Edgar Filing: BURLINGTON COAT FACTORY WAREHOUSE CORP

form10k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended May 30, 2009

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

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)


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)

(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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

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 Act). Yes ¨ No x

The aggregate market value of the registrant’s 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 27, 2009 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


		PAGE
PART I.

Item 1.	Business	1
Item 1A.	Risk Factors	4
Item 1B.	Unresolved Staff Comments	10
Item 2.	Properties	10
Item 3.	Legal Proceedings	11
Item 4.	Submission of Matters to a Vote of Security Holders	11

PART II.

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	12
Item 6.	Selected Financial Data	12
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 7 A.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 8.	Financial Statements and Supplementary Data	39
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	87
Item 9 A.	Controls and Procedures	87
Item 9 B.	Other Information	88

PART III.

Item 10.	Directors, Executive Officers and Corporate Governance	88
Item 11.	Executive Compensation	90
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	109
Item 13.	Certain Relationships and Related Transactions, and Director Independence	111
Item 14.	Principal Accounting Fees and Services	113

PART IV.

Item 15.	Exhibits, Financial Statement Schedules	114

SIGNATURES EXHIBIT INDEX		117 118

Item 1. Business

Overview

Burlington Coat Factory Investments Holdings, Inc. (the Company or Holdings) owns Burlington Coat Factory Warehouse Corporation (BCFWC), which is a nationally recognized retailer of high-quality, branded apparel at everyday low prices. We opened our first store in Burlington, New Jersey in 1972, selling primarily coats and outerwear. Since then, and as of May 30, 2009, we have expanded our store base to 433 stores in 44 states and Puerto Rico 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 decor 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.

As used in this annual report, the terms “Company,” “we,” “us,” or “our” refers to Holdings and all its subsidiaries. Holdings has no operations and its only asset is all of the stock of BCFWC. BCFWC was initially organized in 1972 as a New Jersey corporation. In 1983, BCFWC was reincorporated in Delaware and currently exists as a Delaware corporation. Holdings was organized in 2006 (and currently exists) as a Delaware corporation. BCFWC became a wholly-owned subsidiary of Holdings in connection with our acquisition on April 13, 2006 by affiliates of Bain Capital in a take private transaction (Merger Transaction).

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 2009 ended on May 30, 2009 and was a 52 week year. 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.

The Stores

As of May 30, 2009, we operated 433 stores under the names: “Burlington Coat Factory Warehouse” (415 stores), “MJM Designer Shoes” (15 stores), “Cohoes Fashions” (two stores), and “Super Baby Depot” (one store). Our store base is geographically diversified with stores located in 44 states and Puerto Rico. 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 everyday 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 decor 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 mens’ and boys’ suits attracts customers from beyond our local trade areas. These products drive incremental store-traffic and differentiate us from our competitors. Over 98% of our net sales are derived from our BCF 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. We acquired Cohoes Fashions, Inc. 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 and brand name merchandise. Customers can select merchandise 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.

In some of our stores, we grant unaffiliated third parties the right to use designated store space solely for the purpose of selling such third parties’ goods, including items such as lingerie, fragrances, and jewelry (Leased Departments). During Fiscal 2009, our rental income from all such arrangements aggregated less than 1% of our total revenues. We do not own or have any rights to any trademarks, licenses or other intellectual property in connection with the brands sold by such unaffiliated third parties.

Store Expansion

Since 1972 when our first store was opened in Burlington, New Jersey, we have expanded to 415 BCF stores, two Cohoes Fashions stores, 15 MJM Designer Shoes stores, and one stand-alone Super Baby Depot store.

We believe the size of our typical BCF store represents 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 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 30, 2009, we operated stores in 44 states and Puerto Rico, 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 30, 2009, we owned the land and/or buildings for 41 of our 433 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.

Our current lease model provides for a ten year initial term with a number of five year options thereafter. Typically, our lease strategy includes landlord allowances for leasehold improvements and tenant fixtures. We believe our lease model keeps us competitive with other retailers for desirable locations.

We have a proven track record of new store expansion. Our store base has grown from 13 stores in 1980 to 433 stores as of May 30, 2009. Assuming that appropriate locations are identified, we believe that we will be able to execute our growth strategy without significantly impacting our current stores. The table below shows our store openings and closings since the beginning of the Company’s fiscal year ended May 29, 2004.

Fiscal Year	2004			2005			2006			2007			2008			2009
Stores (Beginning of Period)		335			349			362			368			379			397
Stores Opened		24			16			12			19			20			37
Stores Closed		(10	)		(3	)		(6	)		(8	)		(2	)		(1	)

Stores (End of Period)		349			362			368	*		379			397			433

* Inclusive of three stores that closed because of hurricane damage, which reopened in 2007.

Distribution

We have three distribution centers that ship approximately 85% of merchandise units to our store. The remaining 15% of merchandise units are drop shipped. The three distribution centers occupy an aggregate of 1,490,000 square feet and each includes processing and storage capacity. Our distribution centers are currently located in Burlington, New Jersey, Edgewater Park, New Jersey and San Bernardino, California. The distribution center in Burlington, New Jersey is currently being consolidated into our distribution center in Edgewater Park, New Jersey.

We are in the process of transitioning to a new warehouse management system in our distribution network as well as updating our material handling systems. These updates were implemented in our Edgewater Park, New Jersey facility and have allowed us to consolidate our former Bristol, Pennsylvania facility into the Edgewater Park, New Jersey facility. Additionally, as noted above, we are in the process of consolidating our Burlington, New Jersey facility into the Edgewater Park, New Jersey facility. The Edgewater Park, New Jersey facility has both the capacity and storage capability to handle the Bristol, Pennsylvania and Burlington, New Jersey volume. Our lease at the Bristol, Pennsylvania location

expired in July of 2009. We own the distribution center at the Burlington, New Jersey location and we are evaluating various alternatives to determine the best use for the facility following its consolidation into the Edgewater Park, New Jersey facility.

Our distribution center network leverages automated sorting units to process and ship product to our 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.

Location	Calendar Year Operational	Size (sq. feet)		Leased or Owned
Burlington, New Jersey	1987		402,000	Owned
Edgewater Park, New Jersey	2004		648,000	Owned
San Bernardino, California	2006		440,000	Leased

Customer Demographic

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 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.

We have empowered our store teams to provide an outstanding customer experience for every customer in every store, every day. We have streamlined processes and will continue to strive to create opportunities for fast and effective customer interactions. Our stores must reflect clean, organized merchandise presentations that highlight the depth and breadth of our assortments. Through proper staffing flexibility we provide sale floor coverage during peak shopping hours to better serve the customer on the sales floor and at the check-out.

Marketing and Advertising

We use a variety of broad-based and targeted marketing and advertising strategies to efficiently deliver the right message to the targeted audience at the right time. These strategies include national television and radio advertising, direct mail, email marketing and targeted digital and magazine advertisements. Broadcast communication and reach is balanced with relevant customer contacts to increase frequency of store visits.

Employees

As of May 30, 2009, we employed 26,704 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 30, 2009, employees at two of our stores were subject to collective bargaining agreements.

During Fiscal 2009, in light of the current challenging economic and retail sales environments, we executed the implementation of several initiatives, including some that resulted in the elimination of certain positions and the restructuring of certain other jobs and functions. This resulted in the reduction of our workforce in our corporate office and stores by approximately 2,300 positions, or slightly less than 9% of our total workforce.

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 2009. 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 our 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 provide to any person, upon request, copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, free of charge as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC). Such requests should be made in writing to the attention of our Corporate Counsel at the following address: Burlington Coat Factory Warehouse Corporation, 1830 Route 130 North, Burlington, New Jersey 08016.

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 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.

Risks Related to Our Business

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 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 current retail environment, 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 91% 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 alternative 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 alternative 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 fiscal 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.

Fluctuations in comparative store sales and results of operations could cause our business performance to decline substantially.

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;

•

calendar shifts of holiday or seasonal periods;

•

the effectiveness of our inventory management;

•

changes in our merchandise mix;

•

weather conditions;

•

availability of suitable real estate locations at desirable prices and our ability to locate them;

• the timing of promotional events;

•

our ability to effectively manage pricing and markdowns;

•

changes in general economic conditions and consumer spending patterns;

•

our ability to anticipate, understand and meet consumer trends and preferences;

•

actions of competitors; and

•

the attractiveness of our inventory and stores to customers.

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 severely damage or destroy one or more of our stores or facilities located in the affected areas, thereby disrupting our business operations. 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.

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

Increases in energy costs may result in an increase in our transportation costs for distribution, utility costs for our stores and costs to purchase our products from suppliers. A sustained 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.

General economic conditions affect our business.

Throughout Fiscal 2009, there was significant deterioration in the global financial markets and economic environment, which we believe negatively impacted consumer spending at many retailers, including us. 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. Our financial condition and operations could be impacted by changes in government regulations such as taxes, healthcare reform, and other areas. 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.

The financial crisis which began in the summer of 2008, combined with already weakened economic conditions due to high energy costs, deterioration of the mortgage lending market and rising costs of food, has led to a global recession affecting all industries and businesses. The resultant loss of jobs and decrease in consumer spending has caused businesses to reduce spending and scale down their profit and performance projections. More specifically, these conditions have led to unprecedented promotional activity among retailers. In order to increase traffic and drive consumer spending during the current economic crisis, competitors, including department stores, mass merchants and specialty apparel stores, have been offering brand-name merchandise at substantial markdowns. If we are unable to continue to positively differentiate ourselves from our competitors, our results of operations could be adversely affected.

Parties with whom we do business may be subject to insolvency risks which could negatively impact our liquidity.

Many economic and other factors are outside of our control, including but not limited to commercial credit availability. Also affected are our vendors, which in many cases depend upon commercial credit to finance their operations. If they are unable to secure commercial financing, our vendors could seek to change the terms on which they sell to us, which could negatively affect our liquidity. In addition, the inability of vendors to access liquidity, or the insolvency of vendors, could lead to their failure to deliver merchandise to us.

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, swine 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.

Our business would be disrupted severely if either of our primary distribution centers were to shut down.

During Fiscal 2009, central distribution services were extended to approximately 85% of our merchandise units through our distribution facilities in Burlington, New Jersey, Edgewater Park, New Jersey and San Bernardino, California. During the fourth quarter of Fiscal 2009 and the first quarter of Fiscal 2010, we began consolidating the distribution activities previously handled by our Bristol, Pennsylvania and Burlington, New Jersey locations to our location in Edgewater Park, New Jersey. Most of the merchandise we purchase is shipped directly to our distribution centers, where it is prepared for shipment to the appropriate stores. If either of our current primary distribution centers 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 either of the distribution centers.

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, 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 most likely would not fully incapacitate us, our operations could be significantly affected. The failure of our information systems to perform as designed could disrupt our business and harm sales and profitability.

Changes in product safety laws may adversely impact our operations.

We are subject to regulations by a variety of state and federal regulatory authorities, including the Consumer Product Safety Commission. The recently enacted Consumer Product Safety Improvement Act of 2008 (CPSIA) imposes new limitations on the permissible amounts of lead and phthalates allowed in children’s products. These regulations relate principally to product labeling, licensing requirements, flammability testing, and product safety particularly with respect to products used by children. In the event that we are unable to timely comply with regulatory changes, including those pursuant to the CPSIA, significant fines or penalties could result, and could adversely affect our operations.

