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FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 29, 1999,
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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
-----------------------
Securities Registered pursuant to Section 12(g) of the Act:
Title of Class: None
----
Page 1 of 69
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. [X]
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 30,
- --------------------------------------------------------------
1999, was $314,225,494.
- -----------------------
As of July 30, 1999, the number of shares of Common Stock, $1.00
- -----------------------------------------------------------------
par value, outstanding was 46,399,084.
- --------------------------------------
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 69
PART I
Item 1. Business
--------
Burlington Coat Factory Warehouse Corporation and its
subsidiaries (the "Company" or "Burlington Coat") operate a chain
of value-oriented department 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 other department and specialty
stores. Burlington Coat offers customers a complete line of men's,
women's and children's wear and accessories (such as handbags,
belts, perfume, watches, etc.) as well as a linens, bath shop
items, gifts and luggage department in two hundred thirteen of its
stores, a children's furniture department in one hundred ninety-five of its
stores, and a shoe department in two hundred eight 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
Page 3 of 69
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."
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 2.5% of total revenues.
The Company has two major product categories, apparel and non-
apparel. Apparel includes all clothing items for men, women and
children. Non-apparel includes linens, home furnishings, gifts,
baby furniture and baby furnishings. Net revenues from the sale of
apparel products for fiscal years 1999, 1998 and 1997 were $1.6
billion, $1.4 billion and $1.4 billion, respectively. Net revenues
from the sale of non-apparel products for fiscal years 1999, 1998
and 1997 were $0.4 billion, $0.4 billion and $0.3 billion,
respectively.
The Stores
- ----------
As of July 31, 1999, the Company operated two hundred sixty-
two stores, all but twenty-one 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 70,000 square feet. Total store
gross square footage increased to 18,295,000 square feet, an
increase of 6.1% over a year ago. Selling space accounts for over
four-fifths of the total area in most stores.
Page 4 of 69
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," and "Luxury Linens." 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. The Company
also operates one stand-alone store under the name "Totally 4 Kids"
and one stand-alone store under the name "Baby Depot".
In general, Burlington Coat has selected sites for
its stores where there are suitable existing structures which can
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 licensed by unaffiliated
parties for the sale of items such as shoes and jewelry. During
the fiscal year ended May 29, 1999, the Company's rental income
from all of its licensed departments aggregated less than 1% of the
Company's total revenues.
Page 5 of 69
Central Distribution
- --------------------
Central distribution, warehousing, ticketing and marking
services are extended to approximately fifty-four 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 two additional warehouse facilities of approximately 85,000
square feet and approximately 160,000 square feet, respectively,
nearby to its existing warehouse distribution center for the
purpose of warehousing and distributing its juvenile furniture
inventory and other items.
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
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 forty-two
Burlington Coat stores, four Cohoes Fashions stores, eight Decelle
stores and six stand-alone Luxury Linens stores as of July 31,
Page 6 of 69
1999. The Company also operates one stand-alone Totally 4 Kids
store and one stand-alone Baby Depot.
At July 31, 1999 the Company operated stores in 42 states and
is exploring expansion opportunities both within its current market
areas and in other regions. For fiscal 2000, the Company plans to
open approximately twenty to twenty-five additional Burlington Coat
Factory stores.* The Company also has planned store expansions and
remodelings for approximately twenty stores.* In addition, the
Company has plans to relocate approximately five 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. During the Fall of 1999, the Company
plans to introduce an improved store design for its new stores.
The new design seeks to create a more intimate customer friendly
environment by implementing changes in store layout, ceiling plan,
lighting, fixturing and overall color direction.*
The Company operates its own jewelry department in fifteen
stores as of July 31, 1999. 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, 1999 the Company operated this department
in approximately two hundred eight Burlington Coat Factory stores.
The shoe department offers a full line of mens and womens shoes in
many brands and styles.
The Company offers merchandise for sale through its internet
subsidiary, Burlington Coat Factory Direct Corporation, on the
worldwide web. Currently, ladies coats, menswear, linens, home
furnishings, children's clothing and baby and infant products are
available for purchase via this web site. The Company plans to
* Forward Looking Statement. See Safe Harbor Statement on page 6.
Page 7 of 69
expand the merchandise mix offered through its web site and to
upgrade its internet capabilities; however, no assurance can be
given that this venture will be successful.* To date, sales
generated from its internet web site have not been material.
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 56% 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,
overall policies are set, and accounting and general financial
functions for the Company's stores are conducted, at corporate
headquarters. In addition, other operations such as real estate,
store operations, loss prevention, merchandise presentation,
customer service, and human resources are managed on a Company-
wide basis.
Merchandise purchased by the Company is either shipped
directly from manufacturers to store locations or distributed
through the Company's warehousing and distribution facilities. 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.
* Forward Looking Statement. See Safe Harbor Statement on page 6.
Page 8 of 69
At July 31, 1999, 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 traditional full-price department store
chains and specialty shops offer brand name merchandise at
substantial markdowns, which can result in prices approximating
those offered by 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
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-one of its
stores and is a 50% partner in a partnership which owns the
Page 9 of 69
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, 1999 expire:
Fiscal Years Number of Leases Expiring with
Ending May 30 Expiring Renewal Options
- ------------- ---------------- ---------------
2000-2001 4 24
2002-2003 4 32
2004-2005 14 42
2006-2007 8 24
2008-2009 10 35
Thereafter 27 32
------ ------
Total 67 189
====== ======
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 two warehouse facilities of
approximately 85,000 square feet and 160,000 square feet,
respectively, at locations nearby to the warehouse/distribution
facility. The Company leases approximately 20,000 square feet of
office space in New York City.
Item 3. Legal Proceedings
-----------------
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
Page 10 of 69
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 25, 1999, the District Court entered an order granting the
Company's motion to dismiss in its entirety thus dismissing
plaintiff's final amended complaint without leave to replead. The
time in which to appeal the District Court's decision expired on
March 29, 1999. Accordingly, this matter has been finally
concluded in favor of the Company and all of the individual
defendants.
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 1999.
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 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 29, 1997 to May 29, 1999 and for the two months
ended July 31, 1999.
Page 11 of 69
Period Low Price High Price
------ --------- ----------
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
August 29, 1998 18 3/8 27 3/8
August 30, 1998 to
November 28, 1998 13 15/16 22 11/16
November 29, 1998 to
February 27, 1999 12 13/16 16 5/8
February 28, 1999 to
May 29, 1999 11 1/16 17 5/16
May 30, 1999 to
July 31, 1999 16 1/4 19 1/2
At July 31, 1999 there were three hundred forty-six 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
- ---------------
The Board of Directors of the Company declared an annual cash
dividend of two cents ($.02) per share in fiscal 1999 and fiscal
1998. The cash dividend for fiscal 1999 was declared on September
10, 1998, and was paid on October 26, 1998, to stockholders of
record on September 30, 1998. The paid dividend amounted to $0.9
million. 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.
