|
)
|
|
(1,105
|
)
|
|
-
|
|
|
(61,644
|
)
|
Increase
in Cash and Cash Equivalents
|
|
|
-
|
|
|
(21,722
|
)
|
|
1,672
|
|
|
-
|
|
|
(20,050
|
)
|
Cash
and Cash Equivalents at Beginning of Period
|
|
|
-
|
|
|
48,865
|
|
|
9,511
|
|
|
-
|
|
|
58,376
|
|
Cash
and Cash Equivalents at End of Period
|
|
|
-
|
|
$
|
27,143
|
|
$
|
11,183
|
|
$
|
-
|
|
$
|
38,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BURLINGTON
COAT FACTORY INVESTMENT HOLDINGS, INC. AND
SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATING STATEMENTS OF CASH FLOWS
(PREDECESSOR)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Six Month Period Ended November 26, 2005
|
|
|
|
Holdings
|
|
BCFWC
|
|
Guarantors
|
|
Elimination
|
|
Consolidated
|
|
|
|
(All
amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by Operating Activities
|
|
$
|
-
|
|
$
|
109,602
|
|
$
|
112,932
|
|
$
|
-
|
|
$
|
222,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of Property and Equipment
|
|
|
-
|
|
|
(15,360
|
)
|
|
(30,633
|
)
|
|
-
|
|
|
(45,993
|
)
|
Proceeds
Received from Insurance
|
|
|
-
|
|
|
-
|
|
|
656
|
|
|
-
|
|
|
656
|
|
Investing
Activity-Other
|
|
|
-
|
|
|
120
|
|
|
(31
|
)
|
|
-
|
|
|
89
|
|
Net
Cash Used in Investing Activities
|
|
|
-
|
|
|
(15,240
|
)
|
|
(30,008
|
)
|
|
-
|
|
|
(45,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
Payments on Long Term Debt
|
|
|
-
|
|
|
(100,000
|
)
|
|
(960
|
)
|
|
-
|
|
|
(100,960
|
)
|
Equity
Investment
|
|
|
-
|
|
|
44
|
|
|
-
|
|
|
-
|
|
|
44
|
|
Net
Cash Used in Financing Activities
|
|
|
-
|
|
|
(99,956
|
)
|
|
(960
|
)
|
|
-
|
|
|
(100,916
|
)
|
Increase
in Cash and Cash Equivalents
|
|
|
-
|
|
|
(5,594
|
)
|
|
81,964
|
|
|
-
|
|
|
76,370
|
|
Cash
and Cash Equivalents at Beginning of Period
|
|
|
-
|
|
|
43,942
|
|
|
4,011
|
|
|
-
|
|
|
47,953
|
|
Cash
and Cash Equivalents at End of Period
|
|
$
|
-
|
|
$
|
38,348
|
|
$
|
85,975
|
|
$
|
-
|
|
$
|
124,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33.
Acquisitions
As
described in Note 2, on April 13, 2006, affiliates of Bain Capital
Partners, LLC purchased all of the outstanding capital stock of Burlington
Coat
Factory Warehouse Corporation from its existing stockholders for an aggregate
purchase price of approximately $2.1 billion. The aggregate cost, together
with
the costs and fees necessary to consummate the transaction, was financed
by
equity contributions of $445.8 million, borrowings from an $800 million
ABL
Credit Facility, of which $225 million was drawn at the closing of the
Transaction, borrowings from a $900 million secured term loan agreement,
issuance of $305 million of Senior Notes, of which $299 million of proceeds
was
used in the financing of the Transaction, a cash contribution from Investments
of $75 million from an issuance of $99.3 million Senior Discount Notes
and from
BCFWC’s available cash.
The
acquisition of the Company has been accounted for in accordance with SFAS
No. 141 “Business
Combinations.”
The
purchase price was allocated to the assets acquired and liabilities assumed
based on the estimates of their respective values at the date of acquisition.
Assets
acquired and liabilities assumed in an acquisition are valued based on
fair
market value measures as determined by management with the assistance of
third
parties. The method used to determine the asset values include a variety
of
valuation techniques. With respect to trademarks, management under the
advisement of a third party, adopted the income approach to value these
intangible assets. Under the income approach, the value of our trademarks
was
determined by the present value of potential future revenues from such
trademarks based on a discounted royalty rate.
With
respect to internally developed software, we determined the value based
on the
assumed dollar value of the cost of recreating the source code of such
software.
The cost of recreating the source code was based on the labor costs for
the man
hours assumed to be required to create such source code.
In
order
to determine the value of our leases, we compared our leases with comparable
leases available in the market and discounted current lease rates over
the life
of our existing leases.
In
order
to determine the step-up in basis for our assets, we applied either the
cost
approach or market approach, as management determined appropriate under
the
advisement of third party valuators. Under the cost approach, the step-up
in
basis is determined by the current cost of replacement less estimated applicable
depreciation. Under the market approach, the step-up is determined by the
market
value of comparable assets less applicable depreciation.
With
respect to any of the valuation methods, if different assumptions are adopted
by
management, significant changes to the allocation of the purchase price
could
result.
The
following table summarizes the preliminary allocation of the purchase price
to
assets acquired and liabilities assumed at the date of acquisition. The
purchase
price allocation to underlying assets and liabilities is subject to change
and
the change could be material. In addition, the final determination of the
tax
treatment of deal related expenditures and the impact of the Transaction
on the
Company’s ability to carry forward net operating losses as well as the final
determination of actual tax expenses for fiscal 2006 could result in material
changes to the purchase price allocation.
|
|
|
|
|
|
April 13,
2006
|
|
|
|
(in thousands)
|
|
Total
acquisition consideration:
|
|
|
|
|
Cash
paid upon acquisition
|
|
$
|
2,050,918
|
|
Liabilities
assumed
|
|
|
769,251
|
|
Acquisition
related costs
|
|
|
4,849
|
|
|
|
|
|
|
|
|
|
2,825,018
|
|
Less:
Book value of net assets acquired
|
|
|
1,785,818
|
|
|
|
|
|
|
|
|
$
|
1,039,200
|
|
|
|
|
|
|
Fair
value adjustment for property, plant and equipment
|
|
|
416,118
|
|
Tradenames
|
|
|
526,300
|
|
Net
favorable lease positions
|
|
|
637,112
|
|
Internally
developed software
|
|
|
42,000
|
|
Deferred
taxes related to valuations
|
|
|
(641,315
|
)
|
Goodwill
|
|
|
58,985
|
|
|
|
|
|
|
|
|
$
|
1,039,200
|
|
|
|
|
|
|
The
aggregate amortization expense for the periods from April 13, 2006 through
June 3, 2006 and the six and three month periods ended December 2, 2006 for
the definite lived identifiable intangibles was $4.5 million, $17.8 million
and
$9.4 million, respectively. Net favorable leases are being amortized on
a
straight line basis over the expected lives of the related leases. Internally
developed software is being amortized on a straight line basis over three
years
and is being recorded in the line item “Depreciation” on the Company’s Condensed
Consolidated Statements of Operations. Amortization of internally developed
software amounted to $1.9 million, $7.0 million and $3.5 million, respectively,
for the period from April 13, 2006 through June 3, 2006 and the six
and three month periods ended December 2, 2006.
Condensed
opening balance sheet as of April 13, 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and other current assets
|
|
$
|
216,850
|
|
Inventory
|
|
|
757,156
|
|
Property,
plant and equipment
|
|
|
1,061,244
|
|
Goodwill
|
|
|
58,985
|
|
Intangibles
|
|
|
1,234,964
|
|
Other
assets
|
|
|
26,311
|
|
|
|
|
|
|
Total
assets
|
|
$
|
3,355,510
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$
|
10,358
|
|
Accounts
payable
|
|
|
507,080
|
|
Other
current liabilities and taxes payable
|
|
|
226,965
|
|
Long-term
debt
|
|
|
1,521,596
|
|
Other
long-term liabilities
|
|
|
643,681
|
|
Stockholders’
equity
|
|
|
445,830
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
3,355,510
|
|
|
|
|
|
|
The
following table reflects the pro forma revenue and net income (loss) for
the six
and three month periods presented as though the acquisition and related
transactions had taken place at the beginning of the period (amounts in
thousands):
|
|
|
|
|
|
|
|
Six
Months Ended
November
26, 2005
|
|
Three
Months Ended
November
26, 2005
|
|
Revenue
|
|
|
|
|
$
|
1,611,972
|
|
$
|
953,884
|
|
Net
Income (Loss)
|
|
|
|
|
$
|
(50,562
|
)
|
$
|
5,872
|
|
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES
Item
2. Management's
Discussion and Analysis of Results of Operations and Financial
Condition.