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 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. Additionally, some of our competitors may have substantially larger marketing budgets, which may provide them with a competitive advantage.

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.

As of May 30, 2009, funds associated with Bain Capital own approximately 97.1% of the common stock of Burlington Coat Factory Holdings, Inc. (Parent), with the remainder held by existing members of management. Additionally, management held options to purchase 8.7% of the outstanding shares of Parent’s common stock as of May 30, 2009. 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 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 Related Stockholder Matters, and Item 13, Certain Relationships and Related Transactions, and Director Independence.

Risk Factors Related to Our Substantial Indebtedness

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 30, 2009, our total indebtedness was $1,449.5 million, including $300.8 million of 11.1% senior notes due 2014, $99.3 million of 14.5% senior discount notes due 2014, $870.8 million under our Senior Secured Term Loan Facility (Term Loan), and $150.3 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 $87.7 million for the fiscal year ending May 29, 2010, inclusive of minimum interest payments related to 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,

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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;

•

make certain capital expenditures;

•

make certain investments or other restricted payments;

•

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;

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guarantee indebtedness; and

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create liens.

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 unable to refinance these borrowings or 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

Not applicable.

Item 2. Properties

As of May 30, 2009, we operated 433 stores in 44 states throughout the United States and Puerto Rico. We own the land and/or building for 41 of our stores and lease the other 392 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 distribution facility. During the fourth quarter of Fiscal 2009 and the first quarter of Fiscal 2010, we began to consolidate our distribution activities previously handled by the Burlington, New Jersey location to our location in Edgewater Park, New Jersey. We own approximately 43 acres of land in Edgewater Park, New Jersey on which we have constructed a distribution center 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 distribution capabilities. We lease approximately 20,000 square feet of office space in New York City.

The following table identifies the years in which store leases, exclusive of distribution and corporate location leases, existing at May 30, 2009 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
	2010-2011		6		93
	2012-2013		4		79
	2014-2015		13		74
	2016-2017		2		37
	2018-2019		2		67
Thereafter to 2037			12		9
Total			39		359

Item 3. Legal Proceedings

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.

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. Parent is the only holder of record of our common stock and 97.1% of Parent’s common stock was held by various Bain Capital funds. Payment of dividends is prohibited under our credit agreements, except for certain limited circumstances. Dividends equal to $3.0 million and $0.7 million were paid during Fiscal 2009 and Fiscal 2008, 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 30, 2009, May 31, 2008 and June 2, 2007, the periods April 13, 2006 to June 3, 2006 and May 30, 2005 to April 12, 2006, and the fiscal year ended May 29, 2005, have been derived from our historical audited 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 30, 2005 to April 12, 2006, and the period following the Merger Transaction, April 13, 2006 to June 3, 2006. The financial data provided refers to our operations and that of our subsidiaries for both the Predecessor and Successor periods.

	(in millions)
	Predecessor					Successor
	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 6/2/07				Twelve Months Ended 5/31/08				Twelve Months Ended 5/30/09
Revenues from Continuing Operations	$	3,199.8		$	3,045.3	$	425.2		$	3,441.6			$	3,424.0			$	3,571.4

Income (Loss) from Continuing Operations, Net of Provision for Income Tax		106.0			94.3		(27.2	)		(47.2	)			(49.0	)			(191.6	)

Discontinued Operations, Net of Tax Benefit (1)		(1.0	)		-		-			-				-				-

Net Income (Loss)		105.0			94.3		(27.2	)		(47.2	)	(3)		(49.0	)	(3)		(191.6)	(3)

Total Comprehensive Income (Loss)		105.0			94.3		(27.2	)		(47.2	)			(49.0	)			(191.6	)

Balance Sheet Data		As of 5/28/05			As of 4/12/06		As of 6/3/06			As of 6/2/07				As of 5/31/08				As of 5/30/09
Total Assets	$	1,673.3			(2)	$	3,213.5		$	3,036.5			$	2,964.5			$	2,533.4
Working Capital		392.3			(2)		219.3			280.6				284.4				312.3
Long-term Debt		132.3			(2)	1,508.1				1,456.3				1,480.2				1,438.8
Stockholders’ Equity		926.2			(2)	419.5				380.5				323.5				135.1

Notes:
(1)		Discontinued operations include the after-tax operations of stores closed by us during the fiscal years listed.
(2) (3)		Information not available for interim period. Net Loss during Fiscal 2007, Fiscal 2008, and Fiscal 2009 reflect impairment charges of $24.4 million, $25.3 million and $332.0 million, respectively. The impairment charges in Fiscal 2007 and Fiscal 2008 relate entirely to our long-lived assets while the impairment charge in Fiscal 2009 relates to both our tradenames and our long-lived assets (Refer to Note 7 entitled “Intangible Assets” and Note 9 entitled “Impairment of Long-Lived Assets” to our Consolidated Financial Statements for further discussion around our impairment charges).

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 everyday 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 433 stores in 44 states and Puerto Rico, 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 decor 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.

As of May 30, 2009, we operated 433 stores under the names “Burlington Coat Factory Warehouse” (415 stores), “MJM Designer Shoes” (15 stores), “Cohoes Fashions” (two stores), and “Super Baby Depot” (one store) in 44 states and Puerto Rico. For the fiscal year ended May 30, 2009, we generated revenues of approximately $3,542.0 million.

Executive Summary

Overview of Fiscal 2009 Operating Results

We experienced an increase in net sales for the 52 week period ended May 30, 2009 (Fiscal 2009) compared with the 52 week period ended May 31, 2008 (Fiscal 2008). Consolidated net sales increased $148.6 million, or 4.4%, to $3,542.0 million ($3,200.7 million of which represents comparative store sales) for Fiscal 2009 from $3,393.4 million ($3,282.8 million of which represents comparative store sales) for Fiscal 2008. This increase was primarily attributable to the combination of:

·	an increase in net sales of $222.8 million from 36 net new stores opened in Fiscal 2009,

·	an increase in net sales of $42.2 million for stores opened in 2008 that are not included in our comparative store sales,

·	an increase in barter sales of $5.5 million,

·	a comparative store sales decrease of $82.1 million, or 2.5%, and

·	a decrease in net sales of $19.4 million from stores closed since the comparable period last year.

We believe the comparative store sales decrease is due primarily to weakened consumer demand as a result of the contraction of credit available to consumers and the downturn in the economy.

Gross margin as a percentage of net sales decreased to 37.9% from 38.3% during Fiscal 2009 compared with Fiscal 2008. The decrease in gross margin is primarily due to an increase in shrink results based on physical inventories taken in the fourth quarter of Fiscal 2009. In response to the increase in shrink, we have formed a shrink task force specifically aimed to identify causes for shrink and implement actions to reduce them. Also contributing to the decline in gross margin is a slight decline in initial margins. These declines were partially offset by a slight improvement in the level of markdowns during Fiscal 2009.

Selling and administrative expenses as a percentage of net sales decreased to 31.5% during Fiscal 2009 compared with 32.2% during Fiscal 2008. Total selling and administrative expenses increased $24.4 million from $1,090.8 million during Fiscal 2008 to $1,115.2 million in Fiscal 2009. The improvement in our selling and administrative expenses as a percentage of net sales during Fiscal 2009 was due to our initiative to reduce our cost structure, which continues to be an ongoing initiative in Fiscal 2010. During Fiscal 2009, we executed various initiatives that reduced store payroll, maximized supply chain efficiencies and reduced our overall headcount by approximately 2,300 positions, or slightly less than 9% of the total workforce. These initiatives resulted in our saving slightly over $70 million during the third and fourth quarters of Fiscal 2009. The overall dollar

increase in our selling and administrative expenses during Fiscal 2009 as compared with Fiscal 2008 was primarily the result of 36 net new stores opened during Fiscal 2009.

We recorded a net loss of $191.6 million during Fiscal 2009 compared with a net loss of $49.0 million for Fiscal 2008. The primary driver of the net loss in Fiscal 2009 was the impairment charges incurred throughout the year. The primary drivers of the net loss during Fiscal 2008 were weakened consumer demand as impacted by general economic conditions (discussed in further detail below), impairment charges and depreciation, amortization and interest expense incurred in connection with the financing of the Merger Transaction in Fiscal 2006.

Store Openings, Closings, and Relocations.

During Fiscal 2009, we opened 37 new Burlington Coat Factory Warehouse stores (“BCF” stores) and closed one BCF store (36 net new stores). As of May 30, 2009, we operated 433 stores under the names "Burlington Coat Factory Warehouse" (415 stores), "Cohoes Fashions" (two stores), "MJM Designer Shoes" (15 stores) and "Super Baby Depot" (one store).

We will continue to pursue our growth plans and invest in capital projects that meet our required financial hurdles. However, given the uncertainty of the economy, we have curtailed our store opening plans to between eight and 11 new stores (exclusive of three relocations) for Fiscal 2010. Prudent management of inventory and expenses will remain a strategic initiative.

Ongoing Initiatives for Fiscal 2010

We continue to focus on a number of ongoing initiatives aimed at increasing our store profitability by reducing expenses and improving our comparative store sales trends. These initiatives include, but are not limited to:

· The continued reduction of our cost structure:

Reduce store payroll costs. We introduced a new store management model during the third quarter of Fiscal 2009. This new model was designed to provide consistent management coverage by sales volume. Also during the quarter, we began to allocate payroll to our stores based primarily on an expected sales per labor hour metric. Finally, we began to closely monitor new hire wage rates to ensure new hires were brought in at rates commensurate with their experience. We believe these actions will allow us to run our business more efficiently without sacrificing our ability to serve our customers.

Supply chain efficiencies. We continue to work on several logistics initiatives. Our transition to a regional distribution model is well underway and is an effort to reduce the amount of transportation miles required to service our stores which should result in reduced costs and improved service levels. The reduced costs will be realized primarily by a consolidation of our distribution centers. We have also implemented a performance management program designed to drive productivity improvements within the four walls of our distribution centers. Finally, we are in the process of implementing a new warehouse management system which will allow for further improvements in productivity by providing functionality not currently available.

Enhancing our merchandise content. We are focused on our core female customer who shops for herself and her family. We are working toward building assortments that better address her needs – trend right, desirable brands at great everyday low prices. We will deliver exceptional values that fit within a good, better, and best pricing strategy. By reducing our emphasis on upfront and all store buys, we believe the liquidity that will be generated will allow us to take advantage of strong in-season buys.

Refining our store experience through the eyes of the customer. We have empowered our store teams to provide an outstanding customer experience for every customer in every store, every day. We have, and will continue to strive, to streamline processes to create opportunities for fast and effective customer interactions. Our stores must reflect clean, organized merchandise presentations that highlight the depth and breadth of our assortments. Through proper staffing flexibility we provide sales floor coverage during peak shopping hours to better serve the customer on the sales floor and at the check-out.