Page 12 of 69
Item 6. Selected Financial Data
-----------------------
The following tables set forth certain selected financial
data:
Twelve Twelve Twelve Eleven (2) Twelve
Months Ended Months Ended Months Ended Months Ended Months Ended
7/1/95 6/29/96 6/28/97 5/30/98 5/29/99
--------------------------------------------------------------------------
(In thousands of dollars, except per share data)
Statement of Operations Data:
- -----------------------------
Revenues $1,597,028 $1,610,892 $1,776,823 $1,813,897 $2,005,696
Net Income 14,866 29,013 56,515 63,639 47,783
Basic and Diluted Net
Income per Share .30(1) .59(1) 1.17(1) 1.34 1.02
Dividends Per Share - - - .02 .02
Balance Sheet Data:
- -------------------
Total Assets $ 735,269 $ 704,731 $ 775,077 $ 909,807 $ 941,635
Working Capital 245,468 288,107 319,736 368,459 332,759
Long-Term Debt 83,298 74,907 62,274 60,890 52,970
Stockholders' Equity 385,019 413,745 460,215 516,069 548,156
_________________
(1) Adjusted to give retroactive effect to six for five stock
split effected in October, 1997.
(2) During fiscal 1998, 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.
Twelve Months Ended
May 29, 1999 May 30, 1998
(52 weeks) (52 weeks)
(unaudited)
------------------------------------------------
(in thousands of dollars, except per share data)
Statement of Operations Data:
- -----------------------------
Net Sales $1,988,513 $1,889,244
Other Income 17,183 20,189
Cost of Sales 1,278,717 1,200,981
Selling and Administrative Expenses 610,022 564,524
Depreciation and Amortization 35,046 32,791
Interest Expense 5,771 7,584
---------- ----------
Income Before Provision for Income Taxes 76,140 103,553
Provision for Income Taxes 28,357 41,195
---------- ----------
Net Income $ 47,783 $ 62,358
========== ==========
Basic and Diluted Net Income
Per Share $ 1.02 $ 1.31
========== ==========
Balance Sheet Data:
- -------------------
Total Assets $ 941,635 $ 909,807
Working Capital 332,759 368,459
Long Term Debt 52,970 60,890
Stockholders' Equity $ 548,156 $ 516,069
Page 13 of 69
Item 7. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
During fiscal 1998 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 twelve months (52 weeks)
ended May 29, 1999 with the twelve months (52 weeks) ended May
30, 1998 (unaudited) and the eleven months (48 weeks) ended May
30, 1998 with the eleven months (47 weeks) ended May 24, 1997
(unaudited).
Results of Operations
- ---------------------
Twelve Months Ended
--------------------
May 29, 1999 and May 30, 1998
-----------------------------
The following table sets forth certain items in the
consolidated statements of operations as a percentage of net
sales for the twelve months ended May 29, 1999 and May 30, 1998
(unaudited).
Percentage of Net Sales
-----------------------
Twelve Months Ended
-------------------
May 29, 1999 May 30, 1998
------------ ------------
Net Sales 100.0% 100.0%
Costs and Expenses:
Cost of Sales 64.3 63.9
Selling and Administrative Expenses 30.7 29.9
Depreciation and Amortization 1.8 1.7
Interest Expense 0.3 0.4
------ ------
97.1 95.6
Other Income 0.9 1.1
------ ------
Income Before Income Taxes 3.8 5.5
------ ------
Provision for Income Taxes 1.4 2.2
------ ------
Net Income 2.4% 3.3%
====== ======
Page 14 of 69
Performance for the Twelve Months (52 weeks) Ended May 29, 1999
- ----------------------------------------------------------------
Compared With the Twelve Months (52 weeks) Ended May 30, 1998
- -------------------------------------------------------------
(unaudited)
- -----------
Consolidated net sales increased $99.3 million (5.3%) for
fiscal 1999 compared with the similar period of a year ago.
Comparative stores sales increased 2.7% for the period. Fifteen
new Burlington Coat Factory stores, opened during fiscal 1999,
contributed $48.6 million to this year's sales. Stores opened a
year ago contributed $31.2 million to this year's net sales from
the beginning of fiscal 1999 to the anniversary of their opening
date. Stores which were in operation a year ago, but which were
closed prior to this year, contributed $20.8 million to last
year's sales.
The Cohoes stores contributed $36.8 million to consolidated
sales for the twelve months ended May 29, 1999 compared with
$37.3 million for the twelve months ended May 30, 1998. Cohoes
comparative store sales decreased 2.7% for the twelve month
period.
Sales in fiscal 1999 for the Decelle stores were $33.5
million compared with $39.7 million for twelve months ended May
30, 1998. Decelle comparative store sales decreased 8.9% for the
twelve months ended May 29, 1999 compared with the similar twelve
month period of a year ago. One Decelle store was closed during
fiscal 1999 which contributed $2.3 million to last year's sales.
Other income (consisting of rental income from leased
departments, investment income and miscellaneous items) decreased
to $17.2 million for fiscal 1999 compared with $20.2 million for
the similar period of a year ago. This decrease is primarily the
result of investment income decreases of approximately $2.9
million, resulting from a decrease in investable funds during the
comparative fiscal periods and a decrease in interest rates
during most of the comparative period.
Cost of sales increased $77.7 million (6.5%) for the twelve
months ended May 29, 1999 compared with the twelve months ended
May 30, 1998. 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 as well as an increase in cost of sales as a
Page 15 of 69
percentage of net sales, which increased from 63.6% to 64.3%.
This increase was due mainly to higher markdowns as a percentage
of sales this year over last year, and a slight increase in
shrinkage loss.
Selling and administrative expenses increased $45.5 million
(8.1%) from the 1998 period to the 1999 period. This increase
was due mainly to an increase in the number of stores in
operation and increases in payroll and payroll related
expenses. As a percentage of net sales, selling and
administrative expenses were 30.7% for the twelve months ended
May 29, 1999 compared with 29.9% for the twelve months ended May
30, 1998.
Depreciation and amortization expense amounted to $35.0
million in the twelve months ended May 29, 1999 compared with
$32.8 million in the twelve months ended May 30, 1998. This
increase of $2.2 million in the fiscal 1999 period compared with
the comparable 1998 period is attributable primarily to new
stores opened during the year as well as remodeling and
refixturing of existing stores.
Interest expense decreased $1.8 million for the twelve
months ended May 29, 1999 compared with the similar period of a
year ago. The decrease in interest expense is the result of a
decrease in long term debt due to the normal recurring repayments
of the subordinated note and the industrial development bonds.
The provision for income taxes decreased to $28.4 million
for the twelve months ended May 29, 1999 from $41.2 million for
the similar fiscal period a year ago. This decrease in the tax
provision was due to lower earnings as well as a decrease in the
effective tax rate. The effective tax rate for fiscal 1999 was
37.2% compared with 39.8% in the prior fiscal year. 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 decreased $14.6 million to $47.8 million for the
1999 period from $62.4 million for the comparative 1998 period.
Net income per share was $1.02 per share for fiscal 1999 compared
with $1.31 per share for the comparable 1998 period.
