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 August 30, 2008
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 No x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer”
and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer ¨
Accelerated
filer ¨
Non-accelerated
filer (Do not check if a smaller reporting company) x
Smaller
reporting company ¨
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
October 14, 2008, the registrant had 1,000 shares of common stock outstanding
(all of which are owned by Burlington Coat Factory Holdings, Inc., our 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 August 30, 2008 and May 31,
2008
|
3
|
|
|
Condensed
Consolidated Statements of Operations - Three Months Ended August 30, 2008
and September 1, 2007
|
4
|
|
|
Condensed
Consolidated Statements of Cash Flows - Three Months Ended August 30, 2008
and September 1, 2007
|
5
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
6
|
|
|
Item
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
|
22
|
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk.
|
30
|
|
|
Item
4. Controls and Procedures.
|
31
|
|
|
Part
II - Other Information
|
32
|
|
|
Item 1. Legal Proceedings.
|
32
|
|
|
Item
1A. Risk Factors.
|
32
|
|
|
Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds.
|
32
|
|
|
Item
3. Defaults Upon Senior Securities.
|
32
|
|
|
Item
4. Submission of Matters to a Vote of Security Holders.
|
32
|
|
|
Item
5. Other Information.
|
32
|
|
|
Item
6. Exhibits.
|
33
|
|
|
SIGNATURES
|
34
|
|
|
*****************
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
August
30, 2008
|
|
|
May
31, 2008
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
|
|
|
|
|
|
|
Restricted
Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
and Other Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment, Net of Accumulated Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable
Leases, Net of Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Current Liabilities
|
|
|
|
|
|
|
|
|
Current
Maturities of Long Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies (Note 17)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
in Excess of Par Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
August
30,
2008
|
|
|
September
1, 2007
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Income Tax
Benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes
to Condensed Consolidated Financial Statements.
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(Unaudited)
|
|
(All
amounts in thousands)
|
|
|
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
August
30,
2008
|
|
|
September
1, 2007
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to Reconcile Net Loss to Net Cash Provided by Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion
of Senior Notes and Senior Discount Notes
|
|
|
|
|
|
|
|
Interest
Rate Cap Agreement - Adjustment to Market
|
|
|
|
|
|
|
|
Provision
for Losses on Accounts Receivable
|
|
|
|
|
|
|
|
Provision
for Deferred Income Taxes
|
|
|
|
|
|
|
|
Loss
on Disposition of Fixed Assets and Leasehold
Improvements
|
|
|
|
|
|
|
|
Stock
Option Expense and Deferred Compensation
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in Assets and Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
and Other Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
and Other Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Used in Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Paid for Property and Equipment
|
|
|
|
|
|
|
|
Proceeds
Received from Sale of Fixed Assets and Leasehold
Improvements
|
|
|
|
|
|
|
|
Change
in Restricted Cash and Cash Equivalents
|
|
|
|
|
|
|
|
Acquisition
of Lease Rights
|
|
|
|
|
|
|
|
Issuance
of Notes Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Used in Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from Long Term Debt - ABL Senior Secured Revolving
Facility
|
|
|
|
|
|
|
|
Principal
Payments on Long Term Debt
|
|
|
|
|
|
|
|
Principal
Payments on Term Loan
|
|
|
|
|
|
|
|
Principal
Payments on Long Term Debt - ABL Senior Secured Revolving
Facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by Financing Activities
|
|
|
103,251
|
|
|
|
58,941
|
|
|
|
|
|
|
|
|
|
|
Increase
in Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents at Beginning of Period
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents at End of Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes Paid, Net of Refunds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
Investing Activities:
|
|
|
|
|
|
|
|
|
Accrued
Purchases of Property and Equipment
|
|
|
|
|
|
|
|
|
See Notes
to Condensed Consolidated Financial Statements.
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST
30, 2008
(UNAUDITED)
1.
Summary of Significant Accounting Policies
Basis of
Presentation
The
unaudited Condensed Consolidated Financial Statements include the accounts of
Burlington Coat Factory Investments Holdings, Inc. and all of its subsidiaries
(“Company” or “Holdings”). Holdings 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 the Company. 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 the fair
presentation of the results of operations for the interim periods. The balance
sheet at May 31, 2008 has been derived from the Audited Consolidated Financial
Statements in the Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 2008 (“Fiscal 2008”). Because the Company's business is seasonal in
nature, the operating results for the three month period ended August 30, 2008
is not necessarily indicative of results for the fiscal year ending May 30, 2009
(“Fiscal 2009”).
Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP") 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 Fiscal 2008.
Principles
of Consolidation
The
Condensed Consolidated Financial Statements include the accounts of Burlington
Coat Factory Investments Holdings, Inc. and all of its subsidiaries in which it
has a controlling financial interest through direct ownership of a majority
voting interest or a controlling managerial interest. All
intercompany accounts and transactions have been eliminated.
Holdings
was incorporated in the State of Delaware on April 10, 2006. Holdings’
Certificate of Incorporation authorizes 1,000 shares of common stock, par value
of $0.01 per share. All 1,000 shares are issued and outstanding and Burlington
Coat Factory Holdings, Inc. (“Parent”) is the only holder of record of this
stock.
2.
Long Term Debt
Long-term
debt consists of:
|
|
(in
thousands)
|
|
August
30, 2008
|
|
|
May
31, 2008
|
|
Industrial
Revenue Bonds, 6.13% due in semi-annual payments of various amounts from
September 1, 2008 to September 1, 2010
|
|
|
|
|
|
|
|
|
Promissory
Note, 4.43% due in monthly payments of $8 through December
23, 2011
|
|
|
|
|
|
|
|
|
Promissory
Note, non-interest bearing, due in monthly payments of $17
through January 1, 2012
|
|
|
|
|
|
|
|
|
Senior
Notes, 11.13% due at maturity on April 15, 2014, semi-annual
interest payments from October 15, 2008 to April 15,
2014
|
|
|
|
|
|
|
|
|
Senior
Discount Notes, 14.50% due at maturity on October 15, 2014, semi-annual
interest payments from October 15, 2008 to October 15,
2014
|
|
|
|
|
|
|
|
|
$900,000
Senior Secured Term Loan Facility, LIBOR plus 2.25% due in
quarterly payments of $2,250 from November 30, 2008 to May 28,
2013
|
|
|
|
|
|
|
|
|
$800,000
ABL Senior Secured Revolving Facility, LIBOR plus spread based on average
outstanding balance
|
|
|
|
|
|
|
|
|
Capital
Lease Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, net of current maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $900
million Senior Secured Term Loan Facility (“Term Loan”) is to be repaid in
quarterly payments of $2.3 million from November 30, 2008 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 for the fiscal year
ended May 31, 2008, the Company was not required to make any mandatory
repayment. The Company was required to make a payment of $11.4
million based on the available free cash flow for the fiscal year ended June 2,
2007. This payment offsets the quarterly payments of $2.3 million
through the third quarter of Fiscal 2009 and $0.2 million of the quarterly
payment to be made in the fourth quarter of Fiscal 2009. As a result,
the Company is not required to make any cash payments related to the mandatory
quarterly payments until the fourth quarter of Fiscal 2009.
The $800
million ABL Senior Secured Revolving Facility (“ABL Line of Credit”) was entered
into on April 13, 2006 and 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 month period ended August 30, 2008 was $285.0 million. Average borrowings
during the three month period ended August 30, 2008 amounted to $230.8 million
at an average interest rate of 4.14%. At August 30, 2008 and May 31, 2008,
$285.0 million and $181.6 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. For the
three months ended August 30, 2008, the Company borrowed $103.4 million, net of
repayments.
Holdings
and certain subsidiaries of BCFWC fully and unconditionally guarantee BCFWC’s
obligations under the $800 million ABL Line of Credit and the $900 million Term
Loan. These guarantees are both joint and several.
As of
August 30, 2008, the Company was in compliance with all of its debt
covenants. The
agreements regarding the ABL Line of Credit and Term Loan, as well as the
indentures governing the BCFWC Senior Notes and Holdings Senior Discount Notes,
contain covenants that, among other things, limit the Company’s ability, and the
ability of the Company’s restricted subsidiaries, to pay dividends on, redeem or
repurchase capital stock; make investments; incur additional indebtedness or
issue preferred stock; create liens; permit dividends or other restricted
payments by the Company’s subsidiaries; sell all or substantially all of the
Company’s assets or consolidate or merge with or into other companies; and
engage in transactions with affiliates.
The
Company had $42.7 million and $45.3 million in deferred financing fees, net of
accumulated amortization, as of August 30, 2008 and May 31, 2008, respectively,
related to its debt instruments recorded in the line item “Other Assets” on the
Company’s Condensed Consolidated Balance Sheets. Amortization of
deferred financing fees amounted to $2.6 million for both the three month
periods ended August 30, 2008 and September 1, 2007. These amounts
are recorded in the line item “Amortization” in the Company’s Condensed
Consolidated Statements of Operations.
3. Goodwill
The
Company accounts for goodwill in accordance with Statement on Financial
Accounting Standard ("SFAS") No. 142, "Goodwill
and Other Intangible Assets." Goodwill amounted to $45.6 million
and $42.8 million as of August 30, 2008 and May 31, 2008,
respectively. A
reconciliation of goodwill as reflected in the consolidated balance sheets as of
August 30, 2008 and as of May 31, 2008 is set forth in the table
below:
|
|
(in thousands
)
|
|
|
|
|
|
Goodwill
as of May 31, 2008
|
|
$ |
42,775 |
|
|
|
|
|
|
Increase
in net deferred tax liabilities (a)
|
|
|
2,838 |
|
|
|
|
|
|
Goodwill
as of August 30, 2008
|
|
$ |
45,613 |
|
|
|
|
|
|
(a) The
change in deferred income taxes recorded during the three month period
ended August 30, 2008 reflects a change in the Company’s estimate
of the effective state tax rate used to calculate deferred
taxes in accordance with FASB Emerging Issues Task Force Issue 93-7,
“Uncertainties Related to Income Taxes in a Purchase
Combination.” This adjustment has increased goodwill related to the
Merger Transaction.
|
|
4.