The
Company’s management intends for this discussion to provide the reader with
information that will assist in understanding our financial statements,
the
changes in certain key items in those financial statements from period
to
period, and the primary factors that accounted for those changes, as well
as how
certain accounting principles affect our financial statements. All discussions
of operations in this report relate to Burlington Coat Factory Warehouse
Corporation and its subsidiaries (“BCFWC”), which are reflected in the financial
statements of Burlington Coat Factory Investments Holdings, Inc. and its
subsidiaries (“Holdings”). Except as expressly indicated or unless the context
otherwise requires, as used herein the “Company”, “we”, “us”, or “our” means
Burlington Coat Factory Investments Holdings, Inc. and its subsidiaries.
The
following discussion contains forward-looking information and should be
read in
conjunction with the condensed consolidated financial statements and notes
thereto included elsewhere in this report and in the Company's Registration
Statement on Form S-4 filed with the Securities and Exchange Commission
(“SEC”)
on October 10, 2006, as amended. Our actual results could differ materially
from
the results contemplated by these forward-looking statements due to various
factors, including those discussed under the section entitled “Safe Harbor
Statement.”
Overview
Burlington
Coat Factory experienced an increase in net sales through the first six
months
ended December 2, 2006 compared with the first six months ended November
26,
2005. Net sales were $1,641.6 million for the six months ended December
2, 2006
and $1,596.3 million for the six months ended November 26, 2005, a 2.8%
increase. The Company’s 2006 fiscal year ended June 3, 2006 was a 53 week year.
As a result, each of the fiscal quarters in this 2007 fiscal year begins
and
ends one week later than the corresponding period of the prior fiscal year.
Because the last week of November is traditionally a strong week for sales
given
the onset of the holiday shopping season, we experienced a significant
increase
in net sales in this fiscal year’s second quarter over last fiscal year’s second
quarter. However, comparing the 26 week period ended December 2, 2006 with
the
26 week period ended December 3, 2005 would show that net sales for the
26 week
period of fiscal 2007 were up slightly over the similar 26 week period
of fiscal
2006, i.e., $1,641.6 million compared with $1,641.4 million.
The
Company experienced a 1.7% comparative store sales decrease from the comparative
period of a year ago.
Gross
margin as a percentage of sales increased to 37.4% from 36.5% during the
six
month period ended December 2, 2006 compared with the six month period
ended
November 26, 2005 due to higher initial margins and reduced freight costs.
The
Company recorded a net loss of $40.1 million for the six month period ended
December 2, 2006 compared with net income of $29.5 million for the six
month
period ended November 25, 2006. Increases in depreciation, interest and
amortization related to the Merger Transaction of April 13, 2006 negatively
impacted earnings.
For
the
three months ended December 2, 2006 compared with the three months ended
November 26, 2005, net sales increased $39.4 million (4.2%). Comparative
store
sales decreased 2.4% during the quarter. Comparative store sales increased
5.0%
in September, decreased 1.3% in October and decreased 8.8% in November
compared
with the same months last year. The decrease in comparative store sales
in
October and November is primarily attributed to unseasonably warm weather
in
certain regions of the United States. Gross margin percentage increased
to 39.0%
from 37.7 % during the three month period ended December 2, 2006 compared
with
the three month period ended November 25, 2006 due primarily to higher
initial margins and reduced freight costs. For the three month period ended
December 2, 2006, net income amounted to $11.7 million compared with $45.4
million during the period ended November 25, 2006. The decrease in net
income is
primarily attributable to increases in depreciation, interest and amortization
expenses.
Items
Affecting Comparability
Predecessor/Successor
bases of accounting
On
January 18, 2006, BCFWC entered into the Merger Agreement among BCFWC,
Parent and Merger Sub to sell the entire company to entities directly owned
by
Bain Capital (collectively, the “Equity Sponsors”). On April 13,
2006, the transaction was consummated by the Equity Sponsors through a
$2.1
billion merger of Merger Sub into BCFWC with BCFWC being the surviving
corporation in the Merger. Under the Merger Agreement, former holders of
BCFWC’s
common stock, par value $1.00 per share, received $45.50 per share, or
approximately $2.1 billion.
Although
BCFWC continued as the same legal entity after the Merger Transaction,
the
accompanying consolidated balance sheets, statements of operations, and
cash
flows are presented for two periods: Predecessor and Successor, which relate
to
the
period
preceding the Merger and the period succeeding the Merger, respectively.
We
refer to the operations of BCFWC and subsidiaries for both the Predecessor
and
Successor periods.
As
a
result of the Merger Transaction, our assets and liabilities have been
preliminarily adjusted to their fair value as of the closing date, April
13,
2006. The allocation of fair value is subject to change and the change
could be
material. Depreciation and amortization expenses are higher in successor
accounting periods due to these fair value assessments resulting in increases
to
the carrying value of our property, plant and equipment and intangible
assets.
Interest
expense has increased substantially in the successor accounting periods
in
connection with our financing arrangements, which includes a $800 million
senior
secured ABL Credit Facility, a $900 million secured term loan, $305 million
senior notes and $99.3 million Holdings Senior Discount Notes, each of
which are
further described in the liquidity section that follows.
Current
Conditions
Store
Openings, Closings, and Relocations. During
the first six months of fiscal 2007, the Company opened eleven Burlington
Coat
Factory Stores. Two stores previously closed due to Hurricanes Katrina
and Wilma
were reopened during the six month period. An additional Burlington Coat
Factory
store was relocated to a location within the same trading market. During
the six
months ended December 2, 2006, three Burlington Coat Factory stores, one
MJM
designer shoe store and one Super Baby Depot store were closed. Two stores
were
remodeled during the six month period ended December 2, 2006. As of December
2,
2006, the Company operated 373 stores under the names "Burlington Coat
Factory
Warehouse" (“BCF”), (348 stores), "Cohoes Fashions"(7 stores), "MJM Designer
Shoes" (17 stores), and "Super Baby Depot" (1 store). The Company plans
to open
eight Burlington Coat Factory stores during remainder of fiscal 2007. Two
remodels of existing Burlington Coat Factory stores and the reopening of
the
remaining store damaged by Hurricane Katrina are planned for the remainder
of
fiscal 2007. The Company plans to close three Cohoes stores and to convert
two
Cohoes stores to BCF stores during fiscal 2007 and is reviewing operational
alternatives for the remaining two Cohoes stores.
Key
Performance Measures
Management
considers numerous factors in assessing the Company's performance. Key
performance measures used by management include comparative store sales,
inventory turnover, inventory levels, gross margin, net operating margin
and
liquidity.
Comparative
Store Sales.
Comparative store sales measure performance of a store during the current
reporting period against the performance of the same store in the corresponding
period of the previous year. The Company experienced a decrease in comparative
store sales of 1.7% and 2.4% in the six and three month periods ended December
2, 2006 compared with the six and three month periods ended November 25,
2006.
The decrease is primarily attributable to unseasonably warm weather in
October
and November.
Inventory
Turnover. Inventory
turnover is a measure that indicates how efficiently inventory is bought
and
sold. It measures the length of time the Company owns its inventory. This
is
significant because usually the longer the inventory is owned, the more
likely
markdowns may be used to sell the inventory. Inventory turnover is
calculated by dividing the retail sales before sales discounts by the average
retail inventory for the period being measured. The inventory turnover
rate
during the first six months of fiscal 2007 and fiscal 2006 was 2.2.
