Table of Contents

Subject to completion, as filed with the Securities and Exchange Commission on December 29, 2006

Registration No. 333-137916

 


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


Amendment No. 2 to

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 


Burlington Coat Factory Warehouse Corporation

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware   5311   22-1970303
(State of Incorporation)   (Primary Standard Industrial Classification Code Number)   (I.R.S. employer
identification number)

1830 Route 130 North

Burlington, New Jersey 08016

(609) 387-7800

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Paul C. Tang, Esq.

Burlington Coat Factory Warehouse Corporation

Executive Vice President and General Counsel

1830 Route 130 North

Burlington, New Jersey 08016

(609) 387-7800

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

Copy to:

Joshua N. Korff, Esq.

Kirkland & Ellis LLP

Citicorp Center

153 East 53rd Street

New York, New York 10022

(212) 446-4800

 


APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:  The exchange will occur as soon as practicable.

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 


CALCULATION OF REGISTRATION FEE

 

   
Title of Each Class of Securities to Be
Registered(1)
   Proposed Maximum
Aggregate Offering Price(1)
   Amount of
Registration Fee
 

11 1/8% Senior Notes due 2014

   $ 305,000,000    $ 32,635 (3)

Guarantees(2)

     N/A      N/A  
   
(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) promulgated under the Securities Act of 1933, as amended (the “Securities Act”).
(2) No separate consideration will be received for the guarantees, and no separate fee is payable, pursuant to Rule 457(n) under the Securities Act.
(3) Previously paid.

 


THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

 



Table of Contents

ADDITIONAL REGISTRANTS

 

Exact Name of Registrant as
Specified in its Charter
   State or Other
Jurisdiction of
Incorporation
or Organization
   Primary Standard
Industrial
Classification
Code Number
   I.R.S. Employer
Identification No.
   Address, Including Zip Code, and
Telephone Number, Including
Area Code, of Registrant’s
Principal Executive Offices

Burlington Coat Factory of Alabama, LLC

   Alabama    5311    20-4632712   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of Huntsville LLC

   Alabama    5311    22-1970303   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Warehouse of Anchorage, Inc.

   Alaska    5311    93-1046485   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory of Arizona, LLC

   Arizona    5311    20-4632763   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of Desert Sky, Inc.

   Arizona    5311    86-1031005   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of Mesa, Inc.

   Arizona    5311    86-1031006   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory of

Arkansas, LLC

   Arkansas    5311    20-4632817   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Baby Depot of California, LLC

   California    5311    20-4633089   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory of California, LLC

   California    5311    20-4632887   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory Realty of Dublin, Inc.

   California    5311    94-3399808   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory Realty of Florin, Inc.

   California    5311    94-3399809   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory Realty of Ventura, Inc.

   California    5311    77-0518590   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Warehouse of San

Bernadino, LLC

   California    5311    20-4633016   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

MJM Designer Shoes of

California, LLC

   California    5311    20-4632945   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory of

Colorado, LLC

   Colorado    5311    20-4633153   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory of

Connecticut, LLC

   Connecticut    5311    20-4633202   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Realty of

East Windsor, Inc.

   Connecticut    5311    06-1391139   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800


Table of Contents
Exact Name of Registrant as
Specified in its Charter
   State or Other
Jurisdiction of
Incorporation
or Organization
   Primary Standard
Industrial
Classification
Code Number
   I.R.S. Employer
Identification No.
   Address, Including Zip Code, and
Telephone Number, Including
Area Code, of Registrant’s
Principal Executive Offices

Cohoes Fashions of

Connecticut, LLC

   Connecticut    5311    20-4633634   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of Delaware, LLC

   Delaware    5311    20-4633728   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of Texas, Inc.

   Delaware    5311    20-4633830   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of Texas, L.P.

   Delaware    5311    20-4633782   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Investments Holdings, Inc.

   Delaware    5311    20-4663833   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Purchasing, Inc.

   Delaware    5311    20-4633884   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty Corp.

   Delaware    5311    22-3246670   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

C.F.I.C. Corporation

   Delaware    5311    51-0282085   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

C.F.B., Inc.

   Delaware    5311    51-0282080   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

C.L.B., Inc.

   Delaware    5311    51-0282081   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

MJM Designer Shoes of

Delaware, LLC

   Delaware    5311    20-2681523   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Bee Ridge Plaza, LLC

   Florida    5311    02-0693864   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory of Florida, LLC

   Florida    5311    58-1975714   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of Coral Springs, Inc.

   Florida    5311    03-0387530   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of Orlando, Inc.

   Florida    5311    59-3558218   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of Sarasota, Inc.

   Florida    5311    22-3869014   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800


Table of Contents
Exact Name of Registrant as
Specified in its Charter
   State or Other
Jurisdiction of
Incorporation
or Organization
   Primary Standard
Industrial
Classification
Code Number
   I.R.S. Employer
Identification No.
   Address, Including Zip Code, and
Telephone Number, Including
Area Code, of Registrant’s
Principal Executive Offices

Burlington Coat Factory

Realty of University

Square, Inc.

   Florida    5311    59-3724802   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of West Colonial, Inc.

   Florida    5311    05-0550581   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

K&T Acquisition Corp.

   Florida    5311    57-1176343   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

MJM Designer Shoes of

Florida, LLC

   Florida    5311    58-2553674   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of Georgia, LLC

   Georgia    5311    22-2310204   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of Morrow, Inc.

   Georgia    5311    58-2331013   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Warehouse of Atlanta, Inc.

   Georgia    5311    22-2310222   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of Idaho, LLC

   Idaho    5311    20-4633933   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of Illinois, LLC

   Illinois    5311    20-4634340   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of Bloomingdale, Inc.

   Illinois    5311    36-4446838   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of River Oaks, Inc.

   Illinois    5311    36-4171851   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Warehouse of East St. Louis, Inc.

   Illinois    5311    36-3384100   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Realty of

Gurnee, Inc.

   Illinois    5311    36-3898953   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of Indiana, LLC

   Indiana    5311    35-2086329   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of Greenwood, Inc.

   Indiana    5311    36-4494986   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of Iowa, LLC

   Iowa    5311    42-1204776   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of Kansas, LLC

   Kansas    5311    20-4634554   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800


Table of Contents
Exact Name of Registrant as
Specified in its Charter
   State or Other
Jurisdiction of
Incorporation
or Organization
   Primary Standard
Industrial
Classification
Code Number
   I.R.S. Employer
Identification No.
   Address, Including Zip Code, and
Telephone Number, Including
Area Code, of Registrant’s
Principal Executive Offices

Burlington Coat Factory

of Kentucky, Inc.

   Kentucky    5311    62-1247906   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of Louisiana, LLC

   Louisiana    5311    20-4634617   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of Maine, LLC

   Maine    5311    20-4634794   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of Maryland, LLC

   Maryland    5311    20-4634824   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of Massachusetts, LLC

   Massachusetts    5311    58-2669608   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of North Attleboro, Inc.

   Massachusetts    5311    04-3344507   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Cohoes Fashions of

Massachusetts, LLC

   Massachusetts    5311    20-4634868   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of Michigan, LLC

   Michigan    5311    20-4635333   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Warehouse of Detroit, Inc.

   Michigan    5311    38-2424219   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Warehouse of Grand Rapids, Inc.

   Michigan    5311    31-1045013   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Warehouse of Redford, Inc.

   Michigan    5311    36-3251099   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of Minnesota, LLC

   Minnesota    5311    20-4635381   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of Mississippi, LLC

   Mississippi    5311    20-4804503   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of Missouri, LLC

   Missouri    5311    20-4635447   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of Des Peres, Inc.

   Missouri    5311    43-1842990   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of Nebraska, LLC

   Nebraska    5311    20-4635566   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of Nevada, LLC

   Nevada    5311    20-4635612   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800


Table of Contents
Exact Name of Registrant as
Specified in its Charter
   State or Other
Jurisdiction of
Incorporation
or Organization
   Primary Standard
Industrial
Classification
Code Number
   I.R.S. Employer
Identification No.
   Address, Including Zip Code, and
Telephone Number, Including
Area Code, of Registrant’s
Principal Executive Offices

Burlington Coat Realty

of Las Vegas, Inc.

   Nevada    5311    88-0314073   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of New Hampshire, LLC

   New
Hampshire
   5311    20-4635690   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Direct Corporation

   New
Jersey
   5311    22-3531725   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of New Jersey, LLC

   New
Jersey
   5311    20-4635873   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of Edgewater Park, Inc.

   New
Jersey
   5311    22-3815140   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of Paramus, Inc.

   New
Jersey
   5311    22-3823189   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of Pinebrook, Inc.

   New
Jersey
   5311    48-1266066   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Warehouse of Edgewater

Park Urban Renewal Corp.

   New
Jersey
   5311    22-3843958   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Warehouse of New Jersey, Inc.

   New
Jersey
   5311    22-2667705   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Cohoes Fashions of New

Jersey, LLC

   New
Jersey
   5311    20-4635964   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

MJM Designer Shoes of

Moorestown, Inc.

   New
Jersey
   5311    20-0156497   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

MJM Designer Shoes of

New Jersey, LLC

   New
Jersey
   5311    20-4635926   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Super Baby Depot of

Moorestown, Inc.

   New
Jersey
   5311    20-0828544   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of New Mexico, LLC

   New
Mexico
   5311    20-4771747   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

of New York, LLC

   New York    5311    20-4636047   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of Yonkers, Inc.

   New York    5311    13-4199049   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800


Table of Contents
Exact Name of Registrant as
Specified in its Charter
   State or Other
Jurisdiction of
Incorporation
or Organization
   Primary Standard
Industrial
Classification
Code Number
   I.R.S. Employer
Identification No.
   Address, Including Zip Code, and
Telephone Number, Including
Area Code, of Registrant’s
Principal Executive Offices

Cohoes Fashions of New

York, LLC

   New York    5311    20-4636764   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Cohoes of Fayetteville, Inc.

   New York    5311    22-3213890   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Georgetown Fashions Inc.

   New York    5311    11-2463441   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

LC Acquisition Corp.

   New York    5311    22-2913067   

1830 Route 130

Burlington, New Jersey 08016 (609) 387-7800

MJM Designer Shoes of New York, LLC

   New York    5311    20-4636419   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Monroe G. Milstein, Inc.

   New York    5311    13-3150740   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory of

North Carolina, LLC

   North
Carolina
   5311    20-4636810   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory of

North Dakota, LLC

   North
Dakota
   5311    20-4680654   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory of

Ohio, LLC

   Ohio    5311    20-4636839   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Warehouse of Cleveland, Inc.

   Ohio    5311    34-1402739   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory of

Oklahoma, LLC

   Oklahoma    5311    20-4636882   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of Tulsa, Inc.

   Oklahoma    5311    20-1593400   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory of

Oregon, LLC

   Oregon    5311    93-1113593   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory of

Pennsylvania, LLC

   Pennsylvania    5311    20-4636915   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of Langhorne, Inc.

   Pennsylvania    5311    51-0420881   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of West Mifflin, Inc.

   Pennsylvania    5311    25-1900644   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of Whitehall, Inc.

   Pennsylvania    5311    52-2367723   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800


Table of Contents
Exact Name of Registrant as
Specified in its Charter
   State or Other
Jurisdiction of
Incorporation
or Organization
   Primary Standard
Industrial
Classification
Code Number
   I.R.S. Employer
Identification No.
   Address, Including Zip Code, and
Telephone Number, Including
Area Code, of Registrant’s
Principal Executive Offices

Burlington Coat Factory

Warehouse Inc.

   Pennsylvania    5311    52-1097225   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Warehouse of Bristol, LLC

   Pennsylvania    5311    20-4637002   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Warehouse of Cheltenham, Inc.

   Pennsylvania    5311    52-2004601   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Warehouse of Langhorne, Inc.

   Pennsylvania    5311    22-3737338   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Warehouse of Montgomeryville, Inc.

   Pennsylvania    5311    23-2777799   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Factory

Warehouse of Reading, Inc.

   Pennsylvania    5311    22-2263811   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Warehouse of Wilkes-Barre, Inc.

   Pennsylvania    5311    23-2857838   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

MJM Designer Shoes of

Pennsylvania, LLC

   Pennsylvania    5311    20-4636967   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory of

Rhode Island, LLC

   Rhode
Island
   5311    20-4637038   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Cohoes Fashions of

Cranston, Inc.

   Rhode
Island
   5311    05-0478167   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory of

South Carolina, LLC

   South
Carolina
   5311    20-4637069   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Warehouse of Charleston, Inc.

   South
Carolina
   5311    57-0903026   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of Memphis, Inc.

   Tennessee    5311    71-0911391   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Warehouse of Hickory

Commons, Inc.

   Tennessee    5311    62-1664387   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Warehouse of Memphis, Inc.

   Tennessee    5311    62-1142888   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Warehouse of Shelby, Inc.

   Tennessee    5311    62-1283132   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of Bellaire, Inc.

   Texas    5311    76-0682036   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of El Paso, Inc.

   Texas    5311    20-1985900   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800


Table of Contents
Exact Name of Registrant as
Specified in its Charter
   State or Other
Jurisdiction of
Incorporation
or Organization
   Primary Standard
Industrial
Classification
Code Number
   I.R.S. Employer
Identification No.
   Address, Including Zip Code, and
Telephone Number, Including
Area Code, of Registrant’s
Principal Executive Offices

Burlington Coat Factory

Realty of Westmoreland, Inc.

   Texas    5311    75-2940553   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Warehouse of Baytown, Inc.

   Texas    5311    76-0682033   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Realty of

Houston, Inc.

   Texas    5311    76-0442092   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Realty of

Plano, Inc.

   Texas    5311    75-2491335   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

MJM Designer Shoes of

Texas, Inc.

   Texas    5311    74-2579897   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory of

Utah, LLC

   Utah    5311    20-4637069   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory of

Virginia, LLC

   Virginia    5311    22-2377376   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory of

Pocono Crossing, LLC

   Virginia    5311    46-0492681   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Reality of Coliseum, Inc.

   Virginia    5311    54-2040601   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of Fairfax, Inc.

   Virginia    5311    54-2011140   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Warehouse of Coliseum, Inc.

   Virginia    5311    54-2040603   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Realty of

Potomac, Inc.

   Virginia    5311    52-1848892   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory of

Washington, LLC

   Washington    5311    20-4637093   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory

Realty of Franklin, Inc.

   Washington    5311    91-2131354   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory of

West Virginia, LLC

   West
Virginia
   5311    20-4637153   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Burlington Coat Factory of

Wisconsin, LLC

   Wisconsin    5311    20-4637125   

1830 Route 130 North

Burlington, New Jersey 08016 (609) 387-7800

Name, address, including zip code, and telephone number, including area code, of agent for service

Paul C. Tang, Esq.

Burlington Coat Factory Warehouse Corporation

Executive Vice President and General Counsel

1830 Route 130 North

Burlington, New Jersey 08016

(609) 387-7800


Table of Contents

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. The prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Prospectus

Subject to Completion, Dated December 29, 2006

$305,000,000

Burlington Coat Factory Warehouse Corporation

Exchange Offer for

11 1/8% Senior Notes due 2014

Set forth below is a summary of the terms of the notes offered hereby. For more details, see “Description of Exchange Notes.”

Offer for outstanding 11 1/8% Senior Notes due 2014, in the aggregate principal amount of $305,000,000 (which we refer to as the “Old Notes”) in exchange for up to $305,000,000 in aggregate principal amount of 11 1/8% Senior Notes due 2014 which have been registered under the Securities Act of 1933, as amended (which we refer to as the “Exchange Notes” and, together with the Old Notes, the “notes”).

Terms of the Exchange Offer:

 

    Expires 5:00 p.m., New York City time,                     , 2006, unless extended.

 

    Not subject to any condition other than that the exchange offer does not violate applicable law or any interpretation of the staff of the Securities and Exchange Commission.

 

    We can amend or terminate the exchange offer.

 

    We will exchange all 11 1/8% Senior Notes due 2014 that are validly tendered and not validly withdrawn.

 

    We will not receive any proceeds from the exchange offer.

 

    The exchange of notes should not be a taxable exchange for U.S. federal income tax purposes.

 

    You may withdraw tendered outstanding Old Notes any time before the expiration of the exchange offer.

Terms of the Exchange Notes:

 

    The Exchange Notes will be general unsecured obligations and will rank equally in right of payment with all existing and future unsecured senior debt, senior in right of payment to all existing and future senior subordinated debt and effectively subordinated in right of payment to secured indebtedness to the extent of the value of the assets securing such indebtedness, including all borrowings under senior secured credit facilities.
    The Exchange Notes will be fully and unconditionally guaranteed on a senior unsecured basis by Burlington Coat Factory Investment Holdings, Inc. and each of our existing and future domestic restricted subsidiaries.

 

    The Exchange Notes mature on April 15, 2014. The Exchange Notes will accrue interest at a rate of 11 1/8% per year, payable semi-annually in cash in arrears on April 15 and October 15 of each year, commencing on April 15, 2007. Interest on the Exchange Notes will accrue from the last interest date on which interest was paid on your Old Notes, October 15, 2006, if you effectively tender your Old Notes for Exchange Notes.

 

    We may redeem the Exchange Notes in whole or in part from time to time. See “Description of Exchange Notes.”

 

    We may also redeem up to 35% of the Exchange Notes using the proceeds of certain equity offerings completed before April 15, 2009. See “Description of Exchange Notes.”

 

    The terms of the Exchange Notes are identical to our outstanding Old Notes except for transfer restrictions and registration rights.

For a discussion of specific risks that you should consider before tendering your outstanding 11 1/8% Senior Notes due 2014 in the exchange offer, see “ Risk Factors” beginning on page 12.

There is no public market for the Old Notes.

Each broker-dealer that receives Exchange Notes pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the Exchange Notes. A broker dealer who acquired Old Notes as a result of market making or other trading activities may use this exchange offer prospectus, as supplemented or amended, in connection with any resales of the Exchange Notes.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the Exchange Notes or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is [                    ], 2006


Table of Contents

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. The selling noteholders are offering to sell, and seeking offers to buy, 11 1/8% Senior Notes due 2014 only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our 11 1/8% Senior Notes due 2014.

TABLE OF CONTENTS

 

Prospectus Summary

   1

Risk Factors

   12

Forward-Looking Statements

   23

The Transactions

   25

Use of Proceeds

   26

The Exchange Offer

   27

Selected Historical Consolidated Financial and Other Data

   34

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   38

Business

   66

Management

   77

Security Ownership of Certain Beneficial Owners and Management

   83

Certain Relationships and Related Transactions

   85

Description of Other Indebtedness

   88

Description of Exchange Notes

   90

United States Federal Income Tax Consequences

   139

Plan of Distribution

   140

Legal Matters

   142

Experts

   142

Available Information

   142

Index To Financial Statements

   F-1

 

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PROSPECTUS SUMMARY

This summary highlights all material information contained elsewhere in this prospectus. It does not contain all the information that you may consider in making your investment decision. Therefore, you should read the entire prospectus carefully, including, in particular, the section entitled “Risk Factors” and the financial statements and the related notes to those statements. In this prospectus, unless we indicate otherwise or the context requires, “we,” “us,” “our,” “Company,” “BCFWC” and “Burlington Coat Factory” refers to Burlington Coat Factory Warehouse Corporation and its consolidated subsidiaries. We maintain our records on the basis of a 52 or 53 week fiscal year ending on the Saturday closest to May 31. We define our “comparative store sales” as sales of those stores (net of sales discounts) that have been open at least 425 days for the entire comparative period.

Burlington Coat Factory Warehouse Corporation

We are a nationally recognized retailer of high-quality, branded apparel at every day low prices (“EDLP”). 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 367 stores in 42 states (exclusive of one store closed due to hurricane damage), and diversified our product categories by offering an extensive selection of in-season better and moderate brands, fashion-focused merchandise, including: ladies sportswear, menswear, coats, family footwear, baby furniture and accessories, as well as home décor and gifts. We employ a hybrid business model 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, labeled merchandise directly from nationally-recognized manufacturers such as Ralph Lauren, Jones New York, Calvin Klein, Nine West, and Nautica. For the three months ended September 2, 2006, we generated total revenues of approximately $664.3 million and experienced a net loss in the amount of $51.8 million due in part to increased quarterly expenses resulting from the Merger. As a result of the Merger and related transactions, we expect to continue to incur these increased quarterly expenses primarily related to interest, amortization, depreciation and advisory fees. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

As of September 2, 2006, we operated stores under the names “Burlington Coat Factory Warehouse” (“BCFW”) (342 stores exclusive of one store closed due to hurricane damage), “MJM Designer Shoes” (17 stores), “Cohoes Fashions” (7 stores), and “Super Baby Depot” (1 store). The average BCFW store is approximately 81,500 square feet, generally twice the size of most competitive off-price formats. We also offer merchandise for sale through our wholly-owned internet subsidiary, Burlington Coat Factory Direct Corporation, at www.burlingtoncoatfactory.com, www.coat.com and www.babydepot.com.

We purchase a majority of our merchandise pre-season, when department stores make a large portion of their purchases, and the balance of our merchandise in-season (replenishment, re-orders and opportunistic purchases), when off-price retailers make a large portion of their purchases. This unique buying strategy, along with a “no-frills” merchandising approach enables us to offer merchandise at prices substantially below full retail prices. Our strategy of up-front purchasing allows us to acquire a product line with depth of style, size and color more extensive than the product lines of our off-price competitors. Merchandise is displayed on easy-access racks, and sales assistance is provided in specialty departments on a store-by-store basis.

We offer products in two primary categories, Apparel and Other Products, as follows:

 

    Apparel includes departments that offer clothing items for men, women and children, and apparel accessories such as shoes, jewelry, perfumes and watches. Net sales from continuing operations of Apparel products were approximately 80% of total net sales for fiscal 2006.

 

    Other Products includes departments that offer baby furniture and accessories, linens and home furnishings. Net sales from continuing operations of Other Products were approximately 20% of total net sales for fiscal 2006.

 

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Table of Contents

Holding Company Structures

Burlington Coat Factory Investments Holdings, Inc. (“Holdings”) is a newly-created wholly-owned subsidiary of Parent that has no material assets or operations other than its ownership of our Company, BCFWC. BCFWC is a wholly-owned subsidiary of Holdings, and is primarily a holding company with few material assets (including one store location and related inventory and the equity interests of its subsidiaries).

The Transactions

On January 18, 2006, we entered into a merger agreement (the “Merger Agreement”) with Burlington Coat Factory Holdings, Inc. (“Parent”) and BCFWC Mergersub, Inc. (“Merger Sub”), each a newly formed holding company owned by affiliates of Bain Capital Partners, LLC (“Bain Capital”), pursuant to which Merger Sub, a wholly-owned subsidiary of Parent, merged with and into our Company (the “Merger”). As consideration for the Merger, each former holder of our common stock was entitled to receive a cash amount equal to $45.50 per common share. Funds associated with Bain Capital own approximately 98.4% of Parent’s basic common stock, with the remainder held by existing members of management. Additionally, management holds options to purchase 7.5% of the basic shares outstanding.

As a result of the Transactions (as defined below), our shares are no longer listed on the New York Stock Exchange, and we continue our operations as a privately held company. We financed the Merger and paid related costs and expenses with the following:

 

    Approximately $225.0 million of drawings (excluding a seasonal working capital adjustment) under $800.0 million of an ABL senior secured revolving credit facility, referred to herein as the ABL Credit Facility;

 

    $900.0 million senior secured term loan facility, referred to herein as the term loan facility and, together with the ABL Credit Facility, the senior secured credit facilities;

 

    $305.0 million aggregate principal amount 11 1/8% Senior Notes due 2014 issued at a discount which generated $299 million in proceeds and offered to be exchanged hereby;

 

    $99.3 million aggregate principal amount at maturity of senior unsecured discount notes of Holdings, which were offered at a substantial discount and generated gross proceeds of approximately $75.0 million at issuance, referred to herein as the Holdings Senior Discount Notes;

 

    Existing cash estimated at $192.5 million; and

 

    $445.0 million of invested equity from funds associated with Bain Capital and $0.8 million in cash from members of management (collectively all of the transactions described in this paragraph, the “Transactions”).

We retained approximately $32.9 million in capital leases and other existing debt in an amount that was adjusted based on balances at the time of closing of the Merger.

 

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Table of Contents

Burlington Coat Factory Warehouse Corporation Corporate Structure

The chart below summarizes our corporate structure prior to the Merger and related transactions.

LOGO

The chart below summarizes our corporate structure following the consummation of the Merger and related transactions.

LOGO

 

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Table of Contents

Executive Offices

Our principal offices are located at 1830 Route 130 North, Burlington, New Jersey 08016. Our telephone number is (609) 387-7800. Our web site address is www.burlingtoncoatfactory.com. The information on our website is not deemed to be part of this prospectus.

Purpose of the Exchange Offer

On April 13, 2006, we sold, through a private placement exempt from the registration requirements of the Securities Act, $305,000,000 of our 11 1/8% Senior Notes due 2014, all of which are eligible to be exchanged for Exchange Notes. We refer to these notes as “Old Notes” in this prospectus.

Simultaneously with the private placement, we entered into a registration rights agreement with the initial purchasers of the Old Notes. Under the registration rights agreement, we are required to use our reasonable best efforts to cause a registration statement for substantially identical Notes, which will be issued in exchange for the Old Notes, to be filed within 180 days of issuance of the Old Notes and to become effective within 120 days after the filing of the registration statement. We refer to the Notes to be registered under this exchange offer registration statement as “Exchange Notes” and collectively with the Old Notes, we refer to them as the “Notes” in this prospectus. You may exchange your Old Notes for Exchange Notes in this exchange offer. You should read the discussion under the headings “—Summary of the Exchange Offer,” “The Exchange Offer” and “Description of Exchange Notes” for further information regarding the Exchange Notes.

We did not register the Old Notes under the Securities Act or any state securities law, nor do we intend to after the exchange offer. As a result, the Old Notes may only be transferred in limited circumstances under the securities laws. If the holders of the Old Notes do not exchange their Old Notes in the exchange offer, they lose their right to have the Old Notes registered under the Securities Act, subject to certain limitations. Anyone who still holds Old Notes after the exchange offer may be unable to resell their Old Notes.

Summary of the Exchange Offer

The Exchange Offer

 

Securities Offered

$305,000,000 principal amount of 11 1/8% Senior Notes due 2014.

 

The Exchange Offer

We are offering to exchange the Old Notes for a like principal amount at maturity of the Exchange Notes. Old Notes may be exchanged only in integral principal at maturity multiples of $1,000. This exchange offer is being made pursuant to a registration rights agreement dated as of April 13, 2006 which granted the initial purchasers and any subsequent holders of the Old Notes certain exchange and registration rights. This exchange offer is intended to satisfy those exchange and registration rights with respect to the Old Notes. After the exchange offer is complete, you will no longer be entitled to any exchange or registration rights with respect to your Old Notes.