Assets Held for Disposal
Assets
held for disposal represent 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” in the
Company’s Condensed Consolidated Balance Sheets are comprised of leasehold
improvements and a favorable lease related to one of the Company’s
stores.
Assets
held for disposal are valued at the lower of their carrying value or fair value
as follows:
|
|
(in
thousands)
|
August
30, 2008
|
|
|
May
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Fair
Value Measurements
In
September 2006, the Financial Accounting Standards Board (“FASB”)
issued SFAS No. 157, “Fair Value Measurement,”
(“SFAS No. 157”) which defines fair value, establishes a framework for
measurement and expands disclosure about fair value measurements. Where
applicable, SFAS No. 157 simplifies and codifies related guidance within
GAAP. In February 2008, the FASB issued FSP SFAS No. 157-2, “Effective Date for FASB Statement
No. 157” which extended the application of SFAS No. 157 for all
non-recurring fair value measurements of non-financial assets and non-financial
liabilities until fiscal years beginning after November 15, 2008. The
Company elected to apply the FSP SFAS No. 157 deferral of SFAS No. 157 to its
non-financial assets and non-financial liabilities that are valued on a
non-recurring basis. The Company is in the process of evaluating the
impact of SFAS No. 157 for non-financial assets and non-financial liabilities on
its Condensed Consolidated Financial Statements. The adoption of
SFAS No. 157 for financial assets and financial liabilities did not have a
material impact on the Company’s Condensed Consolidated Financial
Statements.
SFAS No.
157 defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date (exit price). SFAS No. 157 classifies the
inputs used to measure fair value into the following
hierarchy:
Level 1:
|
Quoted
prices for identical assets or liabilities in active
markets.
|
Level 2:
|
Quoted
market prices for similar assets or liabilities in active markets; quoted
prices for identical or similar assets or liabilities in markets that are
not active;
and
model-derived valuations whose inputs are observable or whose significant
value drivers are observable.
|
Level 3:
|
Pricing
inputs are unobservable for the assets and liabilities and include
situations where there is little, if any, market activity for the assets
and liabilities.
The
inputs into the determination of fair value require significant management
judgment or estimation.
|
The
Company’s financial assets as of August 30, 2008 include cash equivalents and
interest rate cap agreements. The Company does not have any financial
liabilities as of August 30, 2008. The carrying value of cash
equivalents approximates fair value due to its short-term nature. The fair
value of the interest rate caps are determined using quotes provided by the
respective bank counterparties that are based on models whose inputs are
observable LIBOR forward interest rate curves. To comply with the
provisions of SFAS No. 157, the Company incorporates credit
valuation adjustments to appropriately reflect both the
Company's non-performance risk and the respective counterparty’s
non-performance risk in the fair value measurements. In adjusting the fair value
of the Company's derivative contracts for the effect of
non-performance risk, the Company has considered the impact of netting and
any applicable credit enhancements, such as collateral postings, thresholds,
mutual puts, and guarantees.
Although the
Company has determined that the majority of the inputs used to
value its derivatives fall within Level 2 of the fair value hierarchy, the
credit valuation adjustments associated with the Company's derivatives
utilize Level 3 inputs, such as estimates of current credit spreads to evaluate
the likelihood of default. As of August 30, 2008, the Company has
assessed the significance of the impact of the credit valuation adjustments on
the overall valuation of its derivative positions and has determined that
the credit valuation adjustments are not significant to the overall valuation
of the Company's derivatives. As a result, the Company has
determined that its derivative valuations in their entirety are classified
as a Level 2 within the fair value hierarchy.
The fair
values of the Company’s financial assets and the hierarchy of the level of
inputs are summarized below:
|
|
(in
thousands)
|
|
Fair
Value
Measurements
at August 30, 2008
|
|
Assets:
|
|
|
|
|
Level
1
|
|
|
|
|
Cash equivalents (including restricted cash)
|
|
$
|
2,776
|
|
|
|
|
|
|
Level
2
|
|
|
|
|
Interest rate cap agreements (a)
|
|
$
|
643
|
|
Cash
equivalents
|
|
|
58,994
|
|
(a)
|
Included
in “Other Assets” and “Prepaids and Other Current Assets” within the
Company’s Condensed Consolidated Balance Sheets (Refer to Footnote 6 of
the Company’s Condensed Consolidated Financial Statements, entitled
“Derivative Instruments and Hedging Activities” for further discussion
regarding the Company's interest rate cap
agreements).
|
As of
August 30, 2008, cash equivalents of $59.0 million were invested in The
Reserve Primary Fund ("Fund"), a series of a money market funds registered with
the Securities and Exchange Commission as an investment company under the
Investment Company Act of 1940. The Company redeemed the amount held at
August 30, 2008 in September of 2008. During September of 2008, the
Company made additional investments into the fund of $56.3 million. On
September 22, 2008, the Fund announced that redemptions of shares of the Fund
were suspended pursuant to an SEC order so that an orderly liquidation may be
effected for the protection of the Fund’s investors. On September
29, 2008, the Fund announced a partial distribution (32% of the Fund assets) in
cash to all investors pro rata in proportion to the number of shares each
investor held as of the close of business on September 15, 2008. Based on
the available facts as of the date of this report, the
Company believes this represents approximately an $18 million distribution
to the Company. The distribution is expected to occur on or about October
14, 2008. Based on the decline in the value of the Fund in September of
2008, the Company estimates that it will need to record a loss of up to $0.7
million in the second quarter of Fiscal 2009. The Company has
not received any information as to when the remaining amount of its
investments will be returned. However, based upon the maturities of the
underlying investments in the Fund, the Company expects to receive the remaining
amount of the investment during Fiscal 2009. In the event that a
substantial amount of the Company's investment is not
returned within this timeframe, the Company may have to borrow
additional cash through its ABL Line of Credit. The investment
in the Fund will be redesignated out of the line item “Cash and Cash
Equivalents” into a line item entitled “Investment in Money Market Fund” in the
Company’s Condensed Consolidated Balance Sheets in the Company’s Fiscal 2009
second quarter financial statements.
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”). SFAS No. 159
permits entities to choose to measure eligible items (including many financial
instruments and certain other items) at fair value at the specified election
date. Unrealized gains and losses for which the fair value option has been
elected will be reported in earnings at each subsequent reporting
date. The Company adopted this statement on June 1, 2008. The
Company has not elected to measure any financial assets or financial liabilities
at fair value which were not previously required to be measured at fair
value. Therefore, the adoption of SFAS No. 159 had no impact on the
Company’s Condensed Consolidated Financial Statements.
6. Derivative
Instruments and Hedging Activities
The
Company participates in two interest rate cap agreements to manage interest rate
risk associated with its long-term debt obligations. These agreements
are recorded in the line items “Other Assets” and “Prepaids and Other Current
Assets” within the Company’s Condensed Consolidated Balance Sheets. Each
agreement became effective on May 12, 2006. One interest rate cap
agreement has a notional principal amount of $300 million with a cap rate of
7.0% and terminates on May 31, 2011. The other agreement has a
notional principal amount of $700 million with a cap rate of 7.0% and terminates
on May 29, 2009. The Company does not monitor these interest rate cap
agreements for hedge effectiveness.
On
December 20, 2007, the Company entered into an interest rate cap agreement to
limit interest rate risk associated with its future long-term debt
obligations. The agreement has a notional principal amount of $600
million with a cap rate of 7.0% and terminates on May 31, 2011. The
agreement has been recorded in the line item “Other Assets” within the Company’s
Condensed Consolidated Balance Sheets. The agreement will be
effective on May 29, 2009 upon the termination of the Company’s existing $700
million interest rate cap agreement. The Company will determine prior
to the effective date whether it will monitor this interest rate cap agreement
for hedge effectiveness. Until the Company determines the accounting treatment
that will be used, the Company will adjust the interest rate cap to fair value
on a quarterly basis and as a result, gains or losses associated with this
agreement will be included in the line item “Interest Expense” on the Company’s
Condensed Consolidated Statements of Operations.
Gains/(Losses)
associated with the above interest rate cap agreements amounted to ($0.2)
million and $0.1 million for the three month periods ended August 30, 2008 and
September 1, 2007, 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 cap agreements at August 30, 2008 and May
31, 2008 amounted to $0.6 million and $0.8 million, respectively, and are
included in the line items “Other Assets” and “Prepaids and Other Current
Assets” in the Company’s Condensed Consolidated Balance
Sheets.
7. Store Exit
Costs
The
Company establishes reserves covering future obligations of closed stores and
stores expected to be closed, including lease and severance
obligations. These reserves are included in the line item “Other
Current Liabilities” in the Company’s Condensed Consolidated Balance
Sheets. These charges are recorded in the line item “Selling and
Administrative Expenses” on the Company’s Condensed Consolidated Statements of
Operations. Reserves at August 30, 2008 and May 31, 2008 consisted
of:
Fiscal
Year Reserve Established
|
|
(in
thousands)
|
|
Balance
at
May
31, 2008
|
|
|
Provisions
|
|
|
Payments
|
|
|
Balance
at
August
30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 over the remainder of the contractual obligation
periods are all expected to be paid during Fiscal 2009.
8.
Income Taxes
As of
August 30, 2008, the Company had a current deferred tax asset of $53.0 million
and a non-current deferred tax liability of $460.3 million. As of May
31, 2008, the Company had a current deferred tax asset of $51.4 million and a
non-current deferred tax liability of $464.6 million. Current deferred tax
assets consisted primarily of certain operating costs and inventory related
costs not currently deductible for tax purposes. Non-current deferred
tax liabilities primarily relate to rent expense, pre-opening costs, intangible
costs and depreciation expense where the Company has a future obligation for tax
purposes.