Inventory
levels are monitored by management to assure that the stores are properly
stocked to service customer needs while at the same time assuring that
stores
are not over-stocked which would necessitate increased markdowns to move
slow-selling merchandise. To assist with inventory management, in fiscal
2006,
the Company began implementing a third party markdown optimization software
system throughout its stores. Management believes that the system will
improve
the Company's ability to monitor the performance of merchandise on a regional
basis in order to clear underperforming merchandise earlier in the season,
purchase newer or more in-demand items more quickly and manage pricing
decisions. The initial implementation of the system was limited to certain
ladies’ and girls’ sportswear items for the 2005 fall season. During the next
phase of implementation, which is scheduled to occur during fiscal 2007,
we will
be managing additional fashion merchandise. At December 2, 2006, inventory
was
$913.3 million versus $900.4 million at November 26, 2005. This increase
in
inventory is due primarily to the increase in the number of stores operating
in
the fiscal 2007 period compared with the similar fiscal 2006 period.
Gross
Margin. Gross
margin is a measure used by management to indicate whether the Company
is
selling
merchandise
at an appropriate gross profit. Gross margin is the difference between
net sales
and the cost of sales. For the six month period ended December 2, 2006
compared
with the six month period ended November 25, 2006, the Company experienced
an
increase in gross margin percentage to 37.4% from 36.5%. For the three
month
periods ended December 2, 2006 and November 26, 2005, the gross margin
percentage increased to 39% from 37.7%. These increases are due primarily
to
increases in initial margins and reduced freight costs in the current year's
six
and three month periods compared with the six and three month periods ended
November 25, 2006.
Net
Operating Margin.
Net
operating margin provides management with an indication of the operating
profitability of the Company. Net operating margin is the difference between
revenues (net sales and other revenue) and the combination of the cost
of sales
and operating expenses (Selling and Administrative Expenses, Depreciation,
Amortization and losses on disposition of assets). The margins for the
six and
three month periods ended December 2, 2006 were $4.1 million and $59.7
million,
respectively, compared with $53.9 million and $78.2 million for
the comparative six and three month periods of a year ago. These decreases
are due primarily to increases in depreciation and amortization relating
to the
merger and related transactions of April 13, 2006.
Liquidity.
Liquidity
measures the Company's ability to generate cash. Management measures liquidity
through cash flow and working capital. Cash flow is the measure of cash
generated from operating, financing, and investing activities. The Company
experienced a decrease in cash flow of $96.4 million during the six month
period
ended December 2, 2006 compared with the six month period ended November
26,
2005. Changes in working capital also impact our cash flows. Working capital
is
current assets minus current liabilities. Working capital at December 2,
2006
was $184.4 million compared with $345.1 million at November 26, 2005. This
decrease in working capital is due primarily to a decrease in the Company’s cash
position, resulting from the use of available cash to fund part of the
Merger
Transaction.
Critical
Accounting Policies and Estimates
The
Company's unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in
the
United States of America. The preparation of these financial statements
requires
management to make estimates and assumptions that affect (i) the reported
amounts of assets and liabilities; (ii) the disclosure of contingent assets
and
liabilities at the date of the condensed consolidated financial statements;
and
(iii) the reported amounts of revenues and expenses during the reporting
period.
On an on-going basis, management evaluates its estimates and judgments,
including those related to revenue returns, bad debts, inventories, income
taxes, financing operations, asset impairment, retirement benefits, risk
participation agreements, vendor promotional allowances, reserves for closed
store and contingencies and litigation. Historical experience and various
other
factors, that are believed to be reasonable under the circumstances, form
the
basis for making estimates and judgments about the carrying values of assets
and
liabilities that are not readily apparent from other sources. Actual results
may
differ from these estimates under different assumptions or
conditions.
The
Company believes that the following represent its more critical estimates
and
assumptions used in the preparation of its unaudited condensed consolidated
financial statements:
Inventory.
The
Company's inventory is valued at the lower of cost or market using the
retail
first-in, first-out (“FIFO”) inventory method. Under the retail inventory
method, the valuation of inventory at cost and resulting gross margin are
calculated by applying a calculated cost to retail ratio to the retail
value of
inventory. The retail inventory method is an averaging method that has
been
widely used in the retail industry due to its practicality. Additionally,
the
use of the retail inventory method will result in valuing inventory at
the lower
of cost or market if markdowns are currently taken as a reduction of the
retail
value of inventory. Inherent in the retail inventory method calculation
are
certain significant management judgments and estimates including, merchandise
markups, markdowns and shrinkage which significantly impact the ending
inventory
valuation at cost as well as the resulting gross margin. Management believes
that the Company's retail inventory method and application of FIFO provides
an
inventory valuation which approximates cost using a first-in, first-out
assumption and results in carrying value at the lower of cost or market.
Estimates are used to charge inventory shrinkage for the first three fiscal
quarters of the fiscal year. An actual physical inventory is conducted
at the
end of the fiscal year to calculate actual shrinkage. The Company also
estimates
its required markdown allowances. If actual market conditions are less
favorable
than those projected by management,
additional
markdowns may be required. While the Company makes estimates on the basis
of the
best information available to it at the time estimates are made, over accruals
or under accruals may be uncovered as a result of the physical inventory
requiring fourth quarter adjustments.
Insurance.
The
Company has risk participation agreements with insurance carriers with
respect
to workers' compensation, liability insurance and health insurance. Pursuant
to
these arrangements, the Company is responsible for paying individual claims
up
to designated dollar limits. The amounts included in the Company's costs
related
to these claims are estimated and can vary based on changes in assumptions
or
claims experience included in the associated insurance programs. An increase
in
worker's compensation claims by employees, health insurance claims by employees
or liability claims will result in a corresponding increase in the Company's
costs related to these claims. Insurance reserves amounted to $33.3 million
and
$30.8 million at December 2, 2006 and June 3, 2006, respectively.
Reserves
for Revenue Returns.
The
Company records reserves for future revenue returns. The reserves are based
on
current revenue volume and historical claim experience. If claims experience
differs from historical levels, revisions in the Company's estimates may
be
required. Sales reserves amounted to $5.5 million and $1.9 million at December
2, 2006 and June 3, 2006. The increase in reserves is primarily in response
to
the seasonality of sales and the Company’s new cash back return
policy.
Long-Lived
Assets. The
Company tests for recoverability of long-lived assets whenever events or
changes
in circumstances indicate that its carrying amount may not be recoverable.
This
includes performing an analysis of anticipated undiscounted future net
cash
flows of long-lived assets. If the carrying value of the related assets
exceeds
the undiscounted cash flow, the Company reduces the carrying value to its
fair
value, which is generally calculated using discounted cash flows. Various
factors including future sales growth and profit margins are included in
this
analysis. To the extent these future projections change, the conclusion
regarding impairment may differ from the estimates. Future adverse changes
in
market conditions or poor operating results of underlying assets could
result in
losses or an inability to recover the carrying value of the assets that
may not
be reflected in an asset's current carrying value, thereby possibly requiring
an
impairment charge in the future.
Allowance
for Doubtful Accounts.
The
Company maintains allowances for bad checks, miscellaneous receivables
and
losses on credit card accounts. This reserve is calculated based upon historical
collection activities adjusted for current conditions.
