Edgar Filing: BURLINGTON COAT FACTORY WAREHOUSE CORP

form10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended October 30, 2010

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

For the transition period from to .

Commission File Number 1-37917

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)


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

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

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

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

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

Large accelerated filer ¨ Accelerated filer ¨

Non-Accelerated filer x Smaller reporting company ¨

(Do not check if a smaller

reporting company)

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

As of December 14, 2010, 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.

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES

INDEX

Part I - Financial Information	Page

Item 1. Financial Statements (unaudited).

Condensed Consolidated Balance Sheets as of October 30, 2010, January 30, 2010, and October 31, 2009	3

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income – Nine and Three Months Ended October 30, 2010 and October 31, 2009	4

Condensed Consolidated Statements of Cash Flows – Nine Months Ended October 30, 2010 and October 31, 2009	5

Notes to Condensed Consolidated Financial Statements	6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.	32

Item 3. Quantitative and Qualitative Disclosures About Market Risk.	56

Item 4. Controls and Procedures.	57

Part II - Other Information	57

Item 1. Legal Proceedings.	57

Item 1A. Risk Factors.	57

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	58

Item 3. Defaults Upon Senior Securities.	58

Item 4. Removed and Reserved.	58

Item 5. Other Information.	58

Item 6. Exhibits.	58

SIGNATURES	59

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(All amounts in thousands)



	October 30, 2010			January 30, 2010			October 31, 2009
ASSETS
Current Assets:
Cash and Cash Equivalents	$	53,723		$	24,750		$	64,404
Restricted Cash and Cash Equivalents		35,282			2,605			2,608
Accounts Receivable, Net of Allowances for Doubtful Accounts		38,105			31,278			31,837
Merchandise Inventories		892,193			613,295			845,973
Deferred Tax Assets		28,481			29,644			52,541
Prepaid and Other Current Assets		35,793			29,443			31,107
Prepaid Income Taxes		44,343			4,841			1,729
Assets Held for Disposal		521			521			521

Total Current Assets		1,128,441			736,377			1,030,720

Property and Equipment - Net of Accumulated Depreciation		862,054			856,149			885,884
Tradenames		238,000			238,000			238,000
Favorable Leases - Net of Accumulated Amortization		397,756			421,091			458,383
Goodwill		47,064			47,064			47,064
Other Assets		92,821			95,313			90,033

Total Assets	$	2,766,136		$	2,393,994		$	2,750,084

LIABILITIES AND STOCKHOLDER’S EQUITY

Current Liabilities:
Accounts Payable	$	683,351		$	139,802		$	587,713
Income Taxes Payable		1,040			14,223			30,788
Other Current Liabilities		229,486			215,814			247,288
Current Maturities of Long-Term Debt		18,559			14,201			7,243

Total Current Liabilities		932,436			384,040			873,032

Long-Term Debt		1,260,135			1,399,152			1,284,918
Other Liabilities		184,985			173,067			147,477
Deferred Tax Liability		270,959			283,235			317,553

Commitments and Contingencies (Note 17)

Stockholder’s Equity:

Common Stock		-			-			-
Capital in Excess of Par Value		465,822			464,489			463,721
Accumulated Deficit		(348,201	)		(309,989	)		(336,617	)
Total Stockholder’s Equity		117,621			154,500			127,104
Total Liabilities and Stockholder’s Equity	$	2,766,136		$	2,393,994		$	2,750,084

See Notes to Condensed Consolidated Financial Statements.

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(Unaudited)

(All amounts in thousands)

	Nine Months Ended						Three Months Ended

	October 30, 2010			October 31, 2009			October 30, 2010			October 31, 2009

REVENUES:
Net Sales	$	2,481,613		$	2,403,395		$	858,186		$	872,374
Other Revenue		21,925			21,772			7,850			7,988
Total Revenue		2,503,538			2,425,167			866,036			880,362


COSTS AND EXPENSES:
Cost of Sales (Exclusive of Depreciation and Amortization)		1,549,042			1,501,925			527,301			523,465
Selling and Administrative Expenses		835,925			810,218			285,618			281,569
Restructuring and Separation Costs (Note 4)		2,152			6,294			-			1,190
Depreciation and Amortization		109,195			113,555			36,960			36,210
Interest Expense (Inclusive of Gain (Loss) on Interest Rate Cap Agreements)		78,350			58,271			24,928			20,587
Impairment Charges – Long-Lived Assets		510			15,865			252			6,437
Impairment Charges – Tradenames		-			15,250			-			-
Other Income, Net		(10,033	)		(8,904	)		(3,590	)		(2,558	)
Total Costs and Expenses		2,565,141			2,512,474			871,469			866,900

(Loss) Income Before Income Tax (Benefit) Expense		(61,603	)		(87,307	)		(5,433	)		13,462

Income Tax (Benefit) Expense		(23,542	)		(45,382	)		(2,638	)		5,951

Net (Loss) Income	$	(38,061	)	$	(41,925	)	$	(2,795	)	$	7,511

Total Comprehensive (Loss) Income	$	(38,061	)	$	(41,925	)	$	(2,795	)	$	7,511

See Notes to Condensed Consolidated Financial Statements.

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(All amounts in thousands)

	Nine Months Ended
	October 30, 2010			October 31, 2009

OPERATING ACTIVITIES
Net Loss	$	(38,061	)	$	(41,925	)
Adjustments to Reconcile Net Loss to Net Cash Provided By Operating Activities:

Depreciation and Amortization		109,195			113,555
Impairment Charges – Long-Lived Assets		510			15,865
Impairment Charges – Tradenames		-			15,250
Amortization of Debt Issuance Costs		9,187			7,751
Accretion of Senior Notes and Senior Discount Notes		540			483
Interest Rate Cap Agreement - Adjustment to Market		7,065			(8,353	)
Provision for Losses on Accounts Receivable		1,383			1,859
Provision for Deferred Income Taxes		(11,113	)		(14,510	)
Loss on Retirement of Fixed Assets		82			(230	)
(Gain) Loss on Investments in Money Market Fund		(240	)		2,887
Non-Cash Stock Option Expense		1,333			3,623
Non-Cash Rent Expense		(335	)		(4,166	)

Changes in Assets and Liabilities:
Accounts Receivable		(8,406	)		(2,545	)
Merchandise Inventories		(278,898	)		(150,936	)
Prepaid and Other Current Assets		(45,852	)		(5,316	)
Accounts Payable		543,549			189,085
Other Current Liabilities and Income Tax Payable		(5,730	)		23,440
Deferred Rent Incentives		15,616			7,874
Other Long Term Assets and Long Term Liabilities		1,271			(18,566	)

Net Cash Provided by Operating Activities		301,096			135,125

INVESTING ACTIVITIES
Cash Paid for Property and Equipment		(103,247	)		(70,151	)
Proceeds Received from Sale of Property		227			905
Increase in Restricted Cash and Cash Equivalents		(32,677	)		(318	)
Lease Acquisition Costs		(422	)		(1,337	)
Redemption of Investment in Money Market Fund		240			7,371
Purchase of Tradenames Rights		-			(6,250	)
Other		40			64

Net Cash Used in Investing Activities		(135,839	)		(69,716	)

FINANCING ACTIVITIES
Proceeds from Long-Term Debt – ABL Line of Credit		25,400			593,915
Principal Payments on Long-Term Debt		(1,797	)		(1,563	)
Principal Payments on Long-Term Debt – Term Loan		(12,202	)		(8,055	)
Principal Payments on Long-Term Debt – ABL Line of Credit		(146,600	)		(623,915	)
Payment of Dividends		(151	)		(3,094	)

Debt Issuance Costs		(934	)		-

Net Cash Used in Financing Activities		(136,284	)		(42,712	)

Increase in Cash and Cash Equivalents		28,973			22,697
Cash and Cash Equivalents at Beginning of Period		24,750			41,707
Cash and Cash Equivalents at End of Period	$	53,723		$	64,404

Supplemental Disclosure of Cash Flow Information
Interest Paid	$	72,004		$	75,515
Net Income Tax Payments (Refunds)	$	40,221		$	(13,641	)

Non-Cash Investing Activities:
Accrued Purchases of Property and Equipment	$	14,992		$	12,497
Sale of Assets Held for Disposal for Notes Receivable	$	-		$	(2,000	)

See Notes to Condensed Consolidated Financial Statements.