Page 16 of 69
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).
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 30, 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
Page 17 of 69
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.
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%
Page 18 of 69
in the 1998 period compared with 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.
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.
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.
Page 19 of 69
Liquidity and Capital Resources
- -------------------------------
During fiscal 1999, the Company opened fifteen Burlington
Coat Factory Warehouse stores, closed five stores and relocated
five others to new locations within their trading areas.
Expenditures incurred to acquire, set up and fixture new stores
opened during fiscal 1999 were approximately $20.2 million.
Expenditures for store relocations, store expansions and store
refurbishings were approximately $28.2 million during fiscal
1999. During fiscal 1999, the Company purchased the land and
building associated with one of its new stores for $4.6 million
and acquired the leases of six stores for $8.8 million. Other
capital expenditures, consisting primarily of computer system
enhancements and distribution center improvements amounted to
$16.2 million for fiscal 1999. For fiscal 2000, the Company
estimates that it will spend approximately $70.0 million for
capital expenditures (i.e., building acquisitions, fixtures,
equipment and leasehold improvements) in connection with the
opening of approximately twenty-five new stores, remodeling and
expansion of existing stores, expansion of the Company's
warehouse facilities, and computer enhancement projects.*
The Company repurchased 1,021,000 shares of its stock,
costing approximately $15.2 million in the current fiscal period.
These purchases are reflected as treasury stock in the equity
section of the balance sheet. As of May 29, 1999 the Company had
authority to purchase an additional $7.7 million of its stock.
Working capital decreased to $332.8 million at May 29, 1999
from $368.5 million at May 30, 1998. At June 28, 1997, working
capital was $319.7 million.
Total funds provided from operations for the fiscal year
ended May 29, 1999, the eleven months ended May 30, 1998 and the
fiscal year ended June 28, 1997 were $94.7 million, $97.6
million, and $97.1 million, respectively. Total funds from
operations are calculated by adding back to net income non-cash
expenditures such as depreciation and deferred taxes.
Net cash provided by operating activities of $73.1 million
for fiscal 1999 increased from $47.4 million in net cash provided
from operating activities for fiscal 1998. This increase in net
cash from operations was due primarily to a less dramatic
increase in inventories during fiscal 1999 compared with the
increase from fiscal 1997 to fiscal 1998. Inventories increased
5.5% at the end of fiscal 1999 over last fiscal year-end
compared with a 29.6% increase from fiscal 1997 year-end to
* Forward Looking Statement. See Safe Harbor Statement on Page 6.
Page 20 of 69
fiscal 1998. As of May 29, 1999, same store inventories were
flat.
On September 10, 1998, the Board of Directors of the Company
declared the annual cash dividend in the amount to two cents
($0.02) per share. The cash dividend was paid on October 26,
1998, to stockholder of record on September 30, 1998. The paid
dividend amounted to $0.9 million.
The Company's long-term borrowings at May 29, 1999 include
$51.8 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 $8.9 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 3.1 years and are subject to mandatory payment in
installments of $7.4 million each without premium on June 27 of
each year. The Notes are subordinated to senior debt, including,
among others, bank debt and indebtedness for borrowed money. 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 $2.5 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
6.125% per annum for the portion maturing on September 1, 2010.
The average interest rate and average maturity of the Refunding
Bonds are 5.7% and 6.9 years, respectively. During fiscal 1999,
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 $50.0 million in
uncommitted lines of credit. The Company had no borrowings under
these credit lines during the fiscal 1999 and fiscal 1998
periods. The Company had letter of credit commitments
* Forward Looking Statement. See Safe Harbor Statement on Page 6.
Page 21 of 69
outstanding against these lines of credit of $20.9 million at the
end of fiscal 1999 and $33.8 million at the end of fiscal 1998.
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 and 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.*
Year 2000*
- ----------
The inability of computers, software, and any equipment
utilizing microprocessors or embedded systems to properly
recognize and process date information prior to, during and after
January 1, 2000 is commonly referred to as the Year 2000("Y2K")
compliance problem.
As of May 29, 1999, the Company continues assessment of how
Y2K will impact operations. Considerable progress has been
achieved in the areas of identifying, remediating, testing, and
implementing Y2K products which are critical to the business
computing systems infrastructure. An inventory of all in-house
software systems has been completed, and said systems are being
remediated, where applicable, for compliance. In addition, a
selected number of these systems are being audited for compliance
by an independent professional service provider as a means to
further verify compliance. A survey of third party software and
equipment has been conducted in order to determine critical
business systems requiring Y2K compliance verification. These
systems are being upgraded or replaced, as appropriate, to
guarantee compliance. Hardware systems have also been examined
and appropriate paths charted to achieve Y2K compatibility.
Critical vendors with which the Company conducts business have
been identified and are being contacted to assure their goods
and/or services are compliant with Company Y2K standards. The
goal for completing fiscal year 2000 compliance for all business
mission-critical computing system environments was successfully
reached on May 29, 1999. The transition of the Company's
accounting and record keeping system to fiscal 2000 from fiscal
1999 was accomplished without any significant problem. Calendar
year 2000 compliance of business mission-critical computing
system environments is scheduled for completion by mid-September
1999.
All costs associated with the Y2K project to date have been
expensed as incurred. The Company's total estimated cost of the
* Forward Looking Statement. See Safe Harbor Statement on Page 6.
Page 22 of 69
Y2K compliance program is approximately $2 million to $3 million,
of which approximately $0.2 million was incurred as of May 30,
1998 and $1.5 million during fiscal 1999. The remaining
expenditures are expected to occur primarily in the first six
months of fiscal 2000. 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 Y2K remediation. In the event that internal
resources are insufficient to complete the project in a timely
manner, outsourcing the Y2K project, either in part or whole, to
a Y2K Service Provider may be necessary.
The Company does not know with absolute certainty how the
transition from Calendar 1999 to Calendar 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 failure by those companies to address their Y2K
compliance would not have an adverse material impact on the
Company. Disruption of business functions due to events beyond
the Company's reasonable control, such as power grid or
telecommunications failures and disruption of product supply and
distribution channels, may result in temporary interruption of
operations localized within the region of failure.
Contingency plans are in progress to address the
aforementioned scenarios as well as those events associated with
minor disruptions within the Company business cycle in areas such
as store loss prevention, distribution center operations,
physical plant management, and human resource administration.
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 7A. Quantitative and Qualitative Disclosures About Market Risks
------------------------------------------------------------
The Company does not utilize financial instruments for
trading purposes and holds no derivative financial instruments
which could expose the Company to significant market risk. The
Company's primary market risk exposure with regard to financial
instruments is to changes in interest rates. Pursuant to the
* Forward Looking Statement. See Safe Harbor Statement on Page 6.