Results
of Operations
The
following table sets forth certain items in the Condensed Consolidated
Statements of Operations as a percentage of net sales for the six and three
month periods ended December 2, 2006 and November 26, 2005.
|
|
Percentage
of Net Sales
|
|
Percentage
of Net Sales
|
|
|
|
Six
Months Ended
|
|
Three
Months Ended
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
Successor
|
|
Predecessor
|
|
Successor
|
|
Predecessor
|
|
|
|
December
2,
|
|
November
26,
|
|
December
2,
|
|
November
26,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
|
100
|
%
|
|
100.0
|
%
|
|
100
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales
|
|
|
62.6
|
|
|
63.5
|
|
|
61.0
|
|
|
62.3
|
|
Selling
& Administrative Expenses
|
|
|
32.6
|
|
|
31.3
|
|
|
29.2
|
|
|
28.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4.4
|
|
|
2.8
|
|
|
3.8
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
1.4
|
|
|
-
|
|
|
1.2
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
4.3
|
|
|
0.2
|
|
|
3.6
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Loss), Net
|
|
|
.1
|
|
|
(0.2
|
)
|
|
.1
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Revenue
|
|
|
1.2
|
|
|
1.0
|
|
|
1.2
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) before Income Taxes
|
|
|
(4.0
|
)
|
|
3.0
|
|
|
2.5
|
|
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Tax Expense (Benefit)
|
|
|
1.6
|
|
|
1.2
|
|
|
1.2
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
|
(2.4
|
)%
|
|
1.8
|
%
|
|
1.3
|
%
|
|
4.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
Six
Month Period Ended December 2, 2006 compared with Six Month Period Ended
November 26, 2005
Consolidated
net sales increased $45.4 million (2.8%) to $1,641.6 million for the six
month period ended December 2, 2006 compared with the six month period
ended
November 26, 2005. As previously noted, the Company’s prior fiscal year ended
June 3, 2006 was a 53 week fiscal year and as a result, the current fiscal
year
and each of its quarters begins and ends one week later than the corresponding
period of the prior fiscal year. Net sales for the twenty-six week period
of
fiscal 2006 ended December 3, 2005 were $1,641.4 million. Comparative stores
sales decreased 1.7% for the six month period ended December 2, 2006 due
primarily to unseasonably warm weather in October and November.
The
Company defines its comparative store sales as sales of those stores (net
of
sales discounts) that are beginning their four hundred and twenty-fifth
day of
operation (approximately 1 year and 2 months). Existing stores whose square
footage has been changed by more than 20% and relocated stores are classified
as
new stores for comparative store sales purposes. This method is used in
this
section in comparing the results of operations for the six and three month
periods ended December 2, 2006 with the results of operations for the six
and
three month periods ended November 26, 2005.
Eleven
new Burlington Coat Factory department stores opened during the first six
months
of fiscal 2007 contributed $27.7 million to net sales for the six month
period
ended December 2, 2006.
The
Cohoes Fashions stores contributed $19.0 million to consolidated sales
for the
six month period ended December 2, 2006 compared with $22.6 million for
the six
month period ended November 26, 2005. This decrease is due to comparative
store
sales decreases of 16.8% during the six month period of fiscal 2007 compared
with the period ended November 25, 2006.
The
MJM
Designer Shoes stores contributed $28.5 million to sales for the six month
period ended December 2, 2006 compared with $27.8 million for the six month
period ended November 25, 2006. Comparative store sales decreased 0.3%
during
the six month period of fiscal 2007 compared with the period ended November
25,
2006.
Other
Revenue
Other
Revenue (consisting of rental income from leased departments, sublease
rental
income, layaway, alteration and other service charges and miscellaneous
revenue
items) increased to $19.6 million for the six month period ended December
2,
2006 compared with $15.8 million for the six month period ended November
25,
2006. This increase is primarily related to gift card service fees.
Cost
of Sales
Cost
of
sales increased $13.3 million (1.3%) for the six month period ended December
2,
2006 compared with the six month period ended November 26, 2005. The dollar
increase in cost of sales was due primarily to the increase in net sales
during
the six month period ended December 2, 2006 compared with the period ended
November 25, 2006.
Cost
of
sales as a percentage of net sales decreased to 62.6% in the fiscal 2007
six
month period from 63.5% in the fiscal 2006 six month period. The decrease
in
cost of sales, as a percentage of net sales, for the fiscal 2007 period
compared
with the fiscal 2006 period was primarily the result of increases in initial
margins and reduced freight costs. The Company's cost of sales and gross
margin
may not be comparable to those of other entities, since some entities include
all of the costs related to their buying and distribution functions in
cost of
sales. The Company includes these costs in the Selling and Administrative
Expenses and Depreciation line items in the Condensed Consolidated Statements
of
Operations. The Company includes in its Cost of Sales line item all costs
of
merchandise (net of purchase discounts and certain vendor allowances),
inbound
freight, warehouse outbound freight and freight related to internally
transferred merchandise and certain merchandise acquisition costs, primarily
commissions and import fees.
Selling
and Administrative Expenses
Selling
and Administrative Expenses increased $36.0 million (7.2%) from the fiscal
2006
six month period to the fiscal 2007 six month period. The increase in selling
and administrative expenses was due primarily to the increased number of
stores
in operation during the six month period of fiscal 2007 compared with the
period
ended November 25, 2006. Additionally, the Company incurred $16.8 million
in
expenses related to the Merger Transaction, increases in advertising expenses
of
$4.1 million and increased professional fees of $3.7 million during the
fiscal
2007 six month period compared with the six month period ended November
25,
2006. As a percentage of Net Sales, Selling and Administrative Expenses
were
32.6% for the six month period ended December 2, 2006 compared with 31.3%
for
the six month period ended November 26, 2005.
Depreciation
Depreciation
expense amounted to $72.2 million in the six month period ended December
2, 2006
compared with $45.1 million in the six month period ended November 26,
2005.
This increase of $27.1 million is attributable primarily to the step up
in basis
of the Company’s fixed assets related to the Merger Transaction of approximately
$416 million and to capital additions made subsequent to fiscal 2006’s second
fiscal quarter.
Amortization
Amortization
expense related to the amortization of net favorable leases and deferred
debt
charges amounted to $22.9 million for the six month period ended December
2,
2006 compared with $0.5 million for the six month period ended November
26,
2005. The increase is attributable to increased deferred debt charges and
favorable lease assets recorded as part of the Merger Transaction.
Interest
Expense
Interest
expense was $70.6 million and $3.3 million for the six month period ended
December 2, 2006 and November 26, 2005, respectively. The increase in interest
expense is primarily related to our ABL Credit Facility, our secured term
loan,
BCFWC senior notes and our senior discount notes which all relate to financing
activities related to the Merger.
Other
(Income), Net
Other
(Income), Net (consisting of investment income, gains and losses on disposition
of assets and other miscellaneous items) increased $4.2 million to $1.7
million
for the six month period ended December 2, 2006 compared with the six month
period ended November 26, 2005. The increase is due primarily to losses
recorded
in last year’s quarter of $3.5 million related to assets damaged by Hurricane
Katrina and Wilma and to losses of $2.1 million, resulting from the write-off
of
the book values of fixed assets of stores closed during the six months
ended
November 26, 2005. This compares with insurance losses and fixed asset
write-offs of $0.8 million and $0.1 million during fiscal 2007. Investment
income amounted to $2.1 million and $2.8 million for the six months ended
December 2, 2006 and November 26, 2005, respectively. The decrease in investment
income is due to decreases in available cash and investments used to finance
a
portion of the Merger.
Income
Tax
The
Company estimates its fiscal 2007 effective tax rate to be approximately
38.3%,
which does not take into consideration the Work Opportunities Tax Credit
for
fiscal 2007. Significant factors that could impact the annual effective
tax rate
include management’s assessment of certain tax matters, the application of the
Work Opportunity Tax Credit and our estimate of income for the year. The
impact
of significant discrete items is separately recognized in the quarter in
which
they occur.
In
determining the quarterly provision for income taxes, the Company uses
an
estimated annual effective tax rate based on forecasted annual income,
permanent
items, and statutory tax rates. Our effective tax rate for the first six
months
of fiscal 2007 is 38.3% which compares with 38.7% for the first six months
of
fiscal 2006.
Income
tax benefit was $24.8 million for the six month period ended December 2,
2006,
compared with income tax expense of $18.6 million for the six month period
ended
November 26, 2005.
Net
Loss
Net
loss
amounted to $40.1 million for the six month period ended December 2, 2006
compared with net income of $29.5 million for the comparative period of
last
year. The decrease in earnings of $69.6 million is due primarily to continuing
expenses resulting from the Merger Transaction of April 13, 2006, including
increased depreciation, amortization and interest expense.
