form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the quarterly period ended September 1, 2007
OR
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the transition period from
to
.
Commission
File Number 1-37917
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC.
(Exact
Name of Registrant as Specified in its Charter)
|
|
|
Delaware
|
|
20-4663833
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
|
|
1830
Route 130 North
Burlington,
New Jersey
|
|
08016
|
(Address
of Principal Executive Offices)
|
|
(Zip
Code)
|
Registrant’s
Telephone Number, Including Area Code: (609) 387-7800
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90
days. Yes x No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (check
one):
Large
accelerated filer Accelerated
filer Non-accelerated filer x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange
Act). Yes No x
As
of September 1, 2007, there were
1,000 shares of common stock of Burlington Coat Factory Investments Holdings,
Inc. (all of which are owned by Burlington Coat Factory Holdings, Inc., a
holding company, and are not publicly traded). As of September 1, 2007, there
were 1,000 shares of common stock of Burlington Coat Factory Warehouse
Corporation (all of which are owned by Burlington Coat Factory Investments
Holdings, Inc., a holding company, and are not publicly
traded).
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES
INDEX
Part
I – Financial Information:
|
Page
|
Item
1. Financial Statements (unaudited):
|
|
|
|
Condensed
Consolidated Balance
Sheets as of September 1, 2007 and June 2,
2007
|
4
|
|
|
Condensed
Consolidated Statements
of Operations – Three Months Ended September 1, 2007 and
September 2, 2006
|
5
|
|
|
Condensed
Consolidated Statements
of Cash Flows – Three Months Ended September 1, 2007 and
September 2, 2006
|
6
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
|
|
Item
2. Management's
Discussion and
Analysis
of Results of
Operationsand Financial
Condition
|
26
|
|
|
Item
3. Quantitative
and Qualitative Disclosures About Market
Risk
|
37
|
|
|
Item
4. Controls and
Procedures
|
38
|
|
|
Part
II - Other Information:
|
39
|
|
|
Item
1. Legal Proceedings
|
39
|
|
|
Item
1A. Risk
Factors
|
39
|
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
39
|
|
|
Item
3. Defaults Upon Senior
Securities
|
39
|
|
|
Item
4. Submission of Matters to
Vote of Security Holders
|
39
|
|
|
Item
5. Other
Information
|
39
|
|
|
Item
6.
Exhibits
|
39
|
|
|
SIGNATURES
|
40
|
|
|
*****************
|
|
Part
I. FINANCIAL INFORMATION
Item
1. Financial Statements
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(unaudited)
(All
amounts in thousands)
|
|
|
|
|
|
|
|
|
September
1, 2007
|
|
|
June
2, 2007
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$ |
52,517
|
|
|
$ |
33,878
|
|
Restricted
Cash and Cash Equivalents
|
|
|
2,737
|
|
|
|
2,753
|
|
Accounts
Receivable - Net
|
|
|
30,682
|
|
|
|
30,590
|
|
Merchandise
Inventories
|
|
|
729,737
|
|
|
|
710,571
|
|
Deferred
Tax Asset
|
|
|
34,924
|
|
|
|
35,143
|
|
Prepaid
and Other Current Assets
|
|
|
36,405
|
|
|
|
34,257
|
|
Income
Tax Receivable
|
|
|
31,219
|
|
|
|
1,109
|
|
Assets
Held for Disposal
|
|
|
29,793
|
|
|
|
35,073
|
|
|
|
|
----------------
|
|
|
|
----------------
|
|
Total
Current Assets
|
|
|
948,014
|
|
|
|
883,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment (Net of Accumulated Depreciation)
|
|
|
948,102
|
|
|
|
948,334
|
|
Tradenames
|
|
|
526,300
|
|
|
|
526,300
|
|
Favorable
Leases - (Net of Accumulated Amortization)
|
|
|
566,709
|
|
|
|
574,879
|
|
Goodwill
|
|
|
46,219
|
|
|
|
46,219
|
|
Other
Assets
|
|
|
58,661
|
|
|
|
57,415
|
|
|
|
|
----------------
|
|
|
|
----------------
|
|
Total
Assets
|
|
$ |
3,094,005
|
|
|
$ |
3,036,521
|
|
|
|
=========
|
|
|
=========
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$ |
426,824
|
|
|
$ |
395,375
|
|
Other
Current Liabilities
|
|
|
213,090
|
|
|
|
198,627
|
|
Current
Maturities of Long Term Debt
|
|
|
13,915
|
|
|
|
5,974
|
|
|
|
|
----------------
|
|
|
|
----------------
|
|
Total
Current Liabilities
|
|
|
653,829
|
|
|
|
599,976
|
|
|
|
|
|
|
|
|
|
|
Long
Term Debt
|
|
|
1,510,873
|
|
|
|
1,456,330
|
|
Other
Liabilities
|
|
|
108,780
|
|
|
|
48,447
|
|
Deferred
Tax Liability
|
|
|
500,185
|
|
|
|
551,298
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
--
|
|
|
|
--
|
|
Capital
in Excess of Par Value
|
|
|
455,186
|
|
|
|
454,935
|
|
Accumulated
Deficit
|
|
|
(134,848 |
) |
|
|
(74,465 |
) |
|
|
|
---------------
|
|
|
|
---------------
|
|
Total
Stockholders' Equity
|
|
|
320,338
|
|
|
|
380,470
|
|
|
|
|
---------------
|
|
|
|
---------------
|
|
Total
Liabilities and Stockholders' Equity
|
|
$ |
3,094,005
|
|
|
$ |
3,036,521
|
|
|
|
=========
|
|
|
=========
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
|
September
1, 2007
|
|
|
September
2, 2006
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
Net
Sales
|
|
$ |
678,769
|
|
|
$ |
656,846
|
|
Other
Revenue
|
|
|
6,778
|
|
|
|
7,420
|
|
|
|
|
----------------
|
|
|
|
----------------
|
|
|
|
|
685,547
|
|
|
|
664,266
|
|
|
|
|
----------------
|
|
|
|
----------------
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
Cost
of Sales (Exclusive of Depreciation andAmortization)
|
|
|
443,775
|
|
|
|
426,914
|
|
Selling
and Administrative Expenses
|
|
|
250,887
|
|
|
|
247,060
|
|
Depreciation
|
|
|
30,757
|
|
|
|
34,984
|
|
Amortization
|
|
|
10,751
|
|
|
|
10,933
|
|
Interest
Expense
|
|
|
33,225
|
|
|
|
35,414
|
|
Impairment
Charges
|
|
|
553
|
|
|
|
---
|
|
Other
(Income), Net
|
|
|
(652 |
) |
|
|
(981 |
) |
|
|
|
----------------
|
|
|
|
----------------
|
|
|
|
|
769,296
|
|
|
|
754,324
|
|
|
|
|
----------------
|
|
|
|
----------------
|
|
(Loss)
Before Income Tax Benefit
|
|
|
(83,749 |
) |
|
|
(90,058 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Income Tax Benefit
|
|
|
(33,354 |
) |
|
|
(38,250 |
) |
|
|
|
----------------
|
|
|
|
----------------
|
|
Net
Loss
|
|
$ |
(50,395 |
) |
|
$ |
(51,808 |
) |
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC. AND
SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(Unaudited)
|
|
(All
amounts in thousands)
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
September
1, 2007
|
|
|
September
2, 2006
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
Net
Loss
|
|
$ |
(50,395 |
) |
|
$ |
(51,808 |
) |
Adjustments
to Reconcile Net Loss to Net Cash (Used in) Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
30,757
|
|
|
|
34,984
|
|
Amortization
|
|
|
10,751
|
|
|
|
10,933
|
|
Impairment
Charges
|
|
|
553
|
|
|
|
--
|
|
Accretion
|
|
|
3,243
|
|
|
|
2,823
|
|
Interest
Rate Cap Contract - Adjustment to Market
|
|
|
(134 |
) |
|
|
1,092
|
|
Provision
for Losses on Accounts Receivable
|
|
|
469
|
|
|
|
576
|
|
Provision
for Deferred Income Taxes
|
|
|
(33,355 |
) |
|
|
(38,250 |
) |
Loss
(Gain) on Disposition of Fixed Assets and Leaseholds
|
|
|
212
|
|
|
|
(5 |
) |
Stock
Option Expense and Deferred Compensation Amortization
|
|
|
251
|
|
|
|
2,254
|
|
Non-Cash
Rent Expense and Other
|
|
|
1,888
|
|
|
|
2,355
|
|
Changes
in Assets and Liabilities
|
|
|
|
|
|
|
|
|
Investments
|
|
|
--
|
|
|
|
(102 |
) |
Accounts
Receivable
|
|
|
(561 |
) |
|
|
(3,329 |
) |
Merchandise
Inventories
|
|
|
(19,166 |
) |
|
|
(86,185 |
) |
Prepaids
and Other Current Assets
|
|
|
(4,622 |
) |
|
|
(3,264 |
) |
Accounts
Payable
|
|
|
31,449
|
|
|
|
5,779
|
|
Accrued
and Other Current Liabilities
|
|
|
12,463
|
|
|
|
29,179
|
|
Deferred
Rent Incentives
|
|
|
319
|
|
|
|
1,963
|
|
|
|
|
|
|
|
|
|
|
Net
Cash (Used in) Operating Activities
|
|
|
(15,878 |
) |
|
|
(91,005 |
) |
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Cash
Paid for Property and Equipment
|
|
|
(24,473 |
) |
|
|
(21,223 |
) |
Proceeds
Received from Sale of Fixed Assets and Assets Held for
Disposal
|
|
|
16
|
|
|
|
3,771
|
|
Change
in Restricted Cash and Cash Equivalents
|
|
|
16
|
|
|
|
--
|
|
Issuance
of Notes Receivable
|
|
|
(18 |
) |
|
|
(17 |
) |
Other
|
|
|
35
|
|
|
|
56
|
|
|
|
|
---------------
|
|
|
|
---------------
|
|
Net
Cash (Used in) Investing Activities
|
|
|
(24,424 |
) |
|
|
(17,413 |
) |
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
from Long Term Debt - ABL Line of Credit
|
|
|
160,384
|
|
|
|
169,212
|
|
Principal
Payments on Long Term Debt
|
|
|
(142 |
) |
|
|
(946 |
) |
Principal
Payments on Term Loan
|
|
|
--
|
|
|
|
(2,250 |
) |
Principal
Payments on Long Term Debt - ABL Line of Credit
|
|
|
(101,001 |
) |
|
|
(19,139 |
) |
Equity
Investment
|
|
|
--
|
|
|
|
200
|
|
Payment
of Dividends
|
|
|
(300 |
) |
|
|
--
|
|
|
|
|
---------------
|
|
|
|
---------------
|
|
Net
Cash Provided by Financing Activities
|
|
|
58,941
|
|
|
|
147,077
|
|
|
|
|
---------------
|
|
|
|
---------------
|
|
Increase
in Cash and Cash Equivalents
|
|
|
18,639
|
|
|
|
38,659
|
|
Cash
and Cash Equivalents at Beginning of Period
|
|
|
33,878
|
|
|
|
58,376
|
|
|
|
|
---------------
|
|
|
|
---------------
|
|
Cash
and Cash Equivalents at End of Period
|
|
$ |
52,517
|
|
|
$ |
97,035
|
|
|
|
=========
|
|
|
=========
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information;
|
|
|
|
|
|
|
|
|
Interest
Paid
|
|
$ |
21,483
|
|
|
$ |
23,114
|
|
Income
Taxes Paid, Net of Refunds
|
|
$ |
(528 |
) |
|
$ |
2,010
|
|
Non
Cash Investing Activities:
|
|
|
|
|
|
|
|
|
Accrued
Purchases of Property and Equipment
|
|
$ |
1,553
|
|
|
$ |
421
|
|
|
|
|
|
|
|
|
|
|
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES
(UNAUDITED)
1. Basis
of
Presentation
The
unaudited Condensed Consolidated
Financial Statements include the accounts of Burlington Coat Factory Investments
Holdings, Inc. and all its subsidiaries ("the 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 2, 2007 has been derived from the audited
financial statements in the Company's financial statements as of June
2, 2007. Because the Company's business is seasonal in nature, the operating
results for the three month period ended September 1, 2007 and the corresponding
period ended September 2, 2006 are not necessarily indicative of results for
the
fiscal year.