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

October 30, 2010

(UNAUDITED)

1. Summary of Significant Accounting Policies

Basis of Presentation

These unaudited Condensed Consolidated Financial Statements include the accounts of Burlington Coat Factory Investments Holdings, Inc. and all of its subsidiaries (the Company or Holdings). Holdings has no operations and its only asset is all of the stock of Burlington Coat Factory Warehouse Corporation. All discussions of operations in this report relate to Burlington Coat Factory Warehouse Corporation and its subsidiaries (BCFWC), which are reflected in the financial statements of Holdings. The Condensed Consolidated Financial Statements are unaudited, but in the opinion of management reflect all adjustments (which are of a normal and recurring nature) necessary for the fair presentation of the results of operations for the interim periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted. It is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the financial statements and notes thereto included in the Company's Transition Report on Form 10-K/T for the 35 week period ended January 30, 2010. The balance sheet at January 30, 2010 has been derived from the audited Consolidated Financial Statements contained in the Company's Transition Report on Form 10-K/T. At January 30, 2010, the Company revised the presentation of the amortization of deferred financing fees related to the Company’s debt instruments by recording it in the line item “Interest Expense” in the Company’s Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income. The amortization of deferred financing fees had previously been included as a component of the line item “Depreciation and Amortization” in the Company’s Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income prior to January 30, 2010. At January 30, 2010, the Company also revised the presentation of the amortization of deferred financing fees in its Condensed Consolidated Statements of Cash Flows by reclassifying the amortization of deferred financing fees out of the line item “Depreciation and Amortization” within the Company’s Condensed Consolidated Statement of Cash Flows and including it within the line item “Amortization of Debt Issuance Costs” within the Company’s Condensed Consolidated Statements of Cash Flows. Because the Company's business is seasonal in nature, the operating results for the three and nine month periods ended October 30, 2010 are not necessarily indicative of results for the fiscal year ending January 29, 2011.

Fiscal Year

In order to conform to the predominant fiscal calendar used within the retail industry, on February 25, 2010, the Company’s Board of Directors approved a change in the Company’s fiscal year from a fiscal year comprised of the twelve consecutive fiscal months ending on the Saturday closest to May 31 to a fiscal year comprised of the twelve consecutive fiscal months ending on the Saturday closest to January 31. Accordingly, the Company’s Transition Report on Form 10-K/T relates to the 35 week transition period beginning on May 31, 2009, the day following the end of the Company’s 2009 fiscal year, and ended on January 30, 2010 (the Transition Period).

Statements that are made about fiscal year 2010 refer to the first full fiscal year after the Transition Period, which is the 52 week period commencing on January 31, 2010 and ending on January 29, 2011 (Fiscal 2010). Fiscal 2009 ended on May 30, 2009 and was a 52 week year (Fiscal 2009). Fiscal 2008 ended on May 31, 2008 and was a 52 week year (Fiscal 2008).

As a result of the Company’s fiscal year end change and the seasonality of the Company’s results, the Company recast its prior quarterly interim financial information for the 12 month period ended January 30, 2010 on the basis of the new fiscal year for comparative purposes.

Current Conditions

Prior to the Transition Period, the Company had experienced recurring annual net losses since its formation in April 2006, in part due to the interest expense associated with its leveraged debt structure detailed in Note 3 to the Company’s Condensed Consolidated Financial Statements entitled “Long-Term Debt.” At October 30, 2010, working capital was $160.7 million, cash and cash equivalents were $53.7 million and unused availability under the Company’s $721 million ABL Senior Secured Revolving Facility (ABL Line of Credit) was $559.9 million. Significant declines in the United States and international financial markets which began during Fiscal 2009 and the resulting impact of such events on macroeconomic conditions have impacted and are anticipated to continue to impact customer behavior and consumer spending at retailers, which in turn impacts the Company’s sales trends. In response to these economic conditions, the Company accelerated several initiatives to restructure its workforce and reduce its cost structure (refer to Note 4 to the Company's Condensed Consolidated Financial Statements entitled "Restructuring and Separation Costs" for further discussion). The Company continues to focus on a number of ongoing initiatives aimed at improving its comparative store sales and its operating results.

Despite the current trends in the retail environment and their negative impact on the Company’s comparative store sales, the Company believes that cash generated from operations, along with existing cash and the ABL Line of Credit, will be sufficient to fund the Company’s 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, the Company would be able to continue to offset the decline in its comparative store sales with continued savings initiatives.

2. Stockholder’s Equity

Activity for the three and nine month periods ended October 30, 2010 and October 31, 2009 in the Company’s common stock, capital in excess of par value, and accumulated deficit are summarized below:

	(in thousands)
	Common Stock		Capital in Excess of Par Value		Accumulated Deficit			Total

Balance at January 30, 2010	$	-	$	464,489	$	(309,989	)	$	154,500
Net Income		-		-		5,213			5,213
Stock Option Expense		-		233		-			233
Dividends		-		-		(151	)		(151	)
Balance at May 1, 2010		-		464,722		(304,927	)		159,795
Net Loss		-		-		(40,479	)		(40,479	)
Stock Option Expense		-		604		-			604
Balance at July 31, 2010		-		465,326		(345,406	)		119,920
Net Loss		-		-		(2,795	)		(2,795	)
Stock Option Expense		-		496		-			496
Balance at October 30, 2010	$	-	$	465,822	$	(348,201	)	$	117,621

	(in thousands)
	Common Stock		Capital in Excess of Par Value			Accumulated Deficit			Total

Balance at January 31, 2009	$	-	$	460,098		$	(291,598	)	$	168,500
Net Loss		-		-			(36,916	)		(36,916	)
Stock Option Expense		-		580			-			580
Stock Option Restructuring		-		2,426			-			2,426
Dividends		-		-			(3,000	)		(3,000	)
Balance at May 2, 2009		-		463,104			(331,514	)		131,590
Net Loss		-		-			(12,520	)		(12,520	)
Stock Option Expense		-		1,238			-			1,238
Balance at August 1, 2009		-		464,342			(344,034	)		120,308
Net Loss		-		-			7,511			7,511
Stock Option Expense		-		(621	)		-			(621	)
Dividends		-		-			(94	)		(94	)
Balance at October 31, 2009	$	-	$	463,721		$	(336,617	)	$	127,104

3. Long-Term Debt

Long-Term debt consists of:

	(in thousands)
	October 30, 2010			January 30, 2010			October 31, 2009

$900,000 Senior Secured Term Loan Facility, LIBOR plus 2.3% due in quarterly payments of $2,250 from August 26, 2011 to May 28, 2013.	$	852,550		$	864,752		$	864,752
$721,000 ABL Senior Secured Revolving Facility, LIBOR plus spread based on average outstanding balance, expires February 4, 2014. (a)		-			121,200			-
Senior Notes, 11.1% due at maturity on April 15, 2014, semi-annual interest payments from April 15, 2011 to April 15, 2014.		301,804			301,264			301,092
Senior Discount Notes, 14.5% due at maturity on October 15, 2014, semi-annual interest payments from April 15, 2011 to October 15, 2014.		99,309			99,309			99,309
Industrial Revenue Bonds, 6.1% due September 1, 2010.		-			1,210			1,210
Promissory Note, non-interest bearing, due in monthly payments of $17 through January 1, 2012.		250			400			450
Promissory Note, 4.4% due in monthly payments of $8 through December 23, 2011.		104			167			187
Capital Lease Obligations		24,677			25,051			25,161

Total debt		1,278,694			1,413,353			1,292,161
Less: current maturities		(18,559	)		(14,201	)		(7,243	)

Long-term debt, net of current maturities	$	1,260,135		$	1,399,152		$	1,284,918

(a)

The $721 million ABL Line of Credit is effective through May 31, 2011, at which time the facility is reduced to a $600 million ABL Line of Credit. The $600 million ABL Line of Credit expires February 4, 2014, but is subject to a springing maturity requirement whereby the ABL Line of Credit will mature 45 days prior to May 28, 2013 (the maturity date of the $900 million Senior Secured Term Loan Facility (Term Loan) if the Term Loan is not extended or refinanced prior to that date). Additional information regarding the ABL Line of Credit and Term Loan is included below.

The Term Loan is to be repaid in quarterly payments of $2.3 million from August 26, 2011 to May 28, 2013. As of October 31, 2010, the borrowing rate related to the Company’s Term Loan was 2.5%. At the end of each fiscal year, the Company is required to make a payment based on 50% of its available free cash flow (as defined in the credit agreement governing the Term Loan). This payment offsets future mandatory quarterly payments. Based on its available free cash flow for the Transition Period, the Company made a payment of $11.5 million during the three months ended May 1, 2010. This payment offsets mandatory quarterly payments through the second quarter of the fiscal year ending January 28, 2012 (Fiscal 2011) and $0.3 million of the mandatory quarterly payment for the third quarter of Fiscal 2011.

On February 25, 2010, the Company entered into a second amendment to the credit agreement governing the Term Loan. Among other things, the amendment provides that consolidated EBITDA (as defined in credit agreement governing the Term Loan) will be increased or decreased for any period to the extent necessary to eliminate the effects during such period of any increase or decrease in legal, auditing, consulting, and accounting related expenses for such period relating directly to the Company’s change in fiscal year compared to the amount of such expenses that would have been incurred in such period had the fiscal year change not occurred. The amendment also provides that for purposes of any calculation of consolidated interest coverage ratio and consolidated leverage ratio, as of the last day of any fiscal quarter ending on or after January 30, 2010 and prior to the completion of the fiscal year ending the Saturday closest to January 31, 2011, consolidated EBITDA and consolidated interest expense will be determined for the most recent period of twelve consecutive fiscal months. Pursuant to the terms of the amendment, the Company paid a fee to each lender consenting to the amendment in the amount of 0.05% (or $0.4 million in the aggregate) of the principal amount of such lender’s outstanding loan under the credit agreement governing the Term Loan. A further description of the second amendment to the credit agreement governing the Term Loan is contained in Item 1.01 of the Company’s Current Report on Form 8-K, filed with the SEC on February 26, 2010.

The Company’s Term Loan agreement contains financial, affirmative and negative covenants and requires that the Company, among other things, maintain on the last day of each fiscal quarter a consolidated leverage ratio not to exceed a maximum amount. Specifically, the Company’s total debt to Adjusted EBITDA, as each term is defined in the credit agreement governing the Term Loan, for the trailing twelve months most recently ended on or prior to such date, may not exceed 5.25 to 1 at October 30, 2010; 5.00 to 1 at January 29, 2011; and 4.75 to 1 at April 30, 2011 and thereafter. Adjusted EBITDA is a non-GAAP financial measure of the Company’s liquidity. Adjusted EBITDA, as defined in the credit agreement governing the Company’s Term Loan, starts with consolidated net income (loss) for the period and adds back (i) depreciation, amortization, impairments and other non-cash charges that were deducted in arriving at consolidated net income (loss), (ii) the provision (benefit) 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.

On January 15, 2010, the Company completed an amendment and restatement of the credit agreement governing the Company’s ABL Line of Credit, which (among other things) extended the maturity date for consenting lenders constituting $600 million of commitments to February 4, 2014. As part of the amendment and restatement, the Company eliminated the outstanding $65 million A-1 tranche commitments, although the Company maintained the ability to restore up to $65 million of the A-1 tranche with the consent of lenders holding the majority of outstanding commitments. The Company offered the banks in the terminated A-1 tranche the option to convert to the A tranche or opt out of the agreement altogether. This reduced the Company’s total line of credit to $721 million through May 31, 2011, after which the line of credit will be reduced to $600 million through the new maturity date. The $600 million ABL Line of Credit has a springing maturity requirement whereby the ABL Line of Credit will mature 45 days prior to May 28, 2013, the maturity date of the Term Loan, if the Term Loan is not extended or refinanced prior to such date unless the pro forma credit availability condition has been satisfied after implementation of a Term Loan maturity reserve or the outstanding principal amount under the Term Loan maturing prior to February 4, 2014 is not more than $75 million. The Company believes the $600 million line of credit will provide adequate liquidity to support its operating activities. A further description of the amended and restated credit agreement governing the ABL Line of Credit and related transactions, including a description of covenants, fees and interest rates, is contained in Item 1.01 of the Company’s Current Report on Form 8-K, filed with the SEC on January 19, 2010.

The ABL Line of Credit carries an interest rate of LIBOR plus a spread which is determined by annual average borrowings outstanding. Commitment fees of 0.75% to 1.0%, based on the Company’s actual usage of the line of credit, will be charged on the unused portion of the ABL Line of Credit and will be included in the line item “Interest Expense” on the Company’s Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.

At October 30, 2010, the Company had $559.9 million available under the ABL Line of Credit and no borrowings outstanding. Maximum borrowings under the facility during each of the three and nine month periods ended October 30, 2010 amounted to $25.4 million and $121.2 million, respectively. Average borrowings during the three and nine month periods ended October 30, 2010 amounted to $1.7 million and $7.1 million, respectively, at average interest rates of 4.6% and 3.0%, respectively.

At October 31, 2009, the Company had $575.7 million available under the then $800 million ABL Line of Credit. At January 30, 2010, the Company had $158.6 million available under the $721 million ABL Line of Credit. The maximum borrowings under the ABL Line of Credit during each of the three and nine month periods ended October 31, 2009 amounted to $79.4 million and $150.3 million, respectively. Average borrowings during the three and nine month periods ended October 31, 2009 amounted to $27.3 million and $35.2 million at average interest rates of 3.0% and 2.9%, respectively. There were no borrowings outstanding under the ABL Line of Credit at October 31, 2009. At January 30, 2010, $121.1 million was outstanding under the ABL Line of Credit and was included in the line item “Long-Term Debt” in the Company’s Consolidated Balance Sheets.

Holdings and certain subsidiaries of BCFWC fully and unconditionally guarantee BCFWC’s obligations under the $721 million ABL Line of Credit and the $900 million Term Loan. These guarantees are both joint and several.

As part of the Company’s issuance of its 14.5% Senior Discount Notes, the Company is required to make a $13.4 million High Yield Discount Obligation payment by April 13, 2011. The amount of the payment is included in the line item “Current Maturities of Long-Term Debt” on the Company’s Condensed Consolidated Balance Sheet as of October 30, 2010.