Page 23 of 69
terms of certain revolving credit arrangements, changes in the
lenders' prime rate, LIBOR or other stated interest rates could
affect the rates at which the Company could borrow funds
thereunder. At May 29, 1999, the Company had no outstanding
borrowings against the credit facilities. The table below
summarizes the fair value and contract terms of the Company's
fixed rate debt and long-term investments at May 29, 1999 (in
thousands):
Expected Maturity Date of Long-Term Debt (Including Current
Portion) and Long Term Investments at May 29, 1999 (in thousands)
Average Average
Fixed Rate Interest Long-Term Interest
Debt Rate Investments Rate
----------------------------------------------------
2000 $7,919 10.3% - 6.3%
2001 7,905 10.3% - 6.3%
2002 7,905 10.3% $4,200 6.3%
2003 7,955 10.2% - 6.5%
2004 8,005 10.2% 20,000 6.5%
Thereafter 21,200 9.2% - -
Total $60,889 $24,200 -
Fair Value
at May 29, 1999 $64,331 $24,175
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.
Page 24 of 69
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 29, 1999.
Page 25 of 69
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.
Page No.
--------
1. Financial Statements
Index to Consolidated Financial Statements 32
Independent Auditors' Report 33
Consolidated Balance Sheets 34
May 29, 1999 and May 30, 1998
Consolidated Statements of Operations 35
for the Twelve Months Ended
May 29, 1999, the Eleven Months
Ended May 30, 1998 and the Twelve Months
Ended June 28, 1997
Consolidated Statements of Stockholders' 36
Equity for the Twelve Months Ended
June 28, 1997, the Eleven Months Ended
May 30, 1998 and the Twelve Months Ended
May 29, 1999
Consolidated Statements of Cash 37
Flows for the Twelve Months Ended
May 29, 1999, the Eleven Months Ended
May 30, 1998, and the Twelve Months
Ended June 28, 1997
Notes to Consolidated Financial Statements 38
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts 56
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.
Page 26 of 69
Page No.
--------
3. Exhibits
3.1 Articles of Incorporation, as amended 1/
---
3.2 By-laws 1/
---
10.1 Cohoes Fashions, Inc. Employees' 401(k) 2/
Savings Plan (as amended and restated ---
effective January 1, 1999)
10.2 1993 Stock Incentive Plan* 1/
---
10.3 1998 Stock Incentive Plan* 1/
---
10.4 Revolving Credit Agreement dated August 30, 3/
1985 between the Company and BancOhio ---
National Bank, as amended through
Amendment No. 6
10.5 Amendment No. 7 to Revolving Credit Agreement 1/
dated June 1, 1998 between the Company and ---
National City Bank
10.6 Burlington Coat Factory Warehouse Corporation 4/
401(k) Profit-Sharing Plan (as amended and ---
restated effective January 1, 1999)
____________________
(1) Incorporated by reference to Exhibits filed with the Company's Annual
Report on Form 10-K for the year ended May 30, 1998. File No. 1-8739.
(2) Incorporated by reference to Exhibits filed with the Company's
Registration Statement on Form S-8 with the Commission on May 20, 1999.
File No. 333-78941.
(3) 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.
(4) Incorporated by reference to Exhibits filed with the Company's Quarterly
Report on Form 10-Q for the period ended February 27, 1999.
File No. 1-8739.
* Executive Compensation Plan
Page 27 of 69
Page No.
--------
10.7 Loan Agreement dated as of August 1, 1995 by 5/
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, 5/
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 5/
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 5/
by and between New Jersey Economic Development---
Authority and Shawmut Bank Connecticut,
National Association
10.11 Guaranty and Suretyship dated as of August 1, 5/
1995 from the Company to First Fidelity Bank, ---
National Association
10.12 Letter of Credit Reimbursement Agreement dated 5/
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 5/
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 5/
---
________________
(5) 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 28 of 69
Page No.
--------
10.15 Amendment to Note Agreement dated as of 61
January 1, 1999
21 Subsidiaries of Registrant 65
23 Consent of Deloitte & Touche LLP, independent 67
certified public accountants, to the use of
their report on the financial statements of
the Company for the year ended May 29, 1999
in the Registration Statements of the Company
on Form S-8, Registration No. 2-96332,
No. 33-21569, No. 33-51965, No. 333-41077,
No. 333-65995, and No. 333-78941
27 Financial Data Schedule 69
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
---------------------------------------------
Description Location
----------- --------
1) 1993 Stock Incentive Plan Filed as Exhibit 10.2
2) 1998 Stock Incentive Plan Filed as Exhibit 10.3
(b) Reports on Form 8-K
During the period ended May 29, 1999 the Company did not
file any report on Form 8-K.
Page 29 of 69
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 27, 1999
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 27, 1999
- ------------------------- and President (Principal
Monroe G. Milstein Executive Officer);
Director
/s/Robert L. LaPenta, Jr. Controller (Principal August 27, 1999
- -------------------------- Financial and
Robert L. LaPenta, Jr. Accounting Officer)
/s/Bernard Brodsky Treasurer August 27, 1999
- --------------------------
Bernard Brodsky
- -------------------------- Director
Henrietta Milstein
/s/Harvey Morgan Director August 27, 1999
- --------------------------
Harvey Morgan
/s/Andrew R. Milstein Director August 27, 1999
- --------------------------
Andrew R. Milstein
/s/Stephen E. Milstein Director August 27, 1999
- --------------------------
Stephen E. Milstein
/s/Mark A. Nesci Director August 27, 1999
- --------------------------
Mark A. Nesci
/s/Irving Drillings Director August 27, 1999
- --------------------------
Irving Drillings
Page 30 of 69
[THIS PAGE INTENTIONALLY LEFT BLANK]
Page 31 of 69
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION
---------------------------------------------
AND SUBSIDIARIES
-------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Page No.
