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FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
or
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from June 29, 1997 to May 30, 1998
Commission File No.: 1-8739
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION
---------------------------------------------
(Exact Name of Registrant as specified in its charter)
State or other jurisdiction: Delaware
I.R.S. Employer incorporation or
organization Identification No.: 22-1970303
1830 Route 130, Burlington, New Jersey 08016
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (609) 387-7800
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Common Stock, $1.00 par value per share
---------------------------------------
Name of each exchange
on which registered: New York Stock Exchange, Inc.
-----------------------------
Securities Registered pursuant to Section 12(g) of the Act:
Title of Class: None
----
Page 1 of 181
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. YES X NO___.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock, $1.00 par value
("Common Stock"), of the registrant held by non-affiliates of the
registrant, as determined by reference to the closing price of
the Common Stock on the New York Stock Exchange as of July 31,
1998, was $448,123,693.
As of July 31, 1998, the number of shares of Common Stock, $1.00
par value, outstanding was 47,350,427.
The documents incorporated by reference into this Form 10K:
Registrant's Proxy Statement to be filed pursuant to Regulation 14A
The Part of the Form 10-K into which the document is incorporated
Part III
Page 2 of 181
PART I
Item 1. Business
--------
Burlington Coat Factory Warehouse Corporation and its
subsidiaries (the "Company" or "Burlington Coat") operate a chain
of "off-price" apparel stores which offer a broad range of moderate
to higher priced, current brand name merchandise for men, women and
children at prices substantially below traditional full retail
prices generally charged by department and specialty stores. In
addition, Burlington Coat offers customers a complete line of
men's, women's and children's wear as well as a linens, bath shop
items, gifts and accessories department in 196 of its stores and a
children's furniture department in 176 of its stores. The
Company's policy of buying significant quantities of merchandise
throughout the year, maintaining inventory control and using a "no-
frills" merchandising approach, allows it to offer merchandise at
prices below traditional full retail prices. The sale of irregular
or discontinued merchandise represents only a small portion of the
Company's business. Merchandise is displayed on easy access racks,
and sales assistance generally is available. Clothing alteration
services are available on a limited basis in many stores for an
additional charge.
Burlington Coat's practice of purchasing outerwear early in
each fashion season and of reordering in rapid response to sales
has enabled it to maintain a large, current and varied selection of
outerwear throughout each year. Although the Company believes that
this practice helps attract customers to its stores, to the extent
the Company maintains a relatively large volume of merchandise,
particularly outerwear, the risks related to style changes, weather
and other seasonal factors, and economic conditions are necessarily
greater than if the Company maintained smaller inventories.
An important factor in Burlington Coat's operations has been
its continued ability to purchase desirable, first-quality current
brand labeled merchandise directly from manufacturers on terms at
least as favorable as those offered large retail department and
specialty stores. The Company estimates that over 1,000
manufacturers of apparel, including over 300 manufacturers of
outerwear, are represented at the Company's stores, and that no
manufacturer accounted for more than 5% of the Company's purchases
during the last full fiscal year. The Company does not maintain
any long term or exclusive commitments or arrangements to purchase
from any manufacturer. No assurance can be given that the Company
will be able to continue to purchase such merchandise directly from
manufacturers or to continue its current selling price structure.
See "Competition."
Page 3 of 181
The Company sells its merchandise to retail customers for cash
and accepts checks and most major credit cards. The Company's
"Cohoes" division also offers its own credit card. In addition,
the Company maintains a layaway plan and offers special orders on
selected merchandise. It does not offer refunds, except on furs,
defective merchandise and certain sales from specialty retail
operations, but will exchange merchandise or give store merchandise
exchange slips for merchandise returned within a prescribed period
of time.
The Company advertises primarily on television and, to a
lesser extent, in regional and local newspapers and radio. During
the past three fiscal years, advertising expenditures have averaged
approximately 2.61% of total revenues.
The Stores
- ----------
As of July 31, 1998, the Company operated 251 stores, all but
22 of which are located in leased facilities ranging in size
(including storage space) from approximately 16,000 to
approximately 163,000 square feet, with an average area of
approximately 69,000 square feet. Selling space accounts for over
four-fifths of the total area in most stores.
All of the Company's stores are either free-standing or are
located in shopping malls or strip shopping centers. The Company
believes that its customers are attracted to its stores principally
by the availability of a large assortment of first-quality current
brand name merchandise at attractive prices.
The Company also operates stores under the names "Cohoes
Fashions," "Decelle," "Luxury Linens," "Totally 4 Kids," and "Baby
Depot". Cohoes Fashions offers merchandise in the middle to higher
price range. Decelle offers merchandise in the moderate price
range for the entire family with an emphasis on children's and
youth wear. Luxury Linens is a specialty store for linens, bath
shop items, gifts and accessories and offers merchandise in the
middle to higher range. Totally 4 Kids is a moderate to upscale
concept store offering maternity wear, baby furniture, children's
wear from toddlers up to teens, children's books, toys, computer
software for kids, and educational tapes, all in a family
environment. Baby Depot is a concept store specializing in infant
to toddler apparel, baby and juvenile furniture and furnishings and
accessories.
In general, Burlington Coat generally has selected sites for
its stores where there are suitable existing structures which can
Page 4 of 181
be refurbished, and, if necessary, enlarged, in a manner consistent
with the Company's merchandising concepts. In some cases, space
has been substantially renovated or built to specifications given
by Burlington Coat to the lessor. Such properties have been
available to the Company on lease terms which it believes have been
favorable. See "Growth and Expansion."
The stores generally are located in close proximity to
population centers, department stores and other retail operations
and are usually established near a major highway or thoroughfare,
making them easily accessible by automobile. It is likely that the
Company would be adversely affected by any conditions which were to
result in the reduction of automobile use.
The Company owns substantially all the equipment used in its
stores and believes that its selling space is well utilized and
that its equipment is well maintained and suitable for its
requirements.
Some stores contain departments leased by unaffiliated parties
for the sale of items such as shoes, jewelry and fragrances.
During the fiscal year ended May 30, 1998, the Company's rental
income from all of its leased departments aggregated less than 1%
of the Company's total revenues.
Central Distribution
- --------------------
Central distribution, warehousing, ticketing and marking
services are extended to approximately fifty percent of the dollar
volume of the Company's merchandise through its office and
warehouse/distribution facility in Burlington, New Jersey. This
facility services the Company's present stores. The Company is
leasing approximately 85,000 square feet of warehouse space (and
has signed a lease for a new facility of approximately 160,000
square feet to be completed in 1999 to replace this facility)
nearby to its existing warehouse distribution center for the
purpose of warehousing and distributing its juvenile furniture
inventory.
Safe Harbor Statement
- ---------------------
Statements made in this report that are forward-looking
(within the meaning of the Private Securities Litigation Reform Act
of 1995) are not historical facts and involve a number of risks and
uncertainties. Such statements include but are not limited to,
proposed store openings and closings, proposed capital
page 5 of 181
expenditures, projected financing requirements, proposed
developmental projects, projected sales and earnings, the Company's
ability to maintain selling margins, and the Company's anticipated
ability to resolve Year 2000 computer problems, if any. Among the
factors that could cause actual results to differ materially are
the following: general economic conditions; consumer demand;
consumer preferences; weather patterns; competitive factors,
including pricing and promotional activities of major competitors;
the availability of desirable store locations on suitable terms;
the availability, selection and purchasing of attractive
merchandise on favorable terms; import risks; the Company's ability
to control costs and expenses; unforeseen computer related
problems; any unforeseen material loss or casualty; the effect of
inflation; and other factors that may be described in the Company's
filings with the Securities and Exchange Commission. The Company
does not undertake to publicly update or revise its forward-looking
statements even if experience or future changes make it clear that
any projected results expressed or implied will not be realized.
Growth and Expansion
- --------------------
Since 1972 when its first store was opened in Burlington, New
Jersey, the Company has expanded to two hundred twenty-eight
Burlington Coat stores, four Cohoes Fashions stores, eight Decelle
stores, six stand-alone Luxury Linens stores, three Totally 4 Kids
store, and two stand alone Baby Depot stores as of July 31, 1998.
At July 31, 1998 the Company operated stores in 42 states and
is exploring expansion opportunities both within its current market
areas and in other regions. For fiscal 1999, the Company plans to
open approximately twenty additional Burlington Coat Factory
stores.* The Company also has planned store expansions for
approximately eleven stores.* In addition, the Company has plans to
relocate approximately seven of its stores to new locations within
the same trading market.* The Company continues to monitor store
profitability and should economic factors change, some store
closings could be possible.
The Company believes that its ability to find satisfactory
locations for its stores is essential for the continued growth of
its 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
the Company will be able to find suitable locations for new stores
or that even if such locations are found and acceptable lease terms
are obtained, the Company will be able to open the number of new
stores presently planned.
* Forward Looking Statement. See Safe Harbor Statement on Page 5
Page 6 of 181
The Company operates its own jewelry department in fifteen
stores as of July 31, 1998. The jewelry program consists of karat
gold and precious and semi-precious stone jewelry, and in some
stores may include brand-name watches.
In fiscal 1997 the Company began to operate its own shoe
department. At July 31, 1998 the Company operated this department
in approximately 100 Burlington Coat Factory stores with plans to
expand to approximately 200 stores by the end of fiscal 1999.* The
shoe department offers a full line of mens and womens shoes in many
brands and styles.
The Company has begun offering merchandise for sale through
its internet web site (http://www.coat.com). Currently, ladies
coats, menswear, kids clothing and baby and infant products are
available for purchase via this medium. If this experiment is
successful, the Company plans to expand the merchandise mix offered
through its web site; however, no assurance can be given that this
venture will be successful.* To date, sales generated from its
internet web site have been negligible.
The Company seeks to maintain its competitive position and
improve its prospects by periodically reevaluating its methods of
operation, including its pricing and inventory policies, the format
of its stores and its ownership or leasing of stores.
Seasonality
- -----------
The Company's business is seasonal, with its highest sales
occurring in the months of September, October, November, December
and January of each year. For the past five fiscal years,
approximately 57% of the Company's 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, the
Company's sales are higher if the weather is cold during the fall
and warm during the early spring. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Operations
- ----------
Each store has a manager and one or more assistant managers,
as well as department managers. The Company also employs regional
and district managers to supervise overall store operating and
merchandising policies. Major merchandising decisions are made,
* Forward Looking Statement. See Safe Harbor Statement on Page 5.
Page 7 of 181
overall policies are set, and accounting and general financial
functions for the Company's stores are conducted, at corporate
headquarters. In addition, the Company employs directors of
administration, store operations, loss prevention, merchandise
presentation, customer service, and human resources who are in
charge of those functions on a Company-wide basis.
Merchandise purchased by the Company is either shipped
directly from manufacturers to store locations or distributed
through the Company's warehousing and distribution facility. See
"Central Distribution." A computerized merchandise information
system provides regular detailed reports of sales and inventory
levels for each store and assists the merchandise managers and
buyers in monitoring and adjusting inventory levels.
At July 31, 1998, the Company had approximately 20,000
employees, including a large number of part-time and seasonal
employees which varies throughout the year. Of the Company's
employees, only those employed at one of its stores are covered by
a collective bargaining agreement. The Company cannot predict
whether any future attempts to unionize its employees will be
successful. The Company believes that its relationship with its
employees has been and remains satisfactory.