2. Principles
of Consolidation
The
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 significant intercompany accounts and
transactions have been eliminated.
Holdings
was incorporated with the
Secretary of 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 Burlington Coat Factory
Holdings, Inc. 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 Annual Report on Form
10-K for the fiscal year ended June 2, 2007.
3.
Restricted Cash and Cash Equivalents
Restricted
cash and cash equivalents
for the period ended September 1, 2007 consists of $0.4 million pledged as
collateral for certain insurance contracts and $2.3 million contractually
restricted as a result of the acquisition of a building related to a store
operated by the Company. For the period ended June 2, 2007,
restricted cash and cash equivalents consisted of $0.4 million pledged as
collateral for certain insurance contracts and $2.4 million restricted
contractually for the acquisition and maintenance of a building related to
a
store operated by the Company.
4.
Inventories
Merchandise
inventories as of
September 1, 2007 and June 2, 2007 are valued at the lower of cost, on an
average cost 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 and warehouse outbound freight. in
the line item "Cost of Sales (Exclusive of Depreciation and Amortization)"
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 $14.8 million
and $14.2 million for the three month periods ended September 1, 2007 and
September 2, 2006, respectively. Depreciation related to the
warehousing and purchasing functions amounted to $2.7 million and
$2.4 million for each of the three month periods ended September
1, 2007 and September 2, 2006, respectively. 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.
5.
Assets Held for Disposal
Assets
Held for Disposal represents
assets owned by the Company that management has committed to sell in the near
term. The Company has either identified or is actively seeking out
potential buyers for these assets as of the balance sheet dates. The
assets listed as “Assets Held for Disposal” are primarily comprised of buildings
related to store operations and store leases held by the Company.
Assets
held for disposal are valued
at the lower of their carrying value or fair value as follows (in
thousands):
|
|
September
1, 2007
|
|
|
June
2, 2007
|
|
Fixed
Assets
|
|
$ |
27,040
|
|
|
$ |
32,320
|
|
Favorable
Leases
|
|
|
2,753
|
|
|
|
2,753
|
|
|
|
$ |
29,793
|
|
|
$ |
35,073
|
|
During
the period ended September 1,
2007, assets which were previously held for sale, no longer qualified as held
for sale due to the fact that there is no longer an active program to locate
a
buyer. The Company reclassified an operating store with a fixed asset
value of $5.3 million out of the caption “Assets Held for Disposal” on the
Company’s Condensed Consolidated Balance Sheets into the caption “Property and
Equipment – Net of Accumulated Depreciation.” The impact of this
transaction was immaterial to the Results of Operations for all periods
presented.
6. Capitalized
Computer Software Costs
The
Company capitalized $2.3 million
and $3.1 million relating to costs incurred in connection with developing or
obtaining software for internal use during the three month periods ended
September 1, 2007 and September 2, 2006, respectively, in accordance with
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed for or Obtained for Internal-Use
Purchased
and internally developed
software is amortized on a straight line basis over a three-year
life. The net carrying value of software is included in the line item
“Property and Equipment” on the Company’s Condensed Consolidated Balance Sheets
and software amortization is included in the line item “Depreciation” on the
Company’s Condensed Consolidated Statement of
Operations.
7.
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 least annually,
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. The Company tests
these assets for impairment during the last month of each fiscal
year. 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. An impairment loss is recognized for the
amount by which the carrying value exceeds the fair value of the
asset.
Intangible
assets as of September 1,
2007 and June 2, 2007 are as follows (in thousands):
|
|
September
1, 2007
|
|
|
June
2, 2007
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Amount
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Amount
|
|
Tradename
|
|
$ |
526,300
|
|
|
$ |
-
|
|
|
$ |
526,300
|
|
|
$ |
526,300
|
|
|
$ |
-
|
|
|
$ |
526,300
|
|
Favorable
Leases
|
|
$ |
631,149
|
|
|
$ |
(61,687 |
) |
|
$ |
569,462
|
|
|
$ |
631,149
|
|
|
$ |
(53,517 |
) |
|
$ |
577,632
|
|
Less: Favorable Leases
Classified as Assets Held for Disposal
|
|
|
|
|
|
|
|
|
|
|
(2,753 |
) |
|
|
|
|
|
|
|
|
|
|
(2,753 |
) |
Net
Favorable Leases
|
|
|
|
|
|
|
|
|
|
$ |
566,709
|
|
|
|
|
|
|
|
|
|
|
$ |
574,879
|
|
Amortization
expense related to net
favorable leases amounted to $8.2 million and $8.4 million for the three month
periods ended September 1, 2007 and September 2, 2006,
respectively. Amortization expense of net favorable leases for each
of the next five fiscal years is estimated to be as follows: fiscal 2009 -
$32.6
million; fiscal 2010 - $32.6 million; fiscal 2011 - $32.6 million; fiscal 2012
-
$32.3 million; and fiscal 2013 - $31.2 million. Amortization for the
remainder of fiscal 2008 is expected to be approximately $24.6
million. Favorable leases have a remaining weighted average
amortization period of 20.5 years.
8.
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 tests for impairment of all reporting units during the last month of
each fiscal year.
9.
Other Assets
Other
assets consist primarily of
deferred financing fees, the long term portion of prepaid advertising associated
with the barter transaction (as more fully described in Note 21), notes
receivable and the net accumulation of excess rent income, accounted for on
a
straight line basis, over actual rental income receipts. Deferred
financing fees are amortized over the life of the related debt
facility. Amortization of deferred financing fees is recorded in the
line item “Amortization” in the Company’s Condensed Consolidated Statement of
Operations.
10.
Other Current Liabilities
Other
current liabilities primarily
consist of sales tax payable, unredeemed store credits and gift certificates,
accrued payroll costs, accrued insurance costs ($34.3 million and $33.7 million
as of September 1, 2007 and June 2, 2007 respectively), accrued operating
expenses, layaway deposits, payroll taxes payable, current portion of deferred
rents and other miscellaneous items.
11.
Long Term Debt
Long-term
debt consists of (in thousands):
|
|
September
1,
2007
|
|
|
June
2,
2007
|
|
Industrial
Revenue Bonds, principal due annually, 6.0% interest due in semi-annual
payments of various amounts from September 1, 2007
to September
1, 2010
|
|
$ |
4,190
|
|
|
$ |
4,190
|
|
Promissory
Note, 4.43% due in monthly payments of $8 through December
23,2011
|
|
|
357
|
|
|
|
375
|
|
Promissory
Note, non-interest bearing, due in monthly payments of $17 throughJanuary
1, 2012
|
|
|
884
|
|
|
|
934
|
|
Senior
Notes, 11⅛% due at maturity on April 15, 2014, semi-annual
interestpayments from October 15, 2006 to April 15, 2014
|
|
|
299,795
|
|
|
|
299,665
|
|
Senior
Discount Notes, 14.5% due at maturity on October 15, 2014.
Semi-annualdiscount accretion to maturity amount from October 15,
2006
to
April 15,2008 and semi-annual interest payments from October
15, 2008 toOctober 15, 2014.
|
|
|
91,091
|
|
|
|
87,978
|
|
$900
million senior secured term loan facility, Libor + 2.25% due in
quarterlypayments of $2.3 million from May 30, 2006 to May 28,
2013.
|
|
|
884,250
|
|
|
|
884,250
|
|
$800
million ABL senior secured revolving facility, Libor plus spread
based
onaverage outstanding balance.
|
|
|
218,383
|
|
|
|
159,000
|
|
|
|
|
|
|
|
|
|
|
Capital
Lease Obligations
|
|
|
25,838
|
|
|
|
25,912
|
|
Subtotal
|
|
|
1,524,788
|
|
|
|
1,462,304
|
|
Less
Current Portion
|
|
|
(13,915 |
) |
|
|
(5,974 |
) |
Long-Term
Debt and Obligations Under Capital Leases
|
|
$ |
1,510,873
|
|
|
$ |
1,456,330
|
|
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. (“Acquisition
Sub”) to sell all of the outstanding common stock of BCFWC to Parent through a
merger with Acquisition 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.”
In
connection with the Merger
Transaction, 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 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
$900 million senior secured term
loan is for a seven year period at an interest rate of LIBOR plus
2.25%. The loan is to be repaid in quarterly payments of $2.3 million
from May 30, 2006 to May 28, 2013. At the end of each fiscal year,
the Company is required to make a payment based on 50% of the available free
cash flow (as defined in the credit agreement). This payment offsets
future mandatory quarterly payments. Based on the available free cash
flow (as defined in the credit agreement) for the year ended June 2, 2007,
the
Company had an obligation to the bank of $11.4 million that was paid in
September 2007. This is recorded under the caption “Current
Maturities of Long Term Debt” in the Company’s Condensed Consolidated Balance
Sheet. This payment offsets the quarterly payments of $2.3 million
through the third quarter of fiscal year 2009 and $0.2 million in the fourth
quarter of fiscal year 2009.
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
Company has $53.0 million in
deferred financing fees, net of accumulated amortization, as of September 1,
2007 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 amounted to $2.6 million and $2.5 million for the three
months ended September 1, 2007 and September 2, 2006, respectively.
Amortization expense for the remainder of fiscal 2008 is estimated to be $7.7
million. Amortization expense for each of the next five fiscal years is
estimated to be as follows: fiscal 2009 - $10.4 million; fiscal 2010 - $10.4
million; fiscal 2011 - $9.8 million; fiscal 2012 - $6.7 million and fiscal
2013
- $6.0 million. Deferred financing fees have a remaining weighted
average amortization period of approximately 5.5 years.
As
of September 1, 2007, 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 indentures
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.
12.
