UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-K
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended May 31, 2008
OR
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from
to
1-37917
(Commission File
Number)
BURLINGTON
COAT FACTORY INVESTMENTS HOLDINGS, INC.
(Exact name of
registrant as specified in its charter)
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Delaware
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20-4663833
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(State
or other jurisdiction
of
incorporation or organization)
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(I.R.S.
Employer
Identification
No.)
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1830
Route 130 North
Burlington,
New Jersey
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08016
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(Address
of principal executive offices)
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(Zip
Code)
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(609)
387-7800
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the
Act: None
Securities
registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes ¨ No x
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes x No
¨
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 if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. x
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 x Smaller reporting
company ¨
(Do not check if a 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
The
aggregate market value of the registrants voting and non-voting common equity
held by non-affiliates of the registrant is zero. The registrant is a
privately held corporation.
As of
August 29, 2008 the registrant has 1,000 shares of common stock outstanding (all
of which are owned by Burlington Coat Factory Holdings, Inc., registrant’s
parent holding company) and are not publicly traded.
Documents
Incorporated By Reference
None
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PAGE
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PART
I.
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Item
1.
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Business
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1
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Item
1A.
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Risk
Factors
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3
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Item
1B.
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Unresolved
Staff Comments
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9
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Item
2.
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Properties
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9
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Item
3.
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Legal
Proceedings
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10
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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10
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PART
II.
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||
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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11
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Item
6.
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Selected
Financial Data
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11
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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12
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Item
7 A.
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Quantitative
and Qualitative Disclosures About Market Risk
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29
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Item
8.
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Financial
Statements and Supplementary Data
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30
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Item
9.
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Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
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75
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Item
9 A.
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Controls
and Procedures
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75
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Item
9 B.
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Other
Information
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76
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PART
III.
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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76
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Item
11.
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Executive
Compensation
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78
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management
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91
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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94
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Item
14.
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Principal
Accounting Fees and Services
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96
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PART
IV.
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Item
15.
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Exhibits
and Financial Statement Schedules
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98
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INDEX
TO EXHIBITS
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SIGNATURES
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Item
1. Business
Overview
Burlington
Coat Factory Investments Holdings, Inc. (the Company or Holdings) is a
nationally recognized retailer of high-quality, branded apparel at every day low
prices. We opened our first store in Burlington, New Jersey in 1972, selling
primarily coats and outerwear. Since then, and as of May 31, 2008, we have
expanded our store base to 397 stores in 44 states and diversified our product
categories by offering an extensive selection of in-season better and moderate
brands, fashion-focused merchandise, including: ladies sportswear, menswear,
coats, family footwear, baby furniture and accessories, as well as home décor
and gifts. We employ a hybrid business model, offering the low prices of
off-price retailers as well as the branded merchandise, product breadth and
product diversity traditionally associated with department stores. We
were acquired on April 13, 2006 by affiliates of Bain Capital in a
take-private transaction. The total transaction value was $2.1
billion.
As used
in this annual report, the terms “Company”, “we”, “us”, or “our” refers to
Holdings and all its subsidiaries. The Company has no operations and
its only asset is all of the stock of Burlington Coat Factory Warehouse
Corporation (BCFWC). All discussions of business operations relate to
BCFWC and its subsidiaries, its consolidated subsidiaries and predecessors. Our
fiscal year ends on the Saturday closest to May 31. Fiscal 2008 ended on
May 31, 2008 and was a 52 week year. Fiscal 2007 ended on June 2, 2007 and was a
52 week year. Fiscal 2006 ended on June 3, 2006 and was a 53 week
year.
The
Stores
As of May
31, 2008, we operated 397 stores under the names: “Burlington Coat Factory
Warehouse” (379 stores), “MJM Designer Shoes” (fifteen stores), “Cohoes
Fashions” (two stores), and “Super Baby Depot” (one store). Our store base is
geographically diversified with stores located in 44 states. We believe that our
customers are attracted to our stores principally by the availability of a large
assortment of first-quality current brand-name merchandise at every day low
prices.
Burlington
Coat Factory Warehouse stores (BCF) offer customers a complete line of
value-priced apparel, including: ladies sportswear, menswear, coats, family
footwear, baby furniture and accessories as well as home décor and gifts. BCF’s
broad selection provides a wide range of apparel, accessories and furnishing for
all ages. We purchase both pre-season and in-season merchandise, allowing us to
respond to changing market conditions and consumer fashion preferences.
Furthermore, we believe BCF’s substantial selection of staple, destination
products such as coats, Baby Depot products as well as men’s and boys’ suits
attracts customers from beyond our local trade area. These products drive
incremental store-traffic and differentiate us from our
competitors. Over 98% of our net sales are derived from the
Burlington Coat Factory Warehouse stores.
We opened
our first MJM Designer Shoes store in 2002. MJM Designer Shoe stores offer an
extensive collection of men’s, women’s and children’s moderate-to higher-priced
designer and fashion shoes, sandals, boots and sneakers. MJM Designer Shoes
stores also carry accessories such as handbags, wallets, belts, socks, hosiery
and novelty gifts. MJM Designer Shoes stores provide a superior shoe shopping
experience for the value conscious consumer by offering a broad selection of
quality goods at discounted prices in stores with a convenient self-service
layout.
Cohoes
Fashions offers a broad selection of designer label merchandise for men and
women similar to that carried in BCF stores. In addition, the stores
carry decorative gifts and home furnishings. Cohoes Fashions, Inc.
was acquired by us in 1989.
Baby
Depot departments can be found in most BCF stores. Baby Depot offers
customers "one stop shopping" for infants and toddlers with everyday low prices
on current, brand name merchandise. Customers can select from leading
manufacturers of infant and toddler apparel, furniture and accessories. Baby
Depot offers customers the convenience of special orders and a computerized baby
gift registry.
Our
stores are generally located in malls, strip shopping centers, regional power
centers or are free standing and are usually established near a major highway or
thoroughfare, making them easily accessible by automobile.
Some
stores contain departments licensed to unaffiliated parties for the sale of
items such as lingerie, fragrances, and jewelry. During Fiscal 2008, our rental
income from all of our licensed departments aggregated less than 1% of our total
revenues.
Store
Expansion
Since
1972 when our first store was opened in Burlington, New Jersey, we have expanded
to 379 BCF stores, two Cohoes Fashions stores, fifteen MJM Designer Shoes
stores, and one stand-alone Super Baby Depot store.
We
believe our real estate locations represent a competitive
advantage. Most of our stores are approximately 80,000 square feet,
occupying significantly more selling square footage than most off-price or
specialty store competitors. Major landlords frequently seek us as a tenant
because the appeal of our apparel merchandise profile attracts a
desired
1
customer
base and because we can take on larger facilities than most of our competitors.
In addition, we have built long-standing relationships with major shopping
center developers. As of May 31, 2008, we operated stores in 44 states, and we
are exploring expansion opportunities both within our current market areas and
in other regions.
We
believe that our ability to find satisfactory locations for our stores is
essential for the continued growth of our business. The opening of stores
generally is contingent upon a number of factors, including, but not limited to,
the availability of desirable locations with suitable structures and the
negotiation of acceptable lease terms. There can be no assurance, however, that
we will be able to find suitable locations for new stores or that even if such
locations are found and acceptable lease terms are obtained, we will be able to
open the number of new stores presently planned.
Real
Estate Strategy
As of May
31, 2008, we owned the land and/or buildings for 41 of our 397 stores.
Generally, however, our policy has been to lease our stores, with average rents
per square foot that are below the rents of our off-price competitors. Our large
average store size (generally twice that of our off-price competitors), ability
to attract foot traffic and our disciplined real estate strategy enable us to
secure these lower rents. Most of our stores are located in malls, strip
shopping centers, regional power centers or are freestanding.
We have
revised our lease model to provide for a ten year initial term with a number of
five year options thereafter. Typically, our new lease strategy
includes landlord allowances for leasehold improvements and tenant
fixtures. We believe our new lease model makes us more competitive
with other retailers for desirable locations.
We have a
proven track record of new store expansion. Our store base has grown from
thirteen stores in 1980 to 397 stores as of May 31,
2008. Assuming that appropriate locations are identified, we
believe that we will be able to execute our growth strategy without
significantly impacting our current stores.
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Fiscal
Year
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2003
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2004
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2005
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2006
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2007
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2008
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||||||||||||||||||
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Stores
(Beginning of Period)
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319 | 335 | 349 | 362 | 368 | 379 | ||||||||||||||||||
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Stores
Opened
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22 | 24 | 16 | 12 | 19 | 20 | ||||||||||||||||||
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Stores
Closed
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(6 | ) | (10 | ) | (3 | ) | (6 | ) | (8 | ) | (2 | ) | ||||||||||||
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Stores
(End of Period)
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335 | 349 | 362 | 368 | * | 379 | 397 | |||||||||||||||||
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* Inclusive
of three stores that closed because of hurricane damage, which reopened in
2007.
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Distribution
We have
four distribution centers that occupy an aggregate of 1,790,000 square feet,
each of which includes processing and storage capacity. Our
distribution centers are currently located in Burlington, New Jersey, Edgewater
Park, New Jersey, Bristol, Pennsylvania, and San Bernardino,
California. Our newest distribution center, in San Bernardino, opened
in May 2006, and is fully operational. The facility is 440,000 square
feet and has allowed us to increase our percentage of centrally received
merchandise. Prior to Fiscal 2007, we received approximately 50% of
merchandise through our distribution centers while drop-shipping 50% direct to
our stores. During Fiscal 2008, we were able to transition our mix to
approximately 82% of merchandise units through our distribution centers,
reducing our direct to store drop-shipments to 18%.
Our
distribution center network leverages automated sorting units to process and
ship product to stores. We believe that the use of automated sorting
units provides cost efficiencies, improves accuracy, and improves our overall
turn of product within our distribution network.
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Location
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Calendar
Year Operational
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Size
(sq. feet)
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Leased
or Owned
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Burlington,
NJ
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1987
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402,000 |
Owned
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|||
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Bristol,
PA
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2001
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300,000 |
Leased
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Edgewater
Park, NJ
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2004
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648,000 |
Owned
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|||
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San
Bernardino, CA
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2006
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440,000 |
Leased
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2
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Customer
Demographic
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Our core
customer is the 18–49 year-old woman. The core customer is educated, resides in
mid- to large-sized metropolitan areas and has an annual household income of
$35,000 to $100,000. This customer shops for herself, her family and her home.
We appeal to value seeking and fashion conscious customers who are price-driven
but enjoy the style and fit of high-quality, branded merchandise. These core
customers are drawn to us not only by our value proposition, but also by our
broad selection of styles, our brands and our highly appealing product selection
for families.
Customer
Service
We are
committed to providing our customers with an enjoyable shopping experience and
strive to make continuous efforts to improve customer service. In training our
employees, our goal is to emphasize knowledgeable, friendly customer service and
a sense of professional pride. We train employees designated for specialized
departments where customers can benefit from more hands-on assistance, including
men's suits and Baby Depot. Additionally, we offer our customers special
services to enhance the convenience of their shopping experience, such as
professional tailors, a baby gift registry, special orders and
layaways.
Employees
As of May
31, 2008, we employed 26,580 people, including part-time and seasonal employees.
Our staffing requirements fluctuate during the year as a result of the
seasonality of the apparel industry. We hire additional employees and increase
the hours of part-time employees during seasonal peak selling periods. As of May
31, 2008, employees at two of our stores are subject to collective bargaining
agreements.
Competition
The
retail business is highly competitive. Competitors include off-price retailers,
department stores, mass merchants and specialty apparel stores. At various times
throughout the year, traditional full-price department store chains and
specialty shops offer brand-name merchandise at substantial markdowns, which can
result in prices approximating those offered by us at our BCF
stores.
Merchandise
Vendors
We
purchase merchandise from many suppliers, none of which accounted for more than
3% of our net purchases during Fiscal 2008. We have no long-term purchase
commitments or arrangements with any of our suppliers, and believe that we are
not dependent on any one supplier. We continue to have good working
relationships with our suppliers.
Seasonality
Our
business, like that of most retailers, is subject to seasonal influences, with
the major portion of sales and income typically realized during the
back-to-school and holiday seasons (September through January). Weather,
however, continues to be an important contributing factor to the sale of
clothing in the Fall, Winter and Spring seasons. Generally, our sales are higher
if the weather is cold during the Fall and warm during the early
Spring.
Tradenames
We have
tradename assets such as Burlington Coat Factory, Baby Depot, Luxury Linens and
MJM Designs. We consider these tradenames and the accompanying name
recognition to be valuable to our business. We believe that our rights to these
properties are adequately protected. Our rights in these tradenames endure for
as long as they are used.
AVAILABLE
INFORMATION
Our
website address is www.burlingtoncoatfactory.com. We
will make available our Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, and amendments to those
reports free of charge through our Internet website at
www.burlingtoncoatfactory.com under the heading “Investor Relations” as soon as
reasonably practicable after we electronically file such material with, or
furnish it to, the Securities and Exchange Commission (SEC).
Item
1A. Risk Factors
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
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. These statements include, in particular, statements about our plans,
strategies and prospects. 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
3
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. 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,
general economic conditions in the United States and in states where we conduct
our business, 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, domestic events affecting the
delivery of merchandise to our stores, existence of adverse litigation and
risks, and each of the factors discussed in this Item 1A, Risk Factors as
well as risks discussed elsewhere in this report.
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.
Set
forth below are certain important risks and uncertainties that could adversely
affect our results of operations or financial condition and cause our actual
results to differ materially from those expressed in forward-looking statements
made by us. Although we believe that we have identified and discussed below the
key risk factors affecting our business, there may be additional risks and
uncertainties that are not presently known or that are not currently believed to
be significant that may adversely affect our performance or financial condition.
More detailed information regarding certain risk factors described below is
contained in other sections of this report.
Our
growth strategy includes the addition of a significant number of new stores each
year. We may not be able to implement this strategy successfully, on a timely
basis, or at all.
Our
growth will largely depend on our ability to successfully open and operate new
stores. We intend to continue to open a significant number of new stores in
future years, while remodeling a portion of our existing store base annually.