Competition
- -----------
General. The retail apparel business is highly competitive.
Competitors include other individual, regional, and national "off-
price" retailers offering similar merchandise at comparable prices
as well as individual and chain stores, some of which are regional
and national department and discount store chains. At various
times throughout the year department store chains and specialty
shops offer brand name merchandise at substantial markdowns, which
can result in prices approximating those offered by the Company.
Some of the Company's competitors are considerably larger than the
Company and have substantially greater financial and other
resources.
Resale Price Maintenance. Since it is the general policy of
the Company to sell at lower than the traditional full retail
price, its business may be adversely affected by manufacturers who
attempt to maintain the resale price of their merchandise by
refusing to sell, or to grant advertising allowances, to purchasers
who do not adhere to their suggested retail prices. Federal
legislation and regulations have been proposed from time to time
which, if enacted, would be helpful to manufacturers attempting to
establish minimum prices or withhold allowances. In addition, the
Page 8 of 181
rules against resale price maintenance have been subject to
challenge in the courts from time to time.
The Company has, on several occasions in the past, brought
lawsuits against certain manufacturers and department store chains
and complained to the Federal Trade Commission seeking more
vigorous enforcement of existing Federal laws, as well as testified
before Congress in connection with proposed legislation concerning
the Federal antitrust laws.
Item 2. Properties
----------
The Company owns the land and building for twenty-two of its
stores and is a 50% partner in a partnership which owns the
building in which one store is located. Generally, however, the
Company's policy has been to lease its 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, the Company's store leases
contain formulas providing for the payment of additional rent based
on sales.
The following table shows the years in which store leases
existing at July 31, 1998 expire:
Fiscal Years Number of Leases Expiring with
Ending May 30 Expiring Renewal Options
- ------------- ---------------- ---------------
1999-2000 15 14
2001-2002 3 31
2003-2004 7 33
2005-2006 8 26
2007-2008 12 23
Thereafter 32 39
-- ---
Total 77 166
== ===
The Company owns five buildings in Burlington, New Jersey. Of
these buildings, two are used by the Company as retail space. In
addition, the Company owns approximately 97 acres of land in the
Townships of Burlington and Florence, New Jersey on which the
Company has constructed its office and warehouse/distribution
facility. The Company leases approximately 85,000 square feet of
space at a location nearby to the warehouse/distribution facility
Page 9 of 181
to store its juvenile furniture inventory. The Company leases
approximately 20,000 square feet of office space in New York City
with a right of occupancy that expires in January, 2001.
Item 3. Legal Proceedings
-----------------
In late September 1994, three putative class action lawsuits,
P. Gregory Buchanan v. Monroe G. Milstein, et al., No. 94-CV-4663,
Jacob Turner v. Monroe G. Milstein, et al., No. 94-CV-4737, and
Ronald Abramoff v. Monroe G. Milstein, et al., No. 94-CV-4751
(collectively, the "Class Actions"), were filed against the
Company, Monroe G. Milstein, Stephen E. Milstein and Robert L.
LaPenta, Jr. in the United States District Court for the District
of New Jersey. By Order entered November 15, 1994, the Court
consolidated the Class Actions under the caption In re Burlington
Coat Factory Securities Litigation. On January 17, 1995,
plaintiffs filed their Consolidated Amended and Supplemental Class
Action Complaint (the "Amended Complaint"), naming as defendants,
in addition to those originally named in September 1994, Andrew R.
Milstein and Mark A. Nesci. The Amended Complaint sought
unspecified damages in connection with alleged violations of
Sections 10(b) (and Rule 10b-5 promulgated thereunder) and 20(a) of
the Securities Exchange Act of 1934, as amended. The Amended
Complaint alleged material misstatements and omissions by the
Company and certain of its officers and directors that plaintiffs
alleged caused the Company's common stock to be artificially
inflated during the proposed Class Period, which was defined in the
Amended Complaint as the period from October 4, 1993 through
September 23, 1994. On March 3, 1995, the Company and the
individual defendants served a motion to dismiss plaintiffs'
Amended Complaint. On February 20, 1996, the District Court
granted the Company's motion and dismissed the plaintiffs' Amended
Complaint in its entirety. In March, 1996, the plaintiffs filed an
appeal from the District Court's decision in the United States
Court of Appeals for the Third Circuit (the "Appeal"). The Appeal
was orally argued before a panel of three judges on December 12,
1996. On June 10, 1997 the panel rendered a unanimous decision
affirming the District Court's dismissal of the action but ruled
that the District Court should allow the plaintiffs to attempt to
replead two of the six claims. After remand to the District Court,
the plaintiffs filed a further amended complaint in an effort to
cure the legal deficiencies of the two claims in question. Among
other changes, the amended complaint dropped all claims against
Andrew Milstein, Stephen Milstein and Mark Nesci. On July 1, 1998,
the Company filed a further motion to dismiss on the grounds that
the amended complaint failed to cure such deficiencies. The motion
has been fully briefed by both sides and the parties await word
Page 10 of 181
from the District Court either scheduling oral argument or deciding
the motion without oral argument.
In the past, the Company has initiated several lawsuits in its
effort to stop what it believes to be unlawful practices on the
part of certain manufacturers and large retailers to control the
prices at which certain items of merchandise may be sold at the
Company's stores.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company did not submit any matter to a vote of its
security holders during the fourth quarter of fiscal 1998.
PART II
Item 5. Market for Registrant's Common Equity and Related
-------------------------------------------------
Stockholder Matters
-------------------------------------------------
The Company's Common Stock is traded on the New York Stock
Exchange, Inc. and its trading symbol is "BCF."
The following table provides the high and low closing prices
on the New York Stock Exchange for each fiscal quarter for the
period from June 30, 1996 to May 30, 1998 and for the two months
ended July 31, 1998.
Period Low Price High Price
------ --------- ----------
June 30, 1996 to
September 28, 1996 8 5/16 9 1/4
September 29, 1996 to
December 28, 1996 8 7/8 11 1/8
December 29, 1996 to
March 29, 1997 10 3/16 14 7/8
March 30, 1997 to
June 28, 1997 14 3/8 16 11/16
June 29, 1997 to
September 27, 1997 12 3/8 20
September 28, 1997 to
December 27, 1997 14 5/16 19 15/16
December 28, 1997 to
March 28, 1998 14 7/16 17 3/4
Page 11 of 181
March 29, 1998 to
May 30, 1998 16 5/16 20 1/2
May 31, 1998 to
July 31, 1998 18 3/8 27 7/16
At July 31, 1998 there were 355 record holders of the
Company's Common Stock. The number of record holders does not
reflect the number of beneficial owners of the Company's Common
Stock for whom shares are held by Cede & Co., certain brokerage
firms and others.
Dividend Policy
- ---------------
On September 8, 1997 the Board of Directors of the Company
declared the Company's first cash dividend in the amount of two
cents ($.02) per share payable annually. Maintenance of the cash
dividend policy or any change thereto in the future will be at the
discretion of the Company's Board of Directors and will depend upon
the financial condition, capital requirements and earnings of the
Company as well as other factors which the Board of Directors may
deem relevant. At present, the policy of the Board of Directors of
the Company is to retain the majority of earnings to finance the
growth and development of the Company's business.
Item 6. Selected Financial Data
-----------------------
The following tables set forth certain selected financial
data:
Twelve Twelve Twelve Twelve Eleven
Months Ended Months Ended Months Ended Months Ended Months Ended
7/2/94 7/1/95 6/29/96 6/28/97 5/30/98
------------ ------------ ------------ ------------ ------------
(In thousands of dollars, except per share data)
Statement of Operations Data:
- ----------------------------
Revenues $1,480,676 $1,597,028 $1,610,892 $1,776,823 $1,813,897
Net Income 45,383 14,866 29,013 56,515 63,639
Basic and Diluted Net
Income per Share .93(1) .30(1) .59(1) 1.17(1) 1.34
Balance Sheet Data:
- ------------------
Total Assets $ 725,439 $ 735,269 $ 704,731 $ 775,077 $ 909,807
Working Capital 278,590 245,468 288,107 319,736 368,459
Long-Term Debt 91,369 83,298 74,907 62,274 60,890
Stockholders' Equity 369,857 385,019 413,745 460,215 516,069
__________________
(1) Adjusted to give retroactive effect to six for five stock
split effected in October, 1997.
Page 12 of 181
The Company changed its fiscal year from a 52-53 week fiscal
year ending on the Saturday closest to June 30 to a fiscal year
ending on the Saturday closest to May 31. The following tables are
set forth below for comparative purposes.
Eleven Months Ended
May 30, 1998 May 24, 1997
(48 weeks) (47 weeks)
(unaudited)
--------------------------------------------
(in thousands of dollars, except per share data)
Statement of Operations Data:
- ----------------------------
Net Sales $1,795,623 $1,645,679
Other Income 18,274 16,540
Cost of Sales 1,142,956 1,055,915
Selling and Administrative Expenses 528,725 470,899
Depreciation and Amortization 29,634 27,890
Interest Expense 6,829 7,325
--------- ----------
Income Before Provision for Income Taxes 105,753 100,190
Provision for Income Taxes 42,114 41,051
--------- ----------
Net Income 63,639 59,139
========= ==========
Balance Sheet Data:
- ------------------
Total Assets $ 909,807 $ 847,827
Working Capital 368,459 333,362
Long Term Debt 60,890 69,682
Stockholders' Equity 516,069 464,691
Item 7. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-------------------------------------------------
The Company changed its fiscal year from a 52-53 week fiscal
year ending on the Saturday closest to June 30 to a fiscal year
ending on the Saturday closest to May 31. The following discussion
compares the eleven months (48 weeks) ended May 30, 1998 with the
eleven months (47 weeks) ended May 24, 1997 (unaudited).
Results of Operations
- ---------------------
Eleven Months Ended
-------------------
May 30, 1998 and May 24, 1997
-----------------------------
The following table sets forth certain items in the
consolidated statements of operations as a percentage of net sales
for the eleven months ended May 30, 1998 and May 24, 1997
(unaudited).
Page 13 of 181
Percentage of Net Sales
-----------------------
Eleven Months Ended
-------------------
May 30, 1998 May 24, 1997
------------ ------------
Net Sales 100.0% 100.0%
Costs and expenses:
Cost of sales 63.7 64.2
Selling and administrative expenses 29.4 28.6
Depreciation and amortization 1.6 1.7
Interest expense 0.4 0.4
---- ----
95.1 94.9
---- ----
Other income 1.0 1.0
---- ----
Income before income taxes 5.9 6.1
Provision for income taxes 2.4 2.5
---- ----
Net income 3.5% 3.6%
===== =====
Performance for the Eleven Months (48 weeks) Ended May 30, 1998
- ---------------------------------------------------------------
Compared With the Eleven Months (47 weeks) Ended May 24, 1997
- ---------------------------------------------------------------
(unaudited)
- ---------------------------------------------------------------
Consolidated net sales increased $149.9 million (9.1%) for the
eleven months ended May 30, 1998 compared with the eleven months
ended May 24, 1997. Comparative stores sales for the Company's
Burlington Coat Factory stores increased 3.7% for the eleven months
ended May 30, 1998 compared with the similar period of a year ago.
This increase was realized despite a 5.3% decrease in coat sales,
the result of unseasonably mild temperatures during fiscal 1998.