Independent Auditors' Report 33
Consolidated Balance Sheets 34
May 29, 1999 and May 30, 1998
Consolidated Statements of Operations for the 35
Twelve Months Ended May 29, 1999, the Eleven Months
Ended May 30, 1998 and the Twelve Months
Ended June 28, 1997
Consolidated Statements of Stockholders' Equity 36
for the Twelve Months Ended June 28, 1997, for
the Eleven Months Ended May 30, 1998 and the Twelve
Months Ended May 29, 1999
Consolidated Statements of Cash Flows for the 37
Twelve Months Ended May 29, 1999, the Eleven Months
Ended May 30, 1998 and the Twelve Months Ended
June 28, 1997
Notes to consolidated financial statements 38
Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts 56
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 32 of 69
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 29, 1999 and May 30, 1998, and the related
consolidated statements of operations, stockholders' equity, and
cash flows for the year ended May 29, 1999 and for the eleven
months in the period ended May 30, 1998 and for the year 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 29, 1999 and May 30, 1998, and the results of their operations
and their cash flows for the year ended May 29, 1999 and for the
eleven months in the period ended May 30, 1998 and for the year
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, 1999
Page 33 of 69
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands except share data)
May 29, May 30,
1999 1998
------- -------
Current Assets:
Cash and Cash Equivalents $106,952 $153,964
Accounts Receivable (Net of Allowance for Doubtful
Accounts of 1999-$723 and 1998-$1,103) 14,227 17,578
Merchandise Inventories 501,040 474,817
Deferred Tax Asset 10,231 11,207
Prepaid and Other Current Assets 18,247 22,993
Prepaid Income Tax 973 -
------- -------
Total Current Assets 651,670 680,559
------- -------
Property and Equipment Net of Accumulated
Depreciation and Amortization 252,221 222,813
Long Term Investments 24,175 -
Other Assets 13,569 6,435
-------- -------
Total Assets $941,635 $909,807
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts Payable $222,766 $198,597
Income Taxes Payable - 10,372
Accrued Insurance Costs 10,814 17,532
Other Current Liabilities 77,412 76,807
Current Maturities of Long-Term Debt 7,919 8,792
-------- --------
Total Current Liabilities 318,911 312,100
Long-Term Debt 52,970 60,890
Other Liabilities 15,689 16,977
Deferred Tax Liability 5,909 3,771
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; 49,611,988 shares issued at
May 29, 1999; 49,593,616 shares issued
at May 30, 1998 49,612 49,594
Capital in Excess of Par Value 19,157 18,710
Retained Earnings 515,814 468,958
Unearned Compensation (2) (29)
Accumulated Other Comprehensive Income (Loss) (29) -
Treasury Stock at Cost; 1999-3,212,290 shares;
1998-2,214,624 shares (36,396) (21,164)
-------- --------
Total Stockholders' Equity 548,156 516,069
-------- --------
Total Liabilities and Stockholders' Equity $941,635 $909,807
========= =========
See notes to consolidated financial statements
Page 34 of 69
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands except share data)
Twelve Months Eleven Months Twelve Months
Ended Ended Ended
May 29, May 30, June 28,
1999 1998 1997
------------------------------------------
REVENUES:
Net Sales $1,988,513 $1,795,623 $1,758,368
Other Income 17,183 18,274 18,455
---------- ---------- ----------
2,005,696 1,813,897 1,776,823
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of Sales (Exclusive of
Depreciation and Amortization) 1,278,717 1,142,956 1,126,975
Selling and Administrative Expenses 610,022 528,725 514,959
Depreciation and Amortization 35,046 29,634 31,047
Interest Expense 5,771 6,829 8,080
--------- ---------- ---------
1,929,556 1,708,144 1,681,061
--------- ---------- ---------
Income Before Provision for
Income Taxes 76,140 105,753 95,762
Provision for Income Taxes 28,357 42,114 39,247
--------- ---------- ---------
Net Income $ 47,783 $ 63,639 $ 56,515
========== ========== ==========
Basic and Diluted Net Income Per Share $ 1.02 $ 1.34 $ 1.17
========== ========== ==========
Weighted Average Shares Outstanding 46,876,564 47,420,726 48,253,996
========== ========== ==========
Dividends Per Share $ .02 $ .02 --
========== ========== ==========
See notes to consolidated financial statements
Page 35 of 69
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TWELVE MONTHS ENDED JUNE 28, 1997,
ELEVEN MONTHS ENDED MAY 30, 1998
and TWELVE MONTHS ENDED MAY 29, 1999
(All amounts in thousands)
Accumulated
Capital in Other
Common Excess of Retained Unearned Comprehensive Treasury
Stock Par Value Earnings Compensation Income (Loss) Stock Total
- ---------------------------------------------------------------------------------------------------------------
Balance at June 29, 1996 $41,165 $25,384 $349,608 ($87) - ($2,325) $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 (54) - (13,110) 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 (29) - (21,164) 516,069
Comprehensive Income:
Net Income 47,783 47,783
Net Unrealized Loss on
Noncurrent Marketable
Securities ($29) (29)
---------
Total Comprehensive Income 47,754
Stock Options Exercised 18 198 216
Tax Benefit From Exercise
of Stock Options 249 249
Unearned Compensation 27 27
Treasury Stock Transactions (15,232) (15,232)
Dividends (927) (927)
- ----------------------------------------------------------------------------------------------------------------
Balance at May 29, 1999 $49,612 $19,157 $515,814 ($2) ($29) ($36,396) $548,156
================================================================================================================
See notes to consolidated financial statements
Page 36 of 69
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
Twelve Months Eleven Months Twelve Months
Ended Ended Ended
May 29, May 30, June 28,
1999 1998 1997
-----------------------------------------------
OPERATING ACTIVITIES
Net Income $47,783 $63,639 $ 56,515
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 35,046 29,634 31,047
Provision for Losses on Accounts Receivable 7,978 7,187 7,203
Provision for Deferred Income Taxes 3,114 (4,658) (395)
Loss on Disposition of Fixed Assets 836 794 1,165
Non-Cash Rent Expense and Other 1,061 1,047 1,521
Changes in Assets and Liabilities:
Accounts Receivable (7,443) (7,931) (9,865)
Merchandise Inventories (26,223) (108,584) 4,204
Prepaids and Other Current Assets 4,746 (15,843) 12,652
Accounts Payable 24,169 54,757 24,940
Accrued and Other Current Liabilities (16,873) 19,506 12,621
Deferred Rent Incentives (1,085) 7,887 -
--------- -------- --------
Net Cash Provided by Operating Activities 73,109 47,435 141,608
--------- -------- --------
INVESTING ACTIVITIES
Acquisition of Property and Equipment (69,244) (43,320) (35,797)
Proceeds From Sale of Fixed Assets 3,682 13 390
Lease Acquisition Costs (8,825) - -
Receipts Against Long-Term Notes Receivable 3,197 1,118 1,085
Minority Interest 58 56 (110)
Acquisition of Long Term Securities (24,280) - -
Other - 2 (42)
-------- -------- --------
Net Cash Used in Investing Activities (95,412) (42,131) (34,474)
-------- --------- --------
FINANCING ACTIVITIES
Principal Payments on Long-Term Debt (8,793) (423) (13,193)
Issuance of Common Stock Upon Exercise of
Stock Options 243 547 678
Purchase of Treasury Stock (15,232) (8,054) (10,785)
Payment of Dividends (927) (804) -
-------- --------- --------
Net Cash Used in Financing Activities (24,709) (8,734) (23,300)
Increase (Decrease) in Cash and Cash Equivalents (47,012) (3,430) 83,834
Cash and Cash Equivalents at Beginning of Period 153,964 157,394 73,560
-------- --------- --------
Cash and Cash Equivalents at End of Period $106,952 $153,964 $157,394
======== ========== =========
Supplemental Disclosure of Cash Flow Information:
Interest Paid $6,431 $ 4,000 $ 8,092
======== ========== =========
Income Taxes Paid $36,588 $ 42,240 $ 34,212
======== ========== =========
See notes to consolidated financial statements
Page 37 of 69
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
A. Summary of Significant Accounting Policies
1. Business
Burlington Coat Factory Warehouse Corporation operates
263 stores, in 42 states, which sell apparel, shoes and
accessories for men, women and children. A majority of those
stores offer a home furnishings and linens department and a
juvenile furniture department. The Company operates stores
under the names "Burlington Coat Factory Warehouse"(two
hundred forty-two stores), "Cohoes Fashions" (four stores),
"Decelle" (eight stores), "Luxury Linens" (six stores),
"Totally 4 Kids" (one store), 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 38 of 69
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 $89.6 million at May 29, 1999 and $145.9 million
at May 30, 1998.