Keeping inventory fresh through improved receipt management. This initiative is targeted to ensure that we have the right goods, in the right store, at the right time. We are working to better develop and tailor assortments to each individual market and region to address seasonal and lifestyle differences. We are also in the process of developing a more consistent merchandise flow by continuing to better align receipts with sales. In addition, we believe we can improve receipt management by incorporating flow, inventory turnover, and exit strategies for fashion and seasonal product into the day-to-day business process.

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.

General Economic Conditions. 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. During Fiscal 2009, there was significant deterioration in the global financial markets and economic environment, which we believe negatively impacted consumer spending at many retailers, including us. In response to this, we took steps to increase opportunities to profitably drive sales and to curtail capital spending and operating expenses where prudent, including the reduction of slightly more than $70 million out of our cost structure (as further described above as part of our “Executive Summary”) and the decrease of approximately $11 million out of our Fiscal 2009 capital expenditure plan (as further described below under the caption “Operational Growth”).

We closely monitor our net sales, gross margin, expenses and working capital. We have performed scenario planning such that if our net sales decline, we have identified variable costs that could be reduced to partially mitigate the impact of these declines. If these adverse economic trends worsen, or if our efforts to counteract the impacts of these trends are not sufficiently effective, there could be a negative impact on our financial performance and position in future fiscal periods. For further discussion of the risks to us regarding general economic conditions, please refer to the section below entitled “Liquidity and Capital Resources” and Part II, Item 1A of this report entitled “Risk Factors.”

Competition 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.

The U.S retail industry continues to face increased pressure on margins as the downturn in the economy has led consumers to be more value conscious. The weak retail environment helped to offset this pressure with a plentiful supply of goods in the market which created downward pricing pressure for wholesale purchases.

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.

Key Performance Measures

Management considers numerous factors in assessing our performance. Key performance measures used by management include comparative store sales, gross margin and inventory levels, receipt-to-reduction ratio, 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. The method of calculating comparative store sales varies across the retail industry. As a result, our definition of comparative store

sales may differ from other retailers. We define comparative store sales as sales of those stores (net of sales discounts) that are beginning their four hundred and twenty-fifth day of operation (approximately one year and two months). Existing stores whose square footage has been changed by more than 20% and relocated stores (except those relocated within the same shopping center) are classified as new stores for comparative store sales purposes. We experienced a decrease in comparative store sales of 2.5% and 5.2% during Fiscal 2009 and Fiscal 2008, respectively.

Various factors affect comparative store sales, including, but not limited to, current economic conditions, weather conditions, the timing of our releases of new merchandise, the general retail sales environment, consumer preferences and buying trends, changes in sales mix among distribution channels, competition, and the success of marketing programs. While any and all of these factors can impact comparative store sales, we believe that the decrease in comparative store sales during Fiscal 2009 and Fiscal 2008 was primarily attributable to weakened consumer demand as a result of the downturn in the economy.

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. 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 certain of these costs in the "Selling and Administrative Expenses" and "Depreciation and Amortization" line items in our Consolidated Statements of Operations and Comprehensive Loss. We include in our "Cost of Sales" line item all costs of merchandise (net of purchase discounts and certain vendor allowances), inbound freight, distribution center outbound freight and certain merchandise acquisition costs, primarily commissions and import fees. For Fiscal 2009 as compared with Fiscal 2008, we experienced a decrease in gross margin as a percent of sales from 38.3% to 37.9%. The decline in gross margin is primarily due to increased shrink results based on physical inventories taken in the fourth quarter of Fiscal 2009.

Inventory Levels. Inventory at May 30, 2009 was $641.8 million compared with inventory of $719.5 million at May 31, 2008. The decrease of $77.7 million is due to our initiatives to enhance our supply chain efficiencies and our merchandise content. These initiatives resulted in a decrease of average store inventory at May 30, 2009 of approximately 18.2% to $1.5 million per store compared with the average store inventory of $1.8 million as of May 31, 2008.

In light of current economic conditions, we continue to work to reduce our inventory levels in the stores. Our efforts to date are evident in the 18.2% reduction in average store inventory at the end of Fiscal 2009 compared with Fiscal 2008. By managing our inventories conservatively we believe we will be better able to deliver a continual flow of fresh merchandise to our customers. Over time, we intend to move toward more productive inventories by increasing the amount of current inventory as a percent of total inventory. This may result in us taking more markdowns as a percent of sales than prior periods, which would have a negative impact on gross margin.

Receipt-to-Reduction Ratio. We are in the process of developing a more consistent merchandise flow based on a receipt-to-reduction ratio. In other words, we are attempting to match forecasted levels of receipts to forecasted sales, taking into consideration the levels of markdown dollars on a monthly basis. We believe this will result in a more normalized receipt cadence and minimize peaks and valleys in our receiving process, ultimately leading to an improved inventory turnover ratio.

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 retail sales before sales discounts by the average retail value of the inventory for the period being measured. Our inventory turnover rate for Fiscal 2009 has remained consistent with the inventory turnover rate for Fiscal 2008 at 2.4 turns per year. The inventory turnover calculation is based on a rolling 13 month average of inventory and the last 12 months sales. We expect to see increased inventory turnover in Fiscal 2010.

Liquidity. Liquidity measures our ability to generate cash. Management measures liquidity through cash flow and working capital position. Cash flow is the measure of cash generated from operating, financing, and investing activities. We experienced a decrease in cash flow of $20.5 million during Fiscal 2009 compared with Fiscal 2008, primarily due to increased capital expenditures related to new store growth and decreased borrowings net of repayments. During Fiscal 2009, we made net repayments on our ABL Line of Credit of $31.3 million. During Fiscal 2008, we had net borrowings of $22.6 million. Cash and cash equivalents decreased $14.3 million to $25.8 million at May 30, 2009 (discussed in more detail under the caption below entitled “Liquidity and Capital Resources”).

Changes in working capital also impact our cash flows. Working capital equals current assets (exclusive of restricted cash and cash equivalents) minus current liabilities. Working capital at May 30, 2009 was $312.3 million compared with $284.4 million at May 31, 2008. This increase in working capital is primarily attributable to decreased accounts payable, as a result of the timing of payments, which was partially offset by decreased inventory levels as a result of the decrease in our average store inventory of 18.2% and decreased cash on hand.

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 fiscal year and the current fiscal year. Comparative store payroll decreased 11.1% between Fiscal 2009 and Fiscal 2008, as a result of our ongoing initiative to reduce store payroll costs. This was accomplished through a variety of processes. First, we introduced a new store management model that was designed to provide consistent management coverage by sales volume. We also began managing payroll of the stores based primarily on an expected sales per labor hour metric. Prior to this change, stores were allocated dollar amounts based on sales volume which did not take into account disparities between hourly rates by state. Lastly, we began to closely monitor new hire wage rates to ensure new hires were retained at rates commensurate with their experience. We believe that these actions will allow us to run the business more efficiently without sacrificing our ability to serve our customers.

Results of Operations

The following table sets forth certain items in our Consolidated Statements of Operations and Comprehensive Loss as a percentage of net sales for periods indicated that are used in connection with the discussion herein.

	May 30, 2009			May 31, 2008			June 2, 2007
Statement of Operations Data:
Net Sales		100.0	%		100.0	%		100.0	%
Cost of Sales (Exclusive of Depreciation and Amortization, As Shown Below)		62.1			61.8			62.4
Selling & Administrative Expenses		31.5			32.2			31.2
Restructuring and Separation Costs		0.2			-			-
Depreciation and Amortization		4.8			5.2			5.1
Interest Expense		2.6			3.6			4.0
Impairment Charges – Long Lived Assets		1.1			0.7			0.7
Impairment Charges - Tradenames		8.3			-			-
Other Income, Net		(0.2	)		(0.4	)		(0.2	)
Other Revenue		0.	8		0.9			1.1
Loss Before Income Tax Benefit		(9.6	)		(2.2	)		(2.1	)
Income Tax Benefit		(4.2	)		(0.8	)		(0.7	)

Net Loss		(5.4	)%		(1.4	)%		(1.4	)%

Performance for the Fiscal Year (52 weeks) Ended May 30, 2009 Compared with the Fiscal Year (52 weeks) Ended May 31, 2008

Net Sales

We experienced an increase in net sales for Fiscal 2009 compared with Fiscal 2008. Consolidated net sales increased $148.6 million, or 4.4%, to $3,542.0 million ($3,200.7 million of which represents comparative store sales) for Fiscal 2009 from $3,393.4 million ($3,282.8 million of which represents comparative store sales) for Fiscal 2008. This increase was attributable to:

·	an increase in net sales of $222.8 million related to 36 net new stores opened in 2009,

·	an increase in net sales of $42.2 million for stores opened in 2008 that are not included in our comparative store sales,

·	an increase in barter sales of $5.5 million,

·	a comparative store sales decrease of $82.1 million, or 2.5% and

·	a decrease in net sales of $19.4 million from stores closed since the comparable period last year.

We believe the comparative store sales decrease was due primarily to weakened consumer demand as a result of the contraction of credit available to consumers and the downturn in the economy.

Other Revenue

Other revenue (consisting of rental income from leased departments; subleased rental income; layaway, alteration, dormancy, and other service charges; and miscellaneous revenue items) decreased $1.2 million to $29.4 million for Fiscal 2009 compared with $30.6 million for Fiscal 2008. This decrease was primarily related to a decrease in dormancy fees of $2.2 million, partially offset by an increase in layaway fees of $1.1 million.

The decrease in dormancy fees was related to our decision during the third quarter of Fiscal 2008 to cease charging dormancy fees on outstanding balances of store value cards, which were recorded in the line item “Other Revenue” in our Consolidated Statements of Operations and Comprehensive Loss, and begin recording store value card breakage income in the line item “Other Income, Net” in our Statements of Operations and Comprehensive Loss. These dormancy fees contributed an additional $2.2 million to the line item “Other Revenue” in our Statements of Operations and Comprehensive Loss for Fiscal 2008 compared with Fiscal 2009. We now recognize breakage income related to outstanding store value cards in the line item “Other Income, Net” in our Statements of Operations and Comprehensive Loss (Refer to Note 11 to our Consolidated Financial Statements entitled “Store Value Cards” for further discussion).

Cost of Sales

Cost of sales increased $104.4 million (5.0%) for Fiscal 2009 compared to Fiscal 2008. Cost of sales as a percentage of net sales increased to 62.1% during Fiscal 2009 from 61.8% in Fiscal 2008. The dollar increase of $104.4 million in cost of sales between Fiscal 2008 and Fiscal 2009 was primarily related to the operation of 36 net new stores which were opened in Fiscal 2009.

For Fiscal 2009 as compared with Fiscal 2008, we experienced a decrease in gross margin as a percent of net sales from 38.3% to 37.9%. The decline in gross margin was primarily due to increased shrink results based on physical inventories taken in the fourth quarter of Fiscal 2009.