As of October 30, 2010, the Company was in compliance with all of its debt covenants. The credit agreements regarding the ABL Line of Credit and Term Loan, as well as the indentures governing the BCFWC Senior Notes and Holdings Senior Discount Notes, contain covenants that, among other things, limit the Company’s ability, and the ability of the Company’s restricted subsidiaries, to pay dividends on, redeem or repurchase capital stock; make investments; incur additional indebtedness or issue preferred stock; create liens; permit dividends or other restricted payments by the Company’s subsidiaries; sell all or substantially all of the Company’s assets or consolidate or merge with or into other companies; and engage in transactions with affiliates.

The Company had $32.0 million, $40.3 million and $30.5 million in deferred financing fees, net of accumulated amortization, as of October 30, 2010, January 30, 2010 and October 31, 2009, respectively, related to its debt instruments recorded in the line item “Other Assets” on the Company’s Condensed Consolidated Balance Sheets. As a result of the amendment of the Term Loan on February 25, 2010, the Company incurred an additional $0.9 million of deferred financing fees. Amortization of deferred financing fees amounted to $3.1 million and $2.6 million for the three month periods ended October 30, 2010 and October 31, 2009, respectively, and is included in the line item “Interest Expense” in the Company’s Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income. Amortization of deferred financing fees amounted to $9.2 million and $7.8 million for the nine months ended October 30, 2010 and October 31, 2009, respectively.

4. Restructuring and Separation Costs

The Company accounts for restructuring and separation costs in accordance with ASC Topic No. 420, “Exit or Disposal Cost Obligations” (Topic No. 420). In an effort to better align the Company’s resources with its business objectives, during Fiscal 2009, the Company reviewed all areas of the business to identify efficiency opportunities to enhance the organization’s performance. In light of the then challenging economic and retail sales environments, the Company 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. Certain of these initiatives have continued through the Transition Period and Fiscal 2010.

On February 16, 2009, the Company’s former President and Chief Executive Officer (Former CEO) entered into a separation agreement with the Company. As part of his separation agreement, the Company paid the Former CEO’s salary through January 30, 2010 at which time continuation payments and other benefits payable as provided in his separation agreement commenced. The continuation payments will be paid out in biweekly installments through May 30, 2011. The total amount of all continuation payments and other benefits payable to the Former CEO pursuant to the terms of his separation agreement was approximately $4.2 million, $2.4 million of which was stock compensation. At October 30, 2010, $0.4 million of the total amount remained to be paid to the Former CEO.

There were no changes to the Company’s workforce during the three months ended October 30, 2010 that resulted in restructuring and severance charges. During the nine months ended October 30, 2010, restructuring and severance charges amounted to $2.2 million. In comparison, restructuring and severance charges for the three and nine months ended October 31, 2009 amounted to $1.2 million and $6.3 million, respectively.

The table below summarizes the charges incurred related to the Company’s restructuring and separation costs, which are included in the line items “Other Current Liabilities” and "Other Liabilities" in the Company’s Condensed Consolidated Balance Sheet as of October 30, 2010:

	(in thousands)
	January 30, 2010			Charges		Cash Payments			Other				October 30, 2010
Severance-Restructuring (a)		$	1,560		-		(1,332	)		(110	)		$	118
Severance-Separation Cost (b)			912		2,152		(1,439	)		-				1,625
Total		$	2,472		2,152		(2,771	)		(110	)		$	1,743

	(in thousands)
	January 31, 2009			Charges		Cash Payments			Capital in Excess of Par Value			October 31, 2009
Severance-Restructuring (a)		$	1,697		2,104		(2,670	)		(56	)		$	1,075
Severance-Separation Cost (b)			-		4,190		(698	)		(2,426	)			1,066
Total		$	1,697		6,294		(3,368	)		(2,482	)		$	2,141

(a)

The balances as of October 30, 2010, January 30, 2010, October 31, 2009 and January 31, 2009 are recorded in the line item "Other Current Liabilities" in the Company's Condensed Consolidated Balance Sheets.

(b)

The balance as of October 30, 2010 is recorded in the line item "Other Current Liabilities." Approximately $0.7 million and $0.2 million of the balance as of January 30, 2010 are recorded in the line items “Other Current Liabilities” and “Other Liabilities,” respectively. Approximately $0.7 million and $0.4 million of the balance as of October 31, 2009 are recorded in the line items “Other Current Liabilities” and “Other Liabilities,” respectively.

5. Assets Held for Disposal

Assets held for disposal represent assets owned by the Company that management has committed to sell in the near term. The Company either identified or was actively seeking out potential buyers for these assets as of the balance sheet dates. The asset listed as “Assets Held for Disposal” in the Company’s Condensed Consolidated Balance Sheets as of October 30, 2010, January 30, 2010, and October 31, 2009 was an owned parcel of land adjacent to one of the Company’s stores.

Assets held for disposal are valued at the lower of their carrying value or fair value, less cost to sell, as follows:

	(in thousands)
	October 30, 2010		January 30, 2010		October 31, 2009
Property and Equipment	$	521	$	521	$	521

6. Restricted Cash and Cash Equivalents

At October 30, 2010, restricted cash and cash equivalents consisted of $32.8 million of collateral in lieu of a letter of credit for certain insurance contracts and $2.5 million restricted contractually for the acquisition and maintenance of a building related to a store operated by the Company. As a result, the Company’s outstanding letters of credit guaranteeing performance under various insurance contracts decreased $32.8 million from May 1, 2010 through October 30, 2010.

At both January 30, 2010 and October 31, 2009, restricted cash and cash equivalents amounted to $2.6 million restricted contractually for the acquisition and maintenance of a building related to a store operated by the Company.

7. Intangible Assets

Intangible assets at October 30, 2010, January 30, 2010, and October 31, 2009 consisted primarily of tradenames and favorable lease positions as follows:

	(in thousands)
	October 30, 2010								January 30, 2010
	Gross Carrying Amount		Accumulated Amortization				Net Amount		Gross Carrying Amount		Accumulated Amortization			Net Amount

Tradenames	$	238,000	$		-		$	238,000	$	238,000	$	-		$	238,000

Favorable Leases	$	521,561	$		(123,805	)	$	397,756	$	521,775	$	(100,684	)	$	421,091

	(in thousands)
	October 31, 2009
	Gross Carrying Amount		Accumulated Amortization				Net Amount
Tradenames	$	238,000	$	-			$	238,000

Favorable Leases	$	561,441	$	(103,058		)	$	458,383

Favorable Leases

The decrease in the gross carrying amount of favorable leases from January 30, 2010 to October 30, 2010 was related to a $0.2 million cost adjustment recorded during the nine months ended October 30, 2010 which represented certain favorable leases becoming fully amortized during the period.

The increase in favorable lease accumulated amortization from January 30, 2010 through October 30, 2010 was primarily related to amortization expense of $23.3 million which was incurred during the nine months ended October 30, 2010. This increase was partially offset by a $0.2 million cost adjustment as described above.

The decrease in the gross carrying amount of the Company’s favorable leases from October 31, 2009 to January 30, 2010 was primarily related to a reduction of $39.7 million as a result of the impairment of 22 stores.

The decrease in favorable lease accumulated amortization from October 31, 2009 to January 30, 2010 was primarily related to a cost adjustment of $10.6 million resulting from the impairment charge noted above, which decreased both the carrying cost and the accumulated amortization of the favorable leases, which was partially offset by amortization expense of $8.2 million.