Sales
Three
Month Period Ended December 2, 2006 compared with Three Month Period Ended
November 26, 2005
Consolidated
net sales increased $39.4 million (4.2%) to $984.8 million for the three
month
period ended December 2, 2006 compared with the three month period ended
November 26, 2005. Net sales for the thirteen week period ended December
3, 2005
were $985.5 million.
Comparative store sales decreased 2.4% for the three month period ended
December
2, 2006.
Eleven
new Burlington Coat Factory department stores opened during the first six
months
period ended December 2, 2006 and contributed $26.6 million to net sales
for the
three month period ended December 2, 2006.
The
Cohoes Fashions stores contributed $10.5 million to consolidated sales
for the
three month period ended December 2, 2006 compared with $12.9 million for
the
three month period ended November 26, 2005. This decrease is due to comparative
store sales decreases of 20.1% during the three month period of fiscal
2007
compared with the three months ended November 26, 2005.
The
MJM
Designer Shoes stores contributed $16.4 million to sales for the three
month
period ended December 2, 2006 compared with $17.3 million for the period
ended
November 26, 2005 of fiscal 2006. Comparative store sales decreased 2.7%
during
the three month period of fiscal 2007 compared with the three months ended
November 26, 2005
.
Other
Revenue
Other
Revenue (consisting of rental income from leased departments, sublease
rental
income, layaway, alteration and other service charges and miscellaneous
revenue
items) increased to $12.1 million for the three month period ended December
2,
2006 compared with $8.5 million for the period ended November 25, 2006.
This
increase is primarily related to gift card service fees.
Cost
of Sales
Cost
of
sales increased $11.7 million (2.0%) for the three month period ended December
2, 2006 compared with the three month period ended November 26, 2005. The
dollar
increase in cost of sales was due primarily to the increase in net sales
during
the three month period ended December 2, 2006 compared with the six and
three
month period ended November 25, 2006. Cost of sales as a percentage of
net sales
decreased to 61.0% in the fiscal 2007 three month period from 62.3% in
the
fiscal 2006 three month period. The decrease in cost of sales, as a percentage
of net sales, for the fiscal 2007 period compared with the fiscal 2006
period
was primarily the result of increases in initial margins and reduced freight
costs.
Selling
and Administrative Expenses
Selling
and Administrative Expenses increased $23.4 million (8.9%) from the fiscal
2006
three month period to the fiscal 2007 three month period. The increase
in
selling and administrative expenses was due primarily to the increased
number of
stores in operation during fiscal 2007 period compared with the period
ended
November 25, 2006 and to $7.0 million in additional expenses related to
the
Merger Transaction. As a percentage of Net Sales, Selling and Administrative
Expenses were 29.2% for the three month period ended December 2, 2006 compared
with 28.0% for the three month period ended November 26, 2005.
Depreciation
Depreciation
expense amounted to $37.2 million in the three month period ended December
2,
2006 compared with $22.4 million in the three month period ended November
26,
2005. This increase of $14.8 million is attributable primarily to the step
up in
basis of the Company’s fixed assets related to the Merger Transaction of
approximately $416 million and to capital additions made subsequent to
fiscal
2006’s second fiscal quarter.
Amortization
Amortization
expense related to the amortization of net favorable leases and deferred
debt
charges amounted to $12.0 million for the three month period ended December
2,
2006 compared with $0.5 million for the three month period ended November
26,
2005. The increase is attributable to increased deferred debt charges and
favorable lease assets recorded as part of the Merger Transaction.
Interest
Expense
Interest
expense was $35.2 million and $1.5 million for the three month periods
ended
December 2, 2006 and November 26, 2005, respectively. The increase in interest
expense was related to the additional debt incurred as a result of the
Merger
Transaction.
Other
(Income), Net
Other
(Income), Net (consisting of investment income, gains and losses on disposition
of assets and other miscellaneous items) increased $3.3 million to $0.7
million
for the three month period ended December 2, 2006 compared with the similar
fiscal period of last year. The increase is due primarily to one-time losses
of
$3.5 million recorded in last year’s quarter related to assets damaged by
Hurricane Katrina and Wilma during last year’s second quarter and losses
recorded of $0.7 million resulting from the write-off of the book values
of
fixed assets of stores closed during the three months ended November 26,
2005.
This compares with insurance losses and fixed asset write-offs of $0.8
million
and $0.1 million respectively during the second quarter of fiscal 2007.
Investment income amounted to $1.3 million and $1.4 million for the three
months
ended December 2, 2006 and November 26, 2005, respectively.
Income
Tax
Income
tax expense was $13.4 million for the three month period ended December
2, 2006
and $28.6 million for the similar fiscal period of last year. The Company
revised its estimated tax rate for the 2007 fiscal year from 42.5% in the
first
quarter to 38.3% in the second quarter. This revision resulted in an effective
tax rate of 53.3% for the three months ended December 2, 2006.
Net
Income
Net
income amounted to $11.7 million for the three month period ended December
2,
2006 compared with $45.4 million for the comparative period of last year.
This
decrease of $33.7 million is due primarily to continuing increased expenses
related to depreciation, amortization and interest and advisory fees incurred
as
a result of the Merger Transaction and related financing transactions.
Liquidity
and Capital Resources
Overview
The
Company was able to satisfy its cash requirements for current operations,
expansions (such as new store openings), and other initiatives primarily
from
cash flows provided by operating activities, combined with the sale of
senior
notes, short-term borrowings and utilizing available lines of credit under
our
revolving credit facility.
Operational
Growth
During
the first six months of fiscal 2007, the Company opened eleven new Burlington
Coat Factory Warehouse department stores. As of December 2, 2006, the Company
operates stores under the names "Burlington Coat Factory Warehouse" (348
stores), "Cohoes Fashions" (7 stores), "MJM Designer Shoes" (17 stores),
and
"Super Baby Depot" (1 store). The Company estimates spending approximately
$45.6
million, net of landlord allowances, in capital expenditures during fiscal
2007
including $28.1 million for store expenditures, $7.1 million for upgrades
of
warehouse facilities and $10.4 million for computer and other
equipment
expenditures. For the first six months of fiscal 2007, capital expenditures
amounted to approximately $39.2 million.
The
Company monitors the availability of desirable locations for its stores
from
such sources as dispositions by other retail chains and bankruptcy auctions.
The
Company may seek to acquire a number of such locations in one or more
transactions. Additionally, the Company may consider strategic acquisitions.
If
the Company undertakes such transactions, the Company may seek additional
financing to fund acquisition and carry charges (i.e., the cost of rental,
maintenance, tax and other obligations associated with such properties
from the
time of commitment to acquire to the time that such locations can be readied
for
opening as Company stores) related to these stores. There can be no assurance,
however, that any additional locations will become available from other
retailers or that, if available, the Company will undertake to bid or be
successful in bidding for such locations. Furthermore, to the extent that
the
Company decides to purchase additional store locations, it may be necessary
to
finance
such acquisitions with additional long-term borrowings.
Working
Capital
Working
capital decreased to $184.4 million at December 2, 2006 from $233.2 million
at
June 3, 2006. This decrease is due primarily to the Company's repayment
of debt
obligations.
Net
Cash Provided by Operating Activities
Net
cash
provided by operating activities amounted to $76.1 million for the six
months
ended December 2, 2006 compared with $222.5 million for the six months
ended
November 26, 2005. This decrease is primarily related to increased inventory
purchases made during the current year’s six month period compared to the prior
year’s period, higher interest expense payments in the current period due to
the
Merger Transaction and to sales of investments during last year’s six month
period.
Dividends
Payment
of dividends is prohibited under our credit agreements, except for limited
circumstances.
Long-Term
Borrowings, Lines of Credit and Capital Lease
Obligations
Holdings
and each of our current and future subsidiaries, except one subsidiary
which is
considered minor, have jointly, severally and unconditionally guaranteed
BCFWC’s
obligations pursuant to the $800 million ABL Credit Facility, $900 million
Term
Loan and the $305 million Senior Notes due 2014.