Eleven new Burlington Coat Factory stores opened during fiscal 1998
contributed $60.6 million to this year's sales. The eleven month
period ended May 30, 1998 consisted of 48 weeks versus 47 weeks for
the comparative period ended May 24, 1997. Net sales for the
forty-eighth week in fiscal 1998 amounted to $25.7 million. Stores
which were in operation a year ago, but which were closed prior to
this year, contributed $12.0 million to last year's sales.
The Cohoes stores contributed $34.8 million to consolidated
sales for the eleven months ended May 30, 1998 compared with $39.0
million for the eleven months ended May 24, 1997. Cohoes
comparative store sales increased 4.4% for the eleven month period.
Net sales for the forty-eighth week in fiscal 1998 amounted to $.6
million. One Cohoes store closed during fiscal 1997 contributed
$5.9 million to last year's sales.
Page 14 of 181
Sales in fiscal 1998 for the Decelle stores were $36.7 million
compared with $33.9 million for eleven months ended May 24, 1997.
Comparative store sales decreased 3.1% for the eleven months ended
May 30, 1998 compared with the similar eleven month period of a
year ago. One new Decelle store was opened during fiscal 1998 and
contributed $2.2 million to this year's sales. Net sales for the
forty-eighth week in fiscal 1998 amounted to $.7 million.
Other income (consisting of rental income from leased
departments, investment income and miscellaneous items) increased
to $18.3 million for the eleven months ended May 30, 1998 compared
with $16.5 million for the eleven months ended May 24, 1997.
Increases of $.4 million in interest income and miscellaneous non-
recurring income items of $2.5 million offset decreases in rent
income of $1.6 million, resulting from the conversion of lessee
shoe departments to Company operated shoe departments.
Cost of sales increased $87.0 million (8.2%) for the eleven
months ended May 30, 1998 compared with the eleven months ended May
24, 1997. The dollar increase in cost of sales was due to the
increase in net sales during the current fiscal year compared with
the prior year. Cost of sales, as a percentage of net sales,
decreased from 64.2% in the eleven months ended May 24, 1997 to
63.7% in fiscal 1998. This decrease is due mainly to higher
initial markons maintained throughout fiscal 1998 compared with the
prior year. In addition, shrinkage as a percentage of sales,
decreased slightly in fiscal 1998 compared with the eleven months
ended May 24, 1997. Cost of sales for the forty-eighth week of
fiscal 1998 amounted to approximately $17.1 million.
Selling and administrative expenses increased $57.8 million
(12.3%) from the 1997 period to the 1998 period. This increase in
expense was due mainly to an increase in payroll and payroll
related expenses. Comparative store payroll costs increased 9.0%
in the 1998 period compared to the 1997 period. Annual pay
increases, increased staffing levels at the stores due to the
rollout of the new shoe department and baby depot department and an
increase in the number of department managers at the store level,
contributed to this change. In addition, the Company incurred
increased staffing levels at both the home office and the
distribution center during the fiscal 1998 period. Selling and
administrative expenses approximated $10.8 million during the
forty-eighth week of fiscal 1998. As a percentage of net sales,
selling and administrative expenses were 29.4% in the 1998 fiscal
period compared with 28.6% for the prior comparable fiscal period.
Depreciation and amortization expense amounted to $29.6
million in fiscal 1998 compared with $27.9 million in the eleven
months ended May 24, 1997. This increase of $1.7 million in the
fiscal 1998 period compared with the fiscal 1997 period is
attributable to new stores opened during the year as well as
remodeling and refixturing of existing stores.
Page 15 of 181
Interest expense decreased $0.5 million for the eleven months
ended May 30, 1998 compared with the similar period of a year ago.
The decrease in interest expense is the result of decreases in
borrowing levels associated with the Company's long term
subordinated notes and the industrial development bonds.
The provision for income taxes increased to $42.1 million for
the fiscal period ended May 30, 1998 from $41.1 million for the
similar fiscal period ended May 24, 1997. The effective tax rate
was 39.8% for the 1998 period compared with 40.9% for the fiscal
1997 period. This rate decrease is due primarily to a decrease in
the effective state tax rate and an increase in federal jobs tax
credits available to the Company.
Net income increased $4.5 million to $63.6 million for the
1998 period from $59.1 million for the comparative 1997 period.
The Company realized a net loss of approximately $.5 million for
the forty-eighth week of fiscal 1998. Income per share was $1.34
per share for fiscal 1998 compared with $1.22 for the comparable
1997 period.
Results of Operations
- ---------------------
Fiscal Years Ended
------------------
June 28, 1997 and June 29, 1996
-------------------------------
The following table sets forth certain items in the
consolidated statements of operations as a percentage of net sales
for the fiscal years ended June 28, 1997 and June 29, 1996.
Percentage of Net Sales
-----------------------
Fiscal Year Ended
-----------------
June 28, 1997 June 29, 1996
------------- -------------
Net Sales 100.0% 100.0%
Costs and expenses:
Cost of sales 64.1 65.4
Selling and administrative expenses 29.3 30.1
Depreciation and amortization 1.8 1.9
Interest expense 0.4 0.7
---- ----
95.6 98.1
---- ----
Other income 1.0 1.2
---- ----
Income before income taxes 5.4 3.1
Provision for income taxes 2.2 1.3
---- ----
Net income 3.2% 1.8%
===== =====
Page 16 of 181
Performance in 1997 compared with 1996
- --------------------------------------
Net sales increased $166.4 million (10.5%) for fiscal 1997
compared with fiscal 1996. Comparative store sales increased 7.4%.
The Company believes the increase in comparative sales in fiscal
1997 was due mainly to an improved retail environment relative to
fiscal 1996. Eight new Burlington Coat Factory Warehouse stores
opened during fiscal 1997 contributed $42.8 million to this year's
sales. Stores which were in operation a year ago, but which were
closed prior to this year, contributed $10.2 million to last year's
sales.
The Cohoes stores showed a comparative stores sales increase
of 6.1%, while contributing $42.2 million to consolidated sales for
the fiscal year. During fiscal 1997, one Cohoes store was closed.
This store contributed $5.9 million to net sales in fiscal 1997
compared with $6.6 million in fiscal 1996.
Sales in fiscal 1997 for the Decelle stores were $37.5 million
compared with $34.6 million in fiscal 1996. Fiscal 1997
comparative store sales were flat for the Decelle division. During
fiscal 1997, there was one new store opening within the Decelle
division. This store contributed $1.2 million to net sales.
In addition, fiscal 1997 saw the opening of a new Totally 4
Kids store in Ontario, California and a Baby Depot store in
Arlington Heights, Illinois. In addition to the store closings in
the Burlington Coat Factory Warehouse, Cohoes, and Decelle
divisions, one Luxury Linens store, one Totally 4 Kids store, and
the Fit for Men store were closed during fiscal 1997.
Other income (consisting of rental income from leased
departments, investment income and miscellaneous items) decreased
to $18.5 million for the year ended June 28, 1997 compared with
$18.9 million for the year ended June 29, 1996. An increase in
investable funds in fiscal 1997 generated an increase of approx-
imately $4.5 million in investment income over fiscal 1996.
Offsetting this increase was a decrease of approximately $1.7
million in rental income during fiscal 1997 compared with fiscal
1996. The Company recorded a net loss on the disposition of
property of $1.1 million during fiscal 1997. During fiscal 1996
the Company recorded a net loss in the disposition of property from
closed stores of $1.8 million. Offsetting this loss in fiscal 1996
was a $1.8 million gain on the sale of the Company's Secaucus, New
Jersey facility. In addition, the Company recorded miscellaneous
non-recurring income items of approximately $1.1 million during
fiscal 1997 compared with $4.0 million during fiscal 1996.
Page 17 of 181
Cost of sales increased $86.6 million (8.3%) for fiscal 1997
compared with fiscal 1996. The dollar increase in cost of sales
was due to the increase in net sales during the current fiscal year
compared with the prior year. Cost of sales, as a percentage of
net sales, decreased from 65.4% in fiscal 1996 to 64.1% in fiscal
1997. This decrease is due mainly to higher initial markons
maintained throughout fiscal 1997 compared with the prior year. In
addition, markdowns, as a percentage of sales, were down slightly
in fiscal 1997 compared with fiscal 1996 due to lower comparative
inventory levels.
Selling and administrative expenses increased $35.1 million
(7.3%) from fiscal 1996 to fiscal 1997. This increase in expense
was due mainly to an increase in payroll and payroll related
expenses. Comparative store payroll costs increased 5.0% in fiscal
1997 compared with fiscal 1996. Annual pay increases and increased
staffing levels at the stores contributed to this change. In
addition, the Company incurred increased staffing levels at both
the home office and the distribution center during fiscal 1997. As
a percentage of net sales, selling and administrative expenses were
29.3% in the 1997 fiscal year compared with 30.1% for the prior
fiscal year, a decrease of .8%. This improvement is primarily the
result of the increase in comparative store sales realized by the
Company in fiscal 1997.
Depreciation and amortization expense amounted to $31.0
million in fiscal 1997 compared with $29.9 million in fiscal 1996.
This increase of $1.1 million in the fiscal 1997 period compared
with fiscal 1996 is attributable to new stores opened during the
year as well as remodeling and fixturing of existing stores.
Interest expense decreased $3.7 million for the fiscal year
ended June 28, 1997 compared with the fiscal year ended June 29,
1996. The decrease in interest expense is the result of decreases
in borrowing levels associated with the Company's revolving credit
and term loan agreements, the refinancing of its industrial
development bonds, and the repayment of $13.4 million of its
subordinated bonds.
The provision for income taxes increased to $39.2 million for
the fiscal year ended June 28, 1997 from $20.0 million for the
fiscal year ended June 29, 1996. The effective tax rate was 41.0%
for the year ended June 28, 1997 compared with 40.8% for fiscal
1996.
Net income increased $27.5 million to $56.5 million for fiscal
1997 from $29.0 million for fiscal 1996. Income per share was
$1.17 per share for fiscal 1997 compared with $.59 for fiscal 1996.
Page 18 of 181
The Company's business is seasonal, with its highest sales
occurring in the months of September, October, November, December,
and January of each year. The Company's net income generally
reflects the same seasonal pattern as its net sales. In the past,
substantially all of the Company's profits have been derived from
operations during the months of September, October, November,
December, and January.
Liquidity and Capital Resources
- -------------------------------
During the eleven months ended May 30, 1998, the Company
opened twelve stores, including eleven Burlington Coat Factory
Warehouse stores and one Decelle store. The Company closed eight
stores during the fiscal period ended May 30, 1998. Of the eight
stores which were closed, four were moved to a new location within
the same trading area. Expenditures incurred to acquire, set up
and fixture new stores opened during fiscal 1998 were approximately
$8.9 million. In addition, the Company expended approximately
$22.0 million for capital improvements and refurbishing of existing
stores. During fiscal 1998, the Company purchased the land and
building associated with two new stores for $5.3 million. Other
capital expenditures, consisting primarily of computer system
enhancements and distribution center improvements amount to $6.7
million for fiscal 1998. For fiscal 1999, the Company estimates
that it will spend approximately $50.0 million for capital
expenditures (i.e., fixtures, equipment and leasehold improvements)
in connection with the opening of approximately twenty new stores,
remodeling and expansion of existing stores, expansion of the
Company's warehouse facilities, and computer enhancement projects.*
The Company repurchased 622,360 shares of its stock, costing
approximately $8.1 million in the current fiscal period. These
purchases are reflected as treasury stock in the equity section of
the balance sheet. As of May 30, 1998 the Company had authority to
purchase an additional $7.9 million of its stock.