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 three months ended September 1, 2007
was
$244.1 million. Average borrowings during the period amounted to
$207.5 million at an average interest rate of 7.06%. At September 1,
2007 and June 2, 2007, $218.4 million and $159.0 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.
13.
Other Liabilities
Other
liabilities primarily consist
of income tax reserves related to the Company’s adoption of FIN 48 (Note 15),
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. Amortization of
deferred lease incentives is included in the line item “Selling and
Administrative Expenses” on the Company’s Condensed Consolidated Statement of
Operations.
14.
Store Exit Costs
The
Company establishes reserves
covering future lease obligations of closed stores. These reserves
are included in the line item “Other Liabilities” and “Other Current
Liabilities” in the Company’s Condensed Consolidated Balance Sheets and are
recorded under the line item “Selling and Administrative Expenses” on the
Company’s Condensed Consolidated Statement of Operations. Reserves at
September 1, 2007 and June 2, 2007 consisted of (in thousands):
Three
Months Ended September 1, 2007
|
|
Fiscal
Year Reserve Established
|
|
Balance
at
June
2, 2007
|
|
|
Additions
|
|
|
Payments
|
|
|
Balance
at September 1, 2007
|
|
2005
|
|
$ |
241
|
|
|
|
-
|
|
|
$ |
(56 |
) |
|
$ |
185
|
|
2007
|
|
|
1,078
|
|
|
|
-
|
|
|
|
(269 |
) |
|
|
809
|
|
2008
|
|
|
-
|
|
|
$ |
421
|
|
|
|
-
|
|
|
|
421
|
|
|
|
$ |
1,319
|
|
|
$ |
421
|
|
|
$ |
(325 |
) |
|
$ |
1,415
|
|
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
2008
- $0.9 million, fiscal 2009 - $0.4 million and fiscal 2010 - $0.1
million.
15. Income
Taxes
As
of September 1, 2007, the Company
had a current deferred tax asset of $34.9 million and a non-current deferred
tax
liability of $500.2 million. As of June 2, 2007, the Company had a
current deferred tax asset of $35.1 million and a non-current deferred tax
liability of $551.3 million. Income taxes are provided on an interim basis
based
upon the Company’s estimate of the effective annual income tax rate subject
to certain limitations due to the seasonality of our business. As of
September 1, 2007 and June 2, 2007, valuation allowances amounted to $8.3
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. Non-current deferred tax
liabilities primarily relate to the adoption of FIN 48 as well as rent expense,
pre-opening costs, intangible costs and depreciation expense not currently
deductible for tax purposes.
On
July
13, 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty
in Income Taxes – An Interpretation of FASB Statement No. 109” (FIN
48). FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an entity’s financial statements in accordance with FASB
Statement No. 109, “Accounting for Income Taxes.” FIN 48
prescribes a recognition threshold and measurement attributes for
financial
statement disclosure of tax positions taken or expected to be taken on a tax
return. FIN 48 requires that we recognize in our financial statements
the impact of a tax position taken or expected to be taken in a tax return,
if
that position is more likely than not of being sustained upon examination by
the
relevant taxing authority, based on the technical merits of the
position. Additionally, FIN 48 provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006.
The
Company adopted the provisions of FIN 48 on June 3, 2007. The
cumulative effect of applying the provisions of FIN 48 was an increase of
approximately $48.9 million in our liability for unrecognized tax benefits
and
related interest and penalty, a $39.2 million decrease in our deferred income
tax liability and a $ 9.7 million increase in our accumulated
deficit.
Of
the
$57.3 million of unrecognized tax benefits, the amount that if recognized,
would
affect our effective tax rate is $18.1 million. We accrue interest and penalties
related to unrecognized tax benefits as a component of income
tax
expense on the Condensed Consolidated Statement of Operations. The
gross amount of interest and penalty as of the date of adoption was $12.5
million.
We
believe that it is reasonably possible that the total amount of unrecognized
tax
benefits will decrease by as much as $1.1 million during the next 12 months
as a
result of the lapse of the statute of limitations on uncertain intercompany
tax
positions in several state taxing jurisdictions.
At
June
2, 2007, tax reserves of $8.4 million were included in the line item “Income Tax
Receivable” in the Company’s Condensed Consolidated Balance Sheet. As of
September 1, 2007, we reported $58.4 million of the reserve for unrecognized
tax
benefits in “Other Liabilities” of our Condensed Consolidated Balance
Sheet.
The
Company files tax returns in the U.S. federal jurisdiction and various state
jurisdictions. The Company is currently open to audit under the
statute of limitations by the Internal Revenue Service for fiscal years 2003
through 2006. The Company or its subsidiaries’ state income tax
returns are open to audit under the statute of limitations for the fiscal years
2003 through 2006.
16.
Revenue Recognition
The
Company records revenue at the
time of sale and delivery of merchandise, net of allowances for
estimated future returns. The Company accounts for layaway sales and
leased department revenue in compliance with Staff Accounting Bulletin ("SAB")
No. 101, Revenue Recognition in Financial Statements, as revised 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” in the Company’s Condensed Consolidated
Balance Sheets. 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. The Company presents sales, net of sales taxes, in its
Condensed Consolidated Statement of Operations.
17.
Other Income, Net
Other
Income, Net consists of
investment income, losses from disposition of fixed assets and other
miscellaneous income items. Investment income amounted to $0.4 million and
$0.9
million for the three months ended September 1, 2007 and September 2, 2006,
respectively. The Company recorded a loss on the disposition of fixed
assets during the three months ended September 1, 2007 of $0.2
million. Gain (Loss) on the disposition of fixed assets for the three
months ended September 2, 2006 was not significant. Other
miscellaneous income items of $0.5 million and $0.1 for the three months ended
September 1, 2007 and September 2, 2006, respectively, partially offset the
losses due to investment income and the loss on the disposition of fixed
assets.
18. Comprehensive
Income
The
Company presents comprehensive
income as a component of stockholders' equity in accordance with SFAS No. 130,
Reporting Comprehensive Income. For the three month period
ended September 1, 2007 and September 2, 2006, comprehensive loss consisted
of
net loss.
19.
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 $2.3
million and $2.1 million for the three month periods ended September 1, 2007
and
September 2, 2006, respectively. Rental income from leased
departments amounted to $1.6 million and $2.2 million for each of the three
month periods ended September 1, 2007 and September 2, 2006, respectively.
Subleased rental income and other miscellaneous revenue items amounted to $2.9
million and $3.1 million for the three month periods ended September 1, 2007
and
September 2, 2006, respectively.
20.
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 when recognized in the resellers
income statement.. 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 inventory and is recognized as a reduction of
cost
of sales as inventories are sold. Reimbursements of expenses, which
were recognized as a reduction of selling and administrative expenses, amounted
to $0.2 million for each of the three month periods ended September 1, 2007
and
September 2, 2006.
21.
Barter Transactions
The
Company accounts for barter
transactions under SFAS 153, “Exchanges of Nonmonetary Assets, an amendment
of APB Opinion Number 29”, EITF 93-11, “Accounting for Barter
Transactions Involving Barter Credits” and EITF 99-17, “Accounting for
Advertising Barter Transactions.” Barter transactions with
commercial substance are recorded at the estimated fair value of the products
exchanged, unless the products received have a more readily determinable
estimated fair value. During the three months ended September 1, 2007, the
Company exchanged $5.2 million of inventory for certain advertising
credits. To account for the exchange, the Company recorded “Sales”
and “Cost of Sales (Exclusive of Depreciation and Amortization) of $5.2 million
in the Company’s Condensed Consolidated Statements of Operations. The
advertising credits received are to be used over the next three to five
years. The Company recorded prepaid advertising in the line items
“Prepaid and Other Current Assets” and “Other Assets,” of $1.7 million and $3.5
million, respectively, in the Company’s Condensed Consolidated Balance
Sheets. For the quarter ended September 1, 2007, the Company has
utilized $0.1 million of the barter advertising credits.
22. 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.
Units
granted during the three month
period ended September 1, 2007 were granted in three tranches with exercise
prices as follows: Tranche 1: $100 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 amount vesting 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 September 1, 2007, the Parent
granted 489,500 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” (SFAS 123R), 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. For the three
months ended September 1, 2007, we
recognized
non-cash stock compensation expense of $0.3 million ($0.2 million after tax),
net of a $0.4 million forfeiture adjustment that was recorded as a
result of actual forfeitures being higher than initially
estimated. In comparison, for the three months ended September
2, 2006, the Company recorded $0.8 million ($0.5 million after tax) of non-cash
stock compensation
expense. All amounts for both periods are included in the line item
“Selling and Administrative Expense” on our Company’s Condensed Consolidated
Statements of Operations. The application of SFAS 123R had no impact on our
cash
flow from operations or financing activities. At September 1, 2007, there is
approximately $11.5 million of unearned non-cash stock-based compensation that
we expect to recognize as expense over the next 5.0 years. The service based
awards are expensed on a straight line basis over the requisite service period
of five years. During the three months ended September 1, 2007, there were
options granted to purchase 67,500 units. There were no options to purchase
units cancelled during the period and no options were exercised. At September
1,
2007 no options are exercisable.
Stock
Option Unit Transactions are summarized as follows:
|
|
Number
of
Units
|
|
|
Weighted
Average Exercise Price Per Unit
|
|
Options
Outstanding June 2, 2007
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,000 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding September 1, 2007
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
The
following table summarizes
information about the stock options outstanding under Parent’s 2006 Plan as of
September 1, 2007:
Option
Units Outstanding
|
|
Option
Units Exercisable
|
|
|
|
Range
of
Exercise
Prices
|
|
|
Number
Outstanding
at
September 1, 2007
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable
at
September 2, 2006
|
|
Tranche
1
|
|
$ |
90.00
- $100.00
|
|
|
|
134,833
|
|
8.9
years
|
|
$ |
91.67
|
|
|
|
-0-
|
|
Tranche
2
|
|
$ |
180.00
|
|
|
|
134,833
|
|
8.9
years
|
|
$ |
180.00
|
|
|
|
-0-
|
|
Tranche
3
|
|
$ |
270.00
|
|
|
|
134,834
|
|
8.9
years
|
|
$ |
270.00
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
404,500
|
|
|
|
|
|
|
|
|
-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 2007 and fiscal
2008:
|
|
Three
Months Ended
September
1, 2007
|
|
|
Three
Months Ended
September
2, 2006
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
4.11 |
% |
|
|
4.74 |
% |
Expected
volatility
|
|
|
67 |
% |
|
|
70 |
% |
Expected
life
|
|
4.5
years
|
|
|
4.5
years
|
|
Contractual
life
|
|
10
years
|
|
|
10
years
|
|
Expected
Dividend Yield
|
|
|
0.0 |
% |
|
|
0.0 |
% |
Fair
value of option units granted
|
|
|
|
|
|
|
|
|
Tranche
1
Tranche
2
Tranche
3
|
|
|
$56.65
$42.60
$33.13
|
|
|
|
$53.13
$38.79
$30.53
|
|
23.