 

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Table of Contents

Expiration Date; Withdrawal of Tender

The exchange offer will expire 5:00 p.m., New York City time, on                     , 2006, or a later time if we choose to extend this exchange offer. You may withdraw your tender of Old Notes at any time prior to the expiration date. All outstanding Old Notes that are validly tendered and not validly withdrawn will be exchanged promptly. Any Old Notes not accepted by us for exchange for any reason will be returned to you at our expense promptly after the expiration or termination of the exchange offer.

 

Resales

We believe that you can offer for resale, resell and otherwise transfer the Exchange Notes without complying with the registration and prospectus delivery requirements of the Securities Act if:

 

    you acquire the Exchange Notes in the ordinary course of business:

 

    you are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes;

 

    you are not an “affiliate” of ours, as defined in Rule 405 of the Securities Act; and

 

    you are not a broker-dealer.

 

 

If any of these conditions is not satisfied and you transfer any Exchange Notes without delivering a proper prospectus or without qualifying for a registration exemption, you may incur liability under the Securities Act. We do not assume, or indemnify you against, this liability.

 

 

Each broker-dealer acquiring Exchange Notes issued for its own account in exchange for Old Notes, which it acquired through market-making activities or other trading activities, must acknowledge that it will deliver a proper prospectus when any Exchange Notes issued in the exchange offer are transferred. A broker-dealer may use this prospectus for an offer to resell, a resale or other retransfer of the Exchange Notes issued in the exchange offer.

 

Conditions to the Exchange Offer

Our obligation to accept for exchange, or to issue the Exchange Notes in exchange for, any Old Notes is subject to certain customary conditions relating to compliance with any applicable law, or any applicable interpretation by any staff of the Securities and Exchange Commission, or any order of any governmental agency or court of law. We currently expect that each of the conditions will be satisfied and that no waivers will be necessary. See “The Exchange Offer—Conditions to the Exchange Offer.”

 

Procedures for Tendering Notes Held in the Form of Book-Entry Interests


The Old Notes were issued as global securities and were deposited upon issuance with Wells Fargo Bank, N.A. which issued uncertificated depositary interests in those outstanding Old Notes,

 

5


Table of Contents
 

which represent a 100% interest in those Old Notes, to The Depositary Trust Company.

 

 

Beneficial interests in the outstanding Old Notes, which are held by direct or indirect participants in the Depository Trust Company, are shown on, and transfers of the Old Notes can only be made through, records maintained in book-entry form by The Depository Trust Company.

 

 

You may tender your outstanding Old Notes by instructing your broker or bank where you keep the Old Notes to tender them for you. In some cases you may be asked to submit the BLUE-colored “Letter of Transmittal” that may accompany this prospectus. By tendering your Old Notes you will be deemed to have acknowledged and agreed to be bound by the terms set forth under “The Exchange Offer.” Your outstanding Old Notes will be tendered in multiples of $1,000.

 

 

A timely confirmation of book-entry transfer of your outstanding Old Notes into the exchange agent’s account at The Depository Trust Company, under the procedure described in this prospectus under the heading “The Exchange Offer” must be received by the exchange agent on or before 5:00 p.m., New York City time, on the expiration date.

 

United States Federal Income Tax Consequences

The exchange offer should not result in any income, gain or loss to the holders of old notes or to us for United States Federal Income Tax Purposes. See “U.S. Federal Income Tax Consequences.”

 

Use of Proceeds

We will not receive any proceeds from the issuance of the Exchange Notes in the exchange offer.

 

Exchange Agent

Wells Fargo Bank, N.A. is serving as the exchange agent for the exchange offer.

 

Shelf Registration Statement

In limited circumstances, holders of Old Notes may require us to register their Old Notes under a shelf registration statement.

 

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Table of Contents

Terms of the Exchange Notes

 

Issuer

Burlington Coat Factory Warehouse Corporation.

 

Notes Offered

$305,000,000 million aggregate principal amount of Exchange Notes due 2014 of BCFWC.

 

Maturity Date

April 15, 2014.

 

Interest

Interest on the Exchange Notes will accrue at a rate of 11 1/8% per year, payable semi-annually in cash in arrears on April 15 and October 15 of each year, commencing on April 15, 2007. Interest on the Exchange Notes will accrue from the last interest date on which interest was paid on your Old Notes if you effectively tender your Old Notes for Exchange Notes.

 

Guarantees

Holdings and each of our current and future restricted subsidiaries jointly, severally, fully and unconditionally guarantee the Exchange Notes. The Exchange Notes will be guaranteed on a senior unsecured basis. If we create or acquire a new domestic subsidiary, then that subsidiary will fully and unconditionally guarantee the Exchange Notes on a senior unsecured basis, unless we designate the subsidiary as an “unrestricted subsidiary” under the indenture governing the Exchange Notes. Holders of the Exchange Notes should not attribute significant value to the Holdings guarantee, as Holdings does not have any assets other than the capital stock of BCFWC.

 

Ranking

The Exchange Notes and any guarantees will be general unsecured obligations of us and the guarantors, and will rank equally in right of payment to all of our and the guarantors’ indebtedness and other obligations that are not, by their terms, expressly subordinated in right of payment to the Exchange Notes and the guarantees. The Exchange Notes and any guarantees will be senior in right of payment to any future indebtedness and other obligations of us or the guarantors that are, by their terms, expressly subordinated in right of payment to the Exchange Notes and the guarantees. The Exchange Notes and any guarantees will be effectively subordinated to all senior secured indebtedness and other obligations of us and the guarantors (including our senior secured revolving credit facility) to the extent of the value of the assets securing such obligations.

 

Optional Redemption

Prior to April 15, 2010, we may redeem some or all of the Exchange Notes at any time at a price of 100% of the principal amount of the Exchange Notes redeemed plus a “make-whole” premium. On or after April 15, 2010, we may redeem some or all of the Exchange Notes at any time at the redemption prices described under “Description of Exchange Notes—Optional Redemption,” plus accrued and unpaid interest. In addition, at any time prior to April 15, 2009, we may also redeem up to 35% of the aggregate principal amount of the Exchange Notes with the net cash proceeds of certain equity offerings at the redemption price specified under “Description of Exchange Notes—Optional Redemption,” plus accrued and unpaid interest.

 

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Mandatory Offer to Repurchase Following Certain Asset Sales


If we sell certain assets and do not reinvest the net proceeds in compliance with the indenture, we must offer to repurchase the Exchange Notes at 100% of their principal amount, plus accrued and unpaid interest (if any).

 

Change of Control

If we experience certain kinds of changes of control, we must offer to purchase the Exchange Notes at 101% of their principal amount, plus accrued and unpaid interest (if any). There can be no assurance that we will have sufficient funds to purchase notes tendered. See “Risk Factors—Related to the Offering—We may not have the funds to purchase the notes upon the changes of control offer as required by the indentures governing the notes.”

 

Certain Covenants

The indenture contains covenants that limit, among other things, our ability and the ability of our restricted subsidiaries to:

 

    incur additional indebtedness;

 

    pay dividends on our capital stock or repurchase our capital stock;

 

    make investments;

 

    use assets as security in other transactions; and

 

    sell certain assets or merge with or into other companies.

 

Use of Proceeds

We will not receive any proceeds from the issues of the Exchange Notes in the Exchange Offer. We used the proceeds from the sale of the Old Notes and borrowings under our senior secured credit facilities and the equity contribution to fund the acquisition of Burlington Coat Factory Warehouse Corporation and pay related fees and expenses. See “Use of Proceeds.”

Risk Factors

Investment in the Exchange Notes involves substantial risks. See “Risk Factors” for a discussion of certain risks relating to an investment in the Exchange Notes.

For more complete information about the notes, see “Description of Exchange Notes” section of this prospectus.

 

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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA

We maintain our records on the basis of a 52 or 53 week fiscal year ending on the Saturday closest to May 31. Results for fiscal 2005 and fiscal 2004 represent the operating results of BCFWC and its subsidiaries as reflected in the consolidated financial statements of Burlington Coat Factory Investments Holdings, Inc. (collectively referred to as the “Predecessor Company”). Results for 2006 are represented by (i) the results of Holdings (the “Successor Company”) for the period from April 13, 2006 through June 3, 2006, subsequent to the acquisition of our Company by Bain Capital and other investors and (ii) results of the Predecessor Company for the period from May 29, 2005 through April 12, 2006, prior to the acquisition of our Company by Bain Capital and other investors. Set forth below is summary historical consolidated financial data and summary pro forma consolidated financial data for the Predecessor Company and the Successor Company at the dates and for the periods indicated.

The following table sets forth selected historical consolidated financial information for Predecessor Company for the periods presented prior to the acquisition of our Company by Bain Capital and other investors and selected historical financial data and summary pro forma consolidated financial data for the Successor Company for periods presented after such acquisition. The statement of operations data and cash flow data for the fiscal years ended May 28, 2005 and May 29, 2004 and the period from May 29, 2005 through April 12, 2006, and the balance sheet data as of May 28, 2005 and May 29, 2004 have been derived from the audited financial statements of the Predecessor Company. The statement of operations data and cash flow for the period from April 13, 2006 through June 3, 2006, and the balance sheet date as of June 3, 2006 have been derived from the audited financial statements of the Successor Company. The statement of operations data for the thirteen weeks ended September 2, 2006 and for the thirteen weeks ended August 27, 2005, and the balance sheet data as of September 2, 2006 have been derived from our unaudited condensed consolidated financial statements included in this prospectus, which, in our opinion, contain adjustments which are of a normal recurring nature, which we consider necessary to present fairly our financial position and results of operations at such dates and for such periods. The balance sheet data as of August 27, 2005 has been derived from our unaudited condensed consolidated financial statements which are not included in this prospectus. Results of the thirteen weeks ended September 2, 2006 are not necessarily indicative of the results that may be expected for the entire fiscal year.

The unaudited pro forma consolidated statement of operations for the twelve months ended June 3, 2006 gives effect to the Transactions, as if the Transactions had occurred as of May 29, 2005. The summary pro forma financial data for the twelve months ended June 3, 2006 were derived by adding our financial data for the period from May 29, 2005 to April 12, 2006 to our financial data for the period from April 13, 2006 to June 3, 2006 and by applying pro forma adjustments to those numbers. The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable. The summary unaudited pro forma consolidated financial data are for informational purposes only and do not purport to represent what our results of operations or financial position actually would be if the Transactions had occurred at any date, nor do such data purport to project the results of operations for any future period. Unless otherwise stated, the pro forma amounts presented below represent those of Holdings and its subsidiaries.

The summary historical and pro forma consolidated financial data and operating data should be read in conjunction with “Selected Historical Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes appearing elsewhere in this prospectus.

 

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     Predecessor     Successor    

Three Months Ended

 
  Fiscal Year Ended                      

Predecessor

    Successor  
     May 29,
2004
    May 28,
2005
    May 29,
2005
through
April 12,
2006
    April 13,
through
June 3, 2006
    Pro Forma
Twelve
Months
Ended
June 3, 2006
    August 27,
2005
    September 2,
2006
 
     (dollars in thousands)                          

Consolidated Statements of Operations:

                  

Revenues:

                  

Net Sales

  $ 2,833,484     $ 3,171,242     $ 3,017,633     $ 421,180     $ 3,438,813     $ 650,848     $ 656,846  

Other Revenue

    26,476       28,598       27,675       4,066       31,533       7,324       7,420  
                                                         
      2,859,960       3,199,840       3,045,308       425,246       3,470,346       658,172       664,266  
                                                         

Costs and Expenses:

                  

Cost of Sales (Exclusive of Depreciation and Amortization)

    1,765,478       1,987,159       1,916,798       266,465       2,183,263       425,335       426,914  

Selling and Administrative Expenses

    899,984       957,759       897,231       154,691       1,078,193       234,440       247,060  

Depreciation

    83,915       89,858       78,804       18,097       136,213       22,628       34,984  

Amortization

    75       98       494       9,758       48,267       24       10,933  

Interest Expense

    5,863       7,334       4,609       18,093       135,870       1,813       35,414  

Other (Income) Loss, Net

    (10,335 )     (14,619 )     (3,572 )         (4,876 )     (1,395 )     (119 )     (981 )
                                                         
      2,744,980       3,027,589       2,894,364       462,228       3,580,411       684,121       754,324  
                                                         

Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Tax

    114,980       172,251       150,944       (36,982 )     (110,065 )     (25,949 )     (90,058 )

Provision (Benefit) for Income Tax

    42,641       66,204       56,605       (9,816 )     (41,285 )     (10,042 )     (38,250 )
                                                         

Income (Loss) from Continuing Operations

  $ 72,339     $ 106,047     $ 94,339     $ (27,166 )   $ (68,780 )     (15,907 )     (51,808 )
                                                         

Balance Sheet Data:

                  

Total Assets

  $ 1,579,178     $ 1,673,268     $ *     $ 3,200,549         1,680,537     $ 3,329,458  

Working Capital(1)

    330,007       407,240       *       233,165         391,046       354,438  

Total Debt

    134,585       133,537       *       1,518,479         133,426       1,668,179  

Stockholders’ Equity

    845,432       926,153       *       419,512         910,249       370,158  
   

Statement of Cash Flow Data:

                      

Net Cash Provided By (Used In) Continuing Operations:

                  

Operating Activities(2)

  $ 23,336     $ 142,024     $ 430,979     $ (52,893 )     $ 33,654     $ (91,005 )

Investing Activities(2)

    (118,330 )     (98,493 )     (63,920 )     (2,057,669 )       (24,860 )     (17,413 )

Financing Activities(2)

    98,784       (25,384 )     (102,063 )     1,855,989         (111 )     147,077  

Capital Expenditures(3)

    125,775       97,340       69,558       6,275         25,488       21,223  
   

Other Financial Data:

                      

Rent Expense(4)

  $ 115,900     $ 125,300     $ 113,317     $ 19,327         30,811       35,127  

Cash Rent Expense(5)

    114,294       123,149       113,214       17,996         31,738       32,625  

Number of Stores (at end of period)

    349       362       367       367         362       367  

Comparative Store Sales Growth (Decline)(6)

    (0.3 )%     6.3 %     *       *         8.9 %     (0.7 )%

Cash Interest Expense(7)

  $ 5,160     $ 9,363     $ 5,538     $ 6,223         564       23,114  

Ratio of Earnings to Fixed Charges(8)

    3.6x       4.6x       4.6x       **       0.4x       * *     * *

* Information not available for interim periods.
** Due to losses for the period, the coverage ratio was less than 1:1. BCFWC would have to generate additional pretax earnings of $37.0 million, $25.9 million and $90.1 million to achieve a ratio of 1:1 for the periods April 13, 2006 through June 3, 2006, three months ended August 27, 2005 and the three months ended September 2, 2006, respectively.

 

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(1) We define working capital as current assets (excluding assets from discontinued operations) minus current liabilities (including the current portion of long-term debt and accrued interest thereon).
(2) Excludes cash provided by or used in discontinued operations.
(3) Includes cash paid for property and equipment and lease acquisition costs.
(4) Rent expense represents (i) basic rent expense on a straight-line basis; (ii) contingent rent expense; (iii) amortization of leasehold purchases; and (iv) amortization of leasehold incentives received from landlords.
(5) Includes cash paid for rent expense, including minimum rent payments and contingent rental payments.
(6) Since fiscal 2004, we have defined comparative store sales to include sales (net of sales discounts) of those stores that have operated at least 425 days for the entire comparative period. Existing stores whose square footage has been changed by more than 20% and relocated stores are classified as new stores for comparative store sales purposes. Prior to fiscal 2004: (i) comparative store sales included sales of those stores that have operated at least 365 days for the entire comparative period; (ii) comparative store sales did not include sales discounts; (iii) comparative store sales included sales of all expanded stores; and (iv) relocated stores were treated as new stores for comparative store sales purposes.
(7) Includes cash paid for interest expense excluding the non cash interest related to Holdings Senior Discount Notes.
(8) For purposes of calculating the ratio of earnings to fixed charges, earnings consist of income from continuing operations before provision for income taxes plus fixed charges. Fixed charges include: interest expense; amortization of capitalized finance costs; and a one-third portion of operating lease expenses (primarily rent) that our management believes is representative of the interest component of operating leases.

 

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RISK FACTORS

You should carefully consider the following risks, which we believe are all of the material risks related to the Exchange Notes and our business, as well as the other information contained in this prospectus, before investing in the notes. Any of the following risks could materially adversely affect our business, financial condition or results of operations. In such case, you may lose all or part of your original investment. We may become subject to additional risks in the future.

Risk Factors Relating to the Exchange Notes

Because there is no public market for the Exchange Notes, you may not be able to sell your Exchange Notes.

The Exchange Notes will be registered under the Securities Act of 1933, as amended, or the Securities Act, but will constitute a new issue of securities, and uncertainty exists with regard to:

 

    the liquidity of any trading market that may develop;

 

    the ability of holders to sell their Exchange Notes; or

 

    the price at which the holders would be able to sell their Exchange Notes.

The Exchange Notes might trade at higher or lower prices than their principal amount or purchase price, depending on many factors, including prevailing interest rates, the market for similar securities and our financial performance.

Any market-making activity will be subject to the limits imposed by the Securities Act and the Exchange Act, and may be limited during the exchange offer or the pendency of an applicable shelf registration statement. An active trading market might not exist for the Exchange Notes and any trading market that does develop might not be liquid.

In addition, any holder of Old Notes who tenders in the exchange offer for the purpose of participating in a distribution of the Exchange Notes may be deemed to have received restricted securities, and if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction.

Your Old Notes will not be accepted for exchange if you fail to follow the exchange offer procedures.

We will issue Exchange Notes pursuant to this exchange offer only after a timely receipt of your Old Notes (including timely notation in book-entry form). Therefore, if you want to tender your Old Notes, please allow sufficient time to ensure timely delivery. If we do not receive your Old Notes by the expiration date of the exchange offer, we will not accept your Old Notes for exchange. We are under no duty to give notification of defects or irregularities with respect to the tenders of Old Notes for exchange. If there are defects or irregularities with respect to your tender of Old Notes, we will not accept your Old Notes for exchange.

If you do not exchange your Old Notes, your Old Notes will continue to be subject to the existing transfer restrictions and you may be unable to sell your Old Notes.

We did not register the Old Notes, nor do we intend to do so following the exchange offer. The Old Notes that are not tendered will, therefore, continue to be subject to the existing transfer restrictions and may be transferred only in limited circumstances under the securities laws. If you do not exchange your Old Notes, you will be subject to existing transfer restrictions. As a result, if you hold Old Notes after the exchange offer, you may be unable to sell your Old Notes. If a large number of outstanding Old Notes are exchanged for Exchange Notes issued in the exchange offer, it may be difficult for holders of outstanding Old Notes that are not exchanged in the exchange offer to sell their Old Notes, since those Old Notes may not be offered or sold unless

 

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they are registered or there are exemptions from registration requirements under the Securities Act or state laws that apply to them. In addition, if there are only a small number of Old Notes outstanding, there may not be a very liquid market in those Old Notes. There may be few investors that will purchase unregistered securities in which there is not a liquid market.

If you exchange your Old Notes, you may not be able to resell the Exchange Notes you receive in the exchange offer without registering them and delivering a prospectus.

You may not be able to resell Exchange Notes you receive in the exchange offer without registering those Exchange Notes or delivering a prospectus. Based on interpretations by the Commission in no-action letters, we believe, with respect to Exchange Notes issued in the exchange offer, that:

 

    holders who are not “affiliates” of ours within the meaning of Rule 405 of the Securities Act;

 

    holders who acquire their Exchange Notes in the ordinary course of business;

 

    holders who do not engage in, intend to engage in, or have arrangements to participate in a distribution (within the meaning of the Securities Act) of the Exchange Notes; and

 

    are not broker-dealers

do not have to comply with the registration and prospectus delivery requirements of the Securities Act.

Holders described in the preceding sentence must tell us in writing at our request that they meet these criteria. Holders that do not meet these criteria could not rely on interpretations of the SEC in no-action letters, and will have to register the Exchange Notes they receive in the exchange offer and deliver a prospectus for them. In addition, holders that are broker-dealers may be deemed “underwriters” within the meaning of the Securities Act in connection with any resale of Exchange Notes acquired in the exchange offer. Holders that are broker-dealers must acknowledge that they acquired their outstanding Exchange Notes in market-making activities or other trading activities and must deliver a prospectus when they resell Exchange Notes they acquire in the exchange offer in order not to be deemed an underwriter.

The Taxability of the Exchange Offer Under Federal Income Tax Rules and Regulations is Uncertain.

The exchange offer should be tax-free for U.S. federal income tax purposes; however, the ultimate determination of whether the exchange offer is tax-free is highly fact dependent. While we are not aware of the existence of any facts that would cause the exchange to be taxable, the specific facts and circumstances related to each holder of Old Notes have not been analyzed.

Risk Factors Related to the Offering

Servicing our debt 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 the notes.

Our ability to make payments on and to refinance our debt, including the notes, 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 agreement governing our senior secured credit facilities and each indenture governing the notes, may restrict us from effecting any of these alternatives.

 

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If we fail to make scheduled payments on our debt or otherwise fail to comply with our covenants, we will be in default and, as a result:

 

    our debt holders could declare all outstanding principal and interest to be due and payable,

 

    our secured debt lenders could terminate their commitments and commence foreclosure proceedings against our assets, and

 

    we could be forced into bankruptcy or liquidation.

As of September 2, 2006, our total indebtedness was $1.668 billion including $299.3 million of senior notes due 2014, $79.2 million of senior unsecured notes, $895.5 million under the Term Loan, and $362.3 million under the ABL Credit Facility. As of November 4, 2006, the total amount of our outstanding indebtedness for borrowed money was $1.573 billion. Estimated cash required to make minimum debt service payments (including principal and interest) for these debt obligations amounts to $78.6 million for the fiscal year ending June 2, 2007, exclusive of the the ABL Credit Facility. The ABL Credit Facility has no annual minimum principal payment requirement. For the fiscal year ending June 2, 2007, cash required to pay interest due under the ABL Credit Facility is estimated to be $9.2 million assuming an average outstanding balance under the ABL Credit Facility of $215.7 million.

Our substantial debt could adversely affect our financial condition and prevent us from fulfilling our obligations under the notes.

After giving effect to the offering of the Old Notes and related use of proceeds we have a substantial amount of debt, which requires significant interest and principal payments. Specifically, our high level of debt could have important consequences to the holders of the notes, including the following:

 

    making it more difficult for us to satisfy our obligations with respect to the notes and our other debt;

 

    limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;

 

    requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes;

 

    increasing our vulnerability to general adverse economic and industry conditions;

 

    limiting our flexibility in planning for and reacting to changes in the industry in which we compete;

 

    placing us at a disadvantage compared to other, less leveraged competitors; and

 

    increasing our cost of borrowing.

Repayment of our debt, including the notes, is dependent upon a significant amount of cash flow, most of which is generated by our subsidiaries. Our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt service obligations could harm our business, financial condition and results of operations.

We are primarily a holding company with few material assets, other than one store location and related inventory, and the equity interests of our subsidiaries. Our subsidiaries conduct substantially all of our operations and own substantially all of our assets. Therefore, repayment of our indebtedness, including the notes, is dependent on the generation of cash flow by our subsidiaries and their ability to make such cash available to us , by dividend, debt repayment or otherwise. Our subsidiaries may not be able to, or be permitted to, make distributions to enable us to make payments in respect of our indebtedness, including the notes. Under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness, including the notes.

 

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Our ability to pay interest on and principal of the notes offered hereunder and satisfy our other debt obligations will primarily depend upon our future operating performance. As a result, prevailing economic conditions and financial business and other factors, many of which are beyond our control, will affect our ability to make these payments.

If we do not generate sufficient cash flow from operations to satisfy our debt service obligations, including payments on the notes, we may have to undertake alternative financing plans, such as refinancing or restructuring our indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time.

Contractual limitations on our ability to execute any necessary alternative financing plans could exacerbate the effects of any failure to generate sufficient cash flow to satisfy our debt service obligations. Our ABL Credit Facility permits us to borrow up to $800 million (of which $225 million was drawn at closing of the Merger, excluding a seasonal working capital adjustment); however, our ability to borrow thereunder is limited by a borrowing base which is calculated periodically based on specified percentages of the value of eligible inventory and eligible credit card receivables, subject to certain reserves and other adjustments. See “Description of Other Indebtedness—ABL Credit Facility.” The value of our eligible inventory and credit card receivables, which in turn affect our ability to borrow under the ABL Credit Facility, can be affected by events beyond our control, and the value of these items may decline materially.

The notes will be unsecured and will be effectively subordinated to our secured indebtedness.

The notes will not be secured by any of our or our subsidiaries’ assets. The indenture governing the notes permits us and our subsidiaries to incur secured indebtedness, including pursuant to our senior secured credit facilities, purchase money instruments and other forms of secured indebtedness. As a result, the notes and the guarantees will be effectively subordinated to all of our and the guarantors’ secured indebtedness and other obligations to the extent of the value of the assets securing such obligations. If we and the guarantors were to become insolvent or otherwise fail to make payment on the notes, holders of any of our and the subsidiary guarantors’ secured obligations would be paid first and would receive payments from the assets securing such obligations before the holders of the notes would receive any payments. You may therefore not be fully repaid if we or the guarantors become insolvent or otherwise fail to make payment on the notes.

The indenture governing the senior notes and the credit agreement governing our senior secured credit facilities imposes significant operating and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities.

The indenture governing the senior notes and our senior secured credit facilities imposes significant operating and financial restrictions on us. These restrictions limit our ability, among other things, to:

 

    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 transactions with stockholders or affiliates;

 

    sell certain assets or merge with or into other companies;

 

    guarantee indebtedness; and

 

    create liens.

As a result of these covenants and restrictions, 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

 

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fail to maintain compliance with these covenants in the future, we may not be able to obtain waivers from the lenders and/or amend the covenants.

Our failure to comply with the restrictive covenants described above as well as others that may be contained in our senior secured credit facilities from time to time could result in an event of default, which, if not cured or waived, could result in us being required to repay these borrowings before their due date. If we are forced to refinance these borrowings on less favorable terms, our results of operations and financial condition could be adversely affected.

Our failure to comply with the agreements relating to our outstanding indebtedness, including as a result of events beyond our control, could result in an event of default that could materially and adversely affect our results of operations and our financial condition.

If there were an event of default under any of the agreements relating to our outstanding indebtedness, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately. Our assets or cash flow may not be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default. Further, if we are unable to repay, refinance or restructure our indebtedness under our secured debt, 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.

If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the notes.

Any default under the agreements governing our indebtedness could impair our ability to pay principal, premium, if any, and interest on the notes and could substantially decrease the market value of the notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our indebtedness (including our senior secured credit facilities), we could be in default under the terms of the agreements governing such indebtedness. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under our senior secured revolving credit facility could elect to terminate their commitments, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to seek to obtain waivers from the required lenders under our senior secured credit facilities to avoid being in default. If we breach our covenants under our senior secured credit facilities and seek a waiver, we may not be able to obtain a waiver from the required lenders. If this occurs, we would be in default under our senior secured credit facilities, the lenders could exercise their rights as described above, and we could be forced into bankruptcy or liquidation. See “Description of Other Indebtedness” and “Description of Exchange Notes.”