Working capital increased to $368.5 million at May 30, 1998
from $319.7 million at June 28, 1997. At June 29, 1996, working
capital was $288.1 million.
Total funds provided from operations for the fiscal years
ended June 29, 1996 and June 28, 1997 and the eleven months ended
May 30, 1998 were $66.9 million, $97.1 million, and $98.2 million,
respectively. Total funds from operations are calculated by adding
back to net income non-cash expenditures such as depreciation and
deferred taxes.
* Forward Looking Statement. See Safe Harbor Statement on Page 5.
Page 19 of 181
Net cash provided by operating activities of $47.4 million for
the fiscal period ended May 30, 1998, decreased from $141.6 million
in net cash provided from operating activities for fiscal 1997.
This decrease in net cash from operations was due primarily to the
following:
1) increases in outerwear inventories, resulting from lower
than expected sales during the fiscal 1998 period;
2) opportunistic purchases of additional basic coat
inventory from coat manufacturers' excess inventory,
resulting from the sluggish outerwear selling season;
3) inventory purchases for the Company's new shoe
departments, which have been opened in approximately 80
stores during the current fiscal period;
4) inventory purchased to stock new stores and store
expansions.
The Company's long-term borrowings at May 30, 1998 include
$59.2 million of long term subordinated notes issued by the Company
to institutional investors in June, 1990 ("the Notes") and an
industrial development refunding bond of $9.3 million issued by the
New Jersey Economic Development Authority (the "Refunding Bonds").
The Notes mature on June 27, 2005 and bear interest at the
rate of 10.6% per annum. The Notes have a remaining average
maturity of 4.0 years and are subject to mandatory payment in
installments of $8.0 million each without premium on June 27 of
each year beginning in 1996. The Notes are subordinated to senior
debt, including, among others, bank debt and indebtedness for
borrowed money. In July 1996, the Company repurchased an
additional $5.4 million of the Notes, which reduced the Company's
mandatory prepayment to $7.4 million annually. The Company has no
current plans to repurchase or repay any additional amounts earlier
than scheduled due to prohibitive prepayment penalties but may
consider doing so in the future should conditions favorable to the
Company present themselves.*
The Refunding Bonds consist of serial and term bonds. The
serial bonds aggregate $3.6 million and mature in series annually
on September 1, beginning in 1996 and continuing to and including
2003. The term bonds consist of two portions, $1.4 million
maturing on September 1, 2005 and $5.0 million maturing on
September 1, 2010. The serial bonds bear interest ranging from
3.75% to 5.4% per annum, and the term bonds bear interest at the
rates of 5.60% for the portion maturing on September 1, 2005 and
* Forward Looking Statement. See Safe Harbor Statement on Page 5.
Page 20 of 181
6.125% per annum for the portion maturing on September 1, 2010.
The average interest rate and average maturity of the Refunding
Bonds are 5.6% and 8 years, respectively. During the eleven month
ended May 30, 1998, the Company expended approximately $.4 million
for the repayment of the Refunding Bonds.
The Company has in place a committed line of credit agreement
in the amount of $50.0 million and $100.0 million in uncommitted
lines of credit. The Company had no borrowings under these credit
lines during the fiscal 1998 and fiscal 1997 periods.
The Company believes that its current capital expenditures and
operating requirements can be satisfied from internally generated
funds, from short term borrowings under its revolving credit and
term loan agreement as well as uncommitted lines of credit.*
Furthermore, to the extent that the Company decides to purchase
additional store locations, it may be necessary to finance such
acquisitions with additional long term borrowings.*
On or about September 23, 1994 three separate putative class
actions were filed against the Company. These three actions were
consolidated and an amended complaint was served on January 17,
1995. The Company filed a motion to dismiss on May 17, 1995 and a
hearing on the motion was held on July 20, 1995. On February 20,
1996, the District Court dismissed the plaintiff's amended
complaint in its entirety. In March, 1996, plaintiffs filed an
appeal from the District Court's decision. In June, 1997 the U.S.
Court of Appeals for the Third Circuit affirmed the District
Court's dismissal of the class action suits but held that
plaintiffs should be granted leave to attempt to replead two of the
six claims that were dismissed. After remand to the District
Court, the plaintiffs filed a further amended complaint in an
effort to cure the legal deficiencies of the two claims in
question. Among other changes, the amended complaint dropped all
claims against Andrew Milstein, Stephen Milstein and Mark Nesci.
On July 1, 1998, the Company filed a further motion to dismiss on
the grounds that the amended complaint failed to cure such
deficiencies. The motion has been fully briefed by both sides and
the parties await word from the District Court either scheduling
oral argument or deciding the motion without oral argument. (See
Part I - Item 3 Legal Proceedings.) The Company is unable to
determine the probability of any potential loss with respect to
these class action suits or the materiality thereof at this time
and accordingly has not established any reserve for this matter.*
* Forward Looking Statement. See Safe Harbor Statement on Page 5.
Page 21 of 181
Year 2000 *
- ---------
The inability of computers, software, or any equipment
utilizing microprocessors to properly recognize and process data
information at the turn of the century is commonly referred to as
the Year 2000 (Y2K) compliance issue.
The Company continues its assessment of how Year 2000 will
impact operations. Considerable progress has been achieved in the
areas of identifying, remediating, testing, and implementing Y2K
products and services which are critical to the business computing
systems infrastructure. Inventory of all in-house software has
been completed and is currently being reviewed for compliance. An
inventory of third-party and purchased software is being conducted
in order to determine the impact of external data feeds into the
corporate information process. The Company is in the process of
attempting to identify critical third party vendors whose inability
to reach Y2K compliance may impact business connectivity and
viability. Hardware systems have been examined and appropriate
paths charted to ensure complete Y2K compatibility. The goal for
completing Year 2000 compliance for all critical computing system
environments is early to mid calendar year 1999.
All costs associated with the Year 2000 project to date have
been expensed as incurred. The Company's total estimated cost of
the Year 2000 compliance program is approximately $2 million to $3
million, of which approximately $.2 million was incurred as of May
30, 1998. The remaining expenses are expected to be incurred
primarily in Fiscal 1999. A significant portion of these costs are
not likely to be incremental costs to the Company, but rather will
represent the redeployment of existing information technology
resources. Based upon current benchmarks, the Company believes
that it has the necessary resources in-house to complete all
required Year 2000 remediation. In the event that internal
resources are insufficient to complete the project in a timely
manner, out-sourcing the Y2K project, either in part or whole, to
a Year 2000 Service Provider may be necessary.
Until all inventory and analysis phases are completed the
Company will not know with absolute certainty how the transition
from 1999 to 2000 will affect its operations. Moreover, there is
no guarantee that computing systems and associated applications of
other companies with which the Company conducts business will be
converted on a timely basis or that a failure by said companies to
address their Year 2000 compliance problems would not have a
material adverse impact on the Company.
To date, the Company has not established a formal contingency
plan for dealing with a failure by either the Company or its third
party vendors to achieve Year 2000 Compliance.
* Forward Looking Statement. See Safe Harbor Statement on Page 5.
Page 22 of 181
Inflation
- ---------
Historically, the Company has been able to increase its
selling prices as the costs of merchandising and related operating
expenses have increased, and therefore, inflation has not had a
significant effect on operations.*
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
See Index to Financial Statements and following pages.
Item 9. Changes in and Disagreements with Accountants
---------------------------------------------
on Accounting and Financial Disclosure
---------------------------------------------
None
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Item 11. Executive Compensation
----------------------
Item 12. Security Ownership of Certain Beneficial Owners
-----------------------------------------------
and Management
----------------------------------------------
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
In accordance with General Instruction G(3) of the General
Instructions to Form 10-K, the information called for by Items 10,
11, 12 and 13 is omitted from this Report and is incorporated by
reference to the definitive Proxy Statement to be filed by the
Company pursuant to Regulation l4A of the General Rules and
Regulations under the Securities Exchange Act of 1934, which the
Company will file not later than 120 days after May 30, 1998.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
--------------------------------------------
Reports on Form 8-K
--------------------------------------------
(a) The following documents are filed as part of this
Report.
* Forward Looking Statement. See Safe Harbor Statement on Page 5.
Page 23 of 181
Page No.
--------
1. Financial Statements
Index to Consolidated Financial Statements 29
Independent Auditors' Report 30
Consolidated Balance Sheets 31
May 30, 1998 and June 28, 1997
Consolidated Statements of Operations 32
for the Eleven Months Ended
May 30, 1998 and the Twelve Months
Ended June 28, 1997 and June 29, 1996
Consolidated Statements of Stockholders' 33
Equity for the Twelve Months Ended
June 29, 1996 and June 27, 1997 and for
the Eleven Months Ended May 30, 1998
Consolidated Statements of Cash 34
Flows for the Eleven Months Ended
May 30, 1998, and the Twelve Months
ended June 28, 1997 and June 29, 1996
Notes to Consolidated Financial Statements 36
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts 54
Schedules I, III, IV and V are omitted because
they are not applicable or not required or
because the required information is included
in the consolidated financial statements or
notes thereto.
3. Exhibits
3.1 Articles of Incorporation, as amended 60
3.2 By-laws 85
*10.1 1993 Stock Incentive Plan 113
*10.2 1998 Stock Incentive Plan 143
Page 24 of 181
Page No.
--------
10.3 Revolving Credit Agreement dated August 30, 1/
1985 between the Company and BancOhio
National Bank, as amended through
Amendment No. 6.
10.4 Amendment No. 7 to Revolving Credit Agreement 170
dated June 1, 1998 between the Company and
National City Bank.
10.5 Burlington Coat Factory Warehouse Corporation 2/
401(k) Profit-Sharing Plan (as amended and
restated effective June 29, 1997.)
10.6 Instrument of Amendment to Burlington Coat 173
Factory Warehouse Corporation 401(k)
Profit-Sharing Plan effective January 1, 1999
10.7 Loan Agreement dated as of August 1, 1995 by 3/
and between New Jersey Economic Development
Authority and Burlington Coat Factory Ware-
house of New Jersey, Inc.
10.8 Assignment of Leases dated as of August 1, 3/
1995 from Burlington Coat Factory Warehouse
of New Jersey, Inc. to First Fidelity
Bank, National Association
10.9 Mortgage and Security Agreement dated as of 3/
August 1, 1995 between Burlington Coat
Factory Warehouse of New Jersey, Inc. and
First Fidelity Bank, National Association
10.10 Indenture of Trust dated as of August 1, 1995 3/
by and between New Jersey Economic Development
Authority and Shawmut Bank Connecticut,
National Association
____________________
(1) Incorporated by reference to the Exhibits filed with the
Company's Annual Report on Form 10-K for the year ended June
29, 1996, File No. 1-8739.
(2) Incorporated by reference to the Exhibits filed with the
Company's Annual Report on Form 10-K for the year ended June
28, 1997, File No. 1-8739.
(3) Incorporated by reference to the Exhibits filed with the
Company's Annual Report on Form 10-K for the year ended July
1, 1995. File No. 1-8739.
Page 25 of 181
Page No.