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. The Company recorded an
impairment charge of $0.6 million during the three month period ended September
1, 2007 related primarily to idle warehouse equipment.
24.
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
three month periods ended September 1, 2007 or September 2, 2006.
25.
Advertising Costs
The
Company’s
net advertising costs consist primarily of newspaper and television costs.
The
production costs of net advertising are charged to expense as
incurred. Net advertising expenses, included in the line item
“Selling and Administrative Expenses” on the Company’s Condensed Consolidated
Statements of Operations, for the three month periods ended September 1, 2007
and September 2, 2006 were $11.0 million and $10.4 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 cost of
sales. Vendor rebates netted against advertising expense were $0.1
million and $0.3 million for the three months ended September 1, 2007 and
September 2, 2007, respectively.
26.
Lease Accounting
The
Company leases store locations,
distribution centers and office space used in its operations. We
account for our leases under the provisions of SFAS No. 13, “Accounting for
Leases” and subsequent amendments, which require that leases be evaluated
and classified as operating or capital leases for financial reporting
purposes. Assets held under capital leases are included in property
and equipment. For leases classified as operating, 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 step rents, rent escalation clauses, rent holidays
and
other lease concessions. The Company expenses rent during the
construction or build-out phase of the leased property.
27.
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. Gains/(Losses) associated with
these contracts amounted to $0.1 million and ($1.1) million during the three
months ended September 1, 2007 and September 2, 2006, respectively 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 September 1, 2007 and September 2, 2006 amounted to $0.4
million and $0.3 million respectively.
28. Segment
Information
The
Company reports segment
information in accordance with SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information. The Company has one
reportable segment, operating within the United States. Sales by
major product categories are as follows (in thousands):
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
|
September
1,
2007
|
|
|
September
2,
2006
|
|
Apparel
|
|
$ |
531,944
|
|
|
$ |
507,420
|
|
Home
Products
|
|
|
146,825
|
|
|
|
149,426
|
|
|
|
$ |
678,769
|
|
|
$ |
656,846
|
|
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.
29. Credit
Risk
Financial
instruments that
potentially subject the Company to concentrations of credit risk consist
principally of cash and cash equivalents. 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 Statements of Cash Flows for the three months
ended September 2, 2006 to conform to the classifications used in the current
period. Deferred Rent Incentives of $0.1 million and $1.8 million
previously recorded in the line items “Non-Cash Rent Expense and Other” and
“Accounts Receivable,” respectively, have been reclassified and included in the
line item “Deferred Rent Incentives.”
31. Subsequent
Events
On
October 3, 2007, Burlington Coat Factory Warehouse Corporation and certain
wholly-owned subsidiaries (“Burlington”) entered into an Agreement to Acquire
Leases and Lease Properties (the “Agreement”) from Retail Ventures,
Inc., an Ohio corporation (the “RVI”), together with its wholly-owned
subsidiaries, Value City Department Stores LLC, an Ohio limited liability
company (“Value City or VCDS”), and GB Retailers, Inc., a Delaware corporation
(“GB Retailers” and, together with VCDS, the “VCDS Tenants”), and from
Schottenstein Stores Corporation (“SSC”), certain affiliates of SSC
(collectively with SSC, the “SSC Landlords”). RVI, the VCDS Tenants and the SSC
Landlords are collectively referred to as the Value City
Entities. The aggregate purchase price to be paid by Burlington for
up to 24 leases is approximately $16.0 million subject to certain potential
adjustments provided
for in the Agreement.
The
Value City Entities and Burlington
will work together in good faith to obtain the necessary landlord consents
and
lease amendments to allow the disposition of the Leased Premises to occur as
specified in the Agreement. In the event that any necessary landlord consents
or
lease amendments cannot be obtained, the parties may mutually agree to remove
one or more of the Leased Premises from the transaction. The effective dates
of
the lease assignments and transfer of possession of the Leased Premises will
occur on either February 15, 2008 or April 1, 2008, subject to change
as described in the Agreement. The Agreement contains customary representations,
warranties and covenants, and the transactions contemplated by the Agreement
are
subject to certain adjustments and closing conditions.
In
connection with the Agreement, the
parties entered into an Escrow Agreement pursuant to which approximately ten
percent (10%) of the purchase price for the Leased Premises was deposited with
the escrow agent upon execution of the Agreement. Burlington posted a $1.6
million letter of credit to satisfy its obligations under the escrow agreement.
The escrow proceeds and the remainder of the purchase price will be delivered
to
Value City at the closing of the contemplated transactions. Also at the closing,
RVI will enter into an Indemnification Agreement with Burlington pursuant to
which the Company will provide certain indemnities and undertake certain
obligations in favor of Burlington.
32.
Recent Accounting Pronouncements
a. On
July 13, 2006, the 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 adopted FIN 48 as of June 3,
2007. Refer to Note 15 to the Condensed Consolidated Financial
Statements entitled “Income Taxes” for the impact on our Condensed Consolidated
Financial Statements.
b. 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 Condensed Consolidated Financial Statements.
c. In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – including an amendment of FASB
Statement No. 115. SFAS No. 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value, with unrealized gains
and losses related to these financial instruments reported in earnings at each
subsequent reporting date. This Statement is effective as of the
beginning of an entity’s first fiscal year that begins after November 15,
2007. The Company is in the process of evaluating the impact of SFAS
No. 159 on its Condensed Consolidated Financial Statements.
On
April 13, 2006, BCFWC issued $305 million aggregate principal amount of 11 1/8%
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. The following condensed consolidating financial statements
present the financial position, results of operations and cash flows of
Holdings, BCFWC, exclusive of subsidiaries (referred to herein as “BCFW”), 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of September 1, 2007
|
|
|
Holdings
|
|
|
BCFW
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
(All
amounts in thousands)
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$ |
—
|
|
|
$ |
20,771
|
|
|
$ |
31,746
|
|
|
$ |
—
|
|
|
$ |
52,517
|
|
Restricted
Cash and Cash Equivalents
|
|
|
—
|
|
|
|
—
|
|
|
|
2,737
|
|
|
|
—
|
|
|
|
2,737
|
|
Accounts
Receivable
|
|
|
—
|
|
|
|
29,422
|
|
|
|
1,260
|
|
|
|
—
|
|
|
|
30,682
|
|
Merchandise
Inventories
|
|
|
—
|
|
|
|
1,296
|
|
|
|
728,441
|
|
|
|
—
|
|
|
|
729,737
|
|
Deferred
Tax Asset
|
|
|
—
|
|
|
|
13,141
|
|
|
|
21,783
|
|
|
|
—
|
|
|
|
34,924
|
|
Prepaid
and Other Current Assets
|
|
|
—
|
|
|
|
52,663
|
|
|
|
14,961
|
|
|
|
—
|
|
|
|
67,624
|
|
Assets
Held for Disposal
|
|
|
—
|
|
|
|
|
|
|
|
29,793
|
|
|
|
—
|
|
|
|
29,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
—
|
|
|
|
117,293
|
|
|
|
830,721
|
|
|
|
—
|
|
|
|
948,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment—Net of Accumulated Depreciation
|
|
|
—
|
|
|
|
60,286
|
|
|
|
887,816
|
|
|
|
—
|
|
|
|
948,102
|
|
Goodwill
|
|
|
—
|
|
|
|
46,219
|
|
|
|
—
|
|
|
|
—
|
|
|
|
46,219
|
|
Trademark
|
|
|
—
|
|
|
|
526,300
|
|
|
|
—
|
|
|
|
—
|
|
|
|
526,300
|
|
Net
Favorable Leases……………...
|
|
|
—
|
|
|
|
—
|
|
|
|
566,709
|
|
|
|
—
|
|
|
|
566,709
|
|
Other
Assets
|
|
|
320,338
|
|
|
|
1,758,641
|
|
|
|
12,651
|
|
|
|
(2,032,969 |
) |
|
|
58,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
320,338
|
|
|
$ |
2,508,739
|
|
|
$ |
2,297,897
|
|
|
$ |
(2,032,969 |
) |
|
$ |
3,094,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$ |
—
|
|
|
$ |
426,824
|
|
|
$ |
|
|
|
$ |
—
|
|
|
$ |
426,824
|
|
Income
Taxes Payable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Other
Current Liabilities
|
|
|
—
|
|
|
|
117,051
|
|
|
|
96,039
|
|
|
|
—
|
|
|
|
213,090
|
|
Current
Maturities of Long Term Debt
|
|
|
—
|
|
|
|
11,443
|
|
|
|
2,472
|
|
|
|
—
|
|
|
|
13,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
—
|
|
|
|
555,318
|
|
|
|
98,511
|
|
|
|
—
|
|
|
|
653,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long
Term Debt
|
|
|
—
|
|
|
|
1,390,985
|
|
|
|
119,888
|
|
|
|
—
|
|
|
|
1,510,873
|
|
Other
Liabilities
|
|
|
—
|
|
|
|
16,956
|
|
|
|
101,824
|
|
|
|
(10,000 |
) |
|
|
108,780
|
|
Deferred
Tax Liability
|
|
|
—
|
|
|
|
225,142
|
|
|
|
275,043
|
|
|
|
—
|
|
|
|
500,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity:
Common
Stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Capital
in Excess of Par Value
|
|
|
455,186
|
|
|
|
455,186
|
|
|
|
1,565,803
|
|
|
|
(2,020,989 |
) |
|
|
455,186
|
|
Retained
Earnings (Accumulated Deficit)
|
|
|
(134,848 |
) |
|
|
(134,848 |
) |
|
|
136,828
|
|
|
|
(1,980 |
) |
|
|
(134,848 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Equity
|
|
|
320,338
|
|
|
|
320,338
|
|
|
|
1,702,631
|
|
|
|
(2,022,969 |
) |
|
|
320,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$ |
320,338
|
|
|
$ |
2,508,739
|
|
|
$ |
2,297,897
|
|
|
$ |
(2,032,969 |
) |
|
$ |
3,094,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burlington
Coat Factory Investments Holdings, Inc. and Subsidiaries
Condensed
Consolidating Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of June 2,
2007
|
|
|
|
Holdings
|
|
|
BCFW
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(All
amounts in thousands)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$ |