Selling and Administrative Expenses

Selling and administrative expenses increased $24.4 million (2.2%) to $1,115.2 million for Fiscal 2009 from $1,090.8 million for Fiscal 2008. The increase in selling and administrative expenses is summarized in the table below:

	(in thousands)
	Year Ended
	May 30, 2009		May 31, 2008		$ Variance			% Change
Occupancy	$	351,555	$	304,052	$	47,503			15.6	%
Business Insurance		32,515		26,994		5,521			20.5
Advertising		75,188		70,879		4,309			6.1
Payroll and Payroll Related		518,252		535,636		(17,384	)		(3.2	)
Other		124,689		138,713		(14,024	)		(10.1	)
Benefit Costs		13,049		14,555		(1,506	)		(10.3	)
Selling & Administrative Expenses	$	1,115,248	$	1,090,829	$	24,419			2.2	%

The increase in occupancy related costs of $47.5 million during Fiscal 2009 was primarily related to new store openings. New stores opened in Fiscal 2009 accounted for $29.0 million of the total increase. Stores opened in Fiscal 2008 that were not operating for a full twelve months in Fiscal 2008 incurred incremental occupancy costs of $4.2 million during Fiscal 2009.

Excluding the impact of new store openings between Fiscal 2008 and Fiscal 2009:

· utility expenses increased $4.6 million due primarily to an increase in electricity rates,

·	janitorial service expense increased $7.7 million due to our initiative to replace janitorial payroll with a third party, provider, and

· real estate taxes increased $3.8 million due primarily to annual tax rate increases.

The increase in business insurance of $5.5 million in Fiscal 2009 compared with Fiscal 2008 was the result of our claims experience for the year. During Fiscal 2009, we experienced an increase in the value of workers’ compensation claims and an increase in the number of general liability claims which we believe was a result of the current economic environment.

The increase in advertising expense of $4.3 million during Fiscal 2009 compared with Fiscal 2008 was primarily related to increases in advertising as a result of 36 net new stores opened from June 1, 2008 through May 30, 2009. This increase was partially offset by the continued cost efficiencies realized by our internal performance of an increasing number of production and creative functions.

The increases in selling and administrative expense during Fiscal 2009 were partially offset by decreases in payroll and payroll related costs, other costs and benefit costs. The decrease in payroll and payroll related costs of approximately $17.4 million was primarily related to a decrease in our comparative store payroll related to our initiative to reduce store payroll costs and the reduction of janitorial payroll in conjunction with our initiative to replace janitorial payroll with a third party provider. These initiatives resulted in a decrease in comparative store payroll of $43.0 million during Fiscal 2009. Additionally, vacation expense decreased $6.7 million during Fiscal 2009 as a result of our implementation of a new vacation and personal time policy.

The decreases in payroll and payroll related costs were partially offset by new store payroll and increased bonus and stock compensation expense in Fiscal 2009 compared to Fiscal 2008. New store payroll related to the opening of 36 net new stores during Fiscal 2009 contributed an additional $23.3 million to payroll. Additionally, incremental payroll related to stores that were opened during Fiscal 2008, but were not operating for the full fiscal period contributed incremental payroll expense of $2.9 million. Bonus and stock compensation expense increased $7.1 million and $1.3 million, respectively, in Fiscal 2009 compared with Fiscal 2008. The increase in bonus expense of $7.1 million for Fiscal 2009 was due to the fact that during Fiscal 2008 we did not achieve the targets under our bonus plan, and consequently, reversed the previously recognized expense of $1.5 million during the fiscal year. In contrast, during Fiscal 2009, the Company did attain the bonus targets so there was not a similar reversal during Fiscal 2009. The increase in stock compensation expense of $1.3 million was related to the greater number of option and restricted stock awards (and the underlying units within those awards) granted in Fiscal 2009 compared with Fiscal 2008.

The decrease in other selling and administrative expenses of approximately $14.0 million during Fiscal 2009 was a result of several initiatives included in our plan to reduce our cost structure as described in more detail above under the caption entitled “Executive Summary,” as well as decreases in costs related to security, miscellaneous taxes, temporary help and travel and entertainment.

Restructuring and Separation Costs

Our restructuring and separation efforts commenced in Fiscal 2009 and resulted in costs totaling $7.0 million for the period; no restructuring or separation costs were incurred in Fiscal 2008. In an effort to better align our resources with our business objectives, we reviewed all areas of the business to identify efficiency opportunities to enhance our performance. In light of the challenging economic and retail sales environments, we accelerated the implementation of several initiatives, including some that resulted in the elimination of certain positions and the restructuring of certain other jobs and functions. This resulted in the reduction of approximately 2,300 positions in our corporate office and our stores during the third and fourth quarters of Fiscal 2009. This reduction, which amounted to slightly less than 9% of our workforce, resulted in a severance and related payroll tax charge of $2.8 million.

Additionally, on February 16, 2009 our former President and Chief Executive Officer entered into a separation agreement with us. As part of his separation agreement, we paid his salary through May 30, 2009 at which time continuation payments and other benefits payable as provided in his separation agreement will commence. We recorded a charge of $1.8 million of continuation payments related to the separation of our former President and Chief Executive Officer during Fiscal 2009. The continuation payments will be paid out in bi-weekly installments through May 30, 2011. Continuation payments of $0.2 million were recorded during Fiscal 2009.

In addition to the continuation payments, other benefits payable as provided in the former President and Chief Executive Officer’s separation agreement included additional non-cash compensation charges of approximately $2.4 million during Fiscal 2009 related to the repurchase of a portion of his restricted stock and a modification of his stock options (refer to Note 17 to our Consolidated Financial Statements entitled “Restructuring and Separation Costs” and Note 14 to our Consolidated Financial Statements entitled “Stock Option and Award Plans and Stock-Based Compensation” for further discussion relating to the additional non-cash compensation charges).

Depreciation and Amortization

Depreciation and amortization expense related to the depreciation of fixed assets and the amortization of favorable and unfavorable leases and deferred debt charges amounted to $169.9 million for Fiscal 2009 compared with $177.0 million for Fiscal 2008. The decrease in depreciation and amortization expense in Fiscal 2009 compared with Fiscal 2008 was primarily a result of various assets that were recorded during purchase accounting in conjunction with the Merger Transaction. As a result of the Merger Transaction, many of those assets were established with useful lives of less than three years. These assets have become fully depreciated during Fiscal 2009, which resulted in less depreciation expense during the fiscal year.

Interest Expense

Interest expense was $92.4 million and $122.7 million for Fiscal 2009 and Fiscal 2008, respectively. The decrease in interest expense was primarily related to lower average interest rates on our ABL Line of Credit and our Term Loan in Fiscal 2009 compared with Fiscal 2008, partially offset by a higher average balance on the ABL Line of credit as follows:

Fiscal 2009 Fiscal 2008

Average Interest Rate – ABL Line of Credit 4.3% 6.6%

Average Interest Rate – Term Loan 4.3% 7.0%

Average balance – ABL Line of Credit $148.4 million $144.0 million

Also contributing to the decrease in interest expense were gains on the adjustments of our interest rate cap agreements to fair value. Our interest rate cap agreements are more fully discussed in Item 7A (Quantitative and Qualitative Disclosures About Market Risk) of this annual report and Note 10 to our Consolidated Financial Statements entitled “Derivatives and Hedging Activities.” Adjustments of the interest rate cap agreements to fair value resulted in gains of $4.2 million and $0.1 million, respectively, for Fiscal 2009 and Fiscal 2008, each of which are recorded as “Interest Expense” in our Consolidated Statements of Operations and Comprehensive Loss. The gains in Fiscal 2009 are primarily the result of an increase in the underlying market rates, which in turn, increase the value of the interest rate cap agreements.

Impairment Charges – Long-Lived Assets

Impairment charges related to long-lived assets for Fiscal 2009 were $37.5 million compared with $25.3 million for Fiscal 2008. The increase in impairment charges was primarily related to the decline in the operating performance of 37 stores as a result of the declining macroeconomic conditions that are negatively impacting our current comparative store sales (refer to Note 9 to our Consolidated Financial Statements entitled “Impairment of Long-Lived Assets” for further discussion).

The recoverability assessment related to these store-level assets requires judgments and estimates of future revenues, gross margin rates and store expenses. We base these estimates upon our past and expected future performance. We believe our estimates are appropriate in light of current market conditions. However, future impairment charges could be required if we do not achieve our current revenue or cash flow projections for each store.

The majority of the impairment charges for Fiscal 2009 were related to the impairment of favorable leases in the amount of $26.1 million related to 21 of our stores. We also impaired $6.3 million of leasehold improvements, $2.1 million of furniture and fixtures and $3.0 million of other long-lived assets during Fiscal 2009.

The majority of impairment charges for Fiscal 2008 related to favorable lease assets of $18.8 million, leasehold improvements of $3.9 million and furniture and fixtures of $2.0 million. Impairment charges at the store level were primarily related to a decline in the operating performance of the respective stores as a result of weakening consumer demand during the period.

Impairment Charges – Tradenames

Impairment charges related to our tradenames totaled $294.6 million during Fiscal 2009. There were no impairment charges related to our tradenames during Fiscal 2008. We typically perform our annual impairment testing of goodwill and indefinite-lived intangible assets during the fourth quarter of each fiscal year. However, in connection with the preparation of our Condensed Consolidated Financial Statements for the third quarter of Fiscal 2009, we concluded that it was appropriate to test our goodwill and indefinite-lived intangible assets for recoverability at that time in light of the following factors:

·	Recent significant declines in the U.S. and international financial markets and the resulting impact of such events on current and anticipated future macroeconomic conditions and customer behavior;

·	The determination that these macroeconomic conditions were impacting our current sales trends as evidenced by the decreases in comparative store sales that we were experiencing;

·	Decreased comparative store sales results of the peak holiday and winter selling seasons in the third quarter which are significant to our financial results for the year;

·	Declines in market valuation multiples of peer group companies used in the estimate of our business enterprise value; and

Our expectation that current comparative store sales trends would continue for an extended period. As a result, we revised our plans to a more moderate store opening plan which reduced our future projections of revenue and operating results offset by initiatives that have been implemented to reduce our cost structure as discussed above under the caption “Executive Summary.”

In addition to our testing during the third quarter of Fiscal 2009, we updated that testing during the fourth quarter of Fiscal 2009, in accordance with our policies, using the same methodology. The recoverability assessment with respect to the tradenames used in our operations requires us to estimate the fair value of the tradenames as of the assessment date. Such determination is made using the “relief from royalty” valuation method. Inputs to the valuation model include:

·	Future revenue and profitability projections associated with the tradenames;

·	Estimated market royalty rates that could be derived from the licensing of our tradenames to third parties in order to establish the cash flows accruing to our benefit as a result of ownership of the tradenames; and

·	Rate used to discount the estimated royalty cash flow projections to their present value (or estimated fair value) based on the risk and nature of our cash flows.

Based upon the impairment analysis of the tradenames during Fiscal 2009, we determined that a portion of the tradenames was impaired and recorded an impairment charge of $288.3 million. This impairment charge reflects lower revenues and profitability projections associated with our tradenames in the near term and lower estimated market royalty rate expectations in light of current general economic conditions compared to the analysis we performed during Fiscal 2008. Our projected revenues within the model were based on comparative store sales and new store assumptions over a nine year period. A less aggressive new store opening plan combined with revised comparative store sales assumptions for the first fiscal year of the projection had a significant negative impact on the valuation. We believe our estimates were appropriate based upon current market conditions. However, future impairment charges could be required if we do not achieve our current revenue and profitability projections, market royalty rates decrease or the weighted average cost of capital increases (Refer to Note 7 to our Consolidated Financial Statements entitled “Intangible Assets” for further discussion).