We may not have the funds to purchase the notes upon the change of control offer as required by the indenture governing the senior notes.

Upon a change of control, as defined in the senior notes indenture, subject to certain conditions, we are required to offer to repurchase all outstanding senior notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase. Sufficient funds may not be available at the time of any change of control to make required repurchases of notes. If the holders of the senior notes exercise their right to require us to repurchase all the senior notes upon a change of control, the financial effect of this repurchase could cause a default under our other debt, even if the change of control itself would not cause a default. Accordingly, it is possible that we will not have sufficient funds at the time of the change of control to make the required repurchase of our other debt and the senior notes or that restrictions in our senior secured credit facilities and the indenture with respect to the senior notes will not allow such repurchases. See “Description of Exchange Notes—Repurchase at the Option of Holders—Change of Control” and “Description of Other Indebtedness” for additional information.

 

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Federal and state statutes could allow courts, under specific circumstances, to void the guarantees, subordinate claims in respect of the notes and require note holders to return payments received from guarantors.

Under U.S. bankruptcy law and comparable provisions of state fraudulent transfer laws, a court could void a guarantee or claims related to the notes or subordinate a guarantee to all of our other debts or to all other debts of a guarantor if, among other things, we or a guarantor, at the time we or such guarantor incurred the indebtedness evidenced by its guarantee:

 

    intended to hinder, delay or defraud any present or future creditor; or

 

    received less than reasonably equivalent value or fair consideration for the incurrence of such indebtedness; and

 

    the guarantor was insolvent or rendered insolvent by reason of such incurrence;

 

    the guarantor was engaged in a business or transaction for which the guarantor’s remaining assets constituted unreasonably small capital; or

 

    the guarantor intended to incur, or believed that it would incur, debts beyond the guarantor’s ability to pay such debts as they mature.

In addition, a court could void any payment by a guarantor pursuant to the notes or a guarantee and require that payment to be returned to such guarantor or to a fund for the benefit of the creditors of the guarantor. The measures of insolvency for purposes of fraudulent transfer laws will vary depending upon the governing law in any proceeding to determine whether a fraudulent transferred has occurred. Generally, however, a guarantor would be considered insolvent if:

 

    the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets;

 

    the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or

 

    it could not pay its debts as they become due.

On the basis of historical financial information, recent operating history and other factors, we believe that we will not be insolvent, will not have insufficient capital for the business in which we are engaged and will not have incurred debts beyond our ability to pay such debts as they mature.

A court may not apply this standard in making such determinations, or a court may not agree with our or any guarantors’ conclusions in this regard.

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 implement this strategy successfully, on a timely basis, or at all.

Our growth will largely depend on our ability to open and operate new stores successfully. We intend to continue to open a significant number of new stores in future years while remodeling a portion of our existing store base annually. During our 2007 fiscal year, we plan to open 19 new stores, and in subsequent fiscal years, we anticipate opening between 20 to 30 new stores per fiscal year. The success of this strategy is dependent upon, among other things, the identification of suitable markets and sites for store locations, the negotiation of acceptable lease terms, the hiring, training and retention of competent sales personnel, and the effective management of inventory to meet the needs of new and existing stores on a timely basis. Our proposed

 

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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 ABL Credit Facility; 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 any 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 harmed.

We currently lease 88% of our store locations. Our current leases expire at various dates after five-year terms subject, in many cases, to our option to renew such leases for several additional five-year periods. Our ability to renew any expired lease or, if such lease cannot be renewed, our ability to lease a suitable alternate location, and our ability to enter into leases for new stores on favorable terms will depend on many factors which are not within our control, such as conditions in the local real estate market, competition for desirable properties and our relationships with current and prospective landlords. If we are unable to renew existing leases or lease suitable alternate locations, or enter into leases for new stores on favorable terms, our growth and our profitability may be significantly harmed.

Our net sales, operating income and inventory levels fluctuate on a seasonal basis and decreases in sales or margins during our peak seasons could have a disproportionate effect on our overall financial condition and results of operations.

Our net sales and operating income fluctuate seasonally, with a significant portion of our operating income typically realized during our second and third quarters. In fiscal 2006, we realized 86.8% of our net income during the third quarter. 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 fiscal 2004, our quarterly comparative store sales growth rates have ranged from 8.9% to (5.1%). In addition, the rate of increase in our recent comparative store sales has been higher than our historical average and we may not be able to maintain this level of growth in comparative store sales in the future.

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;

 

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

 

    the timing of promotional events;

 

    changes in general economic conditions and consumer spending patterns;

 

    our ability to understand and meet consumer preferences; and

 

    actions of competitors.

If our future comparative store sales fail to meet expectations, then our cash flow and profitability could decline substantially. You should refer to the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information.

Because inventory is both fashion and season sensitive, extreme and/or unseasonable weather conditions could have a disproportionately large effect on our business, financial conditions 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. 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. For the past five fiscal years, 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.

Virtually all of the products that we offer are manufactured by third-party vendors. Many of our key vendors limit the number of retail channels they use to sell their merchandise and competition among retailers to obtain and sell these goods is intense. In addition, nearly all of the brands of our top vendors are sold by competing retailers and some of our top vendors also have their own dedicated retail stores. Moreover, we typically buy products from our vendors on a purchase-order basis. We have no long-term purchase contracts with any of our vendors and, therefore, have no contractual assurances of continued supply, pricing or access to products, and any vendor could change the terms upon which they sell to us or discontinue selling to us at any time.

If our relationships with our vendors are disrupted, we may not be able to acquire the merchandise we require in sufficient quantities or on terms acceptable to us. Any inability to acquire suitable merchandise would have a negative effect on our business and operating results because we would be missing products from our merchandise mix unless and until alternative supply arrangements were made, resulting in deferred or lost sales.

Increases in freight costs could result in lower profitability.

The cost of delivering our merchandise from the warehouses to the stores could continue to increase if gasoline prices continue to rise. Although we are seeking to have more of our inventory distributed to our stores through our distribution centers, a substantial portion of our inventory is still shipped directly to our stores from our vendors via the more expensive “drop shipment” method, whereby vendors ship items directly to our stores rather than to our distribution centers. Increases in fuel costs will result in costly surcharges added to the cost of drop shipment and reduce our ability to maintain profit margins.

 

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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 lower sales in the retail industry generally.

Such factors include:

 

    political or labor instability in countries where suppliers are located or at foreign and domestic ports which could result in lengthy shipment delays, which if timed ahead of the fall and winter peak selling periods could materially and adversely affect our ability to stock inventory on a timely basis;

 

    political or military conflict involving the apparel producing countries, which could cause a delay in the transportation of our products to us and an increase in transportation costs;

 

    heightened terrorism security concerns, which could subject imported goods to additional, more frequent or more thorough inspections, leading to delays in deliveries or impoundment of goods for extended periods;

 

    disease epidemics and health related concerns, such as the outbreaks of SARS, bird flu and other diseases, which could result in closed factories, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas;

 

    the migration and development of manufacturers, which can affect where our products are or will be produced;

 

    fluctuation in our suppliers’ local currency against the dollar, which may increase our cost of goods sold;

 

    imposition of regulations and quotas relating to imports; and

 

    imposition of duties, taxes and other charges on imports.

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 our distribution centers were to shut down.

During fiscal 2006, central distribution and warehousing services were extended to approximately 56% of the dollar volume of our merchandise through our warehouse/distribution facilities in Burlington, New Jersey, Edgewater, New Jersey, Bristol, Pennsylvania, and San Bernardino, California. During fiscal 2007, we expect this percentage to increase as more merchandise is distributed through our new distribution center in San Bernardino, California which opened in April 2006. Most of the merchandise we purchase is shipped directly to our distribution centers, where it is prepared for shipment to the appropriate stores. If any distribution 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 any of the distribution centers.

Software developed 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

 

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sales, warehousing, distribution, purchasing, inventory control, merchandising planning and replenishment, as well as various financial systems. If we fail to update such software to meet the demands of changing business requirements or if we decide to modify or change our hardware and/or operating systems and the software programs that were developed in-house are not compatible with the new hardware or operating systems, disruption to our business may result.

Acts of terrorism could adversely affect our business.

The economic downturn that followed the terrorist attacks of September 11, 2001 had an adverse impact on our business. Any further acts of terrorism or other future conflict may disrupt commerce and undermine consumer confidence, cause a downturn in the economy generally, cause consumer spending or shopping center traffic to decline or reduce the desire of our guests to make discretionary purchases. Any of the foregoing factors could impact our sales revenue negatively, particularly in the case of any terrorist attack targeting retail space such as a shopping center. Furthermore, an act of terrorism or war, or the threat thereof, could impact our business negatively by interfering with our or our vendors’ ability to obtain merchandise from foreign manufacturers. Any future inability to obtain merchandise from our or our vendors’ foreign manufacturers or to substitute other manufacturers, at similar costs and in a timely manner, could adversely affect our business.

Our future growth and profitability could be adversely affected if our advertising and marketing programs are not effective in generating sufficient levels of customer awareness and traffic.

We rely heavily on print and television advertising to increase consumer awareness of our product offerings and pricing and 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 comparable net sales or generate sufficient levels of product awareness. We may not be able to manage our advertising and marketing expenditures on a cost-effective basis.

There are a limited number of companies capable of distributing our direct mail advertising at the volume levels we require. If any of these companies cease operations, or if their expenses (e.g., postage, printing and paper costs) increase substantially, then it is likely that our advertising expenses will increase, which will have a negative effect on our business and operating results.

Our former Chief Executive Officer with over 50 years of experience recently retired and we are in the process of transitioning to new leadership which may cause business interruptions.

Monroe G. Milstein retired after consummation of the Merger. Monroe Milstein had over 50 years of experience, and was critical to managing the growth of our business. We may experience unforeseen difficulties as we transition to new leadership. Our success is dependent on the continued efforts of our remaining executive officers and our recently hired executive officers, Elizabeth Williams and Thomas Fitzgerald. We entered into employment agreements with Mark Nesci, Paul Tang, Robert LaPenta, Elizabeth Williams, Thomas Fitzgerald and certain other executives, but any of these or any other key employees may not continue to be employed by us for any particular period of time, or these executives 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.

 

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The interests of our controlling stockholders may conflict with yours as a holder of the notes.

Funds associated with Bain Capital own over approximately 98.4% of Parent’s basic common stock, with the remainder held by existing members of management. Additionally, management holds options to purchase 7.5% of the basic shares outstanding.

The interests of affiliates of Bain Capital may conflict with yours as a holder of outstanding notes. The controlling stockholders may have an incentive to increase the value of its investment or cause us to distribute funds at the expense of our financial condition and impact our ability to make payments on the outstanding notes. In addition, the affiliates of 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 other major decisions regarding our operations. The interests of Bain Capital or its associated funds may conflict with your interests as a holder of the outstanding notes. For more information, see “Management,” “Security Ownership of Certain Beneficial Owners and Management” and “Certain Relationships and Related Transactions.”

 

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FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about us, our future performance, our liquidity, the retail clothing industry, our beliefs and management’s assumptions. Such forward-looking statements include statements regarding expected financial results and other planned events, including but not limited to, anticipated liquidity and capital expenditures. Words such as “anticipate,” “assume,” “believe,” “estimate,” “expect,” “intend,” “plan,” “seek,” “project,” “target,” “goal,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual future events or results may differ materially from these statements.

The following is a list of factors, among others, that could cause actual results to differ materially from the forward-looking statements:

 

    general or regional economic conditions;

 

    changing consumer preferences and demand;

 

    weather patterns;

 

    competitive factors, including pricing and promotional activities of major competitors;

 

    industry trends, including changes in buying, inventory and other business practices by customers;

 

    the availability of desirable store locations on suitable terms;

 

    the availability, selection and purchasing of attractive merchandise on favorable terms;

 

    import risks;

 

    our future profitability;

 

    our ability to control costs and expenses;

 

    unforeseen computer related problems;

 

    any unforeseen material loss or casualty;

 

    the effect of inflation;

 

    an increase in competition within the markets in which we compete;

 

    regulatory changes;

 

    our relationships with employees;

 

    the impact of current and future laws;

 

    additional terrorist attacks, particularly attacks on or within markets in which we operate; and

 

    natural and man-made disasters, including but not limited to fire, flood, hail, hurricanes and earthquakes.

These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should, therefore, be considered in light of various factors, including those set forth in this prospectus under “Risk Factors” and the caption “Liquidity and Capital Resources” included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this prospectus. Moreover, we caution you not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events.

 

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TRADEMARKS

Our intellectual property consists of trademarks, service marks and trade names. Our trademarks, service marks and trade names include, among others, “Burlington Coat Factory,” “Cohoes,” “Luxury Linens,” “Home Décor,” “MJM Designer Shoes” and “Baby Depot.” All of our trademarks, service marks and tradenames have been registered with the U.S. Patent and Trademark Office or have applications for registration pending. These marks have indefinite life for so long as they are used by our Company.

We believe that our trademarks, service marks and trade names afford a competitive advantage to our Company in the crowded retail marketplace.

 

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THE TRANSACTIONS

On January 18, 2006, we entered into the Merger Agreement with Parent and Merger Sub, each a newly formed holding company owned by affiliates of Bain Capital, pursuant to which Merger Sub, a wholly-owned subsidiary of Parent, merged with and into our Company. The Merger closed on April 13, 2006. As consideration for the Merger, each former holder of our common stock was entitled to receive a cash amount equal to $45.50 per common share. Funds associated with Bain Capital own approximately 98.4% of Parent’s basic common stock, with the remainder held by existing members of management. Additionally, management holds options to purchase 7.5% of the basic shares outstanding.

As a result of the Transactions, our shares are no longer listed on the New York Stock Exchange, and we continue our operations as a privately held company.

 

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USE OF PROCEEDS

This exchange offer is intended to satisfy our obligations under the registration rights agreement. We will not receive any cash proceeds from the issuance of the Exchange Notes. In consideration for issuing the Exchange Notes contemplated in this prospectus, you will receive outstanding securities in like principal amount, the form and terms of which are the same as the form and terms of the Exchange Notes, except as otherwise described in this prospectus. The Old Notes surrendered in exchange for Exchange Notes will be retired and canceled. Accordingly, no additional debt will result from the exchange. We have agreed to bear the expense of the exchange offer.

 

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THE EXCHANGE OFFER

Terms of the Exchange Offer; Period for Tendering Outstanding Old Notes

We issued the Old Notes on April 13, 2006 and entered into a registration rights agreement with the initial purchasers. The Registration Rights Agreement requires that we register the Old Notes with the SEC and offer to exchange the registered Exchange Notes for the outstanding Old Notes.

Upon the terms and subject to the conditions set forth in this prospectus, we will accept any and all Old Notes that were acquired pursuant to Rule 144A or Regulation S validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer. We will issue $1,000 principal amount of Exchange Notes in exchange for each $1,000 principal amount of Old Notes accepted in the exchange offer. Holders may tender some or all of their Old Notes pursuant to the exchange offer. However, Old Notes may be tendered only in integral multiples of $1,000.

The form and terms of the Exchange Notes are the same as the form and terms of the outstanding Old Notes except that:

(1) the Exchange Notes being issued in the exchange offer will be registered under the Securities Act and will not have legends restricting their transfer;

(2) the Exchange Notes being issued in the exchange offer will not contain the registration rights and liquidated damages provisions contained in the outstanding Old Notes; and

(3) interest on the Exchange Notes will accrue from the date on which your Old Notes were effectively exchanged.

The Exchange Notes will evidence the same debt as the outstanding securities and will be entitled to the benefits of the indenture.

Holders of Old Notes do not have any appraisal or dissenters’ rights under the Georgia Business Corporation Code, or the indenture in connection with the exchange offer. We intend to conduct the exchange offer in accordance with the applicable requirements of the Securities Exchange Act of 1934, as amended, referred to herein as the Exchange Act, and the rules and regulations of the SEC.

We will be deemed to have accepted validly tendered Old Notes when, as and if we have given oral or written notice of our acceptance to the exchange agent. The exchange agent will act as agent for the tendering holders for the purpose of receiving the Exchange Notes from us.

If any tendered Old Notes are not accepted for exchange because of an invalid tender or the occurrence of specified other events set forth in this prospectus, the certificates for any unaccepted Old Notes will be promptly returned, without expense, to the tendering holder.

Holders who tender Old Notes in the exchange offer will not be required to pay brokerage commissions or fees or transfer taxes with respect to the exchange of Old Notes pursuant to the exchange offer. We will pay all charges and expenses, other than transfer taxes in certain circumstances, in connection with the exchange offer. See “Fees and Expenses” and “Transfer Taxes” below.

The exchange offer will remain open for at least 20 full business days. The term “expiration date” will mean 5:00 p.m., New York City time, on                     , 2006, unless we, in our sole discretion, extend the exchange offer, in which case the term “expiration date” will mean the latest date and time to which the exchange offer is extended.

 

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To extend the exchange offer, prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date, we will:

(1) notify the exchange agent of any extension by oral notice (promptly confirmed in writing) or written notice,

(2) mail to the registered holders an announcement of any extension, and issue a notice by press release or other public announcement before such expiration date.

We reserve the right, in our sole discretion:

(1) if any of the conditions below under the heading “Conditions to the Exchange Offer” shall have not been satisfied,

(a) to delay accepting any Old Notes,

(b) to extend the exchange offer, or

(c) to terminate the exchange offer, or

(2) to amend the terms of the exchange offer in any manner, provided however, that if we amend the exchange offer to make a material change, including the waiver of a material condition, we will extend the exchange offer, if necessary, to keep the exchange offer open for at least five business days after such amendment or waiver; provided further, that if we amend the exchange offer to change the percentage of Notes being exchanged or the consideration being offered, we will extend the exchange offer, if necessary, to keep the exchange offer open for at least ten business days after such amendment or waiver.

Any delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice to the registered holders.

Procedures for Tendering Old Notes Through Brokers and Banks

Since the Old Notes are represented by global book-entry notes, The Depositary Trust Company or DTC, as depositary, or its nominee is treated as the registered holder of the Old Notes and will be the only entity that can tender your Old Notes for Exchange Notes. Therefore, to tender Old Notes subject to this exchange offer and to obtain Exchange Notes, you must instruct the institution where you keep your Old Notes to tender your Old Notes on your behalf so that they are received on or prior to the expiration of this exchange offer.

The BLUE-colored “Letter of Transmittal” shall be used by you to give such instructions.

IF YOU WISH TO ACCEPT THIS EXCHANGE OFFER, PLEASE INSTRUCT YOUR BROKER OR ACCOUNT REPRESENTATIVE IN TIME FOR YOUR OLD NOTES TO BE TENDERED BEFORE THE 5:00 PM (NEW YORK CITY TIME) DEADLINE ON                     , 2006.

To tender your Old Notes in the exchange offer you must represent for our benefit that:

(1) You are acquiring the Exchange Notes for your outstanding Old Notes in the ordinary course of business;

(2) You do not have an arrangement or understanding with any person to participate in the distribution of Exchange Notes;

(3) You are not an “affiliate” as defined under Rule 405 of the Securities Act;

(4) You will also have to acknowledge that if you are not a broker-dealer, you are not engaged in and do not intend to engage in a distribution of the Exchange Notes; and

 

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(5) You will also have to acknowledge that if you are a broker-dealer, and acquired the Old Notes as a result of market making activities or other trading activities, you will deliver a prospectus meeting the requirements of the Securities Act in connection with any for sale of such Exchange Notes.

You must make such representations by executing the Blue colored “Letter of Transmittal” and delivering it to the institution through which you hold your Old Notes.

Such institution will have to acknowledge that such representations were made by you.

You may tender some or all of your Old Notes in this exchange offer. However, your Old Notes may be tendered only in integral multiples of $1,000.

When you tender your outstanding Old Notes and we accept them, the tender will be a binding agreement between you and us as described in this prospectus.

The method of delivery of outstanding Old Notes and all other required documents to the exchange agent is at your election and risk.

We will decide all questions about the validity, form, eligibility, acceptance and withdrawal of tendered Old Notes, and our reasonable determination will be final and binding on you. We reserve the absolute right to:

(1) reject any and all tenders of any particular Old Note not properly tendered;

(2) refuse to accept any Old Note if, in our reasonable judgment or the judgment of our counsel, the acceptance would be unlawful; and

(3) waive any defects or irregularities or conditions of the exchange offer as to any particular Old Notes before the expiration of the offer.

Our interpretation of the terms and conditions of the exchange offer will be final and binding on all parties. You must cure any defects or irregularities in connection with tenders of Old Notes as we will reasonably determine. Neither us, the exchange agent nor any other person will incur any liability for failure to notify you or any defect or irregularity with respect to your tender of Old Notes. If we waive any terms or conditions pursuant to (3) above with respect to a noteholder, we will extend the same waiver to all noteholders with respect to that term or condition being waived.

Procedures for Brokers and Custodian Banks; DTC ATOP Account

In order to accept this exchange offer on behalf of a holder of Old Notes you must submit or cause your DTC participant to submit an Agent’s Message as described below.

The exchange agent, on our behalf will seek to establish an Automated Tender Offer Program (“ATOP”) account with respect to the outstanding Old Notes at DTC promptly after the delivery of this prospectus. Any financial institution that is a DTC participant, including your broker or bank, may make book-entry tender of outstanding Old Notes by causing the book-entry transfer of such Old Notes into our ATOP account in accordance with DTC’s procedures for such transfers. Concurrently with the delivery of Old Notes, an Agent’s Message in connection with such book-entry transfer must be transmitted by DTC to, and received by, the exchange agent on or prior to 5:00 pm, New York City Time on the expiration date. The confirmation of a book entry transfer into the ATOP account as described above is referred to herein as a “Book-Entry Confirmation.”

The term “Agent’s Message” means a message transmitted by the DTC participants to DTC, and thereafter transmitted by DTC to the exchange agent, forming a part of the Book-Entry Confirmation which states that DTC has received an express acknowledgment from the participant in DTC described in such Agent’s Message stating that such participant and beneficial holder agree to be bound by the terms of this exchange offer.

 

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Each Agent’s Message must include the following information:

(1) Account number of the beneficial owner tendering such Old Notes;

(2) Principal amount of Old Notes tendered by such beneficial owner; and

(3) A confirmation that the beneficial holder of the Old Notes tendered has made the representations for the benefit of the Company set forth under “Procedures for Tendering Old Notes Held Through Brokers or Banks” above.

BY SENDING AN AGENT’S MESSAGE THE DTC PARTICIPANT IS DEEMED TO HAVE CERTIFIED THAT THE BENEFICIAL HOLDER FOR WHOM NOTE ARE BEING TENDERED HAS BEEN PROVIDED WITH A COPY OF THIS PROSPECTUS.

The delivery of Old Notes through DTC, and any transmission of an Agent’s Message through ATOP, is at the election and risk of the person tendering Old Notes. We will ask the exchange agent to instruct DTC to promptly return those Old Notes, if any, that were tendered through ATOP but were not accepted by us, to the DTC participant that tendered such Old Notes on behalf of holders of the Old Notes.

Acceptance of Outstanding Old Notes for Exchange; Delivery of Exchange Notes Issued in the Exchange Offer upon Expiration of the Exchange Offer

We will accept validly tendered Old Notes when the conditions to the exchange offer have been satisfied or we have waived them. We will have accepted our validly tendered Old Notes when we have given oral or written notice to the exchange agent. The exchange agent will act as agent for the tendering holders for the purpose of receiving the Exchange Notes from us. If we do not accept any tendered Old Notes for exchange because of an invalid tender or other valid reason, the exchange agent will promptly return the certificates, without expense, to the tendering holder after the exchange offer terminates or expires. If a holder has tendered Old Notes by book-entry transfer, we will promptly credit the Notes to an account maintained with The Depositary Trust Company after the exchange offer terminates or expires.

THE AGENT’S MESSAGE MUST BE TRANSMITTED TO EXCHANGE AGENT ON OR BEFORE 5:00 PM, NEW YORK CITY TIME, ON THE EXPIRATION DATE.

Withdrawal Rights

You may withdraw your tender of outstanding Notes at any time before 5:00 p.m., New York City time, on the expiration date.

For a withdrawal to be effective, you should contact your bank or broker where your Old Notes are held and have them send an ATOP notice of withdrawal so that it is received by the exchange agent before 5:00 p.m., New York City time, on the expiration date. Such notice of withdrawal must:

(1) specify the name of the person that tendered the Old Notes to be withdrawn;

(2) identify the Old Notes to be withdrawn, including the CUSIP number and principal amount at maturity of the Old Notes; specify the name and number of an account at the DTC to which your withdrawn Old Notes can be credited.

We will decide all questions as to the validity, form and eligibility of the notices and our determination will be final and binding on all parties. Any tendered Old Notes that you withdraw will not be considered to have been validly tendered. We will promptly return any outstanding Old Notes that have been tendered but not exchanged, or credit them to the DTC account. You may re-tender properly withdrawn Old Notes by following one of the procedures described above before the expiration date.

 

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Conditions To The Exchange Offer

Notwithstanding any other provision herein, we are not required to accept for exchange, or to issue Exchange Notes in exchange for, any outstanding Old Notes. We may terminate or amend the exchange offer, before the expiration of the exchange offer:

(1) if any federal law, statute, rule or regulation has been adopted or enacted which, in our judgment, would reasonably be expected to impair our ability to proceed with the exchange offer;

(2) if any stop order is threatened or in effect with respect to the registration statement which this prospectus is a part of or the qualification of the indenture under the Trust Indenture Act of 1939; or

(3) if there is a change in the current interpretation by the staff of the SEC which permits holders who have made the required representations to us to resell, offer for resale, or otherwise transfer Exchange Notes issued in the exchange offer without registration of the Exchange Notes and delivery of a prospectus, as discussed above.

These conditions are for our sole benefit and we may assert them at any time before the expiration of the exchange offer. Our failure to exercise any of the foregoing rights will not be a waiver of our rights.

Exchange Agent

You should direct questions, requests for assistance, and requests for additional copies of this prospectus and the BLUE-colored “Letter of Transmittal” to the exchange agent at:

 

By Overnight Courier or Mail:

 

By Registered or Certified Mail:

 

By Hand:

Wells Fargo Bank, N.A.

Corporate Trust Operations

MAC N9303-121

6th & Marquette Avenue

Minneapolis, MN 55479

 

Attn: Reorg

(if by mail, registered or certified recommended)

 

Wells Fargo Bank, N.A.

Corporate Trust Operations

MAC N9303-121

P.O. Box 1517

Minneapolis, MN 55480

 

Attn: Reorg

 

Wells Fargo Bank, N.A.

Corporate Trust Services

Northstar East Bldg.—12th Floor

608 2nd Avenue South

Minneapolis, MN 55402

 

Attn: Reorg

By Facsimile:

 

(612) 667-6282

Attn: Bondholder Communications

   

To Confirm by Telephone:

 

(800) 344-5128; or

(612) 667-9764

Attn: Bondholder Communications

Delivery to an address other than set forth above will not constitute a valid delivery.