—
|
|
|
$ |
20,035
|
|
|
$ |
13,843
|
|
|
$ |
—
|
|
|
$ |
33,878
|
|
Restricted
Cash and Cash Equivalents
|
|
|
—
|
|
|
|
—
|
|
|
|
2,753
|
|
|
|
—
|
|
|
|
2,753
|
|
Investments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Accounts
Receivable
|
|
|
—
|
|
|
|
28,787
|
|
|
|
1,803
|
|
|
|
—
|
|
|
|
30,590
|
|
Merchandise
Inventories
|
|
|
—
|
|
|
|
1,275
|
|
|
|
709,296
|
|
|
|
—
|
|
|
|
710,571
|
|
Deferred
Tax Asset
|
|
|
—
|
|
|
|
13,233
|
|
|
|
21,910
|
|
|
|
—
|
|
|
|
35,143
|
|
Prepaid
and Other Current Assets
|
|
|
—
|
|
|
|
24,741
|
|
|
|
13,849
|
|
|
|
(3,224 |
) |
|
|
35,366
|
|
Assets
Held for Disposal
|
|
|
—
|
|
|
|
—
|
|
|
|
35,073
|
|
|
|
—
|
|
|
|
35,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
—
|
|
|
|
88,071
|
|
|
|
798,527
|
|
|
|
(3,224 |
) |
|
|
883,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment—Net of Accumulated Depreciation
|
|
|
—
|
|
|
|
59,856
|
|
|
|
888,478
|
|
|
|
—
|
|
|
|
948,334
|
|
Goodwill
|
|
|
—
|
|
|
|
46,219
|
|
|
|
—
|
|
|
|
—
|
|
|
|
46,219
|
|
Trademark
|
|
|
—
|
|
|
|
526,300
|
|
|
|
—
|
|
|
|
—
|
|
|
|
526,300
|
|
Net
Favorable Leases
|
|
|
—
|
|
|
|
—
|
|
|
|
574,879
|
|
|
|
—
|
|
|
|
574,879
|
|
Other
Assets
|
|
|
380,470
|
|
|
|
1,738,583
|
|
|
|
9,231
|
|
|
|
(2,070,869 |
) |
|
|
57,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
380,470
|
|
|
$ |
2,459,029
|
|
|
$ |
2,271,115
|
|
|
$ |
(2,074,093 |
) |
|
$ |
3,036,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$ |
—
|
|
|
$ |
395,375
|
|
|
$ |
—
|
|
|
$ |
—
|
|
|
$ |
395,375
|
|
Income
Taxes Payable
|
|
|
—
|
|
|
|
3,224
|
|
|
|
—
|
|
|
|
(3,224 |
) |
|
|
—
|
|
Other
Current Liabilities
|
|
|
—
|
|
|
|
111,879
|
|
|
|
86,748
|
|
|
|
—
|
|
|
|
198,627
|
|
Current
Maturities of Long Term Debt
|
|
|
—
|
|
|
|
4,500
|
|
|
|
1,474
|
|
|
|
—
|
|
|
|
5,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
—
|
|
|
|
514,978
|
|
|
|
88,222
|
|
|
|
(3,224 |
) |
|
|
599,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long
Term Debt
|
|
|
—
|
|
|
|
1,338,415
|
|
|
|
117,915
|
|
|
|
—
|
|
|
|
1,456,330
|
|
Other
Liabilities
|
|
|
—
|
|
|
|
10,622
|
|
|
|
47,825
|
|
|
|
(10,000 |
) |
|
|
48,447
|
|
Deferred
Tax Liability
|
|
|
—
|
|
|
|
214,544
|
|
|
|
336,754
|
|
|
|
—
|
|
|
|
551,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity:
Common
Stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Capital
in Excess of Par Value
|
|
|
454,935
|
|
|
|
454,935
|
|
|
|
1,522,383
|
|
|
|
(1,977,318 |
) |
|
|
454,935
|
|
Retained
Earnings (Accumulated Deficit)
|
|
|
(74,465 |
) |
|
|
(74,465 |
) |
|
|
158,016
|
|
|
|
(83,551 |
) |
|
|
(74,465 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Equity
|
|
|
380,470
|
|
|
|
380,470
|
|
|
|
1,680,399
|
|
|
|
(2,060,869 |
) |
|
|
380,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$ |
380,470
|
|
|
$ |
2,459,029
|
|
|
$ |
2,271,115
|
|
|
$ |
(2,074,093 |
) |
|
$ |
3,036,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burlington
Coat Factory Investments Holdings, Inc. and Subsidiaries
Condensed
Consolidating Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months
ended September 1, 2007
|
|
|
|
Holdings
|
|
|
BCFW
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(All
amounts in thousands)
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$ |
—
|
|
|
$ |
757
|
|
|
$ |
678,012
|
|
|
$ |
—
|
|
|
$ |
678,769
|
|
Other
Revenue
|
|
|
—
|
|
|
|
642
|
|
|
|
6,136
|
|
|
|
—
|
|
|
|
6,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
1,399
|
|
|
|
684,148
|
|
|
|
—
|
|
|
|
685,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales (Exclusive of Depreciation and Amortization)
|
|
|
—
|
|
|
|
462
|
|
|
|
443,313
|
|
|
|
—
|
|
|
|
443,775
|
|
Selling
and Administrative Expenses
|
|
|
—
|
|
|
|
31,933
|
|
|
|
218,954
|
|
|
|
—
|
|
|
|
250,887
|
|
Depreciation
|
|
|
—
|
|
|
|
5,859
|
|
|
|
24,898
|
|
|
|
—
|
|
|
|
30,757
|
|
Amortization
|
|
|
—
|
|
|
|
2,485
|
|
|
|
8,266
|
|
|
|
—
|
|
|
|
10,751
|
|
Impairment
Charges
|
|
|
—
|
|
|
|
—
|
|
|
|
553
|
|
|
|
—
|
|
|
|
553
|
|
Interest
Expense
|
|
|
—
|
|
|
|
29,494
|
|
|
|
3,731
|
|
|
|
—
|
|
|
|
33,225
|
|
Other
Income, Net
|
|
|
—
|
|
|
|
(385 |
) |
|
|
(267 |
) |
|
|
—
|
|
|
|
(652 |
) |
Equity
in (Earnings) Loss of Subsidiaries
|
|
|
50,395
|
|
|
|
9,657
|
|
|
|
—
|
|
|
|
(60,052 |
) |
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,395
|
|
|
|
79,505
|
|
|
|
699,448
|
|
|
|
(60,052 |
) |
|
|
769,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) Before Provision (Benefit) for Income Taxes
|
|
|
(50,395 |
) |
|
|
(78,106 |
) |
|
|
(15,300 |
) |
|
|
60,052
|
|
|
|
(83,749 |
) |
Provision
(Benefit) for Income Taxes
|
|
|
—
|
|
|
|
(27,711 |
) |
|
|
(5,643 |
) |
|
|
—
|
|
|
|
(33,354 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$ |
(50,395 |
) |
|
$ |
(50,395 |
) |
|
$ |
(9,657 |
) |
|
$ |
60,052
|
|
|
$ |
(50,395 |
) |
Burlington
Coat Factory Investments Holdings, Inc. and Subsidiaries
Condensed
Consolidating Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended September 2, 2006
|
|
|
|
Holdings
|
|
|
BCFW
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(All
amounts in thousands)
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$ |
—
|
|
|
$ |
836
|
|
|
$ |
656,010
|
|
|
$ |
—
|
|
|
$ |
656,846
|
|
Other
Revenue
|
|
|
—
|
|
|
|
532
|
|
|
|
6,888
|
|
|
|
—
|
|
|
|
7,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
1,368
|
|
|
|
662,898
|
|
|
|
—
|
|
|
|
664,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales (Exclusive of Depreciation and Amortization)
|
|
|
—
|
|
|
|
542
|
|
|
|
426,372
|
|
|
|
—
|
|
|
|
426,914
|
|
Selling
and Administrative Expenses
|
|
|
—
|
|
|
|
41,701
|
|
|
|
205,359
|
|
|
|
—
|
|
|
|
247,060
|
|
Depreciation
|
|
|
—
|
|
|
|
1,701
|
|
|
|
33,283
|
|
|
|
—
|
|
|
|
34,984
|
|
Amortization
|
|
|
—
|
|
|
|
9,675
|
|
|
|
1,258
|
|
|
|
—
|
|
|
|
10,933
|
|
Interest
Expense
|
|
|
—
|
|
|
|
32,126
|
|
|
|
3,288
|
|
|
|
—
|
|
|
|
35,414
|
|
Other
Income, Net
|
|
|
—
|
|
|
|
0
|
|
|
|
(981 |
)) |
|
|
—
|
|
|
|
(981 |
) |
Equity
in (Earnings) Loss of Subsidiaries
|
|
|
51,808
|
|
|
|
3,264
|
|
|
|
—
|
|
|
|
(55,072 |
) |
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,808
|
|
|
|
89,009
|
|
|
|
668,579
|
|
|
|
(55,072 |
) |
|
|
754,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) Before Provision (Benefit) for Income Taxes
|
|
|
(51,808 |
) |
|
|
(87,641 |
) |
|
|
(5,681 |
) |
|
|
55,072
|
|
|
|
(90,058 |
) |
Provision
(Benefit) for Income Taxes
|
|
|
—
|
|
|
|
(35,833 |
) |
|
|
(2,417 |
) |
|
|
—
|
|
|
|
(38,250 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$ |
(51,808 |
) |
|
$ |
(51,808 |
) |
|
$ |
(3,264 |
) |
|
$ |
55,072
|
|
|
$ |
(51,808 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burlington
Coat Factory Investments Holdings, Inc. and Subsidiaries
Condensed
Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months
ended September 1, 2007
|
|
|
|
Holdings
|
|
|
BCFW
|
|
|
Guarantors
|
|
|
Elimination
|
|
|
Consolidated
|
|
|
|
(All
amounts in thousands)
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by Operating Activities
|
|
$ |
—
|
|
|
$ |
(53,837 |
) |
|
$ |
37,959
|
|
|
$ |
—
|
|
|
$ |
(15,878 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Paid for Property and Equipment
|
|
|
—
|
|
|
|
(4,492 |
) |
|
|
(19,981 |
) |
|
|
—
|
|
|
|
(24,473 |
) |
Investing
Activity—Other
|
|
|
—
|
|
|
|
(18 |
) |
|
|
67
|
|
|
|
—
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Used in Investing Activities
|
|
|
—
|
|
|
|
(4,510 |
) |
|
|
(19,914 |
) |
|
|
—
|
|
|
|
(24,424 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from Long Term Debt – ABL Line of Credit
|
|
|
—
|
|
|
|
160,384
|
|
|
|
—
|
|
|
|
—
|
|
|
|
160,384
|
|
Principal
Payments on Long Term Debt
|
|
|
—
|
|
|
|
—
|
|
|
|
(142 |
) |
|
|
—
|
|
|
|
(142 |
) |
Principal
Payments on Long Term Debt – ABL Line of Credit
|
|
|
—
|
|
|
|
(101,001 |
) |
|
|
—
|
|
|
|
—
|
|
|
|
(101,001 |
) |
Payment
of Dividends
|
|
|
(300 |
) |
|
|
(300 |
) |
|
|
—
|
|
|
|
300
|
|
|
|
(300 |
) |
Receipt
of Dividends
|
|
|
300
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(300 |
) |
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Used in Financing Activities
|
|
|
—
|
|
|
|
59,083
|
|
|
|
(142 |
) |
|
|
—
|
|
|
|
58,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in Cash and Cash Equivalents
|
|
|
—
|
|
|
|
736
|
|
|
|
17,903
|
|
|
|
—
|
|
|
|
18,639
|
|
Cash
and Cash Equivalents at Beginning of Period
|
|
|
—
|
|
|
|
20,035
|
|
|
|
13,843
|
|
|
|
—
|
|
|
|
33,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents at End of Period
|
|
$ |
—
|
|
|
$ |
20,771
|
|
|
$ |
31,746
|
|
|
$ |
—
|
|
|
$ |
52,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burlington
Coat Factory Investments Holdings, Inc. and Subsidiaries
Condensed
Consolidating Statements of Cash Flows
|
|
For
the three months
ended September 2, 2006
|
|
|
|
Holdings
|
|
|
BCFW
|
|
|
Guarantors
|
|
|
Elimination
|
|
|
Consolidated
|
|
|
|
(All
amounts in thousands)
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by Operating Activities
|
|
$ |
—
|
|
|
$ |
(107,651 |
) |
|
$ |
16,646
|
|
|
$ |
—
|
|
|
$ |
(91,005 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of Property and Equipment—Continuing Operations
|
|
|
—
|
|
|
|
(607 |
) |
|
|
(20,616 |
) |
|
|
—
|
|
|
|
(21,223 |
) |
Proceeds
Received from Sale of Assets Held for Sale
|
|
|
—
|
|
|
|
—
|
|
|
|
3,766
|
|
|
|
—
|
|
|
|
3,766
|
|
Investing
Activity—Other
|
|
|
—
|
|
|
|
44
|
|
|
|
|
|
|
|
—
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Used in Investing Activities
|
|
|
—
|
|
|
|
(563 |
) |
|
|
(16,850 |
) |
|
|
—
|
|
|
|
(17,413 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
Payments on Long Term Debt
|
|
|
—
|
|
|
|
—
|
|
|
|
(946 |
) |
|
|
—
|
|
|
|
(946 |
) |
Issuance
of Common Stock Upon Exercise of Stock Options
|
|
|
—
|
|
|
|
200
|
|
|
|
—
|
|
|
|
—
|
|
|
|
200
|
|
Proceeds
from ABL
|
|
|
—
|
|
|
|
169,212
|
|
|
|
—
|
|
|
|
—
|
|
|
|
169,212
|
|
Principal
payment on long term loan
|
|
|
—
|
|
|
|
(2,250 |
) |
|
|
—
|
|
|
|
—
|
|
|
|
(2,250 |
) |
Principal
Payments on ABL
|
|
|
—
|
|
|
|
(19,139 |
) |
|
|
—
|
|
|
|
—
|
|
|
|
(19,139 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Used in Financing Activities
|
|
|
—
|
|
|
|
148,023
|
|
|
|
(946 |
) |
|
|
—
|
|
|
|
147,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in Cash and Cash Equivalents
|
|
|
—
|
|
|
|
39,809
|
|
