Edgar Filing: BURLINGTON COAT FACTORY WAREHOUSE CORP

form10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

X	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 29, 2008

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number 1-37917

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware		20-4663833
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1830 Route 130 North Burlington, New Jersey		08016
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (609) 387-7800

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.” See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨ Smaller reporting company ¨ Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of January 13, 2009, the registrant had 1,000 shares of common stock outstanding (all of which are owned by Burlington Coat Factory Holdings, Inc., our holding company and are not publicly traded).

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES

INDEX

Part I - Financial Information:	Page
Item 1. Financial Statements (unaudited):

Condensed Consolidated Balance Sheets as of November 29, 2008 and May 31, 2008	3

Condensed Consolidated Statements of Operations - Six and Three Months Ended November 29, 2008 and December 1, 2007	4

Condensed Consolidated Statements of Cash Flows - Six Months Ended November 29, 2008 and December 1, 2007	5

Notes to Condensed Consolidated Financial Statements	6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3. Quantitative and Qualitative Disclosures About Market Risk	40

Item 4. Controls and Procedures	41

Part II - Other Information:	43

Item 1. Legal Proceedings	43

Item 1A. Risk Factors	43

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 3. Defaults Upon Senior Securities	43

Item 4. Submission of Matters to a Vote of Security Holders	43

Item 5. Other Information	43

Item 6. Exhibits	44

SIGNATURES	45

*****************

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(All amounts in thousands)



	November 29, 2008			May 31, 2008
ASSETS
Current Assets:
Cash and Cash Equivalents	$	40,368		$	40,101
Restricted Cash and Cash Equivalents		2,669			2,692
Investment in Money Market Fund		26,105			--
Accounts Receivable, Net		66,316			27,137
Merchandise Inventories		928,375			719,529
Deferred Tax Assets		54,138			51,376
Prepaid and Other Current Assets		25,751			24,978
Income Tax Receivable		3,037			3,864
Assets Held for Disposal		--			2,816

Total Current Assets		1,146,759			872,493

Property and Equipment, Net of Accumulated Depreciation		925,597			919,535
Tradenames		526,300			526,300
Favorable Leases, Net of Accumulated Amortization		520,148			534,070
Goodwill		45,613			42,775
Other Assets		85,261			69,319

Total Assets	$	3,249,678		$	2,964,492


LIABILITIES AND STOCKHOLDERS' EQUITY


Current Liabilities:
Accounts Payable	$	615,612		$	337,040
Income Taxes Payable		2,148			5,804
Other Current Liabilities		265,724			238,866
Current Maturities of Long Term Debt		8,275			3,653

Total Current Liabilities		891,759			585,363

Long Term Debt		1,449,016			1,480,231
Other Liabilities		144,371			110,776
Deferred Tax Liability		453,236			464,598

Commitments and Contingencies (Note 17)

Stockholders' Equity:

Common Stock		--			--
Capital in Excess of Par Value		459,434			457,371
Accumulated Deficit		(148,138	)		(133,847	)
Total Stockholders' Equity		311,296			323,524
Total Liabilities and Stockholders' Equity	$	3,249,678		$	2,964,492

See Notes to Condensed Consolidated Financial Statements.

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(All amounts in thousands)

	Six Months Ended						Three Months Ended

	November 29, 2008			December 1, 2007			November 29, 2008			December 1, 2007

REVENUES:
Net Sales	$	1,709,425		$	1,625,335		$	1,002,389		$	946,566
Other Revenue		14,292			15,863			7,903			9,085
		1,723,717			1,641,198			1,010,292			955,651


COSTS AND EXPENSES:
Cost of Sales		1,042,174			1,000,938			602,947			557,163
Selling and Administrative Expenses		571,906			529,288			306,194			278,401
Depreciation		61,713			61,602			31,334			30,845
Amortization		21,765			21,380			11,083			10,629
Interest Expense		54,138			66,910			27,764			33,685
Impairment Charges		--			7,379			--			6,826
Other (Income), Net		(2,838	)		(2,501	)		(296	)		(1,849	)
		1,748,858			1,684,996			979,026			915,700

(Loss) Income Before Income Tax (Benefit) Expense		(25,141	)		(43,798	)		31,266			39,951

Income Tax (Benefit) Expense		(10,850	)		(16,576	)		13,089			16,778

Net (Loss) Income	$	(14,291	)	$	(27,222	)	$	18,177		$	23,173

See Notes to Condensed Consolidated Financial Statements.

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(All amounts in thousands)

	Six Months Ended
	November 29, 2008			December 1, 2007
OPERATING ACTIVITIES
Net Loss	$	(14,291	)	$	(27,222	)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities:

Depreciation		61,713			61,602
Amortization		21,765			21,380
Impairment Charges		--			7,379
Accretion		295			6,605
Interest Rate Cap Contract - Adjustment to Market		338			51
Provision for Losses on Accounts Receivable		1,377			1,324
Provision for Deferred Income Taxes		(16,961	)		(13,303	)
Loss on Disposition of Fixed Assets and Leaseholds		343			807
Loss on Investment in Money Market Fund		1,667			--
Stock Option Expense and Deferred Compensation Amortization		2,063			532
Non-Cash Rent Expense and Other		1,905			1,537
Changes in Assets and Liabilities
Accounts Receivable		(24,579	)		(17,477	)
Merchandise Inventories		(208,846	)		(160,363	)
Prepaid and Other Assets		(9,258	)		(13,124	)
Accounts Payable		278,572			230,677
Accrued and Other Liabilities		19,633			13,748
Deferred Rent Incentives		18,340			10,351
Net Cash Provided by Operating Activities		134,076			124,504

INVESTING ACTIVITIES
Cash Paid for Property and Equipment and Other Assets		(76,977	)		(47,103	)
Acquisition of Lease Rights		(2,298	)		--
Redesignation of Cash Equivalents to Investment in Money Market Fund		(56,294	)		--
Redemption of Investment in Money Market Fund		28,522			--
Other		128			85
Net Cash Used in Investing Activities		(106,919	)		(47,018	)


FINANCING ACTIVITIES
Proceeds from Long Term Debt - ABL Senior Secured Revolving Facility		501,451			292,001
Principal Payments on Long Term Debt		(1,290	)		(1,181	)
Principal Payments on Term Loan		--			(11,443	)
Principal Payments on Long Term Debt - ABL Senior Secured Revolving Facility		(527,051	)		(347,301	)
Payment of Dividends		--			(625	)

Net Cash Used in Financing Activities		(26,890	)		(68,549	)

Increase in Cash and Cash Equivalents		267			8,937
Cash and Cash Equivalents at Beginning of Period		40,101			33,878
Cash and Cash Equivalents at End of Period	$	40,368		$	42,815

Supplemental Disclosure of Cash Flow Information:
Interest Paid	$	53,224		$	60,972
Income Taxes Paid, Net of Refunds	$	8,444		$	(727	)

Non-Cash Investing Activities:
Accrued Purchases of Property and Equipment	$	1,698		$	2,670

See Notes to Condensed Consolidated Financial Statements.