The success of this strategy is dependent upon, among other things, the
identification of suitable markets and sites for store locations, the
negotiation of acceptable lease terms, the hiring, training and retention of
competent sales personnel, and the effective management of inventory to meet the
needs of new and existing stores on a timely basis. Our proposed expansion also
will place increased demands on our operational, managerial and administrative
resources. These increased demands could cause us to operate our business less
effectively, which in turn could cause deterioration in the financial
performance of our existing stores. In addition, to the extent that our new
store openings are in existing markets, we may experience reduced net sales
volumes in existing stores in those markets. We expect to fund our expansion
through cash flow from operations and, if necessary, by borrowings under our
Available Business Line Senior Secured Revolving Facility (ABL Line of Credit);
however, if we experience a decline in performance, we may slow or discontinue
store openings. We may not be able to execute any of these strategies
successfully, on a timely basis, or at all. If we fail to implement these
strategies successfully, our financial condition and results of operations would
be adversely affected.
If
we are unable to renew or replace our store leases or enter into leases for new
stores on favorable terms, or if one or more of our current leases are
terminated prior to the expiration of their stated term and we cannot find
suitable alternate locations, our growth and profitability could be negatively
impacted.
We
currently lease approximately 90% of our store locations. Most of our current
leases expire at various dates after five-year terms, or ten-year terms in the
case of our newer leases, the majority of which are subject to our option to
renew such leases for several additional five-year periods. Our
ability to renew any expiring lease or, if such lease cannot be renewed, our
ability to lease a suitable alternate location, and our ability to enter into
leases for new stores on favorable terms will depend on many factors which are
not within our control, such as conditions in the local real estate market,
competition for desirable properties and our relationships with current and
prospective landlords. If we are unable to renew existing leases or lease
suitable alternate locations, or enter into leases for new stores on favorable
terms, our growth and our profitability may be negatively impacted.
Our net
sales, operating income and inventory levels fluctuate on a seasonal basis and
decreases in sales or margins during our peak seasons could have a
disproportionate effect on our overall financial condition and results of
operations.
Our net
sales and operating income fluctuate seasonally, with a significant portion of
our operating income typically realized during our second and third quarters.
Any decrease in sales or margins during this period could have a
disproportionate effect on our financial condition and results of operations.
Seasonal fluctuations also affect our inventory levels. We must carry a
significant amount of inventory, especially before the holiday season selling
period. If we are not successful in selling our inventory, we may have to write
down our inventory or sell it at significantly reduced prices or we may not be
able to sell such inventory at all, which could have a material adverse effect
on our financial condition and results of operations.
4
Our
results of operations for our individual stores have fluctuated in the past and
can be expected to continue to fluctuate in the future. Since the beginning of
the fiscal year ended May 29, 2004, our quarterly comparative store sales rates
have ranged from 8.9% to negative 8.0%.
Our
comparative store sales and results of operations are affected by a variety of
factors, including:
|
|
•
|
fashion
trends;
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|
|
•
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calendar
shifts of holiday or seasonal
periods;
|
|
|
•
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the
effectiveness of our inventory
management;
|
|
|
•
|
changes
in our merchandise mix;
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|
|
•
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weather
conditions;
|
|
|
•
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availability
of suitable real estate locations at desirable prices and our ability to
locate them;
|
|
|
•
|
the
timing of promotional events;
|
|
|
•
|
changes
in general economic conditions and consumer spending
patterns;
|
|
|
•
|
our
ability to anticipate, understand and meet consumer trends and
preferences; and
|
|
|
•
|
actions
of competitors.
|
If our
future comparative store sales fail to meet expectations, then our cash flow and
profitability could decline substantially. For further information, please refer
to Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
Because
inventory is both fashion and season sensitive, extreme and/or unseasonable
weather conditions could have a disproportionately large effect on our business,
financial condition and results of operations because we would be forced to mark
down inventory.
Extreme
weather conditions in the areas in which our stores are located could have a
material adverse effect on our business, financial condition and results of
operations. For example, heavy snowfall or other extreme weather conditions over
a prolonged period might make it difficult for our customers to travel to our
stores. In addition, natural disasters such as hurricanes, tornados and
earthquakes, or a combination of these or other factors, could severly damage or
destroy one or more of our stores or facilities located in the affected areas,
thereby disrupting our business operatons. Our business is also susceptible to
unseasonable weather conditions. For example, extended periods of unseasonably
warm temperatures during the winter season or cool weather during the summer
season could render a portion of our inventory incompatible with those
unseasonable conditions. These prolonged unseasonable weather conditions could
adversely affect our business, financial condition and results of operations.
Historically, a majority of our net sales have occurred during the five-month
period from September through January. Unseasonably warm weather during these
months could adversely affect our business.
We
do not have long-term contracts with any of our vendors and if we are unable to
purchase suitable merchandise in sufficient quantities at competitive prices, we
may be unable to offer a merchandise mix that is attractive to our customers and
our sales may be harmed.
Substantially
all of the products that we offer are manufactured by third party vendors. Many
of our key vendors limit the number of retail channels they use to sell their
merchandise and competition among retailers to obtain and sell these goods is
intense. In addition, nearly all of the brands of our top vendors are sold by
competing retailers and some of our top vendors also have their own dedicated
retail stores. Moreover, we typically buy products from our vendors on a
purchase order basis. We have no long term purchase contracts with any of our
vendors and, therefore, have no contractual assurances of continued supply,
pricing or access to products, and any vendor could change the terms upon which
they sell to us or discontinue selling to us at any time. If our
relationships with our vendors are disrupted, we may not be able to acquire the
merchandise we require in sufficient quantities or on terms acceptable to us.
Any inability to acquire suitable merchandise would have a negative effect on
our business and operating results because we would be missing products from our
merchandise mix unless and until alternative supply arrangements were made,
resulting in deferred or lost sales.
Our
results may be adversely affected by fluctuations in energy prices
Energy
costs have risen dramatically in the past year, resulting in an increase in our
transportation costs for distribution, utility costs for our stores and costs to
purchase our products from suppliers. A continued rise in energy costs could
adversely affect consumer spending and demand for our products and increase our
operating costs, both of which could have an adverse effect on our
performance.
5
General
economic conditions affect our business.
Consumer
spending habits, including spending for the merchandise that we sell, are
affected by, among other things, prevailing economic conditions, inflation,
levels of employment, salaries and wage rates, prevailing interest rates,
housing costs, energy costs, income tax rates and policies, consumer confidence
and consumer perception of economic conditions. In addition, consumer
purchasing patterns may be influenced by consumers’ disposable income, credit
availability and debt levels. A continued or incremental slowdown in the U.S.
economy, an uncertain economic outlook or an expanded credit crisis could
continue to adversely affect consumer spending habits resulting in lower net
sales and profits than expected on a quarterly or annual basis.
Consumer
confidence is also affected by the domestic and international political
situation. The outbreak or escalation of war, or the occurrence of terrorist
acts or other hostilities in or affecting the United States, could lead to a
decrease in spending by consumers.
Within
the recent past the cost of apparel merchandise has benefited from deflationary
pressures in the Far East, but recently inflationary pressures from that region
due to rising consumer demand has started to reverse this trend. In addition,
during the latter half of Fiscal 2008, the increased cost of oil has resulted in
increased transportation costs for merchandise, both internationally and
domestically. The combination of these factors will put pressure on the
costs of our merchandise. Furthermore, weak economic conditions in
the domestic market due to the rise in the cost of oil and other utilities
combined with the rising costs of food and deterioration of the mortgage lending
market have limited consumer discretionary spending and in turn, limited our
ability to pass on increased costs to the consumer. To date, we have been
able to combat these increased costs through improved negotiating and buying
efforts to maintain solid margins. Additionally, we have sought
to combat these factors by reducing our other costs of operations. If we
are unable to control costs effectively or increase sales volume, our
profitability would be adversely affected.
Although
we purchase most of our inventory from vendors domestically, apparel production
is located primarily overseas.
Factors
which affect overseas production could affect our suppliers and vendors and, in
turn, our ability to obtain inventory and the price levels at which they may be
obtained. Although such factors apply equally to our competitors, factors that
cause an increase in merchandise costs or a decrease in supply could lead to
generally lower sales in the retail industry.
Such
factors include:
|
|
•
|
political
or labor instability in countries where suppliers are located or at
foreign and domestic ports which could result in lengthy shipment delays,
which if timed ahead of the fall and winter peak selling periods could
materially and adversely affect our ability to stock inventory on a timely
basis;
|
|
|
•
|
political
or military conflict involving the apparel producing countries, which
could cause a delay in the transportation of our products to us and an
increase in transportation costs;
|
|
|
•
|
heightened
terrorism security concerns, which could subject imported goods to
additional, more frequent or more thorough inspections, leading to delays
in deliveries or impoundment of goods for extended
periods;
|
|
|
•
|
disease
epidemics and health related concerns, such as the outbreaks of SARS, bird
flu and other diseases, which could result in closed factories, reduced
workforces, scarcity of raw materials and scrutiny or embargoing of goods
produced in infected areas;
|
|
|
•
|
the
migration and development of manufacturers, which can affect where our
products are or will be produced;
|
|
|
•
|
fluctuation
in our suppliers’ local currency against the dollar, which may increase
our cost of goods sold; and
|
|
|
•
|
changes
in import duties, taxes, charges, quotas, loss of “most favored nation”
trading status with the United States for a particular foreign country and
trade restrictions (including the United States imposing antidumping or
countervailing duty orders, safeguards, remedies or compensation and
retaliation due to illegal foreign trade
practices).
|
Any of
the foregoing factors, or a combination thereof could have a material adverse
effect on our business.
During
Fiscal 2008, central distribution and warehousing services were extended to
approximately 82% of our merchandise units through our warehouse/distribution
facilities in Burlington, New Jersey, Edgewater, New Jersey, Bristol,
Pennsylvania, and San Bernardino, California. Most of the merchandise we
purchase is shipped directly to our distribution centers, where it is prepared
for shipment to the appropriate stores. If any distribution center were to shut
down or lose significant capacity for any reason, our operations would likely be
disrupted. Although in such circumstances our stores are capable of receiving
inventory directly from the supplier via drop shipment, we would incur
significantly higher costs and a reduced control of inventory levels during the
time it takes for us to reopen or replace any of the distribution
centers. Additionally, the Company is planning to implement a new
warehouse management system during the fiscal year ending on May 30, 2009
(Fiscal 2009).
6
Any
unforeseen issues with this implementation may result in a disruption to our
distribution processes, ultimately costing the company time and money to rectify
the situation.
Software
used for our management information systems may become obsolete or conflict with
the requirements of newer hardware and may cause disruptions in our
business.
We rely
on our existing management information systems, including some software programs
that were developed in-house by our employees, in operating and monitoring all
major aspects of our business, including sales, warehousing, distribution,
purchasing, inventory control, merchandising planning and replenishment, as well
as various financial systems. If we fail to update such software to meet the
demands of changing business requirements or if we decide to modify or change
our hardware and/or operating systems and the software programs that were
developed in-house are not compatible with the new hardware or operating
systems, disruption to our business may result.
Unauthorized
disclosure of sensitive or confidential customer information, whether through a
breach of our computer system or otherwise, could severely hurt our
business.
As part
of our normal course of business we collect, process and retain sensitive and
confidential customer information in accordance with industry
standards. Despite the security measures we have in place, our
facilities and systems, and those of our third party service providers may be
vulnerable to security breaches, acts of vandalism and theft, computer viruses,
misplaced or lost data, programming and, or human errors, or other similar
events. Any security breach involving misappropriation, loss or other
unauthorized disclosure of confidential information, whether by us or our
vendors, could severely damage our reputation, expose us to litigation and
liability risks, disrupt our operations and harm our business.
Disruptions
in our information systems could adversely affect our operating
results.
The
efficient operation of our business is dependent on our information systems. If
an act of God or other event caused our information systems to not function
properly, major business disruptions could occur. In particular, we rely
on our information systems to effectively manage sales, distribution,
merchandise planning and allocation functions. Our disaster recovery site is
located within 15 miles of our headquarters. If a disaster impacts
either location, while it would not fully incapacitate the Company, our
operations could be significantly effected. The failure of our information
systems to perform as designed could disrupt our business and harm sales and
profitability.
Our
future growth and profitability could be adversely affected if our advertising
and marketing programs are not effective in generating sufficient levels of
customer awareness and traffic.
We rely
heavily on print and television advertising to increase consumer awareness of
our product offerings and pricing to drive store traffic. In addition, we rely
and will increasingly rely on other forms of media advertising. Our future
growth and profitability will depend in large part upon the effectiveness and
efficiency of our advertising and marketing programs. In order for our
advertising and marketing programs to be successful, we must:
|
|
•
|
manage
advertising and marketing costs effectively in order to maintain
acceptable operating margins and return on our marketing investment;
and
|
|
|
•
|
convert
customer awareness into actual store visits and product
purchases.
|
Our
planned advertising and marketing expenditures may not result in increased total
or comparative net sales or generate sufficient levels of product awareness.
Further, we may not be able to manage our advertising and marketing expenditures
on a cost-effective basis.
The
loss of key personnel may disrupt our business and adversely affect our
financial results.
We
depend on the contributions of key personnel for our future
success. Although we have entered into employment agreements with
certain executives, we may not be able to retain all of our executive and key
employees. These executives and other key employees may be hired by
our competitors, some of which have considerably more financial resources than
we do. The loss of key personnel, or the inability to hire and retain qualified
employees, could adversely affect our business, financial condition and results
of operations.
The
interests of our controlling stockholders may conflict with the interests of our
noteholders or us.
Funds
associated with Bain Capital own approximately 98.6% of the common stock of
Burlington Coat Factory Holdings, Inc. (Parent), with the remainder held by
existing members of management. Additionally, management holds options to
purchase 7.6% of the outstanding shares of Parent’s common stock should all
options be exercised. Our controlling stockholders may have an
incentive to increase the value of their investment or cause us to distribute
funds at the expense of our financial condition and impact our ability to make
payments on our outstanding notes. In addition, funds associated with Bain
Capital have the power to elect a majority of our board of directors and appoint
new officers
7
and
management and, therefore, effectively control many major decisions regarding
our operations.
For
further information regarding the ownership interest of, and related party
transactions involving, Bain Capital and its associated funds, please see Item
12, Security Ownership of Certain Beneficial Owners and Management, and Item 13,
Certain Relationships and Related Transactions, and Director
Independence.
Our substantial indebtedness will
require a significant amount of cash. Our ability to generate sufficient
cash depends on numerous factors beyond our control, and we may be unable to
generate sufficient cash flow to service our debt obligations, including making
payments on our outstanding notes.