|
|
(1,150 |
) |
|
|
—
|
|
|
|
38,659
|
|
Cash
and Cash Equivalents at Beginning of Period
|
|
|
—
|
|
|
|
48,865
|
|
|
|
9,511
|
|
|
|
—
|
|
|
|
58,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents at End of Period
|
|
$ |
—
|
|
|
$ |
88,674
|
|
|
$ |
8,361
|
|
|
$ |
—
|
|
|
$ |
97,035
|
|
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES
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 Annual Report
on
Form 10-K. 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 sales in the first quarter of fiscal
2008. Net sales for the first quarter ended September 1, 2007 were
$678.8 million, inclusive of $5.2 million related to the barter transaction
(Note 21), compared with $656.8 million for the comparative period ended
September 2, 2006, a 3.3 % increase.
These
results reflect a 2.0%
comparative store sales decrease from the comparative period in the prior
year. Comparative store sales decreased 2.1%, 3.7% and 0.6% in June,
July and August, respectively, compared with the same months in the
prior year.
Gross
margin dollars increased due to
increased sales but gross margin percentage decreased during the three month
period ended September 1, 2007 compared with the three month period ended
September 2, 2006 primarily due to the barter transaction (Note 21) which
resulted in $5.2 million of sales at no gross margin and higher markdown and
estimated shrinkage costs, offset in part by improved initial
margins.
The
Company recorded a net loss of
$50.4 million for the three months ended September 1, 2007 compared with a
net
loss of $51.8 million for the three months ended September 2,
2006. Increased sales, reduced depreciation expense and lower
interest expense contributed to the slight improvement over a year
ago.
Current
Conditions
Store
Openings, Closings, and
Relocations. During the first quarter of fiscal 2008, the Company opened
five Burlington Coat Factory Stores. Three Burlington Coat Factory stores were
relocated during the period to locations within the same trading
markets. As of September 1, 2007, the Company operates 384 stores
under the names "Burlington Coat Factory Warehouse" (“BCF”) (364 stores),
"Cohoes Fashions"(2 stores), "MJM Designer Shoes" (17 stores), and "Super Baby
Depot" (1 store). The Company plans to open approximately 17
additional Burlington Coat Factory stores during the remaining nine months
of
fiscal 2008.
Acquisition
of Value City Leases and Lease Properties. On October 3,
2007, Burlington Coat Factory Warehouse Corporation and certain wholly-owned
subsidiaries (“Burlington”) entered into an Agreement to Acquire Leases and
Lease Properties (the “Agreement”) from Retail Ventures, Inc., an
Ohio corporation (the “RVI”), together with its wholly-owned subsidiaries, Value
City Department Stores LLC, an Ohio limited liability company (“Value City or
VCDS”), and GB Retailers, Inc., a Delaware corporation (“GB Retailers” and,
together with VCDS, the “VCDS Tenants”), and from Schottenstein Stores
Corporation (“SSC”), certain affiliates of SSC (collectively with SSC, the “SSC
Landlords”). RVI, the VCDS Tenants and the SSC Landlords are collectively
referred to as the Value City Entities. The aggregate purchase price
to be paid by Burlington for up to 24 leases is approximately $16.0 million
subject to certain potential adjustments provided for in the
Agreement.
The
Value City Entities and Burlington
will work together in good faith to obtain the necessary landlord consents
and
lease amendments to allow the disposition of the Leased Premises to occur as
specified in the Agreement. In the event that any necessary landlord consents
or
lease amendments cannot be obtained, the parties may remove one or more of
the
Leased Premises from the transaction. The effective dates of the lease
assignments and transfer of possession of the Leased Premises will occur on
either February 15, 2008 or April 1, 2008, subject to change as
described in the Agreement. The Agreement contains customary representations,
warranties and covenants, and the transactions contemplated by the Agreement
are
subject to certain adjustments and closing conditions.
In
connection with the Agreement, the
parties entered into an Escrow Agreement pursuant to which approximately ten
percent (10%) of the purchase price for the Leased Premises was deposited with
the escrow agent upon execution of the Agreement. Burlington posted a $1.6
million letter of credit to satisfy its obligations under the escrow agreement.
The escrow proceeds and the remainder of the purchase price will be delivered
to
Value City at the closing of the contemplated transactions. Also at the closing,
RVI will enter into an Indemnification Agreement with Burlington pursuant to
which the Company will provide certain indemnities and undertake certain
obligations in favor of Burlington.
Key
Performance Measures
Management
considers numerous factors in assessing the Company's
performance. Key performance measures used by management include
comparative store sales, gross margin, inventory levels, inventory
turnover, 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 defines its comparative
store sales as sales of those stores (net of sales discounts) that are beginning
their fifteenth month of operation. 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. The Company experienced a decrease in
comparative store sales of 2.0% in the first quarter of fiscal 2008 compared
with the first quarter of fiscal 2007. This decrease is primarily the
result of the effect of the Company’s implementation of a new cash refund return
policy subsequent to the end of first quarter of fiscal 2007. The
Company’s comparative store sales may not be comparable to those of other
retailers, since some retailers may base their comparative store sales on a
different time 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 three
month period ended September 1, 2007, the Company experienced a decrease in
gross margin percentage to 34.6% from 35.0% for the three month period ended
September 2, 2006. This decrease is primarily due to the barter
transaction (Note 21) which resulted in $5.2 million in sales at no gross margin
and increases in markdown and estimated shrinkage costs in the current year's
three month period compared with the similar period of last year, offset in
part
by improved initial margins. Excluding the barter transaction, gross
margin percentage would have been 34.9% for the three months ended September
1,
2007 compared to 35.0% for the three months ended September 2,
2006.
Inventory
Levels. 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. At September 1, 2007, inventory
amounted to $729.7 million versus $794.4 million at September 2, 2006, a
decrease of $64.7 million (8.1%). This decrease in inventory is due
primarily to a decrease in comparative store inventory of approximately $50.0
million and a decrease in warehouse inventory of $14.5 million, resulting from
our initiative to reduce inventory levels.
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 would be necessary
to
sell the merchandise. Inventory turnover is calculated by dividing the net
sales
before sales discounts by the average retail stock for the period being
measured. The annualized inventory turnover rate in the first fiscal
quarters of fiscal 2008 and fiscal 2007 was 2.1 and 2.0 respectively. Inventory
turnover for the first fiscal quarter is typically below the turnover rate
for
the fiscal year, which amounted to 2.4 for the fiscal year ended June 2,
2007. This is due to higher inventory levels during the first fiscal
quarter as the
Company
builds inventory for the fall selling season.
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 of net
cash used in operating activities during the quarter ended September 1,
2007. Net cash used in operating activities amounted to $15.9 million
for the quarter ended September 1, 2007 compared with $91.0 million for the
similar period in the prior fiscal year. The primary reason for using
less cash during the first quarter of fiscal 2008 compared with the first
quarter of fiscal 2007 is that merchandise inventories did not increase as
much
from year end this period versus a year ago. The decrease in net cash
used in operations was offset, in part, by greater spending in Property and
Equipment related to new stores opened, and to be opened during the remainder
of
fiscal year 2008, as of September 1, 2007. As a result, our net
borrowings were $87.6 million less in this year’s quarter compared with last
year’s quarter.
Cash
flow and working capital levels
assist management in measuring the Company's ability to meet its cash
requirements. Working capital measures the Company's current
financial position. Working capital is current assets, minus current
liabilities. Working capital at September 1, 2007 was $294.2 million
compared with $354.4 million at September 2, 2006. The decrease in
working capital is due primarily to a decrease in the Company’s cash position,
resulting from the use of available cash to repay funds drawn on the ABL Line
of
Credit.
Critical
Accounting Policies and Estimates
Our
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 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 inventories, long lived assets, intangible
assets, goodwill impairment, insurance, sales returns, allowances for doubtful
accounts, retirement benefits and income taxes.. 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.
We
believe that the following represent the more critical estimates and assumptions
used in the preparation of the Condensed Consolidated Financial
Statements:
Inventory.
Our inventory is valued at the lower of cost or market using the retail
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 markon, markups, markdowns and shrinkage which
significantly impact the ending inventory valuation at cost as well as the
resulting gross margin. Management believes that our application of the retail
inventory method 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 in the later part of the fourth fiscal quarter to calculate actual
shrinkage. We also estimate any required markdown allowances. If actual market
conditions are less favorable than those projected by management, additional
markdowns may be required. While we make estimates on the basis of the best
information available to us 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.