Amortization expense of favorable leases for each of the next five fiscal years is estimated to be as follows:

Fiscal year:	(in thousands)

2011	$	31,105
2012		29,854
2013		28,590
2014		27,972
2015		26,812

Total	$	144,333

8. Fair Value Measurements

The Company accounts for fair value measurements in accordance with ASC Topic No. 820, “Fair Value Measurements and Disclosures,” (Topic No. 820) which defines fair value, establishes a framework for measurement and expands disclosure about fair value measurements. Topic No. 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price), and classifies the inputs used to measure fair value into the following hierarchy:

Level 1:

Quoted prices for identical assets or liabilities in active markets.

Level 2:

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

Level 3:

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

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

Financial Assets

The Company’s financial assets as of October 30, 2010 included cash equivalents, interest rate cap agreements and a note receivable. The Company’s financial liabilities are discussed below. The carrying value of cash equivalents approximates fair value due to its short-term nature. The fair values of the interest rate cap agreements are determined using quotes that are based on models whose inputs are observable LIBOR forward interest rate curves. To comply with the provisions of Topic No. 820, the Company incorporates credit valuation adjustments to appropriately reflect both the Company's non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of the Company's interest rate cap agreements for the effect of non-performance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. As a result, the Company has determined that the inputs used to value this investment fall within Level 2 of the fair value hierarchy.

Although the Company has determined that the majority of the inputs used to value its interest rate cap agreements fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the Company's interest rate cap agreements utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default. As of October 30, 2010, the Company recorded credit valuation adjustments of $0.1 million to the overall valuation of the Company's interest rate cap agreements. The credit valuation adjustment is not considered significant to the valuation of each of the individual interest rate cap agreements and as a result, the Company has determined that its interest rate cap agreement valuations in their entirety are classified as Level 2 within the fair value hierarchy.

The fair value of the note receivable is based on a discounted cash flow analysis whose inputs are unobservable, and therefore it falls within Level 3 of the fair value hierarchy.

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

	(in thousands)
	Fair Value Measurements at
	October 30, 2010			January 30, 2010		October 31, 2009

Assets:
Level 1
Cash equivalents (including restricted cash)		$	57,222	$	2,758	$	2,611

Level 2
Interest rate cap agreements (a)		$	1,714	$	8,779	$	11,689

Level 3
Note Receivable (b)		$	1,407	$	1,407	$	1,721

(a)

Included in “Prepaid and Other Current Assets” and “Other Assets” within the Company’s Condensed Consolidated Balance Sheets (refer to Note 9 of the Company’s Condensed Consolidated Financial Statements entitled “Derivative Instruments and Hedging Activities” for further discussion regarding the Company's interest rate cap agreements).

(b)

Included in “Prepaid and Other Current Assets” and “Other Assets” on the Company’s Condensed Consolidated Balance Sheets.

Financial Liabilities

The fair value of the Company’s debt as of October 30, 2010, January 30, 2010 and October 31, 2009 is noted in the table below:

	(in thousands)
	October 30, 2010				January 30, 2010					October 31, 2009
	Carrying Amount (c)		Fair Value (c)		Carrying Amount (c)		Fair Value (c)			Carrying Amount (c)		Fair Value (c)

$900,000 Senior Secured Term Loan Facility, LIBOR plus 2.3% due in quarterly payments of $2,250 from August 26, 2011 to May 28, 2013.	$	852,550	$	830,171	$	864,752		$	804,219	$	864,752	$	777,916
$721,000 ABL Senior Secured Revolving Facility, LIBOR plus spread based on average outstanding balance, expires February 14, 2014. (a)		-		-		121,200			121,200		-		-

Senior Notes, 11.1% due at maturity on April 15, 2014, semi-annual interest payments from April 15, 2011 to April 15, 2014		301,804		318,026		301,264		310,051		301,092		310,877
Senior Discount Notes, 14.5% due at maturity on October 15, 2014, semi-annual interest payments from April 15, 2011 to October 15, 2014		99,309		106,012		99,309		98,812		99,309		98,316
Other debt (b)		354		354		1,777		1,777		1,847		1,847
Total debt	$	1,254,017	$	1,254,563	$	1,388,302	$	1,336,059	$	1,267,000	$	1,188,956

(a)	The carrying value of the ABL Line of Credit approximates its fair value due to its short-term nature (borrowings are typically done in increments of 30 days or less) and its variable interest rate.
(b)	Other debt includes the industrial revenue bonds and both promissory notes, as further described in Note 3 of the Company’s Condensed Consolidated Financial Statements entitled “Long-Term Debt.”
(c)	Capital lease obligations are excluded from the table above.

As of October 30, 2010, the fair value of the Company’s debt, exclusive of capital leases, was $1,254.6 million compared with the carrying value of $1,254.0 million. The fair values presented herein are based on estimates using quoted market prices for the same or similar issues and other pertinent information available to management as of the respective period end dates. Although management is not aware of any factors that could significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these Condensed Consolidated Financial Statements since October 30, 2010, and current estimates of fair value may differ from amounts presented herein.

9. Derivative Instruments and Hedging Activities

The Company accounts for derivatives in accordance with ASC Topic No. 815 “Disclosures and Hedging” (Topic No. 815). Topic No. 815 provides disclosure requirements to provide users of financial statements with an enhanced understanding of: (i) How and why an entity uses derivative instruments; (ii) How derivative instruments and related hedged items are accounted for under Topic No. 815 and its related interpretations; and (iii) How derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows.

The Company is exposed to certain risks relating to its ongoing business operations, including market risks relating to fluctuations in interest rates. The Company’s senior secured credit facilities contain floating rate obligations and are subject to interest rate fluctuations. The Company uses interest rate cap agreements, which are designated as economic hedges, to manage interest rate risk associated with the Company’s variable-rate borrowings and to minimize the negative impact of interest rate fluctuations on its earnings and cash flows, thus reducing the Company’s exposure to variability in expected future cash flows attributable to the changes in LIBOR rates.

Topic No. 815 requires recognition of all derivative instruments as either assets or liabilities at fair value in the statement of financial position. The Company does not monitor its interest rate cap agreements for hedge effectiveness and therefore does not designate its interest rate cap agreements as cash flow hedges of certain future interest payments on variable-rate debt. Instead, the interest rate cap agreements are adjusted to market on a quarterly basis. As a result, gains or losses associated with the interest rate cap agreements are recorded in the line item “Interest Expense” on the Company’s Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income and in the line item “Interest Rate Cap Contract – Adjustment to Market” on the Company’s Condensed Consolidated Statements of Cash Flows.

As of October 30, 2010, January 30, 2010, and October 31, 2009 the Company was party to four outstanding interest rate cap agreements to manage the interest rate risk associated with future interest payments on variable-rate debt.

(in thousands)

Fair Values of Derivative Instruments

Asset Derivatives

October 30, 2010

January 30, 2010

October 31, 2009

Derivatives Not Designated as Hedging Instruments Under Topic No. 815

Balance

Sheet

Location

Fair

Value

Balance

Sheet

Location

Fair

Value

Balance

Sheet

Location

Fair

Value

Interest Rate

Cap Agreements

Other Assets

$ 1,714

Other Assets

$ 8,779

Other Assets

$ 11,689

Liability Derivatives

October 30, 2010

January 30, 2010

October 31, 2009

Derivatives Not Designated as Hedging Instruments Under Topic No. 815

Balance

Sheet

Location

Fair

Value

Balance

Sheet

Location

Fair

Value

Balance

Sheet

Location

Fair

Value

Interest Rate

Cap Agreements

Other Liabilities

$ -

Other Liabilities

$ -

Other Liabilities

$ -

(Gain) Loss on Derivative Instruments

Derivatives Not Designated as Hedging Instruments Under Topic No. 815

Location of (Gain) or Loss Recognized in Income on Derivatives

Amount of (Gain) or Loss Recognized in Income on Derivatives

Nine Months Ended

October 30, 2010

October 31, 2009

Interest Rate

Cap Agreements

Interest Expense

7,065

$ (8,353)

One of the four interest rate cap agreements became effective on May 12, 2006. It has a notional principal amount of $300 million with a cap rate of 7.0% and terminates on May 31, 2011. Upon the effective date the Company determined that it would not monitor this interest rate cap agreement for hedge effectiveness. The Company adjusts this interest rate cap agreement to fair value on a quarterly basis and records all gains and losses associated with this contract in the line item “Interest Expense” in the Company’s Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.