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 ("SFAS") 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 39 of 69
10. Basic and Diluted Net Income Per Share
In February 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 128, Earnings Per Share. This
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:
Twelve Months Eleven Months Twelve Months
Ended Ended Ended
May 29, 1999 May 30, 1998 June 28, 1997
---------------------------------------------
(all amounts in thousands except per share data)
Net Income $47,783 $63,639 $56,515
======= ======= =======
Weighted Average Shares
Outstanding 46,877 47,421 48,254
Effect of Dilutive Stock
Options 87 99 96
Weighted Average Shares Out-
standing, Assuming
Dilution 46,964 47,520 48,350
======= ====== ======
Basic and Diluted Net
Income Per Share $ 1.02 $ 1.34 $ 1.17
======= ====== =======
Options to purchase 108,720 shares of common stock were
outstanding during fiscal 1999, 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
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 1999
ended May 29, 1999 and consisted of 52 weeks. Fiscal 1998
ended on May 30, 1998 and consisted of 48 weeks. Previously,
the Company's fiscal year was a 52-53 week year with its year
ending on the Saturday closest to June 30th. Fiscal 1997
ended June 28, 1997 and consisted of 52 weeks. Below are set
forth financial data for the twelve months ended May 29, 1999
and the twelve months ended May 30, 1998 (52 weeks).
Page 40 of 69
Twelve Months Ended
May 29, 1999 May 30, 1998
(52 weeks) (52 weeks)
(unaudited)
------------------------------------
(in thousands except per share data)
Revenues $2,005,696 $1,909,433
Gross Profit 709,796 688,263
Selling and Administration
Expenses 610,022 564,524
Provision for Income Taxes 28,357 41,195
Net Income 47,783 62,358
Basic and Diluted Net Income
Per Share $1.02 $ 1.31
12. Other Income
Other income is primarily rental income received from
leased departments, interest income and miscellaneous items.
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 twelve months ended May 29, 1999,
eleven months ended May 30, 1998 and twelve months ended June
28, 1997 were $51.3 million, $44.5 million, and $45.4 million,
respectively.
14. Impairment of Long Lived Assets
The Company accounts for impaired long-lived assets in
accordance with 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
measures the amount of the impairment by comparing the
Page 41 of 69
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.
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 M).
16. Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, Reporting
Comprehensive Income. This statement establishes standards
for reporting and disclosure of comprehensive income and its
components (revenues, expenses, gains and losses). The
Company presents comprehensive income as a component of
stockholders' equity.
17. Long Term Investments
The Company classifies its investments in debt-securities
into held-to-maturity, available-for-sale or trading
categories in accordance with the provisions of SFAS No. 115,
Accounting For Certain Investments in Debt and Equity
Securities. Debt securities are classified as held-to-maturity
when the Company has the positive intent and ability
to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost. The Company's debt
securities not classified as held-to-maturity are classified
as available-for-sale and are carried at fair market value,
with unrealized gains and losses, net of tax, reported as a
separate component in stockholders' equity.
18. Recent Accounting Pronouncements
a. In June 1998, the FASB issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Page 42 of 69
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,
2000. The Company has not yet assessed what the impact of
SFAS No. 133 will be on the Company's future earnings or
financial position.
b. 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.
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. Weighted average shares
outstanding and net income per share amounts for fiscal 1997
have been restated to reflect the six for five stock split.
Page 43 of 69
C. Property and Equipment
Property and equipment consists of:
---------------------------------------------------------------------------
May 29, May 30,
1999 1998
(in thousands)
---------------------------------------------------------------------------
Land $20,087 $20,690
Buildings 83,211 78,542
Store Fixtures and
Equipment 244,813 211,470
Leasehold Improvements 97,188 76,918
Construction in Progress 4,857 867
--------- ---------
450,156 388,487
Less Accumulated Depreciation
and Amortization (197,935) (165,674)
--------- ---------
$252,221 $222,813
========= =========
D. Investments
At May 29, 1999, the Company held $4.2 million and $20.0
million of held-to-maturity and available-for-sale debt securities,
respectively. Held-to-maturity securities consist of Federal
National Mortgage Association notes that mature on February 25,
2002 and are to be pledged as collateral under certain insurance
contracts which previously had been collateralized through the use
of letter of credit agreements. At May 29, 1999, amortized cost
approximates fair value. Available-for-sale securities consist of
a Federal Home Loan Mortgage Corporation note that matures on March
3, 2004. Gross unrealized losses were approximately $29,000 in
fiscal 1999.
E. Accounts Payable
Accounts payable consists of:
----------------------------------------------------------------------------
May 29, May 30,
1999 1998
(in thousands)
----------------------------------------------------------------------------
Accounts Payable-Trade $195,231 $176,914
Accounts Payable-Due Banks 13,245 9,851
Other 14,290 11,832
-------- --------
$222,766 $198,597
======== ========
Page 44 of 69
F. Lines of Credit
The Company had a committed line of credit of $50.0 million at
both May 29, 1999 and May 30, 1998. The Company's committed line
of credit renews every three years and is available through
December 2002. The Company also had an uncommitted line of credit
of $50.0 million and $100.0 million at May 29, 1999 and May 30,
1998, respectively. The uncommitted lines of credit are cancelable
by the bank at any time. Letters of credit outstanding against
these lines were $20.9 million and $33.8 million at May 29, 1999
and May 30, 1998, respectively.
The Company had no borrowings under these credit lines during
fiscal 1999 or 1998. Short-term borrowings against these lines of
credit bear interest at or below the lending bank's prime rate
(7.75% at May 29, 1999).
G. Long-Term Debt
Long-term debt consists of:
---------------------------------------------------------------------------
May 29, May 30,
1999 1998
(in thousands)
---------------------------------------------------------------------------
Subordinated Notes, 10.6%, due in
annual principal payments of $7.4
million from June 1999 to June 2005
with interest due semiannually $51,800 $59,200
Industrial Revenue Bonds, 5.75%,
due in semi-annual payments of
various amounts from September 1,
1999 to September 1, 2010 8,945 9,330
Urban Development Action Grant, non-
interest bearing, due April 1999 - 917
Promissory note, due at various dates
through 2000 (interest rate
imputed at 10.6%) 144 235
-------- --------
Subtotal 60,889 69,682
Less current portion (7,919) (8,792)
-------- --------
Long-Term Debt $52,970 $60,890
======== ========
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
Page 45 of 69
mortgage on the Company's distribution center. The Urban
Development Action Grant was secured by a second mortgage on the
facility. Indebtedness totaling $8.9 million are secured by land
and buildings with a net book value of $18.5 million at May 29,
1999.
Long-term debt maturing in each of the next five fiscal years
is as follows: 2000-$7.9 million; 2001-$7.9 million; 2002-$7.9
million; 2003-$8.0 million; and 2004-$8.0 million.