Long-Lived
Assets. We test for recoverability of long-lived assets whenever events or
changes in circumstances indicate that their 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, we reduce 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. For the three
months ended September 1, 2007 the Company recorded an impairment charge of
$0.6
million, related primarily to idle warehouse equipment. There were no
impairment charges recorded for the quarter ended September 2,
2006.
Intangible
Assets.When circumstances change, or at least annually, we compare the
carrying value of our intangible assets to their estimated fair value. If the
carrying value is greater than the respective estimated fair value, we then
determine if the asset is impaired, and whether some or all of the asset should
be written off as a charge to operations, which could have a material adverse
effect on our financial results. There were no impairment charges
recorded during the three months ended September 1, 2007 related to intangible
assets.
Goodwill
Impairment. Goodwill represents the excess
of cost over the fair value of net assets acquired. SFAS No. 142,
“Goodwill and Other Intangible Assets,” requires periodic tests of the
impairment of Goodwill. 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. When this comparison indicates that impairment
must
be recorded, the impairment recognized is the amount by which the carrying
amount of the assets exceeds the fair value of these assets. Our annual goodwill
impairment review is conducted during the last month of each fiscal
year. There were no impairment charges recorded on our $46.2 million
carrying value of Goodwill for the fiscal year ended June 2, 2007.
Insurance.
We have various insurance agreements with respect to workers’ compensation,
liability insurance and health insurance. Pursuant to these insurance
arrangements, we are responsible for paying individual claims up to designated
dollar limits. The amounts included in our costs related to these claims are
estimated and can vary based on changes in assumptions or claims experience
included in the associated insurance programs. For example, changes in legal
trends and interpretations, as well as changes in the nature and method of
how
claims are settled can impact ultimate costs. An increase in worker’s
compensation claims by employees, health insurance claims by employees or
liability claims will result in a corresponding increase in our costs related
to
these claims. Insurance reserves amounted to $34.3 million and $33.7 million
at
September 1, 2007 and June 2, 2007, respectively.
Reserves
for Sales Returns. We record reserves for future sales returns. The
reserves are based on current sales volume and historical returns experience.
If
returns experience differs from historical levels, revisions in our estimates
may be required. Sales reserves amounted to $6.0 million and $5.5 million at
September 1, 2007 and June 2, 2007, respectively.
Allowance
for Doubtful Accounts. We maintain allowances for bad checks, miscellaneous
receivables and losses on credit card accounts. This reserve is calculated
based
upon historical collection activities adjusted for known
uncollectibles.
Estimates
Related to Certain Employee Benefit Plans. The Company has
significant employee benefit expenses related to its discretionary,
noncontributory profit-sharing plan for certain employees who meet age and
service requirements and its match of employee contributions to the Company’s
401(k) plan. The Company estimates its expenses related to these
plans on a quarterly basis based on historical employee contribution rates,
estimated eligible wages and estimated plan
forfeitures.
Income
Taxes. We account for income taxes in
accordance with SFAS 109, “Accounting for Income Taxes.” Our provision
for income taxes and effective tax rates are based on a number of factors,
including our income tax planning strategies, differences between tax laws
and
accounting rules, statutory tax rates and credits, uncertain
tax
positions,
and valuation allowances, by legal entity and jurisdiction. We use significant
judgment and estimations in evaluating our tax positions.
U.S.
federal and state tax authorities regularly audit our tax returns. As of June
3,
2007, we have adopted Financial Accounting Standards Board (“FASB”)
Interpretation No. 48 (as amended) – “Accounting for Uncertainty in
Income Taxes – an interpretation of FASB Statement No. 109” (“FIN
48”). Adjustments related to the adoption of FIN 48 are reflected as adjustments
to accumulated deficit, deferred taxes, and other liabilities as of the date
of
adoption.
The
Company provides for income taxes based on the liability method required by
SFAS
No. 109 “Accounting for Income Taxes” (SFAS 109). Under this
method, deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis, as well as net operating losses. We establish valuation
allowances for our deferred tax assets when we believe it is more likely than
not that the expected future taxable income or tax liabilities thereon will
not
support the use of a deduction or credit. For example, we would establish a
valuation allowance for the tax benefit associated with a loss carryover in
a
tax jurisdiction if we did not expect to generate sufficient taxable income
to
utilize the loss carryover prior to its expiration.
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 three month
periods ended September 1, 2007 and September 2, 2006.
|
|
Percentage
of Net Sales
|
|
|
|
Three
Months Ended
(unaudited)
|
|
|
|
September
1,
|
|
|
September
2,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
Cost
of Sales
|
|
|
65.4
|
|
|
|
65.0
|
|
Selling
& Administrative
Expenses
|
|
|
37.0
|
|
|
|
37.6
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4.5
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
1.6
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
Impairment
Charges
|
|
|
0.1
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
4.9
|
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
Other
Income, Net
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
Other
Revenue
|
|
|
1.0
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
Loss
before Income Taxes
|
|
|
(12.3 |
) |
|
|
(13.7 |
) |
|
|
|
|
|
|
|
|
|
Income
Tax Benefit
|
|
|
(4.9 |
) |
|
|
(5.8 |
) |
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
(7.4 |
%) |
|
|
(7.9 |
%) |
|
|
|
|
|
|
|
|
|
Three
Months Ended September 1, 2007 compared with Three Months Ended September 2,
2006
Sales
Consolidated
net sales increased $21.9
million (3.3%) for the three month period ended September 1, 2007 compared
with
the similar period of last year, inclusive of $5.2 million related to the barter
transaction (Note 21). Comparative stores sales decreased 2.0% for
the first quarter of fiscal 2008. The decrease in comparative store
sales is primarily due to the impact of the implementation of the cash return
policy after the close of the first fiscal quarter of fiscal 2007.
Five
new Burlington Coat Factory department stores opened during the first quarter
of
fiscal 2008 contributed $1.5 million to net sales for the first quarter of
fiscal 2008. Stores opened during fiscal 2007 contributed $26.3
million to this year's net sales in their non-comparative
periods. Stores closed subsequent to September 2, 2006 contributed
$2.7 million to last fiscal year’s first quarter sales.
The
MJM Designer Shoes stores contributed $11.2 million to sales for the three
month
period ended September 1, 2007 compared with $12.1 million for the similar
period of last year. This decrease is due to comparative store sales decreases
of 6.4% during the first quarter of fiscal 2008 compared to the first quarter
of
fiscal 2007.
Other
Revenue
Other
Revenue (consisting of rental income from leased departments, sublease rental
income, layaway, alteration and other service charges and miscellaneous revenue
items) decreased to $6.8 million for the three month period ended September
1,
2007 compared with $7.4 million for the similar period of last
year. This decrease is primarily related to decreases in rental
income from leased departments.
Cost
of Sales
Cost
of sales increased $16.9 million (3.9%) for the three month period ended
September 1, 2007 compared with the three month period ended September 2,
2006. The dollar increase in cost of sales was due primarily to the
increase in net sales during the three month period ended September 1, 2007
compared with the three month period ended September 2, 2006. Cost of
sales as a percentage of net sales increased to 65.4% in the fiscal 2008 three
month period from 65.0% in the fiscal 2007 three month period. The
increase in cost of sales, as a percentage of net sales, for the fiscal 2008
period compared with the fiscal 2007 period was primarily the result of the
barter transaction (Note 21) in which the Company recognized sales and cost
of
sales at no margin, and increases in markdown and estimated shrinkage costs
offset in part by higher initial margins. The Company's cost of sales
and gross margin may not be comparable to those of other retailers, since some
retailers include 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
certain merchandise acquisition costs, primarily commissions and import
fees.
Selling
and Administrative Expenses
Selling
and Administrative Expenses increased $3.8 million (1.5%) from the fiscal 2007
three month period to the fiscal 2008 three month period. The
increase in selling and administrative expenses was due primarily to the
increased number of stores in operation during the first quarter of fiscal
2008
as compared with the first quarter of fiscal 2007. This is offset, in part,
by a
reduction of $5.0 million in costs related to the Merger Transaction that were
recorded during the three months ended September 2, 2006. As a
percentage of Net Sales, Selling and Administrative Expenses were 37.0% for
the
three month period ended September 1, 2007 compared with 37.6% for the three
month period ended
September
2, 2006. The decrease of Selling and Administrative Expenses, as a
percentage of net sales, for the fiscal 2008
period compared with the fiscal 2007 period is a result of the decrease in
merger related transactions offset in part by the impact of decreased
comparative store sales.
Depreciation
Depreciation
expense amounted to $30.8
million in the three month period ended September 1, 2007 compared with $35.0
million in the three period month ended September 2, 2006. This
decrease of $4.2 million is attributable primarily to the asset revaluation
of
the Company’s fixed assets related to the Merger
Transaction. Approximately $13.9 million of computer equipment was
determined to have a one year remaining estimated useful life as of the Merger
Transaction date. As a result, those assets were completely
depreciated during fiscal 2007.
Amortization
Amortization
expense for the three
months ended September 1, 2007 did not materially change from the similar period
ended September 2, 2006. Amortization expense, which is related to
net favorable leases and deferred debt charges, amounted to $10.8 million and
$10.9 million for the three months ended September 1, 2007 and September 2,
2006, respectively.
Interest
Expense
Interest
expense was $33.2 million and $35.4 million for the three month periods ended
September 1, 2007 and September 2, 2006, respectively. The decrease in interest
expense was due to the Company paying down long term debt during the previous
twelve months and the changes in the fair market value of the Company’s interest
rate cap contracts which resulted in a gain during the quarter of $0.1 million
when marked to market as compared with a loss of $1.1 million in the comparative
quarter of the prior fiscal year, which is all recorded as “Interest Expense” in
the Company’s Condensed Consolidated Statement of Operations.
Other
(Income), Net
Other
(Income), Net (consisting of investment income, gains and losses on disposition
of assets and other miscellaneous items) decreased $0.3 million to $0.7 million
for the three month period ended September 1, 2007 compared with the similar
fiscal period of last year. This decrease is related primarily to
lower interest income and a loss on the disposition of fixed assets recorded
during the three months ended September 1, 2007 compared with the three months
ended September 2, 2006, offset, in part, by an increase in other miscellaneous
income items.
Income
Tax
Income
tax benefit was $33.4 million for the three month period ended September 1,
2007
and $38.3 million for the similar fiscal period of last year. The effective
tax
rate for the first quarter of fiscal 2008 was 39.8% compared with 42.5% in
the
similar fiscal quarter of 2007. The effective tax rate for the months ended
September 1, 2007 and September 2, 2006 are based primarily on the Company’s
forecasted annualized effective tax rates, adjusted for seasonal
factors.
Net
Loss
Net
loss amounted to $50.4 million for
the three month period ended September 1, 2007 compared with $51.8 million
for
the comparative period of last year. The decrease in the Net Loss of $1.4
million is due primarily to improvements in sales and decreases in depreciation
and interest expense during the three month period ended September 1,
2007.