We are
highly leveraged. As of May 31, 2008, our total indebtedness was $1.5
billion, including $300.2 million of 11.13% senior notes due 2014,
$99.3 million of 14.5% senior discount notes due 2014, $872.8 million under our
Senior Secured Term Loan Facility (Term Loan Facility), and $181.6 million under
the ABL Line of Credit. Estimated cash required to make minimum debt
service payments (including principal and interest) for these debt obligations
amounts to $95.2 million for the fiscal year ending May 30, 2009, exclusive of
the ABL Line of Credit. The ABL Line of Credit has no annual minimum principal
payment requirement.
Our
ability to make payments on and to refinance our debt and to fund planned
capital expenditures will depend on our ability to generate cash in the future.
To some extent, this is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control. If we are
unable to generate sufficient cash flow to service our debt and meet our other
commitments, we will be required to adopt one or more alternatives, such as
refinancing all or a portion of our debt, including the notes, selling material
assets or operations or raising additional debt or equity capital. We may not be
able to effect any of these actions on a timely basis, on commercially
reasonable terms or at all, or that these actions would be sufficient to meet
our capital requirements. In addition, the terms of our existing or future debt
agreements, including the credit agreements governing our senior secured credit
facilities and each indenture governing the notes, may restrict us from
effecting any of these alternatives.
If we
fail to make scheduled payments on our debt or otherwise fail to comply with our
covenants, we will be in default and, as a result:
|
|
•
|
our
debt holders could declare all outstanding principal and interest to be
due and payable,
|
|
|
•
|
our
secured debt lenders could terminate their commitments and commence
foreclosure proceedings against our assets,
and
|
|
|
•
|
we
could be forced into bankruptcy or
liquidation.
|
The
indenture governing our senior notes and the credit agreements governing our
senior secured credit facilities impose significant operating and financial
restrictions on us and our subsidiaries, which may prevent us from capitalizing
on business opportunities.
The
indenture governing our senior notes and the credit agreements governing our
senior secured credit facilities contain covenants that place significant
operating and financial restrictions on us. These covenants limit our ability
to, among other things:
|
|
•
|
incur
additional indebtedness or enter into sale and leaseback
obligations;
|
|
|
•
|
pay
certain dividends or make certain distributions on capital stock or
repurchase capital stock;
|
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•
|
make
certain capital expenditures;
|
|
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•
|
make
certain investments or other restricted
payments;
|
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|
•
|
have
our subsidiaries pay dividends or make other payments to
us;
|
|
|
•
|
engage
in certain transactions with stockholders or
affiliates;
|
|
|
•
|
sell
certain assets or merge with or into other
companies;
|
|
|
•
|
guarantee
indebtedness; and
|
|
|
•
|
create
liens.
|
8
|
|
As
a result of these covenants, we are limited in how we conduct our business
and we may be unable to raise additional debt or equity financing to
compete effectively or to take advantage of new business opportunities.
The terms of any future indebtedness we may incur could include more
restrictive covenants. If we fail to maintain compliance with these
covenants in the future, we may not be able to obtain waivers from the
lenders and/or amend the covenants.
|
Our
failure to comply with the restrictive covenants described above, as well as
others that may be contained in our senior secured credit facilities from time
to time, could result in an event of default, which, if not cured or waived,
could result in us being required to repay these borrowings before their due
date. If we are forced to refinance these borrowings on less favorable terms,
our results of operations and financial condition could be adversely
affected.
Our
failure to comply with the agreements relating to our outstanding indebtedness,
including as a result of events beyond our control, could result in an event of
default that could materially and adversely affect our results of operations and
our financial condition.
If there
were an event of default under any of the agreements relating to our outstanding
indebtedness, the holders of the defaulted debt could cause all amounts
outstanding, with respect to that debt, to be due and payable immediately. Our
assets or cash flow may not be sufficient to fully repay borrowings under our
outstanding debt instruments if accelerated upon an event of default. Further,
if we are unable to repay, refinance or restructure our secured indebtedness,
the holders of such debt could proceed against the collateral securing that
indebtedness. In addition, any event of default or declaration of acceleration
under one debt instrument could also result in an event of default under one or
more of our other debt instruments.
Item
1B. Unresolved Staff Comments
None.
Item
2. Properties
As of May
31, 2008, we operated 397 stores in 44 states throughout the United
States. We own the land and/or building for 41 of our stores and
lease the other 356 stores. Store leases generally provide for fixed
monthly rental payments, plus the payment, in most cases, of real estate taxes
and other charges with escalation clauses. In many locations, our store leases
contain formulas providing for the payment of additional rent based on
sales.
We own
five buildings in Burlington, New Jersey. Of these buildings, two are used by us
as retail space. In addition, we own approximately 97 acres of land in the
townships of Burlington and Florence, New Jersey on which we have constructed
our corporate headquarters and a warehouse/distribution facility. We lease
warehouse facilities of approximately 300,000 square feet in Bristol,
Pennsylvania. We lease approximately 20,000 square feet of office space in New
York City. We own approximately 43 acres of land in Edgewater Park, New Jersey
on which we have constructed a warehouse and office facility of approximately
648,000 square feet. We lease an additional 440,000 square foot distribution
facility opened in April 2006 in San Bernardino, California. These facilities
have significantly expanded our warehousing and distribution
capabilities.
The
following table identifies the years in which store leases, exclusive of
warehouse and corporate location leases, existing at May 31, 2008 expire,
showing both expiring leases for which we have no renewal options available and
expiring leases for which we have renewal options available. For
purposes of this table, only the expiration dates of the current lease term
(exclusive of any available options) are identified.
|
Fiscal years Ending
|
Number
of Leases
Expiring
with No Additional Renewal
Options
|
Number
of Leases
Expiring
with Additional
Renewal Options
|
||||||||
|
2009-2010
|
7
|
97
|
||||||||
|
2011-2012
|
4
|
84
|
||||||||
|
2013-2014
|
10
|
56
|
||||||||
|
2015-2016
|
4
|
22
|
||||||||
|
2017-2018
|
3
|
50
|
||||||||
|
Thereafter
to 2036
|
12
|
42
|
||||||||
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Total
|
40
|
351
|
||||||||
9
We are
party to various 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
4. Submission
of Matters to a Vote of Security Holders
None.
10
PART
II
|
Item
5.
|
Market
for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
No
established trading market currently exists for our common
stock. As of August 29, 2008, Parent was the only holder
of record of our common stock, and 98.6% of Parent’s common stock is held by
various Bain Capital funds. Payment of dividends is prohibited
under our credit agreements, except for certain limited
circumstances. Dividends equal to $0.7 million and $0.1 million were
paid during Fiscal 2008 and Fiscal 2007, respectively, to Parent in order to
repurchase capital stock of the Parent.
|
Item 6.
|
Selected
Financial Data
|
The
following table presents selected historical Consolidated Statements of
Operations and Comprehensive Income (Loss), Balance Sheets and other data for
the periods presented and should only be read in conjunction with our audited
consolidated financial statements and the related notes thereto, and
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” each of which are included elsewhere in this Form 10-K. The
historical financial data for the fiscal years ended May 31, 2008 and June 2,
2007, the periods April 13, 2006 to June 3, 2006, and May 29, 2005 to April 12,
2006 and for the fiscal years ended May 28, 2005, and May 29, 2004 have been
derived from our historical audited combined or consolidated financial
statements.
Predecessor/Successor
Presentation. Although Burlington Coat Factory Warehouse
Corporation continued as the same legal entity after the Merger Transaction, the
Selected Financial Data for Fiscal 2006 provided below is presented for two
periods: Predecessor and Successor, which relate to the period preceding the
Merger Transaction, May 29, 2005 to April 12, 2006, and the period succeeding
the Merger Transaction, April 13, 2006 to June 3, 2006. The financial data
provided refers to the operations of the Company and its subsidiaries for both
the Predecessor and Successor periods.
|
(in
thousands ‘000)
|
||||||||||||||||||||||||||||
|
Predecessor
|
Successor
|
Combined
(1)
|
Successor
|
Successor
|
||||||||||||||||||||||||
|
Twelve
Months Ended 5/29/04
|
Twelve
Months Ended 5/28/05
|
Period
from 5/29/05 to 4/12/06
|
Period
from 4/13/06 to 6/3/06
|
Twelve
Months Ended 6/3/06
|
Twelve
Months Ended 6/2/07
|
Twelve
Months Ended 5/31/08
|
||||||||||||||||||||||
|
Revenues
from Continuing Operations
|
$ | 2,860.0 | $ | 3,199.8 | $ | 3,045.3 | $ | 425.2 | $ | 3,470.5 | $ | 3,441.6 | $ | 3,424.0 | ||||||||||||||
|
Income
(Loss) from Continuing Operations, Net of Provision for Income
Tax
|
72.3 | 106.0 | 94.3 | (27.2 | ) | 67.1 | (47.2 | ) | (49.0 | ) | ||||||||||||||||||
|
Discontinued
Operations, Net of Tax Benefit (2)
|
(4.4 | ) | (1.0 | ) | - | - | - | - | - | |||||||||||||||||||
|
Net
Income (Loss)
|
67.9 | 105.0 | 94.3 | (27.2 | ) | 67.1 | (47.2 | ) | (49.0 | ) | ||||||||||||||||||
|
Balance
Sheet Data
|
||||||||||||||||||||||||||||
|
Total
Assets
|
$ | 1,579.2 | $ | 1,673.3 |
Note
(3)
|
$ | 3,213.5 | $ | - | $ | 3,036.5 | $ | 2,964.5 | |||||||||||||||
|
Working
Capital
|
321.8 | 392.3 |
Note
(3)
|
219.3 | - | 280.6 | 294.2 | |||||||||||||||||||||
|
Long-term
Debt
|
133.5 | 132.3 |
Note
(3)
|
1,508.1 | - | 1,456.3 | 1,480.2 | |||||||||||||||||||||
|
Stockholders
Equity
|
845.4 | 926.2 |
Note
(3)
|
419.5 | - | 380.5 | 323.5 | |||||||||||||||||||||
|
Notes:
|
||||||||||||||||||||||||||||
|
|
(1)
Our combined results of operations for the year ended June 3, 2006
represent the addition of the Predecessor period from May 29, 2005
through
April 12, 2006 and the Successor period from April 13, 2006 through
June 3, 2006. This combination does not comply with GAAP or with the rules
for
pro forma presentation, but is presented because we believe it
provides the most meaningful comparison of our results for investors as it
provides
annual comparability between years and is the information that
management uses to make decisions on an annual basis.
|
|||||||||||||||||||||||||||
|
|
(2)
Discontinued operations include the after-tax operations of stores closed
by us during the fiscal years listed.
|
|||||||||||||||||||||||||||
|
|
(3)
Information not available for interim period.
|
|||||||||||||||||||||||||||
11
|
Item 7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
For
purposes of the following “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” unless indicated otherwise or the context
requires, “we,” “us,” “our,” and “Company” refers to the operations of
Burlington Coat Factory Warehouse Corporation and its consolidated subsidiaries,
and the financial statements of Burlington Coat Factory Investments Holdings,
Inc. and its subsidiaries. We maintain our records on the basis of a 52 or 53
week fiscal year ending on the Saturday closest to
May 31. The following discussion and analysis should be
read in conjunction with the “Selected Financial Data” and our
consolidated financial statements, including the notes thereto,
appearing elsewhere herein.
In
addition to historical information, this discussion and analysis contains
forward-looking statements based on current expectations that involve risks,
uncertainties and assumptions, such as our plans, objectives, expectations, and
intentions set forth in the “Cautionary Statement Regarding Forward-Looking
Statements”, which can be found in Item 1A, Risk Factors. Our actual
results and the timing of events may differ materially from those anticipated in
these forward-looking statements as a result of various factors, including those
set forth in the “Risk Factors” section and elsewhere in this
report.
General
Based on
retail industry reports, we are a nationally recognized retailer of
high-quality, branded apparel at every day low prices. We opened our first store
in Burlington, New Jersey in 1972, selling primarily coats and outerwear. Since
then, we have expanded our store base to 397 stores in 44 states, and
diversified our product categories by offering an extensive selection of
in-season, fashion-focused merchandise, including: ladies sportswear, menswear,
coats, family footwear, baby furniture and accessories, as well as home décor
and gifts. We employ a hybrid business model which enables us to offer the low
prices of off-price retailers and the branded merchandise, product breadth and
product diversity of department stores. We acquire desirable, first-quality,
current-brand, labeled merchandise directly from nationally-recognized
manufacturers.
Overview
of Fiscal 2008 Operating Results
We
experienced a decrease in net sales for the 52 week period ended May 31, 2008
compared with the 52 week period ended June 2, 2007 of approximately $10.0
million (0.3%). Net sales were approximately $3.4 billion for Fiscal
2008 (52 weeks) and Fiscal 2007 (52 weeks).
We
experienced a 5.2% comparative store sales decrease from the comparative period
of a year ago due primarily to unseasonably warm weather in September and
October, weakened consumer demand similar to what other retailers experienced
and temporarily low or out of stock issues in certain limited divisions
throughout the fiscal year.
Gross
margin as a percentage of sales increased to 38.3% from 37.6% during the period
ended May 31, 2008 compared with the period ended June 2, 2007, due primarily to
our improved initial markups which are the result of lower costs associated with
better negotiating and buying efforts.
We
recorded a net loss of $49.0 million for the period ended May 31, 2008 compared
with net loss of $47.2 million for the 52 week period ended June 2, 2007. The
primary drivers of the net loss in Fiscal 2008 and Fiscal 2007 are weakened
consumer demand, impairment charges and depreciation, amortization and interest
expense incurred in connection with the financing of the Merger Transaction in
Fiscal 2006. The improvement in our net loss position from Fiscal
2007 to Fiscal 2008 is primarily driven by improved margins.
12
The
following is a list of operating highlights for Fiscal 2008:
|
§
|
20
Burlington Coat Factory Warehouse Stores were
opened.
|
|
§
|
The
acquisition of the rights for up to 24 leases from Value
City.
|
|
§
|
Hired
eight executive and senior management positions in merchandising, finance,
store operations, logistics, IT and strategy to strengthen the management
team and provide the experience to lead our various improvement and
growth initiatives.
|
|
§
|
Completion
of a supply chain network design study and began implementation of a three
year strategy focused on providing best-in-class store service levels and
efficiencies.
|
|
§
|
Establishment
of a Customer Relationships Management (CRM) database to help us better
understand our customer’s buying
behavior.
|
|
§
|
Engagement
of a new advertising partner to help raise the unaided awareness of the
Burlington Coat Factory brand so that we can be more top of mind with our
customers.
|
Management
Initiatives for Fiscal 2009
In Fiscal
2009, management will continue to pursue initiatives to address the decline in
comparative store sales and to support our future growth. We continue to
concentrate on developing 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.