On December 20, 2007, the Company entered into an additional interest rate cap agreement. The agreement has a notional principal amount of $600 million with a cap rate of 7.0% and terminates on May 31, 2011. The agreement became effective on May 29, 2009 upon the termination of an expiring $700 million interest rate cap agreement. As of the effective date, the Company determined that it would not monitor this interest rate cap agreement for hedge effectiveness. Instead, the Company adjusts the interest rate cap to fair value on a quarterly basis and records all gains and losses associated with this contract in the line item “Interest Expense” in the Company’s Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.

On January 16, 2009, the Company entered into two additional interest rate cap agreements, each of which will be effective on May 31, 2011 upon termination of the Company’s existing $300 million and $600 million interest rate cap agreements described above. Each agreement has a notional principal amount of $450 million with a cap rate of 7.0% and terminates on May 31, 2015. The Company will determine prior to the effective date of each agreement whether it will monitor them for hedge effectiveness. Until the Company determines the accounting treatment that will be used, the Company will adjust these interest rate cap agreements to fair value on a quarterly basis and as a result, gains or losses associated with these agreements will be included in the line item “Interest Expense” on the Company’s Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income and in the line item “Interest Rate Cap Contract – Adjustment to Market” on the Company’s Condensed Consolidated Statements of Cash Flows.

10. Income Taxes

As of October 30, 2010, the Company had a current deferred tax asset of $28.5 million and a non-current deferred tax liability of $271.0 million. As of January 30, 2010, the Company had a current deferred tax asset of $29.6 million and a non-current deferred tax liability of $283.2 million. As of October 31, 2009, the Company had a current deferred tax asset of $52.5 million and a non-current deferred tax liability of $317.6 million. Current deferred tax assets consisted primarily of certain operating costs and inventory related costs not currently deductible for tax purposes. Non-current deferred tax liabilities primarily relate to rent expense, pre-opening costs, intangible costs and depreciation expense where the Company has a future obligation for tax purposes.

In accordance with ASC Topic No. 270, "Interim Financial Reporting" (Topic No. 270) and ASC Topic No. 740, "Income Taxes" (Topic No. 740), at the end of each interim period the Company is required to determine the best estimate of its annual effective tax rate and then apply that rate in providing for income taxes on a current year-to-date (interim period) basis. For the nine months ended October 30, 2010, the Company’s best estimate of its annual effective income tax rate was 37.4% (before discrete items).

As of October 30, 2010, January 30, 2010 and October 31, 2009, valuation allowances amounted to $7.0 million, $7.0 million and $8.6 million, respectively, and related primarily to state tax net operating losses. The Company believes that it is more likely than not that a portion of the benefit of the state tax net operating losses will not be realized. The state net operating losses have been generated in a number of taxing jurisdictions and are subject to various expiration periods ranging from five to twenty years beginning with Fiscal 2011. Any future tax benefit recognized by the use of a state tax net operating loss that was established prior to the April 13, 2006 merger transaction involving Bain Capital, LLC (Merger Transaction), where a valuation allowance has been established, and any future tax benefits related to the recognition of any state tax net operating losses, where a valuation allowance has been established, will be recorded to the Company’s Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income according to the provisions of ASC Topic No. 805, “Business Combinations” (Topic No. 805).

11. Barter Transactions

The Company accounts for barter transactions under ASC Topic No. 845 “Nonmonetary Transactions.” Barter transactions with commercial substance are recorded at the estimated fair value of the products exchanged, unless the products received have a more readily determinable estimated fair value. Revenue associated with barter transactions is recorded at the time of the exchange of the related assets. During the nine months ended October 30, 2010 and the nine months ended October 31, 2009, the Company did not enter into any new barter transactions.

The following table summarizes the prepaid advertising expense in the line items “Prepaid and Other Current Assets” and “Other Assets” in the Company’s Condensed Consolidated Balance Sheets as of October 30, 2010, January 30, 2010, and October 31, 2009:

	(in thousands)
	October 30, 2010		January 30, 2010	October 31, 2009

Prepaid and Other Current Assets	$	3,340	$ 2,681	$	3,193
Other Assets		6,198	7,508		8,884
Total Prepaid Advertising Expense	$	9,538	$ 10,189	$	12,077

The following table details barter credit usage for the three and nine month periods ended October 30, 2010 and October 31, 2009:

	(in thousands)
	Three Months Ended				Nine Months Ended
	October 30, 2010		October 31, 2009			October 30, 2010		October 31, 2009
Barter Credit Usage	$	428	$	441		$	1,310	$	983

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

On April 13, 2006, the Parent’s Board of Directors (the Board) adopted the 2006 Management Incentive Plan (the Plan). The Plan provides for the granting of service-based and performance-based stock options, restricted stock and other forms of awards to executive officers and other key employees of the Company and its subsidiaries. Awards made pursuant to the Plan are comprised of units of Parent’s common stock. Each unit consists of nine shares of Class A common stock and one share of Class L common stock of the Parent. The shares comprising a unit are in the same proportion as the shares of Class A and Class L common stock held by all stockholders of the Parent. Options granted pursuant to the Plan are exercisable only for whole units and cannot be separately exercised for the individual classes of the Parent common stock. As of October 30, 2010, there were 730,478 units reserved under the Plan consisting of 6,574,302 shares of Class A common stock of Parent and 730,478 shares of Class L common stock of Parent.

Non-cash stock compensation expense for the three and nine months ended October 30, 2010 amounted to $0.5 million and $1.3 million, respectively. In comparison, non-cash stock compensation expense for the three and nine months ended October 31, 2009 amounted to a contra expense of $0.6 million and expense of $3.6 million, respectively. The table below summarizes the types of stock compensation:

		(in thousands)
		Three Months Ended				Nine Months Ended
Type of Non-Cash Stock Compensation		October 30, 2010		October 31, 2009		October 30, 2010		October 31, 2009
Stock Compensation – Separation Costs (A)	$	-	$	56		$	-	$	2,481
Stock Option Compensation (B)		295		(768	)		720		525
Restricted Stock Compensation (B)		201		91			613		617
Total	$	496	$	(621	)	$	1,333	$	3,623

(A)

Included in the line item "Restructuring and Separation Costs" in the Company's Consolidated Statements of Operations and Comprehensive (Loss) Income.

(B)

Included in the line item "Selling and Administrative Expense" in the Company's Consolidated Statements of Operations and Comprehensive (Loss) Income.

Of the $2.5 million of stock compensation – separation costs $2.4 million was related to the repurchase of a portion of the Former CEO’s restricted stock, under the terms of his separation agreement, and a modification of his options. The remaining $0.1 million related to the separation of two former employees from the Company under the terms of their respective separation agreements.