--------
10.11 Guaranty and Suretyship dated as of August 1, 3/
1995 from the Company to First Fidelity Bank,
National Association
10.12 Letter of Credit Reimbursement Agreement dated 3/
as of August 1, 1995 between Burlington Coat
Factory Warehouse of New Jersey, Inc. and
First Fidelity Bank, National Association
10.13 Environmental Indemnity Agreement dated as of 3/
August 1, 1995 between Burlington Coat Factory
Warehouse of New Jersey, Inc. and First
Fidelity Bank, National Association
10.14 Note Agreement dated June 27, 1990 3/
21 Subsidiaries of Registrant 176
23 Consent of Deloitte & Touche LLP, independent 178
certified public accountants, to the use of
their report on the financial statements of
the Company for the eleven months in the
period ended May 30, 1998 in the Registration
Statements of the Company on Form S-8,
Registration No. 2-96332, No. 33-21569,
No. 33-51965 and No. 333-41077
27 Financial Data Schedule 180
*Executive Compensation Plan
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
---------------------------------------------
Description Location
----------- --------
1) 1993 Stock Incentive Plan Filed as Exhibit 10.1
2) 1998 Stock Incentive Plan Filed as Exhibit 10.2
(b) Reports on Form 8-K
During the period ended May 30, 1998 the Company did not
file any report on Form 8-K.
Page 26 of 181
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION
---------------------------------------------
(Registrant)
By: /s/Monroe G. Milstein
Monroe G. Milstein, President
Dated: August 25, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/Monroe G. Milstein Chief Executive Officer August 25, 1998
Monroe G. Milstein and President (Principal
Executive Officer);
Director
/s/Robert L.LaPenta, Jr. Controller (Principal August 25, 1998
Robert L. LaPenta, Jr. Financial and
Accounting Officer)
/s/Bernard Brodsky Treasurer August 25, 1998
Bernard Brodsky
/s/Henrietta Milstein Director August 25, 1998
Henrietta Milstein
/s/Harvey Morgan Director August 25, 1998
Harvey Morgan
/s/Andrew R. Milstein Director August 25, 1998
Andrew R. Milstein
/s/Stephen E. Milstein Director August 25, 1998
Stephen E. Milstein
/s/Mark A. Nesci Director August 25, 1998
Mark A. Nesci
/s/Irving Drillings Director August 25, 1998
Irving Drillings
Page 27 of 181
[THIS PAGE INTENTIONALLY LEFT BLANK]
Page 28 of 181
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Page No.
--------
Independent auditors' report 30
Consolidated balance sheets 31
May 30, 1998 and June 28, 1997
Consolidated statements of operations for the 32
eleven months ended May 30, 1998, and the twelve
months ended June 28, 1997 and June 29, 1996
Consolidated statements of stockholders' equity 33
for the twelve months ended June 29, 1996,
June 28, 1997 and for the eleven months ended
May 30, 1998
Consolidated statements of cash flows for the 34
eleven months ended May 30, 1998, and the twelve
months ended June 28, 1997 and June 29, 1996
Notes to consolidated financial statements 36
Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts 54
Schedules I, III, IV and V are omitted because
they are not applicable or not required
because the required information is included
in the consolidated financial statements or
notes thereto.
Page 29 of 181
INDEPENDENT AUDITORS' REPORT
- ----------------------------
Board of Directors and Stockholders
Burlington Coat Factory Warehouse Corporation
Burlington, New Jersey
We have audited the accompanying consolidated balance
sheets of Burlington Coat Factory Warehouse Corporation and its
subsidiaries as of May 30, 1998 and June 28, 1997, and the related
consolidated statements of operations, stockholders' equity, and
cash flows for the eleven months in the period ended May 30, 1998
and for each of the two years in the period ended June 28, 1997.
Our audits also included the financial statement schedule listed in
the Index at Item 14(a)(2). These financial statements and
financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion
on the financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial position of
Burlington Coat Factory Warehouse Corporation and subsidiaries at
May 30, 1998 and June 28, 1997, and the results of their operations
and their cash flows for the eleven months in the period ended May
30, 1998 and for each of the two years in the period ended June 28,
1997 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
July 28, 1998
Page 30 of 181
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands except share data)
May 30, June 28,
1998 1997
-------- ---------
Current Assets:
Cash and Cash Equivalents $153,964 $157,394
Accounts Receivable (Net of Allowance for Doubtful
Accounts of 1998-$1,103 and 1997-$953) 17,578 17,160
Merchandise Inventories 474,817 366,233
Deferred Tax Asset 11,207 9,201
Prepaid and Other Current Assets 22,993 7,150
------- -------
Total Current Assets 680,559 557,138
Property and Equipment Net of Accumulated
Depreciation and Amortization 222,813 209,864
Other Assets 6,435 8,075
------- -------
Total Assets $909,807 $775,077
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts Payable $198,597 $143,840
Income Taxes Payable 10,372 10,657
Accrued Insurance Costs 17,532 16,500
Other Current Liabilities 76,807 58,574
Current Maturities of Long-Term Debt 8,792 7,831
-------- --------
Total Current Liabilities 312,100 237,402
Long-Term Debt 60,890 62,274
Other Liabilities 16,977 8,763
Deferred Tax Liability 3,771 6,423
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock, Par Value $1; Authorized
5,000,000 shares; none issued and outstanding - -
Common Stock, Par Value $1; Authorized
100,000,000 shares; 49,593,616 shares issued
at May 30, 1998; 41,258,621 shares issued
at June 28, 1997 49,594 41,259
Capital in Excess of Par Value 18,710 25,997
Retained Earnings 468,958 406,123
Unearned Compensation (29) (54)
Treasury Stock at Cost; 1998-2,214,624 shares;
1997-1,592,264 shares (21,164) (13,110)
--------- ---------
Total Stockholders' Equity 516,069 460,215
-------- ---------
Total Liabilities and Stockholders' Equity $909,807 $775,077
======== ========
See notes to consolidated financial statements
Page 31 of 181
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands except share data)
Eleven Months Twelve Months
Ended Ended
-------------------------------------
May 30, June 28, June 29,
1998 1997 1996
---------- ---------- ----------
REVENUES:
Net Sales $1,795,623 $1,758,368 $1,591,964
Other Income 18,274 18,455 18,928
---------- ---------- ----------
1,813,897 1,776,823 1,610,892
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of Sales (Exclusive of
Depreciation and Amortization) 1,142,956 1,126,975 1,040,388
Selling and Administrative Expenses 528,725 514,959 479,852
Depreciation and Amortization 29,634 31,047 29,913
Interest Expense 6,829 8,080 11,735
---------- ---------- ----------
1,708,144 1,681,061 1,561,888
---------- ---------- ----------
Income Before Provision for
Income Taxes 105,753 95,762 49,004
Provision for Income Taxes 42,114 39,247 19,991
---------- ---------- ----------
Net Income $ 63,639 $ 56,515 $ 29,013
========== ========== ==========
Basic and Diluted Net Income Per Share $ 1.34 $ 1.17 $ 0.59
========== ========== ==========
Weighted Average Shares Outstanding 47,420,726 48,253,996 48,876,619
========== ========== ==========
Dividends Per Share $ .02 -- --
========== ========== ==========
See notes to consolidated financial statements
Page 32 of 181
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TWELVE MONTHS ENDED JUNE 29, 1996, JUNE 28, 1997
and ELEVEN MONTHS ENDED MAY 30, 1998
(All amounts in thousands)
Capital in
Common Excess of Retained Treasury Unearned Valuation
Stock Par Value Earnings Stock Compensation Allowance Total
- ----------------------------------------------------------------------------------------------------------
Balance at July 1, 1995 $41,139 $25,143 $320,595 ($ 1,850) - ($8) $385,019
Net Income 29,013 29,013
Stock Options Exercised 16 116 132
Tax Benefit From Exercise of
Stock Options 26 26
Net Unrealized Gain on Noncurrent
Marketable Securities 8 8
Unearned Compensation 10 99 (87) 22
Treasury Stock Transactions (475) (475)
------- ------ -------- ------- ----- ----- ---------
Balance at June 29, 1996 41,165 25,384 349,608 (2,325) (87) - 413,745
Net Income 56,515 56,515
Stock Options Exercised 94 551 645
Tax Benefit From Exercise of
Stock Options 62 62
Unearned Compensation 33 - 33
Treasury Stock Transactions (10,785) (10,785)
------- ------ -------- -------- ---- ----- --------
Balance at June 28, 1997 41,259 25,997 406,123 (13,110) (54) - 460,215
Net Income 63,639 63,639
Stock Options Exercised 78 444 522
Tax Benefit From Exercise
of Stock Options 526 526
Unearned Compensation 25 25
Treasury Stock Transactions (8,054) (8,054)
Stock Dividend 8,257 (8,257) -
Dividends (804) (804)
------- ------- -------- ------- ---- ----- --------
Balance at May 30, 1998 $49,594 $18,710 $468,958 ($21,164) ($29) - $516,069
======= ======= ======== ========= ===== ===== ========
See notes to consolidated financial statements
Page 33 of 181
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
Eleven Months Twelve Months
Ended Ended
-----------------------------------
May 30, June 28, June 29,
1998 1997 1996
-----------------------------------
OPERATING ACTIVITIES
Net Income $ 63,639 $ 56,515 $ 29,013
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 29,634 31,047 29,913
Provision for Losses on Accounts Receivable 7,187 7,203 6,068
Provision for Deferred Income Taxes (4,658) (395) 489
(Gain) Loss on Disposition of Fixed Assets 794 1,165 (100)
Non-Cash Rent Expense and Other 1,047 1,521 1,438
Changes in Assets and Liabilities:
Accounts Receivable (7,931) (9,865) (5,965)
Merchandise Inventories (108,584) 4,204 81,589
Prepaids and Other Current Assets (15,843) 12,652 (13,876)
Accounts Payable 54,757 24,940 17,854
Accrued and Other Current Liabilities 19,506 12,621 16,957
Deferred Rent Incentives 7,887 - -
------- ------ -------
Net Cash Provided by Operating Activities 47,435 141,608 163,380
------- ------- -------
INVESTING ACTIVITIES
Acquisition of Property and Equipment (43,320) (35,797) (29,346)
Proceeds From Sale of Fixed Assets 13 390 17,839
Issuance of Long-Term Notes Receivable - - (516)
Receipts Against Long-Term Notes Receivable 1,118 1,085 4,539
Minority Interest 56 (110) (62)
Other 2 (42) (2,485)
------- ------- -------
Net Cash Used in Investing Activities (42,131) (34,474) (10,031)
-------- -------- --------
FINANCING ACTIVITIES
Principal Payments on Long-Term Debt (423) (13,193) (8,066)
Issuance of Common Stock Upon Exercise of
Stock Options 547 678 132
Purchase of Treasury Stock (8,054) (10,785) (475)
Net Payments Under Lines of Credit - - (85,900)
Payment of Dividends (804) - -
------- -------- --------
Net Cash Used in Financing Activities (8,734) (23,300) (94,309)
-------- -------- ---------
Increase (Decrease) in Cash and Cash Equivalents (3,430) 83,834 59,040
Cash and Cash Equivalents at Beginning of Period 157,394 73,560 14,520
--------- -------- ---------
Cash and Cash Equivalents at End of Period $153,964 $157,394 $ 73,560
======== ======== ========
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 4,000 $ 8,092 $ 12,062
======== ======== ========
Income Taxes Paid $ 42,240 $ 34,212 $ 16,339
======== ======== ========
See notes to consolidated financial statements
Page 34 of 181
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental Schedule of Non-Cash Financing:
During fiscal 1996, the Company granted a restricted stock
award of 10,000 shares of its common stock to an officer of the
Company with a fair market value of $108,800 as of the award's
measurement date. This award vests over a four year period from
the date of grant.