We are
also engaged with an outside design firm to help us improve the in-store
customer experience by improving in-store signage and flow and
adjacencies of our departments as well as the overall look and feel of our
stores. We believe that improving the signage in our stores will assist our
customers to locate items they are looking for and perhaps other items they
might be excited and surprised to find in the store. By addressing
the way our stores look and feel, we hope to make our stores easier and more fun
to shop.
We are
launching a new marketing campaign focused to reach an emotional connection with
our consumer with the concept that “great minds shop alike.” We
believe that our consumers will be engaged by thinking our buyers’ great minds
(similar to the great minds of our consumers) are looking for the best fashion
deals in the market. We will continue to use print, television, and
radio media for this new campaign which continues to highlight our great
everyday values, our brands, and our trend right fashions as well as our overall
message of Burlington Coat Factory as a value department store.
We
continue to develop our supply chain capabilities. We continue with
our plans to implement a new warehouse management system. Based on
the supply chain network design study that was completed in Fiscal 2008, we have
decided to change our current national network to a regional network to gain
even greater efficiencies in service times to our stores and in the entire
process of moving goods through our distribution centers. As a result
of our desire to change to a regional network, we will be making modifications
to our existing distribution centers and bringing up the warehouse management
system with the new capabilities of the distribution centers in the regional
network during Fiscal 2009 and the fiscal year ended May 29, 2010.
In 2008,
we began to roll out a new layaway database to all of our stores, enhancing our
already successful layaway program. In this new version of layaway, all layaway
and special order information is stored in a database that is accessible to the
stores and the corporate office. All updates to existing layaways are done in
near real-time, increasing the speed and efficiency of the layaway process while
providing improved financial controls. When a customer returns to the
store to make a payment or pick up, the layaway information is easily retrieved,
providing a more pleasant experience for the customer. In addition, repeat
layaway and special order customers can be located in the database, speeding up
the the creation process by eliminating the need to gather duplicate demographic
information.
The
layaway database will allow us to spend more time providing our customers with
personalized service. We expect the rollout of this database to be
completed during Fiscal 2009.
Through
these initiatives, management believes it can improve on our recent results
through better engagement of our customers and efficiencies of the supply
chain.
Uncertainties
and Challenges
As
management strives to increase profitability through achieving positive
comparative store sales and leveraging productivity initiatives focused on
improving the in-store experience, more efficient movement of products from the
vendors to the selling floors, and modifying our marketing plans to increase our
core customer base and increase our share of our current customer’s spend, there
are uncertainties and challenges that we face as a value department store of
apparel and accessories for men, women and children and home furnishings that
could have a material impact on our revenues or income.
13
Economic
Conditions. The macro economic pressures on our consumers from
higher energy prices, tighter credit markets and a prolonged slump in the
housing market have lowered consumer confidence. In order to succeed
in these difficult economic conditions, we need to continue to focus each of our
merchandising categories on the right brands, the right items and trend right
fashions at a great value in order to provide a compelling assortment of
merchandise to our core customers.
Competition, Resale Price
Maintenance, and Margin Pressure. We believe that in order
to remain competitive with off-price retailers and discount stores, we must
continue to offer brand-name merchandise at a discount from traditional
department stores as well as an assortment of merchandise that is appealing to
our customers.
The U.S.
retail apparel and home furnishings markets are highly fragmented and
competitive. We compete for business with department stores, off-price
retailers, specialty stores, discount stores, wholesale clubs, and outlet
stores. We anticipate that competition will increase in the future. Therefore,
we will continue to look for ways to differentiate our stores from those of our
competitors.
With the
recent devaluation of the dollar and the increase of costs of imports from China
and other parts of the world the U.S retail industry is facing increased
pressure on margins. To date, we have been able to compensate for the margin
pressure by not accepting price increases wherever possible, and to a lesser
extent, increasing the selling price of certain merchandise when
appropriate.
In
addition, rising energy costs may cause cost increases related to
freight, payroll and employee benefits, ultimately impacting net profit. We
expect that our cash flows from operating activities and the availability under
our credit facilities will be sufficient for our cash needs.
Changes
to import and export laws could have a direct impact on our operating expenses
and an indirect impact on consumer prices and we cannot predict any future
changes in such laws.
Seasonality of Sales and Weather
Conditions. Our sales, like most other retailers, are subject to seasonal
influences, with the majority of our sales and net income derived during the
months of September, October, November, December and January, which includes the
back-to-school and holiday seasons.
Additionally,
our sales continue to be significantly affected by weather. Generally, our sales
are higher if the weather is cold during the Fall and warm during the early
Spring. Sales of cold weather clothing are increased by early cold weather
during the Fall, while sales of warm weather clothing are improved by early warm
weather conditions in the Spring. Although we have diversified our product
offerings, we believe traffic to our stores is still heavily driven by weather
patterns.
The
Merger Transaction
On
January 18, 2006, we entered into a Merger Agreement (Merger Agreement)
pursuant to which our entire company was sold to affiliates of Bain Capital
(Merger Transaction).
On
April 13, 2006, the Merger Transaction was consummated through a $2.1
billion merger with BCFWC being the surviving corporation. Under the Merger
Agreement, former holders of our common stock, par value $1.00 per share,
received $45.50 per share, or approximately $2.1 billion. Approximately $13.8
million of the $2.1 billion was used, among other things, to settle outstanding
options to purchase our common stock. The Merger Transaction consideration was
funded through the use of our available cash, cash equity contributions from
affiliates of Bain Capital and management, and the debt financings as further
described in Notes 1 and 3 to our consolidated financial
statements.
Following
the consummation of the Merger Transaction, Parent entered into a contribution
agreement with us to effectuate an exchange of shares under Section 351(a)
of the Internal Revenue Code of 1986, as amended. Parent delivered to us all of
BCFWC’s outstanding shares, and we simultaneously issued and delivered all of
our authorized and outstanding shares of common stock to Parent.
In
connection with the Merger Transaction, we entered into other definitive
agreements as further described in Notes 1 and 3 to our consolidated financial
statements.
14
Burlington
Coat Factory Warehouse Corporation Corporate Structure
The chart
below summarizes our corporate structure prior to the Merger Transaction and
related transactions.
15
The chart
below summarizes our corporate structure following the consummation of the
Merger Transaction..
Management
considers 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 our comparative store sales as sales (net
of sales discounts) of those stores that are beginning their four hundred and
twenty-fifth day of operation (approximately 1 year and 2 months). Existing
stores whose square footage has been changed by more than 20% and relocated
stores are classified as new stores (unless the store remains in the same
shopping complex) for comparative store sales purposes. This method is used in
this section in comparing the results of operations for the fiscal period ended
May 31, 2008 with the results of operations for the fiscal period ended June 2,
2007. We experienced a decrease in comparative store sales
of 5.2% for the fiscal year ended May 31, 2008 compared with the
fiscal year ended June 2, 2007. This decrease is primarily due to
unseasonably warm weather in September and October, weakened consumer demand
similar to what other retailers experienced and temporarily low or out of stock
issues in certain limited divisions throughout the fiscal year.
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 fiscal
year ended May 31, 2008 was $250.6 million, a $9.6 million decrease compared
with the fiscal year ended June 2, 2007. The decrease in EBITDA is
primarily the result of the decrease in net sales during the same
period.
16
The
following table shows our calculation of EBITDA for the fiscal years ended May
31, 2008 and June 2, 2007:
|
(in
thousands ‘000)
|
||||||||
|
Twelve
Months Ended
|
||||||||
|
May
31, 2008
|
June
2, 2007
|
|||||||
|
Income
(Loss) from Continuing Operations
|
$ | (48,970 | ) | $ | (47,199 | ) | ||
|
Interest
Expense
|
122,684 | 134,313 | ||||||
|
Provision
(Benefit) for Income Tax
|
(25,304 | ) | (25,425 | ) | ||||
|
Depreciation
|
133,060 | 130,398 | ||||||
|
Impairment
|
25,256 | 24,421 | ||||||
|
Amortization
|
43,915 | 43,689 | ||||||
|
EBITDA
|
$ | 250,641 | $ | 260,197 | ||||
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. We experienced an increase in gross
margin percentage for Fiscal 2008 to 38.3%, from 37.6% for Fiscal
2007. The improvement in gross margin was due primarily to
improved initial markups which are the result of lower costs associated with
better negotiating and buying efforts.
Inventory
Levels. Inventory levels are monitored by management to ensure
that our stores are properly stocked to service customer needs while at the same
time ensuring that stores are not over-stocked which would necessitate increased
markdowns to move slow-selling merchandise. At May 31, 2008,
inventory was $719.5 million compared with $710.6 million at June 2,
2007. We believe that our inventory levels as of May 31, 2008
are appropriate, contain a higher percentage of fresh merchandise than in
previous periods and that our inventory is properly valued at the lower of cost
or market.
Inventory
turnover. Inventory turnover is a measure that indicates
how efficiently inventory is bought and sold. It measures the length
of time that we own our inventory. This is significant because
usually the longer the inventory is owned, the more likely markdowns may be
required to sell the inventory. Inventory turnover is calculated by
dividing the retail sales before sales discounts by the average retail value of
the inventory for the period being measured. Our inventory turnover
rate was 2.4 in each of Fiscal 2008 and Fiscal 2007.
Liquidity. Liquidity measures
our ability to generate cash. Management measures liquidity through cash flow
and working capital. Cash flow is the measure of cash generated from operating,
financing and investing activities. We experienced an increase in cash flow of
$30.7 million during the fiscal year ended May 31, 2008 compared with the fiscal
year ended June 2, 2007 primarily due to fluctuations in our line of credit
offset in part by increased capital expenditures. Cash and cash
equivalents increased $6.2 million to $40.1 million as of May 31,
2008.
Changes
in working capital also impact our cash flows. Working capital equals current
assets (exclusive of restricted cash) minus current liabilities. Working capital
at May 31, 2008 was $294.2 million compared with $280.6 million at June 2,
2007. This increase in working capital is the result of several
factors. Increases in working capital resulted from a decrease in the
line item “Accounts Payable” and an increase in the line item “Deferred Tax
Asset” in our Consolidated Balance Sheets. These increases
in our working capital are partially offset by a decrease in the line items
“ Assets Held for Disposal” and an increase in the line item “Other Current
Liabilities” in the our 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 4.8% for
the fiscal year ended May 31, 2008 compared to the fiscal year ended June 2,
2007 as a result of various process improvements and standard operating
procedures that have been implemented during the year to improve the
efficiencies of our stores and, specifically, the receiving areas within our
stores.
Items
Affecting Comparability
Predecessor/Successor
basis of accounting.
Although
BCFWC continued as the same legal entity after the Merger Transaction, the
discussion regarding Fiscal 2006 reflects two periods: Predecessor and
Successor, which relate to the period preceding the Merger Transaction and the
period succeeding the Merger Transaction, respectively. We refer to our
operations and the operations of our subsidiaries for both the Predecessor and
Successor periods. We have prepared our discussion of the results of operations
for the fiscal year ended June 3,
17
2006 by
comparing the mathematical combination of the Predecessor and Successor periods,
without making pro forma adjustments.
As a
result of the Merger Transaction, our assets and liabilities were adjusted to
their fair value as of the closing date, April 13, 2006. Depreciation and
amortization expenses are higher in the Successor accounting period due to these
fair value assessments resulting in increases to the carrying value of our
property, plant and equipment and intangible assets. Interest expense has
increased substantially in the Successor accounting periods in connection with
our financing arrangements, which includes a $800 million ABL Line of Credit, a
$900 million Term Loan, $305 million of senior notes and $99.3 million of
Holdings Senior Discount Notes, each of which are further described under the
caption below entitled “Liquidity.”
Results
of Operations
The
following table sets forth certain items in our Consolidated Statements of
Operations and Comprehensive Income (Loss) as a percentage of net sales for
periods indicated that are used in connection with the discussion
herein.
|
May
31, 2008
|
June
2, 2007
|
June
3, 2006
|
||||||||||
|
Net
sales
|
100 | % | 100 | % | 100 | % | ||||||
|
Cost
of Sales (Exclusive of Depreciation and Amortization)
|
61.8 | 62.4 | 63.5 | |||||||||
|
Selling
& Administrative
Expenses
|
32.2 | 31.2 | 30.6 | |||||||||
|
Depreciation
|
3.9 | 3.8 | 2.8 | |||||||||
|
Amortization
|
1.3 | 1.3 | 0.3 | |||||||||
|
Impairment
Charges
|
0.7 | 0.7 | - | |||||||||
|
Interest
Expense
|
3.6 | 4.0 | 0.6 | |||||||||
|
Other
(Income) Loss,
Net
|
(0.4 | ) ) | (0.2 | ) | (0.2 | ) | ||||||
|
Other
Revenue
|
0.9 | 1.1 | 0.9 | |||||||||
|
(Loss)
Income from Continuing Operations Before Income Taxes
|
(2.2 | ) | (2.1 | ) | 3.3 | |||||||
|
Income
Tax (Benefit) Expense
|
(0.8 | ) | (0.7 | ) | 1.3 | |||||||
|
Net
(Loss) Income
|
(1.4 | ) % | (1.4 | ) % | 2.0 | % | ||||||
Net Sales. Consolidated
net sales decreased $10.0 million (0.3%) to $3.4 billion for the fiscal year
ended May 31, 2008 compared with the fiscal year ended June 2, 2007. Comparative
stores sales decreased 5.2% for the fiscal year ended May 31, 2008, due
primarily to unseasonably warm weather in September and October, weakened
consumer demand similar to what other retailers experienced and temporarily low
or out of stock issues in certain limited divisions throughout the fiscal
year.
The
decrease in comparative store sales is partially offset by 20 new Burlington
Coat Factory Warehouse stores opened during Fiscal 2008, which
contributed $105.8 million to net sales for the fiscal year ended May 31,
2008. Additionally, sales from stores opened during Fiscal 2007,
which are not included in our definition of comparative store sales, contributed
$58.9 million to Fiscal 2008 results.
Other Revenue. Other
revenue (consisting of rental income from leased departments, sublease rental
income, layaway, alteration and other service charges, dormancy service fees and
miscellaneous revenue items) decreased to $30.6 million for the fiscal year
ended May 31, 2008 compared with $38.2 million for the fiscal year ended June 2,
2007. This decrease is primarily related to a decrease in dormancy service
fees of $5.3 million and decreases in rental income from leased departments of
approximately $2.0 million due primarily to our converting leased departments
into company-run departments.