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX AND THREE MONTH PERIODS ENDED NOVEMBER 29, 2008 AND

DECEMBER 1, 2007

(unaudited)

1. Summary of Significant Accounting Policies.

Basis of Presentation

The unaudited Condensed Consolidated Financial Statements include the accounts of Burlington Coat Factory Investments Holdings, Inc. and all of its subsidiaries (“Company" or “Holdings”). Holdings has no operations and its only asset is all of the stock of Burlington Coat Factory Warehouse Corporation. All discussions of operations in this report relate to Burlington Coat Factory Warehouse Corporation and its subsidiaries (“BCFWC”), which are reflected in the financial statements of Holdings. The accompanying financial statements are unaudited, but in the opinion of management reflect all adjustments (which are of a normal and recurring nature) necessary for the fair presentation of the results of operations for the interim periods. The balance sheet at May 31, 2008 has been derived from the audited Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2008 (“Fiscal 2008”). The Condensed Consolidated Statement of Cash Flows for the six months ended December 1, 2007 was revised to present the reclassification of ($0.8) million and $0.1 million out of the line item “Non-Cash Rent Expense and Other” and into the line items “Accrued and Other Liabilities” and “Prepaid and Other Assets,” respectively. Because the Company's business is seasonal in nature, the operating results for the six month period ended November 29, 2008 are not necessarily indicative of results for the fiscal year ending May 30, 2009 (“Fiscal 2009”).

Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted. It is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for Fiscal 2008.

Principles of Consolidation

The Condensed Consolidated Financial Statements include the accounts of Holdings and all of its subsidiaries in which it has a controlling financial interest through direct ownership of a majority voting interest. All intercompany accounts and transactions have been eliminated.

Holdings was incorporated in the State of Delaware on April 10, 2006. Holdings’ Certificate of Incorporation authorizes 1,000 shares of common stock, par value of $0.01 per share. All 1,000 shares are issued and outstanding and Burlington Coat Factory Holdings, Inc. (“Parent”) is the only holder of record of this stock.

2. Long Term Debt

Long-term debt consists of:

	(in thousands)
	November 29, 2008			May 31, 2008
Industrial Revenue Bonds, 6.1% due in semi-annual payments of various amounts from March 1, 2009 to September 1, 2010	$	2,305		$	3,295
Promissory Note, 4.4% due in monthly payments of $8 through December 23, 2011		261			300
Promissory Note, non-interest bearing, due in monthly payments of $17 through January 1, 2012		633			733
Senior Notes, 11.1% due at maturity on April 15, 2014, semi-annual interest payments from April 15, 2009 to April 15, 2014		300,502			300,207
Senior Discount Notes, 14.5% due at maturity on October 15, 2014, semi-annual interest payments from April 15, 2009 to October 15, 2014		99,309			99,309
$900,000 Senior Secured Term Loan Facility, LIBOR plus 2.3% due in quarterly payments of $2,250 from November 30, 2008 to May 28, 2013		872,807			872,807
$800,000 ABL Senior Secured Revolving Facility, LIBOR plus spread based on average outstanding balance		156,000			181,600
Capital Lease Obligations		25,474			25,633

Total Debt		1,457,291			1,483,884
Less: Current Maturities		(8,275	)		(3,653	)

Long-term debt, net of current maturities	$	1,449,016		$	1,480,231

The $900 million Senior Secured Term Loan Facility (“Term Loan”) is to be repaid in quarterly payments of $2.3 million through May 28, 2013. At the end of each fiscal year, the Company is required to make a payment based on 50% of the available free cash flow (as defined in the credit agreement governing the Term Loan). This payment offsets future mandatory quarterly payments. Based on the available free cash flow for Fiscal 2008, the Company was not required to make a mandatory payment. The Company was required to make a payment of $11.4 million based on the available free cash flow for the fiscal year ended June 2, 2007. This payment offsets the quarterly payments of $2.3 million through the third quarter of Fiscal 2009 and $0.2 million of the quarterly payment to be made in the fourth quarter of Fiscal 2009. As a result, the Company is not required to make any cash payments related to the mandatory quarterly payments until the fourth quarter of Fiscal 2009.

The Company’s Term Loan agreement contains financial, affirmative and negative covenants and requires the Company to, among other things, maintain on the last day of each fiscal quarter a consolidated leverage ratio not to exceed a maximum amount. Specifically, the Company’s total debt to Adjusted EBITDA for the four fiscal quarters most recently ended on or prior to such date, both measures as defined in the Term Loan agreement, may not exceed 6.2 to 1 at February 28, 2009; 5.75 to 1 at May 30, 2009, August 29, 2009, and November 28, 2009; 5.5 to 1 at February 27, 2010; and 5.25 to 1 at May 29, 2010. Total debt reflects the outstanding balance of all debt instruments as of the period end except for the ABL Senior Secured Revolving Facility ("ABL Line of Credit"), which is determined by the trailing twelve month average month end balance. Adjusted EBITDA reflects certain adjustments to calculate the consolidated leverage ratio. Adjusted EBITDA starts with consolidated net income for the period and adds back (i) depreciation, amortization, and other non cash charges that were deducted in arriving at consolidated net income, (ii) the provision for taxes, (iii) interest expense, (iv) advisory fees, and (v) unusual, non-recurring or extraordinary expenses, losses or charges as reasonably approved by the administrative agent for such period.

The $800 million ABL Line of Credit was entered into on April 13, 2006 and is for a five-year period at an interest rate of LIBOR plus a spread which is determined by the Company’s annual average borrowings outstanding. The maximum borrowing under the ABL Line of Credit during the six and three month periods ended November 29, 2008 was $410.0 million for both periods. In comparison, the maximum borrowings under the ABL Line of Credit during the six and three month periods ended December 1, 2007 was $247.2 million for both periods. Average borrowings during the six and three month periods ended November 29, 2008 amounted to $260.4 million and $290.1 million, respectively, at an average interest rate of 4.4% and 4.7%, respectively. In comparison, average borrowings during the six and three month periods ended December 1, 2007 amounted to $204.5 million and 200.6 million, respectively, at an average interest rate of 7.2%, for both periods.

At November 29, 2008 and May 31, 2008, $156.0 million and $181.6 million, respectively, were outstanding under this credit facility. Commitment fees of ..25% are charged on the unused portion of the facility and are included in the line item “Interest Expense” on the Company’s Condensed Consolidated Statements of Operations. For the six and three months ended November 29, 2008, the Company repaid $25.6 million and $129.0 million, respectively, net of borrowings.