As of May 29, 1999, 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 29, 1999, $296.0 million of the
Company's retained earnings of $515.8 million were unrestricted and
available for the payment of dividends under the most restrictive
terms of the agreements.
H. Sales from Leased Departments
Retail sales from certain leased departments, included in net
sales, amounted to $44.4 million, $39.4 million, and $34.8 million
in fiscal 1999, fiscal 1998 and fiscal 1997, respectively.
I. Lease Commitments
The Company leases 242 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.
The following is a schedule of future minimum lease payments
under the operating leases:
---------------------------------------------------------------------------
Fiscal Year (in thousands)
---------------------------------------------------------------------------
2000 $76,559
2001 73,502
2002 69,498
2003 64,602
2004 58,544
Thereafter 294,598
--------
Total minimum lease payments $637,303
========
Page 46 of 69
The above schedule of future minimum lease payments has not
been reduced by future minimum sublease rental income of $10.0
million under non-cancelable subleases and other contingent rental
agreements.
Total rental expenses under operating leases for the periods
ended May 29, 1999, May 30, 1998 and June 28, 1997 were $77.2
million, $66.2 million and $67.0 million, respectively, including
contingent rentals of $2.5 million, $2.3 million, and $1.8 million,
respectively. Rent expense for the above periods has not been
reduced by sublease rental income of $2.6 million, $2.1 million and
$4.0 million which has been included in other income for the
periods ended May 29, 1999, May 30, 1998, and June 28, 1997,
respectively.
The Company has irrevocable letters of credit in the amount
of $14.5 million to guarantee payment and performance under certain
leases, insurance contracts and utility agreements.
J. 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 plan
is determined annually by the Board of Directors. The provision
for Company profit sharing and 401(k) contributions for the twelve
months ended May 29, 1999, the eleven months ended May 30, 1998 and
the twelve months ended June 28, 1997 were $5.0 million, $6.5
million and $5.4 million, respectively.
Page 47 of 69
K. Income Taxes
The provision for income taxes is summarized as follows:
----------------------------------------------------------------------------
Period Ended 1999 1998 1997
(in thousands)
----------------------------------------------------------------------------
Current:
Federal $22,625 $40,214 $32,504
State and Other 2,617 6,559 7,138
------- -------- --------
Subtotal 25,242 46,773 39,642
Deferred 3,115 (4,659) (395)
------- -------- --------
Total $28,357 $42,114 $39,247
======= ======== =========
A reconciliation of the Company's effective tax rate with the
statutory federal tax rate is as follows:
---------------------------------------------------------------------------
Period Ended 1999 1998 1997
---------------------------------------------------------------------------
Tax at statutory rate 35.0% 35.0% 35.0%
State income taxes, net
of federal benefit 2.7 3.9 4.8
Other charges (.5) .9 1.2
----- --- ----
Effective tax rate 37.2% 39.8% 41.0%
===== ===== =====
Deferred income taxes for 1999 and 1998 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 48 of 69
Temporary differences which give rise to deferred tax assets
and liabilities at May 29, 1999 and May 30, 1998 are as follows:
--------------------------------------------------------------------------------
Period Ended 1999 1998
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
(in thousands)
--------------------------------------------------------------------------------
Current:
Allowance for doubtful accounts $ 291 $ 444
Compensated absences 917 838
Inventory costs and reserves
capitalized for tax purposes 5,397 4,381
Insurance reserves 4,481 6,982
Prepaid items deductible
for tax purposes $ 1,383 $ 1,582
Other 528 144
------- ------- ------- -------
$11,614 $ 1,383 $12,789 $ 1,582
======= ======= ======= =======
Non-Current:
Depreciation $13,123 $11,116
Accounting for rent expense $ 4,182 $ 4,855
Pre-opening costs 3,033 2,502
Other 1 12
------- ------- ------- ------
$ 7,215 $13,124 $ 7,357 $11,128
======= ======= ======= =======
No valuation account is deemed necessary.
L. Supplementary Income Statement Information
----------------------------------------------------------------------------
Period Ended 1999 1998 1997
(in thousands)
----------------------------------------------------------------------------
Repairs and Maintenance $22,513 $19,977 $19,913
All other required items are omitted since they are less than
1% of total revenues.
M. 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 options, stock
Page 49 of 69
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. This
plan expired in August 1998. In October, 1998, the stockholders
of the Company approved a stock incentive plan (the "1998 Plan"),
authorizing the granting of incentive stock options, non-qualified
stock options, stock appreciation rights, restricted stock,
performance stock and other stock based compensation. A total of
350,000 shares of common stock have been reserved for issuance
under the 1998 Plan. A summary of stock options transactions in
fiscal periods 1997, 1998 and 1999 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
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 issued . . . . 2,900 $22.13
Options(cancelled)reversed 541 $ 4.56
Options exercised. . . (18,372) $ 6.41
---------- -------
Options outstanding
May 29, 1999. . . . . 302,743 $10.74
---------- -------
Options exercisable. . 299,843 $10.63
---------- -------
Page 50 of 69
The following table summarizes information about the stock
options outstanding under the Company's option plans as of May 29,
1999:
Options Outstanding Options Exercisable
--------------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 5/29/99 Life Price at 5/29/99 Price
-------- ----------- ------------ --------- ------------ ---------
$4.56 100,303 .5 yrs $ 4.56 100,303 $ 4.56
$8.85-$9.58 93,720 6.3 yrs $ 9.37 93,720 $ 9.38
$16.28 75,700 8.8 yrs $16.28 75,700 $16.28
$20.57-
$22.13 33,020 5.2 yrs $20.71 30,120 $20.57
-----------------------------------------------------------------------------------------
302,743 299,843
-----------------------------------------------------------------------------------------
The Company adopted the disclosure requirements of SFAS No.
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 1997, 1998 and 1999, 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):
1999 1998 1997
------- ------- -------
Net Income:
As reported $47,783 $63,639 $56,515
Pro forma $47,374 $63,540 $56,146
Net Income per Share:
As reported $1.02 $1.34 $1.17
Pro forma $1.01 $1.34 $1.17
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 1999,
1998 and 1997.
Page 51 of 69
1999 1998 1997
------ ------ ------
Risk-free interest rate 5.40% 5.65% 6.5%
Expected volatility 48.4% 42.9% 42.9%
Expected life 8 years 10 years 10 years
Contractual life 10 years 10 years 10 years
Fair value of options granted $10.46 $10.38 $5.62
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.
N. Interim Financial Information (Unaudited)
(All amounts in thousands except per share data)
Basic and
Provision Diluted
(Benefit) Net Income
Gross for Income Net Income (Loss) per
Quarter Net Sales Profit Taxes (Loss) Share (1)
--------------------------------------------------------------------------------
1999:
First $347,187 $120,022 ($7,642) ($11,477) ($.24)
Second 598,827 225,323 20,066 30,203 .64
Third 586,992 193,621 13,187 23,171 .50
Fourth 455,507 170,830 2,746 5,886 .13
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(2) 285,013 106,056 2,024 3,030 .06
____________________
(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) The fourth fiscal quarter of fiscal 1998 consisted of
two months.