Fees And Expenses

We will not make any payment to brokers, dealers, or others soliciting acceptances of the exchange offer except for reimbursement of mailing expenses.

We will pay the estimated cash expenses connected with the exchange offer.

Accounting Treatment

The Exchange Notes will be recorded at the same carrying value as the existing Old Notes, as reflected in our accounting records on the date of exchange. Accordingly, we will recognize no gain or loss for accounting purposes. The expenses of the exchange offer will be expensed over the term of the Exchange Notes.

 

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Transfer Taxes

If you tender outstanding Old Notes for exchange you will not be obligated to pay any transfer taxes. However, if you instruct us to register Exchange Notes in the name of, or request that your Old Notes not tendered or not accepted in the exchange offer be returned to, a person other than you, you will be responsible for paying any transfer tax owed.

YOU MAY SUFFER ADVERSE CONSEQUENCES IF YOU FAIL TO EXCHANGE OUTSTANDING OLD NOTES.

If you do not tender your outstanding Old Notes, you will not have any further registration rights, except for the rights described in the registration rights agreement and described above, and your Old Notes will continue to be subject to restrictions on transfer when we complete the exchange offer. Accordingly, if you do not tender your Old Notes in the exchange offer, your ability to sell your Old Notes could be adversely affected. Once we have completed the exchange offer, holders who have not tendered Notes will not continue to be entitled to any increase in interest rate that the indenture provides for if we do not complete the exchange offer.

Consequences Of Failure to Exchange

The Old Notes that are not exchanged for Exchange Notes pursuant to the exchange offer will remain restricted securities. Accordingly, the Old Notes may be resold only:

(1) to us upon redemption thereof or otherwise;

(2) so long as the outstanding securities are eligible for resale pursuant to Rule 144A, to a person inside the United States who is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act in a transaction meeting the requirements of Rule 144A, in accordance with Rule 144 under the Securities Act, or pursuant to another exemption from the registration requirements of the Securities Act, which other exemption is based upon an opinion of counsel reasonably acceptable to us;

(3) outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act; or

(4) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States.

Resale of the Exchange Notes

With respect to resales of Exchange Notes, based on interpretations by the staff of the SEC set forth in no-action letters issued to third parties, we believe that a holder or other person who receives Exchange Notes (other than a person that is our affiliate within the meaning of Rule 405 under the Securities Act) in exchange for Old Notes in the ordinary course of business and who is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes, will be allowed to resell the Exchange Notes to the public without further registration under the Securities Act and without delivering to the purchasers of the Exchange Notes a prospectus that satisfies the requirements of Section 10 of the Securities Act. However, if any holder acquires Exchange Notes in the exchange offer for the purpose of distributing or participating in a distribution of the Exchange Notes, the holder cannot rely on the position of the staff of the SEC expressed in the no-action letters or any similar interpretive letters, and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, unless an exemption from registration is otherwise available. Further, each broker-dealer that receives Exchange Notes for its own account in exchange for Old Notes, where the Old Notes were acquired by the broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the Exchange Notes. By so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be

 

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used by a broker-dealer in connection with resales of new securities received in exchange for securities where those securities were acquired by this broker-dealer as a result of market-making activities or other trading activities. We have agreed that, starting on the expiration date and ending on the close of business 180 days after the expiration date, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See “Plan of Distribution.”

Shelf Registration

The registration rights agreement also requires that we file a shelf registration statement if:

(1) we cannot file a registration statement for the exchange offer because the exchange offer is not permitted by law or SEC policy;

(2) a law or SEC policy prohibits a holder from participating in the exchange offer;

(3) a holder cannot resell the Exchange Notes it acquires in the exchange offer without delivering a prospectus and this prospectus is not appropriate or available for resales by the holder; or

(4) a holder is a broker-dealer and holds Notes acquired directly from us or one of our affiliates.

We will also register the Exchange Notes under the securities laws of jurisdictions that holders may request before offering or selling Notes in a public offering. We do not intend to register Exchange Notes in any jurisdiction unless a holder requests that we do so.

Old Notes may be subject to restrictions on transfer until:

(1) a person other than a broker-dealer has exchanged the Old Notes in the exchange offer;

(2) a broker-dealer has exchanged the Old Notes in the exchange offer and sells them to a purchaser that receives a prospectus from the broker, dealer on or before the sale;

(3) the Old Notes are sold under an effective shelf registration statement that we have filed; or

(4) the Old Notes are sold to the public under Rule 144 of the Securities Act.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

We maintain our records on the basis of a 52 or 53 week fiscal year ending on the Saturday closest to May 31. Results for fiscal 2005, fiscal 2004, fiscal 2003 and fiscal 2002 represent the operating results of BCFWC and its subsidiaries as reflected in the consolidated financial statements of Burlington Coat Factory Investments Holdings, Inc. (collectively referred to as the “Predecessor Company”). Results for 2006 are represented by (i) the results of Holdings (the “Successor Company”) for the period from April 13, 2006 through June 3, 2006, subsequent to the acquisition of our Company by Bain Capital and other investors and (ii) results of the Predecessor Company for the period from May 29, 2005 through April 12, 2006, prior to the acquisition of our Company by Bain Capital and other investors. The selected financial information below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included elsewhere in this prospectus.

 

     Predecessor     Successor    

Three Months Ended

 
     Fiscal Year Ended                

Predecessor

    Successor  
     June 1,
2002
    May 31,
2003
    May 29,
2004
    May 28,
2005
    May 29, 2005
through
April 12, 2006
    April 13, 2006
through
June 3, 2006
    August 27,
2005
    September 2,
2006
 
     (dollars in thousands)                    

Consolidated Statements of Operations:

                    

Revenues:

                    

Net Sales

  $ 2,519,183     $ 2,655,072     $ 2,833,484     $ 3,171,242     $ 3,017,633     $ 421,180     $ 650,848     $ 656,846  

Other Revenue

    19,969       23,056       26,476       28,598       27,675       4,066       7,324       7,420  
                                                                 
      2,539,152       2,678,128       2,859,960       3,199,840       3,045,308       425,246       658,172       664,266  
                        

Costs and Expenses:

                    

Cost of Sales (Exclusive of Depreciation and Amortization)

    1,574,991       1,660,170       1,765,478       1,987,159       1,916,798       266,465       425,335       426,914  

Selling and Administrative Expenses

    795,523       838,709       899,984       957,759       897,231       154,691       234,440       247,060  

Depreciation

    59,469       69,148       83,915       89,858       78,804       18,097       22,628       34,984  

Amortization

    31       31       75       98       494       9,758       24       10,933  

Interest Expense

    958       2,779       5,863       7,334       4,609       18,093       1,813       35,414  

Other (Income) Loss, Net

    (6,595 )     (6,041 )     (10,335 )     (14,619 )     (3,572 )         (4,876 )     (119 )         (981 )
                                                                 
      2,424,377       2,564,796       2,744,980       3,027,589       2,894,364       462,228       684,121       754,324  
                        

Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Tax

    114,775       113,332       114,980       172,251       150,944       (36,982 )     (25,949 )     (90,058 )

Provision (Benefit) for Income Tax

    43,435       42,820       42,641       66,204       56,605       (9,816 )     (10,042 )     (38,250 )
                                                                 

Income (Loss) from Continuing Operations

    71,340       70,512       72,339       106,047       94,339       (27,166 )     (15,907 )     (51,808 )
                        

Loss from Discontinued Operations (Net of Tax Benefit)(1)

    (3,299 )     (4,393 )     (4,363 )     (1,014 )     —         —           —           —    
                                                                 

Net Income (Loss)

  $ 68,041     $ 66,119     $ 67,976     $ 105,033     $ 94,339     $ (27,166 )   $ (15,907 )   $ (51,808 )
                                                                 

 

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     Predecessor     Successor    

Three Months Ended

 
     Fiscal Year Ended                

Predecessor

    Successor  
     June 1,
2002
    May 31,
2003
    May 29,
2004
    May 28,
2005
    May 29, 2005
through
April 12, 2006
    April 13, 2006
through
June 3, 2006
    August 27,
2005
    September 2,
2006
 
     (dollars in thousands)                    

Balance Sheet Data:

                    

Total Assets

  $ 1,292,562     $ 1,337,049     $ 1,579,178     $ 1,673,268     $ *     $ 3,200,549     $ 1,680,537     $ 3,329,458  

Working Capital(2)

    230,258       195,211       330,007       407,240       *       233,165       391,046       354,438  

Total Debt

    23,073       35,505       134,585       133,537       *       1,518,479       133,426       1,668,179  

Stockholders’ Equity

    710,467       777,152       845,432       926,153       *       419,512       910,249       370,158  

Net Cash Provided By (Used In):

                    

Operating Activities(3)

  $ 235,136     $ 76,163     $ 23,336     $ 142,024     $ 430,979     $ (52,893 )   $ 33,654     $ (91,005 )

Investing Activities(3)

    (183,477 )     (166,448 )     (118,330 )     (98,493 )     (63,920 )     (2,057,669 )     (24,860 )     (17,413 )

Financing Activities(3)

    1,655       (388 )     98,784       (25,384 )     (102,063 )         1,855,989       (111 )         147,077  

Capital Expenditures(4)

    189,564       165,850       125,775       97,340       69,558       6,275       25,488       21,223  

Other Financial Data:

                    

Rent Expense

  $ 100,596     $ 109,500     $ 115,900     $ 125,300     $ 113,317     $ 19,327     $ 30,811     $ 35,127  

Cash Rent Expense(5)

    101,488       108,029       114,294       123,149       113,214       17,996       31,738       32,625  

Number of Stores (at end of period)

    319       335       349       362       367       365       362       367  

Comparative Store Sales Growth (Decline)(6)

    (0.3 )%     (1.8 )%     (0.3 )%     6.3 %     *       *       8.9 %     (0.7 )%

Cash Interest Expense(7)

  $ 969     $ 2,792     $ 5,160     $ 9,363     $ 5,538     $ 6,223     $ 564     $ 23,114  

Ratio of Earnings to Fixed Charges(8)

    4.2x       3.9x       3.6x       4.6x       4.6x       * *     * *     * *

* Information not available for interim periods.
** Due to losses for the period, the coverage ratio was less than 1:1. BCFWC would have to generate additional pretax earnings of $37.0 million, $25.9 million and $90.1 million to achieve a ratio of 1:1 for the periods April 13, 2006 through June 3, 2006, three months ended August 27, 2005 and the three months ended September 2, 2006, respectively.
(1) Discontinued operations include the after-tax operations of our stores closed during the fiscal years listed.
(2) We define working capital as current assets (excluding assets from discontinued operations) minus current liabilities (including the current portion of long-term debt and accrued interest thereon).
(3) Excludes cash provided by or used in discontinued operations.
(4) Includes cash paid for property and equipment and lease acquisition costs.
(5) Consists of cash paid for rent expense, including minimum rent payments and contingent rental payments.
(6) Since fiscal 2004, we have defined comparative store sales to include sales (net of sales discounts) of those stores that have operated at least 425 days for the entire comparative period. Existing stores whose square footage has been changed by more than 20% and relocated stores are classified as new stores for comparative store sales purposes. Prior to fiscal 2004: (i) comparative store sales included sales of those stores that have operated at least 365 days for the entire comparative period; (ii) comparative store sales did not include sales discounts; (iii) comparative store sales included sales of all expanded stores; and (iv) relocated stores were treated as new stores for comparative store sales purposes.
(7) Includes cash paid for interest expense and excludes the non-cash interest related to Holdings Senior Discount Notes.
(8) For purposes of calculating the ratio of earnings to fixed charges, earnings consist of income from continuing operations before provision for income taxes plus fixed charges. Fixed charges include: interest expense; amortization of capitalized finance costs; and a one-third portion of operating lease expenses (primarily rent) that our management believes is representative of the interest component of operating leases.

 

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The unaudited pro forma consolidated statement of operations for the twelve months ended June 3, 2006 gives effect to the Transactions, as if the Transactions had occurred as of May 29, 2005. The summary pro forma financial data for the twelve months ended June 3, 2006 were derived by adding our financial data for the period from May 29, 2005 to April 12, 2006 to our financial data for the period from April 13, 2006 to June 3, 2006 and by applying pro forma adjustments to those numbers. The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable. The summary unaudited pro forma consolidated financial data are for informational purposes only and do not purport to represent what our results of operations or financial position actually would be if the Transactions had occurred at any date, nor do such data purport to project the results of operations for any future period. Unless otherwise stated, the pro forma amounts presented below represent those of Holdings and its subsidiaries.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE TWELVE MONTHS ENDED JUNE 3, 2006

 

     Twelve Months Ended June 3, 2006  
     Holdings
Actual
    Holdings
Adjustments for the
Transactions
    Holdings
Pro Forma
 
     (dollars in thousands)  

Revenues:

      

Net Sales

   $ 3,438,813     $       $ 3,438,813  

Other Revenue

     31,741       (208 )(1)     31,533  
                        
     3,470,554       (208 )     3,470,346  
                        

Costs and Expenses:

      

Cost of Sales (Exclusive of Depreciation and Amortization)

     2,183,263         2,183,263  

Selling and Administrative Expenses

     1,051,922       26,271 (2,3,4)     1,078,193  

Depreciation

     96,901       39,312 (5)     136,213  

Amortization

     10,252       38,015 (6)     48,267  

Interest Expense

     22,702       113,168 (7)     135,870  

Other (Income) Loss, Net

     (8,448 )     7,053 (8)     (1,395 )
                        
     3,356,592       223,819       3,580,411  
                        

Income (Loss) from Operations Before Provisions for Income Tax

     113,962       (224,027 )     (110,065 )

Provision (Benefit) for Income Tax

     46,789       (88,074 )(9)     (41,285 )
                        

Net Income (Loss)

   $ 67,173     $ (135,953 )   $ (68,780 )
                        

(1) Reflects the impact of purchase accounting on straight-line rent income. The net accumulation of excess rent income is derived from straight-line rent income less actual rent received. As a result of the Merger and resulting purchase accounting treatment, the net accumulation of excess rent income, as of April 12, 2006 of approximately $1.018 million was revalued to zero and the Company began calculating rent income on a straight-line basis over the remaining lease terms. The pro forma adjustment assumes that the Merger occurred as of the start of Fiscal 2006, thereby reducing rent income by $0.208 million.
(2) Reflects the impact of purchase accounting on rent expense and leasehold amortization. The Company calculates rent expense on a straight-line basis over the lesser of the lease term or the economic life of the investment in the leased premises. As a result of the Merger and resulting purchase accounting treatment, the accumulated rent expense liabilities as of April 12, 2006 of approximately $44.685 million were revalued to zero and the Company began calculating rent expense on a straight-line basis over the remaining lease terms. In addition, as a result of the Merger and resulting purchase accounting treatment, the Company revalued to zero approximately $46.690 million of recorded leasehold purchases that would have otherwise been amortized over the life of the related leases. The pro forma adjustment assumes that the Merger occurred as of the start of Fiscal 2006, thereby increasing rent expense by $12.4 million and decreasing leasehold amortization by $3.1 million.

 

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(3) Reflects the prorata amount of the new annual advisory fee ($3.5 million) to be paid to Bain Capital in accordance with the new management agreement entered into at the Merger closing. See Certain Relationships and Related Transactions.
(4) Reflects the inclusion of payroll expenses related to retention bonuses. See Executive Compensation—Employment Agreements.
(5) Reflects the adjustment of historical depreciation expense for the $416.1 million step-up in basis of fixed assets.
(6) Reflects the amortization of $71.4 million of deferred financing fees related to the debt financing of the Merger and the amortization of $637.1 million of net favorable leases.
(7) Reflects the adjustment to interest expense for the new financing arrangements.
(8) Reflects the impact of the Merger on interest income earned on the Company’s available cash for investing.
(9) Reflects the income tax effect of the pro forma adjustment at an estimated statutory tax rate of approximately 37.5%.

 

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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. Results for fiscal 2005 and fiscal 2004 represent the results of BCFWC and its subsidiaries (collectively referred to as the “Predecessor Company”). Results for 2006 are represented by (i) the results of Holdings (the “Successor Company”) for the period from April 13, 2006 through June 3, 2006 and for the three months ended September 2, 2006, subsequent to the acquisition of BCFWC by Bain Capital and other investors and (ii) results of the Predecessor Company for the period from May 29, 2005 through April 12, 2006, prior to the acquisition of BCFWC by Bain Capital and other investors. The following discussion and analysis should be read in conjunction with the “Selected Historical Consolidated Financial and Other Data” and our financial statements, including the notes thereto, appearing elsewhere herein.

General

Based on retail industry reports, we are a nationally recognized retailer of high-quality, branded apparel at every day low prices. We opened our first store in Burlington, New Jersey in 1972, selling primarily coats and outerwear. Since then, we have expanded our store base to 367 stores (exclusive of one store closed due to hurricane damage) in 42 states, and diversified our product categories by offering an extensive selection of in-season, fashion-focused merchandise, including: ladies sportswear, menswear, coats, family footwear, baby furniture and accessories, as well as home décor and gifts. We employ a hybrid business model which enables us to offer the low prices of off-price retailers and the branded merchandise, product breadth and product diversity of department stores. We acquire desirable, first-quality, current-brand, labeled merchandise directly from nationally-recognized manufacturers such as Liz Claiborne, Ralph Lauren, Jones New York, Calvin Klein, Nine West, and Nautica.

As of September 2, 2006, we operated 367 stores (exclusive of one store closed due to hurricane damage) under the names “Burlington Coat Factory Warehouse” (342 stores), “MJM Designer Shoes” (17 stores), “Cohoes Fashions” (7 stores), and “Super Baby Depot” (1 store) in 42 states. For the latest fiscal year ended June 3, 2006, we generated revenues of approximately $3.4 billion, which covers May 28, 2005 to April 12, 2006, and April 13, 2006 to June 3, 2006 on a combined basis.

Overview of Operations

Fiscal 2006 Operating Results

Fiscal 2006 was a year of growth for our Company. Some of the key highlights include:

 

    Comparative store sales increased 4.3%.

 

    Net Sales increased approximately $300 million to over $3.4 billion compared with over $3.1 billion in the prior fiscal year (this figure includes $51.0 million in net sales from the non-comparative 53rd week).

 

    We opened nine new Burlington Coat Factory stores and relocated seven existing stores. We also opened three MJM Designer Shoe stores.

Plans for continued growth and expansion in Fiscal 2007

We hope to continue the revenue growth achieved in fiscal 2006 in the fiscal year ending June 2, 2007 (“fiscal 2007”). Our revenues are generated through sales from existing stores and through sales from newly opened stores. In order to increase sales productivity in existing stores and attract new customers, we strive to

 

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update our merchandise assortments and selections. We plan to launch in Spring 2007 an exclusive private label men’s collection, featuring the Fumagalli ® and Allyn Saint George ® labels. In addition, we recently implemented a new 30-day cash back return policy which we hope will increase sales and improve customer satisfaction among existing customers and encourage non-customers to shop our stores.

In addition to these sales initiatives, management continues to focus on the following areas:

 

    New Store Openings;

 

    Tiered Assortment; and

 

    Central Distribution of Inventory.

New Store Openings. Our future growth plans are to increase our presence in regions that we currently serve and to expand into new markets. New store growth plays a significant part in our strategy to increase sales and profitability. Management believes that it could double the number of our stores within the United States without reaching saturation. We plan to open 19 new stores and convert three existing Cohoes stores to Burlington Coat Factory stores in fiscal 2007, and we hope to open between 20 to 30 new stores annually in subsequent fiscal years.

We believe our capital structure is well-positioned to support our plans for new store openings. The primary sources of funding for future growth will be both internally generated funds and our borrowing availability under our ABL Credit Facility. In addition, our strategy includes, where possible and appropriate, obtaining landlord contributions for fixtures and leasehold improvements. This latter source of funding, where utilized, necessitates a change in our leasing strategy consisting of term commitments which are longer (generally 10 years) than our typical lease terms in the past (firm commitments of three to five years). At the present time, however, a majority of our stores remain under lease agreements with initial terms of five years with multiple options to renew for five years each.

Our plan to increase the number of our stores will depend in part on the continued availability of suitable existing retail locations or built-to-suit store sites on acceptable terms. Increases in costs related to real estate, including, without limitation, acquisition, construction and development costs, could limit our growth opportunities. In accordance with new store opening plans, during the first quarter of fiscal 2007, we opened five new Burlington Coat Factory Stores, reopened two stores previously closed due to Hurricanes Katrina and Wilma, and, in the future, we plan to reopen the last store closed due to hurricane damage by March 2007 and to open an additional 14 stores in the remaining months of fiscal 2007.

Tiered Assortment. We are currently in the process of improving our existing analytical processes for merchandise planning, buying and allocation through the addition of new processes and system enhancements, which we hope will assist us in addressing local customer preferences. The objective of these system and process initiatives is to improve our merchandise assortment at a local level with the expectation of improving sales productivity and profit margins. Our sales and operating results depend in part on our ability to predict and respond to changes in fashion trends and consumer preferences in a timely manner. While these new system enhancements and processes will assist our buyers, planners and allocators in their analysis and planning, if our merchandise selection differs significantly from customer preferences, we may have excess inventory of some merchandise and missed sales opportunities for other merchandise. Excessive inventories may result in lower profit margins due to greater than anticipated markdowns necessary to reduce inventory levels.

Central Distribution of Inventory. With the recent opening of our fourth distribution center in April 2006 in San Bernardino, California, we expect to continue to leverage our distribution capabilities in order to assist in controlling costs associated with our planned new store openings. Prior to opening this distribution center, about half of our merchandise units purchased were sent directly to our stores via the drop-shipment method. Our new distribution facility has provided us with greater capacity to centrally receive, process and distribute units purchased from our vendors. We expect that the shift to central distribution will lower our freight costs and

 

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improve our efficiency in moving merchandise to the selling floors. Given our current and projected distribution utilization rates and planned store openings, we believe we could double the number of our stores with our existing distribution facilities. In addition to reduced freight cost and reduction of labor costs, we expect that our enhanced central distribution capabilities will further our control over inventory.

Uncertainties and Challenges

As management looks to increase profitability through achieving positive comparative store sales and leveraging productivity initiatives focused on freight, warehousing and labor, there are uncertainties and challenges that we face as a retailer of apparel and accessories for men, women and children and home furnishings that will have or are reasonably likely to have a material impact on our revenues or income.

Competition and Price Deflation. 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 initial mark-ups of traditional department stores as well as an assortment of merchandise that is appealing to our customers. In order to continue to execute this concept, we are strengthening our buying organization and are looking to develop systems to allocate product based on regional preferences.

The U.S. retail apparel market and home furnishing market 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 and continue to look for ways to differentiate our stores from those of our competitors.

In the recent past, we have seen price deflation affect the retail industry with the increase of imports from China and other parts of the world capable of production at lower costs. To date, we have been able to compensate for price deflation by increasing unit sales to maintain the level of sales in terms of dollars. While there has been price deflation in the costs of inventory, gross margin on sales is kept in check by the high level of competition. These conditions can be expected to continue for so long as excess production of inventory by lesser developed countries continues. In addition, net profit can be affected by the rising costs of freight, payroll and employee benefits. Our liquidity, however, is not expected to be affected in any material respect so long as we continue to increase sales. Moreover, we expect the availability under our credit facilities to be sufficient for our cash needs.

Changes to import and export laws could have a direct impact on our operating expenses and an indirect impact on consumer prices and we cannot predict any future changes in such laws.

Seasonality of Sales and Weather Conditions. Our sales, like most other retailers, are subject to seasonal influences, with the majority of our sales and net income derived during the months of September, October, November, December and January, which includes the back-to-school and holiday seasons.

Additionally, our sales continue to be 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 over the past ten years, we believe traffic to our stores is still driven in part by weather patterns.

The Transaction

On January 18, 2006, we entered into the Merger Agreement among our Company, Parent and Merger Sub to sell our entire company to entities directly owned by Bain Capital (collectively, the “Equity Sponsors”).

On April 13, 2006, the transaction was consummated by the Equity Sponsors through a $2.1 billion merger of Merger Sub into our Company with our Company being the surviving corporation in the Merger. Under the

 

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Merger Agreement, former holders of our common stock, par value $1.00 per share, received $45.50 per share, or approximately $2.1 billion. Approximately $13.8 million of the $2.1 billion was used, among other things, to settle our equity options. The Merger consideration was funded through the use of our available cash, cash equity contributions from the Equity Sponsors and management and the debt financings as described more fully below.

Following the consummation of the Merger, the Parent entered into a Contribution Agreement with Holdings to effectuate an exchange of shares under Section 351(a) of the Internal Revenue Code of 1986, as amended. The Parent delivered to Holdings all of our outstanding shares, and Holdings simultaneously issued and delivered all of its authorized and outstanding shares of common stock to the Parent.

In connection with the Merger we entered into other definitive agreements as further described in Note 2 to the Consolidated Financial Statements entitled “Basis of Presentation.”

Burlington Coat Factory Warehouse Corporation Corporate Structure

The chart below summarizes our corporate structure prior to the Merger and related transactions.

LOGO

The chart below summarizes our corporate structure following the consummation of the Merger and related transactions.

LOGO

 

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Items Affecting Comparability

Predecessor/Successor bases of accounting

Although our Company continued as the same legal entity after the Merger, the accompanying consolidated balance sheets, statements of operations, and cash flows are presented for two periods: Predecessor and Successor, which relate to the period preceding the Merger and the period succeeding the Merger, respectively. We refer to the operations of Company and subsidiaries for both the Predecessor and Successor periods. We have prepared our discussion of the results of operations for the fiscal year ended June 3, 2006 by making pro forma adjustments, assuming the Transactions were consummated on May 29, 2005, to the Successor and Predecessor periods for the twelve month period (fifty-three week period) ended June 3, 2006 (“fiscal 2006”) to the twelve month period (fifty-two week period) ended May 28, 2005 (“fiscal 2005”). Although this presentation does not comply with generally accepted accounting principles (GAAP), we believe it provides the most meaningful comparison of our results. The combined operating results have not been prepared as pro forma results under applicable regulations, may not reflect the actual results we would have achieved absent the Merger and may not be predictive of future results of operations.

As a result of the Merger, our assets and liabilities have been preliminarily adjusted to their fair value as of the closing date, April 13, 2006. The allocation of fair value is subject to change and the change could be material. Depreciation and amortization expenses are higher in the successor accounting period due to these fair value assessments resulting in increases to the carrying value of our property, plant and equipment and intangible assets.

Interest expense has increased substantially in the successor accounting period in connection with our financing arrangements, which includes a $800 million senior secured ABL Credit Facility, a $900 million secured Term Loan, $305 million senior notes and $99.3 million Holdings Senior Discount Notes, each of which are further described in the liquidity section that follows.