During
the third quarter of Fiscal 2008, we ceased charging dormancy service fees on
outstanding balances of store value cards and began recognizing an estimate of
the amount of gift cards that would not be redeemed (referred to herein as
breakage income) related to outstanding store value cards and included this
income in the line item “Other Income, Net” in our Consolidated Statements of
Operations and Comprehensive Income (Loss). For additional
information, please see the discussion below under the caption entitled “Other
Income, Net”.
Cost of Sales. Cost
of sales decreased $29.8 million (1.4%) to $2,095.4 million for the fiscal year
ended May 31, 2008 compared with the fiscal year ended June 2, 2007. Cost of
sales, as a percentage of net sales, decreased to 61.8% in Fiscal 2008 from
62.4% in Fiscal 2007. The decrease in cost of sales as a percentage
of sales was due primarily to our improved initial markups which are the result
of lower costs associated with better negotiating and buying
efforts.
18
Our cost
of sales and gross margin may not be comparable to those of other entities,
since some entities include all of the costs related to their buying and
distribution functions in cost of sales. We include these costs in the selling
and administrative expenses, depreciation, and amortization line items in
our Consolidated Statements of Operations and Comprehensive Income (Loss).
We include in our definition of cost of sales all costs of merchandise (net of
purchase discounts and certain vendor allowances), inbound freight, warehouse
outbound freight and freight related to internally transferred merchandise and
certain merchandise acquisition costs, primarily commissions and import
fees.
Selling and Administrative
Expenses. Selling and administrative expenses for the fiscal year
ended May 31, 2008 amounted to $1,090.8 million compared to $1,062.5 million for
the fiscal year ended June 2, 2007, a 2.7% increase. This increase is
due to several factors. First, occupancy related expenses increased
$20.2 million for the fiscal year ended May 31, 2008 compared with the fiscal
year ended June 2, 2007. Rent, utilities and maintenance related
expenses for new stores opened in Fiscal 2008 accounted for $12.8 million of the
$20.2 million increase. Stores opened in Fiscal 2007 that were not
operating for a full year incurred incremental rent, utilities and maintenance
related expenses in Fiscal 2008 of $5.5 million.
In
addition to increases in occupancy related expense, professional fees increased
$3.2 million. The increase in professional fees is primarily related
to our evaluation of the effectiveness of our internal control over financial
reporting. As a non-accelerated filer, we are required to provide our
initial report of management on our internal controls over financial reporting
in this report.
Lastly,
other expense accounts including, but not limited to, miscellaneous taxes,
protection, other and temporary help increased $9.5 million during Fiscal 2008
compared with Fiscal 2007. New store openings during Fiscal 2007 and
Fiscal 2008 account for approximately $3.2 million of the
increase. The increase in temporary help of approximately $1.7
million is primarily related to our distribution centers. During
Fiscal 2008, we receive approximately 82% of our merchandise through our
distribution centers as opposed to receiving only 50% of our merchandise through
our distribution centers in Fiscal 2007.
These
increases were partially offset by a decrease in payroll and payroll related
accounts of $5.7 million for the fiscal year ended May 31, 2008 compared to the
fiscal year ended June 2, 2007. The decrease in payroll and payroll
related accounts of $5.7 million is a function of decreases related to
comparative store payroll of $18.5 million and $13.7 million related to
retention bonuses incurred as part of the Merger Transaction,
partially offset by new store payroll of $14.9 million, incremental payroll
costs of $5.1 million related to stores that were not opened for a full fiscal
year in Fiscal 2007 and an increase of $7.1 million related to payroll at the
corporate office as a result of our filling several open senior management and
management positions. During Fiscal 2007, we recorded $13.7 million
of retention bonuses related to the Merger Transaction. These bonuses
were paid out during Fiscal 2007.
As a
percentage of net sales, selling and administrative expenses were 32.1% for the
year ended May 31, 2008 compared with 31.2% for the year ended June 2,
2007.
Depreciation. Depreciation
expense amounted to $133.1 million for the year ended May 31, 2008 compared with
$130.4 million for the year ended June 2, 2007. This increase of $2.7 million is
attributable primarily to new stores that were opened in Fiscal
2008.
Amortization. Amortization
expense related to the amortization of net favorable leases and deferred debt
charges amounted to $43.9 million at May 31, 2008 compared to $43.7 million at
June 2, 2007.
Impairment
Charges. The carrying value of all long-lived assets are
reviewed for impairment whenever events or circumstances have changed
such that the carrying value of our long-lived assets may not be
recoverable. For the fiscal year ended May 31, 2008, we recorded
impairment charges of $25.3 million related to certain long-lived assets and
intangible assets of thirteen of our stores. For the year ended June
2, 2007, we recorded impairment charges of $24.4 million related to certain
long-lived assets and intangible assets of sixteen of our stores.
Interest Expense. Interest
expense was $122.7 million and $134.3 million for the fiscal years ended May 31,
2008 and June 2, 2007, respectively. The decrease in interest expense is
primarily related to lower interest rates and lower average borrowings on our
ABL Line of Credit and changes in the fair market value of interest rate cap
contracts. Adjustments to the interest rate cap contracts to fair
value amounted to a gain of $0.1 million and a loss of $2.0 million for the
fiscal years ended May 31, 2008 and June 2, 2007, respectively, which are
recorded in the line item “Interest Expense” in our Consolidated Statements of
Operations and Comprehensive Income (Loss).
Other (Income),
Net. Other (income), net (consisting of investment income,
gains and losses on disposition of assets, breakage income and other
miscellaneous items) increased $6.7 million to $12.9 million for the period
ended May 31, 2008 compared with the period ended June 2, 2007. The
increase is primarily related to our recording $5.3 million of breakage income
during Fiscal 2008. As noted above, we discontinued dormancy service
fee income related to store value cards during Fiscal 2008 and began recognizing
breakage income as a result of establishing a gift card
company. Refer to Note 1 to our consolidated financial statements
entitled “Summary of Significant Accounting Policies” for further
information.
19
Income
Taxes. Income tax benefit was $25.3 million for the fiscal
year ended May 31, 2008, compared with $25.4 million for the fiscal year ended
June 2, 2007. The effective tax rates for Fiscal 2008 and Fiscal 2007
were 34.1% and 35%, respectively.
Net Loss. Net
loss amounted to $49.0 million for the fiscal year ended May 31, 2008 compared
with $47.2 million for the fiscal year ended June 2, 2007. The increase in
our net loss position is primarily related to an increase in selling and
administrative costs and depreciation, offset in part by improved margins
as discussed above under the caption entitled “Gross Margin” and a reduction in
interest expense.
Performance
for the Fiscal Year (52 weeks) Ended June 2, 2007 Compared with the Combined
Results for the Fiscal Year (53 weeks) Ended June 3, 2006
Our
combined results of operations for the year ended June 3, 2006 represent the
addition of the Predecessor period from May 29, 2005 through April 12, 2006 and
the Successor period from April 13, 2006 through June 3, 2006. This combination
does not comply with GAAP or with the rules for pro forma presentation, but is
presented because we believe it provides the most meaningful comparison of our
results for investors as it provides annual comparability between years and is
the information that management uses to make decisions on an annual
basis. The following table shows the combination of the Predecessor
and Successor periods:
|
(in thousands ‘000)
|
||||||||||||
|
May
29, 2005 to April 12, 2006
|
April
13, 2006 to June 3, 2006
|
Combined
Total
|
||||||||||
|
REVENUES:
|
||||||||||||
|
Net
Sales
|
$ | 3,017,633 | $ | 421,180 | $ | 3,438,813 | ||||||
|
Other
Revenue
|
27,675 | 4,066 | 31,741 | |||||||||
| 3,045,308 | 425,246 | 3,470,554 | ||||||||||
|
COSTS
AND EXPENSES:
|
||||||||||||
|
Cost
of Sales (Exclusive of Depreciation and
Amortization)
|
1,916,798 | 266,465 | 2,183,263 | |||||||||
|
Selling
and Administrative Expenses
|
897,231 | 154,691 | 1,051,922 | |||||||||
|
Depreciation
|
78,804 | 18,097 | 96,901 | |||||||||
|
Amortization
|
494 | 9,758 | 10,252 | |||||||||
|
Impairment
Charges
|
- | - | - | |||||||||
|
Interest
Expense
|
4,609 | 18,093 | 22,702 | |||||||||
|
Other
Income, Net
|
(3,572 | ) | (4,876 | ) | (8,448 | ) | ||||||
| 2,894,364 | 462,228 | 3,356,592 | ||||||||||
|
(Loss)
Income from Continuing Operations Before (Benefit) Provision for Income
Tax
|
150,944 | (36,982 | ) | 113,962 | ||||||||
|
(Benefit)
Provision for Income Tax
|
56,605 | (9,816 | ) | 46,789 | ||||||||
|
(Loss)
Income from Continuing Operations
|
94,339 | (27,166 | ) | 67,173 | ||||||||
|
Net
(Loss) Income
|
94,339 | (27,166 | ) | 67,173 | ||||||||
|
Net
Unrealized (Loss) on Investments, Net of tax
|
(4 | ) | - | (4 | ) | |||||||
|
Total
Comprehensive (Loss) Income
|
$ | 94,335 | $ | (27,166 | ) | $ | 67,169 | |||||
Net
Sales. Consolidated net sales decreased $35.4 million (1.0%)
to $3.4 billion for the fiscal year ended June 2, 2007 (52 weeks) compared with
the fiscal year ended June 3, 2006 (53 weeks). As previously noted, our fiscal
year ended June 3, 2006 was a 53 week fiscal year and as a result, the first
three fiscal quarters of Fiscal 2007 began and ended one week later than the
corresponding period of Fiscal 2006 and the fourth fiscal quarter of Fiscal 2007
began one week later and ended the same week as Fiscal 2006. Net
sales for Fiscal 2006 were $3.4 billion. Comparative stores sales decreased 2.2%
for the fiscal year ended June 2, 2007, due primarily to unseasonably warm
weather in November and December, unseasonably cool weather in April, and
increased returns resulting from the implementation of a new cash refund return
policy. In addition, supply chain issues, primarily related to shifting direct
store shipments into our distribution centers affected merchandise flow and in
turn negatively impacted sales.
20
Nineteen
new Burlington Coat Factory Warehouse stores opened during Fiscal 2007,
contributing $86.5 million to net sales for Fiscal 2007.
Other Revenue. Other
revenue (consisting of rental income from leased departments, sublease rental
income, layaway, and alteration and other service charges and miscellaneous
revenue items) increased to $38.2 million for the fiscal year ended June 2, 2007
compared with $31.7 million for the fiscal year ended June 3, 2006. This
increase was primarily related to gift card service fees.
Cost of Sales. Cost
of sales decreased $58.1 million (2.7%) for the fiscal year ended June 2, 2007
compared with the fiscal year ended June 3, 2006. Cost of sales, as a percentage
of net sales, decreased to 62.4% in Fiscal 2007 from 63.5% in Fiscal
2006. The decrease in cost of sales as a percentage of sales was due
primarily to reduced initial merchandise costs and reduced freight costs partly
offset by increased markdown costs during the fiscal year ended June 2, 2007
compared with the period ended June 3, 2006.
Our
cost of sales and gross margin may not be comparable to those of other entities,
since some entities include all of the costs related to their buying and
distribution functions in cost of sales. We include these costs in the line
items “Selling and Administrative Expenses,” “Depreciation,” and “Amortization”
in our Consolidated Statements of Operations and Comprehensive Income (Loss). We
include in our definition of cost of sales all costs of merchandise (net of
purchase discounts and certain vendor allowances), inbound freight, warehouse
outbound freight and freight related to internally transferred merchandise and
certain merchandise acquisition costs, primarily commissions and import
fees.
Selling and Administrative
Expenses. Selling and administrative expenses for the 52 week year
ended June 2, 2007 amounted to $1,062.5 million compared to $1,051.9 million for
the 53 week year ended June 3, 2006, a 1.0%
increase. This increase was due primarily to the increase
in expenses of approximately $22.2 million related to new stores opened in
Fiscal 2007 and approximately $15.0 million in expenses related to non-cash rent
expense, stock option expense resulting from the adoption of SFAS 123(R) and the
payment of advisory fees to Bain Capital. The increase was partially
offset by approximately $10.2 million from our decision not to make a
contribution to the employee profit sharing program and from the effect of the
53rd
week in Fiscal 2006. As a percentage of net sales, selling and
administrative expenses were 31.2% for the period ended June 2, 2007 compared
with 30.6% for the period ended June 3, 2006.
Depreciation. Depreciation
expense amounted to $130.4 million in the period ended June 2, 2007 compared
with $96.9 million in the period ended June 3, 2006. This increase of $33.5
million is attributable primarily to increased depreciation expenses as it
relates to the step up in basis of our fixed assets related to the Merger
Transaction of approximately $421 million and to capital additions made
subsequent to Fiscal 2006.
Amortization. Amortization
expense related to the amortization of net favorable leases and deferred debt
charges amounted to $43.7 million for the fiscal year ended June 2, 2007
compared with $10.3 million for the fiscal year ended June 3, 2006. The increase
in amortization expense is attributable to increased deferred debt charges and
favorable lease assets recorded as part of the Merger Transaction.
Impairment Charges. The
carrying value of all long-lived assets are reviewed for
impairment whenever events or circumstances have changed such that the
carrying value of our long-lived assets may not be recoverable. For the fiscal
year ended June 2, 2007, we recorded impairment charges of $24.4 million related
to certain long-lived assets and intangible assets of sixteen of our
stores. There were no impairment charges recorded for the fiscal year
ended June 3, 2006.
21
Interest Expense. Interest
expense was $134.3 million and $22.7 million for the fiscal years
ended June 2, 2007and June 3, 2006, respectively. The increase in
interest expense is primarily related to our ABL Line of Credit, our Term Loan,
BCFWC senior notes and our senior discount notes which all relate to financing
activities related to the Merger Transaction.
Other (Income),
Net. Other (income), net (consisting of investment income,
gains and losses on disposition of assets and other miscellaneous items)
decreased $2.3 million to $6.2 million for the period ended June 2, 2007
compared with the period ended June 3, 2006. The decrease is
primarily related to decreases in investment income of $3.6 million for the
fiscal year ended June 2, 2007 compared with the fiscal year ended June 3,
2006. Losses on write-offs of fixed assets from closed stores for the
fiscal year ended June 2, 2007 amounted to $3.6 million compared with $2.7
million for the fiscal year ended June 3, 2006. These losses were
offset in part by higher insurance claim recoveries in Fiscal 2007 compared with
Fiscal 2006. Insurance recoveries were $2.9 million and $1.0 million
for the fiscal years ended June 2, 2007 and June 3, 2006,
respectfully.