As of
August 30, 2008 and May 31, 2008, valuation allowances amounted to $4.8 million
and related primarily to state tax net operating losses. The Company believes
that it is more likely than not that a portion of the benefit of the state
tax net operating losses will not be realized. The state net
operating losses have been generated in a number of taxing jurisdictions and are
subject to various expiration periods ranging from five to twenty years
beginning with Fiscal 2008. Any future tax benefit recognized
by the use of a state tax net operating loss that was established prior to the
April 13, 2006 merger transaction involving Bain Capital, LLC (the “Merger
Transaction”), where a valuation allowance has been established, will be
recorded first to reduce to zero the goodwill related to the Merger Transaction,
second to reduce to zero other non-current intangible assets and third to reduce
income tax expense.
As of August 30, 2008, the
Company reported total unrecognized tax benefits of $37.2 million, of which $8.6
million would affect the Company’s effective tax rate if
recognized. As of May 31, 2008, the Company reported total
unrecognized tax benefits of $38.0 million, of which $8.3 million would affect
the Company’s effective tax rate if recognized. The Company reported
total unrecognized tax benefits of $44.8 million as of June 3, 2007, the date of
adoption. Due to the potential for resolution of federal and state
examinations, and the expiration of various statutes of limitations, it is
reasonably possible that the Company’s gross unrecognized tax benefit balance
may decrease within the next twelve months by as much as $12.2 million,
related
primarily to issues involving deferred revenue and depreciation.
As a result of positions taken during a
prior period, the Company recorded $0.8 million and $1.0 million of
interest for the three month periods ended August 30, 2008 and September 1,
2007, respectively. The Company recorded no additional penalties for
the three months ended August 30, 2008 or for the three months ended September
1, 2007. As of August 30, 2008, cumulative interest and penalties of
$17.4 million have been recorded on the Company’s Condensed Consolidated Balance
Sheet. The Company recognizes interest and penalties related to
unrecognized tax benefits as part of income taxes.
The
Company files tax returns in the U.S. federal jurisdiction and various state
jurisdictions. The Company is open to audit under the statute of
limitations by the Internal Revenue Service for fiscal years 2004 through 2007
and is currently under IRS examination for fiscal years 2004 and
2005. The Company or its subsidiaries’ state income tax returns are
open to audit under the statute of limitations for the fiscal years 2003 through
2007. Refer to Footnote 18 entitled “Income Taxes” in the Company’s
Fiscal 2008 Form 10-K for further information regarding the Company’s tax
positions.
9.
Barter Transactions
The
Company accounts for barter transactions under SFAS No. 153, “Exchanges of Nonmonetary Assets, an
amendment of APB Opinion Number 29” (“SFAS No. 153”) and Emerging Issues Task
Force 93-11 (“EITF 93-11”), “Accounting for Barter Transactions
Involving Barter Credits.” 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 Company’s first quarter of Fiscal 2008, the Company exchanged
$5.2 million of inventory for certain advertising credits. The
advertising credits received are to be used over the next three to five
years.
As of
August 30, 2008, the Company recorded prepaid advertising of $2.0 million in the
line item “Prepaid and Other Current Assets” and $1.3 million in the line item
“Other Assets” in the Company’s Condensed Consolidated Balance
Sheets. As of May 31, 2008, the Company recorded $1.7 million in the
line item “Prepaid and Other Current Assets” and $1.9 million in the line item
“Other Assets” in the Company’s Condensed Consolidated Balance
Sheets.
For the
three months ended August 30, 2008 and September 1, 2007, the Company utilized
$0.3 million and $0.1 million, respectively, of the barter advertising
credits.
10. 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’s common stock. There are 511,122 units reserved under the
Plan consisting of 4,600,098 shares of Class A common stock of Parent and
511,122 shares of Class L common stock of Parent.
Options
granted during the three month period ended August 30, 2008 are all
service-based awards which 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 vest 40% on the second anniversary of the award with the remaining amount
vesting ratably over the subsequent three years. The final exercise date for any
option granted is the tenth anniversary of the grant date.
All
options become exercisable upon a change of control, as defined by the Plan.
Unless determined otherwise by the plan administrator, upon cessation of
employment; (1) options that have not vested will terminate immediately; (2)
units previously issued upon the exercise of vested options will be callable at
the Company’s option; and (3) unexercised vested options will be exercisable for
a period of 60 days.
As of
August 30, 2008, the Company had 424,500 options outstanding to purchase units.
All options granted to date are service-based awards. On June 4, 2006, the
Company 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 August 30, 2008, the Company
recognized non-cash stock compensation expense of $1.3 million ($0.8 million
after tax). There was no forfeiture adjustment required during the
three months ended August 30, 2008. In comparison, for the
three months ended September 1, 2007, the Company recorded $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. Non-cash stock compensation expense for all periods is included
in the line item “Selling and Administrative Expense” on the Company’s Condensed
Consolidated Statements of Operations. The application of SFAS 123R had no
impact on the Company’s Condensed Consolidated Statements of Cash Flows. At
August 30, 2008, there was approximately $11.6 million of unearned non-cash
stock-based compensation that the Company expects to recognize as expense over
the next 4.9 years. The service-based awards are expensed on a straight-line
basis over the requisite service period of five years. At
August 30, 2008, 23% of outstanding options to purchase units have
vested.
Stock
option unit transactions are summarized as follows:
|
|
Number
of
Units
|
|
|
Weighted
Average
Exercise
Price
Per Unit
|
|
Options
Outstanding May 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding August 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table summarizes information about the stock options outstanding under
the Plan as of August 30, 2008:
Option
Units Outstanding
|
|
Option
Units Exercisable
|
|
|
Range
of
Exercise
Prices
|
|
|
Number
Outstanding
at
August 30, 2008
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
at
August 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 the Plan in Fiscal 2008 and Fiscal
2009:
|
|
Three
Months Ended
August
30, 2008
|
|
|
Three Months
Ended
September
1, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of option units granted
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
11.
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 using an appropriate discount
rate.
There
were no impairment charges recorded during the three month period ended August
30, 2008. For the three month period ended September 1, 2007, the
Company recorded $0.6 million of impairment primarily related to idle warehouse
equipment. These charges are recorded in the line item
“Impairment Charges” in the Company’s Condensed Consolidated Statements of
Operations.
12. Comprehensive
Loss
The
Company accounts for comprehensive loss in accordance with SFAS No. 130, “Reporting Comprehensive
Income.” For the three month period ended August 30, 2008 and
the three month period ended September 1, 2007, comprehensive loss consisted of
net loss.
13.
Other Revenue
Other
revenue consists of rental income received from leased departments, subleased
rental income, layaway, alteration, dormancy and other service charges, and
other miscellaneous items. Layaway, alteration, dormancy and other
service fees (“Service Fees”) amounted to $1.8 million and $2.3 million,
respectively, for the three month periods ended August 30, 2008 and September 1,
2007. The decrease in Service Fees is related to the Company’s
decision to cease charging dormancy service fees on outstanding balances of
store value cards (Refer to Footnote 14 of the Company’s Condensed Consolidated
Financial Statements for further discussion regarding store value
cards). Dormancy service fees contributed income of $0.6 million for
the three month period ended September 1, 2007.
Rental
income from leased departments amounted to $1.6 million for both of the three
month periods ended August 30, 2008 and September 1, 2007. Subleased
rental income and other miscellaneous revenue items amounted to $3.0 million and
$2.9 million for the three month periods ended August 30, 2008 and September 1,
2007, respectively.
14. Store
Value Cards
Store
value cards include gift cards and store credits issued from merchandise
returns. Store value cards are recorded as a current liability upon
the initial sale, and revenue is recognized when the store value card is
redeemed for merchandise. Store value cards issued by the Company do
not have an expiration date and are not redeemable for
cash. Beginning in September of 2006 through December 29, 2007, if a
store value card remained inactive for greater than thirteen months, the
Company assessed the recipient a monthly dormancy service fee, where allowed by
law, which was automatically deducted from the remaining value of the
card. Dormancy service fee income was recorded as part of the
line item “Other Revenue” in the Company’s Condensed Consolidated Statements of
Operations.
Early in
Fiscal 2008, the Company determined it had accumulated adequate historical data
to determine a reliable estimate of the amount of gift cards that would not be
redeemed. The Company formed a corporation in Virginia (BCF Cards,
Inc.) to issue the Company’s store value cards commencing December 29, 2007
and upon the formation of BCF Cards, Inc., the Company discontinued assessing a
dormancy service fee on inactive store value cards. Instead,
the Company estimates and recognizes store value card breakage income in
proportion to actual store value card redemptions and records such income in the
line item “Other Income, Net” in the Company’s Condensed Consolidated Statements
of Operations. The Company now determines an estimated store value card breakage
rate by continuously evaluating historical redemption
data. Breakage income is recognized in proportion to the
historical redemption patterns for those store value cards for which the
likelihood of redemption is remote. For the three months ended August
30, 2008, the Company recorded $0.8 million of store value card breakage
income.
15. 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 identified operating segments at
the store level. However, due to the similar economic characteristics of the
stores, the Company has aggregated the stores into one reporting segment
operating within the United States.
16. Acquisition
of Value City Leases
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 (“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”) and 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 Value
City Entities and Burlington have undertaken good faith efforts 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 various dates, 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 and is included in the line item “Prepaid and Other Current Assets” on
the Company’s Condensed Consolidated Balance Sheets. 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.
As of
August 30, 2008, the Company was still in negotiation with landlords related to
five of the original 24 leases and three of the original 24 leases have been
removed from the transaction. Included in the sixteen leases
that have been finalized, the Company made arrangements to transfer seven of the
locations to the landlords thereof and entered into leases for such locations
with such landlords, thus reducing the aggregate purchase price of the entire
transaction from $16.0 million to $7.0 million.