Current Conditions

New Cash Back Return Policy. In August 2006, we implemented a new 30-day cash back return policy which we believe over the long term will increase sales and improve customer satisfaction. Based on studies conducted by consultants engaged by us, management believes this new cash back policy should improve sales among our existing customers who would prefer cash back for their timely returns instead of store credit. In addition, we may be able to convert non-customers to customers by offering cash back returns.

Exclusive Private Men’s Label. In August 2006, we entered into an agreement with Allyn Saint George International, Inc. to become the exclusive retail distributor of Fumagalli® and Allyn Saint George® labels. The agreement contemplates a spring 2007 launch for men’s tailored clothing, shirts and ties. Under the agreement, we have the option to expand our exclusive distribution to other product categories. We believe that the private label market presents a growth area for us. If this initiative proves successful, of which there can be no assurance, we will seek to further grow and expand this market.

Store Openings, Closings, and Relocations. During the first quarter of fiscal 2007 we opened five Burlington Coat Factory Stores. Two stores previously closed due to Hurricane Katrina were reopened during the first fiscal quarter of 2007. During the three months ended September 2, 2006, three Burlington Coat Factory stores, one MJM designer shoe store and one Super Baby Depot store were closed. Two stores were remodeled during the three months ended September 2, 2006. As of September 2, 2006, we operate 367 stores under the names “Burlington Coat Factory Warehouse” (“BCF”) (342 stores), “Cohoes Fashions” (7 stores), “MJM Designer Shoes” (17 stores), and “Super Baby Depot” (1 store). We plan to open 19 Burlington Coat Factory stores during fiscal 2007. Two remodels of existing Burlington Coat Factory stores and the reopening of the remaining store damaged by Hurricane Katrina are planned for the remainder of fiscal 2007. We plan to convert three Cohoes stores to BCF stores during fiscal 2007 and we are reviewing operational alternatives for the remaining four Cohoes stores.

 

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Key Performance Measures

Management considers numerous factors in assessing our Company’s performance. Key performance measures used by management include comparative store sales, inventory turnover, inventory levels, gross margin, net operating margin and liquidity.

Comparative Store Sales. Comparative store sales measure performance of a store during the current reporting period against the performance of the same store in the corresponding period of the previous year. We experienced a decrease in comparative store sales of 0.7% in the first quarter of fiscal 2007 compared with the first quarter of fiscal 2006 which we believe resulted from a lack of fashion trends in ladies sportswear.

Inventory Turnover. Inventory turnover is a measure that indicates how efficiently inventory is bought and sold. It measures the length of time we own our inventory. This is significant because usually the longer the inventory is owned, the more likely markdowns would be used to sell the inventory. Inventory turnover is calculated by dividing the retail sales before sales discounts by the average retail stock for the period being measured. The inventory turnover rate in each of the first fiscal quarters of fiscal 2007 and fiscal 2006 was 2.0. Inventory turnover for the first fiscal quarter is typically below our turnover rate for the fiscal year. This is due to higher inventory levels during the first fiscal quarter as we build inventory for the fall selling season.

Inventory levels are monitored by management to assure that the stores are properly stocked to service customer needs while at the same time assuring that stores are not over-stocked which would necessitate increased markdowns to move slow-selling merchandise. To assist with inventory management, in fiscal 2006, we began implementing a third party markdown optimization software system throughout our stores. Management believes that the system will improve our ability to monitor the performance of merchandise on a regional basis in order to clear underperforming merchandise earlier in the season, purchase newer or more in-demand items more quickly and manage pricing decisions. The initial implementation of the system was limited to certain ladies’ and girls’ sportswear items for the 2005 fall season. During the next phase of implementation, which is scheduled to occur during fiscal 2007, we will be managing additional fashion merchandise. At September 2, 2006, inventory was $794.4 million versus $772.0 million at August 27, 2005. This increase in inventory is due primarily to the increase in the number of stores operating in the first quarter of fiscal 2007 compared with the first quarter of fiscal 2006.

Gross Margin. Gross margin is a measure used by management to indicate whether we are selling merchandise at an appropriate gross profit. Gross margin is the difference between net sales and the cost of sales. For the three month period ended September 2, 2006, we experienced an increase in gross margin to 35.0% from 34.6% for the three month period ended August 27, 2005. This increase is due primarily to increases in initial margins in the current year’s three month period compared with the similar period of last year.

Net Operating Margin. Net operating margin provides management with an indication of the operating profitability of our Company. Net operating margin is the difference between revenues (net sales and other revenue) and the combination of the cost of sales and operating expenses (Selling and Administrative Expenses, Depreciation and Amortization). Historically, our first fiscal quarter is a loss quarter. The negative margins for the three month period ended September 2, 2006 and the three month period ended August 27, 2005 were $55.6 million and $24.3 million, respectively. This increase is due primarily to increases in depreciation and amortization due to purchase accounting.

Liquidity. Liquidity measures our ability to generate cash. Management measures liquidity through cash flow and working capital. Cash flow is the measure of cash generated from operating, financing, and investing activities. We experienced an increase in cash flow of $30.0 million during the three months ended September 2, 2006 compared with the three months ended August 27, 2005. The increase was the result of net proceeds of borrowings under our ABL Credit Facility used in part to fund increases in inventory. In addition, our acquisition costs for property and equipment decreased $4.3 million during the comparative three month periods. Changes in

 

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working capital also impact our cash flows. Working capital is current assets, including cash, minus current liabilities. Working capital at September 2, 2006 was $354.4 million compared with $391.0 million at August 27, 2005. This decrease in working capital is due primarily to a decrease in our cash position, resulting from the use of available cash to fund part of the Merger.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities; (ii) the disclosure of contingent assets and liabilities at the date of the consolidated financial statements; and (iii) the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue returns, bad debts, inventories, income taxes, financing operations, asset impairment, retirement benefits, risk participation agreements, vendor promotional allowances, reserves for closed store and contingencies and litigation. 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.

We believe that the following represent the more critical estimates and assumptions used in the preparation of the condensed consolidated financial statements:

Inventory. Our inventory is valued at the lower of cost or market using the retail first-in, first-out (“FIFO”) inventory method. Under the retail inventory method, the valuation of inventory at cost and resulting gross margin are calculated by applying a calculated cost to retail ratio to the retail value of inventory. The retail inventory method is an averaging method that has been widely used in the retail industry due to its practicality. Additionally, the use of the retail inventory method will result in valuing inventory at the lower of cost or market if markdowns are currently taken as a reduction of the retail value of inventory. Inherent in the retail inventory method calculation are certain significant management judgments and estimates including, merchandise markon, markups, markdowns and shrinkage which significantly impact the ending inventory valuation at cost as well as the resulting gross margin. Management believes that our retail inventory method and application of FIFO provides an inventory valuation which approximates cost using a first-in, first-out assumption and results in carrying value at the lower of cost or market. Estimates are used to charge inventory shrinkage for the first three fiscal quarters of the fiscal year. An actual physical inventory is conducted at the end of the fiscal year to calculate actual shrinkage. We also estimate the required markdown allowances. 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 estimates are made, over accruals or under accruals may be uncovered as a result of the physical inventory requiring fourth quarter adjustments.

Insurance. We have risk participation agreements with insurance carriers with respect to workers’ compensation, 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. An increase in worker’s compensation claims by employees, health insurance claims by employees or liability claims will result in a corresponding increase in our costs related to these claims. Insurance reserves amounted to $32.4 million and $30.8 million at September 2, 2006 and June 3, 2006, respectively.

Reserves for Revenue Returns. We record reserves for future revenue returns. The reserves are based on current revenue volume and historical claim experience. If claims experience differs from historical levels, revisions in our estimates may be required. Sales reserves amounted to $1.9 million at September 2, 2006 and June 3, 2006.

 

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Long-Lived Assets. We test for recoverability of long-lived assets whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. This includes performing an analysis of anticipated undiscounted future net cash flows of long-lived assets. If the carrying value of the related assets exceeds the undiscounted cash flow, we reduce the carrying value to its fair value, which is generally calculated using discounted cash flows. Various factors including future sales growth and profit margins are included in this analysis. To the extent these future projections change, the conclusion regarding impairment may differ from the estimates. Future adverse changes in market conditions or poor operating results of underlying assets could result in losses or an inability to recover the carrying value of the assets that may not be reflected in an asset’s current carrying value, thereby possibly requiring an impairment charge in the future.

Allowance for Doubtful Accounts. We maintain allowances for bad checks, miscellaneous receivables and losses on credit card accounts. This reserve is calculated based upon historical collection activities adjusted for current conditions.

Results of Operations

The following table sets forth certain items in the Condensed Consolidated Statements of Operations as a percentage of net sales for the three month periods ended September 2, 2006 and August 27, 2005.

 

     Percentage of Net Sales  
     Three Months Ended (unaudited)  
     Successor
September 2, 2006
    Predecessor
August 27, 2005
 

Net Sales

   100.0 %   100.0 %

Cost of Sales

   65.0     65.4  

Selling & Administrative Expenses

   37.6     36.0  

Depreciation

   5.3     3.5  

Amortization

   1.7     —    

Interest Expense

   5.4     0.3  

Other Income, Net

   (0.1 )   —    

Other Revenue

   1.1     1.1  

Loss before Income Taxes

   (13.7 )   (4.0 )

Income Tax Benefit

   (5.8 )   (1.5 )

Net Loss

   (7.9 )%   (2.4 )%

Three Months Ended September 2, 2006 compared with Three Months Ended August 27, 2005

Sales

Consolidated net sales increased $6.0 million (0.9%) for the three month period ended September 2, 2006 compared with the similar period of last year. Comparative stores sales decreased 0.7% for the first quarter of fiscal 2007. Comparative store sales were negatively impacted by high gas prices, weakness in our home furnishings department and a lack of fashion trends which resulted in reduced consumer demand for ladies sportswear.

We define our 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 1 year and 2 months). Existing stores whose square footage has been changed by more than 20% and relocated stores are classified as new stores for comparative store sales purposes. This method is used in this section in comparing the results of operations for the three month period ended September 2, 2006 with the results of operations for the three month period ended August 27, 2005.

 

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Five new Burlington Coat Factory department stores opened during the first quarter of fiscal 2007 contributed $1.1 million to net sales for the first quarter of fiscal 2007. Stores opened during fiscal 2006 contributed $15.1 million to this year’s net sales in their non-comparative periods. Stores closed subsequent to August 27, 2005 contributed $8.0 million to last fiscal year’s first quarter sales.

The Cohoes Fashions stores contributed $8.6 million to consolidated sales for the three month period ended September 2, 2006 compared with $9.7 million for the three month period ended August 27, 2005. This decrease is due to comparative store sales decrease of 12.2% during the first quarter of fiscal 2007 compared with the first quarter of fiscal 2006. We believe that this decrease in Cohoes Fashions comparative store sales also resulted from high gas prices and a lack of fashion trends in ladies sportswear.

The MJM Designer Shoes stores contributed $12.1 million to sales for the three month period ended September 2, 2006 compared with $10.5 million for the similar period of last year. This increase is due to comparative store sales increases of 3.3% during the first quarter of fiscal 2007 compared with the first quarter of fiscal 2006. Stores opened during fiscal 2006 contributed $1.6 million to this year’s net sales in their non-comparative periods.

Other Revenue

Other Revenue (consisting of rental income from leased departments, sublease rental income, layaway and alteration service charges and miscellaneous revenue items) increased to $7.4 million for the three month period ended September 2, 2006 compared with $7.3 million for the similar period of last year. This increase is primarily related to increases in rental income offset in part by decreases in alteration and other service charges.

Cost of Sales

Cost of sales increased $1.6 million (0.4%) for the three month period ended September 2, 2006 compared with the three month period ended August 27, 2005. The dollar increase in cost of sales was due primarily to the increase in net sales during the three month period ended September 2, 2006 compared with the three month period ended August 27, 2005. Cost of sales as a percentage of net sales decreased to 65.0% in the first quarter of fiscal 2007 from 65.4% in the first quarter of fiscal 2006. The decrease in cost of sales, as a percentage of net sales, for the fiscal 2007 period compared with the fiscal 2006 period was primarily the result of increases in initial margins and we believe that these greater initial margins will continue through the fall selling season. Our cost of sales and gross margin may not be comparable to those of other entities, since some entities include all of the costs related to their buying and distribution functions in cost of sales. We include these costs in the Selling and Administrative Expenses and Depreciation line items in the Condensed Consolidated Statements of Operations. We include in our Cost of Sales line item all costs of merchandise (net of purchase discounts and certain vendor allowances), inbound freight, warehouse outbound freight and freight related to internally transferred merchandise and certain merchandise acquisition costs, primarily commissions and import fees.

Selling and Administrative Expenses

Selling and Administrative Expenses increased $12.6 million (5.4%) from the fiscal 2006 three month period to the fiscal 2007 three month period. The increase in selling and administrative expenses was due primarily to the increased number of stores in operation during the first quarter of fiscal 2007 as compared with the first quarter of fiscal 2006 and to $9.8 million in additional expenses related to the Merger. As a percentage of Net Sales, Selling and Administrative Expenses were 37.6% for the three month period ended September 2, 2006 compared with 36.0% for the three month period ended August 27, 2005.

 

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Depreciation

Depreciation expense amounted to $35.0 million in the three month period ended September 2, 2006 compared with $22.6 million in the three month period ended August 27, 2005. This increase of $12.4 million is attributable primarily to the step up in basis of our fixed assets related to the Merger of approximately $416 million and to capital additions made subsequent to fiscal 2006’s first fiscal quarter.

Interest Expense

Interest expense was $35.4 million and $1.8 million for the three month periods ended September 2, 2006 and August 27, 2005, respectively. The increase in interest expense was due to the interest related to the debt incurred as a result of the Merger.

Other (Income), Net

Other (Income), Net (consisting of investment income, gains and losses on disposition of assets and other miscellaneous items) increased $0.9 million to $1.0 million for the three month period ended September 2, 2006 compared with the similar fiscal period of last year. The increase is due primarily to losses of $1.5 million, resulting from the write off of the book values of fixed assets of stores closed during the quarter ended August 27, 2005. Interest income amounted to $0.9 million and $1.4 million for the three months ended September 2, 2006 and August 27, 2005, respectively.

Income Tax

Income tax benefit was $38.3 million for the three month period ended September 2, 2006 and $10.0 million for the similar fiscal period of last year. The effective tax rate for the first quarter of fiscal 2007 was 42.5% compared with 38.7% in the similar fiscal quarter of 2006. The effective tax rate for the months ended September 2, 2006 and August 27, 2005 are based primarily on our forecasted annualized effective tax rates. The increase in the effective rate is primarily related to the impact of expected decreases in work opportunity jobs credits during fiscal 2007.

Net Loss

Net loss amounted to $51.8 million for the three month period ended September 2, 2006 compared with $15.9 million for the comparative period of last year. The increase in the Net Loss of $35.9 million is due primarily to additional expenses related to the Merger. Our first quarter is typically a loss quarter since the majority of our sales occur between September and January of each year.

 

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Pro Forma Fiscal Year Ended June 3, 2006 Compared with the Fiscal Year Ended May 28, 2005

Generally accepted accounting principles do not permit combining the result of the predecessor and successor companies in our consolidated financial statements. However, in order to provide investors with useful information and to facilitate an understanding of fiscal 2006 results in the context of fiscal 2005 financial information, the following table presents historical financial information for the predecessor company for the period from May 29, 2005 to April 12, 2006 and for the successor company for the period from April 13, 2006 to June 3, 2006 and financial information on a pro forma basis as if the Transaction had occurred on May 29, 2005.

 

     Predecessor     Successor  
     Fiscal Year Ended     May 29, 2005
through
April 12, 2006
    April 13, 2006
through
June 3, 2006
    Pro Forma
Twelve Months
Ended
June 3, 2006
 
     May 29, 2004     May 28, 2005        
           (dollars in thousands)              

Consolidated Statements of Operations:

          

Revenues:

          

Net Sales

   $ 2,833,484     $ 3,171,242     $ 3,017,633     $ 421,180     $ 3,438,813  

Other Revenue

     26,476       28,598       27,675       4,066       31,533  
                                        
     2,859,960       3,199,840       3,045,308       425,246       3,470,346  
                                        

Costs and Expenses:

          

Cost of Sales (Exclusive of Depreciation and Amortization)

     1,765,478       1,987,159       1,916,798       266,465       2,183,263  

Selling and Administrative Expenses

     899,984       957,759       897,231       154,691       1,078,193  

Depreciation

     83,915       89,858       78,804       18,097       136,213  

Amortization

     75       98       494       9,758       48,267  

Interest Expense

     5,863       7,334       4,609       18,093       135,870  

Other (Income) Loss, Net

     (10,335 )     (14,619 )     (3,572 )     (4,876 )     (1,395 )
                                        
     2,744,980       3,027,589       2,894,364       462,228       3,580,411  
                                        

Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Tax

     114,980       172,251       150,944       (36,982 )     (110,065 )

Provision (Benefit) for Income Tax

     42,641       66,204       56,605       (9,816 )     (41,285 )
                                        

Income (Loss) from Continuing Operations

   $ 72,339     $ 106,047     $ 94,339     $ (27,166 )   $ (68,780 )
                                        

The pro forma information for the year ended June 3, 2006 includes an adjustment to selling and administration expenses of $26.3 million to reflect higher rent expense from the impact of purchase accounting, advisory fees paid for a full year and other payroll related expenses due to the Merger, an adjustment to depreciation expense of $39.3 million resulting from fair value adjustments to property, plant and equipment resulting from the Merger, an adjustment of $38.0 million for additional amortization related to Net Favorable Leases and deferred debt charges that resulted from the Merger, an adjustment to interest expense of $113.2 million to reflect the higher level of borrowing under our new credit facility and new debt put in place to finance the Merger, an adjustment of $7.1 million to decrease Other (Income) Loss, Net to reflect the reduction in interest income from the Merger, an adjustment to income taxes of $91.9 million to reflect the tax effects of the Merger’s pro forma adjustments based on the Company’s effective tax rate resulting in an adjustment (Loss) from Continuing Operation and Net Loss of ($132.2) million. These pro forma adjustments do not purport to represent what our results of operations would actually have been had the Merger occurred on May 29, 2005 or to project our results of operations for any future period.

 

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The following table sets forth the various components of our consolidated statements of operations, expressed as a percentage of net sales, for the periods indicated that are used in connection with the discussion herein.

     Successor           Predecessor  
     Fiscal Year Ended  
     Pro Forma
June 3,
2006
    May 28,
2005
    May 29,
2004
 

Statement of Operations Data:

      

Net Sales

   100.0 %   100.0 %   100.0 %

Cost of Sales

   63.5     62.7     62.3  

Selling & Administrative Expenses

   31.3     30.2     31.8  

Depreciation

   4.0     2.8     3.0  

Amortization

   1.4     —       —    

Interest Expense

   3.9     0.2     0.2  

Other (Income) Loss, Net

   —       (0.5 )   (0.4 )

Other Revenue

   0.9     0.9     0.9  

Income (Loss) from Continuing Operations Before Income Taxes

   (3.2 )   5.4     4.1  

Income Tax Expense (Benefit)

   (1.2 )   2.1     1.5  
                  

Income (Loss) From Continuing Operations

   (2.0 )%   3.3 %   2.6 %

Sales. Consolidated net sales from continuing operations increased $267.6 million, or 8.4%, for fiscal 2006 compared with fiscal 2005. Comparative stores sales increased 4.3% for fiscal 2006 compared with fiscal 2005. Comparative store sales increased primarily from strong demand for non-outwear apparel and strong shoe sales. We define our comparative store sales as sales of those stores that have operated at least 425 days for the entire comparative period. Existing stores whose square footage has been changed by more than 20% and relocated stores are classified as new stores for comparative store sales purposes. Sales during the non-comparative 53rd week were $51.0 million.

Nine new Burlington Coat Factory department stores opened during fiscal 2006 and contributed $66.0 million to net sales in fiscal 2006. Burlington Coat Factory stores opened during fiscal 2005 contributed $32.8 million to this year’s net sales in their non-comparative periods.

The Cohoes Fashions stores contributed $48.5 million to consolidated sales in fiscal 2006 compared with $46.4 million in fiscal 2005. Comparative store sales increased 0.2% for fiscal 2006 compared with the comparative fiscal 2005 period.

The MJM Designer Shoes stores contributed $59.6 million to sales for fiscal 2006 compared with $44.6 million for fiscal 2005. This increase is due to a comparative store sales increase of 6.8% in fiscal 2006. Sales of our three MJM Designer Shoes stores opened during fiscal 2006 amounted to $6.5 million and the sales of four MJM Designer Shoes stores opened during fiscal 2005 amounted to $5.1 million, during their non-comparative periods.

Other Revenue. Other Revenue (consisting of rental income from leased departments, sublease rental income, layaway and alteration service charges and miscellaneous revenue items) increased to $31.5 million in fiscal 2006 compared with $28.6 million for fiscal 2005. The increase is related primarily to increases in rental income received from leased departments. The increase in rental income from leased departments was caused by the combination of greater business volume and an increase in the leased department rental rate over last year.

Cost of Sales. Cost of sales increased $196.1 million, or 9.9%, for fiscal 2006 compared with fiscal 2005. The dollar increase in cost of sales was due primarily to the increase in net sales during fiscal 2006 compared with fiscal 2005 and to increased freight costs. Cost of sales as a percentage of net sales increased from 62.7% in

 

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fiscal 2005 to 63.5% in fiscal 2006. The increase in cost of sales as a percentage of net sales for fiscal 2006 compared with fiscal 2005 was primarily the result of lower initial margins, increased freight charges, increases in inventory shrinkage and increases in markdowns. Larger markdowns were taken during the period to reduce inventory levels from prior seasons. Sales performance will determine if such markdowns will be necessary in the future. The increase in freight charges was due primarily to fuel surcharges resulting from increased gasoline and oil prices. Our freight charges could continue to increase if fuel costs continue to rise. This may have an adverse impact on our cost of sales and gross margin to the extent that we do not pass the increased costs through to our customers. Our cost of sales and gross margin may not be comparable to those of other entities, since some entities include all of the costs related to their buying and distribution functions in cost of sales. We include these costs in the Selling and Administrative Expenses line item in the Consolidated Statements of Operations. We include in our Cost of Sales line item all costs of merchandise (net of purchase discounts and certain vendor allowances), inbound freight, warehouse outbound freight and freight related to internally transferred merchandise and certain merchandise acquisition costs, primarily commissions and import fees.

Selling and Administrative Expense. Selling and Administrative Expenses were $1,078.2 million for fiscal 2006, compared with $957.8 million for fiscal 2005. The increase in Selling and Administrative Expenses was due primarily to one-time expenditures related to the Merger of $40.9 million, an increase in the number of stores in operation during fiscal 2006 compared with fiscal 2005, increases in utility costs, advertising expenditures and employee benefits. As a percentage of Net Sales, Selling and Administrative Expenses were 31.3% for fiscal 2006. For fiscal 2005, Selling and Administrative Expenses were 30.2% of sales. Utility costs were up in fiscal 2006 due to higher oil prices. Advertising expenditures increased because of increases in advertising rates for television and print media advertisements. We expect the costs associated with providing employee benefits will continue to rise.

Depreciation Expense. For fiscal 2006, depreciation expense amounted to $136.2 million compared with $89.9 million for fiscal 2005. This increase is attributable primarily to depreciation related to the step up in basis of fixed assets resulting from the valuation of assets completed in connection with the Merger and to depreciation recognized on capital additions relating to new store purchases, improvements, expansions and remodelings over the past two fiscal years.

Amortization Expense. Amortization expense was $48.3 million for fiscal 2006 compared with $.1 million for fiscal 2005. This increase in amortization expense is primarily due to $637.1 million in Net Favorable Leases recorded as a purchase accounting adjustment and $71.4 million in deferred debt charges recorded as a result of the Transactions.

Interest Expense. Interest expense increased to $135.9 million from $7.3 million for fiscal 2006 compared with fiscal 2005. This increase in interest expense is primarily related to our ABL Credit Facility, our secured term loan, our senior notes and our Holdings Senior Discount Notes which all relate to financing activities related to the Merger.

Other Income, Net. Other Income, Net (consisting of investment income, gains and losses from sale of assets and other miscellaneous items) decreased to $1.4 million for fiscal 2006 compared with $14.6 million for fiscal 2005. During fiscal 2006 and fiscal 2005, we received $0.6 million and $4.2 million, respectively, in settlement of claims we had filed in the bankruptcy proceedings of Kmart Corporation in respect of four lease locations which Kmart had subleased to us but had rejected in the bankruptcy proceedings. Of the $4.2 million received during fiscal 2005, $2.8 million related to stores at three locations at which we had continuing operations, and $1.4 million related to one location at which we were required to discontinue operations. There was no investment income for fiscal 2006 and $4.7 million for fiscal 2005. The decrease in investment income is due to decreases in available cash and investments used to finance a portion of the Merger. In addition, in fiscal 2006, we recognized $0.8 million in other income due to a reduction in reserves for claims and losses on the disposition of property and equipment of $2.7 million. Other income items were offset in part by $1.0 million in gains from insurance recoveries. During fiscal 2005, we realized $4.8 million in income due to a reduction in reserves for disputed claims, and $0.8 million in net gains on disposition of property.

 

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Income Tax. Income tax benefit was $41.3 million for fiscal 2006, compared with income tax expense of $66.2 million for fiscal 2005. The effective tax rates for fiscal 2006 and fiscal 2005 were 37.5% and 38.4%, respectively.

Income (Loss) from Continuing Operations. Loss from continuing operations amounted to ($68.8) million for fiscal 2006 compared with Income from Continuing Operations of $106.0 million for fiscal 2005.

Discontinued Operations. There were no discontinued operations recorded in fiscal 2006. During fiscal 2005, we discontinued the operations of three stores and one partnership investment. During fiscal 2005, net sales for these stores amounted to $11.2 million. Gross margin amounted to $2.4 million for fiscal 2005 and loss from discontinued operations amounted to $1.0 million for fiscal 2005.

Net Income (Loss). Net income (loss) decreased ($173.8) million to ($68.8) million for fiscal 2006 from $105.0 million for fiscal 2005.

Stores Damaged by Hurricanes. As a result of the effects of Hurricane Katrina on August 29, 2005 and Hurricane Wilma on October 23, 2005, three of our stores (two in Louisiana and one in Florida) were damaged and remained closed through the end of fiscal 2006. All merchandise inventories in these three stores, totaling $14.0 million at retail and approximately $7.6 million at cost, were destroyed. We are insured at the selling price of the inventory less a deductible and have been reimbursed in excess of the net book value of the merchandise inventory. All of our long-lived assets at these three stores, which had a net book value of approximately $3.8 million, were damaged or destroyed. We are insured at replacement cost for these assets, except for certain leasehold improvements. During fiscal 2006, we received partial payments on this claim of $12.4 million. During fiscal 2006, we recognized as income $1.0 million in insurance recoveries in excess of the book value of assets damaged. We are unable to determine the amount and timing of any future insurance recoveries. Two of these stores have reopened and the third store is scheduled to open by March 2007.