The
Company’s long-term borrowings at December 2, 2006 consisted of:
$800
Million ABL Credit Facility
The
Company entered that certain credit agreement dated as of April 13, 2006
(the
“ABL Agreement”). The ABL Credit Facility establishes a revolving credit loan
facility with the principal amount of commitments and loans thereunder
not to
exceed $800 million (which may be increased or decreased pursuant to the
provisions of the ABL Agreement). Borrowings under the ABL facility are
limited
by a borrowing base which is calculated periodically based on specified
percentages of the value of eligible inventory and eligible credit card
receivables, subject to certain reserves and other adjustments. The ABL
facility
is guaranteed by certain of our U.S. subsidiaries and secured by (a) a
perfected
first priority lien on all of our inventory, accounts and personal property
related to inventory and accounts and our equity interests in certain of
our
U.S. subsidiaries and (b) a perfected second priority lien on substantially
all
of our other real and personal property and that of our subsidiaries, in
each
case subject to various limitations and exceptions. The termination date
of the
ABL Agreement is the earlier of May 28, 2011 or the date that all obligations
under such agreement are satisfied. As of December 2, 2006, we had $165.0
million outstanding under the ABL facility and unused availability of $522.3
million.
Term
Loan Facility
The
Term
Loan Agreement establishes a term loan in a principal amount not to exceed
$900
million. The term loan facility is guaranteed by certain of our subsidiaries
and
secured by (a) a perfected first priority lien on substantially all of
our real
and personal property and that of our subsidiaries and (b) a perfected
second
priority lien on all of our inventory, accounts and personal property related
to
inventory and accounts and that of our subsidiaries, in each case subject
to
various limitations and exceptions. At the closing of the Merger Transaction,
the total amount of the term loan was drawn to finance the transaction.
The
termination date of the Term Loan Agreement is the earlier of May 28, 2013
or
the date upon which all obligations pursuant to the
Loan
Agreement are satisfied. As of December 2, 2006, we had $884.3 million
outstanding under our term loan facility.
BCFWC
Senior Notes
On
April
13, 2006, BCFWC issued $305.0 million aggregate principal amount of senior
notes
due April 15, 2014 (referred to herein as the “Senior Notes”). The notes were
issued at a discount and yielded $299.0 million at the transaction date.
BCFWC
issued the Senior Notes in transactions exempt from or not subject to
registration under the Securities Act, pursuant to Rule 144A and Regulation
S
under the Securities Act. On October 10, 2006, BCFWC, the guarantor subsidiaries
and Holdings (as a guarantor) filed a registration statement with the Securities
and Exchange Commission (SEC) to register exchange notes to be issued in
exchange for these notes, and on January 12, 2007, the SEC declared the
amended
registration statement effective. As of December 2, 2006, we had $299.4
million outstanding in senior notes.
Holdings
Senior Discount Notes
On
April
13, 2006, we issued, through our newly-formed holding company, Burlington
Coat
Factory Investments Holdings, Inc., $99.3 million aggregate principal amount
of
141/2%
Senior
Discount Notes due October 15, 2014 (referred to herein as the “Holdings Senior
Discount Notes”). The senior discount notes were issued at a discount and
yielded $75.0 million at the transaction date. Holdings issued the Senior
Discount Notes in transactions exempt from or not subject to registration
under
the Securities Act, pursuant to Rule 144A and Regulation S under the Securities
Act. For reporting purposes, the payment obligations related to the $75
million
of Senior Discount Notes issued by Holdings and the related debt costs
have been
“pushed down” to the consolidated statements of the Company. On October 10,
2006, Holdings filed a registration statement with the Securities and Exchange
Commission (SEC) to register these notes, and on January 12, 2007, the
SEC
declared the amended registration statement effective. As of December 2,
2006,
we had $82.0 million outstanding in Senior Discount Notes.
Loan
from Burlington County Board of Freeholders
On
December 5, 2001, the Company borrowed $2.0 million from the Burlington
County
Board of Chosen Freeholders. The proceeds were used for part of the acquisition
and development costs of a new warehouse facility in Edgewater Park, New
Jersey.
The loan is interest-free and matures on January 1, 2012. The loan is to
be
repaid in monthly installments of $16,667 which began on February 1, 2002.
The
loan is secured by a letter of credit in the amount of $1.2 million. As
of
December 2, 2006 we had $1.0 million outstanding under the loan.
Capital
Lease Obligations
The
Company has capital lease obligations relating to two of its stores. The
lease
terms at inception for these locations extended over twenty-three years
and
twenty-one years. The capital lease obligations equal the present value
of the
minimum lease payments under the leases and amounted to $27.1 million.
At
December 2, 2006, capital lease obligations amounted to $26.1 million.
During
the six months of fiscal 2007, $1.3 million of lease payments were applied
to
interest and $0.2 million were applied against capital lease
obligations.
Interest
Rate Cap Agreements
In
May
2006, we hedged a portion of our interest rate risk, consistent with the
requirements under the Section 5.14 of the Term Loan Agreement through
the use
of interest rate cap agreements. The Company entered into two interest
rate caps
to manage interest rate risk associated with its long-term debt obligations.
Each agreement became effective on May 30, 2006. One interest rate cap
agreement
has a notional principal amount of $300,000,000 with a cap rate of seven
percent, with a reference floating rate which appears on the Telerate Page
3750
two days prior to the reset date, and terminates on May 31, 2011. The other
agreement has a notional principal amount of $700,000,000 with a cap rate
of
seven percent, with the same reference floating rate as the other interest
rate
cap agreement, and terminates on May 29, 2009. We do not monitor these
interest
rate cap agreements for hedge effectiveness. Gains and losses associated
with
these contracts are included within the line item “Interest Expense” on the
Company’s Condensed Consolidated Statement of Operations. The Company paid $2.5
million for these agreements on May 30, 2006. The fair value of these rate
cap
agreements is $0.6 million as of December 2, 2006. The fair values of the
interest rate cap agreements are recorded under the caption “Other Assets” on
the Company’s Condensed Consolidated Balance Sheets.
Letters
of Credit
The
Company also had letter of credit agreements with a bank in the amount
of $14.2
million and $12.4 million guaranteeing performance under various leases,
insurance contracts and utility agreements at December 2, 2006 and June
3, 2006,
respectively.
Off-Balance
Sheet Arrangements and Contractual Obligations
As
of
December 2, 2006, the Company had no material off-balance sheet arrangements
except for operating leases.
The
following table sets forth certain information regarding our contractual
obligations as of December 2, 2006 (in thousands):
|
|
Payments
During Fiscal Years
|
|
|
|
|
|
Contractual
Obligations
|
|
Total
|
|
Fiscal
2007
Less
Than One Year
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
Thereafter
|
|
Long
Term Debt
|
|
$
|
1,459,194
|
|
$
|
4,637
|
|
$
|
10,171
|
|
$
|
10,269
|
|
$
|
10,377
|
|
$
|
10,496
|
|
$
|
1,413,244
|
|
Interest
on Long Term Debt
|
|
|
808,484
|
|
|
62,969
|
|
|
113,822
|
|
|
126,908
|
|
|
126,142
|
|
|
126,098
|
|
|
252,545
|
|
Capital
Leases
|
|
|
54,162
|
|
|
1,248
|
|
|
2,497
|
|
|
2,497
|
|
|
2,557
|
|
|
2,616
|
|
|
42,747
|
|
Operating
Leases
|
|
|
580,979
|
|
|
66,265
|
|
|
120,842
|
|
|
98,787
|
|
|
75,403
|
|
|
53,219
|
|
|
166,463
|
|
Purchase
Obligations
|
|
|
331,127
|
|
|
323,863
|
|
|
2,751
|
|
|
2,008
|
|
|
1,081
|
|
|
1,025
|
|
|
399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,233,946
|
|
$
|
458,982
|
|
$
|
250,083
|
|
$
|
240,469
|
|
$
|
215,560
|
|
$
|
193,454
|
|
$
|
1,875,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity
and Capital Resources Summary
The
Company believes that its current capital expenditures and operating
requirements can be satisfied from internally generated funds and from
short
term borrowings under its ABL Credit Facility. To the extent that the Company
decides to purchase additional store locations, or to undertake unusual
transactions such as an acquisition, it may be necessary to finance such
transactions with additional long term borrowings.