Holdings and certain subsidiaries of BCFWC fully and unconditionally guarantee BCFWC’s obligations under the $800 million ABL Line of Credit and the $900 million Term Loan. These guarantees are both joint and several.

As of November 29, 2008, the Company was in compliance with all of its debt covenants. The agreements regarding the ABL Line of Credit and Term Loan, as well as the indentures governing the BCFWC Senior Notes and Holdings Senior Discount Notes, contain covenants that, among other things, limit the Company’s ability, and the ability of the Company’s restricted subsidiaries, to pay dividends on, redeem or repurchase capital stock; make investments; incur additional indebtedness or issue preferred stock; create liens; permit dividends or other restricted payments by the Company’s subsidiaries; sell all or substantially all of the Company’s assets or consolidate or merge with or into other companies; and engage in transactions with affiliates.

The Company had $40.1 million and $45.3 million in deferred financing fees, net of accumulated amortization, as of November 29, 2008 and May 31, 2008, respectively, related to its debt instruments recorded in the line item “Other Assets” on the Company’s Condensed Consolidated Balance Sheets. Amortization of deferred financing fees amounted to $5.2 million and $2.6 million for the six and three month periods ended November 29, 2008, respectively, compared with $5.1 million and $2.5 million for the six and three month periods ended December 1, 2007, respectively. These amounts are recorded in the line item “Amortization” in the Company’s Condensed Consolidated Statements of Operations.

3. Goodwill

The Company accounts for goodwill in accordance with Statement of Financial Accounting Standard ("SFAS") No. 142, "Goodwill and Other Intangible Assets." Goodwill amounted to $45.6 million and $42.8 million as of November 29, 2008 and May 31, 2008, respectively. A reconciliation of goodwill as reflected in the Company’s Condensed Consolidated Balance Sheets as of November 29, 2008 and May 31, 2008 is set forth in the table below:

	(in thousands )

Goodwill as of May 31, 2008	$	42,775

Increase in net deferred tax liabilities (a)		2,838

Goodwill as of November 29, 2008	$	45,613

(a) The change in deferred income taxes recorded during the six month period ended November 29, 2008 reflects a change in the Company’s estimate of the effective state tax rate used to calculate deferred taxes in accordance with Financial Accounting Standards Board (“FASB”) Emerging Issues Task Force (“EITF”) Issue 93-7, “Uncertainties Related to Income Taxes in a Purchase Combination.” This adjustment has increased goodwill related to the Merger Transaction (as defined in Note 8 to the Company’s Condensed Consolidated Financial Statements entitled “Income Taxes”).

4. Assets Held for Disposal

Assets held for disposal represent assets owned by the Company that management has committed to sell in the near term. The Company had either identified or was actively seeking out potential buyers for these assets as of May 31, 2008. During the six and three month’s ended November 29, 2008, certain assets which were previously held for sale at May 31, 2008 no longer qualified as held for sale due to the fact that, subsequent to May 31, 2008, there was no longer an active program to locate a buyer. As a result, the Company reclassified operating stores with a net long-lived asset value of $2.8 million out of the line item “Assets Held for Disposal” in the Company’s Condensed Consolidated Balance Sheets into the line items “Property and Equipment, Net of Accumulated Depreciation” and “Favorable Leases, Net of Accumulated Amortization.” The reclassification resulted in a charge against the line item “Other Income, Net” in the Company’s Condensed Consolidated Statements of Operations of $0.3 million during the six and three months ended November 29, 2008, reflecting the adjustment for depreciation and amortization expense that would have been recognized had the asset group been continuously classified as held and used.

The assets listed as “Assets Held for Disposal” in the Company’s Condensed Consolidated Balance Sheet as of May 31, 2008 are comprised of leasehold improvements and a favorable lease related to one of the Company’s stores.

Assets held for disposal were valued at the lower of their carrying value or fair value as follows on May 31, 2008:

	(in thousands)
	May 31, 2008
Fixed Assets	$	63
Favorable Leases		2,753
	$	2,816

5. Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement,” (“SFAS No. 157”) which defines fair value, establishes a framework for measurement and expands disclosure about fair value measurements. Where applicable, SFAS No. 157 simplifies and codifies related guidance within GAAP. In February 2008, the FASB issued FASB Staff Position (“FSP”) SFAS No. 157-2, “Effective Date for FASB Statement No. 157” (“FSP SFAS No. 157”) which extended the application of SFAS No. 157 for all non-recurring fair value measurements of non-financial assets and non-financial liabilities until fiscal years beginning after November 15, 2008. The Company elected to apply the FSP SFAS No. 157 to its non-financial assets and non-financial liabilities that are valued on a non-recurring basis. The Company is in the process of evaluating the impact of SFAS No. 157 for non-financial assets and non-financial liabilities on its Condensed Consolidated Financial Statements. The adoption of SFAS No. 157 for financial assets and financial liabilities did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). SFAS No. 157 classifies the inputs used to measure fair value into the following hierarchy:

Level 1:

Quoted prices for identical assets or liabilities in active markets.

Level 2:

Quoted market prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3:

Pricing inputs are unobservable for the assets and liabilities and include situations where there is little, if any, market activity for the assets and liabilities.

The inputs into the determination of fair value require significant management judgment or estimation.

The Company’s financial assets as of November 29, 2008 include cash equivalents, interest rate cap agreements, and investments in a money market fund. The Company does not have any financial liabilities that are measured at fair value as of November 29, 2008. The carrying value of cash equivalents approximates fair value due to its short-term nature. The fair value of the interest rate caps are determined using quotes provided by the respective bank counterparties that are based on models whose inputs are observable LIBOR forward interest rate curves. To comply with the provisions of SFAS No. 157, the Company incorporates credit valuation adjustments to appropriately reflect both the Company's non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of the Company's derivative contracts for the effect of non-performance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. The fair value of the investment in the money market fund is determined by using quotes for similar assets in an active market. As a result, the Company has determined that the significant majority of the inputs used to value this investment fall within Level 2 of the fair value hierarchy.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the Company's derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default. As of November 29, 2008, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of the Company's derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified as a Level 2 within the fair value hierarchy.

The fair values of the Company’s financial assets and the hierarchy of the level of inputs are summarized below:

	(in thousands)
	Fair Value Measurements at November 29, 2008

Assets:
Level 1
Cash equivalents (including restricted cash)	$	2,812

Level 2
Interest rate cap agreements (a)	$	453
Investment in Money Market Fund	$	26,105

(a)

Included in “Other Assets” and “Prepaids and Other Current Assets” within the Company’s Condensed Consolidated Balance Sheets (refer to Note 6 of the Company’s Condensed Consolidated Financial Statements, entitled “Derivative Instruments and Hedging Activities” for further discussion regarding the Company's interest rate cap agreements).