See notes to consolidated financial statements
Page 35 of 181
Notes to Consolidated Financial Statements
A. Summary of Significant Accounting Policies
1. Business
Burlington Coat Factory Warehouse Corporation operates
253 stores, in 42 states, which sell "off-price" apparel for
men, women and children. A majority of those stores offer a
home linens department and a baby room furniture department.
The Company operates stores under the names "Burlington Coat
Factory Warehouse"(two hundred twenty-nine stores), "Cohoes
Fashions" (four stores), "Decelle" (nine stores), "Luxury
Linens" (six stores), "Totally 4 Kids" (three stores), and
"Baby Depot" (two stores). Cohoes Fashions offers merchandise
in the middle to higher price range. Decelle offers
merchandise in the moderate price range for the entire family
with an emphasis on children's and youth wear. Luxury Linens
is a specialty store for linens, bath shop items, gifts and
accessories and offers merchandise in the middle to higher
price range. Totally 4 Kids is a moderate to upscale concept
store offering maternity wear, baby furniture, children's wear
from toddlers up to teens, children's books, toys, computer
software for kids and educational tapes in a family
environment. Baby Depot is a stand alone infant and toddler
store specializing in infant and toddler apparel, furnishings
and accessories.
2. Principles of Consolidation
The consolidated financial statements include the
accounts of Burlington Coat Factory Warehouse Corporation and
its subsidiaries (the "Company"). All intercompany
transactions and balances have been eliminated in
consolidation.
3. Use of Estimates
The Company's consolidated financial statements have been
prepared in conformity with generally accepted accounting
principles. Certain amounts included in the consolidated
financial statements are estimated based on currently
available information and management's judgment as to the
outcome of future conditions and circumstances. While every
effort is made to ensure the integrity of such estimates,
including the use of third party specialists where
appropriate, actual results could differ from these estimates.
Page 36 of 181
4. Cash and Cash Equivalents
Cash and cash equivalents represent cash and short-term,
highly liquid investments with maturities of three months or
less at time of purchase. Cash equivalent investments
amounted to $145.9 million at May 30, 1998 and $142.3 million
at June 28, 1997.
5. Inventories
Merchandise inventories are valued at the lower of cost,
on a First In First Out (FIFO) basis or market, as determined
by the retail inventory method.
6. Property and Equipment
Property and equipment are stated at cost and
depreciation is computed on the straight line method over the
estimated useful lives of the assets. The estimated useful
lives are between 20 and 40 years for buildings, depending
upon the expected useful life of the facility, and three to
ten years for store fixtures and equipment. Leasehold
improvements are amortized over a ten year period or lease
term, whichever is less. Repairs and maintenance expenditures
are charged to expense as incurred. Renewals and betterments
which significantly extend the useful lives of existing
property and equipment are capitalized.
7. Other Current Liabilities
Other current liabilities primarily consisted of sales
tax payable, accrued operating expenses, payroll taxes payable
and other miscellaneous items.
8. Store Opening Expenses
Expenses related to new store openings are charged to
operations in the period incurred.
9. Income Taxes
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 Accounting
for Income Taxes. Deferred income taxes have been recorded to
recognize temporary differences which result from revenues and
expenses being recognized in different periods for financial
reporting purposes than for income tax purposes.
Page 37 of 181
10. Basic and Diluted Net Income Per Share
In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No.
128, Earnings Per Share. This new standard requires dual
presentation of basic and diluted earnings per share and
requires reconciliation of the numerators and denominators of
the basic and diluted earnings per share calculation.
Basic and diluted net income per share is based on the
weighted average number of shares outstanding during each
period. The amounts used in calculation of basic and dilutive
net income per share are as follows:
Eleven Months Twelve Months Twelve Months
Ended Ended Ended
May 30, 1998 June 28, 1997 June 29, 1996
-------------------------------------------------
(all amounts in thousands except share data)
Net Income $63,639 $56,515 $29,013
======= ======= =======
Weighted Average Shares
Outstanding 47,421 48,254 48,877
Effect of Dilutive Stock
Options 99 96 138
------- ------- -------
Weighted Average Shares Out-
standing, Assuming Dilution 47,520 48,350 49,015
======= ======= =======
Basic and Diluted Net
Income Per Share $ 1.34 $ 1.17 $ .59
======= ======= =======
Options to purchase 30,120 shares of common stock were
outstanding during fiscal 1998, but were not included in the
computation of weighted average shares outstanding, assuming
dilution, because the options' exercise price is greater than
the average market price of common shares and therefore would
be antidilutive.
11. Fiscal Year End Date
The Company's fiscal year was a 52-53 week year with its
year ending on the Saturday closest to June 30th. Fiscal 1997
and Fiscal 1996 ended on June 28, 1997 and June 29, 1996,
respectively, and comprised 52 weeks each. During Fiscal
1998, the Board voted in favor of a resolution to change the
Company's fiscal year to a 52-53 week year ending on the
Saturday closest to May 31. Fiscal 1998 ended on May 30, 1998
and consisted of 48 weeks. Below are set forth financial data
for the eleven months ended May 30, 1998 and the eleven months
ended May 24, 1997 (47 weeks).
Page 38 of 181
Eleven Months Ended
May 30, 1998 May 24, 1997
(48 weeks) (47 weeks)
(unaudited)
----------------------------------
(in thousands except per share data)
Revenues $1,813,897 $1,662,219
Gross Profit 652,667 589,764
Selling and Administration
Expenses 528,725 470,899
Provision for Income Taxes 42,114 41,051
Net Income 63,639 59,139
Basic and Diluted Net Income
Per Share 1.34 1.22
12. Other Income
Other income is primarily rental income received from
leased departments and interest income. In addition, the
Company realized approximately $2.5 million and $1.1 million
in income from settlement of contractual obligations during
fiscal 1998 and fiscal 1997, respectively.
13. Advertising Costs
The Company's net advertising costs consist primarily of
newspaper and television costs. The production costs of net
advertising are charged to expenses as incurred. Net
advertising expenses for the eleven months ended May 30, 1998,
twelve months ended June 28, 1997 and June 29, 1996 were $44.5
million, $45.4 million, and $44.2 million, respectively.
14. Impairment of Long Lived Assets
In March 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of. This
statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset
may not be recoverable. Also, in general, long-lived assets
and certain intangibles to be disposed of should be reported
at the lower of carrying amount or fair value less cost to
sell. The Company considers historical performance and future
estimated results in its evaluation of potential impairment
and then compares the carrying amount of the asset to the
estimated future cash flows expected to result from the use of
the asset. If the carrying amount of the asset exceeds
estimated expected undiscounted future cash flows, the Company
Page 39 of 181
measures the amount of the impairment by comparing the
carrying amount of the asset to its fair value. The
estimation of fair value is generally measured by discounting
expected future cash flows at the rate the Company utilizes to
evaluate potential investments. The Company estimates fair
value based on the best information available making whatever
estimates, judgments and projections are considered necessary.
15. Stock-Based Compensation
SFAS No. 123, Accounting for Stock Based Compensation,
encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans
at fair value. The Company has chosen to continue to account
for stock-based compensation using the intrinsic method
prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related
Interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted
market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock (See
Note L).
16. Recent Accounting Pronouncements
a. In June 1997, the FASB issued SFAS No. 130,
Reporting Comprehensive Income. This statement, which
establishes standards for reporting and disclosure of
comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general-purpose financial
statements, is effective for fiscal years beginning after
December 15, 1997. As this statement only requires additional
disclosures in the Company's consolidated financial
statements, its adoption will not have any impact on the
Company's consolidated financial position or results of operations.
The Company will adopt SFAS No. 130 in its 1999 fiscal year.
b. In June 1997, the FASB issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related
Information. This statement, which establishes standards for
the reporting of information on operating segments and
requires the reporting of selected information about operating
segments in interim financial statements, is effective for
fiscal years beginning after December 15, 1997. The Company
does not expect adoption of this statement to result in
Page 40 of 181
significant changes to its presentation of financial data.
The Company will adopt SFAS No. 131 in its 1999 fiscal year.
c. In February 1998, the FASB issued SFAS No. 132,
Employers' Disclosure about Pensions and Other Post-retirement
Benefits. This statement, which establishes standards for the
reporting of information about pensions and other post-
retirement benefits, is effective for fiscal years beginning
after December 15, 1997. The Company does not expect adoption
of this statement to result in significant changes to its
presentation of pension and other post-retirement benefit
information. The Company will adopt SFAS No. 132 in its 1999
fiscal year.
d. In June 1998, the FASB issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives),
and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those
instruments at fair value. This statement is effective for
all fiscal quarters of fiscal years beginning after June 15,
1999. Adoption of SFAS No. 133 is not anticipated to have a
material impact on the Company's financial statements.
e. In March 1998, the AICPA issued Statement of
Position ("SOP") 98-1, Accounting For the Costs of Computer
Software Developed For or Obtained for Internal-Use. The SOP
is effective for the Company in fiscal 2000. The SOP will
require the capitalization of certain costs incurred after the
date of adoption in connection with developing or obtaining
software for internal use. The Company has not yet assessed
what the impact of the SOP will be on the Company's future
earnings or financial position.
17. Reclassifications
Certain reclassifications have been made to the prior
years' financial statements to conform to the classifications
used in the current year.
Page 41 of 181
B. Stock Split
On September 8, 1997, the Board of Directors declared a
six-for-five split of the Company's common stock effective
October 16, 1997, to stockholders of record on October 1,
1997. This stock split was effected in the form of a 20%
stock dividend by the distribution of one additional share for
every five shares of stock already issued. The par value of
the Common Stock remained at $1.00 per share. As a result,
$8.3 million, representing the total par value of the new
shares issued, were transferred from the capital in excess of
par value account to common stock. Prior years' weighted
average shares outstanding and net income per share amounts
have been restated to reflect the six-for-five stock split.
C. Property and Equipment
Property and equipment consists of:
-----------------------------------------------------------------------
May 30, June 28,
1998 1997
(in thousands)
----------------------------------------------------------------------
Land $ 20,690 $ 19,044
Buildings 78,542 71,409
Store Fixtures and
Equipment 211,470 191,871
Leasehold Improvements 76,918 67,871
Construction in Progress 867 526
-------- ---------
388,487 350,721
-------- ---------
Less Accumulated Depreciation
and Amortization (165,674) (140,857)
--------- ----------
$222,813 $209,864
======== ========
D. Accounts Payable
Accounts payable consists of:
------------------------------------------------------------------------
May 30, June 28,
1998 1997
(in thousands)
-----------------------------------------------------------------------
Accounts Payable-Trade $176,914 $125,827
Accounts Payable-Due Banks 9,851 7,657
Other 11,832 10,356
-------- --------
$198,597 $143,840
======== ========
Page 42 of 181
E. Lines of Credit
The Company had a committed line of credit of $50.0
million at both May 30, 1998 and June 28, 1997. The Company's
committed line of credit renews annually and is available
through December 1999. The Company also had an uncommitted
line of credit of $100.0 million and $150.0 million at May 30,
1998 and June 29, 1997 respectively. The uncommitted lines of
credit are cancelable by the bank at any time. Letters of
credit outstanding against these lines were $33.8 million and
$53.3 million at May 30, 1998 and June 28, 1997, respectively.