Stock Options

Options granted during the nine months ended October 30, 2010 and October 31, 2009 were all service-based awards and were granted at exercise prices of $90 per unit and $180 per unit. All of the service-based awards granted in the nine months ended October 30, 2010 and October 31, 2009 vest 40% on the second anniversary of the award (or the modification of the award) with the remaining amount vesting ratably over the subsequent three years. The final exercise date for any option granted is the tenth anniversary of the grant date.

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

As of October 30, 2010, the Company had 492,666 options outstanding to purchase units, all of which are service-based awards. The Company accounts for awards issued under the Plan in accordance with Topic No. 718 using the modified prospective method, which requires companies to record stock compensation expense for all non-vested and new awards beginning as of the adoption date (June 4, 2006 for the Company). For the three and nine months ended October 30, 2010, the Company recognized non-cash stock compensation expense of $0.3 million ($0.1 million after tax) and $0.7 million ($0.4 million after tax), respectively, net of a $0.4 million and $1.3 million forfeiture adjustment that was recorded as a result of actual forfeitures being higher than initially estimated. In comparison, for the three and nine months ended October 31, 2009, the Company recognized contra expense of $0.8 million ($0.4 million after tax), and expense of $0.5 million ($0.2 million after tax), respectively, net of a $1.3 million and $2.5 million forfeiture adjustment that was recorded as a result of actual forfeitures being higher than initially estimated.

Non-cash stock option compensation expense is included in the line item “Selling and Administrative Expense” in the Company’s Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income. As of October 30, 2010 there was approximately $6.9 million of unearned non-cash stock-based compensation that the Company expected to recognize as expense over the next 4.9 years. The service-based awards are expensed on a straight-line basis over the requisite service period of 5 years. As of October 30, 2010, 25.8% of outstanding options to purchase units had vested.

Stock Option Unit Transactions are summarized as follows:

	Number of Units			Weighted Average Exercise Price Per Unit

Options Outstanding January 30, 2010		478,500		$	123.70

Options Issued		76,500			120.00
Options Forfeited		(62,334	)		(120.00	)

Options Outstanding October 30, 2010		492,666		$	123.59

Non-vested stock option unit transactions during the nine months ended October 30, 2010 are summarized below:


	Number of Units			Weighted Average Grant Date Fair Value Per Unit

Non-Vested Options Outstanding, January 30, 2010		361,500		$	36.50

Granted		76,500			44.56

Vested		(32,200	)		(43.75	)

Forfeited		(40,110	)		(36.70	)


Non-Vested Options Outstanding, October 30, 2010		365,690		$	40.13

The following table summarizes information about the options to purchase units that were outstanding under the Plan as well as options that were exercisable under the plan as of October 30, 2010:

		Stock Option Units Outstanding				Option Units Exercisable
Exercise Prices		Number Outstanding at October 30, 2010		Weighted Average Remaining Contractual Life (Years)		Number Exercisable at October 30, 2010		Weighted Average Remaining Contractual Life (Years)

$	90.00		322,778		8.0		70,650		5.3
$	180.00		155,888		7.2		42,326		4.9
$	270.00		14,000		2.6		14,000		2.6
			492,666				126,976

The following table summarizes information about the stock options expected to vest during the contractual term:


Exercise Prices		Options		Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price
Expected to Vest as of October 30, 2010
$	90.00		261,023	7.9	$	90.00
$	180.00		127,510	7.1	$	180.00
$	270.00		14,000	2.6	$	270.00
			402,533

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants under the Plan during the nine months ended October 30, 2010 and October 31, 2009:


	Nine Months Ended
	October 30, 2010			October 31, 2009

Risk-Free Interest Rate		1.8 – 3.4	%		2.6 – 3.5	%
Expected Volatility		38.5	%		52.5	%
Expected Life (years)		6.6 – 9.5			6.9 – 10.0
Contractual Life (years)		10			10
Expected Dividend Yield		0.0	%		0.0	%
Weighted Average Grant Date Fair Value of Options Issued at an exercise price of:
$ 90.00	$	49.62		$	21.97
$180.00	$	34.45		$	19.68

The weighted average grant date fair value of options granted has varied from period to period due to changes in the Company’s business enterprise value resulting from changes in the Company’s business forecast, market conditions and changes in the fair value and book value of the Company’s debt.

Restricted Stock Grants

Under the Plan, the Company also has the ability to grant restricted stock units (“Units”). Each Unit consists of nine shares of Class A common stock and one share of Class L common stock of the Parent.

As of October 30, 2010, the Company had 76,829 Units outstanding, all of which are service based awards. During the three and nine month periods ended October 30, 2010, the Company recorded $0.2 million and $0.6 million, respectively, of non-cash stock compensation expense, net of $0.1 million and $0.2 million of forfeiture adjustments that were recorded as a result of actual forfeitures being higher than initially estimated. These amounts are included in the line item “Selling and Administrative Expense” on the Company’s Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income. In comparison, as of October 31, 2009, the Company had 101,496 Units outstanding. During the three and nine months ended October 31, 2009, the Company recognized expense of $0.1 million and $0.6 million, respectively, of non-cash stock compensation, net of $0.1 million and $0.1 million of forfeiture adjustments that were recorded as a result of actual forfeitures being higher than initially estimated. As of October 30, 2010 there was approximately $1.4 million of unearned non-cash stock based compensation that the Company expects to recognize as an expense over the next 1.6 years. The service based Units are expensed on a straight-line basis over the requisite service period of three years. At October 30, 2010, 2,500 of the outstanding Units were vested.

Restricted Stock Unit Transactions for the nine months ended October 30, 2010 are summarized below:


	Number of Units

Units Outstanding, January 30, 2010		95,052

Forfeited		(18,223	)

Units Outstanding, October 30, 2010		76,829

Non-vested Unit transactions for the nine months ended October 30, 2010 are summarized below:

	Number of Units			Weighted Average Grant Date Fair Value Per Unit

Non-vested Units Outstanding, January 30, 2010		92,552		$	47.97
Forfeited		(18,223	)		(45.80	)

Non-vested Units Outstanding, October 30, 2010		74,329		$	48.50

13. Comprehensive (Loss) Income

The Company presents comprehensive (loss) income on its Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income in accordance with ASC Topic No. 220 “Comprehensive Income.” For the three and nine month periods ended October 30, 2010 and October 31, 2009, comprehensive (loss) income consisted of net (loss) income.

14. Other Revenue

Other revenue consists of rental income received from leased departments; sublease rental income and other miscellaneous items; and layaway, alteration and other service charges (Service Fees), which are summarized below:

	(in thousands)
	Three Months Ended						Nine Months Ended
	October 30, 2010			October 31, 2009			October 30, 2010		October 31, 2009

Rental Income from Leased Departments		$	1,548		$	1,631	$	4,866	$	5,649
Sublease Rental Income and Other Miscellaneous Items			2,571			2,668		8,217		8,025
Service Fees			3,731			3,689		8,842		8,098
Total		$	7,850		$	7,988	$	21,925	$	21,772

15. Other Current Liabilities

Other current liabilities primarily consist of sales tax payable, liabilities due to customers, accrued payroll costs, self-insurance reserves, accrued operating expenses, payroll taxes payable, current portion of deferred rent expense and other miscellaneous items. Liabilities due to customers totaled $33.4 million, $33.2 million, and $42.8 million as of October 30, 2010, January 30, 2010, and October 31, 2009, respectively.