In September 2008, as part of the Company's overnight cash management strategy, the Company made investments into The Reserve Primary Fund (“Fund”), a money market fund registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, of $56.3 million. On September 22, 2008, the Fund announced that redemptions of shares of the Fund were suspended pursuant to an SEC order so that an orderly liquidation may be effected for the protection of the Fund’s investors. On October 30, 2008, the Fund announced an initial distribution to Fund shareholders pursuant to which the Company received $28.5 million. Based on the decline in the value of the Fund, the Company recorded a loss of $1.7 million in November 2008 related to its investment in the Fund.

On December 3, 2008, the Fund announced a second distribution to Fund shareholders pursuant to which the Company received $15.8 million. Under the Fund’s plan of liquidation (also announced on December 3, 2008), subsequent periodic distributions will be made to Fund shareholders as cash accumulates in the Fund until the Fund’s net assets (other than (i) a special reserve established to satisfy certain costs and expenses of the Fund, including pending or threatened claims against the Fund, and (ii) net income generated from Fund holdings since September 15, 2008) have been distributed. Based upon the maturities of the underlying investments in the Fund, the Company expects to receive the remaining amount of its investment during the next twelve months. In the event that the Company does not receive the majority of the remaining amount of its investment during calendar 2009, the Company may have to borrow additional cash through the ABL Line of Credit. The investment in the Fund is classified in the line item entitled “Investment in Money Market Fund” in the Condensed Consolidated Balance Sheets as of November 29, 2008.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure eligible items (including many financial instruments and certain other items) at fair value at the specified election date. Unrealized gains and losses for which the fair value option has been elected will be reported in earnings at each subsequent reporting date. The Company adopted this statement on June 1, 2008. The Company has not elected to measure any financial assets or financial liabilities at fair value which were not previously required to be measured at fair value. Therefore, the adoption of SFAS No. 159 had no impact on the Company’s Condensed Consolidated Financial Statements.

6. Derivative Instruments and Hedging Activities

The Company participates in two interest rate cap agreements to manage interest rate risk associated with its long-term debt obligations. These agreements are recorded in the line items “Other Assets” and “Prepaids and Other Current Assets” within the Company’s Condensed Consolidated Balance Sheets. Each agreement became effective on May 12, 2006. One interest rate cap agreement has a notional principal amount of $300 million with a cap rate of 7.0% and terminates on May 31, 2011. The other agreement has a notional principal amount of $700 million with a cap rate of 7.0% and terminates on May 29, 2009. The Company does not monitor these interest rate cap agreements for hedge effectiveness.

On December 20, 2007, the Company entered into an interest rate cap agreement to limit interest rate risk associated with its future long-term debt obligations. The agreement has a notional principal amount of $600 million with a cap rate of 7.0% and terminates on May 31, 2011. The agreement has been recorded in the line item “Other Assets” within the Company’s Condensed Consolidated Balance Sheets. The agreement will be effective on May 29, 2009 upon the termination of the Company’s existing $700 million interest rate cap agreement. The Company will determine prior to the effective date whether it will monitor this interest rate cap agreement for hedge effectiveness. Until the Company determines the accounting treatment that will be used, the Company will adjust the interest rate cap to fair value on a quarterly basis and as a result, gains or losses associated with this agreement will be included in the line item “Interest Expense” on the Company’s Condensed Consolidated Statements of Operations.

Losses associated with the above interest rate cap agreements amounted to $0.3 million and $0.2 million for the six and three month periods ended November 29, 2008, respectively, compared with losses of $0.1 million and $0.2 million for the six and three month periods ended December 1, 2007. These amounts are included in the line item “Interest Expense” on the Company’s Condensed Consolidated Statements of Operations. The fair market value of the interest rate cap agreements at November 29, 2008 and May 31, 2008 amounted to $0.5 million and $0.8 million, respectively, and are included in the line items “Other Assets” and “Prepaid and Other Current Assets” in the Company’s Condensed Consolidated Balance Sheets.

7. Store Exit Costs

The Company establishes reserves covering future obligations of closed stores and stores expected to be closed, including lease and severance obligations. These reserves are included in the line item “Other Current Liabilities” in the Company’s Condensed Consolidated Balance Sheets. These charges are recorded in the line item “Selling and Administrative Expenses” on the Company’s Condensed Consolidated Statements of Operations. Reserves at November 29, 2008 and May 31, 2008 consisted of:

Fiscal Year Reserve Established	(in thousands)
Fiscal Year Reserve Established	Balance at May 31, 2008		Provisions		Payments			Balance at November 29, 2008

2005	$	67	$	(4)	$	(63	)	$	--
2008		95		(13)		(72	)		10
2009		--		167		(125)			42
	$	162	$	150	$	(260	)	$	52

The Company believes that these reserves are adequate to cover the expected contractual lease payments and other ancillary costs related to the closings. Scheduled rent related payments over the remainder of the contractual obligation periods are all expected to be paid during Fiscal 2009.

8. Income Taxes

As of November 29, 2008, the Company had a current deferred tax asset of $54.1 million and a non-current deferred tax liability of $453.2 million. As of May 31, 2008, the Company had a current deferred tax asset of $51.4 million and a non-current deferred tax liability of $464.6 million. Current deferred tax assets consisted primarily of certain operating costs and inventory related costs not currently deductible for tax purposes. Non-current deferred tax liabilities primarily relate to rent expense, pre-opening costs, intangible costs and depreciation expense where the Company has a future obligation for tax purposes.

In accordance with Accounting Principles Board (“APB”) Opinion No. 28, Interim Financial Reporting (“APB 28”) and FASB Interpretation No. 18, Accounting for Income Taxes in Interim Periods — an interpretation of APB Opinion No. 28 (“FIN 18”), at the end of each interim period the Company is required to determine the best estimate of its annual effective tax rate and then apply that rate in providing for income taxes on a current year-to-date (interim period) basis. However, in certain circumstances where a reliable estimate cannot be made, FIN 18 recognizes that “the actual effective tax rate for the year-to-date may be the best estimate of the annual effective tax rate” and allows for its use in the current interim period. For the second quarter ending November 29, 2008, the Company was unable to make a reasonable estimate of its annual effective tax rate due to significant seasonal fluctuations of pre-tax income and loss throughout the fiscal year and the large amount of work opportunity credits relative to the amount of forecasted pre-tax loss for the year. Therefore, the Company has chosen to use its actual effective income tax rate of 41.4% (before discrete items), as the Company believes that this method will yield a more reliable tax provision calculation.