Income
Tax. Income tax benefit was $25.4 million for the fiscal year
ended June 2, 2007, compared with income tax expense of $46.8 million for the
twelve month period ended June 3, 2006. The effective tax rate for
Fiscal 2007 and Fiscal 2006 were 35.0% and 41.1%, respectively. The
difference in the effective tax rate is due to the Merger Transaction that took
place in Fiscal 2006.
Net Loss. Net
loss amounted to $47.2 million for the fiscal year ended June 2, 2007 compared
with net income of $67.2 million for the fiscal year ended June 3, 2006. The
decrease in earnings of $114.4 million is due primarily to continuing expenses
resulting from the Merger Transaction, including increased depreciation,
amortization and interest expense.
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 12 months as
well as the foreseeable future.
Cash
Flow for the Twelve Months Ended May 31, 2008 Compared with the Twelve Months
Ended June 2, 2007
We
generated $6.2 million of positive cash flow for the year ended May 31, 2008
compared with negative cash flow of $24.5 million for the year ended June 2,
2007. Net cash provided by continuing operations of $98.0 million for
Fiscal 2008 is $2.0 million more than the net cash flow provided by continuing
operations of $96.0 million for Fiscal 2007.
Net cash
used in investing activities increased $47.7 million to $100.3 million for
Fiscal 2008. The primary drivers of the increases relate to increased
capital expenditures in Fiscal 2008 of $26.4 million and increased lease
acquisition costs of $7.1 million. Additionally, we generated $11.0
million less of positive cash flow from the change in restricted cash and cash
equivalents in Fiscal 2008 compared to Fiscal 2007. This change
related to our replacing $11.0 million of restricted cash with letters of credit
agreements as collateral for insurance contracts during Fiscal
2007.
Net cash
provided by financing activities increased $76.5 million to positive cash
flow of $8.6 million in Fiscal 2008. The increase is related to our
borrowings and repayments on the ABL Line of Credit. In Fiscal 2008,
we borrowed $22.6 million, net of repayments. In Fiscal 2007, we
repaid $53.2 million, net of borrowings. The increase in borrowings
is primarily related to funding our capital expenditures.
Working
capital increased $13.6 million to $294.2 million during the fiscal year ended
May 31, 2008 compared to $280.6 million for the fiscal year ended June 2,
2007. The increase in working capital is the result of a variety of
factors. Increases in working capital resulted from a decrease in the
line item “Accounts Payable” and an increase in the line item “Deferred Tax
Asset” in our Consolidated Balance Sheets. These increases in
the our working capital are partially offset by a decrease in the line item
“Assets Held for Disposal” and an increase in the line item “Other Current
Liabilities” in the our Consolidated Balance Sheets.
The line
item “Accounts Payable” in our Consolidated Balance Sheets decreased $58.3
million compared with Fiscal 2007. This decrease in the line item
“Accounts Payable” in our Consolidated Balance Sheets is primarily related to a
decrease in merchandise payables as a result of our paying invoices faster in
Fiscal 2008 than in Fiscal 2007.
22
The line
item “Deferred Tax Asset” in our Consolidated Balance Sheets increased $16.2
million compared with Fiscal 2007. This increase is primarily the
result of our establishment of a FIN 48 liability associated with our accounting
of store value cards.
In Fiscal
2008, $30.1 million of assets previously considered held for sale were
reclassified to property and equipment as we determined that it was no longer
likely that they would be sold within the current operating cycle, leading to
the decrease in the line item “Assets Held for Sale” from Fiscal 2007 to Fiscal
2008. Additionally $2.1 million of assets previously held for
disposal were sold during Fiscal 2008. Refer to Footnote number 6,
“Assets Held for Disposal” for further details.
The increase
in the line item “Other Current Liabilities” in the Company’s Consolidated
Balance Sheets is due primarily to an increase of $17.9 million related to the
Company’s accruals. The increase in accruals is due to a variety of
accruals including, but not limited to, increases of $4.8 million related to
accruals for fixed assets as a result of the increased number of stores we are
planning to open in Fiscal 2009, $3.0 million in professional fees as a result
of our evaluation of the effectiveness of our internal control over financial
reporting, and $2.5 million related to electric expenses as a result of rising
energy costs.
Cash Flow for the
Twelve Months Ended June 2, 2007 Compared with the Combined Twelve Months Ended
June 3, 2006
Our
combined cash flows for the year ended June 3, 2006 represent the addition of
the Predecessor period from May 29, 2005 through April 12, 2006 and the
Successor period from April 13, 2006 through June 3, 2006. This combination does
not comply with GAAP or with the rules for pro forma presentation, but is
presented because we believe it provides the most meaningful comparison of our
results for investors as it provides annual comparability between years and is
the information that management uses to make decisions on an annual
basis. The following table shows the combination of the Predecessor
and Successor periods:
|
(Successor)
|
(Predecessor)
|
|||||||||||
|
April
13, 2006 to June 3, 2006
|
May
29, 2005 to April 12, 2006
|
Combined
Total
|
||||||||||
|
Net
Cash (Used in) Provided by Operations
|
$ | (52,893 | ) | $ | 430,979 | $ | 378,086 | |||||
|
Net
Cash Used in Investing Activities
|
$ | (2,057,669 | ) | $ | (63,920 | ) | $ | (2,121,589 | ) | |||
|
Net
Cash Provided by (Used in) Financing Activities
|
$ | 1,855,989 | $ | (102,063 | ) | $ | 1,753,926 | |||||
Net cash
provided by continuing operations amounted to $96.0 million for Fiscal 2007
which reflected a decrease of $282.1 million from $378.1 million of
net cash provided by continuing operations for the comparative period of Fiscal
2006. This decrease in net cash from continuing operations was due primarily to
less cash being generated from the sale of short term investments as was
generated in Fiscal 2006, and from a decrease in net income of $114.4
million. The decrease in net income is primarily due to interest
expenses and other Merger Transaction related expenses such as the accrual of
retention bonuses during Fiscal 2007.
Net cash
(used in) investing activities decreased from $2.1 billion for Fiscal 2006 to
$52.6 million for Fiscal 2007. This decrease was primarily attributable to
acquisition costs related to the Merger Transaction recorded during Fiscal
2006.
Net cash
used in financing activities amounted to $67.9 million for Fiscal 2007
compared with $1.8 billion of net cash provided by financing activities for
Fiscal 2006. This decrease is related to the net debt/equity proceeds related to
the financing of the Merger Transaction received during Fiscal
2006.
Working
capital increased to $280.6 million at June 2, 2007 from
$219.3 million at June 3, 2006. This increase in working capital
was primarily attributed to a decrease in accounts payable of $62.5
million due to fewer purchases in May compared to May of 2006 offset in part by
a $27.4 million increase in assets held for disposal given the anticipated sale
of certain fixed assets.
Debt
The
credit agreements related to our ABL Line of Credit and our Term Loan, and the
indentures governing our outstanding notes, each contain customary covenants,
including, among other things, covenants that restrict our ability to incur
certain additional indebtedness, create or permit liens on assets, or engage in
mergers or consolidations. Our credit agreements and indentures also
contain various and customary events of default with respect to our outstanding
indebtedness, including, without
23
limitation,
the failure to pay interest or principal when the same is due under the credit
agreements, cross default provisions, the failure of representations and
warranties contained in the credit agreements to be true and certain insolvency
events. If an event of default occurs and is continuing, the principal amounts
outstanding thereunder, together with all accrued unpaid interest and other
amounts owed thereunder, may be declared immediately due and payable by the
lenders. Were such an event to occur, we would be forced to seek new financing
that may not be on as favorable terms as our current borrowings.
As of May
31, 2008 we are in compliance with all of our debt covenants. As of
May 31, 2008, we had total debt outstanding of $1.5 billion including: $181.6
million outstanding under the ABL Line of Credit with unused availability of
$274.0 million, and $872.8 million outstanding under our Term
Loan. During Fiscal 2008, we paid down $11.4 million of our
outstanding obligations under our Term Loan, all of which was based on the
Company’s free cash flow (as defined in the credit agreement). The
payment offsets the future mandatory quarterly payments of $2.3 million through
the third quarter of the fiscal year ending May 30, 2009 (Fiscal 2009) and $0.2
million of the quarterly payment to be made in the fourth quarter of Fiscal
2009. During Fiscal 2008, we had borrowings, net of repayments of
$22.6 million under the ABL Line of Credit.
Please
refer to Note 15 to our Consolidated Financial Statements entitled “Long-Term
Debt” for a description of all outstanding debt.
During
Fiscal 2008, we opened 20 new Burlington Coat Factory Warehouse stores and
relocated three stores to new locations within the same trading
markets. We incurred $102.2 million, before the benefit of landlord
allowances of $32.9 million, in capital expenditures during Fiscal 2008
including: $74.4 million for store expenditures, exclusive of
the $32.9 million of landlord allowances, $4.5 million for upgrades of warehouse
and corporate facilities and $23.3 million for computer and other equipment
expenditures.
For
Fiscal 2009, we estimate that we will spend approximately $170.0 million, before
the benefit of landlord allowances of $73.0 million, for store openings,
improvements to warehouse facilities, information technology upgrades, and other
capital expenditures. Of the $170.0 million, approximately $128.0
million, before the benefit of $73.0 million of landlord allowances, has been
allocated for expenditures related to new stores, relocations and other store
requirements, $18.0 million for information technology initiatives and $24.0
million allocated for warehouse and home office system
enhancements. As part of our growth strategy, we plan to open
approximately 40 new Burlington Coat Factory Warehouse stores during Fiscal
2009.
We
currently use an internally developed warehouse management system to receive,
track, and control our product flow. During Fiscal 2009, we will continue our
replacement of this warehouse management system, which is currently planned to
be completed during Fiscal 2010. We believe that the use of the new system will
have a positive impact on efforts to optimize our supply chain
management.
We
monitor the availability of desirable locations for our stores from such sources
as national brokers, professional associations, landlord contacts, dispositions
by other retail chains and bankruptcy auctions. We may seek to acquire a number
of such locations in one or more transactions. If we undertake such
transactions, we may seek additional financing to fund acquisition 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 BCF 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 for certain
limited circumstances. Dividends equal to $0.7 million and $0.1
million were paid in Fiscal 2008 and Fiscal 2007, respectively, to our Parent in
order to repurchase capital stock of the Parent from retiring management
personnel.
Certain
Information Concerning Contractual Obligations
The
following table sets forth certain information regarding our obligations to make
future payments under current contracts as of May 31, 2008:
24
|
Payments
During Fiscal Years
|
|||||||||||||||||||||
|
Total
|
Less
Than 1 Year
|
2-3
Years
|
4-5
Years
|
Thereafter
|
|||||||||||||||||
|
Long-Term
Debt(1)
|
$ | 1,463,045 | $ | 3,326 | $ | 215,909 | $ | 852,936 | $ | 390,874 | |||||||||||
|
Interest
on Long-Term Debt
|
516,654 | 101,363 | 201,765 | 160,917 | 52,609 | ||||||||||||||||
|
Capital
Lease Obligations(2)
|
51,680 | 2,497 | 5,173 | 5,379 | 38,631 | ||||||||||||||||
|
Operating
Leases (3)
Related
Party Fees (4)
|
1,095,142 | 164,396 | 303,354 | 254,276 | 373,116 | ||||||||||||||||
| 31,500 | 4,000 | 8,000 | 8,000 | 11,500 | |||||||||||||||||
|
Purchase
Obligations (5)
FIN
48 Liabilities (6)
Other
(7)
|
735,573 | 727,563 | 8,001 | 7 | 2 | ||||||||||||||||
| 38,003 | 12,999 | 3,442 | - | 21,562 | |||||||||||||||||
| 3,000 | - | - | - | 3,000 | |||||||||||||||||
|
Total
|
$ | 3,934,597 | $ | 1,016,144 | $ | 745,644 | $ | 1,281,515 | $ | 891,294 | |||||||||||
|
Notes:
|
|||||||||||||||||||||
|
(1)
Excludes interest on Long-Term Debt.
|
|||||||||||||||||||||
|
(2)
Capital Lease Obligations include future interest payments.
(3)
Represents minimum rent payments for operating leases under the current
terms.
(4)
Represent fees to be paid to Bain Capital under the terms of the advisory
agreement (Please refer to Footnote 23 entitled “Related
Party Transactions” for further detail).
(5)
Represents commitments to purchase goods or services that have not been
received as of May 31, 2008.
(6)
The FIN 48 liabilities represent uncertain tax positions related to
temporary differences. The years for which the temporary
differences related to the uncertain tax positions will reverse have
been estimated in scheduling the obligations within the
table. Additionally, $16.5 million of interest and penalties
included in the Company’s total FIN 48 liability is not included in the
table
above.
(7) Represents
the Company’s Agreement with two former employees and the Chief Executive
Officer to pay their beneficiaries $1.0
million each upon any of their deaths.
|
|||||||||||||||||||||
During
Fiscal 2007, we sold lease rights for three store locations that were previously
operated by the Company. In the event of default by the assignee, we
could be liable for obligations associated with these real estate leases which
have future lease related payments (not discounted to present value) of
approximately $9.0 million through the end of the fiscal year ended May 31,
2014, and which are not reflected in the table above. The scheduled future
minimum rentals for these leases over the next five fiscal years and thereafter
are $2.1 million, $1.8 million, $1.6 million, $1.6 million, and $1.8 million,
respectively. We believe the likelihood of a material liability being
triggered under these leases is remote, and no liability has been accrued for
these contingent lease obligations as of May 31, 2008.
Our
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
(GAAP). We believe there are several accounting policies that are
critical to understanding our historical and future performance as these
policies affect the reported amounts of revenues and other significant areas
that involve management’s judgments and estimates. These critical
accounting policies and estimates have been discussed with our audit
committee. The preparation of our 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 revenue recognition, inventories, long-lived assets,
intangible assets, goodwill impairment, insurance reserves, 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. A critical accounting estimate meets two
criteria: (1) it requires assumptions about highly uncertain matters and (2)
there would be a material effect on the financial statements from either using a
different, although reasonable, amount within the range of the estimate in the
current period or from reasonably likely period-to-period changes in the
estimate.