The Company has risk participation agreements with insurance carriers with respect to workers' compensation, general liability insurance and health insurance. Pursuant to these arrangements, the Company is responsible for paying individual claims up to designated dollar limits. The amounts included in costs related to these claims are estimated and can vary based on changes in assumptions or claims experience included in the associated insurance programs. An increase in worker's compensation or health insurance claims by employees or general liability claims may result in a corresponding increase in costs related to these claims. At October 30, 2010, January 30, 2010, and October 31, 2009, self-insurance reserves of $24.3 million, $24.2 million, and $41.8 million, respectively, were recorded in the line item "Other Current Liabilities" in the Company's Condensed Consolidated Balance Sheets. The remaining reserve balances of $21.7 million and $21.5 million as of October 30, 2010 and January 30, 2010, respectively, were recorded in the line item "Other Liabilities" in the Company's Condensed Consolidated Balance Sheets. Prior to January 30, 2010, all of the Company's self-insurance reserves were recorded in the line item "Other Current Liabilities" in the Company's Condensed Consolidated Balance Sheets.

16. Segment Information

The Company reports segment information in accordance with ASC Topic No. 280 “Segment Reporting” (Topic No. 280). The Company has identified operating segments at the store level. However, each store’s operating performance has been aggregated into one reportable segment. Each store meets the aggregation criteria set forth in Topic No. 280. The Company’s operating segments are aggregated for financial reporting purposes because they are similar in each of the following areas: economic characteristics, class of consumer, nature of products, nature of production processes and distribution methods. Revenues from customers are derived from merchandise sales and the Company does not rely on any major customers as a source of revenue.

17. Commitments and Contingencies

Legal

The Company establishes reserves relating to legal claims in connection with litigation to which the Company is party to from time to time in the ordinary course of business. The aggregate amounts of such reserves were $6.9 million, $11.6 million, and $5.0 million as of October 30, 2010, January 30, 2010, and October 31, 2009, respectively. The Company believes that potential liabilities in excess of those recorded will not have a material adverse effect on the Company's Consolidated Financial Statements. However, there can be no assurances to this effect.

A putative class action lawsuit, entitled May Vang, and all others similarly situated, v Burlington Coat Factory Warehouse Corporation, Case No. 09-CV-08061-CAS, was filed in the Superior Court of the State of California on September 17, 2009. The named plaintiff purports to assert claims on behalf of all current, former, and future employees in the United States and the State of California for the relevant statutory time period. Plaintiff filed an amended complaint on November 16, 2009. The amended complaint asserts claims for failure to pay all earned hourly wages in violation of the Fair Labor Standards Act (FLSA), failure to pay all earned hourly wages in violation of the California Labor Code, providing compensatory time off in lieu of overtime pay, forfeiture of vacation pay, failure to provide meal and rest periods, secret payment of lower wages than that required by statute or contract, failure to provide accurate, written wage statements, and unfair competition. The complaint seeks certification as a class with respect to the FLSA claims, certification of a class with respect to California law claims, appointment of class counsel and class representative, civil penalties, statutory penalties, declaratory relief, injunctive relief, actual damages, liquidated damages, restitution, pre-judgment interest, costs of suit and attorney’s fees. The Company intends to vigorously defend this action.

There have been no significant changes in the Company’s commitments and contingencies from those disclosed in the Company’s Transition Report on Form 10-K/T, except as noted below:

Lease Agreements

The Company enters into lease agreements during the ordinary course of business in order to secure favorable store locations. As of October 30, 2010, the Company was committed to two new lease agreements for locations at which stores are expected to be opened in Fiscal 2010. The two new stores are expected to have minimum lease payments of $0.3 million, $1.6 million, $1.6 million, $1.6 million, and $11.5 million for the remainder of the fiscal year ending January 29, 2011, and the fiscal years ending January 28, 2012, February 2, 2013, February 1, 2014, and January 31, 2015 and all subsequent years thereafter, respectively.

Letters of Credit

The Company had irrevocable letter of credit arrangements with various banks in the aggregate amount of $40.5 million and $54.2 million as of October 30, 2010 and October 31, 2009, respectively. Based on the terms of the credit agreement related to the ABL Line of Credit, the Company had available letters of credit of $559.9 million and $575.7 million as of October 30, 2010 and October 31, 2009, respectively. Among these arrangements as of October 30, 2010 and October 31, 2009, the Company had letters of credit in the amount of $30.4 million and $44.7 million, respectively, guaranteeing performance under various insurance contracts and utility agreements. The Company also had no outstanding letter of credit at October 30, 2010 and $1.2 million at October 31, 2009 guaranteeing its Industrial Revenue Bonds. Finally, the Company had outstanding commercial letter of credit agreements in the amount of $10.1 million and $8.3 million at October 30, 2010 and October 31, 2009, respectively, for purchase commitments related to imported inventory.

The Company had irrevocable letters of credit in the amount of $79.6 million as of January 30, 2010. Based on the terms of the credit agreement relating to the ABL Line of Credit, the Company had available letters of credit of $79.0 million as of January 30, 2010. Letters of credit outstanding at January 30, 2010 amounted to $68.5 million, guaranteeing performance under various insurance contracts, and utility agreements. The Company also had letters of credit, in the amount of $1.2 million at January 30, 2010, guaranteeing the Company’s Industrial Revenue Bonds and $9.9 million for purchase commitments related to imported inventory.

18. Recent Accounting Pronouncements

In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic No. 820): Improving Disclosures about Fair Value Measurements” (ASU 2010-06). This ASU provides amendments that will require more robust disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels 1, 2, and 3. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward activity in Level 3 fair value measurements. These disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early application is permitted. The adoption of ASU 2010-06 on January 31, 2010, did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

In March 2010, the FASB issued ASU No. 2010-11, “Derivatives and Hedging (Topic No. 815): Scope Exception Related to Embedded Credit Derivatives” (ASU 2010-11). ASU 2010-11 clarifies the only form of embedded credit derivative that is exempt from embedded derivative bifurcation requirements is one that is related only to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. The amendments in this ASU are effective at the beginning of a reporting entity’s first fiscal quarter beginning after June 15, 2010. The adoption of ASU 2010-11 on August 1, 2010 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

19. Subsequent Events

On November 3, 2010, BCFWC and the Company announced their intention to commence cash tender offers for any and all of BCFW’s outstanding 11.1% Senior Notes due 2014 and the Company’s outstanding 14.5% Senior Discount Notes due 2014. In connection with these offers, BCFWC announced its intention to offer $500.0 million aggregate principal amount of senior unsecured notes in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended.

Subject to market conditions, BCFWC intended to raise approximately $1,500.0 million of new debt financing, the proceeds of which would be used to repay the Company’s existing term loan facility, repurchase or redeem BCFWC’s outstanding 11.1% Senior Notes due 2014 and the Company’s outstanding 14.5% Senior Discount Notes due 2014, make a distribution to the Company’s equity holders, pay related fees and expenses and for general corporate purposes.

Based on changing market conditions and less favorable pricing, on November 18, 2010, BCFWC and the Company announced the termination of their previously announced cash tender offers, as well as the Company’s previously announced proposed financing transactions.

In connection with the termination of these transactions, certain costs incurred, which would have been capitalized as deferred financing fees and amortized over the life of the new facilities through the line item “Interest Expense” in the Company’s Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income, in the event that the transaction had been completed, will now be charged as expense in the line item “Selling and Administrative Expenses” in the Company’s Condensed Consolidated Statement of Operations and Comprehensive Net (Loss) Income. The Company estimates that approximately $3 million of expense related to these transactions will be incurred during the fourth quarter of Fiscal 2010.

20. Condensed Guarantor Data

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

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

Burlington Coat Factory Investments Holdings, Inc. and Subsidiaries

Condensed Consolidating Balance Sheets

(All amounts in thousands)

As of October 30, 2010