As of November 29, 2008 and May 31, 2008, valuation allowances amounted to $4.8 million and related primarily to state tax net operating losses. The Company believes that it is more likely than not that a portion of the benefit of the state tax net operating losses will not be realized. The state net operating losses have been generated in a number of taxing jurisdictions and are subject to various expiration periods ranging from five to twenty years beginning with Fiscal 2008. Any tax benefit recognized in Fiscal 2009 by the use of a state tax net operating loss that was established prior to the April 13, 2006 merger transaction involving Bain Capital, LLC (the “Merger Transaction”), where a valuation allowance has been established, will be recorded first to reduce to zero the goodwill related to the Merger Transaction, second to reduce to zero other non-current intangible assets and third to reduce income tax expense. Commencing during the fiscal year ending May 29, 2010, the provisions of SFAS 141R (as defined in Note 19 to the Company’s Condensed Consolidated Financial Statements entitled “Recent Accounting Pronouncements”) will be effective for the Company and any future tax benefits related to the recognition of any state tax net operating losses, where a valuation allowance has been established, will be recorded to the Company’s Consolidated Statements of Operations.

As of November 29, 2008, the Company reported total unrecognized tax benefits in the line items “Other Current Liabilities” and “Other Liabilities” in the Company’s Condensed Consolidated Balance Sheet of $36.8 million, of which $8.7 million would affect the Company’s effective tax rate if recognized. As of May 31, 2008, the Company reported total unrecognized tax benefits of $38.0 million, of which $8.3 million would affect the Company’s effective tax rate if recognized. The Company reported total unrecognized tax benefits of $44.8 million as of June 3, 2007, the date of the Company’s adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109 (“FIN 48”). Due to the potential for resolution of federal and state examinations, and the expiration of various statutes of limitations, it is reasonably possible that the Company’s gross unrecognized tax benefit balance may decrease within the next twelve months by as much as $11.8 million, related primarily to issues involving deferred revenue and depreciation.

As a result of positions taken during a prior period, the Company recorded $1.7 million and $0.9 million of interest and penalties for the six and three month periods ended November 29, 2008, respectively. In comparison, for the six and three months ended December 1, 2007, the Company recorded $2.3 million and $1.3 million of interest and penalties, respectively. As of November 29, 2008, cumulative interest and penalties of $18.3 million have been recorded on the Company’s Condensed Consolidated Balance Sheet. The Company recognizes interest and penalties related to unrecognized tax benefits as part of income taxes.

The Company files tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is open to audit under the statute of limitations by the Internal Revenue Service for fiscal years 2004 through 2007 and is currently under IRS examination for fiscal years 2004 and 2005. The Company or its subsidiaries’ state income tax returns are open to audit under the statute of limitations for the fiscal years 2003 through 2007. Refer to Footnote 18 entitled “Income Taxes” in the Company’s Fiscal 2008 Form 10-K for further information regarding the Company’s tax positions.

9. Barter Transactions

The Company accounts for barter transactions under SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion Number 29” (“SFAS No. 153”), and EITF 93-11, “Accounting for Barter Transactions Involving Barter Credits” (“EITF 93-11”). Barter transactions with commercial substance are recorded at the estimated fair value of the products exchanged, unless the products received have a more readily determinable estimated fair value. During November 2008, the Company exchanged $10.7 million of inventory for certain advertising credits which are to be used over the next six years, exclusive of the Company’s option to extend the term an additional two years. This exchange resulted in $10.7 million of sales and cost of sales in the Company’s Condensed Consolidated Statements of Operations for the six and three month periods ended November 29, 2008. During the Company’s first quarter of Fiscal 2008, the Company exchanged $5.2 million of inventory for certain advertising credits, which were to be used over the subsequent three to five years. As of November 29, 2008, the Company utilized $2.9 million of the $5.2 million of advertising credits received in Fiscal 2008.

As of November 29, 2008, the Company recorded prepaid advertising of $2.1 million in the line item “Prepaid and Other Current Assets” and $10.9 million in the line item “Other Assets” in the Company’s Condensed Consolidated Balance Sheets. As of May 31, 2008, the Company recorded $1.7 million in the line item “Prepaid and Other Current Assets” and $1.9 million in the line item “Other Assets” in the Company’s Condensed Consolidated Balance Sheets.

Barter credit usage for the six and three month periods ended November 29, 2008 amounted to $1.3 million and $0.9 million, respectively, compared with $0.8 million and $0.7 million, respectively, for the six and three month periods ended December 1, 2007.

10. Stock Option and Award Plans and Stock-Based Compensation

On April 13, 2006, the Parent’s Board of Directors adopted the 2006 Management Incentive Plan (“Plan”). The Plan provides for the granting of service-based and performance-based stock options and restricted stock to executive officers and other key employees of the Company and its subsidiaries. Pursuant to the Plan, employees are granted options to purchase units of common stock in the Parent. Each unit consists of nine shares of Class A common stock and one share of Class L common stock of the Parent. The shares comprising a unit are in the same proportion as the shares of Class A and Class L common stock held by all stockholders of the Parent. The options are exercisable only for whole units and cannot be separately exercised for the individual classes of the Parent’s common stock. As of November 29, 2008 there were 511,122 units reserved under the Plan consisting of 4,600,098 shares of Class A common stock of Parent and 511,122 shares of Class L common stock of Parent.

Options granted during the six month period ended November 29, 2008 are all service-based awards which were granted in three tranches with exercise prices as follows: Tranche 1: $100 per unit; Tranche 2: $180 per unit; and Tranche 3: $270 per unit. The service-based awards vest 40% on the second anniversary of the award with the remaining amount vesting ratably over the subsequent three years. The final exercise date for any option granted is the tenth anniversary of the grant date.

All options become exercisable upon a change of control, as defined by the Plan. Unless determined otherwise by the plan administrator, upon cessation of employment (1) options that have not vested will terminate immediately; (2) units previously issued upon the exercise of vested options will be callable at the Company’s option; and (3) unexercised vested options will be exercisable for a period of 60 days.

As of November 29, 2008, the Company had 429,500 options outstanding to purchase units. All options granted to date are service-based awards. On June 4, 2006, the Company adopted SFAS No. 123R (Revised 2004), “Share-Based Payment” ("SFAS 123R"), using the modified prospective method, which requires companies to recordstock compensation expense for all non-vested and new awards beginning as of the adoption date. For the six and three months ended November 29, 2008, the Company recognized non-cash stock compensation expense of $2.1 million ($1.2 million after tax) and $0.8 million ($0.5 million after tax), respectively. There were no forfeiture adjustments required during the six or three months ended November 29, 2008. In comparison, for the six and three months ended December 1, 2007, the Company recognized non-cash stock compensation expense of $0.5 million ($0.3 million after tax) and $0.3 million ($0.2 million after tax), respectively, net of $0.9 million and $0.4 million of forfeiture adjustments for the respective periods that were recorded as a result of actual forfeitures being higher than initially estimated. Non-cash stock compensation expense for all periods is included in the line item “Selling and Administrative Expense” on the Company’s Condensed Consolidated Statements of Operations. At November 29, 2008, there was approximately $10.4 million of unearned non-cash stock-based compensation that the Company expects to recognize as expense over the next 4.9 years. The service-based awards are expensed on a straight-line basis over the requisite service period of five years. At November 29, 2008, 23% of outstanding options to purchase units have vested.