While
there are a number of accounting policies, methods and estimates affecting our
consolidated financial statements as addressed in Note 1 to our consolidated
financial statements, areas that are particularly critical and significant
include:
Revenue
Recognition. We record revenue at the time of sale and
delivery of merchandise, net of allowances for estimated future returns. We
account for layaway sales and leased department revenue in compliance with Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial
Statements, as revised and rescinded by SAB No. 104, Revenue Recognition. Layaway
sales are recognized upon delivery of merchandise to the customer. The amount of
cash received upon initiation of the layaway is
25
recorded
as a deposit liability within the line item “Other Current Liabilities” in the
our Consolidated Balance Sheets. Store value cards (gift
cards and store credits issued for merchandise returns) are recorded as a
liability at the time of issuance, and the related sale is recorded upon
redemption. Prior to December 29, 2007, except where prohibited by law, after 13
months of non-use, a monthly dormancy service fee was deducted from the
remaining balance of the store value card and recorded in the line item “Other
Revenue” in our Consolidated Statements of Operations and Comprehensive Income
(Loss).
On December 29, 2007, in connection
with establishing a gift card company, we discontinued assessing a dormancy
service fee on inactive store value cards. Instead, we now
estimate and recognize store value card breakage income in proportion to actual
store value card redemptions and record such income in the line item “Other
Income, Net” in the our Consolidated Statements of Operations and
Comprehensive Income (Loss). We determine an estimated store value card breakage
rate by
continuously
evaluating historical redemption data. Breakage income is
recognized on a monthly basis in proportion to the historical redemption
patterns for those store value cards for which the likelihood of redemption is
remote.
We present sales, net of sales taxes,
in our Consolidated Statements of Operations and Comprehensive Income
(Loss).
Inventory. Our inventory is
valued at the lower of cost or market using the retail inventory method. Under
the retail inventory method, the valuation of inventory at cost and resulting
gross margin are calculated by applying a calculated cost to retail ratio to the
retail value of inventory. The retail inventory method is an averaging method
that has been widely used in the retail industry due to its practicality.
Additionally, the use of the retail inventory method will result in valuing
inventory at the lower of cost or market if markdowns are currently taken as a
reduction of the retail value of inventory. Inherent in the retail inventory
method calculation are certain significant management judgments and estimates
including merchandise markon, markups, markdowns and shrinkage which
significantly impact the ending inventory valuation at cost as well as the
resulting gross margin. Management believes that our retail inventory method and
application of the average cost method provides an inventory valuation which
approximates cost using a first-in, first-out assumption and results in carrying
value at the lower of cost or market. Estimates are used to charge inventory
shrinkage for the first three fiscal quarters of the fiscal year. Actual
physical inventories are conducted during the fourth quarter of each fiscal year
to calculate actual shrinkage. We also estimate the required markdown and aged
inventory reserves. If actual market conditions are less favorable than those
projected by management, additional markdowns may be required. While we make
estimates on the basis of the best information available to us at the time the
estimates are made, over accruals or under accruals of shrinkage may be
identified as a result of the physical inventory requiring fourth quarter
adjustments.
Long-Lived Assets. We test
for recoverability of long-lived assets whenever events or changes in
circumstances indicate that their carrying amount may not be recoverable. This
includes performing an analysis of anticipated undiscounted future net cash
flows of long-lived assets. If the carrying value of the related assets exceeds
the undiscounted cash flow, we reduce the carrying value to its fair value,
which is generally calculated using discounted cash flows. Various factors
including future sales growth and profit margins are included in this analysis.
To the extent these future projections change, the conclusion regarding
impairment may differ from the estimates. Future adverse changes in market
conditions or poor operating results of underlying assets could result in losses
or an inability to recover the carrying value of the assets that may not be
reflected in an asset’s current carrying value, thereby possibly requiring an
impairment charge in the future. In Fiscal 2008 and 2007, we recorded
$25.3 million and $24.4 million, respectively, in impairment charges related to
long-lived assets and intangible assets.
Intangible Assets. As
discussed above, the Merger Transaction was completed on April 13, 2006 and
was financed by a combination of borrowings under our senior secured credit
facilities, the issuance of the senior notes, the issuance of the holdings
senior discount notes and the equity investment of affiliates of Bain Capital
and management. The purchase price, including transaction costs, was
approximately $2.1 billion. Purchase accounting requires that all assets and
liabilities be recorded at fair value on the acquisition date, including
identifiable intangible assets separate from goodwill. Identifiable intangible
assets include trade names, and net favorable lease positions. Goodwill
represents the excess of cost over the fair value of net assets acquired. The
fair values and useful lives of identified intangible assets are based on many
factors, including estimates and assumptions of future operating performance,
estimates of cost avoidance, the specific characteristics of the identified
intangible assets and our historical experience.
On an
annual basis we compare the carrying value of our indefinite-lived intangible
assets to their estimated fair value. Our finite-lived intangible assets are
reviewed for impairment when circumstances change. If the carrying
value is greater than the respective estimated fair value, we then determine if
the asset is impaired, and whether some, or all, of the asset should be written
off as a charge to operations, which could have a material adverse effect on our
financial results.
Goodwill Impairment. Goodwill
represents the excess of cost over the fair value of net assets acquired. SFAS
No. 142, “Goodwill and
Other Intangible Assets,” requires periodic tests of the impairment of
goodwill. SFAS No. 142 requires a comparison, at least annually, of the net
book value of the assets and liabilities associated with a reporting unit,
including goodwill, with the fair value of the reporting unit, which corresponds
to the discounted cash flows of the reporting unit, in the absence of an active
market. Our impairment analysis of the fair value of the Company includes a
number of assumptions around our future performance, which may differ from
actual results. When this comparison indicates that impairment must
be recorded, the impairment recognized is the amount by which the carrying
amount of the assets exceeds the fair value of these assets.
Our
26
annual
goodwill impairment review is conducted during the last quarter of each fiscal
year. There were no impairment charges recorded on our $42.8 million
and $46.2 million carrying value of goodwill for Fiscal 2008 and Fiscal 2007,
respectively.
Insurance Reserves. We have
risk participation agreements with insurance carriers with respect to workers’
compensation, general liability insurance and health insurance. Pursuant to
these arrangements, we are responsible for paying individual claims up to
designated dollar limits. The amounts included in our costs related to these
claims are estimated and can vary based on changes in assumptions or claims
experience included in the associated insurance programs. For example, changes
in legal trends and interpretations, as well as changes in the nature and method
of how claims are settled, can impact ultimate costs. An increase in
worker’s compensation claims by employees, health insurance claims by employees
or general liability claims may result in a corresponding increase in our costs
related to these claims. Insurance reserves amounted to $36.7 million and $33.7
million at May 31, 2008 and June 2, 2007, respectively.
Reserves for Sales Returns.
We record reserves for future sales returns. The reserves are based on current
sales volume and historical claim experience. If claims experience differs from
historical levels, revisions in our estimates may be required. Sales reserves
amounted to $6.4 million and $5.5 million at May 31, 2008 and June 2, 2007,
respectively. This increase is due to the change in our return policy
in Fiscal 2007, providing for cash back returns in addition to store merchandise
credit for returns.
Allowance for Doubtful
Accounts. We maintain allowances for bad checks, miscellaneous
receivables and losses on credit card accounts. This reserve is calculated based
upon historical collection activities adjusted for known
uncollectibles. As of May 31, 2008 and June 2, 2007, the allowance
for doubtful accounts was $0.6 million and $1.0 million,
respectively.
Income Taxes. We
account for income taxes in accordance with SFAS 109, “Accounting for Income
Taxes.” Our provision for income taxes and effective tax rates are based
on a number of factors, including our income, tax planning strategies,
differences between tax laws and accounting rules, statutory tax rates and
credits, uncertain tax positions, and valuation allowances, by legal entity and
jurisdiction. We use significant judgment and estimations in evaluating our tax
positions.
U.S.
federal and state tax authorities regularly audit our tax returns. We establish
tax reserves when it is considered more likely than not that we will not succeed
in defending our positions. We adjust these tax reserves, as well as the related
interest and penalties, based on the latest facts and circumstances, including
recently published rulings, court cases, and outcomes of tax audits. To the
extent our actual tax liability differs from our established tax reserves, our
effective tax rate may be materially impacted. While it is often difficult to
predict the final outcome of, the timing of, or the tax treatment of any
particular tax position or deduction, we believe that our tax reserves reflect
the most likely outcome of known tax contingencies.
We record
deferred tax assets and liabilities for any temporary differences between the
tax reflected in our financial statements and tax presumed rates. We establish
valuation allowances for our deferred tax assets when we believe it is more
likely than not that the expected future taxable income or tax liabilities
thereon will not support the use of a deduction or credit. For example, we would
establish a valuation allowance for the tax benefit associated with a loss
carryover in a tax jurisdiction if we did not expect to generate sufficient
taxable income to utilize the loss carryover.
On June
3, 2007, we adopted Financial Accounting Standards Board (FASB) Interpretation
No. 48 (as amended) – “Accounting for Uncertainty in
Income Taxes – an interpretation of FASB Statement No. 109” (FIN
48). Adjustments related to the adoption of FIN 48 are reflected as an
adjustment to retained earnings in Fiscal 2008. FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an entity’s financial
statements in accordance with FASB Statement No. 109, “Accounting for Income
Taxes.” FIN 48 prescribes a
recognition threshold and measurement attributes for financial statement
disclosure of tax positions taken or expected to be taken on a tax
return. FIN 48 requires that we recognize in our financial statements
the impact of a tax position taken or expected to be taken in a tax return, if
that position is “more likely than not” of being sustained upon examination by
the relevant taxing authority, based on the technical merits of the
position. The tax benefits recognized in the financial statements
from such a position are measured based on the largest benefit that has a
greater than fifty percent likelihood of being realized upon ultimate
resolution. Additionally, FIN 48 provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition.
Recent
Accounting Pronouncements
Refer to
Note 2 to our Consolidated Financial Statements entitled “Recent Accounting
Pronouncements” for a discussion of recent accounting pronouncements and their
impact on our consolidated financial statements.
Fluctuations
in Operating Results
We expect
that our revenues and operating results may fluctuate from quarter to quarter or
over the longer term. Certain of the general factors that may cause such
fluctuations are discussed in Item 1A, Risk Factors.
27
Seasonality
Our
business is seasonal, with our highest sales occurring in the months of
September, October, November, December and January of each year. For the past
five fiscal years, an average of 50% of our net sales have occurred during the
period from September through January. Weather, however, continues to be an
important contributing factor to the sale of clothing in the Fall, Winter and
Spring seasons. Generally, our sales are higher if the weather is cold during
the Fall and warm during the early Spring.
Inflation
We do not believe that our operating
results have been materially affected by inflation during the past fiscal
year. During the recent past, the cost of apparel merchandise has
benefited from deflationary pressures in the Far East. In addition,
the we have historically been able to increase our selling prices as the costs
of merchandising and related operating expenses have increased, and therefore,
been able to minimize the impact of inflation on the results of our
operations.
Market
Risk
We are
exposed to market risks relating to fluctuations in interest rates. Our senior
secured credit facilities contain floating rate obligations and are subject to
interest rate fluctuations. The objective of our financial risk management is to
minimize the negative impact of interest rate fluctuations on our earnings and
cash flows. Interest rate risk is managed through the use of a combination of
fixed and variable interest debt as well as the periodic use of interest rate
cap agreements.
As
previously described, we entered into two interest rate cap agreements effective
as of May 30, 2006 and one interest rate cap agreement effective as of May 20,
2009 to manage interest rate risks associated with its long-term debt
obligations. Gains and losses associated with these contracts are accounted for
as interest expense and are recorded under the caption “Interest Expense” on our
Consolidated Statements of Operations and Comprehensive Income (Loss). We
continue to have exposure to interest rate risks to the extent they are not
hedged.
Off-Balance
Sheet Transactions
Other
than operating leases consummated in the normal course of business, 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.
28
|
|
Item
7A.
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 bear interest at floating rates based on LIBOR or
the base rate, in each case plus an applicable borrowing margin. We will manage
our interest rate risk by balancing the amount of fixed-rate and floating-rate
debt. For fixed-rate debt, interest rate changes do not affect earnings or cash
flows. Conversely, for floating-rate debt, interest rate changes generally
impact our earnings and cash flows, assuming other factors are held
constant.
At May
31, 2008, we had $429.5 million principal amount of fixed-rate debt and $1,054.4
million of floating-rate debt. Based on $1,054.4 million outstanding as floating
rate debt, an immediate increase of one percentage point would cause an increase
to cash interest expense of approximately $10.5 million per year. As
of June 2, 2007, we estimated that an immediate increase of one percentage point
would cause an increase to cash interest expense of approximately $10.4 million
per year.
If a one
point increase in interest rate 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 ABL Line of Credit
borrowing level remains constant with current fiscal year end
levels):
|
Floating-Rate
Debt
|
(in
thousands ‘000)
|
|||||||||||||||||||
|
Principal
Outstanding at May 31, 2008
|
Additional
Interest Expense Q1 2009
|
Additional
Interest Expense Q2 2009
|
Additional
Interest Expense Q3 2009
|
Additional
Interest Expense Q4 2009
|
||||||||||||||||
|
ABL
Line of Credit
|
$ | 181,600 | $ | 454 | $ | 454 | $ | 454 |
$
454
|
|||||||||||
|
Term
Loan
|
872,807 | 2,182 | 2,182 | 2,182 |
2,177
|
|||||||||||||||
|
Total
|
$ | 1,054,407 | $ | 2,636 | $ | 2,636 | $ | 2,636 | $ | 2,631 | ||||||||||
We have
two interest rate cap agreements for a maximum principal amount of $1.0 billion
which limit our interest rate exposure to 7% for our first billion of borrowings
under our variable rate debt obligations and if interest rates were to increase
above the 7% cap rate, then our maximum interest rate exposure would be $46.2
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. At May 31, 2008,
our borrowing rates related to our ABL Line of Credit averaged
4.1%. At May 31, 2008, the borrowing rate related to our Term Loan
was 4.9%.
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.
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.
On
December 20, 2007, we entered into an interest rate cap agreement to limit
interest rate risk associated with our future long-term debt
obligations. The agreement has a notional amount of $600 million with
a cap rate of 7.0%, and terminates on May 31, 2011. The agreement
will be effective on May 29, 2009, upon termination of our existing $700 million
interest rate cap agreement.