17. Commitments
and Contingencies
The
Company is party to various litigation matters arising in the ordinary course of
business. The ultimate legal and financial liability of the Company with respect
to such litigation cannot be estimated with certainty, but management believes,
based on its examination of these matters, experience to date and discussions
with counsel, that the ultimate liability from the Company’s various litigation
matters will not be material to the business, financial condition, results of
operations or cash flows of the Company.
The
Company enters into lease agreements during the ordinary course of business in
order to secure favorable store locations. As of August 30, 2008, the
Company committed to 23 new lease agreements (inclusive of two relocations)
for locations at which stores are expected to be opened in Fiscal
2009. The 21 new stores are expected to have minimum lease payments
of $6.8 million, $14.6 million, $14.7 million, $14.7 million, and $102.2 million
for the remainder of Fiscal 2009, and the fiscal years ended May 29, 2010, May
28, 2011, June 2, 2012 and thereafter, respectively.
18.
Recent Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 141, “Business Combinations (revised
2007)” (“SFAS No. 141R”). SFAS No.
141R applies to any transaction or other event that meets the definition of a
business combination. Where applicable, SFAS No. 141R establishes
principles and requirements for how the acquirer recognizes and measures
identifiable assets acquired, liabilities assumed, noncontrolling interest in
the acquiree and goodwill or gain from a bargain purchase. In
addition, SFAS No. 141R determines what information to disclose to enable users
of the financial statements to evaluate the nature and financial effects of the
business combination. SFAS No. 141R also applies to prospective
changes in acquired tax assets and liabilities recognized as part of the
Company’s previous acquisitions, by requiring such changes to be recorded as a
component of the income tax provision. This statement is to be applied
prospectively for fiscal years beginning after December 15, 2008. The
Company expects SFAS No. 141R will have an impact on accounting for future
business combinations, once adopted, and on prospective changes, if any, of
previously acquired tax assets and liabilities.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS No.
160”). SFAS No. 160 amends ARB No. 51 to establish accounting
and reporting standards for the noncontrolling interest in a subsidiary and for
the deconsolidation of a subsidiary. It also amends certain of ARB
No. 51’s consolidation procedures for consistency with the requirements of SFAS
No. 141R. This statement is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15,
2008. The statement shall be applied prospectively as of the
beginning of the fiscal year in which the statement is initially
adopted. The Company is in the process of evaluating the impact of
SFAS No. 160 on its Condensed Consolidated Financial Statements.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133”
(“SFAS No. 161”). SFAS No. 161 amends and expands the
disclosure requirements of SFAS No. 133 with the intent to provide users of
financial statements with an enhanced understanding of: (i) How and why an
entity uses derivative instruments; (ii) How derivative instruments and related
hedged items are accounted for under SFAS No. 133 and its related
interpretations; and (iii) How derivative instruments and related hedged items
affect an entity’s financial position, financial performance and cash
flows. This statement is effective for financial statements
issued for fiscal years and interim periods beginning after November 15,
2008, with early application encouraged. The Company is in the
process of evaluating the impact of SFAS No. 161 on its Condensed Consolidated
Financial Statements.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS No. 162”). This
statement identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with
GAAP. This statement shall be effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, “The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting
Principles.” The Company is in the process of evaluating the
impact of SFAS No. 162 on its Condensed Consolidated Financial
Statements.
19.
Condensed Guarantor Data
On April
13, 2006, BCFWC issued $305 million aggregate principal amount of 11 .13% 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. These guarantees are both joint and several. The
following condensed consolidating financial statements present the financial
position, results of operations and cash flows of Holdings, BCFWC, 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 in the ordinary course of
business, or the amount of any indemnification claims made by any director or
officer of Holdings or the Company, 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
|
|
(All
amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of August 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
Holdings
|
|
|
BCFW
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$ |
- |
|
|
$ |
13,413 |
|
|
$ |
86,017 |
|
|
$ |
- |
|
|
$ |
99,430 |
|
Restricted
Cash and Cash Equivalents
|
|
|
- |
|
|
|
- |
|
|
|
2,693 |
|
|
|
- |
|
|
|
2,693 |
|
Accounts
Receivable
|
|
|
- |
|
|
|
21,837 |
|
|
|
7,673 |
|
|
|
- |
|
|
|
29,510 |
|
Merchandise
Inventories
|
|
|
- |
|
|
|
776 |
|
|
|
824,733 |
|
|
|
- |
|
|
|
825,509 |
|
Deferred
Tax Asset
|
|
|
- |
|
|
|
14,023 |
|
|
|
39,019 |
|
|
|
- |
|
|
|
53,042 |
|
Prepaid
and Other Current Assets
|
|
|
- |
|
|
|
9,264 |
|
|
|
16,904 |
|
|
|
- |
|
|
|
26,168 |
|
Prepaid
Income Tax
|
|
|
- |
|
|
|
21,353 |
|
|
|
1,278 |
|
|
|
- |
|
|
|
22,631 |
|
Assets
Held for Sale
|
|
|
- |
|
|
|
- |
|
|
|
2,816 |
|
|
|
- |
|
|
|
2,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
- |
|
|
|
80,666 |
|
|
|
981,133 |
|
|
|
- |
|
|
|
1,061,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment - Net of Accumulated Depreciation
|
|
|
- |
|
|
|
61,091 |
|
|
|
867,963 |
|
|
|
- |
|
|
|
929,054 |
|
Tradename
|
|
|
- |
|
|
|
526,300 |
|
|
|
- |
|
|
|
|
|
|
|
526,300 |
|
Favorable
Leases, Net of Accumulation Amortization
|
|
|
- |
|
|
|
- |
|
|
|
525,852 |
|
|
|
|
|
|
|
525,852 |
|
Goodwill
|
|
|
- |
|
|
|
45,613 |
|
|
|
- |
|
|
|
|
|
|
|
45,613 |
|
Other
Assets
|
|
|
292,311 |
|
|
|
1,818,922 |
|
|
|
29,515 |
|
|
|
(2,066,224 |
) |
|
|
74,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
292,311 |
|
|
$ |
2,532,592 |
|
|
$ |
2,404,463 |
|
|
$ |
(2,066,224 |
) |
|
$ |
3,163,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$ |
- |
|
|
$ |
451,043 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
451,043 |
|
Income
Taxes Payable
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
Current Liabilities
|
|
|
- |
|
|
|
92,177 |
|
|
|
158,974 |
|
|
|
- |
|
|
|
251,151 |
|
Current
Maturities of Long Term Debt
|
|
|
- |
|
|
|
4,307 |
|
|
|
1,605 |
|
|
|
- |
|
|
|
5,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
- |
|
|
|
547,527 |
|
|
|
160,579 |
|
|
|
- |
|
|
|
708,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long
Term Debt
|
|
|
- |
|
|
|
1,453,852 |
|
|
|
127,518 |
|
|
|
- |
|
|
|
1,581,370 |
|
Other
Liabilities
|
|
|
- |
|
|
|
18,493 |
|
|
|
112,574 |
|
|
|
(10,000 |
) |
|
|
121,067 |
|
Deferred
Tax Liability
|
|
|
- |
|
|
|
220,409 |
|
|
|
239,879 |
|
|
|
- |
|
|
|
460,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Capital
in Excess of Par Value
|
|
|
458,626 |
|
|
|
458,626 |
|
|
|
1,461,901 |
|
|
|
(1,920,527 |
) |
|
|
458,626 |
|
(Accumulated
Deficit)/ Retained Earnings
|
|
|
(166,315 |
) |
|
|
(166,315 |
) |
|
|
302,012 |
|
|
|
(135,697 |
) |
|
|
(166,315 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders'
Equity
|
|
|
292,311 |
|
|
|
292,311 |
|
|
|
1,763,913 |
|
|
|
(2,056,224 |
) |
|
|
292,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$ |
292,311 |
|
|
$ |
2,532,592 |
|
|
$ |
2,404,463 |
|
|
$ |
(2,066,224 |
) |
|
$ |
3,163,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burlington
Coat Factory Investments Holdings, Inc. and Subsidiaries
Condensed
Consolidating Balance Sheets
(All
amounts in thousands)
|
|
As
of May 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
BCFW
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
and Other Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment, Net of Accumulated Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable
Leases, Net of Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Maturities of Long Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
in Excess of Par Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Accumulated
Deficit)/ Retained Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burlington
Coat Factory Investments Holdings, Inc. and
Subsidiaries
|
|
Condensed
Consolidating Statement of Operations
|
|
(All
amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended August 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
BCFW
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$ |
- |
|
|
$ |
1,422 |
|
|
$ |
705,614 |
|
|
$ |
- |
|
|
$ |
707,036 |
|
Other
Revenue
|
|
|
- |
|
|
|
100 |
|
|
|
6,289 |
|
|
|
- |
|
|
|
6,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
|
- |
|
|
|
1,522 |
|
|
|
711,903 |
|
|
|
- |
|
|
|
713,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales
|
|
|
- |
|
|
|
884 |
|
|
|
438,343 |
|
|
|
- |
|
|
|
439,227 |
|
Selling
and Administrative Expenses
|
|
|
- |
|
|
|
36,766 |
|
|
|
228,946 |
|
|
|
- |
|
|
|
265,712 |
|
Depreciation
|
|
|
- |
|
|
|
6,500 |
|
|
|
23,879 |
|
|
|
- |
|
|
|
30,379 |
|
Amortization
|
|
|
- |
|
|
|
2,457 |
|
|
|
8,225 |
|
|
|
- |
|
|
|
10,682 |
|
Impairment
Charges
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
Interest
Expense
|
|
|
- |
|
|
|
22,196 |
|
|
|
4,178 |
|
|
|
- |
|
|
|
26,374 |
|
Other
Income, Net
|
|
|
- |
|
|
|
(349 |
) |
|
|
(2,193 |
) |
|
|
- |
|
|
|
(2,542 |
) |
Loss
(Earnings) from Equity Investment
|
|
|
32,468 |
|
|
|
(7,392 |
) |
|
|
- |
|
|
|
(25,076 |
) |
|
|
- |
|
|
|
|