Stock option unit transactions are summarized as follows:

	Number of Units	Weighted Average Exercise Price Per Unit
Options Outstanding May 31, 2008	412,000	$	181.25

Options Issued	30,000	$	183.33

Options Forfeited	--		--

Options Cancelled	(12,500)	$	180.00

Options Exercised	--		--

Options Outstanding November 29, 2008	429,500	$	181.36

The following table summarizes information about the stock options outstanding under the Plan as of November 29, 2008:

Option Units Outstanding				Option Units Exercisable
	Range of Exercise Prices		Number Outstanding at November 29, 2008	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Exercisable at November 29, 2008
Tranche 1	$	90.00 - 100.00	143,166	8.1	$	94.07	33,333
Tranche 2	$	180.00	143,167	8.1	$	180.00	33,333
Tranche 3	$	270.00	143,167	8.1	$	270.00	33,334
			429,500				100,000

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants under the Plan in Fiscal 2008 and Fiscal 2009:

	Six Months Ended November 29, 2008			Six Months Ended December 1, 2007

Risk-free interest rate		3.63-4.06%	%		4.11	%
Expected volatility		35 – 42.5%	%		67	%
Expected life	6.6 – 10.0 years			4.5 years
Contractual life	10 years			10 years
Expected dividend yield		0.0	%		0.0
Fair value of option units granted
Tranche 1	$	27.40		$	56.65
Tranche 2		26.62			42.60
Tranche 3		23.34			33.13

11. Impairment of Long-Lived Assets

The Company accounts for impaired long-lived assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Also, long-lived assets and certain intangibles to be disposed of should be reported at the lower of the carrying amount or fair value less cost to sell. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the estimated future cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds the estimated expected undiscounted future cash flows, the Company measures the amount of the impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is measured by discounting expected future cash flows using the Company’s incremental borrowing rate.

There were no impairment charges recorded during the six and three month periods ended November 29, 2008. Impairment charges recorded during each of the six and three month periods ended December 1, 2007 amounted to $7.4 million and $6.8 million, respectively. The majority of the impairment charges for both the six and three month periods ended December 1, 2007 are related to the impairment of favorable leases in the amount of $4.7 million related to six of the Company’s stores. The Company also impaired $1.1 million of leasehold improvements and $1.0 million of furniture and fixtures related to ten of the Company’s stores for both the six and three month periods ended December 1, 2007. During the first quarter of Fiscal 2008, the Company recorded $0.6 million of impairment charges related to idle equipment. These impairment charges are primarily related to a decline in operating performance of these stores.

12. Comprehensive Income/(Loss)

The Company accounts for comprehensive income/(loss) in accordance with SFAS No. 130, “Reporting Comprehensive Income.” For the six and three month period ended November 29, 2008 and the six and three month period ended December 1, 2007, comprehensive income/(loss) consisted of net income/(loss).

13. Other Revenue

Other revenue consists of rental income received from leased departments, subleased rental income, layaway, alteration, dormancy and other service charges and other miscellaneous items. Layaway, alteration, dormancy and other service charges (“Service Fees”) amounted to $5.2 million and $3.4 million for the six and three month periods ended November 29, 2008, respectively, compared with $6.6 million and $4.2 million for the six and three month periods ended December 1, 2007, respectively. The decrease in Service Fees is related to the Company’s decision to cease charging dormancy service fees on outstanding balances of store value cards (refer to Note 14 of the Company’s Condensed Consolidated Financial Statements entitled “Store Value Cards” for further discussion regarding store value cards). Dormancy service fees contributed $1.8 million and $1.2 million to the Service Fees for the six and three month period ended December 1, 2007, respectively.

Rental income from leased departments amounted to $3.6 million and $2.0 million for each of the six and three month periods ended November 29, 2008, respectively, compared with $3.5 million and $2.0 million for each of the six and three month periods ended December 1, 2007, respectively. Subleased rental income and other miscellaneous revenue items amounted to $5.5 million and $2.5 million for the six and three month periods ended November 29, 2008, respectively, compared with $5.8 million and $2.9 million for the six and three month periods ended December 1, 2007, respectively.

14. Store Value Cards

Store value cards include gift cards and store credits issued from merchandise returns. Store value cards are recorded as a current liability upon the initial sale, and revenue is recognized when the store value card is redeemed for merchandise. Store value cards issued by the Company do not have an expiration date and are not redeemable for cash. Beginning in September of 2006 through December 29, 2007, if a store value card remained inactive for greater than thirteen months, the Company assessed the recipient a monthly dormancy service fee, where allowed by law, which was automatically deducted from the remaining value of the card. Dormancy service fee income was recorded as part of the line item “Other Revenue” in the Company’s Condensed Consolidated Statements of Operations.

Early in Fiscal 2008, the Company determined it had accumulated adequate historical data to determine a reliable estimate of the amount of gift cards that would not be redeemed. The Company formed a corporation in Virginia (BCF Cards, Inc.) to issue the Company’s store value cards commencing December 29, 2007 and upon the formation of BCF Cards, Inc., the Company discontinued assessing a dormancy service fee on inactive store value cards. Instead, during the third quarter of Fiscal 2008, the Company began estimating and recognizing store value card breakage income in proportion to actual store value card redemptions and records such income in the line item “Other Income, Net” in the Company’s Condensed Consolidated Statements of Operations. The Company determines an estimated store value card breakage rate by continuously evaluating historical redemption data. Breakage income is recognized in proportion to the historical redemption patterns for those store value cards for which the likelihood of redemption is remote. For the six and three months ended November 29, 2008, the Company recorded $1.6 million and $0.8 million, respectively, of store value card breakage income.

15. Segment Information

The Company reports segment information in accordance with SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information.” The Company has identified operating segments at the store level. However, due to the similar economic characteristics of the stores, the Company has aggregated the stores into one reporting segment operating within the United States.

16. Acquisition of Value City Leases

On October 3, 2007, Burlington Coat Factory Warehouse Corporation and certain wholly-owned subsidiaries (“Burlington”) entered into an Agreement to Acquire Leases and Lease Properties (the “Agreement”) from Retail Ventures, Inc., an Ohio corporation (“RVI”), together with its wholly-owned subsidiaries, Value City Department Stores LLC, an Ohio limited liability company (“Value City” or “VCDS”), and GB Retailers, Inc., a Delaware corporation (“GB Retailers” and, together with VCDS, the “VCDS Tenants”), and from Schottenstein Stores Corporation (“SSC”) and certain affiliates of SSC (collectively with SSC, the “SSC Landlords”). RVI, the VCDS Tenants and the SSC Landlords are collectively referred to as the “Value City Entities.”