The Company had no borrowings under these credit lines
during fiscal 1998 or 1997.
Short-term borrowings against these lines of credit bear
interest at or below the lending bank's prime rate (8 1/2% at
May 30, 1998). The $50 million committed line of credit
requires a commitment fee on the unused portion of 1/5 of 1
percent.
F. Long-Term Debt
Long-term debt consists of:
------------------------------------------------------------------------
May 30, June 28,
1998 1997
(in thousands)
------------------------------------------------------------------------
Subordinated Notes, 10.6%, due in
annual principal payments of $7.4
million from June 1998 to June 2005
with interest due semiannually $59,200 $59,200
Industrial Revenue Bonds, 5.84%,
due in semi-annual payments of
various amounts from September 1,
1998 to September 1, 2010 9,330 9,680
Urban Development Action Grant, non-
interest bearing, due April 1999 917 917
Promissory note, due at various dates
through 2000 (interest rate
imputed at 10.6%) 235 308
_______ _______
Subtotal 69,682 70,105
Less current portion (8,792) (7,831)
-------- -------
Long-Term Debt $60,890 $62,274
======= =======
Page 43 of 181
The Industrial Revenue Bonds and Urban Development Action
Grant were issued in connection with the construction of the
Company's distribution center. The Bonds are secured by a
first mortgage on the Company's distribution center. The
Urban Development Action Grant was secured by a second
mortgage on the facility. Indebtedness totaling $10.2 million
are secured by land and buildings with a net book value of
$19.4 million at May 30, 1998.
On July 1, 1996 the Company paid $5.4 million of the
Subordinated Notes as an early retirement of debt. As a
result of this payment, the annual installments due from June
1997 to June 2005 have decreased to $7.4 million from $8.0
million.
Long-term debt maturing in each of the next five fiscal
years is as follows: million; 1999 - $8.8 million; 2000 - $7.9
million; 2001 - $7.9 million; 2002 - $7.9 million, and 2003 -
$8.0 million.
As of May 30, 1998, the Company was in compliance with
all covenants related to its loan agreements. Several loan
agreements of the Company contain restrictions which, among
other things, require maintenance of certain financial ratios,
restrict encumbrance of assets and creation of indebtedness,
and limit the payment of dividends. At May 30, 1998, $243.9
million of the Company's retained earnings of $469.0 million
were unrestricted and available for the payment of dividends
under the most restrictive terms of the agreements.
G. Sales from Leased Departments
Retail sales from certain leased departments, included in
net sales, amounted to $39.4 million, $34.8 million, and $34.9
million in fiscal 1998, fiscal 1997 and fiscal 1996,
respectively.
H. Lease Commitments
The Company leases 231 stores and office spaces under
operating leases that will expire principally during the next
twenty years. The leases typically include renewal options
and escalation clauses and provide for contingent rentals
based on a percentage of gross sales.
Page 44 of 181
The following is a schedule of future minimum lease
payments under the operating leases:
----------------------------------------------------------------------
Fiscal Year (in thousands)
----------------------------------------------------------------------
1999 $ 69,166
2000 66,145
2001 62,635
2002 58,574
2003 54,007
Thereafter 307,039
________
Total minimum lease payments $617,566
========
The above schedule of future minimum lease payments has
not been reduced by future minimum sublease rental income of
$6.3 million under non-cancelable subleases and other
contingent rental agreements.
Total rental expenses under operating leases for the
periods ended May 30, 1998, June 28, 1997 and June 29, 1996
were $66.2 million, $67.0 million and $62.7 million,
respectively, including contingent rentals of $2.3 million,
$1.8 million, and $1.8 million respectively. Rent expense for
the above periods has not been reduced by sublease rental
income of $2.1 million, $4.0 million and $5.7 million which
has been included in other income for the periods ended May
30, 1998, June 28, 1997, and June 29, 1996, respectively.
The Company has irrevocable letters of credit in the
amount of $19.8 million to guarantee payment and performance
under certain leases, insurance contracts and utility
agreements.
I. Employee Retirement Plans
The Company has a noncontributory profit-sharing plan
covering employees who meet age and service requirements. The
Company also provides additional retirement security to
participants through a cash or deferred (salary deferral)
feature qualifying under Section 401(k) of the Internal
Revenue Code. Membership in the salary deferment feature is
voluntary. Employees may, up to certain prescribed limits,
contribute to the 401(k) plan and a portion of these
contributions are matched by the Company. In addition, under
the profit sharing feature, the Company's contribution to the
Page 45 of 181
plan is determined annually by the Board of Directors. The
provision for Company profit sharing and 401(k) contributions
for the eleven months ended May 30, 1998 and the twelve months
ended June 28, 1997 were $6.5 million and $5.4 million
respectively. The provision for profit sharing contribution
was $4.2 million for the fiscal year ended June 29, 1996.
J. Income Taxes
The provision for income taxes is summarized as follows:
----------------------------------------------------------------------
Period Ended 1998 1997 1996
(in thousands)
----------------------------------------------------------------------
Current:
Federal $40,214 $32,504 $17,112
State and Other 6,559 7,138 2,390
------- ------- -------
Subtotal 46,773 39,642 19,502
Deferred (4,659) (395) 489
------- -------- -------
Total $42,114 $39,247 $19,991
======= ======= =======
A reconciliation of the Company's effective tax rate with
the statutory federal tax rate is as follows:
-----------------------------------------------------------------------
Period Ended 1998 1997 1996
-----------------------------------------------------------------------
Tax at statutory rate 35.0% 35.0% 35.0%
State income taxes, net
of federal benefit 3.9 4.8 3.9
Other charges .9 1.2 1.9
----- ----- -----
Effective tax rate 39.8% 41.0% 40.8%
===== ===== =====
Deferred income taxes for 1998 and 1997 reflect the
impact of "temporary differences" between amounts of assets
and liabilities for financial reporting purposes and such
amounts as measured by tax laws. These temporary differences
are determined in accordance with SFAS No. 109.
Page 46 of 181
Temporary differences which give rise to deferred tax
assets and liabilities at May 30, 1998 and June 28, 1997 are
as follows:
---------------------------------------------------------------------------------
Period Ended 1998 1997
Deferred Deferred Tax Deferred Deferred Tax
Tax Assets Liabilities Tax Assets Liabilities
(in thousands)
---------------------------------------------------------------------------------
Current:
Allowance for doubtful accounts $ 444 $ 384
Compensated absences 838 781
Inventory costs and reserves
capitalized for tax purposes 4,381 2,548
Insurance reserves 6,982 6,459
Prepaid items deductible
for tax purposes $ 1,582 $ 1,276
Other 144 305
------- ------- ------ -------
$12,789 $ 1,582 $10,477 $ 1,276
------- ------- ------- -------
Non-Current:
Depreciation 11,116 10,287
Accounting for rent expense 4,855 1,476
Pre-opening costs 2,502 2,410
Other 12 22
_______ _______ _______ _______
$ 7,357 $11,128 $ 3,886 $10,309
======= ======= ======= =======
No valuation account is deemed necessary.
K. Supplementary Income Statement Information
_______________________________________________________________________
Period Ended 1998 1997 1996
(in thousands)
-----------------------------------------------------------------------
Repairs and Maintenance $19,977 $19,913 $16,631
All other required items are omitted since they are less
than 1% of total revenues.
L. Incentive Plans
In April 1983, the stockholders of the Company adopted a
Stock Option and Stock Appreciation Rights Plan (the "1983
Plan") which authorized the granting of options for the
issuance of 1,125,000 shares of common stock. During 1988 the
stockholders authorized the issuance of an additional 675,000
shares of common stock for a total of 1,800,000 shares under
this Plan. The 1983 Plan provided for the issuance of
incentive stock options, nonqualified stock options and stock
appreciation rights. This plan expired in April, 1993. In
November, 1993, the stockholders of the Company approved a
stock incentive plan (the "1993 Plan"), authorizing the
granting of incentive stock options, non-qualified stock
Page 47 of 181
options, stock appreciation rights, restricted stock,
performance stock and other stock based compensation. A total
of 540,000 shares of common stock have been reserved for
issuance under the 1993 Plan. A summary of stock options
transactions in fiscal periods 1996, 1997 and 1998 is as
follows (all share information has been restated to reflect
the six for five stock split):
----------------------------------------------------------------------
Weighted Average
Number Exercise Price
of Shares Per Share
----------------------------------------------------------------------
Options outstanding
July 1, 1995 . . . . . 401,461 $ 6.98
Options issued . . . . 46,680 $ 9.48
Options cancelled . . . ( 7,830) $ 5.23
Options exercised . . . (18,547) $ 7.12
________ ______
Options outstanding
June 29, 1996. . . . . 421,764 $ 7.28
Options issued. . . . . 20,880 $ 8.90
Options cancelled . . . (202) $ 4.56
Options exercised . . . (112,318) $ 5.74
_________ ______
Options outstanding
June 28, 1997 . . . . 330,124 $ 7.91
Options issued . . . . 75,700 $16.28
Options cancelled. . . (2,813) $ 6.62
Options exercised. . . (85,337) $ 6.12
-------- ------
Options outstanding
May 30, 1998. . . . . 317,674 $10.40
Options exercisable. . 241,974 $ 8.56
------- ------
The following table summarizes information about the
stock options outstanding under the Company's option plans as
of May 30, 1998:
------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 5/30/98 Life Price at 5/30/98 Price
-------- ----------- ---------- -------- ----------- --------
$ 4.56 111,294 1.5 yrs $ 4.56 111,294 $ 4.56
$8.85-$9.58 100,560 7.3 yrs $ 9.38 100,560 $ 9.38
$16.28 75,700 9.8 yrs $16.28 - -
$20.57 30,120 5.8 yrs $20.57 30,120 $20.57
------- -------
317,674 241,974
======= =======
Page 48 of 181
The Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123 ("SFAS
123"), Accounting for Stock Based Compensation, effective with
the 1997 financial statements, but elected to continue to
measure compensation expense in accordance with APB Opinion
No. 25, Accounting for Stock Issued to Employees.
Accordingly, no compensation expense for stock options has
been recognized. If compensation expense had been determined
based on the estimated fair value of options granted in 1996,
1997 and 1998, consistent with the methodology in SFAS 123,
the pro forma effects on the Company's net income per share
would have been as follows (in thousands, except per share
amounts):
1998 1997 1996
------- ------- -------
Net Income:
As reported $63,639 $56,515 $29,013
Pro forma $63,540 $56,146 $28,971
Net Income per Share:
As reported $1.34 $1.17 $0.59
Pro forma $1.34 $1.17 $0.59
The fair value of each stock option granted is estimated
on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions used for
grants in 1998, 1997 and 1996.
1998 1997 1996
---- ---- ----
Risk-free interest rate 5.65% 6.5% 6.5%
Expected volatility 42.9% 42.9% 42.9%
Expected life 10 years 10 years 10 years
Contractual life 10 years 10 years 10 years
Fair value of options granted $10.38 $5.62 $6.50
During the fiscal year ended June 29, 1996, a restricted
stock award of 10,000 shares of the Company's common stock was
made to an officer of the Company. The fair market value on
the date of the award was $108,800. The shares become vested
to the officer over a four year period based on certain
employment criteria. The unearned compensation related to
this award is being amortized over the vesting period.