Page 52 of 69
On an interim basis during fiscal 1999, the Company valued
inventory at the lower of cost, on a first in first out (FIFO) basis,
or market, as determined by the retail inventory method. Prior to
the first fiscal quarter of fiscal 1999, on an interim basis the
Company valued inventory using the gross profit method and at year-
end valued 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 was recorded in the fourth quarter of the
fiscal year. This adjustment was not material for the fiscal year
ended May 30, 1998. 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.
O. 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 29, 1999 May 30, 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
(in thousands)
--------------------------------------------------------------------------------------
Long-Term Debt
(including current maturities) $60,889 $64,331 $69,682 $70,864
--------------------------------------------------------------------------------------
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.
Page 53 of 69
P. Segment Information
The Company reports segment information in accordance with
SFAS No.131, Disclosure about Segments of an Enterprise and Related
Information. The Company has one reportable segment, operating
within the United States. Sales by major product categories are as
follows:
Year Ended May 29, 1999 May 30, 1998 June 28, 1997
---------------- ---------------- ---------------
Apparel $1,564,175 $1,441,534 $1,429,111
Non-Apparel 424,338 354,089 329,257
---------------- ---------------- ---------------
$1,988,513 $1,795,623 $1,758,368
================ ================ ===============
(in thousands)
Apparel includes all clothing items for men, women and
children. Non-apparel includes linens, home furnishings, gifts,
baby furniture and baby furnishings.
Q. Legal Matters
In late September, 1994, the Company received summons and
complaint in three separate purported class action lawsuits. Each
of the complaints was consolidated into a single amended complaint
which sought unspecified damages and alleged a cause of action
arising under certain federal securities laws for alleged material
misstatements and omissions in public statements by the Company
and five executive officers purportedly causing the market price of the
Company's common stock to be artificially inflated during the
period October 4, 1993 through September 23, 1994, inclusive. On
February 25, 1999, the District Court entered an order granting the
Company's motion to dismiss in its entirety thus dismissing
plaintiff's final amended complaint without leave to replead. The
time in which to appeal the District Court's decision expired on
March 29, 1999. Accordingly, this matter has been finally
concluded in favor of the Company and all of the individual
defendants.
From time to time in the ordinary course of business, the
Company is party to other litigation. The Company has established
reserves relating to its legal claims and believes that potential
liabilities in excess of those recorded will not have a material
adverse effect on the Company's Consolidated Financial Statements;
however, there can be no assurances to this effect.
Page 54 of 69
Dividend Policy
The Board of Directors of the Company declared an annual cash
dividend of two cents ($.02) per share in fiscal 1999 and 1998.
The cash dividend for fiscal 1999 was declared on September 10,
1998, and was paid on October 26, 1998, to stockholders of record
on September 30,1998. The paid dividend amounted to $0.9 million.
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 29, 1999, $296.0 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 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 29, 1999 and for the two months ended July 31, 1999:
- -----------------------------------------------------------------
Period Low Price High Price
- -----------------------------------------------------------------
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
Page 55 of 69
- -----------------------------------------------------------------
May 31, 1998 to
August 29, 1998 18 3/8 27 3/8
- -----------------------------------------------------------------
August 30, 1998 to
November 28, 1998 13 15/16 22 11/16
- -----------------------------------------------------------------
November 29, 1998 to
February 27, 1999 12 13/16 16 5/8
- -----------------------------------------------------------------
February 28, 1999 to
May 29, 1999 11 1/16 17 5/16
- -----------------------------------------------------------------
May 30, 1999 to
July 31, 1999 16 1/4 19 1/2
- -----------------------------------------------------------------
As of July 31, 1999, there were 346 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.
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 OF
BEGINNING CHARGED TO OTHER ACCOUNTS AT END OF
DESCRIPTION OF PERIOD EXPENSE ACCOUNTS WRITTEN OFF PERIOD
- -------------------------------------------------------------------------------------------------
Period Ended 5/29/99
- ---------------------
ALLOWANCE FOR DOUBTFUL
ACCOUNTS -
ACCOUNTS RECEIVABLE $1,103 $7,978 $0 ($8,358) $723
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
Page 56 of 69
[THIS PAGE INTENTIONALLY LEFT BLANK]
Page 57 of 69
File No. 1-8739
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
EXHIBITS FILED WITH
FORM 10-K
FOR FISCAL YEAR ENDED
May 29, 1999
under
The Securities Exchange Act of 1934
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION
(Exact Name of Registrant as specified in its Charter)
Page 58 of 69
INDEX TO EXHIBITS
Exhibits Page No.
- -------- ---------
3. Exhibits
3.1 Articles of Incorporation, as amended 1/
---
3.2 By-laws 1/
---
10.1 Cohoes Fashions, Inc. Employees' 401(k) 2/
Savings Plan (as amended and restated effective ---
January 1, 1999)
10.2 1993 Stock Incentive Plan* 1/
---
10.3 1998 Stock Incentive Plan* 1/
---
10.4 Revolving Credit Agreement dated August 30, 3/
1985 between the Company and BancOhio ---
National Bank, as amended through
Amendment No. 6
10.5 Amendment No. 7 to Revolving Credit Agreement 1/
dated June 1, 1998 between the Company and ---
National City Bank
10.6 Burlington Coat Factory Warehouse Corporation 4/
401(k) Profit-Sharing Plan (as amended and ---
restated effective January 1, 1999)
____________________
(1) Incorporated by reference to Exhibits filed with the
Company's Annual Report on Form 10-K for the year ended May
30, 1998. File No. 1-8739.
(2) Incorporated by reference to Exhibits filed with the
Company's Registration Statement on Form S-8 with the
Commission on May 20, 1999. File No. 333-78941.
(3) 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.
(4) Incorporated by reference to Exhibits filed with the
Company's Quarterly Report on Form 10-Q for the period ended
February 27, 1999. File No. 1-8739.
* Executive Compensation Plan
Page 59 of 69
Exhibits Page No.
- -------- --------
10.7 Loan Agreement dated as of August 1, 1995 by 5/
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, 5/
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 5/
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 5/
by and between New Jersey Economic Development ---
Authority and Shawmut Bank Connecticut,
National Association
10.11 Guaranty and Suretyship dated as of August 1, 5/
1995 from the Company to First Fidelity Bank, ---
National Association
10.12 Letter of Credit Reimbursement Agreement dated 5/
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 5/
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 5/
---
10.15 Amendment to Note Agreement dated as of 61
January 1, 1999
21 Subsidiaries of Registrant 65
23 Consent of Deloitte & Touche LLP, independent 67
certified public accountants, to the use of
their report on the financial statements of
the Company for the year ended May 29, 1999
in the Registration Statements of the Company
on Form S-8, Registration No. 2-96332,
No. 33-21569, No. 33-51965, No. 333-41077,
No. 333-65995 and No. 333-78941
27 Financial Data Schedule 69
- -------------------
(5) 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 60 of 69