Safe
Harbor Statement
Statements
made in this report that are forward-looking (within the meaning of the
Private
Securities Litigation Reform Act of 1995) are not historical facts and
involve a
number of risks and uncertainties. Such statements include but are not
limited
to, proposed store openings and closings, proposed capital expenditures,
projected financing requirements, proposed developmental projects, projected
sales and earnings, the Company's ability to maintain selling margins,
and the
effect of the adoption of recent accounting pronouncements on the Company's
condensed consolidated financial statements. Among the factors that could
cause
actual results to differ materially are the following: general economic
conditions; consumer demand; consumer preferences; weather patterns; competitive
factors, including pricing and promotional activities of major competitors;
the
availability of desirable store locations on suitable terms; the availability,
selection and purchasing of attractive merchandise on favorable terms;
import
risks; the Company's ability to control costs and expenses; unforeseen
computer
related problems; any unforeseen material loss or casualty; the effect
of
inflation; and other factors that may be described in the Company's filings
with
the Securities and Exchange Commission. The Company does not undertake
to
publicly update or revise its forward-looking statements even if experience
or
future changes make it clear that any projected results expressed or implied
will not be realized.
Recent
Accounting Pronouncements
a. In
December 2004, the FASB issued SFAS No. 123(R), “Share
Based Payment.”
This
statement establishes standards for the accounting of transactions in which
an
entity exchanges its equity instruments for goods and services, primarily
with
respect to accounting for transactions in which an entity obtains employee
services in share-based payment transactions. It also addresses transactions
in
which an entity incurs liabilities in exchange for goods and services that
are
based on the fair value of the entity’s equity instruments or that may be
settled by the issuance of those equity instruments. Entities will be required
to measure the cost of employee services received in exchange for an award
of
equity instruments based on the grant-date fair value of the award (with
limited
exceptions). That cost will be recognized over the period during which
an
employee is required to provide service in exchange for the award (usually
the
vesting period). The grant-date fair value of employee share options and
similar
instruments will be estimated using option-pricing models. If an equity
award is
modified after the grant date, incremental compensation cost will be recognized
in an amount equal to the excess of the fair value of the modified award
over
the fair value
of
the
original award immediately before the modification. This statement is effective
for the first fiscal year beginning after June 15, 2005. We adopted
Statement No. 123(R) for fiscal 2007. The statement requires us to use
either the modified-prospective method or modified retrospective method.
We
utilized the modified-prospective method. Under the modified-prospective
method,
we recognized compensation cost for all awards subsequent to adopting the
standard and for the unvested portion of previously granted awards outstanding
upon adoption. The statement permits the use of either the straight-line
or an
accelerated method to amortize the cost as an expense for awards with graded
vesting. The impact of adopting SFAS 123 (R) on Net Loss amounted to $1.0
million and $0.4 million (net of tax) for the six and three month periods
ended
December 2, 2006.
SFAS
123
(R) also amended FAS No. 95, “Statement
of Cash Flows”
to
require the cost benefits for tax deductions in excess of recognized
compensation be reported as financing cash inflows rather than as a reduction
in
income taxes paid, which is included within operating cash flows.
b. In
December 2004, the FASB issued SFAS No. 153, “Exchanges
of Nonmonetary Assets—An Amendment of APB Opinion No. 29.”
SFAS
No. 153 amends Opinion No. 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with
a
general exemption for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange is considered to have commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. We adopted SFAS No. 153 effective
June 4, 2006. The adoption of SFAS No. 153 did not have an impact on our
consolidated financial statements.
c. In
May
2005, the FASB issued SFAS No. 154, “Accounting
Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB
Statement No. 3.”
SFAS
No. 154 requires retrospective application to prior periods’ financial
statements of changes in accounting principle, unless it is impracticable
to
determine either the period-specific effects or the cumulative effect of
the
change. SFAS No. 154 also requires that retrospective application of a
change in accounting principle be limited to the direct effects of the
change.
Indirect effects of a change in accounting principle, such as a change
in
nondiscretionary profit-sharing payments resulting from an accounting change,
should be recognized in the period of the accounting change. SFAS No. 154
also requires that a change in depreciation, amortization, or depletion
method
for long-lived, nonfinancial assets be accounted for as a change in accounting
estimate effected by a change in accounting principle. SFAS No. 154 is
effective for accounting changes and corrections of errors made in fiscal
years
beginning after December 15, 2005. We adopted the provisions of SFAS
No. 154 as applicable beginning in fiscal 2007. The adoption of SFAS No.
154 did not have an impact on our consolidated financial statements.
d. In
June
2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 48 - Accounting
for Uncertainty in Income Taxes
- an
interpretation of FASB Statement No. 109. FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition
and
measurement of a tax position taken or expected to be taken in a tax return.
FIN
48 also provides guidance on accounting for derecognition, interest, penalties,
accounting in interim periods, disclosure and classification of matters
related
to uncertainty in income taxes, and transitional requirements upon adoption
of
FIN 48. FIN 48 is effective for fiscal years beginning after December 15,
2006.
The Company is currently in the process of assessing the impact of the
adoption
of FIN 48 on its condensed consolidated financial statements.
e. In
February 2006, the FASB issued SFAS No. 155, Accounting
for Certain Hybrid Financial Instruments
- an
amendment of FASB Statements No. 133 and 140 (SFAS 155). SFAS 155 simplifies
accounting for certain hybrid instruments currently governed by SFAS No.
133,
Accounting for Derivative Instruments and Hedging Activities (SFAS 133),
by
allowing fair value remeasurement of hybrid instruments that contain an
embedded
derivative that otherwise would require bifurcation. SFAS 155 also eliminates
the guidance in SFAS 133 Implementation Issue No. D1, Application of Statement
133 to Beneficial Interests in Securitized Financial Assets, which provides
such
beneficial interests are not subject to SFAS 133. SFAS 155 amends SFAS
No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities - a replacement of FASB Statement No. 125, by eliminating
the
restriction on passive derivative instruments that a qualifying special-purpose
entity may hold. This statement is effective for financial instruments
acquired
or subject to a remeasurement after the beginning of the fiscal year starting
after September 15, 2006. We do not expect the adoption of this statement
to
have a material impact on our condensed consolidated financial statements.
f. In
March
2006, the FASB issued SFAS No. 156, Accounting
for Servicing of Financial Assets-
an
amendment of FASB Statement No. 140 (SFAS 156). SFAS 156 requires an entity
to
recognize a servicing asset or servicing liability each time it undertakes
an
obligation to service a financial asset by entering into a servicing contract
in
specific situations. Additionally, the servicing asset or servicing liability
shall be initially measured at fair value, if practicable. SFAS 156 is
effective
as of an entity’s first fiscal year beginning after September 15, 2006. Early
adoption is permitted as of the beginning of an entity’s fiscal year, provided
the entity has not yet issued financial statements, including interim financial
statements, for any period of that fiscal year. We do not expect the adoption
of
this statement to have a material impact on our condensed consolidated
financial
statements.
g. In
September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements
which
defines fair value, establishes a
framework
for measurement and expands disclosure about fair value measurements. Where
applicable, SFAS 157 simplifies and codifies related guidance within generally
accepted accounting principles. This statement shall be effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. The Company is in the process
of
evaluating the impact of SFAS No. 157 on its financial
statements.
h. In
June
of 2006, the FASB ratified the consensus reached by the Emerging Issues
Task
Force (EITF) on Issue 06-3, How
Taxes Collected from Customers and Remitted to Governmental Authorities
Should
be Presented in the Income Statement.
The
scope of this consensus includes any tax assessed by a governmental authority
that is directly imposed on a revenue-producing transaction between a seller
and
a customer and may include, but is not limited to sales, use, value added
and
some excise taxes. Additionally, this consensus seeks to address how a
company should address the disclosure of such items in interim and annual
financial statements, either gross or net pursuant to APB Opinion No. 22,
Disclosure
of Accounting Policies. EITF
Issue 06-3 is effective for all financial reports for interim and annual
reporting periods beginning after December 15, 2006. The Company presents
sales
net of sales taxes in its condensed consolidated statement of operations.