Fiscal Year Ended May 28, 2005 Compared with the Fiscal Year Ended May 29, 2004

Sales. Consolidated net sales from continuing operations increased $337.8 million, or 11.9%, for fiscal 2005 compared with fiscal 2004, due in part to sales from new stores, and in part to comparative stores sales, which increased 6.3% for fiscal 2005. The increase in comparative store sales was in part the result of colder temperatures throughout the country in the fall months compared with the prior year, and an overall increase in customer demand for apparel merchandise. Comparative store sales of linens and home furnishings (a subset of the home products segment) decreased 2.5% in fiscal 2005 as compared with fiscal 2004. This decrease in the comparative store sales of linens and home furnishings can be attributed to strong competition among retailers of home products. The expansion of stores by competitors, combined with increased product lines being offered by our competitors, has challenged us to continue to find ways to maintain and improve our current market share. In order to counter this trend, we are reevaluating the linen and home furnishings product lines available in our stores, expanding the sections that are experiencing strong sales and improving merchandising methods for obtaining home products. Nine new BCFW stores opened during fiscal 2005 contributed $50.9 million to fiscal 2005 net sales. Stores opened during fiscal 2004 contributed $79.0 million to fiscal 2005 net sales from the beginning of fiscal 2005 to the anniversary of their opening date. We closed two BCFW stores during fiscal 2005. Through June 2003, we operated seven stores under the name “Decelle.” During July 2003, all of these stores were closed. We converted three of these stores to BCFW stores during fiscal 2004 and two of these stores to Cohoes Fashions stores during fiscal 2005. We had no net sales in fiscal 2005 for the Decelle stores. Net sales in fiscal 2004 for the Decelle stores were $3.2 million. The Cohoes Fashions stores contributed $46.4 million to consolidated net sales in fiscal 2005 compared with $38.9 million in fiscal 2004. Cohoes Fashions comparative store sales increased 2.1% in fiscal 2005. During fiscal 2005, we converted two former Decelle stores into Cohoes Fashions stores. These two stores contributed $6.6 million to net sales in fiscal 2005. The MJM Designer Shoes stores contributed $44.6 million to fiscal 2005 net sales compared with $29.4 million in fiscal 2004. As of May 28, 2005, 15 MJM Designer Shoes stores were operating. Four new MJM Designer Shoes stores opened

 

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during fiscal 2005 contributed $9.2 million to net sales in fiscal 2005. We opened one new Super Baby Depot store in the second half of fiscal 2005, and converted the sole Totally 4 Kids store into a Super Baby Depot store during the second quarter of fiscal 2005. These two stores contributed $2.2 million to net sales in fiscal 2005.

Other Revenue. Other revenue increased to $28.6 million for fiscal 2005 compared with $26.5 million for fiscal 2004. Other revenue consists primarily of rental income from leased departments, sublease rental income, layaway and alteration service charges, and other miscellaneous revenue items, each of which increased compared with the prior year.

Cost of Sales. Cost of sales increased $221.7 million, or 12.6%, for fiscal 2005 compared with fiscal 2004. The dollar increase in cost of sales was due to the increase in net sales during fiscal 2005 compared with fiscal 2004. Cost of sales as a percentage of net sales increased slightly from 62.3% in fiscal 2004 to 62.7% in fiscal 2005. The increase in cost of sales, as a percentage of sales, for fiscal 2005 compared with fiscal 2004 was primarily the result of increased markdowns.

Selling and Administrative Expenses. Selling and administrative expenses, including amortization of leasehold purchases, increased $58.0 million, or 6.4%, from fiscal 2004 to fiscal 2005. The increase in selling and administrative expenses was due primarily to the increased number of stores in operation during fiscal 2005 compared with fiscal 2004. As a percentage of net sales, selling and administrative expenses were 30.2% for fiscal 2005 and 31.8% for fiscal 2004. This percentage decrease is primarily related to comparative store sales increases during fiscal 2005. As a percentage of net sales, payroll related costs declined 0.8% for fiscal 2005 compared with fiscal 2004 as a result of our budgetary controls over payroll expenditures. In addition, occupancy-related expenses declined 0.5% for fiscal year 2005 as compared with fiscal 2004. During fiscal 2005 and fiscal 2004, we established reserves of $0.3 million and $1.5 million, respectively, for future lease obligations relating to stores closed during these periods, of which $0.8 million was paid during fiscal 2005 and $0.5 million was paid during fiscal 2004.

Depreciation Expense. Depreciation expense amounted to $89.9 million in fiscal 2005 compared with $83.9 million in fiscal 2004. This increase of $6.0 million in fiscal 2005 compared with fiscal 2004 is attributable primarily to capital additions relating to new store purchases, improvements, expansions and remodelings over the past two fiscal years.

Interest Expense. Interest expense increased $1.3 million for fiscal 2005 compared with fiscal 2004. The increase in interest expense is primarily related to the $100.0 million of senior notes issued by us in September 2003 as the interest expense for fiscal 2005 includes twelve months of interest on the notes as compared with fiscal 2004, which included approximately eight months of interest on the notes. The senior notes were repaid in November 2005.

Other Income, Net. Other income, net consists of investment income, gains and losses from sale of assets and other miscellaneous items. Other income, net increased to $14.6 million for fiscal 2005 compared with $10.3 million for fiscal 2004. During fiscal 2005, we received $4.2 million in connection with settlements of claims we had filed in the bankruptcy proceedings of Kmart Corporation in respect of four lease locations which Kmart had subleased to us but had rejected in the bankruptcy proceedings. Of the $4.2 million, $2.8 million relate to stores at three locations at which we have continuing operations, and $1.4 million relate to one location at which we were required to discontinue operations. During fiscal 2005 and fiscal 2004, we recognized $4.8 million and $5.0 million, respectively, in other income due to a reduction in reserves for disputed claims. For fiscal 2005, we had net gains on disposition of property and equipment of $0.8 million, compared with net gains of $1.6 million for fiscal 2004. Investment related income amounted to $4.7 million fiscal 2005, compared with $2.3 million for the similar period of a year ago. These increases are primarily related to increases in interest income realized from higher amounts of investable funds and to increases in investment rates.

Income Tax. The provision for income taxes was $66.2 million for fiscal 2005 and $42.6 million for fiscal 2004. The effective tax rate for fiscal 2005 was 38.4% compared with 37.1% for fiscal 2004. The increase in the effective tax rate is primarily the result of an increase in our expected effective state income tax rate.

 

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Income from Continuing Operations. Income from continuing operations amounted to $106.0 million for fiscal 2005 compared with $72.3 million for fiscal 2004. Basic and diluted income per share from continuing operations was $2.37 per share for fiscal 2005 compared with basic and diluted income per share from continuing operations of $1.62 per share for fiscal 2004.

Discontinued Operations. During fiscal 2005 we discontinued the operations of three stores and the operations of one of our consolidated investments. Net sales for these entities amounted to $11.2 million in fiscal 2005. Gross margins amounted to $2.4 million for entities closed during fiscal 2005. Net loss from discontinued operations amounted to $1.0 million during fiscal 2005. During fiscal 2004, we discontinued the operations of eight stores. Net sales for these stores and the three stores closed during fiscal 2005 amounted to $22.8 million in fiscal 2004. Gross margins amounted to $7.0 million for stores closed during fiscal 2004. Net loss from discontinued operations amounted to $4.4 million during fiscal 2004. Loss per share from discontinued operations was $0.02 per share for fiscal 2005 and $0.10 per share for fiscal 2004.

Net Income. Net income increased $37.1 million to $105.0 million for fiscal 2005 from $68.0 million for fiscal 2004. Basic and diluted net income per share was $2.35 per share for fiscal 2005 compared with $1.52 per share for the comparative 2004 period.

Liquidity and Capital Resources

We fund inventory expenditures during normal and peak periods through cash flows from operating activities, available cash, and our revolving credit facility. 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 financing the remodeling of new and existing stores, debt servicing, and providing for working capital, which principally represents the purchase of inventory.

We have been able to meet our cash needs principally by using cash on hand, cash flows from operations and our revolving credit facility.

We believe that cash generated from operations, along with our existing cash and revolving credit facilities, will be sufficient to fund our expected cash flow requirements, and planned capital expenditures for at least the next 12 months.

Post-Transaction

We have available funds under our ABL Credit Facility, subject to certain conditions. We expect that our primary liquidity requirements will be for debt service, capital expenditures and working capital.

In connection with the Merger and related financing, we have incurred substantial amounts of debt, including amounts outstanding under our $800 million ABL Credit Facility, $900 million term loan, $305 million senior notes, and $99.309 million Holdings Senior Discount Notes. Interest payments on all our indebtedness have significantly reduced our cash flow from operations. As of September 2, 2006, we had total debt of $1.7 billion.

Senior Secured Credit Facilities

$800 Million ABL Credit Facility

Our Company, as lead borrower, the other borrowers named therein, Bank of America as administrative agent and as collateral agent, and the lenders named therein entered into that certain ABL credit agreement dated as of April 13, 2006 (the “ABL Agreement”). The ABL Agreement establishes a revolving credit loan facility with the principal amount of commitments and loans thereunder not to exceed $800 million (which may be increased or decreased with the provisions of the ABL Agreement). Borrowings under the ABL Credit Facility

 

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are limited by a borrowing base which is calculated periodically based on specified percentages of the value of eligible inventory and eligible credit card receivables, subject to certain reserves and other adjustments. The ABL Credit Facility is guaranteed by certain of our U.S. subsidiaries and secured by (a) a perfected first priority lien on all of our inventory, accounts and personal property related to inventory and accounts and our equity interests in certain of our U.S. subsidiaries and (b) a perfected second priority lien on substantially all of our other real and personal property and that of our subsidiaries, in each case subject to various limitations and exceptions. The termination date of the ABL Agreement is the earlier of May 28, 2011 or the date that all obligations under such agreement are satisfied. As of September 2, 2006, we had $362.3 million outstanding under the ABL Credit Facility and unused availability of $236.6 million.

Term Loan Facility

Our Company, as borrower, Bear Stearns Corporate Lending Inc., as administrative agent and as collateral agent, and the lenders identified therein entered into that certain term loan credit agreement dated as of April 13, 2006 (the “Term Loan Agreement”). The Term Loan Agreement establishes a term loan in a principal amount not to exceed $900 million. The term loan facility is guaranteed by certain of our subsidiaries and secured by (a) a perfected first priority lien on substantially all of our real and personal property and that of our subsidiaries and (b) a perfected second priority lien on all of our inventory, accounts and personal property related to inventory and accounts and that of our subsidiaries, in each case subject to various limitations and exceptions. At the closing of the Merger, the total amount of the term loan was drawn to finance the transaction. The termination date of the Term Loan Agreement is the earlier of May 28, 2013 or the date upon which all obligations pursuant to the Term Loan Agreement are satisfied. As of September 2, 2006, we had $895.5 million outstanding under our term loan facility.

BCFWC Senior Notes

On April 10, 2006, we issued $305.0 million aggregate principal amount of BCFWC senior notes due April 15, 2014. The senior notes were issued at a discount and yielded $299.0 million at the transaction date. We issued the senior notes in transactions exempt from or not subject to registration under the Securities Act, pursuant to Rule 144A and Regulation S under the Securities Act. As of September 2, 2006, we had $299.3 million outstanding in senior notes.

Interest. Interest on the senior notes will accrue at a rate of 11 1/8% per year, payable semi-annually in cash in arrears on April 15 and October 15 of each year, commencing October 15, 2006.

Guarantees. Holdings and each of our current and future restricted subsidiaries have jointly, severally, fully and unconditionally guaranteed senior notes. The senior notes are guaranteed on a senior unsecured basis. If we create or acquire a new domestic subsidiary, then that subsidiary will fully and unconditionally guarantee the senior notes on a senior unsecured basis, unless we designate the subsidiary as an “unrestricted subsidiary” under the indenture governing the senior notes. Holders of the senior notes should not attribute significant value to the Holdings guarantee, as Holdings does not have any assets other than our capital stock, and the covenants in the indenture relating to the senior notes do not apply to Holdings.

Optional Redemption. Prior to April 15, 2010, we may redeem some or all of the senior notes at any time at a price of 100% of the principal amount of the notes redeemed plus a “make-whole” premium. On or after April 15, 2010, we may redeem some or all of the senior notes at any time at the redemption prices described in the indenture governing the senior notes, plus accrued and unpaid interest, if any. In addition, at any time prior to April 15, 2009, we may also redeem up to 35% of the aggregate principal amount of the senior notes with the net cash proceeds of certain equity offerings at the redemption price specified under the indenture governing the senior notes, plus accrued and unpaid interest, if any.

The “Change of Control” and “Certain Covenants” provisions of the indenture governing the Senior Notes are substantially the same as those described below under “Holdings Senior Discount Notes—Change of Control” or “Holdings Senior Discount Notes—Certain Covenants.”

 

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Holdings Senior Discount Notes

On April 10, 2006, we issued, through our newly-formed holding company, Holdings, $99,309,000 aggregate principal amount of 14 1/2% Senior Discount Notes due October 15, 2014. The Senior Discount Notes were issued at a discount and yielded $75.0 million at the transaction date. Holdings issued the Holdings Senior Discount Notes in transactions exempt from or not subject to registration under the Securities Act, pursuant to Rule 144A and Regulation S under the Securities Act. As of September 2, 2006, we had $79.2 million outstanding in Holdings Senior Discount Notes.

Interest. Prior to April 15, 2008, no cash interest will accrue on the Holdings Senior Discount Notes. Interest on the Holdings Senior Discount Notes will accrete at rate of 14 1/2% compounded semi-annually to an aggregate accreted value of $99 million, the full principal amount at maturity on April 15, 2008. Thereafter, interest will accrue at a rate of 14 1/2% per year, payable semi-annually in cash in arrears on April 15 and October 15 of each year, commencing on October 15, 2008.

Guarantees. The Holdings Senior Discount Notes are not guaranteed by us or any of our subsidiaries.

Optional Redemption. Holdings may redeem any of the Holdings Senior Discount Notes, in whole or in part, at any time prior to April 15, 2008 at a price equal to 100% of the accreted value of the notes plus a “make-whole” premium. Holdings may redeem any of the Holdings Senior Discount Notes, in whole or in part, at any time on or after April 15, 2008, at the redemption prices described in the indenture governing the Holdings Senior Discount Notes, plus accrued and unpaid interest, if any. In addition, at any time prior to April 15, 2008, Holdings may redeem up to 35% of the aggregate principal amount of the Holdings Senior Discount Notes with the net cash proceeds of certain equity offerings.

Mandatory Partial Redemption. Holdings will be required to redeem a portion of the Holdings Senior Discount Notes outstanding on April 15, 2011, sufficient to ensure those outstanding Holdings Senior Discount Notes will not be “applicable high yield discount obligations” within the meaning of Section 163(i)(1) of the Internal Revenue Code of 1986.

Change of Control. Upon a change of control, Holdings may be required to make an offer to purchase each holder’s Holdings Senior Discount Notes at a price equal to 101% of the accreted value thereof, plus accrued and unpaid interest, if any, to the date of purchase.

Certain Covenants. The indenture governing the Holdings Senior Discount Notes contains covenants that, among other things, limit Holdings’ ability and the ability of Holdings’ restricted subsidiaries to:

 

    pay dividends on, redeem or repurchase Holdings’ capital stock;

 

    make investments and other restricted payments;

 

    incur additional indebtedness or issue preferred stock;

 

    create liens;

 

    permit dividend or other payment restrictions on Holdings’ restricted subsidiaries;

 

    sell all or substantially all of Holdings’ assets or consolidate or merge with or into other companies; and

 

    engage in transactions with affiliates.

The amount of all restricted payments that can be made by Holdings is approximately equal to 50% of the consolidated net income (as defined in the indenture governing the Holdings Senior Discount Notes) of Holdings since the beginning of the first fiscal quarter following the date on which the Holdings Senior Discount Notes were issued, plus 100% of the net cash proceeds received by Holdings since the date of the indenture from the issue or sale of equity interests. The indenture governing the Holdings Senior Discount Notes prohibits all restricted payments if a default or event of default has occurred under that indenture or if Holdings’ fixed charge coverage ratio is below 2.0 to 1.0.

 

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Interest Rate Cap Agreements

In May 2006, we hedged a portion of our interest rate risk, consistent with the requirements under the Section 5.14 of the Term Loan Agreement through the use of interest rate cap agreements. We entered into two interest rate caps to manage interest rate risk associated with our long-term debt obligations. Each agreement became effective on May 30, 2006. One interest rate cap agreement has a notional principal amount of $300,000,000 with a cap rate of seven percent, with a reference floating rate which appears on the Telerate Page 3750 two days prior to the reset date, and terminates on May 31, 2011. The other agreement has a notional principal amount of $700,000,000 with a cap rate of seven percent, with the same reference floating rate as the other interest rate cap agreement, and terminates on May 29, 2009. We do not monitor these interest rate cap agreements for hedge effectiveness and, therefore, we do not account for these interest rate cap agreements as hedges. Gains and losses associated with these contracts are accounted for as interest expense and are recorded under the caption “Interest Expense” on our Consolidated Statement of Operations. We paid $2.5 million for these agreements on May 30, 2006. The fair value of these rate cap agreements is $1.2 million as of September 2, 2006. The fair value of the interest rate cap agreements are recorded under the caption “Other Assets” on our Consolidated Balance Sheets.

Three Months Ended September 2, 2006 Compared with Three Months Ended August 27, 2005

Net cash used by operating activities amounted to $91.0 million for the three months ended September 2, 2006 compared with net cash provided by operating activities of $33.7 million for the three months ended August 27, 2005. This decrease is primarily related to increased inventory purchases made during the current year’s quarter compared with the prior year’s period, and to higher interest expense in the current period due to the Merger and to sales of investments during last year’s three month period.

Working capital increased to $354.4 million at September 2, 2006 from $233.2 million at June 3, 2006. This increase is due primarily to our borrowing of additional funds from our ABL Credit Facility for inventory purchases.

Twelve Months Ended June 3, 2006 Compared with Twelve Months Ended May 28, 2005

Net cash provided by continuing operations of $378.1 million for fiscal 2006 increased by $236.0 million from $142.0 million of net cash provided by continuing operations for the comparative period of fiscal 2005. This increase in net cash from continuing operations was due primarily to an increase in the sale of short term investments and to lower expenditures for inventory purchases during fiscal 2006 compared with fiscal 2005.

Net cash (used in) investing activities increased from $(98.5) million for fiscal 2005 to $(2,121.6) million for fiscal 2006. This increase was primarily attributable to acquisition costs related to the Merger.

Net cash provided by financing activities amounted to $1,753.9 million for fiscal 2006 compared with $(25.4) million of net cash used in financing activities for fiscal 2005. This increase is related to the net debt/ equity proceeds related to the financing of the Merger. Working capital decreased to $233.2 million at June 3, 2006 from $407.2 million at May 28, 2005. This decrease in working capital and the increase in net cash used in financing activities were due primarily to the prepayment of our $100 million senior notes in November 2005.

Fiscal Year Ended May 28, 2005 Compared with Fiscal Year Ended May 29, 2004

Net cash provided by continuing operations of $142.0 million for fiscal 2005 increased by $118.7 million from $23.3 million in net cash provided by operating activities for fiscal 2004. This increase in net cash from continuing operations was due primarily to an increase in income from continuing operations of $33.7 million from fiscal 2004, decreases in short term investments and from increases in accounts payable and other current liabilities. Offsetting these increases in part were increases in our merchandise inventory.

 

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Net cash provided by (used in) investing activities decreased uses from $(118.8) million for fiscal year ended May 29, 2004 to $(98.6) million for the fiscal year ended May 28, 2005. This decrease in net cash (used in) investing activities in fiscal 2005 compared with fiscal 2004 was primarily attributable to a decrease in cash paid for property and equipment of $32.4 million, as a result of thirteen fewer new store openings and store relocations during fiscal 2005 compared with fiscal 2004, a decrease in restricted cash and equivalents of $5.2 million and an increase in cash used for lease acquisition costs of $4.0 million.

Net cash provided by (used in) financing activities decreased from $98.8 million for fiscal year ended May 29, 2004 to $(25.4) million for the fiscal year ended May 28, 2005. The decrease in net cash provided by financing activities in fiscal 2005 compared with fiscal 2004 was primarily attributable to the receipt of proceeds from the issuance of our $100 million senior notes in fiscal 2004 and in increase in dividend payments from $1.3 million in fiscal 2004 to $26.8 million in fiscal 2005.

Working capital increased to $407.2 million at May 28, 2005 from $330.0 million at May 29, 2004. The increase is primarily related to increases in merchandise inventory, offset in part by an increase in accounts payable and a decrease in investments.

Capital Expenditures

During the first quarter of fiscal 2007, we opened five new Burlington Coat Factory Warehouse department stores. As of September 2, 2006, we operate 367 stores under the names “Burlington Coat Factory Warehouse” (342 stores), “Cohoes Fashions” (7 stores), “MJM Designer Shoes” (17 stores), and “Super Baby Depot” (1 store). We estimate spending approximately $54.8 million, net of landlord allowances, in capital expenditures during fiscal 2007 including $33.4 million for store expenditures, $8.0 million for upgrades of warehouse facilities and $13.4 million for computer and other equipment expenditures. For the first three months of fiscal 2007, capital expenditures amounted to approximately $21.2 million.

We monitor the availability of desirable locations for its stores from such sources as dispositions by other retail chains and bankruptcy auctions. We may seek to acquire a number of such locations in one or more transactions. If we undertake such transactions, we may seek additional financing to fund acquisition and carrying charges (i.e., the cost of rental, maintenance, tax and other obligations associated with such properties from the time of commitment to acquire to the time that such locations can be readied for opening as Company stores) related to these stores. There can be no assurance, however, that any additional locations will become available from other retailers or that, if available, we will undertake to bid or be successful in bidding for such locations. Furthermore, to the extent that we decide to purchase additional store locations, it may be necessary to finance such acquisitions with additional long-term borrowings.

Dividends

Payment of dividends is prohibited under our credit agreements, except for certain limited circumstances.

Historical Indebtedness

In addition to our indebtedness incurred in the Merger, our long-term borrowings at September 2, 2006 consisted of an industrial development refunding bond of $5.0 million issued by the New Jersey Economic Development Authority (the “Refunding Bonds”), a $1.1 million loan from the Burlington County Board of Chosen Freeholders, capital lease obligations of $26.2 million and a promissory note in the principal amount of $0.4 million related to one of our store locations.

Refunding Bonds. The Refunding Bonds consist of $5.0 million of outstanding term bonds maturing on September 1, 2010. The term bonds bear interest at the rate of 6.125% per annum. The average interest rate and average scheduled maturity of the Refunding Bonds are 6.125% and 2.5 years, respectively. Payment of the principal and interest are guaranteed under an irrevocable letter of credit in the amount of $5.2 million. Refunding Bonds consisting of $0.7 million of term bonds matured on September 1, 2005.

 

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Loan from Burlington County Board of Freeholders. On December 5, 2001, we borrowed $2.0 million from the Burlington County Board of Chosen Freeholders. The proceeds were used for part of the acquisition and development costs of our warehouse facility in Edgewater Park, New Jersey. The loan is interest-free and matures on January 1, 2012. The loan is to be repaid in monthly installments of $16,667 which began on February 1, 2002. The loan is secured by a letter of credit in the amount of $1.2 million.

Capital Lease Obligations. We have capital lease obligations relating to two of our stores. The lease terms at inception for these locations extended over twenty-three years and twenty-one years. The capital lease obligations equal the present value of the minimum lease payments under the leases and amounted to $27.1 million at inception. At September 2, 2006, capital lease obligations amounted to $26.1 million. During the first quarter of fiscal 2007, $0.6 million of lease payments were applied to interest and $0.1 million were applied against capital lease obligations.

Promissory Note. In January 2006, we purchased the groundlease and sublease related to one of our store locations. We financed this purchase partially through the issuance of a promissory note in the principal amount of $0.5 million. The note bears interest at 4.43% per annum and matures on December 23, 2011. The loan evidenced by the note is to be repaid in equal monthly installments of $7,539 which began on February 23, 2006.

On November 2, 2005, we prepaid our $100 million senior notes that were due September 2010 and September 2013. We had been paying interest on two series of notes, a $36.0 million tranche at 4.06% per year and a $64.0 million tranche at 4.67% per year. We paid off these notes out of existing unrestricted cash as well as from the sale of short-term investments. There was no prepayment penalty associated with the payoff of these notes. Unamortized deferred debt charges of $0.5 million were written off as a result of the early payoff of the notes. We prepaid the senior notes because, at the time, projected working capital requirements did not necessitate the maintenance of the notes.

Letters of Credit. We also had letter of credit agreements with two banks in the amount of $14.2 million and $12.4 million guaranteeing performance under various leases, insurance contracts and utility agreements at September 2, 2006 and June 3, 2006, respectively.

Indebtedness Following the Transactions

On April 13, 2006, our existing $100 million revolving credit facility was terminated. We entered into a senior secured credit facility which consists of the $800 million ABL Credit Facility, and the $900 million term loan facility. The proceeds of the term loan were used to pay the merger consideration in connection with the Transactions. Our existing Refunding Bonds, our loan from the Burlington County Board of Freeholders and our Promissory Note remain outstanding. The ABL Credit Facility also provides for a $300 million letter of credit sub-facility. See “Description of Other Indebtedness.”

We believe the ABL Credit Facility and the term loan facility, our cash and cash equivalents and cash flow from operations provide adequate cash to fund our working capital, capital expenditure, our debt service and other cash requirements for our existing businesses for the foreseeable future. Our ability to meet future working capital, capital expenditure and debt service requirements will depend on our future financial performance, which will be affected by a range of economic, competitive and business factors, particularly interest rates and changes in the retail market, many of which are outside of our control.

 

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Certain Information Concerning Contractual Obligations

The following table sets forth certain information regarding our contractual obligations as of June 3, 2006 (in millions):

 

     Payments During Fiscal Years    Thereafter

Contractual Obligations

   Total    Less Than
1 Year
   2007    2008    2009    2010   

Long-Term Debt(1)

   $ 1,520.9    $ 10.1    $ 10.2    $ 10.3    $ 10.4    $ 10.4    $ 1,469.5

Interest

     867.8      115.8      114.8      128.5      127.7      127.0      254.0

Capital Lease Obligations(2)

     56.4      2.4      2.5      2.5      2.6      2.6      43.8

Operating Leases

     535.3      121.9      105.4      86.5      63.1      41.3      117.1

Purchase Obligations

     583.7      579.0      2.1      1.1      1.1      0.4      0
                                                

Total

   $ 3,564.1    $ 829.2    $ 235.0    $ 228.9    $ 204.9    $ 181.7    $ 1,884.4
                                                

(1) Excludes interest on Long-Term Debt.
(2) Capital Lease Obligations include future interest payments.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities; (ii) the disclosure of contingent assets and liabilities at the date of the consolidated financial statements; and (iii) the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue returns, bad debts, inventories, income taxes, financing operations, asset impairment, retirement benefits, risk participation agreements, vendor promotional allowances, reserves for closed store and contingencies and litigation. 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.