32,468 |
|
|
|
61,062 |
|
|
|
701,378 |
|
|
|
(25,076 |
) |
|
|
769,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income Before (Benefit)
Provision for Income Taxes
|
|
|
(32,468 |
) |
|
|
(59,540 |
) |
|
|
10,525 |
|
|
|
25,076 |
|
|
|
(56,407 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit)
Provision for Income Taxes
|
|
|
- |
|
|
|
(27,072 |
) |
|
|
3,133 |
|
|
|
- |
|
|
|
(23,939 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income
|
|
$ |
(32,468 |
) |
|
$ |
(32,468 |
) |
|
$ |
7,392 |
|
|
$ |
25,076 |
|
|
$ |
(32,468 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burlington
Coat Factory Investments Holdings, Inc. and Subsidiaries
|
|
Condensed
Consolidating Statement of Operations
(All
amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended September 1, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
BCFW
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$ |
— |
|
|
$ |
757 |
|
|
$ |
678,012 |
|
|
$ |
— |
|
|
$ |
678,769 |
|
Other
Revenue
|
|
|
— |
|
|
|
642 |
|
|
|
6,136 |
|
|
|
— |
|
|
|
6,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
|
— |
|
|
|
1,399 |
|
|
|
684,148 |
|
|
|
— |
|
|
|
685,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales
|
|
|
— |
|
|
|
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 |
) |
Loss
(Earnings) From Equity Investment
|
|
|
50,395 |
|
|
|
9,657 |
|
|
|
— |
|
|
|
(60,052 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,395 |
|
|
|
79,505 |
|
|
|
699,448 |
|
|
|
(60,052 |
) |
|
|
769,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
Income Before (Benefit) Provision for Income Taxes
|
|
|
(50,395 |
) |
|
|
(78,106 |
) |
|
|
(15,300 |
) |
|
|
60,052 |
|
|
|
(83,749 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit)
for Income Taxes
|
|
|
— |
|
|
|
(27,711 |
) |
|
|
(5,643 |
) |
|
|
— |
|
|
|
(33,354 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income
|
|
$ |
(50,395 |
) |
|
$ |
(50,395 |
) |
|
$ |
(9,657 |
) |
|
$ |
60,052 |
|
|
$ |
(50,395 |
) |
Burlington
Coat Factory Investments Holdings, Inc. and Subsidiaries
|
|
Condensed
Consolidating Statements of Cash Flows
|
|
(All
amounts in thousands)
|
|
|
|
|
|
For the Three Months Ended August 30,
2008
|
|
|
|
Holdings
|
|
|
BCFW
|
|
|
Guarantors
|
|
|
Elimination
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash (Used In) Provided by Operating Activities
|
|
$ |
- |
|
|
$ |
(86,576 |
) |
|
$ |
86,609 |
|
|
$ |
- |
|
|
$ |
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Paid For Property and Equipment
|
|
|
- |
|
|
|
(7,595 |
) |
|
|
(36,205 |
) |
|
|
- |
|
|
|
(43,800 |
) |
Investing
Activity-Other
|
|
|
- |
|
|
|
70 |
|
|
|
(225 |
) |
|
|
- |
|
|
|
(155 |
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Used in Investing Activities
|
|
|
- |
|
|
|
(7,525 |
) |
|
|
(36,430 |
) |
|
|
- |
|
|
|
(43,955 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from Long Term Debt - ABL Line of Credit
|
|
|
- |
|
|
|
283,551 |
|
|
|
- |
|
|
|
- |
|
|
|
283,551 |
|
Principal
Payments on Long Term Debt
|
|
|
- |
|
|
|
- |
|
|
|
(149 |
) |
|
|
- |
|
|
|
(149 |
) |
Principal
Payments on Long Term Debt - ABL Line of Credit
|
|
|
- |
|
|
|
(180,151 |
) |
|
|
- |
|
|
|
- |
|
|
|
(180,151 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided By (Used In) Financing Activities
|
|
|
- |
|
|
|
103,400 |
|
|
|
(149 |
) |
|
|
- |
|
|
|
103,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in Cash and Cash Equivalents
|
|
|
- |
|
|
|
9,299 |
|
|
|
50,030 |
|
|
|
- |
|
|
|
59,329 |
|
Cash
and Cash Equivalents at Beginning of Period
|
|
|
- |
|
|
|
4,114 |
|
|
|
35,987 |
|
|
|
- |
|
|
|
40,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents at End of Period
|
|
$ |
- |
|
|
$ |
13,413 |
|
|
$ |
86,017 |
|
|
$ |
- |
|
|
$ |
99,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burlington
Coat Factory Investments Holdings, Inc. and Subsidiaries
|
|
Condensed
Consolidating Statement of Cash Flows
(All
amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended September 1, 2007
|
|
|
|
Holdings
|
|
|
BCFW
|
|
|
Guarantors
|
|
|
Elimination
|
|
|
Consolidated
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash (Used In) 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 Provided By (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
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
The
Company’s management intends for this discussion to provide the reader with
information that will assist in understanding the Company’s 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, which are reflected in the financial
statements of Burlington Coat Factory Investments Holdings, Inc. and its
subsidiaries (hereinafter “we” or “our” or “Holdings”). 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 our Annual Report on Form 10-K for the twelve month
period ended May 31, 2008 ("2008 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 of this Item 2
entitled “Safe Harbor Statement.”
Fiscal
Year
We define
the 2009 fiscal year (“Fiscal 2009”), the 2008 fiscal year (“Fiscal 2008”) and
the 2007 fiscal year (“Fiscal 2007”) as the twelve month period ended May 30,
2009, the twelve month period ended May 31, 2008 and the twelve month period
ending June 2, 2007, respectively.
Overview
We
experienced an increase in net sales for the three months ended August 30, 2008
compared with the three months ended September 1, 2007. Net sales
were $707.0 million for the three months ended August 30, 2008 and $678.8
million for the three months ended September 1, 2007, a 4.2%
increase. The increase is primarily the result of 33 new stores
opened between September 1, 2007 and August 30, 2008. Additionally,
these results reflect a 0.2% comparative store sales increase from the
comparative period of a year ago.
Our gross
margin as a percentage of sales increased to 37.9% from 34.6% during the three
month period ended August 30, 2008 compared with the three month period ended
September 1, 2007. The improvement in gross margin is primarily due
to two factors. First, there was a change in the timing of permanent
markdowns. During the three months ended September 1, 2007, we
recorded permanent markdowns on our inventory based on the needs of the business
at that time. Based on the performance of the business during
the fourth quarter of Fiscal 2008, we accelerated markdowns that were
historically recorded in the Company’s first fiscal quarter of the following
fiscal year into the fourth quarter of Fiscal 2008 in the amount of $16.9
million. Secondly, we had improved initial markups which are the
result of lower costs associated with better negotiating and buying
efforts.
We
recorded a net loss of $32.5 million for the three month period ended August 30,
2008 compared with a net loss of $50.4 million for the three month period ended
September 1, 2007. The improvement in our operating results during
the three months ended August 30, 2008 compared with the three months ended
September 1, 2007 is primarily attributable to increased net sales and decreased
cost of sales during the three months ended August 30, 2008 compared with the
three months ended September 1, 2007.
Current
Conditions
Store Openings, Closings, and
Relocations. During the three months ended August 30, 2008, we opened 20
new Burlington Coat Factory Warehouse Stores (“BCF” stores) and relocated
two BCF stores to locations within the same trading market. As of
August 30, 2008, we operated 417 stores under the names "Burlington Coat Factory
Warehouse" (399 stores), "Cohoes Fashions" (two stores), "MJM Designer Shoes"
(fifteen stores), and "Super Baby Depot" (one store). We have
committed to 23 new lease agreements (inclusive of two relocations) for stores
to be opened during the remainder of Fiscal 2009. In addition to the
planned new store openings and relocations, we are planning to remodel four of
our existing stores during the remainder of Fiscal 2009.
Ongoing
Initiatives. We continue to focus on a number of ongoing
initiatives aimed at improving our comparative store sales, and ultimately, our
operating results. These initiatives include, but are not limited
to:
·
|
Developing
and enhancing our strategies related to improving our merchandise flow and
improving our inventory allocation process to place trend right
merchandise in the right stores at the right
time
|
·
|
Implementation
of findings associated with the Network Design Study that was completed in
Fiscal 2008, including, but not limited to, a new warehouse management
system. We believe that the implementation of these findings
will enable us to reduce costs and improve service levels in both the
short term as well as over the long
term
|
·
|
Implementation
of a performance management program that is designed to drive productivity
improvements within our distribution
centers
|
·
|
Working
to derive insights into our customers' purchasing behavior from our
recently implemented customer relationship
database
|
·
|
Launching
of a new marketing campaign focused on re-connecting with our
customers
|
Key
Performance Measures
We
consider numerous factors in assessing our performance. Key performance measures
used by management include comparative store sales, earnings before interest,
taxes, depreciation, amortization and impairment (which we define as “EBITDA”),
gross margin, inventory levels, inventory turnover, liquidity and comparative
store payroll.
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. We define comparative store sales as sales of those
stores (net of sales discounts) that are beginning their four hundred and
twenty-fifth day of operation (approximately one year and two
months). Existing stores whose square footage has been changed by
more than 20% and relocated stores (except those relocated within the same
shopping center) are classified as new stores for comparative store sales
purposes. The method of calculating comparative store sales varies
across the retail industry. We experienced an increase in comparative
store sales of 0.2% during the three month period ended August 30,
2008.