As of November 29, 2008, the Company was still in negotiation with landlords related to one of the original 24 leases and six of the original 24 leases have been removed from the transaction. Included in the seventeen leases that have been finalized, the Company made arrangements to transfer ten of the locations to the landlords thereof and entered into leases for such locations with such landlords, thus reducing the aggregate purchase price of the entire transaction from $16.0 million to $7.0 million.

17. Commitments and Contingencies

The Company is party to various litigation matters arising in the ordinary course of business. The ultimate legal and financial liability of the Company with respect to such litigation cannot be estimated with certainty, but management believes, based on its examination of these matters, experience to date and discussions with counsel, that the ultimate liability from the Company’s various litigation matters will not be material to the business, financial condition, results of operations or cash flows of the Company.

The Company enters into lease agreements during the ordinary course of business in order to secure favorable store locations. As of November 29, 2008, the Company committed to six new lease agreements for locations at which stores are expected to be opened in Fiscal 2009. The six new stores are expected to have minimum lease payments of $1.1 million, $4.3 million, $4.3 million, $4.3 million, and $30.5 million for the remainder of Fiscal 2009, and the fiscal years ended May 29, 2010, May 28, 2011, June 2, 2012 and all subsequent years thereafter, respectively.

The Company had letter of credit arrangements with various banks in the amount of $44.3 million and $28.6 million guaranteeing performance under various lease agreements, insurance contracts and utility agreements at November 29, 2008 and December 1, 2007, respectively.

Additionally, the Company has an outstanding letter of credit in the amount of $2.4 million and $3.4 million at November 29, 2008 and December 1, 2007, respectively, guaranteeing its Industrial Revenue Bonds. The Company also has outstanding letters of credit agreements in the amount of $11.4 million and $13.2 million at November 29, 2008 and December 1, 2007, respectively, related to certain merchandising agreements.

18. Subsequent Events

In an effort to better align the Company’s resources with its business objectives, the Company has reviewed all areas of the business to identify efficiency opportunities to enhance the organization’s performance. The Company has been progressing on a number of initiatives to provide improved tools and business processes to the organization. In light of the challenging economic and retail sales environments, the Company has accelerated the implementation of several initiatives, including some that have resulted in the elimination of certain positions and the restructuring of certain other jobs and functions. This has resulted in the planned reduction of the Company’s workforce in its corporate office and its stores of approximately 2,300 positions, or slightly less than 9% of the Company’s total workforce. This reduction in the Company’s workforce will result in a severance charge during the third quarter of Fiscal 2009 of less than $2.0 million.

As a result of these various initiatives, the Company plans to reduce its cost structure in excess of $45 million during the last two quarters of Fiscal 2009. The majority of these savings are anticipated to result from a more effective management structure and payroll management in the stores and a reduction of payroll costs of the Company’s corporate functions. The Company believes this will allow the business to run more efficiently without sacrificing the Company’s ability to serve its customers.

The Company will continue to pursue its growth plans and invest in capital projects that meet the Company’s required financial hurdles. However, given the uncertainty of the economy, prudent management of inventory and expenses will remain a strategic initiative.

19. Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141(revised 2007), “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R applies to any transaction or other event that meets the definition of a business combination. Where applicable, SFAS No. 141R establishes principles and requirements for how the acquirer recognizes and measures identifiable assets acquired, liabilities assumed, noncontrolling interest in the acquiree and goodwill or gain from a bargain purchase. In addition, SFAS No. 141R determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141R also applies to prospective changes in acquired tax assets and liabilities recognized as part of the Company’s previous acquisitions, by requiring such changes to be recorded as a component of the income tax provision. This statement is to be applied prospectively for fiscal years beginning after December 15, 2008. The Company expects SFAS No. 141R will have an impact on accounting for future business combinations, once adopted, and on prospective changes, if any, of previously acquired tax assets and liabilities.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB No. 51’s consolidation procedures for consistency with the requirements of SFAS No. 141R. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The statement shall be applied prospectively as of the beginning of the fiscal year in which the statement is initially adopted. The Company currently does not have a non-controlling interest in any subsidiaries, but will continue to evaluate the impact of SFAS No. 160 on its future Condensed Consolidated Financial Statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133 with the intent to provide users of financial statements with an enhanced understanding of: (i) How and why an entity uses derivative instruments; (ii) How derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and (iii) How derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is in the process of evaluating the impact of SFAS No. 161 on its Condensed Consolidated Financial Statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). This statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of non-governmental entities that are presented in conformity with GAAP. This statement shall be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” The Company is in the process of evaluating the impact of SFAS No. 162 on its Condensed Consolidated Financial Statements.

In October 2008, SFAS 157 was amended by FSP SFAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for that Asset is Not Active” (“FSP SFAS 157-3”). This FSP is effective upon issuance and amends FASB Statement No. 157, “Fair Value Measurements,” to clarify its application in an inactive market by providing an illustrative example to demonstrate how the fair value of a financial asset is determined when the market for the financial asset is inactive. FSP SFAS 157-3 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

In June 2008, the FASB ratified EITF No. 08-3 “Accounting by Lessees for Maintenance Deposits” (“EITF 08-3”). EITF 08-3 mandates that maintenance deposits that may not be refunded should be accounted for as a deposit. When the underlying maintenance is performed, the deposit is expensed or capitalized in accordance with the lessee’s maintenance accounting policy. This EITF is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2008. The Company is in the process of evaluating the impact of EITF 08-3 on its Condensed Consolidated Financial Statements.

20. Condensed Guarantor Data

On April 13, 2006, BCFWC issued $305 million aggregate principal amount of 11 .1% Senior Notes due 2014. The notes were issued under an indenture issued on April 13, 2006. Holdings and subsidiaries of BCFWC have fully and unconditionally guaranteed these notes. These guarantees are both joint and several. The following Condensed Consolidating Financial Statements present the financial position, results of operations and cash flows of Holdings, BCFWC, exclusive of subsidiaries (referred to herein as “BCFW”), and the guarantor subsidiaries. The Company has one non-guarantor subsidiary that is not wholly-owned and is considered to be “minor” as that term is defined in Rule 3-10 of Regulation S-X promulgated by the Securities and Exchange Commission.

Neither the Company nor any of its subsidiaries may declare or pay cash dividends or make other distributions of property to any affiliate unless such dividends are used for certain specified purposes including, among others, to pay general corporate and overhead expenses incurred by Holdings in the ordinary course of business, or the amount of any indemnification claims made by any director or officer of Holdings or the Company, to pay taxes that are due and payable by Holdings or any of its direct or indirect subsidiaries, or to pay interest on Holdings Senior Discount Notes, provided that no event of default under BCFWC’s debt agreements has occurred or will occur as the result of such interest payment.