29
Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
|
Page
|
|
|
Consolidated
Financial Statements
|
|
|
Report
of Independent Registered Public Accounting Firm
|
35
|
|
Consolidated
Balance Sheets as of May 31, 2008 and June 2, 2007
|
36
|
|
Consolidated
Statements of Operations and Comprehensive Income (Loss) for the fiscal
years ended May 31, 2008 and June 2, 2007, the periods from April 13,
2006 to June 3, 2006 and May 29, 2005 to April 12,
2006
|
37
|
|
Consolidated
Statements of Cash Flows for the fiscal years ended May 31, 2008 and June
2, 2007, the periods from April 13, 2006 to June 3, 2006
and May 29, 2005 to April 12, 2006
|
38
|
|
Consolidated
Statements of Stockholders’ Equity for the fiscal years ended May 31, 2008
and June 2, 2007, the periods from April 13, 2006 to June 3, 2006
and May 29, 2005 to April 12, 2006
|
40
|
|
Notes
to Consolidated Financial Statements for the fiscal years ended May 31,
2008 and June 2, 2007, the periods from April 13, 2006 to June 3,
2006 and May 29, 2005 to April 12,
2006
|
42
|
30
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of Burlington Coat Factory Investments
Holdings, Inc.
Burlington,
New Jersey
We have
audited the accompanying consolidated balance sheets of Burlington Coat Factory
Investments Holdings, Inc. and Subsidiaries (the"Company") as of May 31, 2008
and June 2, 2007, and the related Consolidated Statements of Operations and
Comprehensive Income (Loss), stockholders' equity, and cash flows for the fiscal
years ended May 31,2008 and June 2, 2007, and the period from April 13, 2006 to
June 3,2006 ("Successor") and the period from May 29, 2005 to April 12, 2006
("Predecessor"). Our audits also included the financial statement
schedule listed in the Index at Item 15(a)(2). These financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstancers, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal ccontrol over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonnable basis
for our opinion.
In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of May 31, 2008 and June 2,
2007, and the results of its operations and its cash flows for the fiscal years
ended May 31, 2008 and June 2, 2007, the period from April 13, 2006 to June 3,
2006 (Successor), and for the period from May 29, 2005 to April 12, 2006
(Predecessor), in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
As
discussed in Note 1 to the consolidated financial statements, effective June 3,
2007 the Company changed its method of accounting for income taxes to conform to
Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109".
/s/
DELOITTE & TOUCHE LLP
Parsippany,
New Jersey
August
29, 2008
31
Burlington
Coat Factory Investments Holdings, Inc. and Subsidiaries
Consolidated
Balance Sheets
(All
amounts in thousands, except share data)
|
June
2, 2007
|
||||||||
|
ASSETS
|
||||||||
|
Current
Assets:
|
||||||||
|
Cash
and Cash Equivalents
|
$ | 40,101 | $ | 33,878 | ||||
|
Restricted
Cash and Cash Equivalents
|
2,692 | 2,753 | ||||||
|
Accounts
Receivable (Net of Allowances for Doubtful Accounts of $634 in 2008 and
$969 in 2007)
|
27,137 | 30,590 | ||||||
|
Merchandise
Inventories
|
719,529 | 710,571 | ||||||
|
Deferred
Tax Assets
|
51,376 | 35,143 | ||||||
|
Prepaid
and Other Current Assets
|
24,978 | 34,257 | ||||||
|
Prepaid
Income Taxes
|
3,864 | 1,109 | ||||||
|
Assets
Held for Disposal
|
2,816 | 35,073 | ||||||
|
Total
Current Assets
|
872,493 | 883,374 | ||||||
|
Property
and Equipment—Net of Accumulated Depreciation
|
919,535 | 948,334 | ||||||
|
Tradenames
|
526,300 | 526,300 | ||||||
|
Favorable
Leases—Net of Accumulated Amortization
|
534,070 | 574,879 | ||||||
|
Goodwill
|
42,775 | 46,219 | ||||||
|
Other
Assets
|
69,319 | 57,415 | ||||||
|
Total
Assets
|
$ | 2,964,492 | $ | 3,036,521 | ||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Accounts
Payable
|
$ | 337,040 | $ | 395,375 | ||||
|
Income
Taxes Payable
|
5,804 | - | ||||||
|
Other
Current Liabilities
|
238,866 | 198,627 | ||||||
|
Current
Maturities of Long Term Debt
|
3,653 | 5,974 | ||||||
|
Total
Current Liabilities
|
585,363 | 599,976 | ||||||
|
Long
Term Debt
|
1,480,231 | 1,456,330 | ||||||
|
Other
Liabilities
|
110,776 | 48,447 | ||||||
|
Deferred
Tax Liabilities
|
464,598 | 551,298 | ||||||
|
Commitments
and Contingencies (See Footnote 22)
|
||||||||
|
Stockholders’
Equity:
|
||||||||
|
Common
Stock, Par Value $0.01; Authorized 1,000 shares; 1,000 issued and
outstanding at May 31, 2008 and June 2, 2007
|
- | - | ||||||
|
Capital
in Excess of Par Value
|
457,371 | 454,935 | ||||||
|
Accumulated
Deficit
|
(133,847 | ) | (74,465 | ) | ||||
|
Total
Stockholders’ Equity
|
323,524 | 380,470 | ||||||
|
Total
Liabilities and Stockholders’ Equity
|
$ | 2,964,492 | $ | 3,036,521 | ||||
See Notes
to Consolidated Financial Statements
32
Burlington
Coat Factory Investments Holdings, Inc. and Subsidiaries
Consolidated
Statements of Operations and Comprehensive Income (Loss)
(All
amounts in thousands)
|
(Successor)
|
(Predecessor)
|
|||||||||||||||
|
Year
Ended
May
31, 2008
|
Year
Ended
June
2, 2007
|
April
13, 2006 to June 3, 2006
|
May
29, 2005 to April 12, 2006
|
|||||||||||||
|
REVENUES:
|
||||||||||||||||
|
Net
Sales
|
$ | 3,393,417 | $ | 3,403,407 | $ | 421,180 | $ | 3,017,633 | ||||||||
|
Other
Revenue
|
30,556 | 38,238 | 4,066 | 27,675 | ||||||||||||
|
Total
Revenue
|
3,423,973 | 3,441,645 | 425,246 | 3,045,308 | ||||||||||||
|
COSTS
AND EXPENSES:
|
||||||||||||||||
|
Cost
of Sales
|
2,095,364 | 2,125,160 | 266,465 | 1,916,798 | ||||||||||||
|
Selling
and Administrative Expenses
|
1,090,829 | 1,062,468 | 154,691 | 897,231 | ||||||||||||
|
Depreciation
|
133,060 | 130,398 | 18,097 | 78,804 | ||||||||||||
|
Amortization
|
43,915 | 43,689 | 9,758 | 494 | ||||||||||||
|
Impairment
Charges
|
25,256 | 24,421 | - | - | ||||||||||||
|
Interest
Expense
|
122,684 | 134,313 | 18,093 | 4,609 | ||||||||||||
|
Other
Income, Net
|
(12,861 | ) | (6,180 | ) | (4,876 | ) | (3,572 | ) | ||||||||
|
Total
Costs and Expenses
|
3,498,247 | 3,514,269 | 462,228 | 2,894,364 | ||||||||||||
|
(Loss)
Income Before (Benefit) Provision for Income Tax
|
(74,274 | ) | (72,624 | ) | (36,982 | ) | 150,944 | |||||||||
|
(Benefit)
Provision for Income Tax
|
(25,304 | ) | (25,425 | ) | (9,816 | ) | 56,605 | |||||||||
|
Net
(Loss) Income
|
(48,970 | ) | (47,199 | ) | (27,166 | ) | 94,339 | |||||||||
|
Net
Unrealized (Loss) on Investments, Net of tax
|
- | - | - | (4 | ) | |||||||||||
|
Total
Comprehensive (Loss) Income
|
$ | (48,970 | ) | $ | (47,199 | ) | $ | (27,166 | ) | $ | 94,335 | |||||
See Notes
to Consolidated Financial Statements
33
Burlington
Coat Factory Investments Holdings, Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
(All amounts in
thousands)
|
(Successor)
|
(Predecessor)
|
|||||||||||||||
|
Year
Ended
May
31, 2008
|
Year
Ended
June
2, 2007
|
April
13, 2006 to June 3, 2006
|
May
29, 2005 to April 12, 2006
|
|||||||||||||
|
OPERATING
ACTIVITIES
|
||||||||||||||||
|
Net
(Loss) Income
|
$ | (48,970 | ) | $ | (47,199 | ) | $ | (27,166 | ) | $ | 94,339 | |||||
|
Adjustments
to Reconcile Net (Loss) Income to Net Cash Provided by (Used
in) Operating Activities:
|
||||||||||||||||
|
Depreciation
|
133,060 | 130,398 | 18,097 | 78,804 | ||||||||||||
|
Amortization
|
43,915 | 43,689 | 9,758 | 494 | ||||||||||||
|
Impairment
Charges
|
25,256 | 24,421 | - | - | ||||||||||||
|
Accretion
of Senior Notes and Senior Discount Notes
|
11,872 | 11,948 | - | - | ||||||||||||
|
Interest
Rate Cap Contract-Adjustment to Market
|
(70 | ) | 1,971 | - | - | |||||||||||
|
Provision
for Losses on Accounts Receivable
|
2,977 | 2,826 | 374 | 3,479 | ||||||||||||
|
Provision
for Deferred Income Taxes
|
(61,961 | ) | (61,834 | ) | (11,305 | ) | (11,328 | ) | ||||||||
|
Loss
on Disposition of Fixed Assets and Leasehold Improvements
|
1,096 | 3,637 | 1 | 2,742 | ||||||||||||
|
Non-Cash
Stock Option Expense and Deferred
Compensation Amortization
|
2,436 | 7,957 | 848 | - | ||||||||||||
|
Non-Cash
Rent Expense
|
981 | 9,397 | 267 | 1,113 | ||||||||||||
|
Changes
in Assets and Liabilities
|
||||||||||||||||
|
Investments
|
- | 591 | 183 | 133,890 | ||||||||||||
|
Accounts
Receivable
|
(3,187 | ) | (4,258 | ) | (2,296 | ) | 2,059 | |||||||||
|
Merchandise
Inventories
|
(8,958 | ) | (2,386 | ) | 48,971 | (36,274 | ) | |||||||||
|
Prepaid
and Other Current Assets
|
4,682 | 910 | 9,154 | (8,098 | ) | |||||||||||
|
Accounts
Payable
|
(58,335 | ) | (62,480 | ) | (62,176 | ) | 116,189 | |||||||||
|
Other
Current Liabilities
|
21,289 | 3,683 | (39,759 | ) | 50,193 | |||||||||||
|
Deferred
Rent Incentives
|
32,885 | 31,957 | (113 | ) | 3,052 | |||||||||||
|
Other
|
(991 | ) | 788 | 2,269 | 325 | |||||||||||
|
Net
Cash Provided by (Used in) Operations
|
97,977 | 96,016 | (52,893 | ) | 430,979 | |||||||||||
|
INVESTING
ACTIVITIES
|
||||||||||||||||
|
Acquisition
of BCFWC
|
- | - | (2,055,747 | ) | - | |||||||||||
|
Cash
Paid for Property and Equipment
|
(95,615 | ) | (69,188 | ) | (6,275 | ) | (68,923 | ) | ||||||||
|
Change
in Restricted Cash and Cash Equivalents
|
61 | 11,063 | 6 | 1,135 | ||||||||||||
|
Proceeds
from Insurance Recoveries
|
- | - | - | 3,822 | ||||||||||||
|
Proceeds
From Sale of Fixed Assets and Leasehold Improvements
|
- | 4,669 | 4,337 | 697 | ||||||||||||
|
Proceeds
Received from Sale of Assets Held for Disposal
|
2,429 | - | - | - | ||||||||||||
|
Proceeds
From Sale of Partnership Interest
|
- | 850 | - | - | ||||||||||||
|
Lease
Acquisition Costs
|
(7,136 | ) | - | - | (635 | ) | ||||||||||
|
Issuance
of Notes Receivable
|
(72 | ) | (67 | ) | (9 | ) | (55 | ) | ||||||||
|
Other
|
20 | 82 | 19 | 39 | ||||||||||||
|
Net
Cash Used in Investing Activities
|
(100,313 | ) | (52,591 | ) | (2,057,669 | ) | (63,920 | ) | ||||||||
34
|
FINANCING
ACTIVITIES
|
||||||||||||||||
|
Proceeds
from Long Term Debt
|
- | - | - | 470 | ||||||||||||
|
Proceeds
from Long Term Debt—Term Loan
|
- | - | 900,000 | - | ||||||||||||
|
Proceeds
from Long Term Debt - Senior Discount Notes
|
- | - | 75,000 | - | ||||||||||||
|
Proceeds
from Long Term Debt—Senior Notes
|
- | - | 299,114 | - | ||||||||||||
|
Proceeds
from Long Term Debt—ABL Line of Credit
|
685,655 | 649,655 | 428,000 | - | ||||||||||||
|
Principal
Payments on Long Term Debt
|
(1,448 | ) | (1,384 | ) | (46 | ) | (101,167 | ) | ||||||||
|
Principal
Payments on Long Term Debt—Term Loan
|
(11,443 | ) | (13,500 | ) | (2,250 | ) | - | |||||||||
|
Principal
Payments on Long Term Debt—ABL Line of Credit
|
(663,056 | ) | (702,894 | ) | (215,761 | ) | - | |||||||||
|
Equity
Investment
|
- | 300 | - | - | ||||||||||||
|
Proceeds
from Issuance of Common Stock
|
- | - | 445,830 | - | ||||||||||||
|
Purchase
of Interest Rate Cap Contract
|
(424 | ) | - | (2,500 | ) | - | ||||||||||
|
Issuance
of Common Stock Upon Exercise of Stock Options
|
- | - | - | 425 | ||||||||||||
|
Debt
Issuance Costs
|
- | (71,398 | ) | - | ||||||||||||
|
Payment
of Dividends
|
(725 | ) | (100 | ) | - | (1,791 | ) | |||||||||
|
Net
Cash Provided by (Used in) Financing Activities
|
8,559 | (67,923 | ) | 1,855,989 | (102,063 | ) | ||||||||||
|
Increase
(Decrease) in Cash and Cash Equivalents
|
6,223 | (24,498 | ) | (254,573 | ) | 264,996 | ||||||||||
|
Cash
and Cash Equivalents at Beginning of Period
|
33,878 | 58,376 | 312,949 | 47,953 | ||||||||||||
|
Cash
and Cash Equivalents at End of Period
|
$ | 40,101 | $ | 33,878 | $ | 58,376 | $ | 312,949 | ||||||||
|
Supplemental
Disclosure of Cash Flow Information:
|
||||||||||||||||
|
Interest
Paid
|
$ | 109,808 | $ | 124,631 | ||||||||||||