During the fourth quarter of Fiscal 2009, we purchased additional tradename rights in the amount of $6.3 million based on our belief that these tradename rights will ultimately provide us with substantial marketing benefits. Historically, we have been restricted in our advertising campaigns to only refer to the Company as Burlington Coat Factory and we were required to note that we were not affiliated with Burlington Industries. The purchase of these tradename rights allow us to shorten the Company name as appropriate based on the current marketing campaign and eliminates the requirement to note that we are not affiliated with Burlington Industries. Based on our tradenames impairment assessment, we could not support an increase in the asset value of our tradenames on our Consolidated Balance Sheets. As a result, we immediately impaired the acquired asset.

As a result of the impairments noted during the third quarter, we also assessed our goodwill for impairment. Based upon the interim impairment analysis of our recorded goodwill during the third quarter of Fiscal 2009, and the update that we performed during the fourth quarter, we determined that none of our goodwill was impaired. We believe our estimates are appropriate based upon current market conditions. However, future impairment charges could be required if we do not achieve our current cash flow, revenue and profitability projections or our weighted average cost of capital increases or market valuation multiple associated with peer group companies continue to decline.

Other Income, net

Other income, net (consisting of investment income, gains and losses on disposition of assets, breakage income and other miscellaneous items) decreased $6.9 million to $6.0 million during Fiscal 2009. This decrease was primarily attributable to our recording a loss on our investment in a money market fund of $4.7 million and a decrease in breakage income of $2.2 million during Fiscal 2009 compared with Fiscal 2008.

Based on various communications issued by The Reserve Primary Fund (Fund) throughout Fiscal 2009, we recorded a $4.7 million loss on our investment in the Fund (refer to Note 19 to our Consolidated Financial Statements entitled “Fair Value of Financial Instruments” for further discussion).

Breakage income decreased $2.2 million to $3.1 million during 2009 (refer to Note 11 to our Consolidated Financial Statements entitled “Store Value Cards” for further discussion). The decrease in breakage income was due to our initial recording of breakage income during the third quarter of Fiscal 2008. In connection with the establishment of BCF Cards, Inc., we recorded $4.7 million of store value card breakage income in the line item “Other Income/Expense, Net” in our Condensed Consolidated Statements of Operations and Comprehensive Loss during the third quarter of Fiscal 2008, which included cumulative breakage income related to store value cards issued since we introduced our store value card program.

Income Tax Expense

Income tax benefit was $147.4 million and $25.3 million for Fiscal 2009 and Fiscal 2008, respectively. Income tax benefit resulting from the tradenames impairment was $116.8 million for the year ended May 30, 2009. The effective tax rates for Fiscal 2009 and Fiscal 2008 were 43.5% and 34.1%, respectively. In Fiscal 2008 we recorded increases to our FIN 48 tax liability which had the effect of reducing the overall income tax benefit and effective tax rate for the year (Refer to Note 18 entitled "Income Taxes" for further information). The increase in the effective tax rate was also due to lower state blended tax rates which had the effect of reducing our net deferred tax liability and increasing our income tax benefit.

Net Loss

Net losses amounted to $191.6 million for Fiscal 2009 compared with net losses of $49.0 million for Fiscal 2008. The decrease in our operating results of $142.6 million was primarily attributable to increased impairment charges related to our tradenames and long-lived assets, partially offset by increased sales driven primarily from non-comparative stores, improved expense management as part of our initiative to reduce our cost structure and lower interest expense incurred during Fiscal 2009 compared with Fiscal 2008.

Performance for the Fiscal Year (52 weeks) Ended May 31, 2008 Compared with the Fiscal Year (52 weeks) Ended June 2, 2007

Net Sales

We experienced a decrease in net sales for Fiscal 2008 compared with Fiscal 2007. Consolidated net sales decreased $10.0 million, or 0.3%, to $3,393.4 million ($3,099.2 million of which represents comparative store sales) for Fiscal 2008 from $3,403.4 million ($3,267.6 million of which represents comparative store sales) for Fiscal 2007. This decrease was primarily attributable to:

·	a comparative store sales decrease of $168.4 million, or 5.2%,

·	a decrease in net sales of $13.8 million from stores closed since the comparable period last year,

·	an increase in net sales of $105.8 million for stores opened in Fiscal 2008,

·	an increase in net sales of $58.9 million for stores opened in Fiscal 2007 that are not included in our comparative store sales, and

·	an increase in barter sales of $5.0 million.

The decrease in comparative stores sales of 5.2% for Fiscal 2008, was 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.

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 Fiscal 2008 compared with $38.2 million for Fiscal 2007. This decrease was 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 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 Fiscal 2008 compared with Fiscal 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 net sales was due primarily to our improved initial markups which were the result of lower costs associated with better negotiating and buying efforts.

Selling and Administrative Expenses

Selling and administrative expenses increased $28.3 million (2.7%) to $1,090.8 million for Fiscal 2008 from $1,062.5 million for Fiscal 2007. The increase in selling and administrative expenses is summarized in the table below:

	(in thousands)
	Year Ended
	May 31, 2008		June 2, 2007		$ Variance			% Change
Occupancy	$	304,052	$	283,880	$	20,172			7.1	%
Other		138,713		124,573		14,140			11.4
Business Insurance		26,994		24,583		2,411			9.8
Payroll and Payroll Related		535,636		540,889		(5,253	)		(1.0	)
Benefit Costs		14,555		16,241		(1,686	)		(10.4	)
Advertising		70,879		72,302		(1,423	)		(2.0	)
Selling & Administrative Expenses	$	1,090,829	$	1,062,468	$	28,361			2.7	%

The increase in occupancy related expenses of $20.2 million for the fiscal year ended May 31, 2008 compared with the fiscal year ended June 2, 2007 was primarily related to new store openings. 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, other selling and administrative costs increased $14.1 million. Included in other selling and administrative costs are professional fees, which increased $3.2 million during Fiscal 2008 compared with Fiscal 2007. The increase in professional fees was primarily related to our evaluation of the effectiveness of our internal control over financial reporting. As a non-accelerated filer, we were required to provide our initial report of management on our internal controls over financial reporting in our Form 10-K for Fiscal 2008.

Other expenses, including, but not limited to, miscellaneous taxes, protection and temporary help increased $9.5 million during Fiscal 2008 compared with Fiscal 2007. New store openings during Fiscal 2007 and Fiscal 2008 accounted for approximately $3.2 million of the increase. The increase in temporary help of approximately $1.7 million was primarily related to our distribution centers. During Fiscal 2008, we received 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 $5.3 million for Fiscal 2008 compared to Fiscal 2007. The decrease in payroll and payroll related accounts of $5.3 million was a function of decreases of $18.5 million related to comparative store payroll 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 Fiscal 2008 compared with 31.2% for Fiscal 2007.

Restructuring and Separation Costs

No restructuring or separation costs were incurred in Fiscal 2008 or Fiscal 2007.

Depreciation and Amortization

Depreciation and amortization expense amounted to $177.0 million for Fiscal 2008 compared with $174.1 million for Fiscal 2007. This increase of $2.9 million was primarily attributable to new stores that were opened in Fiscal 2008.

Interest Expense

Interest expense was $122.7 million and $134.3 million for Fiscal 2008 and Fiscal 2007, respectively. The decrease in interest expense was primarily related to a lower average balance on our ABL Line of Credit and lower average interest rates on our ABL Line of Credit and our Term Loan in Fiscal 2008 compared with Fiscal 2007 as follows:

Fiscal 2008 Fiscal 2007

Average Interest Rate – ABL Line of Credit 6.6% 7.2%

Average Interest Rate – Term Loan 7.0% 7.6%

Average balance – ABL Line of Credit $144.0 million $194.5 million

Also contributing to the decrease in interest expense were gains on the adjustments of our interest rate cap agreements to

fair value. Our interest rate cap agreements are more fully discussed in Item 7A entitled “Quantitative and Qualitative Disclosures About Market Risk” of this annual report and Note 10 to our Consolidated Financial Statements entitled “Derivatives and Hedging Activities.” Adjustments of the interest rate cap agreements to fair value resulted in a gain of $0.1 million and a loss of $2.0 million, respectively, for Fiscal 2008 and Fiscal 2007, each of which were recorded as “Interest Expense” in our Consolidated Statements of Operations and Comprehensive Loss.

Impairment Charges – Long-Lived Assets

Impairment charges related to long-lived assets for Fiscal 2008 were $25.3 million compared with $24.4 million for Fiscal 2007. The increase in impairment charges was primarily related to the decline in operating performance of 13 stores as a result of the declining macroeconomic conditions that were negatively impacting our current comparative store sales.

The majority of the impairment charges for Fiscal 2008 were related to the impairment of favorable leases in the amount of $18.8 million. We also impaired $3.9 million of leasehold improvements and $2.0 million of furniture and fixtures.

The majority of the impairment charges for Fiscal 2007 were related to favorable lease assets in the amount of $15.6 million and $8.0 million of leasehold improvements. Impairment charges at the store level were primarily related to a decline in the operating performance of the respective stores as a result of weakening consumer demand during the period.

Impairment Charges – Tradenames

There were no impairment charges related to our tradenames in Fiscal 2008 or Fiscal 2007.

Other Income/Expense, Net

Other income/expense, 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 Fiscal 2008 compared with the Fiscal 2007. The increase was primarily related to our recording $5.3 million of breakage income during Fiscal 2008. As noted above, we discontinued charging dormancy service fees on outstanding store value cards during Fiscal 2008 and began recognizing breakage income in the line item “Other Income, Net” in our Consolidated Statements of Operations and Comprehensive Loss as a result of establishing a gift card company. Refer to Note 11 to our Consolidated Financial Statements entitled “Store Value Cards” for further information.

Income Tax Expense

Income tax benefit was $25.3 million for Fiscal 2008 compared with $25.4 million for Fiscal 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 Fiscal 2008 compared with $47.2 million for Fiscal 2007. The increase in our net loss position was primarily related to an increase in selling and administrative costs and depreciation and amortization, offset in part by improved margins as discussed above under the caption entitled “Gross Margin” and a reduction in interest expense.

Liquidity and Capital Resources

We fund inventory expenditures during normal and peak periods through cash flows from operating activities, available cash, and our ABL Line of Credit. Liquidity may be affected by the terms we are able to obtain from vendors and their factors. As a result of the recently publicized CIT trade credit issues, we expect to receive additional requests from vendors to accelerate payment terms. However, we believe we have adequate liquidity to service these requests.

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 providing for working capital, which principally represents the purchase of inventory, the payment of operating expenses, debt servicing, and opening of new stores and remodeling of existing stores. As of May 30, 2009, we had unused availability on our ABL Line of Credit of $235.3 million.

Our ability to satisfy our interest payment obligations on our outstanding debt and maintain compliance with our debt covenants, as discussed below, 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 on terms similar to our current financing agreements, or at all.

During Fiscal 2009, there was a significant deterioration in the global financial markets and economic environment, which we believe has negatively impacted consumer spending at many retailers, including us. In response to this, we have taken steps to increase opportunities to profitably drive sales and to curtail capital spending and operating expenses where prudent.