Various
factors affect comparative store sales, including, but not limited to, weather
conditions, current economic conditions, the timing of our releases of new
merchandise and promotional events, the general retail sales environment,
consumer preferences and buying trends, changes in sales mix among distribution
channels, competition, and the success of marketing
programs.
EBITDA. EBITDA is
a non-GAAP financial measure of our performance. EBITDA provides
management with helpful information with respect to our
operations. It provides additional information with respect to our
ability to meet our future debt service, fund our capital expenditures and
working capital requirements and to comply with various covenants in each
indenture governing our outstanding notes, as well as various covenants related
to our senior secured credit facilities. Our EBITDA for the three
months ended August 30, 2008 was $11.0 million, a $19.5 million increase
compared with the three months ended September 1, 2007. The increase
in EBITDA is primarily the result of our improved operating results due to lower
cost of sales and increased net sales during the three month period ended August
30, 2008 compared with the three month period ended September 1,
2007.
The
following table shows our calculation of EBITDA for the three months ended
August 30, 2008 and September 1, 2007:
|
|
(in
thousands)
|
|
|
|
Three
Months Ended
|
|
|
|
August
30, 2008
|
|
|
September
1, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin. Gross
margin is a measure used by management to indicate whether we are selling
merchandise at an appropriate gross profit. Gross margin is the difference
between net sales and the cost of sales. For the three month periods ended
August 30, 2008 and September 1, 2007, the gross margin percentage increased to
37.9% from 34.6%. Refer to the discussion below regarding Cost of Sales for
further information related to the improvement in our gross margin.
Inventory
Levels. Inventory levels are monitored by management to assure
that our 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 August 30, 2008, inventory was
$825.5 million compared with $719.5 million at May 31, 2008. This increase is
due primarily to new store inventory.
Inventory Turnover. Inventory
turnover is a measure of the length of time we own our inventory and is used as
an indication of how efficiently inventory is bought and sold. This is
significant because usually the longer the inventory is owned, the more likely
markdowns would be necessary to sell the inventory. Inventory turnover is
calculated by dividing net sales before sales discounts by the average
retail inventory for the period being measured. The annualized inventory
turnover rate realized during the three months ended August 30, 2008 and
September 1, 2007 was 2.3 and 2.1, respectively.
Liquidity. Liquidity measures
our ability to generate cash. Management measures liquidity through cash flow
and working capital position. Cash flow is the measure of cash generated from
operating, financing, and investing activities. We experienced an increase in
cash flow of $40.7 million during the three month period ended August 30, 2008
compared with the three month period ended September 1, 2007 primarily due to
additional borrowings of our ABL Line of Credit, partially offset by increased
capital expenditures. Cash and cash equivalents increased $59.3
million to $99.4 million as of August 30, 2008. The increase in cash
and cash equivalents and ABL Line of Credit borrowings is primarily due to
management’s intent to have more liquidity on hand given the current credit
environment.
Changes
in working capital also impact our cash flows. Working capital equals current
assets (exclusive of restricted cash and cash equivalents) minus current
liabilities. Working capital at August 30, 2008 was $351.0 million compared with
$284.4 million at May 31, 2008. This increase in working capital is
the result of several factors. Increases in working capital resulted
from increases in the line items “Merchandise Inventories,” “Cash and Cash
Equivalents” and “Income Tax Receivable” in our Condensed Consolidated Balance
Sheets. These increases were partially offset by an increase in the
line item “Accounts Payable” in our Condensed Consolidated Balance
Sheets.
Comparative Store
Payroll. Comparative store payroll measures a store’s payroll
during the current reporting period against the payroll of the same store in the
corresponding period of the previous year. We define our comparative store
payroll as stores which were opened for an entire week both in the previous year
and the current year. Comparative store payroll decreased 5.0 % for
the three months ended August 30, 2008 compared to the three months ended
September 1, 2007 as a result of various process improvements and standard
operating procedures that have been implemented to improve the efficiencies of
our stores, specifically, the cash office, baby depot and receiving areas within
our stores.
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 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.
Our
critical accounting policies and estimates are consistent with those disclosed
in our 2008 10-K.
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 August 30, 2008 and September 1, 2007.
|
|
Percentage
of Net Sales
|
|
|
|
Three
Months Ended
|
|
|
|
August
30,
|
|
September
1,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
100
|
% |
|
|
100
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
0.9 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
62.1 |
|
|
|
65.4 |
|
|
|
|
|
|
|
|
|
|
Selling
and Administrative Expenses
|
|
|
37.6 |
|
|
|
37.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
4.3 |
|
|
|
4.5 |
|
Amortization
|
|
|
1.5 |
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
3.7 |
|
|
|
4.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
) |
|
|
(0.1
|
) |
|
|
|
|
|
|
|
|
|
Loss before
Income Tax Benefit
|
|
|
(8.0
|
) |
|
|
(12.3
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
(3.4
|
) |
|
|
(4.9
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
(4.6
|
%) |
|
|
(7.4
|
%) |
Three Month Period Ended
August 30,
2008 compared
with Three Month Period Ended September 1, 2007
Net
Sales
Consolidated
net sales increased $28.2 million to $707.0 million for the three month period
ended August 30, 2008 compared with the three month period ended September 1,
2007. Comparative store sales increased 0.2% for the three month
period ended August 30, 2008.
In
addition to the increase in comparative store sales, the sales of 20 new BCF
stores opened during the three months ended August 30, 2008 contributed $3.1
million to net sales. Stores opened in Fiscal 2008 contributed
incremental non-comparative net sales of $28.7 million for the three months
ended August 30, 2008. These increases are partially offset by $5.2
million of sales related to the barter transaction (as more fully described in
Footnote 9 to our Condensed Consolidated Financial Statements entitled “Barter
Transactions”) which took place during the three months ended September 1,
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 $6.4 million for the three month period ended August 30,
2008 compared with $6.8 million for the three month period ended September 1,
2007. This decrease is primarily related to our decision to cease charging
dormancy service fees on outstanding store value cards, which was recorded in
the line item “Other Revenue” in our Condensed Consolidated Statements of
Operations, and begin recording store value card breakage income in the line
item “Other Income” in our Condensed Consolidated Statements of
Operations.
During
the third quarter of Fiscal 2008, we ceased charging dormancy service fees on
outstanding balances of store value cards. These dormancy service
fees contributed an additional $0.6 million to the line item “Other Revenue” in
our Condensed Consolidated Statements of Operations for the three months ended
September 1, 2007 compared with the three months ended August 30,
2008. Instead, we began recognizing breakage income related to
outstanding store value cards and included this income in the line item “Other
Income, Net” in our Condensed Consolidated Statements of Operations (Refer to
Footnote 14 to our Condensed Consolidated Financial Statements entitled
“Store Value Cards” for further discussion).
Cost
of Sales
Cost of
sales decreased $4.5 million (1.0%) for the three month period ended August 30,
2008 compared with the three month period ended September 1, 2007. Cost of sales
as a percentage of net sales decreased to 62.1% for the three month period ended
August 30, 2008 from 65.4% for the three month period ended September 1, 2007.
The decrease in cost of sales, both in dollars and as a percent of net sales, is
related to a number of factors. First, there was a change in the
timing of permanent markdowns. During the three months ended
September 1, 2007, we recorded permanent markdowns on our inventory based on the
needs of the business at that time. During the fourth quarter
of Fiscal 2008, we accelerated markdowns that were historically recorded in the
Company’s first fiscal quarter of the following fiscal year into the fourth
quarter of Fiscal 2008 in the amount of $16.9 million. Secondly, we
had improved initial markups which are the result of lower costs associated with
better negotiating and buying efforts.
Selling
and Administrative Expenses
Selling
and Administrative Expenses increased $14.8 million (5.9%) for the three month
period ended August 30, 2008 compared with the three month period ended
September 1, 2007. The increase is primarily driven by an increase in
occupancy related costs (rent, utilities, repairs and maintenance, and real
estate taxes) of $9.9 million, an increase in advertising costs of $2.5 million,
related to increased television spending, and an increase in payroll and payroll
related costs of $2.1 million.
The
increase in occupancy related costs of $9.9 million is primarily related to new
store openings. New stores opened in Fiscal 2009 accounted for $5.3
million of the total increase. Stores opened in Fiscal 2008 that were
not operating for a full quarter incurred incremental occupancy costs during the
three months ended August 30, 2008 of $2.5 million.
The
increase in payroll and payroll related costs of $2.1 million is primarily
related to new store openings, partially offset by a decrease in comparative
store payroll. New stores opened in Fiscal 2009 contributed $3.1
million of payroll and payroll related costs during the three months ended
August 30, 2008. Stores opened in Fiscal 2008 that were not operating
for a full year incurred incremental payroll and payroll related costs during
the three months ended August 30, 2008 of $4.1 million. These
increases were partially offset by a decrease in comparative store payroll of
$4.7 million during the three months ended August 30, 2008.
Depreciation
Depreciation
expense amounted to $30.4 million in the three month period ended August 30,
2008 compared with $30.8 million in the three month period ended September 1,
2007.
Amortization
Amortization
expense related to the amortization of favorable and unfavorable leases and
deferred debt charges remained relatively consistent with the prior
period. Amortization expense for the three month period ended August
30, 2008 was $10.7 million compared with amortization of $10.8 million for the
three month period ended September 1, 2007.
Interest
Expense
Interest
expense was $26.4 million and $33.2 million for the three month periods ended
August 30, 2008 and September 1, 2007, respectively. The decrease in interest
expense was primarily related to lower interest rates on our ABL Senior Secured
Revolving Facility (“ABL Line of Credit”) and our Senior Secured Term Loan
Facility (“Term Loan”) and to changes in the fair market value of our interest
rate cap agreements. These decreases were partially offset by
increased borrowings during the three months ended August 30, 2008 compared to
the three months ended September 1, 2007. The average balance on our
ABL Line of Credit was $230.8 million during the three months ended August 30,
2008 compared with an average balance of $207.5 million for the three months
ended September 1, 2007.