Page 49 of 181
M. Interim Financial Information (Unaudited)
(All amounts in thousands except per share data.)
Basic and
Provision Diluted
(Benefit) Net Income
for Income Net Income (Loss) per
Quarter Net Sales Gross Profit Taxes (Loss) Share (1)(2)
------------------------------------------------------------------------
1998:
First $335,270 $118,835 ($ 7,054) ($10,207) ($ .21)
Second 778,230 288,755 46,876 70,373 1.48
Third 397,110 139,021 268 443 .01
Fourth 285,013 106,056 2,024 3,030 .06
(2 months)
1997:
First $307,240 $103,930 ($ 7,430) ($10,874) ($ .32)
Second 739,958 268,534 45,519 66,049 1.36
Third 382,420 134,171 2,885 3,852 .08
Fourth 328,750 124,758 ( 1,727) ( 2,512) ( .05)
____________________
(1) Net income per share is based on the weighted average
number of shares outstanding during each of the quarters.
The sum of the four quarters may not equal the full year
computation due to rounding.
(2) Adjusted to give retroactive effect to six for five stock
split effective October, 1997.
On an interim basis the Company values inventory using
the gross profit method and at year-end values inventory at
the lower of FIFO cost or market as determined by the retail
inventory method. The annual adjustment for the difference
between actual gross profit and interim estimated gross profit
is recorded in the fourth quarter of the fiscal year. This
adjustment was not material for the fiscal years ended May 30,
1998 and June 28, 1997. Results of quarterly operations are
impacted by the highly seasonal nature of the Company's
business, timing of certain holiday selling seasons and the
comparability of calendar weeks within a quarter as a result
of the 52/53 week fiscal years.
Page 50 of 181
N. Fair Value of Financial Instruments
The carrying values of cash and cash equivalents,
accounts receivable and accounts payable approximate fair
value because of the short maturities of these items.
Interest rates that are currently available to the
Company for issuance of notes payable and long-term debt
(including current maturities) with similar terms and
remaining maturities are used to estimate fair value for debt
issues. The estimated fair value of long-term debt (including
current maturities) is as follows:
------------------------------------------------------------------------
May 30, 1998 June 28, 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
(in thousands)
-------------------------------------------------------------------------
Long-Term Debt
(including current maturities) $69,682 $70,864 $70,105 $71,132
The fair values presented herein are based on pertinent
information available to management as of the respective year
ends. Although management is not aware of any factors that
could significantly affect the estimated fair value amounts,
such amounts have not been comprehensively revalued for
purposes of these financial statements since that date, and
current estimates of fair value may differ from amounts
presented herein.
O. Legal Matters
In late September, 1994, the Company received summons and
complaint in three separate purported class action lawsuits.
Each of the complaints was consolidated into a single amended
complaint which sought unspecified damages and alleged a cause
of action arising under certain federal securities laws for
alleged material misstatements and omissions in public
statements by the Company and five executive officers
purportedly causing the market price of the Company's common
stock to be artificially inflated during the period October 4,
1993 through September 23, 1994, inclusive. On February 20,
1996, the District Court dismissed the plaintiffs' amended
complaint in its entirety. In March, 1996, plaintiffs filed
an appeal from the District Court's decision in the United
States Court of Appeals for the Third Circuit. The appeal was
orally argued before a panel of three judges on December 12,
1996. On June 12, 1997 the panel rendered an unanimous
Page 51 of 181
decision affirming the District Court's dismissal of the
action but ruled that the District Court should allow the
plaintiffs to attempt to replead two of the six claims. The
matter was then remanded to the District Court where
plaintiffs filed a further amended complaint in an effort to
cure such deficiencies. Among other changes, the amended
complaint dropped all claims against Andrew Milstein, Stephen
Milstein and Mark Nesci. On July 1, 1998 the Company brought
a motion to dismiss plaintiffs' latest pleading on the grounds
that it is legally insufficient under the Court of Appeals'
decision. The motion has been fully briefed and the parties
await word from the court either deciding the motion or
scheduling oral argument thereof. The Company is unable to
determine the probability of any settlement loss with respect
to these class action suits or the materiality thereof at this
time and accordingly has not established any reserve for this
matter in the accompanying consolidated financial statements.
From time to time in the ordinary course of business, the
Company is party to other litigation. The Company has
established reserves relating to its legal claims and believes
that potential liabilities in excess of those recorded will
not have a material adverse effect on the Company's
Consolidated Financial Statements; however, there can be no
assurances to this effect.
Dividend Policy
On September 8, 1997, the Board of Directors of the Company
declared the Company's first cash dividend in the amount of two
cents ($.02) per share payable annually. Maintenance of the cash
dividend policy or any change thereto in the future will be at the
discretion of the Company's Board of Directors and will depend upon
the financial condition, capital requirements and earnings of the
Company as well as other factors which the Board of Directors may
deem relevant. At present, the policy of the Board of Directors is
to retain the majority of earnings to finance the growth and
development of the Company's business. At May 30, 1998, $243.9
million of the Company's retained earnings were unrestricted and
available for the payment of dividends under the most restrictive
terms of certain loan agreements.
Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock is traded on the New York Stock
Exchange, Inc. and its trading symbol is "BCF." The following
Page 52 of 181
table provides the high and low closing prices on the New York
Stock Exchange for each fiscal quarter for the period from July 2,
1995 to May 30, 1998 and for the two months ended July 31, 1998:
- ----------------------------------------------------------------
Period Low Price High Price
- -----------------------------------------------------------------
June 30, 1996 to
September 28, 1996 8 5/16 9 1/4
- -----------------------------------------------------------------
September 29, 1996 to
December 28, 1996 8 7/8 11 1/8
- -----------------------------------------------------------------
December 29, 1996 to
March 29, 1997 10 3/16 14 7/8
- -----------------------------------------------------------------
March 30, 1997 to
June 28, 1997 14 3/8 16 11/16
- -----------------------------------------------------------------
June 29, 1997 to
September 27, 1997 12 3/8 20
- -----------------------------------------------------------------
September 28, 1997 to
December 27, 1997 14 5/16 19 15/16
- -----------------------------------------------------------------
December 28, 1997 to
March 28, 1998 14 7/16 17 3/4
- -----------------------------------------------------------------
March 29, 1998 to
May 30, 1998 16 5/16 20 1/2
- -----------------------------------------------------------------
May 31, 1998 to
July 31, 1998 18 3/8 27 7/16
- -----------------------------------------------------------------
As of July 31, 1998, there were 355 record holders of the
Company's Common Stock. The number of record holders does not
reflect that number of beneficial owners of the Company's Common
Stock for whom shares are held by Cede & Co., certain brokerage
firms and others.
Page 53 of 181
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION
Schedule II - Valuation and Qualifying Accounts
(All amounts in thousands)
- ----------------------------------------------------------------------------------
COL.A COL.B COL.C COL.D COL.E
- ----------------------------------------------------------------------------------
BALANCE AT CHARGED TO BALANCE
BEGINNING CHARGED TO OTHER ACCOUNTS AT END OF
DESCRIPTION OF PERIOD EXPENSE ACCOUNTS WRITTEN OFF PERIOD
- ----------------------------------------------------------------------------------
Period ended 5/30/98
- --------------------
ALLOWANCE FOR DOUBTFUL
ACCOUNTS -
ACCOUNTS RECEIVABLE $ 953 $7,187 $0 ($7,037) $1,103
Period ended 6/28/97
- --------------------
ALLOWANCE FOR DOUBTFUL
ACCOUNTS -
ACCOUNTS RECEIVABLE $ 990 $7,203 $0 ($7,240) $ 953
Period ended 6/29/96
- --------------------
ALLOWANCE FOR DOUBTFUL
ACCOUNTS -
ACCOUNTS RECEIVABLE $3,711 $6,068 $0 ($8,789) $ 990
Page 54 of 181
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File No. 1-8739
============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
EXHIBITS FILED WITH
FORM 10-K
FOR FISCAL YEAR ENDED
MAY 30, 1998
under
The Securities Exchange Act of 1934
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION
(Exact Name of Registrant as specified in its Charter)
Page 57 of 181
INDEX TO EXHIBITS
Exhibits Page No.
- -------- --------
3.1 Articles of Incorporation, as Amended 60
3.2 By-laws 85
10.1 1993 Stock Incentive Plan 113
10.2 1998 Stock Incentive Plan 143
10.3 Revolving Credit Agreement dated 1/
August 30, 1995 between the Company
and BancOhio National Bank, as amended
through Amendment No. 6
10.4 Amendment No. 7 to Revolving Credit 170
Agreement dated June 1, 1998 between
the Company and National City Bank.
10.5 Burlington Coat Factory Warehouse 1/
Corporation 401(k) Profit Sharing Plan
(as amended and restated effective
June 19, 1997)
10.6 Instrument of Amendment to Burlington 173
Coat Factory Warehouse Corporatio
401(k) Profit Sharing Plan effective
January 1, 1999.
10.7 Loan Agreement dated as of 3/
August 1, 1995 by and between
New Jersey Economic Development
Authority and Burlington Coat Factory
Warehouse of New Jersey, Inc.
________________________
(1) Incorporated by reference to the Exhibits filed with the
Company's Annual Report on Form 10-K for the year ended June
29, 1996, File No. 1-8739
(2) Incorporated by reference to the Exhibits filed with the
Company's Annual Report on Form 10-K for the year ended June
28, 1997, File No. 1-8739
(3) Incorporated by reference to Exhibit filed with the Company's
Annual Report on Form 10-K for the year ended July 1, 1995.
File No. 1-8739.
Page 58 of 181
Exhibits Page No.
- -------- --------
10.8 Assignment of Leases dated as of 3/
August 1, 1995 from Burlington
Coat Factory Warehouse of New
Jersey, Inc. to First Fidelity Bank,
National Association
10.9 Mortgage and Security Agreement dated 3/
as of August 1, 1995 between Burlington
Coat Factory Warehouse of New Jersey,
Inc. and First Fidelity Bank, National
Association
10.10 Indenture of Trust dated as of 3/
August 1, 1995 by and between
New Jersey Economic Development
Authority and Shawmut Bank
Connecticut, National Association
10.11 Guaranty and Suretyship Agreement dated 3/
as of August 1, 1995 from the Company
to First Fidelity Bank, National
Association
10.12 Letter of Credit Reimbursement Agreement 3/
dated as of August 1, 1995 between
Burlington Coat Factory Warehouse of
New Jersey, Inc. and First Fidelity
Bank, National Association
10.13 Environmental Indemnity Agreement dated 3/
as of August 1, 1995 between Burlington
Coat Factory Warehouse of New Jersey,
Inc. and First Fidelity Bank, National
Association
10.14 Note Agreement dated June 27, 1990 3/
21 Subsidiaries of Registrant 176
23 Consent of Deloitte & Touche LLP inde- 178
pendent certified public accountants,
to the use of their report on the
financial statements of the Company for
the eleven months in the period ended
May 30, 1998 in the Registration
Statements of the Company on Form S-8,
Registration No. 2-96332, No. 33-21569,
No. 33-51965 and No. 333-41077
27 Financial Data Schedule 180
Page 59 of 181