As noted above under the caption “Executive Summary,” we accelerated certain initiatives in response to the difficult economic environment which included reducing our cost structure by slightly more than $70 million during the second half of Fiscal 2009 through various payroll initiatives and supply chain efficiencies. Additionally, as noted below under the caption “Operational Growth,” we reduced our capital expenditures for Fiscal 2009 by approximately $11 million relative to our Fiscal 2009 capital expenditures plan. We closely monitor our net sales, gross margin, expenses and working capital. We have performed scenario planning such that if our net sales decline, we have identified variable costs that could be reduced to partially mitigate the impact of these declines and maintain compliance with our debt covenants.

Despite the current trends in the retail environment and their negative impact on our comparative store sales, we believe that cash generated from operations, along with our existing cash and our ABL Line of Credit, will be sufficient to fund our expected cash flow requirements and planned capital expenditures for at least the next twelve months as well as the foreseeable future. However, there can be no assurance that should the economy continue to decline that we would be able to continue to offset the decline in our comparative store sales with continued savings initiatives.

Our Term Loan agreement contains financial, affirmative and negative covenants and requires that we, among other things; maintain on the last day of each fiscal quarter a consolidated leverage ratio not to exceed a maximum amount. Specifically, our total debt to Adjusted EBITDA, as each term is defined in the credit agreement governing the Term Loan, for the four fiscal quarters most recently ended on or prior to such date, may not exceed 5.75 to 1 at May 30, 2009, August 29, 2009, and November 28, 2009; 5.5 to 1 at February 27, 2010; 5.25 to 1 at May 29, 2010, August 28, 2010 and November 27, 2010; 5.00 to 1 at February 26, 2011; and 4.75 to 1 at May 28, 2011 and thereafter. Adjusted EBITDA is a non-GAAP financial measure of our liquidity. Adjusted EBITDA, as defined in the credit agreement governing our Term Loan, starts with consolidated net income for the period and adds back (i) depreciation, amortization, impairments 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. Adjusted EBITDA is used to calculate the consolidated leverage ratio. We present Adjusted EBITDA because we believe it is a useful supplemental measure in evaluating the performance of our operating business and provides greater transparency into our results of operations. Adjusted EBITDA provides management, including our chief operating decision maker, with helpful information with respect to our operations such as our ability to meet our future debt service, fund our capital expenditures and working capital requirements and comply with various covenants in each indenture governing our outstanding notes and the credit agreements governing our senior secured credit facilities which are material to our financial condition and financial statements. Given the importance Adjusted EBITDA has on our operations, incentive awards to our corporate employees under our Management Bonus Plan for Fiscal 2009 are weighted 100% on our Adjusted EBITDA results.

Adjusted EBITDA has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net income or other data prepared in accordance with GAAP or for analyzing our results or cash flows from operating activities, as reported under GAAP. Some of these limitations include:

·	Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

·	Adjusted EBITDA does not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

·	Adjusted EBITDA does not reflect our income tax expense or the cash requirements to pay our taxes;

·	Adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;

·	Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will likely have to be replaced in the future, and these Adjusted EBITDA measures do not reflect any cash requirements for such replacements; and

·	Other companies in our industry may calculate these Adjusted EBITDA measures differently so they may not be comparable.

Adjusted EBITDA for Fiscal 2009 increased $22.8 million, or 8.4%, to $294.8 from $272.0 million for Fiscal 2008. The improvement in Adjusted EBITDA was primarily the result of sales growth from new stores and the cost reductions realized during Fiscal 2009, as further described above under the caption entitled “Executive Summary.”

Adjusted EBITDA for Fiscal 2008 decreased $23.5 million, or 8.0%, to $272.0 from $295.5 million for Fiscal 2007. The decrease in Adjusted EBITDA was primarily the result of a decrease in net sales and increased selling and administrative expenses due to new stores opened in Fiscal 2008.

The following table shows our calculation of Adjusted EBITDA for Fiscal 2009, 2008 and 2007:

	(in thousands)
	Year Ended
	May 30, 2009			May 31, 2008			June 2, 2007

Reconciliation of Net Loss to Adjusted EBITDA:
Net Loss	$	(191,583	)	$	(48,970	)	$	(47,199	)
Interest Expense		92,381			122,684			134,313
Income Tax Benefit		(147,389	)		(25,304	)		(25,425	)
Depreciation and Amortization		169,942			176,975			174,087
Impairment Charges - Long-Lived Assets		37,498			25,256			24,421
Impairment Charges - Tradenames		294,550			-			-
Interest Income		(641	)		(1,975	)		(3,845	)
Transaction-Related Expenses (a)			-		-			390
Non Cash Straight-Line Rent Expense (b)		7,358			6,768			9,431
Retention Bonus (c)		-			-			13,854
Advisory Fees (d)		4,660			4,316			4,119
Stock Compensation Expense (e)		6,124			2,436			2,856
Professional Fees (f)		-			-			1,864
Sox Compliance (g)		1,189			2,989			-
Loss on Investment in Money Market Fund (h)		4,661			-			-
Amortization of Purchased Lease Rights (i)		893			140			-
Severance (j)		2,737			-			-
Franchise Taxes (k)		1,500			760			37
Insurance Reserve (l)		5,561			2,950			2,928
Advertising Expense Related to Barter (m)		2,334			1,636			-
CEO Transition Costs (n)		2,173			-			-
Loss on Disposal of Fixed Assets (o)		805			1,351			3,677
Adjusted EBITDA	$	294,753		$	272,012		$	295,508

Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities:
Adjusted EBITDA	$	294,753		$	272,012		$	295,508
Interest Expense		(92,381	)		(122,684	)		(134,313	)
Changes in Operating Assets and Liabilities		(30,929	)		(19,050	)		(59,970	)
Other Items, Net		853			(32,301	)		(5,209	)
Net Cash Provided by Operating Activities	$	172,296		$	97,977		$	96,016

Net Cash Used in Investing Activities	$	(145,280	)	$	(100,313	)	$	(52,591	)

Net Cash (Used in) Provided by Financing Activities	$	(41,307	)	$	8,559		$	(67,923	)

During Fiscal 2009, in accordance with the credit agreement governing the Term Loan and with approval from the administrative agent for the Term Loan, we changed our methodology of calculating Adjusted EBITDA and have shown that change retrospectively in the Adjusted EBITDA calculations above for all years presented. With approval from the administrative agent for the Term Loan, the following items are included as adjustments to EBITDA in arriving at Adjusted EBITDA in the prior periods presented as they represent non-cash expenses:

·	Amortization of Purchased Lease Rights
·	Franchise Taxes
·	Insurance Reserve
·	Advertising Expense Related to Barter
·	Loss on Disposal of Fixed Assets

The impact of these changes (described in the following notes to the foregoing table) resulted in increases to Adjusted EBITDA during Fiscal 2008 and Fiscal 2007 of $6.8 million and $6.6 million, respectively.

(a)	Represents third party costs (primarily legal fees) incurred in connection with the Merger Transaction, as approved by the administrative agent for the Term Loan.

(b)	Represents the difference between the actual base rent and rent expense calculated in accordance with GAAP (on a straight line basis), in accordance with the credit agreement governing the Term Loan.

(c)	Represents the accrual of retention bonuses to be paid to certain members of management on the first anniversary of the Merger Transaction for services rendered to us, as approved by the administrative agent for the Term Loan.

(d)	Represents the annual advisory fee of Bain Capital expensed during the fiscal periods, in accordance with the credit agreement governing the Term Loan.

(e)	Represents expenses recorded under SFAS No. 123(R) during the fiscal periods, in accordance with the credit agreement governing the Term Loan.

(f)

Represents professional fees associated with one-time costs consisting of consulting fees in connection with the corporate restructuring of our stores which was

incurred within twelve months after the closing date of the Merger Transaction, as approved by the administrative agent for the Term Loan.

(g)

As a voluntary non-accelerated filer, we furnished our initial management report on Internal Controls Over Financial Reporting in our Annual Report on Form 10-K for

Fiscal 2008. These costs represent professional fees related to this compliance effort that were incurred during Fiscal 2008 and the first quarter of Fiscal 2009, as well as

fees incurred as part of our ongoing internal controls compliance effort for Fiscal 2009, as approved by the administrative agent for the Term Loan.

(h)

Represents the loss on our investment in the Reserve Primary Fund (Fund), related to a decline in the fair value of the underlying securities held by the Fund, as

approved by the administrative agent for the Term Loan. Refer to the discussion below under the caption entitled “Investment in Money Market Fund,” and Note 4 to

the Consolidated Financial Statements also entitled “Investment in Money Market Fund” for further details.

(i)	Represents amortization of purchased lease rights which are recorded in rent expense within our selling and administrative line items, in accordance with the credit agreement governing the Term Loan.

(j)

Represents a severance charge resulting from a reduction of approximately 9% of our workforce during the third and fourth quarters of Fiscal 2009 (refer to Note 17 to

our Consolidated Financial Statements entitled “Restructuring and Separation Costs” for further discussion), in accordance with the credit agreement governing the

Term Loan.

(k)	Represents franchise taxes paid based on our equity, as approved by the administrative agent for the Term Loan.

(l)	Represents the change in calculated non-cash reserves based on estimated general liability, workers compensation and health insurance claims, net of cash payments, as approved by the administrative agent for the Term Loan.

(m)	Represents non-cash advertising expense based on the usage of barter advertising credits obtained as part of a non-cash exchange of inventory, as approved by the administrative agent for the Term Loan.

(n)

Represents recruiting costs incurred in connection with the hiring of our new President and Chief Executive Officer on December 2, 2008 and continuation payments

and other benefits payable to our former President and Chief Executive Officer pursuant to the separation agreement we entered into with him on February 16, 2009.

Both of these adjustments were approved by the administrative agent for the Term Loan.

(o)	Represents the gross non-cash loss recorded on the disposal of certain assets in the ordinary course of business, as in accordance with the credit agreement governing the Term Loan.

Investment in Money Market Fund

In September 2008, as part of our overnight cash management strategy, we invested $56.3 million in The Reserve Primary Fund (Fund), a money market fund registered with the Securities and Exchange Commission (SEC) under the Investment Company Act of 1940. 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. To date, we have received distributions of $50.6 million and written off approximately $4.7 million. As of May 30, 2009, $1.0 million is recorded in the line item “Investment in Money Market Fund” on our Consolidated Balance Sheet. Refer to Note 4 to our Consolidated Financial Statements entitled “Investment in Money Market Fund” for further discussion regarding this investment.

Cash Flow for the Twelve Months Ended May 30, 2009 Compared with the Twelve Months Ended May 31, 2008

We used $14.3 million of cash flow during Fiscal 2009 compared with generating $6.2 million of cash flow in Fiscal 2008. Net cash provided by operating activities was $172.3 million for Fiscal 2009 compared with $98.0 million for Fiscal 2008. The improvement in net cash provided by operating activities was primarily the result of improved operating results, exclusive of all non-cash charges of $65.8 million. This increase was primarily the result of increased sales from new store growth, decreased selling and administrative costs in connection with our plan to reduce our cost structure as described in more detail above under the caption entitled “Executive Summary,” and decreased interest expense as a result of lower average interest rates on our ABL Line of Credit and our Term Loan.