No
change in presentation is anticipated as a result of EITF 06-3.
i. In
September 2006, the SEC issued SAB 108. SAB 108 provides interpretive guidance
on the consideration of the effects of prior year misstatements in quantifying
current year financial statement misstatements for the purpose of a materiality
assessment. The Company will be required to adopt the provisions of SAB
108 in
its first year ending after November 15, 2006. We do not expect the adoption
SAB
No. 108 to have a material impact on our condensed consolidated financial
statements.
Item
3. Quantitative and Qualitative Market Risk
Disclosures
We
are
exposed to certain market risks as part of our ongoing business operations.
Primary exposures include changes in interest rates, as borrowings under
our ABL
Credit Facility and term loan will bear interest at floating rates based
on
LIBOR or the base rate, in each case plus an applicable borrowing margin.
We
will manage our interest rate risk by balancing the amount of fixed-rate
and floating-rate debt. For fixed-rate debt, interest rate changes do not
affect
earnings or cash flows. Conversely, for floating-rate debt, interest rate
changes generally impact our earnings and cash flows, assuming other factors
are
held constant.
At
December 2, 2006, we had $387.1 million principal amount of fixed-rate
debt and
$1,049.3 million of available
floating-rate debt. Based on $1,049.3 million outstanding as floating rate
debt,
an immediate increase of one percentage point would cause an increase to
cash
interest expense of approximately $10.5 million per year.
If
a one
point increase in interest rates were to occur over the next four quarters
excluding the interest rate cap, such an increase would result in the following
additional interest expenses (assuming current borrowing level remain constant)
(all amounts in thousands):
|
|
Principal
Outstanding at December 2, 2006
|
|
Additional
Interest Expense
Q3
2007
|
|
Additional
Interest Expense
Q4
2007
|
|
Additional
Interest Expense
Q1
2008
|
|
Additional
Interest Expense
Q2
2008
|
|
ABL
Credit Facility
|
|
$
|
165,000
|
|
$
|
413
|
|
$
|
413
|
|
$
|
413
|
|
$
|
413
|
|
Term
Loan
|
|
|
884,250
|
|
|
2,211
|
|
|
2,205
|
|
|
2,199
|
|
|
2,194
|
|
Total
|
|
$
|
1,049,250
|
|
$
|
2,624
|
|
$
|
2,618
|
|
$
|
2,612
|
|
$
|
2,607
|
|
The
Company has two interest rate cap agreements for a maximum principal amount
of
$1.0 billion which limit our interest rate exposure to 7% for our first
billion
of borrowings under our variable rate debt obligations and if interest
rates
were to increase above the 7% cap rate, then the maximum interest rate
exposure
for the Company would be $15.8 million assuming constant current borrowing
levels of $1 billion. Currently, the Company has unlimited interest rate
risk
related to its variable rate debt in excess of $1 billion. At December
2, 2006,
the Company’s borrowing rates related to its ABL Credit Facility and its Term
Loan were 7.32% and 7.62%, respectively.
Our
ability to satisfy our interest payment obligations on our outstanding
debt will
depend largely on our future performance, which, in turn, is subject to
prevailing economic conditions and to financial, business and other factors
beyond our control. If we do not have sufficient cash flow to service our
interest payment obligations on our outstanding indebtedness and
if
we
cannot
borrow or obtain equity financing to satisfy those obligations, our business
and
results of operations will be materially adversely affected. We cannot
be
assuredthat any replacement borrowing or equity financing could be
successfully completed.
A
change
in interest rates generally does not have an impact upon our future earnings
and
cash flow for fixed-rate debt instruments. As fixed-rate debt matures,
however,
and if additional debt is acquired to fund the debt repayment, future earnings
and cash flow may be affected by changes in interest rates. This effect
would be
realized in the periods subsequent to the periods when the debt
matures.
Item
4. Controls and Procedures
The
Company's principal executive officer, Mark Nesci, and the Company's principal
financial officer, Robert L. LaPenta, Jr., have reviewed and evaluated
the
effectiveness of the Company's disclosure controls and procedures as of
December
2, 2006. Based on their review, these officers have concluded that, as
of
December 2, 2006, the Company's disclosure controls and procedures (as
defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as
amended (the "Exchange Act") were functioning effectively to provide reasonable
assurance that the information required to be disclosed by the Company
in the
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's
rules and
forms. A controls system, no matter how well designed and operated, cannot
provide absolute assurance that all control issues and instances of fraud,
if
any, within a company have been detected.
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC.
AND
SUBSIDIARIES
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings.
On
January 27, 2006 a putative class action complaint was filed by a
stockholder of our Company in the Superior Court of New Jersey in and for
Burlington County against us and our directors (the “Individual Defendants”)
challenging the proposed acquisition of our Company by affiliates of Bain
Capital pursuant to the Merger Agreement. Lemon
Bay Partners v. Burlington Coat Factory Warehouse Corporation et al. (CA
No.
Bur. C-000014-06). On
March 7, 2006, plaintiff served us and the Individual Defendants with a
First Amended Shareholder Class Action Complaint (the “Complaint”). The
Complaint asserts on behalf of a putative class of Company stockholders
a claim
against the Individual Defendants for alleged breaches of fiduciary duties
in
connection with the proposed Merger. The Complaint alleged, among other
things,
that the consideration to be paid to holders of Company common stock in
the
Merger is inadequate. The Complaint further alleged that we and the Individual
Defendants have breached a disclosure duty to our stockholders by failing
to
provide them with material information and/or providing them with misleading
information concerning the proposed Merger in our proxy statement. The
Complaint
also asserted a claim against Bain Capital for aiding and abetting the
alleged
breaches of fiduciary duties by the Individual Defendants. The Complaint
sought,
among other things, to enjoin the consummation of the Merger, that the
transaction be rescinded if it is not enjoined, and an award of compensatory
and
rescissory damages as well as attorneys’ fees. On March 30, 2006, we and
our directors entered into a memorandum of understanding for a settlement,
subject to court approval, pursuant to which the lawsuit would be dismissed
against all parties to the lawsuit in consideration of additional disclosures
made in the proxy statement supplement related to the Merger and the proposed
payment of plaintiff’s legal fees. After the memorandum of understanding was
approved by the court, confirming discovery was completed. In July 2006,
a
motion for preliminary approval of the settlement was filed with the court.
The
settlement agreement was approved on October 18, 2006. The settlement will
not have a material adverse effect on our consolidated financial position,
results of operations or cash flows.
No
material legal proceedings have commenced or been terminated during the
period
covered by this report. We are party to various other litigation matters,
in
most cases involving ordinary and routine claims incidental to our business.
We
cannot estimate with certainty our ultimate legal and financial liability
with
respect to such pending litigation matters. However, we believe, based
on our
examination of such matters, that our ultimate liability will not have
a
material adverse effect on our financial position, results of operations
or cash
flows.
Item
1A. Risk Factors.
At
December 2, 2006, there had not been any material changes to the information
related to the Item 1A, “Risk Factors” disclosed in the Company’s Registration
Statement on Form S-4 filed with the SEC on October 10, 2006, as amended.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item
3. Defaults Upon Senior Securities.
None.
Item
4. Submission of Matters to a Vote of Security Holders.
None.
Item
5. Other Information.
None.
Item
6. Exhibits.
31.1
Certification of Principal Executive Officer pursuant to Rule 13a - 14(a)
and
Rule 15d - 14(a) of the Securities Exchange Act of 1934, as adopted pursuant
to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Principal Financial Officer pursuant to Rule 13a - 14(a)
and
Rule 15d - 14(a) of the Securities Exchange Act of 1934, as adopted pursuant
to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
|
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section
1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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32.2
|
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Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section
1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC.
|
/s/
Mark A. Nesci
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Mark
A. Nesci
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President
& Chief Executive Officer
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/s/
Robert L. LaPenta,
Jr.
|
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Robert
L. LaPenta, Jr.
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Vice
President - Chief Accounting Officer
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Date:
January 16, 2007