Burlington Coat Factory Investments Holdings, Inc. and Subsidiaries
Condensed Consolidating Balance Sheets
(All amounts in thousands)

	As of November 29, 2008

ASSETS	Holdings			BCFW			Guarantors		Eliminations			Consolidated

Current Assets:
Cash and Cash Equivalents	$	-		$	123		$	40,245	$	-		$	40,368
Restricted Cash and Cash Equivalents		-			-			2,669		-			2,669
Investments		-			-			26,105					26,105
Accounts Receivable		-			43,783			22,533		-			66,316
Merchandise Inventories		-			1,341			927,034		-			928,375
Deferred Tax Asset		-			14,124			40,014		-			54,138
Prepaid and Other Current Assets		-			10,883			14,868		-			25,751
Prepaid Income Tax		-			3,571			-		(534)			3,037
Assets Held for Sale		-			-			-		-

Total Current Assets		-			73,825			1,073,468		(534)			1,146,759

Property and Equipment - Net of Accumulated Depreciation		-			57,457			868,140		-			925,597
Trademark		-			526,300			-					526,300
Net Favorable Lease		-			-			520,148					520,148
Goodwill		-			45,613			-					45,613
Other Assets		311,296			1,876,748			45,126		(2,147,909	)		85,261

Total Assets	$	311,296		$	2,579,943		$	2,506,882	$	(2,148,443	)	$	3,249,678


LIABILITIES AND STOCKHOLDERS' EQUITY


Current Liabilities:
Accounts Payable	$	-		$	615,612		$	-	$	-		$	615,612
Income Taxes Payable		-			2,148			534		(534)			2,148
Other Current Liabilities		-			85,787			179,937		-			265,724
Current Maturities of Long Term Debt		-			6,557			1,718		-			8,275

Total Current Liabilities		-			710,104			182,189		(534)			891,759

Long Term Debt		-			1,322,752			126,264		-			1,449,016
Other Liabilities		-			17,592			136,779		(10,000	)		144,371
Deferred Tax Liability		-			218,199			235,037		-			453,236

Stockholders' Equity:

Common Stock		-			-			-		-			-
Capital in Excess of Par Value		459,434			459,434			1,467,331		(1,926,765	)		459,434
(Accumulated Deficit)/ Retained Earnings		(148,138	)		(148,138	)		359,282		(211,144	)		(148,138)

Total Stockholders' Equity		311,296			311,296			1,826,613		(2,137,909	)		311,296

Total Liabilities and Stockholders' Equity	$	311,296		$	2,579,943		$	2,506,882	$	(2,148,443	)	$	3,249,678

Burlington Coat Factory Investments Holdings, Inc. and Subsidiaries

Condensed Consolidating Balance Sheets

(All amounts in thousands)


	As of May 31, 2008
	Holdings			BCFW			Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and Cash Equivalents	$	-		$	4,114		$	35,987	$	-		$	40,101
Restricted Cash and Cash Equivalents		-			-			2,692		-			2,692
Accounts Receivable, Net		-			20,930			6,207		-			27,137
Merchandise Inventories		-			1,354			718,175		-			719,529
Deferred Tax Assets		-			14,222			37,154		-			51,376
Prepaid and Other Current Assets		-			11,581			13,397		-			24,978
Prepaid Income Taxes		-			935			2,929		-			3,864
Assets Held for Disposal		-			-			2,816		-			2,816

Total Current Assets		-			53,136			819,357		-			872,493

Property and Equipment, Net of Accumulated Depreciation		-			58,906			860,629		-			919,535
Tradename		-			526,300			-		-			526,300
Favorable Leases, Net of Accumulated Amortization		-			-			534,070		-			534,070
Goodwill		-			42,775			-		-			42,775
Other Assets		323,524			1,705,185			21,025		(1,980,415	)		69,319

Total Assets	$	323,524		$	2,386,302		$	2,235,081	$	(1,980,415	)	$	2,964,492

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Accounts Payable	$	-		$	337,040		$	-	$	-		$	337,040
Income Taxes Payable		-			4,256			1,548		-			5,804
Other Current Liabilities		-			128,597			110,269		-			238,866
Current Maturities of Long Term Debt		-			2,057			1,596		-			3,653

Total Current Liabilities		-			471,950			113,413		-			585,363

Long Term Debt		-			1,352,557			127,674		-			1,480,231
Other Liabilities		-			17,550			103,226		(10,000	)		110,776
Deferred Tax Liability		-			220,721			243,877		-			464,598

Stockholders’ Equity:		-			-			-		-			-

Common Stock		-			-			-		-			-
Capital in Excess of Par Value		457,371			457,371			1,352,271		(1,809,642	)		457,371
(Accumulated Deficit)/ Retained Earnings		(133,847	)		(133,847	)		294,620		(160,773	)		(133,847	)

Total Stockholders’ Equity		323,524			323,524			1,646,891		(1,970,415	)		323,524

Total Liabilities and Stockholders’ Equity	$	323,524		$	2,386,302		$	2,235,081	$	(1,980,415	)	$	2,964,492

Burlington Coat Factory Investments Holdings, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
(All amounts in thousands)


	For the Six Months Ended November 29, 2008


	Holdings			BCFW			Guarantors			Eliminations			Consolidated


REVENUES:
Net Sales	$	-		$	1,962		$	1,707,463		$	-		$	1,709,425
Other Revenue		-			(488)			14,780			-			14,292

Total Revenue		-			1,474			1,722,243			-			1,723,717

COSTS AND EXPENSES:
Cost of Sales		-			1,189			1,040,985			-			1,042,174
Selling and Administrative Expenses		-			72,246			499,660			-			571,906
Depreciation		-			13,488			48,225			-			61,713
Amortization		-			4,914			16,851			-			21,765
Impairment Charges		-			-			-			-			-
Interest Expense		-			45,789			8,349			-			54,138
Other Income, Net		-			(760	)		(2,078	)		-			(2,838	)
Loss (Earnings) from Equity Investment		14,291			(64,662	)		-			50,371			-
		14,291			72,204			1,611,992			50,371			1,748,858

(Loss) Income Before (Benefit) Provision for Income Taxes		(14,291	)		(70,730	)		110,251			(50,371	)		(25,141	)
(Benefit) Provision for Income Taxes		-			(56,439	)		45,589			-			(10,850	)
Net (Loss) Income	$	(14,291	)	$	(14,291	)	$	64,662		$	(50,371	)	$	(14,291	)

Burlington Coat Factory Investments Holdings, Inc. and Subsidiaries

Condensed Consolidating Statement of Operations

(All amounts in thousands)

For the Three Months Ended November 29, 2008

Holdings

BCFW

Guarantors

Eliminations

Consolidated

REVENUES:

Net Sales