The improvements in cash flows from operating activities were offset by increased cash outlays in investing and financing activities. For the year ended May 30, 2009, we used $41.3 million of cash in financing activities, the majority of which represents repayments, net of borrowings, of $31.3 million, on our ABL Line of Credit. For the year ended May 31, 2008, we generated $8.6 million in cash from financing activities, the majority of which represents borrowings, net of repayments, of $22.6 million on our ABL Line of Credit. Cash flow used in investing activities increased $45.0 million due primarily to higher levels of capital expenditures (discussed in more detail under the caption below entitled “Operational Growth”), the re-designation of cash and cash equivalents to investments in money market funds, partially offset by redemptions of the investment in money market fund during the year ended May 30, 2009 as compared to the year ended May 31, 2008, and the purchase of tradename rights during Fiscal 2009.

Cash flow and working capital levels assist management in measuring our ability to meet our cash requirements. Working capital measures our current financial position. Working capital is defined as current assets (exclusive of restricted cash and cash equivalents) less current liabilities. Working capital at May 30, 2009 was $312.3 million compared with $284.4 million at May 31, 2008. The increase in working capital from May 31, 2008 to May 30, 2009 was primarily due to a decrease in accounts payable as a result of in the timing of payments in Fiscal 2009 compared with Fiscal 2008.

Operational Growth

During Fiscal 2009, we opened 37 new Burlington Coat Factory Warehouse Stores (“BCF” stores) and closed one BCF store (36 net new stores). As of May 30, 2009, we operated 433 stores under the names "Burlington Coat Factory Warehouse" (415 stores), "Cohoes Fashions" (two stores), "MJM Designer Shoes" (15 stores) and "Super Baby Depot" (one store).

We monitor the availability of desirable locations for our stores by, among other things, evaluating dispositions by other retail chains, bankruptcy auctions and presentations by real estate developers, brokers and existing landlords. Most of our stores are located in malls, strip shopping centers, regional powers centers or are freestanding. We also lease existing space and have opened a limited number of built-to-suit locations. For most of our new leases, we provide for a minimum initial ten year term with a number of five year options thereafter. Typically, our lease strategy includes landlord allowances for leasehold improvements. We believe our lease model makes us competitive with other retailers for desirable locations. We may seek to acquire a number of such locations either through transactions to acquire individual locations or transactions that involve the acquisition of multiple locations simultaneously.

From time to time we make available for sale certain assets based on current market conditions. These assets are recorded in the line item "Assets Held for Sale" in our Consolidated Balance Sheets. Based on prevailing market conditions, we may determine that it is no longer advantageous to continue marketing certain assets and will reclassify those assets out of the line item "Assets Held for Sale" and into the respective asset category. Upon this reclassification, we assess the assets for impairment and reclassify them based on the lesser of their carrying value or fair value less cost to sell.

During the year ended May 30, 2009, certain assets related to one of our stores, 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. Due to the deteriorating real estate market, we determined that it was in our best interest to no longer market this location and instead to continue to hold and use this location in the ordinary course of business. As a result, we reclassified assets related to this location with a net long-lived asset value of $2.8 million out of the line item “Assets Held for Disposal” in our Consolidated Balance Sheets and 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)/Expense, Net” in our Consolidated Statements of Operations and Comprehensive Loss of $0.3 million during the year ended May 30, 2009, reflecting the adjustment for depreciation and amortization expense that would have been recognized had the asset group been continuously classified as held and used. In addition, we assessed these assets for impairment and determined that no impairment charge was necessary at the time of reclassification.

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 Fiscal 2008 compared with negative cash flow of $24.5 million for Fiscal 2007. Net cash provided by continuing operations increased $2.0 million to $98.0 million for Fiscal 2008 from $96.0 million for Fiscal 2007.

Net cash used in investing activities increased $47.7 million to $100.3 million for Fiscal 2008, primarily related to an increased level of capital expenditures of $26.4 million and increased lease acquisition costs of $7.1 million. Additionally, we generated $11.0 million less cash flow in Fiscal 2008 compared to Fiscal 2007 as a result of 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 was 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 was primarily related to funding our capital expenditures.

Working capital increased $3.8 million to $284.4 million during Fiscal 2008 compared to $280.6 million for Fiscal 2007. The increase in working capital was 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 our working capital were partially offset by a decrease in the line item “Assets Held for Disposal” and an increase in the line item “Other Current Liabilities” in our Consolidated Balance Sheets.

The line item “Accounts Payable” in our Consolidated Balance Sheets decreased $58.3 million in Fiscal 2008 compared with Fiscal 2007. This decrease in the line item “Accounts Payable” in our Consolidated Balance Sheets was primarily related to a decrease in merchandise payables as a result of our paying invoices faster in Fiscal 2008 than in Fiscal 2007.

The line item “Deferred Tax Asset” in our Consolidated Balance Sheets increased $16.2 million in Fiscal 2008 compared with Fiscal 2007. This increase was 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. Based on the prevailing market conditions, we determined that it was no longer advantageous to continue marketing these assets which resulted in a 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.

The increase in the line item “Other Current Liabilities” in our Consolidated Balance Sheets was due primarily to an increase of $17.9 million related to certain 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 planned 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.

Debt

Holdings and each of our current and future subsidiaries, except one subsidiary which is considered minor, have jointly, severally and unconditionally guaranteed BCFWC’s obligations pursuant to the $800 million ABL Line of Credit, $900 million Term Loan and the $305 million of Senior Notes due in 2014. As of May 30, 2009, we were in compliance with all of our debt covenants. Significant changes in our debt consist of the following:

$800 Million ABL Senior Secured Revolving Facility

During Fiscal 2009, we made repayments of principal, net of borrowings, in the amount of $31.3 million. As of May 30, 2009, we had $150.3 million outstanding under the ABL Line of Credit and unused availability of $235.3 million.

$900 Million Term Loan

On September 4, 2007, we made a repayment of principal in the amount of $11.4 million based on 50% of the available free cash flow (as defined in the credit agreement governing the Term Loan) as of June 2, 2007. This payment offset the $2.3 million quarterly payments that we were required to make under the credit agreement governing the Term Loan through the third quarter of Fiscal 2009 and $0.2 million of the quarterly payment to be made in the fourth quarter of Fiscal 2009. Based on the available free cash flow for Fiscal 2008, we were not required to make any mandatory repayment. As of May 30, 2009, we had $870.8 million outstanding under the Term Loan. Based on our available free cash flow as of May 30, 2009, we are required to make a repayment of principal in the amount of $6.0 million during Fiscal 2010.

Senior Discount Notes

On October 15, 2008 and April 15, 2009, we made our first two interest payments of approximately $7.2 million to Senior Discount Note holders. Semi-annual interest payments will continue to be made through October 15, 2014.

Capital Expenditures

We spent $89.4 million, net of $38.7 million of landlord allowances, in capital expenditures during Fiscal 2009. These capital expenditures include $33.1 million (net of the $38.7 million of landlord allowances) for store expenditures, $28.5 million for upgrades of distribution facilities, and $27.8 million for computer and other equipment. These investments represent an approximate $11 million reduction compared with our original Fiscal 2009 capital expenditure plan.

For Fiscal 2010, we estimate that we will spend approximately $86 million, net of the benefit of landlord allowances of approximately $14 million, for store openings, improvements to distribution facilities, information technology upgrades, and other capital expenditures. Of the $86 million planned expenditures, approximately $46 million, net of the benefit of $14 million of landlord allowances, has been allocated for expenditures related to new stores, relocations and other store requirements, $14 million has been allocated for distribution facility enhancements, and $26 million has been allocated for information technology and other initiatives. As part of our growth strategy, we plan to open between eight and 11 new BCF stores (exclusive of three relocations) and remodel an additional five BCF stores during Fiscal 2010.

We are in the process of transitioning to a new warehouse management system in our distribution network as well as updating our material handling systems. These updates were implemented in our Edgewater Park, New Jersey facility and have allowed us to consolidate our former Bristol, Pennsylvania facility into the Edgewater Park, New Jersey facility. Additionally, we are in the process of consolidating our Burlington, New Jersey facility into the Edgewater Park, New Jersey facility. The Edgewater Park, New Jersey facility has both the capacity and storage capability to handle the Bristol, Pennsylvania and Burlington, New Jersey volume. During Fiscal 2010, we will continue our replacement of this warehouse management system throughout our distribution centers, which are currently planned to be fully operational 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.

Dividends

Payment of dividends is prohibited under our credit agreements, except for limited circumstances. Dividends equal to $3.0 million and $0.7 million were paid in Fiscal 2009 and Fiscal 2008, respectively, to Holdings in order to repurchase capital stock of the Parent from executives who left our employment.

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 30, 2009:

	Payments During Fiscal Years (in thousands)
		Total		Less Than 1 Year		2-3 Years		4-5 Years		Thereafter

Long-Term Debt Obligations (1)		$	1,428,425	$	10,377	$	183,424	$	1,148,750	$	85,874
Interest on Long-Term Debt			342,087		77,338		152,082		106,441		6,226
Capital Lease Obligations(2)			49,183		2,556		5,262		5,467		35,898
Operating Lease Obligations (3) Related Party Fees (4)			1,133,315		171,955		328,733		274,981		357,646
Operating Lease Obligations (3) Related Party Fees (4)			27,500		4,000		8,000		8,000		7,500
Purchase Obligations (5) FIN 48 and Other Tax Liabilities (6)			597,640		593,219		4,341		76		4
			50,648		2,801		18,059				29,788
Letters of Credit (7)			53,691		53,691		-		-		-
Other(8)			4,955		1,255		700		-		3,000

Total		$	3,687,444	$	917,192	$	700,601	$	1,543,715	$	525,936

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 our advisory agreement with them (Refer to Note 23 to our Consolidated Financial Statements entitled “Related Party Transactions” for further detail).
(5)	Represents commitments to purchase goods or services that have not been received as of May 30, 2009.
(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, $25.1 million of interest and penalties included in our total FIN 48 liability is not included in the table above. Also included in this line item is an assessment from the IRS of approximately $16.2 million as a result of an audit of the 2004 and 2005 tax years. Of the $16.2 million, $2.8 million is included as current and the remaining $13.4 million is expected to be settled within two to three years.
(7) (8)	Represents irrevocable letters of credit guaranteeing payment and performance under certain leases, insurance contracts, debt agreements and utility agreements as of May 30, 2009 (Refer to Note 22 to our Consolidated Financial Statements entitled “Commitments and Contingencies” for further discussion). Represents severance agreements with two former members of management, an agreement with a current member of management guaranteeing certain payments, and our agreements with each of three former employees (including our former President and Chief Executive Officer) to pay their beneficiaries $1.0 million upon their deaths.

During Fiscal 2007, we sold lease rights for three store locations that were previously operated by us. 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 $6.9 million through the end of the fiscal year ended May 31, 2014, and which are not reflected in the table above. The scheduled future aggregate minimum rentals for these leases over the five consecutive fiscal years following Fiscal 2009 are $1.8 million, $1.6 million, $1.6 million, $1.6 million, and $0.3 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 30, 2009.