We believe that the following represent our more critical estimates and assumptions used in the preparation of the condensed consolidated financial statements:

Intangible Assets and Purchase Accounting

As discussed above, the Merger was completed on April 13, 2006 and was financed by a combination of borrowings under our senior secured credit facilities, the issuance of the senior notes, the issuance of the Holdings Senior Discount Notes and the equity investment of the Equity Sponsors, co-investors and management. The purchase price, including transaction costs was approximately $2.1 billion. Purchase accounting requires that all assets and liabilities be recorded at fair value on the acquisition date, including identifiable intangible assets separate from goodwill. Identifiable intangible assets include trade names, and net favorable lease positions. Goodwill represents the excess of cost over the fair value of net assets acquired. For the Merger, we obtained independent appraisals and valuations of the intangible (and certain tangible) assets acquired as well as equity. The estimated 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. The estimates and assumptions used to determine the fair values and useful lives of identified intangible assets could change due to numerous factors, including market conditions, economic conditions and competition. The carrying values and useful lives for amortization of identified intangible assets are reviewed on an ongoing basis, and any resulting changes in estimates could have a material adverse effect on our financial results.

 

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When circumstances change, or at least annually, we compare the carrying value of our intangible assets to their estimated fair value. 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. The estimate of fair value requires various assumptions including the use of projections of future cash flows and discount rates that reflect the risks associated with achieving the future cash flows. Changes in the underlying business could affect these estimates, which in turn could affect the fair value of the assets.

Valuation of Goodwill

Goodwill represents the excess of cost over the fair value of net assets acquired. SFAS No. 142, “Goodwill and Other Intangible Assets,” requires periodic tests of the impairment of Goodwill. SFAS No. 142 requires a comparison, at least annually, of the net book value of the assets and liabilities associated with a reporting unit, including goodwill, with the fair value of the reporting unit, which corresponds to the discounted cash flows of the reporting unit, in the absence of an active market. 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 will be conducted during the fourth quarter of each fiscal year. We use a discounted cash flow approach based on forward-looking information of revenues and costs as well as appropriate discount rates for each reporting unit.

Inventory

Our inventory is valued at the lower of cost or market using the retail first-in, first-out (“FIFO”) inventory method. Under the retail inventory method, the valuation of inventory at cost and resulting gross margin are determined by applying a calculated cost to retail ratio to the retail value of inventory. The retail inventory method is an averaging method that has been widely used in the retail industry due to its practicality. Additionally, the use of the retail inventory method will result in valuing inventory at the lower of cost or market if markdowns are currently taken as a reduction of the retail value of inventory. Inherent in the retail inventory method calculation are certain significant management judgments and estimates including, merchandise markon, markups, markdowns and shrinkage which significantly impact the ending inventory valuation at cost as well as the resulting gross margin. Management believes that our retail inventory method and application of FIFO provides an inventory valuation which reasonably approximates cost using a first-in, first-out assumption and results in carrying value at the lower of cost or market. Estimates are used to charge inventory shrinkage for the first three fiscal quarters of the fiscal year. A physical inventory is conducted at the end of the fiscal year to calculate actual shrinkage. We also estimate our required markdown allowances. 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 estimates are made, over accruals or under accruals may be uncovered as a result of the physical inventory requiring fourth quarter adjustments.

Insurance

We have risk participation agreements with insurance carriers with respect to workers’ compensation, 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. An increase in workers’ compensation claims by employees, health insurance claims by employees or liability claims may result in a corresponding increase in our costs related to these claims.

Reserves for Revenue Returns

We record reserves for future revenue returns. The reserves are based on current revenue volume and historical claim experience. If claims experience differs from historical levels, revisions in our estimates may be required.

 

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Long-Lived Assets

We test for recoverability of long-lived assets whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. This includes performing an analysis of anticipated undiscounted future net cash flows of long-lived assets. If the carrying value of the related assets exceeds the undiscounted cash flow, we reduce the carrying value to its fair value, which is generally calculated using discounted cash flows. Various factors including future sales growth and profit margins are included in this analysis. To the extent these future projections change, the conclusion regarding impairment may differ from the estimates. Future adverse changes in market conditions or poor operating results of underlying assets could result in losses or an inability to recover the carrying value of the assets that may not be reflected in an asset’s current carrying value, thereby possibly requiring an impairment charge in the future.

Allowance for Doubtful Accounts

We maintain allowances for bad checks, miscellaneous receivables and losses on credit card accounts. This reserve is calculated based upon the assessment of the likelihood of collection of the accounts receivables, including an aging analysis and an analysis of historical collection activities.

Allocation of Purchase Price

Assets acquired and liabilities assumed in an acquisition are valued based on fair market value measures as determined by management with the assistance of third parties. The method used to determine the asset values include a variety of valuation techniques. With respect to trademarks, management under the advisement of a third party, adopted the income approach to value these intangible assets. Under the income approach, the value of our trademarks was determined by the present value of potential future revenues from such trademarks based on a discounted royalty rate.

With respect to internally developed software, we determined the value based on the assumed dollar value of the cost of recreating the source code of such software. The cost of recreating the source code was based on the labor costs for the man hours assumed to be required to create such source code.

In order to determine the value of our leases, we compared our leases with comparable leases available in the market and discounted current lease rates over the life of our existing leases.

In order to determine the step-up in basis for our assets, we applied either the cost approach or market approach, as management determined appropriate under the advisement of third party valuators. Under the cost approach the step-up in basis is determined by the current cost of replacement less estimated applicable depreciation. Under the market approach, the step-up is determined by the market value of comparable assets less applicable depreciation.

With respect to any of the valuation methods, if different assumptions are adopted among the third party valuators, significant changes to the allocation of the purchase price could result. The purchase price allocation to underlying assets and liabilities is subject to change and the change could be material. In addition, the final determination of tax treatment of deal related expenditures and the impact of the Merger on our ability to carry forward net operating losses as well as the final determination of actual tax expenses for fiscal 2006 could result in material changes to the purchase price allocation.

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123(R), “Share Based Payment.” This statement establishes standards for the accounting of transactions in which an entity exchanges its equity instruments for goods and services, primarily with respect to accounting for transactions in which an entity obtains employee services in share-based payment transactions. It also addresses transactions in which an entity incurs liabilities in exchange for goods and services that are based on the fair value of the entity’s equity instruments or that may be settled by

 

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the issuance of those equity instruments. Entities will be required to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award (usually the vesting period). The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models. If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. This statement is effective for the first fiscal year beginning after June 15, 2005. We adopted Statement No. 123(R) for fiscal 2007. The statement requires us to use either the modified-prospective method or modified retrospective method. We utilized the modified-prospective method. Under the modified-prospective method, we recognized compensation cost for all awards subsequent to adopting the standard and for the unvested portion of previously granted awards outstanding upon adoption. The statement permits the use of either the straight-line or an accelerated method to amortize the cost as an expense for awards with graded vesting. The impact of adopting SFAS 123 (R) on Net Loss amounted to $0.4 million (net of tax) for the three months ended September 2, 2006.

SFAS 123 (R) also amended FAS No. 95, “Statement of Cash Flows” to require the cost benefits for tax deductions in excess of recognized compensation be reported as financing cash inflows rather than as a reduction in income taxes paid, which is included within operating cash flows.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets—An Amendment of APB Opinion No. 29.” SFAS No. 153 amends Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exemption for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange is considered to have commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. We adopted SFAS No. 153 effective June 4, 2006. The adoption of SFAS No. 153 did not have an impact on our consolidated financial condition, results of operations or cash flows.

In June 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on accounting for derecognition, interest, penalties, accounting in interim periods, disclosure and classification of matters related to uncertainty in income taxes, and transitional requirements upon adoption of FIN 48. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently in the process of assessing the impact of the adoption of FIN 48 on its results of operations and financial position.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle, such as a change in nondiscretionary profit-sharing payments resulting from an accounting change, should be recognized in the period of the accounting change. SFAS No. 154 also requires that a change in depreciation, amortization, or depletion method for long-lived, nonfinancial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We adopted the provisions of SFAS No. 154 as applicable beginning in fiscal 2007. The adoption of SFAS No. 154 did not have an impact on our consolidated financial condition, results of operations or cash flows.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets—an amendment of FASB Statement No. 140” (SFAS 156). SFAS 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing

 

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contract in specific situations. Additionally, the servicing asset or servicing liability shall be initially measured at fair value, if practicable. SFAS 156 is effective as of an entity’s first fiscal year beginning after September 15, 2006. Early adoption is permitted as of the beginning of an entity’s fiscal year, provided the entity has not yet issued financial statements, including interim financial statements, for any period of that fiscal year. We do not expect the adoption of this statement to have a material impact on our financial condition, results of operations or cash flows.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140” (SFAS 155). SFAS 155 simplifies accounting for certain hybrid instruments currently governed by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133), by allowing fair value remeasurement of hybrid instruments that contain an embedded derivative that otherwise would require bifurcation. SFAS 155 also eliminates the guidance in SFAS 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets,” which provides such beneficial interests are not subject to SFAS 133. SFAS 155 amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities—a Replacement of FASB Statement No. 125,” by eliminating the restriction on passive derivative instruments that a qualifying special-purpose entity may hold. This statement is effective for financial instruments acquired or subject to a remeasurement after the beginning of the fiscal year starting after September 15, 2006. We do not expect the adoption of this statement to have a material impact on our financial condition, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” which defines fair value, establishes a framework for measurement and expands disclosure about fair value measurements. Where applicable, SFAS 157 simplifies and codifies related guidance within generally accepted accounting principles. This statement shall be effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim period within those fiscal years. We are in the process of evaluating the impact of SFAS No. 157.

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 under “Risk Factors.”

Seasonality

Our business is seasonal, with our highest sales occurring in the months of September, October, November, December and January of fiscal 2006. For the past five fiscal years, an average 51% of our net sales have occurred during the period from September through January. Weather, however, continues to be an important contributing factor to the sale of clothing in the fall, winter and spring seasons. Generally, our sales are higher if the weather is cold during the fall and warm during the early spring.

Inflation

We do not believe that our operating results have been materially affected by inflation during the past year. Historically, we have been able to increase our selling prices as the costs of merchandising and related operating expenses have increased, and therefore, inflation has not had a significant effect on operations.

Market Risk

We are exposed to market risks relating to fluctuations in interest rates. Our senior secured credit facilities will contain floating rate obligations and will be subject to interest rate fluctuations. Our objective of 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.

 

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As previously disclosed, we entered into two interest rate caps to manage interest rate risk associated with our long-term debt obligations which became effective on May 30, 2006. Gains and losses associated with these contracts are accounted for as interest expense and are recorded under the caption “Interest Expense” on our Consolidated Statement of Operations. We continue to have exposure to such risks to the extent they are not hedged.

Interest Rate Cap Agreements. In May 2006, we hedged a portion of our interest rate risk, consistent with the requirements under the Section 5.14 of the Term Loan Agreement through the use of interest rate cap agreements. We entered into two interest rate caps to manage interest rate risk associated with our long-term debt obligations. Each agreement became effective on May 30, 2006. One interest rate cap agreement has a notional principal amount of $300,000,000 with a cap rate of seven percent, with a reference floating rate which appears on the Telerate Page 3750 two days prior to the reset date, and terminates on May 31, 2011. The other agreement has a notional principal amount of $700,000,000 with a cap rate of seven percent, with the same reference floating rate as the other interest rate cap agreement, and terminates on May 29, 2009. We do not monitor these interest rate cap agreements for hedge effectiveness and, therefore, we do not account for these interest rate cap agreements as hedges. Gains and losses associated with these contracts are accounted for as interest expense and are recorded under the caption “Interest Expense” on our Consolidated Statement of Operations. We paid $2.5 million for these agreements on May 30, 2006. The fair value of these rate cap agreements is $2.3 million as of June 3, 2006.

The fair value of the interest rate cap agreements are recorded under the caption “Intangible Assets” on our Consolidated Balance Sheets. From the effective date of each agreement to June 3, 2006, the fair market value of the agreements decreased $0.2 million. This change in fair market value is recorded within the line item “Interest Expense” on our Consolidated Statements of Operations.

Interest Rate Risk Sensitivity Analysis. 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 Credit Facility and term loan will 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 September 2, 2006, we had $384.2 million principal amount of fixed-rate debt and $1,257.8 million of available floating-rate debt. Based on $1,257.8 million outstanding as floating rate debt, an immediate increase of one percentage point would cause an increase to cash interest expense of approximately $12.6 million per year.

If a one point increase in interest rates were to occur over the next four quarters excluding the interest rate cap, such an increase would result in the following additional interest expenses (assuming current borrowing levels remain constant) (all amounts in thousands):

 

Floating Rate Debt

   Principal
Outstanding at
September 2,
2006
   Additional
Interest
Expense
Q2 2007
   Additional
Interest
Expense
Q3 2007
   Additional
Interest
Expense
Q4 2007
   Additional
Interest
Expense
Q1 2008

ABL Credit Facility

   $ 362,300    $ 906    $ 906    $ 906    $ 906

Term Loan

     895,500      2,233      2,227      2,222      2,216
                                  

Total

   $ 1,257,800    $ 3,139    $ 3,133    $ 3,128    $ 3,122
                                  

We have two interest rate cap agreements for a maximum principal amount of $1.0 billion which limit our interest rate exposure to 7% for our first billion of borrowings under our variable rate debt obligations. If interest rates were to increase above the 7% cap rate, then our maximum interest rate exposure would be $15.9 million assuming constant current borrowing levels of $1 billion. Currently, we have unlimited interest rate risk related to our variable rate debt in excess of $1 billion. At September 2, 2006, our borrowing rates related to our ABL Credit Facility and our Term Loan were 7.13% and 7.53%, respectively.

 

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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 our interest payment obligations on our outstanding indebtedness and if we cannot borrow or obtain equity financing to satisfy those obligations, our business and results of operations will be materially adversely affected. We cannot be assured that any replacement borrowing or equity financing could be successfully completed.

A change in interest rates generally does not have an impact upon our future earnings and cash flow for fixed-rate debt instruments. As fixed-rate debt matures, however, and if additional debt is acquired to fund the debt repayment, future earnings and cash flow may be affected by changes in interest rates. this effect would be realized in the periods subsequent to the periods when the debt matures.

Off-Balance Sheet Transactions

Other than operating leases consummated in the normal course of business, we do not have any material off-balance sheet arrangements.

 

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BUSINESS

We are a nationally recognized retailer of high-quality, branded apparel at every day low prices. We opened our first store in Burlington, New Jersey in 1972, selling primarily coats and outerwear. Since then and as of September 2, 2006, we have expanded our store base to 367 stores in 42 states and diversified our product categories by offering an extensive selection of in-season better and moderate brands, fashion-focused merchandise, including: ladies sportswear, menswear, coats, family footwear, baby furniture and accessories, as well as home décor and gifts. We employ a hybrid business model 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, labeled merchandise directly from nationally-recognized manufacturers such as Ralph Lauren, Jones New York, Calvin Klein, Nine West, and Nautica.

As of September 2, 2006, we operated stores under the names “Burlington Coat Factory Warehouse” (342 stores), “MJM Designer Shoes” (17 stores), “Cohoes Fashions” (7 stores), and “Super Baby Depot” (1 store). During the three months ended September 2, 2006, three Burlington Coat Factory stores, one MJM designer shoe store and one Super Baby Depot store were closed. The average BCFW store is approximately 81,500 square feet, generally twice the size of most competitive off-price formats. We also offer merchandise for sale through our wholly-owned internet subsidiary, Burlington Coat Factory Direct Corporation, at www.burlingtoncoatfactory.com, www.coat.com and www.babydepot.com.

We purchase a majority of our merchandise pre-season, when department stores make a large portion of their purchases, and the balance of our merchandise in-season (replenishment, re-orders and opportunistic purchases), when off-price retailers make a large portion of their purchases. This unique buying strategy, along with a “no-frills” merchandising approach enables us to offer merchandise at prices substantially below full retail prices. Our strategy of up-front purchasing allows us to acquire a product line with depth of style, size and color more extensive than the product lines of our off-price competitors. Merchandise is displayed on easy-access racks, and sales assistance is provided in specialty departments on a store-by-store basis.

We offer products in two primary categories, Apparel and Other Products, as follows:

 

    Apparel includes departments that offer clothing items for men, women and children, and apparel accessories such as shoes, jewelry, perfumes and watches. Net sales from continuing operations of Apparel products were approximately 80% of total net sales for fiscal 2006.

 

    Other Products includes departments that offer baby furniture and accessories, linens and home furnishings. Net sales from continuing operations of Other Products were approximately 20% of total net sales for fiscal 2006.

Holding Company Structures

Parent is a newly-created holding company that conducts substantially all of its business operations through its indirect and direct subsidiaries. Parent holds all of the outstanding common stock of Holdings.

Holdings is a newly-created wholly-owned subsidiary of Parent that has no material assets or operations other than its ownership of our Company, BCFWC. BCFWC is a wholly-owned subsidiary of Holdings and owns the equity interests in all of our operating subsidiaries.

Our Competitive Strengths

We compete for customers with off-price retailers, department stores, mass merchants and specialty apparel stores. We believe the combination of the following competitive strengths differentiates our business:

Compelling Value Proposition to Consumers. Our hybrid business model offers the low prices of an off-price retailer as well as the branded merchandise, product breadth and product diversity traditionally

 

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associated with department stores. Our business model appeals to both customers seeking low prices and to shoppers with specific merchandise needs for a wide range of style, color and size options. We maintain specific strengths in menswear, juvenile furniture, brand-name and designer coats and brand-name apparel. In contrast to department and specialty stores, our merchandise selection is offered at EDLP. Department stores initially price merchandise at full retail value, then implement a series of promotional and sale events to achieve a lower average sale price. Our customers do not need to wait for promotions to receive the best value. Further, our “no-frills” operations lead to merchandise generally being available at an additional discount to department store sale prices. We offer an attractive option for the growing segment of shoppers seeking department store styles and selection, but also low and consistent prices.

Deep Vendor Relationships with Mutually Attractive Economics. We have long-standing and strong relationships with an extensive network of more than 1,000 vendors. Some of these relationships span up to three decades. We believe our vendor relationships, combined with our buyer- and seller-friendly sourcing terms, make us a sought-after business partner. We seldom require margin guarantee provisions (guarantees by our vendors of minimum gross profit margins on items purchased by us from such vendors) in our supply contracts, providing low-risk accounts to vendors. Under a gross profit margin guarantee provision, a vendor agrees to maintain the department store’s profit margin on items by reducing the price of future goods or rebating the difference between the initial price and the marked down price if markdowns from the initial price were taken to sell out the ordered quantity for the season. Additionally, our strategy of purchasing a majority of our merchandise pre-season allows us to acquire a product line with a depth of style, size and color that is more extensive than the product lines of many of our off-price competitors, which make a large portion of their purchases in-season. We purchase no more than 5% of our annual demand from any one supplier and do not maintain any long-term or exclusive commitments to purchase from any single manufacturer.

Strong Operational Track Record. Our operations have generated profits every year since our inception in 1972.

Diversified Revenue Base with Low Volatility. As of September 2, 2006, we operate 367 stores in 42 states (exclusive of one store closed due to hurricane damage). We offer merchandise across departments, including: ladies sportswear, menswear, coats, family footwear, baby furniture and accessories, home décor and gifts. We have diversified our product mix from primarily coats and outerwear as we have grown our other apparel and specialty divisions over time. Ladies’ coats and men’s outerwear comprised 11.0% of our net sales for the fiscal year ended June 3, 2006, down from 13.7% in fiscal 2005.

Recently Remodeled Store Base and Expanded Distribution Network. We have invested heavily in our operations over the past few years by building a new distribution center and refurbishing many of our stores. Over 70% of our existing stores as of June 3, 2006 had been opened, remodeled or expanded within the past seven years in connection with the adoption of our new store prototype. In 2004, we completed our distribution facility in Edgewater Park, New Jersey, and in April 2006, we opened our fourth distribution center on the west coast in San Bernardino, California which currently is fully operational. Our recent expenditures on distribution facilities should lead to reduced capital expenditures in the immediate future. Given our current distribution center utilization rates, we believe we could double our store base without adding distribution capacity.

Strong Incumbent Management Team. We have an experienced senior management team consisting of 36 individuals. Three of the five senior executives have an average experience of 23 years with us and we recently hired an Executive Vice President, Chief Merchandising Officer with 30 years of retail experience, most recently as an executive of a women’s apparel specialty store company. Included in our senior management are 14 merchandise managers with an average tenure of 18 years. We also recently hired an Executive Vice President, Chief Financial Officer with 22 years of operational, financial, and significant retail experience. We attribute our success in retaining highly desirable personnel in part to the entrepreneurial culture we foster. This rewarding culture draws highly motivated individuals, many of whom have spent nearly their entire careers rising through our ranks. Our management team has been central to our proven track record of consistent profitability.

 

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Our Business Strategy

We intend to pursue the following key elements of our current business strategy:

Offer a wide and appealing selection of brand-name apparel at EDLP. We offer a merchandise selection substantially broader than that of our off-price competitors and similar to the selection found at a department store. Unlike other off-price retailers, we offer a full selection of style, size, and color to our customers. In contrast to merchandise at department and specialty stores, our merchandise is offered at EDLP, allowing customers to obtain the best value at our stores without waiting for sales or promotions. Further, we provide a more inviting shopping environment than our off-price competitors, with wider aisles and easy to navigate merchandise displays.

Provide the widest selection of famous-maker and designer coats of any retailer. Although ladies’ coats and men’s outerwear for the fiscal year ended June 3, 2006 comprised only 11.0% of our net sales, our extensive and attractively priced coat selection continues to attract first-time and repeat customers in need of outerwear. Over the last two decades, we have successfully cross-sold our broad product lines to the destination coat shopper. Management believes our model successfully turns many coat customers into repeat shoppers.

Cultivate exceptionally strong vendor relationships. Our relationships with over 1,000 vendors have been built over decades and are difficult for competitors to replicate. These relationships exist throughout our merchandising division. Our sourcing terms enable us to be a strong, long-term partner of our vendors. Unlike department stores, we seldom require margin guarantee provisions in our supply contracts. As a result, we believe vendors enjoy the benefit of our lower risk, clean accounts.

Purchase early in each fashion season and reorder in rapid response to trends. We purchase large quantities of merchandise early in each fashion season and reorder merchandise in rapid response to sales trends. We buy the majority of our merchandise pre-season, when department stores make a large portion of their purchases, and the balance in-season, when off-price retailers make a large portion of their purchases. This strategy helps us maintain a sizable, current and varied selection of apparel throughout the year with lower average prices than department stores and superior selection compared to our off-price competitors.

Adhere to an opportunistic yet disciplined real estate strategy. We have grown our store base consistently since our founding in 1972, developing more than 98% of our stores organically, rather than through acquisition. We have maintained an average rent per square foot that we believe is well below the rents paid per square foot by many of our off-price competitors. Further, 88% of our stores are leased, rather than owned. Our current typical lease contracts have an initial period of five years, with multiple renewal options of five years each, and a majority of our leases provide us with a one-time, one-sided termination option after three years. By strategically evaluating opportunities nationwide, we are able to maintain a highly efficient and flexible cost structure and to secure new, desirable real estate at highly favorable terms.

Continue to pursue new store opportunities. We have a proven track record of successful new store expansion. We believe there is ample opportunity for continued store growth. Over the last five fiscal years we have added an average of 20 new stores per year. Our value proposition of large, fashionable assortments at low prices resonates across the country. In addition, we have lower market penetration than many of our off-price competitors, and we believe there is ample opportunity for continued expansion. We believe we can continue to expand our store base at a pace consistent with our recent history.

Achieve gains in operating efficiencies and customer satisfaction. Our management continues to drive operating improvements in our business. We further believe that our new cash back return policy will help increase customer satisfaction. By the end of August 2006, the cash back return policy was implemented in all of our stores, and the national advertisement campaign announcing the policy began in September 2006. We continue to explore ideas to improve our field operations, distribution, and merchandising initiatives including an improvement in planning and allocation on a region-by-region and store-by-store basis.

 

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Company History

Founded in 1972, we have grown to become a leading nationwide apparel retailer, generating sales in excess of $3 billion annually. In 1983, we conducted our initial public offering, at the same time expanding from 31 to 68 stores by the end of the following fiscal year. We launched our family footwear department in 1996, which expanded to 54 stores by 1997 and 152 stores in 1998. We were acquired on April 13, 2006 by affiliates of Bain Capital in a take-private transaction. The total transaction value was $2.1 billion, or $45.50 per share in cash.

The Stores

As of September 2, 2006, we operated 367 stores in 42 states under the names “Burlington Coat Factory Warehouse” (342 stores exclusive of one store closed due to hurricane damage), “MJM Designer Shoes” (17 stores), “Cohoes Fashions” (7 stores), and “Super Baby Depot” (1 store). Our store base is geographically diversified with stores located in 42 states and within all key regions of the U.S.

All of our stores are either free-standing or are located in shopping malls, strip shopping centers or other commercial complexes. 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 EDLP.

Burlington Coat Factory Warehouse offers customers a complete line of value-priced apparel, including: ladies sportswear, menswear, coats, family footwear, baby furniture and accessories as well as home décor and gifts. BCFW’s broad selection provides a wide range of apparel, accessories and furnishing for all ages. BCFW has the infrastructure to purchase pre-season and in-season merchandise, allowing us to be nimble when responding to changing market conditions and consumer fashion preferences. Furthermore, we believe BCFW’s substantial selection of staple, destination products such as coats, Baby Depot products as well as men’s and boys’ suits attracts customers from greater distances than the average retailer. These products drive incremental store-traffic and differentiate us from our main competitors.

We opened our first MJM Designer Shoes store in 2002. MJM Designer Shoes offers 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. As of September 2, 2006, there were 17 MJM Designer Shoes stores in seven states.

Cohoes Fashions offers a broad selection of designer label merchandise for men and women, targeting the fashion conscious mainstream shopper. The stores carry a steadily changing selection of luxury labels. Apparel brands include Armani, Burberry, Calvin Klein, Cavalli, Dolce & Gabbana, Fendi, Gucci, Prada and Versace. Cohoes Fashions stores also feature youth-oriented labels. In addition, the stores carry decorative gifts and home furnishings. Cohoes Fashions customers enjoy an upscale shopping experience, including convenient services such as a Cohoes Store Credit Card and personal shopping services. Cohoes Fashions, Inc. was acquired by us in 1989 and presently operates a seven-store chain in the Northeast.

Through June 2003, we operated seven stores under the name “Decelle.” During July 2003, these stores were closed. We converted three stores formerly operated as Decelle stores to BCFW stores during fiscal 2004, and converted two stores formerly operated as Decelle stores to Cohoes Fashions stores during fiscal 2005. Through August 2004, we operated one store under the name “Totally 4 Kids.” In October 2004, this store was converted into two separate stores: a Super Baby Depot store and an MJM Designer Shoe store. We closed our two stand-alone Luxury Linens stores during the first half of fiscal 2006 but continue to operate Luxury Linens as a department within our BCFW stores.