Liquidity
and Capital Resources
Overview
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.
Operational
Growth
Store
Openings, Closings, and Relocations. During the first quarter of fiscal
2008, the Company opened five Burlington Coat Factory Stores. As of
September 1, 2007, the Company operates 384 stores under the names "Burlington
Coat Factory Warehouse" (“BCF”) (364 stores), "Cohoes Fashions"(2 stores), "MJM
Designer Shoes" (17 stores), and "Super Baby Depot" (1 store). The Company
plans
to spend approximately $61.1 million, net of landlord allowances, in capital
expenditures during fiscal 2008 including $28.8 million for store expenditures,
$12.6 million for upgrades of warehouse facilities and $19.7 million for
computer and other equipment expenditures. For the first three months
of fiscal 2008, capital expenditures amounted to approximately $26.0 million,
of
which $11.7 million was spent on new stores.
The
Company monitors the availability of desirable locations for its stores from
such sources as dispositions by other retail chains and bankruptcy auctions,
as
well as locations presented to the Company by real estate developers and
existing landlords. Most of our stores are located in malls, strip
shopping centers, regional power centers or are freestanding. We also
lease existing space and are opening some built-to-suit locations. We
have revised our lease model to provide on some of our new leases for a ten
year
initial term with a number of five year options
thereafter. Typically, our new lease strategy includes landlord
allowances for leasehold improvements. We believe our new lease model
makes us more competitive with other retailers for desirable
locations. 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 acquisitions 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 increased to $294.2 million at September 1, 2007 from $283.4 million
at
June 2, 2007. This is primarily the result of the tax effect of the
Company’s first quarter loss, recorded as “Income Tax Receivable” on the
Company’s Condensed Consolidated Balance Sheets and the seasonal increase of
“Merchandise Inventory,” partially offset by the related seasonal increase in
“Accounts Payable” on the Company’s Condensed Consolidated Balance
Sheets.
Net
Cash Provided by Operating Activities
Net
cash used by operating activities amounted to $15.9 million for the three months
ended September 1, 2007 compared with net cash used by operating activities
of
$91.0 million for the three months ended September 2, 2006. This decrease is
primarily related to decreased inventory purchases made during the current
year’s quarter compared with the prior year’s period.
Dividends
Payment
of dividends is prohibited under
our credit agreements, except for certain limited
circumstances. Dividends equal to $0.3 million were paid during the
three months ended September 2, 2007 to our Parent in order to repurchase
capital stock of the Parent from an executive who left the
Company.
Long-Term
Borrowings 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
September 1, 2007 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 with 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 September 1, 2007, we had $218.4
outstanding under the ABL facility and unused availability of $241.7
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
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 September 1, 2007, we had $884.3 million outstanding under
our
term loan facility.
The
loan is to be repaid in quarterly
payments of $2.3 million from May 30, 2006 to May 28, 2013. At the
end of each fiscal year, the Company is required to make a payment based on
50%
of the available free cash flow (as defined in the credit
agreement). This payment offsets the $2.3 million quarterly
payments. Based on the available free cash flow (as defined in the
credit agreement) the Company has calculated a payable to the bank that was
paid
in September 2007 of $11.4 million. This is recorded under the
caption “Current Maturities of Long Term Debt” in the Company’s Condensed
Consolidated Balance Sheets. This payment will relieve the Company of
making the quarterly payments of $2.3 million through the third quarter of
fiscal year 2009 and $0.2 million in the fourth quarter of fiscal
2009.
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 September 1, 2007, we had $299.8 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. 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 September 1, 2007, we had $91.1 million outstanding
in Senior Discount Notes.
Promissory
Note
In
January 2006, the Company purchased
the ground lease and sublease related to one of its store
locations. The Company financed this purchase partially through the
issuance of a promissory note in the principal amount of $0.5
million. The note bears interest at 4.43% per annum and matures on
December 23, 2011. The loan evidenced by the note is to be repaid in
equal monthly installments of $7,539 which began on February 23,
2006.
Industrial
Revenue Bonds
The
Industrial Revenue Bonds were
issued in connection with the construction of the Company’s existing
distribution center. The bonds are secured by a first mortgage on the
Company’s existing distribution center. Indebtedness, totaling $5.0
million, is collateralized by certain land and buildings and payment of interest
and principal is guaranteed under an irrevocable letter of credit in the amount
of $4.3 million.
Loan
from Burlington County Board of Chosen 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.
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 September 1, 2007, capital lease obligations amounted to
$25.8 million. During the first quarter of fiscal 2008, $0.6 million
of lease payments were applied to interest and $0.1 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 $0.4 million as of September 1, 2007. The fair value of the
interest rate cap agreements are recorded under the caption “Other Assets” on
the Company’s Condensed Consolidated Balance Sheets.
Off-Balance
Sheet Arrangements and Contractual Obligations
As
of September 1, 2007, the Company had no material off-balance sheet arrangements
except for operating leases and letter of credit agreements.
The
Company had letter of credit
agreements with a bank in the amount of $28.6 million and $36.1 million
guaranteeing performance under various leases, insurance contracts and utility
agreements at September 1, 2007 and June 2, 2007,
respectively. Additionally, the Company has letter of credit
agreements with a bank in the amount of $25.8
million
and $9.6 million at September 1, 2007 and June 2, 2007, respectively, related
to
certain merchandising agreements.
The
following
table sets forth certain information regarding our contractual obligations
as of
September 1, 2007, (in thousands):
|
|
Payments
During Fiscal Years
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
Obligations:
|
|
Total
|
|
|
Remainder
of Fiscal 2008
Less
Than One Year
|
|
|
|
2009
– 2010
|
|
|
|
2011
- 2012
|
|
|
Thereafter
|
|
Long
Term Debt (1)
|
|
$ |
1,512,373
|
|
|
$ |
12,545
|
|
|
$ |
13,703
|
|
|
$ |
251,501
|
|
|
$ |
1,234,624
|
|
Interest
on Long Term Debt
|
|
|
734,702
|
|
|
|
100,479
|
|
|
|
262,547
|
|
|
|
243,766
|
|
|
|
127,910
|
|
Capital
Leases (2)
|
|
|
53,552
|
|
|
|
1,872
|
|
|
|
5,053
|
|
|
|
5,262
|
|
|
|
41,365
|
|
Operating
Leases
|
|
|
774,018
|
|
|
|
112,769
|
|
|
|
239,610
|
|
|
|
153,478
|
|
|
|
268,161
|
|
Purchase
Obligations
|
|
|
611,889
|
|
|
|
600,189
|
|
|
|
8,808
|
|
|
|
2,892
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
3,686,534
|
|
|
$ |
827,854
|
|
|
$ |
529,721
|
|
|
$ |
656,899
|
|
|
$ |
1,672,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes
interest on Long-Term Debt.
|
(2)
|
Capital
Lease Obligations include future interest
payments.
|
During
fiscal 2007, we sold lease rights for three store locations that were operated
by the Company. In the event of default, the Company could be liable
for obligations associated with these real estate leases which have future
lease
related payments (not discounted to present value) of approximately $9.1 million
through the end of fiscal 2012, and which are not reflected in the table
above. The scheduled future minimum rentals for these leases over the
next five fiscal years and thereafter are $1.4 million, $1.9 million, $1.6
million, $1.4 million, and $2.8 million respectively. We believe the
likelihood of a material liability being triggered under these leases is remote,
and no liability has been accrued for these contingent lease obligations as
of
September 1, 2007.
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 consolidated
financial position, results of operations and cash flows. 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. On
July 13, 2006, the 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 adopted FIN 48 as of
June 3, 2007. Refer to Note 15 to the Condensed Consolidated
Financial Statements entitled “Income taxes” for the impact on our Condensed
Consolidated Financial Statements.
b. 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 Condensed Consolidated Financial Statements.
c. In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – including an amendment of FASB
Statement No. 115. SFAS No. 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value, with unrealized gains
and losses related to these financial instruments reported in earnings at each
subsequent reporting date. This Statement is effective as of the
beginning of an entity’s first fiscal year that begins after November 15,
2007. The Company is in the process of evaluating the impact of SFAS
No. 159 on its Condensed Consolidated Financial Statements.
We
are
exposed to certain market risks as part of our ongoing business operations.
Primary exposure includes 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
September 1, 2007, we had $396.3 million principal amount of fixed-rate debt
and
$1,102.6 million of available floating-rate debt. Based on $1,102.6 million
outstanding as floating rate debt, an immediate increase of one percentage
point
would cause an increase to cash interest expense of approximately $10.9 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 remains constant) (all amounts in
thousands):
Floating
Rate Debt
|
|
Principal
Outstanding at September 1, 2007
|
|
|
Additional
Interest Expense
Q2
2008
|
|
|
Additional
Interest Expense
Q3
2008
|
|
|
Additional
Interest Expense
Q4
2008
|
|
|
Additional
Interest Expense
Q1
2009
|
|
ABL
Credit Facility
|
|
$ |
218,383
|
|
|
$ |
546
|
|
|
$ |
546
|
|
|
$ |
546
|
|
|
$ |
546
|
|
Term
Loan
|
|
|
884,250
|
|
|
|
2,182
|
|
|
|
2,182
|
|
|
|
2,182
|
|
|
|
2,182
|
|
Total
|
|
$ |
1,102,633
|
|
|
$ |
2,728
|
|
|
$ |
2,728
|
|
|
$ |
2,728
|
|
|
$ |
2,728
|
|
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 dollars 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 $18.7 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
September 1, 2007, the Company’s borrowing rate related to its Term Loan was
7.76%. For the period ended September 1, 2007, the Company’s
borrowing rate related to
its
ABL
credit facility was 7.15%.
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 assured that 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.
Under
the
supervision and with the participation of management, including our principal
executive officer and principal financial officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) or 15d-15e under the Securities
Exchange Act of 1934 (the “Exchange Act”)). Based upon that
evaluation, the principal executive officer and principal financial officer
have
concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were effective.
There
were no changes in our internal control over financial reporting during the
period covered by this report that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC.
AND
SUBSIDIARIES
PART
II - OTHER INFORMATION
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
September 1, 2007, there had not
been any material changes to the information related to the Item 1A, “Risk
Factors” disclosed in the Company’s Annual Report on Form 10-K for the year
ended June 2, 2007.
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.
10.1
|
|
Employment
Agreement dated as of June 1, 2007 by and between Burlington Coat
Factory
Warehouse Cororation and Jack E. Moore, Jr.
|
|
10.2
|
|
Acquisition
Agreement regarding Value City Leases and Lease Properties
(incorporated by reference to Form 8-K filed October 9,
2007)
|
|
|
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.
|
|
|
32.2
|
|
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.
|
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
|
|
|
|
Mark
A. Nesci
|
|
|
|
President
& Chief Executive Officer
|
|
|
|
|
|
|
|
/s/
Robert L. LaPenta,
Jr.
|
|
|
|
Robert
L. LaPenta, Jr.
|
|
|
|
Vice
President - Treasurer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: October
16, 2007