The
average interest rates on our ABL Line of Credit for the three months ended
August 30, 2008 and for the three months ended September 1, 2007 were 4.14% and
7.06%, respectively. The average interest rates on our Term Loan for
the three months ended August 30, 2008 and September 1, 2007 were 4.90% and
7.61%, respectively. Adjustments of the interest rate cap contracts
to fair value amounted to a loss of $0.2 million for the three months ended
August 30, 2008 compared with a gain of $0.1 million for the three month period
ended September 1, 2007, which are recorded as “Interest Expense” in our
Condensed Consolidated Statements of Operations.
Other
Income, Net
Other
Income, Net (consisting of investment income, gains and losses on disposition of
assets, breakage income and other miscellaneous items) increased $1.9 million to
$2.5 million for the three month period ended August 30, 2008 compared with the
three month period ended September 1, 2007. This increase is primarily related
to an increase of insurance recoveries of $1.0 million related to three of our
stores and the recording of breakage income of $0.8 million (Refer to Footnote
14 to our Condensed Consolidated Financial Statements entitled “Store Value
Cards” for further discussion) during the three months ended August 30, 2008
compared with the three months ended September 1, 2007.
Income
Tax Benefit
Income
tax benefit was $23.9 million for the three month period ended August 30, 2008
and $33.4 million for the three month period ended September 1, 2007. The
effective tax rates for the three month periods ended August 30, 2008 and
September 1, 2007 were 42.44% and 39.83% respectively. The effective
tax rates for both periods differ from their projected annual effective tax
rates due to adjustments for the effects of the change in the estimated annual
effective tax rates used in the first fiscal quarter of each fiscal year and
discrete items recorded during the quarter. (Please refer to Footnote 8 to
our Condensed Consolidated Financial Statements entitled "Income Taxes" for
further discussion around our effective tax rate.) The effective tax
rate for the three months ended August 30, 2008 was impacted
by three discrete adjustments; a decrease to tax expense of $0.9 million to
adjust deferred tax asset and liabilities for a change in state tax law and
rates, a decrease to tax expense of $0.7 million due to a change in the
Company's effective state tax rate used to calculate deferred taxes, and an
increase to tax expense of $0.5 million for the accrual of interest related to
unrecognized tax benefits established in prior years in accordance with FIN
48. The effective tax rate for the three months ended September
1, 2007 was impacted by one discrete adjustment; an increase to tax
expense of $0.6 million for the accrual of interest related to unrecognized tax
benefits in accordance with FIN 48.
Net
Loss
Net loss
amounted to $32.5 million for the three month period ended August 30, 2008
compared with $50.4 million for the three months ended September 1, 2007. The
improvement in the Company’s net loss position of $17.9 million is primarily
attributable to increased net sales and decreased cost of sales.
Liquidity
and Capital Resources
Overview
We fund
inventory expenditures during normal and peak periods through cash flows from
operating activities, available cash, and our ABL Line of Credit. Our working
capital needs follow a seasonal pattern, peaking in the second quarter of our
fiscal year when inventory is received for the Fall selling season. Our largest
source of operating cash flows is cash collections from our customers. In
general, our primary uses of cash are the opening of new stores and remodeling
of existing stores, debt servicing, payment of operating expenses and providing
for working capital, which principally represents the purchase of
inventory.
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 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.
We
believe that cash generated from operations, along with our existing cash and
revolving credit facilities, will be sufficient to fund our expected cash flow
requirements and planned capital expenditures for at least the next twelve
months as well as the foreseeable future.
As of
August 30, 2008, cash and cash equivalents of $59.0 million was invested in The
Reserve Primary Fund ("Fund"), a series of a money market funds registered with
the Securities and Exchange Commission as an investment company under the
Investment Company Act of 1940. We redeemed the amount held at August
30, 2008 in September of 2008. During September of 2008, we made
additional investments into the fund of $56.3 million. On September 22,
2008, the Fund announced that redemptions of shares of the Fund were suspended
pursuant to an SEC order so that an orderly liquidation may be effected for the
protection of the Fund’s investors. On September 29, 2008, the Fund
announced a partial distribution (32% of the Fund assets) in cash to all
investors pro rata in proportion to the number of shares each investor held as
of the close of business on September 15, 2008. Based on the available
facts as of the date of this report, we believe this represents approximately an
$18 million distribution to the Company. The distribution is expected to
occur on or about October 14, 2008. Based on the decline in the value of
the Fund in September of 2009, we estimate that we will need to record
a loss of up to $0.7 million in the second quarter of Fiscal 2009. We have
not yet received any information as to when the remaining amount of our
investments will be returned. However, based upon the maturities of the
underlying investments in the Fund, we expect to receive the remaining
amount of the investment during Fiscal 2009. In the event that a
substantial amount of our investment is not returned to us within this
timeframe, we may have to borrow additional cash through our ABL Line of
Credit. The investment in the Fund will be redesignated out of the line
item “Cash and Cash Equivalents” into a line item entitled “Investment in Money
Market Fund” in the Company’s Condensed Consolidated Balance Sheets in the
Company’s Fiscal 2009 second quarter financial statements.
Cash
Flow for the Three Months Ended August 30, 2008 Compared with the Three Months
Ended September 1, 2007
We
generated $59.3 million of cash flow for the three months ended August 30, 2008
compared with $18.6 million of cash flow for the three months ended September 1,
2007. Net cash used in operating activities netted to zero for the
three months ended August 30, 2008 compared with $15.9 million for the three
months ended September 1, 2007. The improvement in net
cash used in operating activities is primarily the result of several
factors, as follows:
·
|
Operating
results for the three months ended August 30, 2008 improved by $17.9
million compared to the operating results for the three months ended
September 1, 2007.
|
·
|
Net
cash provided by operating activities was positively affected by $24.6
million related to the provision for deferred income
taxes.
|
·
|
Cash
flow from the change in accounts payable for the three months ended August
30, 2008 increased $82.6 million compared with the three months ended
September 1, 2007. The increase in accounts payable for the
three months ended August 30, 2008 compared with the three months ended
September 1, 2007 is primarily related to the increase in merchandise
inventory during the similar
periods.
|
These increases were partially offset
by the following decreases in cash flow from operating activities for the three
months ended August 30, 2008 compared with the three months ended September 1,
2007:
·
|
Merchandise
inventory had a larger increase during the three month period ended August
30, 2008 compared with the three month period ended September 1,
2007. This increase resulted in $86.8 million less cash flow
related to the change in inventory during the three month period ended
August 30, 2008 compared with the three month period ended September 1,
2007. The larger increase in our merchandise inventories is
primarily due to the opening of 33 new stores between September 1, 2007
and August 30, 2008.
|
·
|
Prepaid
and other current assets had a larger increase during the three month
period ended August 30, 2008 compared with the three month period ended
September 1, 2007 which resulted in $14.9 million less cash flow during
the respective periods.
|
·
|
Accrued
and other current liabilities had a smaller increase during the three
months ended August 30, 2008 compared with the three months ended
September 1, 2007 resulting in $10.5 million less cash flow during
the three month period ended August 30, 2008 compared to the three month
period ended September 1, 2007.
|
The
improvements in net cash flows from operating activities were augmented by our
generating $103.3 million of cash flow from financing activities for the three
months ended August 30, 2008 compared with $58.9 million for the three months
ended September 1, 2007. The increased cash flow generated from
financing activities is a result of management’s desire to have more cash on
hand given the current credit environment. These cash flow
improvements were partially offset by higher levels of spending related to
capital expenditures (Discussed in more detail under the caption below entitled
“Operational Growth”) during the three months ended August 30, 2008 compared
with the three months ended September 1, 2007.
Cash flow
and working capital levels assist management in measuring our ability to
meet our cash requirements. Working capital measures our current
financial position. Working capital is defined as current assets
(exclusive of restricted cash) less current liabilities. Working
capital at August 30, 2008 was $351.0 million compared with $284.4 million at
May 31, 2008. The increase in working capital is primarily the result
of increases in merchandise inventory of $106.0 million due to new store
openings, an increase in cash and cash equivalents of $59.3 million due to
management’s intent to have more cash on hand, and an increase in income tax
receivable of $18.7 million. These increases were partially offset by
an increase in accounts payable of $114.0 million.
Operational
Growth
During
the three months ended August 30, 2008, we opened 20 new BCF stores and
relocated two BCF stores. As of August 30, 2008, we operated stores under the
names "Burlington Coat Factory Warehouse" (399 stores), "MJM Designer Shoes"
(fifteen stores), "Cohoes Fashions" (two stores), and "Super Baby Depot" (one
store). We estimate spending approximately $100 million, net of approximately
$74 million of landlord allowances, in capital expenditures during Fiscal 2009
including approximately $53 million, net of previously mentioned landlord
allowances for store expenditures, $23 million for upgrades of warehouse
facilities and $18 million for computer and other equipment expenditures. For
the three months ended August 30, 2008, capital expenditures, net of landlord
allowances, amounted to $37.0 million.
We
monitor the availability of desirable locations for our stores from such sources
as dispositions by other retail chains and bankruptcy auctions, as well as
locations presented to us by real estate developers, brokers 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. For most
of our new leases, we have revised our lease model to provide for at least 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. We may seek to acquire a number of such locations either
through transactions to acquire individual locations or transactions that
involve the acquisition of multiple locations simultaneously.
Additionally,
we may consider strategic acquisitions. If we undertake such
transactions, we may seek additional financing to fund acquisitions and carrying
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 our 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, we
will undertake to bid or be successful in bidding for such locations.