 

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The table below details our four store concepts:

BCFWC Store Concepts (as of September 2, 2006)

 

Concept

   # Stores     Avg. Size
(sq. ft. in
thousands)
  

Net Sales(1)
% of Total
(dollars in
millions)

  

Merchandise Focus

BCFW

   342 (2)   81   

$3,315    

 

96.7%

   Value-priced women’s, men’s, children’s apparel and accessories. Most stores include linens, bath items, gifts, luggage, family footwear, baby apparel and furniture.

MJM Designer Shoes

   17     27   

$     60    

 

1.7%

   Moderate- to higher-priced designer and fashion men’s, women’s and children’s footwear, handbags and other accessories.

Cohoes Fashions

   7     48   

$     48    

 

1.4%

   Broad selection of luxury and designer-label merchandise for men and women, decorative gifts and home furnishings.

Super Baby Depot

   1     28   

$       6    

 

0.2%

   Brand-name merchandise including apparel, furniture and accessories for newborns, infants and toddlers.

(1) Net sales excludes Other Revenue, consisting of rental income, layaway and alteration charges. Represents net sales for the fiscal year ended June 3, 2006.
(2) Excludes one store closed due to Hurricane Katrina.

In general, we have selected sites for our stores where there are suitable existing structures which can be refurbished and, if necessary, enlarged in a manner consistent with our merchandising concepts. In some cases, space has been substantially renovated or built to our specifications given by us to the lessor. Such properties have been available to us on lease terms which we believe have been favorable. The stores generally are located in close proximity to population centers, other department stores and other retail operations and are usually established near a major highway or thoroughfare, making them easily accessible by automobile. We own substantially all the equipment used in our stores and believe that our selling space is well utilized and that our equipment is well maintained and suitable for its requirements.

Some stores contain departments licensed to unaffiliated parties for the sale of items such as lingerie, fragrances, shoes and jewelry. During fiscal 2006, our rental income from all of our licensed departments aggregated less than 1% of our total revenues.

Growth and Expansion

Since 1972 when our first store was opened in Burlington, New Jersey, we have expanded to 342 BCFW stores, seven Cohoes Fashions stores, 17 MJM Designer Shoes stores, and one stand-alone Super Baby Depot store. During the three months ended September 2, 2006, three Burlington Coat Factory stores, one MJM Designer Shoe store and one Super Baby Depot store were closed.

We believe our real estate locations represent a competitive advantage. As one of the early players in the off-price branded apparel industry, we benefited from an ample supply of highly attractive real estate locations. We currently operate stores up to 120,000 square feet, occupying significantly larger boxes than our typical 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. At September 2, 2006, we operated stores in 42 states. We plan to open stores in two additional

 

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states, Mississippi and North Dakota in fiscal 2007, 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 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.

We seek to maintain our competitive position and improve our prospects by periodically re-evaluating our methods of operation, including our pricing and inventory policies, the format of our stores and our ownership or leasing of stores.

Real Estate Strategy and Store Expansion

For the three months ended September 2, 2006, we owned the land and/or building for 42 of our 367 stores (exclusive of one store closed due to hurricane damage). Generally, however, our policy has been to lease our stores, with average rents that are below off-price competitors’ rents. 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. The majority of our stores are located in strip centers, regional power centers or are freestanding. We lease 88% of our store base and own the remaining 12%.

We negotiate leasing terms that are highly flexible and favorable to us. Our current typical lease contracts have an initial period of five years with several renewal options of five years each, and a majority of our leases provide us with a one-time, one-sided termination option after three years. The flexibility of our leasing arrangements enables us to relocate stores swiftly or close underperforming stores. We seek to maintain a highly efficient and flexible cost structure and to secure new, desirable real estate at highly favorable terms. We competitively maintain our leases by re-evaluating our current leases and evaluating new opportunities nationwide. Our plan to increase the number of our stores will depend in part on the continued availability of suitable existing retail locations or built-to-suit store sites on acceptable terms.

We have a proven track record of successful new store expansion. Our store base grew from 13 stores in 1980 to 367 stores (exclusive of one store closed due to hurricane damage) as of September 2, 2006.

Store Openings and Closings

 

Fiscal Year

   2001     2002     2003     2004     2005     2006  

Stores (Beginning of Period)

   282     295     319     335     349     362  

Stores Opened

   16     29     22     24     16     12  

Stores Closed

   (3 )   (5 )   (6 )   (10 )   (3 )   (6 )
                                    

Stores (End of Period)

   295     319     335     349     362     368 *
                                    

* Inclusive of three stores that closed because of hurricane damage.

Generally, new stores have been profitable in their first year, with profits growing quickly and predictably thereafter. We expect to continue expanding our store base. We believe significant new store growth opportunities are available due to the ability of our store concepts to fit into a wide range of real estate types. Our value proposition of large fashionable assortments at low prices resonates across the country. Our store count relative to our competitors’, such as TJ Maxx, Marshalls, and Kohl’s, across the U.S. illustrates our compelling growth prospects.

 

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Operations

Distribution

During fiscal 2004, we completed construction of a new warehouse and distribution facility of approximately 648,000 square feet in Edgewater Park, New Jersey. This facility expanded our warehousing and distribution capacity and allowed us to increase our percentage of centrally-received goods. The facility began processing merchandise in August of 2003 and has been fully operational since August 2004. During fiscal 2005, we began implementing a new warehouse management system that we believe will (1) reduce receiving, sorting and other merchandise handling times, (2) improve planning and allocation efficiency and (3) reduce merchandise processing and handling costs. We continue to develop this warehouse management system. The facility also contains a new data center. This data center and the existing data center at our corporate headquarters are active operational data centers connected by a high speed telecommunications network. These facilities provide backup to each other in the case of an event causing a loss of data at one of the facilities.

Distribution of merchandise to our stores is accomplished both via drop-shipment directly to stores, allowing for expeditious delivery of seasonal offerings, and utilization of central distribution centers to move the remaining merchandise more cost-effectively. Our four distribution centers average approximately 457,000 square feet. With the opening of the new 440,000 square foot facility, our distribution facilities will be strategically located throughout the United States to support our network of stores. Given current and projected utilization rates and planned store openings, we believe we could double our store base with our existing distribution facilities.

 

     Calendar
Year
Operational
   Size
(thousands of
sq. ft.)
   Leased/
Owned

Burlington, NJ

   1987    402    Owned

Bristol, PA

   2001    340    Leased

Edgewater Park, NJ

   2004    648    Owned

San Bernardino, CA(1)

   2006    440    Leased

(1) The San Bernardino, California facility opened in April 2006 and is fully operational.

Customer Demographic

Our largest target demographic group of customers is 18–49 year-old women. The core target 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. In training our employees, we emphasize knowledgeable and friendly customer service. We train specialized employees who work in departments where customers benefit from more hands-on assistance. For example, the men’s suits departments are staffed with trained men’s suit sales experts and professional tailors. Additionally, we offer Baby Depot customers access to highly-trained personnel who can advise parents on apparel, furniture and accessory selection.

Marketing and Advertising

We execute a multi-channel marketing and advertising program promoting key categories during peak selling periods and events. The primary advertising media used are network television and nationally-distributed

 

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free-standing newspaper inserts. Specifically, we target fashion conscious consumers and new mothers with national magazine advertising. We advertise in local newspapers, on television and radio to promote grand opening sales and other promotional events in local markets.

Our advertising messages have been consistent over the years. These messages educate consumers on the concept of value pricing and have created strong, highly recognized and well regarded brands. We have focused our marketing efforts on communicating clear messages on key store characteristics that appeal to our target audience: EDLP and an extensive selection of branded, fashionable merchandise in a convenient and enjoyable shopping environment. Total advertising expenditures for fiscal 2006 were approximately $74 million.

Information Systems

To assist with inventory management, we are currently in the process of implementing a third-party markdown optimization software system throughout our stores. Management believes that the system will improve our ability to monitor the performance of merchandise on a regional basis in order to clear underperforming merchandise earlier in the season, purchase newer or more in-demand items more quickly and manage pricing decisions. The initial implementation of the system was limited to certain ladies’ and girls’ sportswear items for the 2005 fall season. During the next phase of implementation, which is scheduled to occur during fiscal 2007, we will be managing additional fashion merchandise including some men’s, youth, shoes and linen classes.

During fiscal 2005, we began processing customers’ paper checks electronically through the Automated Clearinghouse (ACH) system. As a result, the rate of bad check acceptance at stores has been reduced. Since the implementation of ACH in some of our store locations, the annual bad-check expense has been reduced from $7 million to $4 million. We recently completed the implementation of ACH in all of our store locations.

During fiscal 2006, we continued our drive to increase the percentage of our merchandise purchases performed via electronic data interchange (“EDI”). Conducting transactions via EDI, rather than via paper purchase orders, advanced ship notices and paper invoices, improves efficiency in submitting merchandise orders, receiving merchandise and processing payments for merchandise orders. By the end of fiscal 2006, approximately 60% of all our merchandise purchases and invoices were being conducted via EDI. In addition, during fiscal 2006, we implemented a UPC catalog functionality that allows for a seamless integration with many of our vendors’ systems by utilizing UPC codes for orders placed with those vendors.

In conjunction with our new cash back policy, we are implementing a returns management system that we expect will help us track returned merchandise and help us establish key performance indicators to actively manage the overall merchandise return process.

To assist with distribution operations, we are also implementing a new transportation management system that will identify potential ways to reduce inbound freight costs associated with shipping into the distribution centers.

Internet

We offer merchandise for sale through our internet subsidiary, Burlington Coat Factory Direct Corporation, on our online shopping websites (www.burlingtoncoatfactory.com, www.coat.com and www.babydepot.com). The sites feature thousands of merchandise items, shopping cart functionality, item search capability and a secure online payment processing system. An order management system allows for vendor, warehouse and store-based direct fulfillment of orders. Website product data is tied to our inventory systems for maintenance of prices and item availability.

Online merchandise includes a broad assortment of hard- and soft-good baby products, infant through toddler clothing, maternity apparel and coats. The website also provides customers with an online baby registry

 

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that is integrated with the in-store registry. Online sales for fiscal 2006 were approximately $9 million. Merchandise orders are fulfilled out of our Bristol, Pennsylvania distribution facility and certain store locations.

Seasonality

Our business is seasonal, with our highest sales generally occurring in the months of September, October, November, December and January. For the past five fiscal years, on average 51% of our net sales have occurred during the five-month 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.

Store Operations and Management

Each store has a manager, one or more assistant managers, and several department managers. We also employ regional and district managers to supervise overall store operating and merchandising policies. Major merchandising decisions are made, overall policies are set, and accounting and general financial functions for our stores are conducted at corporate headquarters. In addition, other operations such as real estate, store operations, loss prevention, merchandise presentation, customer service, and human resources are managed on a Company-wide basis.

Vendors

We maintain relationships with more than 1,000 vendors and have cultivated certain key relationships over the past three decades. These relationships exist throughout the merchandising division and enable us to access a breadth of brands similar to that of a department store. We purchase the majority of our merchandise pre-season, when department stores make the majority of their purchases, and the balance of our merchandise in-season (replenishment, re-orders and opportunistic purchases), when off-price retailers make a large portion of their purchases. We do not maintain any long-term or exclusive commitments to purchase from any single manufacturer.

We follow a multi-source purchasing strategy: we purchase no more than 5% of our annual demand from any one supplier. We further enhance our ability to source up-front, in-season merchandise by seldom requiring margin guarantee provisions in our manufacturers’ supply contracts. This strategy of purchasing up-front allows us to acquire a product line with a depth of style, size, and color which is more extensive than the product lines of our off-price competitors.

Employees

As of September 25, 2006, we employed 25,525 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 September 25, 2006, employees at only two of our stores are subject to collective bargaining agreements. We believe our relations with our employees are good. The following table shows a breakdown of employees as of September 25, 2006:

 

     Vice
President
   Operating
Director
   Manager-
Level
   Others    Total  

Headquarters

   36    24    51    922    1,033  

Distribution Centers

   2    0    84    845    931  

Stores

   6    18    351    23,186    23,561  
                          

Totals

   44    42    486    24,953    25,525 (1)
                          

(1) Represents employees of BCFWC.

 

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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 BCFW stores.

Properties

We own the land and/or building for 42 of our stores. Generally, however, our policy has been to lease our 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 office and a warehouse/distribution facility. We lease warehouse facilities of approximately 340,000 square feet in Bristol, Pennsylvania. We lease approximately 20,000 square feet of office space in New York City. We own approximately 46 acres of land in Edgewater Park, New Jersey on which we have constructed an approximately 648,000 square foot facility. This facility expanded our warehousing and distribution capabilities. The facility began processing merchandise in August of 2003 and has been fully operational since August 2004. An additional 440,000 square foot distribution facility opened in April 2006 in San Bernardino, California. See “—Operations—Distribution.”

The following table shows the years in which store leases existing at July 31, 2006 expire:

 

Fiscal Year Ending

   Number of Leases Expiring    Expiring with Renewal Options

2006-2007

   5    9

2008-2009

   8    86

2010-2011

   4    93

2012-2013

   1    43

2014-2015

   8    31

Thereafter

   16    36
         

Total

   42    298
         

Legal Proceedings

On January 27, 2006 a putative class action complaint was filed by a stockholder of our Company in the Superior Court of New Jersey in and for Burlington County against us and our directors (the “Individual Defendants”) challenging the proposed acquisition of our Company by affiliates of Bain Capital pursuant to the Merger Agreement. Lemon Bay Partners v. Burlington Coat Factory Warehouse Corporation et al. (CA No. Bur. C-000014-06). On March 7, 2006, plaintiff served us and the Individual Defendants with a First Amended Shareholder Class Action Complaint (the “Complaint”). The Complaint asserts on behalf of a putative class of Company stockholders a claim against the Individual Defendants for alleged breaches of fiduciary duties in connection with the proposed Merger. The Complaint alleged, among other things, that the consideration to be paid to holders of Company common stock in the Merger is inadequate. The Complaint further alleged that we and the Individual Defendants have breached a disclosure duty to our stockholders by failing to provide them with material information and/or providing them with misleading information concerning the proposed Merger in our proxy statement. The Complaint also asserted a claim against Bain Capital for aiding and abetting the alleged breaches of fiduciary duties by the Individual Defendants. The Complaint sought, among other things, to enjoin the consummation of the Merger, that the transaction be rescinded if it is not enjoined, and an award of compensatory and rescissory damages as well as attorneys’ fees. On March 30, 2006, we and our directors

 

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entered into a memorandum of understanding for a settlement, which will be subject to court approval, pursuant to which the lawsuit will be dismissed against all parties to the lawsuit in consideration of additional disclosures made in the proxy statement supplement related to the Merger and the proposed payment of plaintiff’s legal fees. After the memorandum of understanding was approved by the court, confirming discovery was completed. In July 2006, a motion for preliminary approval of the settlement was filed with the court. The settlement agreement was approved on October 18, 2006. The settlement will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

We are party to various other litigation matters, in most cases involving ordinary and routine claims incidental to our business. We cannot estimate with certainty our ultimate legal and financial liability with respect to such pending litigation matters. However, we believe, based on our examination of such matters, that our ultimate liability will not have a material adverse effect on our financial position, result of operations or cash flows.

 

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MANAGEMENT

Below is a list of the names and ages of our directors and executive officers and a brief account of the business experience of each of them.

 

Name

   Age   

Position

Mark A. Nesci

   50    Chief Executive Officer and Director

Thomas J. Fitzgerald

   46    Executive Vice President, Chief Financial Officer

Robert L. LaPenta, Jr.  

   52    Vice President and Chief Accounting Officer

Paul C. Tang

   54    Executive Vice President, General Counsel and Secretary

Elizabeth Williams

   53    Executive Vice President, Chief Merchandising Officer

Joshua Bekenstein

   48    Director

Jordan Hitch

   40    Director

John Tudor

   37    Director

Laki Nomicos

   44    Director

Mark A. Nesci—Chief Executive Officer and Director. Mr. Nesci became our Chief Executive Officer and Director upon closing of the Transactions. Mr. Nesci has been Executive Vice President, Chief Operating Officer and Director since 1999. Mr. Nesci has been employed by us since 1972, beginning his career as a part-time Stock Associate while in high school. In 1976 he was promoted to Store Manager, followed by District Manager in 1980. He became Vice President of Real Estate in 1982, and Vice President of Store Operations in 1983. Mr. Nesci was elected to the Board of Directors in 1989 and gained the title of Chief Operating Officer in 1990. In 1999, he was promoted to Executive Vice President.

Thomas J. Fitzgerald—Executive Vice President, Chief Financial Officer. Mr. Fitzgerald joined us on September 25, 2006 as our Executive Vice President, Chief Financial Officer. Prior to joining us, since 2005, Mr. Fitzgerald was the Chief Operating Officer of Bath & Body Works of Limited Brands, Inc. Mr. Fitzgerald also served as Chief Financial Officer of Bath & Body Works from 2000 to 2005. Mr. Fitzgerald began his career in 1984 with PepsiCo, Inc. During his 16-year tenure with PepsiCo, Mr. Fitzgerald was responsible for finance, marketing and business planning functions. Mr. Fitzgerald has over 22 years of financial and business experience. Mr. Fitzgerald received a Bachelor’s Degree in Finance from the University of Florida and an MBA in Finance from the Indiana University School of Business.

Robert L. LaPenta Jr.—Vice President, Chief Accounting Officer. Mr. LaPenta has been our Vice President since 1999 and Chief Accounting Officer since 1986. He was appointed Treasurer in 2003. He joined us as Controller in 1984. From 1978 to 1984, Mr. LaPenta was the Corporate Financial Reporting and Tax Manager at Spencer Gifts. From 1976 to 1978, Mr. LaPenta was an accountant at Touche Ross & Co. Mr. LaPenta is a certified public accountant. He received a B.S. in Accounting from the University of Delaware.

Paul C. Tang—Executive Vice President, General Counsel and Secretary. Mr. Tang has been our Executive Vice President, General Counsel and Secretary since 1993. He was named Vice President in 1995, Executive Vice President in 1999 and Secretary in 2001. From 1989 to 1993, Mr. Tang was a partner in the law firm of Reid & Priest. From 1987 to 1988, he was a partner of the law firm of Milstein & Tang. From 1980 to 1987, Mr. Tang was an attorney at the law firm of Phillips Nizer, where he became a partner in 1985. Mr. Tang received an A.B. from Harvard University and holds J.D. and M.B.A. degrees from Columbia University.

Elizabeth Williams—Executive Vice President, Chief Merchandising Officer. Ms. Williams has been our Executive Vice President, Chief Merchandising Officer since June 2006. Prior to joining us, Ms. Williams was President of Fashion Bug, a division of Charming Shoppes from July 1999 to January 2006. She joined Charming Shoppes in 1995 and held the position of Executive Vice President and President of Fashion Bug. Charming Shoppes owns and operates women’s apparel specialty stores. Ms. Williams has over 30 years of retailing experience. Ms. Williams received a B.A. in Sociology from the University of California, Berkeley.

 

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Joshua Bekenstein—Director. Mr. Bekenstein, a Managing Director of Bain Capital, joined the firm at its inception in 1984. Mr. Bekenstein serves as a board member of Bombardier Recreational Products, Bright Horizons Family Solutions, Dollarama, Toys “R” Us and Waters Corporation. Previously, Mr. Bekenstein spent two years as a consultant at Bain & Company. Mr. Bekenstein received an M.B.A. from Harvard Business School and a B.A. from Yale University.

Jordan Hitch—Director. Mr. Hitch, a Managing Director of Bain Capital, joined the firm in 1997. Mr. Hitch serves as a board member of Bombardier Recreational Products and MC Communications. Prior to joining the firm, Mr. Hitch was a consultant at Bain & Company where he worked in the financial services, healthcare and utility industries. Mr. Hitch received an M.B.A., with distinction, from the University of Chicago Graduate School of Business. He received a B.S. in Mechanical Engineering from Lehigh University.

John Tudor—Director. Mr. Tudor, a Principal of Bain Capital, joined the firm in 2000. Previously, Mr. Tudor was a consultant at the Monitor Group. Mr. Tudor received an M.B.A. from Harvard Business School, where he was a Baker Scholar. He is a graduate of the University of Cape Town in South Africa, and the University of Oxford in the United Kingdom, where he was a Rhodes Scholar.

Laki Nomicos—Director. Mr. Nomicos, an Executive Vice President in the Portfolio Group of Bain Capital, joined the firm in 1999. Mr. Nomicos serves as a board member of Bombardier Recreational Products and Dollarama. Prior to joining the firm, Mr. Nomicos held several senior corporate and division management positions at Oak Industries where he headed the WDM business unit of Lasertron, a semiconductor laser manufacturer serving the telecommunications industry. Previously, Mr. Nomicos was a manager at Bain & Company. Mr. Nomicos received an M.B.A. from Harvard Business School and a B.S.E., Phi Beta Kappa and magna cum laude, from Princeton University.

Nomination of Directors

In connection with the Transactions, Parent entered into a stockholders agreement with its stockholders, including funds associated with Bain Capital, which established the composition of our Board of Directors. Pursuant to the agreement, Bain Capital Fund IX, LLC has the authority to nominate one member of the Board of Directors and the other members are nominated by the holders of the majority of the shares held by other funds associated with Bain Capital which are party to the agreement.

Code of Business Conduct and Ethics

We adopted a Code of Business Conduct and Ethics (which includes our Code of Ethics for our Chief Executive Officer and senior financial officers).

Audit Committee

Our Board of Directors has separately designated an audit committee and the functions of a traditional audit committee are carried out by two of the members of the Board. Our Board has determined that each member of the Board is financially literate but no determination has been made as to the ability of any director to qualify as a “financial expert” within the meaning of the regulations adopted by the Securities and Exchange Commission. Neither of our directors who serve on the Audit Committee is independent due to their affiliations with Bain Capital.

 

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EXECUTIVE COMPENSATION

The following table provides information for the last three fiscal years concerning compensation earned for services rendered in all capacities by our Chief Executive Officer, our two other most highly compensated executive officers for the fiscal year ended June 3, 2006 and our former Chief Executive Officer (the “Named Executive Officers”). Ms. Williams, our new Executive Vice President, Chief Merchandising Officer, and Thomas Fitzgerald, our new Executive Vice President, Chief Financial Officer, are not represented in the table below because they were hired effective as of June 26, 2006 and August 30, 2006, respectively and accordingly did not receive any compensation from us during fiscal 2006.

 

Name and Principal Position(1)

  Fiscal
Year
Ended
  Salary
($)
  Bonus
($)
  Other
Annual
Compensation
($)
    Restricted
Stock
Award(s)
($)
  Options
(#)(4)
    Long-
Term
Incentive
Plan
Payouts
  All Other
Compensation
($)(5)

Monroe G. Milstein,

  2006   291,400   —     —         —     —         14,700

President and Chief

  2005   322,400   —     —         —     —         14,350

Executive Officer

  2004   322,400   —     —         —     —         14,000

Mark A. Nesci,

  2006   600,780   150,000   4,242,240 (2)     3,500,010   70,000 (3)     14,700

President and Chief

  2005   392,804   —     —         —     —         14,350
Executive Officer; Executive Officer; Executive Vice President, Chief Operating Officer   2004   365,149   —     —         —     —         14,000

Robert L. LaPenta, Jr.,

  2006   209,241   67,254   303,440 (2)   $ 250,020   20,000 (3)     14,700

Vice President Chief

  2005   169,230   30,703   —         —     5,000       14,350
Accounting Officer and Treasurer   2004   158,077   10,000   —         —     —         14,000

Paul C. Tang,

  2006   306,934   60,000   464,028 (2)     400,050   20,000 (3)     14,700

Executive Vice President,

  2005   262,115   15,000   —         —     5,000       14,350

General Counsel and Secretary

  2004   248,077   10,000   —         —     —         14,000

(1) All positions represent the capacities in which individuals served as of June 3, 2006, except in the case of Mr. Milstein who resigned effective as of April 13, 2006, in connection with the Merger. Mr. Nesci served as our Executive Vice President, Chief Operating Officer until April 13, 2006 when he was unanimously elected by the Board to serve as President and Chief Executive Officer.
(2) Merger compensation received for outstanding vested options as of April 12, 2006. Prior to cancellation, the options all had exercise prices of less than $45.50 per share and the consideration was determined on the weighted average exercise prices of the options.
(3) After the consummation of the Merger on April 13, 2006, new options to purchase units of common stock of Parent were granted as follows: Mr. Nesci: 70,000, Mr. Tang: 20,000 and Mr. LaPenta: 20,000. The units and the new options to purchase common stock are described below under the heading “Option Grants—Option Grants by Parent.” The securities underlying options for 2006 are shown in units.
(4) The options to purchase our common stock shown for 2005 vested and were cashed out with the Merger. See Note 2 above.
(5) Constitutes our contribution to our 401(K) Profit Sharing Plan.

Option Grants

Option Grants by our Company. We did not grant options to the Named Executive Officers in fiscal year 2006.

Option Grants by Parent and the 2006 Management Incentive Plan. After the consummation of the Merger, the Board of Directors of Parent adopted the 2006 Management Incentive Plan (the “Plan”). Pursuant to the Plan each of the Named Executive Officers was granted options to purchase “units” of common stock in Parent. Each unit consists of nine shares of Class A common stock and one share of Class L common stock of Parent. The shares compromising a unit are in the same proportion as the shares of Class A and Class L common stock held by all stockholders of Parent. The options are exercisable only for whole units and cannot be separately exercised for the individual classes of Parent common stock. The units were granted in three tranches

 

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with exercise prices as follows: Tranche 1: $90 per unit; Tranche 2: $180 per Unit; and Tranche 3: $270 per Unit. 40% of the options vest on the second anniversary of the grant date, and then one-third of the remaining 60% vests on the third, fourth and fifth anniversary of the grant date, respectively. All options become exercisable upon a change of control and unless determined otherwise by the plan administrator, upon cessation of employment, options that have not vested will terminate immediately, units issued upon the exercise of vested options will be callable and unexercised vested options will be exercisable for a period of 60 days. The final exercise date for any option granted is the tenth anniversary of the grant date.

The following table sets forth the number of stock options granted by Parent to the Named Executive Officers during fiscal year 2006.

Individual Grants

 

Name

   Number of
Units
Underlying
Options
Granted
   Percent of
Total Options
Granted to
Employees
in Fiscal
Year(2)
    Exercise
Price
Per Share
($)
    Expiration
Date
   Present Value
of Tranche on
the Grant Date
$(1)

Mark A. Nesci

   23,334
23,333
23,333
   20.1 %   90.00
180.00
270.00
 
(3)
(3)
  04/13/2016    $
 
 
1,239,735
905,087
712,356

Robert L. LaPenta, Jr.  

   6,667
6,667
6,666
   5.7 %   90.00
180.00
270.00
 
(3)
(3)
  04/13/2016    $
 
 
354,218
258,613
203,513

Paul C. Tang

   6,667
6,667
6,666