Critical Accounting Policies and Estimates

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. 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 entitled “Summary of Significant Accounting Policies,” 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 present sales, net of sales taxes, in our Consolidated Statements of Operations and Comprehensive Loss. 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 recorded as a deposit liability within the line item “Other Current Liabilities” in 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 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 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.

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 is widely used in the retail industry due to its practicality. Additionally, the use of the retail inventory method results 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 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. The recoverability assessment related to these store-level assets requires judgments and estimates of future revenues, gross margin rates and store expenses. We base these estimates upon our past and expected future performance. We believe our estimates are appropriate in light of current market conditions. To the extent these future projections change, our conclusions 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 2009, Fiscal 2008 and Fiscal 2007, we recorded $11.4 million, $6.5 million and $8.8 million, respectively, in impairment charges related to long-lived assets (exclusive of finite-lived 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 senior notes and 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 tradenames, 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 (tradenames) to their estimated fair value. The recoverability assessment with respect to the tradenames used in our operations requires us to estimate the fair value of the tradenames as of the assessment date. Such determination is made using the “relief from royalty” valuation method. Inputs to the valuation model include:

·	Future revenue and profitability projections associated with the tradenames;

·	Estimated market royalty rates that could be derived from the licensing of our tradenames to third parties in order to establish the cash flows accruing to our benefit as a result of ownership of the tradenames; and

·	Rate used to discount the estimated royalty cash flow projections to their present value (or estimated fair value) based on the risk and nature of our cash flows.

Our finite-lived intangible assets are reviewed for impairment when circumstances change, in conjunction with the impairment testing of our long-lived assets as described above. 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. Impairment charges of $26.1 million, $18.8 million and $15.6 million were recorded related to our finite-lived intangible assets during Fiscal 2009, Fiscal 2008 and Fiscal 2007, respectively, and are included in the line item “Impairment Charges – Long-Lived Assets” in our Consolidated Statements of Operations and Comprehensive Loss. Additionally, impairment charges of $294.6 million were recorded during Fiscal 2009, related to our indefinite lived intangible assets and were recorded in the line item “Impairment Charges – Tradenames” in our Consolidated Statement of Operations and Comprehensive Loss. There were no impairments to our indefinite-lived intangible assets during Fiscal 2008 and Fiscal 2007.

Goodwill Impairment. Goodwill represents the excess of cost over the fair value of net assets acquired. SFAS No. 142, “Goodwill and Other Intangible Assets,” (SFAS No. 142) 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 our fair value 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 annual goodwill impairment review is typically performed during the fourth quarter of the fiscal year. However, during Fiscal 2009 we conducted an impairment review during the third quarter and updated that review accordingly during the fourth quarter of Fiscal 2009. In response to several factors (as more fully described in Note 8 to the Company’s Consolidated Financial Statements entitled “Goodwill”), including, but not limited to recent declines in the U.S. and international financial markets, decreased comparative store sales results of the peak holiday and winter selling seasons and our expectation that the current comparative store sales trends would continue for an extended period, we determined that it was appropriate to accelerate our annual goodwill impairment testing into the third quarter of Fiscal 2009. There were no impairment charges recorded on the carrying value of our goodwill for Fiscal 2009, Fiscal 2008 or Fiscal 2007.

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 $42.3 million and $36.7 million at May 30, 2009 and May 31, 2008, 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 $6.2 million and $6.4 million at May 30, 2009 and May 31, 2008, respectively.

Allowance for Doubtful Accounts. We maintain allowances for bad checks and miscellaneous receivables. This reserve is calculated based upon historical collection activities adjusted for known uncollectibles. As of May 30, 2009 and May 31, 2008, the allowance for doubtful accounts was $0.6 million, as of each date.

Income Taxes. We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes” (SFAS No. 109). 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 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 SFAS No. 109. 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 de-recognition, 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.

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 50.2% of our net sales 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 as a result of the downturn in the economy.

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 more fully described in Note 10 to our Consolidated Financial Statements entitled, “Derivatives and Hedging Activities,” we enter into interest rate cap agreements to manage interest rate risks associated with our 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 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 and letters of credit, as more fully described above under the caption “Certain Information Concerning Contractual Obligations,” 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.

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 30, 2009, we had $428.5 million principal amount of fixed-rate debt and $1,021.1 million of floating-rate debt. Based on $1,021.1 million outstanding as floating rate debt, an immediate increase of one percentage point would cause an increase to cash interest expense of approximately $10.2 million per year. As of May 31, 2008, we estimated that an immediate increase of one percentage point would cause an increase to cash interest expense of approximately $10.5 million per year.

If a one point increase in interest rate were to occur over the next four quarters (excluding the effect of our interest rate cap agreements discussed below), such an increase would result in the following additional interest expenses (assuming our current ABL Line of Credit borrowing level remains constant with fiscal year end levels):


Floating-Rate Debt	(in thousands)
Floating-Rate Debt	Principal Outstanding at May 30, 2009		Additional Interest Expense Q1 2010		Additional Interest Expense Q2 2010		Additional Interest Expense Q3 2010			Additional Interest Expense Q4 2010

ABL Line of Credit	$	150,307	$	376	$	376	$	376	$	376

Term Loan		870,750		2,177		2,162		2,162		2,160

Total	$	1,021,057	$	2,553	$	2,538	$	2,538	$	2,536

We have two interest rate cap agreements for a maximum principal amount of $900.0 million which limit our interest rate exposure to 7% for our first $900 million 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 $39.1 million on borrowing levels of up to $900.0 million. Currently, we have unlimited interest rate risk related to our variable rate debt in excess of $900.0 million. At May 30, 2009, our borrowing rate related to our ABL Line of Credit was 2.5%. At May 30, 2009, the borrowing rate related to our Term Loan was 2.6%.

On January 16, 2009, we entered into two additional interest rate cap agreements to limit interest rate risk associated with our future long-term debt. Each agreement will be effective on May 31, 2011 upon termination of the two interest rate cap agreements noted above. The new agreements each have a notional principal amount of $450 million with a cap rate of 7.0% and terminate on May 31, 2015.

We and our subsidiaries, affiliates, and significant shareholders may from time to time seek to retire or purchase our outstanding debt (including publicly issued debt) through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions, by tender offer or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. During Fiscal 2009, an affiliate of Bain Capital, LLC, our indirect controlling stockholder, purchased a portion of Holdings' 14 1/2% Senior Discount Notes due 2014.

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.

As discussed above, we invested $56.3 million in the Fund in September 2008 as part of our overnight cash management strategy. 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. To date, we have received distributions of $50.6 million and have written off approximately $4.7 million. As of May 30, 2009, $1.0 million is recorded in the line item “Investment in Money Market Fund” on our Consolidated Balance Sheet. Refer to Note 4 to our Consolidated Financial Statements entitled “Investment in Money Market Fund” for further discussion regarding our investment.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


	Page
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	40
Consolidated Balance Sheets as of May 30, 2009 and May 31, 2008	41
Consolidated Statements of Operations and Comprehensive Loss for the fiscal years ended May 30, 2009, May 31, 2008 and June 2, 2007	42
Consolidated Statements of Cash Flows for the fiscal years ended May 30, 2009, May 31, 2008 and June 2, 2007	43
Consolidated Statements of Stockholders’ Equity for the fiscal years ended May 30, 2009, May 31, 2008 and June 2, 2007	44
Notes to Consolidated Financial Statements for the fiscal years ended May 30, 2009, May 31, 2008 and June 2, 2007	45

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 30, 2009 and May 31, 2008, and the related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows for each of the three fiscal years in the period ended May 30, 2009. 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 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 circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control 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 reasonable 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 30, 2009 and May 31, 2008, and the results of its operations and its cash flows for each of the three fiscal years in the period ended May 30, 2009, 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 27, 2009

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(All amounts in thousands, except share amounts)


	May 30, 2009			May 31, 2008
ASSETS
Current Assets:
Cash and Cash Equivalents	$	25,810		$	40,101
Restricted Cash and Cash Equivalents		2,622			2,692
Investment in Money Market Fund		995			-
Accounts Receivable (Net of Allowances for Doubtful Accounts of $629 in 2009 and $634 in 2008)		25,468			27,137
Merchandise Inventories		641,833			719,529
Deferred Tax Assets		52,958			51,376
Prepaid and Other Current Assets		30,047			24,978
Prepaid Income Taxes		6,249			3,864
Assets Held for Disposal		2,717			2,816

Total Current Assets		788,699			872,493

Property and Equipment—Net of Accumulated Depreciation		895,827			919,535
Tradenames		238,000			526,300
Favorable Leases—Net of Accumulated Amortization		477,572			534,070
Goodwill		47,064			42,775
Other Assets		86,206			69,319

Total Assets	$	2,533,368		$	2,964,492

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable	$	229,757		$	337,040
Income Taxes Payable		18,100			5,804
Other Current Liabilities		215,127			238,866
Current Maturities of Long Term Debt		10,795			3,653

Total Current Liabilities		473,779			585,363

Long Term Debt		1,438,751			1,480,231
Other Liabilities		159,409			110,776
Deferred Tax Liabilities		326,364			464,598

Commitments and Contingencies (Note 22)
Stockholders’ Equity:
Common Stock, Par Value $0.01; Authorized 1,000 shares; 1,000 issued and outstanding at May 30, 2009 and May 31, 2008
Capital in Excess of Par Value		463,495			457,371
Accumulated Deficit		(328,430	)		(133,847	)
Total Stockholder’s Equity		135,065			323,524
Total Liabilities and Stockholders’ Equity	$	2,533,368		$	2,964,492

See Notes to Consolidated Financial Statements

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(All amounts in thousands)


	Year Ended May 30, 2009			Year Ended May 31, 2008			Year Ended June 2, 2007
REVENUES:
Net Sales	$	3,541,981		$	3,393,417		$	3,403,407
Other Revenue		29,386			30,556			38,238

Total Revenue		3,571,367			3,423,973			3,441,645

COSTS AND EXPENSES:
Cost of Sales (Exclusive of Depreciation and Amortization as Shown Below)		2,199,766			2,095,364			2,125,160
Selling and Administrative Expenses		1,115,248			1,090,829			1,062,468
Restructuring and Separation Costs (Note 17)		6,952			-			-
Depreciation and Amortization		169,942			176,975			174,087
Interest Expense (Inclusive of Gain/Loss on Interest Rate Cap Agreements)		92,381			122,684			134,313
Impairment Charges – Long-Lived Assets		37,498			25,256			24,421
Impairment Charges – Tradenames		294,550			-			-
Other Income, Net		(5,998	)		(12,861	)		(6,180	)

Total Costs and Expenses		3,910,339			3,498,247			3,514,269
Loss Before Income Tax Benefit		(338,972	)		(74,274	)		(72,624	)
Income Tax Benefit		(147,389)			(25,304	)		(25,425	)

Net Loss		(191,583	)		(48,970	)		(47,199	)

Total Comprehensive Loss	$	(191,583	)	$	(48,970	)	$	(47,199	)

See Notes to Consolidated Financial Statements

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(All amounts in thousands)

Year Ended

May 30, 2009

Year Ended

May 31, 2008

Year Ended

June 2, 2007

OPERATING ACTIVITIES

Net Loss

(191,583

)