Furthermore, to the extent that we decide to purchase additional store
locations, it may be necessary to finance such acquisitions with additional
long-term borrowings.
Dividends
Payment
of dividends is prohibited under our credit agreements except in limited
circumstances.
Long-Term
Borrowings, Lines of Credit and Capital Lease Obligations
Holdings
and each of our current and future subsidiaries, except one subsidiary which is
considered minor, have jointly, severally and unconditionally guaranteed BCFWC’s
obligations pursuant to our $800 million ABL Line of Credit, $900
million Term Loan and $305 million Senior Notes due 2014. As of
August 30, 2008, we are in compliance with all of our debt
covenants. Significant changes in our debt structure consist of the
following:
$800
Million ABL Line of Credit
During
the three months ended August 30, 2008, we borrowed $103.4 million, net of
repayments. As of August 30, 2008, we had $285.0 million outstanding
under our ABL Line of Credit and unused availability of $277.4
million.
$900
Million Term Loan
On
September 4, 2007, we made a repayment of principal in the amount of $11.4
million based on 50% of the available free cash flow (as defined in the credit
agreement) as of June 2, 2007. This payment offsets the $2.3 million
quarterly payments that we are required to make under the credit agreement
through the third quarter of Fiscal 2009 and $0.2 million of the quarterly
payment to be made in the fourth quarter of Fiscal 2009. Based on the
available free cash flow for the fiscal year ended May 31, 2008, the Company was
not required to make any mandatory repayment. As of August 30, 2008,
we had $872.8 million outstanding under the Term Loan.
Senior
Discount Notes
Beginning on October 15, 2008 through
October 15, 2014, we will make semi-annual interest payments to the Senior
Discount Notes Holders. During the remainder of the fiscal year, we
will make cash payments of approximately $7.2 million on both October 15, 2008
and April 15, 2008.
Off-Balance
Sheet Arrangements
Other
than operating leases consummated in the normal course of business and letters
of credit, as more fully described below, we are not involved in any off-balance
sheet arrangements that have or are reasonably likely to have a material current
or future impact on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures, or
capital resources.
Contractual
Obligations
We had
letter of credit arrangements with two banks in the amount of $40.9 million and
$28.6 million guaranteeing performance under various lease agreements, insurance
contracts and utility agreements at August 30, 2008 and September 1, 2007,
respectively.
Additionally,
we have an outstanding letter of credit in the amount of $3.4 million and
$4.3 million at August 30, 2008 and September 1, 2007, respectively,
guaranteeing our Industrial Revenue Bonds. We also have outstanding
letters of credit agreements in the amount of $32.6 million and $25.8 million at
August 30, 2008 and September 1, 2007, respectively, related to certain
merchandising agreements.
There
have been no significant changes to our contractual obligations and commercial
commitments table as disclosed in our 2008 10-K.
Safe Harbor
Statement
This
report contains forward-looking statements that are based on current
expectations, estimates, forecasts and projections about us, the industry in
which we operate and other matters, as well as management’s beliefs and
assumptions and other statements regarding matters that are not historical
facts. For example, when we use words such as “projects,” “expects,”
“anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,”
“would,” “could,” “will,” “opportunity,” “potential” or “may,” variations of
such words or other words that convey uncertainty of future events or outcomes,
we are making forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 (Securities Act) and Section 21E of the
Securities Exchange Act of 1934 (Exchange Act). Our forward-looking statements
are subject to 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, our ability to maintain selling margins, and the
effect of the adoption of recent accounting pronouncements on our consolidated
financial position, results of operations and cash flows. Actual
events or results may differ materially from the results anticipated in these
forward-looking statements as a result of a variety of factors. While it is
impossible to identify all such factors, factors that could cause actual results
to differ materially from those estimated by us include: competition in the
retail industry, seasonality of our business, adverse weather conditions,
changes in consumer preferences and consumer spending patterns, import risks,
inflation, general economic conditions, our ability to implement our strategy,
our substantial level of indebtedness and related debt-service obligations,
restrictions imposed by covenants in our debt agreements, availability of
adequate financing, our dependence on vendors for our merchandise, events
affecting the delivery of merchandise to our stores, existence of adverse
litigation, availability of desirable locations on suitable terms, and
other risks discussed from time to time in our filings with the Securities and
Exchange Commission.
Many of
these factors are beyond our ability to predict or control. In addition, as a
result of these and other factors, our past financial performance should not be
relied on as an indication of future performance. The cautionary statements
referred to in this section also should be considered in connection with any
subsequent written or oral forward-looking statements that may be issued by us
or persons acting on our behalf. We undertake no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by law. In light of
these risks and uncertainties, the forward-looking events and circumstances
discussed in this report might not occur. Furthermore, we cannot guarantee
future results, events, levels of activity, performance or
achievements.
Recent
Accounting Pronouncements
Refer to Note 18 to the
Condensed Consolidated Financial Statements entitled “Recent Accounting
Pronouncements” for a discussion of recent accounting pronouncements and their
impact on our Condensed Consolidated Financial Statements.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
We are
exposed to certain market risks as part of our ongoing business operations.
Primary exposures include changes in interest rates, as borrowings under our ABL
Line of Credit and Term Loan will bear interest at floating rates
based on LIBOR or the base rate, in each case plus an applicable borrowing
margin and investing activities.
We will
manage our interest rate risk by balancing the amount of fixed-rate and
floating-rate debt and through the use of interest rate cap transactions. 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 August
30, 2008, we had $429.5 million principal amount of fixed-rate debt and $1,157.8
million of floating-rate debt. Based on $1,157.8 million outstanding as floating
rate debt, an immediate increase of one percentage point, excluding the interest
rate caps, would cause an increase to cash interest expense of approximately
$11.6 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):
Floating
Rate Debt
|
|
(in
thousands)
|
|
Principal
Outstanding at August 30, 2008
|
|
|
Additional
Interest Expense
Q2
2009
|
|
|
Additional
Interest Expense
Q3
2009
|
|
|
Additional
Interest Expense
Q4
2009
|
|
|
Additional
Interest Expense
Q1
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have
two interest rate cap agreements for a maximum principal amount of $1.0 billion
which limit our interest rate exposure to 7% on our first billion dollars of
borrowings under our variable rate debt obligations. If interest
rates were to increase above the 7% cap rate, then our maximum interest rate
exposure would be $30.4 million assuming constant current borrowing levels of
$1.0 billion. Currently, we have unlimited interest rate risk related
to our variable rate debt in excess of $1.0 billion. For the three
months ended August 30, 2008, our borrowing rates related to our ABL Line of
Credit averaged 4.14%. At August 30, 2008, the borrowing rate related
to our Term Loan was 5.06%
Our
ability to satisfy our interest payment obligations on our outstanding debt will
depend largely on our future performance, which, in turn, is in part 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.
As of August 30, 2008, cash and cash equivalents of $59.0 million was
invested in The Reserve Primary Fund ("Fund"), a series of a money market funds
registered with the Securities and Exchange Commission as an investment company
under the Investment Company Act of 1940. We redeemed the amount held
at August 30, 2008 in September of 2008. During September of 2008, we
made additional investments into the fund of $56.3 million. On September
22, 2008, the Fund announced that redemptions of shares of the Fund were
suspended pursuant to an SEC order so that an orderly liquidation may be
effected for the protection of the Fund’s investors. On September
29, 2008, the Fund announced a partial distribution (32% of the Fund assets) in
cash to all investors pro rata in proportion to the number of shares each
investor held as of the close of business on September 15, 2008. Based on
the available facts as of the date of this report, we believe this represents
approximately an $18 million distribution to the Company. The distribution
is expected to occur on or about October 14, 2008. Based on the decline in
the value of the Fund in September of 2009, we estimate that we will
need to record a loss of up to $0.7 million in the second quarter of Fiscal
2009. We have not yet received any information as to when the remaining
amount of our investments will be returned. However, based upon the
maturities of the underlying investments in the Fund, we expect to receive
the remaining amount of the investment during Fiscal 2009. In the event
that a substantial amount of our investment is not returned to us within this
timeframe, we may have to borrow additional cash through our ABL Line of
Credit. The investment in the Fund will be redesignated out of the line
item “Cash and Cash Equivalents” into a line item entitled “Investment in Money
Market Fund” in the Company’s Condensed Consolidated Balance Sheets in the
Company’s Fiscal 2009 second quarter financial statements.
Item
4. Controls and Procedures.
Our
management team, under the supervision and with the participation of our
principal executive officer and our principal financial officer, evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as such term is defined under Rule 13a-15(e) promulgated under
the Securities Exchange Act of 1934, as amended (Exchange Act), as of the last
day of the fiscal period covered by this report, August 30, 2008. The term
disclosure controls and procedures means our controls and other procedures that
are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC’s rules
and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
accumulated and communicated to management, including our principal executive
and principal financial officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure. Based on
this evaluation, our principal executive officer and our principal financial
officer concluded that our disclosure controls and procedures were effective as
of August 30, 2008.
During
the three months ended August 30, 2008, there were no changes in our internal
control over financial reporting that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings.
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.
There
have been no material changes in our risk factors from those disclosed in Part
I, Item 1A of our 2008 10-K.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item
3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a
Vote of Security Holders.
None.
Item
5. Other Information.
None.
Item
6. Exhibits.
31.1
|
|
Certification
of Principal Executive Officer pursuant to Rule 13a - 14(a) or 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) or 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.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC.
|
/s/
Mark A. Nesci
|
|
|
|
Mark
A. Nesci
|
|
|
|
President
& Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Todd Weyhrich
|
|
|
|
Todd
Weyhrich
|
|
|
|
Executive
Vice President & Chief Financial Officer (Principal Financial
Officer)
|
|
|
|
|
|
|
Date:
October 14, 2008